In the latest Barron's 500 National Oilwell Varco (#3, NOV) ranks only behind Blackrock (#1, BLK) and Research In Motion (#2, RIMM).
In the California gold rush, suppliers of picks and shovels fared far better than prospectors. The same might be said of the oil patch; just ask National Oilwell Varco, a supplier of oil and gas drilling-rig equipment, whose revenue more than tripled in the past four years, to $9.8 billion. The Houston company's earnings rose more than 500%, to $3.76 a share, and its backlog of business grew to $9.9 billion in the first quarter, up from $2.3 billion in 2005.
Some of that growth was due to acquisitions. In March 2005 National Oilwell purchased Varco for $2.59 billion in stock. The combined company bulked up even more this past April, when it completed the $7 billion takeover of Grant Prideco, adding drill bits and drill pipe to its product line-up.
National Oilwell's growth stems in part from improved manufacturing efficiencies. A factory that turned out 95 to 100 top drives (the part that turns the drilling pipe) three years ago now manufactures 365, with only a modest capital investment of $1 million to $1.5 million, says Merrill (Pete) Miller, chairman and CEO. The company espouses "quick response manufacturing," an approach to enhancing efficiency developed at the University of Wisconsin.
National Oilwell's stock has climbed 67% in the past 12 months, as oil has breached new highs above $120 a barrel. Yet the shares trade at only 13.5 times Wall Street's 2009 earning estimates. The concern, apparent in most oil-industry multiples, is that crude prices will peak, in which case the total number of industry drilling-rig orders -- which stood at 158 in January, up from 29 in April '05 -- will fall.
Oil's seemingly inexorable rise has sparked fierce debate, however. "Hundred-dollar-plus oil is a clear indication that worldwide demand for oil is continuing unabated," says Gary Russell, a senior equity analyst for the AIM Energy fund. "The industry is going to need many, many, many more rigs to find oil supply, to keep up with demand."
One sign of the company's confidence: National Oilwell has ignored pressure to buy back shares and instead has used its cash to expand its business. "The world needs more oil and gas," says Miller. "The worldwide rig count will climb in the next 10 years."
And this blurb from Schlumberger's (#4, SLB) Andrew Gould:
An increase in exploration, spurred by the need to find new sources of oil and gas in the next three to five years, will benefit the company. "The market is going to be surprised by the extent to which drilling is going to have to increase," Gould predicts.
THE BIO-MARKER ARGUMENT FOR "FOSSIL" THEORY FALLS FLAT
ReplyDeleteCHEMICAL ELEMENTS IDENTIFY OIL AS FROM THE MANTEL
Reference,
Dismissal of Claims of a Biological Connection for Naural Petroleum,
J.F. Kenney, 2001
(available on direct link at left-hand column, under The Science of Abiogenic Petroleum Origin)
"Fossil" theory advocates place great emphasis on bio-markers. These so-called bio-markers: Porphyrins, isoprenoids, and pristane, among others, are related to bio-chemicals, therefore, the argument goes, they are bio-chemical remnants, at the molecular level, of the organic detritus that turned into crude oil. Proving the "fossil" theory indisputably correct.
This is a main pillar of evidence that petro-geologists rely on in their belief that crude oil is formed from organic detritus.
J.F. Kenney dissects this argument, pointing out that while there are similarities, the differences are key, and does this by pointing to the differences in molecular structure, and by reporting that the interior of meteorites, which have been examined, have these same exact molecules. Presumably not the detritus of life. And, also, that these same molecules can be created in lab experiments, demonstrating that abiotic processes can generate the same molecules (high pressure and heat, interesting how that combination keeps cropping up, when talking about crude oil origins).
In another interesting distinction, the porphyrin molecules, that "fossil" advocates argue are remnant of organic detritus, are not the same as the chlorophyll and hemoglobin molecules, "fossil" advocates point to as their organic predecessors.
The chelating element in chlorophyll is always magnesium; in hemoglobin (heme), it is iron. But in petroleum it's typically vanadium and nickel (chlorophyll and heme have never been found in petroleum).
Also, of interesting note, vanadium and nickel are common in the mantel, but much rarer in the crust, along with helium, these elements are said to mark petroleum as originating in the mantel.
The argument of "fossil" advocates is interupted, if you will, by the molecular distinctions, and the abiotic natural sources (meteorites) and lab processes able to replicate these molecules.
So when closely examined (Is there any other way in science?), the so-called bio-marker argument can't stand up to scientific scrutiny.
Time after time, when the claims of "fossil" theory are held up to reasonable scientific scrutiny, solid proof is lacking.
And general statements fall apart.
CASCADING EFFECT SIGNALS STRONG OILFIELD SERVICES' PROFITS
ReplyDeleteClearly, as this post notes, the product and services providers to a growing industry where a certain percentage of "prospectors" strike out, ends up being the real "big winner" at the end of the day.
Strong economics for wildcat oil prospecting, even on the high seas, pratically guarantees oilfield services strong profit potential.
Proprietary technology development will be the lynchpin for brand name recognition, thus industry dominance.
All proprietary technology needs to be protected at all cost, because this "gold rush" mostly, will be conducted on the high seas, where stealing of technology secrets is facilitated by isolation.
American technological superiority, is critical for partnership agreements with foreign parties, whether national oil companies or private parties.
Good Hunting!