tti10q-20091109.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-13455

TETRA Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware	74-2148293
(State of incorporation)	(I.R.S. Employer Identification No.)

24955 Interstate 45 North
The Woodlands, Texas	77380
(Address of principal executive offices)	(zip code)

(281) 367-1983
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer [ X ]	Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

As of November 1, 2009, there were 75,429,208 shares outstanding of the Company’s Common Stock, $.01 par value per share.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

TETRA Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Revenues:
Product sales	$	82,476		$	103,801		$	265,514		$	373,796
Services and rentals		171,499			145,298			401,656			404,848
Total revenues		253,975			249,099			667,170			778,644

Cost of revenues:
Cost of product sales		58,598			60,230			175,913			214,448
Cost of services and rentals		95,159			94,768			230,403			266,822
Depreciation, depletion, amortization and accretion		37,445			50,393			114,322			134,192
Total cost of revenues		191,202			205,391			520,638			615,462
Gross profit		62,773			43,708			146,532			163,182

General and administrative expense		24,230			25,641			71,253			78,762
Operating income		38,543			18,067			75,279			84,420

Interest expense, net		2,969			4,217			9,557			12,966
Other (income) expense, net		1,687			(5,316	)		61			(4,547	)
Income before taxes and discontinued operations		33,887			19,166			65,661			76,001
Provision for income taxes		11,075			7,048			22,269			26,372
Income before discontinued operations		22,812			12,118			43,392			49,629
Loss from discontinued operations, net of taxes		(150	)		(461	)		(393	)		(1,868	)
Net income	$	22,662		$	11,657		$	42,999		$	47,761

Basic net income per common share:
Income before discontinued operations	$	0.30		$	0.16		$	0.58		$	0.67
Loss from discontinued operations		(0.00	)		(0.01	)	$	(0.01	)		(0.03	)
Net income	$	0.30		$	0.15		$	0.57		$	0.64
Average shares outstanding		75,013			74,613			74,973			74,388

Diluted net income per common share:
Income before discontinued operations	$	0.30		$	0.16		$	0.58		$	0.65
Loss from discontinued operations		(0.00	)		(0.01	)	$	(0.01	)		(0.02	)
Net income	$	0.30		$	0.15		$	0.57		$	0.63
Average diluted shares outstanding		76,060			76,316			75,490			75,874

See Notes to Consolidated Financial Statements

TETRA Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands)

	September 30, 2009			December 31, 2008
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	8,157		$	3,882
Restricted cash		266			2,150
Accounts receivable, net of allowances for doubtful
accounts of $4,219 in 2009 and $3,198 in 2008		236,419			225,491
Inventories		118,657			117,731
Derivative assets, current portion		27,414			38,052
Prepaid expenses and other current assets		36,649			47,768
Assets of discontinued operations		23			239
Total current assets		427,585			435,313

Property, plant and equipment:
Land and building		62,093			23,730
Machinery and equipment		473,688			463,788
Automobiles and trucks		42,156			43,047
Chemical plants		47,442			46,121
Oil and gas producing assets (successful efforts method)		707,791			697,754
Construction in progress		157,343			118,103
Total property, plant and equipment		1,490,513			1,392,543
Less accumulated depreciation and depletion		(646,926	)		(585,077	)
Net property, plant and equipment		843,587			807,466

Other assets:
Goodwill		99,005			82,525
Patents, trademarks and other intangible assets, net of accumulated
amortization of $18,231 in 2009 and $15,611 in 2008		13,954			16,549
Derivative assets, net		4,388			39,098
Other assets		26,588			31,673
Total other assets		143,935			169,845
Total assets	$	1,415,107		$	1,412,624

See Notes to Consolidated Financial Statements

TETRA Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands)

	September 30, 2009			December 31, 2008
LIABILITIES AND STOCKHOLDERS' EQUITY	(Unaudited)
Current liabilities:
Trade accounts payable	$	60,808		$	84,027
Accrued liabilities		162,043			128,441
Liabilities of discontinued operations		-			13
Total current liabilities		222,851			212,481

Long-term debt, net of current portion		414,183			406,840
Deferred income taxes		67,514			64,911
Decommissioning liabilities, net of current portion		142,814			202,771
Other liabilities		12,729			9,800
Total long-term and other liabilities		637,240			684,322

Commitments and contingencies

Stockholders' equity:
Common stock, par value $0.01 per share; 100,000,000 shares
authorized; 76,942,837 shares issued at September 30,
2009 and 76,841,424 shares issued at December 31, 2008		769			768
Additional paid-in capital		192,020			186,318
Treasury stock, at cost; 1,601,417 shares held at September 30,
2009 and 1,582,465 shares held at December 31, 2008		(8,880	)		(8,843	)
Accumulated other comprehensive income		33,418			42,888
Retained earnings		337,689			294,690
Total stockholders' equity		555,016			515,821
Total liabilities and stockholders' equity	$	1,415,107		$	1,412,624

See Notes to Consolidated Financial Statements

TETRA Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

	Nine Months Ended September 30,
	2009			2008
Operating activities:
Net income	$	42,999		$	47,761
Reconciliation of net income to cash provided by operating activities:
Depreciation, depletion, amortization and accretion		110,991			118,113
Impairments of long-lived assets		10,039			9,952
Dry hole costs		82			6,127
Provision for deferred income taxes		12,943			10,284
Stock compensation expense		5,730			4,190
(Gain) loss on sale of property, plant and equipment		(2,478	)		(3,412	)
Other non-cash charges and credits		18,627			5,047
Proceeds from sale of cash flow hedge derivatives		23,060			-
Excess tax benefit from exercise of stock options		-			(1,598	)
Equity in (earnings) loss of unconsolidated subsidiary		(293	)		(356	)
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable		(5,387	)		24,643
Inventories		(214	)		(6,837	)
Prepaid expenses and other current assets		8,101			(4,408	)
Trade accounts payable and accrued expenses		(17,360	)		(15,699	)
Decommissioning liabilities		(71,791	)		(15,519	)
Operating activities of discontinued operations		203			3,216
Other operating activities		2,045			(1,762	)
Net cash provided by operating activities		137,297			179,742

Investing activities:
Purchases of property, plant and equipment		(128,031	)		(204,916	)
Business combinations		(18,105	)		-
Proceeds from sale of property, plant and equipment		1,901			180
Other investing activities		2,664			(1,996	)
Net cash used in investing activities		(141,571	)		(206,732	)

Financing activities:
Proceeds from long-term debt obligations		96,000			151,450
Principal payments on long-term debt obligations		(90,346	)		(127,928	)
Proceeds from exercise of stock options		376			3,045
Excess tax benefit from exercise of stock options		-			1,598
Net cash provided by financing activities		6,030			28,165
Effect of exchange rate changes on cash		2,519			(1,071	)

Increase in cash and cash equivalents		4,275			104
Cash and cash equivalents at beginning of period		3,882			21,833
Cash and cash equivalents at end of period	$	8,157		$	21,937

Supplemental cash flow information:
Interest paid	$	13,017		$	12,036
Income taxes paid		10,909			9,192

Supplemental disclosure of non-cash investing and financing activities:
Oil and gas properties acquired through assumption of
decommissioning liabilities	$	-		$	22,236
Adjustment of fair value of decommissioning liabilities
capitalized to oil and gas properties		21,708			21,150

See Notes to Consolidated Financial Statements

TETRA Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

NOTE A – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

We are an oil and gas services and production company with an integrated calcium chloride and brominated products manufacturing operation that supplies feedstocks to energy markets, as well as to other markets. Unless the context requires otherwise, when we refer to “we,” “us,” and “our,” we are describing TETRA Technologies, Inc. and its consolidated subsidiaries on a consolidated basis.

The consolidated financial statements include the accounts of our wholly owned subsidiaries. Investments in unconsolidated joint ventures in which we participate are accounted for using the equity method. Our interests in oil and gas properties are proportionately consolidated. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission (SEC) and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, the information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2008.

Certain previously reported financial information has been reclassified to conform to the current year period’s presentation. The impact of such reclassifications was not significant to the prior year period’s overall presentation.

Cash Equivalents

We consider all highly liquid cash investments with a maturity of three months or less when purchased to be cash equivalents.

Restricted Cash

Restricted cash reflected on our balance sheet as of September 30, 2009 consists of third party funds held by us to be used to make repairs and improvements at one of our Fluids Division completion services facilities. This cash will remain restricted until such time as the associated project is completed or the funds are refunded.

Inventories

Inventories are stated at the lower of cost or market value and consist primarily of finished goods. Cost is determined using the weighted average method. Significant components of inventories as of September 30, 2009 and December 31, 2008, are as follows:

	September 30, 2009		December 31, 2008
	(In Thousands)

Finished goods	$	85,305	$	85,908
Raw materials		3,030		4,106
Parts and supplies		26,822		26,531
Work in progress		3,500		1,186
	$	118,657	$	117,731

Repair Costs and Insurance Recoveries

During the first quarter of 2009, one of our Fluids Division’s transport barges capsized and sank while docked near our West Memphis manufacturing facility, destroying the vessel and the majority of the inventory cargo. The damages associated with the sunken transport barge consist of the cost of recovery efforts, replacement or repair of the barge, and the lost inventory cargo. Total damages associated with the sunken barge were approximately $4.6 million.

During the third quarter of 2008, we suffered damage to certain of our properties as a result of Hurricanes Ike and Gustav. Primarily as a result of Hurricane Ike, Maritech suffered varying levels of damage to the majority of its offshore oil and gas producing platforms. In addition, three of its offshore platforms and one of its inland water production facilities were toppled and/or destroyed. Maritech is the operator of two of the destroyed offshore platforms and the production facility and owns a 10% working interest in the third offshore platform. In addition, certain of our fluids facilities also suffered damage during the 2008 storms. Maritech also suffered damage as a result of Hurricanes Katrina and Rita during 2005, including three additional offshore platforms that were destroyed.

Remaining hurricane damage repair efforts consist primarily of the well intervention, abandonment, decommissioning, and debris removal associated with the destroyed offshore platforms and the construction of replacement platforms and redrilling of certain destroyed wells. While a portion of the well intervention, abandonment, and decommissioning work has been performed on certain of the destroyed platforms and the inland water production facility, some of the work to be performed has not been fully assessed. Through September 30, 2009, we have incurred approximately $80.6 million for the well intervention, abandonment, and decommissioning work performed on the platforms and production facility which were destroyed by Hurricanes Katrina, Rita, Ike, and Gustav. The majority of the well intervention and decommissioning efforts to date has been performed by our Offshore Services segment. We estimate that remaining well intervention, abandonment, and decommissioning efforts associated with the destroyed platforms and production facility, as well as the efforts to remove debris, reconstruct certain destroyed structures, and redrill certain associated wells, will be performed at an additional cost of approximately $100 to $130 million net to our interest and before any insurance recoveries. The estimated amount of the future cost of well intervention, abandonment, decommissioning, and debris removal was recorded in the period in which such damage occurred, net of expected insurance recoveries, as part of Maritech’s decommissioning liabilities.

One of the offshore platforms destroyed in 2008 by Hurricane Ike served a key producing field. We are currently planning to construct a new platform from which we will be able to redrill certain of the wells associated with the destroyed platform in order to restore a portion of the production from this field. The cost to construct the platform and redrill these wells, net of insurance recoveries, will be capitalized as oil and gas properties.

We have maintained insurance protection which we believe to be customary and in amounts sufficient to reimburse us for a majority of the repair, well intervention, abandonment, decommissioning, and debris removal costs associated with the damages incurred from hurricanes and other damages, such as the value of the lost inventory and the cost to replace the sunken transport barge, reconstruct the destroyed platforms, and redrill the associated wells. Such insurance coverage is subject to certain coverage limits, however, and it is possible we could exceed these coverage limits. In addition, with regard to the 2008 hurricanes, the relevant insurance policies provide for deductibles of up to $5 million per hurricane, and this deductible has been satisfied for Hurricane Ike. Damage assessment costs, repair expenses up to the amount of insurance deductibles, and other costs not covered by insurance are charged to earnings as they are incurred. For the nine month periods ended September 30, 2009 and 2008, we recognized hurricane related expenses of $10.8 million and $4.3 million, respectively. Due to the prohibitively high premium cost and deductible, and the significantly reduced policy limit and confining sub-limits for renewal of Maritech’s windstorm insurance coverage that terminated on May 31, 2009, beginning June 2009, we have elected to self-insure Maritech’s windstorm damage risk through the 2009 hurricane season. We have, however, renewed Maritech’s operational risk policies.

With regard to the costs incurred which we believe will qualify for coverage under our various insurance policies, we recognize anticipated insurance recoveries when collection is deemed probable. Any recognition of anticipated insurance recoveries is used to offset the original charge to which the insurance relates. The amount of anticipated insurance recoveries is included either in accounts receivable or as a reduction of Maritech’s decommissioning liabilities in the accompanying consolidated balance sheets.

As discussed further in Note G – Commitments and Contingencies, Insurance Litigation, Maritech incurred certain well intervention, debris removal, and repair costs related to damage in 2005 from Hurricanes Katrina and Rita which were not reimbursed by its insurers. In December 2007, we filed a lawsuit against our insurers and other associated parties in an attempt to collect pursuant to the applicable policies. Subsequent to September 30, 2009, we entered into a settlement agreement under which we expect to receive approximately $40.0 million of the unreimbursed costs. Following the receipt of these settlement proceeds, no significant additional insurance recoveries of well intervention, debris removal, or excess property damage costs associated with Hurricanes Katrina and Rita are anticipated. We have reviewed the types of estimated well intervention costs expected to be incurred related to Hurricanes Ike and Gustav. Despite our belief that substantially all of these costs in excess of deductibles and within policy limits will qualify for coverage under our current insurance policies, any costs related to Hurricanes Ike and Gustav that are similar to the costs that were not initially reimbursed by our insurers following the 2005 storms have been excluded from anticipated insurance recoveries.

The changes in anticipated insurance recoveries, including anticipated recoveries associated with the sunken barge and other non-hurricane related claims, during the nine months ended September 30, 2009 are as follows:

	Nine Months Ended
	September 30, 2009
	(In Thousands)

Beginning balance	$	33,591
Activity in the period:
Claim related expenditures and damages, net		18,817
Insurance reimbursements		(13,757	)
Contested insurance recoveries		(580	)
Ending balance at September 30, 2009	$	38,071

Anticipated insurance recoveries that have been reflected as a reduction of our decommissioning liabilities were $10.3 million and $19.5 million at September 30, 2009 and December 31, 2008, respectively. Anticipated insurance recoveries that have been reflected as insurance receivables, including the damages incurred during 2009 from the sunken barge, were $27.8 million and $14.1 million at September 30, 2009 and December 31, 2008, respectively. Uninsured assets that were destroyed during the period are charged to earnings. Repair costs incurred and the net book value of any destroyed assets which are covered under our insurance policies are anticipated insurance recoveries which are included in accounts receivable. Repair costs not considered probable of collection are charged to earnings. Insurance recoveries in excess of destroyed asset carrying values and repair costs incurred are credited to earnings when received. During the nine months ended September 30, 2009, we received $5.4 million of insurance recoveries associated with the 2005 hurricanes, and such amount was credited to earnings during the period. Intercompany profit on repair work performed by our Offshore Services segment is not recognized until such time as insurance claim proceeds are received.

Net Income per Share

The following is a reconciliation of the weighted average number of common shares outstanding with the number of shares used in the computations of net income per common and common equivalent share:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Number of weighted average common
shares outstanding		75,012,672		74,613,233		74,972,661		74,388,369
Assumed exercise of stock options		1,046,922		1,702,724		516,884		1,485,660
Average diluted shares outstanding		76,059,594		76,315,957		75,489,545		75,874,029

In applying the treasury stock method to determine the dilutive effect of the stock options outstanding during the first nine months of 2009, we used the average market price of our common stock of $6.60. For the three months ended September 30, 2009 and 2008, the calculations of the average diluted shares outstanding exclude the impact of 2,754,253 and 2,147,118 outstanding stock options, respectively, that have exercise prices in excess of the average market price, as the inclusion of these shares would have been antidilutive. For the nine months ended September 30, 2009 and 2008, the calculations of the average diluted shares outstanding exclude the impact of 3,531,826 and 1,738,552 outstanding stock options, respectively, that have exercise prices in excess of the average market price, as the inclusion of these shares would have been antidilutive.

Environmental Liabilities

Environmental expenditures which result in additions to property and equipment are capitalized, while other environmental expenditures are expensed. Environmental remediation liabilities are recorded on an undiscounted basis when environmental assessments or cleanups are probable and the costs can be reasonably estimated. Estimates of future environmental remediation expenditures often consist of a range of possible expenditure amounts, a portion of which may be in excess of amounts of liabilities recorded. In this instance, we disclose the full range of amounts reasonably possible of being incurred. Any changes or developments in environmental remediation efforts are accounted for and disclosed each quarter as they occur. Any recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable.

Complexities involving environmental remediation efforts can cause the estimates of the associated liability to be imprecise. Factors which cause uncertainties regarding the estimation of future expenditures include, but are not limited to, the effectiveness of the anticipated work plans in achieving targeted results and changes in the desired remediation methods and outcomes as prescribed by regulatory agencies. Uncertainties associated with environmental remediation contingencies are pervasive and often result in wide ranges of reasonably possible outcomes. Estimates developed in the early stages of remediation can vary significantly. Normally, a finite estimate of cost does not become fixed and determinable at a specific point in time. Rather, the costs associated with environmental remediation become estimable as the work is performed and the range of ultimate cost becomes more defined. It is possible that cash flows and results of operations could be materially affected by the impact of the ultimate resolution of these contingencies.

Fair Value Measurements

Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any. The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or whether a different market is potentially more advantageous. Accordingly, this exit price concept may result in a fair value that may differ from the transaction price or market price of the asset or liability.

The fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value. Fair value measurements should maximize the use of observable inputs and minimize the use of unobservable inputs, where possible. Observable inputs are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs may be needed to measure fair value in situations where there is little or no market activity for the asset or liability at the measurement date and are developed based on the best information available in the circumstances, which could include the reporting entity’s own judgments about the assumptions market participants would utilize in pricing the asset or liability.

We utilize fair value measurements to account for certain items and account balances within our consolidated financial statements. Fair value measurements are utilized in the allocation of purchase consideration for acquisition transactions to the assets and liabilities acquired, including intangible assets and goodwill. In addition, we utilize fair value measurements in the initial recording of our decommissioning and other asset retirement obligations. Fair value measurements may also be utilized on a nonrecurring basis, such as for the impairment of long-lived assets including goodwill. The fair value of certain of our financial instruments, which may include cash, temporary investments, accounts receivable, and long-term debt pursuant to our bank credit agreement, approximate their carrying amounts. The fair value of our long-term Senior Notes at September 30, 2009 was approximately $297.2 million compared to a carrying amount of approximately $310.9 million. We calculate the fair value of our Senior Notes internally, using current market conditions and average cost of debt. We have not calculated or disclosed the fair value of non-financial assets and non-financial liabilities.

We also utilize fair value measurements on a recurring basis in the accounting for our derivative contracts used to hedge a portion of our oil and gas production cash flows. For these fair value measurements, we compare forward pricing data from published sources over the remaining derivative contract term to the contract swap price and calculate a fair value using market discount rates. A summary of these fair value measurements, using the fair value hierarchy as prescribed by FASB Codification Topic 820, as of September 30, 2009 is as follows:

			Fair Value Measurements as of
			September 30, 2009 Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable		Unobservable
	Total as of		or Liabilities		Inputs		Inputs
Description	Sept 30, 2009		(Level 1)		(Level 2)		(Level 3)
	(In Thousands)
Asset for natural gas swap contracts	$	28,290	$	-	$	28,290	$	-
Asset for oil swap contracts		3,512		-		3,512		-

	$	31,802

During the three months ended March 31, 2009, the full carrying value of a Maritech oil and gas property was charged to earnings as an impairment of $0.4 million. During the three months ended June 30, 2009, the full carrying value of certain Maritech oil and gas properties were charged to earnings as an impairment of $1.9 million. During the three months ended September 30, 2009, additional Maritech oil and gas property impairments of $0.6 million were charged to earnings. The change in the fair value of these properties was due to decreased expected future cash flows based on forward oil and natural gas pricing data from published sources. Because such published forward pricing data was applied to estimated oil and gas reserve volumes based on our internally prepared reserve estimates, such fair value calculation is based on significant unobservable inputs (Level 3) in accordance with the fair value hierarchy.

Our Fluids Division owns a 50% interest in an unconsolidated joint venture whose assets consist primarily of a calcium chloride plant located in Europe. In April 2009, the joint venture partner announced the planned shutdown of its adjacent plant facility, which supplies raw material to the calcium chloride plant. As a result, the joint venture’s calcium chloride plant is also expected to be shut down. During the three months ended June 30, 2009, we reduced our investment in the joint venture to its estimated fair value based on the estimated plant decommissioning costs and salvage value cash flows of the joint venture, resulting in an impairment of our investment in the joint venture of $6.8 million. Because the investment fair value was determined based on internally prepared estimates, such fair value calculation is based on significant unobservable inputs (Level 3) in accordance with the fair value hierarchy.

A summary of these nonrecurring fair value measurements as of September 30, 2009, using the fair value hierarchy is as follows:

			Fair Value Measurements as of
			September 30, 2009 Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable		Unobservable
	Total as of		or Liabilities		Inputs		Inputs		Total
Description	Sept 30, 2009		(Level 1)		(Level 2)		(Level 3)		Losses
	(In Thousands)
Impairments of oil and gas
properties	$	2,253	$	-	$	-	$	2,253	$	2,907
Impairment of investment in
unconsolidated joint venture		-		-		-		-		6,790
Other										342
									$	10,039

Subsequent Events

With respect to the issuance of our consolidated financial statements as of September 30, 2009, we considered subsequent events, including the October 2009 settlement of certain insurance litigation, occurring through the date of November 9, 2009, the date the consolidated financial statements were issued.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) published SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162,” which establishes the FASB Accounting Standards Codification™ (FASB Codification) as the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Beginning on the effective date of the standard (now incorporated into FASB Codification Subtopic 105-10), the FASB Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the FASB Codification has become non-authoritative. The standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. In the FASB’s view, the issuance of the standard and the FASB Codification will not change GAAP for public companies, and, accordingly, the adoption of the standard did not have a significant impact on our financial statements.

In March 2008, the FASB published SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (FASB Codification Subtopic 815-10), which requires entities to provide greater transparency about (1) how and why an entity uses derivative instruments; (2) how derivative

instruments and related hedged items are accounted for under FASB Codification Subtopic 815-10 (SFAS No. 133 and its related interpretations); and (3) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. This standard is effective for financial statements issued for fiscal years and interim periods within those fiscal years, beginning after November 15, 2008. Accordingly, we adopted the new disclosure requirements as of January 1, 2009 (see Note E – Hedge Contracts).

In December 2007, the FASB published SFAS No. 141R, “Business Combinations” (incorporated into FASB Codification Topic 805), which established principles and requirements for how an acquirer of a business (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The standard changes many aspects of the accounting for business combinations and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We adopted this standard as of January 1, 2009 with no significant impact, as there have been no acquisitions in the current year. However, the standard is expected to significantly impact how we account for and disclose future acquisition transactions.

In April 2009, the FASB issued FASB Staff Position (FSP) SFAS No. 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (incorporated into FASB Codification Subtopic 805-20). This FSP amends and clarifies SFAS No. 141R, “Business Combinations” (FASB Codification Topic 805), to require that an acquirer recognize at fair value, as of the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition date fair value of that asset or liability can be determined during the measurement period. If the acquisition date fair value of such an asset acquired or liability assumed cannot be determined, the acquirer is required to apply the provisions of FASB Codification Topic 450 (SFAS No. 5, “Accounting for Contingencies”) to determine whether the contingency should be recognized at the acquisition date or after it. The standard is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is after the beginning of the first annual reporting period beginning after December 15, 2008. Accordingly, we adopted the standard as of January 1, 2009 with no significant impact, as there have been no acquisitions in the current year.

In December 2007, the FASB published SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51,” (FASB Codification Subtopic 810-10), which establishes accounting and reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This standard is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. We adopted this standard as of January 1, 2009, however, the impact was not material.

In April 2009, the FASB published FSP SFAS No. 107-1 and APB Opinion No. 28-1, “Interim Disclosures About Fair Value of Financial Instruments,” (incorporated into FASB Codification Subtopic 825-10), which requires quarterly fair value disclosures for financial instruments that are not reflected in the consolidated balance sheets at fair value. Prior to the issuance of this standard, the fair values of those assets and liabilities were disclosed only annually. This standard was applied prospectively effective April 1, 2009, and did not materially impact the presentation of our financial statements.

In May 2009, the FASB published SFAS No. 165, “Subsequent Events,” (FASB Codification Topic 855), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, it sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This standard is effective for financial statements for periods ending after June 15, 2009, however, our adoption of the standard did not have a significant impact on our financial statements.

In December 2008, the Securities and Exchange Commission released its “Modernization of Oil and Gas Reporting” rules, which revise the disclosure of oil and gas reserve information. The new disclosure requirements include provisions that permit the use of new technologies to determine proved reserves in certain circumstances. The new requirements will also allow companies to disclose their probable and possible reserves and require companies to (1) report on the independence and qualifications of a reserves preparer or auditor; (2) file reports when a third party is relied upon to prepare reserve estimates or conduct a reserves audit; and (3) report oil and gas

reserves using an average price based upon the prior twelve month period, rather than year-end prices. These new reporting requirements are effective for annual reports on Form 10-K for fiscal years ending on or after December 31, 2009. We are currently assessing the impact that the adoption of the new disclosure requirements will have on our disclosures of oil and gas reserves.

NOTE B – ACQUISITIONS

In March 2006, we acquired Beacon Resources, LLC (Beacon), a production testing operation, for approximately $15.6 million paid at closing. In addition, the acquisition agreement provided for additional contingent consideration of up to $19.1 million, depending on the average of Beacon’s annual pretax results of operations over the three year period following the closing date through March 2009. Based on Beacon’s annual pretax results of operations during this three year period, we paid $12.7 million in April 2009 to the sellers pursuant to this contingent consideration provision. This amount was charged to goodwill associated with the acquisition of Beacon.

In March 2006, we acquired the assets and operations of Epic Divers, Inc. and certain affiliated companies (Epic), a full service commercial diving operation. In June 2006, Epic purchased a dynamically positioned dive support vessel and saturation diving unit. Pursuant to the Epic Asset Purchase Agreement, a portion of the net profits earned by this dive support vessel and saturation diving unit over the initial three year term following its purchase was to be paid to the sellers. Based on the vessel’s high utilization following the 2008 hurricanes, we paid $3.8 million in July 2009 pursuant to this contingent consideration provision. This amount was charged to goodwill associated with the acquisition of Epic. In addition, approximately $1.6 million of the purchase price of the dive support vessel was deducted from the original purchase consideration for Epic. Pursuant to the Epic Asset Purchase Agreement, this amount was to be paid to sellers upon the third anniversary of the acquisition. This amount was accrued as part of the original recording of the Epic acquisition during the first quarter of 2006, and it was paid in June 2009.

NOTE C – LONG-TERM DEBT AND OTHER BORROWINGS

Long-term debt consists of the following:

		September 30, 2009		December 31, 2008
		(In Thousands)
	Scheduled Maturity
Bank revolving line of credit facility	June 26, 2011	$	103,326	$	97,368
5.07% Senior Notes, Series 2004-A	September 30, 2011		55,000		55,000
4.79% Senior Notes, Series 2004-B	September 30, 2011		40,857		39,472
5.90% Senior Notes, Series 2006-A	April 30, 2016		90,000		90,000
6.30% Senior Notes, Series 2008-A	April 30, 2013		35,000		35,000
6.56% Senior Notes, Series 2008-B	April 30, 2015		90,000		90,000
European Credit Facility			-		-
			414,183		406,840
Less current portion			-		-
Total long-term debt		$	414,183	$	406,840

NOTE D – DECOMMISSIONING AND OTHER ASSET RETIREMENT OBLIGATIONS

The large majority of our asset retirement obligations consists of the future well abandonment and decommissioning costs for offshore oil and gas properties and platforms owned by our Maritech subsidiary. The amount of decommissioning liabilities recorded by Maritech is reduced by amounts allocable to joint interest owners, anticipated insurance recoveries, and any contractual amount to be paid by the previous owner of the oil and gas property when the liabilities are satisfied. We also operate facilities in various U.S. and foreign locations that are used in the manufacture, storage, and/or sale of our products, inventories, and equipment, including offshore oil and gas production facilities and equipment. These facilities are a combination of owned and leased assets. We are required to take certain actions in connection with the retirement of these assets. We have reviewed our obligations in this regard in detail and estimated the cost of these actions. These estimates are the fair values that have been recorded for retiring these long-lived assets. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The costs are depreciated on a straight-line basis over the life of the asset for non-oil and gas assets and on a unit of production basis for oil and gas properties.

The changes in total asset retirement obligations during the three and nine months ended September 30, 2009 and 2008 are as follows:

	Three Months Ended September 30,
	2009			2008
	(In Thousands)

Beginning balance as of June 30	$	229,996		$	223,397
Activity in the period:
Accretion of liability		1,950			2,171
Retirement obligations incurred		-			-
Revisions in estimated cash flows		12,832			23,412
Settlement of retirement obligations		(24,590	)		(9,972	)
Ending balance as of September 30	$	220,188		$	239,008

	Nine Months Ended September 30,
	2009			2008
	(In Thousands)
Beginning balance as of December 31
of the preceding year	$	248,725		$	199,506
Activity in the period:
Accretion of liability		6,350			6,292
Retirement obligations incurred		-			20,274
Revisions in estimated cash flows		36,198			30,553
Settlement of retirement obligations		(71,085	)		(17,617	)
Ending balance as of September 30	$	220,188		$	239,008

As of September 30, 2009, approximately $77.4 million of the decommissioning and asset retirement obligation is related to well abandonment and decommissioning costs to be incurred over the next twelve month period and is included in current liabilities in the accompanying consolidated balance sheet.

NOTE E – HEDGE CONTRACTS

We are exposed to financial and market risks that affect our businesses. We have market risk exposure in the sales prices we receive for our oil and gas production. We have currency exchange rate risk exposure related to specific transactions denominated in a foreign currency as well as to investments in certain of our international operations. As a result of the outstanding balance under a variable rate bank credit facility, we face market risk exposure related to changes in applicable interest rates. We have concentrations of credit risk as a result of trade receivables from companies in the energy industry. Our financial risk management activities involve, among other measures, the use of derivative financial instruments, such as swap and collar agreements, to hedge the impact of market price risk exposures for a significant portion of our oil and gas production and for certain foreign currency transactions. We are exposed to the volatility of oil and gas prices for the portion of our oil and gas production that is not hedged.

Derivative Hedge Contracts

As of September 30, 2009, we had the following cash flow hedging swap contracts outstanding relating to a portion of our Maritech subsidiary’s oil and gas production:

Derivative Contracts	Aggregate Daily Volume	Weighted Average Contract Price	Contract Year
September 30, 2009
Natural gas swap contracts	25,000 MMBtu/day	$8.967/MMBtu	2009
Natural gas swap contracts	20,000 MMBtu/day	$8.147/MMBtu	2010
Oil swap contract	2,000 Bbls/day	$78.70/Bbl	2010