National Oilwell Varco 2015 Annual Report Download - page 40

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Table of Contents
For the year ended December 2015 the Company reported an operating loss of $390 million compared to operating profit of $3.6 billion in 2014 and a net
loss from continuing operations of $769 million, or $1.99 per share compared to net income of $2.5 billion or $5.70 per fully diluted share during 2014.
Operating profit excluding other items (as defined in the “Non-GAAP Financial Measures and Reconciliations” in Results of Operations) was $1,634 million
in 2015 and earnings per share excluding other items was $2.80 in 2015, a 54% decrease from $6.07 per diluted share in 2014.
For the fourth quarter ended December 31, 2015, revenue was $2.7 billion, a $584 million or 18% decrease compared to the third quarter of 2015. The
Company reported a net loss of $1,523 million from continuing operations, or $4.06 per fully diluted share, a decrease of $1,678 million, or $4.47 per fully
diluted share. Compared to the fourth quarter of 2014, revenue decreased $2,987 million or 52%, and net income from continuing operations decreased
$2,118 million.
During the fourth quarter of 2015, third quarter of 2015, and fourth quarter of 2014, pre-tax other items were $1,773 million, $112 million and $105 million,
respectively. Excluding the other items from all periods, fourth quarter 2015 earnings were $0.23 per fully diluted share, compared to $0.61 per fully diluted
share in the third quarter of 2015 and $1.69 per fully diluted share in the fourth quarter of 2014.
Operating profit excluding other items was $141 million or 5.2% of sales in the fourth quarter of 2015, compared to $346 million or 10.5% of sales in the
third quarter of 2015, and $1,018 million or 17.8% of sales in the fourth quarter of 2014.

Over the past decade, technological advancements in the oilfield equipment and service space unlocked production from formations that were previously
deemed uneconomic, especially in North America. According to the Rystad Energy DCube, from 2004 to 2014 global oil and liquids supply increased by
9.9 million barrels per day, 5.8 million barrels per day from U.S. unconventional resources, 1.7 million barrels per day from deep-water (defined as water
depths greater than 400 feet) resources and 2.4 million barrels per day from other sources. The advances in technology combined with relatively high
commodity prices caused by growing demand enabled and sustained an increase in global drilling activity. In recent years, global supply started to catch up
to demand, and in the latter half of 2014, demand growth in areas such as Asia, Europe and the U.S. weakened while drilling activity remained strong and
production continued to grow. As a result, the first signs of an oversupply-related imbalance appeared and prices began to decline. Unlike previous cycles,
when the Organization of the Petroleum Exporting Countries (OPEC) curtailed production levels to defend pricing, certain members of OPEC increased
production in an effort to increase market share and financially stress higher cost producers, most notably those operating in the North American shale
market. As a result, the price of oil declined significantly during early 2015, remained depressed throughout the year, and underwent another major reduction
toward the end of 2015. In early 2016, the market witnessed oil trading in the high $20 per barrel range, a price range not seen since 2003.
In response to rapidly deteriorating market conditions, operators adjusted accordingly by acutely reducing both operating and capital expenditures. Orders
for our equipment and services slowed and rig counts declined rapidly. For the fourth quarter of 2015, the average number of active rigs drilling worldwide
decreased 44% year-over-year, with a 60% decline in the North American market alone.
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Rig Systems
The Company’s Rig Systems segment generated $7.0 billion in revenue and $1.2 billion in operating profit, or 17.3% of revenue, during 2015. Compared to
the prior year, revenue decreased 29% and operating profit dollars decreased 40%. For the fourth quarter of 2015, the segment generated $1.0 billion in
revenue and $113 million in operating profit, or 11.1% of revenue. Compared to the prior quarter, revenue decreased $481 million or 32%,
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