NEW YORK (Bloomberg) - Nabors Industries Ltd., the world's largest onshore oil and natural-gas driller, said fourth-quarter profit declined 6.5 percent as drilling activity in North America slowed.

Net income fell to $222.2 million, or 78 cents per share, from $237.8 million, or 84 cents, last year, the Hamilton, Bermuda-based company said yesterday in statement. Revenue was little changed at $1.3 billion and included $7.9 million in investment losses.

At the end of the fourth quarter there were 2,042 rigs working in North America, down 4.5 percent from a year ago, according to Baker Hughes Inc. Most of Nabors' rigs are located in North America. In Canada, the rig count dropped 39 percent ahead of royalty increases for oil and gas projects in Alberta.

"If you look at all the stuff going on, it's been weak, and this whole royalty issue, I think they may be in the process of resolving," Jim Rollyson, an analyst at Raymond James Financial in Houston who rates Nabors "outperform," said in a telephone interview.

Nabors Chief Executive Officer Gene Isenberg said less drilling in Canada hurt the quarter's performance and he forecast more slowness. Current activity "leads us to set our near-term expectations for this market very low, anticipating 2008 to represent another 50 percent decrease compared to 2007," he said in the statement.

"We have recently reallocated certain rigs from this business to our international operations and we shall continue to focus on costs until a recovery is apparent," he said.

Profit excluding an eight cent per-share gain on the sale of oil and gas assets was 70 cents. On that basis, the company was estimated to earn 73 cents, according to a Bloomberg survey of 19 analysts.

Rollyson, who predicted earnings of 71 cents per share excluding the gain, said Isenberg's outlook on Canada is probably out of caution. "He's probably overly conservative. They're setting the bar low," he said.

Higher energy prices bolstered spending by Nabors' international customers. Crude oil traded on the New York Mercantile Exchange averaged $90.50 per barrel during the fourth quarter, up 50 percent from a year earlier. Natural gas rose 1.9 percent, averaging $7.39 per million British thermal units during the quarter.

The company, which is run from offices in Houston, owns 670 land-based drilling rigs and 826 workover and well-servicing rigs, most of them located in North America. Workover rigs are used to extract oil from mature fields.

Nabors fell $1.72, or 5.8 percent, to $27.80 in composite trading on the New York Stock Exchange.