Clay Williams - President, Chairman, and Chief Executive Officer Loren Singletary - Vice President of Investor and Industry Relations.

Marshall Adkins - Raymond James & Associates, Inc. Kurt Hallead - RBC Capital Markets Bill Herbert - Simmons & Company International Thomas Curran - FBR Capital Markets.

Operator:.

Ladies and gentleman, apologies, we had some technical issues here on our end. We do plan to go full hour. So we are going to start over again from the beginning. I understand that some of you couldn’t hear our opening comments. And so, Loren, I am going to hand it back to you to start all over..

Yes, and thank you very much, Clay. And what we want to do is before we begin this discussion of National Oilwell Varco’s financial results for the first quarter ended March 31, 2015.

Please note that some of the statements we make during this call may contain forecasts, projections and estimates, including but not limited to comments about our outlook for the company’s business.

These are forward-looking statements within the meaning of the Federal Securities laws based on limited information as of today, which is subject to change. They are subject to risk and uncertainties, and actual results may differ materially.

No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. I refer you to the latest Forms 10-K and 10-Q National Oilwell Varco has on file with the Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business.

Further information regarding these, as well as supplemental, financial and operating information, may be found within our press release, on our website at www.nov.com, or in our filings with the SEC. Later on this call, we will answer your questions, which we ask you to limit to two in order to permit more participation.

Now, let me turn it over to Clay..

gas-tight conductor connections; thermal desorption technologies to clean up drill cuttings for safe disposal; RFID technologies to track the myriad of assets used by this industry; flexible pipe systems for subsea developments; water desalination, de-oiling and sand separation technologies; reeled composite pipe for flowlines; bits, drill pipe, and top drives used to set a world record on an extended reach well exceeding 8 miles a few weeks ago; permanent magnet advancements for rotating equipment.

Although the industry is still in the early innings of upgrading to AC electronic controlled rigs, we are at work designing the next generation of drilling rigs, and we will be there with new and better technology for the inevitable upturn.

We continue to invest in technology and new products to grow organically, and we will continue to pursue interesting acquisitions in this environment, making sure that we are very disciplined about valuations in view of the current market challenges. We closed two transactions so far in 2015, and have several more negotiations underway.

We have also retired 10% of our shares outstanding through the past several months given our stock price downturn, because we view it as an extraordinary opportunity to reduce our cost of capital in a historically low interest rate environment.

Our debt increased $1.1 billion as a result, but with our $3 billion cash balance, net debt is still only $1.2 billion, about 6% of capitalization. I will note too that, we are currently slowing our share repurchases in view of some potential acquisition candidates coming into sharper focus.

I’m proud of the leadership NOV employees provide in this endeavor. While the current market is very tough, we are well positioned, with strong financial and operating resources and an industry-leading installed base of complex equipment in need of continuing close OEM aftermarket support.

I’m grateful to all of the great NOV employees who are remaining focused on taking care of our customers through this difficult time. We announced last week that our CFO, Jeremy Thigpen, has left us to become CEO at one of our important offshore drilling customers, Transocean Ltd.

We appreciate Jeremy’s leadership through 18 years of service here, in both finance and operations, and we wish him and Transocean the very best.

Our very talented Chief Accounting Officer, Scott Duff, has agreed to serve as Interim CFO, as we conduct a search process for our next CFO, and our long-serving Vice President of Investor and Industry Relations, Loren Singletary, here with me today will pinch-hit on today’s call to step up through the detailed financial results by segment.

So with that, let me turn it over to Loren..

Tectonic drill bits, which we are introducing at next week’s OTC, new proprietary threads on drill pipe, and closed loop drilling automation systems.

We continue to believe that new products are the lifeblood of any technology company, and we’re proud to say that even in today’s down market, our new technologies are gaining traction, and we will continue to innovate on next-generation technologies.

National Oil Varco Completion & Production Solutions generated revenues of $948 million for the first quarter of 2015, down 28% sequentially and 5% compared to the first quarter of 2014.

Operating profit for the segment was $108 million, resulting in an operating margins of 11.4%, down 480 basis points sequentially and 290 basis points year-over-year. Sequential decrementals were 28%, and first quarter EBITDA for the segment was $163 million, or 17.2% of sales.

Q4 to Q1, demand declined almost equally for both shorter-cycle activity-driven revenues and revenues from backlog. Declines were primarily driven by nearly 40% reduction in revenues for higher-margin offshore completion equipment, as strong fourth quarter deliveries did not repeat in the first quarter and North American completion activity slowed.

Segment revenues related to production - both on land and offshore were also negatively impacted by reduced E&P spending. Now, let’s discuss our capital equipment orders and resulting backlog for National Oil Varco Completion & Production Solutions.

In the first quarter, we received $327 million in new orders and recognized $563 million of revenue out of backlog along with an $81 million FX adjustment, resulting in a book-to-bill of 0.58 times and a quarter-ending backlog of $1.5 billion, down 18% sequentially.

Orders were down 30% from the $469 million won in Q4, although orders for composite pipe and processing technologies showed relative strength in the quarter. Of the total $1.5 billion backlog, approximately 69% is offshore and 82% is international.

As we move into the second quarter, we believe revenues will tick down slightly from the $948 million recognized in the first quarter. We expect revenue out of backlog to be in the range of plus or minus $500 million.

Given the current market uncertainty, we anticipate reduced demand and increased pricing pressures for equipment and technologies across the segment, which will reduce margins into the high-single digits, which implies low-20% decremental margins.

As in our other segments, we are actively reducing cost in the NOV Completion & Production Solutions to reflect lower levels of activity. Our order outlook for onshore completion equipment remains soft, particularly for the North American pressure pumping market as customers struggle with low utilization of existing equipment.

We see customers cannibalizing spare parts and using existing stock wherever possible, but expect demand for repair and maintenance to return well in advance of orders for full frac spreads and coiled tubing units. By nature, the FPSO-related bookings are uneven quarter-to-quarter.

In today’s lower commodity price environment, we expect orders to slow, as customers recalibrate cost for offshore production projects, although FEED-related activities and interest in pre-salt work continues. Now, let’s discuss our financial statements.

Working down the Consolidated Statement of Income for the first quarter of 2015, you will see across the gross margin declined 270 basis points sequentially and 200 basis points year-over-year to 24.4%. SG&A decreased 8%, or $42 million sequentially, as we continue to make efforts to reduce costs across all business segments.

As a percentage of revenue, SG&A was up 90 basis points sequentially and 40 basis points year-over-year to 10.1%. Other items were $122 million in the quarter due to charges related to our early retirement plans. Interest expense and interest income were flat sequentially at $26 million and $5 million respectively.

As compared to 2014, interest expense remained $26 million and interest income increased $1 million to - from $4 million. Equity income in our Voest Alpine JV decreased $7 million sequentially to $9 million, as demand for casing and drill pipe, and therefore green tube, moderated.

Compared to the first quarter of 2014, equity income slightly decreased by $1 million. For the second quarter and full-year 2015, we believe year-over-year equity income will continue to fall as demand for casing and drill pipe decreases.

Other expense for the quarter was $56 million, which represented a $36 million delta sequentially primarily due to fluctuations in foreign currencies and write-offs. The effective tax rate for the first quarter was 37.6%, which was an additional 9.5% over the 28.1% rate that we posted in the fourth quarter of 2014.

Excluding discrete items in the quarter, the company’s effective tax rate would have been 28.9%. We believe that a 30% to 31% effective tax rate for NOV continues to be a realistic estimate for the remainder of 2015.

If you now quickly turn to the first supplemental schedule, you will see that eliminations were $541 million for the quarter, down slightly from $556 million in the fourth quarter of 2014. Unallocated expenses and eliminations were $227 million in the quarter, down $2 million sequentially on lower volume of inter-segment revenues.

And finally, if you turn to the last supplemental schedule, you will see that depreciation and amortization expense in the quarter was $190 million, down $9 million from the fourth quarter of 2014 and $1 million from the prior year. EBITDA for the first quarter, excluding other items, was $837 million, or 17.4% of sales.

Turning to the balance sheet, our March 31, 2015 balance sheet employed working capital excluding cash and debt of $5.8 million, up $355 million, or 6.6% sequentially. Several factors contributed to the increase and we expect working capital to convert to cash and begin to fall later in the year.

The largest impact stems from our net of costs in excess of billings, and billing in excess of costs, and customer prepayments, which together make up the level of customer financing of our working capital and are tied to prepayments and progress billings.

As orders have declined, down payments have declined, and our progress on projects is outpacing our progress payments, which we saw in the previous downturn of 2009, and which will continue for the next few quarters. Working capital impact of this was $425 million in the first quarter.

Offsetting items include our accounts receivable, which decreased $392 million, or 9% sequentially due to lower revenues. Inventory increased $97 million, or 1.8% sequentially, mostly due to the transfer of certain short-lived downhole rental tools from PP&E into inventory.

While inventory is declining across most businesses, others are still receiving components ordered into construction schedules. So we expect inventory to begin to decline later in the year as we adjust our supply chain. We also had some customers postponing receipt of orders due to market conditions, which should turn around in this quarter.

Also leading to a sequential increase in working capital, accounts payable, accrued compensation and accrued liabilities decreased $419 million, which they do every year in the first quarter. For the quarter, the company generated $114 million in cash flow from operations. Capital spending for the first quarter was $130 million, down 44% sequentially.

In the quarter we also made dividend payments of $85 million and we spent $1.33 billion to repurchase 24.5 million shares for a total of $2.1 billion in share repurchases under our $3 billion authorization.

To fund the share repurchases in the quarter, we borrowed $1.1 billion, using our commercial paper program, which increased total debt to $4.2 billion. And our net debt capitalization to a very manageable 6.4%. As a result, we entered the first quarter of 2015 with cash balance of $3 billion, down $512 million sequentially.

Of that $3 billion in cash, almost 7% of the balance was in the U.S. at March 31, 2015. In summary, we saw spending and orders slow in all areas of the business is lower commodity price drove down E&P capital spending and drilling activity.

And we have a challenging quarter ahead as we see the full impact of reduced activity levels and pricing pressures on our business. As an industry, we are actively reducing costs throughout the supply chain as we seek new levels of efficiency.

While it is early and uncertain, we are encouraged as rig count declines begin to slow and we get closer to trough levels. Deflationary costs may entice improved levels of activity, and as our industry improves from a contraction mode to an expansion mode, NOV will start to see the full effect of the cost reduction efforts we are making today.

Our continued investment in technologies, capacity, and aftermarket support have made us the oilfield’s preferred equipment and technology provider. And as we pivot to new opportunities we expect National Oilwell to emerge a stronger, more resilient and more dependable partner for our customers. With that, we would like to open up for questions..

Thank you [Operator Instructions] And from Raymond James we have Marshall Adkins online. Please go ahead..

Good morning, guys. As usual, a very, very thorough overview. We appreciate that. I don’t have a lot of real specific ones. I want to ask just kind of a bigger picture broader question, Clay. The industry obviously has changed dramatically in the last few years. We’re starting to see dollars flow more into the U.S.

versus offshore, given the improving economics here.

How do you see NOV evolving over the next five years? I know that’s kind of a big picture question, but I just want to get a sense of how you adjust to the changing environment from one where you’ve dominated offshore rigs and where improving your offshore completion stuff to one where maybe more dollars are spent in the U.S.?.

Yes. Great question, Marshall, and something we’re obviously continuing to think about here. We benefited greatly from a lot of offshore rig building through the last decade, and have been a big participant in that. And we’ve also done a lot - we’ve been very transactional. We’ve invested a lot of M&A capital through the last decade.

When we look back to the past 10 years, 97% of our M&A capital have gone into our other three segments, really away from the rig-building space, building out really interesting positions, trying to position us for option value across multiple trends underway.

So when we look at, for instance, a shale well drilling operation, what you see out there is a Tier 1 rig, premium drill pipe, downhole tools, mud motors. You see on the completion side coil tubing units, in-coil tubing, frac spreads, sanders, mixing units, basically all of the picks and shovels.

All of the hardware that go into the unconventional shale trend, NOV is global-leading provider of. We look across the oilfield and we see opportunities in waste management. And so things like thermal absorption technology to clean up drill cuttings.

Water management opportunities, we’ve got some great technologies in around osmosis clean up and desalinization of water. De-oiling of water with our WaterWolf products. So we’re doing more on the production side. So this has been - we’ve had a steady application of capital into other trends, recognizing that this industry always changes.

And over the past few years, of course, the big change were the shales have emerged as a much lower marginal cost source of oil and the deepwater has some challenges. But I also know from cycle to cycle, marginal costs sort of rearrange themselves. There’s a lot of smart people in this industry focused on their particular resource base.

And with regard to the deepwater, I think certainly the marginal costs out there are coming down. And NOV plans on being a part of that. So when it comes to building FPSO vessels, the industry’s being challenged. We thing we’ve got some great ideas to apply there to bring cost down.

The owners of the deepwater reservoirs are experiencing much lower drilling costs with the deflation that has gone on in the drilling space. And these joint ventures that you’ve heard about that are really focused on subsea processes, I think are going to have a great benefit, too.

There’s a lot of hay to be made here with reducing back pressures on reservoirs, subsea lifting, subsea separation. And I think you kind of add all that up, and marginal costs for deepwater reserves are going to come down.

What we try to do at NOV is to position ourselves across these various trends and really sort of maximize option value in the participation of all these trends. So looking forward, we see great opportunity as all participants try to reduce their marginal cost.

We also see a lot more NOV equipment out there that’s going to need a lot more aftermarket support. And we’ve been investing in that footprint globally, and are going to be there to take care of those rigs..

So obviously you’ve had this great transformation. You have an incredibly strong balance sheet. And over the historical cycles, you always end up being better.

Does that mean we transform this balance sheet into more M&A, particularly in those three other parts of the business you built up the last five years?.

Yes, we are looking hard at what’s next for NOV, and I think we are very, very good at deploying capital into acquisition opportunities and then integrating those and maximizing returns on those opportunities. And so we are engaged in lots of conversations out there.

There’s a big merger you may have heard about, we’re really interested in seeing what comes out of that. So all these downturns provide pretty extraordinary opportunities to deploy capital to kind of reposition ourselves for the next upturn, and so that’s what we’re looking to do. I’m actually pretty excited about that.

We’re doing the painful things, reducing costs as required, but the more fun aspects to think about through the downturn, what do we look like we come out? And our plan is to be stronger and better and to maximize opportunities in the downturn..

Great works, guys. Thanks..

Thank you, Marshall..

From RBC, we have Kurt Hallead in the line. Please go ahead..

Hey, good morning..

Good morning..

Hey, Kurt..

So you guys again, I echo Marshall’s about providing excellent information. Appreciate all that info. At your Analyst Day back in November, you guys outlined a very long-term outlook, predicated some of it, or at least based some of it on the Exxon’s forty-year outlook, or so on and so forth.

I don’t imagine in six months’ time that really changes a 40-year outlook. But given the dynamics in the offshore drilling business, how do you assess the prospective structural decline in this cycle versus any other offshore drilling cycle that you may have been a part of, Clay or Loren, however you want - may address that..

Yes, we talked very explicitly at our Analyst Day about basing our strategic plans on a generational look at oil and gas supply, which the ExxonMobil Outlook 2040 is. And certainly - but the other thing we highlighted at that conference, if you remember, Kurt, is the fact that we go through cyclical downturns.

So this is not - where we are today is not a surprise to us. I think the challenge for management is to make sure we’re looking through this and continuing to work on a long-term strategic plans and execute our long-term vision, which is still very, very exciting.

With regards to the offshore, like I mentioned earlier, all sources of crude are continually working on reducing their marginal cost, to slide down that marginal cost curve and not be the last barrel produced in terms of economic efficiency. And the offshore is absolutely no exception.

And so what’s encouraging about what we see today is that at $100 a barrel, there’s not as much incentive to do things differently. When the oil price drop to $50 a barrel and the IOC’s have found, for instance, 5 billion barrels in the lower tertiary in the Gulf of Mexico, there’s a strong incentive to figure out.

They know the resource base is there, how do we figure out how to produce that at lower cost? And they have the extra tailwind of drilling process deflation. Pricing is dropping for services on drilling those wells on the rigs required, the dayrates around the rigs required to drill those wells.

And so it’s a pretty good backdrop to do things differently. And there’s a lot of active and constructive participation from our customers around that. We will bring the marginal costs down on subsea barrels..

Yes, I might add, Kurt, that even in the darkest days of the 1980s, we never went a year when we didn’t sell an offshore rig, whether it was a jack-up or a floating rig of some sort.

And I think that with the retirements and the scrapping of offshore rigs today at new high levels, I think that we’ll get a balance of offshore floating rigs sooner than later. And so we’re probably in a new paradigm, really, for the offshore market. But the next couple of quarters, maybe the next year or so, are going to be pretty skinny.

But we will still be selling a few rigs in the next year..

That’s a great point. And the rigs that are working out there are going to need components for replacement and they’re going to need components for upgrade. And that’s kind of the base business we’ve survived on in the 1980s and 1990s..

Okay, great.

And then maybe a quick follow-up here is, when you talk about a number of different M&A transactions and perspective businesses that may have to be sold, or at least ones that Halliburton already put on the market, you see this as a potential transformative opportunity for NOV? I know you guys have typically not wanted to be involved in the services element of things.

Are you guys pretty much going to remain the equipment provider of choice? How are you assessing the outlook here?.

We’re all about deploying capital into interesting situations to enhance competitive advantage and enhance our franchise. And so we tend to look at all opportunities continuously and reassess what we are, where we’re going continuously. So I’ll leave it that way.

But this - we’re always looking for opportunities to deploy capital for the benefit of our shareholders..

Great. Hey, thanks guys. Appreciate it..

Thank you, Kurt..

From Simmons & Company, we have Bill Herbert online. Please go ahead..

Thanks. Good morning. Actually a question along the same lines, and I’m going to widen it a little bit here. So a couple of recurring queries, and sort of a subtext of this call is the prospects for transformation. And so I guess my question is similar to what was just expressed.

The circumference of plausible industrial fit, has it widened? And same question with regard to scale in terms of the size of the deal that you’re willing to do and the price that you’re willing to pay for it?.

Not much of which I can answer, or will answer very quantitatively. We maximize returns by trying to minimize capital going into these opportunities. We are a veteran of many, many, many transactions. We’ve done this many times before and built up global-leading franchises around the world, across pretty much all that we do.

We’re number one in just about everything that we do. And that’s very central to our strategy. And so in terms of what comes available, not just out of the big red/blue merger we’ve all been talking about, but more broadly, what’s out there, what’s possible. We’re always looking at opportunities.

But the cornerstone of that effort really resides in market leadership. We’ve been very clear, we think market leadership carries demonstrable competitive advantage in this space. We think we reduce risk for our customers by being market leader.

We think scale gets us up learning curves faster, it support broader global networks to deliver products and services and equipment. Let’s us leverage R&D efforts and introduce new products more quickly. For lots of reasons market leadership carries lower risk and higher returns.

And so that’s pretty central to what we do when we evaluate opportunities to deploy capital, Bill..

And a question with regard to theory versus practice. I mean, clearly right deal/right scale/right size you’ll do it.

I’m just curious as to practically speaking, given the catharsis of the last six months, has the possible opportunity set ex-Halliburton increased, or do we need additional duration to this downturn in order to increase the number of possibilities and also narrow the bid/ask spread?.

Yes, that’s the key thing, what you said last. We need sellers to reset expectations. And so we’re helping them do that..

Okay. Thanks very much, guys..

Thanks, Bill..

From FBR Capital Markets, we have Tom Curran on the line, please go ahead..

Good morning, guys..

Good morning..

Good morning..

So just sticking with Bill’s topic there and delving a bit deeper into the line of questioning.

Clay, perhaps you give us an update on how the current pipeline of prospects compares in North America versus internationally? And certain focal technologies or niches within the divisions where you ideally would make a move?.

I’m going to be a little cryptic around that because I don’t really want tell my competitors my playbook. But what I would say is again, we’re focused on big picture trends in the industry, market leadership and competitive advantage, and looking to deploy capital into those areas more broadly.

I will tell you specifically where we’ve been deploying capital the last couple of years has really enhanced our aftermarket business in particular around rig. The rising installed base of NOV equipment and technology out there is pretty transparent to you and everybody.

And so what we see are a lot more NOV rigs running and a lot more customers in need of close OEM support. And what we find is that these great little businesses that we can acquire. In fact, two weeks ago I was touring one that we bought in West Africa, for instance, South Africa.

It’s been a great addition and great reputation, and what we’ve been able to bring to that business is kind of the global reach and scale. And so that’s been a great help for our customers in that region. But around the world, all of our customers want us to be closer to the coal face, closer to their rigs for aftermarket support.

So that’s an interesting area, and that’s part of the reason at our Analyst Day we said, growth prospects for rig aftermarket long-term are terrific, and we’re putting capital behind that. In other businesses, again we have got opportunities to grow those, expand their footprint and so kind of a similar pattern..

And should we think of you adhering to the same reluctance you exhibited thus far within Wellbore Technologies about pushing any further into new services that would lead you to compete directly with some of your oilfield service customers?.

We’re always kind of reevaluating our business model, and does it make sense? And frankly, there’s already some level of competition within that business. And that’s very common across oilfield services. It’s not uncommon for competitors to sell to each other in one product line and compete on another. And so - but we think about that very closely.

We don’t want to unnecessarily end up in a competitive conflict situation that really takes a toll on our P&L. So, I’ll leave it there..

Thanks. I’ll turn it back..

Thanks, Tom..

Thank you. We will now turn it back to Clay Williams for closing remarks..

Thanks, Brandon. I appreciate everyone’s patience this morning and apologies for the technical difficulties that we started off with. I really also want to thank our terrific employees for the hard work that they all put in here every day, and although we have a pretty challenging road ahead, we’re adapting quickly.

We have lots of opportunities emerging to launch new products and to acquire some pretty interesting businesses, and really position ourselves for the upturn. So we’re doing what we got to do in the short term, looking through that for opportunities in the long term. And I know we will emerge better and stronger.

And again, thank you all for joining us, we look forward to updating you in July..

Ladies and gentlemen, this concludes today’s conference. Thank you for joining. You may now disconnect..