Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

Note 8    Share-Based Compensation

Total share-based compensation expense, which includes both stock options and restricted stock, totaled $21.2 million, $13.7 million and $106.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. Compensation expense related to awards of restricted stock totaled $13.4 million, $10.5 million and $88.9 million for the years ended December 31, 2011, 2010 and 2009, respectively, and is included in direct costs and general and administrative expenses in our consolidated statements of income (loss). Share-based compensation expense has been allocated to our various operating segments. See Note 22 — Segment Information. Total share-based compensation expense for 2009 included the recognition of $72.1 million of compensation expense related to previously granted restricted stock and option awards held by Nabors’ Chairman and then Chief Executive Officer, Eugene M. Isenberg, and its Deputy Chairman, President and then Chief Operating Officer, Anthony G. Petrello, that was unrecognized as of April 1, 2009. The recognition of this expense resulted from provisions of their respective new employment agreements which effectively eliminated the risk of forfeiture of such awards. See Note 18 — Commitments and Contingencies for additional information.

The cash flows resulting from tax deductions in excess of the compensation cost recognized for share-based awards (excess tax benefits) are classified as financing cash flows. The actual tax benefit realized from share-based awards during the years ended December 31, 2011, 2010 and 2009 was $.2 million, $.1 million and $.3 million, respectively.

Stock Option Plans

As of December 31, 2011, we had several stock plans under which options to purchase our common shares could be granted to key officers, directors and managerial employees of Nabors and its subsidiaries. Options granted under the plans generally are at prices equal to the fair market value of the shares on the date of the grant. Options granted under the plans generally are exercisable in varying cumulative periodic installments after one year. In the case of certain key executives, options granted may vest immediately on the grant date. Options granted under the plans cannot be exercised more than ten years from the date of grant. Options to purchase 15.5 million and 17.3 million Nabors common shares remained available for grant as of December 31, 2011 and 2010, respectively. Of the common shares available for grant as of December 31, 2011, approximately 15.5 million of these shares are also available for issuance in the form of restricted shares.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model which uses assumptions for the risk-free interest rate, volatility, dividend yield and the expected term of the options. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equal to the expected term of the option. Expected volatilities are based on implied volatilities from traded options on Nabors’ common shares, historical volatility of Nabors’ common shares, and other factors. We do not assume any dividend yield, since we do not pay dividends. We use historical data to estimate the expected term of the options and employee terminations within the option-pricing model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of the options represents the period of time that the options granted are expected to be outstanding.

We also consider an estimated forfeiture rate for these option awards, and we recognize compensation cost only for those shares that are expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three to five years. The forfeiture rate is based on historical experience. Estimated forfeitures have been adjusted to reflect actual forfeitures during 2011.

Stock option transactions under our various stock-based employee compensation plans are presented below:

Options	Shares			Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands, except exercise price)
Options outstanding as of December 31, 2010		28,932		$	18.73
Granted		931			15.67
Exercised		(1,116	)		12.50
Surrendered(1)		(418	)		13.53
Forfeited		(459	)		20.74
Options outstanding as of December 31, 2011		27,870		$	18.94		3.65 years	$	83,306
Options exercisable as of December 31, 2011		24,939		$	19.83		3.14 years	$	65,949

(1) Represents unexercised vested stock options that were surrendered by key officers and directors, to satisfy the option exercise price and related income taxes. See related discussion at Note 14 — Common Shares.

Of the options outstanding, 24.9 million, 24.9 million and 27.2 million were exercisable at weighted-average exercise prices of $19.83, $20.19 and $21.04, as of December 31, 2011, 2010 and 2009, respectively.

During the years ended December 31, 2011, 2010 and 2009, respectively, we awarded options vesting over periods up to four years to purchase 930,753, 32,115 and 10,015,883 of our common shares to our employees, executive officers and directors.

The fair value of stock options granted during 2011, 2010 and 2009 was calculated using the Black-Scholes option pricing model and the following weighted-average assumptions:

	Year Ended December 31,
	2011			2010			2009
Weighted average fair value of options granted:	$	6.24		$	6.62		$	2.85
Weighted average risk free interest rate:		.65	%		1.49	%		1.75	%
Dividend yield:		0	%		0	%		0	%
Volatility:(1)		51.09	%		41.44	%		34.78	%
Expected life:		4.0 years			4.0 years			4.0 years

(1) Expected volatilities are based on implied volatilities from publicly traded options to purchase Nabors’ common shares, historical volatility of Nabors’ common shares and other factors.

A summary of our unvested stock options as of December 31, 2011, and the changes during the year then ended is presented below:

Unvested Stock Options	Outstanding			Weighted-Average Grant-Date Fair Value
	(In thousands, except fair values)
Unvested as of December 31, 2010		3,941		$	2.81
Granted		931			6.24
Vested		(1,800	)		2.87
Forfeited		(172	)		2.73
Unvested as of December 31, 2011		2,900		$	3.88

The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009 was $18.3 million, $6.9 million and $19.7 million, respectively. The total fair value of options that vested during the years ended December 31, 2011, 2010 and 2009 was $5.2 million, $5.6 million and $10.8 million, respectively.

As of December 31, 2011, there was $4.0 million of total future compensation cost related to unvested options that are expected to vest. That cost is expected to be recognized over a weighted-average period of approximately two years.

Restricted Stock and Restricted Stock Units

Our stock plans allow grants of restricted stock. Restricted stock is issued on the grant date, but cannot be sold or transferred. Restricted stock vests in varying periodic installments ranging from three to five years.

A summary of our restricted stock as of December 31, 2011, and the changes during the year then ended, is presented below:

Restricted Stock	Outstanding			Weighted-Average Grant-Date Fair Value
	(In thousands, except fair values)
Unvested as of December 31, 2010		1,945		$	19.23
Granted		1,096			27.32
Vested		(1,400	)		17.43
Forfeited		(85	)		28.11
Unvested as of December 31, 2011		1,556		$	26.07

During 2011 and 2010, we awarded 1,096,379 and 538,496 shares of restricted stock, respectively, to our employees and directors. These awards had an aggregate value at their date of grant of $30.0 million and $11.9 million, respectively, and were scheduled to vest over a period of up to four years. The fair value of restricted stock that vested during the years ended December 31, 2011, 2010 and 2009 was $21.4 million, $26.7 million and $23.9 million, respectively.

As of December 31, 2011, there was $28.9 million of total future compensation cost related to unvested restricted stock awards that are expected to vest. That cost is expected to be recognized over a weighted-average period of approximately two years.