Weatherford Hits Quarterly Earnings High, Focuses Its Future on Middle East
A leaner and wiser Weatherford seeks new Middle East contracts while growing margins and market share on existing business.
Weatherford International has reported 3Q revenues of $1.12 million, 5% up over the previous quarter and a 19% rise year-on-year as its focus sharpens on the Middle East as its No. 1 market to achieve double-digit growth in 2023.
Weatherford CEO Girish Saligram told analysts attending the company’s Q3 earnings call on 26 October, “… the biggest area for us is the Middle East. We have committed a lot of resources and a lot of investment, and a lot of capital, and we will continue to do so.
“We do expect solid double-digit growth next year across the board,” Saligram said, with the Middle East and North Africa (MENA) region “leading the way … with growth driven by activity in that region … and more specifically the Middle East” which Weatherford is targeting not only for new business but also growth in margins and expanded market share with existing customers.
Weatherford has signed three major Middle East contracts in the past month:
- A lump-sum turnkey contract with Saudi Aramco for drilling and intervention services to drill 45 wells per year over the life of the 3-year contract announced in mid-October
- A $500 million, 5-year integrated drilling services contract with Petroleum Development Oman (PDO) to drill 700 wells at Oman’s Marmul and Grater Saqar oil fields, also announced in mid-October
- A $400 million share in a $1.83 billion contract that the Abu Dhabi National Oil Company (ADNOC) inked in September with five service companies for directional drilling and logging-while-drilling solutions to boost the emirate’s oil production capacity to 5 million B/D by 2030
Calling these contracts “significant wins,” Rystad Energy’s lead analyst for energy services, Matt Hale, said, “Several years ago, Weatherford struggled to execute on large projects in the Middle East, but … the company has learned from the past and will (now) benefit from a lighter asset base after closing on the sale of its land rig business (in Algeria, Kuwait, Saudi Arabia, and Iraq) to Saudi PIF-backed ADES in the first quarter of 2019.”
Weatherford sold its land rig business to Egypt’s ADES International Holding Ltd. backed by Saudi Arabia’s Public Investment Fund (PIF) for $288 million as part of its reorganization of assets while under Chapter 11 bankruptcy protection, according to the company’s SEC filings.
The sale all but created ADES as a drilling rig contractor as, before its acquisition of Weatherford’s rigs, “ADES was not a land contract driller of any size,” said Richard Spears, vice president at Tulsa-based Spears & Associates.
Weatherford is already active on Oman’s Amal field, which is near its new contract area, Marmul. Both fields produce heavy crude with enhanced oil recovery (EOR) technologies—Amal is a steam project, and Marmul produces with polymer injection. PDO expects to be producing 23% of its oil with EOR technologies by 2025.
“For the Oman contract, the number of wells would indicate that Weatherford is not responsible for the full scope of well construction,” Rystad’s Hale said. According to Spears, Omani wells are generally not complex, and many might be drilled with coiled tubing.
PDO operates 130 fields and 6,000 producing wells, responsible for 70% of the sultanate’s crude oil and nearly all its natural gas. The company is majority state-owned (60%) with partner Shell plc holding 34%, Total at 4%, and Portugal’s Partex with 2%.
Source: Weatherford International plc Investor Presentation, Q3 2022
Other Q3 awards mentioned during the earnings call included:
- Middle Eastern international oil company, 5-year wireline contract
- YPF, Argentina, 2-year extension for drilling fluids services
- Pertamina, Indonesia, for intervention through tubing and tubular running services
- Kuwait Oil Company for completion services and technology for 300 development wells in Kuwait
- FRI-EL Green Power in Europe for drilling, well construction, and formation evaluation at the San Giovanni geothermal project
Assessing Global Performance
Across global markets, Weatherford booked $121 million in overall operating income in Q3 this year compared to $104 million in Q2 and $71 million in Q3 2021. The company’s 3Q 2022 net income reached $28 million, compared to $6 million in Q2 2022 and a net loss of $95 million in Q3 2021.
Q3 cash flows provided by operations this year totaled $160 million, compared to $60 million in Q2 and $114 million in last year’s third quarter. Capital expenditures hit $39 million in this year’s Q3 compared to $24 million in the previous quarter and $20 million in Q3 2021.
In speaking with analysts, Saligram said that Weatherford has “no intention of reentering the US in a conventional fashion for drilling services,” but it does plan to reintroduce its “HEX ultrahigh-temperature logging while drilling, or LWD technology, to support gas plays in the Haynesville and Eagle Ford basins.” [HEX stands for HeatWave Extreme]
Management sees growth opportunities in the Western Hemisphere, particularly in Latin America, but Weatherford’s near-term focus is the Middle East, the CEO said.
Commenting on the intersection of revenue and product lines, Spears said, “This year Weatherford’s total revenues will be about $4.2 billion. Just over half of those revenues come from well construction products and services—$2.2 billion. None of those revenues (according to our analyst for Weatherford) are associated with drilling rigs, although WFT used to have a bunch of drilling rigs in (the MENA) region” before the sale to ADES.
According to Saligram, Weatherford is developing new business models that prioritize project management. For example, the company’s Integrated Services and Projects team, which deals in well construction, production, and plug and abandonment projects, will coordinate product lines and services on the Aramco deal.
“Going into 2023, we see moderate growth with the continuing focus on returns,” Saligram said. “The international markets have continued momentum underpinned by strong fundamentals across the Middle East and Latin America with strong tender activity supporting multiyear plans.”
Weatherford management is also “seeing strong signs of offshore activity and (the company is) very well positioned with market-leading products (including) managed pressure drilling and tubular running service” which Saligram expects to foster further growth opportunities in 2023.
In Q3 2022, Weatherford’s drilling and evaluation (DRE) revenues hit $348 million, a 10% ($31 million) increase over the previous quarter attributable to higher demand across all DRE product lines, primarily driven by managed-pressure drilling and drilling services in the Middle East, North Africa, Asia, and North American regions, Saligram said.
Source: Weatherford International plc Investor Presentation, Q3 2022