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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
COMMISSION FILE NUMBER: 000-49887
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NABORS INDUSTRIES LTD.
INCORPORATED IN BERMUDA
2ND FLOOR, INTERNATIONAL TRADING CENTRE
WARRENS
P.O. BOX 905E
ST. MICHAEL, BARBADOS
(246) 421-9471
98-0363970
(I.R.S. Employer Identification No.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
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Common Shares, $.001 par value per share The American Stock Exchange, LLC
Indicate by check mark whether 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 [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in this Form 10-K, 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 an accelerated filer (as
defined in Exchange Act Rule 12b-2).
YES [X] NO [ ]
The aggregate market value of the 124,063,360 common shares held by
non-affiliates of the registrant, based upon the closing price of our common
shares as of the last business day of our most recently completed second fiscal
quarter, June 28, 2002, of $35.30 per share as reported on the American Stock
Exchange, was $4,379,436,608. 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, par value $.001 per share, outstanding as of March
14, 2003 was 145,234,077.
DOCUMENTS INCORPORATED BY REFERENCE
(TO THE EXTENT INDICATED HEREIN)
Specified portions of the 2002 Annual Report to Stockholders (Parts I,
II and IV)
Specified portions of the 2003 Notice of Annual Meeting of Stockholders and
Proxy Statement (Part III)
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NABORS INDUSTRIES LTD.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
PART I
Item 1. Business 1
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I. Introduction 1
II. Description of Business 2
A. Our Fleet of Rigs 2
B. Types of Drilling Contracts 4
C. Well Servicing and Workover Services 5
D. Manufacturing and Logistics Services 6
E. Our Employees 7
F. Seasonality 7
G. Research and Development 7
III. Customers; Markets; Industry Conditions and Trends 8
A. Contract Drilling 8
B. Manufacturing and Logistics 9
C. Industry Conditions 10
D. Competitive Conditions 11
IV. Recent Developments 12
A. Operating Results 12
B. Corporate Reorganization 13
C. Corporate Governance 13
D. Acquisitions 13
V. Our Business Strategy 14
VI. Risk Factors 17
VII. Acquisitions and Divestitures 21
VIII. Environmental Compliance 23
IX. Available Information 23
Item 2. Properties 23
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Item 3. Legal Proceedings 24
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Item 4. Submission of Matters to a Vote of Security Holders 24
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 24
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I. Market and Stock Prices 24
II. Dividend Policy 29
III. Shareholder Matters 30
Item 6. Selected Financial Data 30
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of
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Operations 30
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30
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Item 8. Financial Statements and Supplementary Data 30
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
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Disclosure 30
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PART III
Item 10. Directors and Executive Officers of the Registrant 30
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Item 11. Executive Compensation 31
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Item 12. Security Ownership of Certain Beneficial Owners and Management 31
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Item 13. Certain Relationships and Related Transactions 31
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Item 14 Controls and Procedures 31
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PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
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FORWARD-LOOKING STATEMENTS
We often discuss expectations regarding our markets, demand for our products
and services, and our future performance in our annual and quarterly reports,
press releases, and other written and oral statements. Such statements,
including statements in this document and the documents incorporated by
reference that relate to matters that are not historical facts are
"forward-looking statements" within the meaning of the safe harbor provisions
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These "forward-looking statements" are based on our
analysis of currently available competitive, financial and economic data and
our operating plans. They are inherently uncertain and investors must recognize
that events and actual results could turn out to be significantly different
from our expectations.
You should consider the following key factors when evaluating these forward
looking statements:
o fluctuations in worldwide prices and demand for natural gas and oil;
o fluctuations in levels of natural gas and crude oil exploration and
development activities;
o fluctuations in the demand for our services;
o the existence of competitors, technological changes and developments
in the oilfield services industry;
o the existence of operating risks inherent in the oilfield services
industry;
o the existence of regulatory and legislative uncertainties;
o the possibility of changes in tax laws;
o the possibility of political instability, war or acts of terrorism in
any of the countries in which we do business; and
o general economic conditions.
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 natural gas or oil,
which could have a material impact on exploration 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 is designed to highlight what we believe are important factors to consider.
For a more detailed description of risk factors, please see "Part I - Item 1 -
BUSINESS - RISK FACTORS".
Unless the context requires otherwise, references in this Annual Report on Form
10-K to "Nabors," "we," "us," or "our" refer to Nabors Industries Ltd. and,
where the context requires, includes subsidiaries.
PART I
Please see the Glossary of Drilling Terms included as Annex A to this document
for a brief explanation of drilling terms used throughout this document.
ITEM 1. BUSINESS
I. INTRODUCTION.
Nabors Industries Ltd. became the publicly traded parent company of the Nabors
group of companies, effective June 24, 2002, pursuant to the corporate
reorganization described below in the section entitled "Recent Developments -
Corporate Reorganization." Our common shares are traded on the American Stock
Exchange under the symbol "NBR."
We, together with our subsidiaries, are the largest land drilling contractor in
the world, with almost 600 land drilling rigs. We conduct oil, gas and
geothermal land drilling operations in the U.S. Lower 48 states, Alaska,
Canada, South and Central America, the Middle East and Africa. We are also one
of the largest land well-servicing and workover contractors in the United
States and Canada. We own over 900 land workover and well-servicing rigs in the
United
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States, and over 200 land workover and well-servicing rigs in Canada.
Nabors is a leading provider of offshore platform workover and drilling rigs
and owns 43 platform, 16 jack-up and three barge rigs in the Gulf of Mexico and
international markets. These rigs provide well-servicing, workover and drilling
services. We have a 50% ownership interest in a joint venture in Saudi Arabia,
which owns 18 rigs.
To further supplement and complement our primary business, we offer a wide
range of ancillary well-site services, including oilfield management,
engineering, transportation, construction, maintenance, well logging,
directional drilling, rig instrumentation, data collection and other support
services. Our land transportation and hauling fleet includes approximately 240
rig and oilfield equipment hauling tractor-trailers and a number of cranes,
loaders and light-duty vehicles. We maintain over 290 fluid hauling trucks,
approximately 700 fluid storage tanks, eight salt water disposal wells and
other auxiliary equipment used in domestic drilling, workover and
well-servicing operations. In addition, we own a fleet of 30 marine
transportation and support vessels, primarily in the Gulf of Mexico, which
provide transportation of drilling materials, supplies and crews for offshore
operations. We manufacture and lease or sell top drives for a broad range of
drilling applications, directional drilling systems, rig instrumentation and
data collection equipment, and rig reporting software.
Our overall business is conducted through two major segments: (1) Contract
Drilling and (2) Manufacturing and Logistics. Our Contract Drilling segment
includes our drilling, workover and well-servicing operations, on land and
offshore. Our Manufacturing and Logistics segment includes our marine
transportation and supply services, top drive manufacturing, directional
drilling, rig instrumentation and software, and construction and logistics
operations.
Nabors was formed as a Bermuda-exempt company on December 11, 2001. Through
predecessors and acquired entities, Nabors has been continuously operating
in the drilling sector since the early 1900s. Our principal executive
offices are located at 2nd Fl. International Trading Centre, Warrens, St.
Michael, Barbados. Our phone number at our principal executive offices is
(246) 421-9471.
II. DESCRIPTION OF BUSINESS.
A. OUR FLEET OF RIGS.
Our rigs include land-based rigs and offshore platform, jack-up and barge rigs.
Drilling rigs come in a wide variety of sizes and capabilities, and may include
specialized equipment, such as top drives, or have design features or
modifications for specialized drilling conditions, such as arctic drilling. The
rigs are classified by their depth capabilities and by whether their power
systems are mechanical or electric. They generally are powered by two to four
large diesel engines. An electric rig differs from a mechanical rig in that it
converts the diesel power into electricity to power the rig. This gives the rig
operator the ability to deliver the same amount of torque at high and low
speeds, permitting more finite control of the primary rig components, including
the drawworks and mud pumps. We believe this electric capability enhances
operating efficiency and safety, reduces drilling time and saves the customer
money, particularly in deeper applications. Because of these advantages, diesel
electric rigs, known in the industry as silicon-controlled rectifier or SCR
rigs, generally are preferred by our customers, and often enjoy higher
utilization and dayrates than similarly sized mechanical rigs.
Nabors' various types of rigs perform drilling, workover (major overhaul or
remediation of an existing wellbore and/or plugging and redrilling the well)
and well-servicing (routine repair and maintenance of mechanical problems). A
drilling rig can perform drilling, workover and well-servicing services,
depending on its configuration. However, primarily due to cost and size
considerations, a land drilling rig is rarely used for well-servicing or
workover applications. Instead, smaller, mobile well-servicing and workover
rigs are used. Offshore, a drilling rig is occasionally used for workover and
well-servicing applications, particularly if it is on location, because it is
more cost-effective to use a rig in place rather than bringing in an
alternative, special purpose rig. Each rig is rated for operations up to a
specific depth. The basic types of rigs operated by Nabors are described below.
o Land Rigs. A land-based drilling rig generally consists of engines, a
drawworks (which hoists and lowers the drill string in and out of the
well), a mast (or derrick), pumps to circulate the drilling fluid (mud)
under various pressures, blowout preventers, drill string and related
equipment. The engines power the different pieces of
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equipment, including a rotary table or top drive that turns the drill
string, causing the drill bit to bore through the subsurface rock
layers. Rock cuttings are carried to the surface by the circulating
drilling fluid. The intended well depth, bore hole diameter and
drilling site conditions are the principal factors that determine the
size and type of rig most suitable for a particular drilling job. A
land-based workover or well-servicing rig consists of a mobile carrier,
engine, drawworks and a mast. The primary function of a workover or
well-servicing rig is to act as a hoist so that pipe, sucker rods and
down-hole equipment can be run into and out of a well. Typically,
land-based drilling, workover and well-servicing rigs can be readily
moved between well sites and between geographic areas of operations.
o Platform Rigs. Platform rigs provide offshore workover, drilling and
re-entry services. Our platform rigs have drilling and/or well-servicing
or workover equipment and machinery arranged in modular packages that are
transported to, and assembled and installed on, fixed offshore platforms
owned by the customer. Fixed offshore platforms are steel tower-like
structures that either stand on the ocean floor or are moored floating
structures. The top portion, or platform, sits above the water level and
provides the foundation upon which the platform rig is placed. Our fleet
of platform rigs includes:
o Minimum space, modular platform workover rigs with engines rated
750 horsepower or below, which include the 500 horsepower
Sundowner(R) series. These platform workover rigs are
self-elevating (that is, they can be off-loaded with the platform
crane, rather than requiring a separate barge and crane to
assemble), and are designed to fit the geometry of nearly any
producing platform without major modifications to either the rig
or the platform.
o Minimum space, modular platform workover and re-drilling rigs with
engines rated at horsepowers greater than 750, which include the
1000 horsepower Super Sundowner(R) rigs. These rigs, which are
enhanced versions of the modular platform workover rigs, have more
powerful mud pump systems and greater hook load capacities. This
enables the rigs to be used in more rigorous workover, re-entry,
side-tracking or horizontal drilling operations.
o Minimum Area, Self-Elevating, or MASE(R), drilling rigs are our
latest generation of modular platform rigs. They represent a
smaller and lighter, full-scale drilling rig patterned after the
Super Sundowner(R) but have higher horsepower, ranging from 1500
hp to 3000 hp.
o Modular Offshore Dynamic Series (MODS) platform rigs ranging from
1000 hp to 1500 hp are our newest addition to the modular rig
fleet. They have been reengineered to be lighter weight, and
dynamically capable to meet motion criteria of deepwater SPAR and
TLP platforms.
o API (American Petroleum Institute)-style drilling rigs have
similar capabilities to the MASE(R) rigs, but generally come in
larger modules. Unlike our other platform rigs, API-style rigs are
not self-elevating, and require a separate barge crane to load
onto, and off of, the platform.
o We also own several land rigs modified for offshore work for
drilling on mudslide and selected conventional offshore platforms.
These rigs generally are self-elevating and modular.
o Jack-up Rigs. Jack-up rigs are mobile, self-elevating drilling and
workover platforms equipped with legs that can be lowered to the ocean
floor until a foundation is established to support the hull, which
contains the drilling and/or workover equipment, jacking system, crew
quarters, loading and unloading facilities, storage areas for bulk and
liquid materials, helicopter landing deck and other related equipment.
The rig legs may operate independently or have a mat attached to the
lower portion of the legs in order to provide a more stable foundation
in soft bottom areas. Independent leg rigs are better suited for
harsher or uneven seabed conditions and drilling locations where subsea
pipelines are present. Many of our jack-up rigs are of cantilever
design -- a feature that permits the drilling platform to be extended
out from the hull, allowing it to perform drilling or workover
operations over adjacent, fixed platforms. Nabors' shallow workover
jack-up rigs generally are subject to a maximum water depth of
approximately 125 feet, while some of our jack-up rigs may drill in
water depths as shallow as 13 feet. Nabors also has deeper water depth
capacity jack-up rigs that are capable of
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drilling at depths between 8 feet and 150 to 250 feet. The water depth
limit of a particular rig is determined by the length of the rig's legs
and the operating environment. Moving a rig from one drill site to
another involves lowering the hull down into the water until it is
afloat and then jacking up its legs with the hull floating. The rig is
then towed to the new drilling site.
o Inland Barge Rigs. One of Nabors' barge rigs is a full-size drilling unit.
Nabors also owns two workover inland barge rigs. These barges are designed
to perform plugging and abandonment, well service or workover services in
shallow inland, coastal or offshore waters. Our barge rigs can operate at
depths between three and eight feet.
Additional information on the number and location of our rigs can be found
below under the caption "Business - Markets".
B. TYPES OF DRILLING CONTRACTS.
Our rigs are employed under individual contracts which extend either over a
stated period of time or the time required to drill a well or a stated number
of wells to a specified depth. On land in the U.S. Lower 48 states and Canada,
we typically contract on a single well basis, with extensions subject to mutual
agreement on pricing and other significant terms. Contracts relating to
offshore drilling and land drilling in Alaska and international markets
generally provide for longer terms, usually from one to five years. Offshore
workover projects are often on a single-well basis. We generally are awarded
drilling contracts through competitive bidding, although we occasionally enter
into contracts by direct negotiation. Most of our well-to-well contracts are
subject to termination by the customer on short notice, but some can be firm
for a number of wells or a period of time, and may provide for early
termination compensation in certain circumstances. The contract terms and rates
may 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.
Drilling contracts provide for compensation on a daywork, footage or turnkey
basis. In each case, we provide the rig and crews. The principal differences
among the types of contracts are set forth below.
o Daywork Contracts. A daywork contract generally provides for a basic rate
per day when drilling (the dayrate) and for lower rates when the rig is
moving, or when drilling operations are interrupted or restricted by
equipment breakdowns, actions of the customer or 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 incurred
costs.
o Footage Contracts. Under footage contracts we typically run casing and
provide drill bits. We receive payment on the basis of a rate per foot
drilled. The customer continues to provide drilling mud, casing,
cementing and well design expertise. If we drill the well in less time
than was estimated, then we have the opportunity to improve our margins
over those that would be attainable under a daywork contract to the
same depth. If, however, we take longer to drill the well than we
estimated, our margins will be lower. In footage contracts we bear the
cost of the services and supplies that we provide until the well has
been drilled to the agreed depth. Such contracts therefore require us
to make significant up-front working capital commitments prior to
receiving payment. Footage contracts generally contain greater risks
for a contractor such as Nabors than daywork contracts, but fewer risks
than turnkey contracts. Under footage contracts, the contractor assumes
certain risks associated with loss of hole from fire, blowout and other
drilling risks. However, footage contracts generally protect the
contractor from such risks when unexpected drilling conditions such as
abnormal pressure, impenetrable geologic formation or loss circulation
zones are present.
o Turnkey Contracts. In turnkey contracts, we drill a well to a specified
depth for a fixed price regardless of the time required or the problems
encountered in drilling the well. On a turnkey well, we provide
technical expertise and engineering services, as well as most of the
equipment required to complete the well, and we are compensated only
when the agreed scope of work has been satisfied. In addition, we often
subcontract for related services and we manage the drilling process. In
turnkey contracts, we bear the cost of performing the drilling services
until the well has been drilled, and accordingly, such contracts
require us to make significant
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working capital commitments. We also generally agree to furnish
services such as testing, coring and casing the hole and other
services, which are not normally provided by a drilling contractor
working under a daywork contract. If the well is not completed to the
specified depth, we may not receive the turnkey price. Turnkey
contracts generally involve a higher degree of risk to us than daywork
and footage contracts because we assume greater risks (including risk
of blowout, loss of hole, stuck drill pipe, machinery breakdowns,
abnormal drilling conditions and risks associated with subcontractors'
services, supplies, cost escalation and personnel) and bear the cost of
unanticipated downhole problems and price escalation. Generally,
however, our agreements limit catastrophic risks associated with
blowout, redrill and pollution to a specific sum. The customer assumes
the risk of losses in excess of the agreed level. If the well is
successfully drilled without undue delay or complication, our margins
under these types of contracts are usually greater than under daywork
and footage contracts.
During 2002 substantially all of our drilling contracts were on a daywork
basis. Our preferred strategy is to operate drilling rigs under daywork
contracts. However, we continually analyze market conditions, customer
requirements, rig demand and the experience of our personnel to determine how
to contract our fleet most profitably. In addition, we may seek alternative
accommodations with certain customers as a means of ensuring long-term drilling
commitments and healthy customer relations, including, potentially, entering
into footage or turnkey contracts on occasion. Because of this, there can be no
assurance that we will not suffer a loss that is not insured as a result of
entering into such higher risk contracts, and any such uninsured loss could
have a material adverse effect on our financial position, cash flows and
results of operations.
C. WELL SERVICING AND WORKOVER SERVICES.
Industry sources estimate that there are approximately 914,000 producing oil
wells in the world today, of which approximately 558,000 are in the United
States. In addition, there are approximately 327,000 producing natural gas
wells in the United States and a large number in the rest of the world (Penn
Well; Spears and Associates). Although some wells in the United States flow oil
to the surface without mechanical assistance, most are in mature production
areas that require pumping or some other form of artificial lift. Pumping oil
wells characteristically require more maintenance than flowing wells because of
the operation of the mechanical pumping equipment installed. The extent and
type of services we provide on producing wells is dependent upon many
variables. The following is a summary of our well-servicing and workover
services.
o Well-Servicing/Maintenance Services. We provide maintenance services on
the mechanical apparatus used to pump or lift oil from producing wells.
These services include, among other things, repairing and replacing
pumps, sucker rods and tubing. We provide the rigs, equipment and crews
for these tasks, which are performed on both oil and natural gas wells,
but which are more commonly required on oil wells. Well-servicing rigs
have the same basic components as drilling rigs (that is, a derrick, a
hoisting mechanism and an engine). Many of these rigs also have pumps
and tanks that can be used for circulating fluids into and out of the
well. Maintenance jobs typically take less than 48 hours to complete.
Well-servicing rigs generally are provided to customers on a call-out
basis. We are paid an hourly rate and work typically is performed five
days a week during daylight hours.
o Workover Services. In addition to needing periodic maintenance,
producing oil and natural gas wells occasionally require major repairs
or modifications, called "workovers." Workovers may be needed, for
example, to remedy equipment failures, plug back the bottom of a well
to reduce the amount of water being produced with the oil and natural
gas, clean out and re-complete a well if production has declined,
repair leaks, or convert a producing well to an injection well for
secondary or enhanced recovery projects. These extensive workover
operations normally are carried out with a well-servicing rig that
includes additional specialized accessory equipment, which may include
rotary drilling equipment, mud pumps, mud tanks and blowout preventers,
depending upon the particular type of workover operation. Most of
Nabors' well-servicing rigs are designed and can be equipped to handle
the more complex workover operations. A workover may last anywhere from
a few days to several weeks.
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o Completion Services. The kinds of activities necessary to carry out a
workover operation are essentially the same as those that are required
to "complete" a well when it is first drilled. The completion process
may involve selectively perforating the well casing at the depth of
discrete producing zones, stimulating and testing these zones and
installing down-hole equipment. Oil and gas production companies often
find it more efficient to move a larger and more expensive drilling rig
off location after an oil or natural gas well has been drilled and to
move in a specialized well-servicing rig to perform completion
operations. Our rigs often are used for this purpose. The completion
process may take a few days to several weeks.
o Production and Other Specialized Services. We provide other specialized
services that are required, or can be used effectively, in conjunction
with the previously described basic services. These services may
include provision of onsite temporary fluid-storage facilities, the
provision, removal and disposal of specialized fluids used during
certain completion and workover operations, and the removal and
disposal of salt water that often is produced in conjunction with the
production of oil and natural gas. On a limited basis we provide
conventional coil tubing services used primarily to clean out
wellbores. To complete the well life-cycle, we also provide plugging
services for wells from which the oil and natural gas has been depleted
or further production has become uneconomical.
D. MANUFACTURING AND LOGISTICS SERVICES.
Through various subsidiaries and joint ventures, Nabors provides additional
well-site services that comprise our manufacturing and logistics segment. These
services can be packaged with our contract drilling services or provided on a
stand-alone basis to operators or other contractors. They include top drive
sales and rentals, mudlogging services, rig instrumentation equipment rentals
and sales, rig reporting software, construction and maintenance services and
transportation services. Sales by these ancillary service providers to other
Nabors companies reduce our costs for similar third-party products and
services. These units also generate revenues through sales to third parties.
o Top Drives. Our Canrig drilling technologies subsidiary manufactures top
drives, which are installed on both onshore and offshore drilling rigs to
improve drilling efficiency. Rigs equipped with top drives enjoy more
finite control and directional orientation than rigs without, and can trip
drill string in and out of the well faster and more safely by handling
preassembled "doubles" and "triples" of pipe. Top drives also allow the
drill string to be simultaneously hoisted and rotated, which provides
better well control and reduces the incidence of stuck pipe, yielding time
and cost savings.
o Mudlogging, Rig Instrumentation and Software. Our EPOCH well services
subsidiary provides mudlogging services. Mudlogging involves the
analysis of exhausted drill cuttings to discern certain information
about the presence of hydrocarbons, rates of penetration and the nature
of the formation. EPOCH also offers rig instrumentation equipment,
including sensors, proprietary RIGWATCH(TM)software and computerized
equipment that monitors the real-time performance of a rig. In
addition, EPOCH specializes in daily reporting software for drilling
operations, including via the internet via mywells.com. Our Ryan Energy
Technology subsidiaries manufacture and sell directional drilling and
rig instrumentation and data collection services to oil and gas
exploration and service companies in the United States, Canada, and
Venezuela.
o Construction, Land Transportation and Related Services. Nabors has a
50% interest in Peak Oilfield Services Company, a general partnership
with a subsidiary of Cook Inlet Region, Inc., a leading Alaskan native
corporation. Peak Oilfield Services provides heavy equipment to move
drilling rigs, water, other fluids and construction materials,
primarily on Alaska's North Slope and in the Cook Inlet region. The
partnership also provides construction and maintenance for ice roads,
pads, facilities, equipment, drill sites and pipelines. In addition,
the partnership provides tank cleaning services to oil customers along
the Trans-Alaska pipeline and in the Valdez area. Peak Oilfield
Services provides miscellaneous maintenance services for the Prudhoe
Bay Unit. Our Peak USA subsidiary provides similar hauling and
maintenance services for customers in the U.S. Lower 48. We also have
an investment in an arctic road and site construction company.
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o Offshore Support Services. Nabors' fleet of offshore support vessels
provides marine transportation of drilling materials, supplies and crews
for offshore rig operations and support for other offshore facilities. We
also provide offshore logistical support to drilling and workover
operations, pipe laying and other construction, production platforms and
geophysical operations.
We provide onshore transportation and support services through long-term
contracts or on a short-term demand basis. Long-term service contracts may be
negotiated or awarded by competitive bidding. Whether provided on a long-term
or short-term basis, equipment and labor usually are billed separately at
specified hourly rates. These hourly rates vary depending upon numerous
factors, including types of equipment and labor, and duration of the work.
Offshore support vessel operations are conducted throughout the year 24 hours a
day, seven days a week, under vessel charters, which may range from several
days to several years. Some reduction in vessel utilization and charter rates
may be experienced during winter months due to seasonal declines in offshore
activities. We are paid on a daily rate basis for vessel charters.
From time to time, we provide drilling engineering and integrated project
management services, ranging from well design and engineering expertise to site
preparation and road construction. We offer these services to help customers
eliminate or reduce management overhead which would otherwise be necessary to
supervise such services. Such services have not been significant in the past,
and are not expected to be significant in the near term.
E. OUR EMPLOYEES.
As of December 31, 2002, Nabors employed approximately 15,261 persons, of whom
approximately 2,231 were employed by unconsolidated affiliates. We believe our
relationship with our employees generally is good.
On October 18, 2000, the National Labor Relations Board confirmed the selection
of a collective bargaining representative at our Alaska drilling subsidiary.
The unit covers most non-supervisory drilling and related field personnel
working on or about our rigs within the State of Alaska. Negotiations with the
union commenced during 2000; an agreement was reached with representatives of
the union in December 2002; was submitted to the union membership for
ratification; and was rejected by the membership in the first quarter 2003. We
anticipate that the continuation of a collective bargaining unit at our Alaska
drilling subsidiary will not have any material adverse impact on the operations
of that entity or Nabors as a whole. During the first quarter 2003 the National
Labor Relations Board commenced a suit against Nabors asserting that a Nabors
subsidiary committed an unfair labor practice in failing to adequately bargain
with the collective bargaining representative in connection with a change in
Nabors' medical insurance program and that suit is ongoing. Nabors denies the
allegations, believes that it has meritorious defenses and further believes
that the outcome of any litigation regarding the dispute would not have a
material adverse effect upon Nabors.
Certain rig employees in Argentina and Australia are represented by collective
bargaining units.
F. SEASONALITY.
Our Canadian and Alaskan drilling and workover operations are subject to
seasonal variations as a result of weather conditions and generally experience
reduced levels of activity and financial results during the second calendar
quarter of each year. Seasonality does not have a material impact on the
remaining portions of our business. As our Canadian and Alaskan operations
become a more significant portion of our overall business, our overall
financial results should reflect the seasonal variations experienced in our
Canadian and Alaskan operations.
G. RESEARCH AND DEVELOPMENT.
Research and development does not constitute a material part of our overall
business. However, technology is of growing importance to our business and
management expects to maintain its competitive position technologically with
the internal development of technology or through strategic acquisitions.
Nabors' engineers have obtained new patents during the past year and have
patent applications pending for new technology associated with drilling
activities. Our patents generally cover designs for various types of oilfield
7
equipment and methods for conducting certain oilfield activities. We use some
of these designs and methods in the conduct of our business. The patents expire
at various times through the year 2019. We also have several trademarks and
service marks that we use in various aspects of our business. These include
Sundowner(R), MASE(R) TRU VU(R) and RIGWATCH(TM). While management believes
Nabors' patent and trademark rights are valuable, their expiration or loss
would not have a material adverse effect on our financial position or results
of operations. The costs associated with our research and development are not
material to Nabors.
III. CUSTOMERS; MARKETS; INDUSTRY CONDITIONS AND TRENDS.
Our customers include major oil and gas companies, foreign national oil and gas
companies and independent oil and gas companies. No customer accounted for in
excess of 10% of consolidated revenues in 2002 or in 2001.
Nabors operates in two primary business segments within the oilfield services
industry - contract drilling and manufacturing and logistics. Within these
segments, we conduct business in the following distinct markets or business
lines:
o Contract Drilling: We provide drilling, workover, and
well-servicing services on land and offshore in the U.S. Lower 48
states, Canada and Alaska and in international markets.
o Manufacturing and Logistics: We manufacture and lease or sell top
drives, drilling instrumentation systems, rig reporting software,
and provide drilling technology services domestically and
internationally; and provide construction, logistics services and
marine transportation and support services in Alaska and the U.S.
Lower 48 states.
Additional information regarding the geographic markets in which we operate and
our business segments can be found in Note 19 of the Notes to Consolidated
Financial Statements on pages 95 through 97 of our 2002 Annual Report and is
incorporated into this document by reference.
A. CONTRACT DRILLING.
1. U.S. LAND DRILLING. In Alaska, we market 15 arctic land
drilling, workover and well-servicing rigs on the North Slope, and 3 land
rigs and one platform rig in the Cook Inlet area of South Central Alaska.
Sixteen of these rigs are SCR rigs, and twelve are equipped with top drive
units. Fifteen are capable of performing drilling or workover operations to
depths of 15,000 feet or deeper.
All of the North Slope rigs are designed to operate in severe arctic conditions
and 14 employ wheel or track mounted systems engineered by Nabors to permit
efficient movement of the rigs from well to well and over ice or gravel roads.
Nine of these rigs are also partially or totally self-propelled to further
facilitate movement and maneuverability. Thirteen of the North Slope rigs have
been designed with spacing capability that allows them to move between reduced
well spacing on drilling pads without disrupting production. In addition, our
arctic rigs generally incorporate environmental protection features such as dry
mud and fluid containment systems.
We currently market approximately 290 drilling rigs in the U.S. Lower 48
market. Approximately 180 of our land drilling rigs in the U.S. Lower 48 states
are diesel electric rigs controlled by a computerized SCR system. Approximately
210 are capable of drilling to 15,000 feet or deeper. In addition, we own 62
portable top drives for use on our rigs, depending on customer requirements.
Nabors had approximately 94 land drilling rigs and 249 workover/well-servicing
rigs stacked in the U.S. Lower 48 states at December 31, 2002. During September
2000, we implemented a capital expenditure program to refurbish, recommission
and, in many cases, upgrade our stacked, domestic drilling fleet to meet an
increased demand for additional rigs. As part of this program, we
recommissioned 113 rigs and partially completed an additional 32 rigs for an
aggregate of approximately $230 million in capital expenditures. Because of
declining market conditions in the U.S. Lower 48 market, we terminated this
program in the fourth quarter of 2001. We will continue to evaluate the market
and may upgrade, refurbish or use the remaining stacked rigs for spare parts as
conditions warrant.
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2. U.S. LAND WELL-SERVICING. Our domestic land
well-servicing, workover and production services operation has locations in
many of the major oil and natural gas producing fields in the U.S. Lower 48
states. This operation currently provides services in eight states and is
divided into six separate geographic districts: California, West Texas, East
Texas, South Texas, Oklahoma, and the Rocky Mountains. We actively market
approximately 500 well-servicing rigs (including one land rig drilling on a
platform off the coast of California), in Texas, California, Oklahoma, New
Mexico, North Dakota, Montana, Utah and Louisiana.
3. U.S. OFFSHORE. Nabors currently performs domestic offshore
drilling and offshore workover and well-servicing through its subsidiaries. The
domestic offshore subsidiaries currently operate a fleet of 38 rigs, including
27 platform rigs (six Sundowner(R) rigs, three 700 hp or below rigs, two Super
Sundowner(R) rigs, three concentric tubing rigs, three greater than 750 hp rigs,
five self-elevating drilling rigs and five API-style platform drilling rigs),
eight jack-up workover rigs and three inland barge rigs. Ten of our platform
rigs are capable of operating at well depths of 20,000 feet. Over half of our
platform rigs are specifically designed for workover drilling.
Most of our domestic offshore fleet operates in the U.S. Gulf of Mexico. The
remaining rigs are platforms operating in offshore California and Alaska.
4. CANADA. We have a fleet of 81 drilling rigs in Canada.
Twenty-six rigs in the fleet are diesel electric SCR rigs, two are A/C
electric powered, 22 are equipped with top drives and 16 are capable of
drilling to 15,000 feet or deeper. Nabors also has a fleet of approximately 209
land well servicing / workover rigs in Canada. Many of the rigs in our Canadian
fleet are capable of working under arctic and sub-arctic conditions.
5. INTERNATIONAL. We conduct our international operations
primarily through Nabors Drilling International Limited and its subsidiaries.
Internationally, we provide drilling, workover and well-servicing services,
both onshore and offshore, with specialized rigs designed and fabricated to
meet various types of operating conditions. The International land group
actively markets approximately 67 land drilling rigs, 38 workover/well-servicing
rigs and 2 pulling units. Of these, over 42 are SCR rigs, 28 are equipped with
top drives and 31 are capable of drilling to depths of 15,000 feet or deeper. We
operate 18 of these rigs through a joint venture in Saudi Arabia (7 drilling and
11 workover/well-servicing rigs).
The International offshore group markets eight 1000 hp platform rigs, two 600
hp platform rigs, three 2000 hp platform rigs and seven jack-up rigs. Five of
the 1000 hp rigs and all the 2000 hp rigs are equipped with top drive units. We
have offshore rigs currently operating in Trinidad (one 2000 hp platform and
one jack-up), Brazil (one 1000 hp platform and one jack-up), Australia (one
1000 hp platform), Congo (one 1000 hp platform), Italy (one 1000 hp platform),
Mexico (three 1000 hp platform rigs, two 2000 hp platform rigs and one
jack-up), Malaysia (one 1000 hp platform rig), and the Middle East (four
jack-ups, of which one is owned by our Saudi joint venture). One 600 hp
platform rig is being mobilized to India and a second 600 hp platform rig is en
route to the Mediterranean.
Additional information regarding our rig fleet can be found on pages 28 through
31 of the 2002 Annual Report.
B. MANUFACTURING AND LOGISTICS.
We manufacture top drives at our Magnolia, Texas facility. We market our top
drives throughout the United States and Canada, and to various international
markets, to customers serving the oil and gas industry. In 2002 and 2001, 31%
and 71% of our top drive sales, respectively, were made to other Nabors
companies. We also rent top drives and provide top drive installation, repair
and maintenance services to our customers.
We manufacture our rig instrumentation systems and develop our rig reporting
and related software in Houston, Texas. We sell or lease these products to
customers within the oil and gas industry, domestically and abroad. We provide
mudlogging services within the U.S. Lower 48 states and Alaska. Substantial
portions of our sales are made to other Nabors companies.
9
We also provide site and road construction, rig transportation, fluid hauling
and related oilfield services in Alaska, principally through our Peak Oilfield
Services joint venture. In the U.S. Lower 48 states we provide rig
transportation and related services through our Peak USA Energy Services
subsidiary, primarily to our domestic onshore drilling operations.
Our offshore support vessels, which operate primarily in the Gulf of Mexico,
provide marine transportation of drilling materials, supplies and crews for
offshore rig operations and support for other offshore facilities. We also
provide offshore logistical support to drilling and workover operations,
pipe-laying and other construction, production platforms and geophysical
operations. Nabors markets 28 support vessels, including ten Super 200 platform
supply vessels, 12 conventional offshore supply vessels, six mini-supply
vessels, one oceanographic research vessel and one anchor handling tug supply
vessel. Our supply vessels are used as freight-carrying vessels for drill pipe,
tubing, casing, drilling mud and other equipment to drilling rigs and
production platforms. Lengths for our supply vessels range from 166 to 220
feet. Our mini-supply vessels are used primarily in support of well service and
production operations, such as moving offshore pipe, fluids and equipment for
offshore workovers. Mini-supply vessel lengths range from 130 to 145 feet. Our
research vessel, which is 175 feet in length, is used to carry equipment and
personnel necessary to perform oceanographic surveys. Our anchor-handling tug
supply vessel is used to tow rigs to offshore locations and position anchors of
floating drilling rigs and pipe-laying vessels. The vessel is 200 feet long,
with 6,140 horsepower, and can also be used as a supply vessel.
Nabors' domestic onshore well-servicing and workover operation also provides
production services consisting chiefly of fluid hauling and fluid storage tank
rental. The production services assets, located primarily in Texas, consist of
over 290 fluid hauling trucks and eight salt water disposal wells, which are
utilized for the transportation and disposal of drilling and used completion
fluids and salt water produced from operating wells, and approximately 700
fluid storage tanks, which are utilized for the storage of fluids used in the
fracturing of producing zones during the completion or workover of wells.
C. INDUSTRY CONDITIONS.
To a large degree, Nabors' businesses depend on the level of spending by oil
and gas companies for exploration, development and production activities. A
sustained increase or decrease in the price of natural gas or oil could have a
material impact on exploration and production activities by our customers and
could also affect materially our financial position, results of operations and
cash flows. See "Part I - Item 1 - Risk Factors - Fluctuations in oil and gas
prices could adversely affect drilling activity and Nabors' revenues, cash
flows and profitability."
The oil and gas industry has been subject to extreme volatility in recent years
because of significant changes in the demand, supply and pricing of natural gas
and oil. In 2000 the price of natural gas and oil improved substantially. The
primary contributing factors associated with these price increases were the
convergence of supply and demand for natural gas and oil brought about by
secular global economic growth and the increasing difficulty, expense and long
lead times involved in adding to supply. Rising demand and difficulty in
finding and developing additional supply brought the U.S. land rig market to
the point where the demand for rigs far exceeded supply. The same situation
existed, to a lesser extent, in Canada and U.S Offshore markets. This
high-demand, low-supply environment had a positive impact on our industry.
The tightening of the supply-demand balance continued during the first half of
2001 and along with a colder-than-normal winter provided a catalyst for a spike
in natural gas demand, which led to a rapid escalation in natural gas prices.
While high natural gas prices fueled a sharp increase in drilling utilization
and margins, they soon had an adverse effect on many elements of industrial
demand, particularly petrochemicals, and that portion of electric generation
that could utilize more economical fuels. Demand was also impacted by a general
contraction in the nation's economy beginning in the second half of 2001. These
factors led to downward pressure on natural gas prices, leading to a sharp
reduction in drilling activity.
Natural gas and oil prices began to recover in the first quarter of 2002 as a
result of falling natural gas production and low storage levels. However, a
recovery in North American drilling activity did not materialize until early
2003. This time lag in spending was attributable to the need for significantly
higher natural gas prices to offset the increased cost and risk of finding and
developing incremental gas production along with confidence that prices will
sustain at such levels. Sufficiently higher prices did not materialize until
the fourth quarter of 2002 and there is generally a two to three quarter lead
time in implementing increased spending following higher cash flow.
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The higher-than-anticipated pricing for natural gas and oil has continued into
2003, and the continued fall in natural gas production and storage levels
resulting from lower drilling activity is increasing the likelihood that higher
average prices will be sustained over the intermediate term. We expect these
factors to result in an improvement in North American drilling activity during
2003.
D. COMPETITIVE CONDITIONS.
Our industry remains very competitive. The number of rigs continues to exceed
demand in many of our markets, resulting in strong price competition. Many rigs
can be readily moved from one region to another in response to changes in
levels of activity, which may result in an oversupply of rigs in such areas.
Many of the total available contracts are currently awarded on a bid basis,
which further increases competition based on price. The land drilling, workover
and well-servicing market is generally more competitive than the offshore
market due to the larger number of rigs and companies.
In all of our geographic market areas, price and availability and condition of
equipment are the most significant factors in determining which drilling
contractor is awarded a job. Other factors include the availability of trained
personnel possessing the required specialized skills; the overall quality of
service and safety record; and domestically, the ability to offer ancillary
services. In international markets, experience in operating in certain
environments and customer alliances also have been factors in the selection of
Nabors.
Certain competitors are present in more than one of Nabors' operating regions,
although no one competitor operates in all of these areas. In the U.S. Lower 48
states, there are several hundred competitors with smaller national, regional
or local rig operations. In domestic land workover and well-servicing, we
compete with Key Energy Services, Inc., which owns over 1,400 U.S. workover and
well-servicing rigs (according to its public filings), and with numerous other
competitors having smaller regional or local rig operations. In the Alaska
market, Nabors has two primary competitors, Doyon Drilling, Inc. and Nordic
Calista Services. Kuukpik Drilling has also made attempts to enlarge its
presence in this market. In Canada and offshore, Nabors competes with many
firms of varying size, several of which have more significant operations in
those areas than Nabors. Internationally, Nabors competes directly with various
contractors at each location where it operates. Nabors believes that the market
for land drilling, workover and well-servicing contracts will continue to be
competitive for the foreseeable future. Although Nabors believes it has a
strong competitive position in the domestic land drilling, workover and
well-servicing sector, certain of our competitors internationally and offshore
may be better positioned in certain markets, allowing them to compete more
effectively.
The contract drilling, workover and well-servicing industry has been cyclical
historically, with significant volatility in profitability and rig values. This
industry cyclicality has been due to changes in the level of domestic oil and
gas exploration and development activity and the available supply of drilling
rigs. From 1982 until 1996, the contract drilling business was severely
impacted by the decline and continued instability in the prices of oil and
natural gas following a period of significant increase in new drilling rig
capacity. Rising prices in 1997 gave way to a steep decline that continued
through 1998 and most of 1999. Although the market improved substantially in
2000 and the first half of 2001, the rapid, severe downturn in the latter half
of the year illustrates the dependence of the industry on natural gas and oil
prices.
Our manufacturing and logistics segment represents a relatively smaller part of
our business, and we have numerous competitors in each area in which we operate
who may have greater resources and may be better positioned than Nabors. Our
Canrig subsidiary is one of the six major manufacturers of top drives. Its
largest competitors are Varco, Tesco and National Oilwell. EPOCH's largest
competitor in the manufacture of rig instrumentation systems is Varco's Totco
subsidiary. Mudlogging services are provided by a number of entities that serve
the oil and gas industry on a regional basis. EPOCH competes for mudlogging
customers with Sperry Sun and Baker Hughes in the Gulf Coast region, California
and Alaska. In the U.S. Lower 48 states, there are hundreds of rig
transportation
11
companies, and there are at least three or four that compete with Peak USA
in each of its operating regions. In Alaska, Peak Oilfield Services
principally competes with Alaska Petroleum Contractors for road, pad and
pipeline maintenance, and is one of many drill site and road construction
companies, the largest of which is VECO Corporation. We also compete with
numerous offshore support vessel operators in the Gulf of Mexico on the
basis of quality of service, price, vessel suitability and availability and
reputation.
IV. RECENT DEVELOPMENTS.
A. OPERATING RESULTS.
Operating revenues and Earnings from unconsolidated affiliates for 2002 totaled
$1.5 billion, representing a decrease of $746.9 million, or 34%, as compared to
2001. Adjusted income derived from operating activities and net income for 2002
totaled $170.0 million and $121.5 million ($.81 per diluted share),
respectively, representing decreases of 68% and 66%, respectively, as compared
to 2001.
The decrease in our operating results during 2002 primarily results from a
decline in business conditions in several of our key North American markets,
resulting in reduced rig utilization and average gross margins. The depressed
price for natural gas and oil over the period beginning in the third quarter of
2001 through the latter part of the second quarter of 2002 resulted in
decreased spending by our customers for our services during the second half of
2001 and for all of 2002.
This decreased spending and corresponding decline in our rig activity resulted
in declining profitability for Nabors over that period. These lower activity
levels were experienced by a majority of our North American business units,
with the sharpest decline coming from our U.S. Land Drilling business. The
decrease in North American land and offshore drilling activity is illustrated
by the drilling industry's lower total active land and offshore rig count. The
average U.S. Land, Canadian Land and U.S. offshore rig counts during 2002 were
lower by 29%, 23% and 26%, respectively, than the 2001 period. Also
contributing to the overall decline in our operating results was a decline in
activity for our U.S. Land Well-servicing and workover business, driven
primarily by lower rig utilization due to the overall weak market, and the loss
of some higher margin workover rigs and an offshore platform operation during
the second half of 2002.
Natural gas prices are the primary driver of our U.S. Lower 48 land, Canadian
and U.S. Offshore operations while oil prices are the primary driver of our
Alaskan, International and U.S. Well-servicing operations. The Henry Hub
natural gas spot price (per Bloomberg) averaged $3.37 per million cubic feet
(mcf) during 2002, down from the $3.96 per mcf average during 2001. West Texas
intermediate spot oil prices (per Bloomberg) averaged $26.17 per barrel during
2002, up slightly from $25.96 per barrel during 2001. Beginning in the first
quarter of 2002 a tightening in natural gas and oil supply resulted in an
improvement in natural gas and oil prices. Natural gas and oil prices averaged
$3.76 per mcf and $28.29 per barrel, respectively, during the last six months
of 2002. A substantial portion of this improvement in prices occurred during
the fourth quarter, when natural gas prices averaged $4.31 per mcf. As discussed
above, these price increases did not result in a corresponding strengthening of
our key North American markets until early 2003.
As had been expected, we realized improvements in our International, Canadian
and U.S. Offshore businesses during the fourth quarter of 2002, which were
offset by lower results in our U.S. Land Drilling and U.S. Well-servicing
businesses. We expect an improvement in all of our business units in 2003 given
the high level of natural gas and oil prices sustained during the latter part
of 2002 and the beginning of 2003.
12
Additional information regarding our financial condition and results can be
found on pages 44 through 65 of the Nabors Industries Ltd. 2002 Annual Report,
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations".
B. CORPORATE REORGANIZATION.
Effective June 24, 2002, Nabors became the successor to Nabors Industries, Inc.
("Nabors Delaware") following a corporate reorganization. The reorganization
was accomplished through a merger of an indirect, newly formed Delaware
subsidiary of Nabors into Nabors Delaware. Nabors Delaware was the surviving
company in the merger and became a wholly owned subsidiary of Nabors. Upon
consummation of the merger, all outstanding shares of Nabors Delaware common
stock automatically converted into the right to receive Nabors common shares,
with the result that the shareholders of Nabors Delaware on the date of the
merger became the shareholders of Nabors. Nabors and its subsidiaries continue
to conduct the businesses previously conducted by Nabors Delaware and its
subsidiaries. The reorganization was accounted for as a reorganization of
entities under common control and, accordingly, it did not result in any
changes to the consolidated amounts of assets, liabilities and stockholders'
equity.
The Board of Nabors Delaware approved the reorganization transaction because
international activities are an important part of our current business and we
believe that our international operations will continue to grow in the future
and be benefited by the reorganization. Expansion of our international business
is an important part of our current business strategy and significant growth
opportunities exist in the international marketplace. We believe that
reorganizing as a Bermuda company will allow us to implement our business
strategy more effectively. In addition, we believe that the reorganization
should increase our access to international capital markets and acquisition
opportunities, increase our attractiveness to non-U.S. investors, improve
global cash management, improve our global tax position and result in a more
favorable corporate structure for expansion of our current business.
Several members of the United States Congress have proposed legislation that,
if enacted, would have the effect of eliminating the tax benefits of the
reorganization. During 2002 the Senate Finance Committee approved legislation
that, for the United States federal tax purposes, would treat a corporation
such as Nabors that reorganizes in a foreign jurisdiction as a domestic
corporation and, thus, such foreign corporation would be subject to United
States federal income tax. Substantially similar legislation was introduced
during 2002 by the Chairman of the House Committee on Ways and Means. The
proposed legislation did not pass during the 2002 session of Congress but is
expected to be reintroduced during 2003 and may have a retroactive effective
date for transactions completed after March 20, 2002. If any of the proposed
legislation were enacted with the currently proposed effective dates, the
expected tax savings from the reorganization will not be realized.
In light of such events and if and when any such legislation is enacted, we
will consider the effects of the legislation and will evaluate all strategic
alternatives that may be appropriate.
C. CORPORATE GOVERNANCE.
During 2002 and early 2003 the Board of Directors of Nabors adopted new
charters for each of the Audit Committee and Compensation Committee of the
Board of Directors and new Corporate Governance Principles for the full Board.
The Corporate Governance Principles, among other things, require a substantial
majority of the Board to consist of directors independent from management,
require directors to own at least $100,000 of Nabors stock, set a retirement
age for new directors, provide for executive sessions of the independent
directors, and provide for an annual evaluation of Nabors' Chief Executive
Officer. The Board also elected Mr. Whitman as the "lead independent" director.
D. ACQUISITIONS.
On March 18, 2002, we acquired, for cash, 20.5% of the issued and outstanding
shares of Enserco Energy Service Company, Inc., a Canadian publicly-held
corporation, for Cdn. $15.50 per share for a total price of Cdn. $83.2 million
(U.S. $52.6 million). On April 26, 2002, we completed our acquisition of
Enserco by purchasing their remaining outstanding shares for Cdn. $15.65 per
share, paying cash of Cdn. $100.1 million (U.S. $64.1 million) and issuing
13
3,549,082 exchangeable shares of Nabors Exchangeco (Canada) Inc., an indirect
wholly-owned Canadian subsidiary of Nabors, of which 2,638,526 exchangeable
shares were immediately exchanged for shares of Nabors Delaware common stock in
accordance with the instructions of the holders of those shares. The Nabors
Exchangeco shares are exchangeable for Nabors common shares, at each holder's
option, on a one-for-one basis and are listed on the Toronto Stock Exchange.
Additionally, these exchangeable shares have essentially identical rights as
Nabors common shares, including but not limited to voting rights and the right
to receive dividends, if any, and will be automatically exchanged upon the
occurrence of certain events. The value of the Nabors Exchangeco shares issued
totaled Cdn. $254.2 million, or U.S. $162.8 million. In addition, we assumed
Enserco debt totaling Cdn. $33.4 million (U.S. $21.4 million). The Enserco
purchase price was allocated based on preliminary estimates of the fair market
value of assets acquired and liabilities assumed as of the acquisition date and
resulted in goodwill of approximately Cdn. $158.7 million (U.S. $101.3
million).
Enserco provided land drilling, well-servicing and workover services in Canada
and operated a fleet of 193 well-servicing rigs and 30 drilling rigs as of the
acquisition date. The Enserco acquisition increased our position in Canada with
assets that are relatively new and in excellent condition, allowing us to
provide services to many of our key U.S. customers who have increased their
presence in Canada because of its increasingly strategic importance to the
North American gas supply market.
On October 9, 2002, we acquired Ryan Energy Technologies Inc., a corporation
incorporated under the laws of Alberta, Canada pursuant to a plan of
arrangement approved by the securityholders of Ryan and the Court of Queen's
Bench of Alberta. Pursuant to the arrangement, Exchangeco acquired all of the
issued and outstanding common shares of Ryan in exchange for approximately Cdn.
$22.6 million (U.S. $14.2 million) in cash and 380,264 exchangeable shares of
Exchangeco, of which 219,493 exchangeable shares were immediately exchanged for
common shares of Nabors in accordance with the instructions of the holders of
those shares. In addition, we assumed Ryan debt totaling Cdn. $14.5 million
(U.S. $9.1 million). The Ryan purchase price has been allocated based on
preliminary estimates of the fair market value of assets acquired and
liabilities assumed as of the acquisition date and resulted in goodwill of
approximately Cdn. $5.1 million (U.S. $3.2 million). The purchase price
allocation for the Ryan acquisition is subject to adjustment as additional
information becomes available and will be finalized by September 30, 2003.
Ryan manufactures and sells directional drilling and rig instrumentation
systems and provides directional drilling, rig instrumentation and data
collection services to oil and gas exploration and service companies in the
United States, Canada and Venezuela.
V. OUR BUSINESS STRATEGY.
Since 1987, with the installation of our current management team, Nabors has
adhered to a consistent strategy aimed at positioning our company to grow and
prosper in good times and to mitigate adverse effects during periods of poor
market conditions. We have continued to strive to attain a financial posture
that would allow us to capitalize on market weakness by adding to our business
base, thereby enhancing our upside potential at reasonable costs. The principal
elements of our strategy have been to:
o Maintain flexibility to respond to changing conditions.
o Maintain a conservative and flexible balance sheet.
o Build a base of low-cost, premium assets.
o Build and maintain low operating costs through economies of scale.
o Develop and maintain long-term, mutually attractive relationships
with key customers and vendors.
o Build a diverse business in long-term, sustainable and worthwhile
geographic markets.
o Recognize and seize opportunities as they arise.
o Continually improve safety, quality and efficiency.
o Implement leading edge technology where cost-effective to do so.
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Our business strategy is designed to allow us to grow and remain profitable in
any market environment. Once again, the major developments in our business in
the past year illustrate our implementation of this strategy and its continuing
success. Following is a discussion of recent events describing several of these
strategies.
RESPONDING TO CHANGING CONDITIONS -- During September 2000 we implemented a
capital expenditure program to refurbish, recommission and, in many cases,
upgrade our stacked, domestic drilling fleet. As part of this program, which
was terminated during the fourth quarter of 2001 due to the declining market
conditions in the drilling sector, we recommissioned 113 rigs and partially
completed 32 rigs for an aggregate of approximately $230 million in capital
expenditures.
The decline in demand also caused us to reduce our crew levels during 2002 as
rig usage in the U.S. Lower 48 came down significantly. As with past activity
drops, we have attempted to retain our best and most experienced personnel in
order to be prepared for the next rise in demand.
The decline in the North American market during 2002 was offset in part by
increased activity in our international markets. During 2002 we entered into a
number of long-term contracts in international markets.
MAINTAINING A CONSERVATIVE AND FLEXIBLE BALANCE SHEET -- During 2002 we
purchased $.6 million face value of our 8.625% senior subordinated notes due
April 2008 in the open market at a price of 108%. In addition, we purchased
$4.7 million face value of our 6.8% senior unsecured notes due April 2004 in
the open market at a price of 104%. Upon settlement of these transactions, we
paid $5.7 million and recognized a pretax loss of approximately $.2 million,
resulting from the repurchases of these notes at prices higher than their
carrying value. Additionally, we repaid Cdn. $22.3 million (U.S. $14.3 million)
and Cdn. $12.9 million (U.S. $8.3 million) of the debt assumed in the Enserco
and Ryan acquisitions, respectively. We also made a $2.5 million scheduled
principal payment relating to certain of our medium-term notes.
We had a $200 million unsecured committed revolving credit facility with a
syndicate of banks, with an original term of five years, that was scheduled to
mature on September 5, 2002. As a result of the corporate reorganization
discussed above, we may have failed to comply with a covenant contained in the
credit facility agreement and a related $30 million letter of credit facility
agreement. At the time of the potential default, there were no outstanding
borrowings on the revolving credit facility and $23 million was outstanding on
the related letter of credit facility. The bank provided a waiver on the letter
of credit facility and the letter of credit facility has since expired. Because
we had cash and marketable securities balances totaling approximately $800
million at the time of the potential default, we terminated the revolving
credit facility.
On August 22, 2002, Nabors Holdings 1, ULC, one of our indirect, wholly-owned
subsidiaries, issued $225 million aggregate principal amount of 4.875% senior
notes due 2009 that are fully and unconditionally guaranteed by Nabors and
Nabors Delaware. Concurrently with this offering by Nabors Holdings, Nabors
Delaware issued $275 million aggregate principal amount of 5.375% senior notes
due 2012, which are fully and unconditionally guaranteed by Nabors. Cash
provided by our issuance of these senior notes totaled $495.9 million. The
proceeds from the issuance of these senior notes were invested in cash and
marketable securities.
On October 21, 2002, we entered into an interest rate swap transaction with a
third party financial institution to hedge our exposure to changes in the fair
value of $200 million of our fixed rate 5.375% senior notes due 2012 issued by
Nabors Delaware. The purpose of this transaction was to convert a portion of
future interest due on the senior notes to a lower variable rate in an attempt
to realize savings on our future interest payments. We have designated this
swap agreement as a fair value hedge. The swap agreement has a notional amount
of $200 million and matures in August 2012 to match the maturity of the senior
notes. Under the agreement, we pay on a quarterly basis a floating rate based
on a three-month U.S. dollar LIBOR rate, plus a spread of 62.625 basis points,
and receive semi-annually a fixed rate of interest of 5.375%. During 2002 we
recorded interest savings related to this interest rate swap of $1.2 million
which served to reduce interest expense. The change in cumulative fair value of
this derivative instrument resulted in the recording of a derivative asset,
included in other long-term assets, of $10.1 million as of December 31, 2002.
The carrying value of our 5.375% senior notes was increased by the same amount.
15
On October 21, 2002, we also purchased a LIBOR range cap and sold a LIBOR floor
in the form of a cashless collar, with the same third party financial
institution with which we had executed the interest rate swap. These
transactions are intended to mitigate and manage our exposure to changes in the
three-month U.S. dollar LIBOR rate and do not qualify for hedge accounting
treatment. Any change in the cumulative fair value of the range cap and the
floor will be reflected as a gain or loss in our consolidated statement of
income. The range cap and the floor are effective August 15, 2003 and expire on
August 15, 2012. The range cap will be triggered when the three-month U.S.
dollar LIBOR rate is at or above 4.50%, and below 6.50%, such that the
counterparty will pay us any difference between the actual LIBOR rate and the
4.50% strike rate on a notional amount of $200 million. No payment will be due
to us if the three-month U.S. dollar LIBOR rate is below 4.5% or at or above
6.50%. The floor is triggered when the three-month U.S. dollar LIBOR rate is at
or below 2.665% such that we will pay the counterparty any difference between
the actual LIBOR rate and the 2.665% floor rate on a notional amount of $200
million. We recorded a loss of $3.8 million during 2002 related to the change
in cumulative fair value of this derivative instrument. This loss is included
in other income in our consolidated statement of income for the year ended
December 31, 2002 and has been accrued in other long-term liabilities in our
consolidated balance sheet as of December 31, 2002.
On July 17, 2002, the Board of Directors of Nabors authorized the continuation
of the share repurchase program that had begun under Nabors Delaware, and
provided that the amount of Nabors common shares authorized for purchase by
Nabors going forward be increased to $400 million. Under the Nabors Delaware
program, Nabors Delaware had acquired an aggregate of approximately $248.0
million of Nabors Delaware common stock, or 6.2 million shares, during 2001.
During the third quarter of 2002, Nabors also acquired, through a subsidiary,
91,000 of its common shares in the open market for $27.30 per share for an
aggregate price of $2.5 million. Immediately thereafter these shares were
transferred to Nabors. Pursuant to Bermuda law, any shares, when purchased,
will be treated as cancelled. Accordingly, a repurchase of shares will not have
the effect of reducing the amount of Nabors' authorized share capital.
Additionally, the Board approved the repurchase of up to $400 million of
outstanding debt securities of Nabors and its subsidiaries. These amounts may
be increased or decreased at the discretion of the Board, depending upon market
conditions and consideration of the best interest of shareholder value.
Repurchases may be conducted on the open market, through negotiated
transactions, or by other means, from time to time, depending upon market
conditions and other factors.
On December 27, 2002, Nabors filed an S-3 "shelf" registration statement with
the Securities and Exchange Commission, to allow Nabors and certain of its
subsidiaries to sell up to $700 million in securities from time to time during
the effectiveness of the registration.
On February 21, 2003, Nabors issued a notice of redemption to the holders of
its 8-5/8% Senior Subordinated Notes due April 1, 2008, for redemption of the
notes and all associated guarantees on April 1, 2003. The redemption price will
be $1,043.13 per $1,000 principal amount of the notes together with accrued and
unpaid interest to the date of redemption. The remaining outstanding principal
amount of the notes is approximately $42.5 million. We estimate that we will
recognize a pre-tax loss of approximately $0.9 million, resulting from the
redemption of the notes at prices higher than their carrying value on April 1,
2003.
RECOGNIZING OPPORTUNITY -- Our Enserco and Ryan acquisitions completed during
2002 expanded our presence in Canada and added to our technological
capabilities that can be shared across the Nabors group of companies.
SAFETY -- In the drilling and oilfield service business, safety and loss
control are critical to overall performance. The safety and health of Nabors'
employees are of paramount importance. Nabors intensified its safety and loss
control program in 1997 with its U.S. Lower 48 drilling operations, and
expanded the enhanced program to the other business units during the last half
of 2000. The enhanced programs were largely carried out in 2001 and are
becoming further embedded in Nabors culture. Significant improvements have
already been achieved as evidenced by our total OSHA (Occupational Safety and
Health Administration) recordable incident rate (see chart below).
Additionally, in 2002 Nabors' international drilling subsidiary completed a
three year development of an ISO 9000 compatible Rig Management Systems quality
program, and is now in the implementation and operation phase of that program.
Nabors' offshore operations have adopted the same program. Although it is
impossible to predict what
16
incident rates will be in the future, continuous improvement in our safety
procedures is an important part of Nabors' business strategy.
OSHA Recordable Incident Rates*
------------------------------
1997 7.80
1998 5.50
1999 3.43
2000 3.65
2001 2.99
2002 2.43
* The OSHA recordable incident rate is equal to number of OSHA recordable
incidents multiplied by 200,000 man-hours divided by the actual number of
man-hours worked for the period.
VI. RISK FACTORS
In addition to the other information set forth elsewhere in this Form 10-K, the
following factors should be carefully considered when evaluating Nabors.
FLUCTUATIONS IN OIL AND GAS PRICES COULD ADVERSELY AFFECT DRILLING ACTIVITY
AND OUR REVENUES, CASH FLOWS AND PROFITABILITY
Our operations are materially dependent upon the level of activity in oil and
gas exploration and production. Both short-term and long-term trends in oil and
gas prices affect the level of such activity. Oil and gas prices and,
therefore, the level of drilling, exploration and production activity can be
volatile. Worldwide military, political and economic events, including
initiatives by the Organization of Petroleum Exporting Countries, may affect
both the demand for, and the supply of, oil and gas. Weather conditions,
governmental regulation (both in the United States and elsewhere), levels of
consumer demand, the availability of pipeline capacity, and other factors
beyond our control may also affect the supply of and demand for oil and gas.
Fluctuations during the last few years in the demand and supply of oil and gas
have contributed to, and are likely to continue to contribute to, price
volatility. We believe that any prolonged reduction in oil and gas prices would
depress the level of exploration and production activity. This would likely
result in a corresponding decline in the demand for our services and could have
a material adverse effect on our revenues, cash flows and profitability. Lower
oil and gas prices could also cause our customers to seek to terminate,
renegotiate or fail to honor our drilling contracts; affect the fair market
value of our rig fleet which in turn could trigger a writedown for accounting
purposes; affect our ability to retain skilled rig personnel; and affect our
ability to obtain access to 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 gas and oilfield services industries.
WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY WITH EXCESS DRILLING CAPACITY,
WHICH MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
The oilfield services industry in which we operate 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. Many drilling, workover and well-servicing rigs can be moved from one
region to another in response to changes in levels of activity and provided
market conditions warrant, which may result in an oversupply of rigs in an
area. In many markets in which we operate, the number of rigs available for use
exceeds the demand for rigs, resulting in price competition. Most drilling and
workover contracts are awarded on the basis of competitive bids, which also
results in price competition. The land drilling market generally is more
competitive than the offshore drilling market because there are larger numbers
of rigs and competitors.
Certain competitors are present in more than one of the regions in which we
operate, although no one competitor operates in all of these areas. In the U.S.
Lower 48 states, there are several hundred competitors with smaller
17
national, regional or local rig operations. In the Alaska market, we have
two principal competitors. In Canada and offshore, we compete with several
firms of varying size, many of which have more significant operations in
those areas than us. Internationally, we compete directly with various
competitors at each location where we operate. We believe that the market
for land drilling and workover contracts will continue to be competitive for
the foreseeable future. Although we believe that we have a strong
competitive position in the domestic land drilling, workover and
well-servicing sector, certain of our competitors internationally and
offshore may be better positioned in certain markets, allowing them to
compete more effectively.
THE NATURE OF OUR OPERATIONS PRESENTS INHERENT RISKS OF LOSS THAT, IF NOT
INSURED OR INDEMNIFIED AGAINST, COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS
Our operations are subject to many hazards inherent in the drilling, workover
and well-servicing industries, including blowouts, cratering, explosions,
fires, loss of well control, loss of hole, 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 damage and
damage to the property of others. Our offshore operations are also subject to
the hazards of marine operations including capsizing, grounding, collision,
damage from heavy weather or sea conditions and unsound ocean bottom
conditions. In addition, our international operations are subject to risks of
war, civil disturbances or other political events. Generally, drilling
contracts provide for the division of responsibilities between a drilling
company and its customer, and we seek to obtain indemnification from our
customers by contract for certain of these risks. To the extent that we are
unable to transfer such risks to customers by contract or indemnification
agreements, we seek protection through insurance. However, there is no
assurance that such insurance or indemnification agreements will adequately
protect us against liability from all of the consequences of the hazards
described above. The occurrence of an event not fully insured or indemnified
against, or the failure of a customer or insurer to meet its indemnification or
insurance obligations, could result in substantial losses. In addition, there
can be no assurance that insurance will be available to cover any or all of
these risks, or, even if available, that it will be adequate or that insurance
premiums or other costs will not rise significantly in the future, so as to
make such insurance prohibitive. This is particularly of concern in the wake of
the September 11 terrorist attacks, which adversely affected an already
tightening insurance market. It is likely that, in our upcoming insurance
renewals, our premiums and deductibles will be higher, and certain insurance
coverage either will be unavailable or considerably more expensive than it has
been in the recent past (as is expected to be the case for terrorism coverage,
for example). Moreover, our insurance coverage generally provides that we
assume a portion of the risk in the form of an insurance coverage deductible.
We expect that 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 the
effect of insurance premium increases.
THE PROFITABILITY OF OUR INTERNATIONAL OPERATIONS COULD BE ADVERSELY AFFECTED
BY WAR, CIVIL DISTURBANCE OR POLITICAL OR ECONOMIC TURMOIL
We derive a significant portion of our business from international markets,
including major operations in Canada, the Middle East, Asia and South and
Central America. These operations are subject to various risks, including the
risk of war (including the war in Iraq), civil disturbances and governmental
activities, that may limit or disrupt markets, restrict the movement of funds
or result in the deprivation of contract rights or the taking of property
without fair compensation. In certain countries, our operations may be subject
to the additional risk of fluctuating currency values and exchange controls. In
the international markets in which we operate, we 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.
PROPOSED TAX LEGISLATION COULD ELIMINATE THE BENEFITS OF OUR REORGANIZATION
Various bills have been introduced in Congress that would retroactively
eliminate the tax benefits associated with our reorganization as a Bermuda
company. Although no such legislation passed the U.S. Congress in its session
ending during 2002, we expect that similar legislation will be reintroduced in
the current United States Congressional session. Because we cannot predict
whether legislation ultimately will be adopted, no assurances can be given that
the tax benefits associated with our reorganization ultimately will accrue to
the benefit of the company and its shareholders. If legislation is enacted that
retroactively eliminates the benefit of the reorganization, our net
18
operating loss carryforward for U.S. tax purposes would be reduced
significantly and our effective tax rate in future periods could be
increased significantly.
NONCOMPLIANCE WITH GOVERNMENTAL REGULATION OR EXPOSURE TO ENVIRONMENTAL
LIABILITIES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
The drilling of oil and gas wells is subject to various federal, state, local
and foreign laws, rules and regulations. Our cost of compliance with these laws
and regulations may be substantial. For example, federal law imposes specific
design and operational standards on rigs and platforms. Failure to comply with
these requirements could subject us to substantial civil and criminal penalties
as well as potential court injunctions. In addition, federal law imposes a
variety of regulations on "responsible parties" related to the prevention of
oil spills and liability for damages from such spills. As an owner and operator
of onshore and offshore rigs and transportation equipment, we may be deemed to
be a responsible party under federal law. In addition, our well-servicing,
workover and production services operations routinely involve the handling of
significant amounts of waste materials, some of which are classified as
hazardous substances. Our operations and facilities are subject to numerous
state and federal environmental laws, rules and regulations, including, without
limitation, laws concerning the containment and disposal of hazardous
substances, oilfield waste and other waste materials, the use of underground
storage tanks and the use of underground injection wells. We generally require
our customers contractually to assume responsibility for compliance with
environmental regulations. However, we are not always successful in allocating
to our customers all of these risks nor is there any assurance that the
customer will be financially able to bear those risks assumed.
We employ personnel responsible for monitoring environmental compliance and
arranging for remedial actions that may be required from time to time and also
use outside experts to advise on and assist with our environmental compliance
efforts. Costs we incur to investigate and remediate contaminated sites are
expensed unless the remediation extends the useful lives of the assets employed
at the site. Remediation costs that extend the useful lives of the assets are
capitalized and amortized over the remaining useful lives of such assets.
Liabilities are recorded when the need for environmental assessments and/or
remedial efforts become known or probable and the cost can be reasonably
estimated.
Laws protecting the environment generally have become more stringent than in
the past and are expected to continue to become more so. Violation of
environmental laws and regulations can lead to the imposition of
administrative, civil or criminal penalties, remedial operations; and in some
cases injunctive relief. Such violations could also result in liabilities for
personal injuries, property damage, and other costs and claims.
Under the Comprehensive Environmental Response, Compensation and Liability Act,
also known as CERCLA or Superfund, and related state laws and regulations,
liability can be imposed jointly on the entire group of responsible parties or
separately on any one of the responsible parties, without regard to fault or
the legality of the original conduct on certain classes of persons that
contributed to the release of a "hazardous substance" into the environment.
Under CERCLA, such persons may be liable for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for the neighboring land
owners and other third parties to file claims for personal injury, property
damage and recovery of response costs allegedly caused by the hazardous
substances released into the environment. We have been notified of our possible
responsibility with respect to the cleanup of a federal national priority list
site and a state abandoned site, which were formerly operated by parties
unrelated to us as oilfield waste disposal facilities. In addition, we have
been named as a potentially responsible party with respect to the cleanup of
three other sites, which were formerly operated by various parties unrelated to
us. We believe that our cost to clean up each of these sites will be less than
$100,000. Although at this time information regarding our possible
responsibility with respect to cleanup of the federal national priority list
site and the state abandoned site has not been fully developed and it is not
feasible to predict such outcome with certainty, we are of the opinion that
their ultimate resolution should not have a material adverse effect on our
financial statements or results of operations.
Changes in federal and state environmental regulations may also negatively
impact oil and natural gas exploration and production companies, which in turn
could have a material adverse effect on us. For example, legislation has been
proposed from time to time in Congress which would reclassify certain oil and
natural gas production wastes as hazardous wastes, which would make the
reclassified wastes subject to more stringent handling, disposal and clean-up
19
requirements. If enacted, such legislation could dramatically increase
operating costs for oil and natural gas companies and could reduce the market
for our services by making many wells and/or oilfields uneconomical to operate.
With respect to our offshore support vessels we are affected by certain U.S.
governmental regulations. Although incorporated in Bermuda, we qualify to own
our offshore U.S. flag vessels through one of our wholly owned subsidiaries. The
subsidiary bareboat chartered the vessels for an original term of five years,
subject to renewals, to an entity qualified as a U.S. citizen under applicable
law. The law which permits this structure and the proposed regulations are
controversial. If the Coast Guard were to change its interpretation of its
proposed regulations or if the U.S. Congress were to change existing law, we
might not be permitted to own our offshore support vessels. Additionally, even
under the existing law and proposed regulations, our continued ownership of the
vessels is dependent upon the continuation of the bareboat charter, which could
terminate for reason of default by either party during the original term or
which might not be renewed.
The Oil Pollution Act of 1990, as amended, contains provisions specifying
responsibility for removal costs and damages resulting from discharges of oil
into navigable waters or onto the adjoining shorelines. Among other
requirements, this law requires owners and operators of vessels over 300 gross
tons to provide the U.S. Coast Guard with evidence of financial responsibility
to cover the costs of cleaning up oil spills from such vessels. We believe we
have provided satisfactory evidence of financial responsibility to the U.S.
Coast Guard for all vessels over 300 tons. 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. Because our
offshore support vessel operations rely on offshore oil and gas exploration and
production, if the government were to exercise its authority under this law to
restrict the availability of offshore oil and gas leases, such an action could
have a material adverse effect on our offshore support vessel operations.
AS A HOLDING COMPANY, WE DEPEND ON OUR SUBSIDIARIES 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, we rely exclusively on
repayments of interest and principal on intercompany loans made by us to our
operating subsidiaries and income from dividends and other cash flow from such
subsidiaries. There can be no assurance that our operating subsidiaries will
generate sufficient net income to pay upstream dividends or cash flow to make
payments of interest and principal to us in respect of its intercompany loans.
In addition, from time to time, our operating subsidiaries may enter into
financing arrangements which may contractually restrict or prohibit such
upstream payments to us. There may also be adverse tax consequences associated
with making dividend payments upstream.
WE DO NOT PAY DIVIDENDS
We have not paid any cash dividends on our common shares since 1982. We do not
anticipate that we will pay any cash dividends on common shares in the
foreseeable future. Recent legislation introduced in the United States Congress
may provide certain shareholders with more favorable tax consequences than
exists under present United States law with respect to the receipt of
dividends. In the event that such proposals are enacted into law, management
expects that it will reexamine its policy of not paying dividends, but no
assurances can be given that any dividends will be paid to shareholders.
BECAUSE OUR OPTION, WARRANT AND CONVERTIBLE SECURITIES HOLDERS HAVE A
CONSIDERABLE NUMBER OF COMMON SHARES AVAILABLE FOR ISSUANCE AND RESALE,
SIGNIFICANT ISSUANCES OR RESALES IN THE FUTURE MAY ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON SHARES
As of March 14, 2003, there were 400,000,000 authorized shares of our common
shares, of which 145,234,077 shares were outstanding. In addition, 31,264,999
shares of our common shares were reserved for issuance pursuant to option and
employee benefit plans, 318,850 shares of our common shares were reserved for
issuance upon the exercise of outstanding warrants and 16,598,005 shares were
reserved for issuance upon conversion or repurchase of outstanding zero coupon
convertible debentures. In addition, in connection with our Enserco and Ryan
acquisitions, up to 569,470 shares of our common shares could be issuable on
exchange of the shares and warrants of Nabors
20
Exchangeco (Canada) Inc. We also may sell up to $700 million of securities
of various types in connection with a shelf registration statement declared
effective on January 16, 2003 by the Securities and Exchange Commission. 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 warrants or options (and, where applicable, sales pursuant to Rule 144)
or to the conversion into, or repurchase of debentures using, common shares,
would be dilutive to existing security holders, 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.
PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS MAY DETER A CHANGE OF CONTROL
TRANSACTION AND DECREASE THE LIKELIHOOD OF A SHAREHOLDER RECEIVING A CHANGE OF
CONTROL PREMIUM
Our board of directors is divided into three classes, with each class serving a
staggered three-year term. In addition, our board of directors has the
authority to issue a significant amount of common shares and up to 25,000,000
preferred shares (of which one preferred share is issued) and to determine the
price, rights (including voting rights), conversion ratios, preferences and
privileges of the preferred shares, in each case without further vote or action
by the holders of the common shares. Although we have no present plans to issue
additional preferred shares, the classified board and our board's ability to
issue additional preferred shares may discourage, delay or prevent changes in
control of Nabors that is not supported by our board, thereby possibly
preventing certain of our shareholders from realizing a possible premium on
their shares.
WE HAVE A SUBSTANTIAL AMOUNT OF DEBT OUTSTANDING
We had approximately $2.1 billion in debt outstanding at December 31, 2002,
resulting in a funded debt-to-capitalization ratio of 0.49:1.00. This ratio is
calculated by dividing funded debt by funded debt plus capital. Funded debt is
defined as the sum of (1) short-term borrowings, (2) the current portion of
long-term obligations and (3) long-term obligations. Capital is defined as
stockholders' equity. This ratio is one method for calculating the amount of
leverage a company has in relation to its capital.
VII. ACQUISITIONS AND DIVESTITURES.
We have grown from a land drilling business centered in the U.S. Lower 48,
Canada and Alaska to an international business with operations on land and
offshore in many of the major oil, gas and geothermal markets in the world. At
the beginning of 1990, our fleet consisted of 44 land drilling rigs in Canada,
Alaska and in various international markets. Today, Nabors' worldwide fleet
consists of almost 600 land drilling rigs, approximately 745 domestic and 40
international land workover and well-servicing rigs, 43 offshore platform rigs,
16 jack-ups, three barge rigs, 30 marine transportation and support vessels,
and a large component of trucks and fluid hauling vehicles. This growth was
fueled in part by strategic acquisitions, as summarized in the following chart:
- --------------- ---------------------------------- --------------------------------- --------------------------------
DATE ACQUIRED OR SELLING ENTITY ASSETS ACQUIRED(1) LOCATIONS
- --------------- ---------------------------------- --------------------------------- --------------------------------
3/1990 Loffland Brothers Company 63 land drilling rigs; yards; North Sea, Middle East,
miscellaneous equipment and Canada, U.S. Lower 48, Gulf of
inventory; financial assets Mexico, Venezuela
- --------------- ---------------------------------- --------------------------------- --------------------------------
11/1990 Henley Drilling Co. 11 land drilling rigs U.S. Lower 48, Yemen
- --------------- ---------------------------------- --------------------------------- --------------------------------
6/1993 Grace Drilling Co. 110 land drilling rigs; yards; U.S. Lower 48
miscellaneous equipment
and inventory
- --------------- ---------------------------------- --------------------------------- --------------------------------
4/1994 MND Drilling 16 land drilling rigs U.S. Lower 48
- --------------- ---------------------------------- --------------------------------- --------------------------------
10/1994 Sundowner Offshore Services, Inc. 15 platform rigs, 1 platform Gulf of Mexico, International
rig under construction, 5
jack-up workover rigs, 3
workover and plug and
abandonment barges
- --------------- ---------------------------------- --------------------------------- --------------------------------
1994 Various 8 mobile, medium-depth land U.S. Lower 48
drilling rigs
- --------------- ---------------------------------- --------------------------------- --------------------------------
21
- --------------- ---------------------------------- --------------------------------- --------------------------------
DATE ACQUIRED OR SELLING ENTITY ASSETS ACQUIRED(1) LOCATIONS
- --------------- ---------------------------------- --------------------------------- --------------------------------
1/1995 Delta Drilling Company 30 land drilling rigs (15 SCR, Texas, Louisiana
15,000+ capable depth), yards
and office facilities
- --------------- ---------------------------------- --------------------------------- --------------------------------
4/1996 Exeter Drilling Company 49 shallow and medium-depth United States (47),
land drilling rigs International (2)
- --------------- ---------------------------------- --------------------------------- --------------------------------
4/1996 J.W. Gibson Well Servicing 78 workover and well-servicing Rocky Mountains, Mid-continent
Company(2) rigs (10 leased from third Region
parties)
- --------------- ---------------------------------- --------------------------------- --------------------------------
11/1996 EPOCH Well Logging, Inc. Mudlogging units Not applicable
- --------------- ---------------------------------- --------------------------------- --------------------------------
12/1996 Noble Drilling 47 land drilling rigs (19 United States (38),
Company operating and 28 stacked); Canada (9)
yards; equipment and inventory
- --------------- ---------------------------------- --------------------------------- --------------------------------
1/1997 Adcor-Nicklos Drilling 36 land drilling rigs (30 U.S. Lower 48
Company active, 6 stacked, including 14
SCR), equipment, drill pipe,
yards, vehicles and support
equipment
- --------------- ---------------------------------- --------------------------------- --------------------------------
4/1997 Chesley Pruet Drilling Company 12 land drilling rigs (10 Alabama, Louisiana, Mississippi
active, 2 stacked, including 9
SCR)
- --------------- ---------------------------------- --------------------------------- --------------------------------
4/1997 Samson Rig Company 25 stacked SCR land rigs and Oklahoma
large component of equipment
- --------------- ---------------------------------- --------------------------------- --------------------------------
8/1997 Cleveland Drilling Company, Inc. 7 land drilling rigs (6 active, California, Nevada
1 stacked, including 6 SCR rigs)
- --------------- ---------------------------------- --------------------------------- --------------------------------
11/1997 VECO Drilling, Inc.; 6 land drilling rigs (5 active, California, Texas
Diamond L 1 stacked, including 3 SCR) and
two offshore labor contracts; 3
active mechanical rigs
- --------------- ---------------------------------- --------------------------------- --------------------------------
12/1997 C.A.P.E. International, Inc. Rig reporting software Not applicable
- --------------- ---------------------------------- --------------------------------- --------------------------------
5/1998 New Prospect Drilling Company 6 land drilling rigs Arkansas, Oklahoma
- --------------- ---------------------------------- --------------------------------- --------------------------------
5/1998 Can-Tex Drilling & Exploration, 7 land drilling rigs Alberta, Canada
Ltd.
- --------------- ---------------------------------- --------------------------------- --------------------------------
6/1998 Transocean-Nabors Drilling Joint interest in a coiled Alaska
Technology LLC tubing drilling rig; certain
technology rights
- --------------- ---------------------------------- --------------------------------- --------------------------------
4/1999 Bayard Drilling Technologies, 87 land drilling rigs (73 Oklahoma, Texas, Louisiana,
Inc. actively marketed); significant Arkansas
inventories of new component
equipment (e.g., drill pipe,
engines and mud pumps);
oilfield hauling equipment fleet
- --------------- ---------------------------------- --------------------------------- --------------------------------
11/1999 Pool Energy Services Co. 790 land well U.S. Lower 48, Gulf of Mexico,
servicing/workover rigs (470 Alaska, International
actively marketed); 34 land
drilling rigs; 25 offshore
rigs; 300+ fluid handling
trucks; 1,060 storage tanks
and 15 salt-water disposal
wells; 27 offshore supply
vessels
- --------------- ---------------------------------- --------------------------------- --------------------------------
12/1999 - Various 7 offshore supply vessels Gulf of Mexico
10/2000 (including 5 new-builds)
- --------------- ---------------------------------- --------------------------------- --------------------------------
12/2000 Parker Drilling Company 1 arctic land rig; 1 ball mill Alaska
unit
- --------------- ---------------------------------- --------------------------------- --------------------------------
22
- --------------- ---------------------------------- --------------------------------- --------------------------------
DATE ACQUIRED OR SELLING ENTITY ASSETS ACQUIRED(1) LOCATIONS
- --------------- ---------------------------------- --------------------------------- --------------------------------
11/2001 Command Drilling Corporation 15 land drilling rigs (plus one Canada
under construction)
- --------------- ---------------------------------- --------------------------------- --------------------------------
4/2001, Arabian Jack-up Partnership Four jack-up rigs International
6/2001, 1996, Ltd.; Santa Fe
2/2002 and International Corporation;
6/2002 Transocean, Inc.
- --------------- ---------------------------------- --------------------------------- --------------------------------
3/18/02 Enserco Energy Service Inc. 30 drilling rigs, 209 workover Canada
rigs
- --------------- ---------------------------------- --------------------------------- --------------------------------
10/09/02 Ryan Energy Technologies Inc. Directional Drilling and Canada, U.S. Lower 48,
MWD/LWD Assets Venezuela
- --------------- ---------------------------------- --------------------------------- --------------------------------
(1) With the exception of the MND Drilling, Samson Rig Company and
jack-up rig transactions, all acquisitions of rigs also included substantial
quantities of drill collars and drill pipe.
(2) Sold in January 1998.
Although Nabors continues to examine opportunities, there can be no assurance
that attractive rigs or other acquisition opportunities will continue to be
available, that the pricing will be economical or that we will be successful in
making such acquisitions in the future.
From time to time, we may sell a subsidiary or group of assets outside of our
core markets or business, if it is economically advantageous for us to do so.
VIII. ENVIRONMENTAL COMPLIANCE.
Nabors does not presently anticipate that compliance with currently applicable
environmental regulations and controls will significantly change its
competitive position, capital spending or earnings during 2003. Nabors has been
a party to administrative and legal proceedings with governmental agencies that
have arisen under statutory provisions regulating the discharge or potential
discharge of material into the environment. Nabors believes it is in material
compliance with applicable environmental rules and regulations, and the cost of
such compliance is not material to the business or financial condition of
Nabors. For a more detailed description of the environmental laws and
regulations applicable to Nabors operations, see above under Risk Factors --
Noncompliance with governmental regulation or exposure to environmental
liabilities could adversely affect Nabors' results of operations.
IX. AVAILABLE INFORMATION.
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 Exchange Act as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission.
ITEM 2. PROPERTIES
Information regarding Nabors' rig fleet can be found on pages 28 through 31 of
our 2002 Annual Report and is incorporated into this document by reference.
Many of the international drilling rigs and certain 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
23
trucks, forklifts, cranes, earth moving and other construction and
transportation equipment, which are used to support the drilling and logistics
operations.
Nabors and its subsidiaries own or lease executive and administrative office
space in St. Michael, Barbados (principal executive office); Houston, Texas;
Anchorage, Alaska; Harvey, Houma, Arcadia, New Iberia and Lafayette, Louisiana;
Bakersfield, California; Magnolia, Texas; Calgary and Nisku, Alberta, Canada;
Sana'a, Yemen; Dubai, U.A.E.; Dhahran, Saudi Arabia; and Anaco, Venezuela. We
also own or lease a number of facilities and storage yards used in support of
operations in each of our geographic markets.
Additional information about our properties can be found in Notes 3 and 6
(each, under the caption "Property, Plant and Equipment") and 15 (under the
caption "Operating Leases") of the Notes to Consolidated Financial Statements
on pages 73, 81 and 91, respectively, of our 2002 Annual Report and is
incorporated into this document by reference. The revenues and property, plant
and equipment by geographic area for the fiscal years ended December 31, 2000,
2001 and 2002, can be found in Note 19 of the Notes to Consolidated Financial
Statements in the table on page 97 of our 2002 Annual Report, and are
incorporated into this document by reference.
Nabors' management believes that our equipment and facilities are adequate to
support our current level of operations as well as an expansion of drilling
operations in those geographical areas where we may expand.
ITEM 3. LEGAL PROCEEDINGS
Information with respect to legal proceedings can be found in Note 15 of the
Notes to Consolidated Financial Statements under the caption "Commitments and
Contingencies" on page 91 of our 2002 Annual Report and is incorporated into
this document by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
I. MARKET AND STOCK PRICES.
Our shares are traded on the American Stock Exchange under the symbol "NBR". At
December 28, 2002, there were approximately 2,340 shareholders of record.
Nabors does not pay dividends with respect to its common shares. (See
discussion above under "Part I - Item 1 - BUSINESS - RISK FACTORS") The
composite quarterly high, low and closing prices for our common shares for each
fiscal quarter of 2002 and 2001 can be found under the caption "Corporate
Information - Price of Common Shares" on page 104 of our 2002 Annual Report and
are incorporated by reference into this document.
The Company maintains twelve different equity compensation plans: the 1993
Stock Option Plan for Non-Employee Directors, 1994 Sundowner Offshore Option
Exchange Plan, 1996 Executive Officers Incentive Stock Plan, 1996 Employee
Stock Plan, 1996 Chairman's Executive Stock Plan, 1996 Executive Officers Stock
Plan, 1997 Executive Officers Incentive Stock Plan, 1998 Employee Stock Plan,
1998 Chairman's Executive Stock Plan, 1999 Stock Option Plan for Non-Employee
Directors, 1999 Bayard Employee Option Exchange Plan and 1999 Pool
Employee/Director Option Exchange Plan, pursuant to which it may grant equity
awards to eligible persons from certain plans. The terms of the Company's
Equity Compensation Plans are described more fully below.
The following table gives information about these equity compensation plans as
of December 28, 2002:
24
- ----------------------- ------------------------------ ---------------------------- ---------------------------------
(a) (b) (c)
- ----------------------- ------------------------------ ---------------------------- ---------------------------------
Number of securities remaining
Number of securities to be Weighted-average exercise available for future issuance
issued upon exercise of price of outstanding under equity compensation plans
outstanding options, options, warrants and (excluding securities reflected
Plan category warrants and rights rights in column (a))
------------- ------------------- ------ --------------
- ----------------------- ------------------------------ ---------------------------- ---------------------------------
Equity compensation
plans approved by 8,035,103 $31.4228 1,138,509 (1)
security holders
- ----------------------- ------------------------------ ---------------------------- ---------------------------------
Equity compensation
plans not approved by 15,952,841 $25.6814 3,877,747
security holders
(2)(3)(4)(5)(6)
- ----------------------- ------------------------------ ---------------------------- ---------------------------------
Total 23,987,944 5,016,256
- ----------------------- ------------------------------ ---------------------------- ---------------------------------
(1) The 1996 Employee Stock Plan incorporates an evergreen formula
pursuant to which on each January 1, the aggregate number of
shares reserved for issuance under the 1996 Employee Stock Plan
will increase by an amount equal to 1 1/2 % of the shares of
common stock outstanding on December 31 of the immediately
preceding fiscal year.
(2) The Company issued 982,800 stock options under the 1994 SOS
Employee Option Exchange Plan. The remaining options are
exercisable for 79,800 shares of the Company's common stock. The
options have a weighted-average exercise price of $4.77 per share.
No further awards will be made under the plan.
(3) The Company issued 230,000 stock options under the 1999 Bayard
Employee Option Exchange Plan of Bayard Drilling Technologies,
Inc. The remaining options are exercisable for 95,447 shares of
the Company's common stock (after giving effect to the exchange
ratio provided in the acquisition agreement). The options have a
weighted-average exercise price of $51.6543 per share. No further
awards will be made under the 1999 Bayard Employee Option Exchange
Plan.
(4) The Company issued 153,519 stock options under the 1999 Pool
Employee/Director Option Exchange Plan of Pool Energy Services Co.
The remaining options are exercisable for 15,779 shares of the
Company's common stock (after giving effect to the exchange ratio
provided in the acquisition agreement). The options have a
weighted-average exercise price of $15.6652 per share. No further
awards will be made under the 1999 Pool Employee/Director Option
Exchange Plan.
(5) The Company assumed 200,000 warrants upon its acquisition of New
Prospect Drilling Company in April 1998. The warrants have an
exercise price of $30.00 per share and expire on April 30, 2003.
(6) The Company assumed 118,850 warrants upon its acquisition of
Enserco Energy Service Company Inc. in April 2002. The warrants
have an exercise price of $6.08 and expire on November 12, 2003.
Following is a brief summary of the material terms of the plans that have not
been approved by our shareholders.
1994 SOS EMPLOYEE OPTION EXCHANGE PLAN
In August 1994 the Board approved the 1994 SOS Employee Option Exchange Plan,
which has not been approved by shareholders.
The 1994 SOS Employee Option Exchange Plan reserves for issuance up to 982,800
shares of the Company's common stock pursuant to the exercise of options
granted under the plan. The plan is administered by a committee appointed by
the Company's Board of Directors. Options were granted to certain employees of
Sundowner Offshore Services, Inc., upon its acquisition by the Company. No
further options will be issued under this plan.
Options granted under the plan are non-qualified stock options for U.S. federal
income tax purposes, are non-transferrable, and the exercise price of each
option was determined by the committee at the time of the grant. Payment of the
exercise price may be made in cash, or at the discretion of the committee, in a
cashless tender of
25
stock of the Company. Options awarded under the plan expire no later than
ten years from the date of award. If an option holder ceases to be an
employee of the company for any reason, the option holder must exercise any
options granted under the plan within three months of such event, which
period may be extended by the Company in its discretion.
1996 EXECUTIVE OFFICERS INCENTIVE STOCK PLAN
In October 1996, the Board adopted the 1996 Executive Officers Incentive Stock
Plan which has not been approved by shareholders.
The 1996 Executive Officers Incentive Stock Plan reserves for issuance up to
3,600,000 shares of the Company's common stock pursuant to the exercise of
options granted under the plan. The plan is administered by an independent
committee appointed by the Company's Board of Directors. Options may be granted
under the plan to executive officers of the Company. No optionee may receive
grants in excess of 50% of the total shares of common stock authorized to be
issued under the plan. Options granted under the plan are nonstatutory options
not intended to qualify under Section 422 of the Internal Revenue Code of 1986,
as amended (NSOs).
The exercise price of options granted under the plan are set by the committee,
but shall be no less than the fair market value per share of common stock on
the date of the grant of the option. The term of the NSO may not exceed ten
years. Unless otherwise determined by the committee in its discretion, an
option may not be exercised after the optionee has ceased to be in the employ
of the Company.
1996 CHAIRMAN'S EXECUTIVE STOCK PLAN
In December 1996, the Board adopted the 1996 Chairman's Executive Stock Plan
which has not been approved by shareholders.
The 1996 Chairman's Executive Stock Plan reserves for issuance up to 850,000
shares of the Company's common stock pursuant to the exercise of options
granted under the plan. The plan is administered by an independent committee
appointed by the Company's Board of Directors. Options may be granted under the
plan to the Chairman of the Board of the Company. Options granted under the
plan are NSOs.
The exercise price of options granted under the plan are set by the committee,
but shall be no less than the fair market value per share of common stock on
the date of the grant of the option. The term of the NSO may not exceed ten
years.
In the event of a termination of employment for any reason, except by the
Company for cause or by voluntary resignation by optionee, all unvested options
shall be immediately exercisable as of the date of his termination of his
employment.
1996 EXECUTIVE OFFICERS STOCK PLAN
In August 1997, the Board adopted the 1996 Executive Officers Stock Plan, which
has not been approved by shareholders.
The 1996 Executive Officers Stock Plan reserves for issuance up to 860,000
shares of the Company's common stock pursuant to the exercise of options
granted under the plan. The plan is administered by an independent committee
appointed by the Company's Board of Directors. Options may be granted under the
plan to executive officers of the Company. No optionee may receive grants in
excess of 50% of the total shares of common stock authorized to be issued under
the Plan. Options granted under the plan are NSOs.
The exercise price of options granted under the plan shall be set by the
committee, but shall be no less than the fair market value per share of common
stock on the date of the grant of the option. The term of the NSO may not
exceed ten years.
26
Unless otherwise determined by the committee in its discretion, an option may
not be exercised after the optionee has ceased to be in the employ of the
Company.
1997 EXECUTIVE OFFICERS INCENTIVE STOCK PLAN
In August 1997, the Board adopted the 1997 Executive Officers Incentive Stock
Plan, which has not been approved by shareholders.
The 1997 Executive Officers Incentive Stock Plan reserves for issuance up to
2,450,000 shares of the Company's common stock pursuant to the exercise of
options granted under the plan. The plan is administered by an independent
committee appointed by the Company's Board of Directors. Options may be granted
under the plan to executive officers of the Company. No optionee may receive
grants in excess of 50% of the total shares of common stock authorized to be
issued under the plan. Options granted under the plan are NSOs.
The exercise price of options granted under the plan shall be set by the
committee, but shall be no less than the fair market value per share of common
stock on the date of the grant of the option. The term of the NSO may not
exceed ten years.
Unless otherwise determined by the committee in its discretion, an option may
not be exercised after the optionee has ceased to be in the employ of the
Company.
1998 EMPLOYEE STOCK PLAN
In March 1998, the Board adopted the 1998 Employee Stock Plan, which has not
been approved by shareholders. Amendments were approved by the Board on
December 11, 1998.
The 1998 Employee Stock Plan reserves for issuance up to 17,500,000 shares of
the Company's common stock pursuant to the exercise of options granted under
the plan. The plan is administered by an independent committee appointed by the
Company's Board of Directors. The persons who shall be eligible to participate
in the plan are employees and consultants of the company. Options granted to
employees may either be awards of stock, non-qualified stock options (NQSOs),
incentive stock options (ISOs) or stock appreciation rights (SARs).
The exercise price of NQSOs shall be no less than 100% of the fair market value
per share of common stock on the date of the grant of the option. As determined
by the committee, on the date of the grant, an optionee may reduce the option
exercise price by paying the Company in cash, shares, options, or the
equivalent, an amount equal to the difference between the exercise price and
the reduced exercise price of the option. The committee may specify a period
for exercise of an option which period shall be in no event more than ten years
from the date of grant. The committee shall establish performance goals for
stock awards in writing not later than the date required for compliance under
IRC Section 162(m) and the vesting of such stock shall be contingent upon the
attainment of such performance goals. Stock awards shall vest over a period
determined by the Committee which period shall expire no later than January 18,
2006. The committee may grant ISOs of not less than 100% of the fair market
value per share of common stock on the date of grant; except that in the event
the optionee owns on the date of grant, securities possessing more than 10% of
the total combined voting power of all classes of securities of the Company or
of any subsidiary of the Company, the price per share shall not be less than
110% of the fair market value per share of common stock on the date of the
grant and such option shall expire five years from the date such option is
granted. SARs may be granted in conjunction with all or part of any option
granted under the plan, in which case the exercise of the SAR shall require the
cancellation of a corresponding portion of the option and the exercise of the
option will result in cancellation of a corresponding portion of the SAR. In
the case of a NQSO, such rights may be granted either at or after the time of
grant of such option. In the case of an ISO, such rights may be granted only at
the time of grant of such option. A SAR may also be granted on a stand alone
basis. The term of an SAR shall be established by the committee. The exercise
price of a SAR shall in no event be less than 100% of the fair market value per
share of common stock on the date of grant.
27
Unless otherwise determined by the committee, an option may not be exercised
after the optionee has ceased to be in the employ of the Company. The
committee shall have the authority to make provisions in its award and grant
agreements to address vesting and other issues arising in connection with a
change of control.
1998 CHAIRMAN'S EXECUTIVE STOCK PLAN
In March 1998, the Board adopted the 1998 Chairman's Executive Stock Plan,
which has not been approved by shareholders.
The 1998 Chairman's Executive Stock Plan reserves for issuance up to 764,924
shares of the Company's common stock pursuant to the exercise of options
granted under the plan. The plan is administered by an independent committee
appointed by the Company's Board of Directors. Options may be granted under the
plan to the Chairman of the Board of the Company. Options granted under the
plan are NSOs.
The exercise price of options granted under the plan shall be set by the
committee, but shall be no less than the fair market value per share of common
stock on the date of the grant of the option. The term of the NSO may not
exceed ten years.
In the event of a termination of employment for any reason, except by the
Company for cause or by voluntary resignation by optionee, all unvested options
shall be immediately exercisable as of the date of his termination of his
employment.
1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
In December 1998, the Executive Committee of the Board adopted the 1999 Stock
Option Plan for Non-Employee Directors, which has not been approved by
shareholders.
The 1999 Stock Option Plan for Non-Employee Directors reserves for issuance up
to 1,500,000 shares of the Company's common stock pursuant to the exercise of
options granted under the plan. The plan is administered by the Company's Board
of Directors, provided that the Board may appoint a committee to administer the
plan. In no event shall an eligible director consider or vote on the
administration of this plan or serve as a member of the committee. Options may
be granted under the plan to non-employee directors of the Company. Options
granted under the plan are NSOs.
The exercise price of options granted under the plan shall not be less than the
fair market value on the date of grant. The term of the NSO may not exceed ten
years.
Options shall vest and become non-forfeitable on the first year anniversary of
the day on which such option was granted, if the optionee has continued to
serve as a director until that day, unless otherwise provided. In the event of
termination of an optionee's service as a director by reason of voluntary
retirement, declining to stand for re-election or becoming a full time employee
of the Company or a subsidiary of the Company, all unvested options granted
pursuant to this Plan shall automatically expire and shall not be exercisable
and all options unexercised shall continue to be exercisable until the stated
expiration date of such options. In the event of death or disablement of an
optionee while the optionee is a director, the then-outstanding options of such
optionee shall be exercisable for two years from the date of the death or
disablement of the optionee or by his/her successors in interest. All unvested
options shall automatically vest and become non-forfeitable as of the date of
death or disablement and shall be exercisable for two years from the date of
the death of optionee or until the stated grant expiration date, whichever is
earlier, by the optionee or by his/her successors in interest. In the event of
the termination of an optionee's service as a director by the Board of
Directors for cause or the failure of such director to be re-elected the
administrator in its sole discretion can cancel the then-outstanding options of
such optionee, including those options which have vested and such options shall
automatically expire and become non-exercisable on the effective date of such
termination.
28
1999 BAYARD EMPLOYEE OPTION EXCHANGE PLAN
In October 1998 the Board adopted the 1999 Bayard Employee Option Exchange
Plan, which has not been approved by shareholders.
The 1999 Bayard Employee Option Exchange Plan reserves for issuance up to
322,711 shares of the Company's common stock pursuant to the exercise of
options granted under the plan. The plan is administered by a committee
appointed by the Board of Directors of the Company. Options may be granted
under the plan to employees of the Company that are designated by the
committee. Options granted under the plan are NSOs.
The exercise price of options granted under the plan were determined by the
committee at the time of grant. For non-qualified stock options, the purchase
price was equal to at least the greater of (i) the par value of the common
stock, or (ii) 50% of the fair market value of the common stock on the date of
grant. The term of an NSO may not exceed ten years.
Options may be made exercisable only under the conditions the committee may
establish. Except to the extent that the committee provides otherwise in a
written agreement evidencing an incentive award, incentive awards (whether or
not vested) held by a participant generally shall expire immediately and/or be
forfeited upon termination of such participant's employment.
In the event of a change of control of the Company as described in the plan,
the committee may, in its discretion, without obtaining shareholder approval,
take any one or more of the following actions, with respect to any participant:
(a) accelerate the exercise dates of any or all outstanding stock options or
make some or all such stock options immediately fully vested and exercisable;
or (b) pay cash to any or all holders of stock options in exchange for the
cancellation of their outstanding stock options
1999 POOL EMPLOYEE/DIRECTOR OPTION EXCHANGE PLAN
In November 1999 the Board adopted the 1999 Pool Employee/Director Option
Exchange Plan, which has not been approved by shareholders.
The 1999 Pool Employee/Director Option Exchange Plan reserves for issuance up
to 1,466,010 shares of the Company's common stock pursuant to the exercise of
options granted under the plan. The plan is administered by a committee
appointed by the Board of Directors of the Company. Options may be granted
under the plan to former employees and non-employee directors of Pool Energy
Services Co. or its subsidiaries who hold options to purchase shares of Pool
common stock pursuant to certain stock option plans of Pool. Options granted
under the plan are NSOs.
The exercise price of options granted under the plan shall equal the exercise
price per share of the corresponding Pool option, divided by 1.025 (rounding
the resulting exercise price up to the nearest whole cent). The term of an NSO
may not exceed ten years after the acquisition date of the merger.
The period for exercise of an option shall be the same as the period for
exercise of the corresponding Pool option. If an optionee has ceased to be in
the employ of the Company or its subsidiaries, any outstanding options, whether
or not vested, generally may not be exercised after the optionee's date of
termination and shall be forfeited; provided however, in its sole discretion
the committee may extend the time to exercise any option to a period ending on
it applicable expiration date. The committee, in its discretion, shall have the
authority to make provisions in its grant agreements to address vesting and
other issues arising in connection with a change of control.
II. DIVIDEND POLICY.
Nabors has not declared or paid any cash dividends on its common stock since
1982. We do not intend to pay any cash dividends on our common stock for the
foreseeable future. Recent legislation introduced in the United States Congress
may provide certain shareholders with more favorable tax consequences than
exists under present United States law with respect to the receipt of
dividends. In the event that such proposals are enacted into law, management
expects that it will reexamine its policy of not paying dividends, but no
assurances can be given that any dividends will be paid to shareholders.
29
III. SHAREHOLDER MATTERS.
Bermuda has exchange controls which apply to residents in respect of the
Bermudian dollar. As an exempt company, Nabors is considered to be nonresident
for such controls; consequently, there are no Bermuda governmental restrictions
on the Company's ability to make transfers and carry out transactions in all
other currencies, including currency of the United States.
There is no reciprocal tax treaty between Bermuda and the United States
regarding withholding taxes. Under existing Bermuda law, there is no Bermuda
income or withholding tax on dividends, if any, paid by Nabors to its
shareholders. Furthermore, no Bermuda tax or other levy is payable on the sale
or other transfer (including by gift or on the death of the shareholder) of
Nabors common shares (other than by shareholders resident in Bermuda).
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this item can be found under the caption
"Selected Financial Data" on pages 42 and 43 of our 2002 Annual Report and is
incorporated into this document by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information called for by this item can be found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 44 through 65 of our 2002 Annual Report and is
incorporated into this document by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item can be found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quantitative and Qualitative Disclosures About Market Risk" on
pages 63 through 65 of our 2002 Annual Report and is incorporated into this
document by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and the notes thereto, together with the
report thereon of PricewaterhouseCoopers LLP, appear on pages 67 through 103 of
our 2002 Annual Report and are incorporated herein by reference. With the
exception of the specific information expressly incorporated into Items 1, 2,
3, 5, 6, 7, 7A, 8 and 14 of this document, our 2002 Annual Report is not deemed
to be filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item will be contained in the Nabors
Industries Ltd. definitive proxy statement to be distributed in connection with
its 2003 annual meeting of stockholders under the captions "Election of
Directors" and "Other Executive Officers" and is incorporated into this
document by reference.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the
Securities Exchange Act of 1934 requires Nabors' directors and executive
officers, and persons who own more than 10% of a registered class of Nabors'
equity securities, to file with the Securities and Exchange Commission and the
American Stock Exchange initial reports of ownership and reports of changes in
ownership of common shares and other equity securities of
30
Nabors. Officers, directors and greater than 10% shareholders are required
by Commission regulation to furnish Nabors with copies of all Section 16(a)
forms which they file.
To our knowledge, based solely on review of the copies of Forms 3 and 4 and
amendments thereto furnished to us during 2002 and Form 5 and amendments
thereto furnished to us with respect to the year 2002, and written
representations that no other reports were required, all Section 16(a) filings
required to be made by Nabors' officers, directors and greater than 10%
beneficial owners with respect to the fiscal year 2002 were timely filed,
except that Mr. Jack Wexler filed one Form 4 late with respect to a single
purchase transaction that occurred in December 2002 and Mr. Martin Whitman
filed one Form 5 late with respect to a single option grant that occurred in
January 2002.
ITEM 11. EXECUTIVE COMPENSATION
Except as specified in the following sentence, the information called for by
this item will be contained in our 2003 proxy statement under the caption
"Management Compensation" and is incorporated into this document by reference.
Information in Nabors' 2003 proxy statement not deemed to be "soliciting
material" or "filed" with the Commission under its rules, including the Report
of the Compensation Committee on Executive Compensation, the Report of the
Audit Committee and the Five Year Stock Performance Graph, is not deemed to be
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item will be contained in Nabors' 2003 proxy
statement under the caption "Share Ownership of Management and Principal
Shareholders" and is incorporated into this document by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item will be contained in Nabors' 2003 proxy
statement under the captions "Certain Relationships" and "Compensation
Committee Interlocks and Insider Participation" and is incorporated into this
document by reference.
ITEM 14. CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in our
reports filed under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized, and reported within the time periods specified
in the Commission's rules and forms. We have investments in certain
unconsolidated entities that we do not control or manage. As we do not control
or manage these entities, our disclosure controls and procedures with respect
to such entities are necessarily more limited than those we maintain with
respect to our consolidated subsidiaries.
We evaluated the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-14 of the Exchange Act under the
supervision and with the participation of management, including our Chairman
and Chief Executive Officer and Chief Financial Officer, within 90 days prior
to the filing date of this report. Based upon that evaluation, our Chairman and
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective. No significant changes were
made to our internal controls or other factors that could significantly affect
these controls subsequent to the date of their evaluation.
31
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The consolidated financial statements of Nabors Industries
Ltd. and subsidiaries, and notes thereto, are incorporated
herein by reference from our 2002 Annual Report commencing
from the respective page numbers indicated:
Page No.
--------
Report of Independent Accountants........................................... 66
Consolidated Balance Sheets................................................. 67
Consolidated Statements of Income........................................... 68
Consolidated Statements of Cash Flows....................................... 69
Consolidated Statements of Changes in Stockholders' Equity.................. 70
Notes to Consolidated Financial Statements.................................. 72
(2) Financial Statement Schedules
Page No.
--------
Report of Independent Accountants on Financial Statement Schedule........... S-1
Schedule II - Valuation and Qualifying Accounts............................. S-2
All other supplemental schedules are omitted because of the
absence of the conditions under which they are required or
because the required information is included in the financial
statements or related notes.
(b) Reports on Form 8-K:
The following Current Reports on Form 8-K were filed during the fourth
quarter of 2002.
o Report on Form 8-K filed with the Securities and Exchange
Commission (the "Commission") on October 1, 2002 with respect
to third and fourth quarter 2002 earnings estimates.
o Report on Form 8-K filed with the Securities and Exchange
Commission on October 11, 2002 with respect to historical
financial information for calendar years 2001, 2000, and
1999.
o Report on Form 8-K filed with the Securities and Exchange
Commission on October 24, 2002 with regard to the third
quarter 2002 earnings release.
(c) Exhibits
Exhibit No. Description
2.1 Agreement and Plan of Merger among Nabors
Industries, Inc., Nabors Acquisition Corp. VIII,
Nabors Industries Ltd. and Nabors US Holdings Inc.
(incorporated by reference to Annex I to the proxy
statement/prospectus included in Nabors Industries
Ltd.'s Registration Statement on Form S-4
(Registration No. 333-76198) filed with the
Commission on May 10, 2002, as amended).
2.2 Amended and Restated Acquisition Agreement, dated as
of March 18, 2002, by and between Nabors Industries,
Inc. and Enserco Energy Service Company Inc.
32
(incorporated by reference to Exhibit 2.1 to Nabors
Industries, Inc. Registration Statement No.
333-85228).
2.3 Form of Plan of Arrangement Under Section 192 of the
Canada Business Corporations Act Involving and
Affecting Enserco Energy Service Company Inc. and
its Securityholders (included in Schedule B to
Exhibit 2.2).
2.4 Arrangement Agreement dated August 12, 2002 between
Nabors Industries Ltd. and Ryan Energy Technologies
Inc.
3.1 Memorandum of Association of Nabors Industries Ltd.
(incorporated by reference to Annex II to the proxy
statement/prospectus included in Nabors Industries
Ltd.'s Registration Statement on Form S-4
(Registration No. 333-76198) filed with the
Commission on May 10, 2002, as amended).
3.2 Amended and Restated Bye-Laws of Nabors Industries
Ltd. (incorporated by reference to Annex III to the
proxy statement/prospectus included in Nabors
Industries Ltd.'s Registration Statement on Form S-4
(Registration No. 333-76198) filed with the
Commission on May 10, 2002, as amended).
3.3 Form of Resolutions of the Board of Directors of
Nabors Industries Ltd. authorizing the issue of the
Special Voting Preferred Share (incorporated by
reference to Exhibit 3.3 to Nabors Industries Ltd.'s
Post-Effective Amendment No. 1 to Registration
Statement on Form S-3 (Registration No.
333-85228-99) filed with the Commission on June 11,
2002).
4.1 Form of Senior Indenture of Nabors Industries Ltd.
(incorporated by reference to Exhibit 4.1 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).
4.2 Form of Subordinated Indenture of Nabors Industries
Ltd. (incorporated by reference to Exhibit 4.2 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with
the Commission on December 30, 2002).
4.3 Form of Senior Debt Security of Nabors Industries
Ltd. and Form of Senior Guarantee by Nabors
Industries, Inc. (included in Exhibit 4.1).
4.4 Form of Subordinated Debt Security of Nabors
Industries Ltd. and Form of Subordinated Guarantee
by Nabors Industries, Inc. (included in Exhibit
4.2).
4.5 Form of Senior Indenture of Nabors Industries, Inc.
(incorporated by reference to Exhibit 4.5 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).
4.6 Form of Subordinated Indenture of Nabors Industries,
Inc. (incorporated by reference to Exhibit 4.6 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with
the Commission on December 30, 2002).
4.7 Form of Senior Debt Security of Nabors Industries,
Inc. and Form of Senior Guarantee by Nabors
Industries Ltd. (included in Exhibit 4.5).
4.8 Form of Subordinated Debt Security of Nabors
Industries, Inc. and Form of Subordinated Guarantee
by Nabors Industries Ltd. (included in Exhibit 4.6).
33
4.9 Form of Senior Indenture of Nabors International
Finance Inc. (incorporated by reference to Exhibit
4.9 to Nabors Industries Ltd.'s Registration
Statement on Form S-3 (Registration No. 333-102246)
filed with the Commission on December 30, 2002).
4.10 Form of Subordinated Indenture of Nabors
International Finance Inc. (incorporated by
reference to Exhibit 4.10 to Nabors Industries
Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).
4.11 Form of Senior Debt Security of Nabors International
Finance Inc. and Form of Senior Guarantee by Nabors
Industries Ltd. and Nabors Industries, Inc.
(included in Exhibit 4.9).
4.12 Form of Subordinated Debt Security of Nabors
International Finance Inc. and Form of Subordinated
Guarantee by Nabors Industries Ltd. and Nabors
Industries, Inc. (included in Exhibit 4.10).
4.13 Form of Senior Indenture of Nabors Holdings Ltd.
(incorporated by reference to Exhibit 4.13 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).
4.14 Form of Subordinated Indenture of Nabors Holdings
Ltd. (incorporated by reference to Exhibit 4.14 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with
the Commission on December 30, 2002).
4.15 Form of Senior Debt Security of Nabors Holdings Ltd.
and Form of Senior Guarantee by Nabors Industries
Ltd. and Nabors Industries, Inc. (included in
Exhibit 4.13).
4.16 Form of Subordinated Debt Security of Nabors
Holdings Ltd. and Form of Subordinated Guarantee by
Nabors Industries Ltd. and Nabors Industries, Inc.
(included in Exhibit 4.14).
4.17 Form of Senior Indenture of Nabors Holdings 1, ULC.
(incorporated by reference to Exhibit 4.17 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).
4.18 Form of Subordinated Indenture of Nabors Holdings 1,
ULC. (incorporated by reference to Exhibit 4.18 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with
the Commission on December 30, 2002).
4.19 Form of Senior Debt Security of Nabors Holdings 1,
ULC and Form of Senior Guarantee by Nabors
Industries Ltd. and Nabors Industries, Inc.
(included in Exhibit 4.17).
4.20 Form of Subordinated Debt Security of Nabors
Holdings 1, ULC and Form of Subordinated Guarantee
by Nabors Industries Ltd. and Nabors Industries,
Inc. (included in Exhibit 4.18).
4.21 Indenture dated as of March 1, 1999 between Nabors
Industries, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as trustee, in
connection with $325,000,000 aggregate principal
amount of 6.80% Notes due 2004 (incorporated by
reference to Exhibit 4.1 to Nabors Industries,
Inc.'s Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, Registration No.
333-25233, filed with the Commission on March 5,
1999).
4.22 Supplemental Indenture No. 1 dated as of March 1,
1999 between Nabors Industries, Inc., as Issuer, and
Norwest Bank Minnesota, National Association, as
trustee, in connection with the 6.80% Notes
(incorporated by reference to Exhibit 4.2 to Nabors
34
Industries, Inc.'s Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, Registration No.
333-25233, filed with the Commission on March 5,
1999).
4.23 Supplemental Indenture No. 2, dated as of June 21,
2002, between Nabors Industries, Inc., Nabors
Industries Ltd. and Wells Fargo Bank Minnesota,
National Association, with respect to Nabors
Industries, Inc.'s 6.8% notes due 2004 (incorporated
by reference to Exhibit 4.7 to Nabors Industries
Ltd.'s Form 10-Q, File No. 000-49887, filed with the
Commission on August 14, 2002).
4.24 Indenture dated as of March 31, 1998 among Pool
Energy Services Co., the guarantors named therein
and Marine Midland Bank, as trustee, with respect to
$150,000,000 aggregate principal amount of 8 5/8%
Senior Subordinated Notes due 2008, Series A and B
(incorporated by reference to Exhibit 4.4 to Nabors
Industries, Inc.'s Form 10-K, File No. 1-9245, filed
with the Commission on March 30, 2000).
4.25 Supplemental Indenture dated as of March 31, 1998
among Pool Energy Services Co., the guarantors named
therein and Marine Midland Bank, as trustee
(incorporated by reference to Exhibit 4.5 to Nabors
Industries, Inc.'s Form 10-K, File No. 1-9245, filed
with the Commission on March 30, 2000).
4.26 Second Supplemental Indenture dated as of December
1, 1999 among Nabors Holding Company (formerly Pool
Energy Services Co.), the guarantors named therein
and HSBC Bank USA (formerly Marine Midland Bank), as
trustee (incorporated by reference to Exhibit 4.6 to
Nabors Industries, Inc.'s Form 10-K, File No.
1-9245, filed with the Commission on March 30,
2000).
4.27 Third Supplemental Indenture dated as of February
14, 2000 among Nabors Holding Company, the
guarantors named therein and HSBC Bank USA
(incorporated by reference to Exhibit 4.1 to Nabors
Industries, Inc.'s Form 8-K dated February 2, 2000,
File No. 1-9245, filed with the Commission on
February 24, 2000).
4.28 Fourth Supplemental Indenture dated as of June 21,
2002 among Nabors Holding Company as issuer, Nabors
Industries, Inc. as guarantor, Nabors Industries
Ltd. as guarantor, and HSBC Bank USA, as trustee,
with respect to Nabors Holding Company's 8 5/8%
senior subordinated notes due 2008 (incorporated by
reference to Exhibit 4.4 to Nabors Industries Ltd.'s
Form 10-Q, File No. 000-49887, filed with the
Commission on August 14, 2002).
4.29 Indenture dated as of June 20, 2000 between Nabors
Industries, Inc. and Bank One, N.A., as trustee, in
connection with $825,000,000 original principal
amount of Zero Coupon Convertible Senior Debentures
due 2020 (incorporated by reference to Exhibit 4.1
to Nabors Industries, Inc.'s Form 8-K, File No.
1-9245, filed with the Commission on June 22, 2000).
4.30 Form of Debenture (contained in Exhibit 4.29).
4.31 First Supplemental Indenture dated July 5, 2000
between Nabors Industries, Inc. and Bank One, N.A.,
as trustee, in connection with the Zero Coupon
Convertible Senior Debentures due 2020 (incorporated
by reference to Exhibit 4.2 to Nabors Industries,
Inc.'s Registration Statement on Form S-3,
Registration No. 333-44532, filed with the
Commission on August 25, 2000).
4.32 Second Supplemental Indenture, dated as of June 21,
2002, among Nabors Industries, Inc. as issuer,
Nabors Industries Ltd. as guarantor, and Bank One,
N.A., as trustee, with respect to Nabors Industries,
Inc.'s zero coupon convertible senior debentures due
35
2020 (incorporated by reference to Exhibit 4.6 to
Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed with the Commission on August 14,
2002).
4.33 Registration Rights Agreement dated as of June 15,
2000 between Nabors Industries, Inc. and the initial
purchaser of the Zero Coupon Convertible Senior
Debentures due 2020 (incorporated by reference to
Exhibit 4.3 to Nabors Industries, Inc.'s Form 8-K,
File No. 1-9245, filed with the Commission on June
22, 2000).
4.34 Indenture dated as of February 5, 2001 between
Nabors Industries, Inc. and Bank One, N.A., as
trustee, in connection with $1,382,200,000 principal
amount at maturity of Zero Coupon Convertible Senior
Debentures due 2021 (incorporated by reference to
Exhibit 4.11 to Form 10-K, File No. 1-9245, filed
with the Commission on March 30, 2001).
4.35 Form of Debenture (contained in Exhibit 4.34).
4.36 First Supplemental Indenture, dated as of June 21,
2002 among Nabors Industries, Inc., as issuer,
Nabors Industries Ltd. as guarantor, and Bank One,
N.A. as trustee, with respect to Nabors Industries,
Inc.'s zero coupon convertible senior debentures due
2021 (incorporated by reference to Exhibit 4.5 to
Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed with the Commission on August 14,
2002).
4.37 Registration Rights Agreement dated as of January
31, 2000 between Nabors Industries, Inc. and the
initial purchaser of the Zero Coupon Convertible
Senior Debentures due 2021 (incorporated by
reference to Exhibit 4.13 to Form 10-K, File No.
1-9245, filed with the Commission on March 30,
2001).
4.38 Indenture, dated August 22, 2002, among Nabors
Industries, Inc., as issuer, Nabors Industries Ltd.,
as guarantor, and Bank One, N.A., with respect to
Nabors Industries, Inc.'s Series A and Series B
5.375% Senior Notes due 2012 (incorporated by
reference to Exhibit 4.1 to Nabors Industries,
Inc.'s Registration Statement on Form S-4
(Registration No. 333-10049201) filed with the
Commission on October 11, 2002).
4.39 Registration Rights Agreement, dated August 22,
2002, among Nabors Industries, Inc., Nabors
Industries Ltd., and Lehman Brothers Inc.
(incorporated by reference to Exhibit 4.2 to Nabors
Industries, Inc.'s Registration Statement on Form
S-4 (Registration No. 333-10049201) filed with the
Commission on October 11, 2002).
4.40 Form of 5.375% Senior Exchange Note due 2012
(included in Exhibit 4.38).
4.41 Indenture, dated August 22, 2002, among Nabors
Holdings 1, ULC, as issuer, Nabors Industries, Inc.
and Nabors Industries Ltd., as guarantors, and Bank
One, N.A., with respect to Nabors Holdings 1, ULC's
Series A and Series B 4.875% Senior Notes due 2009
(incorporated by reference to Exhibit 4.1 to Nabors
Holdings 1, ULC's Registration Statement on Form S-4
(Registration No. 333-10049301) filed with the
Commission on October 11, 2002).
4.42 Registration Rights Agreement, dated August 22,
2002, among Nabors Holdings 1, ULC, Nabors
Industries, Inc., Nabors Industries Ltd., and Lehman
Brothers Inc. (incorporated by reference to Exhibit
4.2 to Nabors Holdings 1, ULC's Registration
Statement on Form S-4 (Registration No.
333-10049301) filed with the Commission on October
11, 2002).
4.43 Form of 4.875% Senior Exchange Note due 2009
(included in Exhibit 4.41).
36
4.44 Form of Provisions Attaching to the Exchangeable Shares
of Nabors Exchangeco (Canada) Inc. (incorporated by
reference to Exhibit 4.1 to Nabors Industries, Inc.'s
Registration Statement on Form S-3 (Registration No.
333-85228) filed with the Commission on March 29, 2002,
as amended).
4.45 Form of Support Agreement between Nabors Industries,
Inc., 3064297 Nova Scotia Company and Nabors Exchangeco
(Canada) Inc. (incorporated by reference to Exhibit 4.2
to Nabors Industries, Inc.'s Registration Statement on
Form S-3 (Registration No. 333-85228) filed with the
Commission on March 29, 2002, as amended).
4.46 Form of Acknowledgement of Novation to Nabors
Industries, Inc., Nabors Exchangeco (Canada) Inc.,
Computershare Trust Company of Canada and 3064297 Nova
Scotia Company executed by Nabors Industries Ltd.
(incorporated by reference to Exhibit 4.3 to Nabors
Industries Ltd.'s Post-Effective Amendment No. 1 to
Registration Statement on Form S-3 (Registration No.
333-85228-99) filed with the Commission on June 11,
2002).
4.47 First Supplemental Indenture, dated as of June 21, 2002,
among Nabors Industries, Inc. as issuer, Nabors
Industries Ltd. as guarantor, and Bank One, N.A. as
trustee, with respect to Nabors Industries, Inc.'s Zero
Coupon Convertible Senior Debentures due 2020
(incorporated by reference to Exhibit 4.5 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887, filed
August 14, 2002).
4.48 Second Supplemental Indenture, dated as of June 21,
2002, among Nabors Industries, Inc. as issuer, Nabors
Industries Ltd. as guarantor, and Bank One, N.A. as
trustee, with respect to Nabors Industries, Inc.'s Zero
Coupon Convertible Senior Debentures due 2021
(incorporated by reference to Exhibit 4.6 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887, filed
August 14, 2002).
10.1(+) 1993 Stock Option Plan for Non-Employee Directors
(incorporated by reference to Nabors Industries Inc.'s
Registration Statement on Form S-8, Registration No.
33-87322, filed December 29, 1994).
10.2(+) 1994 Executive Officers Stock Plan (incorporated by
reference to Nabors Industries Inc.'s Registration
Statement on Form S-8, Registration No. 333-11313, filed
September 3, 1996).
10.3(+) 1996 Employee Stock Plan (incorporated by reference to
Nabors Industries Inc.'s Registration Statement on Form
S-8, Registration No. 333-11313, filed September 3,
1996).
10.4(+) 1994 Executive Stock Option Agreement effective December
28, 1994 between Nabors Industries, Inc. and Eugene M.
Isenberg (incorporated by reference to Exhibit 10.4 to
Nabors Industries Inc.'s Form 10-K, File No. 1-9245,
filed December 30, 1996).
10.5(+) 1994 Executive Stock Option Agreement effective December
28, 1994 between Nabors Industries, Inc. and Anthony G.
Petrello (incorporated by reference to Exhibit 10.5 to
Nabors Industries Inc.'s Form 10-K, File No. 1-9245,
filed December 30, 1996).
10.6(+) 1994 Executive Stock Option Agreement effective December
28, 1994 between Nabors Industries, Inc. and Richard A.
Stratton (incorporated by reference to Exhibit 10.6 to
Nabors Industries Inc.'s Form 10-K, File No. 1-9245,
filed December 30, 1996).
10.7(+) Employment Agreement effective October 1, 1996 between
Nabors Industries, Inc. and Eugene M. Isenberg
(incorporated by reference to Exhibit 10.7 to Nabors
Industries Inc.'s Form 10-Q, File No. 1-9245, filed May
16, 1997).
37
10.8(+) First Amendment to Amended and Restated Employment
Agreement between Nabors Industries, Inc., Nabors
Industries Ltd. and Eugene M. Isenberg dated as of
June 24, 2002 (incorporated by reference to Exhibit
10.1 to Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed August 14, 2002).
10.9(+) Second Amendment to Employment Agreement between
Nabors Industries, Inc., Nabors Industries Ltd. and
Eugene M. Isenberg dated as of July 17, 2002
(incorporated by reference to Exhibit 10.1 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed August 14, 2002).
10.10(+) Employment Agreement effective October 1, 1996
between Nabors Industries, Inc. and Anthony G.
Petrello (incorporated by reference to Exhibit 10.8
to Nabors Industries Inc.'s Form 10-Q, File No.
1-9245, filed May 16, 1997).
10.11(+) First Amendment to Amended and Restated Employment
Agreement between Nabors Industries, Inc., Nabors
Industries Ltd. and Anthony G. Petrello dated as of
June 24, 2002 (incorporated by reference to Exhibit
10.2 to Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed August 14, 2002).
10.12(+) Second Amendment to Employment Agreement between
Nabors Industries, Inc., Nabors Industries Ltd. and
Anthony G. Petrello dated as of July 17, 2002
(incorporated by reference to Exhibit 10.3 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed August 14, 2002).
10.13(+) Waiver dated as of September 27, 2002 pursuant to
Section 9.[c] and Schedule 9.[c] of the Amended
Employment Agreement among Nabors Industries, Inc.,
Nabors Industries Ltd., and Anthony G. Petrello
(incorporated by reference to Exhibit 10.1 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed November 14, 2002).
10.14(+) Employment Agreement effective October 1, 1996
between Nabors Industries, Inc. and Richard A.
Stratton (incorporated by reference to Exhibit 10.9
to Nabors Industries Inc.'s Form 10-K, File No.
1-9245, filed December 29, 1997).
10.15(+) First Amendment to Amended and Restated Employment
Agreement between Nabors Industries, Inc., Nabors
Industries Ltd. and Richard A. Stratton dated as of
June 24, 2002 (incorporated by reference to Exhibit
10.4 to Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed August 14, 2002).
10.16(+) Second Amendment to Employment Agreement between
Nabors Industries, Inc., Nabors Industries Ltd. and
Richard A. Stratton dated as of July 17, 2002
(incorporated by reference to Exhibit 10.5 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed August 14, 2002).
10.17(+) Retirement Agreement dated as of February 20, 2003
between Nabors Industries Ltd. and Richard A.
Stratton.
10.18(+) Nabors Industries, Inc. 1996 Chairman's Executive
Stock Plan (incorporated by reference to Exhibit
10.17 to Nabors Industries Inc.'s Form 10-K, File
No. 1-9245, filed December 29, 1997).
10.19(+) Nabors Industries, Inc. 1996 Executive Officers
Stock Plan (incorporated by reference to Exhibit
10.18 to Nabors Industries Inc.'s Form 10-K, File
No. 1-9245, filed December 29, 1997).
38
10.20(+) Nabors Industries, Inc. 1996 Executive Officers
Incentive Stock Plan (incorporated by reference to
Exhibit 10.9 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 29, 1997).
10.21(+) Nabors Industries, Inc. 1997 Executive Officers
Incentive Stock Plan (incorporated by reference to
Exhibit 10.20 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 29, 1997).
10.22(+) Nabors Industries, Inc. 1998 Employee Stock Plan
(incorporated by reference to Exhibit 10.19 to
Nabors Industries Inc.'s Form 10-K dated December
31, 1998, File No. 1-9245, filed March 31, 1999).
10.23(+) Nabors Industries, Inc. 1998 Chairman's Executive
Stock Plan (incorporated by reference to Exhibit
10.20 to Nabors Industries Inc.'s Form 10-K dated
December 31, 1998, File No. 1-9245, filed March 31,
1999).
10.24(+) Nabors Industries, Inc. 1999 Stock Option Plan for
Non-Employee Directors (incorporated by reference to
Exhibit 10.21 to Nabors Industries Inc.'s Form 10-K
dated December 31, 1998, File No. 1-9245, filed
March 31, 1999).
10.25(+) Amendment to Nabors Industries, Inc. 1999 Stock
Option Plan for Non-Employee Directors (incorporated
by reference to Exhibit 10.19 to Nabors Industries
Inc.'s Form 10-K, File No. 1-09245, filed March 19,
2002).
10.26 1999 Pool Employee/Director Option Exchange Plan
(incorporated by reference to Exhibit 10.20 to
Nabors Industries Inc.'s Form 10-K, File No.
1-09245, filed March 19, 2002).
10.27 Plan with respect to Options Originally Granted by
Bayard Drilling Technologies, Inc. and Assumed by
Nabors Industries, Inc. (incorporated by reference
to Exhibit 10.21 to Nabors Industries Inc.'s Form
10-K, File No. 1-09245, filed March 19, 2002).
10.28 Form of Indemnification Agreement entered into
between Nabors Industries Ltd. and the directors and
executive officers identified in the schedule
thereto.
12 Computation of Ratio of Earnings to Fixed Charges.
13 2002 Annual Report of Nabors Industries Ltd.
21 Significant Subsidiaries of Nabors Industries Ltd.
23 Consent of Independent Accountants.
99.1 Credit Agreement among Nabors Industries, Inc., the
subsidiary borrowers thereto, Bank of America
National Trust and Savings Association, Wells Fargo
Bank (Texas) National Association and the other
financial institutions party thereto dated September
5, 1997 (incorporated by reference to Exhibit 99.1
to Nabors Industries Inc.'s Form 10-K, File No.
1-9245, filed December 29, 1997).
99.2 Waiver and First Amendment to Credit Agreement dated
as of March 19, 2001 (incorporated by reference to
Exhibit 99.2 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed April 2, 2001).
39
99.3 Waiver and Second Amendment to Credit Agreement
dated as of June 1, 2001 (incorporated by reference
to Exhibit 99.3 to Nabors Industries Inc.'s Form
10-K, File No. 1-09245, filed March 19, 2002).
99.4 Certification of the Chairman and Chief Executive
Officer pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.5 Certification of the Vice President and Chief
Financial Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
--------------------------------
(1) With the exception of the specific information
expressly incorporated into Items 1, 2, 3, 5, 6, 7,
7A, 8 and 14 of this document, the 2002 Annual
Report is not deemed to be filed as part of this
report.
(+) Management contract or compensatory plan or
arrangement
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, as of March ___, 2003.
NABORS INDUSTRIES LTD.
By: /s/ Anthony G. Petrello
---------------------------------------
Anthony G. Petrello
President and Chief Operating Officer
By: /s/ Bruce P. Koch
---------------------------------------
Bruce P. Koch
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Eugene M. Isenberg Chairman and March ___, 2003
- ------------------------------------ Chief Executive Officer
Eugene M. Isenberg
/s/ Anthony G. Petrello President and March ___, 2003
- ------------------------------------ Chief Operating Officer
Anthony G. Petrello
/s/ James L. Payne Director March ___, 2003
- ------------------------------------
James L. Payne
/s/ Hans Schmidt Director March ___, 2003
- ------------------------------------
Hans Schmidt
/s/ Myron M. Sheinfeld Director March ___, 2003
- ------------------------------------
Myron M. Sheinfeld
/s/ Richard F. Syron Director March ___, 2003
- ------------------------------------
Richard F. Syron
/s/ Jack Wexler Director March ___, 2003
- ------------------------------------
Jack Wexler
/s/ Martin J. Whitman Director March ___, 2003
- ------------------------------------
Martin J. Whitman
41
CERTIFICATIONS
CERTIFICATION BY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Eugene M. Isenberg, certify that:
1. I have reviewed this annual report on Form 10-K of Nabors Industries Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ Eugene M. Isenberg
---------------------- ---------------------------------------
Eugene M. Isenberg
Chairman and Chief Executive Officer
42
CERTIFICATION BY VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(THE PRINCIPAL FINANCIAL OFFICER)
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Bruce P. Koch, certify that:
1. I have reviewed this annual report on Form 10-K of Nabors Industries Ltd.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003 /s/ Bruce P. Koch
---------------------- ---------------------------------------
Bruce P. Koch
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
43
ANNEX A
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GLOSSARY OF DRILLING TERMS
ABANDONMENT: To stop production of a well and plug the wellbore to prevent
any possible future leakage into fresh water.
BARGE RIG: A drilling rig that is placed on a towed barge for shallow inland
water, swamp and river applications.
BLOCK: Any assembly of pulleys on a common framework; in mechanics, one or more
pulleys mounted to rotate on a common axis. The crown block is an assembly of
pulleys mounted on beams at the top of the derrick or mast. The drilling line
is passed through the grooved wheel on the pulley of the crown block
alternately with the pulleys of the traveling block, which is raised and
lowered in the derrick or mast by the drilling line.
BLOWOUT: An uncontrolled expulsion of oil, natural gas or water (usually
brine) from a well into the atmosphere.
BLOWOUT PREVENTER (BOP): A stack of heavy-duty valves placed on top of the
casing to control well pressure during drilling.
BOTTOMHOLE PRESSURE: Pressure exerted upward by the reservoir formation.
CANTILEVER JACK-UPS: Jack-ups that have the derrick package mounted on steel
arms that can be extended out from the hull of the rig. Extension allows for
the positioning adjacent to a platform rig for development drilling.
CASED HOLE: A wellbore in which casing has been installed and cemented.
CASING: Steel pipe that is installed in the wellbore to protect from cave-in
and the migration of formation fluids into the wellbore, or communication
between zones.
CEMENTING: Filling the space between the casing and the wellbore walls with
cement to support the casing, and seal between zones.
CHRISTMAS TREE: An assembly of valves for flow control of production fluids
or gasses installed at the top of the casing.
COMPLETION: To finish a well and prepare it for production.
CONDUCTOR CASING OR CONDUCTOR PIPE: Wide-diameter casing installed at the
surface prior to rigging up to prevent caving.
CORING: Taking a sample of the formation or rock to determine its geologic
properties.
CROWN BLOCK: Stationary pulley system used to raise or lower drilling
equipment for the derrick. Supports the traveling block.
CRUDE OIL: Unrefined petroleum.
DAYRATE: The daily rate paid by an operator to a drilling contractor under a
daywork contract.
A-1
DAYWORK CONTRACT: Drilling contractor is paid by the day. Customer carries
majority of the operating risk so long as the drilling contractor meets the
basic standards of equipment and personnel performance specified by the
contract. (See also turnkey and footage contracts.)
DERRICK: A steel mast used to support the drill string or drilling equipment
such as casing.
DRAWWORKS: Power equipment used for the hoisting of the drilling string via the
derrick. Consists of a spool wrapped with wire rope positioned to the side of
the derrick with wire traveling up the crown block.
DRILL BIT: A tool located at the end of the drill string used for cutting or
boring.
DRILL COLLARS: Heavy walled steel pipe added to the drill string between the
drill pipe and drill bit for additional downward pressure.
DRILL PIPE: Steel pipe used to conduct fluids and torque down to the drill
bit. Typically 30 feet in length.
DRILL STEM: All members in the assembly used for rotary drilling from the
swivel to the bit, including the kelly, the drill pipe and tool joints, the
drill collars, the stabilizers, and various specialty items.
DRILL STRING: An assembly consisting of drill pipe, drill collars and a drill
bit. The drill string serves as a conduit for fluid circulation and torque from
the power source.
DRY HOLE: An unsuccessful exploratory well.
ELECTRIC RIG (SCR): A drilling rig that uses diesel generators to supply power
to separate electric motors to power each of the rig's components
(silicon-controlled rectifier).
EXPLORATION WELL: A well drilled to either search for an undiscovered pool
of hydrocarbons or to define the limits of the hydrocarbon-bearing
formation.
FIELD: An area representing a group of producing oil and/or natural gas wells.
FOOTAGE CONTRACTS: Operator and contract driller agree to a fixed price per
foot drilled.
FORMATION: A strata of rock that is composed mainly of the same type of rock.
HOOK: A large, hook-shaped device from which the swivel is suspended. It is
designed to carry maximum loads ranging from 100 to 650 tons and turns on
bearings in its supporting housing.
HOOK LOAD: The weight of the drill stem that is suspended from the hook.
HORIZONTAL DRILLING: Deviation of the wellbore at least 80 degrees from
vertical so that the wellbore penetrates a productive formation in a manner
parallel to the formation.
HYDROCARBONS: Organic compounds of hydrogen and carbon atoms providing the
basis of all petroleum products. Hydrocarbons exist in a solid, liquid or
gaseous state.
INDEPENDENT LEG JACK-UPS: Jack-ups with open-truss steel legs with large steel
cylinders (spud cans) attached at the bottom for sea floor penetration and
stability.
JACK-UP RIG: Bottom supported offshore drilling rig consisting of a floating
platform that is towed on locations and jacked up above the water on three or
four legs. The platform supports the drilling derrick, equipment and crew
quarters. (See also independent leg, mat-supported, cantilever and slot
jack-ups.)
A-2
KELLY: A four- or six-sided pipe at the top of the drill string through
which rotation is parted.
KELLY BUSHING: A cage with V & square faced rollers which fits the kelly in
parting rotation while slowing up and down movement. The kelly pipe fits inside
the kelly bushing, which fits inside the master bushing, which fits inside the
rotary table. The rotary table creates the torque that is transmitted through
the kelly down the drill pipe to the drill bit (versus a top drive system which
foregoes all of such components).
LINER: A string of pipe used to case an open hole below an existing casing.
LOG: A recording of data.
MAT-SUPPORTED JACK-UPS: Jack-ups with cylindrical steel legs attached to a flat
base. Ideally suited for soft, muddy sea floors.
MECHANICAL RIG: A drilling rig where the power generated from combustion
engines (diesel) is distributed mechanically (shafts, sprockets, chains and
clutches) to the various components of the rig.
MUD: The liquid circulated through the wellbore during rotary drilling
operations. In addition to its function of bringing cuttings to the surface,
drilling mud cools and lubricates the drill bit and the drill stem, protects
against blowouts by holding back subsurface pressures, and deposits a mud cake
on the wall of the wellbore to prevent loss of fluids to the formation.
MUD LOGGING: The recording of information derived from examination and
analysis of formation cuttings made by the bit and of mud circulated out of
the hole.
MUD PUMP: A large high-pressure pump used to circulate the mud on a drilling
rig.
MUD TANK: One of a series of open tanks, usually made of steel plate,
through which the drilling mud is cycled to remove sand and fine sediments.
Also called mud pits.
OPERATOR: Organization that obtains (buys or leases) the right to drill and
produce oil and/or natural gas from the owner of a specified location. The
operator of an oil or gas well or field.
OPERATOR - INDEPENDENT: A person or relatively small organization that engages
in the drilling, producing and selling of oil and gas, but has no pipeline or
other means of transportation or refining.
OPERATOR - INTEGRATED (MAJORS): A larger organization typically engaged in the
drilling, production, transportation and refining of oil and natural gas, as
well as the retail sales of oil and gas refined products.
OPERATOR - NATIONAL OIL COMPANY: State-owned organization typically engaged in
the drilling, production, transportation and refining of oil and natural gas,
as well as the retail sales of oil and gas refined products.
ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC): An organization formed in
1960 for the intent of negotiating the price and production levels of oil.
There are currently twelve members including Saudi Arabia, Kuwait, Iran, Qatar,
United Arab Emirates, Algeria, Libya, Nigeria, Venezuela, Indonesia, the
Neutral Zone (the area between Saudi Arabia and Kuwait) and Iraq.
PERMEABILITY: The measure of conductivity of fluids through the pores of rock.
PETROLEUM: A natural occurring solid, liquid or gaseous substance in the earth
containing hydrogen and carbon in various mixtures. Term often refers to oil
and does not include natural gas or gas liquids such as propane or butane.
A-3
PLATFORM: A drilling and production platform that is supported by a truss of
steel members (a jacket) secured to the ocean floor.
PLATFORM RIG: Mobile drilling rig packages mounted on production platforms.
PLUGGING A WELL: To stop the flow of hydrocarbons and/or water by filling the
wellbore with cement when the well is abandoned.
RESERVOIR: A porous, permeable, subsurface rock formation containing trapped
oil, natural gas, or water.
RIG: The derrick or mast, drawworks and attendant surface equipment of a
drilling unit.
RIG YEAR: A measure of the number of equivalent rigs operating during a given
period. It is calculated as the number of days rigs are operating divided by
the number of days in the period. For example, one rig operating 182.5 days
during a 365-day period represents .5 rig years, and 100 rigs operating for
33,000 cumulative days, during a 365-day period would equal 90.4 rig years
(33,000 divided by 365).
ROTARY DRILLING: A drilling method in which a hole is drilled by a rotating bit
to which a downward force is applied. The bit is fastened to and rotated by the
drill stem, which also provides a passageway through which the drilling fluid
is circulated.
SCR: See "Electric Rig".
SLOT JACK-UPS: Jack-ups that have the drilling derrick mounted over a slot
in the hull and cannot be used over adjacent structures.
SPUDDING THE WELL: The initiation of the drilling of a well.
STACK A RIG: To store a drilling rig on completion of a job when the rig is
to be withdrawn from operation for a time.
SWIVEL: A rotary tool that is hung from the rotary hook and the traveling block
to suspend the drill stem and to permit it to rotate freely. It also provides a
connection for the rotary hose and a passageway for the flow of drilling fluid
into the drill stem.
TOOL JOINTS: Heavy duty steel couplings used to connect lengths of drill pipe.
TOP DRIVE: A powered swivel connected directly into the drill stem to provide
the necessary torque for the drill bit. Replaces the conventional rotary table
and hangs from the hook attached to the traveling block. Allows three lengths
of drill pipe to be tripped in and out at a time, and provides makeup and
breakup power for the assembly of the drill pipe lengths as well. Generally
considered to save time over the rotary table assembly.
TORQUE: A force that causes or attempts to cause a rotation or torsion.
TRAVELING BLOCK: Block hanging from the derrick supporting the drill string
as it "travels" up and down as it raises and lowers the drill string into
the wellbore.
TRIP: When drill string is pulled and returned to the wellbore.
TURNKEY CONTRACT: Drilling contractor agrees to drill a well to the
operator's specifications for a fixed lump sum fee. The contractor carries
the majority of the operating risk. (See also dayrate and footage
contracts.)
A-4
UTILIZATION: A measure of the portion of the available rig or vessel fleet, as
applicable, in use during a given period. It is calculated as rig (or vessel)
years divided by total rigs (or vessels) available. For example, if the
equivalent rigs (or vessels) years are 100 and the available fleet is 200, the
utilization rate is 50%.
VESSEL YEAR: A measure of the number of equivalent vessels operating during a
given period. It is calculated as the number of days vessels are operating
divided by the number of days in the period. For example, one vessel operating
182.5 days during a 365-day period represents .5 vessel years.
WELLBORE (WELL): The hole created when drilling that serves as the
passageway between the surface and the reservoir.
WELLHEAD: Flow control equipment located at the top of the casing string at
the surface of the wellbore.
WELL-SERVICING: Maintenance work on a producing well to improve its flow rate.
Service typically involves repairing equipment installed during drilling,
completion or workover, but may include addition of new equipment.
Well-servicing jobs usually take less than 48 hours to complete.
WILDCAT: An exploratory well drilled in an unknown or unproven area.
WORKOVER: Essentially, refurbishment of a well to improve its flow rate.
Workover includes any of several operations on a well to restore or increase
production when a reservoir stops producing at the rate it should. Many
workover jobs involve treating the reservoir rock, rather than the equipment in
the well. Workover jobs typically take a few days to several weeks to complete.
A-5
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Nabors Industries Ltd.:
Our audits of the consolidated financial statements referred to in our
report dated January 29, 2003, except for Note 21, as to which the
date is March 18, 2003, appearing in the 2002 Annual Report to
Shareholders of Nabors Industries Ltd. (which report and consolidated
financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement
schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
Houston, Texas
January 29, 2003
S-1
NABORS INDUSTRIES LTD.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2002, 2001, and 2000
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
(In Thousands) of Period Expenses Accounts Deductions Period
- ------------------------------------------ --------- -------- -------- ---------- ------
2002
Allowance for doubtful accounts....... $ 22,366 $ 1,981 $ 3,249(1) $ (13,795) (2) $ 13,801
Inventory reserve..................... 4,308 248 - (286) (3) 4,270
Valuation allowance on deferred
tax assets......................... - 6,540 - - 6,540
2001
Allowance for doubtful accounts....... $ 5,381 $ 20,757 $ - $ (3,772) (4) $ 22,366
Inventory reserve..................... 5,595 527 - (1,814) (3) 4,308
2000
Allowance for doubtful accounts....... $ 4,988 $ 2,343 $ 213 (2,163) (4) $ 5,381
Inventory reserve..................... 5,219 391 - (15) (3) 5,595
(1) Primarily related to acquisitions.
(2) Includes uncollected receivables written off, net of recoveries, and
$6.5 million related to receipt of amounts previously reserved for.
(3) Inventory reserves written off.
(4) Uncollected receivables written off, net of recoveries.
S-2
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.4 Arrangement Agreement dated August 12, 2002 between
Nabors Industries Ltd. and Ryan Energy Technologies
Inc.
10.17(+) Retirement Agreement dated as of February 20, 2003
between Nabors Industries Ltd. and Richard A.
Stratton.
10.28 Form of Indemnification Agreement entered into
between Nabors Industries Ltd. and the directors and
executive officers identified in the schedule
thereto.
12 Computation of Ratio of Earnings to Fixed Charges.
13 2002 Annual Report of Nabors Industries Ltd.
21 Significant Subsidiaries of Nabors Industries Ltd.
23 Consent of Independent Accountants.
99.4 Certification of the Chairman and Chief Executive
Officer pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.5 Certification of the Vice President and Chief
Financial Officer pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.