As the world's population and economy grow so does its thirst for energy, specifically oil. A recent study by Morgan Stanley and Rystad Energy estimated that global oil demand by 2035 will likely rise to over 100 million barrels per day, up from today's 87 million barrels per day.
The price of oil is expected to average $125-$150/barrel in 2035. Given this megatrend, oil companies are racing to keep up with the growing demand. Global spending on or exploration and production has grown by a compound annual growth rate of about 15% over the last 11 years and in 2013 totaled about $650 billion. Into this ocean of money step oil services companies, which help oil companies locate, drill, expand, and maintain maximum production from their oil and gas assets.
However, all oil services companies are not created equal, and this article is meant to warn investors away from one particular company, with management that has proven itself shareholder-unfriendly, while offering two superior alternatives.
An oil-services company to avoid
Weatherford International (NYSE:WFT) is a mid-size oil services company that investors may want to steer clear from. The problems with this company can be summarized in three parts.
First, the company has a long record of questionable financial restatements, government allegations of criminal activity, and what I feel to be very shareholder-unfriendly practices.
In 2011 it announced that it would have to restate earnings going back to 2007 due to tax-accounting irregularities.
Numerous goodwill writedowns, earnings restatements, and annual "one time charges" have added up to over $1.4 billion (since 2010) and resulted in a credit downgrade.
The company also recently settled with the U.S. Department of Justice for $253 million due to multiple alleged legal violations. These included allegations of bribing foreign officials and export sanctions violations (DOJ claims they did business with Cuba, Iran, and Syria).
It recently voted to move its corporate headquarters to Ireland (from Switzerland) ahead of a new law that allows shareholders to make binding votes on executive pay.
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