CLB Celebrates 20th Year as a Publicly Traded Company
Core Laboratories (ticker: CLB) continues to fend off headwinds from the industry slowdown, funneling income into its shareholder return program. Net income of $35.4 million in Q3’15, derived from revenues of $197.3 million, contributed to paying back more than $52.1 million, or $1.22/share, to shareholders in the quarter. CLB’s outstanding share count is at a new 17-year low and its Return on Invested Capital (ROIC) is the highest of all oilservice companies, based on calculations from Bloomberg.
The Houston-based provider’s ROIC metric also leads the way in EnerCom’s Oilservice Weekly Benchmarking Report, consisting of 43 peers. An operating profit of 28% ranks second overall and its capital intensity, defined as the percentage of every EBITDA dollar required to maintain a flat growth profile, is only 10%. The next closest company to CLB’s superior capital intensity is Schlumberger (ticker: SLB) at 27%. Core is aided by its stronghold in proven hydrocarbon plays, as only 15% of its business revolves around exploration spending.
Core’s free cash flow has exceeded its net income for four straight quarters, marking every quarter since the commodity downturn began. For the first nine months of 2015, Core has generated $151.5 million in free cash flow – accounting for 24.6% of all revenue.
Core specializes in three facets of the oilservice industry: reservoir description, production enhancement and reservoir management. The segments yielded operating margins of 27.1%, 19.3% and 34.0%, respectively, excluding certain items, in Q3’15.
Reservoir description benefited from projects in the Middle East, Asia Pacific and deepwater Gulf of Mexico regions. In a conference call following the release, David Demshur, President and Chief Executive Officer of Core Lab, said 2015 “probably is going to be our most successful year in the deepwater Gulf of Mexico.” The segment progress, as explained by CLB management, is reminiscent of the 2009 downturn when E&Ps opted to capitalize on already-developed acreage. Focusing on established production zones has led to further technological innovations, including its Digital Rock Characterization services and various CT-imaging tools. The pressure-volume-temperature equipment acquired with Sanchez Technologies differentiates CLB’s technology as the only services capable of creating full visualization test results in the deepest part of the Gulf.
The production enhancement segment focused largely on North American unconventional reservoirs, and management said in restimulating existing wells is “growing dramatically.” Activity is expected to rise in the Barnett and Haynesville formations, where “earlier, less-effective” completions may be revisited in hopes of better results. A plug and abandonment perforating system developed by Core is expanding, particularly among the offshore plays. Its use saved 13 days of drilling time for a client in the North Sea, saving the operator $8 million. Another project is being tested in the Permian Basin and involves an enhanced perforating system. Results from the month-long venture are being evaluated.
The reservoir management division created the largest operating margin of the three and was supported by continued interest in the Permian, Utica and Haynesville regions. According to the release, data in the regions are being used to quickly evaluate assets and minimize risks on both the production and acquisition fronts.
Shareholder Returns Continue
CLB’s track record on returns continues to grow, as its $52.1 million shareholder return consisted of $23.4 million in quarterly dividends and $28.7 million in share repurchases. Since Core implemented the return program 13 years ago, the company has reduced its diluted share count by 49% (more than 41 million shares) and returned more than $2.2 billion to shareholders (more than$50/share).
The company expects its free cash flow to exceed net income once again in Q4’15, with earnings per share reaching a midpoint of $0.65. Revenue is expected to fall 9% sequentially and operating income is projected at approximately $40 million.