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 relating 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 and Section 21E of the Securities Exchange Act of 1934, as amended (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 possibility of changes in tax and other laws and regulations;

† the possibility of political instability, war or acts of terrorism; 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 that has a material impact on exploration, development or 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 Part I, Item 1A. - Risk Factors in our 2011 Annual Report.

Management Overview

The following discussion and analysis 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 thereto.

The majority of our business is conducted through two business lines:

† Our Drilling and Rig Services business line includes our drilling operations for oil and natural gas wells, on land and offshore, and companies engaged in drilling technology, top drive manufacturing, directional drilling, construction services, and rig instrumentation and software.

† Our Completion and Production Services business line includes our well-servicing, fluid logistics, workover operations and our pressure pumping services.

In addition to these two primary business lines, we have an Oil and Gas operating segment. Our oil and gas exploration, development and production operations are included in our Oil and Gas operating segment, or in discontinued operations in some cases.

The magnitude of customer spending on new and existing wells is the primary driver of our business. Our customers' spending is determined principally by their internally generated cash flow and to a lesser extent by joint venture arrangements and funding from the capital markets. In our Drilling and Rig Services business line, operations have traditionally been driven by natural gas prices, but the majority of current activity is being driven by the price of oil and natural gas liquids from unconventional reservoirs (shales). In our Completion and Production Services business line, operations are primarily driven by oil prices. The Henry Hub natural gas spot price (per Bloomberg) averaged $2.74 per thousand cubic feet (mcf) during the 12-month period ended September 30, 2012, down from $4.11 per mcf average during the prior 12 months. West Texas intermediate spot crude oil prices (per Bloomberg) averaged $95.59 per barrel for the 12 months ended September 30, 2012, up from $92.80 per barrel average during the preceding 12 months.

Operating revenues and Earnings (losses) from unconsolidated affiliates for the three months ended September 30, 2012 totaled $1.7 billion, representing an increase of $24.7 million, or 2%, as compared to the three months ended September 30, 2011, and $5.1 billion for the nine months ended September 30, 2012, representing an increase of $706.4 million, or 16%, as compared to the nine months ended September 30, 2011. Adjusted income derived from operating activities and income from continuing operations for the three months ended September 30, 2012 totaled $225.5 million and $65.8 million, respectively, representing decreases of 16% and 25%, respectively, compared to the three months ended September 30, 2011. Adjusted income derived from operating activities for the nine months ended September 30, 2012 totaled $777.1 million, representing an increase of 19%, compared to the nine months ended September 30, 2011. Income from continuing operations for the nine months ended September 30, 2012 totaled $109.8 million ($.38 per diluted share), representing a decrease of 57%, compared to the corresponding prior year period.

During the three and nine months ended September 30, 2012, our income (loss) from continuing operations was negatively impacted as a result of charges arising from oil and gas full-cost ceiling test writedowns and other impairments. Earnings (losses) from unconsolidated affiliates includes full-cost ceiling test writedowns of $96.3 million and $310.0 million, respectively, for the three and nine months ended September 30, 2012, representing our proportionate share of the writedowns. Income (loss) from continuing operations for the nine months ended September 30, 2012 was further negatively impacted as a result of impairments and other charges, which included $75.0 million to impair an intangible asset related to the Superior trade name, a provision for the retirement of long-lived assets totaling $46.2 million in multiple operating segments and goodwill impairment totaling $26.3 million.

Excluding these charges, our operating results improved as a result of increased demand for our services and products due to increased drilling activity in oil- and liquids-rich shale plays and increased well-servicing activity in the U.S. and Canada. This has more than offset the drop in demand from gas-related plays.

The lower price environment for natural gas has reduced activity in our gas-driven markets and is adversely impacting our pressure pumping business as the reduced activity has created a sooner-than-anticipated oversupply of pumping equipment. Directionally, similar forces are at work on land drilling in gas-driven markets, but to a lesser degree. We anticipate a protracted weak spot market in pressure pumping operations and flat to slightly lower industry rig activity throughout 2012. While the U.S. Land Drilling and Pressure Pumping operating segments face these headwinds, we expect healthy operations in our remaining segments for the remainder of the year. The key factors supporting our views are:

† the current term contracts in both our Lower 48 Land Drilling and Pressure Pumping operating segments, combined with new and contracted rig deployments in 2012, will mitigate to a degree the continued reduction in gas drilling activity arising from weaker natural gas pricing;

† the increased activity expected in our International operations throughout the year as the result of new contracts for the deployments in international markets; and

† an expected gradual improvement in our U.S. Offshore results as the pace of permit issuance improves and contributions from a new platform construction project increase throughout 2012.

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

                             Three Months                                     Nine Months
                          Ended September 30,         Increase/           Ended September 30,         Increase/
                          2012          2011          (Decrease)          2012          2011          (Decrease)
                                           (In thousands, except percentages and rig activity)
Operating revenues
and Earnings
(losses) from
unconsolidated
affiliates from
continuing
operations: (1)
Drilling and Rig
Services:
U.S. Lower 48 Land
Drilling               $   461,860   $   430,895   $  30,965      7 %  $ 1,451,928   $ 1,214,447   $ 237,481     20 %
U.S. Offshore               66,675        46,069      20,606     45 %      207,768       116,807      90,961     78 %
Alaska                      27,249        27,027         222      1 %      121,958       100,678      21,280     21 %
Canada                     135,786       145,587      (9,801 )   (7 )%     420,469       406,004      14,465      4 %
International              329,245       281,686      47,559     17 %      940,332       809,394     130,938     16 %
Other Rig
Services(2)                188,694       190,744      (2,050 )   (1 )%     659,066       462,779     196,287     42 %
Subtotal Drilling
and Rig Services (3)     1,209,509     1,122,008      87,501      8 %    3,801,521     3,110,109     691,412     22 %
Completion and
Production Services:
U.S. Land
Well-servicing             222,034       189,356      32,678     17 %      645,740       503,752     141,988     28 %
Pressure Pumping           381,241       343,723      37,518     11 %    1,166,940       867,512     299,428     35 %
Subtotal Completion
and Production
Services                   603,275       533,079      70,196     13 %    1,812,680     1,371,264     441,416     32 %
Oil and Gas (4)            (98,805 )      34,909    (133,714 ) (383 )%    (301,801 )      56,285    (358,086 ) (636 )%
Other reconciling
items (6)                  (47,087 )     (47,769 )       682      1 %     (220,954 )    (152,639 )   (68,315 )  (45 )%
Total                  $ 1,666,892   $ 1,642,227   $  24,665      2 %  $ 5,091,446   $ 4,385,019   $ 706,427     16 %

                           Three Months                                   Nine Months
                        Ended September 30,        Increase/          Ended September 30,         Increase/
                         2012         2011         (Decrease)          2012         2011         (Decrease)
                                         (In thousands, except percentages and rig activity)
Adjusted income
(loss) derived from
operating
activities from
continuing
operations: (1)(7)
Drilling and Rig
Services:
U.S. Lower 48 Land
Drilling              $   114,884   $ 104,877   $  10,007     10 %  $   372,997   $ 284,203   $   88,794     31 %
U.S. Offshore              (3,650 )     2,457      (6,107 ) (249 )%      14,006      (2,579 )     16,585    643 %
Alaska                      3,973       3,021         952     32 %       40,288      22,328       17,960     80 %
Canada                     22,889      21,604       1,285      6 %       68,458      58,084       10,374     18 %
International              30,299      29,015       1,284      4 %       67,838     100,363      (32,525 )  (32 )%
Other Rig
Services(2)                16,207      20,175      (3,968 )  (20 )%      74,232      42,465       31,767     75 %
Subtotal Drilling
and Rig Services
(3)                       184,602     181,149       3,453      2 %      637,819     504,864      132,955     26 %
Completion and
Production
Services:
U.S. Land
Well-servicing             32,766      22,839       9,927     43 %       83,253      50,488       32,765     65 %
Pressure Pumping           47,218      65,052     (17,834 )  (27 )%     158,222     152,655        5,567      4 %
Subtotal Completion
and Production
Services                   79,984      87,891      (7,907 )   (9 )%     241,475     203,143       38,332     19 %
Oil and Gas (8)            (2,486 )    34,909     (37,395 ) (107 )%       8,230      56,285      (48,055 )  (85 )%
Other reconciling
items (9)                 (36,571 )   (34,650 )    (1,921 )   (6 )%    (110,396 )  (109,932 )       (464 )    -
                      $   225,529   $ 269,299   $ (43,770 )  (16 )% $   777,128   $ 654,360   $  122,768     19 %
Full-cost ceiling
test writedowns           (96,319 )         -     (96,319 ) (100 )%    (310,031 )         -     (310,031 ) (100 )%
Interest expense          (63,604 )   (58,060 )    (5,544 )  (10 )%    (189,717 )  (195,781 )      6,064      3 %
Investment income
(loss)                      7,224         727       6,497    894 %       32,844      12,032       20,812    173 %
Gains (losses) on
sales and
retirements of
long-lived assets
and other income
(expense), net            (10,263 )    11,607     (21,870 ) (188 )%     (21,837 )     1,100      (22,937 )  n/m (5)
Impairment and
other charges                   -     (98,072 )    98,072    100 %     (147,503 )   (98,072 )    (49,431 )  (50 )%
Income (loss) from
continuing
operations before
income taxes               62,567     125,501     (62,934 )  (50 )%     140,884     373,639     (232,755 )  (62 )%
Income tax expense
(benefit)                  (4,001 )    37,561     (41,562 ) (111 )%      28,851     118,760      (89,909 )  (76 )%
Subsidiary
preferred stock
dividend                      750         750           -      -          2,250       2,250            -      -
Income (loss) from
continuing
operations, net of
tax                        65,818      87,190     (21,372 )  (25 )%     109,783     252,629     (142,846 )  (57 )%
Income (loss) from
discontinued
operations, net of
tax                        10,826     (12,226 )    23,052    189 %       26,721      96,545      (69,824 )  (72 )%
Net income (loss)          76,644      74,964       1,680      2 %      136,504     349,174     (212,670 )  (61 )%
Less: Net (income)
loss attributable
to noncontrolling
interest                     (988 )      (708 )      (280 )  (40 )%         453         355           98     28 %
Net income (loss)
attributable to
Nabors                $    75,656   $  74,256   $   1,400      2 %  $   136,957   $ 349,529   $ (212,572 )  (61 )%

                          Three Months                             Nine Months
                      Ended September 30,      Increase/       Ended September 30,      Increase/
                       2012         2011       (Decrease)       2012         2011       (Decrease)
                                  (In thousands, except percentages and rig activity)
Rig Activity:
Rig Years: (10)
U.S. Lower 48 Land
Drilling                 193.8        201.8     (8.0 )  (4 )%     210.2        194.7     15.5     8 %
U.S. Offshore             12.8         10.8      2.0    19 %       12.9          9.4      3.5    37 %
Alaska                     4.6          4.7     (0.1 )  (2 )%       5.7          4.8      0.9    19 %
Canada                    34.0         41.8     (7.8 ) (19 )%      34.3         38.0     (3.7 ) (10 )%
International (11)       119.2        105.3     13.9    13 %      119.3        102.6     16.7    16 %
Total rig years
(3)                      364.4        364.4        -     -        382.4        349.5     32.9     9 %
Rig Hours: (12)
U.S. Land
Well-servicing         217,675      205,610   12,065     6 %    651,005      589,140   61,865    11 %
Canada
Well-servicing          43,849       49,788   (5,939 ) (12 )%   136,603      132,196    4,407     3 %
Total rig hours        261,524      255,398    6,126     2 %    787,608      721,336   66,272     9 %

(2) Includes our drilling technology and top drive manufacturing, directional drilling, rig instrumentation and software, and construction services. These services represent our other companies that are not aggregated into a reportable operating segment.

(3) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $(.7) million and $(1.2) million for the three months ended September 30, 2012 and 2011, respectively, and $(.7) million and $3.0 million for the nine months ended September 30, 2012 and 2011, respectively.

(4) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $(98.8) million and $34.9 million for the three months ended September 30, 2012 and 2011, respectively, and $(301.8) million and $56.3 million for the nine months ended September 30, 2012 and 2011, respectively.

(5) This number is so large that it is not meaningful.

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

(7) Adjusted income (loss) derived from operating activities is computed by subtracting direct costs, general and administrative expenses, and depreciation and amortization from Operating revenues and then adding Earnings (losses) from unconsolidated affiliates (excluding our proportionate share of full-cost ceiling test writedowns recorded by our oil and gas joint venture). These amounts should not be used as a substitute for those amounts reported in accordance with GAAP. However, management evaluates the performance of our business units and the consolidated company based on several criteria, including adjusted income (loss) derived from operating activities, because it believes that these financial measures accurately reflect our ongoing profitability. A reconciliation of this non-GAAP measure to income (loss) from continuing operations before income taxes, which is a GAAP measure, is provided in the above table.

(8) Includes earnings (losses), net from unconsolidated affiliates, accounted for using the equity method, of $(2.5) million (excluding our proportionate share of the full-cost ceiling test writedowns totaling $96.3 million) and $34.9 million for the three months ended September 30, 2012 and 2011, respectively, and $8.2 million (excluding our proportionate share of the full-cost ceiling test writedowns totaling $310.0 million) and $56.3 million for the nine months ended September 30, 2012 and 2011, respectively.

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

(10) 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.

(11) International rig years include our equivalent percentage ownership of rigs owned by unconsolidated affiliates, which totaled 2.5 years and 2.0 years during the three months ended September 30, 2012 and 2011, respectively, and 2.5 years and 2.0 years during the nine months ended September 30, 2012 and 2011, respectively.

(12) Rig hours represents the number of hours that our well-servicing rig fleet operated during the specified periods.

Segment Results of Operations

Drilling and Rig Services

Our Drilling and Rig Services business line includes drilling on land and offshore, drilling technology, top drive manufacturing, directional drilling, construction services, and rig instrumentation and software.

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

                      Three Months                                    Nine Months
                   Ended September 30,        Increase/           Ended September 30,          Increase/
                    2012         2011         (Decrease)          2012          2011           (Decrease)
                                     (In thousands, except percentages and rig activity)

Operating
revenues         $   461,860   $ 430,895   $ 30,965       7 %  $ 1,451,928   $ 1,214,447   $ 237,481       20 %
Adjusted
income derived
from operating
activities       $   114,884   $ 104,877   $ 10,007      10 %  $   372,997   $   284,203   $  88,794       31 %
Rig years              193.8       201.8       (8.0 )    (4 )%       210.2         194.7        15.5        8 %

Operating results increased during the three months ended September 30, 2012 compared to the corresponding 2011 period due to higher average dayrates, partially offset by a decrease in drilling activity. Operating results increased during the nine months ended September 30, 2012 compared to the corresponding 2011 period primarily due to higher average dayrates and increased drilling activity, driven by deployment of rigs into oil-rich shale areas. These increases were partially offset by increases in operating costs associated with drilling activity, as well as higher depreciation expense related to new rigs placed into service during the past year.

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

                      Three Months                                   Nine Months
                   Ended September 30,        Increase/           Ended September 30,         Increase/
                    2012          2011        (Decrease)           2012         2011         (Decrease)
                                    (In thousands, except percentages and rig activity)

Operating
revenues         $    66,675    $ 46,069   $ 20,606      45 %  $    207,768   $ 116,807   $ 90,961       78 %
Adjusted
income (loss)
derived from
operating
activities       $    (3,650 )  $  2,457   $ (6,107 )  (249 )% $     14,006   $ (2,579)   $ 16,585      643 %
Rig years               12.8        10.8        2.0      19 %          12.9         9.4        3.5       37 %

Operating revenues increased during the three and nine months ended September 30, 2012 compared to the corresponding 2011 periods resulting primarily from higher utilization for the MODS® rigs and SuperSundownerTM platform rigs, and profits related to a major construction project. The increase was partially offset by declining activities for the Sundowner® platform rigs in our shallow water areas.

Adjusted income (loss) decreased during the three months ended September 30, 2012 compared to the corresponding 2011 period due to the lower utilization for the Sundowner® platform rigs and workover jackup rigs, which produce higher margins. Adjusted income (loss) increased during the nine months ended September 30, 2012 compared to the corresponding 2011 period due to the overall higher utilization for the MODS® rigs and SuperSundownerTM platform rigs, and profits related to a major construction project.

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

                      Three Months                                    Nine Months
                   Ended September 30,         Increase/          Ended September 30,         Increase/
                    2012          2011        (Decrease)           2012         2011         (Decrease)
                                    (In thousands, except percentages and rig activity)

Operating
revenues         $    27,249    $ 27,027   $     222       1 %  $   121,958   $ 100,678   $ 21,280       21 %
Adjusted
income derived
from operating
activities       $     3,973    $  3,021   $     952      32 %  $    40,288   $  22,328   $ 17,960       80 %
Rig years                4.6         4.7        (0.1 )    (2 )%         5.7         4.8        0.9       19 %

The increase in operating results during the three and nine months ended September 30, 2012 compared to the corresponding 2011 periods was due to higher average dayrates and increased drilling activity, driven primarily by an overall increase in winter exploration activity in the first and second quarters of 2012, as well as increased camp activity and margins.

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

                      Three Months                                   Nine Months
                   Ended September 30,        Increase/          Ended September 30,         Increase/
                    2012         2011         (Decrease)          2012         2011         (Decrease)
                                    (In thousands, except percentages and rig activity)

Operating
revenues         $   135,786   $ 145,587   $ (9,801 )    (7 )% $   420,469   $ 406,004   $ 14,465        4 %
Adjusted
income derived
from operating
activities       $    22,889   $  21,604   $  1,285       6 %  $    68,458   $  58,084   $ 10,374       18 %
Rig years               34.0        41.8       (7.8 )   (19 )%        34.3        38.0       (3.7 )    (10 )%
Rig hours             43,849      49,788     (5,939 )   (12 )%     136,603     132,196      4,407        3 %

Operating revenues decreased during the three months ended September 30, 2012 as compared to the corresponding 2011 period as a result of lower drilling and production services activity, driven by lower customer demand and poor weather. Operating revenues increased during the nine months ended September 30, 2012 as compared to the corresponding 2011 period as a result of higher overall average dayrates in drilling and increased activity in production services, partially offset by the lower drilling activity.

Adjusted income derived from operating activities increased during the three and nine months ended September 30, 2012 as compared to the corresponding 2011 periods as a result of an overall increase in drilling average dayrates and production services activity, offsetting the decline in drilling activities. Average drilling dayrates in 2012 continue to be driven by oil exploration and supported by strong oil prices.

. . .