Welcome to the Fourth Quarter National Oilwell Varco 2010 Earnings Call. My name is John, and I'll be your operator for today's call. [Operator Instructions] I will now turn the call over to Loren Singletary, Vice President of Global Accounts and Investor Relations. You may begin.

Thank you, John, and welcome, everyone to the National Oilwell Varco Fourth Quarter and Full Year 2010 Earnings Conference Call. With me today is Pete Miller, Chairman, CEO and President of National Oilwell Varco; and Clay Williams, 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, 2010, 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 quarter or later in the year. I refer you to the latest Form 10-K and 10-Q 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 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, I will turn the call over to Pete for his opening comments.

Thanks, Loren and welcome, everyone from frigid Houston to our 2010 year end conference call. Earlier today, we announced fourth quarter 2010 earnings of $440 million or $1.05 a share on revenues of $3.17 billion. Additionally, we announced earnings of $1.67 billion on revenues of $12.16 billion for the entire year. Clay will expand on these numbers in a moment, but we are very pleased with the results and that they exhibit our ability over the past couple of years to navigate a very difficult market with dexterity and nimbleness. Additionally, we announced new capital order intake of $1.41 billion for our second consecutive quarter of a greater than 1:1 book-to-bill ratio. This order intake reflects the industry need for the highly technical solutions we provide. Our backlog ended the quarter at $5.01 billion, and we will expand during this call on the order outlook that we see for the next couple of quarters. I want to thank all of our employees worldwide for their tremendous efforts they have put forth this year to achieve these results. Their hard work and dedication has been unequaled by anyone in the industry. At this time, I'd like to turn the call over to Clay to give you more color on the numbers I've just talked about.

Thanks, Pete. National Oilwell Varco posted excellent results in the fourth quarter, earning $440 million or $1.05 per fully diluted share on $3.2 billion of revenue. Operating profit was $624 million for the fourth quarter on a GAAP basis. Excluding transaction, devaluation and voluntary retirement charges from all periods, fourth quarter operating profit of $625 million was up from $598 million in the third quarter and up from $622 million in the fourth quarter of last year. Sequential operating flow through or leverage was 17% on a 5% increase in sales, lower than is typical due to items that I'll speak to in the operations discussions. Operating margins for the fourth quarter of 19.7% were generally in line with both the prior quarter and the fourth quarter of last year. For the full year 2010, the company earned $1,667,000,000 or $3.98 per fully diluted share compared to $1,469,000,000 or $3.52 per fully diluted share in 2009 on a GAAP basis. Excluding transaction impairment, voluntary retirement and restructuring charges, 2010 earnings were $4.09 per diluted share, up 4% from the $3.95 per diluted share earned in 2009 due principally to a lower tax rate in 2010. Revenues were $12.2 billion in 2010, down 4% from the $12.7 billion in revenues posted in 2009. Operating profit for the full year 2010, excluding transaction devaluation, voluntary retirement, restructuring charges was $2,465,000,000, down $84 million from 2009, representing 15% decremental operating leverage and excluding unusual charges from both years. Full year results for 2010 highlight the cyclical diversification of NOV's portfolio of Early and Late Cycle businesses. Our Early Cycle businesses, Distribution Services and Petroleum Services & Supplies rebounded with a North American rig count this year and posted 15% and 12% year-over-year sales gains respectively. National Oilwell Varco's later cycle Rig Technology Group…

Thanks, Clay. I just want to make a couple more of brief comments about what's going on with like around the world. And first off, let me kind of hit the driving forces again. Clay mentioned technology and the advances in technology and one of the things that I've been talking to a lot of people about is the differential between chronological age and technological age. And I think many times, we kind of take a look at a rig maybe only be 20 years old, but when you look at that on a technological age aspect, it's a lot older because of the advances that we're making. It's very similar to Moore's law when you take a look at this in IT and you're doing the same sort of thing with rigs. I would offer the difference in a rig from 1980 to 1990 was de minimus, whereas the difference in a rig from 2000 to 2010 is large, it's huge. And I think that's one of the things that's driving the bifurcation of the rig market, and we also think that's what's going to continue to increase the demand for the Deepwater rigs that we're building, the jackups that we're building and also the land rigs that we're building. So we think there's a very bright future out there for this. The second driving force that I talk about all the time are shales. And if you take a look at this and the neat thing right now is that you're seeing the transfer of rigs from the gas shales to the oily shales. You take a look at the Bakken, the Niobrara, the Eagle Ford, Granite Wash, the Monterey Shale in California now, these are starting to pull rigs out of the gas market, but I think…

[Operator Instructions] And our first question comes from Bill Herbert from Simmons.

Pete, back to the broader narrative here with regard to what Clay described persuasively here as the resumption of the macro retooling and replacement cycle and in Europe, your added observation in terms of differences between chronological and technological age and I guess with regard to comparing this recent blossoming, if you will, or this resumption, if you will, with regard to the new construction cycle versus what prevailed '05 versus '08 when 100 off-loaders were ordered, what are some of the key prominent differences with regard to this next wave versus what prevailed last time? And why don't we start with regard to your market share and how that may have changed?

As you probably know, Bill, visiting with me many times, we don't talk about market share. We just kind of like where we are in the market. And we'll do very, very well. I'm not overly concerned about that. To the first part of your question though, let me kind of tell you. I think one of the big changes right now -- and you hit it right when you said this is a resumption of the cycle. I think some people have said we're in a new cycle, but quite frankly, I think this is just a resumption of the cycle that ended abruptly with some of the problems that occurred in late '08, with Bear Stearns and Lehman and the like. So I think this is a continuation of what started that. What you're seeing today, I think, are two things that are pretty interesting. First off, this is being led by the established drilling contractors. You're talking about the big boys that are getting in there and coming in and buying stuff. And I think last time, it was a little bit more, I wouldn't say speculators, but more of the nontraditional customers were the ones who've started it back in '05 and '06. I think that's a big difference. I think the positive there is that with the established guys doing it, I think you'll also see some of the nontraditional folks come back in. The second one that I think is pretty critical is that there is the understanding now to let the shipyards build it. And you're seeing, it's almost a turnkey-type situation with the shipyard and what's there, whether you're Hyundai or Samsung or whomever you're quoting, $556 million, $620 million, whatever the price might be and then it's incumbent upon them to work with us to get the rig built. And if you take a look at the history, if you go back to '06, '07, '08, the rigs that were built like that came out on time, on budget. They came out very, very good. So I think that those two elements are interacting in there today, and I think you'll see the contractors going in there and say, "Yes, build this thing, deliver and let's go." And those are the two major elements, I think, that are different.

Bill, can I add a third to that? I would say, too that the out-of-the-box standard-proven rig designs are the way to go. The projects that got into trouble were from owners that tried to be too clever with regards to save a little money here or rearranging something there or insourcing from a less-proven supplier. And so I think hopefully, the industry generally, I think, has learned that the way to go is to let the shipyards, to let the drilling equipment providers who do this for a living execute on that, on standard proven rig designs and stay away from the more exotic schemes.

Secondly, how long do you think the current floater construction cost window up about $600 million for a high-end drill ship stays open?

I think it's going to start moving up, Bill. As I mentioned, we're starting to see steel prices move. There's been a lot of inks [ph] build here in the last month or two on commodity prices around the globe. So I think we're developing economies, seeing some inflation. The current window at discounting on offshore rigs, I think, has been helped by lower steel prices. It's been helped by favorable FX moves and really a pretty deflationary environment for the past two years. And it appears to us that, that's going to be going the other way here soon. So I can't tell you precisely, but if customers listening, we'd tell you, "Order now."

Lastly for me, with regard to shipyard capacity, how much headroom is left and with regard to the name brand shipyards, Samsung, Daewoo, Hyundai etc. if you were to order a new rig today, the delivery date would be when? So how much running room do we have and how long before? What's the lead time with regard to getting our rigs back?

I think, Bill that there's still headroom, and I think they're talking -- as you take a look at this, what's going on in the shipyards today, when we started this back in '05, '06, it was like three, three and a half years. Today, they're putting a lot of these in two and a half years. The reason they can do that though is because of the experiences we've gained over the last four, five years. We've really become efficient. We've been able to cut a lot of man hours out of this and so I think you'll see a little bit more rapid throughput. At some point in time, you'll hit some inefficiencies, and that'll change that. But still, I think when you look at the Korean shipyards, Samsung, Hyundai, these guys are big and they know what they're doing. They probably don't have as many tankers as they had back in '06, '07, '08 when they were picking those orders. So I think there's still good headroom. And so I think there's still some promising potential out there.

We also think that the payment terms are probably going to become a little bit tougher. That the easy payment terms that I referenced in my comments are likely to pass, and we're probably going to see the shipyards become a little more demanding on the payment here pretty soon.

Our next question comes from Kurt Hallead from RBC Capital Markets.

On the PSS front, can you talk a little bit about -- you mentioned some things on Drill Pipe. You mentioned in the past about the consumption of Drill Pipe given what's going on in shales and obviously the premium content for the Deepwater. So I was wondering if you could give us just a tad more color on what you see on Drill Pipe order trends. What kind of mix we're talking about and are we at a point here where you can say we're close to an inflection on drill pipe demand?

Yes, I think we are. The last few quarters, we've seen orders rising book to bill through most of 2010, north of one. As I mentioned though, Q4 dipped a little below that and revenues came down a little bit. We think that was kind of a holiday slowdown. People had used up their 2010 budgets, and so we think that was a temporary thing. And the month of January seemed to indicate that as well because it came back better in January. So that's kind of what's going on with the recent orders. Generally, 2010 was characterized by much smaller Drill Pipe purchases for smaller diameter incise Drill Pipe purchases for land rigs, specifically for the shales and we've talked in the past about 4-Inch Drill Pipe with XT premium connections, which is our offering into that market kind of becoming standardized from the shales. And that's kind of a new size, weight and grade of Drill Pipe that works the best in the style of drilling that's underway. So we saw a lot of customers kind of scrambling to get that kind of pipe. What cycled down in 2010 was the sale of large diameter, very sophisticated premium strings for these floaters. There's a bunch of ordering that happened in late '08 and through 2009 for the new builds. That kind of slowed this year. However, there's now over 100 rigs out there that have not yet ordered pipe, and so we think that the outlook for that is pretty good for 2011. That's important for us because that's a little higher margin pipe for us and higher dollar per foot pipe for us, considerably higher dollar per foot pipe for us. And so we think we're pretty well situated. But the usage trend that you're talking about…

[indiscernible] if you can, when you take a look at 2011 and your varying product lines within the PS&S Group. On a relative basis, which one do you think has the most opportunity to get net pricing increases in 2011? Which one or two do you think has the best leverage? Which one or two has the least leverage?

Coil tubing certainly been in high demand as Pete mentioned. Again Drill Pipe coming on from the offshore, again looks pretty good. I'll say broadly most of our products and services within PS&S reported, just starting to get a little bit of pricing leverage in the fourth quarter. And it's a percent here and 2% there, so it's not much yet, but starting to stick. We're also -- the inflation we talked about in steel, we're seeing that in labor and a few other things and I think that's well known by our customers. And so I think we're just now starting to get a little traction on pricing leverage. So we think we'll not be able to make some gains there in the coming quarters.

And I'd add, Kurt, that Downhole Tools, we've got a lot of new products coming out. And I think as you talk about these shale wells, when you're talking about hole openers and different type of bids and motors, even wall staters [ph], things like that, I think we'll get some leverage there. That's associated with the increase in technology that we see in these areas. So we continue to push as a company on the envelope that all of our areas on new product development. And I think that in itself enhances your pricing capabilities.

Just on the FPSO side, you said you got a -- it sounds like a good year of integration to work through before you start to see some of the improvement in the margins. So what kind of improvement would you expect to see, say exit 2011 from where you are now? And could you give us some additional color on some of the challenges you're facing?

The business came in at -- it's a great business, large installed base over 50 turrets turns around the world in service, great electrical property, a bunch of engineers who really know what they're doing. They typically outsourced most of their fabrication. And a big part of our business plan now is to insource that into existing NOV facilities. So for instance, in Korea, where we have a large assembly capability that required a couple of years ago and is busy next door to the shipyards, we can also put the turret APL Turret offering into that network. A lot of the suppliers to the business are suppliers that we also use, so I think we'll have some leverage there. But generally, I think this business is pretty similar to other Norwegian, a very Technical Engineering-Oriented businesses that we've acquired in the past that intended to outsource. And so this is a, for us, a pretty well-learned path in terms of how to get the profitability. But it does take some time. So we're not expecting -- we do expect to be modestly accretive to earnings in 2011 and that should improve kind of quarter-by-quarter as we get these improvements, integration improvements later in the year.

Our next question comes from Marshall Adkins from Raymond James. Marshall Adkins - Raymond James & Associates: We've had a bunch of new build announcements obviously the last few months. I think you mentioned you had in this last quarter, a couple of deepwater and a handful of jackups. Without getting too specific, can you give us some sense of what percent of those that have been announced, say over the last quarter or so, have actually been awarded?

Pretty -- it's small.

Yes. Marshall Adkins - Raymond James & Associates: That's what I would assume. But I just want to get -- 10% maybe?

I don't want to quantify. Suffice to say, you've seen a bunch of announcements, a lot more rigs out there. And I think you know these reputation for being able to execute well on these things is positioning us very, very well as the cycle resumes.

And what happens, Marshall, kind of on the process, I did give you a little bit of an indicator. Somebody announces that they may have an LOI with the shipyard. And what happens is we negotiate many times with both the contractor and the shipyard. And we really don't put it in to our book until we've signed the final contract in most cases, the way it's going right now with our shipyards, in some cases put the customer directly. But that's one of the reasons there's a little bit of a time gap. So when you see something that says an LOI, the chances are real good that they're still in the negotiating process with the shipyard. And so that's really the process that's going on. There's a lot of it out there that we know we're going to get, but as we've told you throughout the years, we're real strict on the backlog and we don't -- I think the history of what happened, if you go back to '08, we had $12 billion and everybody was worried about our backlog getting cancelled and it didn't get cancelled, a very small portion of it. I think that's because of the strictness that we have of putting stuff in that backlog. So there's a pretty good time gap between the announcement and the order. Marshall Adkins - Raymond James & Associates: Suffice to say, over the ones we've seen lately, just a fairly small portion of those have seen any -- have been awarded at this stage?

They weren't awarded as of 31 December 2010. They were a month into this and there are some things that have happened in the past month, but that's -- this discounts off 2010.

Clay, you mentioned the financing. We know that the shipyards have been offering pretty attractive financing terms. How much of this new order cycle we're seeing really surge in the last two months is that financing? And are we just kind of bringing forward what might have evolved over a two-year period just because the financing's easy?

I think so, Marshall. I haven't run particularly detailed numbers, but I have seen some other analyses of the intrinsic economics and building rigs right now. And I think the returns are decent. Kind of the old historical rule of thumb is kind of 15% rates of return in these investments, and I think we're at that or better. I think the financing is kind of the icing on the cake, it probably just makes it a little easier for customers to move forward. I'll add too, I think behind the financing that's being offered in a lot of these places, and so there's a lot of government export agency trade financing that's out there. The export agencies, we worked very closely with around the globe, really stepped up when the credit markets turned down two years ago to try to catalyze some or to kind of keep credit flowing. So what you're seeing now is the effect of that. Marshall Adkins - Raymond James & Associates: Just to clarify, last thing here, you mentioned your pricing, of course, from the peak has come down, 15% to 25% depending on what you're looking at. Did you participate in that price reduction pro rata? Or is that more the shipyards and the steel in percentage terms?

They're down a little more than us. We are down, but nevertheless, our margins are pretty good and what's helping our margins is the fact that we've seen the costs come down. And it's a combination of deflation we talked about, but also this is the learning curve effects that Pete mentioned earlier. They will take a lot of hours out of the things that we do, lessons that you learn. Our folks are really good at capturing those and putting them to work on the next version of the rig. So those two things have kind of let us whittle our cost down. And with the downturn of the market last two years, we've shared some of that with our customers.

Our next question comes from Geoff Kieburtz from Weeden. Geoff Kieburtz - Weeden & Co. Research: I'm going to try one more time. You mentioned that there's 100 rigs out there that haven't ordered pipe. Is the number of rigs that haven't ordered drilling packages half of that?

They ordered pipe late in the process, and they'll tend to order pipe -- if you go back to 2008, our Drill Pipe business was very, very busy. Backlog very big, and we were quoting a little later deliveries. And our customers were aware of that. So they tended to get in the queue a little earlier while that pipe flowed out 2009. Well 2009 and 2010, our Drill Pipe business slowed down. So they know they've got a little more time before they move forward with that. But things are heating up and so that's why we think 2011, we'll see more of those folks show up and place orders for pipe for those offshore rigs. Geoff Kieburtz - Weeden & Co. Research: You talked about pricing -- I think you said that pricing leverage is coming back into the Rig Tech product lines. Is that correct?

Yes. Geoff Kieburtz - Weeden & Co. Research: So we're seeing a turning point. When you factor all the dynamics that you're seeing into it and you did say you expect Rig Tech margins to move lower, are we thinking in the vicinity of the 50, 60 basis points kind of range on a sequential basis?

Yes, we've been talking about margins moving lower for some time. We've seen this coming, and you've seen it last two quarters. And again, our guidance sort of guided down through the high 20s down into the mid-20s. Sequentially, we've sort of guided along that glide path. Geoff Kieburtz - Weeden & Co. Research: It seems a little bit more conservative than your actual performance.

Yes well again, what we've been pleasantly surprised is the continued really good execution by our folks after that, quarter-by-quarter. So internally, we've been surprised at how well they've been able to take advantage of the downturn in the economy and lower costs and done a really good job putting up better margins than we expect. Geoff Kieburtz - Weeden & Co. Research: And a clarification. You did close the APL acquisition in the quarter. Where did their backlog go?

It's included in the our $1.4 billion. Geoff Kieburtz - Weeden & Co. Research: Can you give us a little break out on that?

Yes.

Jeff, we're still parsing through it because we had to make some determinations on some risk analysis associated with it because the backlog wasn't quite developed the same way as our rules are. But I would tell you probably about $100 million, right in that vicinity. Geoff Kieburtz - Weeden & Co. Research: About $100 million of the $1.4 billion orders?

Right. Geoff Kieburtz - Weeden & Co. Research: So bringing their backlog in, you just treat it as new orders?

Yes, we're not going to get in there, break the backlog down into little pieces. But that's -- again, there's still some parsing we have to do on that. And as we look at some orders, we're liable to deduct a little bit more there. It just depends, but it's not anything that's overly material.

That will be the last question. I'll now turn it back to you, Mr. Miller for closing remarks.

Thank you, all very much for dialing in, and we look forward to talking to you on our next call for the first quarter of 2011. Thank you very much.

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