Back to GetFilings.com





- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------------

FORM 10-Q

QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

COMMISSION FILE NUMBER: 000-49887

---------------------

NABORS INDUSTRIES LTD.

INCORPORATED IN BERMUDA
2ND FL. INTERNATIONAL TRADING CENTRE
WARRENS
PO BOX 905E
ST. MICHAEL, BARBADOS

(246) 421-9471

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

---------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

The number of common shares, par value $.001 per share, outstanding as of
April 30, 2003 was 145,644,493. In addition, our subsidiary, Nabors Exchangeco
(Canada) Inc., has 562,629 exchangeable shares outstanding as of April 30, 2003
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------


NABORS INDUSTRIES LTD. AND SUBSIDIARIES

INDEX



PAGE NO.
--------

PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2003 and
December 31, 2002........................................... 2
Consolidated Statements of Income for the Three Months Ended
March 31, 2003 and 2002..................................... 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002............................... 4
Consolidated Statements of Changes in Shareholders' Equity
for the Three Months Ended March 31, 2003 and 2002.......... 5
Notes to Consolidated Financial Statements.................. 7
Report of Independent Accountants........................... 22
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 23
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 34
Item 4. Controls and Procedures..................................... 35

PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................... 35
Item 5. Other Information........................................... 36
Item 6. Exhibits and Reports on Form 8-K............................ 36
Signatures............................................................ 38
Certifications........................................................ 39


1


PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



MARCH 31, DECEMBER 31,
2003 2002
---------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 439,084 $ 414,051
Marketable securities..................................... 377,559 457,600
Accounts receivable, net.................................. 351,507 277,735
Inventory and supplies.................................... 20,680 20,524
Deferred income taxes..................................... 32,587 32,846
Prepaid expenses and other current assets................. 167,334 167,152
---------- ----------
Total current assets................................... 1,388,751 1,369,908
Marketable securities....................................... 468,591 459,148
Property, plant and equipment, net.......................... 2,837,073 2,781,050
Goodwill, net............................................... 316,851 306,762
Other long-term assets...................................... 183,586 147,004
---------- ----------
Total assets........................................... $5,194,852 $5,063,872
---------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 537,991 $ 492,985
Trade accounts payable.................................... 113,388 89,705
Accrued liabilities....................................... 180,825 152,864
Income taxes payable...................................... 14,442 15,900
---------- ----------
Total current liabilities.............................. 846,646 751,454
Long-term debt.............................................. 1,575,079 1,614,656
Other long-term liabilities................................. 126,455 137,253
Deferred income taxes....................................... 399,025 402,054
---------- ----------
Total liabilities...................................... 2,947,205 2,905,417
---------- ----------
Commitments and contingencies (Note 5)
Shareholders' equity:
Common shares, par value $.001 per share:
Authorized common shares 400,000; issued 145,264 and
144,965, respectively................................. 145 145
Capital in excess of par value............................ 1,240,182 1,233,598
Accumulated other comprehensive income (loss)............. 31,308 (3,243)
Retained earnings......................................... 976,012 927,955
---------- ----------
Total shareholders' equity............................. 2,247,647 2,158,455
---------- ----------
Total liabilities and shareholders' equity............. $5,194,852 $5,063,872
---------- ----------


The accompanying notes are an integral part of these consolidated financial
statements.
2


NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



THREE MONTHS ENDED
MARCH 31,
---------------------
2003 2002
--------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Revenues and other income:
Operating revenues........................................ $449,837 $381,199
Earnings from unconsolidated affiliates................... 5,903 5,638
Interest income........................................... 7,693 9,251
Other income, net......................................... 24 497
-------- --------
Total revenues and other income........................ 463,457 396,585
-------- --------
Costs and other deductions:
Direct costs.............................................. 304,560 249,433
General and administrative expenses....................... 41,245 32,666
Depreciation and amortization............................. 53,926 43,681
Interest expense.......................................... 20,070 14,615
-------- --------
Total costs and other deductions....................... 419,801 340,395
-------- --------
Income before income taxes.................................. 43,656 56,190
-------- --------
Income tax (benefit) expense:
Current................................................... 4,060 4,443
Deferred.................................................. (8,461) 9,805
-------- --------
Total income tax (benefit) expense..................... (4,401) 14,248
-------- --------
Net income.................................................. $ 48,057 $ 41,942
-------- --------
Earnings per share:
Basic..................................................... $ .33 $ .30
Diluted................................................... $ .31 $ .28
Weighted average number of common shares outstanding:
Basic..................................................... 145,708 140,970
-------- --------
Diluted................................................... 160,404 154,768
-------- --------


The accompanying notes are an integral part of these consolidated financial
statements.
3


NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



THREE MONTHS ENDED
MARCH 31,
---------------------
2003 2002
--------- ---------
(UNAUDITED)
(IN THOUSANDS)

Cash flows from operating activities:
Net income.................................................. $ 48,057 $ 41,942
Adjustments to net income:
Depreciation and amortization............................. 53,926 43,681
Deferred income tax (benefit) expense..................... (8,461) 9,805
Deferred financing costs amortization..................... 1,397 1,098
Discount amortization on long-term debt................... 7,908 7,597
Amortization of loss on cash flow hedges.................. 37 --
(Gains) losses on long-term assets, net................... (2,440) 106
Losses (gains) on marketable securities................... 469 (2,474)
Loss on derivative instruments............................ 1,084 --
Foreign currency transaction losses....................... 181 47
Loss on early extinguishment of debt...................... -- 202
Equity in earnings from unconsolidated affiliates, net of
dividends.............................................. (5,903) (3,439)
Increase (decrease), net of effects from acquisitions, from
changes in:
Accounts receivable....................................... (68,881) 32,292
Inventory and supplies.................................... 154 (702)
Prepaid expenses and other current assets................. (621) (3,772)
Other long-term assets.................................... (32,035) (2,493)
Trade accounts payable and accrued liabilities and
other.................................................. 29,675 (18,241)
Income taxes payable...................................... (1,504) 1,989
Other long-term liabilities............................... 2,990 (4,275)
--------- ---------
Net cash provided by operating activities................... 26,033 103,363
--------- ---------
Cash flows from investing activities:
Purchases of marketable securities, available-for-sale.... (213,016) (50,569)
Sales of marketable securities, available-for-sale........ 279,254 72,271
Cash paid for acquisitions of businesses, net............. -- (52,181)
Capital expenditures...................................... (81,966) (100,938)
Proceeds from sales of assets and insurance claims........ 3,552 982
--------- ---------
Net cash used for investing activities...................... (12,176) (130,435)
--------- ---------
Cash flows from financing activities:
Increase in cash overdrafts............................... 5,634 --
Decrease in restricted cash............................... 810 165
Reduction of long-term debt............................... (1,183) (8,220)
Debt issuance costs....................................... (370) --
Proceeds from issuance of common shares................... 4,932 2,806
--------- ---------
Net cash provided by (used for) financing activities........ 9,823 (5,249)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents............................................... 1,353 481
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 25,033 (31,840)
Cash and cash equivalents, beginning of period.............. 414,051 198,443
--------- ---------
Cash and cash equivalents, end of period.................... $ 439,084 $ 166,603
--------- ---------


The accompanying notes are an integral part of these consolidated financial
statements.
4


NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
----------------------------
COMMON SHARES UNREALIZED
----------------- CAPITAL IN GAINS (LOSSES) CUMULATIVE
PAR EXCESS OF ON MARKETABLE TRANSLATION RETAINED
SHARES VALUE PAR VALUE SECURITIES ADJUSTMENT EARNINGS
------- ------- ---------- -------------- ----------- ----------
(UNAUDITED)
(IN THOUSANDS)

Balances, December 31, 2001....... 147,711 $14,771 $1,091,536 $12,410 $ (9,150) $1,001,079
Comprehensive income:
Net income...................... 41,942
Translation adjustment.......... (2,745)
Unrealized gains on marketable
securities, net of income
taxes of $113................. 192
Less: reclassification
adjustment for gains included
in net income, net of income
taxes of $754................. (1,284)
------- ------- ---------- ------- -------- ----------
Total comprehensive
income.................... -- -- -- (1,092) (2,745) 41,942
------- ------- ---------- ------- -------- ----------
Issuance of common shares for
stock options exercised......... 186 19 2,787
Tax effect of stock option
deductions...................... 30,289
------- ------- ---------- ------- -------- ----------
Subtotal.................... 186 19 33,076 -- -- --
------- ------- ---------- ------- -------- ----------
Balances, March 31, 2002.... 147,897 $14,790 $1,124,612 $11,318 $(11,895) $1,043,021
------- ------- ---------- ------- -------- ----------



TOTAL
TREASURY SHAREHOLDERS'
STOCK EQUITY
--------- -------------
(UNAUDITED)
(IN THOUSANDS)

Balances, December 31, 2001....... $(252,780) $1,857,866
Comprehensive income:
Net income...................... 41,942
Translation adjustment.......... (2,745)
Unrealized gains on marketable
securities, net of income
taxes of $113................. 192
Less: reclassification
adjustment for gains included
in net income, net of income
taxes of $754................. (1,284)
--------- ----------
Total comprehensive
income.................... -- 38,105
--------- ----------
Issuance of common shares for
stock options exercised......... 2,806
Tax effect of stock option
deductions...................... 30,289
--------- ----------
Subtotal.................... -- 33,095
--------- ----------
Balances, March 31, 2002.... $(252,780) $1,929,066
--------- ----------


The accompanying notes are an integral part of these consolidated financial
statements.
5


NABORS INDUSTRIES LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -- (CONTINUED)


ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
------------------------------------------------------
COMMON UNREALIZED
SHARES UNREALIZED MINIMUM (LOSSES)
--------------- CAPITAL IN GAINS (LOSSES) PENSION GAINS ON CUMULATIVE
PAR EXCESS OF ON MARKETABLE LIABILITY CASH FLOW TRANSLATION
SHARES VALUE PAR VALUE SECURITIES ADJUSTMENT HEDGES ADJUSTMENT
------- ----- ---------- -------------- ---------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS)

Balances, December 31,
2002...................... 144,965 $145 $1,233,598 $ 5,646 $(2,205) $(1,444) $(5,240)
------- ---- ---------- ------- ------- ------- -------
Comprehensive income:
Net income................
Translation adjustment.... 37,103
Unrealized losses on
marketable securities,
net of income tax
benefit of $1,521....... (2,589)
Unrealized gains on cash
flow hedges............. 37
------- ---- ---------- ------- ------- ------- -------
Total comprehensive
income.............. -- -- -- (2,589) -- 37 37,103
------- ---- ---------- ------- ------- ------- -------
Issuance of common shares
for stock options
exercised................. 282 4,932
Nabors Exchangeco shares
exchanged................. 17
Tax effect of stock option
deductions................ 1,652
------- ---- ---------- ------- ------- ------- -------
Subtotal.............. 299 -- 6,584 -- -- -- --
------- ---- ---------- ------- ------- ------- -------
Balances, March 31,
2003................ 145,264 $145 $1,240,182 $ 3,057 $(2,205) $(1,407) $31,863
------- ---- ---------- ------- ------- ------- -------



TOTAL
RETAINED SHAREHOLDERS'
EARNINGS EQUITY
-------- -------------
(UNAUDITED)
(IN THOUSANDS)

Balances, December 31,
2002...................... $927,955 $2,158,455
-------- ----------
Comprehensive income:
Net income................ 48,057 48,057
Translation adjustment.... 37,103
Unrealized losses on
marketable securities,
net of income tax
benefit of $1,521....... (2,589)
Unrealized gains on cash
flow hedges............. 37
-------- ----------
Total comprehensive
income.............. 48,057 82,608
-------- ----------
Issuance of common shares
for stock options
exercised................. 4,932
Nabors Exchangeco shares
exchanged................. --
Tax effect of stock option
deductions................ 1,652
-------- ----------
Subtotal.............. -- 6,584
-------- ----------
Balances, March 31,
2003................ $976,012 $2,247,647
-------- ----------


The accompanying notes are an integral part of these consolidated financial
statements.
6


NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 NATURE OF OPERATIONS

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 and Africa. Nabors also is one of the largest land
well-servicing and workover contractors in the United States and Canada. We own
over 900 land workover and well-servicing rigs in the United States, primarily
in the southwestern and western United States, and over 200 land workover and
well-servicing rigs in Canada. Nabors is a leading provider of offshore platform
workover and drilling rigs, and owns 43 platform, 16 jack-up and three barge
rigs in the Gulf of Mexico and international markets. These rigs provide
well-servicing, workover and drilling services. We have a 50% ownership interest
in a joint venture in Saudi Arabia, which owns 18 rigs.

To further supplement and complement our primary business, we offer a wide
range of ancillary well-site services, including oilfield management,
engineering, transportation, construction, maintenance, well logging,
directional drilling, rig instrumentation, data collection and other support
services, in selected domestic and international markets. Our land
transportation and hauling fleet includes 240 rig and oilfield equipment hauling
tractor-trailers and a number of cranes, loaders and light-duty vehicles. We
maintain over 290 fluid hauling trucks, approximately 700 fluid storage tanks,
eight saltwater disposal wells and other auxiliary equipment used in domestic
drilling, workover and well-servicing operations. In addition, we own a fleet of
30 marine transportation and supply vessels, primarily in the Gulf of Mexico,
which provide transportation of drilling materials, supplies and crews for
offshore operations. We manufacture and lease or sell top drives for a broad
range of drilling applications, directional drilling systems, rig
instrumentation and data collection equipment and rig reporting software.

Our overall business is conducted through two major segments: (1) Contract
Drilling and (2) Manufacturing and Logistics. Our Contract Drilling segment
includes our drilling, workover and well-servicing operations, on land and
offshore, and our Manufacturing and Logistics segment includes our marine
transportation and supply services, top drive manufacturing, directional
drilling, rig instrumentation and software, and construction and logistics
operations.

As used in this Report, "we", "us", "our" and "Nabors" means Nabors
Industries Ltd. and, where the context requires, includes our subsidiaries.
Nabors became the publicly traded parent company of the Nabors group of
companies, effective June 24, 2002, pursuant to the corporate reorganization
described in our Annual Report on Form 10-K for the year ended December 31,
2002.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL INFORMATION

The unaudited consolidated financial statements of Nabors are prepared in
conformity with accounting principles generally accepted in the United States of
America (GAAP). Pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission, certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with GAAP have
been omitted. Therefore, these financial statements should be read along with
our Annual Report on Form 10-K for the year ended December 31, 2002. In our
management's opinion, the consolidated financial statements contain all
adjustments necessary to present fairly our financial position as of March 31,
2003, and the results of our operations and our cash flows, for each of the
three-month periods ended March 31, 2003 and 2002, in accordance with GAAP.
Interim results for the three months ended March 31, 2003 may not be indicative
of results that will be realized for the full year ending December 31, 2003.

Our independent accountants have performed a review of, and issued a report
on, these consolidated interim financial statements in accordance with standards
established by the American Institute of Certified Public Accountants. Pursuant
to Rule 436(c) under the U.S. Securities Act of 1933, this report should not be
7

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

considered a part of any registration statement prepared or certified within the
meanings of Sections 7 and 11 of the Securities Act.

PRINCIPLES OF CONSOLIDATION

Our consolidated financial statements include the accounts of Nabors and
all majority-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.

Investments in entities where we have the ability to exert significant
influence, but where we do not control their operating and financial policies,
are accounted for using the equity method. Our share of the net income of these
entities is recorded as Earnings from unconsolidated affiliates in our
consolidated statements of income, and our investment in these entities is
carried as a single amount in our consolidated balance sheets. Investments in
net assets of affiliated entities accounted for using the equity method totaled
$63.0 million and $58.6 million as of March 31, 2003 and December 31, 2002,
respectively, and are included in other long-term assets in our consolidated
balance sheets.

RECLASSIFICATIONS

We have revised the classification of revenues for certain rigs that we own
that are leased to our joint venture in Saudi Arabia, in which we have a 50%
ownership interest. We now report 100% of these revenues as operating revenues.
Previously, we had reported 50% of these lease revenues as earnings from
unconsolidated affiliates and 50% as operating revenues. The effect of this
change in classification resulted in an increase in Operating revenues and
offsetting decrease in Earnings from unconsolidated affiliates of $5.3 million
for the three months ended March 31, 2002. These reclassifications had no impact
on total revenues and other income, or net income.

Certain other reclassifications have been made to prior periods to conform
to the current period presentation, with no effect on our consolidated financial
position, results of operations or cash flows (see Recent Accounting
Pronouncements).

STOCK-BASED COMPENSATION

We account for stock-based compensation using the intrinsic value method
prescribed by APB No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of Nabors common shares at the date of grant
over the amount an employee must pay to acquire the common shares. We grant
options at prices equal to the market price of our shares on the date of grant
and therefore do not record compensation costs related to these grants.
Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for
Stock-Based Compensation -- an Amendment to FAS 123," requires companies that
continue to account for stock-based compensation in accordance with APB 25 to
disclose certain information using a tabular presentation as presented below.
This table illustrates the effect on net income and earnings per share if we had
applied the fair value

8

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to our stock-based employee compensation.



THREE MONTHS ENDED
MARCH 31,
----------------------
2003 2002
--------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Net income, as reported..................................... $48,057 $ 41,942
Deduct: Total stock-based employee compensation expense
determined under the fair value method for all awards, net
of related tax effects.................................... (2,875) (10,626)
------- --------
Pro forma net income........................................ $45,182 $ 31,316
------- --------
Earnings per share:
Basic -- as reported...................................... $ .33 $ .30
Basic -- pro forma........................................ $ .31 $ .22
Diluted -- as reported.................................... $ .31 $ .28
Diluted -- pro forma...................................... $ .29 $ .21


The pro forma amounts above were estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions for grants
during the three months ended March 31, 2003 and 2002, respectively: risk-free
interest rates of 2.22% and 3.79%; volatility of 47.58% and 48.19%; dividend
yield of 0.0% for both periods; and expected life of 3.5 years for both periods.

RECENT ACCOUNTING PRONOUNCEMENTS

We adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," effective April
1, 2002. Due to the nature of our business, Financial Accounting Standards Board
(FASB) Statements No. 44 and 64, and Amendment of FASB Statement No. 13 are not
applicable. SFAS 145 eliminates SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and states that gains and losses from the
extinguishment of debt should be classified as extraordinary items only if they
meet the criteria in Accounting Principles Board (APB) Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." APB 30 defines extraordinary items as events and
transactions that are distinguished by their unusual nature and by the
infrequency of their occurrence. Accordingly, we no longer classify gains and
losses from extinguishment of debt that are usual and frequent as extraordinary
items, and we reclassified to other income all similar debt extinguishment items
that had been reported as extraordinary items in prior accounting periods. In
conjunction with adopting SFAS 145 in 2002, we reclassified an extraordinary
loss recorded during the three months ended March 31, 2002 totaling $.13
million, net of taxes of $.08 million, to other income with the related income
tax component reclassified to income tax expense. This reclassification had no
impact on net income.

We adopted Emerging Issues Task Force (EITF) No. 01-14, "Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred," in the second quarter of 2002. Previously, we recognized
reimbursements received as a reduction to the related direct costs. EITF 01-14
requires that reimbursements received be included in operating revenues and
"out-of-pocket" expenses be included in direct costs. Accordingly,
reimbursements received from our customers have been reclassified to revenues
for the three months ended March 31, 2002. The effect of adopting EITF 01-14
increased operating revenues and direct costs from previously reported amounts
by $15.1 million for the three months ended March 31, 2002. This
reclassification had no impact on net income.

9

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In November 2002 the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements, Including Guarantees of
Indebtedness of Others." FIN 45 requires that upon issuance of certain types of
guarantees, a guarantor recognize and account for the fair value of the
guarantee as a liability. FIN 45 contains exclusions to this requirement,
including the exclusion of a parent's guarantee of its subsidiaries' debt to a
third party. The initial recognition and measurement provisions of FIN 45 have
been applied on a prospective basis for guarantees issued or modified after
December 31, 2002. During the three months ended March 31, 2003, we issued new
standby letters of credit which serve as guarantees under the provisions of FIN
45. The application of the recognition and measurement provisions of FIN 45 to
these guarantees was insignificant. The disclosure requirements of FIN 45 are
effective for financial statements of both interim and annual periods ending
after December 15, 2002 and are included in Note 5.

In January 2003 the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," which addresses the consolidation
of variable interest entities (VIEs) by business enterprises that are the
primary beneficiaries. A VIE is an entity that does not have sufficient equity
investment at risk to permit it to finance its activities without additional
subordinated financial support, or whose equity investors lack the
characteristics of a controlling financial interest. The primary beneficiary of
a VIE is the enterprise that has the majority of the risks or rewards associated
with the VIE. The consolidation requirements of FIN 46 apply immediately to VIEs
created after January 31, 2003. For VIEs created at an earlier date, the
consolidation requirements apply in the first fiscal year or interim period
beginning after June 15, 2003. Certain disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the VIE
was established. Based on current information, Nabors believes it has no
material interests in VIEs that require disclosure or consolidation under FIN
46.

NOTE 3 LONG-TERM DEBT

On February 21, 2003, we issued a Notice of Redemption to the holders of
our 8.625% senior subordinated notes due April 2008, and on April 1, 2003 we
redeemed these notes 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 total 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. This loss will be recognized in the second
quarter of 2003. The outstanding principal amount on these notes of $42.4
million and the related accrued interest is classified in current liabilities in
our consolidated balance sheet as of March 31, 2003.

NOTE 4 INCOME TAXES

Our effective income (benefit) tax rate was (10%) during the three months
ended March 31, 2003 compared to 25% for the prior year period. This decrease
resulted primarily from tax savings realized as a result of our corporate
reorganization effective June 24, 2002. It is possible that the tax savings
recorded as a result of the corporate reorganization may not be realized,
depending on the final disposition of various legislative proposals being
considered by the U.S. Congress, and any responsive action taken by Nabors.

NOTE 5 COMMITMENTS AND CONTINGENCIES

LITIGATION

On May 23, 2002, Steve Rosenberg, an individual shareholder of Nabors,
filed a complaint against Nabors and its directors in the United States District
Court for the Southern District of Texas (Civil Action No. 02-1942), alleging
that Nabors' May 10, 2002 proxy statement/prospectus contained certain material
misstatements and omissions in violation of federal securities laws and state
law. Nabors' May 10, 2002 proxy statement/prospectus was sent to shareholders in
connection with the special meeting to consider and vote on Nabors' proposed
reorganization and effective reorganization in Bermuda. The AFL-CIO moved to
intervene
10

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in Civil Action No. 02-1942 and filed a complaint containing similar
allegations. On June 5, 2002, Marilyn Irey, an individual shareholder of Nabors,
filed a complaint in the United States District Court for the Southern District
of Texas (Civil Action No. 02-2108) that is nearly identical to Steve
Rosenberg's complaint. The three shareholders requested that the Court either
enjoin the closing of the shareholder vote on the scheduled date or the
effectuation of the reorganization. In addition, two of the shareholders (Steve
Rosenberg and Marilyn Irey) purported to bring a class action on behalf of all
shareholders, alleging that Nabors and its directors violated their state law
fiduciary duties by making these alleged misstatements and omissions. These two
shareholders, on behalf of their purported class, seek monetary damages for
their state law claims. Since the beginning of the litigation, two of the
shareholders (Steve Rosenberg and the AFL-CIO) amended their complaints, but did
not add any substantive allegations.

On June 13, 2002, the Court granted the AFL-CIO's motion to intervene. On
June 15, 2002, the Court denied a motion for temporary restraining order brought
by two of the shareholders (Steve Rosenberg and the AFL-CIO) in their attempts
to prevent the closing of Nabors' reorganization and its effective
reorganization in Bermuda. On July 2, 2002, the Court granted an agreed motion
to consolidate Civil Action No. 02-2108 into Civil Action No. 02-1942. Nabors
and its directors moved to dismiss the lawsuits of all three shareholders. On
March 18, 2003, the Court granted our motion and dismissed all claims with
prejudice. On April 14, 2003, Mr. Rosenberg filed an appeal of the United States
District Court's decision to the United States Fifth Circuit Court of Appeals.
The AFL-CIO and Ms. Irey did not appeal. Nabors and its directors believe that
the allegations in this lawsuit are without merit, and Nabors and its directors
will defend vigorously the claims brought against them. We are unable to predict
the outcome of this appeal or the costs to be incurred in connection with our
defense, and there can be no assurance that the appeal will be resolved in our
favor.

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

GUARANTEES

We enter into various agreements providing financial or performance
assurance to third parties. Certain of these agreements act as guarantees,
including standby letters of credit issued on behalf of insurance carriers in
conjunction with our workers' compensation insurance program and guarantees of
residual value in certain of our operating lease agreements. We have also
guaranteed payment of contingent consideration in conjunction with an
acquisition in 2002 which is based on future operating results of that business.
In addition, we have provided indemnifications to certain third parties which
serve as guarantees. These guarantees include indemnification provided by Nabors
to our stock transfer agent and our insurance carriers. We are not able to
estimate the potential future maximum payments that might be due under our
indemnification guarantees.

11

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Management believes that the likelihood that we would be required to
perform or otherwise incur any significant losses associated with any of these
guarantees is remote. The following table summarizes the total maximum amount of
financial and performance guarantees issued by Nabors:



MAXIMUM AMOUNT
--------------------------------------------------
REMAINDER
OF 2003 2004 2005 THEREAFTER TOTAL
--------- ------ ------ ---------- -------
(IN THOUSANDS)

Financial standby letters of credit... $34,306 $2,705 $ -- $ -- $37,011
Guarantee of residual value in lease
agreements.......................... 333 418 694 -- 1,445
Contingent consideration in
acquisition......................... 769 769 769 193 2,500
------- ------ ------ ---- -------
Total................................. $35,408 $3,892 $1,463 $193 $40,956
------- ------ ------ ---- -------


NOTE 6 EARNINGS PER SHARE

A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:



THREE MONTHS ENDED
MARCH 31,
---------------------
2003 2002
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Net income (numerator):
Net income -- basic....................................... $48,057 $41,942
Add interest expense on assumed conversion of our zero
coupon convertible senior debentures, net of tax:
$825 million due 2020(1)............................. 1,920 1,873
$1.381 billion due 2021(2)........................... -- --
------- -------
Adjusted net income -- diluted......................... $49,977 $43,815
------- -------
Earnings per share:
Basic.................................................. $ .33 $ .30
Diluted................................................ $ .31 $ .28
Shares (denominator):
Weighted average number of shares outstanding-basic(3).... 145,708 140,970
Net effect of dilutive stock options and warrants based on
the treasury stock method.............................. 6,589 5,691
Assumed conversion of our zero coupon convertible senior
debentures:
$825 million due 2020(1)............................. 8,107 8,107
$1.381 billion due 2021(2)........................... -- --
------- -------
Weighted average number of shares outstanding-diluted....... 160,404 154,768
------- -------


- ---------------

(1) Diluted earnings per share for the three months ended March 31, 2003 and
2002 reflects the assumed conversion of our $825 million zero coupon
convertible senior debentures due 2020, as the conversion in those periods
would have been dilutive. The assumed conversion of these debentures would
have been anti-dilutive and therefore not included in the calculation of the
weighed average number of shares

12

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding-diluted had diluted earnings per share been at or below $.24 for
the three months ended March 31, 2003 and 2002.

(2) Diluted earnings per share for the three months ended March 31, 2003 and
2002 excludes 8.5 million potentially dilutive shares issuable upon the
conversion of our $1.381 billion zero coupon convertible senior debentures
due 2021 because the inclusion of such shares would have been anti-dilutive,
given the level of net income for those quarters. Net income for the three
months ended March 31, 2003 and 2002 also excludes the related add-back of
interest expense for these debentures. These shares would have been dilutive
and therefore included in the calculation of the weighted average number of
shares outstanding-diluted had diluted earnings per share been at or above
$.35 for the three months ended March 31, 2003 and 2002.

(3) Includes the weighted average number of common shares of Nabors and the
weighted average number of exchangeable shares of Nabors Exchangeco.

NOTE 7 SUPPLEMENTAL INCOME STATEMENT INFORMATION

Other income includes the following:



THREE MONTHS ENDED
MARCH 31,
-------------------
2003 2002
-------- --------
(IN THOUSANDS)

(Losses) gains on marketable securities, net................ $ (469) $ 2,474
Gains (losses) on long-term assets, net..................... 2,440 (106)
Foreign currency transaction losses......................... (181) (47)
Corporate reorganization expense............................ -- (2,042)
Loss on derivative instruments.............................. (1,084) --
Other....................................................... (682) 218
------- -------
$ 24 $ 497
------- -------


13

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 SEGMENT INFORMATION

The following table sets forth financial information with respect to our
reportable segments:



THREE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
---------- ----------
(IN THOUSANDS)

Reportable segments:
Operating revenues and Earnings from unconsolidated
affiliates:
Contract drilling(1)................................... $ 414,009 $ 358,433
Manufacturing and logistics(2)......................... 55,189 40,042
Other(3)............................................... (13,458) (11,638)
---------- ----------
Total............................................. $ 455,740 $ 386,837
---------- ----------
Adjusted income derived from operating activities:(4)
Contract drilling(1)................................... $ 60,768 $ 60,837
Manufacturing and logistics(2)......................... 5,637 9,530
Other(5)............................................... (10,396) (9,310)
---------- ----------
Total............................................. $ 56,009 $ 61,057
Interest expense.......................................... (20,070) (14,615)
Interest income........................................... 7,693 9,251
Other income.............................................. 24 497
---------- ----------
Income before income taxes........................ $ 43,656 $ 56,190
---------- ----------




MARCH 31, DECEMBER 31,
2003 2002
---------- ------------

Total assets:
Contract drilling(6)...................................... $3,449,293 $3,266,292
Manufacturing and logistics(7)............................ 326,725 343,365
Other(5).................................................. 1,418,834 1,454,215
---------- ----------
Total.................................................. $5,194,852 $5,063,872
---------- ----------


- ---------------

(1) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $.9 million and $1.1 million for the three months ended
March 31, 2003 and 2002, respectively.

(2) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $5.0 million and $4.5 million for the three months ended
March 31, 2003 and 2002, respectively.

(3) Includes the elimination of inter-segment manufacturing and logistics sales.

(4) Adjusted income derived from operating activities is computed by:
subtracting direct costs, general and administrative expenses, and
depreciation and amortization expense from Operating revenues and then
adding Earnings from unconsolidated affiliates. Such amounts should not be
used as a substitute to those amounts reported under GAAP. However,
management evaluates the performance of our business units and the
consolidated company based on several criteria, including adjusted income
derived from operating activities, because it believes that this financial
measure is an accurate reflection of the ongoing profitability of our
company. A reconciliation of this non-GAAP measure to consolidated income
before income taxes, which is a GAAP measure, is provided herein.

14

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) Includes the elimination of inter-segment transactions and unallocated
corporate expenses, assets and capital expenditures.

(6) Includes $24.7 million and $25.3 million of investments in unconsolidated
affiliates, accounted for by the equity method, as of March 31, 2003 and
December 31, 2002, respectively.

(7) Includes $38.3 million and $33.3 million of investments in unconsolidated
affiliates, accounted for by the equity method, as of March 31, 2003 and
December 31, 2002, respectively.

NOTE 9 CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Nabors has fully and unconditionally guaranteed all of the issued public
debt securities of Nabors Industries, Inc. (Nabors Delaware), and Nabors and
Nabors Delaware have fully and unconditionally guaranteed the $225 million
4.875% senior notes due 2009 issued by Nabors Holdings 1, ULC in August 2002.

The following condensed consolidating financial information is included so
that separate financial statements of Nabors Delaware and Nabors Holdings are
not required to be filed with the U.S. Securities and Exchange Commission. The
condensed consolidating financial statements present Nabors' and Nabors
Delaware's investments in their subsidiaries using the equity method of
accounting.

The following condensed consolidating financial information presents:
condensed consolidating balance sheets as of March 31, 2003 and December 31,
2002 and statements of income and cash flows for the three months ended March
31, 2003 and 2002 of (a) Nabors, Parent/Guarantor after June 24, 2002 and Non-
Parent/Non-Guarantor prior to June 24, 2002, (b) Nabors Delaware, issuer of
public debt securities guaranteed by Nabors and guarantor of the $225 million
4.875% senior notes due 2009 issued by Nabors Holdings, (c) Nabors Holdings,
issuer of the $225 million 4.875% senior notes due 2009, (d) the non-guarantor
subsidiaries, (e) consolidating adjustments necessary to consolidate Nabors and
its subsidiaries and (f) Nabors on a consolidated basis.

15

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEETS



MARCH 31, 2003
--------------------------------------------------------------------------------
NABORS OTHER
NABORS DELAWARE NABORS SUBSIDIARIES
(PARENT/ (ISSUER/ HOLDINGS (NON- CONSOLIDATING CONSOLIDATED
GUARANTOR) GUARANTOR) (ISSUER) GUARANTORS) ADJUSTMENTS TOTAL
---------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)

ASSETS
Current assets:
Cash and cash equivalents......... $ 25,263 $ 47 $ 5,265 $ 408,509 $ -- $ 439,084
Marketable securities............. 12,160 -- 21 365,378 -- 377,559
Accounts receivable, net.......... -- -- -- 351,507 -- 351,507
Inventory and supplies............ -- -- -- 20,680 -- 20,680
Prepaid expenses and other current
assets.......................... 1 2,125 -- 197,795 -- 199,921
---------- ---------- -------- ---------- ----------- ----------
Total current assets....... 37,424 2,172 5,286 1,343,869 -- 1,388,751
Marketable securities............... 17,490 -- -- 451,101 -- 468,591
Property, plant and equipment,
net............................... -- -- -- 2,837,073 -- 2,837,073
Goodwill, net....................... -- -- -- 316,851 -- 316,851
Intercompany receivables............ 2,077,838 2,171,974 -- -- (4,249,812) --
Investments in affiliates........... 114,368 1,830,799 228,327 2,161,562 (4,272,060) 62,996
Other long-term assets.............. -- 18,981 1,299 100,310 -- 120,590
---------- ---------- -------- ---------- ----------- ----------
Total assets............... $2,247,120 $4,023,926 $234,912 $7,210,766 $(8,521,872) $5,194,852
---------- ---------- -------- ---------- ----------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt............................ $ -- $ 492,173 $ -- $ 45,818 $ -- $ 537,991
Trade accounts payable............ 7 23 7 113,351 -- 113,388
Accrued liabilities............... 343 11,696 1,403 167,383 -- 180,825
Income taxes payable.............. 1,400 (189) -- 13,231 -- 14,442
---------- ---------- -------- ---------- ----------- ----------
Total current
liabilities.............. 1,750 503,703 1,410 339,783 -- 846,646
Long-term debt...................... -- 1,348,465 223,300 3,314 -- 1,575,079
Other long-term liabilities......... -- 4,846 -- 121,609 -- 126,455
Deferred income taxes............... (2,342) 69,310 (2,646) 334,703 -- 399,025
Intercompany payable................ 65 -- 5,041 4,244,706 (4,249,812) --
---------- ---------- -------- ---------- ----------- ----------
Total liabilities.......... (527) 1,926,324 227,105 5,044,115 (4,249,812) 2,947,205
---------- ---------- -------- ---------- ----------- ----------
Shareholders' equity................ 2,247,647 2,097,602 7,807 2,166,651 (4,272,060) 2,247,647
---------- ---------- -------- ---------- ----------- ----------
Total liabilities and
shareholders' equity..... $2,247,120 $4,023,926 $234,912 $7,210,766 $(8,521,872) $5,194,852
---------- ---------- -------- ---------- ----------- ----------


16

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



DECEMBER 31, 2002
--------------------------------------------------------------------------------
NABORS OTHER
NABORS DELAWARE NABORS SUBSIDIARIES
(PARENT/ (ISSUER/ HOLDINGS (NON- CONSOLIDATING CONSOLIDATED
GUARANTOR) GUARANTOR) (ISSUER) GUARANTORS) ADJUSTMENTS TOTAL
---------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)

ASSETS
Current assets:
Cash and cash equivalents.......... $ 40,127 $ 38 $ 207 $ 373,679 $ -- $ 414,051
Marketable securities.............. 5,721 -- 21 451,858 -- 457,600
Accounts receivable, net........... -- -- -- 277,735 -- 277,735
Inventory and supplies............. -- -- -- 20,524 -- 20,524
Prepaid expenses and other current
assets........................... -- 2,607 -- 197,391 -- 199,998
---------- ---------- -------- ---------- ----------- ----------
Total current assets........ 45,848 2,645 228 1,321,187 -- 1,369,908
Marketable securities................ 19,378 -- -- 439,770 -- 459,148
Property, plant and equipment, net... -- -- -- 2,781,050 -- 2,781,050
Goodwill, net........................ -- -- -- 306,762 -- 306,762
Intercompany receivables............. 2,009,672 2,158,524 140 -- (4,168,336) --
Investments in affiliates............ 84,887 1,773,633 221,484 2,092,224 (4,113,589) 58,639
Other long-term assets............... -- 20,150 1,220 66,995 -- 88,365
---------- ---------- -------- ---------- ----------- ----------
Total assets................ $2,159,785 $3,954,952 $223,072 $7,007,988 $(8,281,925) $5,063,872
---------- ---------- -------- ---------- ----------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt............................. $ -- $ 489,126 $ -- $ 3,859 $ -- $ 492,985
Trade accounts payable............. 4 23 -- 89,678 -- 89,705
Accrued liabilities................ 217 10,168 3,930 138,549 -- 152,864
Income taxes payable............... 892 (189) -- 15,197 -- 15,900
---------- ---------- -------- ---------- ----------- ----------
Total current liabilities... 1,113 499,128 3,930 247,283 -- 751,454
Long-term debt....................... -- 1,343,686 223,234 47,736 -- 1,614,656
Other long-term liabilities.......... -- 3,763 -- 133,490 -- 137,253
Deferred income taxes................ 152 72,258 (1,560) 331,204 -- 402,054
Intercompany payable................. 65 -- -- 4,168,271 (4,168,336) --
---------- ---------- -------- ---------- ----------- ----------
Total liabilities........... 1,330 1,918,835 225,604 4,927,984 (4,168,336) 2,905,417
---------- ---------- -------- ---------- ----------- ----------
Shareholders' equity................. 2,158,455 2,036,117 (2,532) 2,080,004 (4,113,589) 2,158,455
---------- ---------- -------- ---------- ----------- ----------
Total liabilities and
shareholders' equity...... $2,159,785 $3,954,952 $223,072 $7,007,988 $(8,281,925) $5,063,872
---------- ---------- -------- ---------- ----------- ----------


17

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME



THREE MONTHS ENDED MARCH 31, 2003
--------------------------------------------------------------------------------
NABORS OTHER
NABORS DELAWARE NABORS SUBSIDIARIES
(PARENT/ (ISSUER/ HOLDINGS (NON- CONSOLIDATING CONSOLIDATED
GUARANTOR) GUARANTOR) (ISSUER) GUARANTORS) ADJUSTMENTS TOTAL
---------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)

Revenues and other income:
Operating revenues...... $ -- $ -- $ -- $449,837 $ -- $449,837
Earnings from
unconsolidated
affiliates........... -- -- -- 5,903 -- 5,903
(Loss) earnings from
consolidated
affiliates........... (6,717) 27,487 6,843 23,507 (51,120) --
Interest income......... 207 15 11 7,460 -- 7,693
Intercompany interest
income............... 50,789 13,779 -- -- (64,568) --
Other income (expense),
net.................. 4,992 (1,083) 15 (3,900) -- 24
------- ------- ------- -------- --------- --------
Total revenues and
other income....... 49,271 40,198 6,869 482,807 (115,688) 463,457
------- ------- ------- -------- --------- --------
Costs and other
deductions:
Direct costs............ -- -- -- 304,560 -- 304,560
General and
administrative
expenses............. 661 (172) 17 40,739 -- 41,245
Depreciation and
amortization......... -- -- -- 53,926 -- 53,926
Interest expense........ -- 16,386 2,868 816 -- 20,070
Intercompany interest
expense.............. -- -- -- 64,568 (64,568) --
------- ------- ------- -------- --------- --------
Total costs and other
deductions......... 661 16,214 2,885 464,609 (64,568) 419,801
------- ------- ------- -------- --------- --------
Income before income
taxes................... 48,610 23,984 3,984 18,198 (51,120) 43,656
------- ------- ------- -------- --------- --------
Income tax expense
(benefit)............... 553 (1,296) (1,086) (2,572) -- (4,401)
------- ------- ------- -------- --------- --------
Net income................ $48,057 $25,280 $ 5,070 $ 20,770 $ (51,120) $ 48,057
------- ------- ------- -------- --------- --------


18

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



THREE MONTHS ENDED MARCH 31, 2002
--------------------------------------------------------------------------------
NABORS
(NON- NABORS OTHER
PARENT/ DELAWARE NABORS SUBSIDIARIES
NON- (ISSUER/ HOLDINGS (NON- CONSOLIDATING CONSOLIDATED
GUARANTOR) GUARANTOR) (ISSUER) GUARANTORS) ADJUSTMENTS TOTAL
---------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)

Revenues and other income:
Operating revenues....... $ -- $ -- $ -- $381,199 $ -- $381,199
Earnings from
unconsolidated
affiliates............ -- -- -- 5,638 -- 5,638
Earnings from
consolidated
affiliates............ -- 43,572 -- -- (43,572) --
Interest income.......... -- 20 -- 9,231 -- 9,251
Intercompany interest
income................ -- 13,948 -- -- (13,948) --
Other (expense) income,
net................... -- (2,413) -- 2,910 -- 497
----- ------- ----- -------- -------- --------
Total revenues and
other income........ -- 55,127 -- 398,978 (57,520) 396,585
----- ------- ----- -------- -------- --------
Costs and other deductions:
Direct costs............. -- -- -- 249,433 -- 249,433
General and
administrative
expenses.............. -- 143 -- 32,523 -- 32,666
Depreciation and
amortization.......... -- -- -- 43,681 -- 43,681
Interest expense......... -- 14,000 -- 615 -- 14,615
Intercompany interest
expense............... -- -- -- 13,948 (13,948) --
----- ------- ----- -------- -------- --------
Total costs and other
deductions.......... -- 14,143 -- 340,200 (13,948) 340,395
----- ------- ----- -------- -------- --------
Income before income
taxes.................... -- 40,984 -- 58,778 (43,572) 56,190
----- ------- ----- -------- -------- --------
Income tax (benefit)
expense.................. -- (958) -- 15,206 -- 14,248
----- ------- ----- -------- -------- --------
Net income................. $ -- $41,942 $ -- $ 43,572 $(43,572) $ 41,942
----- ------- ----- -------- -------- --------


19

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



THREE MONTHS ENDED MARCH 31, 2003
--------------------------------------------------------------------------------
NABORS OTHER
NABORS DELAWARE NABORS SUBSIDIARIES
(PARENT/ (ISSUER/ HOLDINGS (NON- CONSOLIDATING CONSOLIDATED
GUARANTOR) GUARANTOR) (ISSUER) GUARANTORS) ADJUSTMENTS TOTAL
---------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)

Net cash (used for) provided by
operating activities........... $(15,250) $ 5,437 $ -- $ 45,945 $(10,099) $ 26,033
-------- ------- ------ --------- -------- ---------
Cash flows from investing
activities:
Purchase of marketable
securities, available-for-
sale........................ (15,714) -- -- (197,302) -- (213,016)
Sales of marketable securities,
available-for- sale......... 11,168 -- -- 268,086 -- 279,254
Cash paid for investments in
consolidated affiliates..... -- (5,271) -- (5,271) 10,542 --
Capital expenditures........... -- -- -- (81,966) -- (81,966)
Proceeds from sales of assets
and insurance claims........ -- -- -- 3,552 -- 3,552
-------- ------- ------ --------- -------- ---------
Net cash used for investing
activities..................... (4,546) (5,271) -- (12,901) 10,542 (12,176)
-------- ------- ------ --------- -------- ---------
Cash flows from financing
activities:
Increase in cash overdrafts.... -- -- -- 5,634 -- 5,634
Decrease in restricted cash.... -- -- -- 810 -- 810
Reduction of long-term debt.... -- -- -- (1,183) -- (1,183)
Debt issuance costs............ -- (157) (213) -- -- (370)
Proceeds from issuance of
common shares............... 4,932 -- -- -- -- 4,932
Proceeds from parent
contributions............... -- -- 5,271 5,271 (10,542) --
Dividends paid................. -- -- -- (10,099) 10,099 --
-------- ------- ------ --------- -------- ---------
Net cash provided by (used for)
financing activities........... 4,932 (157) 5,058 433 (443) 9,823
-------- ------- ------ --------- -------- ---------
Effect of exchange rate changes
on cash and cash equivalents... -- -- -- 1,353 -- 1,353
-------- ------- ------ --------- -------- ---------
Net increase (decrease) in cash
and cash equivalents........... (14,864) 9 5,058 34,830 -- 25,033
Cash and cash equivalents,
beginning of period............ 40,127 38 207 373,679 -- 414,051
-------- ------- ------ --------- -------- ---------
Cash and cash equivalents, end of
period......................... $ 25,263 $ 47 $5,265 $ 408,509 $ -- $ 439,084
-------- ------- ------ --------- -------- ---------


20

NABORS INDUSTRIES LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



THREE MONTHS ENDED MARCH 31, 2002
------------------------------------------------------------------------------------
NABORS OTHER
NABORS DELAWARE NABORS SUBSIDIARIES
(NON-PARENT/ (ISSUER/ HOLDINGS (NON- CONSOLIDATING CONSOLIDATED
NON-GUARANTOR) GUARANTOR) (ISSUER) GUARANTORS) ADJUSTMENTS TOTAL
-------------- ---------- -------- ------------ ------------- ------------
(IN THOUSANDS)

Net cash provided by
operating activities....... $ -- $ 41 $ -- $ 103,322 $ -- $ 103,363
----- ------- ----- --------- ----- ---------
Cash flows from investing
activities:
Purchase of marketable
securities,
available-for-sale...... -- -- -- (50,569) -- (50,569)
Sales of marketable
securities,
available-for-sale...... -- -- -- 72,271 -- 72,271
Cash paid for acquisitions
of businesses, net...... -- -- -- (52,181) -- (52,181)
Capital expenditures....... -- -- -- (100,938) -- (100,938)
Proceeds from sales of
assets and insurance
claims.................. -- -- -- 982 -- 982
----- ------- ----- --------- ----- ---------
Net cash used for investing
activities................. -- -- -- (130,435) -- (130,435)
----- ------- ----- --------- ----- ---------
Cash flows from financing
activities:
Decrease in restricted
cash.................... -- -- -- 165 -- 165
Reduction of long-term
debt.................... -- (5,048) -- (3,172) -- (8,220)
Proceeds from issuance of
common shares........... -- 2,806 -- -- -- 2,806
----- ------- ----- --------- ----- ---------
Net cash used for financing
activities................. -- (2,242) -- (3,007) -- (5,249)
----- ------- ----- --------- ----- ---------
Effect of exchange rate
changes on cash and cash
equivalents................ -- -- -- 481 -- 481
----- ------- ----- --------- ----- ---------
Net decrease in cash and cash
equivalents................ -- (2,201) -- (29,639) -- (31,840)
Cash and cash equivalents,
beginning of period........ -- 2,201 -- 196,242 -- 198,443
----- ------- ----- --------- ----- ---------
Cash and cash equivalents,
end of period.............. $ -- $ -- $ -- $ 166,603 $ -- $ 166,603
----- ------- ----- --------- ----- ---------


21


REPORT OF INDEPENDENT ACCOUNTANTS

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

We have reviewed the accompanying consolidated balance sheet of Nabors
Industries Ltd. and its subsidiaries as of March 31, 2003, and the related
consolidated statements of income, of cash flows and of changes in shareholders'
equity for the three-month periods ended March 31, 2003 and 2002. These interim
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America.

We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2002, and the related consolidated statements of income, of cash
flows and of changes in shareholders' equity for the year then ended (not
presented herein), and in our report dated January 29, 2003, except for Note 21,
as to which the date is March 18, 2003, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the accompanying
consolidated balance sheet information as of December 31, 2002, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.

/s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas
April 29, 2003

22


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

NATURE OF OPERATIONS

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 and Africa. Nabors also is one of the largest land
well-servicing and workover contractors in the United States and Canada. We own
over 900 land workover and well-servicing rigs in the United States, primarily
in the southwestern and western United States, and over 200 land workover and
well-servicing rigs in Canada. Nabors is a leading provider of offshore platform
workover and drilling rigs, and owns 43 platform, 16 jack-up and three barge
rigs in the Gulf of Mexico and international markets. These rigs provide
well-servicing, workover and drilling services. We have a 50% ownership interest
in a joint venture in Saudi Arabia, which owns 18 rigs.

To further supplement and complement our primary business, we offer a wide
range of ancillary well-site services, including oilfield management,
engineering, transportation, construction, maintenance, well logging,
directional drilling, rig instrumentation, data collection and other support
services, in selected domestic and international markets. Our land
transportation and hauling fleet includes 240 rig and oilfield equipment hauling
tractor-trailers and a number of cranes, loaders and light-duty vehicles. We
maintain over 290 fluid hauling trucks, approximately 700 fluid storage tanks,
eight saltwater disposal wells and other auxiliary equipment used in domestic
drilling, workover and well-servicing operations. In addition, we own a fleet of
30 marine transportation and supply vessels, primarily in the Gulf of Mexico,
which provide transportation of drilling materials, supplies and crews for
offshore operations. We manufacture and lease or sell top drives for a broad
range of drilling applications, directional drilling systems, rig
instrumentation and data collection equipment and rig reporting software.

Our overall business is conducted through two major segments: (1) Contract
Drilling and (2) Manufacturing and Logistics. Our Contract Drilling segment
includes our drilling, workover and well-servicing operations, on land and
offshore, and our Manufacturing and Logistics segment includes our marine
transportation and supply services, top drive manufacturing, directional
drilling, rig instrumentation and software, and construction and logistics
operations. A discussion of market trends and outlook for our industry and our
results of operations for the three months ended March 31, 2003 and 2002 are
included below. This discussion should be read in conjunction with our
accompanying consolidated financial statements and notes thereto and our Annual
Report on Form 10-K for the year ended December 31, 2002.

As used in this Report, "we", "us", "our" and "Nabors" means Nabors
Industries Ltd. and, where the context requires, includes our subsidiaries.
Nabors became the publicly traded parent company of the Nabors group of
companies, effective June 24, 2002, pursuant to the corporate reorganization
described in our Annual Report on Form 10-K for the year ended December 31,
2002.

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
Exchange 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 must 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.

23


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

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

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

- fluctuations in the demand for our services;

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

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

- the existence of regulatory and legislative uncertainties;

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

- general economic conditions.

Our businesses depend, to a large degree, on the level of spending by oil
and gas companies for exploration, development and production activities.
Therefore, a sustained increase or decrease in the price of natural gas or oil,
which could have a material impact on exploration and production activities,
could also materially affect our financial condition, 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
refer to our Annual Report on Form 10-K for the year ended December 31, 2002
filed with the Securities and Exchange Commission under Item I, Part VI, "Risk
Factors."

MARKET TRENDS AND OUTLOOK

The decline in the price of natural gas and oil over the period beginning
in the third quarter of 2001 and extending through the latter part of the first
quarter of 2002 resulted in a decline in drilling activity across all of our key
North American markets. Natural gas and oil prices began to recover in the first
quarter of 2002 as a result of falling natural gas production and storage
levels. However, a recovery in North American land drilling activity did not
materialize until the first quarter of 2003 and a recovery in North American
offshore drilling activity has yet to occur. This time lag in spending was
attributable to the need for significantly higher natural gas prices to offset
the increased cost and risk of finding and developing incremental gas production
along with the uncertainty that prices will sustain at such levels. Sufficiently
higher prices did not materialize until the fourth quarter of 2002 and there is
generally a two to three quarter lead time in implementing increased spending
following higher cash flow realizations by our customers.

The higher-than-anticipated pricing for natural gas and oil has continued
into 2003, and the continued fall in natural gas production and storage levels
resulting from lower drilling activity is increasing the likelihood that higher
average prices will be sustained over the intermediate term. We expect these
factors to result in an improvement in U.S. Lower 48 land drilling activity
during the remainder of 2003.

24


The following table sets forth certain industry data that are reflective of
historical market conditions:



THREE MONTHS
ENDED MARCH 31,
---------------
2003 2002 INCREASE (DECREASE)
------ ------ -------------------

Industry data:
Commodity prices:(1)
Average Henry Hub natural gas spot price
($/mcf)...................................... $ 6.38 $ 2.53 $ 3.85 152 %
Average West Texas intermediate crude oil spot
price ($/barrel)............................. $33.96 $21.58 $12.38 57 %
Rig count data:(2)
Average U.S. land rig count.................... 773 679 94 14 %
Average U.S. offshore rig count................ 108 121 (13) (11)%
Average Canadian land rig count................ 488 377 111 29 %
Average International land rig count........... 531 507 24 5 %


- ---------------

(1) Source: Bloomberg

(2) Source: Baker Hughes

RESULTS OF OPERATIONS

The following table sets forth certain information with respect to our
reportable segments and rig activity:



THREE MONTHS ENDED
MARCH 31,
-------------------
2003 2002 INCREASE (DECREASE)
-------- -------- --------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)

Operating revenues and Earnings from
unconsolidated affiliates:
Contract drilling:(1)
U.S. Land Drilling(2)...................... $127,656 $149,153 $(21,497) (14)%
U.S. Land Well-servicing................... 76,660 73,703 2,957 4 %
U.S. Offshore.............................. 21,714 27,472 (5,758) (21)%
Canada..................................... 100,788 28,017 72,771 260 %
International.............................. 87,191 80,088 7,103 9 %
-------- -------- --------
Subtotal contract drilling(3)............ 414,009 358,433 55,576 16 %
Manufacturing and logistics(4)(5)............. 55,189 40,042 15,147 38 %
Other(6)...................................... (13,458) (11,638) (1,820) (16)%
-------- -------- --------
Total...................................... $455,740 $386,837 $ 68,903 18 %
-------- -------- --------


25




THREE MONTHS ENDED
MARCH 31,
-------------------
2003 2002 INCREASE (DECREASE)
-------- -------- --------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)

Adjusted cash flows derived from operating
activities:(7)
Contract drilling:
U.S. Land Drilling......................... $ 32,213 $ 41,692 $ (9,479) (23)%
U.S. Land Well-servicing................... 15,145 14,539 606 4 %
U.S. Offshore.............................. 1,103 1,961 (858) (44)%
Canada..................................... 33,253 12,634 20,619 163 %
International.............................. 28,142 29,902 (1,760) (6)%
-------- -------- --------
Subtotal contract drilling............... 109,856 100,728 9,128 9 %
Manufacturing and logistics................... 10,867 13,709 (2,842) (21)%
Other(8)...................................... (10,788) (9,699) (1,089) (11)%
-------- -------- --------
Total...................................... $109,935 $104,738 $ 5,197 5 %
Depreciation and amortization................... (53,926) (43,681) (10,245) (23)%
-------- -------- --------
Adjusted income derived from operating
activities(9)................................. 56,009 61,057 (5,048) (8)%
Interest expense................................ (20,070) (14,615) (5,455) (37)%
Interest income................................. 7,693 9,251 (1,558) (17)%
Other income, net............................... 24 497 (473) (95)%
-------- -------- --------
Income before income taxes...................... $ 43,656 $ 56,190 $(12,534) (22)%
-------- -------- --------
Net cash provided by operating activities(7).... $ 26,033 $103,363 $(77,330) (75)%
-------- -------- --------
Rig years:(10)
U.S. Land Drilling............................ 117.6 119.0 (1.4) (1)%
U.S. Offshore................................. 13.4 14.9 (1.5) (10)%
Canada........................................ 58.8 27.0 31.8 118 %
International(11)............................. 57.1 52.3 4.8 9 %
-------- -------- --------
Total rig years............................ 246.9 213.2 33.7 16 %
-------- -------- --------
Rig hours:(12)
U.S. Land Well-servicing...................... 273,513 242,279 31,234 13 %
Canada Well-servicing(13)..................... 92,702 -- 92,702 --
-------- -------- --------
Total rig hours............................ 366,215 242,279 123,936 51 %
-------- -------- --------


- ---------------

(1) This segment includes our drilling, workover and well-servicing operations,
on land and offshore.

(2) U.S. Land Drilling is comprised of our Alaska and U.S. Lower 48 drilling
operating units.

(3) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $.9 million and $1.1 million for the three months ended
March 31, 2003 and 2002, respectively.

(4) This segment includes our marine transportation and supply services, top
drive manufacturing, directional drilling, rig instrumentation and
software, and construction and logistics operating units.

(5) Includes Earnings from unconsolidated affiliates, accounted for by the
equity method, of $5.0 million and $4.5 million for the three months ended
March 31, 2003 and 2002, respectively.

(6) Includes the elimination of inter-segment manufacturing and logistics
sales.

26


(7) Adjusted cash flows derived from operating activities is computed by:
subtracting direct costs and general and administrative expenses from
Operating revenues and then adding Earnings from unconsolidated affiliates.
Such amounts should not be used as a substitute to those amounts reported
under accounting principles generally accepted in the United States of
America (GAAP). However, management evaluates the performance of our
business units based on several criteria, including adjusted cash flows
derived from operating activities, because it believes that this financial
measure is an accurate reflection of the ongoing performance of our
business units. The following is a reconciliation of net cash provided by
operating activities from our consolidated statements of cash flows, which
is a GAAP measure, to this non-GAAP measure:



THREE MONTHS ENDED
MARCH 31,
-------------------
2003 2002
-------- --------
(IN THOUSANDS)

Net cash provided by operating activities................... $ 26,033 $103,363
-------- --------
Interest expense............................................ 20,070 14,615
Interest income............................................. (7,693) (9,251)
Other income................................................ (24) (497)
Current income tax expense.................................. 4,060 4,443
Deferred financing costs amortization....................... (1,397) (1,098)
Discount amortization on long-term debt..................... (7,908) (7,597)
Amortization of loss on cash flow hedges.................... (37) --
Gains (losses) on long-term assets, net..................... 2,440 (106)
(Losses) gains on marketable securities..................... (469) 2,474
Loss on derivative instruments.............................. (1,084) --
Foreign currency transaction losses......................... (181) (47)
Loss on early extinguishment of debt........................ -- (202)
Equity in earnings of unconsolidated affiliates, net of
dividends................................................. 5,903 3,439
Decrease (increase), net of effects from acquisitions, from
changes in balance sheet accounts......................... 70,222 (4,798)
-------- --------
Adjusted cash flow derived from operating activities........ $109,935 $104,738
-------- --------


(8) Includes the elimination of inter-segment transactions and unallocated
corporate expenses.

(9) Adjusted income derived from operating activities is computed by:
subtracting direct costs, general and administrative expenses, and
depreciation and amortization expense from Operating revenues and then
adding Earnings from unconsolidated affiliates. Such amounts should not be
used as a substitute to those amounts reported under GAAP. However,
management evaluates the performance of our business units and the
consolidated company based on several criteria, including adjusted income
derived from operating activities, because it believes that this financial
measure is an accurate reflection of the ongoing profitability of our
company. A reconciliation of this non-GAAP measure to consolidated income
before income taxes, which is a GAAP measure, is provided herein.

(10) Excludes well-servicing rigs. Includes our percentage ownership of rigs
from unconsolidated affiliates. Rig years represents a measure of the
number of equivalent rigs operating during a given period. For example, one
rig operating 182.5 days during a 365-day period represents 0.5 rig years.

(11) International rig years include our percentage ownership of rigs from
unconsolidated affiliates which totaled 3.0 years and 2.5 years during the
three months ended March 31, 2003 and 2002, respectively.

(12) Rig hours represents the number of hours that our well-servicing rig fleet
operated during the period.

(13) The Canada well-servicing operation was acquired during April 2002 as part
of our acquisition of Enserco Energy Service Company Inc.

27


THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31,
2002

Operating revenues and Earnings from unconsolidated affiliates for the
three months ended March 31, 2003 totaled $455.7 million, representing an
increase of $68.9 million, or 18%, as compared to the prior year period. Current
quarter adjusted cash flows derived from operating activities, adjusted income
derived from operating activities and net income totaled $109.9 million, $56.0
million and $48.1 million ($.31 per diluted share), respectively, representing
increases (decreases) of 5%, (8%) and 15% compared to the prior year period.

The increase in our Operating revenues and Earnings from unconsolidated
affiliates and adjusted cash flows derived from operating activities during the
current three-month period as compared to the prior year period primarily
resulted from higher revenues realized by our Canadian operations. This increase
was only partially offset by a decline in operating results for our U.S. Land
Drilling business. The improvement in results from our Canadian operations
resulted from a significant increase in drilling activity primarily from 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.
Additionally, the level of drilling activity for our Canadian land drilling
business increased during the current quarter as a result of higher average
price levels for natural gas. The decline in results for our U.S. Land Drilling
business resulted from lower average dayrates in the current quarter resulting
from the weakness in this market over the period beginning in the second quarter
of 2001 and extending through the end of 2002. Our results for the current
quarter were also positively impacted by business interruption insurance
proceeds received related to damage incurred on one of our land drilling rigs in
Alaska during 2001 (see discussion below). The decrease in adjusted income
derived from operating activities is attributable to a 23% increase in
depreciation and amortization expense in the current quarter compared to the
prior year quarter as a result of the acquisitions of Ryan Energy Technologies,
Inc. and Enserco as well as other capital expenditures during 2002.

Natural gas prices are the primary driver of our U.S. Lower 48 land,
Canadian land and U.S. Offshore (Gulf of Mexico) operations while oil prices are
the primary driver of our Alaskan, International and U.S. Well-servicing
operations. Natural gas and oil prices began increasing in the latter part of
the first quarter of 2002, and averaged $6.38 per million cubic feet (mcf) and
$33.96 per barrel, respectively, during the current year quarter, as compared to
$2.53 per mcf and $21.58 per barrel for the prior year period.

Our operating results for the second quarter of 2003 are expected to
decrease from levels realized during the current quarter primarily as a result
of an expected seasonal decline in activity for our Canadian and, to a lesser
extent, our Alaskan operations. Canadian drilling activity is subject to
substantial levels of seasonality, as activity levels typically peak in the
first quarter, decline substantially in the second quarter, and then generally
increase over the last half of the year. As a result of our recent acquisitions
in Canada, this seasonality is having a more significant impact on our overall
results for the first time as our Canadian operations represent a larger portion
of our overall operations. Our operating results for the second quarter of 2003
will also decline as compared to our operating results for the current quarter
as a result of the seasonal decline in Alaska and the impact of the business
interruption insurance recorded by this unit in the current quarter, which will
not recur. We expect to see a continued improvement in activity for our U.S.
Land Drilling operations during the second quarter and the remainder of 2003. We
also expect a recovery in our U.S. Offshore (Gulf of Mexico) operations during
2003 but at this time are uncertain as to the timing of this recovery. Results
for the remainder of 2003 should also be positively impacted by the addition of
new contracts in our International business.

Contract drilling. The business units that comprise this segment contain
one or more of the following operations: drilling, workover and well-servicing,
on land and offshore. For the three months ended March 31, 2003, Operating
revenues and Earnings from unconsolidated affiliates for the contract drilling
segment totaled $414.0 million and adjusted cash flow derived from operating
activities totaled $109.9 million, representing increases of 16% and 9%,
respectively, compared to the prior year quarter. Rig years (excluding
well-servicing rigs) increased to 246.9 years during the first quarter of 2003
from 213.2 years during the prior year quarter.

28


U.S. Land Drilling Operating revenues, and adjusted cash flow derived from
operating activities totaled $127.7 million and $32.2 million, respectively,
representing decreases of 14% and 23%, respectively, compared to the prior year
quarter. As discussed above, these decreases resulted from lower average
dayrates in the current quarter resulting from the weakness in this market over
the period beginning in the second quarter of 2001 and extending through the end
of 2002. Drilling activity for our U.S. Land Drilling operations was essentially
flat on a period-over-period basis decreasing slightly to 117.6 years during the
current quarter from 119.0 years in the prior year quarter. Our U.S. Land
Drilling unit's operating results for the three months ended March 31, 2003 also
include an incremental $5.7 million, representing business interruption
insurance proceeds related to damage incurred on one of our land drilling rigs
in Alaska during 2001. We also recorded a $1.9 million gain as a result of a
casualty insurance settlement in excess of the carrying value of the damaged
portion of this rig, which is included in other income in our consolidated
statement of income for the three months ended March 31, 2003.

U.S. Land Well-servicing Operating revenues, and adjusted cash flow derived
from operating activities totaled $76.7 million and $15.1 million, respectively,
representing increases of 4% compared to the prior year quarter. The improved
results for the current quarter resulted from an increase in well-servicing
activity driven by improved levels of capital spending by our customers in the
first quarter of 2003. The higher capital spending resulted from the improvement
in oil prices which began in 2002 and was sustained during the first quarter of
2003. U.S. Land Well-servicing hours increased to 273,513 hours during the
current quarter from 242,279 hours during the prior year quarter. The increase
in well-servicing results was partially offset by lower activity from other
services, including our hyper-cleaning, foam air injection, coil tubing,
cementing, plugging and abandonment, and labor contract services.

U.S. Offshore Operating revenues, and adjusted cash flow derived from
operating activities totaled $21.7 million and $1.1 million, respectively,
representing decreases of 21% and 44%, respectively, compared to the prior year
quarter. These decreases resulted from lower rig years and lower average
dayrates. This negative trend is a result of the decline in natural gas prices
over the period beginning in the third quarter of 2001 and extending through the
latter part of the first quarter of 2002. As discussed above, natural gas prices
increased throughout the remainder of 2002, however, these higher price levels
have not yet resulted in a recovery of U.S. offshore drilling activity. Offshore
rig years decreased to 13.4 years during the current quarter from 14.9 years
during the prior year quarter.

Canadian Operating revenues, and adjusted cash flow derived from operating
activities totaled $100.8 million and $33.3 million, respectively, representing
substantial increases of 260% and 163%, respectively, compared to the prior year
quarter. As discussed above, these increases reflect an increase in both
well-servicing revenues and drilling revenues which resulted from the
acquisition of Enserco in April 2002 and an overall increase in Canadian
drilling activity. Rig years in Canada increased substantially to 58.8 years
during the current quarter from 27.0 years during the prior year quarter.
Canadian Well-servicing hours totaled 92,702 hours for the three months ended
March 31, 2003 compared to none for the prior year quarter as our Canadian
Well-servicing operations were acquired as part of the acquisition of Enserco in
April 2002.

International Operating revenues and Earnings from unconsolidated
affiliates totaled $87.2 million representing an increase of 9% compared to the
prior year quarter, and adjusted cash flow derived from operating activities
totaled $28.1 million representing a decrease of 6% compared to the prior year
quarter. The increase in revenues and Earnings from unconsolidated affiliates
resulted from new contracts for our operation in Mexico. This increase in
revenues from our Mexico operations did not fully offset declines in operating
results for certain of our other International operations, resulting in a
decrease in Adjusted cash flow derived from operating activities for our
International business. This decline in operating results was primarily related
to our operations in South America, primarily in Ecuador, Brazil and Trinidad.
International rig years increased to 57.1 years during the current quarter from
52.3 years during the prior year quarter.

Manufacturing and logistics. This segment includes our marine
transportation and supply services, drilling technology and top drive
manufacturing, directional drilling, rig instrumentation and software, and
construction and transportation operations. Manufacturing and logistics
Operating revenues and Earnings from unconsolidated affiliates were $55.2
million during the current quarter, representing an increase of 38%

29


compared with the prior year quarter. Adjusted cash flow derived from operating
activities for this segment decreased to $10.9 million compared to $13.7
million, representing a decrease of 21% compared to the prior year quarter. The
increase in revenues for this segment primarily resulted from the acquisition of
Ryan during the fourth quarter of 2002. While Ryan's results have been additive
to our revenues, losses realized from this new business in addition to decreased
results from our marine transportation operations have resulted in lower
profitability for this segment as compared to the prior year quarter.

Other Financial Information. Our gross margin percentage decreased to
32.3% in the current quarter from 34.6% in the prior year quarter. This
percentage is calculated by dividing gross margin by operating revenues. Gross
margin is calculated by subtracting direct costs from operating revenues. The
decrease in our gross margin percentage during the three months ended March 31,
2003 primarily resulted from lower average dayrates in our U.S. Lower 48 land
drilling operations and lower average margins for our Canadian operations. The
decrease in margins for our Canadian operations reflects the addition of
well-servicing operations in Canada in April 2002 which tend to have lower
margins than drilling operations. The substantial increase in Canadian revenues
in the current quarter compared to the prior year quarter discussed above
resulted in this decrease in Canadian margins having a larger impact on our
overall gross margin percentage.

General and administrative expenses increased by $8.6 million, or 26%, in
the current quarter compared to the prior year quarter resulting from increases
related to our recent Canadian acquisitions partially offset by decreased rig
activity in our U.S. Offshore operations. As a percentage of operating revenues,
general and administrative expenses increased during the current quarter (9.2%
vs. 8.6%).

Depreciation and amortization expense increased by $10.2 million, or 23%,
in the current quarter compared to the prior year quarter. Depreciation and
amortization expense increased as a result of the acquisitions of Ryan and
Enserco as well as other capital expenditures during 2002.

Interest expense increased by $5.5 million, or 37%, in the current quarter
compared to the prior year quarter primarily as a result of higher average
outstanding debt balances, resulting from the August 2002 issuance of our $225
million aggregate principal amount of 4.875% senior notes due 2009 and $275
million aggregate principal amount of 5.375% senior notes due 2012, which added
$2.9 million and $2.3 million, respectively, to interest expense for the three
months ended March 31, 2003. Interest income decreased by $1.6 million, or 17%,
in the current quarter reflecting lower average yields on investments resulting
from the overall declining interest rate environment partially offset by higher
cash and marketable securities balances.

Other income decreased by $.5 million, or 95%, in the current quarter
compared to the prior year quarter. Other income for the three months ended
March 31, 2003 includes $2.4 million in gains on long-term assets primarily
resulting from the $1.9 million gain on the casualty insurance settlement in our
Alaskan operations offset by a mark-to-market loss of approximately $1.1 million
recorded on our range cap and floor derivative instrument and a net loss on
marketable securities of approximately $.5 million. Other income for the three
months ended March 31, 2002 includes a net gain on marketable securities of
approximately $2.5 million partially offset by the recognition of approximately
$2.0 million in corporate reorganization expense.

Our effective income (benefit) tax rate was (10%) during the three months
ended March 31, 2003 compared to 25% for the prior year period. This decrease
resulted primarily from tax savings resulting from our corporate reorganization
effective June 24, 2002. It is possible that the tax savings recorded as a
result of the corporate reorganization may not be realized, depending on the
final disposition of various legislative proposals being considered by the U.S.
Congress, and any responsive action taken by Nabors.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

Operating Activities. Net cash provided by operating activities totaled
$26.0 million during the three months ended March 31, 2003, compared to net cash
provided by operating activities totaling $103.4 million during the prior year
period. This decrease is primarily due to cash used for the increase in our
working capital accounts as compared to the prior year when the decrease in our
working capital accounts provided cash. This decrease was only partially offset
by the increase in our net income during the current quarter compared to the
30


prior year quarter. During the three months ended March 31, 2003, net income was
increased for non-cash items such as depreciation and amortization expense and
was reduced for our deferred income tax benefit and Earnings from unconsolidated
affiliates. During the three months ended March 31, 2002, net income was
increased for non-cash items such as depreciation and amortization expense and
deferred income tax expense and was reduced for gains on marketable securities
and Earnings from unconsolidated affiliates.

Investing Activities. Net cash used for investing activities totaled $12.2
million during the three months ended March 31, 2003, compared to $130.4 million
used during the prior year period. During the current period, cash was primarily
provided by sales, net of purchases, of marketable securities and was used
primarily for capital expenditures. During the prior year period, cash was
primarily used for capital expenditures, the acquisition of 20.5% of the issued
and outstanding shares of Enserco and purchases, net of sales, of marketable
securities.

Financing Activities. Financing activities provided cash totaling $9.8
million during the three months ended March 31, 2003 compared to cash used for
financing activities of $5.2 million during the prior year period. During the
current period, cash was primarily provided by an increase in cash overdrafts
and our receipt of proceeds from the exercise of options to acquire 282,000 of
our common shares, partially offset by cash used for the reduction of long-term
debt. During the prior year period, cash was primarily used for the reduction of
long-term debt, partially offset by cash provided by our receipt of proceeds
from the exercise of options to acquire 186,000 shares of Nabors Industries,
Inc. common stock.

FUTURE CASH REQUIREMENTS

As of March 31, 2003, we had long-term debt, including current maturities,
of $2.11 billion and cash and cash equivalents and investments in marketable
securities of $1.29 billion.

Our $825 million zero coupon convertible senior debentures due 2020 can be
put back to us on June 20, 2003 for a purchase price equal to the issue price
plus accrued original issue discount. Based on the ability of the debenture
holders to exercise their put option on June 20, 2003, the outstanding principal
amount on these debentures of $492.2 million is classified in current
liabilities in our consolidated balance sheet as of March 31, 2003.

On February 21, 2003, we issued a Notice of Redemption to the holders of
our 8.625% senior subordinated notes due April 2008, and on April 1, 2003 we
redeemed these notes 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 total 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, which will be recorded in the second quarter of
2003. The outstanding principal amount on these notes of $42.4 million is
classified in current liabilities in our consolidated balance sheet as of March
31, 2003. Additionally, our 6.8% senior notes are due April 15, 2004 for an
aggregate principal amount of $295.3 million.

As of March 31, 2003, we had outstanding capital expenditure purchase
commitments of approximately $18.7 million, primarily for rig-related enhancing
and sustaining capital expenditures. We have historically completed a number of
acquisitions during down markets and will continue to evaluate opportunities to
acquire assets or businesses to enhance our operations. Several of our previous
acquisitions were funded through issuances of our common stock. Future
acquisitions may be paid for using existing cash or issuance of debt or Nabors
stock. Such capital expenditures and acquisitions are at our discretion and will
depend on our view of market conditions and other factors.

GUARANTEES

We enter into various agreements providing financial or performance
assurance to third parties. Certain of these agreements act as guarantees,
including standby letters of credit issued on behalf of insurance carriers in
conjunction with our workers' compensation insurance program and guarantees of
residual value in certain of our operating lease agreements. We have also
guaranteed payment of contingent consideration in conjunction

31


with an acquisition in 2002 which is based on future operating results of that
business. In addition, we have provided indemnifications to certain third
parties which serve as guarantees. These guarantees include indemnification
provided by Nabors to our stock transfer agent and our insurance carriers. We
are not able to estimate the potential future maximum payments that might be due
under our indemnification guarantees.

Management believes that the likelihood that we would be required to
perform or otherwise incur any significant losses associated with any of these
guarantees is remote. The following table summarizes the total maximum amount of
financial and performance guarantees issued by Nabors:



MAXIMUM AMOUNT
--------------------------------------------------
REMAINDER
OF 2003 2004 2005 THEREAFTER TOTAL
--------- ------ ------ ---------- -------
(IN THOUSANDS)

Financial standby letters of credit... $34,306 $2,705 $ -- $ -- $37,011
Guarantee of residual value in lease
agreements.......................... 333 418 694 -- 1,445
Contingent consideration in
acquisition......................... 769 769 769 193 2,500
------- ------ ------ ---- -------
Total................................. $35,408 $3,892 $1,463 $193 $40,956
------- ------ ------ ---- -------


FINANCIAL CONDITION AND SOURCES OF LIQUIDITY

As of March 31, 2003, we had cash and cash equivalents and investments in
marketable securities of $1.29 billion and working capital of $542.1 million.
This compares to cash and cash equivalents and investments in marketable
securities of $1.33 billion and working capital of $618.5 million as of December
31, 2002.

The decrease in cash and cash equivalents and investments in marketable
securities relates primarily to capital expenditures in excess of cash provided
by operating activities in the current quarter. The decrease in working capital
relates primarily to a decrease in cash and cash equivalents and short-term
marketable securities, the reclassification of $42.4 million principal amount of
our 8.625% senior subordinated notes due April 2008 to current liabilities as of
March 31, 2003, and an increase in accounts payable and accrued liabilities in
the current quarter. This decrease was partially offset by an increase in
accounts receivable balances resulting from higher revenues in March 2003 as
compared to December 2002.

Our funded debt to capital ratio was 0.48:1 as of March 31, 2003, compared
to 0.49:1 as of December 31, 2002. Our net funded debt to capital ratio was
0.27:1 as of March 31, 2003, compared to 0.26:1 as of December 31, 2002. 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) 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 ($1.29 billion as of
March 31, 2003, and $1.33 billion as of December 31, 2002) against funded debt.
This ratio is calculated by dividing net funded debt by net funded debt plus
capital. These ratios are methods for calculating the amount of leverage a
company has in relation to its capital.

We have two letter of credit facilities and a Canadian line of credit
facility with various banks as of March 31, 2003. Availability and borrowings
under our credit facilities as of March 31, 2003 are as follows:



(IN THOUSANDS)

Credit available............................................ $ 80,190
Letters of credit outstanding............................... (47,545)
--------
Remaining availability...................................... $ 32,645
--------


32


Additionally, we also have $5.5 million in letters of credit outstanding
under a letter of credit facility that expired on September 5, 2002. As these
letters of credit mature they will be reissued under existing letter of credit
facilities, as necessary.

We have a shelf registration statement on file with the Securities and
Exchange Commission to allow us to offer, from time to time, up to $700 million
in debt securities, guarantees of debt securities, preferred shares, depository
shares, common shares, share purchase contracts, share purchase units and
warrants. We currently have not issued any securities registered under this
registration statement.

Our current cash and cash equivalents, investments in marketable securities
and projected cash flow generated from current operations are expected to more
than adequately finance our sustaining capital expenditures and our debt service
requirements for the next twelve months, including the redemption of our 8.625%
senior subordinated notes due April 2008 on April 1, 2003 and the possible
redemption of our $825 million zero coupon convertible senior debentures due
2020 which can be put back to us on June 20, 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

We adopted Statement of Financial Accounting Standards (SFAS) No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections," effective April 1, 2002. Due to the nature
of our business, Financial Accounting Standards Board (FASB) Statements No. 44
and 64, and Amendment of FASB Statement No. 13 are not applicable. SFAS 145
eliminates SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt,"
and states that gains and losses from the extinguishment of debt should be
classified as extraordinary items only if they meet the criteria in Accounting
Principles Board (APB) Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." APB
30 defines extraordinary items as events and transactions that are distinguished
by their unusual nature and by the infrequency of their occurrence. Accordingly,
we no longer classify gains and losses from extinguishment of debt that are
usual and frequent as extraordinary items, and we reclassified to other income
all similar debt extinguishment items that had been reported as extraordinary
items in prior accounting periods. In conjunction with adopting SFAS 145 in
2002, we reclassified an extraordinary loss recorded during the three months
ended March 31, 2002 totaling $.13 million, net of taxes of $.08 million, to
other income with the related income tax component reclassified to income tax
expense. This reclassification had no impact on net income.

We adopted Emerging Issues Task Force (EITF) No. 01-14, "Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred," in the second quarter of 2002. Previously, we recognized
reimbursements received as a reduction to the related direct costs. EITF 01-14
requires that reimbursements received be included in operating revenues and
"out-of-pocket" expenses be included in direct costs. Accordingly,
reimbursements received from our customers have been reclassified to revenues
for the three months ended March 31, 2002. The effect of adopting EITF 01-14
increased operating revenues and direct costs from previously reported amounts
by $15.1 million for the three months ended March 31, 2002. This
reclassification had no impact on net income.

In November 2002 the FASB issued Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements, Including Guarantees of
Indebtedness of Others." FIN 45 requires that upon issuance of certain types of
guarantees, a guarantor recognize and account for the fair value of the
guarantee as a liability. FIN 45 contains exclusions to this requirement,
including the exclusion of a parent's guarantee of its subsidiaries' debt to a
third party. The initial recognition and measurement provisions of FIN 45 have
been applied on a prospective basis for guarantees issued or modified after
December 31, 2002. During the three months ended March 31, 2003, we issued new
standby letters of credit which serve as guarantees under the provisions of FIN
45. The application of the recognition and measurement provisions of FIN 45 to
these guarantees was insignificant. The disclosure requirements of FIN 45 are
effective for financial statements of both interim and annual periods ending
after December 15, 2002 and are included in Note 5 to our accompanying
consolidated financial statements.

33


In January 2003 the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," which addresses the consolidation
of variable interest entities (VIEs) by business enterprises that are the
primary beneficiaries. A VIE is an entity that does not have sufficient equity
investment at risk to permit it to finance its activities without additional
subordinated financial support, or whose equity investors lack the
characteristics of a controlling financial interest. The primary beneficiary of
a VIE is the enterprise that has the majority of the risks or rewards associated
with the VIE. The consolidation requirements of FIN 46 apply immediately to VIEs
created after January 31, 2003. For VIEs created at an earlier date, the
consolidation requirements apply in the first fiscal year or interim period
beginning after June 15, 2003. Certain disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the VIE
was established. Based on current information, Nabors believes it has no
material interests in VIEs that require disclosure or consolidation under FIN
46.

CRITICAL ACCOUNTING POLICIES

We disclosed our critical accounting policies in our 2002 Annual Report on
Form 10-K. No significant changes have occurred to those policies with the
exception of the following:

Self Insurance Accruals. We are self-insured for certain losses relating
to workers' compensation, employers' liability, general liability, automobile
liability and property damage. Effective April 1, 2003, with our insurance
renewal, certain changes have been made to our insurance coverage. Effective for
the period from April 1, 2003 to March 31, 2004, our exposure (that is, our
deductible) per occurrence is $1.0 million for workers' compensation, $2.0
million for employers' liability and marine employers' liability (Jones Act) and
$5.0 million for general liability losses. Our self insurance for automobile
liability loss is $0.5 million per occurrence. We maintain actuarially supported
accruals in our consolidated balance sheets to cover the self-insurance
retentions.

We are self-insured for certain other losses relating to rig, equipment,
property, business interruption and political, war and terrorism risks.
Effective April 1, 2003, our per occurrence self-insurance retentions are $10.0
million for rig physical damage and business interruption for 29 specific
high-value rigs. The remainder of the fleet is subject to a $5.0 million
self-insurance retention. However, our rigs, equipment and property in Canada
and Saudi Arabia are subject to $1.0 million self-insurance retentions. As a
result, with the exception of Canada and Saudi Arabia, we are self-insured for
29 higher value rigs up to $10.0 million and for the remainder of our rigs up to
$5.0 million.

Political violence (war and terrorism) insurance is procured for our
operations in Mexico, the Caribbean, South America, Africa, the Middle East and
Asia. Political violence losses are subject to $0.25 million per occurrence
deductibles, except for Colombia which is subject to deductibles of $10.0
million and $1.0 million for political risk and terrorism, respectively. There
is no assurance that such coverage will adequately protect Nabors against
liability from all potential consequences.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be exposed to market risk through changes in interest rates and
foreign currency risk due to our operations in international markets as
discussed in our 2002 Annual Report on Form 10-K.

During the three months ended March 31, 2003, we recorded interest savings
related to our interest rate swap agreement accounted for as a fair value hedge
of $1.7 million, which served to reduce interest expense. The fair value of our
interest rate swap agreement was a gain of approximately $10.0 million as of
March 31, 2003, which is recorded as a derivative asset, included in other
long-term assets, offset by an increase to the carrying value of our 5.375%
senior notes due 2012. The change in cumulative fair value of this derivative
instrument from December 31, 2002 resulted in a reduction of our derivative
asset and the carrying value of our senior notes of $.1 million for the three
months ended March 31, 2003.

The fair value of our range cap and floor transaction was a loss of
approximately $4.8 million as of March 31, 2003, which is recorded as a
derivative liability in other long-term liabilities. We recorded a loss of $1.1
million during the three months ended March 31, 2003 related to the change in
cumulative fair value of

34


this derivative instrument from December 31, 2002. This loss is included in
other income in our consolidated statements of income.

ITEM 4. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the U.S. Securities
and Exchange 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 entities.

We evaluated the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-14 of the Exchange Act
under the supervision and with the participation of management, including our
Chairman and Chief Executive Officer, and Vice President and Chief Financial
Officer, within 90 days prior to the filing date of this report. Based on that
evaluation, our Chairman and Chief Executive Officer, and Vice President and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective. No significant changes were made to our internal controls or
other factors that could significantly affect these controls subsequent to the
date of their evaluation.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On May 23, 2002, Steve Rosenberg, an individual shareholder of Nabors,
filed a complaint against Nabors and its directors in the United States District
Court for the Southern District of Texas (Civil Action No. 02-1942), alleging
that Nabors' May 10, 2002 proxy statement/prospectus contained certain material
misstatements and omissions in violation of federal securities laws and state
law. Nabors' May 10, 2002 proxy statement/prospectus was sent to shareholders in
connection with the special meeting to consider and vote on Nabors' proposed
reorganization and effective reorganization in Bermuda. The AFL-CIO moved to
intervene in Civil Action No. 02-1942 and filed a complaint containing similar
allegations. On June 5, 2002, Marilyn Irey, an individual shareholder of Nabors,
filed a complaint in the United States District Court for the Southern District
of Texas (Civil Action No. 02-2108) that is nearly identical to Steve
Rosenberg's complaint. The three shareholders requested that the Court either
enjoin the closing of the shareholder vote on the scheduled date or the
effectuation of the reorganization. In addition, two of the shareholders (Steve
Rosenberg and Marilyn Irey) purported to bring a class action on behalf of all
shareholders, alleging that Nabors and its directors violated their state law
fiduciary duties by making these alleged misstatements and omissions. These two
shareholders, on behalf of their purported class, seek monetary damages for
their state law claims. Since the beginning of the litigation, two of the
shareholders (Steve Rosenberg and the AFL-CIO) amended their complaints, but did
not add any substantive allegations.

On June 13, 2002, the Court granted the AFL-CIO's motion to intervene. On
June 15, 2002, the Court denied a motion for temporary restraining order brought
by two of the shareholders (Steve Rosenberg and the AFL-CIO) in their attempts
to prevent the closing of Nabors' reorganization and its effective
reorganization in Bermuda. On July 2, 2002, the Court granted an agreed motion
to consolidate Civil Action No. 02-2108 into Civil Action No. 02-1942. Nabors
and its directors moved to dismiss the lawsuits of all three shareholders. On
March 18, 2003, the Court granted our motion and dismissed all claims with
prejudice. On April 14, 2003, Mr. Rosenberg filed an appeal of the United States
District Court's decision to the United States Fifth Circuit Court of Appeals.
The AFL-CIO and Ms. Irey did not appeal. Nabors and its directors believe that
the allegations in this lawsuit are without merit, and Nabors and its directors
will defend vigorously the claims brought against them. We are unable to predict
the outcome of this appeal or the costs to

35


be incurred in connection with our defense, and there can be no assurance that
the appeal will be resolved in our favor.

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

ITEM 5. OTHER INFORMATION

RELATED PARTY -- SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS

Pursuant to their employment agreements, Nabors and its Chairman and Chief
Executive Officer, President and Chief Operating Officer, former Vice Chairman
and certain other key employees entered into split-dollar life insurance
agreements pursuant to which we pay a portion of the premiums under life
insurance policies with respect to these individuals and, in certain instances,
members of their families. Under these agreements, we are reimbursed for such
premiums upon the occurrence of specified events, including the death of an
insured individual. Any recovery of premiums paid by Nabors could potentially be
limited to the cash surrender value of these policies under certain
circumstances. As such, the values of these policies are recorded at their
respective cash surrender values in our consolidated balance sheets. We have
made premium payments to date totaling $12.8 million related to these policies.
The cash surrender value of these policies of approximately $8.5 million is
included in other long-term assets in our consolidated balance sheet as of March
31, 2003.

Under the Sarbanes-Oxley Act of 2002, the future payment of premiums by
Nabors under these agreements may be deemed to be prohibited loans by us to
these individuals. We have paid no premiums related to these agreements since
the adoption of the Sarbanes-Oxley Act, and have postponed premium payments
related to these agreements pending clarification of the Act's application to
these insurance agreements. We will monitor developments and intend to take
appropriate action to ensure that these agreements do not violate applicable
law.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits



10.29 Amended and Restated 1999 Stock Option Plan for Non-Employee
Directors (as amended on May 2, 2003).
15 Awareness Letter of Independent Accountants.
99.1 Certification of Chairman and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Vice President and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.


(b) Reports on Form 8-K

- - Report on Form 8-K filed with the U.S. Securities and Exchange Commission on
January 30, 2003, with respect to Nabors' press release announcing results for
the fourth quarter and full year ended December 31, 2002.

- - Report on Form 8-K/A filed with the U.S. Securities and Exchange Commission on
January 31, 2003, with respect to the correction of typographical errors in
our segment reporting table from those included in the Report on Form 8-K
filed on January 30, 2003.

36


- - Report on Form 8-K filed with the U.S. Securities and Exchange Commission on
January 31, 2003, with respect to the posting of supplemental historical
financial information of Nabors Industries Ltd. in segment reporting format on
the website of Nabors Industries Ltd. on January 31, 2003.

- - Report on Form 8-K filed with the U.S. Securities and Exchange Commission on
February 21, 2003, with respect to Nabors' press release announcing the
issuance of a "Notice of Redemption" to the holders of Nabors Holding
Company's 8 5/8% Senior Subordinated Notes due April 1, 2008 on April 1, 2003.

- - Report on Form 8-K filed with the U.S. Securities and Exchange Commission on
February 25, 2003, with respect to the resignation of Richard A. Stratton,
Vice Chairman, from Nabors' Board of Directors and the appointment of Richard
Syron to fill the vacancy created by Mr. Stratton's resignation.

- - Report on Form 8-K filed with the U.S. Securities and Exchange Commission on
April 30, 2003, with respect to Nabors' press release announcing results for
the first quarter ended March 31, 2003.

37


SIGNATURES

Pursuant to the requirements 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.

/s/ ANTHONY G. PETRELLO
--------------------------------------
Anthony G. Petrello
President and Chief Operating Officer

/s/ BRUCE P. KOCH
--------------------------------------
Bruce P. Koch
Vice President and Chief Financial
Officer

Dated: May 9, 2003

38


CERTIFICATIONS

CERTIFICATION BY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Eugene M. Isenberg, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nabors Industries
Ltd.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluations as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether material or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

/s/ EUGENE M. ISENBERG
--------------------------------------
Eugene M. Isenberg
Chairman and Chief Executive Officer

Date: May 9, 2003

39


CERTIFICATION BY VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Bruce P. Koch, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nabors Industries
Ltd.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluations as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether material or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

/s/ BRUCE P. KOCH
--------------------------------------
Bruce P. Koch
Vice President and Chief Financial
Officer

Date: May 9, 2003

40


EXHIBIT INDEX



EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.29 Amended and Restated 1999 Stock Option Plan for Non-Employee
Directors (as amended on May 2, 2003).
15 Awareness Letter of Independent Accountants.
99.1 Certification of Chairman and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Vice President and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.