CLB 2018 Annual Report

27 repurchase our common shares on the open market through our share repurchase program, (ii) pay a dividend and (iii) if available, in the market at acceptable valuations, acquire complementary technologies. Our ability to continue these initiatives depends on, among other things, market conditions and our ability to generate free cash flow. Our ability to maintain and increase our operating income and cash flows is largely dependent upon continued investing activities. We are a Netherlands holding company and substantially all of our operations are conducted through subsidiaries. Consequently, our cash flow depends upon the ability of our subsidiaries to pay cash dividends or otherwise distribute or advance funds to us. We believe our future cash flows from operating activities, supplemented by our borrowing capacity under existing facilities and our ability to issue additional equity should be sufficient to meet our contractual obligations, capital expenditures, working capital needs, dividend payments, debt requirements and to finance future acquisitions. Outlook As part of our long-term growth strategy, we continue our efforts to expand our market presence by opening or expanding facilities in strategic areas and realizing synergies within our business lines subject to client demand and market conditions. We believe our market presence provides us a unique opportunity to service clients who have global operations whether they are international oil companies, national oil companies, or independent oil companies. We are encouraged by the increased focus of our major clients regarding capital management, return on invested capital (“ROIC”), free cash flow, and returning capital back to their shareholders, as opposed to a focus on production growth at any cost. The companies adopting value versus volume metrics tend to be the more technologically sophisticated operators and form the foundation of Core Lab’s worldwide client base. We expect to benefit from our clients’ shift in focus from strictly production growth to employing higher technological solutions in their efforts to maximize economic production growth and estimated ultimate recovery ("EUR"). During the fourth quarter 2018, the worldwide crude-oil market added supply, likely in anticipation of the proposed Iran sanctions. Consequently, during November and December the per-barrel price of crude oil fell by more than 40% from the year’s peak in October 2018. However, global crude-oil inventories exited 2018 at approximately 38 days of consumption, consistent with a multi-year trend of declining global crude-oil inventories related to demand. The International Energy Agency's ("IEA") most recent estimated worldwide demand projections remain strong with 1,400,000 additional barrels of oil per day needed in 2019. After five years of muted investment in international, offshore and deepwater projects, oil companies announced more than 30 FIDs in 2018, an increase of more than 20% from 2017. The renewed investment at a global level is critical in order to meet future supply needs. Recognition of the need for investment is evidenced by the FIDs announced over the last two years and Wood McKenzie's estimation of another 30 upstream projects for 2019. However, Core Lab anticipates a slowing in further project announcements until confidence in the balance of global crude-oil markets is restored. We believe there will be a positive correction to the temporary oversupply of crude oil by the end of the first quarter 2019, which should encourage additional FID projects to be announced in 2019. We continue to focus on large-scale core analyses and reservoir fluid characterization studies in the Eagle Ford, the Permian Basin, offshore Alaska and the Gulf of Mexico, along with Guyana, Malaysia and other international locations such as offshore South America, and the Middle East. We also focus on complex completions in unconventional tight-oil reservoirs, technological solutions and services for increasing daily productions and EURs. As customary, Core Lab expects typical sequential seasonal industry patterns will cause the first quarter of 2019 to be down, and international field development spending will be funded largely from operating budgets. International recovery on a more broad-based scope is expected to improve as 2019 unfolds. Reservoir Description continues to discuss international projects with clients, which are in alignment with FIDs previously announced. The revenue opportunity for Reservoir Description occurs once the well has been drilled and core and fluid samples are taken and analyzed. Activity levels and revenue opportunities from these FIDs and the emerging international recovery are expected to have a positive impact on financial performance in 2019. The average first quarter 2019 U.S. rig count is projected to be flat to modestly down sequentially, with U.S. completion activity to remain at similar levels exiting 2018, until transitory logistical bottlenecks are addressed (e.g. supply chain logistics and take-away restrictions are resolved in the Permian Basin of West Texas). These logistical bottlenecks are anticipated to be resolved in the second half of 2019. In addition, an emerging trend to larger pad drilling sites, increasing from six to eight wells up to 24 wells, will create an increase in drilled but uncompleted wells over the next several quarters. Combined, these issues could impact the rate of revenue growth opportunity for any company that is reliant on completions as a catalyst for growth.