Tetra Technologies Inc (TTI) 2010 Q2 法說會逐字稿

Greetings and welcome to the TETRA Technologies second quarter 2010 earnings conference call. (Operator instructions.)

It is now my pleasure to introduce your host, Mr. Stuart Brightman, President and Chief Executive Officer for TETRA Technologies, Inc. Thank you Mr. Brightman, you may begin.

Thank you, Jodie. Welcome to the TETRA Technologies second quarter 2010 earnings 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 second quarter results, and 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 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.

In addition, in the course of the call, we may refer to net debt, which is a non-GAAP financial measure. Please refer to this morning's press release or to our public website for a reconciliation of net debt to long-term debt. 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.

With that, Joe, would you please start the financial overview?

Revenue in the second quarter was $241.6 million, 10.9% above the second quarter of 2009 and 17.4% above the previous quarter. Revenue was higher year-over-year in each of our segments except Offshore Services and Compressco. Offshore Services is lagging its record pace of 2009 as expected and as previously discussed. Compressco has shown steady growth of activity since the 1st of the year, but this business did not bottom in the down cycle until the fourth quarter of 2009, so year-over-year comparisons are not favorable at this point.

Gross profit was $47.8 million compared to $40.4 million in the prior year's second quarter and compared to $35.1 million in the previous quarter.

Income before tax and discontinued operations was $20.5 million, up 50.6% compared to the second quarter of 2009 and up 142% compared to the previous quarter. Income before discontinued operations for the quarter was $13.6 million, or $0.18 a share fully diluted. These results include an $8.9 million noncash pretax charge, or approximately $0.08 after tax, related primarily to the lower-than-expected results from the drilling of the development well and the decreased fair value of probable and possible oil and gas reserves. This compares to $0.12 a share fully diluted in the same period last year, which had $0.03 similar noncash charges, and to $0.07 in the previous quarter.

Year-to-date, revenue was $447.5 million, and income before discontinued operations was $19.1 million, or $0.25 a share fully diluted, compared to revenue of $413.2 million and income before discontinued operations of $20.6 million or $0.27 a share last year.

Looking at quarterly performance by segment, revenue in the Fluid segment was up 27.5% compared to the same period last year. Profit before tax was $10.2 million, up 738% versus the same period last year due to a pickup in activity in the U.S. and abroad and due to the $6.8 million impairment in the second quarter of 2009 regarding our investment in a calcium chloride plant JV in Europe.

It was up 64.7% compared to the prior quarter because of an improvement in the Completion Fluids business in the U.S. and abroad and the seasonal upswing in our European Calcium Chloride business.

The greatest impact of the BP Macondo blowout and resulting drilling moratorium will be felt in the second half of the year, which will noticeably impact our Fluid business. On the other hand, our El Dorado calcium chloride plant should make a contribution in the second half of the year compared to a drag in the first half.

Revenue in Offshore Services was down 7.4% versus the same quarter last year. Profit before tax was $14.3 million, down 38% compared to the same quarter last year, in which we participated in strong demand and higher service pricing for work resulting from Hurricane Ike.

Profit before tax was up significantly in the current quarter compared to the loss generated in the seasonally slow first quarter of the year.

Revenue in our E&P unit, Maritech Resources, was up 10.9% compared to the prior year's comparable period, mainly due to higher realized oil and gas prices from favorable hedges. Profit before tax was $1.0 million, up compared to the prior year's quarter, which showed a loss at 87.9% lower than the previous quarter due to the above-mentioned $8.9 million of impairment taken in the quarter.

Production and Testing revenue was up 28.2% year-over-year. That profit before tax was $3.3 million, a decrease of 55% versus the prior year's comparable quarter, which included a $5.8 million legal settlement gain. Excluding this gain, profit before tax in the quarter just reported is 110% higher than the year-over-year due to increased domestic and Eastern Hemisphere activity, partially offset by a reduction in activity in Mexico, which is experiencing serious security concerns that the government has not yet been able to effectively control and due to PEMEX budgetary constraints.

Profit before tax was down 20.8% compared to the previous quarter, due mainly to a downturn in our Mexican business.

Compressco revenue was down 5.7% year-over-year, and profit before tax was $4.7 million, a decrease of 19.8% versus the prior year's comparable quarter due to slower activity in the U.S. market, which bottomed in the fourth quarter of 2009.

In 2010, we have noticed an escalation of security issues in Mexico and increased PEMEX budgetary issues that are constraining our compression business there as well as the previously mentioned Production Testing business. Profit before tax was down 3.3% sequentially on relatively flat revenues due to the downturn in our Mexican business with attractive margins.

We had $23.0 million of cash capital expenditures in the quarter. Free cash flow, defined as cash from operating activities minus cash used in investing activities, was $15.8 million in the current quarter and $56.6 million year-to-date. Cash increased over the quarter by $14.8 million to $89.6 million. We ended the quarter with net debt of $215 million. We had no borrowings on our $300 million line of credit.

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

Thank you, Joe.

As we review the second quarter, I want to highlight some of the key items that have taken place and where we see these areas going for the balance of the year.

First, let me start with the review that we continued the favorable trend of net debt reduction. At the end of the second quarter, our net debt was $215 million compared to our peak net debt of $412 million at the end of the first quarter of 2009.

As the impact of the Macondo oil spill has evolved, it is clear that delays in permitting are also impacting the Gulf of Mexico shelf. This has affected our Offshore Services segment as these delays have resulted in lower-than-anticipated activity in a more competitive landscape than we anticipated.

As we look at our Fluids division, we continue to operate with a high level of activity, both onshore and offshore through the second quarter. The impact of the Macondo oil spill did not significantly reduce activity during this time period as we carried forward some backlog of wells that had been drilled but not completed.

As we enter the third quarter, we are seeing these effects and expect this will continue through the duration of the drilling moratorium.

Our onshore activity is expected to continue to grow with particular emphasis on the shale plays. As we evaluate the impact of the oil spill, we continue to look at moving some of our offshore personnel, whenever appropriate, to onshore activity and manage the cost side very aggressively.

As with the first quarter, startup activities at our El Dorado calcium chloride plant had a negative impact on quarterly results. We continue to make progress and expect that El Dorado will make a positive contribution to our Fluids results during the second half of the year.

Activity in Brazil continued to be soft during the second quarter. However, we are seeing signs of an increase, and we expect the second half will continue to see those favorable trends, albeit still at a lower level than we had originally anticipated.

As we had expected, our Offshore Services segment reported improved second quarter results compared to the prior quarter. This segment is operating in a more competitive environment, as I noted earlier. This is driven by lower levels of hurricane-related repair work on structures that suffered damage during Hurricane Ike as well as the impact of permitting delays for plug and abandonment activities in the Gulf of Mexico.

We expect this challenge to continue through the third quarter and impact both pricing and utilization. Having said that, we're very comfortable that we are doing well in this market given the conditions, and the execution continues to be flawless. Long term, we continue to view this as a strong opportunity post-Macondo drilling moratorium.

In the second quarter, Maritech reported an $0.08 per share charge related to the impairment of certain of its oil and gas properties. The impairment was due primarily to both the decreased fair value of probable and possible reserves for certain properties and lower-than-expected results from development efforts on one property.

Excluding these unusual charges, Maritech continues to perform as expected. We continue to focus on reducing our Maritech liabilities through the plugging of wells and abandonment of platforms and pipelines. Overall, we expect this expenditure to approximate $70 million for 2010, similar to what we saw last year.

By the end of this year, we will have made a significant impact in our overall risk profile for Maritech.

The Production Testing segment continued to see increasing activity in the domestic business. Internationally, our Eastern Hemisphere operations continue to expand. However, we are seeing a reduction in activity in Mexico associated with security disruptions in certain regions of the country and budget reductions by our major customer.

We expect the trends of increased domestic activity as well as expanding Eastern Hemisphere opportunities to continue.

Activity in the U.S. to Compressco increased during the second quarter. Margins have continued to hold very strong for this business. Similar to Testing, Compressco was negatively impacted during the quarter by our reduction in activity in Mexico. We expect to continue to see these trends of increasing domestic activity and reduced activity in Mexico continue through the remainder of the year.

Overall, the second quarter showed some continued favorable trends in our onshore businesses, and we were pleased with the results of our Gulf of Mexico Fluids business. And we also benefitted from the seasonal activity in our Chemicals business in Europe. While we continue to view the long-term opportunities for Fluids in the Gulf of Mexico in a very positive light, we definitely will feel the negative impact of the Macondo spill for the balance of the year.

Offshore Services is operating in a more competitive environment, but we continue to feel our performance is very strong in this market.

Maritech will continue to focus on modest capital investment and aggressive reduction of its plug and abandonment liabilities. Testing continues to see higher activity in the U.S. and opportunity in the Eastern Hemisphere.

Compressco continues to see a recovery in domestic activity as continued opportunities internationally.

Our balance sheet continues to be strong given the actions we have taken over the last year-and-a-half. This gives us the flexibility to manage through any short-term challenges as well as take advantage of opportunities for growth that present themselves.

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

Thank you. (Operator instructions.)

Thank you. Our first question is coming from Jim Rollyson from Raymond James. Please proceed with your question.

Good morning, Stu and Joe.

Good morning.

Good morning, Jim. How are you?

Stu, when you analyze everything going on now as far as from the beginning of the year till now, El Dorado may be taking a little longer ramp up but starting to catch up, maybe, and then the Gulf impact on all of your businesses, how are you thinking about numbers or the outlook for the year relative to the guidance you guys first provided?

Yes, if you kind of look at where we are through the second quarter and some of the issues I identified for the balance of the year and look at it overall, I think on the Fluid side, I think your initial comment that El Dorado's taking a little bit longer to get where we expected is accurate. So that's had a negative impact versus what we originally thought, although I do belief the second half of the year, that will be a contributor.

The year-to-date results in the Gulf of Mexico Fluids has been very strong, and we're very pleased with what we've done in that market, consistent with what we had expected at the beginning of the year. The balance of the year, that's going to get a lot different landscape as the activity comes off. So overall on the Fluids, we'll see the benefit of El Dorado in the second half, and we'll see the reduction of the Gulf of Mexico in the second half, and I expect the onshore would continue to grow as activity continues to be strong. But net/net, that's going to be below what we had thought earlier in the year.

Offshore Services, I think we look at that business as -- clearly as we got through the second half of the second quarter and we started to see delays in just starting up by some of our customers in their projects due to permitting, that business has been a little softer. Pricing's been a little tougher. Again, in that business, we're going to be challenged to get to where we had expected.

Although, I do believe, as I said in my commentary, I think as we get through the permitting issue and that time period, I think the macro assumptions on that business and the customers wanting to reduce risk post-Ike, I think all those things hold true as purely a timing. One thing I would also point out on that business longer term -- I do think this business has some potential positive impact longer term on Macondo as we look at potential tightening of regulations on the timing of doing plug abandonment and platform removal. I do look at that as a possible favorable outcome.

Maritech, we take aside some of the unusual charges we highlighted the second quarter, that business is running along about what we expected overall.

Testing, U.S. market picking up. Mexico, a little bit more of a challenge from the security and the budgetary issues.

Compressco picking up a little bit of an impact in Mexico as well.

So when you look at the landscape of all those businesses, those five businesses, clearly we're going to be challenged to get to the bottom end, and we continue to work it hard, but it's a much more difficult landscape then we had back at the end of the first quarter. No doubt about it.

Have you guys run sensitivities on maybe how far below the bottom end you might be?

Yes, we continue to look at sensitivities in the different businesses, assuming when the permitting starts to improve and if it starts to improve for the Offshore Services, does that mean the fourth quarter gets stronger than it typically would be because it's just a shifting to the right but without the calendar year.

We've run them, Jim, but clearly when you add them all up, getting to the bottom end is going to be a big challenge.

Okay. On the Fluid side, obviously the second half of the year impacted. How far into 2011 do you suspect that impact happens or takes, assuming that we get back to work in November, if things proceed orderly?

And then, to the extent that rigs shift out of the Gulf, how do you feel your situated to capture that potential business in other parts of the world?

Yes, if your base assumption is, as you indicated, that the moratorium gets lifted after six months, the end of November, then I think we probably carry over some negative impact through the first quarter. There's going to be a lag. So it will impact the beginning of the year. After that, hopefully it starts to get back towards the levels. I think when we look at the specific customer base we have and the projects they had in the queue, I think overall that activity level, when it gets back post moratorium for our customer base should be fairly similar to what we had expected. I don't see a major migration of those projects and those customers away from what we had talked about back at the end of the first quarter.

As we look at any rigs that relocate elsewhere, Brazil I think we're very well positioned if that's an outcome. The North Sea we're very well positioned. And we're starting to look at other international markets. West Africa we've looked at. So I think depending on where they go, we should hopefully participate in some of that. But I think it's not going to have a major structural change to our view of our Gulf of Mexico deep water opportunity.

And again, I'll reiterate again, we're all very pleased with how we performed in that Gulf of Mexico deep water, both in the first quarter and the second quarter.

Sure. And then last question, on Testing, we've heard a lot of the operators complaining about completion delays because there's not enough equipment out there and crews and what have you. Has that had a noticeable impact at all on the Testing business domestically? And if so, do you think as equipment starts getting out there hopefully over the next two or three quarters, you start getting a bigger rebound there than you've had so far?

I would say that when you listen to a lot of folks talking about the onshore activity, the demand-supply availability of equipment on Testing -- we haven't hit that inflection point yet where it's short, and hopefully we'll start to see that coming in front of us. But up through the second quarter, that business continued to be higher in activity but still very, very challenging in a competitive landscape.

Again, we've done what we've continued to do over the last year-and-a-half, move people and equipment where the activity and the structural opportunities are the best. So we've tried to optimize, and I think we've done a very good job there. And hopefully as we go forward, the competitive landscape will improve a little bit. But it's moving in the right direction.

Thanks. Appreciate the comments.

Thank you. Our next question is coming from Mike Harrison with First Analysis. Please proceed with your question.

Hi. Good morning.

Good morning, Mike.

How are you?

Was wondering if you could quantify, in the Fluids business, looking at the second quarter revenues, if you lost all of your Gulf of Mexico Fluids sales as we may be seeing getting into the third quarter here, how big of an impact would that have had on the top line?

Well, I think we had said back during the second quarter that about 10% of the overall consolidated revenues for the corporation was tied to Fluids in the deep water. So if you take that as your max, that would be somewhere in the close to $20 to $25 million a quarter, if it all disappeared consistent with that outline.

I would think that would be a very, very conservative assumption, and I don't think it's the model that we would run going out because I continue to believe there will be some work overs and some other projects that have been backlogged by our customers that won't take it to that extreme.

But the strict answer to your question would probably be $20 million to $25 million of revenue.

So view that probably as the upper limit.

I would view that as the upper-upper limit, and again, my view is that's not where it's going to be.

All right. In the Compressco and Testing businesses, you mentioned the security problems. You mentioned the PEMEX issues. Can you maybe just give us a little bit more detail on how that impacted the business, just in terms of the numbers during the quarter? Is there something that you saw during the entire quarter, or was it just a portion? What are your expectations for those issues dragging into the second half? And can you also give us a sense of what portion of your revenues, I guess, in each segment were affected by those issues?

Yes. Again, we typically have not split out that level of detail, but let me give you some parameters on that.

Mexico continues to be a very good market for us, a very important market. And we've both said for both Testing and Compressco that Mexico was the largest and most important international market. And again, to go back, we've typically said on Testing as we saw the U.S. decline last year that our international business was starting to get over 40%, starting to approach 50% of the overall revenue. As the U.S. has started to come back, that number has probably gone down a little bit. The U.S. is a higher percentage. So again, it's the largest part of that non-U.S., which would typically be somewhere in that 40% range. We have other important markets beyond that.

On the Compressco, we've always said that, internationally, it's about 25% -- the international market is 25% of the total revenue in round numbers. Mexico is the largest of that. So clearly it's a number less than 25%.

My view is the run rate we're at at the moment is probably about where we're going to be the rest of the year. I think it's stabilized. We've always said that a majority of our activity in Mexico is in [Vergos], up north, which is closer to the area where the concerns are. We have been able to move some stuff around and mitigate it.

So I think it's -- our assumption is that where we ended the quarter is where we'll be the balance of the year, and it moved around downwards during the second quarter, but it stabilized as we exited. But again, still very, very good strong businesses, and will continue to be, but they've been very important to us over the last few years.

All right. The last question I had is back on the Fluid side. Can you talk about the Fluids pricing environment in general and whether you're seeing any major differences in the environment onshore versus offshore?

Yes, overall we haven't seen a real big change in either the onshore or the offshore. It's held pretty steady, and we're watching that closely, particularly offshore as you begin to see some of that activity come down. But so far, hasn't had a dramatic impact.

All right. Thanks very much.

You're welcome, Mike.

Thank you. Our next question is coming from Joe Gibney with Capital One Southcoast. Please proceed with your question.

Thanks. Good morning, guys.

Good morning, Joe.

Just to circle back around on production enhancement, I understand the flattest run rate year as you contend with Mexico. Just trying to understand a little bit domestically here in the lower 48. You guys have a bit of a drag where you've lagged rig count and haven't seen much pricing traction. It's been more of a utilization and overabsorption game. Do you anticipate where you can get a little bit more pricing traction in the back half of the year given the strength and resiliency in the rig count. Just curious if while we've got some maybe topline headwinds that maybe we could see some margin progression in the back half of the year.

Yes, and let's put production enhancement into the two pieces -- Testing and Compressco. Testing, I would hope as we continue to see the activity out there pick up that we'll be able to see some improvement. Where we are testing that, our guys are very focused on that issue, very disciplined in that issue. And I think we should hopefully begin to see some progress on that.

Compressco, again, if you look at that, those margins have held up very well. Pricing, as we've discussed, as we went down in activity last year, went down somewhat, but not nearly to the extent that we saw in some of our other businesses onshore.

So those have held up reasonably good. They continue to hold up reasonably good. And when you take that in conjunction with a lot of the work we've done in the cost side for Compressco, it's why those margins have stayed in the high 30s and continue to be a great business for us.

So we are seeing positive activity in the U.S. That's certainly the exit rate in the second quarter versus the first quarter was, in terms of activities and units, out in the field had gone up and optimistic that will continue. So we feel reasonably good about that domestic business.

Okay, that's helpful. And just circling back on the offshore side relative to tougher pricing and utilization, specifically where within your asset classes are you seeing more pushback or customer conservatism. Is it Diving, where it's a tougher market? Is it more on the Cutting side? Just curious if you can give more color there.

I would say it's probably mostly on the Diving and the Heavy Lift where we have most of our major assets. Those are the businesses where the utilization price point drives a lot of those decisions. Most of the other businesses -- not to the same extent, but when you start to get -- anyone -- a gap in the schedule during the strong part of the season and when you start to look at that gap and what your utilization needs to be, it starts to put some pricing pressure out there. And particularly even some of the projects you've got in front of you, you're uncertain whether the start date's going to take place as scheduled because the permitting hasn't gone all the way through.

And again, that's really something that came in probably, as I stated earlier, towards the middle, end of the second quarter, and I think if you listen to a lot of the other folks out there in that space, you'll see similar comments. And I feel very good about the performance of that group given that set of variables we had to manage. I think that was a reasonably strong second quarter performance in that business given those variables.

Understood. Appreciate it.

Joe, just a couple model and housekeeping questions. CapEx for the full year, and I was just curious what the oil and gas production mix was from Maritech in 2Q.

It remains about 50/50. Does that answer your question?

Yes, that's fine.

Do you have another question in there?

Oh, the CapEx for the full year.

The CapEx for the full year, we're running behind the pace we had indicated in the guidance at the beginning of the year. I think we will catch up somewhat in the second half of the year, but I would not be surprised if we came in a bit shy of the beginning of the year guidance.

Joe, consistent with the way we've managed things the last couple of years, if we're going to be down a little bit from where we thought on the earnings side, there's a lot of expectations across the operating units that we push out that'll be a little bit more difficult than some of the capital requests. Clearly just from a business practice. But the balance sheet is in great shape, we just like to keep that operational tension out there.

Understood. I appreciate it, guys. I'll turn it back.

Thank you. Our next question is coming from Bill Dezellem from Tieton Capital Management. Please proceed with your question.

Thank you. First of all, relative to underbalance drilling taking place out in the Gulf of Mexico, have you seen any indication either from a regulatory standpoint or simply from an operators' perspective that there may be less taking place and therefore a benefit to your Fluids business?

We haven't seen indication of that yet, Bill. When we speculate on longer term ramifications on our business that's an area we look at that may present an opportunity. A lot of different opinions of how that's going to evolve, but it's probably neutral to it. It could be a positive.

As I said earlier, where I feel probably a little bit stronger that there's longer-term benefits for us is going to be as we start to look at the regulation surrounding plug and abandonment and decommissioning. I really do believe down the road -- and that was already getting worked. I think it's been delayed by the events of the last several months, but I think down the road tightening that up and getting more specific guidelines of the timing will benefit us.

Could I ask you to expand on that further? Because ultimately, the deep water Horizon incident was a drilling phenomenon, whereas what we're talking about is end of life of a well. So completely unrelated in one sense, and yet you're feeling like there could be a much stronger tie. Would you bridge that gap for me, please?

Yes, I'll come at it from two ways. One is I've been a little bit surprised by the amount of impact it's had on the existing permitting process for plug and abandonment. When the postmortem came out, we started looking at some of the discussions on the drilling side. The impact is still over of regulation, permitting, turnaround time on the P&A has been a little bit more severe than we thought. So indication some area over there that's going to have more review than we might have anticipated.

But I think longer term, just the whole oversight of doing things in an expeditious manner, making certain, having those wells out there where the production's finished that aren't exposed to those type of environmental risks, just specifying when the production is complete that it will be plugged within a specified time period and the structure removed within a time period.

And as I said, there's discussion going on in that back in March and April, and I think that will continue.

And then one additional unrelated question, please. The Eastern Hemisphere opportunities that you referenced at a couple points in the call, would you please discuss those in further detail?

Yes. Most of that was seen in our Testing business, and we've added some resources to that region, and we've been able to -- particularly in the Middle East and North Africa -- get into some areas that we hadn't been in over the last couple of years, and we're starting to get a couple of areas where we're getting some traction under those initiatives. And then we'll continue to spend time and effort there because I think there are opportunities that we can take advantage of. But predominantly a Testing benefit to date, and Compressco Eastern Hemisphere, as I said previously, we continue to be pleased as we roll that model out into areas that have similar characteristics as the U.S. in terms of age of the wells and stage of the decline that the reception's been positive, and we're starting to see a couple of countries where we're getting some good increases in that business.

Thank you.

Thank you. Our next question is coming from Jeff Spittel with Madison Williams.

Thanks. Good morning, guys.

Good morning.

Within the Production Testing business, have you seen any impact on the Blowout Preventer Services Group as a result of this mini-witch hunt that's going on onshore in the U.S.?

We haven't. Virtually all of our business for Testing in the U.S. is onshore. We have very little exposure to the Gulf of Mexico for that business. And we haven't really seen any impact on our Testing business in the U.S. as a result of Macondo.

Okay, okay. And then the migration more toward liquids and oil-directed plays, talk about how that dynamic plays out for the Production Testing group if you would, please.

Yes, I think -- and really, that whole trend of the move towards liquids I think cuts across several of our businesses. It's not just Production Testing. I think as you look at some of the South Texas opportunities, we feel good about both Testing, our onshore Fluids down there, and even in Compressco, there's applications that are liquid driven that we've seen increase. The vast majority of Compressco is natural gas applications, but there are applications where we see the benefit on Compressco, and sales force has been very focused on tapping into those as that trend that you mentioned has taken place. So really, all three of those businesses will see benefit.

Thank you, gentlemen. That's all I had. I'll turn it back.

Thank you. Our next question is coming from [Jon Sistle] with Jefferies & Co. Please proceed with your question.

Thanks. It's actually Stephan Gengaro. Good morning, guys.

Good morning, Stephan.

I apologize if you mentioned this earlier, but I wanted to just ask a little bit about your views on the well abandonment side in the Gulf in light of what obviously has gone on in the Gulf and some of your comments in relation. How should we think about it both from a potential increase in demand going forward perspective but also the delays we should expect short term?

I think the trend we saw in the second quarter on permitting is going to carry through the third quarter. So I think there will be a bit more challenging environment than we originally thought. I think once -- again, to go back to the assumption we talked about on the Fluids, if the ban is lifted at the end of November, I would expect with that the permitting on the shelf gets easier and we start to see some of those projects that may have been delayed from 2010 get tied up for next year. And I would expect that would set us up for pretty good 2011 for that business. So that's a shift from '10 to '11 timing wise because of permitting.

On a broader basis, I believe if the regulations get tightened, that just is another layer of opportunity that goes on top of some of that deferral to 2011 from this year.

So as we're looking at our plans and sensitivity and assets, we're trying to think through what that means, but I definitely think we have the potential to be set up for pretty good 2011.

And you mean permitting as far as permits to go ahead and plug and abandon these wells?

It's all aspects. It's pipeline removal. It's plugging of the well. It's platform removal. It's debris removal. All four phases of those permitting are affected.

And are they occurring right now just at a slower rate, or are they --?

They are occurring at a slower rate, and even across each of those processes, they're moving at different rates. So we might have seen one element improve recently and others still lag. But if you look at the way that business works, those four phases all correlate to different assets being used. So it cuts across for a company like Tetra, the Diving on the front end. It will cut across the Diving on the backend when you're doing the platform removal and the debris clearing, the Heavy Lift group when you're looking at the platform removal, the Cutting group potentially when you're looking at some of the platform removal. So it cuts across several elements of that group. But it's happening, but at a slower pace.

That's very helpful. And then my second question -- and correct me if I'm wrong, but my sense has been your approach to Maritech as far as investment is one of being opportunistic when things pop up that you kind of can't resist but not being aggressive to expand it in general. And if that's true, have the issues in the Gulf -- are they starting to create anything which is too exciting too pass up?

That's a good question. I think the first part of your question in summarizing the operating approach we have going is very accurate. We're looking at opportunistic opportunities. We've got a lot of properties that have very good opportunities. Interesting enough, a majority of our current investment this year is in state waters. So for Maritech at the moment, the permitting issue is not a big issue in terms of capital, and we feel real good about those opportunities. And as you would expect, those would be the higher yield, better return, probably more oil than gas type of opportunities. And we're staying within an allocated capital amount, and the guys have been very good at hydrating and staying within that amount.

But you're right, as the market evolves and you see some of the transactions starting to take place which are a lot more evident as we went into the second quarter than the first quarter or the prior year, there are opportunities out there, and we continue to weigh those opportunities as which ones are the most opportunistic but within a pretty well managed and well document capital allocation. So opportunistic within the overall framework.

And finally, on that, very good discipline to continue to do the plug and abandonment work internally. We got a lot of that work done in the second quarter and executed it very well, and we have a lot in process in the third quarter with similar expectations.

That's helpful color. Thank you, guys.

There are no further questions at this time.

Okay. Well, thank you very much, and we will look forward to updating everyone at the end of the third quarter. Thanks again.

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