Replies to post #5800 on The Rising Influence of Rising Affluence

[DewDiligence]

CLB—Charlie, the curious thing about the 3Q12 CC is that analysts asked about increasing competition in the Reservoir Description segment (which CLB denied—see the transcript excerpt in the next post), but no one asked about competition in the Production Enhancement segment, which is what we were talking about in our prior thread on this board. Color me confused.

All told, I think CLB’s business is still in pretty good shape, as discussed in the prologue of #msg-80740915. Please chime in if you care to do so. Regards, Dew

[DewDiligence]

Excerpt from CLB’s 3Q12 CC re competition (or lack thereof):

http://seekingalpha.com/article/933091-core-laboratories-ceo-discusses-q3-2012-results-earnings-call-transcript

James West (Barclays): Dave, there’s been a lot of chatter as you know in the market about increased competition. I think you addressed some of that in your prepared comments about mud-logging, and that not really being what you guys are interested in doing. But [the] word out in Houston and other areas: you have some of your competitors showing off what they call core analysis facilities and talking about kind of large growth programs, now, you’re adding a lot of capacity as well to the business. So I guess my real question is are you seeing any kind of degradation in your overall market share or any real competition. Or is just the pie growing so rapidly that there’s room for everybody?

David Demshur (CEO): …some of the laboratories that you view in Houston, they’re addressing a different market. We are after a market that deals with reservoir-condition testing. So we look at measuring petrophysical data at reservoir conditions. Read that “temperature and pressure.”

There are lower tech markets that some of these individuals and companies are addressing. Those markets have very little interest to us. And so the market that we are addressing, we continue to see a gain in what we believe are the highest-margin projects worldwide.

We’re not going to do every core that is taken around the globe…. However, we are choosing projects that are the highest-margin and highest-return. Read that “the most difficult reservoirs to understand and characterize.” And we do that using reservoir-condition testing. So I think the margins over the last 11 quarters in Reservoir Description, and the margin expansion in the last four quarters, has been dramatic.

…Are other individuals and companies doing lower-tech, lower-margin projects? For sure, no question about that. But the market that we address, we have not seen any serious competition enter, nor do we think we will see any serious competition enter in the near future.

James West: And what’s the key…barrier to entry for those companies that do the low-tech work from doing the higher-tech work?

David Demshur: It would be our intellectual property and our 1,300 senior scientists worldwide.

All of this dialogue is about the Reservoir Description segment. Not a peep from anyone about increased competition in the Production Enhancement segment. What gives?