# Weatherford International plc (WFRD) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Weatherford International plc's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1603923/000160392324000043/wfrd-20231231.htm
Accession: 0001603923-24-000043
Filing date: 2024-02-07
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/WFRD/
All MD&A years: /company/WFRD/mda/
Previous year: /company/WFRD/mda/fy2022/ (FY 2022)
Next year: /company/WFRD/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

As used in this item, “Weatherford”, “the Company,” “we,” “us” and “our” refer to Weatherford International plc, a public limited company organized under the laws of Ireland, and its subsidiaries on a consolidated basis.

The following discussion should be read in conjunction with the earlier section “Item 1. Business” and our Consolidated Financial Statements and Notes thereto included later in “Item 8. Financial Statements and Supplementary Data.” Our discussion includes various forward-looking statements about our markets, the demand for our products and services and our future results. These statements include certain risks and uncertainties. For information about these risks and uncertainties, refer to the section entitled “Forward-Looking Statements” and the section entitled “Item 1A. Risk Factors.”

Industry Trends

Demand for our industry’s products and services is driven by many factors, including commodity prices, the number of oil and gas rigs and wells drilled, depth and drilling conditions of wells, number of well completions, age of existing wells, reservoir depletion, regulatory environment, and the level of workover activity worldwide.

Lower oil and natural gas prices and lower rig count generally correlate to lower exploration and production spending, and higher oil and natural gas prices and higher rig count generally correlate to higher exploration and production spending. Therefore, our financial results are significantly affected by oil and natural gas prices as well as rig counts.

The table below shows the average oil and natural gas prices for West Texas Intermediate (“WTI”) and Brent North Sea (“Brent”) crude oil and Henry Hub (“HH”) natural gas.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","2022","2021"],["Oil price - WTI (1)","","$","77.64","","$","94.79","","$","67.99"],["Oil price - Brent (1)","","$","82.47","","$","100.78","","$","70.68"],["Natural Gas price - HH (2)","","$","2.54","","$","6.42","","$","3.91"],["(1) Oil price measured in dollars per barrel (rounded to the nearest $0.01)"],["(2) Natural gas price measured in dollars per million British thermal units (Btu), or MMBtu"]]
[[/GREPCENT_TABLE]]

The table below shows historical average rig counts based on the weekly Baker Hughes Company rig count information.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","2022","2021"],["North America","","864","","898","","610"],["International","","948","","851","","755"],["Worldwide","","1,812","","1,749","","1,365"]]
[[/GREPCENT_TABLE]]

Consolidated Statements of Operations - Operating Income Summary

2023 vs 2022

Revenues totaled $5.14 billion in 2023, an increase of $804 million, or 19% compared to 2022. The year-over-year improvement was due to increased activity across all reporting segments. Customer demand is primarily driven by changes in oil and natural gas prices and rig counts. Revenues in 2023 reflect a 18% increase in service revenues and a 20% increase in product revenues. WCC, DRE, and PRI contributed to 35%, 26%, and 10% of the increase in revenues, respectively, with the remainder from higher activity in integrated services and projects. Geographically, growth in 2023 was led by improvements in the Middle East/North Africa/Asia, Latin America and Europe/Sub-Sahara Africa/Russia, which contributed to 51%, 40%, and 13% of the increase, respectively, partly offset by a revenue decline in North America. Approximately 80% of our revenue increase in 2023 was due to increased customer demand, with the remainder from pricing and market share improvements, and operational focus. Average oil prices in 2023 decreased 18% for both West Texas Intermediate crude oil and Brent North Sea crude oil compared to

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2022. Henry Hub natural gas prices decreased 60% compared to 2022. Global rig counts increased 4% compared to 2022. International revenues (outside of North America, see “Note 3 – Revenue” to our Consolidated Financial Statements) led the increase in 2023, observable in the 11% increase of international rig counts for the same periods.

Cost of products and services of $3.40 billion increased $375 million, or 12%, in 2023 compared to 2022, to support the increased overall activity across our segments. Approximately 80% of our increase in 2023 was attributable to cost increases necessary to meet increased demand, with a large portion of the remainder from a shift in service and product mix and the rest due to inflation in the cost of labor and materials. Our cost of products and services as a percentage of revenues was 66% in 2023, an improvement compared to 70% in 2022, reflecting improved utilization on a more efficient operating cost structure, and pricing improvements to customers to offset impacts from supply chain disruptions and inflation. Additionally, lower inventory charges contributed to the lower cost structure as a percentage of revenues.

Selling, general, administrative and research and development costs of $916 million increased $48 million, or 6%. The increase primarily reflects an increase in research and development investment in newer technologies and an increase in overhead to support organization growth. These costs as a percentage of revenues were 18% in 2023, an improvement compared to 20% in 2022, reflecting our focus on cost control initiatives.

2022 vs 2021

Revenues totaled $4.33 billion in 2022, an increase of $686 million, or 19% compared to 2021. The year-over-year improvement was due to increased activity across all reporting segments. Revenues in 2022 reflect a 15% increase in service revenues and a 26% increase in product revenues. The year-over-year improvement was due to increased activity across all reporting segments with PRI, DRE and WCC contributing 39%, 38%, and 24% of the increase in revenues, respectively. Geographically, growth in 2022 was led by improvements in Latin America, the Middle East/North Africa/Asia, and North America, which contributed to 36%, 30%, and 30% of the increase, respectively. Approximately 70% of our revenue increase in 2022 was due to increased customer demand with remainder from pricing and market share improvements, and operational focus. Customer demand is primarily driven by changes in oil and natural gas prices and rig counts. Average oil prices in 2022 increased 39% for West Texas Intermediate crude oil and 43% for Brent North Sea crude oil compared to 2021. Henry Hub natural gas prices increased 64% compared to 2021. Global rig counts increased 28% compared to 2021. Service and product quality excellence allowed us to benefit from a robust market with customers focusing on delivering energy supply with minimal disruption, globally. Imbalance across geographies driven by geopolitical conflicts, investment variances and supply disruptions caused a greater focus on energy security, globally. Our operational initiatives, put in place over the past couple of years, enabled us to regain share in a few product lines and geographies, as well as improve pricing through differentiation.

Cost of products and services of $3.02 billion increased $304 million, or 11% compared to 2021, to support the increased overall activity across our segments. Approximately 70% of this increase is attributable to cost increases necessary to meet increased demand for our products and services. The remainder of the increase was primarily due to inflation of wages and to a lesser extent higher cost of materials. Our cost of products and services as a percentage of revenues was 70% in 2022, an improvement compared to 75% in 2021, reflecting improved utilization on a more efficient operating cost structure, and pricing improvements to customers to offset impacts from supply chain disruptions and inflation. Additionally, higher gains on asset sales and lower inventory charges contributed to the lower cost structure as a percentage of revenues.

Selling, general, administrative and research and development costs in 2022 of $868 million increased $45 million, or 5%, when compared to 2021 to keep up with increased activity and demand across our segments. These costs as a percentage of revenues were 20% in 2022, an improvement compared to 23% in 2021, reflecting our focus on cost control initiatives.

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Consolidated Statements of Operations - Non-Operating Summary

Interest Expense, Net

Interest expense, net primarily represented for each year, the interest on our outstanding long-term debt (see “Note 8 – Borrowings and Other Debt Obligations” to our Consolidated Financial Statements for additional details) offset by interest income. Interest expense, net, of $123 million in 2023, decreased $56 million, or 31%, compared to 2022 primarily due to the early repayments of principal on our 11.00% Exit Notes maturing on December 1, 2024, fully repaid in 2023, early repayments and repurchases of principal on our 6.5% Senior Secured Notes maturing September 15, 2028, and an increase in interest income. Interest expense, net, of $179 million in 2022, decreased $81 million, or 31%, compared to $260 million in 2021 primarily due to the early repayments of principal amounts on our 11.00% Exit Notes maturing on December 1, 2024, having fully repaid in 2021 on our 8.75% Senior Secured Notes maturing on September 1, 2024, and an increase in interest income.

Loss on Blue Chip Swap Securities

An indirect foreign exchange mechanism known as the Blue Chip Swap (“BCS”) allows entities to remit U.S. dollars from operations in Argentina. During the second quarter of 2023, we entered into a series of BCS securities transactions that resulted in a “Loss on Blue Chip Swap Securities” of $57 million. See “Note 17 – Blue Chip Swap Securities - Argentina” to our Consolidated Financial Statements for additional details.

Loss on Extinguishment of Debt and Bond Redemption Premium

During 2023, we repaid the remaining $125 million in principal on our Exit Notes and made $243 million in repayments and repurchases of our 6.5% Senior Secured Notes, and incurred a $5 million bond redemption premium. During 2022, we repaid $175 million in principal on our Exit Notes and incurred a $5 million bond redemption premium. During 2021, we repaid in full our 2024 Senior Secured Notes, repaid $200 million of Exit Notes, and refinanced $1.6 billion of Exit Notes. As such, we recognized a $170 million loss, comprised of a $39 million loss on extinguishment of debt and a $131 million bond redemption premium. See “Note 8 – Borrowings and Other Debt Obligations” for additional details.

Other Expense, Net

Other expense, net, of $129 million in 2023 increased $39 million compared to 2022 expense of $90 million primarily attributable to currency losses on the Argentine Peso. Other expense, net, in 2022 increased by $61 million compared to the 2021 expense of $29 million primarily attributable to currency losses in the Argentine Peso and the Russian Ruble.

When economically advantageous, we enter into foreign currency forward contracts to mitigate the risk of future cash flows denominated in a foreign currency. Additionally, we enter into certain short-term investments which partially offset these foreign exchange losses.

Income Taxes

We provide for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes. The relationship between our pre-tax income or loss from continuing operations and our income tax benefit or provision varies from period to period as a result of various factors, which include changes in total pre-tax income or loss, the jurisdictions in which our income is earned, the tax laws in those jurisdictions, the impacts of tax planning activities and the resolution of tax audits. Our effective rate differs from the Irish statutory tax rate as the majority of our operations are taxed in jurisdictions with different tax rates. In addition, we are unable to recognize tax benefit on certain losses.

We record deferred tax assets for net operating losses and temporary differences between the book and tax basis of assets and liabilities that are expected to produce tax deductions in future periods. The realizability of the deferred tax assets is dependent upon judgments and assumptions inherent in the determination of future taxable income, including factors such as future operating conditions (particularly as related to prevailing oil prices and market demand for our products and services). The Company concluded it was not able to realize the benefit of certain deferred tax assets and has established a valuation allowance. Continued performance improvement in certain jurisdictions could result in a change in our realization of deferred tax asset assessment in the near future, which would release valuation allowance.

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The income tax provision and respective effective tax rate was $57 million and 11%, $87 million and 63%, and $86 million and (25)% for 2023, 2022 and 2021, respectively.

Our income tax provisions in 2023 and 2022 are primarily driven by income in certain jurisdictions, deemed profit countries and withholding taxes on intercompany and third-party transactions that do not directly correlate to ordinary income or loss. Impairments and other charges recognized do not result in significant tax benefit as a result of being attributed to a non-income tax jurisdiction or our inability to forecast realization of the tax benefit of such losses.

For the year ended December 31, 2023, income tax expense was lower by $93 million, due to the release of valuation allowances where deferred tax assets are now considered more likely than not to be realized in the future, and $22 million due to the recognition of a benefit from previously uncertain tax positions throughout the year. Those benefits were offset by the establishment of valuation allowance of approximately $50 million against the sale of Blue Chip Swap securities and currency devaluation in Argentina (see Note 17 – Blue Chip Swap Securities - Argentina). During the year ended December 31, 2022, income tax expense was lower by $35 million, due to the release of valuation allowances and $27 million, due to the recognition of a benefit from previously uncertain tax positions.

We are continuously under tax examination in various jurisdictions. We cannot predict the timing or outcome regarding resolution of these tax examinations or if they will have a material impact on our consolidated financial statements. As of December 31, 2023, we anticipate that it is reasonably possible that the amount of our uncertain tax positions of $203 million may decrease by up to $13 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations.

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Results of Operations by Segment

[[GREPCENT_TABLE]]
[["","","","","","Favorable","","Favorable"],["","","","","","(Unfavorable)","","(Unfavorable)"],["","Year Ended December 31,","","$","% or bps","","$","% or bps"],["(Dollars in millions)","2023","2022","2021","","2023 vs 2022","","2022 vs 2021"],["Revenues:"],["DRE Revenues","$","1,536","","$","1,328","","$","1,066","","","$","208","","16%","","$","262","","25%"],["WCC Revenues","1,800","","1,521","","1,353","","","279","","18%","","168","","12%"],["PRI Revenues","1,472","","1,395","","1,127","","","77","","6%","","268","","24%"],["All Other","327","","87","","99","","","240","","276%","","(12)","","(12)%"],["Total Revenues","5,135","","4,331","","3,645","","","804","","19%","","686","","19%"],["Operating Income:"],["DRE Segment Adjusted EBITDA","$","422","","$","324","","$","186","","","$","98","","30%","","$","138","","74%"],["WCC Segment Adjusted EBITDA","455","","299","","256","","","156","","52%","","43","","17%"],["PRI Segment Adjusted EBITDA","323","","261","","191","","","62","","24%","","70","","37%"],["All Other","38","","1","","6","","","37","","3700%","","(5)","","(83)%"],["Corporate","(52)","","(68)","","(68)","","","16","","24%","","\u2014","","\u2014%"],["Depreciation and Amortization","(327)","","(349)","","(440)","","","22","","6%","","91","","21%"],["Share-based Compensation","(35)","","(25)","","(25)","","","(10)","","(40)%","","\u2014","","\u2014%"],["Other Credits (Charges)","(4)","","(31)","","10","","","27","","87%","","(41)","","(410)%"],["Operating Income (Loss)","$","820","","$","412","","$","116","","","$","408","","99%","","$","296","","255%"],["Margins:"],["DRE Segment Adjusted EBITDA Margin","27.5","%","24.4","%","17.4","%","","n/m","308","bps","","n/m","695","bps"],["WCC Segment Adjusted EBITDA Margin","25.3","%","19.7","%","18.9","%","","n/m","562","bps","","n/m","74","bps"],["PRI Segment Adjusted EBITDA Margin","21.9","%","18.7","%","16.9","%","","n/m","323","bps","","n/m","176","bps"]]
[[/GREPCENT_TABLE]]

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DRE Results

2023 vs 2022

DRE revenues of $1.5 billion in 2023 increased by $208 million or 16% compared to 2022 due to higher demand and activity with approximately 70% of the increase from drilling-related services. Geographically, approximately 55% of the overall revenue growth came from Latin America and approximately 25% from the Middle East/North Africa/Asia regions.

DRE segment adjusted EBITDA of $422 million in 2023 increased by $98 million or 30% compared to 2022. DRE segment adjusted EBITDA margin was 27.5% in 2023 compared to 24.4% in 2022.

2022 vs 2021

DRE revenues of $1.3 billion in 2022, increased by $262 million or 25% compared to 2021 due to higher demand and activity with approximately 70% of the increase from managed pressure drilling and drilling services. Geographically, approximately half of the overall revenue growth came from Latin America and 35% from the Middle East/North Africa/Asia regions.

DRE segment adjusted EBITDA of $324 million in 2022 increased by $138 million or 74% compared to 2021. DRE segment adjusted EBITDA margin was 24.4% in 2022 compared to 17.4% in 2021.

WCC Results

2023 vs 2022

WCC revenues of $1.8 billion in 2023 increased by $279 million or 18% compared to 2022 due to higher demand and activity with approximately 75% of the increase from completions and cementation products. Geographically, international regions contributed to approximately all of the overall revenue growth with 50% from the Middle East/North Africa/Asia. Latin America along with Europe/Sub-Sahara Africa/Russia equally contributed to the remaining overall revenue growth.

WCC segment adjusted EBITDA of $455 million in 2023 increased by $156 million or 52% compared to 2022. WCC segment adjusted EBITDA margin was 25.3% in 2023 compared to 19.7% in 2022.

2022 vs 2021

WCC revenues of $1.5 billion in 2022 increased by $168 million or 12% compared to 2021 due to higher demand and activity with approximately 55% of the increase from cementation products. Geographically, approximately half of the overall revenue growth came from the Middle East/North Africa/Asia with North America and Latin America contributing equally to remaining overall revenue growth. The increase was offset by a revenue decline in Europe/Sub-Sahara Africa/Russia.

WCC segment adjusted EBITDA of $299 million in 2022 increased by $43 million or 17% compared to 2021. WCC segment adjusted EBITDA margin was 19.7% in 2022 compared to 18.9% in 2021.

PRI Results

2023 vs 2022

PRI revenues of $1.5 billion in 2023 increased by $77 million or 6% compared to 2022 due to higher demand and activity with approximately 75% of the increase from pressure pumping and intervention services and drilling tools. Geographically, international regions contributed approximately all of the overall revenue growth with approximately half from Latin America and half from the Middle East/North Africa/Asia. The increase was offset by a revenue decline in North America.

PRI segment adjusted EBITDA of $323 million in 2023 increased by $62 million or 24% compared to 2022. PRI segment adjusted EBITDA margin was 21.9% in 2023 compared to 18.7% in 2022.

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2022 vs 2021

PRI revenues of $1.4 billion in 2022, increased by $268 million or 24% compared to 2021 due to higher demand and activity across all PRI product lines with approximately 75% of the increase from artificial lift and pressure pumping. Geographically, approximately 45% of the revenue growth came from North America and approximately 45% of the growth was contributed equally by Europe/Sub-Sahara Africa/Russia and Latin America.

PRI segment adjusted EBITDA of $261 million in 2022 increased by $70 million or 37% compared to 2021. PRI segment adjusted EBITDA margin was 18.7% in 2022 compared to 16.9% in 2021.

All Other Results

All other includes results from non-core business activities that do not individually meet the criteria for segment reporting, including integrated services and projects, which includes pass through services and project management services.

All other revenues of $327 million, increased $240 million or 276%, in 2023 compared to 2022, primarily due to higher activity related to integrated services and projects in the Middle East/North Africa/Asia and Latin America. All other revenues of $87 million, decreased $12 million or 12% in 2022 compared to 2021, primarily due to product line discontinuations and lower revenues from integrated services and projects.

Corporate

Corporate was a net expense of $52 million in 2023, a decrease of $16 million or 24% compared to 2022, primarily due to lower litigation expense in 2023. Corporate was a net expense of $68 million in 2022 and 2021 and included the impact of litigation expense or other one-time items.

Depreciation and Amortization

Depreciation and amortization expense in 2023 was $327 million, a decrease of $22 million compared to 2022, and in 2022 was $349 million, a decrease of $91 million compared to 2021. The decrease in both periods was primarily attributed to a lower asset base, offset by an increase in our capital expenditures as demand increased. See “Note 2 – Segment Information”, “Note 7 – Property, Plant and Equipment, Net”, and “Note 8 – Intangible Assets, Net” for additional information.

Share-based Compensation

We record share-based compensation expense in “Selling, General and Administrative” on the accompanying Consolidated Statements of Operations. We recognized $35 million in 2023 and $25 million in each of 2022, and 2021. The increase was primarily attributable to the cost of performance share units. See “Note 13 – Share-Based Compensation” for additional information.

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Outlook

Growth and spending in the energy services industry is highly dependent on many external factors. These include but are not limited to; the impact from geopolitical conflicts; global response to any ongoing pandemics; our customers’ capital expenditures; environmental, social and governance and other sustainability initiatives; world economic, political and weather conditions; the price of oil and natural gas; and, member-country quota compliance within the Organization of Petroleum Exporting Countries and the expanded alliance. Imbalance across geographies driven by geopolitical conflicts, investment variances and supply disruptions are driving a greater focus on energy security, which in turn is creating a shift towards national oil companies. We expect continued improvements in our customer activity levels and generally positive macroeconomic conditions, all of which are expected to continue to provide a pathway to a multi-year energy demand expansion. We continue to closely monitor macroeconomic conditions, potential supply chain disruptions, inflationary factors, and other labor and logistical constraints that could impact our operations and results.

Our customers continue to face challenges in balancing the cost of extraction activities with securing desired rates of production while achieving acceptable rates of return on investment. These challenges increase our customers’ requirements for technologies that improve productivity and efficiency and pressure us to deliver our products and services at competitive rates. Over the long-term, we expect demand for oil and natural gas exploration and production industry as well as new energy platforms to continue to require more advanced technology from the energy service industry. Weatherford delivers innovative energy services that integrate proven technologies with advanced digitalization to create sustainable offerings for maximized value and return on investment. There was substantial negative impact on the global economy and demand leftover in 2021 from the COVID-19 pandemic, which carried at a lesser extent into 2022 which also included inflationary pressures, logistical delays and service and supply shortages. We managed to face these challenges by evolving our offerings, increasing the breadth of our digital portfolio and enhancing our applications to offer more fully integrated digital energy services solutions. We also increased our offerings of automated well construction and remote monitoring and predictive analytics related to our product offerings. Our resiliency continued to show in our performance through 2023, allowing us to also make improvements on our capital structure through debt reduction. We believe we are well positioned to satisfy our customers’ needs, but the level of improvement in our businesses in the future will continue to depend heavily on pricing, volume of work, our ability to offer cost efficient, innovative and effective technology solutions, and our success in gaining market share in new and existing markets.

Our company performance, industry conditions and related perception, could make it more difficult to obtain our targeted cost reduction benefits and to recruit, motivate and retain employees, including key personnel. The implementation of new or escalation of existing sanctions imposed against countries in which we operate, including any further escalation of sanctions and other events around the Russia Ukraine Conflict, including increased exposure to cyberattacks, increasing investor and government focus on sustainability initiatives, supply chain challenges and disruptions, and the cyclicality of the energy industry may negatively impact demand for our products and services. The Russia Ukraine Conflict, or other future geopolitical conflicts, could also have the effect of heightening many other risks disclosed in our public filings, any of which could materially and adversely affect our business, financial condition, and results of operations. Such risks include, but are not limited to, adverse effects on global macroeconomic conditions; increased volatility in the price and demand of oil and natural gas, increased exposure to cyberattacks; limitations in our ability to implement and execute our business strategy; risks to employees and contractors that we have in the region; disruptions in global supply chains; exposure to foreign currency fluctuations; potential nationalizations and assets seizures in Russia or elsewhere; constraints or disruption in the capital markets and our sources of liquidity; our potential inability to service our remaining performance obligations and potential contractual breaches and litigation.

We continue to follow our long-term strategy, aimed at achieving sustainable profitability and cash flow generation in our businesses, servicing our customers and creating value for our shareholders. Our long-term success will be determined by our ability to effectively manage the cyclicality of our industry, including growth during up-cycles and potential prolonged industry downturns, our ability to respond to industry changes and demands, while managing through risks we may be exposed to, and ultimately our ability to generate consistent positive cash flow and positive returns on invested capital.

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Liquidity and Capital Resources

At December 31, 2023, we had cash and cash equivalents of $958 million and $105 million in restricted cash, compared to $910 million of cash and cash equivalents and $202 million of restricted cash at December 31, 2022. The following table summarizes cash provided by (used in) each type of business activity in the periods presented:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(Dollars in millions)","2023","2022","2021"],["Net Cash Provided by Operating Activities","$","832","","$","349","","$","322"],["Net Cash Used in Investing Activities","(289)","","(54)","","(83)"],["Net Cash Used in Financing Activities","(514)","","(248)","","(403)"]]
[[/GREPCENT_TABLE]]

Operating Activities

The primary source of cash provided by operating activities was attributed to operating income and collections, which offset operating spend, including cash interest.

Cash provided by operating activities in 2023 was $832 million. Heightened collections activity attributed to the increase year-over-year. During the fourth quarter of 2023, we entered into a credit default swap with a third-party financial institution related to a secured loan between that third-party financial institution and our largest customer in Mexico. The secured loan was utilized by this customer to pay us $140 million of certain of our outstanding receivables, increasing our net cash provided by operating activities. See further discussion below under “Derivative Financial Instruments” and in “Note 10 – Derivative Financial Instruments”.

Cash provided by operating activities was $349 million in 2022 and $322 million in 2021. The primary sources of cash from operating activities were from higher operating income as well as effective working capital management, partially offset by interest payments.

Investing Activities

Cash used in investing activities in 2023 was $289 million. The primary uses of cash in investing activities were for capital expenditures of $209 million, the purchase of Blue Chip Swap securities in Argentina for $110 million (see Note 17 – Blue Chip Swap Securities - Argentina), and $51 million of other investing activities. The uses of cash were offset by Blue Chip Swap proceeds of $53 million and $28 million in proceeds from the disposition of assets.

Cash used in investing activities in 2022 was $54 million. The primary uses of cash in investing activities were for capital expenditures of $132 million, partially offset by proceeds from the sale of assets of $82 million.

Cash used in investing activities in 2021 was $83 million. The primary uses of cash in investing activities were for capital expenditures of $85 million and investments in marketable securities in Argentina of $39 million. The primary source of cash from investing activities was $41 million of proceeds from asset dispositions.

Financing Activities

Cash used in financing activities in 2023 was $514 million. The primary uses of cash in financing activities were for repayments and repurchases of long-term debt of $386 million (see “Note 8 – Borrowings and Other Debt Obligations”) and $56 million in tax remittances on equity awards vested. The tax remittances were higher than the same period of the prior year due to an increase in both the share price and the quantity of shares vested. Additionally, we paid distributions to noncontrolling interests of $52 million. The remaining financing cash uses were primarily for financing fees paid on the Credit Agreement.

Cash used in financing activities in 2022 was $248 million. The primary uses of cash in financing activities were repayments of long-term debt of $198 million which included finance leases, a repurchase of $8 million of our 2028 Senior Secured Notes and a $175 million early redemption of our Exit Notes. Additionally, we paid distributions to noncontrolling interests of $30 million. The remaining financing cash uses were primarily for financing fees paid on the Credit Agreement.

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Cash used in financing activities in 2021 was $403 million. The primary uses of cash in financing activities were repayments of long-term debt of $2.3 billion associated with the partial redemption of our Exit Notes and full redemption of our 2024 Senior Secured Notes as well as finance lease obligations. Other primary uses of cash from financing activities were $131 million in bond redemption premium payments as a result of the early redemptions and $28 million, primarily for $21 million in distributions to noncontrolling interests that were settled in cash (as certain distributions in the year were settled in other noncash methods). The primary sources of cash from financing activities were net proceeds of $2.1 billion from the issuance of our 2030 Senior Notes and 2028 Senior Secured Notes.

Sources of Liquidity

Our sources of available liquidity include cash generated by our operations, cash and cash equivalent balances, and periodic accounts receivable factoring. From time to time, we may enter into transactions to dispose of businesses or capital assets that no longer fit our long-term strategy. We historically have accessed banks for short-term loans and the capital markets for debt and equity offerings. Based upon current and anticipated levels of operations and our recent refinancing transactions, we expect to have sufficient cash from operations and cash on hand to fund our cash requirements (discussed below) and financial obligations, both in the short-term and long-term.

Cash Requirements

Our cash requirements will continue to include payments for principal and interest on our long-term debt, capital expenditures, payments on our finance and operating leases, payments for short-term working capital needs, operating costs and restructuring payments. As business activity continues to rise, we expect to continue to utilize cash on capital assets and working capital growth. Our cash requirements also include personnel costs including awards under our employee incentive programs and other amounts to settle litigation related matters. In addition, we have derivative financial instruments where we have notional amounts that do not generally represent cash amounts exchanged by the parties and are calculated based on the terms of the derivative instrument, however, in the event of a related default, we could potentially be required to pay. See further discussion below under “Derivative Financial Instruments” and in “Note 10 – Derivative Financial Instruments”.

As of December 31, 2023, we had outstanding debt of $248 million in aggregate principal amount for our 2028 Senior Secured Notes and $1.6 billion in aggregate principal amount for our 2030 Senior Notes. After the January 2024 repurchases of our 2028 Senior Secured Notes, we expect $144 million in interest payments annually in 2024 and each year thereafter until the maturity of our 2028 Senior Secured Notes and 2030 Senior Notes. See “Note 8 – Borrowings and Other Debt Obligations” for additional information.

We have laid out a plan that envisions a capital spend that is 3-5% of revenue over a 12 to 18 months rolling period and our 2024 capital spend is projected to fall within the same framework. Our payments on our operating and finance leases in 2024 are expected to be approximately $79 million and $254 million in the years thereafter. See “Note 7 – Leases” for additional information.

Cash and cash equivalents and restricted cash are held by subsidiaries outside of Ireland. At December 31, 2023 we had approximately $92 million of our cash and cash equivalents that cannot be immediately repatriated from various countries due to country central bank controls or other regulations. Repatriation of those cash balances might result in incremental taxes or losses similar to the Argentine Blue Chip Swap “BCS” transactions executed in 2023 (see “Note 17 – Blue Chip Swap Securities - Argentina”), which may contribute to a decrease in cash and cash equivalents that cannot be immediately repatriated. As we continue to conduct business in Argentina and in other countries with cash that cannot be immediately repatriated, we may consider infrequent transactions like the BCS transaction in the future to safeguard our cash from exposure to the effects of inflation and currency devaluation.

Ratings Services’ Credit Ratings

Our credit ratings at December 31, 2023 were upgraded, maintained, or newly initiated since December 31, 2022 as follows:

•Standard and Poor (“S&P”) upgraded our issuer credit rating from ‘B’ to ‘B+’. The outlook was upgraded from stable to positive.

•Moody's Investors Service (Moody's) maintained all ratings since December 31, 2022 with the exception of an upgrade to its Corporate Family Rating to B1 from B2. The outlook was upgraded from stable to positive.

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•Fitch Ratings (“Fitch”) initiated a credit rating of ‘B+’ with Stable Outlook.

Customer Receivables

We may experience delayed customer payments and payment defaults due to, among other reasons, a weaker economic environment, reductions in our customers’ cash flow from operations, our customers’ inability to access credit markets, as well as unsettled political conditions. Allowances have been recorded for receivables believed to be uncollectible, including amounts for the resolution of potential credit and other collection issues such as disputed invoices. Adjustments to the allowance are made depending on how potential issues are resolved and the financial condition of our customers. See “Note 1 – Summary of Significant Accounting Policies” and “Item 1A. Risk Factors” for additional information. In addition, our customers are primarily in fossil fuel-related industries and broad declines might impact the collections of our customer receivables.

Accounts Receivable Factoring and Monetization

From time to time, we participate in factoring arrangements to sell accounts receivable to third-party financial institutions for cash proceeds net of discount and hold-back. During 2023, 2022, and 2021 we sold accounts receivable balances of $210 million, $96 million, and $100 million, respectively, and received cash proceeds of $202 million, $93 million, and $85 million, respectively, at the time of factoring. During 2022, we also entered into a short-term monetization transaction on accounts receivable balances of $77 million and received cash proceeds of $75 million. These factoring and monetization proceeds are included as operating cash flows in our Consolidated Statements of Cash Flows.

Derivative Financial Instruments

We enter into foreign currency forward contracts to mitigate the risk of future cash flows denominated in a foreign currency. The amounts will fluctuate, depending on exchange rate volatility, the volume of our foreign currency transactions, and our decisions to hedge. During the fourth quarter of 2023, we entered into a credit default swap, further described below. The notional amounts of our foreign currency forward contracts and the credit default swap do not generally represent cash amounts exchanged by the parties and are calculated based on the terms of the derivative instrument. See also “Note 10 – Derivative Financial Instruments” for additional information.

Credit Default Swap

During the fourth quarter of 2023, we entered into a credit default swap (“CDS”) with a third-party financial institution terminating in February of 2026 related to a secured loan between that third-party financial institution and our largest customer in Mexico. The secured loan was utilized by this customer to pay certain of our outstanding receivables and accordingly, in the fourth quarter of 2023 and January of 2024, we received $140 million and $142 million, respectively.

Under the CDS terms, within five business days upon notification of default, we could be required to pay the then outstanding notional balance net of recoveries. As of December 31, 2023, we had a notional balance of $130 million outstanding under the CDS, which increased to $260 million in January of 2024, following the receipt of the $142 million payment. Management expects the total notional balance under the CDS to decrease to $161 million, $54 million and nil by December 31, 2024, December 31, 2025 and March 31, 2026, respectively. The fair value of this derivative was not material as of December 31, 2023.

As of the date of this report, we are not aware of any events of default under the loan agreement between that third-party financial institution and our largest customer in Mexico.

Guarantees

Our Exit Notes and 2028 Senior Secured Notes were issued by Weatherford International Ltd., a Bermuda exempted company (“Weatherford Bermuda”), and guaranteed by the Company and Weatherford International, LLC, a Delaware limited liability company (“Weatherford Delaware”) and other subsidiary guarantors party thereto. Our Exit Notes were fully repaid in 2023.

Our 2030 Senior Notes were originally issued by Weatherford Bermuda and guaranteed by the Company and Weatherford Delaware and other subsidiary guarantors party thereto. On December 1, 2022, the indenture related to our 2030 Senior Notes was amended and supplemented to add Weatherford Delaware as co-issuer and co-obligor, and concurrently releases the guarantee of Weatherford Delaware.

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Credit Agreement, Letters of Credit and Surety Bonds

Weatherford Bermuda, Weatherford Delaware, Weatherford Canada Ltd. (“Weatherford Canada”) and WOFS International Finance GmbH (“Weatherford Switzerland”), together as borrowers, and the Company as parent, have an amended and restated credit agreement (the “Credit Agreement”). The Credit Agreement is guaranteed by the Company and certain of our subsidiaries and secured by substantially all of the personal property of the Company and those subsidiaries. At December 31, 2023, the Credit Agreement allowed for a total commitment amount of $550 million, maturing on the earlier of October 24, 2028 and 91 days prior to the maturity of the 2028 Senior Secured Notes. Financial covenants in the Credit Agreement include a $250 million minimum liquidity covenant (which may increase up to $400 million dependent on the nature of transactions we may decide to enter into), a minimum interest coverage ratio of 2.50 to 1.00, a maximum total net leverage ratio of 3.50 to 1.00, and a maximum secured net leverage ratio of 1.50 to 1.00.

On March 24, 2023, we amended the Credit Agreement to permit unlimited prepayments and other redemptions of indebtedness subject to (i) the ratio of funded debt (net of unrestricted cash in excess of $400 million) to consolidated adjusted EBITDA as defined in the Credit Agreement, not exceeding 2.50 to 1.00, (ii) no default or event of default existing and (iii) aggregate proforma liquidity in the event of a debt reduction equaling or exceeding $300 million.

On October 24, 2023, we amended the Credit Agreement to, among other things, (i) allow for an increase in total commitment amount from $400 million to $550 million ($250 million for performance letters of credit and $300 million for either borrowings or additional performance or financial letters of credit), (ii) extend maturity to October 24, 2028, subject to certain conditions, (iii) allow for dividends, share buybacks, and acquisitions which combined with other permitted transactions, are not to exceed a total net leverage ratio of 2.00 to 1.00 and an aggregate liquidity not less than $400 million, (iv) remove the minimum book value of assets requirement, (v) add Weatherford Switzerland as a borrower, and (vi) modify certain pricing provisions and eliminate secured overnight financing rate exposure to certain letters of credit. The amendment also gives the ability to request an increase in total commitments by up to $200 million, upon satisfaction of certain conditions. We further amended the Credit Agreement on December 20, 2023, to permit a certain specified swap transaction.

As of December 31, 2023, we had zero borrowings outstanding under the Credit Agreement, and $376 million of letters of credit outstanding, consisting of the $270 million ($218 million for performance letters of credit and $52 million for financial letters of credit) under the Credit Agreement and another $106 million under various uncommitted bi-lateral facilities (of which there was $101 million in cash collateral held and recorded in “Restricted Cash” on the Consolidated Balance Sheets).

As of December 31, 2022, we had $395 million of letters of credit outstanding, consisting of the $195 million under the Credit Agreement and another $200 million under various uncommitted bi-lateral facilities (of which there was $199 million in cash collateral held and recorded in “Restricted Cash” on the Consolidated Balance Sheets).

In Latin America we utilize surety bonds as part of our customary business practice. As of December 31, 2023, we had $594 million of surety bonds outstanding. Any of our outstanding letters of credit or surety bonds could be called by the beneficiaries should we breach certain contractual or performance obligations and could reduce our available liquidity if we are unable to mitigate the issue.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operation is based upon our Consolidated Financial Statements. We prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience and available information and various other assumptions we believe to be reasonable under the circumstances. On an on-going basis, we evaluate our estimates; however, actual results may differ from these estimates under different assumptions or conditions. The accounting policies we believe require management’s most difficult, subjective or complex judgments and are the most critical to our reporting of results of operations and financial position are as follows:

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Long-Lived Assets

Long-lived assets, which include property, plant and equipment (“PP&E”), definite-lived intangibles and operating lease assets, comprise a significant amount of our assets. The carrying value of our long-lived assets at December 31, 2023 and December 31, 2022 was approximately $1.5 billion. The cost of the long-lived assets is then amortized over its expected useful life or their respective lease terms, if applicable. A change in the estimated useful lives of our long-lived assets would have an impact on our results of operations. We estimate the useful lives of our long-lived assets over their respective lease terms, if applicable, or as follows:

[[GREPCENT_TABLE]]
[["Assets","Estimated Useful Lives"],["Buildings and Leasehold Improvements","10 \u2013 40 years"],["Rental and Service Equipment","3 \u2013 10 years"],["Machinery and Other","2 \u2013 12 years"],["Intangible Assets","5 \u2013 10 years"]]
[[/GREPCENT_TABLE]]

In estimating the useful lives of our PP&E, we rely primarily on our actual experience with the same or similar assets. The useful lives of our intangible assets are determined by the years over which we expect the assets to generate a benefit based on legal, contractual or regulatory terms.

Long-lived assets to be held and used by us are reviewed to determine whether any events or changes in circumstances, known as triggering events, indicate that we may not be able to recover the carrying amount of the asset group. Triggering events include, but are not limited to, reduced or expected sustained decreases in cash flows generated by an asset group, negative changes in industry conditions (such as global rig count, commodity prices, and the global economy), a significant change in the long-lived assets’ use or physical condition, the introduction of competing technologies, and legal and regulatory challenges. The Company groups individual assets at the lowest level of identifiable cash flows and, if impairment triggers are present, performs an undiscounted cash flow analysis to identify asset groups that may not be recoverable. If the undiscounted cash flows do not exceed the carrying value of the long-lived asset group, the asset group is not recoverable, and impairment is recognized to the extent the carrying amount exceeds the estimated fair value of the asset group. A fair value assessment is performed on asset groups identified as not being recoverable using a discounted cash flow analysis or Level 3 fair value analysis, to determine if an impairment has occurred. The discounted cash flow analysis consists of estimating the future cash flows that are directly associated with, and are expected to arise from, the use and eventual disposition of the asset group over its remaining useful life. These estimated discounted cash flows are inherently subjective and includes significant assumptions, specifically the forecasted revenue, forecasted operating margins, and the discount rate assumptions and require estimates based upon historical experience and future expectations. The fair value of the asset group is measured using market prices, or in the absence of market prices, is based on an estimate of discounted cash flows. Cash flows are discounted at an interest rate commensurate with our weighted average cost of capital for a similar asset.

If an impairment has occurred, the Company recognizes a loss for the difference between the carrying amount and the fair value of the asset group.

We group long-lived assets by product line. We have long-lived assets, such as facilities, utilized by multiple operating divisions that do not have identifiable cash flows and impairment testing for these long-lived assets is based on the consolidated entity. We did not recognize long-lived assets impairments during 2023, 2022 and 2021.

Management cannot predict the occurrence of future impairment-triggering events, so we continue to assess whether indicators of impairment to long-lived assets exist due to the current business conditions in the energy services industry.

Income Taxes

We take into account the differences between the financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. See “Note 16 – Income Taxes” for detailed discussion of results.

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We recognize the impact of an uncertain tax position taken or expected to be taken on an income tax return in the financial statements at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority.

We operate in approximately 75 countries through hundreds of legal entities. As a result, we are subject to numerous tax laws in the jurisdictions, and tax agreements and treaties among the various taxing authorities. Our operations in these jurisdictions in which we operate are taxed on various bases: income before taxes, deemed profits (which is generally determined using a percentage of revenues rather than profits), withholding taxes based on revenue, and other alternative minimum taxes. The calculation of our tax liabilities involves consideration of uncertainties in the application and interpretation of complex tax regulations in a multitude of jurisdictions across our global operations. We recognize potential liabilities and record tax liabilities for anticipated tax audit issues in the tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. The tax liabilities are reflected net of realized tax loss carryforwards. We adjust these reserves upon specific events; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is different from our current estimate of the tax liabilities.

If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the contingency has been resolved and the liabilities are no longer necessary. Changes in tax laws, regulations, agreements and treaties, foreign currency exchange restrictions or our level of operations or profitability in each taxing jurisdiction could have an impact upon the amount of income taxes that we provide during any given year.

In December 2023, Ireland enacted tax legislation that models the Organization of Economic Cooperation and Development (“OECD”) reform plans focused on global profit allocation and implementing a global minimum tax rate of at least 15% for large multinational corporations on a jurisdiction-by-jurisdiction basis, known as “Pillar Two.” This is not expected to materially increase the taxes we owe, however, if future legislation is enacted to implement the accord in other jurisdictions in which we have operations, it could materially increase the amount of taxes we owe, thereby negatively affecting our results of operations and our cash flows from operations.

Valuation Allowance for Deferred Tax Assets

We record a valuation allowance to reduce the carrying value of our deferred tax assets when it is more likely than not that a portion or all of the deferred tax assets will expire before realization of the benefit. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the related jurisdiction in the future. In evaluating our ability to recover our deferred tax assets, we consider the available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years and our forecast of near-term future taxable income and various tax planning strategies.

When the likelihood of the realization of existing deferred tax assets changes, adjustments to the valuation allowance are charged to our income tax provision in the period in which the determination is made. The Company concluded it was not able to realize the benefits of certain of its deferred tax assets and has established a valuation allowance. Our valuation allowance on our deferred tax assets was $1.3 billion and $1.3 billion as of December 31, 2023, and December 31, 2022, respectively.

Forward-Looking Statements

This report contains various statements relating to future financial performance and results, business strategy, plans, goals and objectives, including certain projections, business trends and other statements that are not historical facts. These statements constitute forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “budget,” “strategy,” “plan,” “guidance,” “outlook,” “may,” “should,” “could,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions, although not all forward-looking statements contain these identifying words.

Forward-looking statements reflect our beliefs and expectations based on current estimates and projections. While we believe these expectations, and the estimates and projections on which they are based, are reasonable and were made in good faith, these statements are subject to numerous risks and uncertainties. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. The forward-looking statements included herein are only made as of the date of this report, or if earlier, as of the date they were made, and we undertake no obligation to correct,

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update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required under federal securities laws. The following, together with disclosures under “Part I – Item 1A. Risk Factors”, sets forth certain risks and uncertainties relating to our forward-looking statements that may cause actual results to be materially different from our present expectations or projections:

•global political, economic and market conditions, political disturbances, war, terrorist attacks, changes in global trade policies, weak local economic conditions and international currency fluctuations (including the Russia Ukraine Conflict);

•general global economic repercussions related to U.S. and global inflationary pressures and potential recessionary concerns;

•failure to ensure on-going compliance with current and future laws and government regulations, including but not limited to those related to the Russia Ukraine Conflict, and environmental and tax and accounting laws, rules and regulations;

•changes in, and the administration of, treaties, laws, and regulations, including in response to issues related to the Russia Ukraine Conflict such as nationalization of assets, and the potential for such issues to exacerbate other risks we face, including those related to the other risks and uncertainties listed or referenced;

•cybersecurity incidents, as our reliance on digital technologies increases, those digital technologies may become more vulnerable and/or experience a higher rate of cybersecurity attacks, intrusions or incidents in the current environment of remote connectivity, as well as increased geopolitical conflicts and tensions, including as a result of the Russia Ukraine Conflict;

•our ability to comply with, and respond to, climate change, environmental, social and governance and other “sustainability” initiatives and future legislative and regulatory measures both globally and in the specific geographic regions in which we and our customers operate;

•our ability to effectively and timely address the need to conduct our operations and provision of services to our customers more sustainably and with a lower carbon footprint;

•risks associated with disease outbreaks and other public health issues, including a pandemic, their impact on the global economy and the business of our company, customers, suppliers and other partners;

•further spread and potential for a resurgence of a pandemic in a given geographic region and related disruptions to our business, employees, customers, suppliers and other partners and additional regulatory measures or voluntary actions that may be put in place to limit the spread of a pandemic, including vaccination requirements and the associated availability of vaccines, restrictions on business operations or social distancing requirements, and the duration and efficacy of such restrictions;

•the price and price volatility of, and demand for, oil, natural gas and natural gas liquids;

•member-country quota compliance within the Organization of Petroleum Exporting Countries;

•our ability to realize expected revenues and profitability levels from current and future contracts;

•our ability to generate cash flow from operations to fund our operations;

•our ability to effectively and timely adapt our technology portfolio, products and services to address and participate in changes to the market demands for the transition to alternate sources of energy such as geothermal, carbon capture and responsible abandonment, including our digitalization efforts;

•increases in the prices and lack of availability of our procured products and services;

•our ability to timely collect from customers;

•our ability to realize cost savings and business enhancements from our revenue and cost improvement efforts;

•our ability to attract, motivate and retain employees, including key personnel;

•our ability to access to capital markets on terms that are commercially acceptable to the Company;

•our ability to manage our workforce, supply chain challenges and disruptions, business processes, information technology systems and technological innovation and commercialization, including the impact of our organization restructure, business enhancements, improvement efforts and the cost and support reduction plans;

•our ability to service our debt obligations;

•potential non-cash asset impairment charges for long-lived assets, intangible assets or other assets; and

•adverse weather conditions in certain regions of our operations

Many of these factors are macro-economic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, affect us in ways or to an extent that we currently do not expect or consider to be significant, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this report as anticipated, believed, estimated, expected, intended, planned or projected.

Finally, our future results will depend upon various other risks and uncertainties, including, but not limited to, those detailed in our current and past filings with the SEC under the Exchange Act and the Securities Act of 1933, as amended.

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