National Oilwell Varco reported a third quarter 2017 net loss of $26 million, or $0.07 per share. Revenues for the third quarter of 2017 were $1.84 billion, an increase of four % compared to the second quarter of 2017 and an increase of eleven % from the third quarter of 2016. Operating loss for the third quarter was $7 million, or 0.4 % of sales.
Adjusted EBITDA (operating profit excluding other items before depreciation and amortization) for the third quarter was $167 million, or 9.1 % of sales, an increase of $25 million from the second quarter of 2017. Cash flow from operations for the third quarter was $232 million.
Source: National Oilwell Varco
“Our team delivered solid results in the third quarter as higher sequential sales of Wellbore Technologies and Completion & Production Solutions products enabled NOV to overcome a retrenchment in rig equipment demand,” commented Clay Williams, Chairman, President and CEO. “Despite weak commodity prices through the quarter, and the significant disruption of Hurricane Harvey along the Gulf Coast, NOV delivered 18 % more Adjusted EBITDA as compared to the prior quarter, due in part to the Company’s pivot into new products that are gaining traction globally. We continue to pioneer new, safer and more efficient ways to develop and produce oil and gas in a low commodity price world.”
Rig Systems generated revenues of $330 million, a decrease of five % from the second quarter of 2017 and a decrease of 30 % from the third quarter of 2016. The commodity price pullback that began late in the second quarter and the subsequent activity declines led customers to limit capital spending to only the most essential of items, resulting in deferred deliveries and limited new equipment orders. Operating profit was $11 million, or 3.3 % of sales. Adjusted EBITDA was $28 million, or 8.5 % of sales, an increase of eight % sequentially and a decrease of 44 % from the prior year.
During the third quarter, the Company agreed with a customer to cancel two jackup drilling equipment package orders in exchange for firm commitments to continue forward with several other jackup packages the customer has under contract, retention of down payments, and other consideration. The agreement resulted in the deletion of approximately $100 million from the segment’s backlog and a small gain that contributed to the segment’s sequential EBITDA improvement.
Backlog for capital equipment orders for Rig Systems at September 30, 2017 was $2.01 billion. New orders during the quarter were $84 million.
Rig Aftermarket generated revenues of $311 million, a decrease of nine % from the second quarter of 2017 and a decrease of three % from the third quarter of 2016. Revenue declined sequentially as drilling contractor customers curtailed aftermarket spending in response to uncertain near-term market conditions, contributing to lower spare parts orders and a slowing pace of rig reactivations and upgrades. Operating profit was $64 million, or 20.6 % of sales. Adjusted EBITDA was $69 million, or 22.2 % of sales, a decrease of 17 % sequentially and a decrease of 15 % from the prior year. Product mix contributed to EBITDA declines.
Wellbore Technologies generated revenues of $693 million, an increase of 13 % from the second quarter of 2017 and an increase of 32 % from the third quarter of 2016. Rising levels of scarcity for the critical products and services the segment provides combined with increased market adoption of the segment’s new technology introductions resulted in revenue growth that outpaced rig count growth in the same period. Operating profit was breakeven. Adjusted EBITDA was $94 million, or 13.6 % of sales, an increase of 42 % sequentially and an increase of $68 million from the prior year. Higher volumes resulted in 35 % adjusted EBITDA incrementals (the change in adjusted EBITDA divided by the change in revenue).
Completion & Production Solutions
Completion and Production Solutions generated revenues of $682 million, an increase of five % from the second quarter of 2017 and an increase of 26 % from the third quarter of 2016. The segment’s land-related businesses benefited from rising demand in North America and the Middle East. Operating profit was $44 million, or 6.5 % of sales. Adjusted EBITDA was $97 million, or 14.2 % of sales, a decrease of one % sequentially and an increase of 126 % from the prior year. Product mix and pricing impacted EBITDA margins.
Backlog for capital equipment orders for Completion & Production Solutions at September 30, 2017 was $974 million. New orders during the quarter were $463 million, representing a book-to-bill of 119 % when compared to the $388 million of orders shipped from backlog. Nearly all of the segment’s business units secured orders near or in excess of 100% book-to-bill. Included in the order book was a record-large order for spoolable composite pipe and over 100,000 HP of pressure pumping equipment.
Significant Events and Achievements
Using NOV completions tools technologies, a major operator completed a record-setting long-string completion in the Kingdom of Saudi Arabia. The NOV i-Frac CEM ball-drop-activated multistage frac sleeves and Burst Port System toe sub allow for efficient proppant fracturing that mimics plug-and-perf techniques. Run as part of the cemented production casing, the tools were used to complete the first four toe stages in the ultra-long-reach horizontal well, an area that would have been inaccessible using traditional completion methods. NOV is the first company to qualify this technology in Saudi Arabia.
NOV’s recently-established directional measurement and steerable technologies business continued to grow in the third quarter, as the Company secured multiple orders in key international markets for its Tolteq mud-pulse measurement-while-drilling (MWD) tools, including the first sales of the Company’s iSeries MWD kits into the UAE and Russia. The third quarter also marked the Company’s first commercial run of its 9⅝-in. VectorEXAKT rotary steerable system and the customer’s subsequent selection of the tool for future wells.
NOV booked additional orders of hydraulic fracturing equipment, bringing the Company’s total pressure pumping equipment orders above 400,000 HP year-to-date. Recent orders included two complete 50,000-HP frac spreads, several blenders, and a number of discrete pieces of support equipment, including hydration units and liquid additive systems. Additionally, the Company received customer commitments for extensive refurbishment programs, bringing committed refurbishments to over 100 frac units year-to-date.
To achieve even higher levels of safety, NOV introduced a new version of the Company’s Tuboscope WellChek on-site tubing inspection system. The new TuboChekC1D1 unit is the first of its kind to receive Class 1, Division 1 Certification as manufactured, indicating it is safe to use in explosive atmospheres. The new design also replaces the gamma radiation system traditionally used to detect tubing wall loss indicative of rod wear with a proprietary magnetic system. These changes will allow NOV to expand its wellhead inspection business into new global markets.
NOV booked the largest single order of Fiberspar spoolable line pipe in the Company’s history for a customer in Saudi Arabia. Since embracing the technology as a corrosion-free, lightweight, easy-to-install solution for corrosive gathering and injection applications two years ago, the customer has ordered over 1,000 miles of Fiberspar line pipe. NOV will soon be able to manufacture Fiberspar spoolable products and other composite products, like STAR glass-reinforced epoxy (GRE) high-pressure line pipe and downhole tubing and casing, in-country when the Company finishes construction of its new manufacturing facility near the city of Dammam.
NOV began producing 60-in. fiberglass fittings in Southeast Asia for a floating LNG terminal, marking a notable expansion of NOV’s composite fittings capabilities from 40-in. diameter products. The new fittings are the largest-diameter GRE composite product NOV manufactures.
NOV’s customized drill bits with industry-leading shaped cutter technology continue to set field records around the world. In West Africa, an integrated oil company achieved record rate of penetration (ROP) with a 12¼-in. TK66 Tektonic fixed cutter bit fitted with Helios polished cutters. The bit reached total depth in a single run, drilling 7,000 ft in 24 hours, while building inclination from 17 to 60 degrees at a 2.5-degree dogleg severity. The bit also set the field interval record per run of 10,767 ft. In the Middle East, a Tektonic Chainsaw bit fitted with ION 3D cutters set a field record for ROP, outperforming the previous best record by twelve %. First trialed in the US last quarter, the Chainsaw cutter configuration features 3D cutters on the primary blades to pre-fracture the formation and cylindrical ION cutters on the secondary blades to shear any remaining rock, a combination that improves ROP and overall drilling efficiency.
NOV successfully trialed ReedHycalog Hercules roller cone bits designed to provide stable, reliable directional performance in interbedded and intrusive formations. The enhanced lug design features increased shirttail protection for improved durability, stability, and more effective seal life. In the Utica, the 12¼-in. Hercules bit drilled the entire intermediate section in a single run, setting an operator record by drilling 46 % faster than all other one-run intermediate sections year-to-date.
NOV booked meaningful orders for its tubular coating and inspection services in Abu Dhabi, where the Company opened a Tuboscope facility earlier this year. The Company booked a large order for 100,000 ft of TK Liner products, composite liners designed to protect new and used oil country tubular goods and flowlines in corrosive environments, and began production and delivery of the tight-lead-time order during the quarter. The Company also booked multiple new orders totaling over 90,000 pieces of Thru-Kote insert sleeves designed to protect the internal coating of welded pipelines.
NOV designed, manufactured, and delivered a 5,000-psi dual-bore surface test tree that provides surface well isolation using an emergency-shutdown actuated-valve technology for use capping depleted wells in Australia. The Company delivered the highly engineered, custom solution with a short lead time to help provide the customer’s rig floor personnel a fail-safe condition during well abandonment operations.
NOV booked meaningful awards for its solids control and waste management equipment and services in Latin America. In Mexico, NOV booked an order for a Brandt THOR-8 indirect thermal desorption system, which uses indirect heat and evaporation to remove oil from oil-based mud drill cuttings, returning recovered oil to the operator for reuse in the drilling fluid and leaving clean cuttings with less than one % residue for safe disposal. NOV is the leading global provider of thermal desorption systems and services for the treatment of drilled cuttings. In Argentina, a major operator awarded NOV several multi-million dollar, multi-year contracts to provide drilling fluids and solids control and drilled cuttings drying services, positioning the company as a top-tier drilling fluids provider in the region.
Other Corporate Items
As of September 30, 2017, the Company had $1.72 billion in cash and cash equivalents and total debt of $3.21 billion. NOV had $3.0 billion available on its revolving credit facility as of September 30, 2017. The unsecured credit facility matures in June of 2022 and is subject to one primary covenant, a maximum debt-to-capitalization ratio of 60 %. As of September 30, 2017, NOV had a debt-to-capitalization ratio of 18.5 %.