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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2019
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 U.S. GAAP. All significant intercompany accounts and transactions are eliminated in consolidation. ​ In addition to the consolidation of our majority owned subsidiaries, we also consolidate variable interest entities (“VIE’s”) when we are determined to be the primary beneficiary of a VIE. Determination of the primary beneficiary of a VIE is based on whether an entity has (1) the power to direct activities that most significantly impact the economic performance of the VIE and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE. Our joint venture, SANAD, which is equally owned by Saudi Aramco and Nabors, has been consolidated. As we have the power to direct activities that most significantly impact SANAD’s economic performance, including operations, maintenance and certain sourcing and procurement, we have determined Nabors to be the primary beneficiary. See Note 13—Joint Ventures. ​ 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. ​ Short-term Investments ​ Short-term investments consist primarily of equity securities which are stated at fair value with any changes in fair value recognized in investment income (loss) in our consolidated statements of income (loss). ​ 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 $35.0 million and $27.9 million as of December 31, 2019 and 2018, respectively, included the following: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December 31, |
​ |  | 2019 |  | 2018 |
​ | ​ | (In thousands) |
Raw materials | ​ | $ | 130,414 | ​ | $ | 116,840 | ​
Work-in-progress | ​ |  | 5,498 | ​ |  | 20,329 | ​
Finished goods | ​ |  | 40,429 | ​ |  | 28,418 | ​
​ | ​ | $ | 176,341 | ​ | $ | 165,587 | ​
​ 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 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, oilfield hauling and mobile equipment, 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; 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. Significant and unanticipated changes to the assumptions could result in future impairments. A significantly prolonged period of lower oil and natural gas prices could 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. ​ 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 a long-lived asset that is held and used. ​ 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 the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying amount. If the carrying amount exceeds the fair value, an impairment charge will be recognized in an amount equal to the excess; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ​ 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, which require the use of significant unobservable inputs, representative of a Level 3 fair value measurement. Our cash flow models involve 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 fair value estimates of these reporting units are sensitive to varying dayrates, utilization and costs. A significantly prolonged period of lower oil and natural gas prices, other than those assumed in developing our forecasts, or changes in laws and regulations could adversely affect the demand for and prices of our services, which could in turn result in future goodwill and other intangible asset impairment charges for these reporting units due to the potential impact on our estimate of our future operating results. 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 approximately 2%. ​ 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. ​ The change in the carrying amount of goodwill for our segments for the years ended December 31, 2019 and 2018 was as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ |  | Acquisitions |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |
​ | ​ | ​ | ​ | ​ | and | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
​ | ​ | Balance at | ​ | Purchase | ​ | Disposals | ​ | Cumulative | ​ | ​ | ​ | Balance at |
​ | ​ | December 31, | ​ | Price | ​ | and | ​ | Translation | ​ | Other | ​ | December 31, |
​ | ​ | 2017 | ​ | Adjustments | ​ | Impairments | ​ | Adjustment | ​ | Adjustments | ​ | 2018 |
​ | ​ | (In thousands) |
U.S. Drilling | ​ | $ | 50,149 | ​ | $ | — | ​ | $ | — | ​ | $ | — | ​ | $ | — | ​ | $ | 50,149 | ​
International Drilling | ​ | ​ | 75,634 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 75,634 | ​
Drilling Solutions | ​ | ​ | — | ​ | ​ | 11,436 | (1) | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 11,436 | ​
Rig Technologies | ​ |  | 47,443 | ​ |  | — | ​ |  | — | ​ |  | (748) | ​ |  | — | ​ |  | 46,695 | ​
Total | ​ | $ | 173,226 | ​ | $ | 11,436 | ​ | $ | — | ​ | $ | (748) | ​ | $ | — | ​ | $ | 183,914 | ​
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ | ​ |  | Acquisitions |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |  | ​ | ​ |
​ | ​ | ​ | ​ | ​ | and | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
​ | ​ | Balance at | ​ | Purchase | ​ | Disposals | ​ | Cumulative | ​ | ​ | ​ | Balance at |
​ | ​ | December 31, | ​ | Price | ​ | and | ​ | Translation | ​ | Other | ​ | December 31, |
​ | ​ | 2018 | ​ | Adjustments | ​ | Impairments | ​ | Adjustment | ​ | Adjustment | ​ | 2019 |
​ | ​ | (In thousands) |
U.S. Drilling | ​ | $ | 50,149 | ​ | $ | — | ​ | $ | (52,203) | (2) | $ | — | ​ | $ | 2,054 | ​ | $ | — | ​
International Drilling | ​ | ​ | 75,634 | ​ | ​ | — | ​ | ​ | (75,634) | (2) | ​ | — | ​ | ​ | — | ​ | ​ | — | ​
Drilling Solutions | ​ |  | 11,436 | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | 11,436 | ​
Rig Technologies | ​ |  | 46,695 | ​ |  | — | ​ |  | (28,136) | (2) |  | 439 | ​ |  | (2,054) | ​ |  | 16,944 | ​
Total | ​ | $ | 183,914 | ​ | $ | — | ​ | $ | (155,973) | ​ | $ | 439 | ​ | $ | — | ​ | $ | 28,380 | ​
| (1) | Represents the goodwill recorded in connection with our acquisition of PetroMar Technologies. See Note 5—Acquisitions for additional discussion.
| (2) | We determined the carrying value of some of our reporting units exceeded their fair value. As such, we recognized a goodwill impairment of $156.0 million. See Note 3—Impairments and Other Charges.
​ Goodwill for the consolidated company, totaling approximately $8.2 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 15—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 over the contract term. 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. ​ 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. ​ We recognize revenue for top drives and other capital equipment we manufacture upon transfer of control, which generally occurs when the product has been shipped to the customer. ​ We recognize, as operating revenue, proceeds from business interruption insurance claims in the period that the claim is realizable. Proceeds from casualty insurance settlements in excess of the carrying value of damaged assets are recognized in other, net in our consolidated statement of income (loss) 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 in our consolidated statement of income (loss). ​ 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 Robotic Drilling Systems AS (“RDS”) and PetroMar Technologies, we recorded intangible assets related to in process research and development of $32.5 million and $21.7 million, respectively. 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, 2019, 2018 or 2017. ​ 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. ​ On December 22, 2017, the United States enacted the Tax Cut and Jobs Act of 2017 (“Tax Reform Act”). Among a number of significant changes to the current U.S. federal income tax rules, the Tax Reform Act reduces the marginal U.S. corporate income tax rate from 35 percent down to 21 percent, limits the current deduction for net interest expense, limits the use of net operating losses to offset future taxable income, and imposes a type of minimum tax designed to reduce the benefits derived from intercompany transactions and payments that result in base erosion. As a result of the Tax Reform Act, we were required to revalue deferred tax assets and liabilities from 35 percent to 21 percent and recognized expense of approximately $138.6 million, which is included as a component of income tax expense in continuing operations for the year ended December 31, 2017. Our US operations do not have any controlled foreign corporations and as such are not subject to the Global Intangible Low-Taxed Income provisions of the Tax Reform Act. ​ 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 U.S. 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;
​
| ● | income taxes;
​
| ● | litigation and self-insurance reserves; and
​
| ● | fair value of assets acquired and liabilities assumed.
​ Recent Accounting Pronouncements Adopted ​ In February 2016, the FASB issued ASU No. 2016-02, Leases, relating to leases to increase transparency and comparability among companies. This standard requires that 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 requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. We adopted this guidance under the modified retrospective approach as of January 1, 2019. We preliminarily determined that our drilling contracts contained a lease component, and the adoption would require us to separately recognize revenue associated with the lease and services components. In July 2018, the FASB issued ASU No. 2018-11, which provides a practical expedient that allows entities to combine lease and non-lease components where the revenue recognition pattern is the same and where the lease component, when accounted for separately, would be considered an operating lease. Our drilling contracts contain a lease component related to the underlying drilling equipment, in addition to the service component provided by our crews and our expertise to operate such drilling equipment. We have determined that the non-lease service component of our drilling contracts is the predominant element of the combined component and will account for the combined components as a single performance obligation under Topic 606, Revenue from Contracts with Customers. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. With respect to leases whereby we are the lessee, we recognized upon adoption on January 1, 2019 lease liabilities and offsetting "right of use" assets of approximately $42.8 million based on the present value of the remaining minimum rental payments. See Note 21 — Leases. ​ In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. In addition, the standard requires certain disclosures regarding stranded tax effects. This guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have elected to not reclassify the stranded tax effects within accumulated other comprehensive income to retained earnings and therefore there is no impact on our consolidated financial statements. ​ Recent Accounting Pronouncements Not Yet Adopted ​ In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit losses (CECL) methodology. The guidance is effective for interim and annual periods beginning after December 15, 2019. The guidance will be applied using the modified retrospective method with a cumulative effect adjustment to beginning retained earnings. Trade receivables (including the allowance for doubtful accounts) is the only financial instrument in scope for ASU 2016-13 currently held by the Company. We are currently evaluating the effect the guidance will have on our consolidated financial statements.

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