RPC Inc (RES) 2011 Q4 法說會逐字稿

Good morning and thank you for joining us for RPC, Inc.'s fourth-quarter and annual 2011 earnings conference call. Today's call will be hosted by Mr. Rick Hubbell, President and CEO, and Mr. Ben Palmer, Chief Financial Officer. Also present is Mr. Jim Landers, Vice President of Corporate Finance.

At this time all participants are in listen only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would 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 we have made on this call could be forward-looking in nature and reflect a number of known and unknown risks.

I would 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 which can be found on RPC's website at www.rpc.net.

In today's earnings release and conference call 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 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 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 is calculated.

If you have not received our press release, please call us at 404-321-2140 and we will 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 our earnings press release for RPC's fourth quarter ended December 31, 2011. Following my comments Ben Palmer will discuss our financial results in more detail.

I am pleased to report that RPC generated record revenues, profits and return on capital for the full year of 2011. I'm also pleased to announce that RPC's Board of Directors in response to our strong results and balance sheet and as a show of confidence in our Company's future prospects increased the quarterly dividend 20% from $0.10 to $0.12 per share. In addition, our Board approved a three-for-two stock split.

Notwithstanding our record results, for the first time in recent years we experienced a sequential decline in our operating performance. Ben Palmer, our CFO, will provide more details.

Thank you, Rick. For the quarter ended December 31, 2011, revenues increased to $482.8 million, a 47.1% increase compared to the prior year. These higher revenues resulted from a larger fleet of equipment, higher utilization across most of our service lines and improved pricing.

EBITDA for the fourth quarter was $171.8 million compared to $125.2 million for the same period last year. And our operating profit for the quarter was $122 million compared to $89.8 million for 2010. Our net income during the current quarter was $74.6 million or $0.51 diluted earnings per share.

Cost of revenues increased from $174.5 million in the prior year to $268.5 million in the current year. This increase in cost results from higher business activity levels and associated costs, including total employment costs and materials and supplies.

Cost of revenues for the fourth quarter as a percentage of revenues increased from 53.2% in the prior year to 55.6% due primarily to increased costs of high-demand raw materials used in our pressure pumping service line.

Selling, general and administrative expenses during the quarter were $42.1 million, an increase of 33.9% compared to $31.4 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 9.6% last year to 8.7% this year.

Depreciation and amortization were $49 million for the fourth quarter, an increase of 41.5% compared to $34.6 million in the prior year. This increase is a result of additional equipment that we placed in service over the past 12 months.

Our Technical Services segment revenues increased 50.6% due to an increase in the fleet of revenue producing equipment and higher activity levels from customer commitments. Operating profit increased to $114 million compared to $80.6 million in the prior year. This improvement was due to higher revenues together with the associated leverage of fixed costs.

Revenues in our Support Services segment, which is comprised mainly of our rental tools service line, increased by 16.5%. This segment generated an operating profit of $14.5 million compared to $10.5 million last year, primarily due to higher pricing.

Now on a sequential basis RPC's consolidated revenues decreased from $502.2 million in the third quarter to $482.8 million in the fourth quarter, which is a 3.9% decrease. Revenues decreased primarily as a result of lower activity levels due to operational challenges, which included longer than normal holiday breaks among several customers, activity deferrals due to various raw material shortages, and delays resulting from customer transitions caused by decreasing natural gas prices.

In spite of reduction in revenues, cost of revenues as a percentage of revenues decreased slightly from 55.7% in the third quarter to 55.6% in the fourth quarter. Our ability to maintain this margin on lower revenues was due to a favorable business mix and cost control measures.

Operating leverage and margins may continue to be impacted in the future by, among other things, increased prices of materials and supplies, the associated logistical issues and product availability.

SG&A expenses as a percentage of revenues increased from 7.4% to 8.7% due to slightly higher costs on lower revenues.

RPC's sequential EBITDA decreased 4.6% from $180 million in the third quarter to $171.8 million in the fourth quarter, and our EBITDA margin decreased slightly from 35.8% to 35.6%.

Our Technical Services segment revenues decreased 4.3% to $444 million and generated an operating profit of $114 million compared to $127.9 million in the third quarter. Most of our service lines within this segment experienced lower activity levels due primarily to the extended customer holiday downtime.

Our pressure pumping business was also impacted by raw material shortages and delays resulting from customer decisions, again, caused by a decrease in natural gas prices.

Our Support Services segment experienced a small sequential revenue increase primarily due to an improved product mix in our rental tools business. Support Services' operating profit was $14.5 million compared to $14.1 million in the third quarter.

During the fourth quarter RPC's in-service pressure pumping fleet increased from 531 million to 600,000 -- sorry, 531,000 to 600,000 hydraulic horsepower.

We still expect to receive an additional 60,000 horsepower before the end of the first quarter of 2012. This will result in total horsepower of approximately 660,000. As previously discussed, approximately 50,000 of our total 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.

Fourth-quarter 2011 capital expenditures were $111 million and totaled $416 million for the full year of 2011. RPC's outstanding debt under its credit facility at the end of the fourth quarter was $203.3 million, and our ratio of long-term debt to total capitalization was 21%.

The balance on our revolving credit facility increased by $62.5 million compared to the end of the third quarter of 2011 due to the timing of cash flows. However, our working capital improved approximately $40 million in early January 2012, reducing the credit facility balance accordingly.

And with that I will turn it back over to Rick for quick closing comments.

Thank you, Ben. RPC recognized early the increasingly service intensive nature of shale plays and has been able to capitalize on the opportunity. Despite these successes we are subject to the cyclical nature of the oil and gas industry caused by the dynamic interaction of commodity prices and customer and competitor decisions regarding their activities.

The fourth quarter of 2011 was the first in the last 10 quarters that RPC did not generate increased revenues, net income and EBITDA. Management is aware of the current trends and we are monitoring them closely.

Like to thank you for joining us for the conference call this morning. And at this time we will open up the lines to answer any questions you may have.

(Operator Instructions). Neal Dingmann, Suntrust.

Say, Rick or Jim, just a question on -- obviously first and foremost on the cost. Some of your competitors are obviously saying the same thing and were on the news. As you see that play out through the remainder of the year maybe if you could give us a little color on and break those up a little bit on the personnel, raw materials and then perhaps the movement cost of reallocating some of the fleet, just your thoughts around those three particular costs..

This is Jim. Just kind of a first overarching comment. I think that all of our peers have noticed the increase in raw materials prices or labor prices and have addressed different parts of them differently. So I think whenever somebody says they're having a problem with raw material prices I think that is probably sincere.

I think at this point that the price of -- we all know about guar, that continues to increase, but we have worked on locking up some supplies there.

Among proppants it appears that there is some level of substitutability from the higher grade stuff to other grades and there appears to be more availability coming into the market. So just a qualitative read would be the price of proppant perhaps wouldn't be increasing as much as it has in the past.

Labor is still an issue. The transition cost is more one of opportunity cost on revenue than real cost that would hit the P&L. So that is just (multiple speakers).

And the odd thing -- this is Ben -- I would concur with that final point that Jim made that we are not -- I mean, I am sure there will be some incremental cost, but don't believe that will be that significant. We have moved from basin to basin with customers before, so we are obviously seeking those opportunities and we are pretty well strategically located that we can move the equipment around without too much incremental costs.

Ben, do you see more of this, given I'm looking like at the prior sides and comments where you had about 25% of capacity back in the second quarter in the Haynesville, another 23% in the Marcellus, do you see given as your stated comments about the gas price and oil comments, moving a fair amount of that or are you still keeping most of that working in those regions?

That is our comment. People are making those decisions and they're making movements and that clearly impacted our results, so I do see us moving more toward the oily and liquids-rich basins with our customers. We do believe those opportunities are there. Hopefully, those areas won't -- if we are early -- maybe we're a little bit earlier than some others in making these moves and maybe it won't be so crowded when those moves occur.

With respect to the impact on our results, we have only a certain number of frac spreads and crews, so it doesn't take many of those to become, whatever you want to call it, dislocated or temporarily set back or with lower activity levels to impact our results.

So we are not yet panicked. I think we're just in a transitory period here. Natural gas prices have moved down very, very quickly in a very short period of time. And I think also with the holidays maybe it is a natural time for our customers to be making these kind of decisions. They are already -- it was already a need or an expectation there was going to be a little bit of slowdown for the holidays, and maybe that sort of dovetailed into these other decisions as well.

Ben, last question if I could, just on the overall capacity, any thoughts now -- I know you mentioned going to 660 at the end of the first quarter. One, any thoughts now about adding more capacity, and if so, is there still quite a long lead time to do that? I am wondering if there is would you think about ordering more as we speak?

We have talked in the last couple of quarters that we were done for 2012. And at this point I think that is still our decision. We're not changing our mind on that. In terms of leadtimes, we haven't been out there ordering, so we don't know how those may have changed here recently.

Okay, thanks. Great color. Thanks, guys.

John Daniel, Simmons & Company.

At this point have any customers with which you have contractual relationships, have they elected to use only the minimum amounts of services under those contracts?

This is Ben. I don't know that I could definitively say they have managed it to the absolute minimum, but as I have indicated in the last couple of quarters, there were opportunities to do more work than we were doing. I would say in some basins customers are doing absolutely as much as they can and hitting some of our -- which you wouldn't call it maximums, but some of the levels where maybe they get some efficiencies from ever-higher stages. And there are other areas where -- yes.

And they necessarily tell us -- hey, we are doing the minimum because, but certainly you can infer that, especially looking back now.

As your stuff then becomes open on the spot market can you characterize for us, hopefully quantify for us, the rate of change in pricing?

This is Jim. As things go in the spot market, I think the dry gas basins like the Haynesville, I think you're going to see pricing -- you are seeing pricing declining, if that is going to be on point spot markets.

In places like the Permian pricing is stable and perhaps moving up a bit. A good question would be the Eagle Ford -- about the Eagle Ford, we don't really know, because we don't have exposure to the spot market there. And as you and others know, we aren't yet doing pressure pumping in the Bakken, so couldn't really speak to spot market pricing there. I think in the Marcellus the spot pricing is soft as well. So I think the Haynesville and the Marcellus would be weak areas at this point.

I would add another way, again, this -- we have to admit too when we sat here three months ago we didn't expect to be where we are today. But natural gas prices, again, have moved down very quickly and customers are certainly making different decisions, or making decisions that are impacting activity levels.

In terms of pricing, we -- again, this has happened so quickly, unfortunately, we can't provide a tremendous amount of information on pricing trends because we been heretofore pretty well locked up. So we will know a lot more this time next quarter.

Fair enough. Well, my experience a lot of times when you see the holiday downtime being extended, if you will, that sometimes bleeds over into January. Has January started off slowly or did people come out of the gates working? Can you characterize what you're seeing right now?

We think people are coming out of the gates working more. We know that factually in some cases. Ben referred earlier to raw material shortages slowing us down. We are still dealing with some of those, but the holidays are over.

But we have specific examples of things that were disruptive in the fourth quarter that have improved. But I said before too, things are always very volatile and so there could be other things happening as well. But there have been some very positive developments, but also there could be other negative developments as well. So I am not making any predictions on where our topline results are going from this point.

I know you don't want to make a prediction just yet, but I have to ask. You had 70,000 horsepower in Q4, how much benefit or revenue did you get with that equipment? Could you just try to frame where Q1 might look from a revenue given that plus the other 60,000? And I know -- I understand 50,000 is rotational. And that is my last question. I will turn it over to the queue.

Fair questions, well put. The horsepower we got in fourth quarter came late in the fourth quarter, so it did not contribute that much.

All right, guys, thank you.

Robert MacKenzie, FBR Capital Markets.

I was wondering if you could help me understand better some of the project delays you talked about. Customer delays that you experienced seem to be a little bit more severe than what we have seen at some of the competitors that have reported today. Can you give some more color as to how that impacted you guys and what the details of those issues were?

This is Ben. We don't ever talk about specific customers and things like that. I guess anecdotally I haven't studied other people's releases that closely. I expect we were one of the first smaller North American-focused groups. There have been some of the larger players that also experienced a North American weakness. It hits us more -- I guess, more significantly because it is across our entire business rather than just a portion of our business.

Then I would say other than that -- I will point out that I think another dynamic that is going on here that will make it difficult for anybody to sit here and try to predict exactly where our revenues and maybe others are as well.

In these dry gas plays that our customers are moving -- examples of where they are moving away from, we have had very service intensive jobs that generate tremendous amounts of revenue, but in actuality lower percentage margins. And we are going to be moving into basins which typically aren't quite as service intensive, so we may have lower revenues, but we would hope and expect we may have better percentage margins. So the numbers are going to be moving around and it just depends on where that mix falls out.

What drives that difference? Why would the less service intensive business you're talking about have higher margin?

Some of that gets down to pricing. I don't want to say that some price is better than others; it is how things turn out in the end. You can't always predict exactly how you're going to turn out in a specific situation when you go in and negotiate with a customer. You do the best you can.

But that also, as we have talked about before, in many situations we are giving up higher percentage margins to get more revenue. So my point is the returns may be the same, could be even higher, maybe a little bit lower when we move into these other basins, but the dynamic -- the mix between revenues and percentage margins could change.

Okay. If I may, kind of expanding on John's question at the end there, apart from new capacity added towards the end of the quarter, do you have any spreads that were materially underutilized during the quarter, and where and why do you attribute that?

This is Jim, and I think you are kind of rephrasing your first question again. The answer is, yes, we were underutilized in one area, and it doesn't matter where because you will understand the answer. We didn't have sand. So we had a fleet that was underutilized because it didn't have sand.

In another case we had some customer transitions. And then in another case we just had a customer moving rigs from one basin to another. So those are three examples, and the only three actually of how equipment was underutilized in our pressure pumping fleets.

That is helpful, Jim, thank you. And then to the sand issue -- and you are not alone in that, others have had the same issue -- what has changed and what have you done to fix the supply chain issues? And how long does that take do you think before you don't expect to see supply issues anymore?

I think we will -- as soon as we beat one down another one is going to come up. I think it is always going to be an issue. It is always a lot of work. I think some of the other issues we had we have addressed; that crew is back to work.

This is not only having the supply available, but it is having it move the right amount and the right type moving in the right direction to arrive at the right time.

We are having to -- we are [beat] on our balance sheet. We are having to build up our inventories of supplies. I think that is the right thing to do, so that requires some more working capital. So we hope over time to get better and better at it. But I think though it will be more noticeable sometimes than others, but I think it will be an ongoing challenge. It is a tremendous amount of work, and I'm sure you have seen it, probably laid eyes on it before, there is a lot -- a lot to it, there is a lot of complication.

But it is all about relationships, locking up supplies as best you can, creating new supply routes and improving your logistics and storage and translating capabilities, and we're getting better and better at that every day.

I guess the final question on this topic for me is how vertically integrated are you in terms of, say, the sourcing of sand? Are you buying directly from the mines and arranging your own railcars or are you buying from somebody locally in the different basins? How do you think about your sourcing there?

A reasonable question. It really varies by basin. It is a lot of differences. Some -- we insource in some cases, we outsource in other cases, and it is really all over the board. It depends on the region and prior relationships and the stability and capability of those, and so it varies.

Thanks. And my final question is related to the stock split. I just wondered if you could share with us the rationale of splitting the stock -- call it, closed yesterday $17.50. Premarket, it looks like it is sub $17. What is the rationale for splitting it here?

This is Jim, a couple of things. You know our profile well. We have limited float and this is one way to increase the float in shares. It doesn't change anybody's percentage ownership, obviously, but it does increase our float. And we are proud of that. This is a pattern that we have followed for a long time now and has paid off for us and is generally favorably received.

Notwithstanding the current quarter and the sequential issues we are all discussing this morning, RPC had a good year in 2011. And we feel -- we continue to feel good about the long term in the industry. So we feel that having more shares out there, continuing with a conservative plan, keeping one of the strongest balance sheets in the industry, we think shareholders who are with us and see a little more liquidity in the end will be rewarded. So that is a longer-term answer, but that is our answer.

And the risk of reduced potential ownership from a certain fund if it dips below certain price thresholds you felt was acceptable?

Yes, we think that risk is that acceptable. A lot of our -- well, some of our large institutional shareholders have been with us for a long time and we understand that they have investment criteria and mandates, but we are not overly concerned about that at this point.

Thanks very much, gentlemen. I will turn it back.

Scott Burk, Canaccord.

So just to be clear, so when you guys talk about product transitions for clients, that basically means that you're moving frac spreads from one -- like a gas basin to an oil basin or is there something else involved there?

It is Ben. That is typically the case. I would like to say here that we -- absolutely we have got it going from one to the other, and we know in every case exactly where it is going. We are not suggesting that, but to the extent they have shut down very recently with the way natural gas prices have gone and going and their recent decision, we are in transition as well. So we are --

Now if that situation comes up -- say you've got a fleet in the Marcellus where they're not going to do any more activity and they're going to move it to Uinta or something like that, under your contracts what kind of recourse -- what kind of revenue do you still receive for that fleet or if any?

Every situation is different, but if they're under contract we would get the minimum. And they would tend to move with us and in every one -- and in each one of these cases these are not necessarily ones that were under firm contractual commitments. Every contract is a little bit different. But to answer that, it may be that this is a situation where there is a contract, but not one that has a minimum.

Right, okay, I understand. Then see on that situation more likely they would take that fleet to move or something.

Could be.

So this has been -- the reports we have seen this is starting to look like a bit of a trend, especially weakness in the gas basins. But if you look at the oily basins, I remember you guys have a lot of your stuff in the Permian, for example, is on spot contracts. What are the pricing trends of the last couple of weeks, and is there studying to be a negative impact from additional equipment looking like it is going to move into those oily basins?

This is Jim. The last couple of weeks, hard to say. We do operational reviews fairly regularly. We commented earlier that we think Permian Basin pricing is holding. However, if -- you know, the US pressure pumping fleet is supposed to grow 28% this year. But if in certain basins it grows more because it has decreased in other basins that could have an impact.

So in Rick's comments he said we're watching trends. One trend would be a whole lot of migration from dry gas basins to places like the Permian. I haven't seen that yet, but we are certainly watching for it. So that is cautionary, I think.

And then another question regarding the sand issue or sand availability. When you have downtime on -- when you're not able to get the sand to a fleet, obviously, you don't get driven in that situation. But can it be that you end up canceling -- or a client could cancel a contract because you have not been able to get the sand to the location for a certain amount of time?

In a severe case I guess so. But typically that situation we and the customer work very hard to quote unquote ensure or minimize the risk of that occurring. And we have in some prior quarters had to take, some could describe it as extraordinary measures to get sand -- incremental amounts of sand to be able to do the amount of work we wanted to do. So that does create inefficiency when that happens -- when that happens to us, and I am sure it has happened to other people as well.

But you try to do everything you can for the customer to meet those demands and that sometimes can result in higher costs that aren't necessarily recoverable.

Okay, I understand. And then another question about pricing. You have talked in the past about you been able to get pricing increases on your contracts to handle raw material costs. How much of the reduction in margins for the fourth quarter is due to the fact that you had price increases that you have not been able to get translated into price increases? And are you still going to be able to get those price increases or do you actually expect that operating dollar margins will just start to deteriorate here?

I guess in those situations where we have the contracts where there are -- there exist the ability to pass those costs through, that is usually on a trailing basis. Those opportunities usually come up every six months. If you look back, see what costs have done, so you have been exposed up to that point to those cost increases. You then adjust your costs.

And under those contracts many times what you have done is you have recovered those cost increases based on however that calculation is performed but you may have, everything else being equal, a small degradation in your operating margin if all you have done is you haven't -- you have recaptured that cost increase. You haven't also added that same margin to it, so you do have some small degradation.

So if there is continued escalation in prices all we are doing when we hit those repricing point is, again, we kind of caught up from where we were hurt in the back where we have adjusted prices, but we still would actually be subjected if prices continue to increase. So it is certainly better -- a much better situation than if there was no ability to do that, obviously, but it is not a perfect panacea. It doesn't translate into absolute the same margins as you had before.

And there again, there are so many dynamics. There is volume of work and everything else that goes along with that, but that is how the contracts work.

Okay. So I am sensing some concerns about seeing supply growth for the pressure pumping fleet. Obviously you guys talked about that a bit last quarter, but can you talk about your capital expenditure plans for this year with that in mind?

We have said in prior quarters that we were looking at something less than this year. I think we were saying we were going to be around 400 or 425, we ended up at 416. I think we were saying that our early thoughts were less than 2011, maybe 350. I think today as we sit here today we haven't made any definitive adjustments to that, but we are reviewing it as we always do.

And there's a lot of -- the good thing about it is there is a lot of flexibility even in that $350,000 number. So we will -- there is a decent amount of money in there, as we talked about, to rebuild our fleet. Right now our plans are still to do that. That is our -- one of our strategies, if you will, that we always want to maintain our equipment, so we will spend the money to do that. We could change our mind later, but right now we're going to spend the money to get the equipment -- continue to keep it updated and up to speed.

But there are other amounts in that 350 that we have referenced that could very easily be deferred. Decisions have not been made yet to spend it, so all it would take is a phone call -- a phone call here internally and it will not be spent. So we feel very comfortable about that.

All right, well, thank you.

Andrea Sharkey, Gabelli & Co.

So I was wondering if you could maybe give us a little bit of a more quantified sense in the decline -- the sequential decline in your Technical Services revenue was about $20 million. Can you split that out how much was holiday delays, how much was moving from one region to another, and then how much was material, maybe just broadly?

This is Jim. A very valid question. That is a little bit difficult. Let me try to approach an answer. I would say that somewhere between 40% and 50% of that decline might have related to raw material shortages and delays. Maybe the second-largest share of that would relate to holidays. And I think there is probably about all I can say that is definitive.

That is helpful. Thank you. Then I was just curious if you could refresh us on how much of your pressure pumping equipment is currently operating in the spot market, and then how that number will change as the year progresses assuming that whatever is on contract now that rolls out doesn't get re-contracted?

Does not get re-contracted, okay.

That is still about, what, 60/40 -- contract 60, quote unquote spot 40. You know, different variations in that contract versus spot, but I would -- I think right now today I don't know that we see or would project any significant change in that, do you think, Jim?

There is going to be some that will come off contract. We would like -- we are going to obviously explore opportunities to put others under contract, but right now I don't see that changing significantly.

If you want to know -- if there is any bias one way or the other, if there is any risk one way or the other, it might end up being slightly less contract by the end of the year based on what we know right now, which is -- what we know right now is in the midst of a pretty dynamic environment.

Sure, sure. And then maybe just the last question for me. I note that SG&A was up sequentially maybe about $5 million. Can you just give us a sense of what those extra costs were? And is that $42 million were So run rate going to be good as you go through 2012?

Run rate for 2012, that is probably a reasonable number. We have -- resetting plans all the time. But I know whether I have a great answer for that.

This is Jim. I concur with Ben's comments. I think we had some additional employment costs and a little bit of a year-end bad debt accrual true-up which would have accounted for most of that SG&A increase.

I would say too, in terms of the number going forward it is a little bit like our CapEx, it is under review. And we are always updating and reviewing contingency plans, especially when we have a little bit of a jolt like this. So we have been through this many, many times and it is not like we're starting over.

So we did this not too long ago -- not that we are doing it. But we have gone through contingency plans before, so we're prepared and there is a lot of flexibility in what we are seeing. We don't have any other large growing SG&A costs, I guess, is another way to say it that we can't control at this point and minimize those increases going forward.

Okay, great. Thanks a lot. That is really helpful.

William Conroy, Pritchard Capital Partners.

Thanks for taking my questions. Probably really following up on some of the other ones. The first one is housekeeping, maybe more for you -- towards you, Ben. Is the 60,000 horsepower that you anticipate bringing on in the current quarter, is all of the cap spending for that contained in the 2012 budget or it is some of that paid for in the 2011 budget?

Yes, some of that is in 2011. So that will just be the final payment that will have to be made in 2012.

Maybe then related to that, if I picked up what your plans were for additional horsepower during 2012, then the vast majority of the CapEx budget is directed away from pressure pumping, or at least in terms of adding capacity?

If you are referring to the 350 number -- you are trying to kind of reconcile that back to 350?

Yes.

Well, the 350 number could have at some level included additional pressure pumping capacity, but nothing definitive enough to label it as such, if you will. I understand what you're saying, but yes, by and large there is a lot more on other service lines in 2012 and has been for some time.

And then shifting gears back to the current state of pressure pumping, if memory serves, and I stitched some things together, between Haynesville, the Marcellus and the Fayetteville I think of you guys maybe being roughly 50% of your capacity is exposed there. A., is that correct. And maybe, B., whether it is or not, how far long do you think you are in terms of transitioning your capacity out of some of the gasier areas to wherever they have to go?

I understood the second part of your question. The honest answer is we are, as I indicated earlier, just a few short months ago we wouldn't think we would be sitting here like this. So we are in the midst of transitioning this equipment. I couldn't tell you that we know exactly where every idle or underutilized fleet is going to be working next week. (multiple speakers)

Actually, that does. And is my quantitative framing -- at least am I beyond the monuments at Yankee Stadium on that?

This is Jim. Let me repeat an answer and just make sure we are on the same page, because it is a good question. Between the -- I think you were asking Haynesville, Marcellus and Fayetteville, if you add Haynesville and Marcellus and Fayetteville up you get about 53% or 54% of our capacity. So I think you said 50%, so you are pretty close.

And where are those are going to land we don't definitively know. The ones that we have talked about that have resulted in some of the revenue declines. And we are not making predictions about that either, whether we are going to go start work in existing basins, whether we are going to try to go to oilier basins. I expect it will be directed more towards the oilier and liquids-rich basins, but we are evaluating options right now.

Got it, thanks very much.

John Lawrence, Tudor, Pickering, Holt.

Just a question -- another pressure pumping question, imagine that. Just on the capacity in the gassy basins, are you seeing anyone actually trying to back out of the contracts or are they just moving the capacity?

No, no examples of people backing out of contracts.

Then I guess just switching gears on the coiled tubing side, does that market still feel undersupplied, any changes there? And then how much capacity you're going to add in 2012?

This is Jim, that still -- the market still feels undersupplied at this point. Coiled tubing and pressure pumping go hand in glove in these unconventional completions, as we all know, but that still feels undersupplied.

What we are adding is all large diameter. And we are adding -- we were adding up to five more units this year from where we ended the year.

Is labor the key issue just as far as getting those things working?

Yes, for coil tubing units, yes.

Okay, thanks a lot, guys.

We are going to add four this year.

Four. Thank you.

Doug Garber, Dahlman Rose.

Jim, just a quick housekeeping, just to follow up on that last question. How many coiled tubing units did you end the year with in 2011?

Good question. We ended the year with 49 coiled tubing units. And we believe that at the -- current plans are at the end of 2012 we will have 53.

What is the -- so one of larger units, would you be willing to share what you think a range of annual revenue might be for a larger unit on a run rate basis?

Somewhere -- you know the dayrate, it kind of depends on utilization, but it could be in the -- somewhere in the $6 million to $8 million annual revenue range.

That is helpful. Thank you. I wanted to follow up on not having the crew work because you couldn't get sand and try to understand why the sand was short. I know in the past you've been able to truck sand in in a pinch, and maybe at higher cost, but still able to get it.

And I also wanted to understand could you maybe switch to a different grade of sand -- maybe some of the finer sand versus a coarse sand, which is in tighter supply? Was the customer willing to do that?

Many times, yes, that is -- you are able to do that working with the customer. In this particular example it was the type of sand, it was the coarseness of the sand, and it just was not -- it was not available when we needed it, and in a manner and at a time that we can make it work for the customer. But we have resolved that and we are back to work in that particular situation.

So it is a very specific situation. It didn't affect necessarily an entire region. It didn't affect multiple crews or frac spreads. It was sort of a specific example, but it definitely had an impact.

So this specific case, the customer wasn't willing to use a finer sand, he really wanted that coarse sand?

That is correct.

I also -- Jim, you made a comment earlier on -- you alluded to substitution of higher grade to other grades of sand. I wanted to understand, are you talking about going from course to fine sand or are you talking about going from perhaps resin coated sand to raw sand?

More of the latter. But to qualify that comment a little bit, we have been hearing from our operational folks that in previous times of low commodity prices customers were more willing to go to cheaper proppant because it was a good financial decision. What we are told now is that tendency is still there, but it is not as pronounced as it was. So we are talking about shades of grey here. But in general we are talking about going from higher grade resin coated sand to raw sand as an option, both because of cost reasons and frankly just because of availability.

I just wanted to -- another housekeeping question. The percentage of your revenue from pressure pumping, you have given that historically, and also coiled tubing, are those things you can share for the fourth quarter?

Sure, glad to. Pressure pumping revenue as a percentage of RPC's consolidated revenue was 53% -- so 53% in fourth quarter. Coiled tubing was 11% of consolidated RPC revenues.

All right, thank you, guys, very much. I will turn it back.

Ben Swomley, Morgan Stanley.

I was just hoping -- I was wondering if you could expand a little bit for me. Is the shortages that you're seeing with sand, or the tightness that you are seeing with sand supplies, is it availability of resin coated sand or is it transportation issues?

I might chance the comment in that it is logistics. In other words, sand may be available -- what you want may be available, but it may not be right here where you need it, and so there are logistical issues. You can truck the sand, and we do for customer relationship reasons. It is awfully expensive.

On the flip side, sometimes you end up with sand waiting on a rail car siding and the customer isn't ready to go. There is a delay for some reason, so you incur demurrage charges. So there is a whole range of issues that come up that keep you from getting the right sand at the right place at the right time, unfortunately.

In the example what we cited earlier for fourth quarter it was an issue of not being able to get the sand in the right place.

Understood. All right, thank you very much.

Ryan Fitzgibbon, GHS.

I am curious if you can walk us through how contract negotiations with your customer base if that has changed at all in the last six months, as well as pricing and number of stages you're guaranteed?

How it has changed in the last six months. I don't know that negotiations have changed that significantly. And in terms of -- I don't know that we have any specific here -- have any specific examples or commentary on that in terms of the differences.

It varies by basin. We don't have enough contracts in specific regions to be able to compare and contrast one to the other. I understand your question and I think it is a reasonable question, but I don't know that we would be able to collaborate to -- fully on that. I am not aware of any significant changes in the form or structure of the contract.

Okay, fair enough. And then the 65,000 horsepower you have coming on this quarter, is that contracted, and can you tell us where that is going?

It is going to basins where we think it is going to work. And it is -- some of it is this backup rotational fleet. Some of the other we think will work, but we are not sure it will be under contract or spot at this point. It kind of depends on which basin it goes to first of all, but we are not certain.

And I guess the last one on the pressure pumping side or more Technical Services. If I look at where margins were in Q4, and assuming your crew costs remain high and supply chain issues continue to impact you and the industry, any reason to think that margins shouldn't generally trend down through 2012 at this point? What is your outlook there?

They could turn down for some industry reasons. We expect that with less revenue disruption we will be more efficient, so SG&A as a percentage of revenue would be lower in that case. So you have got a couple of forces working against each other. It is hard to know which of the two is going to be more pronounced. Does that sound fair?

Yes. And as I alluded to earlier on in our conversation, there is a lot of dynamics going on with very, very service intensive dry basins moving into other less intensive and so the margin -- revenue and margin dynamic is going to be dynamic. It is going to be changing and where that is going to shake out is unclear.

Right now we are not expecting -- all things being equal we are not expecting significant declines in margins with everything happening the way it is right now, with customers moving basins, and that is going to affect concentrates. Hopefully, activity levels will go up as high as the amount of competitors in a particular region. And hopefully we will get back to the levels of activity where -- that we have been working and we can maintain margins, but it is hard to predict right now.

And then the $350 million CapEx number that was discussed earlier, how much of that would be maintenance CapEx or is that not included in that number?

No, that is included in that number. I would say the full CapEx number is probably as much as $100 million. Probably right now in that number on the pressure pumping side it is $50 million plus -- this refurb program that we have laid out and that we are in the process of executing.

Okay, thanks for your time.

Overall it is north of $100 million.

John Daniel, Simmons & Company.

Thanks for putting me back in. Last year there were lots of rumors that you guys were for sale, and of course you guys wisely didn't comment on those rumors. But in Q4 you were active buyers of your stock, and I'm just wondering if your legal counsel would allow you to buy back stock if you are actively running a sales process?

I don't know, I haven't researched that.

Okay. I would assume no, but I just wanted to throw that one out.

I would assume no too, but I haven't looked into it.

Fair enough. The other question I have got is a follow-up on the G&A. Ben, I couldn't tell if you said to hold G&A flat from the Q4 level, because then Jim mentioned that Q4 included a bad debt true-up as a big part of the cost. And if that were the case, why would we be holding that flat?

Fourth quarter we are in process of, again, re-looking at all that stuff. Fourth quarter was a little bit higher than third quarter. It did have -- it had maybe a little bit of a bad debt true-up. It did have a restricted stock forfeiture rate true-up. I don't want to get into that discussion, but we do that annually, and that was a lot bigger than normal for various other reasons.

So I would expect that -- I don't expect it to increase significantly from that fourth-quarter level unless we make definitive additional actions from this point forward. It is not growing rapidly. We kept it pretty well under control, and we are not adding a tremendous number of people or resources and things like that, so I don't see it rising significantly from this level.

Fair enough, and you guys have been very generous, but I have got to ask one more since I got you. You mentioned last quarter that coiled tubing margins reached an all-time high, did they increase or decrease in Q4?

I'm not sure if I know. My guess would be we had, again, across most of our service lines, including coiled tubing, was impacted by the holidays. So my guess is it probably (multiple speakers) decrased slightly.

Yes, they decreased a bit, and that would just be lower utilization, lower cost absorption.

But that one would clearly probably be more seasonal than what is going on with pressure pumping and the pricing issues.

More so, we believe, yes.

Yes.

For sure.

Fair enough. By guys, thanks a lot for your time.

(Operator Instructions). It appears there no further questions at this time. Mr. Landers, I would like to turn the conference back to you for any additional or closing remarks, sir.

We appreciate everybody calling in and listening this morning. We appreciate your questions and the discussion. Everyone have a great day. Thank you.

This concludes today's conference. Thank you for your participation. Today's conference call will be replayed on our website within two hours following the completion of the call. Thank you.