National Oilwell Varco Inc. (NOV) expects first quarter revenues to be down 20% sequentially as market conditions continued to deteriorate from the fourth quarter. The company also reduced its quarterly dividend to 5 cents/share.

The Houston-based global oilfield services company manufactures and sells equipment and components used in oil and gas drilling, as well as provides production operations to the upstream industry.

“We believe reducing the dividend is in the best interest of our company and our shareholders as we continue to work our way toward the bottom of this severe downcycle,” CEO Clay Williams said. “Substantial decreases” in exploration and production capital spending plans “are driving activity levels to new record lows, resulting in significantly diminished demand for equipment and services.”

Based on preliminary information, 1Q2016 revenue is expected to decline by 20% from 4Q2015 revenue of $2.7 billion (see Shale Daily, Feb. 3). Executives in February said they didn’t expect a recovery in the oil and gas market before 2017 as customers were cannibalizing equipment and had delayed picking up orders.

The near-term outlook remains challenging, Williams said. However, NOV “remains strong financially,” with total debt falling by more than $500 million between January and March. The decision to reduce the dividend is expected to improve future net cash flow by about $615 million/year.

“We believe the dramatic reductions in capital spending are accelerating global production declines, setting the stage for a recovery in demand for NOV equipment and technologies,” said Williams. “Reducing our dividend will allow us to preserve capital to invest in future growth opportunities and enhance the core capabilities our customers will need when industry activity increases.”