Halliburton 4Q15 Earnings Call Notes

Dave Lesar

Customer flight to quality means decline less than the market

“From the 2014 peak, our completions-related activity declined approximately 33% relative to a 64% reduction in the US land rig count. This clearly again demonstrates the customer flight to quality that has emerged during this downturn and positions us well for the market’s eventual recovery.”

DoJ said that proposed divestitures are not enough in Baker Hughes acquisition

“In December, the DoJ informed us that they do not believe that our previously announced proposed divestitures are sufficient to address the DoJ’s concerns, but acknowledged that they would assess further proposals.”

Merger agreement would not necessarily terminate automatically if approvals have not been received by April 30

“In the event regulatory approvals have not been received by April 30, the merger agreement does not terminate automatically. Both companies may continue to seek regulatory approval or either company may terminate the merger agreement.”

Most challenging downturn since the 80s

“Now this has certainly been the most challenging downturn that I’ve seen in my many, many years in business. We expect the market will continue to remain challenged in 2016 and that it will be the first time since the late ’80s that global upstream spending will decline for two consecutive years.”

The longer recovery takes, the sharper it should be

“Now there are a number of moving parts in North America and my experience has taught me not to bet on the exact timing of a recovery. But we do expect that the longer it takes, the sharper the recovery will be.”

2016 is going to be a tough slog through the mud

“2016 is simply going to be a tough slog through the mud, but I can tell you we’ll do what we have to do. We know what buttons to push and levers to pull and we will. We believe our customers will remain focused on cost per barrel optimization and gaining higher levels of efficiency, both of which bode very well for Halliburton.”

Right now our customers don’t even know what they are going to spend, where or when they’re going to spend it

“I’m talking almost every day with the CEOs of our customers and I would say that it’s a real challenge out there. And I guess the way I would sum it up is there is sort of a constant revision of budgets going on and those revisions are clearly with a downward bias. So the way I would describe it is, right now, our customers don’t know what they are going to spend, where they are going to spend it and when they are going to spend it in North America at this point in time, which is why I made the comment earlier we really are trying to run the business on literally a week-by-week, crew-by-crew, unit-by-unit basis until our customers see some stability in pricing where they can then put a stake in the ground.”

There’s a big difference in the way that business is done in international markets vs the US

“the way you do business between international markets and the US market is also quite different. With the drilling and completion efficiencies that we’ve gotten in the US, the time to drill and complete a well has been dramatically reduced, which means the time between when you can price what does a frac cost or what does drilling cost or what does a mud job cost is very dynamic, very real time and it’s very transactional. The international market still continues to be a long-term contract market. So the discussions that you have with customers around price concessions and scope changes is typically done within the context of an existing long-term contract, which gives you more of a seat at the table and more of an ability to convince the customer that what you’re delivering is adding value or that you have ideas where their contracts can get more efficient and therefore reduce their cost per BOE.”

Jeff Miller

It’s going to be tougher this year

“Yes. So if we look at ’16, I mean, it will be a tougher slog in ’16, no question. I mean, we’re seeing fairly constant pressure around negotiation and tenders. But, in some cases, we are having what I would say positive collaborative discussions with clients around how to reduce uncertainty, increase system efficiency.”

Half the equipment is idled but service intensity is going up

“Attrition is really the story here and consistent with remarks before, we see today about half the equipment is idled. That’s equipment that’s not being maintained and is being cannibalized for parts more broadly. The service intensity, believe it or not, continues to creep up. So we saw a 9% sequential increase in profit pumped on a per well basis, which means equipment is working harder than it ever has.”

International is typically more resilient because the economies are built around the production of oil

“one of the things that we typically see internationally obviously that cycle lags the US cycle. And again these are also economies, in many cases, that are built around production of oil and gas. And so from an activity perspective, they tend to be, on a relative basis, more resilient.”

Core Labs 3Q15 Earnings Call Notes

Crude markets well on their way to balance by year end or early next year

“we believe that the worldwide crude oil supply and demand markets are well on their way to balance by year-end or in early 2016. On the crude oil supply side, U.S. crude production peaked in April of 2015 and over 9.6 million barrels of oil per day.”

Middle east production will continue to fall

“Core believes the Middle East production levels will continue to fall in Q4 led by declines in Iraq notwithstanding unknown and unpredictable crude oil supplies from Iran. ”

Core continues to see a V shaped recovery

“Core continues to see a V-shaped recovery getting underway in 2016. The industry is still on the left hand side of this V going into Q4 perhaps with activity upticks in early 2016.”

Budgets should continue to come down in 2015

“In spite of our view of a recovery in 2016, for the fourth quarter 2015, we project further industry activity declines in North America tight oil plays. Currently, U.S. rig counts are down 8% from average third quarter 2015 levels. [Oil] company 2015 operating budgets are at very low levels and nearing exhaustion which we believe will force the North America rig counts to further contract later in the fourth quarter.”

We think Deepwater will be better next year than this year

“I would say in the deepwater Gulf of Mexico, visibility going into Q1 and Q2 is pretty good. Other deepwater slots around the world, offshore eastern South America, West Africa, some parts of the North Sea and Asia Pacific, the visibility not as clear, but certainly we think we will do as well in the deepwater that we did in Q3 and Q4 this year in Q1 and Q2 of next year.”

Technologically sophisticated clients are focused on ROIC, better for Core Labs

“when you look at our technologically sophisticated clients, they still are looking at returns and are buying technology to enhance their return on their invested capital, and you do have a number of independents, that all they are looking and doing is to drive down costs. They don’t tend to be as good a client for Core Lab as the technologically sophisticated clients”

EORs in unconventional wells have not peaked

“No they have not peaked. What we’re seeing right now is an artifact of low commodity prices because we’re looking at the operators drilling up their very best acreage.”

Still room for more stages and longer laterals

“we know that we can push a hydrocarbon, a long chain hydrocarbon about 120 feet at an average tight oil reservoir, so if that is indeed the case we should have a stage every 240 feet or feet apart, stages are still more than on average 400 feet apart, so we still have some optimization going on the drilling and completion stimulation techniques. We are still proponents of longer laterals, and if you look at companies that are drilling the longest laterals out there Pioneer Natural Resources come to the mind. They are 10,000 footers, but looking at the number of stages they are putting in their in the amount of profit that’s still a blueprint for success and higher EORs.”

Halliburton 3Q15 Earnings Call Notes

Activity level could drop substantially in the last five weeks of the year as operators have exhausted 2015 budgets

“Based on current feedback, we believe most operators have exhausted their 2015 budgets, and will take extended breaks, starting as early as thanksgiving. Therefore our activity levels could drop substantially in the last five weeks of the year.”

We’ve never had less near term visibility

“In my 22 years in this business, I’ve never seen a market where we’ve had less near-term visibility. In reality, we are managing this business on a near real-time basis, customer-by-customer, district-by-district, product line-by-product line, and, yes, even crew-by-crew”

First quarter should be the bottom of this cycle

“Our view is that the first quarter could end up being a mirror image of the fourth quarter. So, just as the fourth quarter is facing a speed drop-off post thanksgiving, we expect to see a slow ramp up beginning in January, and improving from there, suggesting that the first quarter could be the bottom of this cycle.”

Reduced borrowing capacity for operators

“In North America, the prospects of reduced borrowing capacity for operators, and a prolonged holiday season make the fourth quarter challenging and difficult to predict.”

Rig count could drop more

“So far, the average horizontal rig count is down a little less than 10% from the third quarter average. If these headwinds play out, we estimate that the fourth quarter average horizontal rig count could drop about 15% to 20% sequentially.”

Pumping is obviously the most stressed

“Obviously, the most stressed part of our business is pumping. Now, this is the business that we know the best. It’s the business that recovers the fastest. It’s the business that recovers the most sharply”

Game plan is stick with customers we know

“we know what that path looks like. It looks like this. It looks like staying with the fairway players in the basins that we know. It does not mean chasing every stake. It looks like staying with the customers that are loyal, even if that means working at a price that we don’t like, collaborating on our path forward that lowers their costs per BOE”

Budgets will be reloaded in Q1. When our customers have cash they will find a way to spend it

“there will be a budget reload that takes place in Q1. I think the big question mark is how fast do our customers go back to work once they do reload their budgets, given off what we think we will be a relatively low rig count volume in the latter part of the quarter, especially in December? So it really depends on the bounce back, but the cash will be there. And I think one of the things that our customers demonstrate, and believe me, we love all our customers. If they have cash they are going to spend it.”

Unconventional wells decline so quickly that many companies are in drill or die mode. If they don’t start drilling, they’re going to have to dismantle infrastructure

“with the high decline curves that exist on these unconventional plays. They are really are in drill or die mode. So if you go a year without drilling a well, and your production starts to turnover, you are going to have to start drilling or you are going to have to take your infrastructure apart that you’ve built up as a company. So I think that as we get to the end of the year, if these guys have money, they are going to drill it up, and that’s just the fact that it is.”

Schlumberger 3Q15 Earnings Call Notes

Effective tax rate just 20%

“The effective tax rate was 20% in the third quarter.”

Fears of reduced growth in China and additional Iranian exports are offsetting tightening supply/demand picture

“as we enter the last quarter of the year, the global oil market is still weighed down by fears of reduced growth in China, and the timing and magnitude of additional Iranian exports. However, the fundamental balance of supply and demand continues to tighten driven by both solid global GDP growth and by weakening supply as dramatic cuts in E&P investments start to take full effect. We expect this trend to continue and as the oil markets further recognizes the magnitude of the industry’s annual production replacement challenge, this will gradually translate into improvements in oil prices going forward.”

Outlook for oilfield services companies will still be challenging despite expected improvement in oil prices

‘Second, in spite of the expected improvements in oil prices, the market outlook for oilfield services looks challenging for the coming quarters, as we expect additional reductions in activity and further pressure on service pricing.”

A year of very low prices has exhausted available cash flow

“This is driven by the financial pressure on many of our customers where a year of very low oil prices is now exhausting available cash flow and corresponding capital spending and also leading them to take a very conservative view on 2016 E&P budgets.”

Expect E&P investments to fall for 2nd consecutive year

“Based on this industry outlook, we expect E&P investments to fall for a second successive year in 2016, which is the first time since the 1986 downturn, when the spare capacity cushion was more than 10 million barrels per day.”

Recovery in our activity levels now seems to be a 2017 event

“while our macro view has not changed in terms of a tightening supply and demand balance and an expected improvement in oil prices, we have to factor in that the likely recovery in our activity levels now seems to be a 2017 event.”

We have decided to proceed with a further round of overhead reductions

“We communicated in our previous earnings call that we were prepared to live with our existing cost base going forward, provided we were close to the bottom of the market and that the activity recovery was only a couple of quarters out…The likely timing gap between the oil price recovery and the subsequent increase in oilfield services activity in combination with a more conservative spending outlook from our customers is causing us to now take further action. We have therefore decided to proceed with a further round of capacity and overhead reductions, which will result in a restructuring charge in the fourth quarter.”

Starting to see weakening of international supply as well

“In North America, the production is coming down more or less as expected as well and internationally, we are starting to see signs of a weakening supply as well.”

Hopefully 1Q16 is the bottom but it’s too early to say, we can see that Q1 should be below Q4

“we hope that Q1 will represent the bottom and there would be a gradually, but slow recovery during the year or even sideways. I think it is still too early to say, James. I think we have, even for Q4 now there is significant uncertainties in several of the markets on what’s going to happen. Beyond that we clearly see Q1 being below Q4, but visibility, Q1 is still very low.”

I think the oil price is now likely to start to move upward

“I would say also that there is a limit to how long these reductions in investment and activity can continue. And I think as the oil price now likely will start to move upwards, hopefully investments will turnaround, but anything meaningful will be late ‘16 and into ’17 as we see it as per today.”

Customers haven’t completed budgeting yet, but feedback is consistent that ’16 will be lower

“Most of our customers haven’t completed or just barely started our budgeting process for 2016. But the general feedback is very consistent. And that is, they expect, the vast of them that spend will be lower. ”

After 4 quarters of weak prices, financial strength has significantly weakened

“I think the fact that now four quarters into very low oil prices, the financial strength of many of our customers has significantly weakened and their appetite to invest is also a bit down. Any I think – any improvement in oil prices, I think will be to initially – is going to go towards the strength in the balance sheet and then the oil companies will likely assess how sustainable are these increases in oil prices before they start investing.”

Capex cuts will probably not be in the 20-30% range next year

“I think, full year 2016 – for full year 2016, that sounds like a high number. At this stage, I don’t think it’s going to be as much as that, no.’

Halliburton at Barclays Conference Notes

Hal at Barclays conference

Jeff Miller – President and Chief Health, Safety & Environment Officer

Christian Garcia – SVP-Finance & Acting CFO

With the end of the quarter, I had indicated that we expected North America to scrape along the bottom, and it certainly has. Following a 56% drop in the rig count over a six month period, U.S. rig count appeared to have stabilized at about a 56% drop.

We don’t know what’s in store for 2016, but customers are telling us, their production isn’t sustainable clearly at the current activity levels, and recent EIA reports support this, showing decline around 300,000 barrels per day from April to June, even with the typical annual maintenance cycle factor, end of June’s number, oil production is rapidly approaching the Q4 2014 levels.

there is no question that economics are challenged in deepwater today; and partly because, we have never seen really the cost-curve bend in deepwater, the same way that we have seen that achieve in unconventionals.

the reality is, a large part of global production today is still mature. In fact, we estimate about 70% of production today is in a mature field. And this affects large companies, and it also affects large economies.

So what’s most interesting about this technology, is that we have seen an increased uptake during the downturn. Collectively these technologies, highlighted by the yellow dot on the adoption curve, are really still quite young. And what we believe, is that after years of drilling and drilling efficiency, that it is quite frankly technology that will drive the next leg in efficiency.

Over the long term, the growth areas will be unconventionals, mature field, and deepwater, albeit they face economic challenges right now. HAL plays a key role in unlocking all of these.

National Oilwell Varco 2Q15 Earnings Call Notes

Most NA business units reporting stabilizing pricing

“Generally, we still see some pricing pressures in certain products, mostly in international markets, but most North American business units are reporting that pricing is stabilizing at new lower levels as the rig count flattens. Consolidated revenues for the U.S. declined 29% sequentially.”

As companies run their fleets, they will eventually have to restock

“As oilfield service companies gradually destock, they will eventually run out of opportunities to cannibalize their existing fleets and we expect orders to begin to flow again to NOV, given that oil and gas remains a highly capital intensive undertaking and that NOV is one of its largest capital manufacturers and suppliers of technology.”

Customers are doing the bare minimum to keep their fleets running

“Customers are doing the absolute bare minimum in terms of maintenance and repair, only what’s necessary to keep their fleets running. ”

Pricing and rig count appears to have stabilized

Pricing appears to have stabilized across North American markets as the rig count has more or less stabilized and has ranged from low-single digits and on up. ‘

It’s a buyers’ market, but companies don’t want to sell at the bottom

“in a cyclical downturn, and this is one of many we’ve been through, our view is that it becomes much more of a buyer’s market. The risk, I think, in transactions tends to go down a little bit, but it can be a challenging market to get deals done because most companies don’t particularly want to sell at the bottom. And so it’s a challenge making bids and the asks come together and to reach a price that all parties view as fair and move forward.”

Land rig customers are more optimistic about recovering commodity prices

“There’s a lot of conversations underway around land rigs. And I think generally, our land rig customers are much more optimistic about recovering commodity prices driving higher levels of activity.”

“Hallibaker” obviously changes the strategic picture somewhat

“It’s obviously a large merger. It spans a number of different subsectors in oilfield services. And so there’s implications for specific spaces within the industry, specific marketplaces, specific geographies. And so, we’re watching very closely how that comes together. And so, I would tell you strategically, certainly it’s shaded our thinking and what we always try to do is think out three or four moves into the chess game.

So, what are the perhaps non-obvious implications of the Halliburton-Baker merger. So, yeah, it’s – the short answer is yes, it’s certainly shaded our strategic thinking. And we’re – but they’re both customers, we wish them well and we’ll see what happens.”

Core Labs 2Q15 Earnings Call Notes

Crude markets are will on their way to balance

“Core believes that worldwide crude oil supply and demand markets are well on their way to a balance at year-end, 2015. On the crude oil supply side, U.S. production peaked in April of this year.”

Core sees a V shaped recovery

“Core sees the V-shape recovery, led by higher commodity prices and followed by worldwide drilling activities, starting to increase in early 2016.”

Book equity is not a proxy for solvency

“Clearly, book equity does not represent the solvency of a company. And, we note that several S&P 500 Companies who generate significant levels of free cash, also have negative book equity, because, they return that free cash to their owners, just as we have done. We do not have debt or contracts compliance requirements, to report positive net worth.”

Deepwater projects actually benefitting as oil cos focus capex on developing known reservoirs

“Those are a little bit longer term projects. If you look at some of the comments made by the major operating companies in the deepwater, Conoco being the most recent, they talked about creating value from discoveries that have already been made. So, as opposed to looking at CapEx for drilling exploratory wells, CapEx is now being focused on development.”

Unconventional OUS are tied to a few world class developments

” If you just look at the major, because right now the concentration on the unconventionals outside of North America are tied to, really, a few world-class developments. All of which are in the earlier stages.”

The Middle Eastern producers may not be able to keep producing at narrow spare capacity

“If we look at just production levels in the Middle East, you have all countries producing at, what we would think, would be maximum amounts of the amount that they can prove, very little spare capacity there. These are carbonate reservoirs. One of the dangers of producing maximum amounts, from carbonate reservoirs, is you start drawing larger amounts of water. And we would think, at the levels at which we see production throughout the Middle East, that they would be in danger if they continue with those levels, for producing larger amounts of water.”

International should lead the V-shaped recovery

“Very good. We see that being led by international. And, they are going to be tied to crude oil related projects. You will see a lot of these deepwater projects. I believe there are 18 that are looked to be sanctioned here, the end of 2015, 2016 and 2017. That will lead your international activity recovery and again, all on the development side. We don’t see much exploration happening there. So, we will start to see upticks in the amount of international spending and activity levels. And then, followed by North America onshore”

Halliburton 2Q15 Earnings Call Notes

Pricing has fallen to unsustainable levels

“We anticipate margin compression in the third quarter, but believe it will be driven more by the full impact of pricing declines that we gave up in the second quarter and from lower activity levels more than continued price erosion. In fact, we believe that service pricing for the industry has fallen to unsustainable levels.”

Don’t expect meaningful increase in activity until sometime in 2016

“looking ahead, we could begin to see a modest uptick in activity during the second half of this year, which could include increased refrac activity, which Jeff Miller will detail later. However, we are not expecting a meaningful activity increase until sometime in 2016, depending on the pace of production declines and where commodity prices settle out in the coming quarters. Therefore, what we are continuing to do is manage our cost, service our customers that are engaged in this flight to quality, and prepare for the Baker transaction.”

Service intensity has doubled in the last couple of years, which means that equipment has higher attrition rates

“What’s unique about this cycle is how service intensity has evolved since 2013. Over the last two years, average job size has essentially doubled. And at the same time, both average pump rates and pressures are also up. On the plus side, bigger jobs mean more revenues and better equipment utilization for us. The downside is we believe larger completions are taking their toll on pumping equipment. In fact, these factors point to higher equipment attrition rates for the industry.”

This is a damn tough market

“To sum things up, this is a damn tough market, one of the toughest ones that I have ever been through. And I don’t believe anyone on the call can accurately predict when commodity prices will rebound and rig counts will recover in the U.S. or the international markets, and neither can I. What I do believe is that when the recovery occurs, North America will offer the greatest upside and that Halliburton will be the best positioned to lead the way.”

Equipment attrition is tough to see, but it’s there

“If you think about attrition, it’s happening all of the time, but it’s not necessarily apparent all of the time. And by that, I mean it’s – you don’t see it until there’s a call on the equipment, and we really saw this last time. So as competitors consume more equipment on location to do the work, you don’t feel the tightness. But as that equipment is called on for even a little bit of incremental activity, that’s when it’s seen. So recalculating the 50% overhang is difficult to do until there’s a call on it, but we’re certain that it’s happening today.”

International pricing never recovered from 2008

“I think pricing internationally, all the customers ask for discounts, but the reality is there’s not much to give. We never recovered from the 2008 cycle internationally’

THe last three weeks hasn’t changed much, we’re just scraping along the bottom

” over the last three weeks, it hasn’t changed that much. I mean, we think about the rig count, it has puts and takes. And so it was seeing some improvement, but then Friday, I suppose those gains were erased. So I would describe where we are today as scraping along a bottom. And scraping along a bottom means that we don’t anticipate dramatic change of any sort, certainly over the very near term.”

Analyst comment: used to be 4-5 rigs per pressure pumping crew was rule of thumb

if you think about the job sizes increasing, is there something that we could tie to a rig count? I know the rule of thumb used to be sort of four or five rigs per pressure pumping crew. Is it something lower than that today that you’re experiencing in your fleet? Or are the increased efficiencies that you’re able to realize offsetting that?”

Well count has become more important than rig count because the rigs that are out there are so efficient

“I would say just one additional thing is although the rig count has been decimated this year, the rigs that are running today, keep in mind, are the most efficient rigs that are out there. And therefore, they are drilling more wells sort of per rig than we’ve ever had in the past. So I think the fixation on rig count, yes, it’s important to the industry, but I think well count is another thing that folks need to look at and concentrate more on, because it’s the well count that ultimately drives how much completion work is done.”

Analyst Q: “Why carry so much incremental cost here?” A: We’re not cutting costs because the cost to carry assets outweighs the cost to replace them

“If you look historically, the cost to carry something ultimately outweighs the cost to have to replace it, go out and get people, retrain those people, rebuild your infrastructure and all of that. So it’s a decision I made. It’s on me if you disagree with it, but I think that it’s easily defendable and I think it’s certainly the way we need to go here, and I’d tell you, it’s going to pay off once we get this deal done.”

Schlumberger 2Q15 Earnings Call Notes

Dramatic reduction in US land activity has created massive oversupply

“In U.S., land activity was down in all basins in the second quarter with the rig count dropping below 860 for most of the month of June. In addition to the significant reduction in rig count, poor weather conditions with floods in Texas, Arkansas and Alaska also drove activity lower in the second quarter. The dramatic reduction in activity in U.S. land has created a massive capacity oversupply in the service industry with pricing quickly plummeting to unsustainable levels in particular for pressure pumping where many companies now are desperately fighting to survive.’

OPEC continues to produce at high levels in a battle for market share

“Turning now to the overall outlook for the second half of the year, visibility still remains limited. However, some tentative signs of change are emerging. On the supply side of the oil markets, the global market share battle between OPEC and the high-cost producers is still playing out, with the first signs of flattening North America production starting to show. Within OPEC, production in the second quarter was at the highest level for three years, as marketed supply was again increased at the expense of lower core spare capacity, which, in June, dropped to 2.3 million barrels per day.

Demand growth continues to strengthen

” global oil demand growth continues to strengthen, with the IEA having revised its 2015 estimate up to 1.4 million barrels per day during the second quarter. These factors all points to a potential tightening in the global supply demand balance in the coming quarters.’

2015 E&P spend expected to be down 35%

“the largest drop in E&P investments is, as expected, occurring in North America, where 2015 spend will now largely be down by more than 35%, driven by both pricing and activity on land.”

We’ve probably seen the bottom for rig count, but we will only see a slow increase in drilling activity in the second half of the year.

“We do believe that the North American rig count has now reached bottom, but that we will only see a slow increase in drilling and completion activity in the second half of the year, which will not make any material dent in the massive overcapacity that has been created. This again means that there will be little to no improvement in pricing levels and, hence, the market will still remain very challenging for the foreseeable future.”

We are still confident that markets will tighten in the second half of the year

“I think the tightening that we’ve been foreshadowing, we are still relatively confident that that will happen in the second half of the year.’

Deepwater projects are long term projects and committed so likely not an impact at this stage

“In terms of the deepwater projects, I think, yes, there are some projects that are being delayed and some projects being canceled, if possible, but I think in general, these are long-term investments, many of them are already deeply committed. So we don’t see any kind of dramatic impact at this stage on the projects that are in the pipeline. Now, going forward, in terms of sanctioning new projects, I think it’s going to be very important for the industry to be able to – the service industry together with our customers to be able to come up with technical solutions and field development plans that significantly reduces cost per barrel.”

These were pretty clean results

“we have a clean quarter this quarter. There are no charges in it, so this is basically straight-line business performance in the second quarter.’

[Analyst comment] shows that most people are still thinking oil prices should be higher. Asks for 2016 outlook assuming $65 brent

“regarding the international outlook for 2016, which is, obviously, very preliminary, but based on your recent conversations and thinking through your viewpoints on supply/demand for crude, if we are in a $65 Brent world, what would your preliminary thoughts”

If markets tighten and oil price rises, good chance that E&P spending is up next year slightly

“if we see some improvement in the oil price in the second half of this year, I don’t think there is going to be any huge impact on the current year budget, but I think it’s a positive indicator that we might have some increase next year. I don’t think the increase in 2016 is going to be large, but I think there is a good chance that E&P investment levels next year will be higher than what we’ve seen in 2015.”

We are out of Iran. If the sanctions are lifted we will consider going back in

“Our position and our view on Iran is the following: we have fully exited Iran. When the sanctions are lifted and when it is permissible, we will evaluate going back in. So beyond that, I don’t really have anything more to say about what we will do, but it’s coming down to, firstly, that the sanction needs to be officially lifted, which they are not yet done.”

We were decisive about dealing with this downturn

“I think, we are pleased with how we’ve handled the downturn so far. We decided to be rather decisive in rightsizing the workforce for the downturn we are facing, and that includes both rightsizing and streamlining the support structure as well as the field capacity.”

We think we are pretty close to a bottom

“yes, you can infer that we are looking and searching for the uptick and that we think that we are pretty close to bottom.”

National Oilwell Varco 1Q15 Earnings Call Notes

Revenues only down 1% y/y

“Revenues were $4.8 billion in the first quarter of 2015, down 16% sequentially, and down 1% year-over-year. ”

Oil price signal rolled through our industry like thunder

“Business in the first quarter of 2015 declined significantly in response to lower oil prices. We entered 2015 with oil prices half of what they were just a few short months. Now, all commodity prices signal producers to add or diminish supply, and oil is no exception. So in the first quarter with global supplies outpacing global demand by 1.5 million barrels per day, the oil price signal rolled through our industry like thunder and thunderstruck participants responded vigorously.”

Rate of decline in rigs is breathtaking

“The rate of decline of active rigs, most acute across North America is breathtaking and unequaled in prior downturns.”

Most of us have been through these cycles before

Most of us in oil and gas industry have been through downturns many times before and have honed our skills at rapidly adjusting spending through the cycles.”

North American shales are the swing source of oil

“North American oil shales are emerging as the new swing source of oil. Since 2011, in a $100-per-barrel price environment, North American oil shales grew about 4.5 million barrels per day, while the rest of the world posted a 0.5 million barrel per day production decline.”

Shale wells decline quickly and the oversupply is not that huge

“individual shale wells decline exceedingly quickly, 8 to 10 times the rate of conventional resources. We know that the sharp and rapid decline in the addition of fresh and new producing wells of all kinds will result in diminished global oil production over time. We also know that the excess productive capacity around the world, the oversupply, is, thankfully, just a few percent, far less than my first downturn in the 1980’s.”

Eventually supply and demand curves will cross

“Eventually supply and demand curves will cross, and we will see oil prices signaling producers to get back to production growth. We just don’t know when. And frankly, we cannot wait for the eventual recovery.”

Restructure focusing on costs without sacrificing opportunities long term

“2015 will be a year for restructuring at NOV. Given our short-term lack of visibility into the timing of the recovery, our approach will be to focus on costs, without sacrificing our long-term opportunities.”

Downturns create opportunity

“Prior downturns in our industry have provided great opportunity for those with capital and the foresight to look through near-term adversity. NOV is a remarkable franchise. We are also at the forefront of several transformative trends in the oil business. ”

A list of a lot of the hardware that NOV provides

“So when we look at, for instance, a shale well drilling operation, what you see out there is a Tier 1 rig, premium drill pipe, downhole tools, mud motors. You see on the completion side coil tubing units, in-coil tubing, frac spreads, sanders, mixing units, basically all of the picks and shovels. All of the hardware that go into the unconventional shale trend, NOV is global-leading provider of.”

Lower oil prices incentivize people to become more efficient

“all sources of crude are continually working on reducing their marginal cost, to slide down that marginal cost curve and not be the last barrel produced in terms of economic efficiency. And the offshore is absolutely no exception. And so what’s encouraging about what we see today is that at $100 a barrel, there’s not as much incentive to do things differently. When the oil price drop to $50 a barrel and the IOC’s have found, for instance, 5 billion barrels in the lower tertiary in the Gulf of Mexico, there’s a strong incentive to figure out.”

“They know the resource base is there, how do we figure out how to produce that at lower cost? ”

We think that market leadership carries a demonstrable competitive advantage

“we think market leadership carries demonstrable competitive advantage in this space. We think we reduce risk for our customers by being market leader. We think scale gets us up learning curves faster, it support broader global networks to deliver products and services and equipment. Let’s us leverage R&D efforts and introduce new products more quickly. For lots of reasons market leadership carries lower risk and higher returns.”