Summary
Analysts are defending cash flow projections however future project opportunities are rapidly declining.
Cash inflows are now much slower relative to the last 5 years.
Liquidity risk is much higher at $33 per barrel.
While unlikely, if revenue falls under 8 billion, bankruptcy could be around the corner.
RBC Capital Markets stated in a note that Weatherford (NYSE:WFT) has enacted more effective screening procedures and controls that should ward off future loss generating projects. We do not find that to be the case. As we stated previously, management has consistently attracted low quality projects as a means to meet sales targets without regard for strict cost measures. Given that O&G businesses have cut their capital expenditure schedules significantly and continue to do so in both international and domestic markets, we see sustained pressure on a macro level. The other reality is that stronger competitors will acquire the most attractive project opportunities for a variety of reasons. The most direct causes are that Weatherford has significantly reduced its employee headcount and has put reinvestment at a very low threshold. Why would an E&P or integrated oil company provide a job that is subject to higher lag time, potentially lesser quality, and growing counter-party risk? We are not sure. Hence desperation for "easy" contract revenue will likely persist.