Good morning, and welcome to the Core Lab First Quarter 2023 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Larry Bruno, Chairman and CEO. Please go ahead.

Thanks, Danielle. Good morning in the Americas, good afternoon in Europe, Africa and the Middle East, and good evening in Asia-Pacific. We'd like to welcome all of our shareholders, analysts, and most importantly, our employees to Core Laboratories First Quarter 2023 Earnings Call. This morning, I'm joined by Chris Hill, Core's Chief Financial Officer; and Gwen Gresham, Core's Senior Vice President and Head of Investor Relations. The call will be divided into six segments. Gwen will start by making remarks regarding forward-looking statements. We'll then have some opening comments, including a high-level review of important factors in Core's Q1 performance. In addition, we'll review Core's strategies in the three financial tenets that the company employs to build long-term shareholder value. Chris will then give a detailed financial overview and have additional comments regarding shareholder value. Following Chris, Gwen will provide some comments on the company's outlook and guidance. I'll then review Core's two operating segments, detailing our progress and discussing the continued successful introduction and deployment of Core Lab's technologies, as well as highlighting some of Core's operations and major projects worldwide. Then we'll open the phones for a Q&A session. I'll now turn the call over to Gwen for remarks on forward-looking statements.

Before we start the conference this morning, I'll mention that some of the statements that we make during this call may include projections, estimates, and other forward-looking information. This would include any discussion of the company's business outlook. These types of forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from our forward-looking statements. These risks and uncertainties are discussed in our most recent annual report on Form 10-K, as well as other reports and registration statements filed by us with the SEC and the AFM. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our comments also include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing our first quarter results. Those non-GAAP measures can also be found on our website. With that said, I'll pass the discussion back to Larry.

Thanks, Gwen. I'd like to start the comments section today by saying a few words about the untimely passing of Dave Demshur on March 18. Dave was the central figure in building the Core Lab that we know today, serving as the Chief Executive Officer and Chairman of the Board over a 25-year period. Dave led the company through the challenges of a management buyout in 1994 and oversaw more than 20 acquisitions that grew Core into a multifaceted international oilfield service company. Having arrived at Core Lab through one of those acquisitions, I can personally attest to the fact that Dave always kept his word and honored every commitment. In doing so, he set a standard to which we all still aspire. Over four decades, Dave built a legacy of loyalty and dedication to Core and its employees along with setting high expectations and relentlessly pursuing the success of the company. Those of us that had the good fortune to work closely with Dave will all remember that he approached every workday with optimism and confidence, traits that still permeate through the culture of our company. Dave is survived by his loving wife Laureen, a long list of friends, and the thousands of Core Lab coworkers whose lives he touched. Moving now to some high-level comments about the first quarter of 2023. Core overcame the typical first-quarter seasonal decline in client activity as well as somewhat lower-than-expected completion activity in U.S. land, to post revenue and operating income that were comparable to Q4 of 2022, which was the best quarter of last year. Revenue for the quarter came in at $128 million. Year-over-year, the first quarter of 2023 showed an 11% growth in revenue and ex-items, 100% growth in operating income with 56% incremental margins. Sequentially, the company's debt leverage ratio improved from 2.29 to 2.18. We remain focused on executing our key financial strategies, including reducing debt and strengthening our balance sheet. For the full company, operating margins for the first quarter were 11% compared to 12% in Q4 of 2022. First quarter 2023 operating margins as well as year-over-year and sequential incremental margins were particularly strong in Reservoir Description. Year-over-year for Q1, Production Enhancement showed strong growth in both revenue and operating margins. Both metrics were down sequentially following very strong Q4 2022 performance, which was led by seasonal international sales. In addition, there was a somewhat slower-than-anticipated rebound in U.S. completions as 2023 began. Global crude oil trading patterns were uneven at the beginning of the year as the sanctions on Russian crude oil shipments took hold. As the quarter progressed, the company's associated crude oil assay work began to show signs of stabilizing, albeit with new trading patterns. The Russia-Ukraine conflict and associated sanctions continue to create volatility and some uncertainties to growth prospects in our European, Russian, and Ukrainian operations. Lastly, for the full company, EPS was $0.19 per share ex-items, down from $0.20 in Q4 of 2022, but up very nicely year-over-year compared to $0.08 in Q1 of 2022. As we look ahead, Core will continue to execute on its key strategic objectives by: one, introducing new product and service offerings in key geographic markets; two, maintaining a lean and focused organization; and three, maintaining our commitment to deleveraging the company. Now to review Core Lab's strategies and the financial tenets that Core has used to build shareholder value over our 27-plus year history as a publicly traded company. The interest of our shareholders, clients, and employees will always be well-served by Core Lab's resilient culture, which relies on innovation, leveraging technology to solve problems, and dedicated customer service. I'll talk more about some of our latest innovations in the operational review section of this call. While we navigate through the current challenges and pursue growth opportunities, the company will remain focused on its three long-standing, long-term financial tenets, those being to maximize free cash flow, maximize return on invested capital, and returning excess free cash to our shareholders. Before moving on, I want to thank our employees for their dedication, loyalty, and adaptability in meeting all of our clients' needs and for the commitment that many have shown as we navigate the moment and prepare for a more active market. I'll now turn it over to Chris with a detailed financial review.

Thanks, Larry. Before we review the financial performance for the quarter, the guidance we gave on our last call and past calls specifically excluded the impact of any FX gains or losses and assumed an effective tax rate of 20%. So accordingly, our discussion today excludes any foreign exchange gain or loss for current and prior periods. Additionally, the financial results for the first quarter of 2023 include a charge of $6.5 million for noncash stock compensation expense associated with the future vesting of performance shares for certain employees who have reached eligible retirement age. First quarter also includes $1.7 million of costs associated with exiting a few facilities in efforts to consolidate these locations. These consolidations are expected to reduce future operating costs by more than $1.5 million annually. These items have also been excluded from the discussion of our financial results. So looking at the income statement, revenue was $128.4 million in the first quarter, a slight increase from $127.6 million in the prior quarter and up 11.3% year-over-year. The sequential growth in revenue this quarter was primarily associated with improved activity on international projects, which offset typical seasonal decline in a softer-than-expected U.S. land market. Of this revenue, service revenue, which is more international, was $91.1 million for the quarter, up over 2% sequentially and up almost 8% from last year. International revenue was flat sequentially, but up nicely year-over-year as improved activity on international projects offset typical seasonal decline in the first quarter as well as the ongoing impact from the conflict between Russia and Ukraine. Although global trading patterns for crude oil began to show signs of stabilizing late in the first quarter, activity levels for crude oil assay work are still below pre-conflict levels. Service revenue in the U.S. market also showed nice improvement of 8% sequentially and over 17% year-over-year, which was led by growth in our well diagnostics business. Product sales, which is more equally tied to North America and international activity were $37.3 million for the quarter, down 3.5% sequentially but up 22% from last year. Despite a softer-than-expected U.S. land market, product sales in the U.S. increased over 3% sequentially and were up over 15% year-over-year. Our international product sales are typically larger bulk orders and can vary from one quarter to another. In Q4 of 2022, we delivered several large international orders, which did not repeat in the first quarter. As a result, international product sales were down 8% sequentially. However, compared to the first quarter of last year, sales are up 28%. Moving on to cost of services, ex-items for the quarter was approximately 78% of service revenue, which is comparable to the last couple of quarters. We continue to see improvements in absorption of costs and utilization of our global laboratory network and anticipate additional improvement with growth in service revenue. Additionally, continued disruptions and uncertainty associated with the Russia-Ukraine conflict provide future opportunities for improved operational efficiencies as trading patterns for crude oil continue to stabilize. Cost of sales ex-items in the first quarter was 82% of revenue compared to 79% last quarter. The increase this quarter is a combination of reduced manufacturing efficiencies associated with lower activity in the U.S. land market and lower international sales. We anticipate improvement in the manufacturing absorption rate in future quarters in line with our projected growth in product sales. G&A ex-items for the quarter was $9.8 million, a slight decrease from last quarter, which was $10.4 million. For 2023, we expect G&A ex-items to be approximately $40 million to $42 million. Depreciation and amortization for the quarter was $4 million and pretty flat compared to $4.1 million last quarter. EBIT ex-items for the quarter was $14.5 million, relatively flat compared to $14.7 million last quarter, yielding an EBIT margin of 11.3%, which is up over 100% from last year with very nice incremental margins of 56%. Our operating income for the quarter on a GAAP basis was $6.5 million. Interest expense of $3.4 million increased from $3.1 million last quarter. The increase was primarily due to a slightly higher level of borrowings on the credit facility this quarter. Income tax expense resulted in an effective tax rate of 20% and ex-items was $2.2 million for the quarter. On a GAAP basis, we recorded tax expense of $600,000 for the quarter. The company's global tax structure will change with the redomestication of the parent company to the U.S., which is expected to be completed on or around May 1. We are currently in the process of reassessing the tax provision for 2023. However, we continue to project the company's effective tax rate to be approximately 20%. Net income ex-items for the quarter was $8.8 million, down slightly from $9.3 million last quarter but increased $5.2 million from last year. On a GAAP basis, we recorded net income of $2.4 million for the quarter. Earnings per diluted share ex-items was $0.19 for the quarter, down a little from $0.20 last quarter, but a significant improvement over the $0.08 in the first quarter of last year. On a GAAP basis, earnings per diluted share was $0.05 for the quarter. Turning to the balance sheet. Receivables was $110.7 million and increased approximately $3.8 million from the prior quarter. Our DSOs for the first quarter were 73 days, up from 70 days achieved last quarter. The increase was primarily driven by the timing of billings during the quarter as the first quarter started out slow and finished strong for both the U.S. and international. The decrease in U.S. land activity occurred from late November through February, also decreasing collections in the first quarter. We anticipate that our DSO will improve and return to a level of 70 days or lower in future quarters. Inventory at March 31 was $67.3 million, up approximately $6.9 million from last quarter end. Inventory turns for the quarter were 1.9, down from 2.1 last quarter. A portion of the inventory build this quarter is associated with building some stock in international locations to service some long, large international contracts planned for 2023 and beyond. Additionally, the decrease in U.S. activity during the quarter also caused some inventory build. However, we anticipate this excess will be consumed as activity was stronger exiting the quarter. And now to the liability side of the balance sheet. Our long-term debt was $183 million at quarter end. And considering cash of $16.3 million, net debt was $166.7 million or up $7.1 million from last quarter. Borrowings this quarter were primarily used to fund working capital needs, which are not uncommon in the first quarter, especially during a growth cycle. However, our leverage ratio improved to 2.18 at March 31 compared to 2.29 at last quarter end and we anticipate the leverage ratio will continue to decrease during the remainder of 2023. Our debt is currently comprised of our senior notes at $135 million as well as $48 million outstanding under our bank revolving credit facility. Regarding the current $135 million of senior notes, of which $75 million of these notes mature on September 30, 2023, we have begun discussions to refinance up to $50 million of these notes with new long-term debt. We anticipate finalizing that process in the next several weeks. The company will continue applying free cash flow towards reducing debt until the company reaches its target leverage ratio of 1.5x or lower. Looking at cash flow, for the first quarter of 2023, cash flow used in operating activities was $3.2 million and after paying for $2.2 million of CapEx for the quarter, our free cash flow was negative $5.4 million. Cash used in operations this quarter was primarily associated with the build in working capital. For the first quarter, as I stated earlier, it is fairly common for us to see some build in working capital. However, some additional factors associated with accounts receivable and inventory were also highlighted earlier. Additionally, first quarter cash from operations also include cost to finalize the exit of certain facilities as we continue to optimize our operational footprint. Additionally, the first quarter includes payments for liabilities associated with certain employee retirement plans and an annual prepayment for the company's corporate insurance programs. The annual payment for our corporate insurance programs would have typically occurred in the fourth quarter. As we indicated in our last call, we expect CapEx to modestly expand in 2023 compared to 2022, but will continue to be aligned with activity levels and remain in line with historical levels, while in a period of growth. For the full year 2023, we expect capital expenditures to be in the range of $12 million to $15 million or will continue its strict capital discipline and asset-light business model with capital expenditures primarily targeted at growth opportunities and initiatives. Core Lab's operational leverage continues to provide the ability to grow revenue and profitability with minimal capital requirements. Capital expenditures have historically ranged from 2.5% to 4% of revenue even during periods of significant growth, that same level of laboratory infrastructure, intellectual property, and leverage exists in the business today. We believe evaluating a company's ability to generate free cash flow and free cash flow yield is an important metric for shareholders when comparing company's financial results, particularly for those shareholders who utilize discounted cash flow models to assess valuations. I will now turn it over to Gwen for an update on our guidance and outlook.

Thank you, Chris. Looking forward, we see crude oil macro fundamentals continuing to support a multiyear recovery cycle for the oil and gas industry. For the remainder of 2023, despite recession concerns for key economies around the world, we also see supply and demand balance tightening as the year unfolds. Crude oil demand for 2023, as forecast by the International Energy Agency in April 2023, is projected to be a record 101.9 million barrels per day as consumption in China continues to grow. As crude oil demand is projected to exceed pre-COVID levels, crude oil supply is projected to tighten. With the recently announced OPEC+ production cuts, crude oil supply will be in decline for the remainder of the year. In addition to the OPEC+ production cuts, production growth in other areas continues to face constraints due to prolonged underinvestment in many regions around the globe, as well as natural decline of production from existing fields. As a result, we continue to expect international operators to expand their upstream spending plans for 2023 by mid-teens compared to 2022. This supports our outlook for continued improvement in international onshore and offshore activity, with projects emerging and underway, most notably across the Middle East, Latin America, and West Africa regions. Turning to the U.S., U.S. land activity was somewhat weaker than expected in the early part of 2023. The lower-than-expected activity growth is associated with weak natural gas prices. However, we see ongoing challenges with crude oil supply, which should require increased spending by operators to grow and replace production. While operators remain focused on capital discipline, 2023 forecasts continue to indicate upstream spending will increase approximately 15% year-over-year. In summary, we project Reservoir Description's second quarter 2023 revenue to increase by low single-digits. Continued volatility with crude oil trading patterns may impact our Reservoir Description segment's international growth within its Russian, Ukrainian, and European operations. Our Production Enhancement segment's revenue is estimated to increase by mid-single-digits. We project second quarter 2023 revenue to range from $130 million to $135 million and operating income of $14.5 million to $17.5 million, yielding operating margins of approximately 12%. EPS for the second quarter of 2023 is expected to range from $0.20 to $0.24. The company's second quarter 2023 guidance is based on projections for underlying operations and excludes gains and losses in foreign exchange. Second quarter 2023 guidance also assumes an effective tax rate of 20%. Now I will pass the discussion back to Larry.

Thanks, Gwen. First, I'd like to thank our global team of employees for providing innovative solutions, integrity and superior service to our clients. The team's collective dedication to servicing our clients is the foundation of Core Lab's success. Turning first to Reservoir Description. For the first quarter of 2023, revenue came in at just over $80 million, up 3% compared to Q4 and up 7% year-over-year. Operating income for Reservoir Description ex-items was $7.8 million and operating margins were 10%. Margins ex-items expanded approximately 200 basis points sequentially and 450 basis points year-over-year. The segment's financial performance was underpinned by improving international client activity as well as indications that crude oil trading patterns had started to stabilize late in the first quarter, following sanctions that were imposed on Russian crude oil shipments late in 2022. We do see the Russia-Ukraine conflict still posing volatility and uncertainties for growth in our European, Russian, and Ukrainian operations. The IEA recently updated its forecast for crude oil demand for 2023 to an average record high of 101.9 million barrels per day, up by 1.9 million barrels per day from 2022 even after assessing global financial forecasts. This bodes well for growing demand for the Reservoir Description services that will be required to grow production and replace the natural decline of existing producing fields. As we look ahead, we see the growing international rig count over the past year as a harbinger of an improving landscape for Reservoir Description, a trend that we project will play out for the next several years, particularly in the Middle East, North and South America, as well as most other regions. Early movers in the oilfield service sector that are more exposed to well construction have already felt the impact of this cycle shift. As projects progress into field appraisal, field development, and eventually production, demand for Core Lab's Reservoir Description services will rise accordingly. Now for some operational highlights from the first quarter. Core Lab's Reservoir Description services were employed on both U.S. and international projects to help our clients evaluate their assets and develop programs to optimize production. During the first quarter of 2023, Core Lab's Advanced Technology Center in the United Kingdom progressed the analytical program on reservoir core and fluid samples from the Orange Basin, offshore Namibia. Several hundred feet of conventional core from multiple wells were recovered from various targeted reservoir intervals. These conventional cores are being scanned using Core Lab's proprietary non-invasive testing and reservoir optimization technologies branded as NITRO in advance of an extensive program of traditional physical measurements. A comprehensive laboratory analysis program is also underway on the reservoir fluids collected from these wells. This analytical program includes detailed determination of contamination levels from oil-based drilling mud filtrate and compositional analysis of the hydrocarbons. In addition, the full suite of physical properties of the hydrocarbons all at various reservoir pressures and temperatures are being measured. This extensive reservoir rock and fluid laboratory program will provide critical hard data points around which the operator will build their reservoir model. Also during the first quarter of 2023, under the direction of a Middle East national oil company, Core Lab successfully completed a large multi-well formation damage study. Core Lab's specialists delivered laboratory data to the national oil company that will be used for planning and implementing a large-scale waterflood enhanced oil recovery program. Waterflood EOR involves injecting water into an oil reservoir to increase hydrocarbon recovery. The laboratory work Core Lab provides is used to ensure that the injection water is compatible with both the reservoir rocks and reservoir fluids. The water used for injection programs must undergo analysis to determine what steps will be required to prepare the water for field scale injection, a potentially costly process of filtration, disinfection, and chemical treatment of very large water volumes. Once a sample of the proposed injection water has been properly prepared in the laboratory, it is then used for rock fluid and fluid-fluid compatibility testing at reservoir temperatures and pressures, all under controlled conditions. Core Lab's team of specialists are helping the operator to optimize the injection water properties to enhance crude oil recovery, reduce associated water processing costs, and mitigate damage from fines migration. This project illustrates how Core Lab uses innovative laboratory technologies to enable operators to recover incremental barrels of oil from existing fields, barrels that can be among the most profitable of any produced over the life of the field. In other news from the first quarter, Core Lab is pleased to announce that two additional client members have joined its growing joint industry, Carbon Capture and Sequestration Consortium. Core welcomes EQT Production Company and BKV dCarbon Ventures, LLC to the consortium. The Carbon Capture and Sequestration Consortium, which is being done in collaboration with Dr. Birol Dindoruk of the University of Houston, was formed to support global energy transition and decarbonization efforts. The analytical studies being conducted in the consortium are currently focused on seal integrity and containment. As the Carbon Capture and Sequestration Consortium momentum continues to build, multi-client studies and other proprietary carbon sequestration laboratory projects are growing in both the U.S. and internationally. Moving now to Production Enhancement, where Core Lab technologies continue to help our clients optimize their well completions and improve production. Revenue for Production Enhancement came in at $48.2 million, down approximately 3% sequentially after a very strong Q4, but up 19% year-over-year. Operating income ex-items was $6 million. Operating margins were 13% for the first quarter of 2023, down 300 basis points from Q4 of 2022 following a quarter with strong seasonal international sales at the end of last year. Year-over-year operating margins were up 490 basis points. Now for some operational highlights. During the first quarter of 2023, under the direction of a Permian Basin operator, Core's Production Enhancement experts were engaged to deploy Core Lab's proprietary Rapid Deployment System for a well remediation project. The Rapid Deployment System offers a cost-effective perforating solution for remediating wells when third-party artificial lift equipment has encountered failing valves or when the tubing string has become filled with sand or otherwise inoperable. Force client utilized the Rapid Deployment System technology to remedy a tubing string that had malfunctioned and become plugged with sand, preventing the tubing from draining properly during workover operations. The Rapid Deployment System allowed the client to quickly create perforations that drain the working strength. This process was accomplished without the need for an electrical wireline unit and with only a single field service engineer. In doing so, the Rapid Deployment System cost-effectively eliminated the environmental and safety hazards associated with pulling a wet pipe. Conventional remediation methods would have required mobilizing a wireline unit and a multi-person field crew to the well site, resulting in lost time and increased cost to the operator. Based on the success of the Rapid Deployment System, the client has standardized its methodology for all future well remediation projects. In the Reservoir Description operational update provided earlier, I described how Core Lab's laboratory analytical technologies are being leveraged on a large-scale waterflood EOR project. Core's Production Enhancement team also has a role to play in waterflood EOR projects. Recently, Core SpectraFlood tracers were utilized in an enhanced oil recovery project for a client in a very large field in the Middle East. Core's experts are being engaged to inject multiple diagnostic tracers into dozens of water injection wells. In turn, water samples are being collected from hundreds of producing wells and will continue to be collected over the next several years. These samples will be analyzed to detect for the injected tracers. The objective of the tracer diagnostics program is to follow and map the path of the injected water as it sweeps oil across the reservoir. In the process, specific quantitative information about the reservoir will be revealed, including communication patterns between injection wells and producing wells. Core's analytical program will aid in the critical identification of natural fractures, beef zones, and out-of-pattern communication. This will allow the operator to target unswept areas for future infill drilling. Core's ultra-low tracer detection limits provide significant enhanced data resolution, which the operator uses to optimize field economics. That concludes our operational review. We appreciate your participation, and Danielle will now open the call for questions.

The first question comes from Samantha Hoh of Evercore ISI.

I love all the information about just all the technical progress that you guys are making. I was wondering for Reservoir Description, it kind of looks like things have turned a corner with international and maybe offshore starting to try some lift on the revenue growth here. Are there fairly any reasons why revenue wouldn't keep growing sequentially? And I was wondering if you could actually also weigh in on just sort of what you're seeing on the exploration activity side. I mean, clearly, maybe as a benefit here, but what other basins are you starting to scale a little bit more inbound on exploration work?

Yes, Samantha, great question. While we prefer straightforward forecasts, I don’t think we have enough backlog and project advancements to fully demonstrate confidence in a sequential inflection point just yet. However, long term, it is certainly building, so there's a bit of caution. Additionally, there are some uncertainties regarding the crude oil assay work, which poses a question mark for Reservoir Description performance. Nevertheless, the long-term outlook for Reservoir Description is clearly positive, and we've noticed strong year-over-year results in that area. On the exploration front, we are seeing projects emerging in several regions across the globe. Traditionally, Core Lab is not heavily involved in exploration projects due to various reasons; coring and fluid sampling at the early stages of exploration can be complex and is not usually conducted at high levels. Our expertise really lies in field appraisal, field development, and ultimately production. As projects transition from exploration—after a significant year for exploration spending in 2022—they will shift into appraisal, development, and production phases, which is where we excel. Thus, while we may enter the cycle a bit later than those specializing in geophysics, seismic analysis, or well construction, it’s evident that Core Lab is starting to establish a solid foundation for engaging with these projects.

I was curious about the inventory build for the large international projects that seemed surprising because I didn't expect there to be that much product. It appears to be a more product-driven buildup. Can you elaborate on that? Is it related to the water EOR-type projects you're involved with?

Samantha, this is Chris. So when you think about international product sales for us, I would put those into two categories. A lot of times, we're manufacturing that stuff in bulk orders here in the U.S. and then it ships. And those can happen a couple of times a year and they kind of will swing Production Enhancement's results from quarter-to-quarter. This is a little bit different where it's a longer-term arrangement and there will be a more steady supply of products in the region. And then to support that, we're actually having to build some inventory in those locations so that it's not being shipped. It's going to be shipped maybe on a quarterly basis, but the supply to the customer is going to be done from that international location. So we're having to build some stock in that location and you see that happen in this quarter. In our release, we gave some details on one of those big projects that's in Thailand, new relationship there should serve us very well over the next several years and I think beyond. And then in addition to that, what I would add is a little slower. We saw the frac spread drop off, call it, the back end of November, really take a hard hit in December. We had anticipated a bit quicker snapback early into the year. It was slower to recover. It really lasted until the only building started kind of late February and then March was pretty strong. So a bit of inventory build on the product side there, too.

Maybe just a last one, if I could please that in since we're talking about U.S. track now. I think there's also a bit of a debate in terms of whether or not we're at a completions level where production can keep growing or are we sort of turning over the production growth? What are your takes on that? Like is this a completion activity type level that we can keep growing oil supply here in the U.S.?

Yes, Samantha, before I address that, I want to mention that we are still encountering some uncertainties in the supply chain. We are managing our product inventories with a just-in-case approach rather than a just-in-time strategy, particularly for some specialty steels and similar materials. Regarding your broader question about completion levels, we believe they need to increase. Unconventionals can be quite demanding, as the decline rates on these wells are rapid, necessitating continuous drilling. The more wells that are drilled, the more must be brought online to sustain production levels. We anticipate that both drilling and completions must rise if we hope to maintain or grow production in the U.S. However, I should note that while this doesn’t apply to Core Lab directly, there are still physical constraints on the availability of the heavy-duty equipment used for drilling and completing wells. This could pose a limitation. Nevertheless, when our clients are ready to complete wells, we will be prepared to supply the necessary products.

The next question comes from John Daniel of Daniel Energy Partners.

Just a quick follow-up to Samantha. Larry, you mentioned some of the ongoing supply chain challenges. I'm curious when you expect those to improve.

Yes, I have some thoughts on this. Chris might have additional insights. John, the situation to consider is that previously we had a lead time of about three to four months to obtain specialty steels. We are still encountering situations where steel suppliers contact us and indicate that they are starting a run, but delivery will be nine months away. As a result, we need to keep more of that steel in inventory than we would prefer, and certainly more than we would have if deliveries were shorter. There are signs that the situation is improving, with fewer obstacles present. However, when it comes to specialty products, we are somewhat dependent on the timing of the suppliers' production runs.

The only thing I would add is that just in general, just normal steel, not even the specialty stuff, the lead times are much longer than they used to be and we're not really seeing that change right now. So I don't know if we'll get back to pre-COVID kind of lead times or not. So we've just sort of adjusted ourselves to this 12-month or 12-month-plus lead time, just about on anything like that, whether it's the content that goes into making the explosives or whether it's the steel that goes into making the gun systems or any other components that are going downhole.

Sure. The second question is unrelated, but there has been a lot of discussion about Tier 1 inventory and attempts to estimate how much is available and its implications. I'm interested in your thoughts on Tier 1 inventory in the U.S., its runway, and the implications for Core as that runway reaches its end.

Yes. So I think there's less Tier 1 property out there that is often discussed or described. It's a bit of a gray area because as technology advances, the quality of rock that can produce acceptable results over time has gotten a little bit lower. In other words, they're able to complete more efficiently in lower quality rock and get similar results with more investment in the completion process. They went to their most productive gardens and picked the vegetables and fruit out of that. They used their best quality properties. So I think over the next three to five years, I think that becomes even more apparent that Tier 1 properties are getting consumed. What it means for Core Lab, I think on the Production Enhancement side, completion intensity will have to go up. So longer laterals, continued, more product sales, more diagnostic sales to make sure that these more challenging completions are executed properly. And then on the Reservoir Description side, we have a number of clients that we've done a proprietary study and we've got a multi-company consortium study on EOR opportunities where we use a combination of vaporization and condensation injecting engineered gases to increase production from these unconventional wells. You can't use a waterflood or a sweet flood like you historically would in a conventional reservoir, but the technology that we've demonstrated to work in the laboratory is being utilized right now by some clients. I think that's going to be a growing topic, specifically EOR on unconventionals, where containment exists, that's going to work.

I'm trying to simplify this because I may not fully understand, but it seems to me that the need for more thorough study increases over time. Am I mistaken?

Yes. I mean, we've established for those that have engaged with us on this and bought our laboratory testing, we've demonstrated that they can get substantial improvements in ultimate recoveries. If they can make these EOR processes work, containment is a big issue. For example, some operators have put away oceans of blended gases into some fields and got nothing back, including the gas that they injected is just gone. And so containment, it's a little bit out of Core Lab's wheelhouse, if you will. That's more of an oil company looking at their size; they're looking at fractures and fault patterns and things like that. But we do know that there are a number of places where EOR is being successfully deployed following the lead that we've demonstrated in the laboratory or what types of gas and how to inject it at what rates and things like that. It's a multi-cycle process.

The next question comes from Don Crist of Johnson Rice.

I just wanted to ask one follow-up on the answer you just gave to John's questions. Where are we from a basin perspective? I know it's probably too early in the Permian, but in the Bakken and the Eagle Ford, are you starting to see some engagement prior to re-fracs or kind of EOR discussions there? Or when does that kind of time cycle start from your perspective when they're going back in?

Yes, we are seeing engagement in those areas. We've undertaken several projects there and elsewhere. The transition from proof of concept in the laboratory to actual deployment is largely out of our hands. Our involvement does not include taking the processes to the field; that's where the operators excel at managing pumps, compressions, and gas supplies to the wells. In the lab, we confirm that using this combination of gases can enhance production over multiple injection cycles, which results in oil vaporizing into the injected gas. When the enriched gas is extracted, it reduces pressure and allows liquids to separate. Therefore, it's more a matter for the operators to outline their plans and future directions. We simply advise them that if they inject this gas into this rock with this oil and follow our suggested cycling process, they can improve recovery significantly.

Okay. But it's safe to say it's probably not in the first five years or so of a shale well life?

Traditionally, EOR projects are implemented quite late in the lifecycle of a conventional field. However, some companies are exploring whether different, potentially more cost-effective processes can be applied earlier in the field's life. With unconventional wells experiencing steep decline curves, operators will likely consider enhancing recovery much sooner, rather than waiting for a five-year period, especially with significant drop-offs occurring early on.

Okay. And one kind of follow-up unrelated. Obviously, you had the $1.7 million charge in the first quarter for facility exit and consolidation. I'm assuming that was in Europe just given the flow or the trading of oil patterns have changed. But kind of building on that and the redomestication of the company in a couple of days. Can you just talk about costs going forward? Obviously, there's a lot of moving pieces there. But I'm assuming that the redomestication is going to help with cost coming down and then some facility exits will probably help as well.

Yes. The facility costs we mentioned in the release were specifically in North America. Much of this was related to consolidation, with some leases coming to an end. We accelerated certain leases and moved personnel into vacant spaces at other locations, essentially streamlining our operations. We're working to accomplish this quickly and cost-effectively. We have relocated some staff and lab operations to Houston, utilizing available space we had there. We're always looking to optimize these aspects. We would have preferred to move faster on some of these initiatives, but some leases were difficult to terminate. We have more facilities to address, but I believe the steps we've taken represent a solid investment in reducing future costs. We're anticipating annual savings of over $1.5 million from the facilities we exited in the first quarter. Overall, it was a prudent use of cash to vacate those buildings and resolve some lease issues. I'll let Chris discuss the costs related to the redomestication.

We've discussed this a bit, Don. We're expecting annual savings between $1.5 million and $2 million once everything is finalized. This is more relevant for 2024 and beyond rather than 2023. For example, we're eliminating a small corporate office in the Netherlands, and we’re also streamlining audits at the consolidated level for both the U.S. and Europe, which will reduce some requirements. Additionally, while we're addressing current expenses, it's important to consider the potential savings from avoiding future costs, especially as regulations and reporting requirements around ESG increase rapidly in both Europe and the U.S., often in conflicting ways. This affects various areas, including tax and reporting laws. Therefore, we are not only looking at past experiences but also working to minimize the risk of rising future costs.

Yes, to build on that point, during COVID, we had to scale back our presence in the Netherlands. Rebuilding that was going to be an expensive endeavor to return to pre-COVID levels. By making these changes, we've reduced some costs and minimized additional expenses that would have arisen as we sought full compliance. Overall, this translates to savings of around $3 million to $4 million per year compared to what it would have cost to resume full operations.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bruno for closing remarks.

We will conclude here. To summarize, Core's operational leadership is strategically positioning the company to enhance client activity levels in both U.S. and international markets for 2023 and beyond. We have never been in a better operational or technological position to assist our global clients in optimizing their reservoirs and addressing their evolving needs. We remain distinctly focused and are the most technologically advanced, client-centric reservoir optimization company in the oilfield service sector. The company will continue to prioritize maximizing free cash and returns on invested capital. Besides our quarterly dividends, we intend to deliver value to our shareholders through growth opportunities, driven by the introduction of innovative technologies and new market penetration. In the near term, Core will continue to utilize free cash to bolster our balance sheet while investing in growth opportunities. In closing, we express our gratitude to all our shareholders and the analysts who cover Core Lab. The executive management team and the Board of Core Laboratories extend special thanks to our global employees who have contributed to these results. We are proud to be associated with their ongoing achievements. Thank you for your time, and we look forward to our next update. Goodbye for now.

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