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Investing.com -- S&P Global Ratings has revised its outlook on Nabors Industries Ltd (NYSE:NBR). to negative from stable, while affirming its ’B-’ rating, citing heightened refinancing risk ahead of upcoming debt maturities.
The rating agency expressed concern about Nabors’ ability to refinance its $700 million 7.375% senior priority guaranteed notes due May 2027 and $390 million 7.5% senior guaranteed notes due January 2028. S&P believes liquidity could become constrained if the 2027 notes are not refinanced before they become current in May 2026.
Nabors’ financial position shows mixed signals. The company’s $350 million credit facility, maturing June 2029, is currently over 50% drawn after the company accessed $178 million in the first quarter of 2025 to refinance debt related to its Parker Wellbore acquisition, which closed on March 12, 2025.
While Nabors maintains a cash balance of nearly $400 million as of March 31, 2025, approximately $230 million is held at its Saudi Aramco (TADAWUL:2222) Nabors Drilling joint venture. S&P expects Nabors to generate negative free operating cash flow this year under current oil and gas price assumptions.
The oilfield services industry faces market challenges in North America amid elevated storage levels and additional global supply. With almost 50% of its contracted rigs in the U.S., Nabors’ results will likely be impacted by declining U.S. upstream capital spending, which S&P projects will fall 5%-10% this year. The rating agency forecasts Nabors’ U.S. rig utilization to decline to about 35% in 2025 from about 42% in 2024, based on a WTI price assumption of $55 per barrel for the remainder of the year.
Nabors’ geographic diversification provides some buffer against U.S. market declines. Its largest international operation is in Saudi Arabia, where it currently has about 52 rigs working under its SANAD joint venture, representing about 60% of its international working rigs.
However, high capital spending requirements for new builds under the SANAD joint venture are compressing free cash flow. S&P expects capital expenditures of $725 million-$775 million annually for 2025 and 2026, compared to $540 million-$570 million in 2023 and 2024. This leads to a forecast of negative $60 million free operating cash flow for 2025, improving to positive $90 million in 2026.
Despite lower North American activity levels, S&P expects Nabors’ EBITDA and funds from operations to increase this year due to the Parker Wellbore acquisition and relatively stable international activity. The rating agency forecasts adjusted EBITDA of about $925 million and funds from operations of about $715 million in 2025, compared to approximately $900 million and $615 million, respectively, in 2024.
S&P could downgrade Nabors if it fails to favorably refinance its upcoming maturities before they become current or if liquidity significantly deteriorates. Conversely, the outlook could return to stable if Nabors successfully refinances its debt on favorable terms and maintains adequate liquidity.
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