Good morning, and welcome to the National Oilwell Varco 3Q 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference call, Mr. Loren Singletary, Chief Investor and Industry Relations Officer. Sir, you may begin.

Welcome, everyone, to National Oilwell Varco's third quarter 2017 earnings conference call. With me today are Clay Williams, our Chairman, President and CEO; and Jose Bayardo, our Senior Vice President and CFO. Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of the federal securities laws. They involve risk, 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. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis, in the third quarter of 2017, National Oilwell Varco reported revenues of $1.84 billion and a net loss of $26 million or $0.07 per share. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA, as defined in our earnings release. Later on the call, we will host a question-and-answer session. Please limit yourself to one question and one follow-up to permit more participation. Now, let me turn it over to Clay.

Thank you, Loren. In the third quarter of 2017, NOV generated $1.84 billion in revenue, an increase of 4% sequentially and 11% year-over-year. Adjusted EBITDA of $167 million improved $25 million sequentially, representing 33% operating leverage and adjusted EBITDA improved $99 million year-over-year, representing 52% operating leverage from the prior year. This was our fifth quarter in a row of rising EBITDA. Improving market conditions in North America and the Middle East since last year, together with the cost reductions we've executed, have driven our profitability improvements. However, the industry hit yet another headwind this summer, as oil prices began to decline in April and remained persistently weak in the third quarter. As a result since peaking at 958 rigs in late July, the U.S. rig count began a shallow decline to 913, which puts us back where we were in the U.S. in May of this year. Rig reactivations have slowed and many of our drilling contractor customers are, once again, curtailing spending with our rig group. NOV overcame this by putting up strong top line growth in Wellbore Technologies, which rose 13% sequentially, owing to solid demand for downhole drilling technologies globally. Completion & Production Solutions also posted strong growth, up 5% sequentially, led by demand across North America and the Middle East for frac stimulation equipment, completion tools and fiber glass pipe. These two segments led NOV higher overall, up $76 million in revenues sequentially and resulted in our land mix increasing, once again, to 65% of consolidated sales in the third quarter. Oil prices had moved back up above $50 lately, which is timely, as our customers are launching their budgeting processes for 2018. Nevertheless, the recovery narrative right now seems tepid and visibility into 2018 is limited. Customers seem to be waiting for sustained oil…

Thanks, Clay. To recap our third quarter results, NOV consolidated revenues increased by $76 million from the second quarter of 2017 to $1.84 billion. Strong demand for our technologies, products and services from our short-cycle land businesses in North America, along with growing demand in the Middle East drove our top line growth, more than offsetting continued challenges in the offshore market and other international land markets that remain stagnant. During the third quarter, land-related revenues were 65% of total company and North America supplied 43% of sales. EBITDA improved $25 million to $167 million. For the first time in two years, we achieved at least breakeven operating profit for each of our reporting segments, but reported a consolidated operating loss of $7 million after accounting for corporate costs. We anticipate we will have positive operating income in the fourth quarter. A few items worth noting related to the consolidated P&L. SG&A has ticked down another $1 million sequentially. Interest income increased $7 million due to an interest payment received from a favorable ruling related to a long-disputed tax assessment. Other expense increased $4 million due to FX. And our tax rate came in at 10% as expected. Also of note, for the first time in quite a while, we reported no one-off other items, as restructuring initiatives reached at least a temporary pause. In the third quarter, cash flow from operations was $232 million, and after deducting $42 million in capital expenditures we netted $190 million in free cash flow, giving us free cash flow margin of 10.4%. While we believe our free cash flow margin remains in the top quartile for the OFS&E space, we know we can do better. We're refocusing our efforts and taking actions to improve our management of working capital. We expect improvements in…

Our first question comes from Bill Herbert with Simmons & Company. Bill Herbert - Simmons & Company: Good morning. Thanks.

Good morning. Hi, Bill. Bill Herbert - Simmons & Company: Yeah. Hey. A question with regard to the frac booking outlook. If I just heard you correctly, you're waxing a little bit cautious with regard to the continuation of the strength that we've seen year-to-date, yet that was the same refrain we heard on the Q2 call and Q3 ended up being a very strong bookings quarter. So, apart from the dynamics quarter-on-quarter, I also want to understand if you guys, with regard to your discussions with frac service providers, envision an inflection higher with regard to the refurbishment wave and rebuild wave due to the wear and tear on the fleet.

Yeah. Hey, Bill. It's Jose. Fair questions. I think throughout the course of the year, we have been pleasantly surprised by our bookings related to pressure pumping equipment. We've certainly gotten our fair share and the market has been more buoyant than probably we anticipated coming into the year. However, as I pointed out, a couple of dynamics at play. First of all, little bit of uncertainty continues to linger in the market and now that we're – sort of during the budgeting cycle for pretty much all companies in the industry, things are getting a little bit more quiet as 2017 budgets are mostly exhausted and people are really starting to think more about 2018. Also, the dynamic that I touched on related to a little bit of a pull-forward effect from folks trying to capitalize on a great opportunity to get equipment at a little bit of a lower cost in 2017 than what they will be able to get that same equipment for in 2018 as those Tier 4 emission requirements come into play. But the outlook for 2018 and beyond, I think, is pretty promising due to some of the secular trends of what we're talking about as well as what you touched on. The equipment is definitely getting chewed up much more quickly. Folks, quite frankly, even though there was a little bit of a pull-forward associated to the Tier 2 emission – Tier 4 emission requirements, folks are still trying to do everything they can to not commit large amounts of dollars for capital equipment programs, so they're only doing it when they have to. And so that sets the stage for an equally strong, if not better outlook for 2018 and beyond.

Yeah. And I would real quickly add, I think the mix towards zipper fracs is increasing and driving more 24-hour operations, which means the consumption of frac equipment continues to rise. Bill Herbert - Simmons & Company: Okay. Thank you. And then with regard to Wellbore, could you comment a little bit with regard to the sequential incrementals in Q3, super strong revenues, all the trends that you extolled were extremely favorable, but the incrementals were just a bit weaker in light of the narrative that you extolled and witnessed.

Yeah. Bill Herbert - Simmons & Company: And then last one for me, just very quickly, Clay, you stoically chose not to quantify Harvey, but if you don't want to address the financial impact, which businesses could have been impacted the most from a dislocation standpoint and a disruption standpoint in Q2? And should that set up for a decent snap-back with regard to those incrementals in the afflicted businesses?

This is highly anecdotal. I'm not going to quantify it for you, but we did have anecdotal examples from all the segments around impacts. But I know, for instance, within the Completion & Production Solutions group, we had some of our pump businesses had trouble getting components shipped in to the Houston area for assembly and then also had trouble getting finished goods shipped out. What helped us a bit, Bill, was the fact that this hurricane hit over Labor Day, so we still had sort of 30 days left in the quarter to recover. And so I don't – I wouldn't plan on a big sort of snap-back out of Hurricane Harvey. With regards to Wellbore Technologies, again, really strong quarter. What we saw in North America though with the flattening and then subsequent decline of the rig count, the sort of plateauing, I guess, of activity, was that we felt a little bit of a slowdown in pricing momentum in some of our business units. For instance, some of our WellSite service businesses after getting pretty good pricing improvements through the first half of the year saw that sort of break over a bit across North America. And so that limited incrementals out of that business unit. We saw really good sequential improvement in drill pipe revenues, but we're also continuing to see the mix shift from offshore to land and so incrementals in drill pipe business were a little lighter. So, net-net, that added up to diminish our overall segment leverage a little below what we otherwise expected. But I would add to the downhole technologies that Jose talked about earlier, the bits, the motors, the agitators, posted really good growth with really good incrementals overall. Bill Herbert - Simmons & Company: Okay. Thank you.

You bet.

Our next question comes from Byron Pope with Tudor, Pickering, Holt.

Byron? Hello? Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Hello. Morning.

Morning.

Morning, Byron. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Hey, Clay, I've got a question about Wellbore Technologies and appreciate at the drivers footage drilled per day, but it's something that's tough for folks on my side to really quantify. So, if we think about the potential for, let's say, a flattish activity environment in North America, it certainly feels as though given what you've described, the tailwind for Wellbore Technologies should be that it should continue to outpace whatever that activity level is just given what happened in Q3. Is that a fair characterization? Just curious as to how you think about it.

Absolutely. Although we're looking forward to recovery and our resumption of growth, if we are stuck in a world for the next several quarters where, let's say, drilling activity remains flat, in Q3, we had globally 2,100 rigs running and I would tell you, I think they're being run harder than they've ever been running. And that's tough on drill pipe, that's tough on downhole tools. You've got rig operators that are pretty good at forestalling expenditures on spares for a quarter or two, but eventually their opportunity to cannibalize, to avoid buying spare parts, visually (45:50) that comes to an end. And so even in that world, where we all just move sideways, I think our prospects continue to improve as our customers burn through a lot of the things that we provide, scarcity of returns, as we've said many times, that we're seeing it return to certain pockets and that drives future demand for NOV both within Wellbore Technologies, but also Rig Aftermarket, Rig Systems and our other businesses. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Thanks. And then just one quick follow-up, also related to Wellbore Technologies and it's really more of a longer-term strategic question. NOV has long since been an enabler for the independent directional drillers and now you've got, I would argue, a very full suite of directional drilling tools, enablers for those independents. As you think about the opportunity set for that business going forward, is it more skewed toward North America, or maybe some of these international dealer (46:44) markets where we don't have nearly as much visibility?

Well, first, great question and thanks for pointing out that we are the largest provider of tools to directional drillers. But secondly, I really think it's both. Across North America, where most directional drilling is being performed today, it's being done without the latest, greatest technologies, things like rotary steerables, and I think there's more that can be done with regards to geosteering, and so we've got some terrific new developments, great quarter this quarter for rotary steerables and MWD. And then overseas, you've got an opportunity, I think, to help directional drillers bring some of these shale technologies that have worked so well in North America and drive more directional and horizontal drilling longer laterals. There's a lot of interest overseas in what's gone on here in North America with regards to unconventional technologies and a real appetite to apply these technologies more vigorously to the rocks and basins on other continents. And so, I think that's going to drive future demand for what we're doing in Wellbore Technologies. So, I feel really good about the offering of tools and equipment and technologies that we have in this space to help drive that trend forward. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Very helpful. Thanks, Clay. Appreciate it.

You bet. Thank you, Byron.

Our next question comes from Ole Slorer with Morgan Stanley. Ole H. Slorer - Morgan Stanley & Co. LLC: Yeah. Thanks for that. And I think, now, Clay, I understand why you recently spent so much time talking about Tuboscope.

It's near and dear to my heart, Ole. Ole H. Slorer - Morgan Stanley & Co. LLC: It came up a lot in every meeting, so yeah. This Middle East stuff seems pretty sizable. Could you just – are you bringing out new products within Tuboscope that allow the adoption of fiberglass in a wider space than those previously kind of you thought of as application, is that it?

Yeah. There's lots of things going on in both Tuboscope and fiber glass and those two business units work together to actually install fiberglass liners inside steel tubulars, which gives you a super high-pressure rating pipe that is also well protected from corrosion. And as we said many times before, corrosion is a big problem in the oilfield, so that's one way those two business units are working together. But within the Middle East specifically, we noted a very large sale of flexible fiberglass pipe into Saudi Arabia this quarter. And so, once again, here's another oilfield market that is adopting composites technology to manage corrosion challenges. Within Tuboscope, as I said, we steadily invested in new capabilities, our RFID chip to enable tracking of drill pipe tubulars, for instance, is a great example. I didn't talk much about it this morning, but our Zap-Lok flowline installation technology, which is a mechanical flowline technology, is a real leap forward in terms of speed and efficiency with which flowlines can be installed. And so we really continue to enhance and invest in the technologies across all of our business units, Tuboscope, fiber glass as well as all the other ones that are here at NOV. Ole H. Slorer - Morgan Stanley & Co. LLC: So, when you look into next year and you think about the drivers of your revenues in Wellbore and Completion, both of which now are incidentally larger than your combined Rig Systems and Aftermarket. So, I mean, an impressive pivot to your company, I must say, but how do you think about the general recovery and just replacement of worn out equipment relative to the drive from new product lines?

Well, it's really interesting. There's a lot of things written and analysis done around big sort of galloping advancements and the efficiencies in this industry, and a lot of it takes a toll on equipment that is provided by Wellbore Technologies and a lot of it's opening up future opportunities for Completion & Production Solutions. And so I think we're really, really well positioned around these trends and continue to kind of turn the ship in that direction. But importantly, Ole, I would add, there's a tremendous amount of optionality that resides in our Rig Systems and Rig Aftermarket businesses as well. Drilling contractors, both land and offshore, have been under financial pressures, that's taken a toll on our numbers. But as I said earlier, there's a limit to how much they can cannibalize. We're coming out with new technologies around equipment monitoring that will make that drilling equipment more efficient, new models on total cost of ownership that we put in place with some of our offshore customers, some rig upgrade opportunities. So, really across the board, we've used this downturn, I think, to enhance our offerings into what we think are going to be the most attractive and interesting markets in the next upturn, and I think the company is really well positioned for that upturn. Ole H. Slorer - Morgan Stanley & Co. LLC: Yeah. Now, I have a good news for you, Brandt just got a six handle on it and we've seen a bunch of contracts, particularly in jackups, I mean, up a lot over the past six months and we're starting to see contracts, although lousy day rates, but see contracts, nevertheless, for deepwater. So, this strikes me that in light of that, at least your Aftermarket business line right now seems to be artificially low. Can you tell us a little bit about at least the conversations you're having? And what you're seeing on a sort of three to six-month view?

Yeah. Ole, I know you know a lot of drilling contractors and you know they're very good at tapping the brakes when oil prices tick down or they face a little more headwind in the marketplace. Q3, I think, reflects what we were seeing in Q2, which is oil prices wandering down, this sort of flattering of the rig count, a little more dire outlook. And so what we saw in the quarter was slowdown on spare purchases and on service around both land and offshore, but a lot of slower level of reactivations onshore North America. What we didn't see was a slowdown at all of repair work and which goes directly into ongoing drilling programs and so that remained steady. We'll see how Q4 unfolds, but I guess the good news is very late in the quarter, we did see a modest improvement in spares bookings. So, that's caused some encouragement, but nevertheless I'll stick with Jose's earlier guidance, I think we're looking for a kind of a flattish Rig Aftermarket at this point going from Q3 to Q4. Ole H. Slorer - Morgan Stanley & Co. LLC: Okay. Well, thank you for that.

You bet. Thank you.

Our next question comes from Kurt Hallead with RBC.

Hey, good morning.

Morning.

Good morning, Kurt.

Hi. So, you know what's great about you, Clay, is that every quarter, right, we really get a MBA in oilfield services business and I've started a book and when I'm done with this business, I'll share it with you, so you could publish it, how does that sound?

Good. Thank you, Kurt, look forward to reading it.

Anyway. So, just one quick housekeeping item and maybe kind of a little bit longer-term question is that, so Jose, on the sequential dynamics for the Rig Systems business, you gave us a couple of different components, not quite sure how that would map out, say, on a sequential revenue change basis, right? So, you gave us revenue out of backlog and you kind of gave us bookings, not quite sure how that backs into kind of the expected growth rate in the fourth quarter Rig Systems.

Yeah. I think you can expect the revenue that's not out of backlog to remain flat.

Okay. All right, appreciate that. That's great. So, Clay, the dynamics that are at play, it looks like in the U.S. land drilling market is a push for the U.S. land drillers to become much more vertically integrated into the directional drilling process. Obviously, you guys have always been enablers of varying industries to buy more stuff. So, even with oil prices hovering around $50, the push-forwards for the land drillers to get more efficient, I would think, would bode well for incremental spend by these companies on this vertical integration. So, you guys have done a great job packaging offshore rig stuff together and packaging land rig. How do you see this entire – how do you see this playing out in its entirety?

First, it's a great question, Kurt, and I think a great opportunity for NOV and I think you're right. You've seen some really interesting strategic moves lately, things like Patterson acquiring MS, getting into the directional drilling space. H&P and others, Precision making moves in that direction. We view that with a very high level of interest because these are customers we already have who potentially we can provide additional technologies and products and equipment to let them expand their businesses, expand the services that they offer. I think, more importantly, though, really expand the value that they're bringing to the oil and gas companies. One of the observations that we've shared with these land drillers and others is that the oil and gas companies really are aiming at something that's slightly different than they used to aim at when I first got into the business. So, if you look at drilling, a generation ago it tended to be vertical, we tended to have drilling contractors for (56:57) rig zone location and drill as quickly as they could to total depth to drill a low-cost borehole. If you fast forward to today, the land drilling that's underway really is aiming at something slightly different which is now a closely geo-steered well that lands in the sweet spot in the formations that doesn't have a lot of porpoising, doesn't have a lot of tortuosity, it's really a gun-barrel-straight wellbore and ultimately that's a higher value wellbore to the oil and gas companies. I think it's within the capability of the land drilling contractors to move more into the directional space and deliver that higher value-added wellbore and NOV is here to help. And so a great opportunity for us. We're pioneering technologies to enable both directional drillers as well as traditional contract drillers to do that, and I think it's a very interesting time.

Okay. And then maybe just one follow-up sticking to the land drilling theme, you talked about some things getting pushed and maybe some of the land drillers tapping the brakes. As you look out initially into 2018, what's the best guess on how many rigs, legacy AC rigs, you think could ultimately be upgraded to the super-spec capability?

Well, I'm going to – what I'd say is there's a clear desire that's evident in the marketplace for super-spec capabilities. AC rigs that are pad capable, have walking features, have high pressure mud systems, have a third mud pump, a fourth genset, more solids control capabilities and that's being expressed in the day rate structure. So, I think this industry is going to continue to evolve in that direction and so I won't hazard a guess on the number, but I think this fleet that's being employed across North America continues to evolve and we're here to help. And the other point I'd make, Kurt, is overseas, I think if you compare the fleets across North America versus the land fleets in other regions around the globe, it's a really stark contrast in terms of capabilities and technology. So, I think sort of one of the next new opportunities for NOV's Rig Systems group is to upgrade those overseas rigs and then another great opportunity for our Rig Aftermarket group is to bring our new NOVOS control system across all these rigs. We have a fantastic capability in terms of bringing machine automation and third-party developed apps and whole new ways of drilling through this NOVOS control system that we're pretty fired up about. So, again, a difficult quarter in the third quarter, but looking forward, I think, a bright future for our rig business.

Hey, thanks, Clay. Appreciate it.

You bet. Thank you, Kurt.

Ladies and gentlemen, this does conclude the Q&A portion of today's conference. I'd like to turn the call over to Clay for closing comments.

Thank you, Kevin. I think when I reflect back on the third quarter, very instructive for our shareholders to observe that really strong growth in our Wellbore Technologies group, and Completion & Production Solutions group was really able to overcome a difficult quarter for our rig businesses and decline in demand for equipment spare parts. Second point I would make is that this was really accomplished through meaningful wins in new technologies that we've been investing in for the past three years, so rotary steerables and MWD and completion tools and things like that really are driving higher demand. And then, number three, that was really also helped by the fact that scarcity is returning to the oilfield and these pockets of demands that are emerging, NOV is capitalizing on. So, thank you all for joining us and we look forward to reporting our fourth quarter results in early 2018.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.