Good day, ladies and gentlemen, and welcome to the National Oilwell Varco Fourth Quarter and Full Year 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 is being recorded. I would now like to introduce your host for today's conference, Mr. Loren Singletary, Chief Investor and Industry Relations Officer. Sir, you may begin.

Welcome, everyone, to National Oilwell Varco's fourth quarter and full year 2017 earnings conference call. With me today are Clay Williams, our Chairman, President and Chief Executive Officer; and Jose Bayardo, our Senior Vice President and Chief Financial Officer. 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 and uncertainty, 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 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 for the fourth quarter of 2017, NOV reported revenues of $1.97 billion and a net loss of $14 million or $0.04 per share. For the full year 2017, NOV reported revenues of $7.3 billion and a net loss of $237 million or $0.63 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 in 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 the call over to Clay.

Thank you, Loren. In the fourth quarter of 2017, NOV generated $1.97 billion in revenue, an increase of 7% sequentially and 16% year-over-year. EBITDA of $197 million improved $30 million sequentially and roughly doubled from the fourth quarter 2016 to the fourth quarter 2017, which marked our sixth quarter in a row of rising EBITDA and rising EBITDA margins as we continue to pivot to land and unconventional shale technologies and benefit from cost reductions. After three extraordinarily difficult years, it feels to us that the market is nearing an inflection point. Oil inventories are rapidly approaching normal levels, pushing oil prices up and facilitating the return, in our view, of a geopolitical risk premium. Industry surveys are pointing towards a modest increase in upstream CapEx, the second such year following a cumulative two-year drop that nearly halved global upstream CapEx. This all sets the stage for a brighter outlook for 2018. Here's what we're seeing in the marketplace as we start the New Year. Number one, it's not clear that oil companies believe higher oil prices, at least not yet. The E&P industry is under tremendous pressure to generate higher ROICs, and all projects appear to look to West Texas shale as the benchmark. I believe the consensus view is that unconventional oil from the Permian bases carries a roughly $45 breakeven, and there persist fears that the oil price could revisit that level. Therefore, we think E&P price decks against which projects around the world are being judged, including the offshore, are closer to $45 a barrel than the spot price of Brent which is about $70 a barrel. Number two, our customers are struggling to get bank financing. Banks and the regulators all want to reduce exposure to the oil and gas industry. One critical function of…

Thank you, Clay. For the fourth quarter of 2017, NOV consolidated revenue was $1.97 billion, an increase of 7% or $134 million sequentially. Demand was strong for our short cycle consumable product offerings and customers that deferred taking delivery of capital equipment in Q3 due to oil prices that dipped into the low $40 per barrel range, came back to take deliveries. Those customers, while still cautious, reinitiated inquiries and placed orders for additional capital equipment, providing us with our highest level of bookings since the third quarter of 2015. EBITDA improved $30 million to $197 million. Looking at select line items of the P&L, SG&A decreased $14 million sequentially due primarily to lower insurance, bad debt and incentive compensation expense. In the first quarter, we expect SG&A expense to increase about $7 million due to the non-recurrence of certain Q4 credits. Note that most of these changes in SG&A are reflected in the eliminations and corporate costs line item within our segment reconciliation tables. Interest expense decreased slightly due primarily to the retirement of our $500 million, 1.35% Senior Note in December. Going forward, we expect interest expense to decrease another $1 million per quarter from fourth quarter levels. Interest income decreased in line with expectations and other expense increased $8 million primarily due to greater FX losses. We reported a GAAP loss before income taxes of $145 million and a tax benefit of $130 million for the quarter, which includes the impact of tax reform. The recent tax reform legislation will be a meaningful long-term benefit to NOV. In addition to enhancing our ability to move cash around the world, we expect the reduction in the U.S. rate from 35% to 21% will lower our overall long-term effective tax rate from approximately 30% to the low- to mid-20%…

Thank you, Jose. Ladies and gentlemen, we'll now open for questions. Our first question comes from the line of Bill Herbert with Simmons & Company. Your line is now open. William Herbert - Simmons & Company International: Good morning. Thank you. Jose and Clay, I guess, with regard to – well, first of all, with regard to Q1 on Rig Technologies, Jose, the composition of the revenue decline between revenue out of backlog and non-capital revenue, if you kind of equally split in terms of the magnitude of the decline. And then secondly, what would be your expectations for revenue out of backlog for 2018?

Sure. So, as it relates to revenue out of backlog, Q4, that number was $288 million. As we're looking at Q1, we believe that number will be in the $240 million range. And for the full year 2018, we're anticipating that number will be approximately $800 million. William Herbert - Simmons & Company International: $800 million, got it. And – okay, and so that answers my question, I think. My sort of follow-up subject, as it were, as opposed to question was is there any expectation at all over the course of 2018 that Rig Tech witnesses a book-to-bill north of 1 times?

That's a great question, Bill. And I think it's a possibility. I would stop short of saying it's a probability. We're most encouraged by what we're seeing and hearing from our North American land drilling contractor customers, that day rates are on the move. Recent report says that they're in the low $20,000 per day range. We think sort of the magic day rate required to prompt new rig buying activity by land rollers in North America is probably $25,000, $26,000 a day. And so we're inching a little bit closer. So that gives us cause for optimism. In international markets, there have been a number of land tenders that we've spoken to off and on over the last couple of years. They slowed down last year with oil price pressures and OPEC cuts. Some of those appear to be kind of restarting and so we see some of those hit later in 2018, that could drive incremental demand for land rigs. In the offshore, as Jose mentioned, I think, in his prepared comments, we're seeing some interest in upgrades around hook loads, motion compensation, and so forth, not big. But also really surprisingly strong demand in the fourth quarter around construction, vessel pipe lay, wind-farm type of opportunities as well. So, we're seeing some cause for hope here, but I'm going to stop short of telling you, that's going to drive book-to-bill over 1 times in 2018. William Herbert - Simmons & Company International: Okay. Thank you.

You bet. Thanks, Bill.

Our next question comes from the line of David Anderson with Barclays. Your line is now open.

Hi. Good morning, Clay. I was wondering on international land, so we've been hearing kind of a lot of chatter about kind of market share award kind of developing amongst integrated service providers on the pricing side. I was wondering, if you – capital equipments, of course, are very different, can you just kind of give us some, kind of, lay of the land as you see the international land market. Are you seeing some of these same pricing pressures? Obviously, it's a very different market.

Yeah, it is. And I would say the international markets, broadly speaking, have been slower to recover on pricing than we've seen in North America. And Wellbore Technologies, in particular, has seen some pretty good pricing traction in a couple of its key product categories but overseas, it's been a little more competitive battle thus far. What's most encouraging to me about those international markets is that I think they're a sort of growing recognition amongst NOCs and overseas oilfield service companies in the importance of technology, how it really sort of radically transformed the oilfield here in North America. And so, I'm encouraged by conversations we've been having along the way in respect to putting more of those technologies to work in overseas oilfields.

And you touched on last quarter about you were building out some new capacity in Saudi. I think it's going to take a little while to build that out. Can you talk about your capacity (39:27) country as it relates to the neighbors in Rowan, plans for new-builds over there, when do see those orders starting to come through? Are you building up for that or is this – what you're building out, is that completely different because of – more of kind of a consumable downhole equipment you're building out?

Well, we – it is a little bit all of the above. We announced a joint venture with Saudi Aramco to manufacture drilling equipment in the Kingdom and we're very excited about that. It's not quite complete, but we're very, very close and we expect to be sanctioning that officially and breaking ground a little bit later in 2018, but we're looking to really all the customers in the Kingdom to supply their needs as well as regionally around rigs. In addition to making drilling equipment, there's a number of other products that we already manufacture there in Saudi Arabia including a lot of downhole tools and bits and are looking at other things we can make closer to the end markets for those products.

Thanks, Clay.

You bet. Thanks, David.

Our next question comes from the line of Marshall Adkins with Raymond James. Your line is now open. J. Marshall Adkins - Raymond James & Associates, Inc.: Good morning, guys. Clay, a quick one for you. You guys like – you make everything, frac spreads, wireline, coiled tubing, rig parts, pipe, whatever, mud motors. What – I'm curious as to the top three tightest products that you see out there right now? In other words, where are you seeing incremental demand greatest? And then just kind of narrow it down to maybe to the top three or so, if you could for us.

Yeah. Downhole drilling motors where we've seen them – the greatest pricing gains and, in fact, we're really back – pretty close to 2014 pricing for those. And that's helped by the fact we've introduced some new technologies for drilling motors that really do well on performance. I would add to that bits, we're seeing some pretty good demand for some of our ION cutter ReedHycalog bits. That's really driving a strong, strong demand and I'm looking at Jose, probably in the frac arena certain offerings that we have there.

Yeah. I would say that sometimes there – it's almost surprising from quarter-to-quarter where we see those positive demand. Obviously, things have been pretty stable on the pressure pumping front, notwithstanding the little bit of a lull that we anticipated in Q4 on the bookings side related to Tier 2 to Tier 4 emissions changes. But, really, prior to this quarter, we saw the big pickup in demand for frac equipment and early in the recovery, we saw much better than anticipated demand for wireline use as well. In this quarter, the story within our – Completion's capital equipment business (42:26) land was on the coiled tubing side. So, that's been a strong performer, certainly this quarter.

And if I could throw in a fourth, it's small but a really, really interesting one with good growth lately, it's IntelliServ Wired Drill Pipe, where we're talking to more and more customers, it's going to work on more and more projects around the world. And as we mentioned in our press release, we had a drilling contractor by two strings in the fourth quarter. J. Marshall Adkins - Raymond James & Associates, Inc.: Right, right that's – so it sounds like pretty broad-based. (43:00)

...also add. High-spec well servicing rigs. There's been a good appetite for that and still incremental demand in the market that we're seeing. J. Marshall Adkins - Raymond James & Associates, Inc.: Exactly (43:09)

For any customers listening, get your orders in now. J. Marshall Adkins - Raymond James & Associates, Inc.: All right. Let me shift gears here real quick, Jose. It's hard for us to kind of parse through the impact of tax reform on – every comment is going to be different. Give me kind of your overview of how big of a deal is that for NOV? And obviously, hit on the repatriation issue as well, is that relevant, is that meaningful to you?

Yeah, good question, Marshall. I think the most impactful element of the change in tax reform is related to our long-term tax rate, which ultimately translates into cash taxes, right? And if you sort of go back to healthier times in the industry, you'll see that NOV was a pretty high effective tax rate company and a fairly high cash tax company with our average tax rate being right in the range of 30%. So, as we sort of look at sort of the – where our income is generated around the world, where we expect it to be generated around the world, from the international market standpoint, the average there has historically been and expected to continue to be at around a 24% range. And so, as that blend with 35%, that has really made us a high tax payer related to U.S. tax rate. So, blend the two together now, 21%, 24%, you're in sort of that low- to mid-20s range. So that can be a significant contributor to the future cash that we get to retain as an organization. From a repatriation standpoint, quite frankly, I'll brag about our tax department a little bit here – is we've been able to navigate things pretty darn effectively. And so, repatriation has not been a huge issue for us. Obviously, the new rigs, while there are still some friction in the system, I think it will alleviate more long-term friction and make it – just make it easier for us to move cash around the world. But right now, we're really well-positioned. We have plenty of cash domestically to pay down our $500 million note during the quarter, and still have about $450 million in cash sitting in the U.S. at quarter end before the tax reform legislation came into effect. J. Marshall Adkins - Raymond James & Associates, Inc.: Great guys. Thank you all.

You bet. Thank you, Marshall.

Our next question comes from the line of Sean Meakim with JPMorgan. Your line is now open.

Thanks, good morning.

Hi, Sean.

So, Clay, thinking about the optimism that you're expressing for the second half, could you maybe just give us a little more detail, I guess, is that optimism geared around orders? And therefore, the impact to your P&Ls is really more of a 2019 event, or are there opportunities for a meaningful inflection in your EBITDA generation later in 2018?

I think it will help later in 2018, Sean. But the basis for that optimism really stems from the oil price moves that we've seen here lately. And it kind of goes back to what we were saying in our prepared remarks, that inventories appear to be going in the right way. That's lifted oil prices $65 WTI is – puts our oil and gas customers in a much, much better mood. And frankly, that's where it all starts. They need to be – feel more optimistic about the future to believe that, to move forward with greater levels of activity. And so, our expectation is that that'll drive greater levels of activity as 2018 progresses, if the oil price holds, and so we continue – we would expect to see continued growth in our activity-driven businesses. And then our longer cycle businesses within Completion & Production Solutions, Drill Pipe business and Wellbore Technologies and our Rig business then would see benefit of higher orders later in the year, and then that translating to revenue and EBITDA in 2019. That's, from this point, that's kind of the way we see things progressing. Again, if the commodity price holds.

Got it. Okay. Thank you for that clarification. And then I really appreciate the comments earlier on capital allocation. It all makes a lot of sense. We talked a little about repatriation here and we talked a little bit about the impact of the higher oil price. Can you maybe just give us a sense of what those two variables do with respect to the M&A opportunity, inorganic opportunities that we are looking at for 2018?

Yeah. We still see crosscurrents. Despite the basic optimism I described earlier that's fueled by commodity prices, different markets are sort of looking at different prospects. And so our view is, I mean, we're still seeing really interesting opportunities out there. We closed eight acquisitions in 2017. That brings us up to a couple of dozen or more I think through the downturn. And we have a number of – couple of million dollars of letters of intent that are out there in place now. And so this has been a very long, painful downturn for lots of folks. And I think the market for M&A has done nothing but get better kind of year-by-year, and so we're still actively pursuing those. Obviously, a big spike in oil prices and a resumption of activity probably will dampen those prospects a little bit. But here in the short-term, we still see really interesting good opportunities. The other thing I would tell you, Sean, is I think the style of the kinds of acquisitions that we've been making through the downturn has evolved a bit. Generally, they'd been more focused on technologies and opportunities to add and supplement our portfolio with products that makes sense and fit. And what we offer to those sellers is really opportunity to put those products through NOV's 66-country infrastructure and sort of accelerate growth and acceptance of those technologies broadly speaking. And so, obviously, market outlook and oil price matters in that dynamic but maybe matters a little bit less given that kind of style, that kind of opportunity that's kind of good for the seller and good for NOV to pursue. And so I think that means we're going to continue to be active and engaged on the M&A front irrespective of the kind of market that we're in because there are I think good opportunities to enhance what we do by accessing technologies and products through our M&A team.

Very good. Thanks for that feedback.

You bet.

Our next question comes from the line of Byron Pope with Tudor, Pickering, Holt. Your line is now open. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning, guys.

Hi, Byron. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Just one question, Clay, in hearing you talk about some of the offshore businesses. It struck me that you guys have done a great job over the years in terms of getting closer to the E&P operator. And it seems as though for some of your offshore products, you're selling more directly to the E&P operators as opposed to service companies. At a high level, can you frame where you guys are today in terms of your product service portfolio that you sell directly to E&Ps versus service companies?

That's a great question. I think most of that activity is probably within the Completion & Production Solutions segment. So in broad brushstrokes, Byron, the CAPS segment minus the well intervention and stimulation equipment portion of that is a pretty good proxy for what's going to the E&P world.

And I would say also it's a mix because you also have within our Wellbore Technologies segment, oftentimes the E&P that's calling the shots, particularly as it relates to some of the tools that are being run downhole, the consumable elements, so there's a good mix. I don't have a number pinned down exactly how much is to the operator. But ultimately the sales strategy for all of our technologies is – I can't really think of any exception. It's important for us for both the service company or the contractor as well as the – and the operator to be aware of the latest technologies and the capabilities of those technologies so that they can put those to work in the most effective way possible.

That's a great point. I'm glad you brought it up because frequently, the customers that we've signed a contract with isn't necessarily specifying our equipment, and that's true across lots of things that we sell in Wellbore Technologies. It was also true in Rig technologies when our customers were shipyards but they were really being told by drilling contractors what to buy. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Pretty helpful. Thanks, guys. I appreciate it.

You bet. Thanks. Byron.

Our next question comes from the line of Igor Levi with Morgan Stanley. Your line is now open. Igor Levi - Morgan Stanley & Co. LLC: Good morning.

Morning, Igor. Igor Levi - Morgan Stanley & Co. LLC: So free cash flow excellence has been one of NOV's key differentiators, and in the last few years working capital has been a tailwind. You've highlighted your ability to decrease this lately. It's now I think below 50%, and you've mentioned that you see further upside. So how much lower could working capital decline by the end of 2018, and is 30% of revenue still a valid target because that could be $0.5 billion to $1 billion of incremental free cash flow just from that?

Yeah. Thanks for the question, Igor. Look, yeah, as we've mentioned before and as we've talked about a little bit in the prepared remarks, we are intently focused on sort of rightsizing the working capital of the organization. It's obviously been a very challenging market in which to do that, but we continue to be very diligent and we'll probably double down on our efforts over the next year or two. So in terms of our end goal related to our working capital metrics, as you pointed out we often think about total working capital as a percentage of revenue run rate, and historically that's sort of been in the, call it, 30% to 35% range, and that's where we intend to get back to. That's not a quick target to reach due to the constraint that we have in our current markets, particularly with the challenges that will continue in the offshore space, but we intend to continue making good progress. This quarter, we reduced that metric from 51% down to about 43.5%, and that's down from about 58% a year ago, so we've made substantial progress. Expect that to continue through the remainder of 2018 and frankly well into 2019 as well. As it relates to sort of cash flow freed up from that endeavor, you sort of have opposing forces there to some extent. We're anticipating continued growth into 2018 on the top line, which sort of counteracts some of our efforts from a cash flow standpoint. But net-net, we still anticipate a decent amount of cash flow coming out of working capital through the course of 2018. Igor Levi - Morgan Stanley & Co. LLC: Great, that's very helpful. And then on the technology – from a technology standpoint, I mean, you've had quite a few technology-related initiatives during the downturn, and it looks like this innovation is starting to pay off with some particularly strong awards in the most recent quarter. Is there a large margin upside from this technology uplift? Is this something that you could potentially quantify? And when would you expect to begin to benefit and see this flow through the income statement?

Another great question, Igor, and thanks for asking. Yeah, we have had great strides and success across a number of areas. Unfortunately, introduce new products and new technology, and inevitably they're going to be a negative margin for a while until they get traction in the marketplace. And so depending on what specific products we're talking about and kind of where they are in their launch process, those may or may not be contributing meaningfully yet. But what's interesting to me is sort of this portfolio now that NOV brings to the oilfield, trying to look to see where the puck is going and positioning ourselves to provide the technologies to get there. And so I'm really excited about kind of the trajectory that we're on and the success that we've had so far. To be fair, not a big contributor of EBITDA so far, but really laying the foundation for what NOV looks like in the future. And to me, that's very, very exciting. Igor Levi - Morgan Stanley & Co. LLC: Thank you. I'll turn it back.

Our next question comes from the line of Waqar Syed with Goldman Sachs. Your line is now open. Waqar Syed - Goldman Sachs & Co. LLC: Thank you for taking my question. I just want to follow-up on a question regarding the split of revenues between services and E&Ps. But more precisely, I wanted to find out like what proportion maybe comes in from the big four companies, the global large cap service companies, because it feels that they are kind of more keeping the CapEx budgets relatively unchanged going forward while the rest of the industry may be increasing in the near-term. Could you maybe provide some color on that?

Waqar, I got to tell you, I think NOV probably has the most diverse customer base of anybody in the oilfield services. There's almost no one out there that we don't sell to. So very pleased to support the operations of the big four, but we also sell to just about every land drilling contractor, every oilfield service company, every offshore drilling contractor, along with a whole host of E&P companies. And – but I would also add too, and we kind of referenced this in our opening comments, there's higher optimism out there but not necessarily translating to tremendous growth in budgets at the first part of 2018. And so what you described in terms of budgeting for the upcoming year by the big four, yeah, that's probably a fair comment all around the oilfield. Most participants I think remain cautious after a couple of oil price head fakes in the past. But so far so good as we get into 2018 here with where oil prices are. Waqar Syed - Goldman Sachs & Co. LLC: So if you think about the oilfield services component, would the big four kind of represent maybe 50% of that net revenue opportunity for you guys? No?

No.

Waqar, it's much, much than that. I think I'd be surprised if any one individually was over about 2j5%, 3%. Waqar Syed - Goldman Sachs & Co. LLC: Okay, good. Thank you very much. That's very helpful.

You bet

Our next question comes from the line of Kurt Hallead with RBC Capital Markets. Your line is now open.

Good morning. Hey, good morning (58:48)

No problem.

Always a great summary. So I think what I'm trying to understand a little bit more here is in the past you talk about a decrease in the amount of drill pipe inventories in stock, the prospect of that business to pick up. I was wondering if I missed some of this that you might've mentioned a little bit earlier, I apologize, you guys do go through this stuff pretty quickly, but can you just mention drill pipe and then maybe elaborate a little bit more on what's going on with the intelligent drill pipe?

Yeah. I think we talked about it a little bit without a whole lot of specificity in our prepared remarks, Kurt, and maybe we'll try to slow down or speech in subsequent calls. But the drawdown continues. And per my recollection, last quarter I think we gave a specific number that basically we're down 17% on the customer-owned inventory piece within the U.S. market, and we now estimate that...

(59:57)

Yes, that we have.

Right.

We now estimate that that's down by about 22%. So those draws continue to come fast and furious, and that led to – leads to our optimism for a good back half of the year and really good 2019 and beyond.

Yeah. We also introduced a new premium thread connection in 2017 called the Delta connection which is really specifically focused on land drilling contractors and has a lower total cost of ownership and is a little more durable for land operations, and that's starting to get really good traction and I think that will help fuel demand. And then finally, I think you asked about Wired Drill Pipe and that's – the ability – traditionally, MWD mud pulse systems operate at 5 or 10 or maybe 15 bits per second; Wired Drill Pipe operates at 55,000 bits per second, and so it is truly a much, much, much greater bandwidth. And what oil and gas customers are realizing is that the ability to get a lot more data from the bottom of the hole, which IntelliServ offers them, is opening up new sorts of drilling techniques and better insight into downhole conditions and enables them to avoid lots of trouble, costs, and to drill faster and to evaluate formations on the fly much better. So it's just all the way around a really, really promising technology. And the good news for us, I think we've got enough experience in our belt where it's fairly, fairly bulletproof operationally. It's reliable and does a great job, and we're sort of seeing this blossoming of data measurements downhole that utilize that bandwidth and to improve operations. And so that's what's driving demand for the IntelliServ Drill Pipe.

And do you think, Clay, you're at a point now where you're going to see much more mass adoption?

I think so. It's still single-digit number of jobs that we have going on simultaneously out there, but double digits numbers of customers that are expressing interest, and really not just kicking tires but kind of getting in line to put it to work. So what's also interesting to me, it's not one sort of one operational challenge or one issue that this is being employed to fix. It's a broad, a pretty wide number of downhole measurements that are being made and downhole conditions and challenges that it's being applied to and applied to successfully. So I'm really pretty jazzed about where this is going. And it's not hard for me to imagine some number of years out where this becomes a much more standard piece of kit on a lot of drilling operations around the world.

Okay. Great summary. Thanks again.

You bet. Thank you, Kurt.

And that concludes today's question-and-answer session. I'd like to turn the call back to Clay Williams for any closing remarks.

Thank you. Appreciate you joining us this morning, and we look forward to sharing with you the results of our operations in the first quarter in April. So thanks very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.