Core Labs 4Q16 Earnings Call Notes

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Core Laboratories’ (CLB) CEO David Demshur on Q4 2016 Results

Core believes that crude oil markets are undersupplied

“Core believes that the worldwide crude oil markets are currently undersupplied as indicated by several consecutive months of declining worldwide crude oil inventories. And we believe the projected December draw will be the fifth consecutive month in a row. Projected OPEC cuts of 1.344 million barrels of oil per day and other cooperating countries pledging to cut another 600,000 barrels of oil per day will lead to extended worldwide inventory declines and a continuing rally in oil prices and energy prices in 2017. As Core has continually stated, the Middle East was producing oil at unstable levels, and we are sure that some of these cuts will more than welcome by several Middle Eastern producing countries. All that Core did was listened to the reservoirs and not rhetoric.”

Markets more than rationalized in late 2016

“2017 is off to a better start as BP’s Thunder Horse South complex completed ahead of schedule and under budget is set to add 40,000 barrels of new 2017 production. Globally, Core estimates that the net decline curve rate is currently approximately 3.3%. Applying the 3.3% net decline curve rate to the worldwide crude oil production of approximately 85 million barrels a day means that the planet will need to produce an additional 2.8 million barrels of new oil by this date next year to maintain current worldwide productive capacity totals. With limited long-term sustainable spare production capacity coupled with the aforementioned production cuts, Core believes worldwide producers will not be able to offset the estimated 3.3% net production decline curve rate in 2017, leading to a further decline in global crude oil production. Also, weighing on future production capacity is the fact that operators discovered less than 4 billion barrels of new oil in 2016, while the globe consumed over 55 billion barrels. Therefore Core believes crude markets more than rationalized in late 2016 and price stability followed by price increases, some occurring as we speak, are returning to the energy complex. Remember, the immutable laws of physics and thermodynamics mean that the crude oil production decline curve always wins and it never sleeps.”

Highlighting some technologically sophisticated clients

” I would bifurcate the North American clients into those that are technologically sophisticated clients. And in that hand, certainly we would put Pioneer, Occidental, Apache, certainly — Concho Resources certainly would be another. These companies have been and continue to be innovative, like the project that we’re working on at HRL, formerly known as the Hughes Research Laboratory, and Pioneer where we are using machine learning expert guided analysis to pinpoint more highly productive areas within the acreages owned by Pioneer, which we’ll be able leverage to some of these other technologically sophisticated clients”

Dick Bergmark

Expecting the V shaped recovery to continue

“We are clearly benefitting from increased U.S. onshore activity and expect revenue and operating income to increase further in 2017 as international and offshore markets improve with additional major capital project announcements. These activities should drive our revenues higher in consecutive quarters throughout 2017, also expanding incremental and operating margins. As we projected earlier this year, our third quarter results established the bottom of the expected V-shaped recovery that we believe will continue into 2017. We believe that the global crude oil market is currently undersupplied. This is indicated by a recent IEA worldwide crude oil inventory data that has declined over the past four months and is projected to decline for the fifth straight month in December of 2016.”