Dear Shareholders

A robust fourth quarter provided the strongest evidence yet that we reached the bottom of the trough in 2010 and supports our conviction that we will see significant improvement in our consolidated results in 2011 and beyond. Earnings per share from continuing operations stood at $1.03 for the year, excluding certain items, with operating income of $655.4 million. Both of these numbers are likely to increase substantially in the coming year.

Our North American land businesses were the primary contributors to these results, achieved despite an extremely weak natural gas market which has historically provided as much as 70 percent of our operating cash flow. Nabors Canada was up significantly after a prior year loss and Nabors Well Services also showed significant improvement during the year. While it was down slightly year over year, our U.S. Lower 48 land drilling operation led the way by finishing the year on a strong note. This unit rapidly adapted to changes in drilling activity by relocating rigs from declining gas areas to robust, oil-directed areas where pricing and utilization are higher. The quality and capabilities of its new rig designs were evident in the award of 26 new-build contracts in 2010, as well as three economically equivalent SCR upgrades, and we regularly field inquiries for additional AC rigs. This unit continues to innovate with the introduction of new styles of rigs engineered for specific environments, like our B-series rigs in the Bakken and our soon-to-be deployed S-series rigs in the Marcellus.

The strong performance in North America is the result of the extraordinary success that we have achieved in the emerging U.S. oil and gas shales, a resource base long known, but heretofore thought to be non-commercial. The keys to unlocking these unconventional resources have been rapid advances in hydraulic fracturing and, to a lesser extent, improvements in horizontal drilling technology. These are being applied most successfully in longer horizontal wells where the wellbore is subdivided into multiple fracturing sections referred to as stages. As this technology advances further, the average number of stages per well continues to grow, requiring more pressure pumping capacity and generating more revenue per well. The resulting hydraulic fracturing market boom validates the wisdom and the timeliness of the Superior Well Services acquisition, a big step in moving the company from a drilling company to a drilling and completion company.

Superior’s contributions are obvious and immediate. But less obvious is the forward growth in operating income this previously capital-constrained company is driving utilizing Nabors’ financial resources. These drivers include a 70 percent expansion in Superior’s pumping capacity, a significant addition to Nabors Well Services’ fluids management division, and the exploitation of emerging opportunities in international markets made possible and expedited by Nabors’ global infrastructure.

The strong performance by our North American units was partially offset by our International unit where year-over-year results were down $111 million, divided almost equally between two principal markets, Saudi Arabia and Mexico. Less significant was an estimated $40 million reduction in anticipated income from our U.S. Offshore unit resulting from the blowout in the Gulf of Mexico and the subsequent drilling moratorium and delays in permitting. The year was not without notable achievements for this unit, however, as it secured awards for two 4,000 HP state-of-the-art deepwater platform drilling rigs that are expected to deploy at the end of 2012.

Our financial position and access to low-cost capital remains stable as evidenced by the placement of $700 million in ten-year notes at five percent interest, primarily to finance the acquisition of Superior. When combined with prospective operating cash flow, the proceeds from the sale of our Colombian E&P properties and the use of our credit lines, we anticipate having sufficient liquidity to redeem the remaining $1.4 billion in convertible notes due May 15 and still fund an ambitious capital expenditure program.

Safety remains a priority at Nabors and 2010 was no exception. We continue to believe that zero incidents is achievable and we took steps during the year to move closer to that number. Of note was the implementation of our Mission to Zero campaign, a corporate-wide initiative that involves every level of management in the safety process. We also introduced numerous other programs tailored to the specific needs of our various businesses. Our safety initiatives in recent years have succeeded in reducing our global incident rate by 54 percent since 2005.

We are very optimistic about the prospects for 2011 with strong growth anticipated in all of our North American businesses, other than Alaska, and a prospective second half turnaround internationally. We expect each quarter to improve sequentially and top the corresponding quarter in 2010, even though our consolidated results during the first half will be impacted by approximately $90 million in International income reductions from three non-recurring events: lower market rates on three jack-up renewals, scheduled downtime for regulatory inspections on four jack-ups and approximately 360 days of downtime to accomplish upgrades on six land rigs in Saudi Arabia in preparation for long-term gas drilling contracts. Despite the magnitude of these items, we still expect International income in 2011 to approximate 85 percent of 2010, with a prospective fourth quarter annualized run rate that far exceeds that result as rig activity increases.

Our larger North American businesses will again be the primary drivers of our 2011 results, specifically our U.S. Pressure Pumping unit along with our U.S. Lower 48 and Canadian drilling and workover businesses. Strong pricing and additions to capacity will fuel both our U.S. Pressure Pumping and our U.S. Lower 48 land drilling segments. Nabors Well Services is poised to double its results through sustained high oil prices and the synergies inherent in the Superior and Energy Contractors acquisitions. Nabors Canada is also likely to improve significantly as strong oil prices couple with stringent cost cutting and an improving regulatory environment.

In summary, let me say that not only are we well positioned for the continuing upturn in our markets, we are also fully prepared to make the capital investment required to equip the various components of the company to capitalize on what we believe is an expanding field of opportunities. These investment opportunities and the tremendous operating leverage we enjoy in response to pricing and volume improvements should drive much higher results in the future. As they do, we believe you will have an even better appreciation for the value of your investment in Nabors.

Sincerely,

Eugene M. Isenberg
Chairman and Chief Executive Officer