NPK International Inc (NPKI) 2005 Q3 法說會逐字稿

Welcome to the Newpark Resources third quarter earnings conference.

With us today are Jim Cole, Newpark's CEO, and Matt Hardey, Newpark's CFO, who will introduce the call.

Please go ahead, Mr. Hardey.

Thank you, Tony.

Good morning and welcome, everyone, to Newpark's third quarter conference call.

The lawyers paid me to say that much of what we discuss today will constitute forward-looking statements within the context of the Securities Act and of the Exchange Act.

And I would like to remind you to review the disclaimer language contained at the end of the text of the earnings release, for notifications with respect to those risks and uncertainties that might affect our comments today.

Today is November the 8th.

On August the 24th we left this office, not quite knowing what to expect and yesterday we returned and reopened the office 10-weeks after Katrina.

We were very heartened during that absence to see that the contingency planning and work we had done to prepare for this kind of an eventuality worked very well and our staff did an excellent job of taking care of the Company's situation.

We were up and running in our new temporary offices in Lafayette only a few days later, with complete backup and data recovery in hand.

The largest difficulty we faced, I guess from a brick and mortar standpoint, really would relate to the regional damage to the communications infrastructure that made telephones and electricity and cell phones even, scary for a while.

But we're glad to be back and we are back in the Metairie office as of yesterday.

Regular phone numbers, email and so forth all functioning.

Those of you who have followed the Company for the past several years, know that we've been working to diversify the Company away from dependence on its historic Gulf Coast market.

As recently as 1997, practically all of our revenue was sourced there from two product lines that today, comprise about 30% of our revenue base.

Newpark's operations away from the Gulf Coast fortunately were not affected seriously by the storms and produced substantially all of the profit reported in the current period.

Yesterday evening - you, by now, I'm sure have seen a copy of the press release - we reported earnings of $5 million, or $0.06 a share in the third quarter, on revenue of $139 million.

As Jim will detail for you in a few minutes when he reviews the operations and the business units, we believe that the impact of the adverse weather in the quarter cost Newpark about $0.05 in reported earnings.

We did benefit in the period from the resolution of a foreign tax item that in abundance of caution, had been fully reserved when it was recognized.

Under recently revised rules, these types of adjustments that in prior periods would have been blended into the effective tax rate over some period of time, now must be recognized in the period in which they arise.

Said another way, we believe that normalized earnings in this quarter would have been $0.10 a share, disregarding the storms and the effect of the tax item.

While we're talking about the storm - storms during the period, Newpark does maintain a comprehensive package of insurance coverage to protect us, to the extent reasonable, from events such as hurricanes Rita and Katrina.

Newpark maintains $30 million of property damage insurance and business interruption coverage and that's on a per occurrence basis.

In the financials that were filed with the press release, and later today will be filed in the 10-Q, we have recognized or estimated a recovery of the property damage component under those policies, to the extent of the available coverage.

We have not recognized any benefit relative to the business interruption insurance, nor any gain related to the difference between the replacement cost of the assets that were damaged for which we're insured, and their older depreciated lower-cost basis.

These gains will only be recorded when cash is actually received from the various insurance companies.

But we believe that the gains associated with the property damage, combined with business interruption reimbursement will exceed $0.025 a share, so we should get back more than half of the loss of earnings occasioned by the storms.

The effect of the disruption caused by these storms can also be seen in Newpark's working capital position and particularly in Accounts Receivable at the end of the quarter.

Operations, back office support, billing cycles, mail delivery, were all interrupted for various periods of time, beginning late in August.

And some of those disruptions, frankly, continue to the present.

We still don't know where some of our mail goes.

The impact of this extended our billing and collection cycle by about 10 days in the period, compared to where we were, say, in the second quarter of 2005.

We reviewed the composition of the Receivables portfolio.

We don't find any cause for concern over credit quality and believe that there is, in fact, going to be a solution to this over the next quarter as we get back to a regular cycle.

The result of this though, is that bank borrowings increased from approximately $26 million the day before the storm, to $33 million at the end of the quarter.

So we had about $7 million of working capital demand that we attribute principally to the change in the billing cycle and the collection cycle.

That said, it's interesting to note that debt is, in fact, that borrowings under the line, in fact, are down from their peak of about $44 million in the first quarter.

And we expect you'll see them continue to trend down through the rest of the year.

Long-term debt at 36% of total capital at the end of the quarter, is down slightly from both year-end and second quarter levels, and again, should show continuing improvement into the fourth quarter, as our working capital situation resolves itself and that cash becomes available for debt repayment.

We remain committed, longer-term, to the 30% debt to capital standard that we have discussed in recent years.

Our capital spending plan for the year, excluding the investment for the new water business, was originally budgeted at $20 million.

At the 9-month point, the comparable number is 17.6 million for established operations and the plan for the year should be a reasonable approximation of where we'll finish, from a standpoint of normal operations.

Third quarter expenditures of $5.4 million were concentrated in additions to Drilling Fluids infrastructure and to the first two water treatment plants that are still under construction.

Year-to-date we are approximately $7 million of capital expenditures in the development of those water assets.

With those statistical things covered and sort of out of the way, Jim, it's your turn to take the lead.

Thank you, Matt.

I believe that those that follow the Company and as we look at the third quarter, the third quarter is a preview of Newpark's diversification and strategy.

And I use the term preview.

And while we believe and are confident the Gulf Coast will return to some normalcy over the next several quarters, the diversification strategy that has been invested heavily in assets and people and time, is just now gaining momentum.

And there are a number of major opportunities ahead in that program for the Company.

Now, Matt has already laid out that we would have earned $0.10 and that's would-of, could-of, should-of, and we'd get about $0.025 back from insurance and that's to be determined, but it's probably the best estimate we can make.

But I'm going to assure you that we're not in the insurance collection business.

It was a good risk management strategy and I'm glad we did it as a Company.

But the important thing is we get back into operations.

That we do best and that's service or customer.

And really, while there was damage at many facilities, minor damage to different extents, the real damage from Rita was Cameron and Cameron should be back in operation - we have limited operation now, very limited, but we are servicing on a limited basis out of Cameron for our Fluids.

But we should be back in operation in December and with a lot of demand by our customers to be back in Cameron as quickly as possible.

The Venice facility is still not working, but it will be a priority to put back into operation by the first quarter of 2006.

Our customers are telling us that they want to go back in there, into that base.

But in the interim, we have moved to other bases in Morgan City, Fourchon, Intercoastal City and other bases to service our customers, but basically, longer-term, it is important that we reopen these bases and service the customers where it's efficient to their operations.

The first operation I'm going to focus on, and for good reason, today, is Newpark Drilling Fluids.

It is the poster child of the biggest success of our diversification program.

Really, beginning 1999, we made acquisitions, but we began to integrate a company that is growing at a rapid rate, in both revenues and in earnings.

In the third quarter, they represented, Newpark Drilling Fluids, at $104 million in revenues, represented 75% of Newpark's total revenues and 100% of Newpark's pretax income.

If you step back in 2004, our revenues were, for the entire year, $273 million.

For the 9-months in 2005, we have generated $283 million and believe we will be approximately $395 million this year in revenues, up 45% for the year.

In that same period, the rig activity where we operate is up 15% and our revenues are up 45%.

Besides pricing and better [ROI], there is market penetration and we have increased and continue to increase our customer base by good performance.

The EBIT margin, which is critical - and during this period we have seen extremely high ramp-up in cost of base products, transportation, barite, commodities, everything, there's a shortage of equipment, so we've been experiencing a sharp run-up in cost.

In the first quarter we reported 8.3% EBIT.

That's up from 8% in 2004, slight improvement; 10% in the second quarter, while experiencing cost run-ups.

And we were 12.2% EBIT margin to revenues in the third quarter.

And that's without the cost or the lost profits that we received of about $3.5 million in that business unit in the period for the storms.

Clearly, there's something happening that's decent and good in the Fluids business.

The profit for the year will double from last year's $22 million, up 100% on 45% increase in revenues.

I don't believe that we're going to drop off the face of the earth or we're going to slow this down as we go into next year.

And I'll explain why I feel that way.

What has happened to build the Company that now has just experienced its first $100 million quarter and will grow further in the fourth quarter and into 2006?

Number one is, the Company was built on a premise and a culture and that was not a commodity, but a high-performance at the high-end of the market.

The significance of that, if all of you that follow the industry realize that the trend and the future of the industry is toward deeper, hotter, more difficult.

And we have built a company to service that end of the business.

And that includes an entire product line, led by water-based fluid, but it's not a product, it's an entire line of products.

And they are continuing to develop.

And the reason we're developing as new solutions are required by the industry, they bring them to us.

Can you help us with this?

Can you solve this problem?

And we are in our labs solving problems.

And with that, we continue to develop the product line further.

It is nothing like it was a year ago, two years ago or three years ago.

It's on a very sharp upward curve as the products are being challenged by ever-complex and difficult problems by our customers.

Our people, we have attracted and trained and starting with a Company a number of years ago with about 40 people, we now have 800 employees in the Company.

And we've trained them, the engineers, and we've trained the technical staff and we've formed a culture in the way we want to do it.

And that's at the high-end performance end of the market.

We've backed them with software, proprietary software developed within this Company, that does planning and monitoring of wells on a real-time basis for the customer.

And also, we have spent a lot of dollars in the last years on the infrastructure.

Now our profitability in the future will be for us to be extremely efficient, getting more revenues through this organization, through those products and through that infrastructure.

That's the best money you can get, because it's about a 35% incremental profitability on each revenue dollar.

Now, we have a long way to go in this Company.

We're a new Company.

People have underestimated us, they've laughed at us, they basically put us as a little kind of a blip on the screen.

I think that will change dramatically as we go forward.

If we look forward to 2006, we believe that we'll continue to report strong sequential, quarter-over-quarter and year-over-year results.

And that, more importantly, on profitability and revenues, secondarily, and that's based though that industry continues to have demand and will be active as we go through 2006.

And I don't really personally believe, this is based on $60 oil and $12 gas, I think that's a bonus for the industry.

Maybe we're better if it comes down.

But I'll let other people worry about that.

Looking ahead, we are continuing to increase our prices.

And for a period over the last year, the ramp up in costs, we were racing to catch up.

I think we are now catching and will be contributing to margin improvement during the period as we go forward.

We're getting substantial increases and we're doing that not in edict of a 20% price increase or 15%, we're doing it customer by customer and product by product, based on the mix and the customer.

That's the way we'll do it and continue to do it.

If we look to next year, pricing will contribute to our growth.

Secondly, we have a hope - maybe we'll be proved wrong that we won't quite be as hammered by storms next year.

Third, we were active in Deepwater this year, however, customers were looking to increase production, so there's a lot of work at [Tieback] and other activities, that while generating revenues, did not generate the normal revenues we would have received from that market.

As we look at 2006, we have basically a very active program in drilling in Deepwater, which is a very premium side of the market for us.

And it is for anyone in the industry.

Additionally, looking ahead, we have announced recently the formation of Newpark Drilling Fluids of Brazil.

It's a partnership between Newpark, where Newpark has 51% ownership of the joint venture partnership and our partner is Brazil Supply.

Brazil Supply is owned by three of the largest industrial infrastructure companies in Brazil and Petrobras.

And it was formed to supply Petrobras and Petrobras has informed us that they would like our technology and have a major presence in their country.

And we are anxious to prove that that can happen.

Brazil is about a $250 to $300 million Fluids market.

We will, in the partnership, have very minimal investment in place or people assets in-country.

Our job is to plan, bring our technology, train, program and monitor, on a technical basis, the performance of the wells.

Brazil Supply will provide infrastructure and commodity products.

Newpark Drilling Fluids of Brazil has the opportunity to be a major player in a major market.

And we believe that we'll begin to generate revenues in-country by the first quarter of 2006.

The second area I'll touch on briefly, and this will be very brief, both Soloco and Newpark Environmental Services, which constituted 25% of the Company in the recent quarter and a little over 30% year-to-date, both were impacted by the storm.

Their contribution to the bottom line in the quarter was zip.

They didn't contribute.

The impact on them was about $3.5 billion in the quarter and a portion of that, again, is covered by insurance.

Both will improve and are improving as we go into the fourth quarter.

All the statistics we usually discuss with you about square footage laid and barrels, etc., are in the press release.

We're happy to answer questions, but it's pretty self-evident when you look in the numbers.

But we're happy to discuss it.

But I want to go on to our newest phase of our diversification.

And that is NEWS - Newpark Environmental Water Solutions, and we are currently gaining a very strong momentum in this business.

Number one is, we are very close to completing an expanded agreement.

We had a license agreement with the inventor and that company when we started.

Now we have an expanded agreement for a partnership, which we believe will be the vehicle to expand the technology beyond the earlier scopes.

And so, we ought to conclude that expanded agreement, depending on holidays, but we ought to do it probably before the end of November.

But it's acceptable to all the parties, it's just getting all the pieces put in place, the minor parts.

Secondly, the Boulder plant, Pinedale, the water result that we're generating is outstanding.

I mean, surprisingly, even the local farmer who has been concerned about it, went to our outfall and drank it.

And he's alive.

The water, he said, this is better than my well.

And we said, yes, about 10 times better than your well or your spring downstream.

But the water's great.

It's been recognized by the industry, by the local people and by the Department of Environmental Quality in Wyoming.

The rated capacity of the plant was initially set at 4,000 barrels.

By next week we'll be running 4,000 barrels.

And I was on the phone this morning with them and that will be next week.

They said next Monday, I use next week.

By December, we will increase that capacity to 8,000 a day and the market is there to go beyond that, to reach that and go beyond it.

The second plant at Gillette, will be testing water through the plant and we're late.

And sometime I'll talk to you about - sometimes we look like we're NAFTA, with Canadians, Americans and Mexicans all in the same room [sorting] it out.

But we have begun to really sort out how we're going to operate and we'll be running water in Gillette, testing water, beginning November the 15th and we'll be in operation in Gillette in December.

And we've gained a great deal of momentum in our operations over the last few weeks.

The biggest test for us will be at Canada, with the extreme amount of - the millions of barrels of hot water that's being created, waste water, in Canada.

And the first test unit will arrive in two days in Canada.

It will go through about three days of verification under Canadian requirements and we'll have our first test in Canada probably set up within 10 days.

And we have a series of companies now that are anxious for testing.

What the objective is, is to have a successful test and then build pilot plants.

And at this point, each modular plant would be set up at 30,000 barrels.

We build everything modularly for Canada.

So, with a successful test, we hope to have pilot plant orders.

And that will be determined, but we're getting close.

Important is that this new, wonderful Sonochemistry technology works.

And we're now pushing it to bring it to capacity and prove that not only is the technology good, but the economics can be also very good.

There are never any give-me's, but if you're a golfer, the ball is pretty close to the hole on that.

We believe strongly that NEWS will be the next major phase or step of Newpark's diversification program.

This will likely have the chance to be the largest and will be contributing in 2006.

And with that, I will open it for questions.

[OPERATOR INSTRUCTIONS] Gary Goldstein of Guilford Securities.

First of all, congratulations, guys, on a great quarter.

And just wanted to make one comment, which was during this entire phase, we normally don't make comments on conference calls, but during this whole Katrina movement phase, we just wanted to say that the Company was outstanding in responding to us and we were so glad to hear that everyone was okay and thought so highly of what the Company did for its employees.

We just thought we'd get that out there.

A couple of quick questions if you could.

The startup in the Brazilian market, prior to generating revenues, are there going to be costs associated with that or is Brazil picking that up?

The cost will be our own employees.

We have assigned a technical and an in-company - a Brazilian manager, who will be our manager, our President in-country.

But we will be absorbing and have been absorbing some technical and laboratory, because we've been working with Brazil starting May of 2002.

And they came to us because they were directed to us for some major environmental problems in-country and it's been an ongoing program.

It's accelerated greatly over the last 8 to 9 months.

But it's really just absorption of probably three or four people, some travel and that sort of thing, so it's not major.

So we're not talking about major, major--?

No, nothing major.

Important, though I did not bring it up in the call, Gary - I'm not answering your question, but I'm making a statement that I should have made.

This isn't the only thing we're going to do in Brazil.

We have several important environmental initiatives that we're working with them on that are solving major problems for Petrobras.

And so, those are still being proposed and agreements being drawn to expand this beyond Drilling Fluids.

Beyond drilling, we might hear something about news down there as well then?

Eventually, but I think it'll be environmental next.

Okay.

And if we're not incorrect here, the Drilling Fluids market in Brazil is gigantic.

I mean, it's a couple of hundred million bucks a year.

About 250, we've been told between 250 and 300 million.

Okay.

And there is quite a large amount of deep drilling there.

Petrobras is one of the premier deep drillers in the world.

Well, that kind of leads us to our that seems to be where the good margins are, so we can expect to see more along those kind of margins?

And I'm not asking you for Q1 '06, I'm saying, down the road here, is that the market that we are going to start working on?

It's going to be handled differently than a normal company.

The high-end products will be sold FOB US and they'll provide the commodities out of country.

There's a built-in margin for the Company.

And so, I think that you'll see margins that will not deteriorate from our goal.

Our goal in margins between 14% or 15% on an EBIT basis, I think that they can work in line with Brazil.

Okay.

And getting to NEWS, everything coming out of NEWS and all the discussions that we've had both online and offline, things seem to be going incredibly well.

When you said today, talking about expanding the agreement for putting water into the Green River, are we talking about going from 4,000 to 8,000 barrels, have they put a cap on it or is this something we could continue seeing more and more come online?

I think that as that market develops, the opportunity is there for more.

I still think while Pinedale is a pricey market, it's not the market.

It was just a good showplace for the industry to show them that this technology works.

It could be a contributor, but it's not the whole reason.

It's just a nice show-me model for people to visit.

For instance, people that visit now, visit from other countries, will actually go to Pinedale now to look at that plant.

And it's creating a lot of attention in other markets outside of the ones we've focused on initially.

So, it's the showpiece.

So we've heard, actually, from multiple sources, which is why we were asking.

Go ahead, Laurie.

But what I didn't understand, if you could just clarify your comments about the expanded agreement then?

I'm not sure I caught what you were--.

We started with an agreement that was a license agreement.

And then what we've done is we've increased that to be a full partnership, where we will be an exclusive partner of the inventor/developer and manufacturer.

But in that, we've expanded the geography of the market or the markets to be included, but we also have - and this is yet to be determined, we're already working on other areas that are outside of Water, into new markets.

And we're waiting to sign the agreement, because we can fold those into it.

It's using the same technology in other areas such as air emissions and things of that nature.

Got you.

Okay.

Thank you.

Okay, assume this could become multiple.

And I don't mean to disagree with Mr. Hardey, but I don't think anybody's laughing anymore.

I mean, the numbers are proving themselves to be rather spectacular.

I'm talking about the earnings as well as the revenues, especially in Drilling Fluids.

We had initially kind of looked for that $0.50 to $0.75 in Drilling Fluids being kind of getting towards the peak number or a large number.

Signing Petrobras or signing, we'll call it the Brazilian Development, this changes things, does it not?

Well, let's just let it play out.

No, I'm not asking you to--.

Let's go on.

But you're doing a great job for us, Gary!

All right, next.

Okay.

One last thing was just the barite cost and prices?

Just one last question, then we'll let you guys go.

The barite cost and prices?

Well, we've actually got contracts across most of the next year - much of the next year, which kind of stabilizes the costing.

We're ramping up pricing on every job on every contract renewal, some as high as 12 and 15%, across the board, the pricing.

That's gone through despite what's been happening.

Yes.

Well, we're gaining against it.

You'll see margin improvement based on pricing as we go forward.

Thank you and congrats to the Company, but congrats to you guys personally as well.

David Snow of Energy Equities.

I also wanted to ask about the water treatment.

You mentioned that after tests in Canada, that you will then go to pilot plants and you mentioned 30,000 barrels a day.

Are those the size of the pilot plants?

Yes.

Well, first of all, you need a successful test.

Based on the contaminants in the testing, we're very confident that we will be able to solve their problem, where no other technology yet has ever done it.

So, that's A.

B, in our engineering meetings and our meetings with our partner - our soon to be partner, but has been our partner, they believe that the optimum size for efficiency - because we want to modularize these for standardization, for instance, for parts and inventory in that market, would be at about 30,000 barrels per day plants.

And so, that's what they're saying.

I can't dispute it, but there seems to be an agreement between the technical types that that makes sense.

So, if we have a successful test, the customers have said that they would like to then have a pilot plant and that would be the size.

Okay, now are those sufficient to give you both revenues and profits in '06?

They sound pretty big and they ought to be profitable, shouldn't they?

We're not going to do them if they're not.

Why would we bring a world class technology to something for experience?

Those are bigger pilots than anything you've got up in the US so far?

Yes.

We have a 20,000 at Gillette and we'll have 8,000 at Boulder.

But it's a bigger market.

You're talking about, I mean, it is millions of barrels of water.

But you're sizing your test plants to a market and modular and some things of that nature.

So there's lots of reasons to go into it and market size is one part.

But there's absolutely no reason to go in and solve a major problem like that and not receive a reasonable return for it.

And do you think you can give us any idea of what the timeline on putting up some pilots in '06 might be?

No.

Everybody's got a problem and they've wasted a lot of money doing it.

And so, they're anxious.

We're a few months late now getting there and they're as anxious to get us there as we are to get there.

Is there a seasonal factor, you got to do it in a certain time for the winter or summer?

No, it's in-house.

They'll provide housing for it.

It'll be in-house.

Okay.

And do you expect profits in this division in '06?

I think we should, you bet.

I think we'll have a contribution in '06 from this, yes.

I don't know if you saw in the "New York Times" article on the magnitude of waste up there, but it should play right into your marketing if you didn't.

We live in that market.

We do matting, environmental and fluids in that market.

We actually handle some of the waste now.

We're very close to the market.

But I did think we did see that.

It's been a few weeks ago.

Wasn't it about a month ago?

Yes, about a month ago.

Yes, I got the article.

Sometimes you read an article where you're close to something and you say it's ridiculous and the guy wrote it from a bar.

But I think he was pretty straight-on with that one.

Right.

Oh, do you have any plans to spin that off or what's the--?

How about we make something out of it first?

Okay, good enough.

Thank you very much.

Byron Pope of Pickering Energy.

For the Fluids business, just looking at the sequential revenue growth, I mean, pretty impressive 8% quarter-over-quarter and that number of 9 million of hurricane impacts would have implied that it would have been up 17% sequentially without the storm impacts.

And I'm just wondering, and I know in the 10-Q you tend to breakdown the regional breakdown.

I was hoping you could help us with that on the call, just in terms of the split between Gulf Coast, US Central, Canada, Mediterranean and Other?

Okay, I think I can do it out of memory.

I'm going to round off.

The Gulf Coast was 40, rounded, slightly over 40 million.

That's quarter only.

The Central region, which is Rockies, mid-continent, West Texas, was a total of about 35.5 million.

Canada was 9.5.

These are all US dollars, obviously.

We were about 11.5 out of the Mediterranean.

And let me throw back into the Gulf Coast the factor for our barite, which is sold outside of the market.

It's a little bit like MI does their federal.

That would have been just under 9 million.

And I don't think I missed anything.

So it really would make the Gulf Coast about 49 million.

Okay.

So, of that 9 million of lost revenues, so to speak, how much of that - do you get most of that back in the fourth quarter or is that kind of early '06 before you kind of get back up to full speed there?

I think that - I would really believe that with the loss of rigs - the damage to the rigs, and you all are pretty close to that, so I'm not going to try to use numbers.

I read everything y'all put out on that.

But we were on 5 rigs that were damaged or destroyed.

The industry, I believe was around 20 to 22 and somebody can correct me.

About half of those will be back and about half of them won't be back.

So I think that the industry will be shorter on rigs and getting infrastructure back on line, I think you'll be into the second quarter of next year before we get back.

And let me give you an example.

Thank you for reminding me I didn't do something.

Our revenues in October were right at just under about 68% of pre-storm.

November, we'll be about 72 to 75.

And we the Deepwater, around 90% of pre-storm.

And pre-storm for us in the Gulf Coast, without the wholesale side of it, but about 45 to 46 - about $45-plus million.

That was our run rate.

So, I think that we'll be into the second quarter of next year before we get stabilized and get things back to pre-storm levels in the Gulf Coast.

Okay.

And then I think I heard you say 35% incremental is kind of the target for that business as we look forward to next year?

If you run it out of our current infrastructure.

And we've built the infrastructure.

Normally I would probably say 25 to 30%, but you make your best margin like Deepwater out of Fourchon, when you basically can come right off of these big bases we've built over the last two years.

[OPERATOR INSTRUCTIONS] John Tasdemir of Raymond James & Associates.

Just kind of, I guess following up on the last question on the drilling foot business in the Gulf Coast market, I guess originally I was thinking with all these rigs down it would be difficult for you guys to post a sequential increase in the Drilling Fluids segment .

But did I hear you correctly when you said you thought that fourth quarter Drilling Fluid all-in would actually post another sequential increase?

Yes.

And I suppose the increase would be coming mostly outside of the Gulf Coast?

I think Gulf Coast will come close to matching the third quarter.

Even with that many less rigs working.

Why is that?

We have actually continued to penetrate the market.

We've picked up, during the storm period we picked up new customers.

So we're continuing to penetrate.

If we miss, it won't be by much.

And then the Central region and Canada and Mediterranean and Others will be up.

Remember, you have storm delay.

You not only lost rigs, but remember, don't forget this wonderful quarter we just ended, we had Dennis, Emily, Katrina and Rita.

And so almost the entire quarter was storm infected.

And so, if we have hurricanes in the fourth quarter I'm going to sign on to Global Warming.

All right, that makes some sense.

CapEx in 2006, have you guys set that rate yet?

Matt, I think we're in the process of planning now, but we haven't really set that yet.

I think that's the case, John.

First, by 2006, the development in the Water business should be in a new partnership and so that CapEx likely will not be reflected in Newpark's financials.

In terms of the base business, I think it's pretty obvious that the growth in Drilling Fluids is going to require some infrastructure to support it, but not huge.

The management of the other Gulf Coast businesses, of course, unless the market changes radically, is going to be focused at improving cash flow and cash return, so I don't think we're going to see significant cash investment in the other Gulf Coast businesses.

As a result, I think our - we've always said we thought we could grow the Company at a 20 to 25% rate, living within our depreciation.

I think that'll continue to be true.

Well, let me come at it this way.

You guys should pick up a check for $30 million sooner or later.

Are you going to use that $30 million to rebuild the facilities that you lost?

John, our damages - we're covered for $30 million in any event, but our damages were nowhere near $30 million in the storms.

The property damage check, at this point, it looks like - we have pretty good indication that we'll get 100% of our property losses covered from both Katrina and Rita in the first layer.

That first layer is a $5 million layer, so we might have a $10 million check coming, related to the first layer of the policy.

With respect to second layer and business interruption claims, we haven't been more specific, because frankly, the full extent of the losses and the time that Jim just outlined for you in terms of recovery, hasn't been fully determined, and therefore, we aren't in a position to forecast that claim at this point.

Okay, I got you.

I guess one final question.

A couple of weeks ago, you guys kind of prereleased - talked a little bit about the fourth quarter saying that you thought that fourth quarter earning estimates were still very achievable, if not beatable.

Has anything changed since you've come out with that press release?

No.

And the only thing that happened in the current quarter was we couldn't book our - we went right down to the wire.

The reason we delayed it, because we thought we were - we were led to believe we could book or have a good chance of booking some of our lost revenue in the quarter.

And then they came down very solidly and said no, you must wait until you collect it.

And so that would have pushed the quarter to probably over $0.08.

But let's just say in this case we're pretty confident it will be not justice denied, but justice delayed.

We'll get it later.

Thank you.

And at this point we have no further questions.

We appreciate your patience.

I opened with we've had a diversification strategy in the Company.

I think the third quarter was evidence of that.

I think, hang on, because the first wave has hit and the second wave - that's not a very good analogy for after hurricane season.

The first phase has hit and the second one's coming with great momentum.

And we appreciate your patience and joining us today.

Thank you.

Bye-bye.

Thank you.

This does conclude today's teleconference.

You may disconnect at any time and have a great day.