Is Weatherford International Ltd Hiding Something?

Asset sales are one thing, but continued tax shelters may be too much for some investors of this oil service name.

John Licata
John Licata
Apr 11, 2014 at 9:09AM
Energy, Materials, and Utilities

Weatherford International (NYSE:WFT) is going through an identity crisis of sorts that I'm surprised hasn't raised some legal red flags or caused more concern on Wall Street. The company maintains its main operational office in Houston, was formerly legally based in Bermuda, moved to Switzerland in 2009, and now seeks the greener pastures of Ireland to operate at lower costs and further attract top talent. What's going on here? Is Weatherford gaming the system, or is it possibly hiding something? One thing's for sure, this is perfectly legal but something sure doesn't smell right since tax shelters are increasingly being vilified in political circles here in the United States. Ireland has also been under pressure to make its tax structures harder to abuse by multinational corporations. 

The oil services player has been looking to capitalize on the favorable tax structure that the Swiss have benefited for years and years. With greater international scrutiny of Swiss tax laws as well as top executive and board member pay, Weatherford is now hoping to incorporate in Ireland while maintaining its tax domicile in Switzerland. Keep in mind that tech companies like Apple, Google, and even Facebook all take advantage of Ireland's favorable tax rate environment. That doesn't make it right for Weatherford to follow the same path. 

Shareholders will be asked to approve of the move by Weatherford in June. It's one thing to be lean naturally, but it's another thing to take a quick pill to achieve success; that usually backfires without a proper diet. Considering that the company has a massive debt load ($13.7 billion as per the company's latest 10K) and is already divesting non-core assets such as its piping/specialty service to Baker Hughes (NYSE:BHI), the planned move to shelter financials should be cause for investor concern. This view is only amplified by increased competition from larger peers.