RPC Inc (RES) 2012 Q3 法說會逐字稿

Good morning and thank you for joining us for RPC Inc's third 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 call is being recorded. Jim will get us started by reading the forward-looking disclaimer. Please go ahead, sir.

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've made on this call could be forward-looking in nature, and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, along with our 2011 10K 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'll also 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're interested in seeing how it's calculated. If you have not received our press release for any reason, please visit our website again at www.rpc.net for 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 third quarter of 2012. Following my comments, Ben Palmer will discuss our financial results in more detail. During the third quarter we experienced a challenging operating environment, characterized by increasing competitive pressures as we moved and attempted to increase our equipment utilization in oil-directed basins. As a result, our revenues declined by 5.9% compared to the third quarter of 2011, and our net income declined by 20.5% compared to the same period last year.

The decline in natural gas directed drilling continues to impact our activity levels and pricing. Although the price of natural gas increased during the quarter, it remained below our customers' required minimum prices in the more service-intensive natural gas basins. In spite of these market challenges, we are pleased with the results we achieved this quarter and believe that they are a reflection of good execution on the part of our operational managers. Our CFO, Ben Palmer, will now review our financial results in detail for the third quarter of 2012.

Thank you, Rick. For the quarter ended September 30, 2012, revenues decreased 5.9% to $472.4 million, compared to $502.2 million in the prior year. These lower revenues resulted primarily from lower pricing and utilization in many of our service lines. EBITDA for the third quarter decreased 12.5% to $157.6 million, compared $180 million for the same period last year. Operating profit for the quarter decreased 23.9% to $102.4 million, compared to $134.5 million in the prior year. Our diluted earnings per share during the quarter were $0.30, a 21.1% decrease compared to $0.38 in the prior year. Cost of revenues decreased from $280 million in the third quarter of the prior year to $271.4 million in the third quarter of the current year. This is due to the variable nature of these expenses. Cost of revenues for the third quarter, as a percent of revenues, increased from 55.7% in the prior year to 57.4%, due primarily to lower pricing for our services and inefficiencies resulting from lower utilization of our equipment and personnel.

Selling, general and administrative expenses during the quarter were $43 million, an increase of 15.7% compared to $37.2 million in the prior year. SG&A cost, as a percentage of revenues, increased from 7.4% last year to 9.1% this year. This percentage increase was primarily due to increases in support staff headcount including those in new or expanding operational locations. Depreciation and amortization were $54.1 million for the third quarter, an increase of 16.4% compared to $46.5 million in the prior year. This increase is a result of additional equipment placed in service during the past 12 months.

Our Technical Services segment revenues decreased 6%. Operating profit for this segment decreased to $98.7 million, compared $127.9 million in the prior year. The decrease in revenues and operating profit was due to lower pricing for our services and lower equipment utilization within this segment, partially offset by contributions from a slightly larger fleet of revenue producing equipment.

Our third quarter revenues and operating profits in our Support Services segment decreased by 5.7% and 29.1%, respectively, due primarily to lower activity levels and pricing within the Rental Tools service line, which is the largest service line within this segment. On a sequential basis, RPC's consolidated revenues decreased from $500.1 million in the second quarter of 2012 to $472.4 million, a decrease of 5.5%. Revenues decreased as a result of increasingly competitive pricing and lower utilization in many of our service lines.

Cost of revenues decreased from $281.3 million in the second quarter of 2012 to $271.4 million. Cost of revenues as a percentage of revenues increased 120 basis points, from 56.2% in the second quarter of 2012 to 57.4% in the third quarter. This increase was primarily due to lower revenues coupled with negative leverage on certain direct operating expenses including employment costs. This partially offset by lower materials and supplies costs in pressure pumping, due to changes in job mix and price concessions from our raw materials vendors.

SG&A expenses as a percentage of revenues increased slightly from 8.6% to 9.1%. RPC's sequential EBITDA decreased 8.9%,p from $172.9 million in the second quarter to $157.6 million in the third quarter. And our EBITDA margin decreased 120 basis points from 34.6% to 33.4%.

Our Technical Services segment generated revenues of $436.1 million, 5.5% lower than prior-quarter revenues of $461.6 million, and an operating profit of $98.7 million compared to $112.4 million in the prior quarter. Our operating margin in this segment declined 170 basis points from 24.3% of revenues to 22.6% of revenues in the current quarter. Most of our service lines within this segment experienced lower pricing and utilization.

Revenues in our Support Services segment declined 5.5%, due primarily to lower activity in pricing, again in our Rental Tools business. Support Services operating profit declined to $10 million, compared to $12.5 million in the second quarter. Our operating margin in this segment declined 510 basis points, from 32.6% of revenues to 27.5% in the current quarter, due to lower pricing and utilization of our rental tools. RPC's pressure pumping fleet during the quarter remained unchanged at 683,000 hydraulic horse power. We currently have no additional pressure pumping horse power on order, although some ancillary equipment is expected to be delivered prior to year end.

Third quarter 2012 capital expenditures were $70 million. We forecast capital expenditures to be approximately $350 million for the full year of 2012. The majority of the remaining 2012 capital expenditures will relate to maintaining our existing fleet of equipment. RPC's outstanding debt under its credit facility, at the end of the third quarter, was $83.7 million. The balance declined by $78.3 million compared to the end of the second quarter, and our ratio of total debt to total capitalization is a 8.4%, which is the lowest percentage in the last six years. With that, I'll turn it back order Rick for a closing remark.

Thanks, Ben. Natural gas drilling activity remains near 13-year lows. As we approach the end of 2012, we remain cautious about increasing competition impacting the demand and pricing for our services. We are closely monitoring supply and demand dynamics of the natural gas market to ensure we are able to meet our customers' needs. During the fourth quarter, we are positioning two pressure pumping fleets from the natural gas basin to our existing locations that offer opportunities for higher activity levels. As a result, we believe these fleets will be more highly utilized, but subject to competitive pricing pressures. In this environment, our conservative capital structure gives us the ability to conduct our operations with a long-term perspective. Our diversified services and locations also provide us with the ability to deliver strategic solutions to our customers in a number of domestic markets. I'd like to thank you for joining us for RPC's conference call this morning, and at this time we will open the lines up to answer any questions you may have.

(Operator Instructions)

Jeff Spittel, Global Hunter Securities

Thanks. Good morning, guys.

Hi Jeff.

I'm doing well, how are you guys doing?

Good.

I guess if we could start out maybe just with a refresher on the geographical orientation of your pressure pumping crews right now. Having moved a lot of stuff around, could you maybe help us out with a little breakdown there?

Sure Jeff. This a Jim Landers. I will give it a start. Alphabetically, I guess we've got -- these are sort of round numbers because a few things are moving, but we've got about 13% in Appalachia. We've got -- and this is as of the end of the third quarter -- we've got about 35%, 36% in West Texas. We've got about 12% in East Texas. And the Eagle Ford Shale we've got about under the 16% or so. We have some fleets in -- we have assets in the Bakken now and that's about 4% or 5% of the pressure pumping fleet.

We have a rotational fleet that is kind of -- doesn't count because is not generating revenue at this point. Eastern Oklahoma, we have about 16% of the fleet. I'm sorry if I previously mentioned that. That should add up to 100%, when you have the rotation complete.

And then maybe if you could speak a little bit to -- in pressure pumping and maybe technical services in general, kind of a trajectory of margins as we went through the quarter and how maybe the September exit rate compared to where we were at the beginning of the quarter.

As you can imagine everything is very dynamic. I don't know -- to be honest, I'm not sure we kind of looked at it that particular way. I think it's kind of dangerous to live month to month. There was no particular trajectory I think in mind that I would say. We are clearly -- we've talked a lot here about the highly competitive environment that's certainly going to continue for at least a while longer. We are moving equipment around. We've been successful in doing that and getting the equipment working more than it has been or would otherwise be working, so we are pleased about that. But it will continue to be a struggle.

Thanks very much, guys. Nicely done this quarter.

Thank you Jeff.

John Daniel, Simmons and Company

Hi, guys. Good quarter again. I want to follow up with Jeff's question on the margins. I know you haven't looked at it on a month-by-month but, they're clearly holding up relatively well versus peers, is that attributable to favorable guar contract sourcing, and if not, what would you attribute it to? And given the seasonality and all of the chatter with holiday impacts in Q4 and lower rig activity, etc., how you see margins and Q4?

John, is a Jim. If anything, margins, as Ben just mentioned, are continuing to come under pressure. If anything, the ending run rate was lower than the full quarter margin, in terms of how we're doing, what we're doing. We've got some good customer relationships in some places. We have -- when we've moved equipment, we've been lucky that we've moved into places where we have operational bases and business going on already, so the disruption has been less than you might think. You know, Ben mentioned job mix, we were -- we used some different proppant that was lower cost. We were able to get some margin there. Yes, we've had some good experience with guar this year, so that may have helped as well in third quarter. It's kind of hard to quantify all that.

Yes, I think I'll elaborate on that. I think the guar certainly did help. I don't think that's a reflection of us -- our guys looking ahead and understanding the market in what's going on with that, I think that's something that will play well for us with customers that we are able to anticipate those kind of situations. We have a steady supply of guar. The price advantage certainly will not continue for the foreseeable future, but we will have a steady supply and that may or may not be an issue again for the industry, but we will be in very good shape. And I think that's comforting to existing and other potential customers. I think that will put us in a good position.

Also, I think -- we talked about sourcing of materials with things slowing down a bit. We've certainly gone back to many of our vendors asking for them to share in the current environment. We have been successful in doing that, so that's just sort of the basic blocking and tackling you do when things are softening up a bit and slowing down. We talked a lot about -- I think honestly about the competitive pressures in the pricing environment. I don't want to send a signal that we are overly concerned about it, but I just think it's a reality and something we will have to work through. We are hearing a lot of anecdotes from our guys that things are slowing down, and the holidays may impact us in the fourth quarter. But I think our experience is that many times that means that customers get busy with the new year. We're hearing a lot about people having out-spent their budgets, so they slow down over the holidays but many times that means they come back quicker and stronger than they would otherwise with the new year. So we are hopeful of that.

Okay, well I'm not trying to sound to bearish here, I'm just trying to understand. Because the guar is clearly a benefit and very good planning by you guys, but did that allow you to enjoy better utilization because of the favorable guar and that supported margins? I'm just trying to -- if you look at some of your competitors, which I'm sure you've done, but some of them have had a lot of choppiness in terms of significant margin declines quarter over quarter and I'm just trying to make sure we're realistic with our assumptions, in terms of margin expectations in Q4 and the next year.

I think the guar was a larger contributor probably. We can't look inside our competitors results, as we can our own, but my -- I wouldn't be surprised, based on their public comments that our guar did certainly contribute to our better margin. We'd also like to think -- and did that allow us to better compete for business? I would say the answer is no, we did not use that as an advantage to price our services lower than we would otherwise price them. We are acting like we are -- for purposes of negotiations, acting like we're paying market. We are not trying to take advantage of those lower prices other than it flowing through to the margin line. So my guess would be that probably is the largest contributor to the out-performance and just the basic block and tackling things we do all the time, trying to stay close to our customers and serving them well. And hopefully that serves us well in the long term.

Okay, thank you. One last one for me and then I'll step out. Some companies, as you guys know, have talked about stock pricing being a breakeven levels. Can you say -- do you have any fleets operating at those types of margins and would you price your fleets at those margins in order to maintain utilization? Or would you just choose stack the equipment?

John, it's Jim again. If it came down to pricing at below operational EBITDA, we wouldn't do it. Would not do it. We would idle equipment before we would work at below EBITDA margins at the operational level. And you're well aware of our return on investing capital criteria. We try to monitor that as much as we can and so we will be -- we are not going to work just to wear out equipment.

I don't know that we are to that point where we are having to pick and choose those situations. I'm not sure that we've seen that we've degraded to that point yet. Even have to be making those choices. Obviously you can go out and you can give the work away. But we're not sitting around the table trying to decide do we commit at those low of -- at pricing that's that low.

Fair enough.

Thanks John.

Matt Conlan, Wells Fargo Securities

Hey guys, again very commendable operational execution in a tough environment. I'll ask the housekeeper question here of, could you rundown what your revenue contributions were for pressure pumping, coil tubing and downhole tools in the quarter?

Yes, Matt, this is Jim. For the quarter? The pressure pumping was 51% of revenues. Coil tubing was 11% of revenues. And you ask downhole tools, was that one you asked?

Yes, please

That was 15% of revenues.

Okay. Terrific. Thank you very much. And on the -- I want to look at the price concessions you were getting. What raw materials, in particular, are you able to really negotiate lower pricing? I mean, is it sand? --

Well, Matt, yes, that's the right answer. As you know, there are many, many varieties of sand. And you couple that with the dynamics of lower activity, and some more sand plants that have come on during this year, and supply and demand. Just let the diligent purchaser negotiate some price possessions. So that's basically it.

So these are concessions on existing contracts?

With vendors, we are just kind of picking up nickels and dimes as we are able to negotiate a few things with vendors.

Okay. Okay. And the last question I have is on your dividend. There's the possibility of some very substantial changes to dividend taxes come January. Current laws would have them go from 15% to 42%. How would this affect your dividend strategy? And have you considered the possibility of front loading a year or two of future dividends into December?

We recognize the possibility that the dividend tax rate could go up. We certainly have considered it and looked into it and at this point, obviously as of today, have not determined that we are going to take that step. We're obviously very -- we do have a conservative balance sheet that is certainly something that we could fairly easily do. We do have restrictions under our revolving credit facility. We'd be able to pay out a fairly substantial amount under that, and/or ask for a waiver from our lenders, which I think we would be able to get. But at this point, we've decided not to front-load those dividends. So it provides us -- continue to provide us lots of flexibility to do other strategic things also that may, and I expect will, come along.

Okay, great. Thank you very much, guys.

Yes, thanks, Matt.

Neal Dingmann, SunTrust

Morning, gentlemen. Maybe Jim, for you or Ben, Just wondering, what you were saying about what customers are saying so far. I'm trying to get an idea of, when you look at the market right now, demand. What are you seeing? Are you seeing much as -- from customers, in the way as what they're expecting to spend going into '13? Or is it kind of normal or are you just -- are they kind of hesitating to tell you at this point, what spending patterns are going to be as we enter next year?

Neal, this is Jim. Just from spending time with our operational managers at RPC, I think fourth quarter, people are worried about where we are in the shoulder season with natural gas, and whether or not we are going to start with the cold winter so I think there's some uncertainty. It's not like natural gas drilling can get a whole lot lower, but whether or not any of it will pick up in fourth quarter is uncertain, and I guess doubtful at this point. And people are saying the same things about having spent their budget and with natural gas prices low, you're not generating cash flow to kind of overrun your budget. So between that and then whatever might happen with holidays and that sort of thing, fourth quarter could have just -- I won't say an accentuated seasonal slowdown, but certainly the seasonal slowdown that you would expect. As for 2013, I don't think we have any really good market data on that right now.

We certainly aren't not here -- we're not, at this point, expecting that things are coming to any sort of rapid halt or people are making rash significant decisions to change their activity levels or direction of their spending. But we are hearing, I think, more about people say they are expecting to get busy next year. Now we all read all the articles and peoples' prediction about what's going to happen or could happen to natural gas prices. We are certainly -- we would love to see those pick back up again and activities in those basins begin to increase. So we are hopeful of that, and I think some customers are talking about that possibility in the not-too-distant future.

Let me take a moment to maybe mention something about margins that might be helpful, too, when you look at our results. We talked about job mix. A lot of that is lower price proppant. More as we move out of some of these high-pressure natural gas basins, the type of proppant, many times in those basins are really high-priced. And we don't always enjoy as large a margin in that kind of work, than we do in some of the less high-pressure work. So that is -- that's a benefit for us for the quarter and will continue to be, as long as we're doing less work in the natural gas basins.

Also, that type of work -- moving away from that type of work, is less difficult on our equipment. You'll see that on our -- a loss on disposition line, so were not tearing the equipment up quite as quickly. So that is a positive benefit. And again, as long as we are directed more toward the oily basins, I think that will be a trend that will continue as well. So that is kind of a -- a little bit of a tailwind or some sort of a cushion underneath the slowdown, as there are some negatives associated with that high-pressure very intense natural gas work.

Hey, Ben, let me add something onto that as far as, you all had a pretty nice downward position, I don't want to say down, but a solid position in the Permian because of your history there. Are you seeing, what I would call, abnormal pressure there because of all the newer players and even the larger players bringing in more equipment? I don't know if I would call it business as normal, but how would you categorize that core area for you all right now?

Well I'll tell you, it's certainly getting more competitive and we knew that would be the case. We too, have moved additional equipment into that area. And it's a net positive for us, what's happening there and what we believe will happen going forward. The other thing that's really going to help in the Permian Basin, is the increase in the horizontal drilling. Which, as we all know, requires a lot more equipment and has the potential to generate a lot more revenue and cash flow. So, to the extent pricing is becoming more under pressure, again it's offset somewhat by increasing activities associated with horizontal drilling. So we think we are in as good a position as anybody, due to our reputation in West Texas and in other areas that we think will get our share of that work. And we hope that trend will continue with the horizontal drilling and that should help also, I think, to cushion the downside a bit.

And then last one, could be either -- just for you or Jim. Just on the Bakken, obviously now it's nice to have a presence in there. 5%, I think is what Jim said. Do you anticipate continued growth there? Is there a lot of expansion potential here either in the near term? Or how do you see that sort of playing out over the next few quarters?

Yes, Neal, as you know, we've been in the Bakken for a long time with other service lines. Just got there with pressure pumping. So we need to prove ourselves there in the pressure pumping market. I think the answer to that maybe hinges on the price of oil. There's a differential in the Bakken because of transportation and other reasons. So it would be nice to see oil head back up a little more before we feel a whole lot better about that market, but we're certainly -- we're talking to a couple people about contracts which we'd like to do, if we can. And so we might be moving some more equipment there.

We have begun to do work there so that's good, but it is, again, it is very competitive and I think it will continue to be. But we've made some nice progress and we could have a real opportunity there over the next couple of quarters.

That's great color. Thank you all.

Thanks, Neal.

Luke Lemoine, Capital One Southcoast

Hi. Good morning.

Hey, Luke.

Jim, in response to Jeff's question about the geographic locations of your horsepower, you said about 16% was in Oklahoma. Were you just lumping your Fayetteville into that as well? Or are you out of the Fayetteville at this point?

I was -- we're out of the Fayetteville at this point.

Okay. And then, in technical services, can you just kind of -- I guess within pressure pumping, really, I guess, depending on rounding, your revenues declined $20 million to $25 million quarter on quarter. Can you just kind of put in order, the magnitude of its impacts, between lower spot utilization, maybe term crews going to minimum utilization and pricing?

Yes, Luke, really good question. Your numbers are approximately right on the sequential decline. We put some more horsepower to work in the Bakken, so that was an increase. Beyond that, it's difficult to quantify the decline. I would say that qualitatively, more of the decline came from -- it's probably evenly split between price and utilization. We have some 24-hour work become 12-hour work. Still a good contract and a good customer, but they were certainly -- be lower utilization there. Spot market pricing declined during the third quarter. Everybody knows that. A little more of our equipment now is on -- is in the spot market, so it's probably evenly split. That's the best answer I can give.

Okay. And then for 4Q, how does the backlog on the Bakken crew look right now?

Backlog, as in work that they have?

Yes. How much work. Right.

Well, they're busy. So the crew is being utilized.

Okay. And then you also said you are moving two fleets in 4Q. Where are those fleets coming from and where are they going?

Two fleets going from the Fayetteville. One is going to Oklahoma, which can work from the panhandle of Texas, north and east of there to the Mississippi line, over more into eastern Oklahoma, so once we will go there. The other fleet will go to the Permian in the fourth quarter.

Okay. But those were already in the adjusted split you gave, right? On your geographic locations?

Yes.

Okay. And then, I guess, for those crews, should we think that maybe they're off payroll for two to four weeks in 4Q?

In other words, being not productive?

Yes. Or not earning revenue.

Yes, that's decent, I think.

Okay. All right, great. That's it for me, thanks.

All right Luke, thanks.

Andrea Sharkey, Gabelli company

Hi. Good morning.

Good morning, Andrea.

I was wondering, maybe just to follow on the previous questions about spot pricing. I was wondering how many of your crews now will be going from previously booked term contracts to the spot market over, say, the next three months, six months?

I think we talked -- Andrea, this is Ben. We mentioned last quarter that about a third of our pressure pumping equipment was under contract last quarter. That's down to about 25%. And I think over the next six months, that's probably going to go -- will certainly continue to decline, in terms of these traditional protected minimum contracts. We see -- expect and are already experiencing that we are entering into more pricing agreements, but they don't include some of the potentially favorable terms of some of the earlier contracts. So that number of 25% will trend down over the next three to six months.

Okay, great, thanks. And then, in terms of what you're seeing in spot pricing, and obviously it's probably different across basins, but we know it declined in Q3. How much more pressure are you seeing now in October? Are you seeing that continuing to decline? Is it at a more rapid rate? Or is it at the same sort of decline rate that is been?

Andrea, this is Jim. I would say if you were to look at spot pricing in October, it's probably continuing to decline, but declining at a lower rate.

Okay, great. That's helpful. And then, maybe this is too early stages, but last cycle you guys are kind of a first mover on equipment additions and it worked out well for you. So, looking forward, when the market does come back, I guess, what would you look to see before you would start thinking about adding new equipment?

Natural gas prices at $4 would be really the big one. And the belief that, that would continue. (laughter) You know, I'm not trying to be flippant. I think that's the thing. Natural gas drilling is at 13-year low. And you've heard it so many times from us and others, but we need a cold winter. And we need natural gas prices to be high so that the service-intensive shale plays get to work. Service-intensive plays are good for us because we're in the pressure pumping business. That sort of thing.

Not a bad question, but some hit -- different things at different times that you see and anticipate. So it's hard to know at this point. But as Jim said, certainly prices trending up, discussions with customers and things like that. All of that is taken into consideration to make those decisions.

Great. And would you be opportunistic if there were maybe some smaller competitors out there that were maybe in trouble and were looking to sell equipment? Would you look at doing something like that if the opportunity arose?

Those opportunities to come along occasionally. We have taken a look, but again, we are sticking -- we'll be consistently sticking to our return criteria. And usually when multiple people are scrambling for an opportunity like that, usually that type of pricing doesn't meet our return criteria. But we will certainly look at it. There may be particular situations that somebody, for some reason, wants to associate themselves with us as a company, rather than someone else. So that might provide a unique opportunity. And certainly we're always looking and are interested. Again, where it's a good deal for us and obviously it needs to be a good deal for the seller too, but a good deal for us that can meet or exceed, our return requirements.

Great, thanks a lot.

Thanks, Andrea.

Doug Garber, Dahlman Rose

Good morning guys.

Hey, Doug.

I wanted to ask you about your coiled tubing operations, what you are seeing there. And also a housekeeping question of how many units you have at the end of the quarter how many you expect to have by the end of the year?

Okay, Doug, this is Jim. 51 units at the end of third quarter, coiled tubing units. And anticipate having 53 at the end of the year. One more to be delivered early in Q1 of 2013. What we are seeing -- revenue declines -- obvi -- well, not obviously, but we disclosed revenue declines, more -- probably more utilization than pricing at this point, that's driving the decline. We're not seeing pricing declines, per se, that much. You know there's a big mix -- there's a mix between working time and standby time in the coiled tubing markets and we are seeing some -- maybe more standby time in coiled tubing but pricing, per se, for those services is not declining as much as some people would think, but there have been more utilization declines at this point.

We're also seeing though -- this is Ben -- we are seeing a little bit of improvement in activity in the smaller bore coiled tubing units, which is what we'll mix.

And what's driving the smaller bore? Is that more maintenance than completion?

Correct, yes.

And one other question. Maybe I'll follow-up off-line with you, Jim. It looks like the other technical service revenue, not the pressure pumping, not the coiled tubing, but it looks like that's been increasing each quarter just a little bit, throughout the year. What's driving that?

That would be our downhole tools service line which is in -- which we report within the Technical Services Segment.

Got you. One other question, I guess, CapEx for next year. What are you anticipating? And can you also remind us of your maintenance CapEx as well.

Yes, next -- obviously we're still putting our plan together for next year, but I think last quarter we said we would spend less than the $350 million that we expect to spend this year. That's still the case. How much less, we will have to wait and see. But if $250 million to $300 million is probably what we would expect, given what we know right now. Maintenance CapEx has probably been one third maintenance, two thirds growth this year. And it may approach something more like 50/50 or 60/40 maintenance versus growth next year. Because we are --

Ah --

-- we are in the middle -- excuse me for interrupting -- we are in the middle of this refurbishment program of our pressure pumping fleet and so that has been ongoing the latter half of this year, and will take place throughout 2013.

So when you're saying the growth CapEx, that is the refurbishment of the frac fleets. Is there anything else that you're doing growth CapEx for?

No, no. The refurbishment of the fleet would be maintenance.

So what's the growth CapEx of roughly $100 million? What are you aiming to add capital?

Not a reasonable question, but not really prepared to add much color on that at this point.

Of course, all right. Thank you, guys. I'll turn it back.

All right, Doug, thanks.

Rhett Carter, Tudor, Pickering and Holt

Good morning, guys.

Good morning. Hi, Rhett.

Notice you guys paid down some debt in the quarter. I just wanted to see, with excess cash flow coming on, is reducing debt still the number one priority for your cash?

Certainly day-to-day it is. But we still look at other things. We have done some share repurchases throughout the year that's still certainly a possibility. But debt, yes, it remains a priority.

Okay. And then just talking about some of your competitors potentially operating equipment below EBITDA breakeven, are you seeing any equipment come to market that's being offered for sale that's below book value at this point?

Rhett, this is Jim. Not yet, and I phrase it that way because their discussions -- there's some folks on the brink with their debt covenants or whatever. You say below book value, that's based on one person's accounting policy. I think below market value -- then you kind of reset market value, I guess, but -- we have not seen it yet. Could happen though.

Okay thank you very much.

Thanks

Robert McKenzie, FBR Capital Markets.

Good morning, guys. It's Megan Repine filling in for Rob. Most of my questions --

Go ahead, Megan

Hey. Most of my questions have been asked at this point, but many of your larger competitors this quarter, have touted certain technological advances in areas like the Eagle Ford. Have you guys seen technology driving a change in the competitive dynamics there? And if so, what are you guys doing to counter this?

There is lots of discussion about different technologies. We are always watchful. I don't know that there's anything that's going to tremendously change the competitive landscape in the short term. Seems like each downturn there's always discussions of new technologies that try to get people excited about other things, other than competitive pricing and weaker activity levels. But certainly technology is important for the industry and we are certainly monitoring that closely. But at this time we don't think there's anything that's of such significance, again, that it's really going to bend the curve. There's a few things we are doing. There are some opportunities to license some of that technology that we have explored and looked into. But again, we don't think it's a huge game changer, but something we certainly need to be mindful of and monitor.

Okay. And then, you guys had some working capital improvements during the quarter, Can you talk to any specific initiatives that you are taking to drive that improvement, and what we should expect going forward?

Nothing in particular other than just the things we do every day. We've had very good luck with our receivables collection. That was the largest driver. Not yet. Not doing anything different than staying focused on it. That's come down with kind of a slower, lower activity lower revenues. Inventory is something with the raw material initiatives and so forth, that we have taking place in some selective growth areas where we've had to build up inventory. You will see that inventory increase. The pre-paid also came down. Our other current assets came down. Those two accounts sort of interrelate. But we are having to make an investments in some critical materials in order to secure those. But nothing in particular, other than what we focus on all the time.

Okay, great. Thanks for taking my questions.

All right, Megan, thanks.

Michael Marino, Stephens Inc.

Thanks, guys. You guys have answered most of my questions, but just wanted to get some clarification on a couple things on the pumping side. One, do you guys have any idle crews or have you idled any fleets to date?

None that we've stacked, or whatever you want to call it. At this moment, I'm sure there are some crews that are sure idle. (laughter) But we have not pushed anybody to the side and said you are not going to work for an extended periods time.

Okay. And then on the fleets you're moving into oily basins, do you have work lined up for those or you're kind of getting it lined up right now?

More the latter than the former, I would say. Some of it is heading towards some availability of work. But it'll take some work to get it consistently working and get our utilization up. That is, I think for us right now, it is the biggest focus of for everybody is to get the equipment working at the best prices that we can. And we still feel confident that these moves will be a net positive over the coming months. But we will just have to make adjustments as we need to, over the next quarter or two. We just respond to what's there. We just respond to what we see.

Okay, but they weren't customer driven moves. They're more RPC moves.

Yes, not necessarily. Not specifically customers. No absolute opportunities.

Okay, thanks.

Thanks, Michael

Dave Thomas, High Five Capital

Hey, guys, thanks for taking the question. Just circling back on the guar issue earlier, can you talk about your contracts that have covered you for this year. When do they expire? Hello?

Yes, we are here, Dave. I think, maybe the better way of saying it, is that you have to look at the harvest season for guar. We need to answer this way, we are covered for right now. We are certainly covered for third quarter, we are covered for fourth quarter. We have some good supply relationships in place. And, you know the harvest -- the guar harvest is starting in November. So we feel like we will be covered at good rates, good market competitive prices for 2013, as well.

And so the contracts you guys signed last year, when they re-price, that's going to be in the fourth quarter this year or is it in Q1?

Probably Q1.

Okay. And is there any way we can just -- thinking through -- helping us kind of quantify or understand the impact that's had the beneficial impact on margins. Is there a that we could think about -- if guar was -- if you'd been buying it at market price, what margins would be relative to what you guys of done? Or is there any other way you can think of helping us quantify the benefit, just as we look into '13?

Reasonable question, but that's pretty detailed. I mentioned earlier that probably a big part of our, it's been described, our out-performance versus our customers. Probably on the margin line a lot of that, I would say a good piece of that, probably related to guar. We have clearly had a big advantage in the second and the third quarter. I think there will be some advantage in the fourth quarter but based on just the timing of purchases and everything else, I think we will be going into '13, we will probably still have some advantage. But it won't be as large as it has been in the second and third quarter. So as such as a price advantage, we're going to have the advantage of the very stable, known availability to guar. So that takes at least one worry away from having that critical supply available. And comforting to our customers, as well, to know that we have it available. So I would say, again, the benefit will still -- we expect there will be some benefit into '13, but it will be much less so than it has been here in 2012.

Okay, great. Thanks very much.

Thanks, Dave.

(Operator Instructions)

John Daniel, Simmons and Company

Hey, guys, thanks for putting me back in. I'm probably over-interpreting something, but in response to the question on the dividend, you guys said that you wanted to be prepared for other strategic things that may come along, but then you also sort of pushed back the idea of being acquisitive. And I'm just curious if you could elaborate on what the strategic things might be?

John, this is Jim. Yes, you might be reading a little bit into that.

Okay.

We always want to have dry powder to do some acquisitions or do a big opportunistic strategic acquisition. We are not overly acquisitive. We don't like the winner's curves that you get from auctions. But sometimes people are interested in us, and you can look at our history, interested in us because they want a good corporate home that's maybe different from some of the other frothiness that you see in the oil field service business. So we always want to be available to, always want to be ready. Something like that. That's all.

Got it. That was more -- okay, fair enough. That's what I figured it was, I just wanted to make -- confirm. And then, not to beat a dead horse, because there's been lots of talk on guar. Because you guys did a good job managing this. But as you look at where your guar contact price is, and I'm not asking you to disclose it, but -- and then versus where guar spot prices are, is there a material difference between those two?

Yes I think that's why we have better margins.

Yes.

No, but I know that going back, but guar has come off quite a bit right? So I'm talking about --

It blacked out. That's less than a benefit. It's still a benefit, but it's declining into the fourth quarter, and into 2013.

Fair enough, but spot price prices for guar are still higher than what your contract -- where you sourced it at? Back in the good old days.

That's correct.

And last one for me is on the refurbishment program that you talked about, when you go through this process on the frac fleet, are you going out and buying a brand new -- an entirely brand new unit to replace something or are you just going out and buying component parts and then doing the rework in-house?

We are currently outsourcing it and so you go through an inspection process. What components you need to change out, Which components maybe need nothing, and which components need some rework. But we -- the intention was, and the early results are, that what we come away with, with an attractive, relative investment, is something that's usually is almost as good as new. With only a percentage of investment of a new units

Got it. Okay. I'm a bit overly anal on this and you guys have 683,000 horsepower and there's nothing on order, I just wanted to make sure there's not 40,000 horsepower ordered, new units that then you're going to cannibalize or retire.

No, not going to do it that way, John.

Reasonable question.

It's our existing fleet. We don't expect it -- we are big on maintaining our equipment and keeping it up. Some of these units that we are working on have had components changed out multiple times. This process goes through -- and we don't expect any particular units going to be just junk and thrown away. We are going to end up, if we have no additional purchases of brand new units at the end of this program, we're going to have 683,000 hydraulic horse powers.

And we'd already bought replacement pumps, to be able to recycle in, while the old ones are being refurbished.

Yes, okay. That's all I had, guys, Thanks again for putting me back in the queue. Sure, John. Thanks, John, appreciate your interest.

Doug Garber, Dahlman Rose

Hi, guys. I wanted to follow-up on the refurbishment program, and what you're seeing in terms of in pricing from vendors for various components, whether it's fluid ends, or the pump, or the transmission, or the engine. As you refurbished them, it seems like there's a lot of capacity out there and there are not a lot of people buying equipment next year. I just wanted to see if you are getting good pricing or if pricing has come down from where it was a year or two ago?

Yes, Doug, this is Jim. Good question. We kind of surveyed our operation -- I mean the folks who are responsible for purchasing. We think that component costs are down, probably mid-single-digit percentages maybe as much as 10%, compared to this time last year.

All right. Thanks, guys.

Thanks Doug.

We have no further questions in the queue. Please go ahead, Mr. Landers.

Okay, great. This is Jim Landers. I appreciate everybody calling in. We enjoyed the discussion. Hope everyone has a good day. Thanks again.

This does conclude today's conference call. Thank you all for your participation.