NABORS INDUSTRIES LTD - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
COMMISSION FILE NUMBER: 000-49887

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NABORS INDUSTRIES LTD.

INCORPORATED IN BERMUDA
2ND FLOOR, INTERNATIONAL TRADING CENTRE
WARRENS
P.O. BOX 905E
ST. MICHAEL, BARBADOS
(246) 421-9471

98-0363970
(I.R.S. Employer Identification No.)

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:

NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
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Common Shares, $.001 par value per share The American Stock Exchange, LLC

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

YES [X] NO [ ]

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

YES [X] NO [ ]

The aggregate market value of the 130,963,344 common shares held by
non-affiliates of the registrant, based upon the closing price of our common
shares as of the last business day of our most recently completed second fiscal
quarter, June 30, 2003, of $39.53 per share as reported on the American Stock
Exchange, was $5,176,980,988. Common Shares held by each officer and director
and by each person who owns 5% or more of the outstanding common shares have
been excluded in that such persons may be deemed affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

The number of common shares, par value $.001 per share, outstanding as of
February 29, 2004 was 148,047,219. In addition, our subsidiary, Nabors
Exchangeco (Canada) Inc., had 372,108 exchangeable shares outstanding as of
February 29, 2004 that are exchangeable for Nabors common shares on a
one-for-one basis, and have essentially identical rights as Nabors Industries
Ltd. common shares; including but not limited to voting rights and the right to
receive dividends, if any.

DOCUMENTS INCORPORATED BY REFERENCE
(TO THE EXTENT INDICATED HEREIN)

Specified portions of the 2003 Annual Report to Shareholders (Parts I, II and
IV) Specified portions of the 2004 Notice of Annual Meeting of Shareholders and
Proxy Statement (Part III)

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NABORS INDUSTRIES LTD.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

PART I
Item 1. Business 1
I. Introduction 1
II. Description of Business 2
A. Our Fleet of Rigs 2
B. Types of Drilling Contracts 4
C. Well Servicing and Workover Services 5
D. Oil and Gas Investments 6
E. Other Services 6
F. Our Employees 7
G. Seasonality 8
H. Research and Development 8
III. Customers; Markets; Industry Conditions and Trends 8
A. Contract Drilling 8
B. Oil and Gas Segment 9
C. Other Operating Segments 10
D. Industry Conditions 10
E. Competitive Conditions 11
IV. Recent Developments 12
A. Operating Results 12
B. Debt Offering and Debt Redemptions 12
C. Oil and Gas Investments 13
V. Our Business Strategy 13
VI. Risk Factors 14
VII. Acquisitions and Divestitures 19
VIII. Environmental Compliance 21
IX. Available Information 21
Item 2. Properties 21
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22

PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 22
I. Market and Stock Prices 22
II. Dividend Policy 27
III. Shareholder Matters 27
Item 6. Selected Financial Data 27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure 27
Item 9A. Controls and Procedures 27

PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters 28
Item 13. Certain Relationships and Related Transactions 28
Item 14 Principal Accountant Fees and Services 29

PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 29

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FORWARD-LOOKING STATEMENTS

We often discuss expectations regarding our future markets, demand for our
products and services, and our performance in our annual and quarterly reports,
press releases, and other written and oral statements. Statements that relate to
matters that are not historical facts are "forward-looking statements" within
the meaning of the safe harbor provisions of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These
"forward-looking statements" are based on an analysis of currently available
competitive, financial and economic data and our operating plans. They are
inherently uncertain and investors should recognize that events and actual
results could turn out to be significantly different from our expectations. By
way of illustration, when used in this document, words such as "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "will," "should,"
"could," "may," "predict" and similar expressions are intended to identify
forward-looking statements.

You should consider the following key factors when evaluating these
forward-looking statements:

o fluctuations in worldwide prices of and demand for natural gas and
oil;

o fluctuations in levels of natural gas and oil exploration and
development activities;

o fluctuations in the demand for our services;

o the existence of competitors, technological changes and developments
in the oilfield services industry;

o the existence of operating risks inherent in the oilfield services
industry;

o the existence of regulatory and legislative uncertainties;

o the possibility of changes in tax laws;

o the possibility of political instability, war or acts of terrorism in
any of the countries in which we do business; and

o general economic conditions.

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

The above description of risks and uncertainties is by no means all-inclusive,
but is designed to highlight what we believe are important factors to consider.
For a more detailed description of risk factors, please see "Part I - Item 1 -
BUSINESS - RISK FACTORS".

Unless the context requires otherwise, references in this Annual Report on Form
10-K to "we," "us," "our", or "Nabors" means Nabors Industries Ltd. and, where
the context requires, includes our subsidiaries.

PART I

Please see the Glossary of Drilling Terms included as Annex A to this document
for a brief explanation of drilling terms used throughout this document.

ITEM 1. BUSINESS

I. INTRODUCTION.

Nabors is the largest land drilling contractor in the world, with almost 600
land drilling rigs. We conduct oil, gas and geothermal land drilling operations
in the U.S. Lower 48 states, Alaska, Canada, South and Central America, the
Middle East, the Far East, and Africa. We are also one of the largest land
well-servicing and workover contractors in the United States and Canada. We own
approximately 750 land workover and well-servicing rigs in the United States,
primarily in the southwestern and western United States, and approximately 200
land workover and well-servicing rigs in Canada. Nabors is a leading provider of
offshore platform workover and drilling rigs, and owns 45 platform, 16 jack-up
and three barge rigs in the Gulf of Mexico and international markets. These rigs

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provide well-servicing, workover and drilling services. We also have a 50%
ownership interest in a joint venture in Saudi Arabia, which owns 17 rigs.

To further supplement and complement our primary business, we offer a wide range
of ancillary well-site services, including engineering, transportation,
construction, maintenance, well logging, directional drilling, rig
instrumentation, data collection and other support services in selected domestic
and international markets. Our land transportation and hauling fleet includes
approximately 240 rig and oilfield equipment hauling tractor-trailers and a
number of cranes, loaders and light-duty vehicles. We maintain approximately 300
fluid hauling trucks, approximately 800 fluid storage tanks, ten salt water
disposal wells and other auxiliary equipment used in drilling, workover and
well-servicing operations in the United States. In addition, we time charter a
fleet of 31 marine transportation and supply vessels, which provide
transportation of drilling materials, supplies and crews for offshore operations
primarily in the Gulf of Mexico. We manufacture and lease or sell top drives for
a broad range of drilling applications, directional drilling systems, rig
instrumentation and data collection equipment, and rig reporting software. We
have also made selective investments in oil and gas exploration, development and
production activities, most recently with El Paso Corporation.

The majority of our business is conducted through our various Contract Drilling
operating segments, which include our drilling, workover and well-servicing
operations, on land and offshore. Our operating segments engaged in marine
transportation and supply services, drilling technology and top drive
manufacturing, directional drilling, rig instrumentation and software, and
construction and logistics operations are aggregated in a category labeled Other
Operating Segments for segment reporting purposes. Our limited oil and gas
exploration, development and production operations are included in a category
labeled Oil and Gas for segment reporting purposes.

Nabors was formed as a Bermuda-exempt company on December 11, 2001. Through
predecessors and acquired entities, Nabors has been continuously operating in
the drilling sector since the early 1900s. Our principal executive offices are
located at 2nd Fl. International Trading Centre, Warrens, St. Michael, Barbados.
Our phone number at our principal executive offices is (246) 421-9471.

II. DESCRIPTION OF BUSINESS.

A. OUR FLEET OF RIGS.

Our rigs include land-based rigs and offshore platform, jack-up and barge rigs.
Drilling rigs come in a wide variety of sizes and capabilities, and may include
specialized equipment, such as top drives, or have design features or
modifications for specialized drilling conditions, such as arctic drilling. The
rigs are classified by their depth capabilities and by whether their power
systems are mechanical or electric. They generally are powered by two to four
large diesel engines. An electric rig differs from a mechanical rig in that it
converts the diesel power into electricity to power the rig. This gives the rig
operator the ability to deliver the same amount of torque at high and low
speeds, permitting more finite control of the primary rig components, including
the drawworks and mud pumps. We believe this electric capability enhances
operating efficiency and safety, reduces drilling time and saves the customer
money, particularly in deeper applications. Because of these advantages, diesel
electric rigs, known in the industry as silicon-controlled rectifier or SCR
rigs, generally are preferred by our customers, and often enjoy higher
utilization and dayrates than similarly sized mechanical rigs.

Nabors' various types of rigs perform drilling, workover (major overhaul or
remediation of an existing wellbore and/or plugging and redrilling the well) and
well-servicing (routine repair and maintenance of mechanical problems). A
drilling rig can perform drilling, workover and well-servicing services,
depending on its configuration. However, primarily due to cost and size
considerations, a land drilling rig is rarely used for well-servicing or
workover applications. Instead, smaller, mobile well-servicing and workover rigs
are used. Offshore, a drilling rig is occasionally used for workover and
well-servicing applications, particularly if it is on location, because it is
more cost-effective to use a rig in place rather than transporting an
alternative, special purpose rig to an offshore location. Each rig is rated for
operations up to a range of depth depending upon well design (straight vs.
directional; bore and pipe sizes and weights). The basic types of rigs operated
by Nabors are described below.

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o Land Rigs. A land-based drilling rig generally consists of engines, a
drawworks (which hoists and lowers the drill string in and out of the
well), a mast (or derrick), pumps to circulate the drilling fluid (mud)
under various pressures, blowout preventers, drill string and related
equipment. The engines power the different pieces of equipment, including a
rotary table or top drive that turns the drill string, causing the drill
bit to bore through the subsurface rock layers. Rock cuttings are carried
to the surface by the circulating drilling fluid. The intended well depth,
bore hole diameter and drilling site conditions are the principal factors
that determine the size and type of rig most suitable for a particular
drilling job. A land-based workover or well-servicing rig consists of a
mobile carrier, engine, drawworks and a mast. The primary function of a
workover or well-servicing rig is to act as a hoist so that pipe, sucker
rods and down-hole equipment can be run into and out of a well. Typically,
land-based drilling, workover and well-servicing rigs can be readily moved
between well sites and between geographic areas of operations by using our
fleet of cranes, loaders and transport vehicles.

o Platform Rigs. Platform rigs provide offshore workover, drilling and
re-entry services. Our platform rigs have drilling and/or well-servicing or
workover equipment and machinery arranged in modular packages that are
transported to, and assembled and installed on, fixed offshore platforms
owned by the customer. Fixed offshore platforms are steel tower-like
structures that either stand on the ocean floor or are moored floating
structures. The top portion, or platform, sits above the water level and
provides the foundation upon which the platform rig is placed. Our fleet of
platform rigs includes:

o Minimum space, modular platform workover rigs with engines rated 750
horsepower or below, which include the 500 horsepower Sundowner(R)
series. These platform workover rigs are self-elevating (that is, they
can be off-loaded with the platform crane, rather than requiring a
separate barge and crane to assemble), and are designed to fit the
geometry of nearly any producing platform without major modifications
to either the rig or the platform.

o Minimum space, modular platform workover and re-drilling rigs with
engines rated at horsepowers greater than 750, which include the 1000
horsepower Super Sundowner(R) rigs. These rigs, which are enhanced
versions of the modular platform workover rigs, have more powerful mud
pump systems and greater hook load capacities. This enables the rigs
to be used in more rigorous workover, re-entry, side-tracking or
horizontal drilling operations.

o Minimum Area, Self-Elevating, or MASE(R), drilling rigs are our higher
horsepower modular platform rigs. They represent a smaller and
lighter, full-scale drilling rig patterned after the Super
Sundowner(R) but have horsepower ranging from 1500 hp to 3000 hp.

o Modular Offshore Dynamic Series (MODS) platform rigs ranging from 1000
hp to 1500 hp are our newest addition to the modular rig fleet. They
have been reengineered to be lighter weight, and dynamically capable
to meet motion criteria of deepwater SPAR and TLP platforms.

o API (American Petroleum Institute)-style drilling rigs have similar
capabilities to the MASE(R) rigs, but generally come in larger
modules. Unlike our other platform rigs, API-style rigs are not
self-elevating, and require a separate barge crane to load onto, and
off of, the platform.

We also own several land rigs modified for offshore work for drilling on
mudslide and selected conventional offshore platforms. These rigs generally
are self-elevating and modular.

o Jack-up Rigs. Jack-up rigs are mobile, self-elevating drilling and workover
platforms equipped with legs that can be lowered to the ocean floor until a
foundation is established to support the hull, which contains the drilling
and/or workover equipment, jacking system, crew quarters, loading and
unloading facilities, storage areas for bulk and liquid materials,
helicopter landing deck and other related equipment. The rig legs may
operate independently or have a mat attached to the lower portion of the
legs in order to provide a more stable foundation in soft bottom areas.
Independent leg rigs are better suited for harsher or uneven seabed
conditions and drilling locations where subsea pipelines are present. Many
of our jack-up rigs are of cantilever design -- a feature that permits the
drilling platform to be extended out from the hull, allowing it to perform
drilling or

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workover operations over adjacent, fixed platforms. Nabors' shallow
workover jack-up rigs generally are subject to a maximum water depth of
approximately 125 feet, while some of our jack-up rigs may drill in water
depths as shallow as 13 feet. Nabors also has deeper water depth capacity
jack-up rigs that are capable of drilling at depths between 8 feet and 150
to 250 feet. The water depth limit of a particular rig is determined by the
length of the rig's legs and the operating environment. Moving a rig from
one drill site to another involves lowering the hull down into the water
until it is afloat and then jacking up its legs with the hull floating. The
rig is then towed to the new drilling site.

o Inland Barge Rigs. One of Nabors' barge rigs is a full-size drilling unit.
Nabors also owns two workover inland barge rigs. These barges are designed
to perform plugging and abandonment, well service or workover services in
shallow inland, coastal or offshore waters. Our barge rigs can operate at
depths between three and twenty feet.

Additional information on the number and location of our rigs can be found below
under the caption "Business - Customers; Market; Industry Conditions and
Trends".

B. TYPES OF DRILLING CONTRACTS.

Our rigs are employed under individual contracts which extend either over a
stated period of time or the time required to drill a well or a stated number of
wells to a specified depth. On land in the U.S. Lower 48 states and Canada, we
typically contract on a single-well basis, with extensions subject to mutual
agreement on pricing and other significant terms. Contracts relating to offshore
drilling and land drilling in Alaska and international markets generally provide
for longer terms, usually from one to five years. Offshore workover projects are
often on a single-well basis. We generally are awarded drilling contracts
through competitive bidding, although we occasionally enter into contracts by
direct negotiation. Most of our single-well contracts are subject to termination
by the customer on short notice, but some can be firm for a number of wells or a
period of time, and may provide for early termination compensation in certain
circumstances. The contract terms and rates may differ depending on a variety of
factors, including competitive conditions, the geographical area, the geological
formation to be drilled, the equipment and services to be supplied, the on-site
drilling conditions and the anticipated duration of the work to be performed.

Drilling contracts provide for compensation on a daywork, footage or turnkey
basis. In each case, we provide the rig and crews. The principal differences
among the types of contracts are set forth below.

o Daywork Contracts. A daywork contract generally provides for a basic rate
per day when drilling (the dayrate) and for lower rates when the rig is
moving, or when drilling operations are interrupted or restricted by
equipment breakdowns, actions of the customer or adverse weather conditions
or other conditions beyond our control. In addition, daywork contracts may
provide for a lump sum fee for the mobilization and demobilization of the
rig, which in most cases approximates our incurred costs.

o Footage Contracts. Under footage contracts, a drilling contractor typically
runs casing and provides drill bits. We receive payment on the basis of a
rate per foot drilled. The customer continues to provide drilling mud,
casing, cementing and well design expertise. If we drill the well in less
time than was estimated, then we have the opportunity to improve our
margins over those that would be attainable under a daywork contract to the
same depth. If, however, we take longer to drill the well than we
estimated, our margins will be lower. In footage contracts, a drilling
contractor bears the cost of the services and supplies until the well has
been drilled to the agreed depth. Such contracts therefore require the
drilling contractor to make significant up-front working capital
commitments prior to receiving payment. Footage contracts generally contain
greater risks for a contractor such as Nabors than daywork contracts, but
fewer risks than turnkey contracts. Under footage contracts, the contractor
assumes certain risks associated with loss of hole from fire, blowout and
other drilling risks. However, footage contracts generally protect the
contractor from such risks when unexpected drilling conditions such as
abnormal pressure, impenetrable geologic formation or loss circulation
zones are present.

o Turnkey Contracts. In turnkey contracts, the drilling contractor drills a
well to a specified depth for a fixed price regardless of the time required
or the problems encountered in drilling the well. On a turnkey well, the

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drilling contractor provides technical expertise and engineering services,
as well as most of the equipment required to complete the well, and is
compensated only when the agreed scope of work has been satisfied. In
turnkey contracts, the drilling contractor bears the cost of performing the
drilling services until the well has been drilled, and accordingly, such
contracts require the drilling contractor to make significant working
capital commitments. If the well is not completed to the specified depth,
we may not receive the turnkey price. Turnkey contracts generally involve a
higher degree of risk than daywork and footage contracts because the
drilling contractor assumes greater risks (including risk of blowout, loss
of hole, stuck drill pipe, machinery breakdowns, abnormal drilling
conditions and risks associated with subcontractors' services, supplies,
cost escalation and personnel) and bears the cost of unanticipated downhole
problems and price escalation. Generally, however, our agreements limit
catastrophic risks associated with blowout, redrill and pollution to a
specific sum. The customer assumes the risk of losses in excess of the
agreed level. If the well is successfully drilled without undue delay or
complication, our margins under these types of contracts are usually
greater than under daywork and footage contracts.

During 2003 substantially all of our drilling contracts were on a daywork basis.
Our preferred strategy is to operate drilling rigs under daywork contracts.
However, we continually analyze market conditions, customer requirements, rig
demand and the experience of our personnel to determine how to contract our
fleet most profitably. In addition, we may seek alternative accommodations with
certain customers as a means of ensuring long-term drilling commitments and
healthy customer relations, including, potentially, entering into footage or
turnkey contracts on occasion or accepting less favorable contractual terms
involving allocation of risk. Because of this, there can be no assurance that we
will not suffer a loss that is not insured as a result of entering into such
higher risk contracts, and any such uninsured loss could have a material adverse
effect on our financial position, cash flows and results of operations.

C. WELL SERVICING AND WORKOVER SERVICES.

Although some wells in the United States flow oil to the surface without
mechanical assistance, most are in mature production areas that require pumping
or some other form of artificial lift. Pumping oil wells characteristically
require more maintenance than flowing wells because of the operation of the
mechanical pumping equipment installed. The extent and type of well-servicing
and workover services we provide on producing wells is dependent upon many
variables. The following is a summary of our well-servicing and workover
services.

o Well-Servicing/Maintenance Services. We provide maintenance services on the
mechanical apparatus used to pump or lift oil from producing wells. These
services include, among other things, repairing and replacing pumps, sucker
rods and tubing. We provide the rigs, equipment and crews for these tasks,
which are performed on both oil and natural gas wells, but which are more
commonly required on oil wells. Well-servicing rigs have the same basic
components as drilling rigs (that is, a derrick, a drawworks and an
engine). Many of these rigs also have pumps and tanks that can be used for
circulating fluids into and out of the well. Maintenance services typically
take less than 48 hours to complete. Well-servicing rigs generally are
provided to customers on a call-out basis. We are paid an hourly rate and
work typically is performed five days a week during daylight hours.

o Workover Services. In addition to needing periodic maintenance, producing
oil and natural gas wells occasionally require major repairs or
modifications, called "workovers." Workovers may be needed, for example, to
remedy equipment failures, plug back the bottom of a well to reduce the
amount of water being produced with the oil and natural gas, clean out and
re-complete a well if production has declined, repair leaks, or convert a
producing well to an injection well for secondary or enhanced recovery
projects. These extensive workover operations normally are carried out with
a well-servicing rig that includes additional specialized accessory
equipment, which may include rotary drilling equipment, mud pumps, mud
tanks and blowout preventers, depending upon the particular type of
workover operation. Most of Nabors' larger well-servicing rigs are designed
and can be equipped to handle the more complex workover operations. A
workover may last anywhere from a few days to several weeks.

o Completion Services. The kinds of activities necessary to carry out a
workover operation are essentially the same as those that are required to
"complete" a well when it is first drilled. The completion process may
involve selectively perforating the well casing at the depth of discrete
producing zones, stimulating and testing

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these zones and installing down-hole equipment. Oil and gas production
companies often find it more efficient to move a larger and more expensive
drilling rig off location after an oil or natural gas well has been drilled
and to move in a specialized well-servicing rig to perform completion
operations. Our rigs often are used for this purpose. The completion
process may take a few days to several weeks.

o Production and Other Specialized Services. We provide other specialized
services that are required, or can be used effectively, in conjunction with
the previously described basic services. These services may include
provision of onsite temporary fluid-storage facilities, the provision,
removal and disposal of specialized fluids used during certain completion
and workover operations, and the removal and disposal of salt water that
often is produced in conjunction with the production of oil and natural
gas. On a limited basis we provide conventional coil tubing services used
primarily to clean out wellbores. To complete the well life-cycle, we also
provide plugging services for wells from which the oil and natural gas has
been depleted or further production has become uneconomical.

D. OIL AND GAS INVESTMENTS.

Through our Ramshorn investments subsidiary, Nabors makes selective investments
in oil and gas exploration, development and production operations, most recently
with El Paso Corporation. On October 8, 2003, we entered into two separate
agreements with wholly-owned subsidiaries of El Paso Corporation under which a
subsidiary of Nabors will contribute 20% of an estimated $400 million total cost
to develop approximately 110 wells in exchange for a 20% net profits interest in
such wells (cash proceeds available from production after royalties and
operating costs have been paid). The wells included in these agreements include
a combination of proved undeveloped, probable and possible reserves located
primarily in South Texas, North Louisiana and Offshore Gulf of Mexico. In the
event that cash proceeds totaling 117.5% of our total investment are received
from the wells subject to the applicable agreement, our net profits interest in
those wells will convert to an overriding royalty interest of 0.4% in the wells
for the remainder of the wells' productive lives. Either party may terminate the
agreements upon 30 days' notice. El Paso will serve as operator of all the wells
covered in this development program.

On November 6, 2003, we entered into two additional agreements with El Paso to
drill up to a total of 12 exploratory wells in South Texas and South Louisiana.
Through these agreements and a subsequent election under one of the agreements,
we have committed to contribute 25% of El Paso's share of the cost of drilling
and completing eight of the wells; 25% of El Paso's share of the cost of
drilling to casing point for three of the wells; and 20% of El Paso's share of
the cost of drilling to casing point for one of the wells. We are also committed
to contribute 12.5% of El Paso's share of any other costs of the exploratory
wells and of all costs of any development wells in which we elect to participate
on those prospects. In exchange, we receive a 12.5% interest in El Paso's share
in the prospect leases where the exploratory wells are drilled, subject to
certain penalty deductions in the event we elect to participate in less than all
development wells drilled. As of December 31, 2003, three wells had commenced
drilling under these agreements with one being declared a dry hole, which
resulted in a charge to direct costs of $1.4 million recorded during the fourth
quarter of 2003. The other two wells are in various stages of completion, and an
independent third party has concluded that those wells are capable of production
in paying quantities.

E. OTHER SERVICES.

Through various subsidiaries and joint ventures, Nabors provides additional
well-site services that comprise our Other Operating Segment. These services can
be packaged with our contract drilling services or provided on a stand-alone
basis to operators or other contractors. They include top drive sales and
rentals, mudlogging services, rig instrumentation equipment rentals and sales,
rig reporting software, construction and maintenance services and transportation
services. Sales by these ancillary service providers to other Nabors companies
reduce our costs for similar third-party products and services. These units also
generate revenues through sales to third parties. The following is a summary of
our Other Services:

o Top Drives. Our Canrig drilling technologies subsidiary manufactures top
drives, which are installed on both onshore and offshore drilling rigs to
improve drilling efficiency. Rigs equipped with top drives enjoy more
finite control and directional orientation than rigs without, and can trip
drill string in and out of the well faster and more safely by handling
preassembled "doubles" and "triples" of pipe. Top drives also allow the
drill string to be simultaneously hoisted and rotated, which provides
better well control and reduces the incidence of stuck pipe, yielding time
and cost savings.

o Mudlogging, Rig Instrumentation and Software. Our EPOCH well services
subsidiary offers rig instrumentation equipment, including sensors,
proprietary RIGWATCH(TM) software and computerized equipment that monitors
the real-time performance of a rig. In addition, EPOCH specializes in daily
reporting

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software for drilling operations, making this data available through the
internet via mywells.com. EPOCH also provides mudlogging services.
Mudlogging involves the analysis of exhausted drill cuttings to discern
certain information about the presence of hydrocarbons, rates of
penetration and the nature of the formation. Our Ryan Energy Technologies
subsidiary manufactures and sells directional drilling and rig
instrumentation and data collection services to oil and gas exploration and
service companies in Canada and provides directional drilling services in
the United States.

o Construction, Land Transportation and Related Services. Nabors has a 50%
interest in Peak Oilfield Services Company, a general partnership with a
subsidiary of Cook Inlet Region, Inc., a leading Alaskan native
corporation. Peak Oilfield Services provides heavy equipment to move
drilling rigs, water, other fluids and construction materials, primarily on
Alaska's North Slope and in the Cook Inlet region. The partnership also
provides construction and maintenance for ice roads, pads, facilities,
equipment, drill sites and pipelines. In addition, the partnership provides
tank cleaning services to oil customers along the Trans-Alaska pipeline and
in the Valdez area. Peak Oilfield Services provides miscellaneous
maintenance services for the Prudhoe Bay Unit. Our Peak USA subsidiary
provides similar hauling and maintenance services for customers in the U.S.
Lower 48. We also have an investment in an arctic road and site
construction company.

o Offshore Support Services. We time charter a fleet of offshore support
vessels which provide marine transportation of drilling materials, supplies
and crews for offshore rig operations and support for other offshore
facilities and operations.

We provide onshore transportation and support services through long-term
contracts or on a short-term demand basis. Long-term service contracts may be
negotiated or awarded by competitive bidding. Whether provided on a long-term or
short-term basis, equipment and labor usually are billed separately at specified
hourly rates. These hourly rates vary depending upon numerous factors, including
types of equipment and labor, and duration of the work.

From time to time, we provide drilling engineering and integrated project
management services, ranging from well design and engineering expertise to site
preparation and road construction. We offer these services to help customers
eliminate or reduce management overhead which would otherwise be necessary to
supervise such services. Such services have not been significant in the past,
and are not expected to be significant in the near term.

F. OUR EMPLOYEES.

As of December 31, 2003, Nabors employed approximately 17,417 persons, of whom
approximately 2,046 were employed by unconsolidated affiliates. We believe our
relationship with our employees generally is good.

On October 18, 2000, the National Labor Relations Board confirmed the selection
of a collective bargaining representative at our Alaska drilling subsidiary. The
unit covers most non-supervisory drilling and related field personnel working on
or about our rigs within the State of Alaska. Negotiations with the union
commenced during 2000; an agreement was reached with representatives of the
union in December 2002; was submitted to the union membership for ratification;
and was rejected by the membership in the first quarter 2003. We anticipate that
the continuation of a collective bargaining unit at our Alaska drilling
subsidiary will not have any material adverse impact on the operations of that
entity or Nabors as a whole. During the first quarter 2003 the National Labor
Relations Board commenced a suit asserting that our subsidiary committed an
unfair labor practice in failing to adequately bargain with the collective
bargaining representative in connection with a change in Nabors' medical
insurance program. The administrative law judge who heard the case ruled in
Nabors' favor and the matter was appealed to an appeals panel of the National
Labor Relations Board, where it is currently pending. On February 10, 2004, the
Alaska State District Council of Laborers filed a charge with the National Labor
Relations Board alleging that our subsidiary committed an unfair labor practice
by threatening certain employees for the purpose of inducing them to alter a
Pro-Active Safety Report. In both of these matters, Nabors denies the
allegations, believes that it has meritorious defenses and further believes that
the outcome of the disputes will not have a material adverse effect on our
financial position, results of operations or cash flows.

Certain rig employees in Argentina and Australia are represented by collective
bargaining units.

7

G. SEASONALITY.

Our Canadian and Alaskan drilling and workover operations are subject to
seasonal variations as a result of weather conditions and generally experience
reduced levels of activity and financial results during the second calendar
quarter of each year. Seasonality does not have a material impact on the
remaining portions of our business. As our Canadian operations become a more
significant portion of our overall business, our overall financial results
should reflect the seasonal variations experienced in our Canadian and Alaskan
operations.

H. RESEARCH AND DEVELOPMENT.

Research and development does not constitute a material part of our overall
business. However, technology is of growing importance to our business and
management expects to maintain its competitive position technologically with the
internal development of technology or through strategic acquisitions.

Nabors' engineers obtained one new patent during early 2004 and have patent
applications pending for new technology associated with drilling activities. Our
patents generally cover designs for various types of oilfield equipment and
methods for conducting certain oilfield activities. We use some of these designs
and methods in the conduct of our business. The patents expire at various times
through the year 2021. We also have several trademarks and service marks that we
use in various aspects of our business. These include Sundowner(R), MASE(R) TRU
VU(R) and RIGWATCH TM. While management believes Nabors' patent and trademark
rights are valuable, their expiration or loss would not have a material adverse
effect on our financial position or results of operations. The costs associated
with our research and development are not material to Nabors.

III. CUSTOMERS; MARKETS; INDUSTRY CONDITIONS AND TRENDS.

Our customers include major oil and gas companies, foreign national oil and gas
companies and independent oil and gas companies. No customer accounted for in
excess of 10% of consolidated revenues in 2003 or in 2002.

The majority of our business is conducted through our various Contract Drilling
operating segments, which include our drilling, workover and well-servicing
operations, on land and offshore. Our operating segments engaged in marine
transportation and supply services, drilling technology and top drive
manufacturing, directional drilling, rig instrumentation and software, and
construction and logistics operations are aggregated in a category labeled Other
Operating Segments for segment reporting purposes. Our limited oil and gas
exploration, development and production operations are included in a category
labeled Oil and Gas for segment reporting purposes.

Additional information regarding the geographic markets in which we operate and
our business segments can be found in Note 17 of the Notes to Consolidated
Financial Statements on pages 100 through 102 of our 2003 Annual Report and is
incorporated into this document by reference.

A. CONTRACT DRILLING.

1. ALASKA AND U.S. LOWER 48 LAND DRILLING. In Alaska, we
market 15 arctic land drilling, workover and well-servicing rigs on the North
Slope, and 3 land rigs and one platform rig in the Cook Inlet area of South
Central Alaska. Sixteen of these rigs are SCR rigs, and twelve are equipped with
top drive units. Fifteen are capable of performing drilling or workover
operations to depths of 15,000 feet or deeper.

All of the North Slope rigs are designed to operate in severe arctic conditions
and 14 employ wheel or track mounted systems engineered by Nabors to permit
efficient movement of the rigs from well to well and over ice or gravel roads.
Nine of these rigs are also partially or totally self-propelled to further
facilitate movement and maneuverability. Thirteen of the North Slope rigs have
been designed with spacing capability that allows them to move between reduced
well spacing on drilling pads without disrupting production. In addition, our
arctic rigs generally incorporate environmental protection features such as dry
mud and fluid containment systems.

8

We currently market approximately 280 drilling rigs in the U.S. Lower 48 market.
Approximately 150 of our land drilling rigs in the U.S. Lower 48 states are
diesel electric rigs controlled by a computerized SCR system. Approximately 200
are capable of drilling to 15,000 feet or deeper. In addition, we own 57
portable top drives for use on our rigs, depending on customer requirements.

Nabors had approximately 102 land drilling rigs and 244 workover/well-servicing
rigs stacked in the U.S. Lower 48 states at December 31, 2003.

2. U.S. LAND WELL-SERVICING. Our domestic land well-servicing,
workover and production services operation has locations in many of the major
oil and natural gas producing fields in the U.S. Lower 48 states. This operation
currently provides services in eight states and is divided into six separate
geographic districts: California, West Texas, East Texas, South Texas, Oklahoma,
and the Rocky Mountains. We actively market approximately 500 well-servicing
rigs in Texas, California, Oklahoma, New Mexico, North Dakota, Montana, Utah and
Louisiana.

3. U.S. OFFSHORE. Nabors currently performs domestic offshore
drilling and offshore workover and well-servicing through its subsidiaries. The
domestic offshore subsidiaries currently operate a fleet of 40 rigs, including
29 platform rigs (seven Sundowner(R) rigs, three 700 hp or below rigs, three
Super Sundowner(R) rigs, three concentric tubing rigs, three greater than 750 hp
rigs, six self-elevating drilling rigs and four API-style platform drilling
rigs), eight jack-up workover rigs and three inland barge rigs. Ten of our
platform rigs are capable of operating at well depths of 20,000 feet. Over half
of our platform rigs are specifically designed for workover drilling.

Most of our domestic offshore fleet operates in the U.S. Gulf of Mexico. The
remaining rigs are platforms operating offshore of California and Alaska.

4. CANADA. We have a fleet of 81 drilling rigs in Canada.
Twenty-seven rigs in the fleet are diesel electric SCR rigs, two are A/C
electric powered, 22 are equipped with top drives and 16 are capable of drilling
to 15,000 feet or deeper. Nabors also has a fleet of approximately 211 land well
servicing / workover rigs in Canada. Many of the rigs in our Canadian fleet are
capable of working under arctic and sub-arctic conditions.

5. INTERNATIONAL. We conduct our international operations
primarily through Nabors Drilling International Limited and its subsidiaries.
Internationally, we provide drilling, workover and well-servicing services, both
onshore and offshore, with specialized rigs designed and built to meet various
types of operating conditions. The International land group actively markets
approximately 53 land drilling rigs, 38 workover rigs and 2 well-servicing rigs.
Of these, over 39 are SCR rigs, 28 are equipped with top drives and 31 are
capable of drilling to depths of 15,000 feet or deeper. We operate 17 of these
rigs through a joint venture in Saudi Arabia (6 drilling and 11
workover/well-servicing rigs).

The International offshore group markets eight 1000 hp platform rigs, two 600 hp
platform rigs, three 2000 hp platform rigs and eight jack-up rigs. Five of the
1000 hp rigs and all the 2000 hp rigs are equipped with top drive units. We
currently operate one jack-up in Trinidad; one jack-up rig in Brazil; one 1000
hp platform rig in Australia; one 1000 hp platform rig in Congo; one 1000 hp
platform in Italy; three 1000 hp platform rigs, two 2000 hp platform rigs and
one jack-up rig in Mexico; one 1000 hp platform rig in Malaysia; one 2000 hp rig
in Indonesia; one 500 hp rig in India; and four jack-up rigs in the Middle East
(one of which is owned by our Saudi joint venture).

Additional information regarding our rig fleet can be found on pages 35 through
37 of the 2003 Annual Report.

B. OIL AND GAS SEGMENT.

As noted above under Description of Business - Oil and Gas Investments, we make
selective investments in oil and gas exploration, development and production
operations through our Ramshorn subsidiary. Although investment in oil and gas
exploration, development and production activities have not been and are not
expected to become a

9

significant part of our business, our agreements with El Paso Corporation
entered into in 2003 expanded our operations in this area.

Additional information regarding our Oil and Gas Segment can be found on pages
100 through 102 of the 2003 Annual Report.

C. OTHER OPERATING SEGMENTS.

We manufacture top drives at our Magnolia, Texas facility. We market our top
drives throughout the United States and Canada, and to various international
markets, to customers serving the oil and gas industry. In both 2003 and 2002,
31% of our top drive sales were made to other Nabors companies. We also rent top
drives and provide top drive installation, repair and maintenance services to
our customers.

We manufacture our rig instrumentation systems and develop our rig reporting and
related software in Houston, Texas. We sell or lease these products to customers
within the oil and gas industry, domestically and abroad. We provide mudlogging
services within the U.S. Lower 48 states and Alaska. Substantial portions of our
sales are made to other Nabors companies.

We also provide site and road construction, rig transportation, fluid hauling
and related oilfield services in Alaska, principally through our Peak Oilfield
Services joint venture. In the U.S. Lower 48 states we provide rig
transportation and related services through our Peak USA Energy Services
subsidiary, primarily to our domestic onshore drilling operations.

We time charter a fleet of 30 offshore support vessels and one crew boat, which
operate primarily in the Gulf of Mexico, and provide marine transportation of
drilling materials, supplies and crews for offshore rig operations and support
for other offshore facilities. The supply vessels are used as freight-carrying
vessels for drill pipe, tubing, casing, drilling mud and other equipment to
drilling rigs and production platforms.

Nabors' domestic onshore well-servicing and workover operation also provides
production services consisting chiefly of fluid hauling and fluid storage tank
rental. The production services assets, located primarily in Texas, consist of
over 300 fluid hauling trucks and ten salt water disposal wells, which are
utilized for the transportation and disposal of drilling and used completion
fluids and salt water produced from operating wells, and approximately 800 fluid
storage tanks, which are utilized for the storage of fluids used in the
fracturing of producing zones during the completion or workover of wells.

D. INDUSTRY CONDITIONS.

To a large degree, Nabors' businesses depend on the level of capital spending by
oil and gas companies for exploration, development and production activities. A
sustained increase or decrease in the price of natural gas or oil could have a
material impact on exploration, development and production activities by our
customers and could also affect materially our financial position, results of
operations and cash flows. See "Part I - Item 1 - Risk Factors - Fluctuations in
oil and gas prices could adversely affect drilling activity and Nabors'
revenues, cash flows and profitability."

Natural gas prices are the primary driver of our U.S. Lower 48 Land Drilling,
Canadian and U.S. Offshore (Gulf of Mexico) operations, while oil prices are the
primary driver of our Alaskan, International and U.S. Land Well-servicing
operations. The Henry Hub natural gas spot price (per Bloomberg) averaged $5.49
per million cubic feet (mcf) during 2003, up from a $3.37 per mcf average during
2002. West Texas intermediate spot oil prices (per Bloomberg) averaged $31.06
per barrel during 2003, up from a $26.17 per barrel average during 2002.

The contract drilling, workover and well-servicing industry has been cyclical
historically, with significant volatility in profitability and rig values. This
industry cyclicality has been due to changes in the level of domestic oil and
gas exploration and development activity and the available supply of drilling
rigs. From 1982 until 1996, the contract drilling business was severely impacted
by the decline and continued instability in the prices of oil and natural gas
following a period of significant increase in new drilling rig capacity. Rising
prices in 1997 gave way to a steep

10

decline that continued through 1998 and most of 1999. The market again improved
substantially in 2000 and the first half of 2001, but experienced a rapid
contraction in late 2001 and early 2002 illustrating the dependence of the
industry on natural gas and oil prices. The industry has improved again since
mid-2002 to the point where, by the end of 2003, it was operating at a rate that
approximated 2001 activity, although pricing was lower because of additional
capacity added within the industry since 2001.

Our operating results for 2004 are expected to increase from levels realized
during 2003 given our current expectations of commodity prices and the related
impact on drilling and well-servicing activity during 2004. The expected
increase in drilling activity is expected to have the largest impact on our
Canadian and U.S. Lower 48 Land Drilling operations. We also expect an
improvement in operating results for our U.S. Offshore (Gulf of Mexico)
operations during 2004 primarily as a result of incremental revenues from three
new platform rigs for deepwater development projects that we expect to commence
operations during the first half of 2004, as well as a recovery in the level of
overall activity in this market. We expect results from our International
operations for 2004 to increase slightly as a result of a full year of
operations for contracts in India and Indonesia, which began in the last half of
2003, and a full year of operations in Mexico where rigs commenced operations
over the first three quarters of 2003. We also expect to see a number of rigs
that had been operating under long-term contracts for our International
operations that were unexpectedly idled in late 2003, return to work during
2004. Our U.S. Land Well-servicing operations are expected to maintain a steady
to slightly upward trend for 2004 given our current expectations of commodity
prices during 2004 as discussed above. We expect results from our operations in
Alaska to be reduced overall during 2004 compared to 2003, as two of our rigs
are nearing completion on contracts that have not yet been renewed or replaced.

E. COMPETITIVE CONDITIONS.

Our industry remains very competitive. The number of rigs continues to exceed
demand in many of our markets, resulting in strong price competition. Many rigs
can be readily moved from one region to another in response to changes in levels
of activity, which may result in an oversupply of rigs in such areas. Many of
the total available contracts are currently awarded on a bid basis, which
further increases competition based on price. The land drilling, workover and
well-servicing market is generally more competitive than the offshore market due
to the larger number of rigs and market participants.

In all of our geographic market areas, we believe price and availability and
condition of equipment are the most significant factors in determining which
drilling contractor is awarded a job. Other factors include the availability of
trained personnel possessing the required specialized skills; the overall
quality of service and safety record; and domestically, the ability to offer
ancillary services. In international markets, experience in operating in certain
environments and customer alliances also have been factors in the selection of
Nabors.

Certain competitors are present in more than one of Nabors' operating regions,
although no one competitor operates in all of these areas. In the U.S. Lower 48
states, there are several hundred competitors with smaller national, regional or
local rig operations. In domestic land workover and well-servicing, we compete
with Key Energy Services, Inc., which owns over 1,400 U.S. workover and
well-servicing rigs (according to its public filings), and with numerous other
competitors having smaller regional or local rig operations. In the Alaska
market, Nabors has two primary competitors, Doyon Drilling, Inc. and Nordic
Calista Services. Kuukpik Drilling has also made attempts to enlarge its
presence in this market. In Canada and offshore, Nabors competes with many firms
of varying size, several of which have more significant operations in those
areas than Nabors. Internationally, Nabors competes directly with various
contractors at each location where it operates. Nabors believes that the market
for land drilling, workover and well-servicing contracts will continue to be
competitive for the foreseeable future. Although Nabors believes it has a strong
competitive position in the domestic land drilling, workover and well-servicing
sector, certain of our competitors internationally and offshore may be better
positioned in certain markets, allowing them to compete more effectively.

Our other operating segments represent a relatively smaller part of our
business, and we have numerous competitors in each area in which we operate who
may have greater resources and may be better positioned than Nabors. Our Canrig
subsidiary is one of the six major manufacturers of top drives. Its largest
competitors are Varco, Tesco and

11

National Oilwell. EPOCH's largest competitor in the manufacture of rig
instrumentation systems is Varco's Totco subsidiary. Mudlogging services are
provided by a number of entities that serve the oil and gas industry on a
regional basis. EPOCH competes for mudlogging customers with Sperry Sun and
Baker Hughes in the Gulf Coast region, California and Alaska. In the U.S. Lower
48 states, there are hundreds of rig transportation companies, and there are at
least three or four that compete with Peak USA in each of its operating regions.
In Alaska, Peak Oilfield Services principally competes with Alaska Petroleum
Contractors for road, pad and pipeline maintenance, and is one of many drill
site and road construction companies, the largest of which is VECO Corporation.

IV. RECENT DEVELOPMENTS.

A. OPERATING RESULTS.

Operating revenues and Earnings from unconsolidated affiliates for 2003 totaled
$1.9 billion, representing an increase of $409.0 million, or 28%, compared to
2002. Net income for 2003 totaled $192.2 million ($1.25 per diluted share),
representing an increase of 58% compared to 2002.

The increase in our Operating revenues and Earnings from unconsolidated
affiliates during 2003 primarily resulted from higher revenues realized by our
Canadian, U.S. Lower 48 Land Drilling and International operations. The improved
revenues from our Canadian operations resulted from an increase in the level of
activity for our land drilling and well-servicing operations driven by increased
demand for our services in that market during 2003 and our acquisition of
Enserco Energy Service Company Inc. in April 2002. The Enserco acquisition
increased the number of drilling rigs owned and operated by Nabors in Canada by
30 drilling rigs while also adding over 200 well-servicing rigs. The improved
revenues for our U.S. Lower 48 Land Drilling operations resulted from higher
activity levels driven by a gradual increase in demand for drilling services in
that market during 2003. The overall increase in demand in these markets was
driven by higher average price levels for natural gas in 2003 compared to 2002.
International revenues improved primarily as a result of six new long-term
contracts for our operation in Mexico.

The increase in net income during 2003 primarily resulted from the increase in
revenues discussed above and a lower effective tax rate. However, the overall
increase in net income for 2003 was partially offset by lower average dayrates
in our U.S. Lower 48 Land Drilling operations during 2003 and lower margins
realized by certain of our Other Operating Segments. The decrease in average
dayrates for our U.S. Lower 48 Land Drilling operations resulted from dayrates
declining during 2002 and remaining flat until the latter part of 2003, when
dayrates began to rise. The decline in dayrates during 2002 resulted from the
weakness in this market over the period beginning in the third quarter of 2001
and extending through the end of 2002.

Additional information regarding our financial condition and results can be
found on pages 49 through 56 of the Nabors Industries Ltd. 2003 Annual Report,
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations".

B. DEBT OFFERING AND DEBT REDEMPTIONS.

On June 10, 2003, Nabors Delaware, our wholly-owned subsidiary, completed a
private placement of $700 million aggregate principal amount of zero coupon
senior exchangeable notes due 2023 that are fully and unconditionally guaranteed
by us. The notes were reoffered by the initial purchaser of the notes to
qualified institutional buyers under Rule 144A of the Securities Act of 1933, as
amended, and outside the United States in accordance with Regulation S under the
Securities Act. The notes do not bear interest, do not accrete and have a zero
yield to maturity, unless Nabors Delaware becomes obligated to pay contingent
interest as defined in the note indenture.

The notes are exchangeable at the option of the holders into 14.2653 common
shares of Nabors per $1,000 principal amount of notes (subject to adjustment for
certain events) if certain conditions are satisfied (including certain
conditions relating to the price per share of Nabors common shares). A more
complete description of the terms of the notes can be found in Note 8 of the
Notes to Consolidated Financial Statements on pages 87 through 90 of our Annual
Report and is incorporated into this document by reference.

12

We used a portion of the net proceeds from the issuance of the notes to redeem
the remaining outstanding principal amount of Nabors Delaware's $825 million
zero coupon convertible senior debentures due 2020 on June 20, 2003 and our
associated guarantees. The redemption price was $655.50 per $1,000 principal
amount of the debentures for an aggregate redemption price paid of approximately
$494.9 million. The redemption of the debentures did not result in any gain or
loss as the debentures were redeemed at prices equal to their carrying value on
June 20, 2003. The remainder of the proceeds of the notes were invested in cash
and marketable securities.

On April 1, 2003, we redeemed our 8.625% senior subordinated notes due April
2008 and all associated guarantees at a redemption price of $1,043.13 per $1,000
principal amount of the notes together with accrued and unpaid interest to the
date of redemption. The aggregate redemption price was $45.2 million and
resulted in the recognition of a pretax loss of approximately $.9 million,
resulting from the redemption of the notes at prices higher than their carrying
value on April 1, 2003.

C. OIL AND GAS INVESTMENTS.

On October 8, 2003, we entered into two separate agreements with wholly-owned
subsidiaries of El Paso Corporation under which a subsidiary of Nabors will
contribute 20% of an estimated $400 million total cost to develop approximately
110 wells in exchange for a 20% net profits interest in such wells (cash
proceeds available from production after royalties and operating costs have been
paid). The wells included in these agreements include a combination of proved
undeveloped, probable and possible reserves located primarily in South Texas,
North Louisiana and Offshore Gulf of Mexico. In the event that cash proceeds
totaling 117.5% of our total investment are received from the wells subject to
the applicable agreement, our net profits interest in those wells will convert
to an overriding royalty interest of 0.4% in the wells for the remainder of the
wells' productive lives. Either party may terminate the agreements upon 30 days'
notice. El Paso will serve as operator of all the wells covered in this
development program.

On November 6, 2003, we entered into two additional agreements with El Paso to
drill up to a total of 12 exploratory wells in South Texas and South Louisiana.
Through these agreements and a subsequent election under one of the agreements,
we have committed to contribute 25% of El Paso's share of the cost of drilling
and completing eight of the wells; 25% of El Paso's share of the cost of
drilling to casing point for three of the wells; and 20% of El Paso's share of
the cost of drilling to casing point for one of the wells. We are also committed
to contribute 12.5% of El Paso's share of any other costs of the exploratory
wells and of all costs of any development wells in which we elect to participate
on those prospects. In exchange, we receive a 12.5% interest in El Paso's share
in the prospect leases where the exploratory wells are drilled subject to
certain penalty deductions in the event we elect to participate in less than all
development wells drilled. As of December 31, 2003, three wells had commenced
drilling under these agreements with one being declared a dry hole, which
resulted in a charge to direct costs of $1.4 million recorded during the fourth
quarter of 2003. The other two wells are in various stages of completion, and an
independent third party has concluded that those wells are capable of producing
in paying quantities.

V. OUR BUSINESS STRATEGY.

Since 1987, with the installation of our current management team, Nabors has
adhered to a consistent strategy aimed at positioning our company to grow and
prosper in good times and to mitigate adverse effects during periods of poor
market conditions. We have continued to strive to attain a financial posture
that would allow us to capitalize on market weakness by adding to our business
base, thereby enhancing our upside potential at reasonable costs. The principal
elements of our strategy have been to:

o Maintain flexibility to respond to changing conditions.

o Maintain a conservative and flexible balance sheet.

o Build cost effectively a base of premium assets.

o Build and maintain low operating costs through economies of scale.

o Develop and maintain long-term, mutually attractive relationships with
key customers and vendors.

o Build a diverse business in long-term, sustainable and worthwhile
geographic markets.

o Recognize and seize opportunities as they arise.

o Continually improve safety, quality and efficiency.

o Implement leading edge technology where cost-effective to do so.

Our business strategy is designed to allow us to grow and remain profitable in
any market environment. The major developments in our business in the past year
illustrate our implementation of this strategy and its continuing success.
Following is a discussion of recent events evidencing several of these
strategies.

13

MAINTAINING A CONSERVATIVE AND FLEXIBLE BALANCE SHEET - During 2003 we completed
a private placement of $700 million aggregate principal amount of zero coupon
exchangeable notes due 2023 through a wholly owned subsidiary. We also redeemed
the remaining principal amount of our $825 million zero coupon convertible
senior debentures due 2020 (reducing our average diluted share count by
approximately eight million shares) and redeemed our 8.625% senior subordinated
notes due April 2008. (See discussion above under Recent Developments.) Our 6.8%
Senior Notes are due in April 2004 and their maturity will further reduce our
average cost of capital.

RECOGNIZING OPPORTUNITY -- Our Enserco and Ryan acquisitions completed during
2002 expanded our presence in Canada and added to our technological capabilities
that can be shared across the Nabors group of companies.

SAFETY -- In the drilling and oilfield service business, safety and loss control
are critical to overall performance. The safety and health of Nabors' employees
are of paramount importance. Nabors intensified its safety and loss control
program in 1997 with its U.S. Lower 48 drilling operations, and expanded the
enhanced program to the other business units during the last half of 2000. The
enhanced programs were largely carried out in 2001 and are becoming further
embedded in Nabors culture. Improvements have already been achieved as evidenced
by our total OSHA (Occupational Safety and Health Administration) recordable
incident rate (see chart below).

During 2002 and 2003 Nabors' international drilling subsidiary completed a
three-year development of an ISO 9000 compatible Rig Management Systems quality
program. Nabors' offshore operations have adopted the same program. Nabors
increased pre-employment and on-the-job training initiatives during 2003 in
connection with increased activity levels and to emphasize its commitment to
safe operations. Although it is impossible to predict what incident rates will
be in the future, improvement in our safety procedures is an important part of
Nabors' business strategy.

* The OSHA recordable incident rate is equal to number of OSHA recordable
incidents multiplied by 200,000 man-hours divided by the actual number of
man-hours worked for the period.

VI. RISK FACTORS

In addition to the other information set forth elsewhere in this Form 10-K, the
following factors should be carefully considered when evaluating Nabors.

FLUCTUATIONS IN OIL AND GAS PRICES COULD ADVERSELY AFFECT DRILLING ACTIVITY AND
OUR REVENUES, CASH FLOWS AND PROFITABILITY

Our operations are materially dependent upon the level of activity in oil and
gas exploration and production. Both short-term and long-term trends in oil and
gas prices affect the level of such activity. Oil and gas prices and, therefore,
the level of drilling, exploration and production activity can be volatile.
Worldwide military, political and economic events, including initiatives by the
Organization of Petroleum Exporting Countries, may affect both the demand for,
and the supply of, oil and gas. Weather conditions, governmental regulation
(both in the United States and elsewhere), levels of consumer demand, the
availability of pipeline capacity, and other factors beyond our control may also
affect the supply of and demand for oil and gas. Fluctuations during the last
few years in the

14

demand and supply of oil and gas have contributed to, and are likely to continue
to contribute to, price volatility. We believe that any prolonged reduction in
oil and gas prices would depress the level of exploration and production
activity. This would likely result in a corresponding decline in the demand for
our services and could have a material adverse effect on our revenues, cash
flows and profitability. Lower oil and gas prices could also cause our customers
to seek to terminate, renegotiate or fail to honor our drilling contracts;
affect the fair market value of our rig fleet which in turn could trigger a
writedown for accounting purposes; affect our ability to retain skilled rig
personnel; and affect our ability to obtain access to capital to finance and
grow our business. There can be no assurances as to the future level of demand
for our services or future conditions in the oil and gas and oilfield services
industries.

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY WITH EXCESS DRILLING CAPACITY, WHICH
MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

The oilfield services industry in which we operate is very competitive. Contract
drilling companies compete primarily on a regional basis, and competition may
vary significantly from region to region at any particular time. Many drilling,
workover and well-servicing rigs can be moved from one region to another in
response to changes in levels of activity and provided market conditions
warrant, which may result in an oversupply of rigs in an area. In many markets
in which we operate, the number of rigs available for use exceeds the demand for
rigs, resulting in price competition. Most drilling and workover contracts are
awarded on the basis of competitive bids, which also results in price
competition. The land drilling market generally is more competitive than the
offshore drilling market because there are larger numbers of rigs and
competitors.

Certain competitors are present in more than one of the regions in which we
operate, although no one competitor operates in all of these areas. In the U.S.
Lower 48 states, there are several hundred competitors with smaller national,
regional or local rig operations. In the Alaska market, we have two principal
competitors. In Canada and offshore, we compete with several firms of varying
size, many of which have more significant operations in those areas than us.
Internationally, we compete directly with various competitors at each location
where we operate. We believe that the market for land drilling and workover
contracts will continue to be competitive for the foreseeable future. Certain of
our competitors internationally and offshore may be better positioned in certain
markets, allowing them to compete more effectively.

THE NATURE OF OUR OPERATIONS PRESENTS INHERENT RISKS OF LOSS THAT, IF NOT
INSURED OR INDEMNIFIED AGAINST, COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

Our operations are subject to many hazards inherent in the drilling, workover
and well-servicing industries, including blowouts, cratering, explosions, fires,
loss of well control, loss of hole, damaged or lost drilling equipment and
damage or loss from inclement weather or natural disasters. Any of these hazards
could result in personal injury or death, damage to or destruction of equipment
and facilities, suspension of operations, environmental damage and damage to the
property of others. Our offshore operations are also subject to the hazards of
marine operations including capsizing, grounding, collision, damage from heavy
weather or sea conditions and unsound ocean bottom conditions. In addition, our
international operations are subject to risks of war, civil disturbances or
other political events. Generally, drilling contracts provide for the division
of responsibilities between a drilling company and its customer, and we seek to
obtain indemnification from our customers by contract for certain of these
risks. To the extent that we are unable to transfer such risks to customers by
contract or indemnification agreements, we seek protection through insurance.
However, there is no assurance that such insurance or indemnification agreements
will adequately protect us against liability from all of the consequences of the
hazards described above. The occurrence of an event not fully insured or
indemnified against, or the failure of a customer or insurer to meet its
indemnification or insurance obligations, could result in substantial losses. In
addition, there can be no assurance that insurance will be available to cover
any or all of these risks, or, even if available, that it will be adequate or
that insurance premiums or other costs will not rise significantly in the
future, so as to make such insurance prohibitive. This is particularly of
concern in the wake of the September 11, 2001 terrorist attacks, which adversely
affected an already tightening insurance market. It is likely that we will face
continued upward pressure in our upcoming insurance renewals, our premiums and
deductibles will be higher, and certain insurance coverage either will be
unavailable or more expensive than it has been in the past. Moreover, our
insurance coverage generally provides that we assume a portion of the risk in
the form of an insurance coverage

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deductible. We expect that we may choose to increase the levels of deductibles
(and thus assume a greater degree of risk) from time to time in order to
minimize the effect of insurance premium increases.

THE PROFITABILITY OF OUR INTERNATIONAL OPERATIONS COULD BE ADVERSELY AFFECTED BY
WAR, CIVIL DISTURBANCE OR POLITICAL OR ECONOMIC TURMOIL

We derive a significant portion of our business from international markets,
including major operations in Canada, the Middle East, the Far East and South
and Central America. These operations are subject to various risks, including
the risk of war, civil disturbances and governmental activities that may limit
or disrupt markets, restrict the movement of funds or result in the deprivation
of contract rights or the taking of property without fair compensation. In
certain countries, our operations may be subject to the additional risk of
fluctuating currency values and exchange controls. In the international markets
in which we operate, we are subject to various laws and regulations that govern
the operation and taxation of our business and the import and export of our
equipment from country to country, the imposition, application and
interpretation of which can prove to be uncertain.

PROPOSED TAX LEGISLATION COULD ELIMINATE THE BENEFITS OF OUR REORGANIZATION

Various bills have been introduced in Congress that would retroactively
eliminate the tax benefits associated with our reorganization as a Bermuda
company. Because we cannot predict whether legislation ultimately will be
adopted, no assurances can be given that the tax benefits associated with our
reorganization ultimately will accrue to the benefit of the company and its
shareholders. If legislation is enacted that retroactively eliminates the
benefit of the reorganization, our net operating loss carryforward for U.S. tax
purposes would be reduced significantly and our effective tax rate in future
periods could be increased significantly.

NONCOMPLIANCE WITH GOVERNMENTAL REGULATION OR EXPOSURE TO ENVIRONMENTAL
LIABILITIES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

The drilling of oil and gas wells is subject to various federal, state, local
and foreign laws, rules and regulations. Our cost of compliance with these laws
and regulations may be substantial. For example, federal law imposes specific
design and operational standards on rigs and platforms. Failure to comply with
these requirements could subject us to substantial civil and criminal penalties
as well as potential court injunctions. In addition, federal law imposes a
variety of regulations on "responsible parties" related to the prevention of oil
spills and liability for damages from such spills. As an owner and operator of
onshore and offshore rigs and transportation equipment, we may be deemed to be a
responsible party under federal law. In addition, our well-servicing, workover
and production services operations routinely involve the handling of significant
amounts of waste materials, some of which are classified as hazardous
substances. Our operations and facilities are subject to numerous state and
federal environmental laws, rules and regulations, including, without
limitation, laws concerning the containment and disposal of hazardous
substances, oilfield waste and other waste materials, the use of underground
storage tanks and the use of underground injection wells. We generally require
our customers contractually to assume responsibility for compliance with
environmental regulations. However, we are not always successful in allocating
to our customers all of these risks nor is there any assurance that the customer
will be financially able to bear those risks assumed.

We employ personnel responsible for monitoring environmental compliance and
arranging for remedial actions that may be required from time to time and also
use outside experts to advise on and assist with our environmental compliance
efforts. Costs we incur to investigate and remediate contaminated sites are
expensed unless the remediation extends the useful lives of the assets employed
at the site. Remediation costs that extend the useful lives of the assets are
capitalized and amortized over the remaining useful lives of such assets.
Liabilities are recorded when the need for environmental assessments and/or
remedial efforts become known or probable and the cost can be reasonably
estimated.

Laws protecting the environment generally have become more stringent than in the
past and are expected to continue to become more so. Violation of environmental
laws and regulations can lead to the imposition of administrative, civil or
criminal penalties, remedial obligations; and in some cases injunctive relief.
Such violations could also result in liabilities for personal injuries, property
damage, and other costs and claims.

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Under the Comprehensive Environmental Response, Compensation and Liability Act,
also known as CERCLA or Superfund, and related state laws and regulations,
liability can be imposed jointly on the entire group of responsible parties or
separately on any one of the responsible parties, without regard to fault or the
legality of the original conduct on certain classes of persons that contributed
to the release of a "hazardous substance" into the environment. Under CERCLA,
such persons may be liable for the costs of cleaning up the hazardous substances
that have been released into the environment and for damages to natural
resources, and it is not uncommon for the neighboring land owners and other
third parties to file claims for personal injury, property damage and recovery
of response costs allegedly caused by the hazardous substances released into the
environment. We have been notified of our possible responsibility with respect
to the cleanup of a federal national priority list site and a state abandoned
site, which were formerly operated by parties unrelated to us as oilfield waste
disposal facilities. In addition, we have been named as a potentially
responsible party with respect to the cleanup of three other sites, which were
formerly operated by various parties unrelated to us. We believe that our cost
to clean up each of these sites will be less than $100,000. Although at this
time information regarding our possible responsibility with respect to cleanup
of the federal national priority list site and the state abandoned site has not
been fully developed and it is not feasible to predict such outcome with
certainty, we are of the opinion that the ultimate resolution of these matters
should not have a material adverse effect on our financial position, results
of operations or cash flows.

Changes in federal and state environmental regulations may also negatively
impact oil and natural gas exploration and production companies, which in turn
could have a material adverse effect on us. For example, legislation has been
proposed from time to time in Congress which would reclassify certain oil and
natural gas production wastes as hazardous wastes, which would make the
reclassified wastes subject to more stringent handling, disposal and clean-up
requirements. If enacted, such legislation could dramatically increase operating
costs for oil and natural gas companies and could reduce the market for our
services by making many wells and/or oilfields uneconomical to operate.

The Oil Pollution Act of 1990, as amended, contains provisions specifying
responsibility for removal costs and damages resulting from discharges of oil
into navigable waters or onto the adjoining shorelines. Among other
requirements, this law requires owners and operators of vessels over 300 gross
tons to provide the U.S. Coast Guard with evidence of financial responsibility
to cover the costs of cleaning up oil spills from such vessels. We believe we
have provided satisfactory evidence of financial responsibility to the U.S.
Coast Guard for all vessels over 300 tons. In addition, the Outer Continental
Shelf Lands Act provides the federal government with broad discretion in
regulating the leasing of offshore oil and gas production sites. Because our
offshore support vessel operations rely on offshore oil and gas exploration and
production, if the government were to exercise its authority under this law to
restrict the availability of offshore oil and gas leases, such an action could
have a material adverse effect on our offshore support vessel operations.

PROPOSED COAST GUARD REGULATIONS AND ACTIONS COULD CURTAIL OUR ABILITY TO TIME
CHARTER VESSELS IN U.S. COASTWISE TRADE.

Our Sea Mar division time charters supply vessels to offshore operators in U.S.
waters. On February 4, 2004, the United States Coast Guard took several actions
which could adversely affect our ability to do so.

The vessels are owned by one of our financing company subsidiaries, but are
operated and managed by a U.S. citizen-controlled company pursuant to long-term
bareboat charters. Our Sea Mar division time charters the vessels from this U.S.
operating company in connection with our own offshore activities in the Gulf of
Mexico and in support of other offshore operators.

On February 4, 2004, the United States Coast Guard adopted final regulations
which could cause arrangements like that utilized by Sea Mar to no longer
qualify vessels for employment in the U.S. coastwise trades. However, the final
regulations contain grandfathering provisions which could permit us to continue
coastwise marketing of the vessels until the present bareboat charters
terminate. The original term of most of these bareboat charters ends in June
2007, but the charter provides for one or more renewal terms of three to five
years. We believe the grandfathering provisions in these final regulations would
apply to these renewal terms.

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Also, on February 4, 2004, the United States Coast Guard proposed a rule which,
if finally adopted, would end the grandfathering provision on February 4, 2007.
In these same proposed regulations, the United States Coast Guard is proposing a
rule under which time charters from a U.S. citizen bareboat charterer like the
charter to Sea Mar would no longer be permitted. However, we believe that if
this rule is adopted, the grandfathering provision would apply to the
preexisting Sea Mar arrangement.

Additionally, on February 4, 2004, the United States Coast Guard notified us
that it is considering an appeal of the United States Coast Guard's original
issuance in June 2002 of the coastwise trade endorsements for the vessels
bareboat chartered to the U.S. citizen qualified company. The coastwise trade
endorsements on the documents of the vessels issued by the United States Coast
Guard authorize the vessels to engage in the U.S. coastwise trade. If the appeal
is decided against us, we could lose the ability to market the vessels for use
in U.S. waters.

During 2003, net income for our Sea Mar division represented approximately 3.8%
of our consolidated net income. We currently expect that this percentage will
decrease to approximately 0.7% in 2004.

AS A HOLDING COMPANY, WE DEPEND ON OUR SUBSIDIARIES TO MEET OUR FINANCIAL
OBLIGATIONS

We are a holding company with no significant assets other than the stock of our
subsidiaries. In order to meet our financial needs, we rely exclusively on
repayments of interest and principal on intercompany loans made by us to our
operating subsidiaries and income from dividends and other cash flow from such
subsidiaries. There can be no assurance that our operating subsidiaries will
generate sufficient net income to pay upstream dividends or cash flow to make
payments of interest and principal to us in respect of their intercompany loans.
In addition, from time to time, our operating subsidiaries may enter into
financing arrangements which may contractually restrict or prohibit such
upstream payments to us. There may also be adverse tax consequences associated
with making dividend payments upstream.

WE DO NOT PAY DIVIDENDS

We have not paid any cash dividends on our common shares since 1982. We do not
anticipate that we will pay any cash dividends on our common shares in the
foreseeable future.

BECAUSE OUR OPTION, WARRANT AND CONVERTIBLE SECURITIES HOLDERS HAVE A
CONSIDERABLE NUMBER OF COMMON SHARES AVAILABLE FOR ISSUANCE AND RESALE,
SIGNIFICANT ISSUANCES OR RESALES IN THE FUTURE MAY ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON SHARES

As of February 29, 2004, we had 400,000,000 authorized common shares, of which
148,047,219 shares were outstanding. In addition, 34,439,582 common shares were
reserved for issuance pursuant to option and employee benefit plans, and
18,476,525 shares were reserved for issuance upon conversion or repurchase of
outstanding zero coupon convertible debentures and zero coupon senior
exchangeable notes. In addition, in connection with our Enserco and Ryan
acquisitions, up to 372,108 of our common shares could be issuable on
exchange of the shares of Nabors Exchangeco (Canada) Inc. We also may sell up to
$700 million of securities of various types in connection with a shelf
registration statement declared effective on January 16, 2003 by the Securities
and Exchange Commission. The sale, or availability for sale, of substantial
amounts of our common shares in the public market, whether directly by us or
resulting from the exercise of warrants or options (and, where applicable, sales
pursuant to Rule 144) or to the conversion into, or repurchase of debentures and
notes using, common shares, would be dilutive to existing security holders,
could adversely affect the prevailing market price of our common shares and
could impair our ability to raise additional capital through the sale of equity
securities.

PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS MAY DETER A CHANGE OF CONTROL
TRANSACTION AND DECREASE THE LIKELIHOOD OF A SHAREHOLDER RECEIVING A CHANGE OF
CONTROL PREMIUM

Our board of directors is divided into three classes, with each class serving a
staggered three-year term. In addition, our board of directors has the authority
to issue a significant amount of common shares and up to 25,000,000 preferred
shares and to determine the price, rights (including voting rights), conversion
ratios, preferences and

18

privileges of the preferred shares, in each case without further vote or action
by the holders of the common shares. Although we have no present plans to issue
preferred shares, the classified board and our board's ability to issue
additional preferred shares may discourage, delay or prevent changes in control
of Nabors that is not supported by our board, thereby possibly preventing
certain of our shareholders from realizing a possible premium on their shares.

WE HAVE A SUBSTANTIAL AMOUNT OF DEBT OUTSTANDING

We had approximately $2.3 billion in debt outstanding at December 31, 2003,
resulting in a funded debt-to-capital ratio of 0.48:1 and a net funded
debt-to-capital ratio of 0.23:1. The funded debt-to-capital ratio is calculated
by dividing funded debt by funded debt plus capital. Funded debt is defined as
the sum of (1) short-term borrowings, (2) the current portion of long-term debt
and (3) long-term debt. Capital is defined as shareholders' equity. The net
funded debt-to-capital ratio nets cash and cash equivalents and marketable
securities ($1.5 billion as of December 31, 2003) against funded debt. This
ratio is calculated by dividing net funded debt by net funded debt plus capital.
Both of these ratios are a method for calculating the amount of leverage a
company has in relation to its capital.

VII. ACQUISITIONS AND DIVESTITURES.

We have grown from a land drilling business centered in the U.S. Lower 48,
Canada and Alaska to an international business with operations on land and
offshore in many of the major oil, gas and geothermal markets in the world. At
the beginning of 1990, our fleet consisted of 44 land drilling rigs in Canada,
Alaska and in various international markets. Today, Nabors' worldwide fleet
consists of almost 600 land drilling rigs, approximately 750 domestic and 211
international land workover and well-servicing rigs, 45 offshore platform rigs,
16 jack-ups, three barge rigs and a large component of trucks and fluid hauling
vehicles. This growth was fueled in part by strategic acquisitions, as
summarized in the following chart:

20

(1) With the exception of the MND Drilling, Samson Rig Company and
jack-up rig transactions, all acquisitions of rigs also included substantial
quantities of drill collars and drill pipe.

(2) Sold in January 1998.

Although Nabors continues to examine opportunities, there can be no assurance
that attractive rigs or other acquisition opportunities will continue to be
available, that the pricing will be economical or that we will be successful in
making such acquisitions in the future.

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

VIII. ENVIRONMENTAL COMPLIANCE.

Nabors does not presently anticipate that compliance with currently applicable
environmental regulations and controls will significantly change its competitive
position, capital spending or earnings during 2004. Nabors has been a party to
administrative and legal proceedings with governmental agencies that have arisen
under statutory provisions regulating the discharge or potential discharge of
material into the environment. Nabors believes it is in material compliance with
applicable environmental rules and regulations, and the cost of such compliance
is not material to the business or financial condition of Nabors. For a more
detailed description of the environmental laws and regulations applicable to
Nabors operations, see above under Risk Factors -- Noncompliance with
governmental regulation or exposure to environmental liabilities could adversely
affect Nabors' results of operations.

IX. AVAILABLE INFORMATION.

Our internet address is www.nabors.com. We make available free of charge through
our website our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the Securities and Exchange Commission.

ITEM 2. PROPERTIES

Information regarding Nabors' rig fleet can be found on pages 35 through 37 of
our 2003 Annual Report and is incorporated into this document by reference.

Many of the international drilling rigs and certain of the Alaska rigs in our
fleet are supported by mobile camps which house the drilling crews and a
significant inventory of spare parts and supplies. In addition, we own various
trucks, forklifts, cranes, earth moving and other construction and
transportation equipment, which are used to support the drilling and logistics
operations.

Nabors and its subsidiaries own or lease executive and administrative office
space in St. Michael, Barbados (principal executive office); Houston, Texas;
Anchorage, Alaska; Harvey, Houma, Iberia, and New Iberia, Louisiana;
Bakersfield, California; Magnolia, Texas; Calgary and Nisku, Alberta, Canada;
Sana'a, Yemen; Dubai, U.A.E.; Dhahran, Saudi Arabia; and Anaco, Venezuela. We
also own or lease a number of facilities and storage yards used in support of
operations in each of our geographic markets.

Nabors and its subsidiaries own certain mineral interests in connection with
their investing and operating activities. Nabors does not consider these
properties to be material to its overall operations.

21

Additional information about our properties can be found in Notes 2 and 5 (each,
under the caption "Property, Plant and Equipment") and 13 (under the caption
"Operating Leases") of the Notes to Consolidated Financial Statements on pages
76 through 77, 84 and 95 through 96, respectively, of our 2003 Annual Report and
is incorporated into this document by reference. The revenues and property,
plant and equipment by geographic area for the fiscal years ended December 31,
2001, 2002 and 2003, can be found in Note 17 of the Notes to Consolidated
Financial Statements in the table on page 102 of our 2003 Annual Report, and are
incorporated into this document by reference.

Nabors' management believes that our equipment and facilities are adequate to
support our current level of operations as well as an expansion of drilling
operations in those geographical areas where we may expand.

ITEM 3. LEGAL PROCEEDINGS

Nabors and its subsidiaries are defendants or otherwise involved in a number of
lawsuits in the ordinary course of their business. In the opinion of management,
our ultimate liability with respect to these pending lawsuits is not expected to
have a significant or material adverse effect on our consolidated financial
position, results of operation or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

I. MARKET AND STOCK PRICES.

Our shares are traded on the American Stock Exchange under the symbol "NBR". At
December 31, 2003, there were approximately 2,241 shareholders of record. Nabors
does not pay dividends with respect to its common shares. (See discussion above
under "Part I - Item 1 - BUSINESS - RISK FACTORS") The composite quarterly high,
low and closing prices for our common shares for each fiscal quarter of 2003 and
2002 can be found under the caption "Corporate Information - Price of Common
Shares" on page 108 of our 2003 Annual Report and are incorporated by reference
into this document.

The Company maintains eleven different equity compensation plans: the 1993 Stock
Option Plan for Non-Employee Directors, 1996 Executive Officers Incentive Stock
Plan, 1996 Employee Stock Plan, 1996 Chairman's Executive Stock Plan, 1996
Executive Officers Stock Plan, 1997 Executive Officers Incentive Stock Plan,
1998 Employee Stock Plan, 1998 Chairman's Executive Stock Plan, 1999 Stock
Option Plan for Non-Employee Directors, 1999 Pool Employee/Director Option
Exchange Plan and 2003 Employee Stock Plan pursuant to which it may grant equity
awards to eligible persons from certain plans. The terms of the Company's Equity
Compensation Plans are described more fully below.

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The following table gives information about these equity compensation plans as
of December 31, 2003:

1 The 1996 Employee Stock Plan incorporates an evergreen formula
pursuant to which on each January 1, the aggregate number of shares
reserved for issuance under the 1996 Employee Stock Plan will increase
by an amount equal to 1 1/2 % of the shares of common stock
outstanding on December 31 of the immediately preceding fiscal year.

2 The Company issued 153,519 stock options under the 1999 Pool
Employee/Director Option Exchange Plan of Pool Energy Services Co. The
remaining options are exercisable for 10,392 common shares of the
Company (after giving effect to the exchange ratio provided in the
Pool acquisition agreement). The options have a weighted-average
exercise price of $17.3823 per share. No further awards will be made
under the 1999 Pool Employee/Director Option Exchange Plan.

Following is a brief summary of the material terms of the plans that have not
been approved by our shareholders.

1996 EXECUTIVE OFFICERS INCENTIVE STOCK PLAN

In October 1996 the Board adopted the 1996 Executive Officers Incentive Stock
Plan which has not been approved by shareholders.

The 1996 Executive Officers Incentive Stock Plan reserves for issuance up to
3,600,000 common shares of the Company pursuant to the exercise of options
granted under the plan. The plan is administered by an independent committee
appointed by the Company's Board of Directors. Options may be granted under the
plan to executive officers of the Company. No optionee may receive grants in
excess of 50% of the total number of common shares authorized to be issued under
the plan. Options granted under the plan are nonstatutory options not intended
to qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(NSOs).

The exercise price of options granted under the plan are set by the committee,
but shall be no less than 100% of the fair market value per common share on the
date of the grant of the option. The term of the NSO may not exceed ten years.
Unless otherwise determined by the committee in its discretion, an option may
not be exercised after the optionee has ceased to be in the employ of the
Company.

1996 CHAIRMAN'S EXECUTIVE STOCK PLAN

In December 1996 the Board adopted the 1996 Chairman's Executive Stock Plan
which has not been approved by shareholders.

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The 1996 Chairman's Executive Stock Plan reserves for issuance up to 850,000
common shares of the Company pursuant to the exercise of options granted under
the plan. The plan is administered by an independent committee appointed by the
Company's Board of Directors. Options may be granted under the plan to the
Chairman of the Board of the Company. Options granted under the plan are NSOs.

The exercise price of options granted under the plan are set by the committee,
but shall be no less than 100% of the fair market value per common share on the
date of the grant of the option. The term of the NSO may not exceed ten years.

In the event of a termination of employment for any reason, except by the
Company for cause or by voluntary resignation by optionee, all unvested options
shall be immediately exercisable as of the date of his termination of his
employment.

1996 EXECUTIVE OFFICERS STOCK PLAN

In August 1997 the Board adopted the 1996 Executive Officers Stock Plan, which
has not been approved by shareholders.

The 1996 Executive Officers Stock Plan reserves for issuance up to 860,000
common shares of the Company pursuant to the exercise of options granted under
the plan. The plan is administered by an independent committee appointed by the
Company's Board of Directors. Options may be granted under the plan to executive
officers of the Company. No optionee may receive grants in excess of 50% of the
total number of common shares authorized to be issued under the Plan. Options
granted under the plan are NSOs.

The exercise price of options granted under the plan shall be set by the
committee, but shall be no less than the fair market value per share of common
stock on the date of the grant of the option. The term of the NSO may not exceed
ten years.

Unless otherwise determined by the committee in its discretion, an option may
not be exercised after the optionee has ceased to be in the employ of the
Company.

1997 EXECUTIVE OFFICERS INCENTIVE STOCK PLAN

In August 1997 the Board adopted the 1997 Executive Officers Incentive Stock
Plan, which has not been approved by shareholders.

The 1997 Executive Officers Incentive Stock Plan reserves for issuance up to
2,450,000 common shares of the Company pursuant to the exercise of options
granted under the plan. The plan is administered by an independent committee
appointed by the Company's Board of Directors. Options may be granted under the
plan to executive officers of the Company. No optionee may receive grants in
excess of 50% of the total number of common shares authorized to be issued under
the plan. Options granted under the plan are NSOs.

The exercise price of options granted under the plan shall be set by the
committee, but shall be no less than 100% of the fair market value per common
share on the date of the grant of the option. The term of the NSO may not exceed
ten years.

Unless otherwise determined by the committee in its discretion, an option may
not be exercised after the optionee has ceased to be in the employ of the
Company.

1998 EMPLOYEE STOCK PLAN

In March 1998 the Board adopted the 1998 Employee Stock Plan, which has not been
approved by shareholders. Amendments were approved by the Company's Board of
Directors on December 11, 1998.

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The 1998 Employee Stock Plan reserves for issuance up to 17,500,000 common
shares of the Company pursuant to the exercise of options granted under the
plan. The plan is administered by an independent committee appointed by the
Company's Board of Directors. The persons who shall be eligible to participate
in the plan are employees and consultants of the company. Options granted to
employees may either be awards of stock, non-qualified stock options (NQSOs),
incentive stock options (ISOs) or stock appreciation rights (SARs).

The exercise price of NQSOs shall be no less than 100% of the fair market value
per share of common stock on the date of the grant of the option. As determined
by the committee, on the date of the grant, an optionee may reduce the option
exercise price by paying the Company in cash, shares, options, or the
equivalent, an amount equal to the difference between the exercise price and the
reduced exercise price of the option. The committee may specify a period for
exercise of an option which period shall be in no event more than ten years from
the date of grant. The committee shall establish performance goals for stock
awards in writing not later than the date required for compliance under IRC
Section 162(m) and the vesting of such stock shall be contingent upon the
attainment of such performance goals. Stock awards shall vest over a period
determined by the Committee, which period shall expire no later than January 18,
2006. The committee may grant ISOs of not less than 100% of the fair market
value per common share on the date of grant; except that in the event the
optionee owns on the date of grant, securities possessing more than 10% of the
total combined voting power of all classes of securities of the Company or of
any subsidiary of the Company, the price per share shall not be less than 110%
of the fair market value per common share on the date of the grant and such
option shall expire five years from the date such option is granted. SARs may be
granted in conjunction with all or part of any option granted under the plan, in
which case the exercise of the SAR shall require the cancellation of a
corresponding portion of the option and the exercise of the option will result
in cancellation of a corresponding portion of the SAR. In the case of a NQSO,
such rights may be granted either at or after the time of grant of such option.
In the case of an ISO, such rights may be granted only at the time of grant of
such option. A SAR may also be granted on a stand alone basis. The term of an
SAR shall be established by the committee. The exercise price of a SAR shall in
no event be less than 100% of the fair market value per common share on the date
of grant.

Unless otherwise determined by the committee, an option may not be exercised
after the optionee has ceased to be in the employ of the Company. The committee
shall have the authority to make provisions in its award and grant agreements to
address vesting and other issues arising in connection with a change of control.

1998 CHAIRMAN'S EXECUTIVE STOCK PLAN

In March 1998 the Board adopted the 1998 Chairman's Executive Stock Plan, which
has not been approved by shareholders.

The 1998 Chairman's Executive Stock Plan reserves for issuance up to 764,924
common shares of the Company pursuant to the exercise of options granted under
the plan. The plan is administered by an independent committee appointed by the
Company's Board of Directors. Options may be granted under the plan to the
Chairman of the Board of the Company. Options granted under the plan are NSOs.

The exercise price of options granted under the plan shall be set by the
committee, but shall be no less than 100% of the fair market value per common
share on the date of the grant of the option. The term of the NSO may not exceed
ten years.

In the event of a termination of employment for any reason, except by the
Company for cause or by voluntary resignation by optionee, all unvested options
shall be immediately exercisable as of the date of his termination of his
employment.

1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

In December 1998 the Executive Committee of the Board adopted the 1999 Stock
Option Plan for Non-Employee Directors, which has not been approved by
shareholders.

25

The 1999 Stock Option Plan for Non-Employee Directors reserves for issuance up
to 1,500,000 common shares of the Company pursuant to the exercise of options
granted under the plan. The plan is administered by the Company's Board of
Directors, provided that the Board may appoint a committee to administer the
plan. In no event shall an eligible director consider or vote on the
administration of this plan or serve as a member of the committee. Options may
be granted under the plan to non-employee directors of the Company. Options
granted under the plan are NSOs.

The exercise price of options granted under the plan shall not be less than 100%
of the fair market value per common share on the date of grant. The term of the
NSO may not exceed ten years.

Options shall vest and become non-forfeitable on the first year anniversary of
the day on which such option was granted, if the optionee has continued to serve
as a director until that day, unless otherwise provided. In the event of
termination of an optionee's service as a director by reason of voluntary
retirement, declining to stand for re-election or becoming a full time employee
of the Company or a subsidiary of the Company, all unvested options granted
pursuant to this Plan shall automatically expire and shall not be exercisable
and all options unexercised shall continue to be exercisable until the stated
expiration date of such options. In the event of death or disablement of an
optionee while the optionee is a director, the then-outstanding options of such
optionee shall be exercisable for two years from the date of the death or
disablement of the optionee or by his/her successors in interest. All unvested
options shall automatically vest and become non-forfeitable as of the date of
death or disablement and shall be exercisable for two years from the date of the
death of the optionee or until the stated grant expiration date, whichever is
earlier, by the optionee or by his/her successors in interest. In the event of
the termination of an optionee's service as a director by the Board of Directors
for cause or the failure of such director to be re-elected, the administrator of
the plan in its sole discretion can cancel the then-outstanding options of such
optionee, including those options which have vested and such options shall
automatically expire and become non-exercisable on the effective date of such
termination.

1999 POOL EMPLOYEE/DIRECTOR OPTION EXCHANGE PLAN

In November 1999 the Board adopted the 1999 Pool Employee/Director Option
Exchange Plan, which has not been approved by shareholders.

The 1999 Pool Employee/Director Option Exchange Plan reserves for issuance up to
1,466,010 common shares of the Company pursuant to the exercise of options
granted under the plan. The plan is administered by a committee appointed by the
Board of Directors of the Company. Options may be granted under the plan to
former employees and non-employee directors of Pool Energy Services Co. or its
subsidiaries who held options to purchase shares of Pool common stock pursuant
to certain stock option plans of Pool. Options granted under the plan are NSOs.

The exercise price of options granted under the plan shall equal the exercise
price per share of the corresponding Pool option, divided by 1.025 (rounding the
resulting exercise price up to the nearest whole cent). The term of an NSO may
not exceed ten years after the acquisition date of the merger.

The period for exercise of an option shall be the same as the period for
exercise of the corresponding Pool option. If an optionee has ceased to be in
the employ of the Company or its subsidiaries, any outstanding options, whether
or not vested, generally may not be exercised after the optionee's date of
termination and shall be forfeited; provided however, in its sole discretion the
committee may extend the time to exercise any option to a period ending on it
applicable expiration date. The committee, in its discretion, shall have the
authority to make provisions in its grant agreements to address vesting and
other issues arising in connection with a change of control.

II. DIVIDEND POLICY.

Nabors has not declared or paid any cash dividends on its common stock since
1982. We do not intend to pay any cash dividends on our common shares for the
foreseeable future.

26

III. SHAREHOLDER MATTERS.

Bermuda has exchange controls which apply to residents in respect of the
Bermudian dollar. As an exempt company, Nabors is considered to be nonresident
for such controls; consequently, there are no Bermuda governmental restrictions
on the Company's ability to make transfers and carry out transactions in all
other currencies, including currency of the United States.

There is no reciprocal tax treaty between Bermuda and the United States
regarding withholding taxes. Under existing Bermuda law, there is no Bermuda
income or withholding tax on dividends, if any, paid by Nabors to its
shareholders. Furthermore, no Bermuda tax or other levy is payable on the sale
or other transfer (including by gift or on the death of the shareholder) of
Nabors common shares (other than by shareholders resident in Bermuda).

ITEM 6. SELECTED FINANCIAL DATA

The information called for by this item can be found under the caption "Selected
Financial Data" on pages 46 and 47 of our 2003 Annual Report and is incorporated
into this document by reference.

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

The information called for by this item can be found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 48 through 67 of our 2003 Annual Report and is incorporated
into this document by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item can be found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Quantitative and Qualitative Disclosures About Market Risk" on
pages 65 through 67 of our 2003 Annual Report and is incorporated into this
document by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and the notes thereto, together with the
report thereon of PricewaterhouseCoopers LLP, appear on pages 69 through 107 of
our 2003 Annual Report and are incorporated herein by reference. With the
exception of the specific information expressly incorporated into Items 1, 2, 3,
5, 6, 7, 7A, and 8 of this document, our 2003 Annual Report is not deemed to be
filed as part of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in our
reports filed under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized, and reported within the time periods specified
in the Commission's rules and forms. We have investments in certain
unconsolidated entities that we do not control or manage. As we do not control
or manage these entities, our disclosure controls and procedures with respect to
such entities are necessarily more limited than those we maintain with respect
to our consolidated subsidiaries.

We evaluated the effectiveness of the design and operation of our "disclosure
controls and procedures" (as defined in Rule 13a-15(e) of the Exchange Act)
under the supervision and with the participation of management, including our
Chairman and Chief Executive Officer and Chief Financial Officer, as of the end
of this period covered by this report. Based upon that evaluation, our Chairman
and Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely making known to them
material information relating to Nabors and its consolidated subsidiaries
required to be disclosed in our reports filed or

27

submitted under the Exchange Act. There has been no change in our internal
control over financial reporting during the quarter ended December 31, 2003 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information called for by this item will be contained in the Nabors
Industries Ltd. definitive proxy statement to be distributed in connection with
its 2004 annual meeting of shareholders under the captions "Election of
Directors" and "Other Executive Officers" and is incorporated into this document
by reference.

Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the
Securities Exchange Act of 1934 requires Nabors' directors and executive
officers, and persons who own more than 10% of a registered class of Nabors'
equity securities, to file with the Securities and Exchange Commission and the
American Stock Exchange initial reports of ownership and reports of changes in
ownership of common shares and other equity securities of Nabors. Officers,
directors and greater than 10% shareholders are required by Commission
regulation to furnish Nabors with copies of all Section 16(a) forms which they
file.

To our knowledge, based solely on review of the copies of Forms 3 and 4 and
amendments thereto furnished to us during 2003 and Form 5 and amendments thereto
furnished to us with respect to the year 2003, and written representations that
no other reports were required, all Section 16(a) filings required to be made by
Nabors' officers, directors and greater than 10% beneficial owners with respect
to the fiscal year 2003 were timely filed, except that Mr. Martin Whitman filed
one Form 4 late with respect to a single purchase transaction that occurred in
September 2003.

ITEM 11. EXECUTIVE COMPENSATION

Except as specified in the following sentence, the information called for by
this item will be contained in our definitive proxy statement to be distributed
in connection with our 2004 annual meeting of shareholders under the caption
"Management Compensation" and is incorporated into this document by reference.
Information in Nabors' 2004 proxy statement not deemed to be "soliciting
material" or "filed" with the Commission under its rules, including the Report
of the Compensation Committee on Executive Compensation, the Report of the Audit
Committee and the Five Year Stock Performance Graph, is not deemed to be
incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information called for by this item will be contained in Nabors' 2004 proxy
statement under the caption "Share Ownership of Management and Principal
Shareholders" and is incorporated into this document by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item will be contained in Nabors' 2004 proxy
statement under the captions "Certain Relationships" and "Compensation Committee
Interlocks and Insider Participation" and is incorporated into this document by
reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information called for by this item will be contained in Nabors' 2004 Proxy
Statement under the caption "Principal Accountant Fees and Services" and is
incorporated into this document by reference.

28

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) The consolidated financial statements of Nabors Industries
Ltd. and subsidiaries, and notes thereto, are incorporated
herein by reference from our 2003 Annual Report commencing
from the respective page numbers indicated:

(2) Financial Statement Schedules

All other supplemental schedules are omitted because of the
absence of the conditions under which they are required or
because the required information is included in the financial
statements or related notes.

(b) Reports on Form 8-K:

The following Current Reports on Form 8-K were filed during the fourth
quarter of 2003.

o Report on Form 8-K filed with the Securities and Exchange
Commission (the "Commission") on October 29, 2003 with respect
to our third quarter 2003 earnings release.

o Report on Form 8-K filed with the Commission on October 10,
2003 with respect to our drilling venture with El Paso
Corporation.

29

(c) Exhibits

30

4.5 Form of Senior Indenture of Nabors Industries, Inc.
(incorporated by reference to Exhibit 4.5 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.6 Form of Subordinated Indenture of Nabors Industries,
Inc. (incorporated by reference to Exhibit 4.6 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.7 Form of Senior Debt Security of Nabors Industries,
Inc. and Form of Senior Guarantee by Nabors
Industries Ltd. (included in Exhibit 4.5).

4.8 Form of Subordinated Debt Security of Nabors
Industries, Inc. and Form of Subordinated Guarantee
by Nabors Industries Ltd. (included in Exhibit 4.6).

4.9 Form of Senior Indenture of Nabors International
Finance Inc. (incorporated by reference to Exhibit
4.9 to Nabors Industries Ltd.'s Registration
Statement on Form S-3 (Registration No. 333-102246)
filed with the Commission on December 30, 2002).

4.10 Form of Subordinated Indenture of Nabors
International Finance Inc. (incorporated by reference
to Exhibit 4.10 to Nabors Industries Ltd.'s
Registration Statement on Form S-3 (Registration No.
333-102246) filed with the Commission on December 30,
2002).

4.11 Form of Senior Debt Security of Nabors International
Finance Inc. and Form of Senior Guarantee by Nabors
Industries Ltd. and Nabors Industries, Inc. (included
in Exhibit 4.9).

4.12 Form of Subordinated Debt Security of Nabors
International Finance Inc. and Form of Subordinated
Guarantee by Nabors Industries Ltd. and Nabors
Industries, Inc. (included in Exhibit 4.10).

4.13 Form of Senior Indenture of Nabors Holdings Ltd.
(incorporated by reference to Exhibit 4.13 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.14 Form of Subordinated Indenture of Nabors Holdings
Ltd. (incorporated by reference to Exhibit 4.14 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.15 Form of Senior Debt Security of Nabors Holdings Ltd.
and Form of Senior Guarantee by Nabors Industries
Ltd. and Nabors Industries, Inc. (included in Exhibit
4.13).

4.16 Form of Subordinated Debt Security of Nabors Holdings
Ltd. and Form of Subordinated Guarantee by Nabors
Industries Ltd. and Nabors Industries, Inc. (included
in Exhibit 4.14).

4.17 Form of Senior Indenture of Nabors Holdings 1, ULC.
(incorporated by reference to Exhibit 4.17 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.18 Form of Subordinated Indenture of Nabors Holdings 1,
ULC. (incorporated by reference to Exhibit 4.18 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.19 Form of Senior Debt Security of Nabors Holdings 1,
ULC and Form of Senior Guarantee by Nabors Industries
Ltd. and Nabors Industries, Inc. (included in Exhibit
4.17).

31

4.20 Form of Subordinated Debt Security of Nabors Holdings
1, ULC and Form of Subordinated Guarantee by Nabors
Industries Ltd. and Nabors Industries, Inc. (included
in Exhibit 4.18).

4.21 Indenture dated as of March 1, 1999 between Nabors
Industries, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as trustee, in
connection with $325,000,000 aggregate principal
amount of 6.80% Notes due 2004 (incorporated by
reference to Exhibit 4.1 to Nabors Industries, Inc.'s
Post-Effective Amendment No. 1 to Registration
Statement on Form S-3, Registration No. 333-25233,
filed with the Commission on March 5, 1999).

4.22 Supplemental Indenture No. 1 dated as of March 1,
1999 between Nabors Industries, Inc., as Issuer, and
Norwest Bank Minnesota, National Association, as
trustee, in connection with the 6.80% Notes
(incorporated by reference to Exhibit 4.2 to Nabors
Industries, Inc.'s Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, Registration No.
333-25233, filed with the Commission on March 5,
1999).

4.23 Supplemental Indenture No. 2, dated as of June 21,
2002, between Nabors Industries, Inc., Nabors
Industries Ltd. and Wells Fargo Bank Minnesota,
National Association, with respect to Nabors
Industries, Inc.'s 6.8% notes due 2004 (incorporated
by reference to Exhibit 4.7 to Nabors Industries
Ltd.'s Form 10-Q, File No. 000-49887, filed with the
Commission on August 14, 2002).

4.24 Indenture dated as of February 5, 2001 between Nabors
Industries, Inc. and Bank One, N.A., as trustee, in
connection with $1,382,200,000 principal amount at
maturity of Zero Coupon Convertible Senior Debentures
due 2021 (incorporated by reference to Exhibit 4.11
to Form 10-K, File No. 1-9245, filed with the
Commission on March 30, 2001).

4.25 Form of Debenture (contained in Exhibit 4.24).

4.26 First Supplemental Indenture, dated as of June 21,
2002 among Nabors Industries, Inc., as issuer, Nabors
Industries Ltd. as guarantor, and Bank One, N.A. as
trustee, with respect to Nabors Industries, Inc.'s
zero coupon convertible senior debentures due 2021
(incorporated by reference to Exhibit 4.5 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed with the Commission on August 14, 2002).

4.27 Registration Rights Agreement dated as of January 31,
2000 between Nabors Industries, Inc. and the initial
purchaser of the Zero Coupon Convertible Senior
Debentures due 2021 (incorporated by reference to
Exhibit 4.13 to Form 10-K, File No. 1-9245, filed
with the Commission on March 30, 2001).

4.28 Indenture, dated August 22, 2002, among Nabors
Industries, Inc., as issuer, Nabors Industries Ltd.,
as guarantor, and Bank One, N.A., with respect to
Nabors Industries, Inc.'s Series A and Series B
5.375% Senior Notes due 2012 (incorporated by
reference to Exhibit 4.1 to Nabors Industries, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-10049201) filed with the Commission on October
11, 2002).

4.29 Registration Rights Agreement, dated August 22, 2002,
among Nabors Industries, Inc., Nabors Industries
Ltd., and Lehman Brothers Inc. (incorporated by
reference to Exhibit 4.2 to Nabors Industries, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-10049201) filed with the Commission on October
11, 2002).

4.30 Form of 5.375% Senior Exchange Note due 2012
(included in Exhibit 4.29).

32

4.31 Indenture, dated August 22, 2002, among Nabors
Holdings 1, ULC, as issuer, Nabors Industries, Inc.
and Nabors Industries Ltd., as guarantors, and Bank
One, N.A., with respect to Nabors Holdings 1, ULC's
Series A and Series B 4.875% Senior Notes due 2009
(incorporated by reference to Exhibit 4.1 to Nabors
Holdings 1, ULC's Registration Statement on Form S-4
(Registration No. 333-10049301) filed with the
Commission on October 11, 2002).

4.32 Registration Rights Agreement, dated August 22, 2002,
among Nabors Holdings 1, ULC, Nabors Industries,
Inc., Nabors Industries Ltd., and Lehman Brothers
Inc. (incorporated by reference to Exhibit 4.2 to
Nabors Holdings 1, ULC's Registration Statement on
Form S-4 (Registration No. 333-10049301) filed with
the Commission on October 11, 2002).

4.33 Form of 4.875% Senior Exchange Note due 2009
(included in Exhibit 4.32).

4.34 Form of Provisions Attaching to the Exchangeable
Shares of Nabors Exchangeco (Canada) Inc.
(incorporated by reference to Exhibit 4.1 to Nabors
Industries, Inc.'s Registration Statement on Form S-3
(Registration No. 333-85228) filed with the
Commission on March 29, 2002, as amended).

4.35 Form of Support Agreement between Nabors Industries,
Inc., 3064297 Nova Scotia Company and Nabors
Exchangeco (Canada) Inc. (incorporated by reference
to Exhibit 4.2 to Nabors Industries, Inc.'s
Registration Statement on Form S-3 (Registration No.
333-85228) filed with the Commission on March 29,
2002, as amended).

4.36 Form of Acknowledgement of Novation to Nabors
Industries, Inc., Nabors Exchangeco (Canada) Inc.,
Computershare Trust Company of Canada and 3064297
Nova Scotia Company executed by Nabors Industries
Ltd. (incorporated by reference to Exhibit 4.3 to
Nabors Industries Ltd.'s Post-Effective Amendment No.
1 to Registration Statement on Form S-3 (Registration
No. 333-85228-99) filed with the Commission on June
11, 2002).

4.37 Indenture, dated as of June 10, 2003, between Nabors
Industries, Inc., Nabors Industries Ltd. and Bank
One, N.A. with respect to Nabors Industries, Inc.'s
Zero Coupon Senior Exchangeable Notes due 2023
(incorporated by reference to Exhibit 4.1 to Nabors
Delaware's and Nabors' Registration Statement on Form
S-3, (File No. 333-107806-01, filed with the
Commission of August 8, 2003)).

4.38 Registration Rights Agreement, dated as of June 10,
2003, by and among Nabors Industries, Inc., Nabors
Industries Ltd. and Citigroup Global Markets Inc.
(incorporated by reference to Exhibit 4.2 to Nabors
Delaware's and Nabors' Registration Statement on Form
S-3, File No. 333-107806-01, filed with the
Commission on August 8, 2003).

4.39 Form of Zero Coupon Senior Exchangeable Notes Due
2023 (included in Exhibit 4.38).

10.1 (+) 1996 Employee Stock Plan (incorporated by reference
to Nabors Industries Inc.'s Registration Statement on
Form S-8, Registration No. 333-11313, filed September
3, 1996).

10.2 (+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Eugene M. Isenberg (incorporated by reference to
Exhibit 10.4 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 30, 1996).

10.3 (+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Anthony G. Petrello (incorporated by reference to
Exhibit 10.5 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 30, 1996).

33

10.4 (+) Employment Agreement effective October 1, 1996
between Nabors Industries, Inc. and Eugene M.
Isenberg (incorporated by reference to Exhibit 10.7
to Nabors Industries Inc.'s Form 10-Q, File No.
1-9245, filed May 16, 1997).

10.5 (+) First Amendment to Amended and Restated Employment
Agreement between Nabors Industries, Inc., Nabors
Industries Ltd. and Eugene M. Isenberg dated as of
June 24, 2002 (incorporated by reference to Exhibit
10.1 to Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed August 14, 2002).

10.6 (+) Second Amendment to Employment Agreement between
Nabors Industries, Inc., Nabors Industries Ltd. and
Eugene M. Isenberg dated as of July 17, 2002
(incorporated by reference to Exhibit 10.1 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed August 14, 2002).

10.7 (+) Employment Agreement effective October 1, 1996
between Nabors Industries, Inc. and Anthony G.
Petrello (incorporated by reference to Exhibit 10.8
to Nabors Industries Inc.'s Form 10-Q, File No.
1-9245, filed May 16, 1997).

10.8 (+) First Amendment to Amended and Restated Employment
Agreement between Nabors Industries, Inc., Nabors
Industries Ltd. and Anthony G. Petrello dated as of
June 24, 2002 (incorporated by reference to Exhibit
10.2 to Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed August 14, 2002).

10.9 (+) Second Amendment to Employment Agreement between
Nabors Industries, Inc., Nabors Industries Ltd. and
Anthony G. Petrello dated as of July 17, 2002
(incorporated by reference to Exhibit 10.3 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed August 14, 2002).

10.10 (+) Waiver dated as of September 27, 2002 pursuant to
Section 9.[c] and Schedule 9.[c] of the Amended
Employment Agreement among Nabors Industries, Inc.,
Nabors Industries Ltd., and Anthony G. Petrello
(incorporated by reference to Exhibit 10.1 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed November 14, 2002).

10.11 (+) Nabors Industries, Inc. 1996 Chairman's Executive
Stock Plan (incorporated by reference to Exhibit
10.17 to Nabors Industries Inc.'s Form 10-K, File No.
1-9245, filed December 29, 1997).

10.12 (+) Nabors Industries, Inc. 1996 Executive Officers Stock
Plan (incorporated by reference to Exhibit 10.18 to
Nabors Industries Inc.'s Form 10-K, File No. 1-9245,
filed December 29, 1997).

10.13 (+) Nabors Industries, Inc. 1996 Executive Officers
Incentive Stock Plan (incorporated by reference to
Exhibit 10.9 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 29, 1997).

10.14 (+) Nabors Industries, Inc. 1997 Executive Officers
Incentive Stock Plan (incorporated by reference to
Exhibit 10.20 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 29, 1997).

10.15 (+) Nabors Industries, Inc. 1998 Employee Stock Plan
(incorporated by reference to Exhibit 10.19 to Nabors
Industries Inc.'s Form 10-K dated December 31, 1998,
File No. 1-9245, filed March 31, 1999).

34

10.16 (+) Nabors Industries, Inc. 1998 Chairman's Executive
Stock Plan (incorporated by reference to Exhibit
10.20 to Nabors Industries Inc.'s Form 10-K dated
December 31, 1998, File No. 1-9245, filed March 31,
1999).

10.17 (+) Nabors Industries, Inc. 1999 Stock Option Plan for
Non-Employee Directors (incorporated by reference to
Exhibit 10.21 to Nabors Industries Inc.'s Form 10-K
dated December 31, 1998, File No. 1-9245, filed March
31, 1999).

10.18 (+) Amendment to Nabors Industries, Inc. 1999 Stock
Option Plan for Non-Employee Directors (incorporated
by reference to Exhibit 10.19 to Nabors Industries
Inc.'s Form 10-K, File No. 1-09245, filed March 19,
2002).

10.19 (+) 1999 Pool Employee/Director Option Exchange Plan
(incorporated by reference to Exhibit 10.20 to Nabors
Industries Inc.'s Form 10-K, File No. 1-09245, filed
March 19, 2002).

10.20 Form of Indemnification Agreement entered into
between Nabors Industries Ltd. and the directors and
executive officers identified in the schedule
thereto (incorporated by reference to Exhibit 10.28
to Nabors Industries Ltd.'s Form 10-K dated
December 31, 2002, File No. 000-49887, filed
March 31, 2003).

10.21 (+) Amended and Restated 1999 Stock Option Plan for
Non-Employee Directors (amended on May 2, 2003)
(incorporated by reference to Exhibit 10.29 to Nabors
Industries Ltd. 10-Q, File No. 000-49887, filed
May 12, 2003).

10.22 (+) 2003 Employee Stock Option Plan (incorporated by
reference to Annex D of Nabors Notice of 2003 Annual
General Meeting of Shareholders and Proxy Statement,
File No. 000-49887, filed May 8, 2003).

10.23 Purchase and Sale Agreement (Red River) by and among
El Paso Production Company and El Paso Production GOM
Inc., jointly and severally as Seller and Ramshorn
Investments, Inc., as Purchaser dated October 8,
2003.

10.24 Purchase and Sale Agreement (USA) between El Paso
Production Oil & Gas USA, L.P., as Seller and
Ramshorn Investments, Inc., as Purchaser dated
October 8, 2003.

10.25 Exploration Participation Agreement (South Texas) by
and between El Paso Production Oil & Gas Company and
El Paso Production Oil & Gas USA, L.P., jointly and
severally and Ramshorn Investments, Inc., dated
November 6, 2003.

10.26 Exploration Participation Agreement (Catapult) by and
between El Paso Production Company, and Ramshorn
Investments, Inc., dated November 6, 2003.

12 Computation of Ratios.

13(1) 2003 Annual Report of Nabors Industries Ltd.

14 Code of Ethics (Code of Business Conduct).

21 Significant Subsidiaries of Nabors Industries Ltd.

23 Consent of Independent Accountants.

31.1 Rule 13a-14(a)/15d-14(a) Certification, executed by
Eugene M. Isenberg, Chairman and Chief Executive
Officer of Nabors Industries Ltd.

35

31.2 Rule 13a-14(a)/15d-14(a) Certification, executed by
Bruce P. Koch, Vice President and Chief Financial
Officer of Nabors Industries Ltd.

32.1 Certifications required by Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 63 of Title 18
of the United States Code (18 U.S.C. 1350), executed
by Eugene M. Isenberg, Chairman and Chief Executive
Officer of Nabors Industries Ltd. and Bruce P. Koch,
Vice President and Chief Financial Officer of Nabors
Industries Ltd.

- ----------

(1) With the exception of the specific information expressly incorporated
into Items 1, 2, 3, 5, 6, 7, 7A, 8 and 14 of this document, the 2003
Annual Report is not deemed to be filed as part of this report.

(+) Management contract or compensatory plan or arrangement

36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

NABORS INDUSTRIES LTD.

By: /s/ Eugene M. Isenberg
--------------------------
Eugene M. Isenberg
Chairman and Chief
Executive Officer

By: /s/ Bruce P. Koch
--------------------------
Bruce P. Koch
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)

Date: March 15, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

37

GLOSSARY OF DRILLING TERMS

ABANDONMENT: To stop production of a well and plug the wellbore to prevent any
possible future leakage into fresh water.

BARGE RIG: A drilling rig that is placed on a towed barge for shallow inland
water, swamp and river applications.

BLOCK: Any assembly of pulleys on a common framework; in mechanics, one or more
pulleys mounted to rotate on a common axis. The crown block is an assembly of
pulleys mounted on beams at the top of the derrick or mast. The drilling line is
passed through the grooved wheel on the pulley of the crown block alternately
with the pulleys of the traveling block, which is raised and lowered in the
derrick or mast by the drilling line.

BLOWOUT: An uncontrolled expulsion of oil, natural gas or water (usually brine)
from a well into the atmosphere.

BLOWOUT PREVENTER (BOP): A stack of heavy-duty valves placed on top of the
casing to control well pressure during drilling.

BOTTOMHOLE PRESSURE: Pressure exerted upward by the reservoir formation.

CANTILEVER JACK-UPS: Jack-ups that have the derrick package mounted on steel
arms that can be extended out from the hull of the rig. Extension allows for the
positioning adjacent to a platform rig for development drilling.

CASED HOLE: A wellbore in which casing has been installed and cemented.

CASING: Steel pipe that is installed in the wellbore to protect from cave-in and
the migration of formation fluids into the wellbore, or communication between
zones.

CEMENTING: Filling the space between the casing and the wellbore walls with
cement to support the casing, and seal between zones.

CHRISTMAS TREE: An assembly of valves for flow control of production fluids or
gasses installed at the top of the casing.

COMPLETION: To finish a well and prepare it for production.

CONDUCTOR CASING OR CONDUCTOR PIPE: Wide-diameter casing installed at the
surface prior to rigging up to prevent caving.

CORING: Taking a sample of the formation or rock to determine its geologic
properties.

CROWN BLOCK: Stationary pulley system used to raise or lower drilling equipment
for the derrick. Supports the traveling block.

CRUDE OIL: Unrefined petroleum.

DAYRATE: The daily rate paid by an operator to a drilling contractor under a
daywork contract. (See also Footage and Turnkey Contract).

DAYWORK CONTRACT: A contract under which the drilling contractor is paid by the
day or portion thereof.

A-1

DERRICK: A steel mast used to support the drill string or drilling equipment
such as casing.

DRAWWORKS: Power equipment used for the hoisting of the drilling string via the
derrick. Consists of a spool wrapped with wire rope positioned to the side of
the derrick with wire traveling up the crown block.

DRILL BIT: A tool located at the end of the drill string used for cutting or
boring.

DRILL COLLARS: Heavy walled steel pipe added to the drill string between the
drill pipe and drill bit for additional downward pressure.

DRILL PIPE: Steel pipe used to conduct fluids and torque down to the drill bit.
Typically 30 feet in length.

DRILL STEM: All members in the assembly used for rotary drilling from the swivel
to the bit, including the kelly, the drill pipe and tool joints, the drill
collars, the stabilizers, and various specialty items.

DRILL STRING: An assembly consisting of drill pipe, drill collars and a drill
bit. The drill string serves as a conduit for fluid circulation and torque from
the power source.

DRY HOLE: An exploratory well that, although reaching target depths, does not
result in the production of hydrocarbons.

ELECTRIC RIG (SCR): A drilling rig that uses diesel generators to supply power
to separate electric motors to power each of the rig's components
(silicon-controlled rectifier).

EXPLORATORY WELL: A well drilled to either search for an undiscovered pool of
hydrocarbons or to define the limits of the hydrocarbon-bearing formation.

FIELD: An area representing a group of producing oil and/or natural gas wells.

FOOTAGE CONTRACTS: A contract under which the operator and contract driller
agree to a fixed price per foot drilled. Contractor carries more of the
operating risk than in a Daywork Contract (see also Daywork and Turnkey
Contract).

FORMATION: A strata of rock that is composed mainly of the same type of rock.

HOOK: A large, hook-shaped device from which the swivel is suspended. It is
designed to carry maximum loads ranging from 100 to 650 tons and turns on
bearings in its supporting housing.

HOOK LOAD: The weight of the drill stem that is suspended from the hook.

HORIZONTAL DRILLING: Deviation of the wellbore at least 80 degrees from vertical
so that the wellbore penetrates a productive formation in a manner parallel to
the formation.

HYDROCARBONS: Organic compounds of hydrogen and carbon atoms providing the basis
of all petroleum products. Hydrocarbons exist in a solid, liquid or gaseous
state.

INDEPENDENT LEG JACK-UPS: Jack-ups with open-truss steel legs with large steel
cylinders (spud cans) attached at the bottom for sea floor penetration and
stability.

JACK-UP RIG: Bottom supported offshore drilling rig consisting of a floating
platform that is towed on locations and jacked up above the water on three or
four legs. The platform supports the drilling derrick, equipment and crew
quarters. (See also independent leg, mat-supported, cantilever and slot
jack-ups.)

KELLY: A four- or six-sided pipe at the top of the drill string through which
rotation is parted.

A-2

KELLY BUSHING: A cage with V & square faced rollers which fits the kelly in
parting rotation while slowing up and down movement. The kelly pipe fits inside
the kelly bushing, which fits inside the master bushing, which fits inside the
rotary table. The rotary table creates the torque that is transmitted through
the kelly down the drill pipe to the drill bit (versus a top drive system which
foregoes all of such components).

LINER: A string of pipe used to case an open hole below an existing casing.

LOG: A recording of data.

MAT-SUPPORTED JACK-UPS: Jack-ups with cylindrical steel legs attached to a flat
base. Ideally suited for soft, muddy sea floors.

MECHANICAL RIG: A drilling rig where the power generated from combustion engines
(diesel) is distributed mechanically (shafts, sprockets, chains and clutches) to
the various components of the rig.

MUD: The liquid circulated through the wellbore during rotary drilling
operations. In addition to its function of bringing cuttings to the surface,
drilling mud cools and lubricates the drill bit and the drill stem, protects
against blowouts by holding back subsurface pressures, and deposits a mud cake
on the wall of the wellbore to prevent loss of fluids to the formation.

MUD LOGGING: The recording of information derived from examination and analysis
of formation cuttings made by the bit and of mud circulated out of the hole.

MUD PUMP: A large high-pressure pump used to circulate the mud on a drilling
rig.

MUD TANK: One of a series of open tanks, usually made of steel plate, through
which the drilling mud is cycled to remove sand and fine sediments. Also called
mud pits.

OPERATOR: Organization that obtains (buys or leases) the right to drill and
produce oil and/or natural gas from the owner of a specified location. The
operator of an oil or gas well or field.

OPERATOR - INDEPENDENT: A person or relatively small organization that engages
in the drilling, producing and selling of oil and gas, but has no pipeline or
other means of transportation or refining.

OPERATOR - INTEGRATED (MAJORS): A larger organization typically engaged in the
drilling, production, transportation and refining of oil and natural gas, as
well as the retail sales of oil and gas refined products.

OPERATOR - NATIONAL OIL COMPANY: State-owned organization typically engaged in
the drilling, production, transportation and refining of oil and natural gas, as
well as the retail sales of oil and gas refined products.

ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC): An organization formed in
1960 for the intent of negotiating the price and production levels of oil. There
are currently twelve members including Saudi Arabia, Kuwait, Iran, Qatar, United
Arab Emirates, Algeria, Libya, Nigeria, Venezuela, Indonesia, the Neutral Zone
(the area between Saudi Arabia and Kuwait) and Iraq.

PERMEABILITY: The measure of conductivity of fluids through the pores of rock.

PETROLEUM: A natural occurring solid, liquid or gaseous substance in the earth
containing hydrogen and carbon in various mixtures. Term often refers to oil and
does not include natural gas or gas liquids such as propane or butane.

PLATFORM: A drilling and production platform that is supported by a truss of
steel members (a jacket) secured to the ocean floor.

A-3

PLATFORM RIG: Mobile drilling rig packages mounted on production platforms.

PLUGGING A WELL: To stop the flow of hydrocarbons and/or water by filling the
wellbore with cement when the well is abandoned.

RESERVOIR: A porous, permeable, subsurface rock formation containing trapped
oil, natural gas, or water.

RIG: The derrick or mast, drawworks and attendant surface equipment of a
drilling unit.

RIG YEAR: A measure of the number of equivalent rigs operating during a given
period. It is calculated as the number of days rigs are operating divided by the
number of days in the period. For example, one rig operating 182.5 days during a
365-day period represents .5 rig years, and 100 rigs operating for 33,000
cumulative days, during a 365-day period would equal 90.4 rig years (33,000
divided by 365).

ROTARY DRILLING: A drilling method in which a hole is drilled by a rotating bit
to which a downward force is applied. The bit is fastened to and rotated by the
drill stem, which also provides a passageway through which the drilling fluid is
circulated.

SCR: See "Electric Rig".

SLOT JACK-UPS: Jack-ups that have the drilling derrick mounted over a slot in
the hull and cannot be used over adjacent structures.

SPUDDING THE WELL: The initiation of the drilling of a well.

STACK A RIG: To store a drilling rig on completion of a job when the rig is to
be withdrawn from operation for a time.

SWIVEL: A rotary tool that is hung from the rotary hook and the traveling block
to suspend the drill stem and to permit it to rotate freely. It also provides a
connection for the rotary hose and a passageway for the flow of drilling fluid
into the drill stem.

TOOL JOINTS: Heavy duty steel couplings used to connect lengths of drill pipe.

TOP DRIVE: A powered swivel connected directly into the drill stem to provide
the necessary torque for the drill bit. Replaces the conventional rotary table
and hangs from the hook attached to the traveling block. Allows three lengths of
drill pipe to be tripped in and out at a time, and provides makeup and breakup
power for the assembly of the drill pipe lengths as well. Generally considered
to save time over the rotary table assembly.

TORQUE: A force that causes or attempts to cause a rotation or torsion.

TRAVELING BLOCK: Block hanging from the derrick supporting the drill string as
it "travels" up and down as it raises and lowers the drill string into the
wellbore.

TRIP: When drill string is pulled and returned to the wellbore.

TURNKEY CONTRACT: A contract under which the drilling contractor agrees to drill
a well to the operator's specifications for a fixed lump sum fee. The contractor
carries the majority of the operating risk. (See also Dayrate and Footage
Contracts.)

UTILIZATION: A measure of the portion of the available rig or vessel fleet, as
applicable, in use during a given period. It is calculated as rig (or vessel)
years divided by total rigs (or vessels) available. For example, if the
equivalent rig (or vessel) years are 100 and the available fleet is 200, the
utilization rate is 50%.

A-4

VESSEL YEAR: A measure of the number of equivalent vessels operating during a
given period. It is calculated as the number of days vessels are operating
divided by the number of days in the period. For example, one vessel operating
182.5 days during a 365-day period represents .5 vessel years.

WELLBORE (WELL): The hole created when drilling that serves as the passageway
between the surface and the reservoir.

WELLHEAD: Flow control equipment located at the top of the casing string at the
surface of the wellbore.

WELL-SERVICING: Maintenance work on a producing well to improve its flow rate.
Service typically involves repairing equipment installed during drilling,
completion or workover, but may include addition of new equipment.
Well-servicing jobs usually take less than 48 hours to complete.

WILDCAT: An exploratory well drilled in an unknown or unproven area.

WORKOVER: Essentially, refurbishment of a well to improve its flow rate.
Workover includes any of several operations on a well to restore or increase
production when a reservoir stops producing at the rate it should. Many workover
jobs involve treating the reservoir rock, rather than the equipment in the well.
Workover jobs typically take a few days to several weeks to complete.

A-5

REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Nabors Industries Ltd.:

Our audits of the consolidated financial statements referred to in our report
dated March 5, 2004 appearing in the 2003 Annual Report to Shareholders of
Nabors Industries Ltd. (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 15(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 5, 2004

S-1

NABORS INDUSTRIES LTD.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2003, 2002, and 2001

(1) Uncollected receivables written off, net of recoveries.

(2) Inventory reserves written off.

(3) Primarily related to acquisitions.

(4) Includes uncollected receivables written off, net of recoveries, and
$6.5 million related to receipt of amounts previously reserved for.

S-2

Index to Exhibits

4.5 Form of Senior Indenture of Nabors Industries, Inc.
(incorporated by reference to Exhibit 4.5 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.6 Form of Subordinated Indenture of Nabors Industries,
Inc. (incorporated by reference to Exhibit 4.6 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.7 Form of Senior Debt Security of Nabors Industries,
Inc. and Form of Senior Guarantee by Nabors
Industries Ltd. (included in Exhibit 4.5).

4.8 Form of Subordinated Debt Security of Nabors
Industries, Inc. and Form of Subordinated Guarantee
by Nabors Industries Ltd. (included in Exhibit 4.6).

4.9 Form of Senior Indenture of Nabors International
Finance Inc. (incorporated by reference to Exhibit
4.9 to Nabors Industries Ltd.'s Registration
Statement on Form S-3 (Registration No. 333-102246)
filed with the Commission on December 30, 2002).

4.10 Form of Subordinated Indenture of Nabors
International Finance Inc. (incorporated by reference
to Exhibit 4.10 to Nabors Industries Ltd.'s
Registration Statement on Form S-3 (Registration No.
333-102246) filed with the Commission on December 30,
2002).

4.11 Form of Senior Debt Security of Nabors International
Finance Inc. and Form of Senior Guarantee by Nabors
Industries Ltd. and Nabors Industries, Inc. (included
in Exhibit 4.9).

4.12 Form of Subordinated Debt Security of Nabors
International Finance Inc. and Form of Subordinated
Guarantee by Nabors Industries Ltd. and Nabors
Industries, Inc. (included in Exhibit 4.10).

4.13 Form of Senior Indenture of Nabors Holdings Ltd.
(incorporated by reference to Exhibit 4.13 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.14 Form of Subordinated Indenture of Nabors Holdings
Ltd. (incorporated by reference to Exhibit 4.14 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.15 Form of Senior Debt Security of Nabors Holdings Ltd.
and Form of Senior Guarantee by Nabors Industries
Ltd. and Nabors Industries, Inc. (included in Exhibit
4.13).

4.16 Form of Subordinated Debt Security of Nabors Holdings
Ltd. and Form of Subordinated Guarantee by Nabors
Industries Ltd. and Nabors Industries, Inc. (included
in Exhibit 4.14).

4.17 Form of Senior Indenture of Nabors Holdings 1, ULC.
(incorporated by reference to Exhibit 4.17 to Nabors
Industries Ltd.'s Registration Statement on Form S-3
(Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.18 Form of Subordinated Indenture of Nabors Holdings 1,
ULC. (incorporated by reference to Exhibit 4.18 to
Nabors Industries Ltd.'s Registration Statement on
Form S-3 (Registration No. 333-102246) filed with the
Commission on December 30, 2002).

4.19 Form of Senior Debt Security of Nabors Holdings 1,
ULC and Form of Senior Guarantee by Nabors Industries
Ltd. and Nabors Industries, Inc. (included in Exhibit
4.17).

4.20 Form of Subordinated Debt Security of Nabors Holdings
1, ULC and Form of Subordinated Guarantee by Nabors
Industries Ltd. and Nabors Industries, Inc. (included
in Exhibit 4.18).

4.21 Indenture dated as of March 1, 1999 between Nabors
Industries, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as trustee, in
connection with $325,000,000 aggregate principal
amount of 6.80% Notes due 2004 (incorporated by
reference to Exhibit 4.1 to Nabors Industries, Inc.'s
Post-Effective Amendment No. 1 to Registration
Statement on Form S-3, Registration No. 333-25233,
filed with the Commission on March 5, 1999).

4.22 Supplemental Indenture No. 1 dated as of March 1,
1999 between Nabors Industries, Inc., as Issuer, and
Norwest Bank Minnesota, National Association, as
trustee, in connection with the 6.80% Notes
(incorporated by reference to Exhibit 4.2 to Nabors
Industries, Inc.'s Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, Registration No.
333-25233, filed with the Commission on March 5,
1999).

4.23 Supplemental Indenture No. 2, dated as of June 21,
2002, between Nabors Industries, Inc., Nabors
Industries Ltd. and Wells Fargo Bank Minnesota,
National Association, with respect to Nabors
Industries, Inc.'s 6.8% notes due 2004 (incorporated
by reference to Exhibit 4.7 to Nabors Industries
Ltd.'s Form 10-Q, File No. 000-49887, filed with the
Commission on August 14, 2002).

4.24 Indenture dated as of February 5, 2001 between Nabors
Industries, Inc. and Bank One, N.A., as trustee, in
connection with $1,382,200,000 principal amount at
maturity of Zero Coupon Convertible Senior Debentures
due 2021 (incorporated by reference to Exhibit 4.11
to Form 10-K, File No. 1-9245, filed with the
Commission on March 30, 2001).

4.25 Form of Debenture (contained in Exhibit 4.24).

4.26 First Supplemental Indenture, dated as of June 21,
2002 among Nabors Industries, Inc., as issuer, Nabors
Industries Ltd. as guarantor, and Bank One, N.A. as
trustee, with respect to Nabors Industries, Inc.'s
zero coupon convertible senior debentures due 2021
(incorporated by reference to Exhibit 4.5 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed with the Commission on August 14, 2002).

4.27 Registration Rights Agreement dated as of January 31,
2000 between Nabors Industries, Inc. and the initial
purchaser of the Zero Coupon Convertible Senior
Debentures due 2021 (incorporated by reference to
Exhibit 4.13 to Form 10-K, File No. 1-9245, filed
with the Commission on March 30, 2001).

4.28 Indenture, dated August 22, 2002, among Nabors
Industries, Inc., as issuer, Nabors Industries Ltd.,
as guarantor, and Bank One, N.A., with respect to
Nabors Industries, Inc.'s Series A and Series B
5.375% Senior Notes due 2012 (incorporated by
reference to Exhibit 4.1 to Nabors Industries, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-10049201) filed with the Commission on October
11, 2002).

4.29 Registration Rights Agreement, dated August 22, 2002,
among Nabors Industries, Inc., Nabors Industries
Ltd., and Lehman Brothers Inc. (incorporated by
reference to Exhibit 4.2 to Nabors Industries, Inc.'s
Registration Statement on Form S-4 (Registration No.
333-10049201) filed with the Commission on October
11, 2002).

4.30 Form of 5.375% Senior Exchange Note due 2012
(included in Exhibit 4.29).

4.31 Indenture, dated August 22, 2002, among Nabors
Holdings 1, ULC, as issuer, Nabors Industries, Inc.
and Nabors Industries Ltd., as guarantors, and Bank
One, N.A., with respect to Nabors Holdings 1, ULC's
Series A and Series B 4.875% Senior Notes due 2009
(incorporated by reference to Exhibit 4.1 to Nabors
Holdings 1, ULC's Registration Statement on Form S-4
(Registration No. 333-10049301) filed with the
Commission on October 11, 2002).

4.32 Registration Rights Agreement, dated August 22, 2002,
among Nabors Holdings 1, ULC, Nabors Industries,
Inc., Nabors Industries Ltd., and Lehman Brothers
Inc. (incorporated by reference to Exhibit 4.2 to
Nabors Holdings 1, ULC's Registration Statement on
Form S-4 (Registration No. 333-10049301) filed with
the Commission on October 11, 2002).

4.33 Form of 4.875% Senior Exchange Note due 2009
(included in Exhibit 4.32).

4.34 Form of Provisions Attaching to the Exchangeable
Shares of Nabors Exchangeco (Canada) Inc.
(incorporated by reference to Exhibit 4.1 to Nabors
Industries, Inc.'s Registration Statement on Form S-3
(Registration No. 333-85228) filed with the
Commission on March 29, 2002, as amended).

4.35 Form of Support Agreement between Nabors Industries,
Inc., 3064297 Nova Scotia Company and Nabors
Exchangeco (Canada) Inc. (incorporated by reference
to Exhibit 4.2 to Nabors Industries, Inc.'s
Registration Statement on Form S-3 (Registration No.
333-85228) filed with the Commission on March 29,
2002, as amended).

4.36 Form of Acknowledgement of Novation to Nabors
Industries, Inc., Nabors Exchangeco (Canada) Inc.,
Computershare Trust Company of Canada and 3064297
Nova Scotia Company executed by Nabors Industries
Ltd. (incorporated by reference to Exhibit 4.3 to
Nabors Industries Ltd.'s Post-Effective Amendment No.
1 to Registration Statement on Form S-3 (Registration
No. 333-85228-99) filed with the Commission on June
11, 2002).

4.37 Indenture, dated as of June 10, 2003, between Nabors
Industries, Inc., Nabors Industries Ltd. and Bank
One, N.A. with respect to Nabors Industries, Inc.'s
Zero Coupon Senior Exchangeable Notes due 2023
(incorporated by reference to Exhibit 4.1 to Nabors
Delaware's and Nabors' Registration Statement on Form
S-3, (File No. 333-107806-01, filed with the
Commission of August 8, 2003)).

4.38 Registration Rights Agreement, dated as of June 10,
2003, by and among Nabors Industries, Inc., Nabors
Industries Ltd. and Citigroup Global Markets Inc.
(incorporated by reference to Exhibit 4.2 to Nabors
Delaware's and Nabors' Registration Statement on Form
S-3, File No. 333-107806-01, filed with the
Commission on August 8, 2003).

4.39 Form of Zero Coupon Senior Exchangeable Notes Due
2023 (included in Exhibit 4.38.).

10.1 (+) 1996 Employee Stock Plan (incorporated by reference
to Nabors Industries Inc.'s Registration Statement on
Form S-8, Registration No. 333-11313, filed September
3, 1996).

10.2 (+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Eugene M. Isenberg (incorporated by reference to
Exhibit 10.4 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 30, 1996).

10.3 (+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Anthony G. Petrello (incorporated by reference to
Exhibit 10.5 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 30, 1996).

10.4 (+) Employment Agreement effective October 1, 1996
between Nabors Industries, Inc. and Eugene M.
Isenberg (incorporated by reference to Exhibit 10.7
to Nabors Industries Inc.'s Form 10-Q, File No.
1-9245, filed May 16, 1997).

10.5 (+) First Amendment to Amended and Restated Employment
Agreement between Nabors Industries, Inc., Nabors
Industries Ltd. and Eugene M. Isenberg dated as of
June 24, 2002 (incorporated by reference to Exhibit
10.1 to Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed August 14, 2002).

10.6 (+) Second Amendment to Employment Agreement between
Nabors Industries, Inc., Nabors Industries Ltd. and
Eugene M. Isenberg dated as of July 17, 2002
(incorporated by reference to Exhibit 10.1 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed August 14, 2002).

10.7 (+) Employment Agreement effective October 1, 1996
between Nabors Industries, Inc. and Anthony G.
Petrello (incorporated by reference to Exhibit 10.8
to Nabors Industries Inc.'s Form 10-Q, File No.
1-9245, filed May 16, 1997).

10.8 (+) First Amendment to Amended and Restated Employment
Agreement between Nabors Industries, Inc., Nabors
Industries Ltd. and Anthony G. Petrello dated as of
June 24, 2002 (incorporated by reference to Exhibit
10.2 to Nabors Industries Ltd.'s Form 10-Q, File No.
000-49887, filed August 14, 2002).

10.9 (+) Second Amendment to Employment Agreement between
Nabors Industries, Inc., Nabors Industries Ltd. and
Anthony G. Petrello dated as of July 17, 2002
(incorporated by reference to Exhibit 10.3 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed August 14, 2002).

10.10 (+) Waiver dated as of September 27, 2002 pursuant to
Section 9.[c] and Schedule 9.[c] of the Amended
Employment Agreement among Nabors Industries, Inc.,
Nabors Industries Ltd., and Anthony G. Petrello
(incorporated by reference to Exhibit 10.1 to Nabors
Industries Ltd.'s Form 10-Q, File No. 000-49887,
filed November 14, 2002).

10.11 (+) Nabors Industries, Inc. 1996 Chairman's Executive
Stock Plan (incorporated by reference to Exhibit
10.17 to Nabors Industries Inc.'s Form 10-K, File No.
1-9245, filed December 29, 1997).

10.12 (+) Nabors Industries, Inc. 1996 Executive Officers Stock
Plan (incorporated by reference to Exhibit 10.18 to
Nabors Industries Inc.'s Form 10-K, File No. 1-9245,
filed December 29, 1997).

10.13 (+) Nabors Industries, Inc. 1996 Executive Officers
Incentive Stock Plan (incorporated by reference to
Exhibit 10.9 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 29, 1997).

10.14 (+) Nabors Industries, Inc. 1997 Executive Officers
Incentive Stock Plan (incorporated by reference to
Exhibit 10.20 to Nabors Industries Inc.'s Form 10-K,
File No. 1-9245, filed December 29, 1997).

10.15 (+) Nabors Industries, Inc. 1998 Employee Stock Plan
(incorporated by reference to Exhibit 10.19 to Nabors
Industries Inc.'s Form 10-K dated December 31, 1998,
File No. 1-9245, filed March 31, 1999).

10.16 (+) Nabors Industries, Inc. 1998 Chairman's Executive
Stock Plan (incorporated by reference to Exhibit
10.20 to Nabors Industries Inc.'s Form 10-K dated
December 31, 1998, File No. 1-9245, filed March 31,
1999).

10.17 (+) Nabors Industries, Inc. 1999 Stock Option Plan for
Non-Employee Directors (incorporated by reference to
Exhibit 10.21 to Nabors Industries Inc.'s Form 10-K
dated December 31, 1998, File No. 1-9245, filed March
31, 1999).

10.18 (+) Amendment to Nabors Industries, Inc. 1999 Stock
Option Plan for Non-Employee Directors (incorporated
by reference to Exhibit 10.19 to Nabors Industries
Inc.'s Form 10-K, File No. 1-09245, filed March 19,
2002).

10.19 (+) 1999 Pool Employee/Director Option Exchange Plan
(incorporated by reference to Exhibit 10.20 to Nabors
Industries Inc.'s Form 10-K, File No. 1-09245, filed
March 19, 2002).

10.20 Form of Indemnification Agreement entered into
between Nabors Industries Ltd. and the directors and
executive officers identified in the schedule
thereto (incorporated by reference to Exhibit 10.28
to Nabors Industries Ltd.'s Form 10-K dated
December 31, 2002, File No. 000-49887, filed
March 31, 2003).

10.21 (+) Amended and Restated 1999 Stock Option Plan for
Non-Employee Directors (amended on May 2, 2003)
(incorporated by reference to Exhibit 10.29 to Nabors
Industries Ltd. 10-Q, File No. 000-49887, filed
May 12, 2003).

10.22 2003 Employee Stock Option Plan (incorporated by
reference to Annex D of Nabors Notice of 2003 Annual
General Meeting of Shareholders and Proxy Statement,
File No. 000-49887, filed May 8, 2003).

10.23 Purchase and Sale Agreement (Red River) by and among
El Paso Production Company and El Paso Production GOM
Inc., jointly and severally as Seller and Ramshorn
Investments, Inc., as Purchaser dated October 8,
2003.

10.24 Purchase and Sale Agreement (USA) between El Paso
Production Oil & Gas USA, L.P., as Seller and
Ramshorn Investments, Inc., as Purchaser dated
October 8, 2003.

10.25 Exploration Participation Agreement (South Texas) by
and between El Paso Production Oil & Gas Company and
El Paso Production Oil & Gas USA, L.P., jointly and
severally and Ramshorn Investments, Inc., dated
November 6, 2003.

10.26 Exploration Participation Agreement (Catapult) by and
between El Paso Production Company, and Ramshorn
Investments, Inc., dated November 6, 2003.

12 Computation of Ratios.

13(1) 2003 Annual Report of Nabors Industries Ltd.

14 Code of Ethics (Code of Business Conduct).

21 Significant Subsidiaries of Nabors Industries Ltd.

23 Consent of Independent Accountants.

31.1 Rule 13a-14(a)/15d-14(a) Certification, executed by
Eugene M. Isenberg, Chairman and Chief Executive
Officer of Nabors Industries Ltd.

31.2 Rule 13a-14(a)/15d-14(a) Certification, executed by
Bruce P. Koch, Vice President and Chief Financial
Officer of Nabors Industries Ltd.

32.1 Certifications required by Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 63 of Title 18
of the United States Code (18 U.S.C. 1350), executed
by Eugene M. Isenberg, Chairman and Chief Executive
Officer of Nabors Industries Ltd. and Bruce P. Koch,
Vice President and Chief Financial Officer of Nabors
Industries Ltd.