NOV Inc.: Form 10-Q for the period ended Sep 30, 2023

Introduction

NOV Inc. (“NOV” or the “Company”) is a leading independent equipment and technology provider to the global energy industry. Originally founded in 1862, NOV and its predecessor companies have spent 161 years helping transform oil and gas field development and improving its cost-effectiveness, efficiency, safety, and environmental impact. Over the past few decades, the Company has pioneered and refined key technologies to improve the economic viability of frontier resources, including unconventional and deepwater oil and gas. More recently, by applying its deep expertise and technology, the company has helped advance the transition toward sustainable energy.

NOV’s extensive proprietary technology portfolio supports the industry’s full-field drilling, completion, and production needs. With unmatched cross-segment capabilities, scope, and scale, NOV continues to develop and introduce technologies that further enhance the economics and efficiencies of energy production, with a focus on automation, predictive analytics, and condition-based maintenance.

NOV serves major-diversified, national, and independent service companies, contractors, and energy producers in 61 countries, operating under three segments: Wellbore Technologies, Completion & Production Solutions, and Rig Technologies.

Unless indicated otherwise, results of operations are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain reclassifications have been made to prior period financial information in order to conform with current period presentation. The Company discloses Adjusted EBITDA (defined as operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items) in its periodic earnings press releases and other public disclosures to provide investors additional information about the results of ongoing operations. See Non-GAAP Financial Measures and Reconciliations in Results of Operations for an explanation of our use of non-GAAP financial measures and reconciliations to their corresponding measures calculated in accordance with GAAP.

Wellbore Technologies

The Company’s Wellbore Technologies segment designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations, and offers services that optimize their performance, including: solids control and waste management equipment and services, managed pressure drilling, drilling fluids, premium drillpipe, wired pipe, drilling optimization services, tubular inspection and coating services, instrumentation, downhole tools, and drill bits.

Wellbore Technologies focuses on oil and gas companies and supports drilling contractors, oilfield service companies, and oilfield equipment rental companies. Demand for the segment’s products and services depends on the level of oilfield drilling activity by oil and gas companies, drilling contractors, and oilfield service companies.

Completion & Production Solutions

The Company’s Completion & Production Solutions segment integrates technologies for well completions and oil and gas production.

The segment designs, manufactures, and integrates technologies for well completions, oil and gas production, and industrial markets. This includes equipment and technologies needed for hydraulic fracture stimulation, including pressure pumping trucks, blenders, sanders, hydration units, injection units, flowline, and manifolds; well intervention, including coiled tubing units, coiled tubing, and wireline units and tools; cementing products for pumping, mixing, transport, and storage; onshore production, including fluid processing, composite pipe, surface transfer and progressive cavity pumps, and artificial lift systems; and offshore production, including integrated production systems and subsea production technologies.

Completion & Production Solutions supports service companies and oil and gas companies. Demand for the segment’s products depends on the level of oilfield completions and workover activity by oilfield service companies and drilling contractors, and capital spending plans by oil and gas companies and oilfield service companies.

The segment also designs and manufactures equipment for industrial markets. This includes specialized, technology-driven progressive cavity pumps and mixers for a wide breadth of industrial end markets with high failure costs, premium pole products to support connectivity, lighting, and power for municipal and residential applications including 5G, smart-city infrastructure, roads and highways, and energy-grid modernization. Demand for these products is driven by general industrial activity and infrastructure spend.

Rig Technologies

The Company’s Rig Technologies segment manufactures and supports the capital equipment and integrated systems needed to drill oil and gas wells on land and offshore as well as other marine-based markets, including offshore wind vessels. The segment designs, manufactures and sells land rigs, offshore drilling equipment packages, including installation and commissioning services, and drilling rig components that mechanize and automate the drilling process and rig functionality. Equipment and technologies the segment provides to customers include: substructures, derricks, and masts; cranes; jacking systems; pipe lifting, racking, rotating, and assembly systems; fluid transfer technologies, such as mud pumps; pressure control equipment, including blowout preventers; power transmission systems, including drives and generators; rig instrumentation and control systems; mooring, anchor, and deck handling machinery; major equipment components for offshore wind construction vessels; and pipelay and construction systems. The segment also provides spare parts, repair, and rentals as well as comprehensive remote equipment monitoring, technical support, field service, and customer training through an extensive network of aftermarket service and repair facilities strategically located in major areas of drilling operations around the world.

Rig Technologies supports land and offshore drillers. Demand for the segment’s products depends on drilling contractors’ and oil and gas companies’ capital spending plans, specifically capital expenditures on rig construction and refurbishment; and secondarily on the overall level of oilfield drilling activity, which drives demand for spare parts, service, and repair for the segment’s large installed base of equipment. The segment also designs and builds equipment for wind turbine installation companies, where demand is dependent on global investment into offshore wind energy developments.

Critical Accounting Policies and Estimates

In our annual report on Form 10-K for the year ended December 31, 2022, we identified our most critical accounting policies. In preparing the financial statements, we make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments that are most critical in nature which are related to revenue recognition under long-term construction contracts; inventory reserves; impairment of goodwill and income taxes. Our estimates are based on historical experience and on our future expectations that we believe are reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results are likely to differ from our current estimates and those differences may be material.

EXECUTIVE SUMMARY

For the third quarter ended September 30, 2023, the Company generated revenues of $2.19 billion, an increase of 4 percent compared to the second quarter of 2023 and an increase of 16 percent compared to the third quarter of 2022. Net income for the third quarter of 2023 was $114 million, or 5.2 percent of sales, which included $7 million of Other Items. Adjusted EBITDA (operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items) increased sequentially to $267 million, or 12.2 percent of sales.

In an effort to drive further operational and financial efficiencies, the Company announced a consolidation of its operational structure into two segments, Energy Equipment and Energy Products and Services. NOV’s new operational structure will be effective January 1, 2024, and, when fully implemented, is expected to contribute to the Company’s ongoing cost reduction initiatives. As a result of the reorganization, the Company expects to recognize certain charges in the fourth quarter of 2023 and first half of 2024. The actual amount of the charges will depend on various factors and may impact any forward-looking statements. The Company plans to begin reporting the new segment information beginning in the first quarter of 2024.

Segment Performance

Wellbore Technologies

Wellbore Technologies generated revenues of $799 million in the third quarter of 2023, a decrease of one percent from the second quarter of 2023 and an increase of 8 percent from the third quarter of 2022. Operating profit was $123 million, or 15.4 percent of sales, and included $3 million in Other Items. Adjusted EBITDA increased $2 million sequentially and increased $21 million from the prior year to $166 million, or 20.8 percent of sales. The revenue decline was driven by lower North American drilling activity and lower drill pipe shipments during the quarter, which were mostly offset by improvements in the international and offshore markets.

Completion & Production Solutions

Completion & Production Solutions generated revenues of $760 million in the third quarter of 2023, an increase of one percent from the second quarter of 2023 and an increase of 12 percent from the third quarter of 2022. Operating profit was $47 million, or 6.2 percent of sales, and included $2 million in Other Items. Adjusted EBITDA decreased $2 million sequentially and increased $11 million from the prior year to $67 million, or 8.8 percent of sales. Results reflect lower deliveries of equipment in North America, more than offset by improving progress on offshore projects.

New orders booked during the quarter increased 18% and totaled $530 million, representing a book-to-bill of 114 percent when compared to the $466 million of orders shipped from backlog. As of September 30, 2023, backlog for capital equipment orders for Completion & Production Solutions was $1,626 million, an increase of $40 million from the second quarter of 2023 and an increase of $148 million from the third quarter of 2022.

Rig Technologies

Rig Technologies generated revenues of $686 million in the third quarter of 2023, an increase of 13 percent from the second quarter of 2023, and an increase of 34 percent from the third quarter of 2022. Operating profit was $86 million, or 12.5 percent of sales, and included a credit of $3 million of Other Items. Adjusted EBITDA increased $29 million sequentially and increased $48 million from the prior year to $100 million, or 14.6 percent of sales. Results were driven primarily by improved execution and spare part shipments from the Company’s aftermarket operations.

New capital equipment orders booked during the quarter totaled $178 million, representing a book-to-bill of 72 percent when compared to the $248 million of orders shipped from backlog. The segment also recorded a positive $145 million adjustment to backlog, primarily related to contractual inflationary price index adjustments. As of September 30, 2023, backlog for capital equipment orders for Rig Technologies was $2,968 million, an increase of $75 million from the second quarter of 2023 and an increase of $187 million from the third quarter of 2022.

Oil & Gas Equipment and Services Market and Outlook

Despite the recent volatility in commodity prices, management believes the industry is in the early stages of an extended recovery that began in 2021 with the gradual reopening of global economies following the COVID-19 pandemic. Improving economic activity, driven by pent-up consumer and industrial demand combined with government economic stimulus, drove higher consumption of commodities, pulled significant volumes of oil and gas out of global inventories, and exposed diminished productive capacity resulting from years of underinvestment in the oil and gas industry.

Tightening of government fiscal policies, concerns regarding a global recession, and rising inflationary costs may drive volatility and could pressure commodity prices near-term; however, management believes diminished global oil and gas production capacity, along with rising energy security risks, will continue to spur increased oilfield activity and demand for the Company’s equipment and technology.

NOV remains committed to improving organizational efficiencies while focusing on the development and commercialization of innovative products and services, including technologies to reduce the environmental impact of oil and gas operations and technologies to accelerate the energy transition that are responsive to the longer-term needs of NOV’s customers. We believe this strategy will further advance the Company’s competitive position in all market conditions.

Operating Environment Overview

The Company’s results are dependent on, among other things, the level of worldwide oil and gas drilling, well remediation activity, the prices of crude oil and natural gas, capital spending by other oilfield service companies and drilling contractors, and worldwide oil and gas inventory levels. Key industry indicators for the third quarter of 2023 and 2022, and the second quarter of 2023 include the following:

* Averages for the quarters indicated. See sources below.

The Company is also becoming increasingly engaged with energy transition related opportunities and is currently involved in projects related to wind energy, geothermal power, rare earth metal extraction, biogas production, and carbon sequestration. Additionally, the Company is investing in developing technologies and solutions that will support other energy transition related industry verticals. Management expects to see continued growth in these areas as low carbon power becomes a larger portion of the global energy supply.

The following table details the U.S., Canadian, and international rig activity and West Texas Intermediate Crude Oil prices for the past nine quarters ended September 30, 2023, on a quarterly basis:

.Industry Tr..ends Rig Counts and Oil Prices Total Number of Rigs 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 $140.00 $120.00 $100.00 $80.00 $60.00 $40.00 $20.00 $ West Texas Int. (Price per Barrel) 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 Total Rings 2,110 2,262 2,260 2,260 2,210 2,197 2,071 2,053 1,255 Canada 105 208 177 185 83 132 139 196 25 US 1,037 1,051 1,072 1,046 989 920 821 784 396 International 968 1,003 1,011 1,029 1,138 1,145 1,111 1,073 834 W.TX Int. ($) $68.03 $69.76 $59.08 $54.83 $59.78 $56.37 $56.92.99

Source: Rig count: Baker Hughes, Inc. (www.bakerhughes.com (http://www.bakerhughes.com)); West Texas Intermediate Crude Oil and Natural Gas Prices: Department of Energy, Energy Information Administration (www.eia.doe.gov (http://www.eia.doe.gov)).

The worldwide quarterly average rig count remained relatively consistent (from 1,797 to 1,790), and the U.S. decreased 10 percent (from 722 to 651), in the third quarter of 2023 compared to the second quarter of 2023. The average per barrel price of West Texas Intermediate Crude Oil increased 12 percent (from $73.76 per barrel to $82.30 per barrel) and natural gas prices increased 20 percent (from $2.16 per mmbtu to $2.59 per mmbtu) in the third quarter of 2023 compared to the second quarter of 2023.

At October 13, 2023, there were 815 rigs actively drilling in North America, which decreased 3 percent from the third quarter average of 839 rigs. The price for West Texas Intermediate Crude Oil was $87.69 per barrel at October 13, 2023, an increase of 7 percent from the third quarter of 2023 average. The price for natural gas was $3.24 per mmbtu at October 13, 2023, an increase of 25 percent from the third quarter of 2023 average.

Results of Operations

Financial results by operating segment are as follows (in millions):

Wellbore Technologies

three and nine months ended September 30, 2023 and 2022. Revenue from Wellbore Technologies was $799 million for the three months ended September 30, 2023, compared to $741 million for the three months ended September 30, 2022, an increase of $58 million or 8 percent. For the nine months ended September 30, 2023, revenue from Wellbore Technologies was $2,348 million compared to $2,015 million for the nine months ending September 30, 2022, an increase of $333 million or 17 percent.

Operating profit from Wellbore Technologies was $123 million for the three months ended September 30, 2023 compared to an operating profit of $74 million for the three months ended September 30, 2022, an increase of $49 million. For the nine months ended September 30, 2023, operating profit from Wellbore Technologies was $347 million compared to operating profit of $194 million for the nine months ending September 30, 2022, an increase of $153 million.

Completion & Production Solutions

three and nine months ended September 30, 2023 and 2022. Revenue from Completion & Production Solutions was $760 million for the three months ended September 30, 2023, compared to $681 million for the three months ended September 30, 2022, an increase of $79 million or 12 percent. For the nine months ending September 30, 2023, revenue from Completion & Production Solutions was $2,231 million compared to $1,850 million for the nine months ending September 30, 2022, an increase of $381 million or 21 percent.

Operating profit from Completion & Production Solutions was $47 million for the three months ended September 30, 2023 compared to an operating profit of $21 million for the three months ended September 30, 2022, an increase of $26 million. For the nine months ended September 30, 2023, operating profit from Completion & Production Solutions was $144 million compared to operating profit of $19 million for the nine months ending September 30, 2022, an increase of $125 million.

The Completion & Productions Solutions segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major completion and production components or a contract related to a construction project. The capital equipment backlog was $1,626 million at September 30, 2023, an increase of $148 million from backlog of $1,478 million at September 30, 2022. Although numerous factors can affect the timing of revenue out of backlog (including, but not limited to, customer change orders and supplier accelerations or delays), the Company reasonably expects approximately 29 percent of backlog to become revenue during the rest of 2023 and the remainder thereafter. At September 30, 2023, approximately 61 percent of the capital equipment backlog was for offshore products and approximately 76 percent of the capital equipment backlog was destined for international markets.

Rig Technologies

three and nine months ended September 30, 2023 and 2022. Revenue from Rig Technologies was $686 million for the three months ended September 30, 2023, compared to $511 million for the three months ended September 30, 2022, an increase of $175 million or 34 percent. For the nine months ended September 30, 2023, revenue from Rig Technologies was $1,842 million compared to $1,414 million for the nine months ending September 30, 2022, an increase of $428 million or 30 percent.

Operating profit from Rig Technologies was $86 million for the three months ended September 30, 2023 compared to $22 million for the three months ended September 30, 2022, an increase of $64 million. For the nine months ended September 30, 2023, operating profit from Rig Technologies was $203 million compared to $64 million for the nine months ending September 30, 2022, an increase of $139 million.

The Rig Technologies segment monitors its capital equipment backlog to plan its business. New orders are added to backlog only when the Company receives a firm written order for major drilling rig components or a signed contract related to a construction project. The capital equipment backlog was $2,968 million at September 30, 2023, an increase of $187 million from backlog of $2,781 million at September 30, 2022. Although numerous factors can affect the timing of revenue out of backlog (including, but not limited to, customer change orders and supplier accelerations or delays), the Company reasonably expects approximately 9 percent of backlog to become revenue during the rest of 2023 and the remainder thereafter. At September 30, 2023, approximately 28 percent of the capital equipment backlog was for offshore products and approximately 95 percent of the capital equipment backlog was destined for international markets.

Eliminations and corporate costs

Eliminations and corporate costs were $73 million and $204 million for the three and nine months ended September 30, 2023, compared to $62 million and $175 million for the three and nine months ended September 30, 2022. Sales from one segment to another generally are priced at estimated equivalent commercial selling prices; however, segments originating an external sale are credited with the full profit to the company. Eliminations include intercompany transactions conducted between the three reporting segments that are eliminated in consolidation. Intrasegment transactions are eliminated within each segment.

Other expense, net

Other expense, net was $25 million and $70 million for the three and nine months ended September 30, 2023, compared to expenses of $10 million and $8 million for the three and nine months ended September 30, 2022, respectively. The change in income was primarily due to fluctuations in foreign currencies.

Provision for income taxes

The effective tax rate for the three and nine months ended September 30, 2023 was 30.8% and 18.2%, respectively, compared to 45.3% and 42.3% for the same period in 2022. The effective tax rate for 2023 was positively impacted by the utilization of previously unrealized loss carryforwards and tax credits as well as favorable adjustments related to changes in certain exchange rates, partially offset by current year losses in certain jurisdictions with no tax benefit.

The Company anticipates it will no longer be in a pre-tax three year cumulative loss position at December 31, 2023. The Company’s year-end assessment of the carrying value of its deferred tax assets will therefore consider projections of future taxable income, which could result in the determination that a significant portion of deferred tax assets are more-likely-than-not to be realized in the future. In the event such a determination is made, valuation allowances against deferred tax assets would be reduced, resulting in a decrease to income tax expense in the fourth quarter of 2023.

Non-GAAP Financial Measures and Reconciliations

This Form 10-Q contains certain non-GAAP financial measures that management believes are useful tools for internal use and the investment community in evaluating NOV’s overall financial performance. These non-GAAP financial measures are broadly used to value and compare companies in the oilfield services and equipment industry. Not all companies define these measures in the same way. In addition, these non-GAAP financial measures are not a substitute for financial measures prepared in accordance with GAAP and should therefore be considered only as supplemental to such GAAP financial measures.

The Company defines Adjusted EBITDA as operating profit excluding depreciation, amortization, gains and losses on sales of fixed assets and, when applicable, Other Items. Management believes this is important information to provide because it is used by management to evaluate the Company’s operational performance and trends between periods and manage the business. Management also believes this information may be useful to investors and analysts to gain a better understanding of the Company’s results of ongoing operations. Adjusted EBITDA is not intended to replace GAAP financial measures, such as Net Income.

The following tables set forth the reconciliation of Adjusted EBITDA to its most comparable GAAP financial measure (in millions):

28

Liquidity and Capital Resources

Overview

At September 30, 2023, the Company had cash and cash equivalents of $513 million and total debt of $1,729 million. At December 31, 2022, cash and cash equivalents were $1,069 million and total debt was $1,730 million. As of September 30, 2023, approximately $462 million of the $513 million of cash and cash equivalents was held by our foreign subsidiaries and the earnings associated with this cash could be subject to foreign withholding taxes and incremental U.S. taxation if transferred among countries or repatriated to the U.S. If opportunities to invest in the U.S. are greater than available cash balances that are not subject to income tax, rather than repatriating cash, the Company may choose to borrow against its revolving credit facility.

The Company has a revolving credit facility with a borrowing capacity of $2.0 billion through October 30, 2024, and a borrowing capacity of $1.7 billion from October 31, 2024, to October 30, 2025. The Company has the right to increase the commitments under this agreement to an aggregate amount of up to $3.0 billion upon the consent of only those lenders holding any such increase. Interest under the multicurrency facility is based upon SOFR, NIBOR or CDOR plus 1.25% subject to a ratings-based grid or the U.S. prime rate. The credit facility contains a financial covenant regarding maximum debt-to-capitalization ratio of 60%. As of September 30, 2023, the Company was in compliance with a debt-to-capitalization ratio of 26.1% and had no outstanding letters of credit issued under the facility, resulting in $2.0 billion of available funds.

A consolidated joint venture of the Company borrowed $120 million against a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon SOFR plus 1.40%. The bank line of credit contains a financial covenant regarding maximum debt-to-equity ratio of 75%. As of September 30, 2023, the joint venture was in compliance. The facility construction was completed in the fourth quarter of 2022, and the joint venture will not have future borrowings on the line of credit. The line of credit repayment schedule began in December 2022 with final payment no later than June 2032. As of September 30, 2023, the Company had $109 million in borrowings related to this line of credit. The Company has $10 million in payments related to this line of credit due in the next twelve months.

The Company’s outstanding debt at September 30, 2023 consisted primarily of $1,090 million in 3.95% Senior Notes, $495 million in 3.60% Senior Notes, and other debt of $144 million. The Company was in compliance with all covenants at September 30, 2023. Long-term lease liabilities totaled $559 million at September 30, 2023.

The Company had $492 million of outstanding letters of credit at September 30, 2023, primarily in Norway and the United States, that are under various bilateral letter of credit facilities. Letters of credit are issued as bid bonds, advanced payment bonds and performance bonds.

The following table summarizes our net cash used in continuing operating activities, continuing investing activities and continuing financing activities for the periods presented (in millions):

Significant uses of cash during the first nine months of 2023

• Cash flows used in operating activities were $234 million, primarily driven by changes in the primary components of our working capital (receivables, inventories, accounts payable, and accrued liabilities).
• Capital expenditures were $207 million.
• We paid $60 million in dividends to shareholders.

Other

The effect of the change in exchange rates on cash flows was a decrease of $5 million for the first nine months of 2023, and a decrease of $15 million for the first nine months of 2022.

We believe that cash on hand, cash generated from operations and amounts available under our credit facilities and from other sources of debt will be sufficient to fund operations, lease payments, working capital needs, capital expenditure requirements, dividends and financing obligations.

We may pursue additional acquisition candidates, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We continue to expect to fund future cash acquisitions primarily with cash flow from operations and borrowings, including the unborrowed portion of the revolving credit facility or new debt issuances, but may also issue additional equity either directly or in connection with acquisitions. There can be no assurance that additional financing for acquisitions will be available at terms acceptable to us.

New Accounting Pronouncements

See Note 16 for recently adopted and recently issued accounting standards.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. Some of the information in this document contains, or has incorporated by reference, forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements typically are identified by use of terms such as “may,” “believe,” “plan,” “will,” “expect,” “anticipate,” “estimate,” “should,” “forecast,” and similar words, although some forward-looking statements are expressed differently. We may also provide oral or written forward-looking information in other materials we release to the public. Forward-looking information involves risk and uncertainties and reflects our best judgment based on current information. You should be aware that our actual results could differ materially from results anticipated in the forward-looking statements due to a number of factors, including but not limited to changes in oil and gas prices, customer demand for our products and worldwide economic activity, including matters related to recent Russian sanctions. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward-looking statements. We undertake no obligation to update any such factors or forward-looking statements to reflect future events or developments. You should also consider carefully the statements under “Risk Factors,” as disclosed in our Annual Report on Form 10-K for the year-end December 31, 2022, as updated in Part II, Item 1A of our Quarterly Reports on Form 10-Q, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements, and additional disclosures we make in our press releases and Forms 10-Q, and 8-K. We also suggest that you listen to our quarterly earnings release conference calls with financial analysts.

We are exposed to changes in foreign currency exchange rates and interest rates. Additional information concerning each of these matters follows:

Foreign Currency Exchange Rates

We have extensive operations in foreign countries. The net assets and liabilities of these operations are exposed to changes in foreign currency exchange rates, although such fluctuations have a muted effect on net income since the functional currency for the majority of them is the local currency. These operations also have net assets and liabilities not denominated in the functional currency, which exposes us to changes in foreign currency exchange rates that impact income. We recorded a foreign exchange loss in our income statement of $58 million in the first nine months of 2023, compared to a $14 million foreign exchange gain in the same period of the prior year. The gains and losses are primarily due to exchange rate fluctuations related to monetary asset balances denominated in currencies other than the functional currency and adjustments to our hedged positions as a result of changes in foreign currency exchange rates. Currency exchange rate fluctuations may create losses in future periods to the extent we maintain net monetary assets and liabilities not denominated in the functional currency of the NOV operation.

Some of our revenues in foreign countries are denominated in U.S. dollars, and therefore, changes in foreign currency exchange rates impact our earnings to the extent that costs associated with those U.S. dollar revenues are denominated in the local currency. Similarly, some of our revenues are denominated in foreign currencies, but have associated U.S. dollar costs, which also give rise to foreign currency exchange rate exposure. In order to mitigate that risk, we may utilize foreign currency forward contracts to better match the currency of our revenues and associated costs. We do not use foreign currency forward contracts for trading or speculative purposes.

The Company had other financial market risk sensitive instruments (cash balances, overdraft facilities, accounts receivable and accounts payable) denominated in foreign currencies with transactional exposures totaling $389 million and translation exposures totaling $345 million as of September 30, 2023. The Company estimates that a hypothetical 10 percent movement of all applicable foreign currency exchange rates on the transactional exposures could affect net income by $31 million and the translational exposures could affect Other Comprehensive Income by $34 million.

The counterparties to forward contracts are major financial institutions. The credit ratings and concentration of risk of these financial institutions are monitored on a continuing basis. Because these contracts are net-settled the Company’s credit risk with the counterparties is limited to the foreign currency rate differential at the end of the contract.

Interest Rate Risk

At September 30, 2023, borrowings consisted of $1,090 million in 3.95% Senior Notes and $495 million in 3.60% Senior Notes. At September 30, 2023, there were no outstanding letters of credit issued under the credit facility, resulting in $2.0 billion of funds available under this credit facility. Additionally, the Company’s joint venture has a $150 million bank line of credit for the construction of a facility in Saudi Arabia. Interest under the bank line of credit is based upon SOFR plus 1.40%. Occasionally a portion of borrowings under our credit facility could be denominated in multiple currencies which could expose us to market risk with exchange rate movements. These instruments carry interest at a pre-agreed upon percentage point spread from either SOFR, NIBOR or CDOR, or at the U.S. prime rate. Under our credit facility, we may, at our option, fix the interest rate for certain borrowings based on a spread over SOFR, NIBOR or CDOR for one month to six months. Our objective is to maintain a portion of our debt in variable rate borrowings for the flexibility obtained regarding early repayment without penalties and lower overall cost as compared with fixed-rate borrowings.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures and is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report at a reasonable assurance level.

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As of the date of this filing, the Company and its operations continue to be subject to the risk factors previously disclosed in Part I, Item 1A "Risk Factors" in our 2022 Annual Report on Form 10-K for the fiscal year ended December 31, 2022.