Trecora Resources (TREC) Q3 2019 Earnings Call Transcript

Trecora Resources (TREC)
Q3 2019 Earnings Call
Nov 07, 2019, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Trecora Resources third-quarter 2019 earnings conference call. [Operator instructions] And at this time, I would like to turn the call over to Mr. Jason Finkelstein from The Piacente Group, Inc. Please go ahead, Jason.

Jason Finkelstein -- Senior Vice President, Global Marketing

Thank you, operator, and good morning, everyone. Welcome to the Trecora Resources third-quarter 2019 earnings conference call. The earnings release was distributed over the wire services after the close of the financial markets yesterday afternoon. Presenting on our call today will be Pat Quarles, president and chief executive officer; in addition to Sami Ahmad, chief financial officer.

Chris Groves, our corporate controller, will also be available for the question-and-answer session, which will follow management's prepared remarks. Before we get started, I would like to review the safe harbor statement. Statements in this presentation that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon management's beliefs and expectations only as of the date of this teleconference, November 7, 2019.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. Those risks as well as others are discussed in greater detail in Trecora's filings with the SEC, including the company's most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued after the close of the financial markets yesterday afternoon.

This webcast is accompanied by a slide presentation that is available on the company's website, www.trecora.com. At this time, I'd like to turn the call over to Trecora's president and CEO, Pat Quarles.

Pat Quarles -- President and Chief Executive Officer

Thank you, Jason, and good morning to all those participating in today's call. During my remarks, I'll be discussing the overall progress we've been making in the business as well as our continued pursuit of execution excellence within the company. But before I do, I would like to provide an update regarding our recent action to reshape our company, specifically the sale of our stake in AMAK. As background for investors both new and existing on the call today, Trecora is an original developer and 33% owner in Al Masane Al Kobra Mining Company, or AMAK, a Saudi Arabian closed joint stock company, which owns and operates and is developing mining assets in Saudi Arabia.

Our stake in AMAK is a meaningful but noncore asset of Trecora's. On October 2, Trecora announced that we had entered into a definitive share sale and purchase agreement with certain existing shareholders of AMAK, who will acquire Trecora's entire equity interest. AMAK is also participating in this transaction through its previously share repurchase authorization. Under the terms of the agreement, Trecora will be selling our equity interest for $70 million and we expect to receive net proceeds of approximately $60 million in cash net of both U.S.

and Saudi taxes as well as transaction expenses. The consideration will be payable in U.S. dollars. Trecora has already received a 5% nonrefundable deposit of approximately $3.5 million from the purchasers.

The sale, which has no financing conditions, is subject to government approvals and closing conditions and is targeted to close in the fourth quarter of 2019 assuming receipt of all necessary government approvals. We're advancing the processes to gain government approvals for the sale and have no indication at this point that we will not be able to close during the fourth quarter. We do expect some delay from the November 25 date cited earlier. This transaction is something that the company has discussed for quite some time.

Upon close, we will have achieved an important commitment to monetize this asset, reach our debt reduction target, and have further capital to deploy toward shareholder value creation. Over the past two years, AMAK has accomplished significant operational restructuring and upgrades, thus greatly enhancing its value and allowing for a transaction that we believe achieves a good outcome for our shareholders. What will remain after the completion of this transaction is a company with a singular focus on the improvement of operating businesses and future growth opportunities. We continue to make good progress in our businesses.

We set out our priorities at the beginning of the year for driving shareholder value in 2019. We focused on improving our safety performance, enhancing the reliability of our operations, capturing productivity improvement, and driving commercial excellence. We expected success along these four priorities to dramatically improve our earnings, enhance our cash flow, and allow for meaningful debt reduction, and they have. Trecora achieved consolidated adjusted EBITDA from continuing operations of $6.9 million in the third quarter, which compares to $4.9 million in Q3 last year, a 41% increase year over year.

These improved year-over-year operating results have translated into excellent cash generation since the first quarter and allowed for further debt reduction in this quarter. In Q3, we paid down approximately $9 million in debt with an additional $5 million repaid in October. This brings current outstanding debt to approximately $84 million, compared to $102.5 million at the end of 2018. Year to date, we have nearly doubled our operating cash flow to $20.2 million, compared to $11.1 million for the same period in 2018.

The key drivers to our improved Q3 and year-to-date results are all tied to our turnaround priorities laid out at the beginning of the year. They include, first, improving safety and enhancing readability. In Q3, we delivered safe and reliable operations, while simultaneously providing high quality products to our customers. We had no accidents across our entire company during the third quarter.

Our Advanced Reformer, which ran with high reliability in Q3, allowed for the capture of improved byproduct values in the market. The Advanced Reformer demonstrated the ability to continue to run through various electrical upsets at the site which were related to anticipated electrical network vulnerabilities, which we've discussed in the past. We have also concentrated on capturing productivity opportunities. We continued challenging both internal and external cost elements.

For example, in Q3, we realized further savings related to rail storage and fleet reduction, which significantly contributed to gross margin improvements. In addition, we continued to transition from reactive maintenance to planned maintenance. This helped us save approximately $300,000 in the third quarter alone. In addition, the Q4 '18 reorganization and cost saving activities that we implemented at our Silsbee facility had allowed us to fully offset the higher cost of annual rail freight increases.

Finally, we've been pursuing commercial excellence. We are improving our sales terms, cutting costs, and assessing customer profitability at the ship two level. In Q3, we realized improved margins on our C6 products after a successful price increase in Q2. In addition, the commercial organization performed a comprehensive review of the profitability of our existing custom processing business.

As a result, significant fee increases have been implemented, which we estimate will enhance our profitability by $500,000 beginning next year. In summary, Q3 and the first nine months of 2019 have shown tremendous progress. As far as Q4 outlook, we are seeing demand reduction typical of the season. We also experienced a severe weather event at the Silsbee plant on October 29, last Tuesday, resulting in a plant shutdown and significant damage to one of our feedstock tanks.

The plant has returned to operation. However, we expect recovery costs and some loss of sale volumes to impact the quarter. Now I'll turn the call over to Sami Ahmad, our chief financial officer, for a more detailed discussion of our Q3 and year-to-date results.

Sami Ahmad -- Chief Financial Officer

Thanks, Pat, and good morning to everyone. Let me begin, as Pat did, with the sale of our AMAK interest. Trecora intends to use the proceeds from the transaction in accordance with its disciplined capital allocation strategy. The approximately $60 million of net proceeds expected to be received will allow us to accelerate debt reduction, thus substantially strengthening our balance sheet.

We expect our pro forma leverage following the completion of the transaction to be in the 1.5 to 2.0 range. Aside from debt paydown, we're also exploring options to use some of the remaining proceeds to potentially fund share repurchases. We believe the deal valuation is an excellent outcome for the company both financially and strategically. We conducted an exhaustive and global process led by one of the leading metals and mining investment banks in the world.

They contacted more than 50 potential buyers. We ultimately choose to sell to the existing shareholders because it was at a significantly higher valuation and at a lower risk than other alternatives, and that includes retaining our ownership in the mine. As the sale progresses, we will provide further updates specifically toward, but not limit to the close of the transactions. As all the required criteria for held-for-sale classification was met at September 30, 2019, the investment in AMAK is classified as held-for-sale in the consolidated balance sheet and reflected as discontinued operations in the consolidated statement of operations for all periods presented.

Now let's take a closer look at our third quarter and year-to-date operational performance. Net income from continuing operations in the third quarter of 2019 was $1.6 million or $0.06 per diluted share. This compares to a net loss from continuing operations of negative $0.7 million or $0.03 per diluted share in the third-quarter 2018. Looking at the first 9 months of this year, net income from continuing operations was $5.9 million or $0.23 per diluted share, compared with net income of $3.5 million or $0.14 per diluted share for the same period 2018.

Gross profit in the third quarter was $9.6 million, and this compares with $6.8 million in the third quarter of last year. Gross profit for the first nine months of 2019 was $30.2 million, representing a 15.3% gross profit margin, and that compares with $25.1 million or an 11.8% gross profit margin in the same period 2018. Consolidated adjusted EBITDA from continuing operations for the third quarter was $6.9 million, compared with adjusted EBITDA from continuing operations of $4.9 million in the same period a year ago. Adjusted EBITDA from continuing operations for the first nine months of 2019 was $24.6 million, compared with $18.3 million in the same period last year.

Now compared to the second quarter of 2019, consolidated adjusted EBITDA from continuing operations declined from $9.2 million to $6.9 million. The $2.3 million decline is explained by lower prime product sales volumes and lower wax sales volumes. These were partially offset by higher margins and lower operating expenses in especially Petrochemical segment. Additionally, third-quarter adjusted EBITDA from continuing operations was negatively impacted by a 2019 year-to-date cumulative adjustment of $700,000 primarily related to Advanced Reformer license amortization.

This amount should not have been added back in prior periods for the calculation of adjusted EBITDA from continuing operations. This adjustment has no impact to our consolidated income statements. In the first nine months of 2019, consolidated adjusted EBITDA from continuing operations increased by approximately $6.3 million compared to the same period 2018 or about 34%. This year-to-date increase in EBITDA was driven by lower feedstock costs, which resulted in better product margins, significantly higher byproduct margins primarily due to more reliable operation of the Advanced Reformer unit, and lower labor costs as a result of the cost reduction program implemented at the Silsbee facility in December 2018.

This was partially offset by a nearly $2.3 million decline in adjusted EBITDA from continuing operations for the specialty waxes business, which was driven by lower wax sales volumes and lower custom processing revenues. Cash flow from operations for the first nine months of 2019 was approximately $20.2 million as compared to $11.1 million in the first nine months of 2018. The increase in operating cash flow reflects substantially improved operating performance as well as working capital management. You should note that 2018 operating cash flow included approximately $4 million in tax refunds.

General and administrative expenses for the third-quarter 2019 were $6.4 million, compared to $6.3 million in the same period a year ago. Year to date, G&A expenses were $18.5 million, compared to $17.2 million in the same period last year. Recall that the 2018 G&A figure included the reversal of certain compensation and other benefits for Mr. Hatim Al-Khaldi totaling about $1.5 million.

Interest expense for the third quarter was $1.2 million. For the first nine months of 2019, interest expense was $4.1 million, compared to $2.6 million for 2018. The year-to-date increase in interest expense compared to 2018 was due to capitalized interest in 2018 and higher rates in 2019. Capex for the third quarter of 2019 was $2.5 million and for the first nine months of 2019 capex was approximately $6.3 million.

We expect capex for the full year to be approximately $10 million to $11 million as the spending pattern is back end heavy. Our revolver balance was $8 million as of September 30, with availability of $42 million. Revolver debt was further reduced by $5 million in October. Consolidated cash balance was $9.2 million as of September 30, and this compares to $4.3 million at the end of the second quarter, June 30.

Our third-quarter 2019 and first nine months 2019 effective tax rate was approximately 21%, which we expect to continue for the rest of the year. Now let me walk you through our business segments, starting with specialty petrochemicals. Third-quarter adjusted EBITDA from continuing operations for our specialty petrochemical segment was $9.9 million, about unchanged from the second quarter. Prime product volumes for the third quarter were 16.4 million gallons, compared to 17.7 million gallons in the second quarter.

Compared to the second quarter, we saw a decline in sales to the Canadian oil sands, which was expected, and lower sales to a large customer who had an unplanned outage in the third quarter. For the remainder of 2019, we believe the sales to the Canadian oil sands will continue to see headwinds from the uncertainty surrounding government mandated crude production curtailments as well as the overall crude oil pricing environment. Byproduct sales volumes in the third quarter increase to 4.1 million gallons, up from 3.7 million gallons in the second quarter of 2019. In Q2, you may recall feed to the Advanced Reformer unit was diverted to maximize prime product production that was used to meet certain customer needs by producing more hexane as prime products versus utilizing it for Advanced Reformer feed.

Byproduct margins expanded to $0.24 per gallon -- expanded from $0.24 per gallon in the second quarter to $0.36 per gallon due to higher aromatics pricing and lower feedstock costs. Prime margins in the third quarter of 2019 benefited from lower feedstock costs compared to the second quarter. As you can see from the Slide 8 in our earnings presentation, benchmark natural gasoline pricing declined from $1.20 per gallon in the second quarter to $1.6 per gallon in the third quarter. In addition to lower feedstock costs, we benefited from lower operating cash costs due to lower labor costs and lower fuel gas costs.

Moving on to specialty waxes. The specialty wax segment, which is based at our Trecora Chemical or TC facility in Pasadena, Texas had third-quarter adjusted EBITDA from continuing operations of negative $0.2 million, compared to $0.7 million in the second quarter of 2019. The decline in EBITDA was driven by reduced wax feed from suppliers. Two significant wax feed suppliers ran poorly in the third quarter.

Our wax feed is based on certain byproducts produced as a result of polyethylene production at major polyethylene producer facilities on the U.S. Gulf Coast. Wax sales volumes declined 1.4 million pounds from 10 million pounds in the second quarter to 8.6 million pounds in the third quarter. Third-quarter wax sales revenues decrease 13.4% sequentially from the second quarter.

Wax sales were constrained by disruptions of wax feed supply. Customer demand in the third quarter was strong and our sales remained limited by wax feed supply. Custom processing revenues at TC for the third quarter were relatively unchanged from the second quarter at $2.4 million. Revenues from the hydrogenation/distillation unit were negligible due to the lack of operation.

Now I'll turn the call back over to Pat Quarles for some views on 2020.

Pat Quarles -- President and Chief Executive Officer

Thanks, Sami. Before we get into Q&A, I just like to make a few comments about 2020. Critically, our strategy will remain the same. We believe it has provided the road map to the improvements we've seen this year, and we have more to deliver in the coming year.

We expect our commitment to improving our safety and reliability, with delivery improved wax and customer processing revenues as the hydrogenation unit operations improve. We expect our disciplined approach of driving productivity to meaningfully reduce our logistics and Silsbee feedstock costs. We will also begin building a pipeline of small projects within our plants that provide quick returns. These projects typically build into a scope of work that becomes self-funding and provides the continuous improvement of a facility.

Commercially, we will get the benefit of the renegotiated custom processing fees I mentioned and other growth opportunities in the works. With the impending close of the AMAK transaction, we will be achieving our goal of monetizing this asset, realizing our debt reduction targets, while having further capital to deploy toward shareholder value creation. Post transaction, Trecora will have a singular focus on the improvement of operating businesses and future growth opportunities. I now like to ask the operator to open the call for Q&A.

Thank you.

Questions & Answers:

Operator

[Operator instructions] Our first question is from Jon Tanwanteng from CJS Securities. Your line is now open.

Pete Lukas -- CJS Securities -- Analyst

Hi. Good morning. It's Pete Lukas for Jon. You mentioned it in your prepared remarks, but just if you could go over where you're tracking in your EBITDA outlook for the year now that we've got 10 months behind us? And really, what would be the biggest sources of upside or downside left in the year?

Pat Quarles -- President and Chief Executive Officer

Yes. Sure. When we last spoke, we talked about we're trending toward the high end of the range. As we get into the fourth quarter, we were expecting kind of the normal seasonality and that was built into that expectation.

Although, as I mentioned earlier -- listen, we had a severe storm come through to Silsbee site last week, and I should talk a little bit about that for everybody's understanding. While the Meteorological Society didn't identify it as a tornado, effectively from the wind and water impact at the site it was effectively equivalent to a tornado. You can see evidence of it through our plants, through the neighboring communities, lost roofs, lots of trees down and so forth. It did impact one of our two feed tanks and it resulted in some loss in containment in the secondary containment, which has been cleaned up now.

But that brought the unit down. It's back up and running today. But as a result, we were able to meet all of our contractual commitments, but we have pushed off some demand to ensure that -- we didn't declare a force majeure and we did meet our contractual customers' requirements. So we pushed some demand.

We expect to get some of that back in the fourth quarter and some of it is likely to be pushed into the first quarter. And then we'll have some costs incurred with the remediation of the damage that we incurred. So that does give us some uncertainty. And we're still in the recovery stage at the site, so we don't have tangible -- we don't have really good numbers yet on what magnitude it should be.

If I were to put a round number on it, it's probably around $1 million or so. But we'll continue to work that throughout the quarter. So that's really the greatest area of downside we see right now. Otherwise, the business side has been steady, demand is steady, accommodating for typical seasonal profile.

Pete Lukas -- CJS Securities -- Analyst

Great. And can you update us on the timeline for the large polyethylene projects coming online in the Gulf in the next year or so? And are these tracking as you had previously planned?

Pat Quarles -- President and Chief Executive Officer

Well, it depends on what date you poke your flag in the ground, right? But essentially, all these projects ran late from their initiation. But we saw, what, three units start up this year during 2019. We had the benefit of those sales throughout -- during portions of the year. We also had the benefit of first fill volumes for those plants during 2019.

We expect to see some growth because you'll have the benefit of kind of the full-year demand for those new plants. No new start-ups that we're anticipating for next year. So our growth will really be based on full-year operation of the new plants this year. I think the next major asset that comes into the U.S.

is Shell up in Pennsylvania, which is 2022.

Pete Lukas -- CJS Securities -- Analyst

Very helpful. Thank you.

Operator

Thank you. Our next question is from Sarkis Sherbetchyan from B. Riley FBR. Your line is now open.

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

Good morning, and thanks for taking my question here. So just want to first touch on the wax business. So are you evaluating alternative sources for wax feed supply?

Pat Quarles -- President and Chief Executive Officer

We are. Primarily as we've been talking about, right, we started down a path late last year of purchasing and upgrading on-purpose produced waxes and introducing a new product set of blended waxes. And we've talked about kind of the progress of that throughout the year. We're having great reception from our customers.

This is principally going into the hot-melt adhesive end-use market. We're kind of I'd say to second, third stage qualifications. The initial customers then translate it down to their customer base. All of them continue to buy.

Really more from a continued qualification demand profile, we expect them to be through all that by the end of the year. So that will be and that has been the greatest step I guess I would say to diversify our feed base to support both kind of continuity of supply as well as our growth opportunities.

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

Good. And touching on that further. So second and third stage evaluations, right, by the end of the year? What would you expect from either additional volumes or ASP perspective, right? Would it be richer ASPs to you? Would it be similar? Can you kind of help us break that down?

Pat Quarles -- President and Chief Executive Officer

Sure. So as I've said before, so recognize that this feed is a higher cost feed than our base byproduct supply. So we will be diluting our margin as we start, as we integrate this higher feed into it. These are better price points, but I wouldn't say they're significantly better.

So we're certainly getting good contribution for the sales, but you don't have the margin that we're starting with. And then over time I would expect as these products become established -- the performance profile is really pretty compelling we think and we would anticipate over the years to be able to further drive value capture as we get better established with the new products.

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

Good. Looking forward to those updates. Next question really kind of comes back to TC and the assets as a whole. Where are you guys in evaluating and bringing on the right projects to match the capabilities both at TC -- kind of what you had bought as well as the new assets that were built?

Pat Quarles -- President and Chief Executive Officer

Sure. Well, the candid answer is we're behind, right? And we know we're behind. I'm encouraged by where we are today, but we should have been here before. We changed the site leader kind of middle of the second quarter.

He got a new leadership team and kind of a reorganization of the site in place by the beginning of the third quarter. And as we exited the third quarter, really starting to finally see some tangible -- at least internally, tangible benefits to the changes that we've been driving there. So if you reflect back on the improvement plan that Dick introduced at both sites last summer, we had good uptake of those changes in Silsbee, we did not at TC. But with this new leadership team, we are now.

I can tell you by -- as we exited the quarter, we had good -- really increasing confidence in the running of hydrogenation to support the product development that I just spoke to. We also stepped up the quality profile of that product to now be qualifying our supply for a custom processing project with very good results, and we expect to see the beginning of that here in the fourth quarter. So I'm expecting -- but listen, we haven't posted the numbers, right? You see that in the third-quarter results. And I can't tell you to expect a big step up in the numbers in the fourth quarter.

But I think we're on track to starting to finally demonstrate a track record that we can get control more of our destiny at TC now and start building out that business. It won't come as quickly as the change at South Hampton. It's just not the nature of the assets of the business to turn as quickly as we did in South Hampton. But I'm having increasing confidence we're now finally on the path to improvement.

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

Great. Thanks for the update, and we're looking forward to some more updates on TC in the future. I'll hop back in the queue.

Operator

[Operator instructions] Our next question is from Joseph Reagor from ROTH Capital Partners. Your line is now open.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Hi, Pat and the rest of the team. So thinking back -- I mean obviously how you took over here. You went through, did a review of the operations, cut some staff, made some tough decisions. What are you guys doing now thinking more long term on how to retain like your quality employees? Are you guys doing safety incentive bonuses? Like is there anything on that end that you're doing, because long term, right, you got to incentivize both directions, right?

Pat Quarles -- President and Chief Executive Officer

That's right. And there's a lot going on, Joe. I can tell you -- and candidly, there is some culture change involved with it and that can be difficult. It's important to me that we have the entire organization kind of aligned on understanding what's really critical to our success and be transparent with that, and then we all participate in the rewards of achieving those outcomes.

And that can be a different thing depending on where you sit in the company from a legacy perspective. So we are moving the company toward kind of an integrated view of our performance, alignment on outcomes that we're all seeking together, and then rewarding for those results. So -- but that's not something that changes overnight. We appreciate that.

But I think we're starting to move in that direction.

Joseph Reagor -- ROTH Capital Partners -- Analyst

OK. Perhaps do you think we're going to get more statistics in the future? I know you said that this quarter you had no safety issues. But moving forward, are we going to get more of that type of industrial statistics of performance that kind of gets down into the weeds a little bit and demonstrates how you're turning this around?

Pat Quarles -- President and Chief Executive Officer

So typically, as you probably know, industry often looks to a TRIR, which is the total recordable incident rate, as one good benchmark for at least the occupational safety side. This year we are injury free at South Hampton for the year. So we're running a 0 TRIR, which is excellent, and really due to the attention and focus that really every man and woman brings to the job there at South Hampton. We had an accident in the early second quarter at TC.

It was a finger cut. But when you do, and we always do, root cause analysis as to how these incidents occurred, what you find is that was clearly the result of a behavior that was not consistent with the culture I'm trying to set. So we talk a lot about that. We share the learnings from that.

We haven't had an injury since. Just the nature of the scale of the plant, I believe our TRIR at TC with one incident is something just below one. So companies like our size, we should be running at about 0.47. That's kind of industry average.

We need to be at least there and certainly striving for perfection. So we have some improvements to do on the occupational side. I think getting -- candidly, metrics beyond that that we talk about here, I'm not sure it adds a lot. We certainly want to talk about the incidents that happened that may go beyond occupational events that impact our value, but that's probably the core metric that we'll continue to be speaking to.

Joseph Reagor -- ROTH Capital Partners -- Analyst

OK. And then what about other things like plant availability or overhead coverage, those kinds of things?

Pat Quarles -- President and Chief Executive Officer

Yes, those are all great management metrics, but I doubt we'll be publishing those as investments metrics. Those are, of course, the things that we look at internally. If you think about where we're driving on our execution, we look at our safety performance -- it's really the strategy I outlined earlier, right? So we have internal metrics around the adoption of our EHS culture that we're striving toward. We talk about productivity and we set clear expectations for what our commitments are and monitor our performance against those and then commercially what are we doing to further develop our business.

And those are all of the things we track routinely.

Joseph Reagor -- ROTH Capital Partners -- Analyst

OK. Then switching gears quite a bit to the kind of competitive landscape out there for South Hampton. Obviously, there's like one main competitor. Historically, they haven't been the best actor when it comes to pricing.

What have you seen there this year? We haven't really talked about it much, but I know it weighs on your pricing when they decide to just to take what they can get and go on.

Pat Quarles -- President and Chief Executive Officer

Yes, I probably tend to have a little different view. I think our competitor is a sophisticated competitor that also has a profit motive. I don't view them as being irrational. I think we meet each other in the market and we compete aggressively and perniciously.

Sometimes they get more aggressive on things that we don't like, and I'm sure we've done the same to them from time to time. But we try to be very thoughtful about how we push for the development of our business, and I'm pretty confident they're thoughtful as well.

Joseph Reagor -- ROTH Capital Partners -- Analyst

OK. And then one last one. Just a big picture. Anything in 2020 that we should be aware about beyond normal seasonality? Are you guys already starting to plan downtime in the first half? Or is there any changes coming at either of the plants or upgrades or things that are going to impact one quarter more than the others?

Pat Quarles -- President and Chief Executive Officer

I don't think we have that specific of a guidance right now. But what I will tell you is that -- and we've talked before. We're working hard to transition ourselves from a company that's been in a reactive mode in terms of the maintenance of our plant and taking care of our assets. You saw that this year, because frankly -- well, essentially all of our turnarounds this year were planned in advance.

And candidly, we weren't doing it that way in the past. I talked about even in the third quarter beyond the major maintenance in terms of routine maintenance at the plant we were able to transition over to a work process that Dick introduced last year that also has us planning our maintenance. That makes you much, much, much more efficient. And we saved $300,000 in the second quarter alone by transitioning over to that process.

So that's how we're approaching 2020. We do have a fair amount of scope in our plans for next year. We'll be having that conversation with the board in two weeks. So it's a little premature for me to declare exactly what we'll be doing.

But we do have a fair amount of scope next year that we'll need to be planning for and ensuring that of course we keep our customers appropriately supplied during those outages.

Joseph Reagor -- ROTH Capital Partners -- Analyst

OK. Fair enough. Thanks, and keep up the good work, guys.

Pat Quarles -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question is from Sean Hallisey from McCoy Endowment. Your line is now open.

Sean Hallisey -- McCoy Endowment -- Analyst

Hey, guys. Congrats on the monetization of AMAK. I just had one kind of two-part question. I was wondering what the utilization rates look like for the South Hampton plants compared to production capacity? And kind of what you all see as a optimal rate and when you'd expect to reach to that rate?

Pat Quarles -- President and Chief Executive Officer

Sure. So we don't think of this business as a business driven by operating rates like a classic commodity. Frankly, we have an asset that has ample capacity to meet anticipated future growth. We believe our competitor has ample capacity to meet future growth.

So we tend to think more about it in terms of the value that we bring to our customers. And there's a range of value depending on if you go from polyethylene, where the purity of our product and our supply chain provides a great netback for us, all the way down to competing for export volumes that go into a variety of end uses. So we tend to think of it from a value proposition than from an operating rate perspective.

Sean Hallisey -- McCoy Endowment -- Analyst

OK. Thanks.

Operator

Thank you. Our next question is from Matt Dhane from Tieton Capital Management. Your line is now open.

Matt Dhane -- Tieton Capital Management -- Analyst

Thank you. I was hoping you could add some color around some of the high return capital projects that you mentioned there toward the tail end of the prepared comments. Just hoping to get a little bit more detail what you're looking at? How significant a pipeline this could end up being? Just some additional color there would be helpful.

Pat Quarles -- President and Chief Executive Officer

Sure, Matt. So it's -- this is fairly typical for how plants should be operating in terms of -- there's always projects to be done that can be quick hits and high returns. This company has been focused on very large projects in the last several years, as we all know, and have done that in the -- at the expense of focusing on small projects that have quick returns. So I think -- and I think Dick and I are on the same page.

We're pretty optimistic that there's a nice -- and we'll be able to develop a nice portfolio of these projects. We have a couple identified that we'll be executing in 2020. And to be clear why they're quick returns -- their contribution during 2020 will probably be relatively small. Those things should start building in 2021.

But these are things like -- I mean basics like steam integration or to make you more energy efficient or recapturing losses through the system because of the way your tanks are set up. It's just the things that your engineering organization and your operating organization recognize in the day-to-day execution of their roles that with a little bit of support on capital, we can improve and continue to drive the productivity of the plant. And that's the type of thing we're working on. I can't tell you right now how big I think that fall is going to get.

It's going to be more than $1 million or so of contribution over time I'm confident. But we've got -- we're on the front-end of getting that established.

Matt Dhane -- Tieton Capital Management -- Analyst

That's helpful. Also want to discuss if I could prime products. In the past, there was a real focus on export opportunities and discussions about the different places that were building out polyethylene capacity and/or other things to utilize on your prime products. I was curious.

What are you seeing on the export front today? How much is that an opportunity here for '20 and beyond? Just some color there would be helpful too.

Pat Quarles -- President and Chief Executive Officer

Sure. So you got to recognize the way we report export includes oil sands. So it's hard to see export ex-Canada in our numbers. But what I would say is we've seen fairly consistent decline generally in the oil sands market while we've been able to maintain a fairly consistent export volume.

So that really tells you that our mix has improved as we focused on really what our strengths are, which is finding those places in the world that value the differentiated quality of our product. So selling into the Middle East polyethylene plants, Southeast Asia polyethylene plants, even occasionally China -- oh, that's much, much more difficult. And so we've had good success there. And the rest of the world continues to grow.

So there are new projects that we have identified in Southeast Asia that we're building relationships with that we're hopeful or we will plan to participate in sales to those guys over times. So I think it goes in the right direction. It is by virtue of the supply chain cost not in the high end of value for us, but we do see it as an important component of our future growth and it's a piece of our plans and we will stay there.

Matt Dhane -- Tieton Capital Management -- Analyst

Great.

Operator

At this time, I am showing no further questions. I would like to turn the call back over to Patrick Quarles for closing remarks.

Pat Quarles -- President and Chief Executive Officer

Thank you, Gigi. So I just want to thank all of you for your interest in Trecora and participating on the call today. I'd also like to thank the men and women of our company who have contributed to our progress this year, and especially those whose dedication had been so evident in Silsbee this past week to help mitigate the impacts of last week's storm and return the plant to operation. Thank you, everyone.

Operator

[Operator signoff]

Duration: 44 minutes

Call participants:

Jason Finkelstein -- Senior Vice President, Global Marketing

Pat Quarles -- President and Chief Executive Officer

Sami Ahmad -- Chief Financial Officer

Pete Lukas -- CJS Securities -- Analyst

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

Joseph Reagor -- ROTH Capital Partners -- Analyst

Sean Hallisey -- McCoy Endowment -- Analyst

Matt Dhane -- Tieton Capital Management -- Analyst

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