Atlanta-based RPC Inc., which provides specialized oilfield services and equipment to customers working in the Lower 48 and Gulf of Mexico, has adjusted its operating strategy to compete in a “difficult environment,” CEO Richard A. Hubbell said Wednesday.

Revenue in the third quarter plummeted 33% from a year ago because of lower activity levels by exploration and production (E&P) customers, as well as a decline in pricing across most service lines. In reaction, the workforce has been cut and facilities have been shuttered.

“During the third quarter we began closing several pressure pumping-related facilities, retiring older pressure pumping equipment, and reducing the number of staffed fleets and operational and administrative employee headcount,” Hubbell said. 

"The locations we are closing have inadequate utilization of equipment and crews. The older pressure pumping equipment is being retired because it no longer effectively meets the industry's current market requirements, needs more maintenance, and is not expected to generate adequate returns in the future. As a result of these steps, RPC will be better positioned to compete in a difficult market environment.”

The cutbacks led to a one-time impairment and other charges of $71.7 million, mostly in the Technical Services segment. 

Hubbell’s comments lined up with those by Halliburton Co. and Schlumberger Ltd., which each warned in their 3Q2019 reports that E&Ps are reducing activity levels in the second half of the year. 

"The average U.S. domestic rig count during the third quarter of 2019 was 920, a 12.5% decrease compared to the same period in 2018, and a 7.0% decrease compared to the second quarter of 2019," Hubbell said.

Meanwhile, oil prices averaged $56.39/bbl, off 19.1% from a year ago and down 5.8% sequentially, while the average natural gas price fell 18.8% year/year to $2.38/Mcf and declined 7.4% sequentially. 

“Our significant sequential revenue declines were driven by pronounced weakness in pressure pumping and coiled tubing,” Hubbell said. “Although many service companies are idling fleets, the pressure pumping industry continues to be oversupplied.”

In RPC’s second quarter commentary, the CEO noted, “we stated there were indications customer activities would decline during the third quarter. Because these declines did occur and are expected to continue in the near term, we are adjusting our operating strategy to compete in this difficult market.”

Capital expenditures were $77 million in 3Q2019, and RPC finished the quarter with $49.5 million in cash, slightly higher than in 2Q2019. The company also remains debt free, Hubbell said. 

Net quarterly losses totaled $69.18 million (minus 33 cents/share), reversing year-ago profits of $49.97 million (43 cents) and sharply lower from 2Q2019 earnings of $6.17 million (3 cents). 

Revenue declined year/year to $293.24 million from $439.99 million. Operating losses were $492.60 million, compared with year-ago profits of $54.60 million.

Cost of revenues in 3Q2019 was $225.2 million, or 76.8% of revenue, compared with $300.9 million, or 68.4%, a year ago. 

“Cost of revenues decreased, consistent with lower activity levels, due to lower materials and supplies expenses, employment costs and other expenses that vary with activity levels,” management noted. “Cost of revenues as a percentage of revenues increased due to lower activity levels, increasingly competitive pricing for our services, and labor cost inefficiencies.”

Selling, general and administrative expenses were $42.6 million in the latest period, versus $41.8 million in 3Q2018. As a percentage of revenues, expenses increased year/year to 14.5% from 9.5%.

Technical Services, which provide completion, production and maintenance services, saw revenues decrease by 34.8% year/year and by 18.8% sequentially. Revenue in the Support Services segment, which provides equipment, was unchanged year/year but fell by 8.4% from 2Q2019.