‘All signs’ point to modest drop in 48 oil and gas recovery, says RPC chief

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Atlanta oilfield specialist RPC Inc. saw its first quarter revenue increase compared to a year ago across all of its major service lines as oil prices rose and customers opened their portfolios .

CEO Richard A. Hubbell, discussing the operator’s first quarter performance, said RPC has seen the environment improve as exploration and production (E&P) customers have launched their annual plans drilling and completion. Equipment and crew utilization rates are also increasing.

“We’re encouraged by the way 2021 has started,” Hubbell told analysts on the conference call. “Activity levels and prices largely followed our expectations as the year entered, and all signs point to a modest and continued recovery as the year progresses.”

However, there are no plans at this time to add additional capacity “until we have more confidence that the economic returns justify the investment”.

Talk about ESG

Environment, Social and Governance (ESG) “has continued to grow as a topic of interest to many of our clients,” Hubbell noted. “RPC aspires to be an environmentally responsible company, we tailor our operations to reduce emissions where possible.”

Among other things, RPC is in the final stages of upgrading another fleet to dual-fuel capability. When this is complete, two-thirds of its deployed fracture capacity “will be ESG compatible …

“However, for RPC and most of our competitors, the easy conversions are largely done. Further ESG adaptation requires an improvement in the economy before additional capital investments make financial sense. While economics do not currently support adding this capability, the continued transition to ESG-enabled equipment is more likely to come from replacing older equipment than from spending on growth capital. “

A hitch in 1Q2021, likely to be noted by many Lower 48 operators in 1Q2021 results, relates to “extreme winter conditions throughout February in several of our markets, particularly the Permian Basin,” Hubbell said.

The February freeze “hurt profitability due to weather-related expenses and inefficiencies resulting from a two-week operational disruption.”

Meanwhile, the second quarter could see industry activity mirroring the first three months, adjusted for weather effects, he told analysts.

“Although drilling and completion activity has improved, supported by rising oil prices and customer spending, the oilfield services industry still faces overcapacity. We believe that the prices for our services will continue to be extremely competitive and that financial returns do not currently support significant growth capital spending. “

Encouraging price prospects

The world “is thankfully … dealing with the Covid-19 pandemic, and demand for hydrocarbons is picking up slowly but surely,” he said. This has led to a reduction in oil stocks to near its five-year average, ”thanks to actions taken by the Organization of the Petroleum Exporting Countries and its allies.

“As a result, the outlook for oil and gas prices is encouraging, which should support modest growth in industrial activities.”

[NGI’s natural gas price indexes have included trade data from both price reporters and the Intercontinental Exchange (ICE) since 2008. Find out more about our price index data here.]

RPC manages two operational segments. Technical services include companies that use people and equipment to perform E&P completion, production and maintenance activities. Support Services provide equipment for E&P use and services to aid in operations.

Technical services revenue in 1Q2021 decreased year-over-year by 24.2% due to “significantly lower activity and prices,” management said. However, on a sequential basis, revenue increased by roughly the same amount, 24.2%, due to increased activity levels across most service lines. Support services revenue declined 38% annually, but grew 3.2% sequentially.

Global revenue fell 25% in 1Q2020 to $ 182.6 million.

CFO Ben Palmer said the cost of revenue in 1Q2021 was $ 146.2 million, or 80.1% of revenue, compared to $ 181.9 million or 74.6% in 1Q2020.

“The cost of revenues has declined primarily due to lower expenses, consistent with declining business levels and RPC’s cost reduction initiatives,” Palmer said on the conference call.

“During the first quarter of 2021, RPC operated five horizontal pressure pump fleets, similar to the fourth quarter, but with improved utilization. Due to the heavy use of these existing fleets, we have recently added an additional horizontal fleet to meet the anticipated additional demand. “

Capital expenditures were $ 11.8 million in 1Q2021. The current estimate for the year is $ 55 million, “consisting primarily of capitalized maintenance of our existing equipment and a selected growth opportunity,” said Palmer.

The cost of products in 1Q2021 was $ 146.2 million, or 80.1%, compared to $ 181.9 million, or 74.6% a year earlier. The cost of products decreased primarily due to lower expenses, in line with lower activity levels and ongoing cost reduction initiatives.

Net losses in 1Q2021 totaled $ 9.7 million (minus 5 cents / share) compared to a 1Q2020 loss of $ 160.4 million (minus 76 cents). Operating losses were $ 10.5 million, compared to a loss of nearly $ 219 million a year ago.

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