Tetra Technologies Inc (TTI) 2004 Q2 法說會逐字稿

Good morning. My name is Shatina and I will be your conference facilitator today. At this time I would like to welcome everyone to the TETRA second-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Mr. Hertel, you may begin your conference.

Thank you. Good morning, and welcome to the TETRA Technologies second-quarter 2004 earnings conference call. With me as is usual is our CFO, Joe Abell. As is our policy, both Joe and I will be making a short presentation, which will then be followed by your questions. I must remind you that this conference call may contain statements that are or may be deemed to be forward-looking statements. These statements are based on certain assumptions and analyses made by TETRA based on a number of factors. The statements are subject to a number of risks and uncertainties, many of which are beyond our control.

We caution that any such statements are not guarantees of future performance and that actual results may differ materially from those projected in the forward-looking statements. Now that that is over, Joe, will you give us a brief financial review of the second-quarter results?

TETRA's revenues for the second quarter were $84 million, 2.5 percent below the second quarter of 2003. Gross profit was $19 million, 20.4 percent below the prior year's second-quarter. Gross profit as a percentage of revenue was 22.6 percent for the quarter just ended compared with 27.6 percent for the prior years' period. General and administrative expense, however, was down 15.5 percent to $11.9 million mainly due to the decreased incentive compensation costs.

Interest income and other income added almost half $1 million to the current quarter compared to a $150,000 expense in the prior year due to interest income earned on our significant cash balance and a small gain on sale of assets in the current quarter. Therefore income before discontinued operations for the quarter was $5.1 million or 22 cents per share fully diluted compared to 6.2 million or 27 cents a share in the same period last year.

Income decreased 17.9 percent year-over-year. Net income was 21 cents a share for the quarter. Year-to-date revenues for 2004 were $154 million, up 2.2 percent compared to last year. Year-to-date net income was $6.6 million or 28 cents a share fully diluted, essentially equal to the comparable period in 2003. Income before discontinued operations and the cumulative effect of a change in accounting principle was $7 million or 30 cents a share compared to $88.7 million in 2003 or 38 cents a share for a 19.3 percent decrease.

Looking at performance by division, revenues for the Fluids Division for the quarter were up 8.7 percent compared to last year's second quarter and profit before tax was $4.1 million, up 0.9 percent. Despite weakness in the Gulf of Mexico and certain international markets TETRA was awarded several new contracts in the first quarter that have helped offset the weak market conditions in both the first and second quarters.

Revenues in the Testing and Services Division were up 10.8 percent in the current quarter and profit before tax was $1.4 million, an increase of 22 percent versus the prior year's quarter. This increase is due primarily to increased onshore drilling activity. On the other hand revenues in the well abandonment and Decommissioning Division were down 14.4 percent and profit before tax was $5.7 million, down 41 percent compared to last year's second quarter.

As discussed on the earnings conference call following the end of the first quarter, relatively high oil and gas prices are extending the life of mature fields equating to less near term abandonment and decommissioning work. In addition mature properties are not changing hands as quickly as expected, once again largely as a result of relatively high commodity prices.

For the first half of 2004 profit before tax in the Fluids Division was $8 million, up 7.5 percent versus the comparable period in 2003. Profit before tax in the oil well abandonment and Decommissioning Division was $6.1 million down 48 percent. Profit before tax in testing and services was $3.6 million, up 26.0 percent compared to 2003.

Our cash balance decreased slightly over the quarter but is up $20.2 million since the beginning of the year. Debt remained essentially zero through the quarter. Within the quarter we acquired an onshore plug and abandonment company in West Texas, a production testing company in Venezuela and some oil and gas properties in the Gulf of Mexico. We also announced an agreement to acquire Compressco, a compression company that enhances production at the wellhead for approximately $109 million. We closed the transaction on July 15th.

We also announced the intent to acquire the calcium chloride business of the Finnish chemical company, Kemira. We expect to close this deal in the late third quarter. With that I will turn the discussion back to Geoff.

Thank you, Joe. During most quarterly conference calls almost all the discussion centers on the most recent quarterly financial results. And for TETRA the second-quarter results were respectable. However, during this time, as Joe has just stated, the Company has made even more important structural modifications that will have significant impact on how the Company will look, especially in the next few years. We are very excited about these possibilities and what they portend for our long-term growth.

First, a couple of comments about the quarter's earnings, as Joe just went over, while we did earn 22 cents which was not bad especially up from the 8 cents in the first quarter, it wasn't the 27 cents that we thought we might be able to do. Some of the shortfall that we had in the quarter was actually self-induced as we escalated rework expenses for our production entity, Maritech, in an effort to take advantage of the current commodity prices. The portion of these costs that were expensed in the quarter hurt the near-term results.

However, in spite of the normal reduction declines for many of these properties remembering that a lot of these are old life properties that should be dying, Maritech's production is actually at the present time higher than its ever been because of these reworks which obviously has some implications for the rest of the year, and next year. Our testing profits were hurt on two fronts. Domestically what was our largest customer dramatically reduced its E&P budget thus temporarily idling the material amount of our domestic fleet. This was particularly the case in South Texas where that company is a major player.

During the quarter we endeavored to redeploy most of these units so on a go forward basis the impact of that should not be as significant as it obviously was earlier in the year. Internationally we utilized all the monies under one of our most significant contracts. We curtailed activity awaiting an official extension of this contract. This is particularly true in that country where it is imperative that you have something in writing or you get into trouble without having a contract, during much of the second half of Q2 we were shut down because of that.

Looking at our three divisions we had the mixed results that Joe indicated for the quarter versus our most recent estimates. Fluids actually continued to show improvement as new contracts and some increased activity in these international markets like Venezuela more than offset the static Gulf of Mexico. Our well abandonment and decommissioning division continued to be negatively affected as Joe indicated by the large amount of property sales and the high commodity prices. However, profits would have been near our recent estimates other than Maritech's rework costs so those really didn't modify much over the last three months.

The most significant shortfall for the quarter versus the recent estimate was the testing and services division, the reasons of which I just enumerated. The second quarter should be highlighted by one word, and one word would be implementation. We implemented on our growth strategy through the acquisition of niche oriented oil and gas services businesses. We implemented the international expansion strategy in testing by buying the Venezuelan testing company, building equipment for international operations and bidding on Eastern Hemisphere contracts which is a new market for us.

In well abandonment and decommissioning we implemented our geographic expansion strategy by acquiring the company that Joe mentioned in the Permian Basin, which gives us access to a totally new geographic market. In fluids we began the process, which we hope brings us to the acquisition of the calcium chloride business of Kemira. This would allow us to integrate our fluids business in Europe and the Middle East in much the same way that we integrated our domestic fluids business with our calcium chloride plants. We are therefore implementing the same strategy that is already proven to be successful. We look forward to closing this transaction as Joe indicated, in late September or October.

We stated many times that we believe an efficient public oil and gas service company in this decade will need to be at least three-quarters of one billion to $1.25 billion in revenues to spread the cost of the necessary corporate infrastructure that you have to have in today's market. We believe that our three existing divisions can generate maybe 600 to 650 million of that ultimately. Therefore we have been looking for add on, niche, oil and gas service businesses to expand our horizon.

On July 15th we acquired Compressco, Inc. As you learn more about this Company and its product offerings we believe you will agree with us that this is an excellent addition to our existing three attractive businesses. Compressco predominately assembles and internal leases production enhancement equipment for oil and gas production for mature and/or marginal wells. While current commodity prices increased the number of wells that could use this equipment, we thought it might be appropriate to go back and look at lower prices to give you some idea of what this market might be.

At $4 an Mcf for natural gas, or $25 for oil, two studies have been done to show that this market could be as low as 30,000 wells or as high as 180,000 wells that could use this service in the U.S. and Canada alone. Our best estimate of the total units on existing wells -- this means every operator that is using equipment from every supplier -- is about 8000. Of which Compressco is the largest factor with about a 17 percent market share. So whether the market is 30,000 or 180,000, this is obviously a growth market. Most of the criteria we like to have in an acquisition are found in Compressco. They include, its a niche oil and gas service business. It's in a growth market. It has high value added to the operator. Has a leading market position. Has a good proven management team. It has a competitive advantage, which is tied to technology. It has very respectable margins, and it has an excellent safety record.

Some of the things that TETRA brings to this combination include the capital for expansion which was one of the issues with the Company prior to the time we acquired it. It could have grown faster had it had capital. We have the industry relationships that they may not have. We have an infrastructure that we can overlay on their business, and we have greater geographic coverage at this point in time, including some international markets that they have not been in before.

Compressco helps TETRA to modify some of the typical industry cyclicality that you see in our various businesses; from one perspective this is not an event-driven business like most of our fluids business, testing and well abandonment, where a well needs to be drilled or a well needs to be plugged before we can perform. This service actually leases for an extended period of times and it does it with existing wells. So it is not event-driven in the same respect as the rest of our business.

Secondly, we have services that are in the early life of a well, in particular our fluids business. And we obviously have services in late well life which would be well abandonment. We did not cover the middle part of the production part to any great degree. Compressco allows us to add a service that is during the middle part of the life cycle of a well, thus giving us product offerings and service offerings that extend over the entire well life.

Since some of our testing and services businesses relate to production enhancement, activities in particular like our testing, we have combined our testing division with Compressco to form a new production enhancement division we would hope that we would be begin to show you this in the third quarter breakouts. We will also expect that over time we should be adding additional synergistic products and services to this new division to help expand our offerings to our customers. So again by the third quarter hopefully you will be seeing a production enhancement division which will take the place of our testing division as we will incorporate Compressco in testing together.

Now I would like to open up the conference call to any of your questions.

(OPERATOR INSTRUCTIONS) Jim Rollyson with Raymond James.

Geoff, I guess this kind of circles back to the quarter. Testing, as you talked about two issues, one being your customer that slowed things down. It sounds like you relocated equipment. That's all pretty much back up and working. So that sounds fine. The other contract issues, the renegotiation or the new contract rollover and the other contract, where do you stand on signing those?

We anticipate having two months of the new contracts in this quarter.

So August and September. Fluids, your strategy at the beginning of the year I think was you took on some new contracts to make sure that in this environment you've kept that going with the anticipation that as you went throughout the year and the volumes improved your margins would get better. What are your current thoughts on that?

That is exactly what occurred during the quarter. Our lowest margins as we indicated at the end of the first quarter were approximately the end of the first quarter. And our margins have improved as we went through the second quarter so that what you ought to see is the lowest margins in the first half with improving margins in the second half. So I think it is exactly as advertised. Joe, do you want to add anything to that?

That is exactly right, Geoff. And I think we provided all that detail. I haven't calculated those margins.

Actually the margins first and second quarter are almost identical. You wouldn't see them identical if you looked at the monthly data.

Sure. Sure. And as you look out I guess next year, you probably do this on the next conference call when you close the Kemira deal would you expect that to bring margins up, down or pretty much in line with what you've seen historically?

I believe we made some comments early on on Kemira that we thought that the margins would be somewhat similar to what we've experienced. Obviously that would hopefully be at the levels that we would be attaining in the second half of this year, not the first half.

And just on Compressco, if you look at the financials there they've been able to grow kind of 40 percent revenue growth, 40 percent unit growth. And I think you mentioned all that being undercapitalized. What kinds of growth do you guys expect to see going forward? It sounds like next year is going to be a better year as you get a handle on things, but what kind of growth on the top line are you looking for here?

That's a good question. I would almost rather defer an exact answer for one reason, not because we want to hedge on the downside, but we really don't know what this Company can do adequately financed. One of the big pluses for us was the ability to allow it to grow and allow it to move into a larger infrastructure. I can't suggest to you that you can take it over a couple year period and expect to get 40 percent every year because you're working from a larger and larger base. It would not surprise me at all that this is the fastest-growing component of TETRA. Maybe that's a better way to put it, and could it be 40 percent in a year? Sure it could. But it is not going to be a consistent 40 percent in terms of as it gets larger and larger here. But I would rather defer exactly that kind of a percentage to a review of the Company over the next two or three months. I would say to you, though, that we paid to buy this company, and we paid for the growth that we see in it. We didn't buy it for what it has done historically. We bought it for what we think is going to happen in the future.

Right, and kind of taking that a step forward what -- and you might not know the answer to this either, but if you look at capital CapEx needs for growing the business over and above the 109 million that you paid for it, what are kind of the expectations there on an annual basis? Or is it too soon to tell?

If you took the conservative model that we reviewed in acquiring this, it will actually generate a modest amount of capital. If it is growing at the rates we would hope it to, it will use some capital in the first and second year. So I guess you can look at that on a divisional basis and get some idea on a quarterly basis whether we are growing at the rate we thought or faster than we thought. The bottom line is that if it is utilizing capital it needs it growing faster than we thought it was going to.

Lastly Joe, do you have the share count for the quarter?

Yes. Its 23,554,000.

I lied, one last one. Geoff, your guidance for the second half of the year is basically double, just slightly more than double what you did in the first half. The first quarter or second quarter rather you said you lost about 6 cents from testing issues and kind of onetime issues. So that would get you up to 27 cents; consensus got you in the mid to high 30s for third quarter and obviously a fairly high number in the fourth quarter. What if you kind of walk-through what gets you to a doubling of your earnings from the first half to the second half.

You have four issues, I guess. First of all on the fluid side as we pointed out we think that the newer contracts that we've acquired and the margin improvement ought to give you slightly better profitability in the second half than the first half. It may even be better than slightly just dependent on how much activity gets going and whether we get anything improving in the Gulf of Mexico.

Secondly, testing is a no-brainer even without the addition of Compressco for the reason you just enumerated. So that obviously will be there. Thirdly, looking at well abandonment we think that we have inland, Maritech and to some degree some of the other components of that that will enhance that division in the second half. You'll notice I did not say heavylift. We will have heavylift. We are doing heavylift but we are not going to do more than what we anticipated because you're now getting toward the latter part of the second half, of the lift year. So we will not be doing more than we thought but we will be doing what we thought there. And then added a little bit from the acquisitions; again the acquisitions should all be accretive. We are just assuming that with the transitional time period in particular something like Kemira if it doesn't come in until October, is not going to add much of anything even though it is accretive coming out of the box. When you add all those up we think the 60 to 70 cents for the second half is very doable.

Any thoughts on next year?

As you know, I'm not telling you anything you don't know, we have historically not given estimates for the following year until we've done our budgeting, and I'm not about to break that other than to say we think this year was very unique for the abandonment business. We talked about that a number of times, so we would anticipate that being substantially different than it was this year with fluids improving throughout the year, with testing and with acquisitions we would be extraordinarily disappointed to be very close to what we did this year. But beyond that we haven't done enough data to give you an estimate.

Sure. Thanks, guys.

Ray Kramer with First Analysis.

Coming back to Compressco for a minute at least looking through what the Company has done historically, it seems that they have priced on a fairly constant basis; but given that some of the economic benefit there seems tied to relative natural gas and oil prices, do you have any plans to change the pricing strategy or any comments on that?

We're going to leave that with the management of Compressco to make those decisions. And obviously since it is a company that has equipment involved in it if it gets higher costs because of steel costs and other things I would guess that they would pass those on. But the pricing part of this is not in issue for TETRA. We are very comfortable with where they price their service and product at the current level. They will adjust it however they deem fit. The margins are very good in that business, so we're not looking to enhance the returns by necessarily increasing prices.

Okay, and then in the press release you had mentioned that some expenses that had been spread over quarters were now not being so -- was that just for Maritech, or was that for other sectors, and what is sort of the rationale behind that change?

That may have been misleading. That related to Maritech. Maritech has properties that you can rework to enhance the production on those properties. Heretofore we've tried to spread those costs so that we do a few of those reworks each quarter and do not incur the costs that will then hit your income statements since we are a successful efforts and accounting company. We've kind of thrown caution to the wind and looking at today's prices and what has been there for the last six months, we decided that we were being real foolish in spreading these out and not going after this additional production now as opposed to later. So we ended up spending a fair amount of money during the quarter to rework properties. And again, the proof of the pudding is the fact that the production is now at an all-time high. But the problem with that is that you incur some of those costs, and they go through GAAP accounting and hit your income statement and that is what occurred, no, it's just Maritech we're talking about.

And finally, can you, or give us any more info on the two new acquisitions, the well pluggers and Puma (ph) oil services? I'm assuming they are relatively small since they did not get pulled out separately in the press releases but can you share anything there in terms of sales or other figures?

I'm not going to get into the real particulars other than these were a couple to a few million dollars a piece. So they're not huge in terms of the impact immediately. What you have to understand is that we have gone out and looked at generic growth in all of our businesses over the last few years. And if you go back historically you'll see that these are the typical type of smaller acquisitions that we make and then develop larger businesses around them. We already were doing testing in Venezuela. All we had done is enhance that position significantly giving us a lot better geographic exposure down there and a lot larger entity when you combine it with what we were doing.

In the case of the Permian Basin, pluggers, what we've ended up doing there is given us a new geographic area, which basically is the Permian Basin which allows you to get into two or three states that we haven't been in. It allows us to grow that area, and we are continuing to do that by adding equipment to the acquisition we've already made. So what this will do, the kind of an amoeba attack if you remember from your high school biology the way an amoeba goes after something it surrounds and then eats it, and what we're trying to do is surround an area and begin to then attack that area and expand our businesses. So if you want to think of it as our amoeba strategy, that's what we are doing.

Okay, and then finally relative to the size, the target size for a public oil field services company you gave of three-quarters of one billion to one billion and a quarter, given both your three existing businesses if you will, and then us throw in Compressco and Kemira, how close do you think you are with that portfolio?

Actually when I said the 600 to 650 million in our three basic businesses I'm including Kemira in that because Kemira is not a new business. It's an add-on to the existing business, so I have to take that out in terms of the expansion. If you take Compressco with its revenues of today, you are still not at your 750 million. But I think looking at Compressco down the road will get us to probably the bottom end of that range, which basically says that we will continue to look for other ways to expand the Company in niche markets, similar to what we've done at Compressco. We are very excited about that company. We will probably end up over the next at least six months hopefully concentrating on what we've just acquired to make sure that they fit into our portfolio and make sure that we operate these efficiently.

If you follow TETRA historically we're not likely to go out and buy 5, 6 or 7 things at a time. This is not a Company that does that. But it brings things in and begins to optimize their operations. So in the next six months you may not see us buy something else or even not the next year. But eventually I think we have to add at least another leg to what we're doing to get into the sweet spot of somewhere between the 750 million and billion and a quarter.

Lewis Kreps with Aperion Group.

Geoff, after you finish the two acquisitions where are you anticipating your debt level is going to be?

Joe, do you want to run that number exactly for them because I know you have been working with that?

Well, Lewis, we are probably going to end up with debt on the order counting Kemira of 120 some odd million dollars. And that is going to leave us with a comfortable debt to EBITDA, or debt to total capitalization that we will work down. And as we look at even looking forward at what we hope will be an aggressive capital expenditure program for Compressco, then until we actually make further acquisitions, then we will be in a cash generation mode.

Okay. Geoff, on the well abandonment decommissioning business we are now into the summer season, have last time you said things were not coming together as well as you had expected. But have you seen more contracts, more work or not?

Actually we are very pleased with what has been going on over the last two or three months. I think if you have been reading the Journal, as I know you do, you will see every week there is another transaction that has taken place, there was another one last week. A lot of the transactions that we were hoping would occur so that we could get the new acquired company to look at the abandonment side have actually taken place. Now we're in the position where the companies are looking to see whether they want to drill, whether they want to hold these for deeper potential or whether they want to shoot them in the head and get rid of them.

So we've begun to move through that process, which is really comforting from our perspective to see. What we now want them to do is to start talking about their budgets for 2005 so we can get a better idea and a better appreciation of how large we think the market is going to be. The good news is that a lot of these properties have begun to trade. And then if you consider the other factors that Joe mentioned, which was the pricing, it is really the incremental pricing that is important. In other words, you have gone from $3.5 to $6 for gas. And that has held a lot of properties off the market. But because of the decline that you have on these properties, unless those prices go from $6 to $8, you're going to get some of those properties dropping off.

And of course as they drop back from 6 you get a lot of properties dropping off. So assuming prices are not going to run away with themselves on the upside, and given the fact that a lot of these properties have now changed hands, we would anticipate that the new buyers will be gearing up to do a lot of this work in 2005 and we will begin to see an improvement.

Geoff, also you mentioned the Eastern Hemisphere testing wise, that you were last conference call -- that you were bidding a lot in the Middle East and Africa and different places. Does that -- have we scored on any of those, or --

Most of the contracts in that area have not been let as of yet. These are a long process, a lot longer than they would be in the United States. So I think it's premature to talk about any particular contract there or by the way in the Western Hemisphere in some international markets, there is actually been a number of contracts that have come to the floor there as well. And we would hope that we would be a participant in some of those that we hadn't talked about three months ago. Those have actually gone out to bid as well.

That's all I have right now. Congratulations on the Compressco acquisition.

Neal McAtee with Morgan Keegan.

I am just beating a dead horse I guess here. Just on the fluids, what kind of levels and zinc bromide are you running through this West Memphis plant? Are you beginning to get volumes enough where you are comfortable that you are going to get better margins?

First of all, it may not be that your margins are on the zinc side. they may be in the other side, but let me answer your question two ways. First of all, pricing is somewhat off the bottom in this so that you have had improved pricing pretty much across the line. You've had a lot of issues with brominated products coming from the supplier, meaning that the suppliers are beginning to raise prices as well. So that tends to help us. The other thing is are you selling anything, and that's probably the important facet. Early in the year a lot of the jobs we were doing were lightweight jobs, and you weren't getting zinc jobs. Now you're beginning to get your normal percentage of zinc jobs so it is tending to help your revenues. By the way for those of you who don't know, zinc job per barrel might be as much as 30 or 40 times per barrel more revenues than you get with the calcium chloride job. So it's very relevant to make sure you've got a good mix of light and heavyweight fluids.

Assuming that -- they had an awful lot of capacity over there, and so -- but you're beginning to see enough that the margins are working out about how you thought on the recycling?

Yes, on everything we have our margins, the volume, the contracts we've acquired, I think if there's a business that has been almost exactly on the plan of what it said it would be, it's the fluids to date, and it is performing exactly as anticipated and pretty much as we told you it would.

On the testing this independent that cut back that their drilling program, and I should probably know who it is but anyway, are they selling properties? Do they have some bad experiences down there because that area -- did they change who they were using? What was going on there?

I am not going to specify the name of the company, but it is a company that had a dramatic reduction in its reserves that it reported and changed out much of its management on the E&P side, and they are back to doing work and to work on our contract. It's just that they had a lot less units working for a period of time. It would not surprise you if you thought about who that might be.

Right, and then on the well abandonment, do I know some of this gets pushed out because of the high commodity prices, but as you really start draining these even faster more aggressively, it seems like there's going to be a catch-up point here where even at high prices these wells are going to be depleted. Do you see what I am getting at? At some point you got this little lull because everybody is trying to get as much as they can after it. I think it seems to me like at some point you're going to have to (indiscernible) an awful lot of catch-up work and even at higher commodity prices, there's just nothing else left to squeeze out of that. Does that make sense, and are we close to that kind of point?

Neal, you're hitting on the problem that we talk about more internally than anything else. Obviously externally and for all of us, we obviously want to do as much in the way of revenue generation in any particular quarter or year that we could possibly do. And that is obviously what we're talking about in these meetings. However, our big concern is not whether the market is going to be there. It is whether we can really perform in that market with controlled costs. And where we get into an issue is as this builds rapidly do we have the infrastructure, people, equipment to handle the work, and we are working very diligently to make sure that we are capable of doing that.

And I guess you could get a lead from us if we were to announce over the next few months expansion of some of our equipment and/or personnel it would give you an indication of what we think is coming. But that is the issue. The issue is how is the industry going to be able to service what we see as a very, very strong market as it begins to turn.

Do you what to hazard a guess on the timing of that?

We think 2005 is going to be better than 2004; whether 2005 is going to be an incredible year will probably to some extent depend on the pricing. If pricing begins to drop off at all, it is going to stimulate a tremendous amount of activity in our opinion. If pricing stays about where it is, you'll get a normal growth pattern, and it might be 2006 before you get just an oblique type of spike. But it is coming in the next year or two, and we think there is adequate reason to believe that there will be a fair amount of that in 2005.

Thanks, guys.

Stephen Gengaro with Jefferies & Co.

Good morning, gentlemen. Two questions. The first back to Compressco on a -- guess I will preface this by saying I am not sure how you will save, but as you look at this thing and you try to figure out the potential accretion, reviewing the historical numbers, it didn't look all that accretive by my math. Can you give us a sense of what you're looking at to get to accretion whether it's in terms of growth or potential revenue or EBITDA or some perimeter?

First of all, when we talk about accretion we are talking about net accretion as well. We are talking about the cost of curing this, the interest cost is netted against it. So it is not a funny number. I would guess I would say it is material, and I guess I would deem materiality at 5 to 10 percent type of improvement as a minimum.

Are you talking about on an earnings basis?

ON an earnings basis. If you looked at next year and if you took what we should earn, whatever that may be, and if it doesn't add at least 5 to 10 percent it would not be material to me, and I think it will probably be material.

And to get to that kind of accretion are you willing to share what kind of growth you're looking at at Compressco?

We don't have a 40 percent increase in units factored into our growth factor. Somebody else had given that 40 percent number. We are at a lesser number than that. Obviously if it were close to that number it would even be more.

Okay.

I really am -- for two reasons I'm uncomfortable about talking about that. First, I'm not sure that we know exactly what it is. Secondly, we haven't really had an adequate time to sit down with the management of this Company; we have only owned it since the 15th of July and try to restructure the direction of where it's going to go and under that circumstance its way too premature for me to try to give you a good number that I would be comfortable with.

Okay. Thank you, and then the second question on the well abandonment side can you give us a sense for production and/or sort of the percentage of that business, which is at least in the second quarter came from Maritech?

You've got last year's number, so we are really not telling anything out of school. I would say somewhere between 20 and 25 million cubic feet a day equivalent is probably over the magnitude what we're doing.

Okay. I can figure out the rest. That's helpful, thank you.

Blake Hutchinson with Howard Weil.

Just a couple of quick questions on some figures, maybe give us a little better understanding of the quarter and what we might expect going forward. Do you guys have some ballpark figures on what Compressco's results were for 2Q?

We do, but we didn't own it at all in 2Q, obviously.

Okay, but you're not able to offer us an idea of what maybe the revenue run rate in 2Q looked like, or in terms of helping us a little bit going forward here?

I think it is safe to say that the company's growth that they were showing in the first quarter versus the prior year, and they were a reporting company even though they were not really a public company reflected revenue growth year-over-year of something in the 35 percent type rate. And I can't see any reason to believe that's at least on a projected basis so far, not a rational way to look at it.

Okay, great. And also just trying to get an idea of how the abandonment decommissioning business differed. I know you went through a bunch of year-over-year numbers. Do you have it segregated to the point where you can give us an idea of how the absence of offshore decommissioning, or the lower level of offshore decommissioning hit the quarter? In other words, do you have a year-over-year decline in actual offshore decommissioning volumes?

I guess I would answer that, Joe, and you may want to add something to it as well. Going back to last year, we told you that we had one area that we needed to restructure, which was the inland water area, which is the shallow water well abandonment. One of the major reasons for that is that Texaco was the large customer there, which then became Chevron Texaco. They then sold those properties to others. The others are evaluating whether they want to drill some of those, rework them or plug them. So we have the same issue going on in the inland waters except maybe more exacerbated than even have offshore. So we needed to restructure that. We did that.

The impact negatively to earnings that we saw at the end of last year was not as pronounced in the second quarter as it was at the end of last year. But on a year-over-year basis you began to see negative comparisons obviously because you had profitability back a year ago or so. So one of the areas if you look quarter to quarter versus last year would be the inland water part of that division. That does not mean by the way that inland water is worse than what we told you. It's actually improving. It's just year-over-year it wasn't that good. And then the other real big component of this is obviously the decommissioning, and yes, commissionings down. Revenues were down, profits were down because we were doing a lot less work than we were doing a year ago for all the reasons we talked about over the last six months.

I was just trying to get a ballpark magnitude of I guess the absence of that work.

We don't break down intra division revenue.

Fair enough.

And one thing you can do, Blake, is look at the M&S data on a number of structures removed. So you can go to public sources and get some idea of what's going on. What we could say is last year was a record year for us, Blake, and as Geoff pointed out this is an event driven business. And when the oil and gas prices are where they are and you prolong the life of properties and therefore the structures, then you still have those same structures that eventually have to be removed. The work is still there. It's just postponed.

Okay. Fair enough. And final question with relation to the added expense in the quarter with regard to doing some rework on the Maritech property, are you able to give us a ballpark figure on what you ran through in terms of extra expenses? And if not, can you give us an idea of when you really started to see the production start to flow-through from Maritech in terms of timing during 2Q or is this going to be mainly a 3Q event?

The second question is easier than the first and that is that there will be a lot more in the third quarter than you saw in the second. By the time you got done with the second quarter you were at rates comparable to where you are right now, but you were not there for very much of the quarter. In terms of the dollar amount, I would rather answer it that all three of the reasons that I said we could have added 6 cents plus were all material. And by my material I mean they were all at least a penny and they may have each been comparable to a couple of cents somewhere between a penny and 2 cents each. So you can kind of back into what that number might have been. That's in addition to the normal; remember we always have some expenses in there. This is what I call above the normal.

(OPERATOR INSTRUCTIONS) (indiscernible) with Emerald Asset Management.

Just a quick question regarding Maritech. I was wondering if you could talk about what production levels do you see as the peak level? You said this is the highest they've ever been so is that 20 to 25 range or do you see them going higher than that?

We have a number of things within our existing portfolio that we are looking at that could conceivably offset the normal decline and we could actually go higher. The real question here, though, is a function of how many properties does Maritech acquire so that we can do well abandonment on them later. As we pointed out this has been a lax year for activity. There's been two or three significant property sales that have gone to various people in this industry, including ourselves. If this were a more normal time period we would have anticipated buying additional properties, and therefore you would see an increase that way, but that's probably not a fair analogy. If you are really questioning can we take what we have now and enhanced it even more, there are some things that we are looking at doing that could conceivably do that and could offset the natural decline. But the real increase in doubling or tripling your production is going to be a function of having to go out and buy additional properties.

Will Foley with Sidoti & Co.

Just a few quick housekeeping items here. The tax rate looked like it declined in the second quarter. What is your anticipation for tax rate going forward?

Joe, you want to answer that?

I would hold it about where we averaged for the first half of the year.

Okay, and SG&A again about 12 million quarterly run rate first half of the year. Where do you see that in the second half?

Probably not much different.

All right. And then in terms of your EPS guidance for the second half of the year, I would assume that the third quarter is probably going to be the stronger quarter just based on the seasonality of well abandonment and just on the historical average. It that a fair statement?

I do not know that that will be the case, and only because you got some fluid work that may go into the fourth quarter and fluids historically do have some impact in the fourth quarter. Secondly, you've got a full quarter in the fourth quarter of Compressco and hopefully we're going to have a fourth quarter with Kemira. So when you add all those in I am not sure the historic second and third quarters are the highest quarter is going to be the case.

That's all I had. Thanks a lot.

At this time there are no further questions. Will there be any closing remarks?

No, only that we will talk to you at the end of the third quarter, and thanks for your time.

Thank you. This now concludes today's TETRA second-quarter earnings conference call. You may now disconnect.