Nabors 3Q2010 EPS Equals $0.29 From Continuing Operations, Excluding Acquisition Expenses and Certain Non-Cash Asset Impairments

Oct 26, 2010, 16:00 ET from Nabors Industries Ltd.

HAMILTON, Bermuda, Oct. 26 /PRNewswire-FirstCall/ -- Nabors Industries Ltd. (NYSE: NBR) today announced its results for the third quarter and nine months ended September 30, 2010.  Adjusted income derived from operating activities was $164.4 million for the third quarter, compared to $117.2 million in the third quarter of 2009 and $126.8 million in the second quarter of this year.   Excluding certain non-cash asset impairments and expenses related to the acquisition of Superior Well Services Inc., net income from continuing operations was $84.7 million ($0.29 per diluted share) for the third quarter, compared to $66.7 million ($0.23 per diluted share) in the third quarter of 2009 and $44.0 million ($0.15 per diluted share) in the second quarter of this year.  Including these charges, income from continuing operations was a loss of $31.6 million ($0.11 per diluted share).  For the nine months ended September 30, 2010, adjusted income derived from operating activities was $433.0 million, compared to $395.9 million in 2009.  Net income from continuing operations, excluding the aforementioned items, was $172.2 million ($0.59 per diluted share) for the first nine months of 2010, compared to $349.3 million ($1.23 per diluted share) in the first nine months of 2009.  The excluded items during the quarter amounted to $134 million, or $0.40 per share, the largest component of which was impairments to goodwill and various underutilized assets primarily in the Company’s US Offshore operations.  The drilling slowdown following the Gulf of Mexico blowout is likely to restrict utilization of these assets for some time.  The impairments also included the writedown of an E&P investment.  Because most of the Company’s wholly owned and joint-venture interests in Canada and Colombia are being marketed for sale, their results have been classified as discontinued operations beginning this quarter.  

Gene Isenberg, Nabors’ Chairman and CEO, commented, “The quarter represented solid operational performance by most of our North American businesses.  This is particularly notable considering the flat results in our International operations, a slight loss in our US Offshore unit and only 20 days of contribution from our recently acquired pressure pumping operations.  GAAP net income reflected pre-tax charges of $7 million in acquisition transaction expenses and $127 million in non-cash asset impairment charges.  

“The most significant sequential increase occurred in our US Lower 48 operations which posted $70.5 million in operating income, compared to the $58.2 million this unit realized in the second quarter.  The improvement was primarily due to an $841 increase in average margins, bringing the quarterly average to $8,629 per rig day, augmented by a ten-rig increase during the third quarter, bringing the average rig count to 182.2 rig years.  Today’s rig count stands slightly higher at 187 rigs.  An important achievement during the quarter was the entry into long-term contractual commitments for 11 more new-build rigs, bringing the total to 23 for the year, including three economically equivalent major refurbishments.  Eleven of these rigs are destined for the Bakken Shale where we enjoy a dominant position.  Three of the remaining rigs will deploy in the Eagle Ford Shale, one in the Haynesville, the other five rigs to the Marcellus Shale, where we have a small but growing presence.  The performance of our PACE® rigs, especially the new B Series, continues to lead to more inquiries and is supporting modest improvement in leading edge rates.  The gap between these rates and our current average rates is significant but they continue to converge as contracts renew. Nevertheless, cost pressure still remains in the most active markets.

“Recent increases in this unit’s rig count are the net result of higher activity in the oil and liquids-rich drilling plays, significantly offset by reduced dry gas drilling.  We expect this trend to continue given the disparity between the forward strips for oil compared to natural gas.  This is leading to a net modest improvement in our rig count through next year and keeps us cautiously optimistic regarding the 2011 outlook.  

“International income was $64.4 million, essentially flat compared to the second quarter.  The sequential rig count increased by five rigs, averaging 103 for the quarter.  The incremental contribution from these rigs was largely offset by a $562 decrease in average rates.  Along with most of the other larger oil service companies, we have further tempered our international outlook as the market continues to lag everyone’s expectations.  We now anticipate a sequential decrease on the order of 15% in the fourth quarter and foresee 2011 as essentially flat compared to 2010.  We have a significant number of incremental rig deployments scheduled over the next five quarters, but the associated $50 million in additional income will be mostly offset by a large number of expiring contracts renewing at market rates.  The largest negative impact is expected from three jackup rig renewals in the Arabian Gulf during the fourth, first and second quarters.  

“Income in our US Land Well Servicing unit was $9.0 million, a significant increase over the $3.2 million recorded in the second quarter.  Rig hours in the quarter grew to 169,000, up 13,000 from second quarter, while average rig rates increased by $25 per hour.  This increased activity was enabled by the extraordinary overtime and rig reactivation expenses incurred last quarter.  Today’s level of activity represents a nearly 30% increase over last year, better than the industry average.  The effective utilization of ready-to-run rigs and available crews combined with continuing strong oil prices augurs well for improved pricing industry wide.  This pricing momentum, combined with further realization of synergistic opportunities through our newly acquired pressure pumping business, suggests solid results in the historically slow fourth quarter and a promising 2011, although still well below the peak levels this business achieved in 2006.  

“As expected, we incurred a $1.1 million loss in our US Offshore business due to the lower levels of activity in the Gulf of Mexico following the Macondo blowout.  We expect a similar result in the fourth quarter, although we are cautiously optimistic the outlook will improve in 2011 in spite of ongoing permitting delays.  However, we still expect activity in this market to be inhibited over the next few years given the more onerous regulatory environment, which led us to impair the carrying value of some of this unit’s goodwill and underutilized assets.  On the positive side, we are proceeding with engineering and construction of two first-of-a-kind 4,500 horsepower deepwater platform rigs recently awarded by two major customers.  Both projects are scheduled to deploy in late 2012 and entail five to ten-year drilling programs.  It is also likely that regulatory authorities will require that some 3,500 wells in the Gulf of Mexico be plugged and abandoned.  This holds significant promise for our Sundowner platform and workover jackup rigs.  

“In Canada, we posted $1.0 million in operating income, a significant improvement over the $9.5 million loss in the seasonally low second quarter.  We have significantly increased our income expectations for both this year and next as a result of higher activity and rigorous cost control.  The higher activity is occurring in the British Columbia shale plays, the traditional oil areas of Alberta and Saskatchewan, and the emerging oil shale plays, particularly the Cardium Shale in south central Alberta.  Another significant driver is drilling in support of potash development.  This unit is building three new rigs, the first of which will deploy in our US Lower 48 operations.  An award for the second rig is pending in Canada, and there is strong interest in the innovative design of the third rig, which is targeted at pad drilling applications and should deliver late next year.  

“Quarterly results in our Alaskan unit were higher than expected at $14.3 million, with extra income derived from higher rig activity, demobilization fees and camp rentals in support of various maintenance and construction projects.  The quarter also benefited from the acceleration of deferred revenues triggered by the impending end of the primary term of a long-term contract.  The end of this contract, the recent wind up of another 12-year contract and spending cuts by the largest operator in this market have caused us to lower our 2011 expectations considerably.  Over time, we expect strong crude prices will result in a return to more robust spending and Nabors should be the largest beneficiary given the quality of our operations and rigs and our patented coiled technology.  

“Our Other Operating Segments posted an excellent quarter, primarily on the strength of strong results in Canrig which were driven by strong third-party equipment sales and increasing income from our Rockit™ directional drilling technology.  Results in our Alaskan joint ventures also contributed significantly.  We expect results to be sustainable given Canrig’s third-party backlog, the continuing success of the Rockit™ technology and the rollout of additional directional drilling technologies.  

“Our Oil and Gas operations posted income of $1.0 million with the reclassification of our Colombian and Canadian entities as discontinued operations.  The proposed sale of these two units is moving ahead expeditiously, with discussions underway with numerous interested parties regarding both regions.  Two investment banks are marketing our Colombian properties, with one of them also representing us in Canada.  Our expectations of realized value remain intact.  

“The most notable development of the quarter was the acquisition of Superior Well Services in an all-cash transaction with an enterprise value of approximately $900 million.  We were able to close and finance the transaction within five weeks of the announcement of a definitive agreement.  Our consolidated results reflect only $12.0 million in operating income from the 20 days this unit was part of Nabors.  In the short time we have owned Superior, the quality of their equipment and technology and the capability of their field personnel and management teams have exceeded our expectations.  We have already realized significant economies in procurement, consolidated certain facilities, and integrated Superior’s fluids management business into Nabors Well Services.  We still see further synergies and significant investment opportunities facilitated by Nabors’ ability to fund this previously capital-constrained business.  

“Our financial position is strong with $810 million in cash and investments at the end of the quarter.  This ending balance reflects the all-cash acquisition of Superior and the attendant issuance of $700 million in senior unsecured notes, due 2020, at an annual yield of 5%.  In mid-September we also established a $700 million, four-year, committed revolving credit facility which allows us to borrow at LIBOR plus 1.50%.  The availability of this credit facility, our expectation of significant free cash flow in subsequent quarters and the anticipated proceeds from the sale of certain E&P properties, leads us to conclude we can comfortably redeem the $1.4 billion in convertible notes due next May and fund anticipated capital expenditures.  This should negate the need for issuance of equity in any form or additional borrowings, other than temporary draws on our revolver.  

“In summary, we are quite optimistic regarding the direction of our business, notwithstanding a persistently low natural gas strip and the tempered outlook for our International segment.”

The Nabors companies own and operate approximately 554 land drilling and approximately 728 land workover and well-servicing rigs in North America.  Nabors’ actively marketed offshore fleet consists of 38 platform rigs, 13 jackup units and 3 barge rigs in the United States and multiple international markets. In addition, Nabors manufactures top drives and drilling instrumentation systems and provides comprehensive oilfield hauling, engineering, civil construction, logistics and facilities maintenance, and project management services. Nabors participates in most of the significant oil and gas markets in the world.

The information above includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties, as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission. As a result of these factors, Nabors’ actual results may differ materially from those indicated or implied by such forward-looking statements.

For further information, please contact Dennis A. Smith, Director of Corporate Development for Nabors Corporate Services, Inc., at 281-775-8038. To request investor materials, contact our corporate headquarters in Hamilton, Bermuda at 441-292-1510 or via email at mark.andrews@nabors.com.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(In thousands, except per share amounts)

2010

2009

2010

2010

2009

Revenues and other income:

  Operating revenues

$      1,069,261

$        789,200

$     896,029

$     2,856,636

$    2,853,944

  Earnings (losses) from unconsolidated affiliates (1)

11,842

17,103

8,845

28,329

(53,132)

  Investment income (loss)

(733)

(1,806)

2,314

(976)

25,548

     Total revenues and other income

1,080,370

804,497

907,188

2,883,989

2,826,360

Costs and other deductions:

  Direct costs

625,561

431,280

517,531

1,648,289

1,546,076

  General and administrative expenses

87,194

81,637

80,337

242,957

352,212

  Depreciation and amortization

198,151

173,701

175,397

545,084

498,830

  Depletion

5,778

2,494

4,841

15,646

7,837

  Interest expense

66,973

66,671

65,293

199,035

199,776

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

9,407

10,516

11,024

40,798

625

  Impairments and other charges (2)

123,099

-

-

123,099

227,083

     Total costs and other deductions

1,116,163

766,299

854,423

2,814,908

2,832,439

Income (loss) from continuing operations before income taxes

(35,793)

38,198

52,765

69,081

(6,079)

Income tax expense (benefit):

  Current

(71,276)

37,901

17,652

(40,979)

43,933

  Deferred

67,046

(53,378)

(8,858)

54,133

(43,205)

Income tax expense (benefit)

(4,230)

(15,477)

8,794

13,154

728

Income (loss) from continuing operations, net of tax

(31,563)

53,675

43,971

55,927

(6,807)

Income (loss) from discontinued operations, net of tax

(7,591)

(23,250)

(909)

(12,921)

(31,855)

Net income (loss)

(39,154)

30,425

43,062

43,006

(38,662)

    Less: Net (income) loss attributable to noncontrolling interest

(453)

(895)

559

1,208

376

Net income (loss) attributable to Nabors

$         (39,607)

$          29,530

$       43,621

$          44,214

$       (38,286)

Earnings (losses) per share: (3)

  Basic from continuing operations

$               (.11)

$               .18

$             .15

$                .21

$             (.03)

  Basic from discontinued operations

$               (.03)

$              (.08)

$                 -

$               (.05)

$             (.11)

      Basic

$               (.14)

$               .10

$             .15

$                .16

$             (.14)

  Diluted from continuing operations

$               (.11)

$               .18

$            .15

$                .19

$             (.03)

  Diluted from discontinued operations

$               (.03)

$              (.08)

$                -

$               (.04)

$             (.11)

      Diluted

$               (.14)

$               .10

$            .15

$                .15

$             (.14)

Weighted-average number of common shares outstanding: (3)

  Basic

285,282

283,197

285,181

285,045

283,150

  Diluted

285,282

287,407

289,796

289,847

283,150

Adjusted income (loss) derived from operating activities (1) (4)

$         164,419

$        117,191

$     126,768

$        432,989

$       395,857

(1)  Includes our proportionate share of writedowns recorded by our oil and gas joint ventures of $(83.3) million for the nine months ended September 30, 2009. (2)  Represents impairments and other charges recorded for the three and nine months ended September 30, 2010 and the nine months ended September 30, 2009.   (3)  See "Computation of Earnings (Losses) Per Share" included herein as a separate schedule.   (4)  Adjusted income (loss) derived from operating activities is computed by: subtracting direct costs, general and administrative expenses, depreciation and amortization, and depletion expense from Operating revenues and then adding Earnings (losses) from unconsolidated affiliates.  These amounts should not be used as a substitute to those amounts reported under accounting principles generally accepted in the United States of America (“GAAP”).  However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income (loss) derived from operating activities, because it believes that these financial measures are an accurate reflection of the ongoing profitability of our Company.  A reconciliation of this non-GAAP measure to income (loss) from continuing operations before income taxes, which is a GAAP measure, is provided within the  table set forth immediately following the heading "Segment Reporting".

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30,

June 30,

December 31,

(In thousands, except ratios)

2010

2010

2009

ASSETS

Current assets:

Cash and short-term investments

$        772,469

$      892,876

$     1,090,851

Accounts receivable, net

1,002,974

762,589

724,040

Assets held for sale

345,138

-

-

Other current assets

445,343

369,943

361,773

    Total current assets

2,565,924

2,025,408

2,176,664

Long-term investments and other receivables

37,448

93,965

100,882

Property, plant and equipment, net

7,884,874

7,641,563

7,646,050

Goodwill

463,427

164,078

164,265

Investment in unconsolidated affiliates

272,432

321,293

306,608

Other long-term assets

396,623

253,834

250,221

    Total assets

$   11,620,728

$ 10,500,141

$   10,644,690

LIABILITIES AND EQUITY

Current liabilities:

Current portion of long-term debt

$     1,442,714

$   1,345,819

$               163

Other current liabilities

818,806

642,263

608,459

    Total current liabilities

2,261,520

1,988,082

608,622

Long-term debt

3,066,748

2,364,703

3,940,605

Other long-term liabilities

1,002,702

918,947

913,484

    Total liabilities

6,330,970

5,271,732

5,462,711

Preferred Stock (1)

69,188

-

-

Equity:

Shareholders' equity

5,207,632

5,216,308

5,167,656

Noncontrolling interest

12,938

12,101

14,323

    Total equity

5,220,570

5,228,409

5,181,979

    Total liabilities and equity

$   11,620,728

$ 10,500,141

$   10,644,690

Cash, short-term and long-term investments (2)

$        809,917

$      986,841

$     1,191,733

Funded debt to capital ratio: (3)

   - Gross

0.43 : 1

0.39 : 1

0.41 : 1

   - Net of cash and investments

0.38 : 1

0.32 : 1

0.33 : 1

Interest coverage ratio: (4)

6.3 : 1

5.9 : 1

6.3 : 1

(1)   Represents preferred stock outstanding at the time of our acquisition of Superior. Seventy-five thousand shares of such stock are outstanding and pay quarterly dividends at an annual rate of 4%. (2)   The September 30 and June 30, 2010 and December 31, 2009 amounts included $30.2 million, $86.6 million and $92.5 million, respectively, in oil and gas financing receivables that were included in long-term investments and other receivables.   (3)   The gross funded debt to capital ratio is calculated by dividing (x) funded debt by (y) funded debt plus deferred tax liabilities (net of deferred tax assets) plus capital. Funded debt is the sum of (1) short-term borrowings, (2) the current portion of long-term debt and (3) long-term debt.  Capital is shareholders' equity.  The net funded debt to capital ratio is calculated by dividing (x) net funded debt by (y) net funded debt plus deferred tax liabilities (net of deferred tax assets) plus capital.  Net funded debt is funded debt minus the sum of cash and cash equivalents and short-term and long-term investments and other receivables.  Both of these ratios are used to calculate a company’s leverage in relation to its capital.  Neither ratio measures operating performance or liquidity as defined by GAAP and, therefore, may not be comparable to similarly titled measures presented by other companies.   (4)   The interest-coverage ratio is a trailing 12-month quotient of the sum of income (loss) from continuing operations, net of tax, net income (loss) attributable to noncontrolling interest, interest expense, depreciation and amortization, depletion expense, impairments and other charges, income tax expense (benefit) and our proportionate share of writedowns from our unconsolidated oil and gas joint ventures less investment income (loss) divided by cash interest expense. This ratio is a method for calculating the amount of operating cash flows available to cover cash interest expense.  The interest coverage ratio is not a measure of operating performance or liquidity defined by GAAP and may not be comparable to similarly titled measures presented by other companies.    

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

SEGMENT REPORTING

(Unaudited)

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

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(In thousands, except rig activity)

2010

2009

2010

2010

2009

Reportable segments:

Operating revenues and Earnings (losses) from unconsolidated affiliates:

   Contract Drilling: (1)

     U.S. Lower 48 Land Drilling

$         350,348

$      212,004

$     303,417

$     925,262

$      851,742

     U.S. Land Well-servicing

119,127

89,459

104,860

321,978

323,901

     U.S. Pressure Pumping (2)

61,611

-

-

61,611

-

     U.S. Offshore

26,504

25,708

38,978

103,680

128,047

     Alaska

45,920

45,210

43,385

139,099

161,199

     Canada

85,728

58,219

60,759

262,043

217,464

     International

288,535

307,660

267,007

800,886

977,867

      Subtotal Contract Drilling (3)

977,773

738,260

818,406

2,614,559

2,660,220

   Oil and Gas (4)

11,280

11,022

9,800

31,682

(53,874)

   Other Operating Segments (5) (6)

130,392

89,774

107,749

333,654

350,173

   Other reconciling items (7)

(38,342)

(32,753)

(31,081)

(94,930)

(155,707)

     Total

$      1,081,103

$      806,303

$     904,874

$  2,884,965

$   2,800,812

Adjusted income (loss) derived from operating activities:

   Contract Drilling: (1)

     U.S. Lower 48 Land Drilling

$           70,452

$        46,382

$       58,169

$     188,907

$      245,699

     U.S. Land Well-servicing

9,049

342

3,231

19,465

20,192

     U.S. Pressure Pumping (2)

11,987

-

-

11,987

-

     U.S. Offshore

(1,090)

(163)

8,104

14,387

23,391

     Alaska

14,299

11,145

12,388

40,644

48,344

     Canada

1,013

(10,448)

(9,497)

6,398

(7,651)

     International

64,379

86,865

64,972

182,930

291,143

      Subtotal Contract Drilling (3)

170,089

134,123

137,367

464,718

621,118

   Oil and Gas (4)

1,037

4,322

1,998

5,654

(76,105)

   Other Operating Segments (5) (6)

17,969

3,978

8,317

33,176

28,253

   Other reconciling items (8)

(24,676)

(25,232)

(20,914)

(70,559)

(177,409)

     Total

164,419

117,191

126,768

432,989

395,857

Interest expense

(66,973)

(66,671)

(65,293)

(199,035)

(199,776)

Investment income (loss)

(733)

(1,806)

2,314

(976)

25,548

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

(9,407)

(10,516)

(11,024)

(40,798)

(625)

Impairments and other charges (9)

(123,099)

-

-

(123,099)

(227,083)

Income (loss) before income taxes from continuing operations

$         (35,793)

$        38,198

$       52,765

$       69,081

$        (6,079)

Rig activity:

Rig years: (10)

  U.S. Lower 48 Land Drilling

182.2

123.6

172.3

171.2

152.8

  U.S. Offshore

8.2

7.8

11.0

10.4

11.7

  Alaska

6.7

9.0

8.0

7.9

10.7

  Canada

27.5

12.3

17.7

26.6

19.2

  International (11)

103.0

97.1

97.6

96.3

105.0

     Total rig years

327.6

249.8

306.6

312.4

299.4

Rig hours: (12)

  U.S. Land Well-servicing

168,949

135,040

157,199

474,495

457,404

  Canada Well-servicing

44,606

31,686

32,211

122,849

105,806

     Total rig hours

213,555

166,726

189,410

597,344

563,210

(1) These segments include our drilling, well-servicing, fluid logistics and workover operations, on land and offshore. (2) Includes operating results related to our acquisition of Superior for the period September 10, 2010 through September 30, 2010. (3) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $.6 million, $4.9 million and $2.9 million for the three months ended September 30, 2010 and 2009 and June 30, 2010, respectively, and $3.7 million and $6.8 million for the nine months ended September 30, 2010 and 2009, respectively. (4) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $6.8 million, $7.7 million and $3.2 million for the three months ended September 30, 2010 and 2009 and June 30, 2010, respectively, and $14.5 million and $(73.2) million for the nine months ended September 30, 2010 and 2009, respectively. (5) Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction and logistics operations. (6) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $4.4 million, $4.5 million and $2.7 million, for the three months ended September 30, 2010 and 2009 and June 30, 2010, respectively, and $10.1 million and $13.3 million for the nine months ended September 30, 2010 and 2009, respectively. (7) Represents the elimination of inter-segment transactions. (8) Represents the elimination of inter-segment transactions and unallocated corporate expenses. (9) Represents impairments and other charges recorded for the three and nine months ended September 30, 2010 and the nine months ended September 30, 2009.   (10) Excludes well-servicing rigs, which are measured in rig hours.  Includes our equivalent percentage ownership of rigs owned by unconsolidated affiliates.  Rig years represent a measure of the number of equivalent rigs operating during a given period.  For example, one rig operating 182.5 days during a 365-day period represents 0.5 rig years. (11) International rig years included our equivalent percentage ownership of rigs owned by unconsolidated affiliates which totaled 2.0 years, 2.5 years and 2.4 years during the three months ended September 30, 2010 and 2009 and June 30, 2010, respectively, and 2.3 years and 2.6 years during the nine months ended September 30, 2010 and 2009, respectively. (12) Rig hours represents the number of hours that our well-servicing rig fleet operated during the period.  

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

COMPUTATION OF EARNINGS (LOSSES) PER SHARE

(Unaudited)

A reconciliation of the numerators and denominators of the basic and diluted earnings (losses) per share computations is as follows:

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(In thousands, except per share amounts)

2010

2009

2010

2010

2009

Net income (loss) attributable to Nabors (numerator):

Income (loss) from continuing operations, net of tax

$     (31,563)

$      53,675

$      43,971

$     55,927

$     (6,807)

  Less: net (income) loss attributable to noncontrolling interest

(453)

(895)

559

1,208

376

Adjusted income (loss) from continuing operations, net of tax - basic

$     (32,016)

$      52,780

$      44,530

$     57,135

$     (6,431)

  Add interest expense on assumed conversion of our 0.94% senior exchangeable notes due 2011, net of tax (1)

-

-

-

-

-

Adjusted income (loss) from continuing operations, net of tax - diluted

$     (32,016)

$      52,780

$      44,530

$     57,135

$     (6,431)

Income (loss) from discontinued operations, net of tax

(7,591)

(23,250)

(909)

(12,921)

(31,855)

Total adjusted net income (loss)

$     (39,607)

$      29,530

$      43,621

$     44,214

$   (38,286)

  Earnings (losses) per share:

    Basic from continuing operations

$           (.11)

$            .18

$            .15

$           .21

$         (.03)

    Basic from discontinued operations

(.03)

(.08)

-

(.05)

(.11)

Total Basic

$           (.14)

$            .10

$            .15

$           .16

$         (.14)

    Diluted from continuing operations

$           (.11)

$            .18

$            .15

$           .19

$         (.03)

    Diluted from discontinued operations

(.03)

(.08)

-

(.04)

(.11)

Total Diluted

$           (.14)

$            .10

$            .15

$           .15

$         (.14)

Shares (denominator):

  Weighted-average number of shares outstanding-basic (2)

285,282

283,197

285,181

285,045

283,150

  Net effect of dilutive stock options, warrants and restricted stock awards based on the if-converted method

-

4,210

4,615

4,802

-

  Assumed conversion of our 0.94% senior exchangeable notes due 2011 (1)

-

-

-

  Weighted-average number of shares outstanding - diluted

285,282

287,407

289,796

289,847

283,150

(1) Diluted earnings (losses) per share for the three and nine months ended September 30, 2010 and 2009 and the three months ended June 30, 2010 excluded any incremental shares issuable upon exchange of the 0.94% senior exchangeable notes due 2011.  Between 2008 and September 30, 2010, we purchased approximately $1.3 billion par value of these notes in the open market, leaving approximately $1.4 billion par value outstanding.  The number of shares that we would be required to issue upon exchange consists of only the incremental shares that would be issued above the principal amount of the notes, as we are required to pay cash up to the principal amount of the notes exchanged. We would issue an incremental number of shares only upon exchange of these notes.  These shares are included in the calculation of the weighted-average number of shares outstanding in our diluted earnings per share calculation only when our stock price exceeds $45.83 as of the last trading day of the quarter and the average price of our shares for the ten consecutive trading days beginning on the third business day after the last trading day of the quarter exceeds $45.83, which did not occur during the three and nine months ended September 30, 2010 and 2009 or the three months ended June 30, 2010.   (2) On July 31, 2009, the exchangeable shares of Nabors (Canada) Exchangeco Inc. (“Nabors Exchangeco”) were exchanged for Nabors common shares on a one-for-one basis.  Basic shares outstanding included (1) the weighted-average number of common shares and restricted stock of Nabors and (2) the weighted-average number of exchangeable shares of Nabors Exchangeco: 285.3 million shares cumulatively for the three months ended September 30, 2010; 285.0 million shares, cumulatively, for the three months ended September 30, 2009; 285.2 million shares cumulatively for the three months ended June 30, 2010; 285.0  million shares cumulatively for the nine months ended September 30, 2010; and 283.1 million and .1 million shares, respectively, for the nine months ended September 30, 2009.  

For all periods presented, the computation of diluted earnings (losses) per share excluded outstanding stock options and warrants with exercise prices greater than the average market price of Nabors’ common shares, because their inclusion would have been anti-dilutive and because they were not considered participating securities. The average number of options and warrants that were excluded from diluted earnings (losses) per share that would have potentially diluted earnings (losses) per share in the future were 32,543,395 and 16,595,790 shares during the three months ended September 30, 2010 and 2009, respectively; and 14,894,841 shares during the three months ended June 30, 2010; and  14,108,644 and 34,085,988 shares during the nine months ended September 30, 2010 and 2009, respectively. In any period during which the average market price of Nabors’ common shares exceeds the exercise prices of these stock options and warrants, such stock options and warrants are 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 it is considered a participating security.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) EXCLUDING CERTAIN NON-CASH CHARGES (NON-GAAP)

(Unaudited)

Three Months Ended

Three Months Ended

Nine Months Ended

September 30, 2010

June 30, 2010

September 30, 2010

(In thousands, except per share amounts)

Actuals (GAAP)

Charges

As adjusted to Exclude Charges (Non-GAAP)(1)

Actuals (GAAP)

Charges

As adjusted to Exclude Charges (Non-

GAAP)(1)

Actuals (GAAP)

Charges

As adjusted to Exclude Charges (Non-GAAP)(1)

Revenues and other income:

  Operating revenues

$ 1,069,261

$              -

$       1,069,261

$    896,029

$          -

$        896,029

$ 2,856,636

$              -

$        2,856,636

  Earnings (losses) from unconsolidated affiliates

11,842

-

11,842

8,845

-

8,845

28,329

-

28,329

  Investment income

(733)

3,656

2,923

2,314

-

2,314

(976)

3,656

2,680

     Total revenues and other income

1,080,370

3,656

1,084,026

907,188

-

907,188

2,883,989

3,656

2,887,645

Costs and other deductions:

  Direct costs

625,561

-

625,561

517,531

-

517,531

1,648,289

-

1,648,289

  General and administrative expenses

87,194

-

87,194

80,337

-

80,337

242,957

-

242,957

  Depreciation and amortization

198,151

-

198,151

175,397

-

175,397

545,084

-

545,084

  Depletion

5,778

-

5,778

4,841

-

4,841

15,646

-

15,646

  Interest expense

66,973

-

66,973

65,293

-

65,293

199,035

-

199,035

  Losses (gains) on sales and retirements of

    long-lived assets and other expense (income), net

9,407

(7,000)

2,407

11,024

-

11,024

40,798

(7,000)

33,798

  Impairments and other charges

123,099

(123,099)

-

-

-

-

123,099

(123,099)

-

     Total costs and other deductions

1,116,163

(130,099)

986,064

854,423

-

854,423

2,814,908

(130,099)

2,684,809

Income (loss) from continuing operations before income taxes

(35,793)

133,755

97,962

52,765

-

52,765

69,081

133,755

202,836

Income tax expense (benefit)

(4,230)

17,475

13,245

8,794

-

8,794

13,154

17,475

30,629

Income (loss) from continuing operations, net of tax

(31,563)

116,280

84,717

43,971

-

43,971

55,927

116,280

172,207

Income (loss) from discontinued operations, net of tax

(7,591)

-

(7,591)

(909)

-

(909)

(12,921)

-

(12,921)

Net income (loss)

(39,154)

116,280

77,126

43,062

-

43,062

43,006

116,280

159,286

    Less: Net (income) loss attributable to noncontrolling interest

(453)

-

(453)

559

-

559

1,208

-

1,208

Net income (loss) attributable to Nabors

$     (39,607)

$   116,280

$            76,673

$      43,621

$         -

$          43,621

$      44,214

$   116,280

$           160,494

Earnings (losses) per share:

  Diluted from continuing operations

$           (.11)

$           .40

$                  .29

$            .15

$        -

$                .15

$            .19

$           .40

$                   .59

  Diluted from discontinued operations

(.03)

-

(.02)

-

-

-

(.04)

-

(.04)

Earnings (losses) per share - diluted

$           (.14)

$           .40

$                  .27

$            .15

$        -

$                .15

$            .15

$           .40

$                   .55

Weighted-average number of common shares outstanding - diluted

285,282

289,008

289,796

289,796

289,847

289,847

Adjusted income (loss) derived from operating activities (2)

$    164,419

$              -

$          164,419

$    126,768

$          -

$        126,768

$    432,989

$              -

$           432,989

(1) As-adjusted amounts include Non-GAAP financial measures.  These measures are presented to provide management and investors an opportunity to make meaningful assessments and comparisons of results from operations, exclusive of certain charges detailed below.  The presentation of Non-GAAP information is not intended to suggest that such information is superior to the presentation of GAAP information, but only to clarify some information and assist the reader. (2) Adjusted income (loss) derived from operating activities is computed by: subtracting direct costs, general and administrative expenses, depreciation and amortization, and depletion expense from Operating revenues and then adding Earnings (losses) from unconsolidated affiliates.  Such amounts should not be used as a substitute to those amounts reported under GAAP.  However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income derived from operating activities, because it believes that this financial measure is an accurate reflection of the ongoing profitability of our Company.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) EXCLUDING CERTAIN NON-CASH CHARGES (NON-GAAP)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 2009

September 30, 2009

(In thousands, except per share amounts)

Actuals (GAAP)

Charges

As adjusted to Exclude Charges (Non-GAAP)(1)

Actuals (GAAP)

Charges

As adjusted to Exclude Charges (Non-GAAP)(1)

Revenues and other income:

  Operating revenues

$    789,200

$             -

$      789,200

$ 2,853,944

$           -

$   2,853,944

  Earnings (losses) from unconsolidated affiliates

17,103

-

17,103

(53,132)

83,295

30,163

  Investment income (loss)

(1,806)

-

(1,806)

25,548

-

25,548

     Total revenues and other income

804,497

-

804,497

2,826,360

83,295

2,909,655

Costs and other deductions:

  Direct costs

431,280

-

431,280

1,546,076

(62,114)

1,483,962

  General and administrative expenses

81,637

-

81,637

352,212

-

352,212

  Depreciation and amortization

173,701

-

173,701

498,830

-

498,830

  Depletion

2,494

-

2,494

7,837

-

7,837

  Interest expense

66,671

-

66,671

199,776

-

199,776

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

10,516

-

10,516

625

-

625

  Impairments and other charges

-

-

-

227,083

(227,083)

-

     Total costs and other deductions

766,299

-

766,299

2,832,439

(289,197)

2,543,242

Income (loss) from continuing operations before income taxes

38,198

-

38,198

(6,079)

372,492

366,413

Income tax expense (benefit)

(15,477)

(12,997)

(28,474)

728

16,351

17,079

Income (loss) from continuing operations, net of tax

53,675

12,997

66,672

(6,807)

356,141

349,334

Income (loss)  from discontinued operations, net of tax

(23,250)

-

(23,250)

(31,855)

-

(31,855)

Net income (loss)

30,425

12,997

43,422

(38,662)

356,141

317,479

    Less: Net (income) loss attributable to noncontrolling interest

(895)

-

(895)

376

-

376

Net income (loss) attributable to Nabors

$      29,530

$   12,997

$        42,527

$     (38,286)

$  356,141

$      317,855

Earnings (losses) per share:

  Diluted from continuing operations

$            .18

$         .05

$              .23

$           (.03)

$        1.26

$            1.23

  Diluted from discontinued operations

(.08)

-

(.08)

(.11)

-

(.11)

Earnings (losses) per share - diluted

$            .10

$         .05

$              .15

$           (.14)

$        1.26

$            1.12

Weighted-average number of common shares outstanding - diluted

287,407

287,407

283,150

283,150

Adjusted income (loss) derived from operating activities (2)

$    117,191

$             -

$      117,191

$    395,857

$  145,409

$      541,266

(1) As-adjusted amounts include Non-GAAP financial measures.  These measures are presented to provide management and investors an opportunity to make meaningful assessments and comparisons of results from operations, exclusive of certain charges detailed below.  The presentation of Non-GAAP information is not intended to suggest that such information is superior to the presentation of GAAP information, but only to clarify some information and assist the reader. (2) Adjusted income (loss) derived from operating activities is computed by: subtracting direct costs, general and administrative expenses, depreciation and amortization, and depletion expense from Operating revenues and then adding Earnings (losses) from unconsolidated affiliates.  Such amounts should not be used as a substitute to those amounts reported under GAAP.  However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income derived from operating activities, because it believes that this financial measure is an accurate reflection of the ongoing profitability of our Company.

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

SUMMARY OF NON-CASH CHARGES (NON-GAAP)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

(In thousands)

2010

2009

2010

2010

2009

Equity method oil and gas joint venture impairments

$                -

$             -

$              -

$                -

$   (83,295)

Goodwill impairment

(10,707)

-

-

(10,707)

(14,689)

Rig asset retirements and impairments

(58,045)

-

-

(58,045)

(64,229)

Stock compensation charge

-

-

-

-

(62,114)

Impairments of oil and gas financing receivable

(54,347)

-

-

(54,347)

(112,516)

Other-than-temporary impairments on securities

-

-

-

-

(35,649)

Acquisition related expenses

(7,000)

-

-

(7,000)

-

Other non-operational items

(3,656)

-

-

(3,656)

-

Total charges before income taxes

(133,755)

-

-

(133,755)

(372,492)

Tax benefit (expense)

17,475

(12,997)

(1)

-

17,475

16,351

Total charges after income taxes

$   (116,280)

$  (12,997)

$              -

$   (116,280)

$ (356,141)

(1) This represents the difference between the tax (expense) benefit recorded during the period in accordance with the interim period tax allocation rules and the amount of tax (expense) benefit that would have resulted from the application of the interim period tax allocation rules if the non-cash charges were excluded.

SOURCE Nabors Industries Ltd.