Energy Prospectus

Core Laboratories (ticker: CLB), a Houston-based oilservice provider focused on reservoir optimization, production enhancement and reservoir description, made waves in the industry in Q1’15 by declaring a “V-shaped” recovery was in the works. CLB management pushed that assessment back into 2016, but still holds on to the belief that a rapid rebound is building.

The gist of the belief: U.S. production has rolled over, the supply/demand imbalance is tightening, the Middle East is already producing at maximum amounts and decline curves from shale will ultimately spur a rapid investment to meet demand.

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Global oil market will tighten no matter what OPEC does:

In the midst of the downturn, oil’s affordability has boosted its appeal to consumers. The International Energy Agency believes worldwide demand will increase by as much as 3,000,000 BOPD in 2015 and 2016 in response to the lower prices. North America oil production is projected to drop 1,600,000 BOPD of production in the same time frame. Taking into account the global decline rates, Core Labs believes more than 2,600,000 BOPD additional oil must be produced in 2016 to maintain current volumes (i.e. offset natural decline). “That’s just not going to happen, said David Demshur, Chairman and Chief Executive Officer of Core Lab, in a recent conference call.

Halliburton backed Core’s activity recovery assessment, explaining that customer budgets will reload in the first quarter and contribute to activity ramping up in the second half of 2016. Current budgets are nearly drained (CLB and SLB both used the term “exhausted”) and borrowing base redeterminations are still being issued, leaving E&Ps at the end of their drilling rope for 2015. HAL management said 2016 may look like a mirror image of 2015 as the buildup in capital will lead to revitalized drilling operations.

“We’re not going to try to call the exact shape of recovery, but we do believe that the longer it takes, the sharper it will be,” said Lesar. “And when that recovery comes, we expect North America will offer the greatest upside.”