Nabors CEO: Expect more exits from U.S. oil patch in fourth quarter

Oil companies will continue to retreat from oil fields, especially in the United States, bringing down the rig count for the rest of the year and into 2016, too, the CEO of drilling rig contractor Nabors Industries said Wednesday.

The company has 81 rigs operating in the domestic oil patch today and expects that number to slip into the mid-70s in the fourth quarter, CEO Tony Petrello said on a conference call with investors Wednesday.

Nabors’ international rig count could fall by five rigs, and that’s after the company recently deployed three highly specialized rigs in Saudi Arabia, locking in multi-year contracts on each.

The company recently surveyed 10 of its customers, a group that represents a large chunk of U.S. drillers, and found just two considering putting more rigs back to work over the next six months, Petrello said. Six expected flat oil field activity and the remaining two expected to idle additional rigs.

Anemic oil prices will eventually begin to crimp the global glut of crude oil, which in turn should prod prices higher again, but oil companies need to become convinced that the market has rebounded enough for them to drill again, Petrello said. But that’s not the case right now.

“That level of confidence is not evident among our customer base,” he said.

Petrello’s predictions join a chorus of services executives forecasting a bleaker business environment in the coming months as oil companies run out of money for the year and extend their seasonal holiday break from the oil field, starting as early as Thanksgiving.

In the first months after oil prices collapsed, international oil field activity remained more resilient to the downturn, but national oil companies are not immune to the dismal market conditions and the pain that started in the United States has started to affect other countries, too, Petrello said.

To offset the declining demand for its rigs, Nabors has been trying to protect its balance sheet by slashing costs, reducing its headcount and squeezing its suppliers for deeper discounts. The company’s workforce has shrunk 29 percent since late last year and Nabors plans to implement additional cost-cutting in the fourth quarter.

The company posted a $296 million loss in the third quarter, or $1.02 per share, which is down from a profit of $106 million, or 36 cents per share, during the same time last year.

While other oil field services companies and equipment suppliers have noted interest in potential mergers and acquisitions as the lingering slump narrows the bid-ask spread, Petrello said Nabors, which has a track record of acquiring assets, has not seen a deal worth making yet.

“The current market conditions could once again bring such assets to market,” he said. “Although we have evaluated several packages recently, we have not seen the fit or evaluations recently that make sense to us.”