Over the past 12 months, Nabors Industries Ltd.  (NBR Quick QuoteNBR - Free Report) has notably underperformed its peers and relevant benchmarks. NBR's shares declined 12.4%, while other companies in the Oil and Gas – Drilling sub-industry showed strong growth. Valaris (VAL Quick QuoteVAL - Free Report) led the way with an impressive 42.8% increase, followed by Transocean (RIG Quick QuoteRIG - Free Report) at 10.4%. Helmerich & Payne (HP Quick QuoteHP - Free Report) saw a decrease of 10.1%, while the Oil and Gas – Drilling sub-industry (ZSI134M) grew 4.8%. The broader Oil and Energy sector (ZS12M) also saw growth, rising 5%. In contrast, NBR's performance was one of the weakest in the sector, underperforming both its peers and the broader industry.

12-Month Price Performance Comparison

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The share price performance indicates that this company is facing difficulty in maintaining its market position due to a combination of operational challenges, market volatility and possibly ineffective business strategies. Let’s take a closer look at the key factors influencing NBR’s stock performance.

The Roadblocks to NBR’s Market Recovery

Core Operational Profitability (Adjusted EBITDA) Decline:  The company's adjusted EBITDA decreased sequentially from $248 million in second-quarter 2025 to $236 million in third-quarter 2025. This decline occurred despite the sale of a high-margin business (Quail Tools), suggesting pressure on the profitability of remaining operations. Management acknowledged the drop was partly due to the divestiture, but the underlying reason requires scrutiny to ensure core segments can sustain cash generation without asset sales.

Persistent Challenges and Uncertainty in the U.S. Lower 48 Market: Management highlighted a muted activity outlook and ongoing pressure in the key U.S. Lower 48 drilling market. The average rig count declined and daily margins contracted due to labor inefficiencies, cost absorption from rig churn and harsh drilling conditions. The guidance for the fourth quarter suggests further rig count softness and margin pressure, indicating that this critical domestic market may not provide near-term growth or stability.

Severe Volatility and Collection Issues in Mexico: Operations in Mexico face significant uncertainty, with two of three offshore platform rigs likely to be suspended in fourth-quarter 2025. More alarmingly, collections from the key customer PEMEX were substantially below expectations, creating a cash flow headwind. In contrast, Valaris and Transocean have a more diversified geographical exposure, reducing the risk of such concentrated collection issues. The lack of a structured resolution for 2024 receivables adds credit risk and uncertainty, directly impacting the company's adjusted free cash flow and working capital management.

High Capital Expenditures With Constrained Free Cash Flow: Nabors Industries' capital expenditures remain elevated, guided at $715-$725 million for 2025, with no expected decline in 2026. This substantial ongoing investment, particularly in the SANAD newbuild program, consumes cash. As a result, the company guided to breakeven adjusted free cash flow for full- year 2025, indicating limited near-term capacity for further debt reduction or shareholder returns beyond mandatory spending.

Leverage Reduction Reliant on Non-Recurring Asset Sales: While net debt has decreased to a decade low, this improvement was due to the one-time sale of Quail Tools for $625 million. This transaction was similar to Transocean’s past asset sales to improve its balance sheet, but its focus has remained on sustainable debt reduction through consistent operational cash flow, not one-off sales. The company's leverage improvement is thus not purely organic and raises questions about the sustainability of balance sheet strengthening without further divestitures. Future deleveraging is dependent on consistent operational free cash flow, which remains under pressure.

Underperformance of the Drilling Solutions Segment Excluding Divestiture: Excluding the sold Quail Tools business, the Drilling Solutions segment's EBITDA showed only modest sequential growth. In a challenging Lower 48 market where third-party rig counts fell 6%, this minimal growth, despite a touted strong value proposition, suggests competitive pressure. Limited pricing power may be capping the segment's profit potential in the near term.

Exposure to Potential Oversupply in Global Oil Markets: Nabors Industries’ management believes that the geopolitical tensions in the Middle East and other global regions could lead to short-term disruptions, potentially supporting prices in the near term. However, the broader trend of oversupply remains a key concern for the long-term outlook. While short-cycle markets, particularly in the United States, may experience some resilience due to their ability to quickly adjust to price fluctuations, the company is cautious about the possibility of a prolonged period of low oil prices, which would likely affect drilling activity, exploration and production investments. In contrast, Helmerich & Payne, with its strong technological edge and focus on high-spec rigs, may be better positioned to navigate these market cycles by securing longer-term, more resilient contracts.

Dependence on a Single, Large International Joint Venture (SANAD): A significant portion of Nabors Industries' international growth narrative and capital allocation is tied to the SANAD joint venture in Saudi Arabia. While it offers visibility, it raises concentration risk. The venture consumes substantial cash flow (approximately $70 million in 2025) for newbuilds and its success is heavily dependent on the capital spending plans and tender decisions of a single national oil company, Aramco.

Guidance for Q4 Indicates Sequential Stagnation: Management's guidance for the fourth quarter of 2025 projects total EBITDA to be in line with the third quarter, excluding the sold Quail business. This implies a lack of sequential operational momentum as the year closes. Specific segment guidance, such as for Drilling Solutions EBITDA, also shows an expected decline, failing to paint a picture of accelerating performance.

Rig Technologies Segment’s Aftermarket Demand Soft: The Rig Technologies segment reported a sequential decline in EBITDA, attributed to reduced demand for aftermarket offerings. This softness reflects a broader slowdown in capital equipment spending and maintenance by drilling contractors in the current market environment, indicating a cyclical downturn in this higher-margin, equipment-related revenue stream.

Final Thoughts on NBR Stock

NBR is facing several challenges that suggest a difficult near-term outlook. The company’s adjusted EBITDA has declined, despite the sale of a high-margin business, indicating underlying operational pressure. Persistent issues in the U.S. Lower 48 market and severe volatility in Mexico, particularly with PEMEX, are exacerbating cash flow concerns. Elevated capital expenditures and constrained free cash flow limit the company’s ability to reduce debt or return value to shareholders. Moreover, the reliance on non-recurring asset sales for leverage reduction and weak performance in key segments further point to instability.

Unless this Zacks Rank #4 (Sell) company shows improved financial results and greater operational stability, investors may be better off exploring other opportunities in the oil and gas sector.