All right, let's keep this show rolling. Pleased to have the CEO of Weatherford with us today. We've our history, and I'm sure some of y'all's history goes back with Weatherford a long time. And there's kind of somewhat interesting past from an investor point of view that was not always so good. I think, from the customer point of view, probably the reputations have been a little bit different. In fact, I asked Girish before why they didn't change the name when he took over after bankruptcy, and he said exactly that. He's like, "Our customers have always loved the service we provided, so we kept the name there." Investors would probably like to forget the name historically, but that has certainly changed. So we're gonna do a fireside format today. Girish, let's talk about Weatherford today.
So, you know, the history of the company was you had a lot of growth, through M&A, through chasing market share, things that obviously didn't end particularly well, built up a lot of debt on the balance sheet that caused restructuring. You came on board shortly after coming out of restructuring. And maybe just a little bit of time to start with kind of your philosophy on how you think about running the business and how your vision and what the management team's put together here differs from the ways of old.
Sure. Jim, first of all, thanks so much for having us here. Look, it's a pleasure to be here. You know, one of the things that all the financial people talk about is the past performance is not a guarantee of future results. And, you know, I wanna say in Weatherford's case, that is very much true. The past performance should certainly not be held against the new Weatherford today, just a slightly different take on it. But look, it's a very different company today. And, you know, there's always a situational element to why there is a certain vision, why there is a certain philosophy. And I can't comment on the past. I was not there. It should be inappropriate for me to do so. I can talk about what we are doing today.
But look, first and foremost, we are absolutely focused on one metric more than anything else, and that is cash. You know, it's very easy, and especially in our business, to get focused on a lot of different things. You can get focused on revenue, on market share, on margins, and a variety of different things. But ultimately, we believe cash is the best way to look at the health of the business and continuously improving your ability to generate cash is what we are focused on. So we started off with this philosophy, you know, and the first thing we did was make sure we have the right leadership team. So we brought in a leadership team that is very operational, that knows what they're doing, that is committed to driving operational improvements, embodies the spirit of accountability.
You know, we talk about in Weatherford this concept of we don't want leaders who roll up their sleeves. We want leaders who roll up their pants and wade right into the muck and are able to get things done. And that's what we have done with the leadership team at Weatherford. The second was, you know, making it very simple for the organization, understanding what we needed to do as a company, but making sure that there was alignment. So it's easy for me to talk about, you know, EBITDA, margin expansion, about cash flow, but that doesn't always translate to the person in the factory or at the well site or someone in engineering. So we had to break it down and say, look, what are the best proxies for them, but make sure they understand that connectivity. And that's an ongoing journey.
We continue to drive that alignment and that transparency across the organization. Third is the operating philosophy of the company. You know, we said we don't care about global market share. We care about our share at the intersection of every product line and geography, geography typically being a country. And you've got to make sure you're adding value, but more than share, that intersection point has to generate cash. You know, there is nothing strategic about being a loss leader and saying, I'm gonna lose money because everybody else will follow along. That just doesn't exist. So how do you do that? Then it was about how the roles and responsibilities of the rest of the company come together and a variety of different things.
But while doing all of that, making sure the cash we generated was used to improve the balance sheet, so chipping away at the debt stack that we had, while continuing to invest in innovation so that we have a long-term future. So it's been several things that we've been working on over the past 3-4 years. I'm incredibly proud of what the team has accomplished.
It seems like it's also happened in an environment where your peers are actually behaving in a different fashion than, you know, I think all of the large diversified oilfield service companies are all kind of on this journey of spending mid-single digit percentages of revenues in terms of CapEx. You guys are a little on the low end of that. And that's seemingly made a healthier market. Halliburton was in here earlier this morning talking about the same thing.
As you kind of look at this oilfield cycle, the last time we had a cycle with any global duration was, was kind of that post-financial crisis until kind of late 2014 when Saudi gave us the finger collectively. Curious how you see this cycle and you've been around this industry for a while, but maybe just, you know, how you see this cycle relative to that last cycle, compare and contrast how that's playing out.
Yeah. So I think a couple of things that are fundamentally different about this cycle. First of all, this whole theme of energy security is a much bigger factor, and it's driving a lot of the decisions and the actions of several players. Second, we are seeing an enormously different behavior from U.S. producers, the IOCs, the independents, you know, we see the wave of consolidation right now, but this focus on delivering shareholder returns and not just succumbing to growth for the sake of growth has created a different balance altogether in the industry. So that, and then you finally couple it with the fact that there is this overarching theme of transition that wasn't there to that extent in the 2008 onwards period. You know, all of that makes this cycle, we think, a little bit different structurally.
There continues to also have been this backdrop of underinvestment over a fairly long period of time. As a result, you've got reservoir declines that need to be offset. You've got very robust investment thesis on the international side. We think the cycle still has room to run. We think, you know, both on the international side and the offshore side, we've got a few more, very strong years ahead. We think, look, this will continue for a while, and it's not going to be the typical, you know, peak and then an absolutely horrific crash. It's going to be a much more stable, a much more resilient cycle, going forward.
That brings me to the next question, which is over the last couple quarters, all of the big guys continue to kind of use the word duration and the fact that they see a lot more duration in this cycle, which ties to what some of what you just said. Others have just talked about generic duration, contract lengths as, as drivers of that. I think you actually hit an interesting point, here this last quarter talking about the 100+ projects that were coming up for FID over the next three years that are north of $1 billion +, plus smaller projects, which gives you some idea of the breadth of the market. But what do you think's driving the duration? Like, how are your customers' behavior a bit different, maybe this time versus last time that gives you comfort in that duration?
Yeah. So, Jim, I think it's some of these things I mentioned earlier. Probably the most significant aspect is energy security, making sure that they are securing what they need to ensure that they've got economic growth, they're providing energy for their growing populations, and making sure they're not totally dependent on other sources. So you see this in multiple different places. Now, not everyone has the fortune to be completely independent, but to the extent that they can, they're doing that. The second is, you know, the world is becoming, unfortunately, a lot more polarized. And so making sure that they've got alternative sources of supply, you know, and they've got different markets as well if you're an exporter. So that's driving that change a little bit. The last piece, though, is going back to what I talked about in terms of underinvestment.
You know, it's unfortunately physics. You can't fight that. Reservoirs do decline. Even the best ones do eventually, start to decline. So you've got to start making up for that. And that requires a greater investment. It requires a greater focus, especially where you don't have the fast cycle, you know, significant increase that we saw, you know, in the late, you know, part of the first decade of this millennium and then going in with the U.S. Shale coming on in a big way. So some of these more conventional reservoirs, the offshore ones, do take a little bit more, time and, investment to come online fully.
Right. And along those lines, from a duration perspective, so the Middle East has been a pretty big pillar of growth among other regions. We had the Saudi news here a month or so ago. Probably get some more color out of Saudi Aramco here in about a week, I think. But curious your view on the impact of their announcement of, you know, they, my view is they kind of had three buckets of activity going on. You had a lot of gas activity, which is still ongoing.
You've got production replacement to maintain that capacity, which is still ongoing. Arguably, that treadmill keeps getting steeper. And then you had the incremental 1 million barrels a day of capacity growth, which that last piece is the only thing they really kind of stepped off from. But curious maybe what you think is driving that from their perspective, and how you think about the Middle East, given that, you know, change in direction there?
Yeah, you know, I was in Saudi Arabia along with a lot of other people in the industry, a couple of weeks ago at the IPTC conference. The CEO for Aramco, as well as the energy minister, made several remarks. I think, look, all of it really points to a couple of things. One is, as Saudi Arabia drives their own transition, they're finding that they don't necessarily need all of this additional capacity. They've already got some additional capacity, but they're able to free up more capacity for exports because of what they're doing internally. You know, the gas side, renewables allows them to switch their domestic power consumption. And so they've got more, more barrels for export. I think the second thing is, look, the world that we live in today, they've got this additional capacity. They don't necessarily need it all right now.
So it's potentially a bit more of a pause than a stop. So it could come back in at a later point in time. And they've got enough additional capacity at this point to withstand and to make sure that they can support any immediate, you know, needs that, that anyone else, might have. So a lot of it, I think, you know, created a bit of, concern, created certainly a lot of noise, but we've not seen anyone else, in the broader region follow through or do something different. As a matter of fact, most customers that we've talked to have pretty much reaffirmed their plans, continue to focus on their investment thesis, and really have a lot of confidence in what is required over the next, few years. So we remain very constructive on the activity profile in the Middle East.
We think it will spearhead our growth this year. Look, last year, the Middle East grew 30% for us year-on-year. You know, interestingly enough, got just eclipsed slightly by Latin America at 31%. That was more a function of us being able to gain some share in some key markets. But you know, this year, we see another year of very robust growth in that region of sort of mid- to high teens.
Right. And the Halliburton guys talked a bit about planning horizons leading, you know, stretching out longer today just because of equipment scarcity. And so I'm curious, as you are in those discussions with customers outside of the Middle East, and I think you've said Latin America probably isn't going to see the same rate of growth this year because of the monumental gains last year, but where are you seeing other areas that, that will continue to see growth outside of the Middle East?
Yeah, you know, so we see for the most part fairly secular growth across the world with the notable exception of North America and then Russia. Those are probably the two places where, you know, we see it, we see a decline. You know, Latin America, we think we will see mid- to high-single-digits growth this year, predominantly driven Brazil and Mexico, the two most significant ones. And I think it, there's a little bit of a question mark on how exactly Argentina plays out over the course of the year.
We actually see Europe and Sub-Saharan Africa doing quite well again, up double digits. We see a lot more activity in the North Sea. We are encouraged by some of the signs that we are seeing there. And then Asia as well, we think will be up, about double digits, you know, whether it's Thailand, Malaysia, Indonesia, Australia, all of them showing robust signs of activity.
You guys don't necessarily disclose your offshore exposure, but I think it's probably an underappreciated part of what's helping drive some of the growth. So maybe just spend a minute on kind of what you see from offshore and, you know, we obviously know some parts of where your exposure lies, but whatever color you can provide just on the offshore side of this.
Yeah. So one of the interesting things about offshore, you're right, we don't provide the specific breakdown. But you know, one of the things that we did talk about in our fourth quarter earnings call in February was, as just as an illustrative example, was the Gulf of Mexico, which grew over 20% versus the prior year. But you know, the thing about offshore is we've got our market-leading product lines of managed pressure drilling , tubular running services, cementing products, and intervention services. These typically tend to have a higher, you know, on a better value proposition because of the exaggerated risk profile offshore. So we tend to get better margins on these. And so offshore growth, which we know from various other data points, continues to be very stable, very resilient, and has long legs, you know, should continue to benefit us.
We also look at offshore, though, as an area where we've got an opportunity to continue to grow, where we can do more in terms of our products like completions, where we've got more opportunity for things like artificial, if more digital, work. So a variety of different product offerings. So we actually look at it as a growth area as well.
Got it. And to that point, your kind of key technologies like MPD, like artificial lift, etc, have been kind of some of the big drivers of your actual growth within the cycle. As you look over the next 3- 5 years, are you going to just continue to see growth from those same general technologies, or do you see some other things coming down, your R&D efforts that'll actually, you know, add on to that growth?
Yeah. So look, while our market-leading product lines have certainly been an important factor in our growth, I would actually argue that it's the rest of the product lines that have driven even more of that growth profile. You know, we have tried really hard over the last few years to make sure that we've got differentiation in every one of our product lines. If you look at our drilling services business, we've got a high-temperature differentiation that is a very clear superiority. In, you know, completions, we've got an RFID patent suite that is very formidable.
We've got fiber-optic technology, and I can go on in each product line. So things like our drilling business, our wireline business, our completions business have also seen a significant amount of growth over the last couple of years. We expect that to continue along with these market product leading lines of MPD, TRS, intervention services, and cementing products.
It's a pretty broad, pretty broad growth. On the margin front, you have obviously, through all of the different things you talked about, focus on cash, just cycle growth, specific product lines. You've, you know, driven up to kind of pushing closer to 24% EBITDA margin guidance this year, kind of implies low-2 4% on your way to the 25% and 2025 goal. I was asking you outside a little bit ago, just if you think this cycle lasts through this decade and you're continuing to work on product lines that have better incremental margins and you're working on from the internal side, from, you know, manufacturing process and procurement process, you're doing a lot of things that take time to drive margin and just volumes drive margin.
I'm curious where you think margins could be in 2027, 2028, 2029 kind of timeframe relative to the 25% number we're looking at for 2025?
Yeah. So, Jim, look, we've always sort of had this philosophy that we are going to set a target, achieve it, stabilize around it, and then we set the next target. Having said that, so we don't put a quantitative number on kind of where we're going, but, you know, we've also stated, you know, multiple times in the past, the way we run the business is we think about a year and we say, if activity is flat, how do we generate 25-75 basis points of margin expansion organically? That's what our job is as a leadership team. And we are very focused on driving that. Then when you have activity increases that just accelerates your ability to grow margins.
You know, if you continue down the path that we are, you know, we feel confident that we'll get to this 25 by 2025. If you take that same 25-75 basis points and you add that on for three or four more years, you know, we said on our earnings call that we don't think 25% is the defining limit. So there is likely more headroom in that. And we can, you know, likely go up a little bit more from there. And, you know, at the right time, we'll come out with a specific target around that.
If I look at your margins, your returns on capital, things like that, even just your EBITDA growth rate, you've been frankly beating the pants off of the larger peers that you have for the most part and well entrenched in there. So I'm curious, what's driving your relative outperformance, do you think, from the other big guys?
Yeah. I look a couple of things. I'll start with, you know, quite frankly, we start off at a lower base, right? So we've got to acknowledge that it's a lot easier when you're starting from a lower base, you know, to accelerate. But beyond that, you know, now we've got absolute margins that are in the top tier of the industry, returns that are in the absolute top tier, etc. A couple of things that I think have helped. One is size. You know, we are a smaller company. And so as a result, it's a lot easier for us as a leadership team to get our arms around everything that's going on. Second is the nature of the way we run the company. It is, it is fairly detailed. It's a very, very intense operating rhythm that we've got within the organization.
But it's also this focus on differentiation. You know, we've made a very conscious effort to get away from commoditized services. And we've made a very conscious decision to not chase volume. We've said, look, we are perfectly fine with losing a little bit of the upside on the upcycle to make sure that we've got the right margin profile and the right cash generation on a through cycle basis. So that's all of the things, you know, you put that together, it gives us the ability to run things.
And look, lastly, I'd like to think that we try to run the company a little bit more with an industrial feel to it, you know, trying to drive that same mentality on everything from the way we think about product management to the way we think about our fulfillment engines, you know, including repair and maintenance, asset deployment, everything that we do in the organization.
It certainly didn't seem that when Bernard was running things, they had an easy time of getting their arms around how the business was operating. But, anyway, question on, as you think about that performance, where you're running in the same thresholds, if not toward the higher end of that as your big peers, if I go back and look at the last sustained cycle from kind of 2009 through 2014, your average multiple was about a half turn lower than the big three. At times, it was actually trading at a premium.
Despite all the shenanigans going on with the balance sheet during the time, and yet your multiple today is still, it's, it's narrowed some more because your peers have come down some, than just your stock going up, but it's, you're still a couple turns delta. Do you think that's just a time and an investor understanding of what's really going on the sustainability of your efforts, or what do you think the driver is of that?
Yeah, look, I think there's two components, you know, so I'll start with saying, yeah, it is, you know, somewhat ironic and occasionally frustrating, to think that, you know, when we are actually generating the best margins we ever have, and we're actually generating cash, two things that have never happened simultaneously before at Weatherford, we still have a lower multiple than ever before. But look, it is natural. I think, you know, investors for a long time, you know, just got burned. I mean, there's no other way to put it. And so we recognize that it takes time to bring everyone back into the fold. We've gone through a fundamental metamorphosis over the past few years, you know, but some of that has been operational performance. Some of that we have had to make sure we get the story out.
So, you know, we're amplifying the message, you know, thanks to folks like yourself who have picked up coverage and now able to tell the story better. We're doing a lot more of what we are doing here today, which is getting our message out. But it takes time. You know, we have had 13 quarters of a very high say-do ratio . But that's versus potentially, in some cases, 20 years of people saying, I'm just waiting, you know, for it to happen, and it hasn't. At the same time, look, there are also other things that I know we don't have in place. We still, you know, we've got a net leverage ratio that is best in class, but I'm very cognizant of the fact that we still have a gross debt burden that is still a bit higher than what we would like.
We still have interest coverage that is not optimal. So those are some of the things that we need to get in place. We've still got restrictions, in terms of some of the degrees of freedom with our senior secured notes . You know, we've made it very clear that we are on track to take those out. So we think that as we continue to deliver operating performance, and that is the absolute bedrock, but then we couple that with continued improvements in the capital structure and get the message out and, you know, get more people comfortable with the story, eventually the multiple will catch up.
Right. And so actually that was where I was going next is, so your net leverage is about 0.7 times, which is pretty low relative to where it's been in a while. Where would you like over the next couple of years to see your gross leverage or your interest coverage, whichever side you actually look at it? And then I want to ask you a question about, you know, returning capital shareholders, because that seems to me, if I look at all the big guys, that's the only thing they're doing that you're not yet, but that's coming. So.
Yeah, so look, we've not given a specific target on gross debt or on interest coverage, short of just saying that it is, you know, higher than what we would like it to be. Our focus has been on the secured notes, taking those out. You know, once we're done with that, we'll have about $1.6 billion of unsecured notes out there, 8% and 5% rates. So in the current market, the current interest rate environment, that's actually not too bad. And you look at where the bonds are trading, it's actually, you know, a pretty decent thing. You know, and you put that in context of where we were three years ago, we would have taken out $1 billion of debt. Yeah, you know, that, that's pretty significant in three years' time. We've reduced interest costs by over $100 million, so that's very significant.
So we think there's some room still to go there to whittle that away. We've got a long runway. The notes are not due till 2030. So we've got time in front of us. So there's no Sword of Damocles hanging over us. And so at the opportune time, we'll look to further improve our interest costs. We'll look at re-tranching, extending maturity, all of that stuff. But, you know, we'll do it in a thoughtful, deliberate, fashion versus saying, hey, here's what we've got to do. There's no forcing function. Right now, we're in good shape.
You now have a real credit facility that actually has accessibility. That huge cash balance you've been carrying to cover LCs theoretically should be able to come down.
Right. And that's what we've been doing as we've been taking out some of the notes. But the good news is we also continue to generate cash. So, so it does help. But look, all of this goes in, in parallel. And we've been very deliberate and very consistent in our thought and our actions in terms of what we're going to do with that cash, which is attack the debt.
So post the first quarter, $151 million paydown of the senior secureds, you have about $97 million left. Presumably that could be paid off by mid-year, let's just say, given your free cash flow generation. And then that gets rid of a restrictive covenant that limits your ability to return cash to shareholders. So we get into the second half and you're probably going to start talking about that. When you think about the framework for that, most of your peers have some combination today of dividends and share repurchases, although the growing factor seems to be the share repurchases. I imagine you're going to go down a similar thought process when you get there, but just kind of curious how you think about that framework, how the board's thinking about that framework.
Yeah, look, we continue to have very, very insightful, very detailed, very open discussions between the management team and the board about what to do. We're making sure we get inputs and advice from all the appropriate people on this. And we want to make sure that whatever we do is sustainable over the long term. Look, we are not going to do something for the sake of an announcement or just getting something out there to satisfy, you know, some degree of stakeholders, etc. We want to make sure it is the right thing to generate value in the long term, right? So that's a lot of saying nothing, essentially. But look, we have said that we will come out with a framework, you know, at some point, you know, around the second or third quarter of this year and lay all of that out.
All I will say is, look, all options are on the table. And, you know, as we've seen over the last couple of years, paying down the debt has, you know, been a form of shareholder return to a certain extent in a slightly different, fashion. And, you know, that will also continue to be part of the equation in all likelihood.
Got it. We've got about 4 minutes left in this session, so I will stop my questions and ask, hope, throw it open for if any of y'all have questions, just to get a few questions before they go to the breakout session. If everybody's bashful, I've still got other stuff. CapEx running 3%-5% of revenues. I think you've kind of said 5%'s probably what your spend rate will be in an upcycle and in a contraction that'll come down to 3%. You know, how do you think when you think about this relative to history, that's a lot lower number? How do you think about your competitiveness? Is that enough to keep up with the R&D efforts you have and, and advanced product lines and, and such at, at this lower rate versus what we're used to seeing?
Yeah, look, absolutely. You know, this was not something we just sort of dreamt up. We spent a lot of time thinking through it, studying it, analyzing it, and coming through with it. And there's really three things that drive that. The first is we have gotten out of very capital intensive commodity type businesses, you know, land rigs, pressure pumping, etc. So we're out of those businesses. The second is we have revamped the way we think about how we spend money on capital for tools, how we deploy it, you know, what are the returns. So we don't have this mentality of build it and they will come. Every single dollar that we spend on CapEx has to have a line of sight, the revenue opportunity from the returns that we expected, and it gets metered. You know, we look at it.
We make our teams, frankly, compete a little bit for the capital that's at hand because there is a finite amount. And we've found that that actually helps in finding ways to take a lot of waste out of the process of the system. And we've actually been able to come under, what we thought it, you know, pushing really hard on reuse and redeployment. The third element, which is probably the one I'm most excited about, is we've made a very pivotal, very thoughtful and deliberate decision in each one of our product lines to create business models that are less capital intensive. And so we are pivoting away from, you know, where we require greater footprint, greater capital that needs to go in to where can we be, you know, less asset intensive, asset light, model.
So we talked about going back into the Haynesville, for example, with our high temperature tools, which are differentiated, you know, but we've done that without putting feet on the ground. We have done that in a way that we are deploying technology that we've got a differentiation on. We're getting much higher returns. It's a totally different business model. We're doing that in, you know, some of our pressure pumping business with engineered fluid chemistry sales. We're doing that with capital sales in places like wireline. So making these deliberate decisions on where we're going to have critical mass of footprint and where we are going to be a technology provider.
Instead of having a big fixed overhead. Last question is just on the M&A front. Historically, Weatherford has been very active in M&A that last cycle, especially. And I think you kind of talked a little bit about M&A on this last call, just there may be some opportunities. Maybe just a little color around kind of size, scope, you know, is it technology-driven M&A? Halliburton mentioned that earlier today. They were just looking for kind of bolt-ons where they can front-run their R&D efforts, that kind of thing. Maybe how you think about our, yeah.
So, you know, all M&A that we consider, look, has to fit a certain criteria, right? We look at businesses first and foremost, they've got to have strategic rationale. They've got to make sense for the portfolio. They've got to be margin creative even if on a synergy basis. They've got to generate cash. They need to be deleveraging. And most importantly, they need to fit our valuation on the loop. We will not pay more than our multiple, for, for something, right? But then we look at different things, right? Is it a technology thing, acquisition that we can then scale with our footprint? Some of the acquisitions we've just done, the three small ones we did really sort of fall under those categories. The small, they're terrific businesses.
We think we've got an opportunity over the next few years to grow them, given our scale, given our footprint. We also look at, you know, are there strategic bolt-ons that we can do that can add a nice chunk of cash flow to the company? And then, you know, is there something transformational? So, you know, everything's on the table. But most importantly, we've got to have the confidence that we know how to integrate it. And that's probably the most significant difference. We're not just sort of doing M&A for the sake of it, for the sake of gaining scale. We've got to make sure it fits in, but we also really want to make sure we have the bandwidth and the ability to fully integrate it and create the value that's expected.
Perfect. Well, Girish, certainly thank you for your time. And we'll cut this off here and these guys will be available downstairs in the breakout session.
Perfect. Good. Thanks so much.