Weatherford International plc (WFT)

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Weatherford International Ltd. (WFT)

Q3 2009 Earnings Call

October 19, 2009 8:30 am ET

Executives

Bernard Duroc-Danner - Chairman, President and Chief Executive Officer

Andrew Becnel – Chief Financial Officer

Analysts

Jim Crandell – Barclays Capital

Ole Slorer – Morgan Stanley

Dan Boyd – Goldman Sachs

Bill Herbert – Simmons & Company

Mike Urban – Deutsche Bank

Brad Handler - Credit Suisse

Geoff Kieburtz – Weeden

Presentation

Operator

(Operator Instructions) Welcome to the Third Quarter 2009 Weatherford International earnings conference call. I would now like to turn the presentation over to your host for today's call, Mr. Bernard Duroc-Danner, Chairman, President and Chief Executive Officer.

Bernard Duroc-Danner

First as usual Andy and I will read our prepared comments. Andy, you’re first on.

Andrew Becnel

For our third quarter of 2009 we report fully diluted earnings of $0.13 per share before excluded items. The two excluded items total $15 million after tax or $0.02 per share. There were first, $9 million in after tax costs incurred in connection with our ongoing government investigations and second $7 million in after tax changes for severance and facility closures.

In addition to falling short of our own expectations with the bottom line this quarter was a messy one. The $0.13 number which is up $0.03 sequentially does not tell the whole story. The results include a $0.05 benefit due to our reduced tax rate for the year, 3.3% which is partially offset by $0.02 of negative impact due principally to unusually high FX book losses and settlement of the legal claim.

Within the quarter was a $27 million non-cash benefit due to the revaluation of contingent consideration from an acquisition under FASB-141R business combinations. This is mostly offset by other adjustments going both ways.

At the field level, international results were down but were offset by the seasonal improvement in North America. Two thirds of the international decline came from Latin America where a combination of poor weather and delays severely hampered our financial performance.

On a consolidated basis sequential revenue increased $155 million and earned 8%. International revenue was up $106 million and accounted for 71% of our companywide revenue. Though FS acquisition contributed meaningfully to international growth while the majority of improvement in North America came from Canada. On a year to date basis our international revenue is up 19% with Latin America up 78% on a 7% rig count decrease and Eastern Hemisphere up 2% on an 8% decrease in rig count.

Consolidated EBIT before corporate and R&D declined $10 million sequentially with operating margins at 12.2% down 140 basis points from Q2. North American margins were 5.4% compared to being at break even at Q2. International margins at 14.9%, 420 basis points. Year to date, international margins are 18.3% down 560 basis points compared to the same period last year.

Financial performance within our four geographic regions was as follows: North America, 29% of total revenue. Revenue increased $49 million or 9% sequentially. Canada was weaker then expected due to a combination of wet weather and some due customer activity. EBIT was $33 million up $34 million sequentially with incrementals of close to 70%. Through the third quarter, North America has sliced $500 million annualized from its cost structure, $160 million of which was fixed costs representing a 14% improvement on our cost structure. Drilling services, wireline and fishing and re-entry were the strongest contributors to the sequential growth in top line.

Middle East/North Africa/Asia/Pacific 28% of total revenue. Revenue increased $7 million or 1% sequentially against a 2% decrease in rig count. Strong performers were Saudi Arabia, Qatar, China, and Australia. Revenue was up $59 million or 3% on a year to date basis. EBIT was $102 million down $22 million sequentially and margins were 17% down 380 basis points. Delays in startups and deliveries as well as lower pricing hurt profitability though not any more than expected. Drilling services, integrated drilling and artificial lift were among the top performers.

Latin America 24% of total revenue. Revenue was up $59 million or 13% sequentially despite weather issues and reduced gas activity in Mexico. On average we operated 45 strings in Mexico up from an average of 33 strings last quarter. Those rigs that were unaffected by weather ran more efficiently then in the prior quarter.

As it pertains to weather, 14 of our strings operate in the Central and Northern part of the Chicontepec field which is a flat terrain with minimal infrastructure and is prone to flooding. In this area of the field we typically drill fewer wells per pad and on balance the wells are shallower. This results in an increased number of rig moves as compared to other areas of the field. In addition, we were able to perform far fewer completions then budgeted at the beginning of the quarter. This segment of well construction is particularly profitable for us as we perform all the services ourselves.

Equally damaging to Q3 results was the impact of fixed costs incurred while waiting for the weather. Revenue in total was up $637 million or 78% year to date ’09 versus year to date ’08. EBIT was $54 million down $31 million sequentially with margins down 800 basis points. The efficiency issues noted above were the major contributor to the decline. Also responsible were pricing declines of approximately 200 basis points which was roughly as expected. Drilling tools, artificial lift and wireline stood out as the top sequential performers.

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