NPK International Inc (NPKI) 2010 Q1 法說會逐字稿

(Operator Instructions) Good morning, Ladies and Gentlemen.

Thank you for standing by.

Welcome to the Newpark Resources First 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, April 30, 2010.

I would now like to turn the conference over to Ken Dennard with DRG& E.

Please go ahead sir.

Thank you, Brandy.

Good morning everyone.

We appreciate you joining us for the Newpark Resources Conference Call today to review 2010 First Quarter results.

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

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 e-mail of yesterday's release or would like to be added to the distribution list, please call our offices at DRG& E at 713-529-6600, provide us the information and we'll get you on those lists.

Also, there will be a replay of today's call.

It will be available by Webcast on the companies web site at www.newpark.com and there's also the recorded replay telephonically which will be available for the next seven days and that information on how to access that is in yesterday's release.

Please note the information reported on this call speaks only as of today, April 30, 2010 and therefore you are advised time sensitive information may no longer be accurate at the time of any replay listening.

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 Securities 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 materially from those expressed in the statements made by Management.

The listeners encouraged to read the companies 2009 Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, and current reports on Form 8-K to understand certain of those risks and uncertainties and contingencies and now with that I'd like to turn the call over to Newpark's President and CEO, Paul.

Thank you, Ken and good morning to everyone.

We would like to thank all of you for joining us today for our First Quarter 2010 Conference Call.

With me today is Jim Braun, our Chief Financial Officer.

Following my remarks Jim will provide an update on our business segments as well as the financial details 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 First Quarter.

Let me begin by saying I am extremely pleased with our quarterly results as we saw sequential improvement in all three business segments.

Total revenues for the First Quarter of 2010 increased 19% from the previous quarter to $161 million and operating income increased 167% or $8.6 million to $13.7 million.

Net income per share for the quarter was $.09 compared to breakeven in the Fourth Quarter of 2009.

On a year-over-year basis, revenues increased 27% and we reported a loss per share of $.14 in the First Quarter a year ago.

Our Fluid Systems and Engineering business had a strong quarter with revenues rising 20% over the Fourth Quarter of 2009.

We performed well in the Haynesville due in part to the strength of our new high performance water based system that we recently introduced.

In fact, our East Texas district which encompasses the Haynesville had the highest revenue performance for the first quarter of 2010 of any region in the Company.

To date, we have completed 19 wells in the Haynesville using this new water based technology.

This compares to six wells completed as of our last Conference Call in February and we are currently on 11 rigs.

Our customers are recognizing the value of this technology or oil based products which include first and foremost environmental health and safety benefits.

In addition our new system provides improved rate of penetration, lower operating temperatures, and lower coefficients of friction again as compared to oil based fluids.

As a result, we've expanded our customer base and now have used the new system with a total of six different customers in the Haynesville.

Going forward we will continue to focus this technology in the Haynesville as we refine the system and continue its introduction to new customers.

Ultimately, we hope to apply this new technology in other Shale Formations.

While the technology is still young, our continued early success causes us to believe that this system has the potential to be a step change in the industry, one that alters the way water based fluid is viewed by the market.

Now moving on to the other operations.

We also had a strong quarterly performance in Canada due to the seasonal rebound in that region as well as the strength of the new Management team we have in place.

We see the opportunity for Canada to be an important yet seasonal market.

We generated $15 million in revenue from Brazil, a sequential increase of 47% and a Brazilian operations reported a small operating profit in the quarter as compared to a loss of $1.5 million in the Fourth Quarter of last year.

We have taken additional actions to control our cost and while the long term prospects for us in Brazil remain solid, we do expect to see quarterly revenue fluctuations due to the timing of IOC drilling plans.

Our Mediterranean revenues were down significantly in the First Quarter as our operations were affected by customer drilling delays in all gear a and Tunisia as well as extremely cold weather conditions in Romania and Hungary.

On a positive note, operating margins were satisfactory despite the revenue decline.

We maintained market share and we do expect a rebound later this year.

In addition, we saw an expansion in our Matson Integrated Services business where we have been redeploying assets.

During the First Quarter, revenues in this segment increased 10% sequentially to $13.6 million.

This improvement is primarily the result of a growing acceptance of the environmental advantages of our composite Matt system.

Originally the composite Matt served as an alternative for wood Mats in South Louisiana, providing a stable work platform in surface; however the composite Matt is increasingly being used to protect the environment as demonstrated in the Marcellus where our Mats are being used to contain spillage and run-off.

We have moved about 10,000 composite Mats to that region from the Gulf Coast and they are experiencing high utilization.

In total, we have moved 40% of our Matt rental fleet out of the Gulf Coast over the past 18 months and we will continue to look for opportunities to move our Mats into other environmentally driven Markets.

Environmental services segment continued its excellent performance with revenues up 16% over the prior quarter.

Year-over-year revenues were down about 5% but the segments operating margins were extremely strong at 25%.

In closing on a personnel matter, Sammy Cooper who was President of our Matson and environmental services business recently left the Company to pursue other interests.

We're actively seeking a replacement for that position and in the interim, Bill Moss, Vice President of Corporate Strategy and Development, will manage those businesses until replacement is found.

I will now turn the call over to Jim.

Well thank you, Paul, and good morning everyone.

I will begin by reviewing the performance of our business segments before concluding with a look at our consolidated results.

Our Fluid Systems and Engineering segment revenues rose 20% on a sequential basis to $136 million with our North American revenues up 38% to $99 million due to higher drilling activity and market share gains.

On a year-over-year basis our Fluid Systems and Engineering segment revenues for the First Quarter increased 28% with our North American revenues rising 26%.

In the US, our fluid revenues grew 34% sequentially driven in part by a 21% increase in the US rig count and in addition as Paul discussed, our Fluids Business continues to gain market share, particularly in the seven major US shale plays.

Currently, we estimate that we have approximately 21% of the rigs operating in the US shale areas including 27% in the Haynesville which is up from 21% last quarter.

Our East Texas business which includes the Haynesville grew revenues significantly on a sequential basis to $24 million.

The First Quarter of 2010 also saw a nice improvement in our Louisiana Gulf Coast market where an increase in offshore and land drilling contributed to a 31% sequential revenue growth.

In addition during the quarter we returned to a second deepwater rig with E&I and our completion Fluids Business in Oklahoma had its best First Quarter since Q1 of last year.

Canada had a strong performance as well, with revenues more than doubling from the Fourth Quarter to $8.7 million in Q1 due to the seasonal rebound in drilling activity in that region and the benefits of our new management team.

Internationally, Mediterranean revenues were down 30% sequentially to $22.3 million for the First Quarter of 2010 due to customer drilling delays in Algeria and Tunisia along with unusually cold weather both in Romania and Hungary.

On a year-over-year basis, Mediterranean revenues were down 11%.

The overall fundamentals of our business in this region remain solid and we expect revenues to return to previous quarterly levels.

Brazilian revenues increased by 47% from the prior year to $15.1 million reflecting continued ramp up in activity in that key market.

During the quarter we were working for Petrobras and Maersk on an average of 14 rigs.

In addition, we delivered drilling fluids to Repsol during the quarter under our recently signed global master service agreement.

On a year-over-year basis, our Brazil revenues increased by $12.3 million from the First Quarter of 2009.

Our fluids segment reported operating income of $12.4 million in the First Quarter compared to $6.7 million in the previous quarter.

The First Quarter operating improvement reflects the benefits of strong revenue growth and a cost cutting steps taken during 2009.

Operating margin in the quarter was 9.1%, up from 5.9% in the Fourth Quarter of 2009 and sequentially, the $5.7 million improvement in operating margin reflects incremental margins of 25%.

Our Matts Integrated Service business reported $13.6 million in revenues in the quarter, a 10% increase from the prior quarter.

This improvement primarily reflects the strength of our composite Matt business in new Markets.

We have continued to redeploy our Mats and currently have 40% of our rental fleet in markets outside of the US Gulf Coast.

We have 10,000 Mats in the Marcellus, 6,000 in the UK, and another 4000 are being used in the Rocky Mountains.

We saw a slight improvement in our Texas Gulf Coast market during the quarter, but the Louisiana Gulf Coast market for mat rentals remain soft.

The sale of Mats contributed $5.9 million in revenue for the quarter down just slightly from the Fourth Quarter of last year.

And on a year-over-year basis, the Mats segment revenues rose 54% from the First Quarter of 2009 primarily reflecting increased rental activity in these new Markets and Matt sales.

Our Matt segment had operating income of $2.7 million in the First Quarter, which includes 900,000 of other income reflecting proceeds from insurance claims related to Hurricane Ike in 2008.

This compares to $1.2 million in operating income in the Fourth Quarter of 2009.

Operating margin in the First Quarter was 19.9%, a 13% excluding the insurance gain compared to 9.9% in the previous quarter.

Our environmental services segment had another solid quarter with revenues of $10.9 million compared to $9.3 million in the Fourth Quarter, a 16% sequential increase that reflects higher volumes of oil field waste received in the Gulf Coast.

On a year-over-year basis, revenues decreased 5% due to lower volumes in the Gulf Coast and in West Texas.

Operating income in our environmental services segment was $2.7 million compared to $1.1 million in the Fourth Quarter and $1.2 million in the First Quarter of 2009.

The operating margin in the First Quarter came in strong at 24.7% compared to 11.8% in the Fourth Quarter and a 10.1% in the First Quarter a year ago.

Now moving on to our consolidated results.

For the First Quarter of 2010, we reported total revenues of $161 million, an increase of 19% from the Fourth Quarter of 2009, and up 27% from a year ago.

Operating income was $13.7 million in the First Quarter up $8.6 million or 167% from the Fourth Quarter of last year.

Compared to the First Quarter of 2009, there was an improvement in operating income of $26.5 million.

Net income in the quarter was$7.8 million or $.09 per diluted share compared to net income of $16,000 or breakeven on a per share basis in the Fourth Quarter.

Net income in the quarter was$7.8 million or $0.09 per diluted share compared to net income of $16,000 or breakeven on a per share basis in the Fourth Quarter.

This insurance gain added approximately $0.01 to our earnings per share.

On a comparable basis our First Quarter 2009 operating results include a pre-tax employee termination related charges of $2.6 million.

These items contribute about $0.02 to the 2009 First Quarter loss.

Now I'll briefly discuss our Balance Sheet and liquidity.

With the growth in the business we were a net borrower of $6 million during the First Quarter.

While we saw an increase in receivables related to higher revenue levels and a rise in DSOs, inventories declined in part due to our ongoing effort to better manage the supply and distribution chain.

Our total debt at March 31, 2010, was $128 million with the resulting debt to total capitalization of 25.5% which compares to 25.1% at the end of last Fiscal Year.

We finished the First Quarter with $12 million of cash.

Our Capital Expenditures were approximately $2 million in the First Quarter and our depreciation and amortization was $6.7 million.

And while we've managed our capital program aggressively over the past several quarters, we do expect to see investment increase over the balance of the year to support further growth and now I'd like to turn the call back over to Paul for his concluding remarks.

Thanks, Jim.

We've had a great start to 2010 and I would like to take this opportunity to thank all of our employees for a job well done.

Their dedication to serving our customers and providing unique value is reflected in our First Quarter financial results.

While some uncertainty exists in our Markets as it always seems to, we remain optimistic about 2010.

The continued commercialization of our new high performance water based technology is another indication that we are becoming recognized as a technology leader in the field of drilling.

We're pursuing new accounts in a developing shale plays and we expect to gain additional market share in the coming quarters.

Our international Fluids Business is an important part of our growth strategy beyond the North American shale plays.

We expect our business to rebound in the Second Quarter with some softness in Brazil.

I would add that we have recently signed a contract for drilling fluids with a new IOC in Brazil.

I would also like to add that I am pleased with the performance of our environmental and Matt businesses, so our expectation at both of these businesses will be solid cash contributors in 2010.

We have emerged with a strong start to 2010 and as always, we remain focused on growing and managing the business to an ever changing environment.

With that we'll now take your questions.

Operator?

Thank you, sir.

[Operator Instructions].

Our first question comes from the line of James Rollyson with Raymond James .

Please go ahead.

Good morning guys, excellent

Thank you, Jim.

Paul, I can't remember if it was you or Jim that mentioned being in the low 20% market share right now in the shale plays and I think you said 27% in the Haynesville which was on 11 rigs.

How many rigs are you on in total in the shale plays and do you guys have a rough number of what the revenue contribution was from the kind of water based shale play fluids division this quarter?

Yeah, just to clarify, Jim, the 11 rigs that we mentioned was our new product.

It wasn't all the shale plays that we have.

It's 21% in total and then the shale plays, 27% in the Haynesville.

We haven't yet determined or disclosed the revenues on the new products and we'll be developing the methodology for doing that in the future.

Yes, I'm just obviously trying to get a sense of it sounds like based on the expansion you guys have had so far with the new product in the Haynesville, there seems to be an awful lot of growth potential in the market if that continues to spread to other markets just trying to get a handle on kind of how big that market could be for you and maybe what kind of margins you see in that product line so far versus compared to your other businesses in fluids?

Yeah, certainly, we're trying to understand where the opportunities lie outside the Haynesville for us.

We do believe that we'll have to kind of tweek or adjust the technology some to take it to other formations.

The one key point as Jim mentioned we do have 11 rigs running the water based technology and if you look at the Haynesville or the majority of other shale plays they are all using the conventional oil based technology, so we believe there's a significant upside opportunity to begin to transition those rigs to a higher performance water based technology that we've invented and but again, it's in the early stages from our perspective, just about 20 successful wells completed to date.

Need another quarter behind us yet before we can give a little more guidance on where we see us going next.

Okay, fair enough.

Environmental, you guys had a nice little step up in revenues but in particular a very nice bump in margins, something we haven't seen there in quite a while at least the magnitude.

Anything in particular that was unusual this quarter that drove those margins or how are you feeling about sustainability there because it seems double what you've been running.

Yeah, Jim, a couple things going on there.

It was certainly a very good quarter in terms of the revenue mix, some of the higher priced products.

We've also as you know taken a lot of costs out of that business in 2009 and one of the characteristics of that business is it tends to be some pretty high flow through once you start generating some incremental revenue, so it's turned out to be a very nice piece of business for us as we've got it done.

Certainly you look at some of the changes we've made coming in 2009, we had a lot of barges that significant number of barges we returned so we feel pretty confident going forward that we'll be able to maintain those kind of margins or at least hopefully we can.

Thank you, and our next question comes from the line of Terese Fabian with Sidoti & Company.

Please go ahead.

Thank you and good morning.

A question on the revenue that you are generating in terms of the per well numbers.

Do you see the same volume of fluids being used on your wells or are you using a higher amount, are the wells going deeper footage drilled and question that line.

Yeah, it's really situational depending on where you're drilling in the Haynesville and which operator.

We've got some wells that we're drilling much deeper, longer, horizontals, high temperature, high pressure and again it's a bit early to try and draw any conclusion on the measured depth and the revenue or fluid per well right now.

Okay, and I know that you had said that the view of the future is uncertain for everybody, but how do you expect that Newpark sales would be affected if and when drilling slows down going through the summer in the US?

Well, we're certainly optimistic and we feel that if we continue on the same trajectory that we've seen with our new technology that we do see some softening in rig activity in some of the more traditional areas where we have operations running that our hope would be to continue to gain market share in the shale plays where we don't believe we're going to see any significant slowdown.

Thank you.

Our next question comes from the line of Neal Dingmann.

Please go ahead.

Good morning guys.

Say great job on the water base.

I guess my question around the water base fluid is the patents and such you have there, could you give us a sense of sort of the technological advantage and as far as obviously others will try to enter that market, how you can continue to grow that like you have.

Absolutely, and we filed provisional applications and so we'll actually file for the patents here in the next several months but we've locked in time the dates of the invention, both domestically and internationally, so that would be our route and again the challenge in patent law and IP is to make certain that your claims are broad enough that it protects the area of technology you're playing in but not too broad that you can't defend them, so you know our hope is that that process will give us some traction and some protection going forward, but certainly all the major competitors are out there today trying to come up with some technology.

As of date they have not been successful but eventually they will certainly converge on some solutions and at that point we hope our IT would protect our position

Understood and then just a follow-up.

As you see that type of water based fluid, I mean the market for that international to that work, essentially anywhere the typical oil base is as well as other domestic areas where it's continuing to expand?

Well certainly we're starting to do some advanced work internationally trying to get some core samples that we can run in our drilling simulator cell.

Right now we're focused on kind of Eastern Western Europe, some of the shale plays that in Poland, maybe in Germany where we see some application of the new technology, so we're beginning that process and but it's a little further out for us 12-24 months.

Great to hear.

Thanks guys.

Thank you, Ladies and Gentlemen, [Operator Instructions].

And our next question comes from the line of Mike Harrison with First Analysis.

Please go ahead.

Hi, good morning.

Good morning, Mike.

I apologize if I missed this but was Brazil profitable in Q1?

Yes, it was.

And other question I had is it looks like the government has gone head and banned new drilling activity in the Gulf of Mexico in the wake of the deepwater horizon accident there.

What portion of your revenue right now is derived from the Gulf and any speculation on how long this ban might last?

Mike, from our perspective we've got business there.

It's important but not a significant amount at this time and it's probably just premature to say what's going to happen in the Gulf or anywhere else as a result of this so we're certainly monitoring that situation closely but you know we certainly think it's premature to draw any conclusions.

We have a relatively small market share in the deepwater Gulf of Mexico and as you know as well, the shelf has been very slow, so though we do expect to see some upside as it relates to our environmental services, we've been in contact with BP and we stand ready to support them with the disposal system that we have.

If I can just ask you one on the water based fluids as well, can you talk a little bit about how you approach pricing for a product that seems to provide so much value for your customers, how do you make sure that you're getting paid for that value add rather than the customer capturing more than you'd like to see I guess.

Well, certainly we believe that our customers should capture a piece of it and as well as our investors and our shareholders.

One of the things that we're really trying to do at this time is really quantify the value, collecting more information on the benefits on rate of penetration and time to reach TD.

We're seeing some benefit in terms of additional drill bit and less tripping in and out of the hole which obviously has value and so we're in that process to try to quantify that.

It's still a little premature but we believe we've got the right processes in place to really quantify that value and then work with the customers on sharing that with them as well.

All right, thanks very much.

Thank you and our next question comes from the line of Michael Marino with Stephens.

Please go ahead.

Thank you.

Good morning, guys.

Good morning.

I wanted to dig a little deeper on the international outlook and what you all are seeing there.

Obviously the First Quarter sounds like weather and some seasonal patterns maybe outside of Brazil.

Q2, will you get most of that back in Q2 and then from there, what's the growth trajectory look like?

Well, we do expect to get those revenues back particularly in the Mediterranean and Eastern Europe and North Africa business.

That business over the years has demonstrated nice growth as the rig counts grow and as they attack new Markets and gain new share and we would expect that to continue going forward.

Yeah, we do expect to see a little bit of softness in Brazil in the Second Quarter as I mentioned some of the IOCs have stopped drilling though we expect activity to pick up in the Third and Fourth Quarter in Brazil and then more broadly based speaking, if you look say out into 2011, we certainly see more opportunities growing for us.

We're being asked by a lot of major super majors, IOCs to come into new parts of the world, areas that we currently don't compete in like the Middle East and West Africa so we believe that our success, our proven track record of bringing technology to the Markets will begin to pull us into new geographical regions.

Those inquiries, are those for back half 2010 work or is it more 2011 stuff?

More 2011.

Okay.

And a follow-up on Brazil.

Will Brazil put up operating income in Q2 or do we dip back down before moving higher?

No, Mike, I think with a small operating profit in the First Quarter and the expectation that the activity and the revenues will be off a little, you know it's likely to be break even or a small loss in the Second Quarter.

Okay, great.

Thanks for the color.

Thank you.

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

Please go ahead.

Thank you.

Another question on Brazil.

What's involved with your base oil sales there?

I think you said $7 million for the year, and what kind of a margin does that come with?

Yeah, that's correct.

That was a Internet bid that we won with Brazil supply and we have continued to supply that product in the First Quarter and will in the second as well.

I think the incremental margins on that are around 8% to 10%.

Okay, and is that sort of going to be through the year or is that a front half activity?

It can be throughout the year.

I know the majority of it will be through the first half or first nine months.

Okay, and just another question on your water based product in the shale.

Are you having repeat customers for that?

Absolutely, and that's where we're seeing traction growing rigs with repeat customers, one of the customers a new one we picked up is XTL where we've been doing some high temperature high pressure work with them and we'll be adding new rigs there, in Cana, certainly we've been successful with and so we expect to continue to grow rigs with the existing base of customers but also then to add-on additional customers going forward.

Yeah, what seems to be the pattern there is that an operator will want to try it, they will give us a rig, we'll be successful at it and then add to the compliments.

If you remember that's how we started originally within Cana.

We got one opportunity, we were successful and it grew to more rigs and now we've expanded to those other five operators that we worked for or are working for currently.

That leads to the last question which SR you testing it out with new customers at this time?

Oh, yes we are.

Absolutely and we're starting to accelerate it from the first call we only had five or six completed wells.

We wanted to make certain that we had a little better database and with 20 wells now behind us, our field engineers which I'd like to say are doing a great job for us, understand how the system behaves with a solid control and the weighting of the fluids and so now we're starting to be a little more aggressive and talking with new customers.

Okay, thank you.

Thank you.

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

Please go ahead.

A couple questions related to your margins.

First of all the 17% gross margin that you showed, we can look back to 2008 and you had a stronger Q1 in '08.

Before that though it's hard to gauge the historical level because you guys reclassified some of the corporate expenses.

I guess can you just give us a sense of sort of where that 17% fits into history and you know is there further potential for that to grow?

Yeah, Mike, let me do this.

Let me reference you back to 2008 where our Fluids Business for the whole year, we did a little over 12% operating margin and that was at a time where we had over $700 million of revenue and here in the First Quarter, we're at 9.1% on a quarterly revenue at a run rate that's $161 million less than revenue, so you know we said before that even with lower revenue levels we believe we have the opportunity some of the things we are doing to get margins back to historical levels and that continues to be the goal and we're encouraged by the First Quarter performance that enabled us to get there.

A couple areas, one specifically that about 12 months ago, we put in place a new Vice President of Supply Chain Management and Drilling Fluids so our expectation is that as revenues continue to ramp up that we hope to gain as much as two full percentage points on margin from that organization and doing a better job of purchasing raw materials, optimizing our logistic spend and so that groups really starting to gain some traction for us going forward, we believe as well as in the First Quarter, and then I'd also say in terms of upside and margin we do believe our new technology offers upside improvements in margins as well.

And then looking at SG&A costs, some pretty impressive leverage as I look quarter-over-quarter, revenues were up $25 million sequentially, SG&A actually came down.

How were you able to do that and were there any items in the Q4 SG&A number that were some year-end type of items or trueups or anything like that that inflated the Q4 SG&A number?

You know, there was nothing really significant.

There was some of the normal year-end kind of trueup things, we paid some incentives out to our environmental services group in particular that may have impacted that but for the most part, it was pretty clean but as you said, it's just a matter of being very diligent and managing the expenses.

We have initiatives in place to try to do things better and smarter, taking advantage leveraging our people to across more business units and we continue to do that and that's causing some of the benefits that you're seeing.

Thank you.

Our next question comes from the line of Dan Orr with Balyasny Asset Management.

Please go ahead.

Hi guys, how's it going?

Good morning, Dan.

So first of all congratulations on the great quarter.

Very good to see you.

Thank you.

My question revolves around environmental business I'm familiar with what your traditional business is there but can you elaborate more on the BP oil spill which is obviously a horrible thing with your environmental business, you said you could possibly help remedy the situation.

Can you just help me understand what exactly you guys could do for this and kind of just economic framework behind it?

Yeah.

Dan, BP is one of our better customers in the environmental service in the Gulf Coast business.

They've been a longstanding customer.

We do a lot of work, a lot of injection of their normal drilling waste that comes through their drilling and production activities.

What we've done is reached out to them and told them we're available to help with whatever they need.

We've got disposal capabilities that are permitted to deal with certain kinds of things they are dealing with.

As you might imagine they are just trying to understand the magnitude of the problem, what they need to take and where but they know we stand ready, we've got contracts and agreements with them in place and we're not sure what all they're going to ask us to do but we're prepared and ready to help them as the case may be.

Okay, and do you guys charge like a per barrel of disposal basis or what's the contract language there?

That's exactly right.

It's a per barrel charge for disposal transportation to our site and disposal.

And it varies depending on whether you're dealing with water based fluids, synthetics, oil based, heavy solids, low solids, so there's a pricing matrix in there.

Okay, that's helpful, and I know you guys are definitely very big in that business in the Gulf Coast.

Can you help me better understand the competitive environment there?

Are you guys, do you guys own a majority of the disposal wells there, a very small percentage?

Yeah, in terms of market share in the Gulf of Mexico in handling waste, the Continental shelf and deepwater we are the market leader.

We have the majority of the injection wells which is typically used by the major super majors for their disposal.

Our major competitor in the Gulf uses land farming which we don't believe is appropriate for certain reasons and so we believe we've got the right assets to support and help BP with their current situation.

Great.

Well it's unfortunate that anybody is going to have any work to do for this.

Absolutely.

Okay, well congrats guys.

Thank you very much.

Thank you, and our next question comes from the line of James Rollyson with Raymond James.

Please go ahead.

Just one quick housekeeping item, Jim, tax rate was 36% roughly?

That's correct.

The rest of the year going to be about the same?

Yeah, I would say in that 34% to 36% range.

Perfect.

You guys have a great day.

Thank you, Jim.

Thank you.

At this time there are no further questions.

I'd like to turn the call back over to management for any closing comments.

We would like to thank you once again for joining us on this call and for your interest in Newpark Resources and we look forward to talking to you again after the conclusion of our Second Quarter.

Thank you.

Ladies and Gentlemen, this concludes the Newpark Resources First Quarter earnings Conference Call.

If you'd like to listen to a replay of todays conference please dial 303-590-3030 followed bypass code of 427-2524.

Thank you for your participation you may now disconnect your lines.