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RPC (NYSE:RES) has been a big winner, up over 5% since reporting Q4 earnings [see transcript] and 20% over the past three weeks. However this quarter's loss of revenue due to an ongoing reduction in drilling activity warrants caution given the current natural gas outlook.

Turning to Q4 earnings, RPC beat analyst estimates by .01/share and increased their dividend by 25%. However revenues decreased 3% and the cost of revenues increased 4%. The decline in revenues was mainly due to RPC's customers decreasing their rig count another 10% from 2011. Decreased rig count means less drilling and thus a lower demand for RPC's services and increased competition due to a general lack of servicing opportunities.

The current environment of decreased drilling directly affecting RPC's earnings will likely put a cap on the stock price until producers are encouraged to drill by an increase in natural gas prices. Both Chesapeake (NYSE:CHK) and EOG Resources (NYSE:EOG) have indicated that natural gas would be profitable around $4.50/btu, a 25% increase from the current price of $3.60/btu - an increase likely at least six months to one year away.

Accordingly, I am reducing my position in RPC and investing the funds elsewhere because the major catalyst to earnings - increased rig count and drilling - is likely 6 months to a year away. I believe RPC recognizes this and that is why they increased their dividend by 25% - to encourage investors to hold the position while they wait. Furthermore, RPC has rallied 20% over the past three weeks making it more attractive to reduce the position and look for a lower entry price in an environment of higher natural gas prices.

However, the long-term outlook for RPC is still bright because it is somewhat obvious that producers are intentionally pushing the price of natural gas up by reducing rig count. This tells me that natural gas prices are definitely on the way up and when the price is right general economics will take over and there will be a race to bring new rigs online. Consequently, I believe RPC is still a good stock to hold for the long-term investor.

Source: RPC Surges On Earnings But Necessitates A Deeper Look Into Natural Gas