NPK International Inc (NPKI) 2009 Q4 法說會逐字稿

Welcome to the Newpark Resources fourth quarter earnings conference call.

During today's presentation all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions) This conference is being recorded today, Friday, February 19th of 2010, and I would now like to turn the conference over to Ken Dennard with CRG&E.

Please go ahead, sir.

Thank you Brittany and good morning, everyone.

We welcome you to the Newpark Resources conference call today, reviewing 2009 fourth quarter results.

We would also like to welcome our Internet participants listening to the call as it is being simulcast live over the Internet.

Before I turn the call over to management I have the normal housekeeping details to run through.

For those of you who did not receive an email of this release yesterday afternoon and would like to be added to the distribution list, please DRG&E at 713-529-6600 and provide us your contact information or you can email it to me.

My email address is on the contact section of the press release.

There will also be a replay of today's call available and it will be available by webcast or the Company's website, www.newpark.com.

And there is also a telephonic replay which will be available 24 hours, 7 days, and it will be available until the 26th of February.

Also, and that information is in the release yesterday.

Please note that information reported on this call speaks only as of today February 19, 2010, and therefore you are advised that any time sensitive information may no longer be accurate as of the time of any replay listing.

In addition, the comments made by management today of Newpark during this conference call may contain forward-looking statements within the meaning of the United States Federal Security laws.

These forward-looking statements reflect the current views of the management of Newpark, however, various risks, uncertainties and contingencies could cause Newpark's actual results, performance or achievements to differ from those expressed in the statements made by management.

The listeners are encouraged to read the Company's annual report on Form 10-K, it's quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties and contingencies.

Now with that said I would like to turn the call over to Newpark's President and CEO, Mr.

Paul Howes.

Paul?

Thank you, Ken, and good morning to everyone.

We appreciate you joining us for our 2009 fourth quarter conference call.

With me today are Bruce Smith, President of our Drilling Fluids Business and Jim Braun, our Chief Financial Officer.

Following my comments, Bruce will provide an update on our Fluids Business and Jim will discuss the Mats and Environmental Service Businesses, as well as the financial results of the quarter.

I will then conclude with a discussion of our market outlook before opening the call to Q&A.

Now turning our attention to the fourth quarter.

We continue to see improvements across all business units.

Our North American business results reflect the increasing strength in the US rig count and our international business results reflect the continued revenue growth in Brazil and steady performance from our Mediterranean operations.

As a result of improvements in the market conditions, as well as ongoing efforts to enhance operating efficiencies, all of our business segments returned to profitability in the quarter.

Since the low point in the first quarter of 2009, our operating results have improved over the past three quarters, culminating in profitable operating results in the third and fourth quarters of 2009.

Our consolidated revenue for the fourth quarter was $136 million, a 15% sequential improvement over the third quarter.

Operating income for the quarter was $5.1 million compared to $2.2 million in the third quarter of 2009.

Net income in the quarter was $16,000, or breakeven on a per share basis, as an unusually high tax rate offset improved pretax profits.

Sequentially, the US rig count increased 14% from the third quarter, which represents a substantial acceleration from the 4% sequential improvement last quarter.

Our US Fluids Business reflected this strength, as revenue was up 15% from the third quarter, and we gained market share in large part due to our strong presence in the US shale plays.

We also experienced a nice improvement in our Canadian business in the quarter.

And our international business posted sequential revenue growth of 10% from the third quarter due to improvements in the Mediterranean as well as growing activity in Brazil.

We continue to grow in Brazil, where we saw a sequential revenue increase of 15%, to $10.3 million.

As Bruce will explain later our profitability in Brazil has not been acceptable and we expect to see improvements in the coming quarters.

In total the overall profitability of our Fluids Business continued at sequential improvement with operating income of $6.7 million, more than doubling the $2.5 million achieved in the third quarter of 2009.

Operating margins were 5.9%, a sequential improvement of 330 basis points.

Our Mats and Integrated Service Business saw a 64% sequential improvement in revenue to $12.4 million.

This sizeable gain was due to increased Mat sales.

As a result, this segment returned to profitability in the fourth quarter with operating income of $1.2 million.

Our Environmental Service Business experienced a 17% sequential decrease in revenues, to $9.3 million.

Most of this decline was due to lower volumes.

Operating income was $1.1 million, down 73% from the third quarter.

Please keep in mind that the third quarter included $2.3 million in Business Interruption Insurance Income related to the 2008 hurricanes.

In addition to the improvement in the North American market, another positive data point that represents an important driver in our future growth is the increasing market acceptance of our water-based fluids technology.

This quarter I would like to highlight the positive reception we have received from the introduction of a newly developed water-based fluid technology in the Haynesville Shale.

Utilizing our disciplined approach to technology development, we have introduced a new product specifically for use in the Haynesville Shale Formation.

Our work to date on six completed Haynesville wells has brought to the market a water-based technology with performance characteristics that are comparable to those of traditional oil-based systems.

We continue to introduce this new technology to the market and optimistic that it's development represents a real step change in the performance of water-based products as compared to oil-based alternatives.

Also, I have talked before about the continued acceptance of Newpark's technology and service capabilities by NOCs and IOCs around the world.

To that point, we recently signed a new global master service agreement with [Rev Sal], under which we expect to work for them in Brazil sometime in 2010.

I continue to be encouraged by the opportunities to expand the Newpark brand around the world.

And finally, we have continued to focus on financial discipline and balance sheet management, reducing total debt by $12 million in the quarter, bringing our full-year debt reduction to $65 million.

As our markets continue to recover and grow, we expect to target our capital investment in those growth markets, both domestically and internationally.

With that now let me turn the call over to Bruce Smith who will review the operating and financial performance of our Fluids Business.

Thank you, Paul, and good morning, everyone.

Before presenting the review of the Fluid Systems and Engineering segment, I would like to point out we had a good quarter with positive sequential improvement.

Since the low point in the second quarter, we have seen our Fluids revenues improve and operating our income began improving from the first quarter due to our quick response to signs of a market downturn.

Going forward, we believe that our leaner cost structure will help make 2010 a better year for the Fluids Business, irrespective of the market activity.

Now moving to our fourth quarter results.

Looking at our results on a sequential basis, total Fluid segment revenue was up 14%, to $113.8 million, with our US revenues up 15% due to a 14% improvement in the US rig count, indicating that we grew faster than the market.

Our Canadian operations have improved nicely driven by improved rig activity and focus on the marketplace.

We experienced strong improvements in the Rockies, East Texas, West Texas and the Gulf Coast.

In East Texas, our business in the Haynesville continues to experience strong growth, including market share gains.

Mediterranean revenues were up 9% sequentially to $32 million and Brazilian revenues were up 15% to $10.3 million.

Looking at our results on a year-over-year basis, total fourth quarter revenue was down 40%.

The bulk of this decrease was attributable to a 53% decrease in North American revenues to $71.6 million, reflective of the market downturn.

Our Mediterranean operations performed notably better than North America, generating $32 million of revenue in the quarter, up slightly from a year ago.

The $10.3 million in Brazilian revenues were up 53% over last year's fourth quarter due to the ramp up of activities over the past year.

Our Fluid segment reported operating profit of $6.7 million, a $4.2 million sequential improvement over the third quarter, reflecting the benefit of increased revenue and a lower cost structure.

Operating margin in the quarter was 5.9%, up from the 2.6% reported in the third quarter of 2009.

In the fourth quarter of 2008, the operating margin was 11.7%.

Let me take a moment to address several developments in our Fluids business, some of which Paul referred to earlier.

Looking at Brazil, the expected improvement in profitability did not materialize in the fourth quarter.

Sequentially revenue increased from $8.9 million to $10.3 million.

However, we recorded a loss of $1.5 million for the quarter.

This resulted from an increase in the sale of relatively low margin product and service lines and a decrease in the sale of our higher margin proprietary products.

We continue to work with Petrobras to both increase total sales, as well as improve the mix of products and services we sell them.

In addition, we recently gained new business in the form of a $7 million order from the purchasing arm of Petrobras, for the sale of base oil throughout 2010.

This sale represents new business to Newpark outside of the Lot B contract.

Let me close on this topic by saying that we are committed to taking the necessary actions to drive the required profitability in Brazil.

In the last earnings call, we discussed the implementation of a newly formed supply chain management organization.

This group has already started to show benefits.

For example, in the US with revenues increasing 15% sequentially, we were able to lower our inventory levels from the third quarter.

We plan to continue reporting on the benefits achieved by this new organization throughout the coming year.

On the technology front, we have been conducting R&D on the development of a new water-based fluid, to replace oil-based systems in the drilling of horizontal Haynesville wells.

Following successful drilling simulator studies, the first field trial occurred in the fourth quarter of 2009.

The result of that well and subsequent wells has been very encouraging.

We continue to refine and optimize the system and it's engineering.

Based on initial results, we believe this new water-based technology can successfully displace oil-based fluids in the Haynesville.

Water-based fluids have inherent advantages versus oil-based including environmental and safety.

Oil-based systems historically have been used for superior and consistent downhaul performance.

The value proposition of our new water-based drilling fluid system is that it has demonstrated on all wells drilled to date comparable performance attributes normally seen in oil-based systems, including rates of penetration, low coefficients of friction and stability to high temperatures and common contaminants.

While it's still early, the new fluid continues to gain acceptance.

In addition to the six completed wells, we are currently on nine rigs in the Haynesville with this new system.

While most of us are thrilled that the challenges of 2009 are behind us, we were able to make end roads into a new key US market.

In early 2009 we entered the Marcellus market by redeploying underutilized assets from other parts of the US.

Starting with no revenue in 2008, we finished the year with almost $7 million of revenue in this market and exited the year at an annual run rate of $12 million and a 12% market share.

We expect that the Marcellus will continue to grow at a rate faster than the US average, subject to any new environmental restrictions.

In closing, I would like to say that we are pleased with the continuing improvement in our Fluids Business.

Our international business has shown steady growth and we expect it will represent a larger part of our overall business.

Also, as we begin to increase the sale of proprietary products in Brazil, we expect to see improvements in our bottom line.

Domestically, the improvement in rig count bodes well for our products and services, but we are not relying strictly on an improving market for our growth.

We are actively targeting share gains in the domestic shale plays, using our water-based technology, as a means to differentiate ourselves from the competition.

With that I will now turn the call over to our CFO, Jim Braun.

Thank you, Bruce and good morning, everyone.

I would like to begin by discussing our Well Site Construction and Environmental Services Businesses, before finishing finishing with our consolidated results.

In our Well Site Construction Business, our fourth quarter revenues were $12.4 million, up $4.8 million or 64% on a sequential basis.

Of this increase, included a $4.9 million increase in Mat sales, while our Well Site Construction activities remained relatively flat.

On a year-over-year basis, revenues were down 41%, from the prior year.

The operating income for the segment was $1.2 million, or 9.9% of revenue, compared to an operating loss of $1.8 million a year ago and an operating loss of $900,000 in the third quarter of 2009.

The sequential improvement in operating income during the fourth quarter is primarily attributable to higher revenue levels and our lower cost structure resulting from the actions taken throughout 2009.

Our Environmental Services Business reported $9.3 million in revenue for the quarter, are down 17% sequentially and 38% year-over-year.

Compared to our other operating segments, this business remained profitable throughout the downturn, although we did experience some softness in the most recent quarter due to lower volumes of norm and industrial waste.

Operating income for our Environmental Services segment was $1.1 million in the quarter, more than doubling the $427,000 of profit from last year.

The fourth quarter of 2008 operating income included $2.6 million of asset write-offs following the termination of our agreement to sell this business in that period.

On a sequential basis, operating income was down $3 million, as the prior quarter included $2.3 million in income associated with the final settlement of Business Interruption Insurance.

The remaining $700,000 decline in operating profit is attributable to the $1.9 million decline in revenues, partially offset by cost reduction programs.

For the fourth quarter of 2009, operating margin was 11.8%.

Moving on to our consolidated results.

For the fourth quarter of 2009, we reported total revenues of $135.5 million, up 15% from the third quarter of 2009 and down 40% from a year ago.

Operating income for the quarter was $5.1 million, compared to $2.2 million in the third quarter of 2009, an improvement in operating income of $2.9 million.

Sequentially, interest expense was $638,000 lower, driven by lower debt levels and lower interest rates.

As a result, total pretax income for the fourth quarter was $2.7 million, up from a small pretax loss in Q3.

Net income in the quarter was $16,000 or breakeven on a per share basis, which was flat with the third quarter.

A year ago we reported fourth quarter earnings of $0.08 per share.

For the full-year 2009, we reported revenues of $490 million, which were down 43% from 2008.

Income from continuing operations for 2009 was a loss of $0.23 per diluted share, compared with a $0.44 profit in 2008.

Before talking about our balance sheet, let me take a minute to explain the income tax rate for the fourth quarter and its impact on earnings per share.

Our Q4 EPS was breakeven, despite the $2.7 million of pretax income in the quarter.

This pretax income was offset entirely by income tax expense in the quarter, as a result of a change in the tax rate during the fourth quarter.

Through the end of the third quarter of 2009, we estimated a full-year tax rate of 19% and in closing out the year in December the tax rate was determined to be 10%.

Now thinking about the impact of this change, it's important to note that although a reduction of the tax rate is normally associated with an improvement in net income, that's not the case here.

That's because we are reporting a pretax loss for the full year of 2009, rather than pretax income.

Therefore a reduction in the tax rate in a loss year reduces the amount of the tax benefit and thus increases a net loss for the year.

The change from 19% to 10%, was a result of a significant swing and the geographic mix of earnings between the US and Brazil.

Stronger than previously anticipated results from our US operations, which are taxed at 35% rate, were offset by a larger than anticipated pretax loss in our Brazilian operations, for which the recording of a tax benefit is not currently permitted.

So, even though our final 2009 pretax income in total was comparable to our earlier estimates, the change in mix had a negative impact on the tax rate for the year.

The impact of that change included a reduction in the tax benefit for the first three quarters of 2009, which is reflected in the fourth quarter, thus producing an unusually high tax rate for the quarter.

Now turning to the balance sheet and liquidity.

During the quarter we paid down $12 million in debt, leaving total debt of $123 million at the end of the fourth quarter with a cash balance of $11.5 million.

Since the beginning of 2009, we have reduced debt by $65 million.

The reduction in debt has lowered our debt-to-cap ratio to 25% at December 31, from 27%, at the end of September and from 33% at the end of 2008.

We are in compliance with the financial covenant requirements of our amended credit facility that we executed in July of 2009 and we expect to remain in compliance with these covenants throughout 2010.

At the end of 2009, we had $55 million of availability under this facility.

In terms of 2010, I would like to provide a bit of color to our projected tax rate, which we estimate will be in the range of 31% to 32%.

This range is predicated on, among other things, profitable operations in Brazil.

To the extent that Brazil does not achieve profitable operations, the result would be upward pressure on the tax rate.

Our capital expenditures were $1.3 million for the fourth quarter and $18.5 million for the full-year, while our depreciation and amortization expense was $7.2 million in the quarter and $28.1 million for the year.

For 2010 we expect capital expenditures to be about $15 million, of which $12 million is budgeted for our Drilling Fluids Business.

This $12 million represents about 86% of Fluids annual depreciation.

While our markets continue to improve, we plan to remain prudent and disciplined in the deployment of capital.

Now, I would like to turn the call back over to Paul for his concluding remarks.

Thanks, Jim.

2009 was a challenging year for our shareholders, customers and employees.

But, during this difficult time, the Company was able to maintain it's focus on rightsizing the business to ensure that it emerged a stronger, more viable oil field service company.

The performance over the last two quarters has clearly shown that the momentum has shifted in our direction.

The strengthening of the North American rig count has been a welcome event and we believe that market conditions are favorable for continued improvement going forward.

However, we are not content nor will we rely solely on the benefits of a recovering market.

We will aggressively pursue growth, both domestically and internationally where our technology and service create value for our customers.

Our goal of achieving a more balanced split between our North American and international business is unwavering and in 2009 we saw the benefit of a relatively stable overseas market.

With that stated we have not seen the full benefit of our Brazilian operations.

We have more work ahead of us to transition the business to breakeven and profitability by year-end.

It remains our belief that Brazil is one of the most attractive markets globally for our technology and services.

Another related, yet separate, catalyst for growth is the opportunity to expand our market share both domestically in the emerging shale plays and internationally through continued deployment of our high performance water-based fluids.

Based on the initial results, we believe that our newest water-based technology represents a step change in the historical performance of drilling fluids.

Our challenge quite simply is to turn this initial success into meaningful revenue and earnings growth for our shareholders.

More to come on this topic during the first quarter call.

In closing, I would like to say that while it was an extremely challenging year, I'm very proud of the way our employees responded to adversity and stayed focused on servicing our customers.

Because of their dedication, Newpark has emerged a stronger Company.

With that, we will now take your questions.

Operator?

Thank you, sir.

We will now begin the question-and-answer session.

(Operator Instructions) Our first question comes from the line of Jim Rollyson with Raymond James.

Please go ahead.

Good morning, guys.

Good morning.

Nice results in the quarter.

Thank you.

You talked about the water-based fluids and how you are starting to make some in roads there in the Haynesville, in particular.

Can you talk about, Paul, maybe kind of what the revenue opportunity is, maybe kind of how much on average what kind of revenue per well you are looking at or something along those lines just so we can see how this scales up as you go through the Haynesville and the Marcellus, et cetera and then also maybe how the margins on this compare to some of the more conventional stuff you are doing?

I will give you a little color and then I will ask Bruce to add on to some of that.

With respect to what our expectations are on a revenue by rig basis or by wells, a little premature yet, as you know we had our first successful well in the fourth quarter.

I think the real measure for the growth of the technology, as we speak today, relates to more the number of rigs that we are on.

We were on one rig in the fourth quarter.

As of date today we are on nine rigs.

So, a little hard to quantify the revenue per well or per rig at this time.

This is Bruce, I think that's correct, Paul.

To give some color to it perhaps, I can say that of the nine rigs that we are currently running the system on, each of those rigs we would not have had had it not been for this new system, so if that gives you some sort of guidance.

Sure.

And just on the margins, it's obviously early, but are we kind of looking at this being a better margin opportunity than what you are used to seeing or more in line with what you are used to seeing?

Certainly from our perspective, what we are seeing seeing in terms of initial performance in terms of improved rate of penetration, the environmental aspects of this fluid, also seeing some benefits in terms of reducing the number of days to reach TD for our customer, we are certainly trying to prove the margins and get a premium for the product because it is unique, both in terms of the value for us as well as the value for our customers.

That's great color, and then just as a follow up on Brazil.

Last quarter, if I remember right, Paul you were talking about margins not being so great at this point, but kind of where you ultimately expected them to go with something comparable to what you are doing in the Mediterranean business in the mid teens down the read is road is what you are shooting for, if I recall.

Any thoughts on how long it might take for you to get there?

I will let Bruce answer that one.

Certainly the inconsistency of the revenue and product mixes (inaudible) in terms of benchmarking the progress, but we are fully committed to take whatever actions are necessary to drive towards the breakeven position and then consistent profitability and I think we will see positive movement towards this in the first quarter.

And then longer term, our goal in terms of the mid teen margins, is unchanged.

We believe that it is going to take longer than what we thought last quarter to get there, but we firmly believe we will reach that level.

Thank you.

Our next question comes from the line of Terese Fabian with Sidoti and Company.

Please go ahead.

Thank you and good morning.

I have a question on Brazil also.

In terms of the product and volume that you are selling into with Petrobras, what degree of control do you have, how do you plan on negotiating that without getting into specifics?

Petrobras operates through different operating units.

And you ordered certain rigs, as per your contract allowance, it's a ratio.

And you get to supply the key products or the proprietary products for the rigs that you are currently awarded.

We are certainly seeing signs now that our product revenues will be picking up.

We are certainly gaining on rig count from Petrobras.

At the current moment we have, I believe, ten rigs offshore now running for Petrobras.

Where back in the fourth quarter we were at eight.

So, we are certainly seeing a little movement in the right direction.

The other color I would like to add to that too is in terms of the proprietary products, we have had a couple of offshore wells with our water-based technology that have been successful and some of the new rigs that are being added, the initial discussions appear to be that those rigs will be dedicated to the water-based technology.

Okay.

Excellent and then a follow up.

Can you break out what proportion of your Brazil sells are to other IOCs in the area?

Yes, Terese.

The majority is the Petrobras, it's probably in the the 70% to 75% range to Petrobras.

The balance being the IOCs.

Okay.

Thank you, I will queue back up, thanks.

Thank you.

(Operator Instructions) Our next question comes from the line of Neal Dingmann with Wunderlich Securities.

Please go ahead.

Good morning, guys.

Good color.

Question, how applicable is the new water-based that you mentioned in the Haynesville, it's on those nine rigs, and just wondering how applicable that would to Marcellus or is that more field specific?

I'm just wondering how much you are going to adapt to this other region.

This is Bruce.

I can have a go with that.

I think initially the system was formulated specifically for the high temperature horizontal environments in the Haynesville Shale.

We are currently working on reformulating the system to go and play another shale place, but the initial formulation was very specific for Haynesville, but in the process of adapting it now.

What we are also looking to do is get core some of these different shale formations around the US and also internationally in the new plays in western Europe and then get those on to our drilling simulator cell so we can begin to do the advanced R&D work.

Great color.

Just my follow up, talking to a lot of the rig operators out there, it sounds like bid activity, not just the rig count, but bid activity is starting to pick up pretty nicely.

Are you seeing that as well with some of these operators -- are they coming in to you and you are starting to get an idea as far as to give you just a little more positive going forward here in the next few quarters?

We are certainly seeing a slow, steady progress, we have seeing it for a some few months now and it's continuing.

Great, guys.

I will requeue, nice job.

Thank you.

Thank you.

Our next question is from the line of Mike Harrison with First Analysis.

Please go ahead.

Good morning.

Good morning, Mike.

On the Fluid segment, just in terms of the cost structure, are you at a point where you are starting to bring staff and resources back or are you still operating at significantly lower levels and was wondering if you could discuss exactly how much permanent structural cost takeout there was in 2009 and if we should see more incremental cost takeout in 2010?

Yes, Mike.

Let me tackle that one.

We have certainly been holding the line on bringing back people, which are our largest cost.

Where we do bring them back it is in field locations where they are directly interfacing with the customer and helping us achieve those higher revenue levels.

We are being able to leverage the support and the back office and all the activities that go on there.

At these levels and some of the increases were are are seeing, we think we should be able to maintain that leverage.

If you calculated some of the incrementals from third or the fourth quarter, they are in the 30% plus range indicating that very fact.

So, we recognize the importance of keeping the cost structure lean, particularly in those activities that aren't at the customer site and that's what we are looking to do as we move forward.

All right.

Was also hoping you could give us a little bit more detail on this Rev Sal contract, is it bigger than the Petrobras contract, roughly the same size or significantly smaller?

And then maybe comment on where you see Brazil revenue levels as you look out to 2011, 2012?

Let me tackle the Rev Sal one.

The Rev Sal contract is an NSA.

It's a National Service Agreement, so there are contractual obligations there, but there is no definitive, revenue contractual obligation or anything of that sort.

We do work with Rev Sal in other parts of the world.

This will allow us to work with Rev Sal in parts of the world that we historically haven't done business with them before.

Mike, on your Brazil question, as we have alluded to, we believe that contract is just beginning to ramp up.

You saw the $10 million of revenue that we did in the fourth quarter.

Without giving specifics, we do expect that to continue to grow so you can annualize that and come up with a nice piece of business on an annual basis.

Does the Rev Sal contract have the potential to be bigger than Petrobras?

No, that's not the case at all.

It's meaningful from the perspective that historically Newpark had been very strong with independence and over the last two years we have been pushing very hard into the IOCs, the NOCs and this is just another success in being able to sign a global NSA with a very important IOC.

Understood, thanks very much.

Thank you.

Our next question comes from the line of Michael Marino with Stevens.

Please go ahead.

Good morning.

Good morning.

My question is in the Haynesville, the nine rigs that you all are on today, is it still for one operator or who do you all -- kind of expanded your reach?

It's actually currently for three operators.

But, the majority is with one operator that historically we have not done any work with them in the Haynesville Shale.

Okay.

The other two operators are -- is this their first go around with the Fluid or were they part of the six wells that you drilled to date?

No, they were not part of the six wells drilled to date, they are new wells.

That's correct.

Great, that was my only question, thanks.

Thank you.

Our next question comes from the line of Stephen Gengaro with Jefferies and Company.

Please go ahead.

Thank you.

Good morning, gentlemen.

I was just wondering on the North American side I guess to start, can you give us a sense for what you have seen pricing wise, I may have missed at the beginning of the call, have you seen anything material, even pockets of strength can you give us landscape?

Certainly, we believe that pricing is stabilized.

We don't see it declining, though we don't see a lot of opportunity raise pricing in some of the more traditional Fluids, though I would say with our new technology we are encouraged by the pricing we are able to get in the marketplace.

Okay.

That's helpful.

I'm sure you have come across the big speculation in The Wall Street Journal today about Schlumberger and Smith possibly getting together.

Do you see that as an initial read of having any positive or negative impact on your business in some of these international markets particularly?

We saw that as well.

We really see it more as neutral to positive.

Certainly we think one of the significant advantages that MI has had in growing their business over the last decade is they've been focused on fluids and solids control, if they are acquired by Schlumberger then certainly it will be more of an individual product within their total portfolio and I think in some of the other larger integrated service companies you have seen a loss of focus in fluids and that's one of the driving forces behind our market share growth.

So, we see it neutral to positive.

Okay.

That's helpful, thank you.

Thank you.

(Operator Instructions) Our next question is a follow-up question from Terese Fabian with Sidoti and Company.

Please go ahead.

Thank you.

If I could shift geographic focus to the Mediterranean and North African area.

Are you seeing new activity there or is there going to be for your expectations an increase going through 2010?

And also in eastern Europe?

I will take the Mediterranean and North Africa first.

We see steady, small growth in the North Africa Mediterranean area in terms of rig count and our future business.

In the eastern block countries that came down significantly in 2009.

They have yet to come back to anything like the level they were at prior to the 2009 fall.

So, it's a little mixture of both.

Up a little in the Mediterranean and North Africa, down a little in Eastern Europe.

The other comment I would like to add on that is that we are starting to see and getting calls from some of the other IOCs that would like us to move into West Africa, to move into Russia, so we are continuing to gain traction in terms of looking at new regions to expand in, but nothing really on the table at this time.

Okay.

And then if I could shift back to the water-based fluids, can you talk about what the value proposition is from the point of the customer?

The environmental is certainly there, are there other savings for them in terms of dollars?

Certainly the environmental is a saving.

I don't know if I can talk for the operators in all things, but I will give you my flavor.

Certainly some operators see safety as a major issue when using oil-based muds, drilling in gas wells.

That's to do with the solubility of gas and oil and well control becomes a little more difficult in oil rather than water.

So, there is a value there, how you quantify that, I really don't know.

But, we are at the stage, shortly hopefully anyway, that we will begin to get from the operators some of the things that we are doing with them, some of the savings we are gaining.

Certainly time to drill is one factor that will be very important.

We don't quite have a handle on that yet, but that will be a factor.

Disposal of oil waste, oil-based mud waste, will be a factor and there will be a cost associated with that.

But, as we develop this mud system and as we develop our relationships with the customers using it, we will begin to refine and define these things a little better.

Thank you.

And our next question is a follow-up question from the line of Jim Rollyson with Raymond James.

Hey, guys, just had more.

I think, Jim, you mentioned Mats had a $4.9 million worth of sales this quarter?

Correct.

And if I remember right you guys were looking -- kind of forecasting that before because you had made mention about getting back to breakeven levels on margins, obviously you did a bit better.

I'm just curious what your thoughts are as you go into the first quarter and through the year given where the rig count is.

I'm assuming that some of the sales aren't going to repeat.

So, how you see revenues and margins playing out absent some of that sale you had in the fourth quarter?

Jim, you highlight a really important thing.

It somewhat gets lost in some of the noise, but the guys in the Mats business have really done outstanding job turning things around.

They have been aggressive on the cost side, yet they have also ratcheted up the efforts on the marketing and the sales, not only of the Mats, but trying to get new work.

We've moved Mats into Colorado, into the Marcellus where a year, eighteen months ago we didn't have any.

We see that as an opportunity to grow revenues.

There is a real interest in our Matting systems for different reason, because it provides a clean environmentally, friendly workplace.

In terms of visibility, we do have a little bit of visibility in the sale of the Mats.

I think we look out 90 days and we see some things in the backorder that says we ought to have another good quarter in the Mat sales.

And, additionally one of the bright spots we have talked about before is the business in the United Kingdom.

We are sending another 2000 Mats to the UK.

That would give us a total of 6000 Mats in the UK that are in the rental market.

It's not oilfield, but it's nice business and provides a nice steady cash flow stream from that activity.

So, to summarize we think the Mats folks have turned the corner.

We think they have some good opportunities ahead of them and we are expecting them to continue to growth and contribute more than they did in 2009.

Jim, just to add more to that, the other thing I would like to add to relates to the Environmental Business -- they had a pretty challenging year in 2009, a lot of restructuring there to get their cost in line with the revenues going forward in the market conditions.

So, we seen a lot of great things from the environmental part of our business and we expect them to continue to perform in 2010 as well.

I think just to add on, Jim, we should make sure we highlight the fact that that's a business unit that remained profitable throughout 2009, where our other segments and a lot of people struggled.

So, our hats off to them.

Perfect, very helpful, thanks.

Thank you.

Thank you, there are no further questions in the queue.

At this time I would like to turn the call back to Mr.

Howes for any closing remarks.

We would like to thank you once again for joining us on this call and for your interest in Newpark Resources.

We look forward to talking to you again after the conclusion of our first quarter.

Take care.

Thank you.

Ladies and gentlemen, this concludes the Newpark Resources fourth quarter earnings conference call.

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