Oilfield services specialist RPC Inc. is expecting a downturn in U.S. drilling and completion activity through the end of the year, as exploration customers appear uncertain about their prospects.
CEO Rick Hubbell, during a quarterly conference call Wednesday, highlighted increased activity by exploration and production (E&P) customers, which are mostly in the United States, in 2Q2019. However, the chances of further gains are dimming, he told investors.
“RPC revenues improved compared with the first quarter because of increased customer activity with benefited most of our service lines,” Hubbell said. “However, our results continue to be impacted by intense competition and customer uncertainty, regarding their near-term plans.”
Second quarter revenue fell 23.4% year/year to $358.5 million, but it was 7% higher sequentially on higher activity levels in pressure pumping.
Pressure pumping provided 47.4% of revenue in the second quarter, with tubing solutions at 31.5% and coil tubing nearly 7%.
“As we begin the third quarter there are indications that our drilling and completion activities may decline during the second half of 2019. As a result, we continue to evaluate industry prospects and adjust our operations accordingly.”
On Tuesday the board suspended the quarterly cash dividend. “RPC is competing in a very challenging operating environment,” Hubbell said. “We remain focused on delivering quality services to our customers. and maintaining a conservative balance sheet. And in light of the dynamic industry trends, we continue to evaluate our capital investments and position our company to generate adequate returns over the long term.”
RPC has about 1.05 million hydraulic horsepower in its fleet. Sixteen pressure pumping fleets were “manned and generating revenue” for E&Ps during the second quarter, said CFO Ben Palmer. Two fleets also are “on schedule to be delivered and placed in service” by the end of September. “However, we do not expect the number of manned and revenue-generating pressure pumping fleets to increase.”
E&Ps are “evaluating what the cost of completing wells are and trying to make decisions about whether they're moving forward or not,” Palmer said. “They're not in a rush to try to spend their budgets, and they're just being cautious and slower to make decisions...Those types of responses by them are just creating in our minds uncertainty about the level of activity that we can expect, and so we are remaining cautious; therefore we will manage costs.”
RPC manages technical and support services. The technical services arm includes people and equipment to perform completion, production and maintenance services directly to a customer's well, providing pressure pumping, downhole tools, coiled tubing, hydraulic workover services, nitrogen, surface pressure control equipment, well control and fishing tool operations.
Support services includes service lines that provide equipment for customer use or services to assist customer operations, including tubular and other tool rentals, pipe handling, inspection and storage services, and training services.
Technical services revenues decreased by nearly 25% year/year because of lower pricing and activity levels within most of the service lines, but revenue increased by 7.6% sequentially. Support services revenues increased by 13% from a year ago and were flat from 1Q2019.
Vice President James Landers, who oversees corporate finance, said “anecdotally, we know of...job delays. We do believe that customers are managing their budgets more closely; I wouldn't say on a month-to-month basis because the projects just don't work that way.
“But certainly, as we approach mid-year, there may have been some people who, in light of commodity prices, were slowing down a bit to manage their budgets. We do think that played maybe some role in activity not being more robust.”
For the pressure pumping arm, the company is “assessing the condition of our equipment and figuring out the right place and the right configuration for the new equipment that we have coming in during the third quarter,” Landers said.
Net income declined to $6.2 million (3 cents/share) from year-ago profits of $59.9 million (28 cents). Operating profit decreased to $8.4 million from $75 million.
The cost of revenues totaled $265.1 million in 2Q2019, or nearly 74%, compared with $312.1 million (66.7%) in the year-ago period. The cost as a percentage of the total revenue increased because of lower revenue overall and “increasingly competitive pricing for our services and labor cost inefficiencies,” management noted.