Weatherford International Ltd. (WFT): Growing Global Oil Demand will Ensure Long-Term Growth

Weatherford International is an oil field service provider that is planning to capitalize on the increasing engagement of drilling and completion activity by the oil-producing companies in order to meet the growing global oil demand. Additionally, the crude oil price is also improving, which in turn spurs oil producers to increase production. Generally, the increase in production could be through drilling new wells and using different technical advancements in existing wells to ensure stable production. The oil producers and explorers are focusing on improving production techniques and are expected to spend more in the coming years. Technical advancements like efficient drilling, casing, pressure pumping, and artificial lifting are the best practices by the oil producers across the world to sustain long-term stable production.

Weatherford offers advanced and wide oil field service products that include drilling service, well construction including casing, artificial lift systems, and well-completion systems. These products are offered individually or bundled together at the oil-production sites. As more drilling in the oil-producing shale is expected in coming years, the company through its operation in more than 100 countries has viable long-term growth prospects.

Weatherford’s artificial lift system will strengthen the top line

Artificial lift systems are primarily used in oil wells to increase the reservoir pressure towards the surface. This technique is useful where the natural pressure under the reservoir is not enough to push oil upside. Thus, the oil-producing companies use artificial lifts to recover the reservoir oil and ensure stable long-term production from the oil producing wells. In the U.S., 96% of the total oil wells require artificial lift techniques. The global market revenue for artificial lift segment will reach $16 billion by 2018 with a compounded annual growth rate (CAGR) of 9.5% from 2013 to 2018. North America has dominated the global market of artificial lifts with 45.5% revenue in 2012. Europe, along with South and Central America, the Middle East, and Africa, is expected to see growth in this market by 2018.

Weatherford is one of the leading providers of artificial lifts and holds one-third of the total domestic artificial lift market. Weatherford’s artificial lift system ensures that the producing company can capture more resources compared to the traditional process. Its artificial lift system helps to reduce the maintenance cost while increasing the well’s production life. The company’s artificial lift system comes under its completion and production segment. This segment contributed 39% of the total revenue during third quarter. The artificial lift system under this segment is the key driver for revenue improvement. As a result, during the third quarter last year, the company’s North American segment revenue improved by 4% with stronger artificial lift results compared to the previous quarter. Although due to increased pricing pressure, it has shown a decline in revenue by 7% compared to 2012. With the projected market revenue growth of this technique internationally, Weatherford should still manage to improve its top line.

Another major player, Schlumberger (SLB), also provides oil field services and equipment to the oil producers. Its production group includes well intervention, completion, and artificial lift systems. As the demand of drilling efficiency among the oil-producing companies is increasing, more improved oil field service techniques are provided by the oil field service providers. This focus on efficiency is likely to create more demand for services like Schlumberger’s HiWAY. This technique is a well-fracturing service used for the extraction of shale oil and gas. This service has increased oil production by 20%. With the growing demand of these products, Schlumberger experienced an 8% improvement in its overall production group segment revenue during the fourth quarter of 2013.

Increasing rig count will be a success factor

50% of Weatherford’s non-core business revenue comes from its land-rig operation. Weatherford has improved upon its consolidated revenue of $1 million during the third quarter. The company’s formation evaluation and well construction segment contributed 61% of the total revenue. It includes drilling, casing, and laboratory services etc., and is considered to be the primary source of Weatherford’s financial performance. This segment’s revenue depends on the company’s working rigs in the oil field and other drilling-related services. Although Weatherford’s total number of rigs in North America has decreased by 4% during third quarter in 2013 due to price related issues, the company’s international rig count has increased at a steady rate. As a result, the international revenues increased by 6% to $129 million compared to the third quarter of 2012.

With growing oil demand, oil-producing companies are seeking more rigs for higher production, which in turn results in more rig counts. North America has witnessed a growth of 23 rigs last week in the U.S. and 88 rigs in Canada. Apart from that, the international rig count has also improved. With Weatherford’s North American operation and with increased drilling activity in the Eastern hemisphere, the company is expected to witness a strong improvement in its formation evaluation and well-construction revenue.

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