North American oil, gas activity static but look for improvement in 2024, says NOV CEO

Global Offshore and International Oil and Gas led NOV Inc. based in Houston during the third quarter as the North American offshore market retreated, CEO Clay Williams said Friday.

On a conference call to discuss quarterly results, Williams said the oilfield technology specialist improved revenue and margins on the back of its overseas projects, which outpaced “softening” activities in the North American country.

“After a decade of underinvestment, with North American shale crowding out spending on offshore and international onshore drilling, we are pleased to see increasing momentum in several offshore basins around the world in addition to international land,” said Williams.

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“Supported by LNG and constructive commodity prices,” projects approved in global offshore are set to reach around $140 billion in 2023, the CEO noted. That would be 60% more than the average for the previous eight years.

Offshore capacity continues to tighten overall, delivering improved economics with peak day rates hovering around $500,000 per day. Jackup rates are also rising.”

In particular, “we are hearing from operators looking to lock up rigs for longer periods of time, which we hope will give our customers more confidence to pull the trigger on capital projects that will lead to future orders.”

NOV remains “far from offshore rig newbuilds”, but incoming inquiries indicate more Eastern Hemisphere orders from national oil companies.

When will US activity pick up?

Are North American exploration and production (E&P) customers likely to increase activity in the coming year?

Recovery on the mainland “has not been quite what we had hoped for in North America,” Williams noted. “But looking out to 2024 as E&Ps reset their budgets…and gain more visibility into natural gas…I think that will spur a little more drilling…”

He noted that the United States is slated to increase its LNG export capacity by an additional 6.5 Bcf/d in 2025.

Additionally, “once the dust settles these mergers announced for North AmericaHopefully that will be a better backdrop for more drilling in 2024. I know we have a lot of customers who see it that way, and we’re all looking to see that come through as we get to 2024.”

Williams noted that over the past decade, the North American coast has been responsible for 80% of global oil supply growth. But in recent years, “we’ve been hit by inflationary gales and a supply chain tsunami. In response, we cut costs everywhere except for new technology development. We pushed prices down to try to keep up with inflation, which was challenging.”
However, the company’s relentless efforts to improve drilling technology continued by day. E&P customers “like what they see and what’s being built, regardless of their promises of capital austerity and lack of animal spirits,” Williams noted.

During the conference call, CFO Jose Bayardo also offered a positive forecast for Lower 48 activity, but he doesn’t think it’s likely to pick up steam before 2024.

“We expect this internationally oriented revenue mix to continue in the fourth quarter,” Bayardo said. “However, based on customer inquiries, the outlook for US orders may improve earlier than we would normally expect, likely reflecting expectations of higher levels of drilling activity in 2024.”

On the technology front, NOV has booked orders for a 25,000 hp hydraulic electric fracturing or e-frack rig for three power pod systems. They allow fleets to be hybrid, with e-fracks used alongside conventional means. Over time, E&Ps can replace conventional pumping units with more efficient equipment.

NOV reported 3Q2023 net income of $114 million (29 cents/share), up from $32 million (8 cents) a year ago. Operating profit was $183 million, up significantly from $55 million a year ago. Revenue grew 16% year-over-year to nearly $2.2 billion.

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