Nabors Industries Ltd.
AMEX : NBR

Nabors Industries Ltd.

July 27, 2005 16:05 ET

Nabors' $0.82 - 2Q05 EPS Sets Record 2Q04 was $0.30

HAMILTON, Bermuda--(CCNMatthews - Jul 27, 2005) -

Nabors Industries Ltd. (AMEX:NBR), today announced record results for the second quarter and six months ended June 30, 2005. Adjusted income derived from operating activities(1) was $173.8 million for the current quarter compared to $46.7 million in the second quarter of last year and $171.9 million in the first quarter of this year. Net income was $131.8 million ($0.82 per diluted share) for the current quarter compared to $46.3 million ($0.30 per diluted share) in the second quarter of last year and $127.4 million ($0.80 per diluted share) in the first quarter of this year. Operating revenues and Earnings from Unconsolidated Affiliates totaled $770.5 million in the current quarter compared to $531.9 million in the second quarter of last year and $785.7 million in the first quarter of this year. For the six months ended June 30, 2005, adjusted income derived from operating activities was $345.8 million compared to $131.7 million in the first six months of 2004. Net income for the first six months of 2005 was $259.2 million ($1.62 per diluted share) compared to $118.1 million ($0.76 per diluted share) in the first six months of 2004. Revenues and Earnings from Unconsolidated Affiliates for the first six months of 2005 rose to $1.6 billion, up from $1.1 billion for the first six months of 2004.

Gene Isenberg, Nabors' Chairman and Chief Executive Officer, commented, "The remarkable potency of our markets is illustrated by the magnitude of the sequential increase in our operating numbers achieved despite the $47 million seasonal drop in Canada's results. The largest improvement came from our U.S. Lower 48 Land Drilling operation, which realized a larger than expected increase in average per rig day margins and added seven rigs. The next most significant improvement came from our U.S. Land Well-Servicing unit where pricing continued to move up in response to a tight supply/demand dynamic. Our U.S. Offshore unit also posted a substantial increase with improved pricing, slightly higher utilization and the final settlement of our business interruption claim that stemmed from the loss of platform rig P-141 during hurricane Ivan last fall. Our International unit posted solid improvement on higher activity, as did our Oil and Gas operations. Our manufacturing and construction businesses (Other Operating Segments) also realized a substantial increase, primarily as a result of a good construction season in Alaska, higher directional drilling activity and pricing for Ryan, and improving results in Marine transportation. Alaska drilling was better than expected although seasonally lower than the first quarter.

"Our financial position continues to get even stronger with an excellent balance sheet that includes net debt at 12 percent. Strong cash flow is funding virtually all of our programs including this quarter's repurchase of $80.6 million in stock (1.5 million shares at an average cost of $53.73 per share) and an accelerated capital spending program that is likely to exceed $1 billion this year.

"The outlook for our business has never been stronger, with rig demand showing no signs of abating in both North America and internationally. Consequently, we are accelerating our construction program to address the need for faster moving and more efficient rigs. Since mid-2000 our global operations have deployed approximately 200 rigs, many of which were substantially upgraded with the latest in pipe handling systems, larger horsepower pumps, and electronically controlled, higher horsepower engines, and reconfigured to facilitate more efficient moves. Over 100 of these rigs have been completed and deployed in the last 18 months, and our assessment of demand indicates there is a possibility that Nabors will realize opportunities to deploy another 100 over the next 24 months. We will continue to require term-contracts with each new rig virtually assuring good returns and more importantly, allowing the customers to determine the pace of capacity additions.

"Our U.S. Lower 48 Land Drilling operation has seen the largest number of rig additions and is currently preparing 10 more for service, three of which will be essentially new PACE rigs like the one deployed in the Rockies during the quarter. Shell attested to the quality and performance of these rigs when they named one of the two pad drilling rigs they employ in the Pinedale Anticline as their "Land Rig of the Year," a selection based upon superior safety and operational performance when compared to all of the land rigs Shell contracts worldwide. On June 30th we completed the acquisition of the assets of Alexander Drilling, which consisted of 8 rigs and 5 air drilling packages and an operating base. The rigs range from 500 to 750 horsepower. Alexander was a well regarded contractor and this acquisition significantly increases our share of the Arkoma air drilling market. Our U.S. Land Well-Servicing unit is currently taking delivery of the first of 40 new PLC (Programmable Logic Controlled), 500 HP Millennium workover rigs which will be placed in service over the next 18 months. The positive reaction of our customers to the performance of the first such unit, deployed one year ago, has exceeded our expectations and led to commitments for these rigs well ahead of the delivery schedule.

"In Canada we have fifteen rigs under construction for use in that market along with another 10 A/C coiled tubing/stem drilling rigs. In our U.S. Offshore business we recently completed construction of Sundowner XIX, which is currently deploying to the U.S. Gulf of Mexico. The success of our deep shelf drilling barge 300, which was completed one year ago, has resulted in our decision to proceed with construction of posted barge rig 301, which will be a PACE rig with broader application than rig 300 with the same deep shelf drilling capability.

"Internationally, our second Sundowner platform workover rig commenced operations on a long-term contract offshore India during the quarter. A number of high value new contracts were signed during the quarter, including two 3,000 HP A/C rigs which are finishing construction in Dubai and are expected to commence drilling for the Luksar joint venture in the Kingdom of Saudi Arabia by early first quarter. We also executed contracts for two new 1,000 HP high spec rigs for the Sincor venture in Venezuela, both of which should commence in the fourth quarter, and a multi-year contact for the Dolphin 110 Jackup workover rig, which will be upgraded and redeployed from the U.S. Gulf of Mexico to Angola. Internationally, we are also constructing the fourth unit of our unique MODS rigs (MODS 151) for a term-contract for Shell offshore Australia that should also commence around the end of this year. There are also numerous proposals pending internationally which should materialize in the near future and which, if successful, would result in another 10-15 long-term rig contracts.

"The strength of the current market environment and the inability of the industry to satisfy demand over the foreseeable future is placing a premium on existing rigs. As a result prices are rising rapidly, particularly in the U.S. Lower 48. We are entering into an increasing number of long-term contracts for existing rigs at margins that are more than 25% above those achieved this quarter. Similarly, global market demand is also placing a premium on newer, more efficient rigs that can be delivered both expeditiously and in quantity in a multitude of venues. This gives Nabors a substantial competitive advantage given our unique access to a global suite of customers, our worldwide infrastructure and the unparalleled volume and strength of our procurement relationships."

The Nabors companies own and operate almost 600 land drilling and approximately 875 land workover and well-servicing rigs worldwide. Offshore, Nabors operates 43 platform rigs, 19 jack-up units and three barge rigs in the United States and multiple international markets. Nabors markets 28 marine transportation and supply vessels, primarily in the U.S. Gulf of Mexico. In addition, Nabors manufactures top drives and drilling instrumentation systems and provides comprehensive oilfield hauling, engineering, civil construction, logistics and facilities maintenance, and project management services. Nabors participates in most of the significant oil, gas and geothermal markets in the world.

The information above includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties, as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission. As a result of these factors, Nabors actual results may differ materially from those indicated or implied by such forward-looking statements.

For further information, please contact Dennis A. Smith, Director of Corporate Development of Nabors Corporate Services, Inc. at 281-775-8038. To request Investor Materials, call our corporate headquarters in Hamilton, Bermuda at 441-292-1510 or via email at dan.mclachlin@nabors.com. Nabors will conduct a conference call to discuss the quarter's results and the near-term outlook, tomorrow July 28, 2005, at 11:00 a.m. Eastern Daylight Time. The call can be accessed on our website at www.nabors.com, or through First Call at www.firstcallevents.com.



(1) Adjusted income derived from operating activities is computed by:
subtracting direct costs, general and administrative expenses,
depreciation and amortization, and depletion expense from
Operating revenues and then adding Earnings from unconsolidated
affiliates. Such amounts should not be used as a substitute to
those amounts reported under accounting principles generally
accepted in the United States of America (GAAP). However,
management evaluates the performance of our business units and the
consolidated company based on several criteria, including adjusted
income derived from operating activities, because it believes that
this financial measure is an accurate reflection of the ongoing
profitability of our company. A reconciliation of this non-GAAP
measure to income before income taxes, which is a GAAP measure, is
provided within the table set forth immediately following the
heading "Segment Reporting."


NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)



Three Months Ended Six Months Ended
----------------------------- -----------------------
June 30, March 31, June 30,
------------------- --------- -----------------------

(In thousands,
except per share
amounts) 2005 2004 2005 2005 2004
--------- --------- --------- ----------- -----------

Revenues and
other income:
Operating
revenues $765,337 $530,715 $783,728 $1,549,065 $1,123,696
Earnings from
unconsol-
idated
affiliates 5,204 1,153 2,003 7,207 4,975
Investment
income 15,578 8,631 11,788 27,366 20,884
--------- --------- --------- ----------- -----------
Total
revenues
and other
income 786,119 540,499 797,519 1,583,638 1,149,555
--------- --------- --------- ----------- -----------

Costs and other
deductions:
Direct costs 454,584 368,941 474,626 929,210 758,981
General and
admini-
strative
expenses 59,805 45,441 58,641 118,446 91,040
Depreciation
and
amortization 70,982 60,843 68,188 139,170 121,331
Depletion 11,343 9,977 12,353 23,696 25,587
Interest
expense 11,333 11,387 10,737 22,070 27,246
Losses (gains)
on sales of
long-lived
assets,
impairment
charges and
other expense
(income), net 4,223 (6,155) 3,871 8,094 (4,826)
--------- --------- --------- ----------- -----------
Total costs
and other
deductions 612,270 490,434 628,416 1,240,686 1,019,359
--------- --------- --------- ----------- -----------

Income before
income taxes 173,849 50,065 169,103 342,952 130,196

Income tax
expense 42,044 3,717 41,689 83,733 12,131
--------- --------- --------- ----------- -----------

Net income $131,805 $46,348 $127,414 $259,219 $118,065
========= ========= ========= =========== ===========

Earnings per
share (1):
Basic $.84 $.31 $.84 $1.67 $.80
Diluted $.82 $.30 $.80 $1.62 $.76

Weighted-average
number of common
shares
outstanding (1):
Basic 157,440 148,866 152,165 154,803 148,425
--------- --------- --------- ----------- -----------
Diluted 161,212 155,234 158,777 159,996 163,417
--------- --------- --------- ----------- -----------


Adjusted income
derived from
operating
activities (2) $173,827 $46,666 $171,923 $345,750 $131,732
========= ========= ========= =========== ===========

(1) See "Computation of Earnings Per Share" included herein as a
separate schedule.

(2) Adjusted income derived from operating activities is computed by:
subtracting direct costs, general and administrative expenses,
depreciation and amortization, and depletion expense from
Operating revenues and then adding Earnings from unconsolidated
affiliates. Such amounts should not be used as a substitute to
those amounts reported under accounting principles generally
accepted in the United States of America (GAAP). However,
management evaluates the performance of our business units and the
consolidated company based on several criteria, including adjusted
income derived from operating activities, because it believes that
this financial measure is an accurate reflection of the ongoing
profitability of our company. A reconciliation of this non-GAAP
measure to income before income taxes, which is a GAAP measure, is
provided within the table set forth immediately following the
heading "Segment Reporting".


NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)


June 30, March 31, December 31,
(In thousands, except ratios) 2005 2005 2004
------------ ------------ ------------

ASSETS
Current assets:
Cash and short-term investments $1,061,288 $1,008,481 $900,551
Accounts receivable, net 619,330 646,598 540,103
Other current assets 152,597 137,342 140,320
------------ ------------ ------------
Total current assets 1,833,215 1,792,421 1,580,974
Long-term investments 518,070 545,975 510,496
Property, plant and equipment,
net 3,460,599 3,358,068 3,275,495
Goodwill, net 331,635 331,251 327,225
Other long-term assets 165,073 160,512 168,419
------------ ------------ ------------
Total assets $6,308,592 $6,188,227 $5,862,609
============ ============ ============

LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current portion of long-term
debt $814,607 $809,562 $804,550
Other current liabilities 426,923 431,117 394,766
------------ ------------ ------------
Total current liabilities 1,241,530 1,240,679 1,199,316
Long-term debt 1,203,409 1,196,389 1,201,686
Other long-term liabilities 573,044 532,728 532,214
------------ ------------ ------------
Total liabilities 3,017,983 2,969,796 2,933,216
Shareholders' equity 3,290,609 3,218,431 2,929,393
------------ ------------ ------------
Total liabilities and
shareholders' equity $6,308,592 $6,188,227 $5,862,609
============ ============ ============



Cash, short-term and long-term
investments $1,579,358 $1,554,456 $1,411,047

Funded debt to capital ratio:
- Gross 0.38 : 1 0.38 : 1 0.41 : 1
- Net of cash and
investments 0.12 : 1 0.12 : 1 0.17 : 1
Interest coverage ratio: 21 : 1 17.8 : 1 14.1 : 1


NABORS INDUSTRIES LTD. AND SUBSIDIARIES
SEGMENT REPORTING
(Unaudited)

The following tables set forth certain information with respect to our
reportable segments and rig activity:


Three Months Ended Six Months Ended
----------------------------- -----------------------
June 30, March 31, June 30,
------------------- --------- -----------------------

(In thousands,
except rig
activity) 2005 2004 2005 2005 2004
--------- --------- --------- ----------- -----------

Reportable
segments:
Operating
revenues and
Earnings from
unconsolidated
affiliates:
Contract
Drilling:
(1)
U.S. Lower
48 Land
Drilling $300,700 $172,049 $258,990 $559,690 $325,417
U.S. Land
Well-
servicing 118,776 88,162 106,113 224,889 167,641
U.S.
Offshore 45,130 31,556 38,067 83,197 62,877
Alaska 21,955 19,701 24,768 46,723 49,038
Canada 76,720 61,905 173,402 250,122 200,671
Internat-
ional 135,168 107,185 124,030 259,198 210,172
--------- --------- --------- ----------- -----------
Subtotal
Contract
Drilling
(2) 698,449 480,558 725,370 1,423,819 1,015,816

Oil and Gas
(3) 15,218 14,173 15,299 30,517 35,299
Other
Operating
Segments (4)
(5) 78,729 52,740 68,916 147,645 108,678
Other
reconciling
items (6) (21,855) (15,603) (23,854) (45,709) (31,122)
--------- --------- --------- ----------- -----------
Total $770,541 $531,868 $785,731 $1,556,272 $1,128,671
========= ========= ========= =========== ===========

Adjusted income
(loss) derived
from operating
activities:
Contract
Drilling: (1)
U.S. Lower 48
Land
Drilling $101,813 $12,971 $73,459 $175,272 $21,539
U.S. Land
Well-
servicing 26,401 14,394 19,428 45,829 24,127
U.S. Offshore 12,498 4,796 7,011 19,509 9,613
Alaska 4,159 3,756 5,972 10,131 10,966
Canada 57 2,851 47,280 47,337 46,123
International 32,558 18,753 29,767 62,325 37,344
--------- --------- --------- ----------- -----------
Subtotal
Contract
Drilling
(2) 177,486 57,521 182,917 360,403 149,712

Oil and Gas (3) 2,869 896 874 3,743 5,402
Other Operating
Segments (4)
(5) 7,982 (2,106) 3,550 11,532 (2,537)
Other
reconciling
items (7) (14,510) (9,645) (15,418) (29,928) (20,845)
--------- --------- --------- ----------- -----------
Total 173,827 46,666 171,923 345,750 131,732
Interest expense (11,333) (11,387) (10,737) (22,070) (27,246)
Investment
income 15,578 8,631 11,788 27,366 20,884
Gains (losses)
on sales of
long-lived
assets,
impairment
charges and
other income
(expense), net (4,223) 6,155 (3,871) (8,094) 4,826
--------- --------- --------- ----------- -----------
Income before
income taxes $173,849 $50,065 $169,103 $342,952 $130,196
========= ========= ========= =========== ===========


Rig activity:
Rig years: (8)
U.S. Lower 48
Land
Drilling 229.3 193.4 222.4 225.9 184.4
U.S. Offshore 17.2 15.5 15.6 16.4 14.6
Alaska 6.8 6.7 6.7 6.7 7.2
Canada 26.2 25.8 66.2 46.1 44.5
International
(9) 83.4 65.6 75.2 79.3 65.3
--------- --------- --------- ----------- -----------
Total rig
years 362.9 307.0 386.1 374.4 316.0
========= ========= ========= =========== ===========
Rig hours: (10)
U.S. Land
Well-
servicing 308,718 287,350 296,611 605,329 562,498
Canada Well-
servicing 60,297 67,873 114,336 174,633 185,469
--------- --------- --------- ----------- -----------
Total rig
hours 369,015 355,223 410,947 779,962 747,967
========= ========= ========= =========== ===========

(1) These segments include our drilling, workover and well-servicing
operations, on land and offshore.

(2) Includes Earnings from unconsolidated affiliates, accounted for by
the equity method, of $1.2 million, $1.1 million and $0.7 million
for the three months ended June 30, 2005 and 2004 and March 31,
2005, respectively, and $1.9 million and $2.2 million for the six
months ended June 30, 2005 and 2004, respectively.

(3) Represents our oil and gas exploration, development and production
operations.

(4) Includes our marine transportation and supply services, drilling
technology and top drive manufacturing, directional drilling, rig
instrumentation and software, and construction and logistics
operations.

(5) Includes Earnings from unconsolidated affiliates, accounted for by
the equity method, of $4.0 million, $.1 million and $1.3 million
for the three months ended June 30, 2005 and 2004 and March 31,
2005, respectively, and $5.3 million and $2.8 million for the six
months ended June 30, 2005 and 2004, respectively.

(6) Represents the elimination of inter-segment transactions.

(7) Represents the elimination of inter-segment transactions and
unallocated corporate expenses.

(8) Excludes well-servicing rigs, which are measured in rig hours.
Includes our equivalent percentage ownership of rigs owned by
unconsolidated affiliates. Rig years represents a measure of the
number of equivalent rigs operating during a given period. For
example, one rig operating 182.5 days during a 365-day period
represents 0.5 rig years.

(9) International rig years include our equivalent percentage
ownership of rigs owned by unconsolidated affiliates which totaled
4.0 years during the three months ended June 30, 2005 and 2004 and
3.7 years during the three months ended March 31, 2005, and 3.9
years and 4.0 years during the six months ended June 30, 2005 and
2004, respectively.

(10)Rig hours represents the number of hours that our well-servicing
rig fleet operated during the period.


NABORS INDUSTRIES LTD. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)

A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:


Three Months Ended Six Months Ended
---------------------------- -------------------
June 30, March 31, June 30,
------------------ --------- -------------------

(In thousands, except
per share amounts) 2005 2004 2005 2005 2004
--------- -------- --------- --------- ---------

Net income
(numerator):
Net income - basic $131,805 $46,348 $127,414 $259,219 $118,065
Add interest
expense on
assumed
conversion of our
zero coupon
convertible/
exchangeable
senior
debentures/notes,
net of tax:
$1.381 billion
due 2021 (1) - - - - 6,180
$700 million
due 2023 (2) - - - - -
--------- -------- --------- --------- ---------
Adjusted net
income - diluted $131,805 $46,348 $127,414 $259,219 $124,245
--------- -------- --------- --------- ---------

Earnings per
share:
Basic $.84 $.31 $.84 $1.67 $.80
Diluted $.82 $.30 $.80 $1.62 $.76

Shares (denominator):
Weighted-average
number of shares
outstanding -
basic (3) 157,440 148,866 152,165 154,803 148,425
Net effect of
dilutive stock
options and
warrants based on
the treasury
stock method 3,772 6,368 6,612 5,193 6,501
Assumed conversion
of our zero
coupon
convertible/
exchangeable
senior
debentures/notes:
$1.381 billion
due 2021 (1) - - - - 8,491
$700 million
due 2023 (2) - - - - -
--------- -------- --------- --------- ---------
Weighted-average
number of shares
outstanding -
diluted 161,212 155,234 158,777 159,996 163,417
--------- -------- --------- --------- ---------

(1) Diluted earnings per share for the three months ended June 30,
2005 and 2004 and March 31, 2005 and for the six months ended June
30, 2005 excludes approximately 8.5 million potentially dilutive
shares initially issuable upon the conversion of these debentures.
Such shares did not impact our calculation of diluted earnings per
share for the three months ended June 30, 2005 and March 31, 2005,
and for the six months ended June 30, 2005 as we are required to
pay cash up to the principal amount of any debentures converted
resulting from the issuance of a supplemental indenture relating
to the debentures in October 2004. We would only issue an
incremental number of shares upon conversion of these debentures,
and such shares would only be included in the calculation of the
weighted-average number of shares outstanding in our diluted
earnings per share calculation, if the price of our shares
exceeded approximately $96. Such shares did not impact our
calculation of diluted earnings per share for the three months
ended June 30, 2004 because the inclusion of such shares would
have been anti-dilutive, given the level of net income for that
period. Net income for the three months ended June 30, 2004
excludes the related add-back of interest expense, net of tax, of
$3.1 million for these debentures. These shares would have been
dilutive and therefore included in the calculation of the
weighted-average number of shares outstanding-diluted had diluted
earnings per share been at or above $.37 for the three months
ended June 30, 2004. Diluted earnings per share for the six months
ended June 30, 2004 reflects the assumed conversion of our $1.381
billion zero coupon convertible senior debentures due 2021, as the
conversion in that period would have been dilutive.

(2) Diluted earnings per share for the three months ended June 30,
2005 and 2004 and March 31, 2005 and for the six months ended June
30, 2005 and 2004 excludes approximately 10.0 million potentially
dilutive shares initially issuable upon the exchange of our $700
million zero coupon senior exchangeable notes due 2023. Such
shares did not impact our calculation of diluted earnings per
share for the three months ended June 30, 2005, and March 31,
2005, and for the six months ended June 30, 2005 as we are
required to pay cash up to the principal amount of any notes
exchanged as a result of the supplemental indenture issued for
these notes during the fourth quarter of 2004. We would only issue
an incremental number of shares upon exchange of these notes, and
such shares would only be included in the calculation of the
weighted-average number of shares outstanding in our diluted
earnings per share calculation, if the price of our shares
exceeded $70.10. Such shares did not impact our calculation of
diluted earnings per share for the three and six months ended June
30, 2004 as the notes are contingently exchangeable under certain
circumstances and would only be included in the calculation of the
weighted-average number of shares outstanding-diluted if any of
those criteria were met. Such criteria were not met during the
three and six months ended June 30, 2004. Based on the initial
exchange price per share, these notes would have been exchangeable
for our common shares during those periods if the closing sale
price per share of Nabors' common shares for at least 20 trading
days during the period of 30 consecutive trading days ending on
the last trading day of the previous calendar quarter was greater
than or equal to $84.12.

(3) Includes the following weighted-average number of common shares of
Nabors and weighted-average number of exchangeable shares of
Nabors Exchangeco (Canada) Inc., an indirect wholly-owned Canadian
subsidiary of Nabors, respectively: 157.2 million and .2 million
shares for the three months ended June 30, 2005; 148.6 million and
.3 million shares for the three months ended June 30, 2004; 152.0
million and .2 million shares for the three months ended March 31,
2005; 154.6 million and .2 million shares for the six months ended
June 30, 2005; and 148.1 million and .3 million shares for the six
months ended June 30, 2004. The exchangeable shares of Nabors
Exchangeco are exchangeable for Nabors common shares on a
one-for-one basis, and have essentially identical rights as Nabors
Industries Ltd. common shares, including but not limited to voting
rights and the right to receive dividends, if any.



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