Q2 2022 Tetra Technologies Inc Earnings Call
Good morning.
Welcome to Tetra technologies second quarter 2022 results conference call.
The speaker the speakers for today's call are Brady Murphy, Chief Executive Officer, and elite heal Serrano Chief Financial Officer.
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I'd now like to turn the conference over to Mr. Serrano. Please go ahead Sir.
Thank you Joe Good morning, and thank you for joining Tetra second quarter 2022 results call.
I'd like to remind you that.
This conference call may contain statements that are that are or may be deemed to be forward looking.
These statements are based on certain assumptions and analysis made by Tetra and are.
Based on a number of factors.
These statements are subject to a number of risks and uncertainties many of which are beyond the control of the company.
You are cautioned that such statements are not guarantees of future performance.
As always hoped may differ materially from those projected in the forward looking statements.
In addition in the course of the call we may refer to EBITDA adjusted EBITDA adjusted EBITDA gross margins, but just the free cash flow net debt net leverage ratio liquidity or other non-GAAP financial numbers.
Please refer to yesterday's press release or to our public website for reconciliations of non-GAAP financial numbers today.
<unk> GAAP number.
These reconciliations are not a substitute for financial information prepared in accordance with GAAP and should be considered within the context of our complete financial results for the period.
In addition to our press release announcement that went out yesterday. We would also encourage you to refer to our 10-Q that will be filed later today I will now turn the call over to Lee.
Thanks, Leo and good morning, everyone welcome to touch or second quarter of 2022 earnings call I'll summarize some highlights for the second quarter and provide an update on our exploratory well fluid sample results and discuss the current outlook before turning it back to Alicia would you discuss cash flow and the balance sheet and liquidity.
For the second quarter financial results were in line with our expectations, while some key milestones on our low carbon energy opportunities well exceeded our expectations, our water and flowback business continues to grow faster than the active rig and Frac crew count while expanding margins for the fifth straight quarter.
On a per active frac crew basis, our Q2 annualized revenue, 33% above that of 2018, which was the peak of the North America shale market.
Well, our European chemical business was impacted by supply chain disruption due to the Russia, Ukraine conflict. The overall segment still achieved 24% adjusted EBITDA margins as the offshore and deepwater markets continue to show signs of a multiyear growth cycle supported by a forecasted five year high in subsea tree orders in 2022.
But Brian fluid test results from our exploratory well are very encouraging with both lithium and bromine concentrations above the values used by an independent study for the exploration target report values that we announced last year.
<unk> delivers to Eos as a key part of their electrolyte for long duration energy storage have doubled each of the past two quarters and are expected to continue at that pace into the following quarters as they continue to ramp up to meet their growing backlog.
Overall, our second quarter revenue grew 8% from the first quarter of 2022 and 38% from the second quarter of 2021, adjusted EBITDA of $18 7 million decreased 1.8 million sequentially and was negatively impacted by $2 million of charges, which included $1 3 million unfavorable impact because of the after.
You mentioned European supplier, declaring force majeure as a result of the Russia, Ukraine conflict in the second.
Unrealized mark to market losses on investments of $700000 net of gains on investments.
Excluding the impact from the supplier force majeure in Mark to market losses.
After the second quarter of 2022 would've been $27 million.
European supplier has since resumed supplying to etc, but currently still lot reduced volumes from normal levels.
Cash from operating activities was $17 9 million a strong improvement of 11.9 billion sequentially, our second quarter cash flow far exceeds our pre pandemic first quarter 2020 results.
Before discussing our Q2 segment financial results in more detail I'd like to discuss the fluid sampling results from our exploratory well in Arkansas, where we own certain Brian mineral rights, including lithium and bromine.
As previously announced in the third quarter of last year, we completed a preliminary technical assessment by an independent geological consulting firm, so such lithium and bromine exploration targets on all of the company's approximately 31100 net acres a brine leases in the smack over formation in southwest Arkansas.
[noise] assessment focused on areas within the approximately 31000 net acres of Brian leases, where tetra holds 100% of the bromine rights and for lithium more tetra holds 100% of the lithium rights not subject to the standard lithium option agreement.
For bromine the technical assessment identified a brynn O'brien exploration target estimated to contain between 2.54 million and $8 five 8 million tons of bromine and for lithium the exploration target estimated to contain between 85000 and 286000 tons of lithium carbonate equivalent.
These are floor tour targets range.
Or based on an average lithium and bromine concentration and the brine of 283 milligrams per liter and 4956 milligrams per liter, respectively for lithium and bromine.
Our recently drilled and completed exploratory well was on the acreage where tetra retains 100% of the rights to lithium and was drilled to a total depth of 10000 feet penetrating the top middle and lower smack over formation.
Wells perforated and selected zones are good for us across a total depth of 196 feet with fluid samples collected in three primary groupings of perforations. The fluid sample test results were conducted by two independent labs and all valid results yielded very consistent lithium results across all three zones with an average concentration of <unk>.
473 milligrams per liter, which is 67% above the concentration is used for the exploratory target for bromine. The average concentration was $53 50 milligrams per liter, which is 8% above the exploratory target concentration.
Obviously these are very encouraging results and we look forward to the independent resource study, which we expect to have completed in the third quarter. However, it is important to remember that the final resource report is dependent on many geological and reservoir parameters and we are not suggesting we can anticipate the full impact of these encouraged encouraging fluid samples.
As a reminder, bromine is used extensively in our completion fluids business and more recently as part of our patented manufacturing process to produce pure flow of high purity zinc bromide, which is a key part.
She likes for long duration energy storage.
With recovering offshore and deepwater oil and gas markets as well as ongoing exponential growth in energy storage demand access to these potential extensive bromine assets is very valuable to the company.
As it is of course, lithium which as of yesterday the spot price was trading at $69000 per metric ton as reported in the Wall Street Journal.
Oh this is a spot market price a large internationally public traded global producer of lithium reported that their average selling price of lithium was $38000 per ton in the first quarter.
I mentioned in our press release. This morning is that we have executed an agreement to have a preliminary economic assessment for bromine, which we expect to have completed before year end. It is our intention to follow a quick follow up for lithium on that same acreage, where we plan to extract both minerals with much of the same downhole well infrastructure.
Also in the third quarter, we will be delivering our first supply of calcium chloride to an international lithium producer for use in their lithium processing operation. This shipment is the first of six month order that we received and we believe represents a new market application for our calcium chloride product.
I will add incremental revenue and opportunities in the future.
Now turning to the segments, starting with water and flowback services revenue increased 16% sequentially and 75% from a year ago as North America land activity and pricing continues to improve for key parts of our business. The second quarter revenue for our U S land business was the highest since the third 2009.
<unk>, despite active Frac crew and U S rig count up 22% and 16% lower respectively. During the second quarter of 2022 compared to the third quarter of 2019.
With adjusted EBITDA margins of 15, 1% in the second quarter, we achieved our full year target earlier than expected as our technology integration and digital investments continue to gain traction while price increases continued to modestly stay ahead of inflation, which is still very significant for fuel labor and equipment.
We expect our third quarter margins to be above that of the second quarter margins, reflecting the benefit of what I previously mentioned plus the launch of two major early production facilities in Argentina.
O U S growth market, while U S market growth is limited by availability of additional frac fleets and unlikely to grow until 2023, we continue to grow through profitable market share gains with broad customer acceptance of our integrated water management business model, leading water recycling capabilities and delivering the best in class and management services.
With the recent recently patented Tetra Sandstorm technology.
We're seeing significant demand for produced water recycling to help our customers reduce disposal costs and address increasing seismicity events with four new recycling projects added in the second quarter.
In the Permian alone, we recycled 571 million gallons in the second quarter up 62% from a year ago and up 17% from the first quarter of 2022, we continue when utilization and higher pricing for the Petro Sandstorm technology across most of the North American plays and in Argentina.
And at the end of the second quarter, we were awarded a larger scope of work yet for supply a supermajor operator in the Delaware Basin and the Eagle Ford Shale play.
Without award and continued increase in demand for sand storms, we will be adding more sandstorm store fleet in the third quarter.
I'm excited to announce that during the second quarter. We also had a successful trial for our new auto drill out technology for a large independent producer in Appalachia. This new technology expected to reduce well site personnel by more than 30% reduced rig up and downtime by approximately 40% and reduce HFC exposure, meaning.
A meaningful impact to our customers well and their economics.
Lastly, our two early production facilities in Argentina became operational late in June and early July and we had a full quarter of revenue and EBITDA starting in the third quarter. We expect an additional award of an early production facility shortly for startup in the new year.
Completion fluids <unk> products second quarter revenue increased 2% sequentially and from the first quarter from the first quarter of 2022 as the seasonal increase from our northern Europe industrial chemicals business.
At lower than normal due to the Russia, Ukraine conflict was partially offset by lower activity in the Gulf of Mexico, and then Omar International markets. As we previously reported that some fluid sales from these markets were pulled forward into the first quarter.
Adjusted EBITDA decreased $4 million sequentially, and adjusted EBITDA margins were 23, 7% compared to $26 one in the first quarter.
The Russia, Ukraine conflict impacted our supplier and as a result, we saw lower production levels that resulted in under absorption of our cocoa lift inland plan, while the supplier has since increased production to a level above that of the second quarter. It is still not back to 100% of our normal levels.
Also in the second quarter, our Tetra advanced displacement systems or tags was awarded the 2001 E&ps Special Meritorious Award for Engineering innovation for drilling fluids stimulation category. This technology is used for a highly efficient transitioned from drilling muds to clear brine fluids.
Brian completion fluids and the work completion phase.
We continue to have good engagement with a growing list of customers when offshore projects, where we believe tetra CS Neptune is the best option and most environmentally friendly for their completion our.
Our previously mentioned North Sea first generation Tetra CS Neptune job is still on schedule to be completed in this quarter Q3.
As we look towards the third quarter of 2022 based on new customer awards and activity increases we expect to see further growth and margin expansion for our water and flowback segment. Despite 40 year high inflationary pressures for completion fluids and products, we will see the normal seasonal drop off from our northern European chemicals business with continued lower.
Volumes at least through the third quarter due to the aforementioned supply chain disruption.
For our completion fluids energy services, we expect continued strong demand for overall activity, including contribution in the second half of the year from Deepwater, Brazil Awards, Brazil Awards that we previously communicated.
Overall, despite the inflation headwinds in the supply chain disruption our management team navigated as to a solid quarter, our technology investments are paying off giving us opportunities to grow and expand margins, while the customer activity levels grow modestly due to a lack of additional frac crew capacity.
Focus on low carbon energy markets, which requires critical minerals and chemistry expertise is creating significant growth opportunities for the company and are already contributing financial benefit with much more to come.
We continue to find new markets for our existing products, which collectively contributed to a broader earnings base and a high growth market opportunities. So.
So at the beginning 2020 with the onset of COVID-19 every quarter as it presented a different global challenge and our management team and employees have done an excellent job adjusting to the ever changing market conditions and reacting quickly to them I'll turn it over to <unk> to provide some additional information then we'll open it up for questions. Thank you Brady second quarter adjusted earnings per share.
There was five <unk> and compares to <unk> in the first quarter and also compares to a 2% loss in the second quarter of last year.
The second quarter of this year included a $4 9 million dollar charge of non recurring items.
So the first quarter included a benefit of $64000 of nonrecurring credits net of expenses.
Adjusting for the second quarter was $18 $7 million and compares to <unk> 25 in the first quarter.
And it's up 44% from the $13 million from the second quarter of last year.
The second quarter included Mark to market losses up $700000 from our equity holdings in CSI Compressco and standard lithium.
Partially offset by an unrealized valuation gain on our convertible note investment in carbon free.
This compares to first quarter 1.1 million dollar mark to market gain of our equity holdings at CSI Compressco standard lithium.
These items represent an unfavorable swing of $1 $8 million from the first to the second quarter of this year.
If you compare the first quarter to the second quarter focused on our EBITDA performance.
Without the impact of these mark to market gains in the first quarter and mark to market losses in the second quarter, both quarters were adjusted EBITDA of $19 $4 million.
The second quarter adjusted EBITDA is flat on this basis with.
But the first quarter and it's consistent with what <unk> communicated is our expectations on the first quarter earnings conference call.
And keep in mind that the first quarter included several significant offshore fluids shipments that moved up from the second quarter and the second quarter also included a negative impact.
One 3 million followers at our northern Europe industrial chemical operations.
As a result of the supplier they carry enforced measure that Brady mentioned.
In late April we received 400000 shares and standard lithium when the standard lithium share price was $6.36 a share.
With a total value of $2 $5 million that we amortize over a 12 month period.
And then we do mark to market adjustments each quarter relative to the 636 price.
Yesterday's standard lithium.
He has close to $5 49.
Recall that last year, we accumulated $1 $6 million one.
One 6 million shares of standard lithium.
So those at approximately $11 per share generating about $80 million of cash proceeds.
Second quarter cash from operating activities was 17 pointman $90 million in it.
Improvement of 12 million from the first quarter.
Capital expenditures net of cash proceeds from the sale of assets or $10 $3 million and compared to $8 90 in the first quarter.
Free cash flow, our cash from operating activities less capital expenditures was $6 $3 million in the second quarter.
An improvement of $9 three from the first quarter.
We are seeing our total year capital expenditures, we are increasing our total year capital expenditures to reflect investments in sandstorm and sand storms.
With paybacks significantly better than 18 months.
And in early production facilities in Argentina, with good margins and with the expectations that the clients by those projects within a two to three year period. After the early production facility.
Working capital consumed $6 million of cash in the first quarter.
And generated $5 million of cash in the second quarter.
This points to tetra being able to quickly monetize that first quarter ramp up on revenue that was up 15% sequentially.
And in the second quarter when revenue ramps up 8% sequentially, we're able to manage our working capital to generate cash during the quarter.
We are building inventory for some significant deepwater international activity in the second half of the year and expect third quarter to be free cash flow negative but to be high in the fourth quarter.
Free cash flow this year should be in excess of $10 million.
Even after taking into account cost that we're incurring in Arkansas drilling our test well.
During the resource study.
The front end engineering and design study and the preliminary economic assessment.
This demonstrates the value of having a strong EBITDA and a strong free cash generating oilfield services and in search of industrial chemicals business.
To fund the startup of our low carbon initiatives in the smack of a formation of Arkansas without having to issue dilutive equity or incur debt to do so.
Total debt outstanding was $153 million at the end of June down from a high of $222 million in 2019.
While net debt was reduced to $117 million.
At the end of the quarter. The net leverage ratio was one <unk> times, an improvement from two one times.
At the end of the first quarter.
Liquidity ended the second quarter was $103 million, an improvement of $8 million from the first quarter and was the highest it has been since 2019.
Liquidity is defined as unrestricted cash plus availability under the revolving credit facility.
At the end of the second quarter unrestricted cash was $36 million.
Availability under our credit facility was $67 million.
We are building cash and liquidity to continue to make some initial investments on our assets in Arkansas.
We've already drill an exploratory well in the incurred cost in the first half of this year.
In the second half of the year I mentioned earlier that will spin cash to move towards a resource study.
Our front end engineering design.
Or is it study.
In a preliminary economic assessment.
We have also now been positive at the profit before taxes level for two consecutive quarters generating GAAP PBT up $10 $2 million a year to date.
This is a good time to remind everyone that we have federal tax loss carryforwards in the United States.
They can offset over $400 million of future profits.
Keep in mind that our oil and gas and industrial chemicals business continues to improve.
And we look forward to bringing more profits from incremental bromine and from lithium from our leased acreage in the snack aisle spackle formation.
This will allow us to do.
They have a very high conversion of PBT to cash flow from operations and fund our quick pay back some of the expected investments for our low carbon initiatives.
I encourage everyone to read our news release that we issued today and the 10-Q that will be filing later today for all the supporting details and additional financial and operational metrics.
With that I'll turn it over to Brady.
Actually here, it's we'll open it up for questions now.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Martin Malloy with Johnson Rice. Please go ahead.
Good morning.
Okay, Martin and Martin.
The first question was.
Calcium.
Houston, the lithium extraction process could you maybe.
Talk about that.
Potential here.
Uh huh.
Is that Oh.
Local lives.
Use of the calcium chloride or <unk>.
Is it expected to be more widespread potentially.
Yeah, it's actually.
In international our lithium provider not here in the U S.
And so you know.
It is the first application that we have seen working with us.
This provider to use calcium chloride in their process.
And we're very encouraged by our by the results and what we think the applicability of this solution will be on a more broad scale, but this is not for a provider here in the U S. As Marty they've given us an order Brady mentioned four six months as they are about to ramp up production of lithium and thereof.
<unk>.
Okay.
And then just on the Finland calcium chloride production plant and the raw materials for that.
Can you maybe talk about the.
Supplier outlook is there opportunity to.
Another supplier that they might be able to provide to key raw material and on the demand side for the output from that plant is it essentially just in.
Deferred.
And any help you could give us some situation that would be appreciated sure.
Yeah.
Appreciate that obviously, it's a pretty fluid.
The situation.
Ukraine, Russia conflict came up.
Fairly suddenly and caught us all a little bit off guard as you can imagine.
We're fortunate that yes. There are there are other suppliers. This is commodity but as youre, probably aware global commodities, even in today's environment are pretty tight. So it's just not an immediate replacement.
We were encouraged with the production volumes that they are now projected for the third quarter, but it's still not to the full levels that are that we need.
Hum.
We think ultimately this will get solved but we don't have perfect visibility right now into exactly when we can anticipate that.
The demand for our products is still extremely high.
It has helped us in terms of getting price increases, which we clearly need given the the European inflation for both.
<unk> logistics as well as energy, but we've been very successful on that front. So there's no issue with knows no concerns on the demand side. This is really just being able to to replace.
That supply chain.
Material and get up to running as quickly as we can.
Yeah.
Great. Thank.
Thank you very much I'll get back in queue.
Okay. Thank.
Thank you Mark.
Our next question will come from Stephen <unk> with Stifel. Please go ahead.
Hi, Thanks, good morning, gentlemen.
Good morning, Steve.
So I was curious if if.
If you could help us out here so when we're looking at.
It's a business and.
And we're thinking about the normal I mean normally from the second quarter to third quarter, you lose some of our European business and then there's.
Some other pluses and minuses, but just given the noise that we saw in the second quarter I think some of the some of the continued maybe lingering impacts of the supplier issues can you give us some sense for how you're thinking about the third quarter and I think if I did the math right. Your EBITDA margins, excluding some of the noise where like 20.
Five 5% in that business I'm curious what your commentary was on that going forward.
A good question Steven So historically, we've seen about a $14 million to $15 million increase Q1 to Q2 coming from our calcium chloride sales in northern Europe .
And then that comparable drop off Q2 to Q3 last year had dropped from 64.
6 million down to $48 seven or about $60 million.
This year second quarter was at $75 million, we're expecting a comparable.
Drop off partially offset by some of the activity that we've mentioned such as calcium chloride cells into the.
Our market for production.
Production of lithium.
Also some of our increased sales that we expect that to be occurring with pure flow in additional with the uptick in deepwater activity.
$14 million to $15 million drop off Q3 to Q2 comparable to last year.
Great. Thank you Ann.
It is the if you took out the.
The noise in the quarter.
I think margins were about 25, 7% in fluids.
It is how should we think about that progression.
So the second quarter without the mark to market.
Gain or losses that we had turned out to be $24 $8 million.
And yes I'm.
I'm, sorry, 24, 8%.
In the second quarter should be around those numbers.
Okay.
Thanks, and then just just one one.
Final one when we when we think about.
The water <unk> flowback business I mean, you talked about some share gains it sounds like your revenue.
Opportunity there continues to increase against the backdrop, where there's just not a lot of frac spreads going to work in the second half of the year.
Do you think you'll just sort of outpace the rise in frac activity.
In the back half of this year and also in 2023, I guess should we use that as kind of as a benchmark and then expect that you can outpace that growth based on some share gains.
Absolutely Stephen I mean, if you just look at historically the gains that we have made on FERC prep frac.
Frac crew basis.
We think those gains are sustainable continue to maintain those gains with we have also continued to gain share in the recycling space. Our sandstorms as I've mentioned for largest actual largest award to date with a supermajor and.
In the Delaware Basin, and Eagle Ford that we've not seen any benefit of yet we'll see that in the second half of the year on pretty well.
You said pretty.
Pretty flat on a frac crew activity, Argentina is just getting kicked off for us we've not seen any real benefit of that we will see that in the second half of the year. So yes, we.
We definitely will outpace the frac activity certainly for the second half of this year and we would anticipate into next year as well.
The other thing that I would add as a result of those items is that last year, we generated EBITDA.
$14 $9 million for the entire year.
Water <unk> flowback.
In the second quarter, if you annualize it we're already at a $10 million per year EBITDA.
$40 million per year, EBITDA run rate based on $10 million in the second quarter.
And we've indicated that we've got the Etfs coming online in Argentina.
So the exit rate this year being.
Quite a bit higher than the $40 million run rate EBITDA that we're at right now.
Great. Thanks, I'll get back in line. Thank you.
Yeah.
Yeah.
Our next question will come from Tim Moore with E. F. Hutton. Please go ahead.
Thanks, and congratulations on the level of adjusted EBITDA in the quarter and it was nice to see the free cash flow.
First question is I just wanted to.
Yeah. My first question is I, just want to clarify timing.
It sounds like the inferred resources report can.
Can be completed maybe by late September .
I understanding from your comments earlier was.
The preliminary economic assessment for bromine.
There'll be finished by the end of the year, but then there might be.
A P E for lithium carbonate equivalent that might cause that maybe sometime early next year.
Yeah. So that's still the cadence that we are.
We feel is highly probable.
We'd like we think the inferred resource or the final resource report will be.
Certainly completed before the end of the third quarter hopefully.
The mid early mid September type timeframe.
The P eight as we'd mentioned for bromine, we're doing first because.
Theres really no technology risk associated with that.
We have a great team assembled.
With our our pega provider to fast track that we still believe that that will be completed before the end of the year.
The lithium as you know is a little bit more complicated we have a great direct lithium extraction partner technology partner that we're working with.
We're very encouraged with the results that we're getting but we still got to.
Prove out certain aspects of that so we don't want to delay our bromine investment.
I'm just trying to do lithium at the same time, so we will do them sequentially.
And based on the pace that we're going if we continue to make the progress that we are we we fully expect to launch the P. A you know early in next year for off or the lithium following the bromine.
Great.
Terrific.
Switching gears.
For the integrated water management and your automation with Bluelinx control systems can you kind of give us a sense of that remaining opportunity for penetration isn't.
Fifth inning now I mean, given it's such a good quick payback.
Staff reductions of up to maybe 40%.
Field safety improvement.
I saw the project Count went up to 62, if I'm just trying to get my head wrapped around how far along are you on that and still kind of.
Yes.
That's a great question, we rolled this out in the end of 2018 2019. So we are a couple of years into this now.
You know I think we still have quite a bit of growth with the integrated more just because of the efficiency gains that the the operators benefit from as you can imagine right now labor is a real issue.
In this market and so customers are coming.
Where we can run jobs with far fewer people.
So we still believe we've got.
Some pretty significant room to grow that model.
I would I would estimate we're still only at less than 20% market share of that type of model that's available to us.
Perfect.
You referenced a couple of data points that we have in our press release.
And that was focused on the automated drill out technology, which is new and above and beyond Butler.
With the automation and Bluelinx.
We have done today with this automated drill out technology is drill out the plugs.
Reduced personnel and introduce that new technology to do so so this is a new technology above and beyond what we've been doing with blue links and what we've been doing with sandstorm. So this is another in the series the efficiencies that we're bringing to the market.
Yes, Craig that was nice to see it for the Appalachian.
Maybe on the water flowback topic.
Can you maybe elaborate besides that good technology, you just mentioned in the press release.
Maybe any other opportunities as you look out to 2023.
Is there opportunity for converting produced water to.
Surface discharge quality, you know it seems like it could be a huge market if the EPA and some state water regulatory agencies move towards that.
Right.
Yeah, no absolutely that's been a focus of ours as part of the next evolution of our of our recycling capabilities we have.
We have some things, we think will be able to announce on that in the and in the coming weeks as it relates to beneficial reuse, where we're staying very closely.
Ah connected to the regulatory agencies as Theyre moving forward.
Be able to enable that that market.
And we'd like to pace that that's moving out as well. So yeah. There's no question that as the next step.
Seismicity events are causing some some real headache.
For our customers.
Especially in the Permian basin for disposal.
And so there is.
No question, that's the next step in the process.
So more to come on that we think in the coming weeks.
That's terrific and I'm looking forward to that it can be highly.
The highlight of my summer and I know, there's concern by some investors.
The Big question out there is what oil price level would be good enough for you.
Towards the end of this year and most of next year to achieve maybe double digit sales growth next year I mean your revenues for it.
It's very strong in 2018 in 2019 $560 million at oil prices at.
57% and 65 back then.
Our investors just too hung up $100 oil I mean, it seems like you could do really well when it's an average of about 60.
Is there any thoughts on that capital spending by customers.
Yeah, I mean, obviously, it's before we get into the budget cycle for our customers but.
If you look at the returns that the customers were able to make right now and in the shale plays with the efficiencies like companies like us have brought to the market.
We still have to overcome some inflation.
That's still a big issue in our.
In our industry.
But I I firmly believe 70 75.
Oil would support continued double digit growth both on a frac crew count and certainly for our business with the projections that we have.
Great. That's very helpful and my last question is just switching to low carbon.
The pilot plant been prescribed cycle and carbon free.
There will be an uptick in interest by large emitters given.
Right.
Yeah.
We continue to stay very engaged with with carbon free no clearly there on the front end because they're negotiating.
With their end users are multiple projects, where we're obviously engaged with them on those projects assessing.
What's the logistics cost the plant costs et cetera would be for our our component of that.
So it's difficult for us to project.
You know when they will announce their of their first plant because there. They are in the lead taking leave for that side of it and were.
We're supporting them in partnership partnering with them in that capacity.
But now very very still looks very engaged and still very exciting opportunity for us.
Thanks, and that's it for my questions.
Thank you Tim.
Our next question will come from Samantha Hoh with Evercore ISI. Please go ahead.
Hey, guys.
Good morning.
Maybe just to stay on.
Topic.
Kind of curious, especially with E S and all.
All of that Hum.
Got it.
Ramping up is there a way is there like any sort of way you can quantify how much you think these new low carbon services and products will contribute to this year versus you know the question last year.
Any way you can kind of peg a number to that.
Right so the.
No real contributions this year coming from pure flow sales to <unk> and we've mentioned in the past that we believe that <unk> has a very sound strategy of increasing production.
And we keep shipping product to them and in fact radio.
Or in West Memphis last week.
There were quite a few toes appear.
Pure flow ready to go to yields that are being shipped in the third quarter Brady mentioned earlier.
The volumes in the second quarter were materially higher than the first quarter and the third quarter continues to be high that's going to be the majority of our revenue. This year. Some have speculated that the revenue is somewhere between eight and $10 million, we have not pushed back on that number and are strictly peer flow. In addition, not the pure flow a week.
You mentioned this morning that we're now starting to ship calcium chloride for the production of lithium in our country overseas. So those two are going to be the main impact from this year and I think that those numbers can increase materially in the coming year.
Yes.
Okay.
That the I guess, the other thing that I wanted to talk about what this does recycling.
Work and your pullback segment.
It seems like you've called out recycling a lot.
Past recent years like one of your fastest growing product.
I'm just wondering if you could sort of rank within the segment, which products or which service lines are the biggest shipyards.
And <unk>.
And just like where if you need to spend any more capex actually because I think I also heard that you are adding sandstorm.
Do you need more steel with recycling.
Right right so.
No no question about it the two fastest growing segments for our water and flowback business Arb sandstorms and recycling.
And we are continuing to add capital as we gain more market share with sandstorms and as well with recycling I will say both of those technologies today are less than two year paybacks for our capital investment.
But yes.
Those those two require being fed some capital and we will continue to do so as long as we can get those types of returns.
Alright.
Yes.
That's great that you're doing.
You can see right now or in the third quarter what is the.
What are you anticipating I guess over the next year.
Yeah.
Hi.
In the North Sea.
Right. So we do have a job that's planned in the third quarter in the North sea that.
You know a high confidence level will be executed actually in the coming weeks.
But again this is the cycle that we're in with deepwater a you know what I will say is still a longer term horizon.
Don't know if there'll be additional Neptune opportunities. This year most of the projects that were in discussions with customers.
We think will be.
Really starting to kick off next year, well, that's first half of next year or second half of next year I think still to be determined.
As we get into some of the more advanced discussions with these operators.
You've probably seen the subsea tree.
Orders really start to take off and I think our anticipated the forecast. So that's all now is.
It's going to be a five year high in terms of subsea trees and really that's the leading the leading edge.
For deepwater activity.
Unfortunately on the completion side, where we're at the tail end of that timing cycle. So there is a lag for us, but we clearly see it coming.
And Kevin just but you know, we're really seeing the deepwater recovery expand geographically.
What other markets do you think it's.
Very suitable for Neptune could.
Could we see her majors here.
And it is environmental illness, perhaps you know.
Look to use Neptune in West Africa for example.
Right, So I think north sea and Brazil or.
Clearly the early highly sensitive as it relates to using zinc banning zinc and most of their markets, which opens up more avenues for Oh for Neptune.
But really after that it comes down to the pressures of the formations Samantha in.
Both in the Gulf of Mexico, that's where we see the pressure regimes in some of these higher deepwater wells will be conducive to to Neptune not so much West Africa, yet I would say, but we have seen spots in other markets.
Asia Pacific.
North Sea.
And Gulf of Mexico, I would say would be the primary over the next 12 to 18 months opportunities for us with Neptune.
Great. Thank you guys.
Yeah.
Our next question is a follow up from Stephen <unk> with Stifel. Please go ahead.
Thank you thanks.
Thanks for taking the follow up so.
I had two other questions if you don't mind.
The first one.
One of the things with with pure flow.
It's obviously, we're tracking and trying to watch what Eos since day, one and it feels like their revenue expectations of revenue that we split the consensus has out there has sort of plateaued. After after kind of having a downdraft since maybe 2021, but it seems like it's stabilizing there's a renewed level of <unk>.
And in their ability and our throughput et cetera can you talk at all about you know your.
Any insight you guys might have into the traction that they're getting on the production side and is there any color you can add to the sort of the confidence that your pure for volumes are going to be ramping hours a hard question because because he or she is involved but is there anything you can add around that to give confidence to the volume growth.
The only thing I can say see because I don't want to speak for for yields, but clearly they are a key customer of ours. We have visited their plant facility and the work that they are putting in the investment that they are putting in to ramp up production.
It's real.
From our lens, it's very encouraging because we see the demand that they're putting on force for pure flow.
I can't comment on whether or not they'll achieve.
You know what the consensus projections are but there's no question. They're there they are ramping up and they are making very good progress in our opinion.
Great. Thank you that's helpful and then.
You talked about maybe another public and maybe another private two other companies at least your conversations with for maybe taking a similar product for.
For battery storage application.
On that front.
Yeah.
We continue to be engaged with them.
I thought maybe we would have something to announce by now.
Well Unfortunately.
They've got completed their deal yet, but we do expect it in the third quarter.
Okay, and then maybe just one final one.
One.
Do you have any.
Yeah.
Any thoughts you can add around the direct lithium extraction technologies being used in Arkansas in any any sort of.
Traction in progress that's being made there that that that.
It makes the reserves at standard lithium has it been obviously that you have right.
<unk>.
Increasing confidence level, there as we kind of move part because I've heard you know theres a lot of potential, but there's still work to be done to prove up the technology.
All right no. That's a great great question and one that we have spending a lot of time.
With direct lithium extraction providers and researching the landscape.
First of all let me clarify direct lithium extraction. There. There's two people that are commercial today using direct lithium extraction, it's not here in the U S.
And we have been engaged with those two companies, but even their application today is essentially on the salar brine pools using direct lithium mitek. So the technology is working but it's a little bit different application they're.
Using.
In Arkansas.
Same case for standard lithium.
We will be pulling Brian from a downhole well environment in a continuous basis and reinjecting it back into a downhole formation, there's actually nobody in the world today that we know.
That is commercial with with that application, but we do feel very confident adapting.
The <unk> technology from the commercial providers.
It will be applicable in the environment that I described.
We will have in Arkansas.
Okay.
Okay, great. Thank you for the color.
Yeah.
Okay with that I think we will conclude the <unk> second quarter earnings call. Thank you very much for your interest in <unk>.
Nicole.
Yeah.
This will conclude our question.
The answer session.
We will conclude the conference.
Thank you for taking of the event today you may now disconnect your lines.