Welcome to the National Oilwell Varco 2011 Second Quarter Earnings Call. My name is Dawn, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Loren Singletary, Vice President, Global Accounts and Investor Relations. Mr. Singletary, you may begin.

Thank you, Dawn, and welcome everyone to the National Oilwell Varco Second Quarter 2011 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 second quarter ended June 30, 2011, 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 risk and uncertainties, and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. I refer you to the latest Forms 10-K and 10-Q National Oilwell Varco has on file with the Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information regarding these, as well as supplemental financial and operating information, may be found within our press release, on our website at www.nov.com or in our filings with the SEC. Later on this call, we will answer your questions, which we ask you to limit to 2 in order to permit more participation. Now I will turn the call over to Pete for his opening comments.

Thanks, Loren, and welcome everybody to our second quarter 2011 earnings conference call. Earlier today, we announced earnings of $481 million or $1.13 per fully diluted share on revenues of $3.51 billion. This profit is an 18% increase over both the second quarter of 2010 and the first quarter of 2011. We are very pleased with these results and believe they reflect the preference for our products and services around the world and the continuing operational excellence of our employees. Clay will expand upon these numbers in a moment. Additionally, we announced a record capital equipment order intake of $2.96 billion to give us a quarter-ending backlog of close to $8 billion. In the past 2 quarters, our new order intake has exceeded $5 billion. I would like to thank our worldwide sales force for their outstanding efforts in achieving these record order intake results. On a more somber note, I would like to offer our condolences to our Norwegian friends and co-workers on the loss they suffered Friday at the hands of a madman. The thoughts and prayers of everyone at National Oilwell Varco are with the people of Norway today. At this time, I'd like to turn the call over to Clay.

Thank you, Pete. National Oilwell Varco produced excellent results in the second quarter, posting revenues of $3.5 billion, earnings of $1.13 per fully diluted share for the period. Our quarter included transaction charges of $4 million pretax, and excluding these, earnings were $1.14 per fully diluted share. Operating profit, excluding transaction charges, was $712 million or 20.3% of sales, higher than we expected, due to strong margin performance from Rig Technology, which offset expected seasonal margin declines from Petroleum Services & Supplies and Distribution Services stemming from breakup in Canada and flooding in the Bakken area. Margins in these 2 segments also faced some additional mix challenges, which I will detail in a few minutes. But nevertheless performed well due -- to meet the rising needs of our customers. Strong demand in the North American shale plays and good international activity contributed to solid results for both segments. Like others in our industry, we have been witnessing a steady migration within North American shale activity. Gas prices have remained range bound in the $4 neighborhood since 2009, below the average for the 2003-to-2008 period, leading to levels of gas drilling about 40% below their 2007-2008 peaks. However, declining gas rigs have been more than offset by growing levels of oil-directed drilling, which has risen sharply to levels not seen in 25 years, fueled by sustained high crude prices. Together with rising deepwater production from the Gulf, the 400,000 barrels of oil per day flowing from shales have resulted in the first increases in U.S. oil production in a generation. The great migration of activity from gas to oil has created new opportunities for our operations, along with new challenges, as we reposition our assets and workforce to continue to meet the pressing needs of the petroleum industry. As a result,…

Thanks, Clay. I just want to make a couple of more brief comments. And as I was thinking about things that I wanted to say today, really a lot of it's just an instant replay from what we talked about the last couple of quarters. Needless to say, the big theme in the United States continues to be the shales. And even though the gas -- natural gas's lower price today, the rigs that are coming off the gas wells are moving to the oil wells, so we're seeing a very nice consistency in the rig count right now. So I feel very, very good about what we're doing in the shales. And obviously, all the products that we have out there lend themselves quite well to shales, whether you're talking our downhole tools, our bits, our rigs, our drill pipe and everything that we have in there. So I'm very encouraged that this is going to kind of continue on. The other thing we've talked a lot about is the rig bifurcation. No question that the best rigs are getting the work, and there's also no question you're going to continue to see rigs being built. You saw the bump in land rigs that came out this quarter for us. We're very pleased with that. And you continue to see the very high activity in both the jack-ups and the high-end drillships, and we think this is going to continue for a period of time. There a lot of options that are still out there. And we feel very good about our position in the market, and we like what's going on. The reason we feel very good about it -- here's what I think the real theme is that's important for us over the next couple of years…

[Operator Instructions] Our first question comes from Jim Crandell from Dahlman Rose. James Crandell - Dahlman Rose & Company, LLC: Clay, could you go into a little bit more detail on the revenue and margin forward outlook at the capital equipment business? I think I understood what you said about the riser business. But from here, is the outlook for the next, let's just say, 2 to 4 quarters or 2 to 3 quarters, one of slight margin erosion? And on the revenue side, I guess it was my understanding that in the early stages of booking revenue that you book mainly the engineering revenue and that, that comes on very slowly, while you're running off backlog and -- on equipment deliveries. So I was expecting that to sort of unfold fairly slowly for the next 2 to 3 quarters.

Yes. On the revenue picture, Jim, the second quarter benefited from more quicker-turn items and higher completed projects -- or completed contract items. They help drive that. So a lot of smaller well servicing equipment and the like. The margin surprise that I referenced on my comments at the beginning really came out of this reshuffling of our drilling riser production infrastructure, when we moved that -- much of that over into the Eastern Hemisphere to this very large facility that we acquired a couple of years ago in Korea. And the way it works is this -- that impacted mostly our percentage-of-completion projects, in a way that the accounting of that works is that we will continually book towards our expected total cost of the project. And a lot of these big offshore rigs that we're working on have riser as part of their cost -- part of the products that we're delivering. So as we discover the magnitude of cost savings, which was much larger than we expected, what we had to do this quarter then is reconcile towards a little lower margin across those project. So what that does in the quarter is have a -- create a lift in margins in Rig Technology that you saw, which was a bit of a surprise. And then secondly, in future periods, we do expect margin to be better, margins in Rig Technology, from kind of where we were previously. It's -- we're still going to trace a path that drops us I think down into the lower 20% range, but not quite as deep a downturn, looking at last quarter, based upon these efficiency gains. And so that's our expectations for the next couple of quarters. And then in 2012, further out, as these new projects flow in, I think that'll improve the margin picture, and we'll start to see margins go back the other way. James Crandell - Dahlman Rose & Company, LLC: And Clay, what did you say about the ramp in revenue from here? Would you expect the -- a more modest ramp or -- over the next 2 to 3 quarters?

The next couple of quarters, I think we're expecting a total of $2.8 billion in revenue out of backlog, which is in line. We have the possibility, Jim, of adding some additional revenue with new orders coming in, in the second half of the year. They might push Q4 up a little bit more. But as -- we're getting deeper into 2011, the opportunity to material push -- materially push up our revenue guidance on -- for revenue out of backlog become more and more limited. So most of the orders that we're taking in now are going to impact 2012, 2013 revenues much more significantly. James Crandell - Dahlman Rose & Company, LLC: Okay. And my second question, Pete, and this one is for you. How do you feel about additional deepwater new builds besides what's already has letters of intent and what's already in your backlog? And I was wondering if you could address 3 separate categories: one, your traditional customers; two, Norwegian customers; and three, Brazil, and particularly in light of maybe Samsung and Hyundai sort of filling up for the next year?

Yes. Jim, I think that really almost all levels that you just mentioned are really -- fairly positive right now. I think the -- you got the traditional western contractors, which have kind of led this most recent order intake surge. And I think those guys, they get off -- a lot of them are continuing to talk about as soon as they get a contract for one, they're got to put another one in the queue. So I think you're going to continue to see that happen. You're seeing a reemergence of some of the Norwegian players. I think that's going to continue to be a very positive deal. And then of course, you mentioned Brazil, and I think Brazil, while it's been a long and arduous journey, that is one that I think will probably come to fruition here pretty soon. The reality is when people think about it, they look at the number of those deepwater rigs that are being built and they see this historically big number. But the reality is when you look at the world that's covered by 60% deep water, it's really kind of, no pun intended, just a drop in the ocean, and you really are going to need a lot more of these rigs. So we feel very good about it. Now let me also talk about -- when you talk about Hyundai and Samsung and capacity, remember, when we were building these back in '06, '07, '08, they had a lot more tankers in those shipyards. So they still have the same key side, but now they have a lot fewer tankers. So I think the capability of them taking on more is probably a little bit more than people realize at this point. So to be -- all in all, kind of a long-winded way to say we're still very bullish on the opportunities out there on new builds. James Crandell - Dahlman Rose & Company, LLC: Okay. One more quick question, if I could, Pete. Do you see a broadening out of the ordering of new land rigs in the U.S. from the traditional Helmerich & Payne, Nabors, Patterson, Precision to other companies in terms of spec newbuilds or just newbuilds from other customers?

Yes, a little bit, Jim. I think that you're starting to see some new entrants into it, and I think that's being driven probably by operators going out there and saying, "Hey, we'd like to get some more people out here doing this, so we'll put these rigs on contracts." So we are -- we're seeing a little bit of that. I don't think it's huge at this point, but it is something that we're experiencing.

Our next question comes from Robin Shoemaker from Citi.

On -- Clay, in terms of the nearly $3 billion of new orders, could you give us any color on number of drillships and jack-ups that are in that mix?

Yes, we booked 8 drillship packages and 6 jack-ups in the quarter, and we also had a pretty good size production platform rig in there as well.

Okay. Let's see, so it was a pretty big step-up -- I guess it was 6 drillships in the first quarter and then 8, but that's still leaves -- I mean, do you -- your current count of ships that have been ordered, if we go back to that October of 2010 start date, total?

Yes. We booked in addition on the fourth quarter last year, I think, 2 drillship packages. So that gets us to 16 drillship packages that we booked since that start date, Robin. So given that there were -- the number of ships ordered is in the high 20s and then there's lots of options beyond that, I think there's still quite a bit of work out there. Also, too, I'll reiterate, the second quarter's orders did not include any orders for any of the drillships for Brazil. And so that's still out there in the mix, and we're working hard hopefully to land some of those.

Right. That actually that was my second question was on Brazil, where they've clearly designated a shipyard. They've got the financing in place for the first 7 rigs. And I think you're expecting possibly third quarter award for those rig packages.

Well, I learned a long time ago not to get too specific on the timing of signing contracts in Brazil. It's been an arduous lengthy process, but there had been a lot of good developments. Petrobras did set up Sete, the entity to own and finance these rigs. Sete has been executed a contract with EAS on the next 7 drillships. And I think a day or 2 ago, the revised 5-year CapEx plan for Petrobras was approved, and so I think it's -- it looks like things are moving ahead there.

Okay. Now that you gave us the figures on drillships, jack -- it looks to me like you --- what you must've gotten is really like the full amount that you would potentially get from the drillships and jack-ups and -- to add up to that nearly $3 billion. So is that correct that you kind of got the full?

Yes, I'd say the level of participation on both was very high and very good. And just as a reminder, the -- we sell everything we can into sophisticated drillship. We can exceed $200 million in orders. In the prior cycle, we were up over $250 million. And then jack-ups, $50 million is kind of a good harsh-environment, highly capable jack rig -- jack-up rig. But actually what we're seeing here lately is some very, very big jack-up rigs, where we've exceeded the $50 million package in a couple of instances. So overall, I think -- again, the marketplace is seeing the value that NOV adds to these new rig construction projects, and I think our participation, thus far, has been very, very strong, and we believe that's going to continue.

Our next question comes from Kurt Hallead from RBC Capital.

I just wanted to follow up first on the commentary about the guide points on PSS [PS&S] as you go into the quarter, some of this may be around semantics. But when you talk about an increase in -- going out into the third quarter, we've had a few of the other players in the business so far suggest that the revenue growth vis-à-vis rig count in the North American market or U.S. market could be 2 times that of rig count. I know you did -- your businesses are not quite as service intensive, so there may be some differential. But if we think about rig count growth being up double digits on a sequential basis, you would have to think that PSS would at least match that. But is there any other things that we need to consider to think that revenues could grow faster than rig count?

Well, the good part about our business, we do participate in sort of higher-growth areas, things like coiled tubing technologies and some pretty high-performance drilling motor bits. And so I think we have a good mix of businesses within PS&S to participate in whatever rig count movement we have -- have happened. Some of the specific things, Kurt, that I referred to in my comments had to do with seasonal issues in Canada and much more magnified breakup I think this year, given the strong levels of activity in Q1 and then that fell off pretty sharply. We lost 400 rigs this year in Canada. And last year, I think the rig count only went down about 300 rigs. And so it's a much bigger impact this year and exacerbated by flooding in the Bakken region, affected both Saskatchewan and North Dakota. So going into Q3, we expect all that to turn around, and that was really kind of the basis for our guidance for PS&S.

Okay. So I guess just going back to it, so the view for NOV would be you're not quite at the same 2x rig count growth as you service companies but you could do better than that -- u could do better than rig count growth.

Yes. Kurt, we've never been quite that specific on quantifying our forward-looking guidance. I'll say that the things that are positively influencing our outlook for Q3 are a rising level of activity, the turnaround of the seasonal breakup in Canada and the fact that we are getting traction on pricing, which is improving our outlook. Some of the other, like pressure pumpers, other service companies that you may be referring to, may be getting a little more pricing leverage for certain segments, particularly within pressure pumping that have experienced a little more pricing leverage than we've been able to get. Nevertheless, our outlook is -- remains pretty strong.

And then just to prior question there. You've referenced kind of what the potential ticket could be for NOV on a deepwater drillship, for example, and a high-end jack-up. You mentioned that the peak for a drillship was somewhere around $250 million. Now I guess it's still under that. And then I guess land rigs are still what -- $15 million to $20 million for the U.S, and if you go internationally, it could be maybe $40 million to $50 million depending on the requirements on the land rigs.

Yes, that's pretty accurate.

Our next question comes from David Anderson from JPMorgan. John Anderson - JP Morgan Chase & Co: A question on drill pipe for the newbuilds. Looks like you got about 21 floaters, 10 jack-ups coming in the second half of the year, and there are 14 floaters and 15 jack-ups in '12. How many of those have ordered drill pipe? And kind of what are some of the trends you're seeing in the timing of orders? Clay, I think you and I talked about that some of these guys are -- because they don't have contracts, they're pushing out further and further towards delivery dates. Can you talk about that? And as that comes through, I would expect those margins to be incremental to PS&S? Am I kind of in the ballpark in my thinking here?

Yes, we're keeping an eye on that world very, very closely and know that there are a lot of premium landing strings and drill pipe strings to be ordered by that fleet of new rigs that'll be delivered here over the next few years. That's something our sales group within Drill Pipe pays very close attention to. And what we're witnessing is some hesitancy. Not -- hesitancy is quite not the right word, but I think you're seeking the oil and gas companies and joint contractors are seeking a little more clarity on the specific programs those rigs are going to go out and drill. The blossoming of all these different size, weights and grades and technologies within Drill Pipe means that you probably need to be a little more thoughtful about the selection of the type of drill pipe. And so what we think may be gating some of these orders is our joint contractors and our E&P customers waiting to get a little closer to the spudding of the wells and, thereby, seeking to optimize the selection of the pipe that's going to go on to these rigs. Nevertheless, you look at the rig fleet that's coming on line, they're going to have to order -- those rigs don't work without drill pipe. And so we foresee a lot of drill pipe to be ordered and that will be favorable to the mix. That's some of the best margin pipe we sell. John Anderson - JP Morgan Chase & Co: That's what I thought. I mean, could this potentially be a kind of a 4Q upside surprise event? Or is this more like first half '12?

I'd go '12. John Anderson - JP Morgan Chase & Co: '12?

Yes. John Anderson - JP Morgan Chase & Co: On a different subject. Sounds like you guys are kind of calming people down a little about -- a little bit about the FPSO market, in terms of how this all kind of playing out. But you mentioned about APL integration. Can you just kind of tell us where you stand? Now I know you're talking about shifting some of the manufacturing, the cost control, the overall strategy. I assume this is still going to be a transition year for APL and then next year, we should start seeing the orders. So could you comment on that? And also, you had mentioned kind of an offering from NOV in terms of the FPSO package. Is the Turret -- is there other things around the Turret that we're not familiar with? Or is the Turret separate from, say, kind of your more traditional packages you'd have on, like -- I guess you have cranes and the other metal-bending things?

I -- let me take the last part of that question first, and that really is the NOV offerings on that. What we've got -- the Turret is something totally absolutely new to us, and that came with the APL acquisition. And APL is really a creative organization that's able to do things. And in particular, you've got the submersible Turret, which allows you to kind of drop the Turret and you kind of sail the FPSO out of harm's way if you're in harsh environments or in the Gulf of Mexico, things like that, when a hurricane comes in. But we also recently purchased company called Merpro, and Merpro does a lot of things that are additive to what we do there. And then plus with our Norwegian operations and a lot of our craneage and our chain handling and anchor handling and things like that, we offer a pretty wide array of things. It's our intent to continue to do that. But also as I kind of mentioned earlier on my comments about technology, we're also looking at LNG vessels, and APL has offerings for those as well. So we're very excited about where this is going and I think that as we look at the technology that we have out there, we're positioning ourselves very, very well as the independent supplier of that to a lot of the FPSO owners. And I'll let Clay kind of touch on the integration process.

Yes, this is -- and to reiterate, this is a very long-term strategy. We bought APL not for what we're going to do in FPSO orders this year but rather for where we see this industry going over the next 10 years. And it's really underpinned by a very high number of deepwater offshore discoveries and the need of the oil and gas community to plumb those discoveries in, and we think FPSOs offer a pretty elegant way to move into more remote locations and produce those fields. We'll tell you that when it comes to sanctioning the development of discoveries and moving forward on spending big CapEx dollars and buying an FPSO, it also carries along with it a commitment to engage in much bigger drilling programs, buy a lot more other equipment and hardware and services to develop these fields. So we think that's kind of gating the FPSO orders here in the short run. But given the strong outlook for crude prices, the number of discoveries that are out there, we're absolutely confident these projects are going to go forward. And as Pete mentioned, it's probably much more of a 2012 event.

Our next call -- question comes from Bill Herbert from Simmons & Company. William Herbert - Simmons & Company International: Clay, with regard to the margin roadmap for Rig Tech, just a couple of questions and trying to correlate that with your view on margins. You did mention that you had recently implemented a 68% pricing increase for Rig Tech.

Yes, that is correct. William Herbert - Simmons & Company International: Yes. And when does that begin to head to P&L? Is that sometime late this year, or is it next year or when?

I think it's more of a 2012 event. And actually -- though that has a lot to do with our guidance for 2012 margins kind of starting to go the other way. William Herbert - Simmons & Company International: Got it. And so -- and then also the comment that we made with regard to shipyards, delivery times compressing about 10 months cycle-on-cycle for a high-end drillship, correct?

Yes, that's correct.

Yes, that sounds good. William Herbert - Simmons & Company International: Yes. So basically, your revenue conversion out of backlog cycle-on-cycle should accelerate, correct?

Absolutely, yes. What you're looking at, Bill, is much -- an accelerated delivery, which obviously leads right into coming out of backlog quicker. William Herbert - Simmons & Company International: Okay. So your Mission's going to be improving, price is going to be up and your absorption's probably going to be better. When does that inflection really begin to take place? Is it at the end of this year, or do we begin to see that happening second half of this year?

Well, Bill, we've -- it's out there. We said a couple of quarters away. I don't want to call that precisely into this year versus 2012, but we'll say, let's say, couple of quarters away.

Mr. Miller, I'm turning the call back to you.

Okay. Thank you, Dawn, and thanks, everybody, for calling in. And we look forward to talking to you on our next conference call when we discuss third quarter results. Thank you very much.