Analyzing National Oilwell Varco’s Free Cash Flow


Dec. 4 2020, Updated 10:53 a.m. ET

National Oilwell Varco’s operating cash flows and capex

In this article, we’ll analyze how National Oilwell Varco’s (NOV) operating cash flows have trended over the past few quarters. We’ll also discuss how its free cash flows (or FCF) were affected given its capital expenditures (capex).

National Oilwell Varco’s cash from operating activities (or CFO) rose by more than four times in 1Q16 compared to 1Q15. NOV generated $621 million in CFO in 1Q16. Despite lower revenues in the past year, falls in the company’s accounts receivable, inventory, and costs in excess of billings led to higher CFO.

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National Oilwell Varco’s free cash flow

NOV’s capex fell by 35% in the year leading up to 1Q16. Lower capex coupled with a significant rise in CFO led to a steep rise in NOV’s FCF. In 1Q16, NOV’s FCF was $537 million, compared to -$16 million a year ago. The company’s 1Q16 FCF was also an improvement over 4Q15.

National Oilwell Varco’s FCF has been positive in 12 out of the past 13 quarters. In 2Q16, NOV’s management expects the pace of its cash flow generation to slow relative to the previous two quarters.

Superior Energy Services (SPN), National Oilwell Varco’s smaller market capitalization peer, generated $24.5 million in FCF in 1Q16. National Oilwell Varco makes up 1.3% of the Energy Select Sector SPDR ETF (XLE).

National Oilwell Varco’s capex plans for 2016

On June 1, 2016, NOV signed an agreement to acquire the completion tools business of Trican Well Service. The new assets will cater to multistage fracturing and multizone completions in North America and select international markets. The transaction is expected to close on June 30.

Despite its lower capex, National Oilwell Varco made seven acquisitions in 2015. Through these acquisitions, it enhanced its presence in Saudi Arabia and brought in new composites technology and a WellSite Services offering in Asia. The company plans to add new facilities in Saudi Arabia, Abu Dhabi, Russia, and West Texas.

Next, let’s discuss National Oilwell Varco’s dividends and dividend yields.


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