NPK International Inc (NPKI) 2002 Q1 法說會逐字稿

Good afternoon. Thank you for standing by.

I'd like to remind everybody that your lines on listen-only

until the question/answer session. With us is James Cole,

Chairman of Newpark Resources Matt Hardey CFO and will

introduce the call.

This is Matt Hardey. Good afternoon and thank you for joining us on Newpark's first quarter earnings conference call. In this morning's earnings release, included data. If you don't have a complete copy, pick one

on the web site or the dozen or so internet investment

portals with copies of the complete release available.

Please be aware that much of our comments today include

forward-looking statements within the context of section 27a

of the securities act of 1933. And accordingly, represent

our best judgment as to the course of the company going

forward.

Our views and actual results, of course, are subject to

variation as a result of many of the factors in the SCC

filings to which we direct your attention.

With that out of the way, I'd like to highlight from a

financial perspective the first quarter. As you know, reported earnings just over half a million dollars, equal to a penny a share on revenue of 75 million. At goodwill amortization unchanged last year unchanged we would have recorded a fractional cent loss for the period. Revenues in the quarter fell 18 and a half percent

or $17 million from fourth quarter levels on a similar

decline in the rig count. Cost and expense reductions that we have implemented help to maintain profitability in this period but certainly couldn't offset the operating leverage in that type of a revenue downward. EBITDA for the quarter was 11 and a half million dollars equal to 15% of revenue. In addition, we derived cash from reduction of 8.4 million dollar ins our net working capital position. So, that after funding 3.2 million dollars of capital expenditures, free cash flow used to reduce debt for $15 million. Debt represented 35% of our total capital at quarter end, versus over 40% a year ago. Bottom line is, the balance

sheet has been repaired.

Let me take you back for just a minute to 1997. Newpark had two primary product lines. Its domestic mat rental business and environmental business and was in need of a third segment to continue a growth track. Beginning that year, we invested over $220 million in the company, and began to build growing fluids, the environmental business in Canada, the mat business in Canada, as well as the compose it mass sales business, as well as extend other markets and products into other markets. During that 1998, 99 period while making the new commitments, and developing these products, the market turned down. Pretty hard, as a matter of fact. Debt to total capital peaked at 53% and Newpark struggled under the high leverage and products were not ready as the rebound of 2000, 2001 developed. We did get some traction in revenues and earnings during the first part of 2001, but we clearly missed most of the cycle. We anticipated that, and started work early to begin

preparing for the coming down cycle which we think we've just

passed through. By the end of this second quarter of 2002, we will have put in place over $20 million in gross cost and expense reductions with half of that amount centered in the e and p waste segment. These adjustments designed for a 16% pretax margin when we return to about a $400 million a year revenue run rate. Not all the initiatives will be visual in results, but we think becoming evident at the revenue base recovers. Beyond that $400 million level, we expect to produce 25 to 30% increments to the pretax line on the pretax revenue inherit of the product mix.

I've got two pieces of good news to leave you with as I

close my prepared remarks. First, the products we have developed and the markets we've expanded into are working. Newparks' composites mat, the Canadian mat rental business and the drilling fluids have been proven in the marketplace and gaining customer acceptance on a daily basis.

Second, the table is set. We have made the capital investment to carry those products through the revenue recovery to perhaps 600 million or more on an annual basis without the need far significant additional capital.

We're ready for the next cycle. With that said, James

Cole will give thoughts about the next industry cycle. Jim?

Thanks, Matt. Try to go quickly, but let

me start by saying we believe that Newpark passed through the

bottom of the cycle in March last month. And we believe that the first quarter rig count of 814 as compiled by Baker Hughs in the United States while somewhat lower in the potentially lower in the second quarter, ending June, that basically, Newpark's business has begun to recover from March forward. Now, I think that the result of that, as I go through each business segment, I'll give you indication of what we're seeing, and I's beyond just more bids, more programs, more discussion.

But we believe that'll result in the revenues for

Newpark in the second quarter being up approximately 15%, and

still, determining -- believing that rig count will be flat

to down from the first or second quarter.

Now, there are a few things that are occurring as we go

through these periodic cycles, and these cycles while not

predictable, certainly almost appear to be on paper and they

happen about three, three and a half years.

And, so basically, we're passing through that cycle and

believe once we pass through and begin a recovery that we've

got a pretty good run here coming. Now, anything can happen

but without anything major happening that's unforeseen.

This trend is different. The last cycle, we started

with very shallow wells. This cycle, we're starting deeper

wells. The trend is definitely deeper, and basically, we see

more frontier, more difficult -- a deeper type of work.

And, it basically we believe that we'll see a gradual

but important recovery coming in the second quarter for our

companies, and we'll see that pick up a little steam as we

accelerate into the second half of the year. Unfortunately, we believe we have to wait for Canada into next winter, but 2003 looks very exciting, and we're preparing for that because we think that's going to be a very major market opportunity. And we're well positioned. Let me talk a moment then about each of our three segments, and I'm going to talk about Newpark drilling fluids and this is where your -- the deeper is more evident. And

let me give everybody a footnote that haven't followed the

details of the past but in the fluids business, every 2000

feet in the gulf coast, you double the size of mud build and

going more than 2,000 feet in the type of wells we're seeing.

You're going to see as much or market growth from the

drilling than the activity level coming forward. We tracked

that in the past and through the programs and recaps. It's

pretty close.

Again, the low point in this market was in the first

week of March. And the -- since that point, across the United States, Newpark drilling fluids rig activity is up 12%. So that's last Friday versus the end of the first week

of March. That was the low point. That's up 12%, and the

activity in the U.S. in that period is down slightly but

we're kind of working a little against the market.

In the gulf coast, we're down 3%, the activity in the

market is down 3% in that same period. We're up over 30. So

we're beginning to penetrate the market as people are going

back to work and most of the wells we're seeing are much

improved.

We look at the real evidence of this will come in the

third quarter more than the second but we'll be up

substantially in the second quarter, also.

The recovery is really led by a number of factors. And

one is performance. And we had the last several years as a

new guy on the block, we didn't have any wells that were not

important because we were being tested by so many people.

And we performed. We performed very well. There are a

number of large companies that rate us the number one in

performance or now -- working for them a year and a half ago

and get the more difficult wells. So we have moved up scale

with the customer base and by performance. We certainly turned a few heads in that performance level with the DeepDrill, water based family of products and done very well by good part of the customer base with integrated environmental and fluids package called performance services.

And more than 25% of the wells in this key gulf coast

market on that basis. And those are good for the customer

and excellent for us, and make us unique. We're one of the

other companies that can provide that service.

We have picked up six substantial new customers this

year. These are target customers that have large budgets,

and they basically were picked up six new customers this

year. There are more coming.

We are penetrating the market. The future growth will

be led by continuing activity, continuing depth of drilling

which is significant, but also, a spice of the new

regulations, synthetic regulations which are now in effect,

and basically, they basically creating a much tighter review

of water-based solutions to synthetics, particularly in deep

water and on the shelf.

And, we're getting a lot of attention from major oil

companies, also, on that same regard. So there's plenty of

growth to come as long as we continue to perform. And stay

focused. A few of the applications that we have done in the first part of this year, and these are very all successful when you pull them off, faster penetration in certain areas in using water-based drilling fluids, DeepDrill in Oklahoma, using part of the DeepDrill product line in Canada, faster penetration, and solving an environmental problem. A lot of attention in Canada. That payday will come later.

Continued successful application in DeepDrill offshore.

And so, we're -- we believe our fluids company leading into

tomorrow's deeper, higher performance wells and into the

environmental regulations, again, we stay focused, our reward

is coming. Second product segment is environmental services. I'll

try to do the numbers quickly. 770,000 barrels in first

quarter. 12.94 a barrel. Highest pricing on the average we've gotten in the product line.

It's really mix and basically while it is price

sensitive in certain areas, others in the high performance

service areas are not as price sensitive. See, the first

part of this story that Matt alluded to or discussed with you

was the substantial cost and re-engineering that we did to

that company.

Really align the company to the cyclical nature of the

business, lowering its fixed costs and allowing a more

variable cost structure. This has been effected and fully in

effect by July.

There are no write-offs or charges. We absorbed those

over the last quarters and made the adjustments. That was

part of carrying the cost of doing it. We didn't want to

take charges and wasn't that significant but more than a

couple bucks.

But, at the 800,000 barrel level, our profitability per

quarter or month, say month, would be 800,000 higher. Fully

in effect or $10 million a year.

Stated another way, in the last cycle, if you took the

first, second and third quarters of 2001, before we had the

collapse in the fourth quarter, we averaged 1 million 150,000

barrels of waste received.

We averaged a little over $4 million per quarter in

profitability. At today's pricing, at today's cost structure, at 1 million 150,000 barrels, we'd make over $7 billion in the quarter.

The cost reductions are in place. And I believe we have

an opportunity to go back up and touch and exceed those 1

million 150,000 barrels per quarter. Not only do we have

activity coming back, we have deeper drilling which is

positive, and we have the new synthetic regulations which are

just now being shaped by the industry.

And there are three ways to solve that for the

industry. I guess you could not drill. I didn't add that to

my list. I don't think that's a good alternative but that's

a possible.

Number one, use the synthetic -- the oils that pass the

bio essay. Primarily your Esters which are more expensive.

And then you have to then pass the program or process of

testing, reporting, and processing for discharge. In any event, some amount of waste from the rigs even in that regard, but a lot of the volume -- bulk majority of the volume discharged at the rig site in the gulf of Mexico if you need to pass the tests.

The second alternative and some of the operators

preparing for this, to go with a diesel oil mud which is

cheaper then haul it to shore. That's a solution.

A third is the application of water-based drilling

fluids. Like a DeepDrill. We designed DeepDrill toward the

deep water, toward the synthetics, and toward these

regulations. And started three years ago.

We are being reviewed by a number of major companies

that test DeepDrill as an alternative. The good news is

we've been testing it. Not something to bring off the shelf

at the last minute. Been off the shelf and into the rig for

a good while.

The result is, the new regulations will increase the

volumes, and it is yet to be determined but we think we can

go back above the last cycle, the 1 million 150 average in

the top of the last cycle. Third product segment is matting. Matting in Canada is very slow. Break up now but we're not counting on it being

active this year. Right on the gulf coast is very slow up

until the last couple of weeks. And the activity has begun

to pick up.

Today, we're operating eight to nine, and actually the

number is nine crews laying mats. Went back through our

records and last time we had that level of crews laying mats

was in the third quarter of 2001.

So, somewhere back nearing the top of that market, third

quarter of last year, we've now on today's paces laying that

many mats. I don't believe we have the strength in the

market to hold that but we have seen some signs of life come

back in the last couple of weeks.

Positive for our primary market in the gulf coast, our

rental market, is the matting inventory across the industry

is very low and very old. Particularly by our competitors.

Newpark is very well placed and recovery will happen

quickly as that occurs. The trend of deeper and seeing the

type of wells we're looking at do a great deal for the

extended rentals which is very profitable. The other segment of matting which is our composite mat sales, we sold 3800 in the first quarter. 5700 over last

year the first quarter. So we're down. We sold in last year 2001, we sold 21, 000 with 33 million of revenue and 15 million of income, operating pretax income after depreciation. 12,000 of those 21 those sold last year were in Canada, and we plan or project minimal sales in western Canada this year. That's a lot of mats to replace. Our objective this

year and planning is to meet or match the 21,000 or exceed

it. We have opened new markets to offset Canada for 2002 and they are the following: Arctic, that's being shipped to the arctic as we speak. End need gentleman and the rain forest,

orders will be in soon. South America, Peru and Ecuador, first location is complete in Peru. More will be shipped to

the same customer. Additional into Ecuador. Shipping the first order this week into Russia. More to follow. And we have new distributors and product areas in the United States. We are hopeful and feel positive that the new markets for 2002 will offset the Canadian market and have plenty of growth room thereafter. 2003 we're anticipating Canada will be very strong with these new markets. We'd like to be able

we could think limits of the capacity in 2003. In summary, in our product lines, we believe we've crossed the bottom of the market. The trend is deeper,

tougher, reaching farther, frontier. And with matting, DeepDrill, environmental, and our product lines, we can participate in these areas.

Our balance sheet's in order. We believe the cycle is

coming. And we're excited to participate. And with that,

we'll open it up for questions.

Thank you. At this time, ready to begin the

question and answer session. If you would like to ask a

question, please press star 1. You'll be announced prior to

asking your question. To withdraw your question, you may

press star 2. Once again, to ask a question, please press

star 1. One moment.

Our first question comes from Justin Tootman.

Hi, good afternoon. Wanted to talk a little bit about the mat segment. The pricing for Q1 was around 61 cents on the rentals, I think going back to last conference call, at that time was 73 to 75 cents in February. Can you give me a sense as to did pricing further deteriorate significantly in March and with the recent rebound in activity you said you have experienced so far in April, can you give me a sense of the increase in volumes might be for Q2 and also, what your current prices and possibly expectations for Q2 pricing might be.

Let me start with your first question. In

the first quarter, our awarded work was 74 cents. Both -- it

was simply the low price started. So, we have them on an actual basis and that -- you have some -- we had jobs if the first quarter at a buck and a half a square foot and some lower. The mix of wells started with the least expensive or least priced jobs.

But our awarded which is the probably better indicator

but it's -- but actually, we awarded 74 cents and we worked

at 61 but a mix, really, a mix situation. I would say that the pricing in the second quarter would probably still be in the 70 to 75 cent range, but I think it'll sharp -- but I think we'll see awarding at a higher rate because that's what leads first is our awards are usually higher. Meaning, the awarded work in a semi backlog.

I would say that we'll be no lower. If anything,

probably up in the low 70s. That's a guess. More

approximate our awards as the mix comes in line and be bold

but I think we'll be average of a buck in the second half.

Okay.

We might do better than that. We have some

nice work coming in the second half of this year that's very

unique and well placed. That's the part that really drives the pricing is unique work.

Okay. And, when you look at the mat sales that you had in Q1, can you give me a sense as to the breakdown geographically and then also, do you expect Q2 mat sales to be up significantly from Q1 levels?

Okay. Let me answer the first one. Alaska, we're 1500. Distributors were about 800. And then,

we had -- distributors were actually -- our distributor net

work were 2800 -- 2300. Our distributor net work were 2300

and those go to different industries. Some went to the U.K., some to -- but that's the distributor net work and what we put in last year were the majority of sales which was new.

So, I didn't want to confuse it. 1500 to the north

slope, and 2300 through distributors.

Okay. And then, your expectation for Q2 mat sales?

It's a little difficult to -- we had a meeting this morning in preparation of this call, and our -- we have substantial orders coming from Indonesia, some more potential from Alaska and from South America. And some

distributors. If I had to guess, some of those won't make

this quarter. They just always never -- I could give you a

huge number if you had the list today but I would say we

would be up in the 4 or 5,000 range.

We ought to be up a little bit, but Q3 will be up

substantially. There's a very major job by that time will be

in. It could come in the second quarter but I'd push them to

the third. Jim, when you look at your potential mat sales in Q2, and especially to distributors, do you think that if I were to look at the distributor sales versus Q2, do you think flat or down?

I would say the distributors were down. I

would say the distributors would be more in the thousand

range. And we have -- I would -- distributors will probably

be down, but again, we could be surprised in that area. We

had a very active group in the first quarter.

Okay. Moving on to your waste disposal segment, I understand you guys put cost cutting measures in place and you expect to have those fully in place by essentially beginning of Q3.

July 1.

Okay. July 1. Can you give me a sense as to how

much of your cost cutting has already been put in place at

this point so then effectively how much to go in the second

quarter and how much of the cost cutting in place during Q1?

I would say in Q1, we had about a third of

it in place. It is all in place because all we have to do is

let the time run for July 1. It's all done. It's all

complete. We're probably half through now and then in July

1, we're complete. But we don't have to take anymore

actions. They're all done.

Okay. Final question, Matt, you mentioned that about

400 million of revenues would get you probably somewhere to

about a 16% operating or -- I'm sorry. Pretax income. Does that mean if I'm forecasting $400 million of revenues for Q3 that that would put your EPS in neighborhood of 55 cents?

Wait, wait, wait. I want to be around for

the next quarter.

Sorry.

Yeah. What you should be able to do as a

back of the envelope model, figure 16% pretax margin on the

first 400. And above 400 million I would use higher rate

perhaps 25% on the inkling.

Okay.

I would think that would be 52 to 55,

yeah. That's correct.

All right. Thanks very much.

John testher. You may ask your question.

Good morning, guys.

Good morning.

Jim, I must have heard you wrong. Did you say you expected to see revenue growth 15% from Q1 to Q2?

That's correct.

First time I heard that on a conference call. That's

extremely surprising given petroleum activity generally here

in the states. So, where do you -- of your three business

lines, where is that weighted mostly? Drilling, mat

business?

Weighted majority of it in drilling fluids.

Okay.

The others will be up somewhat. They'll be

up but not to the same degree. Will -- obviously prices have come down since the beginning of the year across the board on most services from pricing of January 1st to pricing of March 31st. I would expect prices might make the way back up but I guess on a net income basis, although a 15% increase in revenue looking for, probably not expect to see that increase on your earnings line.

Do you have any thoughts there?

Well, I would say that in the quarter to

quarter, if you -- it ought to track -- I think you have us

at 3 cents for the next quarter?

Yeah. That's where I did have you.

I'd just hang there. Hang there and let us

prove it.

Okay. I mean, my tendency to be honest with you would given what's happened with the overall environment and what's happened with most of the oil service stocks out there and companies is that you're going to see sequential declines in earnings. If you were to post an increase, it would be

very surprising. Not sure what to do with that number but

that's where I'm coming from.

We're being as straight as we can be, and

we basically -- what's really occurred, John, is we had a

number of substantial projects in drilling fluids, and

they've basically are picking up and picked up in this

quarter.

And they were a little late coming so we're kind of

maybe it's not so sequential as we think.

I got you. That makes sense. On that topic, again,

you said you're being currently reviewed by several of the

majors.

Yes.

Have you got any projects or are they customers yet?

Premature to say that. We're working

toward the assignment of projects with one. But we have to

-- let's just wait because I think that's where we'll

probably a quarter away from that. It's more of a second

half event if it occurs in the next quarter.

Okay. One other question, and then turn to somebody

else, back last year, you did have some new entrance into the

waste disposal business. How are those guys holding up? Are

they still around?

One of them has pretty much closed shop.

It was a smallest. There's all kinds of rumors about the

financial capability and viability of the others. We know

they're suffering. But we'll let the market take care of

that.

You might be picking up some there -- not planning on

it, obviously.

We have not counted on doing that. We're

-- it's kind of like the story of the camel that sticks the

nose in the tent and then while there have been a number of

people that come along and gone out of the business, more

than ten, seems like monotonous regularity, somebody else

decides to get rich in that niche. So, we're planned -- part

of the restructuring to plan to have somebody trying to enter

the market. So let's take that 12 or 15% and just put it

aside. If we gain it, that's Christmas come early.

Okay.

But we're not counting on getting that.

That's what we had to come up to realization in the

restructuring of the company and bring the fixed costs down

and make it a variable business. Not only for the cycle but

not planning forward 85% of the market in the future.

Okay. One last question for Matt. Tax rate in the quarter I think 36%. Is that what we need to use?

You can use that for the remainder of the

year.

Appreciate it, guys.

William begin go.

Thank you. Could you go into the $20 million in cost

reductions with half on the waste disposal side. What are

you taking out of the company that make it more variable

cost?

There's a couple things that occurred,

bill. One is, we got into a trap of elected customers

wanting to isolate their waste when comingling is the way we

keep your costs down, so part of that was we had to go back

to a reeducation process of comingling because once you

segregate waste by each individual customer, you run out of

equipment because you -- really messes the utility or flow of

the business and we got into that kit bag.

That wasn't as easy as you think. We had to go back and

have heart to heart discussions with our customers. That

reduced -- let us get rid of some boats and barges. And

equipment.

So we've substantially reduced I would say about half of

the reduction is in infastructural and transportation costs.

The second part of that is that we had an ongoing contractual

relationship with U.S. Liquids to make them certain sums of

waste.

We received a benefit. The net of that is probably the

other half. Now, there's minor things -- I'm getting into

the big ones. One is infastructure. The other is that.

That's gone June 30.

Okay.

And so those are your two biggies there.

I kind of inferred from the comments there was a cost

associated with implementing these programs, that resulted in

the 5% margin in the position of the quarter.

No. I think across the last several

quarters absorbed the costs of making changes when you turn

things in and cut back. You have some but that was

absorbed. I wouldn't count it for enough to worry about.

And then operated 10% below that level.

And came back variable. The variable

profitability about $9.50 a barrel. Extremely high variable so it's not worth taking the risk of high fixed cost because of the -- if you have low margins, operating margins but we have high operating margins in that business so that was the restructuring.

But it took us a while to adapt it in today's market.

It's changed. The waste streams we're getting, where we're

getting them is different. The competitive landscape changed

a little bit and the type of fluids you get. These synthetic-based fluids are different than the historic products.

You had to shuffle that deck and come out with a

strategy that meets today's reality. In today's cyclical

market and this company structured today on a cost basis

differently than it has ever in its history and we think it's

ready for the next cycle.

Okay.

That's propaganda but getting the message

out that.

Okay. One final question, you said in the opening remarks that you would hope if Canada came back, challenge mat capacity in '03.

I said it's a desire.

Okay. What would that capacity be?

Slightly over 40,000 units.

Thank you very much.

Jamie Goodfriend. You may ask your

question.

Hi, guys.

Hi.

If you could start with e and p waste side of the

business. Is there any of the comingling issues related to

the margin drop in the quarter?

No Jamie, that business shaped up to work

at an 800,000 barrel a quarter level and 770,000. Most of

the change in profitability is high incremental operating

leverage on the incremental margin.

60% of the costs come out by the third

quarter. About halfway through. By the first quarter, we

got more in the second and the big dropoff is with the

contractual change with U.S. Liquid happen at June 30.

Okay. Just -- okay. I have a different comment

related to last quarter. On the mat rental business, talked

about 73 cents a price resulted to as a result of competitive

forces in the market and pre-empt competition further into

the market.

Was there any of that competitive pressure anticipation

present in the 61 cent number you eventually came to in the

quarter? I recognize that it's not ticking back upwards.

The 61 is a mix. The awards 74 cents. And

that could always vary by when the job starts. If you went

back a month later, get 80 cents. It's the jobs that kick off. I would say that we haven't yet seen the overall pricing go up in the market yet. However, the mix of jobs coming which is as important as the unit pricing, we see jobs coming that will be very lucrative and large in wet land areas where we dominate and have enough of that in the second half and we feel approaching the dollars in the second half. 36 now, as a

good analyst, probably go below that and that would be wise

but that internally, we think we can push back towards a

dollar the second half and then ready for the next round.

Okay. In your sales generals in the second quarter, have you booked any orders so far in the mat sales?

Yes. Yes, we have. We have booked some Russian, others. We're north of a thousand. But I don't

have an expect number.

That's booked and billed?

Booked, shipped. Everything. Booked,

shipped and invoiced.

Over a thousand?

Yep.

Okay. I think that's it for now. Thank you.

Thank you.

Thank you.

Karen David green, you may ask your

question.

Good afternoon. I was wondering if you could elaborate furtherer in terms of the synthetic regulations and which way some of the customers leaning, and also, the customers that you mentioned that you picked up the six new ones, was that as a result of the new regulations or was that just as a result of the DeepDrill product?

Let me answer the second one. I think the

six new customers were really more the effect of performance,

where we had in some cases in several cases because they --

the oil companies are very short of staff, and when you're in

an environmental sensitive area, we can manage the waste

stream as we do the fluids and reminder, the fluids provide

about -- or the primary contaminant so you're controlling the

contaminant stream as you drill the well and handling the

recycling and cleanup or disposal at the end. To place it

under package can save from 10 to 15%. In offset areas,

these people have been partners in wells with others or we've

offset them, and you can lay out comparable costs.

Generally, an offset comparison to get the costs in and see

we can do a better job. I'd say it's performance primarily

one reason it's been that. The other has been product.

And others has been just plain performance on whatever

fluid system but in each case, we've been able to lay down

performance and offset data against performance. And I think

that's been the primary reason.

I would say that DeepDrill is having more effect on the

larger companies and they're slower to come but they'll be

coming later this year and next year.

Jim is not telling you the whole story.

He's traveled a lot this year and visited more than 20

customers since the first of the year. Universally, they

have said, we cannot tolerate another cycle like this last

one. We have to get the holes down at reasonable cost and

why we keep coming back to the performance word. We think

that it's key and it's what they're looking for and gives us

an opportunity to open some new markets here.

Additionally, you have us wound up and try

to end it on this one. We have enough technical performance

successes, we'll have over 20 articles published in trade

journals this year which are factual offset in performance

enhanced stories and technical data.

And we've been passing that out to people and it's began

to open eyes, so it's performance. Now, you ask -- you had

another part of your question. The synthetic. Does that

have an impact?

I would say it has the most impact in those companies

that basically want to find a water-based solution. I would

say at this point it has had minimal impact. Now, I have

people in the fluids listening, probably kicking me under the

table and have a specific.

It's had some but I think it's -- the growth thus far

where we're moving in counter market is on performance. Even

though we're spuding in nice, deep drills as we speak, I

don't know we got those wells without it. It's helps and

against synthetics. Most people have some horror stories on synthetics because of the thinness of the product. They lose a lot of

it. And DeepDrill, the water based, don't lose it down the

hole and save a lot of money in that one aspect. But it can

perform, and it's -- I think the better days for DeepDrill

are in '03 and '04 but we've gotten a will the of business

and attention based on it already.

Is that too general?

That was great. Thanks a lot.

Thank you.

Once again, to ask a question, you may press

star 1. One moment.

Mel Cody, you may ask your question.

How are you all doing?

Fine. Good afternoon.

Just a question on the U.S. Liquids contract. Any

indication that they may go into competition with you out in

the gulf or elsewhere because of the termination of the

contract?

The water is fine. Jump on in. That's

their call.

But you've gotten no indication so far?

That's their call. It takes a while to

build the infastructure.

Absolutely.

But they have been there before. If that's

their call, that's their call. We're counting on them being

there.

Okay. Thanks a lot.

At this time, there are no further

questions.

Ladies and gentlemen, thanks for joining

us. We appreciate the good questions, and look forward to an

interesting year as we see this market recover. Thanks very

much.