NPK International Inc (NPKI) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Newpark Resources second-quarter earnings conference call.

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

Following the presentation the call will be opened for questions.

As a reminder, today's conference is being recorded July 29, 2011.

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

Please go ahead.

Good morning, everyone.

We appreciate you joining us for Newpark Resources's conference call today to review 2011 second-quarter results.

Also, we'd like to welcome our internet participants that are listening to the call simulcast over the web.

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

For those of you who did not receive an e-mail of the earnings release yesterday afternoon and would like to receive those and be added to the distribution list, please call our offices at DRG&L, 713-529-6600, and provide us with your contact information.

Or you can e-mail me on the e-mail address shown on the contact section of the press release.

There will be a replay of today's call.

It will be by webcast on the company's website at www.newpark.com.

There will also be a recorded replay available by phone 24/7 for the next 7 days until August 5 and that information is in the press release from yesterday.

Please note that information reported on this call speaks only as of today July 29, 2011 and therefore you are advised that time sensitive information may no longer be accurate as of 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 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 materially from those expressed in the statements made by management.

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

With that being said, I'd like to turn the call over to Newpark's President and CEO, Mr.

Paul Howes.

Paul.

Thank you, Ken.

Good morning to everyone.

We'd like to thank you for joining us today for our second-quarter 2001 conference call.

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

Following my opening remarks, Bruce will provide an update on our Fluids Business, and Jim will discuss the Mats and Environmental Service businesses as well as the consolidated 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 second quarter.

Once again, we are pleased to report another consecutive quarter of record performance for Newpark, both in terms of revenues and profit.

Total revenues for the quarter, second quarter of 2011 were up 14% sequentially to $231 million, and up 27% year-over-year.

Net income for the second quarter was $19.3 million surpassing the previous record high of $16 million we achieved during the first quarter.

On a per share basis, net income per diluted share for the second quarter was $0.19, compared to $0.16 in the first quarter of 2001.

Looking at the results of our worldwide Fluids Business, we reported 12% sequential increase in revenues to $191 million.

The improvement over the first quarter was largely driven by stronger drilling activity and market share gains in the US, which had a 22% sequential increase in revenues to $137 million.

North American revenues yielded a 14% sequential increase to $141 million in spite of a normal seasonal weakness in Canada, which reduced revenues by $7 million.

Evolution, our high-performance water-based drilling fluid system, continues to gain traction in key markets and basins by driving improved drilling efficiencies via faster rates of penetration while providing all the environmental advantages of the water-based technology.

Evolution sales reached $18 million in the second quarter, 100% increase from the $9 million in the first quarter.

And more to come on Evolution when I turn the call over to Bruce.

Revenues in our international Fluids Business grew 7% with the acquisition of Rheochem in April, which contributed nearly $7 million of revenue in the quarter.

The Rheochem acquisition is a key part of our strategy to expand our global footprint into new markets where we can deploy our technology and leverage existing relationships with large independents and IOCs.

Activity in the Asia Pacific market is expected to grow to support the significant capital investment for new LNG facilities.

And we believe that Newpark is ideally positioned to take advantage of that growth.

And I would like to take a moment and personally welcome the Rheochem employees to the Newpark family.

Now turning our attention to our Mats Business.

Our Mats and Integrated Service Business continued to perform well during the second quarter, increasing revenues 21% sequentially to $28 million, driven by strong demand in the Northeast and additional growth in the Gulf of Mexico.

Mat sales had an excellent quarter as well with revenues up 26% sequentially, due to increasing demand for Mats in the international E&P market.

I'd like to elaborate on recent developments in this segment.

We have recently been notified by our largest customer in the Mats business that their near-term demand for mats will be lower by approximately 70% as a desire to reduce their mat footprint at each drilling site.

In light of this development, we expect our mat rental revenues to be significantly lower in the third quarter, as we redeployed available mats to customers in other locations.

We anticipate that our rental and service revenues within the mats segment will decline approximately $6 million to $7 million in the third quarter of 2011, as compared to the second quarter.

The Environmental Services Business had a strong quarter with revenues of nearly $12 million, up 30% from the first quarter.

We saw increased volumes from state water and in locations.

We also benefited from some service issues at a competitor which we expect will be resolved in the third quarter.

Now let me turn the call over to Bruce Smith, who will review the performance of our Fluids Business.

Thank you, Paul.

Good morning, everyone.

In the second quarter, total revenues in the Fluids System and Engineering segment were $191 million, a 12% sequential increase and 27% year-over-year.

Revenues from our North American business continued to grow at a healthy pace, up 14% from the first quarter to $141 million.

While Canada experienced its normal seasonal slowdown, our US revenue increased 22% sequentially.

The number of US rigs serviced by Newpark increased 19% in the first quarter, while the US rig count increased 6%, resulting in a sequential market share gain for Newpark to 16% from 14%.

Pricing improved modestly but the majority of our revenue increase came from these market share gains.

These gains were broad-based occurring in most of the markets we serve.

Our West Texas business unit experienced revenue growth of 78% from the first quarter.

Our market share grew in West Texas in a large part due to the successful introduction of Evolution, where we maintained between 17 and 22 rigs running the system.

In Oklahoma, we saw a 36% sequential revenue gain with 8 operators having used Evolution.

In the Barnett Shale, we have seen success with Evolution for a major operator, where we have used the new technology now on 29 wells.

Evolution continues to gain recognition for its performance and is being employed by an increasing number of operators and in more diverse geologies.

In the second quarter, Evolution revenues were $18 million compared with $9 million in the first quarter.

And through the end of June 2011, Evolution has been used in over 300 wells.

Since its debut in the Haynesville Shale, we have established custom tilt formulations in West Texas, the Rockies, Canada, the Bakken and Barnett Shales, and more recently have successfully introduced systems into the Eagle Ford.

Results continue to be favorable and we have been able to gain share due to Evolution's operational advantages and superior performance.

In fact, one of our largest customers in a recent investor presentation cited the use of a high-performance water-based drilling fluid as one of the primary reasons it has been able to reduce drilling time in the Barnett Shale.

This kind of recognition affirms the benefits of using Evolution.

And we believe with our continued marketing and introduction of new formulations, product awareness will continue to grow and lead to greater share gains in a broader geographic footprint.

Now turning to our international operations, Mediterranean revenues were down 3% sequentially to $26 million.

Operations in Libya have ceased, but operations in Tunisia and Algeria continue to run with no major interruptions.

Our modest decline in revenues is due to timing of our customers' drilling programs rather than civil unrest.

One item worthy of note is that we continue to work on a fresh well in the Kurdistan region of Iraq.

The drilling program for this initial phase will run about 18 months.

Then we believe there are additional opportunities in Kurdistan.

In Brazil, revenues were down 11% from the first quarter to $18 million.

But a favorable mix of higher margin product lines allowed us to maintain earnings that were slightly about to break even.

This is the third consecutive quarter of positive earnings in Brazil.

Additionally, Deep-Drill, another of our water-based systems, continues to be used by Petrobras and is currently in use on four other wells.

Our entry into the Asian Pacific with the Rheochem acquisitions is off to a good start with nearly $7 million of revenues since April 20 closing.

As anticipated, the addition of Newpark's financial and technical strength to the already strong team of professionals has enhanced Rhochem's competitiveness and as a result we are receiving increased opportunities to [tend our own] drilling programs with IOCs and Australian-based operators both on and offshore.

We believe this acquisition has positioned us well to take advantage of opportunities in Australia and the broader Asia Pacific market.

Looking at the overall fluid segment, we reported operating income of $20.8 million in the second quarter, up from $19.2 million in the first quarter, and up from $15.2 million a year ago.

The operating margin for the segment in the second quarter was 10.9% down slightly from the first quarter and up from 10.1% in the second quarter of 2010.

This quarter operating margins were negatively affected by $1.1 million of additional performance-based compensation expense and an $800,000 write off of receivables in North Africa.

Combined these two items, impacted operating margin in the quarter by 100 basis points.

Additionally, the seasonal impact of Canada reduced sequential operating income by $2.2 million.

In closing, our Drilling Fluids Business with its global footprint is well-positioned to serve our customers around the world and allow us, we believe, to compete effectively and continue to grow our global market share.

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

Thank you, Bruce, and good morning, everyone.

Let me start by discussing our Mats and Integrated Services Business, then Environmental Services, and conclude with a discussion of our consolidated results.

The Mats segment continued to perform extremely well in the second quarter on all fronts.

Reporting second-quarter revenues of $28 million, a 21% sequential increase and a 64% increase over the same quarter a year ago.

Sales of our composite Mats totaled $9.2 million, up 25% from the previous quarter.

Our mats rental business saw brisk growth as well, with second quarter rental revenues increasing 19% over the previous quarter, driven by strong demand in the Marcellus as well as growth in the Gulf Coast.

The Mats segment had operating income of $14.7 million in the second quarter, that was up 25% from first quarter's operating income of $11.8 million, and nearly tripling the $5 million earned a year ago.

Operating margin in the second quarter was 53%, as compares with the 51% operating margin of the previous quarter, and a 30% operating margin in the second quarter of last year.

As Paul mentioned, we expect to see rental revenues in the third quarter fall approximately $6 million to $7 million from second-quarter levels.

Over the past several quarters, our mat rental business has seen extraordinary growth as we moved aggressively to meet the market demand for our mats in the Marcellus with one customer in particular.

That revenue growth was accompanied by strong incremental profit margins as we put under utilized assets to work, resulting in operating margins in excess of 50% for each of the last three quarters.

While we work to redeploy these available mats in the Marcellus and to other regions, we would expect operating margins to be negatively affected but stronger than the 30% we experienced in the second quarter of last year when rental revenues were at similar levels.

Now moving to our Environmental Services Businesses, revenues were $12 million, up 30% from the first quarter, and down 15% from the same quarter a year ago, during which the Macondo incident occurred.

Despite the continuing uncertainty of offshore drilling due to government restrictions, there was strong sequential growth due to increased volumes of waste from state water and inland locations.

We also benefited from problems experienced by a competitor due to flooding at one of their transfer stations resulting in some incremental business.

The Environmental Services Business achieved operating income of $3 million, compared to $1.6 million in the first quarter, and $4.2 million in the same quarter a year ago.

Operating margin for the segment was 25%, up from the 18% margin we achieved in the first quarter, and down from the 31% we achieved a year ago.

Now moving to our consolidated results, for the second quarter of 2011 we reported total revenues of $231 million, an increase of 14% from the first quarter, and up 27% from a year ago.

Operating income was $31.6 million, up 13% sequentially, and up 59% from the second quarter of last year.

Net income in the second quarter was $19.3 million, or $0.19 per diluted share, compared to net income of $15.9 million, or $0.16 per diluted share in the first quarter of 2011, and compared to $11 million or $0.12 per diluted share in the second quarter a year ago.

The second quarter 2011 tax rate was 36%, which is in line with our expectations for this year.

And now, let me discuss our cash and liquidity position.

At the end of the second quarter, our cash balance was $64 million.

During the quarter, we funded the Rheochem acquisition which used $26 million of cash.

Capital expenditures during the quarter were $11 million and depreciation and amortization expense for the quarter was $7 million.

Going forward, we expect our 2011 capital spending to be between $30 million and $35 million, in addition to the $26 million we spent on the Rheochem acquisition.

Our total debt at the end of the second quarter was $174 million with the resulting debt to total capitalization ratio of 27%, which compares to 28% at the end of the first quarter.

And now I'd like to turn the call back over to Paul for his concluding remarks.

Thank you, Jim.

With record quarterly revenues and earnings in the second quarter, as well as solid market fundamentals in our core Fluids Business, we remain highly optimistic about Newpark's prospects for balance of the year and into 2012.

The domestic drilling market continues to gain momentum, driven by the ongoing need for new reserves and a continued shift to onshore oil and liquid rich plays.

The increasing use of unconventional drilling, long laterals, as well as the need to drill faster and smarter in light of ever-increasing environmental regulations means that we are well-positioned to serve the industry.

If anything, this market drivers will not only endure but grow in importance for the foreseeable future.

With strong market fundamentals we believe there will be a continued focus on best-in-class products and services that will ultimately be a key driver in the growth of our Evolution technology.

While our growing presence in the US land business gives us great optimism for the future, activity in the deep water Gulf of Mexico remains clouded by regulatory uncertainty.

Although permitting resumed earlier this year, they have been issued at a very slow and erratic pace, making the industry wary of predicting the timing of recovery.

In light of this, while we are expecting a gradual recovery in this market, we are not anticipating any meaningful change in our deep water Gulf of Mexico business for the balance of the year.

If things begin to improve, then there should be incremental upside for both our Fluids and Environmental Services Businesses.

On the international front, we believe there are plenty of opportunities to grow our business from Latin America, Asia Pacific, and Eastern Europe.

North Africa continues to suffer from civil unrest.

Although, as Bruce stated, operations in Algeria and Tunisia are unaffected at this time.

Looking at our Mats Business, we are pleased with the second-quarter results.

However, as stated earlier, we believe there will be a period of slowing demand from our largest customer.

During this transition, which will to take a period of time, we expect to see lower revenues and profitability as we work to redeploy the m ats to meet the demands of other customers within the Marcellus and other regions domestically and internationally.

In addition, we continue to see strong demand for the sale of our mats into the international market.

Finally, with respect to our Environment Business, I am pleased with their performance in the second quarter and their ability to replace lost volume associated with the Macondo spill, along with the continued slow recovery of the Gulf of Mexico.

With that, we will now take your questions.

Operator?

(Operator Instructions) Jim Rollyson, Raymond James.

Starting off with Mats.

Margins continue to improve in the quarter, and obviously you have been worried that because of such good margins that eventually you're going to see competition coming into the market and start to deteriorate that.

It maybe is a multi-part question here, but outside of the one customer issue, were you -- are you starting to see that happen at all?

Or do you think that once these Mats get redeployed that margins are going to continue to hold up?

Or does the absence of this customer start to impact the market overall?

It's a very isolated event.

We are not seeing this in any other of our customers.

It is their desire to reduce the size of each one of their locations.

We are not certain either if it is a seasonal issue.

Certainly right now you are in a very dry season, as late fall, winter moves in, that could change that dynamic as well.

It's really isolated to one account at this time and we don't see it changing the overall market dynamics.

Okay.

It's just a matter of time to get those redeployed.

And the other part -- the two-part question I think you asked also is related to the competition.

We don't believe it has anything to do with other competition.

Certainly, we've always believed that there will be some additional competition.

But we are not seeing any real pressure on that side at this time.

You sent some Mats, as I recall, last quarter, into the Bakken and the Eagle Ford on a trial basis and were hoping to eventually expand into that market.

Any update there?

Is that something we can look for growth over time and what do you think the margin opportunity is in those markets?

Let me comment on the market, in particular, on the Bakken.

We certainly commented that we've moved Mats up there.

As you know, they had a very wet spring and early summer.

It's been drying out some.

We think that market will develop.

But clearly see the Bakken more as a seasonal market, more for the wet weather and soil stabilization.

Eagle Ford, it's still a little bit early.

We have sent some Mats down there.

I think it's going to be more weather-related, seasonal, than environmental protection, which is the key driver up in the Marcellus.

Neal Dingmann, SunTrust.

Quick question on Mats and then over to Evolution.

On the Mats, just wondering on a follow-up to Jim, as far as how does pad -- wondering how pad drilling either helps or hurts, or doesn't have any effect on the number of Mats being used going forward?

On pad drilling, I don't think it has any impact that we have seen necessarily.

A couple of questions, maybe to Bruce, on Evolution.

You had good color as far as the total revenue behind that.

Maybe if you gave us ideas, total users versus what you had, and then with those users are you picking up market share on that, and into these new regions, or is it just some switching on that?

And then a third part around that, just the margins that you are experiencing around this business.

Let me take those one at a time.

The customer base now, I believe we reported in last quarter 44 customers, I believe it was.

We've now moved that to 66 in this current quarter.

So we're certainly seeing a continued growth of our customer base.

We are also getting continued repeat business from existing customers which is really helping to drive this thing.

The margins, certainly, when we run Evolution systems are better for us than conventional fluids so that is always a bonus.

And we are picking up market share because of Evolution that we wouldn't have had otherwise.

So all things so far are very positive.

Mike Harrison, First Analysis.

Trying to make sense of the big step up in the SG&A number from what had been a $16 million to $17 million a quarter number, up to $21 million this quarter.

What do you attribute that to?

Is $21 million a good run rate going forward?

Or should we see some decline in the second half and if so, why would it decline?

Mike, there are really 3 things driving that move in the G&A.

First, and Bruce mentioned some of it, across all of our business our performance-based compensation expenses is up just about $2.3 million sequentially quarter-to-quarter.

We've also got some strategic projects and initiatives going on in the Corporation where we are using some outside resources.

And then finally, do have the Rheochem acquisition that has in total about $1 million sequential impact including some transaction related fees during the quarter when we close that transaction.

Those three items make up the 80-plus percent of that bridge.

As you look going forward, we certainly think there is going to be some continuing expenses incurred over those levels you mentioned previously.

But not near the $21 million.

We would estimate that we would be between $18 million and $19 million on a go-forward basis.

And then if I can ask a question on mats.

You mentioned being cited by a customer that Evolution was helping them save money.

It seems like this customer that's cutting their mat use may also cite you as a way they're reducing their costs by using less mats.

To what extent do you guys think that this might be self-inflicted that you have been pushing pricing, or pushing mats use, and maybe gone a bridge too far.

And I guess I'm surprised to hear you comment that you think this is isolated to one customer when it would seem to me, it's pretty logical that these things are getting too expensive for customers.

That they do look for ways to cut costs and to cut down.

Can you address some of those?

Mike, I guess the first thing is when we rent mats to a customer for a site, we don't recommend, dictate, or say how many mats they use.

That's their decision based on their drilling practice and their programs.

We take their lead on that.

Some customers mat more areas than others.

I think it's safe to say, as you mentioned, this particular customer, certainly looking at all their costs, they are looking to reduce their costs.

They can do that by reducing their footprint.

But they certainly haven't drawn a conclusion that mats are not effective or important to their process, nor have any other customers as Paul mentioned.

Michael Marino, Stephens Inc.

I was wondering if you could give some color on the outlook in Brazil for potential IOC work, and how that might impact margins.

Certainly we have IOC work that has been awarded to us.

The issue seems to be with the deep water work.

They have long planning cycles.

The planning cycles are very complex and things just get delayed.

So we've been suffering from not having been awarded work but having not had it start yet.

We are hopeful some of the deep water work for the IOCs that we've been awarded will begin to kick in in the latter part of the third quarter and into the fourth quarter.

And that obviously with the Petrobras fundamentals helps us considerably.

Could you talk a little bit about pricing in North America in the Fluids Business?

I can split for you.

On the revenue increase that we had on Q1 to Q2, approximately 20% of that came from price increases and mix, 30% came from just the growth in the market.

And 50% came in market share growth.

If that gives you some way of measuring.

Joe Gibney, Capital One.

Jim, I'm curious if you can quantify the impact of competitor flooding boosting some of your revenue was in environmental services in the quarter.

And, then secondarily, I wanted to follow-up on International Fluids profitability side.

You referenced Brazil slightly above break even.

I was curious how Rheochem performed from a profitability standpoint.

And where we are on the North Africa [med] with the Libyan pact fallen through.

As it relates to the environmental services, we estimate we probably picked up $1 million worth of business there as a result of that.

The Rheochem acquisition performed very well.

Their margins were just south of 15%, just short of $7 million on revenue.

It was right in line with our expectations.

As it relates to North Africa, in the first quarter, the Libyan business that we had was less than $500,000.

And, of course, it went to zero here in the second quarter.

So as we mentioned, the business in Algeria and Tunisia seems to be coming along just fine though.

So your profitability there is still holding the 15% to 20%?

Oh yes.

Doug Garber, Dahlman Rose.

I want to get an update on their utilization of your mats facility in Louisiana.

How you are viewing, if that's still sold out, how you are viewing a future expansion there?

If we continue to see the Marcellus grow in their overall rig count, and also potentially in the Bakken and Eagle Ford if they continue to absorb some demand.

We have completed the incremental expansion that we talked about last time to produce more mats.

With these rigs in development that we described in the Marcellus from a couple of weeks ago, we've obviously slowed down our production.

We don't need to be producing as much.

We are going to be produce for the orders we have to sell.

But until we redeploy those mats, we don't see a need to add to the fleet currently.

Just another data point, prior to this announced by the customer, we were having to push off almost up to 6-month sales of the mats to the international markets.

So, we are going to be pulling forward some of those international sales.

We were starting to develop a backlog there at one point.

As you redeploy the mats, is there a backlog of customers inquiring to use the mats?

Or is there is it a logistical constraint where there will be a lost revenue opportunity to pick them up and move them?

Two questions.

One, do we have demand from other customers?

Yes, we do.

We had been shorting the market and not being able to service other customers because of this one large customer we were taking care of.

So, yes, we believe there are other opportunities to service within the given region.

But there is also logistics issue in terms as we look to move some of the mats.

And we'd like to get more diversified out of the Marcellus.

I think that -- it makes a lot of sense.

To do that we are obviously going to have to ship those.

So that logistics time frame is going to take a period of time to do that.

The $6 million to $7 million sequential decrease we're expecting, is part of that self-induced because you are strategically moving into another basin?

If you kept them all in Marcellus, given the backlog there, could that have been a smaller decrease next quarter?

No, we're looking to move them first and foremost to the Marcellus because as you alluded to, there is transportation, logistics issues.

It's also a matter of getting in sync with a driller's program and a plan.

It's not that you can take them off today and put them somewhere else immediately tomorrow.

Rob Norfleet, BB&T Capital Markets.

Most of my questions have been answered, but just a couple of take-aways.

First, you had mentioned obviously the timing of redeploying the mats.

Obviously, that will take an amount of time.

I know you can't quantify, specifically, but are you talking by the end of the year you would hope to have the majority of them redeployed?

Or will this likely leak into the first half of 2012?

We certainly would believe that we'd hope to have a majority of those redeployed by the end of the year.

One of the things we are trying to sense right now too is it's very dry up there right now, and once the fall weather sets in and winter, we think that's going to accelerate the demand.

Secondly, on the existing rentals that you have on mats, can you remind me of the typical time period in terms of when somebody rents them and when they come up for renewal?

Just so we can look as we start to see more capacity in the market.

And, obviously, you're going to get a bit of margin as you talked about the chance that some of these customers when they're renewing their mats might be able to take advantage of the capacity in the market and better pricing.

The customers, particularly in the Marcellus, will typically be on a 30- to 45-day rental period to align with their drilling.

When they move the rig, generally, those Mats will go with them to the new site.

Absent the transportation costs there, they're being utilized most of the time.

In terms rebidding the work after that 45-day period, we don't see that.

They typically stay with them for much longer periods of time.

That's one of the keys is really the -- our mats, compared to what the competition has to offer, we have a very unique characteristics.

We have a patented product both in terms of design and manufacturing process.

We believe we offer the best product in the marketplace.

For them to be able to switch out and find something similar, it's just not going to happen.

Matt Beeby, Global Hunter Securities.

With respect to the Evolution technology, are you more focused on expanding customer bases within the existing products and existing regions that you have now?

Or is there another region that you would expect to maybe move Evolution to?

The answer is both.

We are obviously trying to lever on the existing work that we have and the good performance we are having.

But we are also looking at formulations for different areas, including offshore, international markets.

We are looking at different areas now.

The simple answer is we're looking at both growing in existing areas and looking at new entry points.

Is it fair to say, Bruce, in the Marcellus, our hope is that within the third quarter that we would expect to be drilling in the Marcellus?

Certainly, that's the goal.

We recently completed a formulation for the Marcellus.

That's helpful.

One quick one on the deep water gulf.

Can you talk about your market share there?

And then going forward, is there any reason to expect that might change once you resume activity?

In terms of the Drilling Fluids side, what we have going there tends to be in the inland waterways and we'll keep that running for the foreseeable future.

There is very little happening for us currently in the deep water market so though we do have a rig functioning, it's not actively drilling at this present time.

Our share currently is committed to inland waterways.

(Operator Instructions) Mike Harrison, First Analysis.

Just a couple of additional questions.

First of all, I wanted to ask about Brazil.

We have seen Petrobras now come out with their 5-year capital plan.

Do you expect to see better visibility on your business with Petrobras?

And can you comment on how big the opportunity is on the horizon with Petrobras relative to the quarterly $20 million revenue run rate you have been showing in Brazil up to this point?

Petrobras is a difficult one to get your hands around totally.

The rigs that we have and that our competitors have are split into different lots, 20%, 30%, and 50%.

You get allocated rigs as rigs come available, based upon those percentages.

If you have 30% of the work and the work increases, you have 30% of a larger number.

That is kind of the way that it works.

But the rigs themselves are not always drilling.

Sometimes they're being worked over.

Sometimes they are doing completions.

It's a very hard number sometimes to get to what's going to happen.

But certainly, things should improve within Brazil and within Petrobras.

We don't see anything but improvement.

It's kind of hard to know exactly where we'll end up, based upon the timing of the new rigs coming in.

Jim, you referenced I think in your comments an asset write down, or some sort of one-time type item in North Africa.

Can you give us some more details on that and what part of the P&L did that hit?

It was a write-off of an old receivable out of North Africa that we finally determined we weren't likely to collect.

We wrote it off during the quarter and it ran through the SG&A line.

Thank you.

At this time, I'd like to turn the conference back to management for closing remarks.

Thank you for joining us today on the call and for your interest in Newpark Resources.

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

Thank you.

Ladies and gentlemen that does concludes the Newpark Resources second-quarter earnings conference call.

If you'd like to listen to a replay of today's conference, please dial 303-590-3030 and enter the access code of 4449568 followed by the pound sign.

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