Weatherford International plc has begun its next chapter as it emerges from the worst downturn in oilfield history, newly entrenched CEO Mark A. McCollum said Friday.
Just one week into his new job, McCollum, the former financial chief of Halliburton Co., presided over a conference call with CFO Christoph Bausch to discuss first quarter performance and discuss plans to grow.
The No. 4 oilfield services giant recorded a first quarter net loss of $448 million (minus 45 cents/share) on revenue of $1.39 billion, versus a year-ago net loss of $498 million (minus 61 cents/share) and a sequential loss of $549 million (minus 59 cents). Net operating cash totaled $179 million. Operating margins improved by 166 basis points (bps) sequentially, with 123% incrementals.
"North America is clearly leading the recovery," McCollum said. "Understanding where I came from, North America's first quarter results are clearly disappointing. Going forward, I intend to make sure that our operating strategy is in line with the underlying market improvement, and that our financial performance ultimately reflects that."
In Weatherford's "next chapter, we intend to intensely focus on execution and process discipline, which will serve as our cornerstones for improved profitability and returns. As we emerge from the worst downturn in oilfield history, there has never been a more important time for collaboration across our organization as well as with our clients, reinforcing our commitment to being a trusted business partner to those we serve."
The OneStim joint venture with Schlumberger Ltd. (70%) signals a fight to capture a bigger slice of the North American hydraulic fracturing market, McCollum said.
Schlumberger indicated during its first quarter conference call that it is rapidly rolling out stacked fracking equipment to the North American market. It is now working on tentative plans to combine into OneStim its estimable 2 million hydraulic hp (hhp) with Weatherford (30% owner), which has around 1 million hhp. Together, the partners would control the second largest fracking fleet in North America after Halliburton Co. The business should be launched by year’s end.
The OneStim agreement "enables us to take another step toward improving our balance sheet and strengthening our returns. It also confirms our commitment to creating strategic partnerships, sharing resources and capabilities to develop new technologies and achieve critical mass as a means to provide our clients with the lowest cost per barrel."
The highest priority for now is to improve and strengthen the balance sheet by streamlining operations, which includes jettisoning the land drilling rigs business. McCollum also alluded to Weatherford's tumultuous times over the past couple of years as profits fell with shareholder esteem, which in part led to the ouster of long-time CEO Bernard Duroc-Danner.
Last fall the company agreed to pay a $140 million penalty to the U.S. Securities and Exchange Commission to settle charges that it inflated earnings by using deceptive income tax accounting. Two former senior accounting executives also settled claims that they were behind the scheme.
"We realize the responsibility of being good stewards and recognize that there is work to be done to earn your trust and confidence," McCollum said. "We are committed to meaningfully improving our returns and increasing shareholder value."
North American revenue increased 1% year/year, despite shutting down the U.S. pressure pumping business. International revenue declined 2% and land drilling rig revenue fell 6% sequentially.
The North American operating margin in the first quarter was minus 3.7%, compared with minus 23.6% in 1Q2016 and minus 11.9% in 4Q2016. Margins improved sequentially as the rig count and activity increased, with gains in artificial lift, completion, drilling services and wireline. Year/year segment operating margin improved 615 bps and adjusted segment operating margin totaled 285 bps.
"Outside of pressure pumping, improved utilization and pricing in our drilling services, well construction and wireline product lines, combined with higher completions activity, supported a sequential improvement," Bausch said. "However, margin improvement to date has lacked our expectations due to the continued reduction of activity and pricing pressure in the Gulf of Mexico, combined with higher unexpected costs to ramp up this land activity and some of our product lines...faster than expected."
In the field, Weatherford showed progress in gaining new North America customers. In the Eagle Ford Shale, the company's hostile-environment-logging, or HEL, system, enabled "failure-free drilling of 57 wells, saving more than $1 million." An undisclosed operator had experienced measurement-while-drilling (MWD) system failures because of high downhole temperatures in the field.The average MWD system failure incurred 24 hours of nonproductive time, valued at $75,000/incident, Weatherford said.
A contract also was awarded by a Western Canadian operator for more than 40 pumping units. Deployment has begun, with 20 units delivered in the first quarter.
"We believe that in the second quarter, revenue in the U.S. will continue to grow quickly, but this will be offset by the usual seasonal breakup in Canada and by the continued challenging offshore market in the Gulf of Mexico," Bausch said. "As a result, we expect margins in the second quarter to be below the first quarter."
Reduction of the bloated global workforce is continuing. As of the end of March, Weatherford had laid off 2,500 employees out of a planned reduction of 3,000. With six facilities closed, two more than planned at the end of December, "we now have a good foundation to optimize our manufacturing operations to meet the increased requirements in North America, and to operate at a lower cost level in order to be competitive in this market environment, going forward," he said.
"We see no capacity constraints based on our roofline and machining capabilities. And we have started to add qualified personnel in some of our key manufacturing operations."
Weatherford also has begun to work with key suppliers "to prepare for a ramp-up in operations in some of our geographic areas." However, the CFO warned that the cost structure to improve efficiency would continue to be scrutinized, with "further rationalization of operations and assets in geographies with a low level of activity, sub-economic pricing or a low level of strategic importance.”