National Oilwell Varco Reports Third Quarter 2020 Results
Net loss for the third quarter of 2020 improved $38 million sequentially to $55 million, or -4.0 percent of sales, which included non-cash, pre-tax charges (“other items,” see Other Corporate Items for additional detail) of $62 million. Adjusted EBITDA (operating profit excluding depreciation, amortization, and other items) decreased $13 million sequentially to $71 million, or 5.1 percent of sales.
“Despite the sharp contraction in demand for oil and gas-related products and services caused by the global pandemic, our team’s solid execution on cost reduction and working capital initiatives continues to exceed expectations, resulting in $323 million in cash flow from operations and a reduction in net debt to $339 million during the third quarter of 2020,” commented Clay Williams, Chairman, President and CEO.
“While our third quarter bookings were light and market conditions remain challenging, we are seeing some encouraging signals in the marketplace. In North America, we believe drilling activity has bottomed and is likely to rise modestly from current levels. In our international markets, we are seeing more of our customers return to work and fewer COVID-19-related logistical disruptions. As a result, our Rig Technologies and Completion & Production Solutions segments have both seen significant increases in tendering activity, giving us confidence that order intake is likely to improve in the fourth quarter.”
Wellbore Technologies generated revenues of $361 million in the third quarter of 2020, a decrease of 18 percent from the second quarter of 2020 and a decrease of 54 percent from the third quarter of 2019. The sequential decline in revenue was a result of a full quarter impact of sharp reductions in North American drilling activity that occurred during the second quarter and continued declines in international drilling activity. Operating loss was $50 million, or -13.9 percent of sales, and included $26 million of other items. Adjusted EBITDA was $21 million, or 5.8 percent of sales, as cost-savings initiatives limited decremental leverage (the change in Adjusted EBITDA divided by the change in revenue) to 26 percent.
Completion & Production Solutions
Completion & Production Solutions generated revenues of $601 million in the third quarter of 2020, a decrease of two percent from the second quarter of 2020 and a decrease of 17 percent from the third quarter of 2019. Operating profit was $25 million, or 4.2 percent of sales, and included $23 million in other items. Strong execution on international and offshore project backlogs partially offset declines in shorter-cycle businesses. Adjusted EBITDA decreased seven percent sequentially to $63 million, or 10.5 percent of sales.
New orders booked during the quarter totaled $169 million, representing a book-to-bill of 43 percent when compared to the $394 million of orders shipped from backlog. At September 30, 2020, backlog for capital equipment orders for Completion & Production Solutions was $789 million.
Rig Technologies generated revenues of $449 million in the third quarter of 2020, a decrease of six percent from the second quarter of 2020 and a decrease of 31 percent from the third quarter of 2019. Lower sales of rig capital equipment and aftermarket parts and services were partially offset by higher project revenues in the segment’s Marine Construction business, which continues to benefit from a growing number of offshore wind construction opportunities. Operating loss was $3 million, or -0.7 percent of sales, and included $12 million of other items. Adjusted EBITDA increased $14 million sequentially to $28 million, or 6.2 percent of sales.
New orders booked during the quarter totaled $57 million, representing a book-to-bill of 29 percent when compared to the $199 million of orders shipped from backlog. At September 30, 2020, backlog for capital equipment orders for Rig Technologies was $2.66 billion.
Other Corporate Items
During the third quarter, NOV generated $323 million in cash flow from operations and invested $49 million in capital expenditures. Additionally, NOV recognized $62 million in restructuring charges, primarily due to severance costs, facility closures and inventory reserves. See reconciliation of Adjusted EBITDA to Net Income.
On August 25, 2020, NOV completed a cash tender offer for $217 million of its 2.6 percent Unsecured Notes due 2022 using cash on hand. As of September 30, 2020, NOV had total debt of $1.82 billion, with $2.00 billion available on its primary revolving credit facility, and $1.49 billion in cash and cash equivalents.
NOV posted several notable wins in the offshore wind market including an order for the design and jacking system for the first Jones Act wind turbine installation vessel and another order for the design package of a large wind turbine installation vessel.
NOV was awarded a 10-year service contract by a major international oil company for its proprietary hot oil thermal desorption unit (HTDU) to treat oily drilling waste from rigs and FPSOs. The fully-automated system is the only system that handles waste with higher liquid contents that do not require dilution and will treat processed solids to the point that the client can dispose on-site or re-use the offtake in civil projects. Thus, the system will safely reduce the customer’s drilling fluid and handling expenses while also lowering its environmental footprint.
NOV introduced its Ideal™ eFrac offering to multiple customers and industry participants. The Ideal™ system is designed to accelerate the transition to environmentally-friendly electric fracturing by providing an eFrac option that has a total cost of ownership lower than not only other eFrac options currently in the market, but also lower than conventional diesel fleets. The Ideal™ system features a clean and simple rig up and significantly higher power density than its competition while maintaining the redundancy that efficient hydraulic fracturing operations require.
NOV continues to introduce new products and technologies that allow customers to achieve their ESG goals while concurrently improving their economics. NOV secured the first order for its Hydraulic Power Unit (HPU) Eco Boost system to a Norwegian drilling contractor. This system reduces power consumption by shaving power peaks on ring-line HPUs, simultaneously reducing emissions and lowering costs. In addition, NOV won a third order for its PowerBlade™ hybrid system to a Norwegian drilling contractor. The PowerBlade system captures the kinetic energy of the drilling hoisting system and recycles it to the rig’s power grid, reducing fuel consumption and lowering rig emissions.
NOV launched the Phoenix geothermal drill bit series, further expanding its footprint in the renewable energy market. The Phoenix drill bit series features high-performance ION-shaped cutter technology, advanced HydroShear™ nozzle design, thermal index modeling, and NOV’s TORC components for superior depth-of-cut control technology to increase torsional stability, all combined into one design platform to drill farther and faster in hard rock environments. NOV’s new 12½-in. Phoenix FTKC76 drill bit drilled to total depth (TD) in a single run on a well in Indonesia, even though it was drilling through a very hard quartzite formation. This run saved the geothermal operator approximately two rig days. The same drill bit was successfully used on another well in Indonesia and managed to drill through approximately 1,312 ft of quartzite and 492 ft of granite.
NOV continues to support customers in their performance improvement initiatives through NOV’s automation lifecycle management program. A land drilling contractor and a North American operator jointly published data documenting that the NOVOS™ reflexive drilling system enabled a 50 percent average connection time savings on a Permian Basin well. Additionally, a European operator reported that NOV’s automation program improved utilization significantly and slip-to-slip times by 25 percent on the multi-machine control (MMC) system on one of its drilling rigs.
NOV won a flexible pipe supply contract for the Sangomar Phase 1 project offshore Senegal. The contract covers up to eight dynamic risers to be installed in a lazy wave configuration and up to 47 associated jumpers and flowlines, equaling approximately 28km of flexible pipe and associated ancillary components.
NOV continues to push the boundaries of drill bit technology through its ReedHycalog business unit, enabling record-setting drilling performance in some of the world’s most challenging conditions. In Saudi Arabia, NOV’s 12¼-in. TKC66 Falcon™ design enabled a customer to extend the lateral from 10,000 to 16,000 feet and achieve the highest ROP in the Dammam field. In Qatar, an IOC customer utilized NOV’s 17½-in. TKC76 drill bit to achieve a record run that was the first one-bit run achieved on a deepened section to TD. Further, NOV’s premium ION™ SaberTooth™ 12¼-in. Tektonic™ drill bit design not only drilled one of the fastest runs thus far in a Guyana campaign, but, after the run, the bit was deemed re-runnable and will be used as the primary drill bit on the 12¼-in. section of the well.
NOV secured a contract with a drilling contractor in China to upgrade 15 jack-up rigs with 60 Brandt shakers. NOV’s reputation for performance and cost-effective solutions was the differentiating factor that led the customer to choose NOV above the competition.
NOV signed a joint industry project contract with two multinational energy companies to launch a two-year research project in Brazil for the development of a new deepwater subsea automated pig launcher (SAPL). This new SAPL will be based on NOV’s design that won the New Technology Award at the 2019 Offshore Technology Conference. The SAPL will be ready for 10 pigs and have a target water depth of 3,000 meters (compared to the previous maximum of 1,000 meters). NOV’s solution provides automated, unmanned pig launching, eliminating the need for a second flowline for pigging purposes and reducing vessel time, which in turn lowers costs and reduces CO2 emissions by approximately 80 percent.
Source: NOV, Inc.