Weatherford Still Needs More Airing Out

If New York Yankees backstop great and purveyor of malapropisms extraordinaire, Yogi Berra, had tuned into Weatherford International's (NYSE: WFT  ) post-release conference call -- and at 87 he just might have had sufficient time on his hands to do so -- he'd surely have called it "deja vu all over again."

You may recall that, at the conclusion of the third quarter of 2012, Weatherford's accounting and control systems were bollixed up beyond belief. At that time the Swiss company told us that, because of those problems -- I, probably more accurately, called them ineptitudes -- it's final financial information was still incomplete due to the need for remediation of its past tax reporting results. We were further advised that we'd receive more dependable indications of its quarterly performance later.

What'd it earn?
For the fourth quarter, while affairs at the oil-field services provider aren't yet covered down and dressed to the right, as we'd have said in the Marine Corps, the company lost $122 million, or $0.16 a share, compared with a loss of $13 million, or $0.02 a share a year earlier. However, if you back out items, Weatherford earned $0.01 per shares, a major miss from the analysts' consensus expectation of $0.18. Nevertheless, revenues of $4.07 billion, represented a 9% year-over-year improvement.

Weatherford's repertoire of products and services involves a wide range of both equipment and services that assist operators that drill, complete, evaluate, and generate production from oil and gas wells. Its primary areas of activity include North America, the Middle East -- much of its business there is in Iraq -- Africa, and Russia.

Tough treading in North America
As was the culprit with, for instance, Baker Hughes (NYSE: BHI  ) another major oil-field services provider that generates a significant amount of its business in North America, Weatherford was hindered by the softening of activity that you've heard so much about on our continent. Specifically, revenues in North America retrenched by 1.1%, largely on the basis of a surfeit of hydraulic fracturing equipment and weakness in the chemicals and well stimulation segment. However, North American operating income improved, both year-over-year and sequentially.

Conversely, while revenues from Europe, Asia, and Russia grew 10% year on year, activity declines in Azerbaijan, Asia, and the U.K. precipitated year-over-year and sequential declines in operating income from those areas. Latin America was the only region to point in the same direction on both the revenue and operating income lines. The former was up 11%, and the latter climbed by 10% from the fourth quarter of 2011.

But is it a buy?
Moving beyond a rearview mirror analysis of the company's operations, the more significant inquiry becomes one of Weatherford's appropriateness for Foolish portfolios. First of all, from an operating perspective, Weatherford is a solid company, just as it was more than a decade ago when I followed it as an investment analyst. Clearly, venues like Iraq, Russia, and South America bode well for a continued expansion of its activities.

At the same time, it's more than a little disconcerting that the company has required about two years to remediate previously disclosed material weaknesses in its tax reporting controls. Indeed, that process apparently hasn't yet been completed.

Last quarter, on the company's post release call, CFO John Briscoe said: "I believe we have the best ... team of external experts and internal staff working on the project around-the-clock and seven days a week." Obviously attempting to augment that assertion, on this quarter's call he assured us that "since Oct. 1, 2012, we have hired an additional 18 high quality tax professionals into our organization from multinational companies and big four accounting firms." Fine, but apparently for now we can only hope that the process is nearing its denouement.

Multiple no-no's
It's also worth noting that last summer Weatherford took a $100 million hit to settle U.S. government charges that it had worked in sanctioned countries, including Sudan and Iran. And beyond that it's the subject of Justice Department and Securities and Exchange Commission Foreign corrupt Practices Act investigations relating to possible payments of bribes to government officials in Europe.

At the same time, Weatherford has been added to the buy lists of energy seer T. Boone Pickens. I have tremendous respect for Boone -- I can call him that, since we've met -- and, like him, I believe that the oil-field services group is an exciting sector toward which investors might direct their shekels today. That's especially the case as it relates to companies with the majority of their revenues emanating from overseas.

A Foolish takeaway
But for my money, I'm more likely to target Schlumberger (NYSE: SLB  ) , the top banana among services providers and an operator in virtually all of the world's producing venues. Alternatively, I'd sidle up to National Oilwell Varco (NYSE: NOV  ) , the market share leader in the crucial production of equipment for a sizable number of deepwater drilling rigs currently under construction. Even though Weatherford's trading at half its share price of a couple of years ago, I continue to believe that the company needs more airing out.

National Oilwell Varco, which is mentioned at the conclusion of this article, is perhaps the safest investment in the energy sector due to its industry-leading 60% market share. This company is poised to profit in a big way; its customers are both increasing the number of new drilling rigs as well as updating an aging fleet of offshore rigs. To help determine if NOV is a nice fit for your portfolio, check out our premium research report with in-depth analysis on whether NOV is a buy today. For instant access to this valuable investor's resource, simply click here now and claim your copy today.


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  • Report this Comment On February 28, 2013, at 3:32 PM, hanover67 wrote:

    As a WFT stockholder, I certainly agree that there are better prospects in the oil services industry, much better prospects. Weatherford's inaptitude and lack of even awareness of its shareholders is so monumental it is breathtaking. Every quarter we are treated to some new negative "surprise" and a continuation of the accounting/tax millstone.

    If a company reported tax issues for more than one quarter, heads would roll, the SEC would step in, and as in Weatherford's case, the stock price would nosedive. Unfortunately, I do own the stock and would prefer not to sell at a loss. I'm hoping for a buyout, although I can't imagine who would want to acquire this mess.

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