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

 

 

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. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o		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 July 29, 2009 was 284,040,728. In addition, our subsidiary, Nabors Exchangeco (Canada) Inc., had 101,392 exchangeable shares outstanding as of July 29, 2009 that are exchangeable for Nabors common shares on a one-for-one basis, and have essentially identical rights as Nabors Industries Ltd. common shares, including but not limited to voting rights and the right to receive dividends, if any.

 

 

		Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008			3
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2009 and 2008			4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008			5
Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 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			57
PART II OTHER INFORMATION
Item 1. Legal Proceedings			57
Item 1A. Risk Factors			58
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			58
Item 4. Submission of Matters to a Vote of Security Holders			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

		June 30,				December 31,
(In thousands, except per share amounts)		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	1,023,653			$	442,087
Short-term investments			172,787				142,158
Accounts receivable, net			787,653				1,160,768
Inventory			134,017				150,118
Deferred income taxes			22,837				28,083
Other current assets			161,214				243,379
Total current assets			2,302,161				2,166,593
Long-term investments and other receivables			140,101				239,952
Property, plant and equipment, net			7,621,186				7,331,959
Goodwill			162,812				175,749
Investment in unconsolidated affiliates			433,955				411,727
Other long-term assets			209,147				191,919
Total assets		$	10,869,362			$	10,517,899
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt		$	168,699			$	225,030
Trade accounts payable			262,545				424,908
Accrued liabilities			367,005				367,393
Income taxes payable			46,250				111,528
Total current liabilities			844,499				1,128,859
Long-term debt			4,063,288				3,600,533
Other long-term liabilities			267,178				261,878
Deferred income taxes			646,573				622,523
Total liabilities			5,821,538				5,613,793
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common shares, par value $.001 per share:
Authorized common shares 800,000; issued 312,441 and 312,343, respectively			312				312
Capital in excess of par value			2,226,694				2,129,415
Accumulated other comprehensive income			167,775				53,520
Retained earnings			3,630,916				3,698,732
Less: treasury shares, at cost, 29,414 common shares			(977,873	)			(977,873	)
Total shareholders’ equity			5,047,824				4,904,106
Total liabilities and shareholders’ equity		$	10,869,362			$	10,517,899

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands, except per share amounts)		2009				2008				2009				2008
						(As Adjusted)								(As Adjusted)
Revenues and other income:
Operating revenues		$	867,869			$	1,282,400			$	2,065,914			$	2,582,258
Earnings (losses) from unconsolidated affiliates			(8,127	)			(4,033	)			(72,554	)			(8,484	)
Investment income			18,248				25,057				27,389				51,239
Total revenues and other income			877,990				1,303,424				2,020,749				2,625,013
Costs and other deductions:
Direct costs			453,922				740,178				1,119,209				1,487,948
General and administrative expenses			163,808				116,914				271,151				228,235
Depreciation and amortization			165,974				148,813				325,126				285,013
Depletion			2,590				7,343				5,343				21,028
Interest expense			66,027				49,375				133,105				96,067
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net			6,469				3,158				(10,828	)			11,255
Impairments and other charges			227,083				—				227,083				—
Total costs and other deductions			1,085,873				1,065,781				2,070,189				2,129,546
Income (loss) before income taxes			(207,883	)			237,643				(49,440	)			495,467
Income tax expense (benefit):
Current			(43,425	)			39,759				6,032				139,052
Deferred			28,528				21,471				12,344				(32,042	)
Total income tax expense (benefit)			(14,897	)			61,230				18,376				107,010
Net income (loss)		$	(192,986	)		$	176,413			$	(67,816	)		$	388,457
Earnings (losses) per share:
Basic		$	(.68	)		$	.63			$	(.24	)		$	1.38
Diluted		$	(.68	)		$	.60			$	(.24	)		$	1.34
Weighted-average number of common shares outstanding:
Basic			283,154				280,851				283,126				280,508
Diluted			283,154				294,487				283,126				290,133

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

		Three and Six Months
		Ended
(In thousands)		June 30, 2009
Gross impairments before credit related impairment						$	191,434
Total other-than-temporary impairment		$	40,300
Less other-than-temporary impairment recognized in 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.

		Six Months Ended June 30,
(In thousands)		2009				2008
						(As adjusted)
Cash flows from operating activities:
Net income (loss)		$	(67,816	)		$	388,457
Adjustments to net income:
Depreciation and amortization			325,126				285,013
Depletion			5,343				21,028
Deferred income tax expense (benefit)			12,344				(32,042	)
Deferred financing costs amortization			3,279				4,356
Pension liability amortization and adjustments			99				142
Discount amortization on long-term debt			45,947				65,756
Amortization of loss on hedges			290				263
Impairments and other charges			227,083				—
Losses on long-lived assets, net			6,886				10,407
Gains on investments, net			(13,594	)			(28,203	)
Gains on debt retirement, net			(15,969	)			—
Gains on derivative instruments			(968	)			(157	)
Share-based compensation			99,662				19,904
Foreign currency transaction losses (gains), net			690				(725	)
Equity in (earnings) losses of unconsolidated affiliates, net of dividends			81,053				15,232
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable			379,283				(59,492	)
Inventory			16,888				6,152
Other current assets			83,530				(43,555	)
Other long-term assets			(21,735	)			(14,020	)
Trade accounts payable and accrued liabilities			(99,039	)			(55,954	)
Income taxes payable			(76,675	)			38,961
Other long-term liabilities			15,608				10,472
Net cash provided by operating activities			1,007,315				631,995
Cash flows from investing activities:
Purchases of investments			(22,614	)			(190,509	)
Sales and maturities of investments			39,592				399,669
Investment in unconsolidated affiliates			(100,670	)			(47,452	)
Capital expenditures			(710,849	)			(751,825	)
Proceeds from sales of assets and insurance claims			12,791				16,998
Net cash used for investing activities			(781,750	)			(573,119	)
Cash flows from financing activities:
Increase (decrease) in cash overdrafts			(15,715	)			15,771
Proceeds from long-term debt			1,124,978				575,219
Debt issuance costs			(8,699	)			(4,460	)
Proceeds from issuance of common shares			549				53,587
Reduction in long-term debt			(745,212	)			(171,788	)
Repurchase of equity component of convertible debt			(1,541	)			—
Repurchase of common shares			—				(150,114	)
Purchase of restricted stock			(1,496	)			(11,667	)
Tax benefit related to the exercise of stock options			105				4,771
Net cash provided by financing activities			352,969				311,319
Effect of exchange rate changes on cash and cash equivalents			3,032				2,320
Net increase in cash and cash equivalents			581,566				372,515
Cash and cash equivalents, beginning of period			442,087				531,306
Cash and cash equivalents, end of period		$	1,023,653			$	903,821

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

														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																											(67,816	)							(67,816	)
Translation adjustment																			44,317																44,317
Unrealized gains/(losses) on marketable securities, net of income tax benefit of $1,015															41,918																				41,918
Unrealized gains/(losses) on adjusted basis for marketable debt security, net of income tax benefit of $1,767															(2,884	)																			(2,884	)
Less: reclassification adjustment for (gains)/ losses included in net loss, net of income tax benefit of $4,940															30,752																				30,752
Pension liability amortization, net of income taxes of $37																							63												63
Amortization of (gains)/losses on cash flow hedges, net of income tax benefit of $9																							89												89
Total comprehensive income (loss)			—				—				—				69,786				44,317				152				(67,816	)			—				46,439
Issuance of common shares for stock options exercised			91								549																								549
Nabors Exchangeco shares exchanged			3																																—
Repurchase of equity component of convertible debt											(1,541	)																							(1,541	)
Tax benefit related to stock option exercises											105																								105
Restricted stock awards, net			4								(1,496	)																							(1,496	)
Share-based compensation											99,662																								99,662
Subtotal			98				—				97,279				—				—				—				—				—				97,279
Balances, June 30, 2009			312,441			$	312			$	2,226,694			$	32,826			$	140,099			$	(5,150	)		$	3,630,916			$	(977,873	)		$	5,047,824

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

														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																											388,457								388,457
Translation adjustment																			(29,954	)															(29,954	)
Unrealized gains on marketable securities, net of income taxes of $723															107,154																				107,154
Less: reclassification adjustment for gains included in net income, net of income taxes of $270															(687	)																			(687	)
Pension liability amortization, net of income taxes of $54																							88												88
Unrealized gain and amortization of (gains) losses on cash flow hedges, net of income taxes of $253																							476												476
Total comprehensive income (loss)			—				—				—				106,467				(29,954	)			564				388,457				—				465,534
Issuance of common shares for stock options exercised			2,341				2				53,585																								53,587
Nabors Exchangeco shares exchanged			14																																—
Issuance of 468 treasury shares related to conversion of notes											(16,146	)																			16,146				—
Repurchase of 3,650 treasury shares																															(150,114	)			(150,114	)
Tax benefit related to stock option exercises											5,884																								5,884
Restricted stock awards, net			1,583				2				(11,669	)																							(11,667	)
Share-based compensation											19,904																								19,904
Subtotal			3,938				4				51,558				—				—				—				—				(133,968	)			(82,406	)
Balances, June 30, 2008, as adjusted			309,396			$	309			$	2,185,137			$	106,748			$	294,693			$	(1,729	)		$	3,611,452			$	(1,011,903	)		$	5,184,707

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

     Nabors is the largest land drilling contractor in the world, with approximately 531 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 594 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.

     Effective January 1, 2009, Nabors changed its method of accounting for certain of its convertible debt instruments in accordance with Financial Staff Position (“FSP”) APB No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” Additionally, Nabors changed its method for calculating its basic and diluted earnings per share using the two-class method in accordance with EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” In accordance with Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections,” financial information and earnings per share calculations for prior periods have been adjusted to reflect retrospective application of the FSP and EITF. See Notes 7 and 11 for additional information.

     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 accounting principles generally accepted in the United States of America (“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 U.S. Securities and Exchange Commission (“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 our management’s opinion, the consolidated financial statements contain all adjustments necessary to present fairly our financial position as of June 30, 2009, the results of our operations for the three and six months ended June 30, 2009 and 2008, and our cash flows for the six

months ended June 30, 2009 and 2008, in accordance with GAAP. Interim results for the three and six months ended June 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 July 31, 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, all majority owned and non-majority owned subsidiaries required to be consolidated under Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46R”). 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 $433.1 million and $410.8 million and investments in unconsolidated affiliates accounted for using the cost method totaled $.9 million as of each of June 30, 2009 and December 31, 2008. 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

     In September 2006 the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements for assets and liabilities. We adopted and applied the provisions of SFAS No. 157 to our financial assets and liabilities on January 1, 2008 and our nonfinancial assets and liabilities on January 1, 2009. The impact of SFAS No. 157 is provided in Note 5.

     In December 2007 the FASB issued SFAS No. 141(R), “Business Combinations.” This statement retains the fundamental requirement in SFAS No. 141, “Business Combinations” that the acquisition method of accounting be used for all business combinations and expands the same 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. This statement replaces SFAS No. 141 by requiring measurement at the acquisition date of the fair value of assets acquired, liabilities assumed and any noncontrolling interests. Additionally, SFAS No. 141(R) requires that acquisition-related costs, including restructuring costs, be recognized as expense separately from the acquisition. SFAS No. 141(R) applies prospectively to business combinations for fiscal years beginning after December 15, 2008. We adopted SFAS No. 141(R) on January 1, 2009 and will apply it to future acquisitions.

     In December 2007 the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” This statement establishes the accounting and reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement clarifies 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. SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests and applies prospectively to business combinations for fiscal years beginning after December 15, 2008. The adoption of SFAS No. 160 on January 1, 2009 did not have a material impact on our consolidated financial statements.

     In March 2008 the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment to FASB Statement No. 133.” This statement is 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. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008, and interim periods within

those fiscal years. The adoption of SFAS No. 161 on January 1, 2009 did not have a material impact on our consolidated financial statements.

     In May 2008 the FASB issued FSP APB No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” This FSP clarifies that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.” Effective January 1, 2009, we adopted the provisions of this FSP and applied them, on a retrospective basis, to our consolidated financial statements. The impact of this FSP is provided in Note 7.

     In June 2008 the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This EITF provides 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. Effective January 1, 2009, we adopted the provisions of this EITF and applied them, on a retrospective basis, to our consolidated financial statements. The impact of this EITF is provided in Note 11.

     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.

     In April 2009 the FASB issued FSP SFAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurements under SFAS No. 157. The requirements of this FSP are effective for financial statements issued for interim and annual periods ending after June 15, 2009. We adopted the provisions of this FSP as of April 1, 2009 and have applied them to our consolidated financial statements for the three and six months ended June 30, 2009.

     In April 2009 the FASB issued FSP SFAS No. 115-2 and SFAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP changes the method for determining whether an other-than-temporary impairment exists with respect to debt securities. The requirements of this FSP are effective for financial statements issued for interim and annual periods ending after June 15, 2009. We adopted the provisions of this FSP as of April 1, 2009 and have applied them to our consolidated financial statements for the three and six months ended June 30, 2009. The impact of this FSP is provided in Notes 3 and 4.

     In April 2009 the FASB issued FSP SFAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP increases the frequency of fair value disclosures required by SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” from annual only to quarterly reporting periods. The requirements of this FSP are effective for financial statements issued for interim and annual periods ending after June 15, 2009. The provisions of this FSP have been applied to our consolidated financial statements at June 30, 2009. The impact of this FSP is provided in Note 5.

     In June 2009 the FASB issued SFAS No. 165, “Subsequent Events,” which requires entities to disclose the date through which they have evaluated subsequent events and whether the date corresponds with the release of their financial statements. The requirements of SFAS No. 165 are effective for interim and annual periods ending after June 15, 2009. SFAS No. 165 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 three and six months ended June 30, 2009:

		For the three and six months
		ended
(In thousands)		June 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 (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:

		June 30,				December 31,
(In thousands)		2009				2008
Cash and cash equivalents		$	1,023,653			$	442,087
Short-term investments:
Trading equity securities			27,285				14,263
Available-for-sale equity securities			99,314				55,453
Available-for-sale debt securities			46,188				72,442
Total short-term investments			172,787				142,158
Long-term investments and other receivables			140,101				239,952
Total		$	1,336,541			$	824,197

     As of June 30, 2009, our short-term investments consisted of investments in available-for-sale marketable debt and equity securities of $145.5 million and trading securities of $27.3 million and our long-term investments and other receivables consisted of $128.1 million in oil and gas financing receivables and $12.0 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 three months ended June 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:

		June 30,
		2009
						Gross				Gross
						Unrealized				Unrealized
		Fair				Holding				Holding
(In thousands)		Value				Gains				Losses
Cash and cash equivalents		$	1,023,653			$	—			$	—
Short-term investments:
Trading equity securities			27,285				21,561				—
Available-for-sale equity securities			99,314				59,191				(22,339	)
Available-for-sale debt securities:
Commercial paper and CDs			1,034				—				—
Corporate debt securities			30,562				1				(4,679	)
Mortgage-backed debt securities			941				21				(76	)
Mortgage-CMO debt securities			8,866				124				(307	)
Asset-backed debt securities			4,785				—				(1,205	)
Total available-for-sale debt securities			46,188				146				(6,267	)
Total available-for-sale securities			145,502				59,337				(28,606	)
Total short-term investments			172,787				80,898				(28,606	)
Total cash and cash equivalents and short-term investments		$	1,196,440			$	80,898			$	(28,606	)

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

		As of June 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)		$	24,407			$	(22,339	)		$	—			$	—
Available-for-sale debt securities: (2)
Corporate debt securities			24,700				(4,651	)			5,365				(28	)
Mortgage-backed debt securities			—				—				247				(76	)
Mortgage-CMO debt securities			195				(2	)			2,172				(305	)
Asset-backed debt securities			—				—				4,785				(1,205	)
Total available-for-sale debt securities			24,895				(4,653	)			12,569				(1,614	)
Total		$	49,302			$	(26,992	)		$	12,569			$	(1,614	)

     The estimated fair values of our corporate, mortgage-backed, mortgage-CMO and asset-backed debt securities at June 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)		June 30, 2009
Debt securities:
Due in one year or less		$	5,600
Due after one year through five years			1,355
Due in more than five years			39,233
Total debt securities		$	46,188

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

		Six Months Ended
(In thousands)		June 30, 2009
Available-for-sale:
Proceeds from sales and maturities		$	18,675
Realized gains (losses), net			(35,692	) (1)

     Effective January 1, 2008, we adopted the provisions of SFAS No. 157, “Fair Value Measurements,” which among other things, requires enhanced disclosures about assets and liabilities carried at fair value.

     As defined in SFAS No. 157, 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 based on the observability of those inputs. SFAS No. 157 establishes a fair value hierarchy such that 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 June 30, 2009. As required by SFAS No. 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

		Fair Value as of June 30, 2009
Recurring Fair Value Measurements		Level				Level				Level
(In thousands)		1				2				3				Total
Assets:
Short-term investments:
Available-for-sale equity securities		$	99,314			$	—			$	—			$	99,314
Available-for-sale debt securities			10,432				35,756				—				46,188
Trading securities			27,285				—				—				27,285
Total investments		$	137,031			$	35,756			$	—			$	172,787
Liabilities:
Derivative contract		$	—			$	3,116			$	—			$	3,116

     Effective January 1, 2009, we adopted the provisions of SFAS No. 157 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 for additional discussion.

     The fair value of our financial instruments has been estimated in accordance with the framework in SFAS No. 157. 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:

		June 30, 2009
(In thousands)		Carrying Value				Fair Value
$1.125 billion 9.25% senior notes due January 2019		$	1,125,000			$	1,296,371
$975 million 6.15% senior notes due February 2018			964,462				928,951
$2.75 billion 0.94% senior exchangeable notes due May 2011			1,699,957				1,740,474
5.375% senior notes due August 2012 (1)			273,036				278,575
4.875% senior notes due August 2009			168,399				168,400
Other			1,133				1,133
		$	4,231,987			$	4,413,904

     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 June 30, 2009, our short-term investments were carried at fair market value and included $145.5 million and $27.3 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 $12.0 million as of June 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 six months ended June 30, 2009, the Company awarded 9,981,850 stock options which vest over varying periods up to four years to its employees and executive officers. These awards include 3.0 million and 1.7 million 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.

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

Weighted average fair value of options granted:		$	2.84
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 six months ended June 30, 2008.

     The total intrinsic value of options exercised during the six months ended June 30, 2009 and 2008 was $.4 million and $41.3 million, respectively. The total fair value of options that vested during the six months ended June 30, 2009 and 2008 was $9.4 million and $4.1 million, respectively.

     During the six months ended June 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 six months ended June 30, 2009 and 2008 was $18.1 million and $36.9 million, respectively.

     Total share-based compensation expense, which includes both stock options and restricted stock, totaled $76.3 million and $10.9 million for the three months ended June 30, 2009 and 2008, respectively, and $99.7 million and $19.9 million for the six months ended June 30, 2009 and 2008, respectively. Share-based compensation expense has been allocated to our various operating segments. See Note 14.

     Included in the total share-based compensation expense discussed above for the three and six months ended June 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:

		June 30,				December 31,
(In thousands)		2009				2008
$2.75 billion 0.94% senior exchangeable notes due May 2011		$	1,699,957			$	2,362,822
$1.125 billion 6.15% senior notes due January 2019			1,125,000				—
$975 million, 6.15% senior notes due February 2018			964,462				963,859
5.375% senior notes due August 2012			273,036				272,724
4.875% senior notes due August 2009			168,399				224,829
Other			1,133				1,329
			4,231,987				3,825,563
Less: current portion			168,699				225,030
		$	4,063,288			$	3,600,533

     Prior to January 1, 2009, we accounted for the embedded conversion option in our convertible long-term debt following the recognition and measurement principles under APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” and EITF 90-19, “Convertible Bonds with Issuer Option to Settle for Cash upon Conversion.” Under this authoritative guidance, separate accounting for the embedded conversion option was not required when the conversion spread feature did not qualify to be accounted for as a derivative instrument.

     Effective January 1, 2009, we adopted FASB FSP APB No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP clarifies the position that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.” The FSP requires that convertible debt instruments be 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. Our adoption of this FSP has been applied retrospectively to all past periods presented for all convertible debt instruments within its scope. 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 are within the scope of this FSP.

     Under the provisions of this FSP the following assumptions were made in our adoption:

		$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 adoption of FSP APB No. 14-1 on our previously reported consolidated balance sheet is as follows:

		December 31,
		2008
		As previously				Effect of				As currently
(In thousands)		reported				change				reported
Increase (Decrease):
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 adoption of FSP APB No. 14-1 on our previously reported consolidated statements of income is as follows:

		Three Months Ended												Six Months Ended
		June 30, 2008												June 30, 2008
		As								As				As								As
		previously				Effect of				currently				previously				Effect of				currently
(In thousands, except per share amounts)		reported				change				reported				reported				change				reported
Increase (Decrease):
Depreciation expense		$	148,023			$	790			$	148,813			$	283,501			$	1,512			$	285,013
Interest expense			21,676				27,699				49,375				39,785				56,282				96,067
Income tax expense			71,771				(10,541	)			61,230				128,394				(21,384	)			107,010
Net income			194,361				(17,948	)			176,413				424,867				(36,410	)			388,457
Earnings per share — diluted		$	.67			$	(.07	)		$	.60			$	1.48			$	(.14	)		$	1.34
Weighted-average number of shares outstanding			291,454				3,033	(1)			294,487	(1)			287,407				2,726	(1)			290,133	(1)

     The following information is presented for comparative purposes and illustrates the effect of FSP APB No. 14-1 on our convertible debt instruments. The balances of the liability and equity components as of each period presented are as follows:

		June 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			(161,512	)			(287,178	)
Liability component — net carrying value		$	1,699,957			$	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 June 30,								Six Months Ended June 30,
(In thousands)		2009				2008				2009				2008
Interest expense on convertible debt instruments:
Contractual coupon interest		$	4,497			$	6,463			$	9,818			$	12,925
Amortization of debt discount			20,550				31,853				45,120				64,747
Total interest expense		$	25,047			$	38,316			$	54,938			$	77,672

     During 2008 and the six months ended June 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. The exchange offer commenced on June 17, 2009 and expired on July 17, 2009. See Note 16 for additional information.

     Our $225 million 4.875% senior notes are due in August 2009 and accordingly, are classified as a current liability. During the six months ended June 30, 2009, we repurchased $56.6 million par value of these senior notes in the open market for cash totaling $56.8 million.

Note 8 Income Taxes

     Our effective income tax rate was 7.2% and (37.2%) during the three and six months ended June 30, 2009, respectively, compared to 25.8% and 21.6% during the three and six months prior year periods. The decrease in our effective income tax rate is a result of the proportion of income generated in the U.S. versus 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. We expect to incur a loss in the U.S. for the year which will produce a tax benefit. Overall, we expect to have a net tax benefit for the year as the U.S. tax benefit is expected to be in excess of the tax expenses associated with our international operations. This will likely result in an overall negative tax rate.

     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 June 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 recorded a deferred tax asset of approximately $1.4 billion as of June 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 six months ended June 30, 2009, we did not repurchase any of our common shares in the open market. During the six months ended June 30, 2008, we repurchased 3.7 million of our common shares in the open market for $150.1 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 six months ended June 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 $11.7 million, respectively, to satisfy certain tax withholding obligations due in connection with grants of stock awards under our 2003 Employee Stock Plan.

     During the six months ended June 30, 2009 and 2008, our employees exercised vested options to acquire .1 million and 2.3 million of our common shares resulting in proceeds of $.5 million and $53.6 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 June 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 June 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 June 30, 2009, the value of unvested restricted stock was approximately $38 million and the value of in-the-money unvested stock options was approximately $9 million. For Mr. Petrello, as of June 30, 2009, the value of unvested restricted stock was approximately $17 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 March 31, 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. Based on the results of an audit or litigation, 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 could result.

     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 our Annual Report on Form 10-K for the year ended December 31, 2008 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 would range from $6 million to $26 million per year for the period from 2004 to 2009, and in aggregate, would be approximately $90 to $95 million. Although we believe that any assessments related to the 2004 to 2009 years would also lack merit, a reserve has been recorded in accordance with the requirements of FIN 48. 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.

     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 and employers’ liability and marine employers’ liability 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. Effective April 1, 2009, our risks of physical damage from named windstorms in the U.S. Gulf of Mexico are self-insured.

     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 and performance guarantees issued by Nabors:

		Maximum Amount
		Remainder
(In thousands)		of 2009				2010				2011				Thereafter				Total
Financial standby letters of credit and other financial surety instruments		$	36,655			$	120,049			$	967			$	279			$	157,950
Contingent consideration in acquisition			—				2,125				2,125				—				4,250
Total		$	36,655			$	122,174			$	3,092			$	279			$	162,200