(Source: PRNewswire-FirstCall)
AMSTERDAM, July 22 /PRNewswire-FirstCall/ -- Core Laboratories N.V. reported second quarter 2009 revenue of $167,262,000, down 15% from year-earlier totals, and net income of $29,807,000, down 8% from 2008 second quarter totals. Earnings per diluted share ("EPS") for the second quarter of 2009 were $1.29, including gains from currency exchange translations and a settlement of a contingent liability that were partially offset by a quarterly effective tax rate of 37.4%, which was higher than the expected rate of 32%. Excluding the gains and the effects of a higher than expected quarterly effective tax rate, second quarter EPS was $1.24, compared with EPS of $1.32 for the year-earlier quarter. Operating income, excluding gains, for the second quarter of 2009 was $46,291,000, down 16% from year-earlier totals; operating margins (defined as operating income, excluding the effects of currency exchange translations and tax settlement, divided by revenue) were 28%. Year-earlier second quarter operating margins were also 28%.
For the second quarter of 2009, Core's Reservoir Description operations, which focus on international crude-oil-related projects, posted modestly lower year-over-year quarterly revenue totals that, due to expense reductions, generated increased year-over-year quarterly operating income and operating margins. Reservoir Management operations, also internationally focused, reported essentially the same quarterly revenue and increased operating income compared with the second quarter of 2008. As expected, the Company's Production Enhancement segment, with operations concentrated in North America, posted sharply lower year-over-year quarterly revenue and operating income totals. The Company estimates that year-over-year North American oil industry activity decreased by over 50%, while international oil company activity was down approximately 10%.
For the first six months of 2009, Core's revenue was $346,138,000, down 8% from the year-earlier six-month period, while net income equaled $58,999,000, a decrease of 0.2% from the $59,114,000 posted for the first two quarters of 2008. First-half 2009 EPS totaled $2.54, compared with $2.44 for the first half of 2008. First-half 2008 net income and EPS totals were affected by one-time gains and charges and foreign currency translations, while the 2009 totals were affected by foreign currency translations, a gain on settlement of a contingent liability, and a higher than expected effective tax rate.
Cash at the close of the first six months of 2009 totaled a record high of $103,246,000, or approximately $4.45 per diluted share. Year-to-date free cash flow, defined as cash from operations minus capital expenditures, reached $80,900,000, or $3.49 per diluted share, also a record high for the first six-month period. The Company recently announced that it planned to pay shareholders a special third quarter dividend of $0.75 per share in addition to a regular quarterly dividend of $0.10 per share.
Segment Highlights
Core Laboratories reports results under three operating segments: Reservoir Description, Production Enhancement, and Reservoir Management.
Reservoir Description
Reservoir Description operations reported quarterly revenue of $103,479,000, down 9% from last year's second quarter total, but up 1% sequentially from the first quarter of 2009. Operating income reached $31,462,000, an increase of 8% over year-earlier totals, while quarterly operating margins, excluding foreign exchange translations, increased 400 basis points to 29%.
Reservoir Description margins continued to benefit from expense reductions and a de-emphasis of its Russian operations and downsizing of its Venezuelan and Nigerian operations over the past three years. The Company has focused on internationally based development and production-related crude-oil projects almost to the exclusion of more cyclical exploration-related activities. The Reservoir Description segment also does not participate directly in lower-margin, integrated management projects.
Most recently, Core was awarded, but refused to accept, a new $7,000,000 contract with Petroleos de Venezuela S.A. (PDVSA) because of ongoing currency convertibility issues facing the industry. The Company plans to further reduce its presence in Venezuela and shift focus to its other South American operations until these issues are resolved.
During the quarter, Reservoir Description initiated several large-scale core analyses and reservoir fluids phase-behavior studies in the Middle East. The Company has received and is processing hundreds of feet of carbonate cores, hundreds of crude-oil samples, and multiple pressurized reservoir fluid samples from fields in southern Iraq. The results will be utilized to determine the productive capacity of these fields for upcoming Iraqi licensing rounds. Crude-oil testing, inspections, and distillation services also remained in high demand during the quarter. In addition, the Company continued to be active in deepwater field development offshore eastern Canada, the Gulf of Mexico, on both south Atlantic coastal margins, and in the Asia-Pacific region.
Production Enhancement
Production Enhancement operations posted second quarter 2009 revenue of $52,014,000, down 27% from the year-earlier quarter and down 18% sequentially from the first quarter of 2009. Operating income for the quarter was $14,419,000, down from $23,169,000 in the year-earlier period. Operating margins, excluding currency exchange gains, were 26% for the quarter.
Given that North American drilling activity was estimated to be down over 50% from the second quarter of 2008, Production Enhancement outperformed its focus market. Increasing market penetration by the Company's HERO(TM), SuperHERO(TM), and SuperHERO Plus+(TM) lines of perforating charges and concentrated focus on the Haynesville, Marcellus, and Eagle Ford Shale developments were the primary contributors to the segment's relatively superior performance. Core's recently introduced SpectraChem Plus+(TM) service also continues to gain market acceptance.
Outside North America, Production Enhancement operations are providing perforating charges and gun systems to the Iraqi Southern Oil Company for use in the recompletion of oil-producing and potential oil-producing zones in the Rumalia oilfield complex. Core's unique line of perforating charges and gun systems has proven to be very effective in the various types of carbonate reservoirs that are prevalent throughout the Middle East.
During the second quarter, Production Enhancement purchased over $7,000,000 of high-grade, high-quality specialty steel tubulars used in making perforating gun systems. Core's management was concerned that limited production of high-quality specialty tubulars over the next twelve months could lead to industry shortages. Although this strategic purchase temporarily decreased quarterly free cash flow by increasing inventory levels, Core wanted to ensure that its clients would continue to receive the highest quality perforating gun systems available from the service industry.
Reservoir Management
Reservoir Management operations posted flat second quarter 2009 revenue and increased operating income compared with 2008 second quarter totals. Revenue was $11,769,000, and operating income increased 18% to $3,484,000. Operating margins, excluding currency gains, were 26%.
During the quarter, the Company initiated a joint industry project evaluating the petrophysical, geochemical, and production characteristics of the Eagle Ford Shale in south Texas. This study currently has eight participating companies, including Petrohawk, St. Mary Land & Exploration, ConocoPhillips, El Paso Corporation, and Murphy Oil. This project will be very similar to ongoing studies of the Haynesville and Marcellus gas shale formations, which have 36 and 27 companies participating, respectively. Core's large North American Gas Shale Study presently has 65 companies participating.
Core will concentrate its personnel, assets, and technology on the Eagle Ford Shale play just as it has on the Barnett, Fayetteville, Haynesville, Marcellus, and Muskwa plays. Core believes these shale plays will yield above-trend opportunities in North America for all three of its business segments for the next several years.
