David Demshur - Chairman, President & CEO Chris Hill - CAO Dick Bergmark - EVP & CFO Monty Davis - CO.

Rob MacKenzie - Iberia Capital Partners Chase Mulvehill - SunTrust Robinson Humphrey Stephen Gengaro - Sterne, Agee & Leach, Inc. Blake Hutchinson - Howard Weil Incorporated Phillip Lindsay - HSBC Brandon Dobell - William Blair John Daniel - Simmons & Company.

Welcome to the Core Laboratories Second Quarter 2015 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to David Demshur, Chairman, President and CEO. Please go ahead..

Well, good morning in North America. Good afternoon in Europe. And, good evening in Asia Pacific. We would like to welcome all of our shareholders, analysts and most importantly our employees, to Core Laboratories second quarter 2015 earnings conference call.

This morning, I'm joined by Dick Bergmark, Core's Executive Vice President and CFO; Core's CO, Monty Davis, who will present the detailed operational review; and Chris Hill, Core's Chief Accounting Officer. The call will be divided into five segments. Chris will start by making remarks regarding forward-looking statements.

Then we'll come back and review current market conditions and give a macro analysis of worldwide crude oil supply and demand trends and how these trends affect the planning and positioning of Core's future business and planning for the business.

Chris will then follow with a detailed financial overview and additional comments regarding building shareholder value. Dick Bergmark will then comment on Core's second half 2015 guidance and a general industry outlook, as it pertains to Core's continued growth prospects. And then, Monty will go over Core's three operating segments.

First, detailing our progress and then discussing the continued successful introduction of new Core Lab technologies that relate to completing, stimulating and producing horizontal and deepwater wells, and then, highlighting some of Core's operations and major projects worldwide. And then we will open the phones for a Q&A session.

I will turn it back over to Chris for remarks regarding forward-looking statements.

Chris?.

Thanks, Dave. 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 conditions, international markets, international political climates and other factors, including those discussed in our 34 act filings that may affect our outcomes.

Should one or more 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 undergo 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 1A, risk factors, in our annual report form 10-K for the fiscal year-ended December 31, 2014, as well as other reports and registration statements, filed by us with the SEC and the APM. Our comments include non-GAAP financial measures.

Reconciliations to the most directly comparable GAAP financial measures, that's included in the Press Release announcing our second quarter results. Those non-GAAP measures can also be found on our website. With that said, I will pass the discussion back to Dave.

Chris, thank you. I would like to look at current market conditions. Core believes that worldwide crude oil supply and demand markets are well on their way to a balance at year-end, 2015. On the crude oil supply side, U.S. production peaked in April of this year.

One only needs to look at Bakken production which peaked in December and Eagle Ford production which peaked earlier this year.

With respective decline curve rates of 70%, 40% and 20%, for the first three years of production in these tight oil plays, significant in year-over-year declines will manifest themselves, as 2015 progresses and, into sharp declines if activity levels remain at constant levels into 2016.

Ditto this analysis is for the Permian, Niobrara and all the liquids rich unconventional plays. From peak U.S. oil production numbers earlier this year of 9.5 million barrels, Core believes that U.S. production will decline over 500,000 barrels through year-end 2015, equating to a U.S. decline curve rate, on an annual basis, of 10.5 net.

The highest of any major production area in the world. These activity levels persist in North America. North America will remain in decline, going into 2016, maybe dropping an additional 500,000 barrels of production.

Moreover, internationally, Core does not believe the recent increases in production from the Middle East and Russia are sustainable over the long run. Decline curves in Russia will be greater than the 2.5% net, used by Core lab on a worldwide basis.

Additional gains from Deepwater fields, on both South Atlantic margins in 2015 and 2016, will be muted, compared to those of 2013 and 2014. This was most recently highlighted by the downward guidance provided by Petrobras, of its pre-salt deepwater offshore fields.

Therefore, by year-end, Core sees crude oil markets in balance, owing to production declines. Led by falls in the U.S. production stagnating to falling international production, while demand increases due to lower commodity prices, take hold.

Worldwide, year-over-year demand increases of 1.3 million barrels a day, in the first half of 2015, are expected to increase by the IEA, year over year, to 1.4 million barrels, for all of 2015, balancing supply and demand by year-end 2015.

Therefore, Core sees the V-shape recovery, led by higher commodity prices and followed by worldwide drilling activities, starting to increase in early 2016.

I'll now turn it back over to Chris for the detailed financial review, Chris?.

Thanks, David. Looking at the income statement, revenues were $203.9 million, nicely above the top end of our guidance range for the second quarter and only down about 4.5% sequentially. We're very pleased with our results, considering the average rig count for the second quarter, compared to the first quarter, was down over 40% for North America.

And, over 7% internationally, according to the Baker Hughes rig count. Of these revenues services for the quarter, $156.9 million, down only 4% sequentially, when compared to $163 million last quarter. Product sales which are more tied to North America activity are $47 million for the quarter, compared to $50.7 million in first quarter.

So, only a 7.3% decrease which is very favorable, to the 40% sequential decrease in North America rig count. Moving on to cost of services, for the quarter, they're 62.8% of revenue, improved slightly when compared to 63.1% in the prior quarter.

Our service operating margins continue to be strong which confirms pricing did not play a part in our lower margins. Rather, it was the absorption of our fixed-cost structure on lower revenue, when compared to the prior year.

Our cost of product sales is 76.9% of revenues, also improved from 81.9% in the prior quarter, as we begin to realize the effects of our cost structure reduction efforts. G&A for the quarter is $12.6 million which is in line with the previous quarter. Depreciation and amortization for the quarter, $6.9 million, up just slightly from the last quarter.

Other expense, this quarter primarily includes foreign exchange losses of $1 million. The guidance we gave on our last call, for the quarter, specifically excluded the impact of any FX gains or losses. So, accordingly, our discussion today and pro forma EBIT and EPS, excludes this foreign exchange loss.

Excluding those FX losses to conform with our guidance, pro forma EBIT for the quarter is $48.9 million compared to $50.7 million in the first quarter. Ex-item, EBIT margins were 24% for the quarter which is a sequential improvement and consistent with our previous guidance. GAAP EBIT for the second quarter is $47.9 million.

To you we'll note that, there are no additional severance charges in the quarter, as we play the actions taken properly align our cost structure with today's market conditions.

Income tax expense in the quarter, $10.3 million, based on effective tax rate of 22.5%, net income for the quarter, ex-item, is $35.4 million, compared to $37.5 million, ex-items, last quarter. While, GAAP net income is $34.6 million.

Earnings per share for the quarter is $0.82, on the same basis that our guidance was given and is above the average street estimate of $0.77. Our GAAP EPS is $0.81 per share.

As we move on to the balance sheet and in the interest of time, I'm only going to highlight the items we feel that are interest to the audience or have materially changed from the previously reported balances. Cash is $22.6 million, down just slightly from $23.4 million at prior year-end.

Receivables stand at $155.1 million, down sequentially from $158.9 million and down from $197.2 million at prior year-end. Our DSOs in the quarter are 65 days, up slightly from 64 days for last quarter and all of 2014.

Inventory of $47.6 million is down, sequentially, from $49.2 million, as we continue to work off pre year-end commitments, based on expected activity levels, existing before November 27, last year. Expect inventory to continue trending down as the year progresses.

Intangibles and goodwill increased to $191.4 million, from $175.1 million at year-end, due to the acquisition of Sanchez Technologies, providing additional reservoir fluids technology in our reservoir description segment and now to the liability side of the balance sheet.

Our long-term debt stands at $422 million, compared to $373 million last quarter. And, it's comprised of $150 million in senior unsecured notes and $270 million drawn on our bank revolving credit facility. The increase in borrowings came as a result of our increased share buyback program.

As of today, drawings under our $400 million credit facilities are $280 million. Shareholder's equity ended the quarter at $7.3 million, down from year-end balance of $94 million, primarily due to the share repurchases and dividends, in excess of net income, since the end of last year.

Depending on our share buyback activity in the coming quarter, we may actually see book equity go to zero, below zero. Clearly, book equity does not represent the solvency of a company.

And, we note that several S&P 500 Companies who generate significant levels of free cash, also have negative book equity, because, they return that free cash to their owners, just as we have done. We do not have debt or contracts compliance requirements, to report positive net worth.

Capital expenditures for the quarter at $5.4 million, down from $12.1 million in the second quarter of 2014, in response to the current environment. We expect our CapEx program in 2015 to continue tracking client demand for our services and products.

Consequently, we expect full-year CapEx to be approximately $27 million in 2015 which is down about $10 million from 2014. Looking at cash flow, cash flow from operating activities in the quarter is $46.7 million. And, after paying our $5.4 million in CapEx, our free cash flow is $41.3 million for the quarter which is in excess of the our net income.

For the first half of the year, we converted over 27% of our revenues into pre cash which generated $114 million in free cash flow and represents 173% of net income. Our focus on managing the business during this challenging environment continues to be maximizing free cash flow and return on invested capital.

During the quarter, we used our free cash flow, cash balances and borrowings, to pay $23.6 million in quarterly dividends. And, to repurchase approximately 360 shares for $42.9 million.

Through to close of business yesterday, in the third quarter, we've repurchased further 85,000 shares, at an average price of $108.79 per share, for aggregate cost of $9.2 million. Our diluted share count now stands at 42.7 million shares. I will now turn it over to Dick, for an update on our guidance and outlook..

Thanks, Chris. Very nice. Let's go over our guidance. The balancing of worldwide crude oil markets is now underway. The U.S.

production started to decline in the second quarter this year and now the most recent international energy agency estimates project worldwide demand to increase this year by 1.4 million barrels, in response to these lower commodity prices. It appears that U.S. crude oil production did peak in April.

And, we believe that production could fall over 500,000 barrels, from that peak, by this year-end. Adding support to that view, Bakken production peaked last December, while Eagle Ford production began to decline earlier this year.

Internationally, in addition to second half 2015 production declines in North America and additional declines in Mexico, production declines are likely in Europe, Russia, China, South America and Africa.

In 2016, at the same current activity levels in North America, year-over-year production declines are expected in Canada and the U.S., while international production levels stagnate.

We believe that recent downward production revisions in Mexico and offshore Eastern South America, confirm these views which may, indeed, lead to a sharp recovery in crude oil prices and industry activity levels. So for Core Lab, we anticipate North America and international activity levels to flatten in the second half of 2015.

Therefore, we project that third quarter revenue will range between $203 million and $205 million. EPS will range between $0.82 and $0.84. Free cash flow, for the third quarter, is expected to exceed $50 million, significantly greater than projected net income, again aided by working capital improvements.

For the fourth quarter, we project revenue levels ranging from $205 million to $210 million, with EPS ranging between $0.84 and $0.86. Free cash flow in the fourth quarter is now expected to exceed $60 million, also greater than net income and also positively impacted by working capital.

All operational guidance excludes any foreign currency translations and any shares that may be repurchased, other than those already disclosed. And, it assumes an effective tax rate of 22.5%. And now, Monty will give a detailed operational review.

Thanks, Dick. Second quarter revenue of $204 million resulted in operating earnings of $48.9 million at a 24% margin, excluding only the FX loss that Chris mentioned earlier. Revenue is down sequentially 5%, while operating margins actually improved 30 basis points.

We thank our employees worldwide for working to deliver value to our clients, through our reservoir optimization technologies, offered around the globe. Reservoir description revenue for Q2 was $119 million, down less than 3% from Q2 2014, in constant U.S. dollar exchange rates.

Operating earnings of $32 million resulted in 27% operating margins which are in line with the prior periods. Abu Dhabi's state-owned oil company, Adnoc, has set itself an ambitious goal for increasing the rate of recovery for its producing assets. A variety of enhanced oil recovery processes are being evaluated to achieve their goals.

Core Lab is currently working with various Adnoc companies, to determine the improved recovery, resulting from injection of both miscible and immiscible gas. Studies also involving investigating potential asphalt team flocculation, in both the reservoir and the production facilities, as a potential result of this EOR process.

Core laboratories Middle East operations have been contacted by several international and national oil companies, to analyze ultra- sour reservoir fluids, containing more than 20% hydrogen sulfide. State of the art PVT equipment, manufactured to Core Lab's specification, has made these types of analysis possible.

Studies are also investigating the potential formation of elemental software which can be problematic in both subsurface and in the production facility.

In Q2 2015, Core Lab provided the sampling and associated PVT services, to over 50 clients in the following shale plays, Tuscaloosa, Eagle Ford, Marcellus, Utica, Powder River Basin, Anadarko Basin, Niobrara, Bakken, Permian Basin and Avalon.

On the EOR front, Core Lab performed five studies in Q2, for several clients holding property in the Bakken and Eagle Ford shales. Core is projecting that this service will grow rapidly in the years to come, since it is the most economical way for companies to extract the incremental oil left behind.

Core's experience, capability and capacity, have made it the dominant reservoir fluid sampling and analysis entity, including EOR, throughout the U.S. land market. As with land shales, deepwater Gulf of Mexico clients are exploring the feasibility of EOR, to get incremental oil out of their reservoirs.

Along with flow assurance studies performed in Core Lab's unique pressurized fluid imaging system, used to determine components which may plug client production lines and the best remediation methods. In addition, deepwater Gulf of Mexico clients are requesting ultra-high pressure EOR studies.

The company has performed a number of flow assurance and EOR studies, for its largest customer. And, expect the other majors to follow their lead in the near future, with Core Lab being the only provider of these services at pressures experienced in the deepwater environment.

Production enhancements revenue of $71 million resulted in operating earnings of $14.8 million and operating margins of 21%. An improvement of 310 basis points over Q1, in Q2 2015, Core Lab's performed an extremely valuable suite of completion diagnostic services on one of the high visibility, technically challenging, Gulf of Mexico tertiary plays.

The well completion had a total depth over 5.3 miles, with treating pressures exceeding 25,000 PSI. The five zone single-trip completion utilized Core's latest technologies, to record data during the seven days required to complete all five zones.

The suite of diagnostic services included ZeroWash proppant tracing, spectral gamma ray logging, PackScan annular pack density logging, SpectraScan frac fluid cleanup profiling and FlowProfiler hydrocarbon production profile. The five zone frac pack was accomplished across 1,350 feet of Wilcox reservoir rock.

To save expensive rig time, the logging operation was formed using Core Lab's patented washpipe-conveyed logging system. Results were provided shortly after completion, thus enabling the operator to confidently put the well on a controlled production and pressure drawdown.

The PackScan verified that all gravel pack and same control systems, were successful. So, no expensive remediation was necessary. Upon initiating flowback, both produced water and produced oil samples will be collected at the surface, to begin the frac fluid cleanup and hydrocarbon production profiling.

Sample collection and analysis will then continue for several months. Core laboratories combination of diagnostic services is the only way to determine if the completion of each zone is successful. Long-term monitoring also enables the operator to better model the reservoir and identify problems or variations in the different reservoir intervals.

This information is critical to optimizing future completion strategies and procedures. Lower product prices have driven the industry to look for more cost-effective techniques to maximize production. Core Lab's diagnostic services and thorough engineering analysis; continue to be a key component in addressing this need.

Operators are looking for new creative ways to meet their production targets at reduced cost. This continues to drive new applications of core Lab's proven technologies. Interest in the potential benefits of restimulation is continuing to surge.

Many operators are utilizing Core Lab's proppant tracers to evaluate proppant coverage and diversion effects, in these re-fracs. Core's cost optimization study presents several case histories illustrating the benefits of diagnostics in flow assurance, new completion design and optimizing well spacing.

Core's cement spacer tracing study deals with how this technique has been utilized to better target perforations in the granite wash.

The idea of tracing the cement spacer was a collaboration between Core Laboratories and an operator who requested help to identify where natural fractures existed in horizontal wellbores, in zones where high leak-off tracer is observed, there is a high likelihood of natural fractures and permeability.

This diagnostic has now been adopted and is being used in multiple plays, to better target perforations. This has led to additional services being performed by Core Laboratories, during the hydraulic fracturing operations.

To adapt to the decreased drilling activity, Core's production enhancement ballistics engineers shifted their focus to the multi-billion dollar plug and abandonment market, specifically in the UK North Sea sector? A new charge line was launched, the packed plug and abandonment circulation system and significant sales were achieved in the second quarter.

The pack perforating technology combines limited entry penetration with the optimal hole sizes needed for compliance with regulated decommissioning procedures, for non-producing wells.

In the second quarter, the pack perforating system was used to successfully abandon North Sea wells by perforating 9 5/8" inner casing, without penetrating the 13 3/8" outer casing, thereby allowing access to the annular spacing, for creating the required cement plugs specified by regulatory authorities compared with conventional section milling, pack perforating methodology enables significant savings of expensive rig time.

Reservoir management revenue of $14 million resulted in operating earnings of $3.4 million and operating margins of 24%. Mozambique is the fourth phase of a series of projects to evaluate the reservoirs and seals in different basins of East Africa. Phase I was Tanzania. Phase II was Kenya. Phase III was in Uganda. And now, Mozambique is phase IV.

The project looked at 48 wells, the deliverables was a cycle stratigraphic model, sedimentology, petrology and SEM analysis from Core, describing the reservoirs and intervening seals. Geochemical analysis of the organic content and maturity of source rocks, was also conducted.

A paleographic model was created to define the distribution of depositional systems, in relation to tectonic elements. Andrew, we will now open the call for questions..

[Operator Instructions]. The first question comes from Rob MacKenzie of Iberia Capital. Please go ahead..

Question for you here, for the construction enhancement segment, it sounds like the deepwater Wilcox job was pretty big, for that segment, this quarter.

Can you give us a feeling for how the moving parts played out in production enhancement, specifically on the deepwater side versus North American land? I would presume North American land, the business there was probably down more than the average for the segment, correct?.

That's probably correct. Offset by, remember Rob, we said the deepwater Gulf of Mexico, for Core Laboratories, we were going to see our most active year. And, we see that continuing into the third quarter.

We're seeing a nice offset there which really high caloric revenue, coming from the deepwater Gulf of Mexico, with some of the newer technologies and completion techniques, that Monty talked about, working nicely, to continue to add incremental margins and EBIT to operating profits, for production enhancement..

I presume that that is really behind the tightening of your guidance range, in your confidence in the segment going forward, correct?.

Correct, because, those are a little bit longer term projects. If you look at some of the comments made by the major operating companies in the deepwater, Conoco being the most recent, they talked about creating value from discoveries that have already been made.

So, as opposed to looking at CapEx for drilling exploratory wells, CapEx is now being focused on development.

We're seeing a lot of the CapEx dollars that were going for exploration which as you know from Core, really is not of a high interest to us, going right into our wheelhouse in the development of these discoveries that have been made, over the last 3 years to 5 years..

On reservoir description, revenue was down sequentially there? Normally, that is seasonally up.

Can you give us a feel for the moving parts of there?.

One of the big components there, that helps that seasonally be up, is we have a delayed reaction from all of the coring that takes place in the oil sands, up in Canada. Where those cores are cut in the first quarter and the analysis is done and the revenue - the reports are prepared and the revenue is invoiced in Q2.

And, in some instances, that is up to 15 miles of core. This year that did not happen. The amount of coring that took place in the oil sands, owing to lower commodity prices for that product, significantly affected the amount of core that was cut and then, the revenue that could be billed in Q2..

And then finally, on the re-share/repurchase side, are you guys still comfortable taking your debt to trailing EBITDA up to the 2, 2.5 range?.

We talked about the bank facility covenant is 2.5%. And, we're clearly comfortable up to say, 2%. And, we're well below that right now..

And you still view your stock price as attractive?.

It's got even more attractive here, recently..

The next question comes from Chase Mulvehill of SunTrust. Please go ahead..

I guess just a follow up on the last question. We've seen a few of the large cap guys come out. And now, you had P10 this morning, put up some good pressure pumping numbers. Do you think that the U.S.

stage count is falling less than people think?.

On the U.S. stage count, it's a tough question. Because, the stage count that is important to us, continues to decline a lot less than what is expected. If you look at complex long laterals, a lot of science being done on those wells that plays the production enhancement technologies pretty well.

If it is a run-of-the-mill short lateral, with stages in it, we usually don't generate a lot of revenue from that. So still, in a lot of the science wells that are going on for better and improved completion and stimulations, we would agree with that.

Relative to the stage count falling for Core Lab, it's falling less, because of the importance of the amount of science being done on those wells. We're still at the mode longer laterals, even more stages and more profit..

If you were to think about the production enhancement business and then think about sequential declines for the U.S. owned shore business? The rig count was down 35% here in the U.S., this quarter.

How much less was this business down in the rig count?.

We were certainly nowhere near what the rig count was.

Sequentially, we're down how much, Chris?.

Chase, on the product sales, we were down 7%, that’s 2/3 of that business. That really shows how well those technologies hold up. And on the service side, we were down just slightly..

Last one for me.

On the reservoir description side, can you just walk through the mix between core and fluid analysis? And then, maybe, also how much of this business is deepwater?.

If you look at reservoir description, clearly now, more than 50% of the revenue, actually approaching 60% of the revenue, is on the reservoir fluids side. And, when we look at the contribution of the amount of core analysis being done, I would say a large component of that is from the international theater.

If we look at North America, most of the rock that we're looking at there, from the unconventionals, are tied to those enhanced recovery projects that Monty spoke. Where, we're combining the cores and the fluids, to try to increase the amount of recoverability.

Let's say, on average, from these unconventional plays of 8% to 9%, to get that up into the low teens, maybe approaching mid-teens, with the other majority of rock coming from the deepwater Gulf of Mexico.

So clearly, in reservoir description, reservoir fluids has become the dominant factor there, with core analysis still being an important component. But, more being from the international theater, feeding that revenue stream.

Okay.

So then, on the deepwater side, how much would you think would be deepwater? Half?.

If you look at the company, 30% of all oil is produced offshore. 40% of our revenue comes from offshore. Half of that comes from deepwater. So, 20% of the revenue still comes from deepwater, tying to a lot of these development projects. And, as we mentioned earlier on, we do not do a lot of work on the exploration side, especially on rocks.

We do some fluids work on that. So, we see our deepwater revenue staying pretty constant, because they are tied more to development projects, as opposed to exploration..

Okay.

On the deepwater side of things, if you've got some visibility over the next six months, but as we move into 2016, do you see any reason that should fall off?.

We actually look forward to 2016, because there are a number of projects that will be commissioned, probably near the end of 2015. BP has talked about commissioning Mad Dog - well, not commissioning, but actually testing the waters, their words not ours for rig rates near the end of the year, for the development of Mad Dog 2.

And, you have a number of projects. Offshore Angola, where you had operators, I believe it was Cobalt, talked about testing the waters for rigs rates there, for developing those projects there. So, we might not have it laid in stone, but we like the way these projects are rolling out for 2016..

The next question comes from Stephen Gengaro of Sterne Agee. Please go ahead..

Two things, one, when you are looking at the unconventionals outside of North America, can you give us a sense for the pockets of strength and opportunity for the production enhancement division, as we go forward here in the next couple of years?.

Okay, Stephen. If you just look at the major, because right now the concentration on the unconventionals outside of North America are tied to, really, a few world-class developments. All of which are in the earlier stages. If we start looking at, let's say, Argentina and the Bocco Muerte. As you know, we do not have a facility in Argentina.

We're doing a lot of work on the Bocco Muerte. That is actually being done by our Houston facility. For a number of U.S. operators, that probably is still, in earnest, two to three years out, for big prospects for production enhancement. Right now that generates revenue for our reservoir description segment.

The second, probably being in North Africa, with the Gotlandian Silurian shale. That does generate revenue, both for our reservoir description and production enhancement segments. And again, due to just political turmoil there, that probably is still a number of years off.

And then, the third one that we would put our fingers on, would be the Bazhenov shale in Russia. And, due to sanctions tied to the Ukraine, right now that is off limits for Core Lab technology. So, the two big ones are still in Argentina and in northern parts of North Africa, yet still not generating a lot of revenue for reservoir description.

And probably still a couple of years off for opportunities in production enhancement.

And then, my second question is centered around the deepwater. Can you add some color? I know you guys have talked about and done, a lot of work on trying to enhance recovery rates in deepwater and improve the economics of those projects.

Can you give us a summary of where things stand now and what you're seeing out there?.

Yes, Stephen. Good question. A good rule of thumb to use, if you look at the lower tertiary, everyone 1% of increased recovery, from lower tertiary reservoirs that have been discovered, is a net back to our clients of about $6 billion.

So, they see the importance of enhanced oil recovery and enhanced oil recovery projects and schemes, in the deepwater Gulf of Mexico, to improve those economics. A great example is the commissioning of the project called Stampede Field. This is a field that is under development. It's deepwater.

The first six wells to be drilled in this field are actually going to be injector wells. This is the first time that we're aware that any deepwater project around the world is looking at enhanced recovery first. As opposed to drilling production wells, they will be drilling injection wells, to boost production from the get-go, from the field.

As opposed to coming in and adding to increased recovery rates later in the life of the field. We believe that is a portent of things to come. And, it's an interesting application of Core Lab technology, that we will see not only used in the deepwater Gulf of Mexico, but also deepwater in the South Atlantic margins and other places in the world.

The next question comes from Blake Hutchinson of Howard Weil. Please go ahead..

This lower tertiary well in the Gulf, for production enhancements and the usage of your full kit, the lack of a better term, something you alluded to the potential for, last year. And, I wanted to take the opportunity to get an idea of the economic uplift, versus what we understand for your typical land well potential.

Is the bucket for uplift, volume of you tracer technology, is it - should the sheer number of perforating events, is it the addition of the logging tool? Or, are you trying to say it's just the time spent in all these different phases?.

Sure. The volume differences is order of magnitude difference, between that well, that type of service. Versus, a typical land development. The value we can bring in saving our clients a lot of money, by using these technologies, is huge.

The PackScan itself, if you have a gravel pack that is not successful, our PackScan is the only way that you can actually verify that, with any confidence, that it is a successful gravel pack. Now, in this instance, there were five different zones, all in one completion. So, you've got several gravel packs that have to be verified.

The good news for the client is, one, they were all successful. They were all done very well. So, we can the client, go ahead, you can start this well in production now. If you had an successful gravel pack in any of those, you run the huge risk of losing that well, in a very short period of time.

Because, the sand will invade and eat the casing and the gravel pack screen, away. And then, you've lost the well, basically. Which is, of course, is a huge proposition. So, it's a huge deal for us. We can verify so much on a very important well, for our clients.

And, that's what makes that well such a big opportunity for us and a huge value for our clients.

And then, kind of switching gears to reservoir description. I just wanted to touch on your commentary around accurately measuring your pressure temperature measurement envelops. And, I guess, any other tangible signs that your improvements and accuracy of measurement have fields that were either dormant, in terms of PVT testing.

Or, fields that were doing it at longer intervals, starting to increase the intensity in which they remit the data for testing?.

Yes, Blake. We're seeing a trend where more and more data sets are being generated, over a short period of time. On the extreme, we have clients in the North Sea. And, you can read that as high decline curve rates, great pressure differentials, high water cuts. They take new fluid samples every two weeks, for analysis.

Now, we would love to have all of our clients beyond that type of the rotation. But, more and more of them are seeing the value add from the fluid side of the business.

More importantly, from the deepwater fields, in the pressure differentials, on how to produce these fields, to ensure that they are going to maximize the ultimate recovery from those fields. Hence, the purchase of Sanchez, where it gave us a much greater pressure and temperature window, with the technology that they were able to bring to bear.

They were a chief provider to Core Laboratories. And, we like them so much, that we opened discussions and found that we're going to need to go to even higher pressures. And, they are going to need some additional development dollars. And, we can certainly bring those development dollars to bear.

So as we go forward, where we had at one time, the Golden Age of core analysis, let's say in the 1990s and in the early part of this century. I think since 2005, you are entering the Golden Age of reservoir fluid analysis. And, we've positioned ourselves nicely for that.

Moreover, our clients are going to insist that all of this pressure and temperature data be generated in a Mercury-free environment. And, we're going Mercury free, worldwide, whereas, conventional PVT analysis still uses Mercury which is not friendly to the environment.

And our clients will insist, probably in a short number of years, that all PVT data be generated for Mercury-free instrumentation. And so, we think we're a bit ahead of the game in getting Sanchez in the fold. So, we can meet the specifications, probably in a year or two time.

And, that's that leads me to my final question for Dick.

Is the Sanchez acquisition considered at all in 3Q guidance? Or, should we view that as, essentially, internalized at this point and non-revenue generating?.

Think of them being an in-house provider of instrumentation. We were one of their largest customers. Clearly, they have sold to many of the international oil companies and national oil companies. They have a very good marketplace there. But, it really is driven by the services that we can provide, internally, to our client..

Right. It's just a driver of Core Lab revenue.

That is correct, Blake..

And, we will continue to sell and service equipment to major oil company research centers, national oil companies and the University systems, to which they have sold in worldwide.

The next question comes from Phillip Lindsay of HSBC. Please go ahead..

I have a couple of macro questions, please. The Russia and the Middle Eastern production increases that you suggest are unsustainable. I can probably understand why you might think that about Russia. But, perhaps it's more surprising to hear that about the Middle East. Perhaps you could elaborate on that.

And then, secondly, just interested in how you see the U.S., versus the international mix, evolving. This V-shape recovery you talked of. Thanks.

Yes, Phil. If we look at just production levels in the Middle East, you have all countries producing at, what we would think, would be maximum amounts of the amount that they can prove, very little spare capacity there. These are carbonate reservoirs.

One of the dangers of producing maximum amounts, from carbonate reservoirs, is you start drawing larger amounts of water. And we would think, at the levels at which we see production throughout the Middle East, that they would be in danger if they continue with those levels, for producing larger amounts of water.

And, one of the things about producing water from carbonate reservoirs, once you start producing larger amounts of water, you always produce larger amounts of water, even at reduced production levels.

We know these guys are pretty sharp there and that, the statement of we do not believe that those are sustainable, are tied to water production levels..

Okay. And then, the U.S.

versus international mix, as the market recovers?.

For revenue?.

No. Just in terms of, you talked about this V-shape recovery. I'm just trying to get a sense of how you see the shape of that, U.S. versus international..

Okay, yes. Very good. We see that being led by international. And, they are going to be tied to crude oil related projects. You will see a lot of these deepwater projects. I believe there are 18 that are looked to be sanctioned here, the end of 2015, 2016 and 2017. That will lead your international activity recovery and again, all on the development side.

We don't see much exploration happening there. So, we will start to see upticks in the amount of international spending and activity levels. And then, followed by North America onshore.

Just finally, interesting to see you changed the structure of the presentation today, with one additional presenter.

Apologies for asking the question, but should we read anything into that?.

I think it's a good career development opportunity for Chris. He's our Chief Accounting Officer. He is responsible for the numbers, so we thought he should tell you about the numbers..

The next question comes from Brandon Dobell of William Blair. Please go ahead..

Given your outlook from the comments you've talked about, especially within the bigger segments, how do we think about your approach to furloughs? To bringing guys back from 20 hour or 30 hour work weeks, up to the 40 hour work weeks, how should that progress the balance of the year?.

Sure. We're currently pretty much on the right size for our business. At this activity level, we're very happy. And, we're pretty much everybody is working a normal 40 hour workweek. And that's not 100%, but it is close.

So, kind of back to normal mix between furlough and full-time, based on what the activity levels look like right now. And, it sounds like that's how I should expect the back half of the year to play out..

That's very little furlough..

Remember, Brandon, we had 5,000 employees to start the year and now we're about 4400..

Okay, within production enhancement, maybe if you could rank the drivers of growth, in order of importance or contribution between and a new products, new customers and maybe it is a higher service intensity or more stages. Just trying to get a sense of where the outperformance, relative to the industry, is coming from.

If it is specific to technology or a customer type or something like that..

I would say three components there. Number one, cutting-edge developments of enhanced recovery projects, Monty spoke of the five that we're working on, right now in the Bakken and down in the Eagle Ford. Number two would be, improved completion and stimulation techniques. So, read that longer laterals, more stage intensity and more profit.

And I guess, if we had to rank those three, you would say that, out of longer laterals, more stages or more profit intensity, we would say more stages are needed. Some of our studies show that we're not effectively moving hydrocarbons, in a number of these reservoirs, more than 100 feet to 120 feet.

It suggests that stages need to be a lot closer together, to drain these reservoirs from an overall standpoint. So, longer laterals, more profit. But more importantly now, we would probably say more stages.

And then the third component for production enhancement will be that deepwater Gulf of Mexico, on completion and stimulation techniques there, in the deepwater.

And then, final one, with some of the bigger service companies talking about a little more risk based or production based contract structures. I know it's a different business, obviously.

Have you guys changed your thinking, in any way, about how you work with the customers, in terms of are their potential incentives? Or, If A happens, then we get more market share, get more wallet share.

Any thought process changes with the customers, about how you guys are approaching them?.

Dick, you want to take that one?.

Yes. We always remember that we're a service company. So, we want to develop a new products or new service, usually in conjunction with our clients, to help them get better recoveries from their field. We're going to establish a price for that new service, that we think will give us a very good margin.

Our view is, let's provide those services, but let's work with the clients on determining how best we can do that. Is there a way that we can provide more services. Clearly, we're doing that, as a way to create some additional growth in this environment. But, when it comes to payment and sharing of that, our view is we're a service company.

We're going to price our products and services properly, to get a good margin. We're going to conduct that service or sell that product. We're going to give them an invoice and we expect them to pay us in 30 days and we're all happy. End of story. We choose not to compete with our customers..

And that question comes from John Daniel from Simmons & Company. Please go ahead..

First one for you guys, what type of well completion activity assumptions are you assuming in the second half of the year, to arrive at the view of potentially a 500,000 barrel per day reduction of peak levels?.

John, we're looking at a continuation of activity levels that we saw at the end of Q2. And, we're assuming about, for the second half of the year, about 9,000 well completions..

And then, Dave, as you are talking to your customers, do they share your views on the potential production declines? And, how concerning is it to them?.

They agree on a general view of that. They do not agree with their own production trends.

Okay.

So, I think many of our clients believe that they are immune to those. But on a general sense, you cannot argue with decline curves that always win and never sleep..

Do they believe that everyone else has the challenge, but themselves, is that fair?.

Correct. But, in saying that John, you are starting to see some actions being taken, to offset some production declines that are certainly apparent in second quarter numbers, coming out of some of the production companies. And, two companies that come to mind, straightaway, that are going to be adding back rigs.

Companies like EOG and Pioneer see that additional completions are going to be needed to offset which will ultimately be production declines.

Okay. Just a couple more for me, as you look at the refrac opportunities, there continues to be a lots of chatter about that.

Your client interests, at this point, is it primarily on gas directed or is it also oil directed?.

I would say both. But, if I had to rank it, I would say 60% net gas, 40% oil. There was an excellent SPE paper that was written by the guys at BP. And, it harkened back to recompletions that we talked about in the first quarter of 2013, up in the Woodford. It is a great documentation of how successful they were. And again, these were tied to natural gas.

Do you believe that the refrac opportunity is material enough to have an impact on recovery in drilling activity? Or, is it too early?.

For Core Laboratories, I would say it might have some effect on the margin, but not a lot of effect on the margin.

And then, just last one for me. And, maybe I have not been paying attention over the years. But, when I read the release in the reservoir management section, you talk about several new companies joining up on the Eagle Ford study. You used the term, that may be considering entering into the play, through mergers and acquisitions.

I don't recall ever seeing you through that in. But, like I said, maybe I missed it.

Can you elaborate on how active you think that E&P and M&A is going to be? Just any color around that comment?.

We have mentioned this in passing. But, we have seen a lot of interest in looking at large scale databases, primarily from private equity firms..

Okay..

Where they want to look at and evaluate acreage, of maybe some fringe players, that they might be able to look at doing some additional funding, private companies or even public companies and playing a larger role in the development of that acreage.

As opposed to just traditional oil companies that are purchasing these, we're seeing a lot more interest from the private equity names, in looking at evaluating these acreages.

Okay, John, very good. So in closing, Core Lab operations have positioned the company for increased activity levels throughout 2015 and into 2016. We have never been operationally or technologically positioned in a better way, to help our clients maintain and expand their existing production base.

We remain uniquely focused and of the most technologically advanced reservoir optimization company in all of the oil-field services. So in closing, we would like to thank all our shareholders and the analyst that follow Core.

And as already noted by Monty Davis, the Executive Management and Board of Core Laboratories gives a special thanks to our 4400 worldwide employees that have made our results possible. We're proud to be associated with our continuing achievements. Thanks for spending your morning with us and we look forward to our next update. Good bye, for now..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..