Weatherford International plc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. As used herein, “Weatherford,” the “Company,” “we,” “us” and “our,” refer to Weatherford International plc, a public limited company organized under the laws of Ireland, and its subsidiaries on a consolidated basis. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included in “Item 1. Financial Statements.” Our discussion includes various forward-looking statements about our markets, the demand for our products and services and our future results. These statements are based on certain assumptions we consider reasonable. For information about these assumptions, please review the section entitled “Forward-Looking Statements” and the section entitled “Part II – Other Information – Item 1A. – Risk Factors.” Overview We conduct operations in over 75 countries and have service and sales locations in oil and natural gas producing regions globally. Our operational performance is reviewed on a geographic basis, and we report the Western Hemisphere and Eastern Hemisphere as separate, distinct reporting segments. Our principal business is to provide equipment and services to the oil and natural gas exploration and production industry, both onshore and offshore. Our two product lines are as follows: (1) Completion and Production and (2) Drilling, Evaluation and Intervention. • Completion and Production (“C&P”) offers production optimization services and a complete production ecosystem, featuring our artificial-lift portfolio, testing and flow-measurement solutions, and optimization software, to boost productivity and profitability. In addition, we have a suite of modern completion products, reservoir stimulation designs, and engineering capabilities that isolate zones and unlock reserves in deepwater, unconventional, and aging reservoirs. • Drilling, Evaluation and Intervention (“DEI”) comprises a suite of services ranging from early well planning to reservoir management. The drilling services offer innovative tools and expert engineering to increase efficiency and maximize reservoir exposure. The evaluation services merge wellsite capabilities including wireline and managed pressure drilling. We also build or rebuild well integrity for the full life cycle of the well. Using conventional to advanced equipment, we offer safe and efficient tubular running services in any environment. Our skilled fishing and re-entry teams execute under any contingency from drilling to abandonment, and our drilling tools provide reliable pressure control even in extreme wellbores. Financial Results and Overview Revenues totaled $832 million in the three months ended March 31, 2021, a decrease of $383 million, or 32%, compared to the three months ended March 31, 2020. This was primarily a result of a decline in demand for services and products related to the global health and economic crisis related to the COVID-19 pandemic, which began negatively impacting our business and industry late in the first quarter of 2020. Our revenue decline was predominantly driven by lower activity levels across both our C&P and DEI product lines. Revenues decreased 1% sequentially, with 6% decline in the Eastern Hemisphere driven by lower activity levels across both our C&P and DEI product lines, offset by 5% growth in the Western Hemisphere due to increased DEI sales and seasonally higher activity in North America. Consolidated operating results in the three months ended March 31, 2021, improved $809 million, or 98%, compared to the three months ended March 31, 2020, and improved 88% sequentially, primarily from lower impairment and restructuring charges and a decline in our research and development expense reflecting the cost improvement initiatives that were implemented during 2020. These cost improvements were partially offset by the decline in demand for our products and services due to the COVID-19 pandemic. Segment operating income in the three months ended March 31, 2021 was $5 million , a decrease of $42 million compared to the three months ended March 31, 2020. The decrease was driven by the decline in demand for services across both our C&P and DEI product lines. Segment operating income decreased $8 million sequentially, driven by the lower activity levels in C&P and DEI in the Eastern Hemisphere offset by increased activity and operating improvements in the Western Hemisphere. 16 Table of Contents Significant Impairments and Other Charges For the three months ended March 31, 2021, we did not have significant impairments and other charges. For the three months ended March 31, 2020, significant impairments and other charges totaled $843 million and included $640 million of long-lived asset impairments, $167 million of goodwill impairment, $26 million of restructuring charges and $10 million of other charges. Exchange Listing In March 2021, we filed a Form 10 Registration Statement (“Form 10”) with the United States Securities and Exchange Commission (“SEC”) to register our ordinary shares pursuant to Section 12(b) of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”), with no additional shares to be offered for sale. The Company’s voluntary filing of the Form 10 is subject to SEC review and, upon its effectiveness, we will be subject to the reporting requirements of the Exchange Act. In conjunction with the Form 10 becoming effective, we have applied to list our ordinary shares on The Nasdaq Stock Market LLC stock exchange (“Nasdaq”) under the ticker symbol “WFRD”, subject to approval from Nasdaq and the Company’s compliance with the applicable listing requirements. We currently expect that the registration and listing process will be completed during the second quarter of 2021. Industry Trends The level of spending in the energy industry is heavily influenced by the current and expected future prices of oil and natural gas. Changes in expenditures result in an increased or decreased demand for our products and services. Rig count is an indicator of the level of spending for the exploration for and production of oil and natural gas reserves. The following charts set forth certain statistics that reflect historical market conditions. The table below shows the average oil (West Texas Intermediate (“WTI”)) and natural gas (Henry Hub) prices during the three months ended March 31, 2021 and 2020. Three Months Ended 3/31/2021 3/31/2020 Oil price - WTI (1) $57.79 $45.76 Natural gas price - Henry Hub (2) $3.56 $1.91 (1) Oil price measured in dollars per barrel (rounded to the nearest dollar) (2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu The historical average rig counts based on the weekly Baker Hughes Company rig count information were as follows: Three Months Ended 3/31/2021 12/31/2020 3/31/2020 North America 538 399 981 International 698 663 1,074 Worldwide 1,236 1,062 2,055 17 Table of Contents Global demand for oil was lower in the first quarter of 2021 compared to the first quarter of 2020, as the COVID-19 pandemic which began late in the first quarter of 2020, remains ongoing. Beginning in the first quarter of 2020, governments around the world responded to the COVID-19 pandemic with lockdowns, resulting in significantly reduced travel. Global stocks of crude and refined products increased as oil supply could not respond quickly enough to balance the market. These factors contributed to the resulting precipitous decline in commodity prices through the remainder of 2020, rising oil and gas inventory levels, decreased realized and expected levels of oil and gas demand, decreased level of production capacity and geopolitical uncertainty. During the second half of 2020, the Organization of Petroleum Exporting Countries (“OPEC”) led a supply alliance that agreed to production limits, which stabilized and improved oil prices. During the three months ended March 31, 2021, oil and natural gas prices have improved and with less volatility compared to prior year, however rig counts remain approximately 40% lower than the same period in the prior year as our industry adjusted operational structure in the last year in response to lower demand. Business Outlook The COVID-19 pandemic, customer activity shutdowns, travel constraints and access restrictions to customer work locations continue to cause significant uncertainty for the global economy, resulting in the decline in the global demand for oil and gas in the first quarter of 2021 compared to the first quarter of 2020. We continue to closely monitor the global impacts surrounding the COVID-19 pandemic, including operational and manufacturing disruptions, logistical constraints and travel restrictions. We have experienced and expect to continue to experience delays or a lack of availability of key components from our suppliers, shipping and other logistical delays and disruptions, customer restrictions that prevent access to their sites, community measures to contain the spread of the virus, and changes to Weatherford’s policies that have both restricted and changed the way our employees work. We expect most, if not all, of these disruptions and constraints will continue to affect how we and our customers and suppliers work. We continuously improve crew rotations and management practices to minimize our employees’ exposure to COVID-19 while at client facilities. Our identification and management of COVID-19 cases evolve with the latest guidance through the development of updated protocols, advanced testing and response procedures. Faced with these challenges, we evolved our digital portfolio and enhanced our applications to offer fully-integrated digital oilfield solutions. We also increased our offerings of automated well construction and remote monitoring and predictive analytics related to our product offerings. Oil prices have risen recently, buoyed by recent supply policies led by OPEC and other high oil exporting non-OPEC nations (“OPEC+”). We expect continued improvements in our customer activity levels with the ongoing COVID-19 vaccine rollout and multinational economic stimulus actions which is expected to provide a measured pathway to oil demand recovery throughout 2021. We anticipate industry activity will continue to slowly recover in the second half of 2021, with higher activity levels more likely to occur during 2022. We expect our consolidated revenues in 2021 to align with current activity levels and are expected to be in line with our annualized second-half 2020 results. This is expected to be comprised of growth in the Western Hemisphere of low- to mid-single digits, and contraction in the low-single digits in the Eastern Hemisphere. The oilfield services industry growth is highly dependent on many external factors, such as the global response to the COVID-19 pandemic, our customers’ capital expenditures, world economic and political conditions, the price of oil and natural gas, member-country quota compliance within the OPEC, weather conditions and other factors. Opportunities and Challenges As production decline rates persist and reservoir productivity complexities increase, our customers continue to face challenges in balancing the cost of extraction activities with securing desired rates of production while achieving acceptable rates of return on investment. These challenges increase our customers’ requirements for technologies that improve productivity and efficiency, which in turn puts pressure on us to deliver our products and services at competitive rates. In addition, as consolidation of the oil and gas services industry continues due to market conditions, there has been an increased demand for companies with specialized products, services and technologies. We believe we are well positioned to satisfy our customers’ needs, but the level of improvement in our businesses in the future will depend heavily on pricing, volume of work, and our ability to offer solutions to more efficiently extract oil and gas, control costs, and penetrate new and existing markets with our newly developed technologies. Over the long-term, we expect the world’s demand for energy will rise from current levels requiring increased oil field services and more advanced technology from the oilfield service industry. We remain focused on delivering innovative and cost-efficient solutions for customers to assist them in achieving their operational, safety and environmental objectives. 18 Table of Contents Our challenges also include adverse market conditions that could make our targeted cost reduction benefits more difficult to recruit new and retain existing employees. Increasing investor and government focus on environmental and social governance factors can impact demand for our products and services. The cyclicality of the energy industry and the pandemic continues to impact the demand for our products and services which strongly depend on the level of exploration and development activity and the completion phase of the well life cycle or on the number of wells and the type of production systems used. We are following our long-term strategy aimed at achieving profitability in our businesses, servicing our customers and creating value for our shareholders. Our long-term success will be determined by our ability to manage effectively the cyclicality of our industry, including potential prolonged industry downturns, our ability to respond to industry demands and periods of over-supply or uncertain oil prices, and ultimately to generate consistent positive cash flow and positive returns on the invested capital. Results of Operations The following table sets forth consolidated results of operations and financial information by operating segment and other selected information for the periods indicated. Favorable (Unfavorable) Three Months Ended Seq YoY (Dollars and shares in millions, except per share data) 03/31/21 12/31/20 03/31/20 % Change % Change Revenues: Western Hemisphere $ 390 $ 372 $ 588 5 % (34) % Eastern Hemisphere 442 470 627 (6) % (30) % Total Revenues 832 842 1,215 (1) % (32) % Operating Income (Loss): Western Hemisphere 24 14 29 71 % (17) % Eastern Hemisphere (19) (1) 18 (1,800) % (206) % Total Segment Operating Income 5 13 47 (62) % (89) % Corporate (18) (31) (26) 42 % 31 % Total Operating Income Before Impairments, Restructuring and Other Charges (13) (18) 21 28 % (162) % Impairments and Other Charges — 3 (817) 100 % 100 % Restructuring Charges — (92) (26) 100 % 100 % Total Operating Loss (13) (107) (822) 88 % 98 % Interest Expense, Net (70) (70) (58) — % (21) % Reorganization Items — — (9) — % 100 % Other Expense, Net (4) 3 (25) (233) % 84 % Loss Before Income Taxes (87) (174) (914) 50 % 90 % Income Tax Provision (23) (21) (44) (10) % 48 % Net Loss $ (110) $ (195) $ (958) 44 % 89 % Net Income Attributable to Noncontrolling Interests 6 5 8 (20) % 25 % Net Loss Attributable to Weatherford $ (116) $ (200) $ (966) 42 % 88 % Net Loss per Diluted Share $ (1.66) $ (2.87) $ (13.80) 42 % 88 % Weighted Average Diluted Shares Outstanding 70 70 70 NA N/A Depreciation and Amortization $ 111 $ 116 $ 157 4 % 29 % 19 Table of Contents Consolidated and Segment Revenues Revenues totaled $832 million in the three months ended March 31, 2021. This is a decrease of $383 million, or 32%, compared to revenues in the three months ended March 31, 2020 was primarily a result of a decline in demand for services and products related to the pandemic, which began negatively impacting our industry late in the first quarter of 2020. The sequential consolidated revenue decline was 1%, with 6% decline in the Eastern Hemisphere driven by lower activity levels across both our C&P and DEI product lines offset by 5% growth in the Western Hemisphere due to increased DEI sales and seasonally higher activity. Western Hemisphere revenues decreased $198 million, or 34%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to lower demand for service and product activity across both product lines as a result of the decrease in demand in services. Western Hemisphere revenues increased 5% sequentially due to increased DEI sales and seasonally higher activity. Eastern Hemisphere revenues decreased $185 million, or 30%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 related to a decline in activity resulting in lower service and product sales in both our C&P and DEI product lines. Eastern Hemisphere revenues decreased 6% sequentially driven by lower activity levels across both our C&P and DEI product lines, partially offset by improved DEI sales in the Europe and the Middle East. Consolidated and Segment Operating Results Consolidated operating loss in the three months ended March 31, 2021, decreased $809 million, or 98%, compared to the three months ended March 31, 2020, and decreased 88% sequentially, primarily from lower impairment and restructuring charges and a decline in our research and development expense reflecting the cost improvement initiatives that were implemented during 2020. These cost improvements were partially offset by the decline in demand for our products and services due to the COVID-19 pandemic. Segment operating income in the three months ended March 31, 2021 was $5 million, a decrease of $42 million compared to the three months ended March 31, 2020. The decrease was driven by the decline in demand for services across both our C&P and DEI product lines, partially offset by our lower cost structure. Segment operating income decreased $8 million sequentially, driven by the lower activity levels in C&P and DEI in the Eastern Hemisphere offset by increased activity and operating improvements in the Western Hemisphere. Western Hemisphere segment operating income in the three months ended March 31, 2021of $24 million decreased $5 million compared to the three months ended March 31, 2020. The decrease was impacted by adverse weather in the United States, lower activity levels in North America, and the decline in demand for services and oil and gas partially offset by improvements in C&P related activities in Latin America, lower operational and employee costs. Western Hemisphere segment operating income improved $10 million sequentially due to increased DEI sales and seasonally higher activity. Eastern Hemisphere segment operating loss of $19 million for the three months ended March 31, 2021 deteriorated by $37 million, compared to the three months ended March 31, 2020 and deteriorated by $18 million sequentially. The deterioration was driven by driven by lower activity levels across both our C&P and DEI product lines, partially offset by lower operational and employee costs. Interest Expense, Net Interest expense was $70 million for three months ended March 31, 2021. The interest expense represents interest on our 11.0% Exit Notes due 2024 (“Exit Notes”) and our 8.75% Senior Secured Notes due 2024 (“Senior Secured Notes”) as well as accretion expense amortized on our deferred issuance costs and discount on our Senior Secured Notes. Interest expense was $58 million for the three months ended March 31, 2020. The interest expense represents interest on our Exit Notes. See “Note 7 – Borrowings and Other Obligations” to the Condensed Consolidated Financial Statements for further details. 20 Table of Contents Reorganization Items Expenses, gains and losses that are realized or incurred as of or subsequent to the July 1, 2019 bankruptcy petition date and as a direct result of the bankruptcy cases and emergence from bankruptcy on December 13, 2019 were recorded under “Reorganization Items” on our Condensed Consolidated Statements of Operations. For the three months ended March 31, 2021 and 2020 “Reorganization Items” were zero and $9 million, respectively. Other Expense, Net Other expense was $4 million for the three months ended March 31, 2021 compared to other expense of $25 million for the three months ended March 31, 2020. Other expense is made up of letter of credit fees, other financing charges and foreign exchange losses, primarily attributed to currency losses in countries with no or limited markets to hedge. The improvement was primarily due to lower currency volatility this quarter compared to the significant volatility in the same period of the prior year following the start of the COVID-19 pandemic. Income Taxes We have determined that because small changes in estimated ordinary annual income would result in significant changes in the estimated annual effective tax rate, using the year-to-date effective tax rate is appropriate for determining the quarterly provision for income taxes. The year-to-date effective tax rate treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. We will continue to use this method each quarter until the annual effective tax rate method is deemed appropriate. For the three months ended March 31, 2021, we recognized tax expense of $23 million on a loss before income taxes of $87 million compared to tax expense of $44 million on a loss before income taxes of $914 million for the three months ended March 31, 2020. Our income tax provisions generally do not correlate to our consolidated income (loss) before tax. Our income taxes provisions are primarily driven by profits in certain jurisdictions, deemed profit countries and withholding taxes on intercompany and third-party transactions that do not directly correlate to ordinary income or loss. Impairments and other charges recognized do not result in significant tax benefit as a result of our inability to forecast realization of the tax benefit of such losses. Tax expense for the three months ended March 31, 2020 included $20 million to recognize valuation allowance in jurisdictions where we are no longer able to forecast taxable income as a result of our liquidity position as of March 31, 2020. We routinely undergo tax examination in various jurisdictions. We cannot predict the timing or outcome regarding resolution of these tax examinations or if they will have a material impact on our financial statements. As of March 31, 2021, we anticipate that it is reasonably possible that our uncertain tax positions of $233 million may decrease by up to $3 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations. In response to the COVID-19 pandemic, many countries have enacted tax relief measures to provide aid and economic stimulus to companies impacted by the COVID-19 pandemic. For the three months ended March 31, 2021, there were no material tax impacts to our Condensed Consolidated Financial Statements related to COVID-19 tax relief measures. Restructuring, Facility Consolidation and Severance Charges Please see “Note 6 – Restructuring, Facility Consolidation and Severance Charges” to our Condensed Consolidated Financial Statements for additional details of our charges by segment. 21 Table of Contents Liquidity and Capital Resources At March 31, 2021, we had total cash and cash equivalents and restricted cash of $1.3 billion, which increased $58 million compared to the year ended December 31, 2020. Included in total cash and cash equivalents was $166 million and $167 million of restricted cash at March 31, 2021 and December 31, 2020, respectively. Restricted cash is primarily cash collateral for letters of credit not held under the senior secured letter of credit agreement. The following table summarizes cash flows provided by (used in) each type of activity and a reconciliation of operating cash flow to non-GAAP free cash flow for the three months ended March 31, 2021 and March 31, 2020: Three Months Ended March 31, (Dollars in millions) 2021 2020 Net Cash Provided by Operating Activities $ 74 $ 30 Net Cash Used in Investing Activities (3) (35) Net Cash Used in Financing Activities (9) (20) Reconciliation of Operating Cash Flow to Non-GAAP Free Cash Flow: Net Cash Provided by Operating Activities $ 74 $ 30 Capital Expenditures for Property, Plant and Equipment (15) (38) Proceeds from Disposition of Assets 11 6 Non-GAAP Free Cash Flow $ 70 $ (2) Operating Activities Cash provided by operating activities was $74 million for the three months ended March 31, 2021 compared to $30 million for the three months ended March 31, 2020. The improvement for the three months ended March 31, 2021 was primarily driven by collections on our accounts receivables and inventory utilization, partially offset by higher interest payments. Investing Activities Cash used in investing activities was $3 million for the three months ended March 31, 2021 compared to cash used in investing activities of $35 million for the three months ended March 31, 2020. During the three months ended March 31, 2021, the primary uses of cash in investing activities were capital expenditures of $15 million for property, plant and equipment, offset by proceeds of $11 million from other asset dispositions. During the three months ended March 31, 2020, the primary uses of cash in investing activities were (i) capital expenditures of $38 million for property, plant and equipment, offset by proceeds of $6 million from other asset dispositions. Financing Activities Our cash used in financing activities was $9 million primarily for the repayment of debt obligations for the three months ended March 31, 2021 compared to $20 million primarily for the repayment of debt and a $12 million deferred payment for our acquisition of a joint venture in the Middle East for the three months ended March 31, 2020. Non-GAAP Free Cash Flow Non-GAAP free cash flow (“free cash flow”) represents cash provided by (used in) operating activities less capital expenditures for property, plant and equipment plus proceeds from the disposition of assets. Operating cash flow was $74 million and $30 million in the three months ended March 31, 2021 and 2020, respectively. Free cash flow was a positive $70 million and negative $2 million in the three months ended March 31, 2021 and 2020, respectively. Management believes that free cash flow is useful to investors and management as an important liquidity measure of our ability to generate cash, pay obligations and grow the business and shareholder value. It is a non-GAAP financial measure that should be considered in addition to, not as substitute for or superior to, cash provided by (used in) operating activities. 22 Table of Contents Sources of Liquidity Our sources of available liquidity include cash generated by our operations, cash and cash equivalent balances, accounts receivable factoring, and dispositions of businesses or capital assets that no longer fit our long-term strategy. We historically have accessed banks for short-term loans and have accessed the capital markets with debt and equity offerings. While the market has stabilized recently, the energy industry’s access to capital remains constrained. Although we may have access to capital markets, it may not be on terms that are commercially acceptable to the Company. Based upon current and anticipated levels of operations, we believe we will have sufficient cash from operations and cash on hand to fund our expected financial obligations and cash requirements (discussed below) both in the short-term and long-term. Customer Receivables In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets as well as unsettled political conditions. Due to the significance of the recent disruption in the oil and gas industry, we could experience delayed customer payments and payment defaults associated with customer liquidity issues. Cash Requirements Our cash requirements will continue to include interest payments on our long-term debt, payments for capital expenditures, repayment of financed leases, payments for short-term working capital needs and costs associated with our revenue and restructuring payments, including severance. Our cash requirements may also include awards under our employee incentive programs and other amounts to settle litigation related matters. As of March 31, 2021, we had $2.1 billion in aggregate principal amount maturing on December 1, 2024 and $500 million in aggregate principal amount maturing on September 1, 2024 for our Exit Notes and Senior Secured Notes, respectively. We expect to have interest payments of approximately $275 million annually until their maturity. Please see “Note 7 – Borrowings and Other Obligations” for additional details. Our 2021 payments on operating leases are expected to be $67 million and capital spending is expected to be in the range of $100 million – $130 million. Cash and cash equivalents (including restricted cash of $166 million primarily related to cash collateral on our letters of credit) totaled $1.3 billion at March 31, 2021, and are held by subsidiaries outside of Ireland. At March 31, 2021 we had $169 million of our cash and cash equivalents that cannot be immediately repatriated from various countries due to country central bank controls or other regulations. Based on the nature of our structure, other than the restrictions noted above, we foresee we are able to redeploy cash with minimal to no incremental tax. Ratings Services’ Credit Ratings As of March 31, 2021, our Moody’s Investor Services credit rating on the Senior Secured Notes and the senior secured letter of credit agreement maturing on June 13, 2024 with the lenders party thereto and Deutsche Bank Trust Company Americas as administrative agent (the “LC Credit Agreement”) was Ba3, with a negative outlook. Our Exit Notes have a credit rating of B3 with a negative outlook. At March 31, 2021, our S&P credit rating on our Senior Secured Notes and our LC Credit Agreement was B-, with a negative outlook. The credit rating on our Exit Notes was CCC with a negative outlook. The ratings from both agencies remain unchanged from the ratings assigned at the end of 2020. While we may continue to have access to credit markets, our credit rating, restrictions under our Exit Notes, Senior Secured Notes and LC Credit Agreement, and the industry downturn, could limit our ability to raise capital, refinance our existing debt, or could cause us to refinance or issue debt with less favorable and more restrictive terms and conditions, and could increase certain fees and interest of our borrowings. 23 Table of Contents Off Balance Sheet Arrangements Guarantees Weatherford International plc, a public limited company organized under the laws of Ireland, and as the ultimate parent of the Weatherford group, guarantees the obligations of its subsidiaries. Please see our discussion on guarantees in “Part II - Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Annual Report”). Letters of Credit and Surety Bonds As of March 31, 2021 we had $328 million of letters of credit outstanding, consisting of $160 million under the LC Credit Agreement and $168 million under various uncommitted facilities (of which there was $163 million in cash collateral held and recorded in “Restricted Cash” on our Consolidated Balance Sheets). In Latin America we utilize surety bonds as part of our customary business practice and as of March 31, 2021, we had surety bonds outstanding of $321 million. Any of our outstanding letters of credit or surety bonds could be called by the beneficiaries should we breach certain contractual or performance obligations. If the beneficiaries were to call the letters of credit under our LC Credit Agreement or surety bonds, our available liquidity would be reduced by the amount called. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operation is based upon our Condensed Consolidated Financial Statements. We prepare these financial statements in conformity with U.S. GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates, however, actual results may differ from these estimates under different assumptions or conditions. There have been no material changes or developments in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be critical accounting policies and estimates as disclosed in our 2020 Annual Report filed on February 19, 2021. 24 Table of Contents Forward-Looking Statements This report contains various statements relating to future financial performance and results, business strategy, plans, goals and objectives, including certain projections, business trends and other statements that are not historical facts. These statements constitute forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “budget,” “strategy,” “plan,” “guidance,” “outlook,” “may,” “should,” “could,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions, although not all forward-looking statements contain these identifying words. Forward-looking statements reflect our beliefs and expectations based on current estimates and projections. While we believe these expectations, and the estimates and projections on which they are based, are reasonable and were made in good faith, these statements are subject to numerous risks and uncertainties. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. We undertake no obligation to correct, update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required under federal securities laws. The following, together with disclosures under “Part II – Other Information - Item 1A. – Risk Factors”, sets forth certain risks and uncertainties relating to our forward-looking statements that may cause actual results to be materially different from our present expectations or projections: • risks associated with disease outbreaks and other public health issues, including COVID-19, their impact on the global economy and the business of our Company, customers, suppliers and other partners, changes in, and the administration of, treaties, laws, and regulations, including in response to such issues and the potential for such issues to exacerbate other risks we face, including those related to the factors listed or referenced below; • further spread and potential for a resurgence of COVID-19 in a given geographic region and related disruptions to our business, customers, suppliers and other partners and additional regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including vaccination requirements and the associated availability of vaccines, restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions; • the price and price volatility of, and demand for, oil, natural gas and natural gas liquids; • member-country quota compliance within the Organization of Petroleum Exporting Countries; • our ability to realize expected revenues and profitability levels from current and future contracts; • our ability to generate cash flow from operations to fund our operations; • global political, economic and market conditions, political disturbances, war, terrorist attacks, changes in global trade policies, weak local economic conditions and international currency fluctuations; • increases in the prices and lack of availability of our procured products and services; • our ability to timely collect from customers; • our ability to realize cost savings and business enhancements from our revenue and cost improvement efforts; • our ability to attract, motivate and retain employees, including key personnel; • our ability to access capital markets on terms that are commercially acceptable to the Company, or at all; • our ability to manage our workforce, supply chain and business processes, information technology systems and technological innovation and commercialization, including the impact of our organization restructure, business enhancements, improvement efforts and the cost and support reduction plans; • potential non-cash asset impairment charges for long-lived assets, intangible assets or other assets; • adverse weather conditions in certain regions of our operations; and • failure to ensure on-going compliance with current and future laws and government regulations, including but not limited to environmental and tax and accounting laws, rules and regulations as well as stock exchange listing rules. Many of these factors are macro-economic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, affect us in ways or to an extent that we currently do not expect or consider to be significant, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this quarterly report as anticipated, believed, estimated, expected, intended, planned or projected. Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our other filings with the SEC under the Exchange Act and the Securities Act of 1933 (as amended). For additional information regarding risks and uncertainties, see our other filings with the SEC. In the event of an inconsistency between any prior or current SEC filing, the most recent filing will control. 25 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. Other than the change in the fair value of our debt as discussed in “Note 7 – Borrowings and Other Obligations” to our Condensed Consolidated Financial Statements, our exposure to market risk has not changed materially since December 31, 2020.