NPK International Inc (NPKI) 2018 Q3 法說會逐字稿

Greetings, and welcome to Newpark Resources' Third Quarter Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ken Dennard.

Thank you.

Mr. Dennard, you may begin.

Thank you, operator, and good morning, everyone.

We appreciate you joining us for the Newpark Resources conference call and webcast to review third quarter 2018 results.

With me today are Paul Howes, Newpark's President and Chief Executive Officer; Gregg Piontek, Chief Financial Officer; Phil Vollands, President of the Fluids Business; and Matthew Lanigan, President of the Mats Business.

Following my remarks, management will provide a high-level commentary on the financial details of the third quarter and outlook before opening the call for Q&A.

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

There'll be a replay of today's call.

It will be available on the webcast on the company's website, and that's newpark.com.

There will also be a recorded replay available until November 9, 2018, and that information is included in yesterday's release.

Please note that information reported on this call speaks only as of today, October 26, 2018.

And therefore, you are advised that time-sensitive information may no longer be accurate as of time of any replay listening or transcript reading.

In addition, the comments made by management 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 Newpark's management.

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 or reader is encouraged to read the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties and contingencies.

The comments today may also include certain non-GAAP financial measures.

Additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press release, which can be found on the Newpark website.

Additionally, you may have received an e-mail invitation from me in the past week or so for Newpark's 2018 Analyst Day to be held on Thursday, November 29, 2018, just outside Lafayette, Louisiana.

If you have any questions or did not receive your invitation, please contact me by e-mail or by phone.

The space is limited, so please RSVP as soon as possible.

And now with that behind me, I'd like to turn the call over to Newpark's President and CEO, Mr. Paul Howes.

Thank you, Ken, and good morning to everyone.

We're pleased to report that both segments are continuing to make meaningful strides in the execution of our long-term strategy, although our Fluids Systems segment experienced some softness in the quarter.

Consolidated revenues were $235 million for the third quarter, relatively flat to Q2.

In Fluids, third quarter revenues for this segment came in at $181 million, a 1% sequential increase.

North American revenues improved by 7% sequentially as improvements in the North American land markets were partially offset by a reduction in the Gulf of Mexico.

We successfully completed our second Kronos deepwater project with Shell Oil during the quarter, and I'm pleased to report that we have since been awarded 2 additional wells, which are scheduled to be drilled over the next 2 quarters.

However, we did experience some project delays with other offshore customers, which negatively impacted the Gulf of Mexico revenues for the quarter.

Eastern Hemisphere revenues declined by $5 million sequentially from the near-record level achieved last quarter, primarily reflecting the anticipated pullback in Romania, Kuwait and Australia.

Following the strong margin improvement in the prior quarter, our Fluids operating margin declined to 5% in the third quarter, reflecting the impact of $2.5 million of charges, as identified in yesterday's press release.

In addition, the quarter's results was also impacted by the timing of certain expenses, including elevated bad debt charges, primarily related to our foreign operations.

Meanwhile, as we've talked about in previous quarters, we're continuing to make organizational investments in order to support our strategic expansion into new markets, including the deepwater Gulf of Mexico, both in drilling and completion fluids, as well as the North American stimulation chemicals market.

We are seeing tangible progress on multiple fronts as we execute our total fluids strategy, including our recent successes with Shell as well as our first sale of completion fluids in the Gulf of Mexico during the most recent quarter.

And as I touched on in yesterday's press release, we are making solid progress in upgrading and converting a legacy drilling fluids site into our completion fluids facility in the Port of Fourchon, which will complement our primary deepwater shore base in support of the Gulf of Mexico market.

Our goal is to have the facility operational before the end of the year.

While there are tangible signs of progress, I think it's important to highlight that these investments in our total fluids strategy provide a modest headwind to our current operating margins.

These investments are important to expand our total addressable market and improve our long-term Fluids segment profitability.

Turning to the Mats business.

We continue to see the benefits from our market diversification strategy, which provides meaningful growth opportunities and added stability, as reflected by the balanced contribution across both E&P and non-E&P markets.

Third quarter mat revenues were $54 million, modestly ahead of our expectations.

While the seasonal decline in the utility transmission rental market played out as we anticipated, the impact was somewhat offset by the continued market penetration in pressure pumping applications, where we believe our system provides a superior work surface for gravity-fed sand systems.

And with the increasing momentum, more broadly across E&P and non-E&P markets, as well as weather-driven demand in the Southern U.S., we feel confident that fourth quarter revenues for the Mats segment will expand beyond the levels achieved in recent quarters.

Before turning the call over to Gregg, I'd like to take a moment to provide an update on our fluids contracts with key IOCs and NOCs around the world.

First, as noted in yesterday's press release, with Petrobras activity levels beginning to wind down under the current contract, we are in the process of reducing our workforce in-country.

While Petrobras has delayed their decision on the award of the next 3-year contract, we've been informed that they awarded a short-term contract for fluids to another supplier when our contract expires in December.

While the Petrobras work has provided meaningful revenue to Newpark and provided us with the initial opportunities to demonstrate our deepwater capabilities, this contract has continually provided a headwind to our Fluids operating margin.

With the end of the current Petrobras contract, we plan to reduce our footprint in Brazil, but it's important to note that we'll maintain key infrastructure and personnel in this market.

It's our current view that IOC deepwater activity in Brazil will increase over the next 2 to 3 years.

And with an expanding resume of technical and operational success in the Gulf of Mexico, we remain well positioned to capitalize on the IOC opportunities in Brazil in the coming years.

To that point, we've now demonstrated our capabilities drilling 8 offshore wells using the Kronos technology this year, including 2 successful deepwater projects with Shell Oil in the Gulf of Mexico.

While this is still a small sample size, the results have provided a catalyst to expand our discussions with other IOCs regarding deepwater technical challenges and opportunities around the world.

Furthermore, as our Fourchon completion facilities becomes operational, we are expanding our addressable market in the Gulf.

Internationally, I'm pleased to report that we recently secured several new contract awards, which will help offset the impact from the upcoming transition to the new Sonatrach contract that we discussed last quarter.

In Australia, we received a new 3-year award with Origin Energy to provide fluids and related services for their onshore drilling program.

While still subject to final contract execution, we estimate this work provide revenues of approximately $10 million over the contract term.

In addition, we received a smaller award from another operator to drill 1 to 2 wells offshore Western Australia.

In Italy, we received a new multiyear contract with Total to provide both drilling and completion fluids in support of their land drilling program.

This contract is expected to provide approximately $15 million of revenue over the next 2 years.

All these contracts are expected to start in early 2019.

These awards are representative of the general increase in tendering activity that we are seeing across the international markets.

And with that, I'd like to turn the call over to Gregg to discuss the detailed financials of the quarter.

Gregg?

Thanks, Paul, and good morning, everyone.

I'll begin by discussing the details of our operating segments before finishing with our consolidated results.

The Fluids Systems segment generated total revenues of $181 million for the third quarter of 2018, reflecting a 1% sequential increase from the second quarter and a 9% improvement year-over-year.

In the U.S., revenues were $107 million, up 3% sequentially, outpacing the 1% increase in U.S. rig count.

As Paul touched on, although we continue to benefit from market share gains in the U.S. land, our offshore Gulf of Mexico revenue remains somewhat inconsistent, driven by the timing of individual projects as we penetrate this market.

On a year-over-year basis, U.S. revenues have increased 10% from Q3 of 2017, roughly in line with the 11% improvement in average rig count.

In Canada, revenues were $17 million for the third quarter, reflecting a 50% sequential improvement and achieving our second strongest Q3 performance for this business unit.

On a year-over-year basis, revenues improved by 24% despite a relatively flat market rig count over the same period, largely driven by elevated mud losses.

Turning to our international regions.

Revenues in the Eastern Hemisphere were $51 million in the third quarter, reflecting an 8% decline from the near-record level achieved in Q2.

The sequential comparison primarily reflects the expected declines in Romania and Australia as well as Kuwait.

The decline with KOC is primarily driven by limitations on the current envelope as we approach the end of the contract.

These reductions were partially offset by an increase in revenues from the Shell contract in Albania.

On a year-over-year basis, revenues from the Eastern Hemisphere improved by 8%, benefiting from a higher contribution from Albania and the Baker Hughes integrated services project in Australia, which was somewhat offset by a decline in Algeria.

In Latin America, third quarter revenues came in at $6 million, primarily consisting of the Petrobras contract in Brazil.

Brazil revenues declined by 20% sequentially, reflecting the impact of the local currency deflation as well as the anticipated reduction in Petrobras activity.

As we approach the end of the Petrobras contract, we are continuing to reduce our workforce in-country and have recorded a $1.1 million charge in Q3, primarily reflecting costs associated with planned workforce reductions in the fourth quarter.

Through the first 3 quarters of the year, our Brazil operation has generated revenues of $19 million and an operating loss of $1.3 million, which is largely driven by the Q3 severance charge.

Operating income for the consolidated Fluids segment decreased by $5 million sequentially in the third quarter, which include $2.5 million of charges, as highlighted in yesterday's press release.

In addition to these charges, the remaining sequential decline was primarily driven by a softer revenue mix and the timing of certain expenses.

As Paul mentioned, the third quarter results included elevated bad debt charges, substantially all associated with international revenues generated in previous years.

Also, as Paul touched on, we are continuing to build out our organization associated with the strategic growth areas we've identified, including the deepwater Gulf of Mexico, both in drilling and completion fluids, as well as North American stimulation chemicals.

To that point, we continue to carry ongoing expenses attributable to these growth areas that serve to reduce our Fluids segment margin by nearly 100 basis points.

Turning to the Mats business.

Total segment revenues were $54 million for the quarter, representing a modest sequential decline from the anticipated seasonal softness in utility T&D markets.

Specifically, rental and service revenues were impacted as customers in the southern utility T&D market reduce their maintenance activities during periods of peak demand, driven by the summer heat.

Overall, rental and service revenues came in at $43 million, reflecting a 5% decline from prior quarter.

Meanwhile, mat sale demand continues to remain strong, with revenues from mat sales coming in at $11 million for the third quarter, consistent with prior quarter.

Comparing to the third quarter of last year, Mats segment revenues increased by 56%, primarily reflecting the impact of our Q4 2017 acquisition, along with our continuing expansion in the pressure pumping and utility T&D markets.

With the seasonal pullback in revenue from prior quarter, the Mats segment operating margin declined modestly to 24% for the third quarter compared to 26% for the second quarter and 31% for the third quarter of last year.

The sequential decline is largely attributable to the lower rental revenues, along with the nonrecurring benefit in the prior quarter related to the favorable resolution of patent enforcement actions.

The year-over-year change in operating margin is largely the result of a revenue mix shift to services associated with the late 2017 acquisition.

Now turning to our consolidated results.

Third quarter 2018 revenues were $235 million, flat to prior quarter results but representing a 17% increase year-over-year.

SG&A costs were $30 million in the third quarter, which compares to $29 million last quarter and $27 million in the third quarter of last year.

Third quarter SG&A includes a $1.8 million charge associated with the retirement and transition of our General Counsel.

Adjusting for the retirement charges, SG&A costs declined modestly as compared to prior quarter.

Total corporate office expenses were $11.2 million in the third quarter, which includes the $1.8 million GC retirement charge, compared to $9 million in both the prior quarter and the third quarter of last year.

Interest expense remained relatively unchanged at $3.7 million for the third quarter.

Consistent with prior quarters, the third quarter interest expense includes approximately $1.4 million of noncash expense, primarily associated with our convertible bonds.

The provision for income taxes for the third quarter of 2018 was $2.8 million, reflecting an effective tax rate of 44%, which brings our year-to-date effective tax rate to 32%.

The higher rate is primarily the result of a reduction in expected full year earnings in low tax rate jurisdictions, including the U.S.

Net income for the third quarter was $0.04 per diluted share compared to $0.12 per diluted share in the previous quarter and $0.03 per diluted share in the third quarter of last year.

The charges identified in yesterday's press release contributed a $0.04 per diluted share reduction to the third quarter EPS.

Turning to cash flow.

Cash generated from operations in the third quarter was fully offset by a $20 million increase in working capital, including a $15 million increase in receivables, largely associated with increases in Canada and Algeria, as well as $4 million of insurance receivables associated with the Q3 facility fire.

In addition, inventory increased by $13 million in the quarter, impacted by the timing of barite ore receipts and an increase in mats inventory, ahead of the historically strong fourth quarter.

Capital expenditures used $8 million of cash in the quarter, the majority of which was used to fund investments in the Mats business.

Cash used in financing activities totaled $11 million, largely reflecting the $14 million reduction on our bank facility.

As discussed on last quarter's call, in light of U.S. tax reform, we began repatriating excess foreign cash back to the U.S. in the third quarter, which facilitated the reduction in debt.

We ended the third quarter with a total debt balance of $188 million and a cash balance of $52 million, resulting in a total debt-to-capital ratio of 25% and a net debt-to-capital ratio of 20%.

Substantially all of our cash on hand remains within our foreign subsidiaries, where we are continuing to work through the administrative processes within several targeted foreign jurisdictions to facilitate repatriation of cash, which we intend to use to reduce our bank facility balance.

Now turning to our near-term outlook.

In the Fluids business, while there remain some level of uncertainty regarding customers exhausting their current year budgets as we head toward the end of the year, we currently expect Q4 revenues to modestly strengthen from Q3 levels, largely driven by improvements in North America, including the seasonal improvements in Canada.

We expect the improvements in North America will be somewhat offset by a modest pullback internationally, driven by the wind-down in Brazil, contract transitions in Kuwait and Algeria as well as the timing of customer projects in Albania and other markets.

From an operating income perspective, we expect segment income to rebound from Q3 levels, largely due to the $2.5 million of charges and elevated expenses in Q3, which we do not expect to recur.

Looking beyond the next quarter, while the anticipated reduction in Petrobras work is expected to reflect favorably on the overall segment margins, the sustainability of margin improvements will remain heavily dependent upon achieving a consistent revenue stream from targeted expansion into the deepwater Gulf of Mexico as well as North American stimulation chemicals markets.

In the Mats business, as Paul touched on earlier, we expect Q4 revenues to surpass the levels achieved in recent quarters, benefiting from the seasonal rebound in the utility segment, elevated weather-driven demand across the Southern U.S. as well as an increase in direct sales where we typically see strength near year-end.

The Northeast U.S. provides some uncertainty in the near term, driven by the potential slowdown in activity as E&P customers exhaust their 2018 budgets.

Overall, we expect the strength from utilities markets should more than offset any potential softening in E&P, leading our fourth quarter revenues higher, which should drive segment operating margins back above the mid-20s mark.

We expect corporate office expenses will remain relatively stable in the near term after adjusting for the third quarter charges associated with the retirement of our General Counsel.

With regard to capital expenditures, we continue to expect full year CapEx of approximately $40 million.

Roughly half of our full year capital expenditures will reflect growth investments, the majority of which consists of mat and rental fleet expansion.

We expect our fourth quarter effective tax rate to be in the mid- to upper 30s, which is in a similar range to the year-to-date rate after adjusting for a few tax benefits, which we do not expect to recur.

Despite the lower federal tax rate following U.S. tax reform, our profitability is expected to remain heavily weighted to foreign operations in the near term, which serves to increase our overall effective tax rate.

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

Thanks, Gregg.

As we move into the fourth quarter, we remain optimistic about our outlook and strategic direction in both of our segments.

While the larger oilfield service companies have noted some near-term headwinds in specific parts of the U.S. portfolio, we expect to see these market trends to have a fairly limited impact on our business over the coming months.

Our strategy has been consistent over the years, and I believe it is useful to provide a recap for those of you who are new to our story as well as for those who have been with us for years.

Our primary focus has been to improve the stability of our revenues and profitability by expanding our geographical footprint in the Gulf of Mexico and the international markets, extending our Fluids business offering into adjacent chemistries and diversifying our Mats business into non-E&P markets.

With that said, here's where we stand in both of our businesses.

In our Mats business, we're coming up on the 1-year anniversary of the acquisition of the Well Services Group, the largest acquisition that the company has made in the last decade.

I'm proud to say that the team has done an outstanding job of integrating this acquisition into our business, which is never an easy undertaking.

The addition of the Well Services Group is enabling us to drive operational efficiencies for our existing customers, deliver further advancements of our industry-leading composite matting systems, accelerate our penetration of targeted end user markets and create additional value for our shareholders.

Now it's time to take that focus and energy to further expand the business into our key markets.

And to that point, throughout 2018, we've continued building out a team in the Mats division to manage the industry verticals we created in oil and gas, utility transmission and distribution, and pipeline.

We believe that providing the necessary focus to each of these industry verticals, we will be better positioned to understand the varying customer requirements, align our product development process, deliver superior value through product innovation and enhanced service and drive increased revenues and market share.

As Ken touched on earlier, we're excited to host an Analyst Day on November 29 at our mats manufacturing and technology center located just outside of Lafayette, Louisiana.

Have you not received your invitation, please reach out to Ken Dennard and his team at Dennard-Lascar.

In our Fluids business, I think it's important to highlight that while the third quarter reflected a modest margin pullback from our improvements in Q2, our longer-term outlook, strategic direction and expectations for the business remain strong.

Similar to our Mats business, we've been adding resources in advance of anticipated sales in the Gulf of Mexico, both for drilling and completion fluids, as well as our expansion into stimulation chemistries in the U.S. While this requires some level of pre-investment in infrastructure and organizational capabilities, we believe that these organic investments represent a prudent way to expand our addressable market and ultimately, generating superior returns for our shareholders.

Internationally, we are seeing evidence of improving market conditions across several regions.

As discussed last quarter, we signed the new 3-year contract with Sonatrach in Algeria during the third quarter, and we expect the transition to begin within the next few months.

Meanwhile, in Kuwait, we recently submitted our proposal for the next multiyear contract, and we expect contracts to be awarded sometime in the fourth quarter.

And while there is no assurance of success with any customer tender, the strong relationship that we've developed with this valued customer provides us with optimism regarding the opportunity.

Also, we're very pleased with winning a contract with Total in Europe in the quarter and the expected execution in the coming weeks of a new contract with Origin Energy in Australia.

And lastly, I'd like to speak briefly about the significance of our Kronos product line and how it is validating our strategy of being a recognized technology leader in our industry.

As I mentioned in my opening remarks, we have now successfully drilled 8 offshore wells, of which 2 were in the deepwater Gulf of Mexico.

And with the recent award of 2 additional wells with Shell Oil in the Gulf of Mexico, it's clear from our perspective that Kronos is providing unique value above and beyond the offerings from the large integrated service companies.

Shell's award speaks volumes about Newpark being recognized as a technology leader in one of the most technically challenging markets.

With continued acceptance of our Kronos technology, it's our belief that new doors will open up for us at other major IOCs.

And with our completion fluids facility expected to become operational at the end of the fourth quarter, our plan is to start bundling drilling and completion fluids in 2019.

With that, I'd like to close the call by thanking our employees for their hard work and dedication at Newpark as well as the continued focus on safety.

We'll now take your questions.

Operator?

(Operator Instructions) Our first question is from Praveen Narra with Raymond James.

I guess I just want to start on the mat side.

Obviously, there's a lot of hurricane relief efforts going on now similar a bit to last year.

So I guess, could you -- one, could you kind of help us quantify or give us some sort of guide in terms of what we should expect from an impact of that?

And then at the same time, it seems like the Mats business is more diversified than just hurricane relief efforts on the utility side.

So could you talk about the geographical distribution of your Mats business on the utility side?

Yes, Praveen, it's Matthew.

I'll take that one for you.

I think it's fair to say at this point related to the hurricane, it is still somewhat early days as people going in and assessing the damage.

We are not seeing a material uptick yet on the rental and service side, I think, as people getting themselves organized on the project relief, if you will.

On the mat sales side, we have seen a modest bump from customers in that area requiring some matting projects specifically.

I think the Q4 is going to be more of a combination of that and also the seasonal weather that we've had down here on the Texas, Louisiana Gulf Coast, really requiring a heavy load.

Beyond that, I think we're seeing broad-based demand throughout our network.

I wouldn't call out any specific location.

Right.

Perfect.

And I guess for my follow-up, a lot of growth opportunities out there.

I'm curious on the level of investment needed to actually access those.

You talked about the bundling of fluids in 2019.

There is likely a growth in the mats.

So can you talk about the capital needs and capital growth opportunities for 2019 and what we should be expecting in terms of how much we should spend year-over-year?

Sure.

This is Gregg.

I'll take that one.

With regard to our capital needs of the business, I think it's going to be a similar theme to what we saw in 2018.

Maintenance CapEx continues to run about $20 million for the business.

The fluids needs are not real significant as we expand into targeted areas, similar to what we're doing with the completion fluids, expansion in Fourchon.

We will have investments here and there that tend to be in the $3 million to $5 million range for each one of those.

So that's fairly limited.

On the mat side, it's really going to be more driven by the rental growth overall.

And just as we've done this year, we will continue to feed that rental fleet as the revenue growth warrants, and you calibrate that accordingly.

Yes.

Just in terms of the bundling with the completion and drilling fluids in the Gulf of Mexico, we had an existing facility that had not been used a lot.

It was kind of an oil-based mud plant that was for inland marsh drilling, and so very limited revenue coming out of that facility.

That's the one we're converting over to our completion fluids facility.

So really, a minimal capital to do that, but our hope is that, that facility will go operational at the end of this year and that we can start bundling both drilling and completion fluids with deepwater in 2019.

Our next question is from James West with Evercore ISI.

Paul, the -- obviously, the -- clear success here with Kronos and 8 wells already completed.

We got 2 additional wells coming.

Can you remind us, the financial impact of a Kronos well versus some of your more normal technologies, what the differentiating factor is there and kind of how we should think about the acceleration of uptake here going forward?

Yes.

I mean, if you look at it in terms of the mix of our other product lines, it's relatively in the same level in terms of profitability, maybe slightly higher incremental margins.

But the real value from our perspective is the differentiation, the value it's providing to our customers.

That's why we're getting what I think is some significant traction, and repeat business with Shell Oil is what we're doing from them -- doing for them from an operational perspective.

Phil, would you like to...

Sure.

Yes, James, from a technical point of view, the Kronos product is a Flat Rheology system, so it performs at a high level across a range of temperatures.

It's very valuable to the customer and also has a very low ECD, or equivalent circulating density.

And those are the critical parameters that customers are appreciating.

And it's interesting, too.

I mean, certainly, we're very proud of the technology that the Kronos is bringing but also our service quality that we're delivering as well.

I think one thing that we're doing an exceptionally good job on is interfacing, like with the petrophysics department at the IOCs, and understanding issues that they're having downhole and challenges.

And that, I think, has provided some unique value as well.

Okay.

Okay, got it.

That's good to hear.

And then, Paul, on Brazil, obviously, Petrobras rolling off here, but there's a -- I mean, just an enormous amount of interest in the Brazilian market from the IOCs.

Now admittedly, we have an election over the weekend that can change that pretty quickly.

But it seems to me that if all things go well, that market starts to really explode.

And so how are you thinking about your position there, the marketing to the IOCs, which, of course, include one of your key customers, Shell?

And assuming we don't have a hiccup here with the political situation, how do you see the outlook for that as we go through the coming -- and probably the quarters and probably coming years?

It's Phil here.

We see an uptick coming in next year -- late next year and into 2020.

And our strategy there while we're winding down currently a sizable proportion of our population down there, what we will retain are the key elements to maintain and support and win new business down there.

Over the years, we've actually developed quite a history, quite a resume of deepwater drilling, drilling so many wells for Petrobras and IOCs down in the area.

And our infrastructure is very well located, and our technologies are very applicable to the needs down there.

Yes.

The thing that's interesting, too, from my perspective is the fact that we're now driving Kronos into the deepwater Gulf of Mexico.

Historically, we have not drilled with Kronos in Brazil.

So we're already having some discussions with IOCs in Brazil about the Kronos technology.

And so that's one of the exciting things from my perspective is the ability to reverse leverage that -- developing success in the Gulf of Mexico with IOCs into that Brazilian market.

And we're going to maintain an operational presence there, the facilities.

As business comes, we'll be ready to service.

Great.

And is the Kronos -- is there anything about the geology in Brazil that makes Kronos more applicable than the Gulf of Mexico?

Or is it about the same?

I would say it's roughly the same.

The pre-salt -- you have some different challenges, obviously, than you do.

But I would say it's roughly equivalent.

But once we get in, and we've not drilled a well there with Kronos, but that would be my thoughts, yes.

And our high-performing water-based technology has also been successful down there to date, right?

Our next question is from George O'Leary with Tudor, Pickering, Holt & Co.

Picking up the incremental wells of Shell is certainly encouraging and speaks to the performance there.

My understanding is there are other partners on that well.

I just wonder what the process is.

I understand you have to get qualified with each of the kind of main operators of these projects.

Would the processes and any line of sight to winning work with some of those other offshore players via the experience with this Shell Kronos well -- or these handful of Shell Kronos wells?

It's Phil here again.

Primary partners with the IOCs, I mean, we're in a position now where there's just a very broad-based awareness of Kronos.

And the technical folks in the other IOCs, as we leverage the success from Shell into the other major IOCs, we're getting beyond general qualifications with them into more project-specific testing and qualifying.

So to answer your question, there's a broad-based awareness now, increasingly so with the Shell successes.

A lot more discussions with the IOCs and obviously, a much shorter qualification process than we had with Shell.

Would we hope to have another IOC in 2019?

Absolutely.

Got it.

That's very helpful.

And then I know you guys -- recently in your last investor deck or 2, there's some good color on the opportunity on the mat side.

I wonder if you could just, one, step back and on the call, frame for us the opportunity you see in that non-oil and gas portions of mats from a market -- total market opportunity and then Newpark's opportunity set within that.

And also kind of where you sit today, so how much running room is left?

And then long-winded question, but also on the pressure pumping side, how big are you in that business today?

And how much running room is there for Newpark on the mat side in pressure pumping?

George, it's Matthew.

I'll take that.

Look, I think the way we frame up the -- we've always played, to some extent, outside of the E&P markets in the transmission and distribution and pipeline space.

But as we size those markets up, we view them as multiple times the size of E&P.

So from that perspective, we consider there is considerable run room.

And we're only just beginning that journey as we formalize the verticals that Paul has touched on earlier in the call.

So we're quite confident that there is a healthy run room in those particular industries.

On the pressure pumping application, that's largely driven -- I know there's some press about some slowdown in that market, but what we're seeing is the technology shifts, the gravity-fed systems from the pneumatic systems is heavily favoring our matting technology.

And so with that relative growth in that market, we're continuing to see a healthy outlook in that space.

And in terms of the overall size of that well, well, that has been the key area of growth within the E&P component of the Mats revenues.

It still remains a smaller piece of that overall portion.

Got it.

And then I'll sneak in one more, if I could.

You guys have also been attacking those non-oil and gas markets, seems like with increased vigor and focus.

And I was just curious if you could kind of provide some more color for us on the strategy there and how you guys are trying to push your mats into these markets where other forms of mats, be that wooden or steel based, if you look over in the U.K., tend to have the lion's share of the market today.

What kind of the strategy is to get into those markets to get further penetration in those markets?

Yes, look, I think -- I mean, I think the mat in some ways speaks for itself.

A lot of the advantages that we're seeing from a transportation, from a longevity, from an environmental impact, from the service quality that we have as a business unit really play to those spaces as well as they do in areas where we've had historical success.

So it's generally just resourcing ourselves up to be able to go in there and have a presence that's more meaningful than we've had in the past.

And then beyond that, as I said, I think our service and the mat's credibility speaks for itself.

Our next question is from Jacob Lundberg with Credit Suisse.

I guess, first, to start on Gulf of Mexico, a couple ones.

The incremental wells that you're doing with Shell, are those following the same rig?

Or is that on a different rig?

And then in the press release and your prepared remarks today, you referenced some offshore delays.

Could we get some color on the magnitude of that impact, top line, operating income, in the quarter?

And does that just get shifted into 4Q?

Or how should we think about the impact there?

Okay.

Thanks, Jacob.

It's Phil here.

In terms of the Shell rig, actually, it's a different rig.

It's a new award on the Ursa TLP deepwater tension leg platform.

Beyond that, we continue to bid additional projects and also being -- introducing our new completions product line to Shell and other IOCs.

And in terms of the revenue contribution from the Gulf, obviously, there is always some level of shifting that goes on with these larger-scale projects.

But ultimately, that area, we saw a few million pullback from Q2 to Q3 with the current projects that we have in the works.

We're expecting that to rebound here in the fourth quarter.

Got it.

So the 4Q guidance or commentary around revenue takes into account some sort of a snapback there.

That is correct.

Okay, cool.

And then follow-up just on some of the other fluids that you guys have been talking about.

Can you just kind of provide some color on the opportunity to generate revenues from completion fluids as well as the stimulation chemicals in '19?

Is that -- should that be a meaningful impact next year?

Is that something we should expect to kind of see show up in the numbers?

Yes.

In terms of completion fluids, we did actually have some early wins in the quarter in Q3, a little shy of $1 million but with some smaller independence.

In terms of next year, we're already bidding some integrated works, some bundled work, both drilling and completions fluids.

And so yes, we would expect something material.

Yes, I would expect that as we progress through 2019, we would begin to see a more meaningful impact from those 2 growth targets.

One thing about the completion fluids is that the qualification period there is very short because you're selling more of a molecule, the calcium bromides.

So there's not a lot of qualification on the chemistry itself.

It's more about have you stood up a facility that's operational, and that's where we've been adding people to provide some modest headwinds to the margins.

So going into '19, the completion fluids, we think there's a really unique opportunity to then bundle our drilling fluids, the Kronos technology, with completions, with IOCs, and we're already starting to bid on tenders.

Our next question is from Ken Sill with SunTrust Robinson Humphrey.

I was curious on the weather-related boost to Q4.

I know I've been hearing that flooding in Central Texas, there've been some issues out in the Eagle Ford.

We've obviously had a lot of rain in Houston.

Where are you guys seeing the biggest impact on the weather related?

Is it in Texas?

Or is it across Texas, Louisiana and into -- all the way into Florida?

Yes, Ken, it's Matthew.

I think we touched on a little earlier that Texas, Louisiana, Gulf Coast as a broad geography is where we're seeing the most uptick at this point.

So not much in Central Texas?

Not at this point.

Okay.

And then I wanted to see if you could give us a little bit more color.

One of the things you guys cited in the quarter was Gulf of Mexico projects being delayed.

Are those coming in Q4, Q1?

And kind of are they bigger than a bread box?

I mean, how big were the projects that were delayed?

This is Gregg.

Kind of as we touched on a little bit ago, you've got a few different projects that have been moving around.

Some of it has been delayed from Q3, Q4, and you had another element that kind of pushed into next year.

But again, as you take a step back and you look at the overall expectation here, that area saw a few million pullback here in Q3, and we currently expect that to rebound in Q4.

Okay.

That clears that up.

And then my last question, as you guys start ramping up the completions fluid business, is that going to -- are you going to kind of provide the detail on what's coming from completions fluids?

Or will it all just be bundled into the drilling -- into the Fluids business as one product?

Yes.

I would expect -- while we'll definitely give color in terms of how much it's driving our overall growth, it will be reported as a fundamental element of our Fluids business.

And it's worth noting today that in the international markets, there's a number of markets where we have completion fluids today.

It's just naturally bundled with drilling -- or with drilling fluids in certain regions.

Our next question is from Bill Dezellem with Tieton Capital Management.

I actually want to continue down the delayed fluids business.

How many different customers were those delays with?

Two.

And were those Shell and someone else or 2 new customers?

No, not Shell.

They were other customers.

And so that would imply 2 new customers.

Is that correct?

Or am I reading that wrong?

They've been ongoing offshore customers, one deepwater, one shelf.

But this will be the first time using the Kronos technology.

Appreciate that additional insight.

And then secondarily, how are you thinking about acquisitions today?

Yes.

I mean, obviously, we're always looking for opportunities to add on to our product line where there are synergistic opportunities.

And as you know, we're really, at this point, trying to build out those concentric rings of chemistry around our total fluids strategy from an organic perspective.

But we're always searching and -- but typically don't comment on them.

And the only thing I would add is our history shows that we're very selective in terms of finding the right opportunities.

It has to be an opportunity that is clearly synergistic and fits within to our overall strategy.

And really what I was trying to drive at is, do you see more opportunity in the current environment than you have in the past?

Or would you consider this a typical time line -- time frame?

I would say in terms of the opportunity set that's out there, there's probably a higher volume of opportunities out there.

But again, we are very careful and thoughtful on how we screen these and look at the fit in our strategy and the ability of any acquisitions to advance or accelerate our strategy execution.

Ladies and gentlemen, we have reached the end of our question-and-answer session.

I would like to turn the call back over to management for closing comments.

All right.

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

We're looking -- look forward to seeing many of you at our November Analyst Day and also to talking to you again next quarter.

Ladies and gentlemen, thank you for your participation.

This does conclude today's teleconference.

You may disconnect your lines, and have a wonderful day.