Weatherford Int'l Sees Little Impact From Lower Oil Prices

(MoneyWatch) 

• The Company: Weatherford International, an oilfield services company.
• The Filing: FORM 8-K filed with the SEC on October 20, 2008.
• The Finding: Against a backdrop of an 11 percent increase in rig count activity, Weatherford International reported third-quarter sales of $2.5 billion, up 29 percent from the same period last year. The company's large North American onshore drilling presence, which comprised 46.4% of total sales, is a potential liability in a deteriorating natural gas pricing environment. Nonetheless, going forward, pullback in drilling activity in both the US and Canada should be offset by a growing international footprint.

The Upshot: Chief Executive Bernard Duroc-Danner told analysts on the third-quarter earnings call he anticipated a year-on-year decline of about 10 percent in Canada. In his assessment, however, based on existing backlog the company could deliver an international growth rate close to 40 percent next year.

By the first-quarter 2009, Weatherford expects to have eight bundled integrated drilling projects underway in the Eastern Hemisphere. Four of the projects are now running, albeit not at full scale; two additional projects will be started up in the fourth-quarter 2008 and the last two will be started up in the first-quarter 2009. The average contracted life for the Eastern hemisphere projects is between three and four years. By 2012, the company is looking to derive 55 percent of its revenue from this region, up from 41 percent in 2008.

In June, the company signed two contracts, worth an estimated $870 million, to drill up to 600 wells in the Chicontepec basin. Working with the state oil monopoly Petroleos Mexicanos, or Pemex, mobilization commenced on July 1.

One risk worth mentioning is that approximately 20 percent of Weatherford's international business is with smaller-capitalized independents. Although careful not to mention any customer by name, Duroc-Danner singled out operations in the North Sea and West African regions as more vulnerable to cut backs in spending and project delays, resulting from potential inability to access financing.

The Question: How much additional risk to foreign currency fluctuations will the company be exposed to as it directs more of its business overseas?