Summary:
We are downgrading Core Laboratories to Underperform from Neutral due to the weak crude pricing environment The price of crude has tumbled more than 50% since last June as a result of ample supply and lackluster global demand. In addition, oil prices are expected to remain low in 2015 too. Hence, we don't expect the company to earn considerable cash flows in the coming months. Core Laboratories has also lowered its fourth-quarter 2014 earnings per share (EPS) guidance to between $1.53 and $1.56. As a result, we see the company as a risky bet that investors should exit.
Overview:
Amsterdam, Netherlands-based Core Laboratories N.V. (CLB) is an oilfield service company that provides reservoir management and production enhancement services to the oil and gas industry on a global basis. The company operates in over 50 countries and divides its operations in three principal business lines: Reservoir Description, Product Enhancement, and Reservoir Management.
Reservoir Description: The Reservoir Description segment is responsible for analyzing core samples of reservoir rocks in order to determine the quantity and quality of hydrocarbons present. This helps determine the rates at which oil and gas can be produced from the reservoir. During 2013, the Reservoir Description segment generated approximately 49.0% of the company's revenues and 44.0% of its operating income.
Product Enhancement: The Product Enhancement segment is engaged in helping operators increase oilfield recovery. Most of the company's clients in this business are located in the Middle East, North Africa, and the Asia Pacific regions. A vast majority of Core Laboratories' Product Enhancement products are patented. This segment contributed 42.0% of revenues and 47.0% of operating income in 2013.
Reservoir Management: The Reservoir Management segment serves to integrate both reservoir description and product enhancement practices in the most productive way possible. The company manages several large scale reservoir production projects using its technical proprietary analysis to ensure that every economical barrel of oil and thousand cubic feet (Mcf) of gas is recovered. In 2013, the Reservoir Management segment accounted for 9.0% of the company's revenues and 9.0% of its operating income.
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