A Review of the Nigerian Energy Industry

Weatherford aims to trim debt by $5bn

Weatherford06 November 2013, News Wires – Oilfield services player Weatherford International plans to cut its debt by up to $5 billion over the next two years as it boosts cash flow and divests assets, its chief executive said.

Buoyed by higher-than-expected quarterly earnings on Monday and the announcement of a settlement of US investigations that go back six years, shares of Weatherford hit their highest since March 2012, Reuters reported.

Chief executive Bernard Duroc-Danner said he expected Weatherford’s debt level to drop by between $3 billion and $5 billion by the end of 2015. Net debt now stands at $9 billion.

The company, the smallest of the services sector’s big four, will tighten its focus by divesting businesses with a combined $3.5 billion in revenue. These include its land-rig contracting unit via a potential initial public offering in the fourth quarter of 2014.

The unit, with 183 drilling rigs, 284 workover rigs and 14,000 employees, will generate 2014 revenue of $1.8 billion to $2 billion and earnings of $350 million to $400 million before interest, tax, depreciation and amortisation, Reuters reported.

“Rigs as a product line aren’t a required component of our strategy anymore,” the news wire quoted Duroc-Danner as saying on a conference call. “The rigs have tremendous potential in their own rights. (The unit) has strong presence in all of the key markets of the eastern hemisphere where activity over the next 10 years will thrive.”

Other units to go are wellheads, drilling fluids, pipeline and specialty services, and testing and production services.

In September, Weatherford said it had sold its 38.5% stake in Russia-based Borets, an electrical submersible pumps business, to joint venture partner Tangent Fund Limited for $400 million.

But the company will stay in pressure pumping, a key part of the hydraulic fracturing boom. Weatherford ranks eighth in North America by pumping horsepower, but Duroc-Danner does not plan to buy any of the extra capacity that has left the market glutted.

“I don’t believe in consolidation in pressure pumping because the barriers to entry are too low,” he said.

Analysts were happy with the news.

“After four difficult years, we believe a new, focused and higher quality Weatherford is poised to emerge,” Barclays analyst James West wrote in a research note.

“While much heavy lifting remains, a new version of WFT that offers a solid, higher return business mix, a much improved balance sheet, a lack of the ‘noise’ that has plagued the company in the recent past, and significant cash generation could be a high-quality company.”

The settled US government charges include Foreign Corrupt Practices Act breaches, violations in the Iraq oil-for-food programme, and work in sanctioned countries.

Weatherford stuck with estimates of total fines of $253 million, and Duroc-Danner said if the deals are approved by the courts and regulator, the final announcement could come in four to six weeks.

Weatherford shares were 2.67% higher at $16.90 in afternoon trading on the New York Stock Exchange.

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