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 are a leading provider of advanced technology for the energy industry. With operations in over 15 countries, Nabors has established a global network of people, technology and equipment to deploy solutions that deliver safe, efficient and sustainable energy production. By leveraging its core competencies, particularly in drilling, engineering, automation, data science and manufacturing, Nabors aims to innovate the future of energy and enable the transition to a lower carbon world.

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Outlook

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The demand for our services and products is a function of the level of spending by oil and gas companies for exploration, development and production activities. The level of exploration, development and production activities is to a large extent tied to the prices of oil and natural gas, which fluctuate significantly and tend to be highly sensitive to supply and demand cycles. Additionally, some oil and gas companies may limit their capital spending to a percentage of their operating cash flows.

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During 2020, global oil markets experienced unprecedented volatility primarily as a result of the advent of the COVID-19 pandemic. As a result, we experienced a significant reduction in demand for our services throughout 2020 and into 2021, both in the US and in many international markets. The US drilling rig market began to stabilize during the second half of 2020 and has improved at a measured rate since 2020 through 2022. We expect continued modest increases in activity throughout 2023 for the US market. In our International markets since 2020, we have seen a substantial resumption of overall activity to near pre-COVID-19 levels. In certain key markets, activity has been restored to pre-COVID levels.

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More recently, several global commodity markets, including oil and gas, have been impacted by the effects of the war in Ukraine. These consequences include severe economic sanctions against the Russian government as well as certain Russian businesses and individuals, in addition to a reorientation of the global sources of oil and gas supply and a significant increase in the related commodity prices. Government actions, as well as those by large producers, also continue to impact energy markets. The ultimate outcome of these events and the impact on our business remains uncertain.

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Recent Developments

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2022 Credit Agreement

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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 (the “Issuing Banks”) and other lenders party thereto (the “Lenders”) and Citibank, N.A., as administrative agent (the “2022 Credit Agreement”). The 2022 Credit Agreement replaced the 2018 Revolving Credit Facility. Under the 2022 Credit Agreement, the Lenders 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 subject to lender consent) to Nabors Delaware under a secured revolving credit facility, including sub-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 facility matures on the earlier of (a) January 21, 2026 and (b) (i) to the extent any principal amount of Nabors Delaware’s existing 5.5% 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

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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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Financial Results

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Comparison of the years ended December 31, 2022 and 2021

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Operating revenues in 2022 totaled $2.7 billion, representing an increase of $636.2 million, or 32%, from 2021. All of our operating segments, with the exception of Canada Drilling due to its sale in 2021, experienced an increase in operating revenues over this period. 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 $350.3 million for 2022 ($40.52 per diluted share) compared to a net loss from continuing operations attributable to Nabors common shareholders of $572.9 million ($76.58 per diluted share) in 2021, or a $222.7 million decrease in the net loss. The majority of the decrease in net loss is attributable to improved market conditions, which has resulted in a $255.8 million improvement in adjusted operating income from the prior year. Results from 2022 included approximately $95.9 million in mark-to-market losses on warrants, which was offset by the absence of any impairments or purchase of technology, both of which negatively impacted 2021 by approximately $81.5 million.

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General and administrative expenses in 2022 totaled $228.4 million, representing an increase of $14.9 million, or 7% from 2021. This is reflective of increases in workforce costs and general operating costs as market conditions have improved and operating levels have increased.

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Research and engineering expenses in 2022 totaled $49.9 million, representing an increase of $14.8 million, or 42%, from 2021. This is primarily reflective of an increase in research and development activities, along with increased engineering support costs for the higher general operating activity levels, as market conditions have improved.

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Depreciation and amortization expense in 2022 was $665.1 million, representing a decrease of $28.3 million, or 4%, from 2021. The decrease is attributable to the combination of (a) a reduction in depreciation as a result of the many assets that have recently reached the end of their useful lives, (b) limited capital expenditures over recent years, and (c) the sale of Canada Drilling assets in July 2021.

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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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted operating income (loss) (1) ​ ​ ​ $ 13 ​ $ 2,893 ​ $ (2,880) (100) %

Average rigs working (2) ​ ​ ​ — ​ 6.5 ​ (6.5) (100) %

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

Average rigs working (2) ​ ​ ​ 74.2 ​ 67.9 ​ 6.3 9 %

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

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U.S. Drilling

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Operating revenues increased by $431.0 million or 64% in 2022 compared to 2021. This increase was due to a 37% increase in the average rigs working, reflecting increased drilling activity as market conditions and demand for our drilling services have rebounded and increased since the prior year. The increase is also attributable to an increase in day rates, as pricing for our services has improved during 2022.

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Canada Drilling

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We had no operating revenues in Canada Drilling in 2022 due to the sale of the Canada Drilling assets in July 2021. In 2021, Canada Drilling revenues were $39.3 million.

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International Drilling

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Operating revenues increased by $156.1 million or 15% in 2022 compared to 2021. This increase was due to a 9% increase in the average rigs working, reflecting increased drilling activity as market conditions and demand for our drilling services have rebounded and increased since the prior year. The increase is also partially attributable to an increase in day rates, as pricing for our services has improved.

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Drilling Solutions

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Operating revenues increased by $70.9 million or 41% in 2022 compared to 2021 as market conditions and demand for our services have rebounded and drilling activity has increased since the prior year.

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Rig Technologies

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Operating revenues increased by $45.9 million or 31% in 2022 compared to 2021 as market conditions and demand for our services have improved since the prior year.

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Other Financial Information

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Interest expense

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Interest expense for 2022 was $177.9 million, representing an increase of $6.4 million, or 4%, compared to 2021. The increase was primarily due to the issuance in November 2021 of $700 million in 7.375% senior priority guaranteed notes due May 2027, partially offset by a reduction of over $400 million to our overall debt levels since December 31, 2020.

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Gain on debt buybacks and exchanges

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Gain on debt buybacks and exchanges in 2022 was $4.6 million, representing a decrease of $8.8 million compared to 2021. The decrease is primarily attributable to fewer open market purchases of debt in 2022, as the debt 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. The charges was primarily due to $58.5 million of impairments recognized in 2021 attributable to the sale of our Canada drilling assets. Also, we recognized $6.2 million in severance and transaction related costs in 2021 as the company was responding to the challenging industry environment.

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Other, net

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Other, net for the year ended December 31, 2022 was a loss of $131.7 million, compared to $53.4 million of loss during 2021. The increase was primarily due to an additional $101.0 million of loss recognized in 2022 related to common stock warrant valuation (see Note 12 — Shareholders’ Equity in Part II, Item 8.—Financial Statements and Supplementary Data for discussion of the common stock warrants). This was offset by a decrease of $16.5 million in losses from sales and retirements of assets recognized between 2021 and 2022.

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Income taxes

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Our worldwide income tax expense for 2022 was $61.5 million compared to $55.6 million for 2021. The increase in tax expense was primarily attributable to changes in the operating income and the geographic mix of our pre-tax earnings (losses) in the jurisdictions in which we operate, partially offset by tax expense recorded in 2021 attributable to a liability for uncertain tax positions of $26.3 million.

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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 the 2022 Credit Agreement and cash generated from operations. As of December 31, 2022, we had cash and short-term investments of $452.3 million and working capital of $404.2 million. As of December 31, 2021, we had cash and short-term investments of $991.5 million and working capital of $1.0 billion.

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At December 31, 2022, we had no borrowings outstanding under the 2022 Credit Agreement, which has a total borrowing capacity of $350.0 million.

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The 2022 Credit Agreement requires us 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. Additionally, the Company is subject to certain covenants (which are subject to certain exceptions) and include, among others, (a) a covenant restricting our ability to incur liens (subject to the additional liens basket of up to $150.0 million), (b) a covenant restricting our ability to pay dividends or make other distributions with respect to its capital stock and to repurchase certain indebtedness, and (c) a covenant restricting the ability of the Company’s subsidiaries to incur debt

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(subject to the grower basket of up to $100.0 million). We had $66.2 million of letters of credit outstanding under the 2022 Credit Agreement.

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As of the date of this report, we were in compliance with all covenants under the 2022 Credit Agreement. 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 Agreements (see—Accounts Receivable Purchase and Sales Agreements, 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, 2022. Availability under these facilities was as follows:

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​ December 31,

​ ​ (In thousands)

Remaining availability ​ $ 515,471 ​

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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 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 Purchase and Sales Agreements

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On September 13, 2019, we entered into an accounts receivables sales agreement (the “A/R Sales Agreement”) and an accounts receivables purchase agreement (the “A/R Purchase Agreement” and, together with the A/R Sales Agreement, the “A/R Agreements”), whereby the originators, all of whom are our subsidiaries, 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 in turn, sells, transfers, conveys and assigns to third-party financial institutions (“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 A/R Purchase Agreement which, among other things, reduced the commitments of the third-party financial institutions (the “Purchasers”) from $250 million to $150 million.

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On June 27, 2022, we entered into the Third Amendment to the A/R Purchase Agreement which extended the term of the Purchase Agreement to August 13, 2024 and increased the commitments of the Purchasers from $150 million to $250 million. Subject to Purchaser approval, the A/R Purchase Agreement allows for purchase commitments to be increased to $300 million. The expiration of the A/R Purchase Agreement can be accelerated to June 17, 2023 if any of the 5.1% Senior Notes remain outstanding as of such date; or, to October 17, 2023 if 50% or more of the outstanding aggregate principal amount of the 0.75% Senior Exchangeable Notes remain outstanding and not refinanced as of such date.

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The amount available for purchase under the A/R Agreements fluctuates over time is 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 Agreements is approximately $250.0 million and the amount of receivables purchased by the third-party Purchasers as of December 31, 2022 was $208.0 million.

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The originators, Nabors Delaware, the SPE, and the Company provide representations, warranties, covenants and indemnities under the A/R Agreements and the Indemnification Guarantee. See further details at Note 4—Accounts Receivable Purchase and Sales Agreements.

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Other Indebtedness

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See Note 10, Debt, ,in Part II, Item 8.—Financial Statements and Supplementary Data, for further details about our financing arrangements, including our debt securities.

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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 foreseeable future including the repayment of the $52.1 million of outstanding 5.10% senior notes due September 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 Russia/Ukraine Conflict, global inflationary pressures, including increasing interest rates, and the COVID-19 pandemic has had 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 on December 31, 2022 totaled approximately $247.3 million, primarily for rig-related enhancements, sustaining capital expenditures, operating expenses, and purchases of inventory. $247.2 million of the outstanding commitments are expected to be paid in 2023. 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 for 2023 represent a number of capital programs that are currently underway or planned.

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As of December 31, 2022, we had approximately $2.5 billion of net book value of long-term debt outstanding with $2.6 billion in aggregate principal. We have expected aggregate future interest payments of $616.0 million related to the outstanding debt with $156.0 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 $43.2 million with $8.9 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 or debt securities, both in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and may involve material amounts.

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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 Agreements (see —Accounts Receivable Purchase and Sales Agreements, 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, if any. 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 2022 and 2021 cash flows below.

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Operating Activities. Net cash provided by operating activities totaled $501.1 million during 2022, compared to net cash provided of $428.8 million during 2021. 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 $48.3 million in cash flows during 2022 and provided $188.1 million in cash flows during 2021. As is common in periods of growth for companies, as our businesses grew in 2022 we experienced a need for increased working capital, which caused the decrease in cash provided from this source.

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Investing Activities. Net cash used for investing activities totaled $368.7 million during 2022 compared to net cash used of $117.2 million in 2021. Our primary use of cash for investing activities is for capital expenditures related to rig-related enhancements, new construction and equipment, and sustaining capital expenditures. During 2022 and 2021, we used cash for capital expenditures totaling $373.4 million and $234.0 million, respectively.

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We received $26.7 million in proceeds from sales of assets during 2022 compared to $124.3 million in 2021. The 2021 total was primarily due to the sale of our Canada drilling assets in July 2021.

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Financing Activities. Net cash used for financing activities totaled $661.5 million during 2022. During 2022, we reduced $460.0 million in amounts borrowed under our revolving credit facilities and repaid $182.6 million on our senior notes. Additionally, we had distributions of $10.3 million from our SANAD joint venture to our partner.

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Net cash provided by financing activities totaled $488.4 million during 2021. During 2021, we received net proceeds of $700.0 million from the issuance of long-term debt and received $276.0 million from the public offering of NETC (accounted for as restricted cash held in trust). Partially offsetting these activities, we reduced $212.5 million in amounts borrowed under our revolving credit facilities and repaid $187.0 million on our senior notes. Additionally, we paid dividends totaling $7.3 million to our preferred shareholders and made distributions of $58.5 million from our SANAD joint venture to our partner.

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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 (a) 5.10% Senior Notes due 2023 (the “5.10% 2023 Notes”) and (b) 5.75% Senior Notes due 2025 (the “2025 Notes” and, together with the 5.10% 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 2022 ​ 2021

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Assets ​ ​ ​ ​ ​ ​

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Liabilities and Stockholders' Equity ​ ​ ​ ​ ​

Noncurrent liabilities - affiliates ​ — ​ 4,471

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​ ​ ​ Year Ended December 31,

Summarized Combined Income Statement Information 2022 ​ 2021

Income from continuing operations, net of tax ​ (420,492) ​ ​ (441,310)

Dividends on preferred stock ​ — ​ ​ (3,653)

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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

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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:

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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.

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Depreciation of Property, Plant and Equipment. The drilling and drilling services industries are very capital intensive. Property, plant and equipment represented 64% of our total assets as of December 31, 2022, and depreciation and amortization constituted 23% of our total costs and other deductions in 2022.

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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.

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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).

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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.

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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, 2022, 2021 and 2020, 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.

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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 2022, 2021 and 2020, no significant changes have been made to the methodology utilized to determine future cash flows.

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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 by calculating the expected sales price less any costs to sell.

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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 $216.9 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 2022, 2021 and 2020, no significant changes were made to the methodology used to estimate insurance reserves. For purposes of earnings sensitivity analysis, if the December 31, 2022 reserves were adjusted by 10%, total costs and other deductions would change by $10.8 million, or 0.37%.

​

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, Norway 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, 2022 would result in a $6.2 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 5.10% and 5.75% senior notes; 0.75% senior exchangeable notes; 7.25% and 7.50% senior guaranteed notes; 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 ​ ​ ​ ​ 22,456 ​ ​ ​ ​ ​ ​ ​ 30,805 ​ ​ ​

​

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 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) 48

Consolidated Balance Sheets as of December 31, 2022 and 2021 50

Notes to Consolidated Financial Statements 55

​

​

​

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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, 2022 and 2021, 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, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 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, 2022, 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 $62.5 million as of December 31, 2022. 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 9, 2023

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 ​ 1,290 ​ 17 ​

LIABILITIES AND EQUITY ​ ​ ​ ​ ​ ​ ​

Current liabilities: ​ ​ ​ ​ ​ ​ ​

Current lease liabilities ​ 6,784 ​ 5,422 ​

Commitments and contingencies (Note 8) ​ ​ ​ ​ ​ ​ ​

Redeemable noncontrolling interest in subsidiary ​ ​ 678,604 ​ 675,283 ​

​ ​ ​ ​ ​ ​ ​ ​

Shareholders’ equity: ​ ​ ​ ​ ​ ​ ​

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

Accumulated other comprehensive income (loss) ​ (11,038) ​ (10,634) ​

_____________________________

​

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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

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

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

Less: Preferred stock dividend ​ — ​ (3,653) ​ (14,611) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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

Basic from continuing operations ​ $ (40.52) ​ $ (76.58) ​ $ (118.69) ​

Basic from discontinued operations ​ — ​ — ​ — ​

Diluted from continuing operations ​ $ (40.52) ​ $ (76.58) ​ $ (118.69) ​

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 ​ (1,993) ​ ​ 2,230 ​ ​ 435 ​

Pension liability amortization and adjustment 1,645 ​ (1,692) ​ 210 ​

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

Other comprehensive income (loss), before tax (348) ​ 538 ​ 805 ​

Other comprehensive income (loss), net of tax (404) ​ 490 ​ 664 ​

​

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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Provision (recovery) of bad debt ​ ​ — ​ (2,515) ​ 18,194 ​

Foreign currency transaction losses (gains), net ​ 6,689 ​ 4,800 ​ 13,133 ​

Mark-to-market loss on warrants ​ ​ 95,909 ​ — ​ — ​

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

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

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

Dividends to common and preferred shareholders ​ (65) ​ (7,380) ​ (22,538) ​

Distributions to noncontrolling interest ​ ​ (3,489) ​ ​ (3,795) ​ ​ (5,083) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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)

Share issuance — ​ ​ — ​ 148 ​ ​ 7 ​ ​ 12,865 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ 12,872

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

Other ​ — ​ ​ — ​ 159 ​ ​ 7 ​ ​ (4,588) ​ ​ — ​ ​ 40 ​ ​ — ​ ​ — ​ ​ (4,541)

​

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. 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. We provide performance tools, directional drilling services, tubular running services and innovative technologies for our own rig fleet and those operated by third parties. In addition, we manufacture advanced drilling equipment and provides drilling rig instrumentation. Also, we have a portfolio of technologies designed to drive energy efficiency and emissions reductions for us and third-party customers.

​

With operations in over 15 countries, we are a global provider of drilling and drilling-related services for land-based and offshore oil and natural gas wells, with a fleet of rigs and drilling-related equipment which, as of December 31, 2022 included:

​

​

​

The short- and long-term implications of the military hostilities between Russia and Ukraine, which began in early 2022, are difficult to predict at this time. We continue to actively monitor this dynamic situation. As of December 31, 2022, 1.1% of our property, plant and equipment, net was located in Russia. For the year ending December 31, 2022, 1.5% of our operating revenues was from operations in Russia. We currently have no assets or operations in Ukraine.

​

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

​

Note 2 Summary of Significant Accounting Policies

​

Principles of Consolidation

​

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.

​

We 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.

​

Reclassification of Prior Year Presentation

​

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.

​

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Cash and Cash Equivalents

​

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

​

Short-term Investments

​

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).

​

Inventory

​

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 presented net of reserves of $23.0 million and $21.9 million as of December 31, 2022 and 2021, respectively, included the following:

​

​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

​ ​ (In thousands)

​

Property, Plant and Equipment

​

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.

​

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 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).

​

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.

​

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. Based on the results, we recognized a goodwill impairment of $27.8 million in the first quarter of 2020 which represented the remaining balance of our goodwill at the time. We have not had any goodwill assets in our financial statements since 2020. See Note 3—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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We recognize revenues and costs on daywork contracts daily as the work progresses over the contract term. For certain contracts, we receive lump sum payments for the mobilization of rigs and other drilling equipment. We defer revenue related to mobilization periods and recognize the revenue over the term of the related drilling contract.

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

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

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

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

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Research and Engineering

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Research and engineering expenses are expensed as incurred and include costs associated with the research and development of new products and services and costs associated with sustaining engineering of existing products and services.

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Income Taxes

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We are a Bermuda exempted company and are not subject to income taxes in Bermuda. We have provided for income taxes based on the tax laws and rates in effect in the countries where we operate and earn income. The income taxes in these jurisdictions vary substantially. Our worldwide effective tax rate for financial statement purposes will continue to fluctuate from year to year due to changes in the geographic mix of pre-tax earnings.

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We recognize increases to our tax reserves for uncertain tax positions along with interest and penalties as an increase to other long-term liabilities.

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For U.S. and other jurisdictional income tax purposes, we have net operating loss carryforwards and other tax attributes that we are required to assess quarterly for potential valuation allowances. We consider the sufficiency of existing temporary differences and expected future earnings levels in determining the amount, if any, of valuation allowance required against such carryforwards and against deferred tax assets.

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Foreign Currency Translation

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For certain of our foreign subsidiaries, such as those in Canada, the local currency is the functional currency, and therefore translation gains or losses associated with foreign-denominated monetary accounts are accumulated in a separate section of the consolidated statements of changes in equity. For our other international subsidiaries, the U.S. dollar is the functional currency, and therefore local currency transaction gains and losses, arising from remeasurement of payables and receivables denominated in local currency, are included in our consolidated statements of income (loss).

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Special Purpose Acquisition Company

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Nabors Energy Transition Corp. (“NETC”) is a consolidated VIE that is included in the accompanying consolidated financial statements under the following captions:

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Restricted cash held in trust

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As part of the initial public offering of NETC and subsequent private placement warrant transactions in November 2021, $281.5 million was deposited in an interest-bearing U.S. based trust account (“Trust Account”). As of December 31, 2022 and December 31, 2021, the Trust Account balance was $284.8 million and $281.5 million, respectively. The funds held in the Trust Account are invested in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations. The funds in the trust account will only be released to NETC upon completion of a business combination or in connection with redemptions of any of the redeemable common shares, except with respect to interest earned on the funds which may be withdrawn to pay NETC taxes.

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Redeemable noncontrolling interest in subsidiary

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The company accounts for the non-controlling interest in NETC as subject to possible redemption in accordance with FASB ASC Topic 480 “Distinguishing Liabilities from Equity.” NETC’s common stock features certain redemption rights, which are considered to be outside the company’s control and subject to occurrence of uncertain future events. Accordingly, $284.8 million and $281.5 million of non-controlling interest subject to possible redemption is presented at full redemption value as temporary equity, outside of the stockholders’ equity section in the accompanying consolidated financial statements as of December 31, 2022 and 2021, respectively.

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Nabors will recognize any future changes in redemption value immediately as they occur – i.e., adjust the carrying amount of the instrument to its current redemption amount at each reporting period.

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Use of Estimates

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The preparation of 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. Actual results could differ from such estimates. Areas where critical accounting estimates are made by management include:

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● depreciation of property, plant and equipment;

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