UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                         to

 

Commission File Number 001‑32657

NABORS INDUSTRIES LTD.

(Exact name of registrant as specified in its charter)

Bermuda (State or Other Jurisdiction of Incorporation or Organization)   Crown House Second Floor 4 Par‑la‑Ville Road Hamilton, HM08 Bermuda (Address of principal executive offices)	980363970 (I.R.S. Employer Identification No.)       N/A (Zip Code)

 

(441) 292‑1510

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class		Name of each exchange on which registered
Common shares, $.001 par value per share		New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None.

 

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES ☒  NO ☐

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES ☐  NO ☒

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports).  YES ☒  NO ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer or a smaller reporting company. See definition 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 ☐ (Do not check if a smaller reporting company)		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 aggregate market value of the 189,149,782 common shares held by non‑affiliates of the registrant outstanding as of the last business day of our most recently completed second fiscal quarter, June 30, 2017, based on the closing price of our common shares as of such date of $8.14 per share as reported on the New York Stock Exchange, was $1,539,679,225. Common shares held by each officer and director and by each person who owns 5% or more of the outstanding common shares have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

 

The number of common shares outstanding as of February 22, 2018 was 315,538,146, excluding 52,800,203 common shares held by our subsidiaries, or 368,338,349 in the aggregate.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Specified portions of the definitive Proxy

Statement to be distributed in connection with our 2018 Annual General Meeting of Shareholders (Part III).

 

 

---

 

NABORS INDUSTRIES LTD.

Form 10-K Annual Report

For the Year Ended December 31, 2017

 

Table of Contents

 

 

 

---

 

Our internet address is www.nabors.com . We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). Reference in this document to our website address does not constitute incorporation by reference of the information contained on the website into this annual report on Form 10-K. The public may read and copy any material that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site ( www.sec.gov ) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. In addition, documents relating to our corporate governance (such as committee charters, governance guidelines and other internal policies) can be found on our website.

 

FORWARD-LOOKING STATEMENTS

 

We 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 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.

 

Factors to consider when evaluating these forward-looking statements include, but are not limited to:

 

 

 

 

 

 

 

 

 

 

 

 

 

---

 

 

 

 

Our businesses depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Therefore, a sustained increase or decrease in the price of oil or natural gas, that has a material impact on exploration, development and production activities, could also materially affect our financial position, results of operations and cash flows .

 

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, please refer to Part I, Item 1A.— Risk Factors.

 

Nabors Industries, Ltd. (NYSE: NBR) was formed as a Bermuda exempted company on December 11, 2001. Unless the context requires otherwise, references in this annual report to “we,” “us,” “our,” “the Company,” or “Nabors” mean Nabors Industries Ltd., together with our subsidiaries where the context requires. References in this annual report to “Nabors Delaware” mean Nabors Industries, Inc., a wholly owned subsidiary of Nabors.

 

PART I

 

ITEM 1.  BUSINESS

 

Overview

 

Since its founding in 1952, Nabors has grown from a small land drilling business in Canada to one of the world’s largest drilling contractors. Today, Nabors owns and operates one of the world’s largest land-based drilling rig fleets and is a provider of offshore rigs in the United States and numerous international markets. Nabors also provides directional drilling services, performance tools, and innovative technologies for its own rig fleet and those of third parties. In today’s performance-driven environment, we believe we are well positioned to seamlessly integrate downhole hardware, surface equipment and software solutions into our AC rig designs. Leveraging our advanced drilling automation capabilities, Nabors’ highly skilled workforce continues to set new standards for operational excellence and transform our industry.

 

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 measurement while drilling (“MWD”) systems and services.

 

On December 1, 2017, Nabors announced the commencement of operations of Saudi Aramco Nabors Drilling Company (“SANAD”), a 50/50 joint venture between Saudi Arabian Oil Company (“Saudi Aramco”) and Nabors. SANAD owns, manages and operates onshore drilling rigs in the Kingdom of Saudi Arabia.

 

On December 15, 2017, Nabors completed the acquisition of Tesco Corporation (“Tesco”). Tesco’s tubular services business will benefit our new Drilling Solutions segment (see below) as we expand globally into key regions. The acquisition had the additional benefit of combining Tesco’s rig equipment manufacturing, rental and aftermarket service business with our Rig Technologies segment, creating a leading rig equipment and drilling automation provider. Under the terms of the acquisition, Nabors acquired all common shares of Tesco in an all-stock transaction, with Tesco shareholders receiving 0.68 common shares of Nabors for each Tesco share owned, or approximately 32.1 million Nabors common shares.

 

During the fourth quarter of 2017, we effected a change in the reporting of our segments to better reflect our product offerings and the growing significance of our Nabors’ Drilling Solutions business.  The expansion of our tubular

---

 

services offering attributable to the acquisition of Tesco during the fourth quarter, along with management’s increasing focus on the strategic aspect of this business and expectation of future growth, culminated in the decision to break this operation out into its own segment called Drilling Solutions.  This operation was historically included within our Rig Services segment, which we have renamed Rig Technologies and now primarily reflects the oilfield equipment manufacturing, rental and aftermarket service business of Canrig Drilling Technology (“Canrig”). Our segment information has been revised to conform to the new reportable segments.  Our business now consists of five reportable segments:  U.S., Canada, International, Drilling Solutions and Rig Technologies.

 

As a global provider of drilling and drilling-related services for land-based and offshore oil and natural gas wells, our fleet of rigs and drilling-related equipment as of December 31, 2017 includes:

 

 

 

The following table presents our average rigs working (a measure of activity and utilization over the year) and average utilization for the years ended December 31, 2017, 2016 and 2015:

 

		Year Ended December 31,
		2017				2016				2015
		Average		Average		Average		Average		Average		Average
		Rigs Working		Utilization		Rigs Working		Utilization		Rigs Working		Utilization
U.S.		100.8		42%		62.0		24%		120.0		41%
Canada		15.4		30%		9.7		14%		16.7		25%
International		91.1		57%		100.2		62%		124.0		79%
		207.3		46%		171.9		35%		260.7		50%

 

Average rigs working represents 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 average rigs working. International average rigs working includes our equivalent percentage ownership of rigs owned by unconsolidated affiliates.

 

Additional information regarding the geographic markets in which we operate and our business segments can be found in Note 21—Segment Information in Part II, Item 8.—Financial Statements and Supplementary Data.

 

U.S. Drilling

 

Our U.S. Drilling operations include land drilling activities in the lower 48 states and Alaska as well as offshore operations in the Gulf of Mexico. We operate one of the largest land-based drilling rig fleets in the United States, consisting of 192 AC rigs and 33 SCR rigs which were actively marketed as of December 31, 2017.

 

Nabors’ first AC land rig was built during 2002. Since then, the AC rig technology has significantly evolved as more than 900 AC rigs have been added to the U.S. land market. As the industry shifted to multi well pad drilling, operators demanded greater efficiencies and adaptability through batch drilling. We believe our latest generation of PACE® drilling rigs are ideal for batch drilling, with pad optimal features, such as our proprietary side saddle design, and advanced walking capabilities.

 

In 2013, we introduced our PACE®-X800 rig with an advanced walking system that enables the rig to move quickly over existing wells, along the X and Y axes. Most of the ancillary equipment moves with the rig, enabling it to move easily between adjacent rows of wells. Through December 31, 2017, we have placed a total of 47 PACE®-X800 rigs into service within the lower 48 market, including three rigs during fiscal year 2017.

 

During the second half of 2016, we introduced our new PACE®-M800 and PACE®-M1000 rigs which complement our existing PACE®-X800 rigs. The PACE®-M800 rig is designed for lower-density multi-well pads whereas the PACE®-M1000 is designed for higher density pads. Both are designed to move rapidly between pads. Featuring the same advanced walking capabilities as the PACE®-X800 rig, the PACE®-M800 rig can quickly move

---

 

efficiently on pads and over short distances, with minimal rig-up and rig-down components. Through December 31, 2017, we have placed eight PACE®-M800 rigs into service, including four rigs during fiscal year 2017.

 

In addition to land drilling operations throughout the lower 48 states and Alaska, we also actively marketed 14 platform rigs in the U.S. Gulf of Mexico as of December 31, 2017.

 

Our U.S. drilling operations contributed approximately 31% of our consolidated operating revenues for the year ended December 31, 2017, compared with approximately 25% of our consolidated operating revenues for the year ended December 31, 2016.

 

Canada Drilling

 

Our rig fleet consisted of 42 land-based drilling rigs in Canada as of December 31, 2017. Our Canada drilling operations contributed approximately 3% of our consolidated operating revenues for the year ended December 31, 2017, compared with approximately 2% of our consolidated operating revenues for the year ended December 31, 2016.

 

International Drilling

 

We maintain a footprint in nearly every major oil and gas market across the globe, most notably in Saudi Arabia, Algeria, Argentina, Colombia, Kazakhstan and Venezuela. Many of our rigs in our international drilling markets were designed to address the challenges inherent in specific drilling locations such as those required in the desert and remote or environmentally sensitive locations, as well as the various shale plays. As of December 31, 2017, our international fleet consisted of 139 land-based drilling rigs in approximately 20 countries. We also actively marketed 17 platforms and seven jackup rigs in the international offshore drilling markets as of the same date. We continue to upgrade and deploy high-specification desert rigs specifically for gas drilling in the Middle East. We have been able to extend the utilization of the PACE®-X800 rigs in international markets by deploying six such rigs in Latin America.

 

During 2016, we entered into an agreement with Saudi Aramco, to form a new joint venture to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. The joint venture, which is equally owned by Saudi Aramco and Nabors, commenced operations in the fourth quarter of 2017. The joint venture leverages our established business in Saudi Arabia to begin operations, with a focus on Saudi Arabia's existing and future onshore oil and gas fields.  

 

Our International drilling operations contributed approximately 58% of our consolidated operating revenues for the year ended December 31, 2017, compared with approximately 68% of our consolidated operating revenues for the year ended December 31, 2016.

 

Drilling Solutions

 

Through Nabors Drilling Solutions, we offer specialized drilling technologies, such as patented steering systems and rig instrumentation software systems that enhance drilling performance and wellbore placement. These products include:

 

 

 

 

 

---

 

Nabors specializes in wellbore placement solutions and is a leading provider of directional drilling and MWD systems and services. Our MWD product line is a proprietary family of advanced systems, representing the latest technology developed specifically for the unique requirements of land-based drilling applications. Our tools are ideal for applications where high reliability, precise wellbore placement and drilling efficiency are crucial. Nabors’ patented directional drilling tools enable a higher level of precision and cost effectiveness. These products include:

 

 

 

 

In addition, the acquisition of Tesco in December 2017 compliments our investment in Nabors Drilling Solutions and augments our drilling technology offering through enhanced tubular services.

 

Our Drilling Solutions operations contributed approximately 6% of our consolidated operating revenues for the year ended December 31, 2017, compared with approximately 3% of our consolidated operating revenues for the year ended December 31, 2016.

 

Rig Technologies

 

Our Rig Technologies segment is primarily comprised of Canrig, which manufactures and sells top drives, catwalks, wrenches, drawworks and other drilling related equipment such as robotic systems and downhole tools which are installed on both onshore and offshore drilling rigs. 

 

Our Rig Technologies operations contributed approximately 2% of our consolidated operating revenues, net of intercompany sales, for the year ended December 31, 2017, compared with approximately 2% of our consolidated operating revenues for the year ended December 31, 2016.

 

Our Business Strategy

 

Our business strategy is to build shareholder value and enhance our competitive position by:

 

 

 

 

 

 

During 2017 we achieved several milestones in our drive to automate and integrate the well construction process. As the industry continues its recovery from the severe downturn that began in 2014, we believe the investments we have made in our rigs and related technology and equipment are all paying off. We are focused on drilling the most productive, efficient and safe wells to our clients’ specifications, engineered for highly complex and demanding geology.

 

Our global fleet of 444 rigs is the fundamental platform for our business. We entered 2018 having nearly completed our goal of 100 Nabors SmartRig™ units for the U.S. Lower 48. Our new PACE®-M1000 rig was introduced in the second half of 2017, building on the PACE®-M800’s capabilities to deliver optimal well construction for ultra-long laterals with minimal time spent mobilizing between well pads. Additionally, our enhanced PACE®-X Quad design began operations for two different major customers in 2017. This innovative mast structure handles four stands of drill

---

 

pipe instead of three, decreasing the number of connections and saving time for the customer. Finally, the retrofitting of much of our non-PACE®-X, 1500 HP AC fleet to bolster capabilities for faster drilling, improved mobility and extended reach has boosted the number of super spec rigs in our fleet at a fraction of the cost of newbuilds.

 

During 2017, we also made significant progress in expanding our drilling technology portfolio. We believe these actions position us well to address the changing market dynamic both in the United States and internationally. Our technological development efforts drive toward a seamless integration of the rig’s operations with downhole sensing. In addition, we are adding complementary services to our traditional rig offering and in many cases replacing third-party providers of these complementary services as a single service provider. We successfully built scale across wellbore placement, performance drilling tools, managed pressure drilling services, and other services in the Lower 48, and are now bringing these services to certain international markets. These efforts support our strategy to differentiate our drilling services, and ultimately reduce our customers’ unit costs through advanced drilling technology and value added enhancements.

 

The acquisition of Tesco augmented both our drilling technology offering through enhanced tubular services, as well as our rig equipment portfolio. We believe the addition of the many skilled operating and manufacturing personnel to our team combined with our global rig platform will bolster our capabilities in 2018. We also took a major step forward toward our vision of a fully automated rig with the acquisition of Robotic Drilling Systems in September 2017. This exciting modular technology is applicable both in onshore and offshore markets, and provides additional opportunities to further develop Canrig’s global scale and customer base.

 

As oil prices improved in the second half of 2017, a healthier exploration and production industry has expanded its activity. We are well positioned to offer greater value than ever before. With our significantly enhanced global fleet, growing penetration of Nabors Drilling Solutions products and services, and development of next-generation rig equipment, we have positioned Nabors not just for the rig of the future, but for the future of well construction. 

 

Drilling Contracts

 

Our drilling contracts are typically daywork contracts. A daywork contract generally provides for a basic rate per day when drilling (the dayrate for providing a rig and crew) and for lower rates when the rig is moving between drilling locations, or when drilling operations are interrupted or restricted by equipment breakdowns, adverse weather conditions or other conditions beyond our control. In addition, daywork contracts may provide for a lump-sum fee for the mobilization and demobilization of the rig, which in most cases approximates our anticipated costs. A daywork contract differs from a footage contract (in which the drilling contractor is paid on the basis of a rate per foot drilled) and a turnkey contract (in which the drilling contractor is paid for drilling a well to a specified depth for a fixed price).

 

Our contracts for land-based and offshore drilling have durations that are single-well, multi-well or term. Term contracts generally have durations ranging from six months to five years. Under term contracts, our rigs are committed to one customer. Offshore workover projects are often contracted on a single-well basis. We generally receive drilling contracts through competitive bidding, although we occasionally enter into contracts by direct negotiation. Most of our single-well contracts are subject to termination by the customer on short notice, while multi-well contracts and term contracts may provide us with early termination compensation in certain circumstances. Such payments may not fully compensate us for the loss of a contract, and in certain circumstances the customer may not be obligated, able or willing to make an early termination payment to us. Contract terms and rates differ depending on a variety of factors, including competitive conditions, the geographical area, the geological formation to be drilled, the equipment and services to be supplied, the on-site drilling conditions and the anticipated duration of the work to be performed.

 

Our Customers

 

Our customers include major national and independent oil and gas companies. One customer, Saudi Aramco, accounted for approximately 29%, 33% and 12% of our consolidated operating revenues during the years ended December 31, 2017, 2016 and 2015, respectively, which operating revenues are included in the results of our International drilling reportable segment. The increase in 2016 compared to 2015 was primarily as a result of our acquisition of the remaining interest in Nabors Arabia Company Limited (“Nabors Arabia”), our prior joint venture in Saudi Arabia, in May 2015 and our consolidation of Nabors Arabia’s results of operations. Nabors Arabia was historically a joint venture in the Kingdom, but now is wholly-owned by Nabors. Our contracts with Saudi Aramco are on a per rig basis. As noted above, we have entered into a new joint venture with this customer.

---

 

 

Our Employees

 

As of December 31, 2017, we employed approximately 15,000 people in approximately 20 countries. Our number of employees fluctuates depending on the current and expected demand for our services. Some rig-based employees in Alaska, Argentina, Mexico and Venezuela are represented by collective bargaining units. We believe our relationship with our employees is generally good.

 

Seasonality

 

Our operations are subject to seasonal factors. Specifically, our drilling operations in Canada and Alaska generally experience reduced levels of activity and financial results during the second quarter of each year, due to the annual spring thaw. In addition, our U.S. offshore market can be impacted during summer months by tropical weather systems in the Gulf of Mexico. Global climate change could lengthen these periods of reduced activity, but we cannot currently estimate to what degree. Our overall financial results reflect the seasonal variations experienced in these operations, but seasonality does not materially impact the remaining portions of our business.

 

Research and Engineering

 

Research and engineering continues to be an important part of our overall business. During 2017, we spent approximately $51.1 million on research and engineering activities compared to $33.6 million during 2016. The effective use of technology is critical to maintaining our competitive position within the drilling industry. We expect to continue developing technology internally and/or acquiring technology through strategic acquisitions.

 

Industry/Competitive Conditions

 

To a large degree, our businesses depend on the level of capital spending by oil and gas companies for exploration, development and production activities. The level of exploration, development and production activities is to a large extent tied to the prices of oil and natural gas, which can fluctuate significantly and are highly volatile. For example, oil prices were as high as $107 per barrel during 2014 and were as low as $26 per barrel in 2016.  Oil prices began to stabilize during 2017 to moderate levels at an average of approximately $54 per barrel, still well below the peak we experienced three years ago and the average price over the last decade. As experienced in 2015 and 2016, a decrease or prolonged decline in the price of oil or natural gas or in the exploration, development and production activities of our customers could result in a corresponding decline in the demand for our services and/or a reduction in dayrates and utilization, which could have a material adverse effect on our financial position, results of operations and cash flows. See Part I, Item 1A.—Risk Factors— Fluctuations in oil and natural gas prices could adversely affect drilling activity and our revenues, cash flows and profitability and Item 7.— Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The markets in which we provide our services are highly competitive. We believe that competitive pricing is a significant factor in determining which service provider is awarded a job in these markets and customers are increasingly sensitive to pricing during periods of market instability. Historically, the number of available rigs and drilling-related equipment has exceeded demand in many of the markets in which we operate, resulting in strong price competition. This is due in part to the fact that most rigs and drilling-related equipment can be readily moved from one region to another in response to changes in the levels of exploration, development and production activities and market conditions, which may result in an oversupply of rigs and drilling-related equipment in certain areas.

 

Although many rigs can be readily moved from one region to another in response to changes in levels of activity and many of the total available contracts are currently awarded on a bid basis, competition has increased based on the supply of existing and new rigs across all of our markets. Most available contracts for our services are currently awarded on a bid basis, which further increases competition based on price.

 

In addition to price, other competitive factors in the markets we serve are the overall quality of service and safety record, the technical specification and condition of equipment, the availability of skilled personnel and the ability to offer ancillary services. Our drilling business is subject to certain additional competitive factors. For example, we believe our ability to deliver rigs with new technology and features and, in certain international markets, our experience operating in certain environments and strong customer relationships have been significant factors in the selection of

---

 

Nabors for the provision of drilling services. We expect that the market for our drilling services will continue to be highly competitive. See Part I, Item 1A.—Risk Factors— We operate in a highly competitive industry with excess drilling capacity, which may adversely affect our results of operations .

 

Certain competitors are present in more than one of the markets in which we operate, although no one competitor operates in all such markets. We compete with (1) Helmerich & Payne, Inc., Patterson-UTI Energy, Inc. and several other competitors with national, regional or local rig operations in the United States, (2) Saipem S.p.A, KCA Deutag, and Weatherford International Ltd. and various contractors in our international markets and (3) Precision Drilling, Ensign Energy Services, and others in Canada.

 

Acquisitions and Divestitures

 

We have grown from a land drilling business centered in the U.S. lower 48 states, Canada and Alaska to an international business with operations on land and offshore in most of the major oil and gas markets in the world. At the beginning of 1990, our fleet consisted of 44 actively marketed land drilling rigs in Canada, Alaska and in various international markets. Today, our worldwide fleet of actively marketed rigs consists of 407 land drilling rigs, 31 offshore platform rigs and seven jackup units. This growth was fueled in part by strategic acquisitions. While we continuously consider and review strategic opportunities, including acquisitions, divestitures, joint ventures, alliances and other strategic transactions, there can be no assurance that such opportunities will continue to be available, that the pricing will be economical or that we will be successful in completing and realizing the expected benefits of such transactions in the future.

 

We may sell a subsidiary or group of assets outside of our core markets or business if it is strategically or economically advantageous for us to do so.

 

On March 24, 2015, we completed the merger of our Completion & Production Services business with C&J Energy Services, Inc. (“C&J Energy”). In the merger and related transactions, our wholly-owned interest in our Completion & Production Services business was exchanged for cash and an equity interest in the combined entity, C&J Energy Services Ltd. (“CJES”). Prior to the merger, our Completion & Production Services business conducted our operations involved in the completion, life-of-well maintenance and plugging and abandonment of wells in the United States and Canada. On July 20, 2016, CJES and certain of its subsidiaries commenced voluntarily cases under chapter 11 of the U.S. Bankruptcy Code, and as a result, we no longer hold a meaningful stake in CJES. For more information on the accounting for our investment in CJES, see Note 9—Investments in Unconsolidated Affiliates in Part II, Item 8.—Financial Statements and Supplementary Data.

 

In addition, we undertook the following strategic transactions over the last three years.

 

In May 2015, we paid $106.0 million in cash to acquire the remaining 49% equity interest in Nabors Arabia, our prior joint venture in Saudi Arabia, making it a wholly owned subsidiary. Previously, we held a 51% equity interest with a carrying value of $44.7 million, and we had accounted for the joint venture as an equity method investment. The acquisition of the remaining interest allows us to strategically align our future growth in this market by providing additional flexibility to invest capital and pursue future investment opportunities. As a result, we consolidated the assets and liabilities of Nabors Arabia on the acquisition date based on their respective fair values. We have also consolidated the operating results of Nabors Arabia since the acquisition date and reported those results in our International drilling segment.

 

During 2016, we entered into an agreement with Saudi Aramco, to form a new joint venture to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. The joint venture, which is equally owned by Saudi Aramco and Nabors, commenced operations in the fourth quarter of 2017. The joint venture leverages our established business in Saudi Arabia to begin operations, with a focus on Saudi Arabia's existing and future onshore oil and gas fields.

 

In September 2017 we paid an initial amount of approximately $50.7 million in cash, subject to customary closing adjustments, to acquire Robotic Drilling Systems AS (“RDS”), a provider of automated tubular and tool handling equipment for the onshore and offshore drilling markets based in Stavanger, Norway. This transaction will allow us to integrate RDS’s highly capable team and product offering with the technology portfolio of Canrig, and strengthens the development of Canrig’s drilling automation solutions.

---

 

 

In December 2017, we acquired all of the outstanding common shares of Tesco in an all-stock transaction. Tesco shareholders received 0.68 common shares of Nabors for each Tesco share owned, or approximately 32.1 million Nabors common shares. The combination of Tesco with Nabors’ current product offerings strengthens our ability to accelerate and scale deployment in drilling automation and analytics.

 

Environmental Compliance

 

We do not anticipate that compliance with currently applicable environmental rules and regulations and controls will significantly change our competitive position, capital spending or earnings during 2018. We believe we are in material compliance with applicable environmental rules and regulations and that the cost of such compliance is not material to our business or financial condition. For a more detailed description of the environmental rules and regulations applicable to our operations, see Part I, Item 1A.—Risk Factors— Changes to or noncompliance with governmental laws and regulations or exposure to environmental liabilities could adversely affect our results of operations.

 

ITEM 1A.  RISK FACTORS

 

In addition to the other information set forth elsewhere in this annual report, the following factors should be carefully considered when evaluating Nabors. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.

 

Our business, financial condition or results of operations could be materially adversely affected by any of these risks.

 

Fluctuations in oil and natural gas prices could adversely affect drilling activity and our revenues, cash flows and profitability.

 

Our operations depend on the level of spending by oil and gas companies for exploration, development and production activities. Both short-term and long-term trends in oil and natural gas prices affect these activity levels. Oil and natural gas prices, as well as the level of drilling, exploration and production activity, can be highly volatile. For example, oil prices were as high as $107 per barrel during 2014 and were as low as $26 per barrel in February 2016. During 2017, oil prices began to stabilize to moderate levels at an average of approximately $54 per barrel, still well below the peak we experienced three years ago and the average price over the last decade. The decrease in oil prices was caused by, among other things, an oversupply of crude oil and stagnant demand. Worldwide military, political and economic events, including initiatives by the Organization of Petroleum Exporting Countries, affect both the supply of and demand for oil and natural gas. In addition, weather conditions, governmental regulation (both in the United States and elsewhere), levels of consumer demand for oil and natural gas, general economic conditions, the availability and demand for drilling equipment and pipeline capacity, availability and pricing of alternative energy sources, and other factors beyond our control may also affect the supply of and demand for oil and natural gas.

 

As a result of the low oil price environment that began at the end of 2014, drilling, exploration and production activity declined in 2015 and remained low throughout 2016, resulting in a corresponding decline in the demand for our drilling services and/or a reduction in our dayrates and rig utilization. Although oil prices rebounded somewhat in 2017, they remain relatively low when compared to prices earlier in the decade and the level of drilling, exploration and production activities remains lower than prior to 2014. The continuation of relatively lower oil and natural gas prices, or a decline in such prices, could have an adverse effect on our revenues, cash flows, liquidity and profitability.

 

Lower oil and natural gas prices also could adversely impact our cash forecast models used to determine whether the carrying values of our long-lived assets exceed our future cash flows, which could result in future impairment to our long-lived assets. Additionally, these circumstances could indicate that the carrying amount of our goodwill and intangible assets may exceed their fair value, which could result in a future goodwill impairment. Lower oil and natural gas prices also could affect our ability to retain skilled rig personnel and affect our ability to access capital to finance and grow our business. There can be no assurances as to the future level of demand for our services or future conditions in the oil and natural gas and oilfield services industries.

 

---

 

Our customers and thereby our business and profitability could be adversely affected by turmoil in the global economy.

 

Changes in general economic and political conditions may negatively impact our business, financial condition, results of operations and cash flows. As a result of the volatility of oil and natural gas prices, we are unable to fully predict the level of exploration, drilling and production activities of our customers and whether our customers and/or vendors will be able to sustain their operations and fulfill their commitments and obligations. If oil prices remain at the current relatively low levels or decrease and/or global economic conditions deteriorate, there could be a material adverse impact on the liquidity and operations of our customers, vendors and other worldwide business partners, which in turn could have a material impact on our results of operations and liquidity. Furthermore, these conditions may result in certain of our customers experiencing an inability to pay vendors, including us. In addition, we may experience difficulties forecasting future capital expenditures by our customers, which in turn could lead to either over capacity or, in the event of further recovery in oil prices and the world wide economy, undercapacity, either of which could adversely affect our operations. There can be no assurance that the global economic environment will not deteriorate again in the future due to one or more factors.

 

We operate in a highly competitive industry with excess drilling capacity, which may adversely affect our results of operations.

 

The oilfield services industry is very competitive. Contract drilling companies compete primarily on a regional basis, and competition may vary significantly from region to region at any particular time. Most rigs and drilling-related equipment can be moved from one region to another in response to changes in levels of activity and market conditions, which may result in an oversupply of such rigs and drilling-related equipment in certain areas, and accordingly, increased price competition. In addition, in recent years, the ability to deliver rigs with new technology and features has become an important factor in determining job awards. Our customers increasingly demand the services of newer, higher specification drilling rigs, which requires continued technological developments and increased capital expenditures. Our ability to continually provide technologically competitive drilling-related equipment and services can impact our ability to defend, maintain or increase prices, maintain market share, and negotiate acceptable contract terms with our customers. Our competitors may be able to respond more quickly to new or emerging technologies and services and changes in customer requirements for equipment. New technologies, services or standards could render some of our services, drilling rigs or equipment obsolete, which could adversely impact our ability to compete. Another key factor in job award determinations is our ability to maintain a strong safety record. If we are unable to remain competitive based on these and/or other competitive factors, we may be unable to increase or even maintain our market share, utilization rates and/or day rates for our services, which could adversely affect our business, financial condition, results of operations and cash flows.

 

We must renew customer contracts to remain competitive.

 

Our ability to renew existing customer contracts, or obtain new contracts, and the terms of any such contracts depends on market conditions and our customers’ future drilling plans, which are subject to change. Due to the highly competitive nature of the industry, which can be exacerbated during periods of depressed market conditions, we may not be able to renew or replace expiring contracts or, if we are able to, we may not be able to secure or improve existing dayrates or other material terms, which could have an adverse effect on our business, financial condition and results of operations.

 

The nature of our operations presents inherent risks of loss that could adversely affect our results of operations.

 

Our operations are subject to many hazards inherent in the drilling and workover industries, including blowouts, cratering, explosions, fires, loss of well control, loss of or damage to the wellbore or underground reservoir, damaged or lost drilling equipment and damage or loss from inclement weather or natural disasters. Any of these hazards could result in personal injury or death, damage to or destruction of equipment and facilities, suspension of operations, environmental and natural resources damage and damage to the property of others. Global climate change could lengthen these periods of reduced activity, but we cannot currently estimate to what degree. Our offshore operations involve the additional hazards of marine operations including capsizing, grounding, collision, damage from hurricanes and heavy weather or sea conditions and unsound ocean bottom conditions. Our operations are also subject to risks of war, civil disturbances or other political events.

 

---

 

Accidents may occur, we may be unable to obtain desired contractual indemnities, and our insurance may prove inadequate in certain cases. The occurrence of an event for which we are not fully insured or indemnified against, or the failure or inability of a customer or insurer to meet its indemnification or insurance obligations, could result in substantial losses that could adversely affect our business, financial condition and liquidity. In addition, insurance may not be available to cover any or all of these risks. Even if available, insurance may be inadequate or insurance premiums or other costs may increase significantly in the future, making insurance prohibitively expensive. We expect to continue facing upward pressure in our insurance renewals, our premiums and deductibles may be higher, and some insurance coverage may either be unavailable or more expensive than it has been in the past. Moreover, our insurance coverage generally provides that we assume a portion of the risk in the form of a deductible or self-insured retention. We may choose to increase the levels of deductibles (and thus assume a greater degree of risk) from time to time in order to minimize our overall costs, which could exacerbate the impact of our losses on our financial condition and liquidity.

 

Our drilling contracts may in certain instances be renegotiated, suspended or terminated without an early termination payment.

 

Most of our multi-well and term drilling contracts require that an early termination payment be made to us if a contract is terminated by the customer prior to its expiration. However, such payments may not fully compensate us for the loss of a contract, and in certain circumstances such as, but not limited to, non-performance caused by significant operational or equipment issues (such as destruction of a drilling rig that is not replaced within a specified period of time), sustained periods of downtime due to a force majeure event, or other events beyond our control or some other breach of our contractual obligations, our customers may not be obligated to make an early termination payment to us at all. In addition, some contracts may be suspended, rather than terminated early, for an extended period of time, in some cases without adequate compensation. The early termination or suspension of a contract may result in a rig being idle for an extended period of time, which could have a material adverse effect on our business, financial condition and results of operations.

 

During periods of depressed market conditions, we may be subject to an increased risk of our customers (including government-controlled entities) seeking to renegotiate, repudiate or terminate their contracts and/or to otherwise exert commercial influence to our disadvantage. The downturn in the oil price environment resulted in downward pricing pressure and decreased demand for our drilling services with existing customers, resulting in renegotiations of pricing and other terms in our drilling contracts with certain customers and early termination of contracts by others. Our customers’ ability to perform their obligations under the contracts, including their ability to pay us or fulfill their indemnity obligations, may also be impacted by an economic or industry downturn or other adverse conditions in the oil and gas industry. If we were to sustain a loss and our customers were unable to honor their indemnification and/or payment obligations, it could adversely affect our liquidity. If our customers cancel some of our contracts, and we are unable to secure new contracts on a timely basis and/or on substantially similar terms, or if contracts are suspended for an extended period of time with or without adequate compensation or renegotiated with pricing or other terms less favorable to us, it could adversely affect our financial condition and results of operations.

 

We may record additional losses or impairment charges related to sold or idle rigs.

 

In 2017 and 2016, we recognized impairment charges of $6.9 million and $245.2 million, respectively, related to tangible assets and equipment. Prolonged periods of low utilization or low dayrates, the cold stacking of idle assets, the sale of assets below their then carrying value or the decline in market value of our assets may cause us to experience further losses. If future cash flow estimates, based upon information available to management at the time, including oil and gas prices and expected utilization levels, indicate that the carrying value of any of our rigs may not be recoverable or if we sell assets for less than their then carrying value, we may recognize additional impairment charges on our fleet.

 

The loss of one or a number of our large customers could have a material adverse effect on our business, financial condition and results of operations.

 

In 2017 and 2016, we received approximately 45% and 46%, respectively, of our consolidated operating revenues from our three largest contract drilling customers (including their affiliates), with our largest customer and partner in our SANAD joint venture, Saudi Aramco, representing 29% and 33% of our consolidated operating revenues, respectively, for these periods. The loss of one or more of our larger customers would have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, if a significant customer experiences liquidity constraints or other financial difficulties it may be unable to make required payments or seek to renegotiate

---

 

contracts, which could adversely affect our liquidity and profitability. Financial difficulties experienced by customers could also adversely affect our utilization rates in the affected market.

 

The profitability of our operations could be adversely affected by war, civil disturbance, terrorist activity or other political or economic instability, fluctuation in currency exchange rates and local import and export controls.

 

We derive a significant portion of our business from global markets, including major operations in the Middle East, Canada, South America, Algeria, the Far East, North Africa and Russia. These operations are subject to various risks, including war, civil disturbances, labor strikes, political or economic instability, terrorist activity and governmental actions that may limit or disrupt markets, restrict the movement of funds or result in limits or restrictions in our ability to operate or compete, the deprivation of contractual rights or the taking of property without fair compensation. In some countries, our operations may be subject to the additional risk of fluctuating currency values and exchange controls. We also are subject to various laws and regulations that govern the operation and taxation of our business and the import and export of our equipment from country to country, the imposition, application and interpretation of which can prove to be uncertain. To the extent that any of these risks arising from our operations in global markets are realized, it could have a material adverse effect on our business, financial condition and results of operations.

 

Our financial and operating flexibility could be affected by our long-term debt and other financial commitments.

 

As of December 31, 2017, we had approximately $4.0 billion in outstanding debt and the ability to borrow up to $1.7 billion under our revolving credit facility and commercial paper program, subject to compliance with the conditions and covenants of that facility including the facility’s requirement that our net debt to capital ratio not exceed 0.60:1. As of December 31, 2017, our net debt to capital ratio was 0.56:1. On January 16, 2018, we consummated an offering of $800 million in aggregate principal amount of Nabors Delaware’s 5.75% senior notes due 2025. 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. After giving effect to this offering, our total outstanding debt was approximately $4.0 billion. We also have various financial commitments, such as leases, firm transportation and processing, contracts and purchase commitments. Our ability to service our debt and other financial obligations depends in large part upon the level of cash flows generated by our operating subsidiaries’ operations, our ability to monetize and/or divest non-core assets, availability under our unsecured revolving credit facility and our ability to access the capital markets and/or other sources of financing. If we cannot repay or refinance our debt as it becomes due, we may be forced to sell assets or reduce funding in the future for working capital, capital expenditures and general corporate purposes.

 

Our ability to access capital markets could be limited.

 

From time to time, we may need to access capital markets to obtain long-term and short-term financing. However, our ability to access capital markets could be limited by, among other things, oil and gas prices, our existing capital structure, our credit ratings, and the health of the drilling and overall oil and gas industry and the global economy. In addition, many of the factors that affect our ability to access capital markets, such as the liquidity of the overall capital markets and the state of the economy and oil and gas industry, are outside of our control. No assurance can be given that we will be able to access capital markets on terms acceptable to us when required to do so, which could adversely affect our business, liquidity and results of operations.

 

A downgrade in our credit rating could negatively impact our cost of and ability to access capital markets or other financing sources.

 

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 U.S. credit rating agencies. Factors that may impact our credit ratings include debt levels, asset purchases or sales, as well as near-term and long-term growth opportunities and industry conditions. Liquidity, asset quality, cost structure, market diversity, and commodity pricing levels and others also are considered by the rating agencies. The major U.S. credit rating agencies have downgraded our senior unsecured debt rating to non-investment grade. These and further ratings downgrades may impact our cost of capital and ability to access capital markets or other financing sources, any of which could adversely affect our financial condition, results of operations and cash flows.

 

---

 

We may be subject to changes in tax laws and have additional tax liabilities.

 

We operate through various subsidiaries in numerous countries throughout the world. Consequently, we are subject to changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the United States or jurisdictions in which we or any of our subsidiaries operate or are organized. Furthermore, the Organization for Economic Co-Operation and Development (‘‘OECD’’) published a Base Erosion and Profit Shifting Action Plan in July 2013, seeking to reform the taxation of multinational companies. The recommendations made by the OECD may result in unilateral, uncoordinated changes in tax laws in the countries in which we operate or are organized, which may result in double taxation or otherwise increase our tax liabilities which in turn could have a material adverse effect on our financial condition and results of operations.

 

The recently enacted Tax Cuts and Jobs Act of 2017 (H.R. 1), adopted sweeping changes to the U.S. Internal Revenue Code which also could have a material adverse effect on our financial condition and results of operations. In addition to lowering the U.S. corporate income tax rate and numerous other changes, the new law imposes more stringent limitations on the deductibility of interest expense, the deductibility of net operating losses and imposes a type of minimum tax designed to reduce the benefits derived from intercompany transactions and payments that result in base erosion. Tax laws, treaties and regulations are highly complex and subject to interpretation. Our income tax expense is based upon our interpretation of the tax laws in effect in various countries at the time that the expense was incurred. If these tax laws, treaties or regulations change or any tax authority successfully challenges our assessment of the effects of such laws, treaties and regulations in any country, including our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, this could have a material adverse effect on us, resulting in a higher effective tax rate on our consolidated earnings or a reclassification of the tax impact of our significant corporate restructuring transactions.

 

Changes to or noncompliance with governmental laws and regulations or exposure to environmental liabilities could adversely affect our results of operations.

 

Drilling of oil and natural gas wells is subject to various laws and regulations in the jurisdictions where we operate, including comprehensive and frequently changing laws and regulations relating to the protection of human health and the environment, including those regulating the transport, storage, use, treatment, storage, disposal and remediation of, and exposure to, solid and hazardous wastes and materials. In addition, the Outer Continental Shelf Lands Act provides the federal government with broad discretion in regulating the leasing of offshore oil and gas production sites. Our costs to comply with these laws and regulations may be substantial. Violation of environmental laws or regulations could lead to the imposition of administrative, civil or criminal penalties, capital expenditures, delays in the permitting or performance of projects, and in some cases injunctive relief. Violations may also result in liabilities for personal injuries, property and natural resource damage and other costs and claims. We are not always successful in allocating all risks of these environmental liabilities to customers, and it is possible that customers who assume the risks will be financially unable to bear any resulting costs.

 

In addition, U.S. federal laws and the laws of other jurisdictions regulate the prevention of oil spills and the release of hazardous substances, and may impose liability for removal costs and natural resource, real or personal property and certain economic damages arising from any spills. Some of these laws may impose strict and/or joint and several liability for clean-up costs and damages without regard to the conduct of the parties. As an owner and operator of onshore and offshore rigs and other equipment, we may be deemed to be a responsible party under federal law. In addition, we are subject to various laws governing the containment and disposal of hazardous substances, oilfield waste and other waste materials and the use of underground storage tanks.

 

The expansion of the scope of laws or regulations protecting the environment has accelerated in recent years, particularly outside the United States, and we expect this trend to continue. For example, the U.S. Environmental Protection Agency (‘‘EPA’’) has promulgated final rules requiring the reporting of greenhouse gas emissions applicable to certain offshore oil and natural gas production and onshore oil and natural gas production, processing, transmission, storage and distribution facilities. In June 2016, the EPA published final standards to reduce methane emissions for certain new, modified, or reconstructed facilities in the oil and gas industry but, in June 2017, the EPA published a proposed rule that would stay certain portions of the June 2016 standards for two years and reconsider the entirety of the June 2016 standards. On August 10, 2017, the D.C. Circuit rejected a request by the American Petroleum Institute, an intervenor in the case, to reconsider the court’s July 3, 2017 decision to vacate the 90-day stay.

 

---

 

Changes in environmental laws and regulations may also negatively impact the operations of oil and natural gas exploration and production companies, which in turn could have an adverse effect on us. For example, drilling, fluids, produced water and most of the other wastes associated with the exploration, development and production of oil or gas, if properly handled, are currently exempt from regulation as hazardous waste under the Resource Conservation and Recovery Act (‘‘RCRA’’) and instead, are regulated under RCRA’s less stringent non-hazardous waste provisions. However, following the filing of a lawsuit in the U.S. District Court for the District of Columbia in May 2016 by several non-governmental environmental groups against the EPA for the agency’s failure to timely assess its RCRA Subtitle D criteria regulations for oil and gas wastes, The EPA and the environmental groups entered into an agreement that was finalized in a Consent Decree issued by the District Court on December 28, 2016. Under the Consent Decree, the EPA is required to propose no later than March 15, 2019, a rulemaking for revision of certain Subtitle D criteria regulations pertaining to oil and gas wastes or sign a determination that revision of the regulations is not necessary. If the EPA proposes a rulemaking for revised oil and gas waste regulations, the Consent Decree requires that the EPA take final action following notice and comment rulemaking no later than July 15, 2021. Any reclassification of such wastes as RCRA hazardous wastes could result in more stringent and costly handling, disposal and clean-up requirements.

 

Legislators and regulators in the United States and other jurisdictions where we operate also focus increasingly on restricting the emission of carbon dioxide, methane and other greenhouse gases that may contribute to warming of the Earth’s atmosphere, and other climate changes. The U.S. Congress has considered, but not adopted, legislation designed to reduce emission of greenhouse gases, and some states in which we operate have passed legislation or adopted initiatives, such as the Regional Greenhouse Gas Initiative in the northeastern United States, which establishes greenhouse gas inventories and/or cap-and-trade programs. Some international initiatives have been or may be adopted, which could result in increased costs of operations in covered jurisdictions. In December 2015, the United States joined the international community in the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France that prepared an agreement requiring member countries to review and ‘‘represent a progression’’ in their intended nationally determined contributions, which set greenhouse gas emission reduction goals every five years beginning in 2020. Although this international agreement, referred to as the “Paris Agreement’, does not create any binding obligations for nations to limit their greenhouse gas emissions, it does include pledges to voluntarily limit or make future emissions. The Paris Agreement was signed by the United States in 2016 but, in August 2017, the U.S. State Department officially informed the United Nations of the intent of the United States to withdraw from the Paris Agreement. In addition, the EPA has published findings that emissions of greenhouse gases present an endangerment to public health and the environment, which may lead to further regulations of greenhouse gas emissions under existing provisions of the Clean Air Act. The EPA has already issued rules requiring monitoring and reporting of greenhouse gas emissions from the oil and natural gas sector, including onshore and offshore production activities. Furthermore, in November 2016, the Bureau of Land Management (‘‘BLM’’) published a final rule requiring reductions in methane emissions from venting, flaring, and leaking activities on public lands, but the BLM has since published a proposed rulemaking in October 2017 that would temporarily suspend certain requirements contained in the November 2016 final rule until January 17, 2019. Future or more stringent federal or state regulation could dramatically increase operating costs for oil and natural gas companies, curtail production and demand for oil and natural gas in areas of the world where our customers operate, and reduce the market for our services by making wells and/or oilfields uneconomical to operate, which may in turn adversely affect results of operations.

 

We rely on third-party suppliers, manufacturers and service providers to secure equipment, components and parts used in rig operations, conversions, upgrades and construction.

 

Our reliance on third-party suppliers, manufacturers and service providers to provide equipment and services exposes us to volatility in the quality, price and availability of such items. Certain components, parts and equipment that we use in our operations may be available only from a small number of suppliers, manufacturers or service providers. The failure of one or more third-party suppliers, manufacturers or service providers to provide equipment, components, parts or services, whether due to capacity constraints, production or delivery disruptions, price increases, quality control issues, recalls or other decreased availability of parts and equipment, is beyond our control and could materially disrupt our operations or result in the delay, renegotiation or cancellation of drilling contracts, thereby causing a loss of contract drilling backlog and/or revenue to us, as well as an increase in operating costs.

 

Additionally, our suppliers, manufacturers, and service providers could be negatively impacted by changes in industry conditions or global economic conditions. If certain of our suppliers, manufacturers or service providers were to curtail or discontinue their business as a result of such conditions, it could result in a reduction or interruption in supplies

---

 

or equipment available to us and/or a significant increase in the price of such supplies and equipment, which could adversely impact our business, financial condition and results of operations.

 

Any violation of the Foreign Corrupt Practices Act or any other similar anti-corruption laws could have a negative impact on us.

 

A significant portion of our revenue is derived from operations outside the United States, which exposes us to complex foreign and U.S. regulations inherent in doing cross-border business and in each of the countries in which we transact business. We are subject to compliance with the United States Foreign Corrupt Practices Act (‘‘FCPA’’) and other similar anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. The SEC and U.S. Department of Justice have continued to focus on enforcement activities with respect to the FCPA. While our employees and agents are required to comply with applicable anti-corruption laws, and we have adopted policies and procedures and related training programs meant to ensure compliance, we cannot be sure that our internal policies, procedures and programs will always protect us from violations of these laws. Violations of these laws may result in severe criminal and civil sanctions as well as other penalties. The occurrence or allegation of these types of risks may adversely affect our business, financial condition and results of operations.

 

Provisions in our organizational documents may be insufficient to thwart a coercive hostile takeover attempt; conversely, they may deter a change of control transaction and decrease the likelihood of a shareholder receiving a change of control premium.

 

Companies generally seek to prevent coercive takeovers by parties unwilling to pay fair value for the enterprise they acquire. Provisions in our organizational documents that are meant to help us avoid a coercive takeover include:

 

 

 

 

 

 

At the request of shareholders, in June 2012 we adopted an amendment to our bye-laws to declassify the Board. In addition, our shareholder rights plan expired in July 2016, and in 2017 we amended our policy regarding nomination and proxy access for director candidates recommended by shareholders. Each of these changes may make it easier for another party to acquire control of the Company. The remaining provisions designed to avoid a coercive takeover may not be fully effective so that a party may still be able to acquire the Company without paying what the Board considers to be fair value, including a control premium.

 

Legal proceedings and governmental investigations could affect our financial condition and results of operations.

 

We are subject to legal proceedings and governmental investigations from time to time that include employment, tort, intellectual property and other claims, and purported class action and shareholder derivative actions, including claims related to our acquisition of Tesco. We are also subject to complaints and allegations from former, current or prospective employees from time to time, alleging violations of employment-related laws or other whistle blower-related matters. Lawsuits or claims could result in decisions against us that could have an adverse effect on our financial condition or results of operations. See ‘‘Item 3—Legal Proceedings’’ for a discussion of certain existing legal proceedings.

---

 

Our business is subject to cybersecurity risks.

 

Our operations are increasingly dependent on information technologies and services. Threats to information technology systems associated with cybersecurity risks and cyber incidents or attacks continue to grow, and include, among other things, storms and natural disasters, terrorist attacks, utility outages, theft, viruses, phishing, malware, design defects, human error, or complications encountered as existing systems are maintained, repaired, replaced, or upgraded. Risks associated with these threats include, among other things:

 

 

 

 

 

 

 

 

Although we utilize various procedures and controls to mitigate our exposure to such risk, cybersecurity attacks and other cyber events are evolving and unpredictable. Moreover, we have no control over the information technology systems of our customers, suppliers, and others with which our systems may connect and communicate. As a result, the occurrence of a cyber incident could go unnoticed for a period time.

 

We do not presently maintain insurance coverage to protect against cybersecurity risks. If we procure such coverage in the future, we cannot ensure that it will be sufficient to cover any particular losses we may experience as a result of such cyber attacks. Any cyber incident could have a material adverse effect on our business, financial condition and results of operations.

 

Failure to realize the anticipated benefits of acquisitions, divestitures, investments, joint ventures and other strategic transactions may adversely affect our business, results of operations and financial position.

 

We undertake from time to time acquisitions, divestitures, investments, joint ventures, alliances and other strategic transactions that we expect to further our business objectives. For example, in October 2016, we announced an agreement to form a new joint venture in the Kingdom of Saudi Arabia, which commenced operations in December, 2017. The success of the Saudi joint venture depends, to a large degree, on the satisfactory performance of our joint venture partner’s obligations, including contributions of capital, drilling units and related equipment, and our ability to maintain an effective, working relationship with our joint venture partner.

 

We also completed the acquisition of Tesco in December 2017. Potential issues and difficulties that may be encountered with the Tesco acquisition include the following:

 

 

 

 

---

 

 

 

 

The anticipated benefits of the Saudi joint venture, the Tesco acquisition, and other strategic transactions may not be realized, or may be realized more slowly than expected, and may result in operational and financial consequences, including, but not limited to, the loss of key customers, suppliers or employees and significant transactional expenses, which may have an adverse effect on our business, financial condition and results of operations.

 

The loss of key executives or inability to attract and retain experienced technical personnel could reduce our competitiveness and harm prospects for future success.

 

The successful execution of our business strategies will depend, in part, on the continued service of certain key executive officers and employees. We have employment agreements with some of our key personnel within the company, but no assurance can be given that any employee will remain with us, whether or not they have entered into an employment agreement with us. We do not carry key man insurance. In addition, our operations depend, in part, on our ability to attract and retain experienced technical professionals. Competition for such professionals is intense. The loss of key executive officers and/or our inability to retain or attract experienced technical personnel, could reduce our competitiveness and harm prospects for future success, which may adversely affect our business, financial condition and results of operations.

 

In addition, Nabors’ performance could be adversely affected if the company does not identify or retain key employees and skilled workers of Tesco. It is possible that these employees may not remain with the combined company. The loss of the services of one or more of such key employees and skilled workers could adversely affect Nabors’ future operating results because of their experience and knowledge of Tesco’s business. In addition, current and prospective employees may experience uncertainty about their future roles with the company as the integration of Tesco’s operations with Nabors’ continues. This may adversely affect the ability of Nabors to attract and retain key personnel, which could adversely affect Nabors’ performance.

 

Significant issuances of common shares or exercises of stock options could adversely affect the market price of our common shares.

 

As of February 22, 2018, we had 800,000,000 authorized common shares, of which 368,338,349 shares were outstanding and entitled to vote, of which 52,800,203 million were held by our subsidiaries. In addition, 10,629,634 common shares were reserved for issuance pursuant to stock option and employee benefit plans, and 31,997,773 common shares were reserved for issuance upon exchange of outstanding Exchangeable Notes. The sale, or availability for sale, of substantial amounts of our common shares in the public market, whether directly by us or resulting from the exercise of options (and, where applicable, sales pursuant to Rule 144 under the Securities Act) or the exchange of Exchangeable Notes for common shares, would be dilutive to existing shareholders, could adversely affect the prevailing market price of our common shares and could impair our ability to raise additional capital through the sale of equity securities.

 

As a holding company, we depend on our operating subsidiaries and investments to meet our financial obligations.

 

We are a holding company with no significant assets other than the stock of our subsidiaries. In order to meet our financial needs and obligations, we rely exclusively on repayments of interest and principal on intercompany loans that we have made to operating subsidiaries and income from dividends and other cash flow from such subsidiaries. There can be no assurance that such operating subsidiaries will generate sufficient net income to pay dividends or sufficient cash flow to make payments of interest and principal to Nabors in respect of intercompany loans. In addition, from time to time, such operating subsidiaries may enter into financing arrangements that contractually restrict or prohibit these types of upstream payments to Nabors. Nabors’ debt instruments do not contain covenants prohibiting any such contractual restrictions. There may also be adverse tax consequences associated with such operating subsidiaries paying dividends. Finally, the ability of our subsidiaries to make distributions to us, may be restricted by the laws of the

---

 

applicable subsidiaries’ jurisdiction of organization and other laws and regulations. If subsidiaries are unable to distribute or otherwise make payments to us, we may not be able to pay interest or principal on obligations when due, and we cannot assure you that we will be able to obtain the necessary funds from other sources.

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2.  PROPERTIES

 

Nabors’ principal executive offices are located in Hamilton, Bermuda. We own or lease executive and administrative office space in Houston, Texas; Anchorage, Alaska; Calgary, Canada; Dubai in the United Arab Emirates; Bogota, Colombia; and Dhahran, Saudi Arabia.

 

Many of the international drilling rigs and some of the Alaska rigs in our fleet are supported by mobile camps which house the drilling crews and a significant inventory of spare parts and supplies. In addition, we own various trucks, forklifts, cranes, earth-moving and other construction and transportation equipment, which are used to support our operations. We also own or lease a number of facilities and storage yards used in support of operations in each of our geographic markets.

 

We own certain mineral interests in connection with our investment in development and production of natural gas, oil and natural gas liquids in the United States and the province of British Columbia, Canada.

 

ITEM 3.  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 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 $24.6 million (at December 31, 2017 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 $16.6 million in excess of amounts accrued.

 

On September 29, 2017, Nabors and Nabors Maple Acquisition Ltd. were sued, along with Tesco Corporation 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.  Defendants have consolidated this case, captioned The Vladimir Gusinsky Rev. Trust et al. v. Tesco Corporation et al., No. 4:17-cv-02918 (S.D. Tex.) (Miller, J.) with two other matters recently filed making the same or similar legal claims against Nabors and/or Tesco, captioned Panella v. Tesco Corporation et al., No. 4:17-cv-02904 (S.D. Tex.) (Bennett, J.) and Norman Heinze v. Tesco Corporation et al., No. 4:17-cv-03029 (S.D. Tex). 

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5.  MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUIT Y, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information.

 

Our common shares, par value $0.001 per share, are publicly traded on the New York Stock Exchange (the “NYSE”) under the symbol “NBR”.

 

The following table sets forth the reported high and low sales prices of our common shares as reported on the NYSE for the periods indicated.

 

				Share Price
Calendar Year				High			Low
2016		First Quarter		$	9.84		$	4.93
		Second Quarter			11.21			7.61
		Third Quarter			12.33			8.46
		Fourth Quarter			17.68			11.01
2017		First Quarter		$	18.40		$	11.89
		Second Quarter			14.28			7.16
		Third Quarter			8.70			6.18
		Fourth Quarter			8.04			5.32

 

On February 22, 2018, the closing price of our common shares as reported on the NYSE was $6.68.

 

Holders.

 

At February 22, 2018, there were approximately 1,916 shareholders of record of our common shares.

 

Dividends.

 

On February 23, 2018, our Board declared a cash dividend of $0.06 per common share, which will be paid on April 3, 2018 to shareholders of record at the close of business on March 13, 2018.

 

Our quarterly cash dividends on our total outstanding common shares during the past two fiscal years are shown in the table below. The declaration and payment of future dividends will be at the discretion of the Board and will

---

 

depend, among other things, on future earnings, general financial condition and liquidity, success in business activities, capital requirements and general business conditions in addition to legal requirements.

 

		Paid per Share						Total Payment
		2017			2016			2017			2016
		(in thousands, except per share amounts)
Quarter
First		$	0.06		$	0.06		$	17,154		$	16,923
Second			0.06			0.06			17,149			17,003
Third			0.06			0.06			17,153			17,001
Fourth			0.06			0.06			17,148	(1)		17,039	(2)

 

 

 

See Part I—Item 1.A. Risk Factors— As a holding company, we depend on our operating subsidiaries to meet our financial obligations.

 

Recent Sales of Unregistered Securities.

 

On December 15, 2017, we reported in a current report on Form 8-K that we had issued approximately 32,034,232 shares of our common stock in connection with the acquisition of Tesco Corporation. The shares were issued in reliance on an exemption from registration under federal securities laws provided by Section 3(a)(10) of the Securities Act of 1933, as amended (the “3(a)(10) Exception”), for the issuance and exchange of securities approved after a public hearing on the fairness of the terms and conditions of the exchange by a court of competent jurisdiction in front of whom the securities will be issued had the right to appear.  We were later informed by our transfer agent that approximately 43,445 additional common shares were issued at closing to certain Tesco employee shareholders for stock awards that had vested, and therefore were included in the number of Tesco shares outstanding at closing, but had not yet been processed by Tesco prior to closing. These shares were also issued under the 3(a)(10) Exception.  As a result, in connection with the acquisition of Tesco Corporation we issued a total of approximately 32.1 million Nabors common shares.

 

Issuer Purchases of Equity Securities.

 

The following table provides information relating to our repurchase of common shares during the three months ended December 31, 2017:

 

									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)
October 1 - October 31		<1		$	6.96		—		298,716
November 1 - November 30		6		$	5.85		—		298,716
December 1 - December 31		48		$	6.39		3,128		280,645

---

 

---

 

 

Performance Graph

 

The following graph illustrates comparisons of five-year cumulative total returns among Nabors, the S&P 500 Index, Dow Jones Oil Equipment and Services Index, S&P MidCap 400 Index and Russell 3000 Index. We are included in the S&P MidCap 400 Index and Russell 3000 Index and therefore, are presenting these indices below. Total return assumes $100 invested on December 31, 2012 in shares of Nabors and in the aforementioned indices noted above assuming reinvestment of dividends at the end of each calendar year, presented in the table below.

 

 

		2012		2013		2014		2015		2016		2017
Nabors Industries Ltd.		100		119		92		61		121		52
S&P 500 Index		100		132		151		153		171		208
Dow Jones Oil Equipment and Services Index		100		128		106		82		105		87
S&P MidCap 400 Index		100		134		147		143		173		201
Russell 3000 Index		100		134		150		151		170		206

 

The foregoing graph is based on historical data and is not necessarily indicative of future performance. This graph shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to Regulations 14A or 14C under the Exchange Act or to the liabilities of Section 18 under the Exchange Act.

 

---

 

Related Shareholder Matters

 

Bermuda has exchange controls which apply to residents in respect of the Bermuda dollar. As an exempted company, Nabors is designated as non-resident for Bermuda exchange control purposes by the Bermuda Monetary Authority. Pursuant to our non-resident status, there are no Bermuda restrictions on our ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to non-residents who are holders of our common shares in all other currencies, including currency of the United States.

 

There is no reciprocal tax treaty between Bermuda and the United States. Under current Bermuda law, there is no Bermuda withholding tax on dividends or other distributions, nor any Bermuda tax computed on profit or income payable by Nabors or its operations. Furthermore, no Bermuda tax is levied on the sale or transfer (including by gift and/or on the death of the shareholder) of Nabors common shares (other than by shareholders resident in Bermuda). Nabors has received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, Nabors will be exempt from taxation in Bermuda until March 31, 2035.

 

ITEM 6.  SELECTED FINANCIAL DATA

 

The following table summarizes selected financial information and should be read in conjunction with Part II, Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes thereto included under Part II, Item 8.—Financial Statements and Supplementary Data.

 

		Year Ended December 31,
		2017			2016			2015			2014			2013
Operating Data (1)(2)		(In thousands, except per share amounts and ratio data)
Operating revenues		$	2,564,285		$	2,227,839		$	3,864,437		$	6,152,015		$	6,843,051
Income (loss) from continuing operations, net of tax			(497,114)			(1,011,244)			(329,497)			158,341			232,974
Income (loss) from discontinued operations, net of tax			(43,519)			(18,363)			(42,797)			(11,179)			(67,526)
Net income (loss)			(540,633)			(1,029,607)			(372,294)			147,162			165,448
Less: Net (income) loss attributable to noncontrolling interest			(6,178)			(135)			(381)			(7,180)			(621)
Net income (loss) attributable to Nabors			(546,811)			(1,029,742)			(372,675)			139,982			164,827
Earnings (losses) per share:
Basic from continuing operations		$	(1.75)		$	(3.58)		$	(1.14)		$	0.51		$	0.80
Basic from discontinued operations			(0.15)			(0.06)			(0.15)			(0.04)			(0.23)
Total Basic		$	(1.90)		$	(3.64)		$	(1.29)		$	0.47		$	0.57
Diluted from continuing operations		$	(1.75)		$	(3.58)		$	(1.14)		$	0.51		$	0.79
Diluted from discontinued operations			(0.15)			(0.06)			(0.15)			(0.04)			(0.23)
Total Diluted		$	(1.90)		$	(3.64)		$	(1.29)		$	0.47		$	0.56
Weighted-average number of common shares outstanding:
Basic			280,653			276,475			282,982			294,182			289,965
Diluted			280,653			276,475			282,982			296,592			292,323
Capital expenditures and acquisitions of businesses (3)		$	600,909		$	414,379		$	923,236		$	1,365,994		$	1,433,586
Interest coverage ratio (4)			2.4:1			3.4:1			6.2:1			9.8:1			7.4:1

 

---

 

		As of December 31,
		2017			2016			2015			2014			2013
Balance Sheet Data (1)(2)		(In thousands, except ratio data)
Cash, cash equivalents and short-term investments		$	365,366		$	295,202		$	536,169		$	507,133		$	778,204
Working capital			527,860			333,905			1,174,399			1,442,406			2,000,475
Property, plant and equipment, net			6,109,565			6,267,583			8,599,125			8,597,813			8,712,088
Total assets			8,401,984			8,187,015			11,862,923			12,137,749			12,631,867
Long-term debt			4,027,766			3,578,335			4,331,840			3,882,055			4,355,181
Shareholders’ equity			2,911,816			3,247,025			4,908,619			5,969,086			5,944,929
Debt to capital ratio:
Gross (5)			0.58:1			0.52:1			0.47:1			0.39:1			0.42:1
Net (6)			0.56:1			0.50:1			0.43:1			0.36:1			0.38:1

---

 

 

 

 

 

 

---