Weatherford Readying to Emerge ‘Stronger,’ Laying Off 5,000 More
The fourth largest oilfield services (OFS) company in the world, Weatherford International plc, plans to lay off 5,000 people, almost 9% of its workforce, by the end of March. Last year the company cut more than 6,200 positions.
Weatherford, which jockeys for market share with the “big three,” Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc., constructs wells in the offshore and onshore. It provides customers with an array of services, including completion, artificial lift, formation evaluation and stimulation. Well construction brings in the most revenue and 27% of operating income margin. North America accounts for roughly half of operating profits.
“We will focus the entire organization on ensuring we are cash flow positive in 2015,” CEO Bernard Duroc-Danner said. “This means that for every dollar of revenue we lose due to reduced activity and pricing, we will make up for it in cost, capital expenditure and working capital reductions. Our team will be focused on swift market responsiveness.”
The OFS operator employed close to 56,000 people at the end of 2014. Headquarters are in Ireland, but its main U.S. offices are Houston-based. The job cuts, highlighted Thursday in 4Q2014 results, are to be completed by the end of March and mostly would affect the western hemisphere operations.
The reductions target support and operating positions, designed to save more than $350 million. The company also plans to offer a voluntary buyout program to qualified employees.
Capital expenditures for 2015 is set at $900 million, slashed $550 million from 2014. Spending and costs may be adjusted over the year.
“We expect to emerge from this down-cycle much leaner and stronger than we were going into it,” Duroc-Danner said.
Weatherford reported a net loss of $475 million (minus 61 cents/share), versus a year-ago loss of $271 million (minus 35 cents). Revenue was almost flat year/year at $3.73 billion. Included in the quarterly loss was a $592 million charge related to rig writedowns and $41 million for severance costs because of layoffs. North American operating income increased in the final period to $283 million from $216 million.
Some of the one-time charges related to asset sales, including two oilfield chemical businesses based in Texas that were sold to Berkshire Hathaway Inc.’s Lubrizol Corp. (see Shale Daily, Dec. 1, 2014).
Tudor, Pickering, Holt & Co.’s Byron Pope and Jeff Tillery said Weatherford’s report provided another key to current activity levels since it is the last of the top four OFS operators to report. The company’s “late 4Q2014 activity softness appears to have crept into at least some elements” of its portfolio, with North American revenues down 2% sequentially, “albeit at only 20% decremental margins.”
By proactively reducing its capital spending by 40% year/year and “coupled with better working capital efficiency, we see the company being free cash flow positive during this 2015 industry down-cycle,” said the analysts. With its asset sales and reduced size, Weatherford may be able to bring its net debt/cap ratio down into the low 40% range in the second half of 2015, versus 46% at the end of 2014, they said.
Weatherford’s goal of becoming free cash flow positive would be a stark turnaround from its financial performance over the past 10 years. The company has managed to turn in positive annual traditional free cash flow, which is defined as cash flow from operations less capital expenditures, only twice since 2005, with its cumulative traditional free cash flow over the last 10 years coming in at negative $5.4 billion. That deficit swells to an estimated $6.3 billion after accounting for acquisitions and divestitures.
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