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Debt-laden Weatherford would benefit from more divestitures, analysts say

Weatherford International PLC is hoping reorganization under Chapter 11 bankruptcy will give the beleaguered company the leg up it needs to regain its position among the top international oilfield service providers, but analysts said more drastic action might be needed.

The company said May 10 that it reached an agreement with holders of 62% of senior debt for a prepackaged bankruptcy that will allow it to eliminate $5.8 billion of its $7.5 billion long-term debt. In exchange, the restructured company will have to relinquish 99% of its stock to the unsecured noteholders. The deal also gives the company access to $1.75 billion in new loans and credit.

The lower debt will save Weatherford $350 million to $400 million per year in interest expense and "eases a path to year-end positive free cash flow that we hadn't been able to see until 2021," Jefferies analysts said in a note. "The plan points to [Weatherford] re-emerging intact, although our bias remains that additional business divestitures could benefit [Weatherford] ultimately by simplifying its path and lowering debt further."

In the wake of the 2014 crude oil price downturn, Weatherford entered into a string of deals designed to consolidate its business, build cash and repay debt. Since December 2018, it has sold its Precision Drilling Services Saudi Arabia land operations to ADES International Holding PLC for $92.5 million; divested four contracted drilling rigs in Algeria for $40 million in cash; sold two land drilling rigs that were relocated in Algeria and delivered two idle land drilling rigs from Iraq for a total of $32 million in cash; completed the sale of its surface data logging business to Excellence Logging Services for $50 million; and wrapped a $206 million, cash-only sale of its laboratory services business to a group led by CSL Capital Management LP.

Despite the efforts to turn around the company's performance, Weatherford continued to face an uphill slog.

It was unable to ride an exploration and production industry rebound that helped boost competitors Schlumberger Ltd., Halliburton Co. and Baker Hughes, a GE company. Once among the "big four" oilfield service companies, Weatherford posted a $481 million loss in the first quarter, caused in part by a slowdown in U.S. shale activity; weak upstream conditions in Canada; weather-related disruptions in the U.S., Western Europe and Russia; and an unfavorable financial environment in Argentina.

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After trading at a peak around $50 per share in 2008, the company's stock fell below $1 per share on Nov. 13, 2018, triggering an eventual delisting warning from the New York Stock Exchange, and bottomed out at 24 cents per share a few weeks later. It climbed back to the 90 cents range in February but closed at 37 cents per share on May 10 after the restructuring announcement.

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In an attempt to avoid delisting, the company had teed up a shareholder vote on a reverse stock split where every 20 shares would be consolidated into one. On May 13, however, the NYSE confirmed that it was suspending trading on Weatherford stock that day. The exchange said it considered the restructuring agreement in its decision. Weatherford said it intends to appeal the delisting.

Raymond James analysts said Weatherford's restructuring was its best option. "While it is a challenging decision, we continue to see the prepackaged restructuring as the best course of action," analyst Praveen Narra said May 12.