Last year was a bounce-back one for oilfield technology and data specialist Core Laboratories (NYSE: CLB). While it wasn't quite the V-shaped recovery the company expected, its results steadily improved each quarter. However, as good as 2017 might have been, the company expects this year to be even better and anticipates that its financial recovery will accelerate in the second half.
Two trends drive that view, which CEO David Demshur outlined on the company's recent fourth-quarter conference call. Here's why he's so bullish on the company's prospects.
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From growing production to increasing value
Demshur led off his comments on the company's outlook by saying:
Shale driller Devon Energy (NYSE: DVN) is one of many to highlight this strategy shift. Here's what Devon CEO Dave Hager said on the third-quarter conference call:
As Hager notes, the company's focus will be on optimizing returns as opposed to maximizing output.
That plays right into the hands of Core Labs, with Demshur noting that "Core will benefit from this shift in focus from a pure production growth to employing higher technology solutions" that the company provides. He continued:
In other words, as customers focus on earning higher returns, it will drive them to spend more capital on the higher-margin specialized services Core provides, which will boost the profitability of both Core and its customers.
Wading back out into the deep
In addition to having onshore customers spend more on higher-margin technologies that drive returns, Demshur noted:
As Demshur points out, after a long drought, oil companies have started increasing their spending on offshore drilling activities. That trend should continue, since oil prices have improved and companies like Chevron and Shell have announced monster discoveries in recent months, which could entice rivals to boost spending in search of the next big one.
Meanwhile, recent discoveries will drive companies to continue investing to see what they've uncovered. Shell, for example, noted that it intends on evaluating its Whale prospect, which it co-owns with Chevron, by drilling appraisal wells that will help them understand the full extent of the discovery. Tests like those open opportunities for Core Labs to use its data and technology-based approach to understand these reservoirs and put together a plan to optimize development. As more oil companies increase their offshore investments in the coming year, additional opportunities should flow Core's way, which would boost its financial results.
Ready for the reacceleration
Core currently expects the steady improvement in its financial results to continue for the next couple of quarters before reaccelerating in the second half of the year as new offshore projects ramp up. That upcoming improvement in its financial results has the potential to drive its stock higher, which is why investors might want to consider scooping up some shares this month before they take flight.
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