TETRA Technologies, Inc.
Q1 2008 Earnings Call Transcript

Published: 12 May 2008

[Operator:]

Greeting and welcome to the TETRA Technologies first quarter 2008 results conference call. (Operator Instructions) It is now my pleasure to introduce your host Mr. Geoffrey Hertel, Chief Executive Officer for TETRA Technologies. Thank you Mr. Hertel you may begin.

[Geoffrey Hertel:]

Welcome to the TETRA Technologies first quarter 2008 earnings conference call. Joe Abell our CFO and Stuart Brightman our Chief Operating Officer are in attendance this morning and will be available to help answer any of your questions. Joe is going to give you a short review of our first quarter financial results and then I will follow with a short presentation which will then 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 any such statements are not guarantees of future performance and that actual results may differ materially from those projected in the forward-looking statements; Joe will you begin with the financial review.

[Joseph Abell:]

Revenues in the first quarter were $225 million down 7.6% from the first quarter of 2007, gross profit was $42 million, 26.8% below the prior years first quarter; general and administrative expenses were up 6.6% quarter-over-quarter due to $25.1 million. As a percentage of revenue G&A expenses increased to 11.1% from the 9.7% partially as a result of the diminished revenues. Net income before discontinued operations for the quarter was $7.4 million or $0.10 a share fully diluted compared to $20.3 million or $0.27 a share fully diluted in the same period last year, a decrease of 64%. Net income including discontinued operations was $0.9 a share fully diluted Looking at performance by division revenues in the fluid’s division for the quarter was down 8.1% compared to last year’s first quarter partially due to reduced revenues in our domestic chemicals business. In upcoming quarters, we expect revenues to pickup as Ultra Deep Water completions in the Gulf of Mexico escalate. Profit before tax was $6.8 million down 13.9% over last year’s first quarter for this division. Revenue in the Well Abandonment & Decommissioning services segment was down 42% quarter-over-quarter mainly due to excessive weather disruption in the Gulf of Mexico decreasing vessel utilization. Profit before tax was negative $4.1 million compared to positive $11 million in last years first quarter. Revenue in Maritech Resources our ENP segment was up 16.7% quarter-over-quarter to a record level, the profit before tax was $7.4 million down 34% compared to the first quarter of 2007 partially as a result of higher G&A and decommissioning expenses. Revenue in the production enhancement division set a record and was up 34% quarter-over-quarter; profit before tax was a record $15.4 million, an increase of 34% versus prior year’s comparable quarter. Activity was strong both domestically and internationally for our production testing and compression businesses. Corporate overhead was up 21% quarter-over-quarter to $14.4 primarily as a result of higher interests expense, insurance expense, professional fees and general expenses. They had approximately $67 million of cash capital expenditures in the quarter, our debt increased by $3.7 million during the quarter to $362 million. Debt to total capital was 45.1% at the end of the quarter. We consumed about $22 million of our cash balances in the quarter to fund our CapEx program. With that I will turn the conversation back to Jeff.

[Geoffrey Hertel:]

Quite frankly my comments today are going to be very short. The time for talking has past and the time for performing is here. We have invested a significant amount of time and effort and monies during the last year to further most of our long term strategies. In fluids we have signed agreements and are spending over $100 million to build the plant than in combination should begin to reduce our costs of products this year. Well Abandonment Services, we have invested heavily with our time and personnel to make sure that the operating issues that began manifesting themselves around June of 2007 do not happen again this summer season; we feel confident that we have these previous issues under control. Maritech, we have spent considerable monies buying new properties and then beginning to process of exploiting them. We have recently been confident enough in our results to hedge 56 million cubic feet equivalent a day for the second half of 2008 where compared to purposes that’s just slightly less than the production volumes during the first quarter of this year and as most of you know we do not hedge all of our expected production; therefore we are obviously expecting production increases over the levels obtained during the first quarter which by the way is consistent with the April 7 guidance that we gave you. Finally we have invested heavily in equipment and acquisitions in our testing business over the last couple of years. This was to geographically expand our domestic operations and to further diversify internationally. We have seen part of the impact of this in our first quarter and you should see more of that impact as we move through 2008. We began to implement most of our current long term strategies about eight years ago; during that time we have experienced dramatic growth however during 2007 some of these strategies created short term head wins there. I suggest that the major part to those were in fluids where we terminated contract and in the difference in pricing that we experienced in Maritech. Additionally in 2007 we tried to implement one of these strategies in Well Abandonment Services too rapidly that caused numerous operational problems. These issues in 2007 all of those should not persist in 2008, therefore during the second quarter of this year, we should begin to see the improvement for our bottom line that we anticipate. For a graphic representation of this improvement please refer to our April 7, 2007 press release. We will now entertain any of your questions.

[Operator:]

(Operator Instructions) Our first question is coming from Stephen Gengaro with Jefferies & Company.

[Stephen Gengaro:]

I guess a couple of things. The first is kind of from a big picture perspective; how should we think about Maritech because additionally my sense has always been it’s a great sort of service to your customers to back all of the well abandonment work and to help you from a logistical perspective and a backlog prospective, but it seems like there is an increasing set of focus on the production profitability side of it as a driver of earnings, so how do we sort of think about that as Tetra evolves over the next few years.

[Geoffrey Hertel:]

Well two points here; first of all if you look back at our -- probably our last year of public appearances, we have indicated to you that there is really a dual role for Maritech today, whereas we had a singular role when we initiated in 1999. Originally it was exclusively to base low business for our well abandonment business and clearly that is still a driver for this business, but as we evolved especially in 2002 and 2003 and into 2004, it became very evident that the model we had for Maritech was a very profitable model and we indicated all of you to take advantage of that. So, it is a dual purpose entity; if you want to think of it that way, they have a base low to well abandonment and its there to optimize profitability as an exploitation company. However, having said that we are very cognizant that the need to keep it very well balanced within the operations we do not want to overwhelm Tetra as an exploitation and production company and clearly we have the ability to do that given the opportunities we have out there for Maritech but we have chosen not to aggressively increase the size of it above where we are so that we have a balanced portfolio for you within the well abandonment position much less within the total Tetra entity. Does that help you?

[Stephen Gengaro:]

Yes. No, that does help me and you’re comfortable sort of with the risk award there I am assuming?

[Geoffrey Hertel:]

We think the opportunities clearly are there and that we should be putting some of our money towards that exploitation.

[Stephen Gengaro:]

Okay and then as we look at the well abandonment side, it seems like there has been sort of underlying progress here. Can you give us some sort of sense of how you expect the margins to evolve over the next couple of quarters?

[Geoffrey Hertel:]

Yes I think two parts to that question. First the ongoing progress; I agree with you that we continue to make operational progress and feels very comfortable as we go into the second quarter and the weather begins to improve that will migrate the earnings per the recent press release that we did. Again the second -- I think what you’ll see is the second third quarters will be significantly better as that press release that stated and I think due to the late start of the season because of the bad weather we will see that high level of activity continue into the fourth quarter as well. I think in aggregate we will start to see the margins consistent with what we have talked about previously in that business. Right now the weather is cleared up and we are seeing the type of utilization that we excepted for major assets those being the dive vessels and the two barges.

[Stephen Gengaro:]

So this certainly to move away from this turn key approach you think is really paying dividend and when we’ll start to see the benefits of that beginning in the second quarter.

[Geoffrey Hertel:]

We’ll start to see the benefits of the operational improvement in the contracting strategy in the second quarter.

[Stephen Gengaro:]

Then and just finally, just to remind us, the assets in that it’s the three DSVs and the fourth spread, is that right?

[Geoffrey Hertel:]

It’s a three DSVs and the in the three barges that we have for heavy lift.

[Stephen Gengaro:]

And then obviously the diving assets?

[Geoffrey Hertel:]

And then the other diving assets, but we are really focusing on diver utilization and the utilization of those three assets, the dive vessels plus we have a portable sat system that has been very well utilized and will continue to be the balance of the year.

[Operator:]

Our next question is coming from James West with Lehmann Brothers.

[James West:]

Hey good morning guys. A quick follow-up of the WA&D business; if you look at into -- I know the season really kicks off in May or mid May and then goes to at least into the third quarter, so I guess you are suggesting that the fourth quarter could also be fairly good. Are you sold out now for the majority of the summer seasons?

[Geoffrey Hertel:]

We are beginning to increase the back log significantly. We still have available capacity which is consistent with what we expected, but we believe that we will be very heavily utilized in close to capacity through the third quarter and I believe that would carry into the fourth quarter as well based on the late start of the activities.

[James West:]

Still isn’t it fair to say that on a historic basis that the kind of jobs you are talking about that aren’t yet in-house of the ones that are normally let at this time of the year and it’s just a function of bringing them on.

[Geoffrey Hertel:]

Yes just to give clarification we have got several major bids outstanding that are typically decided at this stage over the next month and all the market assumptions, bid assumptions, one win lost consistent with what we think will happen for the press release we made, so that’s firm enough going according to our assumptions.

[James West:]

Okay that’s very helpful; one additional question, on the fluid side of the business we are working through obviously the older brimming that was an inventory; could you give us an update on where we stand there and could we see the full impact of the container before year end.

[Geoffrey Hertel:]

Yes, I think we had stated several times we will begin to see the impact during 2008 and we believe we have seen slight evidence at the first quarter and we will see further evidence 2008 and we will see ongoing continued progress in 2009 and 2010. So again we won’t see the full impact this year but we will see the beginning of the impact consistent with what we’d believe would happen. Remember in that case that you are talking about inventories by location, by products and there is an averaging effect of that. So you are going to be washing through it and reducing your cost as you go, however there may be specific locations where you either have a lot of old inventories and have very nominal profits on that business or you have a lot of new inventory and they very well have extremely good profits on that business. So you are going to see a little bit of lumpiness but the average should continue to improve as to stated.

[Operator:]

Our next question is coming from Marshall Atkins with Raymond James.

[Marshall Atkins:]

Your guidance from April $1.30 to $1.55, from your tone it sounds like that’s very much intact, is that a fair statement?

[Geoffrey Hertel:]

Well having being very careful now on how I state things, let me state what we’ve said. Since we didn’t write anything in the press release, a month we made that reconfirmation and this morning we told you that all of the segments improved slightly over what we had assumed in the April 7 guidance. So if anything -- I can’t say anything on the conference call that I didn’t say, but I think the inference is there.

[Marshall Atkins:]

Okay that’s what I thought, just wanted to make sure. Let’s go back to Maritech; I’ve got a few questions on that specifically. It looked like the Maritech -- the costs were a little bit higher than we had been modeling. Could we talk about that and also get more specific on what your run rate was exactly in production; I think you mentioned 56 in a day and then you talked a little bit of having a lot of projects potentially I guess if the money is there to pay for them; update us on that, so there’s kind of a overall Maritech update starting with the production run rate.

[Geoffrey Hertel:]

Okay well first of all on the cost side of it there was some abandonment increases that we ate $2.9 million, $3 million in the quarter, so that hurt us a little bit, but probably more important I think we indicating last year that we were working off of 2005 projects, that we needed to enhance what we are doing with new properties which we did. So, your DD&A rates continue to build through the end of the year. As we bring on the new stuff that we got, we are beginning to drop those rates. What you will find as you throughout the year is we add the new wells that were drilled and were exploited during the quarter; as we add the production that we are getting in from the Simarex operations -- remember when we bought Simarex we actually had most of its production shut in. They were sub-sea well awaiting a pipeline. A pipeline was finished in the last three weeks and we brought on part of that production on the Northern side. We have three additional wells that will get on stream in July. They are waiting hook-up because we are currently drilling on that platform, an exploitation well; when that’s finished we will hook that production off, so net net your going to have a substantial increase in production which began this month and will carry through July which will increase the total production number one which is why we hedged more; secondly it will help begin to bring down the DD&A rate so your percentage rates will be higher hopefully on the profitability side and finally hopefully we don’t have any additional well abandonment costs on any of the properties that we are exploiting this year. Does that help you Marshal or do you want me to go into more detail?

[Marshall Atkins:]

Well, you had -- on the obviously production ramping up, could you get to $55 million a day by July. I mean this kind of in order and magnitude to what you are thinking of new production versus decline rates on your existing stuff.

[Geoffrey Hertel:]

I think we made the statement before that we could exceed 70 million cubic feet in the second half or part of it and I think that’s really legitimate. We were at 58 or 59 somewhere in there at the end of the or for the average for the quarter. I would be very surprised if it was not at the levels we indicated.

[Marshall Atkins:]

Very nice, all right our last question, so you mentioned the CapEx which I didn’t hear exactly; updates on your CapEx plans and again just repeat what you had mentioned on where CapEx was for the quarter.

[Joseph Abell:]

Okay Marshal, we had approximately $67 million of CapEx and that’s applied to each of our businesses. You are aware of our Arkansas facility; that’s consuming a certain amount of the CapEx; Maritech with the drilling program following the Simrax and Stone property acquisition is consuming some of that CapEx; a relatively modest amount in our well abandonment and de-commissioning division that’s mainly maintenance level CapEx to date. We are seeing significant opportunities to withstand our production enhancement businesses, the testing and compression businesses so we continue to reinvest in those units.

[Marshall Atkins:]

So for the full year we are still thinking $250 million of CapEx or is it like…

[Joseph Abell:]

What we had guided, that $294 million at the beginning of the year and we see opportunity to expand that number as the year progresses, so I don’t see it going down.

[Operator:]

Our next question is coming from Joe Gibney with Capital One Southcoast.

[Joe Gibney:]

Good morning everybody. Geff just a curiosity, if you can give us an update on where things are going to compressco if you can.

[Geoffrey Hertel:]

Well, I probably can’t say anything that I hadn’t said before; since we are not giving any specific data on compressco you can infer that we are continuing through the process. As all of you know the issue that we have with compressco was making sure that all of our contracts are consistent with a service provider and are not implied to be leasing contracts. Again if you go back and look at Extern, when they did their NLP they went through the same process. It is sometimes agonizingly slow to go through this with big oil companies but we have been doing it, we will continue to do it and we really don’t have an update for you in terms of any changes which I would hope would be good news. When we can give you dates, we will do so.

[Joe Gibney:]

Okay that’s helpful. I just on follow-up on Maritech, I was curious if you could give the oil and gas percentage split on your production in a quarter.

[Geoffrey Hertel:]

I think we ended the quarter -- yes I think the oil portion of it was slightly less than the gas probably 55%, 45% gas.

[Operator:]

Our next question is coming from Daniel Louis with Orange Capital.

[Daniel Louis:]

Hey good morning guys; you spoke a little bit on the cost side with respect to the fluids division, but I’m curious on the pricing side; if you could talk a little bit about with what’s going on competitively in the industry and where are you guys think pricing is today and where do yopu think it’s going in terms of your outlook.

[Geoffrey Hertel:]

Yeah I think in general on the fluids pricing, it’s been relatively flat. It’s been consistent with what we had assumed going into the year and those assumptions are included in our outlook for the balance of the year. So nothing major to read the direction on that.

[Daniel Louis:]

And is that a function of their system or there is -- I presume the demand side is pretty strong, but is there additional industry supply or I would thing in this environment pricing would be moving a bit higher.

[Geoffrey Hertel:]

Let me comment on that. Remember the one unique part about completion fluid is that that market has actually been in decline for the last six or seven years because the largest component by far of that market was to go Mexico and you know what has happened there. The unique part of the fluids market is that with the international growth, the on-shore growth we now believe that the gulf of Mexico will be increasing dramatically in 9, 10, 11 as the deep water and outer deep water wells get completed; remember you used multiples to the amount of fluids just like you do on drilling on completion for those wells, so we are actually going to see a market that should be growing hopefully by the fourth quarter of this year in the gulf complimented by the international growth that we see as well as the on-shore growth. So we are actually looking at a market that had not been growing for years which is probably the only service company you could name that hasn’t had growth over the last few years, but that was the function of having roughly 65% of the market, sitting in the gulf of Mexico, when the gulf of Mexico declined.

[Daniel Louis:]

Okay and then in terms of your hedging profile, could you provide a little more granularity on what you have – where you have hedges for ’08 and into ’09.

[Geoffrey Hertel:]

We have 35 million cubic feet a day hedged for the second half of ’08 in gas and we have 3500 barrels of oil hedged for the second half of ’08 and’09 I think it’s 25 million and 2500 barrels a day.

[Joseph Abell:]

It’s all spelled out in our Q which will be filed today. You will have that information there.

[Operator:]

Our next question is coming from [Matt McGarie] with Central Asset Management.

[Matt McGarie:]

Good morning. On the well abandonment side you have been talking about you feel pretty good about operational issues being solved. I guess given that you made a lot of those changes during the not busiest part of the year for that business, what gives you confidence that the business really ramps; do you have those things nailed down?

[Geoffrey Hertel:]

Yes, I mean lot of those changes were made actually during the busy time of 2007, so we are executing the second half of the year with a lot of those changes in place and did a real good job executing. We have got the history of that second half of 2007 and that gives us the confidence as we get into the second quarter and beyond this year we will continue to execute that way.

[Operator:]

Our next question is coming from Mike Harrison with First Analysis.

[Michael Harrison:]

Hi good morning gentleman. What just is the level of urgency among your WA&D customers for getting more dumb this summer, whether its pressure that they are putting on themselves or pressure that you see coming from MMS?

[Joseph Abell:]

I think this as we had expected, a strong degree of urgency, to me it’s mostly comings from the customers wanting to continue to accelerate that activity. We are seeing that in the form of some of the awards that have been given as well as some of the bids outstanding as well as just ongoing discussions. So I think the full impact of that will be seen over the next two plus quarters.

[Geoffrey Hertel:]

There also is obvious understanding within the industry that the MMS has been giving the industry a pass of sorts since the storms in an effort to make sure that the industry can gear up adequately to solve their problems. Over the last 12 months, the MMS as been very diligent in bringing every operator in the gulf in to see where they are on wells that are no longer producing or platforms that are no longer producing or platforms that are on the bottom and they are asking you to give them an update quarterly as to what you are doing and you need to move forward with that fairly actively. It does not mean that they are changing the rules at all, it just means that the MMS is making sure that the industry is moving towards resolving the issues particularly with these down platforms.

[Michael Harrison:]

Then presumably gross profit and profit from the tax for WA&D services both look like they are tracking in no other range and improvising in January and I was curious about the top line; is it still possible that you fall in the range of I believe it was 3

[Stuart Brightman:]

I think we will close to the bottom of that range as we looked out for full year.

[Geoffrey Hertel:]

What we said in the I believe April 7 that the earnings range would be below what we gave you or WA&D and it would be higher than what we gave you for Maritech. The obvious reduction in business that you had in the first quarter if we are as busy as we think we are going to be with our equipment, it will not allow you to make up that business later in the year. If that’s the case then your revenues are obviously going to go down as Stu said whether they are below the range or at the bottom of the range, it’s a little hard to determine at this point of time.

[Michael Harrison:]

And then may be a question for Joe, what’s in that other expense line this quarter and anticipate the best expense will be of similar magnitude going forward.

[Geoffrey Hertel:]

The hedge ineffectiveness, we had about $950,000 of ineffectiveness out of about a $30 million change in the hedge value for the quarter, so a very nominal percentage of the total, but if some of that change is not perfectly correlated, we have to taken it to earnings currently and that is we what’s in that number.

[Michael Harrison:]

So it’s kind of an unrealized loss; is that the right way to think about it?

[Geoffrey Hertel:]

Yes.

[Michael Harrison:]

Okay and then with the changes in interest rates that we have seen recently, I know you guys have quite a large portion, significant portion of debt hat’s floating rate and then obviously we saw the private placement that you just did recently, but any other plans in the work’s to lock in or lower interest rate on some of your debts?

[Geoffrey Hertel:]

No plans currently. The $125 million project placement that we concluded at the end of April is sufficient for our near term needs as far as we can see. Joe and isn’t that accurate that with that we don’t have that much floating debt any more.

[Joseph Abell:]

No, not much floating at this point and we with that CapEx program we’ll ramp up a bit more on the mine credit which we will allow to float but the performance is fixed debt.

[Operator:]

Our next question is from John Emeric with Iron Works Capital.

[John Emeric:]

You gave the CapEx outlook, just a couple of related follow-up questions

[Geoffrey Hertel:]

There is a $100 million in there roughly that isn’t going to be replicated in ‘09 although there is still some residual costs from those two projects

[John Emeric:]

And in your in prior disclosures about the CapEx for the year you did say debt would rise this year, do you know how much the shortfall relative of cash flow from operations, your CapEx is going to amount to this year?

[Joseph Abell:]

We had estimated that would rise about $40 million.

[John Emeric:]

Okay, so with the $40 million short fall this year and hopefully vastly improved profitability next year as well as $100 million of CapEx that goes away you think will be free cash flow positive in ’09 understand that hat’s a long way off and a lot of things can happen between now and then.

[Joseph Abell:]

Yes certainly and Geoff pointed out, most of our CapEx is growth CapEx, so to answer your question it is all a function of how much growth we want to sustain and therefore if we have a acquisition that changes the outlook, if we lower the amount of growth CapEx that would significantly increase the amount of free cash flow.

[John Emeric:]

Right and then the last question is whether you are looking at a growth CapEx opportunity or a headquarters expansion or an acquisition; what kind of return on capital -- invest capital discipline do you guys use internally to figure out if you are going to do it and if so what you’d pay, an EBA or anything like that to figure out what you are going to do and what you are not going to do, what you are going to walk away from?

[Geoffrey Hertel:]

We look at lot of things. The 20% rate of return is kind of a minimal amount. It depends if it’s strategic we can below that; generally if its equipment which is where we spend a lot of our dollars that better be damn well a lot above 20% given the fact that the oil industry historically is a cyclical industry and you don’t want to go out and buy equipment at a 20% kind of return but again it just depends on what it is that you are trying to require; equipment would require a much higher than that, a very important strategic transaction might go below that.

[Operator:]

Our next question is coming from [Michael Fanook] with Wolverine Asset Management.

[Michael Fanook:]

Hi, thanks for taking my question. A couple of question and excuse me if they have already been touched upon in the call, I’ve been late, but can you talk about the -- just the inherent seasonality in the well abandonment side of the business, ex-weather related issues, is it in part budget driven or is there not really much seasonality as it is and now the second part of my question is I just wanted to know if with higher product prices if you are seeing enhanced recovery technique starting to work because marginal well abandonment bookings can maybe slip a little bit?

[Geoffrey Hertel:]

Yes on the seasonality aspect of WARD, I mean it really is pretty much exclusively weather related. Now as we looked at our business we typically except the first part of May for the actual weather to improve to allow us to go to that full utilization and that typically will run through the third quarter and as I mentioned I expect it will run part way through the fourth quarter this year. There is some year end budget but it’s really not a material impact. When we think about well abandonment business we are really looking at the overall demand and activity which we think is going to strong for the reasons we mentioned and then we really focused on the seasonality of it.

[Michael Fanook:]

How do you typically budget weather using some forecasts and..

[Geoffrey Hertel:]

Yes, we’ll go for history; we’ve got all the history of where our utilizations been by month and quarter; what the weather has been offshore, factor that in and again we take it into consideration and unfortunately the weather in the first quarter was just dramatically worse than history and more than we forecasted but we use all the statistical data that we have available during the preponderance of the year provide you are talking about May through October, taking some hurricane time out of that, but other than that you’re expecting to work pretty fully. The rest of the year is a hit and miss and you’re trying to look at various jobs you may have budgeted, pull out and try to do within that time period, but it’s a much more difficult time to look at. Your other question by the way, since much of our well abandonment’s in the Gulf of Mexico and since the Gulf of Mexico has a high threshold, it change from a 100 mcf a day to 150 mcf a day or if the oil price goes up to a 125 from 80, once you trigger across that threshold in the Gulf, your operating costs is such that there isn’t a lot of difference on the marginal well whether you keep stuff producing or not. You don’t have the ability to go in and put a pump jack on; you don’t have the ability to do some of the other things you can do onshore to keep a well producing longer, so the effect is fairly nominal to our budgeting purposes and to our customer’s purpose.

[Michael Fanook:]

One last question, if I may; if business slips because of weather related issues what percentage of that business are you able to generally retain because you might have some capacity in what is permanently lost.

[Stuart Brightman:]

Most of it will slip through a later period and there’ll be a portion that we can claw back through utilization, but the majority it in my opinion gets deferred into the next year and you don’t lose it, it’s just a timing issue.

[Michael Fanook:]

Majority being 80% or?

[Stuart Brightman:]

Yes I would say at least that.

[Geoffrey Hertel:]

But it depends on the year. If it’s a slow year you can make up all of that. As Stu is trying to indicate to you we think it’s going to be a pretty active year for us and therefore we don’t have the ability to go out and do that incremental work unless we want to do what we did couple of years ago and that is to take a additional vessels under lease for a long term period and we haven’t show a proclivity to do that lately until we are in a position to make enough money here that we’re comfortable.

[Operator:]

(Operator Instructions) Our next question is coming from James Carroll with Louis Sales.

[James Carroll:]

Good morning guys. Just a big picture question; if we were to go back to 2004 and look at capital spending dollars, I come up with something like a billion dollars has been spent including the $294 million this year and yeah we have seen a big increase in revenues but when we look at profitability it’s half of where it was in 2004 and I realize this is focusing on a couple of bad years in ‘07 and the first quarter of ‘08, but the question is at what point or is there a point where you look at the business strategy that you are going to take in and say maybe it’s time to re-think this, i.e., are there more spin-offs or asset deployments that you could do that might improve the overall profitability outside of the current business plan which seems to be spend more money until we get this business turned around and again I’ll keep that -- I’m looking at this from the perspective of over the last 12 months, Tetra has been arguably one of the worst performing stocks in the universe and now so it’s at one of the lowest multiples. So, is there a way that you could do something that might -- I mean I view the stock as a bargain here, so is there a way that you could help the shareholder out by engaging in a major share re-purchase program or something that would kind of bring out the underlying value in this Company.

[Geoffrey Hertel:]

Good question I guess I am a little confused with the primus. I’m looking at our data here, our 2004 earnings were $18 million, our 2006 earnings were $102 million and while we are not going crazy this year I think at the level of activity that we are talking about we are approaching a $100 million in earnings. So I think going from the $18 millions, to the $38 million to the $102 million granted last year as we all know was abysmal. I think the investments we are making are something that we had a lot of confidence from the strategic position are yielding very good returns in most of the areas. We did obviously last year say we are going to spend the $105 I think on the plant; that plant was going to cost us thirty, it ended up costing us $40 million of profit last year. You spend a $100 million, you have a $40 million loss and you bring in $45 million of profit for three decades; I think that is a good return in the long term but we obviously ate that. The primus I guess I have a problem with, we think that we’ve got business’s that are growing, that we think we can make very good rates of return on. The production enhancement business has been making records each quarter, obviously in fluids we’ve got the issues that we talked about and what we are doing about it and our performance last year was abysmal and well abandonment which we think we are improving upon. So again I -- Jim I’ve got a general question with the premise.

[James Carroll:]

Well, I’m just looking at operating earnings and this is going to include charges that you have taken, so I’m not sure we can define the earnings in a lot of different ways, but…

[Geoffrey Hertel:]

Operating earnings in 2004 were $23 million, operating earnings in 2006 were $160 million. Granted in 2007 with all the various things, the write offs on insurance that affected you, but...

[James Carroll:]

So, I showed something like $18 million in operating earnings in ‘07. So if we go back and look at 2004 to 2007, let’s just say there hasn’t been any meaningful earnings growth. Now obviously it depends on how you want to deal with those charges, but that’s not really even the point, the point really is more -- jeez this is an incredibly cheap stock, selling at one of the lowest merge, lowest PE’s in the state and I mean at what point would you say “well what we really need to address that and is three anything that we can do to kind of take advantage of the value that’s in the stock price right here rather than continuing big CapEx spending” I’m not sure it’s an either or.

[Geoffrey Hertel:]

Yeah, one of the things we’ve done as you are probably aware has been to do the MLP, at least announced that we are attempting to do that which should bring us some value without having to spend any additional money in that business beyond what you are normally doing. If we were to buy back stock from our prospective it would stay to us that we are not in a position to invest those funds more efficiently in our own operations and I think we believe we can invest these in the growth fascist in our various business and do better than just shrinking the size of the Company, but I agree with you, it’s very cheap and I agree with you if you go back and look at those 2007 versus 2004 you don’t get much of an increase but remember 2007 had tremendous write-off of insurance receivable that we would clearly hope to receive back at later date so I am not sure that’s a fair apples to apples analogy.

[Operator:]

There are no further questions at this time. I would like to turn the phone back over to management for any closing comments.

[Geoffrey Hertel:]

Well, we certainly look forward to a second quarter that is a lot better than the first quarter. Again I would hope that you don’t go too crazy in the quarter, look at the multiples that we show you of earnings that relate to the April 7 guidance in terms of the graphic guidance and look at that as the type of improvement that we expect and hopefully we have a much better conference call in terms of exciting news early in August. Thank you for your patients and we look forward to talking to you again.

[Operator:]

Ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.