National Oilwell Varco

Clay C. Williams

This downturn has been unusually grim and painful

“Frankly, I’m glad 2016 is behind us. In the fourth quarter, we benefited from rising momentum in North American shale plays in particular, which we expect to accelerate. Our international markets still face headwinds for a quarter or two and offshore markets continue to trend down, so we still have challenges ahead. Nevertheless, $50 oil has been a welcome relief. I attribute my gray hair to the many previous downturns I’ve been through, 1986, 1991, 1999, 2002, and 2009. They all required difficult decisions and cost reductions, but this one has been unusually grim and painful. E&P customers cut spending two years in a row and current CapEx is just half the level seen just two years ago. Last year, global exploration discoveries were the lowest they have been since 1947. And in May of last year, the U.S land rig count dropped to the lowest number ever recorded. The industry responded as we always do. Teams have gotten smaller and facilities have been shuttered as purchase orders evaporated.”

Great companies use downturns to innovate

“There’s no better team in oilfield services, and I’m grateful for each and every one of you every day. Like me, they recognize that as hard as they are, downturns are an opportunity to become better. Great companies like NOV use downturns to reexamine how we do things and then take action to drive better efficiencies, actions like taking costs out of manufacturing processes, actions like streamlining supply chains and collapsing cycle times, so that we can deliver NOV’s technologies to our customers when they need it. Great companies like NOV use downturns to innovate”

Drilling much different today than the 80s

“In a low oil price world, accomplishing lower cost per barrel becomes a necessity for our customers. At great companies like NOV, invention follows. I started in an industry very different than today’s. In the early 1980s, almost all drilling was done vertically with mechanical rigs or occasionally DC electric rigs, using a kelly to turn roller-cone bits. Wells took months to drill. U.S. production was declining following its peak more than a decade earlier. A generation later, we drill horizontal wells with PDC bits turned by downhole drilling motors and drill pipe turned by top drives, and we’re doing it with fit-for-purpose AC rigs and massive frac spreads to execute dozens of stages.”

It’s not a stretch to say the seeds of this boom are a result of the 80s downturn

“The downturn of the 1980s was also particularly severe. E&P operators faced the very same challenges they always do when oil prices plummet, how to improve cost per barrel, again, a necessity to survive and again invention followed. I credit the downturn of the 1980s with the inventions of measurement-while-drilling [MWD] systems, logging-while-drilling systems, top drives, rotary steerables, horizontal drilling technology, and PDC bits technologies that frankly enabled the shale revolution. It’s not a stretch to say that the seeds of this amazing new source of oil and gas from shale are a direct result of the downturn of the 1980s. NOV helped lead the way. In 1982 we introduced the top drive, and since then our NOV brand name has become synonymous with a technology used on most rigs worldwide.”

Shale is incredibly consumptive of equipment

“The big picture here is that shale technologies are extremely consumptive of even the most reliably built equipment. Shale is insatiable. It wears out rigs and frac iron. It consumes drill pipe bits, drilling motors, frac spreads, treating iron, and a whole host of expendables like valves, seats, coil tubing, and shaker screens. It’s like feeding a Labrador. As the worldwide leader in the manufacture of all of these, I like NOV’s competitive position.”

The outlook for 2017 is getting brighter

“net-net, we are benefiting from reactivations of land rigs going back to work in West Texas. And I believe – we’ve been saying for the last two years our customers are great at cannibalizing their existing stocks of spare parts, and that’s certainly been going on in earnest. At some point, they’re going to run out of opportunities to cannibalize, and so perhaps we’re seeing some of that turn around as well. So on the whole, I think the outlook for 2017 is getting brighter.”

Next gen rig takes data from sensors downhole

“But a lot of our prepared comments were what we think is the next-generation rig even beyond that, which is you take that rig and then you wire that drill pipe and you let downhole sensors drive a control system at the surface that operates customer apps that they can write to control the rig. That’s the rig that learned, the rig the future as we see it…This is a whole new area, James. The industry has not used high-speed data transmission from the bit to operate the rig machinery in the past, and that’s really what this offers. So this is a whole new breakthrough in terms of technical capabilities. So we’ve got, as I mentioned, 57,000 bits per second coming up with vibration torque, weight on bit, stick slip information, all that stuff. And then the software takes that data stream – high-speed data stream and it adjusts the machines in real time. We actually have algorithms, heuristic algorithms that are altitude seeking that adjust the rig, weight on bit, strokes, et cetera to achieve the maximum ROP [Rate of Penetration] formation by formation. And so the machine learns effectively how to drill the stratigraphic section that it’s drilling in, and we think that’s the next big thing in drilling. So we’re very, very excited about this.”