Nabors Industries Q1 Earnings Call Highlights

Key Points

• Middle East conflict has created logistics and crew-rotation inefficiencies but Nabors says it maintained pre-conflict operating tempo; the company quantified a ~$3.5 million EBITDA hit in Q1 and is modeling a $6–8 million impact for Q2, mainly in International Drilling.
• Q1 consolidated revenue of $784 million and adjusted EBITDA of $205 million, while Nabors added Lower‑48 rigs (66 at quarter-end) and outperformed the broader U.S. market; management expects U.S. rig pricing to trend from the low‑$30Ks to the mid‑$30Ks through 2026–27.
• Debt reduction remains the company's top priority: Nabors redeemed $379 million of 2028 notes, targets ~1x net debt leverage before returning capital to shareholders, guided full‑year capex of $730–760 million (with SANAD spending significant), and expects free‑cash‑flow to improve after a $48 million adjusted FCF outflow in Q1.

Nabors Industries NYSE: NBR reported first-quarter 2026 results that management said were largely in line with prior expectations, despite operational inefficiencies stemming from the ongoing Middle East conflict. On the company’s earnings call, Chairman, President and CEO Tony Petrello and CFO Miguel Rodriguez emphasized continued operating continuity across Nabors’ regional footprint, rising Lower 48 activity for the company despite a broadly flat U.S. market, and ongoing debt reduction efforts.

Middle East operations remained steady amid conflict-related inefficiencies

Petrello opened by detailing Nabors’ exposure in the Gulf region, including 53 rigs in Saudi Arabia operating under the SANAD Land Drilling joint venture, four rigs in Oman, and three rigs in Kuwait, along with casing running operations in Saudi Arabia and Abu Dhabi and Canrig facilities in Saudi Arabia and Dubai. He said Nabors has maintained its “pre-conflict operating tempo” and that clients have not communicated “any material change to their forward plans.”

Rodriguez said the conflict introduced inefficiencies during the quarter, “primarily affecting logistics, supply chain, and crew rotations.” He quantified the first-quarter impact as approximately $3.5 million of adverse EBITDA effect across the International Drilling and Rig Technology segments. Looking ahead, Nabors’ second-quarter EBITDA guidance assumes a $6 million to $8 million impact, “primarily within international drilling,” as those inefficiencies persist.

In response to an analyst question about how the company has maintained operations, Petrello described strain on travel and logistics, including fewer airlines supporting crew rotation and supply chain detours. He cited an example where drill pipe located in Jebel Ali could not be moved, requiring Nabors to reallocate equipment from operating rigs, and said some imports normally routed through the Port of Dammam are instead being shipped via the Red Sea and trucked roughly 850 miles. Petrello added that customers—particularly Saudi Aramco—have been “totally supportive,” and he credited crews for remaining focused on daily operations despite regional security concerns.

First-quarter financial results and segment performance

Nabors reported consolidated revenue of $784 million and adjusted EBITDA of $205 million, with an EBITDA margin of 26.1%, down 164 basis points sequentially, according to Rodriguez. He said the sequential revenue decline was driven by a seasonal reduction in the Rig Technologies segment, approximately $3 million of logistics disruptions in the Middle East, and a previously announced dayrate step-down for a marquee rig in the Gulf of America that shifted to a workover rate at the start of the year.

Segment results discussed on the call included:

• International Drilling: Revenue of $419 million and EBITDA of $121 million (28.9% margin). Rodriguez attributed sequential EBITDA pressure to anticipated labor costs in Saudi Arabia related to Ramadan and Eid, time impacts from two SANAD rigs transitioning from oil-directed to gas-directed drilling, the conclusion of certain short-term high-margin activities in the prior quarter, continued activity disruptions in Colombia, and incremental conflict-related costs. Average daily gross margin was $16,880, below guidance.
• U.S. Drilling: Revenue of $241 million and EBITDA of $88 million (36.5% margin), which Rodriguez said exceeded guidance due to stronger-than-expected Lower 48 activity. Lower 48 revenue was $192 million, up 5.9% sequentially, with average rig count rising by 5.5 to 65.3. Average daily revenue declined modestly to $32,660 due to repricing on new contracts; leading-edge daily revenue remained in the low $30,000s.
• Alaska and U.S. offshore: Combined revenue of $49 million and EBITDA of $17 million, down $9 million sequentially, reflecting changes in scope and mix.
• Drilling Solutions (NDS): Revenue of $106 million and EBITDA of $39 million (36.4% margin). Rodriguez said the segment delivered a “new record” by converting approximately 94% of EBITDA to free cash flow, underscoring low capital intensity.
• Rig Technologies: Revenue of $27 million and EBITDA of roughly $0.5 million, below guidance. Rodriguez said the quarter reflected an expected decline following strong year-end sales, and noted parts delivery delays related to the conflict represented about $1.5 million of impact.

Lower 48 rig count increased as Nabors outperformed the broader U.S. market

Petrello said the company added four rigs during the first quarter and eight rigs since November 2025, bringing the Lower 48 rig count to 66 at quarter-end, where it currently stands. He said the additions since the beginning of the year were “primarily” from public operators and spread across basins: four in the Permian, three in the Haynesville, and one in the Eagle Ford.

Management contrasted Nabors’ U.S. outperformance with broader market trends. Petrello noted that since the beginning of the calendar year, the Baker Hughes weekly Lower 48 land rig count declined by three rigs while Nabors increased by four. Rodriguez said customer discipline remains prevalent, particularly among majors and public E&Ps, and that Nabors’ gains reflect strong commercial execution that began in the fourth quarter rather than a broad-based shift in customer behavior.

For the second quarter, Rodriguez guided to an average Lower 48 rig count of 67 to 68 and said the company expects to exit the quarter at approximately 69 rigs and maintain activity “at or near that level through the remainder of the year.” Petrello acknowledged there could be upside if conditions cooperate, but said Nabors is being cautious given the market can “turn on a dime.”

Asked about reactivating rigs beyond 69, Petrello described two tranches of incremental capacity: a first tranche of roughly 11 to 12 rigs that is “relatively digestible,” followed by another roughly 15 rigs where costs rise “incrementally.” He said price increases would be associated with reactivations and added, “we don’t see that as being much of a problem.”

Pricing outlook tied to tightening supply, higher well demands, and upgrades

Petrello said Nabors expects rig pricing to “increase progressively through 2026 and into 2027, reaching the mid-30s,” while Rodriguez similarly said pricing should trend from the low $30,000s to the “mid-$30,000s as we progress through this year and into 2027.”

On drivers of U.S. rate inflation, Petrello cited a reduction in the number of marketable rigs over the past two years and increased well program demands—such as longer laterals—that require upgraded rig components. He said those upgrades carry additional cost and “therefore extra pricing,” which he characterized as “very high return add-ons.” He also described differing basin dynamics, including tightening in West Texas and improved conditions in South Texas, while noting East Texas remained flatter and influenced by gas-market conditions.

Petrello also highlighted the PACE-X Ultra, which he said set an industry benchmark as the first rig with a 10K PSI mud system and includes an integrated drilling automation package from Nabors Drilling Solutions (NDS) as well as integrated managed pressure drilling (MPD). He said the first unit continues to work for Cactus in South Texas and that Nabors has agreements to deploy two more PACE-X Ultras later this year. Petrello said that including NDS content, daily revenue is “well above the $40,000 mark” and the rigs work on term contracts.

SANAD growth and balance sheet priorities

Internationally, Petrello said SANAD deployed its 15th new-build rig during the first quarter, with four more planned to commence during 2026 to bring the new-build total to 19 and a 20th expected to start in early 2027. He also said SANAD resumed operations on one previously suspended rig in March and expects a second to start late in the second quarter. Rodriguez guided to international average rig count of 93 to 95 in the second quarter, driven by the start of the 16th SANAD new-build and the redeployment of the second suspended rig.

Petrello said SANAD is advancing discussions for the “next group of five new build rigs,” which would bring the total to 25, and later in the call said each tranche is expected to generate more than $60 million in annual EBITDA. When asked about Saudi market upside, Petrello said Nabors could participate through either acceleration of the new-build program or redeploying rigs from other markets, though he suggested acceleration may not solve a short-term need.

On capital allocation, both Petrello and Rodriguez reiterated that debt reduction remains the company’s top priority. Rodriguez said Nabors redeemed the remaining $379 million of senior guaranteed notes due 2028 during the first quarter, extending the nearest maturity to June 2029 with a $250 million maturity at that time. He said the company’s medium- to long-term objective is to reduce net debt leverage to approximately one time, and that once it gets close, Nabors would “seriously contemplate” other capital allocation initiatives, including potential shareholder returns such as buybacks or dividends.

Nabors reported first-quarter capital expenditures of $159 million, below guidance due to timing shifts in SANAD new-build milestones, with $72 million related to the program. For the second quarter, Rodriguez guided to capex of $180 million to $190 million, including $75 million to $80 million for SANAD, while reiterating full-year capex guidance of $730 million to $760 million.

On cash flow, Rodriguez said Nabors consumed $48 million of consolidated adjusted free cash flow in the first quarter, exceeding the midpoint of guidance by more than $35 million. He emphasized that free cash flow outside of SANAD was nearly break-even, aided by better-than-expected working capital and capex below plan. For the second quarter, he guided to approximately $10 million of consolidated adjusted free cash flow, with SANAD consuming about $10 million, and said the company is “well-positioned to exceed” full-year guidance based on improving Lower 48 momentum, a constructive international outlook, and capital discipline.

About Nabors Industries NYSE: NBR

Nabors Industries Ltd. is a global oil and gas drilling contractor that provides land and offshore drilling rigs, drilling equipment and related services to energy companies around the world. The company's operations span two core segments: drilling and evaluation, which includes land‐based and platform drilling rigs as well as wellbore survey services, and wellbore technologies, offering pressure control equipment, downhole tools and specialized maintenance services. Nabors' integrated model combines rig operations with engineered products and field support, positioning it as a full‐service provider in the upstream sector.

The company maintains a diverse, modern fleet of automated and conventional drilling rigs and has pioneered advanced drilling technologies, including automated drilling controls and managed pressure drilling systems.

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