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Weatherford's Earnings Call Revealed Its Reliance On Outside Capital


On the earnings call, WFT management talked up its access to liquidity. It revealed the company's reliance on outside capital.

There was little to no discussion of asset sales. This supports my thesis that its $9B in non-current assets is practically worthless.

Benefits from headcount reductions should kick in next quarter. Will WFT have enough talent left to benefit from a rebound in industry capex?

An unfavorable outcome on the Zubair contract could hurt cash flow by $150-$200 million. I would assume the worst.

With debt/EBITDA at 10.5x WFT remains impaired.

Weatherford CEO Bernard Duroc-Danner

Weatherford (NYSE:WFT) delivered Q1 earnings on Wednesday. Revenue and EBITDA fell Q/Q by 21% and 57%, respectively. Revenue from North America - the company's largest region - was off 22%. It mirrors declines experienced by Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI). The company's negative free cash flow of $212 million was a major concern, which is why WFT fell nearly 25% after earnings were released.

I found the earnings call very revealing. Below are some of management's comments and my interpretation:

Management Continues To Talk Up Access To Liquidity

We will have a $1.88 billion facility starting next week, down from $2 billion. This facility will reduce to $1.54 billion after amortization in July 2017; then it'll reduce down to $1.4 billion as of July 2018, and so on. Such a reduction should not be viewed as constraining to Weatherford. As a matter of fact, the total actual drawdown against the facilities for the last several quarters have been as follows: $1.04 billion as of 30th September last year; $967 million as of last year-end, and now $1.04 billion as of the end of the first quarter this year, which are far below any of these levels that I mentioned ...

I would like to also remind you that off a total gross debt of $7.1 billion at March 31, only the revolver drawdown of $1.04 billion has any financial covenants attached to it. The remaining debt, comprising mainly long-term bonds, which is over 80% of our total debt, do not carry any ratio-driven covenants, nor do they carry any credit rating triggers.

My Interpretation:

I have been predicting Weatherford would collapse under $7 billion in debt for a...