Will Weatherford International’s Cost Structure Improve?



Weatherford International’s segment-by-segment performance

Geography-wise, revenues from Weatherford International’s (WFT) North America region fell the most, by 50% from 2Q15 to 2Q16. WFT’s Middle East, North Africa, and Asia-Pacific region revenue fall was relatively moderate, at 22.5% during the same period. In comparison, Oceaneering International’s (OII) 2Q16 revenue fell by 23% compared to a year ago.

All of Weatherford International’s geographic segments recorded operating income falls in 2Q16 compared to a year ago. WFT’s North America region’s 2Q16 operating loss deteriorated marginally to $101 million compared to $92 million a year earlier. WFT’s Land Drilling Rigs segment, which generated operating income a year earlier, witnessed an operating loss in 2Q16.

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In aggregate, WFT’s operating income switched to a $66 million loss in 2Q16 compared to $36 million in operating income in 2Q15. In comparison, Core Laboratories’ (CLB) 2Q16 operating income was $20 million. CLB’s market capitalization stands at $5.1 billion, similar to WFT’s $5.1 billion. WFT makes up 0.27% of the ProShares Ultra Oil & Gas ETF (DIG).

Factors that affected Weatherford International’s 2Q16 performance

  • lower US rig count that resulted in falls in customer activity and spending
  • falls in upstream energy companies’ spending and activity, primarily in Colombia, Mexico, and Brazil
  • customer activity reductions in the Angola offshore region

Partially mitigating the negative effects listed above were WFT’s cost reduction measures, which started in North America in the first half of 2016.

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WFT’s year-to-date performance

In the first six months of 2016, WFT’s revenues fell by 42% to $3.0 billion compared to the same period in 2015. Its reported net loss also crashed to $1.1 billion in 1H16 compared to a $607 million net loss in 1H15.

Continued lower upstream drilling activity and pricing weakness kept WFT’s year-to-date results under pressure. You can read Market Realist’s Will Weatherford’s Leverage Improve after Its Share Issue? to learn more about Weatherford International’s latest financial structure.

Will WFT’s restructuring activities improve cost structure?

During 2Q16, Weatherford International stopped operations in three manufacturing and service facilities. In addition, it closed 28 more operating and other facilities during the quarter.

WFT also carried out a significant part of its planned 8,000 headcount reduction. This is expected to result in $446 million in annualized savings. WFT also settled a lawsuit related to the Zubair field in Iraq, which fetched it $150 million in 2Q16.

Next, we’ll discuss Weatherford International’s returns.


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