The following National Oilwell Varco Inc (NOV) conference call took place on October 28, 2015, 09:00 AM ET. This is a transcript of that earnings call. Welcome everyone to the National Oilwell Varco third-quarter 2015 earnings conference call.
National Oilwell Varco's financial results for its third quarter ended September 30, 2015.
Clay Williams (CEO):
Thank you, Loren. National Oilwell Varco continued to face a very challenging market during the third quarter. The Company reported GAAP earnings of $0.41 per fully diluted share including restructuring, asset impairments, facility closure costs and other items of $112 million pretax or $0.20 per share after-tax. Excluding these, earnings were $0.61 per fully diluted share, down 21% from the second quarter of 2015 and down 62% from the third quarter of 2014, excluding restructuring and other items from all periods. Third-quarter 2015 revenues were $3.3 billion, down 15% from the second-quarter 2015. Operating profit for the quarter was $346 million or 10.5% of sales, and EBITDA was $511 million or 15.5% of sales, excluding restructuring and other items from both. Decremental operating leverage was 18% from the second quarter to the third, as cost reductions across the organization helped minimize the margin impact from lower sequential volumes.
A second major decline in oil prices from the high $50 range back into the low to mid $40 range since June has increased financial stress and led to a second round of rig activity reductions, sending the US rig count down by almost 60% since late 2014 peaks. We expect to see further activity reductions and pricing pressures continuing into the fourth quarter.
Visibility is limited, but we believe most producers will further reduce their 2016 CapEx plans after cutting spending significantly in 2015. The industry has not seen two years of declining CapEx since the 1980s, signaling the severity of the downturn we find ourselves in.
We believe many, if not most, North American producers and OPEC countries are producing existing fields close to maximum levels, trying to offset lower revenues due to oil price declines with higher volumes, while sharply reducing drilling activity. OPEC and non-OPEC production are up year-over-year.
This is not sustainable. Production will begin to decline naturally as it has begun to in the United States, and therein lies the seeds for a recovery. However, with swollen inventories moderating demand growth with economic weakness in Asia and elsewhere around the globe, and an uncertain trajectory for incremental oil exports from Iran, we don't expect a recovery anytime soon.