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GreenHunter Resources, Inc. (NYSEMKT:GRH)

Q2 2014 Results Earnings Conference Call

August 04, 2014, 10:00 AM ET

Executives

Melissa Pagen - Assistant Vice President, Investor Relations

Gary C. Evans - Chairman and Chief Executive Officer

Kirk J. Trosclair - Chief Operating Officer and Executive Vice President

Analysts

Evan Richert - Sidoti & Company

Philip Dodge - Noble Financial Capital Markets

James Collins - Portfolio Guru

Michael Hoffman - Wunderlich Securities

Operator

Good morning, my name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the GreenHunter Resources Second Quarter 2014 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Miss Melissa Pagen Assistant Vice President Investor Relations, you may begin your conference Ma’am.

Melissa Pagen

Before we begin with the conference on today’s call, I’d like to advise you that today’s call may include forward-looking statements within the meaning of Section 27 A of the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934. The following discussion provides information which management believes is relevant to an assessment and understanding of our financial condition and results of operation.

The discussion contains forward-looking statements that involve risks and uncertainties that may include statements regarding our expectations, beliefs and intentions or strategies regarding the future. Actual events or results may differ materially from those indicated in such forward-looking statements. This discussion should be understood in conjunction with the financial statements accompanying notes and risk factors included in our SEC filing.

The discussion should not be construed by the results contained here and will necessarily continue into the future or that any conclusion reached here and will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment by our managements, actual events or results may differ materially from those indicated with such forward-looking statements. This disclaimer is an effect for the duration of this call. I will now turn the call over to our Chairman, Gary Evans to give an overview.

Gary C. Evans

Thank you, Melissa Pagen that was very enlightening. Thank you for dialing in today. We have a whole group of management here with us. Kirk Trosclair, our Executive Vice President and Chief Operating Officer is here as well as John Jack, Rick [Dick] Close and Terry Clark are all senior managers in our Appalachia Division.

We’ve reported our results early this morning. And I’ll just kind of summarize those and then I’ll give a quick overview and turn over more specific information to Kirk. Revenues for the quarter increased 18%, almost $7 million it’s a increase from $5.8 million reported during the December period last year. More importantly for us, Disposal Volumes being able to handle volumes increased 97% for three months to 927,000 barrels from 471,000 barrels injected in the similar period last year.

We continue to be the dominant disposal company and trucking company and the Marcellus and Utica Shale plays in the Appalachia basin, and we’re going to talk today about how that business has continued to increase through July and August, and what we are doing with respect to new capacity and new trucking to accommodate those demands.

The company has recently permitted -- completed the permit application process with the core of engineers, this is again to begin trans-loading and bulk storage facilities for brine and condensate in the Appalachia region. This has to do also in conjunction with our new hydrocarbons division that we’ll talk about today. So we’ve been talking about barging and providing year and a half as most of you know we’ve been held up by U.S. Coast Guard and we continue to work for the completion, been able to accomplish that goal.

Let’s talk a little bit about the Marcellus and Utica business with respect to the oil and gas exploration and development drilling that’s going on in our region. It continues to be very robust, the play of the Utica continues to move south right to the heart of where our disposal wells exist. And so if you are an operator and you’re drilling wells in this region you are looking for the lowest cost, trucking and disposal company and it stands to reason if you have wells in the middle of the play, you will automatically become the lowest cost, because trucking hours and trucking miles are mitigated because of the location of your wells.

We are running flat at -- we cannot literally take any more water this time. We have big plans on more than doubling our injection capacity and we’re going to give you some specifics of those wells that are being permitted, those wells are being drilled and tied in so that we can accommodate the needs of our customers. We also are very excited to talk today about our environmental solutions division that we started and we’re able to report some of our first revenue in the second quarter and then our hydrocarbons division which will allow us to move condensate and NGLs and we hope to also put in a splitter to be able to take those finished products into different markets and to receive a higher price.

So it’s important for our investors and listeners today to look forward. We continue to significantly clean up the balance sheet. We have become now shelf eligible. As of August 1, you’ll see us Universal Shelf Registration Statement being filed here over the next few days and would give us the financial flexibility we’ve been looking for, for a better part of the year that will allow us to fuel this growth that we anticipate over the ensuing months of 2015 and ’14 and into ’15.

So with that, I’m going to turn the call over to Kirk Trosclair, who’s going to give us a little additional insight as to the second quarter and what we reported this morning. Kirk?

Kirk J. Trosclair

Thank you, Gary. The second we reported positive EBITDA again for consolidated operations of $447,000 for the second quarter. And as Gary mentioned, we continued to reduce our working capital deficit and that was over 55% dropped it from $9.7 million at the end of the year in 2013 and now around $5.3. So we continue to clean up that balance sheet which is helping us feel the growth that we have inside the operational platform and get these projects done and allow us to as Gary mentioned again be – and our Shelf team renew to be able raise some capital to fund these projects through the rest of the year.

And we’re going to talk some about the projects that we are going to push through for the remainder of 2014. But I wanted to kind of mention as you guys had seen the press releases in the past about our two new divisions, first, we announced that we opened a environmental solutions division and it generated its first revenue late in the second quarter, we expect that to pick up through the remainder of 2014. We had initially done some internal work for our sales just to test the equipment, just the hands make sure everybody was ready to go and we now have started performing third party services from the environmental solutions division.

That division was brought about basically at the needs of our customers. We solved the need of our customers wanting a one stop shop continuing to ask us to do different types of services while on their existing well pads, and not just to cut brine and haul fresh water to their sites, they started asking us to haul mix lows, condensate brine and to clean our tanks, to supply different types of roll off boxes. Well it just so happened, you know we did the [winding] down of the Southern South Texas division late last year and into the first quarter of this year.

And a lot of that same equipment that we have had through that acquisition in South Texas, the same type of equipment that we use in environmental services. So we were able to transfer some of that equipment, not some of it -- but most of it to the Appalachia division and it did incur some cost for us in the second quarter to transport that equipment up to Appalachia, but we -- as management we looked at it, it was much better for us to do that transfer rather than try to sell in South Texas and buy stuff in Appalachia it will pay off in the long run for us.

So, environmental solutions now has probably 10 to 13 employees in environmental solutions. Mostly truck drivers and also field type labor support personnel and we are currently increasing our equipment into that division as well -- roll of boxes, trucks different types of equipment that we use in Southern environmental solutions. The second division that we announced in the second quarter was our hydro type carbons division, which basically came about from the pipeline project, you know once we decided to go ahead and move forward the pipeline project, a portion of that pipe and the three way pipe system is condensates and so we had to -- have our own division to handle those condensates and we brought on Terry Clark, welcomed addition to our staff, and know that he’s going to provide the leadership that we need inside that division.

We can go into more details on that, I guess during the calling to the -- question and answer period if you guys would like to on the hydrocarbons division. But the majority of it will be the condensates portion of it, we will get started before we have the pipeline in place. We are in the process of doing a conversion at one of our facilities to convert the tanks to handle condensates and then we will start trying to market condensates here probably in the next 30 or 45 days or so.

So that will be the initial entry into the hydrocarbons division and then our ultimate goal is to have a splitter built at one of our points that we see along the Ohio River. We’re not at liberty yet to announce the exact location of that and we know it’s going to be around the [Minwool] area, we’re not exactly sure with the location yet.

So, more things to come on hydrocarbons division, even with the splitter right now is anticipated to be, it was initially anticipated to be a 30,000 barrel a day splitter. We’re looking at from the upside and that’s about 45, we are looking into other splitters that are out there. We possibly could purchase versus having to build from new. So we are looking at all our options and continue to look at the market share that’s out there in that area and we’ll determine the ultimate size of that plant from there.

So that’s kind of the two new divisions that we mentioned in the second quarter and we look forward to grow on those two divisions here throughout the remainder of the year. As I mentioned in there too, we had that startup cost for the environmental company you know transferring the equipment from South Texas and also picking up new equipment to grow the company and then also – we also had the trucking assets reduced, our third party trucking. We’ve dropped the number of third party trucks that we have used in because we are bringing some of those trucks up from the south as well and also anticipate buying some of our own new 407 trucks to handle mix low condensates.

One of the drawbacks that we did have in the second quarter you guys noticed in our press release. We had one of our wells go down at the Newport well but we don’t think it’s a loss; we do have an opportunity to go back in and then recomplete that well. It’s just currently with the workload we have of putting additional wells on. We’re still going to meet our goal of hitting that 15 wells by the end of 2014, that one is not on the priority list to go do the recomplete, we would much rather go and hit our new wells that we’re drilling to built out our facility at Mills Hunter, those will add an additional two wells by the end of the year and then we also have one permitted, we’re in for permitted at the Ritchie Hunter which will give us an additional well there and another well permit at the Cairo facility. So, those last two that I mentioned on West Virginian the other ones are in the Meigs County Ohio section of our Appalachia division.

So those wells will be brought on by the end of this year and we desperately need it if you guys, you saw that the volume trends, obviously we had a little downturn in the end of May and June, but I can tell you we’ve seen our volumes increase dramatically you know all through July and through the first part of August coming here into this week. We’ve been averaging record volumes anywhere from 80,000 to 85,000 barrels a day of injected volumes -- a week, I’m sorry wish it was a day. 80 to 85,000 injected in a week, but we’re still handling over 100 to 115,000 barrels completely in the Appalachia division as a combination of brine and fresh water and water that we take to our storage terminal in New Matamoras.

So, business is great. You guys you know we mentioned that we had that little downturn in May. It was a customer that kind of went off and decided to go, test green pastures, and I think I’m very positive in saying that it didn’t quite work out for him. So, that customer is now back to us, and unfortunately we’ve already filled it with other operators and it’s tough to give him that spot back. So as soon as we can get these wells on we will go back to him, they are taking some volumes to us but it’s just a testament to our fortitude and the type of business that we run in the Appalachia division and you know our customers really like our service and that’s one of the number one things that we strive on.

So one of the other big second quarter announcements obviously which we mentioned a few minutes ago was the pipeline. We went into an agreement with the company on a Michigan major pipeline and that’s been mentioned before and the three pipes that are going in the ground we will have a 100,000 barrel a day pipe and capable for brine, and then 30,000 barrels a day which we mentioned earlier for the feed, the split of a condensate which we possibly can upsize before we start construction as we’re drawn on contracts in that for that pipeline and a 140,000 barrels per day of fresh water capabilities to deliver back to the field for fracking purposes.

So what that does with the pipeline, it continues with our model of trying to maximize our efficiencies in transportation and the number one weighted to do that is to basically reduce trucking efforts and that’s on all ends of the fields. You’re know we’re still going to have trucking going from the well head facilities to the point of delivery and the point that we see, but you wouldn’t minimize that long run from Pennsylvania over to our southern portions of Ohio and really reduce the trucking efforts on the highways. That’s a big advantage for us, and an advantage for our operating region for all that E&P operators.

Couple of other things we’ve done. We have settled those losses down in South Texas with the White Top and Black Water from those acquisitions and put a net [gain] back to our books and we are completely finished with those losses coming there.

As Gary mentioned, as of August 1, we became shopper eligible, we filed for 150 million of the shelf, and it enables us to go out to the market and to raise some capital. So I kind of want to talk a little bit about our CapEx going into the remainder of 2014 because that initial capital raise will fund our growth here through 2014 which is ten new 407 trucks which we need desperately at this point. We really need to go and do some upgrades to our facilities on our pumps and build out these facilities to handle the new volumes that we have coming in, so that will be constructing the Mills Hunter facility completely out with the facility to sell pumps laying a pipeline from the barge terminal to the injection wells, building a storage tank on the river side to handle those volumes, doing the conversion of the wells themselves at the Murphy location and then the Mills Hunter location which are called Murphy wells and then the two wells in Ritchie County in West Virginia, one at our Ritchie Hunter facility, the other at the Cairo II well, those two wells in Ritchie County, that’s the first two new drills that we’ll have in our inventory since our existence here as GreenHunter Water.

We search the area for conversions in that area, and there were no likely candidates so we will go ahead and drill some new wells down in Ritchie County. The other CapEx needs as to fund the new hydrocarbons division, the conversion of the tanks over to support condensate and to help us give him a barge. We’re looking at a project to get started here in the next 45 days or so, which we’ve already started the project with internal cash flow, but we’ve truly – got to raise capital to hit the hard points of that project. So the total CapEx for the remainder of the year is about 13 million bucks and that’s safe to get us through 2014 and will determine how we want to go to the market to raise that capital here shortly.

And then, last but not least the one thing that really got us going and it can help to get our stock rolling in the second quarter was the announcement of the MLP. You know we filed our IRS for the private letter ruling with the IRS and to form a Master Limited Partnership for handling fluid storage treatment and disposal of services and they all qualify as qualified income of the inspections of their IRS code. So we are diligently working on that as we speak trying to – we’re at the hands of the IRS at this point, when soon as we get the determination and the ruling from the IRS we will move forward with that MLP transition.

We are doing everything we can behind the scenes to get ourselves ready for that, filing all of our paperwork that where we have a short transition period then. So, all in all, second quarter was really good for us, we see the upswing of the company and showing improvement on all fronts and you know we continue to see this thing really spike in 2015. So that’s when most of these projects come online, we’ll spend the rest of the year putting these wells online, and through 2015 you’ll continue to see revenue increase by adding environmental solutions revenue, adding hydrocarbons revenue and then you’ll see the GreenHunter Water of it as we continue to build on our disposal facilities and add our own trucks in there for 407 trucks, also increasing our frac cycle demand and you know water clean up opportunities.

So, we also – with the hydrocarbons division you guys saw the announcements, we did open a Pennsylvania office in Pittsburg, we expect to be in October 1 of around October 1, and that’s going to help us get closer to the market so that our hydrocarbons team can visit with those guys and continue to maintain contractual relationships in the Pittsburg area for the Appalachia region.

So with that being said, I think I’ll turn it back over to Gary for some more comments.

Gary C. Evans

Thank you, Kirk. And I just want to touch on a couple of things that Kirk mentioned to emphasize sort of what we’re doing and give you a little more color. As I mentioned with respect to what’s going on in the E&P side of the drilling. We have recognized that as a disposal company that further south we go with new disposal wells we find formations that have better porosity and permeability to take more water. And so, we have really focused on an area that in Meigs County where we currently have three wells that are taking water and those are our three best wells in the whole company. And we have two more wells coming online here, one is fully permitted, it’s called the Rasco Mills number three and it will take 4000 barrels a day and then we have permits expected to come in in the next week or ten days on the Murphy number three that’s also a Meigs County, it would take 4000 barrels a day.

So to kind of give you an idea, the well that Kirk mentioned it was down in the second quarter, I think the most they ever took was a 1000 barrels,750 barrels a day and every time our wells will take 4000 barrels a day. So that’s why we have made the decision to kind of move to this area because we cannot only tie all these wells together and with the existing pipeline and new pipelines that we are laying it is also located right on the river where we currently have the ability to put in a barging terminal, we’ve already got the approval from the landowners.

So, we see this Meigs County area have an opportunity to maybe have 5 to 10 disposal wells that can handle quite a bit of volume. We also have two new wells up in Ritchie County, one is in – it called the Cairo Hunter it will be a 4000 a barrel day well. We are already working on the permit, already have a deal going on over there in the Richie Hunter number three is another 4000 barrel a day and working on that permit. So with the Rasco Mills and Murphy three, the Cairo Hunter, Ritchie Hunter, there’s additional 16,000 barrels a day of injection capacity all will be online between now and the end of the year. So, we’ve got to get these new wells and inorder to handle the demands from our customers and so this is all a good thing.

We’d like to talk a little bit more also about kind of the future of our business as Kirk mentioned we did file for a MLP ruling from the internal revenue service to give us a revenue letter that allows us to do an IPO, other ideas of GreenHunter as apparent we dropped down qualified assets into an MLP and raise capital to the cheapest source available. This will also allow us to expedite some of our growth plans with respect to some acquisitions and the number of things we are working on behind the scenes that we haven’t related to you today that should be exciting over the next six months to a year.

So, we believe that our decision to leave South Texas, our goal to get out of Oklahoma, once we get that sold is really beginning to pay off because of our consorted efforts here in Appalachia where demand is continuing to outstrip our ability to provide for disposal capacity. So that’s a good thing and we continue to be the largest disposal company and one of the largest trucking companies. We need more trucks but our goals never to be over about 50% of capacity on trucks because as we start laying pipe and as we start barging that obviously eliminates trucking, so we don’t want to build our trucking division up to a point where we start hurting ourselves by finding cheaper sources of transportation.

So with that I think we have a number of our analysts and some of our larger investors on the line, so operator, lets turn over the call today to our first dial in that has a question.

Question-and-Answer Session

Operator

(Operator Instructions).Your first question comes from [indiscernible]

Unidentified Analyst.

Good morning, gentlemen. Just hoping to talk about maybe with a little bit more detail maybe some of the timing of the new additional wells for fiscal ’14 and maybe broadly your plans for additional capacity in 2015 and then I have a follow up.

Gary C. Evans

Well the two wells that I would say are closest to getting on are the Rasco Mills number 3 and the Murphy number 3 because that’s an area we already have three existing wells. We already have all the infrastructure we have the facility to take the water and storage and all we had to do is lay pipe to these wells. So those two, I would say are the ones of the forefront and we are actually spending money as we speak getting those two wells ready.

Kirk J. Trosclair

And those are conversion wells as well. So that’s a lot quicker than going out and do drills.

Unidentified Analyst

Right, right.

Gary C. Evans

The next two are new drills as Kirk mentioned. They are over in Ritchie County, Cairo Hunter number II and Richter Hunter number II, those are more expensive and in order to get those done, you know we’ve got to access some additional capital. So, I would say those are later part of the year event whereas the first two in Mills County can happen – or in Meigs County can happen pretty quickly.

Unidentified Analyst

Okay. And the one that you’re trying to fix in 3Q, I’m assuming it will take most of 3Q to actually do so. So, from a modeling perspective we shouldn’t expect any contribution, I realize, it’s relatively small as far as the well?

Kirk J. Trosclair

That’s why we’re pushing it back the order, because it only does 750 barrels a day. And even with the re-complete, we’ll only going to increase it by another 750 or so, max 1500 barrels total capacity there. So it’s really on the low end of the radar at this point.

Unidentified Analyst

Got it. Maybe just shifting gears a little bit on transportation side. Can you talk about -- obviously you’re looking to add some 407 trucks? Where do you think you, if everything goes to plan, you’re able to reach the capital and as you begin to transition some of your disposal away from trucking, could you talk about maybe what you think the split will be between company-owned and third-party leased trucks by year-end or how you expect that trend?

Gary C. Evans

Well, you know, as I mentioned the goals now we get about 50% of our own. So I think that’s kind of still to go, it just stay 50-50. So, today we have 36 trucks running of company trucks and how many trucks on daily basis we’re using third-party.

Kirk J. Trosclair

If you look at it like this, very simple, we managed about a 1,000 trucks a week. So operate 35 trucks a day. So, that’s really over 50% of third-party that we use for transporting our own product.

Unidentified Analyst

Yeah. Got it.

Gary C. Evans

But remember, the reason we’re going into 407 is because Terry who is sitting here, he’s going to running the Hydrocarbons Division. Those trucks are necessary to pull condensate and NGLs, which will also be water as well. But you got to have 407. We’re finding more and more of our customers especially the major oil companies we work for are requiring 407, even for hauling water, because there’s always a chance of having some condensate or NGLs in that mix. So, all new trucks for us will be 407 trucks.

Unidentified Analyst

Okay. So the first generation gets as far as try to get to also is the composition of new trucks is going to change as you begin to service more and build up more of the hydrocarbons division. So I guess over time obviously capital permitting, you expect from a company-owned perspective those…?

Gary C. Evans

I think all the three eventually to be 100% 407 at some point in time. And this is important to note that we do get higher rates for 407 trucks than we do on typical vacuum trucks.

Unidentified Analyst

And then, this will be my last one before I get in the queue. Can you talk about maybe the disposal rates by months in the quarter? I just thought you kind of trended by issue that the months in particular?

Gary C. Evans

They definitely were lower in May. May was a...

Kirk J. Trosclair

End of May and the beginning of June is when we lost the customer, right. So then, since then they’ve been back on the steady incline and back to record volumes here as of late last week. So…

Gary C. Evans

Every week that I’ve seen the reports, the month of July and August have been record weeks for us. It’s a new record every week. I mean, we’ve physically are turning down customers now. And we hate doing that because we don’t want to go somewhere else, but we can’t handle any more water than we handled.

Kirk J. Trosclair

It’s a perfect example of gaining [cadre] of why disposal is king versus trucking, Okay. The company that took the business away from us and sold their ability to truck this, the brine into different wells, they did it for like the first couple of days. First, they were able to handle it for the first couple of days. But once the volumes really start to come out and they have to disburse to multiple disposal facilities. Then they starting calling us back to come for our wells, because they – you’ve got to have the disposal capacity before trucking in, and that’s always going to be king in this industry.

Unidentified Analyst

Right. right. Now, I absolutely understood, it’s got a problem in the house. I’m sorry, only one more, can you just talk us broadly about you’re expectation, the timing of the interplay with the IRS, I mean, obviously with the moratorium, your expectations of when that process may begin to fully ramp?

Gary C. Evans

We get some market intelligence with respect to the IRS based on bankers and lawyers and accountants that are all monitoring that situation. And we are being told that they’re going to open up letters again by the end of August. Now is that August or September, I can’t tell you that. But its -- they’ve held the whole MLP process now for about four months. So, I would imagine you’ll see something soon. They are under a lot of pressure from a lot of different sources to do so.

So, we’re got our banks that are already fairly lined up. And we would -- remember we have a Perpetual Preferred that’s little less than 50 million now, because we’ve redeemed some of the units here. But we’ve got that Perpetual Referred that they were paying 10% coupon on. And we’re very much rather be paying that coupon to unit holders and MLP. So, idea that the MLP would replace that as we drop down assets, so I would anticipate sometime between October and December we would be able to accomplish that.

Unidentified Analyst

Right. I appreciate, answering all the questions. I’ll jump back in the queue now.

Gary C. Evans

Thanks.

Operator

Your next question is from Evan Richert.

Evan Richert - Sidoti & Company

Good morning, guys. If you could start off just -- I know you don’t want to identify the customer that I guess you temporarily lost, but can you just give kind of ballpark estimate about what percent of the disposal was that at the time that they left?

Kirk J. Trosclair

It was like 5,000 barrels a day.

Evan Richert - Sidoti & Company

Okay.

Gary C. Evans

It was 5,000 barrels a day that we lost. And just kind of giving idea how fast things have turned. Today, we’re turning down 5,000 to 10,000 barrels a day, because we don’t have the capacity. So that’s how fast it flipped.

Evan Richert - Sidoti & Company

Okay. That’s helpful. And let’s turn to Environmental Solutions business. I know, you talked about it kind of started off late in the quarter contributing revenue. But if you could just kind of touch broadly on what you’d expect from that side of the business the rest of the year and maybe into ’15, if the business goes according to your plan what kind of revenue could you see from that?

Gary C. Evans

Well, one thing that, I’m let Kirk comment on these real quick. One thing to remember that, Environmental Services many times that is a lumpy business. It’s usually when there’s a problem, right.

Evan Richert - Sidoti & Company

Yeah.

Gary C. Evans

Well just flown out. There’s a leak in the river. There’s a leak in sewer system. There is something that’s happens is a problem. And those problems are where you make your big money. So on a regular basis, Kirk, would you.

Kirk J. Trosclair

We’re still on a regular basis. We’re still anticipating that that business to be about a $10 million of your business, from the equipment rentals, labor and just from some of the reactions from the E&P operators out there. We’ve look at it right now, it’s about a $10 million your business, obviously not 2014, but 2015 that’s our mark that we’re trying to hit.

Evan Richert - Sidoti & Company

Okay. Great. And then, can you touch on the timing of barging and where you really see that? When we could start seeing that, kind of get going and when it can be a little bit meaningful contributor as far as lowering your costs?

Gary C. Evans

I’m going to let John; John is dealing with on daily basis. He is going talking about that some.

John Jack

Well, so to answer your questions, we believe that we’re getting very close to a final resolution to the proposed policy that was written by the United States Coast Guard. We work with them constantly on create a good policy, because the idea here is to create a good policy just not a policy that needs to be modified as we go on. So it’s taken a little bit more time. We provided enough analyticals of the product that we’re going to be handling. So we feel very comfortable within the next month and half that we’re going to be ready to put product on the inland waterways.

Evan Richert - Sidoti & Company

Okay. And then, as for the splitter, you talked about looking at some different capacities on that front. Could you kind of ballpark if you were at the 45,000 range, I think Kirk talked about what the cost could look like for that?

Gary C. Evans

We’re looking at anything depending on size and we’re coming from whether where we’ve to find used or new equipment from125 to 150, 160 million.

Evan Richert - Sidoti & Company

Okay. And just one last question before I hop back in the queue, the settlement with White Top, did you receive cash for that in the quarter or is that pushed out?

Gary C. Evans

Well, we got was relief from some significant liabilities that were -- in those entities which we were wholly-owned subsidiaries are. So, there was relief from bank loans approach in million bucks. Additionally, they had received Perpetual Preferred as part of consideration. We got that back, that was worth about $500,000 to $600,000 and that’s been put into treasury. So that’s gone. No more dividends on that and doesn’t exist any longer. So -- and then of course we got resolution of some equipment which has already been move up to Appalachia and basically we’re done with these guys.

So, anyway we paid $3 million for the deal. We’ve reported a gain $2 million. So it was a loss overall, but by fighting them and suing them we were able to collect all this back.

Evan Richert - Sidoti & Company

Okay. Great. That’s helpful. I’ll hop back in the queue. Thanks guys.

Operator

Your next question is from Philip Dodge.

Philip Dodge - Noble Financial Capital Markets

Good morning. Did you say, Philip [Barge]. How does you got Philip [Barge]. It’s Philip Dodge, you always have approval there. So what I need is some guidance on margins from transportation.

Gary C. Evans

Okay.

Philip Dodge - Noble Financial Capital Markets

What they’ll be when you get into the desired balance on owned and third party? And then what they’ll be later on when you get the barges fitted and integrated. And maybe more important there are in multiple and what they are right now?

Gary C. Evans

Okay. I’m going to touch on a little bit and then I’m going to let some of these other guys who are smarter than me interject. The one thing that we changed I should say and the -- I would say, half way to the second quarter with some of our billings on our trucking, which will you’ll notice, you will see that improvement in the third quarter where we were not charging properly for all the hours of our truck drivers. I’m not going to go in a great detail there. But we realized we weren’t doing what was an industry norm and so we have changed that mythology up and that has made a nice improvement in the existing trucking hours.

Obviously the cheapest form of transportation is pipeline, so once the pipeline that we’ve announced the three pipelines is installed, that transportation drops dramatically. I think we detailed that in that press release. It’s important to note like those wells we mentioned down in Meigs County, where we have three wells and we’re getting ready to put in two wells. All those wells are going to be interconnected with pipe, that’s our own pipe. And what that does is eliminate any kind of trucking down there.

So if we starting barging to that area which we already have, we’ve applied for muscle study I guess and all that’s come back. So, we can begin building the terminal there. So once you start barging to Meigs County. There are no trucks involved. We’ll go right from the river in to five different disposals wells via pipe. So, you start to eliminate $3.50 to $4 per barrel trucking charge by a piping. So, you can imagine the savings that not only our customers will get but the new profits they will get. I’m going to let John Jack pitching here little more about the numbers he’s run on the barging in the pipe.

John Jack

Phil, before we go that, let me just reiterate. Trucking transportation is the lowest margin of anything in our portfolio, right. I mean it’s barely above 10%, 11% in that percentile range. So that’s one of the things that we’ve noticed right out the gate we had to improve on the transportation side.

So, we know cheaper form of transportation are pipe and barging, so that’s where you’re going to see the margins, the percentage of margins increase twofold basically, straight to barging you’re talking about an increase from 11 to 12 percentile to where you’re going to 30s at that point. Pipeline, it’s a little different scenario because it’s based on per barrel throughput, but still increasing margins because you’re eliminating trucking transportation.

Philip Dodge - Noble Financial Capital Markets

And if you’re say it, 11% that you mentioned, that there has third party embedded in it?

Gary C. Evans

Actually the third party is probably less I mean, but…

Philip Dodge - Noble Financial Capital Markets

Is that an average of owned and third parties?

Gary C. Evans

Yeah. I think so.

Philip Dodge - Noble Financial Capital Markets

Okay. Thanks very much.

Operator

Your next question is from Jim Collins.

James Collins - Portfolio Guru

Good morning everybody.

Kirk J. Trosclair

Good morning, Jim.

Melissa Pagen

Good morning, Jim.

James Collins - Portfolio Guru,

One question on pricing, I see that your disposal volumes rose was 80% year-on-year, but your revenues from disposal rose 31% year-on-year. So what is causing that disparity there between the barrels themselves and the dollars per barrel?

Kirk J. Trosclair

Post that question one more time Jim, from the revenue side, say again.

James Collins - Portfolio Guru

Yes. Disposal volumes up 80% year-on-year, 80, but disposal revenue is, when you look at that, whether you breakout these sort of revenues up 31% year-on-year, so I’m just wondering what causing that disparity, I mean it would appear that your dollar per barrel is going down obviously, but I realized there could be a other factors?

Kirk J. Trosclair

I understand the question. Even though what is alluding to is our increase in volumes rose 80% versus our revenue only going up 31%, so that had do a lot with our sister company Triad and Chevron, companies that we currently do business with. So it’s not a one-for-one, you can’t look at as one-for-one, 80% new product coming in versus 80% growth in revenue, it just doesn’t equate that way.

Gary C. Evans

We have some long term contracts with certain customers that have fixed price. They in turn are guaranteeing supplies well though and so those customers if they increase their volumes versus other customers that’s the difference and disparity of price per barrel.

John Jack

We’ve also reduced the take or pay volume from Chevron that’s brought that revenue stream down some -- we knew it was gone away, for it was going to phase after that first three years of the contract it was slowly going down. So you don’t have that 2500 barrel take or pay that we initially did a year or two ago.

James Collins - Portfolio Guru

Right, and just a follow-up of that, I mean, generally speaking if I was coming to you guys today to ask for 500,000 barrels per day in Southeastern Ohio, would that you’re paying more or less than someone who paying to you a year ago or two?

John Jack

You’ll be paying more.

Kirk J. Trosclair

You’ll be paying more.

James Collins - Portfolio Guru,

And that’s driven by just scarcity of disposed well?

Kirk J. Trosclair

We may have straight supply and demand, I’m we’re full.

Gary C. Evans

And also the other reason, last year or earlier late last year and early this year, we had one customer that had take or pay. It was a major oil company. And they were paying for volumes they were not delivering. So, we don’t allow this to actually have injection volumes greater than 100%, you follow me.

James Collins - Portfolio Guru,

Yes.

Gary C. Evans

So, you starting looking at that margin there and that’s why your margins were higher to that point. Now we’re at a point where we’re receiving new customers. We have -- and they’re paying that full rate, but the take or pay is dwindling.

James Collins - Portfolio Guru,

Okay. The revenues and the actual disposal should sort work together as to get, that’s you’re right.

Gary C. Evans

Work together from this point forward.

James Collins - Portfolio Guru,

Okay. And just one more question on the revenue side, in terms of your guidance which has been $36 million to $38 million until 2014, does that still work – is that still a good estimate givens that would happen in May?

Kirk J. Trosclair

Yeah. I think the guidance you know in that $36 million is still doable.

James Collins - Portfolio Guru,

Okay. Thank you. Thanks for taking my questions.

Kirk J. Trosclair

Alright, Jim.

Operator

Your next question is from Michael Hoffman.

Michael Hoffman - Wunderlich Securities

Hi, good morning. Thank you for taking my questions.

Melissa Pagen

Good morning.

Michael Hoffman - Wunderlich Securities

So, can you help me understand where margins reaching out the business at the moment, one. And two, I’m trying to get my hands on how your transportation revenue you know really lousy weather period was better than your transportation revenue and whether sensibly it was a good weather period 1Q to 2Q?

Gary C. Evans

One chance for the transportation revenue first.

Kirk J. Trosclair

I don’t know it’s a nice question. A lot of time in bad weather we are the only ones who we’ve got the routes that you could transport during bad weather. We put our own trucks on that. And so, we say it 100% but then your third party revenues will diminish. Also Michael, I know where you’re going with that question. That is directly related to us losing that customer. That customer was basically hauled 75% 80% at least by third party trucking, So that third party revenue that you had delivering in 5,000 barrels a day, we lost that for period about three weeks.

Michael Hoffman - Wunderlich Securities

Got it. First point, on the margin side, it just seems like here there’s some -- the [regional] bit of margin -- I must understand sort of and that is the one time, you got move the mobilize, remobilize equipment on that. But what are the places for you to tighten up the margins before you see barging in pipeline from things like that?

Gary C. Evans

Well, I’ll take this any doubt that disposal wells handle more volume are going to create a higher margin, right, because the amount of infrastructure and that’s why we aren’t even messing right now with this Newport well that was doing 750 barrels a day versus a new Meigs County well that does 4,000 barrels a day. It’s a same amount of infrastructure, same amount of operating overhead to do 750 barrels a day versus 4,000. So, you’re going to see those margins improve as we put in more wells that have higher capacity and connect those wells with a pipeline.

In other words we are taking volumes like to center this facility putting them into the big tanks there and then moving those volumes again. We’re moving them one time and they are one time is going into wells via pipeline.

Michael Hoffman - Wunderlich Securities

Okay. And then on the transportation side, actually again the additional pipeline and barging, is best-in-class trucking companies are really sort of 12% to 15% margins. So what can you do to get that transportation margin close to that 12% to 15% and sort of 10% or 11%?

Kirk J. Trosclair

I think we answered some of that with Gary’s comment earlier. I think you see us coming to that 12% to 15%, we were probably just below it or [indiscernible] answer we were exactly or 12% or not, but we noticed that on billing efforts. We were not including some of the driver trip times as far as safety, walk around and things like that that are standard in the industry that we shouldn’t be able to charge for. We fixed that problem. So you’ll see that increase. We’ve also implemented some newer vacation guidelines and things like with the truck drivers to not have as many gaps on those type of holidays and things that you mentioned where we can coverage.

The other thing is finally to increase that as we’ve started -- we’ve hired a few drivers now and that are going to work weekends and so we’re going to transfer product over the weekends in from our storage facility, but we have some drivers working like Tuesday to Sunday and then others ones working Monday to Friday, just doing a better job of overlapping and dispatching to maximize our driving efficiencies.

Michael Hoffman - Wunderlich Securities

Okay. And then if took the 13 million then you might have answered this, but I unfortunate my phone dropped the call, I may have missed it. But if you take the 13 million of incremental capital on the second half, in big market how much is the trucks, how much retrofits of tanks, how much is Salt Water well?

Kirk J. Trosclair

We’ve got $2.4 million in trucks. We’ve got about a $1.5 million in pump upgrades and then you’ve got $1 million facility down at Mills to get the pipeline and get some more storage down there. You got the two conversions of the wells, what we’ve done those are the two wells done in Mills, that’s enough as 500 pieces, so it’s a million. And then you got the new drills down at Ritchie II and Cairo II and we’ve got those expecting there about million of piece in new drills.

Then you got new MAG conversion which is about 4 to 5 million or so that converts hydrocarbons to handle the condensates. So that’s kind of breaks down the 13 million, I can go on to some more detail with that if you want on a side line later.

Michael Hoffman - Wunderlich Securities

Okay. So barging obviously you get approval that’s incremental for that?

Kirk J. Trosclair

No, no. Actually that – we’ve not mentioned the $4 million over at Mills Hunter facility, that’s including, so all together in there you’ve $2 million at the Mills facility. Basically conversion of the two wells, building tanks, restocking of the dock facility and laying the pipeline from the tank to the disposal wells.

Michael Hoffman - Wunderlich Securities

Okay.

Kirk J. Trosclair

We also have the increase the size of that facility and add some additional pumping. So that’s all included.

Michael Hoffman - Wunderlich Securities

Okay. And then pipeline project assuming all those permits, straight away all of that stuffs get approved in a normal time line, when do you flow your first volume to that pipe?

Kirk J. Trosclair

January 1, 2016

Michael Hoffman - Wunderlich Securities

2016, okay. And then lastly on the MLP, correct me if I’m wrong on this, I’m not exceeding your observation from the bankers although they are always going to optimistic, but lets say I heard – those who joined before the end of the -- fiscal years, still take four to six months to them to process the PLR. And I’m assuring you guys [Indiscernible] now because of this moratorium, so we’re really looking at not getting an approval into 2015, seems more likely given there are normal traction, is there any reason to believe they would accelerate the process?

Gary C. Evans

Well, I’m just telling you what we’ve been told by the lawyers and bankers, and accountants is that because we’re not requesting the PLR that’s any different then what they have already approved and should expedite it, especially the backlog, who knows, so we’re all sit here guessing.

Michael Hoffman - Wunderlich Securities

And your last likely to be able to drop transportation now, is this just follow overall pipeline stuff and storage.

Gary C. Evans

We’re only going drop down mature assets. It won’t be – it will be something that can easily be identified as a multiple of cash flow EBITDA.

Michael Hoffman - Wunderlich Securities

Okay. And would you access the capital markets before you are on MLP that they are [indiscernible] ?

Gary C. Evans

Yes. We would.

Michael Hoffman - Wunderlich Securities

Okay. All right. Great. Thank you.

Operator

And your next question is from Philip Dodge.

Philip Dodge - Noble Financial Capital Markets

Just wondering if you can bring us up to-date on the MAG Tank situation whether you’re discussing any possible sales or whether its reasonable to expect something from them in the second half?

Kirk J. Trosclair

Yes. Philip, we have several quotes over the last month, I think we’ve put out more quotes than we have in previous six months. Typically what happens in MAG Tank cycle the budgeting process for the E&P operators for the next fiscal year budgets typically take place in this time frame going into 3Q, and so that’s when you typically see the orders from the previous year get filled for the next year. So that’s how we’re seeing those coats come out now. The guys that has -- remember at the end of 2013, when we displayed the MAG tank over at duggies and we had tremendous interest in the product and we could have put at least five to six of them in the field before December of 2013, we just didn’t have the panels build.

So our competitors actually won out on those contracts, typically those contracts run for about a year, okay. So we’re seeing it now starting to turn around where the companies are going out for that next year’s bidding process and we are submitting several bids to number of E&P operators in the Appalachia region. We’ve also submitted a couple of bids just recently to a couple of companies down at South Texas and then we are gaining some interest from some companies overseas actually down in Australia.

So we haven’t given up on it. I mean, we’re still optimistic about MAG Tank and we thinks it’s a far superior product to any of our competitors and its just taken us a little time to going on our inventory due to capital constraints and now that we have some inventory we can truly go out and push them as it’s like time to sell something that you don’t have. Its not always the best thing. Well now we have it and we go out and sell them.

Philip Dodge - Noble Financial Capital Markets

Is it reasonable to expect the responses to these request for bids sooner or is it by the time they their E&P budgets put together into 2015?

Kirk J. Trosclair

No. I think we get them in the third quarter going into the four, that’s when you usually receive your bids back.

Philip Dodge - Noble Financial

Okay. Thanks very much.

Operator

We do have a question from George [indiscernible]

Gary C. Evans

Okay. This will be our last questions.

Unidentified Analyst

Hey, guys. Thanks for taking my call. My question comes too earlier. But question – two quick questions, one on pricing and volumes. You’ve seen a pickup in the volumes is this a function of some seasonal activity or is it a function of Southwest Pennsylvania and Utica to a certain extent I know there’s going to be capacity constraints going forward?

Gary C. Evans

I think there’s no question that its just increase in total overall. Drilling activity, the Marcellus and Utica Plays continue to look excellent in this area and we foresee that drilling activity increasingly significantly over the next two to three years. I can just tell you from the Magnum Hunterside our budgets will double next year in this region and most of our partners or competitors are doing the same. So, I think we’re just beginning to see the very forefront of a significant growth in business and its fresh water, it’s brine, its condensate, its environmental, its everything we do we’re seeing that drilled.

Unidentified Analyst

And as this starts to expand at what point and you are turning away customers. At what point do you think you can get additional pricing power?

Gary C. Evans

We are having that discussion as we speak.

Kirk J. Trosclair

I would actually like to touch on this one just a little we didn’t touch on it too much. The importance of barging, and so let’s – I don’t usually like to use general numbers but if you look at New Matamoras as our storage facility, we charge 650 a barrel for putting a product at that storage facility. We are using trucking to get that material to the disposal wells when we have capacity at the disposal wells, that’s why we are always a 100% utilization at our wells. What you did on the river we’re still capturing the 650, but we’re moving it for $0.50 a barrel rather than $3 and $3.50 a barrel. So our gross revenues are going to increase by $3 a barrel by putting it on a river and getting that down to mills that margins. And so, once the barging is implemented our revenues are going to dramatically increase.

Unidentified Analyst

Got it. Okay, that’s fine. And then on the SG&A front obviously you’ve added some additional talent to the team. As we go forward, how do we look at SG&A? Are we -- is it going to grow incrementally or I mean at some point we start seeing some revenues growing into the SG&A rather just want to get you know a run rate through 2014 into 2015 and to see what you need there on that front?

Gary C. Evans

Well think about this. We’ve built the staff in two brand new divisions over those last quarters, environmental services and hydrocarbons. So environmental service has barely reported minor revenues, hydrocarbons reported none. So you got two new businesses with new people, they are just now beginning to generate revenue. So there is no question of SG&A kind of go down as a percentage of revenue.

Unidentified Analyst

Got it. All right that’s it from my side. Thank you.

Gary C. Evans

Okay, operator thank you. You can sign off please.

Operator

Okay. Thank you very much. Ladies and gentlemen, this does conclude today’s conference call. You may now disconnect your lines

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