Impairments and Other Charges

12 Months Ended

Dec. 31, 2011

Impairments and Other Charges [Abstract]

Impairments and other charges

Note 3    Impairments and Other Charges

The following table provides the components of impairments and other charges recorded during the years ended December 31, 2011, 2010 and 2009:

	Year Ended December 31,
	2011		2010		2009
	(In thousands)
Provision for termination payment	$	100,000	$	—	$	—
Provision for retirement of long-lived assets		98,072		23,213		64,229
Impairment of long-lived assets		—		27,372		—
Goodwill impairments		—		10,707		—
Other-than-temporary impairment of equity security		—		—		18,665
Other-than-temporary impairment of debt security		—		—		40,300
Less other-than-temporary impairment recognized in accumulated other comprehensive income (loss)		—		—		(4,651	)
Credit-related impairment of investment		—		—		35,649
Impairments and other charges	$	198,072	$	61,292	$	118,543

Provision for termination payment

During the fourth quarter of 2011, we recorded a provision for a contingent liability that existed on December 31, 2011 related to the change of our Chief Executive Officer that occurred in October. This charge resulted from the potential termination payment to our former Chief Executive Officer, Mr. Isenberg, under the terms of his employment contract. Subsequent to December 31, 2011, Mr. Isenberg elected to forego triggering that payment, and as a result, the Company does not owe the termination payment. In connection with that development, the Company announced plans to make charitable contributions to benefit the needs of its employees and other community-based causes. The Company contributed one million Nabors’ common shares previously held by an affiliate to the Nabors Charitable Foundation, a 501(c)(3) organization, in support of this objective. The election of Mr. Isenberg to forego triggering the potential payment, offset by the charitable contributions described above, will be recorded as a capital contribution during the first quarter of 2012.

Provision for retirement of long-lived assets

During 2011, we recorded a provision for retirement of long-lived assets totaling $98.1 million in multiple operating segments. This related to the decommissioning and retirement of one jackup rig, 116 land rigs, and a number of rigs for well-servicing and trucks. Our U.S. Lower 48 Land Drilling, International and U.S. Land Well-servicing operations recorded $63.2 million, $26.1 million and $8.9 million, respectively. These assets were deemed to be functionally or economically non-competitive for today’s market and are being dismantled for parts and scrap.

During 2010, we recorded a provision for retirement of long-lived assets totaling $23.2 million related to the abandonment of certain rig components, comprised of engines, top-drive units, building modules and other equipment that had become obsolete or inoperable in our U.S. Lower 48 Land Drilling, U.S. Well-servicing and U.S. Offshore Contract Drilling operating segments.

During 2009, we recorded a provision for retirement of long-lived assets totaling $64.2 million related to assets in our U.S. Offshore, Alaska, Canada and International Contract Drilling operating segments. The retirements included inactive workover jackup rigs in our U.S. Offshore and International operations, the structural frames of some incomplete coiled tubing rigs in our Canada operations and miscellaneous rig components in our Alaska operations.

Impairments of Long-Lived Assets

We did not record any impairment of long-lived assets in 2011. During 2010, we recognized $27.3 million in impairment charges related to some jackup rigs in our U.S. Offshore operating segment. These impairment charges stemmed from annual impairment tests on long-lived assets.

The impairments and other charges, inclusive of the provisions for retirement and impairments of long-lived assets, recognized during 2011, 2010 and 2009 were determined necessary as a result of continued lower commodity prices and uncertainty in the oil and gas environment and its related impact on drilling and well-servicing activity and our dayrates. A prolonged period of legislative uncertainty in our U.S. Offshore operations, or continued period of lower natural gas and oil prices and its potential impact on our utilization and dayrates could result in the recognition of future impairment charges to additional assets if future cash flow estimates, based upon information then available to management, indicate that the carrying value of those assets may not be recoverable.

Goodwill Impairments

We did not record any goodwill impairment in 2011. In 2010, we recognized an impairment of approximately $10.7 million relating to our goodwill balance of our U.S. Offshore operating segment. The impairment charge stemmed from our annual impairment test on goodwill, which compared the estimated fair value of each of our reporting units to its carrying value. The estimated fair value of our U.S. Offshore segment was determined using discounted cash flow models involving assumptions based on our utilization of rigs and revenues as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. We determined that the fair value estimated for purposes of this test represented a Level 3 fair value measurement. The impairment charge was deemed necessary due to the uncertainty of utilization of some of our rigs as a result of changes in our customers’ plans for future drilling operations in the Gulf of Mexico. Many of our customers suspended drilling operations in the Gulf of Mexico, largely as a result of their inability to obtain government permits. Although the U.S. deepwater drilling moratorium has been lifted, our customers have continued to encounter delays in obtaining government permits. It is uncertain when this will improve. A significantly prolonged period of lower oil and natural gas prices or changes in laws and regulations could adversely affect the demand for and prices of our services, which could result in future goodwill impairment charges for other reporting units due to the potential impact on our estimate of our future operating results. See Note 2 — Summary of Significant Accounting Policies (included under the caption “Goodwill”) for amounts of goodwill related to each of our reporting units.

Other than Temporary Impairments of Debt and Equity Securities

We did not record any other-than-temporary impairments in 2011 or 2010. During 2009, we recorded other-than-temporary impairments to our available-for-sale securities totaling $54.3 million. Of this, $35.6 million was related to an investment in a corporate bond that was downgraded to non-investment grade level by Standard and Poor’s and Moody’s Investors Service during the year. Our determination that the impairment was other-than-temporary was based on a variety of factors, including the length of time and extent to which the market value had been less than cost, the financial condition of the issuer of the security, and the credit ratings and recent reorganization of the issuer.

The remaining $18.7 million related to an equity security of a public company whose operations are driven in large measure by the price of oil and in which we invested approximately $46 million during the second and third quarters of 2008. During late 2008, demand for oil and gas began to diminish significantly as part of the general deterioration of the global economic environment, causing a broad decline in value of nearly all oil and gas-related equity securities. Because the trading price per share of this security remained below our cost basis for an extended period of time, we determined the investment was other than temporarily impaired and it was appropriate to write down its carrying value to its estimated fair value.