# NABORS INDUSTRIES LTD (NBR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from NABORS INDUSTRIES LTD's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1163739/000155837024000973/nbr-20231231x10k.htm
Accession: 0001558370-24-000973
Filing date: 2024-02-12
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/NBR/
All MD&A years: /company/NBR/mda/
Previous year: /company/NBR/mda/fy2022/ (FY 2022)
Next year: /company/NBR/mda/fy2024/ (FY 2024)

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

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

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Management Overview

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

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Outlook

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

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Since late 2022 and through 2023, global energy commodity markets have experienced high levels of volatility. In the U.S., operators generally reacted to this market by reducing their drilling activity. Recent production actions announced by certain large international oil producers have been supportive of both oil prices and oil-focused activity broadly, especially in international markets. Natural gas prices, particularly in the United States, declined significantly through 2023.

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Coming into 2023 economic sentiment was overshadowed by a pervasive concern that a global recession would take hold. The U.S. Federal Reserve’s tightening of interest rates reduced capital availability in the U.S energy market. Rig counts in the U.S. Lower 48 continued to decline throughout the year. Despite the reduction in rig count, rig pricing discipline remained intact.

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Entering 2024 U.S. oil and gas production has proved resilient in the face of reduced drilling activity. Internationally, we see the expansion of production capacity as well as the widespread development of unconventional resources driving an expected increase in oilfield activity across those markets.

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Recent Developments

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1.75% Senior Exchangeable Notes Due June 2029

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In February 2023, Nabors Delaware issued $250.0 million in aggregate principal amount of 1.75% senior exchangeable notes, which are fully and unconditionally guaranteed by Nabors. The notes bear interest at a rate of 1.75% per year payable semiannually on June 15 and December 15 of each year, beginning on December 15, 2023. The notes have a maturity date of June 15, 2029.

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The exchangeable notes are currently exchangeable, under certain conditions, at an exchange rate of 4.7056 common shares of Nabors per $1,000 principal amount of exchangeable notes (equivalent to an exchange price of approximately $212.51 per common share). Upon any exchange, Nabors will settle its exchange obligation in cash, common shares of Nabors, or a combination of cash and common shares, at our election.

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NETC Merger Agreement

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In February 2023, Nabors Energy Transition Corp. (“NETC”) entered into a definitive agreement for a business combination with Vast Renewables Limited (“Vast”), a development-stage company specializing in the design and manufacturing of concentrated solar thermal power (CSP) systems. The business combination was completed in December 18, 2023 with NETC merging with and into a wholly owned subsidiary of Vast. Following the merger, Nabors now has a significant non-controlling equity investment in Vast.

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Nabors Energy Transition Corporation II

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In July 2023, Nabors Energy Transition Corp. II (“NETC II”), a special purpose acquisition company, commonly referred to as a “SPAC”, co-sponsored by Nabors completed its initial public offering of 30,500,000 units at $10.00 per unit, generating gross proceeds of approximately $305.0 million. Simultaneously with the closing of the IPO, NETC II completed the private sale of an aggregate of 9,540,000 warrants for an aggregate value of $9.5 million and issued unsecured promissory notes for an aggregate amount of $3.1 million. $308.1 million of the amount received at closing was placed into a trust account.

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NETC II was formed for the sole purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses with significant growth potential and to create value by supporting the company in the public markets. NETC II intends to identify solutions, opportunities, companies or technologies that focus on advancing the energy transition; specifically ones that facilitate, improve or complement the reduction of carbon or greenhouse gas emissions while satisfying growing energy consumption across markets globally. NETC II is accounting for as a consolidated VIE.

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9.125% Senior Priority Guaranteed Notes due January 2030

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In November 2023, Nabors issued $650.0 million in aggregate principal amount of 9.125% senior priority guaranteed notes, which are fully and unconditionally guaranteed by Nabors and certain of Nabors’ indirect wholly-owned subsidiaries. Interest on the notes is payable January 31 and July 31 of each year. The notes have a maturity date of January 31, 2030.

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5.75% Senior Notes due 2025 Redemption Notice

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On December 14, 2023, Nabors issued a redemption notice for the remaining principal of the 5.75% Senior Notes due 2025. The remaining balance of $474.1 million was redeemed on January 3, 2024.

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Financial Results

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Comparison of the years ended December 31, 2023 and 2022

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Operating revenues in 2023 totaled $3.0 billion, representing an increase of $0.4 billion, or 13%, from 2022. All of our operating segments experienced an increase in operating revenues over this period. For a more detailed description of operating results see “—Segment Results of Operations,” below.

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Net loss from continuing operations attributable to Nabors common shareholders totaled $11.8 million for 2023 ($5.49 loss per diluted share) compared to a net loss from continuing operations attributable to Nabors common shareholders of $350.3 million ($40.52 loss per diluted share) in 2022, or a $338.5 million decrease in the net loss. The decrease in net loss is attributable to improved market conditions, which has resulted in an increase of approximately $239.3 million in adjusted operating income across all of our segments from the prior year. In addition, gains related to mark-to-market activity for the common share warrants during 2023 contributed approximately $153.8 million to the decrease in net loss along with approximately $20.7 million in gains related to debt repurchases. These gains were offset by an increase of $30.6 million in foreign currency losses. See Other Financial Information —Other, net below for additional discussion.

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General and administrative expenses in 2023 totaled $244.1 million, representing an increase of $15.7 million, or 7% from 2022. This is reflective of increases in workforce costs, general operating costs and inflationary pressures as market conditions have improved and operating levels have increased.

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Research and engineering expenses in 2023 totaled $56.3 million, representing an increase of $6.4 million, or 13%, from 2022. This is primarily reflective of an increase in research and development activities, along with increased engineering support costs for the higher general operating activity levels, as market conditions have improved.

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Depreciation and amortization expense in 2023 was $645.3 million, representing a decrease of $19.8 million, or 3%, from 2022. The decrease is a result of the limited capital expenditures over recent years coupled with a higher amount of older assets reaching the end of their useful lives.

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Segment Results of Operations

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During the years ended December 31, 2023 and 2022, our business consisted of four reportable segments: U.S. Drilling, International Drilling, Drilling Solutions and Rig Technologies.

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

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

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","Year Ended December 31,","\u200b","Increase/(Decrease)","\u200b"],["\u200b","\u200b","\u200b","\u200b","2023","\u200b","2022","\u200b","2023 to 2022","\u200b"],["\u200b","\u200b","\u200b","\u200b","(In thousands, except percentages and rig activity)"],["U.S. Drilling","\u200b","\u200b","\u200b","\u200b","","","\u200b","","","\u200b","","","","","\u200b"],["Operating revenues","\u200b","\u200b","\u200b","$","1,207,629","\u200b","$","1,100,614","\u200b","$","107,015","","10","%","\u200b"],["Adjusted operating income (loss) (1)","\u200b","\u200b","\u200b","$","262,353","\u200b","$","108,506","\u200b","$","153,847","","142","%","\u200b"],["Average rigs working (2)","\u200b","\u200b","\u200b","","86.3","\u200b","","97.2","\u200b","","(10.9)","","(11)","%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["International Drilling","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating revenues","\u200b","\u200b","\u200b","$","1,345,249","\u200b","$","1,199,282","\u200b","$","145,967","","12","%","\u200b"],["Adjusted operating income (loss) (1)","\u200b","\u200b","\u200b","$","40,868","\u200b","$","(879)","\u200b","$","41,747","","n/m (3)","\u200b","\u200b"],["Average rigs working (2)","\u200b","\u200b","\u200b","","77.6","\u200b","","74.2","\u200b","","3.4","","5","%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Drilling Solutions","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating revenues","\u200b","\u200b","\u200b","$","301,757","\u200b","$","243,349","\u200b","$","58,408","","24","%","\u200b"],["Adjusted operating income (loss) (1)","\u200b","\u200b","\u200b","$","110,957","\u200b","$","77,868","\u200b","$","33,089","","42","%","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Rig Technologies","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Operating revenues","\u200b","\u200b","\u200b","$","242,768","\u200b","$","195,129","\u200b","$","47,639","","24","%","\u200b"],["Adjusted operating income (loss) (1)","\u200b","\u200b","\u200b","$","19,529","\u200b","$","8,906","\u200b","$","10,623","","119","%","\u200b"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Adjusted operating income (loss) is our measure of segment profit and loss. See Note 18 \u2013 Segment Information to the consolidated financial statements included in Item 8 of the report."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(2)","Represents a measure of the average number of rigs operating during a given period. For example, one rig operating 45 days during a quarter represents approximately 0.5 average rigs working for the quarter. On an annual period, one rig operating 182.5 days represents approximately 0.5 average rigs working for the year."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["(3)","The percentage is so large that it is not meaningful."]]
[[/GREPCENT_TABLE]]

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U.S. Drilling

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Operating revenues increased by $107.0 million or 10% in 2023 compared to 2022. The increase is primarily attributable to an increase in day rates, as pricing for our services has improved. Adjusted operating income increased by $153.8 million. The component of the revenue increase driven by the day rates contributed directly to the increase in adjusted operating income. Also, depreciation was lower due to the limited capital expenditures over recent years.

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International Drilling

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Operating revenues increased by $146.0 million or 12% in 2023 compared to 2022. The increase is attributable to an increase in day rates, as pricing for our services has improved and a 5% increase in the average rigs working, reflecting increased drilling activity as market conditions and demand for our drilling services have increased since the prior year.

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Drilling Solutions

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Operating revenues increased by $58.4 million or 24% in 2023 compared to 2022 as market conditions and demand for our services have rebounded.

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Rig Technologies

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Operating revenues increased by $47.6 million or 24% in 2023 compared to 2022 as market conditions and demand for our services have improved since the prior year.

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Other Financial Information

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Interest expense

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Interest expense for 2023 was $185.3 million, representing an increase of $7.4 million, or 4%, compared to 2022. The increase was primarily due to an increase in our effective interest rate levels on our outstanding debt throughout 2023 as compared 2022.

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Other, net

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Other, net for the year ended December 31, 2023 was a gain of $0.7 million, compared to $127.1 million of loss during 2022. During 2023, $54.7 million of the gain was from mark-to-market gains related to the common share warrants and $25.3 million was from gains on debt repurchases. This gain was offset by $37.3 million in foreign currency losses, $26.5 million for litigation reserves and $13.9 million from loss on sale of assets. In comparison, during 2022, $99.2 million was from mark-to-market losses of the common share warrants and $15.2 million from increases in litigation reserves. (see Note 12 — Shareholders’ Equity in Part II, Item 8.—Financial Statements and Supplementary Data for discussion of the common stock warrants).

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Income taxes

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Our worldwide income tax expense for 2023 was $79.2 million compared to $61.5 million for 2022. The increase in tax expense was primarily attributable to changes in the amount and the geographic mix of our pre-tax earnings (losses) in the jurisdictions in which we operate.

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Liquidity and Capital Resources

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Financial Condition and Sources of Liquidity

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Our primary sources of liquidity are cash and investments, availability under the 2022 Credit Agreement and cash generated from operations. As of December 31, 2023, we had cash and short-term investments of $1.1 billion, of which $629.6 million was deployed on January 2024 to redeem the remaining $474.1 million of 5.75% Senior Notes due 2025 and the remaining $155.5 million of 0.75% senior exchangeable notes due 2024, and working capital of $431.7 million. As of December 31, 2022, we had cash and short-term investments of $452.3 million and working capital of $404.2 million.

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At December 31, 2023, we had no borrowings outstanding under the 2022 Credit Agreement, which has a total borrowing capacity of $350.0 million.

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The 2022 Credit Agreement requires us to maintain an interest coverage ratio (EBITDA/interest expense) of 2.50:1:00, which increases to 2.75:1:00 by June 30, 2024 and a minimum guarantor value, requiring the guarantors (other than the Company) and their subsidiaries to own at least 90% of the consolidated property, plant and equipment of the Company. Additionally, the Company is subject to certain covenants (which are subject to certain exceptions) and include, among others, (a) a covenant restricting our ability to incur liens (subject to the additional liens basket of up to $150.0 million), (b) a covenant restricting our ability to pay dividends or make other distributions with respect to its capital stock and to repurchase certain indebtedness, and (c) a covenant restricting the ability of the Company’s subsidiaries to incur debt (subject to the grower basket of up to $100.0 million). We had $47.8 million of letters of credit outstanding under the 2022 Credit Agreement.

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As of the date of this report, we were in compliance with all covenants under the 2022 Credit Agreement, including those regarding the required interest coverage ratio and minimum guarantor value, which were 5.17:1.00 and 99.77%, respectively, as of December 31, 2023. If we fail to perform our obligations under the covenants, the revolving credit commitments under the 2022 Credit Agreement could be terminated, and any outstanding borrowings under the facilities could be declared immediately due and payable. If necessary, we have the ability to manage our covenant compliance by taking certain actions including reductions in discretionary capital or other types of controllable expenditures, monetization of assets, amending or renegotiating the revolving credit agreement, accessing capital markets through a variety of alternative methods, or any combination of these alternatives. We expect to remain in compliance with all covenants under the 2022 Credit Agreement during the twelve-month period following the date of this report based on

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our current operational and financial projections. However, we can make no assurance of continued compliance if our current projections or material underlying assumptions prove to be incorrect. If we fail to comply with the covenants, the revolving credit commitment could be terminated, and any outstanding borrowings under the facility could be declared immediately due and payable.

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

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We had 8 letter-of-credit facilities with various banks outstanding as of December 31, 2023. Availability under these facilities was as follows:

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","","December 31,"],["\u200b","\u200b","2023"],["\u200b","\u200b","(In thousands)"],["Credit available","\u200b","$","313,667","\u200b"],["Less: Letters of credit outstanding, inclusive of financial and performance guarantees","\u200b","","114,937","\u200b"],["Remaining availability","\u200b","$","198,730","\u200b"]]
[[/GREPCENT_TABLE]]

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We are a holding company and therefore rely exclusively on repayments of interest and principal on intercompany loans that we have made to our operating subsidiaries and income from dividends and other cash flows from our operating subsidiaries. There can be no assurance that our operating subsidiaries will generate sufficient net income to pay us dividends or sufficient cash flows to make payments of interest and principal to us. See Part I., Item 1A.—Risk Factors—As a holding company, we depend on our operating subsidiaries and investments to meet our financial obligations.

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Accounts Receivable Purchase and Sales Agreements

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On September 13, 2019, we entered into an accounts receivables sales agreement (the “A/R Sales Agreement”) and an accounts receivables purchase agreement (the “A/R Purchase Agreement” and, together with the A/R Sales Agreement, the “A/R Agreements”), whereby the originators, all of whom are our subsidiaries, sold or contributed, and will on an ongoing basis continue to sell or contribute, certain of their domestic trade accounts receivables to a wholly-owned, bankruptcy-remote special purpose entity (“SPE”). The SPE in turn, sells, transfers, conveys and assigns to third-party financial institutions (“Purchasers”), all the rights, title and interest in and to its pool of eligible receivables.

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On July 13, 2021, we entered into the First Amendment to the A/R Purchase Agreement which, among other things, reduced the commitments of the third-party financial institutions (the “Purchasers”) from $250 million to $150 million.

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On June 27, 2022, we entered into the Third Amendment to the A/R Purchase Agreement which extended the term of the Purchase Agreement to August 13, 2024 and increased the commitments of the Purchasers from $150 million to $250 million. Subject to Purchaser approval, the A/R Purchase Agreement allows for purchase commitments to be increased to $300 million.

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The amount available for purchase under the A/R Agreements fluctuates over time is based on the total amount of eligible receivables generated during the normal course of business after excluding excess concentrations and certain other ineligible receivables. The maximum purchase commitment of the Purchasers under the A/R Agreements is approximately $250.0 million and the amount of receivables purchased by the third-party Purchasers as of December 31, 2023 was $145.0 million.

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

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Other Indebtedness

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

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Future Cash Requirements

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Our current cash and investments, projected cash flows from operations, proceeds from equity or debt issuances and the facilities under our 2022 Credit Agreement are expected to adequately finance our purchase commitments, capital expenditures, acquisitions, scheduled debt service requirements, and all other expected cash requirements for the foreseeable future. However, we can make no assurances that our current operational and financial projections will prove to be correct. A sustained period of highly depressed oil and natural gas prices could have a significant effect on our customers’ capital expenditure spending and therefore our operations, cash flows and liquidity.

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Purchase commitments outstanding on December 31, 2023 totaled approximately $351.4 million, primarily for rig-related enhancements, sustaining capital expenditures, operating expenses, and purchases of inventory. $336.5 million of the outstanding commitments are expected to be paid in 2024. Purchase commitments include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of the transaction. We can reduce planned expenditures if necessary or increase them if market conditions and new business opportunities warrant it. The level of our outstanding purchase commitments and our expected level of capital expenditures for 2023 represent a number of capital programs that are currently underway or planned.

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As of December 31, 2023, we had approximately $3.1 billion of net book value of long-term debt outstanding with $3.2 billion in aggregate principal with $629.6 million due in the next twelve months. This amount includes the remaining $474.1 million of 5.75% senior notes due February 2025 and the remaining $155.5 million balance of the 0.75% senior exchangeable notes due January 2024. We have expected aggregate future interest payments of $818.6 million related to the outstanding debt with $180.9 million due in the next twelve months. See Note 10—Debt in Part II, Item 8.—Financial Statements and Supplementary Data for additional details. Our obligations for operating leases total $38.1 million with $7.6 million of the obligations coming due in the upcoming year. See Note 20—Leases in Part II, Item 8.—Financial Statements and Supplementary Data for additional details.

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We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt securities, both in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and may involve material amounts.

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

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

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Maximum Amount"],["\u200b","","2024","","2025","","2026","","Thereafter","","Total"],["\u200b","\u200b","(In thousands)"],["Financial standby letters of credit and other financial surety instruments","\u200b","$","34,011","","61","","9,057","","4,109","\u200b","$","47,238","\u200b"]]
[[/GREPCENT_TABLE]]

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Cash Flows

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Our cash flows depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Sustained decreases in the price of oil or natural gas could have a material impact on these activities and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary capital expenditures or acquisitions, purchases and sales of investments, loans, issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions. We discuss our 2023 and 2022 cash flows below.

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Operating Activities. Net cash provided by operating activities totaled $637.9 million during 2023, compared to net cash provided of $501.1 million during 2022. Operating cash flows are our primary source of capital and liquidity.  Changes from operating results (before working capital changes) totaled $648.8 million during 2023, an increase of $195.9 million when compared to $452.8 million in 2022. This was due to the increase in activity across our business in 2023 compared to 2022. Changes in working capital items such as collection of receivables, other deferred revenue arrangements and payments of operating payables are significant factors affecting operating cash flows and can be volatile in periods of increasing or decreasing activity levels. Changes in working capital items used $10.9 million in cash flows during 2023 and provided $48.3 million in cash flows during 2022.

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Investing Activities. Net cash used for investing activities totaled $570.4 million during 2023 compared to net cash used of $368.7 million in 2022. Our primary use of cash for investing activities is for capital expenditures related to rig-related enhancements, new construction and equipment, and sustaining capital expenditures. During 2023 and 2022, we used cash for capital expenditures totaling $540.9 million and $373.4 million, respectively. We received $14.1 million in proceeds from sales of assets during 2023 compared to $26.7 million in 2022. We also invested $21.3 million in companies that focus on energy transition related technologies in 2023 compared to $19.8 million in 2022.

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Financing Activities. Net cash provided by financing activities totaled $570.4 million during 2023. During 2023, we received proceeds of $900.0 million from issuance of long-term debt and repaid $298.5 million of outstanding long-term debt. We received $305.0 million from the public offering of NETC II and made distributions of $286.4 million from the Trust Account to NETC stockholders. Cash in these trusts can only be used in connection to the business combination or winding down of the SPAC and is not available to us for general operations.

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

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Summarized Combined Financial Information for Guarantee of Securities of Subsidiaries

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Nabors Delaware is an indirect, wholly owned subsidiary of Nabors. Nabors fully and unconditionally guarantees the due and punctual payment of the principal of, premium, if any, and interest on Nabors Delaware’s registered notes, which, as of December 31, 2023, are its 5.75% Senior Notes due 2025 (the “Registered Notes”), and any other obligations of Nabors Delaware under the Registered Notes when and as they become due and payable, whether at maturity, upon redemption, by acceleration or otherwise, if Nabors Delaware is unable to satisfy these obligations. Nabors’ guarantee of Nabors Delaware’s obligations under the Registered Notes are its unsecured and unsubordinated obligation and have the same ranking with respect to Nabors’ indebtedness as the Registered Notes have with respect to Nabors Delaware’s indebtedness. In the event that Nabors is required to withhold or deduct on account of any Bermudian taxes due from any payment made under or with respect to its guarantees, subject to certain exceptions, Nabors will pay additional amounts so that the net amount received by each holder of Registered Notes will equal the amount that such holder would have received if the Bermudian taxes had not been required to be withheld or deducted.

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

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

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

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

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[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","December 31,"],["Summarized Combined Balance Sheet Information","","2023","\u200b","2022"],["\u200b","\u200b","(In thousands)"],["Assets","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["Current Assets","\u200b","$","17,142","\u200b","$","2,578"],["Non-Current Assets","\u200b","","474,387","\u200b","","458,232"],["Noncurrent assets - affiliates","\u200b","","7,012,016","\u200b","","5,733,274"],["Total Assets","\u200b","$","7,503,545","\u200b","$","6,194,084"],["\u200b","\u200b","","\u200b","\u200b","\u200b","\u200b"],["Liabilities and Stockholders\u2019 Equity","\u200b","","\u200b","\u200b","\u200b","\u200b"],["Current liabilities","\u200b","$","692,805","\u200b","$","79,941"],["Noncurrent liabilities","\u200b","","2,596,001","\u200b","","2,698,835"],["Total Liabilities","\u200b","\u200b","3,288,806","\u200b","\u200b","2,778,776"],["Stockholders\u2019 Equity","\u200b","\u200b","4,214,739","\u200b","\u200b","3,415,308"],["Total Liabilities and Stockholders\u2019 Equity","\u200b","$","7,503,545","\u200b","$","6,194,084"]]
[[/GREPCENT_TABLE]]

​

[[GREPCENT_TABLE]]
[["\u200b","\u200b","\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","\u200b","\u200b","\u200b"],["\u200b","\u200b","Year Ended December 31,"],["Summarized Combined Income Statement Information","","2023","\u200b","2022"],["\u200b","\u200b","(In thousands)"],["Total revenues, earnings (loss) from consolidated affiliates and other income","\u200b","$","330,247","\u200b","$","(148,523)"],["Income (loss), net of tax","\u200b","","226,022","\u200b","\u200b","(420,492)"],["Net income (loss) attributable to Nabors","\u200b","","226,022","\u200b","\u200b","(420,492)"]]
[[/GREPCENT_TABLE]]

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Other Matters

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Recent Accounting Pronouncements

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

Supplementary Data.

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Critical Accounting Estimates

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

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estimates. The following is a discussion of our critical accounting estimates. Management considers an accounting estimate to be critical if:

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[[GREPCENT_TABLE]]
[["","\u25cf","it requires assumptions to be made that were uncertain at the time the estimate was made; and"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated financial position or results of operations."]]
[[/GREPCENT_TABLE]]

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

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Depreciation of Property, Plant and Equipment. The drilling and drilling services industries are very capital intensive. Property, plant and equipment represented 55% of our total assets as of December 31, 2023, and depreciation and amortization constituted 22% of our total costs and other deductions in 2023.

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

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

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

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There have been no factors related to the performance of our portfolio of assets, changes in technology or other factors indicating that these estimates do not continue to be appropriate. Accordingly, for the years ended December 31, 2023, 2022 and 2021, no significant changes have been made to the depreciation rates applied to property, plant and equipment, the underlying assumptions related to estimates of depreciation, or the methodology applied. However, certain events could occur that would materially affect our estimates and assumptions related to depreciation. Unforeseen changes in operations or technology could substantially alter management’s assumptions regarding our ability to realize the return on our investment in operating assets and therefore affect the useful lives and salvage values of our assets.

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

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material charge on our consolidated statements of income (loss), management believes that accounting estimates related to impairment of long-lived assets are critical.

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Assumptions in the determination of future cash flows are made with the involvement of management personnel at the operational level where the most specific knowledge of market conditions and other operating factors exists. For 2023, 2022 and 2021, no significant changes have been made to the methodology utilized to determine future cash flows.

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

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

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Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. The fair values calculated in these impairment tests were determined using discounted cash flow models, which require the use of significant unobservable inputs, representative of a Level 3 fair value measurement. Our cash flow models involve assumptions based on our utilization of rigs or other oil and gas service equipment, revenues and earnings from affiliates, as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. Our fair value estimates of these reporting units are sensitive to varying dayrates, utilization, and costs. A significantly prolonged period of lower oil and natural gas prices, other than those assumed in developing our forecasts, or changes in laws and regulations could adversely affect the demand for and prices of our services, which could in turn result in future goodwill and other intangible asset impairment charges for these reporting units due to the potential impact on our estimate of our future operating results. Our discounted cash flow projections for each reporting unit were based on financial forecasts. The future cash flows were discounted to present value using discount rates determined to be appropriate for each reporting unit. Terminal values for each reporting unit were calculated using a Gordon Growth methodology with a long-term growth rate of approximately 2%.

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

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

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Audit claims of approximately $144.9 million attributable to income tax have been assessed against us. We have contested, or intend to contest, these assessments, including through litigation if necessary, and we believe the ultimate resolution, for which we have not made any accrual, will not have a material adverse effect on our consolidated financial statements. Tax authorities may issue additional assessments or pursue legal actions as a result of tax audits and we cannot predict or provide assurance as to the ultimate outcome of such assessments and legal actions.

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

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

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

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

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Based on the risks discussed above, it is necessary for us to estimate the level of our liability related to insurance and record reserves for these amounts in our consolidated financial statements. Reserves related to self-insurance are based on the facts and circumstances specific to the claims and our past experience with similar claims. The actual outcome of self-insured claims could differ significantly from estimated amounts. We maintain actuarially determined accruals in our consolidated balance sheets to cover self-insurance retentions for workers’ compensation, employers’ liability, general liability and automobile liability claims. These accruals are based on certain assumptions developed utilizing historical data to project future losses. Loss estimates in the calculation of these accruals are adjusted based upon actual claim settlements and reported claims. These loss estimates and accruals recorded in our financial statements for claims have historically been reasonable in light of the actual amount of claims paid.

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

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During 2023, 2022 and 2021, no significant changes were made to the methodology used to estimate insurance reserves. For purposes of earnings sensitivity analysis, if the December 31, 2023 reserves were adjusted by 10%, total costs and other deductions would change by $8.7 million, or 0.30%.

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