Good morning. My name is Lori, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weatherford International Fourth Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, today's call is being recorded. Thank you. I would now like to turn the conference over to Ms. Karen David-Green, Vice President of Investor Relations, Corporate Marketing and Communications. You may begin your conference.

Thank you, Lori. Good morning, and welcome to the Weatherford International Fourth Quarter Conference Call. With me on today's call from Geneva, we have Bernard Duroc-Danner, Chairman, President and Chief Executive Officer; and Krishna Shivram, Executive Vice President and Chief Financial Officer. Today's call is being webcast, and a replay will be available on Weatherford's website for 10 days. Before we begin with our opening comments, I'd like to remind our audience that some of today's comments may include forward-looking statements and non-GAAP financial measures. Please refer to our fourth quarter press release, which can be found on our website with the customary caution on forward-looking statements and a reconciliation of non-GAAP to GAAP financial measures. We welcome your questions after the prepared statements. And now I'd like to hand the call over to Krishna.

Thank you, Karen, and good morning, everyone. Let me start with a brief recap of our operating performance in the fourth quarter. Loss per share for the quarter before charges and credits was $0.13. Revenue of $2.01 billion for the quarter decreased 10% sequentially and 46% year-on-year. Operating income margins before R&D and corporate expenses declined by 255 basis points sequentially to 2.8%. Excluding the rigs business, our core business revenue decreased 9% sequentially with a 115 basis point deterioration in operating income margins to 3.9%. These margins do not benefit from any of the assets or other impairment charges recorded this quarter as these impairments were accounted as of December 31. In other words, the margins reflect the tightly run operations and cost management actions, something Bernard will touch on later. North America revenue declined 15% sequentially, in line with the reduction in rig count, coupled with continued pricing pressures with operating income margins dipping 312 basis points to negative 9.6%. International revenue reduced sequentially by 4.9%, marginally better than each of our larger peers, while operating income margins decreased slightly by 80 basis points to 12.1%. Eastern Hemisphere results were resilient in the face of activity and pricing reductions with revenue dipping only 2% sequentially, comfortably beating our peers, while margins improved 20 basis points to remain steady at 10.6%. In Latin America, revenue declined 11% and margins dropped by 245 basis points to 15.2%, reflecting client-led spending cuts in Brazil, Colombia and Mexico, coupled with our self-imposed reductions in activity in Venezuela and Ecuador. In the Europe, Caspian, Russia, Sub-Sahara Africa region, revenue was down 7%, reflecting seasonal winter declines in Russia and the North Sea, coupled with project cancellations across Sub-Sahara Africa, principally in Angola, while margins remained resilient at 11.4% as proactive cost management offset…

Thank you, Krishna, and good morning, everyone. It's difficult to describe a quarter in which we remain unprofitable and where large asset impairments are successful. But operationally, it was. The obsessive focus and discipline on core cost cash is paying dividends and will continue to do so. Our direction won't move an inch. The drive and intensity will only increase. Decrementals are a good metric of operational performance. Decrementals overall were 28.1% on 10% sequential decline in revenues. Without rigs, the core decrementals was 16.6% or 9% decline revenues, which is just about best-in-class. Our performance was a tale of 2 hemispheres. The Eastern Hemisphere was essentially flat both on revenues and operating income, which is best-in-class. We gained share in a wide cross-section of the hemisphere, and stringent cost cuts in prior quarters helped. Both factors made up a continued market erosion and severe pricing pressures, which are widespread in the Eastern Hemisphere. The Eastern Hemisphere is a growing area of relative strength for Weatherford. The revenues and profitability declines occurred in Western Hemisphere, both NAM and Latin America. North America did markedly better than Latin America. North America reported a 15% decline in revenues but held the decrementals to 10.9%. The outstanding decrementals are a reflection of structural changes brought about in the operations. North America has been entirely reorganized and transformed. Its costs, operating practices and talent bench forged the new operation, the results of the prior 4 quarter's relentless drive. Latin America stood out as the low performer with a 10.6% decline in revenues and a punitive 38.4% decremental. The explanation was in part a further market weakening in Colombia and Brazil, but by far the largest -- the larger factor was the self-imposed reduction in activity in Venezuela and Ecuador. Venezuela alone was half the…

[Operator Instructions] Your first question is from Bill Herbert of Simmons.

Krishna, could you run through the components of the free cash flow generation in 2016? Because it seems like you arrived at a $500 million number plus adding the $150 million thereabouts for 2015 to get to $650 million. When, I think, you said Zubair $200 million year-over-year positive delta for free cash flow; severance and restructuring severely reduce in 2016 versus '15, so that's $110 million; capital spending down $380 million; and then I thought you said inventory reduction of $550 million, but then you -- those 4 buckets you arrived at a net free cash flow increase of $500 million. Am I missing something or no?

Yes, Bill. Basically, I'm saying that inventory will come down $550 million, but inventory came down in '15 by $750 million. So the net between the 2 years is lower liquidity from inventory by about $200 million. So that's your missing piece.

Okay, got it. And...

Add all that, you get $500 million, and then you add the $129 million, we are very comfortable what is in between the $600 million, $700 million number.

$129 million, got it. And then the February debt maturity, that gets paid out of your credit facility, or what?

Yes, it's going to be paid out of our credit facility next week, yes.

And the amendments to your covenants and the extension of your credit facility, what does that do to your cost of debt?

Well, that is to be determined. We are going to work with our bankers in the next 6 weeks to put in place a longer-term credit facility, as I said. And there will be the customary type of slew of guarantees and securities that commensurate with our credit rating, and the cost will be marginally higher, but it's not going to be material to Weatherford's results. We are talking in -- probably in the $10 million to $20 million annual range, so it's not really material.

Got you. And Bernard, back to your outlook. Assuming that essentially when you roll up kind of national oil company and large natural resource holder international capital spending declines, 2016, it seems as if at least the early indications point to a 20% reduction year-over-year. Juxtapose, sort of Weatherford's revenue performance against that benchmark, if you will, why would it be better? Why would it be worse? Why would it be in line?

First, if you just look at 20% decline, our rough judgment would be that we'd probably, just in terms of natural share gains, pick up about half of the decline. In other words, if it's down 20%, we're going to be down 10%. This is the first judgment. Why? Simply because we have low market shares in a number of places, which we are gradually inching back. So it's a continuation of what we've done. It really happens in Eastern Hemisphere, happens in Latin America, x Venezuela and Ecuador, which in essence we are not -- we have a very, very small presence and it will keep it small. The other factor in when we look at our assessment for '16 is not a top line factor. It is a cost factor. In reading the prepared comments, it's always hard to be able to highlight the parts that are particularly useful. But when we count everything that we've done in '15, we're very honest about it. We have just under $1.4 billion of measurable, I mean really measurable, cost actions, $1.385 billion exactly. We know that we'll need just about $730 million. We actually realized as we went through the P&L in '15, maybe because of the timing of these things. So you got a little over $650 million on the cost side, which have been acted upon that are coming in, now, in January, in February, et cetera, in '16, we're taking further actions as we're taking down 6,000 people more company-wide and some more actions around supply chain. So the point being that combination of natural share gains that are nothing spectacular than just that they are -- at the end, the dollars are not large, we're not that large of a company at the end of the day. But in a number of the areas, we have unnaturally low market share, so it's sort of quite easy to gain if only because in the areas we specialize in we have good performance, and then you have that. And then you have simply a very strong tailwind, which is on the cost side, probably stronger than just about any other companies, because we've been obsessive about it and we have more to cut.

Right. And the 3 markets, if memory serves with regard to your market share gains where you have essentially marginalized or for whatever reason not nearly as active as you have been historically, Saudi, Algeria and Angola, are those the 3?

Yes, yes, I think you hit it. First of all, it's Middle East, the primary one. It's not only the Middle East, but you got pockets also in FSA. You're absolutely correct, and you're spot on. You also have some areas of Asia Pacific also, which is a very difficult market. I'm not minimizing the difficulty of the market. It's quite the contrary. But within the difficult markets you can have relative performance. And also, we had very, very low presence in Asia Pacific in a few markets. I would tell you the management that we have in the field is, and I hope they're listening to this call, is immensely more talented than the other were, so the drive in Asia Pacific, the drive in the Middle East, just name those 2, and also some other areas in Eastern Hemisphere here and there, is do we get back or get at least some market share, and we can. And the product lines are what you would expect within services or formation valuation, completion, of course, and well construction, more so the lift [indiscernible] okay?

Your next question comes from the line of Ole Slorer of Morgan Stanley.

Krishna, just a clarify on the costs of -- clearly most of the questions we get on most companies right now are centered around the balance sheet and financing and sustainability, so sorry about getting back to that. But the $10 million to $20 million that was specified, was that to do with the cost of changing the covenants from 60% to 70%? Or was that the total cost of that and what you expect to be the case on the $2.25 billion facility extension?

No, it's anticipated increase on cost for the extension we're talking about. There was hardly any cost for the change from 60% to 70%, miniscule. So it's a range, okay. That's in our minds. But it has to be still negotiated and nailed down with the banking group, and we feel very comfortable that we will be able to do so.

Okay, so you're comfortable that you can extend and incur an incremental cost within $10 million to $20 million. I think that would be a great relief for a lot of us. And when it comes to the cash flow, to what extent will the $500 million be back-end loaded? Do you see any chance that you'll be free cash flow positive in the first quarter?

We will be marginally free cash flow positive in the first quarter. As you know, first quarter is always seasonally challenged not only from a result standpoint but also from a cash flow standpoint as customers, mainly national oil company customers, they typically slow down payments to operating companies, to service companies, and this year is no exception. And also, you have a kind of a lot of payments for the prior year bonuses for employees and all the rest of it. Working capital does take a little bit of a hickey in the first quarter, which is seasonal. So I do expect to be marginally cash flow positive in Q1 and then building up as the year goes on. If you look at our history, Q1 has always been the most challenged free cash flow quarter, and this year is going to be no exception with the one difference being that we expect to be marginally positive.

That would be a very strong start if you can do that. Just finally, Bernard, just your thoughts on Iran, if you could just share what opportunity you see for the international service industry, or your kind of high-level thoughts on what can be easily done in Iran with respect to export capacity?

I -- look, the capacity that Iran can operate at circles around 3.5 million barrels a day. Before -- just before the opening of the markets, best to my knowledge, they were around 3.15 million, giving a swing of 350,000 barrels a day. Then we get to the issue of the grade of oil. I wouldn't even belabor that point because there are issues of marketability of the oil. So that's 350,000 barrels looking for a home. Now it is also true that the 350,000 barrels a day is not really available from a production capacity. It will require a few months just to -- because that 3.5 million barrels a day capacity is not truly functional, but it will be functional shortly. More interestingly -- that's actually a very, very small number. More interestingly, if you go above 3.5 million barrels per day, the next 500,000 barrels per day, to the best of my knowledge -- and I don't have a bias either way, neither optimistic nor pessimistic, just realistic, you are talking at about not far from a couple of years, regardless of public pronouncements, to go from 3.5 million to 4 million. So if you're going to be reasonable, I think you could get there by the end of next year. And I would also say that given the nature of the reservoirs, the size, the level of facturation that they have, their vintage of exploitation, I would say that my particular view -- and it's not my -- I'm not the only one who has that view, is that on and around 4 million barrels a day, Iran is capped. Iran is above all the gigantic gas cap. It is above all in issue of gas. Gas is an entirely different discussion for Iran. I think very quickly, the time and attention, and the capital, and so on, will be moved to gas, and then oil will be an issue trying to keep Russian capacity in the range of 3.5 million to 4 million. Iran is not an oil issue. Iran is a gas issue, and that's where the money is for them. And ultimately, the oilfield service industry will also be where the money will be made. It's all supporting the gas development. I mean, that's a very long term discussion.

Your next question comes from the line of Jim Wicklund of Crédit Suisse.

Krishna, thanks for so directly addressing some of the issues around debt. Like both Bill and Ole have said, the questions we get are around debt as much as equity these days, but the details about the debt impairments in a good challenge, the 70%. Guys, when is Zubair going to actually be finished, I mean like done and we don't talk about it anymore?

It's actually not in our hands. It's in the hands of the client. We really fundamentally are waiting for oil to be able to put it through the facility. The scope and scale of the work we're doing is now down to almost skeleton. Now as we finish the work, we're waiting just for the hydrocarbons and running through the facilities for 90 days, and that's it. So we're just waiting on hydrocarbons in the outside. These are provided by the clients, not by us.

Okay, but that's going to be this year you think?

Oh, yes.

Oh my goodness, yes. I mean, look, if it's started, we're beyond the scope of the contract completely.

We are looking at between Q1, and then depending on the when the hydrocarbon set each trend, Q1 or early Q2.

I just wanted to hear you all say that in public. Okay. My second question. Bernard, the transformations that you describe sound very impressive, a quantum change. You're a very different company. But you're the CEO. What changed in your outlook, your management focus? What caused you to make and start this transformation over the last 2 to 3 years after many years of running Weatherford?

That's a very difficult question to answer in public, so I'm just going to answer it as honestly as I can. Normally what happens when a company grows as fast as we have grown since 1987 from nothing and very successful, possibly too successful, and then, of course, discovers at some point in time it's not terribly well managed, the person that was responsible for the growth and everything else but probably did not pay enough attention to how well it's been managed is replaced and someone else comes in and doesn't have to answer that question. I, on contrary, get to answer the question, which makes it a little bit difficult. But I'll tell you. Above all, I want Weatherford to do well. There is nothing to do with me personally. I want Weatherford to do well. I know what Weatherford has and what it doesn't have. I know the wealth of Weatherford that is there to be harvested, I know what's missing, a little bit like one would know a child. When I realized all the trouble we went through, and it was extraordinarily painful to our shareholders, the management too but for our shareholders above all, that was before oil declined, I realized what had to be done. To extent I am able to guide the company so that it does what needs to be done, which is essentially operational and financial discipline, that's it. There's no strategic issues. You can argue we should have this, we should have that, it doesn't matter really. What we have is enough. So to the extent that I can help the company guide both operationally and in the financial discipline -- on the financial discipline, I rely immensely on my close colleague Krishna, and then I think it's quite straightforward, the progress that we'll deliver. Now oil tends to both mask all of this and at the same time, facilitate all of this. They did helps also. We can go much further, much faster, also masks to a degree the level of progress because it's such a horrific environment, yes. But to -- our shareholders or the financial markets should know that when it comes to us, we're not just fighting hard to adapt to a lower level of activity. We are transforming the company, and it is first and foremost an operational issue and the under-- financial underpinning so that to accelerate it and also measure it and keep it disciplined. But it is above all an operational issue, and we're way advanced in it, far more than it would have helped.

Your next question comes from the line of James West of Evercore ISI.

I wanted to go back to the international markets where you talked about increasing market share as we go through '16 and even with the market probably being down the 20% that Bill mentioned and we certainly agree with that. You could only be down about half of that. Is this market share gains that you've already achieved in your contracts that are won? Or is this in the bag? Or do you need to win more contracts to achieve that type of result?

It's not in the bag, James. And so far, I wouldn't take any contracts that we bagged as been reliable, the point being that in the time of extreme strain, I would be -- dishonest for me to tell you "All well, we booked it". The fact is that when we look at what we have, it is essentially committed to. But I'm thinking a discount simply because I know that in this world and at this time, clients can adjourn. They can postpone. And what is your full-service play going to do about it? Nothing, just wait. So the answer is, there is some risk that we don't -- that the assessment that we can hold back, if you will, the volume declines to about half what the market will be, there is some risk that we are not successful. I will point out to you the place where we will play the hardest, which is Eastern Hemisphere, so far we haven't really gotten our stride yet. We kept our own. In fact, we've done more than keeping our own. So I'll summarize by saying we have the business. It is not in my judgment reliable because it's not reliable for anybody in this environment, but we do have the business already. Let's assume we'll lose some or have to paddle our canoe harder to gain some more. I think we can. Of all of the calibration we give '16, there are also the midpoints between conservative and more aggressive. This one is also the same. We actually have a more conservative view and also a more aggressive view. This is the really a reasonable midpoint.

Okay, got it. And then if we switch over to North America, where the decline has been and is probably going to be a lot worse at least based on initial CapEx guidance from your customer base, you have a lot of -- you have the positives of the artificial strength in artificial lifts, but you have little more exposure to Canada. How do you think you fare in the North American market versus your peer group?

I think, to the extent we're backing off, remember, 20% of what we do is identified into our 2 product lines that we personally will only play if we can make a living, which is pressure pumping and drilling tools. To the extent we de-emphasize this, I would say that perhaps on the revenue side, we won't fare so well because we'll -- we may step back from these businesses, not entirely but as the case may be more than anybody else. At the same time, I would say, on the profitability side, we may actually fare better. So my suggestion is that as the Q1, Q2 sort of roll out, going to Q3, which as I mentioned, we -- our internal objective is to bring it to a breakeven quarter, we may very well in North America show -- continue to show great resilience at the profitability level, but not so great revenue performance simply because de-emphasizing loss leaders, as the other product lines do more than hold their own.

Your next question comes from the line of Angie Sedita of UBS.

So on the CapEx side, and certainly I understand you're sitting on quite a bit of inventory, but as you slash CapEx in 2016 and 2015, are there business lines or regions that continue to be, obviously, your top priority and then certain business lines or regions that you are a lower priority, obviously, in this type of market? And are there product lines or regions that you could exit and maybe unlikely to return to in the coming near-term year?

I'll say a few words and, Krishna, you might want to come in also on this. That's a very good question, Angie, but it's a bit difficult to answer it on the call. But we have, we are -- we have and we are going through a meticulous process. We're not doing it ourselves. It's been done by the field and product-line leadership. We're going through every single segment in which we play around the world. And you can imagine that with 12 different product service lines as we're organized and with worldwide infrastructure we have, there's lots and lots of questions to be asked. And we asked ourselves: Could we do more? Should we stay? Should we do less? Should we pull? In simple terms. We're doing this. And what are our metrics, financial metrics and also strategic as inclined and reservoir metrics. They balance one another. So yes, we will pull out in certain countries and regions on certain product lines and so forth. At the same time, we'll push much harder on others not only for now because they -- as little business there is, we can do better than we have, but also because the potential longer term. There isn't an overriding theme though, Angie, as in -- are we putting up this, putting up that? No. I would say, in general, overall, it's fair to say that Eastern Hemisphere -- overall, there are differences in Eastern Hemisphere, we'll tend to fare better. I am not saying necessarily fare well but better than any other parts what we have, although there are pockets Latin America also show fare well. In North America, we will become and has become a fortress of efficiency. So but -- so net-net, we will pull out of certain involvements in certain countries, certain product lines, but there is an overriding theme. The core is the core. We like the core. We try to make it as profitable as we can for now and for long term, but the core hasn't changed.

Okay, that's helpful. I appreciate that. So on the cost side, obviously, transformation, as you've said, for some period of time here has been necessary. But when you think through your headcount as well as your nonlabor portion of your cost base, how much of that do see is structural and necessary and permanent and how much is cyclical, which could return in 2017, '18 and beyond?

Krishna will answer that.

So, Angie, we estimate that about 1/3 of our cost reductions right across '14 and '15 are structurally permanent, because they have to do with the delayering the organization and working on the support structure with a lot of focus. So if you add the 2 years together, we had $1.4 billion of annualized savings in 2015, another $600 million in 2014, which we did not talk about itself, 1/3 of that is, I would say, permanent. And this is when the recovery does happen, we just have to constrain 2 things. We have to constrain the support costs, of course; keep the permanent -- production permanent, of course; and the second part is to constrain CapEx. And we believe our incrementals, both in earnings and in cash flow, free cash flow, will be enormous. We're not even talking pricing. We're just talking...

Yes, it seems a bit academic for us to focus on the upside and the recovery, and we don't speculate, notwithstanding my comments on oil, probably not terribly, terribly new. We don't speculate at all anytime in the market. We operate the company as if we are in a dismal environment for the very long term. We still also think, though, that if that is not going to be the case. But structurally, changing the economics of the company at a high level operations, clearly a strong recovery if that was to happen, we would not be able to hold the indirect flat where they are today forever. But there will be a period of time and level of volume increase where we can, and hence, the strength of the incrementals. This 1/3 of $2 billion is not just a Wall Street story. We've long given up on our Wall Street stories. This is actually real. So $600 million to $700 million in our cost structure at Weatherford today are perennial. That means a $0.60, $0.70 per share, if you want to look at it that way in a normalized manner, and our cost structure have gone away in an up-market. That's all.

All right. Okay, that's helpful. And then one final quick one. As you said that you gained some share on the Artificial Lift side in the international markets, there's something -- is there bigger push in this environment in the Eastern Hemisphere with Artificial Lift? And is there more to be gained on the market share in 2016? And it looks like that's helping your margin there.

I think actually, Angie, I'd love to say yes. The reality is that lift, yes, but not any more than any completion probably is just as much, probably more share gains. I think are things that we very seldom talk about. Like, liner hangers, for example, and cementation have share gains that are possible. Managed crusher drilling share gains in an expansion of a type of technology which was not used very much. I'd say in general, Formation Evaluation has. And sounds like it's almost everything, but it really depends where. But if I was going to say which one has the -- of all of them, as far the strongest share gains in percentage and all that sort of stuff today, I'd say completion probably, more so than lift. The lift is fine, but one is actually likely to grow at a higher rate than the other.

Right. Thank you, Angie, and thank you all for joining us today. We have approached the hour, so this does conclude our conference call. You may now disconnect.