Good morning, ladies and gentlemen. My name is Natasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nabors Industries’ Second Quarter 2007 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. (Operator Instructions) Thank you. It is now my pleasure to turn the floor over to your host, Dennis Smith, Director of Corporate Development. Sir, you may begin.

Good morning, everyone, and thank you for joining us again for our second quarter 2007 earnings conference call. We will conduct the call as usual. Gene will give about twenty minutes or thirty minutes of remarks over viewing the quarter and the outlook, and then we will entertain question and answers. With us today is besides Gene and myself, is Tony Petrello our President, Chief Operating Officer, Bruce Koch, our Chief Financial Officer who stays in our general counsel and six of the heads of our major business units are with us as well. In case you don't already know that or so as we have been doing in the past several quarters we've posted a group of slides to give you some supporting documentation, and metrics on the various businesses and the actual results of some of the margins obtained for the quarter. Those are under Nabors.com, under investor relations, under recent events if you want to pull those up and refer to it during the course of the call or for later use. I want to remind everybody of the forward-looking statements, Safe Harbor and Securities and Exchange Act to try and give you our best perspective of how we see the market now, as well as, the overview of the current results and but we’ll never be sure that's exactly how it's going to play out obviously. So with that I will turn the call over to Gene to get started.

Thank you. Welcome again to our conference call for the second quarter of 2007. Before we start on the other matters, let me first thank the shareholders on this call who’ve supported the board’s position on two union sponsored proposals relative to (inaudible) compensation. Both of these proposals occurred on many of the S&P backed -- other S&P backed companies. We did a whole bunch better in terms of support and management compared to these proposals and the other posted. I think this favorable result is largely due to the efforts of Dennis Smith who directs our investor relations activity, and to the credibility and reputation he works very hard to maintain with investments. Some little support, I hope, is also related to the fact that many of our longer term holders understand the incentive based nature of our compensation. During our last conference call, I was unable to specify -- to be specific about the results of our option review, except to say that it would be discussed in our 10-Q, which it was, and I would like to take a couple of minutes to elaborate. An independent review was conducted of our option granting practices going back 18 years. Every single option granted every person on the company during that time was reviewed, and credibly this was not a super cheap review. The review was conducted by an independent outside law firm which in turn subcontracts to a well known (inaudible) accounting firm. Their efforts were augmented by Nabors’ outside counsel, in-house counsel and accounting staff. The review was also participated by PWC, and at the end of the review PWC was able to issue our financials and 10-K in a timely fashion, which was one of the monster hurdles in this whole process. The review resulted in…

(Operator Instruction) Your first question comes from Arun Jayaram of Credit Suisse.

Yeah, good morning Gene. Last quarter you had mentioned about an international acquisition opportunity that you are evaluating. Can you give us some color where you are at on that?

I think the probability is the one that I had referenced you is still the evidence kind of low and probably smaller acquisition or acquisitions in conjunction with supplying build for purpose, new rigs is more likely to be implemented. In the meantime, we have a good shot of growing organically, which is it is perfect everywhere except it takes longer way than the other way.

Okay. Second question, Gene, there is a lot of moving pieces regarding your new build and rig upgrade program. You guys talked about spending close to $1.8 billion in 07 and you did about $2 billion last year. I was wondering if you could comment on how you think the capital efficiency is going? There has been some delays, I was just wondering if you could talk about how you are doing relative to budgets and may be what’s going on in China. Eugene Isenberg Okay. I would say you know that that's a real capital, I would say, clearly we are not doing as well as we had hoped. I think we have challenges, but we are addressing them and fixing them, and I think our numbers are adversely impacted by number one delays, number two higher costs, and I think over the period of remainder of the year will gradually eliminate the higher costs. What we are doing is taking in-house all the technology that we were relying on the third parties to provide, and sooner or later in the next two quarters will, I think, have that done. So, I think we had challenges that reflected them the numbers. Hopefully, the overcoming of these challenges which is the current will be reflected in the numbers down the road and that will be a positive impact. I think we've been less then completely happy with what we've done with our primary suppliers in China. We have a second supplier from China which has been no problem whatsoever both domestically and internationally. And we are setting up programs to purchase in China. There is no way to avoid China, and there is no way to do anything other than personally in-house control the quality. So, kind of it's a long answer, I don’t have the answers what you wanted.

That's true. It sounds like it's getting better, and finally Gene the last question. You know, looking at the Smith recount data, it looks like you guys have lost a bit of share domestically in 2007, which means, I think you are being more disciplined on the pricing front and your margins, they are pretty good this quarter. How do you think about share and how do you plan to respond in a being a market leader in the industry, and with a pretty meaningful number of rigs idle today?

I don’t know. In a sense I think we don’t feel that we are going to be the Saudi Arabia of rig supplying in Lower 48. So we probably won’t lose market position.

Okay. That’s all I’ve got, Gene. Thanks.

Thank you.

Thank you. Your next question comes from Marshall Adkins of Raymond James

Hi, Gene. We got gas under six bucks; today you gave some pretty good -- your best shot at it -- margins in US been down, may be 1,000 bucks by the end of the year, if I heard that correctly. Where are you looking at, kind of activity going, for the next couple of quarters, I mean, directionally do you think it’s a flat up or down?

I think flat -- between flat and modestly up.

Okay.

And the modestly up refers to the previous question. Basically, what we are going to do with market position and how competitive we are going to be for the non-new rigs not first class rigs. Basically, we are going to have probably a couple of dozen new builds added to lower 48 before the end of the year. We’ll have a number of contracts expiring, however, and I hoping that we’ll get a significant number of those signed out, and what happened in the first half of the year is we had fewer rigs including the new builds at the end of the quarter than we had at the beginning of the half. That won't happen again.

Alright couple of clarification, you mentioned Canada being down 50% kind of second half?

I think more than…

What I want to get is that in net income, are you talking down 50% in absolute activity and then there is….

Not in operating income.

So just operating income.

For the year, yeah, well everything else is as that.

Alright. And then last clarification, on the investment income loss you explained what that is all about. Do you see that is that probably going to carry over in the next quarter or the following quarter, or is that more or less behind us?

I think that's more or less behind us. There are one or two outfits that we are getting out to getting outfit. We can't get out immediately. But I think that's finished. I think I tried to point out that we have roughly say it's 25% or 35% of our total portfolio in this kind of investment of actively managed or an equity portfolio where we manage. And that's done really well. I am not going to tell how, but it's been over 10%. And the rest of it which three quarters or two-thirds of three quarters of portfolio was in the traditional money market stuff, AAA equivalent, treasury related, or LIBOR related. And the fact that we've had such a good return on the small portion that's enabled us to get up an average return, that's been pretty good but we won't be using leveraged portfolios anymore. Anyway I don't think it's returned.

Okay. That's helpful guys. Thank you.

Thank you. Your next question comes from Angie Sedita of Lehman Brothers.

Thanks. Good morning, guys.

Good morning.

Gene, you mentioned the under pressure rigs seeing greater rate pressure than the other categories of rigs?

Yeah.

What are you seeing for your 1,000 horsepower, your 1,500, your SCR, have those remained strong and steady or some weakness there as well?

I think there but less.

Less

Yeah, I would say the range overall between the peak and leading edge is probably for us 4,000 bucks to 4,000 bucks. And in the markets where we are strongest, it's less than the markets where there is much more competition at least. And we have categories which I think we put on these conference calls announced categories of rig. And the some old rigs have taken the biggest step, which you would expect. The category we have old and tired rigs is in a stack status, 55% of those rigs of stack right now and potential work. They have taken proportionally the biggest step. I hope that answers your question, Angie.

Yeah, it does. And then kind of a follow-up here. As far as what you are seeing from the competitors both you smaller drilling contractors and larger drilling contractors discipline or some of the small guys being more aggressive on cutting and focusing on utilization?

I don't know, but it seems to me we have enough problems with our own particularly about the other guys. But if one guy went up 11 rigs in a quarter, I am sure his quality didn't overnight create the increase in markets. So again there was some price. We look at the market without regard to, whether it's this guy, that guy or Joe blowing. We try to optimize the difference between maintaining a higher average price and utilization, and probably we overdid it on the higher pricing in the first half.

Okay. And then finally on construction you have 81 rigs that you have under construction with 39 delivered so far, and you added three more to that list. What are your thoughts for the rest of this year then going into '08 as far as Nabors, I am not sure that 81 could grow?

Just the U.S.A.?

Right.

Right now we have 24 scheduled for this half; 8 of those 81 scheduled for early next year. And as I said we’ve got three new builds for our purpose this quarter, and I am hoping we’ll get more.

All right. Great. Thanks. That’s all I have.

Thank you.

Thank you. Your next question comes from Kevin Simpson of Miller Tabak.

Thanks. So, Gene I wanted to ask you about repurchases and you've been, you know, not really active in the market place. Over the last few quarters, it sounds like you are going to be generating a lot of free cash flow. You’ve got a big call on that with the convert? How do you see with the stock down like this, you are holding it yourself, I am just curious as to are you going to become a little more active here in the second half of the year and that you --

We probably will, as you know we have something a little north of 400 million authorized, and as you probably know we could increase that number pretty quickly. I think it's like the that we’ll increase, we were pretty well occupied with the option business and other issues up till now and I think with that behind us we’ll probably buy more stock at these prices. We bought back billion dollars with a 35 in the quarter. So that looks good for we now have 32

We will not really know $30.83. So it’s a real good buy now.

I think you are right.

I just wanted to go back to the portfolio, essentially how much more risky investments are still, and you talked about the 70% that’s treasuries or debit, but how much more risky investments are still in thee where there may be risk to other hedge fund meltdowns going forward?

I think very little, I mean one thing, the portfolio I was personally managing has gone. So that risk is clearly gone, although we had done super well on that, I must say so.

Of course.

Kevin, I think, we’re eliminating what had leveraged. But one thing we got hit with, it sounds like it might evolve, but we looked at 51 months never had a down month, and how did what we lost was appreciation that we didn’t cash out. I mean we took it in the income, so it’s a debt now, but reasonable sizeable, part of the reasonable sizable because it grew. So, I think we are cutting back even on one of those that isn’t leveraged to emerging markets which we had grown like a big chunk. We are going to cut that at least in half, and we are pretty confident of the managers we have, but probably end up with a much smaller amount of dollars in this category and some fewer managers with pretty goods records and we know through all risk analysis, but that's the yes. That's before the back, not after back. I just don't think there is much risk of it. For one thing we don't want to be in the position of every quarter explaining a gain or loss on a portfolio.

Okay. Hopefully any more quarters?

There is only one so far Kevin. I don't think it several case out.

Okay. I'm a shareholder now so I thinking differently. And then lastly, international it seems like a lot of opportunities potentially I kind of may be blanked out, why you are going over them? I mean do you one, you still think you have pricing opportunity internationally and were that kind of mostly in the P&L now? And then second…

No, we got a ton of pricing account. I mean because we have multi-year contracts and the bad ones seem to turn out to be longer than we thought. And they are ending. So you have three year contracts, takes a year to do it and all the price increases that were incurred in those three, four years you don't get, when you get them on renewals. So we are getting the few jackups we have, there is monster improvement. We have one in Saudi Arabia already.

When we go to from what to what?

We will let make you aware of that.

But the small jackup in Saudi Arabia went from what?

It's doubled.

From 35, 40 to 80.

Mid 80s. That a small that we brought for $12 million. That was a risky thing when we brought it, Kevin. Anyway I think we are talking about probably $70 million of price improvement in international because of the land on the multi-year contracts and the few jackups. I mean we have a jackup working in the Caribbean for probably 65. May be 70 in that market is at least a 120 and if we get the low depth capability that this rig uniquely has if we get paid for that it could be 175. But in any event it will go from say 75 to 141ish. There are couple like that.

And the 70 million.

There is still problem on rigs in Saudi, everywhere and I mean a small example probably is Argentina. We went from a break-even operation to probably, would it make 20 million bucks or not, more than 20. And that's what may be we have one new rig there or two new rigs, but it was mostly price improve. That's the biggest thing of element or the juiciest element because that depth didn't investment, it just takes reading.

And then would that be the period over which you would realize that over the next 18 months or, is that a good guess?

It's really. A lot of it's going to be some this year, a more next year, and some thereafter.

Okay. Great. That's it from me. Thanks.

Thank you.

Thank you. Your next question comes from Geoff Kieburtz of Citigroup.

Good morning, guys. I recognized you are reluctant to call [Baum]. But just to chart it help me understand how you are seeing the trends here. You talked about a roughly a $1,000 decline in the margins in lower 48 over the second half of '07. That's reasonably close to what we've seen over the first half of '07. Are you seeing, whatever the duration of this, does this kind of add a steady state decline or I mean how do you expect this to play out.?

I don't really know. All I know is that our strategy is that we got a bunch of new rigs coming. We are looking to get more new rigs, and the new rigs are good. The new wells are -- they are better described as fit for purpose, and I have explained that in other conference calls and our guys have explained it better that taking all mechanical rig no matter what the price is, it cannot compete in the Barnett Shale and the Fayetteville shales and stuff like that. And they want a fixed purpose rigs. They wanted to work right away, but they wanted the purpose rigs. So we’ve got a bunch of those coming in at good prices, and some of the low end rigs we’ve taken a big hit on our lowest categories that’s in these conference calls notes. And basically, I don’t think we are going to lose market position, as in the second half as we did in the first half. So that probably means that, whatever it means, it probably means that prices would be more competitive, not to lose market position, certainly work a lot.

Right. That’s yes.

And we don't see any signs of -- I think we don't see -- hopefully there are signs out there that other people are better have better perception means when we do better. Frankly we don’t see anything that’s super exciting even in the lower 48 or in Canada and in the last month or so the scrip has gone down over five I think?

Right.

Gas scrips. So whatever it was a month ago, it is not yet any better this – today.

And when -- your roster of new additions or your new bill per purpose rigs that are coming in, are all of those contracted already?

Yes.

Okay. And what are you doing, I mean, if you have any thoughts about the equipment that is idle and has remained idle for a while, are you just keeping it, are you considering actually cutting it up?

It ends where, it worked over – we’re actually cutting it out.

Okay.

I tried to sell it through a competitor, Jim would love to do, but domestically, we’ll start cannibalizing it for the worst end of it, and when you finish cannibalizing it then there is nothing much left for scrap. But there is no active program domestically to cut up rigs just to make numbers, look that up for the industry.

Okay.

The fact that the gas is now beginning with a 5 and the scrip is 7 in a low number, that doesn’t eliminate the possibility, and I am not banking on this. But you know there is some profitability greater than 0 that we will see $10 plus gas for some period -- some time in the future, and if that happens there is a possibility that these low end -- of our low end rigs will find work. So there is no economical logic to what’s the scrap and before we can economically get benefit by cannibalizing.

Alright. Okay and then you made a comment about your sort of a year from now starting to show sequential improvement. I can’t really recall exactly what you said, so I am going to ask you sort of what you were talking about. Were you talking about sequential improvement in earnings?

Yeah.

Okay. Very good. Thank you.

Thank you.

Thank you. Your next question comes from Mike Urban of Deutsche Bank.

Thanks, good morning. I had a question for you on the international growth. Obviously, you have some new builds going in there but the opportunity set pretty large. How many rigs either for Nabors or the industry would envision leaving the US or being able to take out of the US for the international markets?

We can move from the US. Canada, we have almost moved on, we have decided not to and other possible and work over rig. So right now I think we have ten direct, ten being prepared domestically to go to different places internationally. That includes three in the Middle East for work over there and the other seven. That's really saying that at least 15 plus will be placed before the end of this year internationally from domestic.

And in the US market again your preferences is clearly been new builds both in terms of the efficiency and the economics in terms of growing the business, with the pressure that the industry is seeing, with gas price set a little pressure, with the stocks obviously down a little bit. Have you seen any opportunities that have been attractive enough that you would be interested in acquiring any rigs in the US?

No.

Okay. That's all from me. Thank you.

Thank you.

Thank you. Your next question comes from Dan Pickering of Pickering Energy Partners.

Good morning. Gene, can you talk a little bit about the build for purpose contract you signed this quarter, maybe compare them to contracts you might have signed six months ago, any differences in term or day rate?

No, I think they are three years. I think six, nine months ago, at the beginning, they were lower than they are now. And these probably have more annum than the contract prices of say a couple of months ago.

Okay

But the value probably is a little better right now. But it's way high that it was at the beginning I think.

So rates are higher than when you started building and lower than the best rates use on.

On an apples-to-apples basis, a little lower because of more quality.

Okay. That's helpful. Thank you. And Gene I guess as we look at your business, can you talk a little bit about kind of strategic issues? You are selling some properties in the E&P business. Did you not want to spin those into the First Reserve joint venture, or was just selling an easier strategy?

When we do all these things as look at what the value two years going to be by producing them compared to selling them. The ones we actually sold, there was a unitization program. I work on which the details (inaudible) which makes properties worth more to the guidance on a control unit which is a kind of 48. So we can pay more than you would guess by producing it. So that's the case, you say okay we'll take more that way. The second sale is something where we entered into with a partner, and the partner wants his $100 million quicker than we would've wanted to -- you know to deal as we can beat away. But we work with this guy a lot of times, lot of places if he wants to settle himself. If there was something logical to do with Nabors first result, and if I really would do it, but life is complicated enough without pricing as you make money with partners, not from partners. So it’s hard to set prices like that.

Okay. That’s helpful. And then in terms of integrating your business, and kind of monetizing things, any thoughts around, I mean, we just saw NAV today, what fantastic numbers and stocks responded very well. Any thought that your manufacturing business is a better standalone business as opposed to internal and Nabors?

Yes. Nothing has changed from what we've said in the past and we are reviewing that. But one of the things that’s relevant if we have, kind of humongous growth built in rather market is based on the growth in-house rather than on the [Comcast]. But we would continue to look at that.

And how much of that business today, I mean, if we see the external revenues but they obviously internal revenues are backed out how much is internal versus external roughly?

Let’s say a little more than half is still internal.

Okay. Great. That's what I wanted to know. Thank you.

Thank you. Your next question comes from Roger Reid of Natexis.

Good morning, gentleman. Question about US Well Servicing market little bit weaker then we probably had anticipated there. Can you talk a little bit from your interaction with your customers what you see as a potential catalyst for a rebound there?

I don't know, okay. I agree with you because, as you know the bulk of our workover business is with Lower 48 well drillings. Oil prices are not skimpy, and the drop were possibly due to weather, and apart from what I mentioned was our own shortcomings. So there is not an easy explanation.

Sure.

We have been getting good prices. So the price is good. We do an LKF on the rest, but other than the rigs, and the rig margins are lower because utilization is lousy and some of its weather. Some of this has to be increased supply; I think the overall numbers are essentially the same for the industry.

Sure.

I don’t know what the answer is but --

No, I appreciate that. That’s helpful. And then in the international business can you talk a little bit about where you think that could go certainly more robust market than the domestic market? Can you give us some colors as to where you think that could be headed in 2008?

I think it will be up comfortably 50% in operating income.

Okay. Thank you.

Thank you.

Thanks.

Thank you. Your next question comes from Benjamin Dell of Sanford Bernstein.

Hi guys. I wonder if I could discuss nice to clarity, you talked about a $1,000 drop in the average rate towards the back end of the year. On those rigs that are rolling off contract, what would you expect those to do year-on-year decline -- or the declines being on those if they are on leading edge?

If not leading edge, it probably would be closed to that (inaudible). Hopefully, you do better because if it gets renewed in the first place, which we hope to do, in doing the guy do a job if you are incumbent in doing a good job, you don’t necessarily have to meet the leading edge, but that’s the reality of the alternative you guys face. So, I think there are going to be drops that are probably pretty close to this thousand bucks.

Okay. And the question I may it's about your investment. You talked about long-term returns being good so the double-digit number is10%.

On the actively managed piece of the total portfolio.

Okay. But the return on capital employed on your ongoing business is obviously being higher than that. I guess my question is why is that cash in there rather than being reinvested in the business and that is not being reinvested in the business. Why isn't it being return to the shareholders rather than you actively managing the money on behalf of shareholders?

With the way we used them, I think they are more sophisticated and I think more or less conventional return on capital employed the Stern Stewart method anyway and the academic method and that is. So long as you have I'm putting this to provide. So long as you have excess cash, you take the excess cash out of the divisor in getting return capital employed. So what we been doing is, we have been we borrowed money and we are leveraging in so they were having a better return on after tax cost of borrowing compared to what we are getting on it. It isn't adversely impacting our divisor in return on capital employed and we have the fire power when we needed. If we needed to do something for $1.5 billion, we can do it tomorrow. So, we will return stuff to shareholders and we have historically. I mean this calendar year we've bought back $1.5 worth stock.

Okay, great. That was all. Thank you.

Thank you. Operator, I think we only have time for one more question please.

Thank you. Your final question comes from [Rob MacKenzie of FBR Capital Markets].

Thanks guys. I will make it easy on you. Mine has been asked and answered.

Okay, thanks. That's great question.

Okay.

Ladies and gentlemen, thank you so much for attending our call. And if you have any further questions, just feel free to give us a call at anytime.

Thank you. This concludes today's conference call. You may now disconnect