nabors industries ltd . 2006 annual report nabors

nabors industries ltd .

2006 annual report

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U.S. LAnd driLLing

U.S. OffShOre

U.S. LAnd weLL-Servicing

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internAtiOnAL

Other OperAting SegmentS

U.S. lower 48 land Drilling

alaska Drilling

Peak Oilfield Services

Ryan energy technologies

epoch well Services, inc.

Canrig Drilling technology, ltd.

Sea Mar

1.2 %

4.5 % 13.9% 12.9

% 14.5 % 5.1%

77% 68% 86% 36% 54% 112%

n a b o r s i n d u s t r i e s l t d .

e x t R a O R D i n a R y

NDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHER57.1 %

6%

Nabors Management Ltd. Nabors Drilling International Limited Nabors Drilling International II Limited Sundowner Offshore International (Bermuda) Limited Hamilton, Bermuda H. Siegfried Meissner

Nabors Offshore Corporation Houston, Texas Jerry C. Shanklin

Canrig Drilling Technology Ltd. Magnolia, Texas Christopher P. Papouras

Epoch Well Services, Inc. Houston, Texas Christopher P. Papouras

Peak Oilfield Service Company Anchorage, Alaska Michael R. O’Connor

Sea Mar, a division of Pool well Services Co.Houston, Texas Van C. Dewitt

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Nabors Alaska Drilling, Inc. Anchorage, Alaska James H. Denney

Nabors Canada L.P.Calgary, Alberta Duane A. Mather

Nabors Drilling USA, LP Peak USa energy Services, ltd. Ramshorn investments, inc.Houston, Texas Joe M. Hudson

Nabors Well Services Co. and Nabors Well Services Ltd. Houston, Texas James H. Denney

Ryan Energy TechnologiesCalgary, Alberta Richard T. Ryan

principAL OperAting SUbSidiArieS And LeAd execUtiveS

OfficerS

directOrS Myron M. SheinfeldSenior Counsel, Akin, Gump, Straus, Hauer & Feld, L.L.P.

Jack WexlerDirector Emeritus

Martin J. Whitman Lead Director, Nabors Industries Ltd. Chairman and Co-Chief Investment Officer, Third Avenue Management LLC

Eugene M. IsenbergChairman and Chief Executive Officer, Nabors Industries Ltd.

Anthony G. PetrelloDeputy Chairman, President and Chief Operating Officer, Nabors Industries Ltd.

James L. Payne Chairman and Chief Executive Officer, Shona Energy Company, LLC.

Hans W. Schmidt Former Director, Deutag Drilling

Alexander M. KnasterChairman and Chief Executive Officer, Pamplona Capital Management Director, TNK-BP

Daniel McLachlinVice President – Administration and Corporate Secretary

Bruce P. KochVice President and Chief Financial Officer

Eugene M. IsenbergChairman and Chief Executive Officer

Anthony G. PetrelloDeputy Chairman, President and Chief Operating Officer

OffiCeRS anD DiReCtORS

n a b o r s i n d u s t r i e s l t d . a n d S u b s i d i a r i e s

This annual report includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties, as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission, and include uncertainties associated with the outcome of the review of historical stock option award practices described above. As a result of these factors, Nabors’ actual results may differ materially from those indicated or implied by such forward-looking statements.

ABILITy, AgILITy & opporTunITy

< Distribution of ADJustED inCoME froM oPErAtinG ACtiVitiEs(Ebit)

< yEAr-to-yEArGrowth 2005–2006

the winds of change. they can lift a company, or they can send

it spiraling back to earth.

At nabors, we view any change as an opportunity, one that must

be prepared for well in advance. that’s why over the last two

decades, we have been assembling the largest fleet in the world.

it’s why we quickly began the largest new rig construction program

in the industry. it’s why we built a worldwide infrastructure with

rigs in every significant oil and gas area.

As a result, we were well prepared to meet the challenge of a

tightening rig supply. we were prepared to meet the demand for

new, high-specification rigs. we were prepared as our business

began to shift from gas to oil. And we were prepared for a

softening u.s. market and a strengthening market overseas.

A company must have the ability to act and the agility to move

quickly when opportunity presents itself. At nabors, we do.

it’s what lifts us to new heights when other companies are

just getting off the ground.

By every financial and operational metric, 2006 was the best year in the Company’s

history. Revenues, operating income, cash flow, net income and earnings per share all

reached record levels. Our return on average capital employed reached 21 percent and

net income topped $1 billion for the first time in the Company’s history.

This milestone in net income represented an increase of 57 percent over the prior year,

nearly three-quarters of which was attributable to increased pricing for our rigs and other

services, with the balance derived from incremental capacity additions. The majority of

these incremental rigs are new state-of-the-art PACE™ rigs which are yielding further

improvement in drilling efficiency and shortening the drilling cycle through more rapid

rig moves.

Our U.S. Lower 48 Land Drilling business was again the largest contributor to this growth

as pricing in this unit reached a near-term apex, buttressed by the impact of 19 new rigs

which deployed during the year. Our U.S. Well-Servicing business was the next most

significant contributor due largely to a 30 percent increase in rig pricing. This was followed

closely by our International unit on the strength of 25 incremental rigs, plus the onset of

what promises to be a very large contribution from the realization of current market prices

as long-term contracts renew over the next two years. Our Canadian and U.S. Offshore

To our shArehoLdersrEturn on your inVEstMEnt

02 | nbr

EBIT – Oil and Gas Split

2006

2007

businesses also posted very sizable annual increases as pricing improved in both

markets. All but one of the various logistics, manufacturing and technology businesses

that comprise our Other Operating Segments also contributed with a large increase over

the prior year. Alaska’s modest increase in 2006 portends what is likely to be a very

strong 2007 and beyond.

Safety continued to set new records throughout each of our rig operations, further demon-

strating the quality and efficiency of our training and safety programs. Recordable incident

rates fell by over 17 percent compared to the prior year even as worldwide man-hours

increased by 13 percent, exceeding 60 million worldwide. The most notable achievements

were in our U.S. Land Well-Servicing business, which again won the Association of Energy

Services Companies’ Gold Award for the tenth year in a row, and in Canada, where a

30 percent improvement in performance left both our drilling and well-servicing

operations with accident rates that are one-half the industry average.

Many other less obvious, but equally important objectives were accomplished during the

year which contributed significantly to the Company’s overall performance and underpin

our future growth prospects. Strategically, we continued to seize opportunities afforded

us by the robust market to add state-of-the-art rigs and other revenue-generating assets

at attractive returns, most of which are assured with term contract commitments from

substantial customers. These investments over the last two years combined with our

anticipated capital requirements for 2007 aggregate to over $3.6 billion in growth capital,

plus another $1.1 billion in maintenance capital expenditures. Even with this record level

of spending, we were still able to fund the repurchase of $1.5 billion of our common stock

at attractive prices. We finished the year with cash and liquid marketable securities of

nearly $1.7 billion, giving us a financial position that is stronger than ever.

These extraordinary investments were largely funded by record levels of operating cash

flow, which we believe are sustainable due to the unprecedented number of term con-

tracts we hold for new and existing rigs. This surety of forward cash flow from operations

nbr | 03

34.8%

OIL

49%

65.2%

GAS

51%

roI allowed us to comfortably increase our financial leverage through an attractive borrowing

opportunity. In May, we raised $2.75 billion in convertible debt that bears cash interest of

only 94 basis points and a conversion premium of 30 percent. We simultaneously entered

into a hedging transaction that effectively raised the conversion premium to 55 percent, or

$54.64 per share, at an effective interest rate of 2.3 percent when the cost of the hedge is

included. Even with this increased leverage, our net debt position stood at just 37 percent

at year end.

The developments over the last two years have set the stage for a very positive future for

Nabors, one wherein the drivers of our performance are changing. In last year’s annual

report, we outlined this new era, one more reliant on new rig capacity and less reliant

on historical drivers like acquisitions, low-basis rigs and pricing improvement in North

America. We began to see the evolution of this new driver in 2006 as the number of

long-term commitments for new rigs rose to 112, with most of the financial benefits yet

to be realized since only 19 of these rigs were reflected in the year’s results.

In addition, we have invested in new rig capacity in certain markets that are not typically

characterized by long-term contracts, but which have historically enjoyed high utilization

and returns. These consist of 6 offshore rigs, 200 workover and well-servicing rigs and

13 new-generation coiled tubing/stem drilling rigs. Significant investment has also been

directed at enhancing the capabilities and safety of our base fleet through pump and power

capacity upgrades, top drives, more automated pipe handling systems and rig reconfigura-

tions that improve moving time. The value of these enhancements was recognized when

Nabors’ Rig 254 was named global “Land Rig of the Year” by a major customer after it was

refurbished, upgraded and deployed in May 2006. Our other manufacturing, technology,

construction and logistics businesses have benefited from incremental revenue-enhancing

investments as well. Collectively, all of these investments promise returns in excess of

20 percent and should approximate $700 million in annualized income by mid-2008.

04 | nbr

$8

6

4

2

0

04 05 06 07E

Average Capital Employed(in billions)

3.9

4.4

5.7

7.3

roI Going forward, we expect further growth in income and cash flow for 2007, largely on

the strength of our more oil-directed markets including International, U.S. Well-Servicing,

U.S. Offshore and Alaska. Anticipated property sales in our oil and gas entity should further

enhance this performance. Collectively, this should more than offset the effects of the

recent slowdown in our more gas-directed Canadian and U.S. Lower 48 businesses,

which have historically constituted the bulk of our income. The financial impact of this

slowdown is most pronounced in Canada. Our U.S. Lower 48 unit has a higher degree of

resiliency since approximately 67 percent of its anticipated income in 2007 is assured by

term contract commitments for existing rigs, and for the 58 new rigs that will deploy during

the year. Our ability to still grow consolidated results in the face of a weakening North

American gas market is because approximately 50 percent of our projected 2007 income

will be derived from oil-related projects, up substantially from only 35 percent in 2006.

We believe that any further weakness in our natural gas markets will likely be much

shallower and briefer than past down cycles given today’s higher decline rates, an already

visible reduction in Canadian gas production and the stronger financial position enjoyed

by our customers, boosted by a much broader and more liquid futures market. We remain

convinced that we are in the midst of a long-term up cycle in both North American gas

and global oil as the rig intensity per BOE continues to increase, and the economics and

commencement dates for meaningful alternatives appear to be well into the future.

The balance of this year’s report highlights the various rig types in which we are investing

and the efficiency and economic benefits which will inure to both our customers and to

our employees, without whom none of these achievements would have been possible.

I look forward to reporting the continued improvement in our results which we expect

to generate from these attractive rig investments, further proving that 2007 is indeed

a new era for Nabors. Sincerely,

EUGENE M. ISENBERG Chairman and Chief Executive Officer

nbr | 05

Return on Average Capital Employed

25%

20

15

10

5

0

04 05 06 07E

8%

19%

21%

no BoundArIesinfinitE riG CAPAbility AnD EffiCiEnCy

06 | nbr

At Nabors, we recognize opportunity when we see it. We were not

myopic when the current drilling boom first appeared on the horizon.

That’s why we geared up to construct new rigs on a large scale,

establishing a pipeline to assure availability of component equipment.

We also organized multiple venues of fabrication and construction

capacity both in the United States and elsewhere.

These actions put us in position to take advantage of the demand

for rigs when it materialized. Our ability to deliver more rigs, in more

styles, in more places than anyone else, allowed us to secure well over

100 contracts for new rigs in less than two years. These contracts and

robust cash flow from our existing rigs are combining to build the

largest, most modern and most capable fleet in the world, available

when you need it and where you need it.

In the next few pages you will see just how good it really is.

05 06 07E 3-yr

INvESTING fOR fUTURE GROWTh (in Millions)

New Rigs and Assets > 401 1,039 995 $ 2,435

Rig Upgrades > 255 255 140 $ 650

Other > 117 230 195 $ 542

Subtotal > $ 773 $ 1,524 $ 1,330 $ 3,627

Maintenance > 221 453 455 $ 1,129

Total > $ 994 $ 1,977 $ 1,785 $ 4,756

F l e e t P R O F I L E S f o r t h e N e w E r a >

nbr | 07

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

The PACE™ 750 is a programmable AC electric rig with PLC controls, allowing the driller to control the drawworks, the top drive, the mud pumps and virtually every other significant piece of equipment from a central control center. This compact, powerful rig was designed to drill to a broad range of depths in a variety of geographical and geological areas. It is engineered to move rapidly, reducing the time between wells.

08 | nbr

PACE™ 750

PACE™ 750

EXISTING RIGS > 121 NEW RIGS > 46

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

nbr | 09

PACE™ 1,500

The PACE™ 1,500 is a larger version of the PACE™ 750. It is also programmable AC electric and PLC controlled, but has a stronger mast and substructure and an additional mud tank, allowing it to drill the deeper horizontal wells that are frequently required today.

PACE™ 1,500


1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

10 | nbr

Worldwide drilling is going deeper, especially for natural gas in the Middle East. All of this requires special purpose ultra-deep capacity drilling rigs. Nabors has been engaged in a proactive building program to meet this demand and has produced twelve 2,000 and five 3,000 HP rigs incorporating the latest in performance-enhancing features. These rigs are easily adapted to the “lift and roll” moving system and automated pipe handling systems, and are equipped with a system for pre-assembly of drill pipe stands.

PACE™ 2,000 & PACE™ 3,000

PACE™ 2,000–3,000

EXISTING RIGS > 82

> 9

NEW RIGS > 12

> 5

2,000

3,000

2,000

3,000

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

nbr | 11

ARCTIC

ARCTIC


Nabors pioneered cold-weather drilling, having drilled some of the most important wells on Alaska's North Slope and in Canada. The company is a leader in winterizing rigs for harsh environments and originally developed pad drilling techniques which are now being used all over the world to move rigs between wells more rapidly.

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

Nabors continues to expand its fleet of proprietary MODS and SuperSundowner (SSD) offshore platform rigs. These rigs have realized extraordinarily high utilization due to their light weight, small footprint and ease of mobilization and demobilization. MODS rigs are drilling rigs available in 1,500-, 2,000- and 3,000-horsepower depth ratings while SuperSundowner rigs are ideally suited for heavy workover, re-entry and re-drilling applications, as well as medium-depth drilling projects. MODS rigs are designed specifically to accommodate the motion characteristics of deepwater floating SPAR and tension leg platforms, while SuperSundowners can easily be upgraded to similar capability.

12 | nbr

supersundowner mods series

SUPERSUNDOWNER SERIES


Nabors constructed barge Rig 300 in 2005 and has subsequently undertaken the construction of barge Rig 301 and barge Rig 100, both of which will deploy in early 2007. These rigs are geared towards the ultra-deep gas prospects in the shallow waters of the Gulf of Mexico. Barge Rig 100 is designed for deep workover and/or shallow drilling, while barge Rigs 300 and 301 are capable of drilling to 35,000 feet in water depths as shallow as seven feet.

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

nbr | 13

barge – 35,000' CaPabILITY

BARGE


Nabors is constructing 13 Hybrid AC Coiled Tubing Rigs for operations in shallow oil and gas plays in Canada and the U.S. The company has completed eight of these units with the balance due in 2007. These rigs combine the benefits of continuous drilling with the flexibility to switch to jointed pipe as necessary. Coil drilling has been used extensively in Canada in recent years, drilling wells at higher rates of penetration and reduced cycle times to allow more wells to be drilled in a given period of time. The technique is gaining momentum in the U.S. where it is beginning to demonstrate its ability to improve performance in shallower and directional drilling applications.

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

14 | nbr

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tu

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tem

dr

illi

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COILED TUBING/STEM DRILLING


hel

i-p

or

tab

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ig

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

nbr | 15

Nabors Canada is developing heli-portable drilling, well-servicing and well site construction systems to provide year-round access to remote or environmentally-sensitive locations. The key enabler of these drilling systems is the use of the Russian MI-26T, the largest helicopter in the world, which has been working reliably and safely in Siberia and around the world for many years. The new rigs are state-of-the-art programmable AC electric rigs with a small footprint configuration, light loads and heated pipe sheds for Arctic operations. They are very competitive in the conventional drilling mode and can be moved by numerous methods for all-weather, all-season access to remote locations. Two of these heli-portable drilling rigs will deploy on long-term contracts in 2007, with more slated for construction.

hELI-PORTABLE


1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

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16 | nbr

well- servicing200 series

The new 200 series rig is ideal for servicing shallow, closely spaced wells in rugged terrain. Its shorter wheelbase and drive-in capability give the driver improved visibility and greater maneuverability, critical features when working in tight quarters. An advanced instrumentation system gives the operator real-time performance monitoring of the rig.

WELL-SERvICING 200 SERIES


Millennium Rigs from Nabors Well Services are a breakthrough in workover and well-servicing. Six years in design and construction, they combine a variety of features which make them safer, more efficient, more durable and easier to operate. Available in 400- and 500-horsepower models, these rigs are designed to service the increasing population of deeper and more directional wells. A total of 39 are currently deployed, with another 141 scheduled for delivery by early 2009.

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1

nbr | 17

well- servicing

400–500 series

WELL-SERvICING 400–500 SERIES

EXISTING RIGS > 228

> 33

NEW RIGS > 100

> 80

400

500

400

500

Three new rigs and two refurbished rigs near completion at Nabors’ Crosby, Texas rig yard near Houston. Nabors is also constructing rigs in: • Oklahoma City, Oklahoma • New Iberia and Harvey, Louisiana • Calgary and Edmonton, Alberta, Canada • Dubai and Sharjah in the United Arab Emirates • Guanghan, China

18 | nbr


TOTAL ACTIvE fLEET – DRILLING RIGS

1 > 2 > 3 > 4 > 5 > 6 > 7 > 8 > 9 > 1 0 > 1 1


nbr | 19

TOTAL ACTIvE fLEET – U.S. WORKOvER RIGS

new construction

U.S. LAND DRILLING

u.s. lower 48 land Drilling Alaska Drilling

drILLIng on demAndo

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Nabors Drilling USA L.P. markets nearly 300 land drilling rigs in every depth range and in every important oil and gas drilling area in the U.S. Lower 48.

> 2006 was a record-breaking year for this unit as operating income and margins reached all-time highs. The primary driver of these results was improved pricing emanating from very strong rig demand, with the first 22 of the 80 rigs associated with the new rig program just begin-ning to contribute. Three of these new PACE™ rigs deployed at the end of 2005 and 19 more deployed in the second half of 2006, augmented by seven refur-bished rigs that also deployed in the second half of 2006. Collec-tively, they increased the average rig years by 20 year-over-year and are expected to deliver returns of 20 percent.

> Growing our pool of qualified manpower to staff this larger fleet continued to be a priority and this unit addressed this issue by expanding training facilities in Oklahoma and Louisiana, and by opening a new training center in east Texas. All three centers are equipped with drilling simu-lators, which replicate the on-site AC drilling experience and reduce the potential for accident or injury.

> Safety improved year-over-year even as the number of man-hours worked increased from 15 million to 18 million. The total recordable incident rate dropped by 14 per-cent during the year, largely attrib-utable to operational diligence, increased training and the addi-tion of sophisticated pipe handling equipment on the new rigs.

> We anticipate results in 2007 to be flat when compared to 2006, but still at a very high level despite the softening gas drilling market. Underpinning these results is the prospective deployment of 58 new rigs on term contracts with key customers and a high degree of term contracts covering our existing fleet. half of these new rigs are M Class PACE™ 750s, small footprint rigs with oversized drilling fluid hydraulic power. They are setting a new standard for effi-ciency and shortening the drilling cycle through rig moves that are accomplished in one-third the time of conventional rigs.

Nabors Alaska conducts Arctic drilling operations on the North Slope of the Brooks Range, as well as in southern Alaska and the Cook Inlet. The company was involved in the state’s first commercial drilling operation in 1962, and drilled both the discov-ery well and the confirmation well in the giant Prudhoe Bay field.

> Results in this unit were up slightly over 2005, although the degree of improvement did not reflect the potential upside that exists in this market. The com-pany benefited from a second year of operation and higher rates for its sea water treatment and injec-tion skid that is being utilized for reservoir pressure maintenance in one of the major North Slope fields. Safety statistics continued to be excellent although flat year- over-year, as this unit continues to implement company-wide initiatives that have steadily reduced key safety statistics.

> The outlook for 2007 is excel-lent with operating income expected to double as operators have steadily raised their fore-casted oil price for project evalua-tion economics. This is driving increased rig utilization which in turn is pushing dayrates sharply higher, although they remain well below those required to justify new construction. The existing fleet is deriving the benefits with several long-idle rigs returning to work, including Rig 245 on a North

$94

$465

$822 2006

2005

2004

E b i t C o n t r i b u t i o n

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U.S. offShoRe

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Slope developmental drilling project and Rig 19E on an island project in the Beaufort Sea. Rig 273 and Rig 16E should also begin developmen-tal drilling after completing appraisal wells this winter.

> Long-term contracts were recently secured for two new- built heli-portable rigs scheduled for deployment in the second half of the year. The new rigs are the first in Alaska in several years and reflect the growing interest in remote exploration utilizing new, high-specification rigs. Income from the camps owned and operated by Nabors is also beginning to rise due to the increasing manpower require-ments in this market and the shortage of beds.

Nabors Offshore is engaged in the drilling and workover of oil and gas wells in the U.S. Gulf of Mexico, operating platform, jack-up and barge rigs. The company is known for its innovative designs, includ-ing the Sundowner® and Super- Sundowner platform workover and re-drilling rigs, the MASE® platform drilling rig and the unique MODS rig, a small footprint, light-weight drilling rig reengineered to accommodate the dynamic wave action associated with deepwater SPAR and tension-leg platforms.

> Results for Nabors Offshore were up in 2006 on the strength of improved pricing across the board and slightly higher utilization of its jack-up fleet. Performance in this unit was bolstered by a full year’s contribution from SSD 19 and slightly less than a full year from barge Rig 300, which deployed in the first quarter after repairs due to hurricane damage.

> Construction was completed on SSD 21 and SSD 22 during the year, with both deploying in the fourth quarter. The acquisition of Ensco 26, an API-platform rig, was completed during the year and the rig was deployed in the fourth quarter as Nabors 87.

> Safety performance continued to improve industry-wide, even more so in Nabors Offshore on the strength of a comprehensive and ongoing safety training pro-gram. The total recordable rate

dropped from 3.05 to 2.44 and the lost-time accident rate fell from .20 to .09.

> Results in 2007 should con-tinue to improve, although jack-up rig utilization will be down in the first quarter, rebounding later to finish up for the year. A full year’s contributions from Rig 87 and from SSD 21 and SSD 22, all of which deployed in the fourth quarter of 2006, should further bolster results, as will the deployment of an incremental Sundowner® rig in february.

> The success of barge Rig 300 led this unit to construct a similar rig, barge Rig 301, which will deploy in the second quarter. Barge Rig 100, a workover posted barge rig, will also deploy in the same time frame.

> The improved pricing environ-ment which began in 2006 should continue in 2007. Dayrates for drilling rigs have reached the point where in many cases it is more cost effective to work over an older well rather than drill a new one.

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$16

$17

$18 2006

2005

2004

$21

$39

$65 2006

2005

2004



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U.S. LAND weLL-SeRvIcING

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cANADA

Nabors Well Services provides oil and gas well-servicing, workover and completion, as well as fluid transportation and disposal ser-vices. This unit operates in two divisions and is a major player in the California market as well as in Texas, the mid-continent and the Rocky Mountains.

> Nabors Well Services doubled its operating income in 2006, achieving by far the best year in this unit’s history. The company took delivery of 22 Millennium rigs, 10 new 200 Series rigs and four new swab rigs, and deployed its first coiled tubing/stem drill-ing rig. Two new facilities were opened to service particularly dynamic markets and a host of new frac tanks, trucks and trailers were deployed as the company continued to expand and upgrade its fleet.

> Nabors Well Services continued its highly successful Advanced Safety Audit and LE3 training during the year. As a result, this unit continued to lead the industry in safety, winning the Association of Energy Services Companies’ Gold Award for the tenth year in a row.

> The outlook for 2007 is excellent as continued strong oil prices fuel activity in this unit. An additional 58 new Millennium rigs should be delivered, plus 10 additional 200 Series rigs. We also expect to begin delivery

late in the year of the 100 new 400 Series Millennium Rigs we have on order. Two new facilities will be opened in the Rocky Mountains to accommodate the expanding activity in this market and a third will be installed in the mid-continent.

> Growth in this unit should be less susceptible to declining gas prices since workover rigs primar-ily service oil wells and this unit derives over 70 percent of its business from oil-related work.

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Nabors Canada operates 83 drill-ing rigs and 190 well-servicing and workover rigs and provides related services. The market is characterized by large seasonal fluctuation, particularly in the second quarter when the spring thaw greatly inhibits rig activity. The Nabors name emanates from this unit, which since its founding in 1952 has grown both internally and by acquisition.

> Nabors Canada posted another record year in 2006 in spite of a disappointing fourth quarter. Both drilling and well services experienced a significant improve-ment in results, the latter by over 50 percent. A dramatic improve-ment in safety reduced this unit’s lost-time incident rate to 50 per-cent of the industry average.

> Results were dampened by our customers’ lower wellhead margins as a result of lower natural gas prices and the rapidly escalating costs that are driven by the high activity in the tar sands. Compounding this was uncertainty surrounding consolidation by major operators, proposed changes to the taxation of royalty trust investments and adverse weather at the end of the year.

> Nabors Canada expects a significant reduction in results in 2007 as the issues that negatively impacted the fourth quarter of 2006 continue into the new year. The outlook is brightened some-what by a contract from the major

$58

$108

$200 2006

2005

2004


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tar sands operator to build a new rig similar to Nabors Rig 59, the highly-mobile pad drilling rig already working in the area. A new PACE™ rig is also deploying to eastern Canada to participate in the only important gas play in that area.

> Nabors Canada recently licensed Reverse Circulation Center Discharge (RCCD), a new technology with great potential to reduce completion costs on shal-low gas wells. In tandem with the efficiencies inherent in Nabors’ PACE™ rigs, this technology could serve to make many shallow gas wells economical even at current commodity prices.

> Nabors Canada continues to develop lightweight, heli-portable rigs that can be deployed in areas that are inaccessible to conven-tional rigs. four new PACE™ rigs with this capability are currently under construction and an exist-ing rig is being reconfigured. All will be completed and deployed later in the year.

INteRNAtIoNAL

Nabors International owns and operates both land and offshore rigs in 28 countries worldwide and has operating experience in more than 20 others.

> The continued improvement in pricing plus the impact of 25 incremental rigs combined to fuel the best year in this unit’s history. Oman led the way with six additional rigs while Saudi Arabia added five and Mexico three. New markets were opened in Angola, New Zealand, Gabon, Russia and Libya.

> A recruiting presence was added in several countries to meet manpower requirements necessary to staff the additional rigs. Two mobile drilling simula-tors have also been deployed to conduct in-country training.

> A safe working environment continued to be the hallmark of this unit in spite of the logistical issues associated with working in other countries and cultures. The total recordable incident rate dropped from 1.64 to 1.25 year- to-year and the lost-time incident rate fell from 0.25 to 0.19.

> In 2007, this unit will continue to benefit from significantly improved pricing plus the impact of 10 incremental rigs scheduled to deploy during the year. At least six additional rigs are tentatively scheduled to begin work in the second and third quarters and a jack-up rig is set to begin work in the Middle East in the fourth quarter. New markets are sched-uled to open in Egypt and Brunei.

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$91

$136

$185 2006

2005

2004

$89

$136

$209 2006

2005

2004



nbr | 23

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Epoch manufactures instrumentation systems to collect, analyze and transmit data that facilitates oil and gas drilling operations.

> Epoch posted record revenues and earnings in 2006 as it contin-ued to expand its participation in the instrumentation market. While this unit’s contribution is meaningful, Epoch’s primary value is the provision of leading-edge technology to Nabors’ operations.

> The company partnered with Canrig to introduce the K-Box™, an integrated driller’s console that retrofits both mechanical and SCR rigs giving them the control and instrumentation capabilities normally associated with AC-powered rigs. This prod-uct had a minor impact on results in 2006, but will be a significant contributor in 2007.

> 2006 revenue for myWells.com increased by approximately 300 percent over 2005 as the company experienced broad market acceptance of real-time data. Mudlogging was also up substantially and Epoch’s Enter-prise Solutions products grew by approximately 50 percent in

Peak Oilfield Services is involved in construction, maintenance and logistics in support of oil and gas drilling in Alaska.

> higher oil prices dramatically increased development and exploration activity in Alaska, fueling the best year in this unit’s history. The number of operators active in Alaska has more than tripled, with new drilling projects in every oil-producing area and continued exploratory and appraisal activity in the National Petroleum Reserve – Alaska (NPRA) and other remote areas.

> Peak continued to expand its product lines during the year, purchasing several Tundra Cat vehicles that can transport equip-ment across the tundra in support of remote operations. This unit also entered the conductor pipe installation business, an increas-ingly large market given the level of new drilling activity.

> A number of other projects further contributed to results. These included an equipment standby contract for a large operator in a remote production complex; the installation of a new compressor and turbine drive unit in an LNG facility; a contract to replace a municipal electric utility’s turbine generator; and a contract for refinery upgrades to accommodate the EPA-mandated reduction of sulfur in diesel fuel.

> The prospects for 2007 are excellent with first quarter results already approaching record levels.

ryan Energy technologies Epoch well services, inc.

Ryan Energy Technologies provides horizontal and directional drilling and measurement while drilling (MWD) services.

> This unit experienced excellent performance in its U.S. operations during the year, primarily on the success of its strategy to deliver packaged MWD and directional drilling services. however, an extremely weak fourth quarter in Canada reversed what promised to be a record-breaking year, leaving results flat on a Ryan consolidated basis.

> Safety performance continued to be excellent, although the unit had its first lost-time incident in three years.

> The outlook for 2007 remains good in the U.S. market, but pros-pects for Canada continue to be softer due to the weaker wellhead gas price realization that is result-ing from a high basis differential and rising costs. This unit will look to relocate excess Canadian resources into the more active U.S. market, easily accomplished due to the mobile nature of its assets. Ryan will also benefit from the recent transfer of its instrumen-tation business to affiliate company Epoch Well Services, a move which will have no effect on results, but will allow the company to focus entirely on projects that are core to its directional drilling and MWD business.

Peak oilfield services

24 | nbr

otheR opeRAtING SeGmeNtS

$(5) 2004

conjunction with the marketing agreement the company holds with Landmark Graphics.

> Epoch introduced an electronic drift tool in 2006, manufacturing and deploying 200 systems. The company also introduced a soft-ware package of drilling efficiency calculations which allows custom-ers to compute drilling parameters in real time through myWells.com.

> Epoch continued to improve on its industry-best safety record during the year. Total recordables dropped to 1.95 and lost-time incidents fell to 0.90.

> 2007 promises to be an excellent year for this unit. Epoch will introduce RigWatch 9, a new and enhanced version of its instrumentation product which was designed to significantly reduce rig service calls by Epoch technicians.

> Epoch will also be tasked with supporting the fleet of new rigs currently being deployed by Nabors Drilling. This includes expansion of this unit’s worldwide, 24 hour service and support sys-tem. This value-added service allows more efficient electronic monitoring of new AC rigs, in the process improving the rigs’ poten-tial to perform at the highest level.

Canrig manufactures and markets a broad range of drilling equip-ment and systems including top drives, pipe handling and other accessory equipment worldwide.

> Canrig posted another record year in 2006, increasing its top drive shipments to 118 systems versus the 57 manufactured in 2005. Sales to third parties increased significantly in the process. This unit also expanded its line of products into drill floor wrenches and automated catwalks, with the acquisition of Pragma Engineering Limited of Calgary, Alberta, Canada. These pipe- handling systems enhance rig safety and performance. Canrig’s own safety and performance improved in 2006 with its record-able incident rate dropping to 0.66 from 0.79, while recording only one lost-time incident for the year.

> Canrig further enhanced its capabilities in remote monitoring and troubleshooting, which mini-mizes rig downtime, with the deployment of its Equipment Con-dition Monitoring System. It is stan-dard on all new Nabors’ rigs and can also be fitted to existing units.

> In 2007 Canrig expects to continue its dynamic growth, rolling out 157 top drives, 140 automated catwalks and 70 floor wrenches, all records for this unit. The company was recently awarded a significant multi-year contract to supply floor wrenches to a large sovereign oil company, which should positively impact results in 2007 and beyond.


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Nabors Marine Transportation markets a broad fleet of offshore supply vessels worldwide.

> 2006 was the best year in this unit’s history, fueled primarily by continuing repair work that resulted from two 2005 hurri-canes. Results were bolstered by a spike in deepwater exploration activity.

> This unit’s performance was improved by the redeployment of two Super 200 boats on long-term contracts at attractive rates. The first was a conversion to a deepwater mooring storage vessel for a major U.S. operator, while the second vessel was a relocation to the more active Arabian Gulf. A third Super 200 was deployed internationally on a short-term contract, while a 200-foot offshore supply vessel was added on a long-term management contract.

> This unit expects another good year in 2007, but probably not at the level experienced in 2006. hurricane repair work should slow down after the first quarter, offset somewhat by a full year’s contribution from the mooring storage vessel. Dayrates remain highly competitive on the smaller vessels, but Super 200 activity remains strong, with prospects for additional contracts in foreign venues likely, particularly in the second quarter.

> Nabors is likely to divest or restructure its ownership in Sea Mar before the end of the third quarter.

$35 2005$74 2006

E b i t C o n t r i b u t i o nnbr | 25

26 | nbr

800 lAnDworkoVErriGs

617 lAnDDrillinGriGs

4 bArGE riGs (1)

> 3 Drilling

> 1 Workover

13 JACk-uPs (1)

> 7.5 Drilling

> 6 Workover

41 PlAtforMriGs (1)

> 24 Workover/Re-Drilling

> 17 Drilling

oilfiElD sErViCEs

toP DriVE MAnufACturinG

DrillinG instruMEntAtion

offshorEVEssEls> 12 160'–220' OSvs

> 10 Super 200 OSvs

> 2 Special Purpose

> 1 Crew Transport

25

(1) Actively marketed units only.

< 300 hP 300 – 350 hP 400 – 450 hP 500 hP and > t o t a l

U.S. Lower 48 West Texas 8 71 71 12 162 East Texas 5 15 13 8 41 South Texas 0 5 15 11 31 Oklahoma 4 11 17 10 42 Rocky Mountains 1 5 40 29 75 California 64 85 58 11 218 Stacked 4 19 14 4 41

Total U.S. Lower 48 86 211 228 85 610

Canada 21 80 80 9 190

Total Workover/Well-Servicing 107 291 308 94 800

workover/weLL-servIcIng riGs

offshore riG flEEt

nbr | 27

P l a t f o r m w o r k o v e r P l a t f o r m D r i l l i n g

< 1,000 hP 1,000 hP MAsE® APi barge workover Jack-up Drilling Jack-up t o t a l

International Offshore Australia 2 2 Congo 1 1 India 2 2 Italy 1 1 Malaysia 1 1 Mexico 4 4 1 9 Qatar 1 1 Saudi Arabia 1 2.5 Trinidad 1 1 U.A.E. 1 1 Other Offshore 1 1 United States 1 1 Inventory 1 1

Total International Offshore 2 8 6 0 0 1 7.5 24.5

U.S. Gulf of Mexico 7 7 7 2 4 5 32Alaska 1 1 California 1 1

Total Offshore 9 15 14 3 4 6 7.5 58.5

(1) Includes one joint venture rig in which Nabors owns a 50% interest.

1.5(1)

Actively Marketed rigs only

LAnd DrillinG flEEt

28 | nbr

< 1 ,0 0 0 h P 1 ,0 0 0 – 1 ,3 9 9 h P 1 ,4 0 0 – 1 ,9 9 9 h P > 2 ,0 0 0 h P t o t a l

Electrical Mechanical t o t a l Electrical Mechanical t o t a l Electrical Mechanical t o t a l Electrical Mechanical t o t a l Electrical Mechanical t o t a l

A L A S k A North Slope 1 1 2 4 0 4 0 0 0 9 0 9 14 1 15 Cook Inlet 0 2 2 0 0 0 1 0 1 1 0 1 2 2 4 Joint venture 0 1 1 0 0 0 0 0 0 0 0 0 0 1 1

Total Alaska 1 4 5 4 0 4 1 0 1 10 0 10 16 4 20

U.S. L O w E R 4 8 Northern Division California 4 3 7 3 0 3 3 0 3 2 0 2 12 3 15 Colorado 4 13 17 2 4 6 1 0 1 0 0 0 7 17 24 Wyoming 3 7 10 6 2 8 5 0 5 3 0 3 17 9 26 North Dakota 0 4 4 1 19 20 2 6 8 0 0 0 3 29 32

Subtotal Northern Division 11 27 38 12 25 37 11 6 17 5 0 5 39 58 97

Southern Division East Texas 5 6 11 14 6 20 16 2 18 11 0 11 46 14 60 South Texas 1 0 1 2 3 5 12 2 14 7 1 8 22 6 28 North Texas 2 3 5 8 6 14 4 0 4 0 0 0 14 9 23

Subtotal Southern Division 8 9 17 24 15 39 32 4 36 18 1 19 82 29 111

Central Division Arkoma 1 19 20 0 3 3 2 2 4 0 0 0 3 24 27 Mid-Continent 0 1 1 2 2 4 9 1 10 5 1 6 16 5 21 West Texas 0 5 5 3 2 5 1 2 3 4 1 5 8 10 18 Gulf Coast 0 0 0 2 2 4 7 1 8 13 0 13 22 3 25

Subtotal Central Division 1 25 26 7 9 16 19 6 25 22 2 24 49 42 91

Stacked Inventory 5 41 46 4 19 23 5 19 24 2 4 6 16 83 99

Subtotal U.S. Lower 48 25 102 127 47 68 115 67 35 102 47 7 54 186 212 398

total u.s. land Drilling fleet 26 106 132 51 68 119 68 35 103 57 7 64 202 216 418

Canada 6 51 57 10 4 14 5 3 8 4 0 4 25 58 83

I N T E R N A T I O N A L Latin America Trinidad 0 0 0 0 0 0 0 0 0 1 0 1 1 0 1 Argentina 0 13 13 2 1 3 0 0 0 0 0 0 2 14 16 Bolivia 0 0 0 0 0 0 1 0 1 0 0 0 1 0 1 Colombia 1 3 4 0 1 1 2 1 3 2 0 2 5 5 10 Ecuador 0 4 4 0 1 1 1 0 1 0 0 0 1 5 6 venezuela 0 0 0 0 0 0 0 2 2 0 0 0 0 2 2

Subtotal Latin America 1 20 21 2 3 5 4 3 7 3 0 2 10 26 36

Australia 0 2 2 0 0 0 0 0 0 0 0 0 0 2 2

Middle East/Africa/CIS Gabon 0 0 0 0 0 0 0 0 0 1 0 1 1 0 1 Algeria 0 0 0 0 0 0 2 0 2 3 0 3 5 0 5 Kazakhstan 2 0 2 2 0 2 0 0 0 1 0 1 5 0 5 Libya 0 0 0 0 0 0 0 0 0 0 1 1 0 1 1 Tanzania 0 0 0 0 0 0 0 1 1 0 0 0 0 1 1 Oman 1 5 6 0 3 3 0 0 0 0 0 0 1 8 9 Saudi Arabia 0 1 1 2 0 2 6 0 6 10 2 12 18 3 21 U.A.E. 0 1 1 0 0 0 0 0 0 0 0 0 0 1 1 Yemen 0 1 1 4 0 4 2 0 2 0 0 0 6 1 7

Subtotal Middle East/Africa/CIS 3 8 11 8 3 11 10 1 11 15 3 18 36 15 51

Joint ventures Saudi Arabia 0 4 4 0 0 0 4 0 4 1 0 1 5 4 9

Jv Inventory 0 8 8 0 0 0 0 0 0 0 0 0 0 8 8

Subtotal Joint ventures 0 12 12 0 0 0 4 0 4 1 0 1 5 12 17

Inventory 0 8 8 0 1 1 0 0 0 0 1 1 0 10 10

total international 4 50 54 10 7 17 18 4 22 19 4 22 51 65 116

total Global land Drilling fleet 36 207 243 71 79 150 91 42 133 80 11 90 278 339 617

nbr | 29

< 1 ,0 0 0 h P 1 ,0 0 0 – 1 ,3 9 9 h P 1 ,4 0 0 – 1 ,9 9 9 h P > 2 ,0 0 0 h P t o t a l

Electrical Mechanical t o t a l Electrical Mechanical t o t a l Electrical Mechanical t o t a l Electrical Mechanical t o t a l Electrical Mechanical t o t a l

A L A S k A North Slope 1 1 2 4 0 4 0 0 0 9 0 9 14 1 15 Cook Inlet 0 2 2 0 0 0 1 0 1 1 0 1 2 2 4 Joint venture 0 1 1 0 0 0 0 0 0 0 0 0 0 1 1

Total Alaska 1 4 5 4 0 4 1 0 1 10 0 10 16 4 20

U.S. L O w E R 4 8 Northern Division California 4 3 7 3 0 3 3 0 3 2 0 2 12 3 15 Colorado 4 13 17 2 4 6 1 0 1 0 0 0 7 17 24 Wyoming 3 7 10 6 2 8 5 0 5 3 0 3 17 9 26 North Dakota 0 4 4 1 19 20 2 6 8 0 0 0 3 29 32

Subtotal Northern Division 11 27 38 12 25 37 11 6 17 5 0 5 39 58 97

Southern Division East Texas 5 6 11 14 6 20 16 2 18 11 0 11 46 14 60 South Texas 1 0 1 2 3 5 12 2 14 7 1 8 22 6 28 North Texas 2 3 5 8 6 14 4 0 4 0 0 0 14 9 23

Subtotal Southern Division 8 9 17 24 15 39 32 4 36 18 1 19 82 29 111

Central Division Arkoma 1 19 20 0 3 3 2 2 4 0 0 0 3 24 27 Mid-Continent 0 1 1 2 2 4 9 1 10 5 1 6 16 5 21 West Texas 0 5 5 3 2 5 1 2 3 4 1 5 8 10 18 Gulf Coast 0 0 0 2 2 4 7 1 8 13 0 13 22 3 25

Subtotal Central Division 1 25 26 7 9 16 19 6 25 22 2 24 49 42 91

Stacked Inventory 5 41 46 4 19 23 5 19 24 2 4 6 16 83 99

Subtotal U.S. Lower 48 25 102 127 47 68 115 67 35 102 47 7 54 186 212 398

total u.s. land Drilling fleet 26 106 132 51 68 119 68 35 103 57 7 64 202 216 418

Canada 6 51 57 10 4 14 5 3 8 4 0 4 25 58 83

I N T E R N A T I O N A L Latin America Trinidad 0 0 0 0 0 0 0 0 0 1 0 1 1 0 1 Argentina 0 13 13 2 1 3 0 0 0 0 0 0 2 14 16 Bolivia 0 0 0 0 0 0 1 0 1 0 0 0 1 0 1 Colombia 1 3 4 0 1 1 2 1 3 2 0 2 5 5 10 Ecuador 0 4 4 0 1 1 1 0 1 0 0 0 1 5 6 venezuela 0 0 0 0 0 0 0 2 2 0 0 0 0 2 2

Subtotal Latin America 1 20 21 2 3 5 4 3 7 3 0 2 10 26 36

Australia 0 2 2 0 0 0 0 0 0 0 0 0 0 2 2

Middle East/Africa/CIS Gabon 0 0 0 0 0 0 0 0 0 1 0 1 1 0 1 Algeria 0 0 0 0 0 0 2 0 2 3 0 3 5 0 5 Kazakhstan 2 0 2 2 0 2 0 0 0 1 0 1 5 0 5 Libya 0 0 0 0 0 0 0 0 0 0 1 1 0 1 1 Tanzania 0 0 0 0 0 0 0 1 1 0 0 0 0 1 1 Oman 1 5 6 0 3 3 0 0 0 0 0 0 1 8 9 Saudi Arabia 0 1 1 2 0 2 6 0 6 10 2 12 18 3 21 U.A.E. 0 1 1 0 0 0 0 0 0 0 0 0 0 1 1 Yemen 0 1 1 4 0 4 2 0 2 0 0 0 6 1 7

Subtotal Middle East/Africa/CIS 3 8 11 8 3 11 10 1 11 15 3 18 36 15 51

Joint ventures Saudi Arabia 0 4 4 0 0 0 4 0 4 1 0 1 5 4 9

Jv Inventory 0 8 8 0 0 0 0 0 0 0 0 0 0 8 8

Subtotal Joint ventures 0 12 12 0 0 0 4 0 4 1 0 1 5 12 17

Inventory 0 8 8 0 1 1 0 0 0 0 1 1 0 10 10

total international 4 50 54 10 7 17 18 4 22 19 4 22 51 65 116

total Global land Drilling fleet 36 207 243 71 79 150 91 42 133 80 11 90 278 339 617

30 | nbr

nBr y e a r E n d e d D e c e m b e r 3 1,

(in thousands, except per share amounts and ratio data) 2006 2005 2004 2003 2002 2001 2000 1999 1998

Operating revenues and Earnings from unconsolidated affiliates $ 4,840,707 $ 3,465,579 $ 2,398,088 $ 1,890,186 $ 1,481,218 $ 2,228,070 $ 1,414,943 $ 670,186 $ 1,007,864

Depreciation and amortization, and depletion 409,707 338,532 300,399 235,127 195,365 189,896 152,413 99,893 84,949

Net income 1,020,736 648,695 302,457 192,228 121,489 357,450 137,356 27,704 124,988

Earnings per diluted share $ 3.40 $ 2.00 $ .96 $ .62 $ .40 $ 1.12 $ .45 $ .12 $ .58

Weighted-average number of diluted common shares outstanding 299,827 324,378 328,060 313,794 299,993 337,580 304,834 240,898 225,109

Capital expenditures and acquisitions of businesses $ 1,997,971 $ 1,003,269 $ 544,429 $ 353,138 $ 702,843 $ 803,241 $ 334,279 $ 837,732 $ 315,057

Interest coverage ratio 39.2 : 1 26.1 : 1 13.1 : 1 6.3 : 1 5.5 : 1 12.4 : 1 10.6 : 1 5.3 : 1 19.3 : 1

fInAncIAL hIghLIghTs

oPErAtinG DAtA

nbr | 31

nBrbAlAnCE shEEt DAtA

GEoGrAPhiC Distribution of rEVEnuEs AnD AssEts

A s o f D e c e m b e r 3 1,

(in thousands, except ratio data) 2006 2005 2004 2003 2002 2001 2000 1999 1998

Cash and investments $ 1,653,285 $ 1,646,327 $ 1,411,047 $ 1,579,090 $ 1,345,799 $ 918,637 $ 550,953 $ 111,666 $ 47,340

Working capital 1,650,496 1,264,852 821,120 1,529,691 1,077,602 1,077,841 524,437 195,817 36,822

Property, plant and equipment, net 5,410,101 3,886,924 3,275,495 2,990,792 2,801,067 2,451,386 1,835,039 1,678,664 1,127,154

Total assets 9,142,303 7,230,407 5,862,609 5,602,692 5,063,872 4,151,915 3,136,868 2,398,003 1,465,907

Long-term debt 4,004,074 1,251,751 1,201,686 1,985,553 1,614,656 1,567,616 854,777 482,600 217,034

Shareholders’ equity $ 3,536,653 $ 3,758,140 $ 2,929,393 $ 2,490,275 $ 2,158,455 $ 1,857,866 $ 1,806,468 $ 1,470,074 $ 867,469

funded debt to capital ratio: Gross 0.50 : 1 0.32 : 1 0.38 : 1 0.45 : 1 0.46 : 1 0.43 : 1 0.31 : 1 0.24 : 1 0.24 : 1 Net 0.37 : 1 0.08 : 1 0.15 : 1 0.20 : 1 0.23 : 1 0.24 : 1 0.14 : 1 0.20 : 1 0.21 : 1

y e a r E n d e d D e c e m b e r 3 1,

(in thousands) 2006 2005 2004 2003 2002 2001 2000 1999 1998

Operating revenues and Earnings from unconsolidated affiliates: United States $ 3,254,172 $ 2,296,050 $ 1,505,082 $ 1,152,272 $ 1,012,503 $ 1,859,356 $ 1,115,899 $ 448,478 $ 706,046 foreign 1,586,535 1,169,529 893,006 737,914 468,715 368,714 299,044 221,708 301,818

$ 4,840,707 $ 3,465,579 $ 2,398,088 $ 1,890,186 $ 1,481,218 $ 2,228,070 $ 1,414,943 $ 670,186 $ 1,007,864

A s o f D e c e m b e r 3 1,

(in thousands) 2006 2005 2004 2003 2002 2001 2000 1999 1998

Total assets: United States $ 5,574,206 $ 4,581,307 $ 3,788,180 $ 3,641,185 $ 3,569,657 $ 3,282,429 $ 2,649,923 $ 1,917,751 $ 1,068,193 foreign 3,568,097 2,649,100 2,074,429 1,961,507 1,494,215 869,486 486,945 480,252 397,714

$ 9,142,303 $ 7,230,407 $ 5,862,609 $ 5,602,692 $ 5,063,872 $ 4,151,915 $ 3,136,868 $ 2,398,003 $ 1,465,907

U.S. LAnd driLLing

U.S. OffShOre

U.S. LAnd weLL-Servicing

cAnAdA

internAtiOnAL

Other OperAting SegmentS

U.S. lower 48 land Drilling

alaska Drilling

Peak Oilfield Services

Ryan energy technologies

epoch well Services, inc.


Sea Mar

1.2 %

4.5 % 13.9% 12.9

% 14.5 % 5.1%

77% 68% 86% 36% 54% 112%

n a b o r s i n d u s t r i e s l t d .

e x t R a O R D i n a R y

NDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHERNDUSA OFFSHORE US WELL SERV. CANADA INTL OTHER57.1 %

6%

Nabors Management Ltd. Nabors Drilling International Limited Nabors Drilling International II Limited Sundowner Offshore International (Bermuda) Limited Hamilton, Bermuda H. Siegfried Meissner

Nabors Offshore Corporation Houston, Texas Jerry C. Shanklin

Canrig Drilling Technology Ltd. Magnolia, Texas Christopher P. Papouras

Epoch Well Services, Inc. Houston, Texas Christopher P. Papouras

Peak Oilfield Service Company Anchorage, Alaska Michael R. O’Connor

Sea Mar, a division of Pool well Services Co.Houston, Texas Van C. Dewitt

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Nabors Alaska Drilling, Inc. Anchorage, Alaska James H. Denney

Nabors Canada L.P.Calgary, Alberta Duane A. Mather

Nabors Drilling USA, LP Peak USa energy Services, ltd. Ramshorn investments, inc.Houston, Texas Joe M. Hudson

Nabors Well Services Co. and Nabors Well Services Ltd. Houston, Texas James H. Denney

Ryan Energy TechnologiesCalgary, Alberta Richard T. Ryan

principAL OperAting SUbSidiArieS And LeAd execUtiveS

OfficerS

directOrS Myron M. SheinfeldSenior Counsel, Akin, Gump, Straus, Hauer & Feld, L.L.P.

Jack WexlerDirector Emeritus

Martin J. Whitman Lead Director, Nabors Industries Ltd. Chairman and Co-Chief Investment Officer, Third Avenue Management LLC

Eugene M. IsenbergChairman and Chief Executive Officer, Nabors Industries Ltd.

Anthony G. PetrelloDeputy Chairman, President and Chief Operating Officer, Nabors Industries Ltd.

James L. Payne Chairman and Chief Executive Officer, Shona Energy Company, LLC.

Hans W. Schmidt Former Director, Deutag Drilling

Alexander M. KnasterChairman and Chief Executive Officer, Pamplona Capital Management Director, TNK-BP

Daniel McLachlinVice President – Administration and Corporate Secretary

Bruce P. KochVice President and Chief Financial Officer

Eugene M. IsenbergChairman and Chief Executive Officer

Anthony G. PetrelloDeputy Chairman, President and Chief Operating Officer

OffiCeRS anD DiReCtORS

n a b o r s i n d u s t r i e s l t d . a n d S u b s i d i a r i e s

This annual report includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties, as disclosed by Nabors from time to time in its filings with the Securities and Exchange Commission, and include uncertainties associated with the outcome of the review of historical stock option award practices described above. As a result of these factors, Nabors’ actual results may differ materially from those indicated or implied by such forward-looking statements.

nabors industries ltd .

2006 annual report

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