National Oilwell Varco profits up 16 percent, despite drop in U.S. drilling

Although some oil field equipment companies have reported lower profits in the face of a drilling slowdown, National Oilwell Varco bucked the trend Friday, reporting net income of $668 million for the fourth quarter of 2012, up 16 percent from the fourth quarter of 2011.

Net income for the year was $2.5 billion.

But the company’s executives warned that sluggish North American land drilling could dampen growth in 2013, despite strong sales offshore and internationally.

“We are hoping for recovery in North America, but we have yet to see it,” Chief Financial Officer Jeremy Thigpen told analysts during a conference call Friday.

Earnings per share for the quarter were $1.56, beating the average analyst estimate of $1.44 per
share.

Still, the company’s stock was down more than 4 percent by early afternoon.

Chairman and CEO Pete Miller also warned of “near-term headwinds” but predicted that international shale drilling will take off sooner than many people expect and said the company is positioned to capture its share of that market.

Pollution in China may speed efforts there to develop shale drilling for natural gas, he said. “The quick fix (for the pollution) … is called natural gas.”

He also suggested that Chinese shipyards are poised to enter the offshore drilling market and said National Oilwell Varco is ready to work with them.

The Houston-based equipment manufacturer reported strong growth in its rig technology segment, with fourth-quarter revenues of $2.9 billion, up 25 percent from the fourth quarter of 2011.
Backlog for capital equipment orders for the segment at the end of the quarter were a record $11.86 billion, according to the company, while new orders for the quarter were $2.4 billion.

Some analysts questioned why National Oilwell Varco weathered the U.S. drilling slowdown better than some of its competitors, who have reported declining earnings for the fourth quarter.

Clay Williams, who was named the company’s president and chief operating officer in December, said strong international and offshore sales helped. So did the backlog of orders in its rig technology division, the company’s largest division, he said.

James Crandell, an analyst with Dahlman Rose & Co., said he took Miller at his word when the CEO said he expects 2013 to be another strong year.

“He’s been CEO of NOV almost 10 years, and I don’t know if there’s been anyone better over that decade for delivering earnings,” Crandell said. “He’s a great strategic thinker, but he’s also great at operations.”

Miller presided over a number of acquisitions during 2012, too.

Williams told analysts the company spent $2.9 billion on 17 transactions in 2012, intended to add geographic coverage and bring new opportunities.

Crandell said the company’s track record with acquisitions has been a good one.

But Williams and other executives warned that revenues are likely to flatten in 2013 unless drilling in the United States resumes.

“Overall, as you think about Q1 and the full year of 2013, the outlook for offshore, new rigs and even jack-ups is encouraging,” Thigpen said. “We need activity to pick up in North America.”