Core Labs 1Q16 Earnings Call Notes

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David Demshur

Declines in US land production could reach 1m barrels per day by YE2016

“The sharp declines from U.S. land production are continuing in 2016, and Core believes that decreases could reach 1.1 million barrels a day by year-end 2016. Lower levels of new wells and delayed production maintenance will exacerbate the fall in U.S. land production going into 2017. Moreover, further net gains from legacy deepwater projects in the Gulf of Mexico will be needed to offset the significant decreases in existing Gulf of Mexico and its production base. These legacy deepwater Gulf of Mexico projects could add a net 200,000 barrels of oil per day in 2016, slightly offsetting the material onshore declines that are expected in 2016.”

Believe that crude markets will rationalize in 2H

“Core believes crude oil markets rationalize in the second half of 2016 with price stability followed by price increases returning to the energy complex. Remember, the immutable laws of physics and thermodynamics mean that the production decline curve always wins and it never sleeps.”

Expect 2Q to be bottom of V shaped recovery for them

“On an equivalent currency basis, we expect third quarter 2016 revenue and operating income and margins to increase from second quarter 2016 levels. Therefore, our second quarter 2016 results should mark the bottom of our anticipated V-shaped commodity recovery that should lead to increased crude oil prices followed by increased industry activity levels.”

Deepwater GOM is now most active deepwater in the world

“even though it’s a bad house and terrible neighborhood, deepwater Gulf of Mexico now is the most active deepwater province in the world as they now outstrip offshore deepwater Brazil.”

Production should start to grow again at $65-$75 per barrel with a six month lag

“we believe it’s somewhere between $65 and $75 per barrel would be the U.S. threshold price to grow production some 500,000 barrels. Now that’s going to be pushed out about six months, as we retool and re-rig back up and getting crews running. So, even though we have that sustainable price for a period, you can look at a lag and maybe six more months before we start to add towards that 500,000 barrels per day of growth.”

The upward slope of the V is going to be directly related to the slope of the V on price

” I think that the slope of that upward V is going to be directly related to the slope of the upward V on the price of the energy complex with North America certainly natural gas and crude oil. That’s where we’re going to have the biggest delta in activity levels take place in response to those higher oil prices. I think the earlier question on what kind of price we need to really start building back production gains in the U.S. was somewhere between $65 and $75 a barrel. So, as quick as you can ramp to that level is probably will determine the up slope of the V-shape.”

Chris Hill

Client spending expected to be down 27% in ’16

“We believe for the full year 2016, our client spending is expected to be down some 27%.”