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National Oilwell Varco, Inc. (NYSE:NOV)

Q1 2010 Earnings Call Transcript

April 27, 2010 10:00 am ET

Executives

Loren Singletary – VP of Global Accounts and IR

Pete Miller – President and CEO

Clay Williams – EVP and CFO

Analysts

Kurt Hallead – RBC

Jim Crandell – Barclays

Robin Shoemaker – Citi

Geoff Kieburtz – Weeden & Co.

Collin Gerry – Raymond James

Roger Read – Natixis Bleichroeder

Bill Herbert – Simmons & Company

Operator

Welcome to the National-Oilwell Varco first quarter 2010 earnings conference call. My name is Kim and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Loren Singletary, Vice President of Global Accounts and Investor Relations. Mr. Singletary, please go ahead.

Loren Singletary

Thank you, Kim, and welcome everyone to the National-Oilwell Varco first quarter 2010 earnings conference call. With me today is Pete Miller, Chairman, CEO, and President of National-Oilwell Varco; and Clay Williams, Chief Financial Officer.

Before we begin this discussion of National-Oilwell Varco’s financial results for its first quarter ended March 31, 2010, please note that some of the statements we make during this call may contain forecast, projections, and estimates including, but not limited to, comments about our outlook for the company’s business.

These are forward-looking statements within the meaning of the Federal Securities laws based upon limited information as of today, which is subject to change. They are subject to risk and uncertainties, and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. I refer you to the latest Form 10-K National-Oilwell Varco has on file with the Securities and Exchange Commission for more detailed discussion of the major risk factors affecting our business.

Further information regarding these, as well as supplemental financial and operating information may be found within our press release on our website at www.nov.com or in our filings with the SEC. Later on this call, we will answer your questions which we ask you to limit to two in order to permit more participation.

Now, I will turn the call over to Pete for his opening comments.

Pete Miller

Thanks, Loren and good morning. Earlier today, we announced first quarter 2010 net income of $422 million or $1.01 a share on revenue of $3.03 billion. This compares to net income of $394 million or $0.94 a share in the fourth quarter of 2009 on revenues of $3.13 billion.

We are very pleased with these results and they speak to the outstanding execution of performance of our great employees as they continue to provide the best products and services to our customers. Clay will expand upon these numbers in just a moment.

Additionally, we announced new capital equipment orders of $618 million and a quarter-ending backlog of $5.4 billion. I will speak a little later in this call about our operations and the backlog more in-depth, but at this time, I want to turn the call over to Clay.

Clay Williams

Thanks, Pete. National-Oilwell Varco generated first quarter 2010 earnings of $422 million or $1.01 per fully diluted share compared to $0.94 in the fourth quarter of 2009 and $1.13 per share in the first quarter of 2009.

Included in these results are $38 million or $0.09 in charges related to our operations in Venezuela where the bolivar was recently officially devalued against the U.S. dollar. $27 million of this charge relates to the devaluation of monetary assets NOV has in country and $11 million balance was the write-down of receivables in view of deteriorating business conditions there.

Excluding this devaluation charge, first quarter earnings were $1.10 per fully diluted share, up 15% from the fourth quarter of 2009 earnings, excluding $0.02 in transaction charges last quarter and down 3% from the first quarter of 2009. This was a great result for the quarter which rose from the highest operating margins posted by NOV since late 2001 along with a little help from an ascending North American rig count in the first quarter.

Consolidated revenues were $3 billion, down $102 million or 3% from the fourth quarter and down $449 million or 13% from the first quarter of 2009. Operating profit, excluding devaluation charges, was $648 million or 21.4% of sales. Despite the sequential revenue decline, operating profit rose $26 million from the fourth quarter.

All three segments posted higher sequential margins without benefit of significant sequential sales growth for any of the three. There are two big reasons for this. The first is experience. We continue to steadily navigate our way up the learning curve on complex offshore rig-building projects.

Those of you who have followed our company for many years will recall that in 2005 we began to highlight two long simmering challenges that the oil and gas industry would face in the coming decade, mainly a land and jack-up rig fleet that was nearing the end of their useful lives and the need to build out a substantial deepwater fleet to implement new deepwater drilling technologies.

Our rig technology team set about restructuring our manufacturing footprint, urgently implementing quick response and cellular manufacturing technologies to cope with the onslaught of business which followed. They standardized product designs and gently steered customers towards consistency in rig layouts. Now that we have successfully executed the construction of dozens and dozens of land and offshore rigs, our teams have skillfully and successfully navigated the many complexities of rig construction.

Their unparalleled experience in rig-making manifests itself in efficiencies and lower cost. As a result, they posted a record margin once again, above 30% in the first quarter. They candidly exceeded our expectations in view of the lower revenues we expected.

The second big factor in the quarter were lower operating costs across the board. As we noted in earlier costs, the volatility of oilfield services necessitates quick response. They are always either too small as drilling and demand rise quickly or your operations are too big when activity plummets as it did in early 2009.

Quarter-by-quarter throughout last year, we detailed for you our many initiatives to reduce size and cost in view of depressed market conditions. The improved margins in the first quarter are a direct result of the traction achieved through these initiatives. Two factors in the quarter, experience and cost reductions, signified NOV's successful assent of the steep learning curve and resulted in outstanding margins.

Demand for rig equipment was broad-based this quarter with $618 million in bookings, roughly in line with last quarter. We looked three jack-up packages, a handful of land rigs, lots and lots of top drives for land rigs and slew of pressure pumping equipment for both North America and international markets. No floater packages were booked, but we continue to pursue several opportunities around the globe, the largest being a massive tender underway for Petrobras in Brazil.

Revenues from backlog of $1.506 billion were down slightly from Q4 and we had cancellations, adjustments and change orders further reducing the backlog by $71 million, leaving a capital equipment backlog of $5.447 billion at March 31st, 2010, down 15% sequentially. We expect about $3.7 billion of these existing orders to flow out as revenue through the remainder of 2010, $1.4 billion to flow in 2011, and the balance thereafter.

Backlog we consider at risk declined to a little over $200 million at the end of the quarter. Presently, 13% of the backlog is land and 87% offshore and 9% is domestic and 91% international. The Petrobras tender for 28 floating rigs to develop its massive Santos Basin oil find has been delayed slightly. The original tender deadline of early March has been extended by 60 days due to the two dozen clarification circulars issued by Petrobras' commercial and engineering organizations.

There are many interested parties, shipyards, equipment providers, drilling contractors, and answers to their many individual questions are provided to all participants through the public circular pronouncements to maintain a fair tender process and a level playing field. Additional time has been provided by Petrobras for all participants to work through these clarifications and further delays are possible, but not expected.

At NOV, we have been busy refining our plans to achieve local content requirements and the extra time has increased our confidence in our ability to comply. Equipment packages require 20% local content on the first few vessels, rising up to 50% later in the build program and we are actively expanding our on-the-ground operations, joint ventures, and supplier relationships to get there.

We are aware that some of you are anxious about as yet uncontracted capacity entering the deepwater rig fleet over the next couple of years that the supply of floating rigs may exceed demand. Let me offer a few observations.

First, Petrobras is the most active driller in the deepwater space and arguably, the most knowledgeable. Second, Petrobras has found more reserves in deepwater than anyone. Third, Petrobras is well aware of the supply of deepwater rigs and of new rigs coming to market. In fact, they are the sponsor behind much of the rig-building going on today. Fourth, Petrobras and its partners have as yet only explored a little more than a quarter of the Santos Basin; about 16,000 square miles out of 58,000 or 28% has been leased.

Fifth, perhaps most remarkably, Petrobras, based on limited exploration in the Santos so far, is actively tendering 28 new deepwater floating rigs, which, once contracted, will be the largest rig order ever in the history of our industry. But not only will – are they moving forward with this extraordinary tender, they appear to be willing to finance a larger portion of it, announcing a few weeks ago that they are prepared to acquire up to four sets of seven drill ships each to get to 28 rigs.

And the local content requirements are clearly designed to put their country in the deepwater rig-building business. That's a pretty bullish statement on the future demand for deepwater rigs by the most knowledgeable deepwater driller. The facts together with the actions of the largest and arguably, most knowledgeable market participant point to greater deepwater rig demand in coming years.

The shift to deepwater rig-building to Brazil will certainly carry some challenges, but we continue to believe that these are manageable for us and others. Brazil was the world's second largest shipbuilder in the late 1970s and has numerous shipyards presently. These will require capital and upgrades and modifications and additional expertise, but these challenges are manageable.

For NOV, it is possible that some of these orders will start to flow into our backlog late this year, but we believe now that 2011 bookings are more likely for the bulk of them. I'll also add that we expect orders to be staged given that we are not bidding to Petrobras directly, but rather to shipyards and drilling contractors and their contracts with us and our competitors will follow the Petrobras awards. Throughout this process, we've remained optimistic that NOV will play a key role in providing the sophisticated drilling technology Petrobras needs to achieve its goals.

Now, let me turn to segment operating results. NOV's rig technology segment generated revenues of $1.9 billion in the first quarter, down 5% sequentially and down 14% compared to the first quarter of 2009. Operating profit was $581 million, yielding operating margins for the group of 30.8%. Year-over-year decremental leverage or flow-through was low, only 8% and sequentially, operating profit increased $15 million despite the $91 million decline in revenue.

Project margins drove most of the increase. Our favorable cost experience on completed rigs is applied to remaining estimated costs on ongoing projects. And as a result, we are seeing margins rise above our original expectations. In essence, we are benefitting from the best of both worlds, executing projects priced at high levels in 2007 and 2008, being manufactured in a much softer economic and in some instances, deflationary environment. Additionally, downsizing in certain portions at our rig technology manufacturing infrastructure in the second half of 2009 contributed to the stronger margins as well.

Non-backlog revenue declined in the first quarter due to declines in small capital equipment that don't qualify for our backlog, i.e., individual orders less than $250,000. First quarter well intervention and stimulation equipment revenues declined after strong fourth quarter shipment, but orders for this equipment, both domestic and international, surged late in the quarter from high-pressure pumping demand as we foresee a strong finish – so we foresee a strong finish to the year for this product line. In particular, the massive shale play frac jobs are consuming equipment at a rapid pace and shifting to larger diameter coiled-tubing strings to frac wells and to drill-out plugs.

The good news for National-Oilwell Varco is that the large diameter coiled-tubing usually requires new units and we are the largest provider of these coiled-tubing units worldwide. Rig technology aftermarket spares and services remain relatively flat sequentially.

A couple of other observations about the quarter. Modern AC-powered electronically controlled rigs continue to extend their lead onshore. We continue to sell components and complete rig packages into international markets like Iraq, the UAE, and Latin America and North American shale markets where day rates for these highly efficient drilling machines are rising. A related trend is the virtual requirement for top drives on land rigs to go to work, which produced extremely strong top drive bookings for National-Oilwell Varco in the first quarter.

Offshore rig sales have remained muted, although we did three jack-ups in the first quarter. Financing remains an issue for many smaller customers and larger well-capitalized customers are awaiting term contracts from oil companies before they commit. In the meantime, we are seeking to expand our presence in other markets like FPSOs where we can win more than $20 million in equipment sales on a typical project, riser pull systems, offloading systems, spread mooring systems, and cranes.

The rig technology group commissioned four new floating rigs and four jack-ups during the first quarter and installation and commissioning activity will continue to rise in the next quarter or two. We are presently at work on 32 rigs across 15 different shipyards around the globe. So far this cycle, NOV has delivered 80 new offshore rigs. Looking into the second quarter of 2010, we expect rig technology revenues to decline again in the mid-single digit range, yielding operating margins in the high-20% range.

The petroleum services and supply segment generated total sales of $923 million in the first quarter of 2010, down $13 million or 1% sequentially from the fourth quarter and down $91 million or 9% year-over-year. Operating profit was $113 million or 12.2% of sales, up about 80 basis points from the fourth quarter. Operating profit increased $6 million despite the revenue decline.

Strong North American rig activity led to solid results across most service businesses within petroleum services and supply. But sequential sales gains in several product lines were offset by sharply lower drill pipe sales as expected. Double-digit sequential revenue gains in downhole tools and bits drove exceptionally high incremental profit and higher margins as this product benefited from several cost reduction initiatives implemented last year in its manufacturing plans. Large gains in bit sales, hole-opening tools, motors and coring products in Canada and the U.S. arose from rig count gains and customers replenishing depleted inventories.

U.S. and Canadian solids control services also posted strong sequential gains, led by shale plays which are more equipment-intensive than conventional drilling programs. Both downhole tools and solids control saw declines in Latin America and Europe, partially offsetting the sequential gains. Mission drilling expendables also posted strong double-digit gains as rigs went back to work in North America and replenished spares and XL Systems saw higher demand out of the Americas, leading to double-digit sequential sales increases for that group as well.

Tuboscope posted roughly flat sequential results as higher pipe processor activity in the U.S. was offset by lower international pipe coating activity and lower mill inspection unit shipments. Oilfield composite pipe sales for fiberglass systems failed to offset lower industrial sales, but the group posted higher margins nonetheless and saw its backlog increase on large international project wins destined for shipment later this year.

Coiled-tubing sales were roughly flat, but the outlook is brightening as North America customers steadily shift towards larger diameter tubing for shale frac jobs. All groups are expecting higher steel cost to begin to flow in through the remainder of the year, owing to tight iron ore supplies to the mills and fiberglass pipe operations are seeing resin costs jump sharply, which will add some cost pressure as the year unfolds.

Drill pipe revenue fell more than 30% sequentially at higher decrementals, owing to a mix shift back towards more traditional weights and grades, mitigated somewhat by higher unit volume-driven absorption and lower steel cost on green tubes several months ago. Price per foot has trended down with the mix and is likely to decline further in the second quarter as the mix of pipe sales in China, a very price-competitive market, rises due to orders which rolled over from the first quarter.

However, the group posted much stronger sequential order intake as land drilling contractors reentered the market after a long hiatus. The first quarter book-to-bill ratio significantly exceeded 100%, which led to an increase in backlog for drill pipe, the first since the third quarter of 2008 and point to a potential recovery in drill pipe sales late in the year, albeit on a lower margin mix.

Orders for strings for new-build offshore rigs have resumed after a first quarter pause. Interestingly, for NOV, the shale plays appear to be utilizing a higher mix of HI TORQUE premium connections, which should help with the mix going forward.

Overall, stronger U.S. and Canadian activity and generally weaker international markets led to a geographic shift for PS&S revenue. North America accounted for 56% of the segment's first quarter sales and international markets, which constituted the majority of the group's 2009 sales, accounted for only 44% in the first quarter. We expect this to go back the other way in the second quarter, owing to the seasonal breakup in Canada and strengthening in certain international markets.

Looking into the second quarter of 2010, we expect revenues and margins to be roughly flat. Canada will decline due to seasonal breakup at high decrementals and drill pipe margins will decline on roughly flat revenues owing to mix, offset somewhat by rising margins in our well services – wellsite services group.

Sales for distribution services were $334 million in the first quarter, up 1% sequentially, by down 18% year-over-year. Operating profit was $11 million and operating margin was 3.3%, up about 90 basis points sequentially. Incremental margins on small sequential sales gain were 100% and decremental margins on the year-over-year revenue declines were 19% due to generally lower pricing year-over-year.

The strong margin gain in the first quarter came largely from double-digit volume increases in the U.S., largely in shale plays and oil drilling areas and from increased well hookup jobs. Margins for the group were further helped large rebates from suppliers during the quarter related to the uptick in activity in North America and the higher volumes resulting.

Canada also posted sequential sales improvements and good incremental profit and industrial products posted higher margins despite lower sales, but nevertheless remain challenged due to weak economic conditions. International sales declined sequentially due to lower sales in Mexico and lower artificial lift revenues, only partly offset by sales into new rigs being outfitted in the Middle East.

During the quarter, the group installed two new plunger lift systems which are generating a lot of interest in Canada. For the second quarter, we expect roughly flat distribution services revenue and modestly lower margins on reduced supplier rebates with seasonal declines in Canada, offset by improving international prospects.

Turning to National-Oilwell Varco's consolidated first quarter income statement, overall gross margins were up 80 basis points from the fourth quarter to 32.1% and SG&A declined $33 million to 10.7% of sales. Equity income in our Voest-Alpine joint venture was $6 million, up from the fourth quarter on higher casing and green tube sales and a stronger dollar.

Other income was $11 million favorable related to exchange rate movements for the Norwegian kroner. The tax rate for the first quarter was 31.9% and we expect the rate to go modestly lower in the 31% range through the remainder of 2010 due to a forecasted higher mix of lower tax rate jurisdiction income.

Unallocated expenses and eliminations on our supplemental segment schedule was $57 million in the first quarter, down $2 million from the fourth quarter due to lower compensation accruals. Depreciation and amortization was essentially unchanged from the fourth quarter at $127 million and CapEx declined to $31 million. We expect CapEx for the full year to be in a range of $300 million.

EBITDA, excluding transaction, restructuring and devaluation charges, was $797 million in the quarter, up 9% sequentially and down 4% year-over-year. National-Oilwell Varco' March 31st, 2010 balance sheet employed working capital excluding cash and debt of $3.3 million, up $540 million or 19% sequentially due primarily to the $492 million decrease in billings in excess of cost and customer prepayments. This increased working capital to 28% of annualized sales in the quarter. During the first quarter, cash flow from operations was $95 million, cash spent on one acquisition totaled $46 million, and our ending cash balance was $2.6 billion.

Now, let me turn it back to Pete.

Pete Miller

Thanks, Clay. Listen, I just want to make a few brief comments about our operations and some things that we are seeing around the world and then what we will do is we'll turn it over to you guys for some questions.

But last call, we really talked about six predominant themes that we were seeing throughout the industry and they really kind of held forth, I think, even with this quarter. Basically, they've been the inventory replacement. We talked about a lot of the rigs that were stacked out early, took all of our inventory off of that, utilized it sort of in the latter part of 2008 and the first part of 2009, you really were eating up existing inventory. And today, that’s gone. And that's one of the reasons when you look at our distribution business that we've been able to stay fairly vibrant in a tough environment. When you look at our competition, we are doing quite well, vis-à-vis then.

So I think a lot of that has to do with inventory replacement. Clay mentioned our mission operation, same thing there. So that inventory replacement is really helping both the distribution in our petroleum services and supplies business.

The second big one and the big theme is shales. And I could talk about shales for a long, long time. They impact everything that we do. We are opening up new distribution facilities throughout the United States in different plays. In our PS&S group, when you talk about bottom-hole assemblies, bids, Clay mentioned the drill pipes, Tuboscope, they are all impacted directly with that, and we are also making very specific rigs that deal with these shales, things like the Drake Rig and the IDEAL Rig, which we are utilizing.

The other thing that's pretty interesting about shales, now you are starting to see more of an oil play come to shales too. And so it's not just the gas, but the oil. You look at places like the Eagleford up in Wyoming and you are starting to see that in the Bakken of course. And that really plays well for a lot of the things that we are doing.

One of the comments I heard from – on some calls has been well, on the international shale plays, you don't have quite the same infrastructure, so they are going to be slower. What I would also tell you though is we actually helped build that infrastructure. So we are here to help and make those international shale plays about as vibrant as we can possibly get them.

Third, obviously, deepwater development. Clay mentioned Brazil, I won't go into that too much here and I'm sure you'll have some questions regarding that. But there is deepwater development all over the world, when you are talking about the Arctic, when you are talking about West Africa, many different places that we are doing it.

But also interestingly, Clay mentioned our interest in FPSOs and as you have deepwater development, it really is very much B follows A and I think as you develop more and more, you are going to be developing that with FPSOs. So we are excited about our opportunities and today we can put as much as $20 million on that. So not only is it going to be a deepwater development where we put the deepwater rigs out there, but we also think we can play a very large role in the FPSO development when it goes on.

The fourth theme that I've talked about a lot is obsolescence. A lot of the older rigs really aren’t going to be too much anymore. We talked about this a lot. We think that the industry got a pretty good start over the last three or four years of retooling, but we think it has a long ways to go and we are encouraged by that. We've gone through a pretty tough 18 months and yet, we are kind of coming through this thing with flying colors and I think with awfully good results.

So we think this obsolescence theme is going to continue and we think you are going to see more new land rigs built. When you look at some of the orders we have here, a lot of those were international land rigs and for the reason that they want the stuff available. And we are doing a lot of refurbing on that too, changing over to electronics and other things.

The fifth one is technology. When you take a look at the technology that's out there today, people want the best technology. And I'm going to talk in just a minute about some new products that we have, but an awful lot of the things that we were ordered this past quarter were the new technology-type top drives. They are reliable, they are redundant, they are monitors so you can work on them much easier. So people are actually switching out some of the older top drives to get to the newer top drives. And we think that sort of technology is going to continue on, there is no doubt about it.

And the final theme is international expansion. And not only expanding internationally, but as you do that, you have to make sure that you have some sort of local content. I think that's becoming more and more a requirement, not only in the Brazilian situation, but as we look around the world when we are selling equipment, there is a lot of good reasons to have local content. You look at the Middle East, a lot of the land rigs that we are selling in the Middle East today were actually built in Dubai.

There is a couple of things. Number one, it gives us a great labor force there. But secondly, the actual delivery of those is really shortened from when they are built in, say, a place like Houston or Edmonton and if we can do that in Dubai, we probably knock 45 days off the ultimate delivery which really helps that customer to be able to get that rig into the – into operation for them.

So that's – I think those six themes really kind of hit the nail in the head. They continue to be the overriding themes in this industry and I think they will push us into the future and we are able to really satisfy the needs on each one of those.

Let me talk about the international market for just a moment. I think an area that we are starting to see some decent signs of life is Russia. We are excited about the opportunities there; we recently opened up a new facility (inaudible) and I think that we are looking at some good M&A opportunities over there. Again, it kind of comes back to some of the local content. But we are starting to see some money free up over there to develop both oil and gas plays that they've had on the table for a long time.

The Middle East continues to be a very vibrant spot for us. I think you've heard on a lot of the other calls about Iraq. We've sold some new rigs that will ultimately go into Iraq. We are – we have a facility in Kuwait that's able to service the Iraqi oilfield quite well. And we think potentially, over the next two or three years, the Iraq oilfield is going to be an exciting one.

Kuwait continues to be very positive for us and we are starting to see some very good things in Saudi Arabia and other parts of the Middle East. So I think that's going to continue on. You've heard on other calls that we expect the international operations to expand over the next few years and we are right there with that.

And then finally in the international arena is Brazil. Clay gave you a very good description of that. I think that we are excited about the opportunities that are down there. And interestingly enough, not only there are opportunities there offshore, but there are also some good land opportunities and we recently have broken ground on a new fiberglass pipe facility that we are building in Recife. So we think Brazil is going to be a pretty exciting area for us. And that's a – that’s kind of a brief rundown what we are seeing internationally.

Final thing I want to talk about that we are going to OTC week next week, the Offshore Technology Conference. And the lifeblood of any organization or new products, you've got to continue to evolve. You have to make sure that you are offering the industry what they have and we are going to be showing a lot of new products at OTC, but a couple of the more interesting things I'll just mention here.

One is the integrated drilling intelligence that we are doing. We've got the unique capability of controlling everything that happens on a rig. We've got all the equipment that we are controlling through our (inaudible) cyber-based systems and now, we are able to tie a lot of the downhole systems into that through our ADS and other things with Reed Hycalog and downhole tools. So it's really kind of a cool system and then we look at IntelliServ there with it, it's really going to give us some – I think some great opportunities, give our customers the most efficient operating system out there very quickly.

Kind of a cool little product that we've developed recently is called the Stand Transfer Vehicle, STV. And that's really something that we hang in a land rig and it really is a pipe handler. We are beta-testing it in the field right now and I'm kind of excited about some of the things that it's going to do. But it's going to be one of those things like an iron roughneck that's really going to be an add-on that's going to make the industry a lot safer and make working on a rig a lot more pleasurable.

And then finally, one of the things that I think is really going to be impactful for our customers is drill pipe lifecycle management where we are actually able to embed a computer chip or a ruby, if you will, into the drill pipe and be able to give our customers what the complete lifecycle of that drill pipe is. That sounds like it's not high-tech, but it really is. This is a holy grail on drill pipe that people have been looking for about the last 30 years and I think we are just about there and I'm excited about this. We will be showing some of these things at OTC this year.

So that really is kind of a quick overview. And at this point, Kim, I'd like to turn it back to you and see if any of the callers have questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). At this time, we have a question from Kurt Hallead from RBC. Please go ahead.

Kurt Hallead – RBC

Hey, good morning.

Clay Williams

Good morning.

Pete Miller

Hi, Kurt.

Kurt Hallead – RBC

Well, I'll start off and with the most obvious of obvious questions as it relates to the Petrobras orders. You guys seem very confident about the prospect of the bidding going in May and not necessarily being delayed again. Can you give us some backdrop to that high level of conviction as to why you think you won't get pushed out to the right again? And then could you give us benchmarks just that we can look for that will give us some indication as to whether it's going to go through or get – or potentially get delayed again?

Pete Miller

Kurt, obviously, anything can happen and it could potentially get moved more to the right. But we feel pretty confident that they want to get these tenders and they want to be looking at them. And I think that that's important for them. I think that most of the questions have been answered at this point in time. I'm talking specifically really about the ones going into the Brazilian shipyards. I think that's the – those are the ones that we are spending a lot of time concentrating on right now.

And my guess – and it is clearly a guess, I'll put a caveat here. They are not going to come out tomorrow and say, "We've extended it another two weeks." But the fact is we don't feel that way right now and the signals that we are getting is that they will go in the mid-May time frame.

I think once those are in, I think there are going to be a lot of clarifications, there is a lot of specific processes that the Brazilians have to have legally, have to be able to have everybody to be able to take a look at it so you can see if everybody is bidding the same thing technically. There is different issues like that. So my guess is there will be a couple of months that are going to be involved about clarifications, whether or not everybody is kind of bidding apples and apples or apples and oranges.

And then I think ultimately, as we look into the second half of the year and late into the third quarter, we'll start to get a little bit better feel as to when we think they will – they might come back and ask for additional clarifications, they might – I don't think that adds for a complete re-tender, but they can do things like that. And I think as we get into the fourth quarter, we should be looking at either orders being placed or being fairly imminent at that point.

So that's kind of – that’s – and again, I'm going to put a caveat on that. I mean, I – obviously, I'm not in the inner workings of Petrobras, but based upon – we've got very close connections down there and that's kind of our best feel at this point.

Kurt Hallead – RBC

And then my follow-up would be, the margin performance is just exceptional. So well done on that front. So with the backlog declining the way it is and the prospect of in the very near term, call that next one to two years, of maybe the rig tech backlogs not getting back to where it was in 2008, kind of begs the question, can you drive as much to the bottom line on a lower revenue base given this learning curve as we move forward? What would be your take on that?

Clay Williams

Yes, I think we are actually demonstrating that now, Kurt. If you look at rig technologies, the revenues were down year-over-year double digits. And in spite of that, margin was substantial higher. So what you are seeing is a very finely tuned machine now, working on lower volumes and generating great margins.

As I pointed out in my opening comments though, to be fair, the backlog that we have now still reflects pricing back from '07 and '08 and that pricing was pretty buoyant. We come under a little pressure lately, so it's not quite as good, but still solid. And we've got a lot of confidence in the ability of our team to execute these orders and post a really strong margin.

Kurt Hallead – RBC

As the cycle evolves here, the prospect of you doing some add-on businesses, bottom line is can you generate as much of an earnings – as much earnings power in this upcoming cycle without $12 billion of rig tech backlog? What will be your take on that, Clay?

Clay Williams

Yes, we've been in that kind of dollar per share range even with the downturn. I mean, our backlog – our starting backlog this quarter was 6.4, 1.12, it was $6.4 billion. And we are generating good earnings, over $1 a share. So think the machine is running well. Obviously, we recognize we need to reload with backlog, but again, the largest tender that we've ever seen in this industry is due this year and we like our chances. And I'll add, it's not the only thing out there. We are talking to other operators as well about other opportunities to build rigs.

Kurt Hallead – RBC

Okay, great. Thank you.

Pete Miller

Thank you, Kurt.

Operator

Thank you. Our next question comes from Jim Crandell from Barclays. Please go ahead.

Jim Crandell – Barclays

Good morning, guys. Great quarter.

Pete Miller

Thanks, Jim.

Jim Crandell – Barclays

I know you don't like to talk about specific orders, but given the attention and potential size of this DELBO [ph] order, could you give us some kind of indication where that makes sense?

Pete Miller

No, Jim. I don't like to talk about specific orders.

Jim Crandell – Barclays

You were so expansive on Petrobras. So I think you could – I thought you would maybe want to talk about DELBO.

Pete Miller

Well, the Petrobras is expansive in their own right. We – what we do is – if our customers talk about it, we talk about it. If they don't, we don't. I know there is a lot of interest out there on it, Jim. But it would be imprudent for me to make a direct comment about what they are doing. I will say this though. We are excited and it's not just the Petrobras tender that's out there today that’s available to us. So there is other things that could potentially happen.

Jim Crandell – Barclays

Okay. Pete, in addition, I guess you talked about Brazil. Could you talk about the other sort of potential sources for new deepwater rig orders touching on India, China, the Arctic, and maybe how major oil companies might feel about ordering new rigs over the next year or so?

Pete Miller

Absolutely. Good question, Jim and I know that we've talked about that a little bit in the past. And I think that's one of the things that people have to realize is that while Petrobras clearly is the one that everybody wants to talk about, there is still a lot of activity going on around the world and there is lot of deepwater necessity around the world.

Arctic, in particular, you've heard some drilling contractors talk very openly about that. And I think having rigs that are capable of drilling in the Arctic, they are different animals and they – you can't take something out of the West Coast of Africa or the West Coast of Brazil and move into the Arctic. And so I – we are excited about some opportunities there. I think if you look at the other continental shelf of Northern Norway, we are actually working with Statoil right now on an engineering contract to design a rig very specifically for that particular area.

The India area, I think, in particular is pretty exciting and as you take a look at some of the deepwater that's off the West Coast of India – and the other interesting thing there is unlike West Africa and Brazil, those waters aren’t benign. They have typhoons, they have – it's much more like a Gulf of Mexico-type operation. So the rigs themselves have to be a little stouter and a little bigger. So I think that's another area that's exciting. South China Sea, you are seeing more opportunities there, offshore Australia.

And I think the other thing is that people are looking at a slimmed-down version of drill ships too. Not only are we talking about the big exploratory-type discovery, clearly there are type (inaudible) like Transocean has, but also some of the smaller ones that are going to be more for the development once these big fields are discovered.

So we think there is a lot of potential out there for things like that. And we are excited about it and while it – all might not come in the next quarter or two, we think over the next couple of years, you are going to a good inflow of opportunities like that.

Jim Crandell – Barclays

Okay. And then final question, Pete. What do you think of the prices paid recently to do acquisitions or let's say, large acquisitions and how do the prices paid sort of influence your thinking on not only the prices paid, but let's say the – because of those, the prices that companies may want that, how does that influence your thinking about doing acquisitions at this point in time?

Pete Miller

Well, there have been some nice prices paid. Actually, that doesn't impact what we offer. What it does do is it impacts what the folks that were offering, think we are going to offer. We stay pretty disciplined and I think that we have an awfully good track record of that and we are not – everything we do, we want to make accretive immediately. We want to kind of stick with the criteria that we have and that makes it difficult sometimes.

However, we've still got an awful lot of opportunities out there today, Jim. And as we look at those, we probably have as many things that we are working on right now as I can recall us having worked on in the past. And I'm excited about it and we are still able to close deals. I can't pass judgment on what other people paid, but I can assure our shareholders that we are going to stay very disciplined and we are going to try to continue with the same sort of track record that we have. And we will be successful, I mean, I – there is no doubt in my mind. We are patient, we can write things out and we'll give the targets that we have on our scope.

Clay Williams

I'll add too, Jim. We are not afraid to roll up sleeves and tackle acquisitions that need a little fixing and in fact, a couple of the acquisitions we did last year came in at pretty dilutive margins and we are not afraid of that and have active kind of turnaround projects underway. We've done that consistently for many, many years and have a lot of confidence in our managers to execute on that well.

And we are in many ways looking for targets in – we are a strategic buyer. And that’s one of the things in addition to our infrastructure, our reputation, our global footprint, the willingness to tackle some businesses that are, let's say, challenged. It means we can get really, really good deals that offer good returns for our shareholders.

Jim Crandell – Barclays

Okay. Great to hear. Thanks, guys.

Pete Miller

Okay, Jim. Thank you.

Operator

Thank you. Our next question comes from Robin Shoemaker from Citi. Please go ahead.

Robin Shoemaker – Citi

Thank you. Clay and Pete, I wanted to ask on the non-capital piece of rig technology, we can kind of see the revenues there kind of drifting down as the markets declined in the sort of running $500 million, $600 million a quarter in '08, $400 million, $500 million a quarter in '09, starting out $380 million in the first quarter. So what could you tell us about the non-capital – the aftermarket business in rig technology?

Clay Williams

Yes. First, Robin, most of that non-backlog revenue is aftermarket. And the aftermarket is actually fairly stable. It was, call it, flat sequentially from Q4 to Q1. The volatility that you are referencing there is largely the non-aftermarket piece of the business. These are smaller capital goods.

We have a – by necessity, we have a pretty arbitrary cutoff of what goes in the backlog and what doesn't. And we cut off orders at $250,000. If they fall below that $250,000 threshold, they don't hit the backlog and so they go through non-backlog. And if that piece is very volatile and it just depends on which side of that line orders fall in a particular quarter. So you are seeing that sort of non-backlog capital equipment business, it will go up five-fold quarter-to-quarter and then will contract and we just saw a big contraction this quarter.

But the aftermarket business did drift down from '08, but we remain pretty bullish on it and it's been pretty stable through '09 and into the first quarter this year and again, its rig counts have recovered and as we add new floating rigs to the fleet, we think we are going to see growth in that aftermarket business.

Robin Shoemaker – Citi

Yes, that's what I was anticipating. So we should see it going forward. The – just going back to your comments on the drill pipe business, Clay, it seems like you did – you exceeded 100% on book-to-bill. That – do you have a sense of – now of how much inventory of drill pipe is on the ground or on stack drilling rigs? How much has been worked down and is there a potential for the kind of surge in drill pipe sales, very pronounced or – that we've seen in previous cycles?

Clay Williams

Yes, I think you are – we can't quantify it exactly, Robin. Those inventories are held by joint contractors around the world. But what we think we are seeing here is the increase in North American rig count has driven consumption of inventories of drill pipe and that means we are kind of burning through that inventory.

And then the other phenomenon we are seeing is kind of the flavors of drill pipe that are on the ground out there may not be the best flavors for the shale plays that are driving a lot of the rig count increase. So that's why we are particularly excited about the interest we are getting from customers in the – on the HI TORQUE premium connections that are going into these shale plays. So it's not just a matter of the volume of drill pipe on the ground, but it’s also – what it matters the flavor of the drill pipe that’s out there.

Robin Shoemaker – Citi

Okay. That's good. Thanks a lot.

Pete Miller

Thanks, Robin.

Operator

Thank you. Our next question comes from Geoff Kieburtz from Weeden & Co. Please go ahead.

Geoff Kieburtz – Weeden & Co.

Thanks, good morning.

Pete Miller

Good morning, Geoff.

Geoff Kieburtz – Weeden & Co.

Clay, I'd just like to pick up on that last subject. You lost me a little bit in your discussion about the drill pipe margins. I thought you said that the mix was getting more negative that is more API pipe than you've commented on the shales requiring the HI TORQUE connections. Could you just walk through what you expect in terms of drill pipe margins?

Clay Williams

Yes, Geoff, the difference I think is the difference between revenue recognized in the quarter and orders flowing.

Geoff Kieburtz – Weeden & Co.

Okay.

Clay Williams

We are seeing orders flowing in, reflective of a more – higher interest of premium connections and versus sales going out in the quarter, more reflective of a traditional mix. If you recall our comments late last year, drill pipe held up really, really well despite a low backlog. And the reason for that was it was mostly sales strings into these new offshore rigs.

Geoff Kieburtz – Weeden & Co.

Right.

Clay Williams

For heavy pipe, premium pipe, high tensile strength, high torque connections and those carry a very, very good margin. What we saw in the first quarter in terms of shipments – and this is in line with our guidance last quarter, was a shift more towards the traditional mix of API pipe and that's – that did in fact occur in the quarter and so margins went down at a pretty good clip.

Now, our group did a good job offsetting that. It was – it's lower-margin pipe, but it's higher sort of piece count moving through the factories and so that helped us on the absorption front.

Geoff Kieburtz – Weeden & Co.

Okay.

Clay Williams

And we are also – we are using lower-price green tubes which help us on the cost front in the quarter.

Geoff Kieburtz – Weeden & Co.

Okay. So the drill pipe, though, was the primary reason we saw revenue down sequentially in PS&S?

Clay Williams

Yes, absolutely. Very sharp decline, I mentioned in the comments, over 30%, it's close to 40% sequential decline.

Geoff Kieburtz – Weeden & Co.

And that should become a positive to PS&S revenue trends?

Clay Williams

Yes, I think as we work through the next couple of quarters with the orders picking up, as the rig – if the rig count remains high, which is certainly a question mark, and as the builders of these new offshore rigs come back to the marketplace and buy strings to outfit those rigs, those are all positives. And so we – we got our fingers crossed for a recovery late this year and so far so good.

Geoff Kieburtz – Weeden & Co.

Okay. And then on the rig tech margins, I think you said in your guidance that you expect the margins to pull back to the mid-20% range in the second quarter?

Clay Williams

High-20s, Geoff. We are kind of upping our guidance on that a little bit. We've been, as I mentioned, very positively surprised with favorable cost on projects that we've executed over the last few quarters.

Geoff Kieburtz – Weeden & Co.

Right.

Clay Williams

And we've had $30 million, $40 million of positive cost experience kind of hitting quarter by quarter. So kind of resetting our guidance on that, we think, Q2, we should be in the high-20% range, despite – but we do know volumes went down this quarter, revenues went down this quarter for rig technology. They are going to go down again in Q2, but we are kind of resetting to a little higher margin level.

Geoff Kieburtz – Weeden & Co.

Okay. And if I could just ask one last question, Pete, you obviously don't want to talk about orders in terms of specific customers and so on. I wonder if I could get from you a sense on – generally, if you look out over, let's say, three to five years, you pick the time period, what do you think the average capital equipment orders in rig tech are going to be?

Pete Miller

Geoff, I answered that. I think my General Counsel would run in here and behead me right now.

Geoff Kieburtz – Weeden & Co.

I know you don't have a great experience with forecasting orders here, but –

Pete Miller

Well, Geoff, it just goes back to – we like where we are, we like our strategic position in this industry. We've consolidated, we've made sure that we are somebody there that has an integrated package that we can offer people. We think the industry continues to need what we have. We've gotten a good start on retooling the industry and we've been talking about retooling the industry for 10 years. And it's come into pass and so I like where we are.

To make any prediction on that, if I gave you dates, I wouldn't give you numbers and I gave you numbers, I wouldn't give you dates. So – again, we just like where we are strategically and we think that the industry still needs an awful lot of stuff over the next five or 10 years.

Geoff Kieburtz – Weeden & Co.

You think '09 would be the low point for the next five years?

Pete Miller

I – you tell me what's going to happen on the general economy. I mean, I would ask you, are we going to have another meltdown like we had in '08, are we going to have – you know, our fear is not so much where we are today. I mean, at $84, $85 oil, the vast majority of our backlog that we created was created at a much lower oil price. The fear I have is what happens to the rest of the world is are you going to rescue Greece, is there going to be a prolonged recession in Europe, do we have a double-dip recession in the United States, I mean if you can answer all those questions, I'll answer yours.

Geoff Kieburtz – Weeden & Co.

All right. We'll take it up later.

Pete Miller

Okay. It sounds good.

Clay Williams

Thanks, Geoff.

Operator

Thank you. Our next question comes from Collin Gerry from Raymond James. Please go ahead.

Collin Gerry – Raymond James

Hey, good morning. I just got a couple of quick ones. Clay, you touched on the M&A margins being a little bit dilutive on the out – at first. You made quite a bit of M&A last year. Could you maybe talk to us about how the integration is going there and maybe how that affected the quarter?

Clay Williams

Well, I mean, I think great news all the way around. The integrations are going just according to plan and in any of these acquisitions, Collin, we always run into some negative surprises we didn’t expect. We try to flush out as much as we can during due diligence before we close, but inevitably, you hit a little – some stumbles along the way and I'm pleased to report that the businesses we acquired, those have been pretty minimal, and so I think we've got good contributions from those acquisitions and a couple particularly late in the year and the one we did in the first quarter are under process.

So we've got tight integration plans that we put together before we close and then we stick to them after we close, and so far so good. I can't stress enough the importance of experience in this area. We've got business unit managers across the company that have done many acquisitions, who had successfully integrated many businesses and it is a very challenging undertaking, but one that our folks really know how to do well.

Collin Gerry – Raymond James

Yes, I guess that's kind of what I was getting at is you all arguably have the – a better track record than anybody on that. And so just as I look at the quarter, you all did some M&A relatively recently. I was wondering if margins were somewhat diluted by that. And then as we see – as we look out going forward that you have a rebound effect.

Pete Miller

Yes, the – and the answer is yes, but not in a big way, Collin. I don't – I'd be reluctant to – I mean, I will tell you that margin improvement within acquired business is baked into the guidance that I give in the second quarter and so it's all sort of accounted for there. But yes, there was a little effect in Q1. But for us, this is a – this is an ongoing process. We do M&A pretty much every quarter.

I think in the last four years we've done 38 acquisitions, we've spent about $8.5 billion total including the Grant Prideco acquisition and so every quarter, we hope to have acquisitions pulled in and be executing integration and consolidation exercise within NOV and that's kind of a long-term growth strategy.

Collin Gerry – Raymond James

Okay. Last one for me. Pete, you've been talking about Russia with somewhat of a cautious optimistic tone for the last few years. It sounds like you are getting a little bit more bullish. I listened to some of the other service companies, it sounds it's a 2011 event. Maybe just give us a little bit more color on what you are seeing out of Russia and how you see that market evolving over the next couple of years.

Pete Miller

Actually, Collin, we kind of like what's going on there right now. I think that as you take a look at it, probably other people when they are talking about 2011, probably are talking much more about hitting maybe full stride. What we are seeing today is we are starting to get some equipment orders in there. We are starting to get some clarity around some M&A opportunities. I mentioned that we opened up a new facility in (inaudible). It's doing a lot for us with our downhole tools and PS&S area.

We've got a little company that we bought not long ago over in Sakhalin Island. We think we see some expansion opportunities over there. But it's more – I think that it's finally opening up a little bit. We are sensing a freeing up of funds to do things. The Russians were hit pretty hard when we had all the economic downturn of late '08. And I think they are really kind of coming out of it right now pretty well. Obviously, $84, $85 oil isn't hurting that.

And so we are starting to sense that there is some real deals now that are on the table and they will start to manifest themselves in 2010 and clearly, we will be picking up speed by 2011. So we kind of like what we are seeing over there right now.

Collin Gerry – Raymond James

All right. That's it for me. Thanks again.

Pete Miller

Thanks, Collin.

Operator

Thank you. Our next question comes from Roger Read from Natixis Bleichroeder. Please go ahead.

Roger Read – Natixis Bleichroeder

Yes, good morning.

Clay Williams

Hey, Roger

Roger Read – Natixis Bleichroeder

I guess, maybe kind of hitting a little more on the deepwater stuff since we haven't hit it hard enough, you all talked about the pricing issues, the backlog today, you've got kind of the '07, '08 peak pricing in there. What are you seeing in terms of, if maybe not in absolute price or maybe the margin is – obviously, some of the raw material costs came down and bounced back up a little bit. What do you think the impact is as you look into a 2011, 2012, the next wave of orders, not just the ones out of Brazil, but also some of these other potential regions and projects?

Pete Miller

Well, Roger, I think there is a bunch of dynamics here right now. When you start talking about pricing, number one, we are not going to really tell you what we are pricing because of our competition listens to this. But I will tell you that we've become a lot more efficient. If you go back and look at 2005, 2006, Varco and National were merging and we have a lot of the challenges there, we are also coming out of a downturn that really didn’t have our plans moving at anywhere near the speed with which we move today.

And so what you have today is a tremendous efficiency gain. I think that's manifested in 30% margins that you are seeing out of drilling. And so we kind of like where we are and we think that while pricing may come down, we have an efficiency and a reduction in some cases of raw materials that ought to be able to offset that so we still maintain some decent margins.

And let me also stress, we don't work for practice. I mean – this is, we get to sell something one time and when we sell it, then we'll support it for the next 20 years, but this isn’t a situation where we are going to just give something away so we can work for practice, that’s not what we do. So I'm confident that we are going to be able to continue to return good margins to our shareholders in the future. Will they be at 30% all the time? No, not necessarily, but I like the way we do things today.

Roger Read – Natixis Bleichroeder

Okay. I mean, so as – you kind of look at prior – obviously, you have to go back and look at National and Varco as two separate companies, but it was not unusual to see margins drop into the single digit in a trough. Obviously, we are all expecting the orders to pick up before we hit a real trough, but as I think about two – say, second half of '11 or '12 when this next wave should start to come through, mid-20s is not an unusual – it’s not an unreasonable level to think you can hit.

Clay Williams

Yes, I mean we are – we feel pretty good, Roger and I'll add to perhaps some numbers around this. In '04, on a pro forma basis, you had National and Varco together and look at our production of top drives and mud pumps and dry works [ph] and all the things that we made and then you compare that to what we actually did in 2008. Most of those product categories were up six, seven, eight-fold huge growth through that period.

Part of the efficiency gains that you are seeing now come out of a little bit of a slowdown in '09. We are just working through this at a little more workman like fashion. So we are paying less overtime, we've kind of retrenched back to our first year suppliers and cut loose some of our bottom-tier suppliers that were less efficient. So the marginal cost of manufacturing the stuff in this kind of environment is a little better too. So that helps us as well.

Roger Read – Natixis Bleichroeder

Okay, thank you.

Pete Miller

Thanks, Roger.

Operator

Thank you. Our last question comes from Bill Herbert from Simmons & Company. Please go ahead.

Bill Herbert – Simmons & Company

Thanks, good morning.

Pete Miller

Good morning, Bill.

Bill Herbert – Simmons & Company

A couple of questions here. First of all, Clay, you were speaking more quickly than my brain could process. So you may have answered this, but I'm not sure if I quite caught it with regard to your summary comments. And that is what I'm trying to drill down into is essentially the composition of orders for rig capital equipment in Q1, you mentioned three jack-ups.

But fundamentally, in Q4, if I recall correctly, you had a nice surge in pressure pumping equipment, land rig equipment, maybe even a little coiled-tubing, although I'm not sure if that in the right bucket and driven by North America, as well as China and other ports of call. So apart from the three jack-ups that we benefitted from in Q1, what else was the mix?

Clay Williams

Sequential – sequentially, pressure pumping was up again.

Bill Herbert – Simmons & Company

Okay.

Clay Williams

And one of the big factors this quarter were top drives, Bill.

Bill Herbert – Simmons & Company

Okay, nice.

Clay Williams

We had a huge quarter for top drives and what we hear is that a lot of these land rigs are required to put top drives into their fleet in order to win work. And so that's spurring a lot of demand and it's not just the U.S. I think about half of those were domestic and the other half were international. So a lot of interest in that area. So it was just a good – all the way around, another good, broad-based quarter for orders.

Bill Herbert – Simmons & Company

Okay.

Clay Williams

We also – one other thing too, we had a big crane in here too.

Bill Herbert – Simmons & Company

A big crane?

Clay Williams

Right.

Bill Herbert – Simmons & Company

Got it. So as we look out, based upon the visibility that you see with regard to your clients and the feedback mechanism on the order front and as you look out with regard to the balance for 2010, we were running, for example, for most of last year at a non-floater quarterly capital equipment order rate of about $3560 million per quarter, and that seems to have risen to about $400 million to $500 million per quarter, if not a bit higher.

Clay Williams

Two quarters make a trend.

Bill Herbert – Simmons & Company

I understand. But – so there is a rub of my question here. I mean, while everybody is uncertain with regard to North American drilling activity, Pete mentioned positive mix shift towards oil. So the likelihood of a collapse is probably unlikely and the service intensity theme is still with us, obsolescence, inventory, et cetera. So I'm just kind of wondering why it can't continue.

Clay Williams

Well, it's a great question. And Bill, I can't tell you precisely what our orders are going to be. They've always been volatile. What I can tell you is drilling consumes an awful lot of stuff that we make.

And we are seeing the shale plays, the intensity of the frac jobs going into these shale plays the many, many stages that they are pumping, I read somewhere that six and seven-fold type comparisons compared to a conventional frac job. That's good for the equipment that we make and we make all kinds of lenders and coiled-tubing units and coiled-tubing itself. We make the rigs going into that trend, we make the downhole tools used to directionally drill those wells, all good for us. So hard to quantify, but feel very good about the future consumption of a lot of iron that NOV manufactures.

Bill Herbert – Simmons & Company

Okay. And last line of enquiry from me is we've touched on it at various times in this call, but I kind of want to specify, if you will, what – I think you don't get credit for is really how you've quietly and consistently augmented your earnings power through acquisitions and we've – I think if I'm researching well, you've done about $600 million odd worth of deals over the last 12 months, perhaps more. You've got a pretty sizeable LOI on the table right now. So call it $800 million pro forma.

With regard to the rate of acquisitions that you've been consummating over the past year and with the improvement in industry conditions worldwide, do we think that the current pace that you've been on is sustainable going forward?

Pete Miller

Absolutely, Bill. I mean, I think that as we look at things today and again, we've – we've already said we look at about seven deals for every one that we do. But we have as many things on the table today as we've had in quite sometime. We really like the opportunities that we have out there and you are going to continue to see us being very aggressive in the M&A business. I mean, we think we know how to do it. We like the opportunities that are rising there today and you are going to continue to see, I think, a good movement from us on this front.

Bill Herbert – Simmons & Company

So really we shouldn’t be surprised to witness anywhere from $0.5 billion to like a $1 billion worth of deals consummated over the next 12 months?

Pete Miller

Not – shouldn’t – wouldn't be surprised at all.

Bill Herbert – Simmons & Company

All right. That's it for me. Thanks, guys.

Pete Miller

Thanks, Bill.

Clay Williams

Thank you.

Operator

Thank you. This concludes our question-and-answer session. I'll now turn the call back to Mr. Miller for closing remarks.

Pete Miller

We appreciate your interest and we look forward to talking to you at the end of the second quarter. Thank you very much.

Operator

Thank you. Ladies and gentlemen, a playback of today's conference will be available 90 minutes after the conference concludes. The phone number to access the playback is 888-843-8996. The passcode to access the playback is 26597806, followed by the pound key.

This concludes today's conference. Thank you for your participation.

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Source: National Oilwell Varco, Inc. Q1 2010 Earnings Call Transcript
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