Good morning ladies and gentlemen. Thank you for standing by. Welcome to the National Oilwell Varco Fourth Quarter Earnings Conference 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 conference is being recorded today, Wednesday, February the 4, 2009. I would now like to turn the conference over to Mr. Loren Singletary, Vice President of Global Accounts and Investor Relations. Please go ahead, sir.

Thank you Lore and welcome everyone to the National Oilwell Varco fourth quarter and full year 2008 earnings call. With me today are Pete Miller, Chairman, President and CEO and Clay Williams, Chief Financial Officer. Before we begin this discussion of National Oilwell Varco's financial results for its fourth quarter and full year ended December 31, 2008, 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 are subject to the risk and uncertainties and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the year. I refer to you to the latest Forms 10-K, 10-Q and S-4 National Oilwell Varco has on file with the Securities and Exchange Commission for more detailed discussions 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 or in our filings with the SEC. Later on this call, Pete, Clay and I will answer your questions. We ask that you limit your questions to two in order to permit more participation. Now I'll turn it over to Pete for his comments. Merrill A. “Pete” Miller, Jr.: Thanks Loren and good morning everyone. Earlier today, National Oilwell Varco announced fourth quarter net income of $585 million or $1.40 a share on revenue of $3.8 billion. Included in this numbers, a pre-tax charge of $20 million or $0.04 a share for transaction cost associated with our earlier this year in April merger with Grant Prideco. For the year, we have revenues of 13.4 billion and net income of 1.96 billion or $4.90 a share. Our year-over-year revenue growth surpassed 20% and our year-over-year operating growth... operating profit growth was 29%. This was a very good year for National Oilwell Varco. Backlog for capital equipment at the end of the quarter was 11.1 billion, as net new orders for the quarter were 724 million. While this was the first quarter in 14 quarters that our book-to-bill has been less than one, it was a solid order rate given the historic economic challenges that the world is facing since the end of September. I want to thank all of our wonderful employees for the hard work and dedication that they had in achieving the stellar 2008 results. This could not have been done without this tremendous workforce. I'll come back in a minute or two to discuss more on the operational color, but at this point in time, I'd like to turn the call over to Clay Williams to give you some color on our earnings and what we're seeing as we drove into the future. Clay?

Thanks Pete. National Oilwell Varco posted outstanding results in the fourth quarter, generating record earnings of $1.40 per share on 3.8 billion in revenue. These results included $20 million in transaction costs related to the Grant Prideco acquisition, excluding these fourth quarter earnings were $1.44 per diluted share. The fourth quarter capped a terrific year for National Oilwell Varco which saw the company earned nearly $2 billion in net income or $4.90 per share on revenues of $13.4 billion. Excluding transaction costs for the full year, earnings would have been $5.08 per share for 2008. Fourth quarter operating profit was $856 million and full year operating profit was $2.9 billion. Excluding transaction related charges, Q4 operating profit was $877 million and operating margins were 23%. Operating leverage or the incremental operating profit flow-through was 29% on the 5% revenue growth sequentially, excluding transaction charges for both periods. National Oilwell Varco acquired Grant Prideco on April 21, 2008 and began looking the incremental results for these operations as of that date pursuant to U.S. GAAP. In order to provide more transparency and comparability we continue to disclose additional pro forma results for our combined operations in the supplemental disclosure schedule in our press release, and on our website which is summary operating data by quarter, back to the beginning of 2005. These results include the expected ongoing impact of purchase accounting PP&E and intangible step-up to the transaction in prior periods, and exclude inventory amortization and other one time transaction charges to make them apples-to-apples and to help you in your analysis of historical trends. Compared to the pro forma combined fourth quarter of 2007, fourth quarter 2008 revenue increased 20% and operating leverage was a strong 32%. Full year 2008 pro forma operating profit was $3.1 billion on $14 billion…

Thank you, sir. Ladies and gentlemen we will now begin our question-and-answer session (Operator Instructions). Our first question comes from the line of Jim Crandell. Please state your company affiliation, followed by your question. And please limit yourself to one question and a follow-up question. Please go ahead sir.

Yes, Barclays Capital. Very good quarter guidance and a excellent rundown.

Thank you, Jim.

Thanks, Jim. Thanks.

Pete or Clay, could you elaborate a little bit more on Brazil and the order picture there? It seems if were to achieve the 3 to 4 billion possible I guess in new orders, that Brazil could be a huge chunk of that, maybe as much as over half of incoming orders. Can you talk about what the potential is, you think the potential is there for Brazil to execute on the remainder of their 12 rig program? How do you see that being financed and how do you that overall picture unfolding?

The announcement earlier, I think it was last week from the Board of Directors of Petrobras where they came out it with a $174 billion budget, that I think it's a five year budget, it was up 55% from depreciating five year budget, to me that's a resolve that they are going to move forward. Previously in 2008, Jim, as you are aware Petrobras indicated the need for first... they indicated a need for 40 deepwater floaters to drill mostly the Santos basin and develop a sub-salt (ph) resources that they've discovered in that basin. The first trench of those were issued as the letters of intent, about a dozen floaters, and then behind that there is another 28 floaters. And I don't think Petrobras, and I don't want... we are careful not to speak for them, but I don't think they backed off from that estimate of the need for floating rigs. And everything they've done point to a lot of resolve in moving forward with that perfectly. And so, we're hopeful with the announcement just last week which I think also included the statement that their program is pretty healthy down to pretty lower oil price, indicates that they're going to move forward.

And I think the other thing on that too Jim, is that we've invested pretty heavily in infrastructure down there. And I think Brazil is going to want a lot of local content, and we're positioned to be able to take advantage of that. As with anything like this, I think there is always timing issues, but we're pretty bullish on the fact that they're going to continue to move ahead. And I think Brazil realizes that the oil and gas is very, very important to their economy. And we're even see some movement on land actually in Brazil and they've come in and looked at things like Rapid rigs and Ideal rigs to be able to drill more gas wells on land. So we're pretty confident that they're going to push forward.

Okay. Just as a follow-up to that. Just wonder if you could, again just a focus on the question in Brazil, can you remind as Clay or Pete of those, that 12 ridge additional trench, how many rig equipment package orders you've gotten so far, my reckon is that it is three, but maybe update that. And is there anyway you can be a bit more specific on what you think about the overall financing down there? And I'll get back to my earlier question, it seems like Brazil has the potential of being a... I mean a $2 billion country for orders that's coming there?

Yeah, we'll be careful not to quantify it or get more specific in that Jim. But I will confirm, we announced this last quarter that we had won three of the 12, we're in our backlog. There was also a fourth floater that we won in the third quarter which was essentially a Brazilian speck rig to serve in that market. And we'll tell you that, those customers and others are trying to progress the financing of those rig projects since specifically talking to a lot of the export, import agencies around the world that are referenced in my earlier comments. So, we're optimistic, we're going to be able to make that work.

Okay. Thank you.

Thanks, Jim.

Thank you.

Thank you, sir. Our next question comes from the line of Marshall Adkins. Sir please state you're company affiliation, followed by your question and please limit yourself to one question and one follow up question. Please go ahead.

Raymond James. So, I just want to get this clear Clay, you're not taking tar funds?

Yes. I can confirm that Marshall.

No, we're... actually we're doing that to protect our pay, Marshall.

I understand. That's not my question. My question is this. And I'm going to ask you go on a limb here because I know you'll really enjoy that. North America, if I recall, roughly 50/50 mix last year. If you had to look towards '010 and I don't want any specific numbers, just kind of generically, is North America, a 30 of your business or a quarter of your business, looking out to '010?

Yeah, I'm almost not sure projecting at '010. I will tell you Marshall that in 2008, North America was 58% of our Petroleum Services and Supplies segment and 75% of our distribution segment. And that's where we had the most concentration. Rig Technology, total sales in North America were only 25%. So it's much more of an international focused business. So,...

The blended mix close to 50-50?

Yeah, the blended mix is actually 41%

Okay.

Total, out of North America. And that of course is brought down by the rig component.

Right, right, okay.

And I would say Marshall that as we push forward, that number will be reduced. So that's by design. We've said for a long time that North America is very much of a mature oilfield, and while we certainly like generating cash out of North America, a lot of the growth, I think a lot of the acquisition opportunities that we look at today, will be in the international arena.

That was going to be my follow up question, as you did hit the... I'm kind of... that you built this company during bad times. Can you give us a little more direction I mean your balance sheet's strong. What direction are you heading acquisition? I mean you mentioned international, but just give us a little more color there.

I think there's a few things we'd like to do. If you take a look at the actual drilling rig itself, there's not a whole lot more we need on it. There's still some things we like. And I think the other thing is just a lot of international companies that are very, very highly technical, that invent a lot of things and we find that we can go in and buy those at a very decent price but be able to put that in our marketing machine and expand the revenues very, very rapidly. So I think on the rig side, definitely we're looking at better technology, things that we can put in the system rapidly. I would say though most of what we'd look at internationally is really on the Petroleum Services and Supplies side. And I think that's an area that we've grown very dramatically over the years. We've got, I think one of the best suites of Downhole Tools all the way from bed up to the rig floor. We think there's other things that we can add there that are pretty interesting, that we can supply our big customers like our Schlumberger or Halliburton. And so I think you will see more emphasis on that. I think the expansion of what we do and our brand operations, a lot of solids control. There's a lot of neat things there. We have a lot of thermal desorption to take care of cuttings. So I think you'll see an emphasis on technology and in the rig side and in different products and expanded service on the PS&S side and of course, distribution we're seeing some good success and expanding internationally and we'll look for local type operations to be able to enhance our offerings in that regard.

Perfect guys, thank you.

Thanks Marshal.

Thanks Marshal.

Thank you, sir. Our next question comes from the line of Robin Shoemaker. Please state your company affiliation followed by your question and please limit yourself to one question and one follow-up question. Please go ahead.

Thank you. Citigroup. Hi. Clay I wanted to ask you a little bit about your backlog discussion and projections. It just seemed quite a bit better than what I was thinking it might be. You have the 11 billion backlog delivered 5.2 billion and yet you end up the year at 9 billion, and I realized these are just some kind of projections you made. But does... and clearly Brazil was a key factor as you mentioned in achieving that kind of projection, but does... are you assuming there that these Brazilian contractors such as Delba Shaheen (ph) who have these ten-year contracts with Petrobras to build rigs but are unable to find financing that in fact they are able to find financing and those rig orders go through.

Well Robin, I'll reiterate what I've said earlier. We're optimistic that with the help of a number of sovereign governments around the world that are stepping into the fray, generally our customers will find financing. As this is our long-standing policy, I'm not going to make any specific comments about any particular customer out there.

Yes.

But directionally that's where the group is going. GIEC (ph) which is the Government Import Export Credit Association in Norway just announced a few days ago that the Government is proposing to more than double their lending framework to 110 billion kroner, I think this time last year it was only 50 billion kroner. So there is a consorted effort amongst the number of governments out there to stimulate their economies by stepping up and financing some of the stuff. We work closely with the import export credit agencies to document local content in these things. And so, we're very aware of the financing activity amongst many of our customers and frankly I think the odds are good that they will find financing.

Okay. So then my follow up would be then on Grant Prideco, the drill-pipe business basically the... can you talk about the visibility of drill-pipe order book especially beyond the first half of '09 and whether you believe we will be with all the idle rigs sitting around, seeing quite a bit of surplus drill-pipe removed from idle rigs impacting the drill-pipe sales very significantly as we get later into the year?

Yeah we do see a pretty sharp fall-off in drill-pipe sales in the coming year. Not surprisingly, it's a very cyclical business with regards to North American rig count and what you have in the drill-pipe business is when rigs start getting laid down, drilling contractors will pull strings off of idle rigs and put them to work on busy rigs. And so you have this little bit of cannibalization phenomenon and that... we are very, very aware of. And so, that will take a toll on 2009. What will help us though is, we expect steel cost to decline which will help kind of spin the margin impact of that a little bit. We also know that there are a number of very large offshore rigs that are going to be delivered into the market in 20... 2009 and 2010. Those rigs tend to buy a multiple strings. They tend to buy premium strings. They tend to buy big landing strings that are large diameter 5.786 and 6.58 inch of pipe, much higher metallurgy premium threads. And so for us it's a much more attractive sale because it's a much higher margin piece of business. And so we... you see this mountain of offshore rigs that are coming in to the marketplace they are all going need strings and pipes. We have a lot of visibility into that and that market is going to... it's going to remain pretty solid. And then lastly, behind all of this Robin, despite the normal cannibalization trend with cyclicality behind the drill-pipe business is a very steady multi-decade phenomenon, where the style of new... though the new style of drilling with horizontal wells, higher rates, higher torques, much longer extended reach sections, has really surpassed the capabilities of a lot of API commodity type drill pipe. And is really, we're seeing the market gradually shift towards more premium pipe. And where API commodity pipe is being used, it's being worn out faster. The rigs are pushing the drill-pipe beyond kind of its design capabilities to drill these more exotic horizontal wells. When you take drill-pipe and you bend it around a 90 degree bend, you really put a lot of stress and strain on it. So we think that this is a temporary thing. 2009 will be challenging in drill-pipe. But the long-term secular trend using larger premium pipe, premium threads, higher torque, higher weight handling capabilities, is all very much intact and we're going to benefit from it in the long run.

Okay, thank you.

Thanks Robin.

Thank you, sir. And our next question comes from the line Bill Sanchez. Please state your company affiliation followed by your question. And please remind yourself to ask one question and one follow-up. Please go ahead.

Howard Weil. Thanks, good morning.

Hi, Bill.

Hi Bill.

Clay, I was hoping you can go back and address the backlog at risk number, at this point, and given how far I guess along we are in terms of the credit troubles and the first hands we've seen of cancellations of rigs, that $364 million as you see it, kind of worse case at this point or could we see that grow here over the coming quarters?

Well, I've been surprised a lot, Bill by as you have and everybody has been over the last couple of months. So, I'll never say never, but I will say, we scrubbed the backlog pretty hard and while it could grow we certainly don't see it growing materially beyond this. Most of the stuff we have in our backlog is, will further advance to many of these projects at risk, as from the numbers I think earlier I have mentioned, we only recognized 41 million in revenue on 364, so it's kind of early days in those projects. Once the rig is 70, 80, 90% complete you know its going to get done. So, but this, right now, I think this is a realistic estimate. I'll also stress too, Bill where the majority of this, we are walking with these customers to find buyers for these projects and actually meeting with some success. I wouldn't tell you that it's a sure thing that this 364 is going to drop out. We're just highlighting it as being at risk based on our analysis.

Okay.

I have a lot of switch gears on speed dial Bill, lets say if anything falls out and it looks pretty interesting, give us a call. So, there is interest out there. The world needs deepwater rigs, we know that. And I think if some of these things were to fall behind a little bit that does a lot of buyers in the wings that I kind of look in their jobs, they would like not to more then to be able to get a rig in 2010 or 2011 as opposed to having wait up to 2013 or 2014. So, we're pretty comfortable of what we've got, we've kind of said that all along and we hope we gave you a little bit more color today to prove that fact.

Sure, you do. I was hoping to maybe you could give an update. I know in the second half of last year you were starting receive orders for your new Drake rig in the Marcellus, could you give us an update on where that stands and is that still a potential bright spot for you here in '09.

Yeah, it is. We will deliver, I think the first Drake rig this quarter. We've... kind of put it on fast track, we are pretty excited about it. We think that things that it can do will be very positive. And we're also very bullish on the Marcellus, I mean I think it's too early to say, but I think as the Obama administration gets into energy, they're going to discover that one of the things, that's a fairly quick, very clean and very plentiful resource of natural gas. And so we think you could see some things that will be positive for natural gas. And the need thing is with our Ideals and Rapid rigs, and Drake rigs especially in the Marcellus, we're well positioned to be able to help satisfy that need. I know you've seen some of the figures on some of the big wells coming out of the Marcellus. And clearly, the Haynesville is producing a lot of gas and the Marcellus has had a couple of wells up there that have produced some fairly eye-popping numbers. So, we are on track with it, and I think the customers that we sold it to at this point in time are pretty excited about it.

Okay. Thank you for your time.

Okay. Thanks, Bill.

Thank you sir. Our next question comes from the line of Dan Pickering. Please state your company affiliation, followed by your question. And please limit yourself to one question and one follow-up. Please go ahead.

Hi, Dan Pickering, Tudor Pickering Hold. I did have two questions. So when we look at kind of the base line orders, Clay or Pete, I mean historically when they are worth a lot of new rigs being built offshore, I think Varco-NOV, kind of was running at 800 million to 1 billion level in terms of just kind of ongoing orders. Is anything changed in that timeframe, should that number be a little bit higher kind of organically without new builds?

While, two things. The accounting has changed because Varco used to report a different backlog basis, which was everything and we sort of scale that back now that the orders beyond $250. So it's not really an apples-to-apples comparison if you go back prior to merger with them.

Okay. Yeah.

Secondly, yes. I think things have changed. You're replayed generally... we are replacing a more mechanical blacksmith equipment of 1970 something, with equipment that has a lot more embedded electronics and much, much tighter machines tolerances, a lot more of hydraulics or electric motor actuated sort of motion in it. All that stuff requires a lot more OEM, kind of feeding and probably frankly, there's a much better job its much more efficient, its much more fit for purpose, but it probably it gets worn out faster, because rigs are, you don't have much... you don't have quite the safety margins designed into rigs and so that I think drives probably a higher level of organic support for the fleet from NOV period-over-period, hard to quantify but that's what I'd say.

Okay. So the billion from a while back feels like a decent base line there?

Yeah I think the guidance we're providing is in that close to 1 billion range or so.

Okay, thank you. And then Clay you mentioned your view for PSS was a fairly sharp decline first quarter versus fourth? And then flattening out from there, what's the driver of the flattening out process given rig count probably declines again in Q2. How do you offset that decline?

This is basic... Dan the guidance we provided was based on our most recent budget that we rolled up last week and believe we're going to be able to offset some of the Canadian break-up decline that you see in the second quarter. Our exposure in PS&S to Canada is we do have some exposures on that rig last year with only about 9% to the full year. So you see a little bit of that affect, but we see some other specific things going on including a lot of excitement in South America, which we believe is going to offset that.

Okay. So it's basically international offset in it?

Right.

Thank you.

Thanks Dan again.

Thank you, sir. And ladies and gentlemen, that does conclude the question-and-answer session. I would now like to turn the conference back over to Mr. Miller for any closing remarks. Please go ahead sir.

We'd like to thank everybody of listening in today and we look forward to talking to everybody again at the end of the first quarter. Thank you so much for your interest.

Thank you, sir. Ladies and gentlemen, this concludes the National Oilwell Varco fourth quarter earnings conference call. If you would like to listen to a replay of today's conference call, please dial 303-590-3000 and enter a passcode 11124801. Once again if you would like to listen to a replay of today's conference, please dial 303-590-3000 and enter the passcode 11124801. ACT would like to thank you for your participation. You may now disconnect. Have a pleasant day.