This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Good morning and thank you for joining us for RPC Inc's third quarter 2020 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 Services. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.
spk02: Thank you and good morning. Before we begin our call today, I want to remind you that in order to talk about our company, we're going to mention a few things that are not historical facts. Some of the statements that we've made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, along with our 2019 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'll be referring to several non-GAAP measures of operating performance. These non-GAAP measures are adjusted net loss, adjusted loss per share, adjusted operating loss, EBITDA, and adjusted EBITDA. We're using these non-GAAP measures today because they allow us to compare performance consistently over various periods without regard to non-recurring items or changes in capital structure. In addition, RPC is required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release issued today and our website contain reconciliations of these non-GAAP financial measures to operating loss, net loss, and loss per share, which are the nearest GAAP financial measures. Please review these disclosures if you are interested in seeing how they are calculated. If you have not received our press release for any reason, please visit our website at rpc.net for a copy. I will now turn the call over to our President and CEO, Rick Hubbell.
spk05: Thank you, Jim. This morning we issued our earnings press release for RPC's third quarter of 2020. Before we begin discussing RPC's results, I would like to take a moment to recognize R. Randall Rollins, our chairman, who passed away during the third quarter. For nearly half a century, Randall guided our company with a steady hand. He instilled a culture of capital discipline that has allowed RPC to successfully navigate the severe volatility experienced in our industry. He will be missed. RPC's third quarter progressed much as we had expected. U.S. oil field activity improved from the historic lows recorded in the second quarter, and RPC capitalized on this with equipment and crews that were in place and prepared to work. Our results improved due to higher revenue, increased utilization, and continued expense management. Our CFO, Ben Palmer, will discuss this and other financial results in more detail, after which I will provide some closing comments.
spk03: Thank you, Rick. The third quarter of 2020 revenues decreased to $116.6 million compared to $293.2 million in the third quarter of the prior year. Revenues decreased due to lower activity levels and pricing compared to the third quarter of the prior year. Operating loss for the third quarter was $31.8 million compared to an adjusted operating loss of $21 million in the third quarter of the prior year. EBITDA for the third quarter was negative $12.3 million compared to adjusted EBITDA of $22.8 million in the same period of the prior year. For the third quarter of 2020, RPC reported a $0.09 adjusted loss per share compared to an $0.08 adjusted loss per share in the third quarter of the prior year. Cost of revenues during the third quarter was $100.9 million or 86.5% of revenues compared to $225.2 million or 76.8% of revenues during the third quarter of 2019. Cost of revenues declined primarily due to decreases in expenses consistent with lower activity levels and RPC's cost reduction initiatives. Cost of revenues as a percentage of revenues increased due primarily to lower pricing for our services. Selling general and administrative expenses decreased to $32.4 million in the third quarter of 2020, compared to $42.6 million in the third quarter of the prior year. These expenses decreased due to lower employment costs, primarily the result of cost reduction initiatives during previous quarters, partially offset by 3.3 million of accelerated amortization of restricted stock related to the passing of our adjournment. Appreciation and amortization decreased to 18.7 million in the third quarter of 2020, compared to 44.7 million in the third quarter of the prior year. Depreciation and amortization decreased significantly, primarily due to asset impairment charges recorded in previous quarters, which reduced the net book value of RPC's property, plant, and equipment, as well as lower capital expenditures. Our technical services segment revenues for the quarter decreased 60.2% compared to the same quarter in the prior year. Segment operating loss in the third quarter of 2020 was $24.9 million compared to $18.2 million in the third quarter of the prior year. This increased loss was due to significantly lower activity and pricing, partially offset by lower depreciation and amortization expenses. Sports services segment revenues for the quarter decreased 61% compared to the same quarter in the prior year. Segment operating loss in the third quarter of 2020 was $3.8 million compared to an operating profit of $1.6 million in the third quarter of the prior year. On a sequential basis, RPC's third quarter revenues increased 30.6% to $116.6 million from $89.3 million in the prior quarter. This was due to activity increases in several of our larger completion-related service lines. Cost of revenues during the third quarter of 2020 increased by 20.8 million or 26% due to expenses which increased with higher activity levels such as materials and supplies and maintenance expenses. As a percentage of revenues, cost of revenues decreased from 89.6% in the second quarter of 2020 to 86.5% in the third quarter due to more efficient labor utilization and the leverage of higher revenues over direct costs, which are relatively fixed during the short term. Selling general and administrative expenses during the third quarter of 2020 increased 12.5% to $32.4 million from $28.8 million in the prior quarter, primarily due to the $3.3 million accelerated vesting of restricted stocks. RPC incurred an operating loss of $31.8 million during the third quarter of 2020 compared to an adjusted operating loss of $35.9 million in the prior quarter. RPC's EBITDA was negative $12.3 million in the third quarter of 2020 compared to adjusted EBITDA of negative $17.8 million in the prior quarter. Our technical services segment revenues increased by $28.7 million or 35.7% to $109.3 million in the third quarter due to increased activity levels in several service lines. RPC's technical services segment incurred a $24.9 million operating loss in the current quarter compared to an operating loss of $34.1 million in the prior quarter. Our support services segment revenues decreased by $1.5 million or 16.6% to $7.3 million in the third quarter. Operating loss was $3.8 million compared to an operating loss of $1.8 million in the prior quarter. During the third quarter, RPC operated as many as five horizontal pressure pumping fleets. At the end of the third quarter of 2020, RPC's pressure pumping capacity remained at approximately 728,000 hydraulic horsepower. Third quarter 2020 capital expenditures were $13.7 million, and we currently estimate the four-year capital expenditures to be approximately $60 to $70 million, and comprised primarily of capitalized maintenance of our existing equipment, as well as upgrades of selected pressure pumping equipment for dual fuel capability. And with that, I'll turn it back over to Rick for some closing remarks.
spk05: Thank you, Ben. As we indicated on last quarter's conference call, we believe domestic oil field activity bottomed out during the second quarter. The downturn in our industry experience was perhaps the steepest and most severe ever encountered. The fact RPC is weathering it as well as we are is a testament to the dedication and hard work of our employees. Despite the uptick in activity, the modest industry improvements experienced during the third quarter are insufficient to generate sustainable financial returns. Much of the recent increase in our industry-wide activity has been driven by operators completing previously drilled wells. For our service industry to remain healthy, we need to see sustained growth in the rig count, followed by higher service pricing. The recent consolidations among the exploration and production companies likely represent a headwind in that regard. Therefore, until we see the signs that demand for our services is likely to grow substantially, we will continue to focus on expense management and limit our capital investments. At the end of the third quarter, RBC's cash balance was $145.6 million, and we remained debt-free. This financial strength allows us to continue operating in this difficult environment, make selective investments, and respond appropriately as the industry evolves. Our goal is to be free cash flow positive in 2021. Thank you for joining us for RPC's conference call this morning. At this time, we will open up the lines for your questions.
spk00: Thank you. In order to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, please press the pound or hash key. Your first question this morning comes from Ian McPherson from Simmons. Please go ahead.
spk04: Good morning, gentlemen. I'd like to offer my condolences on the passing of Mr. Rollins, first of all, and thanks for the outlook here. Well, things are not getting a lot easier in the near term. And we're seeing, you know, accelerating consolidation on your customer front. And I know that RPC has always been a very, you know, six-year knitting conservatively run company. But it seems like the, you know, the entire imperative for consolidation and upstream is just coming towards us more quickly. And I wonder if your calculus is, around industry structure and M&A has changed given the recent events with a tougher slog with the commodity outlook as well as a faster consolidation spree amongst the E&P side and how you're evaluating your capital allocation in light of those changes.
spk03: Lee, and this is Ben. Yeah, things are rapidly evolving, and as we indicated, we think all things equal. That does present perhaps another headwind for the industry and us, but what actually will happen is not clear in terms of the extent to which there will be that consolidation in terms of our view with consolidation. We think there will be more consolidation within the industry. We haven't significantly changed our strategic priorities here internally due to those activities, but it's something that we constantly look at and review. At this point in time, we're We are certainly operationally focused internally. We have a goal to – we're fortunate enough to have a strong balance sheet with a strong cash position that allows us to have some patience with respect to getting ourselves back to a free cash flow positive standpoint, but we're not going to rest on that. Our goals, we indicated in 21, is to – to get the free cash flow positive. And, uh, certainly with some of these headwinds, uh, uh, it, it may present, uh, an additional challenge, but, but we have other levers to be able to get there, right? If we, if we don't see sufficient improvement and, uh, in, in the business, uh, we had a nice progression from the third, uh, from the second to the third quarter. Um, the fourth quarter is, uh, You know, it started out, we have some decent visibility, so that's good and that's positive. Of course, we're coming off a very low base, but there is some positive progression there. But we're focused on making sure, again, as we said, in 2021, that we'll be free cash flow positive. And we have internal levers we can pull to get there if the industry doesn't allow it. and we will continue to evaluate our near-term and long-term strategic objective. But we've been independent for a long, long time, but we will continue to evaluate those options here as the industry does evolve.
spk04: Thanks, Ben. And just maybe following up there on the fourth quarter outlook, I just – We know that activity has obviously improved nicely off the bottom, maybe some continued upward momentum into Q4, at least the front half of the quarter. But has pricing for your services bottomed and stabilized? Can you say that with confidence? Is that still – an area of concern and uncertainty? Or do you have good visibility that that part of the equation, at least, you know, is flat to better from here? And also, as we think about not just recasual, but EBITDA recovery from Q3 forward, will we see any more vestigial benefits from your earlier cost outs that maybe weren't fully reflected in the third quarter P&L? That was a mouthful.
spk03: With respect to pricing, we believe for us that it's bottomed. We're not going any lower. That's where we're going to maintain our discipline. And we're hopeful that the industry, with some of the activity that we're talking about on the service side and everything else, hopefully there will be some industry-wide discipline. We're seeing examples where there obviously is a lot of competition, a lot of people bidding on work opportunities and indications that pricing continues to be low. But we have internal metrics that we're adhering to very closely to make sure that we don't chase uh you know contributions or pricing that are that are insufficient for our for our internal measurement purposes at this point in the cycle right again like we said we're we're doing better but certainly the the pricing and the available returns are insufficient at this point in time and uh we hope the overall industry can, again, get some discipline, and hopefully we'll see at least some stabilization and maybe some beginning of improvement there as utilization increases. From a cost standpoint, quite honestly, at this very point, the third quarter was relatively clean. There's not, without additional actions on our part, we think our run rate, you know, we talked about that one item with the accelerated vesting of restricted stock we we kind of have a current run rate which is fairly um whatever known at this point in time but but there are additional levers if we do not see continued progression in in revenues and uh and improvement and either there are other levers again that we will pull but at this point in time the third quarter was pretty relatively quick
spk04: Good. That's very clear. Appreciate it, Ben. I'll pass it over. Thanks, Ian.
spk00: Our next question comes from Chris from Wells Fargo. Please go ahead.
spk11: Thanks. Good morning. Hey, Chris. First question, just on your strategy with task preservation mode, obviously there's a lot of new technologies coming out, some enable efficiency, some on the ESG front, which is popular with customers. How do you think about balancing the need to invest in your fleets to make them more attractive to customer base compared to the need to conserve cash? And maybe in terms of timing, you know, if you see an inflation of activity and other people winning in advance of you, is that a trigger to invest speculatively? Or just wonder if customers will, you know, they probably won't give you the time to upgrade a fleet when they're bidding, right? So just think about your strategy balancing those initiatives.
spk02: Chris, this is Jim. I'll take a stab at some of that. As we mentioned in our prepared remarks, we are upgrading some of our equipment, our pressure-burning equipment, to dual-fuel capability. So we are doing that, and the equipment is working, so it's getting some good customer reception. We also have some Tier 4 equipment, which has been working fairly steadily. So in terms of just equipment standards, those changes are things we're implementing, and we think they're beneficial. On the technology front, we're doing some sort of homegrown initiatives to reduce non-productive time, to track non-productive time, I should say. to reduce idle time, increase fuel efficiency, and thereby decrease emissions. So we have talked to our customers about that and made some statements about what we're doing there. So that's part of it. We are not in a position right now to invest speculatively. The pricing and financial returns in today's oilfield services market do not allow you to make speculative investments, hoping that customers will use you and pay you something extra for the investment that you've made. So that's the unfortunate position we're in. We do have the cash to do it, as we've discussed. We're not focused on some things that some of our peers are having to focus on. We can take a little time and look at things. But we are governed by this financial return metric that has to balance that out.
spk11: Okay, thanks. That's helpful. And for my second question, I think you said you had as many as five fleets operating in the third quarter. I'm curious if you can give the average number of fleets in the third quarter and then how many you have now and what you expect in the fourth quarter, if possible.
spk02: The average was probably 4.5, but there's no such thing as half a fleet, so that's a difficult number. And in the fourth quarter, you know, it's hard to say, let's call it five at this point from an effective point of view, you know, effective utilization point of view. Great. Thank you. Thanks, Chris.
spk00: Our next question comes from Steven Gingar from Stiefel. Please go ahead.
spk01: Thanks, and good morning, gentlemen. Good morning. I guess two things to start with. Jim, can you give us the breakdown of the product lines?
spk02: Sure, Stephen, absolutely. So the numbers I'm about to quote are percentages of consolidated revenues that our largest service lines at RPC generated for the third quarter, third quarter only. So the largest was pressure pumping at 37.0%. The second largest was through tubing solutions at 30.1%. Number three is coil tubing. and that was 10.6% of consolidated revenues. Then comes nitrogen, which was 7.1% of consolidated revenues. Then our rental tool business, which is in our support segment, that was 3.2% of revenues.
spk01: Great. Thank you. And then as a follow-up to another question, when we think about the incremental margin performance in the third quarter. And I'm thinking on the technical services side, it was a little bit above 30% coming off of a fairly low base. Any guidance on how to think about that number going forward here, given the cost cut that's been put in place in the current market conditions?
spk03: This is Ben. It's a good question. And I said earlier that I want to confirm the SG&A number was pretty clean. There were a few items that were operational in nature that we would not say were one time, but there were a few charges that we had that did negatively impact the reported EBITDA. So I guess overall, I think our EBITDA, incremental EBITDA margin was, I think, in the low to mid 20% range. You know, traditionally, we've experienced numbers that are, you know, closer to, you know, 40 plus percent. And I think with some of the adjustments we're referring to, it was closer to that 40%. So I would say in this environment coming off a low base, that that, you know, all things being equal, that it should be something closer to, you know, 40 plus percent incremental margins. being generated.
spk01: Great. That's helpful. Thank you. And then just one final one. When you think about, and you look back maybe with history as a guide for this, but when you think about your discipline, your unwillingness to chase business that are at returns that are below your threshold, as activity gets better, has that ever had any kind of impact on your customer I don't think it has, but I'm just curious sort of how those discussions go as activity rises and then maybe you're reluctant to do business at these levels where others might do it. Has that had any impact competitively historically?
spk02: Steven, this is Jim. Trying to understand the question and respond to it appropriately, I think what you're referring to perhaps is historically when activity rises to a certain level where supply and demand come somewhat in balance, the conversations then with the customers, you know, the first step is that you know we can't work on their schedule we sort of have to work on when we're available and then at some point that is a catalyst for pricing pricing improvements um but we are nowhere near that right now so um but but that's that's how conversations go when activity uh improves uh basically it goes from their schedule to our schedule and at some point the market uh you know, select some pricing for you.
spk03: I'll add to that. I think I interpreted your question similar to Jim. I think this time is different. In the past, you know, when there's been, you know, increases in activity off the bottom, you think, well, here we go again. You know, we have an upswing in activity, so we need to garner – as much work as we can and at whatever current pricing is which which typically maybe not may not be totally sufficient but it's not as low as it is today so so i think the dynamic this time will be a little bit more that will have to be selective and there may be opportunities or or the necessity to be selective among customers that we may have to have that conversation and just say, hey, we have a better opportunity. You know, the opportunity we have with you today is that the pricing is insufficient relative to what we can get otherwise. And even though we may have additional equipment capacity We're just not willing to commit that additional capacity with the need to add more personnel to pursue or to maintain a relationship that may not be acceptable. So I think there's going to be, and we've had discussions about having to have those difficult discussions with customers that we may have to say be more forthright and be more aggressive at saying, hey, we need some additional pricing or we need some additional activity in order to continue with you because we have minimum thresholds that we're trying to attain as we expand the amount of equipment we have in the market. And so we've we may very likely have to have those difficult discussions where, in the past, that has been rare.
spk01: Male Speaker 1 No, great. That's helpful, Collin. Clearly, the balance sheet allows you to be careful. So, that's positive. So, thank you for that, Collin. Male Speaker 1 Yes.
spk02: Thanks.
spk01: Male Speaker 1 Thanks, David.
spk00: Female Speaker 1 Our next question comes from Jacob Lundberg from Credit Suisse. Please go ahead.
spk09: Jacob Lundberg Hey, good morning, guys. Thanks for taking the question. Male Speaker 1 Hey, Drew. Hey, Jim. First, I just want to circle back on the discussion on dual fuel. I was curious if you could just kind of characterize broadly what you're seeing in terms of bidding activity, what you're hearing from customers with respect to requiring or mandating dual fuel or electric fleets. And in particular, if there's anything you're hearing around discussions of multi-year contracts backing construction of a new fleet, does anything like that come across your radar?
spk03: We are not having those discussions with customers or customers not interested in having those discussions at this point in time. uh they certainly by and large there is a stated preference to have esg friendly equipment available to allocate to work more times than not that's the case so as jim talked about and we talked about in our opening comments dual fuel conversion It's something that we are doing with a portion of our fleet, and there are ways to sort of, you know, stretch the benefit of even though we may not be converting or we're not converting our entire fleet to dual fuel, we're able to sort of leverage and spread out some of this tier four and dual fuel capability amongst customers, and oftentimes that seems to sufficiently meet their requirements so we can You know, with less than a full fleet or a full capacity, we can allocate out that attractive equipment amongst our fleets, and that seems to meet some of the minimum thresholds that the customers are seeking.
spk09: Okay, thanks. And then I guess relatedly, so you brought up the midpoint of your CapEx guide by about $10 million, and you've been talking about some dual fuel upgrades, presumably that incremental dual fuel upgrades, because you were talking about them last quarter as well, is what kind of drove that increase. Correct me if I'm wrong. But if that's the case, could you just kind of talk about some of the motivating factors behind that decision? I'd be interested in if you're getting any sort of – if you're getting any sort of assurances of duration of work or anything like that, or if these are upgrades simply to make the equipment more competitive in the market.
spk02: Yeah. Jake, this is Jim. A two-part answer. Yes, some of the incremental capital expenditure does relate to conversion to dual fuel. It's not all that much, but it is part of it. And I'll stay on that topic for a moment. It seems to be coming up in every request for proposal, and it is important, but it's not because of supply and demand in the market right now. It's not in any way garnering guarantees of work or multi-year contracts, that sort of thing. We also had an opportunity to buy some equipment opportunistically. um and or putting it to work in uh in the basin that we think has some promise and it's not in pressure pumping it's actually in our snubbing service line all right very helpful thanks guys appreciate it thank you our next question comes from connor alana from morgan stanley please go ahead yeah thanks morning
spk07: I appreciate that there's a lot of uncertainty out there right now. So maybe you could just discuss sort of the puts and takes to this question. But just looking for an early look at how you're thinking about 2021. It seems like from some of the larger companies out there, there's some hopes around a second half recovery. But, you know, it's sort of.
spk03: depends who you ask i guess i would put it that way so so what sort of customer sentiment right now do you do you feel there's some some follow-through from the activity recovery that we're seeing right now uh connor this is ben um it's a good question uh she said yeah a lot of uncertainty i think maybe it's hopeful that there will be some progression and improvement of activity in in 21 uh You know, the fourth quarter seems to be, you know, it seems that we're not going to suffer certainly to the same extent of the fourth quarter slowdown we've had in the prior three years, which is certainly welcome. I'm hopeful or just thinking that maybe that also will allow 21 to get off to a little, you know, not quite as a slow start as occurred in previous years, too, after a severe fourth quarter slowdown. turn down. So I think hopefully there'll be a nice progression into the early next year. And then in terms of whether there's a clear increase in activity or upturn, we right now are not counting on that. We are not planning on that. We are not investing for that. We are not hiring for that. We are very much in a uh much more of a wait and see in a show me mode rather than a than anticipating an improvement uh but but i would just say in terms of normal progression i'm hopeful that you know we're we are at such a low industry activity level that there will be some some additional uh improvement next year but but we are not account and not counting on a uh a strong bounce back
spk07: Yeah, understood. That's helpful. I guess sort of pivoting here, we talk a lot about consolidation and pressure pumping, and probably rightly so since it's so fragmented. But are there opportunities to consolidate in some of the non-pressure pumping product lines? Are there maybe some assets available out there on the cheap that you don't need to hire a large number of people to acquire? Are there any things that we should be monitoring on that side of things?
spk03: Good question. We don't have anything. There's a number of things that we have in mind, but nothing that's top of mind or anything that we would mention publicly in terms of being opportunistic. Jim alluded to the capital expenditure that we made, being able to pick up something on the cheap that we certainly expect will be incrementally positive to us. in the coming months. But beyond that note, the visibility is difficult. I think with a lot of the mergers that are taking place, a lot of those are cost plays as much as trying to improve the portfolio of offerings. But we've certainly been offered the opportunity to look at a number of opportunities, and we've talked about those and will continue to look at and pursue those. In terms of consolidation and pressure pumping, yeah, it's certainly strategically upon first blush, yeah, it does make sense. There could be benefits of having more consolidation there, whether we Whether we are part of that or not, we don't know, but certainly it would be great if there was more consolidation. I could think of a lot of benefits for having fewer competitors and having a coming together of resources to address some of the challenges that pressure pumping has. I agree with that sentiment.
spk07: All right. Thanks very much. I'll turn it back. Okay. Thanks.
spk00: Our next question comes from Taylor Zerker from Tudor Pickering Holt. Please go ahead.
spk06: Hey, good morning. Thank you.
spk11: You too.
spk06: As we look at Q4, I mean, clearly there's some uncertainty as it relates to how the back half of Q4 plays out with the year-end seasonality. At the same time, Jim, it sounds like you're expecting the fleet count, at least on an effective basis, to improve somewhere around 10%. In support services, the drilling rig count is tracking up north to 10% sequentially, which would be supportive of revenue growth in that segment. So as you wrap it all together, do you think that 10% revenue growth number for Q4 is an attainable target for you guys with the visibility you have today?
spk02: Taylor, yes. Things improved during the third quarter, and we see fourth quarter's revenue stronger than third quarter's, so we definitely do. We actually see, based on what our input from our field operations, that the holiday impact this year will be less pronounced than in previous years. But let's be honest, we've been disappointed each of the last three years, so that enthusiasm is a little bit tempered. But even with that caveat in mind, fourth quarter will be stronger than third.
spk06: Understood. And then you kind of outlined a target for at least to stay positive free cash flow for 2021, and we can come up with our own EBITD estimate for 2021. But when it comes to things like working capital, I assume – in a higher activity environment, you're going to have to invest some cash in working capital. So when you talk about that target for positive free cash flow in 2021, how do you think about working capital? And the other piece would be CapEx. Can you give us some goalposts to think about for CapEx in 2021 as well? Reasonable question.
spk03: I guess, you know, absent and let me kind of put a little parameters around it. I would say absent another downturn or a severe slowdown will be pre-cash flow positive. In the event we have a stronger than expected upturn, that statement may be more difficult to obtain, as you're pointing out with working capital, but that would be a great problem to have, right? So the comment is more that kind of in a sustained, slow to decent upturn in the business, we're going to manage it to be free cash flow positive. If there is a strong improvement in activity, we are going to remain highly selective with our capital expenditures, but for the same reason, right? If things were to pick up much more than, than anyone right now is expecting. There's, again, the potential there would be working capital, cash needs, and also an increased opportunity around CapEx. So it may be a more difficult in a single 2021 time period to say we'll be free cash flow positive, but we will certainly be positioning ourselves to be free cash flow positive over the intermediate term. we will pull the appropriate levers to assure that that does occur. I don't know whether does that help.
spk06: Yeah, that helps. Just to tie a bow on it, any thoughts on CapEx for 2021? Are there any long people in the 2020 budget that won't flow through?
spk03: Not anything significant there. So it's going to be, again, it's going to be selective, opportunistic, maintaining our capitalized equipment. So absent a bounce back, it's going to be similar or maybe even slightly lower than 2020.
spk06: Understood. Thanks for the answer. Sure.
spk00: Our next question comes from Blake Gendron from Wolf Research. Please go ahead.
spk08: Hey, thanks. Good morning. Just one question for me on through tubing. It's traditionally been a really nice business, really specialized and differentiated. The degree to which it's underperformed here over the last quarter or two, and even through the pandemic, probably driven by the fact that the rate count has been weaker than the completion count. And it's also a business that's specifically for you guys been leveraged to the mid-con region. region, which has been particularly weak. So my question here is, you know, the rate count's picking up. Do you expect through tubing to respond in kind? And if not, would you attribute the weakness to specific basin weakness in the MidCon? Or is there something structural going on where, you know, in the shale basins that are active, wells are just so cookie cutter that things like through tubing and fishing are just not as prevalent? Thanks.
spk02: Yeah, Blake, this is Jim. Your answer was actually embedded in the question, so thanks for that. ThruTubing Solutions has an outsized exposure to Oklahoma, and that rig count and that activity in that state and those areas has been lower. There's nothing that's structurally changed about ThruTubing Solutions business or customer reception. They actually had some strength in one of their specialty product lines. in third quarter that was in another market area outside of Oklahoma. So that's where they're going right now. But we are looking for the rig count and completions in the Oklahoma area to improve, perhaps because of natural gas strength. But there are no huge shale plays with that sort of thing going on. So it's the exposure to Oklahoma, and there are no fundamental changes in through tubing's business.
spk03: Oh, and I'll add, this has been that with our balance sheet, we're able to continue to invest in new technology in that particular area, and there are some bright spots there that we think could be an incremental contributor in the next few quarters as well. So that's positive, and we're lucky, again, that we can continue to make those those R&D investments in that area.
spk08: Understood. And then, you know, just in terms of reconfiguring the business, then, if Oklahoma remains weak, would it take a whole lot of investment for you to move technical services or through tubing, rather, and some of the auxiliary technical service lines to other basins? You know, are you serving the Hainesville? Are you serving the Eagleford? Would it be a matter of maybe displacing competitors in those basins? How do you think about the competitive landscape beyond Oklahoma for everything not cracked?
spk02: Blake, it's Tim again. Actually, ThruTubing operates in those other basins as well, including the Permian and up in the Northeast. And unlike some other businesses, it's very easy to provide ThruTubing's service in other areas because it's not a fleet of heavy equipment. So that part of it logistically, at least, is not difficult. ThruTubing does, you know, ThruTubing Solutions is probably a market share leader. It's definitely a market share leader, but there are some small specialized competitors. So it's a competitive business, and it would always be competitive to go into a new market. But we just want to emphasize that ThruTubing Solutions operates in all the major U.S. basins, But once again, she has an outside exposure to Oklahoma. That's where that business was founded 20 years ago. Understood.
spk08: Thanks for the time, guys. All right, Blake. Thanks.
spk00: Our next question comes from John Daniel from Daniel Energy Partners. Please go ahead.
spk10: Hey, guys. Thanks for squeezing me in. Jim, you guys talked about in the Q&A how more customers are asking about dual fuel and et cetera. When do you expect they're going to be willing to pay more for those solutions?
spk03: John, this is Ben. When the market tightens up sufficiently with the availability or demand, and I'm not sure when that's going to be, we will continue to uh say internally and and i expect it will uh has been and will continue to get to our customers to say that we have to over time the returns today uh need to be much better uh that we're getting today need to be much better to get up to have sustainable returns so uh you know we we've said a lot over time that you know this can't go on forever and it can't go on forever uh but uh We hope there'll be a shakeout of some of our competitors. We hope that maybe the consolidation will help us get there, the industry to get there sooner than we would otherwise. But it's an appropriate question. We're going to continue to drum beat internally and again with our customers to say that, We understand we cannot overcome the market. We are not the market leaders. But as an industry, we're not going to chase the activity. We have to achieve minimum contribution margins. We can't just chase the activity, and we're hopeful that other people will follow that lead, and maybe we'll get there sooner than we might otherwise.
spk10: Okay. Just to follow up on that, I mean, a lot of us who run on the sector talk about, you know, what we'll call the bifurcation of the U.S. frac fleet as companies upgrade, whether it be the pump designs, go electric, whatever it might be. And I'm just wondering, I mean, it seems like that is playing out in the sense that the customers are asking for it. They just don't want to pay for it. Is this a situation where the industry is just going to proceed with those like yourselves with better balance sheets and do these upgrades? for the sake of maintaining market share and survival, right, as opposed to actually getting – I don't mean to be rude about this, but just as opposed to getting a real return on that investment, right? You're basically making a bet that you survive if you make the investment while others can't, if that made any sense.
spk02: John, this is Jim. It does. I mean, a very basic way of looking at things like dual fuel is it does not increase pricing but it allows you to get the job that you wouldn't otherwise get so there's a binary outcome so you figure out your financial returns and then reduce those a little bit by the additional capital investment to convert to dual fuel and um it's probably as simple as that until um you know until the industry returns from you know still historic lows so and then just the final one for me i think i think i heard this did you make the comment that
spk10: As you go out with a fleet, you know, you've got some dual fuel units. It's typically not an entire fleet that's on dual fuel, but just a handful of those units within a fleet. Is that what you said?
spk03: We are exploring that as a possibility, and there are customers who are open to that.
spk10: I'm just wondering if they are open to that because they get a few units and then they you know, if you will, they check the box, right? So they can go to their investor base and say, yeah, we're using dual fuel, even though in some regards cheating. And since then, it's only a couple of units within a fleet. Just your thoughts.
spk02: You need to ask them.
spk03: We don't accuse our customers of cheating. And maybe more than a couple of pumps, but yeah.
spk02: all right guys good luck thank you for your time and i mean everybody in the call knows this but um anytime you can use field gas you know produce natural gas to power a natural gas fleet you get a double benefit You're reducing greenhouse gas emissions and flaring from the actual well site as well as lower emissions on the equipment. So there's a double benefit. You don't want to discount that. But, you know, other dynamics are in play too. Fair enough. Thanks, guys.
spk07: Thanks, John.
spk02: Thanks, John.
spk00: Our next question comes from Chris Foyo from Wells Fargo. Please go ahead.
spk11: Hi, thanks for letting me back in the queue. Just a little more color on pricing, maybe. I think you mentioned that it had bottomed. Do you think it's bottomed? But is 3Q pricing on average lower than the second quarter? And then kind of related to that, are there customers out there trying to get termed now that prices are so low? Is there much of that dynamic? Just curious. Thank you.
spk02: So this is Jim again. If you really squint at the numbers in third quarter, it looks like pricing, you know, kind of improved by 100 basis points or so, but some of that is just maybe customer mix or it may be job mix that has different kinds of profit in it. So we do believe that it's bottomed. It did not decline in price order. We don't see it improving any time. There have been several questions in this conversation about about term contracts, if they are being discussed in the oil field, we are not privy to those discussions. We do not believe there are any term contracts being discussed or offered or accepted right now.
spk11: We really don't. Okay, that's helpful. Thanks. And then just curious on the cost to reactivate fleets. I guess maybe we haven't seen a response as fleets have been reactivated this time compared to the last cycle. I guess the last cycle you had, you know, 2015 and the first half of 16 grinding down equipment. So when fleets had to go back to market, they were in worse shape and you had to reinvest more. Curious if you can talk about the cost to reactivate fleets, you know, going forward and compared to last cycle. Thank you.
spk03: Well, for us in particular, we feel the cost will be fairly minimal. You know, it can't speak for the rest of the industry, although, you know, you know, we focus on and like to believe that we maintain our equipment on an ongoing basis as well as anybody does. So the cost to us will be fairly minimal. We can't say that it's zero because there's always some. But again, and speaking for others, I really can't speak for others, but I'm hopeful. I'm hopeful it's very expensive for them to start up their fleets.
spk02: Go ahead, Jim. Thank you. And I was also going to say this time around hiring Hiring skilled personnel is a part of the startup cost or the reactivation cost that is a lot lower because you're hiring people who have experience. Unlike 2015, 2016, those people have not gone to other parts of the country yet or other industries yet, and they were not laid off all that long ago. So the personnel component of reactivating fleet is lower now than it would have been in the last cycle.
spk11: Okay. That's helpful. Thanks, guys. Thank you.
spk00: As a reminder, it's star 1 on your telephone keypad in order to ask a question. And we have no further questions in queue at this time. I would like to turn it back to Jim Landers for final comments.
spk02: Thank you, Carol, and thanks to everybody who listened in and everybody who called to ask questions. I hope everybody has a good day, and we'll talk to everyone soon. Thanks.
spk00: Ladies and gentlemen, this does conclude today's conference call. As a reminder, the conference call will be replayed on www.rpc.net within two hours. Thank you again for participating, and you may now disconnect.
Disclaimer