Current CLB Stock Info

HERO PerFRAC perforating system growing fast

Core Laboratories (ticker: CLB) announced third quarter results today, showing net earnings of $21.1 million, or $0.48 per share.

Core reports that revenue rose to $166.2 million, up 1.4% sequentially, while operating margins were 17%. Core’s third quarter results were affected by the recent hurricanes, even though damage to the company’s facilities were minor. Local flooding and power outages caused a $4 million impact to revenue, primarily in the Reservoir Description segment. The negative impact from the hurricanes were more than outweighed by 9% revenue growth from the Production Enhancement sector, though.

Core believes that this trend, growth in demand for Production Enhancement services, will continue in upcoming quarters. According to Core Chairman, President and CEO David Demshur, “Core has witnessed and is encouraged by the increasing focus of its major clients regarding capital management, return on invested capital, free cash flow and the return of capital back to their shareholders as opposed to just growing production at any cost in this growing capital.”

Core Lab expects North America completion activity to be up in Q4

Core expects Q4 completion activity to expand in North America, with DUC counts slowly diminishing. International activity, on the other hand, will be mostly flat in Q4, with most ongoing projects funded from operating budgets.

Core reports that its HERO PerFRAC system has been highly successful. The system is designed to provide consistent hole sizes when perforating a formation, which provides consistency and efficiency during a fracture treatment.

Core Lab Reports 9% Production Enhancement Revenue Growth

Source: Core Labs

Core COO Monty Davis explained how this system compares to other commonly used ones during the conference call. An operator tested Core’s HERO system, another consistent hole size system and a conventional perforating system in the same well, which was then tested to determine how well-stimulated each location was.

According to Davis “The results of the SpectraScan post-frac log analysis showed that both the standard deep penetrating charge and the other consistent hole size charge left multiple perf clusters unstimulated or understimulated, while the clusters perforated with the HERO PerFRAC were 100% stimulated.”

Core reports that client acceptance of the HERO system is “among the highest of all new product lines introduced by Core over the past five-plus years.”

Demshur also addressed the recent investments made by other service companies, saying “Core Laboratories will remain a technologically-driven oilfield service company that will continue to grow and expand our service and product offering. We have no plans to start competing with our clients for acreage position and production streams.”

From the CLB Q3 2017 conference call Q&A

Q: We’re seeing a shift from E&Ps, it looks like they’re focused a little bit more maybe on value over volume. Now, it seems like that has been more of a recent trend. So I’m just curious, has Core Lab already started to see some of the benefit from that or is it more just, this is how your customers are thinking about it and the conversations are now just kind of starting to get going?

David M. Demshur: I would say that we have had some benefit from that. But in most cases, these conversations are starting. We’re seeing the use of more of our higher technological applications of technology, so they’re getting a bigger bang for the buck. So you see companies out there that are starting to employ this.

A great example of that would be EOR in unconventionals. Certainly, if you can go ahead and take your recovery factor in unconventionals from 9% up into the mid-teens for a couple of $3 million of incremental expenditure, you’re going to get a much higher return on that investment, leading to higher EURs and free cash flow; some of which can be returned to their shareholders.

Companies mainly involved in this would be technologically advanced clients like BP, Chevron, Shell, Conoco, Pioneer Natural Resources, Oxy, EOG, Anadarko, Hess, Marathon, Apache, to name a few. But those are the most active in using some of our highest technology to increase the effectiveness and the efficiency of the capital that they’ve invested.

Q: I found a comment in your press release interesting where you were discussing the tortuosity reduction achieved by the HERO perf charges, how that can actually reduce pumping pressures. Based upon your assessment, can operators actually reduce the amount of horsepower deployed on site when using the charges?

David M. Demshur: That’s the whole idea.

Q: And what are the magnitudes?

Richard L. Bergmark: Somewhere between 5% and 20% depending on rock type. As Monty said, these are more expensive systems, but at the end of the day they get a much better return on their total investment, because they can save money on horsepower that need to be deployed at the surface.

Monty L. Davis: And to get a better flow rate.

David M. Demshur: Yeah. More completions, getting every segment stimulated is the key.

Q: And have operators acted on this? Have they gone to the pumpers and requested smaller crews who’ll try to save on the rate?

Richard L. Bergmark: Well, they’re requesting less horsepower at the surface. That’s one of our big sales pitches to that that yeah, you’re going to pay Core Lab a little bit more, but you’re going to pay less for your all over frac job. And if that results in lower amounts of crews and compressive horsepower at the surface, that’s a good thing for Core Lab.

Q: When you look at the world and you look at this sort of massive underinvestment in non-OPEC international, any sense for when you start to see a bigger impact on that on global production?

David M. Demshur: Well, certainly, I think you’re going to see global production by the end of 2018-2019, certainly screaming for international investments. We just look at the global inventories. And actually Gwen’s got some good information on that, why we continue to be bullish on crude, talk about global inventories and this ties right in with international non-OPEC production.

Gwendolyn Y. Schreffler: So we think global inventories continue to fall since July a year ago. And even more consistently over the last 16 weeks, we’ve seen some consistency in the data that’s been put out in terms of those inventory levels falling.

The other item that we’re monitoring are the days in inventory for consumption and what history tells us is, whenever that reaches 40 days, we see pressure on the crude oil price. Today we’re at approximately 43 days, we think we get near to 40 days in Q1 of 2018.


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