International land and offshore markets are driving near-term demand for NOV Inc.’s oilfield equipment, but digital and performance technologies are also in the pipeline, as exploration customers look for improved efficiencies, according to CEO Clay Williams.
During the recent first quarter conference call, Williams laid out expectations for the near term. North American activity isn’t set to strengthen before 2025. However, that hasn’t stopped NOV from expanding its opportunities elsewhere. The business is continually evolving, he explained.
“Strategically through the last decade, NOV has reinvented itself with new products and technologies, recognizing that organic innovation, occasionally supplemented by a targeted acquisition here or there, was the most capital efficient way to reposition our franchise to meet the evolving needs of the oilfield,” the CEO told investors.
“Innovation takes time and frankly, startup costs, which vary across these initiatives. Nevertheless, our success and innovation are what will continue to differentiate our business and drive improved profitability over the next several years.
“We expect improving margins in our backlog to contribute to higher profitability as well, particularly in 2025 and beyond…We have been systematically working toward higher margin, lower risk contracts, walking away from opportunities where we see insufficient margins or too much risk.”
Tech Savvy E&Ps
Exploration and production (E&P) companies “are evolving to benefit even more from this value. That's what's changing. International and offshore operators are going back to work, and they want operational efficiencies obtainable with new NOV technologies. They want to reduce their environmental impact. They want to drive better safety. We can help.”
The consolidation wave in North America has been “led by operators who value technology and are focused on continuous improvement. Again, we can help.”
Inflation and competitive pricing continue to be a “headwind for margin improvement, but as our technologies roll out day by day, customer by customer, our value proposition becomes clearer, and that's a great place to reset pricing discussions.”
Investments are focused on “digital edge computing, as well as optimization fueled by artificial intelligence,” Williams noted. NOV also has stepped up investments across the board in mechanization and automation, remote monitoring, electrification, emissions reductions, artificial lift and downhole drilling.
The technology funding has, in turn, led “to new, promising customer conversations and a growing number of users of these new products,” the CEO said.
Benefiting From Data Centers?
A lot of industry talk of late has focused on the expected data center buildout, which is forecast to expand natural gas-fueled U.S. power generation. Are there opportunities for NOV?
Tangentially, yes.
“I think we're, frankly, more likely to be a customer of those data centers, as our digital offering continues to grow,” Williams said. “We're employing artificial intelligence and a lot of sophisticated edge computing and cloud offerings, which are growing pretty rapidly here.
“But that's kind of the second order implications for our business…
“These data centers are going to drive up electricity demand across the U.S., which is going to require more natural gas and require more sources of electricity, including renewables…”
NOV now is “pursuing very disruptive technology” in wind generation “and making good progress there. And so I think NOV's participation in that phenomenon of U.S. electricity demand rising sharply is going to be more around helping our customers actually provide that electricity, both renewables as well as in the traditional natural gas space.”
‘Modestly Improving’ Activity
NOV’s base forecast “contemplates a sustainable multi-year period with modestly improving industry activity, led by the international and offshore markets,” CFO Jose Bayardo said. “We expect soft activity in the U.S. through 2024, but anticipate a recovery in 2025, aided by increasing gas exports.
“However, we expect improvements in oil-directed activity in the U.S. to be modest with international and offshore activity, providing most of the incremental supplies required to fuel the growth of the world's economies.”
NOV is anticipating “a little less volatility” in international oil company drilling activity over the next several years “versus what we have seen from North American independents over the past decade,” Bayardo said.
Net income was $119 million (30 cents/share) in 1Q2024, versus year-ago profits of $126 million (32 cents). First quarter revenue totaled $2.2 billion, up 10% from a year ago.
At the end of March, the backlog for capital equipment orders was $3.9 billion, an increase of $115 million from a year earlier.
