This Company Will Win the Shale Race

Last October, I wrote that early stage global shale plays "remain highly speculative targets at this point. Some shales will prove economic, and others won't. It is next to impossible to pick winners at this point." That's true whether we're talking about the plays themselves or the E&Ps like Chesapeake Energy (NYSE: CHK  ) and EOG Resources (NYSE: EOG  ) that are busily working to crack them.

One clear winner in this race to develop unconventional hydrocarbon resources, both across North America and throughout the world, is National Oilwell Varco (NYSE: NOV  ) . The company may be best known as a deepwater rig outfitter, but it does a brisk business supplying onshore drillers as well. Whether ExxonMobil (NYSE: XOM  ) goes big in Germany or ConocoPhillips (NYSE: COP  ) hits pay dirt in Poland, these companies are going to need to place some major equipment orders. NOV is the go-to supplier.

A vibrant onshore drilling scene here in North America helped to drive a solid second quarter for the company. NOV's land rig backlog jumped 31% sequentially, taking the onshore portion of the company's backlog to 19%. The slowdown in deepwater rig orders means that the overall backlog continues to shrink, but Petrobras (NYSE: PBR  ) is expected to get the ball rolling on its major rig-building program around the first quarter of 2011. Thanks in part to booming onshore plays like the Bakken and the Eagle Ford, NOV won't go hungry in the interim.

Speaking of hungry, one interesting takeaway from yesterday's conference call was that the shipyards are rather aggressively cutting quotes on rig construction projects, in an attempt to entice customers to step forward. Combined with some favorable foreign exchange movements, all-in deepwater rig costs are down around 25%. Maybe this price break will be enough to get ExxonMobil to order that long-anticipated Arctic class rig.