By LYNN COOK
Need coiled tubing, winches or mud pumps? Call National Oilwell Varco,
the self-styled Wal-Mart of the oil patch.
Its executives make the comparison because the Houston-based company
manufactures and services virtually every piece of equipment used in
oil and gas drilling on land and at sea.
Thanks to solid revenue growth, an outstanding market return and
earnings per share that nearly doubled in 2007, National Oilwell Varco
landed in the No. 1 spot on this year's Chronicle 100 list of Houston's
top publicly traded companies. It ranked No. 24 last year.
The company, listed on the New York Stock Exchange, started last year
trading around $29 a share and ended the year above $73 — and that was
after a 2-for-1 stock split.
National Oilwell Varco is an amalgamation of two historic energy
outfits — National Oilwell and Varco, which merged in 2005. Separately
and now together, they have acquired more than 150 companies over the
last decade, snowballing into a sprawling enterprise that reaches
around the world.
The company's latest acquisition: the $7.3 billion purchase of Grant
Prideco, a Houston-based manufacturer of drilling bits and piping. That
agreement was completed last month.
The ink was barely dry on that deal when National Oilwell Varco
Chairman and CEO Pete Miller said he had an appetite for more.
"From our viewpoint, we clearly believe we know how to do acquisitions
and do it very well," Miller said. "We think there could be another
opportunity to do one every bit as big as Grant Prideco if it makes
sense."
That's saying a lot. Last winter, when National Oilwell Varco announced
that it had designs on its hometown rival, some investors got jittery.
According to a report by analysts at Natixis Bleichroeder, the market
was brooding about North American drilling, which appeared mired in a
slump.
Kevin Chapman, National Oilwell Varco's vice president for business
development for rig solutions, said demand for land drilling did slack
off for 18 months.
But it has come roaring back this year, thanks to oil breaking the
$100-a-barrel threshold and natural gas rebounding to more than $10 per
million British thermal units.
Look no farther than the company's Galena Park fabrication yard as
evidence.
The scrap of land bordering the Houston Ship Channel has more than a
dozen rigs in various states of assembly. Crews swarm the giant metal
installations, assembling them, testing them and then breaking them
down to be shipped far and wide.
Historically, drilling companies have ordered customized rigs that can
take a year or more to design and build. Many still take that long, but
land drilling is so hot today, especially in North America, that
National Oilwell Varco is turning out its trademarked Ideal Rig system
in as little as three months.
The Ideal Rig has thousands of parts, and National Oilwell Varco makes
95 percent of them — everything but the engines and air compressors.
National Oilwell Varco's business is split between overseas and North
American operations, which include the U.S. and Canada. That's about to
change, thanks to the Grant Prideco addition.
Miller said he expects international operations to account for 70
percent of business in five years as overseas drilling continues to
expand and the Grant Prideco merger takes the company into new
territory.
Some of the hottest contracts National Oilwell Varco is working on now
involve rigs for major natural gas plays, including drilling in the
Algerian desert and in Russia, where the company recently signed a $400
million deal to build two floating rigs for the Shtokman field in the
Barents Sea.
Clay Williams, the company's chief financial officer, said snapping up
smaller rivals doesn't just take National Oilwell Varco into new
markets. It can mean striking technological pay dirt.
The Natixis Bleichroeder report points to one gem of the Grant Prideco
acquisition — the IntelliServ Network. Analyst Jeff Spittel calls it "a
potentially game-changing technology" with great promise for future
profits.
IntelliServ embeds a fiber-optic measuring system in drill pipe that
tells operators on the drill floor exactly what is going on thousands
of feet below at the drill bit. The instantaneous data feeds should
mean more precise drilling and could prevent blowouts.
"Every single thing we do is geared toward safety and efficiency," said
Chapman, the rig solutions vice president.
It doesn't take a geologist or an oil sector engineer to figure out that oil / energy-based companies are in demand in this era of elevated energy prices. And when these companies need parts for maintenance, that's where National Oilwell Varco (NYSE: NOV) comes in.
National Oilwell designs, manufactures and markets components and systems used in oil and gas drilling/production. Here's a telling statistic regarding NOV's involvement: more than 90% of mobile offshore rigs and a majority of land rig use components manufactured by NOV. Those are Microsoft (NASDAQ: MSFT)-type usage numbers.
In general, analysts see continued, strong EPS growth for NOV: the growth in offshore rig newbuild orders may decelerate in 2008, but overall orders should nevertheless remain strong in 2008. The Reuters F2007/F2008 EPS consensus estimates for NOV are $3.72/$4.53.
Another positive: It's important to note that slowing newbuild orders will not spell the end of NOV's solid returns on equity. The reason? The world's stock of rigs is deteriorating, with the average rig exceeding its designed life expectancy. In other words, there are lots of older rigs in use, replacing or upgrading these rigs will generate substantial work for NOV, and these tasks are destined to remain high-margin activities.
The First Call mean rating for NOV is: Buy. [19 firms.] Mean 2008 target: $81.30. [high: $90, low: $63.]
Stock Analysis: National Oilwell is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than one year should be rewarded from NOV's shares. Sell / Stop Loss if you were to purchase shares in this company: $49.
By Jim Licato
Sep 04, 2007
National Oilwell Varco, Inc. (NOV), which was last presented as a Value pick on Apr 4, has returned over 60%. The consensus earnings estimate for this year currently sits at $7.20 and marks a four-cent increase over the past week. Estimates for next year have risen six cents to $8.48 over the same period of time. NOV has exceeded analysts' earnings expectations for the past six quarters
National Oilwell Varco (NOV: 108.65, +5.53, +5.4%), a maker of rig components and rig-related products. While the shares are up 83% over the past year, it's still the No. 1 pick in the industry for Stifel Nicolaus oil services analyst Thaddeus Vayda. The case for the stock is simple: National Oilwell Varco provides the widest range of drilling products in the industry. And since the current U.S. drilling fleet is about 20 years old, a lot of the parts it makes need replacing. On top of that, says Vayda, "The rigs in Russia, Kazakhstan and the Caspian Sea make our U.S. equipment look brand new."
Some analysts counter that the rig component business is cyclical — that is, tied to oil prices — but with oil showing little sign of retreat, replacement becoming increasingly necessary and deep-water drilling running full speed ahead. The stock trades at 13 times 2008 earnings now, but that multiple should rise along with earnings. Vayda's price target for the stock is $145.
National Oilwell Varco, Inc. (NOV) is a worldwide provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. The Company operates in three segments: Rig Technology, Petroleum Services & Supplies, and Distribution Services. The Rig Technology segment designs, manufactures, sells and services complete systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides a variety of consumable goods and services used to drill, complete, remediate and workover oil and gas wells, service pipelines, flowlines and other oilfield tubular goods. The Distribution Services segment provides maintenance, repair and operating supplies, and spare parts. In March 2006, NOV acquired Soil Recovery A/S. In November 2006, it acquired Rolligon Ltd. In December 2006, it acquired 87% of NQL Energy Services In
/25/2007 3:35:15 PM Wednesday, National Oilwell Varco, Inc. (NOV), a fuel equipments and services company, announced financial results for the second quarter, reporting a steep rise in net income on 44% increase in total revenue and higher gross profit.
National Oilwell's net income for the second quarter climbed to $318.5 million or $1.79 per share from $147.9 million or $0.84 per share in the same quarter of the previous year. On average, twenty-one analysts surveyed by First Call/Thomson Financial projected the company to earn $1.54 per share.
The company reported that its total revenue of $2.38 billion was 44% higher than $1.66 billion in the preceding year quarter. Of this, Rig technology revenue climbed 67% to $1.41 billion from $845.3 million in the year-ago quarter, Petroleum services revenue was $746.1 million, up 26% from $589.9 million in the last year quarter, Distribution services revenue of $344.8 million was 8% higher than $319.1 million in the same quarter of the prior year and elimination expenses rose to $115.2 million from $97.4 million in the year earlier quarter. Ten analysts, on average, estimated the company's revenue of $2.22 billion.
The company reported that its second quarter gross margin was $683.8 million or 28.7% of revenue, up from $400.7 million or 24.2% of revenue in the comparable quarter of the earlier year.
National Oilwell's operating profit for the second quarter was $497.2 million or 20.8% of revenue, compared to $246.6 million or $14.9% in the same quarter a year ago. Unit wise, operating profit of Rig technology mounted to $340.8 million from $134.1 million in the year prior quarter, Petroleum services rose to $177.8 million from $127 million in the same quarter a year earlier and Distribution services were $23.1 million compared to $20.2 million in last year quarter.
The company's earnings before interests, taxes, depreciation and amortization improved to $555.5 million from $275.9 million in the equivalent quarter of the earlier year.
National Oilwell stated that its selling, general and administrative expenses of $186.6 million was higher than $154.1 million in the comparable preceding year quarter.
For the six-months period, National Oilwell's net income surged to $594.4 million or $3.36 per share from $268.2 million or $1.52 per share in the corresponding previous year period.
The company's total revenues for the first half-year period were $4.55 billion compared to $3.17 billion in the same period a year ago.
NOV currently trades at $123.43, up $11.11 or 9.86% from Tuesday's closing of $112.33.
David L. Wolf submits: National Oilwell Varco, (NOV) is perhaps the dominant player in the world of drilling equipment and services. NOV provides virtually every possible product and service to a variety of drilling activity. From tools, pumps, technical equipment and tubing, right down to pair of work gloves anything that helps a crew explore complete or develop an energy asset comes from National Oilwell Varco.
The fundamentals are compelling, the company trades at 14 times projected earnings, and estimates suggest the company will grow at 28% annually for the next 5 years. Quarterly revenue growth is 43% year over year and the resulting quarterly earnings growth is 129% from the previous year. Net income reported in the past 4 quarters has grown from $147.9 million to $275.9 million, an increase of 86%.
Consider the following:
Global demand for oil services and equipment significantly exceeds capacity.
Long term debt is less than 5% of the net worth of the company.
This company has consistently beaten analyst’s earnings expectations.
It has a strong contract backlog extending into the next decade.
This company has a history of smart acquisitions, which has significantly expanded its capabilities and global footprint. If you believe as I do, that more drilling activity whether its oil or gas, land based or offshore, is both necessary and inevitable, then NOV is almost certain to be a strong beneficiary.
In 2006 National Oilwell Varco Inc (NOV) generated $7.02B in revenue. Half came from drilling equipment for new rigs and upgrades and half the revenue was generated from consumables and replacement parts for existing land and floatable rigs. Competitors (sometimes clients) are Schlumberger (SLB), Halliburton (HAL) and Baker Hughes (BHI).Though we anticipate a slowdown in new land rig production, we expect the floatable segment and refurbishing division to grow considerably. There is a noticeable trend that more rigs are being used to produce the same amount or less crude (source: Baker Hughes monthly global rig count). Over the past two months, the Gulf of Mexico rig count has declined as companies moved available equipment elsewhere, including African west coast offshore sites. Rig rates have been increasing ahead of analyst expectations.
This implies two things. First, rig rates increase when demand outstrips supply. Second, though the Gulf's proximity to refineries makes the location attractive, apparently well flow has declined to the point that it pays to dismantle, haul rigs and set up shop on the other side of the Atlantic. Taking into account the added tanker transportation expense, the Gulf's production situation may be worse than is being reported.
NOV equipment can be found in over 70% of all rigs, primarily consumables. This bodes well for NOV as the global rig count increases. Mud pumps wear out. The deeper the bore, the more consumables are consumed. In the future, deep water wells will be coming on line increasing NOV's sales. NOV doesn't build [deep water] platforms yet supplies builders like Transocean (RIG) with drilling systems and parts.
We like the product and sales mix. This assures some stability in revenue in an otherwise non-predictable environment. To assist sales, NOV has some of the coolest gadgets on the market. "Cyberbase, which resembles the flight deck of an airliner, allows oil rig operators to take complete control of complex drilling machinery from a single chair. The introduction of Sniffer InfiniStream from Network General effectively creates a flight recorder which enables users to track back and quickly solve any operational anomalies quickly" (OilOnLine 10/03/2006).
Assuming that no new Saudi style vacuum pump fields are discovered over the next two years, estimated EPS for 2007 and 2008 are $5.40 and $6.50. 2008 estimations take into account inflationary pressures. The above assumption is practically a given.
ROE jumped to 14.8% (2006) from 10.5% (2005) from 9.2% (2004). We see this trend continuing in 2007. NOV's ROE is at the low end when compared with its market cap peer group. Tenaris (TS) 46.2%, Grant Prideco (GRP) 39.3% and BJ Services (BJS) 34.7% lead the pack.
