National Oilwell Varco in Brazil

By Jaylan Boyle, Senior Contributing Reporter

RIO DE JANEIRO – The petroleum industry is rarely out of the news in Brazil, but some recent global headlines have unfortunately been negative due to to the U.S. Gulf disaster. Thus a corporation like National Oilwell Varco (NOV), whose fortunes are inextricably entwined with the oil reserves beneath the surface, are focused on providing a safer future.

NOV is one of the largest providers of energy industry mechanical components in the world, rivaling such behemoths as Halliburton, Shlumberger and Baker Hughes. Corporate headquarters hasn’t moved far since 1841, when the company joined the rush to get at the ‘Texas tea’ in Houston, but their operations have certainly branched out since then and the company can now call on the resources of more than 700 manufacturing and service facilities around the globe, and the labor of more than 40,000 employees.

Comfortably the largest corporation in Texas, they were recently named one of the ‘world’s most admired companies’ by Fortune magazine, and in 2008 there were 1.95 billion good reasons to admire NOV. That’s net income.

The nuts and bolts of Varco’s trade include much of the heavy duty gear that Petrobras et al drive into the ground, as well as auxiliary handling, lifting and servicing equipment. The company is also a market leader in supply chain distribution, and provide many other services to the industry, such as maintenance and safety inspection.

Here in Brazil, seen by many as the new land of petroleum opportunity, NOV’s already extensive presence is rapidly growing. The company is closely tied with Petrobras, and hopes to become more so in the future. Shareholders will be holding their breath as Petrobras prepares to announce the winner of a massive bid to manufacture 28 floating drilling rigs and related machinery to exploit the huge pre-salt reserves capturing all the headlines.

Executive Vice President Clay Williams told an earnings conference earlier this year that, “Petrobras, based on limited exploration in the Santos Basin so far, is actively tendering 28 new deepwater floating rigs, which, once contracted, will be the largest rig order ever in the history of our industry.”

Brazil’s pre-salt reserves, and similar sites around the world, raise a few uncomfortable conundrums for companies like Varco. Respected analysts are increasingly saying that the ‘easy oil’ is all but gone, and drilling is being forced deeper, generating more risk and cost, as made painfully apparent with the explosion of Deepwater Horizon. At this stage it is thought that a faulty blowout preventer valve was to blame, exactly the sort of thing manufactured by Varco.

In this case the finger is pointing at Cameron, a Varco competitor, but a serious re-think is needed in the industry as a whole. Analyst Geoffrey Kieburtz hastens to put a lid on panic caused by the accident, in light of Cameron’s plunging share price. “If this were dangerous, then every other operator drilling deepwater wells would have stopped already,” and it’s Varco and Cameron, along with General Electric, that have responded to the need for a re-think in sub-sea technology.

Investment adviser Theodore Harper at Frost Investment, in what most would call a very cynical missing of the point, said of the Deepwater Horizon disaster “this is a gift to the environmentalists”. Given the need for a revamp in drilling tech, it could well be a gift for companies like Varco as well.