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, 2018

Commission File Number: 001-32657

NABORS INDUSTRIES LTD.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive office)

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 ☒  NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ☒  NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒	Accelerated Filer ☐
Non-accelerated Filer ☐	Smaller reporting company ☐
(Do not check if a smaller reporting company)
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

YES ☐  NO ☒

The number of common shares, par value $.001 per share, outstanding as of July 30, 2018 was 357,465,024, excluding 52,800,203 common shares held by our subsidiaries, or 410,265,227 in the aggregate.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

Index

PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	3
	Condensed Consolidated Statements of Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017	4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	6
	Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2018 and 2017	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
Signatures		54

2

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,		December 31,
	2018		2017
	(In thousands, except per
	share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	593,284	$	336,997
Short-term investments		43,262		28,369
Accounts receivable, net		780,247		698,477
Inventory, net		173,063		166,307
Assets held for sale		35,963		37,052
Other current assets		156,652		180,134
Total current assets		1,782,471		1,447,336
Property, plant and equipment, net		5,709,895		6,109,565
Goodwill		172,817		173,226
Deferred income taxes		406,281		419,003
Other long-term assets		228,824		252,854
Total assets (1)	$	8,300,288	$	8,401,984
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	243	$	181
Trade accounts payable		379,028		363,416
Accrued liabilities		492,787		533,044
Income taxes payable		1,724		22,835
Total current liabilities		873,782		919,476
Long-term debt		3,818,613		4,027,766
Other long-term liabilities		290,013		301,633
Deferred income taxes		20,713		10,338
Total liabilities (1)		5,003,121		5,259,213
Commitments and contingencies (Note 7)
Redeemable noncontrolling interest in subsidiary (Note 3)		208,519		203,998
Equity:
Shareholders’ equity:
Preferred shares, par value $0.001 per share:
Series A 6% Cumulative Mandatory Convertible; $50 per share liquidation preference; issued 5,750		6		—
Common shares, par value $0.001 per share:
Authorized common shares 800,000; issued 410,252 and 367,510, respectively		410		368
Capital in excess of par value		3,382,711		2,791,129
Accumulated other comprehensive income (loss)		(12,573)		11,185
Retained earnings		1,006,500		1,423,154
Less: treasury shares, at cost, 52,800 and 52,800 common shares, respectively		(1,314,020)		(1,314,020)
Total shareholders’ equity		3,063,034		2,911,816
Noncontrolling interest		25,614		26,957
Total equity		3,088,648		2,938,773
Total liabilities and equity	$	8,300,288	$	8,401,984

(1) The condensed consolidated balance sheet as of June 30, 2018 and December 31, 2017 include assets and liabilities of variable interest entities. See Note 3—Joint Ventures for additional information.

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

3

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
	(In thousands, except per share amounts)
Revenues and other income:
Operating revenues		$	761,920	$	631,355	$	1,496,114	$	1,193,905
Earnings (losses) from unconsolidated affiliates			(1)		—		1		2
Investment income (loss)			(3,164)		(886)		(2,699)		(165)
Total revenues and other income			758,755		630,469		1,493,416		1,193,742
Costs and other deductions:
Direct costs			493,975		417,521		969,378		805,165
General and administrative expenses			67,823		63,695		142,394		127,104
Research and engineering			12,439		11,343		28,245		23,100
Depreciation and amortization			218,262		208,090		431,710		411,762
Interest expense			60,592		54,688		121,978		111,206
Other, net			77,601		10,104		91,690		23,614
Total costs and other deductions			930,692		765,441		1,785,395		1,501,951
Income (loss) from continuing operations before income taxes			(171,937)		(134,972)		(291,979)		(308,209)
Income tax expense (benefit):
Current			3,464		14,313		12,235		37,002
Deferred			19,814		(33,809)		34,588		(82,107)
Total income tax expense (benefit)			23,278		(19,496)		46,823		(45,105)
Income (loss) from continuing operations, net of tax			(195,215)		(115,476)		(338,802)		(263,104)
Income (loss) from discontinued operations, net of tax			(584)		(15,504)		(659)		(15,943)
Net income (loss)			(195,799)		(130,980)		(339,461)		(279,047)
Less: Net (income) loss attributable to noncontrolling interest			(2,953)		(1,971)		(3,492)		(2,888)
Net income (loss) attributable to Nabors			(198,752)		(132,951)		(342,953)		(281,935)
Less: Preferred stock dividend			(3,680)		—		(3,680)		—
Net income (loss) attributable to Nabors common shareholders		$	(202,432)	$	(132,951)	$	(346,633)	$	(281,935)
Amounts attributable to Nabors common shareholders:
Net income (loss) from continuing operations		$	(201,848)	$	(117,447)	$	(345,974)	$	(265,992)
Net income (loss) from discontinued operations			(584)		(15,504)		(659)		(15,943)
Net income (loss) attributable to Nabors common shareholders		$	(202,432)	$	(132,951)	$	(346,633)	$	(281,935)
Earnings (losses) per share:
Basic from continuing operations		$	(0.61)	$	(0.41)	$	(1.08)	$	(0.93)
Basic from discontinued operations			—		(0.05)		—		(0.06)
Total Basic		$	(0.61)	$	(0.46)	$	(1.08)	$	(0.99)
Diluted from continuing operations		$	(0.61)	$	(0.41)	$	(1.08)	$	(0.93)
Diluted from discontinued operations			—		(0.05)		—		(0.06)
Total Diluted		$	(0.61)	$	(0.46)	$	(1.08)	$	(0.99)
Weighted-average number of common shares outstanding:
Basic			328,372		278,916		318,580		278,348
Diluted			328,372		278,916		318,580		278,348
Dividends declared per common share		$	0.06	$	0.06	$	0.12	$	0.12

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

4

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
	(In thousands)
Net income (loss) attributable to Nabors		$	(198,752)	$	(132,951)	$	(342,953)	$	(281,935)
Other comprehensive income (loss), before tax:
Translation adjustment attributable to Nabors			(5,570)		10,879		(14,913)		14,739
Unrealized gains (losses) on marketable securities:
Unrealized gains (losses) on marketable securities			—		3,785		—		584
Less: reclassification adjustment for (gains) losses included in net income (loss)			—		1,341		—		1,341
Unrealized gains (losses) on marketable securities			—		5,126		—		1,925
Pension liability amortization and adjustment			54		50		108		100
Unrealized gains (losses) and amortization on cash flow hedges			142		153		282		306
Adoption of ASU No. 2016-01			—		—		(9,144)		—
Other comprehensive income (loss), before tax			(5,374)		16,208		(23,667)		17,070
Income tax expense (benefit) related to items of other comprehensive income (loss)			48		78		91		157
Other comprehensive income (loss), net of tax			(5,422)		16,130		(23,758)		16,913
Comprehensive income (loss) attributable to Nabors			(204,174)		(116,821)		(366,711)		(265,022)
Net income (loss) attributable to noncontrolling interest			2,953		1,971		3,492		2,888
Translation adjustment attributable to noncontrolling interest			(63)		108		(159)		157
Comprehensive income (loss) attributable to noncontrolling interest			2,890		2,079		3,333		3,045
Comprehensive income (loss)		$	(201,284)	$	(114,742)	$	(363,378)	$	(261,977)

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

5

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2018		2017
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	(339,461)	$	(279,047)
Adjustments to net income (loss):
Depreciation and amortization		432,782		413,072
Deferred income tax expense (benefit)		33,921		(83,294)
Deferred financing costs amortization		4,055		3,516
Discount amortization on long-term debt		10,619		9,787
Losses (gains) on debt buyback		—		15,944
Losses (gains) on long-lived assets, net		69,481		124
Losses (gains) on investments, net		4,969		1,342
Provisions for bad debt		(2,663)		376
Share-based compensation		14,732		18,045
Foreign currency transaction losses (gains), net		6,280		2,491
Equity in (earnings) losses of unconsolidated affiliates, net of dividends		(1)		(2)
Other		(3,109)		(2,636)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(86,968)		(89,340)
Inventory		(7,153)		(4,125)
Other current assets		21,463		(8,137)
Other long-term assets		18,773		29,569
Trade accounts payable and accrued liabilities		(21,824)		75,961
Income taxes payable		(22,429)		12,718
Other long-term liabilities		(56,110)		(125,894)
Net cash (used for) provided by operating activities		77,357		(9,530)
Cash flows from investing activities:
Purchases of investments		(676)		(4,489)
Sales and maturities of investments		2,602		12,429
Capital expenditures		(209,471)		(315,769)
Proceeds from sales of assets and insurance claims		77,272		18,796
Other		—		—
Net cash (used for) provided by investing activities		(130,273)		(289,033)
Cash flows from financing activities:
Increase (decrease) in cash overdrafts		(344)		(42)
Proceeds from issuance of long-term debt		800,000		411,200
Debt issuance costs		(12,990)		(11,037)
Proceeds from revolving credit facilities		625,000		100,000
Reduction in revolving credit facilities		(1,135,000)		—
Proceeds from issuance of common shares, net of issuance costs		302,014		8,300
Proceeds from issuance of preferred stock, net of issuance costs		278,573		—
Distributions to noncontrolling interest		(4,676)		(6,982)
Noncontrolling interest contribution		—		20,000
Reduction in long-term debt		(460,837)		(377,983)
Dividends to shareholders		(36,200)		(34,197)
Proceeds from (payment for) commercial paper		(40,000)		171,985
Cash proceeds from equity component of exchangeable debt		—		159,952
Payments on term loan		—		(162,500)
Proceeds from (payments for) short-term borrowings		62		(173)
Purchase of capped call hedge transactions		—		(40,250)
Other		(3,688)		(7,844)
Net cash (used for) provided by financing activities		311,914		230,429
Effect of exchange rate changes on cash and cash equivalents		(3,637)		992
Net increase (decrease) in cash and cash equivalents		255,361		(67,142)
Cash, cash equivalents and restricted cash, beginning of period		342,029		264,990
Cash, cash equivalents and restricted cash, end of period	$	597,390	$	197,848
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents, beginning of period		336,997		264,093
Restricted cash, beginning of period		5,032		897
Cash and cash equivalents and restricted cash, beginning of period	$	342,029	$	264,990
Cash and cash equivalents, end of period		593,284		196,567
Restricted cash, end of period		4,106		1,281
Cash and cash equivalents and restricted cash, end of period	$	597,390	$	197,848

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

6

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

	Mandatory Convertible						Capital		Accumulated
	Preferred Shares			Common Shares			in Excess		Other						Non-
		Par			Par		of Par		Comprehensive		Retained		Treasury		controlling		Total
(In thousands)	Shares	Value		Shares	Value		Value		Income		Earnings		Shares		Interest		Equity
As of December 31, 2016	—		—	333,598		334		2,521,332		(12,119)		2,033,427		(1,295,949)		7,770		3,254,795
Net income (loss)	—		—	—		—		—		—		(281,935)		—		2,888		(279,047)
Dividends to shareholders ($0.12 per share)	—		—	—		—		—		—		(34,307)		—		—		(34,307)
Other comprehensive income (loss), net of tax	—		—	—		—		—		16,913		—		—		157		17,070
Issuance of common shares for stock options exercised, net of surrender of unexercised stock options	—		—	843		1		8,299		—		—		—		—		8,300
Share-based compensation	—		—	—		—		18,045		—		—		—		—		18,045
Equity component of exchangeable debt	—		—	—		—		116,195		—		—		—		—		116,195
Capped call transactions	—		—	—		—		(40,250)		—		—		—		—		(40,250)
Adoption of ASU No. 2016-09	—		—	—		—		1,943		—		5,150		—		—		7,093
Noncontrolling interest contributions (distributions)	—		—	—		—		—		—		—		—		13,018		13,018
Other	—		—	1,058		1		(7,845)		—		—		—		(290)		(8,134)
As of June 30, 2017	—	$	—	335,499	$	336	$	2,617,719	$	4,794	$	1,722,335	$	(1,295,949)	$	23,543	$	3,072,778
As of December 31, 2017	—		—	367,510		368		2,791,129		11,185		1,423,154		(1,314,020)		26,957		2,938,773
Net income (loss)	—		—	—		—		—		—		(342,953)		—		3,492		(339,461)
Dividends to common shareholders ($0.12 per share)	—		—	—		—		—		—		(40,511)		—		—		(40,511)
Dividends to preferred shareholders ($0.64 per share)	—		—	—		—		—		—		(3,680)		—		—		(3,680)
Common share issuance	—		—	40,250		40		301,974		—		—		—		—		302,014
Convertible preferred share issuance	5,750		6	—		—		278,566		—		—		—		—		278,572
Other comprehensive income (loss), net of tax	—		—	—		—		—		(23,758)		—		—		(159)		(23,917)
Share-based compensation	—		—	—		—		14,732		—		—		—		—		14,732
Adoption of ASU No. 2016-01	—		—	—		—		—		—		9,144		—		—		9,144
Adoption of ASU No. 2016-16	—		—	—		—		—		—		(34,132)		—		—		(34,132)
Noncontrolling interest contributions (distributions)	—		—	—		—		—		—		—		—		(4,676)		(4,676)
Accrued distribution on redeemable noncontrolling interest in subsidiary	—		—	—		—		—		—		(4,522)		—		—		(4,522)
Other	—		—	2,492		2		(3,690)		—		—		—		—		(3,688)
As of June 30, 2018	5,750	$	6	410,252	$	410	$	3,382,711	$	(12,573)	$	1,006,500	$	(1,314,020)	$	25,614	$	3,088,648

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

7

Nabors Industries Ltd. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Nature of Operations

Unless the context requires otherwise, references in this report to “we,” “us,” “our,” “the Company,” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires. References in this report to “Nabors Delaware” mean Nabors Industries, Inc., a wholly owned subsidiary of Nabors.

With operations in over 25 countries, Nabors is a global provider of drilling and drilling-related services for land-based and offshore oil and natural gas wells, with a fleet of rigs and drilling-related equipment which, as of June 30, 2018 included:

· 405 actively marketed rigs for land-based drilling operations in the United States, Canada and approximately 20 other countries throughout the world; and

· 35 actively marketed rigs for offshore drilling operations in the United States and multiple international markets.

Our business consists of five reportable segments: U.S. Drilling, Canada Drilling, International Drilling, Drilling Solutions and Rig Technologies.

Note 2 Summary of Significant Accounting Policies

Interim Financial Information

The accompanying unaudited condensed consolidated financial statements of Nabors have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”). 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 U.S. GAAP have been omitted. Therefore, these financial statements should be read together with our annual report on Form 10-K for the year ended December 31, 2017 (“2017 Annual Report”). In management’s opinion, the unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly our financial position as of June 30, 2018 and the results of operations, comprehensive income (loss), cash flows and changes in equity for the periods presented herein. Interim results for the six months ended June 30, 2018 may not be indicative of results that will be realized for the full year ending December 31, 2018.

Principles of Consolidation

Our condensed consolidated financial statements include the accounts of Nabors, as well as all majority owned and non-majority owned subsidiaries required to be consolidated under U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation.

In addition to the consolidation of our majority owned subsidiaries, we also consolidate variable interest entities (“VIE”) when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE. During 2016, we entered into an agreement with Saudi Aramco, to form a new joint venture, SANAD, to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. SANAD, which is equally owned by Saudi Aramco and Nabors, began operations during the fourth quarter of 2017. As we have the power to direct activities that most significantly impact SANAD’s economic performance, including operations, maintenance and certain sourcing and procurement, we have determined Nabors to be the primary beneficiary and accordingly consolidate the joint venture. See Note 3—Joint Ventures.

8

Revenue Recognition

We recognize revenues and costs on daywork contracts daily as the work progresses over the contract term. For certain contracts, we receive lump sum payments for the mobilization of rigs and other drilling equipment. We defer revenue related to mobilization periods and recognize the revenue over the term of the related drilling contract.

Costs incurred related to a mobilization period for which a contract is secured are deferred and recognized over the term of the related drilling contract. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. We defer recognition of revenue on amounts received from customers for prepayment of services until those services are provided.

We recognize revenue for top drives and other capital equipment we manufacture upon transfer of control, which generally occurs when the product has been shipped to the customer.

We recognize, as operating revenue, proceeds from business interruption insurance claims in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements in excess of the carrying value of damaged assets are recognized in other, net in our condensed consolidated statement of income (loss) in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements that are expected to be less than the carrying value of damaged assets are recognized at the time the loss is incurred and recorded in other, net in our condensed consolidated statement of income (loss).

We recognize reimbursements received for out of pocket expenses incurred as revenues and account for out of pocket expenses as direct costs.

Inventory, net

Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out or weighted-average cost methods and includes the cost of materials, labor and manufacturing overhead. Inventory included the following:

	June 30,		December 31,
	2018		2017
	(In thousands)
Raw materials	$	133,894	$	124,635
Work-in-progress		14,480		19,113
Finished goods		24,689		22,559
	$	173,063	$	166,307

Property, Plant and Equipment

We review our assets for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the estimated undiscounted future cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to the extent the carrying amount of the long-lived asset exceeds its estimated fair value. Management considers a number of factors such as estimated future cash flows from the assets, appraisals and current market value analysis in determining fair value. The determination of future cash flows requires the estimation of utilization, dayrates, operating margins, sustaining capital and remaining economic life. Such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry. Significant and unanticipated changes to the assumptions could result in future impairments. A significantly prolonged period of lower oil and natural gas prices could continue to adversely affect the demand for and prices of our services, which could result in future impairment charges. As the determination of whether impairment charges should be recorded on our long-lived assets is subject to significant management judgment, and an impairment of these assets could result in a material charge on our consolidated statements of income (loss), management believes that accounting estimates related to impairment of long-lived assets are critical.

For an asset classified as held for sale, we consider the asset impaired when its carrying amount exceeds fair value less its cost to sell. Fair value is determined in the same manner as a long lived asset that is held and used.

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In June 2018, we sold three of our offshore jackup rigs for approximately $61.4 million in cash and publicly traded shares with a value of $21.8 million at closing. The sale resulted in a loss of $63.7 million, which has been recognized in other, net on our condensed consolidated statements of income (loss) for the three and six months ended June 30, 2018. This long-lived asset group was reported under our International segment. The sale of these offshore jackup rigs does not constitute a triggering event for the remainder of our rig fleet.

Goodwill

We review goodwill for impairment annually during the second quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of such goodwill and intangible assets may exceed their fair value. We initially assess goodwill for impairment based on qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying amount. If the carrying amount exceeds the fair value, an impairment charge will be recognized in an amount equal to the excess; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. The fair values calculated in these impairment tests were determined using discounted cash flow models involving assumptions based on our utilization of rigs or other oil and gas service equipment, revenues and earnings from affiliates, as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. Our discounted cash flow projections for each reporting unit were based on financial forecasts. The future cash flows were discounted to present value using discount rates determined to be appropriate for each reporting unit. Terminal values for each reporting unit were calculated using a Gordon Growth methodology with a long term growth rate of 3%.

Another factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. As part of our annual review, we compared the sum of our reporting units’ estimated fair value, which included the estimated fair value of non-operating assets and liabilities, less debt, to our market capitalization and assessed the reasonableness of our estimated fair value. Any of the above mentioned factors may cause us to re-evaluate goodwill during any quarter throughout the year.

Based on our annual review during the second quarter of 2018, we did not record a goodwill impairment. However, a significantly prolonged period of lower oil prices could adversely affect demand for and prices of our services. Additionally, our ability to commercialize our rotary steerable drilling technology tools could impact the discounted cash flow models. These factors could result in future impairment charges, particularly in our U.S. Drilling and Rig Services segments.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers, relating to the revenue recognition from contracts with customers that creates a common revenue standard for U.S. GAAP and IFRS. The core principle requires the recognition of revenue to represent the transfer of promised goods or services to customers in an amount that reflects the consideration, including costs incurred, to which the entity expects to be entitled in exchange for those goods or services. The standard also requires significantly expanded disclosures containing qualitative and quantitative information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB approved a one year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. Throughout 2017 we, along with our third party consultants, identified and reviewed our revenue streams, identified a subset of contracts to represent these revenue streams and performed a detailed analysis of such contracts. We adopted this guidance under the modified retrospective approach as of January 1, 2018. The adoption of this standard did not have a material impact on our consolidated financial statements. See Note 12—Revenue Recognition.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall, relating to the recognition and measurement of financial assets and liabilities. This standard enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. This new standard became effective for us on January 1, 2018. Upon adoption, we recorded an adjustment to retained earnings of $9.1 million to eliminate the net unrealized gain balance in accumulated other comprehensive income (loss) related to the

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marketable securities. If we do have a material amount of investments in marketable securities in the future, we expect that the impact to our consolidated statements of income (loss) and other comprehensive income (loss) from this update could be material. Furthermore, depending on trends in the stock market, we may see increased volatility in our consolidated statements of income (loss) and other comprehensive income (loss).

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows, to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early application is permitted. The adoption of this standard did not have a material impact on our consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes, which simplifies the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. We adopted this standard during the first quarter of 2018 using the modified retrospective method, through a cumulative-effect adjustment directly to retained earnings. Upon adoption, we reduced deferred tax assets by approximately $34.1 million and recognized an offsetting decrease to retained earnings.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, to provide guidance on the classification of restricted cash in the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. The amendments in the ASU should be adopted on a retrospective basis. The adoption of this standard did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business, which clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. The standard provides a test to determine whether a set of assets and activities acquired is a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Under the updated guidance, an acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and associated transaction costs will be capitalized rather than expensed as incurred. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values. The adoption of this standard did not have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation, to reduce diversity in practice and provide clarity regarding existing guidance in ASC 718, “Stock Compensation”. The standard provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions and classification of the awards are the same immediately before and after the modification. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases, relating to leases to increase transparency and comparability among companies. This standard requires that all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. Additionally, this standard will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. A modified retrospective approach is currently required for the adoption of this guidance, which is effective for our reporting period beginning January 1, 2019. Early adoption is permitted. We are currently evaluating the impact this will have on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. In addition, the standard requires certain disclosures regarding stranded tax effects. This guidance is effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently evaluating the impact this will have on our consolidated financial statements.

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Note 3 Joint Ventures

During 2016, we entered into an agreement with Saudi Aramco to form SANAD, a new joint venture, to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. SANAD, which is equally owned by Saudi Aramco and Nabors, began operations during the fourth quarter of 2017.

During 2017, Nabors and Saudi Aramco each contributed $20 million in cash for the purpose of capitalizing the joint venture upon formation. In addition, since inception Nabors and Saudi Aramco have each contributed a combination of drilling rigs, drilling rig equipment and other assets, including cash, each with a value of approximately $204 million to the joint venture in exchange for redeemable ownership interests which accrue interest annually, have a twenty-five year maturity and are required to be converted to authorized capital should certain events occur, including the accumulation of specified losses. In the accompanying consolidated balance sheet, Nabors has reported Saudi Aramco’s share of authorized capital as a component of noncontrolling interest in equity and Saudi Aramco’s share of the redeemable ownership interests as redeemable noncontrolling interest in subsidiary, classified as mezzanine equity. The accrued interest on the redeemable ownership interest is a non-cash financing activity and is reported as an increase in the redeemable noncontrolling interest in subsidiary line in our condensed consolidated balance sheet.

The condensed balance sheet of SANAD, as included in our consolidated balance sheet, is presented below.

	June 30,		December 31,
(In thousands)	2018		2017
Assets:
Cash and cash equivalents	$	109,445	$	94,496
Accounts receivable		27,690		10,580
Other current assets		8,402		10,834
Property, plant and equipment, net		250,904		130,218
Other long-term assets		20,750		23,091
Total assets	$	417,191	$	269,219
Liabilities:
Accounts payable	$	45,705	$	7,236
Accrued liabilities		8,002		2,592
Total liabilities	$	53,707	$	9,828

The assets of SANAD cannot be used by Nabors for general corporate purposes. Additionally, creditors of SANAD do not have recourse to other assets of Nabors.

Note 4 Fair Value Measurements

Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market‑corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we employ valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations where there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances utilizing a fair value hierarchy based on the observability of those inputs. Under the fair value hierarchy:

· Level 1 measurements include unadjusted quoted market prices for identical assets or liabilities in an active market;

· Level 2 measurements include quoted market prices for identical assets or liabilities in an active market that have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets; and

· Level 3 measurements include those that are unobservable and of a subjective nature.

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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 and six months ended June 30, 2018 and 2017, there were no transfers of our financial assets between Level 1 and Level 2 measures. Our financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Fair Value as of June 30, 2018
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
Short-term investments:
Available-for-sale equity securities	$	39,327	$	3,926	$	—
Mortgage-CMO debt securities		—		9		—
Total short-term investments	$	39,327	$	3,935	$	—

	Fair Value as of December 31, 2017
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
Short-term investments:
Available-for-sale equity securities	$	22,909	$	5,450	$	—
Mortgage-CMO debt securities		—		10		—
Total short-term investments	$	22,909	$	5,460	$	—

Nonrecurring Fair Value Measurements

We applied fair value measurements to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consist of measurements primarily to assets held for sale, goodwill, equity method investments, intangible assets and other long-lived assets, assets acquired and liabilities assumed in a business combination and our pipeline contractual commitment. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.

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Fair Value of Financial Instruments

We estimate the fair value of our financial instruments in accordance with U.S. GAAP. The fair value of our long-term debt, revolving credit facility and commercial paper is estimated based on quoted market prices or prices quoted from third-party financial institutions. The fair value of our debt instruments is determined using Level 2 measurements. The carrying and fair values of these liabilities were as follows:

	June 30, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
	(In thousands)				(In thousands)
6.15% senior notes due February 2018	$	—	$	—	$	460,762	$	462,674
9.25% senior notes due January 2019		303,489		312,457		303,489		321,028
5.00% senior notes due September 2020		669,999		675,386		669,846		670,757
4.625% senior notes due September 2021		695,228		683,208		695,108		665,003
5.50% senior notes due January 2023		600,000		579,036		600,000		584,850
5.10% senior notes due September 2023		346,640		327,901		346,576		325,844
0.75% senior exchangeable notes due January 2024		440,189		454,969		429,982		443,940
5.75% senior notes due February 2025		800,000		761,600		—		—
Revolving credit facility		—		—		510,000		510,000
Commercial paper		—		—		40,000		40,000
Other		243		243		181		181
		3,855,788	$	3,794,800		4,055,944	$	4,024,277
Less: current portion		243				181
Less: deferred financing costs		36,932				27,997
	$	3,818,613			$	4,027,766

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, 2018 our short-term investments were carried at fair market value and included $43.3 million in securities classified as available-for-sale. As of December 31, 2017, our short-term investments were carried at fair market value and included $28.4 million in securities classified as available-for-sale.

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Note 5 Debt

Debt consisted of the following:

	June 30,		December 31,
	2018		2017
	(In thousands)
6.15% senior notes due February 2018 (1)	$	—	$	460,762
9.25% senior notes due January 2019 (2)		303,489		303,489
5.00% senior notes due September 2020		669,999		669,846
4.625% senior notes due September 2021		695,228		695,108
5.50% senior notes due January 2023		600,000		600,000
5.10% senior notes due September 2023		346,640		346,576
0.75% senior exchangeable notes due January 2024		440,189		429,982
5.75% senior notes due February 2025		800,000		—
Term loan facility		—		—
Revolving credit facility		—		510,000
Commercial paper		—		40,000
Other		243		181
		3,855,788		4,055,944
Less: current portion		243		181
Less: deferred financing costs		36,932		27,997
	$	3,818,613	$	4,027,766

(1) The 6.15% senior notes were repaid in February 2018, utilizing proceeds received from the 5.75% senior notes due February 2025 offering.

(2) The 9.25% senior notes due January 2019 have been classified as long-term because we have the ability and intent to repay this obligation utilizing our revolving credit facility (see Revolving Credit Facility below). On July 6, 2018, we redeemed the remaining $303.5 million aggregate principal amount of our 9.25% senior unsecured notes for approximately $327.2 million, reflecting principal, accrued and unpaid interest.

During the six months ended June 30, 2018, we repaid the $460.8 million aggregate principal amount outstanding on our 6.15% senior notes due February 2018 for approximately $475.0 million in cash, reflecting principal and approximately $14.2 million of accrued and unpaid interest.

5.75% Senior Notes Due February 2025

In January 2018, Nabors Industries, Inc. (“Nabors Delaware”), a wholly owned subsidiary of Nabors, issued $800 million in aggregate principal amount of 5.75% senior unsecured notes due February 1, 2025, which are fully and unconditionally guaranteed by Nabors. The notes are subject to registration rights. The notes pay interest semi-annually on February 1 and August 1, beginning on August 1, 2018, and will mature on February 1, 2025.

The notes rank equal in right of payment to all of Nabors Delaware’s existing and future unsubordinated indebtedness, and senior in right of payment to all of Nabors Delaware’s existing and future senior subordinated and subordinated indebtedness. Our guarantee of the notes is unsecured and an unsubordinated obligation and ranks equal in right of payments to all of our unsecured and unsubordinated indebtedness from time to time outstanding. In the event of a change of control triggering event, as defined in the indenture, the holders of the notes may require Nabors Delaware to purchase all or a portion of the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any. The notes are redeemable in whole or in part at any time at the option of Nabors Delaware at a redemption price, plus accrued and unpaid interest, as specified in the indenture. Nabors Delaware used a portion of the proceeds to repay the amount outstanding on the 6.15% senior notes due February 2018. The remaining proceeds not used for such purposes were allocated for general corporate purposes, including to repay amounts outstanding under the commercial paper program and to repurchase or repay other indebtedness.

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0.75% Senior Exchangeable Notes Due January 2024

In January 2017, Nabors Delaware issued $575 million in aggregate principal amount of 0.75% exchangeable senior unsecured notes due 2024, which are fully and unconditionally guaranteed by Nabors. The notes bear interest at a rate of 0.75% per year payable semiannually on January 15 and July 15 of each year, beginning on July 15, 2017. The exchangeable notes are bifurcated for accounting purposes into debt and equity components of $411.2 million and $163.8 million, respectively, based on the relative fair value. Debt issuance costs of $9.6 million and equity issuance costs of $3.9 million were capitalized in connection with the issuance of these notes in long-term debt and netted against the proceeds allocated to the equity component, respectively, in our condensed consolidated balance sheet. The debt issuance costs are being amortized through January 2024.

The exchangeable notes are exchangeable, under certain conditions, at an initial exchange rate of 39.75 common shares of Nabors per $1,000 principal amount of exchangeable notes (equivalent to an initial exchange price of approximately $25.16 per common share). Upon any exchange, Nabors Delaware will settle its exchange obligation in cash, common shares of Nabors, or a combination of cash and common shares, at our election.

In connection with the pricing of the notes, we entered into privately negotiated capped call transactions which are expected to reduce potential dilution to common shares and/or offset potential cash payments required to be made in excess of the principal amount upon any exchange of notes. Such reduction and/or offset is subject to a cap representing a price per share of $31.45, an approximately 75.0% premium over our share price of $17.97 as of the date of the transaction. The capped call meets the definition of a derivative under ASC 815, Derivatives and Hedging, as it has an underlying (the Company’s share price), a notional amount (the number of underlying shares to be purchased per option), an initial net investment less (by more than a nominal amount) than the amount that would have to be paid to own the underlying and provides for a default net share settlement (but could also be settled in cash at the election of the Company). However, the capped call meets the derivative scope exception under ASC 815 for instruments indexed to the Company’s own stock and classified in shareholders’ equity and therefore was initially recorded in equity. Until such time as the Company elects a settlement method for the exchangeable notes, the capped call transaction will continue to be accounted for as equity. At conversion, if the Company elects to partially settle the notes in cash in excess of the principal amount, or fully in cash, the capped call will be subject to mark to market through earnings as a derivative until such settlement is paid.

The net proceeds from the offering of the exchangeable notes were used to prepay the remaining balance of our unsecured term loan originally scheduled to mature in 2020, as well as to pay the cost of the capped call transactions. The remaining net proceeds from the offering were allocated for general corporate purposes, including to repurchase or repay other indebtedness.

Commercial Paper Program

In February 2018, we utilized a portion of the proceeds received in connection with the 5.75% senior notes offering to repay the outstanding balance on the commercial paper program. In March 2018, the program was terminated.

Revolving Credit Facility

As of June 30, 2018, we had no borrowings outstanding under our $2.25 billion revolving credit facility, which matures in July 2020. The weighted average interest rate on borrowings during the six month period ended June 30, 2018 was 3.22%. The revolving credit facility contains various covenants and restrictive provisions that limit our ability to incur additional indebtedness, make investments or loans and create liens and require us to maintain a net funded indebtedness to total capitalization ratio, as defined in the agreement. Availability under the revolving credit facility is subject to a covenant not to exceed a net debt to capital ratio of 0.60:1. We were in compliance with all covenants under the agreement at June 30, 2018. If we 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. We have contemplated various alternative actions that could be pursued if we believe a violation of the covenant seemed likely to occur in the future.  These actions include reductions in discretionary capital or other types of controllable expenditures, monetization of assets, amending or renegotiating the revolving credit agreement, accessing capital markets through a variety of alternative methods, or any combination of these alternatives.

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Term Loan Facility

On September 29, 2015, Nabors Delaware entered into a new five-year unsecured term loan facility for $325.0 million, which was fully and unconditionally guaranteed by us. The term loan facility contained a mandatory prepayment of $162.5 million due in September 2018, which was repaid in December 2016 utilizing a portion of the proceeds received in connection with the 5.50% senior notes due January 2023 offering. In January 2017, we repaid the remaining $162.5 million term loan utilizing a portion of the proceeds received in connection with the 0.75% senior exchangeable notes and the facility was terminated.

Note 6 Shareholders’ Equity

Common shares

In May 2018, we issued 35,000,000 shares of common stock at a price to the public of $7.75 per share. In connection with this offering, in June 2018 the underwriters exercised in full their option to purchase 5,250,000 additional common shares. Nabors received aggregate net proceeds of approximately $302.0 million after deducting underwriting discounts, commissions and offering expenses.

During the year ended December 31, 2017, we repurchased 3.1 million of our common shares in the open market for $18.1 million, all of which are held by our subsidiaries, and which are accounted for as treasury shares.

On April 20, 2018, a cash dividend of $0.06 per share was declared for shareholders of record on June 12, 2018. The dividend was paid on July 3, 2018 in the amount of $21.5 million and was charged to retained earnings in our condensed consolidated statements of changes in equity for the six months ended June 30, 2018.

On July 27, 2018, our Board of Directors declared a cash dividend of $0.06 per common share, which will be paid on October 2, 2018 to shareholders of record at the close of business on September 11, 2018.

Convertible Preferred Shares

In May 2018, we issued 5,750,000 shares (including the underwriters option for 750,000 shares) of 6% Series A Mandatory Convertible Preferred Stock (the “mandatory convertible preferred shares”), par value $.001 per share, with a liquidation preference of $50 per share. The dividends on the mandatory convertible preferred shares will be payable on a cumulative basis.  Unless converted earlier, each share of mandatory convertible preferred shares initially will automatically convert into between 5.3763 shares and 6.4516 shares of our common stock based on the average share price over a period of twenty consecutive trading days ending prior to May 1, 2021, subject to anti-dilution adjustments. Nabors received aggregate net proceeds of approximately $278.6 million after deducting underwriting discounts, commissions and offering expenses.

On June 6, 2018, a cash dividend of $0.64 per mandatory convertible preferred shares was declared for shareholders of record on July 13, 2018. The dividend will be paid on August 1, 2018 in the amount of $3.7 million and was charged to retained earnings in our condensed consolidated statements of changes in equity for the six months ended June 30, 2018.

On July 27, 2018, our Board of Directors declared a cash dividend of $0.75 per mandatory convertible preferred shares, which will be paid on November 1, 2018 to shareholders of record at the close of business on October 15, 2018 in the amount of $4.3 million.

Note 7 Commitments and Contingencies

Contingencies

Income Tax

We operate in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We do not recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any tax authority

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successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could change substantially.

We have received an assessment from a tax authority in Latin America in connection with a 2007 income tax return. The assessment relates to the denial of depreciation expense deductions related to drilling rigs. Similar deductions were taken for tax year 2009. Although Nabors and its tax advisors believe these deductions are appropriate and intend to continue to defend our position, the contingency has been partially reserved. If we ultimately do not prevail, we estimate that we would be required to recognize additional tax expense for the entire contingency in the range of $3 million to $8 million.  

In certain jurisdictions we have recognized deferred tax assets and liabilities. Judgment and assumptions are required in determining whether deferred tax assets will be fully or partially utilized. When we estimate that all or some portion of certain deferred tax assets such as net operating loss carryforwards will not be utilized, we establish a valuation allowance for the amount we determine to be more likely than not unrealizable. We continually evaluate strategies that could allow for future utilization of our deferred assets. Any change in the ability to utilize such deferred assets will be accounted for in the period of the event affecting the valuation allowance. If facts and circumstances cause us to change our expectations regarding future tax consequences, the resulting adjustments could have a material effect on our financial results or cash flow. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the deferred tax assets that we have recognized. However, it is possible that some of our recognized deferred tax assets, relating to net operating loss carryforwards, could expire unused or could carryforward indefinitely without utilization. Therefore, unless we are able to generate sufficient taxable income from our component operations, a substantial valuation allowance to reduce our deferred tax assets may be required, which would materially increase our tax expense in the period the allowance is recognized and materially adversely affect our results of operations and statement of financial condition.

Self-Insurance

We estimate the level of our liability related to insurance and record reserves for these amounts in our condensed 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 and are actuarially supported. 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.

We self-insure for certain losses relating to workers’ compensation, employers’ liability, general liability, automobile liability and property damage. Some of our workers’ compensation, employers’ liability and marine employers’ liability claims are subject to a $3.0 million per-occurrence deductible; additionally, some of our automobile liability claims are subject to a $2.5 million deductible. General liability claims remain subject to a $5.0 million per-occurrence deductible. Our policies were renewed effective April 1, 2018 and remain subject to these same deductibles.

In addition, we are subject to a $5.0 million deductible for land rigs and for offshore rigs. This applies to all kinds of risks of physical damage except for named windstorms in the U.S. Gulf of Mexico for which we are self-insured.

Effective May 22, 2018, our platform rig, MODS-400, is subject to a limit of $200.0 million with a $5.0 million deductible for named windstorm damage in the U.S. Gulf of Mexico.

Litigation

Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is

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reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period.

In March 2011, the Court of Ouargla entered a judgment of approximately $24.1 million (at June 30, 2018 exchange rates) against us relating to alleged violations of Algeria’s foreign currency exchange controls, which require that goods and services provided locally be invoiced and paid in local currency. The case relates to certain foreign currency payments made to us by CEPSA, a Spanish operator, for wells drilled in 2006. Approximately $7.5 million of the total contract amount was paid offshore in foreign currency, and approximately $3.2 million was paid in local currency. The judgment includes fines and penalties of approximately four times the amount at issue. 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 upheld the lower court’s ruling, and we appealed the matter to the Supreme Court. On September 25, 2014, the Supreme Court overturned the verdict against us, and the case was reheard by the Ouargla Court of Appeals on March 22, 2015 in light of the Supreme Court’s opinion. On March 29, 2015, the Ouargla Court of Appeals reinstated the initial judgment against us. We have appealed this decision again to the Supreme Court. While our payments were consistent with our historical operations in the country, and, we believe, those of other multinational corporations there, as well as interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $16.1 million in excess of amounts accrued.

On September 29, 2017, Nabors and Nabors Maple Acquisition Ltd. were sued, along with Tesco Corporation (“Tesco”) and its Board of Directors, in a putative shareholder class action filed in the United States District Court for the Southern District of Texas, Houston Division. The plaintiff alleges that the September 18, 2017 Preliminary Proxy Statement filed by Tesco with the United States Securities and Exchange Commission omitted material information with respect to the proposed transaction between Tesco and Nabors announced on August 14, 2017. The plaintiff claims that the omissions rendered the Proxy Statement false and misleading, constituting a violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, and alleges liability by Nabors as a control person of Tesco. The court consolidated several matters and entered a lead plaintiff appointment order. The plaintiff recently filed their amended complaint, adding Nabors Industries, Ltd. as a party. Nabors has filed its motion to dismiss and will vehemently defend itself against the allegations.

Off-Balance Sheet Arrangements (Including Guarantees)

We are a party to some transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements involve agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these agreements serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by Nabors to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees.

Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote. The following table summarizes the total maximum amount of financial guarantees issued by Nabors:

	Maximum Amount
	2018		2019	2020	Thereafter	Total
	(In thousands)
Financial standby letters of credit and other financial surety instruments	$	132,550	79,477	40	—	$	212,067

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Note 8 Earnings (Losses) Per Share

ASC 260, Earnings per Share, requires companies to treat unvested share-based payment awards that have nonforfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings (losses) per share. We have granted and expect to continue to grant to employees restricted stock grants that contain nonforfeitable rights to dividends. Such grants are considered participating securities under ASC 260. As such, we are required to include these grants in the calculation of our basic earnings (losses) per share and calculate basic earnings (losses) per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings.

Basic earnings (losses) per share is computed utilizing the two-class method and is calculated based on the weighted-average number of common shares outstanding during the periods presented.

Diluted earnings (losses) per share is computed using the weighted-average number of common and common equivalent shares outstanding during the periods utilizing the two-class method for stock options and unvested restricted stock. Shares issuable upon exchange of the $575 million 0.75% exchangeable notes are not included in the calculation of diluted earnings (losses) per share unless the exchange value of the notes exceeds their principal amount at the end of the relevant reporting period, in which case the notes will be accounted for as if the number of common shares that would be necessary to settle the excess are issued. Such shares are only included in the calculation of the weighted-average number of shares outstanding in our diluted earnings (losses) per share calculation, when the price of our shares exceeds $25.16 on the last trading day of the quarter, which did not occur during the six months ended June 30, 2018.

20

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,
		2018		2017		2018		2017
	(In thousands, except per share amounts)
BASIC EPS:
Net income (loss) (numerator):
Income (loss) from continuing operations, net of tax		$	(195,215)	$	(115,476)	$	(338,802)	$	(263,104)
Less: net (income) loss attributable to noncontrolling interest			(2,953)		(1,971)		(3,492)		(2,888)
Less: preferred stock dividends			(3,680)		—		(3,680)		—
Less: accrued distribution on redeemable noncontrolling interest in subsidiary			(2,124)		—		(4,522)		—
Less: (earnings) losses allocated to unvested shareholders			4,826		3,306		8,186		7,117
Numerator for basic earnings per share:
Adjusted income (loss) from continuing operations, net of tax - basic		$	(199,146)	$	(114,141)	$	(342,310)	$	(258,875)
Income (loss) from discontinued operations, net of tax		$	(584)	$	(15,504)	$	(659)	$	(15,943)
Weighted-average number of shares outstanding - basic			328,372		278,916		318,580		278,348
Earnings (losses) per share:
Basic from continuing operations		$	(0.61)	$	(0.41)	$	(1.08)	$	(0.93)
Basic from discontinued operations			—		(0.05)		—		(0.06)
Total Basic		$	(0.61)	$	(0.46)	$	(1.08)	$	(0.99)
DILUTED EPS:
Adjusted income (loss) from continuing operations, net of tax - basic		$	(199,146)	$	(114,141)	$	(342,310)	$	(258,875)
Add: effect of reallocating undistributed earnings of unvested shareholders			—		—		—		—
Adjusted income (loss) from continuing operations, net of tax - diluted		$	(199,146)	$	(114,141)	$	(342,310)	$	(258,875)
Income (loss) from discontinued operations, net of tax		$	(584)	$	(15,504)	$	(659)	$	(15,943)
Weighted-average number of shares outstanding - basic			328,372		278,916		318,580		278,348
Add: dilutive effect of potential common shares			—		—		—		—
Weighted-average number of shares outstanding - diluted			328,372		278,916		318,580		278,348
Earnings (losses) per share:
Diluted from continuing operations		$	(0.61)	$	(0.41)	$	(1.08)	$	(0.93)
Diluted from discontinued operations			—		(0.05)		—		(0.06)
Total Diluted		$	(0.61)	$	(0.46)	$	(1.08)	$	(0.99)

For all periods presented, the computation of diluted earnings (losses) per share excludes outstanding stock options with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would be anti-dilutive and because they are not considered participating securities. For periods in which we experience a net loss from continuing operations, all potential common shares have been excluded from the calculation of weighted-average shares outstanding, because their inclusion would be anti-dilutive. The average number of options that were excluded from diluted earnings (losses) per share that would potentially dilute earnings per share in the future were as follows:

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
	(In thousands)
Potentially dilutive securities excluded as anti-dilutive			4,575		4,469		4,555		4,559

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In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options, such stock options will be included in our diluted earnings (losses) per share computation using the if-converted method of accounting. Restricted stock is 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.

Additionally, we excluded 37.4 million common shares from the computation of diluted shares issuable upon the conversion of mandatory convertible preferred shares, because their effect would be anti-dilutive under the if-converted method.

Note 9 Supplemental Balance Sheet and Income Statement Information

Accrued liabilities included the following:

	June 30,		December 31,
	2018		2017
	(In thousands)
Accrued compensation	$	115,874	$	130,970
Deferred revenue		190,296		218,370
Other taxes payable		27,148		32,095
Workers’ compensation liabilities		13,987		13,987
Interest payable		76,719		65,642
Litigation reserves		25,265		18,830
Current liability to discontinued operations		5,457		6,074
Dividends declared and payable		25,141		17,148
Other accrued liabilities		12,900		29,928
	$	492,787	$	533,044

Investment income (loss) includes the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
	(In thousands)
Interest and dividend income	$	1,136	$	397	$	2,326	$	1,140
Gains (losses) on marketable securities		(4,246)		(1,341)		(4,967)		(1,341)
Gains (losses) on non-marketable securities		(54)		58		(58)		36
	$	(3,164)	$	(886)	$	(2,699)	$	(165)

Other, net included the following:

		Three Months Ended					Six Months Ended
		June 30,					June 30,
		2018			2017		2018			2017
	(In thousands)
Losses (gains) on sales, disposals and involuntary conversions of long-lived assets		$	67,320	(1)	$	(2,742)	$	69,577	(1)	$	133
Transaction related costs (2)			5,894			1,929		12,938			1,929
Litigation expenses and reserves			4,677			789		8,277			1,610
Foreign currency transaction losses (gains)			3,758			1,614		6,280			2,490
(Gain) loss on debt buyback			—			7,348		—			15,944
Other losses (gains)			(4,048)			1,166		(5,382)			1,508
		$	77,601		$	10,104	$	91,690		$	23,614

(1) Includes a $63.7 million loss on the sale of three jackup rigs during the three and six months ended June 30, 2018.

(2) Represents transaction related costs, including professional fees, severances, facility closure costs and other cost rationalization items, primarily in connection with the acquisition of Tesco.

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The changes in accumulated other comprehensive income (loss), by component, included the following:

			Unrealized
	Gains		gains (losses)		Defined
	(losses) on		on available-		benefit		Foreign
	cash flow		for-sale		pension plan		currency
	hedges		securities		items		items		Total
	(In thousands (1) )
As of January 1, 2017	$	(1,296)	$	14,235	$	(3,760)	$	(21,298)	$	(12,119)
Other comprehensive income (loss) before reclassifications		—		584		—		14,739		15,323
Amounts reclassified from accumulated other comprehensive income (loss)		187		1,341		62		—		1,590
Net other comprehensive income (loss)		187		1,925		62		14,739		16,913
As of June 30, 2017	$	(1,109)	$	16,160	$	(3,698)	$	(6,559)	$	4,794

(1) All amounts are net of tax.

			Unrealized
	Gains		gains (losses)		Defined
	(losses) on		on available-		benefit		Foreign
	cash flow		for-sale		pension plan		currency
	hedges		securities		items		items		Total
	(In thousands (1) )
As of January 1, 2018	$	(922)	$	9,144	$	(4,111)	$	7,074	$	11,185
Other comprehensive income (loss) before reclassifications		—		—		—		(14,913)		(14,913)
Amounts reclassified from accumulated other comprehensive income (loss)		216		—		83		—		299
Adoption of ASU No. 2016-01		—		(9,144)		—		—		(9,144)
Net other comprehensive income (loss)		216		(9,144)		83		(14,913)		(23,758)
As of June 30, 2018	$	(706)	$	—	$	(4,028)	$	(7,839)	$	(12,573)

(1) All amounts are net of tax.

The line items that were reclassified to net income included the following:

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
	(In thousands)
Interest expense		$	142	$	153	$	282	$	306
General and administrative expenses			54		50		108		100
Other expense (income), net			—		1,341		—		1,341
Total income (loss) from continuing operations before income tax			(196)		(1,544)		(390)		(1,747)
Tax expense (benefit)			(48)		(78)		(91)		(157)
Reclassification adjustment for (gains)/ losses included in net income (loss)		$	(148)	$	(1,466)	$	(299)	$	(1,590)

Note 10 Assets Held for Sale and Discontinued Operations

Assets Held for Sale

Assets held for sale as of June 30, 2018 and December 31, 2017 was $36.0 million and $37.1 million, respectively. These assets consisted primarily of our oil and gas holdings which are mainly in the Horn River basin in western Canada of $24.8 million and $25.9 million, respectively, as of the periods noted above and the operating results have been reflected in discontinued operations. The remainder represents assets that meet the criteria to be classified as assets held for sale, but do not represent a disposal of a component of an entity or a group of components of an entity representing a strategic shift that has or will have a major effect on the entity's operations and financial results.

23

The carrying value of our assets held for sale represents the lower of carrying value or fair value less costs to sell. We continue to market these properties at prices that are reasonable compared to current fair value.

We have contracts with pipeline companies to pay specified fees based on committed volumes for gas transport and processing associated with these properties held for sale. At June 30, 2018, our undiscounted contractual commitments for these contracts approximated $7.0 million and we had liabilities of $5.5 million, all of which was classified as current and included in accrued liabilities. At December 31, 2017, our undiscounted contractual commitments for these contracts approximated $11.2 million and we had liabilities of $8.5 million, $6.1 million of which were classified as current and were included in accrued liabilities.

The amounts at each balance sheet date represented our best estimate of the fair value of the excess capacity of the pipeline commitments calculated using a discounted cash flow model, when considering our disposal plan, current production levels, natural gas prices and expected utilization of the pipeline over the remaining contractual term. Decreases in actual production or natural gas prices could result in future charges related to excess pipeline commitments.

Discontinued Operations

Our condensed statements of income (loss) from discontinued operations were as follows:

		Three Months Ended					Six Months Ended
		June 30,					June 30,
		2018		2017			2018		2017
	(In thousands)
Operating revenues (1)		$	973	$	2,060		$	2,616		$	4,094
Income (loss) from Oil & Gas discontinued operations:
Income (loss) from discontinued operations		$	(723)	$	20		$	(1,175)		$	(570)
Less: Impairment charges or other (gains) and losses on sale of wholly owned assets			115		16,539	(2)		151			16,559	(2)
Less: Income tax expense (benefit)			(254)		(1,015)			(667)			(1,186)
Income (loss) from Oil and Gas discontinued operations, net of tax		$	(584)	$	(15,504)		$	(659)		$	(15,943)

(1) Reflects operating revenues of our historical oil and gas operating segment.

(2) Includes a charge of $16.5 million related to the settlement of litigation associated with our previously owned Ramshorn International properties.

Note 11 Segment Information

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

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
	(In thousands)
Operating revenues:
U.S. Drilling		$	264,395	$	187,344	$	505,397	$	349,278
Canada Drilling			17,442		17,121		49,329		44,929
International Drilling			377,986		380,338		746,831		718,561
Drilling Solutions			59,859		31,829		122,507		59,194
Rig Technologies			81,321		61,185		145,990		105,261
Other reconciling items (1)			(39,083)		(46,462)		(73,940)		(83,318)
Total		$	761,920	$	631,355	$	1,496,114	$	1,193,905

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		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
	(In thousands)
Adjusted operating income (loss): (2)
U.S. Drilling		$	(13,107)	$	(56,079)	$	(32,853)	$	(119,261)
Canada Drilling			(4,608)		(5,014)		(5,200)		(9,025)
International Drilling			24,486		36,174		49,022		48,148
Drilling Solutions			7,546		3,772		16,267		2,794
Rig Technologies			(3,433)		(5,040)		(16,409)		(13,171)
Total segment adjusted operating income (loss)		$	10,884	$	(26,187)	$	10,827	$	(90,515)

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2018		2017		2018		2017
	(In thousands)
Reconciliation of segment adjusted operating income (loss) to net income (loss) from continuing operations before income taxes:
Total segment adjusted operating income (loss) (2)		$	10,884	$	(26,187)	$	10,827	$	(90,515)
Other reconciling items (3)			(41,463)		(43,107)		(86,440)		(82,711)
Earnings (losses) from unconsolidated affiliates			(1)		—		1		2
Investment income (loss)			(3,164)		(886)		(2,699)		(165)
Interest expense			(60,592)		(54,688)		(121,978)		(111,206)
Other, net			(77,601)		(10,104)		(91,690)		(23,614)
Income (loss) from continuing operations before income taxes		$	(171,937)	$	(134,972)	$	(291,979)	$	(308,209)

	June 30,		December 31,
	2018		2017
	(In thousands)
Total assets:
U.S. Drilling	$	3,116,162	$	3,203,560
Canada Drilling		317,872		347,773
International Drilling		3,312,637		3,540,829
Drilling Solutions		201,445		182,162
Rig Technologies		467,519		459,665
Other reconciling items (3)		884,653		667,995
Total	$	8,300,288	$	8,401,984

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

(2) Adjusted operating income (loss) is computed by subtracting the sum of direct costs, general and administrative expenses, research and engineering expenses and depreciation and amortization from operating revenues. Management evaluates the performance of our operating segments using adjusted operating income (loss), which is a segment performance measure, because it believes that this financial measure reflects our ongoing profitability and performance. In addition, securities analysts and investors use this measure as one of the metrics on which they analyze our performance. A reconciliation to income (loss) from continuing operations before income taxes is provided in the above table.

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

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Note 12 Revenue Recognition

On January 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers (ASC 606). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services. In addition, ASC 606 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

We elected to adopt the standard using the modified retrospective method to all contracts that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. There was no impact to our consolidated financial statements as a result of adopting ASC 606.

We recognize revenue when control of a good or service promised in a contract (i.e., performance obligation) is transferred to a customer. Control is obtained when a customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good or service. Contract drilling revenues are recorded over time utilizing the input method based on time elapsed. The measurement of progress considers the transfer of the service to the customer as we provide daily drilling services. We receive payment after the services have been performed by billing customers periodically (typically monthly). However, a portion of our revenues are recognized at a point-in-time as control is transferred at a distinct point in time such as with the sale of our top drives and other capital equipment. Within our drilling contracts, we have identified one performance obligation in which the transaction price is allocated.

Disaggregation of revenue

In the following table, revenue is disaggregated by geographical region. The table also includes a reconciliation of the disaggregated revenue with the reportable segments:

	Three Months Ended
	June 30, 2018
		U.S. Drilling		Canada Drilling		International Drilling		Drilling Solutions		Rig Technologies		Other		Total
	(In thousands)
Lower 48	$	219,389	$	—	$	—	$	41,418	$	57,573	$	—	$	318,380
U.S. Offshore Gulf of Mexico		32,064		—		—		2,810		—		—		34,874
Alaska		12,942		—		—		877		208		—		14,027
Canada		—		17,442		—		1,425		10,222		—		29,089
Middle East & Asia		—		—		240,508		9,007		6,503		—		256,018
Latin America		—		—		87,809		3,665		1,919		—		93,393
Europe, Africa & CIS		—		—		49,669		657		4,896		—		55,222
Eliminations & other		—		—		—		—		—		(39,083)		(39,083)
Total	$	264,395	$	17,442	$	377,986	$	59,859	$	81,321	$	(39,083)	$	761,920

	Six Months Ended
	June 30, 2018
		U.S. Drilling		Canada Drilling		International Drilling		Drilling Solutions		Rig Technologies		Other		Total
	(In thousands)
Lower 48	$	423,981	$	—	$	—	$	85,687	$	108,174	$	—	$	617,842
U.S. Offshore Gulf of Mexico		53,055		—		—		6,109		—		—		59,164
Alaska		28,361		—		—		1,443		344		—		30,148
Canada		—		49,329		—		3,716		13,611		—		66,656
Middle East & Asia		—		—		474,367		16,735		11,709		—		502,811
Latin America		—		—		171,691		7,649		3,577		—		182,917
Europe, Africa & CIS		—		—		100,773		1,168		8,575		—		110,516
Eliminations & other		—		—		—		—		—		(73,940)		(73,940)
Total	$	505,397	$	49,329	$	746,831	$	122,507	$	145,990	$	(73,940)	$	1,496,114

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	Three Months Ended
	June 30, 2017
		U.S. Drilling		Canada Drilling		International Drilling		Drilling Solutions		Rig Technologies		Other		Total
	(In thousands)
Lower 48	$	160,126	$	—	$	—	$	26,509	$	56,595	$	—	$	243,230
U.S. Offshore Gulf of Mexico		16,361		—		—		101		—		—		16,462
Alaska		10,857		—		—		1,306		188		—		12,351
Canada		—		17,121		—		1,322		1,564		—		20,007
Middle East & Asia		—		—		222,294		1,819		2,838		—		226,951
Latin America		—		—		103,920		614		—		—		104,534
Europe, Africa & CIS		—		—		54,124		158		—		—		54,282
Eliminations & other		—		—		—		—		—		(46,462)		(46,462)
Total	$	187,344	$	17,121	$	380,338	$	31,829	$	61,185	$	(46,462)	$	631,355

	Six Months Ended
	June 30, 2017
		U.S. Drilling		Canada Drilling		International Drilling		Drilling Solutions		Rig Technologies		Other		Total
	(In thousands)
Lower 48	$	297,349	$	—	$	—	$	48,829	$	95,255	$	—	$	441,433
U.S. Offshore Gulf of Mexico		29,667		—		—		186		—		—		29,853
Alaska		22,262		—		—		2,437		314		—		25,013
Canada		—		44,929		—		3,305		3,539		—		51,773
Middle East & Asia		—		—		418,552		3,121		6,153		—		427,826
Latin America		—		—		197,365		1,129		—		—		198,494
Europe, Africa & CIS		—		—		102,644		187		—		—		102,831
Eliminations & other		—		—		—		—		—		(83,318)		(83,318)
Total	$	349,278	$	44,929	$	718,561	$	59,194	$	105,261	$	(83,318)	$	1,193,905

Contract balances

We perform our obligations under a contract with a customer by transferring goods or services in exchange for consideration from the customer. We recognize a contract asset or liability when we transfer goods or services to a customer and bill an amount which differs from the revenue allocated to the related performance obligations.

The timing of revenue recognition may differ from the timing of invoicing to customers and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on our condensed consolidated balance sheet. In general, we receive payments from customers based on dayrates as stipulated in our contracts (i.e. operating rate, standby rate). The invoices billed to the customer are based on the varying rates applicable to the operating status on each rig. Accounts receivable are recorded when the right to consideration becomes unconditional.

Dayrate contracts also may contain fees charged to the customer for up-front rig modifications, mobilization and demobilization of equipment and personnel. These fees are associated with contract fulfillment activities, and the related revenue (subject to any constraint on estimates of variable consideration) is allocated to a single performance obligation and recognized ratably over the initial term of the contract. Mobilization fees are generally billable to the customer in the initial phase of a contract and generate contract liabilities until they are recognized as revenue. Demobilization fees are generally received at the end of the contract and generate contract assets when they are recognized as revenue prior to becoming receivables from the customer.

We receive reimbursements from our customers for the purchase of supplies, equipment, personnel services and other services provided at their request. Reimbursable revenues are variable and subject to uncertainty as the amounts received and timing thereof are dependent on factors outside of our influence. Accordingly, these revenues are constrained and not recognized until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of the customer. We are generally considered a principal in these transactions and record the associated revenues at the gross amounts billed to the customer.

27

The opening and closing balances of our receivables, contract assets and current and long-term contract liabilities are as follows (in millions):

			Contract		Contract		Contract		Contract
	Contract		Assets		Assets		Liabilities		Liabilities
	Receivables		(Current)		(Long-term)		(Current)		(Long-term)
As of December 31, 2017	$	738.0	$	67.0	$	46.9	$	218.4	$	135.0
As of June 30, 2018	$	820.6	$	61.7	$	26.4	$	182.2	$	79.9

Approximately 62% of the contract liability balance at the beginning of the period is expected to be recognized as revenue during 2018, of which 31% was recognized during the six months ended June 30, 2018, and 25% is expected to be recognized during 2019. The remaining 13% of the contract liability balance at the beginning of the period is included within other long-term liabilities and expected to be recognized as revenue during 2020 or thereafter.

Additionally, 59% of the contract asset balance at the beginning of the period is expected to be recognized as expense during 2018, of which 35% was recognized during the six months ended June 30, 2018, and 26% is expected to be recognized during 2019. The remaining 15% of the contract asset balance at the beginning of the period is included within other long-term assets and expected to be recognized as expense during 2020 or thereafter. This disclosure does not include variable consideration allocated entirely to a wholly unsatisfied performance obligation or promise to transfer a distinct good or service that forms part of a single performance obligation.

Note 13 Condensed Consolidating Financial Information

Nabors has fully and unconditionally guaranteed all of the issued public debt securities of Nabors Delaware, a 100% wholly owned subsidiary. 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, 2018 and December 31, 2017, statements of income (loss) and statements of other comprehensive income (loss) for the three and six months ended June 30, 2018 and 2017, and statements of cash flows for the six months ended June 30, 2018 and 2017 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.

28

Condensed Consolidating Balance Sheets

	June 30, 2018
					Other
	Nabors		Nabors		Subsidiaries
	(Parent/		Delaware		(Non-		Consolidating
	Guarantor)		(Issuer)		Guarantors)		Adjustments		Total
	(In thousands)
	ASSETS
Current assets:
Cash and cash equivalents	$	3,182	$	43	$	590,059	$	—	$	593,284
Short-term investments		—		—		43,208		54		43,262
Accounts receivable, net		—		—		780,247		—		780,247
Inventory, net		—		—		173,063		—		173,063
Assets held for sale		—		—		35,963		—		35,963
Other current assets		50		—		156,602		—		156,652
Total current assets		3,232		43		1,779,142		54		1,782,471
Property, plant and equipment, net		—		—		5,709,895		—		5,709,895
Goodwill		—		—		172,817		—		172,817
Intercompany receivables		107,379		583,008		—		(690,387)		—
Investment in consolidated affiliates		2,981,471		5,337,900		4,015,212		(12,334,583)		—
Deferred income taxes		—		362,463		406,281		(362,463)		406,281
Other long-term assets		—		79		254,770		(26,025)		228,824
Total assets	$	3,092,082	$	6,283,493	$	12,338,117	$	(13,413,404)	$	8,300,288
	LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	—	$	—	$	243	$	—	$	243
Trade accounts payable		1,006		175		377,847		—		379,028
Accrued liabilities		28,042		77,098		387,647		—		492,787
Income taxes payable		—		—		1,724		—		1,724
Total current liabilities		29,048		77,273		767,461		—		873,782
Long-term debt		—		3,844,638		—		(26,025)		3,818,613
Other long-term liabilities		—		16,299		273,714		—		290,013
Deferred income taxes		—		—		383,176		(362,463)		20,713
Intercompany payable		—		—		690,387		(690,387)		—
Total liabilities		29,048		3,938,210		2,114,738		(1,078,875)		5,003,121
Redeemable noncontrolling interest in subsidiary		—		—		208,519		—		208,519
Shareholders’ equity		3,063,034		2,345,283		9,989,246		(12,334,529)		3,063,034
Noncontrolling interest		—		—		25,614		—		25,614
Total equity		3,063,034		2,345,283		10,014,860		(12,334,529)		3,088,648
Total liabilities and equity	$	3,092,082	$	6,283,493	$	12,338,117	$	(13,413,404)	$	8,300,288

29

Condensed Consolidating Balance Sheets

	December 31, 2017
					Other
	Nabors		Nabors		Subsidiaries
	(Parent/		Delaware		(Non-		Consolidating
	Guarantor)		(Issuer)		Guarantors)		Adjustments		Total
	(In thousands)
	ASSETS
Current assets:
Cash and cash equivalents	$	1,091	$	44	$	335,862	$	—	$	336,997
Short-term investments		—		—		28,369		—		28,369
Accounts receivable, net		—		—		698,477		—		698,477
Inventory, net		—		—		166,307		—		166,307
Assets held for sale		—		—		37,052		—		37,052
Other current assets		50		56		180,028		—		180,134
Total current assets		1,141		100		1,446,095		—		1,447,336
Property, plant and equipment, net		—		—		6,109,565		—		6,109,565
Goodwill		—		—		173,226		—		173,226
Intercompany receivables		133,602		481,092		—		(614,694)		—
Investment in consolidated affiliates		2,799,320		5,531,799		3,799,933		(12,131,052)		—
Deferred income taxes		—		333,349		419,003		(333,349)		419,003
Other long-term assets		—		78		324,919		(72,143)		252,854
Total assets	$	2,934,063	$	6,346,418	$	12,272,741	$	(13,151,238)	$	8,401,984
	LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	—	$	—	$	181	$	—	$	181
Trade accounts payable		147		124		363,145		—		363,416
Accrued liabilities		21,100		67,760		444,184		—		533,044
Income taxes payable		—		—		22,835		—		22,835
Total current liabilities		21,247		67,884		830,345		—		919,476
Long-term debt		—		4,099,909		—		(72,143)		4,027,766
Other long-term liabilities		—		16,284		285,349		—		301,633
Deferred income taxes		—		—		343,687		(333,349)		10,338
Intercompany payable		1,000		—		613,694		(614,694)		—
Total liabilities		22,247		4,184,077		2,073,075		(1,020,186)		5,259,213
Redeemable noncontrolling interest in subsidiary		—		—		203,998		—		203,998
Shareholders’ equity		2,911,816		2,162,341		9,968,711		(12,131,052)		2,911,816
Noncontrolling interest		—		—		26,957		—		26,957
Total equity		2,911,816		2,162,341		9,995,668		(12,131,052)		2,938,773
Total liabilities and equity	$	2,934,063	$	6,346,418	$	12,272,741	$	(13,151,238)	$	8,401,984

30

Condensed Consolidating Statements of Income (Loss)

	Three Months Ended June 30, 2018
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Revenues and other income:
Operating revenues	$	—	$	—	$	761,920	$	—	$	761,920
Earnings (losses) from unconsolidated affiliates		—		—		(1)		—		(1)
Earnings (losses) from consolidated affiliates		(194,594)		59,040		12,080		123,474		—
Investment income (loss)		—		—		4		(3,168)		(3,164)
Total revenues and other income		(194,594)		59,040		774,003		120,306		758,755
Costs and other deductions:
Direct costs		—		—		493,975		—		493,975
General and administrative expenses		2,854		157		65,151		(339)		67,823
Research and engineering		—		—		12,439		—		12,439
Depreciation and amortization		—		32		218,230		—		218,262
Interest expense, net		—		60,798		(206)		—		60,592
Other, net		1,204		—		76,058		339		77,601
Intercompany interest expense, net		100		—		(100)		—		—
Total costs and other deductions		4,158		60,987		865,547		—		930,692
Income (loss) from continuing operations before income taxes		(198,752)		(1,947)		(91,544)		120,306		(171,937)
Income tax expense (benefit)		—		(14,027)		37,305		—		23,278
Income (loss) from continuing operations, net of tax		(198,752)		12,080		(128,849)		120,306		(195,215)
Income (loss) from discontinued operations, net of tax		—		—		(584)		—		(584)
Net income (loss)		(198,752)		12,080		(129,433)		120,306		(195,799)
Less: Net (income) loss attributable to noncontrolling interest		—		—		(2,953)		—		(2,953)
Net income (loss) attributable to Nabors		(198,752)		12,080		(132,386)		120,306		(198,752)
Less: Preferred stock dividend		(3,680)		—		—		—		(3,680)
Net income (loss) attributable to Nabors common shareholders	$	(202,432)	$	12,080	$	(132,386)	$	120,306	$	(202,432)

31

Condensed Consolidating Statements of Income (Loss)

	Three Months Ended June 30, 2017
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Revenues and other income:
Operating revenues	$	—	$	—	$	631,355	$	—	$	631,355
Earnings (losses) from consolidated affiliates		(129,592)		(20,265)		(60,777)		210,634		—
Investment income (loss)		(2)		1		2,095		(2,980)		(886)
Total revenues and other income		(129,594)		(20,264)		572,673		207,654		630,469
Costs and other deductions:
Direct costs		—		—		417,521		—		417,521
General and administrative expenses		3,359		193		60,468		(325)		63,695
Research and engineering		—		—		11,343		—		11,343
Depreciation and amortization		—		31		208,059		—		208,090
Interest expense, net		—		56,505		(1,817)		—		54,688
Other, net		(2)		7,576		2,205		325		10,104
Total costs and other deductions		3,357		64,305		697,779		—		765,441
Income (loss) from continuing operations before income taxes		(132,951)		(84,569)		(125,106)		207,654		(134,972)
Income tax expense (benefit)		—		(23,792)		4,296		—		(19,496)
Income (loss) from continuing operations, net of tax		(132,951)		(60,777)		(129,402)		207,654		(115,476)
Income (loss) from discontinued operations, net of tax		—		—		(15,504)		—		(15,504)
Net income (loss)		(132,951)		(60,777)		(144,906)		207,654		(130,980)
Less: Net (income) loss attributable to noncontrolling interest		—		—		(1,971)		—		(1,971)
Net income (loss) attributable to Nabors	$	(132,951)	$	(60,777)	$	(146,877)	$	207,654	$	(132,951)

32

Condensed Consolidating Statements of Income (Loss)

	Six Months Ended June 30, 2018
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Revenues and other income:
Operating revenues	$	—	$	—	$	1,496,114	$	—	$	1,496,114
Earnings (losses) from unconsolidated affiliates		—		—		1		—		1
Earnings (losses) from consolidated affiliates		(336,419)		83,025		(14,445)		267,839		—
Investment income (loss)		2		—		3,448		(6,149)		(2,699)
Total revenues and other income		(336,417)		83,025		1,485,118		261,690		1,493,416
Costs and other deductions:
Direct costs		—		—		969,378		—		969,378
General and administrative expenses		5,237		399		137,266		(508)		142,394
Research and engineering		—		—		28,245		—		28,245
Depreciation and amortization		—		62		431,648		—		431,710
Interest expense, net		—		126,123		(4,145)		—		121,978
Other, net		1,199		—		89,983		508		91,690
Intercompany interest expense, net		100		—		(100)		—		—
Total costs and other deductions		6,536		126,584		1,652,275		—		1,785,395
Income (loss) from continuing operations before income taxes		(342,953)		(43,559)		(167,157)		261,690		(291,979)
Income tax expense (benefit)		—		(29,114)		75,937		—		46,823
Income (loss) from continuing operations, net of tax		(342,953)		(14,445)		(243,094)		261,690		(338,802)
Income (loss) from discontinued operations, net of tax		—		—		(659)		—		(659)
Net income (loss)		(342,953)		(14,445)		(243,753)		261,690		(339,461)
Less: Net (income) loss attributable to noncontrolling interest		—		—		(3,492)		—		(3,492)
Net income (loss) attributable to Nabors		(342,953)		(14,445)		(247,245)		261,690		(342,953)
Less: Preferred stock dividend		(3,680)		—		—		—		(3,680)
Net income (loss) attributable to Nabors common shareholders	$	(346,633)	$	(14,445)	$	(247,245)	$	261,690	$	(346,633)

33

Condensed Consolidating Statements of Income (Loss)

	Six Months Ended June 30, 2017
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Revenues and other income:
Operating revenues	$	—	$	—	$	1,193,905	$	—	$	1,193,905
Earnings (losses) from unconsolidated affiliates		—		—		2		—		2
Earnings (losses) from consolidated affiliates		(275,463)		(70,982)		(157,016)		503,461		—
Investment income (loss)		15		64		5,716		(5,960)		(165)
Total revenues and other income		(275,448)		(70,918)		1,042,607		497,501		1,193,742
Costs and other deductions:
Direct costs		—		—		805,165		—		805,165
General and administrative expenses		6,657		330		120,621		(504)		127,104
Research and engineering		—		—		23,100		—		23,100
Depreciation and amortization		—		62		411,700		—		411,762
Interest expense, net		—		117,260		(6,054)		—		111,206
Other, net		(161)		18,973		4,298		504		23,614
Intercompany interest expense, net		(9)		—		9		—		—
Total costs and other deductions		6,487		136,625		1,358,839		—		1,501,951
Income (loss) from continuing operations before income taxes		(281,935)		(207,543)		(316,232)		497,501		(308,209)
Income tax expense (benefit)		—		(50,527)		5,422		—		(45,105)
Income (loss) from continuing operations, net of tax		(281,935)		(157,016)		(321,654)		497,501		(263,104)
Income (loss) from discontinued operations, net of tax		—		—		(15,943)		—		(15,943)
Net income (loss)		(281,935)		(157,016)		(337,597)		497,501		(279,047)
Less: Net (income) loss attributable to noncontrolling interest		—		—		(2,888)		—		(2,888)
Net income (loss) attributable to Nabors	$	(281,935)	$	(157,016)	$	(340,485)	$	497,501	$	(281,935)

34

Condensed Consolidating Statements of Comprehensive Income (Loss)

	Three Months Ended June 30, 2018
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Net income (loss) attributable to Nabors	$	(198,752)	$	12,080	$	(132,386)	$	120,306	$	(198,752)
Other comprehensive income (loss) before tax:
Translation adjustment attributable to Nabors		(5,570)		—		(5,570)		5,570		(5,570)
Pension liability amortization and adjustment		54		54		108		(162)		54
Unrealized gains (losses) and amortization on cash flow hedges		142		142		142		(284)		142
Other comprehensive income (loss) before tax		(5,374)		196		(5,320)		5,124		(5,374)
Income tax expense (benefit) related to items of other comprehensive income (loss)		48		48		96		(144)		48
Other comprehensive income (loss), net of tax		(5,422)		148		(5,416)		5,268		(5,422)
Comprehensive income (loss) attributable to Nabors		(204,174)		12,228		(137,802)		125,574		(204,174)
Net income (loss) attributable to noncontrolling interest		—		—		2,953		—		2,953
Translation adjustment attributable to noncontrolling interest		—		—		(63)		—		(63)
Comprehensive income (loss) attributable to noncontrolling interest		—		—		2,890		—		2,890
Comprehensive income (loss)	$	(204,174)	$	12,228	$	(134,912)	$	125,574	$	(201,284)

35

Condensed Consolidating Statements of Comprehensive Income (Loss)

	Three Months Ended June 30, 2017
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Net income (loss) attributable to Nabors	$	(132,951)	$	(60,777)	$	(146,877)	$	207,654	$	(132,951)
Other comprehensive income (loss) before tax:
Translation adjustment attributable to Nabors		10,879		—		10,879		(10,879)		10,879
Unrealized gains (losses) on marketable securities:
Unrealized gains (losses) on marketable securities		3,785		—		3,785		(3,785)		3,785
Less: reclassification adjustment for (gains) losses included in net income (loss)		1,341		—		1,341		(1,341)		1,341
Unrealized gains (losses) on marketable securities		5,126		—		5,126		(5,126)		5,126
Pension liability amortization and adjustment		50		50		100		(150)		50
Unrealized gains (losses) and amortization on cash flow hedges		153		153		153		(306)		153
Other comprehensive income (loss) before tax		16,208		203		16,258		(16,461)		16,208
Income tax expense (benefit) related to items of other comprehensive income (loss)		78		78		156		(234)		78
Other comprehensive income (loss), net of tax		16,130		125		16,102		(16,227)		16,130
Comprehensive income (loss) attributable to Nabors		(116,821)		(60,652)		(130,775)		191,427		(116,821)
Net income (loss) attributable to noncontrolling interest		—		—		1,971		—		1,971
Translation adjustment attributable to noncontrolling interest		—		—		108		—		108
Comprehensive income (loss) attributable to noncontrolling interest		—		—		2,079		—		2,079
Comprehensive income (loss)	$	(116,821)	$	(60,652)	$	(128,696)	$	191,427	$	(114,742)

36

Condensed Consolidating Statements of Comprehensive Income (Loss)

	Six Months Ended June 30, 2018
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Net income (loss) attributable to Nabors	$	(342,953)	$	(14,445)	$	(247,245)	$	261,690	$	(342,953)
Other comprehensive income (loss) before tax
Translation adjustment attributable to Nabors		(14,913)		—		(14,913)		14,913		(14,913)
Pension liability amortization and adjustment		108		108		216		(324)		108
Unrealized gains (losses) and amortization on cash flow hedges		282		282		282		(564)		282
Adoption of ASU No. 2016-01		(9,144)		—		(9,144)		9,144		(9,144)
Other comprehensive income (loss) before tax		(23,667)		390		(23,559)		23,169		(23,667)
Income tax expense (benefit) related to items of other comprehensive income (loss)		91		91		182		(273)		91
Other comprehensive income (loss), net of tax		(23,758)		299		(23,741)		23,442		(23,758)
Comprehensive income (loss) attributable to Nabors		(366,711)		(14,146)		(270,986)		285,132		(366,711)
Net income (loss) attributable to noncontrolling interest		—		—		3,492		—		3,492
Translation adjustment attributable to noncontrolling interest		—		—		(159)		—		(159)
Comprehensive income (loss) attributable to noncontrolling interest		—		—		3,333		—		3,333
Comprehensive income (loss)	$	(366,711)	$	(14,146)	$	(267,653)	$	285,132	$	(363,378)

37

Condensed Consolidating Statements of Comprehensive Income (Loss)

	Six Months Ended June 30, 2017
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Net income (loss) attributable to Nabors	$	(281,935)	$	(157,016)	$	(340,485)	$	497,501	$	(281,935)
Other comprehensive income (loss) before tax
Translation adjustment attributable to Nabors		14,739		—		14,739		(14,739)		14,739
Unrealized gains (losses) on marketable securities:
Unrealized gains (losses) on marketable securities		584		—		584		(584)		584
Less: reclassification adjustment for (gains) losses included in net income (loss)		1,341		—		1,341		(1,341)		1,341
Unrealized gains (losses) on marketable securities		1,925		—		1,925		(1,925)		1,925
Pension liability amortization and adjustment		100		100		200		(300)		100
Unrealized gains (losses) and amortization on cash flow hedges		306		306		306		(612)		306
Other comprehensive income (loss) before tax		17,070		406		17,170		(17,576)		17,070
Income tax expense (benefit) related to items of other comprehensive income (loss)		157		157		314		(471)		157
Other comprehensive income (loss), net of tax		16,913		249		16,856		(17,105)		16,913
Comprehensive income (loss) attributable to Nabors		(265,022)		(156,767)		(323,629)		480,396		(265,022)
Net income (loss) attributable to noncontrolling interest		—		—		2,888		—		2,888
Translation adjustment attributable to noncontrolling interest		—		—		157		—		157
Comprehensive income (loss) attributable to noncontrolling interest		—		—		3,045		—		3,045
Comprehensive income (loss)	$	(265,022)	$	(156,767)	$	(320,584)	$	480,396	$	(261,977)

38

Condensed Consolidating Statements Cash Flows

	Six Months Ended June 30, 2018
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Net cash provided by (used for) operating activities	$	56,041	$	(102,233)	$	151,698	$	(28,149)	$	77,357
Cash flows from investing activities:
Purchases of investments		—		—		(676)		—		(676)
Sales and maturities of investments		—		—		2,602		—		2,602
Cash paid for investments in consolidated affiliates		(587,500)		—		(199,000)		786,500		—
Capital expenditures		—		—		(209,471)		—		(209,471)
Proceeds from sales of assets and insurance claims		—		—		77,272		—		77,272
Change in intercompany balances		—		127,059		(127,059)		—		—
Net cash provided by (used for) investing activities		(587,500)		127,059		(456,332)		786,500		(130,273)
Cash flows from financing activities:
Increase (decrease) in cash overdrafts		—		—		(344)		—		(344)
Proceeds from issuance of long-term debt		—		800,000		—		—		800,000
Debt issuance costs		—		(12,990)		—		—		(12,990)
Proceeds from revolving credit facilities		—		625,000		—		—		625,000
Proceeds from parent contributions		—		199,000		587,500		(786,500)		—
Proceeds from issuance of common shares, net of issuance costs		302,014		—		—		—		302,014
Reduction of long-term debt		—		(460,837)		—		—		(460,837)
Dividends to shareholders		(42,349)		—		—		6,149		(36,200)
Proceeds from (payment for) commercial paper, net		—		(40,000)		—		—		(40,000)
Reduction in revolving credit facilities		—		(1,135,000)		—		—		(1,135,000)
Proceeds from (payments for) short-term borrowings		—		—		62		—		62
Proceeds from issuance of preferred stock, net of issuance costs		278,573		—		—		—		278,573
Proceeds from issuance of intercompany debt		20,000		—		(20,000)		—		—
Paydown of intercompany debt		(21,000)		—		21,000		—		—
Distributions to Non-controlling interest		—		—		(4,676)		—		(4,676)
Distribution from subsidiary to parent		—		—		(22,000)		22,000		—
Other changes		(3,688)		—		—		—		(3,688)
Net cash (used for) provided by financing activities		533,550		(24,827)		561,542		(758,351)		311,914
Effect of exchange rate changes on cash and cash equivalents		—		—		(3,637)		—		(3,637)
Net increase (decrease) in cash and cash equivalents		2,091		(1)		253,271		—		255,361
Cash, cash equivalents and restricted cash, beginning of period		1,091		44		340,894		—		342,029
Cash, cash equivalents and restricted cash, end of period	$	3,182	$	43	$	594,165	$	—	$	597,390

39

Condensed Consolidating Statements Cash Flows

	Six Months Ended June 30, 2017
			Nabors		Other
	Nabors		Delaware		Subsidiaries
	(Parent/		(Issuer/		(Non-		Consolidating
	Guarantor)		Guarantor)		Guarantors)		Adjustments		Total
	(In thousands)
Net cash provided by (used for) operating activities	$	86,986	$	(101,280)	$	90,722	$	(85,958)	$	(9,530)
Cash flows from investing activities:
Purchases of investments		—		—		(4,489)		—		(4,489)
Sales and maturities of investments		—		—		12,429		—		12,429
Cash paid for investments in consolidated affiliates		—		—		(36,000)		36,000		—
Capital expenditures		—		—		(315,769)		—		(315,769)
Proceeds from sale of assets and insurance claims		—		—		18,796		—		18,796
Change in intercompany balances		—		(290,794)		290,794		—		—
Net cash provided by (used for) investing activities		—		(290,794)		(34,239)		36,000		(289,033)
Cash flows from financing activities:
Increase (decrease) in cash overdrafts		—		—		(42)		—		(42)
Debt issuance costs		—		(11,037)		—		—		(11,037)
Proceeds from issuance of common shares		8,300		—		—		—		8,300
Reduction in long-term debt		—		(265,437)		(112,546)		—		(377,983)
Dividends to shareholders		(40,155)		—		—		5,958		(34,197)
Proceeds from (payments for) commercial paper, net		—		171,985		—		—		171,985
Proceeds from (payments for) issuance of intercompany debt		33,000		20,000		(53,000)		—		—
Purchase of capped call hedge transactions		—		(40,250)		—		—		(40,250)
Proceeds from revolving credit facilities		—		100,000		—		—		100,000
Proceeds from issuance of long-term debt		—		411,200		—		—		411,200
Payments on term loan		—		(162,500)		—		—		(162,500)
Paydown of intercompany debt		(79,000)		(20,000)		99,000		—		—
Cash proceeds from equity component of convertible debt		—		159,952		—		—		159,952
Noncontrolling interest contribution		—		—		20,000		—		20,000
Distributions to Non-controlling interest		—		—		(6,982)		—		(6,982)
Proceeds from (payments for) short-term borrowings		—		—		(173)		—		(173)
Proceeds from parent contributions		—		18,000		18,000		(36,000)		—
Distribution from subsidiary to parent		—		—		(80,000)		80,000		—
Other changes		(7,844)		—		—		—		(7,844)
Net cash (used for) provided by financing activities		(85,699)		381,913		(115,743)		49,958		230,429
Effect of exchange rate changes on cash and cash equivalents		—		—		992		—		992
Net increase (decrease) in cash and cash equivalents		1,287		(10,161)		(58,268)		—		(67,142)
Cash, cash equivalents and restricted cash, beginning of period		1,148		10,177		253,665		—		264,990
Cash, cash equivalents and restricted cash, end of period	$	2,435	$	16	$	195,397	$	—	$	197,848

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We often discuss expectations regarding our future markets, demand for our products and services, and our performance in our annual, quarterly and current 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 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These “forward-looking statements” are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “should,” “could,” “may,” “predict” and similar expressions are intended to identify forward-looking statements.

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

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

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

· fluctuations in the demand for our services;

· competitive and technological changes and other developments in the oil and gas and oilfield services industries;

· our ability to renew customer contracts in order to maintain competitiveness;

· the existence of operating risks inherent in the oil and gas and oilfield services industries;

· the possibility of the loss of one or a number of our large customers;

· the impact of long-term indebtedness and other financial commitments on our financial and operating flexibility;

· our access to and the cost of capital, including the impact of a downgrade in our credit rating, covenant restrictions, availability under our unsecured revolving credit facility, and future issuances of debt or equitysecurities;

· our dependence on our operating subsidiaries and investments to meet our financial obligations;

· our ability to retain skilled employees;

· our ability to complete, and realize the expected benefits of strategic transactions, including our joint venture inSaudi Arabia and recent acquisition of Tesco;

· the recent changes in U.S. tax laws and the possibility of changes in other tax laws and otherlaws and regulations;

· the possibility of political or economic instability, civil disturbance, war or acts of terrorism in and of the countries in which we do business; and

· general economic conditions, including the capital and credit markets.

The above description of risks and uncertainties is by no means all-inclusive, but highlights certain factors that we believe are important for your consideration. For a more detailed description of risk factors that may affect us or our industry, please refer to Part II, Item 1A. — Risk Factors of this report and Item 1A. — Risk Factors in our 2017 Annual Report.

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Management Overview

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

We own and operate one of the world’s largest land-based drilling rig fleets and are a provider of offshore rigs in the United States and numerous international markets. Our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies, consisting of equipment manufacturing, rig instrumentation and optimization software. We also specialize in wellbore placement solutions and are a leading provider of directional drilling and MWD systems and services.

Financial Results

Comparison of the three months ended June 30, 2018 and 2017

Operating revenues for the three months ended June 30, 2018 totaled $761.9 million, representing an increase of $130.6 million, or 21%, compared to the three months ended June 30, 2017. We experienced an increase in operating revenue primarily within our U.S. Drilling, Drilling Solutions and Rig Technologies operating segments as activity has increased in the U.S. as evidenced by the 11% increase in average rigs working within U.S. Drilling during the three months ended June 30, 2018 compared to the same period in 2017. Additionally, we benefited from incremental operating revenues of approximately $42.0 million as a result of our acquisition of Tesco, which was completed in the fourth quarter of 2017.

Net loss from continuing operations attributable to Nabors common shareholders totaled $201.8 million for the three months ended June 30, 2018 ($0.61 per diluted share) compared to a net loss from continuing operations attributable to Nabors common shareholders of $117.4 million ($0.41 per diluted share) for the three months ended June 30, 2017, or an $84.4 million increase in the net loss. Although our segments’ adjusted operating income improved by approximately $37.1 million compared to the prior period, our net loss for the three months ended June 30, 2018 was negatively impacted by a $63.7 million loss on the sale of three jackup rigs as well as a $42.8 million increase in income tax expense.

General and administrative expenses for the three months ended June 30, 2018 totaled $67.8 million, representing an increase of $4.1 million, or 6%, compared to the three months ended June 30, 2017. This is reflective of a slight increase in salaries and other compensation as well as increases in headcount as a result of increased activity, including the impact from the Company’s acquisition of Tesco in the fourth quarter of 2017.

Research and engineering expenses for the three months ended June 30, 2018 totaled $12.4 million, representing an increase of $1.1 million, or 10%, compared to the three months ended June 30, 2017. The increase is a result of increased efforts over a number of strategic research and engineering projects as the market rebalanced and activity increased.

Depreciation and amortization expense for the three months ended June 30, 2018 was $218.3 million, representing an increase of $10.2 million, or 5%, compared to the three months ended June 30, 2017. The slight increase was primarily due to the increased number of rigs that were working during the period, which results in a higher active depreciation rate coupled with incremental depreciation associated with the acquisition of Tesco.

Segment Results of Operations

Our business consists of five reportable segments: U.S. Drilling, Canada Drilling, International Drilling, Drilling Solutions and Rig Technologies.

Management evaluates the performance of our reportable segments using adjusted operating income (loss), which is our segment performance measure, because it believes that this financial measure reflects our ongoing profitability and performance. In addition, securities analysts and investors use this measure as one of the metrics on which they analyze our performance. Adjusted operating income (loss) is computed by subtracting the sum of direct costs, general and administrative expenses, research and engineering expenses and depreciation and amortization from operating revenues.

42

A reconciliation of adjusted operating income to net income (loss) from continuing operations before income taxes can be found in Note 11—Segment Information.

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

		Three Months Ended
		June 30,
		2018		2017		Increase/(Decrease)
	(In thousands, except percentages and rig activity)
U.S. Drilling
Operating revenues		$	264,395	$	187,344	$	77,051	41	%
Adjusted operating income (loss)		$	(13,107)	$	(56,079)	$	42,972	77	%
Average rigs working (1)			112.1		100.6		11.5	11	%
Canada Drilling
Operating revenues		$	17,442	$	17,121	$	321	2	%
Adjusted operating income (loss)		$	(4,608)	$	(5,014)	$	406	8	%
Average rigs working (1)			10.2		12.4		(2.2)	(18)	%
International Drilling
Operating revenues		$	377,986	$	380,338	$	(2,352)	(1)	%
Adjusted operating income (loss)		$	24,486	$	36,174	$	(11,688)	(32)	%
Average rigs working (1)			93.1		92.7		0.4	0	%
Drilling Solutions
Operating revenues		$	59,859	$	31,829	$	28,030	88	%
Adjusted operating income (loss)		$	7,546	$	3,772	$	3,774	100	%
Rig Technologies
Operating revenues		$	81,321	$	61,185	$	20,136	33	%
Adjusted operating income (loss)		$	(3,433)	$	(5,040)	$	1,607	32	%

(1) Represents a measure of the average number of rigs operating during a given period. For example, one rig operating 45 days during a quarter represents approximately 0.5 average rigs working for the quarter. On an annual period, one rig operating 182.5 days represents approximately 0.5 average rigs working for the year.

U.S. Drilling

Operating results increased during the three months ended June 30, 2018 compared to the corresponding 2017 period primarily due to an increase in dayrates as market prices have continued to improve, which resulted in approximately $26.5 million of the increase adjusted operating income. Additionally, we have experienced an increase in activity as reflected by an 11% increase in the average number of rigs working which represented approximately $15.0 million of the increase in adjusted operating income. Included in this amount are incremental operating results from the contribution of full operating dayrate for one of our new MODS-400 rigs in the Gulf of Mexico.

Canada Drilling

Operating results improved during the three months ended June 30, 2018 compared to the corresponding 2017 period. Although overall rig activity declined, this was offset by an increase in operating results attributed to the mix of higher margin active rigs working as well as a slight increase in dayrates during the three months ended June 30, 2018.

International Drilling

Operating revenue as well as activity remained relatively flat during the three months ended June 30, 2018 compared to the corresponding 2017 period. Operating results for the period were unfavorably impacted by the expiration of higher margin contracts, which were partially offset by new rig awards in lower margin regions in combination with dayrate reduction. Further contributing to the decline in operating results was decreased activity resulting from the sale of three jackup rigs and rig recertification.

43

Drilling Solutions

Operating results increased during the three months ended June 30, 2018 compared to the corresponding 2017 period primarily due to the increase in drilling activity in the U.S. and in the demand for our products and services. Additionally, this segment benefitted from incremental operating revenues of approximately $19.9 million related to the recent acquisition of Tesco during the fourth quarter of 2017.

Rig Technologies

Operating revenues increased during the three months ended June 30, 2018 compared to the corresponding 2017 period primarily due to approximately $22.2 million in incremental revenue as a result of the acquisition of Tesco during the fourth quarter of 2017.

Other Financial Information

Interest expense

Interest expense for the three months ended June 30, 2018 was $60.6 million, representing an increase of $5.9 million, or 11%, compared to the three months ended June 30, 2017. The increase was primarily due to the additional interest expense related to the January 2018 issuance of $800 million in aggregate principal amount of 5.75% senior notes due 2025. This increase was partially offset by a reduction in interest expense due to the repayment of the 6.15% senior notes due February 2018.

Other, net

Other, net for the three months ended June 30, 2018 was $77.6 million of expense, which included a net loss on sales and disposals of assets of approximately $67.3 million, primarily comprised of a $63.7 million loss on the sale of three jackup rigs, an increase in litigation reserves of $4.7 million, foreign currency exchange losses of $3.8 million and transaction related costs of approximately $5.9 million.

Other, net for the three months ended June 30, 2017 was $10.1 million of expense, which included a loss on debt buy-backs of $7.3 million, transaction related costs of approximately $1.9 million, foreign currency exchange losses of $1.6 million and increases to our litigation reserves of $0.8 million. These losses were partially offset by a net gain on sales and disposals of assets of approximately $2.7 million.

Income tax rate

Our worldwide effective tax rate for the three months ended June 30, 2018 was (13.5%) compared to 14.4% for the three months ended June 30, 2017. The change was attributable to the effect of the geographic mix of pre-tax earnings (losses), primarily due to higher income tax expense in certain tax jurisdictions despite a consolidated net loss before income taxes. This resulted in a negative tax rate for the quarter. 

In certain jurisdictions we have recognized deferred tax assets and liabilities. Judgment and assumptions are required in determining whether deferred tax assets will be fully or partially utilized. When we estimate that all or some portion of certain deferred tax assets such as net operating loss carryforwards will not be utilized, we establish a valuation allowance for the amount we determine to be more likely than not unrealizable. We continually evaluate strategies that could allow for future utilization of our deferred assets. Any change in the ability to utilize such deferred assets will be accounted for in the period of the event affecting the valuation allowance. If facts and circumstances cause us to change our expectations regarding future tax consequences, the resulting adjustments could have a material effect on our financial results or cash flow. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize the deferred tax assets that we have recognized. However, it is possible that some of our recognized deferred tax assets, relating to net operating loss carryforwards, could expire unused or could carryforward indefinitely without utilization. Therefore, unless we are able to generate sufficient taxable income from our component operations, a substantial valuation allowance to reduce our deferred tax assets may be required, which would materially increase our tax expense in the period the allowance is recognized and materially adversely affect our results of operations and statement of financial condition.  

44

Our accounting for the U.S. Tax Reform Act, enacted on December 22, 2017, is incomplete. As noted at year-end, however, we were able to reasonably estimate certain effects and, therefore, recorded a provisional adjustment to revalue deferred tax assets and liabilities from 35 percent to 21 percent associated with the reduction in the U.S. corporate income tax rate. In addition, as noted at year-end, we continue to believe the other provisions of the Tax Reform Act do not have a material impact on our consolidated financial statements. The Company has not revised any of the 2017 provisional estimates under Staff Accounting Bulletin No. 118 (“SAB 118”), but is continuing to gather information and we are waiting on further guidance from the Internal Revenue Service, the SEC and the FASB. We are continuing to gather additional information to complete our accounting for these items and expect to complete our accounting within the prescribed measurement period.

Discontinued Operations

Our discontinued operations for the three months ended June 30, 2018 and 2017 consisted of our historical wholly owned oil and gas businesses. Income (loss) from discontinued operations for the three months ended June 30, 2018 was a loss of $0.6 million compared to a loss of $15.5 million for the three months ended June 30, 2017. Our net loss during the three months ended June 30, 2017 was primarily due to a $16.5 million charge related to the settlement of litigation associated with our previously owned Ramshorn International properties.

Comparison of the six months ended June 30, 2018 and 2017

Operating revenues for the six months ended June 30, 2018 totaled $1.5 billion, representing an increase of $302.2 million, or 25%, compared to the six months ended June 30, 2017. We experienced an increase in operating revenue across all of our operating segments as activity has increased across the U.S. and international markets, as evidenced by the 9% increase in average rigs working during the six months ended June 30, 2018 compared to the same period in 2017. Additionally, we benefited from incremental operating revenues of approximately $75.5 million as a result of our acquisition of Tesco.

Net loss from continuing operations attributable to Nabors common shareholders totaled $346.0 million for the six months ended June 30, 2018 ($1.08 per diluted share) compared to a net loss from continuing operations attributable to Nabors common shareholders of $266.0 million ($0.93 per diluted share) for the six months ended June 30, 2017, or an $80.0 million increase in the net loss. Although our segments’ adjusted operating income improved by approximately $101.3 million compared to the period, our net loss was adversely impacted by a $63.7 million loss on the sale of three jackup rigs as well as a $91.9 million increase in income tax expense.

General and administrative expenses for the six months ended June 30, 2018 totaled $142.4 million, representing an increase of $15.3 million or 12%, compared to the six months ended June 30, 2017. This is reflective of a slight increase in salaries and other compensation as well as increases in headcount as a result of increased activity, including the impact from the Company’s acquisition of Tesco in the fourth quarter of 2017.

Research and engineering expenses for the six months ended June 30, 2018 totaled $28.2 million, representing an increase of $5.1 million, or 22%, compared to the six months ended June 30, 2017. The increase is a result of increased efforts towards a number of strategic research and engineering projects as the market rebalanced and activity increased.

Depreciation and amortization expense for the six months ended June 30, 2018 was $431.7 million, representing an increase of $19.9 million, or 5%, compared to the six months ended June 30, 2017. The slight increase was primarily due the increased number of rigs that were working during the period, which results in a higher active depreciation rate coupled with incremental depreciation associated with the acquisition of Tesco.

45

Segment Results of Operations

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

	Six Months Ended
	June 30,
	2018		2017		Increase/(Decrease)
U.S. Drilling
Operating revenues	$	505,397	$	349,278	$	156,119	45	%
Adjusted operating income (loss)	$	(32,853)	$	(119,261)	$	86,408	72	%
Average rigs working (1)		112.0		94.7		17.3	18	%
Canada Drilling
Operating revenues	$	49,329	$	44,929	$	4,400	10	%
Adjusted operating income (loss)	$	(5,200)	$	(9,025)	$	3,825	42	%
Average rigs working (1)		15.6		17.1		(1.5)	(9)	%
International Drilling
Operating revenues	$	746,831	$	718,561	$	28,270	4	%
Adjusted operating income (loss)	$	49,022	$	48,148	$	874	2	%
Average rigs working (1)		93.8		91.3		2.5	3	%
Drilling Solutions
Operating revenues	$	122,507	$	59,194	$	63,313	107	%
Adjusted operating income (loss)	$	16,267	$	2,794	$	13,473	n/m	(2)
Rig Technologies
Operating revenues	$	145,990	$	105,261	$	40,729	39	%
Adjusted operating income (loss)	$	(16,409)	$	(13,171)	$	(3,238)	(25)	%

(1) Represents a measure of the average number of rigs operating during a given period. For example, one rig operating 45 days during a quarter represents approximately 0.5 average rigs working for the quarter. On an annual period, one rig operating 182.5 days represents approximately 0.5 average rigs working for the year.

(2) The number is so large that it is not meaningful.

U.S. Drilling

Operating results increased during the six months ended June 30, 2018 compared to the corresponding 2017 period primarily due to an 18% increase in the average number of rigs working. Additionally, these rigs operated at higher dayrates as market prices continued to improve, further contributing to the $156.1 million, or 45%, increase in operating revenues.

Canada Drilling

Operating results improved during the six months ended June 30, 2018 compared to the corresponding 2017 period. Although average rigs working remained relatively flat, the mix of higher margin active rigs supplemented by an increase in dayrates as market prices have improved.

International Drilling

Operating revenue increased slightly during the six months ended June 30, 2018 compared to the corresponding 2017 period primarily due to the increase in activity during the period. Our results for the six months ended June 30, 2017 were unfavorably impacted by a loss of revenue and increased costs related to downtime incurred to perform structural work on many of our rigs in our largest international market.  

Drilling Solutions

Operating results increased during the six months ended June 30, 2018 compared to the corresponding 2017 period primarily due to the significant increase in drilling activity in the U.S. and in the demand for our products and services.

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Additionally, this segment benefitted from incremental operating revenues of approximately $40.3 million related to the recent acquisition of Tesco during the fourth quarter of 2017.

Rig Technologies

Operating revenues increased during the six months ended June 30, 2018 compared to the corresponding 2017 period primarily due to approximately $35.1 million in incremental revenue as a result of the acquisition of Tesco during the fourth quarter of 2017. However, operating income (loss) was adversely impacted by the mix between higher margin capital equipment sales and other lower margin activity.

Other Financial Information

Interest expense

Interest expense for the six months ended June 30, 2018 was $122.0 million, representing an increase of $10.8 million, or 10%, compared to the six months ended June 30, 2017. The increase was primarily due to the additional interest expense related to the January 2018 issuance of $800 million in aggregate principal amount of 5.75% senior notes due 2025. This increase was partially offset by a reduction in interest expense due to the repayment of the 6.15% senior notes due February 2018.

Other, net

Other, net for the six months ended June 30, 2018 was $91.7 million of expense, which included net losses on sales and disposals of assets of approximately $69.6 million, primarily related to a $63.7 million loss on the sale of three jackup rigs, transaction related costs of $12.9 million, an increase in litigation reserves of $8.3 million and foreign currency exchange losses of $6.3 million.

Other, net for the six months ended June 30, 2017 was $23.6 million of expense, which included a loss on debt buy-backs of $15.9 million, foreign currency exchange losses of $2.5 million, transaction related costs of approximately $1.9 million and increases to our litigation reserves of $1.6 million.

Income tax rate

Our worldwide effective tax rate for the six months ended June 30, 2018 was (16.0%) compared to 14.6% for the six months ended June 30, 2017. The change was attributable to the effect of the geographic mix of pre-tax earnings (losses), primarily due to higher income tax expense in certain tax jurisdictions despite a consolidated net loss before income taxes. This resulted in a negative tax rate for the six months ended June 30, 2018. 

Discontinued Operations

Our discontinued operations for the six months ended June 30, 2018 and 2017 consisted of our historical wholly owned oil and gas businesses. Income (loss) from discontinued operations for the six months ended June 30, 2018 was a loss of $0.7 million compared to a loss of $15.9 million for the six months ended June 30, 2017. Our net loss for the six months ended June 30, 2017 was primarily due to a $16.5 million charge related to the settlement of litigation associated with our previously owned Ramshorn International properties.

Liquidity and Capital Resources

Financial Condition and Sources of Liquidity

Our primary sources of liquidity are cash and investments and availability under our revolving credit facility. As of June 30, 2018, we had cash and short-term investments of $636.5 million and working capital of $908.7 million. As of December 31, 2017, we had cash and short-term investments of $365.4 million and working capital of $527.9 million. At June 30, 2018, we had no borrowings outstanding under our $2.25 billion revolving credit facility.

In January 2018, Nabors Delaware completed an offering of $800 million aggregate principal amount of 5.75% senior unsecured notes due February 1, 2025, which are fully and unconditionally guaranteed by Nabors. A portion of

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the proceeds from this offering were used to repay indebtedness of Nabors and its subsidiaries, including all of Nabors Delaware’s outstanding 6.15% senior notes due February 2018. The remaining proceeds not used for such purposes were allocated for general corporate purposes, including to repay amounts outstanding under the commercial paper program and to repurchase or repay other indebtedness.

In May 2018, we issued 35,000,000 shares of common stock at a price to the public of $7.75 per share and 5,750,000 shares (including the underwriters option for 750,000 shares) of 6% Series A Mandatory Convertible Preferred Stock (the “mandatory convertible preferred shares”), par value $.001 per share, with a liquidation preference of $50 per share. The dividends on the mandatory convertible preferred shares will be payable on a cumulative basis.  Unless converted earlier, each share of mandatory convertible preferred shares initially will automatically convert into between 5.3763 shares and 6.4516 shares of our common stock based on the average share price over a period of twenty consecutive trading days ending prior to May 1, 2021, subject to anti-dilution adjustments. In connection with the common shares offering, in June 2018 the underwriters exercised in full their option to purchase 5,250,000 additional common shares. Nabors received aggregate net proceeds of approximately $580.6 million after deducting underwriting discounts, commissions, and offering expenses. The net proceeds from these offerings were used to repay amounts outstanding under the revolving credit facility, which we may re-borrow from time to time for the repayment of other indebtedness, and for general corporate purposes.

We had 15 letter-of-credit facilities with various banks as of June 30, 2018. Availability under these facilities as of June 30, 2018 was as follows:

	June 30,
	2018
	(In thousands)
Credit available	$	759,421
Less: Letters of credit outstanding, inclusive of financial and performance guarantees		133,230
Remaining availability	$	626,191

Our gross debt to capital ratio was 0.55:1 as of June 30, 2018 and 0.58:1 as of December 31, 2017. Our net debt to capital ratio was 0.51:1 as of June 30, 2018 and 0.56:1 as of December 31, 2017. The gross debt to capital ratio is calculated by dividing total debt by total capitalization (total debt plus shareholders’ equity). The net debt to capital ratio is calculated by dividing net debt by net capitalization. Net debt is defined as total debt minus the sum of cash and cash equivalents and short-term investments. Net capitalization is defined as net debt plus shareholders’ equity. Availability under the revolving credit facility is subject to a covenant not to exceed a net debt to capital ratio of 0.60:1. We were in compliance with all covenants under the agreement at June 30, 2018. If we 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. We have contemplated various alternative actions that could be pursued if we believe a violation of the covenant seemed likely to occur in the future.  These actions include reductions in discretionary capital or other types of controllable expenditures, monetization of assets, amending or renegotiating the revolving credit agreement, accessing capital markets through a variety of alternative methods, or any combination of these alternatives. Neither the gross debt to capital ratio nor the net debt to capital ratio is a measure of operating performance or liquidity defined by U.S. GAAP and may not be comparable to similarly titled measures presented by other companies.

Our interest coverage ratio was 2.8:1 as of June 30, 2018 and 2.4:1 as of December 31, 2017. The interest coverage ratio is a trailing 12-month quotient of the sum of operating revenues, direct costs, general administrative expenses and research and engineering expenses divided by interest expense. The interest coverage ratio is not a measure of operating performance or liquidity defined by U.S. GAAP and may not be comparable to similarly titled measures presented by other companies.

Our ability to access capital markets or to otherwise obtain sufficient financing may be affected by our senior unsecured debt ratings as provided by the major credit rating agencies in the United States and our historical ability to access these markets as needed. While there can be no assurances that we will be able to access these markets in the future, we believe that we will be able to access capital markets or otherwise obtain financing in order to satisfy any payment obligation that might arise upon maturity, exchange or purchase of our notes and our debt facilities, loss of availability of our revolving credit facility, and that any cash payment due, in addition to our other cash obligations, would not ultimately have a material adverse impact on our liquidity or financial position. The major U.S. credit rating agencies have downgraded our senior unsecured debt rating to non-investment grade. These and further ratings

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downgrades could adversely impact our ability to access debt markets in the future, increase the cost of future debt, and potentially require us to post letters of credit for certain obligations.

Our current cash and investments, projected cash flows from operations, proceeds from equity or debt issuances, and our revolving credit facility are expected to adequately finance our purchase commitments, capital expenditures, acquisitions, scheduled debt service requirements, and all other expected cash requirements for the next 12 months.

Future Cash Requirements

We expect capital expenditures over the next 12 months to be approximately $0.5 billion. Purchase commitments outstanding at June 30, 2018 totaled approximately $226.6 million, primarily for rig-related enhancements, new rig equipment, as well as sustaining capital expenditures, other operating expenses and purchases of inventory. We can reduce planned expenditures if necessary or increase them if market conditions and new business opportunities warrant it. The level of our outstanding purchase commitments and our expected level of capital expenditures over the next 12 months represent a number of capital programs that are currently underway or planned.

We have historically completed a number of acquisitions and will continue to evaluate opportunities to acquire assets or businesses to enhance our operations. Several of our previous acquisitions were funded through issuances of debt or our common shares. Future acquisitions may be funded using existing cash or by issuing debt or additional shares of our stock. Such capital expenditures and acquisitions will depend on our view of market conditions and other factors.

See our discussion of guarantees issued by Nabors that could have a potential impact on our financial position, results of operations or cash flows in future periods included below under “Off-Balance Sheet Arrangements (Including Guarantees)”.

There have been no material changes to the contractual cash obligations table that was included in our 2017 Annual Report.

On August 25, 2015, our Board of Directors authorized a share repurchase program (the “program”) under which we may repurchase, from time to time, up to $400 million of our common shares by various means, including in the open market or in privately negotiated transactions. This authorization does not have an expiration date and does not obligate us to repurchase any of our common shares. Since establishing the program, we have repurchased 14.0 million of our common shares for an aggregate purchase price of approximately $119.4 million under this program. As of June 30, 2018, the remaining amount authorized under the program that may be used to purchase shares was $280.6 million. The repurchased shares, which are held by our subsidiaries, are registered and tradable subject to applicable securities law limitations and have the same voting and other rights as other outstanding shares. As of June 30, 2018, our subsidiaries held 52.8 million of our common shares.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, both in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and may involve material amounts. We redeemed $303.5 million aggregate principal amount of our 9.25% senior notes due 2019 on July 6, 2018.

Cash Flows

Our cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Sustained decreases in the price of oil or natural gas could have a material impact on these activities, and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary capital expenditures or acquisitions, purchases and sales of investments, dividends, loans, issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions. We discuss our cash flows for the six months ended June 30, 2018 and 2017 below.

Operating Activities.  Net cash provided by operating activities totaled $77.4 million during the six months ended June 30, 2018, compared to net cash used of $9.5 million during the corresponding 2017 period. Operating cash flows are our primary source of capital and liquidity. The increase in cash flows from operations is primarily attributable to increases in activity and margins.  Additionally, changes in working capital items such as collection of receivables, other

49

deferred revenue arrangements and payments of operating payables and interest payments are significant factors affecting operating cash flows. Changes in working capital items used $154.2 million and $109.2 million in cash during the six months ended June 30, 2018 and 2017, respectively.  

Investing Activities.  Net cash used for investing activities totaled $130.3 million during the six months ended June 30, 2018 compared to $289.0 million during the corresponding 2017 period. Our primary use of cash for investing activities is for capital expenditures related to rig-related enhancements, new construction and equipment, as well as sustaining capital expenditures. During the six months ended June 30, 2018 and 2017, we used cash for capital expenditures totaling $209.5 million and $315.8 million, respectively. Additionally, we received net proceeds of $77.3 million from the sale of assets during the six months ended June 30, 2018. This was primarily comprised of the cash proceeds received from the sale of three jackup rigs.

Financing Activities.  Net cash provided by financing activities totaled $311.9 million during the six months ended June 30, 2018 compared to net cash provided of $230.4 million during the corresponding 2017 period. During the six months ended June 30, 2018, we received net proceeds of $787.0 million in connection with the issuance of our 5.75% senior notes and $580.6 million from the issuance of common and mandatory convertible preferred shares. This was partially offset by the repayment of the remaining balance of our 6.15% senior notes of $460.8 million and $550.0 million on our revolving credit facility and commercial paper program. Additionally, we paid dividends of $36.2 million.

Other Matters

Recent Accounting Pronouncements

See Note 2 — Summary of Significant Accounting Policies.

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 us 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
	2018		2019	2020	Thereafter	Total
	(In thousands)
Financial standby letters of credit and other financial surety instruments	$	132,550	79,477	40	—	$	212,067

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be exposed to market risks arising from the use of financial instruments in the ordinary course of business as discussed in our 2017 Annual Report. There were no material changes in our exposure to market risk during the six months ended June 30, 2018 from those disclosed in our 2017 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d‑15(e) under the Exchange Act) designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure. We have investments in certain unconsolidated entities that we

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do not control or manage. Because we do not control or manage these entities, our disclosure controls and procedures with respect to these entities are necessarily more limited than those we maintain with respect to our consolidated subsidiaries.

The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our condensed consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period. See Note 7 — Commitments and Contingencies for a description of such proceedings.

ITEM 1A. RISK FACTORS

Except as set forth below, there have been no material changes from the risk factors previously disclosed in Part 1, Item 1A, of our 2017 Annual Report and Form 10-Q for the three months ended March 31, 2018, which in addition to the information set forth elsewhere in this report, should be carefully considered when evaluating us. These risks are not the only risks we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business.

The Company’s ability to use its net operating loss carryforwards, and possibly other tax attributes, to offset future taxable income for U.S. federal income tax purposes may be significantly limited due to various circumstances, including future transactions involving the sale or issuance of Company common or preferred stock, or if taxable income does not reach sufficient levels.

As of June 30, 2018, the Company reported consolidated federal net operating loss (“NOL”) carryforwards of approximately $486.0 million and certain other favorable federal income tax attributes. The Company’s ability to use its NOL carryforwards and certain other attributes may be limited if it experiences an “ownership change” as defined in Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). An ownership change generally occurs if there is a more than 50 percentage point increase in the aggregate equity ownership of the Company by one or more “5 percent shareholders” (as that term is defined for purposes of Sections 382 and 383 of the Code) in any testing period, which is generally the three-year period preceding any potential ownership change, measured against their lowest percentage ownership at any time during such period.

There is no assurance that the Company will not experience an ownership change under Section 382 as a result of future actions that may significantly limit or possibly eliminate its ability to use its NOL carryforwards and potentially certain other tax attributes. Potential future transactions involving the sale, issuance, redemption or other disposition of common or preferred stock, the exercise of conversion or exchange options under the terms of any convertible or exchangeable debt, the repurchase of any such debt with Company stock, in each case, by a person owning, or treated as

51

owning, 5% or more of the Company’s stock, or a combination of such transactions, may cause or increase the possibility that the Company will experience an ownership change under Section 382. Under Section 382, an ownership change would subject the Company to an annual limitation that applies to the amount of pre-ownership change NOLs (and possibly certain other tax attributes) that may be used to offset post-ownership change taxable income. If a Section 382 limitation applies, the limitation could cause the Company’s U.S. federal income taxes to be greater, or to be paid earlier, than they otherwise would be, and could cause all or a portion of the Company’s NOL carryforwards to expire unused. Similar rules and limitations may apply for state income tax purposes. The Company’s ability to use its NOL carryforwards will also depend on the amount of taxable income it generates in future periods. The Company’s NOL carryforwards may expire before it can generate sufficient taxable income to use them in full.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We withheld the following shares of our common stock to satisfy tax withholding obligations in connection with grants of stock awards during the three months ended June 30, 2018 from the distributions described below. These shares may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item, but were not purchased as part of a publicly announced program to purchase common shares:

					Approximated
				Total Number	Dollar Value of
				of Shares	Shares that May
	Total	Average		Purchased as	Yet Be
	Number of	Price		Part of Publicly	Purchased
Period	Shares	Paid per		Announced	Under the
(In thousands, except per share amounts)	Repurchased	Share (1)		Program	Program (2)
April 1 - April 30	76	$	7.72	—	280,645
May 1 - May 31	2	$	7.61	—	280,645
June 1 - June 30	169	$	7.25	—	280,645

(1) Shares were withheld from employees and directors to satisfy certain tax withholding obligations due in connection with grants of shares under our 2003 Employee Stock Plan, the 2013 Stock Plan and the 2016 Stock Plan. Each of the 2016 Stock Plan, the 2013 Stock Plan, the 2003 Employee Stock Plan and the 1999 Stock Option Plan for Non-Employee Directors provide for the withholding of shares to satisfy tax obligations, but do not specify a maximum number of shares that can be withheld for this purpose. These shares were not purchased as part of a publicly announced program to purchase common shares.

(2) In August 2015, our Board of Directors authorized a share repurchase program under which we may repurchase up to $400 million of our common shares in the open market or in privately negotiated transactions. Through June 30, 2018, we repurchased 14.0 million of our common shares for an aggregate purchase price of approximately $119.4 million under this program. As of June 30, 2018, we had $280.6 million that remained authorized under the program that may be used to repurchase shares. The repurchased shares are held by our subsidiaries are registered and tradable subject to applicable securities law limitations and have the same voting, dividend and other rights as other outstanding shares. As of June 30, 2018, our subsidiaries held 52.8 million of our common shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit No.	Description
3.1	Certificate of designations of the 6.00% Mandatory convertible Preferred Shares, Series A, of Nabors Industries Ltd. (incorporated by reference to Exhibit 3.1 to our Form 8-K (File No. 001-32657) filed with the SEC on May 14, 2018).
10.1	Amendment No. 1 to the Nabors Industries Ltd. 2016 Stock Plan (incorporated by reference to Annex B to Nabors Industries Ltd. Definitive Proxy Statement (File No. 001-32657) filed with the SEC on April 26, 2018).
10.2	Form of Restricted Stock Agreement – Directors, pursuant to the 2016 Stock Plan (1 year vesting).*
31.1	Rule 13a-14(a)/15d-14(a) Certification of Anthony G. Petrello, Chairman, President and Chief Executive Officer*
31.2	Rule 13a-14(a)/15d-14(a) Certification of William Restrepo, Chief Financial Officer*
32.1	Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350), executed by Anthony G. Petrello, Chairman, President and Chief Executive Officer and William Restrepo, Chief Financial Officer.*
101.INS	XBRL Instance Document*
101.SCH	XBRL Schema Document*
101.CAL	XBRL Calculation Linkbase Document*
101.LAB	XBRL Label Linkbase Document*
101.PRE	XBRL Presentation Linkbase Document*
101.DEF	XBRL Definition Linkbase Document*

*Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NABORS INDUSTRIES LTD.
By:	/s/ ANTHONY G. PETRELLO
	Anthony G. Petrello
	Chairman, President and
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ WILLIAM RESTREPO
	William Restrepo
	Chief Financial Officer (Principal Financial Officer and Accounting Officer)
Date:	August 1, 2018

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