<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             
                                   FORM 10-K
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended SEPTEMBER 30, 1997         Commission File No.: 1-9245

                            NABORS INDUSTRIES, INC.
             (Exact name of Registrant as specified in its charter)


                DELAWARE                                      93-0711613
    (Jurisdiction of Incorporation)                        (I.R.S. Employer 
                                                          Identification No.)
                                              
    515 WEST GREENS ROAD, SUITE 1200          
             HOUSTON, TEXAS                                     77067
(Address of principal executive offices)                     (Zip Code)


                                 (281) 874-0035
              (Registrant's telephone number, including area code)


          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


                                                          Name of each
   Title of each class                             exchange on which registered

COMMON STOCK, $.10 PAR VALUE PER SHARE             AMERICAN STOCK EXCHANGE, INC.


         Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.

                        YES  [X]                  NO [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ X ]

         The aggregate market value on December 1, 1997 of voting stock held by
non-affiliates of the Registrant was approximately $2,827 million.

         The number of shares of Common Stock outstanding as of December 1, 
1997 was 100,835,531.


                      DOCUMENTS INCORPORATED BY REFERENCE
                        (TO THE EXTENT INDICATED HEREIN)

Specified Portions of the 1997 Annual Report to Stockholders  (Parts I, II 
and IV)

Specified Portions of the Notice of Annual Meeting of Stockholders and Proxy
Statement  (Part III)
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                          FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes certain statements that may be deemed
to be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.  All statements, other than statements of historical
facts, included in this Annual Report on Form 10- K that address activities,
events or developments that Nabors Industries, Inc. (collectively with its
subsidiaries, "Nabors" or the "Company") "expects", "projects", "believes" or
"anticipates" will or may occur in the future, including such matters as future
capital expenditures and investments in the acquisition and refurbishment of
rigs (including the amount and nature thereof), repayment of debt, expansion
and other development trends of the contract drilling industry, business
strategies, expansion and growth of operations and other such matters are
forward-looking statements.  These statements are based on certain assumptions
and analyses made by management of the Company in light of its experience and
its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the
circumstances.  Such statements are subject to a number of risks and
uncertainties, including those discussed herein, general economic and business
conditions, prices of crude oil and natural gas, foreign exchange and currency
fluctuations, the business opportunities (or lack thereof) that may be
presented to and pursued by the Company, changes in laws or regulations and
other factors, many of which are beyond the control of the Company.  Any such
statements are not guarantees of future performance and actual results or
developments may differ materially from those projected in the forward-looking
statements.

                                     PART I

ITEM 1.          BUSINESS

Nabors is the largest land drilling contractor in the world, with 386 actively
marketed land rigs.  The Company is principally engaged in oil and gas land
drilling operations in North America (in the US Lower 48 states, Alaska and
Canada), and internationally (in South and Central America, the Middle East and
other regions).  Nabors also markets 37 offshore drilling, well servicing and
workover rigs in the Gulf of Mexico, Alaska's Cook Inlet and several
international markets. To supplement its primary businesses, the Company offers
a number of  ancillary well-site services, including oilfield management,
engineering, transportation, construction, maintenance, well logging and other
support services, in selected domestic and international markets.  In addition,
the Company manufacturers and leases or sells top drives for a broad range of
drilling rig applications and manufactures and leases or sells rig
instrumentation equipment to monitor rig performance.

BUSINESS STRATEGY

The Company's business philosophy is to grow and remain profitable in any
market environment, to build a diverse portfolio of market positions to
mitigate risk and create potential for growth, to establish and maintain a
conservative and flexible financial posture and to forge long-term relationships
with customers.  Nabors has implemented this philosophy by:

         o   maintaining a technologically and geographically diverse rig
             fleet, enabling Nabors to optimize returns through increased
             utilization and increased dayrates;

         o   reactivating stacked rigs as market conditions warrant, both
             domestically and internationally;

         o   increasing value-added revenues from ancillary well-site products
             and services that complement the Company's businesses in its
             existing field locations, including top drives, mudlogging,
             instrumentation systems, pipe rental and construction and
             transportation services;





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         o   upgrading and enhancing the capabilities of the Company's existing
             fleet and building certain specialized rig equipment such as the
             MASE(TM), arctic and other special purpose rigs;

         o   entering into partnering relationships or alliances with operators
             as a preferred contractor in certain domestic and international
             locations; and

         o   making strategic acquisitions to augment the existing rig fleet or
             grow in other related areas, and making divestitures to take
             advantage of market conditions in non-strategic businesses or
             geographic markets.

BUSINESS

CONTRACT DRILLING OVERVIEW

Drilling Rigs. Drilling rigs owned and operated by the Company include
land-based rigs and offshore platform, jackup and barge rigs.  Drilling rigs
come in a wide variety of sizes and capabilities, and may include specialized
equipment, such as top drives, or have design features or modifications for
specialized drilling conditions, such as arctic drilling.  The rigs, which may
be classified as mechanical or electric, generally are powered by two to four
large diesel engines.  An electric rig differs from a mechanical rig in that it
converts the diesel power to electricity to power the rig.  This gives the rig
operator the ability to deliver the same amount of torque at high and low
speeds, permitting greater control of the rig, which hoists and rotates heavy
drill pipe in and out of the well.  This enhances operating efficiency and
safety, reducing drilling time and saving the customer money.  Because of these
advantages, diesel electric rigs, better known as silicon-controlled rectifier
or SCR rigs, generally are preferred by customers, and enjoy higher utilization
and dayrates.

Rigs owned by the Company may perform drilling, well servicing (routine repair
and maintenance of mechanical problems) or workover services (major overhaul or
remediation of an existing wellbore and/or plugging and redrilling the well),
depending on the configuration of the individual rig. Each rig is rated for
drilling up to a specific depth. The basic types of rigs operated by the Company
are described below.

o   Land Rigs.  A land-based drilling rig generally consists of engines,
    drawworks, a mast, pumps to circulate the drilling fluid, blowout
    preventers, drill string and related equipment.  The engines power a rotary
    table that turns the drill string, causing the drill bit to bore through
    the subsurface rock layers.  Rock cuttings are carried to the surface by
    the circulating drilling fluid.  The intended well depth and the drilling
    site conditions are the principal factors that determine the size and type
    of rig most suitable for a particular drilling job.  A land-based well
    servicing rig consists of a mobile carrier, engine, drawworks and a mast.
    The primary function of a well servicing rig is to act as a hoist so that
    pipe, rods and down-hole equipment can be run into and out of a well.  All
    of the Company's well servicing rigs can be readily moved between well
    sites and between geographic areas of operations.

o   Platform Rigs. The Company's platform rigs consist of drilling and/or well
    servicing or workover equipment and machinery arranged in modular packages
    that are transported to and assembled and installed on fixed offshore
    platforms owned by the customer.  Fixed offshore platforms are steel
    tower-like structures that stand on the ocean floor, with the top portion,
    or platform, above the water level, providing the foundation upon which the
    platform rig is placed.  The Sundowner series of platform rigs all are
    self-erecting (that is, they can be off-loaded with their own crane,
    rather than requiring a separate barge and crane to assemble), and generally
    are designed to fit the geometry of nearly any producing platform without
    major modifications to either the rig or the platform.  A Super Sundowner is
    an enhanced version of the Sundowner rig, with more powerful mud pump
    systems and greater hook load capacity.  This enables the rigs to be used in
    more rigorous applications, including re-entry and side-tracking workovers.
    Minimum Area, Self-Erecting, or MASE(TM), drilling rigs are the latest
    generation of Sundowner modular platform rigs and represent a larger, more
    powerful version of the Super Sundowner.  API (American Petroleum Institute)
    drilling rigs have similar capabilities to the MASE(TM)  rigs, but generally
    come in larger modules.  Unlike the Sundowner series of rigs, API rigs are
    not self-erecting, and require a separate barge crane to off-load.  The
    Company





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    also operates two modified land rigs for offshore work (the Tortuga L2S(TM)
    or "land-to-sea" rigs) for drilling on mudslide and selected conventional
    offshore platforms.  These rigs are self-erecting, modular and require less
    time to place in service than newly built platform rigs of similar size and
    capability. In addition to providing workover services offshore, the Company
    is using its platform rigs to provide an increasing amount of drilling and
    horizontal re-entry services using portable top drives, enhanced pumps and
    solids control equipment for drilling fluids.

o   Jackup Rigs.  The jackup rigs operated by the Company are mobile,
    self-elevating drilling or workover platforms equipped with legs that can be
    lowered to the ocean or lake floor until a foundation is established to
    support the hull, which contains the drilling and/or workover equipment,
    jacking system, crew quarters, loading and unloading facilities, storage
    areas for bulk and liquid materials, helicopter landing deck and other
    related equipment.  The rig legs may operate independently or have a mat
    attached to the lower portion of the legs in order to provide a more stable
    foundation in soft bottom areas. Independent leg rigs are better suited for
    harsher or uneven seabed conditions.  All of the Company's jackup rigs are
    cantilever design -- a feature that permits the drilling platform to be
    extended out from the hull, allowing it to perform drilling or workover
    operations over fixed platforms.  Jackup rigs owned by the Company are
    generally subject to a maximum water depth of approximately 125 feet, while
    some jackup rigs may drill in water depths as shallow as 13 feet.  The water
    depth limit of a particular rig is determined by the length of the rig's
    legs and the operating environment.  Moving a rig from one drill site to
    another involves lowering the hull down into the water until it is afloat
    and then jacking up its legs with the hull floating on the surface of the
    water.  The hull is then towed to the new drilling site.

o   Barge Rigs.  The Company's barge rigs generally are comprised of a
    self-propelled barge having a covered structure or substructure and well
    service or workover equipment.  The barges are designed to perform plugging
    and abandonment, well service or workover services in shallow inland,
    coastal or offshore waters. Barge rigs operated by the Company can drill at
    depths from as shallow as three feet.

Drilling Contracts.  The Company's drilling rigs are employed under individual
contracts which extend either over a stated period of time or the time required
to drill a well or a number of wells to a specified depth.  On land in the US
Lower 48 states and Canada, the Company typically contracts on a single well
basis, with extensions subject to mutual agreement on pricing and other
significant terms. Offshore and on land in Alaska and international markets,
contracts generally provide for longer terms than contracts in domestic markets
(typically from one to three years).  Drilling contracts are generally obtained
through competitive bidding though some may be obtained by negotiation.
Contracts are generally subject to termination by the customer on short notice,
but can be firm for a number of wells or a period of time, and may provide for
early termination compensation in certain circumstances.  The contract terms and
rates may differ depending on a variety of factors, including competitive
conditions, the geographical area, the geological formation to be drilled, the
equipment and services to be supplied, the on-site drilling conditions and the
anticipated duration of the work to be performed.

Drilling contracts may provide for compensation on a daywork, turnkey or
footage basis.  During fiscal 1997, substantially all of the land and all of
the offshore and international contracts were on a daywork basis.  While the
Company's current strategy is to operate primarily under daywork contracts,
management continually analyzes market conditions, customer requirements, rig
demand and the experience of its personnel to determine how to most
profitability contract its fleet.  If the Company were to encounter less
favorable conditions within its industry, competitive pressures and customer
demands might require it to consider entering into a larger number of turnkey
or footage drilling contracts.  Accordingly, there can be no assurance that the
Company will not suffer a loss that is not insured as a result of entering into
such contracts, and any such uninsured loss could have a material adverse
effect on the Company's financial position and results of operations.

o   Daywork Contracts.  A daywork contract generally provides for a basic rate
    per day when drilling (the "dayrate") and for lower rates when the rig is
    moving, or when drilling operations are interrupted or restricted by
    equipment breakdowns, actions of the customer or adverse weather conditions
    or other conditions beyond the control of the Company.  In addition,
    daywork contracts may provide for a lump sum fee for the mobilization
    and demobilization of the drilling rig, which in most cases approximates
    the costs incurred by the Company.  The dayrate depends on market and
    competitive





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    conditions, the nature of the operations to be performed, the duration of
    the work, the equipment and services to be provided, the geographic area
    involved and other variables.

o   Turnkey and Footage Contracts.  In turnkey and footage contracts, the
    Company undertakes to drill a well to a specified depth for a fixed price
    (for the hole, in the case of turnkey drilling, or by the foot, in the case
    of footage work), regardless of the time required or the problems
    encountered in drilling the well.  On a turnkey well, the Company also
    provides technical expertise and engineering services, as well as most of
    the equipment required for the well, and is compensated only when the
    contract terms have been satisfied.  On a turnkey well, the Company often
    subcontracts for related services and manages the drilling process.  On a
    footage well, the Company is simply responsible for drilling the well. In
    both turnkey and footage contracts, the Company must bear the cost of
    performing the drilling services until the well has been drilled, and
    accordingly, such contracts require significant cash commitments by the
    Company.  In both the turnkey and footage contracts, the Company generally
    agrees to furnish services such as testing, coring and casing the hole and
    other services which are not normally provided by a drilling contractor
    working under a daywork contract.  If the well is not completed to the
    specified depth, the Company may not receive the fixed turnkey or footage
    price.  Footage and turnkey contracts generally involve a higher degree of
    risk to the Company than daywork contracts because the Company assumes
    greater risks (including risk of blowout, loss of hole, stuck drill pipe,
    machinery breakdowns, abnormal drilling conditions and risks associated
    with subcontractors' services, supplies, cost escalation and personnel) and
    bears the cost of unanticipated downhole problems and price escalation.

Service Contracts.  Onshore transportation and support services are provided
through long-term contracts or on a short- term demand basis.  Long-term
contracts may either be negotiated or awarded by competitive bidding.  Whether
provided on a long-term or short-term basis, equipment and labor are usually
billed separately at specified hourly rates. These hourly rates vary depending
upon numerous factors, including types of equipment and labor, and duration of
the work.

From time to time, the Company has provided drilling engineering and integrated
project management services, ranging from well design and engineering expertise
to site preparation and road construction in an effort to help customers
eliminate or reduce management overhead which would otherwise be necessary to
supervise such services.  While such services have not been significant in the
past, the Company is seeking to expand in this area, both internationally and
domestically.

INDUSTRY CONDITIONS

The domestic land drilling industry recently is experiencing generally higher
utilization and increasing dayrates as a result of a long-term decline in the
supply of rigs and increased demand for rigs attributable to improved oil and
gas industry fundamentals.  Industry sources estimate that from its peak in
1982, the supply of domestic land rigs has fallen by almost 75% as a result of
normal attrition, cannibalization of components to refurbish rigs, the inability
of smaller competitors to raise capital needed to upgrade and modernize rigs
and the export of rigs to international markets.  Greater recent demand in the
industry is evidenced by the increase in the average domestic land rig count to
764 during fiscal 1997 from 633 during fiscal 1996, according to data published
by Baker Hughes Incorporated.  The domestic land drilling industry currently is
experiencing utilization rates of approximately 86% for actively market rigs,
based on industry sources.  While these market conditions have led to increasing
day rates in the Company's core areas, the Company does not believe that such
rates have reached levels that would justify the construction of new rigs.

Beyond the diminished size of the rig fleet, the domestic land drilling
industry also is benefiting from improved fundamentals among domestic oil and
gas exploration and production companies.  In particular, new technologies and
improved operating efficiencies have increased drilling success rates, lowered
finding costs and enhanced the industry's profitability as compared to the late
1980s and early 1990s.  In addition, the financial positions of many domestic
oil and gas companies, and their access to additional capital, have improved in
recent years, affording these companies the ability to fund aggressive drilling
programs.  From 1992 to 1996, the total equity market capitalization of 35 of
the largest domestic exploration and production companies grew from
approximately $255 billion to approximately $465 billion and their aggregate
annual capital expenditures increased from $10.5 billion to $16.5 billion.  The





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Company believes that these improved industry fundamentals have allowed oil and
gas companies to maintain more consistently active drilling programs, even in
periods of lower commodity prices.

Much of the new technology being employed in the oil and gas industry has
increased demand for rigs capable of drilling deeper wells efficiently and
accurately.  For example, more sophisticated and longer life drilling motors,
top drives and measurement-while-drilling devices have made deep horizontal
drilling less expensive and more precise.  Three-dimensional seismic techniques
have also increased the demand for deep rigs.  This technology permits
geoscientists to develop a more complete understanding of deep, complex geology
prior to drilling a well.  As shallower fields continue to deplete, oil and gas
companies may well choose to pursue deep drilling prospects to maintain or
increase their production levels.  While demand for land rigs capable of
drilling greater than 15,000 feet has grown significantly, the supply of such
rigs is limited, contributing to increases in day rates for rigs with these
capabilities.

International markets are experiencing many of the same trends as are present
in the domestic land market, and demand for the Company's deeper drilling rigs
is improving.  Within the last two years, the offshore market also has shown a
substantial increase in dayrates, particularly for more sophisticated
semi-submersible and jackup rigs.  The high demand and tight supply of these
types of sophisticated rigs is also resulting in increased dayrates for the
type of platform and workover jackup rigs operated by the Company.

The Company's revenues, cash flows and earnings are substantially dependent
upon, and affected by, the level of domestic and international oil and gas
exploration and development activity.  Such activity and the resulting level of
demand for contract land drilling and related services are directly influenced
by many factors over which the Company has no control, including among others,
the market prices of oil and gas, market expectations about future prices, the
volatility of such prices, levels of production, and other activities, of the
Organization of Petroleum Exporting Countries and other oil and gas producers,
government regulations and trade restrictions, local and international political
and economic conditions, the level of worldwide economic activity, the
development of alternate energy sources, and the short and long-term effect of
worldwide energy conservation measures.  Although the Company believes that
improved technologies and the level of oil and gas prices have contributed to
increased activity in the exploration and production sector, there can be no
assurance that such factors will continue.  In addition, ongoing movement or
reactivation of land drilling rigs (including the movement of rigs from outside
the United States into domestic markets) or new construction of drilling rigs
could increase rig supply and adversely affect contract drilling rates and
utilization levels.  The Company cannot predict the future level of demand for
its contract drilling services, future conditions in the contract drilling
industry or future contract drilling rates.

MARKETS

The Company operates in only one business segment - the oilfield services
industry.  Within that segment, the Company conducts business in the following
distinct markets or business lines:  contract drilling and related services on
land and offshore in North America (the US Lower 48 states, Canada and Alaska)
and in international markets. Additional information regarding markets in which
the Company operates can be found beginning on page 6 of the Nabors Industries,
Inc. 1997 Annual Report to Stockholders ("1997 Annual Report") and is
incorporated herein by reference.

During fiscal 1997, increased market demand coupled with short supply, resulted
in higher dayrates and increased utilization of Nabors' fleet in most of its
markets. Utilization rates of Nabors' North America rigs (land and offshore)
increased to 66% in fiscal 1997, up from 58% in fiscal 1996, and revenues were
$852.4 million, compared to $532.6 million in the prior year period. Rig years
in North America increased to 227.4 as compared to 152.6 in fiscal 1996. During
fiscal 1997, Nabors' international rigs experienced a utilization rate of 60% as
compared to 61% for fiscal 1996. International revenues were $176.9 million in
fiscal 1997, compared to $187.1 million for fiscal 1996. Internationally, rig
years increased to 31.0 in fiscal 1997 from 28.5 in fiscal 1996. The
international figures reflect the divestiture of the Company's North Sea
operation early in fiscal 1997.  

Utilization rates and equivalent rig years are measures of demand for rigs
commonly used in the drilling industry. Utilization rates from period to period
may not be comparable, because the calculation of utilization does not reflect
the impact of changes in the number of rigs operated during the periods.
Equivalent rig years (calculated as the number of days rigs are in operation
over the number of days in the period) measure the operating volume of the
Company's rigs. Additional information regarding revenues by geographic and
market sector can be





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found on pages 30 through 35 of the 1997 Annual Report, under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".  For accounting purposes, operations are grouped together as "North
America" or "International", regardless of legal entity or type of oilfield
services offered (e.g., onshore, offshore or ancillary wellsite services and
equipment).  Additional information regarding the rig fleet can be found on 
pages 14 and 15 of the 1997 Annual Report, under the
caption "Rig Fleet".

NORTH AMERICA

US Lower 48 States.  The Company currently markets 300 land rigs in the US Lower
48 market: 123  of the Company's land drilling rigs in the US Lower 48 States
are diesel electric rigs controlled by a computerized SCR unit; 17 are equipped
with top drives; and 174 are capable of drilling to 15,000 feet or deeper.

Nabors has agreed to sell its domestic workover and well servicing subsidiary
for approximately $20 million plus the subsidiary's working capital in cash,
plus 100,000 shares of common stock of Key Energy Group, Inc. and warrants to
purchase 265,000 shares of such common stock at $18 per share. The sale is
expected to close in January 1998.  See "Business -- Acquisitions and
Divestitures -- Divestitures."

Canada. The Company also has a fleet of 28 rigs in Canada.  Fourteen rigs in the
fleet are diesel electric SCR rigs, seven are equipped with top drives, 13 are
capable of drilling to 15,000 feet or deeper and all of the rigs in Nabors'
Canadian fleet are capable of performing exploratory and development drilling
under arctic and sub-arctic conditions.

Alaska.  Nabors is the leading drilling contractor in Alaska, where it owns
nine arctic land drilling and well service rigs on the North Slope and three
land and one platform drilling rig in the Cook Inlet area of South Central
Alaska.  Nine of these rigs are SCR rigs, and three are equipped with top drive
units.  Nine are capable of drilling to depths of 18,000 feet or more.

All of the North Slope rigs have been specifically designed to operate in
severe arctic conditions and employ wheel mounted systems designed by Nabors to
permit efficient movement of the rigs from well to well and over ice or gravel
roads.  Three of these rigs are also self-propelled to further facilitate
movement and maneuverability.  The well service rigs have been designed with
spacing capability that allows them to move between reduced well spacing on
drilling pads without disrupting production. In addition, Nabors' arctic rigs
incorporate environmental protection features such as dry mud and fluid
containment systems.

As a result of a restructuring in the relationship of the operators of the
Prudhoe Bay Unit, the largest North Slope oilfield, the operators began to
develop stronger, long-term relationships with fewer service companies. In 1992,
Nabors was selected as the first service company to work in alliance with these
operators.  This alliance has resulted in significant cost reductions for the
customers and has increased Nabors' market share in this major market.  The
scope of the alliance was expanded to include the Milne Point Unit in fiscal
1994 and the Badami Unit in fiscal 1997.

INTERNATIONAL DRILLING

The Company conducts international operations primarily through its Nabors
Drilling International Limited group.  The International group actively markets
46 land rigs and one jackup rig.  Of these, 32 are SCR rigs, 15 are equipped
with top drives, two (located in Venezuela) are slim hole rigs and 24 are
capable of drilling to depths of 15,000 feet or more.

South and Central America.  The Company currently markets 16 land drilling rigs
in Venezuela. The Company also operates one rig in Colombia under a contract
with Ecopetrol, the national oil company of Colombia, and is in the process of
moving one rig from Venezuela to Colombia to begin a one-year contract for a
major oil and gas company.





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The Middle East.  In the Middle East, Nabors markets 19 land rigs and one jackup
rig. Of the land rigs, seven are in Yemen, nine are in Saudi Arabia and three
are in other countries. The jackup rig has worked steadily in the waters off
Qatar since February 1997, but currently is not subject to any long-term
contract. The Company also provides a crew for one rig under a labor contract
with an oil and gas company.

Other.  In the CIS, the Company operates five rigs, four of which are located in
Kazakhstan and a fifth which is located in the Republic of Georgia.  Two of the
Kazakhstan rigs are being moved to Turkmenistan, and one of these is under a
three-year contract to commence drilling in 1998.  The Company is a participant 
in a joint venture that operates the remaining two rigs in Kazakhstan.  In the
Far East, the Company owns three deep-rated, diesel electric SCR land rigs
stacked in Japan, one of which is to be moved in early 1998 to a more active
market.  The International group also has two rigs in Africa, one in Gabon and
one in Ethiopia.

OFFSHORE DRILLING, WORKOVER AND WELL SERVICING

With the acquisition of Sundowner Offshore Services, Inc. in October of 1994,
the Company expanded its existing offshore drilling business in the Gulf of
Mexico by entering into the offshore workover and well servicing business in
the US Gulf of Mexico, the CIS, Europe and West Africa. Sundowner operates a
fleet of 33 rigs including eight Sundowner and seven Super Sundowner workover
platform rigs, three MASE(TM) platform drilling rigs, five API platform
drilling rigs (one of which is under construction and is expected to be
deployed in early 1998), two land rigs converted to offshore platform drilling
rigs, five jackup workover rigs and three inland barge rigs that offer plugging
and abandonment services.  In addition, other subsidiaries own four offshore
rigs, of which one is a platform drilling rig located in Alaska, one is a
jackup rig located in the Middle East and two are barges chartered to a third
party.  Six of the Super Sundowner rigs, two of the Sundowner rigs and all of
the platform drilling rigs (including the MASE(TM) rigs) are equipped with
portable top drive units to enhance drilling efficiency in sidetrack and
horizontal drilling operations. Ten of the Company's platform rigs are capable
of operating at well depths of up to 20,000 or 25,000 feet. Fourteen of the
Company's platform rigs are specifically designed for workover drilling.

The Company also provides plug and abandonment services on the Gulf Coast. The
Company has developed a new generation of innovative MASE(TM) platform drilling
rigs, certain elements of which are patented, that results in reduced drilling
and workover costs.  (See "Business -- Engineering Developments".) One of these
MASE(TM) rigs has been operating in Trinidad and two are operating in the Gulf
of Mexico.

ADDITIONAL WELL-SITE SERVICES

Through various subsidiaries and joint ventures, Nabors provides additional
well-site services that can be packaged with its contract drilling services or
provided on a stand alone basis to operators or other contractors.  These
services include top drive rentals and sales, mudlogging services, rig
instrumentation equipment rentals and sales, construction and maintenance
services and rig transportation services.

Top Drives.  Canrig manufactures top drives, which are installed on both onshore
and offshore drilling rigs to improve drilling efficiency.  Top drives provide
better torque and directional orientation and enable drill pipe to be tripped in
and out of the well faster and more safely by handling preassembled "doubles"
and "triples" of pipe.  Top drives also allow the drill pipe to be
simultaneously hoisted and rotated, which provides better well control and
reduces the incidence of stuck pipe, yielding time and cost savings. In fiscal
1997, Canrig sold approximately 70% of its top drives to Nabors, and the
remainder to outside parties.

Mudlogging and Rig Instrumentation.  Nabors acquired EPOCH Well Logging, its
mud logging and rig instrumentation subsidiary, in November 1996.  Mud logging
involves the analysis of exhausted drilling cuttings to discern certain
information about the presence of hydrocarbons, rates of penetration and the
nature of the formation.  Rig instrumentation equipment offered by EPOCH
includes sensors, RIGWATCH(TM) software and computerized  equipment that
monitors the real-time performance of a rig.





                                       8
<PAGE>   9
Construction, Transportation and Related Services.  The Company has a 50%
interest in Peak Oilfield Services ("Peak"), a general partnership with Cook
Inlet Region, Inc., a leading Alaskan native corporation.  Peak provides heavy
equipment to move drilling rigs, water, other fluids and construction
materials.  The partnership also provides construction and maintenance for
roads, pads, facilities, equipment, drill sites and pipelines.  Peak is a
partner to a multi-year alliance contract to provide maintenance services for
the Prudhoe Bay Unit and has been chosen to coordinate and supply drilling
support transportation services to the unit.  Through other joint ventures,
Alaska Interstate Construction, an Alaska-based company with significant
experience in Arctic road and site construction, and Peak USA Energy Services
Ltd., that provides trucking and oilfield services in ten states in the Lower
48 States, the Company has expanded the scope of its business to other sectors 
in the oil and gas services industries.

ENGINEERING DEVELOPMENTS

In recent years, Nabors has been increasingly involved in engineering research
and development with respect to the commercialization of new drilling
technology. Through its Sundowner subsidiary, the Company owns the rights to
proprietary designs and innovations which, when applied to the Company's rigs,
can substantially reduce the costs of drilling and working on offshore wells.
These proprietary designs are being applied to a new generation of modular
MASE(TM) rigs specifically for drilling.  Three MASE(TM) rigs are presently
operational.

The Company's Canrig subsidiary manufactures and markets electric top drives
that are designed with enhanced safety and drilling efficiency features.  This
top drive design includes fixed and portable units that are being utilized in a
broad range of land and offshore applications.  The Company also developed an
automated slant rig, capable of drilling shallow or slim hole wells.

The Company, in a joint project with a major oil company, designed and
constructed a slim hole drilling rig, utilizing an advanced drilling process
known as a Stratigraphic High Speed Advanced Drilling System.  This small
footprint rig, as compared to a 2000 horsepower conventional rig, uses a
drillsite that is 25% to 30% smaller, and requires less personnel, smaller
camps and fewer rig consumables and services (such as drill bits, casing, fuel
and water, and mud removal, cementing, logging and logistics services),
enabling operators to significantly cut the cost of exploration projects in
remote and difficult drilling regions.  The slim-hole design has the added
benefit of a reduced environmental impact. The Company built a second
slim-hole rig using the same technology.  Both slim hole rigs are now
operational in Venezuela.

Company engineers have obtained new patents during the past year and have
patent applications pending for new technology associated with drilling
activities.  The costs associated with Nabors' research and
development are not significant.

CUSTOMERS

The Company's customers include major oil and gas companies, foreign national
oil and gas companies and independent oil and gas companies. No single customer
provides as much as 10% of consolidated revenues.

COMPETITIVE CONDITIONS

Although the number of available rigs has materially decreased over the past 15
years, the well-servicing, workover and drilling industry remains very
competitive.  The number of rigs continues to exceed demand in certain of the
Company's markets, resulting in price competition.  Many of the total available
contracts are currently awarded on a bid basis, which further increases
competition based on price. The land drilling market is generally more
competitive than the offshore market due to the larger number of rigs and
companies.

In all of the Company's market areas, price and availability and condition of
equipment to meet both special and general customer needs, are significant
factors in determining which drilling contractor is awarded a job.  Other
competitive factors that may be considered include the availability of trained
personnel possessing the required specialized skills; the overall quality of
service and safety record; and





                                       9
<PAGE>   10
domestically, the ability to offer ancillary services. In international
markets, experience in operating in certain environments and customer alliances
have also been factors in the selection of the Company in certain cases.  

Certain competitors are present in more than one of the Company's markets,
although no one competitor operates in all of these areas.  With 300 and 12
actively marketed land rigs in the US Lower 48 and Alaska, respectively, the
Company has the most land drilling rigs of any company in the land drilling
market.  In the US Lower 48, the next largest competitors have fewer than 100
rigs, based on industry reports, and several hundred competitors have smaller
national, regional or local rig operations.  In the Alaska market, the Company
has six major competitors, the largest of which are Doyon Drilling, Inc. and
Pool Energy Services, Inc.  In the Gulf of Mexico, the Company is among five
principal competitors providing workover/maintenance services, the largest of
which are Pride Petroleum Services, Inc., Parker Drilling Company and Pool
Energy Services, Inc.  In Canada and other offshore areas, the Company competes
with several firms of varying size many of which have more significant
operations in those areas than the Company. Internationally, the Company
competes directly with various competitors at each location where it operates,
including Helmerich & Payne and Cliffs Drilling in South America, and Santa Fe
International, Deutag, Arabia Drilling and Sedco-Forex in the Middle East.  The
Company believes that the market for land drilling contracts will continue to
be competitive for the foreseeable future. Although the Company believes it has
a strong competitive position in the domestic land market, certain of the
Company's competitors internationally and offshore may be better positioned in
the markets and have newer and more desirable equipment, allowing them to
compete more effectively on the basis of price.

Seasonality is not a significant factor with respect to the operations of the
Company.  However, the contract drilling industry has been cyclical
historically, with significant volatility in profitability and rig values. This
industry cyclicality has been due to changes in the level of domestic oil and
gas exploration and development activity and the available supply of drilling
rigs.  From 1982 until 1996, the contract drilling business was severely
impacted by the decline and continued instability in the prices of oil and
natural gas following a period of significant increase in new drilling rig
capacity.  Although the market has improved dramatically in the last year, there
can be no assurance that the current market conditions will continue. See
"Business--Industry Conditions."

ACQUISITIONS AND DIVESTITURES

ACQUISITIONS.

The Company has grown from a land drilling business centered in Canada and
Alaska to an international business with operations on land and offshore in
many of the major oil, gas and geothermal markets in the world.  At the
beginning of 1990, the Nabors' fleet consisted of 44 land drilling rigs in
Canada, Alaska and in various international markets.  Today, Nabors' active
drill fleet consists of 386 land rigs and 37 offshore rigs.  Much of this
growth was fueled by strategic acquisitions, as summarized in the following
chart:

<TABLE>
<CAPTION>
==============================================================================================================
DATE              ACQUIREE/SELLER                   ASSETS ACQUIRED                  LOCATION
==============================================================================================================
<S>         <C>                                <C>                              <C>
3/1990      Loffland Brothers Company          63 rigs; yards; miscellaneous    North Sea, Middle East,
                                               equipment and inventory          Canada, US Lower 48, Gulf of
                                                                                Mexico, Venezuela
--------------------------------------------------------------------------------------------------------------
11/1990     Henley Drilling Co.                11 rigs                          US Lower 48,
                                                                                Yemen
--------------------------------------------------------------------------------------------------------------
6/1990      Grace Drilling Co.                 110 rigs; yards; miscellaneous   US Lower 48
                                               equipment and inventory
--------------------------------------------------------------------------------------------------------------
</TABLE>





                                       10
<PAGE>   11
<TABLE>
<CAPTION>
======================================================================================================
DATE              ACQUIREE/SELLER                   ASSETS ACQUIRED                  LOCATION         
======================================================================================================
<S>         <C>                                <C>                              <C>                   
10/1994     Sundowner Offshore Services,       15 platform rigs, 1 platform     Gulf of Mexico,       
            Inc.                               rig under construction, 5        International         
                                               jackup workover rigs, 3                                
                                               workover and plug and                                  
                                               abandonment barges                                     
------------------------------------------------------------------------------------------------------
4/1994      MND Drilling                       16 land rigs                     US Lower 48           
------------------------------------------------------------------------------------------------------
1994        Various                            8 mobile, medium-depth rigs      US Lower 48           
------------------------------------------------------------------------------------------------------
1/1995      Delta Drilling Company             30 rigs (15 SCR, 15,000+         Texas, Louisiana      
                                               capable depth), yards and                              
                                               office facilities                                      
------------------------------------------------------------------------------------------------------
4/1996      Exeter Drilling Company            49 shallow and medium depth      United States (47),   
                                               rigs                             International (2)     
------------------------------------------------------------------------------------------------------
4/1996      J.W. Gibson Well Servicing         78 workover and well             Rocky Mountains, Mid- 
            Company1                           servicing rigs (10 leased        continent Region      
                                               from third parties)                                    
------------------------------------------------------------------------------------------------------
11/1996     EPOCH Well Logging                 Mud logging units                NA                    
------------------------------------------------------------------------------------------------------
12/1996     Noble Drilling                     47 land rigs (19 operating       United States (38),   
            Company                            and 28 stacked)                  Canada (9)            
------------------------------------------------------------------------------------------------------
1/1997      Adcor-Nicklos Drilling             36 (30 active, 6 stacked,        US Lower 48           
            Company                            including 14 SCR), equipment,                          
                                               drill pipe, yards, vehicles                            
                                               and support equipment                                  
------------------------------------------------------------------------------------------------------
4/1997      Chesley Pruet Drilling Company     12 rigs (10 active, 2            Alabama, Louisiana,   
                                               stacked, including 9 SCR)        Mississippi           
------------------------------------------------------------------------------------------------------
4/1997      Samson Rig Company                 25 stacked SCR rigs (most        Oklahoma              
                                               15,000+ capable), and large                            
                                               component of equipment                                 
------------------------------------------------------------------------------------------------------
8/1997      Cleveland Drilling Company, Inc.   7 rigs (6 active, 1 stacked,     California, Nevada    
                                               including 6 SCR rigs)                                  
------------------------------------------------------------------------------------------------------
11/1997     VECO Drilling, Inc.;               6 rigs (5 active, 1 stacked,     California, Texas     
            Diamond L                          including 3 SCR) and two 
                                               offshore labor                                                  
                                               contracts; 3 active                                    
                                               mechanical rigs                                        
------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Contract for sale pending.

During the same period, a number of the Company's competitors also have made
acquisitions to expand their fleets with the result that most of the large,
privately-owned fleets of deep drilling, electric rigs already have been
purchased. Rig values per acquisition also has risen substantially, which may
slow the pace of acquisitions.  While the Company continues to examine
opportunities, there can be no assurance that attractive rigs will continue to
be available, that the pricing will be economical or that the Company will be
successful in making such acquisitions in the future.

DIVESTITURES

From time to time, the Company may sell a subsidiary or group of assets outside
of its core markets or business, if it is economically advantageous for it to do
so.  In July 1997, the Company agreed to sell its J.W. Gibson Well Service
Company ("Gibson") subsidiary to Key Energy Group, Inc. ("Key").  Gibson was
included as part of the Exeter acquisition in 1996, and represented Nabors'
entry into the domestic well servicing business.  However, management did not
believe it could establish a dominant position in that business, and determined
to sell the subsidiary.  Gibson's assets currently consist of 74 active well
servicing and workover rigs, associated auxiliary equipment, trucks, inventory
and several yards and related facilities.  The sale transaction, which already
has





                                       11
<PAGE>   12
received regulatory approval, is expected to close during January 1998.  At the
closing, the Company will receive $20 million plus the value of Gibson's working
capital in cash, 100,000 shares of Key common stock and warrants to acquire
265,000 shares of Key common stock at $18 per share.

In November 1996, the Company sold substantially all of its North Sea labor
contract operation, which was viewed as having slower growth potential and
weaker margins than the Company's other operations, to a subsidiary of Abbot
Group plc, a diversified holding company listed on the London Stock Exchange.
The Company received approximately $36 million plus the value of working
capital in cash, and warrants to acquire 10.8 million ordinary shares of Abbot
Group plc, and recorded a gain of $29.8 million during 1997.  The Company
exercised the warrants at various times during 1997 and sold the underlying
shares for net proceeds of $9.4 million.

RISKS ASSOCIATED WITH NABORS' BUSINESS

OPERATING RISKS AND INSURANCE

The Company's operations are subject to many hazards inherent in the drilling,
workover and well servicing industries including, for example, blowouts,
cratering, explosions, fires, loss of well control, loss of hole, damaged or
lost drill strings and damage or loss from inclement weather, any of which
could result in personal injury or death, damage to or destruction of equipment
and facilities, suspension of operations, environmental damage to producing
formations and surrounding areas and damage to the property of others.  The
Company's offshore operations are also subject to the hazards of marine
operations including capsizing, grounding, collision, damage from heavy weather
or sea conditions and unsound bottom conditions.  In addition, the Company's
international operations are subject to risks of war, civil disturbances or
other political events.  (See also "International Operations".) Generally,
drilling contracts provide for the division of responsibilities between a
drilling company and its customer, and the Company seeks to obtain
indemnification from its customers by contract for certain of these risks.  To
the extent that such risks are not transferred to customers by contract or
indemnification agreements, the Company seeks protection through insurance
which the Company's management considers to be adequate.  However, there is no
assurance that such insurance or indemnification agreements will be adequate to
protect the Company against liability from all of the consequences of the
hazards described above.  The occurrence of an event not fully insured or
indemnified against, or the failure of a customer to meet its indemnification
obligations could result in substantial losses to the Company.  In addition,
there can be no assurance that insurance will be available to cover any or all
of these risks, or, even if available, that it will be adequate or that
insurance premiums or other costs will not rise significantly in the future, so
as to make such insurance prohibitive.

ENVIRONMENTAL, HEALTH AND SAFETY CONSIDERATIONS

The drilling of oil and gas wells is subject to various federal, state, local
and foreign laws, rules and regulations.  The Company, as an owner or operator
of both onshore and offshore rigs operating in or near waters of the United
States, may be liable for the costs of removal and damages arising out of a
pollution incident to the extent set forth in the Federal Water Pollution
Control Act, as amended by the Oil Pollution Act of 1990 ("OPA") and the Outer
Continental Shelf Lands Act.  In addition, the Company may also be subject to
applicable state law and other civil claims arising out of any such incident.
Certain of the Company's facilities are also subject to regulations of the
Environmental Protection Agency ("EPA") that require the preparation and
implementation of spill prevention, control and countermeasure plans relating
to possible discharge of oil into navigable waters.  Other regulations of the
EPA may require certain precautions in storing, handling and transporting
hazardous wastes.  State statutory provisions relating to oil and natural gas
generally include requirements as to well spacing, waste prevention, production
limitations, pollution prevention and cleanup, obtaining drilling and dredging
permits and similar matters.  The Company believes that it is in substantial
compliance with such laws, rules and regulations.

The OPA and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills.  A "responsible party"
includes the owner or operator of a facility or vessel, or the lessee or
permittee of the area in which an offshore facility or vessel, or the lessee or
permittee of the area in which an offshore





                                       12
<PAGE>   13
facility is located.  The OPA assigns liability to each responsible party of
oil removal costs and a variety of public and private damages.  While liability
limits apply in some circumstances, a responsible party for an Outer
Continental Shelf facility must pay all spill removal costs incurred by a
federal, state or local government.  The OPA establishes liability limits
(subject to indexing) for offshore drilling rigs.  If functioning as an
offshore facility, the offshore drilling rigs are considered "tank vessels" for
spills of oil on or above the water surface, with liability limits of $1,200
per gross ton or $10 million.  To the extent damages and removal costs exceed
this amount, the offshore drilling rigs will be treated as an offshore facility
and the offshore lessee will be responsible up to higher liability limits for
all removal costs plus $75 million.  A party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation.  If the party fails to report a spill or to cooperate fully in the
cleanup, liability limits likewise do not apply.  Few defenses exist to the
liability imposed by the OPA.  The OPA also imposes ongoing requirements on a
responsible party, including proof of financial responsibility (to cover at
least some costs in a potential spill) and preparation of an oil spill
contingency plan.  Amendments to the OPA adopted earlier in 1997 reduced the
amount of financial responsibility required for "offshore facilities" from $150
million to $35 million, but such amendments did not reduce the amount of
financial responsibility required for "tank vessels".  Since the Company's
offshore drilling rigs are typically classified as tank vessels, the recent
amendments to the OPA are not expected to have a significant effect on the
Company's operations.  A failure to comply with ongoing requirements or
inadequate cooperation in a spill may even subject a responsible party to civil
or criminal enforcement actions.

In addition, the Outer Continental Shelf Lands Act authorized regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf.  Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures.  Violations of environmental-related lease
conditions or regulations issues pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases.  Such
enforcement liabilities can result from either governmental or citizen
prosecution.

All of the Company's operating domestic barge drilling rigs have zero discharge
capabilities as required by law.  In addition, in recognition of environmental
concerns regarding dredging of inland waters and permitting requirements, the
Company conducts negligible dredging operations and approximately two-thirds of
the Company's offshore drilling contracts involve directional drilling, which
minimizes the need for dredging.  However, the existence of such laws and
regulations has had and will continue to have a restrictive effect on the
Company and its customers.

Except for the handling of solid wastes directly generated from the operation
and maintenance of the Company's drilling rigs, such as waste oils and wash
water, it is generally the Company's practice to require its customers to
contractually assume responsibility for compliance with environmental
regulations.  However, the Company is not always successful in shifting all of
these risks, and the Company's operations are vulnerable to certain risks
arising from the numerous environmental health and safety laws and regulations.
These laws and regulations may restrict the types, quantities and concentration
of various substances that can be released into the environment in connection
with drilling activities, require reporting of the storage, use or release of
certain chemicals and hazardous substances, require removal or cleanup of
contamination under certain circumstances, and impose strict liability,
rendering a person liable for environmental damage without regard to negligence
or fault, and could expose the Company to liability for the conduct of, or
conditions caused by, others, or acts of the Company that were in compliance
with all applicable laws at the time such acts were performed.  Moreover, there
has been a trend in recent years toward stricter standards in environmental,
health and safety legislation and regulation which is likely to continue.

The Company has made and will continue to make expenditures to comply with
governmental regulations, including environmental, health and safety
requirements.  The Company cannot predict how existing laws and regulations may
be interpreted by enforcement agencies or court rulings, whether additional
laws or regulations curtailing exploratory or development drilling for oil and
gas for economic, political, environmental or other reason could have a
material adverse effect on the Company by limiting drilling opportunities.





                                       13
<PAGE>   14
The drilling industry is dependent on the demand for services from the oil an
gas exploration and development industry and, accordingly, is affected by
changes in laws relating to the energy business.  The Company's business is
affected generally by political developments and by federal, state, local and
foreign laws and regulations that may relate directly to the oil and gas
industry.  The adoption of laws and regulations, both domestic and foreign,
that curtail exploration and development drilling for oil and gas for economic,
environmental and other policy reasons may adversely affect the Company's
operations by limiting available drilling opportunities.

SHORTAGE OF QUALIFIED AND EXPERIENCED LABOR.

Increases in both onshore and offshore oil and gas exploration and production
since 1995 and resultant increases in contract drilling activity have created a
shortage of qualified drilling rig personnel in the industry.  The Company is
attempting to address this shortage through acquisitions of operating rigs
having existing crews, and initiating a training school for new rig hands.  If
the Company is unable to attract and retain sufficient qualified operating
personnel, its ability to market and operate its drilling rigs will be
restricted.  In addition, labor shortages could result in wage rate increases,
which could reduce the Company's operating margins and have a material adverse
effect on the Company's financial condition and results of operations.

SHORTAGE OF DRILLING EQUIPMENT AND SUPPLIES.

During fiscal 1997, there has been continued price escalation and longer
delivery lead times for certain drilling equipment and supplies used in the
Company's business and the Company believes these shortages may intensify. One
example is drill pipe, which has increased in market price by more than 54% over
the past 24 months and now has an average delivery time of from six months to
one year. Because, until recent years, the land drilling industry was
characterized by an oversupply of land rigs, rig manufacturers have generally
focused on the production of more expensive offshore rigs and rig equipment.  As
a result, most rig manufacturers are not currently building new land rigs and
those manufacturers that are building new land rigs and components charge
premium prices (approximately $13 million for a new 2,000 horsepower rig) and
require that orders be placed at least 120 days in advance of requested
delivery.  The limited availability of new rigs and equipment has caused land
rig owners and operators, including the Company, to maintain and enhance their
fleets primarily through acquisitions and refurbishments using previously
manufactured rig components and equipment.  The Company currently has 45 stacked
rigs, of which 40 have SCR units.  The Company also owns a substantial quantity
of component parts to refurbish existing rigs.  As the land drilling industry
continues to refurbish rigs using existing components and equipment, the
available supply of such components and equipment continues to deplete.

INTERNATIONAL OPERATIONS

A significant portion of the Company's business is derived from international
markets, including major operations in Canada, the Middle East and South and
Central America.  Such operations may be subject to various risks, including
risk of war and civil disturbances and governmental activities that may limit
or disrupt markets, restrict the movement of funds or result in the deprivation
of contract rights or the taking of property without fair compensation.  In
certain countries, such operations may be subject to the additional risk of
fluctuating currency values and exchange controls.  (See also "Operating Risks
and Insurance".)





                                       14
<PAGE>   15
In the international markets in which the Company operates, it is subject to
various laws and regulations with respect to the operation and taxation of its
business and the import and export of its equipment from country to country,
the imposition, application and interpretation of which can be uncertain.

When contracting abroad, the Company is faced with the risks of currency
fluctuation and, in certain cases, exchange rate controls.  Normally, the
Company limits these risks by obtaining contracts providing for payment in
freely convertible foreign currency or U.S. dollars.  To the extent possible,
the Company seeks to limit its exposure to potentially devaluating currencies by
matching its acceptance thereof to its expense requirements in such local
currencies or by utilizing forward exchange contracts. Additional information on
the Company's foreign currency transactions can be found in Note 1 of the Notes
to Consolidated Financial Statements under the caption "Foreign Currency
Translation" on page 42 of the 1997 Annual Report which is incorporated herein
by reference.  There can be no assurance that the Company will be able to
continue to take such actions in the future, thereby exposing the Company to
foreign currency fluctuations which could have a material adverse effect upon
its results of operations and financial condition.

Governments at various levels in the countries in which the Company operates
have enacted legislation or adopted regulations affecting the drilling and
servicing of oil and gas wells, controlling the discharge and disposal of
wastes from drilling and other operations and providing for the protection of
the environment in general. In recent years, laws and regulations protecting
the environment have generally become more stringent and have sought to impose
greater liability on a larger number of potentially responsible parties.  While
the Company believes it is generally in compliance with applicable laws and
regulations related to environmental controls, the Company could nonetheless be
subject to cleanup costs or costs associated with environmental laws and
regulations which could be substantial and have a material adverse effect on
the Company.

EMPLOYEES

At September 30, 1997, the Company employed 10,632 persons, of which 609 were
salaried and 10,023 were hourly employees.  In addition, Peak employed 1,619
persons, of which 138 were salaried and 1,481 were hourly employees.  In
Venezuela, most of the Company's oilfield workers under the supervisor level
are covered by a collective bargaining agreement that was renewed for a
two-year period in November 1997.  Management believes its relationship with
its employees generally is good.

GEOGRAPHIC DISTRIBUTION OF EARNINGS AND ASSETS

The revenues, operating income (loss) and identifiable assets of each geographic
area for the three years ended September 30, 1997, can be found in Note 13 of
the Notes to Consolidated Financial Statements under the caption "Distribution
of Earnings and Assets" on page 52 of the 1997 Annual Report, which is
incorporated herein by reference.

ITEM 2.          PROPERTIES

A table of information regarding the Company's rig fleet can be found under the
caption "Rig Fleet" on pages 14 and 15 of the 1997 Annual Report and is
incorporated herein by reference.

Many of the international drilling rigs and certain of the Alaska rigs in the
Company's fleet are supported by mobile camps which house the drilling crews
and a significant inventory of spare parts and supplies.  In addition, the
Company owns various trucks, forklifts, cranes, earth moving and other
construction and transportation equipment which are used to support the
drilling and logistics operations.

The Company and its subsidiaries lease or own executive and administrative
office space in Houston, Texas (headquarters); Denver, Colorado; Anchorage,
Alaska; Houma, Arcadia and Lafayette, Louisiana; Bakersfield, California;
Englewood, Colorado; Magnolia, Texas; Calgary and Nisku, Alberta, Canada;
Sana'a, Yemen; Dubai, U.A.E.; Dhahran, Saudi Arabia and Maracaibo, Anaco and
Barinas, Venezuela.  The Company owns or leases a number of facilities and
storage yards used in support of operations in each of its geographic markets.

Additional information about Properties can be found in Notes 1, 4 and 10 of the
Notes to Consolidated Financial Statements beginning on pages 41, 45 and 50,
respectively, of the 1997 Annual Report and is incorporated herein by reference.





                                       15
<PAGE>   16
The Company's management believes that its equipment and facilities are
adequate to support its current level of operations as well as an expansion of
drilling operations in those geographical areas where the Company may choose to
expand.

ITEM 3.          LEGAL PROCEEDINGS

Information with respect to legal proceedings can be found in Note 10 of the
Notes to Consolidated Financial Statements under the caption "Commitments and
Contingencies -- Contingencies" on page 50 of the 1997 Annual Report and is
incorporated herein by reference.

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders of the Company
during the quarter ended September 30, 1997.

                                    PART II

ITEM 5.          MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
                 MATTERS

MARKET

The information called for by this item can be found under the caption "Price
of Common Stock" on the inside back cover of the 1997 Annual Report and is
incorporated herein by reference.

The Company has neither declared nor paid any cash dividends on its common
stock since 1982.  Certain debt instruments restrict the Company's ability to
pay dividends.  Under the terms of these instruments, Nabors may pay dividends
to the extent that cumulative dividends plus certain other payments since March
31, 1989 do not exceed 50% of Nabors' cumulative net income since March 31,
1989 plus the proceeds of any offering of equity securities of Nabors that are
not redeemable at the option of the holder of the securities.  As of September
30, 1997 retained earnings available for dividends totaled approximately $237.0
million. The Company does not intend to pay any cash dividends on its common
stock in the foreseeable future.

ITEM 6.          SELECTED FINANCIAL DATA

The information called for by this item can be found under the caption
"Selected Financial Data" on page 29 of the 1997 Annual Report and is
incorporated herein by reference.

ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS

The information called for by this item can be found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 30 through 35 of the 1997 Annual Report and is
incorporated herein by reference.

ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for fiscal 1997.

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements, together with the report thereon of
Coopers & Lybrand L.L.P. dated November 12, 1997, appear on pages 36 through 52
of the 1997 Annual Report and are incorporated herein by reference. With the
exception of the aforementioned information and the information expressly





                                       16
<PAGE>   17
incorporated into Items 1, 2, 3, 6, 7 and 8 hereof, the 1997 Annual Report is
not deemed to be filed as part of this report.

ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                 AND FINANCIAL DISCLOSURE

None.

                                    PART III

ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information called for by this item will be contained in the Nabors
Industries, Inc. definitive Proxy Statement to be distributed in connection
with its Annual Meeting (the "Proxy Statement") under the captions "Election of
Directors" and "Executive Officers" and is incorporated herein by reference.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") and the American Stock Exchange
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than ten-percent shareholders are required by SEC regulation to furnish
the Company with all Section 16(a) forms which they file.

To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the two fiscal years ended September 30, 1996 and
1997, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.

ITEM 11.         EXECUTIVE COMPENSATION

The information called for by this item will be contained in the Proxy
Statement to be distributed in connection with its Annual Meeting under the
caption "Remuneration of Management" and is incorporated herein by reference;
except for information not deemed to be "soliciting material" or "filed" with
the SEC including the Report of the Compensation Committee on Executive
Compensation and the Five Year Stock Performance Graph which is not deemed to
be incorporated by reference.

ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this item will be contained in the Proxy
Statement to be distributed in connection with its Annual Meeting under the
caption "Share Ownership of Management and Principal Shareholders" and is
incorporated herein by reference.

ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item will be contained in the Proxy
Statement to be distributed in connection with its Annual Meeting, under the
caption "Business Relationships" and "Compensation Committee Interlocks and
Insider Participation" and is incorporated herein by reference.

                                    PART IV

ITEM 14.         EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K

(a)      The following documents are filed as part of this report:

         (1)     Financial Statements of Nabors Industries, Inc. and
                 Subsidiaries which are listed in Part II, Item 8 and are
                 incorporated herein by reference from the Company's 1997
                 Annual Report to Stockholders from the respective page numbers
                 indicated:





                                       17
<PAGE>   18
<TABLE>
<CAPTION>
                                                                     Page No.
                                                                     --------
                 <S>                                                 <C>
                 Report of Independent Accountants                      36

                 Consolidated Balance Sheets                            37

                 Consolidated Statements of Income                      38

                 Consolidated Statements of Changes in Stockholders' 
                   Equity                                               39

                 Consolidated Statements of Cash Flows                  40

                 Notes to Consolidated Financial Statements             41
</TABLE>

         (2)     Financial Statement Schedules


                 Supplemental schedules are omitted because of the absence of
                 the conditions under which they are required or because the
                 required information is included in the financial statements
                 or notes thereto.

         (3)     Exhibits

<TABLE>
<CAPTION>
               Exhibit No.        Description
               -----------        -----------
<S>                               <C>
                 3.1(1)           Restated Certificate of Incorporation of the
                                  Registrant dated March 4, 1997

                 3.2              Restated By-Laws of the Registrant adopted
                                  December 4, 1997

                 4.1(2)           Indenture for Subordinated Debt Securities
                                  dated May 15, 1996 between Marine Midland
                                  Bank, Trustee and Nabors Industries, Inc. in
                                  connection with $172,500,000 aggregate
                                  principal amount of 5% Convertible
                                  Subordinated Notes due 2006 (the "Notes")

                 4.2(2)           Supplemental Indenture dated May 28, 1996
                                  between Marine Midland Bank, Trustee and
                                  Nabors Industries, Inc. in connection with
                                  the Notes

                 4.3(3)           Registration Rights Agreement dated as of
                                  April 30, 1996 between Nabors Industries,
                                  Inc. and Occidental Oil and Gas Corporation

                 10.1(4)          1993 Stock Option Plan for Non-Employee
                                  Directors

                 10.2(5)          1994 Executive Officers Stock Plan

                 10.3(5)          1996 Employee Stock Plan

                 10.4(3)          1994 Executive Stock Option Agreement
                                  effective December 28, 1994 between Nabors
                                  Industries, Inc. and Eugene M. Isenberg

                 10.5(3)          1994 Executive Stock Option Agreement
                                  effective December 28, 1994 between Nabors
                                  Industries, Inc. and Anthony G. Petrello

                 10.6(3)          1994 Executive Stock Option Agreement
                                  effective December 28, 1994 between Nabors
                                  Industries, Inc. and Richard A. Stratton
</TABLE>





                                       18
<PAGE>   19

<TABLE>
<S>                               <C>
                 10.7(1)          Employment Agreement effective October 1,
                                  1996 between Nabors Industries, Inc. and
                                  Eugene M. Isenberg

                 10.8(1)          Employment Agreement effective October 1,
                                  1996 between Nabors Industries, Inc. and
                                  Anthony G. Petrello

                 10.9             Employment Agreement effective October 1,
                                  1996 between Nabors Industries, Inc. and
                                  Richard A. Stratton

                 10.10(6)         Note Purchase Agreement between Nabors
                                  Industries, Inc. and John Hancock Mutual Life
                                  Insurance Company dated October 1, 1992

                 10.11(3)         Stock Purchase Agreement dated as of March 8,
                                  1996 between Nabors Industries, Inc. and
                                  Occidental Oil and Gas Corporation as amended
                                  by Amendment No. 1 to Stock Purchase
                                  Agreement dated as of April 23, 1996

                 10.12(3)         Share Purchase Agreement dates as of October
                                  18, 1996 by and among Abbot Group plc, Nabors
                                  Industries, Inc., and KCA Drilling Group
                                  Limited

                 10.13(3)         Asset Purchase Agreement between Noble
                                  Drilling Corporation, Noble Properties,
                                  Inc., Noble Drilling (Canada) Ltd. and
                                  Nabors Industries, Inc. dated November 15,
                                  1996

                 10.14(2)         Underwriting Agreement dated May 21, 1996 by
                                  and among Nabors Industries, Inc. and Salomon
                                  Brothers, Inc., Goldman, Sachs & Co.,
                                  Merrill, Lynch, Pierce, Fenner & Smith,
                                  Incorporated and Simmons and Company,
                                  International as representatives of the
                                  underwriters named therein in connection with
                                  the offering of the Notes

                 10.15            Consent and Voting Agreement and Plan of
                                  Merger dated December 20, 1996, by and among
                                  Nabors Industries, Inc., Nabors Acquisition
                                  Corp. 96, Adcor-Nicklos Drilling Company, and
                                  all of the option holders and stockholders of
                                  Adcor-Nicklos Drilling Company

                 10.16            Stock Purchase Agreement dated as of March
                                  20, 1997 between Nabors Drilling USA, Inc.,
                                  Samson Investment Company, Eason Drilling and
                                  Services Company, Samson Rig Company and Rig
                                  Properties, Inc.

                 10.17            Nabors Industries, Inc. 1996 Chairman's
                                  Executive Stock Plan

                 10.18            Nabors Industries, Inc. 1996 Executive
                                  Officers Stock Plan

                 10.19            Nabors Industries, Inc. 1996 Executive
                                  Officers Incentive Stock Plan

                 10.20            Nabors Industries, Inc. 1997 Executive
                                  Officers Incentive Stock Plan

                 10.21            Form of Indemnification Agreement entered
                                  into between Nabors Industries, Inc. and
                                  the directors and executive officers 
                                  identified in the schedule thereto

                 11               Computation of Per Share Earnings

                 12               Computation of Ratios of Earnings to Fixed
                                  Charges

                 13               1997 Annual Report to Stockholders

                 21               Significant Subsidiaries of Nabors
                                  Industries, Inc.

                 23               Consent of Independent Accountants
</TABLE>





                                       19
<PAGE>   20

<TABLE>
<S>                               <C>
                 27               Financial Data Schedule

                 99.1             Credit Agreement among Nabors Industries,
                                  Inc., the subsidiary borrowers thereto, Bank
                                  of America National Trust and Savings
                                  Association, Wells Fargo Bank (Texas)
                                  National Association and the other financial
                                  institutions party thereto dated September 5,
                                  1997
</TABLE>

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

(1) Incorporated by Reference to the Exhibits to Form 10-Q, File No. 1-9245,
    filed with the Commission on May 16, 1997.

(2) Incorporated by Reference to Form 8-K, File No. 1-9245, filed with the
    Commission on May 28, 1996.

(3) Incorporated by Reference to the Exhibits to Form 10-K, File No. 1-9245,
    filed with the Commission on December 29, 1996.

(4) Incorporated by Reference to Form S-8, Registration No. 33-87322, filed
    with the Commission on December 29, 1994.

(5) Incorporated by Reference to Form S-8, Registration No. 333-11313, filed
    with the Commission on September 3, 1996.

(6) Incorporated by Reference to the Exhibits to Form 10-K, File No. 1-9245,
    filed with the Commission on December 29, 1992.



(b)      Reports on Form 8-K:

         Report on Form 8-K filed with the Commission on December 18, 1997 with
         regard to the change in the Registrant's fiscal year end from
         September 30 to December 31.





                                       20
<PAGE>   21
                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on December 29, 1997.


                                 NABORS INDUSTRIES, INC.
                                 
                                 
                                 By:  /s/Anthony G. Petrello               
                                      ---------------------------------------
                                        Anthony G. Petrello
                                        President and Chief Operating Officer
                                 
                                 By:  /s/Bruce P. Koch                     
                                      ---------------------------------------
                                        Bruce P. Koch
                                        Vice President - Finance
                                        (Principal Financial and Accounting 
                                          Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
 Signature                                              Title                             Date
----------                                              -----                             ----
<S>                                                <C>                               <C>
/s/ Eugene M. Isenberg                             Chairman and                      December 29, 1997
----------------------------------                 Chief Executive Officer                            
Eugene M. Isenberg                                                        

/s/ Anthony G. Petrello                            President and                     December 29, 1997
----------------------------------                 Chief Operating Officer                            
Anthony G. Petrello                                                       

/s/ Richard A. Stratton                            Vice Chairman                     December 29, 1997
----------------------------------                                                                    
Richard A. Stratton

/s/ Gary T. Hurford                                Director                          December 29, 1997
----------------------------------                                                                             
Gary T. Hurford

/s/ Hans Schmidt                                   Director                          December 29, 1997
----------------------------------                                                                             
Hans Schmidt

/s/ Myron M. Sheinfeld                             Director                          December 29, 1997
----------------------------------                                                                             
Myron M. Sheinfeld

/s/ Jack Wexler                                    Director                          December 29, 1997
----------------------------------                                                                             
Jack Wexler

/s/ Martin J. Whitman                              Director                          December 29, 1997
----------------------------------                                                                             
Martin J. Whitman
</TABLE>





                                       21
<PAGE>   22
                              INDEX TO EXHIBITS

<TABLE>
<CAPTION>
               Exhibit No.        Description
               -----------        -----------
<S>                               <C>
                 3.1(1)           Restated Certificate of Incorporation of the
                                  Registrant dated March 4, 1997

                 3.2              Restated By-Laws of the Registrant adopted
                                  December 4, 1997

                 4.1(2)           Indenture for Subordinated Debt Securities
                                  dated May 15, 1996 between Marine Midland
                                  Bank, Trustee and Nabors Industries, Inc. in
                                  connection with $172,500,000 aggregate
                                  principal amount of 5% Convertible
                                  Subordinated Notes due 2006 (the "Notes")

                 4.2(2)           Supplemental Indenture dated May 28, 1996
                                  between Marine Midland Bank, Trustee and
                                  Nabors Industries, Inc. in connection with
                                  the Notes

                 4.3(3)           Registration Rights Agreement dated as of
                                  April 30, 1996 between Nabors Industries,
                                  Inc. and Occidental Oil and Gas Corporation

                 10.1(4)          1993 Stock Option Plan for Non-Employee
                                  Directors

                 10.2(5)          1994 Executive Officers Stock Plan

                 10.3(5)          1996 Employee Stock Plan

                 10.4(3)          1994 Executive Stock Option Agreement
                                  effective December 28, 1994 between Nabors
                                  Industries, Inc. and Eugene M. Isenberg

                 10.5(3)          1994 Executive Stock Option Agreement
                                  effective December 28, 1994 between Nabors
                                  Industries, Inc. and Anthony G. Petrello

                 10.6(3)          1994 Executive Stock Option Agreement
                                  effective December 28, 1994 between Nabors
                                  Industries, Inc. and Richard A. Stratton

                 10.7(1)          Employment Agreement effective October 1,
                                  1996 between Nabors Industries, Inc. and
                                  Eugene M. Isenberg

                 10.8(1)          Employment Agreement effective October 1,
                                  1996 between Nabors Industries, Inc. and
                                  Anthony G. Petrello

                 10.9             Employment Agreement effective October 1,
                                  1996 between Nabors Industries, Inc. and
                                  Richard A. Stratton

                 10.10(6)         Note Purchase Agreement between Nabors
                                  Industries, Inc. and John Hancock Mutual Life
                                  Insurance Company dated October 1, 1992

                 10.11(3)         Stock Purchase Agreement dated as of March 8,
                                  1996 between Nabors Industries, Inc. and
                                  Occidental Oil and Gas Corporation as amended
                                  by Amendment No. 1 to Stock Purchase
                                  Agreement dated as of April 23, 1996

                 10.12(3)         Share Purchase Agreement dates as of October
                                  18, 1996 by and among Abbot Group plc, Nabors
                                  Industries, Inc., and KCA Drilling Group
                                  Limited

                 10.13(3)         Asset Purchase Agreement between Noble
                                  Drilling Corporation, Noble Properties,
                                  Inc., Noble Drilling (Canada) Ltd. and
                                  Nabors Industries, Inc. dated November 15,
                                  1996

                 10.14(2)         Underwriting Agreement dated May 21, 1996 by
                                  and among Nabors Industries, Inc. and Salomon
                                  Brothers, Inc., Goldman, Sachs & Co.,
                                  Merrill, Lynch, Pierce, Fenner & Smith,
                                  Incorporated and Simmons and Company,
                                  International as representatives of the
                                  underwriters named therein in connection with
                                  the offering of the Notes

                 10.15            Consent and Voting Agreement and Plan of
                                  Merger dated December 20, 1996, by and among
                                  Nabors Industries, Inc., Nabors Acquisition
                                  Corp. 96, Adcor-Nicklos Drilling Company, and
                                  all of the option holders and stockholders of
                                  Adcor-Nicklos Drilling Company

                 10.16            Stock Purchase Agreement dated as of March
                                  20, 1997 between Nabors Drilling USA, Inc.,
                                  Samson Investment Company, Eason Drilling and
                                  Services Company, Samson Rig Company and Rig
                                  Properties, Inc.

                 10.17            Nabors Industries, Inc. 1996 Chairman's
                                  Executive Stock Plan

                 10.18            Nabors Industries, Inc. 1996 Executive
                                  Officers Stock Plan

                 10.19            Nabors Industries, Inc. 1996 Executive
                                  Officers Incentive Stock Plan

                 10.20            Nabors Industries, Inc. 1997 Executive
                                  Officers Incentive Stock Plan

                 10.21            Form of Indemnification Agreement entered
                                  into between Nabors Industries, Inc. and
                                  the directors and executive officers 
                                  identified in the schedule thereto

                 11               Computation of Per Share Earnings

                 12               Computation of Ratios of Earnings to Fixed
                                  Charges

                 13               1997 Annual Report to Stockholders

                 21               Significant Subsidiaries of Nabors
                                  Industries, Inc.

                 23               Consent of Independent Accountants

                 27               Financial Data Schedule

                 99.1             Credit Agreement among Nabors Industries,
                                  Inc., the subsidiary borrowers thereto, Bank
                                  of America National Trust and Savings
                                  Association, Wells Fargo Bank (Texas)
                                  National Association and the other financial
                                  institutions party thereto dated September 5,
                                  1997
</TABLE>

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

(1) Incorporated by Reference to the Exhibits to Form 10-Q, File No. 1-9245,
    filed with the Commission on May 16, 1997.

(2) Incorporated by Reference to Form 8-K, File No. 1-9245, filed with the
    Commission on May 28, 1996.

(3) Incorporated by Reference to the Exhibits to Form 10-K, File No. 1-9245,
    filed with the Commission on December 29, 1996.

(4) Incorporated by Reference to Form S-8, Registration No. 33-87322, filed
    with the Commission on December 29, 1994.

(5) Incorporated by Reference to Form S-8, Registration No. 333-11313, filed
    with the Commission on September 3, 1996.

(6) Incorporated by Reference to the Exhibits to Form 10-K, File No. 1-9245,
    filed with the Commission on December 29, 1992.