NBR US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with, our consolidated financial statements and the related notes thereto included under Part II, Item 8.—Financial Statements and Supplementary Data. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Part I, Item 1A.—Risk Factors and elsewhere in this annual report. See “Forward-Looking Statements.”

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Management Overview

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We own and operate one of the world’s largest land-based drilling rig fleets, and also provide offshore rigs in the United States and numerous international markets. Our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies. These services include tubular services, wellbore placement solutions, directional drilling, measurement-while-drilling, logging-while-drilling systems and services, equipment manufacturing, rig instrumentation and optimization software.

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Outlook

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The demand for our services is a function of the level of spending by oil and gas companies for exploration, development and production activities. The primary driver of customer spending is their cash flow and earnings, which are largely driven by oil and natural gas prices and customers’ production volumes. The oil and natural gas markets have traditionally been volatile and tend to be highly sensitive to supply and demand cycles.

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During 2020, the oil markets experienced unprecedented volatility. The COVID-19 outbreak, and its development into a pandemic, along with policies and actions taken by governments and behaviors of companies and customers around the world, had a significant negative impact on demand for oil and our services, which negatively impacted our operating results and cash flow throughout 2020 and into 2021. The Lower-48 drilling rig market began to stabilize during the second half of 2020 and has continued to improve at a measured rate throughout 2021. We expect continued measured but steady increases in activity throughout 2022 for the Lower-48 market. Our International markets also experienced factors and conditions that led to similar reductions in activity throughout 2020, but the impact varied considerably from country to country. As government-imposed restrictions continue to ease, we expect our international activity to generally increase through the next year.

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Recent Developments

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Common stock warrants

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On May 27, 2021, the Board declared a distribution to holders of the Company’s common shares of warrants to purchase its common shares (the “Warrants”). Holders of Nabors common shares received two-fifths of a warrant per common share held as of the record date (rounded down for any fractional warrant). Nabors issued approximately 3.2 million warrants on June 11, 2021 to shareholders of record as of June 4, 2021.

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Each Warrant represents the right to purchase one common share at an initial exercise price of $166.66667 per Warrant, subject to certain adjustments (the “Exercise Price”). In addition, Warrants submitted for exercise may be eligible to receive an additional one-third common share due to the incentive share component. The incentive share is an extra amount of common shares that Nabors will award when the volume weighted average price of Nabors’ common shares on the day before any Warrant holder exercises its Warrants multiplied by three is at least 6% higher than the sum of the volume weighted average prices of Nabors’ common shares on each of the second, third and fourth days before any Warrant holder exercises its Warrants. Payment for common shares on exercise of Warrants may be in (i) cash or (ii) “Designated Notes,” which the Company initially defines as (a) Nabors Delaware’s (i) 5.10% Notes due 2023, (ii) 0.75% Exchangeable Notes due 2024, (iii) 5.75% Notes due 2025, and (b) the Company’s 7.25% Notes due 2026, subject to compliance with applicable procedures with respect to the delivery of the Warrants and Designated Notes. The Exercise Price and the number of common shares issuable upon exercise are subject to anti-dilution adjustments, including for share dividends, splits, subdivisions, spin-offs, consolidations, reclassifications, combinations, noncash distributions, cash dividends (other than regular quarterly cash dividends not exceeding a permitted threshold amount),

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certain pro rata repurchases and similar transactions, including certain issuances of common shares (or securities exercisable or convertible into or exchangeable for common shares) at a price (or having a conversion price) that is less than 95% of the market price of the common shares. The Warrants expire on June 11, 2026, but the expiration date may be accelerated at any time by the Company upon 20-days’ prior notice. The Company has listed the Warrants on the over-the-counter market.

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Canada Asset Sale

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During the second quarter of 2021, Nabors entered into an agreement to sell the assets of its Canada Drilling segment for $117.5 million CAD (or approximately $94.0 million USD). The sale closed during July 2021.

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7.375% Senior Priority Guaranteed Notes Due May 2027

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In November 2021, Nabors issued $700.0 million in aggregate principal amount of 7.375% senior priority guaranteed notes, which are fully and unconditionally guaranteed by Nabors and certain of Nabors’ indirect wholly-owned subsidiaries. Interest on the notes is payable May 15 and November 15 of each year, beginning May 15, 2022. The notes will mature on May 15, 2027. The remaining proceeds are available for general corporate purposes, including repaying outstanding debt.

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Nabors Energy Transition Corporation

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In November 2021, Nabors Energy Transition Corporation (“NETC”), a special purpose acquisition company, commonly referred to as a “SPAC”, co-sponsored by Nabors, completed its initial public offering of 27,600,000 units at $10.00 per unit, generating gross proceeds of approximately $276.0 million. Simultaneously with the closing of the IPO, NETC completed the private sale of an aggregate of 13,730,000 warrants for an aggregate value of $13,730,000. NETC was formed for the sole purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses with significant growth potential and to create value by supporting the company in the public markets. NETC intends to identify solutions, opportunities, companies or technologies that focus on advancing the energy transition; specifically ones that facilitate, improve or complement the reduction of carbon or greenhouse gas emissions while satisfying growing energy consumption across markets globally.

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Financial Results

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Comparison of the years ended December 31, 2021 and 2020

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Operating revenues in 2021 totaled $2.0 billion, representing a decrease of $116.5 million from 2020. The primary driver was a decrease in international activity due to the continued impact on our international businesses brought on by the COVID-19 outbreak and the resultant measures put in place by some countries in response to it. This decrease in activity is evidenced by the 10% decline in average rigs working within our International Drilling operating segment. For a more detailed description of operating results see —Segment Results of Operations, below.

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Net loss from continuing operations attributable to Nabors common shareholders totaled $572.9 million for 2021 ($76.58 per diluted share) compared to a net loss from continuing operations attributable to Nabors common shareholders of $820.3 million ($118.69 per diluted share) in 2020, or a $247.3 million decrease in the net loss. This decrease in the net loss is primarily due to (i) a $344 million reduction in asset impairment charges required in 2021 as compared to $410 million in impairment charges required in 2020, as a result of dramatic decline in market conditions and activity brought about by (a) the outbreak of COVID-19, and (b) unprecedented volatility in the oil market, both of which led to a significant decline in oil prices resulting from oversupply and demand weakness in early 2020, (ii) a $78 million improvement in adjusted operating income (loss) primarily due to a reduced amount of depreciation as a result of impairments taken in recent years and (iii) a $35 million reduction in interest expense as a result of our debt reduction objectives over the past few years. These improvements to the net loss were partially offset by a $215 million reduction in gains from retirement of debt, which was mostly attributable to the Exchange Transactions that were completed during 2020.

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General and administrative expenses in 2021 totaled $213.6 million, representing an increase of $10.0 million, or 5% from 2020. This is reflective of temporary workforce cost reductions taken in the prior year due to industry market conditions combined with a moderate increase in workforce as market conditions have improved.

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Research and engineering expenses in 2021 totaled $35.2 million, representing an increase of $1.6 million, or 5%, from 2020. This is reflective of temporary workforce cost reductions taken in the prior year due to industry market conditions combined with a moderate increase in workforce as market conditions have improved.

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Depreciation and amortization expense in 2021 was $693.4 million, representing a decrease of $160.3 million, or 18%, from 2020. The decrease is attributable to the combination of many assets recently reaching the end of their useful lives, limited capital expenditures over recent years and the impact from impairment charges and retirement provisions recorded in 2020.

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Segment Results of Operations

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

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Management evaluates the performance of our reportable segments using adjusted operating income (loss), which is our segment performance measure, because we believe that this financial measure reflects our ongoing profitability and performance. In addition, securities analysts and investors use this measure as one of the metrics on which they analyze our performance. Adjusted operating income (loss) represents income (loss) from continuing operations before income taxes, interest expense, earnings (losses) from unconsolidated affiliates, investment income (loss), (gain)/loss on debt buybacks and exchanges, impairments and other charges and other, net. A reconciliation of adjusted operating income to net income (loss) from continuing operations before income taxes can be found in Note 18—Segment Information in Part II, Item 8. —Financial Statements and Supplementary Data.

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

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31, ​ Increase/(Decrease)

​ ​ (In thousands, except percentages and rig activity)

U.S. Drilling ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Canada Drilling ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Average rigs working (2) ​ 6.5 ​ 9.0 ​ (2.5) (28) %

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International Drilling ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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Drilling Solutions ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Rig Technologies ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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U.S. Drilling

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Operating revenues decreased by $43.4 million or 6% in 2021 compared to 2020 primarily due to decreases in pricing for our services. Activity declined throughout 2020 due to market conditions, but has steadily improved throughout 2021, beginning in late 2020, resulting in a 4% increase in the number of average rigs working in 2021 as compared to 2020. The impact from pricing lags activity due to the nature of our drilling contracts, so the average revenue per operating day in 2021 was lower than 2020, as pricing continues to recover with sustained higher activity. The reduction in revenues was partially offset by cost cutting initiatives and a reduction in depreciation expense.

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Canada Drilling

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Operating revenues decreased by $15.4 million or 28% in 2021 compared to 2020 primarily due to the sale of the Canada Drilling assets in July 2021.

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International Drilling

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Operating revenues decreased by $88.5 million or 8% in 2021 compared to 2020 primarily due to reduced activity, as reflected in the 10% decrease in the average number of rigs working, as certain countries implemented measures to counter COVID-19. The reduction in revenues was partially offset by cost reductions related to the drop in activity and a reduction in depreciation expense.

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Drilling Solutions

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Operating revenues increased by $22.6 million or 15% in 2021 compared to 2020 primarily due to the increase in market activity and additional product offerings across the U.S. during 2021, relative to the prior year. The decline in activity for this segment in 2020 was more pronounced than the decline in our drilling segments, due to the nature of its operating contracts. As market conditions improved in 2021, this also allowed for a more pronounced rebound relative to our drilling segments.

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Rig Technologies

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Operating revenues increased by $17.7 million or 13% in 2021 compared to 2020 due to an increase in activity in the U.S. In addition, this segment experienced a reduction in depreciation expense similar to our other operating segments, and implemented significant cost reduction measures.

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Other Financial Information

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Interest expense

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Interest expense for 2021 was $171.5 million, representing a decrease of $34.8 million, or 17%, compared to 2020. The decrease was primarily due to debt restructuring and exchange transactions in the fourth quarter of 2020 and the first quarter of 2021, along with reductions in overall debt levels from our cash flows, which have contributed to reduced interest expense.

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Gain on debt buybacks and exchanges

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Gain on debt buybacks and exchanges in 2021 was $13.4 million, representing a decrease of $214.9 million compared to 2020. Approximately $161.8 million of this amount is due to the debt exchanges completed in the fourth quarter of 2020. The remaining change is primarily attributable to fewer open market purchases of debt in 2021, as the discount levels have reduced.

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Impairments and other charges

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During the year ended December 31, 2021, we recognized impairments and other charges of approximately $66.7 million, representing a decrease of $343.9 million compared to the prior year. The decrease was primarily due to a $344 million reduction in asset impairment charges required in 2021, as compared to $410 million in impairment charges required in 2020, as a result of the dramatic decline in market conditions and activity brought about by (a) the outbreak of COVID-19, and (b) unprecedented volatility in the oil market leading to a significant decline in oil prices resulting from oversupply and demand weakness in early 2020. In response to the market conditions, in 2020 we recognized charges which included impairment charges, and retirement provisions of long-lived assets of $260.5 million comprised of underutilized rigs and drilling-related equipment across all our operating segments. We also recognized $111.4 million in impairments to our remaining goodwill and intangible asset balances in our Drilling Solutions and Rig Technologies operating segments. Of the $66.7 million in 2021 impairments, $58.5 million is attributable to the sale of our Canada drilling assets.

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Other, net

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Other, net for 2021 was $53.4 million of loss, compared to $28.6 million of loss during 2020. The $24.8 million difference between periods was primarily due to $14.7 million related to costs incurred during 2021 on our energy transition initiatives, including the purchase of certain development stage technologies that were expensed and an $11.5 million increase in losses from sales and retirements of assets.

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Income taxes

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Our worldwide income tax expense for 2021 was $55.6 million compared to $57.3 million for 2020. The relatively small decrease in tax expense was primarily attributable to higher tax expense on a gain related to our debt exchange recognized in 2020, partially offset by an increase in tax expense attributable to a recorded liability for uncertain tax positions of $26.3 million in 2021, as well as changes in the operating income and the geographic mix of our pre-tax earnings (losses) in the jurisdictions in which we operate.

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Liquidity and Capital Resources

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Financial Condition and Sources of Liquidity

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Our primary sources of liquidity are cash and investments, availability under our revolving credit facility and cash generated from operations. As of December 31, 2021, we had cash and short-term investments of $991.5 million and working capital of $1.0 billion. As of December 31, 2020, we had cash and short-term investments of $481.7 million and working capital of $616.0 million.

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At December 31, 2021, we had $460.0 million of borrowings outstanding under the 2018 Revolving Credit Facility, which had a total borrowing capacity of $524.1 million. The 2018 Revolving Credit Facility required us to maintain “minimum liquidity” of no less than $160.0 million at all times, and an asset to debt coverage ratio of at least 4.25:1 as of the end of each calendar quarter. Minimum liquidity was defined to mean, generally, a consolidated cash balance consisting of (a) the aggregate amount of unrestricted cash and cash equivalents maintained in a deposit account U.S. or Canadian branch of a commercial bank, plus (b) the lesser of $75 million or an amount equal to 75% of the aggregate amount of unrestricted cash and cash equivalents held in deposit account of a commercial bank outside of the U.S. or Canada, plus (c) available commitments under the 2018 Revolving Credit Facility. The asset to debt coverage ratio applied only during the period which Nabors Delaware failed to maintain an investment grade rating from at least two rating agencies, which was the case as of the date of this report. As of December 31, 2021, and through and including January 21, 2022, we were in compliance with all covenants under the 2018 Revolving Credit Facility. We also had $62.7 million of letters of credit outstanding under the 2018 Revolving Credit Facility.

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On January 21, 2022, we entered into a revolving credit agreement between Nabors Delaware, the guarantors from time to time party thereto, the issuing banks and other lenders party thereto and Citibank, N.A., as administrative agent (the “2022 Credit Agreement”). Under the 2022 Credit Agreement, the Lenders (as defined below) have committed to provide up to an aggregate principal amount at any time outstanding not in excess of $350.0 million (with an accordion feature for an additional $100.0 million) to Nabors Delaware under a secured revolving credit facility, including sub-

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facilities provided by certain of the lenders for letters of credit in an aggregate principal amount at any time outstanding not in excess of $100.0 million. The 2022 Credit Agreement replaces the 2018 Revolving Credit Facility.

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The 2022 Credit Agreement permits the incurrence of additional indebtedness secured by liens, which may include liens on the collateral securing the facility, in an amount up to $150.0 million as well as a grower basket for term loans in an amount not to exceed $100.0 million secured by liens not on the collateral. The Company is required to maintain an interest coverage ratio (EBITDA/interest expense), which increases on a quarterly basis, and a minimum guarantor value, requiring the guarantors (other than the Company) and their subsidiaries to own at least 90% of the consolidated property, plant and equipment of the Company. The facility matures on the earlier of (a) January 21, 2026 and (b) (i) to the extent any principal amount of Nabors Delaware’s existing 5.1% senior notes due 2023, 5.5% senior notes due 2023 and 5.75% senior notes due 2025 remains outstanding on the date that is 90 days prior to the applicable maturity date for such indebtedness, then such 90th day or (ii) to the extent 50% or more of the outstanding (as of the closing date) aggregate principal amount of the 0.75% senior exchangeable notes due 2024 remains outstanding and not refinanced or defeased on the date that is 90 days prior to the maturity date for such indebtedness, then such 90th day.

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Additionally, the Company is subject to certain covenants, which are subject to certain exceptions and include, among others, (i) a covenant restricting our ability to incur liens (subject to the additional liens basket of up to $150.0 million), (ii) a covenant restricting its ability to pay dividends or make other distributions with respect to its capital stock and to repurchase certain indebtedness and (iii) a covenant restricting the ability of the Company’s subsidiaries to incur debt (subject to the grower basket of up to $100.0 million).

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If we fail to perform our obligations under the covenants, the revolving credit commitments under the 2022 Credit Agreement could be terminated, and any outstanding borrowings under the facilities could be declared immediately due and payable. If necessary, we have the ability to manage our covenant compliance by taking certain actions including reductions in discretionary capital or other types of controllable expenditures, monetization of assets, amending or renegotiating the revolving credit agreement, accessing capital markets through a variety of alternative methods, or any combination of these alternatives. We expect to remain in compliance with all covenants under the 2022 Credit Agreement during the twelve month period following the date of this report based on our current operational and financial projections. However, we can make no assurance of continued compliance if our current projections or material underlying assumptions prove to be incorrect. If we fail to comply with the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable.

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Our ability to access capital markets or to otherwise obtain sufficient financing may be affected by our senior unsecured debt ratings as provided by the major credit rating agencies in the United States and our historical ability to access these markets as needed. While there can be no assurances that we will be able to access these markets in the future, we believe that we will be able to access capital markets or otherwise obtain financing in order to satisfy any payment obligation that might arise upon maturity, exchange or purchase of our notes and our debt facilities, loss of availability of our revolving credit facilities and our A/R Agreement (see—Accounts Receivable Sales Agreement, below), and that any cash payment due, in addition to our other cash obligations, would not ultimately have a material adverse impact on our liquidity or financial position. The major U.S. credit rating agencies have previously downgraded our senior unsecured debt rating to non-investment grade. These and any further ratings downgrades could adversely impact our ability to access debt markets in the future, increase the cost of future debt, and potentially require us to post letters of credit for certain obligations. See Part I, Item 1A.—Risk Factors—A downgrade in our credit rating could negatively impact our cost of and ability to access capital markets or other financing sources.

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We had 18 letter-of-credit facilities with various banks outstanding as of December 31, 2021. Availability under these facilities was as follows:

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​ December 31,

​ ​ (In thousands)

Remaining availability ​ $ 531,800 ​

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We are a holding company and therefore rely exclusively on repayments of interest and principal on intercompany loans that we have made to our operating subsidiaries and income from dividends and other cash flows from our operating subsidiaries. There can be no assurance that our operating subsidiaries will generate sufficient net income to

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pay us dividends or sufficient cash flows to make payments of interest and principal to us. See Part I., Item 1A.—Risk Factors—As a holding company, we depend on our operating subsidiaries and investments to meet our financial obligations.

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Accounts Receivable Sales Agreement

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On September 13, 2019, we entered into an A/R Facility consisting of a Receivables Sales Agreement and a Receivables Purchase Agreement, whereby the originators sold or contributed, and will on an ongoing basis continue to sell or contribute, certain of their domestic trade accounts receivables to a wholly-owned, bankruptcy-remote special purpose entity (“SPE”). The SPE would in turn, sell, transfer, convey and assign to third-party Purchasers, all the rights, title and interest in and to its pool of eligible receivables.

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On July 13, 2021, we entered into the First Amendment to the Receivables Purchase Agreement which extends the term of the A/R Facility by two years, to August 13, 2023. However, the expiration of the agreement could be accelerated to July 19, 2022, if any of the 5.5% Senior Notes due 2023 of Nabors Delaware remain outstanding as of such date. The amendment also reduced the commitments of the Purchasers from $250 million to $150 million, with the possibility of being increased up to $200 million.

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The amount available for purchase under the A/R Facility fluctuates over time based on the total amount of eligible receivables generated during the normal course of business after excluding excess concentrations and certain other ineligible receivables. The maximum purchase commitment of the Purchasers under the A/R Facility is approximately $150.0 million and the amount of receivables purchased by the Purchasers as of December 31, 2021 was $73.0 million.

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The originators, Nabors Delaware, the SPE, and the Company provide representations, warranties, covenants and indemnities under the A/R Facility and the indemnification guarantee. See further details at Note 4—Accounts Receivable Sales Agreement.

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Future Cash Requirements

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Our current cash and investments, projected cash flows from operations, proceeds from equity or debt issuances and the facilities under our 2022 Credit Agreement are expected to adequately finance our purchase commitments, capital expenditures, acquisitions, scheduled debt service requirements, and all other expected cash requirements for the next 12 months including the $24.4 million outstanding of the 5.50% senior notes due January 2023. However, we can make no assurances that our current operational and financial projections will prove to be correct, especially in light of the effects the COVID-19 pandemic has on oil and natural gas prices and, in turn, our business. A sustained period of highly depressed oil and natural gas prices could have a significant effect on our customers’ capital expenditure spending and therefore our operations, cash flows and liquidity.

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Purchase commitments outstanding at December 31, 2021 totaled approximately $269.1 million, primarily for rig-related enhancements, sustaining capital expenditures, operating expenses, and purchases of inventory. $238.1 million of the outstanding commitments are expected to be paid in the next 12 months. Purchase commitments include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of the transaction. We can reduce planned expenditures if necessary or increase them if market conditions and new business opportunities warrant it. The level of our outstanding purchase commitments and our expected level of capital expenditures over the next 12 months represent a number of capital programs that are currently underway or planned.

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As of December 31, 2021, we had approximately $3.3 billion of long-term debt outstanding with $3.3 billion in aggregate principal. We have expected aggregate future interest payments of $861.5 million related to the outstanding debt with $182.1 million due in the next twelve months. See Note 10—Debt in Part II, Item 8.—Financial Statements and Supplementary Data for additional details. Our obligations for operating leases total $32.2 million with $7.1 million of the obligations coming due in the upcoming year. See Note 20—Leases in Part II, Item 8.—Financial Statements and Supplementary Data for additional details.

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We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, both in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or

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exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and may involve material amounts.

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We are a party to transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off-balance sheet arrangements include the A/R Agreement (see —Accounts Receivable Sale Agreement, above) and certain agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these financial or performance assurances serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by us to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees. Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote.

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The following table summarizes the total maximum amount of financial guarantees issued by Nabors:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Maximum Amount

​ ​ (In thousands)

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Cash Flows

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Our cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Sustained decreases in the price of oil or natural gas could have a material impact on these activities, and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary capital expenditures or acquisitions, purchases and sales of investments, loans, issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions. We discuss our 2021 and 2020 cash flows below.

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Operating Activities. Net cash provided by operating activities totaled $428.8 million during 2021, compared to net cash provided of $349.8 million during 2020. Operating cash flows are our primary source of capital and liquidity. Changes in working capital items such as collection of receivables, other deferred revenue arrangements and payments of operating payables are significant factors affecting operating cash flows. Changes in working capital items provided $188.1 million in cash flows during 2021 and used $8.4 million in cash flows during 2020 resulting in the increased operating cash flow for 2021 which more than offset the reduction in net income in 2021.

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Investing Activities. Net cash used for investing activities totaled $117.2 million during 2021 compared to net cash used of $165.5 million in 2020. Our primary use of cash for investing activities is for capital expenditures related to rig-related enhancements, new construction and equipment, as well as sustaining capital expenditures. During 2021 and 2020, we used cash for capital expenditures totaling $234.0 million and $195.5 million, respectively.

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We received $124.3 million in proceeds from insurance claims and sales of assets during 2021 compared to $27.4 million in 2020. The increase was primarily due to the sale of our Canada drilling assets in July 2021.

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Financing Activities. Net cash provided by financing activities totaled $448.4 million during 2021. During 2021, we received net proceeds of $700.0 million from the issuance of long-term debt and received $260.0 million from the public offering of NETC. Partially offsetting these activities, we reduced $212.5 million in amounts borrowed under our revolving credit facilities and repaid $174.1 million on our senior notes. Additionally, we paid dividends totaling $7.3 million to our preferred shareholders and had distributions of $58.5 million from our SANAD joint venture to our partner.

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Net cash used for financing activities totaled $148.0 million during 2020. During 2020, we received net proceeds of $317.5 million in amounts borrowed under our revolving credit facilities, partially offset by a $1.3 billion repayment on our senior notes. Additionally, we paid dividends totaling $22.5 million to our common and preferred shareholders.

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Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries

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Nabors Delaware is an indirect, wholly owned subsidiary of Nabors. Nabors fully and unconditionally guarantees the due and punctual payment of the principal of, premium, if any, and interest on Nabors Delaware’s registered notes, which are its (i) 5.10% Senior Notes due 2023 (the “2023 Notes”), (ii) 5.50% Senior Notes due 2023 (the “5.50% 2023 Notes”) and (iii) 5.75% Senior Notes due 2025 (the “2025 Notes” and, together with the 2023 Notes and the 5.50% 2023 Notes, the “Registered Notes”), and any other obligations of Nabors Delaware under the Registered Notes when and as they become due and payable, whether at maturity, upon redemption, by acceleration or otherwise, if Nabors Delaware is unable to satisfy these obligations. Nabors’ guarantee of Nabors Delaware’s obligations under the Registered Notes are its unsecured and unsubordinated obligation and have the same ranking with respect to Nabors’ indebtedness as the Registered Notes have with respect to Nabors Delaware’s indebtedness. In the event that Nabors is required to withhold or deduct on account of any Bermudian taxes due from any payment made under or with respect to its guarantees, subject to certain exceptions, Nabors will pay additional amounts so that the net amount received by each holder of Registered Notes will equal the amount that such holder would have received if the Bermudian taxes had not been required to be withheld or deducted.

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The following summarized financial information is included so that separate financial statements of Nabors Delaware are not required to be filed with the SEC. The condensed consolidating financial statements present investments in both consolidated and unconsolidated affiliates using the equity method of accounting.

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In lieu of providing separate financial statements for issuers and guarantors (the “Obligated Group”), we have presented the accompanying supplemental summarized combined balance sheet and income statement information for the Obligated Group based on Rule 13-01 of the SEC’s Regulation S-X that we early adopted effective April 1, 2020.

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All significant intercompany items among the Obligated Group have been eliminated in the supplemental summarized combined financial information. The Obligated Group’s investment balances in subsidiary non-guarantors have been excluded from the supplemental combined financial information. Significant intercompany balances and activity for the Obligated Group with other related parties, including subsidiary non-guarantors (referred to as “affiliates”), are presented separately in the accompanying supplemental summarized financial information.

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Summarized combined Balance Sheet and Income Statement information for the Obligated Group is as follows (in thousands):

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​ ​ December 31,

Summarized Combined Balance Sheet Information 2021

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Assets ​ ​ ​

Noncurrent assets - affiliates ​ 6,149,188

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Liabilities and Stockholders’ Equity ​ ​

Current liabilities ​ 75,112

Noncurrent liabilities - affiliates ​ 4,471

Total Liabilities and Stockholders’ Equity ​ ​ 7,043,711

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​ ​ Year Ended December 31,

Summarized Combined Income Statement Information 2021

Income from continuing operations, net of tax ​ (441,310)

Dividends on preferred stock ​ (3,653)

Net income (loss) attributable to Nabors common shareholders ​ (444,963)

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Other Matters

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Recent Accounting Pronouncements

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See Note 2—Summary of Significant Accounting Policies in Part II, Item 8.—Financial Statements and

Supplementary Data.

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Critical Accounting Estimates

​

The preparation of our financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. We analyze our estimates based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances. However, actual results could differ from our estimates. The following is a discussion of our critical accounting estimates. Management considers an accounting estimate to be critical if:

​

​

​

For a summary of all our significant accounting policies, see Note 2—Summary of Significant Accounting Policies in Part II, Item 8.—Financial Statements and Supplementary Data.

​

Depreciation of Property, Plant and Equipment. The drilling and drilling services industries are very capital intensive. Property, plant and equipment represented 61% of our total assets as of December 31, 2021, and depreciation and amortization constituted 28% of our total costs and other deductions in 2021.

​

Depreciation for our primary operating assets, drilling rigs, is calculated based on the units-of-production method. For each day a rig is operating, we depreciate it over an approximate 4,927-day period, with the exception of our jackup rigs which are depreciated over an 8,030-day period, in each case after provision for salvage value. For each day a rig asset is not operating, it is depreciated over an assumed depreciable life of 20 years, with the exception of our jackup rigs, where a 30-year depreciable life is typically used, after provision for salvage value.

​

Depreciation on our buildings, oilfield hauling and mobile equipment, aircraft equipment, and other machinery and equipment is computed using the straight-line method over the estimated useful life of the asset after provision for salvage value (buildings—10 to 30 years; aircraft equipment—5 to 20 years; oilfield hauling and mobile equipment and other machinery and equipment—3 to 10 years).

​

These depreciation periods and the salvage values of our property, plant and equipment were determined through an analysis of the useful lives of our assets and based on our experience with the salvage values of these assets. Periodically, we review our depreciation periods and salvage values for reasonableness given current conditions. Depreciation of property, plant and equipment is therefore based upon estimates of the useful lives and salvage value of those assets. Estimation of these items requires significant management judgment. Accordingly, management believes that accounting estimates related to depreciation expense recorded on property, plant and equipment are critical.

​

There have been no factors related to the performance of our portfolio of assets, changes in technology or other factors indicating that these estimates do not continue to be appropriate. Accordingly, for the years ended December 31, 2021, 2020 and 2019, no significant changes have been made to the depreciation rates applied to property, plant and equipment, the underlying assumptions related to estimates of depreciation, or the methodology applied. However, certain events could occur that would materially affect our estimates and assumptions related to depreciation. Unforeseen changes in operations or technology could substantially alter management’s assumptions regarding our ability to realize the return on our investment in operating assets and therefore affect the useful lives and salvage values of our assets.

​

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

​

Assumptions in the determination of future cash flows are made with the involvement of management personnel at the operational level where the most specific knowledge of market conditions and other operating factors exists. For 2021, 2020 and 2019, no significant changes have been made to the methodology utilized to determine future cash flows.

​

For an asset classified as held for sale, we consider the asset impaired when its carrying amount exceeds fair value less its cost to sell. Fair value is determined by calculating the expected sales price less any costs to sell.

​

Impairment of Goodwill and Intangible Assets. We review goodwill and intangible assets with indefinite lives for impairment annually during the second quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of such goodwill and intangible assets may exceed their fair value. We perform our impairment tests for goodwill for all our reporting units within our reportable segments. Our business consists of U.S. Drilling, Canada Drilling, International Drilling, Drilling Solutions and Rig Technologies reportable segments. Our Rig Technologies reportable segment includes our Canrig, RDS and 2TD reporting units. We initially assess goodwill for impairment based on qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying amount. If the carrying amount exceeds the fair value, an impairment charge will be recognized in an amount equal to the excess; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

​

Due to industry conditions and the corresponding impact on future expectations of demand for our products and services, including the effect on our stock price, we determined a triggering event had occurred and performed a quantitative impairment assessment of our goodwill as of March 31, 2020. Based on the results of our goodwill test performed in the first quarter of 2020, we recognized additional impairment charges to write off the remaining goodwill balances attributable to our Drilling Solutions and Rig Technologies operating segments of $11.4 million and $16.4 million, respectively, in the quarter ended March 31, 2020.

​

We also reviewed our intangible assets for impairment in the first quarter of 2020. The fair value of our intangible assets is determined using discounted cash flow models. Based on our updated projections of future cash flows, the fair value of our intangible assets did not support the carrying value. As such, we recognized an impairment of $83.6 million to write off all remaining intangible assets in the quarter ended March 31, 2020.

​

Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. The fair values calculated in these impairment tests were determined using discounted cash flow models, which require the use of significant unobservable inputs, representative of a Level 3 fair value measurement. Our cash flow models involve assumptions based on our utilization of rigs or other oil and gas service equipment, revenues and earnings from affiliates, as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. Our fair value estimates of these reporting units are sensitive to varying dayrates, utilization, and costs. A significantly prolonged period of lower oil and natural gas prices, other than those assumed in developing our forecasts, or changes in laws and regulations could adversely affect the demand for and prices of our services, which could in turn result in future goodwill and other intangible asset impairment charges for

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these reporting units due to the potential impact on our estimate of our future operating results. Our discounted cash flow projections for each reporting unit were based on financial forecasts. The future cash flows were discounted to present value using discount rates determined to be appropriate for each reporting unit. Terminal values for each reporting unit were calculated using a Gordon Growth methodology with a long-term growth rate of approximately 2%.

​

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

​

Income Taxes. We operate in a number of countries and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We are currently contesting tax assessments in a number of countries and may contest future assessments. We believe the ultimate resolution of the outstanding assessments, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. We recognize uncertain tax positions that we believe have a greater than 50 percent likelihood of being sustained. We cannot predict or provide assurance as to the ultimate outcome of any existing or future assessments.

​

Audit claims of approximately $128.6 million attributable to income tax have been assessed against us. We have contested, or intend to contest, these assessments, including through litigation if necessary, and we believe the ultimate resolution, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. Tax authorities may issue additional assessments or pursue legal actions as a result of tax audits and we cannot predict or provide assurance as to the ultimate outcome of such assessments and legal actions.

​

Applicable income and withholding taxes have not been provided on undistributed earnings of our subsidiaries. We do not intend to repatriate such undistributed earnings except for distributions upon which incremental income and withholding taxes would not be material.

​

In certain jurisdictions we have recognized deferred tax assets and liabilities. Judgment and assumptions are required in determining whether deferred tax assets will be fully or partially utilized. When we estimate that all or some portion of certain deferred tax assets such as net operating loss carryforwards will not be utilized, we establish a valuation allowance for the amount ascertained to be unrealizable. We continually evaluate strategies that could allow for future utilization of our deferred assets. Any change in the ability to utilize such deferred assets will be accounted for in the period of the event affecting the valuation allowance. If facts and circumstances cause us to change our expectations regarding future tax consequences, the resulting adjustments could have a material effect on our financial results or cash flow.

​

Litigation and Self-Insurance Reserves. Our operations are subject to many hazards inherent in the drilling and drilling services industries, including blowouts, cratering, explosions, fires, loss of well control, loss of or damage to the wellbore or underground reservoir, damaged or lost drilling equipment and damage or loss from inclement weather or natural disasters. Any of these and other hazards could result in personal injury or death, damage to or destruction of equipment and facilities, suspension of operations, environmental and natural resources damage and damage to the property of others. Our offshore operations are also subject to the hazards of marine operations including capsizing, grounding, collision and other damage from hurricanes and heavy weather or sea conditions and unsound ocean bottom conditions. Our operations are subject to risks of war or acts of terrorism, civil disturbances and other political events.

​

Accidents may occur, we may be unable to obtain desired contractual indemnities, and our insurance may prove inadequate in certain cases. There is no assurance that our insurance or indemnification agreements will adequately protect us against liability from all the consequences of the hazards described above. Moreover, our insurance coverage generally provides that we assume a portion of the risk in the form of a deductible or self-insured retention.

​

Based on the risks discussed above, it is necessary for us to estimate the level of our liability related to insurance and record reserves for these amounts in our consolidated financial statements. Reserves related to self-insurance are based on the facts and circumstances specific to the claims and our past experience with similar claims. The actual outcome of self-insured claims could differ significantly from estimated amounts. We maintain actuarially determined accruals in our consolidated balance sheets to cover self-insurance retentions for workers’ compensation, employers’ liability, general liability and automobile liability claims. These accruals are based on certain assumptions developed

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utilizing historical data to project future losses. Loss estimates in the calculation of these accruals are adjusted based upon actual claim settlements and reported claims. These loss estimates and accruals recorded in our financial statements for claims have historically been reasonable in light of the actual amount of claims paid.

​

Because the determination of our liability for self-insured claims is subject to significant management judgment and in certain instances is based on actuarially estimated and calculated amounts, and because such liabilities could be material in nature, management believes that accounting estimates related to self-insurance reserves are critical.

​

During 2021, 2020 and 2019, no significant changes were made to the methodology used to estimate insurance reserves. For purposes of earnings sensitivity analysis, if the December 31, 2021 reserves were adjusted by 10%, total costs and other deductions would change by $11.3 million, or .45%.

​

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES

​

We may be exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. This risk arises primarily as a result of potential changes in the fair market value of financial instruments due to adverse fluctuations in foreign currency exchange rates, credit risk, interest rates, and marketable and non-marketable security prices as discussed below.

​

Foreign Currency Risk. We operate in a number of international areas and are involved in transactions denominated in currencies other than U.S. dollars, which exposes us to foreign exchange rate risk and foreign currency devaluation risk. The most significant exposures arise in connection with our operations in Argentina, Russia, Kazakhstan and Canada, which usually are substantially unhedged.

​

At various times, we utilize local currency borrowings (foreign currency denominated debt), the payment structure of customer contracts and foreign exchange contracts to selectively hedge our exposure to exchange rate fluctuations in connection with monetary assets, liabilities, cash flows and commitments denominated in certain foreign currencies. A foreign exchange contract is a foreign currency transaction, defined as an agreement to exchange different currencies at a given future date and at a specified rate. A hypothetical 10% increase in the value of all our foreign currencies relative to the U.S. dollar as of December 31, 2021 would result in a $5.6 million increase in the fair value of our net monetary liabilities denominated in currencies other than U.S. dollars.

​

Credit Risk. Our financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, short-term and long-term investments and accounts receivable. Cash equivalents such as deposits and temporary cash investments are held by major banks or investment firms. Our short-term and long-term investments are managed within established guidelines that limit the amounts that may be invested with any one issuer and provide guidance as to issuer credit quality. We believe that the credit risk in our cash and investment portfolio is minimized as a result of the mix of our investments. In addition, our trade receivables are with a variety of U.S., international and non-U.S. national oil and gas companies. Management considers this credit risk to be limited due to the financial resources of these companies. We perform ongoing credit evaluations of our customers, and we generally do not require material collateral. We do occasionally require prepayment of amounts from customers whose creditworthiness is in question prior to providing services to them. We maintain reserves for potential credit losses, and these losses historically have been within management’s expectations.

​

Interest Rate and Marketable and Non-marketable Security Price Risk. Our financial instruments that are potentially sensitive to changes in interest rates include our floating rate debt instruments (our 2022 Credit Agreement), our fixed rate debt securities comprised of our 5.50%, 5.10% and 5.75% senior notes; 0.75% senior exchangeable notes; 7.25% and 7.50% senior guaranteed notes; 6.50%, 7.375% and 9.00% senior priority guaranteed notes; our investments in debt securities (including corporate and mortgage-CMO debt securities); and our investments in overseas funds that invest primarily in a variety of public and private U.S. and non-U.S. securities (including asset-backed and mortgage-backed securities, global structured-asset securitizations, whole-loan mortgages and participations in whole loans and whole-loan mortgages), which are classified as long-term investments.

​

We may utilize derivative financial instruments that are intended to manage our exposure to interest rate risks. We account for derivative financial instruments under the Derivatives Topic of the ASC. The use of derivative financial instruments could expose us to further credit risk and market risk. Credit risk in this context is the failure of a counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty would owe us, which can create credit risk for us. When the fair value of a derivative contract

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is negative, we would owe the counterparty, and therefore, we would not be exposed to credit risk. We attempt to minimize credit risk in derivative instruments by entering into transactions with major financial institutions that have a significant asset base. Market risk related to derivatives is the adverse effect on the value of a financial instrument that results from changes in interest rates. We try to manage market risk associated with interest-rate contracts by establishing and monitoring parameters that limit the type and degree of market risk that we undertake.

​

Fair Value of Financial Instruments. The fair value of our fixed rate long-term debt and revolving credit facilities is estimated based on quoted market prices or prices quoted from third-party financial institutions. The carrying and fair values of these liabilities were as follows:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ As of December 31,

​ ​ Effective ​ ​ ​ ​ ​ ​ ​ Effective ​ ​ ​ ​ ​ ​

​ ​ Interest ​ Carrying ​ Fair ​ Interest ​ Carrying ​ Fair

​ ​ Rate ​ Value ​ Value ​ Rate ​ Value ​ Value

​ (Dollars in thousands)

Less: deferred financing costs ​ ​ ​ ​ 30,805 ​ ​ ​ ​ ​ ​ ​ 22,270 ​ ​ ​

​

The fair values of our cash equivalents, trade receivables and trade payables approximate their carrying values due to the short-term nature of these instruments. Our short-term investments as of December 31, 2020 were carried at fair market value and totaled $9.5 million, respectfully.

​

Our investments in debt securities and a portion of our long-term investments are sensitive to changes in interest rates. Additionally, our investment portfolio of debt and equity securities, which are carried at fair value, exposes us to price risk.

​

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

​

INDEX

​

Report of Independent Registered Public Accounting Firm (PCAOB ID 238) 45

Consolidated Balance Sheets as of December 31, 2021 and 2020 47

Notes to Consolidated Financial Statements 52

​

​

​

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Report of Independent Registered Public Accounting Firm

​

To the Board of Directors and Shareholders of Nabors Industries Ltd.

​

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Nabors Industries Ltd. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income (loss), of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely

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detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

​

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

​

Uncertain Tax Positions

​

As described in Note 11 to the consolidated financial statements, the Company has recorded liabilities for uncertain tax positions of $46.0 million as of December 31, 2021. As disclosed by management, the Company operates in a number of countries and is subject to highly complex tax laws, treaties and regulations. Tax returns filed in the jurisdictions where the Company operates are subject to review and examination by tax authorities within those jurisdictions and the Company is currently contesting tax assessments in a number of countries and may contest future assessments. Management believes the ultimate resolution of the outstanding assessments, for which no accrual has been made, will not have a material adverse effect on the consolidated financial statements. Management recognizes uncertain tax positions that have a greater than 50 percent likelihood of being sustained.

​

The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical audit matter are (i) the significant judgment by management when determining uncertain tax positions, including a high degree of estimation uncertainty relative to the interpretation of numerous and complex tax laws, treaties and regulations and potential for significant adjustments as a result of resolution of outstanding tax assessments; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s timely identification, recognition, and measurement of uncertain tax positions; (iii) the evaluation of audit evidence available to support the uncertain tax positions is complex and resulted in significant auditor judgment as the nature of the evidence is often highly subjective; and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.

​

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification, recognition, and measurement of material uncertain tax positions. These procedures also included, among others (i) testing, on a sample basis, the completeness and accuracy of the information used in the calculation of the change in uncertain tax positions by obtaining supporting documentation for intercompany transactions, benchmark data used to support management’s position , and international filing positions; (ii) evaluating management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; (iii) evaluating the completeness of management’s assessment of the identification of uncertain tax positions; and (iv) evaluating the status and resolution of tax assessments with the relevant tax authorities. Professionals with specialized skill and knowledge were used to assist in the evaluation of the measurement of the Company’s uncertain tax positions, including evaluating the reasonableness of management’s assessment of whether tax positions have a greater than 50 percent likelihood of being sustained, management’s application of relevant tax laws, regulations and administrative practices, and testing the accuracy of potential benefit to be realized and estimated interest and penalties.

​

/s/ PricewaterhouseCoopers LLP

​

Houston, Texas

February 18, 2022

We have served as the Company’s auditor since 1987.

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​

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

​

CONSOLIDATED BALANCE SHEETS

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

​ ​ (In thousands, except per

​ ​ share amounts)

ASSETS ​ ​ ​ ​ ​ ​ ​

Current assets: ​ ​ ​ ​ ​ ​ ​

Short-term investments ​ 17 ​ 9,500 ​

Restricted cash held in trust ​ 281,523 ​ — ​

LIABILITIES AND EQUITY ​ ​ ​ ​ ​ ​ ​

Current liabilities: ​ ​ ​ ​ ​ ​ ​

Current lease liabilities ​ 5,422 ​ 8,305 ​

Commitments and contingencies (Note 15) ​ ​ ​ ​ ​ ​ ​

Redeemable noncontrolling interest in subsidiary ​ ​ 675,283 ​ 442,840 ​

​ ​ ​ ​ ​ ​ ​ ​

Shareholders’ equity: ​ ​ ​ ​ ​ ​ ​

Preferred shares, par value $0.001 per share: ​ ​ ​ ​ ​ ​ ​

Common shares, par value $0.05 per share: ​ ​ ​ ​ ​ ​ ​

Accumulated other comprehensive income (loss) ​ (10,634) ​ (11,124) ​

Retained earnings (accumulated deficit) ​ (1,537,988) ​ (946,100) ​

_____________________________

​

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

​

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

​

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

​ ​ (In thousands, except per share amounts) ​

Revenues and other income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Earnings (losses) from unconsolidated affiliates ​ ​ — ​ ​ — ​ ​ (5) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Costs and other deductions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income tax expense (benefit): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Income (loss) from discontinued operations, net of tax ​ 20 ​ 7 ​ (12) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Amounts attributable to Nabors common shareholders: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net income (loss) from discontinued operations ​ ​ 20 ​ ​ 7 ​ ​ (12) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Earnings (losses) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Basic from continuing operations ​ $ (76.58) ​ $ (118.69) ​ $ (105.39) ​

Basic from discontinued operations ​ — ​ — ​ — ​

Diluted from continuing operations ​ $ (76.58) ​ $ (118.69) ​ $ (105.39) ​

Diluted from discontinued operations ​ — ​ — ​ — ​

Weighted-average number of common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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

​

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

​

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

​ (In thousands) ​

Other comprehensive income (loss), before tax: ​ ​ ​ ​ ​ ​ ​ ​ ​

Translation adjustment attributable to Nabors ​ 2,230 ​ ​ 435 ​ ​ 16,943 ​

Pension liability amortization and adjustment (1,692) ​ 210 ​ 217 ​

Unrealized gains (losses) and amortization on cash flow hedges — ​ 160 ​ 567 ​

Other comprehensive income (loss), before tax 538 ​ 805 ​ 17,727 ​

Other comprehensive income (loss), net of tax 490 ​ 664 ​ 17,537 ​

Translation adjustment attributable to noncontrolling interest — ​ — ​ 55 ​

​

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

​

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

​

CONSOLIDATED STATEMENTS OF CASH FLOWS

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

​ ​ (In thousands)

Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjustments to net income (loss): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Losses (gains) on investments, net ​ 327 ​ 4,286 ​ (1,257) ​

Foreign currency transaction losses (gains), net ​ 4,800 ​ 13,133 ​ 20,876 ​

Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Purchases of investments ​ (67) ​ (91) ​ (4,323) ​

Purchase of intangible assets ​ (3,600) ​ — ​ — ​

Other ​ (15,217) ​ — ​ — ​

Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Proceeds from issuance of long-term debt ​ 700,000 ​ 1,000,000 ​ — ​

Proceeds from (payments for) short-term borrowings ​ ​ — ​ ​ — ​ ​ (561) ​

Repurchase of common and preferred shares ​ ​ — ​ ​ (1,731) ​ ​ — ​

Dividends to common and preferred shareholders ​ (7,380) ​ (22,538) ​ (49,583) ​

Redeemable noncontrolling interest distribution ​ ​ (58,524) ​ ​ — ​ ​ — ​

Distributions to noncontrolling interest ​ ​ (3,795) ​ ​ (5,083) ​ ​ (4,552) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Restricted cash, beginning of period ​ ​ 3,034 ​ ​ 6,048 ​ ​ 3,314 ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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

​

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NABORS INDUSTRIES LTD. AND SUBSIDIARIES

​

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Par ​ Par of Par Comprehensive (Accumulated Treasury controlling Total

Other ​ — ​ ​ — ​ 59 ​ ​ 3 ​ (1,548) ​ ​ — ​ ​ — ​ ​ — ​ ​ 357 ​ (1,188)

Other ​ — ​ ​ — ​ 96 ​ ​ 6 ​ ​ (1,564) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (1,558)

​

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

​

​

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​

Nabors Industries Ltd. and Subsidiaries

​

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

​

Note 1 Nature of Operations

​

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

​

Our business is comprised of our global land-based and offshore drilling rig operations and other rig related services and technologies. These services and technologies include tubular running services, wellbore placement solutions, directional drilling, measurement-while-drilling (“MWD”), logging-while-drilling (“LWD”) systems and services, equipment manufacturing, rig instrumentation and drilling optimization software.

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In 2021, we co-sponsored a special purpose acquisition company (“SPAC”), Nabors Energy Transition Corporation (“NETC”), which has the sole purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses with significant growth potential and to create value by supporting the company in the public markets. The business acquisition will operate in an industry that will benefit from the experience, expertise and operating skills of Nabors. NETC trades on the New York Stock Exchange under the symbols “NETC”, “NETC.U” and “NETC.W.”

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The outbreak of the novel coronavirus (“COVID-19”), together with actions by large oil and natural gas producing countries, led to decreases in commodity prices, specifically oil and natural gas prices, resulting from oversupply and demand weakness. These price decreases caused significant disruptions and volatility in the global marketplace during 2020. Lower prices and the resulting weakness in demand for our services, negatively affected our results of operations and cash flows and uncertainty remains regarding the length and impact of COVID-19 on the energy industry and the outlook for our business.

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The consolidated financial statements and related footnotes are presented in accordance with U.S. GAAP.

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Note 2 Summary of Significant Accounting Policies

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Principles of Consolidation

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

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In addition to the consolidation of our majority owned subsidiaries, we also consolidate variable interest entities (“VIE’s”) when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE. Our joint venture, SANAD, which is equally owned by Saudi Aramco and Nabors, has been consolidated. As we have the power to direct activities that most significantly impact SANAD’s economic performance, including operations, maintenance and certain sourcing and procurement, we have determined Nabors to be the primary beneficiary. See Note 13—Joint Ventures.

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Prior Period Revision

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During the preparation of our consolidated financial statements for the three and nine months ended September 30, 2021, we identified an error in the presentation of the number of common shares in our previously issued Consolidated Statements of Changes in Equity. The error resulted from our presentation of the 1-for-50 reverse stock split approved by our shareholders on April 20, 2020 (the “Reverse Stock Split”), as a reduction in the number of shares outstanding during the quarter ended June 30, 2020, rather than retrospectively adjusting all common share quantities presented in all

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Consolidated Statements of Changes in Equity issued subsequent to the Reverse Stock Split as required under U.S. GAAP. The errors only impacted the presentation of common share quantities in our Consolidated Statements of Changes in Equity, and had no impact on amounts presented for Weighted-average number of common shares outstanding, Earnings (losses) per share, Par Value, Capital in Excess of Par Value, or Total Equity; or on our financial position, results of operations or cash flow.

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We have assessed the presentation errors described above and concluded they are not material to our previously issued consolidated financial statements for any impacted period. However, management has elected to revise previously issued financial statements to properly present common share quantities presented in our previously issued Consolidated Statements of Changes in Equity included herein to appropriately reflect the Reverse Stock Split, and will be similarly revised in future filings, as applicable.

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Change in Presentation

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Certain amounts within our consolidated statements of income (loss) have been reclassified to conform to the current period presentation.

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Cash and Cash Equivalents

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Cash and cash equivalents include demand deposits and various other short-term investments with original maturities of three months or less.

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Short-term Investments

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Short-term investments consist primarily of equity securities which are stated at fair value with any changes in fair value recognized in investment income (loss) in our consolidated statements of income (loss).

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Inventory

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Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out or weighted-average costs methods and includes the cost of materials, labor and manufacturing overhead. Inventory, which is net of reserves of $21.9 million and $23.5 million as of December 31, 2021 and 2020, respectively, included the following:

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​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

​ ​ (In thousands)

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Property, Plant and Equipment

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Property, plant and equipment, including renewals and betterments, are stated at cost, while maintenance and repairs are expensed currently. Interest costs applicable to the construction of qualifying assets are capitalized as a component of the cost of such assets. We provide for the depreciation of our drilling rigs using the units-of-production method. For each day a rig is operating, we depreciate it over an approximate 4,927-day period, with the exception of our jackup rigs which are depreciated over an 8,030-day period, after provision for salvage value. For each day a rig asset is not operating, it is depreciated over an assumed depreciable life of 20 years, with the exception of our jackup rigs, where a 30-year depreciable life is used, in each case after provision for salvage value.

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Depreciation on our buildings, oilfield hauling and mobile equipment, and other machinery and equipment is computed using the straight-line method over the estimated useful life of the asset after provision for salvage value (buildings—10 to 30 years; oilfield hauling and mobile equipment and other machinery and equipment—3 to 10 years). Amortization of capitalized leases is included in depreciation and amortization expense. Upon retirement or other

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disposal of fixed assets, the cost and related accumulated depreciation are removed from the respective property, plant and equipment accounts and any gains or losses are included in our consolidated statements of income (loss).

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

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

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Goodwill

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

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Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. The fair values calculated in these impairment tests were determined using discounted cash flow models, which require the use of significant unobservable inputs, representative of a Level 3 fair value measurement. Our cash flow models involve assumptions based on our utilization of rigs or other oil and gas service equipment, revenues and earnings from affiliates, as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. Our fair value estimates of these reporting units are sensitive to varying dayrates, utilization and costs. Our discounted cash flow projections for each reporting unit were based on financial forecasts. The future cash flows were discounted to present value using discount rates determined to be appropriate for each reporting unit. Terminal values for each reporting unit were calculated using a Gordon Growth methodology with a long-term growth rate of approximately 2%.

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Another factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. As part of our annual review, we compared the sum of our reporting units’ estimated fair value, which included the estimated fair value of non-operating assets and liabilities, less debt, to our market capitalization and assessed the reasonableness of our estimated fair value. Any of the above-mentioned factors may cause us to re-evaluate goodwill during any quarter throughout the year. Due to industry conditions that existed at March 31, 2020 and the corresponding impact on future expectations of demand for our products and services, including the effect on our stock price, we determined a triggering event had occurred and performed a quantitative impairment assessment of our goodwill.

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The change in the carrying amount of goodwill for our segments for the year ended December 31, 2020 was as follows:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Acquisitions ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Balance at ​ Purchase ​ Disposals ​ Cumulative ​ ​ ​ Balance at

​ ​ December 31, ​ Price ​ and ​ Translation ​ Other ​ December 31,

​ ​ 2019 ​ Adjustments ​ Impairments ​ Adjustment ​ Adjustment ​ 2020

​ ​ (In thousands)

Drilling Solutions ​ $ 11,436 ​ $ — ​ $ (11,436) (1) $ — ​ — ​ $ — ​

—Impairments and Other Charges.

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Litigation and Insurance Reserves

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We estimate our reserves related to litigation and insurance based on the facts and circumstances specific to the litigation and insurance claims and our past experience with similar claims. We maintain actuarially determined accruals in our consolidated balance sheets to cover self-insurance retentions. See Note 15—Commitments and Contingencies regarding self-insurance accruals. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can reasonably be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure.

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Revenue Recognition

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