National Oilwell Varco 2002 Annual Report Download - page 7

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RISK FACTORS
You should carefully consider the risks described below, in addition to other information contained or incorporated
by reference herein. Realization of any of the following risks could have a material adverse effect on our business,
financial condition, cash flows and results of operations.
National Oilwell Depends on the Oil and Gas Industry
National Oilwell is dependent upon the oil and gas industry and its willingness to explore for and produce oil and
gas. The industry's willingness to explore and produce depends upon the prevailing view of future product prices.
Many factors affect the supply and demand for oil and gas and therefore influence product prices, including:
• level of production from known reserves;
• cost of producing oil and gas;
• level of drilling activity;
• worldwide economic activity;
• national government political requirements;
• development of alternate energy sources; and
• environmental regulations.
If there is a significant reduction in demand for drilling services, in cash flows of drilling contractors or production
companies or in drilling or well servicing rig utilization rates, then demand for our products will decline.
Oil and Gas Prices are Volatile
Oil and gas prices have been volatile since 1990, ranging from $10 - $40 per barrel. Over the last three years, oil
prices have generally ranged within $20 - $30 per barrel. Spot gas prices have also been volatile since 1990,
ranging from less than $1.00 per mmbtu to above $10.00. Gas prices were moderate in 1998 and 1999, generally
ranging from $1.80 to $2.50 per mmbtu. Gas prices in 2000 generally ranged from $4.00 - $8.00 per mmbtu. In
the second quarter of 2001, gas prices came under pressure, generally ranging between $2.20 to $3.00 per mmbtu
through the first quarter of 2002. Gas prices have generally ranged between $3.00 - $5.00 per mmbtu since that
time.
Expectations for future oil and gas prices cause many shifts in the strategies and expenditure levels of oil and gas
companies and drilling contractors, particularly with respect to decisions to purchase major capital equipment of the
type we manufacture. Industry activity and our revenues have not responded to the higher commodity prices that
have existed since the second quarter of 2002, presumably due to concerns that these prices will not continue in the
current range. We cannot predict future oil and gas prices or the effect prices will have on exploration and
production levels.
National Oilwell's Industry is Highly Competitive
The oilfield products and services industry is highly competitive. The following competitive actions can each affect
our revenues and earnings:
• price changes;
• new product and technology introductions; and
• improvements in availability and delivery.
We compete with many companies and there are low barriers to entry in many of our business segments.
National Oilwell Faces Potential Product Liability and Warranty Claims
5