Nabors Industries Ltd., the world's largest onshore oil and natural gas driller, says lower gas prices have reduced demand for its services, lowering second-quarter results.

Write-downs of rigs, oil and gas assets and other holdings total non-cash $178 million pretax, the Hamilton, Bermuda, company said Monday in a statement.

The company also is recording $62 million in costs to expense stock grants to two executives after trimming performance targets.

The value of rigs idled or under construction is being written down on the lack of "a market upturn of sufficient magnitude to justify placing these assets in service in the foreseeable future," the company said.

Operating cash flow and earnings before interest, taxes and depreciation and amortization, or EBITDA, will exceed $1.3 billion, less than expected, the company said.

"You are looking at 55 cents of impact on the quarter," Roger Read, an analyst in Houston for Natixis Bleichroeder, said in a telephone interview. "That they are writing down underperforming assets in this market shouldn't be a surprise to anyone. I don't see a major hit to the stock."

Oil and gas rigs operating in the U.S. and Canada, where Nabors has the most equipment, has fallen by more than half to 1,094 from a peak of 2,467 last August on lower fuel prices, according to Baker Hughes Inc.

Natural gas for August delivery fell 11 cents, or 3.3 percent, to settle at $3.263 per million British thermal units Monday on the New York Mercantile Exchange, the lowest closing price since April 27. Gas has plunged 42 percent this year and is down 76 percent from a July 2008 high of $13.694 per million Btu.

Nabors reported EBITDA of $1.92 billion and cash flow from operations of $1.45 billion in 2008, according to Bloomberg data. The expectation for EBITDA this year was $1.47 billion, the average of 20 analyst estimates compiled by Bloomberg.

Nabors had expected about $1.5 billion of EBITDA and operating cash flow this year, based on a forecast of $300 million to $500 million in free cash flow, its spokesman Dennis Smith said in an e- mail.

Reduction of pretax income will generate a net tax benefit in the U.S., significantly offsetting the impact to free cash flow from the operating forecast, Nabors said. Full second-quarter results will be announced July 22.

Shares of Nabors rose 36 cents, or 2.4 percent, to $15.15 on the New York Stock Exchange. The stock's value has increased 27 percent this year. SUBHEAD: Write-downs of rigs and oil and natural gas assets total $178 million.

Originally published by JIM POLSON Bloomberg News.

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