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E&Ps Re-evaluating Budgets on Uncertainty in 2019, Says RPC CEO

Exploration and production (E&P) customers of RPC Inc., which provides a broad range of services, including pressure pumping, began calling the company early in January to say they were reevaluating their budgets because of concern about oil prices, CEO Rick Hubbell said last week.

Hubbell and CFO Ben Palmer held court during a conference call to discuss quarterly and 2018 results for the specialized oilfield services company, which works in the U.S. onshore, Gulf of Mexico and a few select areas overseas. Its operating units include Cudd Energy Services, Thru Tubing Solutions and Patterson Services.

“During January several customers notified us that they were concerned about the current oil prices and are re-evaluating their 2019 budgets,” Hubbell said. “The unexpected decline in oil prices, budgetary constraints and holiday slowdowns during the fourth quarter of 2018 impacted our customers' drilling and completion activities with many curtailing operations in December...Our customers' uncertainty and current activity levels cause us to be cautious regarding our 2019 outlook.”

RPC is not the first to highlight concerns, as Halliburton Co. and Schlumberger Ltd. management teams in their quarterly conference calls earlier in January also indicated worries across the E&P sector.

For RPC, the decline during 4Q2018 was “most pronounced” in the pressure pumping service line.

“I think there’s still a lot of uncertainty” for exploration and production companies, Palmer said. “They are just a little more cautious at this point in time about how aggressive or how they're just going to manage” with volatile oil prices. Because of the uncertainty, RPC plans to “remain cautious and react accordingly.”

RPC’s pressure pumping fleet stood at about 1.5 million hydraulic hp at year’s end. It had earlier ordered additional pressure pumping equipment, which would bump horsepower by 10% via two additional fleets. Whether RPC can secure higher prices for the updated horsepower at this point is up in the air.

“The fourth quarter answer is a lot easier than the first quarter answer,” Hubbell said. “We believe that just based on our price book and our discounts run, pricing declined 2% sequentially between third and fourth quarter in pressure pumping. That's bad...So activity declined a lot more.”

For now RPC is working to balance pricing and utilization.

“The fourth quarter was an anomaly because we had people who have absolutely shut down in December, but taking those seasonal things away, we now need to find in the current environment the optimal mix between pricing and utilization,” Hubbell said.

“How much further or how much pricing needs to decline in first quarter to get to that mix is not known to us right now. We just kind of test the market, which our marketing and sales teams are doing as we speak, figuring out where that level is.”

As to what the number may be, Hubbell was unsure. “We’re about at the end of the month, but there are no early indicators yet.”

Operating profits in 4Q2018 decreased to $19.7 million (6 cents/share) from year-ago earnings of $60.3 million (18 cents). Revenues decreased to $377 million $427 million. Cost of revenues during 4Q2018 was $274.4 million, or 72.8% of revenue, compared with $285.7 million, or 66.9%, in 4Q2017.

On a sequential basis, fourth quarter revenues decreased 14.4% to $376.8 million from $440 million. Cost of revenues decreased sequentially by $26.5 million, or 8.8%,

Net income for 2018 climbed to $175 million (82 cents/share) from $143 million (66 cents). Revenue increased to $1.72 billion from $1.60 billion.

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