The U.S. is set to see a significant shift in its energy policy with the return of Donald Trump to the presidency.

His administration is expected to prioritize traditional fossil fuels like oil and natural gas, rolling back several initiatives aimed at advancing renewable energy and electrification.

Trump’s plans include lifting restrictions on liquefied natural gas (LNG) exports, supporting domestic drilling, and possibly eliminating tax credits for electric vehicle purchases.

These changes align with his broader agenda of boosting energy independence, reducing regulatory burdens, and revitalizing the fossil fuel industry.

This policy direction, combined with Trump’s promise to declare an energy emergency to bypass Congressional hurdles, are great developments for E&P companies.

… and if they choose to begin deploying capital, it will be even better news for equipment and services companies.

They now have the opportunity to make real money if the wildcatters of America finally let their animal spirits take over again.

One of these companies is Weatherford (WFRD), which is one of the major players in space.

The company helps shale and other oil producers drill wells and then assists them in managing the production.

For those who may have kept up with the oil scene over the past few years, Weatherford went bankrupt in 2019 during a challenging time for service providers.

The company has made a significant turnaround since its 2019 bankruptcy, emerging as a stronger oilfield services provider with a broad range of solutions supporting oil, natural gas, and geothermal operations.

It offers equipment and services covering evaluation, drilling, production, and completion, positioning itself as a comprehensive service provider across the entire lifecycle of energy extraction.

Weatherford operates three core segments: Drilling and Evaluation, Well Construction and Completions, and Production and Intervention.

Each segment plays a vital role in the company’s performance, with Drilling and Evaluation contributing the highest share of the earnings due to the success of tools like the HB Spitfire, which improves wireline operations by preventing expensive tool string failures.

The Well Construction and Completions segment benefits from innovations such as the XPress XT system, designed to simplify offshore liner installations.

The Production and Intervention segment is supported by digital advancements like ForeSight 5.3, an AI-driven production optimization tool that minimizes equipment downtime while improving operational efficiency.

Weatherford has positioned itself well to benefit from the projected growth in the oilfield services market, expected to expand at a steady annual rate of 4.5% through 2032.

The broader oil and gas market, along with the oil and gas pipeline market, is also projected to grow over the next decade.

Weatherford’s services are closely tied to exploration and production activity, which benefits from increased energy demand and rising exploration efforts.

Additionally, the company’s innovation and technology investments are key to its growth outlook.

The HB Spitfire tool and the XPress XT system provide clear operational advantages, such as minimizing risks during complex drilling and liner installations.

Meanwhile, the ForeSight 5.3 platform uses AI and machine learning to enhance production efficiency, helping clients avoid costly equipment failures.

These technologies prove Weatherford’s strategy of driving operational improvements through advanced engineering rather than expanding through aggressive capital spending.

Furthermore, the company’s growth prospects are also supported by increased activity in international markets.

Weatherford has identified the Middle East and Latin America as regions where oilfield activity remains strong, with particular focus on gas-rich areas like Guyana and the Eastern Mediterranean.

The company also expects long-term growth from managed pressure drilling, well life extensions, carbon capture, and geothermal projects, all areas where it already provides specialized services.

All these factors combined enabled the company to achieve a 16% Uniform return on assets ”ROA” and 24% asset growth last year.

Despite its progress, its 11x Uniform P/E suggests that the market is worried about the cyclical nature of the oil and gas industry.

We can see this through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market predicts that the company’s Uniform ROA will fall to around 9%.

Weatherford’s revenue closely correlates with oil prices, which remain volatile due to global supply and demand dynamics.

A sharp drop in crude prices or oversupply could reduce drilling activity and impact the company’s revenue streams.

However, as we discussed above, Weatherford has successfully shifted from a company struggling with debt and operational inefficiencies to a focused, technology-driven oilfield services provider.

Its broad service portfolio, focus on operational efficiency, and expansion in key international markets position it well to benefit from rising global energy demand.

Though risks tied to commodity prices remain, Weatherford’s improved margins and a favorable cycle caused by the administrative change suggest it is on solid footing for the future.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

This analysis of Weatherford (WFRD)’s credit outlook is the same type of analysis that powers our macro research detailed in the member-exclusive FA Alpha Pulse.