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Nabors Arm Prices Senior Notes

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Nabors Industries Inc. (NII), a fully owned affiliate of land drilling contractor Nabors Industries Ltd. (NBR - Free Report) , declared the pricing of senior unsecured notes of $700 million. The notes will be offered to selected institutional investors.  

Out of $700 million worth of notes, $350 million senior notes, scheduled to mature in 2016, will carry an interest rate of 2.35% and will likely be priced at 99.942% of their face value. The remaining $350 million notes, supposed to mature in 2013, are projected to carry an interest rate of 5.10% and are estimated to be priced at 99.635% of their face value.

NII intends to utilize the proceeds from the notes offering, along with cash in hand and borrowings from its revolving credit facility, to acquire part or all of $1.125 billion outstanding senior notes that are expected to mature by 2019, with an interest rate of 9.25%.

Barbados-based Nabors conducts oil, gas, and geothermal land drilling operations and is the largest land drilling contractor in the world. Moreover, the company is well positioned with a sound mix of high performance rigs and new rigs in the key shale plays. Nabors also enjoys good exposure to oil plays with presence in the Bakken, Permian and International plays.

However, we are concerned about the weakness in Nabors’ pressure pumping business. Deterioration in pricing and utilization, coupled with the spike in costs, is likely to adversely impact the company’s second half results.

Nabors currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

Meanwhile, one can look at oil and gas drilling firms like Pacific Drilling SA , Parker Drilling Co. (PKD - Free Report) and SeaDrill Ltd. (SDRL - Free Report) that offer value. All the stocks sport a Zacks Rank #2 (Buy).

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