UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-32657
NABORS INDUSTRIES LTD.
(Exact name of registrant as specified in its charter)
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Bermuda |
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98-0363970 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
Crown House
Second Floor
4 Par-la-Ville Road
Hamilton, HM08
Bermuda
(Address of principal executive office)
(441) 292-1510
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common shares, $.05 par value per share |
NBR |
NYSE |
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Preferred shares, 6.00% Mandatory Convertible Preferred Shares, Series A, $.001 par value per share |
NBR.PRA |
NYSE |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer ☐ |
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Accelerated Filer ☒ |
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Non-accelerated Filer ☐ |
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Smaller reporting company ☐ |
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of common shares, par value $.05 per share, outstanding as of April 28, 2021 was 7,412,535, excluding 1,090,003 common shares held by our subsidiaries, or 8,502,538 in the aggregate.
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
Index
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PART I FINANCIAL INFORMATION |
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Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 |
3 |
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4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 |
6 |
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7 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
29 |
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34 |
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34 |
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34 |
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35 |
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35 |
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35 |
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35 |
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35 |
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35 |
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37 |
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2
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (1) | The condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020 include assets and liabilities of variable interest entities. See Note 3—Joint Ventures for additional information. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
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Three Months Ended |
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March 31, |
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2021 |
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2020 |
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(In thousands, except per share amounts) |
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Revenues and other income: |
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Operating revenues |
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$ |
460,511 |
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$ |
718,364 |
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Investment income (loss) |
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1,263 |
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(3,198) |
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Total revenues and other income |
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461,774 |
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715,166 |
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Costs and other deductions: |
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Direct costs |
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290,654 |
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461,840 |
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General and administrative expenses |
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54,660 |
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57,384 |
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Research and engineering |
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7,467 |
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11,409 |
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Depreciation and amortization |
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177,276 |
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227,063 |
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Interest expense |
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42,975 |
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54,722 |
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Impairments and other charges |
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2,483 |
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276,434 |
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Other, net |
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4,863 |
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(17,110) |
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Total costs and other deductions |
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580,378 |
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1,071,742 |
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Income (loss) from continuing operations before income taxes |
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(118,604) |
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(356,576) |
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Income tax expense (benefit): |
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Current |
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10,903 |
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(7,203) |
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Deferred |
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(1,178) |
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24,896 |
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Total income tax expense (benefit) |
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9,725 |
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17,693 |
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Income (loss) from continuing operations, net of tax |
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(128,329) |
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(374,269) |
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Income (loss) from discontinued operations, net of tax |
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19 |
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(93) |
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Net income (loss) |
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(128,310) |
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(374,362) |
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Less: Net (income) loss attributable to noncontrolling interest |
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(8,776) |
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(17,465) |
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Net income (loss) attributable to Nabors |
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(137,086) |
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(391,827) |
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Less: Preferred stock dividend |
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(3,653) |
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(3,652) |
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Net income (loss) attributable to Nabors common shareholders |
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$ |
(140,739) |
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$ |
(395,479) |
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Amounts attributable to Nabors common shareholders: |
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Net income (loss) from continuing operations |
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$ |
(140,758) |
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$ |
(395,386) |
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Net income (loss) from discontinued operations |
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19 |
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(93) |
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Net income (loss) attributable to Nabors common shareholders |
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$ |
(140,739) |
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$ |
(395,479) |
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Earnings (losses) per share: |
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Basic from continuing operations |
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$ |
(20.16) |
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$ |
(56.72) |
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Basic from discontinued operations |
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— |
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(0.01) |
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Total Basic |
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$ |
(20.16) |
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$ |
(56.73) |
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Diluted from continuing operations |
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$ |
(20.16) |
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$ |
(56.72) |
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Diluted from discontinued operations |
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— |
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(0.01) |
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Total Diluted |
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$ |
(20.16) |
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$ |
(56.73) |
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Weighted-average number of common shares outstanding: |
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Basic |
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7,102 |
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7,051 |
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Diluted |
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7,102 |
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7,051 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended |
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March 31, |
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2021 |
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2020 |
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(In thousands) |
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Net income (loss) attributable to Nabors |
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$ |
(137,086) |
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$ |
(391,827) |
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Other comprehensive income (loss), before tax: |
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Translation adjustment attributable to Nabors |
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2,228 |
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(17,365) |
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Pension liability amortization and adjustment |
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(1,848) |
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51 |
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Unrealized gains (losses) and amortization on cash flow hedges |
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— |
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143 |
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Other comprehensive income (loss), before tax |
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380 |
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(17,171) |
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Income tax expense (benefit) related to items of other comprehensive income (loss) |
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12 |
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47 |
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Other comprehensive income (loss), net of tax |
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368 |
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(17,218) |
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Comprehensive income (loss) attributable to Nabors |
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(136,718) |
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(409,045) |
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Net income (loss) attributable to noncontrolling interest |
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8,776 |
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17,465 |
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Comprehensive income (loss) attributable to noncontrolling interest |
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8,776 |
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17,465 |
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Comprehensive income (loss) |
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$ |
(127,942) |
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$ |
(391,580) |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
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Mandatory Convertible |
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Capital |
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Accumulated |
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Preferred Shares |
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Common Shares |
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in Excess |
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Other |
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Non- |
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Par |
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Par |
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of Par |
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Comprehensive |
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Retained |
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Treasury |
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controlling |
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Total |
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(In thousands, except per share amounts) |
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Shares |
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Value |
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Shares |
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Value |
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Value |
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Income |
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Earnings |
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Shares |
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Interest |
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Equity |
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As of December 31, 2019 |
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5,613 |
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$ |
6 |
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416,198 |
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$ |
416 |
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$ |
3,412,972 |
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$ |
(11,788) |
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$ |
(104,775) |
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$ |
(1,314,020) |
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$ |
67,354 |
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$ |
2,050,165 |
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Net income (loss) |
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— |
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— |
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— |
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— |
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— |
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— |
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(391,827) |
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— |
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17,465 |
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(374,362) |
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Dividends to common shareholders ($0.50 per share) |
|
— |
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— |
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— |
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— |
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— |
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— |
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(3,514) |
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— |
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— |
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(3,514) |
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Dividends to preferred shareholders ($0.75 per share) |
|
— |
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— |
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— |
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— |
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— |
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— |
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(3,652) |
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— |
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— |
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(3,652) |
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Other comprehensive income (loss), net of tax |
|
— |
|
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— |
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— |
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— |
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— |
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(17,218) |
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— |
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— |
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— |
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(17,218) |
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Repurchase of common and preferred shares |
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(724) |
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(1) |
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— |
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— |
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(12,126) |
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— |
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— |
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(1,731) |
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— |
|
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(13,858) |
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Share-based compensation |
|
— |
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— |
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— |
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— |
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|
9,158 |
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— |
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— |
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— |
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— |
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9,158 |
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Accrued distribution on redeemable noncontrolling interest in subsidiary |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
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(4,432) |
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|
— |
|
|
— |
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(4,432) |
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Other |
|
— |
|
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— |
|
3,268 |
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3 |
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(1,550) |
|
|
— |
|
|
— |
|
|
— |
|
|
358 |
|
|
(1,189) |
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As of March 31, 2020 |
|
4,889 |
|
$ |
5 |
|
419,466 |
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$ |
419 |
|
$ |
3,408,454 |
|
$ |
(29,006) |
|
$ |
(508,200) |
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$ |
(1,315,751) |
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$ |
85,177 |
|
$ |
1,641,098 |
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
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|
|
|
|
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|
|
As of December 31, 2020 |
|
4,870 |
|
$ |
5 |
|
8,383 |
|
$ |
419 |
|
$ |
3,423,935 |
|
$ |
(11,124) |
|
$ |
(946,100) |
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$ |
(1,315,751) |
|
$ |
105,424 |
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$ |
1,256,808 |
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Net income (loss) |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(137,086) |
|
|
— |
|
|
8,776 |
|
|
(128,310) |
|
PSU distribution equivalent rights |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(10) |
|
|
— |
|
|
— |
|
|
(10) |
|
Dividends to preferred shareholders ($0.75 per share) |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,653) |
|
|
— |
|
|
— |
|
|
(3,653) |
|
Other comprehensive income (loss), net of tax |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
368 |
|
|
— |
|
|
— |
|
|
— |
|
|
368 |
|
Share-based compensation |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
6,775 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,775 |
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Accrued distribution on redeemable noncontrolling interest in subsidiary |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,402) |
|
|
— |
|
|
— |
|
|
(2,402) |
|
Other |
|
— |
|
|
— |
|
120 |
|
|
(2) |
|
|
(1,621) |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
(1,622) |
|
As of March 31, 2021 |
|
4,870 |
|
$ |
5 |
|
8,503 |
|
$ |
417 |
|
$ |
3,429,089 |
|
$ |
(10,756) |
|
$ |
(1,089,251) |
|
$ |
(1,315,751) |
|
$ |
114,201 |
|
$ |
1,127,954 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
Nabors Industries Ltd. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 General
Unless the context requires otherwise, references in this report to “we,” “us,” “our,” “the Company,” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires. References in this report to “Nabors Delaware” mean Nabors Industries, Inc., a wholly owned subsidiary of Nabors.
Our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies. These services and technologies include tubular running services, wellbore placement solutions, directional drilling, measurement-while-drilling (“MWD”), logging-while-drilling (“LWD”) systems and services, equipment manufacturing, rig instrumentation and drilling optimization software.
With operations in approximately 20 countries, we are a global provider of drilling and drilling-related services for land-based and offshore oil and natural gas wells, with a fleet of rigs and drilling-related equipment which, as of March 31, 2021 included:
| ● | 354 actively marketed rigs for land-based drilling operations in the United States, Canada and approximately 14 other countries throughout the world; and |
| ● | 29 actively marketed rigs for offshore drilling operations in the United States and multiple international markets. |
The outbreak of the novel coronavirus (“COVID-19”), together with actions by large oil and natural gas producing countries, led to decreases in commodity prices, specifically oil and natural gas prices, resulting from oversupply and demand weakness. These price decreases caused significant disruptions and volatility in the global marketplace beginning in 2020. Lower prices and the resulting weakness in demand for our services negatively affected our results of operations and cash flows, and uncertainty remains regarding the length and impact of COVID-19 on the energy industry and the outlook for our business.
Note 2 Summary of Significant Accounting Policies
Interim Financial Information
The accompanying unaudited condensed consolidated financial statements of Nabors have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). Pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been omitted. Therefore, these financial statements should be read together with our annual report on Form 10-K for the year ended December 31, 2020 (“2020 Annual Report”). In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to state fairly our financial position as of March 31, 2021 and the results of operations, comprehensive income (loss), cash flows and changes in equity for the periods presented herein. Interim results for the three months ended March 31, 2021 may not be indicative of results that will be realized for the full year ending December 31, 2021.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries consolidated in accordance with U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.
In addition to the consolidation of our majority owned subsidiaries, we also consolidate variable interest entities (“VIE”) when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could
8
potentially be significant to the VIE. Our joint venture, SANAD, which is equally owned by Saudi Aramco and Nabors, has been consolidated. As we have the power to direct activities that most significantly impact SANAD’s economic performance, including operations, maintenance and certain sourcing and procurement, we have determined Nabors to be the primary beneficiary. See Note 3—Joint Ventures.
Inventory
Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out or weighted-average cost methods and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit losses (CECL) methodology. The guidance is effective for interim and annual periods beginning after December 15, 2019. The guidance has been applied using the modified retrospective method with a cumulative effect adjustment to beginning retained earnings. Trade receivables (including the allowance for credit losses) are the only financial instrument in scope for ASU 2016-13 currently held by the Company. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions for intraperiod allocations and interim tax calculations and adds guidance to simplify accounting for income taxes. The guidance is effective for interim and annual periods beginning after December 15, 2020. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
Note 3 Joint Ventures
During 2016, we entered into an agreement with Saudi Aramco to form a joint venture known as SANAD to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. SANAD is equally owned by Saudi Aramco and Nabors.
During 2017, Nabors and Saudi Aramco each contributed $20 million in cash for the purpose of capitalizing the joint venture upon formation. In addition, since inception Nabors and Saudi Aramco have each contributed a combination of drilling rigs, drilling rig equipment and other assets, including cash, each with a value of approximately $394 million to the joint venture. The contributions were received in exchange for redeemable ownership interests which accrue interest annually, have a twenty-five year maturity and are required to be converted to authorized capital should certain events occur, including the accumulation of specified losses. In the accompanying condensed consolidated balance sheet, Nabors has reported Saudi Aramco’s share of authorized capital as a component of noncontrolling interest in equity and Saudi Aramco’s share of the redeemable ownership interests as redeemable noncontrolling interest in subsidiary, classified as mezzanine equity. The accrued interest on the redeemable ownership interest is a non-cash financing activity and is reported as an increase in the redeemable noncontrolling interest in subsidiary line in our condensed consolidated balance sheet. In January 2021, SANAD settled approximately $100 million of the accrued interest from inception to December 31, 2020, by making a cash payment to each partner for their respective amounts. The assets and liabilities included in the condensed balance sheet below are (1) assets that can either be used to settle obligations of the VIE or be made available in the future to the equity owners through dividends, distributions or in exchange of the redeemable ownership interests (upon mutual agreement of the owners) or (2) liabilities for which creditors do not have recourse to other assets of Nabors.
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The condensed balance sheet of SANAD, as included in our condensed consolidated balance sheet, is presented below.
Note 4 Fair Value Measurements
Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we employ valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances utilizing a fair value hierarchy based on the observability of those inputs.
Under the fair value hierarchy:
| ● | Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market; |
| ● | Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and |
| ● | Level 3 measurements include those that are unobservable and of a subjective nature. |
Our financial assets and liabilities that are accounted for at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 consisted of available-for-sale equity and debt securities. Our debt securities could transfer into or out of a Level 1 or 2 measure depending on the availability of independent and current pricing at the end of each quarter. There were no transfers of our financial assets between Level 1 and Level 2 measures during the three months ended March 31, 2021. Our financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of March 31, 2021 and December 31, 2020, our short-term investments were carried at fair market value and totaled $17 thousand and $9.5 million, respectively, and primarily consisted of Level 1 measurements. No material Level 2 or Level 3 measurements exist as of any of the periods presented.
Nonrecurring Fair Value Measurements
We applied fair value measurements to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consist of measurements primarily related to assets held for sale, goodwill, intangible assets and other long-lived assets and assets acquired and liabilities assumed in a business combination. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.
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Fair Value of Financial Instruments
We estimate the fair value of our financial instruments in accordance with U.S. GAAP. The fair value of our long-term debt and revolving credit facilities is estimated based on quoted market prices or prices quoted from third-party financial institutions. The fair value of our debt instruments is determined using Level 2 measurements. The carrying and fair values of these liabilities were as follows:
The fair values of our cash equivalents, trade receivables and trade payables approximate their carrying values due to the short-term nature of these instruments.
Note 5 Accounts Receivable Sales Agreement
On September 13, 2019, we entered into a $250 million accounts receivable sales agreement (the “A/R Agreement”) whereby certain U.S. operating subsidiaries of the Company (collectively, the “Originators”), sold or contributed, and will on an ongoing basis continue to sell or contribute, certain of their domestic trade accounts receivables to a wholly-owned, bankruptcy-remote, special purpose entity (the “SPE” or “Seller”). The SPE in turn sells, transfers, conveys and assigns to third-party financial institutions (the “Purchasers”) all the rights, title and interest in and to its pool of eligible receivables. The sale of these receivables qualified for sale accounting treatment in accordance with ASC 860. During the period of this program, cash receipts from the Purchasers at the time of the sale were classified as operating activities in our consolidated statement of cash flows. Subsequent collections on the pledged receivables, which were not sold, will be classified as operating cash flows in our consolidated statement of cash flows at the time of collection. This agreement is currently scheduled to expire on August 13, 2021.
Nabors Delaware and/or another subsidiary of Nabors act as servicers of the sold receivables. The servicers administer, collect and otherwise enforce these receivables and are compensated for doing so on terms that are generally consistent with what would be charged by an unrelated servicer. The servicers initially receive payments made by obligors on the receivables, then remit those payments in accordance with the Receivables Purchase Agreement. The servicers and the Originators have contingent indemnification obligations to the SPE, and the SPE has contingent indemnification obligations to the Purchasers, in each case customary for transactions of this type. These contingent indemnification obligations are guaranteed by the Company pursuant to an Indemnification Guarantee in favor of the Purchasers. The Purchasers have no recourse for receivables that are uncollectible as a result of the insolvency or inability to pay of the account debtors.
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The maximum purchase commitment of the Purchasers under the A/R Agreement is $250.0 million. The amount available for sale to the Purchasers under the A/R Agreement fluctuates over time based on the total amount of eligible receivables generated during the normal course of business after excluding excess concentrations and certain other ineligible receivables. As of March 31, 2021, approximately $74.0 million had been sold to and as yet uncollected by the Purchasers. As of December 31, 2020, the corresponding number was approximately $54.0 million. Trade accounts receivable sold by the SPE to the Purchasers are derecognized from our condensed consolidated balance sheet. The fair value of the sold receivables approximated book value due to the short-term nature of the receivables and, as a result, no gain or loss on the sale of the receivables was recorded. Trade receivables pledged by the SPE as collateral to the Purchasers (excluding receivables sold to the Purchasers) totaled $78.1 million and $63.1 million as of March 31, 2021 and December 31, 2020, respectively, and are included in accounts receivable, net in our condensed consolidated balance sheet. The assets of the SPE cannot be used by the Company for general corporate purposes. Additionally, creditors of the SPE do not have recourse to assets of the Company (other than assets of the SPE).
Note 6 Debt
Debt consisted of the following:
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March 31, |
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December 31, |
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2021 |
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2020 |
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||
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|
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(In thousands) |
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||||
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4.625% senior notes due September 2021 (1) |
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$ |
86,389 |
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$ |
86,329 |
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5.50% senior notes due January 2023 |
|
|
25,425 |
|
|
28,443 |
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|
5.10% senior notes due September 2023 |
|
|
120,109 |
|
|
121,077 |
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|
0.75% senior exchangeable notes due January 2024 |
|
|
250,776 |
|
|
279,700 |
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5.75% senior notes due February 2025 |
|
|
586,308 |
|
|
610,818 |
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6.50% senior priority guaranteed notes due February 2025 |
|
|
50,485 |
|
|
50,485 |
|
|
9.00% senior priority guaranteed notes due February 2025 |
|
|
218,082 |
|
|
192,032 |
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7.25% senior guaranteed notes due January 2026 |
|
|
559,978 |
|
|
559,978 |
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7.50% senior guaranteed notes due January 2028 |
|
|
389,609 |
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|
389,609 |
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2018 revolving credit facility |
|
|
632,500 |
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672,500 |
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|
|
|
|
2,919,661 |
|
|
2,990,971 |
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Less: deferred financing costs |
|
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20,782 |
|
|
22,270 |
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Long-term debt |
|
$ |
2,898,879 |
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$ |
2,968,701 |
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| (1) | The 4.625% senior notes due September 2021 are classified as long-term because we have the ability and intent to repay this obligation utilizing our 2018 Revolving Credit Facility. |
During the three months ended March 31, 2021, we repurchased $25.5 million aggregate principal amount outstanding of our senior unsecured notes for approximately $17.4 million in cash, including principal and $0.6 million in accrued and unpaid interest. In connection with these repurchases, we recognized a net gain of approximately $8.3 million for the three months ended March 31, 2021 which is included in Other, net in our condensed consolidated statement of income (loss).
Exchange Transactions
During the first quarter of 2021, we entered into two private exchange transactions in which Nabors Delaware exchanged 9.0% Senior Priority Guaranteed Notes due 2025 (the “9.0% Exchange Notes”) for various amounts of existing outstanding notes. Nabors Delaware did not receive any cash proceeds from the issuance of the Exchange Notes.
Collectively from the series of exchanges, Nabors Industries, Inc. issued $26.1 million aggregate principal amount of the 9.0% Exchange Notes in exchange for $40.0 million aggregate principal amount of various Nabors Delaware’s outstanding Notes.
We recorded a minimal gain in connection with the exchange transactions, which was accounted for in accordance with ASC 470-60, Troubled Debt Restructuring by Debtors. Under ASC 470-60, a gain is recorded in an amount equal to the sum of the future undiscounted payments (principal and interest) related to the new Exchange Notes plus the costs incurred in connection with the transaction, less the carrying value of the notes that were exchanged. In
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relation to the transactions, we recorded $9.4 million related to future contractual interest payments on the new Exchange Notes, and have included this amount in accrued liabilities and other long-term liabilities.
The aggregate principal amounts and recognized gain for such transactions were as follows (in thousands):
0.75% Senior Exchangeable Notes Due January 2024
In January 2017, Nabors Delaware issued $575.0 million in aggregate principal amount of 0.75% exchangeable senior unsecured notes due 2024, which are fully and unconditionally guaranteed by Nabors. The notes bear interest at a rate of 0.75% per year payable semiannually on January 15 and July 15 of each year, beginning on July 15, 2017. As of March 31, 2021, there was approximately 287.3 million in aggregate principal amount that remained outstanding.
The exchangeable notes are exchangeable, under certain conditions, at an initial exchange rate of .795 common shares of Nabors per $1,000 principal amount of exchangeable notes (equivalent to an initial exchange price of approximately $1,257.81 per common share). The exchangeable notes were originally bifurcated for accounting purposes into debt and equity components of $411.2 million and $163.8 million, respectively, based on the terms of the notes and the relative fair value at the issuance date. Upon any exchange, as a result of an amendment to the notes, Nabors Delaware will settle its exchange obligation in cash.
2018 Revolving Credit Facility
In October 2018, Nabors Delaware and Nabors Drilling Canada Limited (“Nabors Canada” and together with Nabors Delaware, the “Borrowers”) entered into a credit agreement dated October 11, 2018 by and among the Borrowers, the Guarantors identified therein, HSBC Bank Canada, as the Canadian lender (the “Canadian Lender”) the issuing banks and other lenders party thereto (the “US Lenders” and, together with the Canadian Lender, the “Lenders”) and Citibank, N.A., as administrative agent solely for the U.S. Lenders (as may be amended, restated, supplemented or otherwise modified from time to time, the “2018 Revolving Credit Facility”). The 2018 Revolving Credit Facility originally had a borrowing capacity of $1.267 billion and is fully and unconditionally guaranteed by Nabors and certain of its wholly owned subsidiaries. The 2018 Revolving Credit Facility matures at the earlier of (a) October 11, 2023 and (b) July 19, 2022, if any of Nabors Delaware’s existing 5.50% senior notes due January 2023 remain outstanding as of such date. The 2018 Revolving Credit Facility contains certain affirmative and negative covenants. Amendment No. 1 to the 2018 Revolving Credit Facility provided for additional currencies in which letters of credit could be issued. On December 13, 2019, Amendment No. 2 was entered into which reduced the borrowing capacity to $1.0136 billion ($981.6 million for Nabors Delaware and $32.0 million for Nabors Canada), and replaced the net funded debt to capitalization covenant with a covenant to maintain net funded indebtedness at no greater than 5.5 times EBITDA. Amendment No. 3 to the 2018 Revolving Credit Facility was entered into on March 3, 2020, in order to permit letters of credit from the Canadian Lender on the portion of the facility dedicated to Canadian borrowings.
In September 2020, Amendment No. 4 was entered into in order to revise certain of the covenant and collateral requirements under the 2018 Revolving Credit Facility. Amendment No. 4 provides the Lenders with a first lien security interest in certain drilling rigs located in the U.S. and Canada and replaced the prior covenant to maintain net funded debt at no greater than 5.5 times EBITDA with a new covenant to maintain minimum liquidity of no less than $160.0 million at any time. Minimum liquidity is defined to mean, generally, a consolidated cash balance consisting of (a) the aggregate amount of unrestricted cash and cash equivalents maintained in a deposit account U.S. or Canadian branch of a commercial bank, plus (b) the lesser of $75 million or an amount equal to 75% of the aggregate amount of unrestricted cash and cash equivalents held in deposit account of a commercial bank outside of the U.S. or Canada, plus (c) available commitments under the 2018 Revolving Credit Facility. Additionally, the “asset to debt coverage” ratio was revised
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such that during any period in which Nabors Delaware fails to maintain an investment grade rating from at least two ratings agencies, the guarantors under the facility and their respective subsidiaries will be required to maintain an asset to debt coverage of at least 4.25:1, which was the case as of the date of this report. As of March 31, 2021, we had $632.5 million outstanding under our 2018 Revolving Credit Facility and the net book value of the collateralized assets under the 2018 Revolving Credit Facility was $1.26 billion. The weighted average interest rate on borrowings under the 2018 Revolving Credit Facility at March 31, 2021 was 3.63%. In order to make any future borrowings under the 2018 Revolving Credit Facility, Nabors and certain of its wholly owned subsidiaries are subject to compliance with the conditions and covenants contained therein, including compliance with applicable financial ratios.
As of the date of this report, we were in compliance with all covenants under the 2018 Revolving Credit Facility. We expect to remain in compliance with all covenants under the 2018 Revolving Credit Facility during the twelve month period following the date of this report based on our current operational and financial projections. However, we can make no assurance of continued compliance if our current projections or material underlying assumptions prove to be incorrect. If we fail to comply with the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable.
Note 7 Shareholders’ Equity
Common shares
At a special meeting of shareholders held April 20, 2020, our shareholders authorized a combination of our common shares (the “Reverse Stock Split”) at a ratio of not less than 1-for-15 and not greater than 1-for-50, with the exact ratio to be set within that range at the sole direction of our Board of Directors (the “Board”). On April 20, 2020, the Board set the Reverse Stock Split ratio at 1-for-50. As a result of the Reverse Stock Split, 50 pre-reverse split common shares automatically combined into one new common share, without any action on the part of the shareholders. Nabors’ authorized number of common shares were also proportionally decreased from 800,000,000 to 16,000,000 common shares. Subsequently, the par value of each common share was proportionally increased from $0.001 to $0.05. In addition, at the special meeting, the shareholders authorized an increase in our common share capital by 100% following the Reverse Stock Split, to $1,600,000, resulting in an increase in the number of authorized common shares to 32,000,000. No fractional common shares were issued as a result of the Reverse Stock Split. Any fractional common shares of registered holders resulting from the Reverse Stock Split were rounded up to the nearest whole share. All share and per share information included in the accompanying financial statements has been retrospectively adjusted to reflect this Reverse Stock Split.
Convertible Preferred Shares
During 2018, we issued 5.75 million of our 6% Series A Mandatory Convertible Preferred Shares (the “mandatory convertible preferred shares”), par value $0.001 per share, with a liquidation preference of $50 per share. As of March 31, 2021 and December 31, 2020 we had 4.9 million mandatory convertible preferred shares outstanding.
The dividends on the mandatory convertible preferred shares are payable on a cumulative basis at a rate of 6% annually on the initial liquidation preference of $50 per share. Dividends accumulate and are paid quarterly to the extent that we have available funds and our Board declares a dividend payable. We may elect to pay any accumulated and unpaid dividends in cash or common shares or any combination thereof. At issuance, each mandatory convertible preferred share was automatically convertible into between 0.1075 and 0.1290 of our common shares based on the average share price over a period of twenty consecutive trading days ending prior to May 1, 2021, subject to anti-dilution adjustments. As a result of the dividends paid on our common shares since the offering, the most recent publicly announced conversion rate for each mandatory convertible preferred share is between 0.1144 and 0.1372 of our common shares. Adjustments to the conversion ratio are required to be made and published when such adjustment would result in an increase or decrease of one percent or more of the conversion rate. At any time prior to May 1, 2021, a holder of mandatory convertible preferred shares may convert such mandatory convertible preferred shares into our common shares at the minimum conversion rate, subject to adjustment. Otherwise, the mandatory convertible preferred shares will automatically convert into common shares on May 3, 2021 at which time approximately 668 thousand common shares will be issued.
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Shareholder Rights Plan
On May 5, 2020, our Board adopted a shareholder rights plan and declared a dividend of one right (a “Right”) for each outstanding common share to shareholders of record on May 15, 2020. Each Right entitles the holder to purchase from Nabors one one-thousandth of a Series B Junior Participating Preferred Share, par value $0.001 per share (the “Series B Preferred Shares’), of Nabors at a price of $58.08 per one one-thousandth of a Series B Preferred Share, subject to adjustment. The description of the Rights are set forth in a Rights Agreement, dated May 5, 2020 (the “Rights Agreement”), by and between Nabors and Computershare Trust Company, N.A., as Rights Agent. The Rights will expire on April 30, 2021, unless the expiration date is extended.
Initially, the Rights will not be exercisable and will trade with our common shares. Under the Rights Agreement, the Rights will become exercisable only if a person or group or persons acting together (each, an “acquiring person”) acquires beneficial ownership of 4.9% or more of our outstanding common shares. The Rights Agreement was amended on May 27, 2020, to permit the shareholder identified therein, together with affiliates and associates, to beneficially own up to 10% of our outstanding common shares.
If the Rights are triggered, each holder of a Right (other than the acquiring person, whose Rights will become void) will be entitled to purchase additional shares of our common stock at a 50% discount. In addition, if we are acquired in a merger or other business combination after an Acquiring Person acquires more than 4.9% of our outstanding common shares (10% for the shareholder identified in the amendment), each holder of a Right would then be entitled to purchase shares of the acquiring company’s stock at a 50% discount. Our Board, at its option, may exchange each Right (other than Rights owned by the acquiring person that have become void) in whole or in part, at an exchange ratio of one common share per outstanding Right, subject to adjustment. Except as provided in the Rights Agreement, our Board is entitled to redeem the Rights at $0.01 per Right.
A person or group of persons that beneficially owns our common shares at or above the trigger threshold as of the time of the public announcement of the Rights Agreement generally will not trigger the Rights until such person or group of persons increases its ownership by 0.5% or more.
Note 8 Commitments and Contingencies
Contingencies
Income Tax
We operate in a number of countries and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could change substantially.
In certain jurisdictions we have recognized deferred tax assets and liabilities. Judgment and assumptions are required in determining whether deferred tax assets will be fully or partially utilized. When we estimate that all or some portion of certain deferred tax assets such as net operating loss carryforwards will not be utilized, we establish a valuation allowance for the amount we determine to be more likely than not unrealizable. We continually evaluate strategies that could allow for future utilization of our deferred assets. Any change in the ability to utilize such deferred assets will be accounted for in the period of the event affecting the valuation allowance. If facts and circumstances cause us to change our expectations regarding future tax consequences, the resulting adjustments could have a material effect on our financial results or cash flow. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the deferred tax assets that we have recognized. However, it is possible that some of our recognized deferred tax assets, relating to net operating loss carryforwards, could expire unused or could carryforward indefinitely without utilization. Therefore, unless we are able to generate sufficient taxable income from our component operations, a substantial valuation allowance to reduce our deferred tax assets may be required, which would materially increase our tax expense in the period the allowance is recognized and materially adversely affect our results of operations and statement of financial condition.
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Litigation
Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period.
In March 2011, the Court of Ouargla entered a judgment of approximately $21.0 million (at March 31, 2021 exchange rates) against us relating to alleged violations of Algeria’s foreign currency exchange controls, which require that goods and services provided locally be invoiced and paid in local currency. The case relates to certain foreign currency payments made to us by CEPSA, a Spanish operator, for wells drilled in 2006. Approximately $7.5 million of the total contract amount was paid offshore in foreign currency, and approximately $3.2 million was paid in local currency. The judgment includes fines and penalties of approximately four times the amount at issue. We have appealed the ruling based on our understanding that the law in question applies only to resident entities incorporated under Algerian law. An intermediate court of appeals upheld the lower court’s ruling, and we appealed the matter to the Supreme Court. On September 25, 2014, the Supreme Court overturned the verdict against us, and the case was reheard by the Ouargla Court of Appeals on March 22, 2015 in light of the Supreme Court’s opinion. On March 29, 2015, the Ouargla Court of Appeals reinstated the initial judgment against us. We have appealed this decision again to the Supreme Court. While our payments were consistent with our historical operations in the country, and, we believe, those of other multinational corporations there, as well as interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $13.0 million in excess of amounts accrued.
Following a routine audit conducted in May and June of 2018 by the Atyrau Oblast Ecology Department (the “AOED”), our joint venture in Kazakhstan, KMG Nabors Drilling Company (“KNDC”), was administratively fined for not having emissions permits for KNDC owned or leased equipment. Prior to this audit, the AOED had always accepted the operator’s permits for all of their subcontractors. However, because of major personnel changes, AOED changed this position and is now requiring that the owner/lessor of the equipment that emits the pollutants must have its own permits. Administrative fines have been issued to KNDC and paid in the amount of $0.8 million for violations regarding the failure to have proper permits. AOED had also assessed additional “environmental damages” in the amount of $3.4 million for the period while KNDC did not hold its’ own emissions permit. However, KNDC appealed this fine and the AOED Economic Court ruled in KNDC’s favor. AOED appealed this decision, which was reversed on February 21, 2020. KNDC appealed to the Supreme Court but was unsuccessful in obtaining a reversal of the lower appeals court ruling. Additional damages in the form of later year audits and taxes could become due as well exposing KNDC to possible penalties and fines in an amount estimated to be up to approximately $4.0 million, of which we have fully accrued as a liability. KNDC and the operator have executed an agreement formalizing the operator’s obligation to reimburse KNDC for many of the financial expenses related to this case as well as penalties and expenses related to future audit periods. KNDC now has its own permits, and the law has been amended to permit contractors to conduct work based on the permit of its customer. Meanwhile, KNDC has received notice from government officials that certain of our employees may be held personally responsible for any violations of the law by KNDC. We continue to be engaged and are monitoring the situation.
Off-Balance Sheet Arrangements (Including Guarantees)
We are a party to some transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements include the A/R Agreement (see Note 5—Accounts Receivable Sales Agreement) and certain agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these financial or performance assurances serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation
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insurance program and other financial surety instruments such as bonds. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by Nabors to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees.
Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote. The following table summarizes the total maximum amount of financial guarantees issued by Nabors:
Note 9 Earnings (Losses) Per Share
ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have nonforfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings (losses) per share. We have granted and expect to continue to grant to employees restricted stock grants that contain nonforfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings (losses) per share and calculate basic earnings (losses) per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The participating security holders are not contractually obligated to share in losses. Therefore, losses are not allocated to the participating security holders.
Basic earnings (losses) per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.
Diluted earnings (losses) per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and unvested restricted shares. Shares issuable upon exchange of the 0.75% exchangeable notes due 2024 are not included in the calculation of diluted earnings (losses) per share unless the exchange value of the notes exceeds their principal amount at the end of the relevant reporting period, in which case the notes will be accounted for as if the number of common shares that would be necessary to settle the excess are issued. Such shares are only included in the calculation of the weighted-average number of shares outstanding in our diluted earnings (losses) per share calculation, when the price of our shares exceeds $1,257.81 on the last trading day of the quarter, which did not occur during the three months ended March 31, 2021.
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A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations is as follows:
All share and per share amounts have been adjusted for the 1-for-50 reverse split that became effective at 11:59 p.m. Eastern time on April 22, 2020.
For all periods presented, the computation of diluted earnings (losses) per share excludes outstanding stock options with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options, such stock options will be included in our diluted earnings (losses) per share computation using the if-converted method of accounting. Restricted stock is included in our basic and diluted earnings (losses) per share computation using the two-class method of accounting in all periods because such stock is considered participating securities. For periods in which we experience a net loss from continuing operations, all potential common shares have been excluded from the calculation of weighted-average shares outstanding, because their inclusion would be anti-dilutive. The average number of shares from options that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share in the future were as follows:
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|
|
|
|
|
|
|
|
|
Three Months Ended |
|
||||
|
|
|
|
March 31, |
|
||||
|
|
|
|
2021 |
|
2020 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities excluded as anti-dilutive |
|
|
|
72 |
|
|
68 |
|
18
Additionally, we excluded 0.79 million common shares from the computation of diluted shares issuable upon the conversion of mandatory convertible preferred shares, because their effect would be anti-dilutive under the if-converted method.
Note 10 Impairments and Other Charges
The components of impairments and other charges are provided below:
|
|
|
|
|
|
|
|
|
Three Months Ended |
||||
|
|
March 31, |
||||
|
|
2021 |
|
2020 |
||
|
|
(in thousands) |
||||
|
Goodwill impairments |
$ |
— |
|
$ |
27,798 |
|
Intangible asset impairment |
|
— |
|
|
83,624 |
|
US Drilling |
|
— |
|
|
82,372 |
|
International Drilling |
|
— |
|
|
30,485 |
|
Drilling Solutions |
|
— |
|
|
19,809 |
|
Rig Technologies |
|
418 |
|
|
2,798 |
|
Oil and gas related assets |
|
— |
|
|
12,286 |
|
Severance and transaction related costs |
|
1,079 |
|
|
659 |
|
Other assets |
|
986 |
|
|
16,603 |
|
Total |
$ |
2,483 |
|
|
276,434 |
We review our assets for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the estimated undiscounted future cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to the extent the carrying amount of the long-lived asset exceeds its estimated fair value. Management considers a number of factors such as estimated future cash flows from the assets, appraisals and current market value analysis in determining fair value. The determination of future cash flows requires the estimation of utilization, dayrates, operating margins, sustaining capital and remaining economic life. Such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry. A significantly prolonged period of lower oil and natural gas prices could continue to adversely affect the demand for and prices of our services, which could result in future impairment charges.
For the three months ended March 31, 2021
Rig Technologies
As a result of our periodic analysis on inventories for our Rig Technologies segment, we recorded a $0.4 million provision for obsolescence.
Severance and transaction related costs
During the three months ended March 31, 2021, we recognized charges of $1.1 million due to severance and other related costs incurred to right-size our cost structure.
Other assets
We wrote down or provided for $1.0 million of certain other assets including receivables related to our operations. The charges were primarily attributable to markets which have been adversely impacted by foreign sanctions or other political risk issues as well as bankruptcies or other financial problems.
For the three months ended March 31, 2020
Goodwill impairments
We have historically performed our annual goodwill impairment test during the second quarter of each year. In addition to our annual impairment test, we are required to regularly assess whether a triggering event has occurred which
19
would require interim impairment testing. Due to industry conditions during the first quarter of 2020 and the corresponding impact on future expectations of demand for our products and services, including the effect on our stock price, we determined a triggering event had occurred and performed a quantitative impairment assessment of our goodwill. Based on the results of our goodwill test performed, we recognized impairment charges to write off the remaining goodwill balances attributable to our Drilling Solutions and Rig Technologies operating segments of $11.4 million and $16.4 million, respectively.
Intangible asset impairments
We also reviewed our intangible assets for impairment in the first quarter of 2020 as a result of the industry conditions. The fair value of our intangible assets are determined using discounted cash flow models. Based on our updated projections of future cash flows, the fair value of our intangible assets did not support the carrying value. As such, we recognized an impairment of $83.6 million to write off all remaining intangible assets attributable to our Drilling Solutions and Rig Technologies operating segments.
US Drilling
Due to the sharp decline in activity as a result of industry conditions in the US in the first part of the year, we recorded impairments of $33.3 million and functionally retired $49.1 million of our lower specification rigs in the Lower 48 and Alaska markets totaling approximately $82.4 million. We determined that the assets were either functionally obsolete, would be no longer used, or the carrying value was not fully recoverable and was in excess of its fair value.
International Drilling
We impaired $30.5 million during the three months ended March 31, 2020, which represented rig and drilling-related equipment in international markets which have been impacted by market conditions and other factors.
Drilling Solutions
We impaired or retired $28.6 million of fixed assets, equipment and inventory in our Drilling Solutions segment as a result of the significant decline in utilization experienced over the first quarter due to industry conditions. We determined that the assets were either functionally obsolete, would be no longer used, or the carrying value was not fully recoverable and was in excess of its fair value.
Rig Technologies
As a result of our periodic analysis on inventories for our Rig Technologies segment, we recorded a $2.8 million provision for obsolescence.
Oil & gas related assets
During the three months ended March 31, 2020, we recognized an impairment of $12.3 million to various assets related to our retained interest in the oil and gas properties located on the North Slope of Alaska.
Severance and transaction related costs
During the three months ended March 31, 2020, we recognized charges of $0.7 million due to severance and other related costs incurred to right-size our cost structure.
Other assets
We wrote down or provided for $16.6 million of certain other assets including receivables related to our operations. The charges were primarily attributable to markets which have been adversely impacted by foreign sanctions or other political risk issues as well as bankruptcies or other financial problems.
20
Note 11 Supplemental Balance Sheet and Income Statement Information
Accrued liabilities included the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
||
|
|
|
2021 |
|
2020 |
|
||
|
|
|
(In thousands) |
|
||||
|
Accrued compensation |
|
$ |
64,364 |
|
$ |
82,462 |
|
|
Deferred revenue and proceeds on insurance and asset sales |
|
|
71,566 |
|
|
61,473 |
|
|
Other taxes payable |
|
|
20,170 |
|
|
28,602 |
|
|
Workers’ compensation liabilities |
|
|
7,788 |
|
|
7,788 |
|
|
Interest payable |
|
|
31,270 |
|
|
62,935 |
|
|
Litigation reserves |
|
|
13,574 |
|
|
13,976 |
|
|
Dividends declared and payable |
|
|
3,653 |
|
|
3,653 |
|
|
Other accrued liabilities |
|
|
9,976 |
|
|
15,196 |
|
|
|
|
$ |
222,361 |
|
$ |
276,085 |
|
Investment income (loss) includes the following:
Other, net included the following:
The changes in accumulated other comprehensive income (loss), by component, included the following:
| (1) | All amounts are net of tax. |
21
| (1) | All amounts are net of tax. |
The line items that were reclassified to net income included the following:
Note 12 Segment Information
The following table sets forth financial information with respect to our reportable operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
||||
|
|
|
|
March 31, |
|
||||
|
|
|
|
2021 |
|
2020 |
|
||
|
|
(In thousands) |
|||||||
|
Operating revenues: |
|
|
|
|
|
|
|
|
|
U.S. Drilling |
|
|
$ |
142,299 |
|
$ |
274,901 |
|
|
Canada Drilling |
|
|
|
20,989 |
|
|
25,591 |
|
|
International Drilling |
|
|
|
246,838 |
|
|
337,110 |
|
|
Drilling Solutions |
|
|
|
35,706 |
|
|
55,384 |
|
|
Rig Technologies |
|
|
|
25,748 |
|
|
42,150 |
|
|
Other reconciling items (1) |
|
|
|
(11,069) |
|
|
(16,772) |
|
|
Total |
|
|
$ |
460,511 |
|
$ |
718,364 |
|
22
| (1) | Represents the elimination of inter-segment transactions related to our Rig Technologies operating segment. |
| (2) | Adjusted operating income (loss) represents income (loss) from continuing operations before income taxes, interest expense, earnings (losses) from unconsolidated affiliates, investment income (loss), impairments and other charges and other, net. Management evaluates the performance of our operating segments using adjusted operating income (loss), which is a segment performance measure, because it believes that this financial measure reflects our ongoing profitability and performance. In addition, securities analysts and investors use this measure as one of the metrics on which they analyze our performance. A reconciliation to income (loss) from continuing operations before income taxes is provided in the above table. |
| (3) | Represents the elimination of inter-segment transactions and unallocated corporate expenses and assets. |
Note 13 Revenue Recognition
We recognize revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. Contract drilling revenues are recorded over time utilizing the input method based on time elapsed. The measurement of progress considers the transfer of the service to the customer as we provide daily drilling services. We receive payment after the services have been performed by billing customers periodically (typically monthly). However, a portion of our revenues are recognized at a point-in-time as control is transferred at a distinct point in time such as with the sale of our top drives and other capital equipment. Within our drilling contracts, we have identified one performance obligation in which the transaction price is allocated.
23
Disaggregation of revenue
In the following table, revenue is disaggregated by geographical region. The table also includes a reconciliation of the disaggregated revenue with the reportable segments:
Contract balances
We perform our obligations under a contract with a customer by transferring goods or services in exchange for consideration from the customer. We recognize a contract asset or liability when we transfer goods or services to a customer and bill an amount which differs from the revenue allocated to the related performance obligations.
The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on our condensed consolidated balance sheet. In general, we receive payments from customers based on dayrates as stipulated in our contracts (i.e. operating rate, standby rate). The invoices billed to the customer are based on the varying rates applicable to the operating status on each rig. Accounts receivable are recorded when the right to consideration becomes unconditional.
Dayrate contracts also may contain fees charged to the customer for up-front rig modifications, mobilization and demobilization of equipment and personnel. These fees are associated with contract fulfillment activities, and the related revenue (subject to any constraint on estimates of variable consideration) is allocated to a single performance obligation and recognized ratably over the initial term of the contract. Mobilization fees are generally billable to the customer in the initial phase of a contract and generate contract liabilities until they are recognized as revenue. Demobilization fees are generally received at the end of the contract and generate contract assets when they are recognized as revenue prior to becoming receivables from the customer.
We receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request. Reimbursable revenues are variable and subject to uncertainty as the amounts received and timing thereof are dependent on factors outside of our influence. Accordingly, these revenues are constrained and not recognized until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of the customer. We are generally considered a principal in these transactions and record the associated revenues at the gross amounts billed to the customer.
24
The opening and closing balances of our receivables, contract assets and current and long-term contract liabilities are as follows:
Approximately 32% of the contract liability balance at the beginning of the period is expected to be recognized as revenue during 2021, of which 7% was recognized during the three months ended March 31, 2021, and 23% is expected to be recognized during 2022. The remaining 45% of the contract liability balance at the beginning of the period is expected to be recognized as revenue during 2023 or thereafter.
Additionally, 65% of the contract asset balance at the beginning of the period is expected to be recognized as expense during 2021, of which 19% was recognized during the three months ended March 31, 2021, and 28% is expected to be recognized during 2022. The remaining 7% of the contract asset balance at the beginning of the period is expected to be recognized as expense during 2023 or thereafter. This disclosure does not include variable consideration allocated entirely to a wholly unsatisfied performance obligation or promise to transfer a distinct good or service that forms part of a single performance obligation.
25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We often discuss expectations regarding our future markets, demand for our products and services, and our performance in our annual, quarterly and current reports, press releases, and other written and oral statements. Statements relating to matters that are not historical facts are “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These “forward-looking statements” are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “should,” “could,” “may,” “predict” and similar expressions are intended to identify forward-looking statements.
You should consider the following key factors when evaluating these forward-looking statements:
| ● | the novel coronavirus (“COVID-19”) pandemic and its impact on our operations as well as oil and gas markets and prices; |
| ● | fluctuations and volatility in worldwide prices of and demand for oil and natural gas; |
| ● | fluctuations in levels of oil and natural gas exploration and development activities; |
| ● | fluctuations in the demand for our services; |
| ● | competitive and technological changes and other developments in the oil and gas and oilfield services industries; |
| ● | our ability to renew customer contracts in order to maintain competitiveness; |
| ● | the existence of operating risks inherent in the oil and gas and oilfield services industries; |
| ● | the possibility of the loss of one or a number of our large customers; |
| ● | the impact of long-term indebtedness and other financial commitments on our financial and operating flexibility; |
| ● | our access to and the cost of capital, including the impact of a downgrade in our credit rating, covenant restrictions, availability under our revolving credit facility, and future issuances of debt or equity securities; |
| ● | our dependence on our operating subsidiaries and investments to meet our financial obligations; |
| ● | our ability to retain skilled employees; |
| ● | our ability to complete, and realize the expected benefits of, strategic transactions; |
| ● | changes in tax laws and the possibility of changes in other laws and regulations; |
| ● | the possibility of political or economic instability, civil disturbance, war or acts of terrorism in any of the countries in which we do business; |
| ● | the possibility of changes to U.S. trade policies and regulations including the imposition of trade embargoes or sanctions; and |
| ● | general economic conditions, including the capital and credit markets. |
Our business depends, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Therefore, a sustained increase or decrease in the price of oil or natural gas, that
26
has a material impact on exploration, development and production activities, could also materially affect our financial position, results of operations and cash flows.
The above description of risks and uncertainties is by no means all-inclusive, but highlights certain factors that we believe are important for your consideration. For a more detailed description of risk factors that may affect us or our industry, please refer to Item 1A. — Risk Factors in our 2020 Annual Report.
Management Overview
This section is intended to help you understand our results of operations and our financial condition. This information is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes thereto.
We own and operate one of the world’s largest land-based drilling rig fleets and provide offshore rigs in the United States and numerous international markets. Our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies, consisting of equipment manufacturing, rig instrumentation and optimization software. We also specialize in tubular running services, wellbore placement solutions and are a leading provider of directional drilling and measurement-while-drilling systems and services.
Outlook
The demand for our products and services is a function of the level of spending by oil and gas companies for exploration, development and production activities. The level of exploration, development and production activities is to a large extent tied to the prices of oil and natural gas, which can fluctuate significantly, are highly volatile and tend to be highly sensitive to supply and demand cycles. Additionally, oil and gas companies may attempt to intentionally limit their capital spending to a percentage of their operating cash flows that may be different than what they have used historically, in order to increase returns to their shareholders.
During 2020, the oil markets experienced unprecedented volatility. The COVID-19 outbreak, and its development into a pandemic, along with policies and actions taken by governments and companies and behaviors of customers around the world, had a significant negative impact on demand for oil. The Lower-48 rig market began to stabilize during the second half of 2020. We expect measured but steady increases in activity throughout 2021 for the Lower-48 market. Our International markets have also experienced factors and conditions that have led to similar reductions in activity throughout 2020, but the impact has varied considerably from country to country. As governmental restrictions continue to ease, we expect our international activity to increase through the remainder of the year.
Financial Results
Comparison of the three months ended March 31, 2021 and 2020
Operating revenues for the three months ended March 31, 2021 totaled $460.5 million, representing a decrease of $257.9 million, or 36%, compared to the three months ended March 31, 2020. Revenues declined across all of our operating segments due to the impact on our businesses brought on by the COVID-19 outbreak mentioned earlier. While all of our segments have been adversely impacted, the US markets experienced the most dramatic decline in activity, as evidenced by the 37% decline in average rigs working within our US Drilling operating segment. Our Drilling Solutions and Rig Technology segments also are affected by the decline in activity in the US. Our International Drilling segment experienced a significant, but less pronounced decline in activity as evidenced by the 26% decline in average rigs working. For a more detailed description of operating results see Segment Results of Operations, below.
Net loss from continuing operations attributable to Nabors common shareholders totaled $140.8 million ($20.16 per diluted share) for the three months ended March 31, 2021 compared to a net loss from continuing operations attributable to Nabors common shareholders of $395.4 million ($56.72 per diluted share) for the three months ended March 31, 2020, or a $254.6 million decrease in the net loss. Our net loss was adversely impacted by the $30.2 million decrease in our segments’ adjusted operating income. The majority of the decrease in net loss is attributable to $276.4 million in various impairments and other charges recognized during the three months ended March 31, 2020.
27
General and administrative expenses for the three months ended March 31, 2021 totaled $54.7 million, representing a decrease of $2.7 million, or 5%, compared to the three months ended March 31, 2020. This is reflective of general cost-reduction efforts across our operating segments and our corporate offices due to current industry market conditions.
Research and engineering expenses for the three months ended March 31, 2021 totaled $7.5 million, representing a decrease of $3.9 million, or 35%, compared to the three months ended March 31, 2020. The decrease is attributable to reductions in staffing levels and other cost control efforts across many of our research and engineering projects and initiatives due to current industry market conditions.
Depreciation and amortization expense for the three months ended March 31, 2021 was $177.3 million, representing a decrease of $49.8 million, or 22%, compared to the three months ended March 31, 2020. The decrease is partially attributable to the reduction in rig activity in the current year as compared to the prior year. Impairment charges recorded throughout 2020 also contributed to the decrease in the current period, along with the combination of many assets recently reaching the ends of their useful lives and limited capital expenditures over recent years.
Segment Results of Operations
The following tables set forth certain information with respect to our reportable segments and rig activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
||||
|
|
|
|
March 31, |
|
|
|
|
|
|
|
||||
|
|
|
|
2021 |
|
2020 |
|
Increase/(Decrease) |
|
|
|||||
|
U.S. Drilling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
|
$ |
142,299 |
|
$ |
274,901 |
|
$ |
(132,602) |
|
(48) |
% |
|
|
Adjusted operating income (loss) (1) |
|
|
$ |
(23,336) |
|
$ |
(7,404) |
|
$ |
(15,932) |
|
(215) |
% |
|
|
Average rigs working (2) |
|
|
|
60.5 |
|
|
96.4 |
|
|
(35.9) |
|
(37) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada Drilling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
|
$ |
20,989 |
|
$ |
25,591 |
|
$ |
(4,602) |
|
(18) |
% |
|
|
Adjusted operating income (loss) (1) |
|
|
$ |
3,907 |
|
$ |
37 |
|
$ |
3,870 |
|
10,459 |
% |
|
|
Average rigs working (2) |
|
|
|
13.7 |
|
|
16.8 |
|
|
(3.1) |
|
(18) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Drilling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
|
$ |
246,838 |
|
$ |
337,110 |
|
$ |
(90,272) |
|
(27) |
% |
|
|
Adjusted operating income (loss) (1) |
|
|
$ |
(18,632) |
|
$ |
(4,147) |
|
$ |
(14,485) |
|
(349) |
% |
|
|
Average rigs working (2) |
|
|
|
64.8 |
|
|
86.7 |
|
|
(21.9) |
|
(25) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
|
$ |
35,706 |
|
$ |
55,384 |
|
$ |
(19,678) |
|
(36) |
% |
|
|
Adjusted operating income (loss) (1) |
|
|
$ |
4,710 |
|
$ |
10,549 |
|
$ |
(5,839) |
|
(55) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig Technologies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
|
|
$ |
25,748 |
|
$ |
42,150 |
|
$ |
(16,402) |
|
(39) |
% |
|
|
Adjusted operating income (loss) (1) |
|
|
$ |
(2,569) |
|
$ |
(8,151) |
|
$ |
5,582 |
|
68 |
% |
|
| (1) | Adjusted operating income (loss) is our measure of segment profit and loss. See Note 12—Segment Information to the consolidated financial statements included in Item 1 of the report. |
| (2) | Represents a measure of the average number of rigs operating during a given period. For example, one rig operating 45 days during a quarter represents approximately 0.5 average rigs working for the quarter. On an annual period, one rig operating 182.5 days represents approximately 0.5 average rigs working for the year. |
U.S. Drilling
Operating revenues for our U.S. Drilling segment decreased by $132.6 million or 48% during the three months ended March 31, 2021 compared to the corresponding period in 2020 primarily due to a decrease in activity as reflected by a 37% decrease in the average number of rigs working. To a lesser degree, pricing for our services has also been negatively affected by the decline in activity. This reduction in revenues was partially offset by significant cost reductions related to the drop in activity.
28
Canada Drilling
Operating revenues decreased by $4.6 million or 18% during the three months ended March 31, 2021 compared to the corresponding prior year period primarily due to a decrease in activity as evidenced by the 18% decrease in average rigs working and decreased day rates. However, cost reduction actions more than offset the drop in revenue.
International Drilling
Operating revenues for our International Drilling segment decreased by $90.3 million or 27% compared to the corresponding prior year period primarily due to reduced activity, as reflected by the 25% decrease in the average number of rigs working. This reduction in revenues was partially offset by significant cost reductions related to the drop in activity.
Drilling Solutions
Operating revenues for this segment decreased by $19.7 million or 36% during the three months ended March 31, 2021 compared to the corresponding period in 2020 primarily due to the reduced activity across the U.S. as the market softened in response to reduced oil prices and COVID-19. The reduction in activity and operating revenues was partially offset by cost management initiatives mainly focusing on labor and repair and maintenance costs as well as an overall reduction in administrative expenses.
Rig Technologies
Operating revenues for our Rig Technologies segment decreased by $16.4 million or 39% during the three months ended March 31, 2021 compared to the corresponding period due to the overall decline in activity in the U.S. as mentioned previously. Despite a significant drop in revenues of $16.4 million, this segment enacted significant cost reduction measures to mitigate all the impact, such that adjusted operating income was up by $5.6 million.
Other Financial Information
Interest expense
Interest expense for the three months ended March 31, 2021 was $43.0 million, representing a decrease of $11.7 million, or 21%, compared to the three months ended March 31, 2020. The decrease was primarily due to debt restructuring in Q4 2020 resulting in reduced interest expense.
Impairments and other charges
During the three months ended March 31, 2021, we recognized impairments and other charges of approximately $2.5 million, which primarily consisted of severance and reorganization costs of $1.1 million due to cost cutting measures that we enacted in response to the current industry environment, as well as write downs and provisions for $1.0 million of certain other assets including receivables related to our operations.
During the three months ended March 31, 2020, we recognized impairments and other charges of approximately $276.4 million, which primarily included impairments of long-lived assets of $147.8 million comprised of underutilized rigs and drilling-related equipment across all of our operating segments. We recognized impairments of $16.4 million for the remaining goodwill balance attributable to our Rig Technologies operating segment and $11.4 million for the remaining goodwill balance attributable to our Drilling Solutions operating segment. Additionally, we recognized an impairment of $83.6 million to write off our remaining intangible assets.
Other, net
Other, net for the three months ended March 31, 2021 was $4.9 million of loss, which included a net gain on debt buybacks of $8.1 million. This was offset by net losses on sales and disposals of assets of approximately $8.5 million, foreign currency loss of $2.4 million and an increase in litigation reserves of $1.5 million.
29
Other, net for the three months ended March 31, 2020 was $17.1 million of income, which included a net gain on debt buybacks of $15.7 million, release of contingent consideration reserves in connection with a previous acquisition of $8.6 million and foreign currency exchange gains of $0.6 million. This was partially offset by net losses on sales and disposals of assets of approximately $1.4 million and an increase in litigation reserves of $0.7 million.
Income taxes
Our worldwide tax expense for the three months ended March 31, 2021 was $9.7 million compared to $17.7 million for the three months ended March 31, 2020. The decrease in tax expense was primarily attributable to a decrease in operating income in the jurisdictions in which we operate, as well as the change in our geographic mix of our pre-tax earnings (losses). Additionally, the higher tax expense for the three months ended March 31, 2020 is the result of the discrete accrual of valuation allowances on deferred tax assets of $7.4 million.
Liquidity and Capital Resources
Financial Condition and Sources of Liquidity
Our primary sources of liquidity are cash and investments, availability under our revolving credit facility and cash generated from operations. As of March 31, 2021, we had cash and short-term investments of $417.6 million and working capital of $545.2 million. As of December 31, 2020, we had cash and short-term investments of $481.7 million and working capital of $616.0 million.
At March 31, 2021, we had $632.5 million of borrowings outstanding under the 2018 Revolving Credit Facility, which has a total borrowing capacity of $1.014 billion. The 2018 Revolving Credit Facility requires us to maintain “minimum liquidity” of no less than $160.0 million at all times, and an asset to debt coverage ratio of at least 4.25:1 as of the end of each calendar quarter. Minimum liquidity is defined to mean, generally, a consolidated cash balance consisting of (a) the aggregate amount of unrestricted cash and cash equivalents maintained in a deposit account U.S. or Canadian branch of a commercial bank, plus (b) the lesser of $75 million or an amount equal to 75% of the aggregate amount of unrestricted cash and cash equivalents held in deposit account of a commercial bank outside of the U.S. or Canada, plus (c) available commitments under the 2018 Revolving Credit Facility. The asset to debt coverage ratio applies only during the period which Nabors Delaware fails to maintain an investment grade rating from at least two rating agencies, which was the case as of the date of this report. As of March 31, 2021, we were in compliance with both the minimum liquidity and asset to debt coverage ratio requirements under the 2018 Revolving Credit Facility. We also had $60.3 million of letters of credit outstanding under the 2018 Revolving Credit Facility.
As of the date of this report, we were in compliance with all covenants under the 2018 Revolving Credit Facility. If we fail to perform our obligations under the covenants, the revolving credit commitments under the 2018 Revolving Credit Facility could be terminated, and any outstanding borrowings under the facilities could be declared immediately due and payable. If necessary, we have the ability to manage our covenant compliance by taking certain actions including reductions in discretionary capital or other types of controllable expenditures, monetization of assets, amending or renegotiating the revolving credit agreement, accessing capital markets through a variety of alternative methods, or any combination of these alternatives. We expect to remain in compliance with all covenants under the 2018 Revolving Credit Facility during the twelve month period following the date of this report based on our current operational and financial projections. However, we can make no assurance of continued compliance if our current projections or material underlying assumptions prove to be incorrect. If we fail to comply with the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable.
Our ability to access capital markets or to otherwise obtain sufficient financing may be affected by our senior unsecured debt ratings as provided by the major credit rating agencies in the United States and our historical ability to access these markets as needed. While there can be no assurances that we will be able to access these markets in the future, we believe that we will be able to access capital markets or otherwise obtain financing in order to satisfy any payment obligation that might arise upon maturity, exchange or purchase of our notes and our debt facilities, loss of availability of our revolving credit facilities and our A/R Agreement (see—Accounts Receivable Sales Agreement, below), and that any cash payment due, in addition to our other cash obligations, would not ultimately have a material adverse impact on our liquidity or financial position. The major U.S. credit rating agencies have previously downgraded our senior unsecured debt rating to non-investment grade. These and any further ratings downgrades could adversely
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impact our ability to access debt markets in the future, increase the cost of future debt, and potentially require us to post letters of credit for certain obligations.
We had 18 letter-of-credit facilities with various banks as of March 31, 2021. Availability under these facilities as of March 31, 2021 was as follows:
Accounts Receivable Sales Agreement
On September 13, 2019, we entered into the $250 million A/R Agreement whereby the Originators sold or contributed, and will on an ongoing basis continue to sell or contribute, certain of their domestic trade accounts receivables to a wholly-owned, bankruptcy-remote, SPE. The SPE would in turn, sell, transfer, convey and assign to third-party Purchasers, all the rights, title and interest in and to its pool of eligible receivables. This agreement is currently scheduled to expire on August 13, 2021.
The amount available for purchase under the A/R Agreement fluctuates over time based on the total amount of eligible receivables generated during the normal course of business after excluding excess concentrations and certain other ineligible receivables. The maximum purchase commitment of the Purchasers under the A/R Agreement is approximately $250.0 million and the amount of receivables purchased by the Purchasers as of March 31, 2021 was $74.0 million.
The Originators, Nabors Delaware, the SPE, and the Company provide representations, warranties, covenants and indemnities under the A/R Agreement and the Indemnification Guarantee. See further details at Note 5—Accounts Receivable Sales Agreement.
Future Cash Requirements
Our current cash and investments, projected cash flows from operations, proceeds from equity or debt issuances and our revolving credit facility are expected to adequately finance our purchase commitments, capital expenditures, acquisitions, scheduled debt service requirements, and all other expected cash requirements for at least the next 12 months. However, we can make no assurances that our current operational and financial projections will prove to be correct, especially in light of the effects the COVID-19 pandemic has on oil and natural gas prices and, in turn, our business. A sustained period of highly depressed oil and natural gas prices could have a significant effect on our customers’ capital expenditure spending and therefore our operations, cash flows and liquidity.
Purchase commitments outstanding at March 31, 2021 totaled approximately $132.3 million, primarily for capital expenditures, other operating expenses and purchases of inventory. We can reduce planned expenditures if necessary or increase them if market conditions and new business opportunities warrant it. The level of our outstanding purchase commitments and our expected level of capital expenditures over the next 12 months represent a number of capital programs that are currently underway or planned.
See our discussion of guarantees issued by Nabors that could have a potential impact on our financial position, results of operations or cash flows in future periods included below under “Off-Balance Sheet Arrangements (Including Guarantees).”
There have been no material changes to the contractual cash obligations table that was included in our 2020 Annual Report.
On August 25, 2015, our Board authorized a share repurchase program (the “program”) under which we may repurchase, from time to time, up to $400.0 million of our common shares by various means, including in the open market or in privately negotiated transactions. Authorization for the program, which was renewed in February 2019, does not have an expiration date and does not obligate us to repurchase any of our common shares. Since establishing the
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program, we have repurchased 0.3 million of our common shares for an aggregate purchase price of approximately $121.1 million under this program. The repurchased shares, which are held by our subsidiaries, are registered and tradable subject to applicable securities law limitations and have the same voting and other rights as other outstanding shares. As of March 31, 2021, the remaining amount authorized under the program that may be used to purchase shares was $278.9 million. As of March 31, 2021, our subsidiaries held 1.1 million of our common shares.
We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, both in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and may involve material amounts.
Cash Flows
Our cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Sustained decreases in the price of oil or natural gas could have a material impact on these activities, and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary capital expenditures or acquisitions, purchases and sales of investments, dividends, loans, issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions. We discuss our cash flows for the three months ended March 31, 2021 and 2020 below.
Operating Activities. Net cash provided by operating activities totaled $79.5 million during the three months ended March 31, 2021, compared to net cash provided of $59.2 million during the corresponding 2020 period. Operating cash flows are our primary source of capital and liquidity. Cash from operating results (before working capital changes) was $52.1 million for the three months ended March 31, 2021, a decrease of $92.4 million when compared to $144.5 million in the corresponding 2020 period. Changes in working capital items such as collection of receivables, other deferred revenue arrangements and payments of operating payables are also significant factors affecting operating cash flows and can be highly volatile in periods of increasing or decreasing activity levels. Changes in working capital items provided $27.4 million in cash flows during the three months ended March 31, 2021, a $112.7 million improvement as compared to the negative $85.3 million in cash flows from working capital in the corresponding 2020 period. The positive impact from working capital more than offset the negative impact from operating results.
Investing Activities. Net cash used for investing activities totaled $19.1 million during the three months ended March 31, 2021 compared to net cash used of $50.8 million during the corresponding 2020 period. Our primary use of cash for investing activities is capital expenditures for rig-related enhancements, new construction and equipment, as well as sustaining capital expenditures. During the three months ended March 31, 2021 and 2020, we used cash for capital expenditures totaling $40.9 million and $59.4 million, respectively.
We received $10.8 million in proceeds from sales of assets and insurance claims during the three months ended March 31, 2021 compared to $6.8 million for the corresponding 2020 period. We also received $10.9 million in sales and maturities of investments for the three months ended March 31, 2021 compared to $1.8 million for the corresponding 2020 period.
Financing Activities. Net cash used for financing activities totaled $113.9 million during the three months ended March 31, 2021. During the three months ended March 31, 2021, we used $49.1 million for a redeemable non-controlling interest distribution, $40.0 million in net amounts repaid under our revolving credit facility and by a $16.8 million repayment on our senior notes. Additionally, we paid dividends totaling $3.6 million to our preferred shareholders.
Net cash provided by financing activities totaled $37.6 million during the three months ended March 31, 2020. During the three months ended March 31, 2020, we received net proceeds of $1.0 billion in proceeds from the issuance of new long term debt as well as $145.0 million in net amounts borrowed under our revolving credit facilities. This was partially offset by a $1.1 billion repayment on our senior notes. Additionally, we paid dividends totaling $7.9 million to our common and preferred shareholders.
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Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries
Nabors Delaware is an indirect, wholly-owned subsidiary of Nabors. Nabors fully and unconditionally guarantees the due and punctual payment of the principal of, premium, if any, and interest on Nabors Delaware’s registered notes, which are its (i) 4.625% Senior Notes due 2021 (the “2021 Notes”), (ii) 5.10% Senior Notes due 2023 (the “2023 Notes”), (iii) 5.50% Senior Notes due 2023 (the “5.50% 2023 Notes”) and (iv) 5.75% Senior Notes due 2025 (the “2025 Notes” and, together with the 2021 Notes, the 2023 Notes, the 5.50% 2023 Notes and the 2025 Notes, the “Registered Notes”), and any other obligations of Nabors Delaware under the Registered Notes when and as they become due and payable, whether at maturity, upon redemption, by acceleration or otherwise, if Nabors Delaware is unable to satisfy these obligations. Nabors' guarantee of Nabors Delaware's obligations under the Registered Notes are its unsecured and unsubordinated obligation and have the same ranking with respect to Nabors' indebtedness as the Registered Notes have with respect to Nabors Delaware's indebtedness. In the event that Nabors is required to withhold or deduct on account of any Bermudian taxes due from any payment made under or with respect to its guarantees, subject to certain exceptions, Nabors will pay additional amounts so that the net amount received by each holder of Registered Notes will equal the amount that such holder would have received if the Bermudian taxes had not been required to be withheld or deducted.
The following summarized financial information is included so that separate financial statements of Nabors Delaware are not required to be filed with the SEC. The condensed consolidating financial statements present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.
In lieu of providing separate financial statements for issuers and guarantors (the “Obligated Group”), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for the Obligated Group based on Rule 13-01 of the SEC’s Regulation S-X that we early adopted effective April 1, 2020.
All significant intercompany items among the Obligated Group have been eliminated in the supplemental summarized combined financial information. The Obligated Group’s investment balances in Subsidiary Non-Guarantors have been excluded from the supplemental combined financial information. Significant intercompany balances and activity for the Obligated Group with other related parties, including Subsidiary Non-Guarantors (referred to as “affiliates”), are presented separately in the accompanying supplemental summarized financial information.
Summarized combined Balance Sheet and Income Statement information for the Obligated Group follows (in thousands):
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Other Matters
Recent Accounting Pronouncements
See Note 2—Summary of Significant Accounting Policies.
Off-Balance Sheet Arrangements (Including Guarantees)
We are a party to transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements include the A/R Agreement (see —Accounts Receivable Sales Agreement, above) and certain agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these financial or performance assurances serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by us to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees. Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote.
The following table summarizes the total maximum amount of financial guarantees issued by Nabors:
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to market risks arising from the use of financial instruments in the ordinary course of business as discussed in our 2020 Annual Report. There were no material changes in our exposure to market risk during the three months ended March 31, 2021 from those disclosed in our 2020 Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. We have investments in certain unconsolidated entities that we do not control or manage. Because we do not control or manage these entities, our disclosure controls and procedures with respect to these entities are necessarily more limited than those we maintain with respect to our consolidated subsidiaries.
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 8 — Commitments and Contingencies — Litigation for information regarding our legal proceedings.
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ITEM 1A. RISK FACTORS
In addition to the information set forth elsewhere in this report, the risk factors set forth in Part 1, Item 1A, of our 2020 Annual Report, should be carefully considered when evaluating us. These risks are not the only risks we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We withheld the following shares of our common stock to satisfy tax withholding obligations in connection with grants of stock awards during the three months ended March 31, 2021 from the distributions described below. These shares may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item, but were not purchased as part of a publicly announced program to purchase common shares:
| (1) | Shares were withheld from employees and directors to satisfy certain tax withholding obligations due in connection with grants of shares under our 2013 Stock Plan and 2016 Stock Plan. Each of the 2016 Stock Plan, the 2013 Stock Plan, the 2003 Employee Stock Plan and the 1999 Stock Option Plan for Non-Employee Directors provide for the withholding of shares to satisfy tax obligations, but do not specify a maximum number of shares that can be withheld for this purpose. These shares were not purchased as part of a publicly announced program to purchase common shares. |
| (2) | In August 2015, our Board authorized a share repurchase program under which we may repurchase up to $400.0 million of our common shares in the open market or in privately negotiated transactions. The program was renewed by the Board in February 2019. Through March 31, 2021, we repurchased 0.3 million of our common shares for an aggregate purchase price of approximately $121.1 million under this program. As of March 31, 2021, we had $278.9 million that remained authorized under the program that may be used to repurchase shares. The repurchased shares, which are held by our subsidiaries, are registered and tradable subject to applicable securities law limitations and have the same voting, dividend and other rights as other outstanding shares. As of March 31, 2021, our subsidiaries held 1.1 million of our common shares. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Exhibit No. |
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Description |
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31.1 |
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31.2 |
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Rule 13a-14(a)/15d-14(a) Certification of William Restrepo, Chief Financial Officer* |
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32.1 |
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101.INS |
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Inline XBRL Instance Document* |
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101.SCH |
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Inline XBRL Schema Document* |
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101.CAL |
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Inline XBRL Calculation Linkbase Document* |
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101.LAB |
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Inline XBRL Label Linkbase Document* |
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101.PRE |
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Inline XBRL Presentation Linkbase Document* |
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101.DEF |
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Inline XBRL Definition Linkbase Document* |
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104 |
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Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document) |
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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NABORS INDUSTRIES LTD. |
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By: |
/s/ ANTHONY G. PETRELLO |
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Anthony G. Petrello |
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Chairman, President and |
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Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ WILLIAM RESTREPO |
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William Restrepo |
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Chief Financial Officer (Principal Financial Officer and Accounting Officer) |
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Date: |
April 29, 2021 |
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Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)
I, Anthony G. Petrello, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Nabors Industries Ltd.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: April 29, 2021 |
/s/ ANTHONY G. PETRELLO |
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Anthony G. Petrello |
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Chairman, President and Chief Executive Officer |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)
I, William Restrepo, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Nabors Industries Ltd.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: April 29, 2021 |
/s/ WILLIAM RESTREPO |
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William Restrepo |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Nabors Industries Ltd. (the “Company”) for the quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony G. Petrello, Chairman, President and Chief Executive Officer of the Company, and I, William Restrepo, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ ANTHONY G. PETRELLO |
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Anthony G. Petrello |
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Chairman, President and Chief Executive Officer |
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/s/ WILLIAM RESTREPO |
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William Restrepo |
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Chief Financial Officer |
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Date: April 29, 2021 |