Nuverra's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.10.14 | About: Nuverra Environmental (NES)

Nuverra Environmental Solutions, Inc. (NYSE:NES)

Q4 2013 Results Earnings Conference Call

March 10, 2014 4:30 PM ET

Executives

Liz Merritt - Vice President, Investor Relations and Corporate Communications

Mark Johnsrud - Chief Executive Officer

Jay Parkinson - Chief Financial Officer

Analysts

Michael Hoffman - Wunderlich Securities

Joe Giordano - Cowen & Company

Scott Graham - Jefferies and Company

Gerry Sweeney - Boenning & Scattergood

David Rold - Needham & Company

Eric Stine - Craig Hallum

David Rose - Wedbush

Scott Levine - Imperial Capital

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Nuverra Fourth Quarter and Full Year 2013 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, Monday, March 10, 2014. I would now like to turn the call over to Ms. Liz Merritt, Vice President of Investor Relations and Corporate Communications for Nuverra. Please go ahead.

Liz Merritt

Thank you, George, and good afternoon, everyone. Welcome to the Nuverra Environmental Solutions fourth quarter and full year 2013 financial and operating results conference call and webcast. With me here today are Mark Johnsrud, Chief Executive Officer; and Jay Parkinson, Chief Financial Officer.

Before getting started, let me quickly cover the Safe Harbor. Today’s presentation will contain forward-looking statements about our expected financial operational performance, including revenue growth, the expected performance of our businesses and our strategies, products, cost controls and related matters.

These statements involve a number of risks and uncertainties that could cause actual results to differ materially from our projection and include a variety of factors, some of which are beyond our control.

Potential risk factors that could cause these differences are described in our SEC filings, including our Form 10-K filed with the SEC today, our current reports on Form 8-K and our earnings release posted on the Nuverra website. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website at www.nuverra.com.

All information provided on this call today is of today, March 10, 2014, and Nuverra undertake no duty to update or revise this information based on new information, subsequent events or otherwise.

Today’s discussion will also include certain non-GAAP financial measures including adjusted EBITDA. Reconciliation of our non-GAAP results to the GAAP results we consider most comparable can be found in our press release.

With that, I would now like to turn the call over to Mark Johnsrud, Nuverra’s Chief Executive Officer. Go ahead, Mark.

Mark Johnsrud

Thanks, Liz, and thank you, everyone, for joining us today. 2013 was a transformative for Nuverra. We took decisive actions to enhance long-term value for our stakeholders and clear the path fully and effectively focus on enhancing our one-stop shop model for environmental solutions to Shale oil and natural gas industry.

During the fourth quarter, we executed on key initiatives that we spoke about on our third quarter conference call, making significant strides further strengthen our business model enhance the value proportion for customers.

First, we advanced the process to divest the TFI business. I am very pleased to say that we have executed a definitive agreement with VeroLube to sell TFI for $175 million, comprised of $165 million in cash and $10 million in VeroLube’s stock.

As we said last quarter, the sale enables us to concentrate exclusively on growing the Shale Solutions business. We anticipate closing the transaction in the second quarter and using the proceeds to pay down debt.

Second, we amended our revolving credit facility to enhance liquidity, improve our financial flexibility. We also have preliminary commitments to further upsize the facility to $245 million.

The newly revised facility supports our organic growth plans and the development of our new solutions for the environment and logistical needs of our customers. The facility further enhances us to fund future growth projects, such as our new pipeline in thermal treatment initiative which we will discuss in more detail in a few minutes.

Lastly, we made investments to expand our comprehensive suite of solutions to proactively meet the rapidly changing needs of our customers. In future, we see regulatory shift towards stricter environmental standards around the consumptive use of fresh water for drilling and completion activity.

These activities support our philosophy that it’s preferable to take a leading role in shaping the future of the industry and enable our customers to be early adopters of the best environmental practices.

Our activities include investments in thermal desorption treatment acids to effectively process, recycle and dispose of the variety of materials contained in drilling solids. We are also actively developing a pipeline transportation initiate to address the growing volumes of flowback and produce water. I will discuss each initiative in greater detail in a few minutes.

In conjunction with these efforts, we are exploring technology that will enable us to create a permanent record for the logistical path for all environmental waste we manage on behalf of our customers.

It is our strong belief that as a regulatory matter, customers will require reporting to ensure they supply with all environmental requirements for the recycling or disposal of their environmental waste. We believe these actions establish a strong foundation on which to grow the business and build our long-term value for our stockholders.

During the fourth quarter, revenues in our Shale Solutions segment were down approximately 2.6% from the third quarter, primarily due to the severe winter condition which cause the slowdown into solution activity.

The fourth quarter specifically slower in the industry because of the holiday season, which brought two mid-week holidays in December of last year. Additionally, we continue to experience some challenges in certain basins which we have taken actions to remedy.

Before I go into detail about our operations, I want to speak to you recent jury verdict in Texas against our subsidiary Heckmann water resources CVR Inc. This is an ongoing legal matter that is currently under appeal. We have included disclosure in our Form 10-K, which we encourage investors to review but on advice of counsel given this is ongoing we will not make any additional comments on this matter.

Now let’s review each of our areas of operation. Looking into the Bakken Shale area we saw improvement in both revenues and margins on a sequential basis. Despite experiencing the same severe weather impact as all other operators in the region. This will driven by return of activities that was deferred in the prior quarters, as well as steady pick up in our landfill volumes.

2014 is shaping up to a good year as the programs outlined for in the Bakken for drilling and completion activities by the E&P operators is very strong. In fact, we began to see an increase demand for our services in the Bakken based on discussions with our customers and their plant activity levels in 2014.

We are actively expanding our business organically in the basins by cross-selling our expanded suite of solutions to current customers and taking market share from our competitors. Customers are responding favorably to our one-stop shop approach and we believe this model will continue to drive growth for our long-term.

Our landfill operation is tracking slightly ahead of target and we are moving forward with plans to build out a treatment in recycling center for solids at the landfill. As I noted earlier, we made investments in the fourth and first quarters in thermal desorption system that will expand our treatment capability for real time and eventually will provide us with marketable byproducts.

We have been listed the science experience and expertise of EERC and the manufacturing capabilities of Thermal Flight to build out this advance facility. The ultimate benefit of such system is to reduce the environmental footprint for our customers and provide incremental revenue streams for the beneficial byproducts of the treatment process.

We believe this process can be implemented in other basins and we will explore these options in the future. Our landfill thermal treatment facility coupled with our leading logistics network will be a one of kind solutions for the full cycle need for our oilfield solids in the Bakken. This replicates the one-stop shop solution that we have on the liquids side of our business. It represents a very efficient, highly compliance option for customers who want to reduce their environmental footprint, decrease well site complexity and efficiently dispose a thrilling cuttings off sites. We currently expect our thermal desorption facility be operational in the fourth quarter of this year. Jay, will talk more about the economics later.

Our joint efforts with Halliburton to market and launch the H2O forward water recycling system in the Bakken continues to progress and we now have all the necessary assets and permits in place to treat the water at our facility.

The potential impact of continued severe winter weather in the region has caused us to delay the anticipated starting, which we now expect to begin in Q2, we are optimistic about the growth and for this business in the Bakken and throughout other shale basins where we operate, particularly as a regulatory environment influences fresh water consumption.

I am also very pleased to announce that Cary Longie, a lifetime industry operational leader joined Nuverra in February as President of our Rocky Mountain Division. Cary has spent more than 20 years with Hess, where he was most recently served as North Dakota Operations Superintendent. His hands on experience, leadership ability, are an excellent complement to our existing team in the region and we look forward to his contribution as we continue to grow our business in the Bakken.

In our Marcellus and Utica Shale areas, we saw a decrease in customer activity in the fourth quarter due to superior winter conditions and the holiday schedule which I previously mentioned. Going forward, we are looking to leverage the second quarter 2013 acquisitions, we made of saltwater, disposal wells in the Utica Shale to expand our presence there and continue to build out our total solution model in the region. We are also exploring the potential to expand our offerings for solids in the Marcellus, Utica.

Turning to the Haynesville, as we noted on our third quarter conference call, we have started to see signs that customers are increasing their drilling and completion activities in the area, moving more rigs into the basin to meet their 2014 programs. We think the Haynesville represent good opportunities for business expansion and as such we brought in a proven operational leader to guide our growth efforts in the region and complement our already strong base of employees there. The Haynesville provides a nice introduction into our new pipeline initiative.

We believe that as the shale areas mature and net well count increase, the volume of water handled will also increase, requiring the need for additional transportation option. We know from experience that pipelines provide an efficient alternative when it comes to moving large volumes of water from the well side to recycling or disposal.

In fact, pipeline systems complement our trucking solutions by providing needed capacity as basins mature and more well move into the production site. Our pipeline initiative is designed to provide a long-term alternative infrastructure for those fluids.

We believe our experience constructing and managing one of the largest shale water pipelines in the industry in the Haynesville combined with the season team of experienced engineers and pipeline professionals we have brought on board makes us uniquely qualified to undertake and succeed in such project.

We plan to initially target projects in the Bakken for customers have requested near-term need for pipeline solutions. Looking out into 2014, our strategy to grow the business is focused on three key areas. First, we plan to grow organically by developing and introducing innovative new solutions to our service mix.

Second, we will focus on increasing market share in existing basin by taking business from our competitors. And finally, we look to expand our service offerings by consolidating companies that complement our business line and broaden our service offerings.

In doing so, we believe that we can remain ahead of the changing industry tide, develop the most innovative solutions of the industry and adjust the model into our fourth cycle pricing structure accordingly. We are optimistic about our business prospects in 2014 and I look forward to updating you on our progress throughout the year.

Before I turn the call over to Jay, I would like to take this opportunity to thank our retiring directors, Dick Heckmann and Lou Holtz for their years of service and dedication to the company. We wish them both all the best for the future.

At this point, I would like to turn the call over to Jay to discuss our financial results. Following that, we will open the call for your questions. Jay?

Jay Parkinson

Thank you Mark and thank you everyone for joining our call today. Results for the fourth quarter 2013 came in ahead of our internal expectations which called for a flat and sequentially down quarter from the third quarter with our increased activity level particularly in the Bakken Shale area, as operators begin ramp for what appears to be a more robust 2014.

Jumping to the fourth quarter results, please note that for comparative purposes I'm going to discuss our financial results inclusive of Thermo Fluids which was moved to discontinued operations during the quarter. This should give investors as a better understanding of the sequential results and allow a better comparison to previous quarter.

Revenues for the fourth quarter were $154.5 million which compares to $162.6 million in the third quarter and $113.2 million in the fourth quarter of 2012. Adjusted EBITDA for the fourth quarter was $25.7 million which compares to $25.1 million in the third quarter and $14.7 million in the fourth quarter of 2012. Our reported net loss for diluted share in the fourth quarter was $0.53 which compares to a loss of $7.80 in the third quarter and net income for diluted share of $0.25 in the fourth quarter of 2012.

Reported net loss was inclusive of several non-cash and non-recurring items, which I will discuss later. Actual reported results reflecting TFI as a discontinued operations produced fourth quarter revenues of $128.4 million and adjusted EBITDA of $23.3 million.

In the Shale Solutions segment, revenues in total were down approximately 2.6% but there was variability by basin. We did see some uptick in specific basin particularly in the Bakken. Before I get into detail on each basin and include commentary on outlook for each one, I want to emphasize that we expect first quarter 2014 activity to be adversely impacted by their unusually harsh winter weather that has gripped much of the country.

This is obviously not something that covers our outlook for the full year 2014 but we will have an impact on Q1. So in my comments on outlook, I’m going to focus more on our full year 2014 outlook and satisfy the revenue that we believe will be pushed in Q1 due to the weather.

In the Bakken, we saw revenue increased sequentially as activity levels picked up. Pricing in the Bakken was stable although we are seeing early signs of pricing improvement. Our margins in the Bakken increased sequentially in the fourth quarter. Additionally, we saw some uptick and utilization of our rental fleet beginning October.

Landfill volume increased substantially throughout the quarter and into 2014. For reference, in January, our volumes were more than 6.5 times greater than they were in August when we opened the site. We are optimistic about our outlook for 2014 in the basin although as discussed Q1 weather has been unusually harsh and will have an impact on that quarter.

Turning to some other basins. In the Eagle Ford, we continue to see challenges as we forecasted on our third quarter call. We saw further declines in the region which offset some of the pick up we made in the Bakken. Both revenue and adjusted EBITDA were down sequentially.

We continue to work on our turnaround plan in the area and at this point, believe our efforts in Eagle Ford, led by cost controls, are taking hold. Consequently, we believe that we are unlikely to see in 2014 further sequential declines that has previously offset other basin improvement.

In the Haynesville, revenue was sequentially flat with a slight increase in adjusted EBITDA. Margins in the basin improved as we saw the benefits of increased activity levels that we discussed last quarter as well as some cost controlled initiatives taking hold.

We are pleased with the progress that we make in the Haynesville with new management focus on pricing strategy, cost control and business development, including replicating the Bakken one-stop shop model. We are also seeing some early signs of increase dry gas drilling in area and are poised to benefit from that.

Pricing in the Haynesville is stable with substantial increases anticipated during 2014. Though it will take some time to get the statement where it should be from a return on capital standpoint, we are optimistic about the outlook for the region in 2014.

We had a slow fourth quarter in the Marcellus and Utica as we were hit with a strong seasonal slowdown. This was driven primarily by one of our integrated major customers which slowed activity due in large part to the inclement weather as well as holiday schedule.

As completion activities slow, treatment volume decline thereby tempering demand for recycled water. Pricing in the area was stable but the activity slowdown impacted financial results. Based on customer discussions, we believe that activity in each of these basins will pick up in 2014. However, weather will have an impact on Q1.

In our industrial solution segment which consisted solely of TFI, it is now reported as discontinued operations. We saw the expected impact of fourth quarter seasonality where fewer miles were driven and less results were impacted.

Looking at margins in our business segment, shale solutions recorded an adjusted EBITDA margin of 21.6% which was up sequentially from last quarter’s 19.1% margin. This was driven in large part by improvements in the Bakken shale area and to a smaller extent the Haynesville which were offset by margin declines in the Marcellus and Utica due to the activity pullback I just described as well as the Eagle Ford due to the aforementioned challenges we are managing through there.

In industrial solutions, margins were down slightly on a sequential basis from 10.6% to 9.3%. On a total company basis, adjusted EBITDA margins were up approximately 130 basis points sequentially from 15.4% to 16.7%.

During the fourth quarter, we reported a charge of $7 million for the settlement of the China Water litigation. I will talk more about the economics of this settlement in a minute. Other net one-time in non-recurring items during the quarter totaled approximately $700,000.

Turning briefly to the balance sheet and cash flow statement, we ended the quarter with $9.2 million of cash and operating working capital of $39.9 million which represented slight decrease sequentially. Working capital reductions is not something you expected to continue in the future quarters.

The revolver balance was $136 million at 12/31, an increase driven by increased CapEx in Q4 as well as our semi-annual coupon payment on the senior notes. Net cash CapEx for the quarter was $14.3 million, just slightly below the $15 million to $20 million range we got it for you for Q4. It included approximately $8 million for the thermal treatment asset Mark discussed earlier and we’ve spend more capital to date this quarter on that initiative.

For the full year 2013, our net cash CapEx were $48.5 million, a total which approximately $7 million for the completion of the landfill in the Bakken. We’re seeing some very interesting opportunities to deploy capital organically which Mark discussed earlier including thermal and pipeline opportunities.

We recently announced the conversion of our former credit facility to a new $200 million facility, the availability of which is given by our borrowing base formula rather than financial ratio.

As such, we eliminated the minimum interest coverage and maximum total leverage coverage. This is the strategy we talked about on our last call and have executed on since then. The only ongoing maintenance covenant on the new facility is a maximum ratio of 3 times total senior secured debt to total EBITDA.

The $400 million of high yield bonds are not secured, and that’s not included in the calculation of this covenant. This new facility also affords us additional flexibility to potentially make isolated open market purchases of our high yield notes, which bear higher interest rate. We expect to incur a non-cash charge of approximately $3 million in the first quarter of 2014 related to the layoff of preferred financing costs associated with the former facility, the details of which were disclosed in our 10-K.

In addition, we are currently running a broad syndication process and currently have preliminary commitments that would expand the facility by an additional $45 million to $245 million in total.

Before I conclude, let me talk briefly about the China Water settlement, provide some outlook into 2014, and advise what we expect in the first quarter given the cold weather.

First, on China Water, Nuverra has reached a Stipulation of Settlement to settle the pending class action relating to matters alleged to have occurred in connection with the acquisition of China Water & Drinks by Heckmann Corporation in 2008. There was a lot of disclosure about this in the 10-K and press release, but I wanted to touch briefly on the financial terms of this settlement.

The company is agreed to make cash payment of $13.5 million as well as grant 847,990 shares of Nuverra common stock to the plaintiffs. These amounts will be finalized in the court except final closure of the matter which we anticipate would be in the second half of this year.

Looking at the cash portion of the settlement, the net cash consideration paid by Nuverra would be $13.5 million, less the amount of available insurance coverage under the insurance policy at the time of final court approval. The company currently estimates the amount of available insurance at the time of final court approval will be $2 million to $4 million, which would equate to a cash payment by Nuverra of approximately $9.5 million to $11.5 million.

The amount of available insurance at the time of final court approval could increase based on the outcome of the disputed defense costs that have been accrued but unpaid by insurance policy. This would reduce the required cash payments by Nuverra.

With respect to the equity portion, the company has agreed to provide a floor value of $13.5 million on the value of the Equity Portion of the Settlement Agreement. Therefore, to the extent that the 847,990 shares of Nuverra common stock do not equate to $13.5 million in value at the time of final court approval or equivalent value of $15.92 per share, Nuverra would be required to contribute additional shares of cash at Nuverra’ sole option to make the value of the equity portion upon final court approval no less than $13.5 million.

Conversely, to the extent the price of Nuverra stock at closure is greater than $15.92 per share, we would incur a non-cash charge for the excess over $15.92 per share times the 847,990 share. We took a charge in the fourth quarter of $7 million for China Water which follows the $16 million we took in the third quarter. I can say that the current management team is very pleased to have this legacy matter behind us.

Before I get into the outlook for 2014, I want to touch on the first quarter 2014 again and say that the weather is going to have an impact on Q1 results. We believe the unusually harsh weather is likely to result in the first quarter being sequentially down from the fourth quarter. We currently believe the sequential decline could be in the 10% to 20% range.

E&P companies have broadly discussed January as getting off to a slower start due to severe winter weather. Oil production in North Dakota remain flat in January after actually falling in December due to delayed completion, which gives some color on weather impact.

Severed weather has impacted the Marcellus and Utica areas throughout Q1 and even had an impact on parts of Texas and Oklahoma operations. These conditions prompted temporary delays in non-critical work and postponed some completions.

Turning to the business outlook for 2014 beyond the first quarter, on our third quarter call we said that we did not anticipate a material change in fourth quarter business activity and that the impact of seasonality in the quarter would be greater than normal. That forecast did not factor in some of the extreme cold weather that hit the regions in which we operate late in the fourth quarter. The reality is that during the fourth quarter, we did see this impact in some areas, particularly in the Marcellus and Utica. However, we saw some very encouraging signs in the fourth quarter, as it relates to our full year 2014 outlook.

The fact that overall activity increased in Q4 despite a difficult holiday calendar and a very difficult weather is an encouraging sign. Looking specifically at October, a month affected by neither weather nor holiday, we saw an increase of more than 15% over the previous months in the Bakken alone, a 14% increase in the Marcellus/Utica and 13% in the Haynesville. We believe these trends support a positive 2014 outlook.

Our somewhat granular modeling items, which I am going to present pro forma for the sale of TFI. We anticipate SG&A going forward in the range of $15 million to $18 million per quarter. For amortization, we anticipate a range of $3 million to $5 million per quarter, with depreciation ranging from $20 million to $25 million per quarter. We are estimating a GAAP tax rate of 40% and we currently estimate first quarter CapEx be in the range of $15 million to $20 million.

On the CapEx front, we have discussed organic growth opportunities that we find compelling. Specifically, we have best capital in both the fourth quarter and in the first quarter on a thermal treatment facility to be located on-site in Bakken landfill. This further builds out our total environmental solutions business model. Total capital for this project is expected to be approximately $30 million, and we believe this eventually could add in the range of about $10 million to annual adjusted EBITDA once the asset is operational, which we anticipate to be in 2015.

In addition, we are planning to deploy some capital on pipeline initiatives this year. We have a dedicated team that currently has several proposals in development. We believe we could deploy approximately $20 million to $30 million this year on pipeline initiatives, with an eventual EBITDA multiple on this CapEx in the range of 3 to 4 times.

With that, I would like to thank everyone again for joining our call and ask the operator to please open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Michael Hoffman with Wunderlich Securities. Please go ahead.

Michael Hoffman - Wunderlich Securities

Hey, congrats on a quarter that was going to be tough and it came true. TFI in the press release from VeroLube itself, they make a reference to the cash portion of the transaction is subject to adjustments based on actual working capital at the date of closing. Can you help us understand what their concerns are?

Jay Parkinson

Well, Michael, it’s Jay. Basically you agree to leave -- agreed upon level of working capital of the business based on historical norms and to the extent the working capital was above that, it’s an adjustment of cash to us. And if it’s below it, it’s an adjustment of cash to them.

Michael Hoffman - Wunderlich Securities

Okay. So you don’t see any issues there with regards to working capital?

Jay Parkinson

No.

Michael Hoffman - Wunderlich Securities

All right. And then the shares, do they have a lockup?

Jay Parkinson

They do. It’s going to be a minimum period, but they will be able to probably distribute those.

Michael Hoffman - Wunderlich Securities

Okay. And then on the Haynesville, what are the issues there, you talked about in the past the legacy company underpriced the pipeline, what’s your opportunity to be aggressive about repricing that pipeline?

Mark Johnsrud

Michael, this is Mark. Part of the pipeline is under contract and part of it is. And what we will address first is the part that’s not under contract, and so that as there becomes more and more rig activity, we will start to speak with customers, work with customers, and start to increase our pricing first what’s delivered by a truck. And then secondly, we are going to take a look and we are reviewing contracts as we speak to take a look at what our plans are, as we look at repricing our services.

Michael Hoffman - Wunderlich Securities

So how should we think about the pace of that as we go through ’14 into’15?

Mark Johnsrud

I think within a quarter we are going to be able to give you a lot more granularity about that.

Michael Hoffman - Wunderlich Securities

Okay. And then, Jay, you made references to the K and I didn’t notice, is it out today already?

Jay Parkinson

Yes, just got filed.

Michael Hoffman - Wunderlich Securities

Okay. So did you -- you reached to organize the business around three segments, Rocky Mountain, Southern and Easter, is there segmental revenue data and EBITDA data that’s going to be…

Jay Parkinson

Not in this one. That’s something that we would look to do in fiscal year ’14.

Michael Hoffman - Wunderlich Securities

So can you give us some framing of what that segment breakout looked like in the fourth quarter and kind of how to think about that?

Jay Parkinson

Not beyond what we have disclosed Michael which is we kind of breakout the oil and the gas basin and it’s hovered pretty closely around 70:30 on the oil. Now the majority of the oil based revenues is Bakken related revenues.

Michael Hoffman - Wunderlich Securities

Okay. All right. I will stop and let somebody else ask and then maybe I will come back in the queue.

Jay Parkinson

Okay. Thanks.

Operator

Thank you. Next is Joe Giordano with Cowen.

Joe Giordano - Cowen & Company

Hi, guys, how are you doing? Thanks for taking my call. I guess my first question would be more on M&A and how you see the landscape now. And do you think that that’s --how do you see M&A and how do you reconcile that with you best way to may be gain critical mass in other basins and stuff like that?

Mark Johnsrud

I think what we are looking at today is we want to make sure that we are adding new business segments that complement what we’re already doing. As we break this down into drilling, completion, and production I want to make sure that we are filling in, in basements that we do not have critical mass in and then yet, but we are trying to make sure that we are complementary so we can provide the one-stop shop in each basin.

Joe Giordano - Cowen & Company

I guess is it something like can you get there via bolt-on or are we thinking more or something a bigger splash entry into the market that kind of thing?

Mark Johnsrud

It’s always very hard to comment on that. I think we’re opportunistic looking at both. I mean, clearly, we talked a fair bit historically about the fact that we do think that this is a industry where consolidation would be healthy. At the same time, we also look pretty regularly at bolt-ons. We did some last year to gain presence in certain basins. We did some in the Utica. So I’d be very reticent to make a blanket statement, but I think that we wouldn’t rule it out.

I will say that our M&A strategy tends to be very focused on what we’re doing right now. I don’t think we’re at this point looking at any type of acquisition that would be a real step-out. It’d be really continuing to build up what we’re doing right now.

Joe Giordano - Cowen & Company

Okay. And if I could follow on with margins. So shale at 21.6%, in the first half of 2013 you guys were at just below 24%, but remember there was a lot going on internally in terms of moving some assets around. So what would you say, once we’re past the weather and things kind of normalize there? What has to happen to get to those kind of margins that we saw in the first half of 2013? And how would you categorize that as? How does that fit now that you done that work in terms of the reorganization? How should we think of margins potential in that room -- in that light?

Mark Johnsrud

Yeah, I think that’s something that we think achievable, given kind of the pickup levels we start to see. I mean, we did see sequentially 4Q over 3Q. We did see a pretty good pickup, which is particularly pronounced in some other areas, like the Bakken. And then we think there is some more opportunity in the Haynesville on the margin front as well. So I think getting back to the 1Q, 2Q levels or something that we think is achievable given the scale or the ramp we see probably in 2014, particularly in the back half of 2014.

Joe Giordano - Cowen & Company

Great. All right. Thanks, guys.

Operator

Thank you. Next is Scott Graham with Jefferies and Company. Please go ahead.

Scott Graham - Jefferies and Company

Hey, good afternoon, Mark and Jay.

Mark Johnsrud

Hey, Scott.

Jay Parkinson

Hey, Scott.

Scott Graham - Jefferies and Company

I was wondering just sort of on a housekeeping basis. Jay, you guys were kind enough to give us the revenue and EBITDA of the separate discontinued ops. Could you give us because our models are based on inclusive of TFI? Do you have a cost of sales and G&A numbers inclusive of TFI, like what the P&L level look like?

Jay Parkinson

Do you want the number inclusive of TFI?

Scott Graham - Jefferies and Company

Yes, just couple more usually.

Jay Parkinson

On the general administrative side, you probably had in the range of the $1 million at TFI.

Scott Graham - Jefferies and Company

Okay.

Jay Parkinson

So we had about [1.8] (ph) amortization this fourth quarter, about 1.8 of amortization at TFI.

Scott Graham - Jefferies and Company

And cost of sales, what the…

Jay Parkinson

Cost of sales at TFI in the range of call with depreciation, call it 23.

Scott Graham - Jefferies and Company

That’s great. I heard you Mark talked about having to change out leadership in the Haynesville. We did the same last year in the Eagle Ford. Where are you with your base in leadership right now?

Mark Johnsrud

I think what we’re really doing is we changed out some in the Eagle Ford, but really in Haynesville what we did is we’ve just added to that. There is a really good crew that we have down there, but we wanted to bring in some more experience just because we think we can -- there is more business that we have down there. So, we brought in somebody that had a lot of knowledge of the area.

Now overall, I think we’re actually pretty good. We are really excited about Cary Longie joining us in the Bakken. We still plan on hiring two more presidents, one in the south and one in the east. But as we’re visiting with people, as we’re looking at other opportunities, we’re just trying to be very selective on who we bring into the fold. With that been said, the guys that we have in place right now are doing a very nice job. So we’re just trying to make whoever we had just a very additive to the team.

Scott Graham - Jefferies and Company

Got it. Okay. As you sold TFI, one of the marketing pictures, I’m sure you had to your customers was the handling of their cuttings and using TFI, it’s a sort of leverage that as a solution. Is this disruptive to that in any way?

Mark Johnsrud

No, it’s not disruptive at all. What we’re finding right now is that there are certain processes in place and we really kind of stop where the existing process goes in place and we manage it from the well side through the rest of the process. That’s what we’re doing in the Bakken. In other locations, we’re providing services around it, but we do not see any disruption at all from not having TFI part of that process.

Scott Graham - Jefferies and Company

Understood. Thank you. And last question is more along the lines of kind of still what you need, gets back to an earlier question about acquisitions, I guess. In the Bakken, you largely have an end-to-end solution for your customers. Your customers may have different needs in Marcellus, Eagle Ford and Haynesville, but I can’t imagine that they will be substantially different needs. What are you missing in each of those three the non-Bakken shales to really be able to kind of add to work to this model?

Mark Johnsrud

Scott, as we’re progressing and as the maturity of each region changes, there is also the environmental piece that is very different in each one of the basins. For example, we think in the Bakken, the pipeline is going to be a very nice complement to what we’re already doing. But if we look in the Utica and the Marcellus, I’m not sure water pipeline long term is going to be part of that solution package or not. So I think that each area will be really uniquely different.

So I guess what are we looking to add, let’s say in the Bakken today? We are going to be looking at adding pipeline through our solution base. We are really excited about thermal absorption process, and we see that will fit very nicely also in the Marcellus and Utica. And then I think other thing that we want to do in the Marcellus and Utica is just grow our overall presence. We have a really strong presence, but I think we can make a much stronger presence. And definitely, we want to spend some more time with the solids and the cutting.

As we look into the Haynesville and Texas, the Haynesville, we have a very nice position. We get into the Eagle Ford, I think that's an area that we’re still expanding what we want to do down there. That's been just a little bit tougher price basin right now.

Scott Graham - Jefferies and Company

Understood. That’s helpful. That’s all I had. Thank you both.

Mark Johnsrud

Thank you.

Operator

Thank you. Next we have Gerry Sweeney with Boenning. Please go ahead.

Gerry Sweeney - Boenning & Scattergood

Good afternoon guys.

Mark Johnsrud

Hey, Gerry.

Gerry Sweeney - Boenning & Scattergood

Couple of quick questions. In the past, you talked about utilization, given some indication where some of that assets -- are you able to do that? And a sub-question to that is, would you be able to do that on and give us any indication on utilization by region?

Mark Johnsrud

No, that’s something that’s hard given kind of how we manage and bid some of the services. I would say kind of what we talked about from a broad brush is we think there are opportunities to increase utilization with the current fleet. You would probably kind of broad brush, you kind of in the probably 60% to 70% effective utilization, essentially against the fleet. So I think there is room to get that up. There is more room in certain basins and less room in others but that’s kind of where we stand today.

Gerry Sweeney - Boenning & Scattergood

And then switching gears a little bit to the thermal disruption, most of the driver behind us, I know there’s is a regulatory front towards the environmental side. But I mean, if there is some key legislation in any of the states that are pending or are you working with the states that we can actually see something at the time catalyst for this or is this going to be a gradual process where some of the larger players come in and just think it’s a better environmental footprint and better for the industry?

Mark Johnsrud

I think its going to be -- it’s going to be better from an environmental standpoint and then as we get into the pad drilling, where in the past, in the Bakken for example, that the cuttings were left at the well pad. There’s just going to be too much concentration from what we see and that’s going to have to be moved off-site managed, otherwise there is kind of potential for some environmental problems.

In other basins, where it’s all being moved to landfill, we think that there is an economic benefit to using this process and of the same time we think some of the by-product coming from the cutting, both have the margin for us in it but also we think that there's a recycling process that really have some value for both us and the customer.

Gerry Sweeney - Boenning & Scattergood

Okay. Thanks, that’s helpful, I appreciate it.

Operator

Thank you. And next is Sean Hannan with Needham & Company. Please go ahead.

David Rold - Needham & Company

Hi there. This is David Rold on for Sean Hannan. Hey, first question is housekeeping item on TFI. Were you able give out total gallons collected in 2013?

Mark Johnsrud

No, it’s pretty close to kind of that, that 50 million gallon mark.

David Rold - Needham & Company

Okay. Thank you. Switching gears to gas, some industry reports that active rig counts industrywide are down, somewhere in the range of 20%. Can you talk about your presence though active rigs you sharing at 20% decline? Where is your exposure there?

Jay Parkinson

Yeah -- we don’t totally agree with -- I don’t know what report that is but we haven’t seen that the magnitude of that decline in terms of rigs. We’re actually probably seeing increases right now.

David Rold - Needham & Company

Okay. That’s helpful. Moving on the oil, some speculation regarding customers building their water pipelines and potential negative impact to you guys. Can you talk about the puts and takes from revenue perspective helping them do so, potential hit to margins? Any color you could add there?

Jay Parkinson

I would say for the most part, the discussions we have around that are our customers coming to us and asking us to build some of the pipeline systems which is what we’re referencing in our remark. So we think it’s very complementary to what we’re doing and pretty exciting.

I think, certainly as you see the basins mature and you see the ratio of productions increase as a percentage, kind of, total locations. It’s something that will become a bigger and bigger issue. We’re not seeing a massive trend at least among our customer base to in source all that.

David Rold - Needham & Company

Okay. And finally just on interest cost going forward, what you be modeling?

Jay Parkinson

You can back in. I don’t think I’m going to -- we'll probably adjust that once we done with the TFI sale. But we released the rates on the new facility. We don’t think those will change with the upsize of it.

David Rold - Needham & Company

Okay. That’s it. Thank you.

Jay Parkinson

Thanks.

Mark Johnsrud

Thank you.

Operator

Thank you. And next we have Eric Stine with Craig Hallum. Please go ahead.

Eric Stine - Craig Hallum

Hi guys, thanks for taking the questions.

Mark Johnsrud

Eric, how are you doing?

Eric Stine - Craig Hallum

Fine. Maybe just a few quick ones from me, just in the Eagle Ford, I know you’ve had the operational challenges you’ve referenced those have persisted for a while. But it sounds like confidence that you’ve reached the bottom there. Is it the change in our leadership that gives you that confidence or there are some additional steps that you need to do. And then in addition just talk about some lessons learnt there, how you avoid some of the issues you’ve had there as you expand into other basins?

Mark Johnsrud

I would say kind of where we are in that basin, today as we really spend some of the decline. I think a lot of that has been around cost control, getting a better handle on some of those costs. I think as it relates to maybe a look back on that, that’s certainly something that will probably highlight the benefits of having scale in a basin. And then as we think about it from a strategy position, having a subscale position presents us challenges. It can be great in an up market. It can be more challenging in a flattish to down market. And so it really highlights how we really want to built leading position in each of the basin.

Eric Stine - Craig Hallum

Got it but you feel like, you are cutting those cost but you will have the scale going forward, I mean even with those cost cut?

Mark Johnsrud

I think its something that's very strategic for us. It’s obviously a great basin from the operator standpoint and probably something we look -- now you think you got it contained probably something that we’re going to look to continue to grow in the future.

Eric Stine - Craig Hallum

Okay. Thanks for that and then may be just all the commentary on the weather, thoughts on weather that causes some pent-up demand. I mean how do you envision 2Q to 4Q and may be just indications in March, any tangible signs of pick up or is this more just based on conversations with people out in the field?

Jay Parkinson

No what we’ve seen is December, it just kind of start in December. December was -- especially the Bakken was very cold and we just saw less operating days. In January and February we’ve seen some of the same thing. So far in March it looks like where activities are kind of trending to what will be more normal. When it’s really cold and it’s extended at 10, 20, 30 below, things just don’t move as fast and that does become problems and companies just quit fracking.

They shut down because it was -- it became very dangerous. I guess what we also have seen is in the drilling side, we have seen more on tracked wells at the end of February and that has been for quite some time. So what will see as we will see more activity as the weather gets nice. We look now in the Bakken anyway. The weather is back towards very descent and I think activity will rebound very nicely.

Eric Stine - Craig Hallum

Okay, so you are expecting Q2 to actually be a pretty nice sequential increase from Q1, I mean that rather than just a modest increase throughout the year.

Mark Johnsrud

Yes, what I can say is that is more than just a trend of what we would anticipate. We are seeing our customers, all talk about it as they put capital into the basin. We are seeing a lot of activity.

Eric Stine - Craig Hallum

Okay. Thank you very much.

Operator

Thank you. And our next question is from David Rose with Wedbush. Please go ahead.

David Rose - Wedbush

Hi, good afternoon. I have a few follow up questions if you don’t mind. I was wondering if you could provide a little bit more specifics in terms of what drove the Bakken revenues for you, was it more rental equipment, more trucking, combination, mix of assets and -- or is there something else that you might want to add, please fill us in. And then on the landfill, I think you were targeting about $2 million in EBITDA for the fourth quarter that was third quarter commentary. I am not sure how much of that you got in the fourth quarter then you can shed some light on that as well then I have a couple of follow-ups?

Jay Parkinson

Hi, David. This is Jay. So I would say in the Bakken, we saw, pretty much improvement across the board. We did see for the first time in a while, we saw the rental obviously had some challenges there. That turnaround in the quarter, we saw that pickup but then really I think across the board you saw an improvement there.

David Rose - Wedbush

Okay and then my...

Jay Parkinson

And I guess, again I would say part of what drove that is we incurred some expenses in the third quarter that we try to ramp up and I think you also saw some benefits from that as well.

David Rose - Wedbush

Okay, that's helpful and then landfill?

Jay Parkinson

Landfill we have said on a run rate basis, we thought it would get to about $2 million a quarter, I would say in the fourth quarter, we were not yet at run rate. You are probably about half way there may be a little more.

David Rose - Wedbush

Okay. And then if you could, walk us through a little bit more on some of the initiatives that in terms of the Eagle Ford and Haynesville, in terms of cost containment, maybe provide us some buckets of cost containment, was it headcount reduction or certain thing from logistics?

Jay Parkinson

Right. One of the, couple of things we were doing, well, I think probably the biggest thing in the Eagle Ford, what we were doing there was the utilization we are getting on our drivers in terms of the percentage of their time that was, that we were bearing the cost versus what they were actually producing revenue, wasn’t where it needed to be, so we had some downtime there, that was probably a function just a logistical challenge in the basin, having to move people in different areas to other areas. I said that was probably the biggest issue in the Eagle Ford.

David Rose - Wedbush

And then in Haynesville?

Jay Parkinson

Haynesville, what we have benefited from there by and large is then just improvement in overall activity which offset some of the fixed cost. We did take some headcount out of the Haynesville, more on the back office side on the revenue generating side and that's probably a function of as we -- we just started some synergy through a bigger platform so accounting and some of the back office stuff, we are able to take some cost out from that standpoint.

David Rose - Wedbush

Okay. That’s helpful. And then one last one if I may, on the pipeline, your expectations of building up the pipeline in Bakken? Can you be a little bit clear on that? I mean you are talking about fresh water pipeline and there are competitors in the space right now. So I understand many people had challenges in permitting. So if this is mostly fresh water, can you talk about timing, what you have to do from a permitting perspective and how far you are in the process of building out a water pipeline?

Mark Johnsrud

This is Mark, David. What we are really looking at more production water pipelines, not freshwater pipeline. A wash project up there does, I think an adequate job of delivering water to the largest percentage of the basin. We really see is as companies are coming in and they are looking at drilling 12 wells in the mile. We think that it’s start to have enough core competency or core amount of volume that needs to be moved everyday, that's where it starts to become economic for pipelines to make sense.

We know there is one well every mile that really didn’t make economic sense but as you start to change that and now we start talking look at the length of the time and its going to be move, we really seeing managing. We are not just putting the pipeline in but also managing that for the next 20, 30, 40 years, it is also very-very important.

One of the other things I would like to make sure that you are aware of is that we are working very closely with the state to make sure that we are putting pipeline in that also has all the controls and all the mechanisms and kind of the bells and whistles that is start-of-the art, so that we don’t have problems at some companies and experienced to this point. There is a task force and the state putting a regulatory process to make sure that there are minimal standards as to the way they are being put in and we think we really support that.

David Rose - Wedbush

Okay. So these sounds like something that we are not going to see any materials benefits for a couple of years? Is that fair?

Mark Johnsrud

No. I think that its going to be toward the tail-end of this year would be the earliest.

David Rose - Wedbush

Okay. Thank you very much. I appreciate the help.

Jay Parkinson

Thanks.

Operator

Thank you. And next is Scott Levine with Imperial Capital. Please go ahead.

Scott Levine - Imperial Capital

Hey. Good afternoon, guys.

Mark Johnsrud

Hey, Scott.

Scott Levine - Imperial Capital

So, just to clarify on the outlook for ’14, on the last call you’d indicated that you saw qualitatively mid-teen type growth in 2014 and it sounds like you are encouraged by what you saw in the fourth quarter from the business, outperforming internal expectations, heard what you said, I think, Jay, down 10, 20 sequentially in Q1 with the weather, but anecdotally is there any reason to believe your outlook for the market, is any different than it was, when, at the time of your 3Q call or are you more optimistic based on what you saw 4Q progress?

Jay Parkinson

I would say no change, we might be little more optimistic about what we are seeing.

Scott Levine - Imperial Capital

On an underlying basis but then layer on top of that the weather?

Jay Parkinson

I think weather would definitely be an impact in Q1, which we don’t think is reflective of general activity levels after that. But I would say if you think about more in terms of full year, we feel pretty comfortable with what we have say -- said earlier on a macro basis.

Scott Levine - Imperial Capital

Understood. And then with regard to the geographic footprint, any thoughts on getting into some additional markets, I mean, I don’t know what you got in terms of thought process, maybe Permian or some additional market so as to focus, for the most part growing within your existing regional footprint?

Jay Parkinson

I would say the one market right now that will probably underserved in as the Permian. I think, as we think about the strategy, one thing we got to be careful, as I referenced earlier is going into a market, not having a scale to meet return on capital hurdle we wanted to achieve. So that's certainly something that we will have to think through, to think about our strategy.

But other than that I think we have a good position in the markets, obviously we would like to grow our position in the Eagle Ford and then the other basin where I think we have a very strong position.

Scott Levine - Imperial Capital

Got it. One last follow up on the Eagle Ford, would you say that the business or the business environment. It sounds like operationally you have gotten stronger there but from a market prospective on the margin are things better, worse or the same as what you saw in, let’s say Q3 for example?

Jay Parkinson

I would say about the same, but I think -- from a macro standpoint I think we have made some progress there, but from a macro standpoint I would call it about the same right now.

Scott Levine - Imperial Capital

Got it. Thank you very much.

Jay Parkinson

Okay. Thanks.

Operator

Thank you. And our final question is from Michael Hoffman with Wunderlich Securities. Please go ahead.

Michael Hoffman - Wunderlich Securities

Thanks for taking follow up.

Jay Parkinson

Sure.

Michael Hoffman - Wunderlich Securities

So just a hitchhike on, Scott’s question, there was out there in the second half last year talking about sort of high single low double-digit E&P capital spending growth, which you should participate in and about that rate, is that, I just want to clarify that as oppose to there is a double-digit number out there?

Jay Parkinson

I think it depends on what basin you are looking at and obviously, that relates to, there is some operating leverage to that model. But I think I have seen estimate anywhere from high single digits to mid-teens I will call it, particularly in some of the basins we operate in. So that’s what colors our view point there.

Michael Hoffman - Wunderlich Securities

Okay. And this when we talk about that we are talking about that against the Shale Solutions numbers on a comparative basis?

Mark Johnsrud

Right.

Michael Hoffman - Wunderlich Securities

Right. And then we should get some operating leverage as you continue to improve your performance in Haynesville even if you are flat in the Eagle Ford and then there is organic growth in the Bakken and Utica, there should be operating leverage relative to the topline?

Mark Johnsrud

Correct.

Michael Hoffman - Wunderlich Securities

Okay. And then the last -- the down opportunity in the first quarter, 100% of that gets made up across the three quarter? Is that the way to think about it?

Jay Parkinson

I would say, at least, maybe I’ll be a little bit careful predicting that. I certainly think it’s not lost revenue, I think its differed revenue, whether we get 100% of it back, its hard to say at this point, but I think we will get the revenue back one way or another.

Michael Hoffman - Wunderlich Securities

Okay. And then 2Q ’13 had some weather issues related to all that rain in the Bakken? So I think I am hearing I have got an easy comp plus, better activity plus push out of some first course, so Q2 could be really handsome, is that...

Jay Parkinson

It certainly could be.

Michael Hoffman - Wunderlich Securities

Okay.

Jay Parkinson

I would say very encouraging from our what our customers are telling us now, Michael.

Michael Hoffman - Wunderlich Securities

Okay. All right. Great. Thank you very much for the follow-up. I appreciate it.

Mark Johnsrud

Thanks, Michael.

Operator

Thank you. And I’d like to turn the call back to management for closing comments.

Mark Johnsrud

Thank you everyone for joining us this afternoon. We appreciate your interest in Nuverra and look forward to updating you on our progress during the next quarter we report.

Operator

Ladies and gentlemen, this concludes our conference. Thank you for your participation. You may now disconnect.

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