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Item 2. Management’s Discussion and Analysis

2023-04-26 compared with 2022-10-26 · 170 added, 207 removed, 91 unchanged (81% of the section changed)

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Risk Factors.”

Weatherford delivers innovative energy services that integrate proven technologies with advanced digitalization to create sustainable offerings for maximized value and return on investment.

We provide equipment and services used in the drilling, evaluation, construction, completion, production, intervention and responsible abandonment of wells across the broad spectrum of energy sources.

Weatherford is a leading global energy services company providing equipment and services used in the drilling, evaluation, well construction, completion, production, intervention and responsible abandonment of wells in the oil and natural gas exploration and production industry as well as new energy platforms.

We conduct operations in approximately 75 countries, answering the challenges of the energy industry with 345 operating locations including manufacturing, research and development, service, and training facilities.

Our principal business is to provide equipment and services to the oil and natural gas exploration and production industry as well as new energy platforms across our three product line segments:

(1) Drilling and Evaluation (2) Well Construction and Completions, and (3) Production and Intervention.

All of our segments are enabled by a full suite of digital, monitoring, optimization and artificial intelligence solutions providing services throughout the well life cycle, including responsible abandonment.

Our operational performance is reviewed and managed across the life cycle of the wellbore and we report in three segments (1) Drilling and Evaluation, (2) Well Construction and Completions, and (3) Production and Intervention.

Drilling and Evaluation (“DRE”) offers a suite of services including managed pressure drilling, drilling services, wireline and drilling fluids.

DRE offers services ranging from early well planning to reservoir management through innovative tools and expert engineering to optimize reservoir access and productivity.

DRE offerings range from early well planning to reservoir management through innovative tools and expert engineering to optimize reservoir access and productivity.

Well Construction and Completions (“WCC”) offers products and services for well integrity assurance across the full life cycle of the well.

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WCC deploys conventional to advanced technologies, providing safe and efficient services in any environment during the well construction phase.

Production and Intervention (“PRI”) offers production optimization technologies through the Company’s ability to design and deliver a complete production ecosystem to boost productivity and responsible abandonment for our customers.

The primary offerings are intervention services & drilling tools, artificial lift, production automation & software, sub-sea intervention and pressure pumping services.

PRI utilizes a suite of reservoir stimulation designs, and engineering capabilities that isolate zones and unlock reserves in conventional and unconventional wells, deep water, and aging reservoirs.

Growth and spending in the energy services industry is highly dependent on many external factors.

These include, but are not limited to, the impact from geopolitical conflicts, global response to any ongoing pandemics, our customers’ capital expenditures, environmental, social and governance (“ESG”) initiatives, world economic, political and weather conditions, the price of oil and natural gas, and member-country quota compliance within the Organization of Petroleum Exporting Countries and the expanded alliance.

We expect continued improvements in our customer activity levels and generally positive macroeconomic conditions that may offset inflationary pressures and potential recessionary concerns, all of which are expected to provide a pathway to a multi-year energy demand expansion.

We continue to closely monitor the growing recessionary concerns in the global market, ongoing supply chain disruptions, escalating costs, logistical constraints and travel restrictions.

Our consolidated full year revenues for 2022 are anticipated to grow over prior year.

We believe that industry activity will continue to improve into 2023.

Russia Ukraine Conflict

On February 24, 2022, the military conflict between Russia and Ukraine (“Russia Ukraine Conflict”) began and in response, we evaluated, and continue to evaluate, our operations, with the first action being centered on the safety and well-being of our employees in the impacted regions.

In response to the Russia Ukraine Conflict, the United States, the European Union, the United Kingdom and other countries have imposed certain restrictions and broad sanctions against Russia, certain Russian individuals and certain activities involving Russia or Russian individuals.

We continue to monitor and intend to remain in full compliance with the evolving sanctions landscape and will continue to fulfill existing contractual obligations within applicable international laws and sanctions.

Revenues in Russia were 6%-7% of our total revenues for both the three and nine months ended September 30, 2022 and 2021.

As the Russia Ukraine Conflict and related sanctions persist or are escalated, our business may be negatively impacted, potentially lowering revenues or triggering asset impairments in Russia.

Opportunities and Challenges

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 and pressures us to deliver our products and services at competitive rates.

In addition, as consolidation of the energy services industry continues due to market conditions, there has been increased demand for companies to provide specialized products, services and technologies.

Weatherford delivers innovative energy services that integrate proven technologies with advanced digitalization to create sustainable offerings for maximized value and return on investment.

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, our ability to offer technology solutions to more efficiently extract oil and gas while controlling costs, and our success in penetrating new and existing markets with our newly developed technologies.

Over the long-term, we expect the world’s demand for energy to continue to rise and require more advanced technology from the energy 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.

Current market conditions could make it more difficult to obtain our targeted cost reduction benefits and to recruit, motivate and retain employees, including key personnel.

Escalations of sanctions and other events around the Russia Ukraine Conflict, including increased exposure to cyber-attacks, increasing investor and government focus on ESG factors, supply chain challenges and disruptions, and the cyclicality of the energy industry may negatively impact demand for our products and services.

We are following our long-term strategy aimed at achieving sustainable 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 future potential prolonged industry downturns, our ability to respond to industry demands in periods of over-supply or uncertain oil prices, and ultimately to generate consistent positive cash flow and positive returns on the invested capital.

Oil and Natural Gas Prices

Production and Intervention (“PRI”) offers production optimization technologies through the Company’s ability to design and deliver a complete production ecosystem ranging from boosting productivity to responsible end of life well abandonment for our customers.

The primary offerings are intervention services & drilling tools, artificial lift, digital solutions (previously production automation & software), sub-sea intervention and pressure pumping services in select markets.

PRI utilizes a suite of reservoir stimulation designs, and engineering capabilities that help isolate zones and unlock reserves in conventional and unconventional wells, deep water, and aging reservoirs.

Industry Trends

Demand for our industry’s products and services is driven by many factors, including commodity prices, the number of oil and gas rigs and wells drilled, depth and drilling conditions of wells, number of well completions, age of existing wells, reservoir depletion, regulatory environment and the level of workover activity worldwide.

Lower oil and natural gas prices and lower rig count generally correlate to lower exploration and production spending and higher oil and natural gas prices and higher rig count generally correlate to higher exploration and production spending.

Therefore, our financial results are significantly affected by oil and natural gas prices as well as rig counts.

The table below shows the average oil and natural gas prices for West Texas Intermediate (“WTI”) and Brent North Sea (“Brent”) crude oil and Henry Hub natural gas.

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Oil price - WTI (1)

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Natural gas price - Henry Hub (2)

$7.99 $4.36 $6.71 $3.62

(1) Oil price measured in dollars per barrel (rounded to the nearest $0.01)

(2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu (rounded to the nearest $0.01)

Rig count is an indicator of the level of spending for the exploration and production of oil and natural gas reserves and the increase year-over-year is due to similar reasons described above.

(2) Natural gas price measured in dollars per million British thermal units (rounded to the nearest $0.01)

The table below shows historical average rig counts based on the weekly Baker Hughes Company rig count information.

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

North America 981 831

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Worldwide 1,896 1,654

Russia Ukraine Conflict

On February 24, 2022, the military conflict between Russia and Ukraine (“Russia Ukraine Conflict”) began and in response we evaluated, and continue to evaluate, our operations, with the immediate priority being centered on the safety and well-being of our employees in the impacted regions, as well as operating in full compliance with applicable international laws and sanctions.

In response to the Russia Ukraine Conflict, the United States, the European Union, the United Kingdom, Switzerland and other countries have imposed certain restrictions and broad sanctions against Russia, certain Russian individuals and entities and certain activities involving Russia or such persons or entities.

Revenues in Russia were approximately 6% of our total revenues for the three months ended March 31, 2023 and 2022.

As of March 31, 2023, our Russia operations include $42 million in cash, $96 million in other current assets, $58 million in property, plant and equipment and other non-current assets, and $45 million in liabilities.

As the Russia Ukraine Conflict and related sanctions persist or are escalated, our business may be negatively impacted, potentially lowering revenues or triggering asset impairments in Russia.

Consolidated Statements of Operations - Operating Income Summary

Revenues of $1.1 billion and $3.1 billion in the three and nine months ended September 30, 2022, increased 19% and 16%, compared to the three and nine months ended September 30, 2021, respectively.

The year-over-year improvement was driven by increased demand across all segments.

Cost of products and services of $775 million and $2.2 billion in the three and nine months ended September 30, 2022, increased $89 million, or 13%, and $214 million, or 11%, compared to the three and nine months ended September 30, 2021, respectively, primarily reflecting increased overall demand.

Our cost of products and services as a percentage of revenues was 69% and 71% in the three and nine months ended September 30, 2022, an improvement compared to 73% and 75% in the three and nine months ended September 30, 2021, reflecting improving utilization on a more efficient operating cost structure, offset by impacts from supply chain disruptions and inflation.

Selling, general, administrative and research and development costs of $224 million and $641 million in the three and nine months ended September 30, 2022, increased $28 million, or 14%, and $27 million, or 4%, compared to the three and nine months ended September 30, 2021, primarily reflecting higher overhead and support costs in response to managing increased activity.

These costs as a percentage of revenues were 20% and 21% in the three and nine months ended September 30, 2022, respectively, an improvement compared to 21% and 23% in the three and nine months ended September 30, 2021, reflecting our focus on cost control initiatives.

Restructuring charges include $2 million and $22 million in the three and nine months ended September 30, 2022, see “Note 4 – Restructuring Charges” for additional information.

Other charges (credits) in the three and nine months ended September 30, 2022 was a credit of $2 million and a charge of

$3 million, respectively.

The credit in the three months ended September 30, 2022 was immaterial and the net charge of $3 million, although immaterial, was primarily related to charges related to Ukraine, partially offset by the gain on asset sales related to our fulfillment initiatives and collections of previously impaired receivables.

Other charges (credits) were a net credit of $8 million and $16 million in both the three and nine months ended September 30, 2021, respectively, primarily driven by gains on asset sales in both periods.

Revenues of $1.2 billion in the three months ended March 31, 2023, increased 26% compared to $938 million in the three months ended March 31, 2022.

Year-over-year product revenues increased 29% and service revenues increased 25%.

DRE, WCC, and PRI contributed to 32%, 31% and 25% of the increase in revenues, respectively.

Geographically, revenue growth was led by improvements in Latin America, Middle East/North Africa/Asia, North America and Europe/Sub-Sahara Africa/Russia which contributed to 36%, 27%, 19% and 18%, of the increase, respectively.

Approximately 80% of our revenue increase is due to increased customer demand, which management believes is attributable to greater investment in oil and gas production capacity on a global basis, caused by a desire to drive energy security and to meet global consumption needs.

The production capacity increase is consistent with the increase in global rig counts, which increased by 15% year-over-year.

Covid-19 and related impacts like travel restrictions were still impacting demand in the three months ended March 31, 2022.

Cost of products and services of $790 million in the three months ended March 31, 2023, increased $108 million, or 16% compared to the three months ended March 31, 2022.

Approximately 80% of the increase in cost of products and services was attributable to cost increases necessary to meet increased demand, with the remainder of the increase equally attributable to a shift in service and product mix and inflation in the cost of labor and materials.

Our cost of products and services as a percentage of revenues was 67% in the three months ended March 31, 2023, compared to 73% in the three months ended March 31, 2022.

The improvement was primarily driven by improved utilization of service-related resources.

Selling, general, administrative and research and development costs of $216 million in the three months ended March 31, 2023, increased $17 million, or 9% compared to $199 million in the three months ended March 31, 2022, primarily reflecting an increase in research and development investment in newer technologies.

These costs as a percentage of revenues were 18% in the three months ended March 31, 2023, a decrease compared to 21% in the three months ended March 31, 2022, reflecting our focus on cost control and efficiency.

No restructuring charges were incurred in the three months ended March 31, 2023 and $20 million was incurred in the three months ended March 31, 2022.

See “Note 4 – Restructuring Charges” for additional information.

Other charges (credits) in the three months ended March 31, 2023 were a net credit of $5 million and a net charge of $19 million in the three months ended March 31, 2022 related to miscellaneous charges and credits.

Consolidated Statements of Operations - Non-Operating Summary

Interest Expense, Net

Interest expense, net was $44 million and $140 million in the three and nine months ended September 30, 2022, respectively, and primarily represented interest on our outstanding long-term debt (see “Note 7 – Borrowings and Other Debt Obligations” to our Condensed Consolidated Financial Statements for additional details).

Interest expense, net was $69 million and $211 million in the three and nine months ended September 30, 2021, respectively.

The year-over-year decrease was due to partial repayments of principal and refinancing initiatives in the second half of 2021 which reduced our interest rates.

Interest expense, net was $31 million and $48 million in the three months ended March 31, 2023 and 2022, respectively.

Interest expense, net primarily represents interest on our outstanding long-term debt offset by interest income.

The year-over-year decrease was due in part to lower interest expense after partial repayments of principal since March 31, 2022 and partly due to the increase in interest income, as we reinvest our cash in certain short-term demand deposits.

See “Note 7 – Borrowings and Other Debt Obligations” to our Condensed Consolidated Financial Statements for additional details on the long-term debt.

Other Expense, Net

Other expense, net was $12 million and $60 million in the three and nine months ended September 30, 2022, compared to $4 million and $19 million in the three and nine months ended September 30, 2021, respectively.

Other expense, net is comprised of letter of credit fees, other financing charges, and foreign exchange losses.

The year-over-year increase was primarily due to foreign exchange losses and settlements of certain foreign currency forward contracts.

We enter into foreign currency forward contracts to mitigate the risk of future cash flows denominated in a foreign currency.

The amounts will fluctuate, depending on exchange rate volatility, the volume of our foreign currency transactions, and our decisions to hedge.

At September 30, 2022 and December 31, 2021, we had outstanding foreign currency forward contracts with notional amounts aggregating to $113 million and $349 million, respectively.

Other expense, net was $35 million and $16 million in the three months ended March 31, 2023 and 2022, respectively.

Other expense, net primarily represents foreign exchange losses attributed to currency losses in countries with no or limited markets to hedge, letter of credit fees and other financing charges.

When economically advantageous, we enter into foreign currency forward contracts to mitigate the risk of future cash flows denominated in a foreign currency.

Additionally, we enter into certain short-term investments to offset our foreign exchange losses, the gains of which are recorded in “Other Expense, Net”.

Other expense, net in the three months ended March 31, 2023 was primarily attributable to foreign exchange losses in the Argentinian Peso.

Other expense, net in the three months ended March 31, 2022 was primarily attributed to changes in fair value and settlements of certain foreign currency forward contracts.

We provide for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered residents for income tax purposes.

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Our effective rate differs from the Irish statutory tax rate as the majority of our operations are taxed in jurisdictions with different tax rates.

In addition, we are generally unable to recognize tax benefit on our losses.

In addition, certain charges do not result in significant tax benefit as a result of being attributed to a non-income tax jurisdiction or our inability to forecast realization of the tax benefit of such losses.

This is partially offset by the utilization of previously unbenefited deferred tax assets, such as net operating loss carryforwards.

Please see “Note 11 – Income Taxes” to our Condensed Consolidated Financial Statements for additional details.

Segment Results of Operations

Results of Operations by Segment

Financial information by segment is summarized below.

Three Months Ended (Unfavorable)

September 30, $ % or bps

March 31, $ % or bps

(Dollars in millions) 2023 2022 Change

Drilling and Evaluation $ 348 $ 278 $ 70 25 %

Well Construction and Completions 391 345 46 13 %

Production and Intervention 357 292 65 22 %

Segment Revenues 1,096 915 181 20 %

DRE Revenues $ 372 $ 292 $ 80 27 %

WCC Revenues 421 344 77 22 %

PRI Revenues 349 286 63 22 %

All Other 44 16 28 175 %

Total Revenues $ 1,186 $ 938 $ 248 26 %

Segment Adjusted EBITDA:

Drilling and Evaluation $ 85 $ 56 $ 29 52 %

Well Construction and Completions 78 79 (1) (1) %

Production and Intervention 66 57 9 16 %

Segment Adjusted EBITDA $ 229 $ 192 $ 37 19 %

Corporate and Other (15) (13) (2) (15) %

Depreciation and Amortization (88) (112) 24 21 %

Share-based Compensation Expense (5) (4) (1) (25) %

Other Adjustments — 8 (8) (100) %

Operating Income:

Segment Adjusted EBITDA Margins:

Drilling and Evaluation 24.4 % 20.1 % n/m 430 bps

Well Construction and Completions 19.9 % 22.9 % n/m (300) bps

Production and Intervention 18.5 % 19.5 % n/m (100) bps

Segment Adjusted EBITDA 20.9 % 21.0 % n/m (10) bps

Nine Months Ended (Unfavorable)

September 30, $ % or bps

(Dollars in millions) 2022 2021 Change

Drilling and Evaluation $ 957 $ 779 $ 178 23 %

Well Construction and Completions 1,118 1,005 113 11 %

Production and Intervention 988 829 159 19 %

Segment Revenues 3,063 2,613 450 17 %

All Other 59 67 (8) (12) %

Total Revenues $ 3,122 $ 2,680 $ 442 16 %

Segment Adjusted EBITDA:

Drilling and Evaluation $ 213 $ 131 $ 82 63 %

Well Construction and Completions 212 184 28 15 %

Production and Intervention 173 144 29 20 %

Segment Adjusted EBITDA $ 598 $ 459 $ 139 30 %

DRE Segment Adjusted EBITDA $ 108 $ 59 $ 49 83 %

WCC Segment Adjusted EBITDA 96 67 29 43 %

PRI Segment Adjusted EBITDA 68 39 29 74 %

Corporate and Other (3) (14) 11 79 %

Depreciation and Amortization (80) (87) 7 8 %

Share-based Compensation Expense (18) (13) (5) (38) %

Other Adjustments (25) 16 (41) (256) %

Share-Based Compensation (9) (7) (2) (29) %

Restructuring Charges — (20) 20 100 %

Other (Charges) Credits 5 (19) 24 126 %

Operating Income $ 185 $ 18 $ 167 928 %

Segment Adjusted EBITDA Margins:

Drilling and Evaluation 22.3 % 16.8 % n/m 550 bps

Well Construction and Completions 19.0 % 18.3 % n/m 70 bps

Production and Intervention 17.5 % 17.4 % n/m 10 bps

Segment Adjusted EBITDA 19.5 % 17.6 % n/m 190 bps

Segment Revenues

Segment revenues of $1.1 billion and $3.1 billion in the three and nine months ended September 30, 2022, increased $181 million, or 20%, and increased $450 million, or 17%, compared to the same periods in 2021, respectively.

The year-over-year improvement was primarily from an increased demand in all segments.

DRE revenues of $348 million and $957 million in the three and nine months ended September 30, 2022, increased $70 million, or 25%, and increased $178 million, or 23%, compared to the same periods in 2021, respectively.

The year-over-year increases were largely due to increased demand for managed pressure drilling and drilling services in three and the nine months ended September 30, 2022, compared to the same periods in 2021, respectively, and primarily in Latin America and Middle East North Africa/Asia regions.

WCC revenues of $391 million and $1,118 million in the three and nine months ended September 30, 2022, increased $46 million, or 13%, and increased $113 million, or 11%, compared to the same periods in 2021, respectively.

The year-over-year increases in the three and nine months were largely due to increased demand for cementation products, primarily in North America and the Middle East North Africa/Asia regions.

PRI revenues of $357 million and $988 million in the three and nine months ended September 30, 2022, increased $65 million, or 22%, and increased $159 million, or 19%, compared to the same periods in 2021, respectively.

The year-over-year

increases in the three and nine months were largely due to increased demand for artificial lift, primarily in North America.

Segment Adjusted EBITDA and Margins

Our primary measure of segment profitability is segment adjusted EBITDA.

Segment adjusted EBITDA of $229 million and $598 million in the three and nine months ended September 30, 2022, increased $37 million, or 19%, and increased $139 million, or 30%, compared to the same periods in 2021, respectively.

Segment adjusted EBITDA margins were 21% in both the three months ended September 30, 2022 and September 30, 2021 and 20% in the nine months ended September 30, 2022 compared to the 18% in the nine months ended September 30, 2021.

Segment adjusted EBITDA margins were flat year-over-year for the three months ended with lower fall-through on margins for WCC and PRI offset by higher fall-through margins in DRE.

The year-over-year improvement for the nine months ended exceeded the rate of improvement for revenues primarily from increased demand in all segments with a more profitable mix of service and product sales on a more efficient cost structure, resulting in higher fall-through on margins.

DRE segment adjusted EBITDA of $85 million and $213 million in the three and nine months ended September 30, 2022, increased $29 million, or 52%, and increased $82 million or 63%, compared to the same period in 2021, respectively.

DRE segment adjusted EBITDA margins were 24% and 22% in the three and nine months ended September 30, 2022, an improvement compared to 20% and 17% in the three and nine months ended September 30, 2021, respectively.

The year-over-year improvements were largely due to higher fall-through on margins across product lines, with increases in drilling services in Latin America, Europe/Sub-Sahara Africa and North America along with increases in managed pressure drilling in the Middle East North Africa/Asia regions.

WCC segment adjusted EBITDA of $78 million and $212 million in the three and nine months ended September 30, 2022, decreased $1 million, or 1%, and increased $28 million, or 15%, compared to the same period in 2021, respectively.

WCC segment adjusted EBITDA margins were 20% and 19% in the three and nine months ended September 30, 2022, compared to 23% and 18% in the three and nine months ended September 30, 2021, respectively.

The year-over-year decrease for the three months ended was largely due to lower fall-through on margins for completions and tubular running services in Middle East North Africa/Asia region.

The year-over-year improvements for the nine months was largely due to higher fall-through on margins for cementation, primarily in North America and the Middle East North Africa/Asia regions.

PRI segment adjusted EBITDA of $66 million and $173 million in the three and nine months ended September 30, 2022, increased $9 million, or 16%, and increased $29 million, or 20%, compared to the same period in 2021, respectively.

PRI segment adjusted EBITDA margins were 19% and 18% in the three and nine months ended September 30, 2022, compared to 20% and 17% in the three and nine months ended September 30, 2021, respectively.

The year-over-year decrease for the three months ended was largely due to product mix with lower fall-through margins in North America and Europe, Sub-Sahara Africa/Russia.

The year-over-year improvements for the nine months ended was largely due to higher fall-through on margins for intervention services and drilling tools along with artificial lift, primarily in the North America region.

DRE Segment Adjusted EBITDA Margin 29.0 % 20.2 % n/m 880 bps

WCC Segment Adjusted EBITDA Margin 22.8 % 19.5 % n/m 330 bps

PRI Segment Adjusted EBITDA Margin 19.5 % 13.6 % n/m 590 bps

DRE revenues of $372 million in the three months ended March 31, 2023, increased $80 million, or 27% compared to $292 million in the three months ended March 31, 2022.

DRE segment adjusted EBITDA of $108 million in the three months ended March 31, 2023, increased $49 million, or 83% compared to $59 million in the three months ended March 31, 2022.

DRE segment adjusted EBITDA margin was 29.0% in the three months ended March 31, 2023, compared to 20.2% in the three months ended March 31, 2022.

Approximately 70% of the revenue increase was from drilling-related services.

Geographically, Latin America contributed approximately 50% to the overall revenue growth, with each remaining geography contributing equally.

The increase in revenue was approximately 70% attributable to higher activity with the remainder primarily attributable to pricing.

The improvement in segment adjusted EBITDA was equally attributable to higher activity and pricing including timing of cost inflation related recoveries.

WCC revenues of $421 million in the three months ended March 31, 2023, increased $77 million, or 22% compared to $344 million in the three months ended March 31, 2022.

WCC segment adjusted EBITDA of $96 million in the three months ended March 31, 2023, increased $29 million, or 43% compared to $67 million in the three months ended March 31, 2022.

WCC segment adjusted EBITDA margin was 22.8% in the three months ended March 31, 2023, compared to 19.5% in the three months ended March 31, 2022.

Approximately 80% of the revenue increase was from cementation products, completions and tubular running services.

Geographically, international regions contributed approximately 85% to the overall revenue growth, with each international region contributing equally.

The increase in revenue and segment adjusted EBITDA was primarily attributable to higher activity, resulting in margin fall through.

PRI revenues of $349 million in the three months ended March 31, 2023, increased $63 million, or 22% compared to $286 million in the three months ended March 31, 2022.

PRI segment adjusted EBITDA of $68 million in the three months ended March 31, 2023, increased $29 million, or 74% compared to $39 million in the three months ended March 31, 2022.

PRI segment adjusted EBITDA margin was 19.5% in the three months ended March 31, 2023, an improvement compared to 13.6% in the three months ended March 31, 2022.

Approximately 90% of the revenue increase was from intervention services and drilling tools, pressure pumping and artificial lift.

Geographically, international regions contributed approximately 65% to the overall revenue growth, with each international region contributing equally.

The increase in revenue and segment adjusted EBITDA was primarily attributable to higher activity, resulting in margin fall through.

Corporate and Other

Corporate and other was a net expense of $3 million in the three months ended March 31, 2023 compared to $ 14 million in the three months ended March 31, 2022.

The year-over-year decrease was primarily due to improved results in other non-core businesses that did not individually meet the criteria for segment reporting and from our focus on cost control and efficiency.

Depreciation and Amortization

Depreciation and amortization was $88 million and $265 million in the three and nine months ended September 30, 2022, compared to $112 million and $337 million in the three and nine months ended September 30, 2021, respectively.

Depreciation and amortization was $80 million in the three months ended March 31, 2023 compared to $87 million in the three months ended March 31, 2022, respectively.

The year-over-year decrease was primarily from a lower asset base.

Share-based Compensation Expense

We record share-based compensation expense in “Selling, General and Administrative” on the accompanying Condensed Consolidated Statements of Operations.

We recognized $5 million and $18 million in the three and nine months ended September 30, 2022, compared to $4 million and $13 million in the three and nine months ended September 30, 2021, respectively.

The year-over-year increase was due to additional awards granted.

Other Adjustments

Other adjustments was a net charge of zero and $25 million in the three and nine months ended September 30, 2022, respectively and is primarily driven by restructuring charges, see “Note 4 – Restructuring Charges” for details.

Other adjustments were a net credit of $8 million and $16 million in both the three and nine months ended September 30, 2021, respectively, primarily driven by gains on asset sales in both periods.

We recognized $9 million of share-based compensation expense in the three months ended March 31, 2023, an increase of $2 million compared to $7 million of share-based compensation expense in the three months ended March 31, 2022.

The increase was attributable to a higher number of performance share units expected to vest.

Restructuring Charges

No restructuring charges were incurred in the three months ended March 31, 2023 and $20 million was incurred in the three months ended March 31, 2022.

See “Note 4 – Restructuring Charges” for additional information.

Other (Charges) Credits

Other (charges) credits in the three months ended March 31, 2023 were a net credit of $5 million and a net charge of $19 million in the three months ended March 31, 2022 related to miscellaneous charges and credits.

Growth and spending in the energy services industry is highly dependent on many external factors.

These include but are not limited to:

geopolitical uncertainty;

supply chain disruptions;

energy policies at local and regional levels;

and, the price of oil and natural gas.

For 2023, we expect continued growth in our customer activity levels and notwithstanding recessionary concerns, we expect continued improvement in our customer activity, especially in international markets.

However, we continue to closely monitor the global market and are well positioned to pivot our strategy as changes in external factors require.

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 and pressures us to deliver our products and services at competitive rates.

While we believe we are well positioned to satisfy our customers’ needs, the level of improvement in our businesses in the future will continue to depend heavily on pricing, volume of work, our ability to offer cost efficient, innovative and effective technology solutions, and our success in gaining market share in new and existing markets.

We continue to follow our long-term strategy, aimed at achieving sustainable profitability and cash flow generation in our businesses, servicing our customers and creating value for our shareholders.

Our long-term success will be determined by our ability to effectively manage the cyclicality of our industry, including growth during the current up-cycles and potential prolonged industry downturns, our ability to respond to industry changes and demands, while managing through risks we may be exposed to, and ultimately our ability to generate consistent positive cash flow and positive returns on invested capital.

Liquidity and Capital Resources

At September 30, 2022, we had cash and cash equivalents of $933 million and $210 million in restricted cash, compared to $951 million of cash and cash equivalents and $162 million in restricted cash at December 31, 2021.

Our letters of credit under various uncommitted bi-lateral facilities increased restricted cash since December 31, 2021 due to a requirement from a new multi-year contract.

At March 31, 2023, we had cash and cash equivalents of $833 million and $150 million in restricted cash, compared to $910 million of cash and cash equivalents and $202 million in restricted cash at December 31, 2022.

The following table summarizes cash flows provided by (used in) each type of business activity in the periods presented:

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in millions) 2023

Net Cash Provided by Operating Activities $ 156 $ 234

Net Cash Used in Investing Activities $ (22) $ (2)

Net Cash Provided by (Used in) Operating Activities $ 84 $ (64)

Net Cash Provided by (Used in) Investing Activities $ (64) $ 9

Net Cash Used in Financing Activities $ (127) $ (5)

Operating Activities

Cash provided by operating activities was $156 million for the nine months ended September 30, 2022.

The primary sources of cash provided by operating activities were from higher operating income and lower cash interest.

Cash provided by operating activities was $234 million for the nine months ended September 30, 2021.

The primary sources of cash provided by operating activities were driven by higher operating income and lower accounts payable spend, partially offset by interest payments.

Cash provided by operating activities was $84 million for the three months ended March 31, 2023.

The primary source of cash provided by operating activities was higher operating income that more than offset higher operating and seasonal working capital requirements.

Cash used in operating activities was $64 million for the three months ended March 31, 2022.

The primary uses of cash in operating activities were driven by seasonal working capital requirements.

Investing Activities

Cash used in investing activities was $22 million for the nine months ended September 30, 2022.

The primary investing activity was cash used for capital expenditures of $83 million, partially offset by proceeds from the sale of assets of $55 million.

Cash used in investing activities was $2 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2021, the primary uses of cash were capital expenditures of $44 million for property, plant and equipment, offset by proceeds of $39 million from asset dispositions.

Cash used in investing activities was $64 million for the three months ended March 31, 2023.

The primary investing activity was cash used for capital expenditures of $64 million.

Cash provided by investing activities was $9 million for the three months ended March 31, 2022.

The primary investing activities included proceeds from a settlement of escrow related to the sale of business for $9 million, cash used for capital expenditures of $20 million, which was offset by proceeds from the sale of assets of $20 million.

Financing Activities

Cash used in financing activities was $89 million for the nine months ended September 30, 2022 and $65 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, the primary uses of cash were for repayments of long-term debt of $62 million, which included the $50 million on early redemption of our Exit Notes and finance lease payments, and the remaining financing cash uses were primarily for dividends paid to noncontrolling interests.

During the nine months ended September 30, 2021, the primary uses of cash were repayments of long-term debt of $510 million which consisted primarily of the repayment of our 2024 Senior Secured Notes and finance lease obligations, a $22 million bond redemption premium payment for the early redemption of our 2024 Senior Secured Notes, and $20 million primarily for dividends paid to noncontrolling interests.

The primary sources of cash were net proceeds of $491 million, net of commitments fees and debt issuance costs, from the issuance of the 2028 Senior Secured Notes.

See “Note 7 – Borrowings and Other Obligations” to our Condensed Consolidated Financial Statements for further details on the debt financing.

Cash used in financing activities was $127 million for the three months ended March 31, 2023.

The primary uses of cash were $66 million for repayments and repurchases of long-term debt and $52 million in tax remittances on equity awards vested.

The tax remittances were higher relative to the three months ended March 31, 2022 due to an increase in both the share price and the quantity of shares vested.

Cash used in financing activities was $5 million for the three months ended March 31, 2022 which includes $4 million of finance lease payments and $1 million in tax remittances on equity awards vested.

Sources of Liquidity

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We historically have accessed banks for short-term loans and the capital markets for debt and equity offerings.

Based upon current and anticipated levels of operations and our recent refinancing transactions, we expect to have sufficient cash from operations and cash on hand to fund our cash requirements (discussed below and in “Note 7 – Borrowings and Other Debt Obligations” and “Note 12 – Subsequent Events”) and financial obligations, both in the short-term and long-term.

We had a senior secured letter of credit agreement (the “LC Agreement”) in an aggregate amount of $215 million maturing on May 29, 2024, which was used by the Company and certain of its subsidiaries for the issuance of bid and performance letters of credit.

At September 30, 2022, we had approximately $163 million in outstanding letters of credit under the LC Agreement and availability of $52 million.

On October 17, 2022, we amended the LC Agreement, the details of which are found in “Note 12 – Subsequent Events”.

Ratings Services’ Credit Ratings

Our credit ratings at September 30, 2022 were maintained since December 31, 2021.

• Moody’s Investors Service corporate family rating is at B2, our senior unsecured notes rating is at B3, and our senior secured notes and LC Agreement ratings are at Ba3.

The outlook is stable.

• Standard and Poor’s corporate family and senior unsecured notes ratings are at B-, and our senior secured notes and LC Agreement ratings are B+.

The outlook is stable.

Based upon current and anticipated levels of operations and our 2021 refinancing transactions, we expect to have sufficient cash from operations and cash on hand to fund our cash requirements (discussed below and in “Note 7 – Borrowings and Other Debt Obligations”) and financial obligations, both in the short-term and long-term.

Cash Requirements

Our cash requirements will continue to include payments for capital expenditures, payments for short-term working capital needs, interest payments on our long-term debt, repayment on finance leases, operating costs associated with our business and restructuring payments.

As business activity continues to rise, we expect to continue to utilize cash on capital assets and working capital growth.

Our cash requirements also include personnel costs including awards under our employee incentive programs and other amounts to settle litigation related matters.

At September 30, 2022, our outstanding debt included $250 million in aggregate principal amount for our Exit Notes due 2024, $500 million in aggregate principal amount for our 2028 Senior Secured Notes and $1.6 billion in aggregate principal amount of the 2030 Senior Notes.

On August 10, 2022, we redeemed $50 million in principal plus related unpaid interest of our Exit Notes.

On October 18, 2022, we issued a notice to redeem $125 million in principal amount of our Exit Notes on November 17, 2022.

The Exit Notes will be redeemed at 103% of the principal amount, plus accrued and unpaid interest.

Please see “Note 7 – Borrowings and Other Debt Obligations” and “Note 12 – Subsequent Events” for additional details.

Our capital spending for 2022 is currently projected to be between $120 million to $130 million.

Capital expenditures are expected to be used primarily to support the ongoing activities and commitments in our core business.

We expect to make $213 million in interest payments in 2022 and approximately $198 million in interest payments annually until the maturity of our long-term debt (excluding finance leases).

Our payments on operating leases and operating purchase obligations in 2022 are expected to be approximately $74 million and $177 million, respectively.

Our cash requirements will continue to include payments for principal and interest on our long-term debt, capital expenditures, payments on our finance and operating leases, payments for short-term working capital needs and operating costs.

To the extent business activity continues to rise, we expect to make more tax payments and to utilize cash on reducing our debt structure and invest in capital assets and our working capital.

Our cash requirements also include personnel costs including awards under our employee incentive programs as well as other amounts to settle litigation related matters.

As of March 31, 2023, we had outstanding debt of $105 million in aggregate principal amount for our Exit Notes maturing on December 1, 2024 (which we announced on April 20, 2023 that we intend to redeem in total on May 22, 2023), $441 million in aggregate principal amount for our 2028 Senior Secured Notes and $1.6 billion in aggregate principal amount for our 2030 Senior Notes.

For these notes, after the May 2023 redemption of the Exit Notes, we expect $173 million in interest payments annually in 2023 and approximately $167 million in interest payments annually, beginning in 2024 until the maturity of these obligations.

See “Note 7 – Borrowings and Other Debt Obligations” for additional information.

Our capital spending for 2023 is projected to be between $200 million to $230 million.

Our payments on our operating and finance leases in 2023 are expected to be approximately $64 million and $19 million, respectively.

Cash and cash equivalents and restricted cash are held by subsidiaries outside of Ireland.

At September 30, 2022 we had approximately $163 million of our cash and cash equivalents that cannot be immediately repatriated from various countries due to country central bank controls or other regulations.

At March 31, 2023 we had approximately $174 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 will be able to redeploy cash with minimal to no incremental tax.

Ratings Services’ Credit Ratings

Our credit ratings at March 31, 2023 were maintained since December 31, 2022.

• Standard and Poor’s corporate family and senior unsecured notes ratings are at B, and our senior secured notes and Credit Agreement ratings are BB-.

The outlook is stable.

• Moody’s Investors Service corporate family rating is at B2, our senior unsecured notes rating is at B3, and our senior secured notes and Credit Agreement ratings are at Ba3.

The outlook is stable.

Customer Receivables

We may experience delayed customer payments and payment defaults due to, among other reasons, reductions in our customers’ cash flow from operations, our customers’ inability to access credit markets, as well as unsettled political conditions.

Accounts Receivable Factoring and Monetization

We may experience delayed customer payments and payment defaults due to, among other reasons, a weaker economic environment, reductions in our customers’ cash flow from operations, our customers’ inability to access credit markets, as well as unsettled political conditions.

Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices.

Adjustments to the allowance are made depending on how potential issues are resolved and the financial condition of our customers.

In addition, our customers are primarily in fossil fuel-related industries and broad declines in demand for or pricing of oil or natural gas might impact the collections of our customer receivables.

As of December 31, 2022 and March 31, 2023, our net accounts receivables in Mexico comprised 21% and 27% of our total net account receivables, respectively.

From time to time, we experience delays in payments from customers in Mexico, and although the balances due are not in dispute and we do not expect to have any material write-offs of receivables, delays or failure to pay in the future could differ from management’s expectations and negatively impact future results of the company.

As of December 31, 2022 and March 31, 2023, net accounts receivables in the U.S.

comprised 12% of total net accounts receivables.

Except for the above, no other country accounted for more than 10% of our net accounts receivables balance.

Accounts Receivable Factoring

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions for cash proceeds net of discount and hold-back.

The programs we factor under are uncommitted and thus we cannot assure they will be available as a source of liquidity.

Our factoring transactions were recognized as sales, and the proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows.

During the three and nine months ended September 30, 2022, we sold accounts receivable balances of $12 million and $38 million, and received cash proceeds of $11 million and $34 million, respectively.

During the three and nine months ended September 30, 2021, we sold accounts receivable balances of $15 million and $55 million, and received cash proceeds of $12 million and $46 million, respectively.

Additionally, during the three months ended June 30, 2022, we entered into a short-term monetization transaction on accounts receivable balances of $77 million.

We received net cash proceeds of $59 million in the three months ended June 30, 2022 and $16 million in the three months ended September 30, 2022.

The proceeds are included as operating cash flows in our Condensed Consolidated Statements of Cash Flows.

Weatherford International plc, the ultimate parent of the Weatherford group, guarantees the obligations of its subsidiaries – Weatherford International Ltd., a Bermuda exempted company (“Weatherford Bermuda”), and Weatherford International, LLC, a Delaware limited liability company (“Weatherford Delaware”).

Our Exit Notes, 2028 Senior Secured Notes and 2030 Senior Notes were issued by Weatherford Bermuda and guaranteed by Weatherford International plc and Weatherford Delaware and other subsidiary guarantors party thereto.

Our LC Agreement and as subsequently amended in “Note 12 – Subsequent Events” was issued by Weatherford Bermuda and Weatherford Delaware and guaranteed by Weatherford International plc and other subsidiary guarantors party thereto.

Letters of Credit and Surety Bonds

As of September 30, 2022, we had $357 million of letters of credit outstanding, consisting of the $163 million under the LC Agreement and another $194 million under various uncommitted bi-lateral facilities (of which there was $194 million in cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets).

Our letters of credit under various uncommitted bi-lateral facilities increased “Restricted Cash” since December 31, 2021 due to a requirement from a new multi-year contract.

During the three months ended March 31, 2023 and 2022, we sold accounts receivable balances of $46 million and $17 million, and received cash proceeds of $42 million and $15 million, respectively.

Our Exit Notes and 2028 Senior Secured Notes were issued by Weatherford International Ltd., a Bermuda exempted company (“Weatherford Bermuda”), and guaranteed by the Company and Weatherford International, LLC, a Delaware limited liability company (“Weatherford Delaware”) and other subsidiary guarantors party thereto.

Our 2030 Senior Notes were originally co-issued by Weatherford Bermuda and Weatherford Delaware and guaranteed by the Company and other subsidiary guarantors party thereto.

Credit Agreement, Letter of Credit and Surety Bonds

Weatherford Bermuda, Weatherford Delaware, and Weatherford Canada Ltd.

(“Weatherford Canada”), together, as borrowers, and the Company as parent, have an amended and restated credit agreement (the “Credit Agreement”).

The Credit Agreement allows for a total commitment amount of $400 million maturing on October 17, 2026 (subject to a $250 million minimum liquidity covenant and a minimum interest coverage ratio and maximum ratio of funded debt), provided that no more than $50 million of our Exit Notes are outstanding on August 30, 2024 (otherwise the maturity date becomes August 30, 2024).

On March 24, 2023, we further amended the Credit Agreement to permit unlimited prepayments and other redemptions of indebtedness subject to (i) the ratio of funded debt (net of unrestricted cash in excess of $400 million) to consolidated adjusted EBITDA as defined in the Credit Agreement, not exceeding 2.50 to 1.00, (ii) no default or event of default existing and (iii) aggregate proforma liquidity in the event of a debt reduction equaling or exceeding $300 million (which previously was $350 million).

The material terms of the Credit Agreement or exceeding $300 million (which previously was $350 million).

The material terms of the Credit Agreement are otherwise unchanged.

The obligations under the Credit Agreement are guaranteed by the Company and certain of our subsidiaries and secured by substantially all of the personal property of the Company and those subsidiaries.

As of March 31, 2023, we had $405 million of letters of credit outstanding, consisting of the $253 million under the Credit Agreement and another $152 million under various uncommitted bi-lateral facilities (of which there was $146 million in cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets).

At March 31, 2023, we had $147 million remaining letters of credit available under our Credit Agreement.

We utilize surety bonds as part of our customary business practice in Latin America.

As of September 30, 2022, we had surety bonds outstanding of $287 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 Agreement or surety bonds, our available liquidity would be reduced by the amount called.

As of March 31, 2023, we had surety bonds outstanding of $430 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 and could reduce our available liquidity if we are unable to mitigate the issue.

Forward-Looking Statements

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Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements.

The forward-looking statements included herein are only made as of the date of the filing of this report, and 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 forward-looking statements included herein are only made as of the date of this report, or if earlier, as of the date they were made, and 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:

• global political, economic and market conditions, political disturbances, war, terrorist attacks, changes in global trade policies, weak local economic conditions and international currency fluctuations (including the Russia Ukraine Conflict);

• global political, economic and market conditions, banking crises, political disturbances, war, terrorist attacks, changes in global trade policies, weak local economic conditions and international currency fluctuations (including the Russia Ukraine Conflict);

• general global economic repercussions related to U.S.

and global inflationary pressures and potential recessionary concerns;

• failure to ensure on-going compliance with current and future laws and government regulations and sanctions, including but not limited to those related to the Russia Ukraine Conflict, and environmental and tax and accounting laws, rules and regulations;

• changes in, and the administration of, treaties, laws, and regulations, including in response to issues related to the Russia Ukraine Conflict and the potential for such issues to exacerbate other risks we face, including those related to the other risks and uncertainties listed or referenced in this Forward-Looking Statements section and in the Risk Factors section below;

• cybersecurity issues, as we may experience a higher rate of cybersecurity attacks, intrusions or incidents in the current environment of remote connectivity, as well as increased geopolitical conflicts and tensions;

• our ability to comply with, and respond to, climate change, ESG and other “sustainability” initiatives and future legislative and regulatory measures both globally and in the specific geographic regions in which we and our customers operate;

• failure to ensure on-going compliance with current and future laws and government regulations, including but not limited to those related to the Russia Ukraine Conflict, and environmental and tax and accounting laws, rules and regulations.

• cybersecurity incidents, as our reliance on digital technologies increases, those digital technologies may become more vulnerable and/or experience a higher rate of cybersecurity attacks, intrusions or incidents in the current environment of remote connectivity, as well as increased geopolitical conflicts and tensions, including as a result of the Russia Ukraine Conflict;

• our ability to comply with, and respond to, climate change, environmental, social and governance and other “sustainability” initiatives and future legislative and regulatory measures both globally and in the specific geographic regions in which we and our customers operate;

• our ability to effectively and timely address the need to conduct our operations and provision of services to our customers more sustainably and with a lower carbon footprint;

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• our ability to effectively and timely adapt our technology portfolio, products and services to address and participate in changes to the market demands for the transition to alternate sources of energy such as geothermal, carbon capture and responsible abandonment, including our digitalization efforts;

• increases in the prices and lack of availability of our procured products and services;

• increases in the prices, lead times and lack of availability of our procured products and services;

• our ability to timely collect from customers;

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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 report as anticipated, believed, estimated, expected, intended, planned or projected.

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 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 current and past filings with the SEC under the Exchange Act and the Securities Act of 1933, as amended.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis