Clay C. Williams
President, Chairman and Chief Executive Officer at NOV
Thank you, Blake. For the third quarter ended September 30, 2021, NOV once again posted strong orders with consolidated book-to-bill of over 150%, reflective of steadily strengthening commodity prices and oilfield activity. However, NOV's reported consolidated revenue declined 5% sequentially, and EBITDA fell to $56 million during the third quarter. I'll start by reminding everyone that our second quarter financials included credits related to a project cancellation settlement within Rig Technologies, which contributed $74 million in revenue and $57 million in EBITDA. We excluded those credits from our discussion on our last call and excluding these credits again from the sequential comparison today, points to consolidated third quarter revenues that were essentially flat, down only $2 million sequentially and EBITDA that was up with EBITDA margins on this basis, rising from 3.5% to 4.2%.
Through the quarter, we continued to face logistical and supply chain challenges, which our teams are managing pretty effectively day-to-day. Nevertheless, these weighed on certain results in certain areas, most notably in Southeast Asia. We recognized a $12 million charge stemming from a combination of COVID disruptions and execution challenges on a large offshore project within our Completion & Production Solutions segment, which I'll describe more fully in a moment. If we look beneath the surface, the trajectory of our business is somewhat more positive in our view than the headline numbers suggest, and our outlook for 2022 and beyond continues to strengthen. In fact, given: one, stronger oil and natural gas prices lately; two, the emergence of many of our key offshore drilling customers from bankruptcy; three, the significant reduction in costs that NOV has achieved through the past two years; four, our third quarter in a row of sequential double-digit top line growth and solid flow-throughs for our Wellbore Technology segment; and five, book-to-bill is in excess of 100% for the second quarter in a row for both the Completion & Production Solutions and Rig Technologies segments. I'm decidedly more positive about the outlook for the coming year.
Nevertheless, global supply chain issues are making business challenging in the short run, which leads me back to the project for which we took charges. Our Completion & Production Solutions segment has been working on a large project in Southeast Asian shipyard that ran into COVID-related operational disruptions, specifically a combination of shipyard shutdowns, labor quarantines and shortages of critical components. Additionally, our subsuppliers in the region have faced similar disruptions, which also affect project execution. Our team is working closely with our customer to figure out how to get this vessel built in online as efficiently and as safely as possible, while recognizing the need to be resilient as challenges shift and change daily. Across the company, we are intently focused on executing effectively in the face of persistent supply chain challenges globally.
Most COVID operational disruptions have been in Southeast Asia and continued to disproportionately affect the Completion & Production Solutions segment, owing to its large base of operations there. Similar to other industrial manufacturers that you read about in the financial press, we are facing inflation in labor, raw materials and components that we buy from subcontractors. But our teams have been diligent in pursuing alternate supplies, and we are generally able to offset most of the cost inflation with higher pricing to customers. Supplies of resin, epoxy and fiberglass integral to our composite pipe and Tuboscope tubular coating businesses remain critically low and, in some instances, have nearly doubled in cost. Lead times for forgings have extended out from six weeks to 18 weeks. And while prices for plate steel and coiled steel are now up more than 240% year-over-year, at least we appear to be seeing some stability in steel pricing as iron ore prices have declined.
We are hopeful that the worst of the steel inflation is behind us. Outside of steel, epoxy, fiberglass and other raw materials, I'd say we have generally seen low double-digit cost increases on other finished or semifinished components that we buy. Semiconductor boards, chips, electric motors, gearboxes and other subassemblies remain in very tight supply. Freight has also been challenging. Spot container shipping rates from Asia to the U.S. are now five times what they were this time last year, 14 times what they were in 2019. Additionally, ocean freight reliability is down to 38% and about half of where it was historically, which has led to more use of expensive airfreight. It's more reliable than ocean freight, but it drives costs up. One NOV business unit went two months without steel deliveries because our European steel mill supplier could not secure a vessel into port without guaranteeing you a full load. In North America, trucks and drivers can be tough to secure and hotshot drivers are dropping book shipments to take higher-priced jobs, making even domestic land deliveries less reliable.
Labor availability, particularly in the U.S., is very tight in certain areas, and we have stepped up recruiting and are redeploying some workers into new assignments. Our customers are also encountering these challenges. In fact, we are hearing of many instances of crew availability delaying planned equipment reactivations in West Texas and elsewhere. These challenges are affecting our customer behavior in other ways, too. NOV products like fuel handling pipes and tanks, pumps and mixers, etc, that go into large construction projects are facing headwinds in certain instances because our customers can't secure other complementary components or can't secure construction crew to install them. So they are delaying project launch and delaying orders to us. I want to stress. Thus far, NOV's team has done a good job covering inflationary cost pressures in the form of price increases. As market leader in many categories of equipment, we benefit from scale with our suppliers vis-a-vis our competition.
And we have moved raw material across our manufacturing plants to maximize value. Some of our businesses are achieving price-driven margin expansion as they recover discounts given during the downturn of 2020. And while a few products with longer production cycles like drill pipe have struggled to stay up with raw material cost increases on orders taken in early 2021, resulting in some margin compression, most are at least able to hold margins through pricing, but all are intently focused on managing inflation risks that continue to mount. Our businesses are reducing costs. Completion & Production Solutions identified another $50 million of annual cost reductions, including shuttering another half dozen facilities over the next few quarters.
While volumes and margins are clearly not where they need to be to generate sufficient returns, the organization's intent focused on downsizing over the past several years, together with higher orders and oil fleet activity on the horizon, give us confidence that we are moving in the right direction. We share the view expressed by others that the world is moving into a multiyear up-cycle in commodity prices. The combination of significant money supply growth, economies emerging out of pandemic lockdowns, under investment in oil and gas exploration and development over several years, higher cost of capital for E&Ps and flattening efficiency gains for North American shale producers will lead to tightening petroleum supply and demand in our view. In its current shape, the oilfield will struggle initially to respond to calls for increasing production.
So far, incremental drilling activity has been cautious and measured. Our land drilling customers tell us that they find it very difficult to crew rigs, even though the rig count is still well below pre-pandemic levels and the green crews that they hire cost more and are less productive. The industry will have to pay more to get back the expertise that it has lost. The industry is also paying more for the capital employees. Following OPEC's decision to let market forces rule in Thanksgiving 2014, U.S. shales emerged as a swing source of oil, characterized by fairly rapid responsiveness to commodity prices. This is made possible by two things: the resourcefulness technology and efficiencies of the U.S. oil and gas industry as well as large, easily accessible pools of low-cost capital in the form of both equity and debt from Wall Street.
However, poor returns on capital investments came into increased focus by 2019, and this, coupled with a widespread move to decarbonize investments by many capital providers, led to sharply higher cost of capital for the very capital-intensive oil and gas industry. Consequently, the U.S. operator base has necessarily embraced capital discipline as its new ethos. Going forward, it seems to reason that the U.S. unconventional market will be more challenged to fulfill its role as the world's quick cycle oil supplier, now that its constituents are more focused on returning capital to shareholders and reducing reinvestment rates. Further, we believe rising utilization of oilfield service assets, depletion of consumables and higher labor costs will drive up pricing by oilfield service providers.
We're hearing stories from the field of drilling contractors not willing to reactivate incremental rigs unless they can secure contracts at higher day rates and a pressure pumper is not adding incremental crews unless they can achieve a certain degree of net pricing improvement, which is required to get pay back on incremental cost of equipment reactivation. Higher well construction costs made worse by overall diminishment of efficiency as green crews man incremental units going to work will impact returns on shale wells, which will reduce the industry's responsiveness to higher commodity prices in our view. As economies and demand recover, OPEC spare capacity trickles back into the market and oil supply demand gap becomes more evident.
We think the industry response will be more broad-based than just U.S. shale ramping up activity. Much of the world's international offshore oilfield equipment has been stacked and neglected for some time and will require significant investment to bring it back to working order. One of the most interesting trends that we observed in the third quarter was a rising number of inquiries around potential offshore rig reactivations. Despite the level of contracted offshore rigs declining sequentially and I'll add a low level of actual offshore equipment orders for us, outside of the 20,000-psi pressure control equipment order for Transocean, we are being quietly asked to quote on several stacked rigs that are looking at coming back to the market. This is being driven by high rig tenders currently being floated by NOCs and others who are also looking at higher levels of activity onshore in certain international markets.
So to sum up where the industry is now, E&P operators worldwide are enjoying newfound prosperity as their existing production commands higher prices, but they will certainly pay more for constructing new wellbores and bringing on more production in the near future. Oilfield service providers, which are NOV's primary customer base are just now starting to claw back discounts given last year while simultaneously facing higher labor and component costs and constraints. We see them raising their prices materially over, say, the next 18 months as prosperity trickles down to this level in the food chain. NOV's late cycle manufacturing businesses will follow suit as prosperity continues to trickle down. As a reminder, all three of our segments are engaged in manufacturing, which blossoms a bit later in the oilfield up cycles given the trickle down nature of our ecosystem.
Rig Technologies has benefited strongly from its exposure to offshore wind development, which has helped offset some of the weakness that has seen in demand for traditional drilling equipment. Completion & Production Solutions has felt the brunt of the oilfield downturn, but it's recent additions to backlog point to a brighter future. And although Wellbore Technologies manufacture some capital equipment like drill pipe, it tends to behave more like a traditional oilfield service provider, and it is clearly recovering quickly. Throughout the downturn, NOV has continued to invest in technologies that improve efficiency, reduce labor and optimize operations. Whether it's through automated drilling processes, through its NOVOS operating system accompanied by our new drill floor robotics, delivering downhole data in real time through our wired drill pipe, reducing the emissions profile of a completion site with our Ideal eFrac fleet, NOV's oilfield product portfolio continues to evolve to enable our customers to achieve better operational performance.
Concurrently, we are also developing offerings that will help our customers in their pursuit of a low-carbon future. Our offshore wind installation vessel business won two packages from Cadeler and remains on track to achieve revenue run rate of $400 million a year by Q4 of next year. In addition, we were awarded our first FEED study for a carbon capture system aboard an FPSO in Asia, utilizing our extensive gas processing expertise. And as our other efforts in onshore and offshore wind, solar, geothermal biogas and carbon capture utilization and storage continue, NOV is positioning itself as a leading technology provider to the energy transition just as it is to traditional oil and gas.
On the whole, we are increasingly confident that NOV is approaching an inflection point with the hard work our team has put in over the past several years will bear fruit in a big way. To the employees of NOV who are listening today, thank you for your extraordinary efforts. Your hard work, creativity and dedication has set us up for success and the opportunities that are coming our way. Thank you.
With that, I'll turn it over to Jose.