Good morning and welcome to the Core Laboratories Q4 2019 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 and CEO of Core Laboratories. Please go ahead.

Thanks, Eily. 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 fourth quarter 2019 earnings conference call. This morning, I'm joined by Chris Hill, Core's CFO; Gwen Schreffler, Core's Head of IR; and Larry Bruno, Core's President and COO. The call will be divided into five segments. Gwen will start by making remarks regarding forward-looking statements. Then, we will return to review the current macro environment, updating Core's view on U.S. crude oil production trend. 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 Gwen discussing Core’s first quarter 2020 outlook, and a general industry outlook as it pertains to Core’s prospects. Then, Larry 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 for a Q&A session. I'll turn it over to Gwen for remarks regarding forward-looking statements. Gwen?

Thank you, David. Before we start the conference this morning, I'll mention that some of the statements that we make during this call may include projections, estimates and other forward-looking information. This would include any discussion of the Company's business outlook. These types of forward-looking statements are subject to a number of risks and uncertainties relating to the oil and gas industry, business conditions, international markets, international political climate and other factors including those discussed in our 34 Act filings that may affect our outcome. Should one or more of these risks or uncertainties materialize or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A, Risk Factors, 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. Our comments include non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures is included in the press release announcing our fourth 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. Well, let's look at some macro and U.S. production trends and then talk about Core's three financial tenants. Core continues to be encouraged that operating companies are furthering their commitments to operate within free cash flow and emphasizing returns on invested capital as demanded by today's investors. These trends benefit Core whose clients tend to be technologically sophisticated and are heavy users of technology over commodity-driven solutions. During the fourth quarter, Core continued to host several conference calls and industry sessions for various industry groups and analysts to discuss optimal well spacing, rightsizing, upsizing, well positioning and parent-child well relationships. Proper upsizing and well spacing are two of the most discussed topics within Core’s clients today. Further up-spacing will be seen in 2020. Improving perforating efficiencies and effectiveness rank a close second, which has led core to the recent commissioning of Core's cutting edge Reservoir Optimized Completions Laboratory or ROC Lab, and Core's Fit-For-Reservoir strategy for completions. The Fit-For-Reservoir strategy is yielding significant changes in stimulation and completion practices. Now, some specific comments on future U.S. crude oil supply. Currently, the U.S. produces about 12.5 million barrels of oil per day. 9.14 of that is from unconventional reservoirs, led by the Permian at approximately 4.55 million barrels a day with the Eagle Ford play at 1.2 million barrels per day. We believe that the Eagle Ford play now is in permanent decline, owing to the lack of Tier 1 properties. We also note that we believe that the Bakken is near peak, once again owing to the lack of additional Tier 1 properties. The U.S. produces about 3.35 million barrels of oil per day from conventional reservoirs. This is led by record Gulf of Mexico production that totals about 2 million barrels of oil per day currently. We…

Thanks, David. 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, as we finalized our cost reduction plans in the fourth quarter, we have excluded a $2.6 million charge associated with the Company's continuing efforts to streamline operational structures and business reporting lines as part of our company-wide cost reduction program. Now, looking at the income statement. Revenue from continuing operations was $157 million in the fourth quarter, down a little over 9% from the third quarter, which was primarily driven by the steep decline in U.S. onshore activity during the fourth quarter. Of this revenue, service revenue, which is more international, was $115.2 million for the quarter, down about 4.5% sequentially and was also impacted by the sharp decline in U.S. onshore activity. Additionally, the progression of data analytical programs for some larger international projects was slower than expected during the fourth quarter. However, these are scheduled to be completed in early 2020. Product sales which are more tied to North America activity were $41.6 million for the quarter, down 21% from the third quarter. Although product sales associated with our energetics and perforating systems outperformed the decline in U.S. onshore activities, our international product sales, which are often larger transaction and peaked during the third quarter of 2019, were seasonally down in the fourth quarter. Moving on to cost of services, for the quarter are 72% of revenues, up just slightly from the last quarter, but a nice result as some of the cost reduction initiatives implemented by the Company were realized during the fourth quarter. Cost of services averaged…

Thank you, Chris. During the fourth quarter of 2019, as reported by the International Energy Agency, OPEC determined additional crude oil production cuts were required in order to support a more balanced market for crude oil. Core lab projects additional supply of crude oil will likely come from Guyana, Brazil, Norway and the U.S., somewhat offsetting the OPEC production cuts and demand for crude oil. While production in the U.S. has grown over the last several years, the rate of growth has declined over the past two years. Given U.S. land current market conditions, Core expects this trend to continue. Factors associated with the global crude oil market are projected to create a tighter market in the second half of 2020. As the crude oil market continues to balance and strengthen, this should support a more sustained level of capital investment in long-term international projects. These international investments are critical as the development of new fields is required to replace the decline of production from mature fields. As a result and in alignment with other oilfield service companies with similar international footprint, Core Lab projects international activity to grow by mid-single-digit in 2020. Similar to 2019, operators have publicly stated they will remain focused on free cash flow and maintain spending within their 2020 capital budget. The consistency with this approach was apparent during the fourth quarter 2019 with notable declines in the U.S. onshore rig count, U.S. frac spreads and completion activity. Consequently, Core projects that U.S. land activity will moderately improve throughout the first quarter of 2020 when compared to the exit rate of 2019. Therefore, consistent with the initial guidance provided on December 30, 2019, Core projects consolidated first quarter revenue of approximately $159 million to $164 million, and operating income of approximately $25 million to $27 million, yielding operating margins of approximately 16%. The Company's EPS for the first quarter of 2020 using an effective tax rate of 20% is projected to be $0.39 to $0.41. Further, the Company will continue to execute on planned opportunities to effectively align the business with market conditions. Core Lab’s first quarter 2020 guidance is based on projections for the underlying operations and excludes gains or losses in foreign exchange. Now, I'll pass the discussion over to Larry.

Thanks, Gwynne. 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. In the fourth quarter of 2019, Core Lab, under the direction of Apache Corporation, initiated wellsite and laboratory analytical programs to determine the properties of rotary sidewall core samples and reservoir fluids from the Maka Central-1 well located offshore Suriname. Core Lab is pleased to be assisting the technical experts at Apache Corporation in this important offshore discovery. In addition, in the fourth quarter of 2019, Core continued its work on extensive reservoir rock and fluid laboratory analytical programs for other plays along the Northern South Atlantic margin. Core views the South Atlantic margin as a growth opportunity in both the short and long term. Also, during the fourth quarter of 2019, Core conducted reservoir core and fluid analytical programs for an operator working on Alaska's North Slope. Core Lab's Anchorage laboratory provided proprietary Non-Invasive Technologies for Reservoir Optimization, Core Lab's branded NITRO service line. NITRO employs a variety of quick turnaround non-invasive techniques. Digital Rock Characterization, one of the NITRO technologies, provided the client with data on reservoir rock quality, lithologic variations, pay-zone heterogeneities, porosity and permeability, along with other rock parameters. Initial data sets were delivered to the client within 48 hours from the time the rock samples arrived at Core’s Anchorage laboratory. This allowed the client to utilize the datasets for both initial field drilling and future development decisions. Digital Rock Characterization delivers a volumetric reconstruction of the core, allowing the end-user to visualize the recovered strata in three dimensional images. Because Core Lab has systematically organized its internal physical measurements database over many…

[Operator Instructions] Our first question today comes from Chase Mulvehill with Bank of America.

Dave, I guess, congratulations on retirement, and wish you all the best. I mean, Larry, congrats on the promotion, so.

Thanks for your kind words, Chase. And we've always appreciated your support. Thank you.

I guess, first kind of coming to the guidance in first quarter. If we think about the sequential improvement, especially kind of as we think about Reservoir Description. So, could you talk about kind of what's driving the sequential improvement? I know fourth quarter was a little down. I think, you had some work kind of slip into the first quarter. So, kind of just characterize what's driving the sequential improvement and Reservoir Description. And now, we're a month in. And so, those projects that slipped into kind of first quarter, do you feel more comfortable that those are to hit in the first quarter now?

Chase, yes. So, the -- what's driving that guidance there is, what you would typically see from Q4 to Q1 is a seasonal decline in activity. And so, we believe these projects that have pushed from Q4 to Q1 can mitigate and offset that decline. So that kind of stands for a Reservoir Description in terms of how the guidance was put together.

Okay, all right. And then, a follow-up just on the GoGun. Could you just kind of update us on kind of where you sit on the GoGun penetration today and the market's adoption of this new technology?

Yes. Chase, still growing. We’ve actually made a lot of the investments that we've made over the last year in production line expansion are now in place. Rest of those will largely roll out through the remainder of 2020. So, our penetration of GoGun acceptance is increasing. And, more importantly, our ability to meet demand, growing client demand is now covered by our production facilities.

Are you seeing a better adoption of GoGun in any particular basin?

I think, primarily the Permian.

Our next question comes from Sean Meakim with JP Morgan.

Thinking about Reservoir Description, one of the largest oilfield service companies has stated their claim that we're going to see a pretty meaningful ramp and offshore activity is going to help drive their results in the back half of the year versus the first half. Could you maybe just talk about how you see offshore influencing the business over the course of the year? And a topic we’ve discussed many times in these calls in the past. How do you think about the flexibility around margin progression for the business as we go through the year? So, meaning, what are kind of the flex points that would dictate what the exit rate could look like, as we come out of ‘20?

Yes, Sean. I think, we do see upside on the offshore activity compared to the last few years. As we've talked about personally and openly on these calls many times, the progression of these offshore projects has been much slower in this recovery than we've experienced previously. But, I do think that over the course of the year and moving into next year, we'll see international and particularly offshore projects, playing a nice role in Reservoir Description’s performance. For the quarter for Reservoir Description, you've seen some of the effects of some of the cost cuts that we've put in at these revenue levels. We're probably near historic margins. And as we get to more revenue through that existing structure, we think that we are well on our path for hitting the 20% margins over the next several quarters.

And then, within production enhancement, just two pieces. One, there has been a number of data points out from a lot of your peers in the broader completion tool space, specifically within perforating systems around pricing challenges in the end of the year. Could you maybe talk about that headwind, as you think about trying to improve the GoGun penetration as we already discussed? So, that's one piece. And the pricing dynamic, how that looks today? And then the second part, could you maybe quantify to some degree, what you see think the addressable market looks like over time for these ReFRAC products that you're now rolling out?

Yes. I think, on the pricing side, clearly, there's pressures on the cost side. And that's why we've made some substantial investments in some very highly automated, cutting edge manufacturing tools that we now have in place. The remainder of those will be put in place over the rest of the year. We think we've got a real edge going forward on manufacturing efficiencies. And then, as we see the progression of our ballistic delivery system, getting greater adoption into wireline company offerings, we see that as pulling GoGun in behind it. I think, that's the main points there. So, cost efficiency in manufacturing is going to be a clear driver on a pre-assembled guns. As we've talked about many times, the preassembled gun carrier, the gun itself is well on its way to becoming a commoditized product. There are a handful of now offerings out there for pre-assembled guns. As those offerings hit the market, the conversation shifts back to the effectiveness and quality of the energetics, which has always been the business end of the perforating gun, if you will. And so, that's where we believe we still have a clear advantage because of our particular insights in how the energetics interact with the rocks.

Got it. Okay. Well, I appreciate that. Larry, congrats to you, and Dave, thanks for all the dialogue over the years. All the best to you.

Okay. Sean, thanks for your kind words.

Yes. I appreciate it, Sean.

Our next question comes from Marc Bianchi with Cowen.

Thank you.

Hey, Marc.

Hi. How's it going? And again, congrats to both, Larry and Dave. Larry, I look forward to working with you more going forward. And Dave, all the best to you.

Thanks, Marc.

I appreciate it.

You bet. I guess, starting off with the cash flow for 2020, I mean if I sort of take where the guidance is for first quarter and assume kind of the growth that we've talked about here for the balance of the year, it seems like EBITDA would be approximately flat with where you were in 2019, and in 2019 generated $67 million of free cash. We've got CapEx coming down, maybe $4 million or so. Are there any other puts and takes as we think about the bridge from EBITDA to cash flow that we should be considering or as we think about the free cash flow bridge from 2019 to 2020.

Yes. Hey, Marc. This is Chris. And there is one thing I think you need to consider that we did have our cost reduction plans that were initiated in the second quarter and kind of finalized in the fourth quarter. We haven't fully realized that. So, some of that came through in the fourth quarter, I think you saw that as the decremental margins associated with the decrease were minimized, let's say because of that. So, I think you'll get a full year of those cost reductions coming through. And that should directly show up in both, EBIT and cash from operations.

Okay. But, that's not a cash restructuring or anything like that. What you're talking about is just better profitability that ultimately flows through?

That is correct.

Got you. Okay. So, on that basis, looking at a decent amount of cash flow, and you've lowered the dividend, so plenty of room to do buybacks and debt reduction. Can you talk to what the plan is around that? I mean, the stocks pulled back quite a bit. So, that's attractive. But, obviously leverage is around 2 times on a net debt basis. So, how do you balance those? What's the optimal net debt and how do you think about that whole effort?

Yes. I think that's a great question. And you will see us use some of that excess cash flow to reduce our outstanding debt and manage those leverage ratios. But to the extent we have additional excess free cash flow, we are definitely going to be in the market to, again, opportunistically buy those shares back. So, as Dave mentioned, we started that a little bit in January. You saw us buy back about 20,000 shares. So, I would expect the same behavior. I think, there's probably a little bit more lean towards more cash of that excess cash flow going towards reducing debt at the current moment. But, we'll continue to evaluate that as the year progresses.

Is there a leverage target that we should be thinking about as you kind of go forward?

I think, longer term, we're going to move towards the kind of the 1.5 leverage ratio.

Our next question comes from Kurt Hallead with RBC.

So, I guess, I wanted to maybe ask another question related to what's going on with the integrated gun systems and the competitive environment. And, I know that you guys have always been very focused on a select handful of E&P companies that highly value the technology. So, just wanted to get a sense as to whether or not there's significant headwinds in trying to get compensated for what you're bringing to the table and maybe how that environment has changed over the last six to nine months?

Yes. No real change in perspective on that. We do think we are gaining market share. And that -- the gun component here as we go back over time, we saw that as a commodity -- historically saw that as a commodity. It's not something we emphasize in our manufacturing across our program, because we saw that there wasn't a whole lot we could bring to bear in terms of making a hole in the pipe. It wasn't a lot of technological advantage to that. And as I've said before, give some credit to folks who saw a convenience opportunity to offer through the preassembled guns. And so, we respected that demand from some of our clients to offer a preassembled kit within our repertoire of offerings, and so -- because they wanted to use our energetics, which is the primary driver for the profitability in that business unit. So, we've done the investments we needed to, to enter that game. So, I’d just go back a year or two ago. There were maybe two players in that game. I think today there's probably five or six offerings available in the market for preassembled guns, but the driver for us is still the specific client demand for our energetic offerings.

Okay. That's great color. And then, maybe on Reservoir Description. I know, it's going to be a slog here over the last couple years and the progression really hasn't been what any of us may have expected. But just kind of curious as to what might be providing, say, the increased level of conviction that the offshore dynamics are now more favorable and you're going to actually start to see more of these cores delivered to your lab, so you could start generating some revenue. What's giving you that under -- what's under underpinning that conviction?

Yes. I think, it's client conversations. And I think from an analyst perspective, looking at it, the -- we often talk about how an E&P company can slow walk a project up to the time that the drillship and the drilling activity picks up. Once that happens, then they need to move as quickly as possible. And so, that -- seeing that progression of hardware getting in place does give us confidence that the amount of Core and reservoir fluid samples that are going to be obtained are going to increase. And that'll flow very nicely into our laboratory network, which is the same as it's been for a very many years. We haven't really changed -- made any changes in our lab network. So, we're fully in position to take advantage of that. Plus, new projects, like we see -- like I mentioned earlier, the good folks at Apache were very generous in giving us permission to talk about our involvement in that project. So, we see some new opportunities, some new plays emerging like the South Atlantic margin. We see that as having upside over the near and long term. And then, throughout our international network, we see a progression of client demand that plays out nicely and gives us confidence in our Reservoir Description projections.

That's great. I appreciate that color. Thank you.

Our next question comes from Blake Gendron with Wolfe Research.

Hey. Good morning. Thanks for taking my questions. I wanted to dig into the cost out a little bit more. I was wondering -- I think, we -- understanding that it was mostly personnel on the production enhancement side. On the Reservoir Description side, where was most of the cost out? And if we like to be an internal optimist here on the sell side, if you do see an upside to both production enhancement and Reservoir Description, any sort of putting back into place of the cost structure to be able to handle that, that level of revenue or is the cost structure now pretty flexible with respect to any sort of upside?

Yes. This is Chris. I think, in the fourth quarter, there were also some temporary -- what we would call, temporary cost reductions through some furloughs. So, some of those will roll out and those costs will come back in 2020. But, some of the other costs were associated with a combination of some continued automation throughout the facilities and then also some streamlining within the organization. So, when you look at our global footprint and we have our advanced technology centers and these regional support labs, we were able to streamline some of that, as we look through the things. So, those will be permanent cost savings. But, it really won't have any impact on our ability to do a higher level of workload. So, again, we think that's going to translate into additional margin and higher incremental margins going forward.

Okay, perfect. And then, just a quick follow-up. I think, you had alluded to some non-core divestitures before the dividend cut. I'm just wondering in the context of the free cash flow that you expect for 2020 and beyond, are those still on the table, and what's the nature of those, and maybe timing, if you have any sort of visibility into that?

Yes. We did have a couple of divestitures that were completed during 2019. One of those was discontinued operations. I don't think we have any of those type divestitures on the table currently or what we would be projecting to you guys. So, the other one, which was kind of part of our streamlining the global network, if you will, we divested what we would call a non-strategic location in the Asia Pacific region. And we have talked about that. That was earlier in 2019, probably about $3 million of revenue per quarter. So, when you kind of consider that and try to compare 2018 to 2019, that gives you a better feel for the underlying sort of international, activity levels that were going through the laboratories.

And that divestiture was in Reservoir Description, call it roughly $12 million a year of revenue that we felt was a non-strategic for us going forward. And with that, divestiture, margins and Reservoir Description actually improved.

Our next question comes from Byron Pope with Tudor, Pickering, Holt.

Just one quick question. And you partially answered this, because it sounds like your work not just in Suriname but I think you guys have historically been pretty strong offshore, Guyana as well. It sounds like that region is going to continue to be a driver for you guys for Reservoir Description. But, as you think about some of the other international markets where you guys participate, just frame for us maybe one or two additional ones that you think would be key to the Reservoir Description growth story this year.

Yes. Byron, I think, Middle East is ahead of the curve from some other areas. I do think we’ve got to look at this as being somewhat offset by, call it, a modest market in North America. But, I think the Middle East is a nice offset to that. Year-over-year, we expect to see some improvement in projects. I think that like, for example, the neutral zone in Kuwait that has been dormant for the better part of five years, we've now received notice that they're ready to fire up activity there. And we will be engaged and have been engaged already to get projects moving after, like I said, half a decade of neglect in that area. I think that there's also some opportunities in Asia Pacific. If you go back to the last couple of earnings calls, we referenced some discoveries in offshore Australia. And I think that's going to create a little wave of activity and development drilling down there that we should participate in, very nicely. And I think those would be the main drivers. But, I don't want to deemphasize. I think certainly, Guyana has been a real bulwark for us. The expansion at the Suriname is a, I think a nice add on to that. And I think longer term, that whole South Atlantic margin, Northern South Atlantic margin and Mid South Atlantic margin down into Brazil, as we look into late 2020 and into 2021, I think that's a real bright spot for us.

Our next question comes from Ian Macpherson with Simmons.

Good morning. And I'd like to join the chorus of congratulations to both of you, Dave and Larry with your next steps. I wanted to ask, maybe if I could ask for a little bit of a retrospective view on 2019 within production enhancement. And I know you don't give out the numbers. But, if you could speak in some brushstrokes with the experience that you had, between Owen and Prokinetics, which had a better year top line and margin wise? And which side of the business between hardware and equipment charges relative to tracers? Do you think it’s better positioned for a basin which as you've described is kind of peaking out in two of the three big basins in the U.S.? And how you might think about your portfolio going forward in a maturing U.S. market?

Yes. That business is still roughly two-thirds products, one-third services. There's some, I call it, quarter-to-quarter noise in demand. But, over time, we see the trends continuing there. And we got to stay focused on completions. That's where the driver for both of those business segments is. I think, there are some innovations and new technologies that we've rolled out, particularly on the product side that we're very excited about. But, I think over time, both of those segments, both products and services and production enhancement still offer very nice opportunities for us. And also, one other maybe reminder on that when we look at those businesses. The split there in production enhancement is up two thirds U.S. and about one third international. So, maybe a little bit of upside on the international, as we look forward there.

Okay. Thanks, Larry. And then, I think the first question in the call was asking to parse out the Q1 guidance a little bit between the two segments. And Gwen, you mentioned that the slippage of projects in offshore would help to offset normal seasonality lower? But from that, I tended to infer that you still expect overall maybe the sequential top line dynamic to be maybe a little bit stronger on the production enhancement side than on the RD side, not withstanding that catch up. Is that fair?

Overall, if you use the midpoint, Ian, of our guidance, it's about a 3% overall growth. So, haven't really divided that by segment, at this stage. But, we do believe U.S. land completion should moderately improve from how we exited Q4. So, we would expect that we're certainly going to get our share of those completions that will happen in Q1, for production enhancements.

Okay. Thanks, Gwen.

And Ian, I'm sorry. Let me also add, market penetration with the GoGun and then other ReFRAC, energetic, and then certainly the Pulse Wave that we'll be introducing as well during the quarter.

One more quick one, if you don't mind. Chris, 2019 was kind of a heavy year for one-offs and charges. I think, they totaled $16.5 million across the business. I know, FX will -- is structural and never goes away. But, apart from that, do you think that starting with Q1, we’ll start to see cleaner, less adjusted numbers relative to your guidance, or are there more things within costs out that we should be mindful of?

Ian, that’s a good point. And there were a few headwinds I would say, in 2019, some one-off charges. We did settle that lawsuit, we mentioned earlier that came through, and there's some severance and I would call this our cost reduction plan. So, those, we aren't anticipating any big one-off kind of items. So, I would say, expect that to be cleaner this year as we feel like we finalize kind of what our cost reduction plan looks like.

Our next question comes from Samantha Hoh with Evercore ISI.

Samantha, welcome back.

Thank you. I wanted to spend some time actually talking about ReFRAC. You’ve been hinting at this over the last several quarters. And it was nice to see the topic get a bit of real estate in the press release. So, could you just maybe talk about the number of wells that really could be addressed by this technology? What's the opportunity -- the growth opportunity for this? And how quickly can you ramp up and just address the demand for those, given some these basins are in decline.

Yes. That’s a really good question and something that we have very high hopes for. So, if you look back at the progression a little bit over time of completions in unconventional wells, you'll see a march from one or two or three stages per well to 10, into the dozens, into multiple dozens over time. And so between those stages, early on, there was a lot of un-stimulated reservoir rock that never had a chance to contribute hydrocarbons to the performance of the well. So, the challenge had always been for people to isolate the original perforations and stimulation zones and get new completions or new perforations between those to accept stimulation. Every time they did that with diverters -- or almost every time they did it with diverters and all, there was very low success rate. And so, working very closely with the large independent operator in the U.S., we're engaged to help them solve this problem and came up with the ReFRAC product. So, it's literally tens of thousands of wells that there's an opportunity for operators to go back and do the reservoir engineering on it to say, hey, what can we get additionally out of this existing well, if we're able to slip in new successful stimulation completion zones within the original perforations and fracs. And so, we think that there is a large number of wells. I'd say, nearly every well that wasn't completed within the last two to three years is a candidate for clients to review their opportunity to increase hydrocarbon production from these existing wells through the ReFRAC process without going back and having to drill another well.

And so, Larry, it sounds like it’s been spread to beyond that first initial customer and you have other customers that have signed up?

Correct. And we are aggressively now relaying that approach through our business development teams and our marketing efforts to other clients, to make sure that they're aware that where they might have tried and failed with diverters to get this done. There's a new approach that we could help them with. And in terms of spool up, for us, don't see any problems whatsoever in meeting demand there, because it's very much a product that's generated out of our existing infrastructure. So, there's no major capital investments or anything like that that's required to provide that product that can generate uniform hole size through two strings of tubulars.

Okay, great. And Dave, I was already missing your macro commentary in the press release. But, it was nice to hear you talk about just what's going -- what you see in the U.S. production curve. Can you maybe give us some insight into what your U.S. production growth estimate is based on? Is that 200,000 per day growth? Is that based on like a certain rig count number or a completion stages?

Well, one of the techniques that we use, and I -- we found it to be the most reliable, go back to 2015 and look at the number of wells completed and put on production through the end of last year and do a regression on that, you will find a remarkable fit on a very-reliable way to predict whether U.S. crude production will be up or down. So, we're not going to let all our seekers out of the bag. But that's a real good start for you.

Okay. We'll take a stab at that. But, I’m glad you will be out for one more call.

For sure.

Our next question comes from Stephen Gengaro with Stifel.

Thanks. Good morning and congrats, Larry. And Dave, you will definitely be missed.

Thanks, Steve. You’ve always been a big supporter of the Company. And we appreciate that.

Thank you. So, I think, two things if you don't mind. The first is, can you update us on what you're seeing as far as perf stages or perf guns per stage, I should say? I mean, we've heard it's been trending higher, I think it has, but how do you see that trend playing out over the next couple of years and sort of the products you have to sort of address that? I think, the shorter guns are helping, but what are you seeing there?

Yes. We see that trend of more shots per cluster, more clusters per well, we see those expanding over time. If you go back and have the durability, go back and listen to our earnings calls over many years, you hear Core Lab talk very confidently about our belief that stimulated rock volume was the critical driver for well efficiency here. So, a change from, call it, low single digits to mid single digits to now double digits in clusters in per stage, we think is a trend. And then, we think that plays very nicely into demand for our energetic products.

And when you think about that, and -- I mean, we can make different assumptions about activity, but if you -- it seems to be the general consensus that U.S. CapEx is down around 10% and maybe activity down half that in that range. Can production enhancement be flat to up in that environment, given the increase in perf intensity, or is that too aggressive?

I think, that's one of the components that we look at in terms of looking out for 2020. We also see market penetration. We were, call it, early stages of new product rollout, GoGun and addressable switch, we see those as having -- gaining market share and having upside for us. Plus, new products like pulse wave and refrack. We think that pulled together, yes, we would think that those will help buck a trend of lower capital spending in onshore U.S. I think the focus on people -- operators getting more production from fewer wells is a nice trend for us because people will put technology to work to get that production up and save them the most expensive thing they can do, which is that you have to drill another well.

Thank you. And then, just as a follow-up. When you look at the RD business and you look at sort of the revenue trends over the last four or five years, I think most of that, if not all of that, has been driven by just underlying activity levels. Has there been any change in a competitive backdrop for RD, or is it really just been all market-driven?

It's been market-driven. If anything, there are some companies that had internal laboratory capabilities, have downsized, in some cases closed those internal capabilities. So, it's really -- what you're seeing is a reflection of activity.

Okay. Eily, I think, we're going to close the call. Thank you. So in summary, Core's operations continue to position the Company for activity levels in the first quarter of 2020. And we know significant challenges await. However, we have never been better operationally or technologically positioned to help our clients to maintain and expand their existing production base. We remain uniquely focused and are the most technologically advanced reservoir optimization company in all of oilfield services. This positions Core well for the challenges ahead. The Company remains committed to the industry-leading levels of free cash generation and returns on invested capital with excess capital being returned back to our shareholders via dividends, future opportunistic share repurchases. So, in closing, we'd like to thank all of our shareholders and the analysts to follow Core. And as already mentioned by Larry, the executive management of Core and the Board of Directors give special thanks to our worldwide employee base that have made these results possible. We are proud to be associated with their continuing achievements. So, thanks for spending time with us. And we look forward to our next update. Good bye for now.

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