Q4 2019 Earnings Call

Outside of Argentina we continue to see sequential and year-over-year growth in Mexico as we execute our integrated Services projects online and offshore combined said adjusted ebitda for the Western Hemisphere was $63 million in the fourth quarter and increased 7% sequentially despite the corresponding eight percent decline in Revenue adjusted combined even a margin of 10% increased by 140 basis points sequentially with improved profitability in the United States driven by our cost improvement improvement efforts favorable product mix and stronger margins in Mexico.

These improvements more than offset the significant sequential decline in profitability in Argentina.

Let's move now to the Eastern Hemisphere Eastern Hemisphere combined revenues or 625 million in the fourth quarter reduced 2% Sequentially 4% versus per year and down 4% year-over-year when excluding the impact of the investors combined revenues in Europe sub-sahara, Africa and Russia declined 9% sequentially due to the non recurrence of a manage pressure driven Capital sale. I mentioned previously and seasonal activity reductions in Russia Middle East North Africa and Asia combined revenues of $3,086 million grew 2% sequentially due to increased production and completion product sales in the Middle East and drilling activity in North Africa, which was partially offset by lower activity in age. I was customer driving campaigns concluded.

Combined segment adjusted ebitda for the Eastern Hemisphere was 114 million in the fourth quarter and was down Thirty million. Sequentially the sequential Decline and adjusted ebitda was driven by the mayonnaise or drilling Capital sale seasonal activity declines in Russia. That's why that's costs associated with our land works the best years in the Middle East.

We ended the year with a healthier capital structure and eliminated 6.2 billion of that through our financial restructuring. We increased our available liquidity position and have no significant maturities 20-24 a capital structure is comprised of two point 1 billion of senior unsecured notes with cash of eight hundred million broken down between 618 of cash equivalents and 182 million of restricted cash. We have a $450 million asset-backed revolving credit facility and 195 million secong LC facility. Our abl was undrawn at the end of the year and with approximately 240 million of availability.

Our results in 2019 included several charges that were excluded from our adjusted ebitda and I'd like to touch on the main ones for the combined full year. We had charges for financial restructuring talking about three hundred million dollars cost of approximately hundred ninety million dollars associated with our ongoing cost Improvement efforts that consisted of severance facility closer range related expenses impairment charges and Goodwill and certain assets totaling 1.1 billion. This included a 737 730 million, excuse me impairment of our remaining Goodwill for our reporting units as well as 374 million of asset impairments and write-downs.

Finally before I turn to 2020. I want to know a couple of items that will help you establish a clean bass line for a full year 2019 combined results seem to be clear is the first two items of not being adjusted for as part of our calculation of adjusted ebitda.

first

The divestitures I mentioned earlier generated combined losses of approximately -10 million for the year and combined revenues of approximately hundred and fifty million with them already contained within our Eastern Hemisphere segment second. Our results were burdened by approximately fifty million of employee retention costs related to our financial restructuring that will not repeat back in 2020. I also want to note that starting in q1 of twenty-twenty or adjusted ebitda calculations will exclude the burden of non-cash stock-based compensation. We're making a strange to allow align how we Report with the way many use the metric and so it is a better proxy for our cash flow generation.

No, let me discuss the year ahead.

The industry was challenged throughout 2019 and clearly 20/20 will be even tougher the impact of a weakening demand environment for hydrocarbons due to the club in nineteen package has been exacerbated by plans from OPEC members and their Partners to introduce significant additional Supply into the market as a result. Our North American customers have recently made deeper wage to their Capital spending resulting in weaker demand for oil field products and services.

Moreover there are risks associated with potential operation and supply chain disruption travel restrictions government enacted measures that may negatively impact our ability to operate Thursday. We have developed plans to mitigate any disruptions and we continue to closely monitor the situation and we'll adjust as required given this development. We are retracting the guidance a company prepared in September of 2019 for the full year twenty-twenty and are on Words As We noted in the earnings release we're taking several actions. We were taking a general actions to structurally change our organization and reduce costs to improve profitability while these actions were already yielding improvements as we enter the Year. We're expanding upon them to right-size our business and response to current market conditions.

Our main objective in 2020 is to be free-cash-flow neutral by mitigating the impact of the expected decline in activity over and above what we initially projected Faith efforts include additional cost reduction initiatives lowering our Capital expenditures and benefiting from the unwinding of working capital as revenues decline. Let me provide additional commentary on this actions. We are further adjusting our cost structure particularly in North America where we now expect customer spending to decline 30 to 40% year-over-year versus our initial expectation of a ten to fifteen percent decline. We will adjust our size and structure to address the new reality food in downsizing certain product lines to focus on T basins. We are revisiting all of our forecast demand orders that do not have firm customer purchase orders, which requires Thursday.

to re-evaluate our money

Fraction capacity if you recall in 2018 and 2019, we downsized our manufacturing footprint and significantly reduced our locations. We will continue to reduce our manufacturing capacity to ensure that we have correctly correctly optimized our operation.

Our external supply chain continues to be an area of focus and one that presents opportunities going forward. We expect to lower our third-party cost through further consolidation of our supplier base negotiate favorable terms and pricing and adjusting our processes to ensure that we fully capitalize on the savings.

We will be exiting a handful of countries internationally based on the projected profitability for these geographies. There will also be a number of countries where we will re-examine our go-to-market strategy for competitive reasons. We will not be providing that detail on the specific countries and our immediate plans.

We are increasing the planned reductions for a global support structure. We took action during the latter part of 2019 and continued in the first two months of the year. I don't want to go into more details on this month apart from saying we are augmenting our plans in this area and that we will keep you updated as we progress.

In addition to the cost actions noted above we are significantly reducing Capital expenditures in light of the challenging Outlook with full year 2020 Capital spending expected to be in the 100 to 150 million range versus the $270 million that was spent in 2019.

The fluidity of the current industry environment prevents us from providing any updated guidance for 2020. However, I would like to provide some qualitative comments on the progression of our business office for the first quarter of 2020 compared to the first quarter of 2019.

For North America. We are seeing a revenue decline in the mid twenties consistent with a year-over-year drop in the United States recount in Latin America. We will see a revenue drop in the bucket double-digits primarily as a result of the lower activity in Argentina for the Eastern Hemisphere, excluding the impact of the investors. We expect to see Flatbush growth increased Training Services and Wireline activity in in the Middle East and Asia is offsetting the declines in Europe in Africa in a moment. Mark will know that we are starting to see activity disruption stemming from the pandemic and this guidance incorporates the impact of these as we understand them today.

Overall for the company we're expecting year-over-year decline in revenues in the low double-digits due to the magnitude of the reduction in North America despite this Revenue declined wage expect to see our queue 12020 adjusted ebitda to be flat to up from the first quarter 2019 levels and a comparable basis translating to a margin Improvement primarily results from our cost reduction efforts. We expect to see Improvement in free cash flow from q1 2019 levels of -8 $280 million which included approximately 560 million of interest payments the semi annual interest of approximately 115 on our current debt will be paid in the second and fourth quarters of every year are to watch 20/20 free cash flow will be burdened by tail costs associated with our financial restructuring. I'll close associated with prior-year corporate development activities and other payment wage.

Which we do not expect to recur.

And the next quarter's the total of this payment is approximately eighty million dollars outside of this payment. We expect free cash flow to be essentially break-even for the first quarter of 12:00, or I will now turn it over to Mark Mark. Thanks Christian and good morning everyone. As you know, 2019 was very challenging year for Weatherford. And I'd like to take a moment knowledge the enormous support that we receive from our stakeholders including our shareholders lenders customers vendors and particularly our weather for employees as we went through chapter eleven wage. I believe we're a better company today than we were a year ago, but it's not because we believe the financial restructuring resolved all of our challenges, as you know, weatherford's issues were more than just as capital structure wage operational and cost structure issues to we lost a transformation plan back in late 2017 early 2018 aimed at increasing our profitability by structurally changing.

Organization and streamlining decision-making to improve efficiency through this plan. We begin the process of standardizing simplifying and systematizing the way we work. We may study progress toward these goals throughout 2018 in a while Market head winds in our financial challenges in 2019 negatively impacted the pace of our transformation program. We did not stop working on improving our operations while we were in chapter eleven in North America. We restructure our business to be more efficient and profitable are reducing our footprint right off your head count and evaluating our product and service offerings as Christian described earlier. We significantly reduced our manufacturing footprint and began optimizing those operations. We met meaningful progress on reducing our Global support cost. We repaired our critical vendor relationships and began to make progress on realising better terms and pricing.

We maintained our focus on safety and service quality strengthen customer relationships and continue to be rewarded with new work from our customers. And finally we continued down the commercialization of disruptive new technologies, which included the weren't limited to Barrow automated connection Integrity are magnets rotary steerable system the foresight production optimization platform and our trip single trip completions technology.

Our International revenues accounted for just under 70% of our combined Consolidated revenues during the year offering Weatherford a diverse and attractive footprint particularly in the job market environment, excluding the impact of divestitures are combined International revenues grew by 6% year-over-year in 2019.

Our growth of these markets was possible because of close partnership with our customers who continued to Believe in Us and supported us throughout our financial restructuring.

Last year, we engaged in a proactive and transparent Communications campaign with our customers to achieve this goal. We hosted more than 30 technology Road shows in nine G zones with more than 7,000 key decision-makers the experience of these roadshows and the positive feedback. We received enhanced the way we engage with customers. They also yield a new sales opportunities some of which have all she realized in the Eastern hemisphere. Our operational success is in contract wins, leave us well-positioned in 2020. For example, we won a $220 contract with ADD knock to deliver directional drilling services with our Magnus rotary steerable system. We also received awards for fishing services and a five year award for casing handling and tubular running Services, We also want to fully integrated Rick contracts in one Well Services contract in one of the largest proven fields in Iraq.

These Awards highlight help.

We are selectively targeting integrated service contracts that fit our operational profile and Commercial requirements.

Finally, we were awarded our first integrated drilling project to date in the United Kingdom consisting of drilling Services manage pressure Drilling and tubular running Services the offering combines hexohm logging while drilling technology victus intelligent manage pressure Drilling and Barrow automated connection Integrity to deliver technically differentiated solutions to a rick contractor on behalf of a major operator, for example, the combination of MPD and lwd will maintain well Integrity to Total depth while providing valuable Reservoir data with Vero on the rig the operation were able to transition quickly to casing running and remove Personnel from the Red Zone to reduce risk the team achieved the first Milestone of the campaign in the fourth quarter of 2019 by providing the MPD system to the rig and we expect operations to commence shortly.

Despite the market issues. We faced in the Western Hemisphere and in particularly North America, we successfully delivered several technology-based solutions to our customers there in the US for example, Weatherford instead of a hundred twenty consecutive whip stocks with 100% single trip execution, the installation spans six operators involved several casing sizes Weatherford re-entry teams life 4,000 working hours and delivered an average Milling time of under three hours per run. This success was possible because of stringent adherence to processes and procedures and our market-leading kasing Baho NG technology in Brazil weather for delivered an integrated completion solution, which set a new depth record and save time in a deep water Santos Basin. Well, the rfid-enabled optimize your ball valve reduced operational Time by nearly 60% to further increase savings the opted out to tubing isolation valve facilitated the Christmas tree installation without requiring job.

Brookline Intervention, which saved the operator additional Rick time

And finally in Canada Weatherford was awarded a three-year artificial lift contract for heavy oil recovery under this contract weather for his providing reciprocating Rod lift equipment and services. As a part of the bank Weatherford is supplying or rotaflex pumping unit. Whose long-stroke boost productivity offers more complete Barrel Village. It creates less wear and tear on the surface and down whole equipment as you can see the latest technology offerings are opening new opportunities for Weatherford. And in 2020. Our organization will remain focused on expanding the market adoption of these products and services, which we recently introduced off. I look forward to updating you on our technology successes and future calls, but today I want to expand on our technology development in the area of digitalization and automation.

Embracing digitalization is the next step for our industry and our company and it's critical in helping our customers lower capex and Opex generate positive free cash flow, May reduce emissions and enhance safety across the board our digitalization strategy leverages our core competencies and applies industry 4.0 Concepts like the internet of things or m o t data analytics and cloud-computing. We're doing this through a mix of In-House development Legacy technology and strategic Partnerships with tech giants like Microsoft Google Amazon this strategy enables us to apply our domain knowledge in a meaningful way and keep development costs to a minimum a great example is within our Productions business office digitalization strategy yielded comprehensive production 4.0 Solutions the weather for its proprietary foresight ecosystem.

The foresight ecosystem delivers into and production performance solutions and drive.

As efficiencies across every form of lift from the wellbore to the point of sale for an asset or Enterprise the backbone of the ecosystem is of course the foresight production optimization completing a Computing platform. It is the key to helping our customers meet the objectives. I mentioned earlier and enables them to manage assets by exception put simply the system automatically identify as underperforming Wells pinpoints up with opportunities and then ranks each opportunity in terms of impact further. We use Predictive Analytics and physics-based algorithms to predict live failures before they happen. These prediction capabilities have been validated by Major Global operator to be more than 98% accurate.

The next step in our production 4.0 Journey was deploying the power of the foresight platform at the Well site via our next Generation controller called foresight Edge paired with I am able to equipment foresight Edge gives our customers autonomous artificial lift capabilities, which means that the well optimizes itself continuously. It acquires stores in a high frequency data leverages optimization models on the edge and sends instant iot based notifications to alert engineering teams, when human intervention is needed off today the foresight platform optimizes more than 50,000 Wells worldwide and then only two years since its release to put that into perspective at this moment. It's optimized more than 1 million barrels of oil per day or 1% of the world's total oil supply. It's used in an enterprise-level by some of the largest producing companies worldwide and we expect wage

Count to grow meaningfully in the near to medium-term.

Let's talk about a few of those 50,000 Wells a major operator in South America recently began installing foresight enterprise-wide. One of the first success stories was within a multi-well ESP lifted asset foresight recommended adjustments to the ESP systems and a number of those Wells which the operator quickly and acted in the field with these simple capex free measures are often investment paid for itself immediately by increasing production by 5% worth millions of dollars per year. I spent several minutes talking specifically about our huge generalization and automation efforts for production, but our digitalization Solutions are by no means limited to a single segment of an asset lifecycle whether an operator is drilling completing sidetracking of reducing we have or are developing comprehensive digital solutions that can generate economic value from day one and onward.

Based on numerous conversations and interactions during our technology roadshows. We understand that widgets alone want address our customers concerns or add long-term strategic value to their operation a while. We heard during these conversations that is that our customers want unique and cost-effective solutions that address their pain points and enable them to finish Wells faster and produce more for longer than they don't want to have to choose between best-in-class technology and then aggression, they need both our overarching strategy. Therefore is evolving the weather for Organization for one that was aligned around individual Technologies into one with Market Focus teams that integrate our Technologies and innovative ideas to provide our customers with market-leading well bore and Production Solutions.

providing efficient solutions to our customers means we've got to

Become more internally efficient to our profitability of profitability improvement efforts going forward or a combination of adjusting our operational footprint as well as further structural changes to our organization and the way we work to ensure that we get the full value of these efforts as quickly as possible. We've moved away from the broad transformation program with hundreds of initiatives that we ran prior to our financial restructuring and then instead narrowed our Focus to the opportunities with the highest yield.

Given the significant volatility in the capital and commodity markets are outlook for 2020 remains cautious. The spread of code 19 is increasingly impacting the outlook for global economic conditions and energy consumption. Remember to that oil and gas activity is the primary economic engine for many countries around the world and we're already beginning to see kovid 19 driven a activity disruptions in Asia the Middle East and Europe further still recent actions by members of OPEC dance Partners to increase production and offer discounts on crew or materially impacting the supply-demand balance, and it caused a precipitous decline in pricing with Brent and WTI down over 40% year-to-date.

The market is actively assessing these recent developments. Our customers are reassessing their Capital spending and we're actively working with them on their plans going forward. There is no question that there will be a memorial impact on customer spending activity levels and ultimately our results. However, the depth and length of such impacts in the timeline for Recovery are currently anyone's guess that said we expect the impact of recent events to be seen initially and to be the most pronounced in transactional Market such as North America while operators on land in the US or hedging approximately 50% for oil and 30% for natural gas. We expect a material decline in customer spending in North America. Year-over-year is operators focus on living within cash flow.

Moreover declines will be more pronounced versus capital expenditure budgets announced earlier this year internationally reductions in customer spending an activity are also expected but less pronounced than in North America, we expect reductions in customer spending to be more heavily weighted towards Drilling and completion activity with a lower impact on production spending to be clear production spending will not be immune but given lower Capital outlays versus Drilling and completing new wells in the associated return profile We Believe operators will prioritize spending on a metal barrels in this presents an opportunity for them to optimize their production.

In closing while we did have some some successes in 2019. We still have a lot of work to do as an organization and we're not satisfied with where we stand today. We expect meaningful head during the coming year, but we're committed to making improvements to our operations and throughout our organization. I believe weatherford's Geographic footprint and product mix offer us a differentiated position home particularly in this market environment and we have a healthier capital structure today. We're actively adjusting our cost base to prioritize cash flows and returns and are committed to improving our profitability and cash flows during 2020.

operator this

Police are prepared remarks. Will you open the call for Q&A? Yes. Certainly. We will now begin the question-and-answer session to ask a question. You may press the star then one on your touchtone phone. If you walk in speakerphone, please pick up your handset before pressing the keys to enjoy your question, please press star than to at this time. We will pause momentarily to assemble the roster.

And the first question comes from Mark Bianchi with Colin.

Hey, thank you and and good to talk to you guys again and worked first question just in terms of our plans to list on a major exchange. Could you offer any updated thoughts on that, please? Yeah. Yeah so mark, this is Christian. Let me take that one in June see if Marcus additional comments currently the company is in the gray sheets, which allow for institution to institution trading and we are expecting to be in the OTC pink sheets in the coming months off for a listing on a major exchange. We had a plan before the market volatility that occurred in the last a couple of weeks. Now we are now revisiting that plan with our board. So so at this point we just stay tuned.

Okay. I hope Marcus to try to get out as obviously as soon as practical, you know, we wanted to make sure we obviously need to get fresh start accounting finished and our filing before it made any kind of sense. You know, one time we were hoping that you know, maybe having another quarter in under our belt before it made time. You know, we begin our board will meet in a couple of days and we'll be revisiting, you know, whether it makes sense to to move faster than that. Just you know, just giving the market volatility, you know, it's it's it's was kind of a jump off on our our earlier decision making

Okay. Okay. Thanks for that Mark in terms of the progression of results from here, you know looking at first quarter, you mentioned the wrong kind of low double-digit Revenue declined year-over-year, but if it would be up slightly, you know, if I just kind of put a a normal decremental margin on your your over a year Revenue agent comment, you know, that's about fifty million dollars of headwind that you're obviously not going to see because of Cost Cuts. Could you talk about the cost cut that you're expecting in the first quarter and Beyond and and what type of kind of benefit that could be free pizza and if there's any cash associated with that that we should be thinking about it right? Let me let me Focus off the impact on on cash because that's clearly an important component of how we are moving forward. So going into the year we had actions in place to generate a bath.

hundred and fifty to two hundred million

Dollars of savings for the year to address the reduction in the US market and improve our profitability in addition. We were putting in place processes to improve working capital by about you know, eighty million and wage were having really good traction is the first two months of the year. That is why you see really good improvement in our ebit year-over-year now clearly that is no longer enough. We are now off planting those actions and I provided a number of initiatives here embarking on increasing the headcount reductions in both the US and Global support reducing manufacturing capacity that's in some countries and so forth. So we at this point we do not want to be prescriptive on the total amount we're aiming for because this is going to be a moving Target. We will have to see how the industry will progress in the coming quarters, but just to give you how I'm thinking about this and you know, as you know, Mark the oilfield industry has very high detrimental right because it's a fixed cost business and generate birth.

You know forty to fifty percent depending on geography and product line, so it gives you the magnitude of the impact of the lower revenues for working capital which is you know, we expect to have a benefit of that to offer support cash. Our days working capital is about a hundred and ten hundred twenty days which are trying to improve there's always a lag, of course between when you see the revenue flying and when the working class improves and when Monopoly got all of that Improvement for a variety of reasons, so but this gives you the an idea of the on the opportunity we have on the working capital side, and then the third component wage I mentioned mark, this is lower capex last year Scott Box is doing in seventy million and we are reducing it to be somewhere in the hundred two hundred and fifty million dollars range this year. So I hope that helps

Yeah, that that's great Christian. Thanks, and maybe if I could just one more Mark you made a lot of comments about digitalization and and as it relates to the lift offering that you have. Can you provide some commentary as to where Weatherford is today in terms of the the mix of lift offerings and and maybe specifically on the rod be outside, you know that used to be a very important business for Weatherford and I think some investors are starting to have some questions about that market, especially with some of the the other large catheters discussing about exiting the business.

So yeah, so I mean today, you know particularly with with some of our joint venture relationships, right Weatherford can offer customers every form of Lift-Off got everything in our portfolio to you know, our our catalog to be able to offer them. And and what we tried to do in building in our digitalization strategy is to make sure that that that platform can optimize any form of lift as well. Clearly you spoke specifically about the rattle of business, you know, you know to to be certain the rod live business has been stressed in North America particularly as unconventional and you know in the Permian Basin particularly has been basically an ESP Market, you know, and and and so that that certainly has been a a struggle over the last couple of years the the good news about Weatherford in this portfolio is we're a global business and we're in every Basin across, North, Georgia.

and so while the Permian is somewhat stress, you know, there are other basins that

Are not and of course, you know you go you step into the international markets the throttle of business continues to do pretty well. And so, you know, I think that some who may be thinking about getting you know have have a a narrow platform, you know, the it's not possibly a fully integrated offering you know and see it. But for me as I think about production itself, if our customers are serious about generating returns and cash flows and Wall Street becomes increasingly agnostic as to whether whether customers are spending capex or Optics, but we're really looking for, you know, watch delivering to the cash flow bottom line and returns. Then that that today means that the incremental Barrel the cheapest highest return Barrel is that next Barrel that can be produced out of an existing well and I think increasingly particularly in a stressed Market when customers are are trying to figure out how to generate more wage.

With substantially less recoveries, you know production has to get more attention than it is and that and at some point every single well needs to go onto Rod lift wage. I mean that that some point, you know, Rod business, you know remains and so, you know, we're if anything, you know, I'm trying to in some ways lean into that business right now because I think it needs to be increasingly important.

Little different strategy, but that's where I'm at.

Thank you. And the next question comes from Shawn speaking with JPMorgan.

Thank you. Hey, good morning. Hey Shawn is Shawn.

Marc Christian historically has been a lag between changes in oil prices and changes in your customer activity, you know North American EMP sound like they're going to be much more reactive. We've already heard from more than a dozen that they plan to reduce budgets, you know, as you mentioned perhaps down Thirty or forty percent internationally budgets historically are pretty set in stone. Once we once we got into the year, we're now we already heard from a few. I know Season ioc's that maybe there's going to be more flexibility. Could you just talk about how that Dynamic could be changing in the current environment and then the read through to the operator for Weatherford.

Yeah, thank you. This is Carl Blanchard. I'll take a shot at that. It is very Dynamic. Clearly. The expectation is the dramatic drop off and Katja ending in the United States. To be honest with you while we're seeing those announcements and clearly those actions will under will execute the activity internationally today is more disrupted and I mean the last couple of weeks has been more disrupted around Covent nineteen and issues around move people and ability to execute but on the capital side, we've actually had a couple of clients come to us talking about being prepared for increased activity in the international sector and and this relates some to the the results of the OPEC meeting a couple of weeks ago. So it is a mixed bag dead.

but as

The general rule we are seeing steady as it goes in the international markets. There will be some up and there will be some down but I don't think that we can forecast yet today the actual impact that will happen in international markets. It's a little bit more clear and we've all seen a long history in the US so we can see that a little bit with a clear lens right Shaun So here if I can add to that the Carlos absolutely right down by region and the way we're thinking about this is there will be some components of the international regions that are susceptible to short-term fluctuations of the oil price. And therefore, you know, how they would be going. There are others as meant by Scar mentioned like the Middle East of our longer-term projects plus plus their plants are actually getting more robust and therefore maybe helps us provide some stability into our home.

operation International operations

got it. Thank you for that. And then in the prepared comments, you mentioned plans to reduce your footprint in certain geographies as part of your cost savings and issues. Can we talk about em, you see the overall portfolio today in terms of services and products. We talked about lift a little bit, but maybe come where are you best position where their opportunities to high-grade going to be exit off of the portfolio just and how that's impacting your capex budget for this year would be helpful. All right. So Sean, let me take a stab at this and maybe Mark and Carl can can provide additional caller first month as I mentioned in my prepared remarks. We're not going to provide kind of more detail a lot of detail around this area simply because their their own customers involved here. So we we really think about it in three in three segments of the of our International operations those that we absolutely need to fix. Those are

Certain countries for the oil and gas business and therefore we have to have a strategy on how to fix fix it. The second is those that are just unprofitable and off due to be unprofitable and they do not really matter much on the on the on the oil and oil and gas industry and and as such we will have to wage really materially shrink our footprint for those and that's just a handful and then there's there's those that as you pointed out, you know, is there a way to actually change the way we go to market their whether it's using more product-focused rather than service and all of that. So those are the kind of the thought process that we're having to do right now, we've identified suck some of those that we will be exiting and just a handful and those that we will be changing the way we go to market. So you also asked the question about the portfolio and just let me page.

Established that you recall prior to our financial.

Structuring we we sold several businesses a couple of those were obviously very capital-intensive not very profitable, you know to drink cash flows big Capital requirements the pressure pumping business in North America that we sold back in 2017 and then the international land rig business which you know, we've sold in in pieces. We still got a few countries of things that we still have to wrap up but we're you know, we're basically, you know about to finish all that up wrap it up hopefully in the next quarter or so and get all of those done. Then there were a couple of businesses that we sold in part and you know, trying to find ways to address our financial situation, you know, where they had we thought that they might have more attractive or another buyer a higher multiple than the the broad business that we carried, you know, that would serve as a delivery mechanism one was in particular was our Labs business beyond that, you know, we were there was nothing that wage.

Felt like was unnecessary in the portfolio. And so it's on the other side of financial restructuring. I'm very happy with the portfolio that we have think it's kind of important for the markets that we address and and so we're we want to hang on to those. You know, I still would like there a couple places that you know, we would like to expand our business. We have a great home business in Latin America, which I think you know, we would like to to organically grow as we as we think about expanding our ability to execute integrated projects in New Jersey and elsewhere, you know, we uh, the the while we have alliances around the ESP. I'd like to have a stronger and broader offering in the business, you know, we've always talked about that and so that necessarily hadn't changed but beyond that, you know, we're pretty we're pretty happy. Of course, you know, we recognize, you know currencies scarce right now wage.

For us and and and I think that you know while I I have those dreams, you know, I don't see that as something that's probably you know here in the in the next little while until markets get their life underneath them and we we particularly, you know, our first order of business is, you know, generating cash flow and returns and getting our business profile operating the way it should before we decided we're going to take off too much more but I think that you know, the portfolio itself. I'm really happy with and I think as we said we're going to make tweaks around the world based on Wednesday we do those but I think what we do continues to be very very important. You don't having the the current integrated profile we have

Thank you. And the next question comes from James West with evercore is I

Hey, good morning. Mark morning Christian. Good to hear from you guys again doing doing good doing well. As we all came environment the drinks exactly a living the dream of virtual dream. I think Mark your returns guy. You always have been in your in your predecessor companies that you're Weatherford wage. You think about maximizing your return profile in the context of you know, a cost of capital that's going to go up a list here of volatile, you know Market situation in North America and in the international environment, what are the levers that you can pull to to make sure the Weatherford is is earning it's appropriate return relative to to Something's appears and then and and just in general.

Well, it's a it's a great question. Of course, you know, there are multiple.

You know when I came here I saw you know, I felt like Weatherford itself was an under returning business, you know, its cost structure was too high relative to the business that was supporting. I think that the lack of integration across the portfolio required a a a two large footprint fixed cost structure relative to what it was doing. All right, you know those are you know, first and foremost it's it's really working on and continue this journey of integrating the company standardizing the way that we do everything from you know, the front line, you know in terms of locations and you know how we how we go to market but then also even in the back office and the support structure and how payroll be done, you know as something as basic as that and so that you know continue to reduce the fixed cost structure itself is actually pretty dramatic dead.

Upward lift on returns itself. The second thing was you know by by introducing a different discipline in the way that we bought. Uh, we tend to work we plan projects and all that. You know, I mean, we've got now mechanisms built in so that you know, their business cases around, you know, what what are our sales force in you know, if we're if we're looking at participating in tenders around the world, you know, it's got to be profitable and we're going to make money at it and we have to understand what the what the what the capital Investments going to be in build that in and and and doing so allows us to to actually have a sharper pencil on the way that we execute capex. So rather than giving people a lot of discretion about spending money, you know, we're a bit stingy Ur about, you know, continuing to use of course then you know, I thought you know, everybody who's walked in the door Sees significant working capital investment.

It's it's on the balance sheet, you know continue to draw that down again through better processes creates a huge, you know amount of uplift now. All those are things that are obviously working on the the off the ebitda, you know, the the the top, you know part the numerator in this but you know, the the other side of this is also thinking about the cost of capital, you know, exiting a restructuring, you know, we you know, we still have you know, we we've we've got a a more comfortable amount of debt, but we're only going to try to do things that we're going to continue to pull that down. We're going to look for opportunities to reduce the cost of capital particularly associated with that cost of debt if there's if they're mechanisms that can do that job, you know, we want to be able to do that and and then the final thing of course for me. I also understand that there in the relationship with our Equity cost of capital, you know our lack of predictability.

You know for overtime has been an issue and so, you know.

We're going to you know, you know part of Mister Garcia's, you know, presence here is you know, it's healthy mean, you know, do a better job of making sure that we're not only way we are making good commitments, but there were following through on the commitments that we make to Wall Street, you know, so that ultimately that that Equity cost of capital begins to narrow a little bit off all those, you know, sort of drive it that generating better returns.

Okay, okay that all changed our compensation we changed our compensation structure coming into this year. You know we are now going to be you know, our bonus scheme is going to be you know, based on cash flow and return home. So, okay good. We're that's Weatherford is come full circle where we are. That's that's that's good to hear and then maybe just a follow-up for me on the international side of the business is obviously puts and takes I know we're seven days into you know a price crash, but could you maybe give us at least your initial first month plus kind of how International plays out. Do you have some some Pockets where Weatherford traditionally been very strong we're spending should go up and then of course, there's there's to be pocket same thing goes down. But how do you guys think about this year playing out? And again, I won't I won't hold you to this cuz we are only 7 Days in

Let me start it. I may I may ask Carl to provide some additional color. But you know as he said I think the puts and takes is it's been quite interesting, right, you know something we didn't necessarily seem 19 roll through, you know, everybody, you know, of course you in New York or shut down. Well Kuwait's been shut down, you know has been shut down. I mean we're seeing you know, that that choice of rolling a few 3 to 4 to 5 week kind of disruption through Asia and the Middle East and now moving into Europe Romania and other little horse and other other locations as the the pandemic sort of moves around the world. So there's that little disruption thing, but that separately what we're off in the initial conversation those countries that it basically said we're dialing up production as a result of the lower oil prices or the or their commitments their ability to dial up production wage.

Is price war or also coming in and saying okay that dialing up production means we're we got to be prepared to support that higher production level and we need you guys to be prepared. So, you know be flexible and shipped with us so you can kind of walk through it and who's talked about that. It's been you know, Saudi Arabia has been Kuwait the Emirates have mentioned those things. I mean clearly even in Russia, you know, Russia's and talking about it. So we're we're just a lot of his conversation right now, but we're we're trying to make sure that we retain plenty of flexibility to be responsive in those markets and and of course for us in the Middle East, you know, that's a that's a hugely important Market. Yeah James I think real quick the other aspect of it and international the you've got a lot of large ioc's a lot of offshore projects and there's much more stability and steady job.

That's even in the recent few days in those organs.

Reservations about managing through this as opposed to to any kind of big reaction. I mean, I think it'd be a little bit not prudent to believe that you know, it's nice to have an impact overall but significantly less overall impact an international rate in between the nocs being long-term and ioc is being long-term players.

Thank you. And the next question comes we've heard call ahead with RBC.

Good morning. Good morning in Christian. Welcome back by say you're a little bit crazy for doing that but I can understand I can understand the persuasion bark McCallum. So all good good. So hey, I appreciate you know all the color and and all the challenges Mark especially on your end. You've gone through, you know, since you've taken over that role, so I'm just curious in the context of maybe you can give us a little bit more, you know color around kind of the free cash flow Target. Do you have you know, that that kind of drive that compensation and then just given all the Dynamics that have played out over the course of the past week. You know, how how were you stress testing, you know those cash flow Dynamics and you know, maybe they've just give us some color around that I know everybody's thinking about this on the fly back and then real time but any additional color you could probably would be great. Thanks. Right, right. So obviously I talked about the working title. And why do you have the working capital and the cost and issues if they have birth?

Just to give you kind of what what we what outgoing cash outflows. We need to cover to break even and to break even on the free cash flow basis. So we have interests of 230 million after taxes of about a hundred million and capex of hundred and fifty million, right? So so and then we we will have restructuring obviously in other sundry items that is about $152 million. So those outflows need to be covered by both the cost initiatives that we have as well as the unwinding of the working capital. So it gives you kind of the math of how I'm thinking about how may I call for this to to make sure that we break even cash flow for this year?

Great. Let me get a follow up in terms of the debt reduction or how you can go about you know, reducing your debt load over time and what that might require, you know from an overall activity or a cash flow standpoint. Can you give us some color around that so so in terms of the notes, we have a two point 1 billion dollars of notes that is matures and 2024. So we have lots of time here but off but the the way we think about this is that there's five hundred million that's callable, right? So depending on how we do it either refinancing it or or actually, you know, getting some some sort of funding from a you know, kind of a different funding source than that that is that is one of the things that we are very focused on

With that I'd like to turn it back over to the operator to close the call. Thank you all for joining us today. Yes, ladies and gentlemen that concludes today's conference call. Thank you for your participation off lights.