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Will Weatherford International’s EBITDA Margin Change in Q2 2018?

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Weatherford International’s EBITDA margin

From the first quarter of 2017 to the first quarter, the upstream companies constituting the Energy Select Sector SPDR ETF (XLE) increased their capex by 8.0% in aggregate. XLE tracks an index of US energy companies in the S&P 500 Index. From the first quarter of 2017 to the first quarter, Weatherford International’s (WFT) EBITDA margin (or EBITDA as a percentage of revenues) increased from 6.2% to 10.6%. In the past year, crude oil’s price has increased ~47.0%.

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A higher crude oil price typically leads to higher upstream capex, which can result in higher prices for products and services offered by the oilfield services and equipment (or OFS) companies. This typically boosts OFS companies’ operating revenues and margins. Despite higher upstream capex, the average EBITDA margin in the OFS industry decreased from 18.7% in the first quarter of 2017 to 17.7% in the first quarter. 

EBITDA margins for WFT’s peers

Oil States International’s (OIS) EBITDA margin increased to 11.2% in the first quarter compared to 3.1% in the first quarter of 2017. Superior Energy Services’ (SPN) EBITDA margin increased to 13.1% in the first quarter compared to ~1.0% a year ago. Dril-Quip’s (DRQ) EBITDA margin decreased to ~2.0% in the first quarter compared to 7.5% a year ago.

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US rig count

The US rig count increased 6.0% from March 29 until the week ended July 13, closing at 1,054. An acceleration in the US rig count can boost Weatherford International’s revenues and operating income in the second quarter. 

Since March 29, crude oil’s price has risen 9.3%. Higher crude oil prices prompted a higher US rig count, which reflects higher exploration and production activity by upstream producers. This is a positive trend for oilfield equipment and service providers.

International rig count

However, the international rig count has decreased in June compared to March. In June, the international rig count totaled 959 versus 972 in March. A lower international rig count can negatively affect WFT’s international revenues and operating profits.

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