RPC Inc (RES) 2012 Q1 法說會逐字稿

Good morning, and thank you for joining us for the RPC Incorporated's first quarter 2012 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 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 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 would like to refer you to our press release issued today, along with our 2011 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 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 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, the nearest GAAP financial measure. Please review that disclosure if you are interested seeing how it is calculated. If you have not received our press release for any reason, please visit our website that I just mentioned to see a copy.

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 first quarter of 2012. Following my comments, Ben Palmer will discuss our financial results in more detail.

During the quarter, we continued to improve our management of logistical issues and procurement of raw materials. This, together with the delivery of additional revenue producing equipment ordered in 2011, combined to allowed us to generate sequential and year-over-year improvements in revenue, net income, and EBITDA.

While I am pleased with our quarterly results, the decline in natural gas prices to a 10-year low and the resulting decline in natural gas drilling activity continue to impact RPC's activity levels and pricing. This environment together with several operational issues is materially affecting our industry. During the first quarter of 2012, RPC paid its largest dividends, repurchased the most stock, and invested the highest capital expenditure amount in our history. Despite these uses of cash, the balance on our credit facility declined from the end of 2011, and our ratio of debt to total capitalization is a conservative 18%.

We will discuss that in more detail in a few moments after our CFO, Ben Palmer, reviews our financial results for the first quarter of 2012.

Thank you, Rick.

For the quarter ended March 31, 2012, revenues increased to $502.6 million, a 31.6% increase compared to the prior year. These higher revenues resulted from a larger fleet of equipment, higher activity levels, and a favorable job mix in several service lines. EBITDA for the first quarter was $183.3 million, compared to $146.2 million for the same period last year. Operating profit for the quarter was $130.9 million, compared to $106.3 million in 2011. Our net income during the current quarter was $80.8 million, or $0.37 diluted earnings per share.

Cost of revenues increased from $201.3 million in the prior year to $273.8 million in the current year, resulting from higher business activity levels and associated costs, including total employment and materials and supplies. Cost of revenues for the first quarter, as a percentage of revenues, increased from 52.7% in the prior year to 54.5%, due primarily to lower pricing in many of our service lines as well as the lower margins generated on more service-intensive jobs.

Selling, general, and administrative expenses during the quarter were $44.9 million, an increase of 24.6% compared to $36.1 million in the prior year, due to increased headcount consistent with higher activity levels. However, because of our ability to leverage these fixed costs over higher revenues, SG&A costs as a percentage of revenues decreased from 9.4% last year to 8.9% this year. Depreciation and amortization were $51.6 million for the first quarter, an increase of 30.4% compared to $39.5 million in the prior year. This increase is as a result of additional equipment placed in service over the past 12 months.

Our Technical Services segment revenues increased 32.1%, due to an increase in the fleet of revenue-producing equipment and higher activity levels. Operating profit increased $123.5 million, compared to $99.9 million in the prior year. This improvement was due to higher revenues from a larger fleet of revenue-producing equipment. Revenues in our Support Services segment, which is comprised mainly of our rental tool service line, increased by 26.8%. This segment generated an operating profit of $14 million, compared to $10 million last year, primarily due to higher activity levels.

On a sequential basis, RPC's consolidated revenues increased from $482.8 million in the fourth quarter of '11, to $502.6 million, or a 4.1% increase. Revenues increased due to a larger fleet of revenue-producing equipment and improved operational execution, particularly in our pressure pumping and coil tubing service lines. Cost of revenues increased from $268.5 million in the fourth quarter of '11 to $273.8 million. However, cost of revenues as a percentage of revenues declined from 55.6% in the fourth quarter of '11 to 54.5% in the first quarter. This improvement was principally due to improved efficiencies as we continue to address our logistical issues in the procurement of certain key raw materials used in our pressure pumping service line.

SG&A expenses, as a percentage of revenues, increased slightly from 8.7% to 8.9%. RPC sequential EBITDA increased 6.7% from $171.8 million in the fourth quarter to $183.3 million in the first quarter. And our EBITDA margin increased slightly, from 35.6% to 36.5%.

Our Technical Services segment revenues increased 4% to $461.5 million and generated an operating profit of $123.5 million, compared to $114 million in the prior quarter. All of our service lines within this segment experienced higher activity levels compared to the fourth quarter of '11, due to a larger fleet of revenue-producing equipment, our increased availability of raw materials, and the lack of holiday downtime. Our operating margin in this segment improved from 25.7% of revenues in the fourth quarter of '11 to 26.8%, due to improved logistical management of our raw materials and lower maintenance expenses.

Revenue in our Support Services segment increased 5.7%, due to an improved job mix in our rental tools business. Core Services operating profit declined slightly to $14 million in the first quarter of '12, compared to $14.5 million in the fourth quarter of '11. Our operating margin in this segment declined from 37.3% of revenues in the fourth quarter of '11 to 34.1%, due to lower utilization of our rental tool fleet resulting from customer rig movements to oily basins and increased maintenance expenses related to equipment recertification requirements.

RPC's total pressure pumping fleet increased from 600,000 to 683,000 hydraulic horsepower at the end of the first quarter. It should be noted that this additional horsepower was received throughout the quarter and generated minimal additional revenue. We currently have no additional pressure pumping horsepower on order. And as previously discussed, approximately 50,000 of our total horsepower is being used as backup equipment to facilitate our refurbishment program, which started in the first quarter.

As we announced earlier this month, RPC repurchased approximately 2.6 million shares of its common stock during the first quarter. As of the end of the quarter, approximately 1.3 million shares remained available to be repurchased under our board authorization. First quarter 2012 capital expenditures were $121 million. We forecast capital expenditures to be approximately $350 million for the full year 2012; however, we have the ability to adjust this amount if market conditions warrant.

RPC's outstanding debt under its credit facility at the end of the first quarter was $180.8 million, and our ratio of long-term debt to total capitalization was 18.4%. The balance on our revolving credit facility decreased by $22.5 million compared to year-end 2011. This decrease occurred despite an historically high dividend, stock repurchase amount, and capital expenditures during the quarter.

With that, I will turn it back over to Rick for a closing remark.

Thanks, Ben.

While we were pleased with our first quarter results, the decline in natural gas prices and related drilling continue to impact RPC's overall activity levels and pricing for many of our services. We remain cautious about the near-term domestic drilling activity levels, and will continue to allocate our resources to domestic basins which show the highest promise in the current environment of high oil prices. We will also continue to monitor discretionary spending and scrutinize capital expenditures during this period of low natural gas prices.

I would like to thank you for joining us on RPC's conference call this morning. And at this time we will open up the lines for any questions you may have.

(Operator Instructions) John Daniel, Simmons & Company.

Hi, guys, good quarter. When we look at the top line revenue heading into Q2, you are going to benefit from the incremental horsepower, we'll call it 83,000 that you received in Q1, but offsetting that presumably are some pricing pressures. At this point is your bias for higher revenue growth as you look out to Q2, Q3 or do you think we should start to taper off?

John, this is Ben. I would think we are expecting, planning on, working toward, being able to generate some revenue growth; but there is, as we've talked about and a lot of other people have talked about, there is a lot of equipment being moved around. And when that is going to land, how quickly it will land, exactly what the pricing is going to be is certainly uncertain at this time. We are generally positive. We have a lot of opportunities working; but again, as we have all heard and seen and talking about it is quite fluid right now. We are pretty confident, we think we have got some things in place that will maybe give us a little bit of advantage compared to some other folks, but difficult to predict.

Okay. On the note about being fluid, a couple of your competitors have talked about idling frac fleets. Is that something that you guys considered doing or have done already?

We do not have any plans at this point to idle particular fleets for any extended period of time.

Okay. Then just one final one for me, and I will turn it back over. On the margin front, can you walk us through how much of the equipment relocation has happened? How much is to occur over the next couple quarters, just in terms of what type of cost impacts we might see from the, if you will, dislocations by equipment relocations?

John, this is Jim. There is more equipment to be relocated than has been relocated. The cost in and of itself is not that high because we have operation locations in all the places where we believe the equipment is going, so that's the good part. But in terms of financial statement impact, there is clearly opportunity cost, lost revenue while the equipment is moving, and perhaps some inefficiencies once the equipment gets there as we crew it up and work on logistical issues regarding raw materials, that sort of thing. We have not internally quantified, so it's kind of hard to talk about in any quantitative sense.

This is Ben. I would say that our first quarter results, as we said in our opening comments, were not driven by equipment having moved successfully or this new equipment coming on board generating new revenue. So, therein lies our opportunity.

Fair enough. All right guys, thanks. Good quarter.

Doug Garber, Dahlman Rose.

I wanted to first ask, you guys mentioned that there was lower pricing in several service lines. Other than -- and then fracturing, can you talk about the environment for some of the other service lines? And, perhaps quantify some of the pricing environment there?

Doug, this is Jim. We have seen lower pricing in our rental tool service line, which is not the biggest but certainly significant, and pressure pumping. Those are the main two to call out.

Overall, we do have a couple of service lines that continue to see strength. Strength to being able to easily hold on to pricing. But in general, a lot of our other service lines are operating in these gassy basins, and they're going to be subjected to some of the same pressures of people trying to move. So there is, albeit not as significant, not as quote-unquote negative as pressure pumping. I don't want to make that too strong, but is not as soft as pressure pumping. Some of the other service lines are having to work on trying to keep pricing where it is now and not have it decline too much.

Okay. And, can you give us an update on the fleets you have in the Haynesville -- I understood they stayed where they were in the first quarter, but do you have plans to move them out in the second quarter?

Doug, we are certainly looking at that. We believe there are some perhaps better places to work in some more oily basins than in the Haynesville, so we are still committed to that region. We have got a big infrastructure there; that's not a negative, it is a positive. We've got a good infrastructure there. And, there are opportunities in east Texas and north Louisiana. Let's not assume that's all the Haynesville. There are other opportunities there where we can work. But, we are looking at having some of that equipment go to other areas.

Okay. And lastly, on the coil tubing, I understand you took new delivery of a lot of equipment at the end of the year. Is all that up and running in Q1 at this point?

Some of the new unit additions are. We feel pretty good about those. We have, early this year, did add a couple new units and our projected expect to take delivery of three more before the end of the year.

Okay, thank you. I will turn it back.

Neal Dingmann, SunTrust.

Just two quick ones. First, I think you commented on this one a little bit. Just on the raw materials now, it sounds like a couple things as far as reallocations some of these new areas. How do you see that, are you pretty confident now where you have that realigned? As well as just the different types of sand and such, besides just moving it to the new areas there were some issues about different types of sand needed for some of these newer areas. How does that stack up?

Neal, this is Jim. Easy question, I guess there is a long answer to it. First of all, just so you and everybody else know, we did talk about proppant shortages in the fourth quarter that materially impacted our results. That particular proppant shortage and that particular customer in that particular location has been solved. So, as Rick and Ben alluded to in their comments, we had sequential improvements due to fixing that problem.

We continue to improve how we handle proppant, both the procurement of it and logistics of it. I think as time goes on we realize that there are a number of different kinds of proppant and a number of different kinds of customer preferences, so we just continue to work through that. Because of the variety of proppant grades and customers' changing preferences, particularly in a time of low commodity prices, it is just hard to say that we have got everything nailed down or that we don't. We are definitely improving it, and we think we are covered. As you know, everywhere that our equipment might go is a place we have an operational location. We are closely focused on it, I can tell you that.

Jim, do you have to sign up for long-term contracts with some of these suppliers? Or, is it still -- there is enough capacity out there that you see going forward for the rest of this year that's not necessary to sign maybe longer-term raw material deals than you have in the past?

Neal, this is Ben. I would say it is a combination of things. We have signed some contracts that do shore up product over a more extended period of time. So, it really varies, but it's not that we have across the board say we've got it solved because of these particular contracts.

And, as Jim alluded to and we have talked about before, there will continue to be issues, just the question is how well can we manage them day-to-day, month-to-month. We think we are getting better and better at it, and we have some unique relationships that have been established so we feel pretty good about it. But, again it's something we have to continue, as Jim said, focus on all the time.

Okay. You mentioned about the 50,000 horsepower you use as backup. As you reallocate some of this equipment, will you set aside more for backup? And, as you see reallocating this, are you able to lock in on new term deals? Or, is there too much capacity out there so most of this new equipment that's being reallocated, is that going more on a spot-market basis?

Reasonable question. The backup equipment right now, we think the 50,000 horsepower is sufficient. So, that is all about how quickly we plan to work through the refurbing of the equipment, and we are still comfortable with that number being the rate at which we want to work through the fleet.

With respect to reallocating equipment, as I alluded to earlier with the first question, at this point it is difficult to say. Clearly, at this point compared to a year ago, contracts and being in a position to negotiate very hard on terms of contracts is certainly currently a thing of the past. But I think we are very much focused on, and I think we have a good handle on, what it means to try to differentiate ourselves by working with our customers to try to create efficiencies. And in creating efficiencies, that can help our margins and help our customers' margins. And, that's things like 24-hour work. We are not doing a significant amount of that, but we understand it, and we have done it, and I think we know what some of the steps that you can take with the customer to minimize downtime, which again, results in improved margins because you have a lot more efficiency.

So, that is something we continue to strive toward, and, I think, is ringing a cord with some of our customers. And, hopefully will lead us to higher utilization than we would otherwise have with our equipment.

Okay, and then last one if I could, it looked like accounts receivable, sequentially was not that much higher, but maybe on a year-over-year basis was a bit higher than normal. Any concerns there as far as just on the receivables side?

No, not at all. Receivables are in great shape.

Thanks guys, great quarter.

Andrea Sharkey, Gabelli & Co.

I just wanted to ask about your contract coverage on the fleets. I think in the past, you have said it's about 60% contracted on the pressure pumping fleets. Is that still sort of the same level? Are any of those contracts getting renegotiated in the next six months or so, six to nine months? And, are you getting any pushback from clients that have those contracts to try to renegotiate, whether it be minimum utilizations or pricing or things like that?

Yes, Andrea, this is Jim. Our mix of contract to spot work, and your statistic is correct relating to pressure pumping. That statistic is going to go more towards spot and less towards contract, simply because, with the incremental new equipment that we've gotten on, that is probably going to go to the spot market, rather than the contract market. I honestly don't know, but at the end of this year, we will have less than 60% of our pressure pumping equipment on contract.

Nothing is coming up for renewal immediately in terms of our contracts. What we are doing with some customers who are under contract is that in the environment of extremely low natural gas prices, we're working on different job designs to try to help them reduce their completion costs, while remaining in the spirit of the contract. We've got some ideas, they've got some ideas on how the contract still works and their costs for completing the well can be lower than they otherwise might have. That has to do with substituting different kinds of proppant for proppant that was previously used, things of that nature.

Okay, thanks. That's helpful. Then, just thinking about during this small pause in activity, is there anything strategically that makes sense for you guys to be focusing on, whether it be internally or via acquisition to take advantage of other things out there that are weaker while you guys have pretty strong balance sheet and are in a good position?

Well, we are always looking. There are a lot of opportunities that are coming to market. I think valuation is difficult because of -- our valuation we won't comment on it, but a lot of private sellers are looking for higher multiples than our public company multiple and that traditional earnings arbitrage just would not work. But, we're continuing to look. We have a great view on the long-term prospects for the domestic oil field, and as you mentioned, and thank you for that, we have a strong balance sheet as well.

Great, thanks. Then, just one last question, and I will turn it back. I think in the last conference call we talked a little bit about how when you move to the more liquids oily basins that maybe the revenue isn't as significant or isn't as large, but the margins can be higher because it is less service intense. I was just curious if we have started to see any of that in that sequential margin improvement from Q4 to Q1? Or, if that's something yet to come, obviously will be offset by lower pricing, but maybe that could be something that would be a little bit of an offset coming forward?

Yes, good question. There is nothing in our financial results in Q1 reflected that phenomenon, but we obviously -- we believe in it because of the lower service intensity in some oily plays, it's less hard on the equipment, et cetera. So, other things equal, one would hope for that. But, other things equal means pricing doesn't decline any, so other things may not be equal.

Sure, that's fair. Thanks, a lot; I appreciate your answers.

Jeff Tillery, Tudor, Pickering, & Holt.

Just a question on contracts. Could you just give us color on how those are working, has work essentially come down to the minimum work levels already under those, and any customers you think will exercise outs on existing contracts?

Jeff, this is Ben. I was going to comment earlier on contracts. The definition of a contract 6 months ago, 9 months ago when we were talking about contracts is certainly different than they were 6 to 12 months before that. I would say again going forward where all that shakes out, that they're going to take varying forms. I think they're going to respond to what current conditions are. So, who knows what the form of those will be, how firm they will be.

Certainly, they're not going to be, in this environment, as firm as they were 12 months ago. I think in terms of people exercising outs, we don't expect that, in particular. But, as Jim talked about, we are trying to be flexible in working with our customers to try to seek ways to lower their costs, and at the same time, not impact our pricing too considerably; using lower-cost materials and changing techniques and things like that. I would say that contracts, I think will -- you know, we've always had contracts. We've always had working agreements. They have just been more formalized I guess than they have been in the past.

I think if some of these techniques and the language and the way people talk about number of stages and how to price contracts and things like that, maybe the contracts can revert back to where they're a little less formal than we were headed toward, again 12 months ago, with a lot of stringent provisions and things like that to where it becomes more of a -- gets back to where it was before, which is it's more of a relationship with the customer, and you're setting forth general terms but not necessarily strict enforcement agreements and things like that in provisions. So --

Should we think about that as rolling to those terms as contracts renew, or rolling towards those terms in contracts that were signed 6 or 12 months ago?

I think more of the new ones. More in the future, I think, when they get renewed.

Then, it seems like you guys are pointing towards more mobilization -- disruption in your business as you move equipment around in the coming quarters than we saw in the first quarter. You've got new equipment, or additional equipment, so that may lead towards revenue holding up, or maybe even increasing. Should I think about the margin percentage coming down in the second quarter 200 basis points to account for moving equipment around and just the disruption associated with that?

Jeff, this is Jim. Listening to our larger peers who have gone before us for their first quarter earnings, that's the big question isn't it? Everybody is saying, are your sequential operating margins going to decline by 200 basis points? I can think of two or three times where people have said that over the past few weeks, or past few days. We will be with a lot of our peers in saying we don't know. It's a cyclical business. Overall the recount is almost 2,000, but there is a lot of churn underneath that. We are all trying to maximize our returns, so it is just hard to say.

I would comment and say that our first-quarter results were not driven by additional pressure pumping equipment. And it was not driven -- there were some very specific situations, so some of the equipment that is moving, that began moving in the first quarter or that may be in the process of moving right now, didn't do a lot to contribute toward the first quarter either. So as you alluded to, there is the opportunity that if we can get it working at reasonable prices and reasonably quickly, there won't be as significant an impact. But we do have, from an operating margin standpoint, there is that additional equipment does generates additional depreciation, so that is one item there. But, it is hard to know where it will shake out.

We do think, and hope, and are working toward getting the equipment working reasonably well. It may take second quarter maybe -- certainly not over, we're into it and there's a lot of good developments. We will know a lot more in six to eight weeks from now than we know today, and certainly third quarter will be much more representative of our success. Right now it is just hard to say.

For the first quarter, do you have the percentage of the technical services revenue that was stimulation or just the raw dollar amount? Either one of those that you could share?

Jeff, pressure pumping revenue was 52% of consolidated RPC revenue in the first quarter.

My last question, the Bakken had been an area where you guys had not yet been representative in the pressure pumping business. Is that an area that we should think about you guys having equipment six months from now? Or, are there some logistical or other reasons why we should not think about you guys as moving into the market?

We anticipate that we will be doing pressure pumping work in the Bakken by the end of the second quarter.

Robert MacKenzie, FBR Capital Markets.

This is Megan Repine filling in for Rob MacKenzie. Most of my questions have been asked, but I did want to follow-up. On the $350 million CapEx number, how much of that is maintenance CapEx? Or, is that not included in that number?

Maintenance CapEx is in that number, and of the $350 million, we would say a pretty large percentage, probably $150 million to $200 million of that could be termed maintenance.

Okay. Can you talk about what percentage of your pressure pumping equipment is under 24-hour operations? How has that changed over the last six months, and do you expect this to change much going forward?

It has not changed a lot. The percentage has come down because we have added more equipment. The number of crews under 24-hour has not changed as much as we, perhaps, would have expected up to this point. And, I think that will continue to be an area that our customers, and therefore we, will be focused on trying to extract efficiencies in all the plays where we operate. I do believe we will have more 24-hour work six months from now than we do now.

Okay. And, just a housekeeping question. I think I just missed it, but can you share the percentage of revenue from pressure pumping and coil tubing for the first quarter?

Yes. Pressure pumping was 52%, coil tubing was around 13%.

All right, thanks for taking my questions --

I'm sorry, no that's right. About 14%, actually, for coil tubing.

Michael Marino, Stephens Incorporated.

In the past you guys have highlighted where your horsepower is by basin. I was curious if you care to update that for current locations? And then maybe -- you mentioned moving some into the Bakken, maybe where else the big shifts are?

Let's see, Michael, this is Jim. Right now that breakdown that we have shared in the past is -- right this moment, that breakdown is probably about the same as what we've disclosed in the past. A little more in -- just because of some recent new deliveries, a little more in West Texas, in the Permian Basin, obviously. I think if we were to watch that chart more during the next quarter the percentage of the pie that would be in the Marcellus would be getting smaller, the percentage of the pie that is in the Haynesville would be getting smaller, the percentage that is in the Eagle Ford would be getting bigger, and there would be a new slice that shows the Bakken.

Okay. Specifically, how much horsepower do you plan to relocate? Call it starting a little bit in Q1 and then through the next 100 days or so?

We don't have that available --

Yes, but really overall, we have been sort of, most recently we've been 60, 40 gas to oil. Right now we would guess that would -- probably going to end up flipping, being 40, 60 over the next quarter or two.

Okay, great. Just as a follow-up, you all touched on pricing in some of your other service lines. I was curious if you could talk a little bit about coil pricing, and your expectations there, and what you saw in Q1, too?

Coil pricing is pretty good. The demand for these large diameter coil tubing units, of which we have a good number, is very strong. So, our pricing for our coil tubing service is good.

Is it outpacing cost creep, or are you able to expand margins in coil?

The opportunities to re-price are not [queue], even though we have a number of units. Some of those units are under contract, so it is not like we are getting constant feedback on these big bore units. But the margins are holding in, if that answers your question. I think efficiency and utilization at this point are a bigger driver for where our margins on going to end up than cost creep.

Great, thanks. That's helpful.

Tom Escott, Pritchard Capital.

By this late in the queue, everybody has really covered nearly everything there is to cover. But, one of the questioners did mention coil tubing, and I was going to ask you, is coil tubing one of those service sectors where pricing is holding up just fine? Or, are you seeing pressure there as well?

Tom, this is Ben. Yes, not experiencing any significant pressure there up to this point. There is still high demand for those big bore units. We have got some good customer relationships and the equipment is staying nice and busy.

So, you have added new equipment there, and I guess you said you have got a couple more units coming in here this quarter? So, it sounds like every unit you had, you put it to work right away then, don't you?

Thus far, we have. We have added two units in the first quarter, and we will add three more during the remainder of the year, not necessarily in Q2.

So, as that equipment comes in, it goes to work, which is in contrast to pressure pumping, where it is really not -- new capacity comes on, but it does not add to revenue? Or at least, it did not in the first quarter.

That's right. It did not in the first quarter. We certainly hope and expect over the next couple quarters that it will. But, clearly coil tubing is a much easier service right now to talk to a customer about and talk about terms and talk about when we can begin working. That's clearly in better shape -- the competitive environment is a lot better for us in coil tubing than pressure pumping, right now.

Okay, well thanks a lot. I appreciate it.

Patrick Schindler, IBERIA Capital Partners.

I think most of the questions have been asked and answered. I did want to check with you on nitrogen and snubbing and get an outlook from you all what that market looks like going forward and how pricing came in this quarter?

Nitrogen has sort of been interesting over the last few quarters. It was nice this quarter. There was a nice little bump. I think as some of these wells will have to be reworked, that tends to generate some additional nitrogen work for us. It tends to be a little volatile. It had not been a nice steady increase, some quarters are nicely higher than others. That did have a little bit of an impact here on the first quarter.

Snubbing, not a whole lot of change I would say. We're not really seeing anything hugely negative or positive. Snubbing for us has become a much smaller service line for us in recent years, so it is really not moving the needle to a significant degree right now. Snubbing is an alternative in some cases for coil tubing. Coil tubing is clearly stronger than snubbing is at this point, but we are seeking and finding opportunities for snubbing. It is just not quite as strong, or not growing quite as much as coil tubing.

Got you. Thanks for answering, guys.

Jeff Spittel, Global Hunter Securities.

Most of them have been asked and answered, just a couple quick ones. As you probe some of these oily basins, I would imagine that you started to see a little bit of impact on the spot market in terms of pricing for pressure pumping. Would it be fair to say things are holding up best in West Texas, and then maybe you're seeing a little bit more pressure in places like the Eagle Ford, and I imagine the Bakken is still holding up pretty well?

That's probably accurate. Just to remind you, we are not yet doing pressure pumping work in the Bakken. The Eagle Ford, I think the way to characterize the Eagle Ford is that's a place where pricing for hydraulic fracturing might be under more pressure simply because it is closer to Haynesville and that's where some equipment is leaving from. We have more contract work in the Eagle Ford, so we probably aren't a great read on the spot market pricing trends in the Eagle Ford Shale.

Okay, that's good news. Then, as you look at deploying stuff to the Bakken with your discussions with people up there as you set up infrastructure, ideally I would assume you would like to have more term commitments for the equipment. In a market like this is there an element of compromise there where you'd be willing to mobilize some equipment up there that would go to work a little bit more on the spot market?

I think that's probably right. To work our way in there we will probably have to -- hopefully it is a shorter duration than longer, but we'll probably have to initially do some spot work, kind of get a toehold, and we'll go from there. There have been discussions with customers about contracts and terms and things like that, but I think we will probably start on the spot market.

Great, thanks guys. Great quarter.

John Wengraf, Courage Capital Management.

Hi, it was a great quarter. I had just a follow-up question on the contract coverage. You mentioned earlier that 60% number, and that was declining somewhat through the year, 60% contract coverage. Just to make sure I'm understanding that correctly, does that mean that 60% of your assets will essentially be working under contracts that were negotiated at some point last year when pricing was much stronger?

60% of the number, I think we said 60% at the end of Q4. And, with the added capacity, so the percentage in and of itself would decline. But yes, what we have under contract would have been negotiated in 2011, if that's responsive to the question.

And then, thinking about 2013, how does that look? Do some of those contracts extend beyond into 2013?

Yes, sure. We signed some contracts during 2011 that would extend into 2013, for sure.

And those were fixed price contracts, or were those more just contracts, just frame agreement contracts?

They may have been fairly solid before, but they're probably more the latter as you described them there. It is clearly a different environment. If the customer -- the customers are clearly right now putting pressure on everyone to be flexible and to work with them, to change job designs and look at pricing and everything else. So, we are certainly amenable.

I would doubt seriously that people are able to pound the table and point at the provisions in particular contracts and say you must pay me this that and the other. In this environment, I find that difficult to believe. You have to work with your customers and I guess the firmness -- these contracts are not as firm as some other contracts in the industry. We hoped they would be, expected maybe that they would be, but it has turned out that it still is a customer relationship business and it is very fluid and we are always willing to talk to the customer about ways to make them more efficient and us more efficient. There's clearly lots of discussion going on about those contract terms and provisions, job design, and all that.

One more quick one, what is current payback on new equipment? For example, the equipment that you took delivery on in Q1. Can you give a sense of what kind of a payback period is on that equipment, in the current market?

That's certainly a reasonable question, very difficult to determine at this point. We will know a lot more three years from now. It is just that you can make any sort of assumption on what you think the utilization is going to be and the pricing over the next two to three years, but that is difficult to predict at this time, and that clearly is what would drive the payback.

But to say this, we are still very comfortable where we are, where the industry is, what the opportunities are. We are clearly not running away from pressure pumping or horizontal completions or anything like that. We still love the business, we think it is an unbelievable opportunity, and the returns are quite high. Clearly, the payback is lower if you were to do an estimate today on what we took delivery of in the first quarter this year, compared to what we took delivery of in the first quarter of 2011. Clearly, the payback would be less, but we think it is going to be good returns for us over time.

John Daniel, Simmons & Company.

Couple housekeeping ones. First, I think you mentioned that 1.6 million shares remain available under the buyback plan. Is that correct?

John, it is 1.3 million.

1.3 million. And, we assume that you guys would look to increase that at some point this year?

At this point, there has been no specific discussion about that. But, as you know, it is easily accomplished.

Sure. From a modeling standpoint, that's all. One question on the pricing pressures. When we go back and look at the Q1 results, you had nice revenue growth, and on the surface appeared to not have been an issue, or at least impacted the numbers. Do you see this being more of a Q2 issue than Q1? Is that safe for me to assume that it was not much of an issue in Q1?

John, this is Jim. Your question obviously alludes to a sequential analysis [discussion] that has to be the answer. Q1 was better than Q4 for a number of reasons that Ben kind of alluded to. One of them, frankly, was that we just did a better job with logistics and raw materials. So, that would, I hate to say mask, but I'll just say it, that would mask any downward pricing pressure. We outperformed the rig count sequentially, so that would on the surface of it would make you think that there was not a pricing pressure problem, but that would not be -- that would not really be accurate.

If you held other factors constant, there was pricing pressure in first quarter that impacted us. Exactly how much it is, I honestly don't know. But, we see that as an issue. Maybe not when the weather gets cold again, but certainly for second quarter. And, obviously, we have a hard time quantifying it ourselves at this point.

On the coil tubing, I know you have been asked about 30 times today about pricing and it is good right now. But at this point, are customers still paying the standby rates that they were paying in 2011 to keep the coil tubing units or have you seen that start to moderate?

I think they are still paying the standby rates. And, what you're alluding to, I assume, is a horizontal completion that lasts five days and you need a coil tubing unit there on day one and day five. (Inaudible) supplying that, but that is what we are talking about. Yes, I believe that they are still paying the standby rates for those interim days.

Okay. Two last ones for me. Jim, any guidance on depreciation for Q2?

Yes, given our projections (multiple speakers) it is going to increase. It is going to increase by a little bit, call it $2 million or something.

Okay, and the last one, again, it is going to come back to pricing, so I hate to beat a dead horse. When you guys in the industry relocate equipment to basins that you have not been in before, is it safe to assume that to go in there and gain traction with the customers you have got to discount price to do so? Or, is that an incorrect assumption on my part?

All things being equal, probably, yes, but it would not be for a term of six months, it might be -- again, you just have to -- I would characterize it as, if you have heard our guys talk about it is we need to get -- you know, customers say we'd love to talk to you, but why don't you come to us after you have done a couple of jobs? So, we go find some jobs and maybe have to discount that to work sooner rather than later. But, then we are able to show them pictures and bring them on site. And, they can see that we can do what we say we can do, and we can proceed from there.

We can document that we have proppant and raw materials, and that's helpful too --

And, really that's only the Bakken. The other ones we are moving into areas we already (multiple speakers).

Fair enough, thanks again.

(Operator Instructions) We have no further questions in the queue at this time. Actually, we just have one. Ben Swomley, Morgan Stanley.

I just wanted to follow-up. You've been talking a little bit about how the costs have been evolving on the proppant side, and I'm wondering is that more -- where are you getting the biggest benefit? Is that from improving the transport and logistics supply chain? Or, is that more on the pricing side itself, for proppants?

Some of it is creating the availability, but some of it is how it is transported.

Okay. What specifically -- you mentioned that you're becoming more familiar with the different grades of proppants that are in demand by different customers. I'm wondering specifically, is there a grade that is in higher demand than another? Or, which type of proppant do you have the most difficulty procuring?

Ben, that's a hard one. We have some distance from it, but I think we can safely say that there are a lot of different grades of proppant, and it is almost like Chex Party Mix, sometimes. You try to figure out different kinds to use and customers' different preferences, and there are several outside influences that influence what kind of proppant you use.

I think resin-coated versus just regular white sand, that's right, is part of it. But clearly, the larger diameter proppant is more scarce, always has been. But sometimes again, the customer can be flexible and maybe not demand the proppant that is quite that large. Maybe they go to something that is a little more available. Again, that is just the flexibility and what customers are -- you may find a customer opportunity, but they want proppant that you don't currently have access to. So, you just have to work through those issues and seek out opportunities where you can match up what you have availability to, to what the customer needs and wants.

And, we have seen the customer re-engineer some of their jobs to allow for that proppant.

When you say that they have re-engineered some of their jobs, how do you mean? To use a different type of a proppant or a proppant that is more available?

Yes.

There are no further questions in the queue at this time. I will now turn the call back over to Mr. Jim Landers for any additional or closing remarks.

Okay, thank you, Jeremy. We appreciate everybody calling in this morning and appreciate all the questions. We enjoy the dialogue. Everybody have a good day, thank you.

That concludes today's conference. As a reminder, there will be a replay on the website within two hours. Thank you for your participation.