Weatherford Sees 87% Net Increase in 3Q10
Weatherford reported third quarter 2010 income of $132 million, or $0.18 per diluted share, excluding an after tax gain of $0.01 per diluted share. The excluded after tax gain includes the following items:
- $90 million benefit for a fair value adjustment to the put option issued in connection with the TNK-BP acquisition;
- $54 million charge, net of tax, for revisions to the company's profitability estimates on project management contracts in Mexico due to severe curtailment of client spending and activity;
- $14 million for severance and restructuring costs;
- $7 million charge for premiums paid on a public bond tender; and
- $3 million of costs in connection with our government investigations.
Third quarter diluted earnings per share reflect an increase of 100 percent over the third quarter of 2009 diluted earnings per share of $0.09, before severance, investigation costs and fair value adjustment for the put option.
Sequentially, the company's third quarter diluted earnings per share, before charges and the fair value adjustment to the put option, were $0.07 higher than the second quarter of 2010 diluted earnings per share of $0.11, before severance, investigation costs and fair value adjustment for the put option.
Third quarter revenues were $2,534 million, or 18 percent higher than the same period last year, and four percent higher than the prior quarter. Segment operating income of $372 million improved 59 percent year-over-year and 21 percent sequentially. International revenues were down six percent versus the year ago quarter and down five percent versus the prior quarter. Latin America was the driver of the international decline with revenues decreasing 36 percent versus the year ago quarter and 18 percent versus the prior quarter, while Eastern Hemisphere revenues increased nine percent versus the year ago quarter and were essentially flat versus the prior quarter. North America revenue increased 77 percent versus the year ago quarter and grew 19 percent versus the prior quarter.
The North American land market and strong gains in Russia led to improved performance during the quarter. By product line artificial lift and drilling services product lines continued to provide superlative results. Sequential earnings growth the last three quarters lead the company to believe that the fourth quarter and 2011 will continue to show additional improvement. A return to improved market conditions in Mexico and the Middle East coupled with continued strength in North America, South America and Russia should drive improved results through 2011. The company expects earnings per share before excluded items of $0.23 in the fourth quarter and $1.30 in 2011. Expected improvements in Q4 should be nearly evenly split between North America and International markets, with a $0.01 offset for increased interest expense.
Revenues for the quarter were $1,099 million, which is a 77 percent increase over the same quarter in the prior year and up 19 percent sequentially.
Operating income was $202 million compared to $33 million for the third quarter of 2009 and was up $72 million, or 56 percent, sequentially. The current quarter's margins improved 430 basis points to 18.3%.
The strong gains onshore in the U.S. coupled with a seasonal recovery in Canada more than offset the weak Gulf of Mexico environment. The search for oil, unconventional gas and liquid-rich gas drove favorable North American results.
Middle East/North Africa/Asia
Third quarter revenues of $603 million were one percent higher than the third quarter of 2009 and flat as compared to the prior quarter. On a sequential basis, Iraq and Kuwait posted strong performances.
The current quarter's operating income of $68 million decreased 33 percent as compared to the same quarter in the prior year and decreased 13 percent compared to the prior quarter as start-up expenses and operator delays impacted profitability.
Third quarter revenues of $496 million were 23 percent higher than the third quarter of 2009 and two percent lower than the prior quarter. Approximately half of the year-over-year increase was due to our acquisition of TNK-BP's oilfield service business in the third quarter of 2009. On a sequential basis, strong performance in Russia and the United Kingdom was offset by decreases in Norway and parts of Sub-Sahara Africa.
The current quarter's operating income of $61 million was up 37 percent compared to the same quarter in the prior year and decreased three percent sequentially. Results included a $6 million one-time depreciation charge as a result of finalizing third-party valuations on the acquired TNK-BP assets.
Third quarter revenues of $336 million were 36 percent lower than the third quarter of 2009 and 18 percent lower than the prior quarter. Consistent with the prior quarter, Mexico was the largest contributor to the sequential decline in revenue due to a decrease in volumes of project-based work. Both Brazil and Colombia posted strong operational results.
The current quarter's operating income of $42 million declined 23 percent as compared to the same quarter in the prior year and increased ten percent compared to the prior quarter.
Improved Liquidity and Free Cash Flow
Recently, the company refinanced its revolving credit facility by combining its two existing revolvers to create a new $1.75 billion three-year facility. In addition, during the quarter it improved its liquidity position through the completion of a $1.4 billion debt offering and the launch of a $700 million tender offer.The company had $2.7 billion of cash and uncommitted revolver availability at quarter-end.In addition, free cash flow (measured by changes in net debt) was $85 million for the quarter, after payment of approximately $25 million in bond issuance costs and tender premiums. For the first nine months the company reduced net debt by $138 million and remains intent on continuing to improve the balance sheet.
Announcement of Intention to List on the Swiss Exchange
Weatherford also announced that it intends to list its shares on the SIX Swiss Exchange ("SIX") in the fourth quarter of 2010. Listing on the SIX is subject to approval by the SIX. Weatherford's shares will continue to be listed on the New York Stock Exchange and the NYSE Euronext.
In the first quarter of 2009, Weatherford began its redomiciliation to Switzerland, by reincorporating in Switzerland and moving the company's principal executive offices from Houston, Texas to Switzerland.
The company's pursuit of a Swiss listing is an opportunity to enhance Eastern Hemisphere investors' awareness and knowledge of Weatherford, one of the world's leading international oilfield services companies.While the company was fortunate to have a number of exchanges from which to choose, the company believes the SIX is the most complimentary fit given the company's reincorporation in Switzerland, as well as Switzerland's established presence as a major investment market. The listing should reinforce the company's growing presence in the Eastern Hemisphere, which is the source of a significant portion of the company's current and anticipated future earnings.
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