The fourth largest oilfield services operator in the world, Weatherford International plc, still has much work to do as it climbs out of a financial hole, but the revamp instituted last year has begun to take hold, the CEO said during a conference call on Tuesday.
CEO Mark McCollum took the helm of the beleaguered oilfield services giant last year after serving as Halliburton Co.’s CFO for several years. He spent much of the webcast discussing the positives for the battered company, and attempted to provide as much transparency as he could to ensure investors believe the turnaround is working.
Weatherford is benefiting from an improving market environment, McCollum said. Additionally, it is well on its way to improving “accountability, efficiency and process discipline across the entire company.”
Pre-McCollum, Weatherford had been tarnished by some financial scandals and poor management, both of which the CEO promised to correct. But it’s not been easy, he admitted.
“The past three months have involved a lot of long hours and hard work as we finished the bottom-up planning stage of our transformation and moved into implementation,” McCollum told investors. “It has not been easy, and we still have a long way to go, but our transformation work is starting to make an impact on our bottom line as well as our processes and our culture.”
After realizing more recurring cost savings in 1Q2018, Weatherford is 10% toward its goal to reach $1 billion in run-rate profitability improvements by the end of 2019, he said.
“We expect these improvements to accelerate in the coming quarters as we continue to execute the nearly 1,600 transformation initiatives the organization is working on.”
The two areas with the largest impact on the transformation are in the sales/commercial work stream and within the procurement work stream. In all things, it’s about taking care of the customer, as well as ensuring it is paid fairly for the work it does, he said.
Weatherford is working on “targeted pricing improvements, especially in areas where our prices have been well below market,” said McCollum. “Winning contracts that cost us more than we make are not really wins. Our focus now is on returns and profitability.”
Internal reviews also suggested the company was “leaving a lot of money on the table, so new procedures are being put in place to ensure we don’t do that going forward…The impact of these new processes and our more results-focused mindset will be evident in the coming quarters.”
For example, the company has 32,000 suppliers and only around 28,000 employees. “We have more than one supplier for every employee, and that doesn’t make sense,” said the CEO. “So we’ve already taken some early action to begin narrowing down our supplier list to the vendors who can offer us the most competitive deals, the kind of deals we should be getting given our position as a large multinational company. We weren’t really negotiating as a single large company before. Moving forward, we’re going to leverage that advantage.”
The ultimate goal is to improve productivity and cash flow, but “at its heart, this is a massive integration program,” he said. “Therefore, all the initiatives we’re working on are specifically and rigorously designed to standardize, simplify, where possible, systematized, but in all instances quantify our processes across the organization so that the achieved financial improvements are sustainable.”
More Divestments In Works
The investment community has been keen about how Weatherford is paring its business too. For example, plans to sell the land rigs unit have been underway since before McCollum came aboard.
“I personally thought we’d have it completed by this point, but the bottom line is that we aren’t there yet,” he said. “I’m not happy about how long it’s taking to get this rigs deal closed but we have to do it properly…It doesn’t mean we’re not going to get a deal done. We’re committed to finding a smooth landing that checks all of our boxes and does right by our customers.”
During the conference call CFO Christoph Bausch also disclosed that two more “divestiture projects” are underway, although he did not disclose details. The planned transactions are expected to generate around $500 million by the end of this year, separate from the land rig sale.
Besides the sales, Weatherford is zeroing in on where it has advantages, said McCollum.
“First, of course, is the strength of the U.S. unconventional market. Second, we have the confidence of our customers. U.S. operators recognize the strength of our portfolio and we’ve demonstrated to them the value of our integrated approach.
“So while leveraging our expertise in lift hardware, optimization software and fuel services, we can enhance decision making across the production lifecycle from initial lift selection, to lift transitions, to preventative maintenance.”
The strategies should create sustainable value regardless of market conditions, he said.
“We want to remain cognizant of overall market trends but not be overly reactive or dependent on it. This is key, because as long as the U.S. unconventionals are driving the global supply and demand balance, I believe we’re going to continue to see some wave-like fluctuations in rig count and activity.”
Short-cycle investments are expected to drive the land market in 2018 and 2019. With that in mind, Weatherford is targeting opportunities in U.S. and Argentina unconventionals, as well as in Russia and the Middle East.
“Of course, the largest single market opportunity will continue to be in the United States, specifically in West Texas and Oklahoma,” McCollum said. “We expect a considerable amount of customer spend to be devoted to this area over the next few years…”
Weatherford also highlighted some operational gains made in the United States during the quarter, both onshore and in the Gulf of Mexico (GOM).
An operator in the Eagle Ford Shale deployed Weatherford’s logging-while-drilling services to identify wellbore fractures while drilling, and estimated the data provided would reduce completions costs while matching production estimates. Savings per well were estimated at $300,000.
Weatherford also replaced an incumbent service provider on a South Texas well where the operator was experiencing “high levels of nonproductive time and well-control risks.” By deploying a managed pressure drilling solution, Weatherford said it resolved the issues and saved the operator about $1 million.
A one-year contract also awarded to Weatherford is to service and inspect all reciprocating-rod-lift surface equipment across more than 400 wells in the Bakken Shale. By collecting and analyzing data, performing root-cause analysis, and delivering an integrated solution, Weatherford said it has reduced the failure rate by 10% “and eliminated thousands of hours of downtime and deferred production.”
In addition, in collaboration with a major operator in the GOM, Weatherford developed a tubular handling system that enabled the customer to run 16-inch casing. “The solution saved approximately one day of operational time and the customer plans to deploy the same technology on future jobs.”
And in Mexico, the company designed and executed a completion program for an onshore well. The team first applied a wireline perforation technique that reduced intervention time by 30%. Additionally, a stimulated reservoir volume pressure pumping technique increased production expectations by 250%, it said.
During the first quarter, Weatherford’s Western Hemisphere operations recorded revenue of $756 million, up 3% year/year. The gains primarily came from the United States, where the company sold more drilling tools. There also was “growing demand” for pressure pumping services in Argentina, where the Vaca Muerta formation is drawing prospectors. In addition, there was increased integrated services and project activity in Mexico, Bausch said.
“For 2Q2018, we expect Western Hemisphere revenue to increase sequentially, slightly driven by higher product sales in the U.S., market share gains and drilling services, some targeted price increases and higher activity levels in Argentina,” Bausch said. “These improvements will be mostly offset by the spring breakup in Canada which is expected to be steeper compared to 2017 due to the significantly unfavorable oil price differential.”
Net losses fell to $245 million (minus 25 cents/share) in the first quarter, which beat consensus, and led to a sharp turnaround from the year-ago net loss of $448 million (minus 45 cents). Revenue totaled $1.42 billion, down 4% sequentially but 3% higher year/year.
Operating losses came to $39 million, but excluding one-time charges, income was $40 million, which was 148% higher sequentially and a 145% improvement from 1Q2017.
Estimated recurring benefits as a result of the transformation plan totaled $27 million in 1Q2018, or $108 million on an annualized basis. In addition, Weatherford achieved $41 million in one-time benefits, mostly driven by the sale of assets and an improved collections process. Net cash used in operating activities was $185 million.
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