Bloomberg News

Nabors’ CEO Switch May Spur Asset Sales to Unlock Higher Value

November 01, 2011

Nov. 1 (Bloomberg) -- Nabors Ltd., the world’s largest land-drilling contractor, may accelerate asset sales after replacing its long-time chief executive officer, analysts said.

A “conglomerate discount” is being applied to Nabors shares because of the company’s diverse portfolio of businesses, said Scott Gruber, an analyst at Sanford Bernstein in New York.

Nabors’s Oct. 28 announcement that President Anthony Petrello was immediately taking over as CEO gives the company an opportunity to streamline, potentially increasing its market value, Gruber wrote yesterday in a note to investors.

Since former CEO Gene Isenberg and a partner bought Nabors from bankruptcy creditors in 1987, the company has grown into the world’s largest land-rig contractor. It also has business units that sell hydraulic fracturing services, own stakes in oil and gas fields from Canada to Colombia, operate offshore rigs, drive trucks in Alaska and rent rigs to customers in other parts of the world.

“There’s definitely some things that are non-core there that just kind of cloud the numbers from time to time,” said Luke Lemoine, an analyst at Capital One Southcoast in New Orleans, who rates the shares an “add” and owns none. “It’d be a very positive move to see the company start to clean itself up.”

Potential Sale Targets

Petrello may be more inclined to consider selling units such as Nabors’s well services, Alaska trucking, offshore rig and exploration & production units, James Crandell, an analyst at Dahlman Rose & Co., wrote in a note to investors.

Nabors wouldn’t comment yesterday on specific plans, saying it had discussed with investors in the past its intentions to sell some assets.

“Any such transactions will be effected in an orderly manner with an intent to maximize the derived value to our shareholders,” Denny Smith, a Nabors spokesman, said in an e- mailed statement.

Nabors has been the second-worst-performing energy company in the Standard & Poor’s 500 Index, having dropped 32 percent percent over the past four quarters ending Sept. 30, according to Bloomberg data. Alpha Natural Resources Inc. was the worst in that period, falling 57 percent.

Nabors also trailed its two largest land-rig contractor peers, Helmerich & Payne Inc. and Patterson-UTI Energy Inc., with a price-to-book-value ratio of 1.26 over the past year compared with 1.53 and 1.52, respectively, according to Bloomberg data. A price-to-book-value ratio compares a company’s share price to the total book value per share of its assets. The lower the number, the more a company may be considered undervalued by the market.

‘Dream Scenario’

A “dream” scenario outlined by Brian Uhlmer, an analyst at Global Hunter Securities in Houston, is for industry rival Patterson to buy all of Nabors, then turn around and sell the pieces it wouldn’t want, such as its offshore and exploration & production units.

“If Patterson could pull it off, I think it’d be amazing,” Uhlmer said.

A takeover of Nabors would likely trigger a $50 million cash payment to Petrello, plus $6.66 million in stock upon termination, according to an SEC filing from April 29.

Former CEO Isenberg, 81, will receive a $100 million cash payout as part of his employment agreement, an arrangement viewed as excessive by some shareholders and analysts. Paying Isenberg $100 million for retiring as CEO “will be offensive to some,” Jeff Dietert, an analyst at Simmons & Co. in Houston, wrote yesterday in a note to investors.

Pay Practices Questioned

Petrello’s $50 million provision may exacerbate investor concerns about executive compensation at the company, said John Keenan, corporate governance analyst at the American Federation of State, County and Municipal Employees.

“This company has a history of poor pay practices, and this is just in keeping with that,” said Keenan, whose organization owns shares in Nabors.

Asset sales are the more likely strategy for Nabors, Uhlmer said.

Nabors already is planning to sell parts of its exploration & production business in the coming year, then-CEO Isenberg told analysts and investors on a recent earnings call. The company also is writing off about $100 million for retiring almost 200 rigs and about 60 trucks in various divisions, he said.

Because of the diversity of Nabors’s assets, potential buyers are likely to be equally diverse, making a sale of the whole company less likely, Uhlmer, of Global Hunter, said.

“I would probably see them most likely selling off small pieces. To find a dream buyer is very difficult,” he said.

--Editors: Susan Warren, Charles Siler

-0- Oct/31/2011 23:21 GMT

-0- Oct/31/2011 23:48 GMT

To contact the reporter on this story: David Wethe in Houston at dwethe@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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