National Oilwell Varco 4Q15 Earnings Call Notes

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National Oilwell Varco (NOV) Clay C. Williams on Q4 2015 Results

Present level of activity is insufficient to supply longer term demand

“We believe the present level of activity is insufficient to supply the longer-term demand for oil. And note that unlike the three most recent downturns through the past 20 years, OPEC has not curtailed production to defend pricing. This has made the present downturn far more severe, but will perhaps lead to a sharper eventual recovery.”

The relentless march of depletion will bring supply and demand into balance

“With producers pumping furiously to maximize their cash flow, the relentless march of depletion, the deferral of 68 projects representing 3 million barrels of oil per day of planned future production, and the unfolding of severe capital austerity will help bring supply and demand into balance.’

As the downturn lengthens everybody is becoming more realistic

“we’re actively pursuing several targets now. It has been challenging and sometimes frustrating to reach agreement with potential sellers. But as the downturn lengthens, everybody in this space is becoming a lot more realistic. We remain patient and disciplined on values and realistic in our outlook, as the option value of our capital flexibility steadily rises.”

Flexing up and down sharply is a requisite skill in oil services

“one of the really necessary skill sets in oilfield services for those of us that have been in it a while is the ability to flex up sharply when called upon and flex down sharply when called upon.”

Nobody is really maintaining their fleet very well

“I can tell you the day or wrap numbers around this. But I would tell you anecdotally, nobody is really maintaining their fleets very well. And in fact as I said I think in my comments, there’s a lot of equipment auctions under way where you can pick up fleets at pennies on the dollar. And that becomes a source of spare parts. And that’s how it affects our business. Rather than buying consumables, fluid ends, things from us, those are being purchased at auction.’

We are enthusiastic about what we see out there (M&A)

“We are enthusiastic about what we’re starting to see out there. And again great to have a lot of balance sheet flexibility and capacity. And I think there’s a lot of optionality right now embedded in NOV.”

It’s hard to get the bid and ask to converge on the way down

“I would tell you on the – on down – in down cycles, having been through a few, it’s really hard to get the bid and the ask to converge on the way down.”

Jose A. Bayardo – Chief Financial Officer & Senior Vice President