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Core Lab has returned more than $2.2 billion to its shareholders

The oil and gas market is approaching the end of 2015—which will no doubt go down as a highly tumultuous year for the industry. In spite of the dive in oil prices, some companies have positioned themselves well for capturing the upside through advantageous acquisitions, reliable takeaway capacity, attractive hedges and low-cost production. Or a combination of factors.

Core Laboratories (ticker: CLB), a production enhancement and reservoir description company based in Houston, combines its leading services to provide consistent returns to its shareholders. Although many are taking a bearish approach into the new year, Core Lab and its management has maintained its stance on a V-shaped recovery ever since commodity prices went south. In its Q3’15 conference call, David Demshur, President and Chief Executive Officer of Core, said he expects activity could tick upwards as soon as early 2016.

Finding niche; putting customers and shareholders first; $151 million in free cash flow in nine months
  • Delivering for its customers: it’s not easy going up against oilservice giants like Halliburton (ticker: HAL) and Schlumberger (ticker: SLB), but innovation on Core Lab’s behalf yielded benefits for its cost-conscious customers in the latest quarter. Achievements include a plug and abandonment perforating system that shortened 13 days of drilling in a North Sea project, saving the operator $8 million. A similar project is being conducted in the Permian.
  • Finding its niche: Core possesses the only services capable of creating full visualization test results in the deepest part of the Gulf of Mexico, and 2015 is on track to be the company’s most successful year in the region in spite of the difficult price environment.
  • “Effectiveness and efficiency” was the phrase management used to describe its services in the planning of well completions, but the same phrase can be applied for managing its dollars in a constrained environment. Free cash flow has exceeded net income for four straight quarters – ever since the downturn began. In the first nine months of 2015, Core has generated $151.5 million in free cash flow – accounting for 24.6% of all revenue.
  • Shareholders first: Core established an internal performance metric to monitor and ensure its return on invested capital (ROIC) is tops among its competitors. Based on calculations from EnerCom Analytics, Core’s ROIC, Return on Assets and Operating Profit Percentage all lead the 46-company group.
  • A steadfast return program: Core has returned more than $2.2 billion to shareholders ever since the implementation of its Shareholder Capital Return Program more than 13 years ago. The number was achieved through dividend payouts and share buybacks, which had led to CLB’s share count reaching its lowest level in 17 years.

“Our focus on managing the business during this challenging environment continues to be on maximizing free cash flow and return on invested capital,” said Chris Hill, Chief Accounting Officer of Core Laboratories, in the Q3’15 call. With 2015 reaching a close, Core anticipated lower industry activity in Q4’15 considering several E&Ps are at the end of their respective fiscal budgets. Although activity would be subdued, Core projected an earnings per share midpoint of $0.65/share, translating to another quarter where free cash flow will exceed net income.

Core’s expansive knowledge on deepwater projects provides the company with a long-term prospect, especially if the company’s “V-shaped recovery” comes into play. “We’ve got a long way to run,” said Demshur in the call. “This is the tip of the iceberg for some of these deepwater developments.”

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