Q2 2012 OPS MARGINS AT 31%, Y-O-Y INCREMENTAL MARGINS AT 65%;
2012 YTD FCF EQUALS $86 MILLION.
AMSTERDAM (18 July 2012) - Core Laboratories N.V. (NYSE: "CLB US" and NYSE Euronext: "CLB NA")
reported second quarter 2012 net income of $55,350,000 and earnings per diluted share ("EPS") of $1.16,
an increase of 29% over year-ago second quarter totals, excluding the benefit from a lower effective tax
rate, losses from foreign currency translations, and non-operational expense items, including NYSE Euronext
listing-related fees; all "items" netting to a charge of $0.05 per share. US GAAP EPS was $1.11 for the
quarter. Second quarter 2012 revenue increased 9% over prior year levels to $247,006,000 as North
American rig counts were down slightly from year-end 2011 and international rig counts were up only 4%
over year-ago totals. Second quarter 2012 operating income reached $76,024,000, ex-items, yielding
operating margins of 31%, both all-time quarterly highs for Core. Year-over-year quarterly incremental
margins, defined as the change in operating income divided by the change in revenue, ex-items, were 65%.
Free cash flow ("FCF"), defined as cash from operations in excess of capital expenditures, reached
$39,508,000 for the quarter, and the Company's diluted share count was decreased to 47,791,000 shares.
During the quarter, the Company returned almost $50,561,000 to its shareholders, equaling $1.06 per diluted
share, by repurchasing 299,104 shares for approximately $37,271,000 and paying dividends of
approximately $13,290,000.
The record second quarter resulted from the Company's continued focus on worldwide crude-oil related and
large LNG projects, especially those involved with the development of deepwater fields offshore West and
East Africa, the eastern Mediterranean, Brazil, and the Gulf of Mexico, underpinned by operational
excellence. The number of projects related to the development of unconventional oil production from shale
reservoirs in the United States remains at high levels.
Comparing the first six months of 2012 to the first half of 2011, Core's revenue increased 11% to $481,197,000;
net income was up 23% to $106,867,000; and EPS was up 26% to $2.23. First half 2012 operating margins
were 30%, up 390 basis points, over the year-earlier period, while FCF reached $86,000,000.
As reported the previous eleven quarters, the Board of Supervisory Directors (the “Board”) of Core
Laboratories N.V. has established an internal performance metric of achieving a return on invested capital
(“ROIC”) in the top decile of the service companies listed as Core's peers by Bloomberg Financial. Based
on Bloomberg's calculations for the latest comparable data available, Core's ROIC was the highest in its
oilfield services Comp Group. Moreover, the Company had the highest ROIC to Weighted Average Cost of
Capital (“WACC”) ratio and the lowest WACC in the Comp Group.
Segment Highlights
Core Laboratories reports results under three operating segments: Reservoir Description, Production
Enhancement, and Reservoir Management.
Reservoir Description
In the second quarter of 2012, Reservoir Description operations, which are mainly focused on deepwater
international and Gulf of Mexico crude-oil projects, posted record quarterly revenue of $126,462,000, up
6% compared with year-ago levels even though total international rig counts were only up 4% year-overyear.
Operating profit reached a quarterly record of $38,904,000, up 28%, ex-items, over the second quarter
of 2011. Operating margins, ex-items, were a record 31%, up 500 basis points over year-earlier levels.
Reservoir Description's second quarter record revenue and record operating margins of 31% resulted, in
part, from increasing client demand to measure reservoir rock and reservoir fluid properties at reservoircondition
temperatures and pressures, which are laboratory-based analyses that generate high margins.
Moreover, the Company continued to avoid low-technology, low-margin, and low-ROIC projects by not
offering outdated, ambient-condition core analysis testing at the well site. Compared with reservoir-condition
core analysis, Core Laboratories has found that core analysis data sets generated at the well site are of
much lower quality, and Core does not believe lower quality data provide value to oil companies.
Reservoir Description operations continued to work on large core analysis and crude-oil testing programs,
in addition to reservoir fluids phase-behavior studies from deepwater offshore West and East Africa, the
Eastern Mediterranean region, the Middle East, and Asia-Pacific areas. Thousands of feet of cores from
Cretaceous and Tertiary-aged sedimentary fan reservoirs from both coasts of Africa are being analyzed to
describe these complex petroleum systems. Hundreds of reservoir fluid samples consisting of crude oils,
condensates, natural gases, and waters are being characterized for composition and phase-behavior
relationships. The data sets will be used to plan the full-scale developments of these recent discoveries.
Large Middle Eastern projects include the use of advanced rock properties and reservoir fluid
characterizations to increase the productive capacity of existing fields, some of which have already been
in production for decades. Asia-Pacific work continues offshore Malaysia, India, Indonesia, and Australia.
In deepwater Gulf of Mexico, Core worked on its largest project ever in the lower Tertiary section while
providing integrated reservoir conditions reservoir rock and fluids data sets. Core also expanded the number
of clients and number of projects from the deepwater to an all-time high. The Company expects industry
activity levels to equal or surpass pre-moratorium levels during the third quarter of 2012.
From onshore in North America, thousands of feet of core from unconventional shale reservoirs are being
characterized for their potential to produce oil and natural gas liquids. Sequences from the Permian basin,
Bakken and Eagle Ford plays are undergoing extensive rock properties and advance rock properties testing
to determine production and stimulation programs to maximize daily production and ultimate hydrocarbon
recovery rates. Bakken cores are being tested for susceptibility and potential effectiveness of the use of
light hydrocarbon gases and water flooding to enhance ultimate recovery rates.
Production Enhancement
Production Enhancement operations reported second quarter 2012 revenue of $99,547,000 and operating
income of $30,148,000, up 12% and 23% respectively, over year-earlier quarterly totals, ex-items. Operating
margins, ex-items, were up 300 basis points to 30%.
Production Enhancement continues to benefit from increasing market penetration and evolution of its
patented and proprietary technologies and services. Core's HTD-BlastTM technology, which originally
delivered up to eight perforating guns to the toe portion of an extended reach horizontal well, has been
significantly improved and the Company is now offering HTD-BlastTM XL. The HTD-BlastTM XL ( for eXtended
Length) system has delivered up to 27 perforating guns in vertical well bores that penetrate sedimentary
sequences that contain 20+ unconventional reservoirs, similar to sequences present in the Permian Basin.
In addition, the gun firing sequence can be changed to ensure a more effective perforating event. The HTDBlastTM
XL system decreases an operator's cost while increasing the potential of the well bore to produce
at higher daily rates and improving ultimate hydrocarbon recoveries from the reservoir. With further
technological development, HTD-BlastTM XL will be deployable on coiled tubing in extended reach horizontal
wells.
The Company's patented and proprietary diagnostics technology was used to determine the effectiveness
of a large and complex stacked frac pack in Tertiary-aged reservoirs in the deepwater Gulf of Mexico.
Diagnostics data sets were used by the operator to ensure that maximum production rates could be achieved
for extended periods of time without interruption and well shut-in time.
Reservoir Management
Reservoir Management operations reported second quarter 2012 revenue of $20,997,000, up 15% from
year-earlier totals and operating profit, ex-items, of $7,142,000 yielding operating margins of 34%.
Core's Eagle Ford Shale Study now has 39 industry participants as the Company continues to analyze
thousands of feet of core from primarily the oil-prone areas in southwestern Texas. The industry also
continues to have strong interest in unconventional oil reservoirs in the Permian basin as the Company has
received dozens of cores, including two cores from the Wolfcamp section, each measuring over 1,000 feet,
from which results will be included in the Company's Midland Basin Study. The Midland Basin Study has
28 industry participants.
The importance of Core's Granite Wash Regional Study was cited by an industry expert in a featured article
in the July issue of the AAPG Explorer magazine. Study results helped the operator understand the
complexities of the multiple-stacked reservoirs prevalent in the Granite Wash sequence unlocking the
potential of trillions of cubic feet of natural gas and natural gas equivalents.
Internationally, Reservoir Management, in its continuing co-operation with Petrobras, now has six studies
detailing the petroleum geology and reservoir potential of onshore and offshore Brazil. Core's newest study,
Equatorial Basins of Western South America, contains cores and cutting samples from the multiple
sedimentary basins in shallow and deepwater areas.
In addition, Core's Deepwater Campos Basin, Santos Basin, Cretaceous Carbonates of the Southeastern
Margin and Pre-Salt Phase II Brazil studies now have over 30 industry participants. The combination of
these studies contain the most comprehensive data sets of Cretaceous-aged carbonate sequences which
make up the reservoir complex of offshore, deepwater pre-salt giant and super-giant field developments.
Petrobras remains Core's largest and most important national oil company client.
Free Cash Flow, Share Repurchases, Dividends, Capital Returned To Shareholders
During the second quarter of 2012, Core Laboratories generated $47,105,000 of cash from operating
activities and had capital expenditures of $7,597,000, yielding $39,508,000 in FCF. For the quarter, Core
returned almost $50,561,000, or $1.06 per diluted share, to its shareholders in the forms of share repurchases
and dividends. The FCF was used to pay approximately $13,290,000 in cash dividends, and to repurchase
299,104 shares at a cost of $37,271,000 while the average price paid per share since the inception of the
repurchase program is approximately $25.00. Year-over-year, Core decreased its average diluted quarterly
share count by approximately 2%, from 48,662,000 to 47,791,000.
On 16 April 2012, the Company's Board announced a quarterly cash dividend of $0.28 per share that was
paid in the second quarter of 2012. This amount represented a 12% increase over the quarterly dividends
of $0.25 per share that were paid in 2011, and if paid each quarter of 2012, would equal a payout of $1.12
per share of common stock. The quarterly $0.28 per share cash dividend was paid on 25 May 2012 to
shareholders of record on 27 April 2012. Dutch withholding tax was deducted from the dividend at the rate
of 15%.
On 10 July 2012, the Board announced a cash dividend of $0.28 per share of common stock payable in the
third quarter of 2012. The quarterly $0.28 per share cash dividend will be paid on 20 August 2012 to
shareholders of record on 20 July 2012. Dutch withholding tax will be deducted from the dividend at a rate
of 15%.
Return On Invested Capital
As reported in the previous eleven quarters, the Company's Board has established an internal performance
metric of achieving an ROIC in the top decile of the oilfield service companies listed as Core's peers by
Bloomberg Financial. The Company and its Board believe that ROIC is a leading performance metric used
by shareholders to determine the relative investment value of publicly traded companies. Further, the
Company and its Board believe shareholders will benefit if Core consistently performs in the highest ROIC
decile among its Bloomberg peers. According to the latest financial information from Bloomberg, Core
Laboratories' ROIC was the highest of any of the oilfield service companies listed in its Comp Group. Several
of the peer companies failed to post ROIC that exceeded their WACC, thereby eroding capital and
shareholder value. Core's ratio of ROIC to WACC is the highest, and its WACC is the lowest, of any company in the Comp Group.
Comp Group companies listed by Bloomberg include Halliburton, Schlumberger, Carbo Ceramics, FMC
Technologies, Baker Hughes, Cameron International, Oceaneering, National Oilwell Varco, and Oil States
International, among others. Core will update the ROIC for the oilfield services sector for the second quarter 2012 in its third quarter 2012 earnings release.