Tetra Technologies Inc (TTI) 2016 Q1 法說會逐字稿

Welcome to the TETRA Technologies Inc. first quarter 2016 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 this conference is being recorded.

I would now like to turn the conference over to Stu Brightman. Mr. Brightman, please go ahead.

Thank you, Austin, and welcome to the TETRA Technologies first quarter 2016 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. Chief Operating Officer, Joseph Elkoury 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 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, free cash flow, revenues, gross profit, profit before tax or earnings-per-share excluding 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.

In my remarks I would like to cover an overview of the first quarter, our perspective going forward including the second half of the year. We missed the low end of our adjusted earnings guidance and we exceeded the top end of our free cash flow range by more than $8 million.

Some of the key highlights contributing to these results were a mild winter that impacted sales for our industrial chemicals group, certain Gulf of Mexico projects that were delayed and deferred due to multiple unexpected dry wells for our customers, as noted on our February call, in addition to several deferred non-commercial projects and notable changes to some customers' completion programs and an accelerated and continued rapid decrease in activity in North America as we move through and exited the first quarter.

In this challenging market we continue to focus on free cash flow and de-levering and our first quarter performance was favorable in that regard. In all of our businesses we continue to reduce operating expenses and have reduced wages and implemented a shorter work week across our North American operations. Our fluids division reported both a sequential and a year-over-year decrease in revenues for the first quarter driven primarily by a lack of major projects in the Gulf of Mexico.

As we have previously noted, this is a very lumpy business and we're also impacted by several dry holes and deferrals by our customers. We do have a tangible backload for multiple customers in the second half of the year and we remain confident that this business will show improved profitability during that time period. The challenges to our fluids division in the first quarter were further exacerbated by the mild weather that impacted our chemicals business.

Finally, we have seen an increased competitive environment in oil and gas markets for our international fluids operations. On a positive note we have been awarded a significant water management project in the Permian that utilizes both our TETRA steel and our patented Automated Blender. This is one of the largest water reuse programs in North America. Our focus in continued investments in new technologies, such as this and the TETRA CS Neptune, enable us to differentiate our fluids brand in this challenging market.

Production Tested reported an adjusted loss -- pre-tax loss of $2.3 million in the first quarter. This is below both the first and fourth quarters of 2015. The significant driver for this business was decreased activity in North America. In addition, we are seeing pricing pressures in our major international markets. In North America we continue to focus the division?s efforts in the most active areas, specifically the Permian, and have had recent successes that gives us reason to be optimistic regarding an improved environment in the second half of this year.

Our compression division reported first quarter adjusted EBITDA of $23.6 million, down both sequentially and from the first quarter of 2015. Several elements contributed to this. As noted during CCLP's call last Friday, we have seen utilization of our compression assets reduced to 77% primarily to lower horsepower, but including higher horsepower to a lesser extent.

In spite of this trend, our exit rate for the quarter on 800-horsepower and above utilization was 86%. Pricing pressure at our North American fleet also continues to trend downwards, also primarily related to smaller horsepower. Finally, our backlog of equipment sales decreased from $34 million to $26 million during the quarter. We have aggressively downsized our fabrication headcount and expect that under utilization of our facility will improve in the second quarter based on these actions.

We continue to focus on the most active areas of West and South Texas. As noted in the CCLP call on Friday, we are engaged with our bankers and looking at amendments to our existing agreements that we believe will protect us and preserve the distribution as well as giving CCLP the flexibility required to operate in this challenging environment.

In addition, cash CapEx was 1.3 for the first quarter and we have taken actions to eliminate growth capital with the singular exception of our ERP system project, which will enable us to deliver over $4 million of annual savings once complete. This project also represents the final element of the complete integration of the CSI acquisition.

Our offshore services segment reported an adjusted pre-tax loss of $7.7 million for the first quarter. This is unfavorable to the fourth quarter of 2015, which is consistent with our normal seasonal trend.

During the first quarter the TETRA Hedron barge was in for its five-year dry dock. This was completed in April and the asset is going back to work this week. During the quarter the introduction of our new abrasive technology was met with a very positive response from our customers. We are encouraged by multiple recent contract awards.

These new awards, in addition to our existing backlog, give us confidence that we will have significantly higher utilization and profits in our normally positive second and third quarter. Overall we continue to believe that this business will perform similar to 2015.

We remain confident in our ability to generate free cash flow in 2016 based on an anticipation of improved earnings in the second half of the year, combined with ongoing working capital efficiency, minimal CapEx, and minimal abandonment and decommisioning spending on our Maritech liabilities. While our results clearly have come down from those of previous quarters, we are impacted to the same degree as other service companies by dramatically reduced activity in North America that accelerated during the first quarter.

We remain confident in our fluids capabilities and expect to see improvement in the second half of the year. As I remind everyone, this is a very lumpy business and we do not expect that to change in the upcoming quarters. I'm also very pleased by the recognition we have received from customers for our leadership in HSC and quality programs, including inviting us to present our accomplishments to their senior management and other contractors.

Our continued focus on taking proactive and aggressive cost actions include introducing new technology, focusing on the customers that recognize our value, and we believe we'll be the first to increase activity as prices stabilize makes us feel confident that we will continue to perform well. As we take the necessary actions we are mindful of positioning the Company to optimize our portfolio and protect our operating and regional structures in order to be able to respond when the market improves.

With that, I will turn it over to Elijio.

Thank you, Stu.

TETRA revenue of $169 million was down 34% from the fourth quarter, slightly better than the 36% decline in the US onshore rig count and also due to the traditional slowdown from our offshore decommisioning business as adverse weather conditions have historically required us to bring our small fleet of assets to the dock. Without this offshore services seasonal slowdown, sequentially, we were down 28% compared to 36% decline in the rig count as our compression business is left dependent on drilling activity.

Adjusted profit before tax is attributable to TETRA shareholders with a loss of $31 million in the first quarter compared to a profit of $658,000 in the fourth quarter, representing decremental margins of 33% as we continue to demonstrate our ability to flex our costs with aggressive cost management and the variability in our cost model. Adjusted EBITDA for the first quarter was $19.4 million or 11.5% of revenue and compares to $54 million or 21% of revenue in the fourth quarter, reflecting the seasonality of our offshore decommission business and the lower rig count.

We expect a seasonal improvement in revenue and earnings in the second quarter compared to the first quarter as weather conditions improve in the Gulf of Mexico and we deploy our decommissioning assets on a backlog of projects. In addition, we have historically enjoyed approximately $10 million sequential improvement in fluid revenue in Europe as our chemical sales (inaudible) in response to the sale of (inaudible) treatment chemicals.

In the first quarter we recorded $117 million of non-cash charges as we took further write-off as goodwill and intangible assets mainly on our compression and production testing operating units. Excluding these non-cash charges, $755,000 of severance, $620,000 of Maritech losses, and normalizing for effective tax rate of 30%, our loss on a per share basis was $0.24 and compares to our guidance of $0.15 to $0.20. We did not anticipate such a dramatic and severe decline in the rig count.

However, despite the worse than anticipated decline in activity we were able to offset the weaker earnings by better management of working capital and capital expenditures. Total capital expenditures in the first quarter were just $2 million net of proceeds from the sale of assets as we have completely logged down on capital expenditures, other than critical maintenance, or quick payback growth capital.

As a result, adjusted free cash flow for TETRA was $18.5 million, excluding $3.4 million of asset retirement obligations. The positive free cash flow of $18.5 million compares to a use of cash in the first quarter of last year of $17.8 million. Our business has seasonality where we have historically seen stronger free cash flow generation in the back end of the year. Generating positive free cash flow in the first quarter of this year allowed us to reduce TETRA debt by $12 million from $274 million at the end of the year to $259 million at the end of March.

Our Company and Management team remain keenly focused on generating free cash flow and improving the balance sheet. TETRA's leverage ratio, as defined by our credit agreement was 2.08 times, which compares to a covenant of three times. From our prior earnings calls and our discussions with many of you, you have heard our consistent and constant theme from the management team being, number one, aggressively manage cost; number two, intense focus on capital allocation by investing only on quick payback and high return projects, and focusing everyone on free cash flow.

With respect to costs, we continue to reduce headcount including a recent reduction of 40% of the manufacturing fabrication and engineering headcount, or CFI Compressco, given the weaker activity levels. We have also implemented salary reductions across the organization, continued to eliminate management levels, moved to reduce work weeks and reduce benefits for employees to ensure we have a strong and healthy organization.

On April 26 we announced (inaudible) to redeem, in part, up to $100 million of our TETRA unsecured notes held mainly by insurance companies. At the end of March we had only $21 million outstanding on our $225,000 revolver giving us more than adequate capacity to retire the notes. If we retire the notes and use the availability on a revolver we reduce our interest expense by approximately $2.5 million but, more importantly, this is the next step in our efforts to simplify and streamline our balance sheet. With this potential action we also address the $47 million of notes that mature on December 2017 and potentially shift them into our revolver that doesn't mature until 2019.

If we are able to redeem this note (inaudible) will be left with a much simpler and manageable debt structure consisting of $125 million in GSO notes that mature in 2022, a $225,000 revolver that matures in September of 2019, and adequate capacity to fund our liquidity needs and only $40 million of an unsecured term bank loan that matures April of 2019. This gives us the flexibility to take incremental steps to improve our balance sheet, dealing with less debtors and an overall lower coupon rate.

While our results remain strong and our leverage ratio is at 2.08 times, we have also proactively engaged with our debtors to amend our covenants in anticipation of a continued and prolonged downturn. In this environment we have seen almost everyone in our industry amend covenants to secure cushion to remain in compliance with covenants. We will be doing the same to ensure that we have the cushion we need as we continue to execute on our business plan.

We have been proactive in reducing costs, streamlining our organization, cutting capital expenditures, and now we will work with our lenders to provide us more flexible covenants so we are prepared to manage into a bad environment into 2017. We have managed proactively and we will continue to manage proactively. We will not be accused of playing catch-up in this environment.

With that, let me turn it back over to Stu.

Thank you, Elijio and at this stage let's open up the lines for questions.

We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from Marshall Adkins with Raymond James. Please go ahead.

Morning, guys. Hi, Elijio, could you -- thank you for the guidance on cash flow. Could you give me a little more color on that? Are we looking for any meaningful working capital improvements from here or just help us break down what the cash flow guidance is based on.

We believe there will be some amount of working capital but not significant in the remaining three quarters. We believe that the majority of the cash flow from here forward will be either TETRA earnings or distributions coming to TETRA from CSI Compressco.

Okay. Stu, let's shift gears to fluids. That was there disappointing, at least in our model. You know, do we need the offshore side to get a lot better to see an improvement longer-term in there and -- you know, help us walk through your confidence, I guess, that you mentioned earlier in the back half of the year for fluids.

Yes. I mean, I think, Marshall, the answer to that depends on the time periods you're looking at. I think if you kind of take it in the second quarter we obviously expect a seasonal improvement in our European chemicals business that happens and we expect that to happen during the second quarter. The second quarter assumptions would be that North America activity probably is less than we had for the first quarter given that it's a full quarter impact and it was declining as we exited the quarter. We don't see that activity improving during the second quarter.

I would say, as we get to the second half of the year, you know, we do have some visibility on some projects as we said that -- going forward, and we're confident they'll continue to go forward and we're positioned to supply Neptune and other fluids to those customers. So we do feel good about the second half compared to the first half, certainly not going to be at the level we saw last year where there was multiple activity and just a lot more work going on.

I think longer-term, you know, for fluids division to generate results anywhere similar to 2015 you're going to need have a much healthier Gulf of Mexico, but I think until that happens we still have the business we feel good about going forward. And I remind you that, as we have said before, about 20% of the fluids is non-energy and that's remaining steady. A little bit slow in the first quarter because of mild winter, but over the course of the 12-month period we think that's going to hold up fine.

Right. That makes sense. Last one -- squeeze one last one here. In your Offshore Services division sounds like you're getting a lot of abandonment orders. What's driving that and usually when cash flows are down like they are for the industry right now, people tend to delay that. It sounds like their, maybe, regulation or something is causing them to come to the table and force some of these abandonments.

I think -- you know, again, I think we're fortunate that we have introduced some new abrasive cutting technology that's been very well received so we're able to integrate that with our heavy lift work. You know, we see a couple of projects that may be going forward, but I wouldn't say there's a regulatory element that's contributed. There's a lot of choppiness and noise out there with the intersection of customers that are wanting to delay, for the reasons you mentioned, intersecting with [Bessie] having a very strong focus on bonding -- inadequacy of bonding.

You know, where that intersects in demand is really kind of hard to pinpoint, but I would say when you put all that together, I think there's been some changes in the competitive landscape, I think we have strengthened ourselves on a relative basis. So I think if you put all that together with our existing backlog, as we stand today, we kind of directionally think we'll be similar to where we were last year.

I would also add that we have taken a lot of cost out of that business so we get a full year impact this year. So favorable on the cost side, some regulatory pressure, some distressed customers. Put all that together I think it's similar to last year.

Thanks, guys.

Thank you.

Our next question comes from Sean Meakim with JPMorgan. Please go ahead.

Hi. Good morning.

Hi, Sean.

Stu, I just wanted to start off thinking about the compression business. From a TETRA perspective, do you see any significant strategic actions required to get the covenant waiver this year or ?- and we have seen some more distribution cuts in the compression space. Just curious how that option plays into the decision- making this year.

Yes. You know, on Friday I thought the team did a very good job explaining that. We'll have the requisite disclosures in the Q when that comes out over the next few days and, again, similar to everything we do, Sean, hopefully, we have kind of portrayed that demeanor.

We try to be proactive. We took the distribution cuts last quarter when we thought that was necessary, we cut back the capital, we have taken the headcount down. We continue to have a relatively strong business overall. You know, the EBITDA margins in the high 20s is still pretty stout. We have had customers delay some spending because of some of the dislocation in the midstream, but as we look at it, we're talking with the banks, we think (inaudible) working through that and the coverage ratio in the first quarter was still 1.11.

So I think the metrics all support where we are and the objective is to maintain where we are, take the conservative approach on covenants. We have seen others do that with very little cost or impact and we think it's going to be a relatively straightforward process.

Okay. Fair enough. And then on the cash flow you talked about trying to see the debt repurchase being driven by an attempt to simplify the cap structure -- sounds like pushing out maturity a bit to be safe. I guess, as you think about that process, was there increased confidence in the free cash flow that helps you in that decision? Potentially the worst outlook versus what you saw a quarter ago. Just curious some of the other rationales behind the decision.

Okay.

Sean, when we look at what we did the first quarter, we look out into what?s going on in the current environment, we think that the amount that we have available to us in the revolver, even if we were to use a revolver to redeem the notes, would give us more than adequate liquidity to operate in this environment. And we think this explicit simplifying the balance sheet, dropping our interest costs, and pushing our maturities will give us a much better position to weather this downturn.

Okay. Understood. Thanks a lot.

And, Sean, I would kind of just expand that a little bit is, you know, we're always looking at what other scenarios we're going to manage through in a further extended downturn. So I think proactively looking at the balance sheet, looking at the options, how we simplify, how we get more flexibility is something given where the first quarter and second quarter is by the industry that all companies are doing and we?d do the same thing. I think we tend to be very proactive about that.

Our next question comes from Kurt Hallead with RBC. Please go ahead.

Hi. Good morning.

Morning.

So I was curious -- you know, you gave quite a bit of kind of color there on the fluid side and, you know, with the rig count declining the way it is here in the second quarter you look at the production type testing business and you look at the revenue declines there vis-a-vis overall activity. Can you just walk us through, kind of, the dynamics on production test as we get into the second quarter? And then maybe give a sense as to what the customer mix is and what the -- what you may see from the customers internationally as well as domestically on Production Testing.

Yes, I think you will see probably, overall comment on North American services both fluids and testing, you know, probably lower activity during the second quarter, hopefully, you know, assuming prices stay in the mid-to-high 40s with a slight increase in activity during the second half of the year in North America. I think Joseph and his team, as we did last year, continue to be incredibly focused on those customers that appear to be capable of stepping up their investment, indicating they're looking at doing that where they do allow us to differentiate some of the technology.

So you know, I would think second quarter would be down, second half would be up a little bit. Internationally on testing, you know, the international market certainly has become more challenging. We have some projects we're chasing in the Middle East. Remains to be seen whether those come to fruition, but we think it's going to be a little bit better in the second half. And West Texas is certainly a geography where we have a lot of our equipment and a lot of our focus at the moment.

Okay. And then I was wondering if you could give us some additional color on the TTI specific CapEx for the year.

Kurt, for TETRA only, we expect total year CapEx to be somewhere between $5 million and $10 million.

For TETRA only?

That's correct.

Okay. All right. Thanks.

Our next question is from James Wicklund with Credit Suisse. Please go ahead.

Good morning, guys.

Morning.

Stuart, you talked about contract visibility in the second half. Can you tell me, do you expect an overall recovery in the second half or is this just specific contracts that you have? And are these contracts long enough to get us through the bottom? From the sound of all the talk about redoing minimis to covenants and everything, you know, survivability is still everybody's top issue. But I was just wondering if the visibility you see in the second half is based on expectations of a recovery or just discrete contracts that you guys have won?

Yes. I will give you the short answer and then I will let Joseph expand on it. You know, we've got specific backlog that we have that we're confident of in the second half. And, Joseph, you may want to talk about overall activity and your view of how that's going to play out.

Yes. I mean, specifically in the Gulf of Mexico, we have projects in our backlog and the timing of those drilling and completion programs put us completing these wells in the second half of the year starting in Q3. So that's why we're confident. A couple of our customers are in a mode where it's drill, drill, complete, complete, and the complete, complete which impacts our completion fluids happens in the second half of the year. In addition to that, I think Stu did mention a positive note on water management.

You know, that project will start in around July. It will be made out of five individual projects and, you know, it will encompass somewhere between 160 and 260 wells starting in July going into 2017 and that will have a visible impact to our results. With regards to international, we have had a few successes in the Middle East in terms of fluids and a little bit in Latin America. Albeit these are like small wins, they would yield contributions to our financial results in the second half of the year. So that gives you an idea why we feel that the backlog is better compared to where we are in Q1 and Q2.

And, Jim, just to expand on that last part, we do have the ability with our cost structure in the US to look at some of those international opportunities on a spot basis beyond where we have operations to take advantage of our position.

Okay. And, Stuart, you mentioned, early in the call, that you're seeing increased pricing pressure internationally from fluids or competition I guess -- overall competition in fluids internationally. Is it both some -- somebody or others trying to gain market share; is it pricing pressure from your customers? And the contracts you're signing internationally, do they reflect lower pricing and what's the duration of those? How long a contract are we willing to sign at the bottom at these prices?

Yes. At this stage, really we -- the experience with regards to pricing pressure in the international market is really limited to the larger oilfield services company as they continue to utilize their size and revenue scale to bully for market share. Now, you know, we have also seen a few bizarre customer decisions that were not only driven by cost control but, you know, the willingness to accept a little bit more additional risk.

As an example, willing to do open completions with no casing or no liner and relying only on the formation competence and only some sort of sands or flow control and, you know, completing that way. That has an impact to TETRA because we're on the completion side (inaudible) completion fluids. And in one particular case, you know, partial project award was given to less proven suppliers with limited or no capability.

So the reason we're looking at the second half is we feel that those will yield either, you know, come back to proper risk mitigation, come back to proper service delivery, proper cost analysis and maybe improve our share with these international projects.

Okay. Then my last question, if I could sneak one in, you talk about offshore and you have got your barge coming back out. How has pricing held up in the P&A business through this horrible downturn?

I mean, if I wanted to give you a little bit of sub-division visibility, the P&A was down (inaudible) services, activity is overall down year-on-year. So it's not really due to pricing but more towards, you know, individual activities. With regards to heavy lift with our vessels, you know, we have experienced little pricing pressure, you know, albeit a few percentage points down compared to 2015, but we are pleased with over three quarters of our backlog filled for the next year. So when the dollars get spent we're going to benefit from that.

For diving, you know, for the routine generic commodity diving, there has been, and continues to be, pricing pressure. We play in that market, but we have also significantly seen our market share improve with what happened in 2015. And, you know, with the recent awards towards the DB2 vessel in the Gulf of Mexico we feel that we will have good access to additional projects that we did not bid for last year come here the second and third quarters of 2016.

Okay. Okay. Gentlemen, thank you very much. I appreciate that.

You're welcome.

Our next question comes from Marc Bianchi with Cowen. Please go ahead.

Hi. Good morning. You guys mentioned the -- I think about a $10 million seasonal benefit that you expect in fluids or that you traditionally see in fluids. Is that enough to offset the rig count declines? Or are you expecting fluids to be up in the second quarter, I guess is my question?

Yes. Go ahead, Joseph.

I think overall this will maybe lessen the impact of the overall land activity and offshore activity in the first half of the year. I would not say it completely compensates for the overall results.

Okay. And then I guess looking to second half you have got the expectation for the projects in the GoM. Is there any drilling success risk for those? Are there any wells that are being drilled right now that if perhaps they're dry that could impact the half expectation?

I mean, look, I will be honest here. We didn't expect to be hit with two unexpected dry wells with two major customers in the Gulf of Mexico and the appraisal phase of the project after (inaudible) costs have exceeded $200 million. So for that to repeat in Q3 and Q4, I would be completely shocked. But is the risk there? Yes. Risk in drilling in the Gulf of Mexico and offshore is always there, but I would be completely shocked if those projects that we have hit dry wells again.

Right. Okay. Thanks for that, Joseph. I guess just one more on the working capital. In the first quarter, or, sorry, on the free cash flow in the first quarter, how much working capital benefited your free cash flow?

A little over $10 million.

Okay. Okay. And then as we think about the free cash flow for the balance of the year, it sounds like it might be more back half-weighted just because of the activity, but I would expect that maybe as activity is coming back you would be seeing your working capital be a headwind to free cash flow. Can you kind of talk through the underlying assumptions there, Elijio?

Yes. We expect that between April and into the year we're not getting any material benefit or use of working capital and from here forward the free cash flow is earnings driven.

Okay. Thank you. I'll turn it back.

(Operator Instructions). Our next question comes from Martin Malloy with Johnson Rice. Please go ahead.

Good morning.

Good morning.

On the Production Testing award, did ?- I think you mentioned -- I think you said 160-plus wells, what's the term over which that covers and can you help us just frame the size of this relative to the normal amount of wells that you're doing on an annual basis?

Okay. So just to correct, the project award I mentioned was for water management and for really produced water reuse. But let me give you some visibility. I think the question may be, how is the second half for the Production Testing. We believe that the [duck] inventory have reduced significantly in Q4 moving into the first part of 2016. And in recent weeks we have seen that trend kind of shift a little bit. As an example, from our internal database of tracking the drilled and completed wells on land -- in US land, 700 to 800 ducks were being added monthly in the second half of 2015.

If you look at the first part of 2016, only 200 to 250 wells were being added and the number now is trending closer to over 300 to 350 per month. So this is based on spud to completed record dates. And maybe it gives you a little bit idea of why we think that trend continues come the second half with stability of commodity prices closer to [50] than to [40], we think that some of our customers would just maybe not rush, but start completing these wells the same way we completed these wells in Q4 and that's why from the Production Testing perspective, we see a slight improvement in the second half as well.

Okay. And then on this water management contract, are there other potential awards like this out there? And can you just help us with the size of this versus what you normally do during the course of a year?

This is probably, you know, as big as any project we have seen. It will be the largest water -- produced water reuse program in North America. Our customer is expected to save millions in water reuse and disposal cost in addition to footprint. You know, trucks on the road, pits, clean-up, pit disposal wells and so on. So we hope to use that as a case study the same way, two years ago, we used the TETRA steel case to save our customer about $11 million to $12 million. If we are successful, I'm sure that other customers may start considering a similar type of project to reduce their footprint, in the Permian, in the Mid-Con area, and other basins in U.S. land.

Just one last question, if I can. On the Compressco side, particularly with the lower horsepower units, what gas price do you think you?d need to see for utilization to stabilize?

I think trending the gas price in the first part and exiting 2016 around the $1.00 to $1.50, maybe $1.70 was not very good for us, but trending towards the $2.10 and getting closer to $2.50 will drive, a little bit, our customers to go back and maybe put these gas jacks into action. We have seen a few instances where we hit $2.20. There was some additional interest in putting the lower horsepower back, but overall, you know, year-on-year we still are down.

Okay. Great. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Stu Brightman for any closing remarks.

Yes. Thank you. Again, as always appreciate the questions and we will look forward to updating the group on the second quarter results as we move into August. So thanks again.

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