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Weatherford Finds Its Niche In Artificial Lift

Stellar line of products gives oil services firm a golden opportunity.

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 Weatherford (WFT) has disappointed us with its performance during the last few years, yet we believe it has managed to differentiate itself when it comes to artificial lift. Artificial lift products are used to provide another way to increase the flow of oil from a well when there is insufficient pressure to lift the oil to the surface. In fact, we believe this franchise is one of the company's crown jewels and potentially one of the biggest attractions for an acquirer. The firm is the only major provider of all six types of lift technologies--rod lift, progressing cavity pumping, gas lift, electronic submersible pumps (ESPs), plunger, and hydraulic.  Baker Hughes  (BHI) and  Schlumberger (SLB) only provide products in two or three of the lift categories. Wells require different types of lift at different times in their production life cycle, and the use of lift technologies also differs by play, with rod lift being used heavily in the Bakken, Niobrara, and Eagle Ford plays, and ESPs used on a more limited basis. Weatherford is the only firm that can offer an integrated solution within this niche, where it benefits from scale efficiencies. As a result, Weatherford ranks as a leader in the integrated rod systems, progressing cavity systems, and North American gas lift markets.

This industry leadership is beneficial because of the 20-30 year opportunity to land regular work throughout a well's life cycle. Artificial lift and its related services, production optimization, should be considered similar to aftermarket product lines where the need for work is consistent over a very long period of time. Weatherford's leadership in artificial lift pulls through more work for Weatherford's production optimization efforts, too. The opportunity begins with the installation cost of the lift (the razor), and continues with lift replacements and optimization efforts (the blades) throughout the life cycle of the well. This opportunity set is interesting, as 90% of today's wells do not use sensing technology.

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Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.