Core Laboratories (ticker: CLB) is a provider of proprietary and patented Reservoir description, Production Enhancement, and Reservoir Management services. The company has a market cap of $6.93 billion and is part of the basic materials sector and energy industry. With over 70 offices in 50 countries, Core provides reservoir assistance to leading world, national and independent oil companies. CLB offers services to provide evaluations of well completion effectiveness and create solutions for oil recovery projects.
Core Lab announced Q4’13 was its most profitable quarter in company history, according to its earnings release on January 29, 2014. The quarter marks the fifth consecutive time CLB has posted record earnings for the stated period and the 16th consecutive time revenue and earnings per shares have increased on a year-to-year basis. The introduction of new technology and related services, particularly in the production enhancement divisions, were main contributors to the success. Other noteworthy achievements include:
- Earnings per diluted share jumped to $1.43, a 22% year-over-year increase and the largest increase in the past six quarters
- Net income increased 17% year-over-year to reach roughly $64.9 million.
- Revenue totaled $276.3 million, good for a 9% increase compared to Q4’12.
- Free cash flow (FCF) reached $79 million. CLB converted roughly $0.29 on the dollar to free cash flow in the quarter. Free cash flow has exceeded net income for eight of the past 12 years.
CLB, who has returned more than $1.66 billion to its shareholders since 2003, continued the trend by turning over approximately $85.5 million in the quarter. A dividend returned $14.5 million and share repurchases totaled $71 million. The company’s share count is down to 45.4 million – a new 16-year low. In a conference call following the release, management said its total shareholder return would rank ninth among all companies listed in the S&P 500 since the company went public in 1995. Shares were sold at $3 at the initial public offering.
For Q4’13, CLB generated roughly $87.4 million from operating activities while spending $8.4 million, generating a return of approximately $79 million in FCF. Year-end 2013 totals reached $262.7 million in FCF, a 28% increase compared to 2012. Total revenue for 2013 was $1.1 billion.
Core Lab was added to the Philadelphia Oil Service Sector Index (OSX) on November 26, 2013. Core accounts for roughly 20% of the price-weighted index, which has increased almost four-fold since CLB’s inception. Core’s stock price is up 75% from its initial listing price in the OSX.
Core Lab has been in EnerCom’s The Oil & Gas Conference® index since 1997. For the period of August 2003 to January 31, 2014, the index is up 354.1%. Core accounts for 6.4% of this price-weighted index.
New Technologies Keep Pace with Red-Hot Industry
Core Lab divides its operations into reservoir description, production enhancement and reservoir management segments. Management said its focus on reservoir fluids proves to be much more capital efficient than rock analysis. Exploration now accounts for only 15% of revenue, while field production and development consists of 85% and is the driver to its success.
The reservoir descriptions department increased revenue by 6% TTM to reach a segment high of $136.3 million. The company developed new technologies across the globe, specifically in the Gulf of Mexico, offshore Brazil, Russia, Asia-Pacific and Middle East. Innovations include a thermal imaging technology (T-VISIONTM) that advances the efficiency of loading crude oil for shipment. The liveQTM was also developed and provides storage terminal operators with real-time oil characterization data sets. The advancement can also be used in North America, where 1 MMBOPD are now sent via rail. CLB has also worked in several fluids-related projects to address the need for LNG exports. The data facilities for LNG data sets have an investment base of more than $50 billion. Management said it is nearing expanding its systems to Kurdistan and anticipates placing its assets in the area within the fiscal year.
The production enhancement sector, based largely in North American deepwater and unconventional tight-oil developments, also recorded its most profitable quarter in company history. Revenue increased 8% compared to 2012, operating income jumped by 25% and operating margins climbed 36%. Since the North American rig count was essentially flat, Core was able to increase its presence overseas. The company introduced new systems and completion techniques for horizontal wells, including the introduction of its FLOWPROFILERTM service. The company says the product, along with closer well spacings and longer laterals by operators, can increase estimated ultimate recovery in wells by 40% to 60%. It is believed the process can restore damaged reservoirs in the Middle East, and Core has begun a multi-year program to meet the potential needs.
Reservoir management also maintained the record-setting trend. Revenue increased by 30% compared to Q4’12 and operating income jumped 48%. Core now has 61 companies involved in its program with a specific focus on the Permian Basin. The management sector is increasing internationally and is aimed at improving reservoir characterization and production performance. Licensing for its database RAPIDTM and associated “Cloud” technology also increased and has been adopted by three large companies to date.
Core anticipates Q1’14 revenue to equal between $280 million and $286 million. Its activity levels are expected to see a slight increase, mostly due to the acceleration of international projects. CLB is well positioned with 70 offices in 50 countries, and enters 40 to 50 new fields per year. Quarterly FCF is projected to hit $70 million.
Revenue growth of 10% is expected for fiscal 2014, and the company expects strong crude oil prices will only help its progression. Management says it expects no market slowdowns as long as the Brent price remains above $100. Full year revenue is estimated to reach between $1.16 billion and $1.18 billion, with operating income margins expected to increase by 32%. FCF is expected to top $300 million for the year, and income will be returned through its share repurchase program.
In the years ahead, CLB anticipates deepwater projects to be an area of great opportunity. Its largest client is Petrobras (ticker: PBR), whom has already laid out an extensive, 35-year contract to exploit the Libra Field. CLB says its reservoir description department will be a key player in exploiting the offshore Brazil fields, which are predicted to hold 13 billion barrels of proven reserves.
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