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NorthAmOil COMMENTARY NorthAmOil
Weatherford bankruptcy illustrates oilfield services’ struggle
Weatherford International has led for bankruptcy protection, showing how tough the operating environment remains for the oil eld services sector, writes Anna Kachkova
US
WHAT:
Weatherford International has led for bankruptcy protection.
WHY:
Oil prices have not recovered enough for all service providers to survive.
WHAT NEXT:
The companies that focus on a few core businesses could be best poised to weather the storm.
WEATHERFORD International’s announce- ment that it was ling for Chapter 11 bankruptcy protection with the US Securities and Exchange Commission (SEC) came as no great surprise. e company had already issued a warning in May that it expected to seek bankruptcy protec- tion a er failing to obtain new nancing, which compounded its debt burden and years of losses. However, the move illustrates the oil eld ser- vices sector’s continuing struggle to survive in an environment where oil prices have remained comparatively low.
Weatherford led a pre-packaged restructur- ing plan, under which it would reduce its funded debt from roughly $8.35bn to $2.5bn. e ling also said debt holders would receive about a 99% stake in the company that emerges from Chapter 11. e agreement will also provide the company with $1.75nn in new credit and loans.
is is one of the largest oil and gas bankrupt- cies in years, and comes a er Weatherford had grown to become the US’ fourth largest oil eld services provider in recent years through a series of acquisitions. However, the rm took on sig- ni cant debt during this push for growth, and struggled to integrate the companies it acquired. This was exacerbated by persistently low oil prices, which forced the service sector to lower
its prices in an e ort to keep taking on work, as well as leading to mass lay-o s.
Indeed, Weatherford is reported to have around 26,500 employees now, down from 67,000 at the start of 2014. According to the Wall Street Journal, the company was worth over $12bn around ve years ago. But now its stock market value has fallen to $367mn. At its peak, in 2008, the company’s stock was trading at $49.98 per share, but by November 2018 this had fallen below $1 per share. is led to its delisting in May by the New York Stock Exchange (NYSE). On June 3, Weatherford stock was trading at around $0.05 per share.
Fighting for survival
Weatherford’s bankruptcy spells bad news for the oil eld services sector more broadly. While WTI prices have recovered somewhat a er dropping below $30 per barrel in early 2016, they are still trading below $60 per barrel. is, combined with the fact that most shale drillers are under pressure from shareholders to rein in spending and focus on returns, is keeping demand for oil- eld services relatively constrained. And a er slashing their prices, service providers are bear- ing the brunt of this. Bloomberg reported on July 2 that while oil producers were collectively down
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w w w . N E W S B A S E . c o m Week 26 04•July•2019