Q2 has not been kind to our industry, and to be honest, the rest of the year will look very similar to the first half. The price of oil is still in the $50’s, and there is significant external pressure on future pricing driven from the possibility of an Iran agreement on nuclear inspections which would lead to a lifting of the long-standing embargo of Iranian oil exports. In addition, the economy in China has slowed and the possible default and/or restructuring of the Greek debt add further headwinds to the chances of positive movement in oil prices. Consequently, the global rig count is still falling, not near as fast as we have seen in Q1 and, in fact, the US rig count has stabilized over the last 2 weeks, but is still down 1,000 rigs from last year at this time. The oil companies are continuing to take the benefit of a soft market to drive very hard bargains with their rig contactors, and day rates are still under pressure and falling. This, as many of you know through your dealings with our customers, has put them in a very challenging position with regard to keeping utilization up and reducing operational costs to minimize the impact on their margins.
One area of promise in these difficult conditions is the Middle East where we have seen and benefitted from increased land rig requirements and have several new projects on the horizon. Continuing on the land rig front, from discussions with our North American customers, they believe that activity will turn in 2016 once the impact of reduced drilling activity in 2015 and the knock on impact this has on production in the shales leads to material movement in production. This will support better utilization in the high spec 1500HP land rigs and will lead to an upward movement and trend in the US rig count. New projects in the offshore market will be few and far between for the rest of 2015 and 2016. We are actively engaged in specialized rig designs for 20,000 psi and Artic operations as well as our “Rig of the Future” concept which will provide for more automation and improved performance by attacking well construction flat time.
For those of us who have a few gray hairs, we have an understanding and historical knowledge that this industry is a cyclical business and has been since the beginning. For the last 10 years, we have benefitted from one of the longest and most prolific up-cycles in recent history. The drivers for this up-cycle are still strong – world population growth, modernization of the developing nations, depletion of conventional oil and gas production wells and the need for cleaner gas energy in replacement of coal. On the offside, our ability to improve our technologies as an industry is also strong and we have been able to improve drilling and completion performance and expand the recoverable energy reserves to levels not seen before. Consequently, we have a supply imbalance. NOV’s and RIG’s ability to adapt to this landscape is well proven. We are positioned to add new equipment and processes which will improve our customers drilling and operation performance and thus their return on investment, which directly leads to new bookings for NOV. The coming quarters will be challenging as we size our operations to meet a reduced marketplace, but in doing so, we will also be focusing on strengthening and advancing our investment in new products, driving improved quality and standardizing our documentation across the enterprise. The pressures of tight deliveries and the volume we have delivered over the last 10 years have impacted our ability to address these issues as timely and thoroughly as we would have liked. Now we have band-width to raise the bar to new levels, further distancing our products and services over our competitors. As noted in my message last quarter “In challenging times, how a team, individual and company perform is how one is defined.” Work safely, deliver a quality product and service on time and on budget – this is who we are.