Executives
Scott McCurdy – VP and CFO
Dick Miles – President and CEO
Analysts
Collin Gerry – Raymond James
Pierre Conner – Capital One
Neal Dingmann – Wunderlich Securities
Geokinetics Inc. (GOK) Q4 2008 Earnings Call Transcript March 6, 2009 11:00 AM ET
Operator
Good morning. I would like to welcome everyone to the Geokinetics, Inc. fourth-quarter and year-end 2008 earnings and operations conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question-and-answer period. (Operator instructions).
This conference is being recorded and it will be available for replay approximately one hour after its completion on the Company's website, www.geokinetics.com.
I would now like to turn the call over to Scott McCurdy, the Company's Vice President and Chief Financial Officer.
Scott McCurdy
Thank you, Shay. In accordance with the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995, Geokinetics, Inc. cautions its statements made in this conference call which are forward-looking and which provide other than historical information involve risks and uncertainties that may materially affect the Company's actual results of operations.
All statements other than statements of historical facts made during this conference call that address activities, events or developments that Geokinetics expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include, but are not limited to statements about the business outlook for the year; backlog and bid activity discussed during this conference call; business strategy; related financial performance; and statements with respect to future benefits.
These statements are based on certain assumptions made by Geokinetics based on managements' experience and perception of historical trends, current condition, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Geokinetics, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to financial performance and results; job delays or cancellations; reductions in oil and gas prices; the continued disruption in worldwide financial markets; the impact from severe weather conditions; and other important factors that could cause actual results to differ materially from those projected or backlogs not to be completed as described during this conference call or in the Company's press releases or reports filed with the Securities and Exchange Commission.
Backlog consists of written orders and estimates of Geokinetics services which it believes to be firm. However, in many instances the contracts are cancelable by customers and Geokinetics may never realize some or all of its backlog, which may lead to lower-than-expected financial performance. A discussion of these and other factors, including risks and uncertainties, is set forth in the Company's Form 10-K for the year-ended December 31, 2008, which will be filed by March 16, 2009. Any forward-looking statement speaks only as of the date on which such statement is made and Geokinetics undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise.
During this conference call, Geokinetics will make references to EBITDA, which is a non-GAAP financial measure. A definition and reconciliation of this non-GAAP financial measure to the applicable GAAP measure can be found in Geokinetics' current earnings release, a copy of which is located on our website www.geokinetics.com.
I would now like to turn the call over to Dick Miles, the Company's President and Chief Executive Officer.
Dick Miles
Thank you, Scott. Good morning and welcome to Geokinetics' fourth quarter and 2008 year-end conference call. This morning I will begin by recapping our fourth-quarter and full-year 2008 results. Scott will then summarize our financial results and I will then provide closing remarks and open the call for questions.
Despite the challenging economic times, Geokinetics delivered record results. International demand was a key growth driver and remains strong. Quarterly and annual revenue came in at record results and our conservative financial structure positions us to enjoy the current financial downturn. Our debt-to-book capitalization is only 28.8% and our ability to operate within cash flow are all positive attributes in today's financial environment. In addition, Geokinetics has no plans to return to the market for additional funding.
With that, I would now like to recap some of the highlights during fourth-quarter and full-year 2008.
We have set new records for fourth quarter in annual revenue. Fourth-quarter revenue of $117.8 million was 38% higher than the same quarter last year and full-year 2008 revenue of $474.6 million was 33% higher than in 2007. These increases are evidence of the strong demand for our seismic data acquisition and processing services worldwide, as our customers take their search for meaningful oil and natural gas reserves into operational environments that are difficult to operate in. We also grew EBITDA to record levels. Fourth-quarter EBITDA was 587% higher than the same quarter last year and full-year EBITDA was 89% higher than last year. Our investments in equipment upgrades, as well as our actions to concentrate crews in strategic markets and streamline operations all helped to increase productivity, operational efficiencies and profitability.
Our international business remains resilient in the current downturn in the world economy and the energy business, in particular. At 12/31/2008, our backlog stood at $548 million, which is up over 33% from the same time last year and up 8% sequentially from September 30, 2008. Approximately 84% of our current backlog is related to international orders, with the balance coming from North America. International backlog has increased 95% from year-end 2007.
Several years ago we recognized that demand was growing for seismic data acquisition in shallow water in transitions and environments and that this type of work was a good a fit with our technical expertise and capabilities. We have invested to build five crews capable of performing transition zone and ocean-bottom cable jobs and that investment is paying off. As our crews earn customer acceptance they are winning larger contracts with longer terms, which has helped to improve margin and builds on our competitive advantage. As we previously stated, our goal was to have five shallow water crews operating by end of 2008 and we achieved that goal. 43% of our international backlog is in the shallow-water environment.
In the United States, we have experienced softening demand for our services, especially for jobs related to natural gas exploration and development. Contracts that may have been delayed, cancelled or reduced in the US have been more than offset by increases in international orders. In fact, approximately 77% of our international backlog is related to business from national oil companies or partnerships that include national oil companies, with the majority of that work being directed to oil prospects. The busy season in Canada is upon us and we operated 1.5 crews there for most of the fourth quarter and we expect three crews to be operating in Canada during the busy season, which typically ends with the spring break, up in late March.
In the United States, we operated eight crews for the entire quarter thanks to good weather and steady business. Mid first quarter, we reduced our crew count to six in the US in response to declining demand. Our plan is to move one crew to South America to work on a new long-term contract there. The equipment from the second crew will be combined with an existing crew to work on an expansive seismic survey in the Appalachian Basin, which will be used to develop a joint interest in high-quality seismic data library. This large crew will be equipped with 12,500 channels. The survey has been prefunded with 100% of the initial cash outlay for the project already covered. This is a new project for us and we anticipate this data will generate profits for many years to come once the survey is completed and fully processed.
In Latin America, we operated five to seven crews during the fourth quarter, with an average of six crews working in Brazil, Columbia, Peru and Suriname. During the first quarter of 2009, we expect to reach out a crew in Bolivia to begin work on a new long-term project. In Europe, Africa and the Middle East, we operated two to three crews in the fourth quarter in Angola, Cameroon, Egypt and Mozambique. We anticipate working two to five cruise during the first quarter and our OBC crew in Angola is expected to stay busy all year on a contract that expands into 2010. Our crew in Egypt worked steadily during the fourth quarter and this crew has long-term visibility for work through 2009. In Australia and the Far East, we kept our crew in Malaysia busy through the entire fourth quarter and expect it to work through the first quarter of 2009. We also had a crew working half the first quarter in India before mobilizing to its next location in Bangladesh.
Moving to capital expenditures, during 2008 we invested a total of $77.1 million in new purpose built vessels and equipment to outfit our transition zone and OBC crews, support equipment, new information technology systems, and upgraded drilling and surveying equipment for international operations. These investments provide us with additional revenue-generating capacity to obtain more work and provide our customers with the highest quality data in a safe and productive manner. At the end of 2008, our channel count of 122,500 was 13% higher than at year-end 2007.
I will now turn the call over to Scott McCurdy, our CFO, who will recap our financial results for the fourth-quarter and full-year 2008.
Scott McCurdy
Thank you, Dick. Today we reported revenues of $117.8 million for the fourth quarter ended December 31, 2008, a 38% increase over the $85.5 million for the same quarter last year. Broken out by market, revenue consisted of approximately 31% from North America data acquisition, 67% from international data acquisition and 2% from data processing. Strong demand from international markets more than offset any declines in North American business. Direct operating costs increased by 24% to $91.9 million, less than the 38% increase in revenues.
Gross margins by market were 19% for North America data acquisition, down slightly from 21% in the third quarter; 23% for international data acquisition, down from 24% last quarter; and 25% for data processing, down from 31% last quarter. Total gross margin for the fourth quarter was 22%, slightly less than 23% in the third quarter of 2008, but significantly improved from 13% from the same quarter last year. EBITDA for the fourth quarter of 2008 was $15.8 million, representing a 587% increase over the same quarter last year. Higher gross margins in all segments combined with strong utilization and an increase in high-margin shallow-water work all helped to increase profit.
In the fourth quarter ending December 31, 2008, we narrowed our loss to common shareholders to $6.3 million, or $0.60 per share, compared to a $9 million, or $0.87 per share loss in the same period last year. The reduction in the loss reflects increased profitability from the previously-mentioned operational improvement, restructuring and equipment upgrades.
Moving on now to the full-year 2008, revenues increased to $474.6 million, or 33% higher than in 2007. Broken out by market, 37% of revenue was from North America data acquisition; 60% was from international data acquisition; and 3% was from data processing. Revenues increased primarily due to stronger-than-average Canadian winter, channel count upgrades in the US, higher demand in international markets and increased recording capacity overall. Direct operating costs for the year increased 27% to $370.2 million for the full year. Gross margins by market were 22% for North America data acquisition, up from 19% last year; 22% for international data acquisition, up from 20% last year; and 26% for data processing compared to only 2% last year.
Total Company gross margin was 22%, up from 19% last year. North America margins were improved as a result of investments in new channel capacity, which increased productivity, in addition to a higher percentage of term contracts. International profitability was higher as a result of reduced crew moves by concentrating crews in markets with the opportunity for long-term work, as well as a greater number of high-margin shallow-water jobs. Cost reductions from restructuring our data processing division last year also resulted in more consistent profitability for this segment. As a result of margin improvement and revenue growth, EBITDA for the full-year 2008 grew 89% over last year to $65 million. We narrowed our net loss to shareholders to$5.3 million, or $0.51 per share, down from a loss before one-time items of $10.7 million, or $1.25 per share last year. The reduction in losses reflects increased profitability from the previously-mentioned operational improvements, restructuring and equipment upgrades. At the end of 2008 our total debt was approximately $91 million, or 28.8% of total book capital, down from 29.2% in the third quarter of 2008.
I will now return the call to Dick.
Dick Miles
Thank you, Scott. Looking forward, our business strategy remains to continue diversifying and growing our seismic data acquisition and processing business worldwide to match the demand from our customers. Our key market niches are working in difficult-to-operate frontier environments and transitions in shallow-water areas, which has led us into the deeper-water, ocean-bottom cable market. Our capabilities in these high-value niche markets enable us the ability to provide our EMP customers greater value by obtaining higher resolution images in areas where it was once unattainable. We believe our strategy is beginning to prove its worth. The effect of low commodity prices is beginning to be felt in the US market with natural gas prices persistently below $5 per TCF, operators are laying down rigs and reducing their capital outlays for seismic data acquisition.
On the other hand, demand for our services from international markets is still very strong. Backlog is up 95% from December 2007. Our global presence enables us to move assets from areas of low demand to regions where demand is higher and we are doing just that, given our current market dynamics. As I mentioned earlier in the call, we are mobilizing one US crew to work in South America. Any declines in business for work in the US have been more than offset by increases in our international order book. The long-term outlook for international seismic data acquisition and processing service is expected to be stronger than the outlook for the US. Our global operational presence, international experience and targeted niche offerings provide us with both diversifications from the US on-shore natural gas market and exposure to new growth opportunities not available to many other seismic companies.
I would also like to remind you that the most international projects are funded by national oil companies and large international EMP companies, which tend to have longer-term time horizons and fewer budgetary constraints. We are beginning to realize the benefits of our cost control efforts and the Street's strategic positioning of crews in markets offering opportunities for long-term work. As I mentioned, we have made capital investments of $77 million in 2008 and our Board has approved a capital budget of $37 million for 2009. Although our planned 2009 capital budget is lower than last year, investments will be targeted to our core markets in transition zone and ocean-bottom cable work. We intend to spend within cash flow during 2009.
Importantly, we have the financial strength to weather the current economic downturn. We expect continued strong margin performance resulting from our investments in productivity-enhancing equipment and strategic positioning of our crews in high-value niche markets with long-term opportunities for consistent work. Consequently, we expect continued growth through 2009 and anticipate reducing debt from its present levels. Our team has a tremendous amount of experience and we have seen our share of ups and downs in the global energy business. I am confident we have the right people, assets and business processes to not only weather the current economic downturn, but emerge a stronger provider of high-quality seismic.
I'd like to thank our employees for their continued commitment to safety, quality and support of our business, our customers for their continued faith in our abilities and our shareholders for their continued support.
Operator, that's the end of our prepared remarks so I'll turn the call back over to you.
Question-and-Answer Session
Operator
Thank you. (Operator instructions). Our first question comes from Collin Gerry from Raymond James.
Collin Gerry – Raymond James
Hey, good morning.
Dick Miles
Good morning, Collin.
Collin Gerry – Raymond James
Just looking at your outlook it seems, obviously, a little bit surprising just given the economic and what we've seen in the energy prices and everything like that but the international side of your business just seems to be pretty much on fire as it was coming out – when prices was higher. So could you just maybe get into a little bit more detail as to what's driving that? The big project that you have – I think you mentioned 12,500 channels – is that longer term investment horizons? Is it specific areas that people are looking at? What is the driver here?
Dick Miles
That one – the one job that's 12, 500 channels is actually in the US and that's our entry into the data library business with a partner, GPI. That's in the Marseilles shale area where there is still a lot of interest. Even though things are declining, the Marseilles is seen as one of the better areas for the long term.
Collin Gerry – Raymond James
Right.
Dick Miles
But in the international market, it's really – it's the areas that we've focused on and the areas we've been building towards. In Latin America we've got – we've renewed our two-year contract with Petrobras which, if you – for national oil companies, I think that's as good as it gets.
Collin Gerry – Raymond James
Right.
Dick Miles
We've moved our ocean-bottom cable crew to Angola, where we have a year's work there with Sumango [ph] and that's proceeding as planned. And then it's just the areas that we've targeted, there's work there and these are a buildup of opportunities that we've seen and our backlog has gotten really high at the end of the year. We expect it to come down a little bit because a lot of the contracts we got were for really long-term contracts, which means that equipment is not going to be available to be bidding on more jobs. So I would expect that backlog to drop a little bit at the next quarter. But then we look at all the opportunities we're working on and there's just a lot of opportunities in west Africa for shallow-water transition zone work, a lot of opportunities in Malaysia, Indonesia, Australia and all of that region, where we've focused a lot of effort. So we're very confident that – if we didn't look at the TV and listen to the radio I'd be over the moon, but I have to temper this enthusiasm because we don't know how bad this market could get and how long it may last.
Collin Gerry – Raymond James
Right, right. Well, that's – the – moving into the data library business, how long has that been something you've been looking into? It seems somewhat of a new move for you guys, and certainly the Marseilles is one of the brighter spots in a dwindling North American market, but how – explain to us what the rationale there is?
Dick Miles
Well, we could see the opportunity there and no one seemed to be taking advantage of it and really it was just a combination of joining with a known company in GPI that could help us do that. We had the view that the US market would soften, we didn't want to lower our prices, but we do need to maintain our presence and that's a good way to do it. That operation will run from now until November and it gets us into that market and there's a lot more opportunities there that we're reviewing.
Collin Gerry – Raymond James
And have you already received some interest from customers in terms of looking into some of your seismic – I guess the data that you're looking to shoot or is it of more a spec entry?
Dick Miles
No, no, it's not a spec entry at all. One of the restrictions is that we need to be cash flow positive in everything we do, so this didn't get off the ground until we were sure that we will be cash flow positive throughout that program. So we've got commitments from customers and a lot of interest from other customers.
Collin Gerry – Raymond James
Okay. And then the final question for me is margins. As we look for it, obviously you have a pretty strong revenue backlog and there's going to be – with you guys there's always going to be a lot of moving parts and you're moving some crews out of the Northern American market, I imagine there are going to be some startup costs with that . But you look at fuel costs are probably coming down, how does foreign currency go in your international backlog? I'm just trying to get a better sense on how margins hold up net of pricing and everything with all the moves and costs that we're probably going to see next year.
Scott McCurdy
I'll answer that, Collin. I think what you would expect, obviously with the reduction in crew count in North America, it would not be surprising if our margins there get pressured a bit. Internationally, I think all those things you just said will be a factor. I think the biggest factor, which we think should be positive for – when thinking about our international margins for next year are the number of longer-term projects that we have. A lot of these crews, as we've mentioned, have work out through the latter part of 2009 and in some cases in 2010 and anytime you can eliminate one or two crew moves during a year that can only help your margin.
Collin Gerry – Raymond James
Right.
Scott McCurdy
The other thing is with five shallow-water crews, including one OBC crew, that historically has been – those crews are higher revenue, higher margin than a typical land crew, and as more and more of our business shifts to those crews, again, if we can keep them utilized, which we've got some pretty good backlog for them, that should also help improve the margins on the international side.
Collin Gerry – Raymond James
Okay. And how does foreign currency play into it?
Scott McCurdy
Foreign currency does play in. Generally, our contracts are denominated in US dollars, or if they're not we typically would only do that in a case where nearly all of our expenses are also in the foreign currency, so we've got a matching there.
Collin Gerry – Raymond James
Right.
Scott McCurdy
It does impact us, both on the revenues and cost side when you convert back to US dollars, which is our functional currency, and then, obviously, you get some realized and unrealized gains or losses on the – below the line, but those are obviously difficult to predict and we plan for those as much as we can.
Collin Gerry – Raymond James
Right. I guess I'm just thinking on the contracts that the revenue is based in US dollars, I still would imagine a lot of your labor expenses, do you pay – with most of your crews being international you're paying in foreign currency so you could see positive capture there?
Scott McCurdy
Well, it is not entirely the case. In Latin America, that tends to be more the case but our eastern hemisphere operation, the majority of those people are actually paid in US dollars.
Collin Gerry – Raymond James
Okay. Okay. Well that wraps it up for me. I'll let somebody else go and I'll re-queue.
Operator
Thank you. (Operator instructions). Our next question is coming from Pierre Conner from Capital One.
Pierre Conner – Capital One
Hello?
Operator
Please proceed with your question.
Pierre Conner – Capital One
Yes, this is Pierre Conner .
Operator
Sir, we lost you. Please press star 1 again.
Pierre Conner – Capital One
Do you have me now?
Operator
Your line is live.
Pierre Conner – Capital One
Okay, thank you.
Dick Miles
Hear you, Pierre, go ahead.
Pierre Conner – Capital One
All right, sorry about that, gentlemen. First of all thank you for the clarity of the press release and the information about your outlook on the crew activity, I think that's a good upgrade. Thanks, Dick. Dick, wanted to ask you, you mentioned growth throughout '09 so just to be clear, if I can get you to reiterate, you're expecting top-line '09 to be higher than top-line '08?
Dick Miles
We are, yes.
Pierre Conner – Capital One
Okay. Breaking it down a little bit – if I could get into more details – in North America, the crew count was up and if I look at things on a revenue per crew was down, you mentioned less up-front fees, and so my question is, is that mobilization cost that you were not able to charge in the current environment or will it be something that will be amortized over the job and you still get it back? Is this a definite change in the profitability of the North American jobs?
Scott McCurdy
Pierre, is your question in regards to the comment that we had lower front-end revenues?
Pierre Conner – Capital One
Correct.
Scott McCurdy
Okay. Really the issue there is, as we mentioned in the past, typically it's a three to six month process before you actually start recording of a job in the US to get all the permitting, do all the surveying and drilling, which is typically done by third parties, and then obviously, the revenue and costs flows through our books. With the slowdown in demand, we did see a slowdown in those – in the fourth quarter for those front-end revenues because when you look out on a three to six months, we are seeing – or expecting a reduction in US crew activity, which is driving our decision to reduce crews there. Does that answer your question?
Pierre Conner – Capital One
I think so generally but (inaudible) look at equating the number of crews running to revenue, I didn't see the increase in the quarter. I think that's the driver on a go-forward basis trying to get a – my estimate of crew count that should ratio now with the current revenue for crew, it shouldn't change again, I guess.
Dick Miles
Yes, but Pierre, it's difficult because every job in the US is a little bit different. Where you are and how much permitting effort is involved and whether you've got the front-end crews, whether it's a dynamite job or a vibe job is going to make that look different.
Pierre Conner – Capital One
Okay.
Dick Miles
But again, it slowed – there was less cost in the fourth quarter because we weren't having as many crews in the first quarter.
Pierre Conner – Capital One
Okay, maybe that's the (inaudible) driver. Let me ask a different way then, too, about North America just to help. You mentioned international backlog through '09, what's the visibility of the timing of the current backlog in North America? Does it come to an abrupt end at the end of a certain time period?
Dick Miles
No. The crews that we've got still operating, we've got some of those with plans laid out through most of the year. But, again, they – as we said in our precautionary statements at the start, all of these things are cancelable.
Pierre Conner – Capital One
Okay.
Dick Miles
But we've got good term contracts with some key customers that are on the very conservative end of the way they handle their cash, so we expect they certainly don't have a cash problem to keep us busy and they seem to indicate they will keep us busy.
Pierre Conner – Capital One
I apologize if I may have missed this, can you tell us geographically where your joint venture is, where you are going to on some of this data?
Dick Miles
You weren't – you were not listening. In the Marseilles shale.
Pierre Conner – Capital One
Marseilles. Thank you.
Dick Miles
In Pennsylvania.
Pierre Conner – Capital One
Okay. Thank you. Moving over to international, Dick, does it imply that the crew count can be stable through the year at this level, again, absent cancellations, without any further contract bidding or awards?
Dick Miles
No, we need some. Even though we've got all that backlog some of that does go into 2010 and there are gaps in some of our crews during the year, but there's also a lot of work identified and discussions ongoing with customers, so we would expect to be busy full year with the majority of our crews. It's really looking good. There just hasn't been that fall-off. The national oil companies, they've just got a different way of looking at things. They need to keep their search going for oil and I think the general belief is oil will recover a long time before the natural gas market in North America, so I think that it should be sure to lift any fear. We haven't really seen any cancellations internationally. We've had a couple of jobs delayed a little bit while they thought about it but then they've all gone ahead. So we're very positive in international still.
Pierre Conner – Capital One
Yes, obviously. And related – I know that's activity driven and then the next question is, just given the environment with the additional backlog you've added, are the margins in those new contracts sequentially lower than maybe what was already underway in the bidding?
Dick Miles
The margins are pretty much the same but the level of business has increased to where we should see improvement throughout the year.
Pierre Conner – Capital One
Right. And mix issues, as Scott mentioned earlier.
Dick Miles
Yes.
Pierre Conner – Capital One
I understand. Okay. Real small piece of it but just on the processing side, I know margins are up year on year, they were slightly down sequentially, is there some mix issue in there at all or is it just some variability in the quarter to quarter?
Dick Miles
It's really just variability quarter to quarter. They're also – we're dragging them more international than they have been before so we will expect them to keep pace with our acquisition.
Pierre Conner – Capital One
On the international side, okay. And then the last ones are all more just mechanical for Scott primarily, I guess. I'll just rattle them off. Issues in receivables is always a question, so if you could address that? And then give us a comment about the tax rate, please? And then G&A, will it – will you be able to vary it with total revenues? And then depreciation, should we – since the CapEx is coming down significantly, maybe below depreciation, would that have been even the peak and we should see a runoff there? So all three of those, Scott.
Scott McCurdy
Okay. Well, I wrote down four, so I'll –
Pierre Conner – Capital One
Four, thank you.
Scott McCurdy
I'll address them all. The AR issues, obviously we took a hard look at that at year end. In fact, we did – you'll see it when we release our 10-K, but we did expand our allowance for doubtful accounts a fair bit in the fourth quarter just to protect ourselves and – in light of just the current economic conditions. So we do take a hard look at that. We are very on top of our collections and at this point don't know of or believe that we have significant exposure there beyond what we've already reserved for any specific cases other than just the normal market exposure that everybody is exposed to in this market. G&A, we would not expect it to grow as much as – in line with the revenue growth, which I think is how you phrased your question. It probably will increase some because we are going into more markets and we will have some additional people and additional costs associated with that. But as a percentage of revenue, I wouldn't expect it to go up. In fact, it probably will likely be down.
Depreciation, I don't think that you can say that we peaked in 2008, reason being even though our 2009 CapEx is down quite a bit, a lot of the $70 million that we spent in 2008 came in second, third and some – not as much, but some in the fourth quarter, so you haven't seen a whole year of that baked into the numbers and I think we were at 13 – a little over 13 in the fourth quarter, which would suggest a higher run rate than we were at for the full year of 2008. So –
Pierre Conner – Capital One
But would the fourth quarter be – I understand the full year, yes, but are we near the peak for fourth quarter?
Scott McCurdy
We're probably getting closer.
Pierre Conner – Capital One
Okay.
Scott McCurdy
The one thing that will impact that sum is, with the accounting on the – this joint investment and data that we're doing, you won't see crew revenues and crew expenses for that crew while it's operating. Basically our net costs will be capitalized and then amortized against future license revenues and so that could cause some one-time spikes whenever we have a sale or recognize a sale for those. But from the equipment side, I think that the fourth quarter is a good indication of where it'll be going forward, but it may even be a bit higher because some of the assets we buy, if takes a couple of months for them to actually be prepared to go to work and placed in service so they hadn't all probably even been placed in service yet for the whole fourth quarter.
Pierre Conner – Capital One
Okay.
Scott McCurdy
And tax rate.
Pierre Conner – Capital One
Yes.
Scott McCurdy
Taxes as you know for us is very difficult to predict. I mentioned it to somebody in the past. A good example for us is, we don't always know where the jobs are going to be in certain countries and a good example for us is a country like Egypt. We have two legal entities that work there. If we work in one part of the country we pay no income taxes, and if we work in another part of the country we have to pay income taxes, and that could be – just depending on where the work comes from over the remainder of the year that can skew your tax number a few million dollars, which for us is – $0.01 is about $100,000, so changes in that makes the tax rate very hard to predict, factors like that. Specific to the fourth quarter, if you look at where we didn't do as well as we projected, it was all in countries where we don't have any taxes, which brings the income before taxes down substantially but you really get no benefit from it in the tax rate.
Where we did really well during the quarter were some of the areas where we are a taxpayer, obviously foreign, and so we did have some pretty significant foreign taxes in the fourth quarter. We did charge in a few more inter-company charges to some of our foreign locations, which generates some withholdings and it's all driven by foreign taxes in very well performing markets that we don't get the benefit for back on the US side. In fact, the countries where we don't do as well – and, again, I'm kind of talking on a consolidated tax basis, not necessarily what you'd see in the financial statements – but those areas tend to drag us down and it skews the tax rate, obviously, substantially. If you look at last year, we had positive taxes with a negative IBT. This year, we didn't have that but, obviously, we had a tax rate that looked very high and we will continue to deal with that issue in the future.
Pierre Conner – Capital One
And is there enough clarity, given where the crews now are on these longer-term jobs in the particular regions to be able to, for your planning purposes, project some kind of a tax rate?
Scott McCurdy
It helps but not one that wouldn't be subject to so many changes that it's just – it's difficult to put a number out there.
Pierre Conner – Capital One
Okay, I appreciate the perspective. Gentlemen, quite a thorough review and I appreciate it and I'll turn it back.
Dick Miles
Okay. Just one more thing on the accounts receivable issue, Pierre.
Pierre Conner – Capital One
Yes.
Dick Miles
Since a lot of our work is with national oil companies and that could be a cause of – for some concern, we have done a lot of work and obviously we are not worried about companies like Petrobras. Sumango in Angola was a very big customer of ours in 2009 and we've reviewed where they are. The Angolian [ph] government, for example, has got enough money in the bank to pay for two year's of their social program so we don't see that as a concern. Some of the other national oil companies have a – may have a little bit more risk to them and we've discounted that risk by actually getting a lot of our payments in advance for what we're doing. So I think we're managing that as well as we can and we don't foresee any real problem going forward with accounts receivable either.
Pierre Conner – Capital One
Okay. Thank you.
Operator
Thank you. Our next question is coming from Neal Dingmann from Wunderlich Securities.
Neal Dingmann – Wunderlich Securities
Morning, guys. Say, Dick I was wondering, it looks like you all have a pretty dominant position still in the shallow-water business. One, does your market share remain quite high there and what do you foresee this year, next year as far as how much just that – maybe not your business but that business overall can grow?
Dick Miles
It may be limited in its growth with availability of equipment, because we probably won't have any more and I doubt anyone else will. So there's – we're at a point where we're comfortable in the areas we're working in where the opportunities are, so I really wouldn't see it – I don't think there'll be a need for us to add any more equipment to satisfy what is out there. And these guys often have had desire for program that they didn't think there was any way to get it, so one of the things we do is tell them we'll be there and do it right next year and persuade them next year is better than this year. We've working on different – a lot of different companies with at least six months of work when you add it altogether in a country that – which gives us somewhere to take one of our crews fourth quarter of this year, first quarter of next year. But the market is pretty sound. There's quite a few other companies that have one crew that does that to satisfy the need they have every now and again, so we're the only ones that are really putting an effort into it and we're comfortable with it the way it is.
Neal Dingmann – Wunderlich Securities
All right. What about – did you mention – I think you stated this the remobilization of one crew. Is there – would you think about doing more? Are your plans up in Canada same after this year to continue to keep those crews up there, or would you consider moving a crew or two there away from there permanently?
Dick Miles
We moved some equipment away last year from Canada, which was supposed to go back in December but then the market – if you remember last year, we had five crews working in Canada, this year we've just got three. So we moved to cut some equipment away last year with the intent of it going back and of course it hasn't gone back. That equipment will be put to use probably somewhere other than Canada, although there is summer work and it's just a matter of seeing whether it is appealing to us, whether the margins will be good enough to want to do it. But there's – we already have a plan to move some more equipment into Egypt once it becomes available, so, yes, we won't just leave it sitting idly by.
Neal Dingmann – Wunderlich Securities
Got you, got you. And then lastly – or two questions, if I could. On Latin America, maybe you could address a bit more in color on both Brazil and Columbia. Sounds like there's a bit more competition but you all are still doing extremely well there, is that the case, and what do you see for the next year or two?
Dick Miles
Columbia is still – yes, we're doing well there. There are – other players have moved in, other players have moved into Brazil. It doesn't seem to be affecting our relationship with Petrobras. We've got our term crew there, which was just renewed for another two years, and we've got other work there that they want us to do. It's – we have a large presence in Brazil that's all Brazilian and very well accepted by Petrobras, so we're pretty comfortable with that market. And then you go to Columbia and you look outside of Columbia, we've got a crew in Suriname and we have a crew in Peru, which will probably go back there, so Columbia is really just the base of other opportunities in that region. There's always competition.
Neal Dingmann – Wunderlich Securities
Got you. And then last question. Just on G&A on the cost side, maybe for Scott, you anticipate – I think Pierre hit most of the line items, do you see – G&A, is there anything that you could take away from that or break that down a little bit more as far as could you lower that going forward?
Scott McCurdy
I think it'll be a mix. I think on – we're in a little bit of a weird spot in that a lot of companies are letting a lot of people go and really drastically reducing their G&A to stay in line with reduced demand and shrinking of the business. We're not really expecting to be in that scenario. We are expecting growth this year and we will need to add some infrastructure internationally to continue to support that growth.
So, I think we will see some increase, not significant, but we will see some increase in G&A there. Obviously, with the reductions in Canada and the US, as crews go down – obviously those people generally are let go as the crews go down and we're constantly looking at ways to make sure that our G&A stays right sized with our current operations in those regions. And we have – we've taken some measures already to cut costs in those areas and we'll continue to look at ways to cut other costs in those areas, as well as on the corporate side as needed, but probably not as drastic as maybe some other companies, where they may not have some of the opportunities we do this year.
Neal Dingmann – Wunderlich Securities
Got it, got it. Thanks, guys, nice job.
Dick Miles
Thank you.
Operator
Thank you. At this time, we have no further questions. I'd like to turn the call back over to the speakers for any closing comments.
Dick Miles
Thank you, operator. And thank you all again for joining us today and your interest in Geokinetics. More information can be found on our website. If you have any additional questions or comments, please feel free to contact either Scott or myself and we look forward to speaking with you when we announce our first quarter in May. Thank you.
Operator
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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