Weatherford International plc (WFT)

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Weatherford International (WFT)

Q4 2010 Earnings Call

January 25, 2011 09:00 am ET

Executives

Bernard Duroc-Danner - Chairman, President, CEO

Andy Becnel - SVP, CFO

Analysts

Ole Slorer - Morgan Stanely

Bill Herbert - Simmons & Company

Brad Handler - Credit Suisse

Kurt Hallead - RBC Capital Markets

Angie Sedita - UBS

Marshall Adkins- Raymond James

Stephen Gengaro - Jefferies

Robin Shoemaker - Citigroup

Presentation

Operator

Good morning. My name is [Regina] and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International fourth quarter 2010 earnings conference call. All lines have been places on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the conference over to Mr. Bernard Duroc-Danner, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Bernard Duroc-Danner

Good morning. I'll turn it first to Andy for prepared comments and then I'll have my own prepared comments afterwards, as usual. Andy?

Andy Becnel

Good morning. For the final quarter of 2010 we report EPS of $0.21 before excluded items. This is a $0.03 improvement over last quarter but below our $0.23 guidance. The reported number excludes the following items, which add up to a $210 million after tax loss.

Book tax expense of $158 million, primarily as the result of a tax restructuring to migrate our Latin America legal entities out from under our US holding structure. Of this amount, $54 million was a cash expense. We expect this move to further strengthen the efficiency of our global tax planning efforts.

$34 million after-tax charge for tender premiums on the extinguishment of a portion of our senior note that's due in 2012 and 2013 -- recall that this tender, completed in October, straddled Q3 and Q4.

A $21 million after-tax reserve taken against accounts receivable balances in Venezuela -- while we believe we are contractually entitled to the full dollar amount of our invoices and are working with our customers to recover these amounts, this decision was taken in the context of the country's economic prognosis.

$12 million in after-tax severance costs related to restructuring initiatives and a non-cash after-tax benefit of $15 million related to the settlement of the TNK put. We settled the put in November for $47 million in cash, which was $15 million lower than the fair value at which the liability was recorded in September of this year.

We incurred no net cost related to our sanctioned country in FCPA matters this quarter. A reconciliation of all these items can be found on our website at weatherford.com.

As compared to Q3, the field contributed a $0.05 sequential step-up in earnings with internation operations flat and North America accounting for the entire increase. Included in these results are $50 million or $0.05 of write-offs globally, principally on inventory. This number was more significant than prior years in part due to our supply chain initiatives, which involve rationalizing facilities.

Increased interest expense reduced EPS by $0.02 sequentially in part as a result of the tendered bonds remaining outstanding for a portion of the quarter. Taxes came in at 16.2% compared to 16.7% in Q3.

On a consolidated basis, revenue increased $367 million sequentially or 14%, an advanced $475 million or 20% compared to the same quarter of last year. North America revenue climbed 14% sequentially and 70% compared to Q4 '09.

Artificial lift, drilling services and stimulation and chemicals posted strong results for the quarter. Oil directed and liquid rich plays continued to drive activity levels higher while reduced Gulf of Mexico operations continued to weigh negatively.

Eastern hemisphere revenue increased $107 million sequentially or 10% compared to 1% increase in rig count. Compared to the same quarter of last year, revenue increase $134 million or 13%. Algeria, Iraq and the UK had strong incremental performances as well assignments and mobilizations mark tangible progress in Algeria.

By country, improvements were the most widespread we've seen since late 2008 suggesting the very beginnings of a reawakening in this hemisphere. Drilling services, integrated drilling and completions were the top performers on a product line basis.

Latin America revenue increased 31% or $016 million on a sequential basis and declined 28% compared to Q4 '09. This increase is more modest than it sounds, though still marks the beginning of a stead improvement as last year's revenues were just -- last quarter's revenues were adjusted down by $55 million due to the events in Mexico.

Columbia continued to stand out in terms of incremental growth and Brazil completed deployment on the bulk of recently awarded contracts, which are expected to contribute notably to Q1 results.

Consolidated EBIT before corporate and R&D was $420 million, up $49 million sequentially, with operating margins at 14.5%. This is a 20-basis point decline compared to Q3. Compared to Q4 '09 consolidated EBIT before corporate and R&D was up $198 million or 89%.

In North America, operating income of $252 million stepped up 25% sequentially and margins climbed 180 basis points. Eastern hemisphere operating income was down $15 million sequentially with margins down 220 basis points.

As asset write-offs, heavy rains in Australia and mobilization expense in MENAA temporarily hampered profitability. Europe, West Africa, FSU operating income was flat sequentially with margins down 70 basis points.

Middle East Asia Pac operating income declined $15 million or 22% with margins down 340 basis points. Latin America profitability increased $12 million and margins were relatively flat versus Q3.

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