Core Laboratories (ticker: CLB) gave its Q3 conference call yesterday, elaborating on some of the trends it sees with international activity improvement, its longer-cycle projects, and its debt agreement.

Highlights from the Q3 Results for Core Laboratories:

  • Revenue of $182.1 million, up 12% year-over-year
  • Operating Margins of 19%; Ex-Items 20%, Up over 360 BPS year-over-year
  • EPS of $0.50; $0.64 ex-items, Up 39% year-over-year
  • Core posts oilfield service-leading ROIC of 28%
  • Core total shareholder returns outpacing OSX year-to-date

To read the complete earnings release, please refer to this link.

 

Core Lab talks about longer cycles FIDs on the horizon Click to Tweet

Heard on the call

Up to 50 FIDS between 2017-18 should bolster 2019 revenue

Referring to trends within Core, CEO David M. Demshur said, “The last and most important trend for Core is that client discussions have continued to increase for international and deepwater, the longer-cycle projects that will be needed to meet future production demand. The foreshadow of this increase in activity has been evident in the 20 FIDs approved in 2017 with another 25 to 30 expected to be approved in 2018. Revenue from longer-cycle projects has been mainly absent from Core’s Reservoir Description revenue streams dating back to 2015, and should start to bolster Reservoir Description revenue in 2019.”

“Core’s revenue opportunity usually occurs three to four quarters after the FID has sanctioned as rigs need to be mobilized, wells drilled and core and fluid samples taken and then returned to our laboratories.”

Senior Vice President of Corporate Development/IR, Gwendolyn Y. Schreffler, said, “We expect fourth quarter international activity improvement to remain low, with the slower than expected increases in the international rig count. Additionally, we believe the average fourth quarter 2018 U.S. rig count will increase slightly sequentially, but the growth in onshore completion activity continues to flatten and drilled-but-uncompleted wells inventory levels will continue to rise.”

“Any company exposed to completion activities will be impacted by these trends. We also believe the U.S. completion activity will decrease until transitory industry takeaway constraints are resolved in the Permian Basin of West Texas.”

Excerpts from Core Lab Q&A

Q: …as the new CFO [how are you] looking at leverage going further? And what is the timing now for a bigger share buyback also? Also, you’re guiding for recovery of the business. So, in principle, that is indeed accompanied with a further extension of working capital?

Senior VP and CFO Christopher S. Hill: Right. Just on your point about our leverage ratio for our debt agreement, it’s actually an adjusted EBITDA. So, looking in at that post-acquisition and adding that debt, we’re a little over 1.5 when you look at our ratio as we’re measured against the covenant.

So, we’re comfortable with the level that we are at now. I think we would be comfortable with that moving up a little bit more, but I think we would watch that, and also in tandem with what the energy or the industry is doing. So, once you start to see a stronger recovery in Reservoir Description also contributing to the growth, I think it gives us more comfort when we’re covering with dividend with free cash flow and we see some of that more stability in the industry, you could see us enter the share repurchase market.

Canada, Saudi Arabia, Middle East

Q: Canada has suffered a lot from let’s say relayed defects. What has happened? And you explained let’s say an upgrade in Canadian Reservoir Description. But what are you seeing in the Canadian market in terms of activity on your side?

President Lawrence V. Bruno: Yeah, I think the Canadian market, we’re pretty encouraged there by the request for technologies both on the Production Enhancement and on the Reservoir Description side. The Montney and Duvernay formations are pretty complicated. In some places you are in a condensate area, some places you’re in a natural gas-producing area, some places you’re in an oil-producing area, volatile oil. And so clients are having to address the complexities that come with that phase behavior and being on the edges of different phase behavior in those areas.

So, I think overall I would say the Canadian market is far from being the robust area that it was before the downturn. But clients gravitate towards technology that answers their questions, and so we think we’ll do a little bit better than the market up there in general.

Q: And then maybe finally a bit of a hot topic nowadays, Saudi Arabia. Saudi Aramco is clearly pushing up the volumes they want to deliver. How is that being reflected on your side in your activity levels?

President Lawrence V. Bruno:  Well, as many of our investors have heard me comment before, we only have one client in Saudi Arabia. They’re a very good client, we appreciate the work that they’ve sent us over the years and continue to send us.

We have a local operation there to provide some services. But we also provide services for them in our Houston Advanced Technology Center as well. So we don’t comment specifically on the levels of activity from a client just that Aramco has been. And we see continued -will continue to be an important client for us.

CEO David M. Demshur: Yeah, and I’d just add that we see activity levels in the Middle East actually picking up and forerunning other international locations.

Q: I was a bit puzzled by the let’s say the 10% growth projection for 2019, because the press release more or less suggests it primarily should come from international, let’s say deepwater.

CEO David M. Demshur: That is correct.


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