Core Laboratories Inc (CLB) 2008 Q1 法說會逐字稿

Good morning. My name is Jennifer and I will be your conference operator today. At this time I would like to welcome everyone to the Core Lab's First Quarter 2008 Earnings conference call. (Operator Instructions).

At this time, I would like to turn your conference over to Chairman and CEO of Core Lab, Mr. David Demshur. Please go ahead, sir.

Thanks Jennifer.

I'd like to say good morning to everybody in North America, good afternoon to our folks in Europe, and good evening in Asia Pacific. We'd like to welcome all of our shareholders, analysts, and most importantly, our employees to Core Laboratories' first quarter 2008 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 long-term operational successes.

The call will be divided into five segments. Dick will start by making remarks regarding forward-looking statements. We'll come back and give a brief consolidated company overview, touching on some financial and operational highlights, and then Dick will follow with a detailed financial overview. Then Monty will go over Core's three operating segments, detailing our progress and discussing the continued successful introduction of new Core Lab technologies and services and then highlighting some of Core's operational successes. And then we'll open the call for Q&A.

I'll turn it back over to Dick for remarks regarding forward-looking statements.

Dick?

Thanks, David.

Before we start the conference this morning, I'll 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 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 of our assumptions prove incorrect, 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 on some of the foregoing risks and uncertainties, see Item 1A, Risk Factors, in our annual report on Form 10-K for the fiscal year ended December 31, 2007, as well as on our other reports and registration statements filed by with us the SEC.

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

Well, thanks Dick. I'd like to look at a consolidated company overview. Once again, Core's operations posted our most profitable quarter in the Company's 72-year history. It was an excellent quarter, but our operations believe they can still do better, so stay tuned.

During the first quarter, Core's operations under the direction of Monty Davis delivered all-time quarterly records for revenue and operating income. The quarter marked the 12th consecutive in which Core's operations posted record revenues and the ninth consecutive quarter for posting all-time quarterly high for operating income from operations.

During those last 12 quarters, Core spent approximately $71 million for capital expenditures, during which time the Company has generated over $406 million of operating income from continuing operations. In addition, over that last 12-quarter period, every new $1 of CapEx has helped generate approximately $3.50 of new revenue for the Company. Core's low CapEx needs, our 2008 CapEx, will be slightly higher than annual depreciation, plus the leverage and scalability of Core's worldwide operations has enabled the company to continue to generate significant amounts of free cash flow.

Yet, once again, in 2008, CapEx will total less than 4% of Core's total annual revenues against an industry average of 12% of their 2007 revenues. Core's CapEx equaled about $1 a share in 2007 and is projected to equal a little more than $1 a share in 2008.

This CapEx will be invested to continue to grow our international operations, especially those in the Middle East and Asia Pacific, build out the gas shale center for Canada, and construct a large laboratory facility to consolidate our operations in the Gulf Coast of the United States.

We believe with Core's current infrastructure that the Company can generate annual revenues in the $900-plus million range. As always, we will update our internal revenue capacity number during the second quarter 2008 earnings conference call.

Core's future opportunities continue to be international and crude oil-related, although the development of non-conventional natural gas reservoirs in the United States now and in the future worldwide and the oil sands in Canada will play an important role in our future growth.

On the new technology front, we continue to be pleased with the increasing market acceptance and market penetration of Core's recently introduced technologies. In Reservoir Description, Core's reservoir fluids business recently received the highest technical and quality ratings from a major oil company that is one of Core's biggest clients. Revenue generated from characterizing and inspecting crude oil and its derivatives, natural gases, and formation waters now exceed 50% of the company revenue.

The pressure-volume-temperature or PVT and phased behavior data sets are critical components, along with measured petro-physical and rock property data sets needed to optimize reservoir performance. Core's continued technical leadership in reservoir fluid phased behavior studies is unsurpassed by any other oilfield service company in the industry.

In Production Enhancement, the effectiveness of Core's SuperHERO, Zero Wash, SpectraScan, and SpectraChem technologies being used in the multistage simultaneous hydraulic fracture stimulations of now up to four adjacent horizontal wells in gas shale reservoirs such as the Barnett, is leading to significantly higher initial production rates and especially higher ultimate recovery rates.

In the past, Core was able to touch these shale reservoirs once and perhaps twice, analyzing core and gas samples. With these now new bundled services, Core can touch these unconventional reservoirs up to seven times in new wells.

In Reservoir Management, Core's gas shale consortium now includes every technologically sophisticated client exploiting these reservoirs in North America. When it comes to gas shale plays, simply put, Core's clients recognize that Core Lab helps them maximize their cash flow from non-conventional natural gas reservoirs.

We at Core believe that the gas shale plays are going to define and dominate activity growth in North America over the next five years and we are currently positioning ourselves for that growth.

Monty will give a more technical update on Core's new promising technologies, such as our SuperHERO technology, as this relates to the gas shale plays. The SuperHERO technology, remember, started to generate its first revenues just a year ago this quarter.

Our pipeline for new reservoir optimizing technologies and services remains strong, which indicates a bright future for Core.

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

Thanks David.

Revenues for the quarter, $179.4 million versus $155.7 million in the first quarter of last year and $176.4 million last quarter. So revenues were up 15.2% year over year. And this compares very favorably to the members of the OSX who have reported so far this quarter with average revenues up 14.1%.

Sequentially our revenues were up 1.7%, better than members of the OSX who have reported revenues on average being down sequentially.

Of these revenues, product sales for the quarter were $41 million, up 5.9% when compared to $38.8 million in last year's first quarter. Services for the quarter, $138.4 million, up when compared to $117 million last year, an increase of $21.4 million or 18.3%.

Now moving on to cost of sales, we continued to see improvement in incremental margins earned on our newer technology products, along with continued improvement in manufacturing efficiencies and inventory management.

In the first quarter, our cost of sales were 69% of revenues versus 71% in last year's first quarter and 70% for all of 2007.

Cost of services for the quarter improved to 66% from 68% year-over-year first quarter and consistent with the previous quarter.

The improvements over prior year were primarily driven by the continued growth in our incremental margins as a result of additional revenues running through our relatively fixed cost structure.

G&A for the quarter, $8.3 million versus $8 million in last year's first quarter. Our G&A costs have remained relatively flat and continue to decrease as a percentage of revenue, now down to 4.6%. For 2008, we expect G&A to come in around $34 million to $35 million.

Depreciation and amortization for the quarter was $5.2 million, up from $4.6 million incurred in the last year's first quarter, which reflects increased levels of capital expenditures during 2006 and 2007, along with amortization of intangible assets associated with acquisitions completed in September and December of 2007. We expect depreciation in 2008 to total approximately $21 million to $22 million.

Other expense this quarter is in the amount of $2.2 million, which includes a $1.1 million gain from the sale of a building in New Jersey and $700,000 of FX gains, as well as a $5 million expense for expected settlement of certain non-income-relates taxes.

We have adjusted EBIT to include -- excuse me, to exclude three items. We excluded the gain from the sale of that building. And we also excluded the cost of the severance and bonus arrangement upon the retirement of an executive officer and certain non-income-related tax expense.

We took this charge so that if the Company were to receive a claim for that matter -- and none has been made at this point -- and that claim was upheld and sustained, then we will have been accrued.

So our adjusted EBIT for the quarter was $49.3 million, which is in line with our guidance for the quarter and better than fourth quarter 2007 EBIT of $49.1 million. So our first quarter adjusted earnings are up $12.3 million or 33.4% compared to $36.7 million earned in the first quarter of last year.

Now let's talk about margins. Our first quarter adjusted EBIT represents operating margins of 27.3%. Sequentially they are down, but only slightly, from 27.8% in the fourth quarter. But keep in mind that sequentially our margins are usually down as we move from the very active fourth quarter. And of those members of the OSX who have reported so far this quarter, their sequential margins are also down. But that's where the comparison ends.

Our year-over-year margins are up 370 basis points compared to margins of 23.6% in last year's first quarter. The group, however, has reported on average margins that are contracting, not expanding. We manage our business on a year-over-year basis and our results are well ahead of the group. And our incremental margins on a year-over-year basis were greater than 50% again, this time 51.8%.

Our continuing improvement in margins has been driven by the successful introduction of new technologies and services, further penetration into additional fields, as well as through 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, the results are clearly demonstrated in our expanding margins. So it's all about creating greater value from each dollar of revenues.

Interest expense was $644,000 for the quarter, virtually unchanged from last year's first quarter. We expect interest expense in 2008 to be approximately $2.7 million, similar to the $2.6 million incurred last year.

Income tax expense was $14.3 million, which is an increase over the prior year's first quarter of $10.8 million, primarily due to higher taxable earnings this quarter and a slightly higher tax rate.

Our guidance for our tax rate had been 30% to 32%. The rate actually came in at 32.75%, so we are probably nicked a couple pennies by a higher tax rate. We expect our effective tax rate for the remainder of 2008 to be in the 32% range.

Net income for the quarter as adjusted was $32.9 million compared to $33.4 million in the prior quarter due to the now higher tax rate. And net income was also higher than last year's first quarter income of $25.3 million. So on that basis, net income for the first quarter was up 30.3% on a year-over-year basis.

Earnings per share as adjusted was $1.37 per share compared to $1.36 reported as First Call's mean street estimate. And this also compares to the $1.04 earned on a comparable basis in the first quarter of last year. So earnings are up almost 32% year over year on a per share basis.

Now if we look at the balance sheet, cash was up by $2.9 million to $28.5 million. Receivables stood at $146.7 million, up from $137.2 million at the prior yearend, primarily due to higher business activity levels. DSO in the quarter were 74 days.

Inventory, up $2.3 million from yearend, but slightly lower than a year ago. Importantly, inventory turns improved to 3.6 or by 6% when compared to the same period in the prior year. And we expect this to improve throughout the year with the normal seasonal increase in product sales.

Other current assets were at $37.8 million, up slightly from $28.5 million at last yearend due to in large part an increase in tax receivables of $3.8 million and a reclass from long term to current of $3 million in deferred taxes.

And the only material change in PP&E, intangibles, goodwill, and other long-term assets related to a reduction in deferred assets, tax assets of $5.9 million.

And now to the liability side of the balance sheet, our accounts payable were $35.7 million, down about $4.2 million when compared to the prior yearend balance, primarily due to the timing of vendor payments.

Other current liabilities have not changed significantly from 2007 yearend. Long-term debt remained the same at $300 million from the issuance in 2006 of our convertible notes, which carry a coupon of 0.25% with final maturity in 2011.

Our current ratios continue to improve from 72 times in 2007 now to 76 times in the first quarter of '08.

Other long-term liabilities ended at $54.9 million, up from $44.6 million from the prior yearend, primarily due to an increase in unearned revenues of $3.8 million, $5 million accrual for certain non-income-related taxes, and compensation-related liabilities by $1.2 million due mostly to the retirement of one of our executives.

Shareholders' equity ended the quarter at $74.6 million, up from the prior yearend balance of $62.1 million. The increase was caused in most part from net income generated during the quarter offset partially by our share repurchase program.

Using annualized net income for the first quarter, our return on equity was approximately 157%. This is certainly one of the highest returns earned in the industry.

Capital expenditures for the quarter were $5.6 million, up from $3.4 million in the prior year's first quarter. And we expect CapEx in 2008 to be in the $25 million to $30 million as we continue to invest for growth.

Looking at cash flow, cash flow from operating activities in the quarter was $25.4 million. And after paying for our $5.6 million in CapEx, our free cash flow was about $20 million.

And now to our stock buyback program, during the quarter, we reduced our share count by an additional 253,000 shares at a cost of $29 million, more than our free cash generated during the quarter.

From inception of the program, we have reduced our basic share count in aggregate by approximately 15.3 million shares or 46% of the shares outstanding at the time the program began in October of 2002 at a cost of just over $620 million, representing a VWAP of $40.62. This has been a very successful program for our shareholders. Through yesterday's close, it had contributed to our shares increasing in value over 16 times, with our share price moving from $8.05 at the inception of the program to $132 yesterday.

The return to our shareholders from inception has been over 1,530%, significantly higher the OSX, which rose 352% or the S&P 500, which has risen only 90% over that time frame.

Okay, let's go to our internal financial targets and our thoughts on 2008. During our two prior calls, we gave early views on how we thought 2008 would roll out. And our views at this point have not materially changed. The basis for those views revolve around discussions with our oil company clients about their spending expectation for 2008 and we're talking specifically about projects relating to production and production enhancement. We believe that these indications suggest that spending in North America will be relatively flat year over year, while spending outside of North America may be up somewhere above 20% on a year-over-year basis.

Given that our revenues are sourced about 70% outside the US, our view of our clients' spending would suggest that our revenues could be up 15%-plus over 2007, which is reflective of our continuing secular growth as we believe we will grow at a rate 200 basis points to 300 basis points faster than the growth in industry spend.

Based on this revenue growth and earnings impact these incremental margins -- excuse me, these incremental revenues will create, we now believe that revenues for 2008 will increase to the range of $775 million to $785 million, so up slightly from our prior guidance.

We also believe that our incremental margins in 2008 will be similar to those experienced in '06 and '07. Our targets are based on attaining incremental margins of more than 40% in 2008. And assuming no material change in our 32% tax rate and no further share repurchases, this would equate to $5.90 to $6.05 in earnings per diluted share, which is higher than on our last call of $5.75 to $6. So we raised the lower end and we also raised the top end. And this is about 23% higher than year-earlier totals.

What could cause these targets to change? Perhaps one or more of the risk factors mentioned in our public filings or a change in tax rate as a result of FIN 48 or otherwise or in the event the share count changes as a result of our convertible note or the Company continues to be opportunistic with its share repurchase program.

With this secular revenue growth and strong incremental margins, earnings in '08 are expected to be up over $1.10 per share versus 2007.

When looking more near term to Q2, we believe that our revenues will track normal seasonal transitional patterns as we move through the winter months and into the spring season. We expect to see the typical business environment that our industry generally experiences -- road bans in Canada, springtime rains in the Northern Hemisphere -- those kinds of things that always happen this time of year.

So for the most part, we would normally expect to see flattish sequential revenues and earnings in Q2 versus the just completed first quarter. That being said, we believe our revenues may be slightly up sequentially to $185 million to $190 million. We also expect EPS to be in the range of $1.46 to $1.50, which is 24% to 27% higher than Q2 last year. This suggests that we would have incremental margins of over 50% and also that our tax rate will be 32% along with a diluted share count of 24.4 million.

And now Monty will provide a little more in-depth review of our operations.

Thanks Dick.

Once again, I have the pleasure of discussing a record quarter for Core Lab because of the exceptional work of our employees to provide valued services and products to our clients. This is made even more exceptional given the normal seasonal weakness of the first quarter when compared to the fourth quarter. Our operations are focused on our client needs and that leads to good results.

Our Reservoir Description employees generated record revenues of $100.5 million, slightly better than the fourth quarter and 21% growth over Q1 2007.

Q1 operating margins were 23%. That's a 270-basis-point improvement over Q1 2007.

Our Canadian employees are very busy processing most of the over 50 miles of oil sands cores that we now expect to receive this year. This is less than the contracted amount due to the early thaw in Northern Alberta, but is 25% more than 2007. These analyses are critical for the oil companies to optimize their oil sands projects' recovery, transportation, and upgrading facilities.

At the same time, our Canadian operations are designing and organizing the Gas Shale Center for Canada to serve clients in the new Muskwa, Utica, and other gas shale resource plays.

The Center will be operational later this year in Calgary using the methodologies accepted by the 58 clients in our gas shale study of North America.

We are currently designing a new laboratory facility to better serve our downstream clients in the Houston area. This will increase our capacity and efficiency, consolidating two existing laboratories that are involved in crude oil and petrochemical testing.

In the Middle East, we are continuing to add advanced rock property and EOR capabilities and capacity across the region to meet our client demands.

Our Production Enhancement team had a very good quarter with 14% growth over Q1 2007 and 6% growth over Q4 2008 (sic). Margins reached 33%, a 540-basis-point improvement over Q1 2007 and a 230-basis-point improvement over Q4 2007.

Our HERO and SuperHERO charges are leading the way to margin improvement by demonstrating great added value to our customers in reservoirs that are going to be hydraulically fractured. Clients that use the HERO or SuperHERO charges report needing significantly less horsepower to frac their reservoirs. Many clients have switched to using our HERO and SuperHERO charges exclusively in their shale reservoirs because of these superior results in fracture stimulation.

Our stimulation diagnostics and design have never been in higher demand. We are working with customers in major resource plays to help them get the best stimulations to produce more hydrocarbons from their reservoirs using our Zero Wash, SpectraScan, and SpectraChem technologies.

Reservoir Management revenues were down from Q1 2007 by 13%. But the margins were improved 850 basis points to our highest ever, 35%, resulting in operating profits 14% higher than Q1 2007.

Revenue and operating profits were below Q4 levels 9% and 5% respectively, but margins improved by 130 basis points over Q4.

Our Reservoir Characterization and Production Properties of Gas Shale study continues to be the most demanded study we have ever done, with 58 clients working to optimize production from gas shale reservoirs across North America.

After early results from this study, our clients demanded an expansion into the Marcellus shale in much greater detail. And we have responded with a 15-member consortium analyzing the best techniques to complete, stimulate, and produce the Marcellus shale resource in the Appalachian region.

We currently have six projects ongoing in Brazil, two of them covering the deepwater. Our recent geological studies of nine Brazil basins have established an integrated geological model for the shelf and deepwater areas of the Eastern Brazilian Margin. The specific objective of this regional study was to integrate well data and available seismic lines to provide a comprehensive regional interpretation through correlation with core and outcrop studies and analog models.

We will now open the call to questions.

(Operator Instructions.) Your first question comes from the line of James West with Lehman Brothers.

Hey, good morning, guys.

Good morning, James.

David, the Production Enhancement division had really exceptional results in my mind for the first quarter. The margins were I guess the highest they've been in that division's history. Are these margins sustainable going forward?

Yes, James, we're very pleased by the quarter in Production Enhancement really against a fairly flat environment for drilling in North America. We were pleased by the revenue growth and the margin expansion. I'll turn it to Monty for a little bit more color on the success for those guys in Q1.

We're hitting on all cylinders there really, James. The -- in the stimulation diagnostics area, as you know, with the shale plays in North America, that's a very, very busy market. And our data helps them get the best frac job and helps them understand what happened after the frac job using our SpectraChem technology.

Also the other factor, big factor is the HERO and SuperHERO charges. The performance of these charges are -- as customers see the demonstrated performance and improvements in their stimulations, this is gaining market share at a very nice pace. And yes, we do believe these margins are sustainable going forward.

Yes, one of the things that we're finding with this SuperHERO charge, James, that the perforating tunnel is so clean and so deep that the formation breakdown pressure needed or the amount of horsepower needed at the well site is significantly less. So they get the dual benefit of having greater flow and greater recoveries. Moreover, because they need less horsepower at the surface, they see a significant reduction in the cost of their fracture stimulation program. So both of those are feeding on the success of the HERO and more importantly the SuperHERO charge.

Okay, that's interesting. At this point, what percentage of your charge sales are SuperHERO and HERO charges?

James, that's still a growing percentage. But right now, it's probably about 30%, 35%.

Okay. And I think your market share in the charge business overall is around 20% or so, but would it be fair to say that that's a much higher percentage in the shale plays?

I'm not sure where you got your 20% number. We're the largest...

Is that too low?

That's -- probably is too low. We are the largest provider with the possible exception of one of the service companies that does their own and you'll probably realize who that is. And we don't know how many charges they produce.

We sell these charges to all the service providers. And I would say our market share in shale plays is higher than our normal market share and is growing at a pretty good pace. So we are actually gaining more market share in that region.

Yes, but remember, the endpoint for our sales are essentially the operating companies. So when we market a new charge, we go to the Chesapeakes, Devon, EOGs of the world to market that charge because of the superior performance that they provide in these gas shale completions and stimulations.

Okay. Understood. Then one last question if I may here. Monty, you had some comments about Brazil towards the end of your prepared remarks. How big is that business for you guys right now? And how do you see that market evolving over the next several years given the recent discoveries?

It's a pretty small portion of our business right now, James. But we see this as an opportunity for growth in South America. And there aren't very many of those. We think that this could become something substantial in the coming years.

Yes, really, James, with South America, we see this as the only real, viable market for growth there. As you know, we've downsized in Venezuela, moved some assets into the relative safety of Bogota, Colombia. But we are targeting offshore Brazil, especially the deepwater.

If we look at some of these well costs, some of these well costs are now looking at $200-plus million, approaching maybe $250 million per well. There will be a lot of science applied to these reservoirs. And when a lot of science is used, we are the chief beneficiaries of that.

We are excited about this new Carioca discovery. However, there has been some misunderstanding on this. Let's not confuse the potential of the Carioca well with the potential of the Carioca structure, because I think there is some confusion in the marketplace. The Carioca well may have a multi-billion barrel potential and the Carioca structure may have multi tens of billions of barrels of potential. But additional wells will still need to be drilled.

Okay, understood. Thanks, guys.

Your next question comes from Kevin Pollard with JPMorgan.

Hey, good morning, guys.

Good morning, Kevin.

Hello, Kevin.

Just -- I wanted to -- you talked a lot about your exposure to the shale plays in your press release and in your comments. I wanted to try to put a little bit more numbers around some of your opportunities there. I think in the past you had talked about the success of your bundling, moving the revenue potential of a Barnett shale well from $30,000 or $40,000 to say $300,000. Are my numbers -- is my recollection correct on that?

That is correct.

So you have an opportunity in a shale play of approximately $300,000 per well?

That is correct.

Okay. And is that just for the Barnett? Or are you experiencing that kind of success bundling these services in some of the other shale plays as well?

I think right now that's primarily the Barnett, but we will certainly see these multi-stage simul-fracs become way more popular in the Fayetteville, Haynesville, and Marcellus. Early days for those three, but we certainly will see that spread.

Now the success of these multi-stage simul-fracs are really tied primarily to the silica content of these shales. So the more brittle the shales are or the higher the silica content, the more effective these are.

And as the learning curve goes up in the Fayetteville, Haynesville, Marcellus, Utica, Muskwa, Bakken, I think we'll see where those opportunities are. And we believe right now those will be tied to the silica content of these shales.

Okay. And so if I sort of think about the shale, the spectrum of shale plays around the country and your role in them, would it be fair to kind of say that maybe you have a mature position in the Barnett, where your increase in revenue per well is probably nearing its at least near-term maximum potential, but that there's still the ability to scale the other shale plays up to a level similar to the Barnett?

Yes, I still think our penetration rate, though is still fairly low in all of the shale plays, the Barnett probably better than others just because the learning curve there is starting to taper off there a bit.

So we are positioning ourselves in North America for really four plays, number one being the oil sand play that Monty spoke about that we received 50-plus miles of core from, the second one being gas shale plays throughout North America, the third being tight gas sands, and the fourth being offshore deepwater Gulf of Mexico.

Outside of those four plays in North America, we don't have a lot of excitement. And right now, I would say what's moved to the forefront are the gas shale plays, so seem to have trumped the deepwater Gulf of Mexico tight gas sands and the oil sands just due to their widespread nature. And if we really look at the potential of these, the Barnett certainly is the leading horse in this race right now, but ultimately just due to the potential, the volume, the organic richness, and the maturity of the shales, the Devonian shales in the Appalachian region, at the end of the day, that could be the horse that wins this race.

Okay. All right, thanks, David. I appreciate it.

Your next question comes from Rob MacKenzie with FBR Capital Markets.

Good morning, guys.

Hello, Rob.

Good morning, Rob.

Actually I wanted to beat on this horse a little bit more on gas shales briefly if I may. Can you give us a feel, David, for what percentage of the Company's business today might be roughly in all of the different services associated with gas shales and how you might split that out? What's biggest, what's smallest, and kind of growth rates we're seeing?

Yes, that's a good question, Rob. And I'm going to actually -- I'm looking at Monty, but maybe 10% of our business?

(Inaudible).

And I would say probably equally split, well, just because of size, Reservoir Description, Production Enhancement maybe equal amounts, lesser but more concentrated amounts in Reservoir Description because of the large gas shale study and now the Marcellus shale study that kicked off in March.

So to quantify that, let's say maybe $70 million worth of business -- that's an estimate -- with maybe $27.5 million Reservoir Description, $27.5 million Production Enhancement, and the remainder, which would be $15 million in Reservoir Management.

But let us do a little bit of work on those numbers and maybe we can provide some clarification on that.

Okay, great. And going forward, would it be fair to say at least at present that the faster growth would actually be in the greater penetration of the Zero Wash and so on in the trade service, the multi-stage simul-frac in the shale plays and no much incremental growth of the -- at least not in the North America shale study near term?

Yes, correct, because the opportunity factor is much bigger and our ability to put those services through the system, we have a lot greater potential.

Also the HERO and SuperHERO charges, there's opportunity for them to increase their market share in those plays, too.

Yes, our revenue in the US Q1 over Q1 2007 was up 18%. Now that was gas shales, but remember, we are bringing -- we are repatriating a lot of dynamic flow tests from places like the Middle East and Asia Pacific. And those tests are being done in the United States.

So we did have a nice growth rate in the US, but a lot of that was bolstered by repatriation of foreign reservoir rocks to be worked on in our Advanced Technology Center here in Houston.

Okay, thanks.

And my next question actually goes to a topic you touched on in your comments that I don't think has been asked a lot yet, is can you give us a feel for demand you're seeing, demand growth you're seeing for some of your reservoir fluids technologies like your PVT analysis, phased behavior studies, PFIS, and so on? How's that looking for growth? It would seem to be we're in a great position for growth there.

That line of services is growing in the deepwater, that's important, in the Middle East very important, Asia Pacific. So those are the main regions that we're seeing the growth in that. And it's growing across the board wherever your high pressure EOR studies, that type of thing.

So we're seeing very good growth in that area, which is a little different from obviously the growth we're seeing in the gas shale play.

Yes, Rob, if you look at this week's Oil & Gas Journal, there's a nice listing of EOR projects in there, not only in the US, but around the world. And our read is any EOR project ranging from whether it's a water flood all the way through a miscible gas CO2 flood, these are perfect candidates for additional PVT pressure volume testing of these fluids. And that's why we're seeing some rich growth there. And that actually is now over 50% of the business of a company named Core Laboratories.

Rob MacKenzie. Hm. Okay. What was the next question I had here? Simul-frac growth, is that something so far that really is only a function of the shale properties? Or does that have applications in other plays?

Yes, I think as we mentioned a couple of conference calls ago, again, looking at just the brittleness of these rocks, but if we look at tight gas sands and we have initiated a study that I think Monty spoke about in our last conference call, Tight Gas Sands of the Middle East, whenever you have brittle rocks, you're going to have the potential for these multi-stage simul-fracs. And we were told by our Production Enhancement people that a couple of weeks ago we did a four-well simul-frac, which we believe was the first one done down in the Barnett shale area.

But, Rob, if we look at some of these tight gas sands in the Middle East, some of these tight gas sands in North Africa, like Algeria would be a great example, we believe that these are great opportunities for these multi-stage simul-fracs, not so much in the softer rocks of some of the deltaic areas, but some of the older, more competent reservoirs that we would find in Paleozoic and Cenozoic reservoirs.

Okay, helpful, thank you.

Brazil, actually a little more color on that, I know you guys brought it up. You haven't previously talked about it. Where do you guys stand vis-a-vis characterization of in essence the Carioca structure? Have you done much work there yet? What's your market position? And how do you add value there given it seems to be so huge?

We -- as I mentioned, we've got nine different studies going in Brazil, and two of those include the deepwater variety of structures there.

I don't think we'll make any specific comment on any wells that have been drilled there. But certainly when one of our studies is pre-salt, we would've been looking in detail at these carbonate reservoirs in these pre-salt sections. So just easy to say that if it's pre-salt, it's got to be either reservoirs of interest in the deepwater Santos Basin.

Great, guys, thanks. I'll turn it back.

Okay, Rob.

Your next question comes from Tom Escott with Pritchard Capital.

Good morning, fellas.

Good morning, Tom.

Two things, one, kind of stepping back and looking at this from 30,000 feet, earlier on, I think Richard mentioned the parameters about your full year outlook and it included sort of flat North America spending and really the big volume growth overseas. But I'm wondering if maybe is it fair to think that here in mid-spring that the North America spend could perhaps look stronger this year in light of in recent weeks all these announcements we've heard from all these E&P companies about ramping up activity in these -- in many places here, notably all these shale plays that you've been referring to on this call?

I know the guidance has been in place for some months, but it seems like just in recent weeks, so many of the leading E&P companies, Chesapeake most notably, come out with substantially stronger indications of activity this year. Could the North America outlook really turn out to be a good bit stronger than we're thinking?

Yes, I think you're reading the tea leaves proper there, Tom. We happen to be from Missouri around here. And until we see it, we probably won't include it in the guidance. And basically we really haven't seen any big uptick as of yet.

However, if some of the statements about increases in CapEx associated with some of these plays does indeed take place, we would be probably see a response, a greater growth of our revenues in North America. So if it does happen, we would be the first ones that would be happy to see that.

Okay, thank you.

And then the second question not related to that, and in particular outside of the US, to fund 20%-plus growth rates overall with so much of this being really I'd say human-intensive -- I won't say labor-intensive, but let's say people-intensive -- is it getting difficult or is it a constraint to grow at these rates, particularly in some of these foreign markets where it may be more difficult to attract these -- the scientific people to do that?

Right. Tom, what I'll do is I'll introduce Monty for this subject, but keep in mind that our Q1 year-over-year revenue growth rate in the Middle East was 55%. And I'll let Monty talk about our operations in Qatar and how we were able to man those operations for that type of growth.

Monty?

We have this as a constant focus for the company, company-wide actually, on recruiting both new college graduates and experienced people from the industry. We have opened up, we are recruiting from all the markets that we can access. But for the Qatar in particular project, we were able to recruit most of those people from the -- from Eastern areas, India and the Philippines for the type of chemists that we needed for that project. And we were able to recruit those people, bring them in, and operate them on a rotational basis to those offshore platforms. We use a variety of search mechanisms. We search -- it's hard to say you search the globe for people, but we search in countries around the globe for the technical people we need for our operations.

Yes, Tom, if you look in Mumbai, we were able to find really a richness of underemployed technical people that with some training maybe lasting six months to a year, you turn out a pretty good field engineer.

And so for us, targeting places like Mumbai and the Subcontinent, we've been very successful in being able to fill these positions and not only throughout the Middle East, but throughout Asia Pacific where year over year our international growth rate was 47%.

Okay, that's terrific. Thank you.

All right, Tom.

Your next question comes from Victor Marchon with RBC Capital Markets.

Thanks. Good morning, everyone.

Hey, a first question was just on the new center up in Calgary. I wanted to see when we could -- or when you guys expect to start to see first revenue from that facility and sort of what that would do to your revenue capacity expectations?

Well, first let me say we are producing some shale revenue now in Canada. But what we want or what the aim of this center is is by the -- towards the end of the year, we will have full capabilities there in Calgary to be able to perform all of the tests that are needed in analysis of the shale for gas content and all the tests we run here in Houston. So that's -- it's a shift, increasing capacity overall naturally, but also to put some activity there in Calgary where we have a lot of clients and it's going to be a big area for gas shale.

Yes, Victor, if you listened to the EOG call and talking about the Muskwa followed by force talking about the Utica, certainly we want to make sure that we can get results to these operators in an expeditious manner. And right now, the amount of gas shale we have here in Houston leads to a little bit longer backlogs and lead times for data sets than we would like. So having a dual capability in Canada, which we think there's some significant potential there, will boost revenue streams there.

And, again, Victor, we're not -- nothing is revolutionary. It's all evolutionary. So being able to add 10%, 15% more revenue stream through Canada, through that fixed cost base, producing incremental margins of 50% or up, that's kind of the way that our business model works. So that's kind of what we're targeting.

Okay, thank you. And the last one I have is just on the share repurchase. I apologize if you said this, but what do you have remaining on the authorization? And is there another upcoming vote to put another authorization together?

Hey, Victor, it's about 1 million shares that remain. And we do have it in the proxy that's on file right now. The proxy is out there. And one of the votes is for another 10% of the outstanding at the time, so that would be like 2.3 million shares. So there's plenty available.

Okay, good deal. That's all I had. Thank you.

Your next question comes from Robert Christensen with the Buckingham Research Group.

Certainly appreciate all the detail that you are parting with on your exposure to North America shales. Most of my questions have been answered. But while you're so willing to come with information, how about the SpectraScan in these shales? What portion of revenues has that amounted to? You show a nice slide in your presentation on that. Can you give us guidance on that?

Thank you.

When David talks about the $300,000 per well revenues, it's a small portion of that. You've got quite a number of things that's going in there. First you have the tracing material, the Zero Wash tracing material, the SpectraScan, and in most of those wells, we're also using the SpectraChem so that we're getting the cross-well studies and the clean-up study. So it's a small part of that bundle. It's -- would not be a hugely material part of the $300,000 per well.

Oh, so the $300,000 encompasses it all?

Yes.

Correct.

Bundled.

That would include core analysis, gas analysis, fluids analysis, the Zero Wash, the SpectraScan, the SpectraChem. So it's the bundling of all of those, Bob.

And I was at a shale conference and they basically said this whole microseismic mapping, it's still very, very theoretical and they're not really sure where these microseismic bursts have occurred looking at that. Is your SpectraScan, what we just discussed, a better use of an operator's money in determining where fractures have gone do you think?

Well, certainly at the near well bore environment where the proppant is at, we can certainly say that, which perforations have taken proppant, which we think is a critical factor because what we found, that over time, only one in three hydraulic fracture jobs goes as planned. So that real-time information of where proppant did go into the formation we feel is key.

One of the other things that we're finding, Bob, and we're preparing an SBE paper on this, with respect to your questions on SpectraChem, we are finding evidence that the greater cleanup of the slick water, slick gel fluids, the greater the cleanup of the well bore, the greater the initial production, and the greater the sustainability of the decline curve, so the cleaner the reservoir, it appears to have a very critical factor on not only daily flow rates, but ultimate recovery of the reservoir. So stay tuned, more on that to come.

One final if I may, Mexico, we're seeing a lot of service companies get going onshore in Mexico. It seems like a very large market for rehabilitation of a lot of oil wells. Are you seeing a lot of interest there? Should we model in some more Mexico revenues for your company over the next two years?

Well, Bob, we've had a mixed history there. Our Reservoir Description folks three years ago, we actually at that time bid as much as $50 million of business for Pemex, only one -- and we had three laboratories. Only one problem -- our margins were not acceptable. So the amount of Reservoir Description work that we do now in Mexico is very limited. And it's done here in Houston where the margins are acceptable. So at this point, Reservoir Description is not making a large effort there.

However, as we mentioned in our last press release, we had just signed three multiyear, multimillion dollar contracts with Pemex related to our Production Enhancement technologies, both onshore, mainly offshore. And again, this would be related to fracture diagnostics.

So we see the potential and good margins there. We're still a little bit leery about making a large commitment on the Reservoir Description side just due to the historical facts that projects in Mexico that should take six weeks to do in Reservoir Description were taking six months, not acceptable for us with respect to margins and the utilization of our assets. So for Core Lab, I wouldn't model in a lot for Mexico just yet.

Thank you.

At this time, there are no further questions, sir.

Okay, Jennifer, then we're going to close. In summary, Core's operations posted our most profitable quarter in the company's 72-year history. We have never 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 2008.

So in closing, we'd like to thank all of our shareholders, the analysts and portfolio managers that follow and support Core, and especially all of our hardworking employees for spending their morning with us. And we look forward to our next update at the end of the second quarter of 2008.

Thanks and goodbye.

This concludes today's Core Lab's First Quarter 2008 conference call. You may now disconnect.