Ladies and gentlemen, welcome to the Nabors Industries Limited Second Quarter 2009 Earnings Conference Call on the 22 July 2009. Throughout today's presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions). I will now hand the conference over to Mr. Dennis Smith. Please go ahead

Good morning everyone and thank you again for joining us this morning. As usual we'll have about a one hour call. Gene will make some remarks about the quarter results and obviously the near and longer term outlook at this point in time. Then we'll open it up to questions-and-answers and end the call at about one hour time difference. Besides Gene and myself this morning, we also have Laura Doerre, our General Counsel with us; Clark Woods, our Chief Accounting Officer, Ziggy Meisner, Jerry Shanklin, Joe Hudson, Larry Heidt and Diego Smith (ph) from our E&P business.

What about Tony.

Tony too, sorry about that, hiding there. Sorry, Tony Petrello, our President and COO. I just want to remind everybody before we get started there is a set of slides on our website under Investor Relations under Events Calendar, there will be some of the supporting materials we will be talking about. Gives more detail on U.S. business and also of course as we are going to be talking about our outlook and so forth everything is consistent with forward-looking at the statements under the SEC Securities Exchange Act and as such things can vary. We encourage you to look at 10-Ks and Q filings for the risk factors there. With that I'll go ahead and turn it to Gene.

Thanks again. Again welcome to the conference call for the second quarter. I want to again thank everybody for participating this morning. As usual we have posted to the Nabors website a series of slides that contains details about the performance of the various segments of the company. Please refer to these as we proceed. I'll also point out that we had, what I think is an unusually detailed press release, which will pepper my presentation here. For the quarter, we were affected by several non-cash charges, which we essentially pre-announced. And excluding these charges the earnings for the quarter was $0.32 per diluted share. On this basis on operating income for the quarter was 144 million, down from 207 million in the prior quarter and 265 million in the comparable quarter last year. Results will likely deteriorate modestly in the third quarter. However for the full year, I think cash flow from operations is still likely to be strong enough, all things considered which we'll elaborate on that little later. We generate approximately 300 million in free cash flow. Also I'd like to briefly comment on the non-cash pretax charges, after which we can get into the more meaningful discussion of the financial results and outlook. The decision to look at the value of these assets is the result of our uncertainty or inability to determine the timing of an increase in commodity prices, especially natural gas, sufficient to permit activity levels that will in turn enable us to fully recover the value of investments that we wrote down or impaired. I'd also to emphasize that these are non-cash items, which do not impact the company's operations, cash flow from operations or liquidity. And frankly, they do not materially impact our debt-to-cap metrics either. Now let me turn to…

It's all our rigs being operated in there.

We had all of these rigs, okay. And then the British Columbia, which is very promising but not very yet. And I'll get into that a little bit more when we talk about Canada. We've also been selected by Saudi Aramco to finalize the bulk of their incremental gas drilling, which as you know they are doing field gas drilling and switching from oil to gas in various place, which is -- require some more complicated rig and a little more drilling expertise. Equally noteworthy and I think this is pretty important, we now have or shortly will have a higher percentage of rigs working for major operators in the Lower 48 than any of our competitors in spite of the book work (ph) to the contract. Last quarter we reported on our success and once data where BPCO pointed out with compliments to performance of rigs that happened to be ours and that resulted in our getting essentially all the incremental rigs from BP there and elsewhere. Anyway let me turn to the units quickly. And Nabors Drilling USA, results for this unit declined to 70 million, business operating income is our key metric, during the quarter down from a 129 million in the prior quarter and a 134 million in the year ago quarter. Deal rigs declined to 143 from 193 in the prior quarter, and 242 in the second quarter of 2008. You may remember that we had an all-time high of 290, 3 or 4 earlier. The 143 rig deals 70 represents new rigs that an average margin of 11.5 and 73 represented older rigs which we're calling legacy rigs at 9.5. At quarter-to-date the margins were down approximately 1,000 to 10,250, approximately 1,350 of which can be attributed to lump sum terminations. I think to…

Vivian, we're ready to start the Q&A portion of the call.

Thank you very much. (Operator Instructions). And the first question we have is from Jim Rollyson of Raymond James. Please go ahead with your question.

Gene, you mentioned looking for modeling purposes at the different types of rigs, when you look forward. Can you may be spend a minute just kind of refreshing our memory on what you're looking at for average margins today on the term rigs that you've got going through the next few years and maybe contrast that to what you're seeing in the spot market?

Joe, you can probably handle that.

Okay. The spot market obviously has been significantly impacted with the day rates. We're now pursuing in the spot market is probably 35% down from last year's high. When you're looking at margins anywhere, depending that you're looking at the recent increased activity has all been pretty much in shallow rig counts, plus Texas, Kansas, Oklahoma. There is no day rates when we have intended 10 to 10.5 or less.

That was the really legacy rates.

Oh yeah, they are all legacy rigs. So that's what you're seeing in that area. So you've seen a very low margin of about 1500 bucks max, in that area. In the -- we're going continue to see as we mentioned with our new rigs still coming out in 16 new builds. All are coming out at margins in excess of anywhere from 14 to 15,000 a day. So when you blend those, we're still looking at an average margin for the new build activity somewhere 12,000, 13,000 for the new build rigs.

And that number would be ex the lump-sum payment.

Very helpful. Gene, you had also mentioned that the cost cutting in various ways and forms. Can you maybe talk about how much of those cost cuts were demonstrated already in second quarter results and do we have more of that to show up in the third quarter, second half of year. Now what are your thoughts are there?

Most of it is yet to come, frankly. So I mean, the cuts are already made. More of this going to come in, nobody is guaranteeing that there won't be additional cuts. We've -- the highest paid guys took the biggest cuts. We've laid off reluctantly, but out of necessity, and that will probably continue. We're down pretty substantial in our rig counts. And so what we have to do is at the overhead and cuts the semi-direct too. Some of the supervisory people that are related to it. So we have to do, what to do what we have to do. But there is more yet to come in it. It's a function of activity a little bit. Not the little bit, but some substantial expect. But we don't see, I think there are two things that are relevant here. One is, we don't see big V-shaped recovery in activity any time soon. And the other thing is, this downturn is so dramatic that we're not saying we got to be prepared for the upturn by spending money now, we do a little bit of that, but far less than we ever did in the past. So P&L is yet to see the full impact of the cuts we've made.

Any thoughts, just a follow-up on where that might show SG&A kind of run rates, as you go through the second half once this is all done?

It will be lower. I can't tell you what it will be. Because that's a project in motion as we speak.

Understood. Thanks guys.

Thank you.

Thank you. The next question is from Ole Slorer from Morgan Stanley. Please go ahead with your question.

Thank you very much for that. Gene, when you look around your business, whether it's oil directed drilling in North America or whether it's opportunities elsewhere on the planet, where do you expect to see the first sort of visible signs that activity at the leading edge is turning around?

I think the way I see it right now, I would guess, it might be a recovery from some of the -- what we probably short-term were temporary drops I am here to tell you. I think Mexico looks pretty promising for, really in near term. I would say frankly, it's largely international where the short-term losses will come. Now gas is really a philosophical thing. I mean, there are no super tangible signs that the balance is coming close. You can say that gas might be down a little bit. But that's a factor gas production in the low point area. But that's one factor. What's happening to the total demand of gas, which is about 90 (ph) grade. So, I can't see anything except long-term gas is under valued and might be down, and I don't know when that's going to change not in the near term essentially. So I would say international is the likely upside short-term.

International is a fairly bold term is it Mexico, where activities have been postponed, but is not coming back?

Yeah, I would say Mexico is definitely one of them.

We've also got North Africa.

North Africa as well.

And then with this incremental new project or is it at this point, project that got stalled that are coming back again. We're having Russia maybe being a bit more active, you had plans of going in there as when you think...

Yes, Russia. Go ahead, go ahead.

The most of them, have been stalled they're coming back, probably the biggest in event.

Who wants to know where?

I mean Mexico, Columbia is stalled, North Africa had some projects. And also in the Middle East. But essentially Russia, but Russia...

Russia, isn't going to be a big source of a bunch of revenues that's allow.

And in case of Saudi there was talk about taking down the rig count but then we're losing of a domestic gas. Is there any difference there between what you're seeing in terms of tendering activity between oil-related project and deep formation gas related projects?

There is definitely a switch. I don't know how successful. We know how we did on the last or how we willed it. But basically, we haven't been impacted at all. I mean, we had one rig that was down that went to Kuwait, back to back.

There is a temporary slowdown on the oil drilling, and there is some tender right now for income in oil drilling again. But the demand is really for gasoline. So rig hasn't changed any.

And the oil's got locked, the big chunk of it's integrated services.

And at leading edge and if we go back to the North America market, the U.S. market again, can you discuss the leading edge pricing trend. Is there any difference by region-to-region or is it pretty washed out everywhere?

I think, I think the Mid-Continent probably still the worst. And I think frankly, we're still getting decent margins on the good rigs that are coming up contract. As we explained last time, we switched the couple of the new rigs coming up contract for new builds and save money, save cost for the customer. And used it to expand our position with customers. That covers the project that we just yesterday another such deal. But I think the important thing is the new builds are really good as Joe said certainly looking whatever. Or if we negotiate that, we get the equivalent one way or another. And then, I think the new rigs that are up contract, they probably have five, six, $7,000 a day edge over the legacy rigs.

That much?

Yes. It gives performance. I think we discussed this people. But some of the legacy rigs can't work for zero, effectively in some of these shales.

Thanks for that update Gene.

Thank you.

Thank you. The next question is from Kevin Simpson from Miller Tabak. Please go ahead with your question.

Thanks. I've got a couple. First, my back of the envelope said that you still consumed cash, I guess in the quarter, cash going down more than debt went down. So Gene considering you are looking at 300 million of free cash flow, when are we going to go through that inflexion point where that you're kind of clearly generating cash going forward?

Kevin, I said it precisely what we're looking at. What we are looking at is the free cash flow between now and May of 2011 when we will have almost a couple of billion dollars of debt pay out. When it happens I'm sure it's available but I can't -- I'm not up to date on when it happens. What I know is we've cut the hell out of CapEx and it's going to be further cut next year. And the cash flow is going down, but not as quickly as we are going down with the things that generate free cash flow. So basically the overall conclusion is that I can't tell you when exactly but I can look at I'll call later, but I think the critical, the important thing is that it's like without incremental borrowing we'll have cash enough to pay off 100% of the existing debt, some of which is due this August to May 2011. And in the process of doing that we'll take our net debt to cap down to high 20s for the first time. When that switches, I don't know. But we can find out and let you know.

Okay, that's great. One, I was a little confused that maybe I just then behind the curve on this missed on the Saudi, the Saudi gas rigs, did you guys have success there or what happened with those tenders?

Those rigs are still pending and we -- but as far as I know, we still have a good chance to get something there.

And, so do you have any sense on timing of that or is that it's just one of the things that just slide and it's hard to predict exactly when?

I mean, it's hard to predict. But obviously probably in the next couple of weeks, you should know.

When they start, we can't tell.

Basically when we talked to them last time they were going to start pretty quick. So in the next three four five months in this year, there would be something

That's an edge we have in terms of relatively quick delivery.

Okay and then I was -- just this one may be for Joe on when you're talking about new wells. For the new rigs that were cut lose and so have been on the market, have you been able to place any of those and are those and what kind of margins are you getting on them, I guess and what kind of work actually.

We have been able to place few back as Gene mentioned earlier. We've -- on the just we had 32 new build awards, I have to get the exact number but a lot of those rigs that have come down or actually have been placed back on those contracts, which in essence reduced our CapEx significantly. So a lot of rigs go back out. We've had few rigs picked up there. We're looking at a few areas for the future that we're getting a lot of calls for the PACE Rig, which some of which are in the Northeast is what we're looking for the new technology. So those margins will be anywhere from 5, 6000 may be a little more on the incremental, except the ones that we used to leverage on our new build contracts.

Okay, that's great. That's the first I referred to the east. I don't want to -- I guess I'll just have to come back to you offline on that. But as Gene, it was one of the things that you said, you're looking at, expressing daily some frustration that we're not giving you credit for how good a job you're doing in the oil and gas business?

I'm ...

I am just curious as to what your timing is for doing something to monetize it? I'm not complaining about it. It's a fact to life. All I'm saying is that we have, I think some pretty good resource, but if you look at the reserves spectacular number. We have probably 1.25 billion book value in the thing. And I think, net-net it's not helping, in fact it's probably hurting our stock price. So either that gets fixed or we do something. I can't tell you when, but it won't be forever, won't take forever to do something.

So I'm not going to able to pin you down on this time next year or you haven't felt like you have discernable value in the stock worth its what to move those assets in someway?

Yeah. I think that the futures curve is half way out with that I will fix the bunch.

Yeah, that's true. Well, we'll see about that. Okay, thanks. That's it for me.

Thank you. The next question is from Jeff Tillery from Tudor Pickering Holt Please go ahead.

Hi good morning. I just wanted to touch on the international business where you mentioned some of the contracts were delayed and are not coming back. Is there any change in the pricing structure on those or you are able to maintain the pricing that was already agreed upon?

On the delayed part that you mentioned we'll change pricing structure.

As you look at kind of 100 odd rig years in international business that worked this quarter, given that, international spans more than the half of the up income now, just wanted to see if you could talk about roll over kind of the degree to which that fully contracted 30-20-10? And just give us the feel for what sort of pricing risk there is on rigs rolling over?

We are at about the 90% right now of contracts or under contracts right now. So they are confirmed.

The next year too?

Next year it's going down to I think 55-- 70

Actually that was 92% for this year, next year it would be above what 70.

About 70%.

Thank you, that's very helpful.

And then the question you asked is the stuff that's likely to role over, that isn't contracted. What the price situation?

On the pricing situation itself as we roll over at the moment every, every customer comes to us and wants a different price and that's good. In many cases we can add some additional business to this or we reduce our cost base, we change the cost factor so net-net we really don't see as such a big impact on the whole.

That's really helpful then. And my last question is if you looked across the business unit can you just discuss how you think about asset retirements and kind of any actions that you're taking along those lines already?

Well we have taken a bunch of, I don't have the exact number but in the pre-release we took as it's for example on a bunch of assets, we have bunch, a number of jack ups. That are old jack ups, that there is no -- that need capital expenditures before they go to work and there isn't visible for the next year or so, justification for spending the money, so we wrote those off. We had bunch of stuff in Alaska, bunch of rigs, components that we looked at we said there is no way that these things are going to work so we wrote them off. There is a whole bunch of things like that. I would say the bulk of the write-offs were things like that don't affect the P&L but there is no visibility that there is going to be enough activity to justify keeping them on the books and we wrote them off. That's the bulk of it. And if you look at the pre-release that sort enumerates every single category.

And the lower 48, would you consider cutting up some of these idle rigs?

No, I don't. No as appropriate we'll cannibalize them. Some guy was complaining on Yahoo about a guy doing work, maintenance and repair work for us and his business was down 90% because we're using stock, in other words we're not going to buy for blow pipe for new rigs by that's essentially available for an existing rig and the rigs that are least likely to go to back to work we will cannibalize. And when they are all cannibalized we'll sell the scrap. But we're not going to add up stuffs so that supply-demand looks better.

Okay, that's great. That's all I had. Thank you very much.

Thank you. The next question is from Dan Boyd from Goldman Sachs. Please go ahead.

Yeah thanks. Dan this is a question for you. Just looking at the daily OpEx per rig, if you exclude the rigs that you've been paid for that aren't working. It looks like a ticked up in the quarter to something above $12,000 a day. How should we think about that training over the next couple of quarters?

You're talking about well 48 there?

Yes, exactly.

One of the things that we mentioned in the press release that $15 bucks (ph) was a lump-sum termination, but 7.7 of that would have been in the quarter anyway. It's not going down that much.

What you are looking at in the next quarter Joe? It's about 9800, isn't it, next quarter or something like that?

Why don't we get that the way we have said earlier new rigs, not new rigs with...

Okay.

That should be available tomorrow call. Call anybody but me. Call then.

Okay. I just wanted to confirm then with the margins you are seeing in the competitive stock markets, so not where you're renegotiating where you had a new build in place. But you are seeing those at 5 to $6,000 dollars a day, and that would imply day rates and what the 16 to $18,000 range?

Well, firstly that market is very, very small.

Very, very small.

And secondly, I think the good costs are probably down to more like nine and higher than that these days. And probably going in that direction further. And what Joe said is, the legacy rigs have the di minimus margins and our rigs have, I think, probably five to six more than the legacy rigs. But yeah, there is not much of that.

Okay. And at the end, just lastly, Gene, the market is becoming more competitive in lower 48, are you seeing any push by your customers go to turnkey or footage drilling, are you seeing that in any particular regions? And do you think...

It usually happens. But we're not in that at all. So, the stuff we are in, which would be, like we would like it to be, for example, the shales is, what we've brag about and there is nothing there on turnkey.

Did you expect some of your competitors to become more willing to do that as you fight for market share you then described not a V-shaped recovery?

Not in the areas that we are pushing that we are totally interested in.

Normally you see that in West Texas and Mexico, Eastern New Mexico and then, Oklahoma is historically is where you see that lower Gulf Coast, and may see some turnkeys. But again, we don't compete in that market there's not a large market force there is no purpose there.

But, you are right directionally that will happen, except that's not a even a significant. That's not a big piece of our market.

Okay thanks.

Thank you. The next question is from Jim Crandell from Barclays. Please go ahead.

Good morning. Gene, my question is a more strategic. Number one, do you see Nabors bidding more on IPMs as a main contractor in the future, given the sort of directions of the business today?

As I said, either be an answer, yes, or it could take a half and hour. So, I will say, yes.

How actively and how big a part of your strategy is it?

I think we don't have anything monetarily projected for us. But, I would say, probably, it's the most active single thing that the company as a whole is working on right now.

That's interesting. Okay. Secondly, should Iraq become very large in the next one to two years? What kind of rig capacity do you have in the region to serve that market?

I think better than anybody else, and we're working on that too. When those contracts have so far been sort of integrated services... turnkey actually turkey, but for the whole lot right? I have turnkey everything. So, we have the rigs. We have rigs pretty close by and we have rigs that we can upgrade and finish off in the Middle East. So rig is not the problem. Our contract with partners, that can make it workable on a turnkey/integrated service basis is the problem. Alright? Is this step worth them. But, we're pretty active in Iraq, looking at Iraq right now.

Okay. Gene, as you know more than probably anybody out in the industry during downturn is sometimes the best time to make investments, either investing in the business or making acquisitions. If this is what's just say a more prolonged downturn, what areas of the company would get the hardest look in terms of making acquisitions?

I don't know that. The important thing is I think we've fixed our financial data such that we are in a position to consider doing that if the opportunities arise. And I would say what we've typically done, we would look to do. But I don't see much opportunity there. International drilling opportunities or places where we can make the relatively small investment that can be a funnel to bring through our both suite of service or rig services. I would say, the other one probably is going to be that we're looking at is probably going to be something that would enable us better to provide integrated services.

If gas prices were to remain very depressed for the next 12 months, might you consider more oil and gas acquisitions going forward?

I don't know. We recently brought some acreage, recently probably in the last couple or three months in our joint venture in the Haynesville and probably was $60 million investment of which half of it ours. But it's really hard, because for example, if you look at the there just want to be shales, which and we are all excited about. Even if you look at the future curves, the way it is now. And of course that could change too. You don't get rich very quick, and there is, we've had to put our pads to do pad drilling. We got to put up a pipeline to get from our field to the big pipeline and we are still, we and the industry. And we are exchanging, we're pretty big players, and we're exchanging information with many probably, not Exxon, but almost everybody else in the industry. So we're still experimenting what kind of fracs we do. For example, we've done, what have we eight fracs. And I saw a report recently Apache doing 12 or 14. So there is a whole bunch of its unbelievably good. Its better then the blind. It's probably the best for us in the shales, for guys that are we've seen, not that I am an expert. But, we've seen. But the economics are just as good as that is, the economics of that frac. For example, it's like a buck in a quarter, from the price there to the Henry Hub. I think that's good one.

Yes.

And so it's just tough that gas pays. I won't go through my normal speech. But I think gas prices are abnormally uneconomically sustainably low. But what I think and what the market is and so it's the same thing. So we've done it. We conceivably could do it. I'm not sure we would.

Thank you, Gene.

Operator, we'll just have one more question and cut it off after that.

Thank you very much. The next question is from Waqar Syed from Tristone Capital. Please go ahead.

Good morning, Gene. A couple of questions. First, do you have maybe a rough idea of what the size of the reserve basis in the oil and gas business?

Yes, if I tell to you, you'll be shocked. But it's really big. We have probably 75% of 4.5 T's in the British Columbia shales alone. And Horn River along, isn't it. There is Horn River along. I would say, in that, which is our joint venture with First Reserve domestically, it has about 3.5 T's or?

At least two.

I see 2, 2.5 T's there. And you know and we have oil in Columbia. How much do you have in our own stuff?

About 8 million barrels. We one in Columbia.

Reserves.

In reserves. And that's about 8 million barrels.

8 million.

8 million barrels, you have, too much for it.

Yeah. It's quite a bit. The T's for example in British Columbia are super sexy and attractive and everything. But when you went through the economics of the t is one thing and the ability to make money is another thing.

Okay. Then secondly...

That isn't unique to us either. That's the whole world right now in gas.

Yeah. Secondly, you mentioned in terms of acquisition or expansion into credit services with the drilling. Could you elaborate on that? What exactly you mean by that, if you could point out the few specific areas?

We are trying to buy Schlumberger. No, I'm kidding. If I knew I wouldn't tell you, look at that stuff.

Okay. Could you give us a final number for CapEx for this year and next?

Yeah I would say, this year modestly above a billion.

But I mean, if something comes up. If we have of a three, four year pay out project for $100 million, we will bloody do it. But I'm saying what our current plans are based on the activities that we now see, modestly above a billion, under 1.1 billion and I would say, way below that next year. If again, if there is an opportunity that comes up we will pursue it. We have financing lined up that we haven't used and if we have, we're not going to pass up a three-four year solid payout stuff that leaves with workable assets after the initial contract, because of cash flow. I mean, if cash flow is -- I mean CapEx is one thing and how you put the money to work, how you put the CapEx to work is another thing. And it's flexible in that context. But the way we're projecting it now, little over 1 billion this year and probably under a half a billion for next year.

Okay. And Gene, as you look at Nabors it a fairly, well diversified company. Are there any businesses that you think are non-core or you may not be in the next couple of years?

Yeah.

Any elaboration on that?

I think, let me -- the elaboration would be that this isn't the time to sell stuff.

Sure.

And secondly the things that I would consider non-core are things that we really have to improve the operations, whether it is good times or bad times before surely there are many of those. I'll say there are some obviously non-core businesses that are small, for example the construction businesses we have in number of places, particularly Alaska, long term probably aren't core but there are no immediate plans to sell them. And there aren't many of those, so may be one of our small business units. So it's non-core, things got better and we improve better and we have an opportunity to sell, we might monetize at appropriate time at a good price we'll consider it. And also the -- in we've always looked at E&P in terms of to make money, to do thing. And it's more economic to sell something at a point in time then your projected present ideas can constrain your selling. That's always the case. But that isn't the current problem.

Sure. And just finally, DD&A guidance, on DD&A numbers for second half?

I didn't get the question.

Depreciation, could you provide any guidance for third quarter depreciation?

In the year we are looking at around seven, that makes it 6.80, plus it going to around 24 million it's going to be. The difference is depreciation. About 178 a quarter.

178 a quarter. Okay, great. Well, thank you very much. Have a great day.

Thanks.

Operator, that winds up our call today. We want to thank everybody for participating. And if you have any questions to get answered, feel free to give us a call. Thanks.

Thank you. This does indeed conclude the conference call. You may now disconnect.