We maintain our Buy recommendation on National-Oilwell Varco Inc. (NYSE: NOV) since the drilling equipment manufacturer retains its strength thanks to its strong leverage in the oilfield cycle. Peak-cycle commodity prices and capital outlays for exploration and production activities should keep the company's demand in robust health for the next few years.
New orders worth $2 billion in the first quarter have brought the company's total backlog to a record $9.9 billion, which highlights the company's strong earnings visibility going forward. It also reported better-than-expected first-quarter results.
To add to that, deepwater lease awards, discoveries in Brazil and the growing search for oil into new frontiers have significantly increased the demand for technologically advanced rigs, which the company is in a position to supply. The demands for supplying parts to its installed rigs should help drive earnings momentum in the near-to-medium term. The recent acquisition of Grant Prideco (NYSE: GRP) has further consolidated the company's position.
This has resulted in the company enjoying a very strong cyclical leverage. We raise our price objective to $100 from $85 before. This reflects 2009 P/E and EV/EBITDA multiples of 20.9x and 4.5x, respectively, both well within historical trading ranges. We believe that the company's strong late-cycle leverage and its dominant market share position justify the valuation premium.
Monday, June 2, 2008
Varco Keeps Things Pumping
Zacks: Varco Keeps Things A-Pumpin'
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Did you catch this in Bloomberg:
Bakken Formation bigger than Saudi Arabia
Quote:
And unlike the tar from Canada's oil sands, Bakken crude needs little refining. Swirl some of it in a Mason jar and it leaves a thin, honey-colored film along the sides. It's light - -almost like gasoline -- and sweet, meaning it's low in sulfur.
Best of all, the Bakken could be huge. The U.S. Geological Survey's Leigh Price, a Denver geochemist who died of a heart attack in 2000, estimated that the Bakken might hold a whopping 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels.
Mission Impossible? IT'S POSSIBLE!
This is a scientific story where the theory was a firmly held belief for over 30 years. Yet, with additional observation and experiment, the scientists, in this case nuclear physicists, had to concede they were wrong all those years.
A nutrino is a sub-atomic particle, located in the nucleus of atoms. Of course, nobody had observed a nutrino with the naked eye, or by any other direct observation.
The Standard Theory of sub-atomic physics stated that these nutrinos had the following properties.
1. Did not have mass.
2. When nutrinos left the nucleus, travelled at the speed of light.
3. And, could not change "flavor."
This was the firmly held belief of the physicists as implied by calling these beliefs The Standard Theory.
Yet, in an attempt to understand the internal workings of the Sun, a mathematical equation was developed to predict the number of nutrinos emitted from the Sun in the course of its nuclear fusion.
To test the mathematical equation an experiment was conducted to count nutrinos bombarding the Earth from the Sun. The experiment and the equation didn't agree. Which was correct, the equation or the experiment?
Additional experiments were conducted and more observations were gathered.
As a result of these additional observations, it was concluded The Standard Theory was wrong.
It turned out:
1. Nutrinos have mass.
2. Nutrinos were going less than the speed of light.
3. And, nutrinos could change "flavor."
Based on observation, these scientists had the discipline to accept their ideas had been wrong.
Ironically, it turned out, neither the experiment, nor the mathematical equation were wrong.
How much easier would it be for geologists that can see their quarry with the naked eye and can do experiments and make observations based on visual observation?
An example: Geologists say that increased pressure can't prevent petroleum from disassociating, or "cracking" into methane gas at increased temperatures (part of the "oil window" theory).
A simple experiment would be to subject petroleum to a series of increased temperatures and pressures in a sealed container and record the results.
To see, if, in fact, petroleum can remain stable under increased temperatures if pressures are, also, increased, too.
There are solutions to problems if you work hard enough.
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