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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2017
Commitments and Contingencies |
Commitments and Contingencies | Note 17 Commitments and Contingencies Commitments During 2016, we entered into an agreement with Saudi Aramco, to form a new joint venture to own, manage and operate onshore drilling rigs in the Kingdom of Saudi Arabia. The joint venture, which is equally owned by Saudi Aramco and Nabors, commenced operations in the fourth quarter of 2017. The joint venture leverages our established business in Saudi Arabia to begin operations, with a focus on Saudi Arabia's existing and future onshore oil and gas fields. During 2017, Nabors and Saudi Aramco each contributed $20 million in cash as the initial contribution upon formation of the joint venture. In addition, during 2017 Nabors and Saudi Aramco have each contributed approximately $204 million in a combination of drilling rigs, drilling rig equipment or other assets, including cash, to the joint venture in proportion to the respective party’s ownership interest. We have also agreed to contribute an additional five drilling rigs and related assets to the joint venture in January 2019. Additionally, the agreement requires us to backstop our share of the joint venture’s obligations to purchase the first 25 drilling rigs in the event that there is insufficient cash in the joint venture or third party financing available. Although we currently anticipate that the future rig purchase needs will be met by cash flows from the joint venture and/or third party financing, no assurance can be given that the joint venture will not require us to fund our backstop. Leases Nabors and its subsidiaries occupy various facilities and lease certain equipment under various lease agreements. The minimum rental commitments under non‑cancelable operating leases, with lease terms in excess of one year subsequent to December 31, 2017, were as follows:
|  | (In thousands) |
2018 |  | $ | 11,342 |
2019 |  |  | 4,864 |
2020 |  |  | 3,400 |
2021 |  |  | 2,265 |
2022 |  |  | 1,876 |
Thereafter |  |  | 8,108 |
|  | $ | 31,855 |
The above amounts do not include property taxes, insurance or normal maintenance that the lessees are required to pay. Rental expense relating to operating leases with terms greater than 30 days amounted to $15.0 million, $15.7 million and $24.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Minimum Volume Commitment We have contracts with pipeline companies to pay specified fees based on committed volumes for gas transport and processing. Our pipeline contractual commitments as of December 31, 2017 were as follows:
|  | (In thousands) |
2018 |  | $ | 8,597 |
2019 |  |  | 2,652 |
2020 |  |  | — |
2021 |  |  | — |
2022 |  |  | — |
Thereafter (1) |  |  | — |
|  | $ | 11,249 |
| (1) |  | Final commitment period is for the period ending May 2019. See Note 4—Assets Held for Sale and Discontinued Operations for additional discussion.
Employment Contracts We have entered into employment contracts with certain of our employees. Our minimum salary and bonus obligations under these contracts as of December 31, 2017 were as follows:
|  | (In thousands) |
2018 |  | $ | 4,252 |
2019 |  |  | 300 |
2020 |  |  | — |
2021 |  |  | — |
2022 |  |  | — |
Thereafter |  |  | — |
|  | $ | 4,552 |
Other Obligations. In addition to salary and bonus, Mr. Petrello receives group life insurance at an amount at least equal to three times his base salary, various split‑dollar life insurance policies, reimbursement of expenses, various perquisites and a personal umbrella insurance policy in the amount of $5 million. Premiums payable under the split‑dollar life insurance policies were suspended as a result of the adoption of the Sarbanes‑Oxley Act of 2002. Contingencies Income Tax Contingencies We operate in a number of countries throughout the world and our tax returns filed in those jurisdictions are subject to review and examination by tax authorities within those jurisdictions. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. If any tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our subsidiaries in certain countries, if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure, or if we lose a material tax dispute in any country, our effective tax rate on our worldwide earnings could change substantially. We have received an assessment from a tax authority in Latin America in connection with a 2007 income tax return. The assessment relates to the denial of depreciation expense deductions related to drilling rigs. Similar deductions were taken for tax year 2009. Although Nabors and its tax advisors believe these deductions are appropriate and intend to continue to defend our position, we have recorded a partial reserve to account for this contingency. If we ultimately do not prevail, we estimate that we would be required to recognize additional tax expense in the range of $3 million to $8 million. Self‑Insurance We estimate the level of our liability related to insurance and record reserves for these amounts in our consolidated financial statements. Our estimates are based on the facts and circumstances specific to existing claims and our past experience with similar claims. These loss estimates and accruals recorded in our financial statements for claims have historically been reasonable in light of the actual amount of claims paid and are actuarially supported. Although we believe our insurance coverage and reserve estimates are reasonable, a significant accident or other event that is not fully covered by insurance or contractual indemnity could occur and could materially affect our financial position and results of operations for a particular period. We self‑insure for certain losses relating to workers’ compensation, employers’ liability, general liability, automobile liability and property damage. Some of our workers’ compensation claims, employers’ liability and marine employers’ liability claims are subject to a $3.0 million per‑occurrence deductible; additionally, some of our automobile liability claims are subject to a $2.5 million deductible. General liability claims remain subject to a $5.0 million per‑occurrence deductible. Our policies were renewed effective April 1, 2017 and remain subject to these same deductibles. In addition, we are subject to a $5.0 million deductible for land rigs and for offshore rigs. This applies to all kinds of risks of physical damage except for named windstorms in the U.S. Gulf of Mexico for which we are self‑insured. Political risk insurance is procured for select operations in South America, Africa, the Middle East and Asia. Losses are subject to a $0.25 million deductible, except for Colombia, which is subject to a $0.5 million deductible. There is no assurance that such coverage will adequately protect Nabors against liability from all potential consequences. As of December 31, 2017 and 2016, our self‑insurance accruals totaled $150.9 million and $157.4 million, respectively, and our related insurance recoveries/receivables were $29.0 million as of December 31, 2017 and 2016. Litigation Nabors and its subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. We estimate the range of our liability related to pending litigation when we believe the amount and range of loss can 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. In the opinion of management and based on liability accruals provided, our ultimate exposure with respect to these pending lawsuits and claims is not expected to have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our results of operations for a particular reporting period. In March 2011, the Court of Ouargla entered a judgment of approximately $24.6 million (at December 31, 2017 exchange rates) against us relating to alleged violations of Algeria’s foreign currency exchange controls, which require that goods and services provided locally be invoiced and paid in local currency. The case relates to certain foreign currency payments made to us by CEPSA, a Spanish operator, for wells drilled in 2006. Approximately $7.5 million of the total contract amount was paid offshore in foreign currency, and approximately $3.2 million was paid in local currency. The judgment includes fines and penalties of approximately four times the amount at issue. We have appealed the ruling based on our understanding that the law in question applies only to resident entities incorporated under Algerian law. An intermediate court of appeals upheld the lower court’s ruling, and we appealed the matter to the Supreme Court. On September 25, 2014, the Supreme Court overturned the verdict against us, and the case was reheard by the Ouargla Court of Appeals on March 22, 2015 in light of the Supreme Court’s opinion. On March 29, 2015, the Ouargla Court of Appeals reinstated the initial judgment against us. We have appealed this decision again to the Supreme Court. While our payments were consistent with our historical operations in the country, and, we believe, those of other multinational corporations there, as well as interpretations of the law by the Central Bank of Algeria, the ultimate resolution of this matter could result in a loss of up to $16.6 million in excess of amounts accrued. On September 29, 2017, Nabors and Nabors Maple Acquisition Ltd. were sued, along with Tesco Corporation and its Board of Directors, in a putative shareholder class action filed in the United States District Court for the Southern District of Texas, Houston Division. The plaintiff alleges that the September 18, 2017 Preliminary Proxy Statement filed by Tesco with the United States Securities and Exchange Commission omitted material information with respect to the proposed transaction between Tesco and Nabors announced on August 14, 2017. The plaintiff claims that the omissions rendered the Proxy Statement false and misleading, constituting a violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, and alleges liability by Nabors as a control person of Tesco. Defendants have consolidated this case, captioned The Vladimir Gusinsky Rev. Trust et al. v. Tesco Corporation et al., No. 4:17-cv-02918 (S.D. Tex.) (Miller, J.) with two other matters recently filed making the same or similar legal claims against Nabors and/or Tesco, captioned Panella v. Tesco Corporation et al., No. 4:17-cv-02904 (S.D. Tex.) (Bennett, J.) and Norman Heinze v. Tesco Corporation et al., No. 4:17-cv-03029 (S.D. Tex). Off‑Balance Sheet Arrangements (Including Guarantees) We are a party to some transactions, agreements or other contractual arrangements defined as “off‑balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity and capital resources. The most significant of these off‑balance sheet arrangements involve agreements and obligations under which we provide financial or performance assurance to third parties. Certain of these agreements serve as guarantees, including standby letters of credit issued on behalf of insurance carriers in conjunction with our workers’ compensation insurance program and other financial surety instruments such as bonds. In addition, we have provided indemnifications, which serve as guarantees, to some third parties. These guarantees include indemnification provided by Nabors to our share transfer agent and our insurance carriers. We are not able to estimate the potential future maximum payments that might be due under our indemnification guarantees. Management believes the likelihood that we would be required to perform or otherwise incur any material losses associated with any of these guarantees is remote. The following table summarizes the total maximum amount of financial guarantees issued by Nabors:
|  | Maximum Amount |
|  | 2017 |  | 2018 |  | 2019 |  | Thereafter |  | Total |
|  | (In thousands) |
Financial standby letters of credit and other financial surety instruments |  | $ | 81,131 |  | 184,848 |  | 367 |  | 39 |  | $ | 266,385 |

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