Tetra Technologies Inc (TTI) 2015 Q1 法說會逐字稿

Good morning and welcome to the Tetra Technologies first-quarter 2015 results conference call.

(Operator Instructions)

Please note this event is being recorded. I'd now like to turn the conference over to Stu Brightman, President and CEO. Please go ahead.

Thank you, Emily and welcome to the Tetra Technologies first-quarter 2015 earnings conference call.

Elijio Serrano, our Chief Financial Officer, is also in attendance this morning and will be available to address any of your questions. In addition, our Chief Operating Officer Joseph Elkhoury is also joining us on the call. I will provide a brief overview of our first-quarter results and then turn it over to Elijio for some additional details, 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 analysis 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, free cash flow, revenues, gross profit, profit before tax or earnings per share excluding the Maritech segment, coverage ratio 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.

Our first-quarter 2015 adjusted earnings excluding Maritech and unusual items was a loss of $0.03 per share. Some of the highlights of the quarter include the following. Continued strength in our fluids division against its major business areas. We continued proactive and aggressive series of cost management actions, an increase in CSI compressed gross quarterly distribution to $0.00495 per quarter, payment of the $90 million senior note that matured on April 30, 2015 funded by the $50 million term loan, and a drawdown of $40 million on our existing line of credit.

Our fluids division continued to produce excellent results in the first quarter as evidenced by the 18% adjusted pretax margin for this business. This was driven by continued strength in our Gulf of Mexico, international and chemicals businesses.

The most challenging area within this division is water management which continues to be impacted by decreased market activity in North America and the associated competitive pressures. We expect the balance of this division to continue to perform at a very high level for the balance of 2015 and beyond. We continue to look for opportunities to expand our capabilities, inclusive of introduction of new product innovations.

As we have stated in prior calls during 2014, we made significant sequential improvements in the profitability of our testing business. As we moved into 2015, this business has been impacted by the reduced activity and competitive pressures in North America.

We have continued to respond to this with a very aggressive cost reduction program as well as continuing to broaden our market share through additional expansion of our customer base. We started these actions in this business well over a year ago, and the result has been evident in our recent ability to essentially break even despite the increasingly challenging market. We expect to show strength in our major international markets in 2015, and we will selectively invest in expansion in specific projects.

CSI Compressco continued to perform well in the first quarter. On a sequential basis, pre-tax earnings were down primarily driven by the timing of certain project shipments.

We've seen certain customers delay shipments, which is to be expected in this market environment. This impacts the timing of our recognition of revenue related to these projects, but not the overall fundamental profitability of that business. As expected during the downturn in commodity prices, the incoming orders has slowed, but we still have visibility through the balance of 2015.

We continue to invest in our fleet and added almost 30,000 horsepower during the first quarter. These areas of capital investment continue to show very high utilization and are targeted to those areas of expected utilization and activity. This offset some of the returns and slowness in certain areas which contributes to the slight reduction in overall utilization for the entire fleet.

Our offshore services business continues to be challenging primarily due to lack of demand and a low commodity price environment. Major projects will continue to be delayed. We have continued to be very aggressive in controlling costs and downsizing as appropriate.

The first-quarter result was a function of the typical seasonal impact that we see as well as several assets being out for planned maintenance. We expect these results to improve sequentially as we move into the busier part of the season. Overall, we anticipate this to continue to be a very challenging market.

We took the opportunity during the first quarter to spend only $600,000 on Maritech abandonment and decommissioning liabilities. We will continue to do the necessary work during 2015 with the objective of completing these liabilities by the end of 2016.

Free cash flow was a negative $6 million for the quarter. This was expected due to the timing of our working capital cycle. We expect that over the full course of the year we will be able to generate significant free cash flow based on materially reduced levels of capital expenditure, Maritech abandonment and decommissioning spending and the overall aggressive management of our working capital cycle.

We continue to be very conservative with regard to our balance sheet. I am pleased to say that we were able to pay down the $90 million note that matured at the end of April through the combination of the $50 million secured loan and a drawdown of $40 million from our revolving credit line. We continue to believe that we have a strong balance sheet for both Tetra and CSI Compressco with sufficient liquidity to deal with any potential long-cycle market decline.

My overall planning assumption and the way we are continuing to run the business is that the North American production testing, water management and offshore markets will continue to be very challenging in 2015. We will continue as we have demonstrated to take the necessary actions.

The majority of our overall businesses which is a point we will continue to emphasize on this call including fluids, compression, and international operations will continue to offer growth opportunities that we intend to capitalize on. With that I will hand it over to Elijio.

Good morning, everybody. Tetra revenue of $250 million increased 18% over the first quarter of last year, reflecting the acquisition of CSI Compressco on August 4 of last year. Sequentially revenue declined 21% from the fourth quarter, of which $30 million of this decline was a seasonal drop we traditionally see in our offshore services division. Excluding offshore services, revenue declined 13% sequentially, which compares to sequential drop in the US onshore average rig count of 27% from Q4 last year to Q1 of this year.

Fluid segment revenue decreased 6% to $99 million from last year and decreased 10% sequentially from the fourth quarter, mainly due to the weaker US onshore water management volume. Adjusted pretax margins, however, improved to 18%, up 70 basis points sequentially and up 260 basis points from a year ago as a result of the higher offshore and chemicals manufacturing volumes. Production testing revenue decreased to $37 million, down 15% from a year ago and down 34% sequentially.

Adjusted EBITDA margins for the first quarter were 18%, an improvement compared to the 14.9% in the first quarter of last year, but a decline compared to the 27.4% from our very strong fourth quarter of last year. The $8.8 million sequential decline in adjusted EBITDA versus the $19.5 million sequential decline in revenue represents a 45% detrimental margin consistent with our expectations coming into the quarter. We are able to remain slightly positive on an adjusted pretax level.

The compression segment revenue decreased $73 million from a year ago, reflecting -- increased $73 million from a year ago, reflecting the CSI acquisition. Sequentially, revenue decreased 18% on the delay of new unit sales that were pushed into future quarters. Backlog of new unit sales was $115 million compared to $120 million at the end of the forth quarter.

Adjusted EBITDA margins were 30.3%, which improved 200 basis points from the fourth quarter of 27.6%. Utilization of our compression fleet was 86.4%, down only 130 basis points from the 87.7% utilization at the end of December 2014. CSI Compressco continues to make good progress with the integration and realization of the targeted cost synergies.

Offshore services revenue was down following the seasonal decline we see every first quarter as difficult weather conditions require us to bring our fleet of assets to the dock. We normally begin mobilizing in late March or early April to begin the spring campaign. Given the difficult environment and our customers' focus on cash preservation by deferring, decommission and activity, we have been aggressively reducing cost.

While revenue was down $23.5 million compared to a year ago, our adjusted pretax loss was only $700,000 worse than a year ago. Compared to a year ago, we have reduced total cost in offshore services from $43 million a year ago to $20 million this quarter, a very significant 52% reduction in total cost. This demonstrates the magnitude of the actions we are prepared to take in this environment and also demonstrates that our asset light offshore services business model can be adjusted to the market environment.

On a GAAP basis, earnings per share were a loss of $0.06. In the quarter, we incurred severance and transaction related expenses of $951,000. We also reported a profit at Maritech of $1 million with no adjustments to our asset retirement obligations.

We only spend $566,000 of cash outlays on Maritech work this quarter and are targeting less than $8 million for the year. We are down to two operated properties that we intend to address next year when the market is better to allow us to conserve cash.

In the quarter, we also incurred $2.5 million non-cash tax charge as a valuation allowance to defer taxes primarily in the United States. We expect our effective tax rate on a normalized basis to be approximately 30%. This tax charge reduced our GAAP earnings by $0.03 per share.

We have a US tax loss carry forward generated mainly from historical Maritech losses as well as tax credits which represent a tax benefit of $85 million which will significantly reduce future US tax liabilities. This $85 million of tax loss carryforwards can offset over $240 million of taxable income in the United States. Therefore, on a go-forward basis as the economics of our industry improve and the Maritech losses are behind us, the ability for Tetra to generate cash earnings are enhanced as we utilize this tax loss carry forward and tax credit for all our US businesses, including Tetra's earnings from CSI Compressco MLP.

During the quarter, capital expenditures for Tetra were significantly reduced from the $19 million a year ago and from the $15 million in the fourth quarter to only $9 million in the first quarter. We believe capital expenditures for Tetra will be closer to $30 million this year compared to $65 million last year and compared to $75 million in 2013.

We intend to demonstrate that in this difficult environment, we are focused on generating free cash flow by addressing our cost structure, further diversifying our revenue base, capitalizing on our businesses that are not as dependent on US onshore shale play drilling and minimizing Maritech cash outlays. Only about a third of our total revenue from all our product lines is directly linked to US onshore shale drilling.

For CSI Compressco, capital expenditures are being targeted to expand our fleet with mid and larger size compressors being deployed on gathering systems, central delivery systems and large well production requirements with the emphasis on production. Utilizations for this type of units are higher than the overall average of the division.

We've mentioned in the past and it's important to repeat this, that only about 15% of CSI Compressco revenue is directly dependent on onshore drilling activity. As a reminder, the capital expenditure of our CSI Compressco are being wholly funded by CSI's capital structure without any support from Tetra.

During the quarter, Tetra received distributions from CSI Compressco of $7.3 million, up 28% from a year ago. This represents a distributions to Tetra for the 42% of the outstanding unit that we own and our 2% general partner interest.

As you will recall, when we did the IPO of Compressco in 2011 as a general partner, we are only receiving 2% of the distributions for the GP. As the distributions have been gradually increasing, we have surpassed a 15% IDR, and late last year, after the Compressco acquisition, we reached a 25% IDR. At our current annualized distribution of $1.98 per unit, we are only 17.5% away from reaching the 50% IDR threshold that will significantly accelerate the distributions to Tetra as a GP of CSI Compressco.

With respect to the balance sheet, we previously mentioned that Tetra and CSI Compressco's debt are distinct and separate from one another. Tetra improved our leverage ratio to less than 2.9 times debt to EBITDA in the first quarter. This was an improvement from the leverage ratio at the end of 2014 -- a strong accomplishment in a deteriorating market.

The details of Tetra and CSI Compressco's debt structure are included in our press release. Tetra's liquidity at the end of March was $135 million with liquidity being defined as availability in our revolver plus cash on hand.

CSI Compressco's liquidity at the end of March was $217 million. We believe we are in good position to manage through this downturn with adequate liquidity plus Tetra generating free cash flow.

As Stu mentioned, we retired the $90 million private notes that matured at the end of April by refinancing $50 million on a two-year term loan at interest rates lower than the retired notes and by absorbing the remaining $40 million into our revolver. On a 12-month basis, this will reduce our interest expense by approximately $2 million.

We have modeled and have actions to address an environment where the US onshore rig count remains at today's levels for this year going into next year where cost levers will continue to be pulled. Tetra excluding CSI Compressco have reduced headcount by 648 staff or 21% from the peak of last year through the end of March. This year alone, we have reduced staffing levels by 348 staff or 12.5% at Tetra excluding Compressco.

We believe that our business model allows us to maneuver operating costs accordingly, reduce capital expenditures, putting us in a unique position to generate attractive free cash flow in a challenging environment, especially when taken into account that distributions we can expect to continue to receive from CSI Compressco. We have invested heavily to build our compression business and our fluids franchise as we believe these too are more resilient to a US downturn. These two divisions represented over 80% of our first-quarter revenue.

And with that, let me turn it back to Steward.

Okay, at this stage, we will open the lines for our questions.

Thank you.

(Operator Instructions)

Our first question is from Praveen Narra of Raymond James.

Hi, good morning, guys.

Good morning.

So, on the Fluids side of the business, obviously the segment held up really well, it's impressive to see a margin increase under this environment. But I assume your non-E&P industrial side was relatively steady. So, can you give us some extra color on how the offshore versus onshore portions trended from an activity and pricing standpoint?

Yes, I think if you look -- your first assumption that the industrial held up well is correct. And, when you look at the other areas, our offshore continues to be strong as we talked about in February on the call. We've got a nice backlog that we've got good visibility on, and the projects rolled out on schedule during the quarter, which was good.

Onshore, the water is very difficult. We're not exempt from the challenges that everybody has in those markets with that business, both from an activity and a pricing point of view. And then, the balance of our onshore Fluids held up good. I think that business will certainly be impacted as we go forward, but not to the degree of water.

I still think we have areas where we have a footprint that allows us to participate steadily going forward, and our international Fluids markets did well also. So, very similar to what we've seen in some of our strong quarters in this cycle where the fundamental strength of that business has held up.

So, when we balance that as we move through the rest of the year, is it possible we keep margins relatively steady at these levels, or --?

I would think we will continue to see incremental pressure on the water side as we go through the year. Again, all of this is based on the fact it's our view we haven't seen the bottom of the market in some of those drilling-related shale plays for our businesses. So I think, both for our testing domestically and for our water, we're going to continue to have that type of pressure.

I think the Gulf of Mexico, being as lumpy as it is, I think we will have some quarters that are better than others. But, in general, we're going to have a very good year in that area. And the international market, the North Sea is going to be a little bit more challenging, but areas in Brazil and Saudi, which are other major plays, I think we'll continue to do well on that.

Joseph, any areas I've left out on that? I think that we feel pretty good about that business going forward.

Yes, the backlog for the first half and moving into the second half of 2015 is good, we feel very comfortable with our current margins. In fact, in some places we might slightly improve some of these margins, based on the cost actions we've taken and the customer expansion we've made with regards to market share points.

The point that Stu mentioned around water in the US onshore is that it [really rated] to the E&P companies using a lot less reduced water where our TETRA steel is definitely a superior solution to all of our competitors with the double-jacketed lay-flat hose. Unfortunately, with half the activity on US land onshore, the access to freshwater has become very easy for the customers. In fact, some of our customers have decided to vertically integrate and take in house some of these services, so that just gives you some color to the water.

We believe that we are very close to the bottom; we hope that the bottom will be in Q2. In fact, if you look at the number of wells that have been drilled and not completed, that backlog continues to grow, and we estimate that there are between 4,000 and 5,000 wells that are now drilled and not completed. So, it's an important point to make because we believe that, as soon as the commodity price stabilizes and becomes a little bit more attractive, that some of our E&P customers may ask us to come back to work sooner than the rig counts start coming up.

Okay, that's very helpful. So I guess, switching over to the cost side of your business, can you give us some color on when you started to realize the impact of cost savings and how that flows into future quarters?

I think we've been realizing it for the better part of two years. We didn't start during this cycle. If you go back to prior calls on some of the businesses, we've had a challenging Offshore Services market for awhile, and we just continue to grind through it and take incremental actions. So, again, the numbers that Elijio referenced are very impressive and are a continuation of what we've been doing.

I think on the onshore businesses, we've certainly accelerated the pace as activity comes down. And, again, it's not just looking at ratios in different areas beyond that. I think Joseph and his team [will] protect the structure, flatten the organization, done things in a down market that you've got to do by looking at the business differently.

So I think you've clearly seen -- certainly in the second half of last year in some of the margin enhancements on testing, a lot of that's been driven by cost actions. I think on our ability to, even in this low revenue side on Offshore Services, come in at the level we did was driven by cost.

Certainly we've gotten nothing from the market that's helped us in Offshore Services. That's all been self help in terms of costs driven. And, in our G&A areas, the entire Corporation at the division level and the corporate level continues to take that number down. So, I think we've been seeing it, but there's very good evidence of it in the first quarter.

And Stu, I would add -- Praveen, you've heard us talk in the past -- last year about this time, we were talking about consolidating the (technical difficulty) functions at the TETRA level and consolidating accounting, procurement, HR -- that had started a year ago. And then last year, we implemented a system in Oklahoma City for Compressco that allowed us to consolidate a lot of their G&A functions back into Houston.

So, we've been with this process, and I think we're getting the cumulative impact of a lot of those actions. And, even for our Offshore Services division, for them to pull $23 million of costs out from Q1 a year ago to this year, basically cutting their costs in half, it's something that takes time to get done. And we've been working on that all through the year, and we're seeing a cumulative impact from all those items.

I think it's absolutely true. Thanks a lot, guys. I will turn it over.

Our next question is from Kurt Hallead of RBC Capital Markets.

Hi, good morning.

Good morning, Kurt.

I just wanted to get a general sense from you guys. We had a number of meetings this week and it seems that there is some growing viewer consensus that the activity levels look like they can bottom out here some time maybe late second quarter or very early third quarter and that the bulk of the pricing pressures will pretty much roll through the P&L in the second quarter. Just want to get your take on that, and compare and contrast.

Yes, I think there's a little bit more favorable tone as the prices moved up over the last period of time. And I think more customers talking about potentially putting rigs back to work and the statistics that Joseph quoted as well, and I do think that there's a tinge more optimism.

Having said that, we're operating the business under the scenario that we're going to be at these type of levels for an extended period and making sure our balance sheet and our cost structure reflects that. And we will be opportunistic if things migrate faster than that favorably, but we feel a bit better about the tone. But we're being very conservative in the way we are organizing the Company and making decisions. Are you there, Kurt?

Yes. Sorry about that. Follow-up here. On the Offshore side of the market, there seemed to be some commentary during the course of the week that the deepwater Gulf of Mexico was going to actually hang in there pretty well, obviously some challenges on the shallow.

Just coming back around to the Offshore Services market, again, can you give us some perspectives on that dynamic? I think most of your Offshore Services, if I'm not mistaken -- if I am, you can correct me -- is more shallow than deep. Is that right?

Yes, it's almost all on the shelf, and I think, if you look at that customer base, there's just not going to be as much spend as we'd like on abandonment and decommissioning or infrastructure this year. So we've -- at the end of last year, one of the dive vessels that we had on long-term lease, we shed that. And we feel, when opportunities come up, we have very good access to that type of asset.

We've continued to streamline the organization. But I think our assumption is, even with some of the assumptions that maybe we see a little bit better onshore activity as we go through the second half of the year -- we're assuming, in Offshore Services, it's going to be a tough year. And, other than seasonality in some of those trends in the middle of the year, it's going to be very tough. And, again, that's the way we will organized there.

Hopefully, as we see commodity prices improve as we go forward, maybe that will loosen up a little bit the budget of that abandonment and decommissioning spend by our customers. We've seen no evidence of that at this stage.

Okay. All right, great. That's it for me, thanks.

Thanks.

Our next question is from Stephen Gengaro of Sterne Agee, CRT.

Thank you, good morning, guys.

Good morning, Stephen.

A couple of things, I guess I will start on the Production Testing side. You've obviously done a lot on the cost side, you've talked about it, and I think Elijio referenced the decremental margins in the quarter.

Assuming you get some slippage in revenue in the second quarter, just based on what we see in activity, can that business -- can margins remain above breakeven with the cost savings that had been in place? Or -- I know there's pricing pressures offsite. How should we think about the margin profile in that business over the next quarter or two?

All right, I will try to answer that question. We have been surgical with some of the cost actions that we have taken with Production Testing and the Offshore Services in particular. Having said that, what we did in the beginning of the year is define scenarios for the activity levels we expected through the first half and second half of 2015, both on the domestic and international front. Having said that, we managed to meet and, in some cases, exceed our cost bucket targets, which allowed us to basically safeguard our profitability.

In Q1, we had a few projects slip into Q2. We expect to maintain or exceed some of these margins that you have seen in Q1, in particular with our international business. We also have seen complete deterioration in places like Canada, in particular, where we think that the recovery would be very tough in the short term.

In Iraq, we had cessation of a project in Q1. We have won another project in similar size to the project that we stopped at the beginning of Q1. We expected that to start in the beginning of March, and kickoff for that project was towards the end of March. So it will help us in Q2 and it continues throughout 2015.

So, overall, with regards to the activity and the challenges, it's really going to be around Canada. The domestic part of things, it's going to continue to be challenging. We believe we have taken the necessary actions to play in this environment. We have succeeded in diversifying our customer base towards some of the customers that are continuing to work through this downturn, and we believe that the international markets will basically stay strong.

With regards to Brazil, we have won a few projects as well, and we will continue to work the whole year with the equipment we have when it comes to Production Testing. So we feel confident, moving into Q2 and the rest of the year, that we will be able to maintain some of these margins that you see in Q1.

Embedded in that, Stephen, I think a great point that Joseph mentioned is, in these areas of this lower activity and more competition, you have to migrate to that customer base as much as you can that at a similar price point is going to recognize your superior service. And I think the whole organization is very focused on the customer mix in those customers, in taking market share with those customers based on an intelligent economic analysis. And I think that's part of why we've been able to do as well as we have on some of these really competitive markets that we have.

Okay. Thank you, that's helpful and it's good color. When I think about the Compression side, you had a little bit of a downward draft in revenue. You talked about some delays in shipments. Is that something we should pick up second half of the year, is that how you're thinking about it based on the shipment delays? Or do you think that it's sooner than that?

I think we will see it in the second quarter and beyond for the balance of the year. It's more of a timing than it is anything broader than that.

Okay, thanks. And then, just one final. You mentioned the IDRs, and I think you're fairly close to that third split, the $0.25 or $0.30 away from the net range, right?

The annualized, right now, we're at $1.98, which is above the 25% -- $0.25 IDR. To hit the 50% IDR, that's $2.33.

Okay, and then that's where you see that significant jump in GP cash flow?

At that point, any amount paid above $2.33, 50% comes to TETRA as a general partner.

It's not, Stephen, trust me -- it's a number that we all recite very frequently.

Great, thank you.

Our next question is from Marc Bianchi of Cowen and Company.

Good morning, guys.

Good morning.

Just to follow up on Stephen's questioning on the Production Testing, maybe if you could expand a little bit on the competitive environment, how does that look maybe versus the summer of last year? And I would suspect that things rationalize a little bit during this downturn, and how do you see it positioned when a recovery ultimately unfolds?

Yes, I will give you a high-level answer and maybe we will go into a little bit more detail. My sense is, if you compare it to the end of last summer when things started ratcheting down, clearly we're into significant double-digit pricing declines from where we were there, and that hasn't stopped. It continues, and that's why it's really important for us to make certain we're doing the analysis on every customer.

I mean not just in terms of who's going to be busy, but who is going to allow us to differentiate our capabilities, look at credit, our ability to get paid, all those variables. We've clearly seen several smaller companies pack it in already, so we've seen a little bit of thinning.

Would I characterize it as a major structural change? No, absolutely not. I think there will be some others. But I think the larger guys will continue to differentiate themselves, and we certainly want to be one of those. And, hopefully, we've seen we're getting close to the bottom of that over the next month or quarter.

Okay. Do you get the sense that there's competing bids out there for business? Is that a loss for some of your competitors right now?

I definitely think there are competing bids out there on an ongoing basis. I think the nature of the process is, those RFPs and competitive bids, and that is a constant. That's just the nature of what's going on.

And, again, the way -- the only way you can participate is to come up with a contribution of how you are going to add value, articulate the value proposition, execute seamlessly, and take some market share from people with the customers that you've targeted.

Allow me to give you just an additional piece of information. Are there competing bids? Absolutely. What we are trying to drive with our customers and the diversification and the new business is to make sure that we give and take and play win-win type situations with our customers. So, whenever we are asked to give price concessions, what we are trying to do is get volume for their maybe diminished volume. But at least take first call with regards to the business we have to offer.

With that, we've been asked to give discount levels over the course of the first four months of the year in excess of 15% to 20%, which allows us to maybe, in some cases, play the volume cards. And there's always inflection points if you manage to have to get to that inflection point within 30 days of the month. So, although your cost structure has diminished at some stage during the month with the loading, with the continuous utilization of your resources and people, you're able to make money. And that's basically some of -- or, this represents a little bit of the tactical execution that we put in place.

We have continued -- like I explained at the last call, we have continued to win new business. So this has been something that the whole organization is focused on, whether it's the Production Testing, the Fluids business, the water, the Compression or Offshore. What we are trying to do is make sure that we are safeguarding profitability, but objectively targeting new business to diversify the customer base, where it's maybe better customers, maybe better value propositions, and definitely better utilization of the resource.

Sure. Great. Thank you, Joseph, Stu. Appreciate it.

Our next question is from Doug Dyer of Heartland Advisors.

Good morning, gentlemen. If you could, can you break out the inventory with regard to how much is at Compressco and how much is at TETRA? And also maybe give a breakdown as to what is in finished goods and raw materials?

I don't have that granularity at a total level. Inventories are right at $200 million for TETRA and Compressco, and then for Compressco -- let me back up.

Let me first give you off the Q that we are going to filing on Monday, the split of the $200 million. So about $64 million is finished goods; about $3.5 million is raw materials; parts and supplies is $53 million; and work in process is $79 million. Now, the split between TETRA and Compressco, I will give those to you in just a second.

Let me give those to you offline. I don't have my Compressco 10-Q here. I only have the TETRA 10-Q here with me.

Okay, that's fine. And then, with regard to your cash flow that will be coming this year, how much of that do you think will be coming from your working capital? And, do you have a rough idea how it shakes out between working capital and operating cash flow?

Right, so we've said in the past that the expectations for cash to be generated this year from working capital is somewhere in the $10 million range.

Okay. All right. Thank you very much.

And I will come back to you on the split between TETRA and Compressco and the $200 million of inventory.

Okay. All right, thank you.

Our next question is from Blake Hutchinson of Howard Weil.

Good morning.

Good morning, Blake.

Yes, actually my first question was going to be a follow-up there to Doug's. Elijio, was there something on the working capital side whether inventory builds with these large Gulf of Mexico businesses that was a detriment to free cash generation in the first quarter that -- I'm sorry if you had called that out, but a big number that usually wouldn't have shown up in the quarter?

If you look at the press release for our very last page Schedule G, we show that there's a use of cash from operations which is primarily a payment of payable that have accumulated at the end of the year. And those get flushed out in January or February. So we believe that, that traditional payout in early Q1 is a one-off item, and then we continue to draw down receivables as the year progresses.

Right, so if we take that number you gave Doug, that would be the -- we could gross it up for the number that you have in Schedule G there?

Correct.

Okay, great.

It's primarily payables.

Great. And then just, guys, because it's such a big swing to the model seasonally, I guess I was hoping to get thoughts around Offshore Services and seeing how big a hit it took here. And there was some commentary about the fact that assets typically leave the dock in March and April, but I guess some question as to whether the work's actually out there.

Would it be out of the range of possibilities to get pretax profit back to near break-even level? Is that too aggressive assumption?

Let me give you a little color on that. Our major heavy lift assets we expect to continue to work, they're at work now, they went out early in the quarter, and we expect that will continue through the second quarter and beyond.

I mentioned on a prior comment that we don't have a third-party dive vessel under lease, don't expect that will happen in the short term. And I think the guys have done a great job on some of our smaller businesses within the segment downsizing and being at a mode where, at a very low level of activity, they can make money on those smaller business.

So a lot of it is going to be driven by the utilization of the major assets because the pricing probably won't change and we're not going to bring the dive vessel back without a reasonable backlog. And you take all of that together -- it's not unreasonable to expect we might eke out a little bit of profit in that business during the busy part of the year.

That's excellent. That's exactly what I was looking for. Appreciate it, guys. Turn it back.

Thanks.

Before we take the next call -- Doug, your earlier question about the inventory split. So, out of that $200 million, $123 million is at Compressco level, which is up $10 million from the end of the year. And the rest of it is TETRA, or about $77 million, which is consistent with where we were at the end of the year.

Our next question is a follow-up from Stephen Gengaro of Sterne Agee.

Thanks. Following up on that prior question, and you have -- the movements are obviously pretty significant, but Offshore Services, any guidance on what the revenue line looks like in the middle part of the year? There's been such big fluctuations, I'm really having trouble calibrating how that plays out.

Yes, I don't want to get into projecting that level of detail in this market. But, again, as you look at it, the points that I'd give you some direction on -- as I said, the two major barges we think we're going to work through the balance of the quarter and beyond. The dive vessel that we leased we don't anticipate that coming back during this quarter, certainly. And we won't bring an asset in for lease that we can't match backlog to contract of the asset.

So, you're certainly going to see a significant improvement from the first quarter, which is not a big statement, and I would expect it won't be as busy -- the top line won't be to the level it was last year during the second quarter because you don't have the dive asset. But we've got a slimmed-down cost structure, and I think we will do okay during the second quarter.

I think just to add to what Stu is mentioning, our main priority is to eke out profit in Q2 and Q3. So, we're looking at utilization with our diminished cost structure, and the whole team is really focused on making sure that we can load the assets in the busier season throughout the year to make sure we eke out profit. So that's really a laser focus for the team. So, without giving you a top line, I think we are all focused on making sure that we produce profit before tax in the next six months of the Offshore Service.

Thank you. And, were -- in the first quarter, the two major heavy lift vessels went to work -- can you give us a sense for how much they worked in the first quarter?

They were at the docks. We did not have any work for the heavy lift vessels, and they went out in April.

Okay. All right, that helps, great. Thank you, guys.

(Operator Instructions)

There are no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Brightman for any closing remarks.

Thank you very much. And, as always, we thank you for the participation and the questions. And we will look forward to updating everybody on the second quarter early August. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.