Backlog for capital equipment orders for the Company's Rig Technology segment at June 30, 2005 rose 40% over the prior quarter to $1.2 billion, with new orders during the quarter nearly doubling over the prior period to $735.5 million. Revenues out of backlog for the second quarter totaled $396 million, a 30% increase over the first quarter. The increase in backlog was driven by high demand for land and offshore components and for land drilling rigs.
Second quarter transaction charges relate to the March 11, 2005 combination of National Oilwell and Varco. The Company expects to achieve operating profit improvements in the range of $60 million, on an annualized run rate basis, when the integration is completed by the end of the first quarter of 2006. Expected savings are higher than earlier estimates. Second quarter charges related to the Company's Kazakhstan drilling rig fabrication project are the result of unexpected costs related to the rig-up of the drilling facility, and higher structural weights as compared to original engineering estimates. The two 3000HP rigs, together with support modules and skidding systems, are expected to be shipped during the third quarter.
Pete Miller, Chairman, President and CEO of National Oilwell Varco, stated "We are enjoying tremendous demand for our oilfield products and services. The sharp increase in our backlog points to improving results from our Rig Technology group in the coming quarters, and our service, spare parts, and consumables businesses are all performing very well in a rapidly growing market. As a result of high oilfield activity, and better than expected opportunities to achieve merger savings, we expect further strengthening through the second half of the year. The Kazakhstan rig fabrication project is unique in both its size and complexity. While we are disappointed in the financial results from this project, we look forward to successfully delivering these state-of-the-art rigs in the next few weeks."
The Rig Technology segment includes most of the capital equipment manufactured and sold by the Company including drilling rigs, jackup packages, coiled tubing units, cranes, mooring systems, wireline units, nitrogen injection units and workover rigs. Second quarter revenues for this segment were $575.2 million, and operating profit was $51.9 million, or 9.0% of sales. Revenues and operating profit excluding the impact of the Kazakhstan project were $563.2 million and $73.6 million, respectively, and operating margins were 13.1%.
Petroleum Services & Supplies
The Petroleum Services & Supplies segment consists of those businesses within the Company providing critical services and consumables to the oil and gas industry and includes pump and liner expendable supplies; pipeline and tubular inspection and coating; fiberglass and coiled tubing pipe sales; solids control and rig instrumentation; and downhole tools rentals and sales. Revenues of $451.5 million were up 12% sequentially compared to pro forma first quarter results, and operating income rose 20% to $76.6 million over the same period, representing a 26% operating leverage (incremental operating profit divided by incremental revenue). Outstanding results from most of the group's oilfield services and supplies businesses around the world overcame the seasonal breakup in Canada and lower volumes and project delays in the pipeline inspection business. Continued improvement through the second half is expected as a result of higher demand and improved pricing in most areas.
The Distribution Services segment provides maintenance, repair and operating supplies to drilling and production operations around the world, employing advanced information technologies to provide complete procurement, inventory management and logistics services to our customers. Second quarter revenues of $258.0 million were up 9% from the first quarter. Operating profit was $9.6 million or 3.7% of sales for the group, representing a 9% sequential operating leverage. Strong demand in the United States and international markets, and close attention to costs, more than offset seasonal declines in Canada due to breakup.
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