AMSTERDAM (23 April 2014) - Core Laboratories N.V. (NYSE: "CLB US" and NYSE Euronext: "CLB NA") posted its most profitable first quarter in Company history. The record first quarter levels of earnings per diluted share (“EPS”), net income, and revenue were driven by year-over-year improvements for all three of the Company’s operating segments. Reservoir Description and Production Enhancement operations reported record first quarter revenue, operating income, and operating margins, while Reservoir Management operations posted its most profitable quarter in Company history. As was the case for all other oilfield service companies with operations in Northern America and Europe, these results were weakened by severe weather-related disruptions. Specifically, Core believes first quarter 2014 EPS was reduced approximately 5%, or $0.07 per diluted share, because of transitory weather disruptions, slower than expected international activities, and delays of certain deepwater development projects.
After removing the effect of the weather disruptions and project delays, and excluding foreign exchange ("ex-fx") referenced in the non-GAAP reconciliations, Core’s first quarter 2014 EPS increased 19% from year-earlier totals to $1.45. First quarter net income increased 10%, ex-fx, to $62,280,000, and operating income, ex-fx, increased 7% to $84,427,000. Year-over-year first quarter 2014 revenue increased 1% to $262,903,000, lower than expected due to the transitory weather impact and delays of certain deepwater development projects. However, because of increased demand for Core’s reservoir-optimizing technologies, along with productivity gains in the Company’s global operational network, first quarter 2014 operating margins expanded 180 basis points to an all-time quarterly record of 32%, ex-fx, even though revenue growth was lower than expected. Year-over-year quarterly incremental margins, calculated by dividing the change in quarterly operating income by the change in quarterly revenue, exceeded 100 percent.
First quarter 2014 free cash flow ("FCF"), defined as cash from operations less capital expenditures, was $57,956,000, as Core converted over 22% of its revenue into free cash. During the quarter, Core returned over $69,300,000 to its shareholders via dividends of approximately $22,500,000 and share repurchases totaling approximately $46,800,000. Core repurchased 254,340 shares during the first quarter of 2014, lowering the Company’s outstanding diluted share count to 45,132,000, a new 16-year low. The Company's Shareholder Capital Return Program has returned approximately $1.73 billion, equaling over $38 per diluted share, to its shareholders via quarterly dividends, special dividends, and diluted share count reductions over the past 11-plus years, during which time the Company's market capitalization increased from approximately $300 million to over $9 billion.
The Company's improved year-over-year results are a testament to Core's long-held growth strategy of adding new high-margin technologies and services. In addition, rather than relying on exploration budgets that are increasingly volatile and that are trending downward as oil companies exercise greater capital discipline, the Company continues to outperform industry peers because of its multi-decade-long focus on existing fields and fields under development.
As reported in previous quarters, the Board of Supervisory Directors ("Board") of Core Laboratories N.V. 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 ("Comp Group"). 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 in its Comp Group.
Segment Highlights
Core Laboratories reports results under three operating segments: Reservoir Description, Production Enhancement, and Reservoir Management. All operating results exclude foreign currency translations from the first quarter of 2014 as referenced in the non-GAAP reconciliations.
Reservoir Description
Reservoir Description operations, which focus primarily on offshore, complex crude-oil projects and, to a lesser extent, North American tight-oil developments, posted first quarter revenues of $125,256,000, up slightly from year-ago levels. Revenue levels were less than expected as several deepwater projects continued to be delayed because of projected cost overruns precipitating redesign of production facilities. However, as redesigns emerge and deepwater rig day rates and spread costs continue to decline, Core expects more deepwater projects to be initiated over the next several quarters. For example, Total’s recent announcement that it will develop the ultra-deepwater Block 32 Kaombo complex off Angola is a positive indication. In addition, weather disruptions in most North American tight-oil plays and North Sea projects pushed plans to core and collect reservoir fluids samples into later quarters. Nevertheless, Reservoir Description posted an all-time first quarter high for operating income at $35,381,000, up 2% from year-ago levels, while first quarter 2014 operating margins increased 40 basis points from last year to over 28%, establishing an all-time high for any first quarter in Company history.
The record operating margins were underpinned by ultra-high-pressure reservoir fluid phase behavior studies related to enhanced oil recovery (“EOR”) projects in the deepwater Gulf of Mexico (“GOM”). Data sets generated from analytical programs for formations with pressures up to 21,500 pounds per square inch were used to determine minimum miscibility pressures, physical properties of reservoir fluids after contact with injection gases, and thermodynamic parameters for reservoir stimulation models. The combinations of injection gases and in-situ reservoir fluids were tested using Core’s proprietary Pressurized Fluid ImagingTM system to ensure production deposition and formation damage do not occur. These high-pressure EOR data sets and associated flow-assurance studies are utilized by deepwater operators to increase daily production rates while maximizing estimated ultimate recovery (“EUR”) rates.
Also for deepwater and ultra-deepwater applications, Core has developed mobile offshore reservoir fluids laboratories. These unique labs employ accelerated fluid sampling procedures that ensure high-quality, mission-critical data sets within hours, instead of days, thereby saving expensive rig and spread costs. These data enable deepwater operators to make decisions regarding the commercial viability of developments early in the appraisal process.
Core is also providing valuable EOR services in several of the tight-oil plays in North America. Secondary and tertiary recovery projects are being conducted to increase EUR rates and maximize the economics of shale plays outside the “sweet spots” in various basins and shale plays, including the Eagle Ford and Wolfcamp.
Core is studying the effects of using a low-salinity water in floods to increase EUR rates in an oilfield that had employed other EOR techniques in the past. The Company also is determining the effectiveness of straight CO2 injections versus alternating water and gaseous (“WAG”) injections, and WAG processes are showing excellent results in one field.
Several large-scale Middle East projects are ongoing to improve the production of natural gas from unconventional reservoirs. Core has been requested to expand its analytical capabilities in the Middle East to meet increased demand from numerous clients who are evaluating multiple, unconventional natural gas plays. Over 1,000 core samples from various potential unconventional reservoirs are being analyzed for geochemical and mineralogical properties and studied with thin-section microphotography to determine specific reservoir characteristics.
Reservoir Description operations in Asia Pacific received 3,600 feet of core in its Jakarta facility during the first quarter, and 1,200 feet of additional core are scheduled for the second quarter of 2014. The cores are from two giant field developments that involve several appraisal wells, as well as a number of step-out wells being used to increase proven calculated reserves in both fields.
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