The logic seems to make sense: As oil prices come down, rig makers like National Oilwell Varco will lose business.
Apparently the market thinks so. NOV stock dropped, $4.25, or 5%, on a $2.64 decline in black gold.
But CEO Merrill “Pete” Miller begs to differ. His firm has a $10.8 billion backlog of business that stretches well into 2011. And no work order is added to the backlog figures unless it’s contracted out, he said, and often times it’s prepaid. So that’s money in the bank for NOV.
“The price of oil escalating and going up and down like that,” Miller told Cramer Thursday, “does not impact our capital business one iota.”
Even if the price per barrel continued to fall to $110, or even $100, NOV’s business is solid. Rig orders take as much as two years to build, so those contracts were signed when oil was much lower than it is today.
“The lead times on this are so significant that you’re making a bet on the future,” said Miller, who also serves as chairman and president, “not what’s going on right here today.”
There may be limited offshore drilling here in the U.S., but NOV has projects running off the coasts of Brazil, West Africa and Norway – all very sensitive environmental areas, the CEO pointed out.
“I wish we did more offshore,” Miller said of the U.S., “but that’s a political issue I don’t have much control over.”
Miller emphasized how different drilling is today compared to the days of the 1969 spill off the coast of Santa Barbara, Calif.
“We are an extremely safe industry,” he said. “We…make sure that we take care of the environment.”
“The difference between 1969 and today is incredible,” he said.
U.S. domestic land drilling, thanks to big finds in the Marcellus, Haynesville and Barnett shales, could see the number of rigs grow to as high as 2,300 from a present level of 1,890. That would be big business for NOV.
“If you believe like I do that oil – even though, I’m negative on oil short term – stays over $100,” Cramer said, “National Oilwell Varco – no exceptions – is the single best drilling-related company to own in the world.”
“Take advantage of the decline,” he said. “Start building a position.”
Jim’s charitable trust owns National Oilwell Varco.
Questions for Cramer? email@example.com
Questions, comments, suggestions for the Mad Money website? firstname.lastname@example.org