NOV's Williams: Energy Industry Will Barrel On

Rigzone: Has the space between the bid-ask spreads been a challenge to M&A deals?

Williams: It’s always an issue. That’s a pretty normal challenge. In a market like this, though, when public stock prices decline pretty sharply, we all are very aware of the 52-week high for our stock prices in the rearview mirror. It’s just very difficult, I think, for public companies and for private companies, too, to sell. We’re trying to stay close to opportunities out there and continue to work the bid-ask spread.

Rigzone: There’s been significant concern about the oilfield services sector hanging on during the downturn, and yet, it’s the independent E&Ps that are filing for bankruptcy protection. Are you concerned about your sector falling into that situation?

Williams: A lot of the independent E&Ps have relied on the capital markets and a lot of debt financing to fund their operations over the last several years. And I think that generally, they moved into this downturn a little more highly levered than a lot of the oilfield services companies. That’s not to say that there aren’t oilfield service companies dealing with debt challenges, but I think the use of debt financing is more prevalent amongst the E&Ps. Last quarter we had $4.3 billion in debt outstanding, but that’s offset by $2.5 in cash.

Rigzone: NOV stock prices have dropped 15 percent since the end of July. When you’re watching that at the end of the day, what do you think?

Williams: It’s a function of the cyclical downturn that we’re in. I’ve learned not to obsess about the stock price. In the long run, fundamentals drive the outcome. And so, I’ve always been about positioning the company strategically to benefit from long term trends, positioning the company for competitive advantage and positioning the company for cash flow; if you do those things right, the stock price will take care of itself.

Rigzone: The current downturn has been punctuated by lay-offs at companies big and small, including NOV. Tell us about that process.

Williams: It’s been very difficult. [The employees] are skilled workers. They are well-trained, and they do a great job that our customers rely on. But when we had less work than we needed to keep them all occupied, we necessarily made some difficult reductions. It’s very painful all the way around, and we’re looking forward to the upturn.

Rigzone: Is there concern within the industry that even once things start looking up, workers won’t want to come back?

Williams: I’m very concerned. As you know, it’s a deeply cyclical industry. So it feels like you’re always the wrong size in oilfield services. You’re either getting bigger or you have to get smaller. It is a challenging industry, and a difficult industry economically. But I guess the good news is, we know that it will recover. The industry is facing the big “crew change”, so workers of my generation are starting to face retirement ages. We’ve been working hard for the past decade to try to backfill with a workforce that’s motivated, that’s well-trained to take over the industry. To have this downturn come now … I really hope it doesn’t dissuade our talented younger workers from participating in this industry because I know it’s going to recover.

This is the sixth downturn I’ve been through personally. And the level of activity today is not sustainable to fuel a world that’s going to demand more oil. I can’t tell you what quarter or what year it’s going to come in, but there is a recovery out there.

Rigzone: Do you think oil could drop down to 1980s shock levels of $9 a barrel again?

Williams: Never say never, but microeconomic theory would tell you that any commodity price could fall down to its cash cost of production of the most expensive barrel equaling supply. So if you lined up all the barrels, the most expensive barrel would be the one that would be tested and once the price dropped below that, then the rational producer would shut in that well.

There’s a floor out there for oil prices that’s driven by its cost of production. I don’t know precisely where that is, but if you look back to 2009, I think oil bottomed out at about $35 a barrel. This time around, we’ve been down to about $42. So if we’re not there yet, I think we’re probably pretty close to the floor.


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