Oil and gas don’t occur in giant underground caverns or lakes; instead, hydrocarbons are locked in the pores of rocks. The quality of the reservoir rock largely determines how a particular field should be produced and its ultimate output. Two of the most basic measures of reservoir quality are porosity and permeability.

Porosity is the amount of pore space found in a particular rock; the more pores, the more hydrocarbons that rock can contain. Permeability is a measure of how easily fluids and gases can flow through a rock. In other words, for oil or gas to flow through a reservoir and into a well, the pores of the rock must be connected.

Major US unconventional fields such as Louisiana’s Haynesville Shale and North Dakota’s Bakken Shale contain plenty of hydrocarbons, but the dense and impermeable reservoir rock inhibits the flow of oil and natural gas into the well.

Hydraulic fracturing (fracking) addresses this problem by increasing a field’s permeability. This technique involves pumping a liquid into the formation at such high pressures that the reservoir rock fissures, creating pathways through which the hydrocarbons can flow.  

To assess a play’s porosity and permeability, Core Labs analyzes samples from reservoir rock, scrutinizing both the characteristics of the rock itself and the oil, water and natural gas contained in the field. The company is a market leader in this particular business.

The primary goal of reservoir description is to increase the recovery factor. Original oil in place (OOIP) refers to the amount of oil that’ physically present in a given field; the recovery factor is the percentage of OOIP that’s economically recoverable. Although the average recovery factor is about 35 to 40 percent, this measure varies widely from field to field. And slight variations in the recovery factor can make a big difference in overall output and economics. Measures that increase a recovery factor by 1 or 2 percent can translate into millions of barrels of additional crude oil over time.

The data Core Labs collects and analyzes not only helps to estimate a field’s OOIP but is integral to designing a production program that maximizes recovery factors while minimizing damage. This information and analysis is invaluable in plays that require water flooding or hydraulic fracturing.

Water flooding is a simple concept–pumping water into a mature oil field increases underground pressure and sweeps oil through the reservoir and into producing wells–but designing an optimal water flooding program is extraordinarily complex. This isn’t factory work. Producers must have a clear understanding of how fluids and gases move through a particular field. Core Labs also assists in designing enhanced oil recovery programs that involve carbon dioxide and nitrogen flooding or natural gas reinjection.

Hydraulic fracturing of individual wells occurs in multiple stages, each of which involves the fracking of a specific section of well. As the shale oil and gas revolution has progressed, producers have found that increasing the number of fracking stages often yields the best results. Core Labs’ data and expert analysis are used to determine the best approach for fracturing a particular well.

Roughly 70 percent of Core Labs’ profit and revenue comes from international markets, which explains the company’s bias toward oil-centric projects. In fact, during a conference call to discuss third-quarter results, management noted that it will continue to expand internationally rather than add to its capacity to support US unconventional drilling.

The stock took a hit after the company reported third-quarter earnings that beat analysts’ expectations. Revenue that fell slightly short of Wall Street estimates and management’s conservative comments about the sustainability of US drilling activity appear to be the culprits behind the stock’s decline.

But Core Lab’s shares have turned in a strong performance this year, returning about 50 percent through Dec. 1; the post-earnings dip likely stems from traders taking profits off the table, not long-term concerns about the company’s business and fundamentals. The dip offers a great opportunity to buy the stock.