Liquidity
Weatherford was EBITDA positive last quarter but its cash flow is still challenging. It incurred $152 million of interest expense on its $7.7 billion debt load. Interest expense was more than twice its $70 million in EBITDA; as long as Weatherford cannot cover its interest expense the company will keep running in quicksand. The company has $613 million in cash and could muddle along for several more quarters if oil prices remain above $50. At some point Weatherford will have to solve its debt load which at over 25x run-rate EBITDA.
The company recently sold its U.S. fracking and pump-down perforating assets for $430 million. It expects to monetize another $500 million in assets in the future. However, these appear to be stop gap measures to keep the company afloat. At some point it may have to raise more equity or engage in a debt-for-equity swap. Either scenario will likely be highly-dilutive.
Conclusion
Strong drilling activity in North America cannot last forever. Meanwhile, its high debt load remains untenable. Sell WFT.
