Welcome to the National Oilwell Varco Fourth Quarter and Full Year Results Conference Call. My name is Loraine and I will be the operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Loren Singletary, Vice President of Investor and Industry Relations. Mr. Singletary, you may begin.

Thank you, Loraine, and welcome everyone to the National Oilwell Varco fourth quarter and full year 2014 earnings conference call. With me today is Clay Williams, President, CEO and Chairman of National Oilwell Varco, and Jeremy Thigpen, Senior Vice President and Chief Financial Officer. Before we begin this discussion of National Oilwell Varco’s financial results for its fourth quarter and fiscal year ended December 31, 2014, 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 the call over to Clay.

Thank you, Loren, and welcome everyone to National Oilwell Varco’s fourth quarter 2014 earnings conference call. This morning, we announced that the company earned $1.39 per fully diluted share in its fourth quarter ended December 31, 2014. Excluding transaction in asset impairment charges, earnings were record $1.69 per fully diluted share, increased 4% sequentially and 13% year-over-year. Fourth quarter revenues were $5.7 billion, up 2% sequentially and up 8% year-over-year. Fourth quarter EBITDA excluding other items was $1.2 billion or 21.3% of sales. EBITDA on this basis improved 1% sequentially and 8% year-over-year. For the full year 2014, GAAP earnings per fully diluted share were $5.82. Excluding other items in impairment charges, earnings were a record $6.07 per fully diluted share, up 12% from the prior year. EBITDA for the year excluding other items in impairment charges was record $4.6 billion, up 14% from the prior year on the same basis. Looking forward, we obviously face some significant challenges in the markets that we serve and we will be discussing these through the next hour. But first, I want to take a moment and reflect on the company’s accomplishments in 2014 and say thanks to the world’s best oilfield services team. NOV completed the spinout of our distribution services business to our shareholders as now Inc. in May, which led us to reorganize our remaining business along four new reporting segments and promote several executives and into new leadership positions. Our new segment architecture is around customer access which opened up new strategic possibilities for us. So our leadership teams spent the summer developing long-term strategies for each business. We presented these at our first Investor Day in November, where we also laid out ambitious five year goals. 2014 also saw us announce a large increase in our dividend, lifting…

Thanks, Clay. Since Clay already covered the consolidated results, I’ll just dive straight into our segment operating performance for the fourth quarter and the fiscal year ended December 31, 2014. And then attempt to provide little color on the outlook for 2015. The Rig Systems segment generated quarterly revenues of $2.6 billion in the fourth quarter, down 4% from a record third quarter as revenue added backlog on offshore projects was not quite a strong sequentially. Compared to the fourth quarter of 2013, Rig Systems revenues were up 7%, due to heightened demand for high-spec land rigs and equipment and our recent capacity additions, which have enabled us to convert more revenue out of backlog over the prior year. Operating profit for the segment was $511 million and operating margins were 20%, which were flat with the previous quarter despite the 4% sequential decline in revenue and up 90 basis points from the prior year. Fourth quarter EBITDA for the segment was $534 million or 20.9% of sales. For the full year of 2014, Rig Systems posted record revenues of $9.8 billion, up 16.5% over 2013 and produced operating profit of almost $2 billion or 20.3% of sales, which resulted in year-over-year flow through or leverage of 27%. Now let’s transition to the capital equipment orders for our Rig Systems segment for the fourth quarter of 2014 and our resulting backlog. In the quarter, we recognized $2.3 billion of revenue out of backlog and captured $470 million in new orders resulting in a quarter-ending backlog of $12.5 billion. In the quarter, we secured three each drilling equipment packages for jack-ups, five each land rigs and it’s mattering of offshore line components. Of the total $12.5 billion in quarter ending backlog, approximately 91% is offshore and 91% adjusting for international markets.…

Thank you, Jeremy. With that, Loraine, I think we’re ready to open it up for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Jim Crandell of Cowen. Please go ahead.

Thank you. Good morning everyone.

Hi, Jim.

Hi, Jim.

Clay, you just touched on M&A and you described you and your efforts is mainly continuation of the singles and double strategy which NOV has done very well at over the past 15 years, but you’ve also done very well at the home run strategy and you have a great record of that the last 15 years in order to execute sort of the home run strategy, I think you degree you need to be coactive. What was kind of place in the company’s strategy thus coactively looking for larger acquisitions have at the current time?

Well, thanks for your time and comments, Jim, we absolutely are continuing to look for larger transactions. Those take much typically take much longer to cultivate and so we have had conversations with a few larger potential counterparties out there. What we generally find is in a declining market, it’s hard to get the [indiscernible] and most of those transactions are better accomplished and you get more agreement between the counterparties is market serve and increasing. So I think until we began start to see a little bit of recovery and a little bit stronger outlook, it’s going to be hard to get bids to come together. But we – as you know we are always out there looking for opportunities to deploy capital into good return opportunities and recognized at those conversations are long-term investments and so we do have a couple going on now, but nothing – really nothing to report, we – I don’t think there is any sort of transaction out there is eminent.

Okay. And then my follow-up guide is could you paid on your major businesses in North America and talk about the magnitude of pricing weakness and such things like Tuboscope and Grant Prideco and mission and some of the other important domestic businesses.

Yeah, I’ll say that our customers are being very aggressive and seems to have the same form letter that they are sending to everyone within the people receive a letter and demanding very high discounts, double digit percentage discounts. We are responding to those by sitting around the table with those customers by product line, nothing that across the board, by product line and discussing ways that we can work together to mutually drive cost out of the system. And so I think buying large every business is handling it individually by customer.

Yeah, trying to make lemonade out of lemons were also trying to turn those conversations more towards a volume based rebates, so that we get more volume out of the concessions that we are making things like ideas like that or what we are trying to push forward.

Okay, good job guys. Thank you.

Thank you, Jim.

Thank you, Jim.

Thank you. And our next question comes from Jud Bailey from Wells Fargo. Please go ahead.

Thanks, good morning.

Good morning.

Question on you just kind of think about your revenue out of backlog for this year and trending our margins that Rig Systems understanding your customers and giving you or bombarding with other requests like you said delaying or accelerating. Did you give an exact number on what you think revenue out of backlog could be and then on top of that how quickly can you adjust your cost structure as you at the delayed projects help us think about and you bring your production in-house, how quickly can you preserve margin at Rig Systems?

Yeah, Jeff, it’s on the – in the prepared remarks I talked about at the end of Q3 and as we got to our Analyst Day, we actually thought that is about $7 billion to $7.5 billion would flow out of our current backlog and that was the backlog at the end of Q3. We then assume that we get the book in turn in Q4 and throughout 2015 that will take that number up. Given the pace of orders, we think it’s probably going to be close to that $7 billion range in terms of revenue flow, not a backlog this year, based on what we see today. Now we could receive some orders here in the next few months that we can turn into revenue before the end of the year, but right now it’s looking pretty soft. So I think somewhere in that $7 billion range is probably reasonable. And with regards to the margin, we’re probably a little beyond our optimal kind of efficiency in terms of margin production in the backlog meaning we have more work and we were relying on graveyard shifts and a lot of overtime and kind of third and fourth and five tier suppliers. I think there is some benefit actually as volume start to back off just a little bit, in terms of reducing some overtime of reverting to our hot most productive shifts, reverting to our most productive sub suppliers and so that will help in the margin front, on the margin front, but I would – and I would add to that too our own suppliers we’re in discussions with about reducing the prices that they charge us. We’re hesitant though to wrap margin improvement around that scenario because no doubt we’re going to continue to see price pressure and in case challenges that are coming out of the current slow market.

Okay. And my follow-up is kind of a bigger picture question, when you think about the decline in oil today and people like to reference 2009, but as we stand today, deep water rig rates are coming down much more quickly in general that the backlog for the offshore drillers is much less than that timeframe and there is a probably legitimate discussion that offshore rig grades could go close to catch breakeven. How do you think about Rig Systems and orders over the next two to three years if that happens, and how do you think shipyards will react to the price standpoint. Last time they reduced price, which helped but will it really help if rig rates are at such a depressed level that doesn’t even – even bother to reduce price, because no one is going to work out anyway.

Yeah, I don’t think lower cost or price of rigs delivered is going to catalyze much demand right now and as I said in the opening remarks, our plan is to manage to the market realities kind of quarter-by-quarter. We have a great backlog which will burn off over the next several quarters as we find ourselves to say this time next year, without a resumption in orders in the offshore world, we expect two things to happen, one is our installation and commissioning efforts around the rigs that are being build will continue to strong through 2015 and will end at 2016. As it starts to wind down a little down though, we have good opportunities to hit it and refocus, the technical capabilities of that group and infrastructure that supports that group towards SBS’s which we do see rising in spite of the market challenges, we see opportunities to pivot and refocus that group towards more onshore aftermarket support, I think there is a great potential out there for NOV to build on its franchise in the land side and provide better aftermarket support to those customers, likewise on manufacturing we expect to pivot and refocus in the aftermarket opportunity around that. And then secondly that will help a lot, but secondly we’re going to be sizing to what the market dictates. As I also mentioned in my opening comments, we’re outsourcing more than half of our machining work and rig for instance, and so we have a lot of sort of flexible or flexible supply chain that supports our efforts that we can diminish and then thirdly, we’ve got two other big segments that has different cyclical behaviors and so recovery and rig counts in 2016, we do a lot very rapidly with demand by Wellbore Technologies for machining capabilities, for assembly likewise Completion & Production solutions is on a little different cyclical trajectory. So we have – by having three different segments throughout different cyclical behaviors it gives us an opportunity to refocus resources into places that may need them.

Alright, great, I’ll turn it back in appreciate the commentary.

Yeah, thanks Jeff.

Thank you. And our next question comes from Marshall Adkins from Raymond James. Please go ahead.

Hi guys, thank you for all detail, subsector is very helpful. Clay, I want to ask you a bigger picture question, you touched a little bit on it, so far. Typically in downturn you guys went -- in that your strong cash flows and you pursue this M&A strategy. Now it looks like you have the start buybacks going on as well as possibly which you didn’t have before. What make through, how you prioritize and you mentioned M&A is going to become a slow to develop given the bit spread, but how you think about in terms of timing on spinning the excess cash over the next couple of years.

Well, I think Marshall we came in to this downturn with $4.1 billion of cash on our balance sheet at the beginning of Q4, a lot of credit capacity and expectation that as business loads, we will have cash come out of working capital and half of our balance sheet plus $14.3 billion backlog translates to a pretty significant margin embedded in that backlog, which will turn to cash over the next year or too. So we kind of enter this downturn with a lot of resources and I think what that means is we have the capability to really do all the above and so we have very intentionally stepped up our focus on M&A mostly around the smaller company opportunities because frankly there are more doable in this kind of market downturn. I think it’s challenging for public company to enter into an agreement so and so if it’s not distressed when the stock prices way below at 52 week high and so makes it difficult to do a larger transaction in this kind of environment. It’s not the sale like I mentioned earlier to Jim, it’s not to say that we’re not continuing conversations and serving landscape out there. But in terms of how we prioritize, I think we can do all the above and do so in a way that it doesn’t sacrifice future flexibility and do so in a way that keeps some cover drive for those opportunities as they rise, so that’s kind of the through process that we’re going through. Specifically with regard to the share buyback, I mean this is the company we know best, we can buying shares with no purchase premium and we can size those transactions to whatever size we feel comfortable with which is why at our Analyst Day we sort of linked the application of capital through in the share buyback program to the repatriation of cash from overseas.

Okay, just one quick unrelated follow-up, we’re going to see a lot of rig retirements both on land and offshore stacking whether we want to call it. I presume that hurts your aftermarket business, but help me to understand kind of how that close through for all as you retire rigs, I presume that’s a lot less aftermarket stuff, but I’m not sure about that.

No, that’s exactly correct. The older rigs are less – far less aftermarket intensive in the net rigs and so that the newer rigs that are coming out of the shipyard now that have come out of the shipyard in the last few years have much higher levels of electronic controls, many, many, many more miles of wiring and cabling and more precision machines components that help them work more efficiently and what we know is it that kind of equipment – that style of equipment is going to be much more aftermarket intensive than the old rigs are being laid down, so the old rigs, yeah, we’ve got some level of participation really in all rigs. So the old rigs, there is a little bit aftermarket to goes away, but it’s a good trade for us and all things considered with much, much prefer a new rig in terms of its aftermarket potential.

Perfect, thanks guys.

Thank you, Marshal.

Thank you.

Thank you. And our next question comes from Jeff Tillery from Tudor Pickering Holt. Please go ahead.

Hi, good morning.

Hi, Jeff.

For the rig aftermarket business, could you just provide some qualitative color around the mix at in terms of onshore versus offshore and then the deepwater component, I mean, I think about that the level of business for you guys just tracking kind of working deepwater rig count and trying to think of different ways to forecast the business over the next year.

Sure, Jeff, obviously [indiscernible] little bit depending on the quarter, but buy in large is about an 80-20 split offshore land.

Yeah and which gives us the belief that there is more to do in the land and think longer term there is opportunities to kind of grow that business to focus on the land fleet. The other kind of interesting observation about our aftermarket business is that as our customers are become a lot more focused on their expenditures they are probably going to be more open to repairing old drilling equipment rather than replacing with new drilling equipment. So we think there will be life of instances where rather than selling for instance a new set of draw-works out of Rig Systems that will actually have our rig aftermarket business now fixing an older set of draw-works and getting them back up and running. And so that may actually help the aftermarket business a little later in the year.

Thank you. And then for the Wellbore Technology segment, if I think about the composition of the business today versus 2009, walk us through kind of the puts and takes that would make either the ’09 comparison valid or something that drive either better or worse decremental performance relative to the ’09 cycle.

Yeah, I think obviously all of the businesses are larger now, but in terms of kind of the percentage of total revenue they are probably fairly similar to the way they were in ‘09. I think the comparison is probably fair, it won’t be exactly that, that will be – it will be reasonably close I would think, it could be at the market maturity as quickly as it did and as steeply as it did from ‘08 to ‘09 and ‘14 to ‘15.

Yes, generally there are all very high operating leverage businesses and so it will see – we’ll feel that as they come back down. Not sure pricing ever got up to the levels we had in ‘08. And of course some of the other oil field service companies referencing that which their point too is limiting, essentially limiting the decrementals, I am probably hesitant to forecast that previous downturns, points of pretty high decrementals in Wellbore Technologies businesses, and we are probably likely to see the same thing in 2015.

Just one thing that could be encouraging Jeff is if you think back to ‘08 or ’09, you’ve had a number of years of steady increases. Here we went through kind of a destocking late ‘12 and throughout ‘13, I am not sure that we actually – that our customers actually built inventory levels in ‘14 to a degree they did in 2008, so that would suggest hopefully that as the market starts to rebound that demand comes back to us more quickly than it did, just because I don’t think we have the same inventory overhang as we did back in ‘08.

And our 2012 as well.

It’s very helpful color. Did pricing rode more than 10% in ’09, I’m trying to think on balance, I still remember 5% to 10% that’s stuck in my head for pricing reductions.

I actually believe those are probably north of 10% for lot of business…

Okay, thank you.

Yeah, thank you.

Thank you. And our last question will come from Robin Shoemaker from KeyBanc Capital Markets. Please go ahead.

Yeah, thanks a lot. I was wondering if you could update us on the portion of the $12.5 billion of Rig Systems backlog that relates to Brazil and how has this ongoing internal investigation in Petrobras that’s clearly slowed down drilling, how has it affected the pace of rig construction or shipyard construction, the things that you referred to?

Yeah, thanks Robin. Actually, thankfully for us, it really hasn’t created a big impact on our programs, if you remember back a few years ago, when Petrobras settled this up, they set up a separate financing arm called SESA in Brazil, that is actually the customer and it went out in secured it’s equity partner investors and secured it’s bank financings and kind of and so it sort of moving along separately without virtually – there is virtually no capital support from Petrobras into those projects to construct the rigs. Where the support comes is in the contracts to operate those rigs once they are delivered and that’s still a couple years out, but based upon SESA placing orders to construct these rigs with their partners, shipyards jumped in the foray and concluding a couple of new shipyards that were constructed for this program and so those have been proceeding long relatively smoothly, that’s not to say without some delays and some issues and some challenges that we fully expected but by and large those projects are moving ahead, we expect the first rig to be delivered I think you Q3 or Q4 this year and the first of 22 rigs that were signed up to deliver and the specific challenges that group of projects in shipyards that faced have been more around cost over runs on the constructions of the shipyards -- that led to a few payment delays for us, working through that and the good news here within the past few weeks, a couple of financing packages have been made available to SESA, I mentioned in my opening comments the development Bank of Brazil, I think the Central Bank is involved, Banco do Brasil and then some of the Asian partners to some of the shipyards are also financing the completion of the construction of those yards. So net-net we’re in pretty decent shape, I think important for NOV shareholders is that we are ahead, we received more payments than we had delivered equipment into these projects, and so very important to us that we maintain that position from a risk management. So we are in pretty good shape on this Robin.

Okay, and on the pricing discussions that you are having with customers and where they are coming to you, just wanted to clarify that that – does any of that pertain to existing backlog and rig systems or Completion & Production Solutions is or is it entirely on new orders.

Entirely on new orders and really mostly around kind of the short cycle consumable type item…

Sure. Okay.

Alright.

Yeah, to the extent that we’re entertaining any changes in the backlog at all it’s usually around just delivery dates like I said we push things just a little bit we can actually save money.

Right and a reference to my early question, did you want to give a portion of your Rig Systems backlog that pertains to Brazil or…?

Yes, $3.5 billion.

Okay, great.

Out of the $12.5 billion is still Atlas projects 22 floating rates.

Thank you.

Thank you. I will now turn the call over to Mr. A - Clay Williams for closing remarks.

Thank you, Loraine and thanks to all of you for joining us and we look forward to meeting with you in April as we update you on the first quarter.