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Will Nabors Go Private And Hive Off E&P Assets?

|Includes: Nabors Industries Ltd. (NBR)

Nabors Industries' stock has fallen so steeply that markets are betting on the world's largest land-drilling contractor to be a takeover candidate.

Nabors, which lost $2.4 billion in value in the past six months as delays in equipment deliveries and upgrades of rigs in Saudi Arabia cut profitability, is cheaper than 97% of oil and gas services companies versus sales, according to Bloomberg. Nabors last week traded at a 10 percent discount to sales of $5.7 billion for the past 12 months, Bloomberg data shows. That was the lowest among US oil and gas service companies with a market capitalization of more than $1 billion and cheaper than 60 of 62 rivals globally. Nabors was also valued at 8 times this year's estimated earnings, about 40 percent less than the industry average.

It is rumored that Houston-based oil and gas services companies Baker Hughes Inc and Schlumberger Ltd could be the potential buyers. Buyout firms could consider taking Nabors private as well, said Todd Lowenstein, Highmark Capital Management Inc.

In Nov-2011, the company was looking to sell its non-core oil and gas exploration and production assets in Alaska's North Slope, Texas and Arkansas in US, and Colombia. As of 31-Dec-2010, Nabors' Proved reserves were 130.22 MMBOE (75% Gas, US contributes 96% of the proved reserves), and average production was 11.60 MBOE/d (81% Gas). Nabors holds total of 153,573 net developed acres and 1,130,157 net undeveloped acres.

The value of Nabors' proved reserves can be estimated between $800 million to $1 billion million based on a $/Proved BOE of 6-8. This is another large deal after Kinder Morgan's proposed divestiture of El Paso's E&P assets.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.