Welcome to the National Oilwell Varco 2012 First 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 of Investor and Industry Relations. Mr. Singletary, you may begin.

Thank you, Dawn, and welcome, everyone to the National Oilwell Varco first quarter 2012 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 first quarter first quarter ended March 31, 2012, please note that some of the statements we make during this call may contain forecasts, 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, 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. [Operator Instructions] Now I will turn the call over to Pete for his opening comments.

Thanks, Loren, and good morning, everyone. Earlier today, National Oilwell Varco announced first quarter 2012 earnings of $606 million or $1.42 per fully diluted share on revenue of $4.3 billion. Excluding transaction cost, earnings were $1.44 per fully diluted share. This compares the year-earlier results of $0.96 per share on revenues of $3.15 billion. We are extremely pleased with these earnings and feel they are indicative of the great product offerings National Oilwell Varco offers to the industry, and the excellent execution of our outstanding employees. Thank you, all for your wonderful efforts. Additionally, we announced new capital orders of $1.91 billion for the quarter, a 15% increase from last quarter. Definitive proof of the demand for our market-leading highly technical equipment. Earlier backlog or ending backlog for the quarter was $10.4 billion. The first quarter is a nice start to 2012 and exemplifies the full cycle product offerings of NOV. At this time, I will ask Clay to provide color on these results and I'll return a little later to add a few operational comments. Clay?

Thanks, Pete. National Oilwell Varco posted strong earnings for its first quarter of 2012, generating earnings for $1.44 per fully diluted share, up 44% from a year ago and a 5% from last year including transaction and devaluation charges from all periods. Revenues were a record $4.3 billion, up 37% from the year-earlier quarter and up slightly from the fourth quarter of 2011. Operating profit x transaction charges was $881 million and consolidating operating margins were 20.5%, both up sequentially and year-over-year. Operating leverage or flow-through was 48% on a small sequential revenue gain and 22% on the 37% year-over-year revenue gain. Our consolidated results show a shift in margins between 2 segments. Solid sequential margins gains within Petroleum Services & Supplies offset sequential declines in Rig Technology. Distribution & Transmission margins were down just slightly from a very strong level in Q4. Our businesses performed well in the first quarter, benefiting from high levels of activity in North America and abroad, as well as a great starting backlog of orders. Like others, we are watching closely the impact of low North American gas prices on activity, and we are shifting our operations from gassy basins to liquids-rich plays but we remain cautiously optimistic that rising oil rig activity will continue to offset falling demand for gas rigs across North America. Elsewhere around the globe, we foresee continued interest in Shale Gas Technologies onshore, and blossoming deepwater activity offshore. We have made good progress in deploying capital to better position National Oilwell Varco to better serve our customers through investments in new plants in spare parts and repair inventory to support our installed base and in acquisitions. And this quarter's results reflect contributions from all 3. New facilities for downhole tools, drill pipe, Fiberglass Pipe, coil tubing units, pressure-pumping equipment,…

Thanks, Clay. And I just want to make a few brief comments and kind of reiterate some of the things that Clay had talked about. We're really -- in the past few years, we've been expanding very rapidly in a lot of the international arenas and we're also doing a lot of capacity expansion and capacity changes here in the United States. We think these things are going to bode very well for the future. We're starting to see that in some of the numbers that we're even talking about today but just this past quarter, we opened up our new facility in Abu Dhabi, in which we have pipe inspection, pipe coating, drill pipe manufacturing and downhole tool manufacturing, and that's really kind of support the entire Middle East. But we have things like this going on all over the world. We have expansions going on in Russia right now. We hope to be able to build rigs there very soon, we're doing Downhole Tools, we're doing wire line units, we're doing some of the frac-ing systems. We have a lot of things going on and if you take a look at the shales, which we always mention on these calls in China, Australia, Latin America, we really are positioning ourselves to be able to take advantage of this. We're doing things in the United States at our pressure-controlled facility in West Little York here in Houston; our Hydra Rig facilities up in Fort Worth; our facilities on Orange, California, in which we're expanding our top drive production capabilities. And then even though even though we know there's a good chance for softness in the second half of the year in North America especially in natural gas, now is the time to do these things because we're a true…

[Operator Instructions] Our first question comes from Jim Crandell from Dahlman Rose. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Pete, in the past few weeks, we've seen some big ultra-deepwater discoveries, higher day rates for ultra-deepwater rigs and Seadrill in particular stepping in and ordering more floaters. How has this, just in the past few weeks, change the psychology toward ordering more ultra-deepwater rigs out there?

Jim, it's changed the psychology to be very positive. I think you've heard me say before, Seadrill is kind of a harbinger of what's going on in the industry there. They're clearly very progressive. And when you take a look at the economics that are out there today, and some of these day rates of these deepwater rigs are getting, then you tie that back to what the shipyards are charging for these rigs today in conjunction with our DEP or drilling equipment packages, and then I think the other third part of it that's really cool that Clay mentioned is, is cutting almost a year off the delivery time. Those economics, the discoveries that you're talking about, really show that the world needs more of these deepwater rigs. We think it's going to be a very positive ordering environment over the next few quarters, and we're excited about what we're seeing out there in the industry. And again, it's a pretty compelling financial argument when you look at it and you see the payback for these drilling contractors, it's a very good ROI. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: The second question I had is, is there any way that you and Clay could try to quantify for me, the ordering of additional BOP stacks by contract drillers for deepwater? To what extent are they ordering additional stacks for their rigs? To what extent are they ordering additional stacks for a number of rigs and I guess what kind of increment should we build on our assumptions for new blowout preventer orders in addition to just the number of rigs being ordered?

Jim, it's been slowly rising. Obviously, interest in BOP equipment has been slowly rising ever since the summer 2010, and this quarter it really showed up in the form of several loose BOPs, as we call them, BOPs that aren't necessarily associated with a newbuild rig, but rather subsea stacks that are either to support a fleet of rigs out there in case a stack were to get dropped or they need a change out of a stack or to support even an individual rig. We hear that the E&P community is more and more expressing an interest in each rig having a second redundant stack to speed operations and be available to be run on riser quickly. And then the kind of the third is the level of maintenance that must go on with offshore equipment. As you know, offshore rigs need to come into the shipyard every 5 years and all of the components go through a major overhaul. And so having spare stacks available to support that effort just speeds that up and ultimately makes the fleet more efficient. So we're seeing this quarter solid demand from a couple of drilling contractors going into their fleets and then also we see that to recur in Q2 as well with good orders.

Our next question comes from Robin Shoemaker from Citi.

Yes, so wanted to ask about rig tech margin in the quarter. You mentioned there was an impact from the addition of NKT on the rig tech margin. But I'm also thinking that first quarter of '12 kind of roughly corresponds to the low point in the rig ordering cycle and probably pricing cycle in the first half of '10. So what -- now you mentioned that second quarter rig tech margin I think would be slightly lower. So apart from NKT, would the first quarter of '12 be the low point reflecting the first half of '10 pricing dynamics?

That's -- I think the first half of '10 pricing dynamics contributed to the margin this quarter, Robin, but it's not that -- it's not as one-for-one as you might otherwise think, because we sell lots of different pieces of equipment and kit that flow out at different times. So it's really a compilation of pricing probably dating back to even 2009 all the way up through, items that were sold in late 2011. So it's more of an aggregation of all the pricing through that period that came out during the first quarter. I do want to correct one thing. We did not close NKT until the first week of April. And so there is no NKT flexibles contribution to the P&L results that you're seeing here for the first quarter. That's something though that we do expect to start contributing nearly a full quarter's performance in the second quarter of 2012. So we'll get not quite 90 days, but pretty close to 90 days from NKT, and that'll bring the margins down again. Just right now, our forecast calls margin to move down just a little bit more in Q2, so we're 24.4% operating margins for this quarter and down in probably the 24% range in Q2. And although I didn't explore it in much detail in my earlier comments, it's probably worth reiterating the basis for that margin decline, which has been pretty steady over the past 2 years, really comes out of the orders that were won by NOV in 2007, 2008, that were delivered 2 years later, early 2010 in a more deflationary environment. So we benefited from really a lot less inflation than we had forecast. Actually lower cost, we were executing rigs in early 2010, less overtime and probably most important was the fact that we had, by that time, delivered a lot of offshore rigs and skill learning curve and we're seeing the learning curve effects in our operations in early 2010. So that led to much higher margins than we had expected. And so the first half of 2010, we're a little bit over 30%, and since then, we've been guiding folks towards margin declines. So this quarter, the downturn in margins, 160 basis points, really reflects the continuation of that trend and although we may not be quite at bottom yet, we're pretty close.

Okay. And 26% I think you said in the past is kind of like a normalized margin for rig tech?

Yes. I think so. I think we can work our way back up. We did get improving pricing in Rig Technology through 2011. And in fact, here in the last quarter or two, I think we probably picked up another 1% or 2% on -- in pricing for DEPs that we're selling. And so we think there's a little bit of expansion ahead. But also, too, I'll caution you, we've added NKT to the mix, which is going to be dilutive. APL as well our turret mooring systems are going to be a little bit dilutive. And so -- but I would characterize it as something in the mid-20s is probably what's more normal for this group. And also point out as well that manufacturing business producing 24%, 25%, 26% operating margins makes an extraordinarily high return on capital. In fact, last quarter, the quarter that you're looking at here, first quarter 2012, if you annualize the results from Rig Technology on a notepad basis, tax effect to operating profit divided by the capital employed in that business, we did about 31% return on booked capital and I think 64%, 65% return on tangible book capital. So very, very strong returns that go along with the 20% margins.

Our next call comes from Scott Gruber from Bernstein. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Clay, you mentioned your hope for a few FPSO orders before year end. I may be reading too much into several comments you've made in the past. But is that an increase from previous expectations?

Yes, we -- what I was referring to there is our turret mooring business we acquired late 2010, a business called APL. And 2011, like a lot of the providers of surf equipment and subsea equipment, orders were pretty slow. And I think we agree with the prevailing view out there, that 2012 should be stronger. We have said over the past couple of quarters that we've seen rising levels of inquiries, quotations have been very, very busy and a lot of people are interested in subsea developments. And so we're quoting equipment into that. In fact, the management of APL tells us that the level of quotations is at record levels. We're learning along the way though that these projects have a tendency to push out to the right a little bit, and they're tough to bring to fruition. So we still feel pretty good about orders for the year. We just hadn't seen a lot through the first quarter within APL. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Correct me if I'm wrong. Previously, I think the hope was for at least one, but now you're suggesting it could be more before year-end?

Oh, yes. We've got a number, lots of projects we're quoting equipment into. And specifically, what I'm referring to here are the turret mooring systems or FPSOs that we provide through our APL unit. That's in addition to cranes mooring systems, hose reel systems, riser pull systems, fiberglass piping systems and also I referenced some flow fluid processing equipment as well. So we can sell a lot more than those into FPSOs and I'll add that we have sold a lot of that more ancillary equipment along the way, as well as some, turret-related equipment in 2011. But in terms of big high-dollar, needle-moving type orders, those have been a little slow in coming through 2011. 2012 though, our outlook is a lot brighter. Scott Gruber - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then just turning to Brazil, there's significant movement between Sete and the yards with placing additional orders recently. How are you thinking about how the equipment orders flow from here? Are those going to be primarily driven by the yards such that we'll see several tranches of orders, equipment orders placed over the next 12 months or so?

Yes, that's -- essentially, it is driven by the yards. What happens is Sete picks the yard and then we sell the DEP or the drilling equipment package to the yard and then they pretty well drive the timing of that. But also, remember, it's -- it is Brazil and things kind of move in a different timeframe. But it's really no different than a lot of the things that we do in Korea. For instance, when we're selling DEP's, we sell them to the -- to Samsung, Hyundai, Daewoo, folks like that. The operator or the contractor who is going to own the rig, pretty well identifies what they want. And here, obviously Petrobras knows who we are, knows what our equipment is, we're technically qualified and in the shipyards pick it up from there. But I think you'll see movement on that through the remainder of the year.

Our next question comes from Brian Uhlmer from Global Hunter.

Yes, I wanted to talk about interflow a little bit here and the rationale for that acquisition, whether it's a consolidating move or whether it's to gain new customer base up in Canada. And kind of along those lines, also following up on the cash component of your cash that's based in the U.S. if that number is going to be adjusted after you make this interflow and how should we look at cash component and further acquisitions in the United States?

What we think about the interflow acquisition being in Canada is that we get to use our international cash. And so it certainly makes it a lot easier to do that transaction. Brian, as you're aware, most of our cash is overseas. Currently, about 88% of our cash balance is located overseas. To bring that back to the U.S. we would incur a tax haircut. And so it just to make it easier for us to do acquisitions internationally, plus our outlook for international markets is very, very bright. And so for lots of reasons that made our NKT acquisition and the interflow acquisition very attractive. But all that notwithstanding, financing notwithstanding, Wilson, which is U.S.-based, will be a U.S. use of cash, is a business that we think is terrific. It's going to be a great fit with our distribution services operation. And so we will use our revolver partially to -- to fund that acquisition but are confident that with our strong cash flow in the U.S., we're going to be able to pay that down quickly. On the interflow acquisition, that's a great business, a great franchise, locations both in the U.S. and Canada. And they've got excellent technology and it's very complementary, I think, to what we are already sell to pressure pumpers and well stimulation operations. And like us, they're seeing rising demand from international markets. And we think that's going to continue well into the future as shale plays take hold on other continents and international markets. And so this is just another way to sort of strengthen what we do and make our combined operation more efficient and open up opportunities for us. So very excited about it, and hopefully, we'll have it closed here in a few days.

So you view it more as an expansionary versus consolidation move?

Yes, I think it's going to create a lot of opportunities. As always is the case, there'll be some efficiencies to come out of this. We'll be able to -- we'll have a little more purchasing leverage, for instance, and economies of scale. So but we're very, very pleased to -- anxious to get this done.

And Brian, we always are looking for opportunities to add more arrows to our quiver and I think this is a good example of that. While there are some duplicated products, it really is additive to what we can put into the marketplace. And we're excited about the worldwide shales, and we think this plays very, very well to be able to support that.

Outstanding, and following up on that, on the coil tubing, since we're in the Well Servicing segment, on the coil tubing units, the new mill is strictly tubing. How is the demand for tubing units itself? And is that -- are we targeting more international markets with that as well aside from the massive growth that we're seeing in North America in '12?

Yes, yes, we've seen strong demand in both. Actually North America demand for coil tubing has been very high but a lot of other countries, in particular China, in particular the Middle East, have seen strong demand for coil tubing as well. So those 2 go together, they're complementary products and, as you know, we make both the units as well as the coil tubing itself and we've been expanding our capacity in both. So this is -- it's terrific. Technology is kind of the arthroscopic surgery of the oilfield and lets you go in and do some things you can't otherwise do in a well. And so year-by-year, just we seem to tap into more and more demand.

And I'll say on a macro basis, Brian, really, shales have brought the maturation of coil tubing and coil tubing units to the fore. I mean, the shales were really made for the coil tubing concept. I mean, you talk about coil tubing for many years and we have, and it's always had good opportunities. But the shales give it a whole another level of opportunity. And I think we're excited about our expansion opportunities. Our coil tubing facility that makes coil tubing here in Houston, as Clay mentioned earlier, we're up to 4, 5 lines out there. We're expanding up in Fort Worth with our Hydra Rig outfit. So we think this is really going to be a great business over the next 4, 5 years.

In the international side, are still going to be I guess what we term the Bocus [ph] and where you're more differentiated with the bigger units that are a little bit less competitive marketplace in terms of the new equipment, is that correct?

Yes, actually, it is. I mean I think you'll see a lot of international opportunity. I mean, we're actually selling some of this equipment into China today and because the Chinese need the best equipment possible and China is a wonderful shale play today.

Yes, Russia is another good market. We make equipment in Belarus to support that market or expanding into to Russia. So a lot of interests overseas.

Our next question comes from Marshall Adkins from Raymond James. J. Marshall Adkins - Raymond James & Associates, Inc., Research Division: You gave us some pretty good detail, Clay, on the PSS division, why it was so strong, downhole tools, drill pipe, and other pipe-related stuff. Notwithstanding the seasonal downturn coming up next quarter, can we get back to the robust margins we have right now in Q3 and 4, and help us understand kind of product lines we need to watch there going forward, either on the positive or negative side?

Yes, the short answer is yes, Q2 will have a seasonal impact from Canada but Q3, barring a rig count meltdown in North America, like everybody on the call, we're anxiously watching the gas rig count in the U.S. We know that's going to come under pressure. The real question is how much the oil rigs replace that. Barring a meltdown across that scenario, yes, I think, 22% margins are repeatable. The sector has done north of 23% and north of 24%. You go back to 2006, I think is when we first got up in the 23% range. And in 2007 and 2008, on a pro forma basis, pushed up into the mid-24% margins range. So we expected this segment to gradually move up into that range given sustained high levels of activity and sustained pricing leverage and it's outperformed in terms of getting there faster than we thought that it would. So 22%, nearly 23% operating margin this quarter beat our time, expected timeframe probably a year or so. And just speaks to the good execution that we have out there. We've done great acquisitions and we had good execution of integration of those acquisitions within the segment. We've got good pricing leverage. I would say that, Marshall, pricing leverage within Petroleum Services & Supplies appears to be flattening out. The rig counts kind of flattening out here as you go through this big migration in North America. And although we're getting a few price increases here and there, I would say by and large, it feels like it's a lot going across a lot of groups. So we're going to watch that closely. We probably need another uptick on rigs working to get back to a little more pricing leverage. We feel pretty good the back half of the year on had pretty stout margins of PS&S. J. Marshall Adkins - Raymond James & Associates, Inc., Research Division: Any product lines we should watch over the next year, positive or negative?

Yes, the largest single piece of Petroleum Services & Supplies is our Downhole Tools business, which provides ReedHycalog Bits, downhole drilling motors and a variety of other equipment; jars and shock tools and other things. And so that moves the needle more than most, and the sequential improvement that you saw from Q4 to Q1 was mostly driven by Downhole Tools. But as you know, there's a bunch of different products and services in there. The second largest is our Well Site Services Group which were in solid control equipment, and in drill pipe products and Tuboscope are roughly tied for third. And so I would characterize all those businesses as, the common thread is they're all driven by rig count. So as rig count rises and falls, that's going to ultimately dictate the fortunes of those businesses which will be allowed to drive the fortunes of the segment. And so that's probably what we're going to watch most closely and then I'll also finish up by saying that it's mostly North American rig count where we get pricing leverage and we get good operating flow-throughs from those businesses. So that's kind of what drives those things. J. Marshall Adkins - Raymond James & Associates, Inc., Research Division: Right. One last quick one for Pete, what oil -- what Brandt price should we get worried about on offshore newbuilds? I mean, how well would Brandt have to fall before we start to get worried about newbuild orders?

Marshall, that's a great question. All I know is the answer I'll give you will be wrong. But let me work on it anyway. I think as you kind of take a look at -- everybody is looking out. When you're building these newbuild rigs, you're making an assumption about something 2.5, 3 years down the pipe. And I mean, we were delivering those things, you start ordering it, it takes about 6 months to get your engineering done and you order it, we're delivering it in 2 years. You do see Charles [ph] ready to rip. So the fact of the matter is it really is the assumption on what the world economy is going to do, what the tightness is on oil. I think if you started going much below $75, you would probably have people say, "Hey, this is -- what's -- how long are we going to keep in the $75 range?", and "Is this really something we want to be investing for in the long term?" I think anything north of that makes all the sense in the world. South of that, you start getting into a more problematical area. And now having said that, then it also means that if it goes down below that, then you have to make the assumption how long is that going to last? Because traditionally, in this industry, just like with natural gas, we're rapidly self-correcting. And so if you stop drilling and people don't like the $75, it moves up. But really, the worldwide economy and the demand for that oil is really going to be the kicker on it. So we think it's probably in good shape right now, but if it went below that, you'd have to ask some questions. J. Marshall Adkins - Raymond James & Associates, Inc., Research Division: A lot of margin fare between here and $75.

Absolutely, absolutely.

I will now turn the call over to Mr. Pete Miller for closing remarks.

Thank you, all. We appreciate you calling in, and we look forward to talking to you when we do our second quarter 2012 earnings call. Thank you very much.

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