Shares of energy services provider Core Laboratories (NYSE:CLB) fell just over 12% in early trading on Tuesday. So far in 2020, the stock is off by around 50%, which is actually a vast improvement given that it was down in the 80% range at the worst of the bear market in March. The big-picture story here hasn't really changed that much.
Core Labs provides services that allow exploration and production (E&P) companies to increase their output. It's largely a data analysis business, which sets the company apart from other drilling services providers that have to invest heavily in equipment like multimillion-dollar drilling rigs. But that doesn't change the fact that Core Labs' customers are E&P companies that make investment decisions based on the price of oil and natural gas. When prices are high, more money goes into capital investments. When the energy sector is in a trough, like it is today, capital investments are curtailed, often materially.
In fact, it has been an epically bad year so far in 2020, with oil prices actually falling below zero at one point. That basically means that E&P companies had to pay customers to take oil off their hands. That was a brief moment in time, and energy prices have since recovered. But oil prices still remain low enough that it's hard for drillers to turn a profit. With oil prices falling materially today, and a very negative article about the future of ExxonMobil put out by Reuters, it's not surprising that investors took a dim view of Core Labs' stock this morning.
Core Labs is an important provider in the energy sector and is highly likely to survive the downturn, with an asset-light business model that is a key benefit. But the energy sector remains in the doldrums, and Core Labs' stock is likely to ebb and flow along with the good and (today) bad news in the sector. Investors should expect such ups and downs for a while.