NOV and the Nature of Reinvention

The origin story of global oilfield services and technology firm NOV Inc. begins with the oil and gas industry itself—just a few miles down the road in Oil City, Pa., where “Colonel” Edwin Drake drilled the first well with a steam-powered cable tool rig in 1862. The industry has seen its share of ups and downs, and so has NOV. But CEO Clay Williams—Princeton grad, Eagle Scout and bona fide optimist—just sees opportunity ahead.

In an exclusive interview with Deon Daugherty for Oil and Gas Investor, Williams shares his perspective on NOV’s future, how the firm attracts talent and where the company fits into the ongoing energy transition.

Deon Daugherty: Let’s begin by talking about where the industry is in its recovery from the pandemic and the resulting economic shutdown, which you’ve described as a “wrecking ball.” Is the North American energy industry bouncing back?

Clay Williams: It’s getting better. That’s the good news. Last year taught the world the importance of oil and gas and energy security. And while it brought a lot of hardship to economies and people, I think it was sort of necessary to demonstrate that what we do is important and critical to our standard of living.

But it’s been a tough three years with the pandemic and the recovery at the end of eight tough years for an industry that has seen a significant downcycle, and arguably one of the toughest in its history with negative oil prices and the lowest rig count recorded going back to World War II.

I think NOV, probably more than other participants in the oil field, was affected by the pandemic and the lockdown impact on the supply chain globally. We’re the leading manufacturer in the oil field so we rely on a global supply chain, and it was severely disrupted. We’ve made a lot of good progress, but we still have ways to go.

DD: It does seem surprising that this lingering effect on the supply chain, whether it’s accessing medicine or drill pipe, continues to create issues.

CW: Let me just say, it’s a really bad idea to shut down your economy for any reason whatsoever, and I hope our political leaders learn the lesson this time around. It takes a long time to recover, and there’s all kinds of weird ripples that run through the economy as a result. We’re still dealing with some of those.

Given the breadth of our product offering, what that means is that we have a very broad and highly specified number of parts and metals and special recipes of polymers that we buy globally. Sometimes there’s really only one supplier of that particular recipe. So when that one mill gets shut down, [it slows the process] and a lot of these mills and foundries and casting houses really haven’t come back from the pandemic lockdown.

It was very disruptive to our business. A lot of equipment that we make, we can’t ship until it’s complete. If we’re missing one piece or one widget for a particular piece of equipment, then it takes a while to get it out. I think you’re seeing that not just in our business, but really across the economy still.

DD: How has that impacted your costs?

CW: Well, inevitably they go up. So, we’re paying more for the components that we buy, as well as for the sub-assemblies that we buy from suppliers. Things like diesel engines and certain transmissions—we’re still wrestling with accessing those because [the shutdown] disrupted everybody’s plans and schedules.

In the middle of the energy crisis that we saw last year, it made things doubly frustrating for everybody. But our teams and our suppliers’ teams are working hard to get back to normal.

DD: How has the shutdown and the incremental recovery impacted the energy transition dynamic?

CW: I think it injected more realistic thinking into the practicality of pivoting quickly to a different form of energy. We’re going to have to move to a lower-carbon source of energy. But the playbook that’s been run on people that involves demonizing oil and gas was another really bad idea.

Oil and gas is the industry that powers all other industries, and oil and gas is going to be around for a long time to come, for generations. And this narrative that we’re going to pivot quickly to renewables and that we’re going to wean ourselves off of oil and gas is misguided. It’s not realistic. Our political leaders, I think, haven’t been honest with voters about what’s required here.

It’s not trillions of dollars, it’s tens of trillions of dollars that’s required in investment in these alternative sources of energy that are fundamentally less efficient. They’re more expensive. They face land use problems, intermittency problems—a lot of challenges that we have to overcome.

I’m an optimist. I’m convinced we will overcome those challenges to make these alternative sources of energy more attractive. But in the meantime, we need oil and gas. We need oil and gas to feed humanity. You know, 7 billion people rely on diesel to power tractors to plow fields, power combines to harvest grain and to transport grain to the mills, to the bakeries and to the H-E-B store down the street. It’s not a stretch to say this is the industry that powers all other industries and it powers our way of life.

DD: What is NOV’s role in the energy transition?

CW: The first plank of our strategy is to invest in ways to reduce the environmental impact of conventional oil and gas operations. The second plank of our strategy has been to invest in actual technologies that can bring about the energy transition with low- or no-carbon technologies: wind, solar, carbon capture and sequestration, biogas, geothermal and nuclear.

DD: It looks like NOV is doing a lot of interesting work with wind. How did that begin?

CW: Well, we made an acquisition several years ago of a company that was engaged in providing technology into offshore wind installation vessels.

If you go to Europe today—flying into the airport in Amsterdam, for instance—offshore, there’s a lot of fixed wind towers. These are massive structures with great big blades that are turning and generating a lot of wind power from the North Sea. The vast majority of those were installed using technology from this company along with technology that we developed here at NOV. Specifically, the jacking systems are from the same technology used in offshore jack-up rigs [that] are used in lift boats that are used to install those turbines.

DD: So you’re applying oil and gas technology to make wind power work.

CW: Absolutely. It’s been a great market for us. Along with the cranes and handling systems, we’ve done time and motion studies on how to install these fixtures more efficiently.

NOV has carved out a leading position in that space. Today, for instance, there are 15 vessels being constructed around the world to install offshore wind turbines, and 12 of them are utilizing NOV technology and designs in what they’re doing.

The vast majority of vessels out there are the same; they use NOV technology that we’ve developed and applied from the oil field.

What we learned … has shaped our views of further wind development, both onshore as well as in the floating wind space, which is where wind power really benefits from our taller towers.

If you can put up larger turbines, then the longer blades swing through a larger area and capture a larger wind resource and they concentrate into a larger turbine.

But the longer blades require a taller tower. The other good thing about going taller is that you access a wind resource that blows steadier and harder. It’s a higher quality wind source because the higher up you go, the less affected it is by ground effects. We’ve learned this offshore, where there really aren’t constraints to going higher other than the fleet of installation vessels. That has prompted demand for larger installation vessels with taller cranes that can handle heavier weights to put in these larger towers offshore, that ultimately are far more economically efficient than shorter towers.

DD: Where is this being deployed? Is it in the Gulf of Mexico?

CW: Not yet, but it is coming. We’re actually building the first two vessels that are Jones Act-qualified for U.S. waters to start installing wind towers off the Eastern Seaboard as well as the Gulf of Mexico. And we see many more of those to come.

One of other things we’re doing now is looking at this taller tower thesis and how it might be applied to onshore wind. The constraints on onshore towers are twofold. The first is, the taller the tower, the larger the diameter of the base. The problem with that is that if you construct a tower here in Houston, Texas, and you want to ship it out to the wind belt in west Texas, there’s a lot of interstate overpasses that you’ve got to get underneath. The diameter of the tower base is right at the ragged edge of what will fit underneath overhead obstructions between here and there. That caps the size of the tower at about 100 meters or so.

And then the second constraint [is], if you’re successful in getting around all the overpasses and traffic lights and bridges between here and there, you have to figure out a way to stand the tower up and, at about 100 meters for conventional crawler cranes, that’s about the limit of where they can really work as a practical matter. So, we’ve got our engineers working on a way … to erect these towers once on site, along with a technology that we’ve been developing that potentially could manufacture the towers on site.

If you think about it, we could set up a mobile plant that could build a 200-meter tower, along with a proprietary way to erect a 200-meter tower, and then we could put larger turbines higher in the air that would be far more economically efficient than the land wind developments of today.

DD: How far away are we from seeing that come to fruition?

CW: We’re actually making tower sections now on site. They’re more conventional-sized for one of the big turbine makers, and we’re fine-tuning the manufacturing process in our plant in Pampa, Texas.

We’re working on finalizing our designs for a crane system to erect the towers once they’re in place, but we think that it’s still a few years away. But this could be very transformative for the land wind tower space, not just here in the U.S., but globally.

DD: What is it about NOV’s work in the energy transition space that most excites you?

CW: Honestly, what I’m most excited about is the passion of the team here for pursuing a lot of ideas. I’m not sure which source of energy is ultimately going to win, and it’ll probably take a variety of them.

A few years ago, we really tried to unleash a lot of the entrepreneurial energy across our organization. We have some fantastic scientists and engineers here that are very skilled in all kinds of industrial pursuits that the oil field pursues globally from lifting and handling, to material sciences, to executing large projects at scale, to managing the supply chain globally. There’s a lot of unique skillsets embedded here at NOV that I think are very applicable to this challenge.

DD: How does that work from a practical perspective?

CW: We asked around the organization, “Hey, if you have any ideas around energy transition, let’s elevate those and see if we can figure out a way to explore them further,” and we’ve been doing that.

We started with a couple of dozen really good ideas that we’ve narrowed down now to 10 or 12 that are still very viable business plans that our scientists and engineers are focused on and excited about.

It’s that sort of creativity within NOV’s culture that I’m most excited about. I’m not sure precisely where it’s going to lead, but I would say so far, so good.

DD: There is so much angst within the industry about recruiting and retaining fresh talent, given the competition from alternative energy businesses, but you’re offering similar opportunities.

CW: It’s something that our senior management team thinks about a lot. We go to the facts. We have a few hundred million dollars of highly accretive revenue that’s coming from the energy transition related to wind and other technologies around the globe today. It’s a real business, and it’s a real high-return business for NOV today.

We foresee playing a very important role in traditional oil and gas as well as in reducing the environmental impact of those operations.

In fact, in our latest sustainability report, we highlight the fact that if you apply technologies that NOV has developed and products in the past few years to conventional oil and gas operations around the world, we can offset our own greenhouse gas footprint by more than 20 times, given widespread adoption. There’s a lot of leverage in that. If you actually want to fix the problem of decarbonizing oil and gas, this is the company that can do it.

But the second way that we convince young people to join our organization that I think is equally important, if not more important, is pretty fundamental. Provide a nice place to work, provide a place that you can do things that are meaningful, that you work with people that you respect and enjoy, and you have a little fun along the way.

DD: It’s clear that NOV is addressing the “G” part of the ESG equation. There’s no increase in salary for named executive officers; you’ve flattened the long-term incentives and made the energy transition a key metric in annual incentive bonuses tied to revenue from energy transition technology and services. And then, interestingly, you didn’t have any activist shareholder proposals to consider at the annual shareholder meeting.

CW: Ultimately, we have to do what’s right for the company. We have a very thoughtful board and a seasoned and, I think, practical management team. We all get the fact that energy transition really is the business plan of the 21st century. And if we crack the code, we would create enormous corporate wealth.

To me, it makes good business sense if you have the skill set and you can see your way clear to develop competitive advantage in that space that absolutely, we need to be driving towards that. The various business plans that we’re pursuing across energy transition offer the potential of creating long-term corporate value through competitive advantage in those spaces, given our unique skill sets. All of that ties together. It makes sense and hopefully our investors get that message.

DD: I’m not sure if “ground floor” is the right way to phrase this, but it does seem like NOV is getting in on the ground floor of energy transition technologies. And the company has been around as long as the oil and gas industry, so it follows suit in that sense.

CW: We started as a distribution company, and we’ve been through dozens of cycles since then in the oil and gas industry. With each one, our company has had to reinvent itself, and I’d like to think that through each upcycle we get better. We reposition ourselves for the opportunities that are out there and that ability to reshape NOV is embedded in our culture.

So, when we asked the organization to find opportunities in the energy transition, I think that really fits our DNA well. In a way, it’s how we’re reshaping ourselves for the next upcycle in oil and gas along with this huge mega-cycle that’s going to be required to transition to lower-carbon energy. I think NOV will play key role in both of those.

I think what’s incumbent on management is to try to get better with each iteration—to make it a better, more capable organization to capitalize on the opportunities that the upcycle brings.

DD: When you see the underinvestment in energy in the U.S. and compare it to other countries that don’t seem to be pulling back, do you think the U.S. may be at risk of losing its grasp on energy independence if it doesn’t start investing?

CW: Absolutely. Without sustained investment here, we definitely will—just like we did for the better part of a generation.

But I’m an optimist. I think, ultimately, smart capital seeks returns. There’s really good returns in this space and they’re only going to get better.

I think the U.S. will continue to lead in oil and gas technology, and we’ll continue to invest in oil and gas. But we’re passing through a period here where the equity markets need to somewhat relearn the importance of oil and gas.

I think that began to change last year with the situation in Europe. The market in North America’s always been more responsive to commodity prices. And so, coming out of the pandemic as oil prices recovered, I wasn’t surprised to see a rapid run-up in the rig count here that moved a lot more quickly and definitively than the rig counts in many of the other major oilfield markets around the world.

DD: Has it shifted more recently, though?

CW: Yes, with the oil price coming down in 2023 and the collapse in gas prices in particular, that’s led to lower levels of activity. It fits with historically what the industry’s done in North America.

DD: Where do you expect to see growth in the next five to 10 years?

CW: I think internationally and offshore.

It was pretty remarkable, what the U.S. did over the past several years in terms of oil and gas growth and the advancements made in shale technologies. And so, it’s a really good testament to the power of entrepreneurial thinking and capitalism here in this country.

But we’re hearing that we’re starting to find the limits of efficiency gains in shale production. Some of the producers are beginning to see the end of their Tier 1 acreage inventory. So, I don’t think we’re going to see the kind of explosive growth that we had in U.S. production.

I think higher commodity prices, higher oil prices are giving more conviction to oil companies to develop some of their offshore prospects in a lot of ways that, since 2014 …[has] been missing. And a lot of good work has been done around bringing down costs and making those developments more efficient in the past nine years. And so, I think a lot of more FIDs are coming offshore. I think places like the Middle East, along with a much higher level of offshore activity, is what’s in store for the next five, six years.

DD: Much of the new technology discussion across the E&P space is focused on artificial intelligence. Is more AI the story or where does the technology go from here?

CW: It’s certainly working for our customers. We have a product called Kaizen that optimizes the drilling process. It’s artificial intelligence and machine learning that figures out how to drill rock most efficiently, and then it learns along the way. It’s really the same way a human driller does; it just does it a lot faster because it adjusts on a microsecond basis.

We are very focused on driving higher levels of automation in the oil field. There’s still a lot of manual processes that are happening.

It’s a safety, cost and efficiency opportunity for our customers. One of the other really cool products that I’m pretty excited about that we came out with through the downturn was a way to upgrade rigs using robots on the drill floor that would actually trip the pipe—and trip it safely and as efficiently as humans can. But it gets the humans away from well center, which makes them a lot safer, and it’s a very efficient rig.

What’s really neat about this is the fact that it’s an economical upgrade for a rig. We’re utilizing industrial robots that were hardening for the oil field, and we’ve programmed the end effectors—the robot hands, if you will—to pick up the tools. It offers a way to upgrade the existing rig fleet to make it more capable and safer in a way that’s very cost-effective.

DD: Does it displace your workforce?

CW: I think it raises the level of requirements for them, from throwing chains or handling tongs to now maintaining these robots. It’s a higher skill set and it’s a safer, less repetitive task that I think will offer a better career for people.

DD: We’ve discussed a lot of things this morning—the supply/demand imbalance, the energy transition, U.S. energy independence and energy security. To bring it full circle, is there a duty of care for the western nations, or perhaps the OECD nations, to help those who live in undeveloped nations with energy poverty—and to do so in a way that raises their standard of living by incorporating the energy transition?

CW: Yes. I think that’s the highest priority—lifting people out of poverty. Today, people are cooking with wood and biomass and animal dung in their homes, which is a terrible health hazard.

Step one is: let’s feed people, let’s lift them out of poverty. But then there’s a second duty, which is, let’s invest in the technologies that make lower-carbon sources of energy more attractive. Let’s address the intermittency problems that they have. Let’s address the land use problems that they have. Let’s figure out the right way to execute a low-carbon energy transition. And then let’s help bring that to these nations that really desperately need more energy. I think there’s a very strong moral imperative to accomplish both.