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Nabors Industries Reports Earnings Miss, Shareholder Plan

Nabors Industries Ltd., the world’s largest land-rig drilling contractor, said second-quarter operating results will miss analysts’ estimates on higher costs. The company also adopted a shareholder rights plan, designed to deter an unsolicited takeover.

Nabors, which provides rigs and well services including hydraulic fracturing to oil and natural-gas producers, expects to earn $220 million to $230 million, excluding some items, the Hamilton, Bermuda-based company said today in a statement. The forecast is at least $15.5 million lower than the average of 11 analysts’ estimates compiled by Bloomberg.

Hydraulic fracturing, or fracking, which pumps millions of gallons of water along with chemicals and sand to bust open oil-bearing rock, has become more costly for service providers, Luke Lemoine, a New Orleans-based analyst at Capital One Southcoast, said in a telephone interview. Labor and supply costs are rising, more competition is cutting into margins and the shift from natural gas to oil basins has caused some delays.

“We had full expectations of a negative quarter,” Brian Uhlmer, an analyst at Global Hunter Securities LLC in Houston, said in a telephone interview. He rates the shares at accumulate, which means investors should buy the stock.

Uhlmer said he was expecting Nabors to report operating income of $235 million in the quarter.

“It’s late startups,” Uhlmer said of the company’s international work. “This has been a perennial issue with them.”

Consolidating Units

The company’s production affiliate had $150 million in reduced value for its reserves. Second-quarter operating cash flow was almost $500 million, Nabors said.

Nabors will consolidate its U.S. well-servicing and pressure-pumping businesses into one unit, called Nabors Completion and Production Services. The consolidation and various other costs will lead to a non-cash charge of about $150 million in the second quarter, the company said.

Nabors said in March it’s looking to sell as much as $800 million of oil and gas assets this year, including its exploration and production investments and other non-core service-related assets.

Under the shareholder rights plan announced today, common shareholders will have the right to buy a new series of preferred stock. The plan is designed to deter any person or group from gaining control without paying a premium to all shareholders, according to a separate statement today.

Potential Buyers

“Who’s going to acquire them?” Philip Weiss, an analyst at Argus Research in New York, who rates the shares a buy and owns none, said in a telephone interview. “I don’t see a need for one of the other rig companies to combine with them.”

Denny Smith, a company spokesman, declined to comment on the shareholder rights plan beyond what was in the release.

At the company’s annual meeting in June, shareholders approved a proposal that would give owners of the stock greater power to nominate their own board candidates.

Nabors rose 6.6 percent to $14.07 at the close in New York.

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