TETRA Technologies, Inc. (TTI) Earnings Call Transcript & Summary

Good morning, and welcome to TETRA Technologies Fourth Quarter 2022 Results Conference Call. The speakers for today's call are Brady Murphy, Chief Executive Officer; and Elijio Serrano, Chief Financial Officer. [Operator Instructions] please note, this event is being recorded. I will now turn the conference over to Mr. Serrano.

Good morning, and thank you for joining TETRA's Fourth quarter 2022 Results Call. I'd like to remind you that this conference call may contain statements that are or may be deemed to be forward-looking. These statements are based on certain assumptions and analysis made by TETRA and are based on several factors. These statements are subject to several risks and uncertainties, many of which are beyond the control of the company. You are cautioned that such statements are not guarantees of future performance and that actual results may differ materially from those projected in the forward-looking statements. In addition, in the course of the call, we may refer to EBITDA, adjusted EBITDA, adjusted EBITDA gross margins, free cash flow, net debt, net leverage ratio, liquidity or other non-GAAP financial measures. Please refer to yesterday's press release or to our public website for a reconciliation of these non-GAAP financial measures to the nearest GAAP measures. These reconciliations are not a substitute for financial information prepared in accordance with GAAP and should be considered within the context of our complete financial results for the period. In addition to our press release announcement that we announced yesterday, we also encourage you to refer to our 10-K that we filed yesterday. Brady, I'll turn it over to you.

Thanks, Elijio. Good morning, everyone, and welcome to TETRA's Fourth Quarter 2022 Earnings Call. I'll summarize some highlights for the fourth quarter, comment on the current outlook as well as provide an update on our strategic initiatives before turning it back to Elijio to discuss cash flow, working capital on the balance sheet, liquidity and add some color to the SK 1300 Section 19 economic analysis that we issued last night. We closed out a strong year in 2022 with a strong fourth quarter, growing revenue sequentially 9% over the third quarter and 42% for the full year over 2021. Adjusted EBITDA of $20.3 million increased from $18.6 million in the third quarter and for the full year, excluding mark-to-market gains in 2021, our adjusted EBITDA for 2022 more than doubled, increasing by 112% over 2021, with almost a 30% fall-through on incremental EBITDA to incremental revenue. Despite some headwinds during the fourth quarter that we mentioned in our last quarterly call, including the postponement of pure flow orders and the need to purchase additional bromine at spot market prices, we more than overcame these challenges by capturing multiple high-margin completion fluid sales in an increasingly and strengthening offshore market. For the combined markets of the Gulf of Mexico and our international offshore businesses, we increased quarterly sequential revenue by 20% and more than 50% year-on-year. The completion of our first U.K. Neptune job along with continued improvements to the disrupted supply chain for our European Chemicals business contributed to our successful Q4 results. We are scheduled for another North Sea Neptune job in the second quarter this time in Norway. We continue to believe we're entering a multiyear growth cycle for the offshore markets and the increases in floater day rates, contract durations and subsea tree orders are underpinnings for that belief. As a result of the offshore deepwater market concentration over the past 8 years, certain oilfield services segments are already in a tight supply situation. This, why Rystad Energy Services is projecting a 25% increase in deepwater floater rigs by 2025. We -- in the fourth quarter, we took steps to further strengthen and expand our offshore completion fluids business with 2 key investments with the acquisition of the North Sea Completion Fluids business and acquiring Newpark's completion fluids inventory and deepwater base in Port Fourchon in Louisiana, servicing the Gulf of Mexico. These investments will increase TETRA's fluid capacity by 70% in the U.K. sector of the North Sea and by almost 15% in deepwater Gulf of Mexico operations. Both operations contributed financially upon a close and approximately 40% of the acquired Newpark inventory has already been sold. The segment results for Completion Fluids & Products fourth quarter 2022 revenue of $66 billion increased from the third quarter of 2022 by 12%. Adjusted EBITDA of $16 million increased $1.3 million sequentially, while adjusted EBITDA margins improved by 40 basis points sequentially when excluding unrealized gains and losses from both periods. Shifting to our Water & Flowback segment, revenues of $81 million grew 52% year-on-year and 7% quarter-on-quarter and a flat to slightly down active frac fleet market in the fourth quarter, somewhat due to year-end weather. This marks the seventh consecutive quarter of sequential revenue increases and the highest quarterly revenue since the second quarter of 2018. Adjusted EBITDA of $12.1 million improved by $5.2 million or 75% year-on-year, although adjusted fourth quarter EBITDA margins of 14.9% fell slightly from Q3, mainly due to a mix of lower-margin services. For the full year, Water & Flowback revenue for 2022 grew by 66% and adjusted EBITDA increased by 191% for a fall-through of slightly over 25%. The -- we achieved our target set for 2022, a 15% adjusted EBITDA margin with adjusted EBITDA of $43.4 million or 15.5% of revenue. Growth was driven by capital investments made in technology to expand our fleet of TETRA sandstorms through international expansion from the deployment of the early production facilities in Argentina and leveraging our investments in automation by reducing operations personnel at the job site. We expect adjusted EBITDA margins to rebound in the first quarter and beyond for the full year of 2023. International contribution is also expected to increase in 2023 as we bring online an additional EPF in Argentina in the second quarter. To date, the 2 operating EPS have been operating consistent with expectations. For 2023, we will continue to opportunistically invest in new capital projects with short-term returns, but our focus will be on EBITDA margin expansion and cash generation and less on new growth as we have achieved over the last couple of years. As previously announced in December, we're very pleased with the results of our first field pilot project for desalination of produced water for beneficial re-use in Texas for a major oil and gas operator. The results yielded as high as 92% desal native water from the produced water with total dissolved solids below that of the average municipal tap water. The equipment has returned to our R&D facility and is undergoing further enhancements for our final commercial plant design, with the recent and increasingly seismicity events in the Permian Basin, along with expected increase in produced water and disposal restrictions, we continue to see significant customer interest in produced water beneficial reuse, including mineral extraction. Finally, in the fourth quarter, we continued to advance our strategic initiatives, including the technical and financial analysis for the development of our bromine and lithium brine resources in the Smackover formation in Southwest Arkansas. We issued a press release yesterday announcing the progress on our bromine project with an SK 1300 Section 19 report available now on our website for review. A few key points regarding this potential project that supports our continued efforts to fully evaluate this resource development. Our current long-term bromine supply agreement has plenty of runway, so we will be very methodical about our evaluation and investment decision. As a reminder, the inferred resource report provides estimates for both bromine and lithium within our targeted 5,000 acres. And although our SK 1300 Section 19 report focuses on bromine, 35% of the estimated project CapEx in our Section 19 report would be for wells and pipelines for brine production that would have both bromine and lithium in the brine. The proposed bromine plant as part of the hard grow FEED study would initially support 45% to 50% more volume than our current long-term supply agreement. However, the bromine tower itself is designed to accommodate up to 150% of our current supply agreement. If the multiple conditions that are laid out in our press release from yesterday are met, that would support us moving forward on this project, we could meet our projected oil and gas demand for this upcoming offshore cycle as well as what we believe to be a conservative estimate of the energy storage demand. Although methodical in our evaluation, we are committed to putting up the right effort and right resources to fully explore this significant opportunity. Finally, progress of our Woodlands Texas R&D center continues on lithium extraction technology as we're establishing pilot units to address each stage of the process, starting with our raw Smackover from our well in Arkansas to successfully producing a lithium carbonate, which we've already demonstrated at lab scale. We will continue to communicate our progress as this work advances. With that, I'll turn it over to Elijio to provide some additional commentary, then we'll open up for some questions.

Thank you, Brady. Cash from operating activities was a use of $7 million in the fourth quarter, while adjusted free cash flow from continuing operations was a use of $14 million in the quarter. Accounts receivable increased by $24 million from the end of the third quarter to the end of the fourth quarter, reflecting the strong ramp-up in activity by the end of the quarter, driven by some large fluid sales in December that Brady previously mentioned. Working capital at the end of the year was $101 million and compares to $87.5 billion at the end of the third quarter. Working capital consumed $18.8 million of cash in the fourth quarter as compared to a use of cash of $8.6 million in the third quarter. Capital expenditures were $7.2 million and compared to $12 million in the third quarter. Full year capital expenditures were $38 million and reflect the investments made with quick payback investments, such as our 10% storm then filtration technology and to strengthen our long-term position in international and offshore markets due to the investments in early production facilities in Argentina and increased capacity for our offshore completion fluids business. The payback on this -- on the Sand storms and the early production facilities was very evident is our quarterly EBITDA margins increased materially in the second half of the year compared to the first half of 2022. In 2023, we expect to achieve strong revenue growth on lower CapEx investments while monetizing much of the accounts receivable that was built at the end of the year. These combinations should result in significant free cash flow generation in 2023. Capital expenditures in 2023 is expected to be below what we expended in 2022. At the end of the fourth quarter, unrestricted cash was $14 million and availability under our credit reagreement was $72 million. As of yesterday, liquidity had improved by the end of the year by $10 million to $95 million with no borrowings under our existing asset-based lending facility. Long-term debt with a September 2025 maturity is $156 million, while net debt is $143 million. TETRA's net leverage ratio was 1.99x at the end of the fourth quarter. Outstanding borrowings under our term loan have been reduced by over $57 million from $220 million September 30, 2020 to $163 million as of September 31, 2022. In addition to the liquidity and cash I mentioned earlier, we are holding some significant marketable securities. We are currently holding 400,000 shares of standard lithium with a market value of approximately $1.7 million based on yesterday's closing price. We do not have any restrictions on selling this year. We expect to receive another 400,000 shares in May. We are also holding approximately 5.1 million common units of CSI Compressco with a market value of approximately $7 million based on yesterday's closing price. We also don't have any restrictions from selling these common units. And our investment in carbon free is currently valued at approximately $6 million. This one is not publicly traded. The total of these investments is slightly less than $15 million. Recall that in late 2021, we sold a 1.6 million shares that we had accumulated in standard list and slightly under $11 per share, generating almost $18 million of cash proceeds. Also, as a reminder, we have accumulated approximately $411 million of tax loss carryforwards in the United States that can offset future taxable income. In addition to the $411 million of federal net operating loss carryforwards, we also have significant state income tax loss carryforwards and some international tax loss carryforwards. This will become very important as we continue to improve our profitability, allowing a higher conversion of net income to cash flow. In 2022, we generated over $11 million of pretax income and paid income taxes overseas, but no U.S. income taxes. These tax loss carryforwards will also be valuable to us as we look for process from our Arkansas, bromine and lithium investments in the future. I'd like now to spend a few minutes on the other press release that we issued last night. Brady mentioned that some of the work that we have been focused upon using a significant amount of internal and external resources have been accomplished. We are taking a very methodical and measured process to assess our Arkansas assets I want to be sure that our investor base fully understands this process as there are no imminent significant investments to be made. We will aim to be very transparent as we go through various case. We previously announced that we had completed an deferred resource study. We estimated the potential amount of bromine and lithium on our leased acreage, an inferred resource is one that is based on limited sampling and is based on reasonably assumed but limited information. Samples might include data that is publicly available. Previous geological maps and well data from the surrounding area allow for reasonable assumptions about the size and scope of this resource. We drilled a test well in 2022 that allowed us to capture incremental data points. Other than to make some expenditures to further assess these assets, we would not make any significant investment decisions simply on the basis of an inferred resource study. One step up from an inferred resource is an indicated resource study for the quantity, grade and quality, shape, size and continuity can be more confidently reported. We are drilling a second well to get to this stage. Then the next step is a measured resource, which represents the highest level of geological knowledge and confidence in the resource. At this stage, the resource characteristics are well established through detailed and reliable exploration work. Economic and technical factors can be more comparably applied. Mining and production planning can give more detailed estimates of economic viability. The economic analysis we published on our website yesterday is from the inferred resource analysis from the reservoir modeling that we have done and from a front-end engineering design study we did with a third-party engineering firm. The economics are preliminary, and there is no certainty that the economics contained in the report will be realized. However, the outcome of such that it gives us confidence to invest approximately $5 million to get to the next stage, inclusive of the second test well and further economic assessments. Note that the stages that I just mentioned all arrive at estimated resource each with a greater degree of confidence and each with incremental data points to move from resources to reserves, additional work is required beyond proving the quantities of minerals available to us. To move from resources to reserves, we now need to do further engineering and economic assessment to demonstrate that we can take these resources and commercialize them successfully. Inferred mineral resources are considered to have the lowest level of geological components of all mineral resources. Inferred mineral resources have a high degree of uncertainty as their existence and to whether they can be economically or legally commercialized. A significant amount of exploration work must be completed in order to determine whether an inferred resource, mineral can be upgraded to a higher category. The difference between a resource and a reserve comes down to a feasibility study, which takes into account non-geological factors. This includes technical factors, which include extracting the brine and processing the bromine. This also includes additional economic planning such as a detailed engineering design and environmental and permitting analysis. A reserve is defined as problem when economic extraction can be justified. A reserve is defined as proven when economic extraction is justified. Our next step is to gather incremental data points to move from inferred to indicated and to complete a feasibility study. This will take several months. From here, we can have more confidence that we can successfully from an economic point of view, proceed with the investment in wells pipelines and a processing plant. The fact that LANXESS and Obama are doing exactly what we are evaluating gives us confidence that we are likely to have a successful project if and when we make a decision to move forward. And as a reminder, the process and knowledge have been in practice for many years and no new technologies or processes need to be developed to accomplish that whereafter. The FEED study we completed with the engineering firm estimated at the cost of the well to source a brine inject a leftover or the tail brine, build the pipeline and construct the brine to bromine processing facility could be approximately $280 million, inclusive of $35 million of contingencies and inclusive of about an estimated $20 million of work to allow us to upsize the facility in the future for potentially higher volumes of bromine processing. And as Brady mentioned earlier, the $99 million identified for wells and pipelines to extract and move the brine can also be used for lithium in the future. Thus, the $280 million entailed an investment that includes what we believe to be significant contingencies, investments lay the groundwork to increase production in the future and has wells and pipelines that can leverage future lithium production. The bromine plant, as we mentioned in our press release, as a multipurpose focus. The first is to increase the amount of cost-effective bromine available to TETRA above the volumes currently available to us from our long-term agreement to address an expected multiyear growth in the offshore oil and gas market, assuming commodity prices remain relatively constant. TETRA's already experiencing an increase in demand that exceeds volume available under a long-term supply agreement. The second is to address emerging demand for zinc bromine-based battery storage, which may be significant TETRA's perf customers are successful in ramping up their operations. The third is to reduce TETRA's dependence on open market purchase -- third-party purchases of bromine by producing bromine at potentially materially lower production costs. And the fourth and final objective will be to control our own supply chain for the longer term and beyond the life of our current multiyear agreement, we still have several years to go. We also mentioned that we have engaged an investment banking firm to help us identify potential strategic partners should we make the decision to potentially proceed after completing an indicated resource study with a feasibility study to move from resources to reserves. At this point, we have not made a decision to proceed with this investment. The economics based on preliminary work look attractive for us only to move to the next phase of analysis and to reach out to identify potential partners. The decision to partner with someone will be based on whether we identify potential partners with the structure we believe is appropriate for TETRA and our investors. Given that the size of the investment required and realizing we will not put too much leverage on TETRA's balance sheet, we believe identifying potential strategic partners will be the best path forward. We are also in preliminary discussions with the Department of Energy, discussing opportunities for loans and grants for our bromine project. The final item I'd like to add is that we'll be participating at the Scotia Harweel Conference next Tuesday, hosting one-on-ones and making a presentation Tuesday afternoon, they will be webcast. If you'd like to participate, please reach out to me or Rego. Again, I encourage everyone to read our news release that we issued yesterday, the bromine project report we posted to our website and the 10-K that we filed yesterday for all the supporting details and additional financial and operational metrics. Please call me if you would like to discuss any of these items further. Turn it back over to Brady for closing comments.

Thank you, Elijio. To recap 2022, not only did our base business performed very well, but we've also made significant investments in our business to expand our earnings base in the coming years. Over the last several quarters, we've nearly doubled our fleet of TETRA SandStorm advanced cyclone technology, which remain at a very high utilization. We've also invested in international markets via the deployment of EPS as well as our completion fluids business expansion. And we have invested to boost our capacity in the Gulf of Mexico to support increasing deepwater activity. While increased offshore activity is already contributing very meaningfully to our earnings, significant upside remains with deep broader projects due to our CS Neptune offering. As Elijio mentioned, we expect to achieve strong growth in '23 over 2022, that coupled with our focus on margin expansion and cash generation should drive meaningful cash flow generation in 2023. -- we're excited and committed to fully evaluating the Arkansas brine resource, and we'll continue to communicate updates as appropriate. With that, we'll open it up to questions.

[Operator Instructions] Our first question comes from Martin Malloy with Johnson Rice.

I wanted to ask about the offshore completion fluids market. And it certainly seems like there's an inflection point here in activity going on. Could you maybe talk about the pipeline and the visibility as you talk with customers and maybe in particular on the Neptune product?

Yes, Martin. So as we mentioned, we covered our first U.K. Neptune job. We've previously performed Neptune job, both in the Gulf of Mexico and in Norway. We have another Norway project that we plan to be executing in the second quarter. And really, our objective has been to get a more repetitive projects in our business as opposed to the lumpiness that we've seen in the past. And I think we're getting some traction with that, certainly in the North Sea. And I think we expect to have more repetitive jobs in the North Sea business. The Gulf of Mexico, obviously, these are much larger projects. Those 4 pipelines where we're very engaged with our customers on those projects. We may see some projects come forward in -- before the end of this year, but it's more likely that we won't see a meaningful uptick in our Neptune opportunities until we get into the '24 and beyond.

Great. And my second question, I wanted to ask about PureFlow and the ability to ramp up, assuming that your customers are able to increase capacity and throughput and get the government funding that they're looking for. Could you maybe talk about your ability to ramp pure flow and any additional CapEx would be required?

Yes. Martin, our ability to ramp up production of Pure Flow through our West Memphis facility, we need very little to no capital at our West Memphis production facility. We have plenty of capacity at that plant. The issue really for PureFlow longer term is the ramp-up in energy storage if our customers are successful, as you noted, in ramping up the demand levels will pretty dramatically exceed our current supply agreement for bromine, which is one of the reasons why we are looking so carefully at our Arkansas project and the timing of that Arkansas project as it relates to the success -- potential success of our PureFlow customers because the -- if they are successful based on the demand opportunities that are there, it will have a meaningful impact to the bromine market.

The next question comes from Stephen Gengaro Stifel.

Two things for me. And pardon, if you hear background noise because I'm on a lobby of all, so I'm sorry about that. The -- when we think about the -- the quarter was obviously very good on the top line. And I was -- as I sort of think about the progression going forward, was there anything in the quarter that I should be kind of contemplating as I think about sequential performance in the first quarter of 2023. And maybe in addition to that, how should we think about the water and flowback business if we -- given sort of a plateauing in North American activity right now?

Yes, Stephen. I'll cover the water and flowback first. I would mention we've had significant growth in this business for us. Quite frankly, the pace of growth that we achieved in 2022, well exceeded the market. And when you grow like that, you typically take on some costs and it's difficult to be as efficient as you would like to be with your business. And that caught up a little bit with us in the fourth quarter. Some of it was a mix issue where we dropped slightly on our margins. But we fully see a rebound to -- back to increasing margins as we go forward in Q1 and beyond for the full year. I think from a margin expectation, we would build on the second half of the margins for our water and flow business, the activity that you saw -- so we feel pretty good about that as well as getting additional contribution from international, particularly Argentina, as we get full years of growth and margins from the 2 EPS that we have deployed as well as a third one that is due to come online in -- at the end of the second quarter, start of the third quarter. So we fully expect to grow in 2023 based off the investments that we made in 2022, contributions from international, but also get back to expanding our margins as we have been. Probably the completion fluids side of the business in Q1, when the market remains strong, there's always a little bit more lumpiness in larger projects that come and go in the completion fluids side, but we feel extremely well positioned to take advantage of this market as we go through the full year of 2023. And there's nothing exceptional about the Q1 relative to our Q4 that I would note. We do plan to ramp up in our typical second quarter with our TCE European chemicals business. That business has recovered very nicely, not back to 100% yet due to the supply chain the disruption that we had, but we are well on our way to getting back to that just in time for our second quarter ramp.

And then 2 other things, one pretty straightforward. Do you think the target for $100 million in EBITDA in '23 is reasonable? -- not your target, the Street target. I mean is that in the ballpark, you think?

So Marty, we're going to refrain from providing -- I'm sorry Stephen, we're going to refrain from providing full year guidance. We believe that there's still too many economic factors that move around that are unpredictable, such as the recent drop in the price of gas that is out there. So we won't be commenting on total year guidance.

Okay. And then when we think about your opportunities, and obviously, you have a couple of really exciting things going on right now. If we're sitting down in 24 months, then it's beginning of 2025, right? Where would you -- where do you see the company? Like what do you think are the biggest key drivers of earnings? And how do you -- what are your vision the TETRA 2 years down the road?

Yes, Stephen, I think we're very pleased with the current position of our 2 business segments. I think our water and flowback business, even though frac activity may have plateaued some. We still have considerable growth opportunities on the produced water side, particularly with our desalination and beneficial reuse and mineral extraction. I think that's a whole new market that no one is benefitting from today. And we actually think we have a really good leadership position in that space to benefit from whether it's 24 months, whether it's 48 months, that will be remaining to be determined. But the opportunities are there, and we feel good about our ability to lead in that effort. On our completion fluids side, as I said, I think we're in the early stages of a really strong offshore market. I think our Neptune projects will be hitting with a higher cadence certainly in that period of time. And I'm hopeful that our Arkansas project will be fully evaluated, and we will have met the criteria that we've listed to move forward with that project, which if we're successful with that and that project is approved will be somewhat game-changing for the company?

The next question comes from Tim Moore with ES Huber.

And it was nice to see the detailed preliminary economic assessment on the bromine project. My first question, Elijio, I mean, how should we think about free cash flow generation possibility for this year that you -- because you won't have as much working capital drain or capital expenditures as you lap the Latin America projects, but maybe you could have a little bit more calcium chloride supply buildup. Just kind of wondering, is $30 million free cash flow in the renopossibility given all the puts and takes?

So we expect EBITDA at '23 to be above '24. We expect capital expenditures to be lower '23 versus '22. While we would be pleased to see a spike in year-end activity like at the end of '23, like we saw at the end of '22, we don't think that's going to happen. So we think working capital will be neutral worst-case positive best case. So we expect that we will be strongly free cash flow positive in 2023.

Good. That's helpful. And you reported -- that report had the volume potential for the bromine project compared to your long-term supply, it was nice to see that. I think it was 45% to 50% more. Can you give us any rough sense of maybe how much lower your cost of bromine could be after the project is done, I don't know, a year out after efficient operating well compared to your supply now? I mean, are we talking like a 30% savings.

Yes, Tim, we -- for competitive reasons, we're not giving the specifics on that. Hopefully, you can tell from the financial information that we included in our economic assessment what the profitability of the project could be if we're successful. -- but we're not giving specific details on bromine cost or purchase prices that we pay.

Understood. I had to try. But if I heard your comments earlier, Elijio mentioned, maybe I misunderstood this, did you expect to spend $5 million more for kind of the second speeds drilling? And any sense of maybe what your exploration pre-development costs could be this year? And I believe they were $6.6 million last year.

Yes. So we're going to drill an exploration well. That's probably going to run in the $2.5 million to $3 million range. But we have some other efforts that we plan to kick off this year, potentially a prefeasibility study, some additional engineering that is accounted for in our full budget for this year for our consultant. Our intention is really to ensure we get to an indicated resource report. We've got one well planned for that, and we're hopeful that, that will be enough information to get us to an indicated resource report. But until we drill that well and get the results, there could always be another well we may have to get to finally get there, but that's our expectations.

That's helpful. I'm just curious, how is that new automated drill out technology going? And when do you think maybe those sales could be material figure? Do they kick in more spring or summer?

Yes. We actually have a lot of interest in that unit. We -- at this point, because of the capital associated with it, Tim, we're probably only going to do take-or-pay or long-term contracts for that unit. We are in discussions with several operators in that regard. But that's an area we're going to be ensuring we have long-term commitments before we start putting additional capital into it. And we think we'll get there, but those are ongoing discussions.

Good. That's helpful. And then just lastly, my last question is on the desalination of produced water. I'm always curious about this. I've got a 2-part question. Is there any update on the regulatory agencies review and possible approval timing? And then it also sounds like you've learned a few things during that pilot. Just wondering if you can elaborate on that as you refine the membrane sizes for treatment or do any design tweaks that are showing better efficiency?

Right. So on the regulatory side, it's apparent that each operator of the produced water is going to have to get their own permits for their produced water projects. The project that we work on with our pilot project is in process. We've seen the requirements for the regulatory. And we feel very confident that our technology will meet those requirements. But each operator is going to have to go through a permitting process before we can deploy a desalination unit to the project. As far as the pilot goes itself, the membrane technologies, whether it's the KMX or the Hirax that we have negotiated the agreements with performed extremely well the Hirax in this case. The pre-treatment also performed well, but we've got to do some field worthiness and kind of long-term plant design upgrades to the -- both the -- primarily the pre-treatment. That's pretty critical to the process, and that's the stage that we're performing right now before we would be ready to take on a long-term plan. So...

Good enough. That seems like that's progressing well.

The next question comes from Samantha Ho with Evercore ISI.

So most of my questions have been answered, but I wanted to maybe drill down a little bit more on this produced water initiative. So you mentioned that each operator needs their own permit for their own projects. I'm kind of wondering how you're thinking about that in terms of as you do start to deploy this technology. Are you taking a similar model as like how you deploy the SandStorm technology where you're just going to lease it? Or do you need to partner up with a large producer to have more scale as we start to roll out that new initiative?

Yes, Samantha. So each project, I think, is going to be very specific to that operator. I think you're going to see projects range from 10,000 barrels a day, which would be a smallish project. But again, this is a 10 15-year 20-year potentially type of plant up to potentially 100,000 barrels a day or more. And so -- and the capital costs associated with each of those are going to be very different. Whether the customer will fund the capital for the projects or we will fund them if they're smaller. We're going to take that on a case-by-case basis, Samantha, based on how we see the opportunity and the operators that kind of partnership agreement.

And then you kind of mentioned that there's still a lot of uncertainty out there, mostly with gas activity. I'm kind of wondering where your exposure is on the U.S. land side forecast? Is it pretty easy just to like move some of that Sandstorm fleet and houses around like an oily basin.

Yes. So we do have a good operation in the Marcellus. Tech's been there a long time with a strong water business and a flowback business. We have not seen any meaningful results changes yet, but it's something we're going to keep an eye on. The good news is that our demand for all of our assets, whether it's water, flowback or sandstorms are all very high in the Permian or South Texas or Mid-Con, where, again, we have strong market position. So I'm not concerned at all about moving those assets if we need to. But so far, we haven't seen any material change that would warrant that type of movement. We don't have a big presence in the Haynesville. So less exposure on that. But we have plenty of other market outside of the Marcellus that if we do see some pullback, we'll be -- we think we'll be in great shape.

Okay. And then if I could just squeeze one more in. I'm kind of curious on the deepwater completion fluid side. Like you guys have been so kind to provide the breakout of fluid revenue mix. I wonder if you had a similar type of high chart, for example, for the margin front? Like is it a similar type of profitability depending on the 3 different like end markets that you guys apply to on the fluids business? And then how do you view like your market share amongst like the offshore -- like the deepwater rigs, for example, can you provide any sort of like share based on the data for us?

Yes, Samantha. So for deepwater, give me -- I think we gave an example in our press release yesterday. Our team estimates about 70% of the deepwater wells in the Gulf of Mexico, as an example, require a bromine-based completion fluid. And we have -- we estimate we have roughly a 30% market share of the -- what we call high-value completion fluids, which typically contain bromine. And that would be North Sea deepwater that would be Gulf of Mexico deepwater, that would be Brazil deepwater. A little less so in other markets. But overall, we think we have a very strong position with our -- what we call high-value completion fluids business, if that's helpful. On the margin side, I'm not sure we would share the details of a breakdown -- family breakdown of our products. If I understood the question correctly, -- was that the question?

The next question is a follow-up from Martin Malloy with Johnson Rice.

Just had one follow-up. -- carbon-free, I saw the announcement that they made with respect to collaborating with BP on developing solutions for industrial facilities. Could anything to report there in terms of potential demand for calcium chloride from for these type of projects?

Yes. We saw the announcement as well. And we knew that carbon-free had been working with BP for some time as they're actually one of their investors in carbon free. And we continue to engage very carefully with carbon-free as they look for the deployments of their plants. And, Elijio I know you have say in touch with our CFO quite a bit. Any update from your side.

Yes. So carbon-free from our dialogue with them continues to make progress with our pilot plant with their design of their technology. Clearly, the announcement with BP is further endorsement of the technology. We believe that their next step is to secure the proper capital then launch their program. And once they get to that stage, we expect to participate from them with them. But practically speaking, we think that any significant calcium chloride sales to them is still quite a bit out a minimum of a year before they have any significant impact?

[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Murphy for any closing remarks.

Well, thank you very much for joining us on our call. That concludes our Q4 earnings call?

The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.