National Oilwell Varco Inc. (NYSE: NOV) announced on Tuesday that its board of directors has authorized a share buyback program for up to $3 billion of outstanding common stock. The share repurchase program is expected to last for 36 months but may be increased, extended, suspended or discontinued without prior notice. What will stand out here is that this is nearly 10% of NOV’s market cap — yet shares were halted and then fell after the news.

24/7 Wall St. wanted to see if there may be something else driving shares after this news. There is a possibility that some investors are taking wording to heart from an S&P ratings upgrade in late 2013 that talked about use of capital being a potential reason for a future downgrade. Still, that was canned language seen in many such calls.

National Oilwell Varco saw its shares drop today following the announcement of the $3 billion buyback as low as $75.23 in the hour following the announcement. Shares were last seen trading down 2.4% at $76.20 versus the previous close of $78.10. NOV has a consensus price target of $91.15 and a 52-week trading range of $65.53 to $86.55. It has a market cap of $33 billion.

Share repurchases may take place in a number of ways including: in the open market at prevailing market prices, in privately negotiated transactions, or by other company approved means. The timing and actual number of shares involved in the buyback will be dependent on market conditions and regulatory considerations.

Chairman, President and CEO of National Oilwell Varco, Clay Williams, had this to say on the repurchase program:

This authorization comes after several months of careful consideration and reflects the Company’s strong financial condition, and the confidence that we have in our future business outlook. We are pleased that the continued execution of a solid business model has resulted in strong operating cash flow that enables us to continue to invest in strategic growth opportunities, while simultaneously returning capital to shareholders through both a healthy dividend and a share repurchase program.

There is one question here that 24/7 Wall St. would like to ask. NOV shares are now down $10 from a 52-week high (and an all-time high on the stock chart). If the stock sold off on the news of roughly 9% of its shares potentially being bought back, how much more were investors really hoping for in the buyback and plan to return capital to shareholders? The stock has a 2.2% dividend yield.

Some of this drop may simply be tied to continued pressure on prices in the oil patch. We will have to see if this is enough of a buyback to make the credit ratings agencies get a little cautious. Still, a drop on news like this may seem like a head-scratcher on the surface.

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