Service & Supply | Quarterly / Earnings Reports | Oilfield Services | Second Quarter (2Q) Update | Frac Markets - Pressure Pumping
Pressure Pumping Demand Boosts RPC's 2Q Financials
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RPC, Inc. has reported its unaudited results for the second quarter ended June 30, 2014. RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of oil and gas properties throughout the United States and in selected international markets.
For the quarter ended June 30, 2014, revenues increased 27.4 percent to a record $582.8 million compared to $457.6 million in the second quarter of last year. Revenues increased compared to the prior year primarily due to higher activity levels and service intensity in our major service lines and a slightly larger fleet of revenue-producing equipment. Operating profit for the quarter was $103.0 million compared to operating profit of $67.9 million in the prior year. Net income for the quarter was $63.3 million or $0.29 diluted earnings per share, compared to $40.4 million or $0.19 diluted earnings per share last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 33.2 percent to $160.4 million compared to $120.4 million in the prior year.[1] For the six months ended June 30, 2014, revenues increased 22.8 percent to $1.1 billion compared to $883.4 million last year. Net income for the six month period was $102.7 million, or $0.47 diluted earnings per share, compared to $75.5 million, or $0.35 diluted earnings per share last year.
Cost of revenues during the second quarter of 2014 was $374.3 million, or 64.2 percent of revenues, compared to $287.6 million, or 62.8 percent of revenues during the second quarter of last year. Cost of revenues increased due to higher materials and supplies expenses, employment costs and maintenance and repair expenses resulting from higher activity levels. As a percentage of revenues, cost of revenues also increased because of more service intensive work and higher raw materials costs as compared to the prior year, partially offset by the impact of improved personnel utilization.
Selling, general and administrative expenses were $47.6 million in both the second quarter of 2014 and 2013. As a percentage of revenues, these costs decreased to 8.2 percent in the second quarter of 2014 compared to 10.4 percent in the second quarter of 2013. Depreciation and amortization increased to $56.5 million during the quarter compared to $52.8 million in the second quarter of the prior year. Interest expense during the second quarter of 2014 was $49.0 thousand, a significant decrease compared to $942.0 thousand during the second quarter of the prior year. Interest expense declined during the second quarter as compared to the prior year due to interest penalties resulting from a sales tax audit during the second quarter of 2013, as well as a reversal of interest penalties related to a favorable outcome of a sales tax audit in the second quarter of 2014. In addition, the interest rates on our revolving credit facility were slightly lower during the second quarter of 2014 than in the second quarter of the prior year.
Discussion of Sequential Quarterly Financial Results
RPC's revenues for the quarter ended June 30, 2014 increased by $81.1 million or 16.2 percent compared to the first quarter of 2014. This increase was due to higher activity levels in all of our major service lines. Cost of revenues during the second quarter increased by $44.3 million or 13.4 percent due to higher activity levels and increased costs of certain raw materials used in providing our services. However, cost of revenues as a percentage of revenues decreased from 65.8 percent of revenues in the first quarter to 64.2 percent of revenues during the second quarter. This decrease was due to increased operating efficiencies and greater utilization of personnel and revenue-producing equipment. Selling, general and administrative expenses during the second quarter of 2014 did not vary materially compared to the first quarter. Operating profit as a percentage of revenues increased from 13.0 percent in the first quarter of 2014 to 17.7 percent in the second quarter of 2014. Net income increased by $23.9 million or 60.7 percent between the first and second quarters, and diluted earnings per share increased by $0.11 or 61.1 percent in the second quarter of 2014 compared to the first quarter.
Richard A. Hubbell, RPC's President and Chief Executive Officer, commented: "RPC's financial performance during the second quarter of 2014 improved compared to the prior quarter and prior year due to higher activity levels and increasing service intensity in our major service lines. Although there was no discernible increase in pricing for our services, our activity levels were high throughout the quarter. The average U.S. domestic rig count during the second quarter was 1,852, a 5.2 percent increase compared to the same period in 2013, and a 4.1 percent increase compared to the first quarter of 2014. The average price of natural gas was $4.55 per Mcf, a 14.6 percent increase compared to the prior year, and a 6.4 percent decrease compared to the first quarter of 2014. The average price of oil during the quarter was $103.24 per barrel, a 9.8 percent increase compared to the prior year and a 4.6 percent increase compared to the first quarter of 2014. The unconventional rig count, an important indicator of the demand for RPC's services, increased by 11.6 percent compared to the prior year. During the second quarter of 2014 unconventional drilling represented 78.7 percent of U.S. domestic drilling activity. Our revenues increased by a greater rate than these industry indicators because of our presence in strong domestic oilfield markets such as the Permian Basin and the increasing service intensity of completion work in most of our markets.
"During the second quarter we experienced shortages in some of the raw materials used to perform our pressure pumping services. Cost increases accompanied these shortages, as well as higher transportation expenses. These factors led to some service delays, and we believe that continued high activity levels in the near term will cause these issues to continue. We will manage these challenges with a focus consistent with our past practices, and we believe that they will not significantly impact the pressure pumping capacity expansion that we have undertaken.
"During the second quarter we invested $72.5 million in maintenance and growth capital expenditures, some of which supported our previously announced pressure pumping expansion plan. At the end of the quarter the balance on our credit facility was $131.4 million, an increase of $50.6 million compared to the end of the first quarter of 2014 and an increase of $64.2 million compared to the end of the second quarter of last year. The balance on our syndicated credit facility increased due to higher capital expenditures and the working capital requirements associated with higher activity levels. Despite this increase, RPC remains conservatively capitalized as we continue our capital expenditure growth plan."
Summary of Segment Operating Performance
RPC's business segments are Technical Services and Support Services.
Technical Services includes RPC's oilfield service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer's well. These services are generally directed toward improving the flow of oil and natural gas from producing formations or to address well control issues. The Technical Services segment includes pressure pumping, coiled tubing, hydraulic workover services, nitrogen, downhole tools, surface pressure control equipment, well control, and fishing tool operations.
Support Services includes RPC's oilfield service lines that provide equipment for customer use or services to assist customer operations. The equipment and services offered include rental of drill pipe and related tools, pipe handling, inspection and storage services and oilfield training services.
Technical Services revenues increased 28.4 percent for the quarter compared to the prior year due to higher activity levels and greater service intensity in the service lines within this segment. Support Services revenues increased by 14.6 percent during the quarter compared to the prior year due principally to higher utilization and an improved job mix in the rental tool service line, which is the largest service line within this segment, as well as higher activity levels in the other service lines which comprise this segment. Operating profit in both Technical and Support Services improved due to higher revenues and greater utilization of personnel and equipment.