TETRA's CEO Hosts Preliminary Q4 2013 Results and 2014 Guidance Conference (Transcript)

Feb.10.14 | About: Tetra Technologies (TTI)

TETRA Technologies, Inc. (NYSE:TTI)

Preliminary Q4 2013 Results and 2014 Guidance Conference Transcript

February 10, 2014 10:30 AM ET

Executives

Stuart Brightman - President and CEO

Elijio Serrano - Chief Financial Officer

Analysts

Sean Meakim - Barclays

Mike Harrison - First Analysis

Blake Hutchinson - Howard Weil

Jim Rollyson - Raymond James & Associates

Jason Wrangler - Wunderlich Securities

Stephen Gengaro - Sterne Agee

Joe Gibney - Capital One

Bill Dezellem - Titan Capital Management

Doug Dyer - Heartland Advisors

Operator

Good morning. And welcome to the TETRA Technologies’ Preliminary Fourth Quarter 2013 Results and 2014 Guidance Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Stuart Brightman, President and CEO. Please go ahead.

Stuart Brightman

Thank you, Gary, and welcome to the TETRA Technologies’ estimated fourth quarter 2013 results and 2014 financial guidance conference call. Elijio Serrano, our Chief Financial Officer is also in attendance this morning and will be available to address any of 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 estimated net income or earnings per share, excluding the Maritech segment and special charges, 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 for period in accordance with GAAP and should be considered within the context of our complete financial results for the period.

My comments on the fourth quarter will be at high level as we will hold the fourth quarter earnings call in late February. I will start with some of the highlights of our estimated fourth quarter [2000] (sic) 2013 results and follow with the financial guidance for 2014.

Our preliminary fourth quarter 2013 earnings per fully diluted share are $0.10 to $0.12, excluding Maritech and unusual items. The non-Maritech unusual charges relate primarily to the write-down of the DB-1 heavy lift barge as a result of our January 2014 sale of that asset.

During the quarter, the major challenges we had were weather that affected both our onshore and POS business as well as the timing of certain Gulf of Mexico fluids projects. Other than those two areas, the other segments performed in line with our expectations.

Our 2014 revenue guidance reflects the consolidation of 100% of our Saudi Arabian operations in 2014, now that we own 100%. In 2014, we -- in 2013, we were not consolidating those results and were only picking up our portion of the earnings and other income below operating income.

During 2013, we had a very strong performance from all our business lines and our fluids division. Our deepwater business continue to grow and we further strengthened our manufacturing capabilities to additional capital investment.

Our El Dorado calcium chloride production facility continue to improve and reached record production rates during the year. We expect this along with capital improvements to our West Memphis production facility to enable us to continue to participate in the growth of the deepwater market throughout 2014 and beyond.

Our water management business continued to grow significantly in 2013 as we expanded our geographic footprint throughout North America. This expansion required significant capital and we expect to continue this investment in 2014.

Overall we continue to see a very strong future for our fluids business. This has given us the confidence to acquire our joint venture partner in Saudi and acquire the assets of a privately-held water transfer and storage company with operations in Eagle Ford, Permian, and Bakken. Overall this segment continues to be a chief source of growth for us.

In 2013, we continue to see a very challenging market environment in North America for our testing business. We’ve been very aggressive in cost reduction actions in the U.S., Canada, and Mexico to position ourselves in this challenging environment.

At the same time, we have taken steps to expand our sales capabilities in these geographies and the initial results have been very encouraging. We will continue to look for opportunities to expand our customer base as well as additional cost reduction opportunities.

We believe that we will see a slow recovery of activity in Mexico and believe that the primary focus of our customer will be more on the production enhancement side, less on the drilling and testing and related completion activity. Our view is that we will see a sequential improvement in production testing as we move through the year.

Compressco demonstrated strong earnings growth during the second half of 2013. We saw this growth in all of Compressco markets with exception of Mexico. In the U.S., we continue to benefit from our focus on unconventional applications in oil, liquids and associated gas, primarily in vapor recovery. In addition, we recently announced the acquisition of certain assets that were well versed to participate in the 80 to 300 horsepower three stage high-pressured compression gas lift markets.

We expect these favorable trends in the U.S. that continues through 2014 and beyond. In addition, other international areas outside of Mexico, we continue to see growth opportunities. Our recently announced increase in fourth quarter distributions is based on this outlook.

The offshore services, we benefited in 2013, both from previously implemented and ongoing cost reduction activities, which have allowed us to improve profitability. In 2014, we see a relatively similar market environment in the Gulf of Mexico.

We believe the Maritech work that we executed in 2013 will be replaced by third-party work. We’ve also seen very encouraging quotation activity early in 2014 and feel we are well position to move into the second quarter with a good base load of work. During 2013, we were able to broaden our customer base by moving into more infrastructure support applications.

We have consistently stated that our objective in 2014 is to generate $80 million of free cash flow, excluding Maritech. Our 2014 free cash flow target includes the midpoint of the guidance plus the DD&A as well as non-cash charges such as stock-based compensation expense, also interest expense of $18 million and $19 million is included and the CapEx that we noted in the press release.

In addition to those items, we also have the benefit of lower cash taxes associated with our overall tax position that will assist us in meeting that objective. We expect to conclude the Maritech decommissioning work on operated properties late in the second quarter or early in the third quarter. This delay versus our prior expectations was caused by adverse weather in the fourth quarter of 2013.

We made a decision to stop this work during the quarter and push it to the second quarter when the weather is more favorable for us. After we complete this work, we will have a small liability going forward associated with non-operating properties, a portion of which will be decommissioned beyond 2014.

We continue to evolve the composition of our Board and have added Mark Baldwin and Jay Glick to our Board. I’m very pleased to have these individuals who have a track record of accomplishment over their careers as noted in the recent 8-K. Phil Longorio has accepted another leadership position in our industry. I want to personally thank Phil for his large contributions over the past six years.

I will lead this organization during the transition period, and continue to focus on customer expansion and aggressive cost management. Elijio and I are aggressively working with the team, getting in front of our field operations and customers to ensure the necessary actions are taking place to achieve our guidance target. This includes recent visits to South Texas, the Permian Basin and Mid-Continent over the past several weeks.

In summary, we see encouraging trends in most of our markets as we move into 2014. Specifically, we continue to be very optimistic regarding the deepwater Gulf of Mexico. For our Fluid segment, we believe we will see a modest increase in activity in the shale regions in the U.S.

While we continue to see slower and delayed activity rebounds in Mexico, we believe our other international markets will be strong in 2014. The combination of these factors gives us the confidence that we will achieve the earnings growth projected in our 2014 guidance. It will also alarm us to exploit growth opportunity in those businesses that have demonstrated the highest returns.

With that, I will open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Sean Meakim with Barclays. Please go ahead.

Sean Meakim - Barclays

Okay. Good morning, Stuart.

Stuart Brightman

Good morning, Sean.

Sean Meakim - Barclays

Congratulations on the acquisition. I was hoping to kind of dive into that little bit if we could. Could you help us size the impact kind of relative to the -- where the water business is today, kind of how the assets compare? And how we think about the right way with, that the business is probably somewhere near, a $100 million runway on revenue at this point kind of pre-acquisition?

Stuart Brightman

Yeah. We will talk about the question on the water business acquisition and also a little bit about buying out our partner in Saudi. I think in the press release we stated both those acquisitions to date have an investment of $13 million. Like a lot of these acquisitions, more EBITDA than EPS, probably about $0.02 is the EPS impact of those this year. By the time you look at some of the transactions start-up in intangible amortization associated with it. EBITDA, we think on the $30 million will probably be in that $6 million to $8 million of range for that. So, again, you will see more EBITDA impactful.

If you look at the water business, primarily South Texas, combination of assets for what we have. In South Texas, what we get incrementally is a strong business in the impoundment, so we get to expand a little bit from pure water transfer, very strong customer base. We will integrate the organizations in South Texas where there is the biggest overlap. But we think the combination of products is additive. So that’s very positive.

The small footprint in Permian, we think with the large footprint that TETRA has, that’s a great opportunity to expand our water business, which has recently expanded with TETRA STEEL in West Texas. And in the Bakken, they’ve got a small but growing footprint that we think with some of the assets we got with the Greywolf acquisition a year and half ago positions us to grow water there. So it’s kind of a combined and grow in South Texas complementary, accelerate growth in recent areas. We started to do business in the Permian as well as up in the Bakken.

A great leadership team, we will fit in well. First, we got it out of the shoot, we see lots of opportunities. And one of the other areas, we feel very good that South Texas taking some of the TETRA water assets that have been unutilized in certain areas and getting better utility during 2014.

Sean Meakim - Barclays

And so I guess if we think about 2012 was a period we did three acquisitions. 2013 was kind of a pause digestion, how should we think about uses of cash kind of maybe additional water opportunities in ’14? Should we think about the potential for more acquisitions as the year unfolds?

Stuart Brightman

Yeah. I think if you kind of look at 2014, first and foremost is to execute what we have on the table. And we’ve got still a challenging market in U.S. for testing. We have a slow recovery in front of us in Mexico. We recently took down another layer of cost in Mexico as a result of our view of the slow, the delay in ramp up there. So we’ve been very aggressive on the cost. So first and foremost, take care of what we already own.

On a parallel basis, we feel very good about the Fluids business. We will continue to look at opportunities to expand that both in the completion fluids and the water transfer business. I think in the water transfer business area is to focus on will be very similar to the recently announced acquisition, which would be building out the geography as well as expanding within the water transfer storage capabilities. And I do want to before we leave the topic, highlight Saudi is an area that we’ve invested quite a bit in the last several years had very good results and feel very comfortable with our growth profile in front of us and our ability to leverage the 100% entity that we now own.

Sean Meakim - Barclays

And I guess one more if I could just, you touched on Mexico, the production testing margin or the guidance implies pretty good improvement in margins from kind of where we were to exit ’13. Can you talk a little bit about the sensitivity of the ramp in Mexican activity and how that can impact the numbers throughout the year?

Stuart Brightman

Yeah. I think we’ve got a slow, steady, sequential improvement throughout the year. I think if you look at the bridge of our exit rate in ’13 versus our sequencing in ’14 on testing, we are seeing pretty good strength in our Optima business at the moment as we exited the year. So we feel that will be a bridge of earnings in ’14. We are seeing little bit better environment in Canada. We feel good about that. We feel Saudi will continue to grow.

The U.S., we are starting to see some early wins on the additional sales resources we deployed during the fourth quarter. We’ve got a very, very big focus on broadening and expanding our customer base onshore U.S., that will continue to be part of the growth. And Mexico, just that slow steady sequencing. We’ve got a couple of international projects in the backlog, that will be larger this year than last year, that also contributes to the testing growth.

Sean Meakim - Barclays

Okay, great. Thanks a lot.

Stuart Brightman

Thanks, John.

Operator

The next question comes from Mike Harrison with First Analysis. Please go ahead.

Mike Harrison - First Analysis

Hi, good morning.

Stuart Brightman

Good morning, Mike.

Mike Harrison - First Analysis

Just a kind of follow-up on the Saudi JV. Can you give us any ballpark on how much revenue now is going to be consolidated? And is that Fluids or is it some Fluids, some Testing?

Elijio Serrano

Mike, this is Elijio. Good morning. Saudi, amount that we’re picking in Saudi Arabia that was previously not consolidated is going to be in the $30 million range. And I would say that it’s heavy on the production -- I am sorry let me back up, it’s about $30 million on the Production Testing side and about $15 million on the Fluids side. And the amounts that we’re running through on Production Testing were being booked through our joint venture partnership, even though we own 100% of that Production Testing business. We’re conducting business in Saudi Arabia through that joint venture. So we will pick up mid-40s revenue in 2014.

Mike Harrison - First Analysis

And how much of that did you own before?

Elijio Serrano

We owned 50% of the Fluids and we owned the 100% of the Production Testing, but we had to work with our local partner on the Production Testing side.

Mike Harrison - First Analysis

Got you, okay. And then in terms of the sale of the DB-1, I guess how should we think about the proceeds from that? I guess my question is, how much of the $30 million cost of the acquisitions is going to be offset by the sale of the DB-1?

Elijio Serrano

The DB-1 was not a significant number, the market for assets of this nature. Given the age of the DB-1, it’s not very attractive, that’s why it took us almost the year to flush out all the opportunities. We ended up with the sale in the $3 million range versus our expectations and that’s why we took a significant impairment charge in Q4 of this last year relative to this asset. It’s not a big enough number to offset the investment that we are making on the two acquisitions.

Mike Harrison - First Analysis

Got, okay.

Stuart Brightman

Mike if you look at the unusual charges we referenced in the press release, about $30 million, the midpoint of the Maritech is about $20 million and virtually all of the other $10 million relates to the DB-1 impairment.

Mike Harrison - First Analysis

Okay. And then just looking at the guidance and kind of the bottom line EPS number, how much benefit are you baking into the guidance from cost reduction programs? I think the question I am trying to get at is, how much of the year-on-year improvement do you think is within your control and how much really would you need some market tailwind in order to get?

Elijio Serrano

So a lot of the actions that we have initiated to reduce our cost structure were triggered late Q3, early Q4 on the Production Testing side and again those are structural type changes, as we’ve been making field level changes, as activity has shifted around. Then we also mentioned that we’re taking some reductions on the G&A side. And we had targeted $16 million, approximately $16 million of G&A reductions. Till the end of Q4 of last year we were already at a run rate of about $12 million of that $16 million. So there is maybe an incremental $4 million on the G&A side. And Stu mentioned, we are now aggressively looking at our cost structure within the Production Testing side. We think that there is some opportunity there in terms of structural reductions but not to the same magnitude of $16 million. I will call it mid-single-digit million dollar benefit, $14 million versus $13 million on G on our total cost actions.

Stuart Brightman

Say of which we’ve already taken quite a few of those actions as we exited last year and into the first quarter. And those are considered in the guidance.

Mike Harrison - First Analysis

And Elijio, just to clarify at the end of Q4 on the G&A target of $16 million in savings, had you accomplished $12 million of savings during 2013 or were you at a $3 million per quarter, that is $12 million per year run rate?

Elijio Serrano

We had accomplished by the end of the year $12 million out of the $16 million.

Mike Harrison - First Analysis

You had accomplished it, okay. Thanks very much, guys.

Stuart Brightman

Thanks, Mike.

Operator

The next question comes from Blake Hutchinson with Howard Weil. Please go ahead.

Blake Hutchinson - Howard Weil

Good morning, guys.

Stuart Brightman

Good morning, Blake.

Blake Hutchinson - Howard Weil

Thanks for all the data this morning. And just understanding this is more of an intermediate to kind of longer-term deal. I want to make sure that we’re calibrating things correctly given the typical seasonality that you see at 1Q. Is it sounds like the -- from the color and the release and broad strokes, pretty much everything should be favorable comparison 1Q versus 4Q outside of offshore service? And should we be thinking that offshore services looks a bit more like the first quarter of last year? So it’s still kind of the significant sequential step downs, so building from the stream seasonality to Q1 or not in terms of just making sure we’re calibrating 1Q correctly right after that?

Stuart Brightman

Yes, I think your first statement on offshore services it will be typical first quarter seasonality. We also have a couple of barges in for dry-docking that will get finish in the first quarter. So last year is probably a pretty good precursor of what we will see on that business.

I think on Compressco, as I said all the trends continue to move favorably on that. Testing, I think Mexico will start out slow similar to the fourth quarter. I would say testing will be similar to the fourth quarter, maybe a little bit different but not material. I think as we get to the second quarter, you will start to see that ramp opportunity consistent with what we said during our call in November on the third quarter.

And again other than some of the weather challenge, a little bit of the weather we had in December, Testing performing by what we expected in the fourth quarter. And then on the Fluid side we would expect to water to pick up as some of our customers go back to work during the first quarter. And then depending on the lumpiness with some of the projects in the Gulf of Mexico, we would hope that would be a little bit better. So I think we will see the typicality of our seasonality in the rest of the businesses should be up a little bit in the first quarter.

Blake Hutchinson - Howard Weil

Great. And then just a follow-up on the Fluids business, your margin guidance there pretty similar to what experienced for the full year in’13, is it reading too much into it just to say that that’s driven by a higher topline but more onshore or are you just kind of acknowledging the '13 margin performance was pretty strong driven by offshore here and not stepping too much beyond that and so just introducing a dose of conservatism to the estimate?

Stuart Brightman

I'd say it's more of the latter, I think that we -- we acknowledged, I think on the third quarter call that we had a couple of really nice projects during this third quarter, which hopefully we'll see similar of this year, so we probably built in a little bit of cushion there associated with that type of item. We expect the water business to continue to grow, but I wouldn't say that overwhelms the segment and changes the metrics materially.

Blake Hutchinson - Howard Weil

And just let me stick one more in here, just a bigger picture, given the short paybacks in the Compressco business, have you actually seen to date some responsiveness from kind of legacy natural gas customers or is that something you just, you're baking in a bit maybe in -- as we stay here at this current natural gas strip.

Stuart Brightman

Yeah, I don't know that we've seen a huge impact of that yet, but if we know if natural gas prices stay north of $4 that typically would be a positive for that business and we would expect to see some of that. So I'm -- hopefully that would be part of what gives us that security and stepping up that as well.

Blake Hutchinson - Howard Weil

Great. Thanks guys. I'll turn it back.

Stuart Brightman

Thank you.

Operator

The next question comes from Jim Rollyson of Raymond James, please go ahead.

Jim Rollyson - Raymond James & Associates

Good morning, guys.

Stuart Brightman

Good morning, Jim.

Jim Rollyson - Raymond James & Associates

Stu, just to clarify couple of things. Did I hear you correctly that you're still on track to get to your $80 million roughly share in free cash flow for the 2014?

Stuart Brightman

Yes.

Jim Rollyson - Raymond James & Associates

And you and Elijio, both talked about in the past prophesized maybe some of the different things you might do with that cash flow, any update to the thinking there, I mean are there? Are there any other water deals like the WIT Water Transfer or are there, you're still focused on the possibility of buying some shares back especially given now that you're at $10 or you're assuming that a dividend just maybe an update on where you guys were thinking?

Stuart Brightman

Yeah, we still view those range of options the same as we've discussed publicly over the last 6 to 12 months. I think the two investments we talked about on the call in Saudi and the water very typical of the things that are attractive to us. That leverage -- kind of a combination of having good distribution geographically across the shales as well as internationally and building both the completion fluids in water transfer businesses. So from a reinvestment that's probably going to be the area we focused the most on, as well as Compressco which we state as a huge goal of our team.

The ability to do that given that we're still confident of the $80 million, a couple of things, we still want to get the Maritech stuff behind us. That's been pushed back in effectively two quarters, because of weather and a couple of challenges we have there. So we're going to be in conservative folks, we want to make sure we've got line of sight to the finish line on that. But other than a little bit of the timing associated with that, the full range of options and reinvesting in those high-growth businesses, what we look at.

Elijio Serrano

And Jim, I would add that on all the options that you've mentioned we've done our homework, we've done the math of each of those alternatives, we've studied the pros and cons, the mechanisms that we would go through if were to go down any of those paths. But clearly we don't want to spend any significant amount, until we know that we're on track toward achieving that $80 million.

Jim Rollyson - Raymond James & Associates

Makes perfect sense. And just as a follow-up maybe, you've been kind of rationalizing some things and adding to others, I think you've made it pretty clear where you want to add, are there other things once you get passed the decommissioning cycle, that other assets in that offshore business that might be rationalized or maybe, get any later thought to that?

Stuart Brightman

I think the team's done a great job the last couple of years in really identifying the core assets which ones we need for the future, shedding those that really -- we don't have any real synergy with. So I think we're there. I think the DB-1 we clearly didn't get the cash we had hoped a year ago. But the team -- that's not through lack of effort, marketing and focus by the team and at the end of the day, made a business decision to take what we thought the best alternative get it done, get it behind us, and that let's us really focus in on, all the other assets we have which we feel good about.

Jim Rollyson - Raymond James & Associates

Makes sense, thanks guys.

Operator

The next question comes from Jason Wrangler with Wunderlich Securities, please go ahead.

Jason Wrangler - Wunderlich Securities

Just wanted to make sure so, and I think you just cleared it up there, the $14 million or $15 million on the balance sheet that was assets held for sale, that was basically the DB-1 and between the cash received and then the write-off that's pretty much going to eliminate that going forward?

Stuart Brightman

Correct.

Jason Wrangler - Wunderlich Securities

Okay. And then just, the other thing I was just curious about is on -- Compressco and what you're seeing there between obviously gas prices, are you seeing through the EPA regulations coming in, maybe being a help as far as the wafer recovery units and do you see anything from a growth perspective there?

Stuart Brightman

I think that's going to be a positive for us as we go forward. I think we've already seen the wafer recovery market grow for us. The sales team has been very focused over the last couple of years, that's been a huge contributor of kind of a mix from gas and oil and getting us towards that 30% on the liquid side, so I think that regulatory trend is all positive for us as we go forward on Comperssco.

Jason Wrangler - Wunderlich Securities

I appreciate, I'll turn it back.

Operator

The next question comes from Stephen Gengaro with Sterne Agee. Please go ahead.

Stephen Gengaro - Sterne Agee

Thank you, good morning, gentlemen. Two questions, the one on the guidance specifically when you look at the ranges of expectations, do you mind giving us a sense of what do you see and I guess this is particularly true, on the fluid side, but also on the production, testing in Compressco. What are the biggest variance as you see between the upper and lower ends of your ranges?

Stuart Brightman

Yeah, I'd say if you go through the fourth segment in some of the ranges we have, I mean I think fluids, it's a function of the -- across the range of -- the double digit growth in activity in deep water and the gulf of Mexico, the continued investment and executing the capital editions to the schedule we've outlined internally on the water. Integrating the two deals that we've already done and again the Saudi there's really not an execution or an integration piece. We've been in that business for a while but it's continuing to make certain that the water side in South Texas, we integrate, we're off to a great start there, and we get the growth in some of the upside and the other two geographies associated with that.

I think Testing is probably the one that the range is the easiest to explain. It’s function of pace of recovering in Mexico, expansion of customers. In the U.S., the model of continuing to move equipments at the higher price, higher margin areas. So, there’s pretty good range associated with those set of outcomes.

Offshore Services, I think we feel pretty good that the markets bear that, the quotation activity supports that. So it’s the ability to replace that Maritech work. That again, as you know, has been coming down by design the last few years and it’s down to [$40 million] in 2014.

Compressco, like I said, is the biggest piece of the range there, would be the positive we could see associated with stronger gas prices put always plus, our legacy business picking up as well as the timing of the budget increases in Mexico, those would be two variables I’d highlight on Compressco.

Stephen Gengaro - Sterne Agee

Okay, great. Thank you. And then, as I think about Fluids and specifically what you’re doing on the water side, and as always we’ve talked about this probably more than you like this sometimes. But how should we think about the acquisition that you made and sort of compare that to some of the commentary that I hear in the industry about the water business being a very commoditized business? Could you elaborate a little bit more on your niche and why it’s different and the confidence you have there?

Stuart Brightman

Yeah, I think you have to look at our existing business and overlay it with the elements of the acquisition. Our existing business, we’ve been very focused on a small sub-segment of the water business associated with transfer. We think some of the technology we bring there is significantly value added. We’ve been able to demonstrate that with our customers.

We’ve been able to expand that footprint across the U.S. and to more regions. And I think we’ve just got a very strong value proposition. There’s certainly people who are in there competing with us. We don’t think by -- for any moment that we have that locked up and we have to continue to be innovative bringing technology, deliver better service and we’ve been very successful doing that.

The acquisition, as I said, kind of gives us several things, it’s not so much the water transfer assets. The additive things to what we currently have are the impoundment. They have very good access to impoundment capabilities broader than we have in our existing business, a very strong position in South Texas where their customer base arguably stronger than what we have in our legacy business at the moment.

We think we’ve got a very strong operation in the Permian of both flow back testing and water transfer, that’s flowing. We think we can leverage that and help them bring some of their incremental services there.

And then in the Bakken, I think it’s combined effort of what they have and we have pulling through some of those additional services. So we’re very keen to stay away from the commoditized piece. And when we had, we want to make sure we had a management group that we can leverage that has the ability to grow. We’re relying on their management group to help us. It’s a combined effort.

Stephen Gengaro - Sterne Agee

Okay, that’s helpful. And then, if I could sneak in, two other quick ones. As a follow-up to that, the margin profile of your Fluids segment, does it get alter much by this acquisition or is it pretty much in line with where your Fluids margins are?

Stuart Brightman

I think it’ similar, I think these are good high return businesses. And we also think in addition to the economics of the business that we acquired, there is incremental economics on the legacy TETRA business by taking some of our assets that haven’t been fully utilized and put them into customers that we haven’t been as successful with. So it also ties in very nicely to the strategy Elijio and I have been talking about, plus several quarters of expanding that customer base. We definitely bring in and expanded customer base through this acquisition in those geographies, particularly South Texas.

Stephen Gengaro - Sterne Agee

Great, thank you. And then just the follow-on on the well abandonment side, the delay because of weather and getting some of those liabilities behind you, was there any change in the -- any material change in the assessment of the complexity of cost associated with abandoning the liabilities?

Stuart Brightman

As we said in the press release, we had a midpoint, about $20 million of adjustments associated with Maritech. The majority of that would be some of the complex wells that we got further information on during the fourth quarter. The other portion would be some of the structures that we’ve got partway through during the fourth quarter and weather cost as you’ve pushed that out, but some of those twos would deals with that. And again we have about four properties left. We are well advanced in the analysis work. We’re going to delay the structures till the second quarter when we’re going to see much more favorable weather as opposed to trying to get that done during the first quarter.

Stephen Gengaro - Sterne Agee

Very good. That’s helpful. Thank you.

Stuart Brightman

Welcome.

Operator

The next question comes from Joe Gibney with Capital One. Please go ahead.

Joe Gibney - Capital One

Thanks. Good morning, guys. Just to clarify a little bit on the AROs, just kind of where we are now as it stands today, I understand the $20 million plus from the incremental change. What is the dollar amount that stands now on Maritech AROs, I think exited third quarter at $37 million, that’s where do we stand today?

Stuart Brightman

It’s going to be very similar to that. And again, as we said about two-thirds of it’s operated, one third non-operated. We expect the majority of the operated will get done through by the beginning of the third quarter, waiting to get some of the structures done in the second quarter for weather regions, the non-operated. Most of those are scheduled to be done on the similar time period and there will be a small portion of it that we know will go into 2015.

Joe Gibney - Capital One

That would be the one-third non-operation of the roughly $40 million would extend, okay.

Stuart Brightman

Let me clarify that, it would be a smaller portion of that one-third would extend. I would expect by the time, I would expect the non-op portion that slides to 2015 per the timing of the operated would be above $5 million.

Joe Gibney - Capital One

Okay, that’s helpful. And then just one last, the sort of bigger picture view of Mexico recovery, I think you sort of laid out the slow but steady cadence, the improvement there both for Testing and Compressco. What is your sense of time frame on when we could back to kind of where we were pre-delay? Could you able to achieve that in ’14 or is it more of a ‘15 timeframe just sort of get back to where we were in Mexico if you get? I know it’s a small piece of your aggregate revenue but nonetheless instead of a drag. So what’s your sense there?

Stuart Brightman

I mean, my sense is, we’ve talked on the last call that we thought we’d be at that pre -- 12 months ago pre-budget cut run rate by the end of the 2014. My sense is it’s going to take longer than that. I think we won’t get back to that till we get into portion of 2015.

And we’d even seen and again we spent a lot of time with our management group in Mexico. We are talking to them weekly if not daily sometimes. We have kind of seen even in the last 30 to 60 days that budget get pushed back and in particularly on the drilling and some of the front-end stuff that affects our testing business. So I think even with that, some of it going to ‘15, I think it has a bigger impact on testing because of the timing of the cycle.

Joe Gibney - Capital One

Okay. And last one from me, just on your fluids guidance, just to clarify the revenue profile you are laying out for 425 to 445, is it exclusive of the WIT water transfer business or inclusive. And this is on your capital spending, the 39 million is fairly flat with an already fairly aggressive growth profile you guys put into the business from water side last year. So is it a comparable level of growth capital you are putting into fluids exclusive of the WIT water acquisition again in ‘14, just trying to clarify that?

Stuart Brightman

Yes, the revenue for fluids in ‘14 includes the impact of the Saudi acquisition and it excludes the impact of the Water Acquisition. So when you kind of bridge that the revenue should have some upside. And then as I said the two acquisitions collectively will have good EBITDA growth in a couple of $0.01 in there of which the Saudi part has already been modeled.

Joe Gibney - Capital One

Okay.

Stuart Brightman

And as we have talked on the call about the Saudi part, the accounting treatment is little bit different. And it will roll through on a gross basis through revenue as oppose to as operating other income previously.

Joe Gibney - Capital One

And that growth capital spend again for roughly $40 million fairly in line with last year. So I think that the growth component that was about two-thirds roughly growth?

Stuart Brightman

Yes.

Joe Gibney - Capital One

Okay.

Stuart Brightman

Yes, I think that’s a good assumption.

Joe Gibney - Capital One

Okay. All right. Thanks guys. I will turn it back.

Operator

The next question comes from Bill Dezellem with Titan Capital Management. Please go ahead.

Bill Dezellem - Titan Capital Management

Thank you. Would you please discuss the recent senior staff additions as you referenced in the press release and kind of how you are thinking about that going forward.

Stuart Brightman

We kind of -- the press release and on the call we have talked about Phil Longorio, who is one of our Senior Vice President and manage the testing and fluids businesses for us, has accepted a position elsewhere in industry. And so he is going to be leaving us and in that transition period, I will take on the day-to-day responsibility for the business with the lot of help from his existing management group and lot of help from the other corporate staff. And we are committed as we always are to fill in that position, looking both internally and externally and try to get that done as soon as possible.

That’s not a scenario where we want to study indefinitely. We want to move as fast as we can prudent. We also have added a lot of sales leadership in those businesses to support the objective of expanding and broadening our customer base particularly in North America. And we are very far along. We are starting to see the benefits of that and big part of our success this year particularly on the testing side will be associated with broadening that customer base.

Bill Dezellem - Titan Capital Management

As a result of the early success that you are seeing, is this a strategy that you planned on employing a little broadly, more broadly across the company by bringing in some higher end sales people?

Stuart Brightman

I think the short answer is yes and we’ve -- I think we probably didn’t advertise as well as I should have some of the additions we’ve made in offshore services business over the last 12 months on the sale side, which is certainly in my opinion contributed to their success. And again, that was always something we were planning on doing as the Maritech work wound down and we needed to replace that with third-party revenue.

So we have done well there and we will continue to explore other areas and we have got a very good sales organization across the company. But I think in general, I think in North America, as we have grown through acquisition and become a much larger and more diverse company onshore, growing the sales force at that same pace is something we need to do and we are very far advanced in it.

Bill Dezellem - Titan Capital Management

Thank you.

Operator

The next question comes from Doug Dyer with Heartland Advisors. Please go ahead.

Doug Dyer - Heartland Advisors

Good morning, gentlemen. If you could, can you give us a little bit more color on the customer delays in the deepwater with the completion Fluids, are we looking at only weather-related events or is there something else that work here?

Stuart Brightman

I think in that case, it was more the normal variability of timing associated with just the pure operational side of doing it very complex drilling and completion, so customer related their timing, not any shift in what’s going on in the market. Sometimes you have projects that are bigger because it requires more Fluids, sometimes they shift because of operational challenges that the customer has and in this case it’s the latter.

Doug Dyer - Heartland Advisors

All right. Thank you.

Operator

(Operator Instructions) The next question comes from Mike Harrison with First Analysis. Please go ahead.

Mike Harrison - First Analysis

Hey, just a couple of follow-up questions. You were asked about the CapEx plans in the Fluids segment. You mentioned in your remarks some expansion. There is some work at the West Memphis plant. Can you give us a little color on what you are doing there and what the timing looks like?

Stuart Brightman

Yes, that’s something we finished last year, just as part of our overall projections and ramp up and activity. We just wanted to put little bit more production capability out there, just pure growth capital for higher production rates that we got finished on time during 2013, so that money has been spent.

Elijio Serrano

Mike, it will help us with logistics of moving railcar still there more efficiently and effectively to get the throughput up.

Mike Harrison - First Analysis

All right. And then on the Offshore business, you mentioned the additional work that you are doing, kind of outside the conventional well abandonment decommissioning, more infrastructure related work. How does -- can you maybe give us some color on that kind of how does the mix of work that you are bidding on right now compare to the mix of the infrastructure versus well abandonment work that you saw in 2013?

Stuart Brightman

I would say it is similar mix and I would say, we have included it also in our current market outlook and quotation activity. It seems some pretty good decommissioning opportunities coming up as well. So, I would say it’s similar to last year and I would expect our revenue base this year will have a nice composition of the traditional decommissioning as well as some of the infrastructure tie-in.

Mike Harrison - First Analysis

And what portion of that work now is expected in the Gulf of Mexico, are we branching out a little bit more or is it still essentially a 100% Gulf of Mexico.

Stuart Brightman

We are branching on little bit, but you should still think of it as almost a 100%. We have got a couple of international areas we are doing some work. I think that will expand a little bit, but the driver for that segment this year will continue to be the Gulf of Mexico.

Mike Harrison - First Analysis

All right. Thanks.

Operator

As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Stuart Brightman for any closing remarks.

Stuart Brightman

Yes. Thanks again, Gary and thank you for participating in the call. And we will look forward to going through the fourth quarter in more detail in a couple of weeks. Thank you.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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