RPC Inc (RES) 2010 Q4 法說會逐字稿

Good morning, and thank you for joining us for RPC, Inc.' s fourth quarter and year-end 2010 earnings conference call. Today's call will be hosted by Rick Hubbell, President and Chief Executive Officer, Ben Palmer, Chief Financial Officer, and Jim Landers, Vice President of Corporate Finance. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time. I would like to advise everyone that this conference call is being recorded. And now, Jim will get us started by reading the forward-looking disclaimer.

Thank you, Debbie, and good morning everybody. Before we begin our call today, I want to remind you that in order to talk about our Company, we're going to have to mention a few things that are not historical facts. Some of these statements that are made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today along with our 2009 10-K and other public filings that outline those risks, all of which can be found on RPCs website at www.rpc.net.

I also need to inform you in today's earnings release and conference call, we will be referring to EBITDA, which is a non- GAAP measure of operating performance. RPC uses EBITDA as a measure of operating performance because it allows us to compare our performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with financial covenants under our revolving credit facilities. Our press release today and our website provide a reconciliation of EBITDA to net income, the nearest GAAP financial measure. Please review that disclosure if you are interested in seeing how it is calculated. If you have not received our press release and would like one, please call us at 404-321-2140, and we'll provide one to you immediately. I will now turn the call over to our President and CEO, Rick Hubbell.

Thank you, Jim. This morning we issued a our earnings press release for RPC's fourth quarter ended December 31, 2010. Following my comments, Ben Palmer will discuss our financial results in more detail. Once again, I'm very pleased to announce that RPC generated record revenues, profits, and EBITDA for the quarter. Over the past year, our employees have done an excellent job of meeting our customers evolving requirements and at the same time managing the associated equipment expansion. The knowledge we gained through our experiences over the past five years is helping RPC to successfully navigate through this process. Over the next several quarters, RPC will place into service a significant amount of additional equipment. It is anticipated this equipment will be put into service in a timely manner after final testing is completed. We are confident this new equipment will be used to support previously committed customer relationships. With that overview, Ben Palmer, our CFO, will provide some financial details.

Thank you, Rick. For the quarter ended December 31, 2010, revenues increased to $328.1 million, a 115% increase compared to the prior year. These higher revenues resulted from our work in unconventional formations together with improved pricing and overall greater utilization. EBITDA for the fourth quarter was $125.2 million compared to $26.1 million at the same period last year. RPC reported an operating profit for the quarter of $89.8 million compared to an operating loss of $7 million in 2009. Our net income during the quarter was $55.5 million or $0.38 diluted earnings per share. As a reminder, all of our per-share discussions reflect the three-for-two stock split that occurred in December, 2010.

Cost of revenues increased from $102.3 million in the prior year to $174.5 million in the current year. This increase in cost resulted from higher business activity levels and associated costs including materials and supplies, federal employment costs, and maintenance and repairs. Cost of revenues for the fourth quarter as a percentage of revenues decreased from 67.1% in the prior year to 53.2% due to improved operational leverage resulting from higher revenues.

Selling, general, and administrative expenses during the quarter were $31.4 million, an increase of 31.8% over the prior year of $23.9 million. However, because of our ability to leverage these fixed costs over higher revenues, SG&A cost as a percentage of revenues decreased significantly from 15.6% last year to only 9.6%.

Depreciation and amortization was $34.6 million for the fourth quarter, an increase of $1.7 million over the prior year. This increase is a result of higher capital expenditures primarily during 2010.

Our technical services segment revenues increased 117% due to improved utilization of the entire fleet and improved pricing. Operating profit was $80.6 million compared to an operating loss in the prior year of $1.7 million. This improvement was due to higher revenues and the associated leverage of fixed costs.

Revenues in our support services segment, which is comprised mainly of our rental tool service line increased 101.6%. This segment generated operating profit of $10.5 million compared to an operating loss of $2 million last year, primarily due to higher utilization of our rental tools.

Turning now to our sequential results. For six consecutive quarters, RPC has generate improved revenues, profits, and EBITDA. RPC's consolidated revenues for fourth quarter increased again to $328.1 million from three to $302.2 million in the third quarter, and 8.6% increase. Revenues increased from higher activity levels including the number and duration of jobs. To a lesser extent, revenues were also positively impacted by price increases.

Fourth quarter cost of revenues as a percentage of revenues decreased slightly from 53.8% in the third quarter to 53.2% in the fourth quarter. This result when compared to the most recent quarters is consistent with my statement last quarter that our operating leverage and margins will continue to face pressures from increased salaries and wages, materials and supplies, and maintenance and repairs.

SG&A expenses as a percentage of revenues continue to decrease from 11% to 9.6% due to leverage over higher revenues. RPC's sequential EBITDA increased 16% from $107.9 million in the third quarter to $125.2 million in the fourth quarter. And our EBITDA margin increased from 35.7% to 38.1%.

Our technical services segment revenues increased 10% to $294.8 million and generated an operating profit of a $80.6 million compared to an operating profit of $65.2 million in the prior quarter. While most of our service lines within this segment experienced utilization and pricing improvements, our pressure pumping business benefited incrementally by adding capacity during the quarter.

During the fourth quarter, our support services segment experienced a 2.5% sequential revenue decline due to lower demand for inspection services in our pipe handling business. Support services operating profits were $10.5 million compared to $12 million in the third quarter.

At the end of the fourth quarter, RPC's pressure pumping fleet in service grew from 280,000 to 413,000 hydraulic horsepower as we were able to receive deliveries slightly sooner than projected. We expect to have an additional 120,000 horsepower placed in service during the first three quarters of 2011 resulting in a combined total of approximately 533,000 hydraulic horsepower. Most of this incremental equipment is either under contract or committed to our E&P partners.

Fourth-quarter 2010 capital expenditures were $81.4 million, and for the full year we spent $187.5 million. Outstanding debt under the credit facility at the end of the fourth quarter was $121.3 million. Our ratio of long-term debt to total capitalization was 18.3% at the end of the fourth quarter compared to 18.1% at this time last year. With that I will turn it back over to Rick for a few closing remarks.

Thanks, Ben. Yesterday RPC's board of directors voted to increase our quarterly dividend by approximately 50% to $0.7 per share. This decision reflects the board's confidence in RPC's ability to maintain it's strong results and the Company's willingness to return capital to its shareholders. As always, we are mindful of the potential risks associated with price levels of oil and gas, oversupply of equipment, supplies of critical materials and cost, as well as the availability and cost of personnel. While there may be challenges over the next year, RPC remains committed to the long-term growth and health of the Company as well as generating high returns on capital. I'd like to thank you for joining us this morning. At this time, we'd be happy to entertain any questions.

Thank you. Ladies and gentlemen, our question-and-answer session is conducted electronically. (Operator Instructions)We'll go first today to Andrea Sharkey with Gabelli and Company.

Hi, good morning. So, I guess just maybe just to talk about the new pressure pumping capacity that you guys are going to be adding, one of the reasons you said a lot more came in this quarter than you expected. Was that because you guys had maybe just been a little bit conservative in when you thought it would come through, or are you seeing the suppliers actually the supply chain loosening up? Because I know we have been hearing from other competitors that the supply chain still looks really tight to get pressure pumping equipment. So, I was wondering if you could give us some color on that.

Andrea, this is Jim. I guess by nature we're a little bit conservative in our projections. But also remember that we got ahead of some others in this ordering cycle. So that might be part of it as well.

I think some of it timing. The expectation was that it was going to be near year end. It's going to be fairly early '11 is what we expected, and it was a little bit earlier than it would otherwise be. Just timing.

Okay, And then the new equipment that you're adding to go to I think you said 533-horsepower. Can you give us an idea of when you might think as the next three quarters progress, how that's going to sort of hit in your capacity and start to hit revenue?

Well, it is an extra -- it's 50,000 more than what we discussed in the third quarter call. In terms of the timing of it coming in, it's like -- the difficulty we had projecting here the fourth quarter, there is some difficulty there, but we did say that it will be coming in over the next three quarters. And we aren't going to give specific estimates, but it's probably not unreasonable to assume it will be fairly smooth over that time period.

Okay, that's helpful. And maybe just one last question for me before I turn it back. One of the concerns is that there's going to be less dry gas drilling, but there's going to be a lot more liquids and oil-directed activity. I was wondering if you could maybe help us with the sense of if you have a lot of equipment in, say, the Fayetteville and Haynesville, that maybe is not going to be continuing to be active. Is it fairly easy to move that type of equipment to, say, the Eagle Ford or other regions? Is there a difference in the type of equipment that you need for the different basins? Or are they all fairly interchangeable?

Andrea, this is Jim again. The specific answer to your question is that moving equipment is easy. And we have done that in the past, and we are able to do that now. There are always these things about having an operating base and employee issues and things like. But moving equipment is -- moving equipment works fine for us.

I will add that the type of equipment from oily basins, from gas basins is fairly similar. There are not significant differences. And we aren't as impacted as much by movement because of these committed customer relationships. If we are in a gassy area with a customer, and that's where they want to be, and they're working, we are working right along with them. If other people are moving out, that's not a problem. We do have examples with some customers where we have, in fact, moved out of that area into more oily areas. So, we don't see it as being a detriment to us, and I think we're benefiting from the fact that there is overall higher activity levels, and we're enjoying that. But we've not seen any negative impact from this movement except actually the pipe handling inspection services. We think one of the reasons that's down is because of some of the movements of the rigs, and that delayed some of the inspection activities.

Okay, great. Thank you so much. That's helpful.

Thanks, Andrea.

We'll go next to Joe Gibney with Southcoast Capital.

Thanks, good morning. Ben, I was wondering if you could help us a little bit on the direction of CapEx now with the incremental capacity coming on. I believe full-year '10 was targeting around $210 million. It looks of it came in a little under. I know it's subject to the vigors of timing on deliveries. But, can you give us a little picture of what first quarter 2011 is looking on the CapEx spend and how we should be thinking about 2011 on a full-year basis now?

Reasonable question. I don't know how much specific color we're going to give you. But, yes, a lot of that difference between what we projected and what we ended up from a cash standpoint is timing. A lot of that difference is going to fall in the first quarter. Otherwise, you can see we said we're going to add 120,000 additional horsepower sometime over the next nine months. If we were to add that, there is an auxiliary equipment that comes along with that, and we are certainly adding in other of our service lines as well. What we spend in 2011 is probably going to be higher than what we spent in 2010 in part because of this timing issue. And the first quarter will have reasonably high deliveries. But more or less, I think it's going to be fairly smooth over the next six to nine months, the deliveries, that is.

Okay, that's helpful. And shifting over on the coil side, I'm just curious. I want to get your thoughts there. Are we still essentially, have kind of a full utilization pace? Is pricing still improving in this market? And just an update on your deliveries of your five units that I think are expected to be in first quarter.

Hi, Joe, this is Jim. Your characterization of coil tubing is accurate. Year-over-year and sequentially, pricing improved and utilization improved. And you know the story. It's the utilization of the higher diameter coil tubing units. We anticipate our deliveries of the remaining units by the end of second quarter and believe they will be placed in service and generating revenue by the end of the second quarter.

And the pricing for coil tubing and pressure pumping is difficult to explain because of the shift. We started late '09 and into 2010 with these new committed customer relationships. So the nature, the number of jobs, the utilization, the pricing, all of that is -- we talked about this before, it's very difficult to give just standard pricing as up X and Y. It depends so much on the amount of activity that you're able to garner and work into these opportunities with customers. So, it's real hard to speak just generically about pricing. But we -- moving from the third quarter to the fourth quarter, we are very pleased with these results, and I think we caught a lot of pricing and utilization improvements over the last three to four quarters, and we'll see the benefit of this new equipment that's coming on here in the next two to three quarters.

Fair enough. I appreciate it. One last perfunctory modeling question for me is just curious if you could give, as you usually do, the percentage of revenue in the quarter that was from pumping and from coil if you have it.

Joe, this is Jim. Give me one second.

Sure.

Pressure pumping revenues were 50% of consolidated revenue.

Okay.

And inching up, and there we are, 50%. And coil tubing was 11% of revenue.

All right. Very helpful, guys. Thanks, nice quarter. I'll turn it back.

We'll take our next question from William Conroy with Pritchard Capital Partners.

Good morning, gentlemen, and thank you for taking my call.

Yes, Bill, absolutely.

I was hoping maybe you could give us a little color, more broadly, or more specifically actually, around the expansion? And specifically, can you give us some help, maybe, if not where the expansion will be deployed, but maybe just generally about kind of where you're deployed now or were you see fleet deployments when all the capacity is on board? And related to that, what you're contracted/committed status will be when all the capacity is on board?

I will say, and Jim can maybe follow up with some additional color, we are for the most part in all the basins that we want to be, so our additional expansions are going to be in those same basins. I would say that more of it is going to go to the areas, the basins, that are either oily or otherwise attractive to customers. Just like if we're going to be putting equipment in place in the next six to nine months, it's going to be in those areas that people have been moving too. That's where they're moving, so we're going to move with them. That means more oily and more liquid and maybe, actually, in the Northeast since the economics there were a little better for natural gas.

Bill, just one thing, when all is said and done based on current plans, we will have more than 60% of our total capacity will be committed to customer relationships. So that's another data point for you.

That's helpful. And maybe just one quick follow-up. Obviously, with what you're reporting this morning, the delivery side has been as good or maybe even a little bit better than what you at least have been telling us. And I heard your innate conservatism comments earlier. As you look ahead, do you see either any additional risk to that as now that build cycle has really gotten bigger legs? And secondly, as you're putting the equipment in, is it performing as you've been expecting?

On the second question, yes, I think we've done a great job from deliveries to moving it into operations. That's reflective of our results over the last four quarters. As it relates to receiving the equipment early, I think the opportunities are there for us. We're confident that everything that we have in hand today and that's being delivered as a very, very high likelihood, percentage likelihood of being placed under more of these attractive arrangements that are mutually beneficial for us and our customers. So, we are at this point and for the foreseeable, the intermediate term, we're not at all concerned with what we have coming on or when its coming on because we've got everything we believe well lined up, and we don't see much risk there for us.

So based on the slots you've got, you don't see a whole lot of risk of slippage delivery wise?

We don't at this point. No.

Okay, super. That's very helpful. Thank you very much.

Thanks, Bill.

We'll go next to Ole Slorer with Morgan Stanley.

Thank you very much. And again, congratulations with a superbly executed quarter there. It's amazing how far this industry has come over the past 12 months, isn't it?

It is. No kidding.

It's like with every business.

That's what makes it fun. So I think the debate on how much capacity is coming into the industry versus the rig count and increased intensity is, of course, something that's on everybody's minds at the moment. So, and we're all trying to make our numbers, and I think the only thing we are guaranteed is that at the end of the day, we are all going to be wrong. With that backup, how do you see the base? We talked to the NPA companies and they're talking, of course, about budgets up 10%, 15% compared to last year. We have the service cost inflation that we've all been through, and that suggest one level of activity. We talk to the land drillers; they suggest something else. The pumping companies, of course, are very confident at the moment. So, how do you think about your business and where you are in the cycle right now?

Ole, this is Jim Landers. Everything you say, I think, is accurate. It's an interesting time because we're all looking at the same numbers and the same data. But 50% of the people on this call think that pressure pumping' s demise is imminent. The other 50%, looking at the same data, think that with the increased capital expenditures maintenance requirements in these pressure intensive shale plays, things going overseas, the fact that almost 45%, I think, of the rig count now is oil, in the United States versus natural gas, people are moving to the liquids rich and oily basins. Customers are signing up for these committed relationships. They must know something. So, there's the debate. I think the one thing that we can offer to you this morning, because you do a lot of good research, is that working in these shale plays is really turning up the equipment. So, maintenance requirements are going to be higher, that sort of thing. So, I think that's one thing that's going to cause fleet attrition that maybe people are under forecasting. So, obviously, because of what we're doing, we don't see the imminent demise -- or the imminent cycle of pressure pumping.

I'll elaborate and say that we certainly consider ourselves to be strategic, but not big enough to necessarily move the market. So, all we're trying to do is create and take advantage of opportunities that we see ahead of us and make prudent decisions and continue to generate high returns on capital. We feel like we are well positioned to do that for, certainly, the near term. We believe for the intermediate term, and we can't control how much is going to be added to the market in the next several -- that has been added or is going to be added in the next few quarters. We're going to monitor it. It'll impact our activities probably.People are talking about late '11, '12, mid-'12, whatever. We will certainly be aware of that, be positioning ourselves to try to react to as if it becomes more clear. But at this point, we are comfortable, again, with our position, and that's all we can control. And that's what we're focused on is trying to execute, minimize our risks, try to manage our risks, and take advantage of what's presented to us.

I think as we proved in 2009, we are fairly nimble in being able to react to whatever the market ultimately does.

Right.

I don't think any of us, for the record, neither are we, forecasting any demise of the industry. We're going to overshoot, probably, margins at some point.At what point do you think that -- that does not mean a collapse of the other side. That's not the same. But what do you -- a couple of quarters, do you think you'll have a shot at going through your old high margins?

A couple? Oh, you mean hitting our all-time margins in the next couple of quarters?

Yes. Based on what you see now. Your visibility is unprecedented. Pricing is as firm as ever, 180-day visibility on average in the industry. So you must have a very good idea.

Well, what we've said before, and again there are a lot of dynamics going on. What we're creating, as I discussed in my remarks, a tremendous amount of leverage. But this is much more, I think, for us trying to create that win/win scenario for the customer. We're creating a lot of our margins a lot more from leverage of our costs as opposed to tremendous pricing. So, I don't know if -- there's a lot of things that can happen. There's a lot of, again, wage inflation, potential from materials and supplies, to inflation, to occur. Getting back to those old margins, they be difficult, but clearly the dollars that we are generating are far higher. The returns are very, very good. Very strong. Comparable, if not a little better than they were historically. So from that perspective, we are very comfortable. Reasonable question, but the margins we achieved back in, what was it, 2006 or so? Those percentages were very high and clearly a very different business model than we are seeing today.

We have no -- our plan does not indicate that will be back to those margins.

I wouldn't be surprised if it happens. You have to remember that the customer sets the price in the up cycle, and you set it in a down cycle.

Well, Ole, but remember, our operating margins in 2006 didn't include all the depreciation they now include. So you've got to think about things like that. And costs are going up for labor and things like that. That keeps us cautious.

Maybe it's our inherent conservatism.

If you look at capacity, he said 120,000 horsepower, something slipped on CapEx, getting it in the first quarter, but this takes us through the next three quarters. If you wanted to, would you be in a position where you could get new capacity delivered in the fourth quarter if you decided to order today? Or have you missed that window?

Ole, I think that lead times are a little bit too long. So this is the end of January. I think we if we ordered a bunch of new equipment today, I don't think we'd have it during the fourth quarter. I could be wrong, but I think that's a little too tight right now.

I think anything probably couldn't get a full crew worth. There may be a few here or there that come available, but probably not a full crew.

And I'm sure you've export that. So, what would the prices be on average now for a spread compared to when you ordered your first spread at the beginning of this cycle? What's the cost inflation been on equipment?

Since we haven't ordered anything very lately, I don't know.

You haven't even talked to your vendors?

The three people on this call haven't, but we have just talked to our operations folks, and I'm not sure they have priced out new equipment in the past few weeks.

And/or the discussions haven't been serious enough to really be able to squeeze that out.

Well, congratulations for a very good number, and I also think the dividend increase is a very positive signal for shareholders.

Thank you. Appreciated.

We'll take our next question from Dimitry Dayen with Goldman Sachs.

Good morning. Could you talk a little bit more at length about what you see on the cost side? We all can debate how much horsepower is coming into the market, but the industry is clearly growing by a lot. What do you see on the labor side, maybe the ability of labor at what you're anticipating for inflation for next year as well as prop ins and fuel and so on and so forth?

Dimitry, this is Jim. I will take the easy one first. We will go in ascending order of difficulty. Diesel fuel is up, and everybody knows that if you buy gasoline. So, diesel fuel is up. That cost is going up. Labor is higher. I think we have worked a lot on recruiting, creative recruiting, and just the traditional blocking and tackling kind of recruiting. I think we're doing a good job of that, and right now we're pretty happy with our recruiting results. So, it is a high unemployment market, so finding very skilled labor is hard, but I think we're doing well with that. Clearly, those kind of folks cost more. Things like prop ins may be going up in price, but we are addressing that in some other ways, so we will be okay. And I think that kind of covers it.

I will elaborate. I think Jim's absolutely right. And I think that with respect to whatever increases we may have experienced here lately or what we see in the near term, I'm not so sure that it's going to translate into a very transparent decrease in margins. We know it's there, it will provide some pressure. It's something that we will continue to try to manage, but it's not like it's going to grow at such a rate that, again, destroys our margin. There's a lot more going on with (inaudible) and revenue growth and the ability to create leverage that I think will be much larger than an increase in those costs. But we are constantly focused on our costs. We tried to keep from an employment side, we have to keep up with the market and we try to put as much of that into variable compensation as opposed to fixed. That helps some to deflect some of that impact. So we continue to try to be creative in that regard, and we think we are keeping up with it and expect it will continue to be a challenge. But we hope it's manageable. I think it will be.

Thank you. And just one more question. What percent of your fleets would you say are working on 24-hour operations, and are you seeing the new build horsepower go to work under contract more on a 24-hour basis or is it more on a 12-hour basis still?

Dimitry, this is Jim again. A small percentage of our fleet is working 24 hours. Sometimes with customer -- customer requirements for safety don't allow 24-hour operations.

We all see it significantly increase.

Right.

All right. Thank you very much.

Thanks, Dimitry.

We'll take our next question from Rob MacKenzie with FBR Capital Markets.

Good morning. Great quarter once again. Interesting to see all the people on the call this quarter versus some quarters when it was just a handful of us.

Yes, it was an intimate gathering in past quarters. So we appreciate everybody's attendance.

My question is a forward-looking one for you. And really, it's a function of the kind of a shift in mix we're seeing in the market away from some of the dry gas plays such as the Haynesville and towards more complex liquids-rich plays like the Eagle Ford. How do you think that affects your business in terms of a frac intensity, the number of jobs that are out there? And two, how would you describe the state of your technology to be competitive in what is becoming an increasingly more technologically driven fracturing fluids market?

I think as we said, in terms of directional, regional movement, we are moving with our customers. We don't see any interruption in our revenues due to that movement. In terms of technology, we are learning all the time with these customer relationships, we are learning together. And beyond that, I can't really speak to any of the down-hole technology to be honest with you. It's kind of beyond my expertise.

Yes.Rob, it's Jim. If you move a fleet from the Haynesville to the Eagle Ford, right now my understanding is you need less hydraulic horsepower to do a completion. So, if you are doing a model, you know, that might move the needle towards less frac intensity. So you come out with that where you come out with. So, if you were thinking of that, I think we could probably confirm that data point.

That really wasn't what I was trying to get to, Jim. I was really trying to get to, number one, we are seeing, a rig in Haynesville, for example, takes twice as long to drill a well as a rig in Eagle Ford. That same rig produces -- as it moves, produces twice as many wells that need to be fracked in that regard. But the genesis of my question was, we're seeing the simple slick-water frac business seemingly decline at the expense of what's picking up is requirements for more advanced fracturing fluids. I was wondering if you could describe to us how you fit and how your fluids -- if you have cross-linked a fracturing fluid, how you view your competitive position.

I will say, Rob, that that's beyond our expertise. I have heard frequent and ongoing conversations with our field personnel, that has not been an issue that has come up. So, I think we are at least up to speed enough to be able to get commitments from our customers that's resulting in this increased revenue and these nice returns. And again, believe me, we're not trying to be evasive, but our guys have historically, and I believe now, and believe in the future, are keeping on top of those requirements and are able to adapt, and they are constantly learning, again, working with the customer, sharing ideas from basin to basin and customer to customer. And I've not heard that we're at any competitive disadvantage, and we're putting all of our equipment to work at very high utilization and blah, blah, blah.But beyond that, I apologize, I can't speak any more specifically to it.

Rob, this is Rick. We may not have the proprietary products some of our competitors have, but we've found that we're able to duplicate that and produce the same results as some of those other products.

Great. Thanks.My next question is last time I talked to you, Jim, you indicated that a big chunk of your income and horsepower was heading toward the Permian, which I think we've heard a lot. A lot of the E&Ps talk more and more about . Is that still the case? And on top of that, your new horsepower, the 53,000, where is that headed?

That is still correct about West Texas and the Permian, where some things are going. Some of the additional is going, again, to the Permian and the Eagle Ford.

I kind of commented on the earlier. The fleet is sort of fungible. It's really hard to say that additional for 50,000 is going to go to a specific place. But we are tending to be, these recent opportunities have been more directed toward the oily, liquid-rich plays. And/or some of the, like the Northeast, where the natural gas fundamentals are a little bit better. So, that's how I would characterize most of what's coming on board will either be going to the Northeast or the oily, liquid-rich plays.

Okay. Thanks for that. On coil, a lot has been talked about with the prop-in coils. Obviously, it's still a meaningful part of your business. Can you talk about that expansion there? I think the last thing we looked at was in trying to get some of your older coil units back to work. But, if my understanding is correct, most of their coil units are not fully utilized are smaller diameter. Where do you stand in the thought process of adding some bigger, more coil units to the fleet?

Rob, we have been adding some larger diameter units. The growth, the additional units that are coming on this year are two-inch as well. And more. I think. So, that's where a lot is going on.

We talked about adding capacity to coil tubing. It is in the larger-diameter areas focus, just like pressure pumping equipment is going to be focused on the higher demand areas where customers are moving more of their work to.

Can you share with us how many units you are expected to add this year?

It's five or maybe a few more than five. I'm not be evasive, just trying to think about what the plans are right now. It's at least five.

Okay. And is that fairly even across the year, or back-end weighted, or front-end weighted?

Sort of around the end of Q2.

So a cluster?

Yes.

Great. Thanks. I'll turn it back to someone else.

Thanks, Rob.

We'll take our next question from John Daniel with Simmons and Company.

Hi, just a few from me. When you give a 533,000-horsepower estimate by the end of Q3, that suggests that none of the legacy horsepower is retired. Just because the equipment is not formally retired does not mean that it isn't working. Is any of the legacy equipment at this point not generating revenue today because of wear and tear?

By and large, no. If you were to go out in the field and we were to look at every one of our pumps today, you might point out one and say that's being repaired or overhauled. But not in any significant degree. As a matter of fact, we talked about this internally the other day. We are, and have been from the very beginning, with all of our service lines, but fresh pumping in particular, we are very, very focused on our maintenance. Very, very focused on making sure we have enough horsepower allocated to a job. We've had very, very few instances of significantly blowing out of a pump because we are very mindful of the loss in revenue that results when you have to completely overhaul a pump. So we've had very little, if any, significant failures to that degree. So we are very mindful of the M&R. We have never skipped on that. That's one of our basic tenets, and I think it's served us will. And again, it's safe to say, asked the question the other day. In some respects we have never, and since we began the business in 2000, we have never had to lay a pump down.

We've never had a formal retirement, if you will.

We've maybe had some overhauls, but we've still got all the same ones that we bought from the very beginning.

A lot of companies talk about the concept of the fleet attrition, and clearly there is a lot of wear and tear on this stuff. This is not meant just at RPC, but when you think about it, very few people actually adjust lower their horsepower. They keep going higher and are not adjusted for the concept of the fleet attrition and people talk about. So that was the basis of the question.

Reasonable question.

You mentioned that 60% of the equipment would be committed under customer relationships. Should we take that as meaning it's backed by take or pay contracts, and if so, can you tell us what the average duration of these contracts are?

Pointed question. For the most part, yes, it's under these types of contracts or similar. Duration, rather not comment.

Okay. Just a couple of quick ones for me if I may. As we think about revenue contribution from the new assets in Q4, I don't know if you said this on the call, if you did I apologize. But can you give us a sense as to what the revenue contribution was of the assets that were delivered? Or perhaps to frame it, give us a sense as to say where December monthly revenue was versus October so we can get a sense of the run rate?

John, this is Jim. That's a reasonable question. The equipment that we got came in late, I mean late in the quarter, I don't mean later relative to what we expected. But it did generate some revenue. It was working and everything, so if our sequential revenue increase was around $27 million, I would say that about a little less than a third of that sequential increase was from new equipment.

Okay. The last one for me, and I guess it could be RPC specific or industry. But have you missed any jobs due to crew issues or inability to secure profit? And are you aware of any competition missing jobs for that reason?The reason I ask is just that with the new spate of startups that are starting to emerge out there, new pumping companies, I'm wondering what the poaching is like. And that's it for me.

Yes.None for us specifically regarding crews. But poaching is a term that you hear in the oil fields these days, and it doesn't refer to coyotes. You do hear that. I don't know any specific anecdotes to share with you.

We haven't heard a lot. I expect it has happened some, but we haven't heard about a lot of that happening.

We'll take our next question from Max Barrett with Tudor Pickering and Holt.

Thanks. All my questions have been answered.

Thanks.

We'll go next to Scott Gruber, Sanford Bernstein.

Gentlemen.

Hi, Scott.

As an extension of the last part of inquiry, how comfortable are you with your ability to source sand during 2011 during the fleet expansion?

Repeat that. How what, relative to the fleet expansion?

How comfortable are you in your ability to source sand for all the new frac spreads coming in.

I think we're aware that there will be more demand, obviously. So we're working on it. I would say we're pretty confident. We're taking steps, taking additional steps. We are reasonably comfortable. We wouldn't be working with these customers and moving forward with these relationships if we weren't comfortable.Good question. We think there may in fact be issues, but we're working through those and feel okay about it right now.

So you say it's a low risk event in terms of delaying project execution due to a lack of sand and 2011?

I'd say its low risk to significantly impact our results. I don't know that I would say it's a low risk that we won't have any slowdown or missed opportunities. But I don't think it will significantly impact our results.

Okay. And then what is your estimated maintenance on the new pumps coming in? How does that relate to the existing fleet? Are you looking for a significant step down?

Maintenance downtime in new equipment versus legacy equipment. It's an operational question. I'm not sure I can answer very well except that new equipment is going to be a little bit better, so it should be, maintenance should be -- maintenance downtime should be lower on new equipment than older equipment.

Haliburton was looking for sub 5% relative to the current fleet running around 10%. Is that possible?

Good for them.

If I understand the question, again, we have very little equipment that up to this point that's gone down and we have to ship it off and take a month to six weeks to rework it. We've not had significantly delayed downtime. When we talk about M&R, it's M&R on the fly, at the job site then taking a few days, a week, or a month to do a little bit of the extra maintenance that has to be done. But we've not had any significant extended delays on pumps, either legacy or new.

We've concentrated on preventive maintenance to hopefully make that situation as good as possible. So, we're learning all the time how to treat our equipment better.

Okay, good. That's it for me. Thanks.

Thank you.

(Operator Instructions)We'll now take a follow-up from William Conroy at Pritchard Capital partners.

Good morning again. A quick follow-up to an earlier question. As you all were ordering the capacity, and I'm assuming you didn't book or place all the orders at once, have you seen an increase in the cost either per horsepower, per reg, or per some unit? Did you see that costs increase over the time span that you were placing your orders?

For the most part, no. There may have been a couple of instances where we did, but for the most part, no. We caught a lot of this fairly early, and I think earlier than some of the other folks. So, I think we were able to avoid much of that.

Great. Thank you.

We'll take a follow-up now from Rob MacKenzie at FBR capital markets.

Hi, quick housekeeping follow-up. If you mentioned earlier, I apologize. Where did you end 2010 terms of frac horsepower?

413.

413. Great. Thank you.

Thanks, Rob.

Having no other questions in queue at this time, Mr. Landers, I will turn it back to you for closing remarks.

Okay, Debbie, thank you. We want to thank everybody who called in today. We had a lot of people call in.We appreciate the interest and enjoyed the conversation. Everyone have a good day. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference. We'd like to remind you all that the conference call will be replayed on the RPC website within two hours following completion. Have a wonderful day.