RPC Inc (RES) 2014 Q4 法說會逐字稿

Good day and welcome to the RPC, Incorporated fourth quarter 2014 earnings conference call. Today's conference is being recorded. And at this time, I would like to turn the call over to Jim for the disclaimer. Please go ahead.

Good morning, everybody. This is the RPC earnings conference call. We have Rick Hubbell today, who's our President and CEO, and Ben Palmer, our Chief Financial Officer. I'm Jim Landers, the Vice President of Corporate Finance.

Before we start our call today, I want to remind you that in order to talk about our company, we are going to mention a few things that are not historical facts. Some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release, issued today, along with our 2013 10-K and other public filings that outline those risks, all of which can be found on RPC's website, at www.rpc.net.

I also need to tell you that in today's earnings release and perhaps in our conference call, we'll 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're also required to use EBITDA to report compliance with financial covenants under our revolving credit facility.

Our press release and our website provide a reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. Please review that disclosure if you'd like to see how we calculate it. If you've not received a press release and would like one, please visit our website -- it's www.rpc.net -- for a copy.

I will now turn the call over to our President and CEO Rick Hubbell.

Thanks, Jim. This morning we issued our earnings press release for RPC's fourth quarter of 2014. Our revenues, which represented a quarterly record for RPC, increased due to higher activity levels and service intensity in our major service lines and a slightly larger fleet of revenue-producing equipment.

RPC's revenue for the quarter increased 30% compared to the fourth quarter of 2013, and approximately 2% sequentially. The sequential increase occurred in spite of holidays and other seasonal factors typically experienced during this time of year. Fourth quarter operating profit, net income and EBITDA all improved both sequentially and year-over-year. Quarterly EBITDA represented a record, as well.

Yesterday, the Board of Directors declared a quarterly dividend of $0.105 per share. Earlier this month, RPC announced the repurchase of more than 2 million shares of stock during the fourth quarter. This amount of cash used to repurchase this stock was the most we have invested in any quarter since the inception of the repurchase program 16 years ago. In fact, our quarterly repurchase was greater than any annual period in our history.

CFO Ben Palmer will now review our financial results in more detail, after which I will have a few comments about the current difficult market conditions.

Thank you, Rick.

For the fourth quarter, revenues increased to a record $632.2 million, compared to $487 million in the prior year. These higher revenues resulted primarily from increased service intensity in pressure pumping, coupled with slightly larger fleet of pressure pumping equipment and increased activity levels in several other service lines, including coil tubing.

EBITDA for the fourth quarter increased by 56.5% to $187 million, compared to $119.4 million for the same period last year. Operating profit for the quarter increased 93.9% to $125 million, compared to $64.5 million the prior year. Our diluted earnings per share were $0.36, compared to $0.17 in the prior year.

Our record revenues during the quarter were driven by a continued increase in activity levels and service intensive work. Pressure pumping stage counts and proppant volumes per stage continued to increase significantly, a trend that benefited RPC's results.

Cost of revenues increased from $318.9 million in the fourth quarter of the prior year to $390.5 million in the current year, due primarily to higher activity levels. Cost of revenues as a percentage of revenues decreased from 65.5% in the prior year to 61.8%, due to favorable pressure pumping job mix and improved supply chain sourcing and logistics.

Selling, general and administrative expenses increased from $45.5 million in the fourth quarter of the prior year to $50.9 million this year. SG&A expenses as a percentage of revenues decreased from 9.4% last year to 8.1% this year, due to leverage of relatively fixed costs over higher revenues.

Depreciation and amortization were $61.6 million during the fourth quarter of 2014, an increase of 13.3% compared to $54.3 million in the prior year. Net loss of disposition of assets increased from $3.7 million in the fourth quarter of the prior year to $4.2 million, as RPC's completion work continued to transition from vertical to horizontal wells. Operating profit for the fourth quarter of 2014 was $125 million, or 19.8% of revenues, compared to $64.5 million, or 13.2% in the prior year.

Our Technical Services segment revenues for the quarter increased 30.6% compared to the prior year. Operating profit increased 87.3% to $122.5 million, or 20.7% of revenues, compared to $65.4 million, or 14.4% of revenues in the prior year. Revenues increased primarily due to higher activity levels, and operating profit increased primarily due to improved equipment and personnel utilization, coupled with SG&A cost leverage.

Our fourth quarter Support Services segment revenues increased 19.6% and operating profit increased 65% compared to the same period in the prior year. This improvement was due primarily to higher activity levels and improved job mix within the rental tool service line, as well as higher activity levels in the other service lines which comprise this segment.

On a sequential basis, RPC's fourth quarter revenues increased to $632.2 million from $620.7 million in the third quarter. Cost of revenues decreased from $398.3 million to $390.55 million, due to improved job mix and better material sourcing and logistics. Cost of revenues as a percentage of revenues decreased from 64.2% in the third quarter to 61.8% in the fourth quarter.

SG&A expenses as a percentage of revenues were essentially unchanged, from 8.2% in the prior quarter to 8.1% in the fourth quarter. RPC's operating margin improved from 17.2% of revenues in the third quarter to19.8% of revenues in the fourth quarter. RPC's effective tax rate decreased slightly to 37.8%, compared to 38.6% in the prior year -- prior quarter.

RPC's sequential EBITDA increased $187 million in the fourth quarter from $163.4 million, while the EBITDA margin increased to 29.6% from 26.3%. Our Technical Services segment generated revenues of $592.2 million, 2.6% higher than revenues of $576.6 million in the prior quarter. Operating profit was $122.5 million, compared to $102.9 million.

Our operating margin in this segment increased to 20.7% of revenues from 17.8%. Revenues increased primarily due to higher activity levels in the service lines within this segment, and operating profit margin increased due to favorable job mix and improved supply chain sourcing and logistics.

Revenues in our Support Services segment declined 8.6%, due to decreased activity in rental tools. Support Services operating profit decreased to $11.3 million in the fourth quarter, compared to $14.7 million. Our operating margin in this segment was 28.3% in the fourth quarter, compared to 33.7%.

RPC's pressure pumping fleet increased by 47,000 hydraulic horsepower during the quarter, to 798,000. Most of this equipment went to work in the Eagle Ford shale and in the Permian Basin.

Fourth quarter 2014 capital expenditures were $134 million. A large percentage of these capital expenditures were directed towards our pressure pumping service line. RPC's full-year 2015 capital expenditures are currently projected to be approximately $200 million, of which $70 million relates to completing our pressure pumping expansion. The majority of the remainder will be directed towards maintenance capital expenditures. By the end of the first quarter of 2015, our total available horsepower will be 920,000.

RPC's outstanding debt under its credit facility at December 31, 2014 was $224.5 million, an increase of $72.5 million compared to the end of the third quarter. This increase was due primarily to capital expenditures and working capital requirements associated with higher activity levels. Our ratio of debt to total capitalization was 17.2%.

With that, I'll now turn it back over to Rick for some closing remarks.

Thanks, Ben.

As we begin 2015, we are experiencing another industry downturn, the severity and duration of which are not yet known. RPC's financial results in the coming months will be negatively impacted by the combination of lower pricing and lower activity levels. We are always prepared for these potential downturns by maintaining a strong financial position and having contingency plans.

Currently, we are in the process of reducing expenses and scrutinizing all capital expenditures; however, we will continue to invest in our existing equipment and other critical business processes to maintain a high level of service to our customers. RPC has a diversified customer base, and we think the majority of our customers are financially strong enough to weather this difficult period.

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

(Operator Instructions)

James West, ISI Group.

Rick, I know your customers are asking for pricing concessions. What's the magnitude of the concessions that they're seeking right now? And what are they achieving?

We've heard everything from 20% to 25%. And we are negotiating something less and then to re-examine it in a month or so.

Okay. Great.

And then how are you guys positioned from a backlog standpoint right now? How much of your equipment is locked up for the next few quarters?

James, this is Jim.

Backlog is not a word that we're using right now. (Laughter) Utilization and order commitments are very fluid at this point. In December, we had visibility through February. Now in January, we have much less visibility. So it is extremely hard to say. But utilization is a lot lower in first quarter than it was in fourth quarter. And that's honestly all we know to say at this point.

Commitment -- a lot of discussions with customers taking place right now, coordinating with them; and then planning, trying to determine what their plans are and what their expectations are and what our expectations are. So that's a lot of what's going on right now. And so, as Jim said, it's very fluid presently.

Okay. Fair enough. Thanks, guys.

Sure. Thanks, James.

Rob MacKenzie, Iberia Capital.

My question builds on James' a little bit. As operators seek to reduce their well costs, clearly pricing's a component, but what about job redesign? We've been hearing from a number of folks that we're seeing big slick water jobs sized down into hybrid jobs, cutting sand concentrations. Are you seeing much of that, as operators try to cut their well costs?

Rob, this is Jim -- and we all may have some input here -- but, yes. And thanks for the question.

When customers say they want price concessions, price cuts, we come back and say, well, you're looking for cost reductions, and there are other things in our price book. And we saw some of this in fourth quarter. In fact, you can see it in the income statement. We began using different job designs, different kinds of proppant -- cheaper proppant we got people -- and in cooperation with our customers we're able to use some cheaper proppant, which is helpful. I think at this point we haven't yet seen less proppant per stage, although some of our peers have talked about that. So that may be a trend that you see in 2015. But in general, job design has helped our customers achieve some cost reductions and keep working.

Okay. And any guidance you can give us? We've had a slew of E&P budget cuts announced, including some from some of your larger customers. How do you guys think about existing fleets going idle? And potentially how you find new homes for them?

Well, that's a great question. As I indicated earlier, there's lots of discussions going on right now, and a lot of people are hustling and fleets will be moving. There will be a lot of volatility going forward. But quite honestly, it's a little bit early to predict where it's going to be and exactly what's going to happen. But I think that will be the case. There will be fleets moving around between customers and being idled for some period of time and just working to keep them as busy as we can.

A reasonable question, but difficult to see at this point in time

And fortunately, or unfortunately, we have seen these cycles in the past, and so we are well equipped to handle them.

Great. Thank you.

And Jim, if you wouldn't mind, could you give us the revenue breakdown of the sub segments with Technical Services?

Sure, Rob. Absolutely. This is -- for everyone's knowledge -- this is fourth quarter, and the percentages I'm about to give are percentages of RPC's consolidated revenue, not by our segments.

The largest segment is pressure pumping -- or the largest service line, pressure pumping -- at about 57% of revenue. Second is through tubing solutions, which is our downhole motors and tool service line. That's about 15.5%. Coiled tubing, a little over 9%; rental tools, about 4%; nitrogen, a similar 4%, as a percentage of total.

Thank you. I'll turn it back.

Marc Bianchi, Cowen and Company.

I was hoping we could talk through the margin progression. I know visibility isn't great, but just thinking about the moving parts and what you're trying to do on the cost management side -- how should we think about the [decre] to margins here for a dollar of revenue decline, as we start to decline in the first quarter? Maybe relative to prior periods? Or any help you can offer?

Mark, this is Jim. Great question.

We are trying to look at this downturn and trying to compare it to 2008-09, or 2001-02. As Rick says, we've been in this business a long time.

It's hard to offer much guidance. A positive about RPC's metrics are that SG&A is now a much lower percentage of our revenue than it has been in the past. So there's that positive. But of course, the main thing has to do with utilization and pricing. Pricing is clearly going to decline. Some expenses are going to decline naturally, but with focus, they'll decline a lot better. And so I'm talking about things like overtime for labor, proppant -- our long-running discussion, we believe the price of proppant is going to decline. We're going to continue to say that. The price of guar has declined and probably will continue to. Diesel fuel -- goes without saying, but the price of diesel fuel is falling, one assumes, and it's happening. And we use a lot of diesel fuel. We also bill our customers for diesel fuel. So that helps, as well.

One question is the nature of this downturn -- is the work that remains for everyone going to be more service-intensive? And there are probably some puts and takes on that one, as well. But margin decrements are going to be maybe similar to 2008-09, although we lost money in 2009. But we have now a lower SG&A as a percentage of revenue.

So that's what we're modeling at this point. And I wish we had more specifics for you.

It's tough to have a lot of visibility with the pricing discussion being so fluid. Maybe just thinking through the other businesses beside pressure pumping -- we get a lot of commentary about pressure pumping, but sure, it's only 57% of your business. Can you talk about the other business lines and how those maybe behave differently than pressure pumping, as your customers curtail their activity, from both a revenue and margin perspective?

Sure. And this might be helpful. It's certainly something that we look at and think about internally. We've seen our rental tools service line be impacted first by this downturn. And that makes sense, doesn't it, since that's drilling-related. Pressure pumping is coming next, as completions slow down. And then declines in our coiled tubing and through tubing service lines are probably trailing the pressure pumping decline, because of where they fit in the well's life cycle. We had a good fourth quarter in coiled tubing, as customers worked to have wells completed, and that's carrying over into 2015.

So nothing is insulated from this downturn, but there is some progression through the cycle that I think some of these service lines behave a bit differently.

Is there any argument that the margins for those businesses should be less volatile than pressure pumping, or would they be pretty similar?

Pretty similar, with the exception of rental tools. Rental tools is a high fixed-cost, low variable-cost business, so those margins could actually decline a bit more. The others have a high variable-cost component. But again, margin declines are coming in all these service lines.

Got it. Thanks, gentlemen. I'll turn it back.

Chase Mulvehill, SunTrust.

Quick question on sand prices. What are you seeing for leading edge pricing for sand?

Chase, this is Jim.

We'll try to answer that question the best we can. There are so many different kinds of sand and variables that go on. And with all those caveats in mind that everyone on this call understands, we saw our cost for raw, for natural sand decline about 5% in the fourth quarter compared to the third quarter. Based on indications we have, including from our own internal sourcing, we think those declines are going to continue.

So are we going to see sequential declines of mid-single digits in the first quarter? I think that's very reasonable. I don't know if it will be more than that or not. But I think that's a reasonable way to look at it.

And we all know there's a lot of different components to the cost of the sand that's ultimately delivered to the region where the work's being performed and ultimately to the well site. With fuel prices coming down, hopefully we'll be able to realize the benefit of lower fuel surcharges from the rails. That hasn't happened yet, but hopefully that will be coming. And also on the trucking side, as well. But again, all that's very difficult to formulate exactly, but we're working on trying to realize those benefits as soon as we can.

Okay. So the 20% to 25% price reduction that your customers are going for -- that includes consumables, right? You're just basically talking a dollar per stage, if we're thinking about completions?

Yes, that goes into the matrix. That's right.

Okay. And a quick follow-up: how much of your fourth-quarter horsepower was doing horizontal completions versus vertical? And what is required to increase -- other than increasing the horsepower -- to convert more fleets to horizontal from vertical?

Okay. Let's see. 24-hour work was in the 45% range for the fourth quarter. I know it's not answering your question, but it is an answer. In terms of horizontal versus vertical, it was probably -- and this is a guess, we don't have it in front of us -- but probably 70% of our work was unconventional during the fourth quarter.

I think in general, Chase, the idea is that if you are doing unconventional work, the fleet size itself does not have to be bigger, but because it's on site longer, that's effectively increasing the utilization requirements.

Okay. That's all I have. Thank you.

John Daniel, Simmons & Company.

Thank you.

Jim, I understand the reluctance to not give financial guidance. But I'm going to try to get something out of you anyways.

Really? That's a surprise. (Laughter)

Yes, I know. Go figure.

Most people are modeling something like rig count down, call it 15% in Q1, in that vicinity. You noted that Q1 utilization is already a lot lower. Assuming that rig count expectation is reasonable, and given your comments on utilization as well as pricing, I know the concession requests are 20% to 25%. Let's say you meet them halfway. Would you expect your revenues from the Technical Services to be down in excess of 25% in Q1?

Not in excess of 25%, John. But 20% is very, very possible.

We may exit at that level, but I think we'll be better off than that for the full quarter.

Yes, that's true.

And then as we think about the timing of the pricing concessions being implemented, it feels like it's going to be a more dramatic impact on your Q2 results than Q1. Is that a safe assumption?

That's probably what we're assuming. But again, it's difficult to --

I understand. Based off what you see today.

Yes. Right now with customers in the field, conversations are going late into the night, with our people trying to help them keep working while still maintaining our own profitability and returns, or preserving to the extent that we can. So it's a very dynamic situation. And pricing is declining in the first quarter, no doubt about it, as well as utilization.

Utilization seems to be going first. There's some customers who are saying, we want to wait and see what the bottom looks like before we go back to work. That doesn't mean we're not going to work at $46 oil, we just want to see where it bottoms out first. So utilization is a larger driver, perhaps, first quarter. At least, that's the way it looks right now.

Okay. Just two quick ones from me, then I'll jump back in the queue.

First, what are you seeing right now in terms of customers' differing well completions? And then second, following on Chase's line of questions, what's your expectation for total sand volumes pumped in Q1 versus Q4? Do you see your sand volumes pumped being lower, is really what I'm driving at? And that's it for me.

Right, right. Well, in Q4 we saw a lot of completions, a lot of completion work. And some of the reports from the field were people realize things are getting ready to slow down, so they want to do all the work they can do in fourth quarter. I think that's one reason that the holiday impact was not as pronounced as one would expect.

And if you're asking about the volume of sand per stage, I think certainly the volume of sand we're going to pump in the first quarter is going to be less.

I'm sorry -- the well completion question, Jim, was just, are people in Q1, are jobs being pulled off the board? Are you seeing the signs people are deferring the completions, in the Permian, particularly?

So it's not a drilled but not completed question.

Sorry about that.

Yes, I think that's fair.

That's all for me. Thanks, guys.

Klayton Kovak, Tudor, Pickering & Holt.

So you guys delivered the 47,000 of the 170 new horsepower in Q4. Should we expect the rest of it to be delivered in Q1 here? Or is this going to be slowly delivered? And what's the likelihood of it going to work? Does it just go straight to the yard? Or how does it work out?

We indicated we'll receive the remainder of the equipment during the first quarter. So I think we'll be at the 920,000 horsepower by the end of the first quarter. And with respect to whether we think that incremental equipment will go to work, that's hard to say at this point in time. Obviously, we're working hard to keep all or as much of our equipment working as possible. But at this very time, there's not a lot of indication like we were able to successfully put the new equipment that we received in the fourth quarter to work. We're just in a different environment at this point in time. So unfortunately, I don't have a whole lot of guidance for you.

Sure. Understood. Then just on the loss this quarter -- so it wasn't as big as Q3, but what comprised that? Was it a similar issue? Was it fluid ends]

Yes. Just a lower volume. Third quarter was just particularly large, fourth quarter was slightly smaller, and that's why the number was a bit smaller. And going into the next year, it'll depend on the level of activity and the intensity that we experience.

In third quarter, we suffered through a really bad job design and job mix. And that job mix has changed. We're not doing the kind of work anymore that caused such difficulty in third quarter.

Okay. Thanks, guys. I'll turn it back over.

Ken Sill, Global Hunter Securities.

So many questions, so little time in this kind of environment.

First of all, do you have an opinion on where activity might hold up better in this kind of a price environment for oil, on the vertical versus horizontal? I know out in the Permian, the vertical has gone on and on and on, and the horizontal's grown. But do you guys see which one would be likely to hold up better in this kind of a commodity price environment?

Reasonable question. Obviously, there a lot of things that go into the economics of wells, including the acreage cost and things like that. But to answer your question -- to be honest with you, I'm not sure.

Jim?

You could argue it either way, and we won't try to argue it either way. One idea is that, if customers are going to go through all the work -- if a well-capitalized customer is going to go through all the work to drill and complete a well, it might as well be a good, long-term productive one. So that says that there might be more unconventional work going on.

And you didn't ask this question, but during times like this, when there's not drilling going on, there might be some good refracking, restimulation in places like the Permian. That's how we got started in that basin 15 years ago, before all this advent of unconventional pressure pumping. And that can be a good solution for a customer, even at $50 oil, $46 oil.

But we don't have any empirical data right now on which is going to hold up better or which is going to decline by less. So, sorry we don't have any more insight for you.

You're probably not alone on that, but I was curious as to what you'd seen. And that leads to another question.

So you brought up the point that if you're going to go ahead and drill and complete a well, you might as well do a good a well as you can, given the upfront cost. What we've seen historically going on in the Marcellus and Utica in the gas downturn was, after the frac stages, you started downsizing; you started doing more frac stages per well, not less, because you already had the well, and if you could improve productivity.

Have you seen any change before this downturn in terms of number of frac stages per well? And are customers talking about doing this reduced-cluster spacing in the Permian like they've done up in the Northeast?

Previous to the downturn, yes. We've seen a lot of reduced-cluster spacing and more service intensity, more proppant per stage. And I'm not a technical expert, but the idea is that the customers have diagnostics now that let them see better areas in the rock. So instead of doing a 200-foot or 300-foot spacing uniformly across the completion, they can see where it's better or not as good; and if they have confidence that they're in a better section of the rock when they're doing a frac, they're going to invest more in it. That means more proppant.

So that is definitely a trend that we've seen, particularly in the Permian Basin; but that's prior to the downturn. So again, I don't have any empirical data right now as to how that's going to look in the coming six months or so.

Okay. Thank you. That makes sense. We're kind of working uncharted territory with oil doing this.

So my last question: given the fixed cost structure, obviously the highest margin work you can do is the 24-hour work. But conversely, that's the place where, if you can convince your customer to do it, you can give them a better price, because of the absorption you get out of utilizations. So is there a change -- it's kind of early -- but have you seen a change in the kind of customers that are actually really continuing to spend? And would that lead to more 24-hour work as a percentage of what's going on, or less?

Great question. Important question. We've just done a whole lot of reviews with our regions, and nothing emerged as an answer to that.

Again, like Jim said, great question, reasonable question; but things are moving very quickly, and we'll be getting further updates in the coming weeks. But at this point, we don't really have any more color on that. Sorry.

I can appreciate that, with the backlog being -- there isn't one anymore. So it's tough to schedule that. Thank you, guys. I'll let somebody else ask questions.

Scott Gruber, Citigroup.

I know we've talked a lot about costs, but just trying to get a better understanding of how the total cost base could move as some of the components deflate. Can you provide a rough breakdown of how the costs split within pumping for you, between the major components, like proppant, chemicals, labor, et cetera?

Scott, yes, this is Jim. Happy to talk about that.

Our largest single direct cost component in pressure pumping is what we call materials and supplies. That's sand, guar, ceramic proppant, acid, many of the things you can think of. And that's probably -- and these are estimates here -- but 35% to 45% of the total cost. The second largest one is labor, which is about half of that materials and supplies cost. Then after that, pretty evenly split is fuel and other associated vehicle costs, and then maintenance and repair.

And so when we talk about cost reductions, we've talked a lot about proppant. And there are a couple of ways that you reduce costs there. One is that the cost of the proppant goes down, the other is that you have a different job design. On payroll kinds of things, the oil field workforce is geared to work on overtime -- it's an overtime workforce. So as volume declines, that marginal hour of labor that goes down is an overtime hour, time and a half. So that's one thing you get. I think we alluded earlier to diesel fuel going down. So there's a cost component there that goes down, as well. But the biggest lever to push is materials and supplies and labor, for pressure pumping.

That's great color. Thanks.

And how are you looking at the ability to eliminate some of the non-productive time in the pumping workflow? Is this something that you can attack in earnest during the slowdown? And how much faster do you think you can possibly do a frac, if you're able to have success?

It's easier to be more efficient when you're busy. Rick alluded to this, but our maintenance program and everything, we are known for a reliable fleet of equipment. So one way to get a frac done quickly is to not have equipment failures and the associated downtime. So that's one thing.

The rest of it -- we and the rest of the industry are constantly trying to look at configurations of equipment and workforce and logistics management. I guess logistics might be one of the bigger ones.

I think those changes take time. And I think, as Jim said, that's true. It's easier to be efficient when you're really busy. So I think on the flip side of that, I think we're going to have to work hard to make sure that we remain efficient and not rely on the fact that we have maybe extra time to complete the particular jobs and make sure that we're pushing ourselves to remain as efficient as possible. It helps us and helps the customer, and when you keep pushing the envelope on that.

So it sounds like overall, you'll continue to push on efficiency, but probably marginal gains from here rather than anything step function-type changes in the future?

Yes. That's right. I think that's a correct statement.

Yes, Scott, that's right.

Great. Thanks.

Waqar Syed, Goldman Sachs

A couple of questions here.

First of all, in terms of margins between vertical wells and horizontal wells, could you give us a breakdown -- how do they compare for you guys when you're doing work on vertical versus horizontal?

Waqar, this is Jim.

In general, margins -- meaning the operating margin, little number divided by the big number -- are higher on unconventional work. You're just on site longer, equipment utilization is higher, and it's just a correlation. But profit per stage is a lot higher. So definitely better margins on horizontal, unconventional work.

Okay. And then secondly, on your DD&A, could you give us a breakdown between Technical Services and Support Services?

Yes, depreciation. Is that what you're asking?

Yes, depreciation between the two segments.

Let me look that up. Do you have another question?

And Waqar, we have a follow-up later on today. Perhaps we might get to it then.

Okay. No problem. That's fine.

Could you also describe how much ceramics did you use? Or, what proportion or your proppant was ceramics and how did that compare to third-quarter volumes?

Sure. During the fourth quarter -- and I don't know we've always disclosed this in really precise numbers -- but during the fourth quarter, ceramic proppant usage declined in terms of volume compared to third quarter. And it declined, by not a whole lot, but it's a small percentage of our total proppant usage, anyway; so it declined by maybe 50 or 100 basis points. But that's on a small number.

So is it only 5%,10% of your proppant use is ceramic right now? 5% or so?

Yes, the lower end of that range, that's right.

Okay. Thank you very much. That's all I have.

David Wishnow, GMP Securities.

Just want to follow up on an earlier question.

Looking at 1Q, you guys had given a roughly 20% down range for revenue in Technical Services. Just want to clarify-- is that actual revenue, so inclusive of the 120,000 horsepower coming online? Or is that a pricing target you were talking about?

That is revenue.

Revenue, okay. Thank you.

And then just to follow up, in 4Q, margins for Technical Services came in certainly better than I expected, and probably better than most did. How much of that was just better utilization and some pricing that you got in 3Q? And how much of that was a loosening of the supply chain -- i.e., potentially more sustainable as you move through 2015 in a down environment?

I think more of the latter. I think it was more materials costs and logistics. I think it was more being able to work through some vendor negotiations and things like that. So I think there is that opportunity to preserve that somewhat.

But again, is that a huge needle pusher? I don't know. Or margin improver? I think it will, overall. Not sure if it's going to be difficult for that to specifically show up in the numbers. Obviously, there's, again, a lot of moving parts going forward. But I think we put some things in place that I think we can preserve some of those benefits going forward, to answer your question.

Okay. Sounds good.

And as you talk to your vendors, is everyone on board with the fact that everyone's going to have to give up some pricing in this downturn? Or are there still some holdouts who think that they're somewhat immune to this?

David, if you look at the chronology so far, this downturn officially started on Thanksgiving day. And then everybody waited for December. And so let's call it a rolling awareness -- and I just invented that term. I feel like some people, some groups of people, knew it earlier. I feel like definitely some of the suppliers, some of our good friends in the proppant business probably are coming to that realization a little bit later than those of us who were talking to customers every day.

Okay. Sounds good. Thanks, guys.

Jonathan Sisto, Credit Suisse.

Jim Wicklund here. Sorry, Jonathan had to get off.

One very general question, if I could ask. In terms of the whole drilling and completion operation, because you are in a position to see everything that's done, what are the two or three things in drilling and completion overall that will see the most pricing pressure? Industry question, not RPC.

Well, we've seen historically, and I'm sure it will continue, that pressure pumping, being the largest component of the cost, it'll get a lot of focus and a lot of attention. So I think that's probably number one. And then I think the other completion services, coiled tubing and some of the other specialty services around is probably up there in the top, as well. And I think just dollars are the things that people are going to focus on the most, whether that's the ones that can give the most concessions or that's the one that our customers really focus on, I don't know. But that would be my guess.

How about land rigs? Would land rigs be on your list and close to the top?

We're not in that business, Jim. I'd just be repeating rumors that land rigs and service rigs are going to be -- service rigs, we always hear, would get hurt a lot. And again, I hate to even say that, because we're not in that business.

I understand.

The lack of visibility across the board, you guys and all the companies that have reported, is really stunning. Everybody's saying they're taking it one quarter at a time. But that sounds much more ominous to me than optimistic. Do you think investors understand how ugly and how long this could last? You're talking about some people just coming around to it in the industry. Do you think investors understand how ugly this is going to be?

You ask about ugly and long. Nobody knows how long it's going to last. The last downturn lasted 39 weeks, and we are 16 weeks into a downturn. So are we close to halfway to the bottom? Don't know. It kind of looks that way.

And what's amazing, again, we're coming off, in many ways, a record fourth quarter. And of course, we know our stock price, which is what investors determine, is down significantly and was during the fourth quarter, when we were having a record fourth quarter.

So whether investors have figured that out -- obviously, there's a lot of discussion about people trying to price based on asset values and things like that. Obviously, we don't make calls directly, or on calls like this to talk about whether we think our stock's undervalued or overvalued. But, yes, who knows? Obviously, stock prices have pulled back tremendously.

So you think this is going to be closer to 2008 and 2009 than the 1980s, right?

Well, we sure hope so. (Laughter)

No kidding. No kidding. It's not a fair question, because none of us want to go back to the '80s.

But I'm just curious to know, when we went into the 2008-09 downturn, where the rig count went down 50-some odd percent, the companies weren't nearly as reluctant to give guidance or outlook; or they seemed much more confident in where it was going. This time, they just complete, abject, we have no clue. That concerns me.

That is, the only question this is not nearly as bad, that is great. But I keep noticing people who are sitting there with pockets full of money ready to jump into this, because it's gotten so ugly, and I just -- the picture you guys are painting is not terribly positive.

Well, I think some of it is, today, I think there's a lot more information available. People know more about what other companies are doing, and competitors. There's a lot more data available. There's a lot more sophistication and discussion. So I think all those things are positive. I think, in general, the industry has been more disciplined in terms of its addition to equipment and things like that. In the mid-80s, when it was $200 oil, I wasn't in the industry back then. But it was $200 oil people were talking about, not being able to maintain $100 oil. So it was just absolutely crazy back then, like Rick said and we've said.

So we're hoping it's more like 2008 and 2009. If I had to bet, I think that's what I would say. But we are also trying to prepare for the worst. We're all internally talking about and certainly concerned about the current environment and we're getting geared up and competitive and ready to take it on. We don't view it as -- we're not defeated. We're going to get after it and focus on what needs to be focused on. And we know at some point it will come back. We're just preparing for the worst. (Multiple Speakers)

Some of us remember the '80s.

I hate that.

And it was terrible. 1986 and 1987 -- they were just terrible, terrible times. But I think we're better prepared for it today than we were then.

And I think the overall industry is, too.

And you were an engineer at Shell back then, I think, Jim, if memory serves. One thing, the institutional investors that we talk to every day and who are also your clients, I know -- they don't think this is the 80s, but they also think they're not in a hurry to buy, either -- to put money to work here, for what that's worth. That's a pretty common theme among people we talk to. They say, we know this is coming back, but we don't know when and we don't have to make a trade today to get in. So I think that's a common theme.

Downturns are always unexpected. And we always think, every three years there's a downturn that only happens every 20 years, it seems like. This time, people might be ignoring the fact that we're not that out of balance on the world's supply and demand picture. We're what? 2% or 3% over supplied? That seems like a strange reason for oil to drop 50%.

It's the growth in the production, not the absolute balance. But the second derivative rate of growth of our production growth.

Right.

Okay. Gentlemen, thank you very much. I have no doubt you'll weather the storm well.

Thank you, Jim. We appreciate your support.

Chase Mulvehill, SunTrust.

Just a quick follow-up.

And probably following up on Wicklund's bearish outlook. If we roll forward to the fourth quarter and we're still in this $50 oil price environment, how does RPC's strategy change on a go-forward basis?

Well, Chase, if we are in the position, if fourth quarter looks a lot like what we're talking about first quarter looking like today, a lot of our aggressively capitalized competitors are going to be out of business and their equipment will have succumbed to the cutting torch. So the supply/demand dynamic for our equipment and our services will be different. So we've got a balance sheet, we may be looking at strategic opportunities, that kind of thing. We'll certainly keep an eye on the commodities markets. If fourth quarter is bad because natural gas is at $1.50 and oil is at $40, then who knows, at that point?

But like Rick says, we've seen a whole lot of these cycles, including our operations guys, many of whom have spent their entire careers in the oil field. So we do what we can when times are difficult, but we always try to be prepared for the upswing, which will come. We continue to maintain our equipment. We keep talking about that theme. And it would take a lot to get us to change that strategy of maintaining our equipment and trying to be the best service provider we can be.

Okay. Along those lines, is there anything absent in your tool chest that you would potentially add in a downturn? Or would you look at international, doing something international? Are you going to stick with the bread-and-butter pumping and through tubing, coiled tubing, things like that?

I think at this point in past cycles, we've always said, this will be a great opportunity to go find a good acquisition target. But what always has seemed to happen in the past, the targets -- if they're going bankrupt, usually they're bankrupt for a reason and may not be something that we're interested in. If they're a well-run company, they're going to say, well, I remember how well I was able to do six, nine months ago, and I want to be paid on that basis. And we're generally not interested in that kind of situation. But we're always looking and prepared, if the right opportunity comes along.

But to answer your question specifically, there is nothing in particular that we're looking for at this point in time. As things are progressing right now, again, we're focused on hunkering down and reevaluating ourselves and repositioning our business to move forward with what we have. But as opportunities perhaps come along, we'll certainly take a look at them. We're not afraid of doing that, and certainly expect we'll have the capacity -- borrowing capacity or otherwise -- to effect a transaction that really makes sense for us.

And all we know in the past, every downturn, when it's ended and we've come back, we've always come back stronger.

All right. Thank you.

John Daniel, Simmons & Company.

Thanks for putting me back in.

Jim, can you give us color on Q1 depreciation, given the big CapEx in Q4? And what likely is a big slug in Q1?

Sure. It's probably in the $65 million to $70 million range for D&A.

Would it then start to decline as you go into the year, just as the CapEx?

Gradually, but yes. Yes, we've got this big slug of the rest of our equipment coming, and we're thinking about maintenance capital expenditures for the rest of the year and the age of our fleet, so there's going to be some depreciation dropping off.

Okay. In the release, you made the comment about continuing on with the maintenance programs. If I'm not mistaken, I think you guys had planned on rebuilding something like 50 pumps in 2014? Did that turn out to be the right number? And if so, what would be an expectation for pump rebuilds this year?

That's a good question.

I think for 2014, yes, we were close to that target. And for 2015, that's something we'll reevaluate. We're certainly not going to stop those rebuild programs. Certainly in this environment, we're not going to accelerate it. But it may slow down a bit, because if there's not as much activity, there won't be as many pumps, in the near term, that come available that may be called, based on our criteria, to go through the process. So I expect it will trend down from what we were thinking just a few weeks or, certainly, months ago. But there's no expectation or discussion right now of postponing that activity.

Okay. And so you won't take the, call it, 110,000 horsepower that's coming in Q1 to swap out the older stuff? Or in the short term, could you do that, to watch costs?

We could. But that's not something we're talking about strategically.

That's fine. Okay.

And then the last one for me, as you free up cash from working capital here in Q1 and Q2, at this point, is an expectation to pay down the revolver? Or would you be willing to allocate more capital to share repurchases?

Yes. (Laughter)

Yes to both.

I tried. Thanks, guys.

That's the honest answer.

Ken Sill, Global Hunter.

Thanks for letting me back in.

That brings up one question. How much do you have left on the share repurchase authorization? And when's your Board meeting?

It's a little over 2 million shares, currently. But all it takes is a quick call to increase that.

Okay. And then on the maintenance CapEx, I know on last quarter's conference call there was talk of evaluating fluid ends; if you're running your fleet, you can replace two or three of those a year. So are those still going into maintenance CapEx? And have you seen any change in the price or expected life of those as you move through 2014?

As we moved through 2014? Or into 2015?

Through now.

Good question. Actually, we're still evaluating -- we're on the line about whether we continue to capitalize those as maintenance capital expenditures or whether we expense those. I think whether we do or not in 2015, I don't think will have a big impact. It certainly can change the geography on the income statement. But I don't think it'll have a dramatic impact on our results.

And with respect to, are we seeing any improvement, it's something that we are looking at and focusing on. We are looking at some different types of fluid ends, looking at maybe some other configurations that might improve things, but that there's no silver bullet at this point in time.

And adjusting pump rate can help. We've seen some improvement in some of the bad proppants not being pumped as much.

We're doing everything we can.

Okay. Thank you.

(Operator Instructions)

We have heard that we're about out of people asking questions. So if there's nothing further -- I don't think there is -- Operator, we'll go ahead and close now, if we can.

As there are no further questions, would you like to add any closing remarks?

Well, we appreciate everybody calling in today. It's good to speak to everyone. We appreciate your interest. We look forward to seeing everybody soon. Take care. Have a good day. Thanks.

That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.