SAN FRANCISCO (MarketWatch) — Oil and gas drilling contractor Nabors Industries reported a 26 percent drop in third-quarter profit, hurt by a slump in its core North American market, where a surplus of natural gas is weighing on drilling activity.

Nabors reported that net income for the three months fell to $218 million, or 76 cents a share, from $292.8 million, or $1.02 a share, a year ago.

The results include the sale of the Sea Mar offshore unit, a one-time item that added eight cents a share to the bottom line.

Revenue for the quarter slipped to $1.23 billion from $1.26 billion a year ago. Analysts polled by Thomson Financial had expected the company to post earnings of 73 cents a share on $1.16 billion in sales.

"Our third-quarter results reflect the persistent challenges in our North American gas centric and US offshore operations, as well as our land well-servicing markets," said Gene Isenberg, Nabors' chairman and chief executive officer.

"Our International business again was impacted by timing and unusual cost issues, which masked the early stages of the powerful upside that is emerging," he added.