Weatherford International plc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. As used in this item, “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 include assumptions, certain risks and uncertainties. For information about these assumptions, risks and uncertainties, refer to the section “Forward-Looking Statements” and the section “PART II - Other Information - Item 1A. Risk Factors.” Business 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 335 operating locations including manufacturing, research and development, service, and training facilities. 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 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. The primary offerings are tubular running services, cementation products, completions, liner hangers and well services. 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 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. 18 Table of Con t e n t s The table below shows the average oil and natural gas prices for West Texas Intermediate (“WTI”), Brent North Sea (“Brent”) crude oil and Henry Hub natural gas. Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Oil price - WTI (1) $ 82.30 $ 93.18 $ 77.38 $ 98.79 Oil price - Brent (1) $ 86.66 $ 100.72 $ 82.05 $ 104.85 Natural gas price - Henry Hub (2) $ 2.59 $ 7.99 $ 2.47 $ 6.71 (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 (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, 2023 2022 2023 2022 North America 836 960 885 876 International 951 857 942 832 Worldwide 1,787 1,817 1,827 1,708 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 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. With respect to our continued operations in Russia, we continuously monitor developments in the conflict, changes in sanctions against Russia and restrictions imposed on western companies operating in Russia along with other associated risks including potential nationalization of our assets in Russia. Revenues in Russia were approximately 6% of our total revenues for both the three and nine months ended September 30, 2023, compared to 7% and 6% of our total revenues for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, our Russia operations include $35 million in cash, $94 million in other current assets, $69 million in property, plant and equipment and other non-current assets, and $57 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. 19 Table of Con t e n t s Consolidated Statements of Operations - Operating Summary Revenues of $1.3 billion and $3.8 billion in the three and nine months ended September 30, 2023, increased 17% and 21% compared to $1.1 billion and $3.1 billion in the three and nine months ended September 30, 2022, respectively. Year-over-year in the third quarter, product revenues increased 20% and service revenues increased 15%. WCC, DRE, and PRI contributed to 35%, 21%, and 7% of the increase in revenues, respectively, with the remainder from higher activity in integrated services and projects. Year-over-year in the nine months ended September 30, 2023 product revenues increased 22% and service revenues increased 20%. WCC, DRE, and PRI contributed to 31%, 30%, and 15% of the increase in revenues, respectively, with the remainder from higher activity in integrated services and projects. Approximately 90% and 80% of our revenue increase in the three and nine months ended September 30, 2023, respectively, was 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 observable in the increase of global rig counts, which increased 7% year-over-year in the nine months ended September 30, 2023. During the three months ended September 30, 2023, international revenues led the increase year-over-year, observable in the 11% increase of international rig counts for the same period. Geographically, the year-over-year third quarter revenue growth was led by improvements in the Middle East/North Africa/Asia, Latin America and Europe/Sub-Sahara Africa/Russia, which contributed to 61%, 40%, and 14% of the increase, respectively, partly offset by a revenue decline in North America. The year-over-year nine months ended September 30, 2023 revenue growth was led by improvements in Latin America, Middle East/North Africa/Asia, Europe/Sub-Sahara Africa/Russia and North America, which contributed to 42%, 39%, 16% and 3% of the increase, respectively. In the three and nine months ended September 30, 2023, the U.S. accounted for 16% and 17% of revenue, respectively, and Mexico accounted for 14% and 13%, respectively. In the three and nine months ended September 30, 2022, the U.S. accounted for 21% and 20%, respectively. No other country accounted for more than 10% of our revenue in the periods presented in these financials. Cost of products and services of $859 million and $2.5 billion in the three and nine months ended September 30, 2023, increased 11% and 13% compared to $775 million and $2.2 billion in the three and nine months ended September 30, 2022, respectively. Approximately 90% and 80% of our increase in the three and nine months ended September 30, 2023, respectively, was attributable to cost increases necessary to meet increased demand, with a larger portion of the remainder from a shift in service and product mix and the rest due to inflation in the cost of labor and materials. Our cost of products and services as a percentage of revenues was 65% and 66% in the three and nine months ended September 30, 2023, respectively, compared to 69% and 71% in the three and nine months ended September 30, 2022, respectively. The improvement was primarily driven by improved utilization of service-related resources. Selling, general, administrative and research and development costs of $241 million and $682 million in the three and nine months ended September 30, 2023, increased 8% and 6% compared to $224 million and $641 million in the three and nine months ended September 30, 2022, respectively. The increase primarily reflects an increase in research and development investment in newer technologies and an increase in overhead to support the organization growth. Selling, general, administrative and research and development costs as a percentage of revenues was 18% in both in the three and nine months ended September 30, 2023, a decrease compared to 20% and 21% in the three and nine months ended September 30, 2022, respectively. Consolidated Statements of Operations - Non-Operating Summary Interest Expense, Net Interest expense, net was $30 million and $92 million in the three and nine months ended September 30, 2023, respectively, and $44 million and $140 million in the three and nine months ended September 30, 2022. Interest expense, net is interest expense net of interest income, which has decreased over prior year primarily due to a decrease in interest expense on our outstanding long-term debt and an increase of interest income. 20 Table of Con t e n t s Interest expense was $45 million and $139 million in the three and nine months ended September 30, 2023, respectively, and $52 million and $159 million in the three and nine months ended September 30, 2022, respectively. Interest expense has decreased over prior year primarily due to the reduction in our outstanding long-term debt. As of September 30, 2023, we have fully repaid our outstanding Exit Notes and have made partial repurchases of principal on our 2028 Senior Secured Notes since September 30, 2022. See “Note 6 – Borrowings and Other Debt Obligations” to our Condensed Consolidated Financial Statements for additional details. Interest income was $15 million and $47 million in the three and nine months ended September 30, 2023, respectively, and $8 million and $19 million in the three and nine months ended September 30, 2022. Interest income has increased primarily due to higher interest rates on short-term demand deposits. Loss on Blue Chip Swap Securities An indirect foreign exchange mechanism known as the Blue Chip Swap (“BCS”) allows entities to remit U.S. dollars from operations in Argentina. No BCS transactions were executed during the third quarter of 2023. During the second quarter of 2023, we entered into a series of BCS securities transactions that resulted in a “Loss on Blue Chip Swap Securities” of $57 million. We may enter into additional BCS transactions in the future which may drive additional losses to the extent that the implied exchange rates are higher than the official exchange rates. See “Note 11 – Blue Chip Swap Securities - Argentina” to our Condensed Consolidated Financial Statements for additional details. Other Expense, Net Other expense, net was $24 million and $98 million in the three and nine months ended September 30, 2023, respectively, and $14 million and $62 million in the three and nine months ended September 30, 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, including when applicable, bond redemption premiums partially offset by certain investment gains and losses. When economically advantageous, we enter into foreign currency forward contracts to mitigate the risk of future cash flows denominated in a foreign currency. Foreign exchange losses in the three and nine months ended September 30, 2023 were primarily attributable to currency losses on the Argentinian Peso. Foreign exchange losses in the three and nine months ended September 30, 2022 were primarily attributed to changes in fair value and settlements of certain foreign currency forward contracts. Income Taxes 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. The relationship between our pre-tax income or loss from continuing operations and our income tax benefit or provision varies from period to period as a result of various factors, which include changes in total pre-tax income or loss, the jurisdictions in which our income is earned, the tax laws in those jurisdictions, the impacts of tax planning activities and the resolution of tax audits. 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, 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 10 – Income Taxes” to our Condensed Consolidated Financial Statements for additional details. 21 Table of Con t e n t s Results of Operations by Segment Financial information by segment is summarized below. Favorable Three Months Ended (Unfavorable) September 30, $ % or bps (Dollars in millions) 2023 2022 Change Revenues: DRE Revenues $ 388 $ 348 $ 40 11 % WCC Revenues 459 391 68 17 % PRI Revenues 371 357 14 4 % All Other 95 24 71 296 % Total Revenues $ 1,313 $ 1,120 $ 193 17 % Operating Income: DRE Segment Adjusted EBITDA $ 111 $ 85 $ 26 31 % WCC Segment Adjusted EBITDA 119 78 41 53 % PRI Segment Adjusted EBITDA 86 66 20 30 % All Other 7 3 4 133 % Corporate (18) (18) — — % Depreciation and Amortization (83) (88) 5 6 % Share-Based Compensation (9) (5) (4) (80) % Other Credits (Charges) 5 — 5 n/m Operating Income $ 218 $ 121 $ 97 80 % Margins: DRE Segment Adjusted EBITDA Margin 28.6 % 24.4 % n/m 418 bps WCC Segment Adjusted EBITDA Margin 25.9 % 19.9 % n/m 598 bps PRI Segment Adjusted EBITDA Margin 23.2 % 18.5 % n/m 469 bps 22 Table of Con t e n t s Favorable Nine Months Ended (Unfavorable) September 30, $ % or bps (Dollars in millions) 2023 2022 Change Revenues: DRE Revenues $ 1,154 $ 957 $ 197 21 % WCC Revenues 1,320 1,118 202 18 % PRI Revenues 1,086 988 98 10 % All Other 213 59 154 261 % Total Revenues $ 3,773 $ 3,122 $ 651 21 % Operating Income: DRE Segment Adjusted EBITDA $ 325 $ 213 $ 112 53 % WCC Segment Adjusted EBITDA 324 212 112 53 % PRI Segment Adjusted EBITDA 235 173 62 36 % All Other 25 5 20 400 % Corporate (44) (52) 8 15 % Depreciation and Amortization (244) (265) 21 8 % Share-Based Compensation (26) (18) (8) (44) % Other Credits (Charges) 9 (25) 34 136 % Operating Income $ 604 $ 243 $ 361 149 % Margins: DRE Segment Adjusted EBITDA Margin 28.2 % 22.3 % n/m 591 bps WCC Segment Adjusted EBITDA Margin 24.5 % 19.0 % n/m 558 bps PRI Segment Adjusted EBITDA Margin 21.6 % 17.5 % n/m 413 bps DRE Results DRE revenues of $388 million and $1,154 million in the three and nine months ended September 30, 2023, increased $40 million or 11%, and $197 million or 21%, compared to $348 million and $957 million in the three and nine months ended September 30, 2022, respectively. Of the year-over-year revenue increase in the third quarter of 2023, approximately all of the increase was from drilling- related services and wireline. Geographically, international regions contributed approximately all of the overall revenue growth and approximately 70% of the international growth came from Latin America. The increase in revenue was attributable to higher activity. Of the year-over-year revenue increase in the nine months ended September 30, 2023, approximately 70% was from drilling-related services. Geographically, international regions contributed approximately 90% of the overall revenue growth with approximately 60% of the international growth coming from Latin America. The increase in revenue was approximately 90% attributable to higher activity with the remainder primarily attributable to pricing. DRE segment adjusted EBITDA of $111 million and $325 million in the three and nine months ended September 30, 2023, increased $26 million or 31%, and $112 million or 53%, compared to $85 million and $213 million in the three and nine months ended September 30, 2022. DRE segment adjusted EBITDA margin was 28.6% and 28.2% in the three and nine months ended September 30, 2023, compared to 24.4% and 22.3% in the three and nine months ended September 30, 2022. The nine months ended September 30, 2023 improvement in segment adjusted EBITDA was approximately 65% due to higher activity, with the remainder attributable to pricing, including timing of cost inflation related recoveries. 23 Table of Con t e n t s WCC Results WCC revenues of $459 million and $1,320 million in the three and nine months ended September 30, 2023, increased $68 million or 17%, and $202 million or 18%, compared to $391 million and $1,118 million in the three and nine months ended September 30, 2022, respectively. Of the year-over-year revenue increase in the third quarter 2023, approximately 90% was from completions, cementation products and liner hangers. Geographically, international regions contributed approximately to all of the overall revenue growth, and approximately 60% of the international growth came from the Middle East/North Africa/Asia. Of the year-over-year revenue increase in the nine months ended September 30, 2023, approximately 75% was from completions and cementation products. Geographically, Latin America and the Middle East/North Africa/Asia regions equally contributed to approximately 70% of the overall revenue growth. WCC segment adjusted EBITDA of $119 million and $324 million in the three and nine months ended September 30, 2023, increased $41 million or 53%, and $112 million or 53%, compared to $78 million and $212 million in the three and nine months ended September 30, 2022. WCC segment adjusted EBITDA margin was 25.9% and 24.5% in the three and nine months ended September 30, 2023, compared to 19.9% and 19.0% in the three and nine months ended September 30, 2022. The increase in revenue and segment adjusted EBITDA was primarily attributable to higher activity, resulting in margin fall through. PRI Results PRI revenues of $371 million and $1,086 million in the three and nine months ended September 30, 2023, increased $14 million or 4%, and $98 million or 10%, compared to $357 million and $988 million in the three and nine months ended September 30, 2022, respectively. Of the year-over-year revenue increase in the third quarter of 2023, approximately all of the increase was from pressure pumping partially offset by a decline in artificial lift. Geographically, Latin America and Middle East/North Africa/Asia contributed approximately 50% each to the regions with overall revenue growth, offset by a revenue decline in North America. Of the year-over-year revenue increase in the nine months ended September 30, 2023, approximately 80% was from pressure pumping and intervention services and drilling tools. Geographically, international regions contributed approximately all of the overall revenue growth with approximately 50% of the international growth coming from Latin America and approximately 40% in Middle East/North Africa/Asia. These increases were offset by revenue decline in North America. PRI segment adjusted EBITDA of $86 million and $235 million in the three and nine months ended September 30, 2023, increased $20 million or 30%, and $62 million, or 36%, compared to $66 million and $173 million in the three and nine months ended September 30, 2022. PRI segment adjusted EBITDA margin was 23.2% and 21.6% in the three and nine months ended September 30, 2023, an improvement compared to 18.5% and 17.5% in the three and nine months ended September 30, 2022. The increase in revenue and segment adjusted EBITDA was primarily attributable to higher activity, resulting in margin fall through. All Other Results All Other revenues of $95 million and $213 million in the three and nine months ended September 30, 2023, increased $71 million or 296%, and $154 million or 261%, compared to $24 million and $59 million in the three and nine months ended September 30, 2022, respectively. The year-over-year increase was primarily due to improved results in integrated services and projects in the Middle East/North Africa/Asia and Latin America that did not individually meet the criteria for segment reporting. Corporate Corporate was a net expense of $18 million and $44 million in the three and nine months ended September 30, 2023 compared to a net expense of $18 million and $52 million in the three and nine months ended September 30, 2022, respectively. The year-over-year decrease in the nine months ended was primarily due to the impact of certain one-time items in 2022. 24 Table of Con t e n t s Depreciation and Amortization Depreciation and amortization was $83 million and $244 million in the three and nine months ended September 30, 2023 compared to $88 million and $265 million in the three and nine months ended September 30, 2022, respectively. The year-over-year decrease was primarily from a lower asset base. Share-based Compensation Expense We recognized $9 million and $26 million of share-based compensation expense in the three and nine months ended September 30, 2023 compared to $5 million and $18 million in the three and nine months ended September 30, 2022, respectively. The increase was primarily attributable to a higher number of performance share units expected to vest. Outlook Growth and spending in the energy services industry is highly dependent on many external factors. These include but are not limited to: inflation; geopolitical uncertainty; supply chain disruptions; energy policies at local and regional levels; rig counts; and the price of oil and natural gas. We continue to expect overall 2023 growth over 2022, led by increased demand in customer activity levels, driven mostly by international customers looking to increase production capacity. 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, manage 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, 2023, we had cash and cash equivalents of $839 million and $107 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, (Dollars in millions) 2023 2022 Net Cash Provided by Operating Activities $ 457 $ 156 Net Cash Used in Investing Activities $ (158) $ (22) Net Cash Used in Financing Activities $ (388) $ (89) Operating Activities Cash provided by operating activities for the nine months ended September 30, 2023 and September 30, 2022 was $457 million and $156 million, respectively. The primary source of cash provided by operating activities was mostly attributed to operating income and collections, which offset operating spend, including cash interest. Higher operating income offset by lower spend and lower cash interest attributed to the increase year-over-year. 25 Table of Con t e n t s Investing Activities Cash used in investing activities was $158 million for the nine months ended September 30, 2023. The primary investing activities were cash used for capital expenditures of $142 million and the purchase of Blue Chip Swap securities in Argentina for $110 million. The uses of cash were partially offset by Blue Chip Swap proceeds of $53 million (see Note 11 – Blue Chip Swap Securities - Argentina) and additional cash proceeds of $33 million from the sales of our investments in marketable securities in Argentina, presented as part of “Other 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 sale of assets of $55 million. Financing Activities Cash used in financing activities was $388 million for the nine months ended September 30, 2023. The primary uses of cash were $306 million for repayments and repurchases of long-term debt (see “Note 6 – Borrowings and Other Debt Obligations”) and $54 million in tax remittances on equity awards vested. The tax remittances were higher than the same period of the prior year due to an increase in both the share price and the quantity of shares vested. Cash used in financing activities was $89 million for 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 distributions paid to noncontrolling interests. Sources of Liquidity Our sources of available liquidity include cash generated by our operations, cash and cash equivalent balances, the borrowing capacity available to us under our Credit Agreement (as amended) and accounts receivable factoring. From time to time, we may enter into transactions to dispose of businesses or capital assets. We historically have accessed banks for short-term loans and the capital markets for debt and equity offerings. Our available liquidity could be negatively impacted by delayed collections on customer receivables. Based upon current and anticipated levels of operations and collections, we expect to have sufficient cash from operations and cash on hand to fund our cash requirements (discussed below and in “Note 6 – 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 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. In addition, we may further invest in research and development in newer technologies as well as in overhead to support the organization’s growth. Our cash requirements also include improvements made to our technology platforms and personnel costs including awards under our employee incentive programs as well as other amounts to settle litigation related matters. We may repurchase or retire our debt, or take other steps to reduce our debt or otherwise improve our financial position. These actions could include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and opportunistic refinancing of debt. The amount of debt that may be repurchased or retired, if any, will depend on market conditions, the Company's cash position, compliance with debt covenants and restrictions and other considerations. See “Note 6 – Borrowings and Other Debt Obligations” and “Note 12 – Subsequent Events” for additional information. As of September 30, 2023, our primary debt outstanding was the $324 million in aggregate principal amount of our 2028 Senior Secured Notes and $1.6 billion in aggregate principal amount of our 2030 Senior Notes. Considering the balances of our outstanding notes as of September 30, 2023, we would expect $172 million in interest payments in 2023 in total, of which we have paid $103 million during the nine months ended September 30, 2023. See “Note 6 – Borrowings and Other Debt Obligations” for additional information. Our capital spending for 2023 is projected to be within 3-5% of total year revenues. Our payments on our operating and finance leases in 2023 are expected to be approximately $66 million and $21 million, respectively. 26 Table of Con t e n t s Cash and cash equivalents and restricted cash are held by subsidiaries outside of Ireland. At September 30, 2023 and December 31, 2022, we had approximately $157 million and $177 million, respectively, of our cash and cash equivalents that cannot be immediately repatriated from various countries due to country central bank controls or other regulations. Repatriation of those cash balances might result in incremental taxes or losses similar to the Argentine Blue Chip Swap “BCS” transactions executed in the second quarter of 2023 (see “Note 11 – Blue Chip Swap Securities - Argentina”), which contributed to the decrease in cash and cash equivalents that cannot be immediately repatriated. As we continue to conduct business in Argentina and in other countries with cash that cannot be immediately repatriated, we may consider infrequent transactions like the BCS transaction in the future to safeguard our cash from exposure to the effects of inflation and currency devaluation. Customer Receivables 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 September 30, 2023 and December 31, 2022, our net accounts receivables in Mexico were 35% and 21% of our total net accounts receivables, respectively, driven by delayed payments from our primary customer. 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 September 30, 2023 and December 31, 2022, our net accounts receivables in the U.S. was 10% and 12% of total net accounts receivables, respectively. 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 discounts and hold-backs. During the three and nine months ended September 30, 2023, we sold accounts receivable balances of $12 million and $121 million, and received cash proceeds of $11 million and $114 million, respectively. 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. Guarantees 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 Exit Notes were fully redeemed and repurchased in May 2023. Our 2030 Senior Notes were issued by Weatherford Bermuda and guaranteed by the Company and other subsidiary guarantors party thereto. On December 1, 2022, the indenture related to our 2030 Senior Notes was amended and supplemented to add Weatherford Delaware as co-issuer and co-obligor, and concurrently released the guarantee of Weatherford Delaware. 27 Table of Con t e n t s 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). 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 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. On October 24, 2023, we further amended our Credit Agreement, the details of which are discussed in “Note 12 - Subsequent Events”. As of September 30, 2023, we had $379 million of letters of credit outstanding, consisting of the $272 million under the Credit Agreement and another $107 million under various uncommitted bi-lateral facilities (of which there was $101 million in cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets). As of December 31, 2022, we had $395 million of letters of credit outstanding, consisting of the $195 million under the Credit Agreement and another $200 million under various uncommitted bi-lateral facilities (of which there was $199 million in cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets). As of September 30, 2023 and December 31, 2022, our revolving loan capacity available was $45 million, respectively. As mentioned above, on October 24, 2023, we further amended our Credit Agreement, the details of which are discussed in “Note 12 - Subsequent Events”. We utilize surety bonds as part of our customary business practice primarily in Latin America. As of September 30, 2023 and December 31, 2022, we had surety bonds outstanding of $564 million and $415 million, respectively. 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 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. 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); • 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, including but not limited to those related to the Russia Ukraine Conflict, and environmental and tax and accounting laws, rules and regulations; 28 Table of Con t e n t s • changes in, and the administration of, treaties, laws, and regulations, including in response to issues related to the Russia Ukraine Conflict such as nationalization of assets, and the potential for such issues to exacerbate other risks and uncertainties listed or referenced; • 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 provide services to our customers more sustainably and with a lower carbon footprint; • risks associated with disease outbreaks and other public health issues, including the COVID-19 pandemic; further spread and potential for a resurgence of a pandemic in a given geographic region and related disruptions to our business, employees, customers, suppliers and other partners and additional regulatory measures or voluntary actions that may be put in place to limit the spread, 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; • 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, lead times 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 to capital markets on terms that are commercially acceptable to the Company; • our ability to manage our workforce, supply chain challenges and disruptions, 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; • our ability to service our debt obligations; • potential non-cash asset impairment charges for long-lived assets, intangible assets or other assets; and • adverse weather conditions in certain regions of our operations. 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. 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.