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National Oilwell Varco: 'Good Demand' for Oilfield Equipment

Demand for drilling equipment in North America's onshore continues to be strong, with the backlog of capital equipment orders in rig technology in the final three months of 2011 double year-ago levels, National Oilwell Varco Inc. (NOV) reported Thursday.

Houston-based NOV designs, manufactures and sells an array of equipment for oil and gas drilling and production operations in the onshore and offshore. The backlog for capital equipment orders from the Rig Technology segment totaled $10.16 billion at the end of 2011, and while that figure is twice the level that it was in calendar 4Q2010, it is down 1% sequentially 3Q2011.

New rig equipment orders in the last quarter totaled $1.67 billion, "reflecting continued good demand for oilfield equipment," NOV said.

However, that order figure was down $2.27 billion quarter/quarter, which led to an estimated book-to-bill ratio of 0.94, the first time the ratio has been below 1 since 2Q10. A book-to-bill ratio generally infers that backlog is growing, while a ratio below 1 suggests backlog is declining.

NOV is not the only rig builder to see a recent slowdown in the pace of its new orders. On Tuesday, Helmerich & Payne reported that it received new build orders for just three of its FlexRigs in 4Q2011, down from 17 in 3Q2011 and 32 in 2Q2011 (see Shale Daily, Feb. 2).

The company last year posted record revenues, net income and orders for capital equipment, "which at $10.8 billion for the year handily beat our previous high of $7.3 billion," said CEO Pete Miller. "We used the year to focus on efficiency and technology, while continuing to invest for future growth, to position NOV to capitalize on extraordinary opportunities emerging in the oil and gas industry."

NOV entered 2012 with a "solid backlog and an experienced team capable of delivering great service and products to our customers. We believe that the oil and gas industry will continue to need to upgrade the world's rig fleet..."

Despite the slowdown in NOV's new orders, analysts with Tudor, Pickering, Holt & Co. called NOV's results solid and said the Rig Technology results were "ahead of expectations on solid top line and operating margins." The amount of orders was "a bit below our $2 billion expectations but within the forecasting margin of error." The company is "setting up to be a good 2012 performer on a steady ramp in margins and re-acceleration in second half 2012 orders."

Net income totaled $574 million ($1.35/share) in 4Q2011, which was 8% higher sequentially and 30% more than the year-ago period when earnings were $440 million ($1.05). Net income totaled $1.99 billion ($4.70/share) in 2011, up from $1.66 billion ($3.98) a year earlier. Revenues jumped 14% sequentially to $4.26 billion. Operating profit, excluding transaction charges, totaled $860 million in 4Q2011, which was 11% higher sequentially. Operating profit flow-through, or the change in operating profit divided by the change in revenue, rose 16% from 3Q2011 and 22% from the year-ago period.

In the Rig Technology segment NOV's quarterly revenues climbed 18% sequentially and were one-third more than in 4Q2010. Revenue out of backlog jumped 26% sequentially and rose 40% year/year. The Petroleum Services & Supplies segment's revenues were up 8% sequentially and were 38% above the final period of 2010. Distribution & Transmission revenues also climbed, up 17% from 3Q2011 and 32% more than in 4Q2010.

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