RPC Inc (RES) 2011 Q3 法說會逐字稿

Good day everyone and thank you for joining us for the RPC Inc.' s third quarter 2011 earnings conference call. Today's call will be hosted by Rick Hubbell, President and CEO, and Ben Palmer, Chief Financial Officer. Also present is 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 for you to be queued up for questions. I would now like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.

Thank you and good morning. Before we begin our call today I want to remind you that in order to talk about our Company we are going to mention a few things that are not historical facts. Some of the statements that will be 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 2010 10-K and other public filings that outline those risks. All of these documents can be found on our website at www.RPC.net.

In today's earnings release and conference, 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 will allow us to compare performance consistently over various periods without regard to changes in our capital structure. Also, we are required to use to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release today and our website provide a reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. Please review that disclosure, if you're interested in seeing how it's calculated. If you have not received our press release and would like one please call us at (404) 321-2140 and we will forward one to you immediately. I will now turn the call over to our President and CEO, Rick Hubble.

Thank you, Jim. This morning we issued our earnings press release for RPC's third quarter ending September 30, 2011. Following my comments Ben Palmer will discuss our financial results in more detail. I'm pleased to report to our shareholders that RPC once again generated record revenues, profits and EBITDA. Despite a number of operational challenges our pressure pumping, coiled tubing, downhole tools and nitrogen service lines all experienced sequential improvement. I'm also pleased to announce the RPC's Board of Directors, in response to our strong operating results and balance sheet and as a show of confidence in the Company's future performance, increased the quarterly dividends to our shareholders from $0.08 to $0.10, a 25% increase. With that overview, Ben Palmer, our CFO, will provide some financial details.

Thank you, Rick. For the quarter ended September 30, 2011, revenues increased to $502.2 million, a 66.2% increase compared to the prior year. These higher revenues resulted from a larger fleet of equipment, higher utilization and improved pricing. EBITDA for the third quarter was $180 million compared to $107.9 million for the same period last year. And operating profit for the quarter was $134.5 million compared to $74.4 million in 2010. Our net income during the current quarter was $83.1 million or $0.57 diluted earnings per share.

Cost of revenues increased from $162.5 million in the prior year to $279.9 million in the current year. This increase in costs 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 third quarter, as a percentage of revenues, increased from 53.8% in the prior year to 55.7%. Due to increased costs and some operational inefficiencies, resulting from logistical challenges in our raw material supply chain, as well as increases in the market price of several high demand raw materials used in our pressure pumping service line.

Selling, general and administrative expenses during the quarter were $37.2 million, an increase of 12.4% compared to $33.1 million in the prior year. However, because of our ability to leverage these fixed costs over higher revenues, SG&A costs as a percentage of revenues decreased from 11% last year to 7.4% this year. Depreciation and amortization were $46.5 million for the third quarter, an increase of $13.4 million over the prior year. This increase is the result of higher capital expenditures over the past 12 months.

Our Technical Services segment revenues increased 73% due to improved utilization of a larger fleet of equipment and improved pricing. Operating profit increased to $127.9 million compared to $65.2 million in the prior year. This improvement was due to higher revenues together with improved pricing and the associated leverage of fixed costs. Revenues in our Support Services segment which is comprised mainly of our rental tool service line increased by 12.9%. This segment generated an operating profit of $14.1 million compared to $12 million last year, primarily due to higher pricing.

For 9 consecutive quarters, RPC has generated improved revenues, operating profits and EBITDA. On a sequential basis, RPC's consolidated revenues increased from $443 million in the second quarter of 2011 to $502.2 million in the third quarter which is a 13.4% increase, exceeding the average rig count increase of 6.2%. Revenues increased from higher activity levels, improved pricing and to a lesser extent, additional equipment. Third quarter cost of revenues, as a percentage of revenues, increased from 54.8% in the second quarter to 55.7% in the third quarter. Our operating leverage and margins continue to be impacted by the increased prices of materials and supplies and the logistical issues involved in procuring them, as well as higher maintenance and repair expenses.

SG&A expenses as a percentage of revenues decreased from 8.1% to 7.4%. These costs as a percentage of revenues have continued to decline due to leverage over higher revenues. RPC's sequential EBITDA increased 9.7% from $164.2 million in the second quarter to $180 in the third quarter while our EBITDA margin decreased from 37.1% to 35.8%. Our Technical Services segment revenues increased 14% to $463.7 million and generated an operating profit of $127.9 million compared to an operating profit of $109.5 million in the prior quarter. While most of our service lines within this segment experience continued utilization and pricing improvements, our pressure pumping business was the largest contributor to the revenue increase in dollars, while downhole tools experienced the largest sequential percentage increase.

As we discussed last quarter we have some operational issues with a major pressure pumping customer, negatively impacting our second quarter revenues. We were able to resume activity with this customer during the third quarter which contributed to the sequential pressure pumping revenue increase. During the third quarter, we experienced challenges associated with sourcing certain key raw materials used in our pressure pumping service line. The limited availability of certain key materials is resulting in price escalations at a time when our needs are increasing. These factors combined to increase our cost of revenues at a greater rate than our revenue increase. In spite of this situation, our operating margin improved year-over-year by 1 percentage point with substantially higher revenues and remained unchanged sequentially.

As our industry continues to experience high activity levels, supply chain challenges will impact our ability to significantly improve margins. Our Support Services segment experienced a 6.2% sequential revenue increase primarily due to an improved product mix in our rental tools business. Support Services operating profit was $14.1 million compared to $13.2 million in the second quarter. During the third quarter, RPC's in-service pressure pumping fleet increased from 495,000 to 531,000 hydraulic horsepower. Most of this additional equipment went into service under a new committed customer relationship late in the third quarter. We expect to place in service and additional 86,000 horsepower before the end of calendar year 2011, and an additional 43,000 during the first quarter of 2012. This will result in total horsepower of approximately 660,000 at the end of the first quarter of 2012. Of the 129,000 additional horsepower to be delivered, approximately 50,000 horsepower will be used as either rotational or backup equipment, to ensure we have the capability to maintain our fleet to meet our customers needs. The remaining 79,000 horsepower is committed to specific customer relationships.

Third quarter 2011 capital expenditures were $102 million and we anticipate spending, depending upon the timing of payments, approximately $400 million to $450 million for the full year 2011. RPC's outstanding debt under its credit facility at the end of the third quarter was $140.8 million, and our ratio of long-term debt to total capitalization decreased to 16.4% at the end of the third quarter. With that I will turn it back over to Rick for closing remarks.

Thank you, Ben. Our third quarter was another period in which we continued to execute our strategy of serving customers in the rapidly expanding unconventional drilling and completion market. We are proud of our achievements and our employees' efforts toward managing the logistics dynamics of the service intensive work. We are addressing the challenges we encounter in this evolving operational environment. In spite of high capital expenditure requirements, we continue to generate record operating results and cash flow that support an increasingly strong, conservatively capitalized balance sheet. I'd like to thank you for joining us this morning on the conference call and we'll open the lines up for any questions you may have.

Thank you.

(Operator Instructions)

Neal Dingmann, SunTrust.

Morning, gentlemen. Rick, just wondering on the 79,000 coming, if you have an area where that's already directed to and if you're still, in addition to that, equipment coming, still planning on bringing some of the coiled tubing units?

Neal, this is Jim. The additional 79,000 is probably going to 1 of 2 places, probably more in the oily areas. Certainly, West Texas is a big target for us, because we have a big presence there. Probably, also in the Balkan. In terms of coiled tubing units, yes, we'll have a few more coming on early in 2012.

Okay, and then just a follow-up if I could, just wondering on, you mentioned in the press release about the materials still in short supply and the weather that caused some issues on the cost side for the quarter. Maybe, Rick or Jim, if you could address a little bit. I assume the weather now has passed. Are you still seeing some of the hits because of supply shortages and do you anticipate that improving to potentially boost the margins a little bit going forward?

Neal, this is Ben. These issues are -- they are cropping up but I think it's just part of the business right now. I think the one that did impact us in the third quarter have more or less been resolved. But we are not under the impression or believe that they are not going to recur in any form or fashion. So it's an ongoing issue that we have to deal with, but as we sit here today we do think it is much improved.

Thanks guys.

Our experience is, what we saw in the third quarter may not repeat themselves but new ones might.

Got you, thanks Rick.

John Daniel, Simmons & Company.

A couple of questions. First, as I recall, most of your contracts like the other frac companies are minimum take or pay, is that correct?

That is correct.

When you look at the customers who are bound by those contacts, are they using more than the minimum requirements today, or are any of them dialed back activity such that it's put a little more of your equipment into the spot market?

They are, as far as we can tell, based on what we are told, they are certainly attempting to reach those minimums. Again, with the various challenges that not only pressure pumping companies but they themselves encounter, they aren't always reaching those minimums. And because they are striving to reach those minimums, there aren't distinct periods of time that they're saying you are free to go do something else. So we are committed to those customers, we are tied to them, so we are not moving from, again working for the committed contracted customer to other spot work with those particular crews.

We have not seen any conscious dial back of their expectations.

I'm just trying to -- I just was not sure if that could be a cause of what we are hearing about all of the spot pricing coming down in places like the Marcellus, perhaps more equipment hitting spot market that was maybe not being used by that contracted customer. Just your thoughts on the pricing would be appreciated. I'm sure you have those heard rumors, they are common.

John, this is Jim. In places like the Marcellus, we are on contract, so I don't know, couldn't speak to spot market pricing. In the Permian basin, oily obviously and that is more a spot market. Pricing is still strong and continues to be strong. I think one comment that is worth making, overall, is that completion costs are now a much bigger percentage of total well costs. There is some Spears data recently that shows that, we know that anecdotally from talking to our customers and so it's harder to push pricing simply because we are a bigger piece of the cost than we were before. So it's kind of a problem that's grown, so I think that puts a governor on pricing, but again, where we are in a spot market, things are good. I can't speak to things like -- places like the Marcellus, we just frankly don't know.

And I'll, the dynamic of trying to explain or predict what is happening to pricing, there are still opportunities where there are cost increases to do pass throughs and/or maybe more often adjustment of prices prospectively on a periodic basis under these contracts. So, is that a price increase if you're able to recover prospectively increased costs? I would say yes, but that doesn't necessarily improve your margins over a period of time. So, let's just say, a lot of demand for equipment, and people still making inquiries about whether we have equipment available, we feel very good about those level of inquiries, and are not upset with the direction of pricing if that is worth anything.

Fair enough. I wanted to turn this over to others to questions but just to follow up on your point, you do have the ability to eventually pass that through to your customers, the margins were impacted in Q3, is that what gives you the confidence that you might see improvement in Q4 is you will get to pass on the increases you absorbed in Q3? And my last question and I'll hang up here is, with respect to your 2012 CapEx, thoughts, any thoughts there? And do you have any slots resolved for frac pumps beyond the 43,000-horsepower in Q1 '12, then I'll turn it over. Thanks

On the second question, we do have a few reserved. It's not significant relative to the CapEx for next year, we are going through our planning process right now. I said last quarter that I thought we would spend less next year than we're going to spend this year and I think that's true. If we hit the $400 million to $450 million this year, I think we will be $350 million or so in 2012.

Relative to the first part of the question was -- in terms of our ability to pass through-- yes. We do feel pretty good about that. There will be opportunities to do that but what you are seeing impacting us in the third quarter to large degree are sort of extraordinary situations and I won't get into any details, but that is not going to be something that we could probably go to with our customers and be able to recover all of that increased cost.

Thank you.

Scott Burk, Canaccord.

Good morning guys. Couple of questions. First of all, could just get the revenue contributions by both pressure pumping and coiled tubing for the quarter?

Scott, this is Jim. I'm going to get back to you on that.

And then I guess while you are looking that up, maybe I will just go to the other question I had. You talked about the (inaudible) shortage and having some problems getting some of the materials there. What exactly are you doing to address those shortages and how are you working to overcome the logistical problems involved there?

To be honest, some of it was due to this major customer and kind of the start and stop issue involved there so that causes cost complexities there. We also, acid is something that a lot of people are having difficulties with, and that is just trying to work your relationships with customers, if the acid is not being produced, there's really not a whole lot you can do about it other than just working hard to try to work with customers maybe to dilute the acid a little bit more to make it obviously last, stretch it out a little bit more. That's just working hard every day. Or we know we've talked about it, been an issue, looking for alternative supply sources. We've tried to quote-unquote hedge some of our needs by going to some of these alternative sources. So nothing in particular, nothing magical, I think everybody is having to do it and that is just work hard all the time and hoping that market forces are going to take care of themselves and some of these supply and demand fundamentals are going to start to align themselves and we won't have as much difficulty.

We have, and I think the industry has, getting back to talking about the number of stages or the activity levels of our customers under these contracts, if we can get to more of a steady state and perform more stages without interruptions it's going to benefit everybody. It benefits our customers from the standpoint that it will increase their production, it will increase our revenue generating capability, it will improve our -- not only our MNS and logistical issues but just our overall efficiencies of being able to run our operations. So I see that if things smooth out, that in and of itself will create lots of opportunities for us and others.

Okay.

Scott, this is Jim. Real quickly on your percentages, pressure pumping was 56% of consolidated third-quarter revenue. Coiled tubing was 11%, downhole motors and tools was 11% and our rental tool service line was 6% and it goes down from there.

Okay. And then I wanted to follow up on one of the earlier questions, you talked about companies attempting to reach minimums but not always reaching minimums. Is that just because they have shortage of engineers to kind of get the completions designed or is it more of a lack of supply, what is the driver there of them not meeting their minimum's?

I think it could be all those things. I'm not privy to what minimum stages our competitors are putting in the contract, working with the same customer, if we have 10, I don't know whether they put in 12 or 8 or 6, but for us they are not meeting the minimums. Obviously, for us under the contracts, the higher the minimum the better. A lot of that comes down to negotiation. So that's sort of hard to answer that absolutely directly, I can only speak from our experience which is, more than often we are meeting them, but it's a struggle to meet those minimums. They are striving to, we are striving to, and I think the issues are -- I don't know that it's so much the engineering design, it could be some of that but it's just the overall logistical. I'm sure you guys have been out to a well site and observed all the activities that are taking place there. There are a lot of things that can go wrong or upset things including readily available supplies, service and materials. But, we'll get better, that's our goal.

Okay, all right, terrific. Thanks.

Andrea Sharkey, Gabelli & Company.

Good morning. I guess more of a strategy question for you guys. It seems like over the past -- there has been some changes in the industry, Superior Well Services is now part of Neighbors, Complete Production is going to be part of Superior Energy, so just bigger companies. And I'm wondering if that changes competitive dynamics for you guys and maybe if you would look at needing to beef up a little bit, add more product lines or just get bigger, or what else you might be interested in potentially expanding your reach with customers.

Andrea, this is Jim. I think right now -- and I don't want to sound boring, but Rick's closing comments were pretty much -- what we have been doing for the past 1.5 years, we think it has turned in some good results for us, so we are going to continue doing what we are doing right now. In terms of expanding too many additional service lines, we have got our plate full with this evolving marketplace in horizontal completion so we are doing a lot of work there and that's where we are staying. There is a certain new level to which you have to arrive if you are in the pressure pumping business and that is to say that it takes a bigger fleet to do a job than it used to. But, we are there now. We can take 50,000 hydraulic horsepower to a Haynesville completion and that's what you need. You can't do it with 10,000 hydraulic horsepower, so we are enjoying where we are right now. We don't want to put too much on the plate because that will dilute our focus. So there is nothing right now that says that we are really looking for some additional service lines, that's my quick answer.

And frankly, our experience has been at watching there mergers and combinations that they are very difficult to execute and that it's a lot harder than just adding some numbers together. And in the past, we have frankly been a beneficiary for a period of time of those combinations, just doing what we're doing.

Okay, great. That makes sense. Maybe just one follow-up question. It sounded like the downhole tools part of the business was the biggest percentage increase in revenue this year, or this quarter. I was wondering maybe if you can give a little bit more color on that, why you think that's growing, and if there was more room for that to grow, both on just utilization and equipment and pricing.

The downhole tools division company that we have has some technologies and capabilities that are very well suited for the horizontal completions and they have done a terrific job of taking advantage of that. Their pricing is strong. I wouldn't say that it's something that we continuously push the envelope to escalate. Pricing is very good, they are doing well. I think the increase was more from volume than price improvement itself. But I think there continues to be opportunities, the service that we provide is unique in some ways, but I think the company has a terrific reputation and I think that has continued to benefit us and I think there is continual growth opportunities. We are also very innovative in that service line, what helps us is the fact that they are sort of specialty service and specialty tools which does allow you to charge a little bit more than you can on sort of commodity -based products. So that's a big benefit and that helps drive demand for that service. And we are pretty innovative in that area as well looking for other tools that we think will provide additional growth opportunity with these horizontal completions, and I think we have made some inroads there and think there is some continued very good potential with that service line.

Okay, great. Thanks a lot.

John Lawrence, Tudor, Pickering.

Good morning. Just a question on pressure pumping, I think you have some capacity rolling early next year, are you starting negotiations to extend those and if so could you talk about the expectations of returns there?

John, just to clarify, you said we have some capacity rolling, I think you meant some contracts rolling over?

Yes, some contracts.

And yes we do. You know, yes, you certainly don't want to start negotiating a contract the month that it terminates, so certainly we are continuing to have discussions right now with those customers, and we feel like things are going to be -- we have done a good job for the customer and we think the contracts are going to be renewed. We don't have any idea right now about whether contract terms are going to be more or less favorable or the same.

I think a lot of the rollover we have at this point is, the market continues to be very, very tight and who knows what will happen but I would expect they would be rolled over, because there are extensions, and so it will not be a renegotiation per se, it will just be we'll continue to roll forward, the market's that tight and I think that's our current expectation, that that will happen.

Great. And just on share buybacks, I know you bought back some stock around these levels earlier in the year. Could you talk about your appetite for more share buyback?

Well, it's something we constantly look at and we are currently looking at our various options between additional growth, CapEx, dividends, increase the dividends, it's something that we are always kicking around and evaluating, but no specific color at this point.

Well for sure we have room under our current buyback authorization.

Yes, certainly we have got the capacity if we wanted to do some, so it's certainly a possibility.

And we think at the current price it's a pretty good value.

Right, okay. Thanks a lot guys.

Matt Beeby, Global Hunter Securities.

Thank you and good morning. Quick question on 2012 CapEx. Are you seeing enough opportunity for early next year to continue placing orders for new equipment that is not necessarily the long lead items like pumping or coiled tubing, maybe rental tools or for the downhole business.

I'm not sure I heard the very beginning of the question.

What Matt is saying is for 2012, do we have opportunities for taking orders for equipment for some of the things that are other than pressure pumping and coiled tubing, like rental tools and downhole tools and things like that.

Right, are you placing orders for that kind of equipment.

Well, we -- things like rental tools and a lot of that is consumed in the business regularly, so you have to place orders months in advance, just to stay, at least to stay even, and yes, we have done that, we are still committed to maintaining and growing the rental tool business so we have placed orders for additional rental tools. The response to downhole tools is not nearly as capital intensive, the lead times are nearly as long there as they are for some of the rental tools items, so that is about it, other than pressure pumping and coiled tubing, nitrogen is an area that we are looking at as well. So we are continuing to add obviously, with saying that we're going to spend $350 million next year, and that sort of what we have this ability to, so that's an indication of I guess where orders have been placed.

Okay, that is helpful. Thank you. One more, can you guys offer anything related to the commentary on selling the company that we've heard in recent months since the last call maybe?

Matt, this is Jim. No, the source of anything you have seen is not RPC, it's others, so we have no comment on that.

Okay, thanks. That's helpful.

Megan Repine, FBR Capital Markets.

This is Megan filling in for Rob. Can you help me understand the rationale behind the dividend increase, is the idea to help support the stock in a potentially weak financial market?

No, I think as we said in the press release, I think the Board is pleased with our performance and growth and the prospects that we have right now, and obviously a little unusual that we pay a dividend, but I think it's certainly not out of line from the perspective of -- that percentage increase from the perspective of our earnings are growing so I think it's simply that. As we said earlier, how we allocate our capital in trying to maximize our returns to shareholders dividends can, and obviously for us is a strategy to help achieve that. There are many ways to do that, we obviously see lots of opportunities to grow by investing organically and we are doing that aggressively as well, so it's just one way to help generate that return to shareholders.

Megan, this is Jim. Just a quick follow on. It's a way of sharing our success with our shareholders. We are rare but not unique among our peers that we pay a dividend. I think where there are questions about the dividend and why do you do it, I think many times there is a difference in time horizon. I can't quote you the studies, but over a long period of time, the majority of a return to shareholder comes from dividends and not price appreciation. We have a longer term view than many folks who are looking at space right now.

Okay, thanks for that. And I might have missed it but can you guys maybe quantify the negative impact of weather in the Northeast during the quarter?

Our strategy on the call is, we're not going to make any excuses. It certainly had an impact, but quite honestly, there were other things that had even a bigger impact. I don't know if that helps, but we would rather not specifically quantify.

Okay. Thanks for taking my questions.

Doug Garber, Dahlman Rose.

My first question is on the change in job mix you alluded to in the text. I was curious if you could give a little more color as to what you saw there and how that impacted the cost structure and if that's something we should expect going forward.

Really something that happened last quarter and continued this quarter for a particular customer, significant customer. They sort of switched up the job design and the profit they were using in that impacted us, sort of complicated formula under the contract. We hope to be able to recover some of that, address some of that in the next few months, so at this point it is still ongoing.

Okay. And you mentioned, I remember a few years ago you guys took some steps to improve your supply chain. You were trucking things to the site as opposed to railing them. Can you talk about some of the longer term things you're doing currently. Are you revisiting the logistics chains or did you have a lot of one-time things here, where you had to truck things to a site where in the future you will be able to rail them to the site?

I sort of alluded to the disruption we had during the second quarter that we talked about we resumed that activity in the third quarter and it was sort of a dramatic shift. That's in fact the case. There were some higher costs we had to do, take whatever steps were necessary to be able to start back up with that customer and that's a good way to put it, is we had to truck some things get it there immediately rather than using the more efficient rail. So that's where we should have the opportunity prospectively that we can get that particular area and that particular source flowing more normally, which should alleviate that -- I won't call it one time, but that extraordinary cost that we incurred during the third quarter.

Also on the coiled tubing, I was curious if you could give us an updated count on the number of units you had and also a little bit more detail as to your plans to increase that, how many and when. And then, as you plan your budget for 2012, there is still a hefty amount of CapEx, I'm just curious how you think about pressure pumping versus coiled tubing in terms of a percentage of that CapEx or relative returns going forward for the 2 different units.

For 2012 CapEx, yes, there is a significant amount of CapEx for both pressure pumping and coil tubing. We talked about the amount of horsepower that we're taking delivery of next year, one could add that cost up and see that, that will be significant. Coil tubing is similar in size and volume of cost, and we are forecasted to add next year, expand the fleet by probably 15% next year, 15% to 20% even.

And what you provide the correct number of units you currently have and what you expect to -- how many you will have next to, how many you're planning to add?

Currently around 44 or 45 and will be in the low 50's next year by the end of it.

Okay. And last question. On the Support Service margins they've been strong for a few quarters here. Could you just give us any guidance on the on the sustainability of those going forward and what is driving that?

Doug, this is Jim. I think, obviously, you know this, but just to make sure everybody, we're on the same page, the majority of Support Services is our rental tool service line. Rental tools is a high fixed cost, low variable cost business relatively speaking so with higher volume you get better margins to the bottom line, higher operating margins, higher EBITDA margins. We anticipate that will continue as long as drilling activity remains strong. This is a drilling business, not a completion business. Having said that, the directional and horizontal drilling that is taking place is harder on the equipment so it's eating up more capital. That issue aside, that also reduces your effective fleet, your ability two utilize a fleet. So, we feel good about that and think that for the time being those operating margins are sustainable.

You asked about returns, from a return on capital standpoint, both remain very, very strong as I always say. We have no idea for sure what returns are going to be in the future, you can only decide that by looking backwards. The returns on both have been great up to this point. We expect they're going to continue to be great going forward. In terms of the relative returns, hard to say. Again, they're both great and we love the diversity. I will say that our coil tubing operating profit margins are at all-time highs. We are pleased about that.

Thank you. I will turn it back.

Dan Devine, Gabelli and Company.

Thank you for taking my call. So I guess, just two quick questions. Can you remind me again how many shares Randall Rollins owns of the Company, and do you have any sense that there is any potential changes to that?

Well, I don't know that I know specifically how many he owns individually, but the control group that we disclose, it's approximately 70%, and I have no idea of what Randall's plans are or the family's plans are.

That is it, thanks.

Tom Escott, Pritchard Capital.

Good morning fellas. In light of comments you made, the pressure pumping equipment market remains very tight, pricing clearly remains solid. And you have got 129,000 new capacity being added. The question related to that is, can we infer from all that that you are not or do not contemplate retiring any older equipment in this market environment?

That would not be our strategy to actually retire. We have talked about these and referred here again this morning, I think last quarter we said there was 40,000 that was coming in that we were going to use as rotational pumps. We also have some additional pumps we've brought on as backup which we hope will help alleviate some of the stress on the equipment. Our strategy is going to be not to retire but we're going to use those rotational pumps to send to the field, and we'll bring in older pumps and we'll do -- we will test those and we'll rebuild them to the point where when they come out they'll be pretty much brand new.

It's almost a remanufacturing process.

Right, so no plans to specifically tear up, retire and buy brand new. The strategy is going to be, because our fleet as you know is relatively young overall so we don't have any right now that we would say that are going to take completely out of service.

So the older equipment then is rebuilt and not retired?

That is correct.

Thank you.

John Daniel, Simmons & Company.

Hi guys, thanks for putting me back in. I just wanted to test you a little bit more on the CapEx for next year. You mentioned $350 million, sort of preliminary, not set in stone. You have got 43,000-horsepower in Q1 ballpark, let's just call that $45 million, $50 million, similar amount of coil tubing dollar CapEx, that leaves quite a bit left over. Can you walk -- just help us understand, I'm assuming you're going to order more horsepower, but can you just help bridge for us the delta between the $350 and what we know to be on order?

I'm afraid not.

Okay.

We are expanding into other locations. There is backup equipment, there's rental tools there is --

The maintenance CapEx --

Yes, but maintenance isn't that much, what, $75 million, $100 million, perhaps?

It's probably more than that, bigger fleet of equipment and working harder.

We do have slots that we have reserved for next year. We haven't had to make a down payment on them yet, so when that time comes, that's when we're going to have to make the hard decision.

All right, that's all for me, guys. Thank you.

(Operator Instructions)

Scott Burk, Canaccord.

Hi guys, thanks for the follow-up here. Wanted to just verify, you said you had 45% of pressure pumping equipment under contract and going to 50% next year, did I catch that?

No, no. Scott, this is Jim. It's about 60% under contract today and in the future. Ever since we started these contractual relationships, it's been sort of a 60/40 split and with our current and then projected growth, it's still about a 60/40 split.

Okay, and then wanted to follow-up on something you talked about last quarter, 24 hour operations, are you seeing any expansion of that in your fleet and what areas are you seeing more 24 hour operations?

The answer is yes. We are seeing some expansion, it's still small for us. The operational catalyst for that is different regions, different regions have more 24 hour operations, the Eagle Ford in South Texas has more 24 hour operations. We are starting to see that in the Marcellus, up in Pennsylvania. And the Balkan seems to have more 24 hour operations although we are not doing pressure pumping there right at this time. So the 24 hour operations are increasing. Still small for us, we still have a lower percentage of our equipment under 24 hour operations than probably many of our peers at this point.

Right.

And that is a function of customer preference and region that you're operating in.

Okay. And then one thing I wanted to follow-up, a question you had earlier, you mentioned that you have the new equipment, the 100,000 some odd horsepower you have delivering is under contract, but you're not sure which region. Is that because the customer hasn't told you where to put it or the contracts are flexible.

We didn't say customers, customer relationship. I guess a little bit of that is we have options available and when we say under contract, it's not necessarily signed contracts at this point.

Oh, I see, okay.

What we've said is that we have active and ongoing discussions with a variety of customers and will go to wherever we have the best opportunity., where we deem to have the best opportunity. We will make that decision as we get a little bit closer to the delivery schedule.

And one other question after the third quarter seasonal issue that you had with the rain, in the Marcellus, anything coming up in the fourth quarter that you do anticipate? Maybe winter weather, would that be more something that might hit first quarter?

Scott, nothing we know about right now but it snows more in North Dakota and Pennsylvania than it does in south Louisiana. And I don't mean to be flippant. But I feel certain that there will be some weather impact before December 31. I just don't know where or when.

Right, yes. Of course. All right, thanks.

(Operator Instructions)

With no further questions in the queue I will turn the conference back to Mr. Landers for any closing remarks.

Okay operator, thanks. Thank you for everybody who called in to listen and thanks for the questions also. Everyone have a good day. Thanks.

We would like to remind our audience that a replay of today's event will be available on the RPC Inc.'s website within 2 hours following the completion of the event. This concludes today's conference call. Good day and thank you for your participation.