Weatherford International plc (WFRD) Q4 2017 Earnings Report, Transcript and Summary

Good morning. My name is Carol and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International fourth quarter 2017 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator instructions] We ask that you limit yourself to one question and one follow-up then re-enter the queue for any additional questions that you may have. As a reminder, ladies and gentlemen, today's call is being recorded. I would now like to turn the conference over to Ms. Karen David-Green, Vice President of Investor Relations, Marketing and Communications. Ms. David-Green, you may begin your conference.

Thank you, Carol. Good morning and welcome to the Weatherford International fourth quarter conference call. With me on today's call we have Mark McCollum, President and Chief Executive Officer; and Christoph Bausch, Executive Vice President and Chief Financial Officer. Today's call is being recorded and a replay will be available on Weatherford's website for 10 days. Before we begin with our prepared statements, I'd like to remind our audience that some of today's comments may include forward-looking statements. These matters may involve risks and uncertainties that could cause our actual results to differ materially from our forward-looking statements. Please refer to our latest Form 10-Q, 8-K and other SEC filings for risk factors and cautions regarding forward-looking statements. A reconciliation of GAAP to non-GAAP financial measures is included in our fourth quarter press release which can be found on our website. Christoph will now provide an overview of our fourth quarter and full year 2017 results followed by Mark's comments on our strategic actions and continuing progress toward our operational cultural and financial objective. Following these prepared statements, we welcome your questions. And now, I'd like to turn the call over to Christoph.

Thank you, Karen. As mentioned during our last call, we have embarked on the transformation we plan to drive increased accountability, efficiency and process discipline across the entire company. During the fourth quarter, we completed an organizational realignment that will enable us to achieve these objectives. As a result, this organizational realignment is now structured by Hemisphere. With Western Hemisphere including the former North and Latin America reporting segments as well as land drilling rigs in Mexico, in Columbia. Eastern Hemispheres includes Europe, Russia and Sub-Sahara Africa reporting segments. The Middle East and Asia reporting segments and land drilling rigs in the Eastern Hemisphere. [indiscernible] hemispheres are now operating and customer facing organization, is structured into 14 geozones. This structure allows us to decision-making, and resources closer to the point of delivery while giving us the ability to significantly increase integration and cross product line synergies. As presently change in our reporting structure, we had also changed the classification of R&D expenses which is now included in the segment operating results, aligning us with our peers. As you may have noticed in our press release, we are now disclosing the revenue for each of our global business units, drilling and evaluation, construction, completions and production. Corporate expenses remain reported separately. The following comments reflects this revised organization and all historical financials has been restated to allow for comparison. For further details on our revised reporting structure, please refer to our [indiscernible] SEC filling and the accompanying presentation. Revenue in the fourth quarter of 2017 was $1.49 billion, up 2% from the third quarter of 2017 and up 6% year-over-year. Excluding the divested U.S. pressure pumping business, revenue increased 2% sequentially and 11% compared to the same period last year. The sequential increase is primarily led by the Eastern Hemisphere, with increased year-end product sales. Eastern Hemisphere reported an increase in revenue of 9% compared to the fourth quarter of 2016 and excluding our U.S. pressure pumping business, Western Hemisphere revenue increased 12% over the same period. Operating loss for the fourth quarter of 2017 was $1.74 billion primarily as a result of non-cash impairment and asset write-downs. Excluding charges and credits, segment operating loss for the fourth quarter of 2017 was $84 million, compared to a loss of $8 million for the third quarter of 2017, the loss of $116 million for the fourth quarter of 2016. The sequential decline can be equally attributed to both hemispheres. Operating performance was negatively impacted by exceptional costs, totaling $49 million, including a negative effect related to deferred revenue recognition, on the project in Kuwait, future delay in timing between recognition of revenue and costs, provisions for bad debt, those plans and the exceptional credits, that did not repeat from the third quarter. As the financial situation in Venezuela continue to deteriorate during the quarter, which is slightly to change our method to revenue recognition through a cash basis. With the change combined with the sales drop and activity in Venezuela, negatively impacted our results by $17 million compared to the third quarter. Our results were also negatively impacted by low-margin year-end product sales as we directed our sales teams to reduce our existing inventory at cost where necessary. I am pleased to report that we achieved positive cash flow from operations of $96 million for the fourth quarter of 2017. This exceeded our expectations and was driven by improved selections and higher product sales, partially offset by interest payments of $104 million, $38 million in payments for severance and restructuring costs and $30 million in payments related to legal settlements. During the quarter, the US dollar denominated $25 million and we recorded [indiscernible] of $22 million previously recorded in held for sale. Both those items reported a total debt, but are not part of the free-cash flow. Customer receivables decreased in the fourth quarter from strong collections. The write-down in receivables in Venezuela and continuous process improvements and as a result the overall DSO decreased by 9 days from 77 days to 68 days. Inventory levels decreased due to high demand year-end product sales to customers in Europe, the Middle East and North America as well as the write-off for [indiscernible] inventory combined with an increase in provisions for excess inventory. In the quarter we recorded pre-tax charges of $1.59 billion, the majority of which are non-cash and were not included in our operating results. These charges primarily include $1.68 billion in impairments and asset write-downs, a $96 million gain on the disposition of our U.S. pressure pumping and pump-down perforating assets, $43 million in severance and restructuring charges and $28 million in credits related to the fair value adjustment of the outstanding warrant. The $1.68 billion in non-cash impairments and asset write-downs, include $740 million related to land-width drilling assets, which were reclassified as held for sale and $197 million of other asset write-offs. It also includes $434 million in inventory write-downs and $230 million for the write-down of customer receivables in Venezuela. On December 29, 2017, we completed the sale of our U.S. hydraulic fracturing and pump-down perforating assets of $430 million in cash. The closing of this transaction, has enabled us to begin the deleveraging process, which coupled within our transformation plans lead to the legal organization with lower debt and improved profit margins. In addition, retaining our leading North American land based multistage completions business allows for a significant upside potential for Weatherford. Moving on to our results by Hemisphere. In the Western Hemisphere fourth quarter revenues of $759 million, were down $8 million or 1% sequentially, primarily as a result of the change in accounting for revenue with our customers in Venezuela whereas of this quarter we recorded revenue on a cash collection basis only. Excluding this adjustment, Western energy revenue was up 1% sequentially. In addition, the quarter was negatively impacted by purchase related in Argentina offset by increased offshore operations in Mexico and seasonally higher liquidity in Canada. Operating results decreased $38 million sequentially to the loss of $35 million in the fourth quarter. This sequential decrease was primarily due to the aforementioned change in revenue recognition in Venezuela as well as lower revenue combined with incremental costs in Argentina. Increased low margin year end product sales from existing inventory in the U.S. also negatively impacted the fourth quarter results. In the eastern hemisphere, fourth quarter revenues of $731 million were up $38 million or 5% sequentially primarily led by increased product sales in Europe and the Middle East. Operating results decreased $38 million sequentially to a loss of $49 million. This is in part due to differed revenue on a contract in Kuwait. The costs have been recognized until [indiscernible] the installation is completed in 2018. In addition, fourth quarter results were negatively impacted by several low margin year end product sales from existing inventory combined with further costs of two projects in Asia and exceptional costs including provisions for bad debt. We expect first quarter 2018 revenue to be modestly down sequentially mainly driven by non-repeated year end product sales. First quarter 2018 revenue in the western hemisphere is expected to increase based on seasonal improvements in Canada primarily driven by drilling in evaluation combined with increased production sales and integrated project activities in Argentina and Mexico partially offset by non-repeated production product sales in the U.S. In the eastern hemisphere, we expected the decline in revenue due to non-repeated year end product sales related to production in Kuwait as well as drilling into evaluation in Continental Europe combined with seasonal effects in Russia and the North Sea. First quarter 2018 operating income is expected to substantially improve due to higher margins on increased drilling and evaluation and production activity in North America and Argentina. In the eastern hemisphere, we expect improved results in production as we will see the benefit from the deferred revenues and profit in Kuwait combined with higher margins and well construction product sales and the absence of $49 million of exceptional items recorded in the fourth quarter 2017. While we generated free cash flow in the fourth quarter of 2017, we expect cash flow for the first quarter of 2018 to be negative impacted by seasonally lower collections, higher interest in tax payments and increased capital expenditures. We expect to see continuous improvements throughout the year and excluding the pending divestiture of land drilling rigs business. We continue to expect even cash flow for the full year of 2018. Fourth quarter capital expenditures of $78 million increased by $30 million or 20% sequentially and increased 10 million or 15% from the same quarter in the prior year. These expenditures represent investments in future business opportunities. Excluding our land drilling rigs business, we expect 2018 capital expenditures to be between $200 million and $250 million. The fourth quarter tax provision was $52 million, primarily attributable to $73 million of additional valuation allowances, on prior period deferred tax assets. $9 million provision, for foreign law exchange, partly offset by a one-time $52 million tax benefit as a result of the recent U.S. tax reform. This tax benefit is entirely attributable to changes in deferred tax liabilities, as a result of a lower tax rate. The fourth quarter non-GAAP tax provision was $47 million and includes a higher tax expense of $10 million associated with entities that are no longer being benefited, due to the establishment of valuation allowance for the fourth quarter. And an increase in uncertain tax provisions of $10 million. We remain in compliance with our financial covenants, as defined in our revolving and secured term loan credit facilities, as of December 31, 2017. And based on our financial projections, we expect to continue to remain in compliance going forward. Our land drilling rigs business had a strong quarter, achieving its best EBITDA since the fourth quarter of 2015 as we streamlined operations and achieve higher operating efficiencies. During the quarter, we made substantial progress in the land drilling rigs divestiture process and we are confident, we will have an agreement on the transaction shortly. We have also made progress on other planned divestitures and we expect to launch the first two projects during the first quarter, with the expectation to complete all identified divestitures in 2018. We continue to believe that these small divestitures will selectively generate approximately $500 million in incremental proceeds in 2018. With that, I’ll turn the call over to Mark.

Thanks, Christoph, and good morning. Our fourth quarter results reflect the period of adjustment, as we effectively hit the reset button, on our organization. With those several strategic actions to improve our operational structure and our balance sheet. Most critically, we completed an organizational realignment that is reflected in our new reporting structure. This flat structure clarifies the possibility, prioritizes process discipline and solidifies the strong connection between our operational leadership and field level decision makers. Our breaking down silos and creating alignment to a common set of goals and objectives, we build the [indiscernible] of our organization. This comprehensive change in structure was my top priority for the fourth quarter and Mark refers milestone in our turnaround. Our realigned organizational structure gives us point slightly work problem as we move toward our target of $1 billion and improved results over the course of the next 18 to 24 months. As I first described last quarter, the $1 billion figure is the aggregation of number of opportunities across every aspect of our business, from an improved market share, the lower supply chain costs. During the fourth quarter, a third-party independently validated, that the size of the price, is largest what we saw. And working together, we are now we have defined those number of sink buckets of operational and functional opportunity to capture this value. These budgets of opportunity now formed the basis for work streams of future activity. We’ve set targets for each work stream and have established teams of people who will own and hold accountability for realizing the targeted value. We are currently engaged in a bottom up planning process that will yield the detail, comprehensive and clearly defined set of action plans to deliver the work streams target. And finally, we put a project management organization in process in place to ensure that all the profit improvement initiatives will be implemented on time and on target. Bottom-line, we have a clear line of sight on the $1 billion transformation goal as well as the disciplined process of what is designed to ensure that we can deliver. This is an undeniable, realistic and most importantly, achievable opportunity. As a result of our recent reorganization we’ve already achieved annualized savings of $150 million. Additionally, we captured wins, we’ve implemented purchase price management and procurement process enhancements as well as policies that monitor spending. These positive changes enabled more disciplined supplier management and help pushes quarter cash flow goals. During 2017, we closed 88 surplus locations and identified additional locations for strategic consolidation. Additionally, we are continuing to optimizing our manufacturing footprint, inventory reduction also remains a key priority. We have reoriented our sales organization in a way that prioritizes account management. Our account managers add strategic partners to our key customers, working with them and understand their specific reservoir and operational challenges and crafting value-added solutions by drawing technical talent across the full breadth of the Weatherford products and service portfolio. Now account management is not a new concept by any new stretch, we’ve greatly expanded the account management structure to support many more customers than ever before. This shift to a more problem-solving partnership-based sales approach will enable more cross product line selling, or joint technology developments and increased market share. We’ve also rolled out our revised sales plan compensation to incentive revenue and EBITDA. The newly integrated solutions-based results driven approach of our sales team, has been mirrored in our field operations, following the reorganization of our product lines in the four global business units, drilling evaluation, well construction, completion and production, we began optimizing operations within each group by tapping into the newly enabled synergies. The integration of our product lines, for example incorporating our [indiscernible] offerings ended the completions business, has helped us to realize greater field efficiencies and reduce operational cost. Our focus in this organization on an improving operational discipline. We want to help our people work smarter by driving process utilization across the organization. This includes automating in an outsourcing process where it makes sense. While many of our tactical options and benchmarks for measuring our success, our transformation was about more than just ahead in the past, by fundamentally changing the way we do business, we gain the strength and flexibility to be successful regardless of the market conditions. When I set this job [indiscernible] I knew there will be a lot of work ahead in order to see the tremendous opportunity as seen from the outside. I am pleased to say that the organization is rallying behind this drive to make Weatherford a stronger company. We understand what we need to do in order to capitalize on our significant potential and strategic actions are underway. The ultimate goal is to increase revenue, drive profitability, restore financial flexibility. In addition to monetizing our US pressure pumping incorporating asset we are actively engaged in our land drilling rigs divestiture process and are expected to conclude very soon and as Christoph indicated earlier, we remain committed following through on our other planned divestitures to monetize the areas of our business that are not critical to our strategy going forward. We remain committed to cutting debt to EBITDA ratios in half by year end 2019 and are determined to ultimately return to an investment grade rating. Even as we put teams to work internally on charting the force through our transformation, we never lost focus on our customers through our central partners and our success. Our customers have responded positively to our organizational realignment as well as our overall strategy for future customer support. They want us to succeed, they see Weatherford as a strong and valuable competitor in the marketplace and they want to lose that. They know we have the competitive portfolio technologies and they appreciate our renewed focus on building partnerships and offering complete solutions rather than individual products and services. This message of support came through loud and clear just before the holidays when Shell honored us with their 2017 Wells Supplier of the Year Award. Shell's appreciation for the high levels of safety and service quality that we have provided to them throughout the year as well as our collaborative solutions-based approach. Awards and recognition from operators have been impacted by contract business around the world. For instance, after demonstrating our ability to execute integrated services in Mexico, we have been awarded another contract for integrated services in the country including occasional water line, case and open hole completions, stimulation and protruding and through tubing fishing services. Operations commenced in December of two wells have been completed to date. In Russia, we won a three-year directional drilling contract based on the merits of our service systems and measurement and logging on drilling technologies as well as a strong relationship with the operator. Work is already underway on this new contract. In the Middle East, we won a contract to provide open hole logging of the 60 well field. The operator awarded Weatherford the contract in part due to the alternative advanced options offered by our compact well shuttle which can transform logging tools without wireless inside drill pipe and they are fully protected from the bore holes environment. We also won the Atlanta drilling rig contract in the eastern and western hemispheres, continuing on the trend to improve utilization and service quality we saw in the third quarter. Our competitive technology portfolio has been a key differentiator for us helping us to win many of these and other contracts. I will now provide a brief update of couple of technologies we introduced to the market in 2017. Our core side production optimization platform which leverages the internet of things and advanced analytics to maximize production and equipment up time in exchange [indiscernible] is currently being installed on 1800 reciprocating wireless units in United States. This is just a beginning of what we accomplished with this technology in addition the continuing work on [indiscernible] ForeSite production of rod lift units, will expand the ForeSight platform capabilities to include gas lift and EST optimization in the first quarter of 2018. The AutoTong system, which we’ve talked about on our third quarter call, has been successfully employing our [indiscernible] jobs globally, including wireline offshore operations. Customers were seeing value to systems efficiency and consistency and we have several more deployments lined up in the first half of 2018. We are effectively sold from a capacity standpoint, because directional drilling and multistage completion products in the United States, we will be expanding our capacity to both of these businesses, to meet demand growth this coming year. In the Permian Basin, we have seen higher sales of gas lift systems and consistent adoption of jet-lift systems. In the Middle East, we have executed the first plunger lift and jet lift installations for our NOC, we have previously used ESPs exclusive. These ESP alternatives were all deployed without [indiscernible] saving the customer money and decreasing the time to production in each phase. We will continue to aggressively pursuit transaction of these and other services throughout 2018. Bottom lines the overall market is increasingly positive and should provide [indiscernible]. For 2018, we expect to continued upward trend in rig count and activity in the United States and Canada, led by the Permian and Delaware Basins, we also believe international activity is poised to reflect upwards and lift fundamentals even higher. International pricing will continue to be a concern till the remainder of the industries capacity is absorb, which we believe is eminent. We expect to see continued activity growth in the Middle East and Russia, as well as the profits of upside Western and Eastern Hemisphere. We are seeing the first signs to recovery, to select offshore markets, namely the North Sea, Thailand and Malaysia, although we expect the Deepwater spectrum to remain muted. An activity is up in Latin America overall, especially in Argentina, where we will continue to add capacity, as a part of our 2018 plan. However, we expect continuous stress on the Venezuela market as a result of continuing geopolitical issues. As we look into 2018 the group fundamentals will help to lead the way. In order to fully take advantage of these upward trends, we will maintain our focus on safety, efficiency, innovation and service quality. By any measure 2017 was an important year in history of our company, over the past three quarters, we have taken the steps necessary to get fit to grow. We demonstrated our commitment to fall of execution, reducing non-productive timeline for 23% year-over-year. We initiated a broad set of changes that have already begun in transform our processes and procedures as well as our culture. We set a target of $1 billion of improved earnings over the next 18 to 24 months and we have launched the transformation program that should ensure our success in getting there. We know that regardless of cyclical fluctuations in commodity prices, we must create our own success. Our potential far outpaces our recent results, and we determine to close that gap. We are fully committed to the strategy we have laid out ahead of us and we are confident that it will generation strong results. Our path to profitability and sustainable growth is solid and we’ll accelerate toward our goal driven about some process discipline accountability, flawless execution and innovation. I want to thank our entire Weatherford team for embracing the changes we have rolled out over the past few months and for the commitment to achieving our company’s immense potential. With that I'll turn the call back over to the operator. Carol?

Thank you. [Operator Instructions] Our first question this morning comes from Bill Herbert from Simmons & Company. Please go ahead.

Mark, if you could shed some light there with regards to, what you’re contemplating in terms of managing the balance sheet from debt maturity standpoint, I know you’re having some discussions with regard to your revolver and if you could give us thoughts on that that will be great. Thank you.

Hey, good morning, Bill. On the balance sheet in general, I’d say the debt side, I think as you saw last quarter, we’ve noticed that the bond market is very off right now and we’re monitoring that very, very closely and as we are monitoring it, we see there is an opportunity for us if there is, we’ll then take some actions. On the revolver and term loan that will take a look at more time, it expires mid next year and we will start some discussions, I’d say mid-year on the revolver and the term loan. Does that answer question, Bill?

Yeah. It does. I mean, I guess the question is Mark, and Christoph, do we think it’s likely that, your refinancing is going to be forthcoming and extending your debt maturities?

We understand, in the quarters we’re doing and I think you’re going to see us to be opportunistic, okay?

Okay. Great. Great, thank you. And then the last question for me is, in relation to your divestitures, I understood that if I heard you correctly $500 million in expected proceeds, excluding the land rig sale, is that correct?

That’s exactly right. Those were the -- the other small divestitures. So there is a basket, there’s not just one, several of those that we talk about last quarter that and we intend to do over the course of 2018, some will give you the initiators and others within the process of [indiscernible] and preparing financial statements and all things that are perquisites of getting that process started and we’ll kick off too here in the next month and so start those, and that will take a little time, but in the meantime obviously the land rig drilling divestiture process we’ll continue to work on that. Part of what you saw in terms of all the accounting stuff that happens in fourth quarter was building the drilling rigs to assets held for sale from an accounting standpoint and we don’t do that unless its imminent and so that’s kind of where we’re at. So, we’re closing in on that and feel confident we’ll get that -- get something that done here in the next month or so.

Our next question comes from James Wicklund from Credit Suisse Securities. Please go ahead.

One thing that always has got me about this business is the disconnect between time, in our business we can make a decision and takeout a position in microseconds and you guys have the live with the decisions for years. Mark, when you talk about, you’ve got the organization realigned in Q4 and that happened frankly little bit faster than somebody might have expected from business and the fix through this year how is the improvement in results your 2018 to 2020 performance for the $1 billion can you kind of tell us is that going to be back end weighted, should be evenly done. I’m just thinking from the perspective of gosh you said last week you are going to do it and its a week later ahead was probable and nothing ever happens in corporate America as fast we wanted to happen on Wall Street. Can you just talk about the timeframe and how patient we needed to be or should be in seeing the improvement?

I appreciate the question, you are right. It’s a lot here to stick an excel spreadsheet model than it is to execute to work and you are right. We think the organizational changes and shifted the management team around that all happened in the month of October and so we have been drilling it now for about three months and the four quarters now reflecting back on of course following that change a lot of other shifting around as people reexamine where they are and balance sheet, a lot of decisions that happen. And so that’s why we look at before as massive reset in terms of where things stand. But also, during that timeframe, we have been working on first of all try to make sure that ours wasn’t just a lending business, this really was $1 billion of opportunity and clearly as others have come and seen it both from the outside and third-party guys look at it as our team began to dive in and they are looking at, everybody is looking that wow, this opportunity is huge. And so, the easy stuff has been done in order to do the next steps and they are going to accomplish in this $1 billion when I talk about transformation it really is changing the way that Weatherford works. It is effectively going through the integration process for all these acquisitions that they have done over 30-year time span that’s not been done its deferred maintenance. It didn’t take a quarter to get in the situation it is going to take longer than a quarter to get out. And so, the opportunities there everybody sees it and so what we are doing right now over the next month or so is defining here in detail work task I mean just like I did during the integration process, it's got a step-by-step process with names associated with it and dollars and a timeline that we all people specifically challenge to and reduce measure and manage like that to try to get this being done. But when I talk about $1 billion I have always said in 18 to 24 months and the reason I said because variably it’s going to take little longer as this engine gets yielding as we get the process to changes and system changes I think outsourced and we guys negotiate contracts and all said that this has some built momentum and although I don’t like hockey sticks, it will have a little bit of hockey stick effect as we go into 2019. So, I think as we go into 2019, I think the effects of the program is going to start very, very demonstrable. I think as we look at 2018, we currently implemented a little bit of this last quarter that the impact is going to be a couple of $100 million. Now we have already got $100 from the reorganization that we did. And I think last quarter, if you recall I talked about another $200 million of opportunity that are for programs that were already launched. That relates to outsourcing areas of finance, moving our hardware to a third-party management environment our IT hardware platforms and other things like that. I think all of those will probably provide another $100 million of real benefits that we will realize during the year in 2018. But what I hope to do is we get as time progresses is not just to talk about what’s in the numbers or will be in the numbers for future we can actually, with this process that we’re following will actually like reporting systems, that once it’s done, and its lock and loaded to something else is working and the dollars have come in, we should be in a position to be able to report our success [indiscernible].

Okay, that’s all very helpful and I appreciate that. And now let me, with my follow-up let me ask a little, a ruder question and an elephant in the room question considering what you put up this quarter. The consensus has you had a $183 million in EBITDA in Q1. Do you think after today’s call that number stays the same, goes up or goes down?

The $183 million will get down, I think there is no doubt about that. I tried to walk in my prepared remarks, it's going to be going to think we are at the end of Q1. We definitely had a couple of exceptional items in Q4, which we will not repeat in Q1. We have certain seasonal items, usual Canada story, a little bit slower, you will not have repeated product sales at year end. We will start to get some savings in there in Q1 from what Mark just talk about, so overall, it's going to be a significant improvement from Q4 but it's not going to be the numbers you just mentioned.

But that will also to be qualify that, as you go through the year, that is where I uncomfortable with the look for the year, I just think that Q1 fine and I think that people are underestimating for the transformational back into the year.

Our next question comes from Angie Sedita from UBS. Please go ahead.

Thanks, good morning guys. So, Mark on the $1 billion and improved profitability, obviously you have done some work you have brought in some people here to look at this well and confirm your own thoughts. Can you walk us through what the buckets are, you mentioned market share, supply chain and then how much potentially maybe even a range and what could be in each of those buckets?

I was a little hesitant because of to all the buckets at this point, because we still I had all these detailed plans and validated with specifics action sets, I don’t want to get to restricted. But I would tell you that bonds we are the targets that we are driving forward internally. We feel, look at each of these work frame buckets, they add the numbers that are greater than a billion. So, what we are going after. The second thing that I want to tell you, is that when we talk about the ability to get it done, it is a net number not a gross number and so the project is being oriented to become self-funding so that after some seed money it will start paying for itself. and so, as we execute along the way. And then I think the third thing that -- think about this, and I said on the call, this is not just costs, the transformation has a significant sales and improved market share, improved pricing, there are a lot of different things that we are looking at on our go to market strategy. We talked about the account management structure of changes there, we had for the first time organizational very detailed plans, by the customer and that’s charging the sales organization to be creative and working with customers and more rather than just sort of sitting back and waiting for things to be out there, helping our customers, value-added projects, but at the same time, making sure that we are getting as we as much as our fair share of the market through this transformation. So, there is a bit of sales component of this that will achieve these partners as well.

Okay. And then maybe kind of follow-up to that is could you divide it into how much is cost versus how much could be your sales component? The two-thirds cost and maybe a quarter of that is market share and account management?

And so, it’s probably on a broad rule thumb, yes, the one-third is sales, two-third is costs.

Okay.

Maybe higher sales.

Okay. And then as an unreleased follow-up, if you think about your leverage for free cash flow in 2018, you obviously monetized some inventories in Q4, maybe you could talk about talk about further inventors to be monetized in 2018, is there something still up to be done, I would assume, yes, and other levels for free cash flow in the year?

I'll take that. Yes. So, we had a very, very [indiscernible] of our inventory as you saw from balance sheet size and yes, we had significantly additional amount of inventory, we believe we can monetize in 2018. Those are high lending products which is currently very high demand and we had several projects on our way to reduce the inventory and enhance the inventory days to bring them down. So, I think in many cases maybe with the exception of inventory relates to deep water activity, people see more opportunities to improve our working capital and inventory in specifically 2018.

Our next question comes from David Anderson from Barclays. Please go ahead.

Hey, good morning, I was wondering if you could just give us the sense as to how much the pressure pumping business this quarter kind of leaned on your margins. I guess in other words, I am expecting to see a step up I would expect in the first quarter, can you just give us sense as how much is that kind of how back in the quarter?

Sorry, David, your question was what the pressure pumping business, we had how much -- the margins -- is that your question?

Yeah. You understand it. What there a margin drags during the quarter on the pressure pumping that gets uplifted in the first quarter?

Yes, relating to Argentina specifically, where we had a delay as I mentioned in the startup of an integrated project, which includes especially integrated completion project with under operating pressure pumping as well as flow testing and the drag overall in dollar terms compared to Q1 because Q1 will go I will say probably slightly north of $10 million.

Okay. Alright. Thank you for that. It’s a different question on the artificial, you talked about gas becoming a bigger deal displacing some of the ESPs out there. Could you guys talk about how bigger part your overall artificial lift business that is?

Out of that percentage, the cancel it I have a rough number taking use either overall tickets amounted significantly lower as you know because the gas lit installation is fully $10,000 or litners pumping units is maybe 10 times as much. So, the number per installation is significantly lower. A number from my perspective on gas list is a percentage of the overall artificial lift business is probably around 7% to 8% in that range.

Interesting. And then just a follow-up on the artificial. Mark, last quarter you talked about some of your in particular through that business was being relative you talked about some issues in supply chain the cost you are talking. I am just thinking about as you talked about supply chain and you talked about your account managers and all that. Is that business a particular target of a lot of those efforts. I am just trying to understand how that business has been doing? We kind of get the sense of that has been doing well I’m just wondering how much your efforts are accompanied into that business?

I am not targeting the list business in any way changes that we’re talking about account management and the other things have been done on a very holistic basis. What I would say is that historically the artificial list segment of business has been a very, very high percentage of Weatherford's overall North America business particularly in U.S. I mean it’s quite high and as a result, when you look at the number of sales people you have associated that’s where the bulk of those work the sales was divided between all the performance link headed on unit sales had an overwhelming number of those guys versus some of the other product lines. And so, what we’re trying to do adding accounts, more customers in the account management culture and change in the sales works is try to make sure that all the product lines are getting equal representation. The stock model pull lifting us or hanging is really just say when we have the customer relationship out there regardless of which product line or sales person representing to have that relationship we all be able to use that relationship to bring and introduce all of our products and services to those customers and offer solutions that make sense to them. And so that’s what we trying to do and some of the other things we talk about list, because of the size and there was lot of inventory so far what we were doing in this quarter was trying to bring down some of our inventories in that particular area not manufacturing more, trying to get really focused on looking at our safety spots and getting those down to where they need to be. And I think also we saw as we moved things around of our product portfolio, that probably gas lift was being somewhat the deemphasized and so and what you can see is in our results at fourth quarter, as we increased the emphasis on gas lift and jet lift as an alternative to ESPs, because we do believe that, ESPs don’t solve all the problems and there are cost effective ways to have installations that ultimately can create better production, solution. That part of us getting after the demonstrated the customer talking about it and pushing it, so we have marketing campaigns, sales start to pushing our gas lift and we have seen some improved results there, and we expect to see more of that as the sales organization continues to work with closely together.

Our next question comes from Sean Meakim from JPMorgan. Please go ahead.

So, Mark on the billion-dollar program, when you talk about the folks that embrace the plan. How much of their confidence being influence by the recent move in the oil price? I guess nearly that’s you can think about how much you do to visualize the sales portion of the billion dollars with at 70 versus that 55? I think you talked about a third or more of the mix could coming from market share, pricing things like that, and that’s a little bit higher maybe than the original thoughts around the mix. I am just trying to get a sense of how much the macro is driving the confidence?

I would say none. Everything that we are doing, we have been fairly agnostic to what the commodity prices going to be, and it's been more around on the sales side as an example, whole, is thinking more clearly about, okay how we approaching our sales process as we work with customers. Looking at situations where just pull through opportunities for other products and services that we had not traditionally did putting in front of customers to even offer. We have been doing an elasticity models on - of our products, where it feels like that we were not paying close attention to pricing, opportunities that we may have when things are in short supply, we in certain situations our process is around discounting, giving too long - for both to provide discounts, when they usually understand what the product cost is going to be particularly when the customer might ask for the slope changes of the product, of what would be our standard offering. So, there’s a lot of little things around have been really are agnostic to the to what commodity price is and more around how we go to market. And part of the reason, we are doing as because we just fully accepted, a rising high lifts or loads and [indiscernible] yes, with the commodity prices being higher and we feel like we have got our back, I’ll guarantee to some of our competitors and so we’re all out there and equally and so in the end the guy who is going to win this segment, the guy who is going to be first of all has the technology, second of all to who can show the customers and value added solution and we have had that solution competitively priced. And for us so as part of just having the process to bring forward solutions rather than coming to market with individual product launch, to do more of the - to make sure that we were reducing our cost structure, so that we can get our price competitively set and then making sure that we’re disciplined in our approach to go into market to try to get that. And so, all those things are - what’s right now contributing to the opportunities that we see.

Thank you. That certainly sounds constructive. So just then on free cash flow, just curious, I think about some of the - your initial thoughts when you are coming into the sea, when we look at write-downs and working capital north of $600 million. Does that have any influence on your view of how much cash can be harvested from working capital and I think when you’re first coming into Weatherford, you were targeting, the ballpark about $1 billion, just curious kind of how you look at the opportunity to harvest cash from working capital maybe the next year to 2 years?

I think the change in my perspective on working capital isn't that the total amount isn’t ultimately available to us, it is how long it will take us to get there. The issues that we are finding is that we have a lot of things on the balance sheet. We have got a lot of inventories, but then on always inventories are things that are moving quickly in the market, I think as the deep-water complex gets fired up, we are going to see some significant opportunities to bring down inventories. The receivable writes down that accounting changes, our revenue accounting --- matter of what, but we still expect to see continue opportunity across our working capital set that’s still in the line with what I believe is the long-term opportunity that I articulated before. Christoph, do want to add?

No. I think you said it, one small adds to that and I mentioned that before, so we looked in detail through our inventories, they were significant, more potential on inventory and this is on high running current inventory and maybe add to that, we increased our excess inventory provision that does not mean that that inventory is replaced. So, there’s a lot of assets around there which can be sold and lastly, Mark referenced that while we have written up receivables in Venezuela, we surely expect to collect those at one point of time, so that might not be this year or next year, but we expect to collect those one day.

Our next question comes from James West from Evercore ISI. Please go ahead.

Mark, obviously the discussions around the internal changes are positive and interesting, but I wanted to get your boarder perspective on the markets, as we talked last quarter, I know you’re very conservative on 2018, we’ve had a move in oil prices, we have a lot of optimisms spreading kind of around the world in terms of, say the ability of this higher oil price and I think Weatherford, probably more than most benefits from an up cycle, from the emergence of a global up cycle and so I think, it's very important that we keep that in mind that it's not just what's you’re doing internally, but just the cycle work is going to help you, and certainly help you better than others and then if you can give your - I guess outlook we know, North America is on fire, international is starting to come back, how do you see kind of 2018 and really as we may be exit 2018 and going into 2019 and assuming that we can maintain these prices, what is the market start to look like in your view?

That’s a great question, James, obviously, yes, I think that you are absolutely right Weatherford stands to benefit from an international cycle as much as what some of our peers with our TRS business and some of the other things you look outside of North America it’s really sort of a sleeping giant that could do really help us quite a bit. We are approaching 2018 still with some level of reservation and I think that the pricing that we see the marketplace is good and we we’re very encouraged by it, but I think that geopolitical concerns like areas like Venezuela and others attributed to damp for some level of enthusiasm and I think that as I have stated in my remarks I think increase in activity still have a muted effect because that we think that there still be some level of pricing pressure we’re still seeing guidance. Some of our competitor's price under and I think as coming through in as we resource capacity, but prices still they have a muted effect early and as we [indiscernible] of our capacity that doesn’t stop. I mean I think we’re fast approaching that point in time. We’re seeing more discussion around deep water project as I talk with customers they are adding rigs but they are adding one and two and there is still relatively slow. So, our outlook in 2018 international we see more customers renounced of the still land based and we talk about Russia, the Middle East, Argentina I mean we’re very excited about what’s happening in Argentina we are going to be adding spreads and more capacity there in Argentina so that will help Mexico. I think we’ll continue to see some expansion on the projects that we have in Mexico, but deep-water complex to really get five to four it’s going to be even slay. So, it’s all clear for international and I think that still late 2019 going into 2020 timeframe to meet always the marker of the other international alternative you see a big laid and tendering and we all their system discussions run saying all those tenants yet. North America, I think we reported this about North America as well down dispose of pressure pumping assets are slow to the market is a bit more muted. The North America completions business for us is booming. We’re going to try to squeeze the things at the capacity as where we’re soldout, but we’re going to keep pressing that but our exposure in North America is going to be more largely around the well count and rigs because of the number of wells that are completed. So, we only drill more that bring dust down all those things will help whether as portfolio in North America market. And also, I think as we talk with customers for me at least whether fully encouraged by those who assess the same and we put more capital to work on improving production, leading with cash flow rather than just going and drilling more new wells added to the well count because I think that replace its - strength if we can helped in quite a bit on the production side of the equation, to get as much cash flow out of their assets as possible can.

Okay, that’s great. Thanks for that and then just a I guess on where to follow up, for either your because somebody wants to take it, but higher market, wide open, why haven’t you hit it yet?

I’ll give you an honest answer, view just all of the results, you saw that, it was a noisy quarter from a financial statement standpoint and I think we needed the opportunity to let the market get out there, walk through just this and then at that I think that once that happens than I think that we’ll be free to make a decision about, whether we go or not.

And thank you all for joining us on today’s call. I will now turn the line back over to the operator. Carrol.

Thank you. This does conclude today’s program, thank you for attending. You may now disconnect.