EUR 850.00 For Business Accounts Only

Morningstar | RPC Remains One of the Better-Run Pressure Pumping Companies

RPC is among the highest-quality oilfield-services companies. During the cycle heights of 2010-14, the company bested nearly every peer in terms of ROIC, including SLB, HAL, and BHI. Although the downturn of 2015-16 put severe pressure on RPC’s profitability, particularly due to the company’s focus on pressure pumping, the weakest performing oilfield services sub-sector, RPC returned to strong economic profits in 2018 as activity recovered. However, the company’s quality has not gone unnoticed by investors, and has generally been baked into its share price appropriately. Meanwhile, investors should take care not to value RPC as if the company has large growth prospects. As we detail in our valuation and moat sections, RPC’s ability to generate economic profits (and thus create value from growth) has come chiefly via its Thru Tubing Solutions sub-segment, which largely supplies differentiated downhole equipment vital for the hydraulic fracturing of U.S. shale wells. And, even within the area of downhole fracturing equipment, Thru Tubing only truly dominates in a few niches. While the company’s performance in Thru Tubing has been outstanding from a ROIC point of view, investors should not expect other sub-segments of the company to perform as well as Thru Tubing in the future nor should they overestimate the volume of high-ROIC growth opportunities available to the Thru Tubing business itself. Furthermore, our no-moat call on RPC reflects our assessment that the company's returns on capital are likely to fade in the long run.Pressure pumping is RPC's largest business by revenue and usually garners the most investor attention. We think RPC's management does an excellent job in execution in the pressure pumping business, but execution only counts for so much in what we assess as a no-moat industry overall. Therefore, economic profits in this business are likely to be slim in the long run.