NEW YORK (Dow Jones Newswires) - Although onland gas drilling activity in the US isn't likely to pick up until the end of the year, Nabors Industries Ltd.'s (NBR) efforts to diversify internationally promise to shield earnings from declines in the future.

Nabors, which recently reincorporated in Bermuda from Delaware, posted second-quarter net income of $25.4 million, or 17 cents per share. The 73% drop from $104 million, or 63 cents per share, last year was due primarily to greater exposure to a protracted spring thaw in Canada. A pullback in US gas exploration also contributed to the damage.

"International offshore is a good place for the company to be. It diversifies their operations," said Angelina Sedita, an analyst at Lehman Brothers Inc.

Particularly strong global demand for jackup rigs should help Nabors benefit, especially in times like the present when domestic margins are under pressure, she added.

The drilling company, headquartered in Bridgetown, Barbados, said it expected to recoup the $21 million it recently paid Transocean Inc. (RIG) for a jackup rig just with the proceeds from a 1,500-day contract for the Gulf of Mexico it also bought from Transocean.

Sedita viewed this and Nabors' purchase of another jackup rig from GlobalSantaFe Corp. (GSF) earlier this year as being well-timed.

During a conference call yesterday, Nabors chairman and chief executive Gene Isenberg predicted third-quarter earnings from the company's international unit would exceed those recorded last year by 60% and would be 20% to 25% higher than second quarter results.

But near-term pressure on natural gas prices will probably delay a rebound in gas exploration until the fourth quarter, Lehman's Sedita said.

"If gas prices pull back, many of the smaller E&P (exploration and production) companies will slow activity till later in the year, when they believe gas prices will recover," she said.

She also viewed Nabors' projection of a day rate just modestly below $2,500 for onland rigs in the US for the third quarter as reasonable. But she conceded that the rollover of older contracts priced at much higher rates to the lower spot rate would pull the average rate down.

Nabors' third-quarter results are also likely to improve as Canadian production returns to full force, with the double-digit growth projection for earnings not difficult to accomplish off the current low base, said analyst Kurt Hallead at RBC Capital Markets.

Hallead said he was assuming a mid-twenties percent tax rate for the company going forward, citing momentum for passage of a US Senate bill designed to eliminate tax advantages to companies relocating overseas.

Nabors, which reincorporated in Bermuda in hopes of reducing its US tax rate, is one of four drilling services firms, formerly Houston-based, to have moved their headquarters offshore.

If Nabors is ultimately denied any tax benefits from the move, it's not likely to influence market sentiment, however, said Sedita at Lehman.

"The market didn't give them any credit when they announced it and won't take away any credit when it's pulled back," she predicted.

Otherwise, the market is comfortable with what it considers Nabors' strong cash position on its balance sheet, she said.

CEO Isenberg estimated the company's cash position in 2002 at $800 million, as well as long-term cash equivalents, which includes long-dated Treasury notes.