Bayard Drilling on S&PWatch Pos; Nabors Rtgs Affirmed Nabors Industries, Inc.

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/20/98--Standard & Poor's today affirmed its triple-'B'-plus corporate credit rating on Nabors Industries Inc. and its triple-'B' debt rating on the company's convertible subordinated notes due 2006. The outlook is positive.

At the same time, Standard & Poor's placed its single-'B'-plus corporate credit and senior unsecured note ratings on Bayard Drilling Technologies Inc. on CreditWatch with positive implications.

These actions follow yesterday's announcement of a definitive agreement pursuant to which Bayard will merge into a wholly owned, newly created, special purpose subsidiary of Nabors. The merger will be accounted for under the purchase method, and will be financed with the issuance of roughly $100 million in equity from Nabors and the assumption of Bayard's debt. The debt will become an obligation of the newly created subsidiary. The deal is expected to be completed by the end of 1998.

The addition of Bayard's 87 drilling rigs, 73 of which are actively marketed, and inventory of new component equipment should provide a good strategic advantage and consolidate Nabors' dominant position in the competitive land contract drilling segment of the oilfield services sector.

The majority of Bayard's rigs are located in the midcontinent region of the U.S. and south Texas, with the balance of the fleet located throughout east Texas and Louisiana. Standard & Poor's will review the terms of the transaction and currently expects to equalize its ratings on Bayard's notes with those of Nabors upon the close of the transaction.

The ratings on Nabors reflect a strong competitive position in the difficult land-based contract drilling industry. The ratings also reflect expectations that the company will maintain a conservative financial policy. Houston, Texas-based Nabors is the world's largest onshore contract driller of oil and gas wells, with operations focused in North America. The company also has a growing international and offshore presence. Despite highly competitive industry conditions resulting in depressed utilization rates and weak day-rates on contracted rigs, Nabors has generated strong operating results due to its large, technically advanced fleet, providing critical mass and sustainable competitive advantages in most of its markets. Nabors enjoys significant economies of scale in purchasing and equipment use in the contiguous 48 states, leading to lower costs and higher rig utilization than its peers, which has facilitated the formation of stable customer alliances. Operations in Alaska, although mature, provide stable sources of earnings and cash flow. International and offshore operations should provide internal growth opportunities over the near-to-medium term.

Nabors' profitability has been above average among industry peers due to its diversified revenue base and low costs, which also reduces volatility and affords some protection from market downturns. Strong pretax interest coverage, well in excess of 10 times, is envisioned for 1998 and could increase with slowly improving market conditions over the long term. Still, Nabors' performance will remain subject to energy price volatility. Some markets, such as heavy oil drilling, are currently experiencing weakness. Ongoing investment requirements for maintenance capital expenditures are modest compared with funds from operations. However, Standard & Poor's expects Nabors to use all internally generated funds to expand the business, as has historically been the case.

Nabors is financially very strong. The company's balance sheet remains moderately leveraged, with total debt leverage expected to remain in the mid-to-high 20% area for the long term. Nabors enjoys significant financial flexibility for a contract driller, regularly issuing stock, including for acquisitions. Financial flexibility is also supported by light debt maturities and adequate bank credit facilities.

OUTLOOK (NABORS INDUSTRIES INC.): POSITIVE

A modestly higher rating could be possible if Nabors capitalizes on improving markets to further enhance its business position in the land contract drilling sector. The timing of potential rating increases depends on Standard & Poor's continuing assessment of Nabors' dynamic growth and long-term sustainability of improved market conditions. -- CreditWire