National Oilwell Varco (ticker: NOV) reported a first quarter 2018 net loss of $68 million, or $(0.18) per share.
Revenues for the first quarter were $1.8 billion, a decrease of 9% compared to the fourth quarter of 2017 and an increase of 3% from the first quarter of 2017. Operating loss for the first quarter of 2018 was $1 million, or 0.1% of sales.
“During the first quarter of 2018 NOV benefitted from growing demand for short-cycle consumables and services in North America as oilfield fundamentals continued to strengthen,” commented Clay Williams, chairman, president and CEO.
“Unfortunately, however, the protracted budgeting cycle we saw early in the year led to a slower-than-anticipated start in our capital equipment businesses, and softness in our Eastern Hemisphere operations. This more than offset improvements in North America, snapping our six-quarter streak of steadily improving results.”
“We expect to be back on track soon,” Williams said, “as most of the capital equipment deliveries that were deferred by customers at the end of the quarter were accepted early in the second quarter, giving us confidence that the general upward trajectory of business will resume in the second quarter.
“Scarcity is returning to many corners of the oilfield,” Williams said.
Segments
- Wellbore technologies generated revenues of $711 million in the first quarter of 2018
- NOV continues to expand its scope of work on the Statoil Johan Castberg and Statoil Johan Sverdrup II developments
Completion and production solutions generated revenues of $670 million.
NOV said that the backlog for capital equipment orders for completion and production solutions as of March 31, 2018 was $1.01 billion.
New orders during the quarter, net of the cancellation of a large order for the recently terminated Ca Rong Do project in the South China Sea, were $324 million. This represents a book-to-bill of 84% when compared to the $384 million of orders shipped from backlog. Excluding the cancellation, book-to-bill was 90%, the company said.
Rig technologies generated revenues of $483 million and NOV said that the segment was adversely affected by reduced progress on new offshore rig construction.
However, operating profit was $18 million, or 3.7% of sales. The backlog as of March 31, 2018 was $2.05 billion and new orders booked during the quarter totaled $201 million, representing a 131% book-to-bill when compared to the $153 million shipped from backlog.
Conference call Q&A excerpts
Q: How will wellbore technologies fare in the Eastern Hemisphere?
CEO Clay Williams: We’re currently hearing of more interest out of the Middle East. Of course, the
Middle East through the downturn has remained at higher activity levels and seen less of a falloff. But what I’m hearing lately from in particular national oil companies across that region is they’re looking to the productivity gains that have been made in the Western Hemisphere and really focused on how to replicate those, and in particular, deliver the sorts of long laterals and highly productive wellbores that have been accomplished here in the United States, and so I think a lot of excitement there.
I’m also encouraged by recent developments in Asia. That region I think turned down harder than many others in the downturn and has been hit particularly hard. But in the last quarter or two, I think we’re getting some more interest there, and so that’s encouraging.
And then lastly, we referenced this in our prepared remarks. A lot of people are very focused on in particular the Vaca Muerta shale in Argentina and recognize that newer and more modern levels of technology need to be brought to bear to that formation I think to achieve the sort of results that producers in North America have achieved with unconventional. So again, there’s a lot to be encouraged about in terms of the uptake for the technology NOV offers.
Q: Can you talk more about footage drilled?
Williams: I appreciate you bringing that up, because as you know, wellbore technologies is
probably more driven by footage drilled than actual well count, and the industry continues to improve productivity per rig.
In fact, if you look at this over the long term, the footage drilled per active rig is up fourfold from where it was say 35 years ago, back in the early 1980s, so steady gains being made there. But in a lot of ways, that just means we’re consuming tools and rigs faster. As they say with cars, it’s not the age, it’s the mileage. And so that’s really what NOV benefits from.
Q: Good morning, guys. So, Clay, I’m sitting here thinking about this. We got oil up sharply
the last nine months. Brent is at $75 today. Every U.S. company we talk to is out of equipment, and most of them have depleted their inventories and I would assume that’s the case for offshore as well.
So what am I missing? Q1 seems to be very transitory in nature, and we should see a meaningful improvement in your business in the back half of 2018 and really going into 2019 given the later cycle and the lagging part of the buying phase that you exist in. What’s wrong with that logic?
Williams: I think that describes it perfectly. Obviously, as we mentioned, we’re disappointed
with Q1, but we do view it as largely transitory. The trends are intact. The only caveat I would make to what you just said is offshore there are a lot of stacked rigs, and so cannibalization continues. We did see a lot of encouragement in the first quarter around spare parts orders that point to maybe we’re near the end.
So I’m a little hesitant to say that our offshore customers are out of spare parts just yet. One quarter doesn’t make a trend, but certainly a really strong move on spare parts orders, up 22% sequentially in Q1, is pretty solid there.
I think you step back and you look at how the company evolves out of this downturn, I think we would have all predicted it would start with consumables and a lot of quick-turn items in wellbore technologies, which we’ve seen, that pricing leverage would return around those product lines, and then a little later in the recovery demand for capital equipment. So far, we seem to be on that progression.
