Pressure pumping sale to be completed by 2018
Weatherford International (ticker: WFT) announced the suspension of its U.S. pressure pumping business in its conference call February 1. The U.S. pressure pumping sector was suspended in the middle of Q4 2016 as a cost-cutting measure, according to Weatherford CEO Krishna Shivram.
Weatherford’s elimination of frac services is expected to be a permanent measure, with the business slated to be consolidated with another industry player or sold outright.
This is part of what Weatherford calls “Project 300,” a focused program to achieve $300 million in annualized cost savings. The company has also shut down five manufacturing facilities and plans to cut 3,000 employees.
Land rigs business to be sold in 2018
Additionally, Weatherford expects to divest its land rigs business when utilization levels improve. The company expects to upgrade 90% of its active fleet with managed pressure drilling and tubular running services in 2017. Monetization of this business is expected to occur in the second half of 2018. In total the pressure pumping and land rigs businesses are expected to be monetized for $1.5 billion to $2 billion.
Revenue is expected to be decreased by approximately $70 million in Q1 and $40 million in the future due to the pressure pumping suspension. Shivram expects that this decrease will be replaced by growth in other product lines.
Divestitures part of company-wide refocusing
Weatherford intends to reorient itself going forward to play to its strengths. This will mean operating in production rather than exploration and being more well-centric than reservoir-centric, according to Shivram. The current focus is to be the best “well construction and production optimization company.” The company believes that the “frac market in the U.S. is commoditized and best left to expert practitioners of that business.” Shivram summarized the company vision as “we believe we can plan, drill, case, secure and complete a well, or in summary, construct a world-class well for our customers better than anyone else.”
Q&A from WFT conference call
Q: On the $300 million in cost cutting and savings that you think for 2017, you implied that some of it was completed in Q4. Could you talk about how much was computed in Q4? And the timing as we go into 2017 on the rest of that coming out of the system? And is that generally internationally weighted or both internationally and North America?
WFT EVP & CFO Christoph Bausch: So that Project 300, as we call it, a big portion of that was the shutdown of Pressure Pumping, which we had already talked about. That will have significant cost savings in North America. In addition to that, as I have mentioned in my prepared remarks, we are reducing support call staff and we are consolidating our regions. That is internationally. So we have already taken out 2,000 headcount, as I have mentioned, at this point in time. So that means that reduction is already in the Q1 results. There will be some going into — towards the end of Q1 and into Q2, but I would say towards mid-end Q2 we will have achieved the full reduction potential.
Q: You guys have always been strong in artificial sift in North America but strong in completions and well construction as well. So as we think about North America in 2017, just trying to size those relative businesses to make sure we don’t get out over our skis in terms of how we think about top-line growth for North America for you guys.
WFT CEO Krishna Shivram: Well, pressure pumping in North America in 2016 — revenue was for us was about just under $300 million. And that will disappear effectively in 2017. And like I said in my prepared comments, we absolutely expect to at least make that up in the growth of the other product lines. So we will not only offset it we probably will more than offset it with the growth in rig count and activity in North America.
Now all of the growth there is going to favor our Well Construction and Production portfolios, which will benefit disproportionately from the North American activity — the type of North American activity increase we’re going to see.
Weatherford reported a net loss for Q4 2016 of $549 million, or ($0.59) per share, up from the $1.21 billion loss, ($1.54) per share, in Q4 2015. Full year net loss is $3.40 billion, down from the $1.99 billion loss over 2015. The Q4 loss includes several special charges, including severance and restructuring, litigation charges, and pressure pumping business related shutdown costs. Adjusting for these charges gives a net loss of $303 million, ($0.32) per share, compared to an adjusted loss of $102 million in Q4 2015, ($0.13) per share.
