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CARBO Ceramics Inc. (NYSE:CRR)

Q2 2009 Earnings Call

July 30, 2009 11:00 am ET

Executives

Gary Kolstad - President and CEO

Ernesto Bautista - VP and CFO

Analysts

James West - Barclays Capital

Jeff Tillery - Tudor, Pickering and Holt

Mark Thomas - Simmons & Co

Roger Read - Natixis Bleichroeder

Robert Christensen - Buckingham Research Group

Steve Ferazani - Sidoti & Co.

Brian Uhlmer - Pritchard Capital

Operator

Welcome to today’s CARBO Ceramics second quarter 2009 Earnings Call. I would like to remind all participants that during the course of this conference call, the company will make statements to provide information other than historical information, and will include projections concerning the company’s future prospects, revenues, expenses or profits.

These statements are considered forward-looking statements under the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these projections. These statements reflect the company’s beliefs based on current conditions, but are subject to certain risks and uncertainties that are detailed in the company’s press release and public filings.

Your host for today’s call is Mr. Gary Kolstad, President and Chief Executive Officer of CARBO Ceramics. Mr. Kolstad, please begin your call.

Gary Kolstad

Thank you and good morning everybody one. Thanks we are speaking to you from Houston, Texas, where I just completed the move-over of the company's headquarters from Erwin, Texas. And I want to thank you for joining us to discuss CARBO’s second quarter results and the outlook for the remainder of 2009.

I will start off with some of the highlights of the second quarter. This morning we reported second quarter revenues of $69.3 million along with income from continuing operations of $9.4 million or $0.41 per diluted share. This is a decrease of 22% and 20% respectively year-over-year. Though our sales volume and associated revenues were lower than those experienced last quarter and during the same period last year, the percentage points in either case are much better than the decline experienced in the worldwide and North American rig count.

During the quarter we continued to see increased demand for CARBOPROP and CARBOHYDROPROP in the large resource plays and more operator acceptance of the benefits of economic conductivity.

These events are particularly significant given the operating environment we faced during the quarter and our testament to the value that E&P companies can derive from CARBO's product.

We repurchased and retired approximately 237,000 shares at an average of $34.53 per share at an aggregate cost of $8.2 million in accordance with our previously disclosed Board of Directors approved share repurchase program. Since the inception of the program in August of last year, we have repurchased and retired approximately 1.7 million of the 2 million shares authorized.

And we have also raised the dividend for the ninth consecutive year. Now, looking at the details of the second quarter, our total proppant sales volume for the second quarter was 216 million pounds, a year-over-year decrease of 23% and a sequential decrease of 14%.

The sales volume in the US decreased 17% year-over-year but grew 1% sequentially in spite of a drilling rig count decrease of 50% year-on-year and 30% sequentially. International, excluding Canada, sales volumes decreased 41% compared to the same period last year and decreased 26%.

Although, we experienced a year-over-year decrease in operating profit, our operating margins actually increased slightly as lower sales volume was partially offset by reduced freight, other operational costs and a favorable product mix.

SG&A expense were virtually flat year-over-year and lower sequentially as savings were realized from cost reduction initiatives. Income from continuing operation for the second quarter of 2009, decreased $2.4 million compared to second quarter of 2008.

Now, a few technology and business highlights, over two million pounds of CARBOECONOPROP were pumped for Brigham Exploration Company in conjunction with their completion of the Strobeck 27-34 well in North Dakota's Williston Basin in the Bakken shale. In their announcement, Brigham stated that the initial production rate from this Three Forks formation well was 2,021 barrels of oil equivalent per day, and further reported that this appears to be the second highest initial rate for a Three Forks completion.

This once again shows the validity of Economic Conductivity and how an incremental investment in high quality proppant can improve production and help optimize an operator's return on investment.

E&P operators continued to select CARBO's proppant to stimulate their unconventional gas reservoirs, as US proppant sales for the quarter actually increased sequentially versus the 30% decrease in US drilling rig count. In the Haynesville CARBO provides a variety of proppant to over a dozen operators with increasing volumes, while also supplying products in the Marcellus, Bakken, Montney, Eagleford and Woodford resource plays.

And finally, CARBO's geotechnical monitoring company, Applied Geomechanics, is providing the FAA with concrete strain gauges at the National Airport Pavement Test Facility in Atlantic City, New Jersey. These sensors are used to evaluate performance of new concrete mix designs under simulated, full-scale accelerated aircraft loading.

Moving on to the outlook. Although the decline rate of the North American rig count has recently slowed, it is still unclear as to when the market will bottom. The self-correcting nature of the oil and gas industry should react positively to the reduced natural gas drilling activity. However it is possible that a recovery is not experienced until sometime in 2010.

Nevertheless, we will continue to focus our efforts on expanding our client base in the large resource plays where our business keeps building as a result of the growing acceptance for our products.

Internationally our China operations had to contend with the large number of domestic competitors. Russia continues to be a difficult market, although it appears to be stabilizing. And we expect to see some positive movement in the Europe, Africa, Middle East regions.

With respect to our financial situation our overall financial condition remains strong. This is evidenced by a debt free balance sheet and our recently announced increase to our quarterly dividend, which demonstrates continued confidence in our outlook and our financial strength.

And our strong financial position also afford us the opportunity to take advantage of organic or acquisitive growth opportunities that may present themselves in the market.

This completes our prepared remarks. And at this time we are happy to take any questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question comes from James West from Barclays Capital. Please go ahead.

James West - Barclays Capital

Gary, last quarter we talked little about pricing and you had indicated you thought pricing could fall to kind of Q1 '08 type levels. As pricing came down for ceramics in June, we are not there yet obviously. But is that still a reasonable expectation here or given the declines in the rig counts could we see further pricing pressure?

Gary Kolstad

Well, I think we actually came pretty close to what I predicted in Q2 '08 matching first quarter 2008 matching the second quarter of 2009. I think we will continue to see some pressure on that. I think what you will though is that the volumes will probably out run it and you have the factor in the mix side of that too and that there is a large demand for it likewise. So that has a tendency to also lowered the price little bit.

James West - Barclays Capital

That make sense. And the second question from me. What percentage of your US volumes now are going into shale plays?

Gary Kolstad

We don’t break that out but you can obviously tell by some of our comments that it is a growing amount and certainly if you look at the rig activity, the size of the frac jobs in some of the big shale plays, you might imagine it's a majority, which actually makes it exciting for us when the industry finally kicks back up in our normal areas such as the Rockies, West and South Texas's and things like that when they pick back up it should be a pretty good time.

James West - Barclays Capital

Now, have you picked up new customers over the last quarter or two as you had volumes that are available or is that your existing customer from one of this plays is consuming more volumes?

Gary Kolstad

Well, I think primarily, we are pretty consistent on talking about the technical need for the ceramics and some of this high pressure, high temperature plays, and so that's our consistent message and I think that is then a big part of it. I think also some of the clients have probably, how shall I say it, conducted some of their experiments and so you've seen some of them come back around. What they probably know is the technical solution.

When you're going to throw these millions of dollars into these wells, and you have expectations of them producing for 20 plus years, you want to make sure you build a right conductivity channel there that will last a while. So, I think it's really a combination of us continuing to talk about the technology to the clients having maybe done some of their experimentation, and then yes, there is always the issue like you have mentioned that now we have ability to supply, which as I mentioned in previous calls, we were one of our own worst enemies in late 2008.

Operator

Our next question comes from Jeff Tillery of Tudor, Pickering and Holt. Please go ahead sir.

Jeff Tillery - Tudor, Pickering and Holt

Gary, the mix within the proppant business has helped margins really particularly the last three quarters. Should we think about that as being the function of where the rigs continue to drill and so this is kind of favorable mix should continue for the next for a while, with all the rig counts somewhere around where we are today?

Gary Kolstad

Well, I think we saw a big adjustment in Q2 and with the decline in all the areas and the growth of some of our products. So I think Q2 starts is such a baseline for some expectations and what I just told James there, right You could you see some continued, in a market like this, continued pricing pressures but probably more than offset by volume increases

You have to also think about some of the other things that are happening to us is that, the cost side of the equation whether it’d be freight or things like that have come down some, we of course have put some internal cost reduction initiatives in place and then on the heavyweight side, one of the things we thought what happened is actually happening and that’s that the commodity side of the world has collapsed.

So it won’t hit us so much now or but maybe if you look forward in to 2010 and things like that we will have bought lower cost, heavyweight orders let say…

So some of these – that’s one of the nice things about an economic crisis is that you often time get opportunities to work on some long-term things. So I think, I wouldn’t necessarily do much Jeff in Q3, Q4 but some things on the heavyweights will probably start to lower the cost in the 2010 period. And Q2 is probably good baseline for you to work off of them.

Just keep those two things in mind. Some pressure on margin due to some price declines. That won’t be anything at all like Q2 and then secondly potential increased volumes.

Jeff Tillery - Tudor, Pickering and Holt

That's helpful. The international volumes have declined sequentially. Could you talk about whether you think if that as transitory or is that something that it’s a Q2 kind of base line we should think about going forward? Just kind of some more color around what's your exceptions for international volumes?

Gary Kolstad

Well I think everybody and probably everybody that's reported specially the big service company have told you what Russia is been like. So, I think their comments are very appropriate if they think that may be its start to stabilize. So that's probably hit bottom. I think some of the other areas we see some promise and I am not going to break out which countries those are by any means. But we are trying to, let's say expand our presence. And we are doing some of that in Europe, Africa, Middle East and get a little bit close to the clients there. I think that greater region will have some opportunities for us.

And I think the rest of them just need to go through their trials and tribulations on rigs. You look at Latin America with the exception of Mexico like going through some challenging times. But now I think you just got to write the rig count up in all those regions for the most part.

Jeff Tillery - Tudor, Pickering and Holt

Thanks. And so the SG&A declined quite a bit in the quarter, could you talk about whether you think this is going to be a sustainable level?

Ernesto Bautista

Sure Jeff, the decline obviously is a result of some cost reduction initiatives that we put in place. Barring any significant change in activity, I think that we will strive to maintain the levels as reported in Q2. I would note though that Q1, we did mention that there was some one-time cost that ran through SG&A. So the actual variance between Q1 and Q2 is a little skewed. If you go back to your notes for Q1, I'm sure you'll pick that up.

Jeff Tillery - Tudor, Pickering and Holt

And then last question on CapEx, how much did you spend in the quarter and how much is left for the Toomsboro expenditure?

Ernesto Bautista

So, for the quarter we spent approximately $12 million. Toomsboro still has the majority of the expenditure yet to occur. I think, we said it was approximately $70 million in total and with that we are looking to spread that over the second half of 2009 and into the first half of 2010. I would say approximately $40 million to $50 million over the next four quarters.

Gary Kolstad

I think we also said that something around probably 60 for 2009.

Ernesto Bautista

In total for 2009. Correct.

Operator

Our next question comes from Mark Thomas, Simmons & Co.

Mark Thomas - Simmons & Co

Gary, I guess this last fall we were at the Analyst Day and you had talked about new product developments and possibly rolling out a new product in 2009. Could you just take a moment to update us on that front?

Gary Kolstad

Yes, I think I probably mention two, but the first one which I would characterize as a technology add. We have done a field test on it, it was successful. We're going to do one or two more with clients before we bring that up commercially. But I'm very pleased with that and it will be, I think the first step in a family of products. But that one excites me and it looks like we are going to have success with that. So stayed tuned on that one.

The other one would be more of developing a product that will involve our products that put us in a little bit of more of a business and I think we kind of mentioned that we are probably going to be in resin-coated ceramic business before too long. So, we would expect that I hope in something around later part of fourth quarter or something, but we are pleased with the progress there and we will try and keep you updated on that in Q3 and Q4.

Mark Thomas - Simmons & Co

Okay. Great. And then, could you just talk about your clients, sort of how you garnered interest and I guess acceptance of your product and maybe give us a little bit more details on your strategy on how you are expecting to expand the client base?

Gary Kolstad

Well, one thing is the consistency of the message and we are just very disciplined about that. We always try and keep it technical. We have always talked about just a general idea of conductivity, which you just can't deny the fact that ceramics have more conductivity than sand-based products.

But then you move into the high pressure, high temperature plays and we show what happens when you have the stress about what you should using sand based products. That we show what happens when you use sand based products in the high temperatures, and so then it's up to our clients to make that decision.

As I mentioned to James, sometimes they will and they probably should go experiment. So, I think that's just naturally happening. Having said that, some clients that have been in some of the other plays for a long time, right, they already, let's say, know some of these things. So, we have some of the plays where some of the operators go in their day one.

So, we are just going to keep contacting them. We will continue to tell the technology story and they get to make their own decisions, but we just help them with the technology and we think that’s the right strategy overall and I want to harken back to when I joined the company, I said we were going to add more technical marketing people and we have. And I’m very pleased with our marketing and sales force and they are just doing a good job and its all about communication and that’s start to show itself in the numbers.

Mark Thomas - Simmons & Co

Okay. And how would you characterize your customer base today versus a year ago?

Gary Kolstad

I think you just have to play the geographical play but having said that, you all know who the big drillers are and they generally are in the big plays Its not a whole lot its just -- if you look at the general business outside of some of these hot plays that everybody wants to talk about, I mean that business is in top shape right, with this decline in rig counts.

And as I mentioned before the Rockies, the South Texas, the West Texas, things like that and conversely like I said that’s what excites me. If our businesses can be this good under these conditions, it’s very exciting about what’s going to happen and of course that’s why we are going to continue to build Toomsboro line three and add another 250 million pounds. We are doing the engineering on Toomsboro line four, so we’re pleased where we at in our client base. We just appreciate the service companies and E&P operators and we are in a good position right now.

Mark Thomas - Simmons & Co

Okay. And then just last question for me, you have done a commendable job on the buyback. If we were to assume that you complete the program in Q3. What are the odds that the Board authorizes another program?

Gary Kolstad

Well, we haven’t approach them on that. I mean you’ve seen our history, of course this is the first time we’ve done a buyback but we are going to take whatever opportunity all of you guys give us. As a general statement we are conservative. We are not leveraged, very highly unlikely we will ever be too leveraged. We believe in the dividend. There is not many companies that increased their dividend during this time. We are nine years in to now. In fact I think we've increased the dividend 75% since I joined the company in 2006.

We believe in that. We believe in giving money back to the shareholders and with our cash production type of financial model, which we will resume and this is why we keep adding these plans besides the demand in ceramics fueled by the client demand. It produces lot of cash so we'll take whatever we give. We are just happy the Board gave us that. It is just one more tool for us. So, market goes through the crazy things that goes through with these cycles. So why not buy some shares. So we just take advantage of whatever you guys give us.

Operator

Thank you. Our next question comes from Roger Read of Natixis Bleichroeder. Please go ahead.

Roger Read - Natixis Bleichroeder

Just a little bit more if we could on the pricing question Gary. I mean I understand you get a lot of mix issues in there. In most of the countries we talk to what they said price competition was at its most fierce during the second quarter. Is it your view overall here and, I know you are talking about higher volumes in those second half of the year, I assume following some of the trends you've already seen. Is it that you don't have any more price competition, I shouldn't say competition. No more price downside risk here. You've adjusted to the market as it is or is that based on your expectation that volumes go up over here and the volumes are going up there is no longer a need for significant discounting?

Gary Kolstad

Well it would be naïve to think that there isn't pressures in this unbelievable rig count collapse that we went through. But having said, the kind of the guidance we gave in Q1 as to what Q2 will turn out to be, I think, you won’t see that probably again.

But we did say, I mean or try to say that, directionally it's certainly not going to go up, under these conditions and could have a slight downward trend. The volumes will probably outrun that. So I just characterize it as that. We don’t underestimate how tough the industry is. I think we're just very fortunate in the position we're in.

Roger Read - Natixis Bleichroeder

Okay. Let me just follow on, you say that volumes outrun them, I guess the expectation is volumes are up enough with any price erosion you still would have higher revenue overall. As I look at Q3, Q4, I mean that would be your expectation today?

Gary Kolstad

Well, directionally the volume is going up and the price won't change as much as Q2. So, you can draw your own conclusion on that.

Roger Read - Natixis Bleichroeder

Okay. And your optimism about higher volumes in the back half for the year, would you put it more on, is it higher volumes per well in the shale plays or is it just higher volumes across the board, I mean I'm kind of looking at that US sales being flat sequentially, which was pretty impressive, given the overall market decline?

Gary Kolstad

One is that, is us gaining market share and the technical success that we bring with our products. Two is, the well issue like you're talking about, which is a big trend, you back up 10 years we've been putting more proppant in the ground in the US in the 10 year period. But then you see the switch to the horizontal wells and of course that accelerates it.

And the operators are more effectively draining reservoirs by drilling horizontally, transverse fracs most reservoir area etcetera. So, yes that big macro trend we are benefitting from it and I would suspect that will continue for many, many years.

Roger Read - Natixis Bleichroeder

Can you give me any idea then, I mean if you go back and look at the Haynesville a year ago when the very first wells were being sought, to maybe some of the more recent wells that you see in there, sort of a trend and at least in percentage terms if not absolute pounds that you've seen, the CARBO sales into that market.

Gary Kolstad

Well, I think you just watch what they're doing. They are drilling their laterals longer, if they first start off with 'X thousand' feet spaced it out 'X' amount and pump whatever, 250,000 pounds per stage. We are doing eight stages. Well, as they drill longer, now it's 10, and it's 12 and it's 14. And so you just seen it grow.

You could easily probably do the math just figuring out how much longer they are drilling their laterals. But it isn't interesting I think when we are talking six, nine months ago, the amount was probably 33% higher today than it was six, nine months ago. And that's only because they are drilling longer laterally.

Operator

Our next question comes from Robert Christensen of Buckingham Research Group.

Robert Christensen - Buckingham Research Group

Gary if I may. You say your sequential volumes were up 1% in the US. Can you give us a sense of how was that in the back half of the quarter or was it even throughout the quarter that we really make it more I guess in the June month, if you will. Any kind of color on that?

Gary Kolstad

I think if you hear me say things like we have the direction of higher volumes, you might imagine its more back half quarter loaded than front half. So the direction seems to be higher volume. So yes, it would be in the latter half.

Robert Christensen - Buckingham Research Group

And if I may, when you say your volumes are increasing in the Haynesville Shale. Can you give us some parameters of increasing?

Gary Kolstad

Well. It’s the combination of two things, one the question, Roger asked which was how much is going in for a well and that is the direct function of how far they are drilling, how many stages they do. So you have that factor.

Then two you have a wider client base that’s using it and then a third factor is some of those clients are using more and more on more and more wells. So its those three things that drive the process.

Robert Christensen - Buckingham Research Group

But then we can multiply that I guess by the rig count going from 30 at the start of this play, 16 months ago and 90 today?

Gary Kolstad

I suspect you probably getting ahead of yourself on your math but I appreciate the question.

Robert Christensen - Buckingham Research Group

Those are the numbers in terms of the activity levels in all the four, five counties in Texas and the four [plays] in Louisiana. Its been one of the two areas that are seeing rig count increase?

Gary Kolstad

I can’t make those calculations for you. All I can tell you is that, we are very pleased obviously in Q2 and we think directionally its going higher. That’s we’ll probably just stop there on this.

Robert Christensen - Buckingham Research Group

Al right. New Iberia because is it still functioning and at what utilization rate?

Gary Kolstad

No we shut that down and now we are working, we are going to still use, as there is a facility for our resin coating of ceramics.

Robert Christensen - Buckingham Research Group

Oh, great. Any area of the world that was the softest in the quarter. It seems like it was all international that led to the sequential volume decrease?

Gary Kolstad

No, I wouldn't characterize, just think of all these play in Canada had lower lows. They are, what are they now three years in to a lower drilling activity, which is very pleasing for me, because it looks like we've had the break over on production starting in '08.Its going to continue downward. So that's a good thing. So it offsets the increase in production and we can get out of this big shale plays in the US.

But no, I think if you look around in the US too and all the challenges in lot of these base and it has been incredible. At any time you cut the rigs by 50% year-on-year and then do another, you have a 30% reduction in the quarter it's just incredible. I do not want people to underestimate how tough it is out there.

Robert Christensen - Buckingham Research Group

One final if I may. We've seen a lot more activity onshore Mexico and we saw a company that you have, I guess an association with a business Chicontepec. Is Chicontepec a reservoir or field that is potential user of ceramic proppant?.

Gary Kolstad

I am not going to identify that closely other than I'll say that the activity in Mexico is leading to higher and higher volumes. We have a traditional natural gas on the Northern side right to which is -- I think if know the story on that, but I would say directionally the ceramic usage in Mexico will go up. And I would correct your statement. We have a good relation with a lot of companies working in Mexico.

Robert Christensen - Buckingham Research Group

But does go into onshore oil ceramic.

Gary Kolstad

I may have to -- I probably can't answer that, that correctly right now.

Operator

(Operator Instructions). Now our next question comes from Steve Ferazani at Sidoti. Please go ahead.

Steve Ferazani - Sidoti & Co.

Good morning, Gary. I will follow-up briefly on one of the answers you just gave. That is the New Iberia shutdown. Can you say when did that take place? Was there any cost associated in Q3?

Gary Kolstad

No cost associated with it and I can't remember the exact day here we shut it down but it was pretty recent, in the last three, four weeks.

Steve Ferazani - Sidoti & Co

Okay. Then also you talked about potentially some pricing erosion. Was that due to the margins on the other side of that lower natural gas prices. I think you had previously indicated that could be a benefit into the second half of the year. Should we still be looking at it that way in terms of your operating cost?

Gary Kolstad

Yeah, keep in mind though it's only what is it, 20% roughly of the product manufacturing cost and, yes we will be down because of our purchasing activity and it starts to drop in the second half and but, you go X amount on 20%. It's the nice trend but it's not, a huge change.

Steve Ferazani - Sidoti & Co

Okay and then just, now that you don’t break out the two units, it's a little bit trickier for us to get to an average selling price. Can you at least give us an idea that the former chemical assets, what's the top line trend than the last couple of quarters, something relatively stable up, down?

Gary Kolstad

They are experiencing what the lot of companies experience with discretionary spend. So, in this environment where you are providing lot of services that are discretionary spend by E&P, which -- those businesses basically sell the E&P other than Applied Geomechanics. StrataGen and FracProPT business are having the challenges of E&P operators and in the case of FracProPT service companies reducing their discretionary spend. So, now the trend has been downwards.

Steve Ferazani - Sidoti & Co.

Okay, and then just the last question, was just on utilization, the Chinese facility and sort of long-term view of that operation?

Gary Kolstad

Well, we are running it pretty hard, I can say that. Long-term, remember we don't just sell into China, we move proppant wherever, we need to move them in the world. So then we adjust and we adjust by product and everything. It's one of the nice things about the flexibility of CARBO. So no, it's doing just fine, and we got there working pretty hard.

Operator

Our next question comes from Brian Uhlmer of Pritchard Capital. Please go ahead.

Brian Uhlmer - Pritchard Capital

I got cutoff. I apologize if I missed this, but I'm just curious on the Bakken and the commentary from Brigham. Do you believe that that's going to lead to substantially more sales? Does the phone start ringing a little bit more from those results.

Gary Kolstad

We would actually back up about year and a half ago an we did an SPE paper work for the company up there and it really drove our ECONOPROP sales in the Bakken. Then you go through an economic crises, and oils drop down, and rigs drop and you go down. I think directionally, we expect that one higher as well and certainly when you have an example in a company that has success it never hurts that.

A nice thing, about the Bakken, its going to be a very, very long play and so we are very pleased with the Bakken. The various plays we see around the world, we do a lot of things. We cover the clients and then we add distribution, we do all those things. So we absolutely look at long play that’s going to a growing business for us in the Bakken.

Brian Uhlmer - Pritchard Capital

Okay. And second, I know you don’t give too specific guidance on this but on a variable cost per pound, you said you recognize some on gas, on lower gas prices. Are you going to recognize lower variable cost as you switch your mix from to more ECONOPROP and HYDROPROP and what kind variable cost reductions do you think we will see?

Gary Kolstad

I’ll characterize the variable cost but not the percentages or anything like that. Our lightweights, we are back-integrated and we’ve always told you 20 to 30 years when the reserves, the plants were closed all those things right. So that is an optimum cost chain there. The heavyweights conversely will import bauxite. Now as my previous comment today, we are also seeing that dropdown. However, we won’t really get to see the benefit of that until you move into 2010.

Directionally though the heavyweight cost will come down and then you throw on that other small component, natural gas. So its kind of hitting all the right way and the labor, the plans, depreciation etcetera that’s all fairly fixed. So directionally, it will head downward which will help to offset some of the pricing pressures.

Brian Uhlmer - Pritchard Capital

So assuming variable cost go down 5 to 10% is reasonable?

Gary Kolstad

I don’t think I did that math for you but…

Brian Uhlmer - Pritchard Capital

I will turn it over, thanks guys.

Operator

Our next question comes from Robert Christensen from Buckingham Research Group. Please go ahead.

Robert Christensen - Buckingham Research

In New Iberia facility, this could be resin coated ceramic or resin coated sand, I couldn’t quite distinguish what you said?

Gary Kolstad

Resin coated ceramic.

Robert Christensen - Buckingham Research

And your capital spend for that?

Gary Kolstad

Very minimal. And its one of the nice things about having a plant there that we can utilize that. And utilize a lot of existing infrastructure there, there will be some capital spend but not of the material nature at all.

Robert Christensen - Buckingham Research

And what should we think of the capacity there that would come out of the two of the plants?

Gary Kolstad

I think we will wait on that Bob since we haven't commercialized that I think we'll wait and tell our clients and yourselves that information about the same time.

Robert Christensen - Buckingham Research

When would you expect it to come online?

Gary Kolstad

We are really hoping to get it done late in the fourth quarter.

Robert Christensen - Buckingham Research

And one more if I may Gary. We've heard about of the drilling of shale plays in Europe by some companies. Is Europe testing any ceramic in these early wells?

Gary Kolstad

Yeah I would caution you though on the Europe plays, they still have to figure out how to get the cost down. So don't, I have released my opinion right now as, don't expect large volumes there. They are experimenting and the biggest thing they have to do is to try and get your cost down to a North America type of distribution and all those things.

So I think it's very much at its infancy. I think in time, just like we always do in the oil industry, we will figure out a way to do it economically. But right now I'd characterize it much more at the infancy and figure not what they have and how they could start to think about reducing the cost.

Operator

At this time there appears to be no more questions. Mr. Kolstad I'll turn the call back to you for closing remarks.

Gary Kolstad

Okay. Thanks once again everybody for joining us, just a couple of points here. Well, our financial results for the quarter [oil wells] experienced last quarter and during the same period last year.

The decrease in performance is notably better than the 50% reduction in the drilling and US drilling rig counts. We believe in technology and we will continue to stress to improve production and increase an ultimate recovery, which we always do in oil and gas wells. That's what our products and services bring, that's what we will do for a strategy.

We remain committed to the long-term objective growing our production capacity. We will continue on with line three in Toomsboro and expect to complete that sometime in the second half of 2010.

And as I noted previously we are in the position of having the financial strength that allows us to focus our time in our clients, new product development, expansion of our business, and that could be the organic all-inclusive.

So, thank you very much we look forward to seeing you next quarter.

Operator

Thank you for attending today's conference. This concludes the conference call. You may now release your line.

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Source: CARBO Ceramics Inc. Q2 2009 Earnings Call Transcript

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