Last year was a bounce-back one for oilfield technology and data specialist Core Laboratories (NYSE:CLB). While it wasn't quite the V-shaped recovery the company expected, its results steadily improved each quarter. However, as good as 2017 might have been, the company expects this year to be even better and anticipates that its financial recovery will accelerate in the second half.

Two trends drive that view, which CEO David Demshur outlined on the company's recent fourth-quarter conference call. Here's why he's so bullish on the company's prospects.

An oil pump with a beautiful sunset in the background.

Image source: Getty Images.

From growing production to increasing value

Demshur led off his comments on the company's outlook by saying:

Core has witnessed and is encouraged by the increasing focus of its major clients regarding capital management, return on invested capital, free cash flow, and return of capital back to their shareholders, as opposed to just growing production and destroying capital at any cost.

Shale driller Devon Energy (NYSE:DVN) is one of many to highlight this strategy shift. Here's what Devon CEO Dave Hager said on the third-quarter conference call:

Our refinement in capital allocation will result in more measured and consistent investment through all cycles, positioning us to more efficiently expand our business over time while optimizing returns. This balanced operating model is in contrast to the industry's historical behavior of aggressively chasing top-line growth at the ultimate expense of shareholders. This is not a populist philosophy that we are paying lip service to. We are absolutely committed to doing business differently in the E&P space, and we are taking the appropriate steps to become an industry leader with our disciplined approach to capital allocation. In short, we can lead, and we will lead.   

As Hager notes, the company's focus will be on optimizing returns as opposed to maximizing output.

That plays right into the hands of Core Labs, with Demshur noting that "Core will benefit from this shift in focus from a pure production growth to employing higher technology solutions" that the company provides. He continued:

The uptick in demand for these technologies is considered in the company's continued long-term increases in already industry-leading operating margins and expanding incremental margins. Clients will pay for these technologies that boost their return on invested capital and free cash flow as opposed to commoditized service, such as wireline, seismic, and pressure pumping.

In other words, as customers focus on earning higher returns, it will drive them to spend more capital on the higher-margin specialized services Core provides, which will boost the profitability of both Core and its customers. 

Oil platform and tanker ship on offshore area at sunset.

Image source: Getty Images.

Wading back out into the deep

In addition to having onshore customers spend more on higher-margin technologies that drive returns, Demshur noted:

One other trend that is beneficial to Core is the successful return to deepwater exploration and exploitation of reserves. With the recently announced Chevron (NYSE:CVX) Total Ballymore discovery in Mississippi Canyon, which cut 670 feet of net pay. And Shell's (NYSE:RDS.A)(NYSE:RDS.B) potentially giant discovery in Alaminos Canyon, cutting over 1,600 feet of net pay. This prospect was appropriately named the Whale prospect. Core will benefit from increased activity in the offshore and deepwater activities throughout and into 2018 and 2019.

As Demshur points out, after a long drought, oil companies have started increasing their spending on offshore drilling activities. That trend should continue, since oil prices have improved and companies like Chevron and Shell have announced monster discoveries in recent months, which could entice rivals to boost spending in search of the next big one. 

Meanwhile, recent discoveries will drive companies to continue investing to see what they've uncovered. Shell, for example, noted that it intends on evaluating its Whale prospect, which it co-owns with Chevron, by drilling appraisal wells that will help them understand the full extent of the discovery. Tests like those open opportunities for Core Labs to use its data and technology-based approach to understand these reservoirs and put together a plan to optimize development. As more oil companies increase their offshore investments in the coming year, additional opportunities should flow Core's way, which would boost its financial results.

Ready for the reacceleration

Core currently expects the steady improvement in its financial results to continue for the next couple of quarters before reaccelerating in the second half of the year as new offshore projects ramp up. That upcoming improvement in its financial results has the potential to drive its stock higher, which is why investors might want to consider scooping up some shares this month before they take flight.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.