Q3 2019 Earnings Call
Greetings and welcome to the Newpark Resources' third quarter earnings Conference call.
This time, all participants Arnie listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator systems during the conference. Please press star zero when your telephone keypad. As a reminder, this conference is being recorded it is now my my pleasure to introduce your host Ken Dennard. Thank you Mr. Dennard you may begin.
Thanks, operator, and good morning, everyone.
I appreciate you joining us for the Newpark resources golfers, calling webcast review third quarter 2018 were yet.
With me today, or a poll house, Newparks, President and Chief Executive Officer, Gregg Piontek, Chief Financial Officer, David Paterson, President of the fluids business.
I'll read my remarks management will provide a high level commentary on the financial details or the third quarter and outlook before opening the call to Cuba night.
Before I turn the call to manage went out of a few housekeeping details to run through there will be a replay of todays call. It will be available by webcast in the company's website that newpark dot com.
Well also be are recorded replay available until November 14, 2019, and that information to access it isn't yesterday's release.
Please note that the information reported on this call speaks only as of today October 31st 2019, and therefore, you're advised the time sensitive information.
Oh longer be accurate as I've <unk> anytime a replay listening or transcript reading.
In addition comments made by management. During this conference call may contain forward looking statements. It didn't the meaning of the United States Federal Securities laws.
These forward looking statements reflect the current views of Newparks management.
However, various risks uncertainties and contingencies could cause newparks actual results performance or achievements to differ materially from those expressed in statements made by management.
Listeners are encouraged to read the annual report on Form 10-K quarterly reports on Form 10-Q , and current reports on form 8-K to understand certain of those risks uncertainties and contingencies.
The comments today May also include certain non-GAAP financial measures.
Additional details and reconciliation to the most directly comparable GAAP financial measures are included in the quarterly press release, which would be found on newport's website.
And now with that being said I'd like to turn the call somebody new parts, President and CEO Mr. Paul House.
Thank you Ken and good morning, everyone, although the slow down in the U.S. landmark it provided a greater headwind to third quarter than we anticipated I'm very pleased with the continued execution of our strategic playbook across both segments.
And fluid our deepwater Gulf of Mexico expansion continues to gain traction.
Last quarter, we announced the award of a third rig with shell oil as well as our first award of a combined drilling and completion fluids package.
In recent weeks the first combined fluids project was completed generating favorable customer feedback.
Building on this initial success are scheduled combined fluid projects in the Gulf is expanding with four projects currently scheduled to be completed over the next few quarters.
As discussed previously our expansion into completion fluids is meaningful not only because it allows us to provide the combined drilling and completion package that customers value, but also because it expands our revenue potential at each well and helped stabilize our revenue stream as operators moved between drilling and completion phases.
[noise]. Furthermore.
We continue to build out our completion fluid technology portfolio.
As included in yesterday's press release, we're very pleased to announce the acquisition of clean Zorblisa it to a leading global provider, especially reservoir chemistry based in the United Kingdom for cash consideration of $19 million.
Over the past 25 years clean zaugg has become a recognized leader and innovative and proven completions with technology supporting several newparks international contracts and also currently supplying key products into Saudi Arabia.
Claim reserves lined a patented breaker products serves as a value add to our total fluid solution offering, particularly for deep water applications, both in the Gulf of Mexico and internationally.
I'm also pleased to highlight several key wins on international tenders during the third quarter, which expands our relationships with global operators.
The awards included a three year contract for combined drilling and completion fluids with you lie.
To support their offshore Cypress drilling campaign.
Along with a two year contract with P.P.T. ERP in Algeria.
Both contracts are expected to begin in the first half to 2020 and combined generate additional revenues of $15 million to $20 million per year.
We're also success with the latest round or tendering with on the Pegatron in Romania, who has been a key customer of ours for several years.
The latest contract award extends our work for an additional five years.
Where we expect revenue levels to remain relatively in line with our current contract.
These recent successes both in the Gulf of Mexico, and International markets are key steps in expanding our role with more stable iOS sees and and assays, which together represent roughly one third of our fluid segment revenues.
Rounding out our total fluid solution offering we're also continuing to advance our organic entry into stimulation chemicals.
While the pace, where these organic commercialization efforts never seem to progress at the rate we prefer customer conversations continue to be constructed and validate our business model in many ways our entry into stimulation chemicals feel similar to our entry into the deepwater Gulf of Mexico marketplace.
Well and methodical qualification process.
And although U.S. market headwinds are impacting the pace of commercialization.
We're continuing to work through qualifications and trials with an expanding list of customers and remain confident that the multi billion dollar stimulation chemical market provides significant long term expansion opportunity.
In our mass business, we continue to be encouraged by the progress of our energy infrastructure expansion, where rental and service revenues have increased for the fourth consecutive quarter.
Against the backdrop of the volatile U.S. land ERP market the energy infrastructure space provides a more attractive landscape both in terms of market stability and growth potential.
To further penetrate these markets, we're continuing to transition our rental fleet.
By shifting assets as NPU market softened and increasing the size of the rental fleet.
As we look ahead, we expect our energy infrastructure growth will continue to provide some buffer or the impact of the softening U.S.N.P. land market and drive a shift in the mix of rental and service revenue toward less volatile markets.
With that let me now I'll touch on a few financial highlights from the quarter.
Despite our strategic progress the third quarter results were negatively impacted by the challenging U.S.N.P. land market, which provided a headwind to both segments.
In the mass segment revenues improved 14% sequentially benefiting primarily from the anticipated rebound in mats sales and modest growth from energy infrastructure rental and service projects.
The segment's operating margin was 20% or the third quarter as the impact of the higher revenue level was offset by changes in revenue mix and the timing of certain expenses.
In fluid third quarter revenues declined 12% sequentially, primarily reflecting softness across most U.S. land markets as well as a 5 million dollar reduction in the Gulf of Mexico related to project timing.
Meanwhile, revenues for our international fluid operations decreased 8% sequentially driven primarily by the continued contract transition was sona track in Algeria.
With the rapid decline in revenues within certain U.S. regions, the fluid operating margin pulled back to 4% for the third quarter.
Meanwhile, our disciplined approach continues to result in positive free cash flow generation during the third quarter.
Through the first nine months, we've generated $24 million or free cash flow of which roughly 20 million has been returned to shareholders through share repurchases.
And with that I'd like to turn the call over to David Paterson, Our new president of a fluid systems business.
Provide some initial thoughts based on his first three months with Newpark.
David [noise].
Thank you both of these production.
It's a great wanted to join Newpark and I'm very excited about the opportunity to work for most dynamic company in the food space today.
I've spent most of my fear the walking in and around the food space and a little the competitive landscape has changed a lot in recent years I feel newpark is ideally placed to capitalize on evolving market conditions.
Todays newpark is the only cheaply global independent fluids company.
Should be focused and what we do.
This is what attracted me to newpark items I talked to move that customers. The really appreciate focusing keywords and it kind of what it professionals.
Two.
Since joining the company in mid July I've traveled extensively so either team both internationally and here in the U.S.
We have a fantastic team in place with extensive technical that in many years of field experience and key locations around the world somethings customers really value.
Our technologies, particularly in the high performance Wannabes fluids deep water synthetic food space, our industry, leading in terms of performance.
I've also been extremely impressed with the level of investment that Newpark is made in recent years building its capabilities infrastructure to support its global growth.
As technology centric Katy, Texas sits at the end standard and the board to support an analytical capabilities for drilling completion and stimulation fluids and we continue to taking steps to bring this capability closer to the customers leasing nickel thing on use of or another Debbie.
Foods operating basis are also establishing an enviable reputation as the industry flagship facilities in key markets I visit a number for sites, including Port for Sean, Louisiana as relevant bergenfield in Kuwait. The both of these facilities surpasses anything I've seen throughout my career.
In terms of food blending and loading capabilities and I'm finding better customers are really starting to appreciate this differentiation.
And I look at the food space today, the market is very dynamic and its imperative to them in Ontario, responding quickly to the challenges and opportunities it's clear that theres not one single play book.
Fits all fleets markets.
We're refining or 10 that strategies by markets selectively expanding our footprint in certain international markets, which have demonstrated greater stability and profitability over the longer term whilst also evaluated.
So underperforming units.
North America, we're expanding our deepwater business in the Gulf of Mexico thing well, taking actions to further enable a more efficient scalable cost structure on U.S.
Each market me to quite a different approach what remains common to all.
Unrelenting focus on responsiveness to a customer needs and the deployment, we didn't lose technologies to drive better performance.
Customers wells.
It's a feature expanding our global footprint as I thought it before does remain selective on where we go.
Exercise capital discipline in any country entry.
As we are seeing increasing pull from their customers, particularly that I've seen.
Recognizer valued as they enter into new markets.
A recent deepwater win in the Mediterranean unite the cost example, if there is allowing us to demonstrate the value over environmentally friendly wasn't this systems.
We also continue to pursue that members other opportunities and international methods for drilling activity is expected to increase in twin right.
Deepwater expansion in the Gulf of Mexico remains a key strategic growth does it.
No we've yet to reach critical mass in terms of volume.
We are poised to do so in some quarters projected market activity in the Gulf remain stable and their performance pedigree and best in class facilities decision is very well for future growth in this market.
The U.S., while I'm not I suppose remains extremely important to us and despite the massive heading into the industry faces, we continue to progress and offering differentiated technologies to address the many challenges that our customers face today.
The latest generation of evolution or high performance environmentally friendly wasn't the system.
Then used to gain traction in multiple basins, but particularly in the Rockies, which further strengthens our position as a technology leader.
Our West, Texas, Permian Operation, which remains our largest region and us land looks poised for further market expansion.
However, the current market is very challenging several basins and we're continuing to evaluate opportunities to rightsize our organization and there is the hardest hit.
But in doing so maintaining a scalable platform to quickly respond to shoot.
We also continued to develop a stimulation chemical capabilities other generate a lot of customer interest in both are technologies onto a unique approach.
Yeah, we're primarily focused in the large you assumed market. We've recently secured repeats in chemical sales in the middle East. So we definitely see an opportunity to build a global stimulation chemical business over time.
[noise] fluids focused company remains very much harder than what we do.
Going forward.
Continue to look at developing your capabilities and expanding your portfolio with new fluids technologies and other complementary offerings some space.
In recent clean sort of acquisitions as a great example of Vince as we build a reservoir drilling and completion fluids offering.
Like Newpark sleeves arms are recognized technical leaders are space, so strong reputation stable markets.
I didn't see the law positive customer feedback in the strategic acquisition.
So despite that the changes in U.S. lunch business I remain very excited strategy.
Focused approach to the fluids business under growing momentum in key markets, which are all critical to driving improvements and stability in the financial performance.
And with that I will hand.
Thanks, David and good morning, everyone.
I'll begin by covering the specifics of the segments in consolidated operating results for the quarter.
Followed by an update on or near term outlook.
The fluid systems segment generated total revenues of $153 million for the third quarter 2019, reflecting a 12% sequential decrease.
In a 16% year over year decrease.
Revenues in the U.S. declined 16% sequentially to $98 million.
Which compares to a 7% reduction in U.S. rig count.
As Paul touched on.
The softness was felt across most basins with west, Texas being the only exception.
Well, we've maintained our disciplined approach to pricing the softer topline performance relative to activity levels was reflective of increasingly competitive conditions in certain regions.
In addition, despite our continued deepwater market share expansion.
Due to the timing of these large scale projects within the quarters revenues in the Gulf of Mexico declined $5 million sequentially.
On a year over year basis, U.S. revenues declined 8% from Q3 2018.
Which compares favorably to the 12% reduction in average rig count over the same period.
The modest outperformance compared to market activity levels is primarily attributable to a 6 million dollar increase in the Gulf of Mexico.
While land revenues have tracked fairly closely to the market rig count.
In Canada, although the market activity levels in 2019 continue to remain well below recent years.
Revenues, followed the typical seasonal trend coming out of spring breakup.
Revenues in Canada improved 61% sequentially to $8 million inline with the 61% sequential increase in rig count.
On a year over year basis, Canada revenues declined by 53%, which compares to a 37% reduction in rig count.
[noise] outside of North America, although customer activity levels in our key markets remain much more stable than us land. The third quarter was negatively impacted by the contract transition in Algeria.
Which has now reached the new contract run rate.
Total international fluids revenues were $46 million in the third quarter.
Which reflects an 8% sequential decline driven primarily by the contract transition in Algeria and project timing in Romania, partially offset by the ramp up of drilling activity under the new contract in Kuwait.
On a year over year basis revenues from our international regions declined by 19% largely reflecting the contract transitions in Brazil in Algeria.
With a slowdown in activity in certain U.S. markets, particularly during the back half of the third quarter. The food segment operating margin was impacted by the natural lag in operating cost adjustments as we align our structure to match the softer market conditions.
As a result, the decremental margin associated with the revenue decline was elevated for the quarter, causing a decline in operating margin to 4% for the third quarter compared to 7% in the second quarter, and 5% and a third quarter of last year.
Turning to the mass business total segment revenues improved to $50 million in the third quarter, representing a 14% sequential improvement.
And an 8% reduction year over year.
The sequential improvement was driven by an 8 million dollar increase in direct mat sales, which came in at $15 million for the third quarter.
Mat rental and service revenues declined by 2 million to $36 million for the third quarter.
Reflecting the continued softening of NP customer activity, particularly in the gas focused northeast region, and West, Texas completion activity.
Rental and service revenues from S&P markets declined 11% sequentially somewhat offset by a modest improvement in the energy infrastructure sector, most notably from our ongoing expansion in utility TMB activity.
Comparing to the third quarter of last year, the 8% decline in segment revenues includes a 7 million dollar decrease in rental and service, while direct mat sales improved by $3 million.
On the rental and service side the year over year comparison reflects the continued transition in the business as a 35% decline from S&P market is partially offset by a 22% increase in non S&P markets, most notably U.S. energy infrastructure.
Year to date, our total rental and service revenues from non NP markets is approximately $50 million, which represents roughly 10% year over year growth.
The mass segment operating margin was 20% for the third quarter compared to 21% for the second quarter and 24% for the third quarter of last year.
Despite the sequential improvement in revenues the segment's third quarter operating margin was negatively impacted by a shift in customer mix, an elevated level of pass through costs on service projects.
Well as the timing of certain expenses.
Turning to our consolidated results third quarter, 2019 revenues were $203 million, representing a 6% decline from the prior quarter any 14% decline year over year.
As to any costs were $27 million in the third quarter compared to $28 million in the second quarter and $30 million in the third quarter of last year.
Corporate office expenses were $9.7 million in the third quarter compared to $10.5 million in the second quarter and $11.2 million in the third quarter of last year.
The sequential decrease in both SDMA and corporate office is primarily attributable to lower spending associated with our strategic planning project and lower performance based incentives, partially offset by elevated costs associated with the cleans ORV acquisition.
On a year over year basis, the reduction in SGN <unk> and corporate office expense is primarily attributable to a prior year charge related to the retirement of our former general counsel, while lower performance based incentive expense was largely offset by higher acquisition industry Tejas planning costs.
Interest expense was $3.6 million for the third quarter relatively in line with the previous quarter and down modestly from $3.7 million in the third quarter of last year.
The third quarter expense includes $2 million of cash interest.
Along with $1.6 million of noncash interest expense, which primarily relates to our convertible bonds.
The third quarter provision for income taxes was $3.3 million.
Including a 2 million dollar charge, primarily reflecting the impact of an increase in our projected full year 2019 tax rate.
Which increased significantly as a result of the decline in anticipated earnings in the U.S. relative to our total projected pre tax income.
Consequently, the third quarter tax rate is significantly elevated from the effective tax rate of 33% in the prior quarter and 44% in the third quarter of 2018.
With the impact of the higher taxes net loss for the third quarter was two cents per share, which compares to net income of five cents per diluted share in the second quarter.
Four cents per diluted share in the third quarter of last year.
Turning to cash flow the third quarter results reflected continued generation of positive free cash flow, which came in at 8 billion dollar for the quarter.
Third quarter cash provided by operating activities was $19 million, which includes $15 million of cash from operations, along with $4 million net decrease in working capital.
Cash used in investing activities was $11 million in the quarter.
Majority of which was deployed into the mass business.
While cash used in financing activities totaled $6 million.
Our leverage remains modest and with a total debt balance of $162 million in a cash balance of $54 million as of the into the third quarter.
Resulting in a total debt to capital ratio of 22% and a net debt to capital ratio of 16%.
Now turning to our near term outlook.
In fluid on the positive note, we continue to see strength in our targeted growth markets.
Most notably with a third shell deepwater rigs, starting up and our expanding presence in completion fluids.
We expect our Gulf of Mexico revenues to improve in the fourth quarter.
We also expect modest strengthening in our EMEA region benefiting from increasing activity with Eni and show as well as the claims or acquisition, which are expected to more than offset the wind down of the Woodside project in offshore Australia.
However, despite this progress.
We anticipate the near term results will be overshadowed by the weakness in U.S. land.
We are rig counts currently stand 10% below the Q3 average and customer messaging indicates that we should expect to more pronounced yearend slowdown before they reset their activities in January .
Overall.
We anticipate Q4 revenues will decline roughly 10% from Q3 levels with an operating margin in the lower single digit range.
Looking beyond Q4.
We see several catalysts for improvements in fluids, including an expected modest improvement in U.S. Lan continued penetration and improved stability in the Gulf of Mexico seasonal strengthening in Canada.
And the continued ramp up of activity under contracts in the international markets.
We also believe 2020 provides additional opportunities for us stimulation chemical sales as many operators award tenders on annual basis.
And then that segment, we expect the market weakness in the gas focused northeast as well as in West, Texas completions applications will continue providing a headwind to our near term rental and service revenues.
While our ongoing penetration of energy infrastructure markets will remain relatively stable.
Direct mat sales activity is also expected to remain stable. Following the strong third quarter result, as we typically see stronger demand near the end of each year.
So while the timing of direct sales and project start dates is always a bit challenging to predict. We currently expect total Q4 segment revenues to pull back into the low to mid Fortys range.
Generating an operating margin in the low Twentys range.
The.
Corporate office spending with the strategic planning effort and the cleans Arb acquisition costs now behind US. We expect Q4 cents will return to the $8 million to $9 million range.
Regarding cash flow, we're carefully balancing the execution of our strategy, while taking appropriate actions to navigate the challenging market environment in the U.S. land, which calls for a more bifurcated view on capital deployment.
On one side, we're continuing to fund our strategic initiatives, which primarily includes investments required to support offshore in international fluids growth.
Along with ongoing investments to support our mass expansion in the energy infrastructure rental market.
Meanwhile, investments into the U.S land market will remain minimal.
Overall, we expect our capital investments will decline somewhat in the near term as we maintain our full year expectation of $40 million to $45 million.
And although we funded the claims ORV acquisition. Following the ended the quarter, it's worth noting that we're continuing to repatriate excess cash from our foreign subsidiaries. So.
Serving to substantially offset the acquisitions impact on our total debt balance.
Further I'd like to highlight that as we've seen historically periods of market softness provide a tailwind to free cash flow generation driven by reductions in working capital.
Regarding taxes with the continued weakness in you with operations. We currently expect our tax rate will remain significantly elevated for the remainder of 2019.
And with that I'd like to turn the call back over to Paul for his concluding remarks. Thank.
Thanks, Greg one thing we've learned over the years is to expect volatility in our industry, particularly in US land. That's why we have a well defined strategy to diversify into markets that are more stable than oil and gas.
To grow our international operations with key iOS season analyst days, where they're drilling programs, a more resilient to market fluctuations.
And to expand our fluids product offering into adjacent Chemistries.
To that end, we've made progress along each front.
First we achieved our fourth consecutive quarter of growth in energy infrastructure markets with our mass business.
Second we are awarded three new I, LC and LC contracts in the EMEA region.
Third we.
We recently completed our first combined fluids project in the Gulf of Mexico and were awarded three additional completion projects.
And lastly, we.
We successfully completed the acquisition of cleans are an important addition to our technology portfolio.
I'm very proud what the team has accomplished despite the volatility in the us land markets.
With the U.S. shale, becoming the marginal producer we expect to increase in the frequency of cycles, although hopefully with the dampen amplitude.
Or said another way market volatility is the new norm on us land.
Our plan to address that volatility is embedded throughout our strategy and our long term goals remain unchanged.
To maintain a strong balance sheet.
To improve our returns on invested capital by leveraging our existing infrastructure and maintaining a capital light model.
And to provide increased stability in our long term cash flow generation through further penetration of more stable markets.
In summary, we continue to build upon our solid foundation and the recent volatility only reinforces our resolve to execute on our strategy.
With that I'd like to close the call as always do by thanking our shareholders were investing in us and thanking our employees for their hard work and dedication and newpark as well as the continued focus on safety.
We'll now take your questions.
Operator.
Thank you we will now be conducting a question answer session. If you would like to ask your question. Please press star one on your telephone keypad a confirmation total indicate your line is in the question can you.
You May proceed far too if you would like to remove your question from the Q4 participants using speaker equipment and maybe that's hard to pick up your handset before pressing the star Keith. Please ask one question and one follow up question and then re queue for additional questions.
One moment, please while we pull for questions.
Our first question is from Praveen Narra Raymond James. Please proceed with your question.
Hi, good morning, guys.
Yes, I guess, if we could think through kind of how we should expect food margins to kind of trend into 2020, I know, it's still a bit early.
But but it seems like there given Q4, so many headwinds.
We should see some tailwind SAP I guess I want us I want to understand.
How much it will take to see margins get back into the mid to high single digits do we need to see the U.S. activity.
Rig activity increase or is there enough cost cutting and other measures going on that we can we see that occur it.
Q3 ish type activity level.
Hi.
Greg ill take that one.
You know in terms of the Mart margin profile, what I will say is it's a bit murky right now because you have some some more meaningful movements in the overall activity levels and as you know praveen.
That's that's the challenge that you always have is adjusting your cost structure. When the volumes are changing out we were obviously, making nice progress early in the year with our various margin improvement initiatives, we're seeing nice improvement in the U.S. in Q1 in Q2, obviously with the topline dropping off to that extent.
It did in Q3 and the natural lag there that you haven't your cost adjustments, we saw that headwinds now as we go in to Q4 as we framed up a softer topline, particularly in the U.S., but this is where we're continuing to take these cost actions here to rightsize it and as.
David had touched on.
Trying to drive this more towards of variable cost structure to make it more scalable.
Now obviously as you fat fast we're going into next year, that's where you do see some benefits that do help you that helped strengthen that margin.
Obviously, you have your cost actions, you're taking but then also the point of continuing to expand in the Gulf of Mexico. That's a key piece of it because that is that's a key accretive portion to it as.
As well yeah, I think the other thing as we've talked to run their total fluid solution is the fact as we move into these adjacent Chemistries, we get building momentum on the completion fluid side, that's accretive to margin. The deepwater are beginning success in the stimulation market as you look out into 2020 as you move in.
The first half and beyond Yeah, we think theres a lot of opportunity to improve margin, but we really need I think more than anything else is some stability in the U.S. land markets of if it stays relatively stable.
Or uplift slightly that gives us more buoyancy with these other product lines that we'll be adding on.
Right stability can kinda stop masking some of the so a benefit that are happening.
Exactly.
On the on the map side can you talk about the expanding rental projects one of the thing I guess, we've been talking about for little while it is the potential for some of these larger projects to come through is that something we're seeing.
In terms of either Q4 or 2020 or is it.
Patrick sizes in the utility space.
Relatively similar yes, no. The we are starting to see that.
Here, even in the third quarter as we talked about last quarter, you know historically third quarter had been a week weaker period from seasonality from the demands on the.
Utility grid, we actually saw growth here in the third quarter and that was because we had a few of these larger scale projects that were coming on.
We continue to gain traction in that area.
We are adding more these larger scale projects, which has also in part why we're having to deploy additional capital to build out that fleet. The dedicated towards that so we would expect that to continue to build as we progress into 2020, yeah. The other thought too as we look at the tender activity as you're looking out into 2024.
Currently built bidding on tenders that have larger Matt requirements than we would traditionally see in the and piece space.
Perfect, having said that I guess I would just just add to it that we still are very early in that penetration absolutely. Yeah sure. Thank you very much guys.
As a reminder, we are now conducting a question answer session. If you would like to ask your question. Please press star one on your telephone keypad, Hey confirmation code. One can your line is in the question Q you May Press Star too if you would like to remove your question from the Q4 participants using speaker equipment, it maybe necessary to pick up your handset before pressing the star Keith Please ask one question and.
One follow up question and then re queue for additional questions. One moment. Please while we both questions.
Our next question is from.
Bill Dezellem Titan Capital Management. Please proceed with your question.
Thank you I'm actually going to try to squeeze three questions in.
The first one is.
Relative to Sonatrach, you said that they were fully ramp where they fully ramped in the third quarter or or is there still some movement up into Q4 to reach the at the current falling ramp level.
Now the third quarter pretty much reflects the new run rate, yes, well, we were sonatrach was ramping down bill where we're seeing the ramping up but contract in the EMEA region is with Kaohsiung, Kuwait. So that contract is ramping up wildly sonatrach contract now Jay was ramping down and now we feel good.
I believe we're at that run rate now for that new contract in Algeria.
Great. Thank you and then would you talk a bit more about claims or.
Talk to a quite it adds.
For you and.
And how far around the globe you believe you can take that are those capabilities.
Just as much detail as as you can feel free to just get on the so boxing go [noise].
Good morning, Bill This is David Paterson, so a cadence or keep zorblisa to supply the innovative impeding completion fluids technology and leading UK company on their Orca line of products, then advanced focused Kate Breakers, which are designed really in conjunction Taylor designed with the reservoir.
Drilling fluids or the Rds, you'll hear us talk about its application is an open hole completions. So this is really the very high end reservoir facing part business.
Customers are extremely critical.
Exposed to the reservoir is obviously so it really represents a key component I would say a new parts total fluid solution strategy really in the high value markets and that really enables us to be a technology leader in this space very excited that your biggest printers in Saudi Arabia.
You know, Saudi Arabia is a small market today from new park, but we're seeing more and more so more and more doors open in the kingdom.
Cleans arbs technical standing and the Kingdom really will facilitate business opportunities going forward. So very excited about eight and applications and a lot of key markets around the world.
And then following up on that is there Saudi penetration.
On the land or offshore or is the question even relevant they.
Our equally good on on both.
So most people can relate longer operations with the Saudi Arabia, most of application is actually on the offshore.
But the moment that I think there is increasing awareness on the performance of these products on as we look to expand our own fluids offering within the Kingdom I think you'll see is strong opportunities for clean absorb and other newpark technologies coming years in Saudi Arabia.
Great. Thank you and then my final question is relative to the Gulf of Mexico, and how you see the drilling schedule.
Unfolding for the rigs that you are on.
What can you share with us relative to the next couple of quarters.
Thank you know Q2 was a pretty strong activity quarter first in the Gulf of Mexico Q3, there was some operational rig delays that impacted really our business in Q3 Q4, we see a getting back to a more stable revenue stream armed with the addition of a few Sean to comply.
Listen fluids plant. This really allows us to stay on these rigs from spot.
Through drilling through TB, three completions were really on the full cycle, we get the revenue benefit of staying on the wait longer. So you got full cycle.
We do see a return to drilling in Q4, and we're going to see some strong completion fluids activity also have a shale that we haven't seen in prior quarters looking forward to Q1, we see similar type of levels.
I think as usual and I would add to it that stability is another key piece of the operating margin story, because the cost structure to support that deepwater is a much more fixed cost structure. So as you see variability in the top line. It obviously creates some challenges to your margin so getting to that stuff.
Ability as David touches on is a key piece of strengthening of the fluids margins as a whole.
Thank you broke.
Thank you Bill.
This concludes the question answer session and I will now turn the call back over to management for closing comments.
Alright. Thank you once again for joining us on the call and for your interest in Newpark and we look forward to speaking with you again next quarter.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.