Weak market slows Nabors' efforts to divest

Company still expects to sell Peak Oilfield Services this year.

Petroleum NewsJuly 27, 2012 

Nabors Industries is finding it hard to get leaner in Alaska.

The oil field services company is having a tougher time than expected selling its non-core assets in the state, including oil field services company Peak Oilfield Services and its minority interest in extensive oil and gas exploration properties across the North Slope.

"The assets divestiture process is under way but moving more slowly than we had hoped," chief executive officer Tony Petrello told analysts during a call July 25. "However, we still expect to achieve our targets that we've set by this year."

While Nabors still expects to sell Peak by the end of the year, the company said it now believes it won't be able to find a suitable buyer for its North Slope leases until early next year.

The problem is not confined to Alaska.

While Nabors is evaluating bids for its Canadian aircraft businesses Blue Sky and Airborne and the 174 rigs in its Canadian workover and well services division, the company decided not to sell its Canadian coiled tubing business as the bids were "not acceptable," and two of the 12 rigs were recently awarded winter work at "good rates."

Nabors expects to complete sales of the aircraft and well services divisions this year, but Petrello said the company would keep those assets as well if the bids weren't acceptable.

Nabors also plans to soon begin marketing its jack-up rigs and barges.

In Alaska, Nabors expects to receive initial bids for Peak Oilfield Services "in a few weeks" after a "great deal of interest from potential buyers."

"We hope to complete the sale in the fourth quarter," Petrello said.

In addition to equipment, Nabors is looking to sell exploration and production assets, including the North Slope leases held by its subsidiary, Ramshorn Investments Inc.

Ramshorn holds a roughly 50 percent working interest in 230,000 gross acres operated by Brooks Range Petroleum Corp. The leases are spread across numerous prospects.

"In Alaska, the limited number of current players in the North Slope market, along with the failure of the Alaska Legislature to improve the onerous tax structure, is prolonging marketing efforts and will likely push any transaction into the first half of 2013," Petrello warned investors. "Nonetheless, these properties have real value and are strategically located within existing infrastructure ... and consist of three different discoveries."

Nabors Alaska Drilling, which is considered a "core asset," is not up for sale.

A sale of its Eagle Ford properties was delayed by the pending acquisition of partner GeoResources Inc., but Nabors still expects to complete the sale by the end of the year.

Within the last three quarters, Nabors has sold $154 million worth of exploration and production properties, including assets in California, the Austin Chalk and Columbia.

Nabors earned $8.9 million in operating income in Alaska in the second quarter, down from $27.4 million in the seasonal strong first quarter but up from $8.3 million in the second quarter of 2011. Nabors also reported loss of $4 million in Canada, down from $49 million in the first quarter. Petrello attributed both declines to "seasonal effects."

Companywide, Nabors earned $230 million in operating income in the second quarter.

For the coming year, Nabors expects to be busy in Alaska.

"Cook Inlet activity is improving as some large independents have recently became active in the market," Petrello said, likely referring to Apache Corp. and Hilcorp Energy Co. "The 2013 North Slope exploration season in Alaska is expected to be strong, as new entrants are taking advantage of exploration credits and securing multiple rigs."

While saying the lack of movement on revising oil taxes "is continuing to limit capital spending on development drilling in the North Slope legacy fields," Petrello said if Alaska revises the progressivity rate applied to its severance tax at high commodity prices "there are a number of significant projects planned for which Nabors is well positioned given our on-the-ground asset base, technological capabilities, operational excellence and proven ability to deliver on time and on budget in that difficult market."

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