H&P and Nabors report upstream M&A hampering active rig count

Two of the nation’s three leading land drilling contractors reported Q1 active rig counts in the U.S. that missed expectations. Helmerich & Payne and Nabors Industries cited the recent wave of E&P acquisitions as a cause of the quarter’s rig volatility, along with the impact of low natural gas prices.

Both companies entered 2024 predicting that their rig counts had bottomed out in 2023. However, the Henry Hub front-month spent nearly all of February and March below $2.00/MMBtu amid a warm winter. This further reduced activity and contributed to both companies missing their rebound targets in Q1.

H&P exited March with 152 active rigs in North America, below its Jan. 29 forecast of 154-159 rigs and up by one from Dec. 31’s results. Nabors reported an average of 71.9 rigs working in the Lower 48 states in Q1, an increase from 4Q23’s average of 70.3 rigs but below its Feb. 6 forecast of 73-75 rigs for Q1. The companies’ results were sharply lower YOY, as H&P ended March 2023 with 179 active rigs in North America and Nabors recorded a Lower 48 average of 93.3 working rigs in 1Q23.

Neither company is repeating its earlier optimism, with each forecasting declines in the current quarter. H&P expects to end June with 145-151 active rigs, while Nabors expects to average roughly 70 active rigs in the Lower 48 during Q2.

The upstream sector has been upended by $195 billion in M&A announcements during 4Q23 and 1Q24 as rivals gobbled up Pioneer Natural Resources, Hess Corp., Southwestern Energy, Endeavor Energy Resources, Callon Petroleum and CrownRock LP. The CEOs of both H&P and Nabors cited the M&A wave as a source of Q1’s rig churn.

Nabors’ survey of its 17 largest operators, which accounted for 45% of its working rigs in the Lower 48 rig count, found that the group’s YE24 rig count will be “modestly lower” than the count at the end of Q1, CEO Tony Petrello said in an April 25 earnings call. “Essentially, all the projected decline relates to announced merger activity,” he said, but he downplayed the long-term impact.

“From our past experience, combined activity usually drops immediately after the merger is completed,” Petrello said. “Over time, though, we have generally seen a return to prior activity levels for the combined companies. We anticipate the same behavior by our customers following this latest burst of mergers.”

H&P CEO John Lindsay had a similar position on upstream M&A in his company’s April 25 earnings call. “In the first period of time, there’s some slowdown in activity,” he said. “But at the end of the day, they’re going to want to keep their production levels up. And in many cases, that means keeping the same amount or even adding some rigs.”