Good morning ladies and gentlemen and welcome to the National Oilwell Varco third quarter 2009 earnings conference 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. Pete Miller, Mr. Miller, you may begin.

Thanks Hilda and good morning and welcome to the National Oilwell Varco third quarter 2009 earnings conference call. I am Pete Miller, CEO with National Oilwell Varco and with me on the call today is Clay Williams, our Chief Financial Officer. Loren Singletary who is normally on the call is currently traveling overseas on business and will not be with us today. Earlier today we announced earnings in the third quarter of $385 million or $0.92 a share on revenues of $3.1 billion. This compares to earnings of $1.31 a share on revenue of $3.6 billion in Q3 2008, and $0.53 a share on revenues of $3 billion last quarter. We are very pleased with the excellent work put forth by our employees in this challenging time to achieve these results. Additionally, we announced a quarter ending backlog of $7.3 billion, down from $8.7 billion at the end of the second quarter. I will expand on both operations and backlog later in this call, and discuss some opportunities that look very promising and exciting over the near term for [Inaudible]. At this time I would like to turn the call over to Clay to give you some color on our quarterly results.

All right, thank you Pete. Before we begin this discussion of National Oilwell Varco’s financial results for its third quarter ended September 30, 2009, 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 risks 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 you to the latest forms 10K and 10Q 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 maybe found within our press release on our website at www.nov.com or in our filings with the SEC. Later on this call Pete and will answer your questions. We ask that you limit your questions to two in order to permit more participation. National Oilwell Varco earned $385 million or $0.92 per fully diluted share on $3.1 billion in revenue in its third quarter ended September 30, 2009. Once again, National Oilwell Varco benefited from outstanding execution by the Rig Technology Group, which posted record margins during the third quarter, while our activity driven petroleum services and supplies, and distribution services groups continued to skillfully navigate the choppy waters of low rig counts and high pricing pressures, producing good results in view of a very tough market. Third quarter consolidated revenues improved 3% from the second quarter, but fell 15% from the third quarter of 2008, when…

Thanks Clay. I would like to take this opportunity to just make a few brief remarks about our operations, some of the things going on around the world and our market perspective. First off on our operational aspect of things, the key for us is geographic flexibility. As you look at our distribution folks we have been able to follow our customers, get into the shell plays where needed, most recently we have opened up a few new facilities on the Marcellus which we think is going to expand dramatically over the next couple of years, and the deep-water plays are finally starting to come to fruition in places and especially in the Gulf of Mexico and of course you will see that expand around the world as we deliver many more of these deep-water rigs that we are currently building. So, the key for us in distribution is to be able to maintain following our customers geographically, maintain variable costs at the highest level, fixed cost at the lowest level and be able to give our customers what they need. On the PS&S side, and on our petroleum services and supplies, it’s really about new product development, and it’s about providing the services and tools that our customers need. I think you are seeing us do that, and as you see, some of the folks are talking about 2010 being a more robust year, we hear the drilling contractors talking about having a little bit more optimism, and as those customers and our other service customers like Schlumberger and the other service companies expand their role in this drilling philosophy, we will be able absolutely add equipment to that, but the big thing for that is new product development. This quarter we are opening up our new drill pipe…

(Operator Instructions) Your first question comes from Marshall Adkins - Raymond James.

I am going to leave it up to the next five guys to ask you about your backlog, ten different ways. I want to hear about your M&A stuff. It seems to me this is going to be a key part of the story going forward. I mean, you had phenomenal free cash flow, I would expect you guys obviously to put that to work through acquisitions. So Clay, I know that you mentioned, and you are going pretty fast there, five letters and ten on small companies. But could you spend a little more time walk us through what you have done to staff up in this area, walk us through the opportunities you are seeing, the relative evaluations etc. I don’t need specifics, but just generically how things look. Are you going to have opportunities, are you going to be able to spin the cash you would have on these acquisitions?

You bet, great question Marshall. This started about a year ago as the financial markets were melting down and Lehman and Bear Stearns and others were facing their problems. We recognize that there were likely to be some pretty extraordinary opportunities come out at this time. And so, as a result about this time last year we increased our staff in this area, we now have a full time staff with four professionals that pursue M&A opportunities. We also went through their list and sought to high graded to lop off some of the smaller things at the bottom that were less impactful on NOV, and went out to try to act when the future looks very uncertain. And they have been very, very busy and I will stress we have an excellent, excellent team. All four of these folks do a great job and we are very proud of the job that they have done. It’s an awful lot of work bringing any one of these transactions over the goal line and for everyone that we bring to closure we typically have to queue up about a half a dozen, six or seven statistically, that we look at and do some level of due diligence on, so it’s a lot of effort that goes into this. Inclusive of deals that we have closed earlier this year plus the two that we signed that we expect to close here in the next few weeks, plus the five letters of intent, we expect to put about $600 million in capital to work through this effort this year. So it’s a really good effort that’s probably doubled from what we did in 2008 and the returns are very, very good with this application of capital. We are able to kind of the…

Great, one quick follow up the IntelliServ sale on partial sale I guess JV; how much cash did you get in for that and did you book any profit for that?

Under GAAP rules we did not book any profits related to that, that’s just a change in our additional paid in capital on our balance sheet and we agreed with our partner there that we weren’t going to disclose what was paid for that.

Your next question comes from Geoff Kieburtz - Weeden.

I will take the bate and ask you about your backlog. Can you help us understand kind of why things didn’t turn out the way you expected in 2009, I think you did mention that the Petrobras tenders are out based on a board meeting in mid-September, but you are not expecting orders from that to materialize until the third quarter of 2010. So, presumably something else was really behind your expectations for 2009 that didn’t materialize.

Yes Geoff. I mean I think it’s a combination of factors and what you have in an environment like this, which isn’t really all that uncommon, is you see more and more projects moving to the right. I could name four or five major projects that would look like we are going to come to fruition and in ‘09 it just didn’t, and they moved out. That’s the bad news but that’s always the difficulty you have on prognosticating about backlog, because if a customer orders it on the 20 of September or the 10of October it didn’t matter to them, but it matters a lot to us because we have a cut off date on the 30 of September. So, you have kind of a date certain, whereas if they kind of move it out it doesn’t matter. What we worry about are project cancellations and we haven’t seen much of that. We are seeing stuff kind of pushed to the right. There has been some things in the Caspian Sea that probably we thought were going to happen, did not happen in the timeframe with which we thought they were going to happen, were pushed out. We’ve had a couple of projects that we’ve been working very diligently on, that we thought might get signed in September, probably won’t be signed. Well if they didn’t, that’ll be signed in October, November or may be even into January, which at the end of the day doesn’t bother us a whole heck of a lot, other than the fact that you have to report the backlog, when we do the earnings conference call. Naturally kind of what’s happened has been more of a process of things moving to the right, it’s a guessing game. We get it with our sales…

Yes Geoff, probably also worth adding, when we came into the year, we were very clear that a lot depended on what happened in Brazil and added that to our guidance, and what has happened in Brazil is that the definition of local content requirements and the forms being considered in the way blocks are managed by the federal government ANP in Brazil, I think it has added some delays. Additionally, the credit market as we have mentioned have been pretty tough, probably worth noting and I think this was in my opening remarks that the banks are requiring higher levels of equity participation by some of the drilling contractors in these projects and if you think about it, it’s one thing to negotiate with the bank and we believe the credit markets are freeing up. But when they add additional requirements for larger equity participations, some of our customers are bringing in partners, and so the discussions take on a whole new set of dynamics. They have to work out shareholder agreements and prenuptial agreements, so an equity investment is just take a lot longer to bring to fruition. So I think that added headwind, which is a derivative of the state of the credit markets has delayed things a little more than we expected as we came into here.

I think it kind of addresses in your comment, it doesn’t sound like there was anything on the table in the beginning of the year that has fallen off that’s really material, am I understanding what you comment?

Absolutely, absolutely. I think as we take a look at this Geoff, there has not been anything that people have said, well, we are just are not going to do it anymore, because most of these projects are pretty viable and especially internationally when you are looking at today’s oil price. So, there really hadn’t been anything that’s fallen off the table, it’s just a question of timing.

And in terms of the timing, sort of slippage, I am going to guess you are not going to make 2010 order forecast, but.

That’s a real good guess.

Oh yes.

But can you generalize about the slippage? I mean are we talking about a quarter or a year in terms of slippage? Taking into account credit market conditions and everything you’ve already mentioned.

It almost is slippage that goes on a project by project basis, Geoff. I would have to break it down completely and say, well, here’s one in the Artic that we think is going to happen here, and one here is going to slip out another quarter. I think the only way just to generalize, there’s going to be slippage, but there’s not really going to be cancellation of these particular projects, they don’t have any order with us, so I don’t want to say cancellation, it sounds weird. But there wont be a compete cancellation of these projects, to go forward at least as best we can see now. Now if the price of oil goes 20 bucks a barrel, then I’ll bet we are off on that. But I think given the current market environment, there will be some general slippage, but I think it would be very difficult to give you an absolute picture of that.

Yes. The key thing that you highlighted Geoff is that we are not losing the line, these projects just aren’t being signed, and so, we are confident at some point they are going to be done.

And lastly, in terms of the local content requirements in Brazil, as they’ve changed and become a little bit clear, are they going to cause NOV to need to make any increased investments in Brazil of significance?

I think the key is significance. I mean, the fact is we’ve been investing in Brazil for quite some time and we will continue to and you’ll probably see us work at joint venture too that will help us out, note some of the things that we’ve done in China over the years and things that we’ve done in Korea and other places over the years. So, we will continue to do that. But the bottom line is there is not anything on the content requirements that gives us any pause. We will be able to hit those and hit them very effectively and we are committed to help the Brazilians advance our oil and gas business. So it should work out okay for us.

Your next question comes from Robin Shoemaker - Citigroup.

I wanted to ask about kind of directionally operating margins in rig technology and PSNS. Clay, you mentioned that probably you’ll get less delivery from backlog in the fourth quarter, something like 1.3 versus 1.6 this quarter. I would normally assume that that’s going to have the effect of lowering margins, and as less product is delivered from backlog going forward that would continue to be the case. But you’ve got some cost containment initiatives underway. So, what is your guidance, if any, about this high 20% operating margin you’ve achieved in this segment?

Robin, the comments that I just gave a second ago, kind of point you in the direction of that moving down in the fourth quarter, closer to the kind of the mid 20% range is what we expect, and it’s as you point out, obviously a big fall in revenue out of backlog from Q3 to Q4 based on what we are looking at now. Again there’s a possibility of over achieving as we have done last few quarters, but based on what we are looking at now we think $1.3 billion out of backlog is reasonable and that all rolls up to be kind of high single digit decline in that segment in the fourth quarter vis-à-vis the third, and will end up in 25% or may be 26% range, if things hold to what we forecast.

Okay. I think you previously gave a projection for outflow from backlog in 2010 and 2011, and if you gave an update of that I didn’t hear it on this call. Do you have an updated estimate of backlog deliveries?

Yes, you bet. I can’t recall what I said last time, but right now, based on our September 30, backlog we are expecting $4.7 billion in revenue in 2010, and $1.3 billion in revenue in 2011. So that’s based on projects on the backlog as of September 30. As it’s probably worth pointing out, I know you know this but others may not, as we win orders in the coming fourth quarter and into 2010, some of that can flow as revenue in 2010. So that may have some upward bias in it as the year unfolds.

Okay. Lastly on this, the after market I presume will now become a little more of higher percentage of rig technology revenue compared to what it has been. So, I think you said 17% in the third quarter.

Yes.

So, have you got a sense now with the new generation of deep-water rigs, drill ships and semi-submersibles, as to the kind of after market opportunity that each of those types of rigs represents on an annual basis for NOV?

Robin, we don’t have that yet, and one of the reasons is a lot of them that we put out are running very, very well. We kind of match that up with warranty reserves that we make, and we look at the way that some of these are running. We think in the long term it’s probably going to be a pretty decent number, simply because the equipment that we are putting on these things is so much more complex, but we have been reluctant to take a stand and give a number on that, simply because these new generation of rigs they are so new and they are so technically advanced that we just don’t have a real handle yet on what that after market is going to look like.

Your next question comes from Bill Herbert - Simmons & Company.

Pete, trying look out a little bit here and contemplating the floater world ex-Petrobras, and once E&P companies, IOCs and select NOCs, begin to believe that essentially $70, $80 crude is not assembled and frankly could be conservative. What do you think is a reasonable normalized environment for floater related orders going forward? I mean clearly, we are not seeing anything now. We were in an environment of four to six per quarter. What do you think normalized going forward is?

That’s always going to be a tough answer Bill, simply because, I think if you could say the price of oil was going to be in the $85 or $90 range and not [fremrol] as you say. I think you could probably come up with a pretty decent handle, unfortunately it moves pretty dramatically. I think that, if you were to tell me, okay, it’s going to be pretty close to $80, $85, $90 the entire time, then I would tell you two to three coming on a quarterly basis would not be abnormal. And I know a lot of people look at that number and they kind of go, gosh, that seems like a lot but look at the amount of water that you have around the world. I think especially as IOCs and some of the others want to really increase our own exploration efforts, I think the world needs a lot more of the deep-water rigs. And then given the timeframe to build these things, whether it’s two and a half or three years or three to four years, I think having a normalized rate like that would make sense. Now, having said that, let me put caveat on it, I mean it’s just all based upon the price of oil or where you think the price of oil and gas is going.

Right, and I guess where I am trying to go is this. I mean, Petrobras has come out and again approved, if you will, of the additional 28 rigs that it’s going to build. Assuming you get your call it 50% market share plus with regard to those it’s probably, I don’t know, something approaching five Petrobras floaters per year. Let’s be conservative and assume you get one additional floater outside of Petrobras per quarter. So call that four per year, you have got your, call it run rate of $300 to $350 million in non-floater related orders per quarter that probably moves higher as well. In other words, getting to an environment where you are generating normalized orders call it $3.5 billion per year, that’s not necessarily illogical, is it?

No, not at all. As a matter of fact I think we will look back, I mean this has been an abnormal year and it has been abnormal not so much because of the oil and gas business as much as worldwide economy. And I think if you look to the future I think looking at numbers like that is not abnormal. And I think you would start to throw in land rigs and you start to think about the technological advances on land rigs, right?

Yes

You start to take a look at the fact the clock keeps ticking on rust. We have said this for a long time and we are adamant about it and I think you are going to see more jack up rigs that are going to be needed. We sold jack up equipment this quarter and the fact of the matter is that those are not I think abnormal numbers at all to project into the future.

Right, and Clay, when you distill that into an earnings number with PSS improving as well, conservatively, I don’t know, 350 a year in earnings per share, free cash flow north of a $1.5 billion per year or something like that?

Yes, the nice thing about it is, we spend a lot of time sort of mesmerized by this backlog. But the truth is the business is actually much smoother than that. Orders are volatile, as Pete mentioned, are subject to cut off. If you look at our earnings and our cash flow, because in particular you see water rigs are built over two or three or four years, the earnings performance is actually quite leveled and that makes it a much easier business to run. Bill, also, I think worth noting with regards to the deep-water environment, a couple of things. First, Petrobras has done an amazing job steering how to drill through a lot of salt.

Right.

And as the world’s population of wells that have successfully penetrated 6000 feet of salt and rocks as they continue to drill down there, I think that technology is going to find its way into other basins, so you are effectively opening up new frontiers with that technology. Secondly, as deep-water development progresses you build out infrastructure, you build out gathering system, such that the incremental cost of new fields in that basin, the economics look that much better because they are not having to carry the expense of laying a pipeline all the way to the beach. So, I think those two things along with other technological advancements in this space mean you are likely to see sort of an acceleration over the coming decade plus of interest in these deep-water environments and that requires a lot of rigs and that’s what we are here for.

This concludes today’s call. I will now like to turn it over to Mr. Miller for closing remarks.

Thank you Hilda. And we appreciate everybody calling in today and we look forward to talking to you next year when we report on our final results for the year and the fourth quarter. Thank you very much.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating, you may now disconnect.