Core Laboratories Draws on Experience to Navigate New Market

Projecting oil recovery within fiscal year

Core Laboratories (ticker: CLB) closed the book on 2014 as its most profitable year in company history in its Q4’14 earnings release on January 28, 2015. Revenue for fiscal 2014 was $1,085 million, up 1% from 2013’s total of $1,074 million. Net income experienced a much higher jump, climbing to $257 million from $242 million in the same time frame. The jump of 6% resulted in higher dividend distributions, as outlined in a recent Oil & Gas 360® article. Earnings per share reached $5.77.

David Demshur, Chief Executive Officer of Core Laboratories, is scheduled to present at EnerCom’s The Oil & Services Conference™ 13 on February 18, 2015.

Revenue and operating income for Q4’14 remained steady compared to Q3’14 totals, despite the market downturn. However, CLB says it anticipates the United States land rig count will continue to “fall sharply in Q2’15,” ultimately affecting the company’s production enhancement segment (43% of revenues in 2014). In the news release and conference call, management explained the methods used to overcome the last downturn in 2009, and expressed confidence in CLB’s ability to maintain its growth profile.

Core Lab’s View on the Oil Market

Core Laboratories Capital Intensity Graph – Oil Gas 360

Several critics are anxious to offer opinions on when the oil market will ease out of its slump, but Core Lab’s hands-on experience offers a factual-based prediction. The company used the International Energy Agency’s decline rate of 2.5% to forecast an oil demand rebound in late 2015, or possibly sooner. A slowdown in North America will be the critical factor, with 2015 projections of 300 MBOPD down sharply from growth of more than 1,000 MBOPD in both 2014 and 2013. The company also explains common decline rates in unconventional reservoirs generally decline 60% to 70% in the first year, and 30% to 40% in the second year.

Ghosts of Oil Downturns Past

Core management noted that its reservoir description and reservoir management segments will still be subject to the oil price slide, but not to the degree of its production enhancement division, which returned record operating results in the latest quarter. Demshur addressed the situation early in the Q4’14 conference call, explaining 2009 imbalances were caused by slacking demand while the hydraulic fracturing revolution has led to a surplus in the current market.

Core Lab – Return on Invested Capital – Oil Gas 360

“As was the case in 2009, Core sees a V-shaped recovery starting to occur in late 2015 and that echoes comments from Harold Hamm most recently,” said Demshur, referring to the Chairman of Continental Resources. Core’s CEO went on to explain how shares of CLB slumped to $30 in 2009 before climbing as high as $221 last year. Shares closed at $108.33 today, and have climbed more than 21% since the earnings release was distributed last week.

Even in the difficult times, “The company continued to pay its dividend, aggressively repurchase outstanding exchangeable notes that were trading significantly below par and repurchased shares, albeit at lower rates due to the prevailing financial crisis,” said Demshur. “During today’s downturn, so far, Core has increased its dividend 10% year-over-year and will aggressively repurchase shares using our free cash flow and new borrowings under our revolving credit facility, which we have recently expanded for such opportunities… History does repeat itself, and long-term Core Lab investors will once again be rewarded.”

Core has reduced its diluted share count by approximately 39,939,000 shares and has returned more than $2.0 billion to its shareholders since its Shareholder Capital Return Program began 12 years ago. More than 1.6 million shares were bought back in 2014 – the most since 2007.

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