Morningstar | RPC Has Very Poor First Quarter as Pressure Pumping Market Gets Worse
RPC had a terrible first quarter, with revenue decreasing 11% sequentially and adjusted operating margin falling to negative 2% from 5% previously, the worst result since the fourth quarter of 2016. The bulk of the top-line decrease was accounted for by a 19% drop in pressure pumping revenue. Non-pressure pumping revenue was down just about 3%, in line with U.S. shale activity levels. RPC doesn't report bottom-line results by business line, but assuredly, most of the drop in operating income was driven by pressure pumping. Our fair value estimate remains unchanged for now, but we may reduce it after viewing the results of other pressure pumpers (RPC is the first to report so far) to account for a weaker near-term outlook than we previously expected.As a reminder, U.S. shale activity levels have fallen in past quarters due chiefly to temporary pipeline bottlenecks in the Permian Basin. Cumulatively, the U.S. horizontal well completions count fell by about 15% from the third quarter of 2018 to the first quarter of 2019.
Over the same time period, RPC's pressure pumping revenues have fallen by 38%, due to a 24% decrease in fleets deployed plus a 18% decrease in revenue per fleet. The decrease in fleets deployed has exceeded the fall in the completions count probably because RPC is more exposed to the spot market than peers. The 18% decrease in revenue per fleet represents chiefly the effect of lower pricing.
Given that the fall in U.S. shale activity is temporary, RPC largely held on to its labor force, which exacerbated the profitability drop in the first quarter. Therefore, the company should recover much of its drop in profitability in the second and third quarters as activity recovers, even if pricing doesn't rebound right away.
RPC is a holding company for several oilfield services companies. The company provides oilfield services and equipment to oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the U.S., including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services provided are: Technical Services, which include pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline services, and fishing; and Support Services, which include rental tools, oilfield pipe inspection services, well control school and energy personnel international.
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