Jim Landers – Vice President, Corporate Finance Rick Hubbell – President and Chief Executive Officer Ben Palmer – Vice President, Chief Financial Officer and Treasurer.

Neal Dingmann – Sun Trust Rob MacKenzie – IBERIA Capital Marc Bianchi – Cowen & Company James West – ISI Group John Daniel Simmons & Company Mark Brown – Global Hunter Securities Byron Pope – Tudor, Pickering, Holt Tom Curran – FBR Capital Markets Scott Gruber – Citi.

Good morning and thank you for joining us, for RPC Inc.’s Third Quarter 2014 Earnings Conference Call. Today’s call will be hosted by Rick Hubbell, President and CEO and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. 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 is being recorded. Jim will get us started by reading the forward-looking disclaimer..

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 will make 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 2013 10-K and other public filings will outline those risks. All of which can be found on RPC’s website at www.rpc.net. I also need to tell you that in today’s earnings release and conference call, we’ll be referring to EBITDA, which is a non-GAAP measure of operating performance.

RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with financial covenants under our revolving credit facility.

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

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

Thanks, Jim. This morning, we issued our earnings press release for RPC’s third quarter of 2014. Our revenues, which represented a quarterly record for RPC, increased due to higher activity levels, and service intensity in our major service lines, and a slightly larger fleet of revenue producing equipment.

RPC’s revenues for the quarter, increased 26% compared to the third quarter of 2013, and more than 6% sequentially. Third quarter operating profit and net income and EBITDA all improved both sequentially and year-over-year. Yesterday the Board of Directors declared a regular quarterly dividend of $0.10.5 per share.

Earlier this month we announced the repurchase of RPC shares in the open market during the third quarter. In light of the current stock market conditions in the oil and gas service sector we’re monitoring RPC’s stock price closely and stand ready to repurchase more shares. Our CFO Ben Palmer will now review our financial results in more detail..

Thanks Rick. For the third quarter, revenues increased to $620.7 million compared to $491.1 million in the prior year. These higher revenues resulted primarily from increased activity levels in our major service lines, increasing service intensity in pressure pumping and a slightly larger fleet of revenue-producing equipment.

EBITDA for the third quarter increased by 16.5% to $163.4 million compared to $140.3 million for the same period last year. Operating profit for the quarter increased 24.3% to $106.7 million, compared to $85.8 million in the prior year. Our diluted earnings per share were $0.30 compared to $0.25 in the prior year.

Our record revenues during the quarter were driven by continued increase in activity levels in service intensive work. Pressure pumping stage counts and profit volumes per stage continue to increase significantly, a trend that has benefited RPC’s results.

Cost of revenues increased from $303.7 million in the third quarter of the prior year, to $398.3 million. Cost of revenues as a percentage of revenues increased from 61.8% in the prior-year to 64.2%, due to increased materials and supplies expenses, maintenance and repair expenses, and fuel costs resulting from higher activity levels.

Selling, general and administrative expenses increased from $47.1 million in the third quarter of the prior year, to $50.8 million in the third quarter of this year. SG&A expenses as a percentage of revenues decreased from 9.6% last year to 8.2% this year, due to leverage of relatively fixed cost over higher revenues.

Depreciation and amortization were $57.2 million during the third quarter of 2014, an increase of 7.5% compared to $53.2 million in the prior year. Net loss on disposition of assets increased from $1.3 million in the third quarter of the prior-year to $7.7 million.

This increase was caused primarily by damage to components due to a more service intensive job mix in RPC’s pressure pumping service line.

As RPC’s completion work continues to transition from vertical to horizontal, with more stages, longer pump times, and higher volumes of proppant pump per stage, we are wearing out some components at a faster pace. We anticipate these changes will continue.

However we are taking actions to address this issue, including examining proposed job designs more closely, and evaluating new types of components that will perform better under these circumstances. Our Technical Services segment revenues for the quarter increased 25.9% compared to the prior year.

Operating profit increased 19.3% to $102.8 million or 17.8% of revenues, compared to $86.2 million or 18.8% of revenues in the prior year. Revenues increased primarily due to higher activity levels, and operating profit increased primarily due to improved equipment and personnel utilization coupled with SG&A cost leverage.

Our third-quarter Support Services segment revenues increased 32.8%, and our operating profit increased $144.7% compared to the same period in the prior year.

This improvement was due primarily to higher activity levels and improved job mix within the rental tool service line, as well as higher activity levels in the other service lines which comprised this segment. On a sequential basis, RPC’s third-quarter revenues increased to $620.7 million from $582.8 million in the second quarter.

Cost of revenues increased from $374.3 million to $398.3 due to increased activity levels and growing service intensity. Cost of revenues as a percentage of revenues was unchanged at 64.2% in the second and third quarters. SG&A expenses as a percentage of revenues were also unchanged from the prior quarter at 8.2%.

RPC’s effective tax rate decreased slightly to 38.6% in the third quarter compared to 39%. RPC’s sequential EBITDA increased to $163.4 million in the third quarter from $160.4 million in the second quarter, while the EBITDA margin decreased 26.3% from 27.5%.

Our Technical Services segment generated revenues of $576.9 million, 6% higher than revenues of $544.4 million in the prior quarter. Operating profit was $102.8 million compared to $99.7 million in the second quarter. Our operating margin in this segment decreased to 17.8% of revenues from 18 from 18.3% in the second quarter.

Revenues increased primarily, due to higher activity levels in the service lines within the segment. And operating profit margin decreased due to higher transportation costs and increased employee headcount related to our upcoming equipment additions.

Revenues in our Support Services segment increased 13.9% due to improved activity in all service lines within this segment. Support Services operating profit increased to $14.7 million in the third quarter compared to $9 million in the second quarter.

Our operating margin in this segment was 33.7% in the third quarter compared to 23.4% in the second quarter. RPC’s pressure pumping fleet grew to 751,000 hydraulic horsepower. Some of this equipment went to work in the Eagle Ford Shale and in the Permian Basin and is working during the fourth quarter.

Third quarter 2014 capital expenditures were $124.7 million. A large percentage of these capital expenditures were directed towards our pressure pumping service line. RPC’s projected full-year 2014 capital expenditures remain at $375 million.

We anticipate placing in service the bulk of the equipment related to our previously announced pressure pumping expansion plan in early 2015. At the completion of this expansion, our total available horsepower will be 920,000.

RPC’s outstanding debt under its credit facility at September 30, 2014 was $152 million, an increase of $20.6 million compared to the end of the second quarter. This increase was due to working capital requirements associated with higher activity levels and capital expenditures during the third quarter.

Our ratio of debt to total capitalization was 12 5%. We will remain conservatively capitalized both by our historical standards and relative to our peers. We have plenty of capacity for our fleet expansion and additional working capital requirements. With that, I’ll now turn it back over to Rick for some closing remarks..

Thank you, Ben. As we all know the price of oil has fallen almost 25% since July, the current price could be approaching levels that make some exploration production work in the United States uneconomical. Oils near-term price direction and the duration of any price changes are no clearer now than they have ever been.

This time we are unaware of any decrease in our customer’s plans. Overall, our view of the domestic completion market continues to support our pressure pumping expansion plan.

In addition, we remain focused on critical elements of our operations including sourcing of raw materials, improving logistic processes and attracting and retaining the right people. We remain committed to our share repurchase program as a way to return capital to our shareholders.

We’ve repurchased approximately 209,000 shares of our stock during the third quarter and have $4.1 million shares remaining under the current authorization. Capital strength and the conservative balance sheet are important elements of a successful oilfield service company especially under the current uncertain environment.

RPC will continue to use its financial strength to seize opportunities and bolster its success. I’d like to thank you for joining us for RPC’s conference call this morning. At this time, we will open up the lines to answer your questions..

Thank you. [Operator Instructions]. And we’ll go to our first question from Neal Dingmann with Sun Trust..

Good morning guys. Good color. Jim, for you guys just wondering, obviously out there with the market environment, your thoughts about your number one supply in different areas.

I know, I guess my first question is where are you going to bring, where you’ll add that new equipment, and then just your thoughts overall about capacity and your various regions..

Neal, so you’re talking about capacity additions in pressure pumping? You know it’s – when it gets finished, when our additions get finished, it’s going to look pretty much like the profile now from a percentage point of view. There’s another way, where we’re going to have a lot of the equipment coming to the Permian and Eagle Ford.

The market there is good, it’s great. Then there’s more equipment coming to the other regions where we’ll be working. I think right now the Mid-continent for us is not as good as the other areas. The Marcellus has work to do, so that’s where we’re going.

We’ve talked a lot about increasing service intensity, and to put any color on this quarter, this quarter was demonstration at RPC that this work is hard on equipment. And so we’ll talk about that discussion later, but we do think there’s demand for the equipment at current activity levels.

And as Rick just said, we don’t know the direction of oil prices any more than we ever do, but we feel good about activity levels right now..

And then what about just pricing in general Jim, for you or Ben or the guys, are you able to pass anything through. I’m just wondering again, you mentioned besides obviously equipment, and the higher cost because of that.

Are you just seeing raw materials costs go up, are you able to pass pricing on, at least to cover that?.

Neal this is Ben. We have had some success in doing that; I wouldn’t say that it’s been as easy, obviously as we would like it to be. But we are pushing where we can, trying as much as we can. We did, as I said, have some success during the quarter, more of it probably late in the quarter, so we feel good about that.

We think that we’ll bear some fruit for us and hopefully will help margins a bit. But it is a challenge, there’s a lot of demand for a lot of the vendor services that we use, be it for profit, be it for trucking, and those other things, it’s something we’ll have to continue to work on.

Relationships with customers have always been important, certainly with vendors to, but it’s even more important today to work really hard day-to-day, to try to extract the most benefit as possible for both sides of the party. But it is a challenge, it’s something that –.

Ben, with that logistics, would you increase, I know you have some of your own sand on a mine; would you increase some of those raw materials and other products? Would you want to get larger into that business?.

Larger in other businesses?.

More in the logistics..

In the logistics. No, I think leveraging off our relationships; I think it’s still where we’re pointed. I think more capital again, will follow into these areas where there’s extreme demand and, at least my personal preference is, would that be somebody else’s capital rather than mine..

Okay.

And then lastly Jim, could you give me an idea of just a break down within the Technical Services, how that sort of fared for the third quarter?.

Sure. I’ll give you the percentages we usually disclose on this call. And this is a percentage of consolidated RPC revenue. So pressure pumping was 58.2% of consolidated RPC revenue for the third quarter. Thru Tubing Solutions was 15.6% of consolidated RPC revenue.

Coiled Tubing was 7.9% consolidated revenue, rental tools was 4.8% of consolidated revenue..

Very good. Thank you all..

Alright, thanks Neal..

And we’ll go to our next question from Rob MacKenzie, with IBERIA Capital..

Good morning guys. I guess my first question centers around some of the increased logistics cost, again to save topic I guess a little bit. But you mentioned – came in late in the quarter.

How do we see those progressing into the fourth quarter and beyond? Is this something that was just related to an unusual job mix this quarter, that’s going to flip back, or do we expect to see some of these pressures continue going forward?.

Rob, this is Jim. There’s a combination of answers there. And we sort of had this every five or six quarters I think, we did have some unexpected logistical issues in the quarter, late in the quarter, and had to use trucking. So not only was it unexpected, but as you know, trucking is a lot more expensive than rail.

And because it was unexpected in late in the game that was not a cost we could pass onto customers, so that was a negative. That is an occasional occurrence, unpleasant, but also occasional and we don’t feel like that’s going to be repeated anywhere within our expectations right now, within our expectations.

Little bit of a margin drag, a small one on new employees that have been hired, who are being trained, and so that will continue in probably fourth and first quarter. But that’s a normal growing pain that we experienced when we have done our various expansions over the past eight years or so. So that’s how to characterize those kinds of expenses..

Okay, thanks Jim. And then on the $7.7 million impairment, recognize that’s much higher than we normally expect to see. It sounds like that’s being driven by much bigger mix of slick water fracs that tear up the equipment a lot faster than you’d modeled.

If I’m right, do you expect that Mix of jobs to continue, and what measures specifically that you guys referenced in the pressures are you taking to mitigate that somewhat?.

Rob this is Jim again. There’s a two-part answer to that. One was that we had one new customer, now a former customer, that we did a lot of work for in the third quarter. And the job design involved what you’re talking about and it was 100 mesh proppant and toward the equipment up beyond what we model.

And we were just in a new world where there’s a whole lot of volume and you don’t always get those calculations right, so that’s part of it. Another part of it is – and so that’s part of the outsized loss of disposition. The other one and that won’t continue – keep going back.

The other part of it does relate to the continuing shift from vertical to horizontal and the tremendously higher volumes of proppant being pumped. That issue is ongoing to – certainly to an extent.

Regarding the first issue, we’re – that has to do with the customer selection and higher and better scrutiny of job design and looking at how things are going to work if you have a certain kind of proppant with a whole lot of volume. We got to play close attention to that.

On the second issue we’re looking at different kinds of components that we’re better and we are certainly making sure that we price those losses in and just elevate everybody’s awareness as to how much proppant we are now pumping and how much that impacts..

Right. And in terms of the trends, 100 mesh – this particular job or group of jobs had tremendous amount of 100 mesh, but 100 mesh has been sort of a trend in the last quarter or two, and will that continue? I’m not sure.

Customers constantly are tweaking their formulas and what combination of customers we work for but as Jim said, we hope to make sure we are all fully aware of and do the best we can to price in that eventual or possible increased chance of damage to the equipment.

So it’s easier said than done, but something to focus on and try to again relationships with new customers and things like that to try to be open and communicate well, so that if and when those opportunities or those situations arise there’s an opportunity to work through that hopefully again for the – it will be a win-win situation for ourselves and the customer.

So it’s an going challenge, pricing certainly factors into that. The pricing environment some of the past stories we have been able to handle as I indicated. The equipment pass-through’s, damage to equipment passing those through’s were certainly part of what we had and we had the contracts a couple of three years ago.

But that’s a little bit more of a difficult discussion at this point, so it has to be more priced in upfront and anticipated upfront. So, it’s a challenge..

Okay. Thank you. And my final question comes around your view of the – how the market develops here in the lower commodity price environment, in 2011 you guys were very successful at deploying all of the new capacity delivered effectively driving substantial stock price out performance.

What gives you confidence and how should we think about RPC putting all of the equipment to work this time around just like you did last time?.

Well, Rob, it’s the same company and the same people, so we did it three years ago, we plan to do it again, four years ago we plan to do it again. We – assuming oil doesn’t go to 55 in the next few months. Our customers are busy with very service intensive work.

I think a lot of our peers this quarter have reported that they pumped record amounts of proppant and that sort of thing and so did we. So that right now in its current configuration is the business service intensive pressure pumping jobs, pumping a lot of proppant and there’s a lot of requirement for that.

We won’t get into the whole macro issue of whether or not there’s – all the new equipment or maybe it’s not a lot that’s coming on the market. Startups all that sort of thing but it doesn’t seem – it doesn’t seem like too much equipment is coming on the market for the demand that we believe is out there. Which isn’t, yeah it’s a best answer..

Okay. Thanks, Jim. I’ll turn it back..

All right, Rob. Thanks..

And we’ll go to our next question from Marc Bianchi with Cowen & Company..

Hey, guys..

Hey, Marc..

I guess – first question from me on the Support Services business, you posted some really nice improvement there. I think we have to go back to the beginning of 2012 to see similar margins in that business.

How should we think about that business going forward? You mentioned mix being part of the impact but is there a sustainability to that mix? Going forward or should we expect it to go back to kind of the mid-20s where it was in recent quarters?.

Marc we – thanks for the comment on that. We believe that it is sustainable but growth in Support Services comes from rental tools, you know this, I just want to remind everybody it’s our biggest service line within Support Services. We entered a new market the Permian Basin, a little over a year ago and so we’ve – gotten going there pretty well.

So there are some easy comps to be honest. With job mix, we were early in certifying and upgrading blowout preventers and so that’s helped us some we think. So we don’t see any reason that the current level of activity shouldn’t continue but do recognize that because we entered a new market a year ago right now the year-over-year comps are good.

In a few quarters the year-over-year comps will be more difficult at the sustained level..

Okay. Thanks for that. And then just briefly on the corporate expense. I noticed that kicked down sequentially here.

Is there anything unusual in that sequential change or is that a new baseline going forward?.

That’s on the segment reporting you are looking at? Yes. That does have the benefit – our supplemental retirement plan with the market moving down had a positive impact on that line. You can see down in the other income line that it’s better, so that’s kind of an offset..

Okay. I think I got it. I’ll turn it back guys..

All right. Thanks, Marc..

And we’ll go to our next question from James West with ISI Group..

Rick, you mentioned kind of or maybe it was Ben, but you mentioned your pricing increases into the quarter but it was you’re not as easy to get as one might’ve hoped.

What you think – what is the main kind of pushback from your customer base given that a lot of the pricing increases you are trying to put through are really related to cost – it’s more of a cost recovery than net pricing?.

James, this is Ben. I agree with you again. I get back to – I think its customer relationship issue. And our people are very good at executing jobs and making customers happy.

And sometimes we have to get a little more firm, I guess, with customers in terms of making them aware of the challenges with some of these variable costs that are depending upon circumstances that are oftentimes completely out of our control and we need to come up with a way to try to share in that pain again where it’s a win-win for us and then.

I think that’s something that we’re trying to work on.

I don’t know that, that’s a technique or a huge change in business operating procedures but I think it’s just something that we’re all trying to become more aware of that I think we have to get a little bit firmer with our customers because the demand, and therefore, the cost of some of these services can shift very quickly and when you’re making longer term commitments to the customer it’s really not reasonable.

It’s very difficult to manage over a period of time. So I think we have to evolve our models and relationships in discussions with the customers to be able to entertain those situations to where we can more easily recover some of that cost increase. I think that’s what we’re working with..

And we are always chasing it after the fact and that’s hard to chase it. We’re trying to do a better job in anticipating those so then we’re not having to chase it after the fact and everybody’s aware of us and the customer..

Back on the front end. That’s right..

Okay. That makes sense. You guys are being too nice, I guess..

That’s actually true. But we want to make our customers happy until we start losing money than we quit..

Right, of course. And how long do you think – as you’re kind of changing the strategy or being more direct and more firm with your customers, how long do you see this persisting of the, I guess, not achieving margins, I guess, we would expect it or you would’ve probably expected going into this quarter.

I mean is this a couple quarter event or is there going to be longer-term, do you think you can resolve this as we go into 2015?.

James, this is –.

Well, it’s hard to say. I answered a question a few moments ago about a few temporary items. The business is evolving a lot. We think with more scale that will help. One thing is that proppant of various kinds is becoming much more available than it was sort of just the raw cost of proppant at the mine.

I think has been going down and probably will continue to go down. So that’s going to assist margins for people like us going forward. So that’s a positive..

But I think the fact that we’re focused on, I mean, it’s been something that’s been – computing, it’s become an even bigger issue over the last quarter again with the increased service intensity and much larger volumes of proppant and things like that.

But it’s something we’re focused on so I expect we will enjoy all things being equal, some incremental improvement because we’re focused on it..

Yes, we think we’re getting smarter about it all the time and we’ll just see how well we are able to execute that..

Okay, got it. Thanks, guys..

Thank you..

And we’ll go to our next question from John Daniel with Simmons & Company..

Good morning.

Can you guys just tell us what pieces of equipment were damaged in that 7.7 million? Are you – is there any need to change the depreciable lives going forward that might of increased wear and tear? And then given that we’re in sort of a new normal with more proppant per well – we’ve been adding these things, but these charges back, but is this a new norm or would this be persisting at just the cost of doing business?.

This is Ben. We have adjusted the lives over time. We’re looking at that. It may be that the right decision going forward is to – we’re looking at it. May begin to expense it rather than depreciate it. Obviously, as you picked up on that that means there’s been more that’s not reaching the end of its useful life.

We think this quarter was larger than normal and won’t repeat. I think the number will be larger than it has been historically if we don’t change the method of accounting just because we have more equipment and there’s a lot more service intensity. I think we’re working hard to try to figure out ways to minimize the impact.

Again whether we capitalize it or whether it gets expense as M&R either way, it’s a cost of doing business and we have to try to manage it as well as we can. But – so we may see a change going forward with that..

The component specifically was the fluid ends of the pump..

Yeah, that’s by far the most significant items..

Okay. Fair enough. Want to come back to the question Marc asked earlier on the Support Services and the sustainability. Jim it sounded like when you were answering the question you were referring to the revenue and topline. And I think what’s – the margin improvement was pretty substantial.

I’m just curious if margin that you generated in Q3 if that is sustainable?.

Yes. For the same reasons that I discussed with Mark Bianchi – we discussed..

All right. My impression was that it was, you were talking about revenue. Okay. And then –.

The one thing – this hasn’t come up yet, but let me mention that I think it’s sustainable too, but we haven’t touched on yet what the fourth quarter’s going to look like and certainly we don’t give guidance other than saying that in most of the prior few years, there’s been fourth quarter slowdown with holidays and things like that and I’ve not heard anything different.

So, I think in looking at that margin, I would say over the next three to four quarters I think all things being equal, it’s a reasonable level, there’s not any special items in there I guess is another way to say it..

Fair enough. Okay. Last one for me. 751,000 horsepower as of today going to 920, can you just give us the cadence in terms of what comes in Q4 and Q1? And then lastly how much of your frac fleet today is Tier 4 compliant? That’s it for me..

Answer to the first question is that everything will be here. We now believe, in accordance with the fourth quarter, everything will be here and ready to work and generating revenue in January. How much of the fleet is Tier 4 compliant? I’m going to have to get back to you on that one. I understand the question but I don’t know the answer..

Okay. Thanks guys..

Thanks..

And we’ll go to our next question from Mark Brown with Global Hunter Securities..

Hi, guys good morning.

I was wondering, the need for backup horsepower at the well site has that been increasing and is that given the risk of component damage with these high volumes of materials, is that likely to make requirements for even more backup horsepower at the well site in the future?.

Yes, Mark, this is Jim. The answer to the first part of the question is yes, and the answer to the second part of the question is probably. We have seen in some of these – when you’re talking about higher volumes of propane per stage we are working longer but not necessarily harder meaning.

By that I mean, not having to have more horsepower to pump at higher pressures but we are having to pump at higher volumes. So it’s not the same step change that we saw when we went from vertical oil wells to the natural gas shale’s in places like the Haynesville Shale.

But yeah, there is an impact where you’re going to have – where we have and will continue to have that more redundant horsepower at the site..

I think that’s – this is Ben. I would echo that I think there will be some of that. I think that that again there’d be a net-net benefit from wear and tear on the equipment but just like with the cost pass-through’s on these variable costs same sort of thing.

We’re going to be pushing for higher prices make sure everybody recognizes that we understand more equipment, more cost, more capital allocated. We have to make more money..

Well, thank you. You mentioned earlier in the call that you incurred higher transportation costs due to resorting to trucking as opposed to rail.

I was just wondering what percentage of your supply is through rail versus trucking and what the cost differential is between rail and trucking?.

This is Ben. We don’t have that information readily available. It’s such a mixture. I think what we referred to earlier in terms of the trucking it was sort of a last-minute – we had an opportunity or the customer switched something up and we had to react in such a way that was very much out of the norm.

So sand was not available so we did whatever the heck we had to do to meet the customers’ demands and it wasn’t necessarily on that particular project in that particular opportunity it wasn’t great for our results.

So – but we met the customers’ demands and we hope in the long-term that will be a good thing but we’ve already had the discussion about what we need to do about recovering higher costs. So a reasonable question but I don’t know.

Certainly rail – we do orders a fair amount of our sand directly from the various mines but a lot of it we buy locally as well. So if the sand supplier railed it in certainly the price is going to be better than it would if it had to be trucked. The price differential if you have to truck at any distance is significantly higher..

Okay.

And then my last question is just – it seemed like that some of your competitors have cited issues with the severe rain in the Permian Basin and I don’t – I don’t remember if you mentioned that, but was that an issue for you? And – or were you able to just work through that, despite the difficult weather conditions?.

Yeah, Mark. We didn’t mention it because it wasn’t huge for us. We did have some impact from – and for everyone else who’s listening, the rain in West Texas late in the third quarter was pretty – well West Texas and Permian Basin, which includes Mexico.

We missed a few jobs of pressure pumping and also at Thru Tubing Solutions, it did have an impact, but it wasn’t huge. Good question, thanks for reminding us..

Thank you..

Thanks Mark..

And we’ll go to our next question from Byron Pope with Tudor, Pickering, Holt..

Good morning guys..

Hey, Bryon..

So you guys have started cooling up for the incremental 170,000 horsepower and that will be ready to work come January, with a lot of that going to it sounds like the Permian and Eagle Ford. I would think that you guys have line of sight to that horsepower going to work for specific customers and specific basins at this point.

And so I just wanted to test that notion. And if so, realize the take or pay contracts are a thing of the past.

But are we likely to see agreements that have adjustable pricing closets in it to cover you guys for these escalating sand and other costs that seem to crop up, what seems like on an increasingly consistent basis?.

Byron, the answer is yes, that we do have line of sight to use your phrase, not where it’s going to go, but for whom it’s going to work. And as I think Ben or Rick mentioned some of the new horsepower has started to work, and is working, and I’ve seen it work in those places. So it is working there.

The current customer dynamic and everything else is pretty dynamic – excuse me for using the same word twice, so it’s hard to predict. You know that we don’t have a take or pay contracts that we had in 2010, 2011, 2012. So it’s hard to say what sort of customer relationships are going to have to evolve out of the current work environment..

I would go back to what I said earlier; obviously it would be helpful for it to be written in the contract that doesn’t always make it be the case.

I think more importantly again is the relationship with the customer, whether it’s verbal, eye-to-eye, handshake, frequent discussions, keeping everybody updated, making decisions together about whether we move forward or don’t move forward, or how we execute based on the weigh cost maybe escalating that maybe in the current environment just or even more effective than – like you can negotiate hard for a phrase or provision in the contract.

So we’ll do everything we can to try to make it as secure or probable as possible, that we recover some of the cost escalation, but it’s just an ongoing issue and something we try to work on..

I think by and large, we found our customers are, for the most part, reasonable in those discussions..

Okay. And then just thinking about this – going back to this issue of the equipment losses during the quarter and the context of what you expense versus capitalize.

Could you, in ballpark terms, could you frame for us what percentage of repairing maintenance expenses are that as a percentage of your pressure pumping operations, realize you don’t break out details? I’m just trying to get a sense as to the order of magnitude of the R&M percentage – as a percentage of your direct operating costs for that service line..

You are right that we don’t break it out. You know Byron, of our direct costs, our cost of revenues at RPC, it’s the third largest and it’s probably 13% of RPC’s total cost revenues and that’s not telling you the pressure pumping answer. But it’s that order of magnitude..

Okay. That’s it for me. Thanks..

All right. Thanks..

And we’ll go to our next question from Tom Curran with FBR Capital Markets..

Good morning guys..

Hey, Tom..

Jim or Ben, if you were to look back over the entire past year, whenever you’ve had a surprise logistical problem like the one that arose in 3Q popup, that required abnormal expensive measures to tackle, where has Cudd consistently been encountering those issues in terms of the basins and what are you tracking to stay on top of when you should start to see some relief, especially based on what the secular uptrend looks like in those areas for job size?.

In terms of where it’s happened, it’s happened in several locations. It seems like it’s been a different locations at different times. So it’s not concentrated in any one or two locations. I’m not sure I understand the second part of the question..

Well, I think what you’re saying Tom is, if there are – if and when there are logistical issues and our job sizes are getting bigger, how much of that amplified with the bigger job? I think that’s your question..

Exactly. Yeah..

Yeah. Some things are self-correcting and some are more thornier problems. Some of the issues that we’ve had when they’ve happened over the past year, past year and a half, have been because of just a shortage of proppant. The proppant we wanted wasn’t available, that’s not a problem anymore.

Free markets tend to fix problems like that, and I think that is getting fixed. But they’re not building any more railroad infrastructure in this country and places like the Marcellus, where you don’t have roads and various, I’m not saying you don’t have roads, but it’s not as well developed as say West Texas.

That’s where you have more problems and that’s where those problems continue, and it’s kind of hard to see an answer more in the Northeast than in some other areas..

Yeah. And given that, I’m just trying to understand sort of what you’re focusing on, part of its understandable that you continue to emphasize your confident that capital will flow in to increase the supply of trucks if the rail infrastructure is not going to be there.

And presumably you are seeing that, but are there also measures you’re taking in terms of expanding the number of trucking companies you’re working with, or taking a different approach to how you source the transportation needs or contract for them anything like that?.

Yeah, Tom absolutely. In fact we’re increasing the number of suppliers that we use, just to diversify away some of that risk of rail or trucking shortages. So that’s something that we’re doing, we’ve had a lot of success with that.

And then our model is more to have a larger number of suppliers to whom we can outsource things, rather than try to have a much larger fleet of railcars for example. So, that’s what we’ve been doing and have had some success with it.

They just tend to be spotty, periodic shortages of things and because of the high volumes of raw materials you need, those issues become amplified when they happen..

Right, and then just two more on this topic, Ben. The first would be as part of the changes you’re considering when it comes to the wear and tear being desert on the fluid ends.

Are you also evaluating the potential change in your vendor mix or is there an upgrading you might consider to more durable models would be the first question? And the second would be, in an environment in which you don’t end up seeing any net pricing traction, do you still think you can get to a 20% EBIT margin for technical services, and if not, sort of, what’s the new ceiling you think is achievable as you continue to improve process management?.

Let me take the first one. There’s a variety of things we’re doing. There’s discussion about stainless steel fluid ends, obviously they’re more expensive, they’re more durable. You’ve got to kind of study those and see if the extended life of those outweighs the additional cost. That’s a possibility.

Looking at other vendors, sure, I mean we always do that in terms of – it’d be great if somebody could come up with a good solution to the issue. And then may be other things that can be done to try to minimize the damage or lengthen the life of some of the fluid ends.

Jim will take the other one?.

Well, with more equipment and more critical mass, we should not only have more revenue that’s a given, but more leverage over our cost. So that should improve things, and even in the environment of – if we’re in an environment of no net pricing improvement, and also just managing these nickels and dimes a lot more closely, so..

I’ll elaborate on that. I think that your question about, can we get back to 20% EBITDA margins? I think that’s clearly possible. But the industry, our customers and our competitors recognize that if the trends continue, it’s going to be all about more revenues and lower margins, but hopefully similar dollars and similar returns on capital.

So that’s the evolution that I think we’re all being forced to go through right now. And sure, I’m going to give you more work, but it’s got to be lower prices and so forth. So that’s what we’re going through right now, and where that will shake out what the appropriate level will be ever-changing.

But like Jim said, I think it’s – we have to get better at managing nickels-and-dimes I think we have to get better about not subjecting ourselves to these variable costs that are so subject to supply and demand. It has to be at some point shared with the customer, that can’t fall in the service companies, in my opinion..

Right. Agreed, it makes sense. All right, thanks for the thoughtful answers guys. I’ll turn it back..

Thank you..

And we’ll go to our next question from Scott Gruber with Citi..

Good morning gentlemen..

Hey Scott..

Earlier you discussed you’d be more direct with your customers regarding recouping costs and pushing pumping rates up. But you’re also in a situation, we have a slug in new equipment entering the market and crude prices are down.

How do you balance the push for margin enhancement via better pricing and terms against possibly being more selective with your customer exposure, and trying to find customers that will drill through a period of commodity price weakness? How do you balance that?.

Well that’s what we do, try to balance it, it’s not easy. I think one of the things is we talked about, we’re –one of our focus area is one of the things we are known as, is giving great service. And I think that’s something we have to fight to try to get paid for.

Again, difficult in this type of environment, it’s difficult when new equipment is coming on the market, but that additional – what we believe is a high-quality service, again comes at a cost. And there’s a benefit to the customer.

And we have to do a good job of trying to demonstrate that and sell that to the customer and have that be somehow another reflected in our pricing, our ability to get more favorable terms on these – again, on some of the things that are more difficult to predict. So easier said than done, but it is a balance.

It’s a constant balance to try to find the right customers that you can enjoy a good relationship with, where you can establish that win-win situation, and where we’re not again, so exposed to some of the fluctuating cost..

And we’re prepared…..

Go ahead..

I was going to say, and we’re prepared at the end of the day to walk away from particular jobs or particular customers. Because it has to be a partnership and has been said before it has to be a win-win for both of us..

And I was trying to make one final thing. There’s a lot of experimentation going on out there, so some of this is – nothing’s easy, but some of these are more simple conversations as we accumulate experience in the new environment of high volumes. We can say, Mr.

Customer this doesn’t work, let’s try something else, we’ve done this before and it didn’t work, so some of that evolution can help us as well..

Has the macro backdrop changed your approach in those negotiations or did you feel like there’s still sufficient demand growth where you have the leverage now? Jim Landers Not at the present time. I mean what we’re doing works at $80 oil. Rick mentioned earlier that we don’t know where the price of oil is going and neither does anybody else.

So the conversation may be different tomorrow than it is today..

Yeah..

Yeah, so we can’t take actions today on something that may or may not happen in the future or in a direction we don’t know..

And as you’ve gone on canvas to your customer base and trying to get an early read on their activity plans for next year, do you hear the same story, the same narrative from large cap – public EMPs, small cap EMPs and privates, or does it differ across those different buckets?.

We don’t know anything that would give you a meaningful answer to those three tiers of people. I’m sure what you’re thinking about is capital availability among the EMPs and debt levels and where they’re comfortable. We’re not aware of any different answers or any different things are being told to us among those three groups..

Okay. That’s great..

And we’ll go to another question from Marc Bianchi with Cowen & Company..

Hey, guys. Thanks for sliding me back in. You mentioned the profit availability is getting better in Iraq; cost at the mines is going down and will continue to go down. If we were to just look at raw frac sand with that same statement apply, and maybe you could offer some more color on that.

Is that a like-for-like comment or is there some may be you took on some longer-term contracts and that was part of the reason for the lower pricing.

I’m just hoping to have a little bit more commentary around that comment?.

Sure. Marc, this is Jim and that was a forward-looking statement, when we said that the price of proppant will continue to decline, if we in fact said that, so if the SEC was listening. It is a good question about mix. That wasn’t in the back of our mind – the back of my mind, when I said the price of raw proppant was declining.

Proppants in all areas, the price is either flat through decline. You watch the PPI every quarter, you’ve seen that the rate of increase is decreased and in fact maybe has impact decrease a little bit.

There are a lot of new sand mines that have been opening up and we think that supply – I wouldn’t say raw supply, but raw sand supply just at the mine is increasing a lot and that’s what’s helping us from a pricing, our price point of view..

And the ultimate cost of the proppant there’s lots of different ways to measure it. We don’t buy everything at the mine, a lot of its bought regionally. So the price is obviously different based on transportation and local supply and demand, so forth and so on.

There’s also again, how close you buy the sand, are you able to procure the sand, how close it is to your well-site, so at the end of the day the all in cost is really what we focus on at the end of the day. A component of that is the raw sand cost, and as Jim said, I think that’s what we believe.

We believe there is a lot more sand coming on the market. Obviously the volumes continue to go up as well, but it doesn’t seem to be a steady escalation. The bigger, always has been and continues to be the bigger cost of the proppant, is the transportation. And that’s where the most exposure and variability in cost is coming into play..

I see. So, would you – as we roll forward here, and the overall market is not quite as strong presumably with lower oil prices.

How much of a decrease or how long do you think it would take to realize some meaningful decrease at the actual mine level – pardon me at the actual well site level to the customer? So, I guess the idea is when could that show up in your margins as your pricing out your frac jobs?.

Well, we talked about the fact that we think we’ve been successful passing through some of the increased costs, all things equal that should help some. But in terms of oil prices or whatever that impact has – that’s not perfectly clear to me at this point.

But I think too, transportation is a big piece of it, and there’s not only the cost of the service from the customer, but there’s just again how effectively we’re able to execute working with the customer, working with the trucking company, so that’s also a component of it as well.

I hate to throw additional variables into it, but there’s a lot that goes into it..

Sure, certainly is. Thanks a lot guys. Appreciate it..

Sure. Thanks Marc. Thanks..

[Operator Instruction]. And we’ll go to another question from Tom Curran with FBR Capital Markets..

Thanks for letting me jump back in guys. I have a follow-up on M&A. Jim, in looking – or Ben at the deal pipeline, if we were to go back to the middle of the summer, there was already, what sounded like a meaningful number of private equity backed, struggling startup shopping themselves around.

And it seemed as if the main obstacle to potentially picking one or more of those off, or purchasing some assets, was unrealistic valuation expectations.

Any signs that some of those companies have started to buckle when it comes to their risk, or that they soon might?.

Tom, this is Jim. I think there have been some – well there have been some publicly announced transactions of the kind that you’re talking about, but I think were reasonable. I think they were good. So, I think valuation expectations are reasonable.

We also continue to see a lot of potential transactions coming up as we did back in the summer, and it’s possible that they’ll be purchased by other players. So those transactions are getting done. So that means the market clearing price has hit. The obstacles that remain are things like not knowing the condition of the equipment.

And that’s build versus buy kind of transaction. Also, whether or not you – or how you attribute value to the workforce in place or the customer base. But the market is clearing I think and there are many or several transactions left to look at..

And based on that, how would you categorize your overall appetite right now and how would you rank by your existing businesses where you’d have the most interest in potentially making an acquisition?.

Thomas, you know, we’re governed by this return on invested capital metric and we found that organic growth in businesses we are in has higher returns than making acquisitions. So I think our bias is still towards organic growth as it would be evidenced by the –.

Organic growth and service lines where we already exists historically we have grown through acquisition at this geographic or into a new service line, so those would be more attractive to us as a potential opportunity than – again, within an existing service line.

Like Jim alluded to, the quality of the equipment always is a big question and where that equipment, the workforce is located may not be in a very favorable place from our view..

Okay. Thanks guys. I appreciate the additional color..

And it appears there are no further questions at this time. I would like to turn the conference back to Jim Landers for any additional or closing remarks..

Okay. Thank you. We appreciate everybody calling in and appreciate the dialogue. We appreciate the interest. I do have one quick follow-up. John Daniel asked a few minutes ago about our Tier 4 compliance on our pressure pumping fleet, just so that everybody can hear it to the extent that it’s of interest.

About 25% of our pressure pumping fleet before the expansion was Tier 4 compliant. All the new equipment that’s coming is Tier 4 compliant. There are other things that are Tier 2 compliant. But that’s we’re able to work with that existing equipment, so just to leave that comment for everybody. So thanks a lot. Everybody have a good day..

And that concludes today’s RPC, Inc. conference. As a reminder, today’s conference will be replayed on www.rpc.net within two hours following the completion of today’s call..