National Oilwell Varco 2011 Annual Report Download - page 20

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Index to Financial Statements
ITEM 1A. 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.
We are dependent upon the level of activity in the oil and gas industry, which is volatile.
The oil and gas industry historically has experienced significant volatility. Demand for our services and products depends primarily upon the number of oil rigs in operation,
the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the volume of production, the number of well completions, capital expenditures
of other oilfield service companies and the level of workover activity. Drilling and workover activity can fluctuate significantly in a short period of time, particularly in the
United States and Canada. The willingness of oil and gas operators to make capital expenditures to explore for and produce oil and natural gas and the willingness of oilfield
service companies to invest in capital equipment will continue to be influenced by numerous factors over which we have no control, including:
the ability of the members of the Organization of Petroleum Exporting Countries, or OPEC, to maintain price stability through voluntary production limits, the
level of production by non-OPEC countries and worldwide demand for oil and gas;
level of production from known reserves;
cost of exploring for and producing oil and gas;
level of drilling activity and drilling rig dayrates;
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, well servicing companies, or production companies or in drilling or well
servicing rig utilization rates, then demand for the products and services of the Company will decline.
Volatile oil and gas prices affect demand for our products.
Oil and gas prices have been volatile since 1972. In general, oil prices approximated $18-$22 per barrel from 1991 through 1997, experienced a decline into the low teens in
1998 and 1999, and have generally ranged between $25-$100 per barrel since 2000. In 2008, oil prices were extremely volatile  oil prices rose to $147 per barrel in July 2008
only to fall into the $35-$45 per barrel range in December 2008. In 2009, oil prices continued to be volatile, rising to the $70 per barrel range during the year. In 2010 oil
prices continued rising to finish the year well above $80 per barrel. Domestic spot gas prices generally ranged between $1.80-$2.60 per mmbtu of gas from 1991 through 1999
then experienced spikes into the $10 range in 2001 and 2003. Prices generally ranged between $4.50-$12.00 per mmbtu during 2005-2008. During 2009 through 2011, spot
gas prices generally stabilized, dropping into the $3.00-$4.50 per mmbtu range, but declined below $3.00 late in 2011.
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. Oil and gas prices, which are determined by the marketplace, may fall below a range that is
acceptable to our customers, which could reduce demand for our products.
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