Core Laboratories Inc (CLB) 2007 Q1 法說會逐字稿

Good morning. My name is Selima and I will be your conference operator today. At this time I would like to welcome everyone to the Q1 2007 Core Lab earnings 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 session. (OPERATOR INSTRUCTIONS). Thank you, Mr. Demshur; you may begin your conference.

Thanks, Selima. Good morning to everybody in North America; good afternoon to everybody in Europe and good evening to all those in Asia-Pacific. We'd like to welcome all of our shareholders, analysts and, most importantly, our employees to Core Laboratories' first-quarter 2007 earnings conference call.

As usual I am joined by Dick Bergmark, Core's Executive Vice President and CFO. Also this morning we are again joined by Core's COO, Monty Davis, who will present a detailed operational review as Monty has been the chief architect of Core's resent operational successes. Dick Bergmark and I are in New York this morning for the IPAA conference while Monty is in Houston at our executive headquarters, so we'll try to coordinate the conference call from two locations as we did last quarter.

The call will be divided into five segments. Dick will start by making remarks regarding forward-looking statements, I will come back and give a brief consolidated company overview touching on some financial and operational highlights, and then Dick will go into a detailed financial overview and then we'll have Monty go over Core's three operating segments, detailing our continued progress and discussing the continued successful introduction of new Core Lab technologies and services and then highlighting some of Core's operations worldwide. And then we'll open the phones to a question-and-answer session. I'll turn it over to Dick for remarks regarding forward-looking statements. Dick?

Thank you, David. Before we start the conference this morning I'll mention that some of the statements that we may 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 filings that may affect our outcome.

Should one or more of these risks or uncertainties materialize or should any our assumptions prove correct actual results may vary in material respects from those projected in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties see Item 1-A risk factors in our annual report on Form 10-K for the fiscal year ended December 31, 2006 as well as the other reports and registration statements filed by us with the SEC. Now with that said I'll pass the discussion back to David.

Thanks, Dick. I'd like to look at a consolidated company overview. Core's operations once again posted their most profitable quarter in the Company's 71-year history. It was an excellent quarter but our operations believe that they can still do better, so stay tuned.

During the first quarter Core's operations, under the tillage of Monty Davis, delivered all-time quarterly records for revenue, operating income, net income and earnings per diluted share. The quarter marked the 8th consecutive quarter in which Core's operations posted record revenues and the fifth consecutive quarter for posting all-time quarterly highs for net income, operating profit and earnings per share.

During those last eight quarters Core spent approximately $44 million on CapEx during which time the Company has generated over $220 million of operating income from continuing operations. In addition, during those last four years Core's share price has increased 15 of the last 16 quarters with a 5% decrease in the fourth quarter of 2004 as our only blemish.

Core's low CapEx needs -- our CapEx usually equals or is slightly higher than our annual depreciation -- plus the leverage and scalability of Core's worldwide operations has enabled the Company to generate significant amounts of free cash and free cash flow per share. Yet again in 2007 Core's CapEx will total less than 4% of our total annual revenues while the industry average will be about 12% of their 2007 revenues.

This CapEx will be targeted for growth in the international theater in the Middle East, North Africa and Asia-Pacific. Over 70% of Core's revenue is sourced from the international theater and we expect this to grow even higher in future years. We believe with Core's current infrastructure the Company can generate annual revenues greater than $800 million. Core's future opportunities continue to be international and crude oil related.

On the new technology front we continue to be pleased with the increasing international market acceptance and market penetration of Core's recently introduced technologies which include our miscible flood technologies where we're looking at mixtures of CO2, nitrogen, heavy and light hydrocarbon gases and pulses of water that are proving to add significantly to enhance the oil recovery in fields around the globe.

Also Core's pressurized fluid imaging system, which defines the temperature and pressure envelope needed to ensure optimal hydrocarbon flow especially from deep water reservoirs. We estimate that deep water reservoirs around the globe hold about 7.5% or 75 billion barrels of the world's reserves today.

Also we still are pleased with Core's high-efficiency reservoir optimization, or HERO, perforating charges and gun systems. These were originally designed for medium to shallow depth natural gas wells in North America. However, these completion systems are proving quite successful in other hard rock reservoirs like the carbonate reservoirs that are widespread in the Middle East.

Monty will give an update on Core's new promising Super HERO technology which generates its first revenues in the latter part of Q1 2007. Core's Super HERO perforating system is specifically designed for gas shield reservoirs like the Barnett shale. Our pipeline for new reservoir optimizing technologies and services remains strong, which indicates a bright future for Core. I'll turn it back over to Dick now for a detailed financial review. Dick?

Thanks, David. Revenues were $155.7 million in the first quarter versus $137.3 million in the first quarter of last year and $152.8 million last quarter. So revenues were up 13% year-over-year and 2% sequentially. In a moment you'll see the positive impact on earnings from our focus on our higher margin services like the one David just mentioned and from the leverage that we can squeeze from our international based fixed cost structure. Of those revenues sales for the quarter were $38.8 million, up when compared to $38.2 million last year.

Services for the quarter $116.9 million, up 18% when compared to $99.1 million last year. Cost of sales in the first quarter, they improved to 71% and that's versus 73% last year primarily due to a growing domain for the newer higher margin products and continuing efforts to improve our manufacturing efficiencies. If we look at cost of services for the quarter, they also improved now at 68% compared to 73% last year. Our cost structures remained relatively fixed as revenue growth continues to drive incremental margins.

G&A for the quarter $8 million down from $10.5 million in last year's first quarter and this is primarily due to lower costs relating to employee benefits. For 2007 we expect G&A to come in around $33 million to $35 million.

Depreciation and amortization for the quarter, $4.6 million, just higher than the $4.1 million occurred in last year's first quarter as we continue to spend capital in support of our organic growth objectives. We expect depreciation in '07 to total approximately $18 million.

Other income this quarter is in the amount of $900,000 which primarily resulted from interest income of $400,000 and an assortment of other smaller gains totaling about $350,000. This compares to a gain in last year's first quarter of $1.9 million primarily coming from $400,000 in FX gains, a casualty insurance settlement gain of $500,000, and a $500,000 gain on disposal of fixed assets.

Operating income $36.7 million; these earnings are up $12.3 million or 50% compared to the first quarter of last year and is even sequentially up from last quarter. This operating income represents operating margins of 23.6%, up 580 basis points compared to the margins of 17.8% in last year's first quarter. Our continued improvement in margins has been driven by our focus on obtaining commercial contracts that deliver higher product and service margins thereby creating higher levels of incremental margins earned on those revenues and combine this with better utilization of our cost structure while the results are clearly demonstrated in our expanding margins.

On a year-over-year basis our incremental margins for the quarter companywide were 67%. Interest expense was $600,000 for the quarter, down from $1.3 million in last year's first quarter, and this reflects the lower rate of interest in our new 0.25% fixed rate convertible note. We expect interest expense in 2007 to be about $2.5 million.

Income tax expense was $10.8 million for the quarter compared to $6.9 million in the prior year's first quarter, primarily due to higher taxable earnings this quarter. And as mentioned on the prior call, the annual effective tax rate is expected to be in the 30% range for all of 2007.

Net income from the quarter, $25.2 million compared to last year's first-quarter's income of $16.1 million. Net income was up 57% on a year-over-year basis. Earnings per share for the quarter was $1.04 and this is $0.06 above First Call's mean Street estimate of $0.98 which compares to the $0.58 earned in the first quarter of last year. Though earnings are up 79% year-over-year and sequentially EPS is up $0.06 or about 6%.

Now going over to the balance sheet, cash was down by $25.2 million to $29.0 million compared to the year-end balance of $54.2 million due in most part to the reduction in our share count. Receivables stood at $122.8 million, up by $10.7 million from $112.1 million at the year end. DSO's were unchanged when compared to the 71 days for the full year of 2006.

Inventory was $32.5 million, up by $2.3 million from the $30.2 million at the prior year end. Again, it's in line with our increasing product sales. Other current assets were down slightly when compared to the year-end balance of $29.1 million and there were no managerial changes in PP&E or intangibles, goodwill and other long-term assets.

Now on the liability side of the balance sheet, our Accounts Payable's were down by about $4 million when you compare to the prior year-end balance primarily due to the timing of the new payments. Other current liabilities were virtually unchanged from the '06 year-end balance. Long-term debt was also unchanged primarily due to our $300 million 25% coupon convertible debt.

Other long-term liabilities are $49 million -- those were up by $8.5 million from the prior year end primarily due to a $4.1 million increase in deferred revenues and recording of a $4.1 million adjustment as a result of the new FIN 48 in this first quarter.

Shareholder's equity ended the quarter at $55.8 million, down from the prior year-end balance of $78.1 million due to the reduction in share count during the quarter. Our annualized rate of return on equity for the quarter was 181%, up from 115% in 2006. We expect our shareholder's equity to increase during the year as a result of our net income earned throughout the year and then offset by any further share repurchases we may undertake.

Capital expenditures for the quarter were $3.4 million, down from $4.3 million in the first quarter of last year, but we expect CapEx in 2007 to fall in the $20 million to $22 million range. In cash flow, cash provided by operations in the quarter was $19.2 million and after paying for a $3.4 million CapEx our free cash flow is just about $16 million.

Now to the stock buyback program -- during the quarter we reduced our basic share count by 744,000 shares at a cost of almost $59 million. From inception of the program we have reduced our basic share count in the aggregate by approximately 14 million shares at a cost of just over $470 million or about 40% of the shares outstanding at the time the program began in October of '02. So our basic share count now stands at 23.4 million shares.

This has been a very successful program for our shareholders as it has contributed to our shares increasing in value almost tenfold since the inception of the program. The return to our shareholders from inception has been over 940%, and you compare that to the OSX which has risen only 190%, or even the S&P 500 which has risen 84%.

Now let's look at our internal financial targets. Our revenue target for the full year of 2007 is in the range of $650 million to $670 million or just over 15% higher than what it was in 2006. This reflects growth in excess of the projected increase in worldwide activity levels by our clients by about 300 to 400 basis points.

On the last call you may remember that we increased our earnings target for 2007 to the $4.10 to $4.30 EPS range. Our view now is that our earnings should improve further, perhaps into the range of $4.30 to $4.50 per diluted share. This represents an increase over last year's results of $3.07 by 40 to 47%. These projected earnings assume incremental margins of up to 40% for the remainder of the year.

For Q2 our revenue target is in the $157 million to $162 million range and this target is up 12 to 16% above last year's second-quarter revenues of $140 million. And for EPS we expect to earn $1.05 to $1.10 per diluted share. These results if attained would reflect a 50 to 57% increase in earnings per share over the $0.70 earned in the second quarter of last year. And that wraps it up for our targets. And now I'll turn it over to Monty who will provide a more in-depth operational review.

Thanks, figured I want to start this morning by recognizing our employees for their performance in making the first quarter another record quarter. This isn't an easy task in the market that's traditionally shown weakness in the first quarter, so we really appreciate all our employees' efforts to make this successful.

Our reservoir description segment provides services using Core Lab technologies to describe the reservoir system which is comprised of porous and permeable rock of the reservoir and the three fluids contained within the reservoir, these being natural gas, crude oil and water. Quarterly revenues for the segment reached an all-time high of $83 million which is 17% growth over the first quarter of last year. Operating margins reached 20%, which is an improvement of 726 basis points over 2006 first quarter. So an outstanding performance by this group.

Our miscible flood services are growing in many regions of the world and I want to describe one such project where we're going valuating the enhanced oil recovery program for a major oil company. They are reassessing their production model to maximize the ultimate recovery from this particular reservoir. Core Lab is uniquely positioned to perform this project because of our expertise both in reservoir fluids and geological technologies.

We are distilling and recombining the produced oil to returned to the in situ oil properties which we inject into Core from the reservoir and simulate the actual rocks and fluid reservoir condition in our laboratory. We are then able to flow CO2 and water, alternatively, to simulate the field flood and determine the recoverable oil from the reservoir and the best flood design for maximum recovery.

The project mentioned used CO2 as the flood gas, but our miscible flood technology is used in conjunction with a variety of flood gasses including nitrogen and reservoir gasses. These technologies would also be an important component of any CO2 sequestration in porous media and reinjection of produced gasses or flue gas.

In our Middle East operations, which we discussed in the last conference call, the operations in Qatar and Saudi Arabia are off to a really good start, contributing new revenue and good profit margins for our reservoir description unit and, to say the least, we're very pleased with their performance.

Our production enhancement segment works with clients to optimize production from the reservoirs over the life of the reservoir. Revenue from this unit reached the second highest level ever, exceeded only by Q4 2006 at $59 million. This is a 5% growth over a very strong first quarter in 2006. We are expecting stronger growth for the remainder of this year.

We had our first sales of new Super Hero perforating charges, as Dave mentioned, in the first quarter and they've been well received. These charges evolved from our high-efficiency reservoir optimization charges using a proprietary and patented powdered metal liner to reduce debris in the perforation tunnel increasing production. The Super Hero continues that feature in a deeper penetrating and more versatile charge. The Super Hero charges will be used in more of our perforating gun systems and give the best perforations for our customers.

Designed for use in shale reservoirs where customers are seeing the value of using the best perforating systems to complete their wells, we believe that philosophy will apply in many other reservoirs as well. We expect the charges will gain market share in coming quarters and will enhance our growth in margins for this unit.

Our reservoir management group integrates technologies to provide unique solutions for our clients either on a proprietary or Consortium basis. This unit posted all-time high revenues of $13.7 million and operating profit of $3.7 million. That's a 37% growth over the first quarter 2006 and yielded a 27% operating margin.

In the first quarter we added four new clients to our reservoir characteristics and production properties of gas shale's Consortium study. This brings the total participants to 44 making it the largest Consortium of its kind. For that project we provide the participants with a comprehensive geological, petrophysical, perforating and simulation analysis and evaluation of existing and emerging gas shale plays in North America.

Specifically the integrated results of the study allow companies to rank and benchmark the potential produce ability of gas shale plays based on a number of key reservoir parameters identified from cores in the project. In addition, the results of the project allow companies to optimize their completion and simulation of gas shale reservoirs and maximize their productivity. The participants in this project have a competitive advantage when understanding these reservoirs or their future production.

In conclusion, we are very pleased with our first-quarter results and we will now open the conference call to questions.

(OPERATOR INSTRUCTIONS). James West.

Good morning, guys. David, you've talked a lot in recent quarters about the Middle East both in your press releases, your conference calls, you even got so far as to highlight the Middle East region on the cover of your annual report. I think it's pretty obvious, at least to me, why your technologies are so critical to optimize production in those reservoirs, so I really wanted to ask about the longevity of the new contracts you're signing now.

What kind of visibility do you have on term for this work? And I think my sense is we're probably in the very early stages of what's going to be a multi-year expansion in this region. Is that a fair statement?

Yes, I'll make a comment and then I'll turn it over to Monty, because Monty recently got back from the Middle East. We have been very successful in convincing Middle East operators that certainly their reservoirs not immune to the laws of petroleum engineering and the laws of physics. And certainly now, if we look year-over-year at the operations that Monty described earlier, our revenues are up fully 42%. So it will be a growth engine for the Company.

As we look to opportunities in both Saudi Arabia and Qatar, those seem to be the best opportunities for us. However, we do have a large project going on in Kuwait right now with the Kuwait reservoir rock catalog where they're trying to increase oil production, also looking at deep possibilities for tight gas. So with that being said, I'll turn it over to Monty; he can speak more specifically about some of the longevity of the projects. Monty?

We have a variety of projects naturally in the region from company to company, country to country, field to field. And some of those have longevity in contracts as long as three years and maybe a little longer. Some are projects that are going to go on for two or three years, and some projects will go quite a bit longer as they develop and we continue to monitor.

We're building some pretty long-term relationships there with our customers. We had been in the region for many years, but that is an expanding presence. We're bringing more technologies into new areas such as we mentioned, the new lab in Dammam and nearby Doha. So we're seeing quite a bit of longevity and are very pleased with the way our presence is growing in that market.

Okay, understood. Then Monty or David, on the Super HERO charges that you sold during the quarter, can you give us some idea of how many charges were sold and do you have orders for this equipment in the second quarter?

Certainly we believe that we will increase sales continually over the next several years. What we've found, James, as the rollout of the HERO charge some 10 quarters ago, the Super HERO charge is almost like a carbon copy of that. When we look at sales in the early days it certainly is pretty much the same users of the technology and it is rolling out pretty much in parallel with the HERO charges as they rolled out several years ago.

So a specific number of charges I don't think we're going to go into, but again I think we'll just see incremental sales continuing to ramp up. And then when we get to a specific level, because right now about one out of every four charges that we sell is a HERO charge, as we approach that number we'll start then talking about the numbers of Super HERO charges that are sold per quarter. But it's still early days for that technology.

Okay, great. And then Dick, a question for you. Where did your share count exit the quarter?

It wrapped up at 23.4 million on the basic.

Okay. And then since you've reauthorized your repurchase program I guess that was April 2nd, have you guys been active in the market?

As this is a new quarter we will update you at the end of the second quarter, James, when we report those earnings numbers.

We did get approval for the 10% of that amount and we will be active throughout the year.

Understood. Thanks, guys.

Victor Marchon.

Thank you and good morning. The first question I have is just on production enhancement. I wanted to see if you can give us a breakout as into revenue internationally, North America -- basically just trying to get a handle on the growth rate that contributed to the 5% year-to-year increase in revenue.

Victor, that -- as you know, that segment does have our greatest exposure to the North American natural gas market. That being said, we are seeing some of the products and services go internationally. I would say right now, and I don't have the exact numbers, but I would say probably one-third international -- maybe one-fourth international, three-fourths North America.

The second question I have is just on how you guys ramp out or expansion in the Middle East. Was there any startup cost associated with the move in the first quarter or was that pretty much completed in the fourth quarter of last year?

I think we made comment on our last call that you saw increased CapEx in the fourth quarter of last year in there and some startup costs were included in the fourth quarter. Monty, do you have anything to add to that?

There was a small amount of startup costs that flowed over in the first quarter, but not a significant amount at all.

And the last one I have for you just on the share repurchases again. Just wanted to see -- the guidance that you guys provided on the earnings side for the full year, are any share repurchases embedded in that guidance?

No, we traditionally assume there will be no further repurchases when we put together our guidance.

Thank you, guys. I appreciate it.

Mark Schumacher.

Thanks for taking my question, guys. I have a question about the Super HERO charges. It sounds like this early in the process your sales to your existing customers are probably cannibalizing a fair amount of your HERO charges given the overlap between the customers. Is that a fair characterization and is the cannibalization I guess about what you expected? Do you expect it to lessen? As the Super HERO charges get greater penetration maybe they're more versatile, etc. Can you kind of give us a sense for kind of the cannibalization of your HERO charges?

Yes, on the cannibalization side little to zero actually. The specific design of the Super HERO charge is directly aimed at gas shale reservoirs and so we look at that as a product expansion or technology expansion where the HERO charge is more effective in shallow to middle depth hard rock reservoirs, [read that] tight gas sands and, as it turns out, some of the hard carbonate reservoirs of the Middle East. So we don't think we'll see cannibalization at any great level.

So it's the same customers but they're just applying them in different fields in different circumstances is what you're saying?

Absolutely.

Okay. Can you give us a sense for what the price premium for the Super HERO charges are relative to the HERO charges?

Probably a little bit better, but not a significant amount better. However, that being said, those margins should continue to generate healthy incremental margins in the production enhancement segment and I think we'll see that over the next several quarters.

And remember, the important price premium is over the type of charge that it's replacing. So again, if it's not replacing a HERO charge it's not priced against that, it's priced against charges that otherwise would be used in those shale formations.

Rob MacKenzie.

Good morning, guys. A question for you -- I guess, David. You talked a lot about the Middle East, but I wanted to try and get beyond that a little bit and looking at your business, try and break it down a little bit. Can you give us a feeling for maybe how much of your business outside of the Middle East comes from say deepwater plays versus land plays?

Yes, I think we're going to have to do a little bit more work on that, Rob, but just basically in conversations with Dick and Monty -- because we know you're working on that deepwater piece. Our estimate is that deepwater reservoirs around the world have about 75 billion barrels of reserves -- let's say on a worldwide reserve base of 1 trillion barrels. So about 7.5% right now of the worldwide reserves.

Our belief is that our revenue stream from that now is somewhere between 15 and 20% of our total. We're going to have to do a little bit more work on that, but that's kind of the back of the match pack book type thing and that's what we're thinking. That being said, we do generate significantly higher margins from that work than we do let's say from a shallow natural gas well in the Arkoma Basin in Oklahoma.

Sure. And --

That's probably a fair estimate.

Okay. And clearly you have impacts from that in each segment. Would it be fair to say that the biggest influence is in reservoir description or is that not the case?

Yes, that is correct, Rob, just because of the shear volume. Some of these cores we get off of West Africa are 100 and some, even thousands of feet thick. So when you're dealing with a 1000 foot core you're going to generate a significant amount of revenue off that, really millions of dollars.

Let me put this another way. If someone drills a deepwater well say in the Gulf of Mexico and they want to do a fluid analysis or a rock analysis that they can't do in-house, is there anyone else they can go to apart from Core Lab?

No, we believe that in the -- just use the Deepwater Gulf of Mexico -- that probably greater than 90% of all the reservoir fluids work, that's pressure volume testing, is done at Core Laboratories; the other remaining part mainly done in-house at technology centers let's say somebody more like Exxon Mobil or Chevron Texaco, and the amount of rock work is probably parallel to that as well.

So when we look at deepwater work being done on fluids especially, where we have a very, very significant market share, and then also on rocks, Core Lab certainly is the selected vendor outside of the in-house resources that four of the five majors have.

Okay, great. I also wanted to dig a little further on some of the miscible flood technology. In particular I know Monty gave a brief summary of it, but can you give us a feeling for what the prospect is for additional customers? I know you've got projects going on in Abu Dhabi and Norway. What else is out there that is attractive right now or new potential business?

We believe that this technology is applicable to right now because of the expense associated with implementing a miscible flood -- giant, on super giant fields. We believe that the yield could be as much as 2 basis points more so. If you look at a couple of percent on a several billion barrel field you can see you can get a significant return. So our targets right now are the giant and super giant fields around the world, many of those aging. I think you a couple of quarters ago asked about miscible floods and can you do a miscible flood after you've done a water flood and the answer is in many cases you can unless you change the wet ability of that reservoir.

So from that standpoint we believe that it's a target rich environment and there are a large number of fields that we can certainly go after and it's technology that we are putting together both in our advanced technology center in Aberdeen and also Houston, Texas.

Okay. And then my final line of questions centers around some of the comments you made about reservoir description in the press release. The first part of it would be Saudi Arabia; you talked about further expansion there. What kind of revenue level or revenue gain would that expansion enable you to achieve out of Saudi Arabia?

And the second part of the question is, looking at your comments on Qatar, it's the first time I think you've highlighted that in a material way. It sounds like from what you're saying there, some of your recent operations, that this quarter your performances was the tip of the iceberg. Can you give us a better feel for the business potential there as well?

Yes, I'll make comments in general and then I'll turn it over to Monty because he has done a lot of work there in the Middle East. The revenue potential out of the Middle East we see as we can gain I think year-over-year we had mentioned the revenues on the operations that Monty talked about were up 42%. So definitely the revenue level can reach tens of millions of dollars over a number of years.

So when we look at our CapEx -- and if you look at the fourth-quarter CapEx you saw that it was up significantly. That was the reservoir description guys going into Dammam and then also into Doha, and then also with some of the mobile labs that we were putting together. And for more of the specifics, Monty, do you have any color to add?

Yes, just a couple things. In this quarter, in the second quarter we are adding an additional mobile laboratory into Qatar that brings that up to five from four on that contract, which actually just started in December. So pretty quickly our clients saw the value we're bringing and asked for an expansion of that. In the Saudi Arabia lab in Dammam we are bringing in a couple of new technologies or new to that lab. And the reason is when we're working with our client, we've had a big open house, had a lot of people from Aramco, but also from Shell and Totale and some others.

They requested that we bring in a couple of other things immediately as we grow. So a little earlier than we had originally planned, but we are bringing in some new technology there. And I'm not really wanting to get into -- we don't really discuss specific revenue because then it gets too closely aligned with what our customers are doing and we don't want to be too specific.

Yes, also I'd add to that we do have a significant amount of work that we're doing for a Middle East client right now in Houston, Texas. These samples represent thousands of feet of core. So it's a large project and to expedite it we brought it back to our advanced technology center in Houston and our reservoir description people are working on that now.

Great, thank you, guys. I'll turn it back.

(OPERATOR INSTRUCTIONS). There are no further questions.

Okay, Selima, thank you. In summary, Core has posted our most profitable quarter in the Company's 71-year history. I've been with the Company now 28 years; I don't think we've ever been better technologically positioned to help our clients expand their existing production base. We remain uniquely focused and are the most technologically advanced reservoir optimization company in the oilfield services sector.

This positions Core well for continued growth in 2007 and beyond. So in closing we'd like to thank all of our shareholders, the analysts that follow Core and especially all of our hard-working employees for spending their morning with us. We look forward to updating you at the end of the second quarter of 2007. Thanks and goodbye.

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