EBITDA Margins
The ebullient drilling activity in the oil patch combined with strong pricing power by oil service firms means everyone can make money. In turn, Weatherford’s EBITDA margins have improved. The company reported margins of 5%, up from 4% in the year earlier period. The margins still pale in comparison to Halliburton’s (in the high teens) and Schlumberger’s (over 20%). Nonetheless, CEO Mark McCollum is trying to cut his way to profitability. Last quarter Weatherford incurred $1.6 billion of extraordinary costs, which included $43 million for severance.
Weatherford has cut its head count by over 10,000 and currently has just over 29,400 employees. McCollum plans to eliminate another 1,000 employees which could generate $115 million in annual savings. In my opinion, to get the full impact of cost cuts Weatherford maintain its revenue base. If the oil patch turns down then margins could decline regards of headcount reductions.
