Distribution NOW (DNOW) Q2 2016 Earnings Call

Distribution NOW (DNOW) Robert Workman said their international oil equipment business remains challenged

“Internationally, scheduled project shipments in the UK, Holland, Iraq, Kazakhstan, and turnarounds for Chevron in China likely won’t be sufficient to offset continued declines with the offshore drilling fleet globally, a strengthening dollar, and potential fallout from volatility surrounding Brexit, the Middle East, and South America. So while we’re experiencing a few green shoots, we are still in a languishing market, and we’ll continue our efforts of right-sizing our business to match this environment, while ensuring we take advantage of opportunities as they arise.”

Distribution NOW (DNOW) Robert Workman channeled his inner Wayne Gretzky

“In closing, let me mention a quote from Wayne Gretzky that has been used often over the years: “Skate to where the puck is going to be, not where it has been.” So while we are managing our business to the current realities and are proud of the gains our employees have made, we are also preparing for the future and where we see DNOW in 10 years. The market will turn around at some point and we’ll be ready to take advantage of it when it does.”

Concerned about customer’s ability to pay

“We continue to be challenged by bankruptcies in our energy space, with more than 80 oil and gas related bankruptcies since early 2015.”

Not interested in doing international M&A transactions at the moment because they want to see how the energy landscape evolves and where the price of oil goes in the short-term

“We have a still robust pipeline of opportunities, some similar in size to the largest one we’ve done so far like MacLean and Power Service, but we are a lot more cautious right now simply because we want to see how these different challenges internationally play out. I’d hate to put our toe in the water and make an assumption and end up not being accurate and then we end up having issues with an acquisition. So we’re continuing the relationships, we’re continuing the evaluations, the communications, but kind of in a pause a little bit to see how these different international challenges turn out.”

National Oilwell Varco (NOV) Q2 2016 Earnings Call

National Oilwell Varco (NOV) CEO Clay Williams said their customers remained even more cautious as oil pulled back to $26 in February

“In the second quarter of 2016, National Oilwell Varco did post revenues of $1.7 billion, down 21% from the first quarter and down 56% from the second quarter of 2015. Revenues declined more than expected, due mostly to offshore drilling contractors further delaying acceptance of new builds. The $26 crude oil prices we saw in February inflicted new agony on the oil field, sending second quarter expenditures further downward and driving U.S. rig counts to record lows going back seven decades.”

Significantly reduced the size of their workforce 

“First on cost, our team is resolute in our commitment to improve efficiencies, reduce capacity, and generate higher profitability. During the second quarter, we detailed additional cost reduction steps that totaled over $400 million in annualized savings that will flow in over the next few quarters. Plans developed and actions taken during the second quarter are on top of considerable work performed already, having reduced our annual personnel cost well over $2 billion from peak levels.”

Some domestic customer equipment orders have bounced back here just in the last few weeks

“We are encouraged that the North American rig counts have begun to increase. We have seen demand rise in recent weeks for certain products and services for North America: rod guides for artificial lift, solids control jobs in West Texas, drilling motor rentals, and other items.”

We haven’t hit the bottom yet in their opinion, which contrasts with the management teams of Schlumberger and Haliburton who said we have already passed the bottom

“At or near the bottom of the cycle, we see considerable crosscurrents, price pressure, and shifting mix within our business. And, frankly, we’re not ready to call bottom yet.”

Not a single new rig order during the quarter

“For the third straight quarter, we received no new rig orders. Near-term demand for offshore remains almost nonexistent outside of replacement equipment. Discussions continue regarding midterm opportunities, which include one-off specialized 20-K drill ships and speculative mid-water semi-submersibles. However, we do not anticipate these orders materializing in 2016.”

Using remote analytics and big data to detect problems in drilling equipment before they happen

“Today, our customers cannot afford extra downtime and need to be optimally positioned to capitalize on any new opportunities. As previously noted, we are seeing strong demand for our condition-based monitoring solutions, which allow contractors to predict failures and address problems before they occur.”

They are more interested in doing acquisitions of small companies rather than a large strategic merger or acquisition 

“But, just to state it more bluntly, I think we are mostly interested today, as we look out across a big and growing portfolio of potential M&A opportunities, in pursuing a lot of smaller critical technologies, bolt-on sort of adds that we really think are going to create the most shareholder value for our shareholders in the upturn. And again, I can’t stress this enough. This is sort of how we really did build the business over the last 20-plus years, and having now moved into much more of a buyer’s market, that sort of roll up your sleeves and get out there in a lot of conversations and look for opportunities to add on smaller acquisitions, I think, is the best application of capital. Conversely, to go out there and to make one larger bet on one larger transaction and sort of say, well, that’s it, it’s just far less appealing.”