National Oilwell Varco 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“We have long discussed four big trends that we expect to continue to shape National Oilwell Varco’s destiny over the next decade. One, the build out of a fleet of floating drilling rigs to explore and develop deepwater frontiers open by technology developments of the past 20 years; two, the blossoming of floating production systems, which we expect to produce most deepwater discoveries; three, the replacement of old jack-up rigs with better shape or new jack-up rigs; and four, the steady progression of unconventional shale technologies into new onshore plays overseas, which will continue to drive steady retooling of land rigs and spur demand for other oilfield technologies.”

“Demand for floating rigs has remained high underpinned by we believe strong driller economics on these investments, good day rates, low cost rigs, quick delivery and available financing.”

“we see the opening of deepwater provinces by new technology as presenting an unprecedented opportunity to the oil and gas industry, one that requires the unique sophisticated drilling tools, National Oilwell Varco and our shipyard partners provide.”

“Once oil companies discover deepwater hydrocarbons, they will produce these and we believe floating production systems will emerge as a preferred method in most deepwater basins.”

“The third trend affecting National Oilwell Varco jack-up rig demand has been white hot lately as operators seek to replace aging fleets, 54% of the marketed jack-up fleet is more than 30 years old”

“A few years ago dozens of speculative shale plays were being probed today these are coal lessening down to a handful to a handful of the most profitable.”

“The second major shale market encompasses basically the rest of the world outside North America. Here is where infrastructure is less developed, we view this market as considerably less evolved with tremendous potential and work to be done that will likely span a generation. It is not coincidental that the shale revolution was born on the continent with 2/3rds of the world’s working rigs and the highest level of geologic understanding. Shale plays unconventional plays are by definition marginally economic requiring established efficient oil services infrastructure capable of earthing a well the cost of which is marginally exceeded by the value of the hydrocarbons produced from it at some reasonable expected commodity price.”

“I will submit that one of the most interesting economic opportunities in this scenario would be for a company that actually builds out oilfields services infrastructure.”

“Land rig sales jumped with more than two dozen sold in the quarter almost all overseas and most going into more sophisticated horizontal drilling applications and pulling unconventional techniques. In particular we saw strong demand from Latin America where Mexico seeking to add new modern land rigs and where Argentina has lifted duties on rig imports for the next several months. The Middle-East, Russia and the Fareast also saw strong demand for land rigs.”

“Strong orders continue to load up our manufacturing plants filling up the capacity we have been adding aggressively, which requires we continue to outsource more and to spend a little more than we would like to expedite equipment.”

“From a supply chain standpoint, everyone is working hard to bring our new manufacturing capacity online which will ultimately lead to operational efficiencies.”

“as you take a look at a catalyst that I think you’re going to project out over the next two or three years. You know I keep my eye on a couple of international plays I think number one will be Russia, I think the Russians are going to be very aggressively doing things in the next few years.”

“I think another area that’s going to very exciting, certainly you should keep your eye on it will be Mexico. You have the changeable laws down there, I think as we move into the rest of the year you will have a constitutional amendment hopefully and then you will have the laws that will come out in the first quarter.”

“You know Brazil is very important to us today but I think we’re going to move into another plateau or not plateau but another tier if you will which is going to be the production and FPSO and the flexibles. So as we bring our flexible plant online as we take a look at some of these different engineering ideas we have on FPSOs as Clay mentioned earlier I think Brazil is going to be a very, very positive area for us”

“the deliveries are going to be slower in Brazil…You got to get on that learning curve. And that’s going to happen in these yards.”

“the rigs that we are building today and the rigs that we are delivering now and through the next couple of quarters, really are new designs or new rig floor layouts.”

“As I mentioned in my comments increasingly we see North America become more and more competitive, this inventory overhang issue has been out there.”

“I would add this rig efficiency phenomenon that everyone is being talking about we believe ultimately will grow the pie. It’s going to make some of the less economic basins now more attractive and more economic and so with ample financial resources and kind of growing opportunities perhaps in another basins you know we think that’s a pretty good backdrop to see expansion sometime out there in 2014.”

“things like drill pipe and downhole tools as long as well count is high which it has been those products get consumed and they get consumed pretty quickly. So there was a definitely an inventory overhang for both of those types of products, the downhole tools, and drill pipe. We will work through that at some point in time next year and we will start to see more demand for those products. As you get into the more consumable type items like fluid end expendables, valve, seat liners, pistons. Those are probably going to be consumed as customers need them as opposed to really building up inventory levels, because there is ample supply out there”

“yes, I mean, our customers are pretty busy. They have ordered a lot of rigs. They have a lot of projects underway. Well, time will tell where we end up next year. But I think bigger picture and this is some of the part of the themes that I touched on in the opening comments where it’s an enormous opportunity out there. And with high commodity prices, we are seeing a lot of oil companies, lot of drillers avail themselves to these opportunities. And so we think again, the backdrop, the fundamentals are very strong, day rigs are strong, financings available, the shipyard infrastructure is offering holes at very, very low cost. The risk around building these things is low. And so you are seeing drillers go after that opportunity and grow their businesses by investing in these assets.”

“you take all the floaters that were in existence prior to 2005 and you add all the floaters built since 2005 and you add all the floaters that are on order to be built. You are almost up to half of the rigs working in the state of Texas to go out and drill up the rest of the – two-thirds of the planet covered by deepwater. So we think that’s again a huge opportunity.”

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