National Oilwell Varco is positioning itself to make acquisitions as persistent pain in the oil field services industry shakes out struggling companies and pries loose bargains, CEO Clay Williams said Wednesday.
“This is becoming a buyers market and we’re pretty excited about that,” he said, during a quarterly release of the company’s earnings.
To ride out the worst crude slump in years, the Houston-based oil field equipment supplier is deploying a two-pronged strategy: Cut costs wherever possible, including shuttering facilities, and invest in new technologies and businesses that would expand and strengthen NOV’s portfolio, Williams said.
The company made four small purchases during the third quarter, bolt-on acquisitions aimed at enhancing NOV’s wellbore and completions product solutions. But with its share buyback program now complete, NOV will shift its focus toward deal making in anticipation of the emergence of “extraordinary acquisition opportunities” in the oil field services and manufacturing industries, Williams said.
Wide disparities between the prices potential buyers are offering and the prices potential takeover targets think they’re worth have kept acquisitions to a minimum, Williams said. But NOV has remained “patient and disciplined in these discussions,” he said, and sees the lingering slump as the catalyst to narrow that so-called bid-ask spread.
“As the downturn has lengthened, we believe the value of potential target companies will become more and more compelling,” he said. “As we move into 2016, we believe sellers are likely to reduce their expectations.”
When asked by analysts to provide more detail about potential takeover targets or specific product lines under consideration, Williams demurred.
“I’m going to stay away from getting too specific, but we take a pretty broad view,” he said.
The revelation that NOV is gearing up for a large purchase comes as oil field services giants Halliburton and Baker Hughes continue to sell off pieces of their businesses in an effort to gain regulatory approval for their nearly $35 billion merger. Earlier this year, Halliburton announced plans to sell off its fixed cutter bits and roller cone drill bits, directional drilling, and logging-while-drilling and measurement-while-drilling businesses. Analysts at the time identified NOV as a potential buyer for oil field assets.
Halliburton said last week that it has entered the negotiation phase on the first round of divestitures, and continues to search for buyers for other assets on the auction block, including its expandable liner hangers business and Baker Hughes’ core completions business.
NOV’s strategy comes on the heels of a tough quarter for the company, in which profits fell 78 percent as falling oil prices and the plunging rig count sapped demand for rig parts, oil field equipment, and other tools the company provides.
Williams said the company predicts earnings to slip further in the fourth quarter as its customers — oil field services companies — brace for a further slowdown in the oil patch.
NOV posted earnings of $155 million, or 41 cents per share, during the three-month period ending Sept. 30. That’s down from $699 million, or $1.62 per share, during the same time last year. Revenues fell 41 percent to $3.3 billion.
NOV’s third quarter earnings included $57 million in pre-tax charges related to severance pay and facility closures, among other charges.