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Will Rig Counts Affect Weatherford in 4Q17?

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Weatherford’s revenue share

In 3Q17, Weatherford International’s (WFT) revenue share from North America was 39.7%, which compares favorably with the 37.6% revenue share from North America in 2Q17. In 3Q17, WFT’s international revenue share was 60%. From June 30 to September 29, 2017, the US rig count remained unchanged. From September 29, 2017, to the week ending January 12, 2018, the US rig count decreased by one. From September to December 2017, the international rig count increased 22%. A higher rig count could lead to higher revenues and operating earnings for Weatherford in 4Q17.

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Crude oil prices have increased ~25% since September 29, when WFT’s third quarter of 2017 ended. Despite higher crude oil prices, the US rig count has been stagnant. Read the latest on crude oil prices in Market Realist’s How the Equity Markets Are Reacting to Oil’s 3-Year High. WFT is only 0.26% of the iShares US Energy ETF (IYE). IYE rose 12% since September 29, versus an ~8% fall in WFT’s stock price in this period.NA Revenue and Rig count

Weatherford International’s EBITDA margin

From 3Q16 to 3Q17, Weatherford International’s (WFT) EBITDA margin (or EBITDA as a percentage of revenues) increased from 5.0% to 11.1%. The EBITDA margin measures a company’s operating earnings. From 3Q16 to 3Q17, 20 of the top upstream companies by market capitalization constituting the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) increased their capex by 29% in total. Higher upstream capex typically results in higher prices for oilfield services and equipment (or OFS) companies, which boosts OFS companies’ operating revenues and margins.

Next in this series, we’ll discuss Weatherford International’s implied volatility.

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