NPK International Inc (NPKI) 2003 Q3 法說會逐字稿

Good afternoon and thank you all for standing by. (OPERATOR INSTRUCTIONS).

With us today is Jim Cole, Newpark's Chairman and CEO, and Matt Hardey, Newpark's Chief Financial Officer who will introduce the call.

Good afternoon and welcome to Newpark's third- quarter earnings conference call.

Please be aware that certain of our comments today will in fact be forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933.

Accordingly, we ask that you read the disclaimer at the bottom of the press release for a reference to those portions of our public filings that disclose the risk factors and uncertainties affecting the Company and the markets we serve.

If you do not have a full text version of the press release and the accompanying tables, you, of course, can download that at our Website from the Investor Relations page at www.newpark.com.

As most of you I am sure know, Newpark recently reported earnings of a penny a share on revenue that increased 20 percent from the comparable period a year ago.

We were 95.6 million in revenue for the quarter and 4 cents in the year-to-date period.

The nine-months revenue totaled 278.5 million, also up 20 percent from the year ago period.

Outside of the Gulf Coast market, we have experienced revenue growth rate of growth rates of between 30 and 40 percent in most markets, consistent with improving activity in those markets.

The margins were stable in all those markets, and profitability improved outside of the Gulf Coast markets that, of course, was offset by soft performance in the Gulf Coast market.

I have a few comments with respect to the overall balance sheet and a few details I will give you, and then Jim is going to review the market with you and talk to you about what to expect in upcoming periods.

We have not let the disappointing activity level in the Gulf of Mexico market change our strategy for the year and are continuing to work toward improving our balance sheet.

In the third quarter, we reduced our bank borrowings by 4.5 million and our debt ratio by almost a full point to 35 percent of total long-term capital continuing to press towards our 30 percent long-term target goal.

Our receivables turnover since the beginning of the year has improved from 111 days at 12/31 to 90 days at the recent quarter end, and I suggest to you that we will soon be approaching what we would consider to be the norm for our peer group.

We know that there is additional improvement opportunity within the receivables, and we will achieve that cost for the remainder the year and keep that at the top of our lists.

One other item affecting working capital, of course, evident in the financials is the increase in inventory on a year-to-date basis.

The biggest change in there includes our movement to a fully owned rather than a consigned Bay Right inventory, which accounts for about $11 million of the change, and a $4 million increase in mat sale for resale year-to-date that is a temporary item.

We expect to see further reductions in working capital, particularly in inventory for mat sales in 2004.

Finally, for those of you who follow it, the depreciation and amortization for the period to date has totaled 16.1 million, again capital expenditures of about 18.3.

You will remember that our capital expenditure plan for the year is to stay within the constraints of our depreciation and amortization with fourth quarter D&A expected to run about 5.3 million and capital expenditures to run less than that to square those two numbers for the year.

Our most significant capital expenditure in 2003 has been the completion of a new Bay Right mill in the Houston market, which is just about done, and as Jim will talk to you about, we have also entered some new markets, including the water disposal market in the Wyoming area and have put some capital up there to enter that market.

With that, I will turn it over to Jim for his comments on those markets and our direction.

Thank you, Matt.

I would like -- first of all, we are later than normal on our conference call, and we appreciate the patience.

We were traveling hopefully on good long-term business for the last week, so basically I think the delay will be long-term profitable for the Company.

I will first talk about the market.

Matt has made it abundantly clear as most everyone who watches the industry that the Gulf Coast has been very lackluster to say the least, and the non-Gulf Coast market in North America has been very strong.

If we take key rig activity for the offshore South Louisiana land and the marsh in Louisiana, we are just marginally nudged over 1999 levels of activity.

At with today's commodity prices, everyone scratched their head, but we understand that the industry is going through a fairly substantial tremendous risk transition to depth.

Unlike most prior cycles, and we have been through nine of these in 33 years, most generally it has been a major event such as collapse of commodity price or some event -- generally it has been commodity price or low pricing or something natural gas.

But basically most of the industry has moved in unison and moved by up when that commodity price problem was resolved.

This is different.

This will be a recovery, particularly in the Gulf Coast, of one company at a time.

It is very interesting to be looking at most everybody in the industry, and then you watch how they are planning.

Some are not planning to go forward.

There will be those that consolidate out of the industry and those that will become bigger players and that will have very active programs in 2004, that have not been working substantially in 2003.

So it will be one company at a time.

We don't believe the Gulf Coast turnaround will be rapid.

But, however, we believe 2004 will be an improvement, particularly for our company for the Newpark because of the six or eight key customers which were not active this year that plans fairly active programs next year, and they are substantial to us.

I would like to next talk about Newpark's direction.

As the industry is going through a transition, Newpark is also going through a transition, and I can talk about this first by geographic diversity.

In 1997, less than .5 of 1 percent of our revenues came away from the Gulf Coast market.

For the first nine months of this year, over 40 percent -- probably over 40 percent were off the Gulf Coast.

So we have gone through in the last number of years a fairly substantial change in diversity.

That will continue will the goal toward at least 50-50.

Unfortunately the current ratio of mix of work is aided by the weakness in the Gulf Coast market, which we were not quite as successful at this point in time toward our diversity goal, but we are very pleased that we have made this progress.

Second is industry diversity, and many of the products and services we have developed for the oilfields are starting to travel outside of the oilfield.

One is our matting for the non-utility business and it takes time to build it, but we are in the Pacific Northwest and the West Coast and the Midwest in New York on matting jobs for non-oilfield customers today.

That will be a continual build as the other industries, particularly the utilities, learn about the productivity of the matting systems.

The second is that we have traveled -- excuse me, we opened the Jonah-Pinedale facility about four months ago in Wyoming, and that was profitable in our first month.

It has been very very nice operation, and we believe it will grow.

But as we studied that market, we have begun to look at some of the technologies that might be available that may apply to the removal of salt and other mineralization from water.

And we will soon be field testing a technology that in all tests thus far show it can remove the salt back to irrigational water; you can go all the way to drinking water, but we don't want to do it that good.

But it will remove the contaminants, allow surface discharge.

As we develop that for Jonah-Pinedale, that has applications as we will discuss in other markets later.

So we have over the last four or five years as we have diversified brought some new ideas and Drilling Fluids, the high-performance water-based fluids, and we will talk about that more.

The matting and the Bravo matt.

Water treatment, which is a new offering for the Company.

And while we transition, we are transitioning our balance sheet.

So technologies are being introduced and moved with the Company as we diversify the industries, our offerings, the diversities geographically and we improve the balance sheet.

It is a shame, but it is life that the Gulf Coast weakness has so mirrored the progress, but one of these days we will come out of the cocoon and look more like a butterfly.

We assume and believe we can.

Now let's talk about each of these segments real quickly.

The environmental business -- actually the environmental business is driven by three drivers.

One is regulation and its enforcement.

Second is the movement in the industry into new areas which are sensitive. (inaudible) are areas where you basically are creating an environmental problem.

And the opening of new technologies, that is to either bring water out of formations that have heretofore been locked up to free the hydrocarbon, such as in coal-based methane or the Jonah-Pinedale play, or basically into new geographic areas, which are sensitive from an environmental standpoint.

Now we are going to talk about the new markets, but let's go to the world and true, and that is the Gulf Coast.

We are performing reasonably well in a lackluster market.

We have several competitors.

The market has excellent operating leverage and will be in good position.

We continue to improve this operation, reducing costs, being very careful with it, but it has extreme operating leverage when the market moved slowly methodically in the current, and so we are well-positioned.

We are not looking for this to be a rapid turnaround.

The Jonah-Pinedale is a nice -- it can mean 1 to 2 cents a share to the Company, but its success has really been to open up the horizons of water treatment.

We have historically been a company that treated the solids, but we have not put the technological emphasis on water.

But the major developments in the regulatory field that are creating new markets are in the water.

The first of those is the drinking water, which to date -- which up until the end of this year has a radiation such as radioactive Norm, which is the naturally occurring radioactive material, which most of you that follow us know we are the largest disposal of Norm in the country for the E&P industry.

We probably get 85 to 90 percent about business.

It is a small niche market.

The drinking water standard will be lowered from 16 (inaudible) per liter to 5 at the end of this year.

That will take several years to bring this new market to closure, but this is EPA regulation, and we estimate that there will be over 1000 -- and this is an estimate for the industry -- the industry estimates there will be overall a 1,000 water systems across the United States, which will not meet the standard.

And they will have to remove the radium from the water.

And there are several concepts that will do that, but we are testing before the end of the year a system which will do that and then provide that on an integrated basis to us for disposal.

The estimates in there are fairly substantial, but it ought to be -- the market is larger, larger than the environmental business for the E&P on the Gulf Coast.

It is another niche market.

Additionally we will be testing through the drinking water, radium removal.

We will be testing the coalbed methane because it is very similar to the Jonah-Pinedale contamination.

So these are tests that we will be taking before the end of this year.

Standby.

We have had good benchtesting thus far, and prototype, we will find how it works really in the field.

I am going to switch next to Drilling Fluids.

The Gulf Coast is down 15 percent year-to-date in revenues.

That is our biggest market.

The non-Gulf Coast is up 35 percent.

Our profits almost doubled off the Gulf Coast, and they are down substantially on the Gulf Coast.

So the result is that we look like we are caught in a -- we are stalemated in this market.

But we see the transition here, fewer but larger wells.

As an example, I think we are beginning to see the trend establish that currently in the Louisiana market, putting offshore Louisiana, average well depth is 15,000 feet.

The deepest is 26,000; the shallowest is 4.

So our average is 15.

We just completed one at about 26,000 feet.

We are working with the operator, and there is a follow-on well welcoming.

They are logging the well now.

Our South Louisiana has continued to deepen to 13,500 average, and over half of those are over 15,000 feet.

Incidentally over half of our Louisiana wells are over 18,000 feet.

So the well size, and you will see that show up in the revenue per rig, and I think we are starting to put a base down for what we believe will be the direction of the industry, fewer but larger wells.

We welcome that.

We don't get a chance to say anything else because that is the way it is, but we have developed high-performance water-based systems which play into the deeper wells and have performed very well.

We have talked to you over the last several years about DeepDrill, but it's very close first cousin is called FlexDrill, and we will drill that out into this year.

They are the same ingredients, except FlexDrill is added as you need it.

Any wells don't need all the ingredients of DeepDrill.

They may need two of those.

So we add those as we go down rather than bring it out as a single package, and we are getting excellent reception on that and through the first nine months of this year have performed FlexDrill and DeepDrill on over 290 wells for over 70 customers, and that is throughout North America.

A few of the points of progress we have made, the seven largest worldwide companies in the last year we have penetrated and worked for five of those, and that is how you start.

You start working in one or two geographic areas, and then you work your way up.

That is the way we've done with every customer.

We're starting to penetrate the market, and those are almost universally done with FlexDrill and DeepDrill.

Secondly, we just received about a week ago an award with a large independent that will take us over a dozen rigs, new rigs primarily led by FlexDrill.

That does not mean we use it in every well, but that is the technology which carried the day.

Another independent we will pick up more than 10 or maybe up to 15 additional rigs today with that customer.

And one key foreign market beginning this month with FlexDrill will begin the testing as the technical advisor, trainer, engineer and product supplier for FlexDrill.

We will not provide the commodities, but we will provide the products and service and training, and that is a multiyear contract if successful.

Newpark is making progress.

It is masked by the Saltus and the Gulf Coast, but I believe that strategy will payoff, particularly if we stay true to this niche and the emphasis on high-performance water-based fluids.

We think it is the fluid of the future, and we are so sure of it now that most of our competitors are trying to copy it or something similar.

Matting.

Gulf Coast activity is right at 1999 activity.

That is not very exciting, but that is the way it is.

Industry inventory continues to drop our competitors.

We monitor that on a biweekly basis, and it is dropping.

Newpark as part of its strategy is moving inventory as we described earlier through non-oilfield applications, and that will continue to progress.

We are also planning to move inventory into a foreign rental market with a strong financial partner out of the Gulf Coast.

So we are going to assist with all investment and inventory from the Gulf Coast market.

Needless to say, the industry even at today's level has not been in balance, and any uptick will be substantially rewarded with utility and price is how you make money in that business.

Dura-Base, very disappointed in the third quarter.

We sold a few hundred mats.

We have over 25,000 projects that have being engineered and are going through some form of approval in eight different markets around the world. 25,000 mats -- I have been corrected.

Not 25,000 but 25,000 mats.

We plan to open one and possibly two new rental markets.

In several of the markets, people would rather rent, and we will do that based on the risks and having the financial commitment by partners.

We have one market that we have received that and think we will open by early next year in that rental market.

And we will rollout the 50 pound variety of matting that Global Mat (ph) did early next year.

We have been working to improve the product, line up production.

We do that through a third-party and to roll that out in 2004.

This is a totally different market than the Dura-Base.

It has not serviced the heavy equipment.

It is more for personal and light equipment, and the testing has been excellent on that matting system.

In summary, our strategy is to diversify our products, our markets, apply new technologies.

We have some that is in application and some to be tested for new application, improve the balance sheet, and stay extremely well-positioned when this big market monster in the Gulf Coast turns the other way.

I don't think there is any change in this other than we have made some improvement -- we have made some development in the water markets, and we are excited about the potential and some new regulations which could improve and develop some new markets.

And with that, we will open it to questions.

(OPERATOR INSTRUCTIONS).

David Snow.

Energy Equities.

How many rigs are you now serving of the North American market with the Drilling Fluids?

It was 120 the last I had asked that question.

I think we are up around between 128 and 135.

Okay and I am wondering what is the difference in your revenues that you get from FlexDrill versus DeepDrill?

It is not the revenues that matter, it is the margin.

Because some wells -- we are doing a very important test today for a major oil company, and that well will probably run $120,000.

It will be drilled in about ten days.

But that is the series which leads to others.

It is really the margin.

The FlexDrill and DeepDrill carry different margins.

It is really the same product; it's just in different concentrations.

In the DeepDrill, you have four products, and in the FlexDrill system, you may use anywhere from one or two to three to all four, but you'll add them at different times.

So it just simply makes it more flexible.

But the margins can carry 10 to 20 margin points higher than the typical Drilling Fluids system.

Which ones give the better margin, FlexDrill or DeepDrill?

Whichever the customer wants is the best margin.

Because the DeepDrill will, but it may price itself above certain jobs.

So you have to apply the product that gives the best solution to a customer's problem, and the FlexDrill has been a -- actually I wish we had done FlexDrill before DeepDrill quite frankly because it solves many more well problems than the --.

One is a Cadillac system, and that is used in major wells, and the FlexDrill opens the market to a lot more wells.

Okay.

I guess just one more question.

Was is the outlook for military orders or are big orders for the mats?

Let's first say the military.

I would rather not even comment on it.

There is effort being made, but working with the government and watching, I don't know grass grow in the winter.

But we are still working the market and we have champions within the services, so I would say that right now of those 25 plus thousand, we count zero in our project list for military.

There are opportunities, but we don't put them in projects.

We will count those as projects when the purchase order arrives.

Did the 50 pound Bravo mat, was that originally developed for the military?

Now you are trying to offer it for other markets?

It was actually the 50 pound Bravo mat was a suggestion for the military in areas where they did not have mechanization and particularly under tent floors.

The Dura-Base mat is much too heavy for that application, and they ask us if the walkways and the sand and with people could for living quarters and for protection of personnel and light equipment if we could develop something, and that was really done at the request of the military.

But we have had a lot of interest in events, various events, all the way from flooring under tents and things of that nature.

So it is a lighter mat for a wholly different application.

John Tasdemir.

One thing I've found pretty encouraging in the quarter was the growth in the Drilling Fluids business.

It looked like you guys picked about $9 million in additional revenue since the second quarter.

What is happening there?

Is that marketshare, or is it new geographic areas?

Where did that growth come from?

I think that we have actually made great progress with the FlexDrill out of the Gulf Coast.

We have made very good progress with the profited product lines, the FlexDrill/DeepDrill and the Gulf Coast.

The problem is they are not drilling.

They say we like it.

We plan the wells, and they just don't drill.

In other markets, they are active.

So I think you are just seeing the results of market penetration where people have gone to work.

But where they are not working, it is just like you are hitting a tennis ball into a blanket.

You picked up about 17 percent sequential growth in drilling for the business, and obviously that was drilling activity.

Can you comment is that coming from Canada, international; is that new?

That was just above my expectation, so --(multiple speakers).

Canada is a small part of it.

Really I think that midcontinent has been excellent, and we have been very active with FlexDrill in the Jonah-Pinedale trend.

Basically you're just picking up on potentially some new markets?

We're penetrating the market.

I think you will see that in the Gulf Coast when they go back to work, too.

Is that type of revenue number, is that what should be going on -- I guess there is nothing onetime in that quarter to make it as big as it was?

I think we can sustain that level.

In fact, we have gone back and asked one of our internal planning specialists did we have any real major "At a Boys" that fall back, and I think that we can sustain that level and build off that level.

Okay.

We want the margin to come, and we started up some things that have lower margin, but we really want the margin to fill behind it now.

That's all I have for now guys.

I appreciate it.

Jason Selch.

Wanger Asset Management.

Following up on that last question, I also noticed that the revenues in Drilling Fluids were unusually strong; however, the margins, there was really no improvement in the margins.

I think -- what was it, 5.6 percent?

Is this business going to have improved margins, or is that what we should be expecting is that kind of margin going forward?

I think in the past your margins have been in the teens in Drilling Fluids.

The answer is we will get back into the game.

We have continued to develop our product family, and we did not cutback, in particularly that entire downtick is attributable to the Gulf Coast.

Our gross margin in the last quarter in the Gulf Coast was down about 5 points which cost us about $1 million, or about 1.5 margin points.

But that was particularly because of fixed cost against the low revenue base, and the development cost of the product family is in that area.

So we will get back there, Jason.

On an incremental basis, we are north of 30 percent.

So we will get back there.

You mentioned -- anyway I hope you do.

You mentioned that you sold 25,000 mats.

That is about how much in revenues approximately?

No, Jason.

Let me get that -- slowdown.

Those are the bids out today on specifically engineered products, and we did not sell 25.

I wish we would have.

We only sold a few hundred in the quarter.

So what were the revenues about?

For the quarter?

On the mat sales?

Oh, goodness.

(inaudible).

About a quarter million.

Okay.

I think you at one point were thinking of selling $30 million for the revenues in mat sales.

Is that still achievable this year, or is that --?

Heavens, no.

We haven't hit that level for anytime during the year.

And you're saying you have 25,000 (multiple speakers) which they are bids outstanding on?

They are bids outstanding, and before we came in this conference call, we bent back through those bids and took a look being prepared, but they aren't all going to get here because we added more today.

It is a project list, but it is a growing list.

At one time, it would be one or two projects; today it's a dozen or 12 or 15.

So it is a slow growth, but it looks like the project list is growing, and one day it will be a more stable business.

Okay.

Do you know whether you are going to close any of those 25,000 in the fourth quarter?

There are indications that some should get in, but I've been wrong so much, we will just have to hid and watch.

Gilfred (ph).

I am a little new to the story.

Could you give me a little bit of a roadmap on the water treatment new product?

Yes.

I think I understood your question because it was very low for us.

We did not get a good reception.

I'll try again.

This water treatment roadmap, the competition, and the --?

What happened is that we have historically been the environmental company handling most of the cutting and solids.

Even though we get a lot of water with it, our primary function has been the recycling and the handling of the solid material.

That has been our focus primarily.

That has been principally because water disposal has been relatively easy down here in the Gulf Coast market.

Yes, but it was our primary focus, and there are lots of salt water disposal injection wells in the mature markets.

That is generally a fairly low-priced commodity business.

We have been a dominant player in the environmental business when it came to solid handling.

When we opened the Jonah-Pinedale play and we analyzed the contaminants that have to be dealt with, we put out what we call a free stall evaporate.

I don't want to spend any time on it, but we opened that about four months ago very successfully.

But it caused us to begin to really focus -- it took us about a year to open that.

As we were doing that, we began to evaluate water treatment.

Not all markets have the same set of injection capabilities to inject salt water or the contaminated water.

So we began to look for technology that would handle the salt and other mineralization contaminants that cannot be placed back on the surface that oil companies or other participants have to deal with.

But we have done is we have come to a point where we are now field testing some technology that, if it plays like it has been thus far, would remove those contaminants and allow surface disposal back in those markets.

What I was trying to get at is, what is the competition assuming there is a month or two delay in getting the tests done?

What kind of revenue potential is there next year?

I am not going to answer what next year is because you have to build the units if it successful, and the competition -- no one in our industry have ever move removed salt and this mineralization, and no one has ever had to remove Norm out of drinking water before.

Norm is usually attached to a mineral mineral, and we can remove the minerals with this technology, but we've got to field test it now, and that will come up before the end of the year.

So stay tuned for our next conference call, and we will let you know.

What does it cost?

We don't know yet.

We have estimates, but I don't know.

It depends on how large a unit you build.

It varies all the way from a few barrels an hour to up to as many as 10 or 15 barrels a second.

So it depends on the application.

There will be applications, for instance, in Pinedale if we use it.

We would want to build something that would be about 3000 to 4000 barrels today, and then smaller units would be mobile.

(multiple speakers) -- 3 or 4 million a day would equal what kind of revenue for you?

I'm not going to go there.

Let's get the technology.

We can build whatever you need because it will be built for different sizes, and in some places, we may get as low as 25 cents a barrel for water, and then others we may get as high as $2.00 or $3.00 a barrel.

So it varies by its application.

And on the Gulf business, simplistically for an outsider monitoring the active rig count would be a good simple way, a simplistic way of following your activity potential?

I don't know that that is still valid today.

Because the industry is going through the transition and the mix of drilling is becoming so much deeper.

But if you want to call Matt Hardey, he will give you some of the models and show where we've gone from about 1.5 million average in the Gulf Coast to closer to 2.5 million annualized revenue per rig, so we are going through a transition now.

So we could show you how the models work, but why don't you give Matt Hardey a call.

Thank you very much.

David Snow.

A follow-up question.

If you can address the pricing on the Gulf Coast for the mats?

It looks like it has drifted off to about 72 cents.

It was I think near $1.00 earlier in the year.

Can you bring us up-to-date on what is going on there and what the outlook is?

I think it has come down by some probably 12 or 15 cents on an average in the Gulf Coast, but we had in the recent quarter we have not had the non-oilfield that comes in at probably $2.00 to $2.50 to $3.00 a square foot.

So it is really a combination of a bit lighter pricing in the Gulf Coast, and that is brought about by a bit of desperation by competitors.

And the other is the mix is probably more of that because it only takes a very small percentage, 5 or 6 percent of non-oilfield, and that at three times the price, and you quickly get back up to your $1.00 or $1.20 a square foot.

You were anticipating maybe changing the method of pricing.

Is that on hold until you see a better firmness in the market, or what is happening there?

I think when we do the non-oilfield, we do that on a per day basis, which is the way we would like to change the oil field.

We did not feel the timing would allow us to do that in the oilfield, but everywhere outside of the Gulf Coast oilfield we have priced on the new method.

If we open any foreign markets, we will open on that basis.

What percent of your incremental revenues this year in Drilling Fluids is accounted for by the DeepDrill and FlexDrill?

I cannot answer that question.

I really cannot answer that.

But we will get that -- there are two ways to approach that.

It would be the number of jobs that would have been gained by using the product, and the product could be 5 percent of the well.

But it is that difference, that silly millimeter difference of that product that gives you the well.

Another way to measure it is the pure concentrated product, and I do not have that number handy right now on the concentrated ingredient as one indicator.

But I would say if I made an answer, it is a vital part of our market penetration.

But I cannot answer it specifically.

You were looking for about half of the incremental revenue to be from DeepDrill.

Is it less?

I don't know, but we will find out.

David, we will find that answer and come back to you and get you more than just a swag.

Is there any foreign market activity in DeepDrill or FlexDrill?

Yes, sir.

Yes, sir.

Mediterranean mainly or some other areas?

There are a couple of areas and we would like -- I don't excludes Canada as foreign, but they are kindred spirits.

But we have some in south of us and some in the Mediterranean.

South of us being Mexico?

Could be.

David Dove (ph).

Paradigm Capital Management.

The operating margin in the E&P Waste business was down.

Could you help us understand what that was?

I was a little confused.

And that's just strictly a mix change, David.

We had a big piece of Norm, the oilfield radioactive material, in the year ago period that did not reoccur in the current period, and while we have expectations that we will see more Norm activity in future periods, it is a lumpy business, and you can't really ever forecast it very well.

If you look at just the oilfield piece, I think you would see that the pricing contributions from that part of the business were, indeed, stable and upticking slightly on volume in the year-over-year and quarter over quarter comparisons.

Also, let me add that your Norm radioactive waste disposal carries an operating leverage of between 85 and 90 percent.

So it is so powerful when it comes.

I would also like to add there is an interesting phenomenon growing on in that market besides expanding outside of the oilfield currently.

There has been some major litigation in this market that is driving a lot of cleanup.

So it is a possibility you will see the Norm market picking up even within the E&P side of it driven by plaintiff lawyers.

So standby on that one.

That will happen 2004.

So when we look into the next quarter, we should probably model the margins being sequentially similar?

I think that is fair, and if we get a slight uptick in volume, then you will see some nice progress in the margins.

But it will be dependent upon the mix and the type of rigs that are running.

As we said earlier, if you need some modeling detail on that, just give me a call afterwards and I will forward that to you.

In the mat business, sequentially the revenue was down.

Is this quarter seasonally weak, is that why?

Yes, it is.

What happens in the third quarter every year in Texas is without hurricanes, it is usually a little drier, and the areas that I during that season to go to rock versus matting, and then when you are in the spring, you get rain and now we are back to that is where the hottest market is in pickup for the fourth quarter.

So you'll see us back up.

If you look at the company over many years, it is the seasonally weakest part of the year for the Texas side of the market.

Alisterwise Capital Management.

Jim, in your comments, you talked about your outlook for drilling in the Gulf in 2004.

Could you elaborate based on what you are hearing from your customers as to what their intentions are in 2004?

I don't think there is any universal answer.

I think it is company by company as each has found their own kind of risk nest to settle into.

Some are still scratching around trying to build the nest, and some have found it.

I think it is important for us that we have a number of fairly good independent or large companies, majors, that we have either a preferred position or we will share substantially in their business, that are going to be more active going forward.

And I would put the change in our business really modeled on about six or eight companies.

They are on everybody's list, if you look at the top 30 or 40 customers.

But for the most part, they have figured out how they want to drill at depth, and they will be more active at depth, and we will participate in a meaningful way in that drilling uptick.

Now if you go across the industry, there are so many stories out there between the major companies and independents that I cannot address the total industry, but we have focused really on a customer base of about 30 to 40 customers.

We see 2004 as being an improvement, but basically this was the group of people that we had hoped would be more active in 2003 there were not.

So I don't know if I answered your question.

I cannot give you a general overall view of the industry other than the group of companies that will affect Newpark drilling the most should be upticked for 2004 versus 2003.

Okay.

Thanks.

(OPERATOR INSTRUCTIONS).

John Rosenthal.

Burnham (ph) Asset Management.

Good afternoon, gents.

In the past, Jim, you have suggested that one of your goals was to pay down the bank, payoff the bank by the end of the first quarter of 2004.

I noticed the rhetoric was very different today.

Can you bring us up to date on where you stand on that objective?

I think, John, that when we held the year that we could do that by the first quarter of next year, we did not anticipate the very poor Gulf Coast market that we experienced this year.

Maybe we should have, but we did not.

So that is one.

I think the second is that the mat sales which are building in project backlog have not materialized.

The good news is when we sell then because we own them, it is very material to debt pay down.

So I think that those two are the combination of factors.

We still hold a goal of paying off the bank or substantially paying them down, and I think it has just slipped ahead.

I don't think it is a goal that we would say is not going to be reached; it has just been pushed out.

Thank you.

At this time, I am showing no further questions.

Angie, thanks.

You you have done a great job, and ladies and gentlemen, thanks for joining us today.

We have offered the opportunity to talk about follow-up items, and please don't hesitate to call us.

We have committed to some data and will be glad to provide it for you.

Thanks again for joining us today.

Thank you and this concludes today's conference.