Core Labs 2Q17 Earnings Call Notes

David Demshur – CEO

Increasing interest in enhanced recovery from shale reservoirs

“The first major trend is the increasing client interest in enhanced oil recovery from unconventional reservoirs. Early work performed by Core has indicated possible recoveries increasing from an average of about 9% in share reservoirs to 13% to 15% by utilizing engineered gas absorption techniques, gas recycling and the laws of physics and thermodynamics”

Using micro proppants

“The second major trend is the interest in using finer proppants or micro proppants in the initial procedures in a hydraulic fracture program. Core via our industry wide profit consortia with a 30 plus year history and consisting of over 40 companies is boosting its evaluation of 100, 200 and 400 non-API mesh sand. These macro proppants are thoughts to open secondary and tertiary fracture patterns significantly increasing the stimulated reservoir volume. Therefore, increasing initial flow rates as well as the estimated ultimate recovery from the wellbore.”

Lateral length may have reached their maximum

“The third major trend is that lateral length may have reached their maximum owing to frictional forces of pumping the frac fluid and its profit. However, Core is currently testing friction reduction additives to once again allow for longer laterals. Pad drilling and completion programs rule today and are causing the recent disconnect in wells drilled and wells completed in the last two quarters. Wells drilled and completions will start to mirror each other in the second half of 2017.”

10k feet appears to be the maximum

“right now the average lateral length is about 10,000 feet. That expanded from number of years ago from an average of 7,000 -8,000 feet. The problem is the frictional forces in pumping the proppant and fluid at or about 10,000 feet. You don’t get enough effective pressure to actually do a good job in fracturing the reservoir. ”

Can’t continue to outspend free cash flow. Markets will be tighter this time around

“I think we stay in a $45 to $50 environment. You are going to have a number of the private operators probably laid down some rigs. So we wouldn’t be surprised if we saw a contraction in the rig count by maybe 50 to 100 rigs by the end of the year. That’s kind of what our guidance is based on where we toned down what the expectation for revenue was for Q3. And it’s based on a flat to possibly down rig count. They can’t continue to outspend their free cash flow because in our view the equity markets and the debt markets will be much tighter this time around than maybe year or year and half ago”

Dick Bergmark

If crude persists below $50 rig count may contract in the second half

“If crude persists below $50 per barrel, the U.S. land-based rig count may actually contract in the second half as we do not believe operators can continue to outspend free cash flow with debt and equity markets likely closed to them for additional capital. This observation is not withstanding the continual decline in the global crude oil inventories and the impact this will have once the decline falls below the five-year average inventory level.”

Increasing number of DUCs because of a shortage of equipment

“Further, in the U.S., We are experiencing the impact of the prevailing market and transitory industry issues of U.S. labor and completion equipment shortages, which is expected to continue through year-end. The increasing number of DUCs, as reported by the EIA throughout 2017, is evidence that completions have not been able to keep up with the pace of drilling. The shortage of equipment is an issue for operators getting crews to complete wells which are why DUCs went up. Many EMP analysts wrote about this as the issue became more problematic as quarter went on. The pressure pumpers spoke about this in their own vernacular on the recent calls. The reason they are bringing equipment of out of cold stock is because they are short spread. They wouldn’t be spinning money to bring them out of storages if they were not short equipment”

Core Labs 4Q16 Earnings Call Notes

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.”

Core Labs 3Q16 Earnings Call Notes

Core Laboratories NV (CLB) CEO David Demshur on Q3 2016 Results

Crude supply/demand is balancing

“Thanks, Gwen. Core believes that worldwide crude oil supply and demand markets are close to balancing, and will balance by the end of 2016. On the crude oil supply side, U.S. production peaked at 9.7 million barrels a day in March of 2015, and has since fallen by over 1.3 million barrels per day owing to high decline curve rates associated with tight oil reservoirs.”

Avg productivity of a Bakken well is down 26% since peaking in 14

“An excellent example that the decline curve always wins and never sleeps and the difficulty in reversing fall in production totals in tight oil reservoirs is the Bakken [ph] formation. Bakken production is down over 233,000 barrels a day since its peak in December of 2014. Since that peak there have been 1,770 wells added to a producing base of 9,000 wells of production leading to Bakken’s net 12% decline curve rate over that period from December of 2014 up through August production. However, the average productivity for Bakken producing well is down 26% since peaking in 2014. As long as Bakken completions fall below 130 per month, Bakken production will continue to fall in 2017.”

The global production decline curve is approximately 3.3%

“Globally Core estimates that the net crude oil production decline curve is currently at approximately 3.3%. Applying the 3.3% net decline curve rate to the worldwide crude production of approximately 85 million barrels per day means that the planet will need to produce approximately 2.8 million new barrels by this date next year to maintain current worldwide production capacity.”

US production is probably going to be down once again in 17

” each individual well producing in the Bakken, which now number about 10,700, the productivity is down 26%. So to turn that decline out of these tight reservoirs is going to take Herculean effort. We just don’t see that happening in 2017, and hence we see production down in the U.S. once again.”

We don’t see an upward trajectory to US production until the second half of next year

“Yes, Marc, we actually — at the current rig count rates we actually don’t see a change in the trajectory of downward U.S. production. I would say at current levels, probably into second half of next year, maybe fourth quarter…We are — for us to see a significant change in U.S. production we would need to have about 900 rigs drilling for oil for a 12 to 18-month period. And that would get us on a trajectory where we could have strong additions to production.”

Core Labs (CLB) Q2 2016 Earnings Call

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.”

Core Labs (CLB) 2015 Annual Report

The company had a tough year as energy prices fell substantially and customers decreased drilling activity 

“Core Laboratories had a challenging year in 2015 as crude oil and natural gas prices reached multi-year lows. Sharply higher crude oil production for the fifth consecutive year, primarily from unconventional reservoirs in the United States, and increases in production from Russia and several OPEC countries led to a worldwide imbalance, with crude oil supply outstripping increasing demand. The lower-priced energy commodity complex caused Core’s clients, the worldwide oil and natural gas companies, to significantly reduce their operating activities. The North American rig count in 2015 fell over 60%, while international activity levels fell approximately 15%.”

Core Labs says their industry is saddled with overcapacity of equipment

“Core’s Board believes that stock price performance over time is directly related to ROIC.   Note that most oil field service companies have ROICs below their Weighted Average Cost of Capital (WACC), a product of overinvestment in their company or vast overpayment for perceived growth via acquisitions. Past overinvestments and overpay- ments for acquisitions for hundreds of millions of dollars are evident today in the oilfield services industry. Several companies are faced with massive write-downs of asset values and write-offs of acquired entities, thereby destroying capital and shareholder value.”

Significantly reducing their expense base so that they are more efficient

“Core Laboratories faced a challenging year in 2015 as supply and demand imbalances in the energy complex led to lower crude oil and natural gas prices worldwide. These lower prices precipitated activity cut-backs from Core’s oil company clients. Core’s management reacted, lowering the Company’s cost basis by investing in greater global automation of services, increasing multi-skilling programs, and, unfortunately, reducing staff.  The lower industry activity levels will lead to lower future supply. The balancing of worldwide crude oil markets is already well underway, as evidenced by the continued sharp decline in U.S. land production during the second half 9,500 of 2015.

Their technology is critical to helping their customers improve oil recovery

“Today, on average, the world’s oilfields produce only about 40% of their reserves, leaving 60% of the oil in place. Core Lab’s innovative technolo- gies help to optimize production and recovery of hydrocarbons; and they can, in some cases, elevate production to 45% or more of the hydrocarbon reserves.”

 

Core Labs 1Q16 Earnings Call Notes

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%.”

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.

Core Labs 3Q15 Earnings Call Notes

Crude markets well on their way to balance by year end or early next year

“we believe that the worldwide crude oil supply and demand markets are well on their way to balance by year-end or in early 2016. On the crude oil supply side, U.S. crude production peaked in April of 2015 and over 9.6 million barrels of oil per day.”

Middle east production will continue to fall

“Core believes the Middle East production levels will continue to fall in Q4 led by declines in Iraq notwithstanding unknown and unpredictable crude oil supplies from Iran. ”

Core continues to see a V shaped recovery

“Core continues to see a V-shaped recovery getting underway in 2016. The industry is still on the left hand side of this V going into Q4 perhaps with activity upticks in early 2016.”

Budgets should continue to come down in 2015

“In spite of our view of a recovery in 2016, for the fourth quarter 2015, we project further industry activity declines in North America tight oil plays. Currently, U.S. rig counts are down 8% from average third quarter 2015 levels. [Oil] company 2015 operating budgets are at very low levels and nearing exhaustion which we believe will force the North America rig counts to further contract later in the fourth quarter.”

We think Deepwater will be better next year than this year

“I would say in the deepwater Gulf of Mexico, visibility going into Q1 and Q2 is pretty good. Other deepwater slots around the world, offshore eastern South America, West Africa, some parts of the North Sea and Asia Pacific, the visibility not as clear, but certainly we think we will do as well in the deepwater that we did in Q3 and Q4 this year in Q1 and Q2 of next year.”

Technologically sophisticated clients are focused on ROIC, better for Core Labs

“when you look at our technologically sophisticated clients, they still are looking at returns and are buying technology to enhance their return on their invested capital, and you do have a number of independents, that all they are looking and doing is to drive down costs. They don’t tend to be as good a client for Core Lab as the technologically sophisticated clients”

EORs in unconventional wells have not peaked

“No they have not peaked. What we’re seeing right now is an artifact of low commodity prices because we’re looking at the operators drilling up their very best acreage.”

Still room for more stages and longer laterals

“we know that we can push a hydrocarbon, a long chain hydrocarbon about 120 feet at an average tight oil reservoir, so if that is indeed the case we should have a stage every 240 feet or feet apart, stages are still more than on average 400 feet apart, so we still have some optimization going on the drilling and completion stimulation techniques. We are still proponents of longer laterals, and if you look at companies that are drilling the longest laterals out there Pioneer Natural Resources come to the mind. They are 10,000 footers, but looking at the number of stages they are putting in their in the amount of profit that’s still a blueprint for success and higher EORs.”

JS Earnings Call Notes 7.26.2015 – UNP, CFX, CNI, CLB, CBI

Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Union Pacific (UNP) CEO Lance Fritz said the shipment of coal remains a weak spot for railroads

“Solid core pricing gains were not enough to overcome a significant decrease in demand. Total volumes in the second quarter were down 6%, led by a sharp decline in coal. Industrial products and agricultural products also posted significant volume decreases.”

Union Pacific (UNP) CFO Rob Knight said the company was able to raise prices above inflation

“A 4% core price increase was a positive contributor to freight revenue in the quarter.  Core pricing continued at levels that are above inflation and reflects the value proposition that we offer in the marketplace. Of the 4% this quarter, just under a half percent can be attributed to the benefit of the legacy business we renewed earlier this year, and this includes both the 2015 and 2016 legacy contract renewals.”

Union Pacific (UNP) CFO Rob Knight said the company will increase its buyback when its share price is weak

“To your point on the share buyback, if you look at the first half of this year compared to last year’s first half, we’re up about 10% in terms of our share buyback, and we will continue to be opportunistic, and at the prices that we’re seeing right now, we think those are nice entry points. So we will – we are certainly, as we always have, buy more when it’s down, less when it’s up.”

Union Pacific (UNP) Vice President Eric Butler discussed their primary competitor, Burlington Northern Railroad, and competing with trucks

“Not only is the Burlington a tough competitor, but we compete with other railroads and other markets. We also compete with trucks. Trucks are also a tough competitor, and lower fuel prices are helping them.  It’s our goal to have the best service and value proposition in the industry. If we do that, we think we’ll be able to price appropriately for our value.  Clearly lower fuel prices will incrementally make truckers more competitive, and clearly as the shale play has gone down, there appears to be what we think is a temporary alleviation with some of the driver shortages or a temporary reduction, I should say. There still are long-term driver shortages out there, but some of the move of labor from that to truck drivers has alleviated some of the shortage. So trucks continue to be a competitive option.”

Union Pacific (UNP) Vice President Eric Butler thinks the U.S. is now a relatively low cost place of production

But long term, North America is still kind of a strong, productive, secure, relatively low cost place of production. It’s also a huge consumption market. Those things will continue to drive us being in the sweet spot for our transportation services, whether it’s export or import. “

 

 

 

 

Colfax (CFX) CEO Steve Simms says he wants to focus the company more on the profitable after-market

Despite the lower short-term CapEx cycle in several of our end markets, one of our key growth initiatives is to capture higher aftermarket content from our growing installed base. And we’ve seen encouraging traction in several areas of our business.

And he sees the global economy continuing to decelerate 

“As we look at it, I think that we have seen an industry which has softened further beyond what we anticipated in quarter one and we see that softening occurring really on a global basis. The softening that we have seen is driven by really two factors, one, virtually any end market that’s tied to oil and gas, the oil pipeline work, offshore oil wells, OSV, we’ve seen significant further deterioration in those trends and accelerated in to second quarter.”

 

 

 

 

 

Canadian National Railway (CNI) CEO Claude Mongeau said the firm is adjusting efficiently to lower volume

“We’re recalibrating our resources to drive efficiency. As Jim will describe to you, all of our core metrics are in line or better than last year, and that’s very important because that’s all we can do when the environment is a little tougher from a volume standpoint. It’s how fast and how efficient you are at reacting that makes the difference.  We responded quickly to the lower workload by decreasing dwell, cutting back on active cars, rightsizing our locomotive, increasing our end-to-end velocity; key that we didn’t concentrate on one piece but end-to-end and nice to see that again.”

But the pricing of their services held up well  

“Solid same-store pricing came in at 3.9%.  In short, the deceleration in carload and fuel surcharge revenue was wholly offset by solid pricing and by gain in foreign exchange.”

While “crude-by-rail” has slowed dramatically for all rails during the quarter, many of the rails are including Canadian National Railway are seeing a pickup in natural gas by rail shipments

Industry-wide, crude by rail economics were challenged by narrowing crude spread and by improved pipeline supply/demand balance. NGL volume grew nicely, reflecting ongoing opportunity to sell stranded Alberta NGL as merchant liquid in tank car into better-paying market than leaving it in the natural gas.

Canadian National Railway (CNI) CFO Luc Jobin said the company said a quarterly performance record in a tough volume environment

Our operating ratio was 56.4%, a record level for a second quarter. This represents a 320 basis points improvement over last year.  Our Q2 operating ratio was a record all-time, not just for CN, but for the industry.”

Canadian National Railway (CNI) Chief Marketing Officer Jean-Jacques Ruest discussed how the company thinks about pricing

So, we’re into a long term and we like compounding effect of inflation plus pricing. And you look at our chart for the last 10 years that Janet has, it shows the effort and the mindset of compounding effect. And so, we try to stay away from the commodity type approach of commoditizing rail freight as you would tend sometime to do in export coal or crude by rail because of the downside of that midterm, right? So what we have, 3% to 4% above inflation, steady Eddie. That’s the game plan for 2015 and 2016.”

Canadian National Railway (CNI) Chief Marketing Officer Jean-Jacques Ruest discussed how they incentivize their sales force to optimize for profitability

By the way, our salespeople, one-third of their sales bonus is related to pricing, so it’s not just about top-line revenue. It’s one-third top-line revenue, one-third pricing and one-third other initiative and that’s the balance that we like to have going forward.

Canadian National Railway (CNI) Chief Marketing Officer Jean-Jacques Ruest discussed why the firm is not willing to cut pricing on their “crude by rail” shipments in order to gain volume

“Regarding crude by rail pricing, there’s always some pressure on pricing from customers. And the crude by rail is an example where the spread is all over the map. The crude producers are under financial distress. Of course, they want something better. And these are big volume that sometime they’re more like the mirage because they’re big, but you never quite get there. As you get closer to them, you find that there was really no lake, it’s just another pile of sand.”

Canadian National Railway (CNI) CEO Claude Mongeau acknowledged the Canadian economy has slowed materially in the first half of the year

“The general economy in Canada has been more sluggish than what we’ve seen in the U.S.  I think what Canada is facing, is people probably understated the impact of the energy complex cutback on capital expenditure.  But we don’t see Canada in a recession. We see Canada in a technical slowdown that happened to take place for the first six months of the year.”

Canadian National Railway (CNI) Chief Marketing Officer Jean-Jacques Ruest discussed the cost competitiveness of trucking vs railroads

So, the cheaper energy makes the trucking a little more competitive versus rail. The spread – the cost between the two is obviously narrowing. Then you get back down to the basic of how many drivers there is being the number one bottleneck of our growth for the trucking side.  I think the future of intermodal long haul is extremely viable.”

 

 

 

 

 

Core Labs (CLB) CEO David Demshur sees a V-shaped recovery

“Core sees the V-shape recovery, led by higher commodity prices and followed by worldwide drilling activities, starting to increase in early 2016.”

Core Labs (CLB) Chief Accounting Officer Chris Hill said they have increased their share buyback to such a pace that their shareholders equity could go negative

Depending on our share buyback activity in the coming quarter, we may actually see book equity go to zero, below zero.  Clearly, book equity does not represent the solvency of a company. And, we note that several S&P 500 Companies who generate significant levels of free cash, also have negative book equity, because, they return that free cash to their owners, just as we have done. We do not have debt or contracts compliance requirements, to report positive net worth.”

Core Labs (CLB) CEO David Demshur discussed the notion that oil companies are re-directing capital expenditures to producing more from discoveries already made rather than exploring for new oil

“If you look at some of the comments made by the major operating companies in the deepwater, Conoco being the most recent, they talked about creating value from discoveries that have already been made.  So, as opposed to looking at CapEx for drilling exploratory wells, CapEx is now being focused on development. We’re seeing a lot of the CapEx dollars that were going for exploration which as you know from Core, really is not of a high interest to us, going right into our wheelhouse in the development of these discoveries that have been made, over the last 3 years to 5 years.”

 

 

 

 

Chicago Bridge & Iron (CBI) CFO Michael Taff said the company took advantage of favorable debt markets and borrowed heavily to buyback shares 

“Following the close of the quarter, we entered into financing agreements to amend or extend our existing credit facilities and establish additional financing capacity based on our assessment of an attractive lending environment, the ongoing growth in our end markets, and our strategic initiatives.  These changes strengthen our ability to execute our long-term backlog, return capital to shareholders, and pursue additional growth initiatives while maintaining adequate funds for our working capital needs. Moreover this is an important strategic step towards an efficient and optimal capital structure, allowing us to extend the maturities of our total debt and positioning us to implement a formal capital allocation policy in the near future that should be favorable to our shareholders. On that topic, as Phil mentioned, since the close of the second quarter, we have repurchased approximately 4 million shares of our stock.”
Chicago Bridge & Iron (CBI) CEO Phil Asherman said international turbulence is delaying some of their customers spending plans 
“Russia and China are a big part of our markets for many of our technologies. And of course with the foreign exchange and the ruble to the dollar as well as the sluggishness in the Chinese economy, many of those opportunities that we saw in the first half of the year seem to be shifting to the right.”
Chicago Bridge & Iron (CBI) CEO Phil Asherman said the international competitive environment is tougher than the domestic environment 
“We have a number of European and Japanese firms competing for that as well. So it’s a little bit tougher environment. You probably see more pricing pressure on that. So we’re very cautious on those jobs. We’re very selective in terms of locations. Most of work that we see are particularly in the Gulf region as opposed to other parts of the Middle East. So we’re seeing those. But again, there’s no indication that those won’t go forward.”
Chicago Bridge & Iron (CBI) CEO Phil Asherman is optimistic about winning construction projects outside of the U.S. 
“So we see some interesting opportunities in the Middle East and elsewhere. Again, East Africa I can’t talk enough about the impact it’s going to have on us long-term, but certainly we will see, I think some more LNG coming in this next year with some of the projects I mentioned as well as some additional combined cycle awards as well as everything outside the mix of work that we have, or the mix of businesses we have.”

 

Core Labs 2Q15 Earnings Call Notes

Crude markets are will on their way to balance

“Core believes that worldwide crude oil supply and demand markets are well on their way to a balance at year-end, 2015. On the crude oil supply side, U.S. production peaked in April of this year.”

Core sees a V shaped recovery

“Core sees the V-shape recovery, led by higher commodity prices and followed by worldwide drilling activities, starting to increase in early 2016.”

Book equity is not a proxy for solvency

“Clearly, book equity does not represent the solvency of a company. And, we note that several S&P 500 Companies who generate significant levels of free cash, also have negative book equity, because, they return that free cash to their owners, just as we have done. We do not have debt or contracts compliance requirements, to report positive net worth.”

Deepwater projects actually benefitting as oil cos focus capex on developing known reservoirs

“Those are a little bit longer term projects. If you look at some of the comments made by the major operating companies in the deepwater, Conoco being the most recent, they talked about creating value from discoveries that have already been made. So, as opposed to looking at CapEx for drilling exploratory wells, CapEx is now being focused on development.”

Unconventional OUS are tied to a few world class developments

” If you just look at the major, because right now the concentration on the unconventionals outside of North America are tied to, really, a few world-class developments. All of which are in the earlier stages.”

The Middle Eastern producers may not be able to keep producing at narrow spare capacity

“If we look at just production levels in the Middle East, you have all countries producing at, what we would think, would be maximum amounts of the amount that they can prove, very little spare capacity there. These are carbonate reservoirs. One of the dangers of producing maximum amounts, from carbonate reservoirs, is you start drawing larger amounts of water. And we would think, at the levels at which we see production throughout the Middle East, that they would be in danger if they continue with those levels, for producing larger amounts of water.”

International should lead the V-shaped recovery

“Very good. We see that being led by international. And, they are going to be tied to crude oil related projects. You will see a lot of these deepwater projects. I believe there are 18 that are looked to be sanctioned here, the end of 2015, 2016 and 2017. That will lead your international activity recovery and again, all on the development side. We don’t see much exploration happening there. So, we will start to see upticks in the amount of international spending and activity levels. And then, followed by North America onshore”