NOV INC. Introduction
NOV's extensive proprietary technology portfolio supports the industry's full-field drilling, completion, and production needs. With unmatched cross-segment capabilities, scope, and scale, NOV continues to develop and introduce technologies that further enhance the economics and efficiencies of energy production, with a focus on automation, predictive analytics, and condition-based maintenance.
NOV serves major-diversified, national, and independent service companies, contractors, and energy producers in 63 countries, operating under three segments: Wellbore Technologies, Completion & Production Solutions, and Rig Technologies.
Unless indicated otherwise, results of operations are presented in accordance
with accounting principles generally accepted in
Wellbore Technologies
The Company's Wellbore Technologies segment designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations, and offers services that optimize their performance, including: solids control and waste management equipment and services; portable power generation; managed-pressure drilling; drill pipe; wired pipe; drilling optimization and automation services; tubular inspection, repair and coating services; instrumentation; measuring and monitoring; downhole and fishing tools; steerable technologies; and drill bits.
Wellbore Technologies focuses on oil and gas companies and supports drilling contractors, oilfield service companies, and oilfield equipment rental companies. Demand for the segment's products and services depends on the level of oilfield drilling activity by oil and gas companies, drilling contractors, and oilfield service companies.
Completion & Production Solutions
The Company's Completion & Production Solutions segment integrates technologies for well completions and oil and gas production. The segment designs, manufactures, and services equipment and technologies needed for hydraulic fracture stimulation, including downhole multistage fracturing tools, pressure pumping trucks, blenders, sanders, hydration units, injection units, flowline, and manifolds; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; well construction, including premium connections and liner hangers; onshore production, including composite pipe, surface transfer and progressive cavity pumps, and artificial lift systems; and, offshore production, including floating production systems and subsea production technologies. The segment also manufactures industrial pumps and mixers.
Completion & Production Solutions supports service companies and oil and gas companies. Demand for the segment's products depends on the level of oilfield completions and workover activity by oilfield service companies and drilling contractors, and capital spending plans by oil and gas companies and oilfield service companies.
The segment also designs and manufactures equipment for industrial markets. This includes specialized, technology-driven progressive cavity pumps and mixers for a wide breadth of industrial end markets with high failure costs, premium pole products to support connectivity, lighting, and power for municipal and residential applications including 5G, smart-city infrastructure, roads and highways, and energy-grid modernization. Demand for these products is driven by general industrial activity and infrastructure spend.
Rig Technologies
The Company's Rig Technologies segment manufactures and supports the capital equipment and integrated systems needed to drill oil and gas wells on land and offshore as well as other marine-based markets, including offshore wind vessels. The segment designs, manufactures and sells land rigs, offshore drilling equipment packages, including installation and commissioning services, and drilling rig components that mechanize and automate the drilling process and rig functionality. Equipment and technologies the segment provides to customers include: substructures, derricks, and masts; cranes; jacking systems; pipe lifting, racking, rotating, and assembly systems; fluid transfer technologies, such as mud pumps; pressure control equipment, including blowout preventers; power transmission systems,
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including drives and generators; rig instrumentation and control systems; mooring, anchor, and deck handling machinery; major equipment components for offshore wind construction vessels; and pipelay and construction systems. The segment also provides spare parts, repair, and rentals as well as comprehensive remote equipment monitoring, technical support, field service, and customer training through an extensive network of aftermarket service and repair facilities strategically located in major areas of drilling operations around the world.
Rig Technologies supports land and offshore drillers. Demand for the segment's products depends on drilling contractors' and oil and gas companies' capital spending plans, specifically capital expenditures on rig construction and refurbishment; and secondarily on the overall level of oilfield drilling activity, which drives demand for spare parts, service, and repair for the segment's large installed base of equipment. The segment also designs and builds equipment for wind turbine installation companies, where demand is dependent on global investment into offshore wind energy developments.
Critical Accounting Policies and Estimates
In our annual report on Form 10-K for the year ended
EXECUTIVE SUMMARY
For the first quarter ended
Segment Performance Wellbore Technologies
Wellbore Technologies generated revenues of
Completion & Production Solutions
Completion & Production Solutions generated revenues of
New orders booked during the quarter totaled
Rig Technologies
Rig Technologies generated revenues of
New orders booked during the quarter totaled
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During 2020, the COVID-19 outbreak rapidly spread across the world, driving
sharp demand destruction for crude oil as countries took measures that curtailed
economic activity to slow the spread of the outbreak. Companies across the
industry responded with severe capital spending budget cuts, curtailed
production, cost reductions, personnel layoffs, facility closures and bankruptcy
filings. Towards the end of 2020 and into 2021, commodity prices stabilized and
began to recover resulting in improving industry activity levels in
Throughout 2021, greater availability of COVID-19 vaccines resulted in the gradual reopening of certain economies around the world. Pent-up consumer and industrial demand combined with government economic stimulus programs are serving to amplify the global recovery, improve economic activity, and drive higher demand for oil and gas, which management believes is setting the stage for a global recovery in drilling activity. During 2021, oil and gas drilling activity levels increased in every major region of the world, reflecting this growing demand.
Despite ongoing disruptions from raw material shortages, COVID-19 lockdowns, inflationary forces, and other supply chain disruptions, management is optimistic that improving market fundamentals and the actions NOV has taken to position its business for the future will drive growth and improve profitability for the Company. NOV remains committed to improving organizational efficiencies while focusing on the development and commercialization of innovative products and services, including technologies to reduce environmental impact of petroleum operations, and technologies to accelerate the energy transition that are responsive to the longer-term needs of NOV's customers. We believe this strategy will further advance the Company's competitive position in all market conditions.
Operating Environment Overview
The Company's results are dependent on, among other things, the level of
worldwide oil and gas drilling, well remediation activity, the prices of crude
oil and natural gas, capital spending by other oilfield service companies and
drilling contractors, and worldwide oil and gas inventory levels. Key industry
indicators for the first quarter of 2022 and 2021, and the fourth quarter of
2021 include the following:
% %
1Q22 1Q22
1Q22* 1Q21* 4Q21* 1Q21 4Q21
Active Drilling Rigs:
U.S. 633 393 559 61.1 % 13.2 %
Canada 198 144 161 37.5 % 23.0 %
International 823 697 818 18.1 % 0.6 %
Worldwide 1,654 1,234 1,538 34.0 % 7.5 %
West Texas Intermediate
Crude Prices (per barrel) $ 94.54 $ 57.80 $ 77.45 63.6 % 22.1 %
Natural Gas Prices ($/mmbtu) $ 4.62 $ 3.56 $ 4.74 29.8 % (2.5 %)
* Averages for the quarters indicated. See sources below.
The Company is also becoming increasingly engaged with energy transition related opportunities and is currently involved in projects related to wind energy, geothermal power, rare earth metal extraction, biogas production, and carbon sequestration. Additionally, the Company is investing in developing technologies and solutions that will support other energy transition related industry verticals. Management expects to see continued growth in these areas as low carbon power becomes a larger portion of the global energy supply.
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The following table details the
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Industry Trends Rig Counts and Oil Prices Total Number of Rigs 4,000 3,500 3,000
2,500 2,000 1,500 1,000 500
.99
The worldwide quarterly average rig count increased 8 percent (from 1,538 to
1,654), and the
At
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Results of Operations
Financial results by operating segment are as follows (in millions):
Three Months Ended
March 31,
2022 2021
Revenue:
Wellbore Technologies $ 608 $ 413
Completion & Production Solutions 530 439
Rig Technologies 441 431
Eliminations (31 ) (34 )
Total revenue $ 1,548 $ 1,249
Operating profit (loss):
Wellbore Technologies $ 39 (14 )Completion & Production Solutions (22 ) (17 ) Rig Technologies
11 (8 )
Eliminations and corporate costs (49 ) (49 )
Total operating profit (loss) $ (21 ) $ (88 )
Wellbore Technologies
Three months ended
Operating profit from Wellbore Technologies was
Completion & Production Solutions
Three months ended
Operating loss from Completion & Production Solutions was
The Completion & Productions Solutions segment monitors its capital equipment
backlog to plan its business. New orders are added to backlog only when the
Company receives a firm written order for major completion and production
components or a contract related to a construction project. The capital
equipment backlog was
Rig Technologies
Three months ended
Operating profit from Rig Technologies was
The Rig Technologies segment monitors its capital equipment backlog to plan its
business. New orders are added to backlog only when the Company receives a firm
written order for major drilling rig components or a signed contract related to
a construction project. The capital equipment backlog was
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orders and supplier accelerations or delays), the Company reasonably expects
approximately 21 percent of backlog to become revenue during the rest of 2022
and the remainder thereafter. At
Eliminations and corporate costs
Eliminations and corporate costs were
Other income (expense), net
Other income (expense), net was expense of
Provision for income taxes
The effective tax rate for the three months ended
Non-GAAP Financial Measures and Reconciliations This Form 10-Q contains certain non-GAAP financial measures that management believes are useful tools for internal use and the investment community in evaluating NOV's overall financial performance. These non-GAAP financial measures are broadly used to value and compare companies in the oilfield services and equipment industry. Not all companies define these measures in the same way. In addition, these non-GAAP financial measures are not a substitute for financial measures prepared in accordance with GAAP and should therefore be considered only as supplemental to such GAAP financial measures.
The Company defines Adjusted EBITDA as operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items. Management believes this is important information to provide because it is used by management to evaluate the Company's operational performance and trends between periods and manage the business. Management also believes this information may be useful to investors and analysts to gain a better understanding of the Company's results of ongoing operations. Adjusted EBITDA is not intended to replace GAAP financial measures, such as Net Income.
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The following tables set forth the reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure (in millions):
Three Months Ended
March 31, December 31,
2022 2021 2021
Operating profit (loss):
Wellbore Technologies $ 39 $ (14 ) $ 50
Completion & Production Solutions (22 ) (17 ) (16 )
Rig Technologies 11 (8 ) 1
Eliminations and corporate costs (49 ) (49 ) (50 )
Total operating profit (loss) $ (21 ) $ (88 ) $ (15 )
Other items, net:
Wellbore Technologies $ 23 $ 4 $ 2
Completion & Production Solutions 16 (2 ) 2
Rig Technologies 6 3 3
Corporate - 2 1
Total other items $ 45 $ 7 $ 8
(Gain)/Loss on Sales of Fixed Assets:
Wellbore Technologies $ 2 $ 2 $ (3 )
Completion & Production Solutions - - -
Rig Technologies 1 - -
Eliminations and corporate costs 2 - 4
Total (gain)/loss on sales of fixed assets $ 5 $ 2 $ 1
Depreciation & amortization:
Wellbore Technologies $ 37 $ 42 $ 39
Completion & Production Solutions 16 15 16
Rig Technologies 18 18 17
Corporate 3 4 3
Total depreciation & amortization $ 74 $ 79 $ 75
Adjusted EBITDA:
Wellbore Technologies $ 101 $ 34 $ 88
Completion & Production Solutions 10 (4 ) 2
Rig Technologies 36 13 21
Eliminations and corporate costs (44 ) (43 ) (42 )
Total Adjusted EBITDA $ 103 $ - $ 69
Reconciliation of Adjusted EBITDA:
GAAP net loss attributable to Company $ (50 ) $ (115 ) $ (40 )
Noncontrolling interests 1 1 (3 )
Provision (benefit) for income taxes 14 (6 ) 14
Interest expense 19 20 19
Interest income (1 ) (2 ) (2 )
Equity (income) loss in unconsolidated affiliate (6 ) 4 (1 )
Other (income) expense, net 2 10 (2 )
(Gain)/Loss on Sales of Fixed Assets 5 2 1
Depreciation and amortization 74 79 75
Other items, net 45 7 8
Total Adjusted EBITDA $ 103 $ - $ 69
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Liquidity and Capital Resources
Overview
At
The Company has a revolving credit facility with a borrowing capacity of
The Company also has a
The Company's outstanding debt at
The Company had
The following table summarizes our net cash provided by continuing operating activities, continuing investing activities and continuing financing activities for the periods presented (in millions):
Three Months Ended
March 31,
2022 2021
Net cash used in operating activities
Significant sources and uses of cash during the first three months of 2022
•
Cash flows used in operating activities was
•
Capital expenditures were
•
We paid
Other
The effect of the change in exchange rates on cash flows was an increase of
We believe that cash on hand, cash generated from operations and amounts available under our credit facilities and from other sources of debt will be sufficient to fund operations, lease payments, working capital needs, capital expenditure requirements, dividends and financing obligations.
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We may pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of the revolving credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to us.
New Accounting Pronouncements
See Note 15 for recently adopted and recently issued accounting standards.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides safe harbor
provisions for forward-looking information. Some of the information in this
document contains, or has incorporated by reference, forward-looking statements.
Statements that are not historical facts, including statements about our beliefs
and expectations, are forward-looking statements. Forward-looking statements
typically are identified by use of terms such as "may," "believe," "plan,"
"will," "expect," "anticipate," "estimate," "should," "forecast," and similar
words, although some forward-looking statements are expressed differently. We
may also provide oral or written forward-looking information in other materials
we release to the public. Forward-looking information involves risk and
uncertainties and reflects our best judgment based on current information. You
should be aware that our actual results could differ materially from results
anticipated in the forward-looking statements due to a number of factors,
including but not limited to changes in oil and gas prices, customer demand for
our products and worldwide economic activity, including matters related to
recent Russian sanctions. Given these uncertainties, current or prospective
investors are cautioned not to place undue reliance on any such forward-looking
statements. We undertake no obligation to update any such factors or
forward-looking statements to reflect future events or developments. You should
also consider carefully the statements under "Risk Factors," as disclosed in our
Annual Report on Form 10-K for the year-end
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