Leading oilfield services company Weatherford International plc WFT announced the pricing of an upsized underwritten public offering of $1.1 billion senior notes due 2021. The notes carry a coupon rate of 5.875% per year and were priced on par. The offering is expected to close on Jun 7, 2016.
Weatherford International intends to use the proceeds from the offering to purchase its existing senior notes for cash. The notes that the company plans to purchase consist of 6.35% senior notes due 2017, 6.00% senior notes due 2018, 9.625% senior notes due 2019 and 5.125% senior notes due 2020. As of Mar 31, 2016, Weatherford had $464 million in cash and cash equivalents and long-term debt of $5,846 million.
Going forward, Weatherford International could be more affected than its peers if the North American market continues to underperform. The reason is that a significant portion of its revenues comes from this region. Though expenditure on exploration and production activity levels is increasing, it might be partially offset by competitive pricing and continued margin pressure from excess capacity. Additionally, Weatherford International believes that the depressed natural gas and oil price environment will put further downward pressure on its earnings.
In order to cope with changing market conditions, Weatherford has been aligning its organizational structure and cutting costs. The company continued with its reduction in force exercise in the recently reported first quarter of 2016 – completing 78% of its latest 6,000 headcount reduction target, terminating operations at four of the nine planned manufacturing and service facilities for the year, and shutting down 26 operating and other facilities in North America.
Weatherford intends to reduce its full-year 2016 costs by cutting another 2,000 jobs. The company also has plans to shut down 30 operating and other facilities by the end of this year, mostly by the end of the second quarter. Weatherford has reduced its full-year guidance for capital expenditures to $250 million. This is 63% and 83% lower than its spending levels in 2015 and 2014, respectively.
We believe, the measures undertaken by Weatherford International to reduce costs, both through direct cost reduction in view of the major downturn as well as its overall cost structure, should result in a more efficient and better-run company going forward. With revenues projected to surpass its peers, this could lead to an improved earnings performance by the end of 2016.
The company currently carries a Zacks Rank #4 (Sell). Some better-ranked players from the same space are CVR Refining, LP CVRR, PetroChina Co. Ltd. PTR and Braskem S.A. BAK. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment