Tetra Technologies Inc (TTI) 2012 Q2 法說會逐字稿

Hello and welcome to the TETRA Technologies Inc. second-quarter 2012 results conference call. All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Stu Brightman. Mr. Brightman, please go ahead.

Thank you, Keith, and welcome to the TETRA Technologies second-quarter 2012 earnings conference call. Elijio Serrano, our Chief Financial Officer is also in attendance this morning. Given Elijio's recent appointment as our Chief Financial Officer, I will give the financial overview of the second quarter followed by my usual 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 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; revenues; gross profit or profit before tax excluding the Maritech segment; profit before tax and diluted earnings per share excluding oil and gas derivative and effectiveness in the Maritech segment; or other non-GAAP financial measures. Please refer to this morning's press release or to our public website for reconciliations of non-GAAP financial measures to the nearest GAAP measures. These reconciliations are 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.

Revenue in the quarter just ended was $234.9 million, just slightly lower than the second quarter of 2011. Excluding Maritech, revenue increased over the same quarter of 2011 by $32 million or 16% as shown on the table on page 7 of the press release. Most of the increase was in the Production Testing segment in the US onshore portion of our fluids business. The Offshore Services segment had revenues of $80.7 million, which were down approximately $6.6 million or 8% due mostly to weather events late in the quarter and to delays in permitting for abandonment and decommissioning work. Income before tax was $18.4 million and after-tax income attributable to TETRA stockholders for the quarter was $11.6 million or $0.15 a share fully diluted. Excluding Maritech income before tax was $27.1 million and after-tax EPS was $0.22 for the second quarter of 2012 compared to $23.3 million and $0.19 a share in the second quarter 2011. Included in the $0.22 a share EPS excluding Maritech were pre-tax charges of $1.1 million or $0.01 per share after tax for transaction-related expenses in our Production Testing segment. This compares to $0.01 of share of net credits in the second quarter of 2011.

Profit before tax in fluids was $14 million versus $11.5 million in the same period last year. Higher Eastern Hemisphere completion services activity accounted for most of this improvement, offsetting lower results in the European calcium chlorides business. Production Testing profit before tax was $11.2 million versus $6 million in the prior year's comparable quarter due primarily to higher results in international business including the Optima acquisition while the domestic onshore business increased primarily from the recent ERS acquisition. Compressed gross profit before tax was $4.6 million, an increase of $800,000 versus the prior quarter. Mexico and US unconventional liquid applications accounted for most of the higher results, in addition to an increase focus on cost reduction programs. Compressco continues to focus on cost reductions and mitigating the risk of low natural gas prices in the US and Canadian markets by growing applications for the GasJack and VJack on oil wells in our international expansion. Profit before tax on the Offshore Services segment was $11.8 million compared to $13.6 million in the same quarter last year. Operations were hampered during late June from the effects of Tropical Storm Debby and the previously disclosed permitting delays.

Pricing for some of our services remains challenged in a very competitive market environment. Pre-tax loss in our E&P unit, Maritech Resources, was $8.6 million in the current quarter. We incurred $7.7 million of excess decommissioning costs that were charged to earnings and performed $26.9 million of decommissioning work in the quarter that were charged against a previously established reserve. Maritech's decommissioning liabilities are $106 million at the end of June 2012. Cash decreased over the quarter by $72.2 million to $49.2 million mainly due to the $42.5 million acquisition of ERS and $30.1 million of capital expenditures. Subsequent to the quarter-end, we spent $55.5 million in cash for the acquisition of Greywolf, approximately $50 million drawn down on our bank revolver to fund a portion of the acquisition. Excluding restricted cash and cash attributable to Compressco, we ended the quarter with net debt of $263.2 million and we had $228 million of available credit under our revolver.

Moving on to a higher-level overview of the quarter, during the second quarter, we continued to experience trend similar to what we saw in the first quarter. These trends included a more challenging market onshore in the US related to low natural gas prices and the associated reduction in dry gas drilling activity. We continue to deploy assets to the liquid-rich shale plays and take cost reduction actions in areas impacted by the lower demand. This change in mix, asset redeployment, and resource redeployment during the quarter had a negative impact on earnings. We will continue to take these necessary actions going forward with the recognition that this market will continue to be a challenge for the remainder of the year. I would note that the recent acquisitions give us significant scale in the production testing North American market and affords us the ability to allocate our assets with greater flexibility to optimize our Business.

In the Fluids segment, we continued to perform at or above our guidance levels based on continued improvement in activity in the Gulf of Mexico, activities increased versus prior year in the onshore liquids, and continued growth internationally. For the quarter, we are very pleased with Compressco's results. Compressco's revenues and profitability improved sequentially, primarily driven by our investment and growth in international markets, particularly Latin America, and our success in moving units into unconventional liquid applications, as well as our ongoing cost reduction actions. Our biggest challenge in the second quarter and in 2012 overall remains the competitive environment for our Offshore Services segment. This challenging market environment is exacerbated by continuing delays in permitting for abandonment and decommissioning work, particularly as it relates to platform removals. The net impact of this is a backlog we have that is unpredictable and the timing of the execution due to these unplanned delays, which in turn, leads to higher than anticipated costs by having to react to a moving schedule, and this certainly impacted us during the second quarter. In addition we estimate that we had a negative pre-tax earning impact of approximately $3 million associated with Tropical Storm Debby during the quarter.

Despite having good visibility into backlog for our major assets through the third quarter and beyond, we are assuming that these market challenges and permitting challenges will be with us for the balance of the year. Our primary focus for the Maritech segment continues to be on reducing abandonment and decommissioning liabilities. During the second quarter, we spent approximately $26.9 million on these activities. We continue to believe that we will spend in the range of $70 million to $80 million over the course of the year. Reaching this goal is also subject to us receiving certain permits that are still outstanding. Our objective continues to be to substantially extinguish these liabilities within 2013. Based on our results through the second quarter and our view of the second half of the year, we are revising our earnings guidance to $0.60 to $0.70 per fully diluted share, excluding Maritech, excluding transaction cost. The primary driver behind this revision is the significantly more challenging environment for our Offshore Services segment. Based on where we are year-to-date with this segment, and the assumption of continued challenges for the balance of the year in the market permitting, this has driven the revision.

For our other ongoing businesses -- Fluids, Production Testing, and Compressco -- we believe that with the benefit of the earnings from the three acquisitions, that we should in aggregate be very close to our original guidance on those business despite some of the market challenges in North America. As referenced earlier, we ended the quarter with net debt of $263.2 million. Given the volatility of some of the markets we operate on, we are very focused on the high-yield capital projects and those associated with specific contracts awards and that will be our focused in allocating capital as we go forward. With the completion of the Greywolf acquisition last week, and the Optima and the ERS acquisitions in the first half of the year, we've now achieved one of our major strategic objectives -- to broaden our well completion and production testing capabilities, and expand our geographic footprint both in North America and internationally. The first two acquisitions have performed at or above our expectations through the second quarter and we anticipate that this will continue for the balance of the year. We also expect the market environment in Western Canada and the Williston basin where Greywolf operates to be robust throughout the remainder of the year and deliver results accordingly.

Our focus as we move through the balance of the year will be to continue the combination of taking the necessary actions on the cost side to offset any negative market trends and delivering the expected results on our recent acquisitions and overall growth of capital program. I'll close in highlighting, it is very important to note that as we move forward, we have significantly scaled our Production Testing business, confirming our previously-stated strategy to grow Testing, Compressco, and Fluids on an ongoing basis, and we continue to believe we will operate at planned levels of profitability for Fluids, as well as see continued strength in Compressco and benefit from the recent acquisitions on the Testing side. So overall, these segments will continue to cycle through consistent with the guidance that we revised and we feel optimistic about these businesses. Keith, at this time will you open the lines for Q&A? Thank you.

(Operator Instructions)

Jim Rollyson, Raymond James & Associates.

It looks like the majority of the reason for the guidance reduction on earnings stems from the Offshore side of things? Your original revenue guidance in that business from -- or back in February -- was $320 million to $350 million of revenues. What do you think -- you've done about $126 million in the first half. What are you thinking now for revenue guidance range for the full year?

Well I think based on some of the delays in permitting and some of the weather we've seen, we are clearly going to have revenue significantly below that original guidance. I would think, Jim, that we're going to probably be somewhere in the $275 million-ish range for the full-year for that segment.

That makes sense. Greywolf acquisition is now closed. Can you give us some indicator what you are thinking on a revenue, EBITDA type of basis and maybe how much benefit is included in your $0.60 to $0.70 number?

Yes, we closed that last week and as I stated in my comments, very optimistic about the markets we operate in. Teams are already working at -- looking at other opportunities of our other businesses beyond testing in those markets, so we think we've got some opportunity upside, potentially in the other segments as well. I think if you look at that business in the price we paid, it is consistent with what we said previously in the other two acquisitions -- we would expect a minimum after-tax return of about minimum 15% obviously accretive for the balance of the year. And I think the revenue range, we haven't stated, but it will be in that $50 million to $60 million range on a go-forward basis and I think the earnings on that will be consistent with what we see in our overall testing businesses.

As far as margins and stuff. Okay. Helpful. And then maybe last one for me, just given all the changes with the acquisitions you've made throughout the year, obviously depreciation has been moving up and I suspect we will take another step up with Greywolf and same thing, to some extent, with SG&A. What you think the going-forward run rate is now DD&A and SG&A?

I think the DD&A numbers will move up a little bit and also recognizing that, Jim, with the acquisition we have intangibles that go in the number is well. So as we allocate the purchase price, which we finished for our first acquisition, we true-up the second one and then we deal with that on a go-forward basis on the third. That number will get bigger. I would guess on a go-forward basis, we are probably about $80 million-plus on DD&A basis. If you look at the G&A, one positive thing I would add is with all the acquisitions, at the corporate level, there's not a need to staff up accordingly. We certainly feel with the space we've created with the Maritech divestiture, we've got sufficient corporate resources to absorb the three acquisitions and if we are going to do something further, we would not have to scale up that team. I would say at the segment level, the G&A ratios overall for the group are probably pretty consistent with what we see within the testings, so I don't think it's going to be a big difference on an average basis.

Okay, all right. That helps. Thanks.

Mike Harrison, First Analysis.

Wanted to ask just on the Offshore side, it sounds like you were pleased with the utilization rate in that business even though there wasn't as much business to go after. Can you maybe talk a little bit about your strategy in terms of which projects you are pursuing and on those projects in particular, what kind of competitive dynamics are you seeing? Is it the usual suspects? Are there more construction type people going after that business, too?

Yes, I'd say the first part of the question, what projects are we chasing focused on, we are focused on our traditional customers, which is going to include the bigger players that have late life properties on the shelf, as well as continuing to execute our Maritech program. So it is a good blend of both and what we are trying to do is, as we always do as we go through the springtime, is we've got a pretty good backlog both of external and internal projects. We plan them and lay them out optimally in terms of mobilization and taking them -- optimizing that and we've done that as we always do. The challenge is changing that as we get to the stage of execution, when we don't have permits in place. And so we always try to have -- we always do have contingency plans, but when you have to go to plan B or plan C, it's a higher cost because you're not doing it as efficiently. So we will continue to do that through the third quarter, I think that the -- that is the environment and I think that situation where you've got that choppiness of just predicting the timing of the execution overlays the competitive market that existed that includes certain construction assets in that space and the net combination of it is you see a very competitive marketplace for the main pieces of our Offshore Services segment being predominantly the heavy lift platform removal, as well as the diving segment. I think those two, we certainly are getting price realizations probably -- certainly below what we had assumed when we set the guidance earlier this year.

And in terms of the projects that you have one and have the permits in place, are you pleased with the execution on those projects and it's really just the permitting delays that have thrown a wrench in things?

Yes, I think if you look at the project reviews we do, looking at the execution plan, and looking at the duration, and the spend rates, all those are pretty much in line with our internal estimates. So I think the execution of the work has been done very well and as I said on the prior call I would also certainly want to emphasize that that is really specifically very encouraging as it comes to the Hedron. We've taken an asset -- brought a large, new asset, brought it into the Gulf during the fourth quarter and have had very, very few issues in terms of obtaining work, executing work in line with our expectations, and continue to view as we go forward the reason we bought that asset of dealing with the trend of heavier and larger structures coming out over the next period of time is absolutely the right business decision.

And you mentioned that Tropical Storm Debby hurt you by $3 million in earnings. Would the revenue impact there have been around $15 million?

Probably a little bit less than that because the margins get a little bit distorted on that $3 million because there is a lot of costs that go in there that we incur that -- you can't take your normal margin and extrapolate, so it would be less than $15 million, Mike.

Okay and then the last question is on the Fluids business. Can we get some additional color on the unexpected equipment repairs?

Yes.

How much cost was in Q2 and how much impact would you expect to see in Q3 and are the repair actually complete at this point?

Yes, first thing is I would highlight, as it relates to our main manufacturing facility over in Europe, and I would say since we acquired that business in 2004, that's probably been as consistent a performer as any individual business unit we have in the Company. So I would look at this as a one-off and it relates to a specific piece of equipment that we just need to go in and repair. We probably run at a little bit longer and a little bit harder to deal with some of the market opportunities that we had envisioned. We have -- we are mostly through the repair. We believe we will be complete with the repair within the third quarter and exit September at our normal fourth-quarter run rates. The area where there has been profit leakage is associated with some of the actions of repairing, using alternative production methods, and the cost associated with that. And in round numbers it's about a $3 million full-year effect of which the majority of it will be incurred during the third quarter. So a portion in the second, the majority in the third, and it should be complete within the third. And again that $3 million aggregate number is the assumption we've made in our range for the full-year earnings revision we just gave.

Got it, thanks very much.

Blake Hutchinson, Howard Ely (sic - see Industry Names and Howard Weil.com).

Just some questions, first of all in the Fluids segment. You mentioned in the release some postponement in Gulf of Mexico deepwater activity. Does that post -- maybe just a matter of semantics here, but does postponement mean that you had some programs lined up that have been pushed back as far as 2013 or are you just suggesting some delay into the second half of the year, really?

Yes, I'd say it's a -- I'd characterize it as a delay to the second half of the year. I would at the macro level continue to emphasize we are encouraged at what we see as a trend to higher activity as we move through the year. And this is strictly a really lumpy project that's moved to the second half of the year.

Okay and then you also, I noted in the release, it looks like some follow-through in the improvement in 1Q from both North Sea and West Africa. Are these regions becoming larger and maybe a little bit more predictable and so maybe we should be dialing a little more in the model for those or just some seasonal success. How should we thing about that?

I would say one of the things that were very pleased with is a continued growth we are seeing in our Eastern Hemisphere businesses, primarily Testing and Fluids driven. And we've built a bigger capability and we've invested in that the last several years and this is the year we are really starting to see some of those results come through in a significant manner. So I would say overall I would expect we are going to continue to have robust markets. It's not seasonal and the areas where we see that strength -- the two you mentioned, which would be the North Sea and some of the West Africa countries, as well as some continued opportunities in the Middle East.

Great, and then in terms of -- with all the changes going on in the US land market, was the underlying trend of your US land-based Fluid business sequentially still favorable in the quarter?

When you include the impact of the ERS acquisition, yes. If you excluded it, that we were down a little bit sequentially.

Okay.

And all of that associated with just the continued mix of some of the dry gas regions really shutting down and us having to take the necessary cost backs and to move people, et cetera. So again, I'd look at the -- I would characterize the onshore markets primarily for Testing as well as for Fluids as markets that you continue to see the activity on the dry gas regions way down. I think it's going to be like that for a while. We take the corrective action to redeploy assets and people. That unto itself makes it more challenging. But we feel real good in the areas we've made the acquisition for ERS and Greywolf in the US. Those are going to be areas we continue to meet and exceed our acquisition economics.

Okay. Great. And then I just wanted to clarify. There's been a lot of talk surrounding Offshore Services thus far on the call and the weather impact to 2Q, but I just wanted to clarify that these are projects that are complete, a loss was had in Q2 due to timetable rather than something that gets pushed necessarily for completion in 3Q and there is still profit attached to it. And the point of the question really is, we spent a couple of years trying to take a lot of the risk out of the model and has the competitive market just got back to the point that not only is it more competitive to win jobs, but you are having to accept a little bit more of the weather, time, execution risk than you have been in recent years?

I would say that in the first point of the market environment is clearly an accurate statement, that the competitive landscape is very challenging and the activity and market environment is tougher then we modeled when we put our guidance out back in early January. Clearly, the combination of the activity, the permitting, has led to that. With that, for the most part, we have been able to maintain our typical approach on when we share whether risk in some of the quieter parts of the year and where we don't accepted it during the busier, so I wouldn't say that's changed much. It may have changed slightly but I would not view that as a key change to the way we've operated the last year or two nor would I characterize that as we've moved into a riskier environment for that business. I truly believe if you look at that business, I would characterize it as it is just more competitive than we thought in the short-term. We still remain optimistic as we move into next year that that will improve as the permitting cycle improves and some of the demand for the platform removal predictability of the execution time pattern. But as we've modeled for the balance of the year in our guidance, we haven't made that assumption changing material in the third and fourth quarter.

Okay, thanks a lot, I'll turn it back.

Kurt Hallead, RBC Capital

Stu, just wondering if you might be able to just give us a little bit more -- give an update on your strategy on the international front? What kind of opportunities you may see out in front of you for the existing organic growth and what are you thinking in the context in terms of potential acquisition opportunities?

Yes, I think in the first question on international, we've got two or three broad themes we continue to work on. The first, as I stated earlier, I think our Eastern Hemisphere scale and footprint and capability has increased significantly over the last few years. That is absent the Optima acquisition, and with the Optima acquisition, we now clearly have a much greater critical mass, the ability to have our legacy business is working in conjunction with Optima to leverage infrastructure we have, as well as capability that Optima has, so I think it's been a multi-year strategy that we are getting the organic benefit, now are we are getting the acquisition benefit from Optima, and we will continue to do that in those areas we talked about, North Sea, West Africa, Middle East, fluids testing, et cetera.

I think Compressco has an ongoing strategy -- been primarily Latin America-centric, that's where we've gotten the biggest leverage to date consistent with what we said earlier in the year. We've put a lot of capital into that for Compressco. We've seen the benefit demonstrated during the second quarter in our sequential improvement for Compressco and would expect to see continued trends in that direction based on that investment. Overall, we -- the other area we tread lightly, but we are spending some business development dollars -- is the TOS. We are looking at certain markets in the Eastern Hemisphere where we think we seeing evidence of potential activity but we are not investing in advance. We will not invest in advance, we will be very conservative. We will continue to spend business development dollars, but our primary focus in Offshore Services will be to optimize what we have in the Gulf of Mexico and deal with the challenges we have there.

Great, then maybe as a follow-up with the acquisition of Greywolf, just wondering -- I've been hearing some -- Canada has been a little sluggish here coming out of the third quarter just want to try and get a general sense from you on what Greywolf may be seeing and what you're picking up from Greywolf so far?

Yes, in the visits we've had and the meetings and as we went through the due diligence process the last couple of months, we are seeing high utilization of equipment both in Canada and out in Williston, and we think that's going to continue. We think their run rate is going to be very positive for the balance of the year and into next year. We are already working with them, have met with customers trying to look at some additional opportunities with some of the other TETRA services. We've got a small Compressco footprint in Calgary, we are looking some of the benefits of having those two organizations working closely together. So we haven't seen anything in our discussions of due diligence that makes us think anything other than that is going to be a very successful acquisition similar to what we've seen on the two prior acquisitions we've executed this year.

All right. So, the generally sluggish rebound off of the seasonal down tick in the second quarter. Once again, it's from your take is no impact yet on Greywolf?

We think Greywolf will do very well in the third and fourth quarters.

Okay, that is great. Thanks for clarifying. Appreciate it.

Stephen Gengaro, Sterne, Agee & Leach.

Just really to clarify two things -- one, can you remind us on the Fluids side, what kind of seasonality coming off from Europe we should think about in the third quarter?

Yes, we always state that our second quarter is by far our largest quarter in terms of the European calcium chloride business. The rest of the businesses in Fluids are not significantly cyclical. So, in general if you look at the moving pieces of Fluids, we expect the European calcium chloride business to be down sequentially in the third quarter versus the second. Not -- the US piece of our calcium chloride business to be similar. Onshore US to be similar, and as I noted earlier, we probably had a little bit less activity from a timing point of view in our Gulf of Mexico. We would expect that to pick up in the third and fourth quarters, so that would be a positive and continued strength internationally.

And will you give us a sense for the percentage of Fluids that's Europe?

I think we've always said from our revenue point of view, we are probably in the range of 15%, 20% of our total Fluids revenue coming from Europe.

Great, okay. Thank you.

Again, on the calcium chlorides business, not in aggregate. That is just the calcium chloride business.

Okay, okay.

But again overall, Stephen, the point I would highlighted on fluids, without getting to granular, is that I think the overall view on the Fluids is, we are going to be at the levels we expected or above for the full y ear. If you look at where we are for the first half of the year, we are running above -- that run rate is above what we had for the guidance and we think for the full year we are in pretty good shape on fluids.

And then two other things. One is a follow-up on fluids. From an overall margin perspective, we've been expecting to see a somewhat gradual uptick in margins over the next several quarters both because of volumes but also because of raw material costs and your supply arrangements. Is that still something that you would bless going forward?

Yes, I think we've said that our fluids margins in 2012 would be up from what we saw last year. We've achieved that year-to-date. Our margins went up sequentially during the second quarter as well as compared to the similar time period last year. So, I think we are continuing to see the slow but steady improvement in those margins and I think we are running right at the target margins we expected plus little bit.

Okay, no, I think that's all for me. Thank you.

Joe Gibney, Capital One.

Stu, could you update us a little bit on where we stand on Gulf of Mexico deepwater volumes on the Fluids side. I know was a loose target to exit this year, maybe 60%, 70% of [prima conda] levels. Is that still a reasonable range? Just trying to get an update for where we stand there with full understanding that you got a bit of a lag period?

Yes, I think that's still a pretty good assumption of where we should finish up the year on the trends.

Okay, helpful, and just a couple modeling-related questions, I was just curious. I know last quarter included some minor contribution from Optima, roughly 20 days. Do you happen to have what Production Testing gross margins would have been stripping out Optima and ERS for this quarter?

I don't have that specific number at my fingertips, Joe, but I would say that the impact of those was slightly positive to the average margin.

Okay. All right, helpful. And then just last one, just to clarify, the $1.1 million in acquisition-related costs on the Testing side, where did that flow through? Is that impacting gross profitabilities in Testing? Was that in G&A? Or was in Other? Just trying to clarify from a modeling standpoint?

It will all be within the testing segment and it will be spread probably mostly in the G&A and there will also be a portion that is in the margin.

Okay, helpful.

Gross margin.

All right, thanks. I'll turn it back.

Bill Dezellem, Tieton Capital Management.

Relative to the fluids business, do you still have cost-savings measures that you can institute at the El Dorado facility or is there really not much left available, there?

No, as we go forward, we still view those opportunities for the cost and reductions in margin improvement. Again recognize, we are still operating in a market environment, particularly on the non-energy segments, that's not as robust as it's been. So, as we see the volumes go up, as we see the continued recovery in the Gulf of Mexico, in addition to just the pure incremental ongoing improvements in the way we operate daily, there is still opportunities for that business as we finished the year and go into next year.

And then I apologize for the question of ignorance here, but is there a point that the Fluid margins are going to see an extra benefit because you have some of that higher cost product finally working its way through inventory -- out of inventory and through COGS and moving to lower cost inventory or is that more of a gradual process and we really aren't going to -- it's not going to be noticeable in any quarter or two?

I would say it's a gradual process that we've pretty much worked our way through. If you go back several years ago, as we changed our supply chain strategy and went through the discussion of the impact, we've seen that over the last couple of years in the improvements. And I think the real opportunity set on that is as we go forward and we see the increased activity in the deepwater, we feel we've got a very robust long-term supply chain position on that business that positions us very well for that activity both from a cost perspective and equally important from a supply and cycle time perspective. So I think it's a long-term investment, a long-term set of agreement we have that will continue to see those long-term strategic advantages.

And are you finding that the permitting -- referencing the deepwater -- that the permitting there is moving forward better than the permitting for well abandonment?

Absolutely, absolutely, and I'm glad you asked the question, because again, when we talk about the permitting challenges we are having, it really relates to our Offshore Services segment and conversely we've seen tremendous improvement on the other side on the drilling and the related impact on our Fluids business. So, very good point to highlight.

Maybe I should take this next question off line but I am going to throw it out. Which is, given that this administration is supposed to be more green and environmentally conscious, it seems as though it should be the opposite. They should be restricting the drilling in the offshore and in fact getting the permits moving for the well abandonment. Would you help us understand what you think the underlying dynamics are that create--?

Well, Bill, I think I am going to again thank you for your question on the permitting and take your implied suggestion on my view of the permitting. We can discuss it off line. I will keep my focus on just talking through the segments of TETRA and where we are in the overall -- I'd be happy to shared that opinion separately with you.

Understood and then final question is, future acquisition thoughts, share with us where your mindset is at now from a strategic standpoint, given what you have accomplished so far this year?

Yes, I think you can take a step back, when we, back in the second quarter last year, monetized Maritech, and at that stage said we really think we've got some good growth opportunities on our existing services business that we think we can execute on within a reasonable time period. And in conjunction with that, look at alternatives if we are not able to execute and redeploy. I think the three acquisitions we did plus the long-term strategic investment in Hedron, we are very well-positioned. I think, at this stage, my primary focus is executing on those investments that we've made, which aggregate to over $200 million over the last 15 months and in optimizing the assets, we also have relative to the markets where in, et cetera.

So I think even though there are still opportunities out there, I would say the short-term, we are going to be very focused certainly through the balance of this year and into next year of executing on the businesses that we have, continuing to look strategically but probably not actioning that in the short term of other opportunities but also making certain that we finish the Maritech work over the next year. That is $100 million of cash we need to spend. So, I think the cash generation from our businesses are going to be very strong going forward but in the short term, we need to recognize we have got that Maritech expenditure and we want to keep the check book in balance as we go through the next year. So, I think the probably short answer is we are going to be very focused on the existing business and not quite as acquisitive as we go through the next quarters.

Thank you, and thanks for allowing all of the questions.

Stephen Gengaro, Sterne Agee.

Stu, I was actually going to ask you a similar question and if you want to take it off-line, you can, but I was curious if you thought that the permitting process was just more due to backlog in the DOE M or if it's some other factors? Do you think they're focused on getting some of the drilling activity back to work because of the need to get rigs back to work as opposed to the abandonment side or you think there is other things behind it and if you choose to--?

Again, similar to the prior question from Bill, that's probably a discussion we can talk about separately, Stephen. I've got views on it, but let's do that separately.

Okay, that's fine and then just one other follow-up on the Offshore Services side. As you look ahead over the next 12 to 18 months, is your sense that the margin profile and the slowness we've seen in the business development this year will persist going forward or do you think it's a shorter-term issue?

My opinion is that we must be pretty close to the bottom of that cycle in terms of the market environment. And again that business, it's been tough to forecast the expected upturn in activity. If you go back over the last year and a half, we've been fairly optimistic that the idle iron would convert to higher activity and being the large player in that space that our Offshore Services segment, we would benefit from that. That hasn't happened to the extent nearly that we expected for the reasons I mentioned earlier. So, again, I still maintain that that will happen. We are not -- in our projections for the third and fourth quarter -- anticipating that. As we migrate to next year and we start looking in more detail at our outlook for 2013, we will see the progress in those areas that happens during the third quarter come back in 90 days and update the group on our current views of it. But intuitively I think it will get better. It has just been a lot slower than we modeled or that I ever thought it would be.

Okay, no, thank you. Thanks for your help.

And again, I would add to that. I think that in terms of where we are positioned and how we are executing and what our results are to what would be whatever the relevant [pig would be] which is a tough set of data to get a lot of information on, I do believe we are performing well in the market conditions we do in taking the necessary steps. And we will continue to look at more aggressive actions to deal with the shortfall.

Great, thank you.

(Operator Instructions)

As we have no more questions at the present time, I'd like to turn the call back over to Mr. Brightman for any closing remarks.

Thank you, Keith. And again, I appreciate the questions and hopefully we've been able to give a thorough update of where we are in the different businesses and convey our optimism on the acquisitions and some of the positive trends in a lot of our markets and we will look forward to updating the group in a few months what we finish out the third quarter. So, thank you very much.

Thank you. This concludes the teleconference. You may now disconnect your phone lines. Thank you for participating and have a nice day.