Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the 2007 Annual Earnings Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions) As a reminder this call is being recorded today, Wednesday, February 6, 2008. I would now like to turn the conference over to our host Mr. Pete Miller, Chairman and CEO. Please go ahead.

Thank you [Sean]. Welcome to the fourth quarter and full year conference call for National Oilwell Varco. I'm Pete Miller, CEO and with me today is Clary Williams, our Chief Financial Officer. Earlier today, we announced fourth quarter earnings of $377 million, or a $1.05 per fully diluted share, on revenue of $2.66 billion, and we announced full year earnings of $1.34 billion, or $3.76 per fully diluted share, on revenues of $9.79 billion. These are both record results for us and we are very pleased with them. In a moment, I will turn it over to Clay and he will provide more color on the numbers and our results. In addition to our earnings, we announced a quarter ending backlog of $9 billion. During the quarter, we took in a record $2.2 billion of new orders. I will expand upon this backlog or these backlog numbers a little later in this call. I am very pleased with both our financial results and our backlog growth. We appreciate the confidence our customers have shown in us and the tremendous efforts of our 30,000 employees to achieve these results, as well as the continued support of our worldwide network of supplier partners. At this time, I'd like to turn it over to Clay to give you some comments regarding our financials.

Thanks Pete. Before we begin this discussion of National Oilwell Varco's financial results for its fourth quarter and full year ended December 31, 2007, please note that some of the statements we make during this call may contain forecast, 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're subject to risks 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'll refer you to the latest Form 10-K, Form S-4 and Form 10-Q National Oilwell Varco has on filed with the Securities and Exchange Commission for 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 in this call, Pete and I will answer your questions, we ask that you to limit your questions to two in order to permit more participation. National Oilwell Varco generated earnings of $377 million or $1.05 per fully diluted share, in its fourth quarter ended December 31, 2007, on revenues of $2.659 billion. Earnings per share rose 3% sequentially and rose 54% from the fourth quarter of 2006. NOV's fourth quarter revenues improved 3% sequentially and 28% year-over-year. Operating profit was $575 million in the fourth quarter, or 21.6% of sales, an increase of 5% sequentially and an increase of 51% year-over-year. Flow-through or operating leverage was 37% sequentially, and 33% year-over-year. For the full year 2007 National Oilwell Varco…

Thanks Clay, what I'd like to do at this point is just kind of give you a little bit an overview of what we are saying operationally, and I take you to some of the spots around the world where we think that the business is going to be very nice over the next year. When you really talk about 2008 gross operationally, it's going to be a story of about five things, and the first one is a lot of continuing repositioning of assets. As Clay pointed out earlier, we have moved a lot of international distribution systems out. We've done something with Downhole Tools to reposition tools, and that's going to continue because these are going to be secular growth areas that we don't see declining anytime soon. Continuing on, we'll be continuing to prep for our deepwater operations. We are building most of the deepwater rigs in the world today, and the neat thing is that we are going to be supporting those rigs for the next 20 years. And as we look to the future, we are making sure that we have the assets in place that can take advantage of doing that. We are going to continue new product offerings. We have many new arrows in our quiver and we think that this was going to help us to expand operations as we go throughout the year. We are going to continue making our operations more efficient. Our QRM process, the things that we have done lot of the improvement that you see, especially in the drilling area, while some of it is pricing, a lot of that is the efficiency that we have created. As we have said before, we'd like to have that efficiency because that's the gift that keeps on giving. And…

Thank you, Mr. Miller. (Operator Instructions) Our first question comes from the line of Michael LaMotte with JP Morgan.

Thanks, good morning guys

Good morning, Michael.

Quick question on supporting the new bill, is there anyway that you can quantify what you think that the aftermarket opportunity is for each of these new bills on the support mode?

Michael, that's a great question, and it's a one that we've had a lot recently, and my commitment is, I am going to try to do that over about the next six months. And let me tell you, why I am saying that. In the past, we built some of these rigs, but we don't quite have the same data, because things were done a little differently, and the equipment in many cases wasn't as advanced as what we are putting out there today. As we quite pointed out earlier, we delivered the first big new floater, which was the Stena DrillMAX, and that was delivered a little early. As a matter of fact it was delivered in December, it's a great looking rig, and we are going to try to use that a little bit, as a proxy, so that we can give a little bit more detailed data on what that support is. I will tell you that it's going to be good.

Okay.

And it's one that's going to be positive, but I hate to quantify it right now.

Okay.

Are those global replacement components or is that just as a refurb on spare parts?

No, it's a refurb, so there are lot of spare parts and repair services that go into it. These are multi-million dollar refurbishment techniques.

And then, first Pete said four deepwater floaters are going in bounds in the fourth quarter, versus five in Q3, and orders were up obviously that's, I assume that the desert rigs for the international market is a big component of that? What's the value now of the desert rig?

Yeah those things kind of will bounce around a little bit Michael, but in some cases it's going to be well north of $30 million. It just kind of depends, each one of the desert rigs is kind of rig of it's own, and so depending on what the customer wants, we have like a higher floor in some cases. As you know, it might be go from being a 30-foot floor to a 40-foot floor, which adds to the cost and they do that because of different pressure control issues. In some cases, the mast is longer, it goes from 152 to 156-feet, but I would say that $30 million, $35 million in there for a typical desert rig is a pretty good number.

Pretty good number. Okay and last one from me, Steel prices appear to be back on the rise a little bit, do you have any sort of cost inflator protection in -- the contracts were in backlog any thoughts on?

The primary, we do in some of our contracts, but the primary way we manage that Michael, is to place orders for the steel very early on after we get the customer signed up on our contract. So, we sort of try to do back-to-back contracts as quickly as we can. But yes, we are hearing talk about higher steel prices in 2008, and there has been some flooding in Australia that impacted supplies of coking coal, there are some concerns about supplies of iron ore and the cost of iron ore. With a weak US dollar, I am pretty sure it going to conspire to raise steel prices in the coming year. What we are hearing is any where from 5% on up to 15% or depending on the grade.

Okay, great. Thanks guys.

Thanks, Michael.

Our next question comes from the line of Robin Shoemaker with Bear Stearns

Hi good morning, Pete and Clay.

Good morning Robin, how are you doing?

Good. You have done a good job in recent times of keeping us abreast of your quoting activity, and you have continued to say that it's quite brisk. And I just wondered if you could update us on the deepwater, the jack-up, and the land rig arenas with regard to your quoting activity and what you are seeing in early '08?

It's quite brisk. What we are seeing Robin is, really still a very active quoting arena, it's quite been interesting because as you look at land we could have gone back a couple years ago, and there was probably much more quoting going on, in North America then versus international, today that's kind of flip. However, having said that there is still quoting going on in North America, we continue to sell more component oriented type things and the lower 48 is an example. The deepwater business continues to be very good we continue to have quoting activity the probably is not to somewhere what we have add in the last six months. And I have continued to say that on the jack-up market, I have said all along that when the jack-ups get delivered there will be more jack-ups order almost on a one-to-one basis and I think if you look over the past quarter, it's been like that we took some jack-up orders in this quarter and we continue to have very good inquiries into the jack-up arena. So, I feel very comfortable that the quoting activity is positive, that the issue you always have is quoting and determining what might be a science project and what's real but for the most part, I think, we are pretty good of figuring that out. And then, the other thing on quoting is ultimately especially in the international arena takes a little longer and so what quarter does some of the orders fall and might make a difference and I think you are looking a third quarter we did 1.9 and the fourth quarter we did 2.2, if you look at in the second quarter, we did less than that, but that really we were quoting stuff in that second quarter that really fell into this. So, a long winded answer to say that we still feel very good about quoting activity.

Yes, okay. So, I assume that this quotes for jack-ups and deepwater or for the 2011 rig delivery timeframe?

Well, actually the jack-ups would be earlier than that Robin, most part, I think, the jack-ups are really in a round of two year timeframe and may in some cases less depending on the shipyard but for the floaters for sure you are looking out into 2011.

Yes, okay. And just currently your back -- your composition of backlog as between international, domestic, I am not sure, I think you have given a sense, figured it previously?

Yes 88% international, 12% domestic Robin, and it's 85% offshore and 15% land unchanged from the last quarter because of the surge in international land buying that we saw onward.

Okay. Great, thank you.

You bet, thank you, Robin.

And our next question comes from the line of Marshall Adkins of the Raymond James.

Good morning guys, let me drill down a little bit more on the flow to market, last quarter we had -- you discussed some of the announced new bills and kind of the ones that hadn't been booked can you give us an update Pete on what we are looking at there in terms of what's been announced relative to what's been booked?

At this time Marshall, I would probably assume that about -- I don't have the exact number but I would say the majority of the announced had been booked. There's still some of the announced that have not been booked yet and I think again that kind of comes down to a timing issue clearly if you heard something announced in the first quarter, it wouldn't have fallen into our $2.2 billion that really was a cut-off on a 31st of December. So, I would say the majority have been booked but there are still a lot out there and there is also some out there that have not been announced. And those are ones that we work on everyday.

Sure. So of the amount forms -- I am just kind of on ballpark maybe four or five that has not been booked. Is that just a favorable part number?

I think that's fair, yeah.

Okay. Clay, give me -- you have talked about backlog next quarter, these bookings being down modestly. You also talked about spare parts business, really improving. Can you give me a little more color on the spare parts business, talk about the trends there going forward, should we expect this spare parts business to continue become a bigger part of the overall business?

Yes, absolutely. That's our plan and that is way we invested in this big facility in Houston and then have follow on investments overseas as well in that. And we pulled in spare parts from around the Houston area, from probably half of dozen locations into that facility and that has been underway since last summer, and I think what we saw in Q4 was the impact of kind of getting that squared away. And then, we increased our shipments out of that facility to just better service our customers. We also saw higher spare parts shipments out of our Norwegian operations, a lot of those have to do with initial stocking of some of the new rigs going to work and as you are aware, there is going to be more and more rigs delivered in '08 and '09, and so we'll continue to see that favorably impact our spare part shipments. But I think the longer term kind of secular trend here is that the nature of equipment going to work on these new rigs is different and require a little more OEM, care and feeding, and participation and at the offshore drillers, in that the owners and operators, it is more sophisticated, bigger land rigs are more likely to come back to the OEM for help on this. And that's in contrast to many of the 25 and 30-year old rigs across North America and elsewhere in the US, where they are not necessarily going to come back to the OEM but go to machine shop some where. This new stuff you just can't do that. There's embedded chips and PLC chips and networks and technology there. It's also much more highly engineered and the nature of the new wells of these rigs are drilling are way more complex and they seem to get more complex every day. And so, these equipments being pushed harder. So, all of those things we think are pointing to a spare parts business that should continue to move up into the right.

Very insightful, I will, now you surprise follow directions in -- I'll limit it two. Good bye.

Thanks Marshall.

Thank you. Our next question comes from line of Scott Gill with Simmons & Company. Scott Gill - Simmons & Company: Yes, good morning gentlemen.

Good morning Scott. Scott Gill - Simmons & Company: I guess, kind of along the same line, Clay, would you talking about the non-capital equipment sales out of the Rig Technology segment up 11% sequentially. How much of that is kind of considered secular or organic growth and how much of that you think is, was just due to seasonality in the quarter?

I think it was more, I don't think it was seasonal as much as we did have a help from stocking out new rigs going to work. That will coming out of shipyards and going to work and a big offshore rig will sock up $3, $4 million of spare parts. So, we had some of those coming in and certainly the outlook for more rigs coming out of the shipyard is good. So, we think that will continue. Scott Gill - Simmons & Company: Okay. And then, my last question again when you look at the order flow for 2007 over $7 billion, of that, how much of that was attributable to deepwater rigs?

I don't know that I have got that number at the top of my head Scott, I would say the majority of it is, as you take a look when we talk to folks about our potential, if you look at a land rig of course, depending on the type of land rig, it could be as much as $30 million, $35 million. If you look at the jack-ups we could put $190 million jack-up, we could put about $50 million on it, and of course when you look at the deepwater rigs today, if we go all-in-all, it could be almost $300 million. So, you kind of the majority of that number is in deepwater simply because of the size of new order that we are getting on those. Scott Gill - Simmons & Company: And what I heard you say earlier your quote level is unchanged for deepwater and I guess what I am kind of wondering here, as we've seen each quarter you kinds that well, I don't expect to repeat that order size we saw Q4 $2.2 billion, Q1 at $1.9 billion what change between Q3 and Q4 that that cause at extra $300 million of orders to close there?

Well, it might just been my natural conservatism, I am not sure, yes, Scott, I think what happens here and we try to explain there is a little bit a lot of what you are seeing out there is just order timing and quite frankly I was very pleased with the fourth quarter, I mean, sure I got to be but when you think about the fourth quarter on a normalized basis it's only about 9 or 10 week quarter. Because you really have a lot of time offered Thanksgiving and Christmas and lot of these orders, these are fairly complex fields and we don't put them in our backlog until the contract sign. And so in some cases we don't know, if it's going to be in the first quarter or the second quarter, we are looking at some things today that I would hope would come in the first quarter, but I am not sure they will, the contracts could extend out and it might not sign in first week of April which means then it won't fall on Q1 or fall into Q2. So, we are reluctant to try to pin that number down simply because of the movement of that, and of course we've cut our backlog off very date specific. It's the last day of the quarter, if the orders are not in, it doesn't come in. So, that's one of the reasons that we kind of equivocate a little bit there and say here, in one hand, it's this; and on the other hand, it's this. And that's why like to just talk in context of the order. The flow of tenders and bidding is still pretty solid. Scott Gill - Simmons & Company: Okay. Well, thanks, John. Great. Thanks, Pete.

Thanks, Scott.

And our next question comes from the line of Kurt Hallead with RBC Capital Markets.

Kurt Hallead here.

Hi, Kurt.

Hi, guys. A question I've got for you guys is you have been pretty consistent obviously with your comments on the jackup market. We've seen a big surge in orders here obviously over the last few years for offshore rigs in general. Pete, in your estimation, do you think we're going to see more than, whatever it was, 180, 200 offshore rigs over the next three years? Is that pace going to continue? Is it going to trail off? And do you think in that context it's the dollar value per rig and it continued to increase, so even if the volumes come off a little bit, you're still going to be able to book very decent backlog in order value numbers?

Kurt, it'd be very difficult to say that the next three years would equal the past three years on that that number of rigs. I think the real issue out there today is going to be what's really needed in the deepwater arena. And I think as you take a look around and you see some of these bigger discoveries like 2P and the things that are going down on the Santos basin and then what you see off of West Africa, continued discoveries in the Gulf of Mexico, I think the real question becomes how many deepwater rigs you really need. My guess is it's a lot more than we think. I think the other side of the coin is on the jackups especially is the retooling of the industry and then the repositioning of jackups into places like the Persian Gulf, which I think is going to need lot more jackups as the drilling contractors, I am sure, probably told you. So, I would be hesitant to go on the record with an absolute number. What I will say is we continue to expect that you'll see a very, very brisk activity in the offshore arena.

Since you did reference it, in terms of the deepwater will be more than what we think. So, what are we thinking on the number of deepwater rigs that are going to be needed? What's the number that's out there that you have seen?

Well, there is a lot of varying numbers. We kind of internally have our own proprietary expectations on that. And I think there have been a lot of people who have been all over the map on it. But I would say if you take a look at something like 2P -- I think that Petrobras has given a pretty significant number on the number of rigs they need just to develop that particular field. And the thing about, lot of these deepwater wells is that they are the type of wells that you're just going to knock down the way you can knock down a Barnett or Fayetteville Shale well. They're going to take a lot of time, because it's not only the drilling as much as the blat on the casing running and everything else, it takes up so much of the time landing a BOP. So, we think the well is still going to need a significant number of deepwater rigs?

You referenced Russia as kind of being here now. What kind of market opportunity, either in terms of number of rigs or dollar value, rig opportunity do you see in Russia, and how does that compare to maybe what happened here in the North American land rig market between '05 and the peak and later part of '06?

Well, I think the Russian market is going to be really positive. I mentioned the two semisubmersibles. And the fact is that the two semisubmersibles going on to the sea beds are really deepwater rigs, because that's not a deepwater basin as much as it's a harsh environment basin. Really going to be some challenging drilling up there, but I think there will be a continued demand for rigs like that. And again, that's more into our fairway, because you could be talking $150 million, $250 million, depending on the kit that would go on a rig like that from us. So, I think the offshore side of Russia will continue to look very good. And then on the land business today, you are seeing some of the western contractors move rigs in. As those go in, some of them are new; some of them may have to be heavily refurbished. I know both neighbors in Weatherford are moving rigs in there. And I think that potentially, you could clearly see that equaling what we have seen in the lower 48. I mean just look at the base numbers. The United States is four times zones-wide. Russian is eleven times zones-wide. And you look at just the land that could ultimately be explored, and I think that can potentially be an exciting market for land rigs.

Is that dollar value for Russian land rig in a $30 million to $35 million range more? Is it more? Is it less?

No, it'd be a lot less. If you look at a Rocky Mountain type rig, just [winterization], the actual type of rig itself wouldn't be dissimilar to a typical US rig, with the exception being the winterization. So that's more in the $10 million to $12 million to $14 million range.

Okay, great. Thanks, Steve.

Okay, Kurt, thank you.

And our next question comes from the lines of Dan Pickering with Tudor Pickering Holt. Please go ahead with your question, sir.

Good morning.

Good morning, Dan.

Pete, during 2007, in the rig technology business, you showed a consistent ramp in terms of your ability to deliver product. The revenues grew each quarter through the year. You are consolidating facilities. You are doing a lot of things on the manufacturing side. Should we expect that we just continue to see a steady quarterly progression on the topline for you guys in '08?

I think you'll certainly see a progression, Dan, but you can't get the big numbers here. I mean we've done a lot of awfully good work. Initially, you have some low hanging recruit. And then now, the iterations get smaller and smaller. I think our people continue to do a fantastic job, and I think you'll continue to see growth. However, I think that the growth would be similar to what it's been in the past would be tough to do, because when you double up on something, it's tough to double it up again.

Sure. And I tend to think about moving already to think about '09 for you guys. You had orders for the year averaged at about $1.07 billion per quarter on average in '07. I mean can we manufacture and deliver at that rate by the end of this year?

Yeah, I am not going to commit that we'll be there by the end of this year, but we're getting pretty close.

So that's the right ballpark really in terms of that range. All right. And then, Clay, the question for you on margins. I want to make sure I understood your comment as it regards the non-backlog revenue, which we're kind of calling aftermarket, I realize it's not all aftermarket. But I understand the trend which is more, that was about 29% of the total segment this year. I guess what you are saying is that's probably at least the same amount in '08 and that has a positive margin impact as we move forward. Is that right?

Yeah, the aftermarket business generally is a little bit accretive to our margins.

Okay. So, in other words, Q4 margins weren't a fluke. They are sustainable in Q1, I heard you say that. But it sounds like they are sustainable as we step through '08?

Yeah, but bear in mind, Dan, we have been guiding towards incremental flow-throughs in the high 20% range given an average mix of things that we sell, and we're not backing off that guidance.

Yes, okay. Thank you, guys.

Thank you.

Thanks, Dan.

And our final question comes from the line of Chuck Minervino with Goldman Sachs.

Hi, good morning.

Hi, Chuck.

Good morning.

Just another question on margins, this one more on the PSS segment, you talked a little bit about international expansion sources kind of holding back to margins there in the quarter. Is that something that will continue to carry forward here? You talked a little bit about one 1Q '08, but I guess longer than that? I mean is that something that really makes it difficult to grow margins going forward?

On the specific projects if we talk about, yes, some of those items will drift a little bit into Q1. But remember, Chuck, we are committed to the international business and growing that business over long haul. So, we expect even more initiatives to get launched as we move further into 2008. And it is typical when you start up an operation in a foreign market, you typically experience headwind as you get that going. So, yes, I think we'll kind of continue to have some of that out there.

Okay. And then one, is it something that you expect this really in '08? I mean do you expect more expansions in '09 to better prepare yourself for the growth?

We hope so, because that means we continue to be enthusiastic about the opportunities. Obviously, we're going through our '08 capital budgeting and planning exercises, and so we've paid a lot of close attention to our '08 opportunities, but we continue to do the same in '09. That means we're working well and we are still very, very optimistic. And frankly, where we sit here in early '08, that would be our view on '09 as well.

Okay. Thank you.

Thanks, Chuck.

Thanks, Chuck.

Mr. Miller, at this time, we have no additional questions. Please continue with any closing remarks.

Thanks all, and I appreciate everybody listening here, and I look forward to talking to you at the end of our first quarter. Thank you very much.

Ladies and gentlemen, this concludes our 2007 annual earnings conference call. If you'd like to listen to a replay of today's conference call, please dial 303-590-3000 and entering the access code of 11-10-6227 followed by the "pound" sign. This does conclude our conference for today. Thank you for using ACT Teleconference. You may disconnect.