NPK International Inc (NPKI) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

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, February 18, 2011.

I would now like to turn the conference over to Ken Dennard of DRG&L.

Please go ahead, sir.

Thanks, Alicia, and good morning, everyone.

We appreciate you joining us for Newpark Resources' conference call today to review 2010 fourth quarter results.

And of course we would like to welcome the internet participants that are listening to the call, as it is being simulcast 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 email yesterday afternoon from me and would like to be added to the distribution list, please call our offices at DRG&L.

That is 713-529-6600.

Provide us your contact information, or you could email me.

My email address is in the press release, so you can send that directly to me, and I will put you on the list.

There will be a call today -- a replay of today's call and it will be available by webcast on the Company's website at, of course, newpark.com.

And there will be a recorded replay by phone which will be available until February 24th.

And that information is also how to access in yesterday's release.

Please note that information reported on this call speaks only as of today, February 18, 2011, and therefore you are advised that 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 Securities laws.

These forward-looking statements reflect the current views of the management of Newpark.

However risks, various risks, and 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 listener is encouraged to read the Company's 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, uncertainties and contingencies.

With that said, I would like to turn the call over to Newpark's President and CEO, Paul Howes.

Paul?

Thank you, Ken.

Good morning to everyone.

We would like to thank you for joining us today for our fourth quarter 2010 conference call.

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

Following my remarks, 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 for Q&A.

Now turning our attention to the fourth quarter.

Total revenues for the fourth quarter of 2010 were up 9% sequentially to $195 million and were up 44% year-over-year.

Operating income was up 27% sequentially to $25 million, exceeding the $5 million of operating income in the same quarter a year ago.

Our net income per diluted share for the fourth quarter was $0.15, compared to $0.09 in the third quarter of 2010 and a break even a year ago.

Looking at the results of our Fluids business, we saw a 10% sequential increase in total revenues from the third quarter to $163 million.

Much of this improvement is attributable to a turnaround in Brazil, where revenues more than doubled from the prior quarter to $25 million.

As we mentioned in our third quarter call, our expectation was for the Brazilian business to break even in the fourth quarter.

We met that expectation with an operating profit in excess of $1 million in the quarter.

Our Mediterranean revenues were up 6% sequentially to $30 million, where we saw gains in Italy, Romania, and Tunisia.

To date, we have not experienced any major disruptions from the unrest in North Africa.

Total North American Fluid revenues were down 1% sequentially at $108 million, with particularly strong performance coming from the Rockies, Oklahoma, as well as Canada.

However, there was a 17% sequential decline in our wholesale barite business.

Sales from Evolution, our high performance, water-based drilling fluid systems, totaled $6 million during the quarter as we expanded usage of the system and its components beyond the Haynesville, having moved into the Barnett, Woodford and Bakken shales.

We continue to adapt the system to meet the technical and operational requirements necessitated by geological differences.

In wrapping up my comments on our drilling fluids business, I am pleased to note that in the fourth quarter, EnergyPoint Research, an independent research company, announced the results of the 2010 customer satisfaction ratings for oilfield product suppliers.

In those results, Newpark was ranked first in drilling fluid products and first in availability and delivery, again, a testament to the value of our products and services as perceived by our customers and the oilfield service industry.

Our Mats and Integrated Service business continues to perform well, growing revenues 13% sequentially to $21 million in the fourth quarter, largely due to the continuing demand for our composite mat systems in the Marcellus shale.

Due to the continuing success and acceptance of our composite mat products, we're starting to see new entries into the market and anticipate increased levels of competition going forward.

Nevertheless, we expect this segment will continue to perform well.

Revenues from Environmental Services were $11 million in the quarter, down 14% from the third quarter.

The fourth quarter included $3 million of revenue from waste disposal associated with the Deepwater Horizon spill, which is down 43% from the third quarter.

This is in line with our expectations, and as we stated last quarter, spill revenues will continue to diminish.

Therefore, we anticipate lower Environmental Service revenues in the first quarter of 2011 relative to the fourth quarter.

While there remains ongoing waste disposal work from customers in state waters and on land, a significant portion of our historical revenue is dependent on drilling in the federal waters of the Gulf of Mexico, which we believe will be subject to ongoing regulatory and permitting delays.

Before turning the call over to Bruce, let me comment on the full year 2010.

Our consolidated revenues totaled $716 million, a 46% increase over 2009.

Our earnings were $0.46 per diluted share in 2010, compared to a loss of $0.23 per share in 2009.

Our operating income of $78 million in 2010 set a record for Newpark, surpassing the previous high water mark of $71 million in 2008.

2008 being a year that saw the US rig count average 333 more rigs than in 2010.

This improved profitability and lower activity is a direct result of our strategic initiatives, mainly to expand our businesses into new markets and continue to focus on technology.

With that, now let me turn the call over to Bruce Smith who will review the performance of our fluids business.

Thank you, Paul, and good morning.

In the fourth quarter, the Fluids Systems and Engineering segment saw sequential revenue increase of 10% and a 43% year-over-year increase with total revenues of $162.8 million.

North American revenues were down 1% sequentially to $108 million.

There was a small revenue reduction in the US, due to a decline in barite sales, which was offset by strong seasonal gains in our Canadian business.

Areas of particular strength in the US included Oklahoma and the Rockies, which saw quarter-over-quarter revenue gains of 25% and 29% respectively.

Revenue in our traditionally strong dry gas areas of the Haynesville and Fayetteville shale plays was down, as these areas experienced lower drilling activity in the fourth quarter.

Despite the restrictions on drilling in the Gulf of Mexico, revenues from the Louisiana Gulf coast area saw sequential increase due to activity with customers operating in state waters.

As Paul touched on earlier, we have expanded the geographic reach of Evolution, our high performance water-based drilling fluids system.

In the fourth quarter, Evolution moved beyond the Haynesville into the Woodford, Bakken, and Barnett shales.

In all areas, we're seeing excellent performance results.

Although Evolution is still in its rollout phase, we already have reached what we believe are significant milestones with the system.

As of the end of 2010, the Evolution technology has been used by 22 operators in over 100 wells for more than 800,000 feet of drilling.

We believe that the value proposition to operators is compelling and offers reduced drilling costs from faster rates of penetration, reduced disposal costs when compared to oil wet cuttings, and all of the intrinsic environmental and safety benefits one would expect from a water-based fluid system, when compared to an oil-based mat.

We expect Evolution to continue gaining acceptance with a broader audience as we move forward.

Internationally, our Mediterranean revenues were up 6% sequentially to $30.4 million.

The increase was driven by growth in Italy, Romania and Tunisia.

The recent political unrest in North Africa has not, at this time, resulted in any disruptions to our operations in Tunisia.

While we have a presence in Egypt, we're not currently active in that country.

As a part of our continuing strategy of international expansion, we have also been able to lever an existing IOC relationship to perform working a well in northern Iraq, our first well in this country.

Turning to Brazil, our recent efforts of improvement have begun to show positive results, as revenue more than doubled to $24.5 million versus $10.4 million in the previous quarter.

In the fourth quarter, revenue was more heavily weighted towards products and less towards services and rentals, in part driven by the continued successful use of our proprietary water-based systems deep drill and flex drill.

This increase in the product sales led to an operating profit of $1.4 million in fourth quarter, in comparison to a loss of $2.7 million in the third quarter.

During the quarter, we provided products and services for two offshore wells, one of which was with a major integrated oil company in water depths of over 7,000 feet.

The successful drilling of this well further supports that Newpark is capable of competing and succeeding in the most difficult and challenging markets in the world, going head to head with the largest service companies in this industry.

I will also point out that we have finished those two IOC wells early in the first quarter of 2011, and because of this, we expect our first quarter 2011 Brazilian revenue and profit to be down sequentially.

We do, however, expect to be profitable in Brazil for the full year of 2011.

Looking at the Fluids segment operating profit, we reported operating income of $16.8 million in the fourth quarter, compared to $11.8 million in the third quarter and $6.7 million a year ago.

Overall the operating margin for the segment in the fourth quarter was 10.3%, up from 8% in the third quarter and 5.9% a year ago.

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

Thank you, Bruce, and good morning to everyone.

I would like to begin by discussing our Mats and Integrated Services business, then our Environmental Services segment, and wrap up with a discussion of our consolidated results.

The Mats business reported $20.6 million in revenues for the fourth quarter, a 13% sequential increase, and a 66% increase compared with the same quarter of last year.

Our mat rentals continue to grow as rental revenue was up 22% over the previous quarter.

Our composite mat rentals in the northeastern US remained strong, as revenue was up 26% and the Louisiana and UK rental markets saw sequential growth as well.

Sales of our composite mats to third parties contributed $5.4 million of revenue for the fourth quarter, down about 6% from the prior quarter.

The Mats segment had operating income of $10.3 million in the fourth quarter, up 20% from the third quarter operating income of $8.6 million, and up from the $1.2 million earned a year ago.

Third quarter 2010 Mats results included $2.2 million of income reflecting the net proceeds from the settlement of a lawsuit against a former raw material vendor.

Operating margin in the fourth quarter was 50%.

This compares with a 47% operating margin in the third quarter, and a 10% operating margin in the fourth quarter of last year.

As Paul mentioned, we're starting to see more competition entering the mat rental market in the Northeast US.

Although we believe our composite mat system offer exceptional operational advantages over the competing products, we expect to see traditional market forces come into play over time.

We continue to look for new markets for our composite mat systems.

Now moving to our Environmental Services business.

Revenues of $11.1 million were down 14% from the previous quarter and up 19% from a year ago.

Revenue related to the Gulf spill cleanup was $3.1 million in the quarter, compared with $5.4 million in the previous quarter.

For the entire fiscal year, our spill-related revenues totaled $10.5 million.

As we emphasized before, these spill related volumes will continue to climb over the first quarter of 2011.

However, we continue to provide waste disposal services for customers in state waters and on land.

Operating income in the Environmental Services segment was $2.6 million, compared to $3.9 million in the third quarter and $1.1 million in the same quarter a year ago.

Our fourth quarter operating margin was 23.4%, down from the 30.5% margin we achieved in the third quarter, but up from 11.8% in the year ago quarter.

Although our waste disposal activities outside of federal waters are still doing well, the majority of our revenues have traditionally come from drilling activity in the federal waters.

With the lack of drilling in the federal waters of the Gulf of Mexico, and the anticipated lower spill-related volumes, we expect that revenues and operating profit in the first quarter of 2011 will be lower than Q4 2010 levels.

Now moving onto the consolidated results.

For the fourth quarter of 2010, we reported total revenues of $195 million, an increase of 9% from the third quarter and up 44% from a year ago.

Operating income was $24.9 million, up 27% sequentially and up nearly $20 million from the fourth quarter of last year.

Net income in the quarter was $14.8 million, or $0.15 per diluted share, as compared to net income of $8.2 million, or $0.09 per diluted share in the third quarter of 2010.

The largest contributor to the sequential EPS of improvement, about $0.03, comes from the higher operating income.

Approximately $0.02 of the improvement in EPS came from a lower tax rate in the fourth quarter.

For the fourth quarter, the tax rate was 35% as compared to 45% in the third quarter.

The lower tax rate was driven primarily by the improved profitability in Brazil.

For the full year 2010, we reported revenue of $716 million, which was up 46% from 2009.

Operating income in 2010 was $78 million, a record level for Newpark, as compared to an operating loss of $15 million in 2009.

This $93 million improvement in operating income was achieved on a year-over-year revenue improvement of $226 million for an incremental margin of 41%.

Net income for 2010 was $41.6 million, or $0.46 per diluted share, compared with a net loss of $20.6 million, or $0.23 per share in 2009.

Now let me discuss our balance sheet and liquidity position.

Early in the fourth quarter, we completed a $172.5 million senior convertible notes offering that yielded $168 million in net proceeds.

After repaying the outstanding balances under our term loan and revolving credit facility, we had cash of about $66 million, and we finished the year with cash of $83 million.

Total debt at December 31, 2010, was $175 million, resulting in a debt to total capitalization ratio of 29.5%.

Our fourth quarter capital expenditures totaled $4.7 million, and our depreciation and amortization expense was $6.6 million.

We expect to see an increase in our CapEx spending as we move into 2011.

Subject to individual project approval, we expect capital expenditures to be in the $30 million to $40 million range.

We plan to invest for the future by improving and expanding our existing facilities and asset base, including a new manufacturing and R&D center for our Fluids business, and the addition of composite mats to our rental fleet.

Also included in our plans is the implementation of a new Oracle software system to replace a legacy system, enhancing our ability to more efficiently manage the Company and better integrate the flow of information.

The first implementation will take place later this year and continue into 2012.

Finally, we expect the tax rate for the full year 2011 to be between 36% and 38%.

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

Thanks, Jim.

We're pleased to see marked improvement in our financial performance in the third quarter, including the profitable results in Brazil.

Our US Fluids business turned in a solid quarter, as we saw a shift in the rig count from the dry gas shale basins to the developing liquid rich plays.

Our Mats business continued to serve a growing market in the Marcellus, where the environmental performance is valued by operators in eliminating erosion and spillage from the drilling site.

The Mats organization has done a great job in capitalizing on the market opportunities in 2010.

The Environmental business also performed well against a backdrop of continued permitting delays in the federal waters of the Gulf of Mexico.

Our strategic initiatives to focus on technology and expand into new geographic markets should enable us to continue to grow the Company.

Our high performance water-based system, Evolution, contributed $27 million to our revenues in 2010, its first full year of commercialization.

We have now introduced Evolution beyond the Haynesville to other basins and formations, where it has experienced excellent operating results.

The system's drilling performance as well as the benefits derived from being a water-based fluid rather than an oil-based mud, creates a compelling value proposition to E&P operators.

I would like to emphasize that we are still in the rollout phase of this technology as we work well by well, customer by customer, and formation by formation to overcome the historical comfort level with oil based muds.

We remain committed to driving the growth of Evolution, both domestically and internationally.

We also continue to focus on expanding and growing our international revenue base, a strategy that served us well over the past several years.

Our international revenues totaled $173 million in 2010, compared to just $41 million 5 years ago.

The geographical diversification of our revenue is key as we drive to a more balanced mix of revenue coming from natural gas and oil drilling.

Our success in deep water offshore Brazil speaks volumes to the capability and credibility of our products and services in some of the most challenging environments anywhere in the world.

It is our belief that we are well positioned to take advantage of our deep water successes when the drilling activity returns to the deep waters of the Gulf of Mexico.

Looking at 2010, our outlook for natural gas market is consistent with that of many others in the oil and gas service industry.

The increases in supply of natural gas in the United States coupled with lower demand will keep pressure on the price of natural gas with a resulting softness in dry gas drilling activity.

We expect to see continued increases in oil and gas liquids activity, where we believe we are well positioned to gain our fair share of that increased activity.

Given the ongoing uncertainties surrounding drilling in the federal waters of the Gulf of Mexico, we do not anticipate any substantial recovery in 2011.

Although we are optimistic that activity will pick up later in the year.

With respect to the international markets, we expect to see continued growth for our products and services.

In closing, I would like to thank the employees of Newpark for their continued efforts over the past year to position the Company for greater growth and profitability.

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 Michael Marino with Stephens.

Please go ahead.

Good morning.

Good morning.

My question on Brazil, you all mentioned Q1, the IOCs taking a little bit of a pause there.

Beyond Q1, what's the sustainability of what you all put up in Brazil in Q4 in terms of revenue and margin as well?

The IOC is just difficult to predict in terms of timing.

We know we have IOC work coming throughout the year in Brazil, but because of the lengthy planning cycles of these deep water wells, it is just difficult to establish exactly when the revenues will come.

Over the year, we will have a significant amount of IOC work in addition to the Petrobras work that will make us profitable for the 2011 year.

What about margins?

Where were you?

Is there still some meat on the bone there to grow margins in Brazil beyond -- ?

Absolutely there are.

That can be done actually both within Petrobras and with the IOCs.

So that's something that we'll have to see as we go forward, but part of our growth in the quarter came from Petrobras.

A good portion of it came from Petrobras, I think about 50% of the additional revenue came from Petrobras growth in the quarter.

The other parts were the IOCs.

Okay.

That color is helpful.

Switching gears to Evolution, you mentioned 22 different operators have used it.

Right now, are you at the point with any one operator where it is more of a continued use in a certain field, and where you're going to see a certain level or a certain portion of this revenue stream continue?

Yes, that's correct.

We are.

Which field -- which basins and if you can disclose the operator, too, that would be -- ?

I wouldn't wish to disclose the operator at this point, but certainly in the Barnett, we have some consistent and continuing work.

In the Woodford we have some consistent and continuing work, and we hope to have that going forward in other parts of the Company also.

In the Bakken we also have a consistent and continuing work.

And as of this conference call, we have launched Evolution now into Canada, and we have I believe two rigs operating in Canada with Evolution as of today.

The interesting thing there is it is not a shale gas play, but a carbonate oil play.

So it is a departure for Evolution down a slightly different path, but obviously opens up a bigger world to the Evolution system.

Do you see Evolution kind of being the base level revenue then, maybe, I mean, the fourth quarter?

Can you repeat the question, please?

Evolution here, you feel like this is a base level revenue and things are looking up with Canada, more customer adoption and maybe like the Eagle Ford, too.

I think you have mentioned that in the past, drilling some wells there.

Absolutely.

We will be growing the revenues of Evolution as we expand it out through the different plays and the different customers.

So we're at a level now, and hopefully the plan is to grow it from this level we're at now going forward.

Thank you.

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

Please go ahead.

Good morning.

Great quarter.

Thank you, sir.

Thanks, Jim.

Paul, last quarter you had some disappointing news from Evolution in the standpoint of getting a little more competition in different ways.

Right.

It seems like you bounced back a little this quarter.

You're obviously moving into other markets or other plays.

Can you maybe talk back on that competitive front and what you're seeing there?

Yes.

Certainly on the Evolution side, we continue to be successful moving it out into the other formations that Bruce has discussed.

With respect to competition, if you are referencing some of the fracking that some of the other competitors were offering, that's been -- that was pretty non-existent in the fourth quarter.

It has diminished to the point that it's had almost no impact.

We're seeing more capacity come into the marketplace on fracking, and if that's the question you were referencing.

Absolutely.

That's awesome.

From a growth standpoint going forward, at least for the markets you're in now, which sounds like you're up to five plays with the addition of Canada in the first quarter, where do you think the most growth comes from over the next quarter or two?

I think certainly the four areas I mentioned, we have a lot of growing to do in those areas.

And, of course, we're also looking at how we can expand this internationally.

Looking at some of the emerging shale plays in Europe through our Ava organization, and also leveraging through existing oil company relationships in Europe.

So we're looking to expand there.

And I think the first questioner had also mentioned Eagle Ford, and we are working on getting some work started in the Eagle Ford.

So obviously that will be an area, too, that we hope to expand into shortly.

Jim, you talked about mats and rentals being very strong.

Sales were down a little bit sequentially, but you mentioned seeing with the all the excitement going on there, more competitive forces there.

Is that more on the sales side or the rental side, and do you expect that to be more of a margin impact or a revenue impact or both?

Well, it is on the rental side.

It is not on the sales side.

I think from a revenue perspective, there is still areas of the Northeast where we haven't introduced the mat, so we believe there are additional opportunities to grow the business up there, even with competition that may come into the marketplace.

Thank you.

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

Please go ahead.

Good morning.

Good morning, Mike.

Wanted to dig in a little bit more on Evolution.

It sounds like sales about $6 million were about flat quarter on quarter, but you were getting sales contribution from new shale markets where you were introducing it.

So what was happening in the Haynesville?

Is it really just a matter of diminished drilling activity, or are you seeing customers that had been using Evolution?

Are they switching back to conventional?

And if they are doing that, are they sticking with Newpark for their conventional fluid needs, or are they switching to another provider?

A lot of parts there.

Let me try to take it piece by piece.

On the Evolution sales being flat quarter on quarter, doesn't really tell the story, because we have serviced more customers and more wells in Q4 than we did in Q3.

We did expand it beyond the Haynesville into, as we mentioned, the Bakken and Woodford and Barnett and now Canada.

The Haynesville is a very unique formation with high pressures and high temperatures that require very sturdy formulations, so the revenues that came from the Haynesville were particularly high because of that, because of the technical requirements.

These other areas don't have the same technical requirements, therefore you're formulating the system to be more suitable for the economic realities that the operators face in each of these shale plays.

It sounds like essentially, there is a mix shift going on when you see diminished Haynesville drilling activity, but you're getting new wells in the other shales.

Those just happen to be less revenue on a per well basis?

That's exactly correct.

The Haynesville wells are very expensive to drill, and at $4 or less gas a lot of people just shy away from it for the time being.

Understood.

And then was wondering if you could comment on the barite business and the decline that you saw in the fourth quarter there.

What factors were driving that decline, and is that going to be an ongoing issue, or should we expect to see recovery in Q1 or some other point in 2011?

That's a good question, Mike.

That was also driven by the Haynesville because of the high pressure requirements of the Haynesville.

Your fluid systems, you're weighting up at 18 pounds to 19 pounds, and with the decline in the Haynesville, so went the decline of the barite sales into that region.

Thank you.

Our next question comes from the line of Joe Gibney with Capital One Southcoast.

Please go ahead.

Good morning, Paul and Jim.

Good morning, Joe.

Wanted to follow up a little bit on the mat side to Jim's earlier question on the new competitive entrance.

I know you cased this as a healthy margin environment that's going to attract new parties.

Obviously you're still seeing that.

What so far are some of these entrants doing on the mat rental side?

Are they being aggressive on pricing, or is it still a caution in the wind that obviously it is a healthy market and it is going to attract some competitors to it?

Just curious if you can comment on that.

I think today what we have seen is a lot of interest and other people and entering the market.

It really hasn't become an issue yet of price competition, but we are aware of other people that are trying to bring competing products to the market.

And while we believe we have got a product that offers some great value to the customers and protecting the environment and avoiding erosion, people are going to try to enter that market.

Just want to circle back on your base North America fluids business.

You commented Rockies, Oklahoma, up nicely, 25%, 30%, and your aggregate North America fluid is down 1%, Haynesville and Fayetteville down.

What was the sequential change in the Haynesville and the Fayetteville quarter over quarter, 3Q to 4Q?

The revenue declines in the places like East Texas and Arkansas, we're talking 5% to 10% decreases.

Okay.

Very helpful.

I appreciate it.

Thank you.

Thank you.

(Operator Instructions)Our next question comes from the line of Stephen Gengaro with Jefferies.

Please go ahead.

Thank you.

Good morning.

Good morning.

Two things, one just to follow up on that bundling question that we talked about last quarter and was asked earlier.

My sense is, and correct me if I'm wrong, but my sense is that in some of the areas where you're moving to from the Haynesville frac capacity is actually tighter than it is in the Haynesville.

And does that worry you as far as the potential to see more of what you saw last quarter going forward?

From the fluids perspective, we're not seeing it as an issue right now.

Whether that's the additional capacity that's come back into the market, or whether operators are balking at that type of approach, I am not sure what the final reason is or rationale is, but we're not seeing it as an issue.

If you are referencing, Stephen in particular, let's say the Eagle Ford as an example maybe, are you suggesting maybe that the frac capacity is tighter in the Eagle Ford?

Exactly, yes.

In the Eagle Ford and the Bakken, it seems tighter than it does in the Haynesville right now so that's why --

Right, right.

As the frac companies are trying to move their capacity around the country, correct.

We're not seeing -- we've got pretty decent market shares in the Eagle Ford today and our accounts continue to drill.

So we're not seeing an impact in what you might perceive as a frac-type market.

That's helpful color.

Can you give us any more detail on the barite issue?

I understand the driver.

I understand what you said about the Haynesville and the mix issues that happened with when the rig count slides there, but can you give us color on two things.

One, are you worried about that continuing to weigh on barite sales?

And also you said I think it was down 70% sequentially.

Can you give us a sense for what percentage of the total fluids revenue that wholesale barite makes up?

Yes.

I think to clarify, I think we said down 17%.

I don't know if you said 70%.

I said 17%.

I am sorry.

It was 17%.

Yes.

I think one of the things to remember about the barite business, this is a wholesale business we're providing that ore to other people, so the margins are low.

It does have some revenue impacts.

We see it as a result of the Haynesville.

On a sequential basis, it was down about $2 million in total in revenue.

Great.

That's very helpful color.

Thank you.

Thank you.

Our next question comes from the line of Matt Beeby with Global Hunter Securities.

Please go ahead.

Good morning, everyone.

Good morning, Matt.

Jumping back to the mats business, you talked about the differentiation of your product.

Can you specify that a little bit more?

And do you believe that that could produce a pricing premium relative to your competition?

Yes.

We certainly believe that we have real performance advantages with our current mat systems.

We have both, in terms of the customer and even the Department of Environmental Protection up in Pennsylvania.

Essentially we're putting almost a diaper underneath these rigs.

We're laying down a vinyl barrier.

And then our mat systems, these are 8 feet by 14 feet, weigh 1000 pounds apiece.

And then they interlock and are pinned together.

So it provides almost a homogeneous structure underneath that drilling platform so that it contains and eliminates erosion from the site.

If there is any spillage it contains that.

And so we believe that is a very unique design concept, of which we have US design patents and process patents.

Now, that doesn't mean that someone can't work on the fringes, but we believe there are very unique performance advantages that protect the environment, that the customers and the DEP in Pennsylvania values.

You said, you mentioned investing some capital there.

Should we anticipate that to be evenly spread over the year?

And in terms of your fleet as it is now, what percentage additions are you looking at there?

I think on the spending of that capital you will start to see some in the first quarter, but it will accelerate in the second, third and fourth quarters of the year.

And in terms of the expansion of the rental fleet, at least initially, we're talking probably somewhere 10% of increase in the number of mats.

Okay.

Thank you.

Thank you.

Our next question is a follow-up from the line of Michael Marino with Stephens.

Please go ahead.

Thanks.

Just a follow-up on the Eagle Ford and some of the commentary there.

As I remember, last quarter you guys -- I guess market share slipped there a little bit versus historical levels.

And you guys were trying to claw back market share as maybe the rigs moved faster than you guys.

How is that process going, and do you think you will see maybe even some outsized growth in the Eagle Ford as you regain some market share?

Certainly.

Certainly we're working hard at it.

I think it was a little false in terms of we had a high market share to begin with on a very small rig count.

And as the rig count grew dramatically, it was difficult to keep that very high market share that we had.

So it was a little bit of a false number, but we are working hard in there to gain back share, and to get more share of what's there.

And we are having little successes every day, so we'll just keep plugging away.

And I think it will become a very nice -- it is a very nice area for us.

It is also an area where we are putting some final formulations together and we have some customers already interested in running the Evolution system there, which will further enhance our ability I think to gain more share in that market having some success with Evolution there.

Great.

Thanks.

Thank you.

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

Please go ahead.

Just a couple of housekeeping questions.

Can you give us any guidance on interest expense levels for 2011?

Yes.

Mike, the interest expense will run as a percentage about 4% and it works out to about $7 million a year on our convertible note.

We have a little bit of other interest expense, so about $7.5 million on an annual basis.

In that context, help me understand the $2.6 million you put up this quarter.

Were there any unusual costs in that interest expense bucket this quarter?

Yes.

In the fourth quarter, we had some write off of some deferred amortization costs associated with a previous facility, so that contributed a little bit to the quarter.

Okay.

And then was also hoping that maybe you could give us a little bit more detail on the Oracle system.

Maybe the magnitude and timing of expenses, as well as eventual benefits that you would expect to see from that.

Yes.

That project has started.

The spending has started.

As most of these projects are, it is a multi-million dollars project, but the cost benefit analysis that we did and the return we're going to get on that is something we feel comfortable with.

And so it is going to be something that will be in place sometimes completely in our US business in 2012.

In terms of multi-million spending, though, are we talking a few million dollars of P&L?

Well, the P&L impact is going to be spread over years as the asset gets depreciated.

So that will start in 2011 probably in the middle of the latter end half of the year.

All right.

Thanks very much.

Thank you.

At this time I would like to turn the conference back to management for closing remarks.

I'd like to thank you once again for joining us on the call and for your interest in Newpark Resources.

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

Thank you.

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

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