In line with our Company-wide drive for innovation, we are always working to find new ways to share our Annual Report with you, our valued shareholders. This year, we decided to present our Annual Report as an interactive letter from our President and CEO, Mark A. McCollum. You can download the letter as a PDF, or scroll down to explore the full content online.
In 2017, we set the stage for the future of our Company. When I accepted this job last March, I recognized the tremendous opportunity available to Weatherford, and also the time and effort it would take to realize its full potential. I’m pleased to say that the organization has embraced this drive for change and come together as One Weatherford to build a stronger Company.
Looking back on the year, one of the first steps we took to bolster the foundation of our Company was engaging in a thorough and comprehensive evaluation of the way we operate. We took a hard look at our entire organization and concluded that while Weatherford has many strengths, there was a lot of room for improvement in efficiency and consistency.
We addressed these areas for improvement head-on with an organizational realignment. Our new structure clarifies responsibility, prioritizes process discipline, and solidifies a strong connection between our operational leadership and field-level decision makers. By breaking down silos and creating alignment to a common set of goals and objectives, we built accountability into the fabric of our organization.
Our new organizational structure is a cornerstone in our plan to increase market share, drive out cost, deliver improved earnings, generate positive cash flow, and ensure Weatherford’s success in a changing market. We are building on the momentum created by our realignment by initiating a strategic transformation program designed to yield at least $1 billion in improved earnings within 18 to 24 months. The clarified organizational structure will ensure the transformation is anchored on process discipline, accountability, flawless execution, and innovation.
Since our last annual report, we have welcomed three new Board members: Roxanne Decyk, David King, and Angela Minas. The fresh perspectives of these skilled and experienced business leaders will be valuable assets to our organization going forward. At the same time, we bid a fond farewell to longstanding Directors David Butters and Robert Moses as they retire from our Board at this year’s Annual General Meeting. I want to personally thank both David and Robert for all they have contributed to Weatherford over many years of service.
As we have charted the course for the future of our Company, we have strengthened our focus on our customers, who are essential partners in our success. All of the changes we have put into place to make Weatherford a more profitable company also benefit our customers by making Weatherford a stronger partner and a more competitive force in the oilfield services marketplace. Our new structure, processes, and procedures enable us to enhance the quality and consistency of our products and services, develop value-added technologies, and work more closely with customers to find solutions that address today’s most pressing challenges.
Since I joined the Company, our customers have consistently told me that they truly appreciate our collaborative approach as well as the technologies and services we offer. The customer safety and service quality awards we received in 2017 are testaments to their support as well as to our strong commitment to flawless execution. Our overall service quality performance improved in 2017, as demonstrated by our 23% year-over-year reduction in nonproductive time.
We also developed and commercialized several new technologies in 2017, including the ForeSite™ production optimization platform, which leverages data from the entire production ecosystem to maximize production and reduce costs; the AutoTong® system, which delivers consistent connection makeup and assures greater well integrity; the Raptor™ 2.0 cased-hole evaluation system, which reveals bypassed oil and gas reserves with accurate through-casing reservoir characterization; the HeatWave™ Extreme LWD service, which delivers high-resolution triple-combo logging-while-drilling data in ultrahigh-temperature wells; and the Endura® dual-string section mill, which creates a stable and verifiable rock-to-rock barrier during plug and abandonment operations.
I firmly believe that a strong culture is a key ingredient to unlocking our full potential. With the introduction of a new mission statement and articulated values, we reinvigorated a “One Weatherford” spirit, unifying the organization as we embarked on the initiatives that are fundamentally changing the way we operate. In one short year, we have seen a dramatic difference in the culture of our organization. Our Weatherford team has embraced the changes we’ve rolled out over the past several months, and their focused commitment will make a tremendous difference as we move toward our 2018 and 2019 objectives.
Our key priorities for 2018 and 2019 are to reduce debt, strengthen our balance sheet, and restore our financial flexibility. We took the first important steps toward those goals in 2017, as we recognized that we must create our own success regardless of market conditions.
Our path forward involves long-term, sustainable changes to all areas of our business. Since announcing our $1 billion target, we have identified a number of distinct operational and functional initiatives. These include field improvements, enhancements to our supply chain and procurement policies, a shift in our approach to sales, general and administrative efficiencies, and manufacturing process improvements. We have also completed a top-down and bottom-up validation process that confirms the size of the opportunity is at least as large as what we had estimated. And we are currently executing detailed, comprehensive, and clearly defined action plans designed to get us to our $1 billion goal. Bottom line: We have a clear line of sight on our $1 billion goal as well as a disciplined process in place designed to ensure that we can deliver.
We also progressed in our plans for strategic divestitures. We divested our U.S. pressure pumping and pump-down perforating assets at the end of the year, which enabled us to pay down debt and focus our capital resources on other businesses with higher returns. We will continue to seek out and capitalize on opportunities to divest other areas of our business that are not critical to our strategy going forward, enabling us to further reduce our debt burden. 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.
There is much to look forward to in 2018 and beyond. We have a competitive technology portfolio with a strong set of product and service offerings that gives us broad exposure to the fastest growing markets, particularly U.S. unconventionals. In addition, we are exceptionally well positioned to benefit from growth in international land markets, particularly Russia and the Middle East. While we expect continued stress in select areas, such as Venezuela, when you look at the market for 2018 overall, conditions favor Weatherford.
Our realigned operational matrix, which is also reflected in our financial reporting structure, enables us to optimize how we deploy products and services in the field by tapping into new synergies and efficiencies. Additionally, our shift to a more problem-solving, partnership-based sales approach facilitates more cross-product line selling, more joint technology developments, and greater market share. The combination of reduced operational costs and increased revenue opportunities will enable us to achieve sustainable free cash flow.
Our potential far outpaces our recent results, and we are determined 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 produce results for our stakeholders.
We have come a long way from where we were a year ago, and that is because of our people. I want to thank our entire Weatherford team for helping us to build a stronger, more innovative, and collaborative Company. Your hard work has not gone unnoticed. We have started down a solid path, with many of your ideas leading the charge. We simply could not achieve the great things ahead of us without your support.
I came to Weatherford because of the overwhelming number of opportunities I saw from the outside, and as I have worked with people across the organization over the past year, I have become even more certain of our ability to achieve the Company’s full potential.
By executing on the strategy that we developed over the course of 2017, Weatherford will emerge a much stronger company with a clear purpose and vision for the future. It is my mission to ensure this happens for the greater good of all our stakeholders.
Mark A. McCollum
President and CEO
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