What Will Core Laboratories’ Drivers Be in 2016 and Beyond?

From fiscal 2Q15 to 2Q16, all of Core Laboratories’ (CLB) segments saw lower revenues. Its Reservoir Management segment suffered the highest revenue decline (59%), while the Reservoir Description segment was the most resilient (a 13% fall). The Reservoir Description segment accounted for 70% of CLB’s 2Q16 revenues.

By comparison, the 2Q16 revenues of CARBO Ceramics (CRR), CLB’s smaller market-cap peer, decreased by 72% over 2Q15. CRR’s market cap stands at $334 million, as compared to CLB’s $5.1 billion.

In operating income, CLB’s Reservoir Management segment saw a 88% decline in fiscal 2Q16 over 2Q15. CLB’s Reservoir Description segment witnessed a 38% operating income fall during the same period.

In 2Q16, CLB’s reported net income was $16.6 million, which is 52% lower than its $34.6 million in reported net income in 2Q15. Compared to 1Q16, Core Laboratories’ net income was resilient, increasing by 10%. CLB’s YoY (year-over-year) income declined mostly on account of the following:

• lower rig count
• lower exploration and drilling spending by upstream companies in North America, particularly in the US shales

This was partially mitigated by better performance in deepwater and international projects. Notably, Core Laboratories makes up 0.3% of the ProShares Ultra Oil & Gas (DIG).

Below are a few of CLB’s key drivers going forward:

• CLB focuses on offshore projects in the Gulf of Mexico. Internationally, it focuses on Suriname, Guyana, Angola and the East Coast of Canada offshore projects
• CLB expects steady sales in the Marcellus and the Haynesville shales—the two natural gas heavy resource shales in the US.
• CLB adapted and tested five patented X-SPAN Casing Patch systems to meet Russian GOST standards (Russian casing standards used in most oilfield regions) during 2Q16.
• CLB received an unconventional reservoir evaluation contract in the Middle East in 2Q16.

Next, we’ll discuss Core Laboratories’ indebtedness.