Big American Oil Sticks It's Where It Shouldn't

I recently recieved this from a friend at another company. It is obvious that Big American Oil Service Companies will benefit from small Canadian oil service companies being demolished. they will be buying equipment at auction for pennies on the dollar. The surprising thing is that Weatherford is so OPEN in its advocacy of demolishing the independant Canadian oil patch. Albertan consumers of oilfield services should display their displeasure with Weatherford by putting their dollars in the hands of others.

Note to Bernard Duroc-Danner: advocating policies which damage your customers simply isn't good business.

Ian,

What’s the upside for the CEO of an American company to be talking like this!!! We’ll be using someone else.

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From:
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Sent: October 23, 2007 12:37 PM
To: XXXXXXXXXXXXX
Subject: Now I know who will not get my dollars

I don't think our company will be buying anything from companies that encourage royalty rate increases.

Weatherford CEO Defends Proposed Royalty Hike

By Lynda Harrison

It's only reasonable to expect Alberta to raise royalties when every other country is doing it, says the head of a major services provider.

Nothing will happen to expand Canada's oilsands until the province's government makes up its mind about bumping up royalties, and if royalties are increased projects will be delayed but go ahead, added Bernard Duroc-Danner, chairman and chief executive officer of Houston-based Weatherford International Ltd.

There aren't many places around the world left where international and independent oil companies, particularly large ones, can get access to reservoirs, said Duroc-Danner during a conference call with analysts to discuss third-quarter results.

"There just aren't. Go around the world. Every single government has been raising taxes, changing the royalty regime, etcetera. Start with Algeria and then go around the world. Those countries that control the reservoirs don't feel they need IOCs [international oil companies] and so forth and so on, so they are behaving in a very rational way by basically keeping the economic rent," he said.

"Canada is just doing a mild version, best I can tell, of what the other countries are doing," he added.

Oil and gas companies are not going to turn their backs on Canada's heavy oil market, though it does have challenges, because they are out of choices, he said.

"You give me one country that has been generous with their tax regime and royalty regime in an $80 oil environment. No country is. They keep the economic rent," he told analysts.

Weatherford reported third-quarter 2007 income from continuing operations of $294.9 million (all figures in U.S. dollars), or 85 cents per diluted share. Third-quarter diluted earnings per share rose 27% over the third quarter of 2006 diluted earnings per share of 67 cents.

North American third-quarter net revenues were $993.83 million, a four per cent increase over the prior year. Growth in the United States rig count was more than offset by a drop in the Canadian rig count. Artificial lift, directional and underbalanced drilling and wireline performed exceptionally well, said Weatherford.

North American operating income fell to $264.18 million in third-quarter 2007 from $281.48 million the year before.

The Canadian market recovered from the extreme trough of the second quarter, said Duroc-Danner. The country's rig count recovered seasonally, averaging 347 rigs, but was 29% below third-quarter 2006 levels. "Basically the market showed signs of life but remained subdued," he said.

Pricing weakened throughout the Canadian oilfield, hitting rigs, tubulars and pressure pumping hard, he said. Pricing for product service lines was down more modestly with the drop occurring essentially in the second and third quarters.

This was offset in large part by cost and productivity gains. Weatherford substantially changed its operating structure in Canada: management, people and equipment. It simplified its organizational structure, moved equipment and people, and "took some people out." The company also recently reduced cash costs by more than $40 million and will take out more, as needed, he said. The country's leadership also changed early in the quarter.

Weatherford's revenues per rig grew to the highest level in its Canadian history, to $262,000, said Duroc-Danner, adding productivity indices showed some of the highest performance levels in the company. "We're running Canada at much higher people and equipment productivity than throughout '06 and as a result and in spite of lower pricing, Canada's EBIT (earnings before interest and taxes) incrementals were sequentially very strong. Our operating structure and portfolio breadth in Canada are real assets."

He credited the United States market for shouldering strong growth while Canada was shrinking hard in absolute and relative terms. Canada is to be credited for managing its cost structure and revenue generating capabilities so well and without delay in a poor market environment."

"With hydrocarbon pricing hovering above $80 for oil and $7 for gas the Canadian market feels very ripe for strong recovery in '08 led by the heavy oil segment," said Duroc-Danner.

Nearly $80 billion in heavy oil projects have been announced for Alberta, he told analysts. However, with the proposed change in the province's royalty tax rate makes this is uncertain or could be delayed, he said. "Until the government of Alberta comes up with a decision it's difficult to make a judgment either way on market direction. We expect our results in Canada to reflect our operating improvements as well as our product line breadth."

Weatherford will likely invest $1.6 billion in capital expenditures in 2007, he said, adding the company is well advanced in planning its supply chain actions for 2008, when it plans to again spend about $1.6 billion.

"We expect a reversal of trends to occur in Canada now or at a later date but in the meantime we rely on our operating strengths in that market."

To decrease costs in Canada the company continued to concentrate on heavy oil, which has always been stable, and was proactive early, said Duroc-Danner.

Weatherford is, and always has been, more heavy-oil based, on a percentage basis of its operations than any of its peers, he said. While heavy oil has its ups and downs in Canada, well maintenance is completely immune to them, said Duroc-Danner."You will not shut down a heavy oil well in Canada. You will not. The economics just are compelling."

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CEO

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