Is Weatherford International’s Net Debt a Concern after 2Q17?
Weatherford International’s net debt
Weatherford International’s (WFT) total debt rose ~6.0% in 2Q17 over 2Q16. Cash and marketable securities rose 29.0% during the same period. In effect, net debt rose 5.0% in the past year through 2Q17.
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Weatherford International’s indebtedness
Weatherford International’s (WFT) net debt to adjusted TTM (trailing 12-month) EBITDA (earnings before interest, tax, depreciation, and amortization) rose in 2Q17 compared to 2Q16. Although WFT’s adjusted EBITDA rose in 2Q17, it could not offset its total rise in debt, and in effect, WFT’s indebtedness (or net debt-to-EBITDA ratio) rose in 2Q17. Net debt-to-adjusted EBITDA reflects a company’s ability to repay its debts from its operational earnings and available cash.
WFT makes up 3.4% of the SPDR S&P Oil & Gas Equipment & Services ETF (XES). XES fell 19.0% in the past year compared to a 36.0% fall in Weatherford stock.
Indebtedness for WFT’s peers
Weatherford International’s smaller market-cap peer Nabors Industries’ (NBR) indebtedness in 2Q17 was 4.7x compared to WFT’s 21.4x. Superior Energy Services’ (SPN) indebtedness of 1.5x in 2Q17 was much lower than WFT’s. Halliburton’s (HAL) indebtedness was also lower at 4.1x in 2Q17.
WFT’s credit rating
On June 30, 2017, credit rating agencies Standard & Poor’s and Moody’s Investors Services continued to assign ratings for WFT’s short-term debt and unsecured debt with a negative outlook. That could be a concern for WFT’s credit profile.
What could affect WFT’s cash balance in 2017?
Weatherford is expected to receive $535.0 million upon the closing of the joint venture (or JV) with Schlumberger (SLB). The JV is known as OneStim. You can read more about the JV in Market Realist’s Inside Weatherford’s JV with Schlumberger. The JV is set to become operational in the second half of 2017.
On September 27, 2016, the SEC (U.S. Securities and Exchange Commission) resolved an investigation into WFT’s income tax–related accounting issues. In addition to a penalty, Weatherford International is also required to pay $30.0 million in September 2017 as a final payment in the matter. Read Market Realist’s Paying the Price: SEC Finished Investigating Weatherford to know more about the issue.
Next, we’ll look at Weatherford International’s free cash flow.