Q2 2024 Earnings Summary
- Core Laboratories is poised to benefit from recent market consolidations in the U.S., as the acquiring companies tend to be heavy users of science and data-driven decisions, increasing demand for Core Lab's services.
- The increasing complexity of well completions, such as longer laterals and more complex geometries, requires more of Core Lab's diagnostics and energetic systems, which can drive demand for their products, even if overall drilling activity decreases.
- Positive outlook from international clients, with expectations to accelerate capital investment and operations expansion, suggests potential for increased revenue and profit for Core Lab.
- Ongoing softness in U.S. land activity due to low natural gas prices is negatively impacting drilling and completion activity, which could continue to pressure Core Lab's revenues in the U.S. over the next several quarters.
- Consolidation in the U.S. market is causing reorganization and realignment among clients, resulting in delays in activity levels recovering, potentially affecting Core Lab's business over the next 2 to 4 quarters.
- The flow of committed work from international clients is slower than anticipated, delaying revenue recognition and growth potential in international markets. Despite positive outlooks from clients, revenue from these projects is waiting to be "harvested," and the timing remains uncertain.
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U.S. Activity Outlook
Q: What needs to happen for positive U.S. activity in 2025?
A: Lawrence Bruno explained that firmer natural gas prices are essential to boost U.S. activity, as low prices have put pressure on drilling and completion. He also noted that market consolidations can temporarily slow operations but ultimately benefit Core Lab because larger companies are heavy users of science and make data-driven decisions. He expects consolidation effects to resolve over the next 2 to 4 quarters. -
Production Enhancement Division Impact
Q: How does efficiency affect your Production Enhancement division?
A: Bruno stated that Core Lab's revenue opportunities are tied to completion activity, not drilling. Longer laterals and more complex completions require more perforating systems and diagnostics, benefiting the company. As wells become more complicated, clients need to verify they achieved the desired stimulation, increasing demand for Core Lab's services. Chris Hill added that changes in shots per foot can impact product sales. -
International Growth Outlook
Q: Were international meetings reaffirming or made you feel better?
A: Bruno said the meetings were at least reaffirming and sometimes inspirational, prompting consideration for accelerated capital investment and operational expansion. Clients showed an "up and to the right" attitude about future work. Though the flow of committed work isn't yet matching expectations, he's optimistic about revenue and profit growth as opportunities materialize. -
Emulsion Treatment Opportunities
Q: Is the emulsion treatment plant an opportunity in U.S. markets?
A: Bruno explained that emulsions occur wherever water is produced with oil, and Core Lab addresses emulsion problems wherever they exist, including the U.S. land market. The scale of the current project has significant implications for treatment plans, and solving emulsion issues can have a high impact on clients' bottom lines.