Note 3 Investments in Unconsolidated Affiliates

On March 24, 2015, we completed the Merger of our Completion & Production Services business with C&J Energy. We received total consideration comprised of approximately $693.5 million in cash ($650.1 million after settlement of working capital requirements) and approximately 62.5 million common shares in the combined company, CJES, representing approximately 53% of the outstanding and issued common shares of CJES as of the closing date.

On July 20, 2016, CJES voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Prior to the bankruptcy reorganization, we had significant influence over CJES, but not a controlling financial interest, and accounted for our investment in CJES under the equity method of accounting. Based on the current reorganization plans, we no longer expect to maintain any significant influence over CJES. Accordingly, beginning in the third quarter of 2016, we ceased accounting for our investment in CJES as an equity method investment and now report this investment at our estimated fair value. Due to the uncertainties around the eventual outcome of the bankruptcy process, we wrote off the remaining carrying value of our investment in CJES during the second quarter of 2016, and as such, there is no impact to our condensed consolidated financial statements during the third quarter as a result of the change in accounting.

Historical Treatment of the Completion & Production Services business and our investment in CJES

Prior to the Merger, we consolidated the results of our Completion & Production Services business into our operating results. As a result of the Merger, CJES became an unconsolidated affiliate and we ceased consolidating the operating results of our Completion & Production Services business. Therefore, subsequent to the closing date of the Merger, our share of the net income (loss), as adjusted for our basis difference, of our equity method investment in CJES was recorded as earnings (losses) from unconsolidated affiliates in our condensed consolidated statements of income (loss) through June 30, 2016. Our policy was to record our share of the net income (loss) of CJES on a one-quarter lag as we are not able to obtain the financial information of CJES on a timely basis. The equity in earnings from CJES, which is reflected in earnings (losses) from unconsolidated affiliates in our condensed consolidated statement of income (loss) was as follows for the periods noted below:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2016			2015		2016		2015
	(In thousands)
Nabors' share of equity method earnings (losses)	$	—	(1)	$	(35,100)	$	(221,933)	$	(35,900)

(1)

As we wrote off the remaining carrying value of our investment in CJES during the second quarter of 2016, we did not record our share of the earnings (losses) of CJES for the three months ended June 30, 2016 as we are not contractually responsible for losses beyond our investment.

During the first quarter of 2015, we recognized an estimated gross gain of $102.2 million in connection with the Merger based on the difference between the consideration received and the carrying value of the assets and liabilities of our Completion & Production Services business. This gain was partially offset by $49.6 million in transaction costs related to the Merger.

We recorded our investment in the equity of CJES in the investment in unconsolidated affiliates line in our condensed consolidated balance sheet. Our policy is to review our equity method investments for impairment whenever certain impairment indicators exist including the absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment. A loss in value of an investment that is other than a temporary decline should be recognized. As a result of this review, during the first quarter of 2016, we determined the carrying value of our investment was other than temporarily impaired, which resulted in an impairment charge of $153.4 million to reduce our carrying value to its estimated fair value of $93.8 million, determined principally based on the average share price over a specified period. Additionally, we recognized a $23.8 million charge to reserve certain other amounts associated with our CJES holdings including affiliate receivables.

As a result of CJES’s Chapter 11 filing on July 20, 2016, we determined our investment was other than temporarily impaired and recorded a charge of $39.0 million to write off substantially all of the remaining net book value of our investment. We also recognized an additional $3.9 million in professional fees incurred in connection with our efforts to preserve the value of our CJES holdings in anticipation of the bankruptcy filing. These charges are reflected in other expense (income), net in our condensed consolidated statement of income (loss) for the nine months ended September 30, 2016. See Note 9 – Supplemental Balance Sheet, Income Statement and Cash Flow Information.

The following table presents summarized income statement (loss) information for CJES for each of the three months ended December 31, 2015, March 31, 2016 and June 30, 2016 and for the six months ended June 30, 2015, which is reflected in earnings (losses) from unconsolidated affiliates in our condensed consolidated statement of income (loss) for the nine months ended September 30, 2016 and 2015, respectively. As we wrote off the remaining carrying value of our investment in CJES during the second quarter of 2016, we did not record our share of the earnings (losses) of CJES for the three months ended June 30, 2016 in our condensed consolidated statement of income (loss) during the three months ended September 30, 2016 as we are not contractually responsible for losses beyond our investment.


	Three Months Ended						Six Months Ended
	June 30,		March 31,		December 31,		June 30,
	2016		2016		2015		2015
			(In thousands)
Gross revenues	$	225,168	$	269,615	$	409,011	$	912,381
Gross margin		(4,603)		7,849		37,417		146,772
Net income (loss)		(291,116)		(428,412)		(321,742)		(95,784)
Nabors' share of equity method earnings (losses)		—		(54,788)		(167,145)		(35,900)