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Problems in the oil patch generally result in new opportunities. The Gulf oil spill will, no doubt, have a short-term impact on off-shore drilling in the Gulf and elsewhere. However, long-term, there are no viable alternatives to continued off-shore drill. Another area worth investigating is oil and gas production from shale deposits.

One key factor in both oil and gas production is an accurate reservoir description. Core Laboratories, NV (NYSE:CLB), is probably the leading provider of reservoir description, production enhancement and reservoir management services.

According to Eric Nuttall, an energy analyst at Sprout Asset Management, new fracking technology makes recovering natural gas from shale economically feasible. Nuttall has stated "The Barnett Shale was really the first to take off commercially. That led then to the Marcellus Shale, Fayetteville Shale, and then most recently the Haynesville Shale, which is being touted as probably the most economic shale play."

The Company describes itself as follows:

"Core Laboratories is a leading provider of proprietary and patented reservoir description, production enhancement and reservoir management services for the global petroleum industry.

These services enable the Company's clients to optimize reservoir performance and maximize hydrocarbon recovery from their producing fields.

The Company has over 70 offices in more than 50 countries and is located in every major oil-producing province in the world. The Company provides its services to the world's major, national and independent oil companies."

Core Laboratories N.V. reported first quarter 2010 earnings per diluted share [EPS] of $1.38, an increase of 10% over the year-earlier total of $1.26. First quarter 2010 net income increased 10% to $32,205,000, while year-over-year first quarter revenue increased 5% to $188,337,000. These EPS, net income, and revenue figures were the highest first quarter totals ever reported by Core.
Free cash flow [FCF], defined as cash from operations minus capital expenditures, totaled an all-time quarterly record of $56,211,000, equal to $2.40 per diluted share. The Company purchased 703,902 shares for $86,467,000 during the first quarter of 2010, and quarter-ending, year-over-year cash balances increased $65,732,000 to $138,768,000.

Operating income, also a record for any first quarter, increased to $51,413,000, a 10% increase over the year-earlier total. Operating margins, defined as operating income divided by revenue, were 27%, an increase of 100 basis points over year-ago first quarter margins. Sequential first quarter 2010 incremental margins, defined as the change in operating income divided by the change in revenue, exceeded 50%.

Summary

The Company has announced a 2:1 stock split effective in July 2010. This should help the Company's liquidity and trading volume. Core Laboratories pays a dividend of $0.48 per share.

By most measures, the balance sheet is solid. CLB reports no long-term debt and Times Interest Earned of 12.1X. The payout ratio is a low 8.2%, providing plenty of room for growth from a healthy and expanding free cash flow.
We consider CLB a BUY.

Disclosure: Author is long CLB.

Source: Core Laboratories: An Oil Patch Stock We Consider a Buy