Good morning and welcome to the TETRA Technologies Inc. First Quarter 2012 Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Stuart Brightman. Mr. Brightman, please go ahead.

Thank you, Keith, and welcome to the TETRA Technologies first quarter 2012 earnings conference call. Joe Abell, our Chief Financial Officer, is also in attendance this morning and will be available to address any of your questions. Joe will give a brief overview of our first quarter results and I will follow with a brief presentation, which in turn will be followed by your questions. I must first remind you that this conference call may contain statements that are or may be deemed to be forward-looking statements. These statements are based on certain assumptions and analyses made by TETRA and are based on a number of factors. These statements are subject to a number of risks and uncertainties, many of which are beyond the control of the company. You are cautioned that such statements are not guarantees of future performance and that actual results may differ materially from those projected in the forward-looking statements. In addition, in the course of the call, we may refer to net debt, revenues, gross profit or profit before tax excluding the Maritech segment, profit before tax or diluted earnings per share excluding oil and gas derivative, ineffectiveness in the Maritech segment, or other non-GAAP financial measures. Please refer to this morning’s press release or to our public website for reconciliations of non-GAAP financial measures to the nearest GAAP measures. These reconciliations are not a substitute for financial information prepared in accordance with GAAP and should be considered within the context of our complete financial results for the period. With that, Joe, would you please start the financial overview?

Thank you, Stu. In my discussion, I will refer to certain financial measures which exclude Maritech, our E&P business that is in the process of being wound down. We believe this view assists in understanding the service businesses of the company. A reconciliation of non-GAAP financial measures is provided in a table on Page 6 of our press release. Revenue in the first quarter just ended was $180.8 million, 18.8% lower than the first quarter of 2011. However, our non-Maritech revenues were essentially flat quarter-over-quarter at just over $178 million, as shown in the table on Page 6 I just referenced. Compared to the fourth quarter of 2011, the immediately prior quarter, the U.S. onshore revenues for our Completion Fluids and Production Testing businesses have dropped from their peak levels of the fourth quarter of 2011. It is no surprise to the market that gas prices in the low $2 per million Btu range are affecting our gas-directed businesses. On the positive side, we are seeing a gradual recovery of our Gulf of Mexico Fluids business. Income before tax was $1.8 million and after-tax income for the quarter was $0.7 million or $0.01 a share fully diluted. Excluding Maritech, income before tax was $3.8 million and after tax earnings per share was $0.03 a share for the first quarter of 2012 compared to a breakeven in the first quarter of 2011. Including $0.03 a share -- included in the $0.03 a share I just mentioned for the first quarter of 2012 that excludes Maritech was a net pre-tax credit of $2.8 million or also $0.03 a share after tax related to a gain on the sale of several inland water workover vessels partially offset by transaction costs for the Optima acquisition we just concluded. We had no non-Maritech special items…

Thank you, Joe. What I’d l like to do is talk briefly on the 2 recent acquisitions and then more detail on some of the market trends we’ve seen during the first quarter and our view of some of these trends going forward. During the first quarter and continuing through April, we’ve taken additional steps to transform the growth of the company. These actions include the 2 strategic acquisitions of Optima solutions and Eastern Reservoir Services. As we previously announced the acquisition of Optima allows us to enter the rig cooling business with a strong presence in many of the key international oil and gas producing regions. We also believe the Optima acquisition will accelerate our strategic goal of offering customers a broader range of well completion and production testing services. In addition, during April, we announced the acquisition of ERS, a leading provider of frac flow-back services to oil and gas operators in the Appalachian and U.S. Rocky Mountain regions. We believe this acquisition strengthens our positions in Marcellus and the liquids rich Utica shale plays as well as opening up a new territory for us in the Rockies. We expect ERS to integrate smoothly with our existing onshore U.S. businesses and we should begin to see pull-through revenues as well as cost reduction opportunities fairly shortly. I’m pleased to report that the reaction of both customers and employees to these acquisitions have been very positive and our management group remains confident in our ability to execute this strategy successfully. Results for the first quarter continue the trend of improvement in several of our markets, but also reinforce the short-term volatility of several of our onshore U.S. markets, and that’s where I’ll focus my comments. The first quarter continued to show strength in Gulf of Mexico Fluids where we…

[Operator Instructions] And the first question comes from Marshall Adkins from Raymond James.

First question; so it sounds like you’re still comfortable with that $0.70 to $0.90 estimate you guys threw out not too long ago?

Yes. I think if you look at our businesses overall, we certainly have the benefit of the 2 acquisitions that wasn’t in the original $0.70 to $0.90 that will help us and as I said on the call, Fluids, we continue to feel very confident on that and we see improvement on some of our testing markets in the U.S. and internationally. So I think we still see the opportunity to get in that $0.70 to $0.90 with what we have and what we bought over the first quarter and in April.

So the first thing that jumped out at me on this was Fluids’ margins were meaningfully better than we thought. Is this trend sustainable? Tell me what’s going on there.

I think the 2 biggest impacts on the margin improvement to that business would be the higher level of activity we saw in the Gulf of Mexico and the higher level of activity that we saw internationally for those businesses. So I think the margins did go up a good bit. I think we will be in that range going forward. We had some unusually good project mix in the quarter, so I’m not sure it will continue to run at that or above, but I do think we’ll be in that direction. And I think Fluids overall will be in very good shape for the full year.

And remind us just how important are the shale plays in that business and where do you see your geographic breakdown at the end of the year?

Yes. If you look at the Fluids business, we’ve kind of got a couple of components in the shale activity. We’ve got product sales of our Fluids that go in there, as well as we’ve got the frac water services business to go with it. If you put those 2 together, we’ve typically said that’s probably about 25% of the segment revenue. The predominant regions we operate in that business would be down in South Texas, Marcellus would be the 2 largest; a growing presence in Niobrara and some of the other regions. And I’d say overall the product sales, we continue to see good activity there and then similar to testing, we’ve had some noise in the first quarter on some of the frac water services within that segment on moving between some of the applications, probably not to the magnitude we saw in testing but even within the excellent results of Fluids, we did have a little bit of impact in the first quarter as a result of that.

So I just want to make sure I understand it. The 25% roughly of the Fluids business is U.S. land. The strong part of the business, of course, is offshore, Gulf of Mexico, international. So it sounds like, and I’m just reading through here, that you’re in pretty good position to continue since offshore international is such a big component already, to continue those higher margins. Is that realistic?

Yes. I think the Fluids business showed strength in the first quarter that was above the range we had in the guidance and I think that will continue to be a strong segment throughout the year. And again, if you look at the 3 or 4 pieces, Gulf of Mexico we’ve set to be stronger than we had thought, eastern hemisphere, particularly international has increased activity, our Chemicals business overall continues to do better, and our onshore piece, the only part that had any weakness at all on a sequential basis would be the frac water. We think we’ve moved some equipment and people around to improve that as we go forward.

Great. Last question for me. The margins in the Well Testing or Production Enhancement business were meaningfully worse than we thought. Is that partially because of the acquisitions? Do we think that’s going to recover as the rig count stabilizes? Help us with the direction in Well Testing.

Yes. Two components, first, in the Well Testing, we had the transaction cost associated with the Optima acquisition of $1.3 million, so that’s non-recurring and that -- we won’t see that impact going forward by definition. If you look at the overall business in what drove the other margin degradation, because, again, the revenue numbers were pretty flat with the fourth quarter overall, so when you peel out the transaction cost, what we saw is in the first quarter a pretty significant impact associated with a couple of districts where the activity ran down even faster than we had modeled at $2 gas where we’ve taken action on people and equipment to relocate, redeploy and we’ll see the benefit of that partially in the second quarter and the full benefit of it in the third quarter and beyond. So we’ve got those -- I’ll call them one-time costs, transitional cost associated with that and then we think we’ll see those margins come up thereafter as we exit the second quarter and beyond. The other part of it is, we -- Mexico is a very important market for us. We’ve got a couple of projects we’re chasing that we’re optimistic about that are coming a little bit later than we thought and not having the benefit of that as we exited the first quarter had an overall impact on the margin mix to a certain. And also recognize that in the fourth quarter as well as the first quarter of last year when you’re comparing, we’ve noted we’ve got some lumpiness with one of the projects we have in South America that we benefited from the fourth quarter. We didn’t get -- we didn’t have a lot of revenue on that in the first quarter. We anticipate some of that coming in the second quarter and beyond. So, that would be another contributor to the margin degradation.

And, Marshall, a huge contribution from that contract in the first quarter of 2011, that was the point I was making in my comments, that really the bridge from first quarter ‘11 to first quarter ‘12 is more than 100% explained by the Optima transaction costs and the Latin American technical management agreement. So year-over-year, the domestic business was up. The degradation Stu was speaking of was off the -- in the first quarter of 2012, we are off the pace of our record performance in the Domestic Production Testing business. So, that’s a sequential comment, not a year-over-year comment.

And the next question comes from Mike Harrison with First Analysis.

I was hoping that maybe you could provide a little bit more color on what you’re seeing in terms of demand trends in the Gulf of Mexico for both the onshore and the Fluids business and particularly for Fluids, what are you seeing in terms of deepwater activity?

Yes, I think on our Fluids business, we saw very favorable trends in the first quarter and we’re expecting to see similar trends in the second quarter in activity that just is associated with some of the improvement utilization and permitting out there. So as we entered the year, we thought that business in particular might have some upside versus the guidance and so far through the beginning of the year we’ve seen that. I’m not certain if you were asking specifically about our offshore services business, but I’ll comment on that in the assumption that, that was part of the question. I’d say that business overall, the activity continues to be good. We certainly had the challenge in the first quarter of abnormally poor seasonal weather. We’ve seen that in the first part of April. We’re starting to see more normal weather as we get into the beginning of May, and look out. So I think that’s going the way we expected. We’ve got a very healthy backlog for our major assets and I would expect to have a strong second quarter uplift in that business and we’ve got very good visibility of most of the major assets through the third quarter and again that would be a combination of both third-party work that we’re gaining as well as continuing to do the work for Maritech associated with that $70 million to $80 million spend this year.

And in terms of just kind of the decommissioning market overall, how would you categorize pricing? It sounds like on the demand side, activity is pretty good. Are you seeing still a lot of competition, a lot of assets competing for work or is pricing kind of firming up for you?

I’d say the market is still very competitive. I wouldn’t characterize the competitive environment as significantly different than we’ve seen the last several quarters. I think as we see the construction side pickup, I would hope we’ll get some benefit of that in terms of the competitive landscape but as we’re bidding on the big projects for the second and third quarter execution we continue to see a competitive environment and what we try to do, Mike, is leverage the breadth of what we offer service-wise in that space to kind of attract those customers where we can add more value. Our whole business proposition there is to try to use the combination of the heavy lift, the diving, the cutting, the P&A, the project management to give us that capability. And with certain customers that works very well. But overall, still very competitive market.

And then in terms of the costs associated with the 3 vessels in dry-dock and the timing, was that all in line with your expectations in the first quarter? And if you could maybe give us a sense of how long that fourth vessel is going to be in dry-dock and how that’s going to impact the wet season, again, was that in your expect -- and was it different...

No, I think if we look at both the cost and the duration of those assets in dry-dock, it was consistent with what we expected. I think our guys did an excellent job getting in, getting out and hitting budgets and positioning ourselves to have the assets available for the strong demand season. I’d say -- one of the assets that we don’t own that we lease is in for some small work, but that’s just about finished that we had anticipated and we’ve got alternative assets to deal with some of that work. So, overall, I would characterize the dry-dock process as very much consistent with what we had modeled.

All right. And the last question I had was just on the Testing business. Looking at the international side, what geographies are -- would you say you’re seeing the best growth and were there maybe any markets internationally where you weren’t seeing growth as quickly as you maybe had anticipated at the beginning of the year?

Yes, I’d say the last part I noted in my comments that Mexico continues to be a very good market for us. We’ve got some projects we’re chasing that are a little bit slower in coming to a decision point than we might have expected, but clearly that continues to be a very strong market for us. We have other opportunities that we’re pursuing in South America as well as the eastern hemisphere. In the Middle East we have a strong Testing business and continue -- to continue to grow that as well. And that will continue to be the focus as we go forward.

And the next question comes from Joe Gibney from Capital One.

Just want to drill down a little bit on a question of guidance, specifically on revenues within Production Enhancements. Exclusive of Optima and the Eastern Reservoir contribution, I think your original guidance was $260 million to $290 million in revenues on Production Enhancement. As you think about some of the gas headwinds that are out there, basin shifting and some of the frac water impact that you referenced, are we still in that bandwidth for production enhancement revenue? Still within your expectation ranges coming out of first quarter?

Yes, I think we’re going to be challenged to get to the bottom part of that based on the first quarter per se, Joe. If you look at the Compressco exit numbers, that was below what we had expected and I think as we look overall excluding the acquisitions we did we expect the activity in Testing to pick up as we go forward. We had talked about on the Compressco call on Monday that we’ve had very limited unit sales at the beginning of the year; those tend to be lumpy. We expect to see that improve as we go forward. And the other part of the revenue growth for both Compressco and Testing as we sequence through the year, we do have a lot of capital that we put in both in Mexico and for both product lines, and Testing in the U.S. we expect to see the benefit of that going along. So I still think we’ll get towards the bottom of that revenue even when you exclude the acquisitions that we did.

Okay, helpful. And just one last one for me, Joe, you referenced sort of the delta between on a year-over-year basis, within Production Enhancement and particularly Testing related to the delays in the Latin America contract, sort of, along with the Optima deal cost. But what was the for the revenue impact in the first quarter from some of these delays that you’ve referenced on the Latin American International Production Testing side?

Okay, what -- the South American technical management contract is an ongoing contract that has lumpy contribution of revenue and earnings. We only recognize earnings when we actually receive cash. So, and that is on a periodic basis, so it will hit one quarter and then not another. And you asked a question about Production Enhancement, but then your question was really geared to Production Testing so...

Correct.

So should I focus my response on Production Testing?

Yes.

Okay. On Production Testing, the revenues in the first quarter of 2011 were, let’s see, $33.2 million versus $38.3 million in the first quarter of 2012. So revenue is up and then earnings -- looking at earnings, what my comments were was the entire degradation of earnings that you saw quarter -- year-over-year quarter comparisons was the $1.3 million associated with the Optima transaction costs, and then secondly, the technical management agreement in South America that contributed substantially to earnings and revenues in the first quarter of ‘11 but not ‘12.

Okay. Helpful. And then just last one for me, the transaction costs in 2Q, do we expect something sort of similar to what we saw with Optima for Eastern Reservoir reoccurring in the second quarter, roughly $1 million?

Stu, do you...

Yes, it’s going to be a lot more modest than that, Joe.

And the next question comes from Stephen Gengaro from Sterne, Agee.

Two things, I’ll start with the -- on the Offshore Services side, should we think about the seasonal pattern being similar to the last couple years? Is there anything that we should take into account that would shift that at all?

I would say, in general, I would anticipate the seasonality to be fairly typical of what a prior year would be, again, excluding when there’s a hurricane event and we’re dealing with that when we typically have a different pattern. But there’s nothing I’ve seen I would say would dramatically change from the concept where the vast majority of the work is getting done in the second, third and then the early part of fourth quarter.

And then along those same lines, have you seen any traction from these underlying regulations? I mean has anything changed?

Yes, we certainly haven’t seen the bump that we may have thought associated with that. But we also recently have seen a couple of examples where part of the negotiation on the contracts with our customers involved discussions on a little bit tighter timeline to execute in more specific windows geared to the need to get work done in a specific time that, in my opinion, had a little a bit more requirement associated from the regulatory side. So we’re seeing some small signs of that. And as I’ve said previously, certainly with our major customers, there continues to be an ongoing dialog of how do you do this more strategically and look at some of the commercialization of that. So I think there’s some minor trends but I certainly wouldn’t characterize it, Stephen, as we’ve seen a significant shift on the overall activity as a result of it.

And then one final one, when you look at these 2 acquisitions, have you -- or I probably should say, are you willing to give us a sense for the contribution on the revenue line and the relative margins versus the other parts of the segment?

I’m willing to give you some parameters, which hopefully you’ll interpret as a yes. We’ve said on both of those that we’re very comfortable that they’re going to both, obviously, by definition give no use cash, be accretive immediately. That’s a given. Number two, that their returns are going to be consistent with a minimum, that 15% after tax we look at on acquisitions like this. And both of them I would think on the average would average up the margins for that segment as we go through the cycle. And both of them, as I said in my comments, we’ve done a very good job to date, in my opinion, getting people engaged, the transition team’s working, getting the tasks accomplished, getting positive reception from the customers. So I think they’re both going to be good contributors this year.

The next question comes from Martin Malloy from Johnson Rice.

In terms of the Fluids business in the Gulf of Mexico, when do you think that you’ll be back to pre-Macondo levels top line?

I think -- we’ve said when we put our guidance out in January that we thought by the end of 2013 we’d be at that level. And I think based on what we’ve seen the first 3 or 4 months of this year, we may see that get there a little bit earlier than that because it is trending a little bit better than we expected.

Okay. And then with regards to the Production Testing segment, with you moving equipment from gas plays to more liquids plays, deploying additional capital there into that segment, can you talk about what you’re seeing in terms of pricing when you move that equipment?

Yes, I mean to date in the areas we’ve moved to, we’ve been able to not have any significant negative impact associated with pricing in those areas we’re re-deploying. I think that the real thing we’ve seen in the short term is just the ability to get that equipment utilized, the cost of moving it, the crews associated with it moving away from their home base. So there’s a kind of process we’re going through very quickly and with a -- very high sense of urgency to get the assets moved, to kind of have them at their final destination and with the organization size and distribution matching it so we get that behind us. I think that’s probably the primary factor we saw in some of that margin impact in the first quarter. But the pricing side of it is holding up reasonably well.

And are your competitors in the different regions that you operate in, are they continuing to deploy capital into providing this type of equipment?

Yes. I think, overall, you see -- the competitive landscape viewing the shale opportunities as a very fundamental, strong, long-term strategy in making the investment associated with that type of assumption. So I think it will be an area where there continues to be investment opportunity, competition. And we’ve strategically made a determination we want to get bigger in that space and that’s where a lot of our investment’s going.

And the next question comes from Bill Dezellem from Tieton Capital Management.

We have a couple of questions. The first one is relative to the Hedron. Should we anticipate any remaining negative drag from that vessel or will it be fully operational for all of the second quarter?

We expect it to be fully operational for all of the second quarter.

And beyond, presumably, now that we’re to this point?

Yes, and beyond. Yes. I mean, our backlog is solid. The demand is good. The economic assumptions we made when we purchased this are consistent and we’ve executed the contracts very well. The only challenge we’ve had is the weather, which is beyond our control. But when we’re working and executing, it’s going very well and very, very safe.

And I believe somewhere in the press release or otherwise, there’s a reference to the Hedron performing at least as well as your expectations which maybe implies that it has performed a bit better than expectations. Is that something that you can discuss further please?

I’d say just -- not just operationally. I think we got it working in November and with the size and complexity of that asset I think the management team in that group has worked through any short term challenges, kept it operational and we’re continuing to learn more and more and I just think we’ve kind of reinforced in my mind that, that’s a great competency we have and we’re seeing the benefits of it. And long term that will be a very valuable asset to us.

And then additionally in the release you referenced that you have had some -- or expect pull-through revenues from the ERS transaction. Would you please discuss what it is that you’re specifically referring to there and when you believe that we can capture those pull-through revenues?

Yes I think -- what we like is with that acquisition, we get people that are very, very knowledgeable of the testing business. They’ve got great customer relations in the region. They operate in the Rockies where we don’t have a big footprint. So my expectation is when we look at the basket of services that we offer specifically as it relates to the flow-back testing and the fluids and the water handling that we leverage those customer relationships and we start to see some of the benefit of that. We’ve set very -- clear expectations internally that, that’s part of what the rationalization of the strategy was and I think we’ll start seeing that as we go through the middle of the year and beyond.

And the next question comes from Blake Hutchinson from Howard Weil.

Just, Joe -- or excuse me, Stu, I was hoping you could expand a little bit on the commentary in the press release about the eastern hemisphere Fluids business. I’m assuming it’s not just an early start to some of the seasonality in Scandinavia, that there are some other areas, perhaps the North Sea or elsewhere where you’re seeing some traction and maybe call that out and then talk a little bit about the sustainability of the trends that you see in the eastern hemisphere Fluids business.

Well, I’d say the positive trends in Fluids that we’ve seen in the eastern hemisphere and expect to continue much more around our offshore businesses and our oil and gas customer base more so than the Chemical side. So it’s not the acceleration of demand in our Chemicals. That business is performing about what we expect. The area we’re actually seeing the increase is in other places like the North Sea and West Africa where we’ve got good relations and the activity’s picking up and we’re able to leverage that.

So probably good trend of sustainability then I would assume?

Yes. I think -- our guys seem to believe that’s going to continue throughout the year. So, again, kind of going back to some of my opening comments and stuff, I think overall there’s a lot of positive trends in the Fluids that we’re looking to help us offset any of this first quarter impact we’ve had on the onshore U.S. Testing side.

Blake, echoing what Stu said, the European calcium chloride business actually has been down. So that did not contribute to -- in fact, detracted from the year-over-year performance due to the weather, which has been very mild in Europe. Remember that a lot of that business is weather-related.

So probably some less-pronounced seasonality from that from 1Q to 2Q as well?

I still think you’ll see a very significant seasonality. It may be a little bit different but directionally it will be similar to what we expected, Blake.

The seasonality in the winter is weather related; in the summer it’s related to the use of calcium chloride for road aggregate materials. So it would be weather-related in that sense but it’s an entirely different market.

Got you. Got you. Okay. And then, a point of clarification, Joe, with the vessel downtime, what percent, if any of that cost -- of shipyard cost are you expensing?

Essentially all of it.

Okay. So we get the snap back not just in utilization but you’re expensing most, if not all of the shipyard cost as well.

That’s correct.

Okay. Great. Just wanted to clarify that.

So that would not only the vessels being out of utilization and losing that revenue and earnings than there is a cost. So that accounts for a lot of the year-over-year or any kind of quarterly comparison.

No. That’s helpful. I just wanted to make sure that I had that right. And then, Stu, I was hoping maybe you could talk -- just a quick question on Compressco. Is there a typical average contract duration? And so what we saw from the first quarter was the first opportunity that clients had to kind of put back equipment and maybe we saw the brunt of that in 1Q and levels out from here. Is there any thought process to that?

Yes, there is. I mean, we’ve discussed that extensively and I think the view is that the first part of your question, the average duration of deployment probably is 2 to 3 years on average. We saw in the first quarter the area where the utilization went down was very specific to a couple of customers. It was not a broad impact and it was very specific to a couple of customers that had very specific assets in dry-gas applications where they shut in their wells. And I would contrast that to what we saw 3 or 4 years ago when the prices came down that it was -- at least at this stage it was a much broader impact than we’re seeing at the moment. So we kind of look at the details behind the first quarter, you had that impact and probably somewhat masked the strength we’ve had in moving into some of our non-conventional vapor recovery type market segments. And so I think we’ve done well there. I would not anticipate as we look forward a large influx of a broader reduction in utilization, and that’s kind of what we’re seeing and what the guys believe and what we communicated on the Compressco call the other day. Meantime, we’re very aggressive in matching cost with areas we see that are dry gas and showing symptoms of lower utilization. But again the focus is go out and get the market opportunities on the liquid rich plays to mitigate that and that’s exactly where the sales effort’s going.

Good to hear. And then finally with regard to the kind of extra costs you’re bearing here before we get some promising contract activity going in Mexico with regard to the testing business, are we -- would you handicap that as something we start to see some revenue relief for that cost burden in 3Q most likely?

Yes, I’d say our internal thoughts is we’ll see that early 3Q.

[Operator Instructions] All right. There’s nothing else at the present time so I’d like to turn the floor back to management for any closing remarks.

Yes. Thanks, Keith. And again, I appreciate everybody’s questions and I believe we answered them succinctly and wanted to really emphasize some of the questions on the Testing side. That’s where we focused our attention primarily in responding to some of those results and obviously we feel very comfortable continuing to invest in that business and expect that to improve as we go through second quarter and beyond. With that, we’ll look forward to updating that and the rest of our business in early August.

Thank you. This concludes today’s teleconference. You may now disconnect your phone lines. Thank you for participating and have a nice day.