Weatherford International Plc (NYSE:WFT) has already announced plans to step down severance costs and capex this year relative to last year. The idea is to try and preserve cash as the company continues to face pressure from falling oil prices. However, the measures announced by Weatherford appear too little to save the company from sinking deeper into debt or diluting its equity.
$1 billion debt burden
Despite the unfavorable market conditions that are having a negative impact on free cash flow, Weatherford has a $350 million debt to that comes due this month. That is part of the $1 billion subordinate debt whose other portion ($650 million) is due in 2Q2017.
Because of the tough business conditions, Weatherford will likely have to offload certain assets to meet the $1 billion debt. However, the question that rises from that is what the company will sell next to generate cash to repay its other debts. Weatherford has $1.6 billion in short-term debt and a revolver credit.
Preserving cash isn’t enough
Weatherford International Plc (NYSE:WFT) is looking at headcount reduction and capex cut as part of the efforts to preserve cash and help it trim its debt burden. For 2016, the company is planning capex budget of $300 million, sharply below $682 million that went into the same in 2015.
Although Weatherford intends to cut more jobs this year, with 6,000 positions to be eliminated, the management is careful not to inflate severance charges. In 2015, severance charges were 193 million following reduction of 14,000 jobs. This year, costs related to layoffs are expected to decline to just about $80 million or less.
Weatherford International Plc (NYSE:WFT) is looking to generate free cash flow between $600 and $700 million in 2016. The management said that should help bring net debt down to less than $6.5 billion at the end of the year. By 2017, the management is targeting to reduce net debt to less than $6 billion and hopefully keeping the debt level below $4 billion in the long-term.
As much as Weatherford International Plc (NYSE:WFT) has brilliant plans to trim its debt burdening, more borrowing or additional equity/warrants offering look inevitable. However, such additional fundraisers would impact shareholder value in the stock.