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National Oilwell Varco credits international, offshore markets for strong Q2

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National Oilwell Varco credits international, offshore markets for strong Q2

Houston-based oilfield services company National Oilwell Varco Inc. said July 26 that it saw a second-quarter gain, on a GAAP basis, of $24 million, or 6 cents per share, beating the S&P Capital IQ consensus estimate calling for EPS of 2 cents.

The results also stacked favorable against a first-quarter loss of $68 million, or 18 cents per share.

Consolidated revenue for the quarter was $2.11 billion, an increase of 17%, or $311 million, sequentially, with all three major business segments posting double-digit revenue growth sequentially due to stronger second-quarter demand in most major international markets and renewed activity offshore.

Across the sectors, the Wellbore Technologies unit saw revenue of $793 million, up 12% quarter on the quarter and up 29% on the year. Revenue for the Completion & Production Solutions segment climbed 10% quarter on quarter and 13% year on year to $738 million. The Rig Technologies business generated revenues of $651 million, up 35% on the quarter and up 19% from the same period in 2017.

The Rig Technologies unit, a standout performer, has "traced out a pretty stable business" in the $500 million to $700 million range, after declining over 80% from 2015 to 2017, CFO Jose Bayardo said during the company's July 27 earnings call.

Nearly half of the segment's second-quarter business was comprised of aftermarket sales. Aftermarket revenues increased 14% sequentially, achieving the highest level since the fourth quarter of 2015. EBITDA leverage was 23%, resulting in a $39 million increase in EBITDA to $84 million, or 12.9% of sales, Bayardo said.

The other half of the business was comprised of capital equipment. After finalizing the creation of its joint venture with Saudi Aramco during the quarter, the company received an order for 50 rigs for the kingdom, the largest land rig order ever placed, Bayardo said. The segment also sold three drilling rigs into the Vaca Muerta unconventional shale play in Argentina, and since the quarter closed, an additional rig was sold in the Middle East.

The business is also transitioning to a better balance between land and offshore, Bayardo said.

In the U.S., at $25,000 per day, land-rig day rates imply support from smaller spec domestic drillers for super spec new builds, while larger contractors focus on upgrading existing equipment. Demand is also rising for higher capability well-servicing rigs in the U.S., the CFO said.

Offshore equipment orders improved 42% during the quarter and growth is expected to support gains into 2019. In the offshore market, "We are seeing indications and a lot of bidding and discussions," CEO Clay Williams said during the call. He noted that one of the majors, Exxon Mobil Corp., Chevron Corp., BP PLC or Royal Dutch Shell PLC, "told me about three weeks ago that their Deepwater, offshore portfolio now is probably more compelling economically than their unconventional portfolio." Although cautious, Williams said is excited about the market.

Bayardo said that while he is excited about offshore possibilities and sees improvement in 2019, there is also an international land market, "that is really just getting started."

In the U.S. land market, the Permian basin offers some challenges, driving a little softer outlook over the next couple of quarters, Bayardo said. "But I do think on the whole, it's going to be immaterial to [National Oilwell Varco] at this point." He said that the current level of operations consumes a lot of equipment and the company is still having conversations with pressure pumpers for replacement and support for equipment.

National Oilwell Varco stock was up $3.95, or 9.29%, at $46.47 per share in afternoon trade on the NYSE.