Overview
The following discussion should be read in conjunction with the Consolidated
Financial Statements included elsewhere in this document. See also
"Forward-Looking Statements" on page 26.
RPC, Inc. ("RPC") provides a broad range of specialized oilfield services
primarily to independent and major oilfield companies engaged in exploration,
production and development of oil and gas properties throughout the United
States, including the Gulf of Mexico, mid-continent, southwest, Rocky Mountain
and Appalachian regions, and in selected international locations. The Company's
revenues and profits are generated by providing equipment and services to
customers who operate oil and gas properties and invest capital to drill new
wells and enhance production or perform maintenance on existing wells. We
continuously monitor factors that impact current and expected customer activity
levels, such as the prices of oil and natural gas, changes in pricing for our
services and equipment, and utilization of our equipment and personnel. Our
financial results are affected by geopolitical factors such as political
instability in the petroleum-producing regions of the world, the actions of the
OPEC oil cartel, overall economic conditions and weather in the United States,
the prices of oil and natural gas, and our customers' drilling and production
activities.
The discussion of our key business and financial strategies set forth under the
Overview section in the Company's annual report on Form 10-K for the fiscal year
ended December 31, 2021 is incorporated herein by reference. In 2022, the
Company's strategy of utilizing equipment in unconventional basins has
continued. During the six months ended June 30, 2022, capital expenditures
totaled $50.6 million, primarily for capitalized maintenance and upgrades of our
existing equipment.
During the second quarter of 2022, revenues of $375.5 million increased by
$186.8 million or 98.9 percent compared to the same period in the prior year.
The increase in revenues is due to improved pricing and higher customer activity
levels as well as a larger fleet of active pressure pumping equipment.
International revenues for the second quarter of 2022 decreased 7.5 percent to
$6.7 million compared to the same period in the prior year. We continue to
pursue international growth opportunities, but the nature of this work is
unpredictable and we believe that international revenues will continue to be
less than ten percent of RPC's consolidated revenues in the future.
Cost of revenues increased primarily due to increases in expenses consistent
with higher activity levels, such as materials and supplies expenses,
maintenance and repairs expenses, employment costs and fuel costs. In addition,
these costs increased due to higher market prices for materials and supplies,
fuel and other raw materials. Cost of revenues as a percentage of revenues
decreased due to leverage of direct costs over higher revenues as well as
improved pricing for our services.
Selling, general and administrative expenses increased to $35.9 million in the
second quarter of 2022 from $29.4 million in the second quarter of 2021
primarily due to increases in employment costs. Selling, general and
administrative expenses decreased from 15.6 percent of revenues in the second
quarter of 2021 to 9.6 percent of revenues in the second quarter of 2022 due to
leverage of costs that are relatively fixed during the short term over higher
revenues.
Income before income taxes was $60.4 million for the three months ended June 30,
2022 compared to a $693 thousand loss before income taxes in the same period of
2021. Diluted earnings per share were $0.22 for the three months ended June 30,
2022 compared to $0.00 per share in the same period of 2021. Despite higher
earnings, cash provided by operating activities decreased to $42.9 million for
the six months ended June 30, 2022 compared to $54.9 million in the same period
of 2021 primarily due to unfavorable changes in working capital from higher
business activity levels experienced in the first six months of 2022.
We currently expect capital expenditures to be approximately $150.0 million
during 2022 and to be directed primarily towards capitalized maintenance of our
existing equipment and selected growth opportunities. In addition, RPC will make
$24.0 million of finance lease payments during 2022 for a pressure pumping fleet
acquired in 2021, inclusive of a $20.0 million final payment to be made in the
third quarter of 2022.
19
Table of Contents
RPC, INC. AND SUBSIDIARIES
Outlook
RPC monitors rig count efficiencies and well completion trends because the
majority of our services are directed toward well completions. Improvements in
drilling rig efficiencies have increased the number of potential well
completions for a given drilling rig count; therefore, the statistics regarding
well completions are more meaningful indicators of the outlook for RPC's
activity levels and revenues. Annual well completions during 2018 increased by
approximately 25 percent compared to 2017, and by approximately five percent in
2019 compared to 2018. Well completions in 2020 decreased by approximately 49
percent compared to 2019 due to the impact of COVID-19. However, well
completions in 2021 increased by approximately 33 percent compared to 2020. Well
completions for the first six months of 2022 increased 26.3 percent compared to
the same period in the prior year.
Drilling activity in the U.S. domestic oilfields, as measured by the rotary
drilling rig count, reached a cyclical peak of 1,083 during the fourth quarter
of 2018. Between the fourth quarter of 2018 and the third quarter of 2020, the
drilling rig count fell by 77 percent. During the third quarter of 2020, the
U.S. domestic drilling rig count reached the lowest level recorded up to that
time. The principal catalyst for this steep rig count decline was the decrease
in the price of oil in the world markets resulting from the decline in global
oil demand associated with the COVID-19 pandemic which began in the first
quarter of 2020. Rig count for the first six months of 2022 increased 59.5
percent compared to the same period in the prior year.
The current and projected prices of oil, natural gas and natural gas liquids are
important catalysts for U.S. domestic drilling activity. Following the trough of
the most recent oilfield downturn in the second quarter of 2020, the price of
oil has risen by more than 298 percent in the second quarter of 2022 compared to
the average price of oil in the second quarter of 2020. The price of natural gas
has risen by over 300 percent during the same time period. Following a low price
of $0.23 per gallon in the second quarter of 2020, the price of benchmark
natural gas liquids has risen to $1.26 per gallon in the second quarter of 2022.
In addition, oil and gas prices experienced increases beginning in February 2022
due to concerns about potential world-wide supply constraints resulting from the
Russian invasion of Ukraine. The price increases in these commodities during the
past year are favorable for our business, and RPC believes that they have
encouraged our customers to increase drilling and completion activities.
The Russian invasion of Ukraine during the first quarter of 2022 prompted
Western European countries to curtail or eliminate their purchases of natural
gas from Russia. As a result, the demand for liquified natural gas from the
United States increased significantly, which increased the price for natural gas
in the United States to its highest level since 2008 and has encouraged
additional investment in liquified natural gas production facilities in the
United States. These higher prices and additional investments in natural gas
infrastructure should encourage RPC's customers to increase their natural
gas-directed exploration and production activities.
The majority of the U.S. domestic rig count remains directed towards oil. In the
second quarter of 2022, approximately 79 percent of the U.S. domestic rig count
was directed towards oil, unchanged compared to the same period in the prior
year. We believe that oil-directed drilling will remain the majority of domestic
drilling, and that natural gas-directed drilling will remain a low percentage of
U.S. domestic drilling in the near term. However, we believe that natural
gas-directed drilling has increased and will continue to increase in natural
gas-directed basins in the United States due to the current and projected high
prices of natural gas. This trend should be favorable for the demand for RPC's
services in these basins.
We continue to monitor the market for our services and the competitive
environment, including the current trends and expectations with regard to
environmental concerns and related impact on our equipment fleets. The growing
efficiency with which oilfield completion crews are providing services is a
catalyst for the oversupplied nature of the oilfield services market. We believe
that most of the feasible efficiency gains have been realized, and a number of
our smaller competitors have ceased operations. These factors, combined with the
increase in drilling and completion activities and the improvement in commodity
prices, leads us to believe that the competitive market for our services has
improved during the first six months of 2022 and we expect demand will continue
to improve during the near term.
20
Table of Contents
RPC, INC. AND SUBSIDIARIES
During the third quarter of 2021, RPC entered into a finance lease arrangement
for a new Tier 4 dual-fuel pressure pumping fleet, which immediately went to
work at the beginning of the fourth quarter of 2021. We have selectively
upgraded our existing equipment to operate using multiple fuel sources and to
take advantage of advances in technology and data collection. We will continue
to monitor current and expected customer activity levels and projected financial
returns as we consider activating additional idle equipment during the near
term. RPC's response to our industry's current higher activity levels and
improved service pricing is to maintain and upgrade our fleet of
revenue-producing equipment as well as to add new revenue-producing equipment if
the projected financial returns of such capital expenditures meet our financial
return criteria. The Company is allocating capital to maintain the capacity of
its pressure pumping fleet to offset anticipated fleet retirements. RPC is
currently refurbishing an existing pressure pumping fleet that will be placed in
service in early 2023, and we have ordered a pressure pumping fleet that is
projected to be delivered in the first half of 2023.
Results of Operations
Three months ended Six months ended
June 30, June 30,
2022 2021 2022 2021
Consolidated revenues [in thousands] $ 375,507 $ 188,757 $ 660,131 $ 371,367
Revenues by business segment [in thousands]:
Technical $ 356,103 $ 176,119 $ 622,452 $ 348,760
Support 19,404 12,638 37,679 22,607
Consolidated operating income (loss) [in
thousands] $ 60,415 $ (1,220) $ 83,450 $ (11,741)
Operating income (loss) by business segment
[in thousands]:
Technical $ 59,827 $ 1,428 $ 81,638 $ (4,334)
Support 3,334 (2,402) 6,114 (5,298)
Corporate (4,544) (3,357) (9,054) (6,680)
Gain on disposition of assets, net 1,798 3,111 4,752 4,571
Percentage cost of revenues to revenues 69.5 % 77.2 % 71.2 % 78.6 %
Percentage selling, general & administrative
expenses to revenues 9.6 % 15.6 % 10.9 % 16.2 %
Percentage depreciation and amortization
expense to revenues 5.4 % 9.5 % 6.0 % 9.6 %
Average U.S. domestic rig count 719 453 678 425
Average natural gas price (per thousand
cubic feet (mcf)) $ 7.49 $ 2.98 $ 6.09 $ 3.29
Average oil price (per barrel) $ 108.99 $ 66.6 $ 102.03 $ 62.40THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THREE MONTHS ENDED JUNE 30, 2021
Revenues. Revenues of $375.5 million for the three months ended June 30, 2022
increased 98.9 percent compared to the three months ended June 30, 2021.
Domestic revenues of $368.8 million increased 103.2 percent for the three months
ended June 30, 2022 compared to the same period in the prior year. The increase
in revenues was primarily due to improved pricing and higher customer activity
levels as well as a larger fleet of active pressure pumping equipment.
International revenues of $6.7 million decreased 7.5 percent for the three
months ended June 30, 2022 compared to the same period in the prior year.
During the second quarter of 2022, the average price of oil was 63.6 percent
higher and the average price of natural gas was 151.3 percent higher, both as
compared to the same period in the prior year. Oil and gas prices are higher due
to continued strong demand as well as supply constraints worldwide due to the
Russian invasion of Ukraine during the first quarter of 2022. The average
domestic rig count during the second quarter of 2022 was 58.7 percent higher
than the same period in 2021.
The Technical Services segment revenues for the second quarter of 2022 increased
by 102.2 percent compared to the same period of the prior year due to higher
customer activity levels, improved pricing and a larger fleet of pressure
pumping equipment in service. Technical Services reported operating income of
$59.8 million during the second quarter of 2022 compared to operating income of
$1.4 million in the second quarter of 2021. The Support Services segment
revenues for the second quarter of 2022 increased by 53.5 percent compared to
the same period in the prior year, primarily due to higher activity levels and
improved pricing within rental tools.
21
Table of Contents
RPC, INC. AND SUBSIDIARIES
Support Services reported operating income of $3.3 million for the second
quarter of 2022 compared to an operating loss of $2.4 million for the second
quarter of 2021.
Cost of revenues. Cost of revenues increased 79.0 percent to $260.9 million for
the three months ended June 30, 2022 compared to $145.8 million for the three
months ended June 30, 2021. Cost of revenues increased primarily due to
increases in expenses consistent with higher activity levels, such as materials
and supplies expenses, maintenance and repairs expenses, employment costs and
fuel costs. In addition, these costs increased due to higher market prices for
materials and supplies, fuel and other raw materials. Cost of revenues as a
percentage of revenues decreased primarily due to leverage of direct costs over
higher revenues as well as improved pricing for our services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $35.9 million for the three months ended
June 30, 2022 compared to $29.4 million for the three months ended June 30,
2021, primarily due to increases in employment related costs. Selling, general
and administrative expenses decreased from 15.6 percent of revenues in the
second quarter of 2021 to 9.6 percent of revenues in the second quarter of 2022
due to leverage of costs that are relatively fixed during the short term over
higher revenues.
Depreciation and amortization. Depreciation and amortization increased 12.3
percent to $20.1 million for the three months ended June 30, 2022, compared to
$17.9 million for the three months ended June 30, 2021. Depreciation and
amortization increased due to capital expenditures in the past year.
Gain on disposition of assets, net. Gain on disposition of assets, net was $1.8
million for the three months ended June 30, 2022 compared to a gain on
disposition of assets, net of $3.1 million for the three months ended June 30,
2021. The gain on disposition of assets, net is generally comprised of gains and
losses related to various property and equipment dispositions or sales to
customers of lost or damaged rental equipment.
Other income, net. Other income, net was $79 thousand for the three months ended
June 30, 2022 compared to other income, net of $616 thousand for the same period
in the prior year.
Interest expense. Interest expense was $222 thousand for the three months ended
June 30, 2022 compared to $103 thousand for the three months ended June 30,
2021. The increase in interest expense is primarily due to interest related to
the finance lease that began in the third quarter of 2021. Interest expense also
includes facility fees on the unused portion of the credit facility and the
amortization of loan costs.
Income tax provision. Income tax provision was $13.5 million during the three
months ended June 30, 2022 compared to $33 thousand for the same period in 2021.
The effective tax rate was 22.3 percent for the three months ended June 30, 2022
compared to 4.8 percent for the three months ended June 30, 2021. The increase
in the 2022 effective tax rate is primarily due to an increase in pre-tax income
coupled with unfavorable permanent adjustments, partially offset by
incrementally favorable discrete adjustments.
SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO SIX MONTHS ENDED JUNE 30, 2021
Revenues. Revenues of $660.1 million for the six months ended June 30, 2022
increased 77.8 percent compared to the six months ended June 30, 2021. Domestic
revenues of $644.2 million increased 107.5 percent for the six months ended June
30, 2022 compared to the same period in the prior year. The increase in revenues
was due to higher customer activity levels, pricing improvements and a larger
fleet of pressure pumping equipment in service. International revenues of $16.0
million decreased 29.3 percent for the six months ended June 30, 2022 compared
to the same period in the prior year.
During the first six months of 2022, the average price of oil was 63.5 percent
higher and the average price of natural gas was 85.1 percent higher, both as
compared to the same period in the prior year. Oil and gas prices are higher due
to continued strong demand as well as supply constraints worldwide due to the
Russian invasion of Ukraine during the first quarter of 2022. The average
domestic rig count during the first six months of 2022 was 59.5 percent higher
than the same period in 2021.
The Technical Services segment revenues for the first six months of 2022
increased by 78.5 percent compared to the same period of the prior year due to
higher activity levels and improved pricing. Technical Services reported
operating income of $81.6 million during the first six months of 2022 compared
to an operating loss of $4.3 million during the first six months of 2021. The
Support Services segment revenues for the first six months of 2022 increased by
66.7 percent compared to the same period in the prior year,
22
Table of Contents
RPC, INC. AND SUBSIDIARIES
primarily due to higher activity levels for rental tools. Support Services
reported operating income of $6.1 million for the first six months of 2022
compared to an operating loss of $5.3 million for the first six months of 2021.
Cost of revenues. Cost of revenues increased 60.9 percent to $469.8 million for
the six months ended June 30, 2022 compared to $292.0 million for the six months
ended June 30, 2021. Cost of revenues increased primarily due to increases in
expenses consistent with higher activity levels, such as materials and supplies
expenses, maintenance and repairs expenses, employment costs and fuel costs. In
addition, these costs increased due to higher market prices for materials and
supplies, fuel and other raw materials. Cost of revenues as a percentage of
revenues decreased due to the leverage of direct employment costs over higher
revenues and a favorable job mix within pressure pumping.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $72.1 million for the six months ended June
30, 2022 compared to $60.0 million for the six months ended June 30, 2021,
primarily due to increases in employment related costs including incentive
compensation. Selling, general and administrative expenses decreased from 16.2
percent of revenues in the second quarter of 2021 to 10.9 percent of revenues in
the second quarter of 2022 due to leverage of costs that are relatively fixed
during the short term over higher revenues.
Depreciation and amortization. Depreciation and amortization increased 10.9
percent to $39.6 million for the six months ended June 30, 2022, compared to
$35.7 million for the six months ended June 30, 2021. Depreciation and
amortization increased due to capital expenditures in the past year.
Gain on disposition of assets, net. Gain on disposition of assets, net was $4.8
million for the six months ended June 30, 2022 compared to a gain on disposition
of assets, net of $4.6 million for the six months ended June 30, 2021. The gain
on disposition of assets, net is generally comprised of gains and losses related
to various property and equipment dispositions or sales to customers of lost or
damaged rental equipment.
Other income, net. Other income, net was $583 thousand for the six months ended
June 30, 2022 compared to other income, net of $1.1 million for the same period
in the prior year.
Interest expense. Interest expense was $400 thousand for the six months ended
June 30, 2022 compared to $483 thousand for the six months ended June 30, 2021.
Interest expense includes facility fees on the unused portion of the credit
facility and the amortization of loan costs. Interest expense for the first six
months of 2022 includes interest related to the finance lease that began in the
third quarter of 2021.
Income tax provision (benefit). Income tax provision was $21.8 million during
the six months ended June 30, 2022 compared to $681 thousand tax benefit for the
same period in 2021. The effective provision rate was 26.0 percent for the six
months ended June 30, 2022 compared to a 6.2 percent effective benefit rate for
the six months ended June 30, 2021. The increase in the 2022 effective tax rate
is primarily due an increase in pre-tax income coupled with unfavorable
permanent adjustments and discrete adjustments.
Liquidity and Capital Resources
Cash Flows
The Company's cash and cash equivalents decreased $4.2 million to $78.2 million
as of June 30, 2022 compared to cash and cash equivalents of $82.4 million as of
December 31, 2021.
The following table sets forth the historical cash flows for the six months
ended June 30, 2022 and 2021:
Six months ended June 30,
(In thousands) 2022 2021
Net cash provided by operating activities $ 42,853 $ 54,866
Net cash used for investing activities
(43,430) (17,781)
Net cash used for financing activities (3,623) (566)
23
Table of Contents
RPC, INC. AND SUBSIDIARIES
Cash provided by operating activities for the six months ended June 30, 2022 was
$42.9 million, a decrease of $12.0 million compared to the six months ended June
30, 2021. Cash provided by operating activities for the six months ended June
30, 2022 includes net income of $62.0 million, less an unfavorable change in
accounts receivable of $98.8 million, partially offset by favorable changes in
other components of our working capital (accounts payable, accrued payroll and
taxes receivable) totaling $45.7 million. The net unfavorable changes in working
capital were the result of increased business activity levels.
Cash used for investing activities for the six months ended June 30, 2022
increased by $25.6 million compared to the six months ended June 30, 2021,
primarily because of an increase in capital expenditures consistent with higher
business activity levels.
Cash used for financing activities for the six months ended June 30, 2022
increased by $3.1 million primarily as a result of cash paid for a finance lease
initiated in the third quarter of 2021.
Financial Condition and Liquidity
The Company's financial condition as of June 30, 2022 remains strong. We believe
the liquidity provided by our existing cash and cash equivalents and our overall
strong capitalization will provide sufficient liquidity to meet our requirements
for at least the next twelve months. The Company's decisions relating to the
amount of cash to be used for investing and financing activities are influenced
by our capital position, and the expected amount of cash to be provided by
operations. RPC does not currently expect to utilize our revolving credit
facility to meet these liquidity requirements.
The Company currently has a $100.0 million revolving credit facility that
matures in June 2027 as recently amended. The facility contains customary terms
and conditions, including restrictions on indebtedness, dividend payments,
business combinations and other related items. In the second quarter of 2022,
the company further amended the revolving credit facility. Among other matters,
the amendment (1) extends the termination date for revolving loans from July 26,
2023 to June 22, 2027, (2) replaces LIBOR with Term SOFR as an interest rate
option in connection with revolving loan borrowings and reduces the applicable
rate margins by approximately 25.0 basis points at each pricing level, (3)
introduces a 1.00% per annum floor for base rate borrowings, (4) permits the
issuance of letters of credit in currencies other than U.S. dollars. As of June
30, 2022, RPC had no outstanding borrowings under the revolving credit facility,
and letters of credit outstanding relating to self-insurance programs and
contract bids totaled $16.3 million; therefore, a total of $83.7 million of the
facility was available. The Company was in compliance with the credit facility
financial covenants as of June 30, 2022. For additional information with respect
to RPC's facility, see Note 11 of the Notes to Consolidated Financial Statements
included in this report.
Cash Requirements
The Company currently expects that capital expenditures will be approximately
$150.0 million in 2022 and will be directed towards both capitalized maintenance
of our existing equipment and selected growth opportunities. The Company is
allocating capital to maintain the capacity of its pressure pumping fleet to
offset anticipated fleet retirements. RPC is currently refurbishing an existing
fleet that will be placed in service in early 2023, and has ordered a pressure
pumping fleet expected to be delivered and paid for in the first half of 2023.
Also, during the current year, RPC will make $24.0 million of finance lease
payments for a pressure pumping fleet acquired in 2021, inclusive of a $20.0
million final payment in the third quarter of 2022. The actual amount of 2022
capital expenditures will depend primarily on equipment maintenance
requirements, expansion opportunities, and equipment delivery schedules.
The Company has ongoing sales and use tax audits in various jurisdictions
subject to varying interpretations of statutes. The Company has recorded the
exposure from these audits to the extent issues are resolved or are reasonably
estimable. There are issues that could result in unfavorable outcomes that
cannot be currently estimated. See Note 9 of the Notes to Consolidated Financial
Statements for additional information.
During the fourth quarter of 2021, the Company initiated actions to terminate
the defined benefit pension plan which is expected to be completed in early
2023. The Company currently expects to make a final cash contribution of
approximately $7.0 million to $8.0 million as part of the termination. The
Company did not make a cash contribution to this plan during the six months
ended June 30, 2022 or June 30, 2021.
As of June 30, 2022, the Company's stock buyback program authorizes the
aggregate repurchase of up to 41,578,125 shares, including an additional
10,000,000 shares authorized for repurchase by the Board of Directors in 2018.
No shares have been purchased on the open market during the three months ended
June 30, 2022, and 8,248,184 shares remain available to be repurchased under the
24
Table of Contents
RPC, INC. AND SUBSIDIARIES
current authorization. The Company may repurchase outstanding common shares
periodically based on market conditions and our capital allocation strategies
considering restrictions under our credit facility. The stock buyback program
does not have a predetermined expiration date.
On July 26, 2022, the Board of Directors approved the reinstatement and
declaration of a regular quarterly cash dividend of $0.02 per share payable
September 9, 2022 to common stockholders of record at the close of business on
August 10, 2022. The Company expects to continue to pay cash dividends to common
stockholders, subject to industry conditions and RPC's earnings, financial
condition, and other relevant factors.
INFLATION
The Company purchases its equipment and materials from suppliers who provide
competitive prices, and employs skilled workers from competitive labor markets.
If inflation in the general economy increases, the Company's costs for
equipment, materials and labor could increase as well. In addition, increases in
activity in the domestic oilfield can cause upward wage pressures in the labor
markets from which it hires employees, especially if employment in the general
economy increases. Also, activity increases can cause supply disruptions and
higher costs of certain materials and key equipment components used to provide
services to the Company's customers. Beginning in 2018, prices for the raw
material comprising the Company's single largest purchase began to decline due
to increased sources of supply of the material, particularly in geographic
markets located close to the largest U.S. oil and gas basin. In addition, labor
costs declined throughout 2020 due to the significant decline in oilfield
activity. However, during 2021 and continuing into 2022, the price of labor has
been increasing due to improving oilfield activity and labor shortages caused by
the departure of skilled labor from the domestic oilfield industry in prior
years.
During 2022, market prices of some raw materials and key equipment components
have increased significantly. We have successfully increased the pricing for our
equipment and services to cover much of these cost increases, but due to the
competitive nature of the oilfield services business, there is no assurance that
we will be able to continue to do this successfully in the future.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet arrangements.
RELATED PARTY TRANSACTIONS
Marine Products Corporation
In conjunction with the spin-off of its former power boat manufacturing segment
conducted through Chaparral Boats, Inc., RPC and Marine Products Corporation
(Marine Products) entered into various agreements that define the companies'
relationship. RPC charged Marine Products for its allocable share of
administrative costs incurred for services rendered on behalf of Marine Products
Corporation totaling $473 thousand for the six months ended June 30, 2022 and
$437 thousand for the comparable period in 2021.
Other
The Company periodically purchases, in the ordinary course of business, products
or services from suppliers that are owned by officers or significant
stockholders of, or affiliated with the directors of RPC. The total amounts paid
to these affiliated parties were $740 thousand for the six months ended June 30,
2022 and $514 thousand for the six months ended June 30, 2021.
RPC receives certain administrative services and rents office space from
Rollins, Inc. (a company of which Mr. Gary W. Rollins is Chairman, and which is
controlled by Mr. Rollins and his affiliates). The service agreements between
Rollins, Inc. and the Company provide for the provision of services on a cost
reimbursement basis and are terminable on three months' notice. The services
covered by these agreements include office space, selected administrative
services for certain employee benefit programs, and other administrative
services. Charges to the Company (or to corporations which are subsidiaries of
the Company) for such services and rent aggregated $52 thousand for each of the
six months ended June 30, 2022 and June 30, 2021.
RPC and Marine Products own 50 percent each of a limited liability company
called 255 RC, LLC that was created for the joint purchase and ownership of a
corporate aircraft. RPC recorded certain net operating costs comprised of rent
and an allocable share of fixed costs of $100 thousand for each of the six
months ended June 30, 2022 and June 30, 2021.
25
Table of Contents
RPC, INC. AND SUBSIDIARIES
CRITICAL ACCOUNTING POLICIES
The discussion of Critical Accounting Policies is incorporated herein by
reference from the Company's annual report on Form 10-K for the fiscal year
ended December 31, 2021. There have been no significant changes in the critical
accounting policies since year-end.
IMPACT OF RECENT ACCOUNTING STANDARDS
See Note 2 of the Notes to Consolidated Financial Statements for a description
of recent accounting standards, including the expected dates of adoption and
estimated effects on results of operations and financial condition.
SEASONALITY
Oil and natural gas prices affect demand throughout the oil and natural gas
industry, including the demand for the Company's products and services. The
Company's business depends in large part on the economic conditions of the oil
and gas industry, and specifically on the capital expenditures of its customers
related to the exploration and production of oil and natural gas. There is a
positive correlation between these expenditures and customers' demand for the
Company's services. As such, when these expenditures fluctuate, customers'
demand for the Company's services fluctuates as well. These fluctuations depend
on the current and projected prices of oil and natural gas and resulting
drilling activity, and are not seasonal to any material degree.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report that are not historical facts are
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements may include, without limitation,
statements that relate to our business strategy, plans and objectives, and our
beliefs and expectations regarding future demand for our equipment and services
and other events and conditions that may influence the oilfield services market
and our performance in the future. Forward-looking statements made elsewhere in
this report include, without limitation, statements regarding: our ability to
continue to monitor factors that impact current and expected customer activity
levels, such as the prices of oil and natural gas, changes in pricing for our
services and equipment, and utilization of our equipment and personnel; the
effect of geopolitical factors such as political instability in the
petroleum-producing regions of the world, the actions of the OPEC oil cartel,
overall economic conditions and weather in the Unites States, the prices of oil
and natural gas, and our customers' drilling and production activities on our
financial results; our strategy of utilizing equipment in unconventional basins;
our plans to continue to pursue international growth opportunities; our belief
that international revenues will continue to be less than ten percent of our
consolidated revenues in the future; our expectation that capital expenditures
will be approximately $150.0 million during 2022 and will be directed primarily
towards capitalized maintenance of our existing equipment and selected growth
opportunities; our belief that the statistics regarding well completions are
more meaningful indicators of the outlook for our activity levels and revenues;
our belief that oil and gas price increases during the past year are favorable
for our business and our belief that such price increases have encouraged our
customers to increase drilling and completion activities; our belief that higher
prices for natural gas and additional investments in natural gas infrastructure
should encourage our customers to increase their natural gas-directed
exploration and production activities; our belief that oil-directed drilling
will remain the majority of domestic drilling and that natural gas-directed
drilling will remain a low percentage of U.S. domestic drilling in the
near-term; our belief that natural gas-directed drilling has increased and will
continue to increase in natural gas-directed basins in the United States due to
the current and projected high prices of natural gas and that this trend should
be favorable for the demand for our services in these basins; our plans to
continue to monitor the market for our services and the competitive environment,
including the current trends and expectations with regard to environmental
concerns and related impact on our equipment fleets; our belief that the growing
efficiency with which oilfield completion crews are providing services is a
catalyst for the oversupplied nature of the oilfield services market; our belief
that most of the feasible efficiency gains have been realized and that a number
of our smaller competitors have ceased operations; our belief that the
competitive market for our services will improve during the near term; our plans
to continue to selectively upgrade our existing equipment to operate using
multiple fuel sources and to take advantage of advances in technology and data
collection; our plans to continue to monitor current and expected customer
activity levels and projected financial returns as we consider activating
additional idle equipment during the near term; our plans to allocate capital to
maintain the capacity of our pressure pumping fleet to offset anticipated fleet
requirements; our plans to refurbish an existing fleet that will be activated in
2023 and our expectations regarding the delivery of a pressure pumping fleet in
the first half of 2023; our plans to respond to the industry's current higher
activity levels and improved service pricing by maintaining and upgrading our
fleet of revenue-producing equipment as well as adding new revenue-producing
equipment if the projected financial returns of such capital expenditures meet
our financial return criteria; the strength of our financial condition;
expectations about contributions to the defined benefit pension plan in 2022 and
thereafter; our belief that the liquidity provided by our existing cash and cash
equivalents and our overall strong
26
Table of Contents
RPC, INC. AND SUBSIDIARIES
capitalization will provide sufficient liquidity to meet our requirements for at
least the next twelve months; our belief that we will not need our revolving
credit facility to meet our liquidity requirements; our expectations to continue
to pay cash dividends to common stockholders, subject to industry conditions and
RPC earnings, financial condition and other relevant factors; estimates made
with respect to our critical accounting policies; the effect of new accounting
standards; the effect of the changes in foreign exchange rates on our
consolidated results of operations or financial condition; and the impact of
lawsuits, legal proceedings and claims on our financial position and results of
operation.
The words "may," "will," "expect," "believe," "anticipate," "project,"
"estimate," "focus," "plan," and similar expressions generally identify
forward-looking statements. Such statements are based on certain assumptions and
analyses made by our management in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes to be appropriate. These statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of RPC to be materially different from any
future results, performance or achievements expressed or implied in such
forward-looking statements. Risk factors that could cause such future events not
to occur as expected include the following: the combined impact of the OPEC
disputes and the COVID-19 pandemic on our operating results, the declines in the
price of oil and natural gas, which tend to result in a decrease in drilling
activity and therefore a decline in the demand for our services, the actions of
the OPEC cartel, the ultimate impact of current and potential political unrest
and armed conflict in the oil producing regions of the world, which could impact
drilling activity, adverse weather conditions in oil or gas producing regions,
including the Gulf of Mexico, competition in the oil and gas industry, the
Company's ability to implement price increases, the potential impact of possible
future regulations on hydraulic fracturing on our business, risks of
international operations, and reliance on large customers. Additional discussion
of factors that could cause actual results to differ from management's
projections, forecasts, estimates and expectations is contained in the Annual
Report on Form 10-K for the fiscal year ended December 31, 2021 and in this
10-Q.
© Edgar Online, source Glimpses
RPC, INC. 
