Good afternoon, Welcome to the TETRA Technologies Company update and question and answer session held by EF Hutton. The host today is Tim Moore, Director of Equity Research at EF Hutton, joined by Brady Murphy, Chief Executive Officer, and Elijio Serrano, Chief Financial Officer of TETRA Technologies. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. There will be an opportunity to ask questions. To ask a question, you may type in the question and answer box inside the web chat. Please note this event is being recorded. I will now turn the conference over to Mr. Moore. Please go ahead.
Thank you. I am the senior analyst at EF Hutton, who launched coverage on TETRA Technologies in early June of last year. I also had the opportunity to spend nearly two days with them in the Permian Basin and at their R&D facility in Houston to observe and gain a deeper understanding of the water flow back and recycling facilities and the potential for the desalination of produced water. I will turn the call over to Brady, Elijio, and Rigo for their comments and overview.
Thanks, Tim, for hosting us today. Thanks to everyone who's joined us on the call. I'd like to remind you that this conference call may contain statements that are or may be deemed to be forward-looking. These statements are based on certain assumptions and analysis made by TETRA and are based on several factors. These statements are subject to several risks and uncertainties, many of which are beyond the control of the company. We are cautioned that such statements are not guarantees of future performance and that actual results may differ materially from those projected in the forward-looking statements. In addition, in the course of the call, we may refer to EBITDA, Adjusted EBITDA, Adjusted EBITDA gross margins, free cash flow, net debt, net leverage ratio, liquidity, or other non-GAAP financial measures.
Please refer to our public website for reconciliations of non-GAAP financial measures to the nearest GAAP measures. These reconciliations are not a substitute for financial information prepared in accordance with GAAP and should be considered within the context of our complete financial results. I will now turn it over to Brady.
Thank you, Rigo. Thank you, Tim. Good afternoon, everybody. Thank you for joining us for our fireside chat discussion. We'll walk through some of the slides that hopefully everybody has access to with some commentary and then look forward to the question and answers part of the discussion. I'll start with the first slide, which is really a quick overview of the company. TETRA was founded in 1981, so we've been in business for over 40 years. During that period of time, we've been in and out of quite a few different businesses. But a few years ago, we made the decision to refocus the company around our core technical and operating capabilities, which in summary is aqueous chemistry solutions. We divested the offshore decommissioning business.
We sold the general partnership of CSI Compressco, which greatly simplified the company's business model and the balance sheet. Today, we have two operating segments that fit our core competency very well. They're nearly equal size, our completion fluids and products and services segment, as well as our water and flowback services segment. The graph on the bottom right, I think, highlights the company's continuous financial improvement and the business resiliency, even in the worst of downturns, such as what we experienced in 2020. The business is supported, and this trend is supported by a strong mix of business from the U.S. and international, offshore, especially deep water, as well as a strong industrial chemicals part of our business.
In summary, I think today TETRA has a business model that's diversified, resilient in the down cycles, and positioned for significant growth, as we'll discuss. Moving on to some Q4 highlights. We finished the year with a strong fourth quarter. Our revenue was up 9% quarter-on-quarter and 30% year-on-year, which was led by our energy services Gulf of Mexico and offshore international, which was up 20% sequentially. Water and flowback achieved our seventh consecutive quarter of growth, while our Q4 run rate annualized is greater than the full year 2018 revenue on about 30% fewer frac crews. It's really, I think that one statistic demonstrates the profitable market share growth that we've achieved in the last few years.
Adjusted EBITDA was up 9% quarter-on-quarter and up 56% year-on-year. For the full year highlights, revenue was up a significant 42%, which was led by our water and flowback segment growth of 66%, again, on relatively flat frac crew activity over the past year. Adjusted EBITDA was up 56%, but when you exclude the gains on investments, it's up 112% over 2021. Water and flowback moved our EBITDA margins from 8.8% in 2021 to 15.5% in 2022.
2022 was an important year for key milestones in our low carbon strategy area, completing our exploration well in Arkansas, finalizing our inferred resource study with an estimated 5.2 million tons of bromine and 234,000 tons of lithium carbon equivalent. As we take a little bit of a deeper dive into our water and flowback segment, the financial chart shown here highlights the stairstep growth for the seven consecutive quarters, while the active frac crew count has been pretty flattish over that period of time. Market share gains have been achieved through the deployment of Sandstorm and the automation of our integrated operations as depicted on the picture here in the right-hand part of the slide.
For the unconventional water business, TETRA has been delivering innovation and efficiency while creating barriers to entry to a critical part of the completions business, which is water management. Argentina continues to be a strong growth contributor with a third EPF plan for startup at the end of the second quarter. As we look to 2023 in terms of margin expansion, as we mentioned on our earnings call, we will be less focused on growth. Again, we achieved a 66% growth in this segment last year, but we also put, you know, a fair amount of capital into this business last year. This year will be a different focus. There'll be less CapEx, less focus on growth and continued focus on margin expansion. We feel there's really kind of three pillars to achieve that margin expansion.
The first is we'll have a full year of Sandstorms with an overall fleet count, which will be 20% higher in 2022 than in 2021, just, you know, following the deployment of our Sandstorms throughout the year, during 2022. I'm sorry, I meant 2023 over 2022. Again, Sandstorms continue to be one of our highest margin services. The further deployment of automation, increasing from what is approximately 60% of our integrated water management jobs to a target of 85% by the end of 2023. Again, each of these integrated jobs where we can fully automate, we have the opportunity to reduce manpower, on average about 30%, sometimes as high as 40%.
Then a full year of the two early production facilities that we will have in Argentina and a third one that we'll be starting at the end of the second quarter. You can see the contribution that we are anticipating, estimating from each of these areas with an expectation that we can get close to the 20% overall target for 2023. Slide nine, the highlights what we believe is really what I'll call the next big thing for water in North America, which is described as the convergence of produced water, desalination, and the extraction of minerals. The disposal of produced water is a well-known challenge for the industry with increasing seismicity becoming an urgent issue.
The chart on the right was presented by Mike Hightower, who is the Director of the New Mexico Produced Water Research Consortium at a recent Produced Water Conference in Midland, which I had the opportunity to participate on one of the panels. Mike's comments were that in 2018, they thought they had 10 years of disposal capacity ahead of them. Clearly, as the chart shows, that capacity has already been reached within five years and really are struggling to determine how the next five years will be addressed with limited permitting capability due to seismicity and just the overall volumes of produced water to deal with.
For TETRA, we're a leading producer or provider of produced water, recycling, today for frack reuse, and we're leveraging that capability as well as our core R&D capabilities to be a first mover in this area. We've partnered with two technology providers for desalination, and combined with our proprietary pretreatment, we feel in a very good position to be have a first-mover advantage. Desalination for beneficial reuse, such as farming or industrial applications, solve multiple issues, more available, useful water, and much less disposal. At the same time we're desalinating produced water, we have the chemistry and experience know-how to extract key minerals, such as iodine, bromine, and potentially lithium that we are looking at. Oftentimes people are surprised when they hear that iodine is selling at the same price as lithium.
There are opportunities in this space to have a very attractive commercial model. Moving on to our completion fluids business. As the financial chart demonstrates, this continues to be a very strong segment, consistently delivering mid to upper 20s EBITDA margins. TETRA is well known in the industry as an innovation leader with built-in vertical integration advantages. Our competency in brine chemistry is key for us to maintain our innovation leadership, such as the development of CS Neptune, the industry's zinc-free high-density completion fluid, and our zinc bromide electrolyte, PureFlow, which is now qualified for three different long-duration energy storage companies. As Rystad forecasts, we believe we're in the early stages of a deep water offshore recovery where TETRA's completion fluids will greatly benefit. Our growth strategy for completion fluids is really around three areas.
First, the deep water recovery and the projected floater rig count for our base completion fluids business, as well as increasing more TETRA CS Neptune opportunities as deep water activity increases. Continued expansion in the Gulf of Mexico with the acquisition of Newpark's inventory and Port Fourchon base gives us additional capacity to grow. Internationally, we're well positioned in key deep water markets, offshore markets such as Brazil, the North Sea, and the Middle East. This chart shows our bromine completion fluids relative to the global floater market. You know, we estimate that bromine completion fluids which are primarily used in deep water applications. About 70% of the Gulf of Mexico deep water completions use a bromine-based completion fluid.
Again, this chart highlights the growth that we've been able to achieve even while the floater market from the peak in 2014 continued to decline up and through 2021, and it just started to turn the corner. If you look at the revenue per floater back in 2016 relative to the revenue per floater in 2022, that's a 300% increase for revenue per floater for TETRA's bromine-based business. As shown, the floater market's expected to increase another 26% through 2025 based on Rystad's forecast. We believe based on our intelligence that that's a fairly consistent forecast. Moving into our low carbon energy, we talked about the strategy that we put in place a few years ago.
I think it's very important reminder that each of these opportunities are extensions of our existing core capabilities and allow us to participate in a long-term area of significant growth. The first area is the zinc bromide electrolyte that I had mentioned. We have a patented manufacturing process to manufacture a high purity form of our oil and gas completion fluids chemistry. We see that as a key opportunity for the company, to participate with the energy storage companies, and we are in close contact with each of them, on a go-forward basis. Calcium chloride for CO2 capture. We've talked about our relationship with CarbonFree, precipitating CO2 to precipitating calcium carbonate. We continue to stay engaged with CarbonFree as they make progress on their early commercialization. We talked about the water desalination.
That's really an extension of our current recycle and reuse capabilities. Lithium from our brine resources. We'll talk a little bit about the bromine project. That's our first priority out of our brine resources. You know, following that, we plan to take advantage of extracting the lithium from that same brine source as we perfect and develop the direct lithium extraction process that we'll be using. If we move to talk a little bit about the bromine project that I'm sure we'll get into in the Q&A. The bromine market really is going through some tightness in supply, but at the same time, some pull in the market.
The largest percentage shown in this pie chart is fire retardants is the largest global segment for bromine. The electric vehicle market, as highlighted here by the chart at the top, uses about 5 x the amount of bromine for fire retardants as a conventional ICE vehicle. That, that clearly is gonna be a pull on bromine. The deep water market, as I'd mentioned, we estimate about 70% of deep water wells in certain markets use bromine-based completion fluids. That market has bottomed, and we expect to continue to grow over the coming years. A brand new market that we had just mentioned is using bromine along with zinc for electrolyte in the energy storage segment.
Each of these areas we think are gonna be continually pulling on what is today a somewhat tight market in the bromine space. If you look at TETRA's bromine forecast, and this is what I would call an unconstrained bromine forecast. Relative to 2022, you'll see the darker blue color represents our oil and gas forecast projections, and the gray bars on top represent what we believe is the PureFlow or the zinc bromide energy storage electrolyte forecast. You'll see a very strong growth, 11% CAGR through 2030. It represents a great opportunity for the company to leverage our offshore completion fluids business in a growth market, as well as our PureFlow in the energy storage market.
As I'd mentioned, this is an unconstrained view, and a tight market of bromine, which really leads us into the next discussion, around our resource play in Arkansas that, we have talked about, you know, for since introducing the inferred resources report last year. Our, our 40,000 gross acres. The 5,000 acres that we're focused on initially for both, the bromine and, the lithium carbonate. Then, I'm sure we'll save some more time for discussion on this topic as we get into the question and answer. With that, I'll pause, Tim, and, open it up for questions.
Great. Thank you, Brady. As demonstrated by TETRA's impressive results this past year, its water and flowback-Adjusted EBITDA margin expanded strongly and nearly doubled from 2021, driven by the very high sales growth that continued in the December quarter. You know, our view at EF Hutton is that the CEO, Brady, and the CFO, Leo, have significantly improved the company's growth prospects and profitability and appear to be on track to grow EBITDA and EPS this year very strongly. We at EF Hutton are forecasting nearly 90% EPS growth this year. We also wanna point out to investors that based on our estimates, TETRA could derive approximately 35% of its EBITDA this year from industrial calcium chloride. We think that's an important point to make. Just reminding investors based on our research, our price target represents more than a double from today's stock price.
We also wanna point out that the management team was very active last week with acquiring over $300,000 worth of shares, and separately requested to be paid their 2022 incentive bonus in stock shares instead of a cash bonus, which we find terrific. Now we're gonna open up the question period. Audience members can submit questions through the webcast. I will start off with a few questions received over the past two weeks since the company reported its results. For the first question, Brady, you touched on the Sandstorm fleet utilization and the uptick in automation this year to possibly 85% in the water and flowback. Can you talk about any other opportunities for water treatment and recycling this year?
Do you think it's possible to add additional early production facilities in South America in late this year or next year after the third one comes online midyear?
Yeah, sure. Sure, Tim. The drivers that we had mentioned for increasing our EBITDA margins, you know, we feel very, very good about. There are additional opportunities in the recycling for frac and reuse. Remember, a lot of operators are still in the early stages of just recycling their produced water for frac and reuse purposes. That's an area where we continue to grow and see opportunities for, and to, you know, it is a good margin business for us. As that business grows, there's opportunity in addition to what we had mentioned during our overview.
On the on the EPFs, the early production facilities, you know, we like very much the projects that we have, the three that we have. They did require some CapEx for us last year. We're probably going to take a pause once we have these three up and running, before we will, you know, take on additional projects, early production facility projects. We don't have a capital allocated for projects this year. We do see demand for for those projects because Argentina is in such a high activity mode, and they don't have the infrastructure in place the permanent infrastructure in place to take advantage of it. There are more EPF opportunities coming.
If we do take on additional EPFs, we will probably structure them somewhat differently, not using our capital, but potentially our customer's capital and a bit of a different model going forward for now.
Brady, we might add that on the early production facilities in Argentina, given how well they are performing, the two that we have active, we've already engaged in discussions about expanding them. As Brady mentioned, if we expand them, we're gonna work with our customers that they fund the expansion CapEx, and we'll continue to run them and leverage the facilities we've already put in place.
Great. That's helpful, we're looking forward to that EBITDA uplift from those projects going through this year. Maybe just switching gears, a popular question I've been getting from investors is your bromine development projects. There were some investors going into your earnings call two weeks ago that might have prematurely anticipated that it was a definitive decision to invest soon. It seemed like you might have been on step 3 or so, you still have a couple more gates to go through and data reports to receive before making an official approval decision. Can you walk us through the steps and the timeframe for approval or rejection of the potential bromine project?
That's a good point, Tim. As I've also talked to a lot of our investor base, I think it's important that we clearly articulate the sequence of events that we're gonna go through. We're gonna be very methodical knowing that this is a very important decision for the company. I'm sure most of our investor base are not mineral development expertise. The process we're gonna go through is we published an inferred resource study, which is the most basic of the studies out there using a lot of publicly available information, plus data from one well that we built. That's an inferred resource study. The next level of quality that we can move toward is an indicated resource study that takes more data points.
It'll require us to drill another well to validate the results of the first well, and that takes us from inferred resources to indicated resources. From there, if we wanna move to the next resource level, it will be measured resources, to again, provide better quality. Now, to move from resources to reserves, now we have to confirm through economic and engineering analysis that we can profitably produce the bromine. Which means that we move from a preliminary analysis or what in Canada is known as a PEA or preliminary economic analysis. Again, I wanna emphasize that that's preliminary. If we want a more definitive study, we go into a feasibility study. From that feasibility study, we can move from resources to reserves. Once we move from inferred to indicated, perform a feasibility study, that takes us into a probable reserves.
At that point, we've got a higher degree of confidence that we can economically produce the bromine. We've already done the front-end engineering study using an outside engineering firm. We're using a firm with high reservoir and geological knowledge to move us from inferred to indicated. We're right now in the process of launching the second well to give us that incremental data point. We expect that we'll be working on the feasibility study between Q2 and Q3 to move it to a probable reserve. At that point, we can move some of the 5.2 million tons of bromine from inferred to indicated. With a feasibility study, it gives us a higher degree of confidence.
We do not expect to go to our board of directors until we are at a probable reserves level at a minimum, and that we have identified the sources of funding to be able to execute on the project. With respect to funding, which is the next logical question to come up, we indicated that we have engaged an investment banking firm to help us identify potential partners so that TETRA does not over-lever, does not take too much risk with the project. We are simultaneously reaching out to chemical, industrial, and other partners in the sector to see whether there's a level of interest participating with us. Simultaneously, we are working with the Department of Energy, both through the grant and the loan program office. We have had preliminary discussions with the DOE on both sides.
On the loan program side, for example, the DOE will loan as much as 70% of your capital needs for projects such as this, as long as you can demonstrate certain criteria, and they contribute towards the reduction of CO2 emissions in the process. We've got several steps underway to evolve from inferred in a preliminary to a feasibility study with probable reserves, and then identifying the capital before we go to our board with any investment decision.
Well, thanks for running through that sequence. You beat me to my next question that we're getting from some investors about the funding. There was also a follow-up question maybe to that funding comment that you made. One of the questions on the chat is if you could possibly do a JV or, you know, or even use some companies with infrastructure to raise the IRR, maybe lower the CapEx a little bit. I just wanna remind investors that the latest economic report, the midpoint estimate was for about $41 million of annual EBITDA at an incremental EBITDA margin of about 48% and an IRR of 50%. We do have one question just asking if there's anything you could do maybe on the infrastructure side or JV to raise the IRR.
Yeah. We're in the early phases of engaging with potential partners. The partners might take one of many forms. They could represent offtake agreements that would provide capital to secure some of the offtake. They could represent an opportunity for us to leverage some of their infrastructure and reduce the amount of capital that we have to expend. They might partner with us to wanna participate in the high growth battery storage and/or the high growth Deepwater market and share some of the capital, but also obviously share some of the upside also. At this point, we're in the early phases of simply engaging in dialogue to determine the optimal path that we believe will create the most value to our shareholders.
That's great color. We appreciate that there's a couple interesting paths that you can take there on that. Another question was, for bromine, we realize you have your long-term supply agreement. The question is, can you reduce maybe that long-term supply agreement enough for possibly the year 2026, assuming maybe that could be the year you start producing enough bromine yourself, just to allow you to generate enough incremental EBITDA from the Arkansas facility?
Tim, a couple of perspectives on that question. Number one, as Brady showed with the graph earlier, our estimation of the amount of bromine we cover that is going to be required by the recovering Deepwater market is going to be above and beyond what our current supply agreement is. In fact, in the fourth quarter, we communicated to the street that we're doing quite a bit of open market purchases of bromine and realized that even despite doing quite a bit of open market purchases in the fourth quarter, we still deliver a solid mid 20% EBITDA margin in there. Our assumption is that the battery storage market takes off gradually. We don't assume that everyone's gonna hit on all cylinders and immediately place significant orders.
We think it's gonna be a slow ramp-up in the projections that we have out there. If they do gain traction, if they raise the capital and they hit their production target, we believe that between now and the end of the decade, we will not only absorb the volumes due us under our long-term agreement, but it will also absorb the volumes that we produce from our plant once we bring it up in Arkansas.
That's helpful. We actually have a related question in the queue about EOS. Investors probably know that the consensus estimate for sales this year came down a bit. I believe the current consensus is $50 million, but the consensus sell side is at $260 million in sales for next year, which will be a big uptake. It seems like you can get a pretty good margin on the TETRA PureFlow. You know, investors were wondering, as you ramp up maybe with that second customer for TETRA PureFlow, do you think that you could still redirect any zinc bromide to the oil sector, like you did late last year, you know, as maybe EOS is a little bit slow to accelerate sales in the first half of this year?
Yeah. If you look at the chart that Tim that we showed on the bromine revenue forecast, or I guess demand forecast, you'll see we've got a very conservative estimate for the PureFlow ramp up in our model. You know, we have no question right now the market that we're in and the market that we are seeing, we have a home for all of the bromine that we can get our hands on, including, as Elijio said, the third party purchases that we made last year and we'll be making again this year to bridge us over to when we're able to bring our bromine supply project, you know, into the market. Yeah, absolutely, we're forecasting a pretty conservative view.
There's a possibility that, you know, they could ramp up even quicker than what we're showing here. Again, as we'd mentioned, that supports even further the bromine development project that we're looking at and will ultimately help us with decide the timing of that project.
Tim, you made a, I think a statement that's very important. When we reported third quarter earnings, we reported that one of our customers for PureFlow was gonna scale back and the demand that they had previously anticipated for Q4 was being rescinded. I think there was concern that that would cause a shortfall in our results in the fourth quarter. Our fourth quarter results exceeded expectations, came in stronger than the third quarter, which demonstrated that we could very quickly pivot it and pushed all that zinc bromide into the oil and gas sector. We believe that short term, any demands coming from the long duration battery storage, if they evolve, then we get an opportunity to direct it either to the oil and gas or to the battery storage market.
If they don't evolve, there's a demand on the oil and gas side that quickly absorbs it at very good margins.
No, that's very helpful and great to hear. While we're on this topic of, you know, CS Neptune and offshore drilling projects, can we just go through the timing again? I believe you said on the latest call that you're expecting a Norway project in the second quarter. You know, investors are curious. We know that the Gulf of Mexico has been a little bit quiet lately, but there is some rumblings of a project that could get started there late this year. You know, can you just maybe add any color on that if it were to start, you know, by the end of November, December? How much of a lag is it on your revenues? Would you get a lift on that April, May, June next year?
With the Neptune, Tim, as we've talked about, we've wanted to get a more steady cadence of Neptune jobs. We feel, you know, we're right on the threshold of that in the North Sea. Both we executed a U.K. our first U.K. job in the fourth quarter. We've got a Norway job scheduled in the second quarter. We're seeing that cadence of Neptune opportunities on a more frequent basis, which is really, you know, one of our key objectives for the North Sea market. The Gulf of Mexico is quite a, quite a bit of a different market. These are basically linked to approval of long-term Deepwater developments. You know, we have a pretty long list of pipeline projects that we've been tracking. They're all still there.
Most of these projects were paused during 2020, the COVID, and even really through most of 2021. Began to see the movement of those projects again in 2022, second half of 2022, looking for some you know, stability in the oil prices, which the market has seen for the most part. We could land a Gulf of Mexico project that could hit before the end of the year, but it's most likely going to be the first project that we're really tracking is most likely in 2024. The first half of 2024 is our current expectation. But again, all these projects are now moving forward.
We have a more, you know, optimistic view of understanding the timing of many of these projects. Hopefully the oil prices will, you know, stay in the, in the ranges with it that it's been and where it's at that will support the economics of these projects going forward.
That's terrific color 'cause, you know, I always get asked by investors, you know, they've looked at the Gulf of Mexico projects over the last few years, and sometimes they could be 4 x the sales amount and much higher EBITDA margins. It does seem like it could be a pretty great catalyst for your 2024 results. Another question that we're getting in the Q&A is, somebody wants to know is how sensitive are your earnings to natural gas prices? Oil prices have averaged nearly $78 year-to-date and are hanging in well, natural gas prices are lapping at big spikes from last year.
Yeah. We do not have a great exposure to the gas markets. We do have a good business in the Marcellus that we've been there for quite some time. It's a good business for us. Fortunately, the customer mix that we have are quite a bit hedged and are long-term players that, you know, we have not seen any activity reductions from yet. We're not as big in the Haynesville. We're not really too affected by what happens in the Haynesville market. So far, number one, it's not a big part of our business, and so far we haven't really seen any pullback from our customer base as it relates to the kind of the volatility in gas prices as I would describe it.
That's terrific to hear. The next question is, for the desalination of produced water, you did a pilot project on that. We're wondering what hurdles remain for that. Could there be an update by the regulators for their review for permitting for the operators sometime later this summer or late this year?
Yeah. A couple parts of that question, Tim. I'll take the regulator side. We did a pilot project, our first pilot project in Texas for a major operator. Very happy with the results. Technically, a huge success, desalinating 92% of the produced water volume. We worked with this operator quite closely to understand the permitting process. The two agencies that are gonna really have oversight of discharging produced water, you know, for surface discharge or beneficial reuse. First is the EPA. We understand the EPA regulations very well, and our technical specifications of our desalination project were well below the thresholds limits of that the EPA requires. We're in very good shape there.
The second regulatory, it goes to the states, in the state of Texas is the Railroad Commission. On the project that we had worked with our customer, we were very solid, very specific regulatory thresholds that the Railroad Commission had have required for this operator for their permitting. We understand that now very well. Again, we're very happy that the technical solution that we have is going to be able to well within the thresholds of the Railroad Commission. Again, each produced water is different. I don't wanna say that this automatically qualifies us for every produced water opportunity, but now that we understand what the objectives are, and that we can meet those objectives, we feel pretty good about being able to expand this to other areas.
As it relates to, you know, desalination in general, again, we feel like we've got a first-mover advantage here. We've got two great agreements with two companies that we're very pleased with after quite a bit of research and testing with KMX and Hyrec, both for different applications in the market. Lower TDS levels with the Hyrec unit, higher TDS levels for the KMX unit. And then, you know, we have to marry that up with our, what we call our TETRA proprietary pretreatment capabilities to feed both of those, you know, technologies. As I said, our pilot went very well.
There's some learnings from our pilot that we need to take from essentially what was a lab scale, you know, field pilot out on location to actual full commercial plant. There are some engineering and some things that we need to do on the front end with our pretreatment that we are working on. We, you know, we feel quite confident that before the end of the year, we will have a fully commercial package that we can really get into negotiations with operators for deploying whether it's a high TDS such as the Permian Basin or the low TDS such as the Hyrec unit. You know, before the end of the year is our objective.
That's terrific, Brady. Thanks for those details and insights. I took a stab at estimating how much value it can maybe add to your stock after I was down in the Permian in the summer. Yeah, that would be a great catalyst. You know, I think you could add $1-$2. Actually, the next question is around free cash flow. Your investor presentation provided a range of some of the components for possibly strong free cash flow generation this year. You have caught in my estimates, $32 million. I'm looking at the consensus EBITDA estimate for this year, it's $101 million.
If I assume that your capital expenditures might come in $5 million lower the next year and the Arkansas investments could be $5 million, does Elijio think that the working capital could be neutral or only a minor drag this year? Just trying to get a triangulation maybe on potential free cash flow.
Good question, Tim. On the earnings call a couple of weeks ago, I indicated that while we were not gonna give EBITDA guidance, we're comfortable saying that we expect strong free cash flow this year. The slide that we put on the screen here reflects the deducts from cash flow to arrive from EBITDA to arrive at free cash flow. You're right, as Brady mentioned earlier, we're going to be more reserved in terms of capital expenditures. We believe interest expense, despite the higher interest rates, can remain between $16 million and $17 million. Cash taxes, which are all international taxes, especially as the profitability improves overseas, can be somewhere in the $4 million-$6 million range.
We'll make another $4 million-$6 million investment in Arkansas. We believe cash flow can be neutral unless there is a spike in the fourth quarter of this year. If there is a spike in activity, obviously, that means that there's also a spike in EBITDA. The big working capital consumption that occurred in 2022 was on the revenue side. Revenue increased from $388 million in 2021 to $553 million in 2022. That's a $165 million increase year-over-year, or 43%, 42% increase. AR increased $38 million because in November and December, as we saw those significant Deepwater shipments start to occur, we could not invoice them and collect them before the end of the year.
To demonstrate that the working capital is really restricted around the accounts receivable where the volumes are increasing. Inventory was up only $2 million year-over-year. That tells you that we're moving all the product out as quickly as we could manufacture it or as we could buy it. The AR is simply a timing issue. On the assumption that there's been a big ramp up in urine activity 2023, we think that could be neutral. Whether your estimate on us is consensus or something above that or something below that, the deduct is between $50 million-$60 million, that, in our opinion, gives you a very strong free cash flow for 2023.
That's terrific to hear. I think a lot of investors will be excited to see that as a catalyst. Another question that I had recently been seeing is, can you explain maybe a bit more color on that net operating loss carry forward presentation plan for any ownership change? You have a very large amount of federal NOLs that'll keep your tax rate low for many years, seems like cash taxes might only be international taxes, like you just mentioned. Can you just maybe give us a little insight on that, the preservation plan?
There's a significant asset that I don't think is really understood and appreciated that TETRA's sitting on. Over the years, we've accumulated tax loss carry forwards of over $400 million. If you assume a tax rate in the 30% range in the United States, that means that there's about a $120 million deferred tax, that as we generate profits in the United States, we do not have cash outlays to be responsible for. Which means that a significant amount of our pre-tax income falls to free cash flow. Last year, we reported income before taxes of $11 million across the globe and paid no taxes, no U.S. federal taxes in the United States.
We wanna make sure that this approximately $120 million deferred tax does not get compromised. The IRS has a regulation called Section 382. Section 382 of the IRS code indicates that if more than 50% of your shareholder base changes over a three-year period, your ability to use that tax loss carry forward is severely restricted. That IRS code is essentially set up to keep a company from acquiring a different company with a big tax loss carry forward and then using it to offset the profits of the company that did the acquisition. What we did is we put a plan in place that is very common and consistent with other companies with big NOLs to ensure that some shareholder accumulating significant position in TETRA does not inadvertently trigger that requirement.
It does not prohibit shareholders from increasing significantly. It simply creates a situation to where we engage with the shareholders so that they don't inadvertently trigger that and we lose that $120 million asset. Hopefully that's a quick overview, Tim, and if any shareholder has any concerns about how that's worked, please feel free to call me. This is not intended, and it does not have the consequences of a poison pill that are normally issued. This is strictly around our tax loss carry forwards.
Thanks for that deep dive, Elijio. Like you said, I think that's a huge asset that maybe some of the investors aren't aware of. I just want to briefly touch on your relationship with CarbonFree and their SkyCycle technology, you know, for your reaction-free calcium chloride production. You know, it looks like CarbonFree just signed an agreement this month to do carbon dioxide emissions capture with US Steel plant. Do you think you'll be involved with that? It looks like their operations have a start goal of 2025. I also saw another press release around BP. Is there anything that you might be involved with there?
CarbonFree, like any startup, is working on their capital plan, ensuring that their balance sheet is properly capitalized to execute on its business plan. We're not counting on them to contribute anything meaningful from a revenue or earnings perspective this year. You're right, Tim. They did sign an agreement with BP. They did sign an MOU with US Steel, and I think those two companies aligning with CarbonFree points toward the upside and the possibilities that SkyCycle has. Short term, we're not counting on them to contribute meaningful to our numbers. I would suggest that keep an eye on CarbonFree. If they properly capitalize themselves and they can execute on their business plan, then it's a good topic of when it might translate to revenue with TETRA.
No, that's great, Elijio. It does seem like it's a later time horizon, but, you know, possibly 2025, that's not too far out. You know, Rigo, are you seeing any more questions on the chat? I wasn't seeing any on my end.
No, nothing. Nothing new.
Great.
The questions, online and the questions that you had, all the key topics that are coming to us, have been addressed.
Well, great. We really appreciate the questions and audience participation today, and we wanna thank Brady and Elijio at TETRA Technologies for coming on to share their insights. You know, wanna just share that it's been consistently apparent to me that this management team has a high level of passion and appealing strategic initiatives. You don't see that in all companies and stocks. Any investors can feel free to call or email me at EF Hutton, if you have any follow-up questions or you wanna talk offline, and I'll turn it back over to Brady.
Yeah. Thank you very much, Tim and participate. Thanks for hosting this and the excellent dialogue. As mentioned, feel free to reach out to us to the audience for any additional questions that you may have, and we greatly appreciate your interest. With that, we'll conclude our portion of the call.
Okay. Thank you.
The conference is now concluded. Thank you for attending today's presentation, you may now disconnect.