Tetra Technologies Inc (TTI) 2005 Q1 法說會逐字稿

Good morning. My name is April. I will be your conference facilitator today. At this time, I would like to welcome everyone to the TETRA Technologies first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. [OPERATOR INSTRUCTIONS]. At this time it is my pleasure to turn the call over to Mr. Hertel CEO of TETRA Technologies. Please go ahead, sir.

Good morning and welcome to the TETRA Technologies first quarter conference call. With me today on the call is Joe Abell, our CFO, Stuart Brightman, our new COO, and Ben Chambers, the head of our accounting group and chief accounting officer. Joe and I will be making a short presentation, which will then be followed by your questions which is our normal format.

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 the control of the company. We caution that any such statements are not guarantees of future performance and that the actual results may differ materially from those projected in the forward-looking statements. I also want you to be aware that many of the statements today will refer to the data included in today's press release. Therefore, we do not intend to reiterate all of that data unless responses to your questions require it. Joe, would you start off with a brief review of the financial?

As a prelude to my comments, first note that some of TETRA’s businesses are highly seasonal, with the first quarter traditionally being the weakest and the second and third being the strongest. Sequential performance is therefore usually down from the fourth to the first quarter and not a reliable indicator of business trajectory. First quarter of 2005 was generally an exception to this rule. TETRA's revenues for the first quarter just ended were $118.5 million, 69% above the first quarter of 2004 and up 8.5% sequentially. This marked the highest quarterly revenues in the company's history, surpassing our record set in the previous quarter due mainly to the acquisitions we made in the second half of 2004, but also owing to improvements in our existing businesses. Gross profit was $26.7 million dollars, 80% above the prior year's first quarter and up 5.4% sequentially. This gross profit included the effect of a $1.9 million write-off of an oil and gas property in the Gulf of Mexico. Even so, $26.7 million was the highest quarterly gross profit in TETRA's history surpassing the record set in the previous quarter. General and administrative expenses were up 47% year over year to $17.6 million, though as a percentage of revenue, G&A expenses were down from 17.1% to 14.8%. The increase in the dollar amount was due mainly to the G&A that accompanied our 2004 acquisitions, higher salaries, incentive compensation and benefits -- as head count has grown in our existing businesses -- higher audit expenses, higher consulting expenses including those related to Sarbanes-Oxley for full compliance and higher insurance and worker's compensation expenses.

Interest expense net of other income was $448,000 in the quarter just ended compared to a positive $47,000 of interest income and other income in the prior year’s period. Income before taxes and discontinued operations was $8.7 million up 195% compared to the first quarter of 2004 and up 3.1% sequentially, despite the above-mentioned $1.9 million write-off. This write-off is also reflected as an increase to our depreciation, depletion, and amortization expense. When net interest expense and DD&A are added to our income before taxes and discontinued operations, the result is $21.8 million in the first quarter of 2005, representing a 136% year over year increase and a 9.9% sequential increase as well as TETRA's highest such measure in its history, excluding one quarter in 1999, in which we had a $36 million gain on the sale of a business and our office building. Net income for the quarter was $5.7 million or 24 cents per share fully diluted compared to $1.8 million or 7 cents a share fully diluted in the same period last year, an increase of 223% year over year. Net income was down 3.7% sequentially due to the oil and gas property write-off and a higher effective tax rate between the two quarters. Nonetheless, this was the highest net income and earnings per share for our first quarter in TETRA's history.

Looking at performance by division, revenues in the fluids division for the quarter were up 53% compared to last year's first quarter and profit before tax was $5.7 million up 47% over last year's first quarter and up 21% sequentially. Revenues in the well abandonment and decommissioning division were up 85% year over year. Profit before tax was $4.6 million up 1167% compared to last year's first quarter but down 15.1% sequentially due to the $1.9 million oil and gas asset impairment. Revenues in the production enhancement division were up 82% year over year and profit before tax was $5.4 million, an increase of 144% versus the prior year's quarter and up 20% versus the fourth quarter of 2004. Our debt decreased by $11.5 million over the quarter to $132.2 million. Debt to total capital reduced over the quarter from 37.8% to 35.5%. With that I will turn the discussion back to Geoff.

In January, as you will remember, we gave you our estimate for the year, in terms of earnings and revenues and so forth. These 2005 profitability increases that we had estimated were predicated on a number of factors, the most significant of which were the earnings contributions from the 3 material 2004 acquisitions, the continuing return of inland water well abandonment profits and increasing profits from both the domestic and international testing operations. All of these factors were working for TETRA during our traditionally seasonally weakest quarter, our first quarter.

However, another important factor had an effect on the first quarter results, and it will play a continuing role in strengthening the remainder of the year. This is the resumption of a more traditional well abandonment and decommissioning market in the Gulf of Mexico. During 2003 and 2004, the offshore Gulf of Mexico saw a tremendous amount of property sales. We talked about this a number of times with you. Until these sales were finalized, the properties changed hands, and the prospects were evaluated -- neither the buyer nor the seller were spending anything to abandon or decommission these properties. Now the acquiring companies are beginning to spend money used to abandon and decommission some of these old fields. We believe this abandonment cycle is just beginning and should be significant for us on a go forward basis. What proof can we offer that this trend is occurring? I would suggest two things. First the activity level for these services picked up in the first quarter as evidenced by our growth in well abandonment and decommissioning revenues and earnings. This should not have occurred, because this is normally a weak seasonal period, in which you do very little of this activity. So, to have it as strong as it was is obviously material. Secondly, we have recently, and I mean in the last 2 months entered into a number of transactions that have significantly base-loaded our offshore well abandonment and our decommissioning activities for all of 2005. While we still have capacity to do more work this year, we appear to have enough current base load to meet our 2005 budget objectives. We would expect and hope to add additional base load through the end of May, which is the traditional time in which a lot of these contracts and/or acquisitions occur. So, I guess the bottom line I am telling you we have met what we were hoping to do for the entire year in terms of a base load already.

Now let us concentrate on the remainder of 2005, in fluids we expect to see margin improvement, as we are able to fully pass on the recent brominated product cost increases. We would also like to see improved margins from TCE, which is the Kemira calcium chloride operations we acquired last year. We would like to do that as we begin to attain some of the efficiencies created by this acquisition. However, even with the current margins we were able to produce higher divisional profits in the first quarter than were attained in any quarter in 2004 in our fluids division. In well abandonment and decommissioning we should see increased profits in both the second and third quarters, as seasonal factors and our current base load work to our advantage. In point and fact, we are going out right now with both of our barges and you will have full activity for the months of May and June in the second quarter and should have 3 months of activity in the third quarter. We also anticipate that Maritech’s profitability in each of the last 3 quarters should significantly exceed first quarter levels, as new production comes on stream and we reduce the impact of any write-offs. I do need to make a point regarding the first quarter write-off at Maritech. Since we employ the conservative successful efforts accounting we look at our reserves property by property. Therefore, even though our corporate reserve value dramatically exceeds our cost base in the aggregate, we evaluate and look at these properties separately. With Maritech's recent successes, it was determined that its expenditures could be better utilized on other properties, therefore the rework of one of our Vermilion properties was canceled requiring the write-off, which as most of you know is a noncash event.

Similarly, we sold a portion of another lease in the quarter for a gain. You should expect that over the years we will continue to have write-offs of properties and will continue to sell property interests. Hopefully, these two items can at least net each other out in the long run. Finally, in production enhancement we anticipate that profitability in each of the last 3 quarters could exceed first quarter levels. These profits would be driven by improving activity in margins in domestic testing, new contracts and international testing, and the continued growth of the Compressco lease space. I also want to make a comment about cash. TETRA continues to generate appreciable cash, in spite of its CapEx program, we have paid down the $11.5 million of long-term debt in the first quarter that Joe told you about. Until we locate our next acquisition candidate we will continue to utilize surplus cash to reduce debt. With that I will now open up the conference call to your questions.

[OPERATOR INSTRUCTIONS] Your first question comes from Ray Kramer with First Analysis Corp.

Congratulations. A quick question on the base load Geoff. As I understand it in the worst case, or like if you do not get anymore business you have got enough base load to be somewhere between the $165 and $180 million in abandonment revenue.

I think that is a good estimate, yes. Remember, in the last two meetings we talked about how this year was different than last year, in that there were four major items in that division that drive the profitability, those being Maritech, inland water, offshore P&A, and decommissioning. We told you that we felt pretty comfortable about Maritech and inland water this year. Last year we only felt comfortable about Maritech, so one of the four was at this point in time covered. Since that, last time we communicated with you, we have put enough business on the books that we feel our decommissioning business is adequately covered and much of our abandonment business offshore, so those four items are very much covered with base load at this point in time, and significantly different than where we were obviously a year ago.

Is it reasonable then assuming this activity trend picks up that you could see results beyond your guidance range in well abandonment and decommissioning?

I would not go there yet because we have another month or 1-1/2 month of activity in terms of contracts and transactions and acquisitions that could occur. What I have said, I would stick by, and that is I think we will be in the range with what we have already got in-house to date. Obviously we would hope to get additional business in. I indicated we did have some extra ability to do work meaning that we are not 100% utilized at this rate, and we would hope to be higher, but at this point in time I am comfortable with the statement I made, and that is we should be within the range that we gave you, given what we have got today.

Okay, with the unusual pickup in Q1 activity, was any of that related to hurricane cleanup or is it still kind of early for some of those big projects to roll through?

Yes, none of those projects, to my knowledge, have been let in terms of the heavy lift part of that. This was very unique in that normally in the first and fourth quarters you do not want to go do heavy lift work because you have a lot of weather delays, which can cost you, we do not typically take that weather risk in the first and fourth quarter, the customer does. I think the indication would be to me that if the customer was willing to take the weather risk and was willing to work in the fourth and then particularly in the first quarter, it ought to indicate to everybody that on a go-forward basis they anticipate a lot of work being done this summer or they would not have been doing it in that fashion.

Your next question comes from Jim Rollyson with Raymond James.

It sounds like on your well abandonment and decommissioning business you mentioned base loading your business through the rest of the year. It sounds like some of that or a fair amount of that is not just your own internal work, but actually some third party work. Could you kind of quantify what stuff you just have generated internally through property acquisitions versus what you are seeing in the market for third party?

That is a good question. First of all remember that when we talk about this division we have 6 or 7 parts to it. The 4 significant ones I mentioned earlier where we are talking about base loading internally, the only part we do that to any degree, is in the offshore, so all of the rest of that business is typically daywork or turnkey work or lump sum bids or some combination thereof, and it does not relate to the Maritech strategy. Offshore, as you saw at the end of the year when we showed you the base load that we had already put in for Maritech, there was significant Maritech work over the next few years that we would be doing. However, more than half of that work has traditionally come from third parties either in the form of daywork or lump sum bids or turnkeys. Last year, because a lot of these properties were still in the evaluatory stage, we were not getting a lot of that work. This year, we are getting a significant amount of work, as are others -- as these properties have begun to turn over. So your presumption is exactly correct, that we are being driven not only by Maritech, but by third-party contracts or work to do, some of which is from properties that were acquired over the last couple of years by the people in the Gulf of Mexico.

So, if you are basically getting closer to filling up your capacity particularly it sounds like, for the summer season and presumably which we have not heard yet but your other main competitors are heading in that direction as well, you would expect that pricing for this stuff on third party gets better or is it pretty much just a steady state?

Over the last year you’ve had equipment going out of the Gulf and you had a demand that was pretty anemic. We have not seen any equipment coming back to the Gulf of any size and actually activity is picking up. So, one would presume that if you look at historical rates that you would see some increases in pricing, but also remember that when we go into our base load for Maritech, those are fixed, and the kind of contracts that I am talking about that would be for work this summer are now for all practical purposes fixed. They may be fixed at higher rates than they would have been a year ago, but you do not have the advantage of just increasing them on say like you would with a drilling rig, where it would come off of one well contract and you could escalate it up for the next, the next, and the next. This is typically a seasonal work job and you commit to it. So, are there price increases? Yes. Is the industry near full capacity? No. Do we have additional capacity? Yes. Are there specific pieces of equipment that are more efficient than others? Yes. Certainly, the Arapaho would be one of those. All of that would lead you to believe that over time our margins should appreciate some, but right now we are interested in base loading at the kind of margins that we have had. And if you go back a year ago, we had some pretty good margins, we just did not have the work. So, we are much more comfortable with a full boat of work and we will try to get the efficiencies that would be justified with that kind of base load and make our margins in that fashion without charging the customer more.

Two other quick things. One fluids, you had announced an increase in liquid calcium chloride prices starting I believe in March, so that obviously only affected you a little bit this quarter and rolled through the rest of the year. You also talked about passing through higher brominated product pricing. Is that something that just is going to gradually get better or it hits all at one particular point in time and when is that time and just you know generally what you expect on the timing of pricing and consequently margins getting better in fluids?

Brominated prices are driven by the wholesale price, which is typically set by the three company world oligopoly that controls bromine. Those costs for our fluids and everyone else's were raised appreciably effective January 1st and then again in April. To the degree that you had well by well of work, you were able to pass on most of that increase in the first quarter as those costs became effective, your prices became effective. However, remember that there a lot of people who have contracts that exist 3 months, 6 months or a year out, so it is really a question of the waited average increase that you are able to pass on and you cannot pass that on until the contract term has expired. We feel very comfortable that we are getting a lot of those costs passed along to our customers in the form of price hikes from us. We should see an improvement in the second quarter over the first and I would expect that you will continue to see an improvement as you go through the year but a large portion of that cost increase has been passed along, although it did not affect the full first quarter.

Just G&A, you obviously have been hiring a lot of people to keep up with what is going on and your G&A took a nice jump this quarter. What is the expectation there, are we going at some point here flatten out on G&A or do you would expect that to still kind of gradually move up a little bit or stay consistent with revenues or what are you thinking there?

The overhead that we have in this organization was increased dramatically with these acquisitions. Consequently, I would expect that the run rate would flatten out materially from what it has been recently as we go through the year. One thing that is also in this year that was not in last year, you will note that management did not get appreciable bonuses last year because we did not hit our budget. I am very hopeful that this year we will be able to get bonuses and that obviously is in for the full year and you will see it there and hopefully you all will be happy that we are going to get bonuses if we can get to the kind of profitability levels that we have projected.

Your next question comes from Stephen Gengaro with Jefferies & Co.

Two things, you have covered a lot already, on the Compressco acquisition and integration, how has that gone so far and have you been able to see any meaningful synergies with the well abandonment side as far as production enhancement of properties you’ve sort of gotten your hands on?

We have not done any Maritech type transactions within the Compressco framework where we would say buy a field and then put in Compressco units and then abandon them at a later date if that is what your question, I believe that was.

Exactly.

We have not done that to date. What we have tried to do is integrate the company on a more universal basis, by that I mean that we have as TETRA access to managements of companies that Compressco was selling to at a much higher level than they had and we have been trying to get them in at these higher levels to try to force if you will customers to utilize this on a more universal basis. We have also taken them into a number of foreign areas in an attempt to expand their business where they have not been, and we are looking at a couple of other unique ways to utilize this equipment that I do not want to get into now, that is something that they were not doing. So, the first thing we wanted to do was try to get this relatively small operation set up to be a much larger operation and look at larger markets, which we have pretty much done, and we are in the process of doing today. We also did not want to screw up what they were doing exceptionally well and that is build their base. We do not want them to take their eye off the ball and become too enthralled with some of these bigger markets and give up the fact that they have got a market in the United States and Canada that may be six times bigger than what they are currently working with, so they have been doing a good job of continuing the expansion of their base. We have been trying to escalate them in these other areas. I would anticipate that anything relating to production is probably a year or two off at the earliest, if we get into that at all.

What are you seeing, obviously you are seeing better deal flow on the well abandonment side. Is the customers have part of you mentioned the deals that were done over the last couple of years, which sort of delayed some of that work. It was my impression that the high commodity price environment had delayed some of that work too. Are you still seeing some of those work pushed to evite (ph) because of the commodity price environment or you think people –- do you think that has become a bit more normalized at this point?

First of all, there is no question in 2004 that the higher prices kept some of these properties off the market in terms of abandonment; however, even though you’ve had increases in 2005 versus 2004, you also have another year of production declines. Remember these are very old properties generally. What we are finding is that the higher prices that you are getting today versus last year being offset by the declines in production and therefore we are seeing kind of a more normal environment that we would normally see. Obviously if price dropped another $10 or $15 a barrel for oil that would probably be positive to this market, but it might be negative to some of our other markets, so at this point in time commodity pricing is an issue. It is not the issue it was a year ago, because it is being offset to some degree. Unless you see a stair step increase to $80 or something like that, I would doubt that we will see much impact year to year from the higher commodity prices.

One just final question here. When I was just looking back at your guidance release and your rig count assumptions and commodity price assumptions, we seem to be above those levels. I know you are more comfortable with the range, I am not sure exactly how to phrase this, but were you looking at increasing the bottom end of that range at all or changing the range? Were you were close there, or you still feel like your visibility dictates that is still sort of the realistic range you should be in?

Let me answer that in two ways. First of all, I believe when we had our discussion at the beginning of the year, we went through those five or six items that we said were different year to year. We indicated that the vast preponderance of the increase, almost doubling of earnings, was effectively in place because of those six items. We told you there still needed to be market improvement to get into the range, but that we were clearly getting close to that range. Today, I am telling you we are in the range, which would indicate that the market is appreciably better. I am reluctant to increase anything until we see the second quarter profitability. The first quarter tripled the year ago, and we are going to have to double almost the first quarter in the second to get to the range that you all have. I think that is a pretty good stair step. Until we get there, I am going to be very reluctant to change any numbers on any ranges; however, I feel a lot more comfortable that that is an attainable goal.

I appreciate that. It is certainly a big rise from last year and I know it is certainly still not an easy business to predict quarterly, I do not mean to push too hard, I just wanted to get your sense, but that is very helpful.

Your next question comes from Will Foley with Sidoti & Co.

First question on the other income line in the income statement –- I know part of that was the joint venture contribution from TCE, can you tell me how much of that number was from that joint venture?

Remember there are two things in there that I pointed out to you, one is the continuing profitability. Because of accounting, the joint venture equity is going to always show up down there, even though it is part of the ongoing operations of TCE, because it is a joint venture it will be down there. Secondly, the sales of these properties that we have, remember when we farm out a property and let somebody go drill it, we many times sell a part of that to them, so you should presume that over time you are going to continue to see sales in that line as well. It is kind of unfortunate when you write something off, it goes above the line; when you sell it at a gain, it goes below the line, but that is just the nature of the beast. So, well over half and approaching I guess three quarters, two thirds of that, was a function of things that you will probably see in various future quarters.

With respect to production enhancement, is there typically any seasonality in that business in the March quarter, I know you said you anticipate that business strengthening as we move through the year, so is there any seasonality in the March quarter?

There is a small amount because of the rains that you have in this part of the world in moving equipment, but in general there is not the seasonality in that business that you have in others. Where you will see improvement there is with contracts especially internationally that have just come to play and some that we would expect to have throughout the remainder of the year, that will significantly help, we believe, the profitability. We are also looking at a lot firmer domestic market and would hope to see some average price hikes as we go through the year, improving the margins there as well.

The last question, how is the Arapahoe helping you, obviously, in terms of the well abandonment business now that you have that asset in-house?

That is an excellent question, obviously with Maritech we could base-load what we were doing, but having that asset which is an extremely efficient asset with a very very good crew. Both of those items known by our customers, has helped us clearly in getting some of these contracts that we mentioned earlier. Again they were not Maritech driven contracts necessarily. but these were third party contracts and without the Arapahoe, I would guess we probably would not have base loaded as much business as we had. We certainly would have base loaded some of it but the Arapahoe has been a big advantage for us.

Your next question comes from Lewis Kreps with Aperion Group.

Congratulations. I just wanted to go back to the well abandonment decommissioning, the bid packages we were talking about 3 months ago. Could you comment on how many have been awarded, I know you are saying your base load is full, you had talked about 3 or 4 packages that you were looking at?

I believe one of those packages have been awarded officially, the rest have been not, that is why we are holding open, what we are talking about here in terms of base loading not only from contractual sites but acquisitions.

Have you booked anything in the decommissioning area for 2006 yet or not?

Oh, absolutely.

Geoff you’d mentioned pricing increases in fluids and testing and can you kind of give us a range of what you would expect during the year?

I do not want to particularly to get into individual items. I will tell you that the brominated part has been a very significant increase because of the cost increases that have come across and I am talking the total cost increases are well in excesses of 25%.

Okay: Moving on to Compressco you mentioned expanding them out more internationally besides Canada, would you care to comment on what area of the world you all are looking at?

At this stage of the game, I would prefer to leave it in-house only because we do not want to generate any additional competition. We would like to get contracts in place, but I think it would be safe to assume if you would look at where we have had international activity historically that is probably the areas we took them into first as opposed to areas where we historically have not been real active, and that would be South and Central America, and West Africa in particular.

The last question, international testing, are you all still expanding a unit at a time or a contract at a time or anything moving there?

Actually there are a number of contracts that are to be let in the near term. We have built some equipment in advance of those contracts. We believe we have one of those contracts. The net effect of that is that yes we are going after selective contracts, and yes we are building in advance of those contracts to some extent. Hopefully, we will be able to stay up with the demand with equipment if we are able to secure a number of these.

Your next question comes from Byron Pope with Pickering Energy.

For the traditional production testing business, can you remind me roughly what your mix is, onshore versus offshore?

Production testing is probably 90% to 95% onshore, if you include the international and domestic operations together.

Given that you guys are the market share leader onshore in the US in that business, are there any particular regions or basins where you are seeing the most incremental activity that wouldn’t necessarily be picked up if you are just looking at the big reviews for account for example.

We are [amebatising] out from where we have been, which would mean that we would not likely just jump out into the middle of the Rockies, let us say, instead you would see us going into areas like the Permian, Oklahoma, Arkansas, conceivably other parts of Louisiana, way west Texas, maybe in the Lee and Travis Counties in Mexico, things like that. I am not suggesting we are in all of those, I am saying that those are the areas where you would see us going with the equipment first before we jumped out. Our problem with some of these other areas is that there are not enough wells being drilled to efficiently go in with the type of operation we normally would. Therefore, we have to look in close proximity to where we are already at. I can give you an example, if you go back and look at that rig count you are talking about, I think you will find half those rigs are in Texas.

Right. Then a question with regard to the fluids business. One of your competitors in the Gulf of Mexico spoke to the fact that they saw a nice mix shift if you will, in terms of deep-water work versus shallow water in the Gulf. Are you seeing where you are finally starting to see deep-water activities starting to pull through a better mix in terms of fluids?

I would state that a little differently. We are seeing some substantial work from the deep water, yes. I do not know whether the mix is necessarily better or worse, remembering that our fluids are a little different than what you see for drilling companies. Clearly there is more volume with those type of wells than there is with wells up on the shelf. But whether, in fact, they are using the real expensive zinc bromide or the much cheaper calcium chloride is a different matter, but the answer is that we are seeing additional activity in particular out of our new facility at Fourchon for the deep water.

[OPERATOR INSTRUCTIONS]. Your next question comes from Thad Vayda with First Albany Capital.

Most of my questions have been answered, just a couple of book keeping issues. Can you remind us of your daily production with oil and gas, can you tell us if there has been any increases or decreases during the quarter overall?

I think at the end of the year, we showed you what that production was and I am grasping now that it was about 20 million cubic feet a day net-net, give or take a little bit. It may have been actually a little less than that last year. We are in the process of looking up and have looked up some additional production. We are also in the process of looking at some production where we have back-end interests, as you are familiar. In many cases, we will allow somebody to drill on us and take a back-end interest because we have the production platform and the pipeline. There are a couple of wells that are currently very close to payout, which will enhance our production as well. So, between new wells, re-worked wells, and wells that we are backing into, we would anticipate seeing an increase in production from the current levels over the next say month to month and a half, but we do not give quarterly data as to our production levels.

Understood. This may be sort of a naïve question. On the Arapahoe, what is, sort of, your average utilization been since you acquired the asset and to the extent that there is a spot market for this type of asset, what would a day rate be?

The second question is a lot more difficult than the first. When we used the Arapahoe 2 years ago and leased it, we had it for I want to say 157 days. We took the whole season, which was generally the second and third quarters, and had it under leased the whole time. So, utilization would have been close to 100%. However, in the first and fourth quarters, as my understanding of it was, Global said that they only used or only had 160 some days of work that year, which would indicate that we were almost all of it. So, I would presume that if you are looking at utilization over 365 days, that would have been a utilization rate of maybe what 40%ish. We would expect to be much better than that this year, in that the second and third quarters will be very high utilization. Other than the last 3 or 4 weeks, we have had both vessels and outfitting them, getting Coast Guard inspections and other things, so that they will be able to work straight through. Other than that down time, we would expect to be using the Arapahoe in particular into and through September and maybe later into the year. We also used it in the first quarter for a substantial amount of time, which is again adding to that utilization. So, I do not know what on a 365-day year that would be, but we do not really look at it as 365 days a year, because of the weather. If you did 250 or 260 days, that would be pretty close to full utilization for that piece of equipment in our estimate.

As for day rates, I am not going to get into the specific day rates, other than to say that the cost of that vessel 2 years ago would have been x and the cost of that vessel 4 years ago would have been 2x. So, we are somewhere between x and 2x, clearly nowhere near 2x yet, but we are certainly not down at x anymore either.

On Compressco, you had talked about, sort of expanding the manufacturing capacity. I was wondering if you would be willing to comment on progress on that front?

As we had pointed out, as soon as we acquired Compressco, even though they did not need the expansion at that time, we began to look at expansion of their facility in Oklahoma City, which is still going on by the way. That expansion would take the capability up to something like 80 to 95 units a month. In that when we brought the company they were doing net additions about 25. I am not suggesting we are anywhere near that upper level, obviously we are not, because we do not the expansion done, but maybe you can get a pretty good idea of where we think this could be a year or two down the road.

At this time there are no further questions. Mr. Hertel, are there any closing remarks?

No, we will just get to work on the second quarter. Thank you for your attention and time and interest in TETRA.

This concludes today's TETRA Technologies first quarter earnings conference call. You may now disconnect.