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What Could Drive National Oilwell Varco’s Growth?

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Nov. 14 2016, Updated 3:04 p.m. ET

National Oilwell Varco’s revenue by segment

From 3Q15 to 3Q16, National Oilwell Varco’s (NOV) Rig Systems segment’s revenue fell ~69%. It was the highest revenue fall among the company’s operating segments. Its Completion and Production Solutions segment witnessed a 32% fall in its revenue during the same period—the lowest among the segments. Compared to National Oilwell Varco’s 50% total revenue decline, Halliburton’s (HAL) revenue fell 31% in 3Q16—compared to 3Q15.

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National Oilwell Varco’s operating income by segment

For the Rig Systems segment, the adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) fell 84% in 3Q16—compared to 3Q15. The Rig Aftermarket segment’s adjusted EBITDA was more resilient. It fell ~51% in 3Q16 compared to a year ago. National Oilwell Varco is 0.14% of the Vanguard High Dividend Yield ETF (VYM). The Oil & Gas industry makes up 10.5% of VYM. The EBITDA is a measure of operating income.

The Rig Systems segment sells land rigs and offshore drilling equipment packages. It was impacted by the current energy recession. The Rig Aftermarket segment provides support to land and offshore drillers. It isn’t directly dependent on upstream companies’ capital spending plans.

National Oilwell Varco’s growth drivers

  • In October, National Oilwell Varco signed an agreement with Akastor ASA to acquire Fjords Processing. The acquisition would complement National Oilwell Varco’s production and process solutions business globally.
  • The company’s Rig Systems segment received two new land rig orders during 3Q16.
  • National Oilwell Varco received new contracts in the North Sea and Asia-Pacific for its Hot Oil Thermal Desorption Units.

Is the cost operating income improving?

National Oilwell Varco’s management attributed higher operating income to improve efficiency and lower costs in 3Q16. Clay Williams, National Oilwell Varco’s chairman and CEO commented in the 3Q16 earnings press release, “Our ability to post a higher Adjusted EBITDA on a five percent sequential decline in revenue was the result of our team’s continued progress in improving our efficiencies and lowering our costs.” Read How Did National Oilwell Varco Fare in 3Q16? to learn why National Oilwell Varco’s net income crashed in 3Q16.

How dependent is National Oilwell Varco’s business on the US rig count? We will discuss this in the next part.

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