RPC Inc (RES) 2015 Q1 法說會逐字稿

Good morning and thank you for joining us for RPC Inc.'s first quarter 2015 financial 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.

(Operator Instructions)

I would like to advise everyone that this conference call is being recorded. Jim Landers will get us started by reading the forward-looking disclaimer.

Thanks, Eric and good morning, everybody. Before we begin our call today, I want to remind you that in order to talk about our Company, we are going to mention a few things that are not historical facts. Some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I would like to refer you to our press release issued today, along with our 2014 10-K and other public filings that outline those risks, all of which can be found on RPC's website at www.RPC.net.

In today's earnings release and conference call we have also referred to EBITDA which is a non-GAAP measure of operating performance. RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with financial covenants under our revolving credit facility.

Our press release today and our website provide a reconciliation of EBITDA to net income which is the nearest GAAP financial measure. Please review that disclosure if you are interested in seeing how it's calculated. If you have not received our press release for any reason and would like it, please visit our website at www.RPC.net for a copy.

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

Jim, thank you. This morning we issued our earnings press release for RPC's first quarter of 2015. RPC's revenues decreased due to lower activity levels in pricing in all of our major service lines. Our revenues for the quarter decreased approximately 19% compared to the first quarter of 2014 and approximately 36% sequentially. First-quarter operating profit net income and EBITDA all declined sequentially and year over year.

The first quarter of 2015 can best be characterized as a continued deterioration in the oil field service industry. Over the last six months, the North American rig count has declined 46% to 1,048 at the end of the first quarter. As the number of working rigs decline, the demand in pricing for our services fell accordingly. While it is impossible to accurately predict when the oil field service industry will improve, we believe that at current activity levels, pricing is nearing the floor. Our CFO, Ben Palmer, will now review our financial result in more detail after which I will have a few comments about the current difficult market conditions.

Thank you, Rick. For the quarter, revenues decreased to $406.3 million compared to $501.7 million in the prior year. These low revenues resulted from decreased activity levels in pricing in all of our major service lines. EBITDA for the first quarter decreased by 35.5% to $77.9 million compared to $120.8 million for the same period last year. Operating profit for the quarter decreased to $6.2 million compared to $65.2 million in the prior year.

Our diluted earnings per share were $0.04 compared to $0.18 last year. Cost of revenues decreased from $330 million in the first quarter of the prior year to $292.4 million in the current year due primarily to lower activity levels. In addition, we obtained price reductions from our vendors, which were partially offset by the increasingly service intensive activity in our pressure pumping service line. Cost of revenues as a percentage of revenues increased from 65.8% in the prior year to 72% due to lower pricing for our services.

Selling, general, and administrative expenses decreased from $48.7 million in the first quarter of the prior year to $42.6 million this year. SG&A expenses as a percentage of revenues increase from 9.7% last year to 10.5% this year due to the relatively fixed nature of these costs over the short term. Depreciation and amortization were $66 million during the first quarter of 2015, an increase of 18.9% compared to $55.5 million in the prior year. Net loss on disposition of assets were $2.2 million in the first quarter of the prior year compared to a net gain of $1 million due to a change in accounting estimate. The cost of certain components of our pressure pumping equipment that were previously capitalized are now being recorded in cost of revenues as maintenance expense upon replacement.

Our technical services segment revenues for the quarter decreased 19% compared to the first quarter of the prior year. Operating profit decreased to $5.9 million compared to $64.9 million in the prior year. Revenues and operating profit decreased due to declines in activity in pricing levels and the change in accounting estimate for pressure pumping components also negatively impacted operating profit. Our support services segment revenues for the quarter decreased 18.8% and operating profit decreased 47.6% compared to the first quarter of the prior year.

On a sequential basis, RPC's first quarter revenues decreased to $406.3 million from $632.2 million in the prior quarter. Cost of revenues decreased from $390.5 million to $292.4 million due to lower activity levels, reduction in employment costs and cost reductions from suppliers. Cost of revenues as a percentage of revenues increased from 61.8% in the prior quarter to 72% this quarter. SG&A expenses as a percentage of revenues increased from 8.1% in the prior quarter to 10.5% this quarter. RPC's operating margin declined from 19.8% of revenues in the prior quarter to 1.5% of revenues this quarter.

Our sequential EBITDA decreased from $187 million to $77.9 million in the first quarter and the EBITDA margin decreased from 29.6% to 19.2%. Our technical services segment generated revenues of $378.1 million, 36.2% lower than revenues of $592.2 million in the prior quarter. Operating profit again, was $5.9 million compared to $122.5 million. Our operating margin in this segment decreased from 20.7% in the prior quarter to 1.6% of revenues this quarter.

Revenues in our sport services segment declined 29.6% due primarily to decreased activity in pricing and rental tools. Support services operating profit decreased to $3.9 million in the first quarter compared to $11.3 million. Our operating margin in this segment was 13.9% in the first quarter compared to 28.3% in the prior quarter.

RPC's fresh pumping fleet increased by 99,000 hydraulic horsepower during the quarter to a total of 897,000. Due to market conditions, approximately 15% of our fleet is currently idled and unstaffed. Almost a third of this idled equipment is newly delivered equipment. Much of the remaining fleet, while staffed, had low or inconsistent utilization during the current quarter. RPC's full-year 2015 capital expenditures are currently projected to be approximately $150 million of which $80 million will be primarily directed toward maintenance capital expenditures.

Capital expenditures during the first quarter were $103 million. RPC's outstanding debt under its credit facility of March 31, 2015 was $155.6 million, a decrease of $68.9 million compared to the end of the fourth quarter. This decrease was due primarily to lower working capital associated with lower activity levels. Our ratio of debt to total capitalization was 12.%. With that, I'll now turn it back over to Rick for a couple of closing remarks.

Thanks, Ben. As we announced this morning, RPC declared a $0.05 per share dividend. While we have paid higher dividends in the past, this dividend adjustment is consistent with RPC's conservative nature and helps ensure our capital structure will provide RPC the flexibility to take advantage of opportunities in this changing market.

During the quarter we implemented numerous cost control measures which included reducing personnel by 12%, reducing certain components of compensation and reducing vendor pricing on critical supplies and components. While we did not get the full benefit of these actions throughout the first quarter, they lessened the negative impact to our results from the steep revenue decline.

The oil and gas industry is cyclical. RPC and its business managers have operated in these cycles for more than 30 years. This accumulated experience provides us with the knowledge to implement the steps necessary to adapt our business model with industry activity levels. The impact of this turn down on RPC and its employees is significant. As always, we greatly appreciate our employees' hard work and commitment.

Thank you for joining us this morning for RPC's conference call. At this time we will open up the lines to answer any questions you may have.

Thank you.

(Operator Instructions)

We will take our first question from Chase Mulvehill with SunTrust.

Hi, thanks. This is Josh Large on for Chase.

Hi, Josh.

If you could provide us what EBITDA margins, where you think they could bottom or decrementals going forward?

Josh, this is Jim. That is clearly an important question. The question of the day, something we work on a lot. We don't have a good number for you. I will just say that. Let me try to give some color to what our thinking is though and it kind of refers to something Rick said. We think pricing has bottomed at this activity level, this market activity level and we have some good indications of that. Now if the rate count drops, goes another 200 rigs down, then we have a new situation to think about which will include changing our infrastructure a lot and trying to function at lower pricing levels. But we think that pricing has bottomed right now. We have taken some cost-cutting measures. We intend to take some more. We didn't get the full impact of that in the first quarter but we think we will in the second quarter. So we think that EBITDA margins in certainly the second quarter will be lower than the first quarter because January was a decent month in the first quarter. It's really hard to say where they are going to bottom out though.

Okay

I will go ahead and say it again because I think that is the question of the day. I think in this down cycle we've seen something that we have never seen before. I think our customers have done a really good job of driving down everybody's prices. And quickly, I guess collaboratively or whatever, we're getting it down to levels again where we're saying that we cannot on a sustained basis go any lower. So we're trying to work together with them to you know determine what is the activity levels that we're going to be able to sustain.

Business, even when it is good, can be volatile. It's going to continue to be volatile. So we are trying to structure the business, structure the cost, infrastructure to align with the assumptions about the amount of activity we're going to have going forward. Again, that's very difficult to do in this environment. It's an elusive equation.

But we continue to make adjustments to the business. We'll continue to do that. We'll monitor it weekly and monthly and we'll monitor it over time. We're not going to react every week to how busy we are or we're not because the business is going to come back. We're a high quality service provider and our customers want us to stay in business. They want choices.

You know the industry, there is some consolidation going on that we all know about. So our customers want people like us around so we don't feel like our customers are trying to drive us out of business. There's been several players that have recently been driven out of business and that makes sense in this environment. But we're comfortable especially with our conservative balance sheet and capital structure that we're certainly going to be around and thrive. We're working right now just to get everything lined up to the point where we are generating cash. We have no intention for any extended period of time to generate negative cash but it's currently quite a challenge.

We're doing everything we can in working with our customers and looking at our infrastructure and our costs to make sure that we continue to be very conservatively capitalized and managed and infrastructure's going to be where it need to be, to again continue to maintain the Company and move forward. That's a lot. That is probably the longest we've ever answered especially the first question we've ever received. But that is, as Jim said, the question of the day. With that, we'll turn it back for any other questions.

Great. So on the costs side, could you help us quantify the SG&A, the full run-rate impact and some of the pricing reductions you've gotten from your suppliers?

Josh, it's Jim again. The largest single cost everybody knows about is proppant. Our proppant suppliers have been great partners over the past few months. We have had cost reductions for proppant of as much as 30%. Supply and demand have helped with transportation on the trucking side. In some of our regions we've had short-haul trucking costs decrease by as much as 50%. We've had naturally, fuel prices decline during this time, which is one reason we're in the situation we're in. But that has been a benefit as well, both what we charge our customers for fuel and we use a lot of fuel ourselves that we're not able to charge for. So that's been helpful.

A negative thing is rail. The cost of rail transportation has not gone down. In fact, you can find situations in which rail costs have actually increased. One thing we may have said, or certainly need to mention if we haven't, is that the work we're doing is more service intense. That mean more proppant per stage. And we've seen that even in the first quarter. So that exacerbates rail rates being high if they are and logistical issues. That's a negative on the variable cost side. Another one is personnel. Rick mentioned that we've had some personnel reductions during the quarter and we've also changed some of our compensation structures which helps on the variable compensation side as well.

You asked about SG&A, I would say that the run-rate for the remainder of the year of SG&A compared to last year is going to be down 20% to 25% on a quarterly basis going forward. And a lot of that comes out of variable compensation and then there's some other incremental steps that have been taken to reduce those costs. And as we said, that will continue to be monitored and adjusted as we learn more about what kind of activity levels we're able to secure.

I guess just one follow-up to the sand site. Is that 30% decline at the well site or at the mine?

That's the mine. Trucking, I will say, has come down substantially so it ends up being about the same number.

Thanks, Josh. I guess we're ready for the next question, Eric.

We will go next to John Daniel with Simmons & Company.

Hi, guys.

Hi John.

About a year ago you guys were kind enough to give us the March monthly exit rates. So I'm hoping that maybe this year you might be willing to do the same. Specifically, just thoughts on March revenue utilization and is that a fair run-rate into Q2?

John, I do recall that and I remember taking grief from your colleagues and our mutual investors for the following three months. So we may not want to do that or I certainly refuse to actually right now. But in any event it would be a difficult question to answer anyway.

Let me say without quantifying, because we're not going to do that. But I will tell you, that during the first quarter, it obviously was a difficult quarter. We recognize that. We took steps. As I said, our customers have very quickly, not just with us but with our competitors, very quickly gotten very close to where the bottom in pricing is. And so, we were able to secure late in the third quarter a lot of work going forward, nothing's guaranteed. But with the expectation that we're going to have a lot more work but it's at lower pricing.

So whatever data we gave you for March, at this point, the second quarter looks, the different components of that look a lot different. And that is where we are right now is we need to find that balance between how much activity are we going to have, with some sort of assumed level of pricing. What's the right number of crews and people and what's the right infrastructure that we need to have to ensure that we continue to generate positive cash flow in the short term until things can stabilize and move up? That's sort of where we are.

Okay. Let me try this another way. You mentioned that you have good indications that pricing has bottomed. I think those were the specific words. Can you just share with us what those indications are?

The indication is that we're not going to work for an extended period of time generating negative cash.

Okay.

It would be irresponsible, too. We think our peers are the same way. We know of a number of small pressure pumpers who are out of business. So there's going to be at some point a supply response for customers who are working. And we have to be very general about this, but a price leader in our business recently went back to customers and said the pricing we give you a month or two ago we can no longer honor. And so those particular customers went out to bid again. You only know that you've reached the bottom when you have overshot and in that particular case, it appears that somebody overshot on the low pricing. So those are some indications.

I was just going to say, we feel like we've always had a pretty good handle on our costs. You're always learning. But I think a lot of our competitors, especially the smaller guys, have a much better idea about their cost structure today than they may have before. So it becomes glaring.

Okay. One more quick one for me then I will jump back in. Let's assume that a customer came to you today and asked for you to reactivate one of your idle fleets. At current pricing and current margins would you do it?

It's kind of hard to know a market indication. But at current overall pricing, would we work for them?

How about based on your March monthly results, would you at reactivate?

That's a good question. The answer is probably, yes.

Okay. Alright, thank you. I'll jump back in

Alright, John. Thanks.

The next question is from Ken Sill with Global Hunter Securities.

I got a couple of questions. I'm going to ask one more time on the margin side even though you're not can qualify it. But on the operating margins, given price declines and cost cuts, can we assume that we'll be seeing negative margins for a short time here going forward? (multiple speakers)

Yes, Ken. That's right.

And then, just a housekeeping question. How much of your fleet is working on 24 hour operations now?

That's a reasonable question. Everything is so fluid right now. Whatever we told you I don't think would really matter. I think in general our customers believe and we believe in many cases the 24 hour operations can create efficiencies and certainly everybody's looking for that right now. So it's fairly fluid -- .

Ken, this is Jim. It's between 55% and 60% on 24 hour work right now. So we have got some customers who when they want to work want to work as efficiently as possible. And that is certainly a euphemism for low pricing but it's also a catalyst for 24 hour work.

You are clearly in an asset intensive like business like pressure pumping if you're going to get 24 hour work, it helps margins a lot. Given the level of price. One of my thoughts is the Permian has not been a big area for 24 hour operations. Do you think this downturn is going to push more of your customers to try to be more efficient in working assets more intensely?

The Permian is last basin to go towards 24 hour work and we think yes, that's definitely a trend. But it's sort of lost in all numbers but yes, that's definitely a trend.

The 24 hour work is more appropriate for the horizontal with multiple stages as opposed to more traditional vertical wells. I think that's one reason West Texas has been slower to go to 24 hour because it really doesn't make sense on the traditional type of well.

Then at current pricing, are you guys getting enough margin to do the big maintenance items that come up every three to five years, deck engine rebuilds, transmission replacements, power end replacements, or are margins good enough now that, you know, you might not undertake some of those things?

I think you are referring to our capitalized maintenance program and the answer is, yes. As a policy we don't scrimp on maintenance and we have the cash available and the ability to do that, so yes. We're keeping our fleet maintained.

Okay. And then one last question. Obviously, consolidation would be important. Is there a price as a percentage of what new assets would cost that you guys would look at consolidation? Or would you be more interested in looking at an ongoing concern or assets that are available? Or would you even go that route?

Ken, we've been presented with a number of small distressed opportunities recently. We haven't acquired any of them or we'd be talking about it today. I think to make that leap, and decide we are going to buy some distressed and very worn-out equipment at some low fraction of replacement cost, we'd need a really clear view of when that equipment was going to go work at acceptable margins. Right this moment, in late April, we don't have that. We don't have that clear view so we're just sitting on the sidelines. Certainly looking at things, but sitting on the sidelines to see how things shake out.

Okay. Thank you

Alright, Ken. Thanks.

The next question is from David Wishnow with GMP Securities.

Hey, David.

Hearing no response. We'll go to our next question with Matthew Marietta with Stephens.

Good morning, guys. Thank you for taking the questions.

Sure, Matt.

So on that cost reductions, will RPC be able to start to capture the margin on the cost reductions as you consider the oversupplied state of pumping equipment, the competition that's out there? I guess what I'm trying to reconcile here is you've called the bottom on pricing and at the same time have made comments that costs are coming down. So logically, from here, are we talking about margin expansion in these businesses? Or how long does it take to get to that point do you think?

That's a reasonable question but difficult. Again, we're working very closely with our customers. They want us to be busy. They want us to be viable. We're trying to work with them to get the cost down as low as possible. So right now it's not a margin improvement game it's getting a requisite amount of activity at an adequate pricing level. It's hard to -- you know. So, we're not at that point where we're going to be capturing any necessarily direct margin improvement from these price reductions. I don't know if that's a response or if you want to add anything Jim?

Yes, Matt. Again, like Ben said, it's a great question. It also depends on utilization and I don't mean rig count necessarily. I mean sort of the granular operational way of looking at things, which is, we're geared up to be busy on this week -- we're geared up for certain level of activity. And maybe it's a low level of activity. That's fine. But can we be that busy next week? That's kind of a key metric right now, is we'd like to be uniformly busy at whatever level that is. Again, maybe it's a low level but that would be helpful.

Right now, the work is sporadic enough that it's hard to know that your costs are at exactly the right level and that therefore, you can start to capture a little bit of margin from these cost reductions. And that's truly what we're looking at internally.

I think you can appreciate it's an unusual environment. This is a different time.

I appreciate that it is difficult to predict. You also, you kind of hit on this. Some competitors are struggling, going out of business in some cases. We've heard this as well. What the risk here that those assets simply find new owners at lower cost basis get upgraded and the join the ranks of idle ready equipment? Can some of this equipment also become a source of cheap or replacement parts that subsequently continues to drive down costs? And does this become an attractive source of cheap maintenance CapEx to a degree?

It's possible. Matt, our operations people tell us that if pressure pumping equipment is not really well maintained, it really goes down quickly. And sitting in a yard is bad too because of things that happen. So, to pull that equipment out of mothballs and get it going again would be harder than you might think. Certainly possible and that's what you're alluding to.

The other thing is that the assets that have been up for sale are not being acquired right now. Of course, the oil field service business will always overbuild because of what we've seen in history. But that capacity coming back on the market is a viable source of competition is not currently happening and we don't think it's eminent either.

Okay. And if you don't mind, maybe just touching on the labor aspect of all this when there is an uptick in utilization. How difficult is it going to be to get the labor back?

We've been through it before. Of course it depends on how long before things can stabilize and begin to improve. The longer the time period the more difficult it will be. But we've been through it before. We've been through processes of trying to add significantly to our staff and crews and we've handled that reasonably well. So we'll be planning for that. But right now again, we're just trying to seek what is that level of activity that we're headed toward for the intermediate term so we can plan accordingly. Because we don't know.

When we sit around doing are planning right now we honestly don't say here's what we think the fourth quarter's going to look like. Hell, we don't know. Rig count, activity levels or drilling activity that leads to a lot of our activity has declined very quickly, very precipitously. Everybody on this call knows that. The quicker it goes down, the faster it comes back. So from that perspective it's a positive thing and we're in the middle of it right now. It is going to come back. It is going to be fine. We just don't know whether that is a few months from now or several months from now. We just don't know. So we are evaluating day to day, week to week, month to month and trying to do the best we can.

Just a quick follow-up. A lot of our skilled workforce is trained, committed, in the field but underutilized. So our first source of qualified operational ability, to phrase it that way, will be people who are working many fewer hours than they were working a year ago who are still with us. We hate to make the personnel cuts. We make them when we have to, when we think it's prudent. But a benefit of not making too many is we've got people ready to go and ready to work as hard as they were working a year ago when things get better. So that's probably your best answer.

Let me throw out this. Nobody's asked this question or whatever. Just so we know, it's just a point that we wanted to get out there in terms of the way we're trying to manage the business and will continue to manage it. As we said our debt was about $156 million at the end of the quarter. Recently it's down. It's already under $100 and our plan is to drive that down very quickly to where we have little or no debt. So again, that's our focus and we think what we've done in the past has allowed us to be in the position we are today and that's the way we're going to manage the business. We're going to manage that debt down and prepare ourselves for the eventual recovery.

I appreciate that color. That's all I need. Thanks, guys.

Thank you, Matt.

The next question is from David Wishnow with GMP Securities.

Good morning, guys. Sorry about that. I was having some technical difficulties.

That's alright. We are no stranger to those.

It happens. I guess we've gone over pressure pumping to death here. Looking at the other business lines within technical services, how are those holding up?

They have been holding up a little bit better. But I think they and there's lots of service in there. But they've been holding up a little bit better and we think that they won't be as impacted as pressure pumping but they have been and we think they will continue to be. That's something clearly that we're working on that. Again, everything is so volatile right now that it's hard to give any specifics but they are doing a little bit better.

Okay. I guess quickly on the input cost, the sand, transportation, things like that, are you guys working under any legacy contracts or anything that may be more expensive than if you guys were in the spot market that potentially will fall off at some point this year?

Not really. Our contracts they're all subject to resets based on market pricing.

Great, that's it for me. Thanks, guys.

Alright, David. Thanks.

The next question is from Tom Curran with FBR Capital Markets.

Good morning, guys.

Hi, Tom.

Jim, I'm curious. When it comes to technical services Q1 margin, if you had been able to take all of the internal cost control and reduction measures that you're now implementing as early as possible, how much could that have helped margin in Q1?

Well, it would have helped it. Probably not a whole lot. And we've been doing some doodling on that last night and this morning. It would've helped, I don't have a good enough number to tell you and I'm sorry. It's a good question.

Okay. How about, and I'm sorry if you spoke to this in your opening remarks, I was forced to join the call late. How about a rough idea when it comes to the sequential compression in technical services margin that you experienced, the split between pricing and activity? It sounds like it was fairly heavily pricing weighted clearly, but --?

Tom, that question wasn't asked and it's a good one. Our best answer on that is that the pricing and activity declines were evenly split. There's a little bit of an offset there because service intensity and pressure pumping increased a lot. Perhaps surprisingly, but it did and I think some others in our group have said that too. So the calculation is a little bit difficult. But I think our best answer is that pricing and activity levels were evenly split when it comes to -- or, the decline rates were evenly split.

Right, that's very helpful. Thanks for that, Jim. And that's a nice segue into what was going to be my next question and that is, could you quantify for us one or more of the metrics when it comes to demand intensity? Either what the Company's specific level experience in terms of the continued sequential uptrend and proppant consumption per well, proppant per stage?

Sure. Service intensity measured in proppant per stage sequentially increased, let's just say, between 25% and 30%, large as that number may sound. Stages declined. Okay? Stages declined by a pretty good percentage, let's just say that. But pounds of proppant per stage was really up. That speaks to a response to a question earlier where I said that rail costs staying high and in fact, increasing, does not help. Because you're making less for the work you're doing but you have to get a whole lot of proppant to the site in a very short time window. That's difficult and that metric of increased service intensity speaks to it. Pricing, pricing was off 30%, 35%. I think that's pretty much across the board what's happened.

Jim, do you know what that netted to then in terms of proppant consumption per well? Having, you know, the proppant per stage up 25% to 30% but the number of stages sequentially down?

Proppant per well, I honestly do not have that statistic in front of me.

Okay. Last one for me then I will turn it back. Just when it comes to stacking, so I'm clear. Have you stacked any of your horsepower yet and what is the philosophy on stacking? How do you think about it? It sounds as if, based on some of the comments I've caught thus far, you would resist it because of concerns about what it implies for the marketability of that equipment. But I don't want to put words in your mouth so -- .

Well, I think we set about 15% is idle. Stacked for people can mean a lot of different things. We have not cold stacked anything yet, meaning we've expected to be down for extreme periods of time. So it's more of we're setting it aside, we're trying to set the newer equipment aside first. Again, we're at 15%, and that could go higher. You know we want to have as little equipment -- we would like our equipment to be evenly and reasonably utilized of course, across the basins and so and it's 15% today.

Just one more piece of color is that we had an expansion plan in 2014 and deliveries in early 2015. Some of the equipment that we've received has never been placed in service because, back to your comment that you do want to utilize equipment because not utilizing it is bad for it. That is very true. But we don't care to utilize equipment when we don't have to at these low pricing levels. It doesn't fit with our financial return criteria to the extent that we have any control over that. So, some of the equipment has not even been put in the field yet.

Maybe then, just one quick follow-up. How would you guys define the difference in terms of the cost run-rate between equipment that's nearly idle, or not being utilized, and equipment that has actually been stacked?

I think, to respond to the question, stacked equipment, the only cost would be depreciation and whatever your cost of capital is. I know that we even stacked equipment because of equipment warranties and things like that has to have certain minimal levels of maintenance done to it but those are -- .

Yes, pretty minimal.

I'm going to call it an oil change, that may be wrong. But that kind of thing which is pretty minimal. It doesn't take that much effort.

Alright, guys. I appreciate all of the time and answers. I will turn it back.

Alright. Sure, Tom. Good to hear from you.

Next will be Luke Lemoine with Capital One Securities.

Good morning. Jim, could you just give us the product line revenue split?

Sure, my pleasure. This is for the first quarter and this is as a percentage of consolidated revenue. Pressure pumping was 54% of revenue, through tubing solutions was a little over 18%, call it 18.1%, coil tubing was 9.3%, rental tools was 3.9% and our nitrogen service line was 3.7%. Those are the top ones

Okay. Great, thank you. That's all I had.

Okay, thanks.

The next question is from Byron Pope with Tudor Pickering Holt.

Good morning, guys.

Hi, Byron.

The next question is a good segue because I wanted to circle back to the comment you guys made earlier about your prepared remarks about pricing having declined across all of your service lines. And I just wanted to make sure I understand correctly. When you talk about confidence that pricing has bottomed, my assumption is that you were talking pressure pumping as opposed to some of your other service lines like coil tubing and rental tools. Or are you seeing signs that pricing across your portfolio is essentially at trough levels?

Byron, this is Jim. That's a good question. Actually, our specific comments about pricing bottoming related mostly to pressure pumping. Some of our other service lines just move a little bit differently during the cycle and those declines as they are occurring may occur a little bit later. And then furthermore, there are probably different supply and demand dynamics for some of them.

Okay. And then second question for me. If I recall correctly, I think roughly 2/3 of your pressure pumping horsepower is in West Texas in the Eagle Ford and if I think about the 15% of your fleet that is currently idled, no reason for the geographic composition of that to be any different from the overall composition of your pressure pumping fleet? Or has it been disproportionate in the Permian other than Eagle Ford?

I would think about it more proportional, Byron. The Eagle Ford has been -- everything's relative right now but a little bit -- the Eagle Ford has been busier and the Permian has been relatively okay as well. So it's not, there's no more the equipment that is idle there than other places.

Okay. Thanks, guys.

Thanks.

Next will be John Daniel with Simmons & Company.

Hey, guys. Thanks for putting me back in.

Absolutely.

Just a few housekeeping things first. The $7.9 million of equipment expense, did that hit both segments or just technical services?

Just technical.

And can you provide some color on what type of parts are now being -- what component was it? Fluid ends?

Fluid ends.

Okay. And then, Jim, if we could get depreciation by segment? Do you have that handy?

John, I am sorry. I do not believe I have that handy. I'm going to work on that. I may have it during the call.

Okay, and then just a couple of more. You mentioned on the example of someone bidding too low and then coming back and changing their mind, if you will, and the customer's rebidding the work. When that scenario plays out, are you inclined to raise your next bid for that customer?

You're always testing, John.

I don't know about always.

I understand it might be a bit early to do that now but if you've got someone who basically screwed up on their pricing and is now begging for forgiveness, I'm just curious how you respond to that when the bid comes back to you?

That the very hypothetical question. Nobody's been begging yet.

Okay.

He'd like to think maybe our people would think about that but you know what we're trying to do is, you know, price it at levels that work for us and work for the customer. So all things being equal, hopefully we would find something -- we could maybe true up the bid and that might indicate and we could support the fact that it needs to be higher than it was initially.

Okay, fair enough. Refrac opportunity is getting a lot of talk this quarter. Do you guys track that internally when you going out and doing jobs? To the extent you do, what you've seen last year in terms of refracs? What you're seeing today and the outlook?

John, we're with everybody else thinking there are some opportunities. Maybe you talk about refracs. We were with everybody else thinking there some opportunities there and we kind of built the business certainly in West Texas many years ago on refracs just because of the good financial dynamics there.

We have seen a little bit of -- if we can expand it to work over, not just refract, but work over work; we've seen a little bit of work there with small diameter coil tubing and nitrogen and -- but we have not seen, we have not seen enough yet to talk about. It's not material.

We do think the opportunity is there. I think our operations people tell us and believe that when the price of oil hits some number higher than it is today, but not too much higher a number, you'll see people start to refrac wells. We have not seen much of it yet and in the numbers and ideas we have been discussing for second quarter, there's not any of that baked into it. So that could be some upside but nothing that we know imminently.

I don't know if you have this handy but do you have any sense as to what the service intensity would be on those refrac opportunities in terms of either fleet size, profit volumes, or is it just too early to know?

It's too early to know. We know that it's a small job, to be honest. It doesn't take all that long. A lot of times it involves acid, for just in a lot of ways, just cleaning out scale and sentiment that has built up. There are other services that go along with it. If drilling a new well would have cost $7 million to $9 million, the total package on a work over might be around $2 million or so. But that's not all fracturing, that's other things. You could use coil tubing and that kind of thing.

Alright, and the last one for me and I will bother you guys off-line. But Jim, if you look out say the next two to three months, do you feel like it's more likely that you will idle more equipment or redeploy the idle equipment?

Old, John.

That's right.

Let me flip a coin real quick. And Rick, if it's heads we'll give you -- honestly, I don't know.

You don't know yet? Fair enough. Thanks a lot for always your candor.

Thank you, John. I will say again, that right now what we're doing is we're seeking as much activity at acceptable pricing we can get. We had a lot of success late in March, as I indicated earlier. That's our focus right now. So good question but you know right now, hard to say.

Fair enough.

John, this is Jim again. Let me answer one question that you -- one of the questions you asked that I wasn't able to answer. Our total depreciation for the quarter, for the first quarter, was around $66 million. Technical services depreciation was around $58 million and support services was around $8 million. There's some rounding there but those are good numbers.

Thanks, guys.

Thanks, John.

The next question is from Daniel Burke with Johnson Rice.

I wanted to go back to just the comment just offered about seeing more success late in March. Any thoughts on what drove that success? Is it your customer base that's gotten a little bit more active? What are the reasons that you guys think otherwise you might be capturing some incremental share out there?

I think it gets back to what I was talking about the price discovery. Our customers have very quickly gotten to the point that they know where the bottom is and we're very close to that and I think we can -- they know and we can convince them that you can't go much lower than this. I think we've been able to lock it up. Again, we're a high quality service provider. They want to work with us and if we can work at the right price, they're more than willing to work with us. So we're able to secure some work and we're going to continue to do that.

That's helpful. And then maybe just one other one. On the magnitude of the service intensity gains that you all talked about, were those comments mix adjusted? Or I guess the question is, have you seen a larger decline or did you see in Q1 a larger decline in lower intensity vertical work that helped contribute to that trend? Or did you that intensity at the leading edge as well?

Good question, Daniel. This is Jim. I'm trying to see if I can say anything meaningful about that. Some of it was mix adjusted. So in other words, for everybody else listing, if I understand your question, is some of it the fact that vertical completion for us declined more in a lot of places? And that answer is that it did have some impact. I cannot quantify how much but it did have some.

Okay, thanks, Jim. I will follow-up or pursue that later on. Thanks for the answers.

I will be around. Thank you.

The next question is from Ken Sill with Global Hunter Securities.

Thanks for letting me back in. When you guys mentioned the up to 30% cut in sand pricing that's a lot bigger than some people have been talking about. I'm curious, one, I guess my first question is, how much of your sand is under contract versus how much that you've been buying in the spot market?

We buy it all essentially. It's all, for the most part, spot even though we have relationships established, but it's over relatively short periods of time it floats with the market. Is that your question?

Yes, I mean a lot of people have gone out and signed long-term supply agreements and committed to certain volumes and it seemed like the sand companies were being very reluctant to cut prices there, so I was wondering if that might be some (multiple speakers).

Well, certainly they're reluctant. They're reluctant but the realization is again, our customers have -- again, as I said earlier have very effectively found where that pricing level is and we have accordingly gone to our vendors and said, we have to get there. We have to do everything we can do. We have been more successful than I ever recall being able to secure those kind of price concessions from vendors. I think they recognize the environment we're in.

I think others have said this, Ken, but we definitely have experienced the idea that in the beginning of the first quarter, the sand guys did not yet understand the magnitude of what was happening or what was getting ready to happen. Nothing against them, they're just in a different part of the country and just a different part of the supply chain.

So in January, they didn't understand that. By February and March they really did start to understand it. Plus there's still supply coming on, sand supply coming on. So that's another thing to think about as well.

They've been through the education process.

Yes, and a lot of them are new. Just like every cycle there are new pressure pumping companies and they have to learn things. It's the way it works.

That was my primary question, thank you.

Alright, thanks, Ken.

(Operator Instructions)

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

Okay, Eric. Thank you and thanks to everybody who called in and for the questions. I know we will be seeing a lot of you -- we'll be seeing many of you in the coming quarter and look forward to that and we will talk to you again soon. Have a good day.

This concludes today's call. As a reminder, the replay of this call will be available within two hours at www.RPC.net. Thank you for your participation.