Core Labs (CLB) Q2 2016 Earnings Call

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Core Labs (CLB) CEO David Demshur said oil market supply and demand will come into balance later this year

“Core believes that worldwide crude oil supply and demand markets are close to balancing and will balance the second half of 2016. On the crude oil supply side, U.S. unconventional production peaked at 5.5 million barrels of oil per day in March of 2015, and has since fallen by over a million barrels a day owing to high decline curve rates associated with these tight oil reservoirs. Offsetting these sharp production declines have been additions of approximately 160,000 barrels a day from several deep water Gulf of Mexico legacy projects that were commissioned several years ago and started to bear fruit in late 2015-2016. These additions no way will offset what’s coming from the deductions that will occur on land throughout this year and into 2017.”

Core Labs (CLB) CEO David Demshur reminded investors of the immutable law of physics and thermodynamics

“Globally, Core estimates that the net crude oil production decline curve rate has expanded to 3.3% net, up some 20 basis points from earlier year estimates. Applying the 3.3% net decline curve rate to a worldwide crude oil production base of approximately 85 million barrels per day means the planet will need to produce an approximately 2.8 million new barrels by this date next year to maintain current worldwide productive capacity totals. With the long-term worldwide spare capacity nearing zero, Core believes worldwide producers will not be able to offset these declines, and the estimated 3.3% net production decline curve rate in 2016 will lead to falling global production in 2016. This is supported by some of the recent IEA data indicating declining production on a global basis through Q2 2016.¬†Therefore, Core believes crude markets more than rationalize in the second half of 2016 and price stability, followed by price increases, some occurring as we speak return to the energy complex. Remember, the immutable laws of physics and thermodynamics mean that crude oil production curve always wins and it never sleeps.”

Demand for oil is strong

“On the demand side, if we look at the crude oil market, the IEA has increased demand in 2016 to approximately 1.4 million barrels of oil per day. The U.S. is now using over 10 million barrels per day of gasoline. These are near record levels. Recent Chinese export coupled with strong demand out of India are at near all-time highs. Supply and demand will balance as they have in all past market disruptions.”