<PAGE>
                                                                     EXHIBIT 4.2

--------------------------------------------------------------------------------

                            NABORS INDUSTRIES, INC.,

                                   as Issuer,

                                       and

                             NABORS INDUSTRIES LTD.,

                                  as Guarantor,


                               ZERO COUPON SENIOR

                           EXCHANGEABLE NOTES DUE 2023


                          FIRST SUPPLEMENTAL INDENTURE

                          DATED AS OF OCTOBER 25, 2004


                 J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION
                        (as successor to Bank One, N.A.),

                                   as Trustee

--------------------------------------------------------------------------------
<PAGE>
            This FIRST SUPPLEMENTAL INDENTURE (this "First Supplemental
Indenture"), dated as of October 25, 2004, is among Nabors Industries, Inc., a
Delaware corporation, as issuer (the "COMPANY"), Nabors Industries, Ltd., a
Bermuda exempted company, as guarantor (the "GUARANTOR"), and J.P. Morgan Trust
Company, National Association (as successor to Bank One, N.A.), a national
banking association, as trustee (the "TRUSTEE").

                             RECITALS OF THE COMPANY

            WHEREAS, the Company and the Trustee entered into an Indenture,
dated as of June 10, 2003, as amended and supplemented by this First
Supplemental Indenture (as so amended and supplemented, the "Indenture"),
pursuant to which the Company issued $700,000,000 in aggregate principal amount
at maturity of Zero Coupon Senior Exchangeable Notes due 2023 (each a
"Security", collectively the "Securities");

            WHEREAS, the Company and the Guarantor desire to execute this First
Supplemental Indenture to add additional covenants by the Company for the
benefit of the Holders and to amend Sections 3.07 and 3.10 of the Indenture in
certain respects;

            WHEREAS, Section 9.01(4) of the Indenture provides that the Company
and the Guarantor may enter into one or more supplemental indentures without the
written consent of any Holders to make any change that does not adversely affect
the right of any Holder;

            WHEREAS, the Board of Directors of each of the Company and of the
Guarantor (or a duly authorized committee thereof) has duly adopted resolutions
authorizing the Company and the Guarantor, respectively, to execute and deliver
this First Supplemental Indenture; and

            WHEREAS, all the conditions and requirements necessary to make this
First Supplemental Indenture, when duly executed and delivered, a valid and
binding agreement in accordance with its terms for the purposes herein
expressed, have been performed and fulfilled.

            NOW, THEREFORE, THIS FIRST  SUPPLEMENTAL INDENTURE WITNESSETH:

            For and in consideration of the premises provided for herein by the
Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:

<PAGE>
                                    ARTICLE 1

                              RELATION TO INDENTURE

      SECTION 1.1 RELATION TO INDENTURE.

            This First Supplemental Indenture constitutes an integral part of
the Indenture.

      SECTION 1.2 DEFINITIONS.

            For all purposes of this First Supplemental Indenture, except as
expressly provided for or unless the context otherwise requires:

            (1) Capitalized terms used but not defined in this First
Supplemental Indenture shall have the respective meanings assigned to them in
the Indenture; and

            (2) All references in this First Supplemental Indenture to Articles
and Sections, unless otherwise specified, refer to the corresponding Articles
and Sections of this First Supplemental Indenture.

                                    ARTICLE 2

                           REDEMPTION AND REPURCHASES

      SECTION 2.1 EXCHANGE ARRANGEMENT ON CALL FOR REDEMPTION.

            Section 3.07 of the Indenture is hereby amended by deleting it in
its entirety and substituting in place thereof the following:

                  Section 3.07 [INTENTIONALLY OMITTED].

      SECTION 2.2 EFFECT OF REPURCHASE NOTICE OR FUNDAMENTAL CHANGE
REPURCHASE NOTICE.

            The last paragraph of Section 3.10 of the Indenture is hereby
amended by deleting it in its entirety and substituting in place thereof the
following:

            There shall be no repurchase of any Securities pursuant to Section
      3.08 hereof or repurchase pursuant to Section 3.09 hereof if there has
      occurred (prior to, on or after, as the

                                       2
<PAGE>
      case may be, the giving, by the Holders of such Securities, of the
      required Repurchase Notice or Option to Elect Repurchase Upon a
      Fundamental Change, as the case may be) and is continuing an Event of
      Default (other than a default in the payment of the Purchase Price or
      Fundamental Change Purchase Price, as the case may be, with respect to
      such Securities).

                                    ARTICLE 3

                              ADDITIONAL COVENANTS

      SECTION 3.1 PAYMENT OF PURCHASE PRICE IN CASH.

            The following new Section 4.12 is hereby added to the Indenture:

            SECTION 4.12. PAYMENT OF PURCHASE PRICE IN CASH.

            The Company and the Guarantor covenant and agree for the benefit of
      each Holder that in any Company Notice issued pursuant to Section 3.08 of
      the Indenture, the Company shall in all circumstances elect to pay the
      Purchase Price solely in cash.

      SECTION 3.2 EXCHANGE PAYMENTS IN CASH.

            The following new Section 4.13 is hereby added to the Indenture:

            SECTION 4.13. EXCHANGE PAYMENTS IN CASH.

            (a) The Company and the Guarantor covenant and agree for the benefit
      of each Holder that any written notice issued by the Company pursuant to
      Section 11.02 of the Indenture shall in all circumstances specify that the
      Company shall make payment solely in cash for all Securities submitted for
      exchange unless the Full Cash Price (as defined below) for a Security is
      greater than the Principal Amount thereof, in which case the Company shall
      (x) pay in cash the percentage of the Full Cash Price equal to the
      quotient obtained by dividing the Principal Amount of such Security by the
      Full Cash Price for such Security, and (y) pay the remaining portion of
      the payment for such Securities either, at the option of the Company, (i)
      by delivery of a number of Common Shares equal to the quotient obtained by
      dividing (A) the excess of the Full Cash Price for such Security over the
      Principal Amount of such Security by (B) the average of the Sales Prices
      of the Common Shares for the five Trading Days immediately following the
      date on which the Company notifies the Holders that it has elected to pay
      cash in lieu of delivering Common Shares (and cash in lieu of fractional
      Common Shares) or (ii) in cash. The "FULL CASH PRICE" shall be equal to
      the average of the Sale Prices of the Common Shares for the five Trading
      Days beginning on the Trading Day immediately following the date on which
      the Company notifies the Holders that it has elected to pay cash in lieu
      of delivering Common Shares with

                                       3
<PAGE>
      respect to all or part of such exchanges, multiplied by the Exchange Rate
      on such notification date.

            (b) The calculation set forth in Section 4.13(a) shall be made by
      the Company and the Guarantor. The Trustee shall have no duty to make the
      calculation set forth in Section 4.13(a) and takes no responsibility for
      any calculation made by the Company or the Guarantor pursuant to Section
      4.13(a). Each Exchange Agent (other than the Company or one of its
      Affiliates) shall have the same protection under this Section 4.13(b) as
      the Trustee.

                                    ARTICLE 4

                            MISCELLANEOUS PROVISIONS

      SECTION 4.1 RATIFICATION OF INDENTURE.

            Except as expressly modified or amended hereby, the Indenture
continues in full force and effect and is in all respects confirmed and
preserved.

      SECTION 4.2 EFFECTIVENESS.

            This First Supplemental Indenture shall be effective as of the date
first written above.

      SECTION 4.3 CONFLICT WITH THE TRUST INDENTURE ACT.

            If any provision of this First Supplemental Indenture modifies or
excludes any provision of the Trust Indenture Act that is required under such
Act to be part of and govern this First Supplemental Indenture, the latter
provision of the Trust Indenture Act shall control. If any provision hereof
modifies or excludes any provision of the Trust Indenture Act that may be so
modified or excluded, the latter provision of the Trust Indenture Act shall be
deemed to apply to this First Supplemental Indenture, as so modified or
excluded, as the case may be.

      SECTION 4.4 SECURITIES DEEMED CONFORMED.

            As of the date hereof, the provisions of each Security then
outstanding shall be deemed to be conformed, without the necessity for any
reissuance or exchange of such Security or any other action on the part of the
Holders, the Company, the Guarantor or the Trustee, so as to reflect this First
Supplemental Indenture.

                                       4
<PAGE>
      SECTION 4.5 NO ADDITIONAL TRUSTEE OBLIGATIONS.

            No duties, responsibilities or liabilities are assumed, or shall be
construed to be assumed, by the Trustee by reason of this First Supplemental
Indenture. This First Supplemental Indenture is executed and accepted by the
Trustee subject to all the terms and conditions set forth in the Indenture with
the same force and effect as if those terms and conditions were repeated at
length herein and made applicable to the Trustee with respect hereto.

      SECTION 4.6 SUCCESSORS.

            All agreements of the Company, the Guarantor and the Trustee in this
First Supplemental Indenture and in the Indenture shall bind their respective
successors.

      SECTION 4.7 BENEFITS OF FIRST SUPPLEMENTAL INDENTURE.

            Nothing in this First Supplemental Indenture, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and the Holders, any benefit or any legal or equitable right, remedy
or claim under this First Supplemental Indenture.

      SECTION 4.8 GOVERNING LAW.

            THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE AND ENFORCE THIS FIRST SUPPLEMENTAL INDENTURE.

      SECTION 4.9 COUNTERPARTS.

            This First Supplemental Indenture may be executed in any number of
counterparts, each of which shall be an original, but all such counterparts
shall together constitute but one and the same instrument.

      SECTION 4.10 TRUSTEE.

            The Trustee is not responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this First Supplemental Indenture or
for or in respect of the recitals contained herein, which are made solely by the
Company and the Guarantor.


                       [SIGNATURE PAGE FOLLOWS]

                                       5
<PAGE>
            IN WITNESS WHEREOF, the parties hereto have cause this First
Supplemental Indenture to be duly executed as of the first day and year first
written above.

                                    ISSUER:

                                    NABORS INDUSTRIES, INC.

                                    By: /s/ BRUCE P. KOCH
                                        ------------------------------
                                        Bruce P. Koch
                                        Vice President-Finance and
                                          Chief Financial Officer


                                    GUARANTOR:

                                    NABORS INDUSTRIES LTD.

                                    By: /s/ DANIEL MCLACHLIN
                                        ------------------------------
                                        Daniel McLachlin
                                        Vice President - Administration


                                    TRUSTEE:

                                    J.P. MORGAN TRUST COMPANY,
                                    NATIONAL ASSOCIATION (as successor
                                    to Bank One, N.A.), as Trustee

                                    By: /s/ MARY JANE HENSON
                                        ------------------------------
                                        Name:  Mary Jane Henson
                                        Title: Vice President