Core Labs 2Q13 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“So turning to a word on valuation, as of last night Core was trading at around 28 times present year projected free cash, while most other major oil field service companies were trading at 40 times or above their projected free cash flow for 2013. Some traded at infinity and haven’t generated real free cash in years. Why other oil field service companies’ free cash is valued more than Core’s remains a mystery to us.”

“Specific technological developments currently underway are designed to increase hydrocarbon recovery rates in under-saturated reservoirs similar to lower tertiary reservoirs in the deep water Gulf of Mexico and several pre-salt fields in the Santos Basin, offshore Brazil.”

“Many of the current oil discoveries in the deep water Gulf of Mexico are highly under-saturated in natural gases. Some of the reservoir fluids are so under-saturated that only a small fraction of the oil in place will be able to be recovered through primary depletion or using conventional secondary techniques, for example, water injection. The major oil companies exploring in the Gulf of Mexico are now seriously looking at high pressure gas injection as a likely secondary or tertiary recovery technique to maximize oil recovery from field development planning to a revitalization technique for an existing deep water asset.”

“Our fracture diagnostic services lead the way in Q2 with demand for our patented and proprietary technologies at record levels. Clients are using our SpectraChem Plus tracer technologies, including our SpectraChem Express to verify flow assurance and to identify fracture communications between adjoining wells.”

“Our HTD-Blast system was used to perforate the total of 28% of all horizontal wells perforated in Q2. This is a 31% increase in HTD-Blast activity versus quarter two 2012, despite a decline in the number of horizontal wells perforated year-over-year. ”

“our clients are seeing now the importance of understanding the phase behavior relationships of the three reservoir fluids, that being crude oil, natural gas and water. There’s only so much we can do the rock, huh? We can frack it, we can acid wash it; but the reservoir fluids, the dynacism that’s associated with these fluids, we can change them by what we inject, what we don’t inject, increasing pressures, decreasing pressures in the reservoir. So the reservoir fluids are the real key in going forward, and currently within Core Laboratories the emphasis is on reservoir fluids and the impact on reservoir fluids technology is going to have. Yes, this is an area of the science that Core Laboratories owns and so margins on that side of the business are better”

[analyst comment] “A lot of talk of disruptive technologies.”

“we think interest will increase will be, for instance, the Middle East. The amount of EOR work that is going to be requested there over the next couple of quarters is surprising to us, and that includes fields from Oman all the way up through Saudi, the Emirates, Kuwait, up into Iraq and the northern climes of Iraq up in Kurdistan. So this could be an interesting area, and might be an indication that the national oil companies there now realize that their reservoirs are not exempt from the laws of physics and thermodynamics, and they need to start concentrating on enhanced oil recovery projects to indeed keep their production levels where they are at today.”

“If you just do a little bit of work in the Bakken, we added in the year 2011 196,000 barrels a day to production, and then we added another 234,000 barrels of production in 2012. If we are to keep pace with that level of production in the Bakken increase, we would need to add somewhere near 4,000 producing wells in the year 2013. The most we’ve ever added was 1,722 wells last year. Through April of this year, we’ve added 570 producers in the Bakken and they’ve added 22,703 barrels of oil, so you can see there that the decline curve never sleeps and the decline curve always wins. So it becomes more difficult, and that’s just really an example of what we will see happen in the Eagle Ford and Niobrara as well.”

“we continue to be reasonable in the U.S. – I wouldn’t say bearish, but just based on scientific fact, decline curves, recovery rates, we see the increase in the amount of oil production in the U.S., it’s increase starting to decrease and ultimately flattening out here, over the next if not several quarters, over the next six quarters. And globally, we still feel that we are at the plateau, producing somewhere around 88 million barrels per day. That outlook has not changed.”