Core Laboratories Inc (CLB) 2004 Q4 法說會逐字稿

Good morning. My name is Christi (ph) and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Core Laboratories fourth-quarter and year-end 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.

Good morning in North America and good afternoon in Europe and Asia Pacific. We'd like to welcome all of you to our fourth-quarter 2004 and year-end earnings conference call. We'd like to welcome our shareholders and most importantly, all of our employees to the conference call. As usual I am joined by Dick Bergmark, Core's Executive Vice President and CFO for the call.

This call will be broken down into five segments; first Dick will start by making remarks regarding forward-looking statements. We will follow that up by giving a brief consolidated Company overview. Dick will then follow up with a detailed financial overview of the fourth quarter and year 2004. Then we will go over Core's three operating segments detailing our progress and noting notable projects that Core is working on. And then we will finish up with the Q&A session.

I will turn it over to Dick for the forward-looking statement.

Before we start the conference this morning, I will mention that some of the statements that we 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 condition, international markets, international political climate and other factors including those discussed in our 34 (indiscernible) 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.

Now with that said, I will pass it back to David.

Thanks Dick. We'll go over and do a consolidated Company overview. Core had another exceptional quarter actually our best ever in our nine-year history as a publicly traded Company. It makes the eighth consecutive quarter that our operations have either met or exceeded our own internal operating targets.

Our fourth-quarter earnings up 34 cents were the highest ever reported by Core for a quarter as was our quarterly revenue of $116 million. We continued to generate strong levels of free cash that was used to pay down debt in the quarter, fund a small cash acquisition and continue our stock repurchase program.

The record quarter and year was driven by primarily four items. Number one was the increase demand for Core's proprietary and patented technology used to optimize reservoir performance, increase daily production and maximize ultimate hydrocarbon recovery from oil and gas fields worldwide. Number two, the continued introduction of new Core Lab technologies to optimize reservoir performance. Three, to further market acceptance and market penetration of these technologies. And number four, the increased interest in trying to increase production mainly in the international theater in fields that are aging and starting to make a lot of water.

We will highlight these drivers and talk about notable projects in our detailed operational review that follows.

I'll turn it back over to Dick now for a detailed financial review.

As a brief reminder from our last call, I would like to point out that the numbers discussed today will be for the most part about our continuing operations. The impact of the discontinued operations in the first quarter of last year however, should now be complete in virtually all material respects. So for today our numbers are all about continuing operations and just to be clear, all comparisons will be made against what would have been the results in the prior periods for those same continuing operations.

Revenues as David said, 116.1 million in the fourth quarter versus 108.8 million last quarter and 99.2 million last year. For the year, revenues were 427.4 million, up 14.5 percent compared to last year's 373.2 million. Sales were 28.1 million, up from 25.8 million last quarter. Services for the quarter, 88 million, up from 83 million last quarter.

Cost of sales in the fourth quarter 82.5 percent versus 82.8 percent in the prior quarter, and on a per year basis cost of sales were 81.9 percent versus 83.8 percent in the prior year. Cost of services for the quarter, 77.5 percent unchanged from the third quarter and for the year cost of services were 77.8 percent as compared to 78.1 percent in the prior year.

G&A for the quarter, 6.6 million, up from 6.1 million last quarter and in line with last year's fourth quarter. For the year G&A was 25.2 million compared to 22.8 million in 2003. Costs were up versus 2003 as we continued to expand our global Oracle based information network throughout our major centers and incurred costs relating to our Sarbanes-Oxley initiatives. Included within our G&A expense are external costs of almost $3 million that we incurred in 2004 for our Sarbanes effort. For 2005 we expect G&A to run at similar levels of around 26 million.

Depreciation and amortization for the quarter, 4.4 million up from 3.9 million last quarter, driven in the most from the addition of assets from our capital expenditure program. For the year depreciation was 17.1 million compared to 20.1 million in 2003 and for next year 2005, depreciation expense is expected to be approximately 17 or $18 million.

Now looking at the performance-based stock compensation. We incurred a slight gain of 155,000 in the fourth quarter relating to the first traunche of our performance share award plan based on the change in share price over the fourth quarter. The year end marked the end of the three-year measurement for the first traunche of the performance-based shares offered by the Board of the Company. The program was designed to provide incentives to certain senior managers that tied restricted stock awards to the relative performance of Core Lab to the 15 members of the OSX over a three-year measurement period.

As our stock did outperform the 75th percentile of those 15 members of the OSX during this three-year measurement period, our compensation committee is now in the process of award those 125,000 shares that had been set aside for this program. As discussed on prior calls all of our financial targets that we have mentioned have excluded any expense that may be recorded as a result of these strictly performance-based incentives.

Other income this quarter is in the amount of 1.1 million, which came primarily from foreign exchange gains in such currencies as the Canadian dollar, The Russian ruble, the Australian dollar, and a variety of other currencies all due to the weakness of the U.S. dollar. And for the year we had a gain of $761,000 again primarily relating to foreign exchange caused by the weakness of the dollar.

EBIT from continuing operations was almost $15 million in the fourth quarter providing margins of 12.9 percent which compares favorably to last quarter's EBIT of 13.4 million with margins of 12.3 percent and last year's fourth quarter EBIT of 11.9 million. Our improvement in margins continues to be driven for the most part by the incremental margins earned on higher revenues combined with better utilization of our cost structure.

For the full year, our EBIT from continuing operations excluding stock based compensation was 49.4 million versus 35.9 million in the prior year or a 38 percent increase year-over-year. On that year-over-year basis, our incremental margins this year by segment were for reservoir description, 29 percent; production enhancement, 28 percent; and their improving in reservoir management, now up to 16 percent.

Interest expense was 2.2 million for the quarter, for the full year, it was 8.3 million, up slightly from the prior year's interest expense of 7.7 million all primarily caused by higher LIBOR borrowing costs.

Income tax expense was 3.2 million for the quarter and 10.2 million for the full year compared to 7.5 million in the prior year up on higher earnings. And we expect next year's rate to be in the 26 to 27 percent range.

Income from continuing operations for the quarter was 9.5 million compared to last quarter's income of 8.2 million. On that basis net income was up sequentially almost 16 percent and compared to last year's fourth quarter, income was up 33 percent. For the full year, income from continuing operations excluding stock-based compensation was 30.2 million compared to 20.8 million in the prior year. This represents a 45 percent increase year-over-year.

Earnings per share from continuing operations for the quarter was $0.34, $0.03 above First Call's Main Street estimate of $0.31. Sequentially earnings were up 17 percent from the $0.29 posted last quarter, and up year-over-year by 42 percent from the $0.24 posted in last year's fourth quarter.

For the year we earned $1.05 per share from continuing operations before stock-based compensation which is up 57 percent from the prior year's earnings of $0.67 per share. Remember that our initial guidance for 2004 was in the range of 85 to 92 cents. So as the year progressed and it became more clear that our client spending in 2004 was accelerating, our earnings moved with that increased spending.

If we go to the balance sheet, a couple of points. Cash was 16 million in line with last year's balance of 16.2 million. Receivables stood at 95.4 million, up from 89.2 million last year end. The increase in AR balance is due to our increasing sales as our DSOs improved throughout the year ending at 74 days compared to 81 days last year end. So an improvement in working capital management.

Inventory was 29.4 million, down from last year-end's balance up 31.3 million. This is our third year in a row of reductions in inventory. Our internal initiatives to better utilize our inventory have continued to reduce the balance along with increasing how quickly our inventory turns. And this is in light of the increasing sales that we have been experiencing. Our hats are off to those involved in those initiatives. We expect to see continued improvement in working capital in this area throughout 2005 as well.

Other current assets were 11.1 million at year end, in line with the prior year-end balance of 10.3 million. As you can see that we have virtually completed the disposition of assets that were part of the discontinued operations. PP&E is down by 7.7 million from the prior year-end balance from the effective CapEx running at a lower rate than depreciation.

Now if we look at our intangible assets including goodwill and other assets virtually the same as last year. It's up 4.4 million primarily due to a small 1.5 million technology acquisition last quarter and breaking it out about 2 million of deferred tax assets from what had previously been presented as a net deferred income tax position.

On the other side of the balance sheet, the liabilities, our account payables were up slightly over prior year end reflective of higher business activity levels. The other accounts that make up total current liabilities increased from the 2003 year-end balance due to recording the performance share award plan liability earlier this year along with the timing of certain payroll accruals.

Long-term debt was 110.2 million, down from the prior quarter's level of 117.3 million and down 14.5 million compared to last year-end's balance of 124.7 million. Outstandings under our revolving credit facilities were 35 million down from 42 million at the end of the third quarter and from 49 million last year end.

Net debt to cap is in the low 30 percent range in line with industry averages. So our debt continues to come down again this pass quarter and throughout the year at the same time that we have continued our share repurchase program. More on that program in a minute.

Other long-term liabilities of 20.9 million are in line with the prior year end. Shareholder's equity ended the year at 190.3 million, up from the prior quarter balance of 186.6 million, but down from last year end balance of 220.4 million. The reduction in the year-over-year balance was due to additions from earnings and the reductions due to our stock buyback program. Our return on equity for the quarter using EBIT was 31.5 percent. Certainly higher than that posted on average by the members of the OSX group. Full year return on equity for Core Lab is 26 percent.

Capital expenditures for the year were 10.9 million and we expect CapEx in 2005 to be about 19 million slightly higher than our expected depreciation expense of 17 million.

If we look at cash flow, cash provided by operations for the year was 54.8 million, and after paying for our 10.9 million CapEx program, our free cash flow was 43.9 million or about $1.53 per diluted share. So how did we use this free cash flow in 2004?

First we paid for the small 1.7 million technology acquisition in the quarter. Second, $14 million reduction in debt; and third, the acquisition of about 28 million in Core Lab stock through our share repurchase program.

We continue to be active in our stock buyback program. During the year we purchased an additional 2,379,000 shares at a cost of about $51 million. Through yesterday, we purchased a further 225,000 shares in this first quarter at a cost of about 5.2 million. From inception of the program we have now purchased in the aggregate 8.15 million shares at a cost of approximately $123.5 million. Our current shares outstanding now stands at 27.6 million shares.

This has been a very successful program as it has contributed to our shares, more than tripling in value since inception of the program. The return to our shareholders from inception has been 216 percent, significantly higher than the OSX which rose 89 percent or the S&P 500 which rose 49 percent.

In the big picture throughout 2004, our financial ratios strengthened further, our return on shareholder's equity improved to 26 percent, our debt has come down further, and at the same time we were able to generate a 40 percent return to our shareholders through share price appreciation. That was 2004.

Now what do we think our internal financial targets will be for 2005? Based upon discussions with our clients, our view of industry capital expenditures call for higher spending by our customers in 2005 over 2004. Although industry surveys suggest that worldwide spending may be up 5 percent to 7 percent, we believe that the rate of growth and expenditures aimed at the market we participate in, those aimed at optimizing reservoir performance, may grow slightly faster than the overall blended rate of growth in industry spending.

The one area to watch will be national oil companies as each have its own specific issues. For example, PEMEX in Mexico has been sending mixed signals to the industry about their intentions for 2005. Will they spend more or less? IT continues to be debated. We believe we are well positioned to capture our fair share of this growth in industry spending. In fact, we believe that we may grow faster than the 5 or 7 percent that the industry survey suggests. Perhaps we will experience a 10 percent rate of revenue growth as we continue to develop new products and services and then put them out through our global network of facilities.

What does this mean for our internal financial targets? We believe our revenues for 2005 could fall in the 465 to $470 million range. We do expect improved earnings in 2005 perhaps in line with the grouping of analysts that are currently in the $1.25 to $1.30 EPS range. These earnings targets which we are giving today exclude any cost associated with performance-based stock compensation.

Now what about the near-term? Our first-quarter revenue target is in the 108 to $110 million range. EPS is expected to be $0.25 to $0.28, reflecting the typical business seasonality where the first quarter is the lowest quarter of the year with activity ramping up as the year progresses. As with all of our guidance, this excludes any potential impact from expenses related to tock-based compensation.

Now I'd like to turn back to Dave for a more detailed operational review.

Thanks Dick. We'll start off by looking at reservoir description. I'd like to remind the listeners that this is 60 percent of Core's revenue. Most of the projects are international in scope and are crude oil related in general. ON last quarter's call we talked about our continued focus in margin in this group and from Q2 to Q3 we saw a 70 basis point improvement and now from Q3 to Q4 we saw another 80 plus basis point improvement. This will continue to be a focus in Q1 in 2005.

Some of the reasons for this better execution, improving margins, we have significant downsizing of our reservoir description operations in Mexico which we mentioned we were reviewing on our third-quarter conference call. This led to some higher margins coming out of our North American operation. And also we were able to successfully redeploy some equipment and personnel that were primarily assigned to Yukos work in Russia. And the redeportment of those assets actually helped us improve margins as well.

Some of the areas and projects of note in Q4 that we are working on in Kazakhstan, we mobilized a mobile reservoir fluid facility to provide phase-behavior studies of the field that is undergoing a flood and e-pressure (ph) maintenance. It is one of the largest fields in Kazakhstan. And we are able to deliver data in real-time to make sure that the dynamics of the flood are working correctly.

In Kuwait we completed the study at over 4000 feet of carbonate core as opposed -- as a part of a regional project to boost production by an estimated 200,000 barrels of oil per day in 2005. Staying in the Middle East, in Saudi Arabia we are currently enlarging our presence at the request of Saudi Aramco. We are installing sophisticated advanced rock properties equipment and technologies that will be used to increase crude oil production and decrease water production in several of their producing fields.

And finally for reservoir description, we continue to work on a number of projects from the Deepwater offshore West Africa. Some of these projects are large in scope with cores running between 300 and 1700 foot in length. These projects are lengthy; these cores are complex. They are good quality reservoirs there and these projects are expected to continue throughout the year 2005.

Looking at production enhancement operations, they represent 35 percent of Core's revenue. We must remember that these technologies have a North American focus in primarily natural gas related projects. This has been a growth engine for Core over the past two years.

Quarterly revenues are up 25 percent year-over-year while operating quarterly profit climbed almost 40 percent, both establishing new all-time highs for Core Laboratories. This continues to be a story of increased market acceptance and further market penetration of recently introduced proprietary and patented technology. Those include SpectraScan. Core performed more hydraulic fractured diagnostic studies in Q4 than in any other previous quarter in our history. This technology is nearing the tipping point for our client acceptance in determining the effectiveness of fracture stimulation.

This coupled with SpectraChem, which enables our clients to determine or to specify gels for better well-bore and frac cleanup. Also SpectraFlood is now being utilized in West Africa to improve sweep efficiencies of a number of fields that are undergoing floods in Nigeria. And we continue to see the growth impact of our HERO or High Efficiency Reservoir Optimization perforating charges and gun systems. These are primarily designed for shallow to medium depth natural gas wells and now they are being utilized throughout North America and abroad.

Two new HERO developments. One HERO technology for soft rock technology in the Gulf Coast and then the second for some of the ultra deep reservoirs that will be drilled in 2005, these below 25,000 feet; we owe developing charges to go through ultra thick casing strings that might be on the order of 1 inch thick down around 25 to 30,000 feet.

Looking now at reservoir management, it represents 5 percent of Core's revenue. This has been a segment that has been in transition to an engineering and geological focus. Remember they conduct field based and providence wide studies and utilize a lot of data steps and technologies from reservoir description and our production enhancement segment.

This is been a successful transition year contributing over $2.5 million in EBIT or an incremental $0.06 to earnings where in the past several years this has been a drag on earnings.

Our hottest projects continued to be related to the Gulf of Mexico, our Deep Shelf reservoir study, these are for reservoir in determining reservoir quality for reservoirs at 25 to 30,000 feet. This technology will enable participants to risk assess reservoir quality which is extremely important when companies are going to be drilling 100 and $100 plus million wells.

We are also in the process of expanding our Petroleum Geology of Libya study to the offshore strata graphic sequences. Of course Libya has just completed a big round in the Acitivity (ph) and Libya should increase significantly over the next couple of year.

So that's kind of a rundown of a couple of projects that we are working on of interest.

What I would like to do now is now, Christi, is to open the phones for the Q&A session.

(OPERATOR INSTRUCTIONS) Robert MacKenzie with Friedman, Billings, Ramsey.

Good morning. It's actually Brad Suddarth. A couple of questions for you. You have alluded to some strong international growth here and I was hoping to drill down a little bit into the Middle East and Russia. Can you quantify for us what your revenues were there, '04 and Q4? Or at least give us a ballpark. And where do you see those trending in '05?

I think what we can do is rather than give you precise numbers, we can talk about trends. We want to Russia first. It follows with what David had said about issues with Yukos, and actually when we look at our year-over-year numbers, not a large rate of growth. It's up slightly and we believe that if the Yukos issue had not come up in the political issues the rate of growth would have been faster.

Sure. So obviously that impacted Q4 performance but you see pretty good growth there in '05?

We think the environment there for our services is very good. We just need to see that climate for investment probably come a little more clear.

One of our concerns there, Brad, is we believe that in going forward in the actually in the entire FSU, we now have a number of the larger fields that have been remediated by fracture stimulation and the insertion of electrical submersible pumps. This is a essentially the easiest way to get an increase in the amount production and of course the productions climbed from 6 plus million barrels of oil a day over the last three or four years up to 9.4 million barrels a day in September of last year.

It's interesting to note that Russian production has been down the last four months. It will be interesting to see what the production numbers for February are coming out of Russia. We think the climate there for additional capital going into the FSU may have been disturbed a bit by the activity with Yukos and we watch that with great concern. And as we had mentioned, we redeployed some personnel and some instrumentation in equipment from being concentrated in Russia to other parts of the FSU and actually some of that to the Middle East.

Really one of the areas that did very well for us year-over-year was Asia-Pacific. It had a growth rate of over 20 percent. We saw a lot of improvement there in the number of the projects that we're working on there. I think you had also mentioned the Middle East. In the Middle East year-over-year it was up slightly. We expect that growth rate to significantly improve here in 2005 over 2004.

In Saudi they're looking at maybe doubling their rig count there next year. Do you think that is the magnitude increase you can see or how much order of magnitude growth do you get there?

We might be a little bit behind that curve if we need to drill those wells before they catch the (technical difficulty) and fluids out of those well bored but we would not be surprised by that. I think the rig count is going to go from an estimated 35 to an estimated 70. And I think with respect to that -- put it a little a couple of quarter delay on that but I think we will see a growth engine coming out of Saudi as well as with some of these other projects in the Middle East to try to increase productive capacity there and limit the amount of water that's being produced from these fields. The water cut in Gallar (ph) is approaching 30 percent and this is certainly a large concern with Saudi Aramco.

You mentioned in the press release that you will delay your 10-K filing. I just wanted to get a couple of details there. How much of this delay is under your control and how much of it is under the auditors' control?

Brad, I want to make it clear, that is not what we intended to say and if you read it that way, we apologize. We are not delaying the filing of our 10-K. The only thing we're doing is taking advantage of the SEC provided 45-day delay and completing the assessment process of 404. Two separate events.

So we anticipate filing the K within -- prior to March 15th. And then when we complete the assessment we will issue a 10-KA which will be inclusive of that assessment.

Okay, so you've got the 45 days to finish the Sarbanes-Oxley?

Right, and if you recall, that was offered to all companies with market caps smaller than 700 million. Primarily they felt those companies could have resource issues in getting this done.

And how comfortable are you with meeting the 45 days?

We're not concerned about that. That is not an issue. We just need a little more time.

Thanks, guys. I'll turn it back.

Will Foley with Sidoti & Co.

I guess a little follow-up on the Sarbanes-Oxley issue. Could you give us a little more color -- is it simply a question of timing or are there other specific issues that are kind of slowing you down there? Just so I understand things there a little bit better?

Will, remember that we are in 50 countries so for a Company of our size that is pretty broad. And the testing that we do and the assessment process that we go through is global in nature. So if you're a company with 425 million in revenues, and one location in the U.S., you're done. But because ours is so global, we've got to rely on audit resources throughout the world. And internal resources throughout the world. So it's just scheduling people and resources to get the project done.

Okay. Second question, the guidance excludes I guess the cost of stock based compensation. Do you have a sense of what the impact of that would be were you to include it in terms of how that would impact your guidance?

It was 2.9 million last year in '04. It impacted the final bottom-line numbers by $0.08. So take off $0.08 from the $1.25 to $1.30.

Okay. In terms of the guidance for '05 -- I mean -- I don't know if you guys want to more detail but can you give me a sense in terms of what kind of growth you're looking for reservoir description versus production enhancements?

What we are looking at, Will, is probably a similar blending to what we have seen this year. Certainly with respect to reservoir description, that's going to be high single digits, low teen. I think you find a grower in a high -- around 20 percent for growth in your production enhancements. And reservoir management is a lot smaller number so it will have a higher growth rate. It won't be material for the amount of revenue added for the Company. I think if you just look at historic growth rates, I think you can apply those in going forward.

I'm sorry; could you just give me the reservoir description numbers you just referenced there again?

It's going to be high single digits or low teens depending on what the final spend of our budgets are. As Dick pointed out, some of the surveys -- I think Lehman Brothers had come out and said 5.7 percent blended worldwide growth. We tend to think it's going to be a little bit higher than that. Once we blend that altogether we come up with a 7 percent spend, we've guided to the increase of revenues of 10 percent. Traditionally we grow 300 percent or 300 basis points higher than what the spend of our clients are.

If you're take is that our clients are going to spend that, we will have a higher growth. I think last year we guided to 10 percent revenue increase year-over-year and we found that the spending at the end was up in the teens and of course we grew at 15 percent. As we roll out the year, I think we'll get a better idea of how the spend for our clients are taking place.

That is very helpful, thank you.

Phil Syscowitz (ph).

Just back on the Sarbanes-Oxley, can you a little bit go into what does this mean that you found some significant deficiencies -- I just need some assurance that -- I mean, that we're not going to find like another Key Energy on our hands. I don't mean to put it that way, but can you give me a little assurance?

Yes Phil. Let me give you an example out of our reservoir management division. We do a lot of large regional studies there. One of the deficiencies that was noted by our auditors had to deal with a dataset that was delivered to a client in the December time period. This dataset was on a diskette, and along with that dataset we delivered an invoice. Now the gentleman was either in a meeting or was out of town and could not sign off that he received that data package. The invoice was received, it was paid by this major oil company, and when the invoice was reviewed by our auditors, they saw that essentially that the receipt was not signed off by the gentleman whose name was on that invoice.

The invoice had been received by this which I think is the second largest oil company in the world, it had already been paid but they said that this with a deficiency because the receivers thumbprint was not on the invoice. Those are some of the deficiencies that we're dealing with here at Core.

Also could you just remind me about your goodwill? How did that come about? It is pretty significant for your balance sheet? I think it went up about 20 million from the third quarter?

The goodwill is fairly long-standing. They derive from acquisitions. In 1997 it was an acquisition with goodwill, in '98 another acquisition with goodwill. And then as I mentioned, there was 1.7 million addition from an acquisition in I believe the third quarter. And that's about the change. If you that at the quarter-over-quarter change, I think it was only like $4.4 million.

Thank you very much.

Neal McAtee wit Red Rock Partners.

Good morning guys. Great quarter and I'm glad I finally got to enjoy one of your releases as a shareholder.

We certainly appreciate that as well.

Just a couple of things. It was a great quarter so I'm sort of nit-picking. What was the other income line?

The other income line, Neal, primarily, foreign exchange based on the dollar. And that is for the quarter and for the year.

And then, production enhancement margin -- that's a real solid margin. I guess having followed you for as long as I have would think that maybe it could potentially get a little bit higher. It that -- any comment on that margin? I mean I know it's good and all that but any thoughts about was there anything in there -- rain or some delays that maybe held you back a little bit there?

No rain, delays. I think as we get a better product mix with the HERO charge going forward, additional SpectraFlood projects going forward, I think we see that margin improvement. In the past it has been high midteens and has the potential to get to 20 percent and we've talked about the historic results there. And as we move into 2005, just a little bit better blend of the amount of HERO charges that we will be producing.

And there's a real chance that one out of every four perforating charges and gun systems that we're going to be producing in 2005 will be HERO related. I think we should see some margin improvement there going forward.

What about tax rate, Dick, where is that?

We think 2005 it will be in the 26, 27 percent range.

If I just look at revenue growth and put 8 percent on reservoir description and 10 percent on production enhancement, and then just say reservoir management you can get that up to 28 million which I know is pretty decent growth rate, but given the turnaround -- I'm bumping up on the high end of your revenue guidance. And dovetail that with your response to a previous question about 20 percent growth in production enhancement. Does that mean you feel pretty -- obviously feel pretty good about the 465 to 470 range?

I think you asked this question a year ago on this date Neal, and I guess our answer back then was yes and our answer this year will be yes.

As Dave pointed out, you moved your guidance up throughout the year too.

That is correct.

Thanks, guys.

Thad Vayda with First Albany Capital.

I have a couple questions. On PEMEX and Yukos, if you could just remind me again sort of the nature of the staff and the assets that you moved -- where did they go generally speaking and the approximate cost -- I know it wasn't that significant? And finally, (indiscernible) PEMEX, how do you maintain your flexibility given the will she or won't she status of their spend this year?

I'll take that first, Thad. I guess we voted with our feet there and what we did was significantly reduce our exposure in reservoir description, our production enhancement projects there continue to run well. But we significantly downsized our reservoir description facility there and moved personnel and equipment from there redeploying those into North America and some of our international locations.

Our bet is that going forward for PEMEX in 2005, especially related to reservoir description projects that we will air on the side of caution and say that our equipment is better placed and our personnel better placed outside of that work area.

With respect to Yukos, again, that equipment headed south from Russia. Some of it stopped off in Kazakhstan and some went into the Middle East and West Africa. I think that situation resolved itself, perhaps a little bit more quickly then PEMEX. Remember PEMEX, we are in a year prior to election which tends to mean that PEMEX budget approval process will take longer. The amount approved won't be as high as they would like or they would like to expect. I think the Yukos situation does resolve itself in the first or second quarter of this year. And then if projects come back on-line, we will redeploy that equipment or mobilize additional equipment and personnel there to handle that.

The Deep Shelf study that you guys have been participating in or leading --?

We are leading. There are 12 participants in that right now.

How long do anticipate this project will go? And is there like a date at which a report is filed or a conclusion is reached? And if so, is there something in the pipeline perhaps that to replace it or how do you expect that exactly to play out?

It is interesting. Some of these projects like we for instance have a worldwide rock catalog that has been in process now into its 20th year. Our Deepwater Reservoir Study is now in its 10th year. This Deep Shelf study which now we do have 12 participants, we will post up -- we will post up information datasets as they are generated throughout the study. And the study life usually is related to the success of the play. So if some of these deep tests, these 25 to 30,000 plus tests find a couple of teas (ph) of gas, I think there's going to be a lot of interest in the study. And it could have a very extended life.

Already we've provided value to clients by looking at a technology or a methodology that enables them to risk assesses some of their Paleogene reservoirs as we speak. It's hard to determine what the life of these projects are. Say they're usually tied the more successful the play is, the longer the study has in its duration.

Okay. As far as customer mix is concerned, have you seen that change over the past year or so from --?

I might take a little bit of a longer look at that and say that our customer mix is changing. I think we're seeing the importance of the national oil company on the increase in direct work for them. And so I think as we go forward we're focusing more and more of our marketing and sales directly to the national companies. Other than what we've already mentioned with PEMEX and I guess Yukos is not a national company or maybe it is, in going forward. But certainly Saudi Aramco and some of the companies of West Africa, South America and the Asia-Pacific region.

Thank you very much.

Jim Wicklund with Banc of America.

Neal and Thad asked all the good questions so I'm tail end. I apologize. With -- you talked about Saudi going from 30 rigs to 70 rigs there is a school of thought out there that try as they might, Saudi is tapped out and really isn't going to be able to increase production. Whether or not that is true, the fear is almost as great as the fear of not passing 404. The fear is that all these guys will keep drilling and not find anything which brings us back to Core Lab and your famous sound byte. The idea of getting more oil out of existing reserves. Have you seen the fear or understanding or recognition or any combination of the three, by the oil industry that that is in fact the issue and they need you more?

Yes, I think, matching our sound byte I think the last seven quarters we've put some real meat behind. I think the answer would be, yes. But let's keep in mind that out of 4000 significant oil and gas fields worldwide right now we only work in an estimated 800 of those. So we should see greater market penetration of additional fields as we go forward.

With respect to Saudi and the additional rigs that they'll be adding, a lot of those are focused on fields that have been underdeveloped, fields like Shayba (ph) and Katif (ph) and I think there will be some additional drilling in Guwar (ph). I think we will see a specialized type of drilling there that will penetrate zones that have not been invaded by water and we talk about the change in the wetability of the reservoir, they will drill into zones that have not had the significant change in the wetability of the reservoir. I think those will be some of the targets that they'll be looking at.

It was interesting to note at SARA (ph) two weeks ago, I think Jim, we talked (indiscernible) in San Francisco. Saudi announced that they were producing just under 9 million barrels of oil a day which was a little bit surprising because I think most people put them about 9 million a day. I think over the next couple of years we'll see a very interesting story developing out of not only Saudi but the entire Middle East for them trying to add additional capacity to produce. I think history will show that that will be very difficult.

And we think we're well-positioned there as we made a big bet in Russia in '99. We're making a pretty big bet right now in the Middle East of increasing our asset exposure there because of the need for enhanced recovery from the fields and increased the productive capacity there in the Middle East.

I[m going to take a little poetic license with that since your Core Lab and your in the position and you do what you do, many of us would think that you are in a unique position to have an opinion going forward on things like Saudi's potential success. In general, do you think that we will stay severely supply constrained over the next several years?

Yes, I'm not going to make any comment about any specific client because they pay a lot of paychecks. (multiple speakers)

I understand -- I'm talking about that as an example. But in general do you think that the globe will continue to be as seriously supply constrained as we are now or do you think that this accelerated investment that we didn't keep up for a few years or whatever -- will end up creating enough of an increase in supply that this isn't such an interesting group in two or three or four years?

We're a little bit more on the bear-ish side of oil production. And, Jim, just looking at from generally available information around the globe, historical finds, production rates, decline curves, we are in the school that we are going to have tight supplies. We are on record as saying in the year 2008 that we probably see global peak oil production at somewhere around 88 million barrels a day. And as each month and quarter passes, we have a more difficult time getting daily production. Let's estimate it today at 82 million barrels, of picking up an additional 6 million barrels of productive capacity between now and the end up let's say the year 2008, keeping in mind -- you are a petroleum engineer, that we've got a global decline curve of between 2 and 3 three percent and in some cases probably a global decline curve that is steepening as we speak.

I think a good case in point is we look at Russia in particular where we've had down production the last four months, probably five months. Is that an artifact of Yukos and you (indiscernible) gas? That probably is playing some affect but after we remediate the field with a frac and an ESP, the steepness of that decline curve will be sharper than it was before that remediation. Yes, they have been able to increase production but that decline curves because ever steeper. I guess our bet would be over the next three years Core Lab might be a pretty interesting Company.

That helps a lot, thanks.

James Wicklund with Banc of America.

Christi, I think we just answered Jim's question.

At this time, there are no further questions. Mr. Demshur, are there any closing remarks?

Yes thanks. In summary, Core posted our best quarter ever that capped our best year in our history. The Company has never been technologically better positioned to assist our worldwide clients to expand their existing production base. With worldwide crude oil production nearing peak levels, Core's decade long laser focus on providing reservoir optimizing technologies as a Company dynamically positioned for continued growth in 2005 and beyond.

On a final note, I would like to say that Core Laboratories in the person of Dick Bergmark, will be highlighted on a Bloomberg business TV piece at 12:17 Eastern Standard time, 11:17 Central standard time to discuss Core's fourth-quarter results.

And in closing we would like to thank all of our shareholders, the analyst that follow Core and especially all of our hard-working employees around the world who are spending part of their morning with us. We look forward to our next visit at the end of our first quarter for our first quarter 2005 earnings conference call. Thank you and good bye.