Item 2. Management’s Discussion and Analysis
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 business in approximately 75 countries, answering the challenges of the energy industry with 330 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 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. The primary offerings are intervention services & drilling tools, artificial lift, digital solutions, sub-sea intervention and pressure pumping services in select markets.
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.
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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 Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Oil price - WTI (1)
$ 81.71 $ 73.76 $ 79.64 $ 74.92
Oil price - Brent (1)
$ 84.65 $ 78.32 $ 83.83 $ 79.75
Natural gas price - Henry Hub (2)
$ 2.08 $ 2.16 $ 2.11 $ 2.41
(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 Six Months Ended
June 30, June 30,
2024 2023 2024 2023
North America 738 836 785 909
International 963 960 964 938
Worldwide 1,701 1,796 1,749 1,847
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.
Revenues in Russia were approximately 5% of our total revenues for the three and six months ended June 30, 2024, compared to 6% of our total revenues for the three and six months ended June 30, 2023. As of June 30, 2024, our Russia operations included $84 million in cash, $100 million in other current assets, $78 million in property, plant and equipment and other non-current assets, and $54 million in liabilities. As of December 31, 2023, our Russia operations included $62 million in cash, $94 million in other current assets, $76 million in property, plant and equipment and other non-current assets, and $62 million in liabilities.
We continue to closely monitor and evaluate the developments in Russia as well as any changes in international laws and sanctions. We believe that operational complexity will increase over time and therefore continually evaluate these potential impacts on our business. As such, we continue to actively evaluate various options, strategies and contingencies with respect to our business in Russia, including, but not limited to:
• continuing the business in compliance with applicable laws and sanctions;
• evaluating the continued use or change in products, equipment and service offerings we currently provide in
Russia;
• curtailing or winding down our activities over time;
• potentially divesting some or all of our assets or businesses in Russia, which could include the option of re-entering the country if and when sanctions or applicable laws would allow for the same; and
• potential nationalization of the business.
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Consolidated Statements of Operations - Operating Summary
Revenues of $1.4 billion and $2.8 billion in the three and six months ended June 30, 2024, increased 10% and 12% compared to $1.3 billion and $2.5 billion in the three and six months ended June 30, 2023, respectively. Year-over-year in the second quarter, product revenues increased 13% and service revenues increased 9%. WCC, DRE, and PRI contributed 49%, 25%, and 2% of the increase in revenues, respectively. The remaining revenue increase was due to higher activity in integrated services and projects. Year-over-year in the six months ended June 30, 2024, product revenues increased 12% and service revenues 13%. WCC, DRE, and PRI contributed 33%, 27%, and 1% of the increase in revenues, respectively. The remaining revenue increase was due to higher activity in integrated services and projects.
Geographically, the year-over-year second quarter revenue growth was led by improvements in the Middle East/North Africa/Asia and Europe/Sub-Sahara Africa/Russia regions, which contributed to 92% and 31% of the increase, respectively, partly offset by a revenue decline in Latin America and North America. Year-over-year in the six months ended June 30, 2024, revenue growth was led by improvements in the Middle East/North Africa/Asia, Europe/Sub-Sahara Africa/Russia, and Latin America regions, which contributed to 80%, 19% and 12% of the increase, respectively, partly offset by a revenue decline in North America.
Operating income of $264 million and $497 million in the three and six months ended June 30, 2024, increased 31% and 29% compared to $201 million and $386 million in the three and six months ended June 30, 2023, respectively, primarily driven by improved operational efficiencies from increased resource utilization in addition to gains on sales of used rental equipment. Cost of products and services of $891 million and $1.8 billion in the three and six months ended June 30, 2024, increased 5% and 8% compared to $847 million and $1.6 billion in the three and six months ended June 30, 2023, respectively. Our cost of products and services as a percentage of revenues was 63% and 64% in the three and six months ended June 30, 2024 compared to 66% and 67% in the three and six months ended June 30, 2023, respectively, reflecting improved utilization on a more efficient operating cost structure.
Average oil prices in the three months ended June 30, 2024 increased by 11% for West Texas Intermediate crude oil and 8% for Brent North Sea crude oil and in the six months ended June 30, 2024 increased by 6% for West Texas Intermediate crude oil and 5% for Brent North Sea crude oil compared to the same periods in 2023, respectively. Average Henry Hub natural gas prices in the three months ended June 30, 2024 decreased 4% and in the six months ended June 30, 2024, decreased by 12%, compared to the same periods in 2023, respectively. Global rig counts for the three and six months ended June 30, 2024 decreased by 5% compared to both the same periods in 2023, respectively, driven by a decrease in North America. The year-over-year decrease in both the Henry Hub natural gas prices and North America rig count reflects the lower market demand and oversupply of natural gas in the region.
Selling, general, administrative and research and development costs of $247 million and $483 million in the three and six months ended June 30, 2024, increased 10% in both periods compared to $225 million and $441 million in the three and six months ended June 30, 2023, respectively. The increase primarily reflects an increase in overhead to support organization growth and an increase in research and development on newer technologies. Selling, general, administrative and research and development costs as a percentage of revenues was 18% in both the three and six months ended June 30, 2024, and in both the three and six months ended June 30, 2023.
Consolidated Statements of Operations - Non-Operating Summary
Interest Expense, Net
Interest expense, net was $24 million and $53 million in the three and six months ended June 30, 2024, respectively, and $31 million and $62 million in the three and six months ended June 30, 2023, respectively. Interest expense, net is interest expense net of interest income.
Interest expense of $41 million and $84 million in the three and six months ended June 30, 2024, respectively, and $47 million and $94 million in the three and six months ended June 30, 2023, respectively, decreased primarily due to the reduction in our outstanding long-term debt. As of June 30, 2024, we have fully repaid our outstanding 2028 Senior Secured Notes. See “Note 6 – Borrowings and Other Debt Obligations” to our Condensed Consolidated Financial Statements for additional details. Interest income was $17 million and $31 million in the three and six months ended June 30, 2024, respectively, and $16 million and $32 million in the three and six months ended June 30, 2023.
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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 Argentina through the purchase and sale of securities. We entered into a series of BCS securities transactions that resulted in a “Loss on Blue Chip Swap Securities” of $10 million in the three and six months ended June 30, 2024 and $57 million in the three and six months ended June 30, 2023. See “Note 12 – Blue Chip Swap Securities - Argentina” to our Condensed Consolidated Financial Statements for additional details.
Other Expense, Net
Other expense, net was $20 million and $42 million in the three and six months ended June 30, 2024, respectively, and $39 million and $74 million in the three and six months ended June 30, 2023, respectively. Other expense, net primarily represents foreign exchange 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.
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. Charges can be 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.
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Results of Operations by Segment
Financial information by segment is summarized below.
Favorable
Three Months Ended (Unfavorable)
June 30, $ % or bps
(Dollars in millions) 2024 2023 Change
Revenues:
DRE Revenues $ 427 $ 394 $ 33 8 %
WCC Revenues 504 440 64 15 %
PRI Revenues 369 366 3 1 %
All Other 105 74 31 42 %
Total Revenues $ 1,405 $ 1,274 $ 131 10 %
Operating Income:
DRE Segment Adjusted EBITDA $ 130 $ 106 $ 24 23 %
WCC Segment Adjusted EBITDA 145 109 36 33 %
PRI Segment Adjusted EBITDA 85 81 4 5 %
All Other 23 9 14 156 %
Corporate (18) (14) (4) (29) %
Depreciation and Amortization (86) (81) (5) (6) %
Share-based Compensation
(12) (8) (4) (50) %
Other Credits (Charges) (3) (1) (2) (200) %
Operating Income $ 264 $ 201 $ 63 31 %
Margins:
DRE Segment Adjusted EBITDA Margin 30.4 % 26.9 % n/m 354 bps
WCC Segment Adjusted EBITDA Margin 28.8 % 24.8 % n/m 400 bps
PRI Segment Adjusted EBITDA Margin 23.0 % 22.1 % n/m 90 bps
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Favorable
Six Months Ended (Unfavorable)
June 30, $ % or bps
(Dollars in millions) 2024 2023 Change
Revenues:
DRE Revenues $ 849 $ 766 $ 83 11 %
WCC Revenues 962 861 101 12 %
PRI Revenues 717 715 2 — %
All Other 235 118 117 99 %
Total Revenues $ 2,763 $ 2,460 $ 303 12 %
Operating Income:
DRE Segment Adjusted EBITDA $ 260 $ 214 $ 46 21 %
WCC Segment Adjusted EBITDA 265 205 60 29 %
PRI Segment Adjusted EBITDA 158 149 9 6 %
All Other 50 18 32 178 %
Corporate (32) (26) (6) (23) %
Depreciation and Amortization (171) (161) (10) (6) %
Share-based Compensation
(25) (17) (8) (47) %
Other Credits (Charges) (8) 4 (12) (300) %
Operating Income $ 497 $ 386 $ 111 29 %
Margins:
DRE Segment Adjusted EBITDA Margin 30.6 % 27.9 % n/m 269 bps
WCC Segment Adjusted EBITDA Margin 27.5 % 23.8 % n/m 374 bps
PRI Segment Adjusted EBITDA Margin 22.0 % 20.8 % n/m 120 bps
DRE Results
DRE revenues of $427 million and $849 million in the three and six months ended June 30, 2024, increased $33 million or 8%, and increased $83 million or 11%, compared to $394 million and $766 million in the three and six months ended June 30, 2023, respectively.
Of the second quarter year-over-year revenue increase, approximately 85% was from wireline activity after business acquisitions in the first quarter of 2024. Geographically, the Middle East/North Africa/Asia and Europe/Sub-Sahara Africa/Russia regions contributed approximately 65% and 35%, respectively, to the regions with revenue growth, offset by a revenue decline in the Latin America region, primarily from project delays.
Of the year-to-date year-over-year increase, approximately 65% was from wireline activity, and geographically, the Middle East/North Africa/Asia and Europe/Sub-Sahara Africa/Russia regions contributed approximately 60% and 40%, respectively, to the regions with revenue growth, offset by a revenue decline in the Latin America region.
DRE segment adjusted EBITDA of $130 million and $260 million in the three and six months ended June 30, 2024, increased $24 million or 23%, and increased $46 million or 21%, compared to $106 million and $214 million in the three and six months ended June 30, 2023. DRE segment adjusted EBITDA margin was 30.4% and 30.6% in the three and six months ended June 30, 2024 compared to 26.9% and 27.9% in the three and six months ended June 30, 2023. The improvement in segment adjusted EBITDA was primarily due to timing of certain higher margin international managed pressure drilling activity, including certain sales of used rental equipment, which more than offset the decrease in Latin America project delays.
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WCC Results
WCC revenues of $504 million and $962 million in the three and six months ended June 30, 2024, increased $64 million or 15%, and increased $101 million or 12%, compared to $440 million and $861 million in the three and six months ended June 30, 2023, respectively.
Of the second quarter year-over-year revenue increase, approximately 70% was from completions and liner hanger activity, primarily from the timing of deliveries. Geographically, the Middle East/North Africa/Asia region contributed approximately 90% to the overall revenue growth.
Of the year-to-date year-over-year revenue increase, approximately 45% was from liner hangers and tubular running services activity and approximately 40% was from completions activity. Geographically, international regions drove the revenue growth and the Middle East/North Africa/Asia region contributed approximately 80% of the international growth. This was partly offset by a revenue decline in North America, primarily on account of lower demand in that region.
WCC segment adjusted EBITDA of $145 million and $265 million in the three and six months ended June 30, 2024, increased $36 million or 33%, and increased $60 million or 29%, compared to $109 million and $205 million in the three and six months ended June 30, 2023, respectively. WCC segment adjusted EBITDA margin was 28.8% and 27.5% in the three and six months ended June 30, 2024, compared to 24.8% and 23.8% in the three and six months ended June 30, 2023. The increase in revenue and segment adjusted EBITDA was primarily from higher completions activity.
PRI Results
PRI revenues of $369 million and $717 million in the three and six months ended June 30, 2024, increased $3 million and $2 million, compared to $366 million and $715 million in the three and six months ended June 30, 2023, respectively.
Of the second quarter year-over-year revenue increase, the modest increase in intervention services and drilling tools was partly offset by a decline in artificial lift activity . Geographically, revenue growth in the Europe/Sub-Sahara Africa/Russia and Middle East/North Africa/Asia regions was offset by a decline in the North America and Latin America regions.
Of the year-to-date year-over-year revenue increase, the modest increase in intervention services and drilling tools was partly offset by a decline in artificial lift and pressure pumping activity . Geographically, revenue growth in the Europe/Sub-Sahara Africa/Russia and Middle East/North Africa/Asia regions was offset by a decline in North America.
PRI segment adjusted EBITDA of $85 million and $158 million in the three and six months ended June 30, 2024, increased $4 million or 5% and increased $9 million or 6% compared to $81 million and $149 million in the three and six months ended June 30, 2023, respectively. PRI segment adjusted EBITDA margin was 23.0% and 22.0% in the three and six months ended June 30, 2024, compared to 22.1% and 20.8% in the three and six months ended June 30, 2023. The increase in revenue and segment adjusted EBITDA was primarily from higher artificial lift activity.
All Other Results
All other results were from non-core business activities that do not individually meet the criteria for segment reporting, including integrated services and projects, which includes pass through and project management services.
All Other revenues of $105 million and $235 million in the three and six months ended June 30, 2024, compared to $74 million and $118 million in the three and six months ended June 30, 2023. The year-over-year increase was primarily from our integrated services and projects in the Middle East/North Africa/Asia and Latin America regions.
Corporate
Corporate was a net expense of $18 million and $32 million in the three and six months ended June 30, 2024 compared to $14 million and $26 million in the three and six months ended June 30, 2023. The year-over-year increase in expense was primarily due to an increase in certain professional fees.
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Depreciation and Amortization
Depreciation and amortization were $86 million and $171 million in the three and six months ended June 30, 2024 compared to $81 million and $161 million in the three and six months ended June 30, 2023. The year-over-year increase was primarily due to a larger asset base.
Share-based Compensation
We recognized $12 million and $25 million of share-based compensation in the three and six months ended June 30, 2024 compared to $8 million and $17 million in the three and six months ended June 30, 2023. The year-over-year increase was primarily due to an increase in equity awards granted.
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 2024 growth to outpace 2023, led by international activity and global offshore activity. We expect continued improvements in our customer activity levels and generally constructive macroeconomic conditions, all of which are expected to continue to provide a pathway to a multi-year energy demand expansion. We continue to closely monitor macroeconomic and geopolitical conditions, potential supply chain disruptions, inflationary factors, and other labor and logistical constraints that could impact our operations and results.
Liquidity and Capital Resources
At June 30, 2024, we had cash and cash equivalents of $862 million and $58 million in restricted cash, compared to $958 million of cash and cash equivalents and $105 million in restricted cash at December 31, 2023.
The following table summarizes cash flows provided by (used in) each type of business activity in the periods presented:
Six Months Ended June 30,
(Dollars in millions) 2024
2023
Net Cash Provided by Operating Activities $ 281 $ 285
Net Cash Used in Investing Activities $ (115) $ (122)
Net Cash Used in Financing Activities $ (289) $ (297)
Operating Activities
Cash provided by operating activities was $281 million for the six months ended June 30, 2024 compared to cash provided by operating activities of $285 million for the six months ended June 30, 2023. The primary operating sources of cash were from the timing of cash generated by our operations, offset by our operating spend, including payments to suppliers and employees. Net cash provided by operating activities was also benefited by accounts receivable factoring, as further described in the Accounts Receivable Factoring section below.
Investing Activities
Cash used in investing activities was $115 million for the six months ended June 30, 2024 compared to cash used in investing activities of $122 million for the six months ended June 30, 2023. The primary investing uses of cash were for capital expenditures of $121 million and $100 million for the six months ended June 30, 2024 and six months ended June 30, 2023, respectively. Cash used in investing activities also includes the use of the Blue Chip Swap mechanism in Argentina, of which the purchases more than offset the proceeds, resulting in a loss of $10 million and $57 million during the six months ended June 30, 2024 and June 30, 2023 (see “Note 12 – Blue Chip Swap Securities - Argentina”). The increase in business acquisitions, net of cash acquired in the current period was primarily from our acquisitions completed in the first quarter of 2024 (see “Note 13 – Acquisitions”). Other investing activities include proceeds from the disposition of assets and proceeds from the sale of investments from our marketable securities in Argentina, offset by investing spend around other intangibles.
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Financing Activities
Cash used in financing activities was $289 million for the six months ended June 30, 2024 compared to cash used in financing activities of $297 million for the six months ended June 30, 2023. The primary financing uses of cash were for repayments and repurchases of long-term debt of $259 million and $230 million for the six months ended June 30, 2024 and six months ended June 30, 2023, respectively (see “Note 6 – Borrowings and Other Debt Obligations”). Cash used in financing activities also includes tax remittances on equity awards vested, which were lower this period compared to the same period in the prior year due to a decrease in the quantity of shares vested. In addition, the tax remittance of $54 million on equity rewards vested in the prior year reflected the impact on the timing of both the quantity of shares vested and the increase in share price of those awards upon vesting. Other financing uses of cash include distributions to noncontrolling interests and bond redemption premiums paid.
Sources of Liquidity
Our sources of available liquidity include cash generated by our operations, cash and cash equivalent balances, and periodic accounts receivable factoring. From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy. 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 collections, we expect to have sufficient cash from operations and cash on hand to fund our cash requirements (discussed below), 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, operating costs and restructuring payments. As business activity continues to rise, we expect 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. In addition, we have derivative financial instruments where we have notional amounts that do not generally represent cash amounts exchanged by the parties and are calculated based on the terms of the derivative instrument, however, in the event of a related default, we could potentially be required to pay. See further discussion in our Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”). The CDS agreement at “Note 11 – Credit Default Swap” was terminated on July 17, 2024 and the remaining notional balance was eliminated (see “Note 14 – Subsequent Events”). Our cash requirements will also include payments for our shareholder returns program described in “Note 14 – Subsequent Events.”
As of June 30, 2024, the aggregate principal amount of our primary debt outstanding was $1.6 billion of our 2030 Senior Notes. We expect to pay $138 million in interest payments in 2024 specific to this note, of which we have paid $69 million during the six months ended June 30, 2024. See “Note 6 – Borrowings and Other Debt Obligations” for additional information.
Our capital spend is expected to be 3-5% of revenue over a 12 to 18 month rolling period and our 2024 capital spend is projected to be within the same framework. Our payments on our operating and finance leases in 2024 are expected to be approximately $63 million and $25 million, respectively.
Cash and cash equivalents and restricted cash are held by subsidiaries outside of Ireland. At June 30, 2024 and December 31, 2023, we had approximately $123 million and $92 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. As we continue to conduct business in certain countries with cash that cannot be immediately repatriated, we may consider infrequent transactions to safeguard our cash from exposure to the effects of inflation and currency devaluation. Repatriation of those cash balances might result in incremental taxes or losses.
Ratings Services’ Credit Ratings
Our credit ratings at December 31, 2023 have been maintained through June 30, 2024.
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Customer Receivables
We may experience delays or defaults in customer payments due to, among other reasons, a weaker economic environment, reductions in our customers’ cash flow from operations, our customers’ inability to access credit markets or reach acceptable financing terms, as well as unsettled political and/or social 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.
In addition to the exposure in Mexico as noted in the above “Cash Requirements” section and in “Note 11 – Credit Default Swap”, our net accounts receivables in Mexico were 35% and 27% of our total net accounts receivables, as of June 30, 2024 and December 31, 2023, respectively, of which our largest customer in the country accounted for 31% and 22% of our total net outstanding accounts receivables, respectively. From time to time, we experience delays in payments from our largest customer in Mexico. The balances due are not in dispute and we do not expect to have any material write-offs of receivables, however, delays or defaults in customer payments in the future could differ from management’s expectations and negatively impact the future results of the Company.
As of June 30, 2024 and December 31, 2023, our net accounts receivables in the U.S. was under 10% and was 11% 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-back. During the three and six months ended June 30, 2024, we sold accounts receivable balances of $43 million and $51 million, and received cash proceeds of $42 million and $50 million, respectively, at the time of factoring. Of the $43 million in accounts receivable sold during the second quarter of 2024, $39 million was from a new factoring arrangement we entered into during the quarter. During the three and six months ended June 30, 2023, we sold accounts receivable balances of $63 million and $109 million, and received cash proceeds of $61 million and $103 million, respectively, at the time of factoring.
Guarantees
Our 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. The remaining principal of our 2028 Senior Secured Notes was redeemed and paid in full on May 23, 2024.
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.
Credit Agreement, Letters of Credit and Surety Bonds
Weatherford Bermuda, Weatherford Delaware, Weatherford Canada Ltd. (“Weatherford Canada”) and WOFS International Finance GmbH (“Weatherford Switzerland”), together as borrowers, and the Company as parent, have an amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement is guaranteed by the Company and certain of our subsidiaries and secured by substantially all of the personal property of the Company and those subsidiaries. At December 31, 2023, the Credit Agreement allowed for a total commitment amount of $550 million, maturing on the earlier of October 24, 2028 and 91 days prior to the maturity of the 2028 Senior Secured Notes. Financial covenants in the Credit Agreement include a $250 million minimum liquidity covenant (which may increase up to $400 million dependent on the nature of transactions we may decide to enter into), a minimum interest coverage ratio of 2.50 to 1.00, a maximum total net leverage ratio of 3.50 to 1.00, and a maximum secured net leverage ratio of 1.50 to 1.00.
On April 22, 2024, additional lenders joined the Credit Agreement, providing an increase in total commitments from $550 million to $680 million (performance letters of credit increased from $250 million to $309 million and borrowings or
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additional performance or financial letters of credit increased from $300 million to $371 million). On June 6, 2024, an additional lender joined the Credit Agreement, providing an increase in total commitments from $680 million to $720 million (performance letters of credit increased to $327 million and revolving loan borrowings or additional performance or financial letters of credit increased to $393 million). In addition, we amended the Credit Agreement to allow for future increases in total commitments of up to $1 billion.
As of June 30, 2024, we had zero borrowings outstanding under the Credit Agreement and $389 million of letters of credit outstanding. The letters of credit consisted of 289 million for performance letters of credit and $48 million for financial letters of credit under the Credit Agreement and $52 million letters of credit under various uncommitted bi-lateral facilities ($44 million of which was cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets).
As of December 31, 2023, we had zero borrowings outstanding under the Credit Agreement and $376 million of letters of credit. The letters of credit consisted of $218 million for performance letters of credit and $52 million for financial letters of credit under the Credit Agreement and $106 million of letters of credit under various uncommitted bi-lateral facilities ($101 million of which was cash collateral held and recorded in “Restricted Cash” on the Condensed Consolidated Balance Sheets).
We utilize surety bonds as part of our customary business practice in certain regions, primarily Latin America. As of June 30, 2024 and December 31, 2023, we had surety bonds outstanding of $526 million and $594 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, a shareholder returns program, 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;
• 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;
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• 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 a pandemic, their impact on the global economy and our business, customers, suppliers and other partners; 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 of a pandemic, 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 return capital to shareholders, including those related to the timing and amounts (including any plans or commitments in respect thereof) of any dividends and share repurchases;
• 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.