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Weatherford CEO Sees More Movement to Shales From Conventionals

North American operators are continuing to shift from conventional natural gas plays "to oil and shales, particularly the gas and condensate plays," which puts Weatherford International Ltd. in a particularly strong position, CEO Bernard Duroc-Danner said Tuesday.

Speaking to energy analysts during a conference call to discuss 3Q2010 earnings, Duroc-Danner said Weatherford is expecting land activity to "flatten out" in the United States over the coming year.

"We don't expect the market to provide significant volume gains in '11, but we don't expect any weakness, either, overall," he said. "Some product lines will do better than others. Progression or decline will not be linear across all product lines."

Weatherford's North American business is expected to strengthen particularly in its Artificial Lift, Stimulation, Directional and Completion segment, said the CEO.

"Pricing trends will be selectively constructive. This makes for good markets where share positioning and operating efficiency will yield a better probability of returns than market forces alone." In North America "we are positioned just right for changing market trends." The Artificial Lift segment now represents a quarter of the company's North American revenues.

"On the other side of the coin," said Duroc-Danner, "our entire stimulation product line and a large segment of directionals and completions are positioned essentially on shales..." Oil unconventionals now represent 80% of Weatherford's North American business. "This is by legacy and by design."

Some "catch-up activity" is forecast for Canada. "We anticipate Canada as a whole to be particularly well behaved," said Duroc-Danner. "The volumes will strengthen into '11 and even more so in '12. Canadian shale plays will be very important, but not until 2012. There's infrastructure buildup that is needed to turn the Canadian market into essentially an oil play...until then."

CFO Andy Becnel said looking forward to 2011 from today and "realizing, in essence, how strong North America [is] right now, that obviously has an 'up' impact on North America's prognosis. We don't expect any particular weakness.

"Yes, we may see the rig count down, but in terms of the spending intensity, we could see that fully picked up and make up for a lower rig count, possibly, in North America next year, with good incrementals, again, on absorption and pricing gains. We seem to be doing very well on that, on the back of the cost structure adjustments we made over the last 18 months."

Weatherford's prowess in North America was evident in 3Q2010. Revenue soared 77% to $1.1 billion from 3Q2009. Operating income was $202 million, versus $33 million a year ago, and it was up $72 million, or 56%, higher sequentially. The current quarter's margins improved 430 basis points to 18.3%.  

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