In Water Resources, our customers are typically government agencies and local
operations of agricultural and industrial businesses. The term “government
agencies” includes federal, state and local entities.
In the drilling of new water wells, we target customers that require compliance
with detailed and demanding specifications and regulations and that often require
bonding and insurance, areas in which we believe we often have competitive advantages.
Water infrastructure demand is driven by the need to provide and protect one
of earth’s most essential resources, water, which is drawn from the earth
for drinking, irrigation and industrial use. Main drivers for water supply and
treatment include shifting demographics and urban sprawl, deteriorating water
quality and infrastructure that supplies our water, increasing water demand
from industrial expansion, stricter regulation and new technology that allows
us to achieve new standards of quality. Well and pump rehabilitation demand
depends on the age and application of the equipment, the quality of material
and workmanship applied in the original well construction and changes in depth
and quality of the groundwater. Rehabilitation work is often required on an
emergency basis or within a relatively short period of time after a performance
decline is recognized. Scheduling flexibility and a broad national footprint
combined with technical expertise and equipment are critical for a repair and
maintenance service provider. Like the water well drilling market, the market
for rehabilitation is highly fragmented. The demand for well and pump rehabilitation
in the public market is highly influenced by municipal budgets.
Injection well, a device that places fluid deep underground into porous rock
formations, has seen its market demand driven by new regulations and the need
to economically dispose of waste associated with municipal and industrial water
treatment.
Demand for water solutions will grow as government agencies, industry and agriculture
compete for increasingly limited water resources. The combination of tightening
regulations and water scarcity has resulted in increasingly sophisticated water
consumers, and this in turn has created opportunities for the introduction of
long-term sustainable methods and technologies such as aquifer recharge, water
re-use, injection wells and zero-liquid discharge treatment systems.
As demographic shifts occur to more water-challenged areas and the number and
allowable level of regulated contaminants and impurities becomes stricter, the
demand for water recycling (re-use) and conservation services, as well as new
specialized treatment media and filtration methods, is expected to remain strong.
Many of the drivers for sewer rehabilitation demand are largely a function of
deteriorating urban infrastructure compounded by population growth, as well
as deteriorating water quality and infrastructure that supplies our water. Additionally,
federal and state agencies are forcing municipalities and industry to address
infiltration of groundwater into damaged or leaking sewer lines, enforcing stricter
regulation and new technology that motivates us to achieve new standards of
quality.
Inliner customers are typically municipalities and local operations of industrial
businesses.
The geographic reach of the Inliner installation group stretches from the east
coast westward to the Rocky Mountains. Felt based sales through Liner Products
continued to be predominantly U.S. based. Fiberglass/UV based sales were all
U.S. generated.
In Heavy Civil, customers are typically government agencies and local operations
of industrial businesses. Continued population growth in water-challenged regions
and more stringent regulatory requirements lead to an increased need to conserve
water resources and control contaminants and impurities. The combination of
tightening regulations and water scarcity has resulted in increasingly sophisticated
water consumers, and this in turn has created opportunities for the introduction
of long-term sustainable methods and technology, such as zero-liquid discharge
treatment systems construction implementation. Heavy Civil operates in most
areas of the U.S.
Geoconstruction customers are typically government agencies, local operations
of industrial businesses and heavy civil general contractors. Contracts are
awarded following a competitive bidding process. Contracts have involved large
projects which at times can be delayed by the project owner or the general contractor
due to various factors, including funding and the local political environment.
Mineral Services customers are major gold and copper producers and to a lesser
extent, other base metal producers. Mineral Services’ largest customers
are multi-national corporations headquartered in the U.S., Australia, Brazil,
Europe and Canada. Work for gold mining customers generates approximately half
of the business in Mineral Services. The success of Mineral Services is closely
tied to global commodity prices and demand for our global mining customers’
products. Operating markets are in the western U.S., Mexico, Australia, Brazil
and Africa. Layne also has ownership interests in foreign affiliates operating
in Latin America that form Layne’s presence in this market. See Item 1A,
Risk Factors for a discussion of the risks associated with operating in these
foreign countries.
Demand for mineral exploration drilling is driven by the need to identify, define
and develop underground base and precious mineral deposits. Factors influencing
the demand for mineral-related drilling services include volatility in commodity
prices, growth in the economies of developing countries, international political
conditions, inflation, foreign exchange levels, the economic feasibility of
mineral exploration and production, the discovery rate of new mineral reserves
and the ability of mining companies to access capital for their activities.
Global consumption of raw materials has been driven by the rapid industrialization
and urbanization of countries such as China, India, Brazil and Russia. Development
in these countries had generated significant demand as their populations consume
increased amounts of base and precious metals for housing, automobiles, electronics
and other durable and consumer items. The recent economic slowdowns have impacted
this demand.
The mineral exploration market is dependent on financial and credit markets
being readily available to fund drilling and mining programs. In addition, mining
companies’ ability to seek cash for their operations through other avenues
which traditionally have been available to them is dependent on market pricing
trends for base and precious metals.
Mining companies are focusing efforts on expanding existing products and lowering
the cost of production. Mining service companies with global operating expertise
and scale should be well positioned once demand increases. Technological advancements
in drilling and processing allow development of mineral resources previously
regarded as uneconomical and should benefit the largest drilling services companies
that are leading technical innovation in the mineral exploration marketplace.
Energy Service’s current customers are mainly located with the oil and
gas companies in the Permian Basin of Texas. Energy Services executes master
service agreements with customers. This industry is a cyclical industry with
levels of activity that are significantly affected by the levels and volatility
of oil and gas prices.
Layne identifies potential projects from a variety of sources. After determining
which projects are available, Layne makes a decision on which projects to pursue
based on factors such as project size, duration, availability of personnel,
current backlog, profitability expectations, type of contract, prior experience,
source of project funding and geographic location.
Contracts are usually awarded through a competitive bid process. Layne executes
its contracts through a variety of methods, including cost-plus, fixed-price,
day rate, unit price or some combination of these methods. Customers may consider
price, technical capabilities of equipment and personnel, safety record and
reputation.
Fixed-price contracts are generally used in competitively bid public civil and
specialty contracts. These contracts commit the contractor to provide all of
the resources required to complete a project for a fixed sum. Usually fixed-price
contracts transfer more risk to the contractor.
Most of Layne’s contract revenues and costs are recognized using the percentage
of completion method. For each contract, Layne regularly reviews contract price
and cost estimates as the work progresses and reflect adjustments in profit
proportionate to the percentage of completion of the related project in the
period when we revise those estimates. To the extent that these adjustments
result in a reduction or elimination of previously reported profits with respect
to a project, Layne would recognize a charge against current earnings which
could be material.
