Good day, ladies and gentlemen, welcome to the National Oilwell Varco second quarter 2020 earnings conference call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would like to introduce your host for today's conference, Mr. Blake McCarthy, Vice President of Corporate Development and Investor Relations. Sir, you may begin.
Welcome, everyone, to National Oilwell Varco's second quarter 2020 earnings conference call. With me today are Clay Williams, our Chairman, President, and CEO, and Jose Bayardo, our Senior Vice President and CFO. Before we begin, I would like to remind you that some of today's comments are forward-looking statements within the meaning of the federal securities laws. They involve risks and uncertainty, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For more detailed discussion of the major risk factors affecting our business, please refer to our latest Forms 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website.
On a US GAAP basis for the second quarter of 2020, NOV reported revenues of $1.5 billion and a net loss of $93 million. Our use of the term EBITDA throughout this morning's call corresponds with the term adjusted EBITDA as defined in our earnings release. Later in the call, we will host a question and answer session. Please limit yourself to one question and one follow-up to permit more participation. Let me turn the call over to Clay.
Thank you, Blake. The second quarter of 2020 brought the full weight of the COVID-19 pandemic shutdown on the global economy, driving oil contracts to negative prices and the U.S. rig count to levels never measured before, perhaps the lowest dating back to the 19th century. NOV's consolidated revenue declined 21% sequentially, EBITDA fell to $84 million, or 5.6% of sales, as everybody in the oilfield hunkered down, cut costs, and prayed that this storm would pass. In the past, we stressed that the ability to resize quickly and aggressively is an essential skill in our cyclical business. This is a core competency of NOV's line managers. In a few moments, Jose will detail for you our cost reduction progress and expectations for the remainder of the year. As bad as this quarter was, it certainly would have been far worse without their decisive, aggressive actions.
However, our customers were also pretty good at reducing costs and preserving cash. In addition to the operational headwinds brought about by COVID-19 facility closures, quarantine requirements, and travel bans, we also faced the rapid deceleration of business in many areas as customers halted all but the most necessary purchases. In North American land in particular, the violent reaction felt almost involuntary, like a reflex. While a couple of our non-oilfield businesses showed growth in the second quarter, nobody in the oilfield was immune to this unprecedented collapse in the industry, as evidenced by all three of our segments reporting sequential EBITDA declines. Even to those that have been through many downturns, the pace at which operators curtailed rig completion and even production activity during the second quarter was breathtaking.
The average U.S. land rig count fell 50% sequentially in the second quarter, and the decline in U.S. completion activity was even more severe. Well completions were down more than 70% quarter-on-quarter. The oilfield in North America reached a whole new level of pain. On a consolidated basis, our North American revenues fell 35% sequentially, and mix declined to 28% from 35% during the previous quarter. Our Wellbore Technologies segment's revenues declined by 49% sequentially in North America, accounting for nearly half of NOV's overall consolidated sequential decline of $387 million. Wellbore's products and services tied to drilling, downhole tools, bits, solids control services, and tubular inspection were hit hard and hit immediately, falling 40%-60% across North America as compared to the 57% decline in the average Baker Hughes rig count from Q1 to Q2.
Pricing pressure ramped quickly as well, up to 15% in certain products. Desperate competitors grasping for liquidity are discounting far more, trying to hang on for one more payroll cycle. Fortunately, pricing is holding up much better in most international markets, even though they too are experiencing steep declines in activity. Many of NOV's competitors won't quite make it to the next payroll cycle, and bankruptcies and liquidations are accelerating. For NOV, the silver lining of this is that our customers are shifting work to NOV because they know we will make it through this downturn and we'll be there for the long haul. We are seeing meaningful market share gains across many key product lines, albeit in much smaller markets.
Remarkably, the flood of oilfield assets into the market at distressed pricing is leading to startup companies recording equipment and consumables to a handful of fearless entrepreneurs seeking to augment fleets that they purchased at pennies on the dollar. We're rooting for each and every one of them. In past downturns, our Tuboscope business would typically see its tubing and sucker rod lines hold up better than drilling activity, as these are more closely tied to workover and production activities, and operators get quick paybacks and high rates of return on workovers. However, with millions of barrels shut in across the U.S., we saw workover and production-related activity fall just as hard as the decline in drilling activity. The total number of joints and rods inspected in North America fell 51% sequentially, and OCTG inventories exceed 12 months as compared to 5-6 months in normal times.
This has led to the shutdown of many domestic pipe mills for whom we work. There's essentially no demand for drill pipe, rig spares, or coiled tubing strings in North America land, as contractors are cannibalizing stacked assets aggressively, including pulling reels off idled coiled tubing units. Additionally, coiled tubing strings are being run well past established fatigue life limits before they are being replaced, a trend that is further eroding demand. Eventually, this will lead to service failures, potentially lost wells, and heartbreak, but I guess desperate times call for desperate measures. We are hearing that leading-edge day rates for land drillers have fallen to the $15,000 to $18,000 per day range, down from the low to mid-20s.
This new materially lower level is likely only marginally above cash cost to run a drilling rig for all but the most efficient drilling contractors and may in fact be cash flow negative when fully burdened for maintenance CapEx and direct rig support overhead in areas like safety, logistics, insurance, and sales support. The good news is that we are also hearing from many unconventional operators that they plan to add a rig or two in the second half and will likely try to lock in these bargain day rates. Additionally, NOV is being asked to bid one-year term pricing in certain WellSite Services. Historically, a good leading indicator that some customers are planning on increasing drilling activity.
While we may see a modest uptick in activity later this year, we intend to stay our charted course of continuing to resize to the new market, having heard mythical stories of green shoots at the bottom of prior down cycles. Hope springs eternal, and sometimes in the oil field, hope gets a little exaggerated. Within Completion & Production Solutions segment, our fiberglass and composite pipe business saw a similar sharp decline in North American demand as oil and gas orders simply stopped. While international demand fared better, COVID-19 shutdowns prevented us from securing vessels to ship pipe overseas from our domestic plants. A couple of our primary international plants, Saudi Arabia and Malaysia, were shut completely due to government mandates.
While our team heroically pivoted supply out of Malaysia to China for our growing scrubber business, we found scrubber demand softening as shipyards slowed and ship owners found conversions less economically necessary, at least for now, due to the tightening spread between diesel and bunker fuel prices. Offsetting some of the North American oil and gas pressures was a very robust fuel handling market, where we are actually getting price increases. Not surprisingly, demand for chokes, valves, completion tools, and pumps from North America also slowed very sharply. Although there are virtually no orders being placed domestically for pressure pumping equipment, we are hearing from customers that dual-fuel capabilities and other ESG-friendly offerings will be required by some customers on all future work. The offshore drilling space is experiencing a similar trend, which is driving more interest in our PowerBlade and other ESG-friendly solutions from NOV.
More broadly, customers, specifically majors, are mandating certain upgrades and capabilities as a requirement of new contracts. Even though the service sector has scant capital to invest in its service fleet, their customers, the oil companies, are requiring new and better kit because, well, they can. They have the negotiating leverage, they use it in times like these to get what they really want. We've seen this in the past, oil companies demanding and getting better capabilities and features in the equipment they hire. Don't be surprised to see this pressure grow and drive future orders for NOV. I believe that downturns sometimes force the service industry to up its game. The Varco Top Drive product is a great example.
It became a required feature if you wanted your rig to be competitive in tenders in the late '80s and '90s, at a time when rig margins were under similar pressure as today. This pressure by oil companies transformed the fleet and drilling techniques, consequently, safety and efficiency. Despite the additional investment, this can be a good thing for oil field service companies that can pass this test. Build, buy, or rent, but somehow secure the necessary capability, win the contract, and emerge into a world where a few survivors with better kit will make up a more consolidated oligopoly with better long-term returns on capital. Latin America is a mess. Widespread COVID-19 shutdowns and our consolidated revenues there fell 29% sequentially. Excluding Latin America, the international markets have held up better than North America, declining only about 8% sequentially overall.
Nevertheless, at 750, the international rig count is the lowest since 2003. Markets remain challenging literally everywhere. In the Middle East, mandated facility shutdowns are easing. Closed borders and logistical headaches remain. Our Rig Technologies segment's aftermarket business was hit hard by COVID-19 restrictions, falling 26% at high decremental margins. In an effort to reduce COVID risks, offshore drilling contractors dramatically cut back any personnel going to or from their rigs that weren't drilling-related, or more bluntly, revenue generating. Inspection, certification, upgrade, and even repair and maintenance activities were deferred and curtailed as a result. Spare parts orders fell 42% sequentially, hitting land more than offshore. Certain shipyards were also affected by COVID-19, further weakening our aftermarket business. On the cost side, requirements to quarantine two weeks before a job as well as two weeks after a job certainly didn't help our decremental margins.
Needless to say, against such a disrupted backdrop that also included oil company contract cancellations, not many offshore drillers felt like buying much. Inquiries for offshore wind installations remained a notable exception for Rig Technologies. While orders in this area were low during the second quarter, it is clear that incumbent participants and new entrants alike are determined to move forward on vessels to support growing demand for offshore wind turbines in Asia and in the U.S. Back to oil and gas, though, many IOCs and NOCs are delaying projects. We believe that most are determined to eventually move forward with these. There's no doubt that FIDs will decline materially in 2020. Many customers are communicating their plans to move forward in 2021 or 2022, perhaps hopeful they can squeeze more costs out of their supply chains in the meantime.
The pipeline of projects we are monitoring for our wellstream processing business has actually grown year to date, underpinned by offshore gas, Brazil development, and LNG projects that need our proprietary monoethylene glycol processing technologies. With 35 years in oil and gas, I can't recall a more challenging time. The near-term logistical challenges of COVID-19 shutdowns, the collapse in oil demand and oil prices, the bankruptcies of so many good companies, the loss of jobs by so many wonderful, hardworking people and friends, the tragedy of the many who have lost loved ones to this terrible virus. 2020 is a crucible for all of us, a year that is testing what we're made of. It's a year that will remake us and a year that is remaking NOV.
Despite all these remarkable challenges, our NOV organization continues to improve efficiencies and business processes because our leaders are focused on what they can control and resisting distraction from issues they cannot. They continue to support the operations of our customers who are facing similar challenges. I can honestly say that I've never been prouder of this organization and the people that I have the honor of working with. In every corner of NOV, the organization remains focused on cost reductions and cash flow. We're adjusting our portfolio of businesses, improving our returns by exiting or divesting certain product lines. We're improving our capital deployment processes. We're expanding our higher growth areas like Saudi Arabia. Despite operational pressures and disruptions, we're also continuing to invest in technology and new products. As we pass through this crucible, this organization gets better every day.
When the phone starts ringing again, NOV will be the best company it has ever been. One day, the global economy will come out of this downturn and realize just how much it needs oil and gas. When that happy day comes, NOV will be there to supply the industry that makes the world go with even better technology delivered by the best professionals in the world. To our employees that are listening, thank you for your perseverance during these difficult times. Your attention to detail, creativity, and willingness to go the extra mile during this crisis amazes me every day. Jose, Blake, and I appreciate all that you do. Stay safe and know that better days lay ahead. With that, I'll turn it over to Jose.
Thank you, Clay. NOV's consolidated revenue decreased $387 million or 21% sequentially as the global slowdown in oil and gas activity precipitated by the COVID-19 pandemic impacted all three of our operating segments. Despite the sequential fall in revenue, an intense focus on cost reductions and strong execution on existing backlog limited decremental margins to 24%, resulting in a $94 million decrease in EBITDA to $84 million. In early 2019, we began an extensive effort to better align our cost structure with anticipated market realities. When we saw early indications that the COVID-19 pandemic would drive economic shutdowns and an associated collapse in oil field activity, we materially expanded the scope and accelerated the implementation of our cost out initiatives. During the second quarter, we achieved an additional $320 million in annualized savings, bringing the total achieved to date to $570 million.
Despite nascent indications that North American drilling and completions activity could increase later this year, we do not anticipate that any near-term improvements would be large enough to move the needle associated with a massive current supply-demand imbalance for oilfield service tools and equipment. We continue to manage the organization with a lower-for-longer mentality. In doing so, we challenge every aspect of our organization to deliver ways in which we can drive further efficiencies and achieve acceptable levels of profitability and returns on capital, regardless of how difficult the environment. Yes, our actions involve implementing the traditional oilfield services downsizing playbook, a requirement to simply survive in this industry. We are also pushing well above and beyond that game plan to drive every area of the company to execute faster, cheaper, and better than ever.
As Clay suggested, our customers, employees, and other stakeholders know that NOV is in this business for the long haul, and we intend to emerge from this downturn stronger and more efficient. We are thoughtfully streamlining our operations, exiting product lines and geographical markets that don't meet our return thresholds, driving more shared services, and investing in automation. All of which drive toward our ultimate objective, which is to provide better technology, tools, and equipment for our customers from a smaller and leaner footprint, a more nimble and responsive supply chain, and a business that requires lower levels of working capital. We are not cutting into the bone of our engineering and R&D capabilities. Instead, we are leveraging those talents to drive improvements in our product designs, not just so they operate more efficiently for our customers in the field, but also so they are less costly to manufacture.
Our approach is iterative and relentless. We are always looking to improve. This mentality drove us to identify another $75 million in annualized cost savings opportunities during the second quarter, increasing our year-end target to $700 million. During our last call, we provided a percentage breakouts of savings from direct labor, indirect labor, facilities, and other areas. Since then, we've received a few follow-up questions from individuals trying to better understand the composition of cost savings and understand future implications. The simplest way to put it is that our reported cost savings number is the amount of cost we have intentionally and actively removed from our organization. The cost savings number does not include expenses that automatically decrease when volumes fall, like raw material costs and normal changes in direct labor hours.
In other words, our stated savings are 100% structural changes that reduce expense above and beyond what is naturally embedded within normal decremental margins. If you look at the change in our cost of goods sold and SG&A, excluding depreciation and amortization, since we began our cost savings efforts in early 2019, you can see that these expenses have decreased by more than $2 billion on an annualized basis, of which $570 million came from structural changes to our operations. This is the number that we will continue to update through year-end. Moving on to cash flow. Cash flow from operations was $378 million for the quarter, and capital expenditures totaled $56 million, resulting in $322 million in free cash flow.
Working capital continues to be a source of cash and declined to $435 million, despite certain metrics that deteriorated due to customers fighting to preserve liquidity and an increasing proportion of our business coming from international markets, which typically have longer cash conversion cycles. In the second quarter of 2020, 72% of our revenue came from outside North America, which compares to 65% in Q1 and 59% in the second quarter of 2019. We expect to generate positive free cash flow during the second half of the year, despite the ongoing market challenges. At June 30th, our net debt totaled $582 million, with $1,447,000,000 in cash and $2 billion in senior notes, of which $400 million mature in December 2022. We expect to pay the $400 million with our cash on hand prior to the maturity date, which would then put our next maturity at December of 2029.
Moving to results from operations and outlook. Our Wellbore Technologies segment generated $442 million of revenue during the second quarter, a decrease of $249 million or 36% sequentially. Revenue from North America declined 49%, and international revenue fell 21%. Segment revenues declined less than overall drilling activity levels in every geographical region except for the Middle East, which was disproportionately affected by COVID-19 related facility closures. EBITDA declined $61 million sequentially to $42 million, representing 25% decremental margins, which would have been much higher were not for quick and decisive actions taken by our team within Wellbore Technologies. Our ReedHycalog drill bit business realized a 41% sequential decrease in revenue as a result of the collapse in drilling activity in the Western Hemisphere and due to government-mandated shutdowns in the Middle East, which impacted bit manufacturing throughout most of the quarter and prevented deliveries in Saudi.
Imploding demand is causing desperation and fierce competition, particularly within the U.S., where we are seeing certain competitors aggressively cut pricing. Our bit technologies have allowed us to steadily capture market share over the past several years, and that technology differentiation is now helping us avoid having to match detrimental pricing concessions, a testament to the business' engineering team and their R&D efforts. While Western Hemisphere activity will continue to weigh on this business' results, the resumption of manufacturing operations in the Middle East, the startup of recently awarded tenders in the Eastern Hemisphere, and the flow-through of facility consolidation efforts are expected to result in a small sequential improvement in this business' results in the third quarter. Our M/D Totco business unit saw a 30% sequential decline in revenue due to the dramatic reduction in activity levels.
Revenue from the unit's rig instrumentation offering declined 39%, was partially offset by continued growth from M/D Totco's digital drilling automation and optimization solutions, which continue to gain greater adoption. During the quarter, we began executing on two additional multi-year contracts in the North Sea for our eVolve optimization and automation services utilizing our Wired Drill Pipe technology. We also commenced several additional jobs using our KAIZEN surface drilling optimization software that uses artificial intelligence with continuous learning capabilities to optimize drilling performance. The business also recently commercialized its Data While Tripping tool, which enabled the first-ever formation pressure test using high-speed real-time connection tool while the pipe was tripping. M/D Totco has a deep pipeline of digital solutions under development that we're excited to tell you more about later this year.
Our Grant Prideco drill pipe business experienced a low double-digit revenue decline as the operation continued to execute on existing backlog. Outside of booking an order for a three-million-pound landing string, which will be the largest ever built, new order flow fell sharply. Q2 quoting activity was 73% lower than in Q1. Demand from the North American land market is near zero, where we expect it to remain so long as there is ample pipe available from stacked rigs to cannibalize. We're still pursuing multiple large international tenders, but we expect many projects to push to the right and are therefore proactively preparing for volumes to drop significantly over the next few quarters. Our Tuboscope business experienced a revenue decline of approximately 30% as its pipe coating and inspection operations were negatively impacted by falling drilling activity and sharply reduced demand from steel mills.
Results in our Tuboscope operation are typically less volatile than other businesses within Wellbore Technologies due to a slightly heavier weighting to work over and production activities. However, negative oil prices and shut-in wells didn't allow any of our operations to find shelter during the second quarter. Our WellSite Services business unit saw revenue decline approximately 50% sequentially, driven by the full quarter impact of our exit from the North American fluids business, the sharp decline in North American drilling activity, and COVID-19-related shutdowns in Latin America and West Africa. While demand for solids control services will remain challenged near term, we are seeing competitors exiting the business and customers coming back to NOV because they know we will be there for them over the long haul.
Revenues in our downhole drilling business unit fell 41% sequentially, resulting from the rapid decline in U.S. drilling activity and COVID-19 lockdowns in Latin America and the Middle East. While we do not expect activity levels to improve in the second half, customers are focusing on maximizing cash flow through any means possible, and we expect our leading-edge downhole technologies that improve efficiencies and lower costs to garner additional share. For the third quarter, we expect the benefit of fewer COVID-19-related disruptions to be more than offset by meaningfully lower average drilling activity levels. As a result, we expect revenues for our Wellbore Technologies segment to fall another 15%-20%, with decremental margins in the mid-20%-30% range. Our Completion & Production Solutions segment generated $611 million in revenue in the second quarter, a decrease of $64 million or 9% sequentially.
Effects from the rapid deterioration in market conditions were mostly offset by strong execution on project backlogs built throughout 2019. Proactive measures to drive efficiencies and contract the footprint of our operations limited decremental margins to 5%. As a result, EBITDA declined only $3 million to $68 million or 11.1% of sales. The economic contraction caused by the COVID-19 pandemic pushed many project awards to the right. Orders for the segment fell 42% to $196 million, resulting in a book-to-bill of 51%. Backlog at quarter end was $1 billion, down 16% from the first quarter. Most customers are telling us that they're not canceling projects, but rather postponing awards until the massive disruptions and uncertainty from the pandemic abate. While we take some comfort in this, we do not expect a near-term resolution of these issues and are planning for continued order weakness through at least the end of 2020.
Our Subsea Flexible Pipe and XL Systems businesses each realized low 20% sequential increases in revenue due to strong execution on what were viewed as healthy backlogs coming into the year. Unfortunately, bookings were light in the second quarter, with Subsea only achieving a 76% book-to-bill and XL Systems realizing its lowest order intake on record. While backlogs are sufficient to support volumes near current activity levels through Q3, we expect bookings to begin improving as more customers return to their offices, without a sizable improvement in near-term orders, we expect our revenues to decline slightly in Q3 and see potential for a more pronounced decline in the fourth quarter. Revenues in our Process and Flow Technologies business unit declined 6% sequentially.
Strong execution on backlogs within the unit's offshore and industrial-related businesses was more than offset by a 33% revenue decline in its production and midstream operations, which saw a sharp decline in demand from North America and COVID-19-related disruptions, which limited the ability to deliver products and complete final customer acceptance testing for deliveries in the Middle East, Latin America, and Africa. Our Fiber Glass Systems business unit realized a 21% decline in revenue due to significant disruptions caused by the COVID-19 pandemic. Multiple international manufacturing locations, including our new plant in Saudi Arabia, were shut down for several weeks and product shipping overseas from our U.S. operations encountered extended delays. Our Intervention and Stimulation Equipment business realized a 21% sequential decline in revenue as demand for coiled tubing and other consumables took a sharp step down and a number of international deliveries slipped into the third quarter.
Strong execution of focused cost savings and efficiency improvement initiatives by our ISE team helped to mitigate margin erosion. For the third quarter of 2020, we anticipate revenue from our Completion & Production Solutions segment will decline 2%-5%, with EBITDA margins decreasing between 200 to 400 basis points. Our Rig Technologies segment generated revenues of $476 million in the second quarter, a decrease of $81 million or 15% sequentially. EBITDA fell to $14 million or 2.9% of sales, representing 52% decremental leverage. Second quarter results reflect a small sequential increase in revenue from capital equipment sales with a less favorable mix and a 26% sequential decline in the segment's aftermarket business.
The sharp drop in global rig counts caused many of our rig contractor customers, which were already under financial duress, to immediately cut spending on everything that would not result in a material disruption to active drilling operations. The large sequential decline in aftermarket, coupled with operational challenges brought about by COVID-19, were the primary reasons for the unusually high decremental margins for this segment. Last quarter, we mentioned that bookings for spare parts fell sharply in March. Unfortunately, we saw no improvement during the second quarter, which resulted in a 31% sequential decrease in revenue from spare part sales and a 42% decline in spare part bookings. Aftermarket services were also inordinately hard hit by the COVID-19 pandemic, not only due to intentionally deferred surveys, maintenance, and other non-essential spending, but also due to the logistical headaches caused by COVID-19.
Closed borders, mandatory quarantines for crews coming on or off rigs, and delayed projects were part of a perfect storm that caused havoc for the operations work schedule during the quarter. The only good news is that we believe current spending levels on aftermarket parts and services are not sufficient to sustain even the currently depressed levels of activity and must rebound in the future. Additionally, while lockdowns and mandatory quarantines remain an issue, more countries are attempting to reopen their economies. The segment realized a 49% sequential decline in capital equipment bookings, resulting in $74 million of orders and a book-to-bill of 34%. The segment ended the second quarter with approximately $2.8 billion of backlog. The outlook for our traditional capital equipment business remains challenged near term as drilling activity remains depressed and our drilling contractor customers do all they can to preserve cash while they fight for survival.
We continue to see relative strength in the offshore wind market, where we believe that up to 12 heavy wind installation vessels will be ordered by the industry over the next few years. The prominent industry trend of improving offshore wind economics by using larger turbines, which use much longer blades, requires installation vessels that are substantially bigger than those built for the prior generation of wind turbine technologies. Each new installation vessel represents a revenue opportunity to NOV that is roughly equivalent to a high-spec jack-up rig. We believe we are well-positioned in this market and expect to win our fair share of the coming awards. For the third quarter, we expect aftermarket sales to remain in line with the second quarter and lower revenues from capital equipment projects, resulting in a 4%-6% decline in revenue for our Rig Technologies segment.
We also anticipate that ongoing cost rationalization efforts, a slightly improved product mix, and fewer COVID-19 related extraordinary costs to result in EBITDA margins that are flat to up 300 basis points relative to the second quarter levels. With that, we will now open the call up to questions.
Ladies and gentlemen, to ask a question, you need to press star, then one on your touchtone telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Bill Herbert of Simmons Energy. Your line is open.
Thanks. Good morning. Jose, your guidance for CPS Q3 looks like the decrementals are very steep, if my math is correct. What would be the reason for that? Is that mix or what?
Yeah. It's really relatively small movement at the revenue level and a shift in mix that's causing that change.
Okay. Got it. Clay, I'm going to ask you a macro question, which I know you love, but here's the question here. It's actually not so macro, but cycle on cycle. I guess the question simply is how do you feel about incrementals coming out of this morass once indeed the world does wake up to the fact that we need oil and gas again? The context is that all of your peers who have reported thus far are extolling stronger incrementals due to cost out, relative to what was witnessed in the prior cycle. The refrain coming out of the morass in mid-2016 was exactly the same. There's gonna be a vigorous uplift. We've taken so much cost out of the system, incrementals are gonna surprise to the upside. In fact, what happened was just the opposite, right?
Margin expansion over the expansionary phase of the cycle fell well short of expectations. I'm just curious as to what your perspective is once that date arrives and how margins are expected to unfold.
Good. Thanks for the question, Bill Herbert. I'd say the uplift and kind of the nascent recovery that we saw in 2017 and then through at least the first half of 2018, in less consolidated portions of oilfield services, what participants didn't get was pricing leverage. Although a lot of costs were taken out in 2015, 2016, I would submit, you didn't see many sectors getting the sorts of pricing gains that we would've gotten coming out of prior down cycles. If you go back to prior down cycles where now you're going into a recovery and you're pulling out, things are getting better after a period of significant rationalization, with that pricing leverage, typically the sector has outperformed on incremental results.
If you kind of step through that scenario, here we are in really kind of year six of cost reductions with a lot of pressures on our organization to shrink and, as a result, culturally, NOV and our peers in oilfield services have gotten really focused on costs and close management of costs and expenses and so forth. When demand starts to come back, which it always does in oilfield services, your initial reaction is to try to meet the demand without adding headcount, without adding a lot of resources and capital. We all use price, frankly, to manage that level of demand.
You typically enter into a period where quarter by quarter, you outperform on incrementals, where you're getting really good operating leverage because you have taken a lot of cost out of the system, plus the extra sort of jet fuel of pricing leverage. That's the kind of recovery that we're looking forward to. For what it's worth, given the current situation with the big supply-demand imbalance with what's underway, the world may be setting itself up for an even bigger sort of shock. All of these cost reductions that we're all talking about really is a rationalization of capacity of the machine that constructs wellbores. We're shrinking that dramatically in the face of a pretty extraordinary financial pressure. We're doing that at a time when demand is kind of artificially depressed.
We can debate what it's gonna bounce back to, but it is gonna bounce back. People will start flying again and commuting again. Maybe not to the degree that we were in 2019, but certainly at higher levels than we're doing today. Demand's gonna go up. Certainly, supply's gonna go down, right? You've had this evaporation, massive evaporation of CapEx by E&P companies in new wells. You've got probably a higher level of depletion given the mix of shale oil in the global mix of supply than you've had historically. Then the third big factor is you've got a lot of oil in inventory. I've heard estimates, 1 billion barrels or more, which will take some time to flow out. It doesn't start to flow out until demand exceeds supply. The inventory may mask that imbalance for quite a while.
As that time progresses, that gets worse, right? We may wake up one day and find out that we've really dismantled the machine that produces the new oil and gas wells that keep the globe supplied in oil and gas, and may be headed towards a big commodity price shock. When I think that day comes, this industry will be called upon to ramp back up, and you're going to have some very tough, seasoned managers running these oil field service businesses. They're going to be loathe to add costs, and I think they're going to use price very aggressively to manage incoming demand.
Thank you, sir.
Thank you, Bill.
Our next question comes from Tommy Moll of Stephens. Your line is open.
Good morning, thanks for taking my questions.
Morning, Tommy.
I wanted to start on the cost-cut theme and really more on the process, whether that's internal with the board or potentially with third parties. Can you just lay out for us what inning we're in there in terms of what you have in front of you to review? I'm just trying to get a sense of how much work is yet to be done, when we may hear from you on another target that could potentially be higher than the one that you just raised again today. On a related point, as you've gone through the process thus far, have you come across any areas where you were under-investing, or you realized you had more commercial opportunities than anticipated, and you've actually gone the other direction?
Great question, Tommy. I would say, I think we've raised our cost estimate with this program every quarter since we started this process in early 2019, including the second quarter that we just announced last night. The process really involves our operations teams making iterative passes through how they accomplish their work and looking at how to accomplish that work most efficiently. That answer sort of changes as the outlook for demand changes. Also, as we are willing to undertake more structural changes in how we do business. For instance, I think Jose, in his prepared remarks, talked about shared services, for instance, which is a little heavier lift. So as we've kind of moved through this process for the past few quarters, that's what we've done.
The cost savings, it's a very detailed list of actions that they're undertaking, ranging from new sources of materials that we use in our business to closing facilities to workforce rationalization and those sorts of things. In the most recent quarter, we upped our estimate by $75 million. We're now targeting $700 million by year-end. A lot of the reason for that has to do with our low order rates that we saw in both Rig Technologies and Completion & Production Solutions. Those two groups said, "Hey, given the outlook around orders, let's go back and see what else we can do." That's the kind of thing that we do, but it's monitored very closely. It's both bottoms up, so it's these individual steps that we track as well as sort of a top-down.
We look for evidence of progress in our ledgers and make sure that this is all hanging together and we're accomplishing the cost savings that we're sharing with you quarter by quarter. We expect that we will continue to move through this current program through year-end. We do have some things that we'll undertake in 2021, but we'll wait till we get to 2021 to start talking to you about those. To set expectations on that, certainly not nearly of the magnitude of the $700 million that we expect to accomplish by year-end. With respect to the second part of your question, I think we are appropriately funding and resourcing the opportunities and initiatives that we see across our businesses and have been thoughtful about where it's appropriate to cut and where we should not.
For instance, despite the broad cost-cutting that's been underway across NOV, certain areas in new product development we've actually increased our funding for and our resources for. There'll be some digital products and some areas in automation that we'll be talking to you more about in future quarters that are coming out of that. It's sort of a case-by-case basis that we look at these opportunities and try to make sure that we're being good stewards of shareholder resources and funding these appropriately and proportionate to their potential payback.
Thank you, Clay. That was very helpful. For a follow-up, I wanted to shift to a bigger picture theme here, the energy transition, so-called. It's certainly garnered a lot of attention lately, both in the boardrooms and with investors. As you've alluded in the past, though, that transition may take longer than is currently assumed by a lot of folks. I wonder if you might share what you think some folks may be missing here, and how are you positioning NOV for the way that you see the world's energy mix evolving?
Well, a great question. If you look at history, energy transitions are really all about infrastructure and capital and technology. History would point to transitions that take decades, many decades, arguably centuries. Mankind sort of transitioned from coal to oil from the 19th century to the 20th century, and the 20th century to the 21st century, we're going to transition to something else with a lower carbon footprint. We sort of get that. If you look around, 99 point something % of the world's automobiles are powered by gasoline or maybe diesel, but products that the oil and gas industry produces, and there's tens, if not hundreds of millions of vehicles around the globe. 100% of the aircraft around the world are powered by products from the oil and gas industry.
100% of construction equipment is powered by products from the oil and gas industry, the construction equipment that build our buildings and maintain our roads. 100% of tractors and combines are powered by products from the oil and gas industry. 100% of locomotives and tractor-trailer rigs that deliver Amazon packages and all the freight that we rely on, in addition to our food supply, are powered by this industry. If you step back and look at all those categories of equipment and ask yourself how many tens of trillions of dollars, with a T, is invested in that infrastructure, and that infrastructure doesn't move one inch without products from the oil and gas industry. This is not a transition that's going to go very quickly. It's going to go, but it's not going to happen quickly.
A few years ago, we stepped back and said, we can figure out how to help that and accelerate that. In a lot of ways, I think that could be the business plan of the 21st century, figuring out how to help mankind get to a lower carbon source of energy. We have a lot of skill sets, I think, that are applicable in this area around capital deployment and project execution and the build-out of infrastructure. A few years ago, we began intentionally supplementing our investment in these areas, in renewables, in the energy transition, and are pretty excited about the potential of these. We're really actually building on a pretty good base. In our prepared remarks, we talked a little bit about our participation in offshore wind installation vessels and technology, where NOV is a clear leader.
NOV is a clear leader in the geothermal space and have been for many years. We've got some new products that we're selling into opportunities there. Those are established businesses that are making good profits. In addition to these, we're investing in new opportunities and products in wind and solar and a few other areas. We really do view this as an opportunity, and an opportunity that NOV may well be uniquely positioned to take advantage of. Pretty excited about what the future holds here.
Very helpful. Thank you, Clay. I'll turn it back.
Thanks, Tommy.
Our next question comes from George O'Leary of TPH & Co.. Your line is open.
Morning, guys.
Hey, George.
George.
Thought that the color on the North American fluids market over the last couple of quarters was interesting. You mentioned you have some customers, one you're looking at deploying new business models and changing the way the kind of game is done, customers are looking to come back to suppliers that they can depend on. I just wondered if you could frame how that fluids business looks moving forward in more detail and compare and contrast maybe what you'll do on the North American side versus the international side to the degree that there's a major difference.
Hey, George. Jose, I'll chime in here. Yeah, there was a lot of commentary related to our WellSite Services segment in our prepared remarks. There has been over the last couple of quarters as really a great example of the work that Blake and his team are doing related to helping our businesses make really thoughtful and informed decisions about where it makes sense for the company to deploy and keep capital. As part of that review process, one of the things that jumped out to us is that our U.S. fluids business, while always profitable, was very working capital intensive. As we sort of looked at our opportunity with our scale in that business as being one that we saw few competitive advantages that we could bring to the table within the North American marketplace.
I think we mentioned last quarter that we were exiting that business. We completed the exit of that business during the second quarter of this year and therefore had an outsized impact on the revenue decline within that business. The other element that we talked about was the solids control element of our WellSite Services business, in which we're sort of a clear market leader in that respective area. If you look at sort of through the cycle returns for that business, it's been very good. Obviously, with a major contraction in the rig count within North America, you see a pretty quick fall off of that business.
While things don't look fantastic spot point in time, what we are seeing, again, is through the cycle, good opportunities for us, particularly as we're seeing more and more of the smaller competitors exit the space and create additional opportunities for us just by their exit, but also just due to the fact that customers are better recognizing the importance of long-term viability, commitment, and really quality of delivery within the market. Those are some of the things that we're really trying to highlight in those prepared comments.
Yeah. In addition to solids control where we can measure market share, and we've clearly gained share, areas like bits, coiled tubing, other areas we're seeing market share tick up. As Jose said, on a smaller market, but we're clearly gaining share, and we're hearing from our customers that they're more comfortable with a supplier that has staying power.
Helpful framing. Thank you, Jose and Clay. I apologize if I missed it, but I didn't hear anything with respect to the 2020 CapEx budget. That may just mean that it's unchanged. It seems like looking at the first half of the year, there's a shot that you guys underspend that $250 million watermark. Is that possible, or am I reaching a bit?
Yeah. The $250 million number is still our budget for 2020. The spending came down a little bit in the second quarter, in part due to some of the challenges that we had in terms of advancing construction of our facility in Saudi. We do anticipate that the rate of spend will pick up a little bit into the third quarter, we're holding firm on our target. As we've talked about in the past, once that plant is behind us, we anticipate getting back to our prior levels of about 3% revenue run rate for CapEx spend, if not a little bit lower than that, depending on the market environment next year.
Very helpful. Thank you for the color.
Sure thing.
Thanks, George.
Our next question comes from Chase Mulvehill of Bank of America. Your line is open.
Hey, good morning.
Hi, Chase. How are you?
Hey, good morning. I guess I wanted to talk a little bit about fourth quarter. You touched on it slightly, and I just want to make sure that I'm kind of reading the tea leaves right. Commentary seemed to suggest that 4Q could be down versus 3Q. I don't know if maybe you can confirm that. Was that kind of more of a revenue commentary or an EBITDA commentary? Then maybe just touch on the free cash flow a little bit. You talked about it being positive, but if it's going to be down a little bit, how should we think about free cash flow and kind of some of the moving pieces between working capital and cash taxes?
Yeah, Chase, it's Jose. I'll try and take that. The commentary that I was providing, I think it was really related to our Completion of Production services segment and a couple specific business units there, where our bookings have been relatively light over the last couple of quarters. Really, what I'm trying to put out there is that there's still a tremendous amount of uncertainty over the next couple of quarters. Right? You sort of look at the massive amount of disruption that took place at the end of Q1 and then into Q2, where effectively our customers weren't even able to sort of come into their offices. We think that had a big impact in terms of the timing of order flow. We mentioned that most of our customers are telling us that orders are not being canceled. They're being pushed.
Some of them are being pushed more significantly than others. We think there are a number of orders that we expected to obtain in Q2 that are likely Q3 type events. Really just trying to say that if that does not materialize, if there is further disruption and further issues associated with order intake, the backlog starts looking pretty light in some of those businesses. You could see a harder step down in Q4 if orders do not materialize. I guess the second part of your question as it pertains to cash flow, again, significant amount of uncertainty in terms of how the rest of the year plays out. What we do anticipate is further harvesting of cash flow from our working capital even given that some of those working capital metrics would likely deteriorate a little bit further from here.
What I mean by that is you look at the DSO that could tick up a little bit higher as the revenue base continues to shift more towards international markets and customers face a little bit more stress and strain. Again, longer cycle business also has longer turns cycles related to inventory, so expect that to get a little bit worse. As we look at other components of working capital, for us, you look at contract assets and contract liabilities the anticipated movements in those give us confidence that we should still see some reasonably healthy cash flow in the second half of the year.
Okay. All right. That makes sense. One quick follow-up kind of maybe coming back to Bill's question at the beginning. Obviously you have done a lot of rationalization of costs across the organization, what levels of revenue do you think you have actually right-sized your business towards as we think about the recovery and maybe hitting the high end of those incrementals as you do not have to bring back any kind of fixed cost?
Well, we are continuing to adjust to a market that is obviously facing right now pretty historical challenges and working hard to maintain positive EBITDA and cash flow as best we can through that. What I would tell you is that we are doing that and taking out certain facilities and plants because we have a great deal of confidence in the ability of our leadership when called upon to rebuild that and to respond to higher levels of demand. I think we have got a great track record with respect to doing that. Frankly, that is really kind of a necessary skill set in oilfield services. The way to survive these downturns and really prosper in the upturns Really is to move aggressively on costs when called upon, when demand comes back, to move aggressively to expand to rising demand in a way that is smart and cost-effective and so forth.
Hard to put a number on that level of revenue. As I said earlier, our management team continues to iterate kind of quarter by quarter with respect to outlook for their businesses, not just 90 days out, but over the next few quarters, as best as anyone can tell, and adjust their businesses to stay healthy as best they can through that.
Okay. All righty. I'll turn it back over. Thanks, Clay.
Thanks, Chase.
Our next question comes from Sean Meakim of J.P. Morgan. Your line is open.
Thank you. Hey, good morning.
Morning, Sean.
Just a couple points of clarification. You noted $320 million of annualized benefit from the cost down in second quarter, $570 million to date, another $75 million identified, $700 million targeted now by year-end. Can you maybe just give us an estimate of how much of a cushion that gives you when you lap that full $700 million in 2021? In other words, how much of a year-on-year benefit do you get next year? Is that maybe $100 million, $150 million, something like that?
I think we'd have to work through the math.
Yeah. There certainly is a timing element to when the savings come in, and I think we've done a reasonable job of providing you the updates in terms of the amounts realized every quarter over the last several quarters. We can certainly go through that math, and maybe we can follow up with you post-call and do that offline, Sean.
Okay. Sure. Yeah, no problem. I guess another point of clarification, the guidance that you give for the third quarter is inclusive of the savings you expect to capture in the third quarter, correct?
That is correct.
Okay, great. Thanks very much.
Thanks, Sean.
Thank you.
That's all the time we have for questions. I'd like to turn the call back over to Clay for closing remarks.
Thank you, Michelle. First and foremost, I want to say again how much I appreciate the hard work that our employees are doing under some extraordinary challenges and conditions out there. Thank you, those of you who are listening. I'd ask everybody on the call to do what you can to stay safe, keep others around you safe. Lastly, we all look forward to speaking with you about our third quarter results in October. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day