Weatherford International plc (NYSE: WFT) reported a net loss of $2.1 billion, or a loss of $2.10 per share, for the fourth quarter of 2018. This compares to a net loss of $1.9 billion, or a loss of $1.95 per share, for the fourth quarter of 2017.

The non-GAAP net loss for the fourth quarter of 2018 was $140 million, or $0.14 diluted loss per share. This compares to a $103 million non-GAAP net loss in the prior quarter, or $0.10 diluted loss per share, and a $329 million non-GAAP net loss for the fourth quarter of 2017, or $0.33 diluted loss per share. The fourth quarter 2018 non-GAAP amounts exclude net charges recognized during the quarter of $2.0 billion, primarily consisting of a non-cash write-off of a significant portion of the Company's goodwill balance, totaling $1.9 billion. A reconciliation of GAAP to non-GAAP financial measures is included in this release.

Significant Highlights

  • Excluding the impacts resulting from the sale of the land drilling rigs in Kuwait and Saudi Arabia, increased revenues by approximately 1% compared to the third quarter of 2018.
  • Increased fourth quarter 2018 segment operating income by $185 million on a year-over-year basis. For the full year 2018, increased segment operating income by $579 million compared to 2017 results.
  • Generated net cash from operating activities of $105 million and free cash flow of $65 million during the quarter.
  • Achieved targeted annualized recurring transformation benefits of approximately $400 million, which represents 40% of the total transformation target.
  • Completed two of the closings from the previously announced land drilling rigs divestiture for gross proceeds of $216 million.
  • Signed a definitive agreement to divest the surface data logging business for $50 million in cash.
  • Decreased nonproductive time by 22% on a year-over-year basis, exceeding the annual target and representing the fourth consecutive year of improvement.

Revenues in the fourth quarter of 2018 were $1.4 billion, essentially flat with revenues recognized in the prior quarter and a modest decrease from the $1.5 billion of revenues reported for the fourth quarter of 2017. Sequentially, increases in integrated service project revenues and higher product sales in Latin America and the Eastern Hemisphere were offset by decreased revenues associated with the divestment of the international land rigs and lower activity levels in Canada.

On a year-over-year basis, higher revenues associated with integrated service projects and product sales in Latin America were offset by lower year-end product sales in the Eastern Hemisphere and decreased revenues associated with the divested land drilling rigs in the Middle East and pressure pumping assets in the United States.

Operating loss for the fourth quarter of 2018 was $2.0 billion. Segment operating income in the fourth quarter of 2018 was $102 million, down $14 million, or 12% sequentially, but up $185 million year-over-year.

The sequential decrease in segment operating income was driven primarily by a provision for a litigation settlement in the United Statesand increased amortization related to digital solutions and cloud-based infrastructure. This was offset by product sales in Latin America and the Eastern Hemisphere and higher margins across all product lines on reduced costs and improved efficiencies as a result of the transformation efforts.

Year-over-year segment operating income increase was driven by improved efficiencies and reduced expenses as a result of the transformation processes. Further, negative impacts from exceptional operating items in both hemispheres and low-margin product sales realized in 2017 did not repeat in 2018.

In the quarter, Weatherford recorded pre-tax charges of $2.0 billion, primarily consisting of a $1.9 billion write-off of a significant portion of the Company's goodwill balance. In addition, the Company also recorded $79 million in impairments and asset write-downs, $36 million in restructuring and transformation charges, and $4 million in currency devaluation charges, partially offset by a $3 million credit related to the fair value adjustment of the outstanding warrant.

In the fourth quarter of 2018, incremental recurring benefits as a result of the transformation plan were approximately $25 million. The total recurring transformation benefits recognized through the fourth quarter were nearly $100 million, or $400 million on an annualized basis, which represents 40% of the $1 billion target.

Mark A. McCollum, President and Chief Executive Officer, commented, "Our adjusted earnings and adjusted EBITDA during the fourth quarter exceeded our forecasts despite rapidly declining oil prices. Our ability to generate better than expected operating results and free cash flow is a testament to the progress we continue to make on our transformation plan and the positive structural changes we have made to our company over the past year. For the full year, we grew adjusted EBITDA by over $330 million, or 80% compared to 2017 levels. Based on the work we have completed on specific transformation initiatives, we continue to believe that we can achieve our $1 billion incremental EBITDA run rate goal by year-end 2019."

"We achieved positive operating cash flow during the quarter and further enhanced our liquidity as we closed the first two tranches of our international land drilling rig sale. Our year-end liquidity position of over $900 million and the recent announcements regarding the divestiture of our laboratory services and surface data logging businesses will continue to improve our net debt position as we move through 2019, giving us sufficient liquidity to continue to execute on our strategic initiatives and pay down our near-term maturities."

Cash Flow

Net cash provided by operating activities was $105 million for the fourth quarter of 2018, driven by a decrease in working capital and a decrease in cash payments for debt interest, offset by $34 million for cash severance, restructuring, and transformation costs. Fourth quarter total capital expenditures of $76 million, including investments in held-for-sale land drilling rigs, increased by $21 million, or 38% sequentially, and decreased by $2 million, or 3% from the same quarter in the prior year.

Western Hemisphere

Fourth quarter revenues of $776 million were up $14 million, or 2% sequentially, and up $17 million, or 2% year-over-year. Compared to the third quarter of 2018, revenues increased for integrated service projects and fourth quarter product sales in Latin America but were offset by lower activity levels in Canada. Year-over-year revenue increases from integrated service projects in Latin America and managed pressure drilling services in the United States were offset by lower activity levels in Canada and the sale of pressure pumping assets in the United States in the fourth quarter of 2017.

Fourth quarter segment operating income of $56 million was down $22 million sequentially and up $91 million year-over-year. The sequential decrease was the result of a provision for a litigation settlement in the United States this quarter and negative impacts from the reduced activity levels in Canada. The year-over-year improvement was driven by higher integrated service projects activity in Latin America and the positive impacts from our transformation efforts, which overcame lower operating results in Canada and a negative foreign exchange impact in Latin America. In addition, certain operating charges realized during the fourth quarter of 2017 did not repeat this year.

Operational highlights in the Western Hemisphere during the quarter include:

  • A major operator in Colombia awarded Weatherford a four-year contract valued at $100 million for drilling and completion activities. The contract includes provision of drilling services, surface logging systems, managed pressure drilling, well construction, and completions.
  • Weatherford successfully deployed the Magnus® rotary steerable system (RSS) offshore for the first time. The RSS delivered the planned directional profile in two 8.5-inch sections, each in a single run in separate wells. Both sections were completed ahead of the customer's planned timeline.
  • A Weatherford Integrated Services and Projects team with members from multiple disciplines – including flow assurance, formation evaluation, and completion design – developed a program for an unconventional onshore well in Mexico. The program resulted in oil production that exceeded expectations, which validated recovery of reserves in that developmental play.
  • In an offshore well, Weatherford installed a Renaissance® WDCL damaged-control-line repair system in two and a half days to replace a malfunctioning well-control barrier. Operated from the surface, the system helped to recover downhole safety valve functionality through a simple retrofit that did not affect productivity. This operation saved the customer a costly workover operation with additional savings in production estimated at $2.2 million.
  • A Canadian customer reached out to Weatherford to transfer a 45° well from progressive cavity pumping to rod lift. In response, engineers conceived and manufactured a unique pumping unit design that went from concept to final installation in just 10 months.

Eastern Hemisphere

Fourth quarter revenues of $653 million were down $29 million, or 4% sequentially and down $78 million, or 11% year-over-year. Sequential revenues declined in the Middle East associated with the completion of our land drilling rigs divestiture, offset by higher managed pressure drilling sales in Continental Europe and Production activity in the Middle East. Adjusting for the impact of the land rigs divestiture, revenues increased by approximately 1% sequentially. The year-over-year decrease was driven by a reduction of revenue associated with the completed closings of our land drilling rigs divestiture and lower Production product sales in the Middle East.

Fourth quarter segment operating income of $46 million was up $8 million sequentially and up $94 million year-over-year. The sequential improvement resulted from a favorable revenue mix in Continental Europe and Asia combined with cost savings and operational improvements from transformation initiatives. Compared to the fourth quarter of 2017, operating income improved as a result of the incremental benefits from our transformation program and the reduction of low-margin product sales.

Operational highlights in the Eastern Hemisphere during the quarter include:

  • Weatherford deployed the world's first integrated single-trip completion solution known as the TR1P™ system in a deepwater well off the coast of West Africa. Compared to other identical wells previously completed in this field, the system reduced the total rig time to drill and complete the well by three days.
  • Using Vero® automated connection integrity, Weatherford made up more than 400 connections to OEM specifications for an operator in the Middle East. Vero technologies applied computer-controlled precision, which increased the consistency of makeup results, and streamlined equipment requirements, reducing rig-up and rig-down times by 50 percent.
  • ADNOC Offshore awarded Weatherford a $50 million contract to provide rental tools, pressure control equipment, and intervention services. Weatherford was selected for the contract in line with ADNOC's In-Country Value strategy and commitment to engaging with and supporting the local private sector.
  • After considering four companies for a liner-hanger contract in the gas fields of Oman, an operator awarded Weatherford the largest share of the complex applications worth approximately $30 million. Following recently announced wins in the Middle East, this contract signals further strengthening of the Weatherford market position in the growing gas market in the region.
  • An operator in the United Kingdom awarded Weatherford three-year contracts for two exploration wells and 48 abandonments. The contracts involve managed pressure drilling, tubular running, drilling and rental tools, liner hangers, and fishing services.
  • Weatherford was awarded a project in Iraq for a new high-flow production product, the Weatherford Horizontal Pumping System, powered by Valiant. Four of these complete systems are scheduled for delivery in the first half of 2019.