Leading oilfield services company, Weatherford International plc (WFT) announced that it would divest its Engineered Chemistry and Integrity drilling fluids business to Lubrizol Corp., a subsidiary of Berkshire Hathaway Inc. (BRK.B). The transaction is expected to close before year-end 2014.
Per the agreement, Weatherford would pocket $750 million in cash along with a potential $75 million for an earnout that is tied to the post-closing performance of the businesses. Proceeds from the deal would be used to bring down Weatherford’s outstanding debt levels.
Weatherford's oilfield chemicals business, known as Engineered Chemistry, provides chemical treatments for oil and gas production and produced waters as well as additives for drilling, workover and stimulation operations. Meanwhile, the Integrity drilling fluids business includes drilling fluid systems and additives for enhanced performance of drilling operations.
The sale is part of Weatherford's previously announced plan to divest its non-core businesses in order to refocus on core areas. The high-margin core businesses of the company include well construction, formation evaluation, completion, stimulation and artificial lift.
Weatherford International is one of the world's leading providers of equipment and services used for the drilling, completion and production of oil and natural gas wells. The company conducts operations in numerous countries and has service and sales locations in almost all oil and natural gas producing regions in the world.
In the fourth quarter of 2014, the company expects growth in its North American, Latin American, North Sea, Sub-Sahara Africa and the Middle Eastern areas. Weatherford expects its margins to get a boost from lower costs and growth in its more profitable core businesses. The effective tax rate is expected at around 25%.
The company expects to reduce net debt to $7.0–$7.5 billion by the end of this year. But the company’s debt-heavy balance sheet, weak free cash flow as well as competition from larger peers are causes of concern.
Weatherford currently carries a Zacks Rank #3 (Hold). Better-ranked players in the energy sector include Murphy USA Inc. (MUSA) and Sandridge Mississippian Trust II (SDR). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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