DBRS Confirms Nabors Industries Ltd. and Subsidiaries at A (low), Trend Remains Negative

DBRS has today confirmed the Issuer Rating of Nabors Industries Ltd. (Nabors or the Company) and the Senior Unsecured Debt ratings of Nabors Industries, Inc. (NII) and Nabors Holdings 1, ULC (ULC), all at A (low). The rating of NII is based on the guarantee of Nabors, and the rating of ULC is based on the guarantees of Nabors and NII. The trends remain Negative. The confirmation of the ratings reflects DBRS’s expectation that the Company will make substantial progress towards improving its balance sheet through strong free cash flow generation in 2008 and 2009, largely as a result of cash and earnings retention and a much lower capital spending profile than in recent years.

In May 2006, DBRS changed the trend from Stable to Negative following the issue of $2.5 billion of senior exchangeable notes (increased by $250 million in June 2006), with $1 billion of proceeds subsequently used to repurchase the Company’s common shares. Concurrently, Nabors’ capital investment program was ramped up to $1.9 billion in 2006, a 112% increase year-over-year in an effort to improve its fleet of rigs during the strong market conditions. These two factors resulted in a net debt-to-cash-flow ratio of 1.5 times in 2006, significantly higher than 0.4 times in 2005. Maintenance of the Negative trend, however, reflects the longer-than-expected time frame, as a result of $2 billion in capex in 2007, to return the Company’s credit metrics to more acceptable levels for the current rating. Year-end 2007 net debt-to-capital of 40% and net debt-to-cash flow of 2.1 times are not commensurate with an A (low) rating in the volatile land-drilling business, although the Company should have significant free cash flow going forward with capex winding down by 50% to roughly $1 billion in 2008. DBRS expects that the cash flow will be directed towards restoring the Company’s balance sheet.

Continued and substantial improvement in the Company’s credit metrics and maintenance of its liquidity position through the balance of 2008 will be required in order to maintain the current ratings. DBRS views a net debt-to-capital ratio in the 25% to 30% range and a net debt-to-cash-flow ratio of approximately 1.5 times or below as reasonable for the rating category and believes that maintaining a strong balance sheet is a core strategy for Nabors.

Despite the higher leverage and recent softness of the North American onshore rig market, DBRS’s rating confirmation is based upon a number of strengths for Nabors and the industry including: (1) The Company’s leading industry position. (2) An unmatched international footprint provides access to longer-term contracts in growing markets. (3) Customer diversity limits customer power, a traditional industry weakness. (4) Nabors has added many newly built rigs to its fleet (two-thirds of the U.S. land rig fleet is now comprised of premium equipment) with associated contracts with original terms of up to three years. These advanced rigs provide efficiencies that cannot be matched by existing equipment and, as a result, will continue to work through market weakness. (5) The Company has had good access to financial markets, allowing it to raise capital to solidify its leadership position in weak markets.

The overall market outlook remains good, especially internationally and in Alaska, with some recent signs of recovery in the North American natural gas market. The longer-term contracts of approximately three years, in comparison to legacy rig contracts of six months at the high end, provide for higher cash flow visibility and should allow Nabors to restore some financial flexibility even if conditions should weaken in its key North American market.

In addition to its international onshore operations, Nabors operates in other oilfield-services segments that provide diversification away from North American onshore gas drilling. The Company has the second largest workover rig fleet in North America, which is primarily focused on crude oil wells. The Company also has a number of offshore rigs and supply boats, many of which are being moved to more stable international markets. The company has indicated that it might divest these assets as a source of potential liquidity.

Please refer to the DBRS website at www.dbrs.com for further information on the entities mentioned in this press release.

Notes:
All figures are in U.S. dollars unless otherwise noted.
Issuer ratings apply to all general senior unsecured obligations of the issuer in question.