Core Laboratories Inc (CLB) 2003 Q4 法說會逐字稿

Good morning. My name is Jody and I will be your conference facilitator today. At this time, I would like to welcome everyone to the 2003 fourth-quarter and full-year earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Mr. Demshur, you may begin your conference.

Thanks, Jody. I'd like to welcome all of our shareholders, analysts and employees around the world to Core Laboratories' fourth-quarter and full-year 2003 earnings conference call.

As usual, I'm joined by Dick Bergmark, Core's Executive Vice President and CFO, for the call. We will break the call into five sessions. Number one, Dick will make remarks regarded forward-looking statements. We will come back and give a consolidated view of the Company's operations. Dick will give a detailed financial review of the Company. Then we will come back and do a detailed review of our three operating segments, detailing our progress and actions that we are taking. Then we will wrap the call by taking questions and answers.

I'll turn it over to Dick for some comments on forward-looking statements.

Before we start conference this morning, I'll mention that some of the statements we will make during this call may include projections, estimates and other forward-looking information. This would include any discussion of the Company's business outlook. These types of forward-looking statements are subject to a number of risks and uncertainties relating to the oil and gas industry, business conditions, international markets, international political climate and other factors, including those discussed in our 34 ACT (ph) filings that may affect our outcome. These factors and other factors mentioned on this call could cause actual results to differ materially, and we undertake no obligation to update or revise any forward-looking statement made in this discussion.

With that said, I will pass the discussion back to Dave.

For the fourth quarter of 2003, Core had a very good quarter. We posted 24 cents, the third-highest quarterly earnings for a quarter in Company history. We had record quarterly revenues of over 106 million, and operations grew in spite of significantly reduced year-over-year revenues in Reservoir Management.

The results were due to record revenues in both Reservoir Description and Production Enhancement, where we continue to see a number of positive operating trends in the two segments.

With respect to Reservoir Description, operations saw continuing strength in mostly crude oil-related and international projects. These range from offshore West Africa, to the Middle East, throughout Asia-Pacific. The segment also benefited from increased demand for laboratory-measured reservoir (indiscernible) petrophysical data and reservoir fluid-phase behavior datasets that are used to accurately calculate probable, proven and recoverable reserves that have been in the news lately. These datasets generate more accurate determinations of probable, proven and recoverable reserves than near estimates from (indiscernible).

In Production Enhancement, we had a very strong quarter resulting from increased activities in North America, the introduction of new services and the further market penetration of our proprietary technologies, like our high-efficiency reservoir optimization perforating charges and gun (ph) systems. Also, we had record levels of jobs with respect to our Spectratech and SpectraFlood technologies.

Revenues were up 31 percent year-over-year and operating margins reached 14 percent, their highest since second quarter of 2001.

Reservoir Management operations continue to disappoint, although we continue to make progress on our focus on integrated, engineering-related projects and nonexclusive multidisciplinary reservoir studies. We have taken and will take definitive action in the first quarter to ensure that Reservoir Management does not remain a drag on earnings in 2004, as it has been in prior years. We will detail some of those actions we will take in the more detailed breakdown of our operations.

I will now turn it back over to Dick for a detailed review of our financial results.

Thanks, David. If we look at the financial statements at the back of the press release, I will walk you through the main categories. On revenues, they were 106.8 million for the fourth quarter versus 105.6 million last quarter and 101.6 million last year. For the year, revenues were 405.6 million, up compared to last year's 364.7, representing an increase of 11.2 percent. This increase includes the fact that we were shrinking revenues in our Reservoir Management segment, almost 4 million lower in that segment when compared year-over-year.

If we look at services for the quarter, they are 85.4 million, up from 84.3 last quarter. Sales were 21.4 million, about the same as the previous quarter. Cost of sales for the fourth quarter were 83.3 percent versus 80.8 last quarter. For the year, cost of sales were 85 percent versus 97 percent in prior years. For cost of services for the quarter, they were 76 percent versus 80 percent in the third quarter. For the full year, cost of services were 80 percent, same as in the prior year.

If we look at G&A for the quarter, it's 6.7 million, up from 5.6 in the last quarter. For the year, G&A was 22.8 million compared to almost 20.2 million in 2002. Cost were up versus 2002 as we continued to expand our global Oracle-based information network throughout our major centers and incurred costs relating to our Sarbanes-Oxley initiative. We spent heavily on the 404 documentation process to place ourselves ahead of the curve going into 2004. We expect G&A to run at similar levels of around 23 million in 2004.

Depreciation and amortization for the quarter -- 5.5 million, down from 5.6 million last quarter due in most part to the additions of assets from acquisitions of Go-X in Q3. For the year, depreciation was 21.8 million compared to 20.1 million in 2002. For next year, 2004, depreciation expense is expected to be approximately 22 million.

Other expense this quarter in the amount of 231,000, which came primarily from various foreign exchange losses. For the year, we had very little recorded in this category as compared last year, when we recorded 2.4 million primarily relating to 2.7 million in FX losses.

EBIT was 11.8 million for the quarter, providing margins of 11 percent, which is greater than the 10.2 posted on average by the OSX members in the fourth quarter. In the prior quarter, EBIT was 10.2 million, margins of 9.6 percent. So sequentially, EBIT was up 16 percent. For the full year, EBIT was 33.3 million, up 60 percent over the prior year's 20.8 million. Margins were 8.2 percent for the year, up from the prior year's 5.7, reflecting a 44 percent improvement in margins.

Interest expense was 2.2 million for the quarter, up slightly from the prior quarter. For the full year, it was 7.7 million, in line with the prior year's interest expense of 7.6 million.

Income tax expense was 2.6 million for the quarter and 6.9 million for the full year, compared to 5.5 million in the prior year. We expect the current rate of 27 percent to be used during 2004, just as it was in 2003.

Net income for the quarter was 7 million, compared last quarter's gain of 5.9 million. For the full year, net income was 18.7 million, up over 145 percent when compared to the prior year's net income of 7.6 million before the cumulative effect of the change in accounting principle.

Earnings per share for the quarter was 24 cents per share, in line with our earlier unchanged guidance of 21 to 25 cents per share. For the year, we earned 60 cents per share, which is almost three times greater than the 23 cents earned in 2002 before the cumulative effect of the change in accounting principle.

Now, if we go over to the balance sheet, I'd like to point out a few items of note. Cash was 16.7 million, up slightly from last quarter and up from 14.9 million at the prior year end. Receivables stood at 107.9 million, up from 104.6 million at the prior quarter end and 100.6 million at last year end. The increase in the AR is due to our increasing sales, as our DSOs ended the year generally in line with the prior year end DSOs. For the full year, DSOs stand at 91 days.

Inventory was 31.4 million, down from last quarter's balance of 33.9 million and the prior year-end balance of 34.5 million. If you recall from the prior year, we instituted internal initiatives to better utilize our inventory and as a result of those initiatives, we have continued to reduce the balance, along with increasing how quickly our inventory turns. This is in light of the increasing sales that we have been experiencing. We expect to see continued improvement in working capital in this area throughout 2004 as well.

Other current assets are virtually unchanged from last quarter but as we did discuss on last quarter's call, there are almost $15 million lower compared to the prior year-end, due to a reclassification of our deferred tax asset from current to long-term, as the NOL carry-forwards will be realized in periods later than 12 months. We then netted this long-term asset against our long-term tax liabilities, and that is why you see the other long-term liabilities drop by the corresponding amount.

Our intangible assets, including goodwill and other long-term assets -- virtually the same as last quarter but up 9.6 million compared to the prior year-end, due to additions from -- for the most part -- our acquisition last summer of the Go-X (ph) assets.

Now, if we go to the other side of the balance sheets, our Accounts Payables and other accounts make up -- total current liabilities were up slightly over the prior quarter and prior year-end, reflecting higher business activity levels. The major areas that increased were Notes Payable, which went up 2 million, NBAT (ph) and other local taxes, which went up 4 million.

Long-term debt was 124.7 million, down from the prior quarter's level of 125.6 million but up 36.7 million compared to year-end. Outstandings under our revolving credit facilities were 49 million, down a million from the last quarter. (indiscernible) debt had actually come down this past quarter, while we have continued our share repurchase program. More on that program in a minute.

The balance sheet continues to be strong, as our long-term debt-to-cap remains at 34 percent, the same as in the prior quarter, which is also in line with the industry average of the mid-thirties. Our net debt-to-cap is 30.4 percent.

Other long-term liabilities are generally the same as last quarter but are down from last year end for the reason discussed just earlier regarding other current assets.

Shareholders' equity ended the year at 220.4 million, down from the prior quarter balance of 224.3 million and the last year-end balance of 258.1 million. The reduction in the balance was due to additions from earnings and reductions due to our stock buyback program.

Our return on equity for the quarter, using EBIT, was 21.7 percent -- significantly higher than the 13 percent posted on average by the members of the OSX Group.

Capital expenditures for the year were 23.5 million, slightly higher than our targets set at the beginning of the year. We did spend more than initially planned, based on our Information System needs. We expect CapEx in 2004 to be about $15 million, as we do not see a need to build any major new facilities as we had done in 2003 in Godley, Texas or as we had done in 2002 for a new facility in Moscow.

If we look at cash flow, cash provided by operations for the year was 61.3 million, a 45 percent improvement over last year's 42.2 million. Furthermore, after paying for our 23.5 million CapEx program, our free cash flow was just over 37.8 million, or about $1.20 per diluted share. We generated 70 percent more free cash flow in 2003 than last year's 22 million.

How did we used the free cash flow in 2003? Primarily for three kinds of acquisitions -- first, for the acquisitions of items in our 23.5 million CapEx program; second, the 10.7 million acquisition of the Go-X (ph) assets; and third, the acquisition of $58 million in Core Lab stock through our stock repurchase program.

We have been active in our stock buyback program. During the year, we've purchased an additional 4.7 million shares at a cost of about $58 million. Through yesterday, we have purchased a further 333,000 shares in the first quarter at a cost of 5.7 million. From inception of the program, we have purchased, in the aggregate, about 5.9 million shares at a cost of approximately $73 million. Our current shares outstanding now stand at 27.6 million shares. This has been a very successful program, as it has contributed to our shares increasing in value almost 100 percent since inception of the program, significantly higher than the OSX, which runs 38 percent, or the S&P 500, which runs 37 percent.

If we had not initiated this share repurchase program, we would find ourselves today with our revolver paid down to 0 and we would have about 40 million in cash on the balance sheet. Our net debt-to-cap would be something on the order of 8.5 percent. Although the debt rating agencies probably would prefer that we run cash up and net debt down to almost 0, we think that there is a reasonable balance between having a strong balance sheet -- which we do now with net debt-to-cap of 30.4 percent -- while producing industry-leading returns on equity, as well as a very positive return on investment for our shareholders.

Now, we would like to go over to our internal financial targets. (inaudible). Based upon discussions with our clients, our view of industry spending in 2004 is brighter than what we experienced in 2003. Activity levels in North America are at reasonable levels, if one uses rig count as a proxy for the health of a cycle. Further, the international markets continue to improve at a slower rate than that of North American activity. Remembering, of course, that the international market did not drop off as precipitously as did North America in 2002. We believe that the majority of the improvements within our operations will come from increases in the North America markets with benefit continuing to come from other international markets as well.

So, what does this mean for our internal financial targets? We do expect improved earnings in 2004, perhaps in line with the grouping of analysts that are currently in the 85 to 92 cent EPS range. This represents a 42 to 53 percent improvement over what was just reported for 2003. With this view in mind, we believe that our annual revenues could be in the area of 440 to 450 million, for an increase of about 10 percent over 2003 revenues, which is almost 200 to 300 basis -- (technical difficulty) -- higher than the 7 percent spending increases for our clients' CapEx programs, as projected in some of the recently-announced spending surveys. Naturally, any reduction in our service offerings in Reservoir Management may ultimately affect our revenue estimate.

Now, what about the near-term? Our first-quarter revenue target is in the 100 to $105 million range. EPS -- around 14 to 16 cents, reflecting the typical business seasonality where the first quarter is the lowest quarter of the year with activity ramping up as the year progresses. This doesn't include the expected 500,000 FX loss relating to the recent 20 percent devaluation of the Venezuelan bolivar. This represents, in essence, upward guidance of a penny for the first quarter. Certainly not included in the number would be any actions that we may take to bring the proper structure to the Reservoir Management group. So the EPS target does not include any redundancy, shutdown, restructure cost or other similar expense that may occur in that unit. We are unable to quantify what the costs, if any, may be, as the final action plan has not been fully developed at this time.

Now, I'd like to turn it back to Dave, where he can give us more details by operation.

Thanks, Dick. What I'd like to do now is run down some details from our three operating units, starting with Reservoir Description. As Dick had mentioned, they had a good, solid quarter. Their highest quarterly revenues ever. Margins remained at 13 percent.

Some of the projects of note, many of which have been in the news as of late, certainly in the Middle East. When we look at Iraq, we believe our participation in Iraq and the reconstruction of the fields will still be somewhat later this year. We thought originally Q3/Q4; we now look at that as a Q4 event. We are still seeing a lot of the surface infrastructure being reconstructed. When intervention in the reservoir starts to take place, that is when we think we will be called into action to help with the determination of the damage that's been done to a number of the fields and what some of the remedies will be for that formation damage to increase production back to reasonable levels in Iraq.

Also in the news as of late have been some of the water cut stories revolving around some of the fields in Saudi Arabia. I think, over the last several quarters, we've talked about Middle Eastern reservoirs in general starting to make more and more water. Over the last several years, we saw this as a serious concern. Now, you've got some of the national operating companies addressing those concerns, which is good news for Core Laboratories.

We have been very active in the Middle East in looking at some of these problems, trying to obey (ph) some of the water flow from some of the zones, in some cases which have watered out. This is in comparison to some of the fields in the former Soviet Union that have extremely high water cuts, although I'd like to point out that there are significant differences in the way that the fields were managed in the former Soviet Union through production and those in Saudi Arabia. Those in Saudi Arabia were managed much more efficiently and effectively, and ultimate recovery rates there will still be a lot higher than some of the aging fields in the former Soviet Union.

Turning to Asia-Pacific, we continue to be very active there. These are crude oil project relating to some of these flagging production rates and some of the large producers in Asia-Pacific, including Indonesia and also China. Some of the reservoir characterization projects there are also tied to development of natural gas fields that will ultimately be used for LNG export.

Turning to west Africa, another area that's been very good to us in the year 2003, we continue to do a lot of work on the complex deepwater reservoirs that yield high flow rates. A lot of the work from the deep offshore projects continue. These are very difficult reservoirs to exploit; they are semi-consolidated, almost pebble reservoirs causing high flow rates but also problems with managing the amount of water that can be produced alongside of some of the formations. Some of the difficulties in the completions there need a lot of information from Core Lab regarding rock stability, formation stability, and that plays to our strength in the technologies in the area.

I had also mentioned in the preamble, in the Company overview, about the need for measured Core analysis and reservoir fluids data. In the news lately, there have been a number of revisions to reserve calculations from proven back into probable and the ultimate look at what the recoverable reserves are going to be from companies and fields. It's interesting to point out that in the 1970s, which was the Golden Age for Core analysis, almost all reserve calculations, probable, proven and recoverable, were done using hard data sets of measured Core analysis data, backed up by fluid-phase behavior data sets.

As we went into the '80s, more and more logs were being used and more and more estimates were being used to calculate and categorize these reserves. We are seeing a return now to using measured hard rock data and fluid data for these estimates, which we believe ultimately will lead to an increased demand for our data sets and provide better reserve classification and estimates for our clients.

Turning to Production Enhancement, this is the highest quarterly revenue total ever; it's 31 percent year-over-year increase with 14 percent EBIT margins. This is a technology success story, as we see the increases in the amount of revenue tied to, of course, increases in drilling in North America for natural gas, but also the continued successful introduction of our HERO line of perforating charges and gun systems. This is the best perforating charge and gun system that has ever been available from a company, and it's the result of a technology update initiative that was started about 2.5 years ago when we changed management within Owen (ph) Oilfields.

When we look at the high-efficiency reservoir optimizing charges, we see that they create a superior deep perforation tunnel while minimizing formation damage. There are a lot of perforating charges out that knock a big hole in the reservoir through the casing but also damage the reservoir. With these taking reservoir damage into account, we are seeing that they are very popular in shallow and middle depth natural gas reservoirs in North America. Of course, we will be exporting this technology worldwide. They've proven to be very, very effective in Canada and also the U.S. and now gaining popularity in Mexico.

When we look at SpectraScan technology used to optimize fracture stimulation projects, the number of jobs we ran in Q4 ran at record levels, and that continues into quarter one. It's also being coupled with some of our other technology, our Completion Profiler, that was effective in maximizing gas flow and minimizing water production from several wells in a recent perforation project and in a natural gas field.

Also of note were SpectraChem; this was technology used to optimize well bore cleanup after a fract study. It tells us how much gel is delivered back -- is broken from the formation and delivered back to the well bore and we can quantitatively measure that at the surface; it's been a success. Also, our SpectraFlood technology, which is used to optimize to sweep efficiencies in field floods (sic). We've had a number of projects, especially in Mexico, that the technology has worked very well and has helped our clients, who ultimately recover millions of more barrels of oil from fields that they thought they understood the suite (ph) pattern on, but using the SpectraFlood technology will change the injection pattern in the field. That will produce more oil on a daily basis and over the life of the field.

Turning to Reservoir Management, well, the stars did not come quite in a line as we had mentioned that we hoped they would in our third-quarter conference call. If you look that third-quarter conference call, we drew a line in the sand, saying that Reservoir Management had to exit the year on a positive note -- and that did not happen. So, we've already taken action to reduce our employee costs there by over $2 million annually and will take other actions to make sure that Reservoir Management is not a continued drag on earnings in '04, as it was in '03 and in '02.

On the bright side, our Integrated Reservoir Studies Group has done a wonderful job. They've built a 20-plus project backlog. Of course, these projects are the ones that are focusing on integrated engineering-related projects. They've posted over 10.5 million in revenues from this grass-roots effort that yield an EBIT of over $1.6 million. So, we're talking about EBIT margins in these projects of 16 percent. That focus will remain and will be expanded in 2004.

Now, getting back to some of the actions that we plan for our Reservoir Management Group, as I had mentioned, we had already produced employee costs there on an annualized basis of over 2 million and probably will look at other actions that are going to be necessary, which include reducing the scope and, in some instances, no longer offering the specialized geophysical and seismic-related services. Some of these include down-hole seismic services, some of our proprietary special processing technologies, such as vellet (ph), Cube it (ph), Sand it (ph) (indiscernible) lift, IC2 and other related special processing technologies. Or, we will transfer this work to where we have more-efficient offices.

Also, we are currently evaluating selling these businesses associated with these specialized seismic-related technologies to an outside third party. I'd like to repeat that we will not permit Reservoir Management to continue to be a drag on earnings in 2004 as it has been in previous years.

What I'd like to do now is open the conference for questions, so Jody, if you can line up the questions, we'd appreciate it.

(OPERATOR INSTRUCTIONS). Ashish Gupta from Banc of America Securities.

Good morning, guys. I just wanted to go through each segment. First, Reservoir Description -- why did margins decrease sequentially?

That just had to do with project makes there, Ashish. If you look at our third quarter historically, that is our strongest quarter in Reservoir Description. I would just say that it was just a project mix that we had.

Okay. You talked about just the increase in Core analysis services (indiscernible). What percentage of that division is comprised by doing Core type analysis when you're taking or when you are categorizing proved or unproved reserves?

Probably, right now, that's running somewhere on the order of probably 20 percent. That's tied to Core analysis and rock property measurements.

Okay, great. Production Enhancement -- you guys had a great quarter; incremental margins were over 200 percent. How sustainable are these margin improvements from the increase in the technology penetration you guys that are talking about?

What we're trying to do in a lot of this technology is push them out internationally through our network so that we can continue to grow internationally. So, we think that's going to help. Certainly, we've talked about the integration of some of our facilities in that unit, you know, where we've completed the construction of our facility in Godley. The effort there was to improve productivity, which certainly drives incremental margins. So we think there's a basis for this continuing for that.

Sure. I guess, historically, what I'm trying to get to is incremental margins have been around 30, 35 percent for Production Enhancement. Could we see maybe higher incrementals because of the improvements and the initiatives you guys are taking, or is that a pretty good run-rate, going forward?

I think there's perhaps a small bit we could increase and certainly, that's our reason for that investment, so there's some logic to that.

Finally, in Reservoir Management, with all the different restructuring efforts that you guys are looking into, is there any change in the outlook that you guys had given previously? I know you guys had talked about getting to possibly the low to mid teens sometime in '04 for Reservoir Management. Is that still feasible with all the different kind of actions you guys are looking into?

The services that would remain, depending on the actions that we take -- those already have margins at that level or better. They were just being masked by the losses in this particular group, so actually, it gives us greater comfort.

Brad Seddock (ph) from Friedman Billings Ramsey.

Good morning. I wanted a little update on the Oracle status. What percent have you rolled out? Obviously, it's led to some benefits this year. What kind of efficiency gains do you see, going forward? How much do you have left to roll out and what kind of efficiency gains in '04?

Sure. We are on track with what we laid out a year ago. Our goal is to have about 84 percent of our revenues on Oracle by the end of the year. Based on the installations that we have gone, we are at 84 percent.

Now, what's interesting is, next year, we will be able to do -- for example, on Abu Dhabi, Indonesia, Malaysia, Nigeria, and our operations in Russia. That will bring us to the low 90 percent. Now, beyond that, Oracle's expense and complexity makes it, from a cost/benefit perspective, difficult for us to go much beyond that.

What's important, though, for us about next year -- next year being '04 -- (indiscernible) we believe we will have virtually all of our inventory on Oracle. So, one of the tangible benefits of having this enterprise-wide internationally-based system is we're going to be able to drive working capital improvements. That's why, when I mention inventory improvements, we've got the data and ability now to use that data.

It sounds good. Good discussion on margins. I had a follow-up on Reservoir Description. What actions can you take in '04 to boost margins above just fixed cost coverage? Are there catalysts for margin improvement?

If we look at that, our margin target for that is mid-teens and certainly, some of incremental margins that are usually associated with that -- I think we will see that return in '04. We are not real concerned about the margins there. Again, we have a target for margins there of mid-teens.

Thanks. I wanted to ask another question. You mentioned some of your business in Asia-Pacific. Obviously, you've had good experience with national oil companies in Mexico, it sounds like the Middle East. What is the nature of your relationship with some of the national companies in China, Indonesia, ect.? Is that business with majors or is it with the nationals?

You've got a blend. Certainly, in Pertamina, Petronas (ph) in the Chinese companies, plus all the Western companies that are in there. I would say that our business tends to be more with the integrated as opposed to the national oil companies. Of course, all of the national oil countries tend to be partners. Certainly, we're very, very active right now in Malaysia, doing a lot of work for the operators there. In some cases, a lot of field remediation and field (indiscernible) and the same thing in Indonesia. Mostly Western operators there as well tend to look at China -- it tends to be a little bit more with the national oil companies, although you have the Western operators there as well. So, I would say that the revenue stream certainly isn't biased towards the Western operating companies but there is a strong component of national companies there as well.

Do you see an opportunity to increase market penetration with those nationals, or is it just going to be sort of business as usual, going forward?

Usually, technology penetration is a little bit easier, we feel, with the large integrateds because they understand the applications of the technology more quickly, and so that's where we usually target, although we do spend a considerable time with the national oil companies as well.

Good quarter. Thanks.

Allen Brooks from CIBC World Markets.

Good morning, guys. If we look at the Reservoir Management, excuse me, the integrated studies did about 25 percent of the revenues in your last year.

That's correct.

If you -- (technical difficulty) -- all of the seismic-related businesses that you've been talking about creating your problems, are we looking at a business that's more in 10 to $20 million range?

That would be correct. If that business -- if the specialized geophysical and seismic-related businesses -- if that business is sold, you are looking at, then, a base in 2004 of between 10 and 20 million in revenues.

Okay, but obviously substantially higher margins?

Yes.

I mean, looking at the integrated, if you've got 16 percent there, that's pretty good.

The other quick question is on your guidance, Dick. I am assuming that you are using your current shares outstanding as your base in calculating your estimate of EPS?

That's correct. We're not making any estimates or forecasts in the share repurchase program.

What do you have left with respect to a number of shares? You said in your press release you're going to go back and ask for another authorization at the May Annual Meeting. What's left between now and May?

We've got about 2.1 million. You know, with the approval in May, assuming that it's given as it has been given every year -- it has been a new 10 percent, so there's no roll-over to the extent we didn't use that 2.1. Allen, I just want to make that clear.

That's fine. Okay, thanks.

(OPERATOR INSTRUCTIONS). Mary Saffry (ph) from Carl Forsheimer (ph) and Company.

Good morning. I have a couple of questions; one is about Canada. They have just changed the reserve-reporting requirements. I am wondering if you're getting a lot of inquiries from Canadian companies about reserve evaluations?

Yes. Actually, our Canadian operations have been very active and actually, Mary, it's interesting to note that, through history, probably the country of Canada has cut more Core per foot of wells drilled than any other country in the world. So, we've seen high levels of core being cut there, and we expect even higher here in 2004.

Okay. Also, I have a question about Russia. How much work are you doing there and what's your outlook? Is it up or down or moving from one thing or another or what?

I think we've got a two-barreled answered there. With respect to the levels of work there, I think we, over the last several quarters, maybe even dating back a year and a half, were proponents that they could not continue to increase their rate of production that they were doing over the last couple of years. Now, I do see that there are a lot of people that are in agreement for that. So, the low hanging fruit from some of the field remediation that has been done has already taken place. I think we're going to see a lot of new drilling start to take place, too, if they indeed want to continue to increase the level of production at the rates they had in the past. So in saying that, we like the climate that is there because, certainly, greater field remediation is good for our services.

I will now turn it over to Dick for an analytical look at the amount of work that we've done there.

Just on the numbers, if look at Russia -- and when we speak of Russia, certainly it's the (inaudible) issue; it's all the members -- (Multiple Speakers). If look historically at the growth that we've had there, I think you see some nice stair steps. If we go back a few years, it's about 15 million sales and 20, 25 and this year probably around 30. What's interesting is the impact that it has on earnings. When we look at 2003 versus 2002, its contribution has gone up by about 27 percent, so it's pretty good area for us. We are able to provide a lot of our services through that existing network and growing network. We have actions underway to bring even more of our technologies into that network.

You don't see disruptions or delays or anything from any kind of political uncertainties or --?

Right now, we don't see any. Our crystal ball says things are okay right now.

Brad Seddock from Friedman Billings Ramsey.

A quick follow-up on Reservoir Management -- you've given good detail on revenues from the different types of businesses. Is it fair to assume that cost and overhead, personnel for this division is split along the same lines?

Yes. On a headcount basis, I'd say that.

Okay, thanks.

Allen Brooks from the CIBC World Markets.

A quick follow-up -- can you give a little more color on what's going on in Venezuela, given the $0.5 million FX impact, and where you are on collections and relative business?

I can talk about some of the numbers there. Actually, things are improving. We've taken actions to minimize our assets that certainly attract FX losses. We did that brought 2003 as a reaction to what (indiscernible) because we were concerned, as most companies were concerned, devaluations (ph) were just around the corner, so we were pretty pleased were able to get it down as low as we had.

What has also happened on the upside is, finally, within Pedovesa (ph), they've been able to organize some priority on payments. That means, on higher-priority items, they are beginning to pay dollars. We have been the recipient of some of those. We've been able to get our Receivable balance down through their payment of dollars. So, that's a good sign, and we think that's going to continue and should improve.

Okay, good. Thanks.

Ashish Gupta from Banc of America Securities.

I will continue the trend of follow-up questions. At the risk of not running at your 10k, can you guys maybe give us a range or estimates for the regional breakdown of the '03 revenues?

We've got pie charts being developed that will be in the K. The K is going to be filed next week. Perhaps it would be good to wait for that and its comparisons of prior years to the current year. It will be, I think, very enlightening for you, so you can see where the growth has been in the Company.

Okay. Well, I guess, without giving estimates then, can you just maybe talk qualitatively about the regions that have seen the highest I guess sequential or year-over-year increase from '02 to '03?

There have not been major shifts. So, for example, Canada has been up a slight amount, and that makes sense. South America has been up a couple percent, and that makes sense because things are improving down there. But if you look on earnings, where the swings have been, certainly the trends show that Latin America is improving; South America throughout that region is improving, and year-over-year improvements -- Canada, has approved; Latin America has approved. We talked earlier about the FSU, Europe, Africa, all that area has approved when you look at year-over-year comparisons.

Just to confirm an earlier comment you made, Dick, about just the U.S. or about growth in 2004, you do expect growth in most regions but most of the growth should come from North America with growth expected internationally but just at a more moderated rate?

That's right.

There are no further questions at this time.

I think we're going to close the call.

In summary, Core posted a very strong quarter, Q4 closing out, which was a pretty good year in 2003. The continued strength in Reservoir Description and Production Enhancement certainly were the leaders, and we made a commitment to change and put in definitive actions that are underway to ensure that Reservoir Management does not remain a drag on earnings in 2004 as it has been in the prior year.

Our outlook on Q1 targets record revenues and solid earnings from our continuing operations, which should lead on to an excellent year.

Would like to thank all of our shareholders, the analysts and especially our hard-working employees around the world for spending part of their day with us. We would like to thank you and look forward to talking with you again next quarter. Goodbye.

This concludes today's conference call. You may now disconnect.