JS Notes: CLB, GM, UNP

Corelabs (CLB) CEO David Demshur believes 2015 will be a trough year for oil production and that growth in oil producer capital expenditures will resume in 2016

“Core’s operations have positioned the company for increased activity levels in early 2016, but we know significant challenges stills await in 2015.”

Corelabs COO Monty Davis says the company’s business model is more stable than other sub-sectors of the oil field services companies due to the capital light nature of their business

“Our prices don’t zoom up as things get tight, because we are not a commodity and so we didn’t have that huge increase, we don’t have the huge decrease either.”

 

 

 

GM CEO Marry Barra says they are cutting back spending in Latin America after the economy has weakened

“Looking at all aspects of our cross-structure, there’ll be production cuts.  I would say it’s really a detailed approach of looking at every single cost, a zero-based budget approach looking at indirect purchasing initiatives where everything is questioned. So, they have really gone to, I say, a very austerity approach in the region.”

GM CFO Chuck Stevens says the company plans on competing in new product categories 

“The biggest drivers in 2015 to 2016 will be launching products and segments that we had not historically competed in like the mid-size trucks, like Chevrolet trucks and other products that we haven’t announced yet plus the improved passenger car profitability.

GM CFO Chuck Stevens says Cadillac is the company’s most profitable brand 

And our expectations are that we’re going to drive better than 20% returns on Cadillac products as we should. They are more profitable than some of our mainstream products.”

GM CEO Marry Barra thinks the “connected car” could be a revenue driver for the company 

“And then as it relates to content, I mean, especially if you look at connectivity. There’s also revenue opportunity associated with the connectivity, and I think we are just starting to scratch the surface as we look at additional functions that can be accomplished now that we’ve got the pipe into the car and that ability to communicate. And we have several initiatives of new features and functions that we’re going to be putting that utilize that. So, I think there’s a revenue opportunity there.”

 

 

 

Union Pacific (UNP) CEO Lance Fritz said his railroad saw a substantial decline in volume during the quarter 

“Solid core pricing gains in the quarter were partially offset by a sharp drop in volume. While we took actions during the quarter to adjust for the volume decline, we did not run an efficient operation.  Over the last few months, volume has shifted negative. As a result, our operation is in catch-up mode and not as efficient as it should be.”

Union Pacific CEO Lance Fritz said weak demand for coal and oil drove declines in volume 

“Lower crude oil prices and unfavorable price spreads continue to impact our crude oil shipments, which were down 38% for the first quarter.  Coal revenue declined 5% in the first quarter. Coal volumes were down 7%.”

While Union Pacific struggles with various commodities, they are seeing continued strength in the transportation of cyclical goods

“Plastics business really ties pretty closely to construction and automotive and all of those and even on consumer side and retail side of house call plastics business was up in first quarter as we mentioned. We think that all of those trends indicate the strengthening North American economy.  We feel pretty good about some of the underlying strength of the economy.”

Core Labs 1Q15 Earnings Call Notes

Crude oil markets are well underway for balance by year end

” Core believes that the worldwide crude oil supply and demand markets are well underway for year end 2015 balance. On the crude oil supply side, U.S. production is beginning to rollover as we speak. No one needs to look at Bakken production for January and February of this year. It has already fallen by 50,000 barrels a day year-over-year or about 4%.

With respective decline curve rates of 70%, 40% and 20% for the first three years of production in the Bakken, significant year-over-year declines will manifest themselves as 2015 progresses and into a sharp decline in 2016. ”

Core expects a v shaped recovery

“Core sees a V shaped recovery led by higher commodity prices and then shortly there followed by increased worldwide drilling activities in the start in early 2016.”

Production could fall significantly in 2016

“We now believe the U.S. supply growth will roll over in May or June of 2015 and that year-over-year crude oil production will be flat to down. Therefore, the current activity levels in the field, U.S. production could fall significantly in 2016. While worldwide oil production continues to stagnate or decrease slightly because recent international production gains may not be sustainable over the long-term. We continue to project North American and international activity levels to decline in the second quarter.”

Refrac is not the easiest thing to do

“If we look at refracs, this is not the easiest technological — it’s not the easiest thing to do. First of all, you’ve got sliding sleeves in wellbore. Refracs are kind of out of balance. Moreover, if you look at just horizontal wells that have been perforated and stimulated using plug-and-perf, those are no longer candidates for additional plug-and-perf. And we have to go in with specialized technologies. It just so happens that Core Lab’s HTD-Blast perforating system delivery system is especially made exactly for that.”

Refrac is attractive at lower commodity prices

“Obviously the lower — the longer that we have lower commodity prices that becomes a bigger market. If we get a rebound in commodity prices as per our theory, the refrac market will be there but it will never realize the size it would, with let’s say, $50 WTI and $60 Brent.’

Everybody can get data from the Bakken

” in using Bakken data, because — and the reason we like to talk about the Bakken is because everybody can use that data available from northdakota.gov just hit Bakken production.”

Core’s operations have positioned company for increased activity in early 2016

“So in summary, Core’s operations have positioned the company for increased activity levels in early 2016, but we know significant challenges stills await in 2015. However, we have never been better operationally or technologically positioned to help our clients maintain and expand their production base.”

USG 1Q15 Earnings Call Notes

Planning for 1.1m housing starts this year

“On new residential, we continue to believe in 1.1 million housing starts for 2015, which represents about a 10% growth, and this is inclusive of any headwinds that we see in some of the oil and gas regions of the Southwest”

Commercial starts strong in 2015

“The continued improvement of the U.S. economy and labor market is supporting an increase in non-residential construction. Commercial starts are projected to increase 9% in 2015. Now, as a reminder, our products lag commercial starts by about 12 to 18 months and not all starts impact our business the same way.”

Volume growth driven by premium products

“he growth in volume in the quarter was really on the premium. You hit the nail on the head on our premium products, our high-end products. And we’re seeing much more specifications on the high-end with open-office spaces. Light reflectance is very important; the noise reduction is extremely important, because you don’t have a lot of closed office spaces now; and those are our high-NRC or noise-reduction-coefficient ceilings.”

Golden horseshoe of commercial construction

“I like to say there’s kind of the golden horseshoe of commercial construction starting with the Silicon Valley out west, working its way through California and the Southwest. And up probably into the D.C. area, where it tends to slow. So we’re seeing nice growth there.”

Office leading the way followed by education and then retail

“rom an opportunity in the commercial markets, the office construction is the strongest part of the commercial recovery. That is a double-digit growth, 10%, 11% opportunity improvement in office. Education is the next area, is followed by retail, so those are really the three top areas that are the subsets in the commercial recovery, which, again, it’s coming from a very low base, but we’re starting to see some nice green shoots in that segment.”

Core Labs 3Q14 Earnings Call Notes

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. Full transcripts can be found at Seeking Alpha

Effects of lower crude prices are in outlying areas

“The effects of lower crude prices can be seen in the outlying areas of unconventional plays as production growth rates continues to decelerate in the Bakken play.”

We believe crude markets will balance in 2015

“We believe crude oil markets will balance early in 2015 with crude oil prices strengthening to earlier 2014 levels. Longer term, the world will continue to be challenged to increase global crude supplies and the incremental barrel will continue to gain in value.’

Bakken incremental addition has fallen

“More impact we see are on the fringier unconventional plays with crude prices down there $80, and I think we see that manifest itself when we look at the deceleration of the amount of production growth, for instance, in the Bakken going from an average on a monthly basis of somewhere around – adding 27,000 barrels per month now all down to recently the last trend is down to around 17,000 per month.”

Less growth from US shale, natural decline curve and cuts from opec will balance the market

“With respect to the balance of the crude oil markets, we now see a deceleration of the growth of production from many of the maturing shale plays liquids rich in the U.S. Moreover, remember worldwide, we have a 2.5% net decline curve rate that we will apply and if history bears true, we will see some small cuts out of OPEC. That’s our philosophical thinking and the reasoning why we think those oil markets balance early in 2015.”

If WTI stays here next year, you probably have some rigs go down

“[if WTI is 80, 85 in that range] You probably have some rigs going down.”

Core Labs 2Q14 Earnings Call Notes

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. Full transcripts can be found at Seeking Alpha

International rig count has been disappointing

“clearly internationally, if you use international rig count as a measure of activity, I think everyone’s been pretty disappointed with that.”

Geopolitical tension leading to more unconventional exploration in more stable areas

“Well it’s interesting in Europe, we have actually seen an increase in our activity level and looking at unconventional plays, we’ve done some work here just in the quarter in Germany, revisited some work in Poland. So I think that the geopolitical climate may be precipitating a relook at some of these unconventional plays, especially those tied to natural gas. So early days for that, but we do have some indication that some of the operating companies are looking at that pretty hard again.”

Large supply of new rigs coming to market. Can they be absorbed?

“So keep an eye on how the — the TMS, the SCOOP, the Codell, how these other plays evolve. If they continue to evolve as they have well with some of the expectation of the some of the E&P companies that are in there, the answer is probably yes. But I think it is very contingent on what the size and the development and the success in these emerging plays would be.

Now in saying that, going to pad drilling, I think that some of the older iron is probably going to get pushed out, so does the new iron push out the old iron, if it’s 200 rigs, probably won’t push all of them out, but if you get a little acceleration, some of these developing plays, some of the old iron gets pushed out, yeah maybe those 200 rigs can go to work.”

Putting plans to expand in Kurdistan on hold with Iraq situation unstable

“we would like to address our efforts that we’ve talked about on prior calls regarding Kurdistan. If you recall prior calls, we’ve talked about putting in a mobile facility there and then finally upgrading that to a full fixed laboratory.

We’ve decided to put that on hold because of the political risk events that are occurring now and the equipment that we had acquired for that are being put in other locations that can drive revenue more currently…We’ve hoped that some day we are back in Kurdistan but there is no way to project when that might be.”

Core Labs 3Q13 Earnings Call Notes

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.

“we are becoming more optimistic for international growth trends”

“We anticipate that fourth quarter 2013 North American activity levels will remain similar to third quarter levels, while international activity should continue with moderate increases”

“Ryan if we just look at the number of wells completed year-over-year third quarter that was about 6% but the real critical factor here is the increased use of stages that are shorter and closer together and also longer laterals. If we look at the number of wells drilled year-over-year it’s actually down a little bit but the percentage of footage of wells drilled is up year-over-year by about 9%.”

“when we go from 20 stages to 26 stages in a well you can see there is certainly an uptick on revenue opportunities for us. So it’s tied directly to the number of stages year-over-year”

“deepwater remains probably our biggest driver”

“So for next year to tee it up deepwater and we look at the Golden Triangle, all we have to do is to look at the deepwater Gulf of Mexico where we are going to add perhaps a dozen or more deepwater assets there, that probably will lead the way in revenue gains for next year and also margin expansion, closely followed by North American unconventional activity spreading through the developments of some world class plays as we mentioned the Bazhenov in Russia, the Silurian Gothlandian of North Africa and several potential oil and natural gas plays in the Cooper and Canning basins of Australia.”

“our R&D costs are absorbed within the company. Our actual R&D that’s developed by our business units falls into those segments. They are responsible for the development of the technologies based on discussions with the clients and as they develop that new technology, the cost goes against their P&L. It’s not a corporate charge, so it’s not part of corporate G&A.”

“I think if you just look at the deepwater drilling schedule in the deepwater Gulf of Mexico that is going to suggest activity levels are going to be pretty robust there next year. We’re going from something like 33 deepwater assets to the end of next year getting up into the high 40s might touch 50.”

“looking at the Middle-East I think lot of clients there now do realize that their reservoirs are not exempt from the laws of physics and thermodynamics and that they won’t have a continuous oil flow into millennia. So they are looking at the reservoirs in determining that maintenance CapEx has to be put to work to read that, some enhanced oil recovery projects that we think will grow in size as they struggle to maintain their productive capacity.”

“Yeah if you look at some of our most technologically sophisticated clients they are employing the technology today and they are some of the I think very progressive companies that have done a very good job are not just looking at well costs but looking at total return on their investment. And these companies, these best practices certainly should be followed by all companies across the spectrum.

Whether they will or not I would say probably not, just from our experience but a majority of them no doubt will.

What inning we are in, we are very early in this baseball game. When we look at the way that we complete horizontal wells now, I think when we look back in five years we’ll see that, that whole methodology will change and actually we believe that it’s changing today with new technology being brought on like our Fracorator system and then being able to profile each individual stage and its production contributions to the well bore.

So I think as those technologies come on we will have more and more adopters that do employ that and that the science really does work.”

Core Labs 2Q13 Earnings Call Notes

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.”

Core Labs 1Q13 Earnings Call Notes

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.

“three key investment tenets that have lead to industry-leading returns…one, maximizing free cash flow through fiscal discipline….second financial tenet is to maximize return on invested capital…third financial tenet is to return excess capital to our shareholders.”

“we continue to anticipate 2013 North America activity levels to stabilize at first quarter 2013 levels, and international activity levels to increase approximately 7%, yielding a worldwide activity increase of approximately 5%.”

“when we looked at a lot of the unconventional plays, you’ve got now WTI that has slipped below $90. For us, that’s kind of a benchmark where we feel outside of the sweet spot in the Bakken, in the Eagle Ford, and then the Niobrara. It’s very difficult to reach a reasonable return on investment for our clients. And so, once we have WTI elevate above $90. Okay, maybe we’re little bit conservative. But with this dip down into the $80, even in West Texas, it does give us some pause that we still we’ll see a flattish stable level activity from Q1 hoping that we do get a rebound in WTI.”

“Yeah, well. I don’t know how long it’s going to stay there, but the $90 WTI, the level that is necessary for reasonable return is not our view, it’s our client’s view.”

“With respect to our business, 30% of all oil is produced offshore, slightly more than 40% of our revenue emanates from offshore. Slightly more than 7% of all oil is produced from deepwater, slightly more than 20% of our revenue now emanates from deepwater.”

“most people concentrate on the rocks. Remember there’s only so much we can do to the rocks. We can fracture the rocks and that’s about all we can do. On the fluid side, we’ve got a whole spectrum of cocktails and technologies that we can add to get out additional recovery.”

“This is a very large shale deposit over Western Siberia, where even Exelon has talked about teaming with Lukoil to drill some scientific holes down through the Bazhenov Shale…The other area we’re actually we’re starting to see some movement now is in North Africa. We’ve talked about the Silurian Gotlandian Shale that underlies the main basins in Algeria stretching over into Libya, the Ghadames basin, the Illizi basin…Vaca Muerta, a shale in the Neuquen Basin, in Argentina…It does appear to have the high potential…but we just think the geopolitical risks there are too high.”

[is the recent oil move going to change anything?] “Absolutely not. Absolutely not, we need, come on we need months below that before you get any change in behavior”