XML 24 R9.htm IDEA: XBRL DOCUMENT
v3.6.0.2

Summary of Significant Accounting Policies | 12 Months Ended
--- | ---
Dec. 31, 2016
Summary of Significant Accounting Policies |
Summary of Significant Accounting Policies | Note 2 Summary of Significant Accounting Policies Principles of Consolidation Our consolidated financial statements include the accounts of Nabors, as well as all majority owned and non‑majority owned subsidiaries required to be consolidated under GAAP. All significant intercompany accounts and transactions are eliminated in consolidation. Investments in operating entities where we have the ability to exert significant influence, but where we do not control operating and financial policies, are accounted for using the equity method. Our share of the net income (loss) of these entities is recorded as earnings (losses) from unconsolidated affiliates in our consolidated statements of income (loss). The investments in these entities are included in investment in unconsolidated affiliates in our consolidated balance sheets. We have historically recorded our share of the net income (loss) of our equity method investment in CJES on a one-quarter lag, as we were not able to obtain the financial information of CJES on a timely basis. During the third quarter of 2016, CJES filed for bankruptcy, at which time we ceased accounting for our investment in CJES as an equity method investment. See Note 9—Investments in Unconsolidated Affiliates. Change in Presentation Certain amounts within our consolidated statements of income (loss) have been reclassified to conform to the current period presentation. Cash and Cash Equivalents Cash and cash equivalents include demand deposits and various other short‑term investments with original maturities of three months or less. Investments Short‑term investments Short‑term investments consist primarily of equity securities. Securities classified as available‑for‑sale are stated at fair value. Unrealized holding gains and temporary losses for available‑for‑sale securities are excluded from earnings and, until realized, are presented in the statement of comprehensive income (loss). Unrealized holding losses are included in earnings during the period for which the loss is determined to be other‑than‑temporary. In computing realized gains and losses on the sale of equity securities, the specific‑identification method is used. In accordance with this method, the cost of the equity securities sold is determined using the specific cost of the security when originally purchased. Inventory Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first‑in, first‑out or weighted‑average costs methods and includes the cost of materials, labor and manufacturing overhead. Inventory, which is net of reserves of $26.5 million, included the following:
|  | December 31, |
|  | 2016 |  | 2015 |
|  | (In thousands) |
Raw materials |  | $ | 84,431 |  | $ | 105,217 |
Work-in-progress |  |  | 1,204 |  |  | 29,710 |
Finished goods |  |  | 17,960 |  |  | 18,897 |
|  | $ | 103,595 |  | $ | 153,824 |
Property, Plant and Equipment Property, plant and equipment, including renewals and betterments, are stated at cost, while maintenance and repairs are expensed currently. Interest costs applicable to the construction of qualifying assets are capitalized as a component of the cost of such assets. We provide for the depreciation of our drilling and workover rigs using the units‑of‑production method. For each day a rig is operating, we depreciate it over an approximate 4,927‑day period, with the exception of our jackup rigs which are depreciated over an 8,030‑day period, after provision for salvage value. For each day a rig asset is not operating, it is depreciated over an assumed depreciable life of 20 years, with the exception of our jackup rigs, where a 30‑year depreciable life is used, after provision for salvage value. Depreciation on our buildings, well‑servicing rigs, oilfield hauling and mobile equipment, marine transportation and supply vessels, and other machinery and equipment is computed using the straight‑line method over the estimated useful life of the asset after provision for salvage value (buildings—10 to 30 years; well‑servicing rigs—3 to 15 years; marine transportation and supply vessels—10 to 25 years; oilfield hauling and mobile equipment and other machinery and equipment—3 to 10 years). Amortization of capitalized leases is included in depreciation and amortization expense. Upon retirement or other disposal of fixed assets, the cost and related accumulated depreciation are removed from the respective property, plant and equipment accounts and any gains or losses are included in our consolidated statements of income (loss). We review our assets for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the estimated undiscounted future cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to the extent the carrying amount of the long-lived asset exceeds its estimated fair value. Management considers a number of factors such as estimated future cash flows from the assets, appraisals and current market value analysis in determining fair value. The determination of future cash flows requires the estimation of utilization, dayrates, operating margins, sustaining capital and remaining economic life. Such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry. For an asset classified as held for sale, we consider the asset impaired when its carrying amount exceeds fair value less its cost to sell. Fair value is determined in the same manner as an impaired long‑lived asset that is held and used. Significant and unanticipated changes to the assumptions could result in future impairments. A significantly prolonged period of lower oil and natural gas prices could continue to adversely affect the demand for and prices of our services, which could result in future impairment charges. As the determination of whether impairment charges should be recorded on our long‑lived assets is subject to significant management judgment, and an impairment of these assets could result in a material charge on our consolidated statements of income (loss), management believes that accounting estimates related to impairment of long‑lived assets are critical. Goodwill We review goodwill for impairment annually during the second quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the carrying amount of such goodwill and intangible assets may exceed their fair value. We initially assess goodwill for impairment based on qualitative factors to determine whether to perform the two‑step annual goodwill impairment test, a Level 3 fair value measurement. After qualitative assessment, step one of the impairment test compares the estimated fair value of the reporting unit to its carrying amount. If the carrying amount exceeds the fair value, a second step is required to measure the goodwill impairment loss. The second step compares the implied fair value of the reporting unit’s goodwill to its carrying amount. If the carrying amount exceeds the implied fair value, an impairment loss is recognized in an amount equal to the excess. Our estimated fair values of our reporting units incorporate judgment and the use of estimates by management. The fair values calculated in these impairment tests were determined using discounted cash flow models involving assumptions based on our utilization of rigs or other oil and gas service equipment, revenues and earnings from affiliates, as well as direct costs, general and administrative costs, depreciation, applicable income taxes, capital expenditures and working capital requirements. Our discounted cash flow projections for each reporting unit were based on financial forecasts. The future cash flows were discounted to present value using discount rates determined to be appropriate for each reporting unit. Terminal values for each reporting unit were calculated using a Gordon Growth methodology with a long‑term growth rate of 3%. Another factor in determining whether impairment has occurred is the relationship between our market capitalization and our book value. As part of our annual review, we compared the sum of our reporting units’ estimated fair value, which included the estimated fair value of non‑operating assets and liabilities, less debt, to our market capitalization and assessed the reasonableness of our estimated fair value. Any of the above‑mentioned factors may cause us to re‑evaluate goodwill during any quarter throughout the year. During the fourth quarter of 2016, we performed an updated analysis due to market conditions. We concluded that the fair values of our reporting units exceeded their carrying value, thus no impairment was recorded during 2016. Although we determined that there was no goodwill impairment, should current market conditions worsen or persist for an extended period of time, the timeline estimated to manufacture products and/or the viability of the products to come to market in the future could result in future impairment charges in our Rig Services segment related to 2TD. The change in the carrying amount of goodwill for our business lines for the years ended December 31, 2016 and 2015 was as follows:
|  |  |  |  | Acquisitions |  |  |  |  |  |  |  |  |  |
|  |  |  |  | and |  |  |  |  |  |  |  |  |  |
|  | Balance at |  | Purchase |  | Disposals |  | Cumulative |  | Balance at |
|  | December 31, |  | Price |  | and |  | Translation |  | December 31, |
|  | 2014 |  | Adjustments |  | Impairments |  | Adjustment |  | 2015 |
|  | (In thousands) |
Drilling & Rig Services: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | 50,149 |  | $ | — |  | $ | — |  | $ | — |  | $ | 50,149 |
International |  |  | — |  |  | 75,634 | (1) |  | — |  |  | — |  |  | 75,634 |
Rig Services |  |  | 31,667 |  |  | 10,868 | (2) |  | — |  |  | (1,659) |  |  | 40,876 |
Subtotal Drilling & Rig Services |  |  | 81,816 |  |  | 86,502 |  |  | — |  |  | (1,659) |  |  | 166,659 |
Completion & Production Services |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Completion |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Production |  |  | 92,112 |  |  | — |  |  | (92,112) | (3) |  | — |  |  | — |
Subtotal Completion & Production Services |  |  | 92,112 |  |  | — |  |  | (92,112) |  |  | — |  |  | — |
Total |  | $ | 173,928 |  | $ | 86,502 |  | $ | (92,112) |  | $ | (1,659) |  | $ | 166,659 |
|  |  |  |  | Acquisitions |  |  |  |  |  |  |  |  |  |
|  |  |  |  | and |  |  |  |  |  |  |  |  |  |
|  | Balance at |  | Purchase |  | Disposals |  | Cumulative |  | Balance at |
|  | December 31, |  | Price |  | and |  | Translation |  | December 31, |
|  | 2015 |  | Adjustments |  | Impairments |  | Adjustment |  | 2016 |
|  | (In thousands) |
Drilling & Rig Services: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | 50,149 |  | $ | — |  | $ | — |  | $ | — |  | $ | 50,149 |
International |  |  | 75,634 |  |  | — |  |  | — |  |  | — |  |  | 75,634 |
Rig Services |  |  | 40,876 |  |  | — |  |  | — |  |  | 258 |  |  | 41,134 |
Total |  | $ | 166,659 |  | $ | — |  | $ | — |  | $ | 258 |  | $ | 166,917 |
| (1) |  | Represents the goodwill recorded in connection with our acquisition of Nabors Arabia. See Note 5—Acquisitions for additional discussion.
| (2) |  | Represents the goodwill recorded in connection with our acquisition of 2TD. See Note 5—Acquisitions for additional discussion.
| (3) |  | Represents the goodwill associated with the Completion & Production Services business that was merged with CJES. See Note 9—Investments in unconsolidated affiliates for additional discussion.
Goodwill for the consolidated company, totaling approximately $11.2 million, is expected to be deductible for tax purposes. Litigation and Insurance Reserves We estimate our reserves related to litigation and insurance based on the facts and circumstances specific to the litigation and insurance claims and our past experience with similar claims. We maintain actuarially determined accruals in our consolidated balance sheets to cover self‑insurance retentions. See Note 17—Commitments and Contingencies regarding self‑insurance accruals. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can reasonably be estimated. We record our best estimate of a loss when the loss is considered probable. When a liability is probable and there is a range of estimated loss with no best estimate in the range, we record the minimum estimated liability related to the lawsuits or claims. As additional information becomes available, we assess the potential liability related to our pending litigation and claims and revise our estimates. Due to uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ from our estimates. For matters where an unfavorable outcome is reasonably possible and significant, we disclose the nature of the matter and a range of potential exposure, unless an estimate cannot be made at the time of disclosure. Revenue Recognition We recognize revenues and costs on daywork contracts daily as the work progresses. For certain contracts, we receive lump‑sum payments for the mobilization of rigs and other drilling equipment. We defer revenue related to mobilization periods and recognize the revenue over the term of the related drilling contract. At December 31, 2016 and 2015, our deferred revenues classified as other long-term liabilities were $321.0 million and $324.3 million, respectively. At December 31, 2016 and 2015, our deferred revenues classified as accrued liabilities were $255.6 million and $340.5 million, respectively. Costs incurred related to a mobilization period for which a contract is secured are deferred and recognized over the term of the related drilling contract. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred. We defer recognition of revenue on amounts received from customers for prepayment of services until those services are provided. At December 31, 2016 and 2015, our deferred expenses classified as other current assets were $63.4 million and $79.6 million, respectively. At December 31, 2016 and 2015, our deferred expenses classified as other long-term assets were $69.5 million and $68.9 million, respectively. We recognize revenue for top drives and other capital equipment we manufacture when the earnings process is complete. This generally occurs when products have been shipped, title and risk of loss have been transferred, collectability is probable, and pricing is fixed or determinable. We recognize, as operating revenue, proceeds from business interruption insurance claims in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements in excess of the carrying value of damaged assets are recognized in other, net in the period that the applicable proof of loss documentation is received. Proceeds from casualty insurance settlements that are expected to be less than the carrying value of damaged assets are recognized at the time the loss is incurred and recorded in other, net. We recognize reimbursements received for out‑of‑pocket expenses incurred as revenues and account for out‑of‑pocket expenses as direct costs. Research and Engineering Research and engineering expenses are expensed as incurred and include costs associated with the research and development of new products and services and costs associated with sustaining engineering of existing products and services. As a result of our acquisition of 2TD during 2014, we recorded intangible assets related to in process research and development of $47.7 million. As these products are developed, we will transfer the balances to completed technology and begin amortizing the intangible assets over the estimated useful life. No transfers occurred during the years ended December 31, 2016, 2015 or 2014. We have made progress in the development of our rotary steerable drilling technology tools, including successful tests in 2015 and most recently in October of 2016. The tools are currently being modified to another phase of verification testing before shipping the tools to the U.S. for further field tests. Income Taxes We are a Bermuda exempted company and are not subject to income taxes in Bermuda. We have provided for income taxes based on the tax laws and rates in effect in the countries where we operate and earn income. The income taxes in these jurisdictions vary substantially. Our worldwide effective tax rate for financial statement purposes will continue to fluctuate from year to year due to the change in the geographic mix of pre-tax earnings. We recognize increases to our tax reserves for uncertain tax positions along with interest and penalties as an increase to other long‑term liabilities. For U.S. and other jurisdictional income tax purposes, we have net operating loss carryforwards that we are required to assess quarterly for potential valuation allowances. We consider the sufficiency of existing temporary differences and expected future earnings levels in determining the amount, if any, of valuation allowance required against such carryforwards and against deferred tax assets. Foreign Currency Translation For certain of our foreign subsidiaries, such as those in Canada, the local currency is the functional currency, and therefore translation gains or losses associated with foreign‑denominated monetary accounts are accumulated in a separate section of the consolidated statements of changes in equity. For our other international subsidiaries, the U.S. dollar is the functional currency, and therefore local currency transaction gains and losses, arising from remeasurement of payables and receivables denominated in local currency, are included in our consolidated statements of income (loss). Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the reporting period. Actual results could differ from such estimates. Areas where critical accounting estimates are made by management include:
| · |  | depreciation of property, plant and equipment;
| · |  | impairment of long‑lived assets;
| · |  | impairment of goodwill and intangible assets;
| · |  | impairment of short-term and equity method investments;
| · |  | income taxes;
| · |  | litigation and self‑insurance reserves; and
| · |  | fair value of assets acquired and liabilities assumed.
Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, relating to the revenue recognition from contracts with customers that creates a common revenue standard for GAAP and IFRS. The core principle will require recognition of revenue to represent the transfer of promised goods or services to customers in an amount that reflects the consideration, including costs incurred, to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB approved a one year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. During 2016, we established an implementation team and began a detailed analysis of our contracts in place during the retrospective period. We plan to have all revenue streams assessed and the impact of the new standard on the prior period quantified during 2017. As we are still evaluating certain aspects of our contract drilling revenues, we are unable to quantify the impact that the new revenue standard will have on our consolidated financial statements at this time. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall, relating to the recognition and measurement of financial assets and liabilities. This standard enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early application is permitted. We are currently evaluating the impact this will have on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases, relating to leases to increase transparency and comparability among companies. This standard requires all leases with an initial term greater than one year be recorded on the balance sheet as an asset and a lease liability. Additionally, this standard will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for public companies for fiscal years beginning after December 15, 2018. Early application is permitted. This standard requires an entity to separate lease components from nonlease components within a contract. While the lease components would be accounted for under ASU No. 2016-02, nonlease components would be accounted for under ASU No. 2014-09. Therefore, we are evaluating ASU No. 2016-02 concurrently with the provisions of ASU No. 2014-09 and the impact this will have on our consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-07, Investments—Equity Method and Joint Ventures, to simplify the transition to the equity method of accounting. This standard eliminates the requirement to retroactively adopt the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. Instead, the equity method investor should add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment qualifies for the equity method of accounting. This guidance is effective for public companies for fiscal years beginning after December 15, 2016. Early application is permitted. We are currently evaluating the impact this will have on our consolidated financial statements. In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation, to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after December 15, 2016. Early application is permitted. We will adopt this standard effective January 1, 2017 and the adoption will not have a material impact on our consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows, to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early application is permitted. We are currently evaluating the impact this will have on our consolidated financial statements. In October 2016, the FASB issued ASU No. 2016-16—Income Taxes, which improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. This guidance is effective for public companies for fiscal years beginning after December 15, 2017. Early application is permitted. We are currently evaluating the impact this will have on our consolidated financial statements. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash to provide guidance on the classification of restricted cash in the statement of cash flows. This guidance is effective for public companies for fiscal years beginning after beginning after December 15, 2017. Early application is permitted. The amendments in the ASU should be adopted on a retrospective basis. We are currently evaluating the impact this will have on our consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under this new standard, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and then recognize an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. This guidance is effective for fiscal years beginning after December 15, 2019. Early application is permitted. We do not believe the adoption of this new guidance will have a material impact on our consolidated financial statements.

X
- References No definition available. + Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the basis of presentation and significant accounting policies concepts. Basis of presentation describes the underlying basis used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS). Accounting policies describe all significant accounting policies of the reporting entity. + References No definition available. + Details
Name: | us-gaap_BasisOfPresentationAndSignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration