National Oilwell Varco 3Q16 Earnings Call Notes

National Oilwell Varco (NOV) Q3 2016 Results
Clay C. Williams

OPEC producing near maximum levels

“The 2.2 million barrel per day decline in non-OPEC production since 2014 has been fully offset by rising OPEC production which achieved record levels this summer along with Russian production which achieved record levels in September. Overall, we believe OPEC to be producing at near maximum levels with little remaining excess capacity cushion which has delayed the inevitable rebalancing of the world oil markets.”

OPEC faces rising challenges to grow production further

“Nevertheless, time is on our side as OPEC faces rising challenges to grow production further and as dwindling oil field expenditures accelerate production declines through the rest of the world. Faced with extraordinary revenue declines and significant price discounting in all areas of our business, we’ve aggressively reduced costs and improved efficiency, enabling NOV to manage EBITDA decremental leverage to only 28% since the end of 2014.”

Seeing a shift in mix away from offshore but more optimism in onshore

“we are seeing a shift in our mix away from offshore, which really dominated our order book for the last decade plus, to land in 2017, 2018. And as we mention in our remarks, I think cause for some optimism there. Conversations are beginning. Tenders for land equipment are starting to be let. And it’s very early days, but that’s certainly a good and welcome relief. And that showed up in our orders in the third quarter, which grew off of some pretty low levels of orders in the preceding quarter.”

International headwinds offsetting US

‘Well, we expect U.S. to grow. What I would tell you, though, is we are continuing to suffer from international headwinds in certain markets. So international will partly offset U.S. growth. But the big move sequentially is going to be drillpipe sales and then the coating of drillpipe within our Tuboscope unit.”

Plenty of inventory, scarcest resource in an upturn is people

“With regards to your inventory comment, what I would tell you is that, frankly, our inventory is – we still have too much. And so we have ample inventory, I think to respond to our customers’ needs. And so that’s not really the issue. What the upturn will look like, the scarcest resource in every upturn pretty quickly becomes people. ”