NABORS INDUSTRIES LTD - Quarter Report: 2009 September (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-32657

NABORS INDUSTRIES LTD.

Incorporated in Bermuda
Mintflower Place
8 Par-La-Ville Road
Hamilton, HM08
Bermuda
(441) 292-1510

98-0363970

(I.R.S. Employer Identification No.)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

The number of common shares, par value $.001 per share, outstanding as of October 28, 2009 was 283,290,444.

 

 

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

INDEX

		Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008			3
Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2009 and 2008			4
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008			5
Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2009 and 2008			6
Notes to Consolidated Financial Statements			8
Report of Independent Registered Public Accounting Firm			39
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			40
Item 3. Quantitative and Qualitative Disclosures About Market Risk			57
Item 4. Controls and Procedures			58
PART II OTHER INFORMATION
Item 1. Legal Proceedings			58
Item 1A. Risk Factors			59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59
Item 6. Exhibits			60
Signatures			61
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

		September 30,				December 31,
(In thousands, except per share amounts)		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	935,051			$	442,087
Short-term investments			169,112				142,158
Accounts receivable, net			702,712				1,160,768
Inventory			115,714				150,118
Deferred income taxes			20,899				28,083
Other current assets			147,598				243,379
Total current assets			2,091,086				2,166,593
Long-term investments and other receivables			138,093				239,952
Property, plant and equipment, net			7,728,506				7,331,959
Goodwill			163,984				175,749
Investment in unconsolidated affiliates			473,420				411,727
Other long-term assets			202,002				191,919
Total assets		$	10,797,091			$	10,517,899
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	280			$	225,030
Trade accounts payable			254,657				424,908
Accrued liabilities			320,168				367,393
Income taxes payable			88,770				111,528
Total current liabilities			663,875				1,128,859
Long-term debt			4,084,587				3,600,533
Other long-term liabilities			267,849				261,878
Deferred income taxes			610,627				622,523
Total liabilities			5,626,938				5,613,793
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common shares, par value $.001 per share:
Authorized common shares 800,000; issued 312,702 and 312,343, respectively			313				312
Capital in excess of par value			2,232,762				2,129,415
Accumulated other comprehensive income			254,505				53,520
Retained earnings			3,660,446				3,698,732
Less: treasury shares, at cost, 29,414 common shares			(977,873	)			(977,873	)
Total shareholders’ equity			5,170,153				4,904,106
Total liabilities and shareholders’ equity		$	10,797,091			$	10,517,899

The accompanying notes are an integral part of these consolidated financial statements.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In thousands, except per share amounts)		2009				2008				2009				2008
						(As Adjusted)								(As Adjusted)
Revenues and other income:
Operating revenues		$	791,915			$	1,454,562			$	2,857,829			$	4,036,820
Earnings (losses) from unconsolidated affiliates			13,457				7,933				(59,097	)			(551	)
Investment income (loss)			(1,805	)			(22,235	)			25,584				29,004
Total revenues and other income			803,567				1,440,260				2,824,316				4,065,273
Costs and other deductions:
Direct costs			432,876				805,533				1,552,085				2,293,481
General and administrative expenses			82,050				122,648				353,201				350,883
Depreciation and amortization			174,372				162,198				499,498				447,211
Depletion			3,295				7,656				8,638				28,684
Interest expense			66,671				50,546				199,776				146,613
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net			11,218				10,875				390				22,130
Impairments and other charges			—				—				227,083				—
Total costs and other deductions			770,482				1,159,456				2,840,671				3,289,002
Income (loss) before income taxes			33,085				280,804				(16,355	)			776,271
Income tax expense (benefit):
Current			37,901				83,501				43,933				222,553
Deferred			(34,346	)			3,320				(22,002	)			(28,722	)
Total income tax expense			3,555				86,821				21,931				193,831
Net income (loss)		$	29,530			$	193,983			$	(38,286	)		$	582,440
Earnings (losses) per share:
Basic		$	.10			$	.69			$	(.14	)		$	2.07
Diluted		$	.10			$	.67			$	(.14	)		$	2.01
Weighted-average number of common shares outstanding:
Basic			283,197				282,389				283,150				281,135
Diluted			287,407				289,149				283,150				289,805

The details of credit related impairments to investments and reconciliation to Impairments and other charges are presented below:

		Nine Months Ended
(In thousands)		September 30, 2009
Gross impairments before credit related impairment						$	191,434
Total other-than-temporary impairment		$	40,300
Less other-than-temporary impairment recognized in accumulated other comprehensive income (loss)			(4,651	)
Credit related impairment on investment							35,649
Impairments and other charges (Note 3)						$	227,083

The accompanying notes are an integral part of these consolidated financial statements.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

		Nine Months Ended September 30,
(In thousands)		2009				2008
						(As adjusted)
Cash flows from operating activities:
Net income (loss)		$	(38,286	)		$	582,440
Adjustments to net income (loss):
Depreciation and amortization			499,498				447,211
Depletion			8,638				28,684
Deferred income tax benefit			(22,002	)			(28,722	)
Deferred financing costs amortization			4,751				5,983
Pension liability amortization and adjustments			148				210
Discount amortization on long-term debt			67,134				95,142
Amortization of loss on hedges			435				402
Impairments and other charges			227,083				—
Losses on long-lived assets, net			5,362				15,271
Losses (gains) on investments, net			(10,612	)			6,105
Gains on debt retirement, net			(15,969	)			—
Losses on derivative instruments			184				277
Share-based compensation			103,951				32,851
Foreign currency transaction losses (gains), net			8,456				(2,146	)
Equity in (earnings) losses of unconsolidated affiliates, net of dividends			72,096				7,299
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable			468,250				(139,676	)
Inventory			37,752				3,313
Other current assets			112,861				(32,523	)
Other long-term assets			(12,600	)			(37,930	)
Trade accounts payable and accrued liabilities			(164,242	)			(13,402	)
Income taxes payable			(69,000	)			80,352
Other long-term liabilities			16,323				8,739
Net cash provided by operating activities			1,300,211				1,059,880
Cash flows from investing activities:
Purchases of investments			(26,411	)			(239,720	)
Sales and maturities of investments			48,505				484,327
Investment in unconsolidated affiliates			(125,076	)			(136,804	)
Capital expenditures			(928,198	)			(1,113,256	)
Proceeds from sales of assets and insurance claims			24,295				47,094
Net cash used for investing activities			(1,006,885	)			(958,359	)
Cash flows from financing activities:
Increase (decrease) in cash overdrafts			(12,820	)			11,888
Proceeds from long-term debt			1,124,978				962,901
Debt issuance costs			(8,832	)			(6,606	)
Proceeds from issuance of common shares			2,157				56,630
Reduction in long-term debt			(913,716	)			(760,588	)
Repurchase of equity component of convertible debt			(1,541	)			—
Repurchase of common shares			—				(268,353	)
Purchase of restricted stock			(1,508	)			(12,602	)
Tax benefit related to the exercise of stock options			289				5,369
Net cash provided by financing activities			189,007				(11,361	)
Effect of exchange rate changes on cash and cash equivalents			10,631				29
Net increase in cash and cash equivalents			492,964				90,189
Cash and cash equivalents, beginning of period			442,087				531,306
Cash and cash equivalents, end of period		$	935,051			$	621,495

The accompanying notes are an integral part of these consolidated financial statements.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

														Accumulated Other Comprehensive Income
														(Loss)
														Unrealized
														Gains
		Common Shares								Capital in				(losses) on				Cumulative																Total
						Par				Excess of				Marketable				Translation								Retained				Treasury				Shareholders’
(In thousands)		Shares				Value				Par Value				Securities				Adjustment				Other				Earnings				Shares				Equity
Balances, December 31, 2008, as adjusted			312,343			$	312			$	2,129,415			$	(36,960	)		$	95,782			$	(5,302	)		$	3,698,732			$	(977,873	)		$	4,904,106
Comprehensive income (loss):
Net loss																											(38,286	)							(38,286	)
Translation adjustment																			129,311																129,311
Unrealized gains/(losses) on marketable securities, net of income tax benefit of $866															39,780																				39,780
Unrealized gains/(losses) on adjusted basis for marketable debt security, net of income taxes of $571															931																				931
Less: reclassification adjustment for (gains)/ losses included in net loss, net of income tax benefit of $4,929															30,735																				30,735
Pension liability amortization, net of income taxes of $56																							95												95
Amortization of (gains)/losses on cash flow hedges, net of income tax benefit of $13																							133												133
Total comprehensive income (loss)			—				—				—				71,446				129,311				228				(38,286	)			—				162,699
Issuance of common shares for stock options exercised			260				1				2,156																								2,157
Nabors Exchangeco shares exchanged			105																																—
Repurchase of equity component of convertible debt											(1,541	)																							(1,541	)
Tax benefit related to stock option exercises											289																								289
Restricted stock awards, net			(6	)							(1,508	)																							(1,508	)
Share-based compensation											103,951																								103,951
Subtotal			359				1				103,347				—				—				—				—				—				103,348
Balances, September 30, 2009			312,702			$	313			$	2,232,762			$	34,486			$	225,093			$	(5,074	)		$	3,660,446			$	(977,873	)		$	5,170,153

The accompanying notes are an integral part of these consolidated financial statements.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY (Continued)
(Unaudited)

														Accumulated Other Comprehensive
														Income (Loss)
														Unrealized
														Gains
		Common Shares								Capital in				(Losses) on				Cumulative																Total
						Par				Excess of				Marketable				Translation								Retained				Treasury				Shareholders’
(In thousands)		Shares				Value				Par Value				Securities				Adjustment				Other				Earnings				Shares				Equity
Balances, December 31, 2007, as adjusted			305,458			$	305			$	2,133,579			$	281			$	324,647			$	(2,293	)		$	3,222,995			$	(877,935	)		$	4,801,579
Comprehensive income (loss):
Net income																											582,440								582,440
Translation adjustment																			(75,833	)															(75,833	)
Unrealized gains on marketable securities, net of income tax benefit of $11,063															26,547																				26,547
Less: reclassification adjustment for gains included in net income, net of income taxes of $64															74																				74
Pension liability amortization, net of income taxes of $78																							132												132
Unrealized gain/(loss) and amortization of (gains)/ losses on cash flow hedges, net of income taxes of $167																							(148	)											(148	)
Total comprehensive income (loss)			—				—				—				26,621				(75,833	)			(16	)			582,440				—				533,212
Issuance of common shares for stock options exercised			2,480				2				56,628																								56,630
Nabors Exchangeco shares exchanged			16																																—
Issuance of 5,246 treasury shares related to conversion of notes											(181,163	)																			181,163				—
Repurchase of 7,538 treasury shares																															(268,353	)			(268,353	)
Tax benefit related to the redemption of convertible debt											81,789																								81,789
Tax benefit related to stock option exercises											6,240																								6,240
Restricted stock awards, net			1,524				2				(12,604	)																							(12,602	)
Share-based compensation											32,851																								32,851
Subtotal			4,020				4				(16,259	)			—				—				—				—				(87,190	)			(103,445	)
Balances, September 30, 2008, as adjusted			309,478			$	309			$	2,117,320			$	26,902			$	248,814			$	(2,309	)		$	3,805,435			$	(965,125	)		$	5,231,346

The accompanying notes are an integral part of these consolidated financial statements.

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Nature of Operations

     Nabors is the largest land drilling contractor in the world, with approximately 538 actively marketed land drilling rigs. We conduct oil, gas and geothermal land drilling operations in the U.S. Lower 48 states, Alaska, Canada, South America, Mexico, the Caribbean, the Middle East, the Far East, Russia and Africa. We are also one of the largest land well-servicing and workover contractors in the United States and Canada. We actively market approximately 600 land workover and well-servicing rigs in the United States, primarily in the southwestern and western United States, and actively market approximately 172 land workover and well-servicing rigs in Canada. Nabors is a leading provider of offshore platform workover and drilling rigs, and actively markets 40 platform rigs, 13 jack-up units and 3 barge rigs in the United States and multiple international markets. These rigs provide well-servicing, workover and drilling services. We have a 51% ownership interest in a joint venture in Saudi Arabia, which owns and actively markets 9 rigs in addition to the rigs we lease to the joint venture. We also offer a wide range of ancillary well-site services, including engineering, transportation, construction, maintenance, well logging, directional drilling, rig instrumentation, data collection and other support services in selected domestic and international markets. We provide logistics services for onshore drilling in Canada using helicopters and fixed-wing aircraft. We manufacture and lease or sell top drives for a broad range of drilling applications, directional drilling systems, rig instrumentation and data collection equipment, pipeline handling equipment and rig reporting software. We also invest in oil and gas exploration, development and production activities in the U.S., Canada and international areas through both our wholly-owned subsidiaries and our separate joint venture entities in which we have 49.7% ownership interests in the U.S. and international entities and a 50% ownership interest in the Canadian entity. Each joint venture pursues development and exploration projects with both existing customers of ours and with other operators in a variety of forms including operated and non-operated working interests, joint ventures, farm-outs and acquisitions.

     The majority of our business is conducted through our various Contract Drilling operating segments, which include our drilling, workover and well-servicing operations, on land and offshore. Our oil and gas exploration, development and production operations are included in a category labeled Oil and Gas for segment reporting purposes. Our operating segments engaged in drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction and logistics operations are aggregated in a category labeled Other Operating Segments for segment reporting purposes.

     As used in the Report, “we,” “us,” “our,” “the Company” and “Nabors” means Nabors Industries Ltd. and, where the context requires, includes our subsidiaries and “Nabors Delaware” means Nabors Industries, Inc., a Delaware corporation and our subsidiary.

Note 2 Summary of Significant Accounting Policies

Interim Financial Information

     The unaudited consolidated financial statements of Nabors are prepared in conformity with GAAP. Certain reclassifications have been made to the prior period to conform to the current period presentation, with no effect on our consolidated financial position, results of operations or cash flows. Pursuant to the rules and regulations of the SEC, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these financial statements should be read along with our Annual Report on Form 10-K for the year ended December 31, 2008, as amended, and Exhibit 99.1 of our Current Report on Form 8-K filed with the SEC on May 29, 2009. In management’s opinion, the consolidated financial statements contain all adjustments necessary to present fairly our financial position as of September 30, 2009, the results of our operations for the three and nine months ended September 30, 2009 and 2008, and our cash flows for the nine months ended September 30, 2009 and 2008, in accordance with GAAP. Interim results for the three and nine months ended September 30, 2009 may not be indicative of results that will be realized for the full year ending December 31, 2009.

     Our independent registered public accounting firm has performed a review of, and issued a report on, these consolidated interim financial statements in accordance with standards established by the Public Company Accounting Oversight Board. Pursuant to Rule 436(c) under the Securities Act of 1933, as amended (the “Securities Act”), this report should not be considered a part of any registration statement prepared or certified within the meanings of Sections 7 and 11 of the Securities Act.

     The Company has evaluated subsequent events through October 30, 2009, up to the time of filing this Form 10-Q with the SEC.

Principles of Consolidation

     Our consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries required to be consolidated under accounting principles generally accepted in the United States (“GAAP”). Our consolidated financial statements exclude majority-owned entities for which we do not have either (1) the ability to control the operating and financial decisions and policies of that entity or (2) a controlling financial interest in a variable interest entity. All significant intercompany accounts and transactions are eliminated in consolidation.

     Investments in operating entities where we have the ability to exert significant influence, but where we do not control operating and financial policies, are accounted for using the equity method. Our share of the net income of these entities is recorded as earnings (losses) from unconsolidated affiliates in our consolidated statements of income (loss), and our investment in these entities is included as a single amount in our consolidated balance sheets. Investments in unconsolidated affiliates accounted for using the equity method totaled $472.5 million and $410.8 million and investments in unconsolidated affiliates accounted for using the cost method totaled $.9 million as of each of September 30, 2009 and December 31, 2008, respectively. Similarly, investments in certain offshore funds classified as non-marketable are accounted for using the equity method of accounting based on our ownership interest in each fund. Our share of the gains and losses of these funds is recorded in investment income in our consolidated statements of income (loss), and our investments in these funds are included in long-term investments and other receivables in our consolidated balance sheets.

Recent Accounting Pronouncements

     On July 1, 2009, the Financial Accounting Standards Board (“FASB”) released the Accounting Standards Codification (“ASC”). The ASC became the single source of authoritative nongovernmental GAAP. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The ASC is not intended to change GAAP, but changes the approach by referencing authoritative literature by topic (each a “Topic”) rather than by type of standard. Accordingly, references in the Company’s Notes to Consolidated Financial Statements to former FASB positions, statements, interpretations, opinions, bulletins or other pronouncements are now presented as references to the corresponding Topic in the ASC.

     Effective January 1, 2009, Nabors changed its method of accounting for certain of its convertible debt instruments in accordance with the revised provisions of the Debt with Conversions and Other Options Topic of the ASC. Additionally, Nabors changed its method for calculating its basic and diluted earnings per share using the two-class method in accordance with the revised provisions of the Earnings Per Share Topic of the ASC. As required by the Accounting Changes and Error Corrections Topic of the ASC, financial information and earnings per share calculations for prior periods have been adjusted to reflect retrospective application.

     The revised provisions of the Debt with Conversions and Other Options Topic clarify that convertible debt instruments that may be settled in cash upon conversion are accounted for with a liability component based on the fair value of a similar nonconvertible debt instrument and an equity component based on the excess of the initial proceeds from the convertible debt instrument over the liability component. Such excess represents proceeds related to the conversion option and is recorded as capital in excess of par value. The liability is recorded at a discount, which is then amortized as additional non-cash interest expense over the convertible debt instrument’s expected life. The retrospective application and impact of these provisions on our consolidated financial statements is described in Note 7.

     The revised provisions relating to use of the two-class method for calculating earnings per share within the Earnings Per Share Topic provide that securities which are granted in share-based transactions are “participating securities” prior to vesting if they have a nonforfeitable right to participate in any dividends, and such securities therefore should be included in computing basic earnings per share. Our awards of restricted stock are considered participating securities under this definition. The retrospective application and impact of these provisions on our consolidated financial statements is provided in Note 11.

     Effective January 1, 2008, we adopted and applied the provisions of the Fair Value Measurements and Disclosures Topic of the ASC to our financial assets and liabilities and on January 1, 2009 applied the same provisions to our nonfinancial assets and liabilities. The disclosures required by that Topic are provided in Note 5.

     Effective January 1, 2009, we adopted the revised provisions of the Business Combinations Topic of the ASC and will apply those provisions on a prospective basis to future acquisitions. The revised provisions retain the fundamental requirement that the acquisition method of accounting be used for all business combinations and expands the use of the acquisition method of accounting to all transactions and other events in which one entity obtains control over one or more other businesses or assets at the acquisition date and in subsequent periods. The revised provisions require measurement at the acquisition date of the fair value of assets acquired, liabilities assumed and any noncontrolling interests. Additionally, acquisition-related costs, including restructuring costs, are recognized as expense separately from the acquisition.

     Effective January 1, 2009, we adopted the new provisions relating to noncontrolling interests of a subsidiary within the Identifiable Assets and Liabilities, and Any Noncontrolling Interest Topic of the ASC. The provisions establish the accounting and reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The provisions clarify that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The retrospective application of these provisions did not have a material impact on our consolidated financial statements.

     Effective January 1, 2009, we adopted the revised provisions relating to expanded disclosures of derivatives within the Derivatives and Hedging Topic of the ASC. The revised provisions are intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced qualitative and quantitative disclosures regarding derivative instruments, gains and losses on such instruments and their effects on an entity’s financial position, financial performance and cash flows. The application of these provisions did not have a material impact on our consolidated financial statements.

     In December 2008 the SEC issued a Final Rule, “Modernization of Oil and Gas Reporting.” This Final Rule revises certain oil and gas reporting disclosures in Regulation S-K and Regulation S-X under the Securities Act and the Securities Exchange Act of 1934 (the “Exchange Act”), as well as Industry Guide 2. The amendments are designed to modernize and update oil and gas disclosure requirements to align them with current practices and changes in technology. Additionally, this new accounting standard requires that entities use trailing twelve month average natural gas and oil prices when performing the full cost ceiling test calculation. The disclosure requirements are effective for registration statements filed on or after January 1, 2010 and for annual financial statements filed on or after December 31, 2009. We are currently evaluating the impact that this Final Rule may have on our consolidated financial statements.

     Effective April 1, 2009, we adopted the provisions in the Fair Value Measurements and Disclosures Topic of the ASC relating to fair value measures in inactive markets. The provisions provide additional guidance for determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurements. The application of these provisions did not have a material impact on our consolidated financial statements.

     Effective April 1, 2009, we adopted the provisions in the Investments of Debt and Equity Securities Topic of the ASC relating to recognition and presentation of other-than-temporary impairments to debt securities. The impact of these provisions is provided in Notes 3 and 4.

     Effective June 30, 2009, we adopted the provisions in the Financial Instruments Topic of the ASC relating to quarterly disclosure of the fair value of financial instruments. The disclosures required by this Topic are provided in Note 5.

     Effective June 30, 2009, we adopted the revised provisions in the Subsequent Events Topic of the ASC and disclosed the date through which we evaluated subsequent events and that the date corresponded with the release of our financial statements. The disclosure is provided in Note 2. The adoption of the Subsequent Events Topic of the ASC did not have any impact on our financial position, results of operations or cash flows.

Note 3 Impairments and other charges

The following table provides the components of impairments and other charges recorded during the nine months ended September 30, 2009:

		Nine months ended
(In thousands)		September 30, 2009
Goodwill impairment (1)						$	14,689
Impairment of long-lived assets to be disposed of other than by sale, by operating segment: (2)
U.S. Offshore		$	28,062
Alaska			15,000
Canada			17,930
International			3,237
Total impairment of long-lived assets to be disposed of other than by sale							64,229
Impairment of oil and gas financing receivable (3)							112,516
Total other-than-temporary impairment — debt security (4)		$	40,300
Less other-than-temporary impairment recognized in other comprehensive income (loss)			(4,651	)
Credit related impairment on investment							35,649
Total impairments and other charges						$	227,083

Note 4 Cash and Cash Equivalents and Investments

     Our cash and cash equivalents, short-term and long-term investments and other receivables consisted of the following:

		September 30,				December 31,
(In thousands)		2009				2008
Cash and cash equivalents		$	935,051			$	442,087
Short-term investments:
Trading equity securities			24,185				14,263
Available-for-sale equity securities			96,934				55,453
Available-for-sale debt securities			47,993				72,442
Total short-term investments			169,112				142,158
Long-term investments and other receivables			138,093				239,952
Total		$	1,242,256			$	824,197

     As of September 30, 2009, our short-term investments consisted of investments in available-for-sale marketable debt and equity securities of $144.9 million and trading securities of $24.2 million and our long-term investments and other receivables consisted of $127.7 million in oil and gas financing receivables and $10.4 million in investments in certain offshore funds accounted for using the equity method. The oil and gas financing receivables represent our financing agreements for certain production payment contracts in our Oil and Gas segment. Income and gains associated with our oil and gas financing receivables are recognized as operating revenues. See Note 3 for discussion of an impairment charge recorded during the nine months ended September 30, 2009 related to a certain oil and gas financing receivable.

     As of December 31, 2008, our short-term investments consisted of investments in available-for-sale marketable debt and equity securities of $127.9 million and trading securities of $14.3 million and our long-term investments and other receivables consisted of investments of $224.2 million in oil and gas financing receivables and $15.7 million in investments in offshore funds accounted for using the equity method.

     Certain information related to our cash and cash equivalents and short-term investments follows:

		As of September 30,
		2009
						Gross				Gross
						Unrealized				Unrealized
		Fair				Holding				Holding
(In thousands)		Value				Gains				Losses
Cash and cash equivalents		$	935,051			$	—			$	—
Short-term investments:
Trading equity securities			24,185				18,460				—
Available-for-sale equity securities			96,934				50,679				(16,206	)
Available-for-sale debt securities:
Commercial paper and CDs			1,195				—				—
Corporate debt securities			34,499				1,511				(3	)
Mortgage-backed debt securities			878				22				(40	)
Mortgage-CMO debt securities			7,070				118				(244	)
Asset-backed debt securities			4,351				—				(1,000	)
Total available-for-sale debt securities			47,993				1,651				(1,287	)
Total available-for-sale securities			144,927				52,330				(17,493	)
Total short-term investments			169,112				70,790				(17,493	)
Total cash and cash equivalents and short-term investments		$	1,104,163			$	70,790			$	(17,493	)

     Certain information related to the gross unrealized losses of our cash and cash equivalents and short-term investments follows:

		As of September 30, 2009
		Less Than 12 Months								More Than 12 Months
						Gross								Gross
						Unrealized								Unrealized
(In thousands)		Fair Value				Loss				Fair Value				Loss
Available-for-sale equity securities (1)		$	—			$	—			$	30,540			$	(16,206	)
Available-for-sale debt securities: (2)
Corporate debt securities			—				—				4,047				(3	)
Mortgage-backed debt securities			—				—				248				(40	)
Mortgage-CMO debt securities			—				—				2,233				(244	)
Asset-backed debt securities			—				—				4,351				(1,000	)
Total available-for-sale debt securities			—				—				10,879				(1,287	)
Total		$	—			$	—			$	41,419			$	(17,493	)

     The estimated fair values of our corporate, mortgage-backed, mortgage-CMO and asset-backed debt securities at September 30, 2009, classified by time to contractual maturity, are shown below. Expected maturities differ from contractual maturities because the issuers of the securities may have the right to repay obligations without prepayment penalties and we may elect to sell the securities prior to the contractual maturity date.

		Estimated
		Fair Value
(In thousands)		September 30, 2009
Debt securities:
Due in one year or less		$	6,644
Due after one year through five years			687
Due in more than five years			40,662
Total debt securities		$	47,993

     Certain information regarding our debt and equity securities is presented below:

		Nine Months Ended
(In thousands)		September 30, 2009
Available-for-sale:
Proceeds from sales and maturities		$	21,129
Realized gains (losses), net			(35,664	) (1)

Note 5 Fair Value Measurements

     Effective January 1, 2008, we provided enhanced disclosures about our assets and liabilities carried at fair value as required by the provisions of the Fair Value Measurements and Disclosures Topic of the ASC.

     As defined in the ASC, fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances utilizing a fair value hierarchy based on the observability of those inputs. Under the fair value hierarchy, Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and Level 3 measurements include those that are unobservable and of a subjective measure.

     The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis as of September 30, 2009. Our financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Recurring Fair Value Measurements		Fair Value as of September 30, 2009
		Level				Level				Level
(In thousands)		1				2				3				Total
Assets:
Short-term investments:
Available-for-sale equity securities		$	96,934			$	—			$	—			$	96,934
Available-for-sale debt securities			10,214				37,779				—				47,993
Trading securities			24,185				—				—				24,185
Total investments		$	131,333			$	37,779			$	—			$	169,112
Liabilities:
Derivative contract		$	—			$	(3,758	)		$	—			$	(3,758	)

Nonrecurring Fair Value Measurements

     Effective January 1, 2009, fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consists primarily of goodwill, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination and asset retirement obligations. Refer to Note 3 relating to goodwill impairment for additional discussion.

Fair Value of Financial Instruments

     The fair value of our financial instruments has been estimated in accordance with GAAP. The fair value of our fixed rate long-term debt is estimated based on quoted market prices or prices quoted from third-party financial institutions. The carrying and fair values of our long-term debt, including the current portion, are as follows:

		September 30, 2009
(In thousands)		Carrying Value				Fair Value
$1.125 billion 9.25% senior notes due January 2019		$	1,125,000			$	1,350,911
$975 million 6.15% senior notes due February 2018			964,764				961,652
$2.75 billion 0.94% senior exchangeable notes due May 2011			1,720,759				1,810,279
5.375% senior notes due August 2012 (1)			273,193				288,750
Other			1,151				1,151
		$	4,084,867			$	4,412,743

     The fair values of our cash equivalents, trade receivables and trade payables approximate their carrying values due to the short-term nature of these instruments.

     As of September 30, 2009, our short-term investments were carried at fair market value and included $144.9 million and $24.2 million in securities classified as available-for-sale and trading, respectively. The carrying values of our long-term investments that are accounted for using the equity method of accounting approximate fair value. The fair value of these long-term investments totaled $10.4 million as of September 30, 2009. The carrying value of our oil and gas financing receivables included in long-term investments approximate fair value.

Note 6 Share-Based Compensation

     The Company has several share-based employee compensation plans, which are more fully described in Note 4 of our Annual Report on Form 10-K for the year ended December 31, 2008.

     During the nine months ended September 30, 2009, the Company awarded 10,007,029 stock options which vest over varying periods up to four years to its employees, executive officers and directors. These awards included 3,000,000 and 1,698,427 stock options, with a grant date fair value of $8.8 million and $5.0 million, granted to Messrs. Isenberg and Petrello, respectively, in February 2009, and 1,726 stock options, with a grant date fair value of $.01 million, to Mr. Petrello in September 2009 in lieu of certain portions of their cash compensation.

     The fair value of stock options granted during the nine months ended September 30, 2009 was calculated using the Black-Scholes option pricing model and the following weighted-average assumptions:

Weighted average fair value of options granted:		$	2.85
Weighted average risk free interest rate:			1.75	%
Dividend yield:			0.0	%
Volatility: (1)			34.78	%
Expected life:		4 years

     There were no stock options granted and, as a result, no fair value determinations made during the nine months ended September 30, 2008.

     The total intrinsic value of options exercised during the nine months ended September 30, 2009 and 2008 was $1.9 million and $43.5 million, respectively. The total fair value of options that vested during the nine months ended September 30, 2009 and 2008 was $10.8 million and $4.2 million, respectively.

     During the nine months ended September 30, 2009, the Company awarded 84,000 shares of restricted stock to its directors. These awards had an aggregate value at their date of grant of $1.0 million and will vest over a period of three years. The fair value of restricted stock that vested during the nine months ended September 30, 2009 and 2008 was $25.6 million and $39.5 million, respectively.

     Total share-based compensation expense, which includes both stock options and restricted stock, totaled $4.3 million and $13.0 million for the three months ended September 30, 2009 and 2008, respectively, and $103.9 million and $32.9 million for the nine months ended September 30, 2009 and 2008, respectively. Share-based compensation expense is included in direct costs and general and administrative expenses in our consolidated statements of income and has been allocated to our various operating segments. See Note 14.

     Included in the total share-based compensation expense discussed above for the nine months ended September 30, 2009, the Company recognized $72.1 million of compensation expense related to previously granted restricted stock and option awards held by Messrs. Isenberg and Petrello that was unrecognized as of April 1, 2009. The recognition of this expense was a result of the provisions of their respective new employment agreements which effectively eliminated the risk of forfeiture of such awards. See Note 10 for additional information.

Note 7 Debt

     Long-term debt consists of the following:

		September 30,				December 31,
(In thousands)		2009				2008
$2.75 billion 0.94% senior exchangeable notes due May 2011		$	1,720,759			$	2,362,822
$1.125 billion 9.25% senior notes due January 2019			1,125,000				—
$975 million, 6.15% senior notes due February 2018			964,764				963,859
5.375% senior notes due August 2012			273,193				272,724
4.875% senior notes due August 2009			—				224,829
Other			1,151				1,329
			4,084,867				3,825,563
Less: current portion			280				225,030
		$	4,084,587			$	3,600,533

     Prior to January 1, 2009, separate accounting for the embedded conversion option in our convertible long-term debt was not required when the conversion spread feature did not qualify to be accounted for as a derivative instrument.

     Effective January 1, 2009, we account for our convertible debt instruments with a liability component based on the fair value of a similar nonconvertible debt instrument and an equity component based on the excess of the initial proceeds from the convertible debt

instrument over the liability component. Such excess represents proceeds related to the conversion option and is recorded as capital in excess of par value. The liability is recorded at a discount, which is then amortized as additional non-cash interest expense over the convertible debt instrument’s expected life. We have accounted for our convertible debt instruments on a retrospective basis to all past periods presented for all convertible debt instruments required to be accounted for in this manner. Both our $2.75 billion 0.94% senior exchangeable notes issued May 2006 and our $700 million zero coupon senior exchangeable notes issued June 2003 have been presented in this manner.

     The following assumptions were made in our accounting change:

		$700 million zero
		coupon senior				$2.75 billion 0.94% senior
Assumptions		exchangeable notes				exchangeable notes
Date of issue		June 2003				May 2006
Expected maturity date		June 2008				May 2011
Amortization period		5 years				5 years
Nonconvertible debt borrowing rate			2.8	%			6.1	%
Tax rate over term of debt			37	%			37	%

Conversion Triggers
$700 million zero coupon senior exchangeable notes		In May 2008 Nabors Delaware called for redemption of all of its $700 million zero coupon senior exchangeable notes due 2023. The total amount paid to effect the redemption and related exchange was $700 million in cash and the issuance of approximately 5.25 million of our common shares with a fair value of $249.8 million, the price equal to the principal amount of the notes plus the excess of the exchange value of the notes over their principal amount.
$2.75 billion 0.94% senior exchangeable notes (1)		The notes are exchangeable into cash and, if applicable, Nabors common shares based on an exchange rate of the equivalent value of 21.8221 Nabors common shares per $1,000 principal amount of notes (which is equal to an initial exchange price of approximately $45.83 per share), subject to adjustment during the 30 calendar days ending at the close of business on the business day immediately preceding the maturity date.
		The number of shares that we would be required to issue upon exchange consists only of the incremental shares that would be issued above the principal amount of the notes, as we are required to pay cash up to the principal amount of the notes exchanged. There would be an if-converted value in excess of the principal amount of the notes only when the price of our shares exceeds $45.83 as of the last trading day of the quarter and the average price of our shares for the ten consecutive trading days beginning on the third business day after the last trading day of the quarter exceeds $45.83.

     The effect of the accounting change on our previously reported consolidated balance sheet is as follows:

		December 31, 2008
(In thousands)		As previously				Effect of				As currently
Increase (Decrease):		reported				change				reported
Property, plant and equipment, net		$	7,282,042			$	49,917			$	7,331,959
Long-term debt			3,887,711				(287,178	)			3,600,533
Deferred income tax liability			497,415				125,108				622,523
Capital in excess of par value			1,705,907				423,508				2,129,415
Retained earnings			3,910,253				(211,521	)			3,698,732

     The increase to deferred income tax liabilities was partially related to a reduction of a deferred tax asset of $215.9 million which had been previously recorded in the second quarter of 2006 for the effect of the future tax benefits related to the exchangeable note hedge.

     The effect of the accounting change on our previously reported consolidated statements of income is as follows:

		Three Months Ended												Nine Months Ended
		September 30, 2008												September 30, 2008
		As								As				As								As
(In thousands, except per share amounts)		previously				Effect of				currently				previously				Effect of				currently
Increase (Decrease):		reported				change				reported				reported				change				reported
Depreciation expense		$	161,340			$	858			$	162,198			$	444,841			$	2,370			$	447,211
Interest expense			25,506				25,040				50,546				65,291				81,322				146,613
Income tax expense			96,403				(9,582	)			86,821				224,797				(30,966	)			193,831
Net income			210,299				(16,316	)			193,983				635,166				(52,726	)			582,440
Earnings per share — diluted		$	.73			$	(.06	)		$	.67			$	2.21			$	(.20	)		$	2.01
Weighted-average number of shares outstanding			287,590				1,559	(1)			289,149	(1)			287,468				2,337	(1)			289,805	(1)

     The following information is presented for comparative purposes and illustrates the effect of the accounting change on our convertible debt instruments. The balances of the liability and equity components as of each period presented are as follows:

		September 30,				December 31,
(In thousands)		2009				2008
Equity component — net carrying value		$	581,671			$	583,212
Liability component:
Face amount due at maturity		$	1,861,469			$	2,650,000
Less: Unamortized discount			(140,710	)			(287,178	)
Liability component — net carrying value		$	1,720,759			$	2,362,822

     The remaining debt discount is being amortized into interest expense over the expected remaining life of the convertible debt instruments using the effective interest rate. Interest expense related to the convertible debt instruments was recognized as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In thousands)		2009				2008				2009				2008
Interest expense on convertible debt instruments:
Contractual coupon interest		$	4,374			$	6,463			$	14,192			$	19,388
Amortization of debt discount			20,802				28,995				65,922				93,741
Total interest expense		$	25,176			$	35,458			$	80,114			$	113,129

     During 2008 and the nine months ended September 30, 2009 we purchased $888.5 million par value of our $2.75 billion 0.94% senior exchangeable notes in the open market, leaving approximately $1.86 billion par value outstanding.

     On January 12, 2009, Nabors Delaware completed a private placement of $1.125 billion aggregate principal amount of 9.25% senior notes due 2019 with registration rights, which are unsecured and are fully and unconditionally guaranteed by us. The issue of senior notes was resold by the initial purchasers to qualified institutional buyers under Rule 144A and to certain investors outside of the United States under Regulation S of the Securities Act. The senior notes bear interest at a rate of 9.25% per year, payable semiannually on January 15 and July 15 of each year, beginning July 15, 2009. The senior notes will mature on January 15, 2019.

     The senior notes are unsecured and are junior in right of payment to any of Nabors Delaware’s future secured debt. The senior notes rank equally with any of Nabors Delaware’s other existing and future unsubordinated debt and are senior in right of payment to any of Nabors Delaware’s future senior subordinated debt. Our guarantee of the senior notes is unsecured and ranks equal in right of payment to all of our unsecured and unsubordinated indebtedness from time to time outstanding. The senior notes are subject to redemption by Nabors Delaware, in whole or in part, at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the senior notes then outstanding to be redeemed; or (ii) the sum of the present values of the remaining scheduled payments of principal and interest, determined in the manner set forth in the indenture. In the event of a change in control triggering event, as defined in the indenture, the holders of senior notes may require Nabors Delaware to purchase all or any part of each senior note in cash equal to 101% of the principal amount plus accrued and unpaid interest, if any, to the date of purchase, except to the extent Nabors Delaware has exercised its right to redeem the senior notes. Nabors Delaware is using the proceeds of the offering of the senior notes for the repayment or repurchase of indebtedness and general corporate purposes.

     On March 30, 2009, we and Nabors Delaware filed a registration statement on Form S-4 under the Securities Act. The registration statement related to the exchange offer to noteholders required under the registration rights agreement related to the $1.125 billion senior notes. On May 11, 2009 the registration statement was declared effective by the SEC. On July 23, 2009 Nabors Delaware issued $1,069,392,000 registered 9.25% senior notes due 2019 in exchange for an equal amount of its unregistered 9.25% senior notes due 2019 that were properly tendered.

     On August 17, 2009, we paid $168.4 million to discharge the remaining balance of our $225 million 4.875% senior notes.

Note 8 Income Taxes

     Our effective income tax rate was 11% and (134%) during the three and nine months ended September 30, 2009, respectively, compared to 31% and 25% during the three and nine month prior year periods.

     The decrease in our effective income tax rate during the three months ended September 30, 2009 compared to the prior year period is a result of the decrease in the proportion of income generated in the U.S. relative to that generated in the international jurisdictions in which we operate. Income generated in the U.S. is generally taxed at a higher rate than income generated in international jurisdictions.

     The negative effective tax rate for the nine months ended September 30, 2009 is primarily the result of the combination of negative pre-tax income for the nine months ended September 30, 2009 and positive year-to-date tax expense. As reported pre-tax income amounts for a given period become smaller, the combination of discrete tax items and the blend of multiple tax rates in jurisdictions in which we operate may lead to an effective tax rate that is not meaningful.

     We are subject to income taxes in the United States and numerous foreign jurisdictions. Internationally, income tax returns from 1995 through 2007 are currently under audit. The Company anticipates that several of these audits could be finalized within 12

months. It is possible that the benefit that relates to our unrecognized tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, and the protocol for finalizing audits with the relevant tax authorities, which could include formal legal proceedings, it is not possible to estimate the future impact of the amount of changes, if any, to recorded uncertain tax positions at September 30, 2009. We recognize interest and penalties related to income tax reserves in the income tax expense line item in our consolidated statements of income.

     The Company has a deferred tax asset of approximately $1.4 billion at September 30, 2009 relating to net operating loss carryforwards that have an indefinite life in one foreign jurisdiction. A valuation allowance of approximately $1.4 billion has been recognized because the Company believes it is more likely than not that none of the deferred tax asset will be realized.

Note 9 Common Shares

     During the nine months ended September 30, 2009, we did not repurchase any of our common shares in the open market. During the nine months ended September 30, 2008, we repurchased 7.5 million of our common shares in the open market for $268.4 million, all of which are held in treasury. When shares are reissued, we use the weighted average cost method for determining cost. The difference between the cost of the shares and the issuance price is added to or deducted from our capital in excess of par value account.

     During the nine months ended September 30, 2009 and 2008, the Company withheld .1 million and .4 million of our common shares with a fair value of $1.5 million and $12.6 million, respectively, to satisfy certain tax withholding obligations due in connection with grants of stock awards under our 2003 Employee Stock Plan.

     During the nine months ended September 30, 2009 and 2008, our employees exercised vested options to acquire .3 million and 2.5 million of our common shares resulting in proceeds of $2.2 million and $56.6 million, respectively.

Note 10 Commitments and Contingencies

Commitments

Employment Contracts

     Nabors’ Chairman and Chief Executive Officer, Eugene M. Isenberg, and its Deputy Chairman, President and Chief Operating Officer, Anthony G. Petrello, had in effect through the first quarter of 2009 employment agreements which had been amended and restated effective October 1, 1996. Effective April 1, 2009, the Company entered into amended and restated employment agreements (“new employment agreements”) with Messrs. Isenberg and Petrello with terms extending through March 30, 2013.

     Mr. Isenberg’s employment agreement was originally negotiated with a creditors committee in 1987 in connection with the reorganization proceedings of Anglo Energy, Inc., which subsequently changed its name to Nabors. These contractual arrangements were approved by the various constituencies in those reorganization proceedings, including equity and debt holders, and confirmed by the United States Bankruptcy Court.

     Mr. Petrello’s employment agreement was first entered into effective October 1, 1991. Mr. Petrello’s employment agreement was agreed upon as part of arm’s length negotiations with the Board of Directors before he joined Nabors in October 1991, and was reviewed and approved by the Compensation Committee of the Board and the full Board of Directors at that time.

     The employment agreements for Messrs. Isenberg and Petrello were restated in 1996 and subsequently amended in 2002, 2005, 2006 (in the case of Mr. Isenberg) and 2008 (as amended, the “prior employment agreements”). These amendments were approved by the Compensation Committee of the Board and the full Board of Directors at the time of each amendment. The new employment agreements were approved by the Compensation Committee of the Board, which is comprised of all directors other than Messrs. Isenberg and Petrello.

     Effective April 1, 2009, the new employment agreements for Messrs. Isenberg and Petrello amend and restate the prior employment agreements. The new employment agreements provide for an extension of the employment term through March 30, 2013, with automatic one-year extensions beginning April 1, 2011, unless either party gives notice of non-renewal. The base salaries for Messrs. Isenberg and Petrello were increased to $1.3 million and $1.1 million, respectively. Mr. Isenberg has agreed to donate the after-tax proceeds of his base salary to an educational fund intended to benefit Company employees or other worthy candidates.

     On June 29, 2009, the new employment agreements for Messrs. Isenberg and Petrello were amended to provide for a reduction of the annual rate of base salary payable to each of Messrs. Isenberg and Petrello to $1.17 million per year and $990,000 per year, respectively, for the period from June 29, 2009 to December 27, 2009.

     In addition to a base salary, the new employment agreements provide for annual cash bonuses in an amount equal to 2.25% and 1.5%, for Messrs. Isenberg and Petrello, respectively, of Nabors’ net cash flow (as defined in the respective employment agreements) in excess of 15% of the average shareholders’ equity for each fiscal year. The new employment agreements also provide a quarterly deferred bonus of $.6 million and $.25 million, respectively, to the accounts of Messrs. Isenberg and Petrello under Nabors’ executive deferred compensation plan for each quarter they are employed beginning June 30, 2009 and, in Mr. Petrello’s case, ending March 30, 2019. In 18 of the last 19 years, Mr. Isenberg has agreed voluntarily to accept a lower annual cash bonus (i.e., an amount lower than the amount provided for under his employment agreement) in light of his overall compensation package. Mr. Petrello has agreed voluntarily to accept a lower annual cash bonus (i.e., an amount lower than the amount provided for under his employment agreement) in light of his overall compensation package in 15 of the last 18 years.

     For 2008, the annual cash bonuses for Messrs. Isenberg and Petrello pursuant to the formula described in the prior employment agreements were $70.8 million and $23.1 million, respectively. In October 2008, consistent with historical practice, Messrs. Isenberg and Petrello agreed to accept a portion of their bonuses in restricted stock awards and were awarded 2,078,900 and 851,246 shares of restricted stock, respectively. These stock awards had a value at the date of grant of $28.4 million and $11.6 million, respectively, for Messrs. Isenberg and Petrello. Messrs. Isenberg and Petrello also agreed to further reduce the cash bonus payable by accepting, in February 2009, 3.0 million and 1.7 million stock options, with a value of $8.8 million and $5.0 million, respectively. They received the balance of their bonuses in cash ($33.6 million and $6.5 million, respectively).

     Messrs. Isenberg and Petrello also are eligible for awards under Nabors’ equity plans and may participate in annual long-term incentive programs and pension and welfare plans, on the same basis as other executives, and may receive special bonuses from time to time as determined by the Board of Directors. The new employment agreements eliminate the risk of forfeiture of outstanding stock awards. Accordingly, we recognized compensation expense during the second quarter with respect to all previously granted unvested awards to Messrs. Isenberg and Petrello. As a result, as of September 30, 2009, there was no unrecognized compensation expense related to restricted stock and stock option awards for either Messrs. Isenberg or Petrello.

     Termination in the event of death, disability, or termination without cause. The new employment agreements provide for severance payments in the event that either Mr. Isenberg’s or Mr. Petrello’s employment agreement is terminated (i) upon death or disability (as defined in the respective employment agreements), (ii) by Nabors prior to the expiration date of the employment agreement for any reason other than for Cause (as defined in the respective employment agreements) or (iii) by either individual for Constructive Termination Without Cause (as defined in the respective employment agreements). Mr. Isenberg would be entitled to receive within 30 days of any such triggering event a payment of $100 million. Mr. Petrello would be entitled to receive within 30 days of his death or disability a payment of $50 million or in the event of termination without cause or constructive termination without cause, a payment based on a formula of three times the average of his base salary and annual bonus (calculated as though the bonus formula under the new employment agreement had been in effect) paid during the three fiscal years preceding the termination. If, by way of example, there was a termination without cause event that applied subsequent to September 30, 2009, then the payment to Mr. Petrello would be approximately $58 million. The formula will be further reduced to two times the average stated above effective April 1, 2015.

     The Company does not have insurance to cover its obligations in the event of death, disability, or termination without cause for either Messrs. Isenberg or Petrello and the Company has not recorded an expense or accrued a liability relating to these potential obligations.

     In addition, under both the prior employment agreements and the new employment agreements, the affected individual is entitled to receive (a) any unvested restricted stock outstanding, which shall immediately and fully vest; (b) any unvested outstanding stock options, which shall immediately and fully vest; (c) any amounts earned, accrued or owing to the executive but not yet paid (including executive benefits, life insurance, disability benefits and reimbursement of expenses and perquisites), which shall be continued through the later of the expiration date or three years after the termination date; (d) continued participation in medical, dental and life insurance coverage until the executive receives equivalent benefits or coverage through a subsequent employer or until the death of the executive or his spouse, whichever is later; and (e) any other or additional benefits in accordance with applicable plans and programs of Nabors. For Mr. Isenberg, as of September 30, 2009, the value of unvested restricted stock was approximately $45.5 million and the value of in-the-money unvested stock options was approximately $16.5 million. For Mr. Petrello, as of September 30, 2009, the value of unvested restricted stock was approximately $20.0 million. Mr. Petrello had no unvested stock options. Estimates

of the cash value of Nabors’ obligations to Messrs. Isenberg and Petrello under (c), (d) and (e) above are included in the payment amounts above.

     Termination in the event of a Change in Control. The new employment agreements provide that a termination of Messrs. Isenberg’s or Petrello’s employment related to a Change in Control (as defined in their respective employment agreements) is considered a constructive termination without cause. Accordingly, Mr. Isenberg would be entitled to receive within 30 days of the triggering event a payment of $100 million and Mr. Petrello would be entitled to receive within 30 days of the triggering event a payment based on a formula of three times the average of his base salary and annual bonus (calculated as though the new bonus formula had been in effect) paid during the three fiscal years preceding the termination. If, by way of example, there was a change of control event that applied subsequent to September 30, 2009, then the payment to Mr. Petrello would be approximately $58 million. The formula is further reduced to two times the average stated above effective April 1, 2015. The new employment agreements eliminate all tax gross-ups, including without limitation tax gross-ups on golden parachute excise taxes, which applied under the prior employment agreements.

     Under both the prior employment agreements and the new employment agreements, the affected individual would receive (a) any unvested restricted stock outstanding, which shall immediately and fully vest; (b) any unvested outstanding stock options, which shall immediately and fully vest; (c) any amounts earned, accrued or owing to the executive but not yet paid (including executive benefits, life insurance, disability benefits and reimbursement of expenses and perquisites), which shall be continued through the later of the expiration date or three years after the termination date; (d) continued participation in medical, dental and life insurance coverage until the executive receives equivalent benefits or coverage through a subsequent employer or until the death of the executive or his spouse, whichever is later; and (e) any other or additional benefits in accordance with applicable plans and programs of Nabors.

     Other Obligations. In addition to salary and bonus, each of Messrs. Isenberg and Petrello receive group life insurance at an amount at least equal to three times their respective base salaries, various split-dollar life insurance policies, reimbursement of expenses, various perquisites and a personal umbrella insurance policy in the amount of $5 million. Premiums payable under the split-dollar life insurance policies were suspended as a result of the adoption of the Sarbanes-Oxley Act of 2002.

Contingencies

Income Tax Contingencies

     We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under audit by tax authorities. Although we believe our tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different than that which is reflected in our income tax provisions and accruals. The results of an audit or litigation could have a material effect on our financial position, income tax provision, net income, or cash flows in the period or periods for which that determination is made.

     It is possible that future changes to tax laws (including tax treaties) could have an impact on our ability to realize the tax savings recorded to date as well as future tax savings, resulting from our 2002 corporate reorganization. See Note 11 to Exhibit 99.1 of our Current Report on Form 8-K filed with the SEC on May 29, 2009 for additional discussion.

     On September 14, 2006, Nabors Drilling International Limited, one of our wholly owned Bermuda subsidiaries (“NDIL”), received a Notice of Assessment (the “Notice”) from the Mexican Servicio de Administracion Tributaria (the “SAT”) in connection with the audit of NDIL’s Mexican branch for tax year 2003. The Notice proposes to deny depreciation expense deductions relating to drilling rigs operating in Mexico in 2003. The notice also proposes to deny a deduction for payments made to an affiliated company for the procurement of labor services in Mexico. The amount assessed by the SAT was approximately $19.8 million (including interest and penalties). Nabors and its tax advisors previously concluded that the deduction of said amounts was appropriate and more recently that the position of the SAT lacks merit. NDIL’s Mexican branch took similar deductions for depreciation and labor expenses for tax years 2004 to 2008. On June 30, 2009, the SAT proposed similar assessments against the Mexican branch of another wholly owned Bermuda subsidiary, Nabors Drilling International II Ltd. (“NDIL II”) for the tax year 2006. We anticipate that a similar assessment will eventually be proposed against NDIL for the tax years 2004 through 2008 and against NDIL II for the tax years 2007 to 2009. We believe that the potential assessments will range from $6 million to $26 million per year for the period from 2004 to 2009, and in the aggregate, would be approximately $90 to $95 million. Although we believe that any assessment related to the 2004 to 2009 years would also lack merit, a reserve has been recorded in accordance with GAAP. If these additional assessments were to be made and the Company ultimately did not prevail, we would be required to recognize additional tax for the amount of the aggregate over the current reserve.

Self-Insurance

     We are self-insured for certain losses relating to workers’ compensation, employers’ liability, general liability, automobile liability and property damage. Effective April 1, 2009, with our insurance renewal, certain changes have been made to our self-insured retentions. Certain workers’ compensation claims are subject to a minimum $1.0 million deductible liability plus an additional $3.0 million corridor deductible. Certain employers’ liability and marine employers’ liability claims are subject to a $2.0 million per occurrence deductible. Certain automobile liability is subject to a $.5 million per occurrence deductible plus an additional $1.0 million corridor deductible. General liability claims are subject to a $5.0 million per occurrence deductible.

     In addition, we are subject to a $5.0 million deductible for all land rigs and a $10.0 million deductible for offshore rigs. This applies to all kinds of risks of physical damage except for named windstorms in the U.S. Gulf of Mexico for which we are self-insured.

Litigation

     Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period.

     On July 5, 2007, we received an inquiry from the U.S. Department of Justice relating to its investigation of one of our vendors and compliance with the Foreign Corrupt Practices Act. The inquiry relates to transactions with and involving Panalpina, a vendor which provides freight forwarding and customs clearance services to certain of our affiliates. To date, the inquiry has focused on transactions in Kazakhstan, Saudi Arabia, Algeria and Nigeria. The Audit Committee of our Board of Directors has engaged outside counsel to review certain transactions with this vendor and their review is ongoing. The Audit Committee of our Board of Directors has received periodic updates at its regularly scheduled meetings and the Chairman of the Audit Committee has received updates between meetings as circumstances warrant. The investigation includes a review of certain amounts paid to and by Panalpina in connection with the obtaining of permits for the temporary importation of equipment and clearance of goods and materials through customs. Both the SEC and the U.S. Department of Justice have been advised of the Company’s investigation. The ultimate outcome of this review or the effect of implementing any further measures which may be necessary to ensure full compliance with the applicable laws cannot be determined at this time.

     A court in Algeria has entered a judgment of approximately $19.7 million against the Company related to certain alleged customs infractions. The Company believes it did not receive proper notice of the judicial proceedings against it, and that the amount of the judgment is excessive. We have asserted the lack of legally required notice as a basis for challenging the judgment on appeal. Based upon our understanding of applicable law and precedent, we believe that this challenge will be successful. We do not believe that a loss is probable and have not accrued any amounts related to this matter. However, the ultimate resolution of this matter, and the timing of such resolution, is uncertain. If the Company is ultimately required to pay a fine or judgment related to this matter, the amount of the loss could range from approximately $140,000 to $19.7 million.

Off-Balance Sheet Arrangements (Including Guarantees)

     We are a party to certain transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements involve agreements and obligations in which we provide financial or performance assurance to third parties. Certain of these agreements serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. We have also guaranteed payment of contingent consideration in conjunction with an acquisition in 2005. Potential contingent consideration is based on future operating results of the acquired business. In addition, we have provided indemnifications to certain third parties which serve as guarantees. These guarantees include indemnification provided by Nabors to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees.

     Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote. The following table summarizes the total maximum amount of financial guarantees issued by Nabors and guarantees representing contingent consideration in connection with a business combination:

		Maximum Amount
		Remainder
(In thousands)		of 2009				2010				2011				Thereafter				Total
Financial standby letters of credit and other financial surety instruments		$	33,927			$	40,278			$	989			$	271			$	75,465
Contingent consideration in acquisition			—				2,125				2,125				—				4,250
Total		$	33,927			$	42,403			$	3,114			$	271			$	79,715