We often discuss expectations regarding our future markets, demand for our products and services, and our performance in our annual and quarterly reports, press releases, and other written and oral statements. Statements that relate to matters that are not historical facts are "forward-looking statements" within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Exchange Act. These "forward-looking statements" are based on an analysis of currently available competitive, financial and economic data and our operating plans. They are inherently uncertain and investors should recognize that events and actual results could turn out to be significantly different from our expectations. By way of illustration, when used in this document, words such as "anticipate," "believe," "expect," "plan," "intend," "estimate," "project," "will," "should," "could," "may," "predict" and similar expressions are intended to identify forward-looking statements.

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

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

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

• fluctuations in the demand for our services;

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

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

• the existence of regulatory and legislative uncertainties;

• the possibility of changes in tax laws;

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

• general economic conditions including the capital and credit markets.

Our businesses depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Therefore, a sustained increase or decrease in the price of natural gas or oil, which could have a material impact on exploration, development and production activities, could also materially affect our financial position, results of operations and cash flows.

The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider. For a more detailed description of risk factors, please refer to our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission under Part I, Item 1A. - Risk Factors.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "we," "us," "our," "Company," or "Nabors" means Nabors Industries Ltd. and, where the context requires, includes our subsidiaries.

Management Overview

The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of our operations and our financial condition. This information is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to our consolidated financial statements.

Nabors is the largest land drilling contractor in the world, with approximately 534 actively marketed land drilling rigs. We conduct oil, gas and geothermal land drilling operations in the U.S. Lower 48 states, Alaska, Canada, South America, Mexico, the Caribbean, the Middle East, the Far East, Russia and Africa. We are also

one of the largest land well-servicing and workover contractors in the United States and Canada. We actively market approximately 591 land workover and well-servicing rigs in the United States, primarily in the southwestern and western United States, and actively market approximately 172 land workover and well-servicing rigs in Canada. Nabors is a leading provider of offshore platform workover and drilling rigs, and actively markets 39 platform rigs, 13 jack-up units and 3 barge rigs in the United States and multiple international markets. These rigs provide well-servicing, workover and drilling services. We have a 51% ownership interest in a joint venture in Saudi Arabia, which owns and actively markets 9 rigs in addition to the rigs we lease to the joint venture. We also offer a wide range of ancillary well-site services, including engineering, transportation, construction, maintenance, well logging, directional drilling, rig instrumentation, data collection and other support services in selected domestic and international markets. We provide logistics services for onshore drilling in Canada using helicopters and fixed-winged aircraft. We manufacture and lease or sell top drives for a broad range of drilling applications, directional drilling systems, rig instrumentation and data collection equipment, pipeline handling equipment and rig reporting software. We also invest in oil and gas exploration, development and production activities in the U.S., Canada and international areas through both our wholly-owned subsidiaries and our separate joint venture entities in which we have 49.7% ownership interests in the U.S. and international entities and a 50% ownership interest in the Canadian entity. Each joint venture pursues development and exploration projects with both existing customers of ours and with other operators in a variety of forms including operated and non-operated working interests, joint ventures, farm-outs and acquisitions.

The majority of our business is conducted through our various Contract Drilling operating segments, which include our drilling, workover and well-servicing operations, on land and offshore. Our oil and gas exploration, development and production operations are included in a category labeled Oil and Gas for segment reporting purposes. Our operating segments engaged in drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction and logistics operations are aggregated in a category labeled Other Operating Segments for segment reporting purposes.

Our businesses depend, to a large degree, on the level of spending by oil and gas companies for exploration, development and production activities. Therefore, a sustained increase or decrease in the price of natural gas or oil, which could have a material impact on exploration, development and production activities, could also materially affect our financial position, results of operations and cash flows.

Natural gas prices are the primary drivers of our U.S. Lower 48 Land Drilling and Canadian Contract Drilling operations, while oil prices are the primary driver in our Alaskan, International, U.S. Offshore (Gulf of Mexico), Canadian well-servicing and U.S. Land Well-servicing operations. The Henry Hub natural gas spot price (per Bloomberg) averaged $7.91 per million cubic feet (mcf) during the period from April 1, 2008 through March 31, 2009, up from a $7.32 per mcf average during the period from April 1, 2007 through March 31, 2008. West Texas intermediate spot oil prices (per Bloomberg) averaged $86.68 per barrel during the period from April 1, 2008 through March 31, 2009, up from a $81.97 per barrel average during the period from April 1, 2007 through March 31, 2008.

While average spot prices over the preceding two years reflect increasing natural gas and oil prices, beginning in the fourth quarter of 2008, there was a significant reduction in the demand for natural gas that was caused, at least in part, by the significant deterioration of the global economic environment including the extreme volatility in the capital and credit markets. This resulted in gas prices declining significantly by approximately 50% from the third quarter of 2008 average of $9.07 per mcf to the first quarter of 2009 average of $4.56 per mcf. Oil prices also declined significantly by approximately 63% from the third quarter

of 2008 average of $118.23 per barrel to the first quarter of 2009 average of $43.18 per barrel. The following table sets forth natural gas and oil price data per Bloomberg for each quarter over the preceding two years:

Commodity prices:

                               Gas(1)                                                 Oil(2)
                            Twelve-Month                                           Twelve-Month
                            Period Ended                                           Period Ended
                      March 31,       March 31,          Increase/           March 31,       March 31,          Increase/
Time Period             2009            2008            (Decrease)             2009            2008             (Decrease)

April - June         $     11.36     $      7.53     $  3.83        51 %    $    123.80     $     64.95     $  58.85        91 %
July - September            9.07            6.18        2.89        47 %         118.23           75.24        42.99        57 %
October - December          6.42            6.98        (.56 )      (8 )%         59.06           90.49       (31.43 )     (35 )%
January - March             4.56            8.64       (4.08 )     (47 )%         43.18           97.86       (54.68 )     (56 )%

12 month average            7.91            7.32                                  86.68           81.97

(1) Represents the Henry Hub natural gas spot price ($/million cubic feet (mcf))

(2) Represents the Average West Texas intermediate crude oil spot price ($/barrel)

The factors affecting natural gas and oil prices, as discussed above, are also adversely affecting our customers' spending plans for exploration, production and development activities which has had a significant negative impact on our operations beginning in the latter part of 2008 and could materially affect our future financial results.

Operating revenues and Earnings (losses) from unconsolidated affiliates for the three months ended March 31, 2009 totaled $1.1 billion, representing a decrease of $161.8 million, or 12% as compared to the three months ended March 31, 2008. Adjusted income derived from operating activities and net income for the three months ended March 31, 2009 totaled $199.1 million and $125.2 million ($.44 per diluted share), respectively, representing decreases of 30% and 41%, respectively, compared to the three months ended March 31, 2008.

Our operating results were negatively impacted as a result of non-cash pre-tax charges arising from an oil and gas ceiling test writedown. Our Earnings (losses) from unconsolidated affiliates includes an impairment charge of $75.0 million, representing our proportionate share of a non-cash pre-tax ceiling test writedown from our U.S. joint venture during the three months ended March 31, 2009. Additionally, the decrease in our adjusted income derived from operating activities during the three months ended March 31, 2009 compared to the prior year quarter related to our U.S. Well-servicing and Canada Contract Drilling and well-servicing operations where activity levels have decreased substantially in response to uncertainty in the financial markets and commodity price deterioration. Operating results were further negatively impacted by higher levels of depreciation expense due to our recent capital expenditures. Partially offsetting the decreases in our adjusted income derived from operating activities were the increases in operating results from our U.S. Offshore and International operations and, to a lesser extent, from our Alaska operations.

Our operating results for 2009 are expected to decrease from levels realized during 2008 given our current expectation of the continuation of lower commodity prices during 2009 and the related impact on drilling and well-servicing activity and dayrates. The decrease in drilling activity and dayrates is expected to have a significant impact on our U.S. Lower 48 Land Drilling and our U.S. Land Well-servicing operations. In our U.S. Lower 48 Land Drilling operations, our rig count has decreased from 152 rigs at March 31, 2009 to 133 rigs currently operating as of May 4, 2009. Our Well-servicing activity is down approximately 10% from March 31, 2009 of 55,406 hours when compared to rig hours for April 2009. We expect our International operations to increase during 2009 resulting from the deployment of new and incremental rigs under long-term contracts and the renewal of multi-year contracts.

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

                                                        Three Months Ended March 31,               Increase/
                                                           2009                2008                (Decrease)
(In thousands, except percentages and rig activity)

Reportable segments:
Operating revenues and Earnings (losses) from
unconsolidated affiliates:
Contract Drilling:(1)
U.S. Lower 48 Land Drilling                           $       389,879       $   407,061      $  (17,182 )        (4 )%
U.S. Land Well-servicing                                      134,362           171,141         (36,779 )       (21 )%
U.S. Offshore                                                  60,392            51,455           8,937          17 %
Alaska                                                         62,782            54,369           8,413          15 %
Canada                                                        112,145           178,852         (66,707 )       (37 )%
International                                                 342,656           303,572          39,084          13 %

Subtotal Contract Drilling(2)                               1,102,216         1,166,450         (64,234 )        (6 )%
Oil and Gas(3)(4)                                             (60,044 )          14,040         (74,084 )      (528 )%
Other Operating Segments(5)(6)                                156,917           165,782          (8,865 )        (5 )%
Other reconciling items(7)                                    (65,471 )         (50,865 )       (14,606 )       (29 )%

Total                                                 $     1,133,618       $ 1,295,407      $ (161,789 )       (12 )%

Adjusted income (loss) derived from operating
activities:(8)
Contract Drilling:
U.S. Lower 48 Land Drilling                           $       129,242       $   126,871      $    2,371           2 %
U.S. Land Well-servicing                                       13,658            30,386         (16,728 )       (55 )%
U.S. Offshore                                                  16,830             6,458          10,372         161 %
Alaska                                                         20,825            17,783           3,042          17 %
Canada                                                         13,175            41,973         (28,798 )       (69 )%
International                                                 102,975            90,650          12,325          14 %

Subtotal Contract Drilling(2)                                 296,705           314,121         (17,416 )        (6 )%
Oil and Gas(3)(4)                                             (71,334 )          (4,852 )       (66,482 )       n/a (9)
Other Operating Segments(5)(6)                                 19,104            12,434           6,670          54 %
Other reconciling items(10)                                   (45,392 )         (35,272 )       (10,120 )       (29 )%

Total                                                         199,083           286,431         (87,348 )       (30 )%
Interest expense                                              (67,078 )         (46,692 )       (20,386 )       (44 )%
Investment income                                               9,141            26,182         (17,041 )       (65 )%
(Losses) gains on sales, retirements and
impairments of long-lived assets and other income
(expense), net                                                 17,297            (8,097 )        25,394         314 %

Income before income taxes                            $       158,443       $   257,824      $  (99,381 )       (39 )%

Rig activity:
Rig years:(11)
U.S. Lower 48 Land Drilling                                     192.8             225.7           (32.9 )       (15 )%
U.S. Offshore                                                    15.3              16.1             (.8 )        (5 )%
Alaska                                                           11.9              10.6             1.3          12 %
Canada                                                           34.4              49.4           (15.0 )       (30 )%
International(12)                                               114.0             117.8            (3.8 )        (3 )%

Total rig years                                                 368.4             419.6           (51.2 )       (12 )%

Rig hours:(13)
U.S. Land Well-servicing                                      179,567           259,477         (79,910 )       (31 )%
Canada Well-servicing                                          50,224            79,137         (28,913 )       (37 )%

Total rig hours                                               229,791           338,614        (108,823 )       (32 )%

(1) These segments include our drilling, workover and well-servicing operations, on land and offshore.

(2) Includes earnings (losses), net from unconsolidated affiliates, accounted for by the equity method, of $1.3 million and $6.8 million for the three months ended March 31, 2009 and 2008, respectively.

(3) Represents our oil and gas exploration, development and production operations. Includes $(75.0) million, representing our proportionate share of non-cash pre-tax ceiling test writedown from our U.S. joint venture for the three months ended March 31, 2009.

(4) Includes earnings (losses), net from unconsolidated affiliates, accounted for by the equity method, of $(72.2) million and $(17.9) million for the three months ended March 31, 2009 and 2008, respectively.

(5) Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction and logistics operations.

(6) Includes earnings (losses), net from unconsolidated affiliates, accounted for by the equity method, of $6.5 million and $6.7 million for the three months ended March 31, 2009 and 2008, respectively.

(7) Represents the elimination of inter-segment transactions.

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

(9) The percentage is so large that it is not meaningful.

(10) Represents the elimination of inter-segment transactions and unallocated corporate expenses.

(11) Excludes well-servicing rigs, which are measured in rig hours. Includes our equivalent percentage ownership of rigs owned by unconsolidated affiliates. Rig years represent a measure of the number of equivalent rigs operating during a given period. For example, one rig operating 182.5 days during a 365-day period represents 0.5 rig years.

(12) International rig years include our equivalent percentage ownership of rigs owned by unconsolidated affiliates which totaled 2.8 years and 4.0 years during the three months ended March 31, 2009 and 2008, respectively.

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

Segment Results of Operations

Contract Drilling

Our Contract Drilling operating segments contain one or more of the following
operations: drilling, workover and well-servicing, on land and offshore.

U.S. Lower 48 Land Drilling. The results of operations for this reportable
segment are as follows:


                                                         Three Months Ended March 31,                Increase
                                                           2009                 2008                (Decrease)
(In thousands, except percentages and rig activity)

Operating revenues and Earnings from unconsolidated
affiliates                                            $      389,879       $      407,061      $ (17,182 )       (4 )%
Adjusted income derived from operating activities     $      129,242       $      126,871      $   2,371          2 %
Rig years                                                      192.8                225.7          (32.9 )      (15 )%

Operating revenues and Earnings from unconsolidated affiliates decreased during the three months ended March 31, 2009 compared to the prior year quarter primarily due to a decline in drilling activity driven by lower natural gas prices beginning in the fourth quarter of 2008 and diminished demand as customers released

rigs and delayed drilling projects in response to the nation's economic recession. Operating revenues earned during the three months ended March 31, 2009 includes $31.3 million related to early contract termination revenue including approximately $5.4 million which would have been earned during the quarter regardless of early termination. Additional revenues corresponding to early termination of contracts are expected to be recognized after the first fiscal quarter.

The increase in adjusted income derived from operating activities during the three months ended March 31, 2009 over the prior year quarter reflects the impact of early contract termination revenues for which there are no associated direct costs. This increase was partially offset by higher depreciation expense related to capital expansion projects completed in recent years.

U.S. Land Well-servicing. The results of operations for this reportable segment are as follows:

                                                         Three Months Ended March 31,                Increase
                                                           2009                 2008                (Decrease)
(In thousands, except percentages and rig activity)

Operating revenues and Earnings from unconsolidated
affiliates                                            $      134,362       $      171,141      $ (36,779 )      (21 )%
Adjusted income derived from operating activities     $       13,658       $       30,386      $ (16,728 )      (55 )%
Rig hours                                                    179,567              259,477        (79,910 )      (31 )%

Operating results decreased during the three months ended March 31, 2009 over the prior year quarter as a result of lower rig utilization driven by lower customer demand stemming from lower oil prices. Operating results were further negatively impacted as a result of higher depreciation expense related to capital expansion projects completed in recent years.

U.S. Offshore. The results of operations for this reportable segment are as follows:

                                                        Three Months Ended March 31,                 Increase
                                                         2009                  2008                 (Decrease)
(In thousands, except percentages and rig activity)

Operating revenues and Earnings from
unconsolidated affiliates                           $       60,392        $       51,455       $  8,937          17 %
Adjusted income derived from operating activities   $       16,830        $        6,458       $ 10,372         161 %
Rig years                                                     15.3                  16.1            (.8 )        (5 )%

The increase in operating results during the three months ended March 31, 2009 as compared to the prior year quarter primarily resulted from higher average dayrates and utilization for the MASE® platform drilling rigs and the Sundowner platform workover rigs, partially offset by declining average dayrates and utilization of our Barge drilling and workover rigs.

Alaska. The results of operations for this reportable segment are as follows:

                                                       Three Months Ended March 31,
                                                        2009                   2008                Increase (Decrease)
(In thousands, except percentages and rig activity)

Operating revenues and Earnings from
unconsolidated affiliates                          $       62,782         $       54,369        $      8,413            15 %
Adjusted income derived from operating
activities                                         $       20,825         $       17,783        $      3,042            17 %
Rig years                                                    11.9                   10.6                 1.3            12 %

The increase in operating results during the three months ended March 31, 2009 as compared to the prior year quarter is primarily due to increases in average dayrates and drilling activity. Drilling activity levels have continued to increase as a result of the deployment and utilization of rigs added to the fleet.

Canada. The results of operations for this reportable segment are as follows:

                                                                       Three Months Ended March 31,                 Increase
                                                                        2009                  2008                 (Decrease)
(In thousands, except percentages and rig activity)

Operating revenues and Earnings from unconsolidated affiliates     $      112,145        $      178,852       $ (66,707 )       (37 )%
Adjusted income derived from operating activities                  $       13,175        $       41,973       $ (28,798 )       (69 )%
Rig years                                                                    34.4                  49.4           (15.0 )       (30 )%
Rig hours                                                                  50,224                79,137         (28,913 )       (37 )%

The decrease in operating results during the three months ended March 31, 2009 as compared to the prior year quarter resulted from an overall decrease in drilling and well-servicing dayrates and activity due to lower customer demand . . .