Edgar Filing: NABORS INDUSTRIES LTD

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

For the Quarterly Period Ended March 31, 2012

Commission File Number: 001-32657

NABORS INDUSTRIES LTD.

Incorporated in Bermuda

98-0363970

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Crown House

Second Floor

4 Par-la-Ville Road

Hamilton, HM08

Bermuda

(441) 292-1510

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 ¨

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 ¨

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 ¨		Non-accelerated Filer ¨		Smaller Reporting Company ¨

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

The number of common shares, par value $.001 per share, outstanding as of April 30, 2012 was 290,307,495.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

Index


PART I FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011	3
	Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2012 and 2011	4
	Consolidated Statements of Other Comprehensive Income for the Three Months Ended March 31, 2012 and 2011	5
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011	6
	Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2012 and 2011	7
	Notes to Consolidated Financial Statements	9
	Report of Independent Registered Public Accounting Firm	34
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47

PART II OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
Signatures		51

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(In thousands, except per share amounts)	March 31, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	354,022		$	398,575
Short-term investments		139,950			140,914
Assets held for sale		433,446			401,500
Accounts receivable, net		1,717,375			1,576,555
Inventory		265,787			272,852
Deferred income taxes		45,038			127,874
Other current assets		173,606			170,044

Total current assets		3,129,224			3,088,314
Long-term investments and other receivables		6,373			11,124
Property, plant and equipment, net		8,814,081			8,629,946
Goodwill		501,536			501,258
Investment in unconsolidated affiliates		303,103			371,021
Other long-term assets		393,877			310,477

Total assets	$	13,148,194		$	12,912,140

LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	275,616		$	275,326
Trade accounts payable		687,576			782,753
Accrued liabilities		586,911			716,773
Income taxes payable		30,938			27,710

Total current liabilities		1,581,041			1,802,562
Long-term debt		4,497,725			4,348,490
Other long-term liabilities		322,003			292,758
Deferred income taxes		855,057			797,925

Total liabilities		7,255,826			7,241,735

Commitments and contingencies (Note 11)
Subsidiary preferred stock		69,188			69,188
Equity:
Shareholders’ equity:
Common shares, par value $.001 per share:
Authorized common shares 800,000; issued 318,731 and 317,042, respectively		318			317
Capital in excess of par value		2,322,315			2,287,743
Accumulated other comprehensive income		342,463			321,264
Retained earnings		4,090,454			3,956,364
Less: treasury shares, at cost, 28,414 and 29,414 common shares, respectively		(944,627	)		(977,873	)

Total shareholders’ equity		5,810,923			5,587,815
Noncontrolling interest		12,257			13,402

Total equity		5,823,180			5,601,217

Total liabilities and equity	$	13,148,194		$	12,912,140

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

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)


	Three Months Ended March 31,
(In thousands, except per share amounts)	2012			2011
Revenues and other income:
Operating revenues	$	1,890,426		$	1,373,568
Earnings (losses) from unconsolidated affiliates		(68,669	)		16,274
Investment income (loss)		20,252			12,280

Total revenues and other income		1,842,009			1,402,122

Costs and other deductions:
Direct costs		1,184,816			841,108
General and administrative expenses		136,346			115,951
Depreciation and amortization		247,621			225,210
Interest expense		62,654			73,966
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net		(1,840	)		6,159

Total costs and other deductions		1,629,597			1,262,394

Income (loss) from continuing operations before income taxes		212,412			139,728

Income tax expense (benefit):
Current		26,006			19,689
Deferred		43,038			24,737

Total income tax expense (benefit)		69,044			44,426
Subsidiary preferred stock dividend		750			750

Income (loss) from continuing operations, net of tax		142,618			94,552
Income (loss) from discontinued operations, net of tax		(8,795	)		(12,396	)

Net income (loss)		133,823			82,156
Less: Net (income) loss attributable to noncontrolling interest		267			669

Net income (loss) attributable to Nabors	$	134,090		$	82,825

Earnings (losses) per share:
Basic from continuing operations	$	.50		$	.33
Basic from discontinued operations		(.04	)		(.04	)

Total Basic	$	.46		$	.29

Diluted from continuing operations	$	.49		$	.33
Diluted from discontinued operations		(.03	)		(.05	)

Total Diluted	$	.46		$	.28

Weighted-average number of common shares outstanding:
Basic		288,538			286,114
Diluted		291,709			292,689

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

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In thousands, except per share amounts)	2012			2011
Net income (loss) attributable to Nabors	$	134,090		$	82,825
Other comprehensive income, before tax:
Translation adjustment attributable to Nabors		17,266			31,439
Unrealized gains/(losses) on marketable securities:
Unrealized gains/(losses) on marketable securities		12,223			6,308
Less: reclassification adjustment for (gains)/losses included in net income (loss)		(12,465	)		(3	)

Unrealized gains (losses) on marketable securities		(242	)		6,305
Defined benefit pension plans:
Pension liability amortization		260			151
Pension liability adjustment		—			—

Defined benefit pension plans		260			151
Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges		191			191

Other comprehensive income, before tax		17,475			38,086
Income tax expense (benefit) related to items of other comprehensive income		(3,724	)		182

Other comprehensive income, net of tax		21,199			37,904

Comprehensive income		155,289			120,729
Net income (loss) attributable to noncontrolling interest		(267	)		(669	)
Translation adjustment attributable to noncontrolling interest		243			357

Comprehensive income attributable to noncontrolling interest		(24	)		(312	)

Comprehensive income attributable to Nabors	$	155,265		$	120,417

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

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In thousands)	2012			2011
Cash flows from operating activities:
Net income (loss) attributable to Nabors	$	134,090		$	82,825
Adjustments to net income (loss):
Depreciation and amortization		247,745			226,071
Depletion and other exploratory expenses		—			16,265
Deferred income tax expense (benefit)		38,802			20,925
Deferred financing costs amortization		1,091			1,586
Pension liability amortization and adjustments		259			150
Discount amortization on long-term debt		496			17,515
Amortization of loss on hedges		232			231
Losses (gains) on long-lived assets, net		3,368			1,084
Losses (gains) on investments, net		(19,323	)		(11,082	)
Losses (gains) on debt retirement, net		—			58
Losses (gains) on derivative instruments		90			83
Share-based compensation		4,454			3,945
Foreign currency transaction losses (gains), net		(435	)		(409	)
Equity in (earnings) losses of unconsolidated affiliates, net of dividends		68,668			(13,776	)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(137,696	)		(121,572	)
Inventory		7,883			(35,220	)
Other current assets		(7,191	)		4,554
Other long-term assets		7,620			47,665
Trade accounts payable and accrued liabilities		(119,195	)		44,075
Income taxes payable		7,390			1,096
Other long-term liabilities		5,835			4,855

Net cash provided by operating activities		244,183			290,924

Cash flows from investing activities:
Purchases of investments		(791	)		(5,870	)
Sales and maturities of investments		23,478			3,529
Investment in unconsolidated affiliates		—			(19,000	)
Capital expenditures		(473,687	)		(358,574	)
Proceeds from sales of assets and insurance claims		21,321			5,491

Net cash used for investing activities		(429,679	)		(374,424	)

Cash flows from financing activities:
Increase (decrease) in cash overdrafts		(2,269	)		7,565
Proceeds from revolving credit facilities		150,000			—
Proceeds from issuance of common shares		(5,320	)		9,424
Reduction in long-term debt		(1,072	)		(5,560	)
Repurchase of equity component of convertible debt		—			(14	)
Purchase of restricted stock		(1,769	)		(2,340	)
Tax benefit related to share-based awards		(31	)		(1	)

Net cash provided by financing activities		139,539			9,074
Effect of exchange rate changes on cash and cash equivalents		1,404			2,460

Net increase (decrease) in cash and cash equivalents		(44,553	)		(71,966	)
Cash and cash equivalents, beginning of period		398,575			641,702


Cash and cash equivalents, end of period	$	354,022		$	569,736

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

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	Common Shares				Capital in Excess of Par Value			Accumulated Other Comprehensive Income		Retained Earnings		Treasury Shares			Non- controlling Interest			Total Equity
(In thousands)	Shares		Par Value		Capital in Excess of Par Value			Accumulated Other Comprehensive Income		Retained Earnings		Treasury Shares			Non- controlling Interest			Total Equity
Balances, December 31, 2011		317,042	$	317	$	2,287,743		$	321,264	$	3,956,364	$	(977,873	)	$	13,402		$	5,601,217
Net income (loss)											134,090					(267	)		133,823
Comprehensive income, net of tax									21,199							(243	)		21,442
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options		972				(5,320	)												(5,320	)
Capital contribution from forgiveness of liability, net of tax						62,734													62,734
Issuance of treasury shares, net of tax benefit						(25,496	)						33,246						7,750
Other		717		1		(1,800	)									(1,121	)		(2,920	)
Share-based compensation						4,454													4,454

Balances, March 31, 2012		318,731	$	318	$	2,322,315		$	342,463	$	4,090,454	$	(944,627	)	$	12,257		$	5,823,180

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

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


	Common Shares				Capital in Excess of Par Value			Accumulated Other Comprehensive Income		Retained Earnings		Treasury Shares			Non- controlling Interest			Total Equity
(In thousands)	Shares		Par Value		Capital in Excess of Par Value			Accumulated Other Comprehensive Income		Retained Earnings		Treasury Shares			Non- controlling Interest			Total Equity
Balances, December 31, 2010		315,034	$	315	$	2,255,787		$	342,052	$	3,707,881	$	(977,873	)	$	14,701		$	5,342,863
Net income (loss)											82,825					(669	)		82,156
Comprehensive income, net of tax									37,904							(357	)		38,261
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options		750		1		9,423													9,424
Other		651				(2,355	)												(2,355	)
Share-based compensation						3,945													3,945

Balances, March 31, 2011		316,435	$	316	$	2,266,800		$	379,956	$	3,790,706	$	(977,873	)	$	14,389		$	5,474,294

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 and one of the largest land well-servicing and workover contractors in the United States and Canada:

•

We actively market approximately 501 land drilling rigs for oil and gas land drilling operations in the U.S. Lower 48 states, Alaska, Canada, South and Central America, Mexico, the Middle East, the Far East, the South Pacific, Russia and Africa.

•

We actively market approximately 567 rigs for land well-servicing and workover work in the United States and approximately 176 rigs for land well-servicing and workover work in Canada.

We are also a leading provider of offshore platform workover and drilling rigs, and actively market 40 platform, 12 jackup and four barge rigs in the United States, including the Gulf of Mexico, and multiple international markets.

In addition to the foregoing services:

•

We provide hydraulic fracturing, cementing, nitrogen and acid pressure pumping services with over 765,000 hydraulic horsepower in key basins throughout the United States and Canada.

•

We offer a wide range of ancillary well-site services, including engineering, transportation and disposal, construction, maintenance, well logging, directional drilling, rig instrumentation, data collection and other support services in select U.S. and international markets.

•

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 have a 51% ownership interest in a joint venture in Saudi Arabia, which owns and actively markets nine rigs in addition to the rigs we lease to the joint venture.

•

We have invested in oil and gas exploration, development and production activities through both our wholly owned subsidiaries and our oil and gas joint ventures in which we hold 49-50% ownership interests.

The majority of our business is conducted through our Drilling and Other Rig Services and our Completion and Production business lines. Our Drilling and Other Rig Services business line includes our drilling of oil and natural gas wells, on land and offshore, and companies engaged in drilling technology, top drive manufacturing, directional drilling, construction services, and rig instrumentation and software. Our Completion and Production Services business line includes our well-servicing, fluid logistics, workover operations and our pressure pumping services. In addition to these two primary business lines, we have an Oil and Gas Operating segment. Our oil and gas exploration, development and production operations are included in our Oil and Gas Operating Segment, or in discontinued operations in some cases.

Unless the context requires otherwise, references in this report and in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations to “we,” “us,” “our,” “Company” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires, including Nabors Industries, Inc., a Delaware corporation (“Nabors Delaware”).

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 (“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 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, 2011 (“2011 Annual Report”). In management’s opinion, the consolidated financial statements contain all adjustments necessary to present fairly our financial position as of March 31, 2012 and the results of our operations, cash flows, changes in equity and other comprehensive income for the three months ended March 31, 2012 and 2011, in accordance with GAAP. Interim results for the three months ended March 31, 2012 may not be indicative of results that will be realized for the full year ending December 31, 2012.

Our independent registered public accounting firm has reviewed 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 such Act.

Principles of Consolidation

Our consolidated financial statements include the accounts of Nabors, as well as all majority-owned and nonmajority-owned subsidiaries required to be consolidated under 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 (loss) 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 $303.1 million and $371.0 million as of March 31, 2012 and December 31, 2011, respectively. At each of March 31, 2012 and December 31, 2011, assets held for sale included investments in unconsolidated affiliates accounted for using the equity method totaling $13.7 million. See Note 3 — Discontinued Operations for additional information.

We have investments in offshore funds, which are classified as long-term investments and are accounted for using the equity method of accounting based on our ownership interest in each fund.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:


	March 31, 2012		December 31, 2011
	(In thousands)
Raw materials	$	126,798	$	133,480
Work-in-progress		48,975		50,951
Finished goods		90,014		88,421

	$	265,787	$	272,852

Goodwill

The carrying amounts of goodwill for our operating segments as of and for the three months ended March 31, 2012 were as follows:


	Balance as of December 31, 2011		Acquisitions and Purchase Price Adjustments		Impairments		Cumulative Translation Adjustment		Balance as of March 31, 2012
	(In thousands)
Drilling and Rig Services:
U.S. Lower 48 Land Drilling	$	30,154	$	—	$	—	$	—	$	30,154
U.S. Offshore		7,296		—				—		7,296
Alaska		19,995		—		—		—		19,995
International		18,983		—		—		—		18,983
Other Rig Services		34,766		—		—		278		35,044

Subtotal Drilling and Rig Services		111,194		—		—		278		111,472
Completion and Production Services:
U.S. Land Well-servicing		55,072		—		—		—		55,072
Pressure Pumping		334,992		—		—		—		334,992

Subtotal Completion and Production Services		390,064		—		—		—		390,064

Total	$	501,258	$	—	$	—	$	278	$	501,536

Note 3 Discontinued Operations

Our condensed statements of income (loss) from discontinued oil and gas operations for the three months ended March 31, 2012 and 2011 were as follows:


	Three Months Ended March 31,
(In thousands)	2012			2011
Operating revenues and Earnings (losses) from unconsolidated affiliates	$	3,301		$	11,419

Income (loss) from discontinued operations
Income (loss) from discontinued operations		(5,445	)		(17,216	)
Gain (loss) on disposal of assets		(5,172	)		—
Less: income tax expense (benefit)		(2,815	)		(6,340	)

Income (loss) from discontinued operations, net of tax	$	(7,802	)	$	(10,876	)

On April 12, 2012, we sold our remaining wholly owned oil and gas operations in Colombia to an unrelated third party for a cash purchase price of $72.6 million. These assets were included in our assets held for sale as part of our Oil and Gas Operating segment and had a net book value of approximately $30.3 million.

Our aircraft logistics operations in Canada recognized $4.9 million and $4.6 million in operating revenues, which resulted in losses of $1.0 million and $1.5 million, net of tax benefits of $.3 million and $.5 million, during the three months ended March 31, 2012 and 2011, respectively. The assets are included in our Other Rig Services Operating segment.

Our consolidated balance sheets included a current liability related to discontinued operations of $61.7 million and $54.3 million that is included in accrued liabilities and a noncurrent liability related to discontinued operations of $53.7 million and $71.4 million that is included in other long-term liabilities at March 31, 2012 and December 31, 2011, respectively.

Note 4 Cash and Cash Equivalents and Short-term Investments

Our cash and cash equivalents and short-term investments consisted of the following:


	March 31, 2012		December 31, 2011
	(In thousands)
Cash and cash equivalents	$	354,022	$	398,575
Short-term investments:
Trading equity securities		17,638		11,600
Available-for-sale equity securities		81,227		71,433
Available-for-sale debt securities		41,085		57,881

Total short-term investments	$	139,950	$	140,914

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


	March 31, 2012							December 31, 2011
	Fair Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Fair Value		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses
	(In thousands)
Cash and cash equivalents	$	354,022	$	—	$	—		$	398,575	$	—	$	—

Short-term investments:
Trading equity securities		17,638		11,913		—			11,600		5,876		—

Available-for-sale equity securities		81,227		42,869		—			71,433		33,075		—

Available-for-sale debt securities:
Commercial paper and CDs		1,150		—		—			1,230		—		—
Corporate debt securities		34,950		13,183		(2,852	)		51,300		22,494		(2,095	)
Mortgage-backed debt securities		257		9		—			309		10		—
Mortgage-CMO debt securities		2,421		19		(4	)		2,547		13		(15	)
Asset-backed debt securities		2,307		—		(220	)		2,495		—		(238	)

Total available-for-sale debt securities		41,085		13,211		(3,076	)		57,881		22,517		(2,348	)

Total available-for-sale securities		122,312		56,080		(3,076	)		129,314		55,592		(2,348	)

Total short-term investments		139,950		67,993		(3,076	)		140,914		61,468		(2,348	)

Total cash, cash equivalents and short-term investments	$	493,972	$	67,993	$	(3,076	)	$	539,489	$	61,468	$	(2,348	)

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


	As of March 31, 2012
	Less Than 12 Months					More Than 12 Months
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(In thousands)
Available-for-sale equity securities	$	—	$	—		$	—	$	—
Available-for-sale debt securities:(1)
Corporate debt securities		16,950		(2,852	)
Mortgage-CMO debt securities		—		—			74		(4	)
Asset-backed debt securities		—		—			2,307		(220	)

Total available-for-sale debt securities		16,950		(2,852	)		2,381		(224	)

Total	$	16,950	$	(2,852	)	$	2,381	$	(224	)

(1)

Our unrealized losses on available-for-sale debt securities held for more than one year are comprised of various types of securities. Each of these securities have a rating ranging from “A” to “AAA” from Standard & Poor’s and ranging from “A2” to “Aaa” from Moody’s Investors Service and is considered of high credit quality. In each case, we do not

intend to sell these investments, and it is less likely than not that we will be required to sell them to satisfy our own cash flow and working capital requirements. We believe that we will be able to collect all amounts due according to the contractual terms of each investment and, therefore, do not consider the decline in value of these investments to be other-than-temporary at March 31, 2012.

The estimated fair values of our corporate, mortgage-backed, mortgage-CMO and asset-backed debt securities at March 31, 2012, 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 March 31, 2012
	(In thousands)
Debt securities:
Due in one year or less	$	1,150
Due after one year through five years		16,950
Due in more than five years		22,985

Total debt securities	$	41,085

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


	Three Months Ended March 31,
	2012		2011
	(In thousands)
Available-for-sale:
Proceeds from sales and maturities	$	18,437	$	503
Realized gains (losses), net		12,465		(3,248	)

Note 5 Fair Value Measurements

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 March 31, 2012. Our debt securities could transfer into or out of a Level 1 or 2 measure depending on the availability of independent and current pricing at the end of each quarter. During the three months ended March 31, 2012, there were no transfers of our financial assets and liabilities between Level 1 and Level 2 measures. 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 March 31, 2012
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Short-term investments:
Available-for-sale equity securities — energy industry	$	72,903	$	8,324	$	—	$	81,227
Available-for-sale debt securities
Commercial paper and CDs		1,150				—		1,150
Corporate debt securities		—		34,950		—		34,950
Mortgage-backed debt securities		—		257		—		257
Mortgage-CMO debt securities		—		2,421		—		2,421
Asset-backed debt securities		2,307		—		—		2,307
Trading securities — energy industry		17,638		—		—		17,638

Total short-term investments	$	93,998	$	45,952	$	—	$	139,950

Liabilities:
Derivative contract	$	—	$	819	$	—	$	819

Nonrecurring Fair Value Measurements

Fair value measurements were applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which would consist of measurements primarily to goodwill, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination, and asset retirement obligations.

Fair Value of Financial Instruments

The fair value of our financial instruments has been estimated in accordance with GAAP. The fair value of our long-term debt and subsidiary preferred stock is estimated based on quoted market prices or prices quoted from third-party financial institutions. The carrying and fair values of these liabilities were as follows:


	March 31, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)
5.375% senior notes due August 2012(1)(2)	$	274,761	$	279,824	$	274,604	$	281,188
6.15% senior notes due February 2018(3)		967,794		1,119,300		967,490		1,113,986
9.25% senior notes due January 2019(3)		1,125,000		1,451,734		1,125,000		1,419,514
5.00% senior notes due September 2020(3)		697,419		751,275		697,343		734,475
4.625% senior notes due September 2021(3)		697,727		733,124		697,667		708,176
Subsidiary preferred stock(2)		69,188		67,500		69,188		68,625
Revolving credit facilities(2)		1,010,000		1,010,000		860,000		860,000
Other(2)		640		640		1,712		1,712

	$	4,842,529	$	5,413,397	$	4,693,004	$	5,187,676

(1)	Includes $.2 million and $.3 million as of March 31, 2012 and December 31, 2011, respectively, related to the unamortized loss on the interest rate swap that was unwound during the fourth quarter of 2005.

(2)	Fair value represents a Level 2 measure.

(3)	Fair value represents a Level 1 measure.

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 March 31, 2012, our short-term investments were carried at fair market value and included $122.3 million and $17.6 million in securities classified as available-for-sale and trading, respectively. As of December 31, 2011, our short-term investments were carried at fair market value and included $129.3 million and $11.6 million in securities classified as available-for-sale and trading, respectively.

Note 6 Share-Based Compensation

We have several share-based employee compensation plans, which are more fully described in Note 8 Share-Based Compensation to the audited financial statements included in our 2011 Annual Report. Total share-based compensation expense, which includes both stock options and restricted stock, totaled $4.5 million and $3.9 million for the three months ended March 31, 2012 and 2011, respectively, and is included in direct costs and general and administrative expenses in our consolidated statements of income (loss). Share-based compensation expense has been allocated to our various operating segments. See Note 14 — Segment Information.

During the three months ended March 31, 2012 and 2011, we awarded 907,786 and 782,708 shares of restricted stock, respectively, vesting over periods up to four years, to our employees and directors. These awards had an aggregate value at their grant date of $19.0 million and $21.2 million, respectively. The fair value of restricted stock that vested during the three months ended March 31, 2012 and 2011 was $8.2 million and $12.4 million, respectively.

The total intrinsic value of stock options exercised during the three months ended March 31, 2012 and 2011 was $4.9 million and $11.3 million, respectively. Additionally, the intrinsic value of stock options surrendered during the three months ended March 31, 2012 was $17.9 million. The total fair value of stock options that vested during the three months ended March 31, 2012 and 2011 was $7.5 million and $5.1 million, respectively.

Note 7 Investments in Unconsolidated Affiliates

We have several unconsolidated affiliates that are integral to our operations. For a full description, refer to Note 10 — Investments in Unconsolidated Affiliates in our 2011 Annual Report.

As of March 31, 2012 and December 31, 2011, our consolidated balance sheets reflect our investments in unconsolidated affiliates accounted for using the equity method totaling $303.1 million and $371.0 million, respectively. Assets held for sale include investments in unconsolidated affiliates accounted for using the equity method totaling $13.7 million at March 31, 2012 and December 31, 2011, respectively.


	Three Months Ended March 31,
	2012			2011
	(In thousands)
Gross revenues	$	160,509		$	82,203
Gross margin		93,605			69,814
Net income (loss)		(132,296	)		30,473
Nabors’ earnings (losses) from U.S. oil and gas joint venture		(62,562	)(1)		15,160

(1)	During the three months ended March 31, 2012, our unconsolidated U.S. oil and gas joint venture recorded a full-cost ceiling test writedown, of which our proportionate share was $68.2 million. This writedown is included in our Oil and Gas Operating segment.

Note 8 Debt

Long-term debt consisted of the following:


	March 31, 2012		December 31, 2011
	(In thousands)
5.375% senior notes due August 2012	$	274,761	$	274,604
6.15% senior notes due February 2018		967,794		967,490
9.25% senior notes due January 2019		1,125,000		1,125,000
5.00% senior notes due September 2020		697,419		697,343
4.625% senior notes due September 2021		697,727		697,667
Revolving credit facilities		1,010,000		860,000
Other		640		1,712

		4,773,341		4,623,816
Less: current portion		275,616		275,326

	$	4,497,725	$	4,348,490

5.375% Senior Notes Due August 2012

At December 31, 2011, the current portion of our long-term debt included Nabors Delaware’s 5.375% senior notes of $274.6 million. We intend to utilize cash on hand and capacity under our revolving credit facilities to meet this obligation.

Revolving Credit Facilities

As of March 31, 2012, we had $390 million of remaining availability from a combined total of $1.4 billion under our existing revolving credit facilities. The existing revolving credit facilities mature in September 2014, and can be used for general corporate purposes, including capital expenditures and working capital. The weighted average interest rate on borrowings at March 31, 2012 was 1.75%. We fully and unconditionally guarantee the obligations under all of these credit facilities.

The revolving credit facilities contain various covenants and restrictive provisions that limit our ability to incur additional indebtedness, make investments or loans and create liens and require us to maintain a net funded indebtedness to total capitalization ratio, as defined in each agreement. We were in compliance with all covenants under the agreements at March 31, 2012 and December 31, 2011. If we should fail to perform our obligations under the covenants, the revolving credit commitments could be terminated and any outstanding borrowings under the relevant facility could be declared immediately due and payable.

Note 9 Common Shares

During the three months ended March 31, 2012, our employees exercised vested options and surrendered unexercised vested stock options to acquire 1.0 million of our common shares. We received proceeds of $15.7 million from exercised vested options and used approximately $21.0 million, the value of the unexercised vested options that were surrendered, to satisfy some of the option exercise price and related tax withholding obligations pursuant to stock option share settlements and exercises by some of the employees. During the three months ended March 31, 2011, our employees exercised vested options to acquire .8 million of our common shares, resulting in proceeds of $9.4 million. For each of the three months ended March 31, 2012 and 2011, we withheld .1 million of our common shares with a fair value of $1.8 million and $2.3 million, respectively, to satisfy tax withholding obligations in connection with the vesting of all stock awards.

At December 31, 2011, accrued liabilities included a provision of $100 million for a contingent liability related to the change of our Chief Executive Officer that occurred in October 2011. In February 2012, our former Chief Executive Officer elected to forego triggering that payment. In connection with that development, we announced plans to make charitable contributions to benefit the needs of our employees and other community-based causes. During the first quarter of 2012, we contributed one million of our treasury shares to the Nabors Charitable Foundation, a 501(c)(3) organization, in support of this objective. We consider the former Chief Executive Officer to be a significant shareholder of the Company and, therefore, have recorded these transactions as equity. We recorded the release of the contingent liability, net of tax, through capital in excess of par as a forgiveness of liability from a beneficial owner. We recorded the donation of the treasury shares at their weighted-average cost, net of tax, through capital in excess of par.

Note 10 Subsidiary Preferred Stock

As of and during the three months ended March 31, 2012, dividends of $.75 million on outstanding shares of preferred stock had been declared and paid in full.

Note 11 Commitments and Contingencies

Commitments

Employment Contracts

The employment agreement for Mr. Petrello currently provides for a term through March 30, 2015, with automatic one-year extensions each April 1, unless either party gives notice of nonrenewal. In the event of Mr. Petrello’s termination without cause or constructive termination without cause, he would be entitled to receive three times the average of his base salary and annual bonus during the three fiscal years preceding the

termination. If, by way of example, Mr. Petrello were terminated without cause subsequent to March 31, 2012, his payment would be approximately $31.1 million. The formula will be further reduced to two times the average stated above in April 1, 2015. In the event of his death or disability, either he or his estate would be entitled to receive within 30 days thereafter a payment of $50 million.

We do not have insurance to cover, and we have not recorded an expense or accrued a liability relating to this potential obligation. See Note 18 Commitments and Contingencies to our 2011 Annual Report for additional discussion and description of Mr. Petrello’s employment agreement.

Contingencies

Income Tax Contingencies

We are subject to income taxes in the United States and numerous other 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 audited 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 what is reflected in income tax provisions and accruals. An audit or litigation could materially affect our financial position, income tax provision, net income, or cash flows in the period or periods challenged.

It is possible that future changes to tax laws (including tax treaties) could impact our ability to realize the tax savings recorded to date as well as future tax savings, resulting from our 2002 corporate reorganization. See Note 13 — Income Taxes to our 2011 Annual Report for additional discussion.

On September 14, 2006, Nabors Drilling International Limited, one of our wholly owned Bermuda subsidiaries (“NDIL”), received a Notice of Assessment from Mexico’s federal tax authorities in connection with the audit of NDIL’s Mexico branch for 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 was approximately $19.8 million (including interest and penalties). Nabors and its tax advisors previously concluded that the deductions were appropriate. NDIL’s Mexico branch took similar deductions for depreciation and labor expenses from 2004 to 2008. On June 30, 2009, the government proposed similar assessments against the Mexico branch of another wholly owned Bermuda subsidiary, Nabors Drilling International II Ltd. (“NDIL II”) for 2006. We anticipate that a similar assessment will eventually be proposed against NDIL for 2005 through 2008 and against NDIL II for 2007 to 2010. We believe that the potential assessments will range from $6 million to $26 million per year for the period from 2005 to 2009, and in the aggregate, would be approximately $90 million to $95 million. Although Nabors and our tax advisors previously concluded that the deductions were appropriate for the 2003 and 2005 to 2010 years, a reserve has been recorded in accordance with GAAP. The statute of limitations for NDIL’s 2004 tax year expired. Accordingly, during the fourth quarter of 2010, we released $7.4 million from our tax reserves, which represented the reserve recorded for that tax year. If these additional assessments were made and we ultimately did not prevail, we would be required to recognize additional tax for the amount in excess of the current reserve.

Self-Insurance

We estimate the level of our liability related to insurance and record reserves for these amounts in our consolidated financial statements. Our estimates are based on the facts and circumstances specific to existing claims and our past experience with similar claims. These loss estimates and accruals recorded in our financial statements for claims have historically been reasonable in light of the actual amount of claims paid. Although we believe our insurance coverage and reserve estimates are reasonable, a significant accident or other event that is not fully covered by insurance or contractual indemnity could occur and could materially affect our financial position and results of operations for a particular period.

Effective April 1, 2012, our workers’ compensation claims are subject to a $2.0 million per-occurrence deductible, and our automobile claims are subject to a $1.0 million per-occurrence deductible.

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. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. 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, which provided freight forwarding and customs clearance services to some of our affiliates. The inquiry focused on transactions in Kazakhstan, Saudi Arabia, Algeria and Nigeria. The Audit Committee of our Board of Directors engaged outside counsel to review some of our transactions with this vendor, received periodic updates at its regularly scheduled meetings, and the Chairman of the Audit Committee received updates between meetings as circumstances warranted. The investigation included a review of certain amounts paid to and by Panalpina in connection with obtaining permits for the temporary importation of equipment and clearance of goods and materials through customs. Both the SEC and the Department of Justice have been advised of the results of our investigation. The SEC recently advised us that it has concluded its review of this matter and does not intend to recommend any enforcement action against us. Although the Department of Justice has not concluded its inquiry, we do not anticipate that its final determination will have an adverse effect on the Company.

A court in Algeria entered a judgment of approximately $19.7 million against us related to alleged customs infractions in 2009. We believe we did not receive proper notice of the judicial proceedings, 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 to the Algeria Supreme Court. 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. The Algeria Supreme Court has notified us that it will deliver its decision in the second quarter of 2012. If we are 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.

In March 2011, the Court of Ouargla (in Algeria), sitting at first instance, entered a judgment of approximately $39.1 million against us relating to alleged violations of Algeria’s foreign currency exchange controls, which require that goods and services provided locally be invoiced and paid in local currency. The case relates to certain foreign currency payments made to us by CEPSA, a Spanish operator, for wells drilled in 2006. Approximately $7.5 million of the total contract amount was paid offshore in foreign currency, and approximately $3.2 million was paid in local currency. The judgment includes fines and penalties of approximately four times the amount at issue, and is not payable pending appeal. We have appealed the ruling based on our understanding that the law in question applies only to resident entities incorporated under Algerian law. An intermediate court of appeals has upheld the lower court’s ruling, and we have appealed the matter to the Algeria Supreme Court. While our payments were consistent with our historical operations in the country and,

we believe, those of other multinational corporations there, and interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $31.1 million in excess of amounts accrued.

On September 21, 2011, we received an informal inquiry from the SEC related to perquisites and personal benefits received by the officers and directors of Nabors, including their use of non-commercial aircraft. Our Audit Committee and Board of Directors have been apprised of this inquiry and we are cooperating with the SEC. The ultimate outcome of this process cannot be determined at this time.

Nabors Industries Ltd. and its Board of Directors have been sued in three separate purported shareholder derivative lawsuits filed in federal and state court in Houston, Texas. The cases were filed on November 18, 2011, January 9, 2012, and November 30, 2011, respectively, before Judges Ewing Werlein and Gray Miller in the United States Southern District of Texas, Houston Division, and Judge Mike Miller of the 11th Judicial District Court of Harris County, Texas. The case pending before Judge Gray Miller was voluntarily dismissed on January 31, 2012. The other cases remain pending. The allegations of each lawsuit are substantially similar, alleging that the members of the Board breached their fiduciary duties to the Company, wasted corporate assets, and committed oppressive conduct against the shareholders by agreeing to acquiesce to certain compensation arrangements with two senior officers of the Company, Eugene M. Isenberg and Anthony G. Petrello. The remaining lawsuits seek relief that includes an award of monetary damages in an unspecified amount, disgorgement by Messrs. Isenberg and Petrello of allegedly excessive compensation in an unspecified amount of at least $90 million, and equitable relief to reform Nabors’ compensation practices. Nabors intends to vigorously defend the lawsuits and has filed a motion to dismiss the remaining federal court lawsuit. The ultimate outcome of these lawsuits cannot be determined at this time.

On March 9, 2012, Nabors Global Holdings II Limited (“NGH2L”) signed a contract with ERG Resources, LLC (“ERG”) relating to the sale of all of the Class A shares of NGH2L’s wholly owned subsidiary, Ramshorn International Limited, an oil and gas exploration company. When ERG failed to meet its closing obligations, NGH2L terminated the transaction on March 19, 2012 and, as contemplated in the agreement, retained ERG’s $3 million escrow deposit. ERG filed suit the following day in the 61^st Judicial District Court of Harris County, Texas, in a case styled ERG Resources, LLC v. Nabors Global Holdings II Limited, Ramshorn International Limited, and Parex Resources, Inc.; Cause No. 2012-16446, seeking injunctive relief to halt any sale of the shares to a third party, specifically naming as defendant Parex Resources, Inc. (“Parex”). The lawsuit also seeks monetary damages of up to $100 million based on an alleged breach of contract by NGH2L and tortious interference with contractual relations by Parex. Nabors successfully defeated ERG’s effort to obtain a temporary restraining order from the Texas court on March 20, 2012. On March 23, 2012, ERG filed and obtained an ex parte stay from the Supreme Court of Bermuda (Commercial Court), in a case styled as ERG Resources LLC v. Nabors Global Holdings II Limited, Case No. 2012: No. 110. Nabors challenged the stay and, following a series of oral hearings on the matter, the Bermuda court discharged the stay by a ruling dated April 5, 2012. Nabors completed the sale of Ramshorn’s Class A shares to a Parex affiliate on April 12, 2012, which mooted ERG’s application for a temporary injunction that was scheduled for hearing by the Texas court on April 13, 2012. ERG retains its causes of action for monetary damages, but Nabors believes the claims are foreclosed by the terms of the agreement and are without factual or legal merit. While Nabors intends to vigorously defend the lawsuit, the ultimate outcome of the lawsuit cannot be determined at this time.

Off-Balance Sheet Arrangements (Including Guarantees)

We are a party to some 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 under 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. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. 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:


	Maximum Amount
	Remainder of 2012		2013		2014		Thereafter		Total
	(In thousands)
Financial standby letters of credit and other financial surety instruments	$	92,618	$	20,287	$	—	$	—	$	112,905

Note 12 Earnings (Losses) Per Share

A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations is as follows:


	Three Months Ended March 31,
	2012			2011
	(In thousands, except share amounts)
Net income (loss) (numerator):
Income (loss) from continuing operations, net of tax	$	142,618		$	94,552
Less: net (income) loss attributable to noncontrolling interest		267			669

Adjusted income (loss) from continuing operations, net of tax — basic		142,885			95,221
Add interest expense on assumed conversion of 0.94% senior exchangeable notes, net of tax(1)		—			—

Adjusted income (loss) from continuing operations, net of tax — diluted		142,885			95,221
Income (loss) from discontinued operations, net of tax		(8,795	)		(12,396	)

Adjusted net income (loss) attributable to Nabors		134,090			82,825
Earnings (losses) per share:	$	.50		$	.33
Basic from continuing operations		(.04	)		(.04	)

Basic from discontinued operations	$	.46		$	.29
Total Basic
Diluted from continuing operations	$	.49		$	.33
Diluted from discontinued operations		(.03	)		(.05	)

Total Diluted	$	.46		$	.28
Shares (denominator):		288,538			286,114
Weighted-average number of shares outstanding — basic		3,171			6,575
Net effect of dilutive stock options, warrants and restricted stock awards based on the if-converted method		—			—
Assumed conversion of 0.94% senior exchangeable notes(1)		—			—
Weighted-average number of shares outstanding — diluted		291,709			292,689

(1)	At maturity in May 2011, we redeemed the remaining aggregate principal amount of $1.4 billion of our 0.94% senior exchangeable notes. Prior to maturity, we had purchased $1.4 billion par value of these notes

in the open market for cash of $1.2 billion. Diluted earnings (losses) per share for the three months ended March 31, 2011 exclude any incremental shares that would have been issuable upon exchange of these notes based on a calculation using our stock price. Our stock price did not exceed the threshold during the three months ended March 31, 2011.

For all periods presented, the computation of diluted earnings (losses) per Nabors’ share excludes outstanding stock options and warrants with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. The average number of options and warrants that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share in the future was 11,763,048 and 7,269,039 shares during the three months ended March 31, 2012 and 2011, respectively. In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options and warrants, such stock options and warrants will be included in our diluted earnings (losses) per share computation using the if-converted method of accounting. Restricted stock will be included in our basic and diluted earnings (losses) per share computation using the two-class method of accounting in all periods because such stock is considered a participating security.

Note 13 Supplemental Balance Sheet, Income Statement and Cash Flow Information

Accrued liabilities include the following:


	March 31, 2012		December 31, 2011
	(In thousands)
Accrued compensation	$	172,254	$	173,732
Deferred revenue		216,462		172,578
Other taxes payable		31,804		44,652
Workers’ compensation liabilities		22,645		22,645
Interest payable		35,912		99,869
Due to joint venture partners		4,027		6,041
Warranty accrual		6,309		5,237
Litigation reserves		22,727		23,687
Provision for termination payment		—		100,000
Current liability to discontinued operations		61,707		54,287
Professional fees		4,056		6,413
Current deferred tax liability		—		269
Other accrued liabilities		9,008		7,363

	$	586,911	$	716,773

Investment income (loss) includes the following:


	Three Months Ended March 31,
	2012			2011
	(In thousands)
Interest and dividend income	$	1,355		$	1,825
Gains (losses) on investments, net(1)		18,897	(2)		10,455	(3)

	$	20,252		$	12,280

(1)	Includes net unrealized gains/(losses) of $6.0 million and ($3.2) million, during the three months ended March 31, 2012 and 2011, respectively, from our trading securities.

(2)	Includes $12.5 million realized gain related to debt securities in addition to unrealized gains discussed above.

(3)	Includes $12.9 million realized gain related to one of our overseas fund investments classified as long-term investments, partially offset by unrealized losses discussed above.

Losses (gains) on sales and retirements of long-lived assets and other expense (income), net includes the following:


	Three Months Ended March 31,
	2012			2011
	(In thousands)
Losses (gains) on sales, retirements and involuntary conversions of long-lived assets	$	(1,782	)	$	1,093
Litigation expenses		540			5,919
Foreign currency transaction losses (gains)		(455	)		(552	)
Losses (gains) on derivative instruments		(462	)		(511	)
Losses (gains) on debt extinguishment		—			58
Other losses (gains)		319			152

	$	(1,840	)	$	6,159

Note 14 Segment Information

The following table sets forth financial information with respect to our reportable segments:


	Three Months Ended March 31,
	2012			2011
	(In thousands)
Operating revenues and earnings (losses) from unconsolidated affiliates from continuing operations:(1)
Drilling and Rig Services:
U.S. Lower 48 Land Drilling	$	495,697		$	378,568
U.S. Offshore		69,115			30,454
Alaska		62,293			41,315
Canada		192,293			172,443
International		306,465			262,477
Other Rig Services(2)		241,758			116,789

Subtotal Drilling and Rig Services(3)		1,367,621			1,002,046
Completion and Production Services:
U.S. Land Well-servicing		209,701			150,256
Pressure Pumping		398,036			257,859

Subtotal Completion and Production Services		607,737			408,115
Oil and Gas(4)		(62,562	)		15,160
Other reconciling items(5)		(91,039	)		(35,479	)

Total	$	1,821,757		$	1,389,842



Adjusted income (loss) derived from operating activities from continuing operations:(1)(6)
Drilling and Rig Services:
U.S. Lower 48 Land Drilling	$	131,581		$	80,095
U.S. Offshore		7,732			(3,977	)
Alaska		27,420			11,019
Canada		49,287			38,992
International		21,138			35,497
Other Rig Services(2)		29,846			8,344

Subtotal Drilling and Rig Services(3)		267,004			169,970
Completion and Production Services:
U.S. Land Well-servicing		21,888			11,123
Pressure Pumping		64,860			43,715

Subtotal Completion and Production Services		86,748			54,838
Oil and Gas(7)		5,650			15,160
Other reconciling items(8)		(38,216	)		(32,395	)

Total adjusted income derived from operating activities	$	321,186		$	207,573
Full-cost ceiling test writedown		(68,212	)		—
Interest expense		(62,654	)		(73,966	)
Investment income (loss)		20,252			12,280
Gains (losses) on sales and retirements of long-lived assets and other (income) expense, net		1,840			(6,159	)

Income (loss) from continuing operations before income taxes		212,412			139,728
Income tax expense (benefit)		69,044			44,426
Subsidiary preferred stock dividend		750			750

Income (loss) from continuing operations, net of tax		142,618			94,552
Income (loss) from discontinued operations, net of tax		(8,795	)		(12,396	)

Net income (loss)		133,823			82,156
Less: Net income (loss) attributable to noncontrolling interest		267			669

Net income (loss) attributable to Nabors	$	134,090		$	82,825


	March 31, 2012		December 31, 2011
	(In thousands)
Total assets:
Drilling and Rig Services:
U.S. Lower 48 Land Drilling	$	3,336,992	$	3,216,803
U.S. Offshore		427,380		402,506
Alaska		299,350		288,253
Canada		963,416		962,239
International		3,782,962		3,702,611
Other Rig Services(2)		714,918		720,775

Subtotal Drilling and Rig Services(9)		9,525,018		9,293,187
Completion and Production Services:
U.S. Well-servicing		821,740		812,049
Pressure Pumping		1,562,625		1,503,298

Subtotal Completion and Production Services		2,384,365		2,315,347
Oil and Gas(10)		781,412		796,327
Other reconciling items(8)		457,399		507,279

Total assets	$	13,148,194	$	12,912,140

(1)	All periods present the operating activities of our wholly owned oil and gas business in the United States, Canada and Colombia, including equity interests in Canada and Colombia, as well as our aircraft logistics operations in Canada as discontinued operations.

(2)	Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction services. These services represent our other companies that are not aggregated into a reportable operating segment.

(3)	Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $(6.1) million and $1.1 million for the three months ended March 31, 2012 and 2011, respectively.

(4)	Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $(62.6) million and $15.2 million for the three months ended March 31, 2012 and 2011, respectively.

(5)	Represents the elimination of inter-segment transactions.

(6)

Adjusted income (loss) derived from operating activities is computed by subtracting direct costs, general and administrative expenses, and depreciation and amortization from Operating revenues and then adding Earnings (losses) from unconsolidated affiliates (excluding our proportionate share of full-cost ceiling test writedowns recorded by our oil and gas joint venture). These amounts should not be used as a substitute for those amounts reported in accordance with GAAP. However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income (loss) derived from operating activities, because it believes that these financial measures accurately reflect our ongoing profitability. A reconciliation of this non-GAAP measure to income (loss) from continuing operations before income taxes, which is a GAAP measure, is provided in the above table.

(7)

Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $5.6 million (excluding $68.2 million, which represents our proportionate share of full-cost ceiling test writedowns by our oil and gas joint venture) and $15.2 million for the three months ended March 31, 2012 and 2011, respectively.

(8)	Represents the elimination of inter-segment transactions and unallocated corporate expenses, and assets.

(9)	Includes $68.8 million and $76.9 million of investments in unconsolidated affiliates accounted for using the equity method as of March 31, 2012 and December 31, 2011, respectively.

(10)	Includes $234.3 million and $294.1 million investments in unconsolidated affiliates accounted for using the equity method and $417.0 million and $385.4 million as assets held for sale as of March 31, 2012 and December 31, 2011, respectively.

Note 15 Condensed Consolidating Financial Information

Nabors has fully and unconditionally guaranteed all of the issued public debt securities of Nabors Delaware. The following condensed consolidating financial information is included so that separate financial statements of Nabors Delaware are not required to be filed with the SEC. The condensed consolidating financial statements present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.

The following condensed consolidating financial information presents condensed consolidating balance sheets as of March 31, 2012 and December 31, 2011, statements of income (loss), statements of cash flows and statements of other comprehensive income for the three months ended March 31, 2012 and 2011 of (a) Nabors, parent/guarantor, (b) Nabors Delaware, issuer of public debt securities guaranteed by Nabors (c) the non-guarantor subsidiaries, (d) consolidating adjustments necessary to consolidate Nabors and its subsidiaries and (e) Nabors on a consolidated basis.

Condensed Consolidating Balance Sheets


	March 31, 2012
(In thousands)	Nabors (Parent/ Guarantor)		Nabors Delaware (Issuer/ Guarantor)		Other Subsidiaries (Non- Guarantors)		Consolidating Adjustments			Consolidated Total
ASSETS
Current assets:
Cash and cash equivalents	$	3,808	$	21	$	350,193	$	—		$	354,022
Short-term investments		—		—		139,950		—			139,950
Assets held for sale		—		—		433,446		—			433,446
Accounts receivable, net		—		—		1,717,375		—			1,717,375
Inventory		—		—		265,787		—			265,787
Deferred income taxes		—		—		45,038		—			45,038
Other current assets		50		671		172,885		—			173,606

Total current assets		3,858		692		3,124,674		—			3,129,224
Long-term investments and other receivables		—		—		6,373		—			6,373
Property, plant and equipment, net		—		39,913		8,774,168		—			8,814,081
Goodwill		—		—		501,536		—			501,536
Intercompany receivables		164,629		—		537,881		(702,510	)		—
Investment in unconsolidated affiliates		5,644,060		6,200,966		1,810,355		(13,352,278	)		303,103
Other long-term assets		—		30,737		363,140		—			393,877

Total assets	$	5,812,547	$	6,272,308	$	15,118,127	$	(14,054,788	)	$	13,148,194

LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	274,761	$	855	$	—		$	275,616
Trade accounts payable		52		23		687,501		—			687,576
Accrued liabilities		1,572		35,933		549,406		—			586,911
Income taxes payable		—		—		30,938		—			30,938

Total current liabilities		1,624		310,717		1,268,700		—			1,581,041
Long-term debt		—		4,447,940		49,785		—			4,497,725
Other long-term liabilities		—		31,862		290,141		—			322,003
Deferred income taxes		—		30,404		824,653		—			855,057
Intercompany payable		—		292,134		410,376		(702,510	)		—

Total liabilities		1,624		5,113,057		2,843,655		(702,510	)		7,255,826

Subsidiary preferred stock		—		—		69,188		—			69,188

Shareholders’ equity		5,810,923		1,159,251		12,193,027		(13,352,278	)		5,810,923
Noncontrolling interest		—		—		12,257		—			12,257

Total equity		5,810,923		1,159,251		12,205,284		(13,352,278	)		5,823,180

Total liabilities and equity	$	5,812,547	$	6,272,308	$	15,118,127	$	(14,054,788	)	$	13,148,194


	December 31, 2011
(In thousands)	Nabors (Parent/ Guarantor)		Nabors Delaware (Issuer/ Guarantor)		Other Subsidiaries (Non- Guarantors)		Consolidating Adjustments			Consolidated Total

ASSETS
Current assets:
Cash and cash equivalents	$	203	$	21	$	398,351	$	—		$	398,575
Short-term investments		—		—		140,914		—			140,914
Assets held for sale		—		—		401,500		—			401,500
Accounts receivable, net		—		—		1,576,555		—			1,576,555
Inventory		—		—		272,852		—			272,852
Deferred income taxes		—		—		127,874		—			127,874
Other current assets		50		671		169,323		—			170,044

Total current assets		253		692		3,087,369		—			3,088,314
Long-term investments and other receivables		—		—		11,124		—			11,124
Property, plant and equipment, net		—		40,792		8,589,154		—			8,629,946
Goodwill		—		—		501,258		—			501,258
Intercompany receivables		164,760		—		537,881		(702,641	)		—
Investment in unconsolidated affiliates		5,429,029		6,084,868		1,843,654		(12,986,530	)		371,021
Other long-term assets		—		32,037		278,440		—			310,477

Total assets	$	5,594,042	$	6,158,389	$	14,848,880	$	(13,689,171	)	$	12,912,140


LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	274,604	$	722	$	—		$	275,326
Trade accounts payable		42		23		782,688		—			782,753
Accrued liabilities		6,185		100,101		610,487		—			716,773
Income taxes payable		—				27,710		—			27,710

Total current liabilities		6,227		374,728		1,421,607		—			1,802,562
Long-term debt		—		4,297,500		50,990		—			4,348,490
Other long-term liabilities		—		32,303		260,454		—			292,757
Deferred income taxes		—		11,221		786,705		—			797,926
Intercompany payable		—		379,400		323,241		(702,641	)		—

Total liabilities		6,227		5,095,152		2,842,997		(702,641	)		7,241,735

Subsidiary preferred stock		—		—		69,188		—			69,188

Shareholders’ equity		5,587,815		1,063,237		11,923,293		(12,986,530	)		5,587,815
Noncontrolling interest		—		—		13,402		—			13,402

Total equity		5,587,815		1,063,237		11,936,695		(12,986,530	)		5,601,217

Total liabilities and equity	$	5,594,042	$	6,158,389	$	14,848,880	$	(13,689,171	)	$	12,912,140

Condensed Consolidating Statements of Income (Loss)


	Three Months Ended March 31, 2012
(In thousands)	Nabors (Parent/ Guarantor)		Nabors Delaware (Issuer/ Guarantor)			Other Subsidiaries (Non- Guarantors)			Consolidating Adjustments			Consolidated Total
Revenues and other income:
Operating revenues	$	—	$	—		$	1,890,426		$	—		$	1,890,426
Earnings (losses) from unconsolidated affiliates		—		—			(68,669	)		—			(68,669	)
Earnings (losses) from consolidated affiliates		135,879		54,528			28,361			(218,768	)		—
Investment income (loss)		—		—			20,252			—			20,252
Intercompany interest income		—		16,932			—			(16,932	)		—

Total revenues and other income		135,879		71,460			1,870,370			(235,700	)		1,842,009

Costs and other deductions:
Direct costs		—		—			1,184,816			—			1,184,816
General and administrative expenses		1,527		140			134,942			(263	)		136,346
Depreciation and amortization		—		902			246,719			—			247,621
Interest expense		—		68,169			(5,515	)		—			62,654
Intercompany interest expense		—		—			16,932			(16,932	)		—
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net		262		(433	)		(1,932	)		263			(1,840	)

Total costs and other deductions		1,789		68,778			1,575,962			(16,932	)		1,629,597

Income (loss) from continuing operations before income taxes		134,090		2,682			294,408			(218,768	)		212,412
Income tax expense (benefit)		—		(19,183	)		88,227			—			69,044
Subsidiary preferred stock dividend		—		—			750			—			750

Income (loss) from continuing operations, net of tax		134,090		21,865			205,431			(218,768	)		142,618
Income (loss) from discontinued operations, net of tax		—		—			(8,795	)		—			(8,795	)

Net income (loss)		134,090		21,865			196,636			(218,768	)		133,823
Less: Net (income) loss attributable to noncontrolling interest		—		—			267			—			267

Net income (loss) attributable to Nabors	$	134,090	$	21,865		$	196,903		$	(218,768	)	$	134,090


	Three Months Ended March 31, 2011
(In thousands)	Nabors (Parent/ Guarantor)		Nabors Delaware (Issuer/ Guarantor)			Other Subsidiaries (Non- Guarantors)			Consolidating Adjustments			Consolidated Total
Revenues and other income:
Operating revenues	$	—	$	—		$	1,373,568		$	—		$	1,373,568
Earnings (losses) from unconsolidated affiliates		—		—			16,274			—			16,274
Earnings (losses) from consolidated affiliates		85,792		59,893			29,660			(175,345	)		—
Investment income (loss)		3		—			12,277			—			12,280
Intercompany interest income		—		18,684			—			(18,684	)		—

Total revenues and other income		85,795		78,577			1,431,779			(194,029	)		1,402,122

Costs and other deductions:
Direct costs		—		—			841,108			—			841,108
General and administrative expenses		2,872		41			113,136			(98	)		115,951
Depreciation and amortization		—		871			224,339			—			225,210
Interest expense		—		77,349			(3,383	)		—			73,966
Intercompany interest expense		—		—			18,684			(18,684	)		—
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net		98		(464	)		6,427			98			6,159

Total costs and other deductions		2,970		77,797			1,200,311			(18,684	)		1,262,394

Income (loss) from continuing operations before income taxes		82,825		780			231,468			(175,345	)		139,728
Income tax expense (benefit)		—		(21,872	)		66,298			—			44,426
Subsidiary preferred stock dividend		—		—			750			—			750

Income (loss) from continuing operations, net of tax		82,825		22,652			164,420			(175,345	)		94,552
Income (loss) from discontinued operations, net of tax		—		—			(12,396	)		—			(12,396	)

Net income (loss)		82,825		22,652			152,024			(175,345	)		82,156
Less: Net (income) loss attributable to noncontrolling interest		—		—			669			—			669

Net income (loss) attributable to Nabors	$	82,825	$	22,652		$	152,693		$	(175,345	)	$	82,825

Condensed Consolidating Statements of Other Comprehensive Income


	Three Months Ended March 31, 2012
(In thousands)	Nabors (Parent/ Guarantor)			Nabors Delaware (Issuer/ Guarantor)			Other Subsidiaries (Non- Guarantors)			Consolidating Adjustments			Consolidated Total
Net income (loss) attributable to Nabors	$	134,090		$	21,865		$	196,903		$	(218,768	)	$	134,090
Other comprehensive income, before tax
Translation adjustment attributable to Nabors		17,266			(53	)		17,213			(17,160	)		17,266
Unrealized gains/(losses) on marketable securities:
Unrealized gains/(losses) on marketable securities		12,223			64			12,287			(12,351	)		12,223
Less: reclassification adjustment for (gains)/losses included in net income (loss)		(12,465	)		(10,288	)		(22,753	)		33,041			(12,465	)

Unrealized gains (losses) on marketable securities		(242	)		(10,224	)		(10,466	)		20,690			(242	)
Defined benefit pension plans:
Pension liability amortization		260			260			520			(780	)		260
Pension liability adjustment		—			—			—			—			—

Defined benefit pension plans		260			260			520			(780	)		260
Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges		191			191			191			(382	)		191

Other comprehensive income, before tax		17,475			(9,826	)		7,458			2,368			17,475
Income tax expense related to items of other comprehensive income		(3,724	)		(3,724	)		(7,508	)		11,232			(3,724	)

Other comprehensive income, net of tax		21,199			(6,102	)		14,966			(8,864	)		21,199

Comprehensive income		155,289			15,763			211,869			(227,632	)		155,289
Net income (loss) attributable to noncontrolling interest		(267	)		—			(267	)		267			(267	)
Translation adjustment to noncontrolling interest		243			—			243			(243	)		243

Comprehensive income attributable to noncontrolling interest		(24	)		—			(24	)		24			(24	)

Comprehensive income attributable to Nabors	$	155,265		$	15,763		$	211,845		$	(227,608	)	$	155,265


	Three Months Ended March 31, 2011
(In thousands)	Nabors (Parent/ Guarantor)			Nabors Delaware (Issuer/ Guarantor)			Other Subsidiaries (Non- Guarantors)			Consolidating Adjustments			Consolidated Total
Net income (loss) attributable to Nabors	$	82,825		$	22,652		$	152,693		$	(175,345	)	$	82,825
Other comprehensive income, before tax
Translation adjustment attributable to Nabors		31,439			(21	)		31,419			(31,398	)		31,439
Unrealized gains/(losses) on marketable securities:
Unrealized gains/(losses) on marketable securities		6,308			167			6,477			(6,644	)		6,308
Less: reclassification adjustment for (gains)/losses included in net income (loss)		(3	)		—			(3	)		3			(3	)

Unrealized gains (losses) on marketable securities		6,305			167			6,474			(6,641	)		6,305
Defined benefit pension plans:
Pension liability amortization		151			151			302			(453	)		151
Pension liability adjustment		—			—			—			—			—

Defined benefit pension plans		151			151			302			(453	)		151
Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges		191			191			191			(382	)		191

Other comprehensive income, before tax		38,086			488			38,386			(38,874	)		38,086
Income tax expense related to items of other comprehensive income		182			182			304			(486	)		182

Other comprehensive income, net of tax		37,904			306			38,082			(38,388	)		37,904

Comprehensive income		120,729			22,958			190,775			(213,733	)		120,729
Net income (loss) attributable to noncontrolling interest		(669	)		—			(669	)		669			(669	)
Translation adjustment to noncontrolling interest		357			—			357			(357	)		357

Comprehensive income attributable to noncontrolling interest		(312	)		—			(312	)		312			(312	)

Comprehensive income attributable to Nabors	$	120,417		$	22,958		$	190,463		$	(213,421	)	$	120,417

Condensed Consolidating Statements of Cash Flows


	Three Months Ended March 31, 2012
(In thousands)	Nabors (Parent/ Guarantor)			Nabors Delaware (Issuer/ Guarantor)			Other Subsidiaries (Non- Guarantors)			Consolidating Adjustments			Consolidated Total
Net cash provided by (used for) operating activities	$	10,693		$	(150,000	)	$	395,990		$	(12,500	)	$	244,183

Cash flows from investing activities:
Purchases of investments		—			—			(791	)		—			(791	)
Sales and maturities of investments		—			—			23,478			—			23,478
Cash paid for acquisition of businesses, net		—			—			—			—			—
Capital expenditures		—			—			(473,687	)		—			(473,687	)
Proceeds from sales of assets and insurance claims		—			—			21,321			—			21,321
Cash paid for investments in consolidated affiliates		—			—			—			—			—

Net cash provided by (used for) investing activities		—			—			(429,679	)		—			(429,679	)

Cash flows from financing activities:
Increase (decrease) in cash overdrafts		—			—			(2,269	)		—			(2,269	)
Proceeds from revolving credit facilities		—			150,000			—			—			150,000
Proceeds from issuance of common shares		(5,319	)		—			(1	)		—			(5,320	)
Reduction in long-term debt		—			—			(1,072	)		—			(1,072	)
Purchase of restricted stock		(1,769	)		—			—			—			(1,769	)
Tax benefit related to share-based awards								(31	)		—			(31	)
Proceeds from parent contributions		—			—			(12,500	)		12,500			—

Net cash (used for) provided by financing activities		(7,088	)		150,000			(15,873	)		12,500			139,539
Effect of exchange rate changes on cash and cash equivalents		—			—			1,404			—			1,404

Net (decrease) increase in cash and cash equivalents		3,605			—			(48,158	)		—			(44,553	)
Cash and cash equivalents, beginning of period		203			21			398,351			—			398,575

Cash and cash equivalents, end of period	$	3,808		$	21		$	350,193		$	—		$	354,022


	Three Months Ended March 31, 2011
(In thousands)	Nabors (Parent/ Guarantor)			Nabors Delaware (Issuer/ Guarantor)			Other Subsidiaries (Non- Guarantors)			Consolidating Adjustments			Consolidated Total
Net cash provided by (used for) operating activities	$	(4,988	)	$	5,003		$	290,909		$	—		$	290,924

Cash flows from investing activities:
Purchases of investments		—			—			(5,870	)		—			(5,870	)
Sales and maturities of investments		—			—			3,529			—			3,529
Cash paid for acquisition of businesses, net		—			—			—			—			—
Investment in unconsolidated affiliates		—			—			(19,000	)		—			(19,000	)
Capital expenditures		—			—			(358,574	)		—			(358,574	)
Proceeds from sales of assets and insurance claims		—			—			5,491			—			5,491
Cash paid for investments in consolidated affiliates		(6,500	)		—			—			6,500			—

Net cash provided by (used for) investing activities		(6,500	)		—			(374,424	)		6,500			(374,424	)

Cash flows from financing activities:
Increase (decrease) in cash overdrafts		—			—			7,565			—			7,565
Proceeds from issuance of common shares		9,424			—			—			—			9,424
Reduction in long-term debt		—			(4,988	)		(572	)		—			(5,560	)
Repurchase of equity component of convertible debt		—			(14	)		—			—			(14	)
Purchase of restricted stock		(2,340	)		—			—			—			(2,340	)
Tax benefit related to share-based awards		—			(1	)					—			(1	)
Proceeds from parent contributions		—			—			6,500			(6,500	)		—

Net cash (used for) provided by financing activities		7,084			(5,003	)		13,493			(6,500	)		9,074
Effect of exchange rate changes on cash and cash equivalents		—			—			2,460			—			2,460

Net (decrease) increase in cash and cash equivalents		(4,404	)		—			(67,562	)		—			(71,966	)
Cash and cash equivalents, beginning of period		10,847			20			630,835			—			641,702

Cash and cash equivalents, end of period	$	6,443		$	20		$	563,273		$	—		$	569,736

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

of Nabors Industries Ltd.:

We have reviewed the accompanying consolidated balance sheet of Nabors Industries Ltd. and its subsidiaries (the “Company”) as of March 31, 2012, and the related consolidated statements of income and other comprehensive income for the three-month periods ended March 31, 2012 and March 31, 2011 and the consolidated statements of cash flows and of changes in equity for the three-month periods ended March 31, 2012 and March 31, 2011. This interim financial information is the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2011, and the related consolidated statements of income, changes in equity and of cash flows for the year then ended (not presented herein), and in our report dated February 29, 2012, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2011, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

May 4, 2012

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

We often discuss expectations regarding our future markets, demand for our products and services, and our performance in our annual and quarterly reports, press releases, and other written and oral statements. Statements relating to matters that are not historical facts are “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These “forward-looking statements” are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “should,” “could,” “may,” “predict” and similar expressions are intended to identify forward-looking statements.

You should consider the following key factors when evaluating these forward-looking statements:

•

fluctuations in worldwide prices of and demand for natural gas and oil;

•

fluctuations in levels of natural gas and oil exploration and development activities;

•

fluctuations in the demand for our services;

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