Tetra Technologies Inc (TTI) 2008 Q1 法說會逐字稿

Welcome to the TETRA Technologies first quarter 2008 results conference call. At this time all participants are in a listen-only mode. A 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. Thank you, Mr. Hertel, you may begin.

Welcome to the TETRA Technologies first quarter 2008 earnings conference call. Joe Abell, our CFO, and Stu Brightman, our Chief Operating Officer, are in attendance this morning and will be available to help answer any of your questions. Joe is going to give you a short review of our first quarter financial results, then I'll follow with a short presentation, which will then be followed by 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. These statements are based on certain assumptions and analyses made by TETRA and are based on a number of factors. These statements are subject to a number of risks and uncertainties, many of which are beyond the control of the Company. You are 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. Joe, will you begin with the financial review.

Revenues in the first quarter were $225 million, down 7.6% from the first quarter of 2007. Gross profit was $42 million, 26.8% below the prior year's first quarter. General and administrative expenses were up 6.6% quarter over quarter due to $25.1 million, as a percentage of revenue G&A expenses increased to 11.1% from 9.7% largely as a result of the diminished revenues. Net income before discontinued operations for the quarter was $7.4 million, or $0.10 a share fully diluted, compared to $20.3 million or $0.27 a share fully diluted in the same period last year, a decrease of 64%. Net income including discontinued operations was $0.09 a share fully diluted.

Looking at performance by division, revenues in the fluids division for the quarter was down 8.1% compared to last year's first quarter, largely due to reduced revenues in our domestic chemicals business. In upcoming quarters we expect revenues to pick up as ultra deepwater completions in the Gulf of Mexico escalate. Profit before tax was $6.8 million, down 13.9% over last year's first quarter for this division. Revenue in the well abandonment and decommissioning services segment was down 42% quarter over quarter, mainly due to excessive weather disruptions in the Gulf of Mexico, decreasing vessel utilization. Profit before tax was negative $4.1 million compared to positive $11 million in last year's first quarter.

Revenue in Maritech Resources, our E&P segment, was up 16.7% quarter over quarter, to a record level, with profit before tax was 7.4 million, down 34% compared to the first quarter of 2007, largely as a result of higher DD&A and decommissioning expenses. Revenue in the production enhancement division set a record and was up 34% quarter over quarter. Profit before tax was a record $15.4 million, an increase of 34% versus prior year's comparable quarter. Activity was strong both domestically and internationally for our production testing and compression businesses. Corporate overhead was up 21% quarter over quarter, to $14.4 million, primarily as a result of higher interest expense, insurance expense, professional fees, and general expenses. We had approximately $67 million of cash, capital expenditures in the quarter. Our debt increased by $3.7 million during the quarter to $362 million. Debt to total capital was 45.1% at the end of the quarter. We consumed about $22 million of our cash balances in the quarter to fund our CapEx program. With that, I will turn the conversation back to Geoff.

Quite frankly, my comments today are going to be very short. The time for talking has passed, and the time for performing is here. We've invested a significant amount of time and effort and monies during the last year to further most of our long-term strategies. In fluids we've signed agreements and are spending over $100 million to build a plant that in combination should begin to reduce our costs of products this year. Well abandonment services, we've invested heavily with our time and personnel to make sure that the operating issues that began manifesting themselves around June of 2007 do not happen again this summer season. We feel confident that we have these previous issues under control.

Maritech, we've spent considerable monies buying new properties and then beginning the process of exploiting them. We've recently been confident enough in our results to hedge 56 million cubic feet equivalent a day for the second half of 2008. For comparative purposes, that's just slightly less than the production volumes during the quarter of this year. As most of you know, we do not hedge all of our expected production. Therefore, we're obviously expecting production increases over the levels attained during the first quarter. Which, by the way, is consistent with the April 7, guidance that we gave you.

Finally, we have invested heavily in equipment and acquisitions in our testing business over the last couple of years. This was to geographically expand our domestic operations and to further diversify internationally. You have seen part of the impact of this in our first quarter, and you should see more of that impact as we move through 2008. We began to implement most of our current long-term strategies about eight years ago. During that time we've experienced dramatic growth. However, during 2007, some of these strategies created short-term head winds. There I suggest that the major parts of those were in fluids where we terminated a contract, and in the difference in pricing that we experienced in Maritech. Additionally in 2007 we tried to implement one of these strategies in well abandonment services too rapidly and caused numerous operational problems. These issues in 2007, all of those, should not persist in 2008. Therefore, during the second quarter of this year, we should begin to see the improvement to our bottom line that we anticipate. For a graphic representation of this improvement, please refer to our April 7, 2007, press release. We'll now entertain any of your questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is coming from Stephen Gengaro with Jefferies & Company.

Thanks. Good morning, gentlemen. I guess a couple of things. The first, from a big picture perspective, how should we think about Maritech? Because traditionally my sense has always been it's a great sort of service to your customers to backlog the well abandonment work and to help you from a logistical perspective and a backlog perspective, but it seems like there's an increasing sort of focus on the production profitability side of it, as a driver of earnings. So how do we sort of think about that as TETRA evolves over the next two years?

Well, two points here. First of all, if you look back at our -- probably our last year of public appearances, we've indicated to you that there's really a dual role for Maritech today, where as we had a singular role when we initiated it in 1999. Originally it was exclusively to base load business for our well abandonment business. And clearly that is still a driver for this business. But as we evolved, especially in 2002 and 2003, and into 2004, it became very evident that the model we had for Maritech was a very profitable model, and we indicated to all of you we would take advantage of that. So it is a dual-purpose entity, if you want to think of it that way. It is there to base load well abandonment, and it's there to optimize profitability as an exploitation company. However, having said that, we are very cognizant of the need to keep it very well balanced within the operations. We do not want to overwhelm TETRA as an exploitation and production company. And clearly we have the ability to do that, given the opportunities we have out there for Maritech, but we have chosen not to aggressively increase the size of the, above where we are so that we have a balanced portfolio for you within the well abandonment division, much less within the total TETRA entity. Does that help you?

That does help me. And you're comfortable sort of with the risk/reward there, I'm assuming?

We think the opportunities clearly are there and that we should be putting some of our money toward that exploitation.

Okay. And then as we look at the well abandonment side, it seems like there's been sort of underlying progress here. Can you -- can you give us some sort of sense of how you expect the margins to evolve over the next couple of quarters?

Yes, I think two parts of that question. First, the ongoing progress, I agree with you that we continue to make operational progress and feel very comfortable as we he go into the second quarter and the weather begins to improve, that we'll migrate the earnings per the recent press release that we did. Again, the second -- I think what you will see is the second, third quarters will be significantly better as that press release had stated, and I think due to the late start of the season, because of the bad weather, we'll see that high level of activity continue into the fourth quarter as well. I think in aggregate we'll start to see the margins consistent with what we've talked about previously in that business. Right now the weather has cleared up, and we're seeing the type out of utilization that we expected for major assets, those being the dive vessels and the two barges.

So there's certainly the move away from this turn-key approach is, you think is really paying dividends, and we'll start to see the benefits of that beginning in the second quarter?

We'll start to see the benefits of the operational improvement in the contracting strategy in the second quarter.

And then just finally, just to remind us, the assets in that, the three DSVs, and the four spreads, is that right?

It's the three DSVs and the three barges that we have for heavy lift.

And then obviously the diving assets.

And then the other diving assets, but we really focus in on the diver utilization, and the utilization of those three assets, the dive vessels, plus we have a portable SAT system that has been very well utilized and will continue to be the balance of the year.

Very good. Thank you.

You're welcome.

Our next question is coming from James West with Lehman Brothers.

Good morning, guys. Quick follow-up on the WA&D business. If we look out into -- I know the season really kicks off in May, or mid-May, then goes through at least the end of the third quarter. So I guess you're suggesting that the fourth quarter could also be fairly good. Are you sold out now for the majority of the summer season?

We are beginning to increase the backlog significantly. We still have available capacity, which is consistent with what we expected. But we believe that we will be very heavily utilized and close to capacity through the third quarter, and I believe that will carry into the fourth quarter as well, based on the late start of the activities.

Stu, isn't it fair to say that on an historic basis that the kind of jobs you're talking about that aren't yet in-house are the ones that are normally let at this time of year, and it's just a function of bringing them on?

Yes, just to give clarification, we've got several major bids outstanding that are typically decided at this stage over the next month. And all the market assumptions, bid assumptions, win/loss are consistent with what we think will happen per the press release we made, so that's firming up according to our assumptions.

One additional question on the fluid side of the business. We're working through obviously the older brooming that was in inventory. Could you give us an update on where we stand there and could we see the full impact of the Chemtura agreement before year end?

I think we had stated several times we'll begin to see the impact during 2008, and we believe we've seen slight evidence of that the first quarter, we will see further evidence during 2008, and we will see ongoing continued progress in 2009 and '10. So again, we won't see the full impact this year but we will see the beginning of the impact consistent with what we believed would happen.

Remember in that case that you're talking about, inventories by location, by product, and there's an averaging effect of that. So you are going to be washing through it and reducing your costs as you go. However, there may be specific locations where you either have a lot of old inventory and have very nominal profits on that business, or you have a lot of new inventory and may very well have extremely good profits on that business. So you are going to see a little bit of lumpiness, but the average should continue to improve as Stu stated.

That's very helpful. Thanks, guys.

Our next question is coming from Marshall Adkins with Raymond James.

Good morning, Geoff. Your guidance from April, $1.30 to $1.55, from your tone it sounds like that's very much intact. Is that a fair statement?

Well, having been very careful now on how I state things, let me state what we've said, since we didn't write anything in the press release. A month ago we made that reconfirmation, and this morning we told you that all of the segments improved slightly over what we had assumed in the April 7, guidance.

So--?

So since we didn't say anything, I can't say anything on the conference call that I didn't say, but I think the inference is there.

Okay. That's what I thought. Just want to make sure. Let's go back to Maritech. I've got a few questions on that specifically. It looked like the costs were a little bit higher than we had been modeling. Could we talk about that? Also get more specific on what your run rate was exactly in production. I think you mentioned 56 million a day. Then you talked a little bit about having a lot of projects potentially, I guess, it's the -- if the money is there to pay for them. Update us on that. This kind of overall on Maritech, update starting with the production run rate.

Okay. Well, first of all, on the cost side of it, there was some abandonment increases that we ate, 2.9 million, $3 million in the quarter, so that hurt it a little bit. But probably more important, I think we indicated last year that we were working off of 2005 projects, that we needed to enhance what we were doing with new properties, which we did. So your DD&A rates continued to build through the end of the year. As we bring on the new stuff that we've got, we're beginning to drop those rates. What you will find as you go throughout the year is we add the new wells that were drilled and exploited during the quarter, as we add the production that we're getting in from the Cimarex operations, remember, when we bought Cimarex, we actually had most of its production shut in. They were subsea wells awaiting a pipeline. Our pipeline was finished in the last three weeks and we brought on part of that production on the northern side. We have three additional wells that we'll get on stream in July. They're awaiting hook-up because we're currently drilling on that platform an exploitation well. When that's finished, we'll hook that production up.

So net-net you are going to have a substantial increase in production, which began this month and will carry through July, which will increase the total production, number one, which is why we hedged more. Secondly, it will help begin to bring down the DD&A rate, so your percentage will be higher, hopefully on the profitability side. And finally, hopefully we don't have any additional well abandonment costs on any of the properties that we're exploiting this year. Does that help you, Marshall or do you want me to go into more detail?

Well, on the, obviously production ramp-up, could you get to 65 million a day by July? I mean, discounting in order of magnitude what you're thinking of new production versus decline rates on your existing stuff?

I think we've made the statement before that we could exceed 70 million cubic feet in the second half for part of it, and I think that's very legitimate. We were at 58 or 59, somewhere in there, at the end of the -- or for the average for the quarter. I would be very surprised if it wasn't up at the levels we indicated.

Very nice. All right. Last question. Joe, you mentioned a CapEx number, which I didn't hear exactly, but update us on your CapEx plans and again, just repeat what you had mentioned on where CapEx was for the quarter?

Okay. Marshall, we had approximately $67 million of CapEx, and that's applied to each of our businesses. You're aware of our Arkansas facility. That's consuming a certain amount of the CapEx. Maritech, with the drilling program, following the Cimarex and Stone property acquisitions is consuming some of that CapEx. Relatively modest amount in our well abandonment and decommissioning division. That's mainly maintenance-level CapEx to date. We are seeing significant opportunities to expand our production enhancement businesses. The testing and compression businesses. So we continue to reinvest in those units.

So for the full year we still thinking $250 million of CapEx, or is it--?

We had guided at $294 million at the beginning of the year, and we see opportunity to expand that number as the year progresses, so I don't see it going down.

Okay. Good. Very helpful. Thank y'all.

Our next question is coming from Joe Gibney with Capital One Southcoast.

Geoff, just curious if you could give us an update on where things stand on Compressco, if you can?

Well, I probably can't say anything that I haven't said before, since we're not giving you specific data on Compressco, you can infer that we're continuing through the process. As all of you know, the issue that we have with Compressco is making sure that all of our contracts are consistent with a service provider, and are not implied to be leasing contracts. Again, if you go back and look at [Extel], when they did their MLP they wept through the same process. It is sometimes agonizingly slow to go through this with big oil companies, but we've been doing it, we will continue to do it, and we really don't have an update for you in terms of any changes, which I would hope would be good news. When we can give you dates we will do so.

That's helpful. Just one follow-up on Maritech. Curious if you can give the oil and gas percentage split on your production in the quarter?

I think we ended the quarter -- I think the oil portion of it was slightly less than the gas, probably 55/45 gas.

Okay. Thanks, guys, I'll turn it back.

Our next question is coming from Daniel Lewis with Orange Capital.

Good morning, guys. You spoke a little bit on the cost side with respect to the fluids division, but I'm curious on the pricing side, if you could talk a little bit about what's going on competitively in the industry and where you guys think pricing is today and where you think it's going in terms of your outlook?

Yes, I think in general, on the fluids pricing, it's been relatively flat, been consistent with what we had assumed going into the year, and those assumptions are included in our outlook for the balance of the year. So nothing major, either direction, on that.

Is that a function of there's just a -- I presume the demand side is pretty strong, but is there additional industry supply or? I would think in this environment pricing would be moving a bit higher.

Well, let me comment on that. Remember, the one unique part about completion fluids is that that market has actually been in decline for the last six or seven years, because the largest component, by far, of that market was the Gulf of Mexico. And you know what's happened there. The unique part of the fluids market is that with the international growth, the onshore growth, we now believe that the Gulf of Mexico will be increasing dramatically in 9, 10, and 11 as the deepwater and ultra deep waterwells get completed. Remember, you use multiples of the amount of fluids, just like you do on drilling, on completion for those wells. So we're actually going to see a market that should be growing, hopefully by the fourth quarter of this year, in the Gulf, complemented by the international growth that he we see as well as the onshore growth. So we're actually looking at a market that had not been growing for years, which is probably the only service company you could name that hasn't had growth over the last few years. But that was a function of having roughly 65% of the market sitting in the Gulf of Mexico when the Gulf of Mexico declined.

Okay. And then in terms of your hedging profile, could you provide a little bit more granularity on what you've -- what and where you've hedged for '08 and into '09?

We have 35 million cubic feet a day hedged for the second half of '08 in gas, and we have 3500 barrels of oil hedged for the second half of '08. In '09, I think it's 25 million, and 2500 barrels a day.

It's all spelled out in our Q, which will be filed today. You will have all that information there.

Okay, great. Thanks, guys. Appreciate it.

Our next question is coming from Matt McGeary with Sentinel Asset Management.

On the well abandonment side you have been talk about how you feel pretty good about operational issues being all but solved. I guess, given that you made a lot of those changes during the not busiest part of the year for that business, what gives you confidence that when business really ramps, that you have those things nailed down?

A lot of those changes were made actually during the busy time of 2007. So we were executing the second half of the year with a lot of those changes in place and did a real good job executing. So we've got the history of the second half of 2007, and that gives us the confidence that as we get into the second quarter and beyond this year, we'll continue to execute that way.

Thanks.

Our next question is coming from Mike Harrison with First Analysis.

Hi, good morning, gentlemen. What's your sense of the level of urgency among your WA&D customers for getting work done this summer, whether it's pressure that they're putting on themselves or pressure that you see coming from MMS?

I think there's, as we had expected, a strong degree of urgency. To me it's mostly coming from the customers wanting to continue to accelerate that activity. We're seeing that in the form of some of the awards that have been given, as well as some of the bids outstanding as well as just ongoing discussions. So I think the full impact of that will be seen over the next two-plus quarters.

There also is obvious understanding within the industry that the MMS has been giving the industry a pass, of sorts, since the storms in an effort to make sure that the industry can gear up adequately to solve their problems. Over the last 12 months, the MMS has been very diligent in bringing every operator in the gulf in to see where they are on wells that are no longer producing or platforms that are no longer producing or platforms that are on the bottom, and they're asking you to give them an update quarterly as to what you're doing and you need to move forward with that fairly actively. It does not mean that they're changing the rules at all. It just means that the MMS is making sure that the industry is moving toward resolving the issues, particularly with these down platforms.

And then presumably gross profit and profit before tax for WA&D Services both look like they're tracking below the range that you provided in January. I was curious about the top line. Is it still possible that you fall in the range of [3.16 to 3.45] in revenue, or would you expect to be belong that range in WA&D Services.

I think we will close to the bottom of that range as we looked out for the full year.

We said in the -- I believe April 7, that the earnings range would be below what we gave you for WA&D, and it would be higher than what we gave you for Maritech. The obvious reduction in business that you had in the first quarter, if we're as busy as we think we're going to be with our equipment, will not allow to you make up that business later in the year. If that's the case, then your revenues are obviously going to go down. As Stu said, whether they're below the range or at the bottom of the range is a little hard to determine at this point in time.

And then maybe a question for Joe. What's in that other expense line this quarter? And do you anticipate that that expense will be of similar magnitude going forward.

The hedge in effectiveness, we had about $950,000 of ineffectiveness out of about a $30 million change in the hedge value for the quarter, so very nominal percentage of the total, but if some of that change is not perfectly correlated, we have to take it to earnings currently, and that is what's in that number.

It's kind of an unrealized loss? Is that the right way to think about?

Yes.

Okay. And then with the changes in interest rates that we've seen recently, I know you guys have quite a large portion, or a significant portion of debt that's floating rate, and then obviously we saw the private placement that you just did recently, but any other plans in the works to lock in a lower interest rate on some of your debt?

No plans currently. $125 million private placement that we concluded at the end of April is sufficient for our near-term needs, as far as we can see.

Joe, isn't it accurate that with that, we don't have that much floating debt any more?

No, not much floating at this point, and we, with that CapEx program, will ramp up a bit more on the line of credit, which we will allow to float, but the preponderance is fixed debt.

All right. Thanks very much.

Our next question is coming from John Emerich with Iron Works Capital.

You gave the CapEx outlook. Just a couple related follow-up questions. One, what's in there and what are you spending on things that you can say comfortably won't reoccur next year, like a headquarters or an Arkansas plant, things like that?

Well, there's $100 million in there, roughly, that isn't going to be replicated in '09, although there's still some residual costs from those two projects. One is the building here, where we have four buildings of people, and we're building a building right beside where we are to house all four of those, and we'll get out of the leases in those buildings. Much of that cost is this year in that we're supposed to move in, in March of next year. Secondly, Joe, 65 million, is that the right number I believe of monies for our Arkansas plant are being spent this year, which means you are going to have another 30 million next year, but in total, the two in '08 add up to about $100 million. The rest of the CapEx is generally growth CapEx. I think we've thrown out historically that we may have 30 million to $40 million of maintenance CapEx. In the case of Maritech -- excuse me, in the case of Compressco, much of its maintenance CapEx is expensed and not capitalized. So we really have a fairly small amount of what would conventionally be called maintenance CapEx.

And in prior disclosures about the CapEx for the year you did say debt would rise this year. Do you know how much the shortfall relative to cash flow from operations your CapEx is going to amount to this year?

We had estimated debt would rise about $40 million.

So with a $40 million shortfall this year and hopefully vastly improved profitability next year as well as $100 million of CapEx that goes away, we think we'll be free cash flow positive in '09, understanding that that's a long way off and lot of things can happen between now and then?

Yes, certainly. And as Geoff pointed out, most of our CapEx is growth CapEx, so to answer your question, it's all a function of how much growth we want to sustain. Therefore, if we have a -- an acquisition that changes the outlook, if we he lower the amount of growth CapEx that would significantly increase the amount of free cash flow.

And then the last question is whether you're looking at a growth CapEx opportunity or a headquarters expansion or an acquisition. What kind of return on capital -- invested capital discipline do you guys use internally to figure out if you're going to do it, and if so what you'd pay? An IRR hurdle or EVA or anything like that to figure out what you're going to do and what you're not going to do, what you're going to walk away from?

We look at a lot of things. A 20% rate of return is kind of a minimal amount. It depends if it's strategic. We can go below that. Generally if it's equipment, which is where we spend a lot of our dollars, it better be damn well a lot above 20% given the fact that the oil industry historically is a cyclical industry and you don't want to go out and buy equipment at a 20% kind of a return. But, again, it just depends on what it is that you're trying to acquire. Equipment would require much higher than that. A very important strategic transaction might go below that.

Super. Thank you very much.

Our next question is coming from [Michael Samook] with Wolverine Asset Management.

Thanks for taking my question. Couple questions. Excuse me if they've already been touched upon, on the call. I hopped on late. But can you talk about the inherent seasonality in the well abandonment side of business, ex weather related issues? Is it in part budget driven, or is there not really much seasonality as it is? The second part of my question is, I just wondered with higher product prices, if you're seeing enhanced recovery techniques starting to cause marginal well abandonment bookings to maybe slip a little bit?

Yes, on the seasonality aspect of WA&D, it really is pretty much exclusively weather related. As we look at our business, we typically expect first part of May for the offshore weather to improve to allow to us go to that full utilization, and that typically will run through the third quarter. And as I mentioned I expect it will run partway through the fourth quarter this year. There is some year-end budget, but it's really not a material impact. When we think of our well abandonment business we're really looking at the overall demand in activity which we think is going to be strong for the reasons we mentioned, and then we really focus on the seasonality of it.

How do you typically budget weather using some forecasts and--?

We'll go for history. We've got all the history of what our utilization has been by month and quarter, what the weather has been offshore, factor that in, and again, we take it into consideration, and unfortunately the weather in the first quarter was just dramatically worse than history and more than we have forecasted, but we use all the statistical data that we have available.

During the preponderance of the year for WA&D, you're talking about May through October taking some hurricane time out of that. But other than that, you're expecting to work pretty fully. The rest of the year is a hit and miss, and you're trying to look at various jobs that you may have budgeted, pull out and try to do in that time period, but it's a much more difficult time to look at.

And your other question, by the way, since much of our well abandonment is in the Gulf of Mexico and since the Gulf of Mexico has a high threshold, if you change from 100 Mcf a day to 150 Mcf a day, or if the oil price goes up to 125 from 80, once you trigger across that threshold in the Gulf, your operating costs are such that there isn't a lot of difference on the marginal well, whether you keep stuff producing or not. You don't have the ability to go in and put a pump Jack on. You don't have the ability to do some of the other things you can do onshore to keep a well producing longer. So the effect is fairly nominal to our budgeting purposes and to our customers' purposes.

One last question, if I may. If business slips because of weather-related issues, what percentage of that business are you able to generally retain because you might have some capacity, and what is permanently lost?

Most of it will slip to a later period. There will be a portion that we can claw back through utilization, but the majority of it, in my opinion, gets deferred into the next year. And you don't lose it. It's just a timing issue.

Majority being 80%, or?

Yes, I would say at least that.

It depends on the year. If it's a slow year, you can make up all of that, as Stu was trying to indicate to you we think it's going to be a pretty active year for us, and therefore we don't have the ability to go out and do that incremental work unless we want to do what we did a couple years ago, and that is to take additional vessels under lease for long-term period. And we haven't shown a proclivity to do that lately until we're in a position to make enough money here that we're comfortable. Okay, thank you.

(OPERATOR INSTRUCTIONS) Our next question is coming from [James Carroll] with [Lewis Sales].

Just a big picture questions, if we were to go back to 2004 and look at capital spending dollars, I come up with something like $1 billion has been spent, including the $294 million this year. And, we've seen a big increase in revenues, but when we look at profitability, it's half of where it was in 2004. And I realize, this is focusing on a couple of bad years in '07 and the first quarter of '08, but the question is at what point, or is there a point where you look at the business strategy that you've undertaken and say, maybe it's time to rethink this? That is, are there more spin-offs or asset deployments that you could do that might improve the overall profitability of the firm outside of the current business plan, which seems to be spend more money until we get this business turned around?

And keep -- I'm looking at this from the perspective of over the last 12 months, TETRA has been arguably one of the worst performing stocks in the universe, and now sells at one of the lowest multiples. So is there a way that you could do something that might -- I mean, I view the stock as a bargain here, so is there a way that you could help the shareholder out by engaging in a major share repurchase program, or something that would kind of bring out the underlying value in this Company?

Good question. I guess I'm a little confused with the premise. I'm looking at our data here. Our 2004 earnings were $18 million. Our 2006 earnings were $102 million. And while we're not going crazy this year, I think at the level of activity that we're talking about, we're approaching $100 million in earnings. So I think going from the $18 million to the $38 million to the $102 million, granted last year, as we all know, were abysmal, I think the investments we're making are something that we have a lot of confidence from a strategic position are yielding very good returns in most of the areas. We did obviously last year say we're going to spend $105 million, I think, on the plant. That plant was going to cost us 30. It ended up costing us 40 million of profit last year. You spend $100 million, you have a $40 million loss, and you bring in $45 million of profit for three decades. I think that's a good return long term, but we obviously ate that. The premise, I guess, I have a problem with. We think we've got businesses that are growing that we think we can make very good rates of return on. The production enhancement business has been making records each quarter. Obviously in fluids we've got the issue that we've talked about, and what we're doing about, and our performance last year was abysmal in well abandonment, which we think we're improving upon. So again, Jim, I've got to -- I've got a general question with the premise.

Well, I'm just looking at operating earnings, and this is going to include charges that you have taken. So I'm sure we can define the earnings a lot of different ways.

Operating earnings in 2004 were $23 million. Operating earnings in 2006 were $160 million. Granted, in 2007 with all of the various things, the write-offs on insurance, that affected you.

I show something like $18 million in operating earnings in '07. So if we go back and look at 2004 to 2007, let's just say there hasn't been any meaningful earnings growth. Obviously it depends on how you want to deal with those charges. That's not really even the point. The point really is more, this is an incredibly cheap stock, selling at one of the lowest PEs in the space, and, I mean, at what point would you say, well, you know what, we really need to address that, and is there anything that we can do to kind of take advantage of the value that's in the stock price right here rather than continuing big CapEx spending? I'm not sure it's an either/or.

One of the things we've done, as you're probably aware, has been to do the MLP, an -- at least announce that we're attempting to do that, which should bring us some value without having to spend any additional money in that business beyond what you are normally doing. If we were to buyback stock, from our perspective it it would say us that we are not in position to invest those funds more efficiently in our own operations. And I think we believe we can invest these in a growth asset in our various businesses and do better than just shrinking the size of the Company. But I agree with you, it's very cheap, and I agree with you, if you go back and look at '07 versus '04 you don't get much of an increase, but remember, '07 had tremendous write-off of insurance receivables that we would clearly hope to receive back at a later date. So I'm not sure that's a fair apples to apples analogy.

Okay. Thank you.

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

Well, we certainly look forward to a second quarter that is a lot better than the first quarter. Again, I would hope that you don't go too crazy in the quarter. Look at the multiples that we showed you of earnings that relate to the April 7, guidance, in terms of the graphic guidance, and look at that as the type of improvement that we expect. Hopefully we have a much better conference call in terms of exciting news early in August. Thank you for your patience, and we look forward to talking to you again.

Ladies and gentlemen, this does does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.