Q3 2024 Earnings Summary
- Core Laboratories is well-positioned to benefit from the expected increase in international offshore projects, which are lucrative for their Reservoir Description segment, providing high incremental margins due to the need for robust data sets to de-risk these projects. As these projects pick up speed over the next several years, Core expects to participate very well.
- Core Laboratories is gaining traction in Carbon Capture and Storage (CCS) projects, leveraging their expertise in CO<sub>2</sub> injection studies developed from Enhanced Oil Recovery experience. They have multiple contracts awarded during Q3, including a multicompany joint industry project and proprietary studies, providing a very nice pickup for the company.
- Core Laboratories' new Pulverizer technology for plug and abandonment (P&A) operations has significant potential, as every offshore field will require P&A at some point. The number of offshore wells requiring P&A in the next 3 to 5 years is big. With successful applications already completed, Core Lab is ready to engage with clients globally and bring this technology offering to a global client base, tapping into a large market over the next decades.
- Declining U.S. land completion activity and anticipated flat activity levels in 2025 could negatively impact Core Lab's Production Enhancement segment, which is sensitive to U.S. onshore markets. The company expects U.S. land activity to trend lower in the fourth quarter of 2024, with activity levels in 2025 similar to 2024.
- Increased competition and overcapacity in the U.S. perforating gun market is creating a "crowded dog park," leading to pressure on margins and market share for Core Lab. One of the company's competitors is attempting to exit the business, indicating challenges in this market.
- Constraints on rig availability may limit growth in international offshore projects, which are expected to be key drivers for Core Lab's Reservoir Description segment. This limitation could hinder the company's ability to capitalize on the anticipated offshore cycle and impact future revenue growth.
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International Growth Outlook
Q: How do you see '25 international activity spend and RD growth?
A: Lawrence Bruno expects Core Lab to perform as well or better than peers in international growth in 2025, particularly in Reservoir Description. He notes that big offshore international projects, where they see the next big cycle, may be limited by rig availability, but as that picks up, they'll follow along. These projects are very lucrative for Core Lab, with high incremental margins, as operators de-risk their reservoir models by building robust data sets. -
CCS Revenue Opportunities
Q: Are CCS contracts ongoing revenue or project-specific?
A: Lawrence Bruno explains that unlike hydrocarbon-producing fields where Core Lab stays engaged over the life of the field, CCS projects will not have as long of a life engagement. Their involvement is largely focused on establishing that introducing CO2 won't damage the rock, and once that's validated, it's likely the end of their involvement. However, they have proprietary studies and a multicompany joint industry project going on, which is a nice pickup for them. -
Pulverizer Technology Potential
Q: What's the long-term opportunity for pulverizer in P&A market?
A: Lawrence Bruno sees a big number of offshore wells requiring P&A in the next 3–5 years. They are in the very early stages with pulverizer technology, having had successful applications in different parts of the world. They feel ready to take this to a global client base, as every offshore field is a potential target. Doing P&A cost-effectively is going to be huge. They are also exploring variants applicable to less-complex onshore wells, though that's further down the road. -
Perforating Business Challenges
Q: What's going on with the U.S. perforating business?
A: Lawrence Bruno acknowledges that the perforating market is a crowded and very competitive landscape with a lot of capacity. Core Lab remains an industry-leading player globally and will continue to be in the market. Gwen Schreffler adds that they continue to see completion activity decrease; they saw it in Q2 and even further in Q3 and moving into Q4. They also expect the typical seasonal decline towards the end of the year, but activity levels moving into 2025 would be similar to those in 2024. -
Perforating Market Competition
Q: Is the market crowded due to key players or machine shops?
A: Lawrence Bruno thinks there are 8 to 10 different gun offerings in the market now. Their success is driven by clients wanting to use their energetics as part of their system, but they'll also sell components to those who want to use someone else's gun but prefer Core Lab's charge proficiencies.