Atlanta-based oilfield specialist RPC Inc. saw its revenue climb in the first quarter from a year ago across all of its major service lines as oil prices increased and customers opened their wallets.
CEO Richard A. Hubbell, in discussing the operator’s first-quarter performance, said RPC saw the environment improve as exploration and production (E&P) customers initiated their annual drilling and completion plans. Equipment and crew utilization rates are climbing too.
“We are encouraged by how 2021 has started,” Hubbell told analysts during the conference call. “Activity levels and pricing have largely tracked our expectations coming into the year, and all signs point to a continued modest recovery as the year progresses.”
There are no plans for now, though, to add incremental capacity “until we have greater confidence that economic returns will justify the investment.”
Talking Up ESG
Environmental, social and governance (ESG) “has continued to grow as a topic of interest among many of our customers,” Hubbell noted. “RPC aspires to be an environmentally friendly company, we are adapting our operations to reduce emissions wherever possible.”
Among other things, RPC is in the final stages of upgrading another fleet to dual-fuel capability. When that is completed, two-thirds of its deployed fracture capacity “will be ESG friendly…
“However, for RPC and most of our competitors, the easy conversions are largely done. Further ESG adaptation requires economics to improve before additional capital investments make financial sense. While economics are not currently supportive of adding that capacity, the continued transition to ESG-friendly equipment is more likely to come from the replacement of older equipment than growth capital expenditures.”
One hitch during 1Q2021, likely to be noted by many Lower 48 operators in the 1Q2021 results, related to the “extreme winter weather in February in many of our markets, particularly the Permian Basin,” Hubbell said.
The February freeze “hurt profitability because of weather-related expenses and inefficiencies arising from a two-week long operational disruption.”
Meanwhile, the second quarter may see industry activity mirror the first three months, adjusted for the weather impacts, he told analysts.
“Although drilling and completion activities have improved, supported by higher oil prices and customer spending, the oilfield services industry is still faced with overcapacity. We believe pricing for our services will continue to be intensely competitive, and financial returns do not presently support significant growth capital expenditures.”
Encouraging Price Outlook
The world is “fortunately…coming to terms with the Covid-19 pandemic, and hydrocarbon demand is slowly but surely recovering,” he said. This has led to a reduction in oil inventory to near its five-year average,” aided by actions taken by the Organization of the Petroleum Exporting Countries and its allies.
“As a result, the outlook for the oil and gas prices is encouraging, which should support modest growth in industrial activities.”
RPC manages two operating segments. Technical Services includes businesses that use people and equipment to perform completion, production and maintenance activities for E&Ps. Support Services provides equipment for E&P use and services to assist in operations.
Technical Services revenue in 1Q2021 decreased year/year by 24.2% from “significantly lower activity and pricing,” management said. However, on a sequential basis, revenue rose by about the same amount, 24.2%, from increased activity levels in most of the service lines. Support Services revenue decreased by 38% year/year, but it was up 3.2% sequentially.
Overall revenue fell 25% from 1Q2020 to $182.6 million.
CFO Ben Palmer said cost of revenues during 1Q2021 was $146.2 million, or 80.1% of revenues, compared with $181.9 million or 74.6% during 1Q2020.
“Cost of revenues declined primarily due to decreases in expenses, consistent with lower activity levels and RPC’s cost reduction initiatives,” Palmer said on the conference call.
“During the first quarter of 2021, RPC operated five horizontal pressure pumping fleets, the same as in the fourth quarter, but with improved utilization. Due to high utilization of these existing fleets we recently added one additional horizontal fleet to meet expected incremental demand.”
Capital expenditures were $11.8 million in 1Q2021. The current estimate for the year is $55 million, “comprised primarily of capitalized maintenance of our existing equipment and selected growth opportunity,” Palmer said.
Cost of revenue in 1Q2021 was $146.2 million, or 80.1%, compared with $181.9 million, or 74.6% a year earlier. Cost of revenue declined primarily from lower expenses, consistent with lower activity levels, and ongoing cost reduction initiatives.
Net losses in 1Q2021 totaled $9.7 million (minus 5 cents/share) compared with a loss in 1Q2020 of $160.4 million (minus 76 cents). Operating losses were $10.5 million, versus a year-ago loss of nearly $219 million.
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