Tetra Technologies Inc (TTI) 2007 Q4 法說會逐字稿

Greetings and welcome to the TETRA Technologies, Incorporated, fourth-quarter 2007 results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Geoff Hertel, Chief Executive Officer for TETRA Technologies, Incorporated. Thank you, Mr. Hertel, you may begin.

Thank you, Anthony. Welcome to the TETRA Technologies fourth-quarter 2007 conference call. Joe Abell, our Chief Financial Officer, and Stu Brightman, our Chief Operating Officer, are in attendance this morning and will be available to help answer any of your questions.

I must first remind you that this conference call may contain statements that are or may be deemed to be forward-looking statements. The statements are based on certain assumptions and analyses made by TETRA and are 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. You're cautioned 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.

During the course of the call, we may refer to adjusted net income per share or adjusted income before taxes. These are non-GAAP financial measures which management uses to understand, manage, and evaluate the Company's business. These non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information compared prepared in accordance with GAAP.

Reconciliation of these non-GAAP financial measures to the nearest comparable GAAP financial measure is included in this morning's press release, which is available in the investor relations area of our public website.

Normally, this would be the time in the conference call that I would turn to Joe to report the various financial statistics. However, with the complexity surrounding this quarter -- generating GAAP earnings and also earnings before and after discontinued operations, and earnings before and after unusual items -- we decided to make general comments and wait for your specific earnings questions. Especially because many of these numbers were already reported to you, at least in preliminary form, on January 14.

Some of the overview points that I would like to make this morning regarding our fourth quarter are, number one, the major unusual items were almost exactly as we outlined in our January 14, 2008, press release.

The major Maritech adjustments were $77.7 million versus our estimate of $75 million to $80 million on January 14. We would hope to recover significant portion of this amount from our insurers for the 2005 hurricane damage.

We also paid or will pay a $9.25 million contract termination fee to a supplier of bromides for our Fluids Division. This allows us to produce these products at reduced cost utilizing bromine mean under our Chemtura agreement.

Secondly, the pre-tax gain on the sale of TETRA Process Services was $40.7 million, slightly more than the number estimated on January 14.

Thirdly, operations, excluding the unusual items during the quarter continued to see improvement as production enhancements set profit records and well abandonment and decommissioning services returned to more normal conditions.

Fourthly, Maritech replenished its portfolio of developable properties with the acquisitions in the fourth quarter and the end of January of this year. That was necessary or we would have been in a position of declining profitability in that entity.

Looking forward, we have a number of factors that should augment 2008 results and beyond. In Fluids, the elimination of the high-cost inventories throughout the year will allow us to generate improving financials as the year progresses.

Also, the beginning of substantial ultradeep water well completions in the Gulf of Mexico in the latter part of 2008 should allow for increasing completion fluid quantities for the first time in years in this, the biggest market in the world. This will predominantly affect 2009 and '10, but we hope to have some effect on us in latter stages of 2008.

Secondly, in Well Abandonment & Decommissioning Services, we expect to operate much more efficiently this year. This should lead to higher margins and higher profits as we have outlined in previous conference calls.

Thirdly, Maritech should improve as we go throughout the year. The addition of the Cimarex production, especially for the second half of '08, will enhance volumes. The reason that you have this reduction coming on in the second half of '08 is that we are currently running various umbilicals and pipelines to some of their subsea walls and hope to have that production on by the end of the second quarter, if not earlier.

Fourthly, the Production Enhancement group is budgeting again for another record year. During 2007, this division recorded a 33.6% increase in pre-tax profits versus 2006. Using the midpoint of our 2008 guidance, our pre-tax income for this division would increase another 42.6% this year. Our international expansion is a primary driver in this growth.

As reported in our January 14 press release, the distribution of our earnings between quarters will be slightly modified in 2008. Normally, the second and third quarter are operationally our best, primarily due to the seasonally strong second and third quarters in Well Abandonment & Decommissioning Services.

However, during 2008, our fourth quarter will benefit from a number of very positive items.

First, the expected sequential improvement in Production Enhancement profits, which is a continuing theme that we very much appreciate. Two, the ultradeep water Fluids work that I alluded to earlier that should begin in the latter part of the year. And three, the increased Maritech production in 2008's second half.

The combination of these items should create strong earnings in our fourth quarter, approximating the levels attained during the second and third quarters. That is a unique happenstance for us; normally our first and fourth are very weak compared to the second and third.

At the beginning of 2007, we knew we had a $50 million profit hole to dig out of. This was caused by decisions we made regarding our Fluids operations and the price difference in our natural gas hedges between 2006 and 2007. We stretched our other businesses to make up for this shortfall.

This strategy obviously failed as we tried to grow our other operations too rapidly, and you saw the effect during the summer of 2007.

Fortunately, this year we anticipate both Fluids and Maritech will have better earnings than in 2007. We can therefore allow our other businesses to grow at a more measured pace. That strategy worked well for us between 2000 and 2006, and we think it will again in 2008.

Joe, Stu, and I will now entertain any questions that you may have.

(OPERATOR INSTRUCTIONS) Jim Rollyson from Raymond James.

Good morning, guys. Happy birthday, Geoff.

Thank you, Jim.

When you back out the charge just in the Well Abandonment & Decommissioning Services part of the business, it looks like margins about 18%, which kind of more in line with your normal seasonal fourth-quarter margin. Can you maybe just kind of talk about how -- I know you mentioned a little bit of how that is starting off.

But just kind of what you're seeing in the Well Abandonment and service business, as far as how that is tracking for you today and how things are running versus your expectations or what you're wanting.

Stu, would you like to go?

Yes, in that business as you indicated the fourth quarter was a strong quarter for us and continued a trend. In the first quarter, we are seeing a lower activity strictly because of the weather offshore. It is starting to improve as we get into the quarter; but it's going to probably be less than we had expected just because of the weather.

Once we get through that we are still very confident that the remainder of the year will be consistent with what we had given guidance on. So we feel good about the ongoing business. We may be a little bit light in the first quarter on that business.

Do you think you make up some of that beyond the first quarter?

I do.

Okay.

The level of bids and some of the market feedback makes us feel good about the balance of the year, once we get this weather behind us.

Understood. Geoff, you talked in the past about the prospects for some Fluids contract awards domestically and internationally. Any update there?

There are a number of large ones out there, both domestic and internationally. Some of those being bid for the ultradeep water in the Gulf of Mexico are being bid in the April through June time period.

So we obviously don't have any results yet. We would hope to be fairly optimistic about getting some. But at this point in time, nobody has been awarded any of those contracts.

In the international arena, there are a couple of large ones, neither one of which have been officially awarded at this point in time yet.

Okay. Then just lastly, any update perhaps on -- I know you won't get into detail; but just plans on spinning out Compressco still on track? Any thought process changes given a little bit of compression in the multiples in that business?

First of all, in timing and what we're doing, obviously we're not able to get into a lot of detail. I have made the statement before that if we were changing our mind in what we were doing, we would come out and tell you so. And we have not told you anything, so you can presume we are moving ahead in the same direction that we have announced to you previously.

As to the compression in the multiple, there has been a modest one as it relates to lookalikes. We think that the uniqueness of this entity would be such that it would get a premium or, if you will, a lower yield.

However, we're not going to let a half a point or three-quarters of a percentage point make any difference in bringing this to the market, in that we're not going to be selling that much of it anyway. Therefore, we're not going to be in a position of having a problem letting this go at a rate that is different than it was six or nine months ago.

Very good. Thank you.

James West with Lehman Brothers.

Good morning, guys. Stu, I have a question for you. I had asked, I guess it was at your January conference call, about the Well Decommissioning business and if you had seen any tightness or change in the market as a result of the large contract award that went to Superior.

Hasn't been any change at this point now that we are a month and a half later?

No, there really hasn't. I will give you the same answer as when we talked last month. That hasn't had an impact and we still think the fundamental activity level during 2008 is going to be strong.

Okay, and then --.

They are still going about the business as we talked about last time and optimistic.

Okay, understood. Then one of your competitors or I guess subcontractors sometimes indicated last week on their earnings call that the MMS was becoming more aggressive about some of the operators removing some of these down platforms. Have you seen any indications of that?

We have seen a little bit. Some of the operators have come back over the last month and had some more detailed discussions. So we're seeing a little bit of evidence in some of the bid and discussions that that is accelerating.

The major difference there is right after the storms hit, everybody knew that there was not enough available equipment; nor had engineering been done to even think about doing this work. So there was kind of a hiatus on pressure on anybody to do anything until you got a lot more information.

I think the difference today is not that they are going out and changing what they have said. It is that they are making the companies come in periodically and give updates as to what you are doing and show progress. And that progress is forcing people who had not been really moving very rapidly to begin the process, and those that had begun the process to get into the contract stages. I think that is the difference people are seeing out there.

Okay, understood. Then one last quick question for me on the Fluids side of the business. Should we see -- I know we will see profitability improve, typically as we get into the back half of this year.

But are we going to see indications that the new bromine supply agreement has kicked in, in the first quarter? I guess will we see a better margin in 1Q?

I don't know about the margin in the first quarter, honestly, versus the fourth or the first of last year. I haven't looked at it that way.

I think throughout the year, you're going to see improvement in that business. But you will see a lot more margin improvement as you get rid of those older inventories.

All we have done with the contract termination is to eliminate the need to buy more high-cost inventory. We still have to get rid of what we have got.

So your improvement ought to go throughout the year. But I don't know that I can give you a good number fourth versus first in terms of margin. Stu, do you --?

It is still early, but I think we will see a little bit. I think as Geoff said, we will see it continuing and accelerating during the second half of the year. But I do think we will see a little bit in the first quarter.

Okay, great. Thanks, guys.

Mike Harrison with First Analysis Securities.

Good morning, gentlemen. In the Fluids business, can you talk about what you have been seeing in terms of pricing in the fourth quarter, and also now that we are through a couple months of the first quarter?

Yes, I would say the fourth quarter, first quarter not a dramatic change. Kind of consistent with our business plan. Relatively flat, no big surprises there.

Then in terms of the overlap between the Fluids business and the Testing business, particularly onshore, is there any way to quantify the potential synergies that you gain from bringing those businesses under the same management or under the same roof?

Obviously, we expect to see benefits. We don't have a real hard number on that. But we are clearly spending a lot of time looking at those two businesses and where the touch points are. We're starting to see some opportunities that we're getting teed up.

But at this stage, there is probably not a number that we would throw out there, per se.

Yes, I don't know that I would characterize this as a cost-saving type of move, where we put two entities together and get rid of a lot of assets in terms of people and have a cost savings. There may be a very small amount of that.

It is more an effort on our part to expand into our customers with multiple services. What you ought to see is on the top line as we go through this process, which will then generate additional profits to the bottom line, it won't be a cost-saving mechanism that a lot of people employ when they put two divisions together.

Okay, I appreciate the color there. In terms of Maritech, you mentioned that you expect volumes growing by the end of the second quarter.

Should we expect volumes to stay close to that 60 million cubic feet per day rate during Q1 and Q2? Or do you think we will see it dip from that Q4 production level during the first half?

The Cimarex acquisition included six subsea wells, one of which is producing. Two others are to be onstream in the next month or so; and three more by the end of the second quarter.

As those come onstream, you're going to see production increases offsetting any kind of declines that we might have had in other properties. That alone ought to create some impetus.

I'm just a little leery, given where the weather is and knowing that we're going to be have to be working out there to get some of these flowlines in, giving Production Enhancement much earlier than the end of the second quarter for that second group of properties.

It may be as early as May that we will get some improvement. But clearly that is a function of already drilled, already proven reserves that just need to be hooked up so they can flow.

Okay, then on the Testing side, I know you're expecting to see some benefits from international contracts during 2008. Can you talk about what the pipeline looks like for any additional international Testing contracts over the next few quarters?

Really, you have to go back and look at what we have tried to do over a period of five or six years. We were the largest -- five or six years ago -- onshore Western Hemisphere company in that business.

We wanted to get into the Eastern Hemisphere and at the time we went after Halliburton's subsidiary, which eventually sold to a money management group, which then turned it to Expro later.

The net effect of all of that was that in the Eastern Hemisphere you have essentially two major players, Expro and Schlumberger. The industry is very much interested in having a third player.

We're a very large player obviously in the Western Hemisphere. Therefore, when we come in to go after pieces of contracts in the Eastern Hemisphere, we have a pretty good opportunity to get that work.

Those contracts are typically two to four years in duration. As they roll, we have been going after that work over the last couple of years, and we're going to continue to do so. There is a large amount of that business that rolls in the next 24 months.

So the answer is, absolutely we're going to be more aggressive there. The new management addition that we announced here in the last week is a gentleman that has a tremendous amount of international experience.

You see that one of the businesses that reports to him is our Testing operation. So the net effect of that is I think you'll see us very aggressively going after Eastern Hemisphere business in addition to the Brazil and Mexico business that we already have.

That's great. Then, if I could just ask one last question, maybe for Joe. Just curious what the Q4 DD&A number would look like on more of an ongoing basis, if you took out the impact of special items.

That is a difficult question because it is also impacted by the mix of properties that we have. But let me just give you -- yes, call it about $40 million or so.

$40 million? All right. Thanks very much, guys.

Stephen Gengaro with Jefferies & Company.

Thanks. Good morning. A couple of just follow-up things. I think the first on the Well Abandonment side. You have obviously gone through some changes in the business getting -- I guess in your description -- kind of on a more a-la-carte basis than sort of a project-driven basis.

Can you give us or help us understand any progress which has been made there? Whether quantitatively or qualitatively, to kind of give us some comfort that things are operationally getting better?.

Well again the first is if you look back at the results in the third and fourth quarter on an adjusted basis, you will see that the numbers are significantly better and very close to what we had in our guidance in August.

Kind of underneath that, we continue to sell a-la-carte. We continue to sell multiple services. We have got projects where we are selling three to four services. We have got projects where we are selling one.

Operationally, we have done very well executing, gotten good customer feedback, on budget, on time. The coordination across the units in the Well Abandonment group is going well.

So, I think we're positioned, as we have said in the past, to attack service by service on a bundled basis. There's opportunities for both. The feedback we are getting in the market is very positive, and we're confident the top line and the bottom line is going to go with it.

But in terms of executing projects, I feel we have done a very good job executing in the last two quarters and continuing into this quarter.

Is your sense that the margins there, on the Well Abandonment, on the services side, can they continue to go higher in the current sort of pricing supply-demand environment?

I still think we have room for some margin improvement in the current pricing arena that we're at. I think we have continued to improve operationally.

I think the terms that we're looking at on the business is favorable to us. So I think there is still a little bit of margin to squeeze with the revenues that we're looking at, assuming pricing stays the same.

Then, along the same lines, obviously everybody knows that Superior is out there as sort of a main kind of large competitor. When you are bidding on these jobs, who else are you seeing?

Are you seeing Cal Dive with their diving business and now with Horizon in the -- are you seeing any more impact from that company? Are you seeing others be more or less aggressive in the business?

Certainly with that combination, it gives them capability that we're seeing out there. Then the traditional players that we go up against are still very focused in the Gulf. So there is still a strong list of competitors and enough business out there that I think we can all do reasonably well.

Is your sense that the sort of supply and demand there is reasonably in balance?

I still think there is strong demand out there and finishing up the down structures, the traditional heavy lift, decommissioning, plugging. I think that demand, as we have said in the past, is continued. It is going to continue to be strong. We see evidence of it, and I think it is still a good position for us to be in.

Thank you. Then, as a second question, when you look at sort of the first half of 2008, there certainly are seemingly some things here which are sort of second-half weighted from a profitability perspective.

But when you look at the first half of '08 -- or maybe more importantly, as we look at it from a Wall Street perspective and investment perspective, what should we look for that will be signs of progress? What are kind of the milestones near-term you are looking for to sort of demonstrate progress toward sort of material improvement off a tough '07?

Obviously, we going to look at the numbers, we are going to look at the margins. But what are sort of the key other events that you can either talk about or we can look for to show the progress is occurring?

Well, first of all, I want to make sure that the quarters that are set up -- we're not back-end loading the year. What happens is the fourth quarter, because of the issues that I went through, is going to be stronger than it normally would be.

It is not that the first half is going to be weaker than it normally would be. It is that the second half has a number of items that are actually going to propel it.

If I were looking for the items -- and I don't know whether you will see them until after the fact. But in each of the various businesses, obviously in the Fluids business, the most important factor to us is our cost position.

But almost equally important, if you go back and look, I believe in the last four and a half years the rig accounts in the Gulf of Mexico has gone down from 172 to its current level, which means that the biggest market in the world had a decline in volumes for completion fluids even with deep water.

That is a very unique happenstance in all service businesses. Almost every other oil service business you can talk about had increasing volumes in that time period.

In the second half of this year, you will begin to see a pickup in volumes in that business, which ought to go from '08 to '09 and into 2010 at least, because of the ultradeep water projects that have already been drilled that will be completed later this year and into '09.

That is a huge change for us fundamentally in the Fluids business; and it shouldn't be lost on you. So we will actually have volumetric growth. Not only cost improvement but volumetric growth going as an industry into '09. So that is a very key factor looking ahead.

In the case of Well Abandonment, we have told you what we think is important; and that is we need to get our margins back to the levels that we have talked about previously. As you get into the second quarter, look at those margins. Obviously, that is important.

You also, though, ought to look at the first quarter. The issue there won't be the same total margins, because you're going to be in a position where you have a seasonally weak time period.

But you ought to make sure that the contracts and the projects have adequate margins even in those quarters. I would hope that you would query us on that when we talk about our first quarter.

So looking at the fourth quarter, those were pretty good margins, given the fact that you are in a seasonally down time period. The third quarter was also pretty good margins.

So I think what is going to happen is you will be able to see the margin improvement. And then all you have to do is wait for the activity improvement, which again is generally the second and third quarter.

In the case of Maritech, it will be simple. You can see production growth; and we report that, so there should be no reason that you can't see that pretty easily.

Obviously, we have in Production Enhancement the Compressco situation, and one would hope that we would be able to talk more about that in the relatively near future, so that we can move on with getting that accomplished. That being a positive as well.

So I think there are some very key things going on during the year that you can look to and that we will have to discuss as we get into each of those time periods.

Two quick follow-ups. One is on the rig count on the Fluids side, what percentage of your Fluids business comes from the Gulf? Can you give us a rough idea?

Half, give or take.

Then the other question on the Well Abandonment margins --.

Remember when you are talking about rig count now, rig count is flattening; but remember the key here is completions.

Exactly. It is a delay.

You have got a bunch of deep wells that have been drilled over the last couple of years and will be drilled this year that are going to be completed and brought on to production. It is going to be that completion trend that is going to be just as important as the fact that rig count is beginning to flatten for the first time, which is positive as well.

Okay. Then you said that on the Well Abandonment side, you would hope to be asked at the end of the first quarter. You're almost two months into the quarter. Can you give us any sign for how good the quarter is going?

Well, I think that Stu just told you what was happening in the quarter. I think the jobs -- and I will let him address it. But the job margins I think are fine.

It is just activity out there has been slow because of weather, and we are going to have to push as much of it into the second quarter and the and of the first quarter as possible.

Yes, and again it is all weather-related. As we go through the first quarter and explain it, that will be part of what we talk to.

But unlike 2007, the job margins are not bad. Is that correct?

Yes, the job margins and the terms of the contract are very favorable, and we are hitting those. So the operational side and the job margins are fine. It is just the overall utilization due to the weather is the issue.

That's very helpful. Thank you.

Joe Gibney with Capital One Southcoast.

Good morning, everybody. Most of my questions have been asked, just a couple of housekeeping items. I was curious what the split was with crude and gas production on the quarter.

I think it was modestly oil, maybe 51% or 52%. Oil has historically been 55% to 60%; but as we start bringing on the Cimarex properties -- and we had just a very little amount of that in the quarter -- we are going to go more towards the gas side of it such that it will be at least 50-50, if not 55-45 gas by the time we bring on all of the Cimarex properties.

Okay, that's helpful. Joe, just if you could update us a little bit here on '08 on the tax and CapEx assumptions.

I think the tax assumption is roughly 35%. I would run with that.

And CapEx?

CapEx, $280-some-odd-million. Let me -- yes, about $290 million of CapEx. If you refer to our January 14 press release, and then there are a couple of footnotes on the corporate expenditures, it is about $290 million.

Okay, appreciate all the quantifiers from the seasonality to your earnings here. Certainly understand the lower activity levels on the WA&D front.

Just curious on Fluids. How should we be thinking about I guess top line here as we move into the first quarter? Understand certainly we are going to have some margin appreciation. Understand the potential here on the deep water side in the second half of the year.

Just how do we -- should we be looking at given your roughly half your business here Fluids on the US Gulf of Mexico side, sort of top-line sequentially as we get into the first quarter here? And the effect of the lull on that business as well?

I don't think there is going to be dramatic shift in the first quarter versus the fourth quarter on the top-line in that business. I think you will see, as I said earlier, a little bit of improvement with some of the inventory positioning. But top-line volume is not going to be significantly different.

All right, that's helpful. One last follow-up just on the Production Enhancement side. Obviously, your efforts here internationally on the Eastern Hemisphere front. Joe, could you just update us now? What percentage of this business right now is international?

Are you speaking Production Enhancement?

Yes.

15% would be a good bet. The Fluids business is the most international. Geoff, getting back to the question when you mentioned half of our business is Gulf of Mexico, you were speaking domestically, I presume?

No.

Okay.

All right. That's helpful, guys. I appreciate it. I will turn it back.

[John Elisaker] with Gruss & Co.

You talk about the current environment and outlook for wellhead compression both in regards to pricing and margins?

Again, we have to be a little delicate given what we're doing. But our business historically, we bought Compressco in 2004; and it had a 31% PBT margin.

We have told people that we have been able to raise prices consistently as costs have gone up to continue to have a 31% or better PBT margin, and I see no reason that history and the future aren't equivalent.

We have had no difficulty at all. Remember this is not the compression business as much as it is the Production Enhancement business. This is a piece of equipment in the case of Compressco that goes on the wellhead, not on a pipeline.

So it really needs to be looked at as a little different type pricing than you would if you were looking at Exterran and seeing what they can do.

Got it. In terms of your allocation of that compression, what percentage is conventional drilling versus unconventional?

Originally we thought, as did the Compressco people, that the shales and coal-bed methane applications would not be very useful with our equipment. That has turned out to be incorrect. We have had a substantial amount of demand out of those areas for our equipment.

But because the equipment originally -- going back to let's say five or six years ago -- was all in conventional drilling, I'm going to pull a number out of my whatever; but I would bet that it is about 10% or 15% unconventional right now, 90% conventional.

However, that unconventional portion is probably growing faster then the conventional.

Thank you.

Stephen Kalish with Schottenfeld.

Yes, I think you pretty much touched on what I was going to ask. But to whatever degree you're able, can you please update us on the contract conversion in Compressco, both in terms of timing as well as progress and converting the contracts?

I had that conversation with our lawyer this morning to see what I could and could not say. I am precluded, I'm sorry, to give you any of that. I would love to. But because we're in technical registration, that is new information; and if I did that I would have to issue a press release.

I guess all I can say to you is the same thing I did earlier. That is, that if there was any change in terms of the direction that we were going, we obviously would have to say something to you versus what we have said in the past.

Timing of it, we are moving along getting contracts converted. It has been somewhat slower than we thought, only because it has taken a lot of time for the lawyers to get involved with all of this. But it is moving ahead.

Again, I am sorry I can't give you an exact timing sequence, because I just can't.

I guess then in terms of just your strategic outlook would it be safe to say you're as enthusiastic about its effect as you were prior?

The only thing that is changed from my perspective is that if it is coming out at all later than what we said, it ought to have higher earnings than it had originally. Because sequentially that business has been growing on a quarterly basis.

Great, thank you very much.

Victor Marchon with RBC Capital Markets.

Thanks. Good morning. I just had a couple questions on the Fluids business. I wonder if you could just help us out on the deep water side to the extent of how much revenue is coming from the deep water today, a ballpark number.

And what that could look like looking out a year or two from now as the completion activity picks up in the latter part of this year.

You want to try that?

Yes, I don't have an exact percentage. It is certainly a growing number, but it is a relatively small number at the moment that has the potential to make up a very significant portion in a year or two. But I would be throwing out a number that I am not comfortable with.

Maybe I will answer that a little differently; and Joe, you can throw in if you have, or Stu. But our internal estimate is that it is conceivable that the Gulf of Mexico market could be twice as large by the end of next year as it is right now. In other words, it could double in volume.

That is probably the outside, but I would say a 50% to 100% increase is plausible in terms of the market for a short period of time, given all of these completions that are going on. Is that anywhere near?

Yes, that is probably of that magnitude.

I'm sorry, what was that time period?

By the time you get into the latter stages of 2009. Remember this is a 2008 through '10 event; and maybe obviously a lot longer than that if the ultradeep water continues to be as positive as it is. If it is, it will go a lot longer than that time period.

Obviously, you've got international markets that are doing the same thing. But in terms of the known existing wells in the Gulf, if these all come on at one point in time, at least the heavy fluids, the bromide types, would probably be a 50% to 100% growth. I don't know if calcium chloride would grow that much, but clearly, the more expensive fluids would.

Can you just update us on the pricing differential that you see from a shallow well or an onshore well to this ultradeep water?

Well, it is not so much a price per barrel. That doesn't change. Some of these ultradeep water wells are using between 5 and 10 -- in fact, we have seen one that used 12 times -- as much fluids as a conventional well.

The reason for that is that you have huge risers that have to be filled up, that go through the water. Then you have usually, because of the volumes, very substantial casing in terms of the size of the casing. That is a geometric increase, not an arithmetic increase as it gets bigger in the tubing.

So the net effect is that when you start adding up 7,000 and 8,000 feet of water plus a 10,000-, 12,000-foot well with bigger casing and a bigger riser, you get a dramatic increase in the amount of fluids that you have to use, both for drilling and for completion. Obviously in our case, we're on the completion side.

So you have got these dramatic cost increases; but it's not because the product itself costs any more. It is the volume you are using.

Okay. I thank you for that. The other question was just on the onshore market. I wanted to see if you guys are picking up any indication from your customers, given where natural gas prices have gone, of any pickup for this year just on the US onshore piece of the business.

Well, I can tell you that in general in the Fluids and Testing side they are hitting us up for their CapEx earlier than they had said, which would indicate to me that they have got demand growth out there maybe a little stronger than they had previously anticipated.

Great. Thank you. That's all I had.

Thad Vayda with Stifel Nicolaus.

Good morning. I just wanted to follow up quickly on Well Abandonment services. Given the comments earlier on competition, are there any products, services, skill sets for the remaining storm-related down platform work that are bottlenecks at this point in time? Or where you guys feel you have a distinct competitive advantage?

I don't think there is any one service that would fall in that category of being a major bottleneck or where we have a major distinctive advantage.

I think our strength overall, as we have said, is we have got a pretty good suite of services that we can sell individually or collectively; and a good project management capability to run some of the larger projects. So I think it is nothing dramatically different but, again, consistent with our overall strategy of being well positioned depending on which way the customer goes.

The two areas that originally had the problem, diving, is a lot easier than it was before because the divers that were being used to repair the producing platforms and the pipelines have pretty much done that work.

The divers that were being used for down platforms, that is a growing market. But you have been able to at least soften up a little bit the shortage. So the diving isn't a pressure point.

Then the other real pressure point initially was in the Well Abandonment area. I would say if anything that has remained pretty tight in terms of demand from our customers. Because they are aggressively not only going after the down platforms, but they are trying to get rid of the standing platform liability as well, especially wells that are not producing.

So that remains, I will call it, a tighter market but not as tight obviously as it was in early '06. The diving has certainly loosened up from where it was in early '06.

Thad, broadening your question a bit, looking at beyond just the down platforms, I will mention that we have innovated some new subsea P&A technology that has been well received by the market.

So we do continue innovating new products and services in this area.

Okay. That's helpful. From a business model perspective, you may have touched on this earlier, but the opportunity for something other than turnkey type of projects. Is it your expectation that going forward it is going to be a mix? Or is it going to fall more along the lines of the type of contract that we saw Superior awarded not too long ago?

I will give my $0.02 and if Stu wants to add something to it -- TETRA historically has had about 35% of its work in this area as turnkey. We told you that we were not going to do turnkey until we were very sure that the margins that we were generating were sufficient for our model, as to what we thought we needed to generate to create a growth model for our Abandonment business.

We are not taking turnkey contracts. However, there are turnkey contracts out there, as is evidenced by the one that you discussed.

I would expect somewhere down the line that we will go back to taking some turnkey work once we are very comfortable that the returns that we are getting are adequate. Do you want to add anything?

But at present we're not going down that path. We don't have that risk with our backlog and don't anticipate that in the near future. We have been pretty disciplined internally over the last year staying out of that arena.

Okay. Fair enough. Then I guess the last question is, what about opportunities for international growth in this business?

We continue on the Well Abandonment to chase several opportunities internationally. We are optimistic that we will start to see the benefits of some of that in the future.

I think that on a longer-term basis is going to be a very attractive growth opportunity for this business.

One of the things that we try to do, as we explained in our Testing strategy a little while ago, our Fluids strategy, on the integration which is something that was 20 years in the making.

Our strategy on Well Abandonment in 1995, and looking at it at that point in time, was that there was a growth model in the US not because of the hurricanes but for things that we have discussed before, and I would be happy to discuss individually again.

But looking at that, we needed to figure some way that we could continue to have a model that would work until our expectation -- which was 2010, approximately -- the time when we thought international markets would open up.

Obviously, the strategy with Maritech allowed us a bridging mechanism to get there, as have the jobs now because of the new work created by the hurricanes.

But we still believe that that is kind of the time period, give or take a year or so, that you will start to see material work in some of the international markets. As Stu said we are actively pursuing those and would certainly hope to be involved in those markets in that kind of time period.

Great, that's helpful. Thank you very much.

There are no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Thank you. We will be back in touch obviously at the end of our first quarter. Hopefully all of the items that we're mentioning today will continue to improve in that time period. Thank you for joining us.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.