Deepwater revival to outpace North American shale as economics shift: NOV

Oilfield services company NOV, formerly known as National Oilfield Varco, is projecting a deepwater revival to begin in late 2026 driven by improving deepwater economics that the company believes now offer lower marginal costs than North American shale production.

The company sees two major structural shifts creating growth opportunities over the next decade: the globalization of unconventional shale development and the emergence of deepwater as the cost leader in oil and gas production.

"After years of second-place finishes and the marginal cost horse race, deepwater is back to winning," CEO Clay Williams said during the company's third-quarter earnings call. "Simply put, we believe that deepwater broadly has brought marginal cost below North American shales."

As offshore production becomes more competitive than land, NOV believes this change will drive investments in deepwater through the decade to satisfy growing global demand.

Williams said offshore final investment decisions are expected to increase over the next few years following a lull in 2025, with the company's deepwater FEED study discussions supporting this outlook.

"Evidence of this is apparent exploration success stories in new basins in Guyana, Suriname, Namibia, Senegal, the Eastern Mediterranean and the Paleogene in the Gulf of America," Williams added.

The company highlighted growing interest in unconventional shale developments internationally, with Argentina, Saudi Arabia and the UAE leading the way.

For deepwater operations, NOV cited steady improvements since 2012, including more efficient drilling by NOV-supplied offshore rigs, higher hook load capacities enabling cost-effective casing programs, and standardization of subsea production equipment and FPSO designs.

Production economics shift toward offshore

NOV reported that bookings tied to offshore development are already up double digits year over year, even as North American E&P companies have trimmed short-cycle oil activity that is likely to slow further seasonally in the fourth quarter. The company attributed this divergence to fundamental changes in production economics.

NOV had observed a rapid recovery in activity following the pandemic, demonstrated by demand for shorter-cycle products and services--especially in North America.

The company's energy products and services segment contributed around 60% of NOV's adjusted EBIDTA in 2023 as a result.

Since then, however, NOV has seen a slowdown in North American demand that's been offset consistently by growing activity in offshore and international markets.

Drilling activity drove this segment, outperforming underlying global rig count declines of 8% year over year.

Williams added that North American unconventional shale has provided over 80% of global supply growth since 2012, but that as North American shale producers have depleted Tier 1 inventory locations, production growth is flattening and may be peaking.

The shift toward lower quality Tier 2 locations is pushing marginal costs higher for North American unconventional shales, creating opportunities for alternative sources.

Subsea flexible pipe orders are destined for projects in the Black Sea, Guyana and Brazil, including a second contract award.

NOV also reported progress in rig automation technology, positioning the company to benefit from the industry's push toward more efficient drilling operations.

Revenues during the quarter were down less than 1% year over year despite what Williams called a "challenging macro environment and softening oil activity." EBITDA was $258 million, or 11.9% of revenue.

While they maintain their optimism for offshore competitiveness based on partnerships with offshore drillers and IOCs both, they also think that the year's results are likely to be tempered by continued slowing of activity here in North America and globally.