COVER STORY

Looking Ahead

NOV’s Clay Williams Believes New Technology, Great People Give the Oil and Gas Industry a Bright Future

By Kristin Hincke, PESA

Clay Williams, Chairman, President, CEO, National Oilwell Varco, is no stranger to oilfield downturns.

He joined Shell in the 1980s when Saudi Arabia similarly flooded the market with crude to drive out higher-cost producers and gain market share. The experience and how the industry handled the situation made an indelible mark on him.

“I spent the first several years of my career in a really tough downturn,” he said. “It dawned on me during this time, the folks that are still here really do care about this industry, and I think that is something pretty special. I’m proud of what this industry does, but it’s a tough industry.”

While the industry is facing an unprecedented downturn, Williams believes it has significant growth potential in the future.

“The world is going to continue to utilize more oil and gas to lift people out of poverty and improve their standards of living,” he said. “There’s never been an industry that’s had a greater, more positive impact on the standard of living of mankind.”

As the cost of capital increases during the downturn, NOV is following the path set by management teams in previous downturns by reducing costs and increasing capital efficiency to drive better returns. Williams believes the rising cost of capital for the services sector is compounded by the narrative surrounding peak oil. He pointed out that nearly half of the world’s 93 million barrels of oil used each day is consumed by the one in six people that live in Organization for Economic Cooperation and Development (OECD) countries. The other half is consumed by the five out of six people that live in non-OECD countries.

“Like us, the 1.3 billion people in OECD countries want to do what they can to protect our planet,” he said. “But the 6.4 billion people in non-OECD countries are fighting for a better standard of living that requires energy. UN human population growth forecasts call for non-OECD countries to grow by another 1.5 billion people over the next 20 years. If you just hold their per capita consumption of oil constant that adds about 600,000 barrels per day per year required just to maintain standards of living.”

Williams acknowledges the servicing and manufacturing sector as being overbuilt, which creates business challenges. As American producers adjust their 2020 budgets and drilling plans, subsectors within oilfield services and equipment will need consolidation.

“Generally, industries that have a more consolidated industry structure tend to generate better returns on capital as opposed to industries that are more fragmented,” Williams said, “so structures that are more consolidated tend to be healthier for the long term.”

While leadership at NOV has made difficult decisions including workforce reductions to improve financial performance during this downturn, the company is focused on M&A as a strategy to help NOV not just navigate this time, but to be in a position to thrive when the upturn comes.

“We’ve continued to do M&A, but we’ve actually gotten more focused on smaller companies where we find we tend to drive higher returns,” Williams explained. “We did a very comprehensive look back at our M&A programs over the years and found that the smaller companies as a sort of portfolio of investments in the aggregate, drive better returns and lower risk and so it’s been a way for us to continue to improve our competitive positioning through the downturn while not exposing the broader company to the risk of an overleveraged balance sheet.”

Much of that M&A has focused around acquiring new technologies, which has been the driving force behind the record production increase in unconventional shales over the last 10 years.

As someone who has spent his entire career in the U.S., Williams is amazed that America produced the highest oil production growth numbers ever put up by any country in 150 years. He attributes this success to new technologies that led to the advancement in production capabilities. NOV has been a part of the industry’s technological revolution and has deployed several innovations.

“We saw the opportunity in the downturn to invest in new technologies that help facilitate those sorts of advancements,” Williams said.

One area NOV has pioneered through the downturn is wired drill pipe, which offers high speed bandwidth connection to the bottom of the hole. This pipe works in conjunction with devices near the bit that measure vibration and mechanical energy losses and with artificial intelligence on the rig. This helps optimize the way rigs can drill through different stratigraphic columns.

“We’re getting good traction with it,” Williams said. “We launched our new operating system for NOV rigs that we call NOVOS, and we put that on more than 100 rigs, and its continuing to drive better efficiencies and better safety in regard to operations.

According to Williams, NOV will introduce new automation and digital products later this year that will improve safety and performance on drilling rigs. He sees digital technologies as the leader in the energy transition evolution.

“It will play a big role in helping the industry get better,” he said. “We have a lot of customers very focused on the energy transition. I think it is an enormous business opportunity for all of us. If you think about energy broadly, it is about infrastructure. It takes enormous amounts of capital and typically decades, if not a century, to pivot from one energy source to another, so I do think mankind will pivot to new sources of energy in the 21st century. And the prize of the 21st century is figuring this out and participating in it.”

Williams believes the oil and gas industry is well-suited to lead the pivot in energy sources because servicing companies are great at deploying sophisticated technologies at scale and executing large complex projects globally. However, innovation is not restricted to just the service and manufacturing sectors. As producers develop their own technologies, companies such as NOV have the challenge of adapting to their customer’s needs.

“NOVOS incorporates the ability for our customers to write and deploy apps,” Williams explained. “We have a software developer kit that allows anybody who wants to write an app to work within the NOVOS operating environment to do it. We understand that our customers want to deploy their ideas perhaps in a proprietary way so they can write an app that’s proprietary to them or if it’s a service company, that’s proprietary to their customers, so we’re trying to work within the constraints that our customers really want.”

Purposeful innovation and service for all are touchstones at NOV. Investment in research and development, new products and technologies are a primary focus of the company.

“Our innovation needs to help our customers continue to improve, but also we’re a service company, and our customers have critical operations or expensive operations, and so we need to be ‘Johnny on the Spot’ when they need us to be. NOV aspires to be a technical leader while maintaining a culture that’s really committed to taking not just good care, but great care of our customers.”

Williams believes there are great untold stories about the oil and gas industry’s technological innovations, and he shares information about oil and gas extraction technologies whenever possible.

“This industry does so many great things the people outside the industry have no idea about,” he explained.

“I love introducing those who aren’t from the industry to the technologies we employ, the amazing places we go and things that we do. I just can’t say enough, how proud I am of the oil and gas industry. It’s really an amazing thing, amazing people, and I’m just very proud to be a part of it.”

Williams sees business as the “ultimate team sport” because it takes different skill sets, points of view and perspectives to be successful. He believes a team with members expressing identical thoughts will fail due to a lack of diverse opinions and perspectives. According to Williams, respect for each other is critical to a successful team because it gives team members the confidence to share opinions and personal views knowing the team respects the feedback, but at the end of the day, each member must support whatever direction the team is headed.

“Having a team that is mature enough to set aside a difference of opinion for the benefit of the team is really the magic ingredient,” he said.

Building a successful team takes time, intentional thought and planning according to Williams. He suggests choosing individuals with divergent personalities to have a wide range of opinions. It’s important to recruit a diverse workforce reflecting the generational change underway in the industry while also representing the global nature of the business.

“Let me be totally clear, I’m blessed beyond what I deserve. We have, I think, the world’s best management team, and I’m so proud of the people that I’m privileged to work with every day. They’re committed, and they do a fantastic job.”

As recent events in the world show, the oil and gas industry can be a volatile place to be. During hard times, Williams encourages experienced employees to reassure younger employees who may be questioning their career choice.

“I tell people, you are going to look back at this downturn and realize this is really what is going to make you as a manager,” he said. “You’ve been pushed out of your comfort zone, you’re being asked to do really hard things, sometimes pretty painful things, but we’re driving towards a more efficient and more effective organization, and you’re a part of that. You’re learning more than you know right now. Perseverance counts for a lot so stay in the fight, don’t give up, keep moving ahead. And when better days come, and they will, you will look back at this period and realize, you know, that’s really what made me who I am.”