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 61 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; premium drill pipe; wired pipe; drilling optimization and automation services; tubular inspection, repair and coating services; rope access inspection; instrumentation; measuring and monitoring; downhole and fishing tools; steerable technologies; hole openers; 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.
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.
Rig Technologies
The Company's Rig Technologies segment makes 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 brings 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, including drives and generators; rig instrumentation and control systems; mooring, anchor, and deck handling
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machinery; 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
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million, or 1.9 percent of sales, and included
New orders booked during the quarter totaled
During the first quarter of 2020, the coronavirus (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, cost reductions, personnel layoffs, facility closures and
bankruptcy filings. COVID-19 continued to spread throughout 2020, extending
depressed demand, uncertainty and additional spending reductions across the oil
and gas industry, causing the
During the fourth quarter of 2020 and the first quarter of 2021, rising activity
levels in the
Management is optimistic that recovering market fundamentals and the actions NOV has taken to position its business for the future will drive growth and improved profitability for the company. NOV remains committed to streamlining operations and improving organizational efficiencies while focusing on investing in innovative products and services, including environmentally friendly technologies, that are responsive to the longer-term needs of NOV's customers. We believe this strategy will further advance the Company's competitive position, regardless of the market environment.
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 2021 and 2020, and the fourth quarter of
2020 include the following:
% %
1Q21 1Q21
1Q21* 1Q20* 4Q20* 1Q20 4Q20
Active Drilling Rigs:
U.S. 393 784 311 (49.9 %) 26.4 %
Canada 144 196 89 (26.5 %) 61.8 %
International 697 1,073 664 (35.0 %) 5.0 %
Worldwide 1,234 2,053 1,064 (39.9 %) 16.0 %
West Texas Intermediate
Crude Prices (per barrel) $ 57.80 $ 45.99 $ 42.46 25.7 % 36.1 %
Natural Gas Prices ($/mmbtu) $ 3.56 $ 1.88 $ 2.50 89.4 % 42.4 %
* Averages for the quarters indicated. See sources below.
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The following table details the
[[Image Removed]]
Source: Rig count:
The worldwide quarterly average rig count increased 16 percent, and the
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Results of Operations
Financial results by operating segment are as follows (in millions):
Three Months Ended
March 31,
2021 2020
Revenue:
Wellbore Technologies $ 413 $ 691
Completion & Production Solutions 439 675
Rig Technologies 431 557
Eliminations (34 ) (40 )
Total revenue $ 1,249 $ 1,883
Operating profit (loss):
Wellbore Technologies $ (14 ) (663 )Completion & Production Solutions (17 ) (1,013 ) Rig Technologies
(8 ) (202 )
Eliminations and corporate costs (49 ) (72 )
Total operating profit (loss)
Operating profit (loss)%: Wellbore Technologies (3.4 %) (95.9 %)
Completion & Production Solutions (3.9 %) (150.1 %) Rig Technologies
(1.9 %) (36.3 %)
Total operating profit (loss)% (7.0 %) (103.6 %)
Wellbore Technologies
Three months ended
Operating loss 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
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Rig Technologies
Three months ended
Operating loss from Rig Technologies was
The Rig Technologies segment monitors its capital equipment backlog to plan its
business. New orders are added to backlog when the Company receives a firm
written order for major drilling rig components or a signed contract for a
construction project. The capital equipment backlog was
Eliminations and corporate costs
Eliminations and corporate costs were
Other income (expense), net
Other income (expense), net were expenses of
Provision for income taxes
The effective tax rate for the three months ended
Non-GAAP Financial Measures and Reconciliations
The Company discloses Adjusted EBITDA (defined as Operating Profit excluding Depreciation, Amortization and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. The Company uses Adjusted EBITDA internally to evaluate and manage the business. Adjusted EBITDA is not intended to replace GAAP financial measures, such as Net Income. Other items include impairment charges, inventory charges, severance accruals, and other restructuring costs.
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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,
2021 2020 2020
Operating loss:
Wellbore Technologies $ (14 ) $ (663 ) $ (78 )
Completion & Production Solutions (17 ) (1,013 ) (31 )
Rig Technologies (8 ) (202 ) (132 )
Eliminations and corporate costs (49 ) (72 ) (60 )
Total operating loss $ (88 ) $ (1,950 ) $ (301 )
Other items:
Wellbore Technologies $ 6 $ 715 $ 46
Completion & Production Solutions (2 ) 1,054 43
Rig Technologies 3 238 132
Corporate 2 16 15
Total other items $ 9 $ 2,023 $ 236
Depreciation & amortization:
Wellbore Technologies $ 42 $ 51 $ 44
Completion & Production Solutions 15 30 16
Rig Technologies 18 20 19
Corporate 4 4 3
Total depreciation & amortization $ 79 $ 105 $ 82
Adjusted EBITDA:
Wellbore Technologies $ 34 $ 103 $ 12
Completion & Production Solutions (4 ) 71 28
Rig Technologies 13 56 19
Eliminations and corporate costs (43 ) (52 ) (42 )
Total Adjusted EBITDA $ - $ 178 $ 17
Reconciliation of Adjusted EBITDA:
GAAP net loss attributable to Company
1 (2 ) (1 )
Provision (benefit) for income taxes (6 ) (156 ) 22
Interest expense 20 22 19
Interest income (2 ) (3 ) (2 )
Equity loss in unconsolidated affiliate 4 233 10
Other (income) expense, net 10 3 (2 )
Depreciation and amortization 79 105 82
Other items 9 2,023 236
Total Adjusted EBITDA $ - $ 178 $ 17
Liquidity and Capital Resources
Overview
At
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The Company has a
The Company also has a
The Company's outstanding debt at
On
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,
2021 2020
Net cash provided by (used by) operating activities
(51 ) (53 )
Net cash used in financing activities (3 ) (43 )
Significant sources and uses of cash during the first three months of 2021
• Cash flows used by operating activities was$27 million . This included changes in the primary components of our working capital (receivables, inventories and accounts payable). • Capital expenditures were$49 million .
Other
The effect of the change in exchange rates on cash flows was a decrease 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.
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.
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Forward-Looking Statements
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," "expect," "anticipate," "estimate," and similar words, although
some forward-looking statements are expressed differently. All statements herein
regarding expected merger synergies are forward-looking statements. 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, difficulties encountered in integrating mergers and acquisitions,
and worldwide economic activity. You should also consider carefully the
statements under "Risk Factors," as disclosed in our Annual Report on Form 10-K
for the year ended
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