Tetra Technologies Inc (TTI) 2010 Q1 法說會逐字稿

Greetings and welcome to the TETRA Technologies First Quarter 2010 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. Stuart Brightman, President and Chief Executive Officer for TETRA Technologies, Incorporated. Thank you, Mr. Brightman, you may now begin.

Thank you Christian. Welcome to the TETRA Technologies First Quarter 2010 earnings conference call. Joe Abell, our Chief Financial Officer, is in attendance this morning and will be available to address any of your questions. Joe will give a brief overview of our First Quarter results. I will follow with a brief presentation which in turn will 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'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 net debt. Net debt is a non-GAAP financial measure that we use to understand, manage and evaluate our business. Reconciliation of net debt to the nearest comparable GAAP financial measures are available in the Investor Relations area of our public website. This reconciliation is not a substitute for financial information prepared in accordance with GAAP and should be considered within the context of our complete financial results for the period, which will also be available on our website upon filing with the SEC.

At this stage I will hand it over to Joe and we'll start the financial overview.

Thank you, Stu. From a financial perspective, the First Quarter of 2010 was highlighted by the addition of $41 million of cash and a corresponding reduction of net debt to $233 million at the end of the quarter. Much of the cash increase was due to the collection of Hurricane Ike insurance proceeds.

Revenue in the First Quarter was $205.9 million, 5.5% above the First Quarter of 2009, but 2.7% below the previous quarter. Revenue was higher year-over-year in each of our segments, except Compressco. Revenue was down sequentially due to the stronger than usual Fourth Quarter for Offshore Services in the Fourth Quarter, followed by the typical slow down in this quarter. Gross profit was $35.1 million compared to $43.4 million in the prior year's First Quarter and compared to $66.6 million in the previous quarter which included a $40 million Hurricane Rita, Katrina insurance settlement gain along with some one time charges identified in the Fourth Quarter press release. Income before tax and discontinued operations was $8.5 million, down 53.3% compared to the First Quarter of 2009 and down from $39.7 million in the Fourth Quarter which contained the previously mentioned special items. Income before discontinued operations for the quarter was $5.5 million or $0.07 a share fully diluted compared to $0.15 a share fully diluted in the same period last year and $0.33 a share in the previous quarter.

Looking at the quarterly performance by segment, revenue in the fluid segment was up 4.0% compared to last year's First Quarter. However, profit before tax was $6.2 million, down 49% versus last year's First Quarter, due to an exceptionally strong First Quarter of 2009 for completion fluids and due to the startup cost of the new El Dorado calcium chloride plant in the First Quarter of this year. It was up 281% compared to the prior quarter because of an improvement in the completion fluids business. Revenue in Offshore Services was up 7.0% versus the same quarter last year. Profit before tax was negative $2.4 million, down compared to last year's First Quarter which enjoyed strong demand for diving inspection services following Hurricane Ike. The First Quarter is usually our seasonally weakest quarter in this segment.

Revenue in our E&P unit Maritech Resources was up 13.2% compared to the First Quarter of 2009. Profit before tax was $8.6 million down 5.9% compared to the First Quarter of 2009. And lower than the previous quarter which contained the $40 million insurance settlement gain partially offset by $16 million of special charges, once again, outlined in the Fourth Quarter press release. Production testing revenue was up 8.0% year-over-year and profit core tax was $4.2 million, a decrease of 26% versus the prior year's comparable quarter. Profit before tax was up 139% compared to the previous quarter which hopefully represented the bottom of the production testing market for us. Compressco revenue was down 19.9% year-over-year and profit before tax was $4.9 million, a decrease of 26.6 million -- 26.6% -- versus the prior year's comparable quarter due to slower domestic activity. Profit before tax was down 14.3% sequentially on flat revenues.

Corporate overhead and interest expense was $13.5 million compared to $14.6 million in the First Quarter of 2009, primarily due to lower corporate office expenses and taxes. We had $10.8 million of cash, capital expenditures in the quarter. Free cash flow which we define as cash from operating activities minus cash used in investing activities was $41 million in the First Quarter. This corresponded to the $41 million of cash increase previously mentioned. We ended the quarter with net debt of $233 million also as I previously mentioned. We have nothing drawn on our $300 million line of credit. As I mentioned on the Fourth Quarter 2009 conference call, while we remained focus on cash flow generation and cost containment with a strong balance sheet and a more favorable business outlook than we had at this time last year, we are, once again, focused on growth as well.

With that, I'll turn the conference back to Stu.

Thank you, Joe. As we review the First Quarter of 2010, we continued the favorable trend of net debt reduction. At the end of the First Quarter, our net debt was $233 million compared to the end of the First Quarter last year in which quarter end net debt peeked at $412 million.

I would like to highlight several key items related to our First Quarter. Our fluids division benefited from stronger demand for our products in the Gulf of Mexico compared to the Fourth Quarter of 2009. This was the result of several significant projects during the quarter that bolstered these results. Startup activities at our El Dorado calcium chloride plant negatively impacted the First Quarter. We believe these are typical startup activities and production will ramp up during the year and this benefit will be seen predominantly in the second half of the year. During the First Quarter fluids activity in Brazil was modest and we still expect this will make positive contributions. Offshore Services performed as anticipated during the typically weather-affected First Quarter. Within our Offshore Services segment, we had better than anticipated utilization of our heavy lift assets and demand for cutting services continued to be very strong. Our utilization in the Second Quarter should improve to a combination of repair work on structures that suffered damage during Hurricane Ike and discreet projects. We have stated previously the Ike-related work will be less in 2010 than the prior year, but the overall market for well abandonment and decommissioning should continue to be favorable.

Maritech had a solid First Quarter despite production below the previous quarter due to third party related pipe lines. Our operational focus continues on hurricane risk mitigation by aggressively conducting well abandonment and decommissioning activities in advance of the upcoming hurricane season. In our production testing segment, we continued to see the positive trend in our domestic business of higher activity and profitability. Our international efforts continued to yield very encouraging results. Compressco continues to be a high performing business. Our continued cost focus has allowed us to maintain relatively flat margins and we are encouraged about activity during the First Quarter.

In summary, our continued strengthening balance sheet gives us the financial flexibility to evaluate strategic growth opportunities. Although there is some degree of uncertainty due to the ongoing impact of the oil spill related to the Deepwater Horizon, we believe the Gulf of Mexico deep water and international activity and increased utilization at El Dorado will yield improving results for the fluids division throughout the year. We are seeing improving utilization in our Offshore Services segment and continue to like our position in this business. Maritech's focus will continue to be on hurricane risk mitigation and we have seen improving markets on shore in the US and are well positioned to capitalize on this higher activity level. International growth will continue to be a focus across all our service businesses.

Christian, at this time will you open the lines for Q&A. Thank you.

Thank you. (Operator Instructions) Our first question comes from the line of James West with Barclays Capital. Please proceed with your question. Your mike is now live.

Good morning, Stu. Good morning, Joe.

Good morning, James.

When you think about --the balance sheet is in excellent shape right now, you've obviously done a great job getting the debt level down. I think at this point you might be underlevered, given that we're looking at improving market conditions. And you said you're looking at growth opportunities. My question is are there better opportunities right now on the acquisition side or do you just have better places to put capital to drive organic growth?

I think, James, that, first of all, I agree we're in a much better position than we were a year ago to be even having this discussion. It's been a lot of hard work by everybody, so we feel real good about that. As we look at the use of that stronger balance sheet, we're looking at it both ways -- through organic reinvestment in many of our businesses, particularly internationally and we'll continue to look at those M&A activities that are out there -- again with particular emphasis on the international side. We feel that's an opportunity where we could accelerate the organic growth if the right opportunity comes along.

But you wouldn't say acquisition versus organic -- that one looks better than the other at this point?

No. I would say if you're looking at those, it's hard to come to a conclusion that one looks better than the other. I think we'll continue to evaluate both.

Okay. And then the second question for me with respect to the Offshore Services business looking into 2Q and 3Q, I know usually by early to mid May you have a pretty good sense of the work you're going to be doing during the summer season. Can you comment on what kind of backlog and what opportunities you have and what you're working on? And then second what your customers are saying with respect to the oil spill and how that may change their plans for this summer season.

First part of the question dealing with the backlog and utilization of Offshore Services as we go into the Second Quarter, we've certainly seen an increasing backlog as we go through the First Quarter into the Second Quarter -- that's reflected in higher utilization. And we expect that will continue over the second and third quarters. And we've got reasonably good visibility of that. As I said in my prepared statement, that's a combination of some of the remaining work on Ike as well as the normal abandonment and decommissioning activity associated with risk mitigation in advance of hurricanes. So we feel good that we've got good line of sight on that. It's certainly a more competitive landscape than we saw last year as some of the Ike related work has come down so we have to deal with that.

The second part of the question on some of the preliminary feedback we've had on the recent incident -- we've had very little. I think -- not a lot of speculation and like everybody we're watching that. But we haven't seen any short-term impact and we'll just wait and see what the postmortem comes up with and what the impact is. In the meantime, we just stay focused on the Second Quarter and executing what we do have. But so far it's been very -- those discussions really haven't taken place.

Okay. Thanks, Stu.

You're welcome.

Our next question comes from the line of Jim Rollyson with Raymond James & Associates. Please proceed with your question. Your mike is now live.

Good morning, guys.

Good morning.

Stu, circling back to the Maritech, you mentioned production coming in a little light with third party pipeline issues. I wonder if you could talk to what the status there is and I think guidance for the year was 50 million to 55 million a day on average and how you feel about that and what the limitations are to getting there? At the same time, it seems like your profitability in that segment is -- you're already at about 35% to 45% of what your full year guidance was. You're making great progress there, but just on the production side what's your thinking.

I was just going to answer the two-part question first related to production, second the overall performance of Maritech. Our exit rate the First Quarter was higher than it was for the average. So some of that we're seeing resolved and some of it is outside of our control and we're just working diligently with partners to try to get them to resolve those issues. So I think it's trending in the right direction. And we expect the Second Quarter probably to show an improvement over the First Quarter in that respect.

Overall on Maritech as I stated it was a good quarter, a relatively clean quarter. We did a good job on the cost side and obviously the production being down, the mix of where it was didn't have an overall impact on earnings. And as we go forward, our primary focus on the Second Quarter is going to be to get as much of that plug and abandonment work done within Maritech. We're spending a lot of focus and effort and we'll spend a lot of cash in the Second Quarter to achieve that. So typically Second Quarter, the beginning of the Third Quarter, is when most of that work is done, and we have a lot of efforts on that.

But overall, I agree, it was a very good, clean quarter for Maritech.

Any impacts on production from what's going on in the Gulf right now?

Very minimal.

Okay. And then last question -- bigger picture -- as you look at where things set today through the First Quarter, through April and into May, given that some pluses and minuses relative to your original guidance [rate counts] all seem to be tracking higher. Oil prices seem to be obviously higher and gas prices a bit lower. How are you thinking about -- I realize you didn't change anything but how are you thinking about the overall guidance right now? Are you feeling more towards the lower end, higher end, middle or still undecided?

Well, if you look at the businesses overall and the comments that Joe and I made, we certainly probably saw a little stronger on-shore US market and we're well positioned to take advantage of that both in areas where this heavy shale activity we're well positioned as well as some of the conventional areas that have shown some increase in activity. We felt real good about our Gulf of Mexico fluids results in the First Quarter. We feel pretty good about some of the projects that are scheduled out there and I gave the caveat that assuming there is no impact on the incident, we feel reasonably good about that.

Big focus, as I said, is on the Second Quarter of Maritech getting that work done and getting it done at the budgeted targets is very important for us. Tremendous focus on El Dorado getting that utilization ramped up. We expect that will improve as we go through the year and be a positive contribution the second half of the year. Larger backlog in Offshore Services.

So you take all of the pluses and minuses, it's -- I don't want to get into predicting where in the range, et cetera. But I think there is enough positives out there to offset a couple of the items that we mentioned that haven't gone quite as well as we expected. We're still encouraged there's a possibility of getting into that range and likelihood. We have a lot of work to do in the Second Quarter, but there are some encouraging signs.

Thank you. Very helpful.

Thank you. Our next question comes from the line of Mike Harrison from First Analysis. Please proceed with your question. Your mike is now live.

Hi. Good morning, gentlemen.

Good morning, Mike.

Good morning.

A question on Compressco, the PBT declined quarter on quarter even though your revenue and gross profit were pretty much flat quarter-to-quarter, what was going on there in terms of maybe costs that impacted the profit before tax?

Nothing major. I think it's just in the normal range of some items timing wise in the Fourth Quarter versus the First Quarter cost wise. But in terms of the overall drivers of price levels, activity, costs, US versus international, it behaved fairly close to what we had expected and we probably had a little bit of some favorable timing issues in the Fourth Quarter on cost versus the First Quarter, but nothing from a trend that's taken place that way, Mike.

Got it. And then I was also curious about the Maritech PBT number. PBT was higher than gross profit. Was there a one-time benefit or any other -- like an insurance settlement or anything like that that impacted Maritech?

We had some proceeds that came in through Ike that had an impact on that in the quarter, but it was offset by other areas where we had some other costs. So you take some of the positives of that and some of the negatives of the normal type costs in the quarter, they pretty well netted out and what you saw in the overall results was the netting of that impact.

All right. And on the fluids business, can you quantify what the startup costs were in the First Quarter and give us a sense of whether those bleed into the Second Quarter or if they're pretty much done with?

Yes. The El Dorado impact we really don't want to get into that level of discussion on particular sub-businesses like that. We've been pretty consistent in our comments the last several months that we look at the utilization increase and the startup as being relatively normal in a project of that magnitude and that we expected that it's going to be pretty much a first half of the year event. So I would expect the Second Quarter should have some of that impact as well, and I would expect our exit rate at the end of the Second Quarter to be from a utilization, higher than the First Quarter obviously. So, again, nothing we've seen we would deem as anything that is abnormal and we've got a lot of focus on continuing to do the blocking and tackling to get the plan up towards its capacity.

All right. Thank you very much, Stu.

Thanks, Mike.

Thank you. Our next question comes from the line of Steven Gengaro with Jefferies & Co.. Please proceed with your question. Your mike is now live.

Thank you. Good morning, gentlemen.

Good morning.

Two things, one, you mentioned the startup issues at El Dorado. Can you give -- you talked about a benefit in the second half of the year. Any way to quantify what the weight is on margins from those startups costs and how we should look at the progress over the next couple of quarters?

Again, similar to the previous question, we really haven't quantified the quarterly impact of that one activity. Again, I think we should see an improvement in the Second Quarter. And I would think the largest step up would probably be as we go from the Third Quarter versus the Second Quarter from a favorable point of view. As I said, I do believe by the time we get to the middle of the year, we'll have made significant gains on the overall utilization that will have much improving Third Quarter versus the first half of the year. But in terms of trying to step you through the dollar amount quarter by quarter, I would prefer not to do that.

Okay. And then we had been hearing recently that raw material costs, particularly bromine prices have been rising, and I was just curious given your supply or arrangements -- how we should think about that impact on TETRA? I assume that if others are pushing those prices on to customers, maybe that's an incremental margin benefit to TETRA. How should we think about that?

I would think about it in terms of we've got a long-term price agreement that we have in place and we won't see the same cost impacts if those other third party costs go up to the degree you mentioned. So long-term we like our cost position associated with the sourcing strategy that we have. How that plays out in the market would be speculative. I don't want to get into that other than just reiterate I think our cost position on that business short/intermediate/long-term is going to be good.

Okay. Thanks. And then just one follow-up -- I just wanted to clarify because I don't want to put words in your mouth. Stu, you said to an earlier question about the guidance range -- there is enough positive to offset the negative to get into the guidance range. Are you talking in general terms are somewhere in the range or is that comment to suggest the lower end? I just wanted to be clear on your overall thoughts.

Hopefully -- my intent was not to give any specifics of the range within the range other than to say we have a lot of positives and there are some negatives and overall we still feel good about where we're going to be this year. But the comment was not intended to indicate the specifics of the range, per se.

Okay. That's what I thought, but I wanted to clarify. Thank you.

Thank you. Our next question comes from the line of Joe Gibney with Capital One Southcoast. Please proceed with your question. Your mike is now live.

Thank you. Good morning.

Good morning, Joe.

I just wanted to follow up a little bit on the testing side. You reference some expansion on eastern hemisphere ops. I'm just curious what is the mix of testing now as it stands international versus domestic and how should we think about that progression in '11 in terms of geographically speaking?

If you look at the mix, it's obviously over the last year become much different where international has taken on a larger percentage for two reasons -- one, the continued growth of international and the fact that the domestic business today compared to a year ago is somewhat smaller. So as you think about that business you should probably start thinking that the international piece is going to start getting hopefully similar to the US in the current market. So it's definitely gone from the 20 something percent that we've talked about in the past to a significantly higher percentage. Again, you get a numerator and a denominator in that calculation. There are areas we're getting into and we think there continues to be opportunities to get into new areas.

Okay. That's helpful. On the fluid side, Stu, you referenced modest activity in Brazil. Obviously encouraged by the Gulf of Mexico fluids. I'm curious on the ramp in Brazil. Can you characterize that a little further? Is it more Q2 weighted or similar to El Dorado -- we should be thinking in the second half terms in incremental benefit coming out of Brazil?

Giving that my predictive abilities aren't exactly wonderful to date. I don't want to go too far out on the limb. I would probably view it as more second half activity. We still believe and we have had a lot of discussions on it -- that the overall scope of the contract and the wells -- and the types of wells that we're going to be involved in -- are going to take place albeit obviously at a much later starting point than we had predicted. But I think the second half of the year we should, from all indications, see a significant increase versus the first half of the year.

Okay. Fair enough. Joe, just one quick modeling housekeeping question. Just curious thoughts on G&A as we look in the progression of that for the rest of the year. Good cost containment in the First Quarter. How should we be thinking about that in our run rate the next couple quarters?

I can't think of any reason that it would escalate. Typically the highest G&A is in the Fourth Quarter. If we have any additional bonus accrual based on performance, actually that could go either way. So I shouldn't make that as a categorical statement. But it should be relatively flat.

Okay. That's helpful. And I apologize, I missed your CapEx comment for what it was in the quarter for 1Q.

It was about $11 million for the quarter.

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

Thank you. Our next question comes from the line of Victor Marchon with RBC Capital Markets. Please proceed with your question, your mike is now live.

Thank you. Good morning, guys.

Good morning, Victor.

The first question is on production testing. Obviously a nice sequential move on the revenue side. I just wanted to see if you guys could help us quantify the impact there. With some of that getting some international revenue that got delayed in the Fourth Quarter or did it have more to do with further expansion internationally as well as the US rate count pushing higher?

It's a little bit of all of the above. We certainly have seen the increased activity in the US as the rate count has increased. And as we've said previously, we tend to have a little bit of a lag on that impact. We've seen some of that. We've seen some projects that we were involved in internationally that by definition get a little bit lumpier -- fall into the First Quarter -- probably a little bit more than we had thought. So that was positive. And then there's just some additional new markets we're getting into.

So it's all three of those. They all three lined up pretty good in the quarter.

Okay. And just looking at the US market for production testing and you can throw in Compressco and then the fluid side, what are you hearing from customers? Has there been any change in tone or is there any sense that if the rate count were to stall out here, maybe probably a better way to ask it is -- as your visibility and for US businesses for the second half of the year? Maybe you can talk to that based on conversations you're having with customers and any bidding or quoting activity that you are taking in.

Yes. I assume the question is related primarily to our onshore US activity. And everybody continues to watch the natural gas prices. And we had the same discussions with our customers at $4 gas. What's the activity level. So far we haven't seen any major changes. And we would anticipate that if it goes below that, there may be some impact. But we haven't seen any indication of that at the moment.

And, again, also recognize that a growing percentage of that activity force is in the shale place. So that by definition has a different cost component and different implication. So we're watching closely. So far so good. But we'll see where we are at the end of the Second Quarter. But so far it's held up fine.

Do you have any ballpark splits as to whether it's oil versus gas or unconventional versus conventional as it relates to your US onshore businesses taken together?

We've got some -- obviously some internal estimates on that, and I really don't want to try to get into the oil-gas on shore. I think probably the most significant comment would be the one I made that the shale play is continuing to be an increasingly important part of that for us. Particularly on the testing and the fluids.

And just on the Compressco side, similar question to what was asked earlier about the international/US split. Could you guys provide what that looks like today.

Yes. Again, it's similar to what we said but not nearly to the degree on testing where the international is becoming a larger piece. But it's not nearly as significant a portion of the overall impact as it is on the testing side. So it's moved up a little bit but nothing dramatically.

And, again, part of that is, again, if you look at the map, we've done a reasonably good job keeping the top line on the US piece of the Compressco being maintained. So I think a little bit different dynamic there. And as we've said consistently that Compressco would be more production enhancement, not driven by rig count per se that we haven't seen nearly the impact and degradation of activity on that we've seen on other onshore businesses.

Okay. And just as it relates to the production testing international/US split that you had talked to earlier, was the comment that you guys are fairly evenly split now between the US or international or is that where the trend is going?

It's the trend is going there and we're getting a lot closer to being pretty well split than we were a year ago.

Okay. Great. Thank you. That's all I have.

Thank you. Our next question comes from the line of Bill Dezellem with Tieton Capital Management. Please proceed with your question. Your mike is now live.

Thank you. First of all, relative to the Deepwater Horizon incident, are you seeing that -- and I realize it's very early to ask this question -- but are you seeing that changing the [MNS'] mindset at all in the degree they're going to be enforcing regulations that are in place?

Bill, I think it's still awful early on that. There's so much speculation and I think we need to give a little bit more time to see how that plays out. So we haven't been involved in those type of speculative discussions at the moment.

It's our understanding there are many, many vessels that are involved with the efforts to contain cleanup or whatever you want to call it. To what degree is that a business opportunity for TETRA since you do have vessels in the Gulf? Yes, most of the vessels that are involved will be involved -- while they aren't TETRA type assets. So I don't see that as a significant opportunity for us related to that incident.

Bill, where I would potentially see the opportunity is the event has already driven up insurance rates to the extent insurance remains quite high and not much risk transfer -- virtually unaffordable. That tends to drive more plug and abandonment work which is favorable for our P&A business. But, as Stu mentioned, our assets are really focused on working on the shelf, not the deepwater.

That's helpful, another classic example of don't worry about the regulations, just follow the money.

Right.

So I do want to circle quickly to the calcium chloride plant. And I know you don't want to provide dollars, but the Second Quarter, are you anticipating a lower impact or smaller impact from startup costs than you had in the First Quarter?

Yes.

And then if we heard you correctly, by the end of the Second Quarter, that's when you're essentially feeling that you're going to be at a more normalized run rate on a good forward basis?

Yes. That's correct.

And then one final bookkeeping question, please. The interest expense was higher in the Q1 than it was in the Q4. I think $4 million versus roughly $3.2 million -- and yet the debt outstanding was essentially flat. What am I missing in that calculation there?

Well, we were constructing the plant and capitalizing interest up until the completion of the plant. Let me try to find the line item you're looking at -- interest expense. Yes. So the effect you're seeing is not an increase in the cash interest expense. It's an increase in the amount that hits the income statement versus the amount that is capitalized in relation to that plant construction.

Understood. Thank you both.

You're welcome.

Thank you. Our next question comes from the line of Blake Hutchinson with Howard Weil. Please proceed with your question. Your mike is now live.

Good morning, Stu. Good morning, Joe.

Good morning, Blake.

Just -- you mentioned in the press release that you did some repair and maintenance on the diving fleet. Was there anything significant running through the expense line with regard to that kind of added R&M.

Nothing significant. Nothing that would stand out.

Okay. And then just trying to think about how we should think about the First Quarter to Second Quarter progression with regard to Offshore Services, you mentioned that you'll be taking the opportunity to prepare Maritech assets for hurricane season. Does this mean that we should expect the bulk of the work that you're doing for your own book to occur in 2Q and, therefore, we have a relatively muted improvement in Offshore Services. And then more so than most years Offshore services real revenue profit generation opportunities is going to be more seasonally relegated to 3Q than it even has been in the past?

Good question. As I said, we're going to have a high level of activity in the Second Quarter for our assets as well as a high level of activity for Maritech. So as we've stated before, the majority of that work we typically will do with the TETRA assets. So a good portion of that utilization and that spend for Maritech will be done within the Second Quarter. That by itself does not mute the overall profitability of the Offshore services segment. We will take the margin as we do the work and that will be reflected in our results. So I would not look at the fact that we're going to do a lot of that work internally in the Second Quarter as having an impact on the overall Second Quarter results by de facto depressing those for the Offshore Services.

So we can still have nice progression 1Q to 2Q, 2Q to 3Q?

Yes.

Okay. Thanks.

I appreciate you asking that question.

And then just thinking -- slicing through it from a different direction, when we take the $66 million in top line, do you feel -- you did a couple quarters in a row where you were about $50 million run rate. Was there anything unusual in terms of large one time projects within the Gulf -- [you said in the health there] -- where we shouldn't or can't think about mid 60s as representative of where the market is today -- and then think of El Dorado as being additive, Brazil as being additive and seasonality in Scandinavia being additive? In other words, can we think of 65 as a good annualized run rate and use that as a building block up or is there anything unusual that would suggest the market is a little maybe lower than we should use for our baseline?

I think it's -- there was a lot of moving parts, as there always are in that overall top line number for that. I think you have the components of them pegged pretty good. The Gulf of Mexico by definition is going to be lumpy. There is going to be quarters like we had in the First Quarter where there were positive lumpy. Fourth Quarter was the opposite. So you probably need to shy away a little bit from assuming what we saw in the First Quarter is going to be the same every quarter. So, since we haven't told you the magnitude of that, I know it makes it a bit difficult, but we did have a very good mix of those projects in the First Quarter.

I would expect the seasonality, the positive nature in our European chemicals business to be there in the Second Quarter, so that run rate should improve in the Second Quarter as it does typically every year. I mentioned that the El Dorado impact should be favorable in the second half, so that should be a trend you see quarters three and four better than the quarters one and two there. Brazil I said I think the second half should be bigger than the first half, so I would expect that trend. So if you look at it overall, I would expect it to be an improving trend over the year. It may not be all sequentially by quarter given the lumpiness of the big projects, the First Quarter, as well as the seasonality of the chemicals business in Europe in the Second Quarter.

It sounds like something maybe between Fourth Quarter and First Quarter would be a better baseline representative of the core market? And then we can use our building blocks from there?

Yes. That's probably a good way to think about it. I think the building blocks you outlined them pretty accurately.

And then just can you comment -- I know we're steering away from where we are in terms of utilization with El Dorado -- but can you comment on end market demand there? Do you feel like if you were up and running at full utilization that actually getting rid of product wouldn't be a problem? So just a little comment on end market demand at this point.

I think as we go past the mid year as I indicated and the production is up towards the levels that we expect -- it's a fairly tough market out there. We're going to have to continue to scrap to get that demand to match up with the production. So we haven't been in that mode where we've had to test it yet unfortunately. As we get to that mode, our sales force understands the challenge and we're going to be able to play in some markets that we haven't in the past because of supply constraint as we were building out the plan.

And we know where we need to go and what markets. I'll feel better when we get into that time period where we see the results of that. But it's going to be a challenge to get there, but we think we will.

But your planning for 2010 or your guidance range for 2010 doesn't entail getting to sale of full nameplate capacity by sometime this year?

Our guidance for 2010 as soon as we get that production up at the levels I indicated directionally that this market demand for that that we're not going to build inventory. That it's going to go to the end customer. And that included some business we've enjoyed historically and it assumed that some business that we haven't been in that market in the recent time period, that we feel confident we'll be able to go out and get. So I don't think they're unrealistic market assumptions and we're still comfortable with those.

Okay. Great. Thanks.

Blake, I would like to further respond to your question that the demand is strong and supply is constrained in Europe, so there is some tightness in European calcium chloride for -- just that editorial comment.

Okay. Great. Thank you guys so much for your time.

Thank you.

Thank you. Mr. Brightman and Mr. Abell, there are no further questions at this time. I would like to turn the call back over to you for any additional comments you may have.

Thank you very much. I appreciate all of the good questions. And Joe and I will look forward to updating you on the results of the Second Quarter in early August. Thanks again.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you all for your participation. Have a wonderful day.