Nabors Industries Ltd. (NBR) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary presents a generally positive outlook. The company has reduced net debt significantly, improved EBITDA, and exceeded revenue expectations. The SANAD newbuild program is progressing well, with international expansion contributing to growth. Although there are some uncertainties, like market volatility, the company is managing costs and planning strategically. The Q&A section supports this sentiment, with analysts showing interest in growth plans and new technologies. Overall, the financial performance and strategic initiatives suggest a positive stock price movement over the next two weeks.
Key Financial Performance
Net Debt Reduction Reduced net debt by $554 million compared to the end of 2024. This improvement significantly derisks the capital structure and reduces annualized cash interest expense by approximately $45 million.
Adjusted EBITDA Adjusted EBITDA totaled $222 million for the fourth quarter, exceeding expectations due to stronger performance in the U.S. Drilling segment and increased EBITDA from the legacy Drilling Solutions segment. Sequentially, EBITDA improved excluding the contribution from Quail Tools in the third quarter.
Full Year Revenue Full year 2025 revenue was $3.2 billion, reflecting growth of 8.7% year-over-year. This was driven primarily by the acquisition of Parker Wellbore and strong international expansion.
Full Year Adjusted EBITDA Full year adjusted EBITDA was $913 million, $31 million higher than the prior year, driven by the acquisition of Parker Wellbore and international growth.
Fourth Quarter Revenue Fourth quarter consolidated revenue was $798 million, a decrease of $21 million or 2.5% sequentially. The divestiture of Quail Tools reduced revenue by $34 million, but this was partly offset by growth in the International Drilling segment.
International Drilling Revenue International drilling revenue was $424 million for the fourth quarter, growing by $17 million or 4.1% sequentially. This was driven by new rig deployments in Saudi Arabia and Argentina, as well as continued operations in Mexico.
Lower 48 Rig Count The Lower 48 rig count increased to 66 rigs by the end of the fourth quarter, up from 62 rigs. This increase was driven by additions in the Permian, Eagle Ford, and Haynesville basins.
Adjusted Free Cash Flow Generated adjusted free cash flow of $132 million in the fourth quarter, driving full-year adjusted free cash flow to $117 million. This exceeded guidance due to stronger EBITDA, lower capital expenditures, and improved collections in Mexico.
Capital Expenditures Total capital expenditures for 2025 were $695 million, including $274 million for SANAD newbuilds. Fourth quarter capital expenditures were $158 million, lower than guidance.
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Operating Highlights
PACE-X Ultra Rig: The first unit has been working for Catalyst in South Texas since mid-September and has delivered high expectations. Nabors is working toward deploying a second PACE-X Ultra rig and upgrading existing PACE-X rigs for enhanced capabilities.
International Drilling Expansion: Nabors is tracking nearly 20 opportunities for additional rigs in countries where it currently operates. In Saudi Arabia, SANAD plans to deploy five more rigs in 2026, bringing the total to 19, with further expansion to 25 rigs in the coming years.
Venezuela Operations: Nabors is prepared to return to work in Venezuela with suitable commercial terms and security arrangements. Discussions with multiple operators are ongoing.
Latin America Growth: Activity in Mexico has improved with three offshore platform rigs working and a fourth expected to restart early this year. In Argentina, Nabors plans to deploy two additional rigs, increasing the total to 14.
Debt Reduction: Net debt was reduced by $554 million compared to the end of 2024, lowering annualized cash interest expense by approximately $45 million.
Free Cash Flow: Generated adjusted free cash flow of $132 million in Q4 2025, significantly exceeding expectations. Full-year adjusted free cash flow reached $117 million.
Capital Structure Transformation: Extended debt maturity profile to 2029, reduced net leverage ratio to 1.7x, and improved credit ratings.
Technology and Innovation: Nabors is integrating full automation packages and managed pressure drilling into its rigs, enhancing operational efficiency and client value.
Focus on High-Spec Rigs: Nabors is deploying high-spec rigs like the PACE-X Ultra to meet client demands for advanced drilling capabilities, generating attractive returns.
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Risk or Challenges
Oil Price Volatility: Oil prices experienced a downward trend in the second half of 2025, influenced by factors such as U.S. imports of Venezuelan crude, production interruptions in Kazakhstan, and geopolitical uncertainties in Iran and Ukraine. These fluctuations create uncertainty for the company's operations and client investment decisions.
Global Oil Supply Surplus: The EIA reported a global oil supply surplus throughout 2025, which could pressure oil prices and impact drilling activity and profitability.
Regulatory and Payment Issues in Venezuela: Operations in Venezuela have been historically affected by payment problems and OFAC regulations. While the company is prepared to return to work there, suitable commercial terms and security arrangements are required, posing a potential challenge.
Activity Disruptions in Colombia: Logistics and drilling plans in Colombia were disrupted during the quarter, impacting operational efficiency and financial performance.
Maintenance and Start-Up Inefficiencies in Saudi Arabia: More maintenance days than anticipated and inefficiencies from rig start-ups in Saudi Arabia affected margins and operational performance.
Tight Labor Market in Saudi Arabia: SANAD faces challenges in mitigating the effects of a tight labor market in Saudi Arabia, which could impact the deployment of new rigs and operational efficiency.
Commodity Price Volatility in the U.S.: Ongoing commodity price volatility in the U.S. market creates challenges for maintaining stable operations and profitability.
Payment Stability in Mexico: While there has been improvement in client payment posture in Mexico, historical payment issues with PEMEX highlight potential risks to operational stability.
Capital Expenditure and Free Cash Flow Constraints: High capital expenditures, particularly for SANAD's newbuild program, are consuming significant free cash flow, which could limit the company's financial flexibility.
Geopolitical Risks: Ongoing conflicts involving Ukraine and Iran, as well as uncertainty around future tariff actions, pose risks to global market stability and client investment decisions.
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Guidance & Outlook
Revenue Expectations: For 2026, Nabors expects EBITDA performance to match 2025 levels, with increases in several operations offsetting the disposition of Quail. Full-year revenue for 2025 was $3.2 billion, reflecting an 8.7% year-over-year growth.
International Drilling Growth: Nabors anticipates international drilling rig count to grow to 96-98 rigs in 2026, with a December exit at or above 101 rigs. This includes newbuilds in Saudi Arabia and redeployments in Argentina. Average daily gross margin is targeted at $18,500, a 5% increase.
U.S. Drilling Outlook: Lower 48 rig count is expected to average 61-64 rigs in 2026, with daily gross margins ranging between $13,000 and $13,400. Activity in Alaska and offshore is expected to generate $55-$60 million in EBITDA.
SANAD Joint Venture Expansion: SANAD plans to deploy five newbuild rigs in 2026, bringing the total to 19, with the 20th starting in early 2027. Discussions for a fifth tranche of newbuild rigs are ongoing, potentially increasing the total to 25.
Natural Gas Market Outlook: The outlook for natural gas remains positive, with LNG exports and domestic consumption expected to ramp up in the U.S. and continued expansion in the Middle East and Latin America.
Capital Expenditures: Capital expenditures for 2026 are projected to range between $730 million and $760 million, including $360 million to $380 million for SANAD newbuilds.
Debt Reduction: Nabors plans to reduce gross debt by at least $100 million in 2026, supported by free cash flow generation outside SANAD.
Technology and Innovation: Nabors is working on deploying high-end rigs like the PACE-X Ultra, with plans to upgrade existing rigs for enhanced capabilities. This includes automation and managed pressure drilling packages.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the outlook for the Lower 48 rig count and the drivers behind the increase?
A:The rig count has increased to 66, up from 60 in the previous quarter. The increase is driven by public E&P activity, a shift towards longer laterals (e.g., 3-4 mile laterals), and a focus on gas rigs, which now account for 20% of the total. Nabors' PACE-X rigs are well-suited for these longer laterals, and the company remains bullish on the long-term gas market.
Q:What is the status of the SANAD newbuild program and the labor market in Saudi Arabia?
A:The SANAD newbuild program is progressing well, with two rigs scheduled for activation in Q2 and Q3. The labor market in Saudi Arabia is tight, but Nabors is confident in its ability to manage timelines due to its vertical integration and strong position in the Kingdom. Aramco's resumption of rigs signals a positive market outlook for 2027.
Q:Are there plans to put additional rigs to work in Mexico beyond the fourth platform rig?
A:Currently, Nabors is focused on making the existing three rigs profitable and moving forward with the fourth rig. There are discussions about supporting other rigs, including PEMEX-owned rigs, but no specific plans for additional rigs were mentioned.
Q:What is the CapEx outlook for the SANAD newbuild program and its impact on free cash flow?
A:The CapEx for 2025 was $274 million, with $85 million sliding to 2026. The expected CapEx for 2026 is $360-$380 million, decreasing to $320-$330 million in 2027. SANAD's EBITDA growth is progressing, and the program is expected to approach a free cash flow inflection point by 2027.
Q:What is the reason for the cautious outlook for the second half of the year?
A:The caution is due to external market noise, such as EIA reports of oversupply and market volatility. Nabors is focused on cost structure and planning for potential downside scenarios, despite being pleasantly surprised by current progress.
Q:What is the new can rig wrench, and what are its benefits?
A:The new can rig wrench is a 3-bite wrench with advanced automation and sensors, capable of fully autonomous operation. It has shown excellent performance in initial tests and is well-suited for larger pipes and complex wells. Nabors plans to deploy it on its rigs and expects third-party demand.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether there are specific plans to put additional rigs to work in Mexico beyond the fourth platform rig, providing only general comments about discussions and market positivity.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Alaska
Drilling Solutions
Drilling segment
Investor Relations
Mexico
Middle East
NDS
Nabors
PACE Ultra
PACE rig
Parker
Saudi Arabia
Venezuela
accomplishment
action
basis point
capital structure
client
count rig
drilling
element
flow SANAD
maturity
party rig
price
production
progress
rating
redeployment
return
rig Argentina
rig addition
rig cash
sale
update
work
NBR Transcript
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The financial performance indicates strong growth with a 10% revenue increase and a shift from a net loss to a net profit. EBITDA and operating cash flow also showed significant improvements, suggesting effective cost management and operational efficiency. Despite the lack of discussion on strategic initiatives or operational updates, the financial results alone provide a solid basis for a positive sentiment. The absence of concerning responses in the Q&A further supports this outlook.
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The earnings call indicates mixed signals: a slight decrease in net sales and gross margins due to tariffs, but a net cash positive position and cautious optimism about product launches. The Q&A revealed management's cautious optimism, focus on long-term margin improvements, and structural strategies to offset tariff impacts. However, lack of specific guidance and clarity on new product performance tempers enthusiasm. Overall, the sentiment is neutral, suggesting minimal short-term stock movement.
Nabors Industries Ltd. (NBR) Q4 2025 Earnings Call Transcript
Positive2-12
The earnings call summary presents a generally positive outlook. The company has reduced net debt significantly, improved EBITDA, and exceeded revenue expectations. The SANAD newbuild program is progressing well, with international expansion contributing to growth. Although there are some uncertainties, like market volatility, the company is managing costs and planning strategically. The Q&A section supports this sentiment, with analysts showing interest in growth plans and new technologies. Overall, the financial performance and strategic initiatives suggest a positive stock price movement over the next two weeks.
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The earnings call indicates a positive outlook with improved net earnings, strong free cash flow, and reduced capital expenditures. The company is strategically positioned for growth in the natural gas sector and international markets, which can drive stock price upward. Additionally, management’s cautious optimism and strategic investments in technology and logistics further support a positive sentiment. However, some uncertainties remain, such as pricing unpredictability and lack of specific contract details, but these do not outweigh the overall positive indicators.
NBR Slides
NBR Report
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