Varco's Very Valuable

We've seen a lot of ho-hum reports out of the energy space thus far this quarter. National Oilwell Varco (NYSE: NOV  ) , however, left the blowout preventers at home. The drilling equipment maker's top line soared 44% year over year on the back of incredibly strong demand for rigs, particularly in international offshore markets. Backlog now sits at $7.2 billion -- 78% of that being offshore jobs, and 86% of it international. Who cares about muddy Canada when you've got the rest of the world scrambling for rigs like they're Willy Wonka bars?

A big difference between NOV and contract drillers like Ensco International (NYSE: ESV  ) and Grey Wolf (AMEX: GW  ) is that the drillers are almost entirely dependent on drilling activity. NOV's two largest segments have quite different dynamics driving their performance. Rig Technology, the segment that provides big-ticket equipment like top drives and mud pumps, is levered to capital spending. Petroleum Services and Supply, which competes with the likes of Baker Hughes (NYSE: BHI  ) and Smith International (NYSE: SII  ) , sells drill pipe and other consumables used during the drilling process. Naturally, this segment performs more in line with the level of drilling activity.

In a quarter like this one, where the rig count in certain regions -- cough, Canada, cough -- comes in softer than the ground during a spring thaw, that balanced revenue stream comes in handy. Not that PS&S was a slouch by any means -- it turned in higher sequential revenue and operating profit. Still, Rig Technology was the star of the show, pulling down 67% higher revenue on near-record order levels.

So did NOV just hit a cyclical peak? I'm not so sure. On the call, management definitively stated that "backlog will grow next quarter." Not should grow, but will grow. Clues to understanding this confidence came during a discussion of the mismatch between offshore rig announcements and deals actually booked. In essence, the company knows what's getting built, even if it can't include those rigs in its official count of contracts awarded. Given that we're approaching the slow month of August, I think this guidance says a lot about the global offshore market's continued strength.

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Fool contributor Toby Shute owns neither a drill bit nor shares in any company mentioned. The Motley Fool's disclosure policy is definitively stated.