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GSJK > SEC Filings for GSJK > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for COMPRESSCO PARTNERS, L.P.



Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and accompanying notes included in this Quarterly Report. In addition, the following discussion and analysis also should be read in conjunction with our Annual Report on Form 10-K filed with the SEC on March 21, 2012. This discussion includes forward-looking statements that involve certain risks and uncertainties. For periods prior to June 20, 2011, the accompanying unaudited consolidated financial statements and related notes represent the unaudited combined results of operations and cash flows of our Predecessor, which consists of the assets, liabilities, and operations of Compressco, Inc. and its subsidiaries and certain assets, liabilities, and operations of certain other subsidiaries of TETRA conducting business primarily in Mexico (together, our Predecessor). For the periods on and after June 20, 2011, the accompanying unaudited consolidated financial statements and related notes thereto represent our financial position, results of operations, cash flows, and changes in partners' capital.

Business Overview

We are a provider of compression-based production enhancement services, including both conventional wellhead compression services and unconventional compression services, and, in certain markets, well monitoring and sand separation services. We provide services to a broad base of natural gas and oil exploration and production companies operating throughout many of the onshore producing regions of the United States. Internationally, we have significant operations in Mexico and Canada and a growing presence in certain countries in South America, Eastern Europe, and the Asia-Pacific region. While our conventional services are primarily applied to mature gas wells with low formation pressures, they are also effectively utilized on newer gas wells that have experienced significant production declines and gas wells that are characterized by lower formation pressures. Our conventional applications include production enhancement services for dry gas wells and liquid loaded gas wells, and backside auto injection systems (BAIS). BAIS monitor tubing pressure to redirect gas flow into the casing

annulus as needed to help wells unload liquids. Our unconventional applications are used primarily in connection with oil and liquids production and include vapor recovery, which captures gas vapors from oil storage tanks, and casing gas systems, which enhance oil production by reducing down-hole pressure. Our services are performed by our highly trained staff of regional service supervisors, optimization specialists, and field mechanics. In addition, we design and manufacture most of the compressor units we use to provide our services, and, in certain markets, we sell our compressor units to customers.

The level of our production enhancement services operations is generally dependent upon the demand for, and prices of, natural gas in the locations in which we operate. However, despite significantly lower natural gas prices during the first nine months of 2012 compared to the first nine months of 2011, our overall production enhancement service revenues increased. This was primarily due to a continued increase in our Latin America and other international operations, as well as increased unconventional applications, primarily vapor recovery services. Nevertheless, any prolonged substantial reduction in natural gas prices could result in a decline in demand for our production enhancement services.

Overall, our total revenues increased during the three and nine month periods ended September 30, 2012, compared to the corresponding prior year periods. This increase reflects:

increased compression and well monitoring services in Latin America;

growth of the fleet within our other international operations; and

improved overall utilization of the existing fleet, including for our unconventional applications.

The increased activity in Latin America has required investments in fixed assets and working capital and resulted in additional personnel and related administrative services provided through the Omnibus Services Agreement with TETRA. In addition, our ability to maintain the increased activity in Latin America is subject to potential volatility relating to our Mexico operations as addressed in more detail under "Liquidity and Capital Resources - Cash Flows."

How We Evaluate Our Operations

Operating Expenses. We use operating expenses as a performance measure for our business. We track our operating expenses using month-to-month, year-to-date, and year-to-year comparisons, and as compared to budget. This analysis is useful in identifying adverse cost trends and allows us to investigate the cause of these trends and implement remedial measures if possible. The most significant portions of our operating expenses are the labor costs of our field personnel, repair and maintenance of our equipment, and the fuel and other supplies

consumed while providing our services. Other materials consumed while performing our services, ad valorem taxes, other labor costs, truck maintenance, rent on storage facilities, and insurance expenses comprise the significant remainder of our operating expenses. Our operating expenses generally fluctuate with the level of activities performed during a specific period.

Our labor costs consist primarily of wages and benefits for our field personnel, as well as expenses related to their training and safety. Additional information regarding our operating expenses for the three and nine month periods ended September 30, 2012, is provided within the results of operations sections below.

EBITDA. We view EBITDA as one of our primary management tools, and we track it on a monthly basis, both in dollars and as a percentage of revenues (compared to the prior month, prior year period, and to budget). We define EBITDA as earnings before interest, taxes, depreciation, and amortization. EBITDA is used as a supplemental financial measure by our management and by external users of our financial statements, including investors, to:

assess our ability to generate available cash sufficient to make distributions to our unitholders and General Partner;

evaluate the financial performance of our assets without regard to financing methods, capital structure, or historical cost basis;

measure operating performance and return on capital as compared to our competitors; and

determine our ability to incur and service debt and fund capital expenditures.

EBITDA should not be considered an alternative to net income, operating income, cash flows from operating activities, or any other measure of financial performance presented in accordance with GAAP. Our EBITDA may not be comparable to EBITDA or similarly titled measures of other entities, as other entities may not calculate EBITDA in the same manner as we do. Management compensates for the limitations of EBITDA as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures, and incorporating this knowledge into management's decision-making processes. EBITDA should not be viewed as indicative of the actual amount we have available for distributions or that we plan to distribute for a given period, nor should it be equated with "available cash" as defined in our partnership agreement.

The following table reconciles net income to EBITDA for the periods indicated:

                                        Three Months Ended          Nine Months Ended
                                          September 30,               September 30,
                                        2012          2011         2012          2011
                                                        (In Thousands)
      Net income                     $  5,063      $ 3,291      $ 11,432      $  4,134
      Provision for income taxes          931          497         2,396           847
      Depreciation and amortization     3,376        3,082         9,721         9,452
      Interest (income) expense, net       24           (9)            2         5,102
      EBITDA                         $  9,394      $ 6,861      $ 23,551      $ 19,535

The following table reconciles cash flow from operating activities to EBITDA:

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