National Oilwell Varco 2002 Annual Report Download - page 5

National Oilwell designs and manufactures drilling motors, drilling jars and specialized drilling tools for rent and
sale. We also design and manufacture a complete line of fishing tools used to remove objects stuck in the wellbore.
Distribution Services
National Oilwell provides distribution services through its network of approximately 150 distribution service
centers. These distribution service centers stock and sell a variety of expendable items for oilfield applications and
spare parts for our proprietary equipment. As oil and gas companies and drilling contractors have refocused on their
core competencies and emphasized efficiency initiatives to reduce costs and capital requirements, our distribution
services have expanded to offer outsourcing and alliance arrangements that include comprehensive procurement,
inventory management and logistics support. In addition, we believe we have a competitive advantage in the
distribution services business by distributing market-leading products manufactured by us and from the association
of this business with our Products and Technology segment.
The supplies and equipment stocked by our distribution service centers vary by location. Each distribution point
generally offers a large line of oilfield products including valves, fittings, flanges, spare parts for oilfield equipment
and miscellaneous expendable items.
Most drilling contractors and oil and gas companies typically buy supplies and equipment pursuant to non-
exclusive contracts, which normally specify a discount from list price for each product or product category.
Our goal is to create strategic alliances with our customers whereby we become the customer's primary supplier of
those items. In certain cases, we assume responsibility for procurement, inventory management and product
delivery for the customer, occasionally by working directly out of the customer's facilities.
We believe e-commerce brings a significant advantage to larger companies that are technologically proficient.
During the last few years, we have invested over $20 million to improve our information technology systems. Our
e-commerce system can interface directly with customers’ systems to maximize efficiencies for us and for our
customers. We believe we have an advantage in this effort due to our investment in technology, geographic size,
knowledge of the industry and customers, existing relationships with vendors and existing means of product
delivery.
Marketing
Substantially all of our capital equipment and spare parts sales, and a large portion of our smaller pumps and parts
sales, are made through our direct sales force and distribution service centers. Sales to foreign state-owned oil
companies are typically made in conjunction with agent or representative arrangements. Our downhole products are
generally rented and sold worldwide through our own sales force and through commissioned representatives.
Distribution sales are made through our network of distribution service centers. Customers for our products and
services include drilling and other service contractors, exploration and production companies, supply companies
and nationally owned or controlled drilling and production companies.
Competition
The oilfield services and equipment industry is highly competitive and our revenues and earnings can be affected
by price changes, introduction of new technologies and products and improved availability and delivery. We
compete with a large number of companies, none of which are dominant.
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