Gwen Schreffler - IR David Demshur - CEO Dick Bergmark - CFO Monty Davis - COO Chris Hill - Chief Accounting Officer.

Scott Gruber - Citigroup Ole Slorer - Morgan Stanley Rob MacKenzie - Iberia Capital Chase Mulvehill - Wolfe Research Greg Lewis - Credit Suisse Sean Meakim - J.P. Morgan Marc Bianchi - Cowen Stephen Gengaro - Loop Capital Markets William Alpaugh - Simmons and Company.

Good morning. And welcome to the Core Laboratories Quarter Three 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Demshur, Chairman, President and CEO. Please go ahead..

Thanks, Rachel. Like to say good morning in North America, good afternoon 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’ third quarter 2017 earnings conference call. This is our 89th quarterly earnings release.

This morning, I am joined by Dick Bergmark, Core’s Executive Vice President and CFO; Core’s COO, Monty Davis, who will present the detailed operational review; Chris Hill, Core’s Chief Accounting Officer, and Gwen Schreffler, Core’s Head of IR. The call will be divided into five segments.

Gwen will start by making remarks regarding forward-looking statements. Then we’ll come back and review the current macro environment, updating industry trends that should be beneficial to Core. We will then review Core’s three financial tenets, which the Company employs to build long-term shareholder value.

Chris will then follow with a detailed financial overview and additional comments regarding building shareholder value, followed by Dick Bergmark commenting on Core’s fourth quarter 2017 outlook and a general industry outlook as it pertains to Core’s prospects.

Then Monty will go over Core’s two operating segments, detailing our progress and discussing the continued successful introduction of new Core Lab technologies, and then highlighting some of Core’s operations and major projects worldwide. Then, we’ll open the phones to a Q&A session.

I will now turn it back to Gwen for remarks regarding forward-looking statements. Gwen..

Before we start the conference this morning, I’ll mention that some of the statements 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.

May one or more of these risks or uncertainties materialize or should any of our assumptions prove incorrect, actual results may vary in material respect from those projected in the forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A Risk Factors in our Annual Report on Form 10-K up for the fiscal year ended December 31, 2016, as well as other reports and registration statements filed by us with the SEC and the AFM. Our comments include non-GAAP financial measures.

Reconciliation to the most directly comparable financial measures included in the press release announcing our third quarter results. Those non-GAAP measures can also be found on our website. With that said, I’ll pass the discussion back to Dave..

Thanks Gwen. We’ll do a little look at industry trends that we are seeing.

Core has witnessed and is encouraged by the increasing focus of its major clients regarding capital management, return on invested capital, free cash flow and the return of capital back to the shareholders as opposed and just growing production at any cost in this growing capital.

The oil companies adopting these metrics tend to be the more technologically sophisticated operators and form the foundation of Core’s worldwide client base.

Core will benefit from this shift in focus from fuel production to employing higher technology solutions such as EOR methods in unconventional reservoirs or Core’s exclusive HERO PerFRAC energetic systems.

The uptick in demand for these technologies is considered in the company’s guidance for continued increase in our already industry leading operating margin and the continued expansion of our incremental margins.

Clients will pay for these technologies that boost their return on invested capital and free cash flow as opposed to commoditize services such as wireline, seismic and pressure pumping., In addition, Core Laboratories will remain a technologically driven oil field service company that will continue to grow and expand our service and product offering.

We have no plans to start competing with our clients for acreage position and production streams. Another trend favourable to Core is the increased demand for phase behaviour studies of reservoir fluids in unconventional reservoir.

Pressure, volume and temperature or PVT studies produce data sets used to predict the reservoir performance and determine estimated ultimate recoveries from unconventional reservoirs. Core is technologically sophisticated plans use these data sets to optimize production streams and maximize their return on invested capital and free cash flow.

60% of the revenue in Core Laboratories Reservoir description segment is now generated by the characterization of reservoir fluids up from less than 30% some 20 years ago. Now to review the three financial tenets by which Core used to build shareholder value over our 23 year history of being a publicly traded company.

Incidentally, Core as a company is currently celebrating our 81st year of technological innovation. During the third quarter of 2017 Core generated over $25 million in free cash flow and once again produced the industry leading return on invested capital for the 32nd consecutive quarter.

Also during the third quarter, Core returned over $24 million back to our shareholders via our quarterly dividend. Core will continue to return all excess capital back to its shareholders in future quarters via our quarterly dividends and share repurchases. I will now turn the call over to Chris for a detailed financial review.

Chris?.

Thanks David. Now looking at the income statement, revenues were $166.2 million in the third quarter, which was led by the growth in our production enhancement segment.

On September 5, we released an announcement regarding the impact from hurricane Harvey, and have estimated there would be a $4 million negative effect to our revenue and earnings for the third quarter.

There were several significant hurricanes during the quarter which primarily disrupted business for our reservoir description segment with temporary closures to both our facilities and our client facilities in the Gulf Coast and Caribbean regions.

However our production enhancement segment was less affected from the hurricanes and actually showed stronger growth than we had originally projected for the quarter. Of this revenue, service revenue was a $117.6 million for the quarter, which is comparable to last quarter.

The $4 million impact to our revenue from the hurricanes primarily affected our service revenue in the reservoir description segment. However, the negative impact from the hurricanes was more than offset by the stronger than expected growth from our production enhancement while completion diagnostic services.

Product sales were $48.7 million for the quarter, up $2 million or 4.4% sequentially. The growth in U.S. sales were inline with the EIA’s published completion activity, however we are offset by lower product sales to regions outside the U.S.

Moving on to cost of services, which are 71% of service revenue for the quarter and up 69% from last quarter primarily due to the impact from the hurricanes during the third quarter were 76% of product sales revenue, a nice improvement from the 79% last quarter and 91% in the same quarter last year.

Despite the affects from the hurricane, we continue to see improvements in our operating leverage and the absorption of our fixed cost on higher levels of revenue. G&A for the quarter was $11.9 million, up from $11.1 million last quarter and is primarily related to increased employee headcount and compensation.

We expect G&A to be around $46 million to $48 million for the full year. Depreciation and amortization for the quarter was $6.1 million, which has been decreasing slightly over the last several quarters.

We would expect some minor growth in depreciation expense reflecting the increase in our capital expenditures in support of more recent growth activities. For 2017, depreciation expense is expected to be approximately $25 million to $26 million.

The guidance we gave on our last call and past calls specifically excluded the impact of any FX gains or losses and assumed an effectiveness tax rate of 15% for the third quarter. For the third quarter our effective tax rate is 15% and the impact from FX was minimal. As such we have reported only U.S. GAAP results.

EBIT, for the quarter was $27.5 million and continues to represent best-in-class EBIT margins of 17%. Income tax expense for the quarter was $3.7 million at an effective tax rate of 15%. However, it will continue to be somewhat sensitive to the geographic mix of earnings between the U.S. and other regions of the world.

Net income for the quarter was $21.1 million, down from $22.7 million last quarter due to the negative impact from the hurricanes. Earnings per diluted share was $0.48 for the quarter. As we move on to significant aspect of the balance sheet, I'm only going to highlight the items that have materially changed from previously reported balances.

Receivables stood at a $129.7 million, which are comparable to the balance at June 30 and our DSOs remained strong at 67 days. Inventory at $34.5 million is down about $1.1 million sequentially as inventory turns continue to improve while demand for our products continues to expand.

We expect our inventory turns to continue showing improvement throughout the remainder of the year. And now on to the liability side of the balance sheet. Our accounts payable were $34.9 million comparable to our balance at December 31, but down about $6.7 million from the balance at June 30.

Our long-term debt ended the quarter at $234 million, and remained at the same level from last quarter. Capital expenditures for the quarter were $4.9 million and $14.3 million year-to-date. We expect capital expenditures for the year to be in the $18 million to $20 million range.

And we'll continue to adhere to our strict capital discipline as we evaluate the capital expenditure opportunities for the remainder of the year. Looking at cash flow. In the third quarter, cash flow from operating activities was $29.9 million and after paying our $4.9 million in CapEx, our free cash flow in the quarter was $25 million.

Our free cash flow conversion ratio which is free cash flow divided by net income continues to be one of the highest in the industry at 119% for the quarter.

We believe this is an important metric for shareholders when comparing companies' financial results, particularly for those shareholders who utilize discounted cash flow models to assess valuations. I will now turn it over Dick for an update on our guidance and outlook..

Thank you, Chris. Very nice. We are encouraged by the increasing focus of our major clients regarding capital management, return on invested capital, free cash flow and returning capital back to their shareholders as opposed to just production growth goals.

The company is adopting these metrics tend to be the more technologically sophisticated operators and form the foundation of our worldwide client base. We expect that we will benefit from the shift in focus from production growth to employing higher technology solutions to maximize economic production growth and EURs.

The client’s increased use of our hired technological solutions has been considered in our guidance for continued increases in operating and incremental operating margins into the fourth quarter. Clients will pay for technologies that boost their ROIC and free cash flow.

Internationally, a number of FIDs, Final Investment Decisions have been announced during the quarter by oil and gas companies. However, activities for Core Lab relating to those FIDs are not expected to materially increase this year as operators are currently developing their project plans and should begin to implement those plans early in 2018.

Further the international rig count remains flat due to limited capital projects underway by international operators. However, operators are continuing to spend from their operating budget on maximizing recovery from their existing producing fields.

We expect fourth quarter 2017 North America and completion activity levels to continue to expand as current completion levels will be supplemented by reductions in ducts drilled but uncompleted inventories.

And we expect fourth quarter international activity levels to be flat to up slightly from third quarter levels with most ongoing projects to be funded largely from the operators operating budgets. We project fourth quarter revenue of approximately $171.5 million.

As discussed in prior quarterly earnings releases, we continue to expect our incremental operating margins to exceed 60% as the recovery phase continues followed by historical incremental operating margins of approximately 35% to 45%.

Operating income is projected for the fourth quarter to be approximately $32.8 million yielding operating margins of approximately 19%. EPS for the fourth quarter is expected to be approximately $0.58 per share.

Fourth quarter free cash flow is expected to exceed net income again and we also expect to continue to return all excess capital to our shareholders during the quarter. Now with that guidance we will turn the call over to Monty for an operational review..

Thanks Dick. In the third quarter, our results were negatively impacted by hurricane and the Gulf of Mexico and in the Caribbean primarily affecting client operations. Revenues for Q3 reached $166 million and generated operating earnings of $27.5 million and operating margins of 17%.

Core Labs employees have worked through various difficulties to keep our services and products ready to meet our clients needs. We thank all of our employees for all they have done to serve clients around the globe. Reservoir description was the segment most impacted by three hurricanes.

Revenues for the third quarter were $101 million generating operating earnings of $15 million and operating margins of 14.4%. Reservoir evaluation and exploitation in the Permian Basin region of the U.S. continues to grow in activity and demand.

Core’s ongoing response to this continued demand in both the conventional and unconventional formation has been to continue to design and implement testing technology and technique to allow for additional hydrocarbon reserves to be found and produced.

Continuous flow gas chromatography, isotope ratio, mass spectrometry is one such automated technology that is currently renewed as part of our analysis to further characterise and enhance development of sale resource base.

By measuring stable isotope signatures of CO2, methane and natural gas with extreme precision, our clients gain insight into the history and origin of hydrocarbon generation and migration within the basin.

A stable isotope composition of hydrocarbon gas and CO2 is commonly used to solve exploration, development and production issues such as gas origin, reservoir compartmentalization, CO location and thermal maturity of the source rocks.

Core has continued service for several clients and well site core handling and core and fluid analysis and the offshore region of South America in the third quarter as a multiple operators develop and evaluate potential reservoir deposits.

Core’s newest technologies at the well site and onshore allow for non-invasive screening through CT Tomography enhanced gama, and acoustic velocity measurements focussed on real time data acquisitions prior to commencement of laboratory testing continue to provide early insight in to the quality of formations being encountered.

In depth, laboratory analysis is continuing on Core and Fluid samples from these fields. Production enhancement is less impact – was less impacted by the hurricanes and therefore did not suffer as much in revenue reduction. Revenue for the third quarter was $65 million generating operating earnings of $13 million and operating margins of 20%.

The growing industry acceptance of Core’s HERO PerFRAC technology continued during the third quarter. Recently our Marcellus operator compared cluster efficiency results in a horizontal test well utilizing Core HERO PerFRAC another consistent hole size charge and a conventional degenerating charge.

The completed zones were diagnostically evaluated to determine the amount of clusters showing effective with near wellbore proppants stimulation with zero wash proppants. The stage is perforated with HERO PerFRAC were unknown Core Laboratories into after the login was performed and reported to the operator.

The results of the SpectraScan post-frac log analysis showed that both the standard deep penetrating charge and the other consistent whole size charge left multiple close clusters unstimulated or under stimulated while the cluster perforated with the HERO PerFRAC were 100% stimulated demonstrating the importance of HERO PerFRAC in completion of wells to be frac.

An independent operator that has been very active in the wet gas vendor of the Eagle Ford play as Core led to help them optimize the completion design for a 23-stage [Indiscernible] completion in South Texas. After experiencing problems fracing the first few stage of the well, they asked Core Lab to help them determine three things.

Why were – are they having early screen outs preventing them from getting all the sand pump. How well are they stimulating all ten perforated [Ph] clusters within a given stage, and will diverters help them stimulate all of the clusters within each stage.

Core recommended and ran SpectraScan [Indiscernible] in their remaining frac stages and followed with our SpectraScan gama ray login tools.

With these two technologies, Core was able to determine that several other – clusters in a number of their frac stages were infact not being effectively treated and the diverge in performance of their particular diverted that they employed was quite and consistent with results ranging from effected diversion to no diversion through depth through a minimal diversion.

After evaluating all of the completion diagnostic data, it was determined that the particular diverter was ineffective and that there were other more cost effective methods that they could employ to ensure more uniform per cluster coverage and eliminate their early screen out.

The new completion methods provided for an increase in stimulated reservoir volume accessing more of the reserves and ruled out the need for diverters. The operator has since eliminated the application of the diverter and has applied more cost effective methods for ensuring the uniform treatment coverage of the reservoir.

The primary benefit of the diagnostic efforts was the optimization of the frac design to increase the stimulated reservoir volume leading to significant improvements in EUR of the wells. Moreover, it is estimated that the resulting frac design changes saved the operator $100,000 to $200,000 per well in completion cost going forward.

Rachel, we’ll now open the call for questions..

Thank you.[Operator Instructions] The first question comes from Greg Lewis with Credit Suisse. Please go ahead..

Yes, thank you and good morning..

Good morning, Greg..

Dave, could you talk a little bit more about reservoir description in that you mentioned fluid analysis is now 60% I guess that’s doubled as a percentage of reservoir description over the last 20 years, but as that trends forward or going forward over the next couple of years, is that something where we think that fluid analysis is going to become a bigger share of reservoir description or do we think it could reverse and really what does that mean for margin trajectory over the next couple of years?.

Yes, all good questions, we do expect in this current climate that we will see increased amounts of reservoir fluid work owing to the work that we are doing in EUR in unconventional. So that’s a very heavily weighted towards the fluid and understanding how those three phase fluids move through that unconventional reservoir.

However, in saying that when international activity ramps up over 2018 and 2019 we’ll expect a lot more rock [Ph] to come in, so you will get some balance in there just from the sheer weight, no pun intended of rock that will start to come into laboratories owing to projects in the international theatre.

So, all in all we would expect that amount of fluid work to trend up overtime, which is favorable to us because operating margins one some of our most sophisticated testing on the PVT side. For instance being able to analyze fluids at 400 degrees Fahrenheit 30,000 pounds per square inch in pressure. We're the only guys on the planet that can do that.

So, we're looking for margins also to the positively impacting by the increasing amount of fluids being done. So, all in all if you look at last peak margins or reservoir description, somewhere in the high 20s, at the peak of let's say 2018, '19, and '20, those margins could creep up over 30..

Okay, great. And then just you mentioned the and I guess we're seeing it shipped from EMPs, it looks like they're focused a little bit more maybe on value over volume. Now it seems like that has been more of a reasoning trends.

I'm just curious had its core labs already start, have you guys already started to see some of the benefit from that or is it more just pay this is kind of how, this is how your customers are thinking about it and the conversations are now just kind of starting that get going?.

I would say that we have had some benefit from that but in most cases these conversations are starting. We're seeing the use of more of our higher technological applications and technology. So, they're getting a bigger bang for the buck. So, you see companies out there that are starting to employ this.

A great example of that would be EOR and unconventionals.

Certainly, if you can go ahead and take your recovery factor and unconventionals from 9% up into the mid-teens for a couple of 3 million of incremental expenditure, you're going to get a much higher return on that investment, leading to higher EORs and free cash flow, some of which can be returned to their shareholders.

Companies mainly involved in this would be technologically advanced clients, like BP, Chevron, Shell, Conoco, Pioneer Natural Resources, Oxy, EOG, Anadarko has, Marathon Apache to name a few. But those are the most active in using some of our highest technology to increase the effectiveness and the efficiency of the capital that they've invested..

Okay, thank you very much for the time. I appreciate it as always..

Okay, Greg..

The next question comes from Ole Slorer with Morgan Stanley. Please go ahead..

Yes, thank you very much and good to see you guys back on track again after that little snuff through last quarter..

Yes. Ole, yes we got the ship righted..

Good to see you, Dave. So, what's bit more specifics on last time we met, you context sized about gas cycling as a concept.

Could you give an update on that and how your customers are taking to it? And sort of I presume that this would all assume that at least 30% to 40% of your revenue base that comes from shale is where most of the growth will happen over the next certainly 12 months before things probably even out a little bit.

Several of this folk is a little bit more on that component and particularly what you're seeing with, what kind of traction you're getting when it comes to tertiary frac, secondary fracs, a very fine mesh, we talked a bit about that last conference call as well as gas cycling and how that is playing out?.

Okay, yes. Let's start with the gas cycling for EOR and unconventionals. We have kicked off a joint industry project in the Eagle Ford. That is continuing. We will be following that up because we're making proposals the industry right now to do a joint industry project in the Wolfcamp in the Permian Basin.

That being said, the number of proprietary projects where companies are approaching it continues to grow. So, it's this idea of looking at dollars to be invested and to try to get their best return and the number of clients that I just mentioned, all of them certainly interested in doing that. So, still early days for this.

But if the results that we've achieved in the lab can be achieved in the field and we expect either later this year or early next year, field testing to begin, I think we would belong to a step function in the amount of revenue that we generate from fluids and rock work in the unconventional reservoirs.

Tied to that, -- go ahead?.

Yes. David, when should -- I understand the industry, going into this, just I'd just have to take time, and I have to be absorbed. There's a timeline around that really getting into Wolfcamp could be very exciting and helping people access some of the gas issues in the Permian in general.

But what's the timeline in terms of, sorry as I interrupted you, you're probably waiting to talk about that..

Yes. On the timeline, certainly the project is being kicked off now. These projects usually last depending on the number of clients that are involved in them. We are requiring them to submit core and fluid samples and as the projects expands, it's actually ever growing in its timeline.

If you look at some of our early shale studies where we've had 60 and 70 participants, those studies actually lasted years. And this could be the case here now, where they're just being kicked off here in the second and third quarters. So, it all depends on the growth of the number of clients what that work program is ultimately going to look at.

So, it's a tough question to answer but certainly it's underway. We hope and we think that these projects actually can last for years with increased interest from the client community..

The important aspect for Core Lab is we are giving results of those studies throughout the life of the JIP. In each time we distribute data and information that pretty much a revenue opportunity for us. So, it's not likely we have to complete the JIP before we get to recognize in the economic benefit.

So, with them lasting over several years that gives us many years of revenue opportunity..

Okay. Sorry just to translate.

As you do, do participants in these studies as they get their results come back and give individual contracts to you and when does that kind of kick in?.

That's the beauty of these studies. Often times that's what happens. You get an operator who is a member of the JIP become comfortable with our approach and the protocols that we're using in the testing and certainly the outcome of the testing. And then they will say let us do those things that is now just our property.

So, you're right, Ole, that's a traditional model of a JIP that it does then our proprietary work..

Okay. Well, if you can give them final this little color. So, when just in all of this -- I think we're all sort of looking for something that could take shift a couple of gears for your growth engine. And as opposed this could be it.

So, given any estimates on just at the back half '18, when do you expect we are a more measurable impact or is it an even longer term, how should we think about it?.

No, I think certainly in the back half of '18 you will see some contribution from this depending on the number of clients to do indeed join that. I think the best would be just look at our guidance going forward and we will start to see significant contributions from those. You will see expanding operating margins, expanding incremental margins..

Okay. Well, thanks for that, Dave..

Okay. And before I leave you, I want to tie into because you made an important point on micro proppants..

Yes..

For these studies to be successful, we found that the tertiary, secondary, along with the primary fracture systems, have to remain open. And that's why we've been requested by some of the participants almost all the participants in our joint industry projects to evaluate proppants.

While they've asked us to now study 400 and 200 mesh proppants along with our studies of a 170, 60, 40, 30, more of the common proppants. But we're thinking right now that the 400 mesh proppant would be used to open up the tertiary fracture network.

The 200 mesh proppant would be used to prop open the secondary fracture network along with a 170 and 30 mesh for the main network. Right now, our calculation show that if we can implement in place 400 and 200 mesh and that we may increase the amount of surface area, expose the flow in the reservoir by an order of magnitude.

And that's what leads to these larger recoveries from these ultra-tight reservoirs. So, that is an important piece of the EOR discussion as well and that's why both projects are going along in tandem..

Those are difficult proppants to source in quantity. So, good luck..

Yes. Very good, thank you, Ole..

The next question comes from Rob MacKenzie with Iberia Capital. Please go ahead..

Thanks, guys. Good recap there on the EOR. I wanted to shift to -- correction hands in here a little bit and digging into some of the comments and success of HERO PerFRAC if I can.

Can you give us a handle, Monty or Dave in terms of how deep you have HERO PerFRAC penetrate the percentage of your perforating charge result today and where can I go to in your mind?.

Rob, this is Monty. The HERO PerFRAC is a fastest growing part of our business in the perforating charge business. It is not the largest or there is a lot of room to grow in that area. I think some of the, I mentioned one study that an operator had done.

There are numerous trying to test out the different perforating systems and our HERO PerFRAC seems to show the best results. So, everybody I talked to from the client side, their future is on free cash flow.

And the HERO PerFRAC opens up so much better their frac jobs, insures completion of the various stages as were shown in that particular study, we believe that's a very common result when you use the HERO PerFRAC. And so, we're seeing big growth quarter-after-quarter and that as more operators adopt that system.

Now, it's a little more expensive perforating system but the results should generate a lot more cash flow for a long time. So, we see this as a big and ever growing part of our perforating family..

Would you say it's kind of a 20% 30% half, where would it be in terms of the percentage of your non-commoditized charges that's being sold today?.

Currently, we're probably at around a 5% to 10%. So, there is a lot of room for growth in this..

Thank you, and then shifting gears I guess question for David. I guess, you mentioned in your prepared comment Dave about a number of FIDs that have gone forward and have been announced here of late.

Can you give us a feel if it's not too early in terms of how that might impact what your expected trajectory might be beyond the end of this year particularly relative to the activity level in 2017 or put it in different way, the major FIDs so far, how does that contrast year-over-year from what we saw this time last year looking forward..

Yes Rob, Gwen's done a lot of good work on this. I'm going to turn this question over to her..

Good morning, Rob..

Good morning..

Flip forward in 2017, we've seen approximately 14 FIDs announced and that's probably double of what we saw in 2016. And there's probably another 14 to 15 potential FIDs that are on the list. We think there's probably half of those that maybe announced in the last quarter of the year.

And so, and you also see additional discoveries that are being announced from a number of the operators. You've got BHP, Deepwater Mexico. Project that they've announced that is south of the LMS block and so that's positive. And you've got additional discoveries from the offshore Guyana.

So, Turbo was the last one that they announced in October with ExxonMobil..

So, out of those Rob, right now we're probably generating revenue, out of that maybe 1/3rd of those. So, let's say five projects out of the 14 that are under ramp right now, with the largest contribution coming from the Exxon offshore Guyana as it stands right now.

But we're also generating revenue from some of the projects West Africa, Northern Caspian Sea. So, fully we'll probably be engaged in all those projects by some time mid-year next year..

Is it too early to kind of put a kind of a revenue growth target for render more description out of that, high single digits, low double digits or is that too hard?.

I'm still, I would still use Rob the algorithm for reservoir description looking at industry activity levels, add 200 basis points to 400 basis points and that probably gives you a pretty good guidance. I don’t want to give any more specific on that because I don’t think we can accurately do that..

Fair enough. Thanks guys, I'll turn it back..

Okay, Rob..

The next question comes from Chase Mulvehill with Wolfe Research. Please go ahead..

Hi, good morning..

Good morning, Chase..

Hi, Dave. So, I guess a quick question on 4Q.

How much revenue growth do you think that we should model for reservoir description? And then do you think we can kind of get back to that 18% kind of EBITDA range in 4Q, the reservoir description?.

Yes. I think actually just to hit production hands win as well. I would spread it evenly the increase in revenue between those two segments. And the 18% or so bathe margins, remember those are EBIT margins not EBITDA margin..

Correct. Correct, okay.

And then what do you think the timing is of hitting the 20% mark in reservoir description?.

I think you're going to see that come up in the next few quarters with the incremental revenues stacked on top of this base. Incremental margins on those are going to be strong and that's really what's going to expand the underlying margin..

Okay. Thanks, Dick.

A sit back turn to which show you are, what are the key reservoir characteristics that you look for to determine whether a certain area of a play is a good candidate for unconventional EORs?.

Yes Chase, we're looking at right now primarily Tier 1 properties which are critical. And again, remember we've got an internal algorithm here at Core that uses 23 parameters to define what Tier 1 property is. So, that's our first check the box whether this is going to be a successful endeavor or not.

So, that's a critical issue followed by a detailed reservoir fluid analysis determining what the composition of those fluids are and what would be the best way to absorb additional amounts of long chain hydrocarbon, with be the use of the gases that are already in that reservoir. So, a ton of parameters that are involved in that.

Quality of reservoir rock, certainly is number one. And number two is the viability of using the reservoir gases to capture more recovery of longer chain hydrocarbons..

Is there a certain amount of mix when we think about ethane or methane that these reservoirs need to have for to be a good candidate?.

All depends on what the fluid constituent and composition is in the reservoir. So, the answer is "yes." But each one is going to have to be engineered separately and specifically for the rocks in the reservoir. So, one cookie cutter won't make it all for the Eagle Ford, we already know that.

And one cookie cutter won't make it already for the Wolfcamp just in some of the proprietary work that we've done there..

Okay. One quick follow-up.

If we think unconventional EORs are obviously going to be a big growth over the medium to longer term but are there any other opportunities whether organic or inorganic in order to drive accelerated growth at accretive returns over the next few years?.

Yes. We are working on some projects in our Skunk Works that we hope to talk about over the next two or three quarters, would prove to be as exciting or maybe even more so than EOR from unconventionals..

Awesome. All right, thanks Dave, I'll turn it back over..

Okay, Chase..

The next question comes from Sean Meakim with JP Morgan. Please go ahead..

Hi, good morning..

Good morning, Sean..

So, last quarter we talked about some of the timing delays of recognizing revenue associated with the diagnostic work on from these high well pad.

Can you give us an update on how that scene is progressing in the third quarter?.

Yes. So, if you recall just for others on the call. As the industry moved from single well drill and complete more pad, drill them all and then come in and complete them all, we saw that really impact us last quarter and as a prevalence of that has played out, that just work through the system.

And so, most of our completions now are really already on pad..

In other words, you said you had more a steady state to that..

That is correct..

Got it, okay. Thank you for that.

And then just thinking about EOR, I mean more of a global basis, looking at the next couple of years, can you maybe just compare and contrast just trying to think about the addressable market for large conventional resources like the Middle East compared to unconventional shale and then U.S.?.

Well, it's a different short of EOR of course we're looking at. We've been doing EOR studies in the Middle East for some time and that is growing market as some of the reservoirs get to the point where EOR is more appropriate. We do those test in our Middle East laboratory providing them with the information they need for that.

It's different from the engineered gas EOR that we're doing on the unconventional here. The engineered gas isn’t for every reservoir even unconventional. So, we test out and as Dave just said, it's a different gas blend that you're going to need either that's where the engineered gas composition comes from.

You have to have it for that particular reservoir or even that segment of reservoir depending on the fluids the rock and what's necessary to stimulate them in the best way. So, it's a different EOR to the Middle East from what we're doing in the unconventionals but quite a bit of work going on in both areas..

Yes Sean, I'd venture to say that in the Middle East, either fields are already under some type of EOR system or they are in the queue to have a study suggestion for that. So, you can see the importance mounted on enhanced ore recovery out of Middle East fields.

If you remember back a year ago, year-and-a-half ago, we consistently said that the production in the Middle East was at unsustainable levels. Well, we got the big open that cut.

For their production to be sustainable at these levels, certainly EOR is going to play a large role in that and that's why we're thinking we're seeing the amount of work in the EOR that we're doing certainly is growing in the Middle East. Probably it's our only international theater where we are seeing an uptick in activity and revenue generation..

Just to summarize a little bit, do not the revenue and margin potential would you say it's a clearly U.S. more and they send today but faster rate of change, potentially things will give underway.

Would you say that in terms of the opportunity size that which is bigger than the other and just picking about from a profitability perspective, is there anything substantially different to highlight?.

Well, certainly in the Middle East, those projects are ramping up and gearing up right now. The EOR in unconventionals that is a lot of unknown parameters there is of yet. I think we're still testing theories and hypothesis on how this is going to work. So, that ramp stage might be a little bit slower..

Okay, fair enough. Thank you for the feedback..

Okay Sean, thanks..

The next question comes from Marc Bianchi with Cowen. Please go ahead..

Hi, thank you. I guess back to the FID discussion. Those five or so projects that you're working on.

Can you give us a sense of the quarterly revenue that might be associated with kind of all five's together?.

Now, every quarter it varies but probably somewhere in the order of probably lower double digits, something like that..

Okay. Lower double digits is in something like $12 million $13 million of revenue. That's the right way..

Yes. But remember it varies every quarter depending on project flow..

So, historically we've said Marc that if we did get a core of material size, we could earn somewhere between $3 million to $5 million in revenue. It takes us a couple of quarters to generate that. So, it depends on how these FIDs turn into activity that pulls the core in fluid.

So, let's say there is an announcement right now for an FID that operator has got to get their program in place, they have to get a rig under contract. The rig has to get to total depth and they have to taking a core. So, when is that? That takes at least six, nine, 12 months..

Right. And Dick, can you remind us how many cores per FID typically if I don’t, I mean I'm sure it varies widely but just give us a sense of the range there..

It ranges from zero to 40. It is pretty wide..

Okay well, that gives me something to work with..

Think about maybe layer on top of that, think about complexity of the reservoir for what the operators may say publicly. That probably means they want more data or if it's in a province it hasn’t been well understood. It probably will want more data, so that would be a good thing for us. So, layer some of that in..

Okay. I guess shifting over to one that's maybe more industry related but you guys have a pretty good insight. Last quarter, the EMP conversation became very much about EOR that seemed to be misinterpreted. Now we're hearing about frac crew efficiency being a problem.

Is there anything you see as an emerging issue for EMP productivity as we go into this quarter of EMP reporting and kind of over the next couple of quarters something that could become a relevant discussion topic?.

We know of no new issues..

Okay, fair enough. Thanks for that, I'll turn it back..

Okay, Marc..

The next question comes from Scott Gruber with Citigroup. Please go ahead..

Yes, good morning..

Good morning, Scott..

Trying to continue on the same line of question. I found a comment in your press release interestingly. You were discussing the tortuosity reduction achieved by the HERO PerFRAC charges, how that can actually reduce popping pressures? This one's your assessment.

Can operators actually reduce the amount of horsepower deployed on site when using the charges?.

That's the whole idea..

Absolutely..

And what are the magnitude?.

Somewhere between 5% and 20% depending on rock type. And if you look at, these as Monty said these are more expensive systems, but at the end of the day they get a much better return on their total investment because they can save money on horsepower that need to be deployed at the surface..

And to get a better flow rate..

And they'll yes, more completion in every segment, stimulated is the key..

And has operators ask it on this, is they going to the pumpers and requested small accrues, trying to save on the rate?.

Well, it's just they're requesting less, the course are at the surface. And you that's one of our big sales pitches to that that you're going to pay core level a little bit more but you're going to pay less for your all over frac job..

Got you..

In lower amounts of crews and compressive horsepower at the surface, that's a good thing for Core Lab..

Definitely. And then, just a quick question on the guidance. I was reviewing previous guides, I couldn’t help but notice the 4Q guide is very similar to the high end of the original 3Q guide, both revenues and then EBIT. The earnings is actually a couple of pennies higher at 58.

What's the ETR assumed in the model?.

It's the same 15%..

And 15% and net interest the same.

Is there anything below the one?.

Yes, $2.7 million, $2.75 million on interest expense. So, it's the same, it's our thought as incremental margins might be a little stronger because some of the cost that were still embedded from the hurricanes could be gone..

Got you. Okay, that's it from me, thanks..

Okay, great..

The next question comes from Stephen Gengaro with Loop Capital. Please go ahead..

Thanks, good morning..

Good morning, Stephen..

A couple of things just to start with. A quick clarification. Did you in response with to Chase's question.

Did you guide the RD margins to 18% in the fourth quarter or do you get there soon?.

We set our operating margins for Q4, company while will be 19%. We haven’t given any segment guidance, but companywide 19%..

Okay. But the basically 100% incremental.

A chunk of that outsides incrementals driven by kind of hurricane relative recovery in reservoir description, is that fair?.

Till you are going to see reservoir description margins improve as well..

And so, we did say in the commentary that without the hurricane that reservoir description would have been around 18%. So, we see that as the base from which we shall grow..

Got it, okay. That's fair. And just as a more of a general comment. As you look at the inventory of these drilled uncompleted wells and you sort of think about piece of potential growth relative to reconnectivity. Kind of two questions. One is how long you think those can kind of help you sustain solid growth.

But more importantly give a sense of the inventory of uncompleted wells right now. How many of those are actually protected core.

Are current prices that will actually get completed? Is there any portion of which you kind of just sort of hanging in that mix that really kind of useless?.

Yes, taking a shot. Let's say we're going to drill 17,000 wells over the next year. We got about 7000 wells that are ducts, so you can see we're going to that duct inventory is going to be able to bolster completions for certainly over the next year or maybe even a year and a half.

We do agree with you, some of the ducts will never be completed due to the economics surrounding them. Right now we don’t have a good feel for what that is, but certainly it's probably going the number into the 100s..

Okay, thank you. And just one final. Would you look at the world then you look at this sort of massive under investment and non- OPEC international.

Any sense of when you start to see a bigger impact on that on global production?.

Well, certainly I think you're going to see global production by the end of 2018, '19, certainly screaming for international investment. We just look at the global inventories and actually Gwen's got some good information on that why we continue to be bullish on crew. Talk about global inventories.

And this ties right in with international non-OPEC production..

So, we think global inventory continue to fall since July a year ago. And even more consistently over the last 16 weeks, we've seen some consistency in the data that's been put out in terms of those inventory levels falling. The other item that we're monitoring are the days in inventory for consumption.

And what history tells us is whenever that reaches 40 days we see pressure on the crude oil price. Today we're at approximately 43 days. We think we get near 40 to 40 days in Q1 of 2018..

Okay, good. That's very helpful color, thank you folks..

Thanks, Stephen..

A follow-up question from Rob MacKenzie with Iberia Capital. Please go ahead..

Hey, a follow-up for you Monty if I may on the HERO PerFRAC. Given the success of that with operators, I would think it's probably by the time such as the competition come in there.

We're seeing competitive offerings crop up yet try and capture that same market?.

I think if in the study I mentioned, there was another supposedly consistent all size charge that was used for part of that study and they were not successful. So, if people try to imitate but they don’t exactly know what we're doing, how we're doing our system. So, here they're going to try to imitate but they have not been successful in doing so..

Great, thanks..

I'll take one additional question..

Okay. The final question comes from William Alpaugh with Simmons and Company. Please go ahead..

Hey, good morning everyone. Thanks for taking my question..

Good morning, William..

Just a quick one. So, last quarter you called that a labor and equipment shortages.

Do you not see any of that this quarter and can you give just an update on that?.

Yes. What we are talking about was the shortage of completion equipment, primarily the aperture pumping equipment. So, we certainly heart positive news, had a Halliburton, I think all of their equipment's they had in cold storage or stacked and out in Q3 and so -- they say all of theirs will be out by the end of Q4.

So, I think that goes a long way to alleviating. There were storages that were hitting the industry in the last couple of quarters..

And hopefully William, that's behind everyone..

Okay. I just want to check in to see if you all seen the same thing. That's it from me..

Yes, okay..

Okay, very good. So, in summary course operations continue for position the company for activity levels in the fourth quarter of 2017? And we know significant challenges away. However, we have never been better operationally or technologically positioned to help our clients maintain and expand their production existing base.

We remain uniquely focused one of the most technologically advanced reservoir optimization company in the oil field service sector. This positions Core well for the challenges ahead. The company remains committed to industry leading levels, a free cash generation and returns on invested capital.

With all excess capital being returned to our shareholder be it dividend and opportunistic share repurchases.

So, in closing our 89th quarterly earnings release, we thank all of our shareholders and the analysts that follow Core and as already noted by Monty Davis, the Executive Management of Core and the Board of Directors of Core give special thanks to all of our worldwide employees that have made these results possible.

We are proud to be associated with their continuing achievements. So, thanks for spending your time with us this morning 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..