What happened

Shares of oil services company Weatherford International (NYSE: WFT) jumped 13.8% in March. The impetus for the gain was the announcement that the company had hired a new CEO and that it was forming a joint venture with Schlumberger (SLB 0.35%).

Oil drilling rig working in green pasture

Image source: Getty Images.

So what

Weatherford is in the less-than-desirable position of being the fourth-largest oil services company in the world. While fourth in such a massive industry isn't a bad place to be, it doesn't give it the economies of scale that the three ahead of it have. That alone is difficult, but it's also made worse by the fact that Weatherford has struggled to be profitable for years. 

This past November, longtime CEO Bernard Duroc-Danner unceremoniously stepped down, and the company started the search for a new CEO. Based on some of the moves interim CEO Krishna Shivram made, there were reasons to believe he was going to get the job. On March 7, though, Weatherford announced its new CEO was former Halliburton (HAL -0.24%) Mark McCollum.

McCollum got right to work, as the company announced on March 24 that it was forming a joint venture with Schlumberger known as OneStim. The new entity will combine Weatherford's multistage completions assets, its regional manufacturing capability, and its supply chain with Schlumberger's surface and downhole tools and its operational technologies. Schlumberger and Weatherford will own 70% and 30% of the new venture, respectively.

The idea here is to be able to compete with Halliburton in the North American shale patch. For the past several years, Halliburton has been the premier shale oil services company with an asset profile that was hard for a single company to replicate. The boom and bust cycles of the shale industry means that companies have large fleets of assets that aren't always fully utilized. It's industries like this where economies of scale make a difference. With OneStim, Weatherford and Schlumberger will have the size and scale to take on Halliburton in the well completion and hydraulic fracturing business.

It's also worth noting that as part of the deal, Weatherford will receive a one-time cash payment of $535 million. Cash is something the company needs desperately since it hasn't been free cash flow positive since 2010 and has a substantial debt load. 

Now what

Based on the company's performance over the past decade, it's clear that a change of leadership was in order. For too long, Weatherford has been plagued with high costs and the inability to turn a profit. Hopefully, McCollum will be able to breathe new life into the company. Do keep in mind, though, that this new deal has yet to be completed. One thing we have learned in the oil industry lately is that no deal is safe until the ink is dry.

It would appear that he is on the right track with this OneStim joint venture. It will better utilize the company's existing assets, share the risk burden with another giant of the oil services industry, and give a much-needed injection of cash. This move, combined with a couple of deals Shivram made during his short stint, should help put the company on the right track.