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Reservoir Enhancement the Name of the Game, Says Core Labs

Optimizing wells every which way, through spacing, fracture (frack) stimulation, more proppant or longer lateral lengths are big business in North America's onshore, and Core Laboratories has found entree with its reservoir enhancement technology, which helped lift it to its most profitable results ever in the third quarter.

The Dutch-based oilfield services company, which derives most of its revenue from crude oil-related projects, expects to see North American activity continue to increase for "emerging unconventional oil plays, while activity will remain at stable levels in established unconventional tight oil and gas plays," CFO Richard Bergmark told financial analysts during a conference call last week. He and the management team discussed the company's third quarter results for about an hour.

Traditionally, Core Labs has been known as an offshore reservoir specialist, but it's quickly gaining a reputation for its unconventional enhancements. The goal is the same: help clients produce incremental barrels. For several of Core's onshore customers in North America, it's about reworking mature basins, to enhance oil recovery (EOR).

"Several of these operators have developed multi-field projects that started in 2014 and are expected to continue through 2015," Bergmark said. "These projects integrate our sampling, PVT [pressure, volume, temperature] and EOR services to evaluate and optimize the production potential of their U.S. unconventional plays."

In the U.S. onshore, Core's production enhancement unit revenue climbed 10% sequentially, with operating margins increasing 460 basis points to 38.2%, an all-time high.

One technology, FlowProfiler, is being used to optimize well spacing, frack stimulation size and horizontal targeting. Producers use it to stimulate more intervals along the wellbores and layers within complex formations. Basically, it's success is tied to what everybody's known for years: not all rocks are alike.

"The biggest impact that we found from FlowProfiler is the landing of horizontal wells and what were thought to be pretty homogenous shale sections," CEO David Demshure told analysts. "We know that solicitous stringers that run through there restrict the growth of fracture height. So it is important that, let's say on a pad if we've got five wells coming off of one side of that pad, that those all be landed depending on the complexity of the formation, that is where those horizontals are landed. We probably would no longer land those all in the same zone.

"As a matter of fact, in some cases, we've seen those five be landed in five different zones to ensure that contact was made when the wellbore was hydraulically stimulated with all of the potential producing zones. So I think the biggest upshot out of this is the spacing of the horizontals, but far more importantly, the vertical landing of those wells in that horizontal reservoir."

The systems are moving recovery rates from some of the mature basins from the single digits to the "low teens," said the CEO. "It's still a small subset of wells and a small subset of clients, but the clients that are the ones that are investigating these have been the first movers in the maturing unconventional plays for different completion techniques -- read that, longer laterals, more stages, closer clusters, more profits.

"And it's the same subset of companies that are looking at these EOR techniques that when we can see that those will be successful, we'll be following on by the others that are exploiting some of these maturing shale plays. [There's] no reason why that shouldn't be the case."

Customers will continue to seek out new technologies regardless of the price environment too, he said. "They're all based on looking at increasing recovery rates in those incremental barrels," Demshure said. "Those are the cheapest barrels that they have already in place. So maybe as opposed to drilling new outlier wells in 'fringier' areas or outlying areas, they concentrate on wellbores and developments already in place and they look at implementing some of these EOR techniques. It’s the biggest bang for their buck."

Between July and September, Core received additional reservoir cores and reservoir fluids -- crude oils, natural gases and waters -- from emerging North American unconventional plays, including the Tuscaloosa Marine Shale, the Woodford and Springer shales of the South Central Oklahoma Oil Province, or SCOOP, and in the Permian Basin, which offset "less amounts of static evaluation of reservoir quality from the more established unconventional plays."

There also was "increasing amounts of work" related to EOR projects in the Bakken and Eagle Ford shales. "Revenues from the dynamic flow testing projects are still small, but they generate higher incremental and operating margins for the company. Increased profits from dynamic flow projects are expected in 2015 as more EOR programs are initiated in maturing unconventional shale plays."

As more quantities of North American crude oil are transported by rail, Core also sees opportunities for its thermal imaging technology, TVision, which expedites loading into tank cars.

"Core anticipates that fourth quarter 2014 North American activity will continue to increase slightly for emerging unconventional oil plays while activity will remain at stable levels in established unconventional tight oil and gas plays," Demshure said. "The effects of lower crude prices can be seen in the outlying areas of unconventional plays as production growth rates continue to decelerate in the Bakken play...

"The company believes crude oil markets will balance early in 2015 with crude oil prices strengthening to earlier 2014 levels. Longer term, the world will continue to be challenged to increase global crude supplies and the incremental barrel will continue to gain in value.”

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