Core Labs 4Q15 Earnings Call Notes

Core Laboratories NV (CLB) David M. Demshur on Q4 2015 Results

Crude should balance in 2H16

“I’d like to talk about some of our current macro views, and then touch on the three financial tenets. Our Core believes that the worldwide crude oil supply and demand markets will balance in the second half of 2016.”

Decline in unconventional production has been offset by surprise addition of deepwater projects

“On the crude oil supply side, U.S. unconventional production peaked at approximately 5.5 million barrels of oil per day in March of 2015, has since fallen by over 600,000 barrels a day owing to high decline curve rates associated with tight oil reservoirs. Offsetting these sharp production declines have been surprising and unsustainable additions of over 250,000 barrels a day from deepwater Gulf of Mexico projects that were commissioned several year ago and that beared fruit in late 2015. The sharp declines from U.S. land production will continue into 2016 and Core believes these decreases could reach 900,000 barrels a day by the year-end 2016.”

The crude oil production decline curve always wins

“Remember, the immutable laws of physics and thermodynamics mean that the crude oil production decline curve always wins and that it never sleeps.”

IEA is still calling for demand growth despite China

“On the demand side, on the crude oil market, the IEA is still calling for increased demand in 2016 of approximately 1.2 million barrels per day, notwithstanding daily news out of China regarding their economic activity. Supply and demand will balance as they all have in all past market disruptions.”

Spare capacity in the Middle East is near zero

“on the Middle East, we see spare capacity there across the Middle East at a very low amount. Actually long-term spare capacity, we see near zero. You could probably generate another million barrels or 1.5 million barrels on a short-term basis. But on a long-term basis, we would put spare capacity nearing zero.”

Richard L. Bergmark – CFO, Member-Supervisory Board & EVP

Better valuations don’t make bad companies into good ones

“Rob, one thing about down cycles is better valuations do not make bad companies into good companies. So, our perspective is we haven’t seen good companies to acquire that fit our three segments. So, this recent change in valuation really hasn’t changed that. So, we don’t see acquisitions really adding to this at this moment.