Weatherford International plc has undergone a significant cost restructuring during the downturn, including a 42% reduction in its workforce over the past 18 months, management told investors during the company’s quarterly conference call Thursday.
Now the Houston-based oilfield services operator is well-positioned to benefit from a recovery, when it comes, management said.
Through the first half of the year, Weatherford laid off 7,800 employees, representing most of the 8,000 planned layoffs it had previously announced. The company now stands at 32,000 employees, down from 55,300 at the start of 2015.
The cost-cutting moves didn’t help the 2Q bottom line. Weatherford posted a quarterly net loss of $565 million (minus 63 cents/share), a sequential increase over the net loss of $498 million (minus 61 cents/share) it posted in the first quarter. Weatherford posted a net loss of $489 million (minus 63 cents/share) in the year-ago quarter.
CEO Bernard Duroc-Danner said the restructuring, combined with improved efficiencies, has positioned Weatherford to benefit financially going forward.
“Q3, but even more so Q4, will capture the full benefit of the cost actions taken…Other than a few local exceptions, people and delayering cost reductions are completed,” Duroc-Danner said, adding that the company is now “calling for an end to the payroll-related cost drive. There will not be any further contraction. The current level of 32,000 worldwide employees will be our low point.
“We are also calling for an end to all price discounting,” he said. “This is a company-wide formal decision and process.” Service costs will not “be priced lower than Q2 levels effective now. This is a first step towards price recovery.”
Revenue for 2Q2016 totaled $1.4 billion, down sequentially from $1.6 billion in the first quarter and a 41% year/year decrease from the $2.4 billion posted in 2Q2015. Operating losses totaled $66 million, compared to $157 million in the first quarter.
North American revenues totaled $401 million, down from $543 million in the first quarter and $808 million in the year-ago quarter. CFO Krishna Shivram said the North American revenue decline of 26% outperformed the 35% drop in the rig count. He attributed the decline to seasonal factors related to the spring break-up in Canada and “pressure pumping activity hitting new lows with two fewer crews operating at the end of the quarter compared to the start of the quarter.”
Shivram said he expects “a modest recovery in activity levels in the U.S., which has already seen a 7% quarter-to-date increase in rig count on land, augmented by the post-break-up seasonal recovery in Canada. Signs of increasing activity are already manifesting in the U.S., with two additional pressure pumping crews being deployed in July. In fact, we made 77 job offers last week to manage the staffing of these crews.”
As customers work through their inventories of drilled but uncompleted wells, “our completion and artificial lift activity levels will get a disproportionate boost on U.S. land,” Shivram said.
Alongside “modest growth in the Europe/Caspian Sea/Russia/Sub-Sahara Africa region” and the expectation that “pricing will not deteriorate any further from second quarter levels…we do expect to see a gradual improvement in our second-half results, although on an overall basis, we do not expect to breakeven by year-end,” he said.
International revenues declined 3% sequentially to $892 million for the second quarter, with Latin America declining the most by percentage on reduced activity in Mexico, Brazil and Colombia.
Weatherford now forecasts 2016 capital expenditures (capex) to total $200 million, down $50 million from its previous capex guidance, Shivram said. “Based on a detailed analysis, we believe we can support about 2.5 times the current levels of activity without adding any meaningfully higher capex. As we grow into the upcycle, we can and we will maintain a tight lid on capex.”
Duroc-Danner said Weatherford will “strive for” a breakeven point in North America sometime in 1H2016 “on the back of high expected volume incrementals and the full effect of cost cuts.” These “incrementals are expected after the credit of the cost revolution at Weatherford…I believe we are at a turning point in the cycle and the turning point of a two-year cost in operating transformation.”
Weatherford has moved beyond the “overly aggressive earlier stages of the company” and turned its focus entirely to “financial priorities and operating performance,” Duroc-Danner said. “The market is turning. It feels slow, hesitant, frail, worrisome; but make no mistake, it is as frustrating as it will be powerful when some time has run.
“The oilfield service industry, our industry, is a coiled spring. And within the industry, Weatherford is especially tightly coiled.”
For a full listing of 2Q2016 industry earnings calls, including links to NGI’s coverage of both the company and the call, please see NGI’s 2Q16 Earnings Calls List PDF.
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