Is National Oilwell Varco a Buy?

National Oilwell Varco (NOV) announced second quarter ended June 30, 2016 total revenue of $1.72 billion, down 21 percent sequentially from $2.19 billion in first quarter of 2016 and a decline of 56 percent year-over-year from $3.91 billion in second quarter of 2015.

National Oilwell Varco declared second quarter of 2016 net loss of $217 million or $0.58 of loss per diluted share compared to a net loss of $119 million or $0.32 of loss per diluted share in the sequential first quarter of 2016 and a net income of $289 million or $0.74 per diluted share in second quarter of 2015.

The oil well drilling equipment manufacturing company reported continued sequential and year-over-year decline in both its top and bottom lines primarily driven by the ongoing weaker global commodity demand and pricing environment, forcing the energy mining companies to delay or cancel any new energy mining project and thus, impacting the demand for the related equipment.

End-market prospects  

According to the EIA recent estimates, the crude oil production in Permian Basin has reached approximately 2.0 MMbpd during August 2016 that is somewhat lower than the total production in July 2016.
Is National Oilwell Varco a Buy?
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However, August 2016 production was 3 percent greater than August 2015 production. Actually, shale crude oil production in the Permian Basin has continued to decline six times in the past one year.

Still, shale oil production in the Permian Basin grew to about 2.0 MMbpd during August 2016, up 125 percent over the past eight years from nearly 875,700 bpd during August 2008. Therefore, each rig in the Permian Basin added an average production of 535 bpd during August 2016, an increase of 25% over the same period last year. Also, the extra production achieved per rig grew by approximately 6.4 times since the previous eight production years.

As per the latest EIA estimates, the natural gas production at Marcellus Shale consolidated to approximately 17.8 Bcf (billion cubic feet) each day during August 2016, somewhat down 0.2% sequentially from July 2016 production levels but recorded 6% higher production year-over-year compared to August 2015. Actually, total natural gas production registered a consecutive month-over-month decline over the same period last year and representing sixth successive fall in natural gas production.

Focusing on the right areas  

All the major energy drilling companies have significantly minimized their drilling and exploration activities which is in line with their continued commitment to preserve the much-needed cash for continuing with their daily operations profitably while delivering attractive shareholder returns in form of dividends and strategic share repurchases.

National Oilwell Varco has introduced an innovative power sections mobile application that is believed to be accessible through Google Play and the Apple App Store. This latest application is the lone custom specification application in the industry that illustrates the superior level of innovation that the company has implemented to enhance the easiness of doing business with their core partners.

In addition, the company has uniquely upgraded its Grant Prideco™ GP2GO™ App to improve the customer’s overall mobile usage experience with the addition of a comprehensive connection library and an attractive highly useful real-time advanced performance calculator, allowing the consumers to access all the required information anywhere while on the rig, executing the procedures or in the office developing a well plan.

The strategic and unique technique of National Oilwell Varco to increasingly connect with its customers globally through advanced mobile apps is believed to induce superior easiness in the company operations while allowing it to add more and more customers to its already vast strategic customer base.


Overall, the investors are advised to “Hold” their position in National Oilwell Varco, Inc. considering the company’s significant cost-optimization initiatives which are believed to support it in overcoming strong from the ongoing weaker global commodity demand and pricing environment. The PEG ratio of 7.89 depicts healthy company growth. However, National Oilwell Varco needs to optimize its debt-burdened balance sheet with significant total debt of $3.28 billion and weaker total cash position of $1.66 billion only, restricting the company to continue with its daily operations profitably. The profit margin of -17.14% is also disappointing.
Published on Sep 20, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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