The world’s fourth-largest offshore drilling service company is forced to cut costs to survive! With a sharp decline in employees and a plunge in stock prices, what exactly has it gone through?

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From having over 70,000 employees to only 28,000 left, from being a top giant in the oil industry to its stock price falling by more than 99%. Who can understand the crises hidden behind the glitz of the major oil companies? Oil services giant Weatherford’s asset sales: 3,100 words | Recommended reading time: 6 minutes | By Zizhu. Faced with ongoing challenges in the oil industry, even the world’s top multinational companies are forced to cut costs in order to survive through this ongoing economic downturn in the sector. On December 17, 2018, the globally renowned oil service giant Weatherford International announced that it had signed an agreement to sell its surface data logging business to Excellence Logging for $50 million. This deal means that Widford will officially withdraw from the surface data logging market. In the field of oil and gas technical services, Weatherford was once the fourth-largest player in the world. It has been engaged in surface data logging services for many years, and such a decision was undoubtedly difficult for this oil service company with 70 years of history. ◆◆◆The oil services giant is taking drastic measures to survive. Just three days after receiving a delisting warning from the New York Stock Exchange (NYSE), Weatherford signed an agreement to sell its surface data logging business. Affected by the ongoing poor performance, Widford’s stock price dropped below $1 per share this year, and it is now at an extremely low level of just $0.36 per share, representing a decline of over 99% compared to its peak in 2008. Worse still, Widford experienced a situation in which the average closing price of its shares was below $1 for 30 consecutive trading days, which means that Widford failed to meet the New York Stock Exchange’s minimum average share price requirement. Therefore, on December 14, the New York Stock Exchange sent it a notice stating that it would be delisted if it failed to raise its share price above $1 within 6 months. Widford stated immediately that it would continue to implement its previously outlined comprehensive transformation plan, and increase its earnings before interest, taxes, depreciation, and amortization for 2019 by $1 billion compared to 2017 in order to meet regulatory requirements once again. In addition, Widford also said that some other measures might be taken for this purpose, such as a reverse stock split. It is also worth noting that as of the third quarter of 2018, Woodward’s long-term debt had reached a high of $7.626 billion. High debt, low stock prices, and low oil prices – obviously, cutting costs at all costs has become one of the few options available to Widford. Widford also said that the net proceeds from the sale of its surface data logging business would be used to reduce debt. In fact, Weatherford’s drastic business divestitures have already begun. Over the past year, a number of large assets have been sold. In the third quarter of 2018, Weatherford sold its international drilling equipment business for $287.5 million. This project involves 31 drilling rigs, with nearly 2,300 employees involved as well. In the fourth quarter of 2018, Widerford sold its laboratory and geological analysis business for $205 million, along with the associated employees and contracts. Furthermore, in 2017, Weatherford also sold its shares in the fracturing joint venture it formed with Schlumberger for $430 million. This joint venture was once seen by the industry as a competitor capable of challenging Halliburton in the fracturing market. With the shale oil market in the United States experiencing a strong recovery, Widford’s withdrawal is undoubtedly a huge loss for it. ◆◆◆Sharp fluctuations: Looking at Widford’s development in recent years, aside from the severe impact of falling oil prices, its rapid expansion in previous years is also one of the key reasons for the difficulties it is facing now. An analysis of Widford’s revenue trends from 2005 to 2017 shows that starting in 2005, amid the sharp rise in international oil prices, Widford entered a period of extremely rapid growth. In 2000, Woodward’s annual revenue was less than $2 billion, while by the peak year of 2013, it had reached $15.263 billion. In just 13 years, its annual revenue increased by nearly 7.6 times. During this period, Weatherford not only carried out multiple large-scale acquisitions, but also continuously built infrastructure to expand its market. For example, in 2005, Weatherford spent $2.88 billion to acquire Precision Drilling Services’ energy business and its international drilling operations. This acquisition cost is equivalent to 65% of Weatherford’s total revenue that year, which clearly demonstrates its ambitious expansion plans. In 2009, thanks to its significant success in the Russian market, Weatherford invested another $450 million to acquire shares in the oil services company affiliated with Russia’s TNK-BP oil company. Under such rapid expansion, Widford’s problem of excessive capital intensity had actually been evident for some time. However, confident in the prospects of the oil market, Widford continued to pursue a strategy of rapid expansion. In 2010, Widerford stated that the company was aware of the issue of excessive capital intensity, but still considered it necessary. Widford also said at the time that significant investments had been made in expanding infrastructure and acquiring technology, and these investments would serve as a foundation for the company’s healthy growth in the future. However, after a significant expansion in scale, it seems that size did not confer a competitive advantage for Widford. A review of Widford’s historical financial reports shows that over the 8 years from 2010 to 2017, the company was in the red for 7 of those years. https://mpt.135editor.com/mmbiz_png/6FRetzCCRp32V5iacZicflaf2JWeOCf5uVJmsRicNbviaGS8xb4na8w8Boey1696zk4M35mGbJiaF53L0MPBpen0VGg/640?wx_fmt=png Even during the years 2012 and 2013 when oil prices were high, Whirlpool still incurred huge losses of $778 million and $345 million respectively. The reason for this is that although Widford is large in scale and has a wide range of business activities, it does not seem to have managed effectively the coordination between these various businesses, resulting in uneven performance across its different business areas. Some uncompetitive businesses instead become a burden, causing them to accumulate heavy debts. Especially during the period of low oil prices in recent years, Wirtgen’s non-core businesses were unable to cope with the sluggish market. In 2016, the toughest year for oil prices, Wintershall’s revenue dropped back to levels seen a decade earlier, and its net loss amounted to $3.392 billion. ◆◆◆Returning to focus: It is worth noting that Weatherford is not the only oil service company facing similar difficulties. In 2017, Seadrill, which was also once one of the top 10 global offshore drilling equipment companies, came close to bankruptcy due to debts of nearly $10 billion and a stock price below $1. Seadrill’s rapid expansion starting in 2005, followed by a sharp decline in performance after the oil price crisis, followed a pattern very similar to that of Weatherford. And there are countless oil service companies around the world that have had similar experiences to Widford and Seadrill. Such extreme fluctuations raise the question: faced with such volatile market cycles, what kind of development strategy should oil service companies adopt in the future? Once upon a time, the global oilfield services industry had highly successful giants such as Schlumberger and Halliburton, whose business models were emulated by many other oilfield services companies. For instance, Schlumberger, one of the Fortune Global 500 companies, started out in the well logging business. Over the past century, through numerous business acquisitions, it has expanded horizontally into areas such as drilling, completion, production, geology, and software. Thanks to its comprehensive, “one-stop-shop” oilfield services, it has come to dominate the global market. “The “comprehensive and large-scale” approach not only enables different business units of oil service companies to work together in order to capture market share, but it also enhances the companies’ resilience to risks to a certain extent, which is why it is highly appreciated by such companies. Influenced by this model, many small and medium-sized oil service companies in developing countries also set as their goal becoming large, integrated oil service firms with a full range of services. However, during the period from 2014 to 2018, the performance of these oil service giants showed that being \"big and comprehensive\" is undoubtedly a double-edged sword. Globally, Weatherford is one of the most successful oil service companies in developing a \"big and comprehensive\" integrated model. Founded in 1948, Widford started out by relying on innovative technologies in casing cementing tools, and over the years has grown through a series of acquisitions, developing various business areas such as drilling, completion, production, and downhole services. Weatherford also once became the world’s second-largest oil services company, after Schlumberger, Halliburton, and Baker Hughes. Even in 2018, Wiedefeld was still operating in over 90 countries, with more than 710 offices worldwide. Today, Widford also clearly realizes that it cannot control a \"big and all-encompassing\" situation. Returning to focus might help them carve out a path through the difficulties. In 2017, Wilford also introduced a new strategy to divest businesses, reduce debt, and focus on its core operations. It is worth noting that in addition to its intensive divestiture activities, Webasto is also actively strengthening its traditional core businesses. For example, in 2018, Widford adopted the then-popular artificial intelligence technology to upgrade its core product lines and introduced new services. Even giants like Widford had to retreat after aggressive expansion. Should one pursue \"broadness and comprehensiveness\" or \"focus\"? Next, these are issues that oil service companies need to consider carefully. ◆◆◆Will the oil service market improve in 2019? Weidford’s retreat also signals that the trend among oil service companies over the past decade or so to pursue a \"big and comprehensive\" approach has clearly come to an end. In the coming period, it is likely to become a mainstream trend for oil service companies to focus more intensely and specialize in a particular service. Becoming a unicorn in a certain field may well be the foundation for oil service companies to survive in the long term. Given the current development trends in the global oil market, it is highly necessary for oil service companies to focus more on their core activities. Judging from the performance of major domestic and international oil service companies in the first half of 2018, the oil service industry remains in a precarious situation. Not only are there oil service companies operating at a loss, but even those that are profitable generally have limited profit margins. Net profits (or losses) of major domestic and international oil service companies in the first half of 2018: Schlumberger: $955 million; Halliburton: $557 million; BHGE: $51 million; Weatherford: -$510 million; Sinopec Oil Services: $401 million; CNOOC Oil Services: -$375 million; Yantai Jereh: $185 million; Anton Oil: $85 million; Zhongman Oil: $104 million. It is almost certain that competition in the oil service industry will be intense in 2019, as investments in the global oil and gas sector are unlikely to return to their 2014 levels. A recent forecast by energy consulting firm Wood Mackenzie suggests that global investment in oil and gas will reach around $425 billion in 2019. Although this figure is higher than the $400 billion recorded in 2016 and 2017, it remains well below the $770 billion level seen in 2014. Oil companies such as BP and Total have also repeatedly stated publicly that they will exercise discipline and caution in their future investments. Previously, Rystad Energy, an energy research firm based in Norway, also issued predictions stating that the global oilfield services industry would not be able to return to its levels before the market downturn until 2024. This means that oil service companies must learn to cope with the tough market conditions in the long term.