During the fourth quarter, Newpark recognized an asset impairment of $3.4 million and an $800,000 increase in its allowance for doubtful accounts due to new estimation methods adopted in the period. Excluding the impact of these non-cash items, Newpark would have reported net income of $0.08 per share and $0.04 per share for the year and the quarter respectively.
James D. Cole, Newpark's chairman and CEO said: "We believe the improved fourth quarter operating results mark the beginning of a trend that should be more evident in 2005. With approximately 50% of revenue generated from new markets, products and services, the pattern of revenue generation in 2004 evidences the progress of Newpark's diversification away from its historic Gulf Coast market. While working to implement this strategy, our efforts were complicated by a 35% decline in activity in that market. The company's earnings performance has suffered during the implementation of this initiative, during which time we have reshaped our ongoing Gulf Coast business to restore profitability at current activity levels. The introduction of new products and services has helped achieve the objective of diversifying the revenue and earnings base. We are growing our market share in our drilling fluids business and expanding into new markets in the mat sales and rental business. In addition, we have recently announced the introduction of a new, proprietary water treatment technology and its application to E&P waste streams in the Green River and Powder River basins. In short, we believe there are good opportunities for continued growth ahead for Newpark Resources."
Drilling Fluids Segment
Fourth quarter revenue was up 35% from the year-ago period, a combination of a 12% increase in rig activity and continued market share gains. Cole commented, "Most of the share gain came from over thirty new customer relationships developed during 2004. Newpark exited 2004 with a 20% share of rigs operated in those markets we serve, compared to 14% a year ago. In 2005, we expect to see these same trends continue, together with a 5% to 6% price increase. We expect to improve operating margins to about 12% for the full year compared to 8% in the year just ended."
Mat Sales and Mat Rentals
Cole commented: "Fourth quarter operating results improved principally as a result of cost reductions and improved oilfield rental pricing. We expect this improvement to continue in 2005 with our cost reduction program generating approximately $8 million in 2005 benefit. In addition, we expect to see a 25% gain in pricing in the oilfield rental portion of the business supported by a continuing reduction in industry capacity in that market, as well as expanded revenue and earnings from non-oilfield mat rentals and sales."
E&P Waste Services
Fourth quarter revenue totaled $16.9 million, providing $2.5 million of segment earnings. This compares to $17.8 million in revenue during the same quarter of 2003 and $3.3 million in operating contribution. Volume in the fourth quarter rebounded sequentially from 701,000 reported in the storm- impacted third quarter, to 872,000 barrels in the final quarter of 2004.
Volume for the full year, at 3.2 million barrels, declined 10% compared to 2003, principally the result of lower average rig activity during the year and adverse third quarter tropical weather. Average revenue per barrel declined 5.6% on changes in mix driven by the decline in offshore rig activity. Average pricing per barrel was $11.82 compared to $12.52 a year ago as a result of the change in mix.
"As we enter 2005, and for the first time since 2001," Cole indicated, "activity in the offshore and inland waters market has begun to improve. These have historically been the strongest markets for our waste operations, and we anticipate a 15% increase in 2005 volume if current activity levels are sustained."
Newpark recently announced the formation of Newpark Environmental Water Solutions, LLC and the first application of a newly licensed proprietary water treatment technology to improve the throughput capacity of the Company's Jonah-Pinedale oilfield waste disposal site in Wyoming, a very active North American natural gas trend. In addition, the Company has received a contract award for a treatment facility near Gillette, Wyoming for a major independent operator in the coalbed methane market. "We believe that the application of this proprietary technology to the waste water problems within the oil and gas industry could be a major new business for Newpark," said Cole.
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