TETRA Technologies, Inc.
Q1 2019 Earnings Call Transcript

Published: 9 Aug 2019

[Operator:]

Good morning and welcome to the TETRA Technologies Second Quarter 2019 Results Conference Call. The speakers for today's conference call are Brady Murphy, Chief Executive Officer; and Elijio Serrano, Chief Financial Officer for TETRA Technologies Incorporated. Our participants will be in listen-only mode. [Operator Instructions].I will now turn the conference over to Mr. Murphy. Please go ahead.

[Brady Murphy:]

Thank you, Robert. Good morning and welcome to the TETRA Technology Second Quarter 2019 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. I will highlight a few items and then turn it over to Elijio for some additional details which in turn will be followed by your questions.I'm going to first remind you that this conference call may contain certain statements that are or may be deemed to be forward looking statements. These statements are based on certain assumptions and analysis made by TETRA 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 the company. You are cautioned that such statements are not guarantees of future performance and that actual results may differ materially for those projected in the forward-looking statements.In addition, in the course of the call, we may refer to net debt, free cash flow, adjusted EBITDA, adjusted profit before tax or adjusted earnings per share, backlog, coverage ratio or other non-GAAP financial measures. Please refer to this morning's news release or go 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.Well first, I'd like to start by thanking the close to 2,000 TETRA and CSI Compressco employees for delivering a strong quarter in a challenging environment and in my first quarter as CEO of TETRA. In a quarter where the U.S. land rig count dropped over 10% from the recent peak at the end of last year and the Q2 U.S. land rig count dropped 5% from the average rig count in Q1, we were able to grow revenues 18% sequentially, and 11% year-on-year while improving margins in each of our segments.On a consolidated basis, we achieved the $50 million adjusted EBITDA quarter, up 38% from the first quarter and up 8% from the second quarter a year ago. While North America rig activity was down in the second quarter, our Completions Fluids business benefited from improved activity and key offshore markets as demonstrated by delivering 22.4% adjusted EBITDA margins, an increase of 560 basis points from first quarter and 450 basis points from the second quarter of last year.Our compression business set company records for compression services margins at 52.7% and utilization of 89.1% and continues to benefit from a long-term growth cycle for increased gas production and the use of compression for centralized gas lift in key shale oil basins.Our Water and Flowback revenues declined slightly quarter-on-quarter, but our adjusted EBITDA margins improved sequentially by 210 basis points on cost initiatives and continued customer adoption of our integrated operations and automation. On a segment basis Completion Fluids revenue increased sequentially by $18.2 million, $79.8 million in the second quarter, and from $61.6 million in the first quarter.In the second quarter, we have benefited from strong offshore fluid sales in the Gulf of Mexico and eastern hemisphere. In addition to the seasonally strong North European industrial chemicals business, excluding the small benefit from TETRA CS Neptune revenue and profit, the adjusted EBITDA margins in this segment were approximately 20% which is our target for our base completion fluids business without the benefit of CS Neptune.Our differentiation through vertical integration and our long term contractual supply agreement for bromine has served us well during this extended downturn and has us well-positioned for improved activity going forward.Regarding CS Neptune on the last earnings call, we reported that we have reached agreement on the technical and commercial terms for a project and we're in the process of finalizing the contract details. That contract has been finalized and drilling is ongoing. We realized a small amount of revenue and profit contribution from that contract in the second quarter in preparation for the completion phase expected in the third quarter.This was the Gulf of Mexico lower tertiary development project in a field with existing production and where other wells in this field have pressures that require a fluid density in the CS Neptune generation one range. I must remind you, however, that as with all these types of complex deep water wells, the exact timing on completions is challenging to accurately predict. We expect this project to be a similar size as our previous Gulf of Mexicore CS Neptune wells. As we've done previously and to protect the confidential nature of this important project for our customers, we will not disclose the specific customer revenue or profitability of these projects.We continue to do advanced discussions for additional CS Neptune projects across the globe. Some of those discussions are directly with operators and some are through our relationship with Halliburton. Through our Halliburton relationship and with some of our own customer relationships, we have now been able to technically qualify or are in the process to technically qualify TETRA CS Neptune Completion Fluids with six major operators as they plan their future projects.We are also evolving our TETRA CS Neptune Completion Fluids technologies to address higher pressure opportunities, as we are announcing our new Neptune monovalent solution. Excluding very expensive cesium solutions, this new product increases the density range of current monovalent bromine solutions by nearly 2x and we are very excited with the new market this solution will open up for Neptune fluids. We are already in the testing and qualification phase for a major operator in this innovative product breakthrough.For our Water and Flowback division, in the second quarter of the segment recorded a sequential EBITDA improvement of $821,000 or 8%, $0.5 million of less revenue. As we discussed last quarter, our Water and Flowback Services segment went through a pretty significant shift in customer mix from the fourth quarter of 2018 to the first quarter of 2019 as the smaller independence reduced activity while the major stayed relatively consistent with their drilling and completion plans. We see that trend continuing along with more competitive pricing for the base water and flowback services.In this current environment, we are seeing customers seeking lower cost solutions, which fits very well with our strategy to be the lowest cost per barrel water solutions provider. A key part of that strategy is our integrated project offering, which increased to 25 projects during the second quarter, up from the communicated 19 in the first quarter. Those integrated projects allow us to stay on jobs for extended periods of time, showcase our differentiated technology, more effectively utilize our equipment and personnel and improve margins. Those projects are now a meaningful part of our business and we believe a real competitive advantage.One of those integrated projects is our first premium basin automated produced water recycling project, which has been ongoing since the summer of last year. At the customers' request, we're in the process of expanding the capability for that operation to treat and recycle up to 100,000 barrels of produced water per day, up from the current capacity of 60,000 barrels.Our automated treatment and recycle solution is a relatively low capital investment that could be mobilized and demobilized in a few months and could be mobilized and moved with these to other future locations. We believe that produced water solutions will continue to be a fastest growing segment of a $25-billion industry water segment and we are well-positioned to capitalize on that growth.The compression segment continues to perform well and continues to be one of the strongest segments across the oil and gas industry. Compression saw a strong sequential increase in revenue adjusted EBITDA, compression services, gross margins and fleet utilization. Revenue increased sequentially 31% to $135.9 million and was 36% above the second quarter of last year. The main drivers for the sequential revenue increase were near record highs equipment sales, a nice rebound and aftermarket sales and a steady top line growth of the compression services business.Compression adjusted EBITDA was up $6.8 million sequentially to $32.8 million, and was also up $10.3 million from this time last year. The compression services business delivered the eighth consecutive quarter of improved revenues, and delivered record highs and fleet utilization and compression growth service margin since the acquisition of Compressor Systems Inc. in 2014.We continue to evolve and shift across all segments to work for operators with the strongest balance sheet -- a shift that will be beneficial in the long run. We do not build new compression equipment on speculative basis as all the new equipment we put into services is attached to customer contracts. We are building to meet specific client demands and working with our key clients and key basins to satisfy their needs while also leveraging our infrastructure.In the first quarter and for the first time in CSI history, active operating horsepower surpassed the 1 million mark and we added about 11,500 more to that this quarter. Utilization for the 1,000 and higher horsepower equipment focused on the gathering systems and centralized gas lift was 97.1% as of June 30, up 150 basis points from March 31, 2019. Overall utilization for the entire fleet is at 89.1%, up 190 basis points sequentially and a record high since the acquisition of Compressor Systems Inc.CSI Compressco ended the quarter with a backlog of 60 million after 18 million of orders and 52.7 million of new unit sales. Orders in the first half of the year were slower than anticipated, but we expect customer orders to pick up significantly in the second half of the year. Our equipment sales pipeline remains strong.Overall, it was an excellent quarter across all three segments in an evolving and challenging market driven by E&P operators' capital spending discipline and competitive pricing. In addition to inorganic opportunities, we continue to evaluate some, but we are highly focused on cash returns and managing our debt levels as we pursue any future acquisitions. We will only complete those projects to provide the best value to our shareholders at the right price.With that I'll turn it over to a Elijio provide some financial comments on cash flow and the balance sheet, and then we'll open it up for questions.

[Elijio Serrano:]

Thank you, Brady. I'll spend a few minutes on TETRA CSI Compressco free cash flow, capital expenditures and balance sheet, then on CSO Compressco's capital allocation strategy before providing some commentary on our third quarter views.In the second quarter, TETRA only generated free cash flow from continuing operations of $3.1 million. This compares to $34.9 million consumption of cash in the first quarter. We have historically consumed cash in the first half of the year and generally that free cash flow in the second half of the year. We are following this historical trend. This is driven primarily from changes in working capital and large payments that typically fall in the first quarter.We expect several factors to contribute towards a generation of free cash flow in the second half of the year. This includes first, the monetization of the receivalables from the northern Europe industrial chemicals second quarter peak. Revenue historically increases in northern Europe between $10 million and $15 million from the first to the second quarter and gets monetized in the third quarter.Second, Brady mentioned that we have signed an agreement with a major operator for our CS Neptune project that we expect to be completed in the second half of the year. It is our assumption that this project will be completed and monetized before the end of the year.Third, capital expenditures are expected to be approximately 50% lower in the second half of the year compared the first half of the year. And finally, we have several internal initiatives to improve working capital that are gaining traction that will also benefit the second half of the year. As a result of those actions and taking into account a potential slow down at the year-end for the US onshore business, we expect TETRA-only free cash flow to exceed the $3 million of cash flow that we generated in 2018.If the timing of the CS Neptune project changes, we would expect that it would impact our total year 2019 free cash flow expectations. For tech only, we expect all your capital expenditures to be approximately between $25 million in addition to $15 million of equipment that we've agreed to buy and lease to CSI Compressco supporting their high return opportunities.To the first half of the year, we spend $11 million of the committed $15 million to support CSI Compressco. As a reminder, most of the profit from this arrangement with CSI Compressco will come to TETRA when the equipment's on lease to CSI Compressco.TETRA-only capital expenditures in the second quarter were $10.9 million after being $8.9 million in the first quarter. Most of our 2019 capital expenditures are front-end loaded in the first half of the year to accelerate growth and address our customer needs. Our $3 million of TETRA-only free cash flow is after TETRA completes for CSI Compressco to $15 million of capital previously mentioned.TETRA's balance sheet remains strong. TETRA net debt at the end of June was $200 million was essentially that amount being the amount of the name on a term loan. This term loan matures in six years in August of 2025. The term loan be agreement provides us with delay draw auction that can be finance tuck-in acquisition.We have in place an asset base credit facility which we'll use primarily for working capital needs given the seasonality of our cash flow. At the end of March, we had $18.5 million outstanding on the ABL. At the end of June we also have $22 million of cash on hand. We have a debt structure with no significant maintenance covenants and no current maturities which allows us flexibility to maneuver through any volatility in the market.I also like to again remind everyone that TETRA CSI Compressco's debts are distinct and separate. There are no cross default, cross collateral or cross guarantee from the debt between TETRA and CSI Compressco. I will now spend a couple of minutes on CSI Compressco.For CSI Compressco, cash flow from operating activities in the second quarter was $8.7 million. Distributable cash flow of $15.7 million improved 150% from the first quarter of this year and 200% from the second quarter of last year. Their coverage ratio was 33x compared to 13x in the first quarter.The final cash redemption of the Series A preferred units is today, August 8. After which all Series A preferred units will be fully-redeemed. At the end of June, CSI Compressco's total gross debt outstanding was $646 million. Hopefully $350 million are the secured note that mature in the year 2025 and $296 million is for the unsecured note that mature in August of the year 2022.No amounts were gone under ABL revolver. CSI Compressco does not have any maintenance covenants to comply with. CSI Compressco's gross leverage at the end of June was 5.55x. In annualizing their second quarter adjusted EBITDA, their gross leverage ratio would be 4.98x times, lower away towards a 4.5x [indiscernible] at our investor conference in May of last year in New York City. And also when we announced the reduction on our distribution in December of last year.CSI Compressco's 2019 adjusted EBITDA guidance is between $125 million and $130 million. This compares to $99 million of adjusted EBITDA in 2018 and represents a year-over-year growth of between 26% and 31%. 2019 revenues expected to be between $475 million and $480 million. This is an increase of between $35 million to $50 million from 2018. We are very encouraged with the price increases we continue to see as our fleet contracts rollover. New equipment is going out at record-high prices and the continued improvement in compression services gross margins. In the second quarter the improvement in compression services gross profit was greater than the potential revenue increase given fall through gross margins of 248%.At the midpoint of CSI Compressco's full year adjusted EBITDA guidance of a $127.5 million and after accounting for cash interest expense, maintenance capital expenditures and cash taxes. CSI Compressco expects to generate approximately $60 million of free cash flow. This year, $30 million of that was directed toward cash redeeming the Series A preferred units which are now done and directed toward growth capital with a small amount toward distribution.CSI Compressco previously communicated plans to direct 50% of future cash flows towards growth capital on the assumption that the market supports the higher margins we are achieving and generating 20% returns on capital. The other 50% will be targeted towards returning cash to stakeholders being [ph] neither [/ph] debt holders or equity holders. CSI Compressco are committed to improving their leverage ratio to 4.5x or better. As a reminder TETRA is a general partner of CSI Compressco, owns the IDRS and approximately 34% of the outstanding common units.Returning to comments on TETRA consolidated, we expect third quarter profitability to be up sequentially for Water and Flowback testing services and/or Completion Fluid and products and platform compression. We expect EBITDA margin improvement across all three segments driven by more stable integrated projects, cost-cutting measures that we're implementing the anticipated CS Neptune project and higher contribution as the percent of CSI Compressco from the aftermarket services.We expect modest revenue increases in Water and Flowback services and Completion Fluids and products and a slight decline in compression driven primarily by the timing of new equipment sales. I encourage you to read our news release from this morning and CSI Compressco's news release from yesterday for all the supporting details.With that, I'll turn it back to Brady.

[Brady Murphy:]

Thank you, Elijio. Before we open the call to questions, I just like to reiterate four key messages to leave with you. First the Gulf of Mexico well which we believe will require our CS Neptune completion fluids is nearing completion and we're optimistic we will be able to monetize it on the second half of this year. Second, we're successfully -- navigating through an uncertain North America land market and posted sequential increase in EBITDA and EBITDA margins in our Water and Flowback services business. Third, our traditional offshore completion fluids businesses improved significantly, both in the Gulf of Mexico and internationally and is generating our targeted EBITDA margins of near 20%. And lastly, we remain very focused on cash flow generation and still expect total year TETRA only free cash flow to exceed the $3 million that we generated in 2018.With that, we'll open the call for questions.

[Operator:]

We will now begin the question and answer session. [Operator Instructions]. The first question comes from Praveen Nara of Raymond James. Please go ahead.

[Praveen Nara:]

Hey, good morning, guys. I guess we can start on the growth projects. We've talked about CS Neptune, it was nice to hear about the six operators that you're either qualified or in the qualification process with. I guess, given where you are, can you talk about, especially with regards when Halliburton is involved, how long the qualification process takes? And then given what you guys know about where you are, when do you expect to see that ramp up in CS Neptune project or revenues? Do you expect that in 2020, 2021? How do you think about that?

[Brady Murphy:]

Yes. I'll take that one. The qualification time can be fairly lengthy because as you know these are mostly deep water projects. It involves the completion designs from the customer; what types of tubular metallurgies they're going to use; if facilities can get involved, if it requires [ph] link [/ph] flowback. So as you can imagine, we are involved in qualifying for these projects for pretty far in advance of actual seeing, the 'bit turn to the right', so to speak. Having said that, we've already qualified with several customers and we have some visibility of their projects in addition to the one Gulf of Mexico project we've talked about in Q3, there's one international project that we are in discussions, commercial discussions with a customer, that if we finalize those discussions, that's an ongoing drilling campaign depending on whether they hit the pressures that required Neptune would determine whether we get another job this year or potentially next year.So that's an example of one type of project that we would expect to see some benefit from next year. There are some other projects that are further out there. We could see additional project sanctioned and drilling next year. But it's a little too early to tell at this point until we get into the budget. The budget season is probably near the end of the year.

[Praveen Nara:]

Okay, that's helpful. And then I guess it's on the fluid side in terms of the integrated project count increased to 25 from 19. Can you talk about where that growth is coming from? Is it more customers using the integrated service? Or is it the same customers increasing the number of projects they're doing?

[Brady Murphy:]

Yes, it's a little bit of both for us in Q2. We continue to build some momentum with the major operators. They seem to be adopting it right now faster, just primarily because of their sustained activity levels compared to some of the smaller guys. But we do have integrated projects now in all of our basis. So we're proud of that. But yes, we're really pleased with the momentum for being where we're getting with those projects.

[Praveen Nara:]

Could you give us an idea, tell us how many customers are using the integrated service?

[Brady Murphy:]

I don't have that in front of me, Praveen. I'd have to go back and get that number for you. I know it's approaching the double digits, but I don't know exactly right now.

[Praveen Nara:]

Okay, that's helpful. Thank you very much, guys.

[Brady Murphy:]

Yes, thank you.

[Operator:]

The next question comes from Coleman Sullivan with Wells Fargo, please go ahead.

[Coleman Sullivan:]

Hi, good morning.

[Brady Murphy:]

Good morning.

[Coleman Sullivan:]

Thanks. You guys mentioned the some pricing pressure, I guess, in the water flowback. Can you walk through the areas where you're seeing the majority of that in that segment?

[Brady Murphy:]

Sure. It's a little bit different for each of our product lines. For our production testing flowback, it's actually pretty flat and I think primarily, that's because we're bringing some new technologies into the market with some very good acceptance and the customers are benefiting from the efficiencies and some of the automation that we're bringing on that side of it. So we've held pricing pretty firm on the PT side of business. We did see a little bit for the first quarter some pricing pressure on our TETRA Steel, I'd say mid single digits, types of pricing discounts in this quarter. Probably the areas under the most pressure is your single jacket, lie flat hose. And I would say we're probably mid-teens down from the peak of where we were at the peak of the cycle.

[Coleman Sullivan:]

Okay, and is there any way that you guys can help us at least think about the level of contribution from these integrated projects over the rest of the year and kind of support to any seasonality that you guys see or the seasonality that's kind of expected in the fourth quarter? Just help us think about like the support from I guess, the revenue and margin level from these integrated projects?

[Elijio Serrano:]

Oh, cool. I'll take that one. Brady mentioned that we're progressing one of our water recycling projects moving from 60,000 barrels to 100,000 barrels, and that we've been on that project since last year. The benefit that we have is that we're not mobilizing and demobilizing for projects continuously. Once we get on some of these integrated projects, we bring out a significant amount of people and resources, and we're there for extended periods of time. So the benefit that we get is that we get better utilization of people and equipment, and then we get more predictability to be able to schedule those projects. That is the enhanced margin that it brings. Clearly, when we drop headcount because of automation, customers are asking that we share some of that benefit and we do them but we try to improve the margin on it. Always suggests that the overall profitability of our integrated projects are better than our single delivery services that we do because of those factors.

[Coleman Sullivan:]

All right. That's all I have. I'll turn it back.

[Operator:]

The next question comes from John Watson, with Simmons energy. Please go ahead.

[John Watson:]

Thank you. Good morning.

[Brady Murphy:]

Good morning, John.

[John Watson:]

In response to Cole's question, you didn't mention recycling [indiscernible]. Is that a business where you're seeing resilient pricing and margin? And can you speak to the opportunities [indiscernible] to continue to grow that business as more and more operators look at recycling?

[Brady Murphy:]

Yeah, so we haven't seen, John, any pricing pressure on our recycling projects yet. And we directed -- we talked about our frontend capital load of this this year. A good portion of that has gone to the recycling opportunities that we have. It is clearly our fastest growing segment in the water and flowback. We won't discuss how many jobs we're on a percent of the revenue. I will just say it is our fastest growing and we believe those margins are very sustainable.

[John Watson:]

Okay, great. Thank you for that. Secondly, within that segment, are you expecting any facility sales in the second half of the year?

[Brady Murphy:]

Not at this time, John.

[John Watson:]

Okay. And then lastly, can you speak to the effect of increased automation within water and flowback? And how that might be able to offset some of the pricing pressure and margin pressure that you all mentioned earlier?

[Brady Murphy:]

Sure, yes. The 25 projects that we mentioned involve our automation capability. So as you as you look at the growth of those integrated projects, that gives you a bit of a cadence of the growth in our closed loop automation systems. Just one example where automation was able to help us gain with a new client in the Rockies using our TETRA Steel and automation, we were able to deliver 180 barrels per minute frac job. And as you probably know, fracs typically average 100 to 220 maximum barrels permitted types of frac and through our automation and TETRA Steel, we were able to achieve 180. So those were examples of how automation is helping us to gain some market share and reduce people which ultimately improves the margins for us.

[John Watson:]

Okay, got it. Thanks, Brady. Good quarter. I'll turn it back.

[Operator:]

The next question comes from Stephen Gengaro of Stifel. Please go ahead.

[Stephen Gengaro:]

Thanks. Good morning, gentlemen.

[Brady Murphy:]

Good morning.

[Stephen Gengaro:]

A couple things for me. The first, when we think about the completion fluids business, I believe you said at your prepared comments a modest revenue increase in the third quarter. Can you talk about the puts and takes there? Because the European business, I think is real strong in the second quarter. So it's a pretty big headwind to overcome, but you still seem to be getting towards modest revenue improvement. How should we think about that?

[Elijio Serrano:]

So very good observation, Stephen, we do drop $10 million to $15 million of our revenue from Q2 to Q3 due to the lack of the European season peak stopping in the second quarter. Then we're picking up the Neptune project that we think is going to impact the third quarter. But we're also believing that the traditional roaming activity will continue to improve. So the combination of means continuing to improve on the competition fluids offshore plus the Neptune project impact in third quarter will allow us to be up modestly Q3 over Q2 on a revenue cycle.

[Stephen Gengaro:]

Okay, that's, that's helpful detail. Thank you, Elijio. And as I think about the overall entity and if you think about compression seems to be doing well. It seems like your outlook continue to be pretty strong. How do you think about just sort of the structure of the the entire TETRA entity going forward and how that impacts sort of your longer term return on capital expectations?

[Elijio Serrano:]

I'll start and then I'll let Brady add comments to it. You've seen that we have been very active in trying to align the portfolio towards those segments that are predictable and get good returns for us. We disposed and divested our offshore decommissioning and [indiscernible] business early last year. That's been in swift water last year and then late last year, we also did a small tuck in acquisition from all of these. We believe that directing our resources towards a high recurrence, water treatment, water transfer, where we got technology differentiators that separate us from the competition will give us 20% EBITDA tight margins. And we're working back toward those numbers on the water and the flowback testing site.Then on the completion fluids side, Brady mentioned some of the newer technologies that were involved in CS Neptune. If deep water activity keeps ramping up, we're seeing the benefit of that as completion based fluids are starting to ramp up. And you know that we've got our chemical facilities in our distribution network fully built out. We do not have to add CapEx and drive more volume through those facilities. We think that we're going to get high fall-throughs from that part of it.And then on the compression side, you've seen that all the growth CapEx that we've directed has been strictly on the high end, big gathering units in the centralized gas lift. And we've mentioned very high fall-through margins. You see that we're achieving a record-high gross margins on those. You're also seeing that the aftermarket services and equipment sales that required capital also growing nicely. So we'll try to align all our investments towards those three areas, pinpoint technology to differentiate us, and then take advantage of a built-out structure.

[Stephen Gengaro:]

Okay, that's good detail. And just one final one, when we think about Q3 in aggregate, are we going to be profitable at the bottom line?

[Elijio Serrano:]

If you follow the commentary that I made, that we expect improvements in EBITDA margins and we expect Neptune to come across, we're very positive of where our third quarter numbers are looking for.

[Stephen Gengaro:]

Okay, thank you.

[Operator:]

The next question comes from Thomas Curran with B. Riley FBR. Please go ahead.

[Thomas Curran:]

Good morning.

[Brady Murphy:]

Good morning, Thomas.

[Thomas Curran:]

Brady, for Neptune turning internationally, which country currently looks the most promising for Neptune's commercial debut outside of the U.S.?

[Brady Murphy:]

Certainly the north sea would probably rise to the top in terms of the near term opportunities.

[Thomas Curran:]

And is the major that you've technically qualified with and are in advanced commercial discussions for a project that, if I understood correctly sounded as if it could materialize as early as Q4. Is that a different customer than the one you've been working within the Gulf of Mexico?

[Brady Murphy:]

Yes, it is a different customer. And again, it's possible for Q4 -- we still have to finalize commercial negotiations and obviously it has to be drilling in the right part of the field that's going to require Neptune pressures.

[Thomas Curran:]

Okay. Does it sound as if, though, that that project, if it if it ends up having the right pressures would likely lead to a revenue generating event before you might advance whatever is the most promising of the next opportunities in the Gulf? In other words, beyond this project that you'll be executing in late Q3, does it currently look as if the next revenue event is most likely to be international before you would then get the next job in the Gulf of Mexico?

[Brady Murphy:]

That progression makes sense, yes, what's your laying out. Correct.

[Thomas Curran:]

Great. And then turning to water and flowback. The Sand Cyclone equipment fleet, could you share with us, help us size that somehow? What is it as a percentage of a flowback or of the entire water and flowback division? And then what do you estimate is your market rank and share for the Sand Cyclone equipment service?

[Brady Murphy:]

I don't have the sheer numbers, probably in front of me now. We would estimate across North America, we would think we're in a strong second position on that. But I'd have to double-check the numbers on that. We were still in the early days of rolling out. There's two different technologies on the sand piece. One of them is automated sand flushing, which again, reducing people, saving efficiencies for our clients that we are rolling out. And the other one is just a new cyclone technology. That's probably more advanced stages than the automated sand flushing system that we have in terms of the number of units we are deploying. But fortunately for us, we've come up with a modification that we can modify our entire cyclone fleet or most of our cyclone fleet to achieve the second generation capabilities and efficiencies that we're seeing up to 95%. So we're very optimistic about the market penetration. We will see with that going forward.

[Elijio Serrano:]

And Thomas, I would suggest that it's not that technology in isolation that's the benefit to us. It's that that allows us to differentiate from our competitors and brings more of the flowback testing opportunities in our favor.

[Thomas Curran:]

I see. Thank you for taking my questions and providing the detailed answers.

[Brady Murphy:]

Thank you.

[Operator:]

[Operator Instructions]

[Brady Murphy:]

I guess this concludes our Q&A session. We appreciate your interest in TETRA technologies and thank you for taking the time to join us this morning. That concludes our call.