U.S. OFFSHORE

Results for our Offshore unit were down in 2010 as the blowout in the Gulf of Mexico and the sub-sequent drilling moratorium severely restricted activity. In order to reduce costs and preserve skilled manpower, this unit transferred over 100 employees to Nabors Drilling USA where there was a critical shortage of personnel to crew an increasing number of active rigs.

The year was highlighted by the signing of two contracts to build two 4,000 HP state-of-the-art platform drilling rigs for major operators in the Gulf of Mexico. One will be owned and operated by Nabors on a long-term contract with income commencing at the end of 2012. The second will be designed, constructed and operated by Nabors, but owned by the customer. Nabors will see some contribution to results from this rig in the first quarter of 2011 since payments are made on a percentage-completion basis.

This unit continued to improve on its remarkable safety record, completing its third year in a row without a lost-time incident. The forecast for 2011 is for a substantial improvement in results, although the outlook is still uncertain. Four small rigs are expected to commence operations in the first quarter now that shallow water workover permits are more readily available. A recent government mandate to accelerate the plugging and abandonment of some 3,500 old wells in the Gulf of Mexico is also benefitting this unit.

Our current expectation is that the deepwater rig market is unlikely to improve before the second half as federal guidelines for drilling continue to be refined. In the meantime, this unit has begun construction of a new 1,500 HP posted barge rig that is ideal for certain shallow water conditions and should be a significant contributor to results as the market improves. Meanwhile, barge rig 301 is being rigged up for deployment by our International unit on a project in Gabon.