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What’s Keeping Weatherford Down despite Margin Improvement?

PART:
1 2 3 4 5 6
Part 6
What’s Keeping Weatherford Down despite Margin Improvement? PART 6 OF 6

Why Weatherford’s Capex Plan Is Higher in the 2nd Half of 2017

Weatherford International’s operating cash flow

In this final part of the series, we’ll analyze how Weatherford International’s (WFT) operating cash flow (or OCF) and free cash flow (or FCF) have trended over the past few quarters. WFT’s OCF has been negative in six of the past seven quarters. WFT generated -$62.0 million of OCF in 2Q17. Despite lower revenues, positive changes in working capital led to an improvement in OCF in 2Q17 over a year ago.

Why Weatherford’s Capex Plan Is Higher in the 2nd Half of 2017

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Weatherford International’s free cash flow

WFT’s capex (capital expenditure) rose 53.0% in the past year through 2Q17. Higher capex, coupled with negative cash flow from operations, led to WFT’s FCF staying negative in 2Q17 at -$111.0 million. That was an improvement over -$221.0 million FCF in 1Q17. WFT’s FCF was negative in eight of the past 13 quarters through 2Q17. FCF is cash flow from operations less capital expenditure.

Free cash flow for WFT’s peers

By comparison, Superior Energy Services’ (SPN) FCF was $24.0 million in 2Q17. Halliburton’s (HAL) FCF was -$137.0 million in 2Q17, while Nabors Industries’ (NBR) FCF was -$101.0 million. WFT makes up 3.4% of the SPDR S&P Oil & Gas Equipment & Services ETF (XES). XES has fallen 19.0% in the past year compared to a 36.0% fall in WFT stock during the same period.

Weatherford’s capex plan

Weatherford plans to keep its capex budget for the second half of 2017 between $150.0 million and $170.0 million, which is nearly double what it spent in the first half of 2017. The company expects to spend its capex for the rest of the year on upgrades of two drilling rig contracts that WFT recently won in Kuwait.

You can learn more about the OFS industry in Market Realist’s The Oilfield Equipment and Services Industry: A Primer.

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