Edgar Filing: NABORS INDUSTRIES LTD

e10vq

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 June 30, 2011

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 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

(Do not check if a 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 o NO þ

The number of common shares, par value $.001 per share, outstanding as of July 27, 2011 was 287,486,076.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

Index


PART I FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010	3
		Consolidated Statements of Income (Loss) for the Three and Six Months Ended June 30, 2011 and 2010	4
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010	5
		Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2011 and 2010	6
		Notes to Consolidated Financial Statements	8
		Report of Independent Registered Public Accounting Firm	35
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
	Item 4.	Controls and Procedures	48

PART II OTHER INFORMATION
	Item 1.	Legal Proceedings	50
	Item 1A.	Risk Factors	50
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
	Item 6.	Exhibits	52
Signatures			53
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


ITEM 1.	*FINANCIAL STATEMENTS*

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	June 30,			December 31,
(In thousands, except per share amounts)	2011			2010
	(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	528,822		$	641,702
Short-term investments		144,220			159,488
Assets held for sale		311,295			352,048
Accounts receivable, net		1,191,182			1,116,510
Inventory		199,899			158,836
Deferred income taxes		38,809			31,510
Other current assets		138,714			152,836

Total current assets		2,552,941			2,612,930
Long-term investments and other receivables		42,119			40,300
Property, plant and equipment, net		8,372,405			7,815,419
Goodwill		494,100			494,372
Investment in unconsolidated affiliates		303,970			267,723
Other long-term assets		350,117			415,825

Total assets	$	12,115,652		$	11,646,569


LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	881		$	1,379,018
Trade accounts payable		551,010			355,282
Accrued liabilities		462,343			394,292
Income taxes payable		10,716			25,788

Total current liabilities		1,024,950			2,154,380
Long-term debt		4,264,586			3,064,126
Other long-term liabilities		257,696			245,765
Deferred income taxes		830,757			770,247

Total liabilities		6,377,989			6,234,518

Commitments and contingencies (Note 8)
Subsidiary preferred stock		69,188			69,188
Equity:
Shareholders’ equity:
Common shares, par value $.001 per share:
Authorized common shares 800,000; issued 316,858 and 315,034, respectively		316			315
Capital in excess of par value		2,273,016			2,255,787
Accumulated other comprehensive income		376,891			342,052
Retained earnings		3,983,154			3,707,881
Less: treasury shares, at cost, 29,414 common shares		(977,873	)		(977,873	)

Total shareholders’ equity		5,655,504			5,328,162
Noncontrolling interest		12,971			14,701

Total equity		5,668,475			5,342,863

Total liabilities and equity	$	12,115,652		$	11,646,569

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						Six Months Ended
	June 30,						June 30,
(In thousands, except per share amounts)	2011			2010			2011		2010

Revenues and other income:
Operating revenues	$	1,354,905		$	896,029		$	2,736,184	$	1,787,375
Earnings (losses) from unconsolidated affiliates		9,307			8,845			25,581		16,487
Investment income (loss)		(969	)		2,314			11,318		(243	)

Total revenues and other income		1,363,243			907,188			2,773,083		1,803,619

Costs and other deductions:
Direct costs		835,112			517,531			1,693,483		1,022,728
General and administrative expenses		125,648			80,337			244,106		155,763
Depreciation and amortization		225,912			175,397			452,014		346,933
Depletion		2,698			4,841			6,271		9,868
Interest expense		63,739			65,293			137,663		132,062
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net		5,572			11,024			11,601		31,391

Total costs and other deductions		1,258,681			854,423			2,545,138		1,698,745

Income (loss) from continuing operations before income taxes		104,562			52,765			227,945		104,874
Income tax expense (benefit):
Current		7,791			17,652			24,444		30,297
Deferred		27,873			(8,858	)		49,527		(12,913	)

Total income tax expense (benefit)		35,664			8,794			73,971		17,384
Subsidiary preferred stock dividend		750			—			1,500		—

Income (loss) from continuing operations, net of tax		68,148			43,971			152,474		87,490
Income (loss) from discontinued operations, net of tax		123,906			(909	)		121,736		(5,330	)

Net income (loss)		192,054			43,062			274,210		82,160
Less: Net (income) loss attributable to noncontrolling interest		394			559			1,063		1,661

Net income (loss) attributable to Nabors	$	192,448		$	43,621		$	275,273	$	83,821

Earnings (losses) per share:
Basic from continuing operations	$	.24		$	.15		$	.54	$	.31
Basic from discontinued operations		.43			—			.42		(.02	)

Total Basic	$	.67		$	.15		$	.96	$	.29

Diluted from continuing operations	$	.23		$	.15		$	.52	$	.31
Diluted from discontinued operations		.42			—			.42		(.02	)

Total Diluted	$	.65		$	.15		$	.94	$	.29

Weighted-average number of common shares outstanding:
Basic		287,311			285,181			286,712		284,927
Diluted		294,298			289,796			293,493		290,266

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

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	June 30,
(In thousands)	2011			2010

Cash flows from operating activities:
Net income (loss) attributable to Nabors	$	275,273		$	83,821
Adjustments to net income (loss):
Depreciation and amortization		451,986			348,475
Depletion and other exploratory expenses		19,072			15,677
Deferred income tax expense (benefit)		47,308			(12,151	)
Deferred financing costs amortization		2,922			2,559
Pension liability amortization and adjustments		300			199
Discount amortization on long-term debt		26,081			36,764
Amortization of loss on hedges		464			291
Losses (gains) on long-lived assets, net		(41,458	)		3,667
Losses (gains) on investments, net		(8,761	)		2,184
Losses (gains) on debt retirement, net		58			7,033
Losses (gains) on derivative instruments		338			1,580
Share-based compensation		8,107			7,047
Foreign currency transaction losses (gains), net		615			15,019
Equity in (earnings) losses of unconsolidated affiliates, net of dividends		(102,122	)		(10,379	)
Changes in operating assets and liabilities:
Accounts receivable		(82,533	)		(42,363	)
Inventory		(39,807	)		(7,308	)
Other current assets		21,051			16,273
Other long-term assets		61,543			(11,765	)
Trade accounts payable and accrued liabilities		237,743			15,025
Income taxes payable		(13,363	)		(9,622	)
Other long-term liabilities		5,085			7,883

Net cash provided by operating activities		869,902			469,909

Cash flows from investing activities:
Purchases of investments		(7,945	)		(27,988	)
Sales and maturities of investments		20,622			27,997
Investment in unconsolidated affiliates		(29,762	)		(10,936	)
Distribution of proceeds from asset sales from unconsolidated affiliates		119,207			—
Capital expenditures		(1,003,245	)		(369,455	)
Proceeds from sales of assets and insurance claims		102,067			17,567

Net cash used for investing activities		(799,056	)		(362,815	)

Cash flows from financing activities:
Increase (decrease) in cash overdrafts		11,203			(6,130	)
Proceeds from issuance of common shares		11,622			4,733
Proceeds from revolving credit facilities		1,200,000			—
Debt issuance costs		(2,188	)
Reduction in long-term debt		(1,404,247	)		(273,605	)
Repurchase of equity component of convertible debt		(14	)		(4,712	)
Settlement of call options and warrants, net		—			1,133
Purchase of restricted stock		(2,527	)		(1,887	)
Tax benefit related to share-based awards		42			(45	)

Net cash used for financing activities		(186,109	)		(280,513	)
Effect of exchange rate changes on cash and cash equivalents		2,383			(6,803	)

Net (decrease) increase in cash and cash equivalents		(112,880	)		(180,222	)
Cash and cash equivalents, beginning of period		641,702			927,815

Cash and cash equivalents, end of period	$	528,822		$	747,593

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

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


											Accumulated
								Capital in			Other								Non-
				Common Shares				Excess of			Comprehensive			Retained		Treasury			controlling			Total
(In thousands)				Shares		ParValue		Par Value			Income			Earnings		Shares			Interest			Equity
Balances, December 31, 2010					315,034	$	315	$	2,255,787		$	342,052		$	3,707,881	$	(977,873	)	$	14,701		$	5,342,863

Comprehensive income (loss):
Net income (loss) attributable to Nabors	$	275,273													275,273								275,273
Translation adjustment attributable to Nabors		39,349										39,349											39,349
Unrealized gains/(losses) on marketable securities, net of income taxes of $70		(4,954	)									(4,954	)										(4,954	)
Less: Reclassification adjustment for (gains)/losses included in net income (loss), net of income taxes of $0		(1	)									(1	)										(1	)
Pension liability amortization, net of income taxes of $117		183										183											183
Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges, net of income tax benefit of $119		262										262											262

Comprehensive income (loss) attributable to Nabors	$	310,112

Net income (loss) attributable to noncontrolling interest		(1,063	)																	(1,063	)		(1,063	)
Translation adjustment attributable to noncontrolling interest		452																		452			452

Comprehensive income (loss) attributable to noncontrolling interest		(611	)

Total comprehensive income (loss)	$	309,501


Issuance of common shares for stock options exercised, net of surrender of unexercised stock options					956		1		11,621														11,622
Distributions from noncontrolling interest																				(1,119	)		(1,119	)
Repurchase of equity component of convertible debt									(14	)													(14	)
Tax benefit related to share-based awards									42														42
Restricted stock awards, net					868				(2,527	)													(2,527	)
Share-based compensation									8,107														8,107

Balances, June 30, 2011					316,858	$	316	$	2,273,016		$	376,891		$	3,983,154	$	(977,873	)	$	12,971		$	5,668,475

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

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)


											Accumulated
				Common Shares				Capital in			Other								Non-
						Par		Excess of			Comprehensive			Retained		Treasury			controlling			Total
(In thousands)				Shares		Value		Par Value			Income			Earnings		Shares			Interest			Equity
Balances, December 31, 2009					313,915	$	314	$	2,239,323		$	292,706		$	3,613,186	$	(977,873	)	$	14,323		$	5,181,979

Comprehensive income (loss):
Net income (loss) attributable to Nabors	$	83,821													83,821								83,821
Translation adjustment attributable to Nabors		(15,687	)									(15,687	)										(15,687	)
Unrealized gains/(losses) on marketable securities, net of income taxes of $7,678		(23,906	)									(23,906	)										(23,906	)
Less: Reclassification adjustment for (gains)/losses included in net income (loss), net of income taxes of $951		(2,060	)									(2,060	)										(2,060	)
Pension liability amortization, net of income taxes of $74		126										126											126
Unrealized gains/(losses) and amortization of (gains)/losses on cash flow hedges, net of income tax benefit of $9		89										89											89

Comprehensive income (loss) attributable to Nabors	$	42,383

Net income (loss) attributable to noncontrolling interest		(1,661	)																	(1,661	)		(1,661	)
Translation adjustment attributable to noncontrolling interest		(131	)																	(131	)		(131	)

Comprehensive income (loss) attributable to noncontrolling interest		(1,792	)

Total comprehensive income (loss)	$	40,591


Issuance of common shares for stock options exercised, net of surrender of unexercised stock options					389				4,733														4,733
Distributions from noncontrolling interest																				(867	)		(867	)
Contributions to noncontrolling interest																				437			437
Repurchase of equity component of convertible debt									(4,712	)													(4,712	)
Settlement of call options and warrants, net									1,133														1,133
Tax benefit related to share-based awards									(45	)													(45	)
Restricted stock awards, net					374				(1,887	)													(1,887	)
Share-based compensation									7,047														7,047

Balances, June 30, 2010					314,678	$	314	$	2,245,592		$	251,268		$	3,697,007	$	(977,873	)	$	12,101		$	5,228,409

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 551 land drilling rigs for oil and gas 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 actively market approximately 574 rigs for land well-servicing and workover work in the United States and approximately 174 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, 13 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 pressure pumping services with over 616,000 hydraulic horsepower in key basins throughout the United States.

	•	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 invest in oil and gas exploration, development and production activities in the United States, Canada and Colombia through both our wholly owned subsidiaries and our oil and gas joint ventures in which we hold 49-50% ownership interests.

	•	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 also provide logistics services for onshore drilling in Canada using helicopters and fixed-wing aircraft.

The majority of our business is conducted through our various Contract Drilling operating segments, which include our drilling, well-servicing, fluid logistics and workover operations, on land and offshore. Our hydraulic fracturing and downhole surveying services are included in our Pressure Pumping operating segment. Our oil and gas exploration, development and production operations are included in our Oil and Gas operating segment. 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 our Other Operating Segments.

On September 10, 2010, we acquired Superior Well Services, Inc. (“Superior”). The effects of the Superior acquisition and the related operating results are included in the accompanying unaudited consolidated financial statements beginning on the acquisition date, and are reflected in the operating segment titled “Pressure Pumping.”

Unless the context requires otherwise, references in this report to “we,” “us,” “our,” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires, including Nabors Industries, Inc., a Delaware corporation (“Nabors Delaware”).

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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, 2010 (“2010 Annual Report”). In management’s opinion, the consolidated financial statements contain all adjustments necessary to present fairly our financial position as of June 30, 2011 and the results of our operations for the three and six months ended June 30, 2011 and 2010, and our cash flows and changes in equity for the six months ended June 30, 2011 and 2010, in accordance with GAAP. Interim results for the three and six months ended June 30, 2011 may not be indicative of results that will be realized for the full year ending December 31, 2011.

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, 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 non-majority owned subsidiaries required to be consolidated under GAAP. Our consolidated financial statements exclude majority owned entities for which we do not have either (i) the ability to control the operating and financial decisions and policies of that entity or (ii) 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 $301.4 million and $265.8 million and investments in unconsolidated affiliates accounted for using the cost method totaled $2.5 million and $1.9 million, respectively, as of June 30, 2011 and December 31, 2010. At June 30, 2011 and December 31, 2010, assets held for sale included investments in unconsolidated affiliates accounted for using the equity method totaling $37.4 million and $79.5 million, respectively. See Note 11 – 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.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to clarify the application of some of the existing fair value measurement and disclosure requirements. These changes are effective for interim and annual periods that begin after December 15, 2011. We are currently evaluating the impact on our consolidated financial statements.

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In June 2011, the FASB issued an ASU relating to the presentation of other comprehensive income (“OCI”). This ASU does not change the items that are reported in OCI, but does remove the option to present the components of OCI within the statement of changes in equity. In addition, this ASU will require OCI presentation on the face of the financial statements. These changes are effective for interim and annual periods that begin after December 15, 2011, and are applied retrospectively to all periods presented. Early adoption is permitted. We plan to adopt the ASU beginning January 1, 2012.


Note 3	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,
	2011		2010
	(In thousands)

Cash and cash equivalents	$	528,822	$	641,702
Short-term investments:
Trading equity securities		12,970		19,630
Available-for-sale equity securities		68,580		79,698
Available-for-sale debt securities		62,670		60,160

Total short-term investments		144,220		159,488
Long-term investments and other receivables		42,119		40,300

Total	$	715,161	$	841,490

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


	June 30, 2011							December 31, 2010
			Gross		Gross					Gross		Gross
			Unrealized		Unrealized					Unrealized		Unrealized
	Fair		Holding		Holding			Fair		Holding		Holding
	Value		Gains		Losses			Value		Gains		Losses
	(In thousands)

Cash and cash equivalents	$	528,822	$	—	$	—		$	641,702	$	—	$	—

Short-term investments:
Trading equity securities		12,970		7,246		—			19,630		13,906		—

Available-for-sale equity securities		68,580		24,801		(18	)		79,698		38,176		(2,274	)

Available-for-sale debt securities:
Commercial paper and CDs		1,216		—		—			1,275		—		—
Corporate debt securities		55,300		21,944		(479	)		52,022		15,274		(18	)
Mortgage-backed debt securities		370		19		—			372		16		—
Mortgage-CMO debt securities		2,754		16		(99	)		3,015		21		(6	)
Asset-backed debt securities		3,030		—		(149	)		3,476		—		(268	)

Total available-for-sale debt securities		62,670		21,979		(727	)		60,160		15,311		(292	)

Total available-for-sale securities		131,250		46,780		(745	)		139,858		53,487		(2,566	)

Total short-term investments		144,220		54,026		(745	)		159,488		67,393		(2,566	)

Total cash, cash equivalents and short-term investments	$	673,042	$	54,026	$	(745	)	$	801,190	$	67,393	$	(2,566	)

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


	As of June 30, 2011
	Less Than 12 Months				More Than 12 Months
			Gross				Gross
			Unrealized				Unrealized
	Fair Value		Loss		Fair Value		Loss
	(In thousands)

Available-for-sale equity securities	$	1,067	$	18	$	—	$	—
Available-for-sale debt securities:(1)
Corporate debt securities		19,300		479		—		—
Mortgage-CMO debt securities		2,264		95		117		4
Asset-backed debt securities		—		—		3,030		149

Total available-for-sale debt securities		21,564		574		3,147		153

Total	$	22,631	$	592	$	3,147	$	153


(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 has a rating ranging from “A” to “AAA” from

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		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, did not consider the decline in value of these investments to be other-than-temporary at June 30, 2011.

The estimated fair values of our corporate, mortgage-backed, mortgage-CMO and asset-backed debt securities at June 30, 2011, 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
	June 30,
	2011
	(In thousands)

Debt securities:
Due in one year or less	$	1,216
Due after one year through five years		—
Due in more than five years		61,454

Total debt securities	$	62,670

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


	Six Months Ended
	June 30,
	2011			2010
	(In thousands)

Available-for-sale:
Proceeds from sales and maturities	$	782		$	10,757
Realized gains (losses), net		(7	)		1,677


Note 4	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 June 30, 2011. 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 June 30, 2011, there were no transfers of our financial

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

assets and liabilities between Level 1 and 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 June 30, 2011
	Level 1		Level 2		Level 3		Total
	(In thousands)

Assets:
Short-term investments:
Available-for-sale equity securities — energy industry	$	68,580	$	—	$	—	$	68,580
Available-for-sale debt securities
Commercial paper and CDs		1,216		—		—		1,216
Corporate debt securities		—		55,300		—		55,300
Mortgage-backed debt securities		—		370		—		370
Mortgage-CMO debt securities		—		2,754		—		2,754
Asset-backed debt securities		3,030		—		—		3,030
Trading securities — energy industry		12,970		—		—		12,970

Total short-term investments	$	85,796	$	58,424	$	—	$	144,220

Liabilities:
Derivative contract	$	—	$	2,578	$	—	$	2,578

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, oil and gas financing receivables, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination, and asset retirement obligations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:


	June 30, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)

0.94% senior exchangeable notes due May 2011	$	—	$	—	$	1,378,178	$	1,403,315
6.15% senior notes due February 2018		966,883		1,083,050		966,276		1,041,008
9.25% senior notes due January 2019		1,125,000		1,436,738		1,125,000		1,393,943
5.00% senior notes due September 2020		697,190		700,308		697,037		678,335
5.375% senior notes due August 2012(1)		274,291		287,876		273,977		291,500
Subsidiary preferred stock		69,188		68,625		69,188		68,625
Revolving credit facilities		1,200,000		1,200,000		—		—
Other		2,103		2,103		2,676		2,676

	$	4,334,655	$	4,778,700	$	4,512,332	$	4,879,402


(1)		Includes $.5 million and $.7 million as of June 30, 2011 and December 31, 2010, respectively, related to the unamortized loss on an interest rate swap that was unwound during the fourth quarter of 2005.

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, 2011, our short-term investments were carried at fair market value and included $131.2 million and $13.0 million in securities classified as available-for-sale and trading, respectively. As of December 31, 2010, our short-term investments were carried at fair market value and included $139.9 million and $19.6 million in securities classified as available-for-sale and trading, respectively. The carrying value of our long-term investments that are accounted for using the equity method of accounting approximates fair value. The fair value of these long-term investments totaled $6.1 million and $7.4 million as of June 30, 2011 and December 31, 2010, respectively. The carrying value of our oil and gas financing receivables included in long-term investments approximates fair value. The carrying value of our oil and gas financing receivables totaled $36.0 million and $32.9 million as of June 30, 2011 and December 31, 2010, respectively. Income and gains associated with our oil and gas financing receivables are recognized as operating revenues.


Note 5	Share-Based Compensation

We have several share-based employee compensation plans, which are more fully described in Note 6 Share-Based Compensation to the audited financial statements included in our 2010 Annual Report.

Total share-based compensation expense, which includes both stock options and restricted stock, totaled $4.1 million and $3.6 million for the three months ended June 30, 2011 and 2010, respectively, and $8.1 million and $7.0 million for the six months ended June 30, 2011 and 2010, respectively. Total share-based compensation 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 12 — Segment Information.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the six months ended June 30, 2011 and 2010, we awarded 1,029,157 and 460,418 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 $28.8 million and $10.3 million, respectively. The fair value of restricted stock that vested during the six months ended June 30, 2011 and 2010 was $15.9 million and $19.3 million, respectively.

The total intrinsic value of stock options exercised during the six months ended June 30, 2011 and 2010 was $15.1 million and $3.4 million, respectively. The total fair value of stock options that vested during the six months ended June 30, 2011 and 2010 was $5.1 million and $5.5 million, respectively.


Note 6	Debt

Long-term debt consists of the following:


	June 30,		December 31,
	2011		2010
	(In thousands)

0.94% senior exchangeable notes due May 2011	$	—	$	1,378,178
6.15% senior notes due February 2018		966,883		966,276
9.25% senior notes due January 2019		1,125,000		1,125,000
5.00% senior notes due September 2020		697,190		697,037
5.375% senior notes due August 2012		274,291		273,977
Revolving credit facilities		1,200,000		—
Other		2,103		2,676

		4,265,467		4,443,144
Less: current portion		881		1,379,018

	$	4,264,586	$	3,064,126

Senior Exchangeable Notes

On May 16, 2011, the remaining aggregate principal amount of $1.4 billion of our 0.94% senior exchangeable notes matured and we redeemed them with $1.2 billion of borrowings under our revolving credit facilities and available cash.

Revolving Credit Facilities

As of June 30, 2011, we had $200 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 current borrowings was 1.8%. We fully and unconditionally guarantee the obligations under all of these credit facilities.

We have two senior unsecured revolving credit facilities, which total $1.35 billion under Nabors Delaware and, as of June 30, 2011, $1.15 billion has been utilized. A third unsecured revolving credit facility for $50 million exists with one of our subsidiaries and, as of June 30, 2011, has been fully utilized. We have the option to increase the aggregate principal amount of commitments by an additional $200 million by either adding new lenders to these facilities or by requesting existing lenders under the facilities to increase their commitments (in each case with the consent of the new lenders or the increasing lenders).

Borrowings under the senior unsecured revolving credit facilities bear interest, at Nabor’s option, for either (x) the “Base Rate” (as defined below) plus the applicable interest margin, calculated on the basis of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

actual number of days elapsed in a year of 365 days and payable quarterly in arrears or (y) interest periods of one, two, three or six months at an annual rate equal to the LIBOR for the corresponding deposits of U.S. dollars, plus the applicable interest margin. The “Base Rate” is defined, for any day, as a fluctuating rate per annum equal to the highest of (i) the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of 1%, (ii) the prime commercial lending rate of the administrative agent, as established from time to time and (iii) LIBOR for an interest period of one month beginning on such day plus 1%.

The revolving credit facilities contain various covenants and restrictive provisions which 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 agreement at June 30, 2011. If we should fail to perform our obligations under the covenants, the revolving credit commitment could be terminated and any outstanding borrowings under the facility could be declared immediately due and payable.


Note 7	Common Shares

During the six months ended June 30, 2011 and 2010, our employees exercised vested options to acquire 1.0 million and .4 million of our common shares, resulting in proceeds of $11.6 million and $4.7 million, respectively. For each of the six months ended June 30, 2011 and 2010, we withheld .1 million of our common shares with a fair value of $2.5 million and $1.9 million, respectively, to satisfy tax withholding obligations in connection with the vesting of stock awards.

During the six months ended June 30, 2010, our outstanding share count increased by 103,925 due to share settlements of stock options exercised by our Chairman and Chief Executive Officer, Eugene M. Isenberg, and our Deputy Chairman, President and Chief Operating Officer, Anthony G. Petrello. As part of these transactions, unexercised vested stock options were surrendered to Nabors with a value of approximately $5.9 million to satisfy the option exercise price and related income taxes.


Note 8	Commitments and Contingencies

Commitments

Employment Contracts

The employment agreements for each of Messrs. Isenberg and Petrello 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 nonrenewal.


	•	In the event of Mr. Isenberg’s Termination Without Cause (including in the event of a change of control), or his death or disability, either he or his estate would be entitled to receive a payment of $100 million within 30 days thereafter.

	•	If Mr. Petrello experienced such a triggering event, he or his estate would be entitled to receive a payment of $50 million within 30 days; provided that in the event of Termination Without Cause or Constructive Termination Without Cause, either he or his estate would be entitled to a payment equal to three times the average of his base salary and annual bonus (calculated as though the bonus formula under his employment agreement as amended in April 2009 had been in effect) during the three fiscal years preceding the termination. If, by way of example, Mr. Petrello were Terminated Without Cause subsequent to June 30, 2011, his payment would be approximately $34 million. The formula will be further reduced to two times the average stated above effective April 1, 2015.

We do not have insurance to cover, and we have not recorded an expense or accrued a liability relating to these potential obligations. See Note 17 Commitments and Contingencies to our 2010 Annual Report for additional discussion and description of Messrs. Isenberg and Petrello’s employment agreements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 12-Income Taxes to our 2010 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 and more recently that the government’s position lacks merit. 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 we believe that any assessments related to the 2003 and 2005 to 2010 years lack merit, 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.

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 reasonably 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

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, which provided freight forwarding and customs clearance services to some 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 some of our transactions with this vendor, 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 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 our investigation. The ultimate outcome of this investigation or the effect of implementing any further measures that may be necessary to ensure full compliance with applicable laws cannot be determined at this time.

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. However, the ultimate resolution and the timing thereof are uncertain. 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 August 2010, Nabors and its wholly owned subsidiary, Diamond Acquisition Corp. (“Diamond”), were sued in three putative shareholder class actions. Two of the cases were dismissed. The remaining case pending, Jordan Denney, Individually and on Behalf of All Others Similarly Situated v. David E. Wallace, et al., Civil Action No. 10-1154, is pending in the United States District Court for the Western District of Pennsylvania. The suits were brought against Superior, the individual members of its board of directors, certain of Superior’s senior officers, Nabors and Diamond. The complaints alleged that Superior’s officers and directors violated various provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and breached their fiduciary duties in connection with the Superior acquisition, and that Nabors and Diamond aided and abetted these violations. The complaints sought injunctive relief, including an injunction against the consummation of the Superior acquisition, monetary damages, and attorneys fees and costs. The claim against Superior and its directors is covered by insurance after a deductible amount. We have entered into a settlement agreement pursuant to which Superior’s insurers will pay $475,000 in attorney’s fees in full settlement of this matter. The court has preliminarily approved the settlement, with a final hearing scheduled on September 8, 2011.

In March 2011, the Court of Ouargla (in Algeria), sitting at first instance, entered a judgment of approximately $39.1 million against NDIL 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 NDIL 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

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

penalties of approximately three 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.

Off-Balance Sheet Arrangements (Including Guarantees)

We are a party to 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 2011		2012		2013		Thereafter		Total
	(In thousands)

Financial standby letters of credit and other financial surety instruments	$	49,783	$	60,201	$	—	$	—	$	109,984

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 9	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					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010
	(In thousands, except per share amounts)

Net income (loss) (numerator):
Income (loss) from continuing operations, net of tax	$	68,148	$	43,971		$	152,474	$	87,490
Less: net (income) loss attributable to noncontrolling interest		394		559			1,063		1,661

Adjusted income (loss) from continuing operations, net of tax — basic		68,542		44,530			153,537		89,151
Add: interest expense on assumed conversion of our 0.94% senior exchangeable notes due 2011, net of tax(1)		—		—			—		—

Adjusted net income (loss) from continuing operations, net of tax — diluted	$	68,542	$	44,530		$	153,537	$	89,151

Earnings (losses) per share:
Basic from continuing operations	$	.24	$	.15		$	.54	$	.31

Diluted from continuing operations	$	.23	$	.15		$	.52	$	.31

Income (loss) from discontinued operations, net of tax	$	123,906	$	(909	)	$	121,736	$	(5,330	)

Earnings (losses) per share:
Basic from discontinued operations	$	.43	$	—		$	.42	$	(.02	)

Diluted from discontinued operations	$	.42	$	—		$	.42	$	(.02	)

Shares (denominator):
Weighted-average number of shares outstanding — basic		287,311		285,181			286,712		284,927
Net effect of dilutive stock options, warrants and restricted stock awards based on the if-converted method		6,987		4,615			6,781		5,339
Assumed conversion of our 0.94% senior exchangeable notes due 2011(1)		—		—			—		—

Weighted-average number of shares outstanding — diluted		294,298		289,796			293,493		290,266


(1)		In May 2011, the remaining aggregate principal amount of our 0.94% senior exchangeable notes matured and we redeemed them with $1.2 billion of borrowings under our revolving credit facilities and available cash. Diluted earnings (losses) per share for the three and six months ended June 30, 2010 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 period ending June 30, 2010.

For all periods presented, the computation of diluted earnings (losses) per share excludes outstanding stock options and warrants with exercise prices greater than the average market price of our common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 5,494,895 and 14,894,841 shares during the three months ended June 30, 2011 and 2010, respectively, and 6,381,967 and 12,475,355 shares during the six months ended June 30, 2011 and 2010, respectively. In any period during which the average market price of our 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 participating securities.


Note 10	Supplemental Balance Sheet, Income Statement and Cash Flow Information

Accrued liabilities include the following:


	June 30,		December 31,
	2011		2010
	(In thousands)

Accrued compensation	$	145,773	$	116,680
Deferred revenue		123,675		88,389
Other taxes payable		31,371		25,227
Workers’ compensation liabilities		21,489		31,944
Interest payable		90,177		89,276
Due to joint venture partners		6,041		6,030
Warranty accrual		4,212		3,376
Litigation reserves		23,440		12,301
Professional fees		6,669		3,222
Current deferred tax liability		1,027		1,027
Other accrued liabilities		8,469		16,820

	$	462,343	$	394,292

Investment income (loss) includes the following:


	Six Months Ended
	June 30,
	2011			2010
	(In thousands)

Interest and dividend income	$	3,787		$	3,156
Gains (losses) on investments, net(1)		7,531	(2)		(3,399	)

	$	11,318		$	(243	)


(1)		Includes unrealized losses of $6.7 million and $6.4 million, respectively, from our trading securities.

(2)		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.

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


	Six Months Ended
	June 30,
	2011			2010
	(In thousands)

Losses (gains) on sales and retirements of long-lived assets	$	1,259		$	3,804
Litigation expenses		9,926			3,927
Foreign currency transaction losses (gains)		478			15,144	(1)
Losses (gains) on derivative instruments		(861	)		391
Losses (gains) on debt extinguishment		58			7,033
Other losses (gains)		741			1,092

	$	11,601		$	31,391


(1)		Includes $8.2 million foreign currency exchange losses for operations in Venezuela related to the Venezuela government’s decision to devalue its currency in January 2010.


Note 11	Discontinued Operations

We determined that the plan of sale criteria in the ASC Topic relating to the Presentation of Financial Statements for Assets Sold or Held for Sale had been met during the third quarter of 2010 for our oil and gas assets in the Horn River basin in Canada and in the Llanos basin in Colombia. At Septemer 30, 2010, these assets also included our 49.7% and 50.0% ownership interests in our investments of Remora Energy International, LP (“Remora”) in Colombia and Stone Mountain Ventures Partnership (“SMVP”) in Canada, respectively, which we had accounted for using the equity method of accounting. All of these assets are included in our oil and gas operating segment. Accordingly, we reclassified wholly owned oil and gas assets from our property, plant and equipment, net, as well as our investment balances for Remora and SMVP from investments in unconsolidated affiliates to assets held for sale, in our consolidated balance sheet at September 30, 2010.

During the three months ended June 30, 2011, we sold some of our wholly owned oil and gas assets in Colombia to an unrelated third party. We received proceeds of $91.4 million from this sale and recognized a gain of approximately $42.7 million. Additionally, during the three months ended June 30, 2011, Remora completed sales of some of their oil and gas assets in Colombia. Remora received gross proceeds of approximately $279 million from these sales and made a distribution of cash to us in the amount of $119.2 million during the second quarter of 2011. Remora has entered into additional agreements with respect to the sale of the remaining oil and gas assets, which are expected to close during the third quarter of 2011.

In June 2011, the equity owners of SMVP dissolved the partnership and a proportionate share of the assets and liabilities were conveyed to us in exchange for our ownership interest. The exchange was not a material transaction to us and we accounted for it as a business combination. We continue to market these assets for sale and although market conditions in Canada have weakened since we initially classified these assets as held for sale at September 30, 2010, we continue to believe that these assets are properly reflected in our assets held for sale balances at June 30, 2011 and December 31, 2010.

The operating results from our oil and gas assets in Canada and Colombia that we have classified as held for sale have been retroactively presented as discontinued operations in the accompanying unaudited consolidated balance sheets and statements of income (loss) and the respective accompanying notes to the

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

consolidated financial statements. Our condensed statements of income (loss) from discontinued operations for the three and six months ended June 30, 2011 and 2010 were as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Condensed Statements of Income (Loss) from Discontinued Operations	2011			2010			2011			2010
	(In thousands)

Operating revenues and Earnings (losses) from unconsolidated affiliates	$	89,980	(1)	$	10,402		$	98,282	(1)	$	17,124

Income (loss) from discontinued operations:
Income (loss) from discontinued operations	$	79,698		$	(1,501	)	$	76,800		$	(4,568	)
Gain (loss) on disposal of wholly owned assets		42,717			—			42,717			—
Less: income tax expense (benefit)		(1,491	)		(592	)		(2,219	)		762

Income (loss) from discontinued operations, net of tax	$	123,906		$	(909	)	$	121,736		$	(5,330	)


(1)		Includes approximately $85 million of equity in earnings during the three months ended June 30, 2011 for our proportionate share of Remora’s net income, inclusive of the gains they recognized for asset sales closed during the second quarter of 2011.

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 12	Segment Information

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands)

Operating revenues and Earnings (losses) from unconsolidated affiliates from continuing operations:(1)
Contract Drilling:(2)
U.S. Lower 48 Land Drilling	$	404,984		$	303,417		$	783,552		$	574,914
U.S. Land Well-servicing		164,140			104,860			314,396			202,851
U.S. Offshore		40,284			38,978			70,738			77,176
Alaska		32,336			43,385			73,651			93,179
Canada		87,974			60,759			260,417			176,315
International		265,231			267,007			527,708			512,351

Subtotal Contract Drilling(3)		994,949			818,406			2,030,462			1,636,786
Pressure Pumping(4)		265,930			—			523,789			—
Oil and Gas(5)		11,755			9,800			31,883			20,402
Other Operating Segments(6)(7)		162,491			107,749			283,874			203,262
Other reconciling items(8)		(70,913	)		(31,081	)		(108,243	)		(56,588	)

Total	$	1,364,212		$	904,874		$	2,761,765		$	1,803,862

Adjusted income (loss) derived from operating activities from continuing operations:(1)(9)
Contract Drilling:
U.S. Lower 48 Land Drilling	$	99,231		$	58,169		$	179,326		$	118,455
U.S. Land Well-servicing		16,526			3,231			27,649			10,416
U.S. Offshore		(1,059	)		8,104			(5,036	)		15,477
Alaska		8,288			12,388			19,307			26,345
Canada		(2,512	)		(9,497	)		36,480			5,385
International		35,851			64,972			71,348			118,551

Subtotal Contract Drilling(3)		156,325			137,367			329,074			294,629
Pressure Pumping(4)		43,888			—			87,603			—
Oil and Gas(5)		4,959			1,998			4,189			4,617
Other Operating Segments(6)(7)		13,641			8,317			19,779			15,207
Other reconciling items(10)		(43,971	)		(20,914	)		(74,754	)		(45,883	)

Total adjusted income derived from operating activities	$	174,842		$	126,768		$	365,891		$	268,570
Interest expense		(63,739	)		(65,293	)		(137,663	)		(132,062	)
Investment income (loss)		(969	)		2,314			11,318			(243	)
Gains (losses) on sales and retirements of long-lived assets and other income (expense), net		(5,572	)		(11,024	)		(11,601	)		(31,391	)

Income (loss) from continuing operations before income taxes		104,562			52,765			227,945			104,874
Income tax expense (benefit)		35,664			8,794			73,971			17,384
Subsidiary preferred stock dividend		750			—			1,500			—

Income (loss) from continuing operations, net of tax		68,148			43,971			152,474			87,490
Income (loss) from discontinued operations, net of tax		123,906			(909	)		121,736			(5,330	)

Net income (loss)		192,054			43,062			274,210			82,160
Less: Net income (loss) attributable to noncontrolling interest		394			559			1,063			1,661

Net income (loss) attributable to Nabors	$	192,448		$	43,621		$	275,273		$	83,821

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	June 30,		December 31,
	2011		2010
	(In thousands)

Total assets:
Contract Drilling:(11)
U.S. Lower 48 Land Drilling	$	2,965,214	$	2,762,362
U.S. Land Well-servicing		748,151		630,518
U.S. Offshore		371,651		379,292
Alaska		287,086		313,123
Canada		1,012,559		1,065,268
International		3,489,873		3,279,763

Subtotal Contract Drilling		8,874,534		8,430,326
Pressure Pumping(4)		1,203,062		1,163,236
Oil and Gas(12)		951,127		805,410
Other Operating Segments(13)		551,266		539,373
Other reconciling items(10) (14)		535,663		708,224

Total assets	$	12,115,652	$	11,646,569


(1)		All information presents the operating activities of oil and gas assets in the Horn River basin in Canada and in the Llanos basin in Colombia as discontinued operations.

(2)		These segments include our drilling, well-servicing and workover operations on land and offshore.

(3)		Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $3.7 million and $2.9 million for the three months ended June 30, 2011 and 2010, respectively, and $3.9 million and $3.0 million for the six months ended June 30, 2011 and 2010, respectively.

(4)		Includes operating results of our Pressure Pumping operating segment, added to our lines of business during the third quarter of 2010, for the three and six months ended June 30, 2011.

(5)		Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $6.2 million and $3.2 million for the three months ended June 30, 2011 and 2010, respectively, and $21.4 million and $7.7 million for the six months ended June 30, 2011 and 2010, respectively.

(6)		Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction and logistics operations.

(7)		Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $(.6) million and $2.7 million for the three months ended June 30, 2011 and 2010, respectively, and $.3 million and $5.8 million for the six months ended June 30, 2011 and 2010, respectively.

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

(9)		Adjusted income (loss) derived from operating activities is computed by subtracting direct costs, general and administrative expenses, depreciation and amortization, and depletion expense from Operating revenues and then adding Earnings (losses) from unconsolidated affiliates. Such amounts should not be used as a substitute for those amounts reported under 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) before income taxes, which is a GAAP measure, is provided within the above table.

(10)		Represents the elimination of inter-segment transactions and unallocated corporate expenses.

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(11)		Includes $58.7 million and $54.8 million of investments in unconsolidated affiliates accounted for using the equity method as of June 30, 2011 and December 31, 2010, respectively.

(12)		Includes $178.0 million and $146.5 million investments in unconsolidated affiliates accounted for using the equity method as of June 30, 2011 and December 31, 2010, respectively.

(13)		Includes $64.7 million and $64.5 million of investments in unconsolidated affiliates accounted for using the equity method as of June 30, 2011 and December 31, 2010, respectively.

(14)		Includes $2.5 million and $1.9 million of investments in unconsolidated affiliates accounted for using the cost method as of June 30, 2011 and December 31, 2010, respectively.


Note 13	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 June 30, 2011 and December 31, 2010, statements of income (loss) for the three and six months ended June 30, 2011 and 2010 and the consolidating statements of cash flows for the six months ended June 30, 2011 and 2010 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.

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Balance Sheets


	June 30, 2011
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating			Consolidated
	Guarantor)		Guarantor)		Guarantors)		Adjustments			Total
	(In thousands)

ASSETS
Current assets:
Cash and cash equivalents	$	1,687	$	22	$	527,113	$	—		$	528,822
Short-term investments		—		—		144,220		—			144,220
Assets held for sale		—		—		311,295		—			311,295
Accounts receivable, net		—		—		1,191,182		—			1,191,182
Inventory		—		—		199,899		—			199,899
Deferred income taxes		—		—		38,809		—			38,809
Other current assets		50		3,959		134,705		—			138,714

Total current assets		1,737		3,981		2,547,223		—			2,552,941
Long-term investments and other receivables		—		—		42,119		—			42,119
Property, plant and equipment, net		—		42,742		8,329,663		—			8,372,405
Goodwill		—		—		494,100		—			494,100
Intercompany receivables		160,778		—		430,289		(591,067	)		—
Investment in unconsolidated affiliates		5,496,529		5,893,457		1,711,132		(12,797,148	)		303,970
Other long-term assets		—		33,742		316,375		—			350,117

Total assets	$	5,659,044	$	5,973,922	$	13,870,901	$	(13,388,215	)	$	12,115,652


LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$		$	881	$	—		$	881
Trade accounts payable		44		27		550,939		—			551,010
Accrued liabilities		3,496		89,983		368,864		—			462,343
Income taxes payable		—				10,716		—			10,716

Total current liabilities		3,540		90,010		931,400		—			1,024,950
Long-term debt		—		4,213,363		51,223		—			4,264,586
Other long-term liabilities		—		33,383		224,313		—			257,696
Deferred income taxes		—		48,167		782,590		—			830,757
Intercompany payable		—		591,067		—		(591,067	)		—

Total liabilities		3,540		4,975,990		1,989,526		(591,067	)		6,377,989

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

Shareholders’ equity		5,655,504		997,932		11,799,216		(12,797,148	)		5,655,504
Noncontrolling interest		—		—		12,971		—			12,971

Total equity		5,655,504		997,932		11,812,187		(12,797,148	)		5,668,475

Total liabilities and equity	$	5,659,044	$	5,973,922	$	13,870,901	$	(13,388,215	)	$	12,115,652

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	December 31, 2010
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating			Consolidated
	Guarantor)		Guarantor)		Guarantors)		Adjustments			Total
	(In thousands)

ASSETS
Current assets:
Cash and cash equivalents	$	10,847	$	20	$	630,835	$	—		$	641,702
Short-term investments		—		—		159,488		—			159,488
Assets held for sale		—		—		352,048		—			352,048
Accounts receivable, net		—		—		1,116,510		—			1,116,510
Inventory		—		—		158,836		—			158,836
Deferred income taxes		—		—		31,510		—			31,510
Other current assets		50		16,366		136,420		—			152,836

Total current assets		10,897		16,386		2,585,647		—			2,612,930
Long-term investments and other receivables		—		—		40,300		—			40,300
Property, plant and equipment, net		—		44,270		7,771,149		—			7,815,419
Goodwill		—		—		494,372		—			494,372
Intercompany receivables		160,250		—		322,697		(482,947	)		—
Investment in unconsolidated affiliates		5,160,800		5,814,219		1,665,459		(12,372,755	)		267,723
Other long-term assets		—		36,538		379,287		—			415,825

Total assets	$	5,331,947	$	5,911,413	$	13,258,911	$	(12,855,702	)	$	11,646,569


LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	1,378,178	$	840	$	—		$	1,379,018
Trade accounts payable		—		—		355,282		—			355,282
Accrued liabilities		3,785		89,480		301,027		—			394,292
Income taxes payable		—		6,859		18,929		—			25,788

Total current liabilities		3,785		1,474,517		676,078		—			2,154,380
Long-term debt		—		3,062,291		1,835		—			3,064,126
Other long-term liabilities		—		12,787		232,978		—			245,765
Deferred income taxes		—		71,815		698,432		—			770,247
Intercompany payable		—		301,451		181,496		(482,947	)		—

Total liabilities		3,785		4,922,861		1,790,819		(482,947	)		6,234,518

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

Shareholders’ equity		5,328,162		988,552		11,384,203		(12,372,755	)		5,328,162
Noncontrolling interest		—		—		14,701		—			14,701

Total equity		5,328,162		988,552		11,398,904		(12,372,755	)		5,342,863

Total liabilities and equity	$	5,331,947	$	5,911,413	$	13,258,911	$	(12,855,702	)	$	11,646,569

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Income (Loss)


	Three Months Ended June 30, 2011
			Nabors			Other
	Nabors		Delaware			Subsidiaries
	(Parent/		(Issuer/			(Non-			Consolidating			Consolidated
	Guarantor)		Guarantor)			Guarantors)			Adjustments			Total
	(In thousands)

Revenues and other income:
Operating revenues	$	—	$	—		$	1,354,905		$	—		$	1,354,905
Earnings (losses) from unconsolidated affiliates		—		—			9,307			—			9,307
Earnings (losses) from consolidated affiliates		195,770		18,971			(7,481	)		(207,260	)		—
Investment income (loss)		1		68			(1,038	)		—			(969	)
Intercompany interest income		—		17,405			—			(17,405	)		—

Total revenues and other income		195,771		36,444			1,355,693			(224,665	)		1,363,243

Costs and other deductions:
Direct costs		—		—			835,112			—			835,112
General and administrative expenses		3,120		49			122,683			(204	)		125,648
Depreciation and amortization		—		871			225,041			—			225,912
Depletion		—		—			2,698			—			2,698
Interest expense		—		69,059			(5,320	)		—			63,739
Intercompany interest expense		—		—			17,405			(17,405	)		—
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net		203		(344	)		5,509			204			5,572

Total costs and other deductions		3,323		69,635			1,203,128			(17,405	)		1,258,681

Income (loss) from continuing operations before income taxes		192,448		(33,191	)		152,565			(207,260	)		104,562
Income tax expense (benefit)		—		(19,300	)		54,964			—			35,664
Subsidiary preferred stock dividend		—		—			750			—			750

Income (loss) from continuing operations, net of tax		192,448		(13,891	)		96,851			(207,260	)		68,148
Income (loss) from discontinued operations, net of tax		—		—			123,906			—			123,906

Net income (loss)		192,448		(13,891	)		220,757			(207,260	)		192,054
Less: Net (income) loss attributable to noncontrolling interest		—		—			394			—			394

Net income (loss) attributable to Nabors	$	192,448	$	(13,891	)	$	221,151		$	(207,260	)	$	192,448

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Three Months Ended June 30, 2010
				Nabors			Other
	Nabors			Delaware			Subsidiaries
	(Parent/			(Issuer/			(Non-			Consolidating			Consolidated
	Guarantor)			Guarantor)			Guarantors)			Adjustments			Total
	(In thousands)

Revenues and other income:
Operating revenues	$	—		$	—		$	896,029		$	—		$	896,029
Earnings (losses) from unconsolidated affiliates		—			—			8,845			—			8,845
Earnings (losses) from consolidated affiliates		40,070			54,499			23,802			(118,371	)		—
Investment income (loss)		3			—			2,311			—			2,314
Intercompany interest income		—			17,828			—			(17,828	)		—

Total revenues and other income		40,073			72,327			930,987			(136,199	)		907,188

Costs and other deductions:
Direct costs		—			—			517,531			—			517,531
General and administrative expenses		1,573			108			78,838			(182	)		80,337
Depreciation and amortization		—			700			174,697			—			175,397
Depletion		—			—			4,841			—			4,841
Interest expense		—			67,516			(2,223	)		—			65,293
Intercompany interest expense		—			—			17,828			(17,828	)		—
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net		(5,121	)		9,781			6,182			182			11,024

Total costs and other deductions		(3,548	)		78,105			797,694			(17,828	)		854,423

Income (loss) from continuing operations before income taxes		43,621			(5,778	)		133,293			(118,371	)		52,765
Income tax expense (benefit)		—			(22,302	)		31,096			—			8,794

Income (loss) from continuing operations, net of tax		43,621			16,524			102,197			(118,371	)		43,971
Income (loss) from discontinued operations, net of tax		—			—			(909	)		—			(909	)

Net income (loss)		43,621			16,524			101,288			(118,371	)		43,062
Less: Net (income) loss attributable to noncontrolling interest		—			—			559			—			559

Net income (loss) attributable to Nabors	$	43,621		$	16,524		$	101,847		$	(118,371	)	$	43,621

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Six Months Ended June 30, 2011
			Nabors			Other
	Nabors		Delaware			Subsidiaries
	(Parent/		(Issuer/			(Non —			Consolidating			Consolidated
	Guarantor)		Guarantor)			Guarantors)			Adjustments			Total
	(In thousands)

Revenues and other income:
Operating revenues	$	—	$	—		$	2,736,184		$	—		$	2,736,184
Earnings (losses) from unconsolidated affiliates		—		—			25,581			—			25,581
Earnings (losses) from consolidated affiliates		281,564		78,864			22,177			(382,605	)		—
Investment income (loss)		4		68			11,246			—			11,318
Intercompany interest income		—		36,089			—			(36,089	)		—

Total revenues and other income		281,568		115,021			2,795,188			(418,694	)		2,773,083

Costs and other deductions:
Direct costs		—		—			1,693,483			—			1,693,483
General and administrative expenses		5,993		90			238,325			(302	)		244,106
Depreciation and amortization		—		1,742			450,272			—			452,014
Depletion		—		—			6,271			—			6,271
Interest expense		—		146,408			(8,745	)		—			137,663
Intercompany interest expense		—		—			36,089			(36,089	)		—
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net		302		(808	)		11,805			302			11,601

Total costs and other deductions		6,295		147,432			2,427,500			(36,089	)		2,545,138

Income (loss) from continuing operations before income taxes		275,273		(32,411	)		367,688			(382,605	)		227,945
Income tax expense (benefit)		—		(41,172	)		115,143			—			73,971
Subsidiary preferred stock dividend		—		—			1,500			—			1,500

Income (loss) from continuing operations, net of tax		275,273		8,761			251,045			(382,605	)		152,474
Income (loss) from discontinued operations, net of tax		—		—			121,736			—			121,736

Net income (loss)		275,273		8,761			372,781			(382,605	)		274,210
Less: Net (income) loss attributable to noncontrolling interest		—		—			1,063			—			1,063

Net income (loss) attributable to Nabors	$	275,273	$	8,761		$	373,844		$	(382,605	)	$	275,273

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Six Months Ended June 30, 2010
				Nabors			Other
	Nabors			Delaware			Subsidiaries
	(Parent/			(Issuer/			(Non —			Consolidating			Consolidated
	Guarantor)			Guarantor)			Guarantors)			Adjustments			Total
	(In thousands)

Revenues and other income:
Operating revenues	$	—		$	—		$	1,787,375		$	—		$	1,787,375
Earnings (losses) from unconsolidated affiliates		—			—			16,487			—			16,487
Earnings (losses) from consolidated affiliates		74,016			72,275			8,010			(154,301	)		—
Investment income (loss)		7			—			(250	)		—			(243	)
Intercompany interest income		—			35,943			—			(35,943	)		—

Total revenues and other income		74,023			108,218			1,811,622			(190,244	)		1,803,619

Costs and other deductions:
Direct costs		—			—			1,022,728			—			1,022,728
General and administrative expenses		3,783			179			152,073			(272	)		155,763
Depreciation and amortization		—			1,561			345,372			—			346,933
Depletion		—			—			9,868			—			9,868
Interest expense		—			137,715			(5,653	)		—			132,062
Intercompany interest expense		—			—			35,943			(35,943	)		—
Losses (gains) on sales and retirements of long-lived assets and other expense (income), net		(13,581	)		21,292			23,408			272			31,391

Total costs and other deductions		(9,798	)		160,747			1,583,739			(35,943	)		1,698,745

Income (loss) from continuing operations before income taxes		83,821			(52,529	)		227,883			(154,301	)		104,874
Income tax expense (benefit)		—			(46,177	)		63,561			—			17,384

Income (loss) from continuing operations, net of tax		83,821			(6,352	)		164,322			(154,301	)		87,490
Income (loss) from discontinued operations, net of tax		—			—			(5,330	)		—			(5,330	)

Net income (loss)		83,821			(6,352	)		158,992			(154,301	)		82,160
Less: Net (income) loss attributable to noncontrolling interest		—			—			1,661			—			1,661

Net income (loss) attributable to Nabors	$	83,821		$	(6,352	)	$	160,653		$	(154,301	)	$	83,821

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Cash Flows


	Six Months Ended June 30, 2011
				Nabors			Other
	Nabors			Delaware			Subsidiaries
	(Parent/			(Issuer/			(Non —			Consolidating			Consolidated
	Guarantor)			Guarantor)			Guarantors)			Adjustments			Total
	(In thousands)

Net cash provided by (used for) operating activities	$	1,044		$	256,452		$	612,406		$	—		$	869,902

Cash flows from investing activities:
Purchases of investments		—			—			(7,945	)		—			(7,945	)
Sales and maturities of investments		—			—			20,622			—			20,622
Investment in unconsolidated affiliates		—			—			(29,762	)		—			(29,762	)
Distribution of proceeds from asset sales from unconsolidated affiliates		—			—			119,207			—			119,207
Capital expenditures		—			—			(1,003,245	)		—			(1,003,245	)
Proceeds from sales of assets and insurance claims		—			—			102,067			—			102,067
Cash paid for investments in consolidated affiliates		(19,300	)		—			—			19,300			—

Net cash provided by (used for) investing activities		(19,300	)		—			(799,056	)		19,300			(799,056	)

Cash flows from financing activities:
Increase (decrease) in cash overdrafts		—			—			11,203			—			11,203
Proceeds from issuance of common shares, net		11,623			—			(1	)		—			11,622
Proceeds from revolving credit facilities		—			1,150,000			50,000			—			1,200,000
Debt issuance costs					(2,188	)								(2,188	)
Reduction in long-term debt		—			(1,404,247	)		—			—			(1,404,247	)
Repurchase of equity component of convertible debt		—			(14	)		—			—			(14	)
Purchase of restricted stock		(2,527	)		—			—			—			(2,527	)
Tax benefit related to share-based awards		—			(1	)		43			—			42
Proceeds from parent contributions		—			—			19,300			(19,300	)		—

Net cash (used for) provided by financing activities		9,096			(256,450	)		80,545			(19,300	)		(186,109	)
Effect of exchange rate changes on cash and cash equivalents		—			—			2,383			—			2,383

Net (decrease) increase in cash and cash equivalents		(9,160	)		2			(103,722	)		—			(112,880	)
Cash and cash equivalents, beginning of period		10,847			20			630,835			—			641,702

Cash and cash equivalents, end of period	$	1,687		$	22		$	527,113		$	—		$	528,822

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Six Months Ended June 30, 2010
				Nabors			Other
	Nabors			Delaware			Subsidiaries
	(Parent/			(Issuer/			(Non —			Consolidating
	Guarantor)			Guarantor)			Guarantors)			Adjustments			Consolidated Total
	(In thousands)

Net cash provided by (used for) operating activities	$	88,082		$	279,825		$	102,002		$	—		$	469,909

Cash flows from investing activities:
Purchases of investments		—			—			(27,988	)		—			(27,988	)
Sales and maturities of investments		—			—			27,997			—			27,997
Investment in unconsolidated affiliates		—			—			(10,936	)		—			(10,936	)
Capital expenditures		—			—			(369,455	)		—			(369,455	)
Proceeds from sales of assets and insurance claims		—			—			17,567			—			17,567
Cash paid for investments in consolidated affiliates		(88,000	)		—			—			88,000			—

Net cash provided by (used for) investing activities		(88,000	)		—			(362,815	)		88,000			(362,815	)

Cash flows from financing activities:
Increase (decrease) in cash overdrafts		—			—			(6,130	)		—			(6,130	)
Proceeds from issuance of common shares, net		4,733			—			—			—			4,733
Reduction in long-term debt		—			(273,605	)		—			—			(273,605	)
Repurchase of equity component of convertible debt		—			(4,712	)		—			—			(4,712	)
Settlement of call options and warrants, net		—			1,133			—			—			1,133
Purchase of restricted stock		(1,887	)		—			—			—			(1,887	)
Tax benefit related to share-based awards		—			—			(45	)		—			(45	)
Proceeds from parent contributions		—			—			88,000			(88,000	)		—

Net cash (used for) provided by financing activities		2,846			(277,184	)		81,825			(88,000	)		(280,513	)
Effect of exchange rate changes on cash and cash equivalents		—			—			(6,803	)		—			(6,803	)

Net (decrease) increase in cash and cash equivalents		2,928			2,641			(185,791	)		—			(180,222	)
Cash and cash equivalents, beginning of period		11,702			135			915,978			—			927,815

Cash and cash equivalents, end of period	$	14,630		$	2,776		$	730,187		$	—		$	747,593

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 June 30, 2011, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2011 and 2010, and the consolidated statements of cash flows and of changes in equity for the three-month and six-month periods ended June 30, 2011 and 2010. 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, 2010, 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 March 1, 2011, 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, 2010, 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

August 2, 2011


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 of 1933, as amended, and Section 21E of 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;

	•	the existence of competitors, technological changes and developments in the oilfield services industry;

	•	the existence of operating risks inherent in the oilfield services industry;

	•	the possibility of changes in tax and other laws and regulations;

	•	the possibility of political instability, war or acts of terrorism in any of the countries where we operate; and

	•	general economic conditions including the capital and credit markets.

Our businesses depend to a large degree on the level of spending by oil and gas companies for exploration, development and production activities. Therefore, a sustained increase or decrease in the price of natural gas or oil that has a material impact on exploration, development or production activities could also materially affect our financial position, results of operations and cash flows.

The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider. For a more detailed description of risk factors, please refer to Part I, Item 1A. — Risk Factors in our 2010 Annual Report.

Management Overview

The following discussion and analysis is intended to help the reader understand the results of our operations and our financial condition. This information is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes thereto.

The majority of our business is conducted through our various Contract Drilling operating segments, which include our drilling, well-servicing and workover operations, on land and offshore. Our hydraulic fracturing and downhole surveying services are included in our Pressure Pumping operating segment. Our oil and gas exploration, development and production operations are included in our Oil and Gas operating segment. 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 our Other Operating Segments.

The magnitude of customer spending on new and existing wells is the primary driver of our business. Our customers’ spending is determined in principal part by their cash flow and earnings, which (i) in our

U.S. Lower 48 Land Drilling and Canadian Drilling operations have traditionally been driven by natural gas prices but much of the current activity is being driven by oil and natural gas liquids prices, and (ii) in our Alaskan, International, U.S. Offshore (Gulf of Mexico), Canadian Well-servicing and U.S. Land Well-servicing operations by oil prices. Both natural gas and oil prices impact our customers’ activity levels and spending for our Pressure Pumping operations. The Henry Hub natural gas spot price (per Bloomberg) averaged $4.16 per thousand cubic feet (mcf) during the 12-month period ended June 30, 2011, slightly down from a $4.23 per mcf average during the prior 12 months. West Texas intermediate spot oil prices (per Bloomberg) averaged $89.41 per barrel for the 12 months ended June 30, 2011, up from a $75.17 per barrel average during the preceding 12 months.

Operating revenues and Earnings (losses) from unconsolidated affiliates for the three months ended June 30, 2011 totaled $1.4 billion, representing an increase of $459.3 million, or 51% as compared to the three months ended June 30, 2010, and $2.8 billion for the six months ended June 30, 2011, representing an increase of $957.9 million, or 53%, as compared to the six month ended June 30, 2010. Adjusted income derived from operating activities and income (loss) from continuing operations, net of tax and noncontrolling interests, for the three months ended June 30, 2011 totaled $174.8 million and $68.5 million ($.23 per diluted share), respectively, representing increases of 38% and 55%, respectively, compared to the three months ended June 30, 2010. Adjusted income derived from operating activities and income (loss) from continuing operations, net of tax and noncontrolling interests, for the six months ended June 30, 2011 totaled $365.9 million and $153.5 million ($.52 per diluted share), respectively, representing increases of 36% and 74%, respectively, compared to the six months ended June 30, 2010.

During the six months ended June 30, 2011, operating results improved as compared to the prior year period primarily due to the incremental revenue and positive operating results from the addition of our Pressure Pumping operating segment beginning in September of 2010 and increased drilling activity in oil- and liquids-rich shale plays in our U.S. Lower 48 Land Drilling and Well-servicing operations. However, our operating results and activity levels continued to be negatively impacted in our U.S. Offshore operations in response to uncertainty in the regulatory environment in the Gulf of Mexico; our Alaskan operations due to key customers’ spending constraints; and in Saudi Arabia due to downtime and reduced rates on several jackup rigs.

During the three months ended June 30, 2011, we sold some of our wholly owned oil and gas assets in Colombia and received proceeds of $91.4 million. Additionally, Remora completed sales of some of their oil and gas assets in Colombia for gross proceeds of $279 million and made a distribution of cash to us in the amount of $119.2 million during the second quarter of 2011. The effect of these sales is reflected in income (loss) from discontinued operations, net of tax, of $123.9 million ($.42 per diluted share) and $121.7 million ($.42 per diluted share) for the three and six months ended June 30, 2011, respectively.

We expect our operating results for 2011 to increase significantly from 2010 levels, driven by anticipated sustained higher oil prices and the related impact on drilling and well-servicing activity and dayrates, along with a full year contribution from our Pressure Pumping line of business. The major factors that support our projections of an improved year are:


	•	An increase in drilling in oil- and liquids-rich areas incremental to traditional dry gas regions by our U.S. Lower 48 Land Drilling and Well-servicing operations,

	•	An expected incremental increase from ancillary well-site services, primarily technical pumping services and down-hole surveying services, resulting from our Pressure Pumping operating segment for the new line of business acquired in the third quarter of 2010, and

	•	The anticipated positive impact on our overall level of drilling and well-servicing activity and margins resulting from the new and upgraded rigs and equipment added to our fleet over the past five years, which we expect will enhance our competitive position as market conditions improve.

The following tables set forth certain information with respect to our reportable segments and rig activity:


	Three Months											Six Months
	Ended June 30,						Increase/					Ended June 30,						Increase/
	2011			2010			(Decrease)					2011			2010			(Decrease)
	(In thousands, except percentages and rig activity)

Reportable segments:
Operating revenues and Earnings (losses) from unconsolidated affiliates:(1)
Contract Drilling:(2)
U.S. Lower 48 Land Drilling	$	404,984		$	303,417		$	101,567		33	%	$	783,552		$	574,914		$	208,638		36	%
U.S. Land Well-servicing		164,140			104,860			59,280		57	%		314,396			202,851			111,545		55	%
U.S. Offshore		40,284			38,978			1,306		3	%		70,738			77,176			(6,438	)	(8	)%
Alaska		32,336			43,385			(11,049	)	(25	)%		73,651			93,179			(19,528	)	(21	)%
Canada		87,974			60,759			27,215		45	%		260,417			176,315			84,102		48	%
International		265,231			267,007			(1,776	)	(1	)%		527,708			512,351			15,357		3	%

Subtotal Contract Drilling(3)		994,949			818,406			176,543		22	%		2,030,462			1,636,786			393,676		24	%
Pressure Pumping(4)		265,930			—			265,930		100	%		523,789			—			523,789		100	%
Oil and Gas(5)		11,755			9,800			1,955		20	%		31,883			20,402			11,481		56	%
Other Operating Segments (6)(7)		162,491			107,749			54,742		51	%		283,874			203,262			80,612		40	%
Other reconciling items(8)		(70,913	)		(31,081	)		(39,832	)	(128	)%		(108,243	)		(56,588	)		(51,655	)	(91	)%

Total	$	1,364,212		$	904,874		$	459,338		51	%	$	2,761,765		$	1,803,862		$	957,903		53	%

Adjusted income (loss) derived from operating activities (1)(9):
Contract Drilling:
U.S. Lower 48 Land Drilling	$	99,231		$	58,169		$	41,062		71	%	$	179,326		$	118,455		$	60,871		51	%
U.S. Land Well-servicing		16,526			3,231			13,295		411	%		27,649			10,416			17,233		165	%
U.S. Offshore		(1,059	)		8,104			(9,163	)	(113	)%		(5,036	)		15,477			(20,513	)	(133	)%
Alaska		8,288			12,388			(4,100	)	(33	)%		19,307			26,345			(7,038	)	(27	)%
Canada		(2,512	)		(9,497	)		6,985		74	%		36,480			5,385			31,095		577	%
International		35,851			64,972			(29,121	)	(45	)%		71,348			118,551			(47,203	)	(40	)%

Subtotal Contract Drilling(3)		156,325			137,367			18,958		14	%		329,074			294,629			34,445		12	%
Pressure Pumping(4)		43,888			—			43,888		100	%		87,603			—			87,603		100	%
Oil and Gas(5)		4,959			1,998			2,961		148	%		4,189			4,617			(428	)	(9	)%
Other Operating Segments (6)(7)		13,641			8,317			5,324		64	%		19,779			15,207			4,572		30	%
Other reconciling items(10)		(43,971	)		(20,914	)		(23,057	)	(110	)%		(74,754	)		(45,883	)		(28,871	)	(63	)%

Total	$	174,842		$	126,768		$	48,074		38	%	$	365,891		$	268,570		$	97,321		36	%
Interest expense		(63,739	)		(65,293	)		1,554		2	%		(137,663	)		(132,062	)		(5,601	)	(4	)%
Investment income		(969	)		2,314			(3,283	)	(142	)%		11,318			(243	)		11,561		n/m(11	)
Gains (losses) on sales and retirements of long-lived assets and other income (expense), net		(5,572	)		(11,024	)		5,452		49	%		(11,601	)		(31,391	)		19,790		63	%
Income (loss) from continuing operations before income taxes		104,562			52,765			51,797		98	%		227,945			104,874			123,071		117	%
Income tax expense (benefit)		35,664			8,794			26,870		306	%		73,971			17,384			56,587		326	%
Subsidiary preferred stock dividend		750			—			750		100	%		1,500			—			1,500		100	%

Income (loss) from continuing operations, net of tax		68,148			43,971			24,177		55	%		152,474			87,490			64,984		74	%

Income (loss) from discontinued operations, net of tax		123,906			(909	)		124,815		n/m(11	)		121,736			(5,330	)		127,066		n/m(11	)

Net income (loss)		192,054			43,062			148,992		346	%		274,210			82,160			192,050		234	%
Less: Net loss attributable to noncontrolling interest		394			559			(165	)	(30	)%		1,063			1,661			(598	)	(36	)%

Net income (loss) attributable to Nabors	$	192,448		$	43,621		$	148,827		341	%	$	275,273		$	83,821		$	191,452		228	%

Rig activity:
Rig years: (12)
U.S. Lower 48 Land Drilling		194.2			172.3			21.9		13	%		191.0			165.5			25.5		15	%
U.S. Offshore		9.4			11.0			(1.6	)	(15	)%		8.7			11.5			(2.8	)	(24	)%
Alaska		4.5			8.0			(3.5	)	(44	)%		4.9			8.5			(3.6	)	(42	)%
Canada		22.5			17.7			4.8		27	%		36.1			26.2			9.9		38	%
International(13)		102.8			97.6			5.2		5	%		101.2			93.0			8.2		9	%

Total rig years		333.4			306.6			26.8		9	%		341.9			304.7			37.2		12	%

Rig hours: (14)
U.S. Land Well-servicing		195,949			157,199			38,750		25	%		383,530			305,546			77,984		26	%
Canada Well-servicing		29,254			32,211			(2,957	)	(9	)%		82,408			78,243			4,165		5	%

Total rig hours		225,203			189,410			35,793		19	%		465,938			383,789			82,149		21	%

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