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RPC Inc. (NYSE:RES)

Q1 2012 Earnings Call

April 25, 2012; 09:00 am ET

Executives

Rick Hubbell - President & Chief Executive Officer

Ben Palmer - Chief Financial Officer

Jim Landers - Vice President of Corporate Finance

Analysts

John Daniel - Simmons & Company

Doug Garber - Dahlman Rose

Neal Dingmann - Suntrust

Andrea Sharkey - Gabelli & Company

Jeff Tillery - Tudor Pickering Holt

Megan Repine - FBR Capital Markets

Michael Marino - Stevens Inc.

Tom Escott - Pritchard Capital

Patrick Schindler - IBERIA Capital Partners

Jeff Spittel - Global Hunter Securities

John Wengraf - Courage Capital Management

Ben Swomley - Morgan Stanley

Operator

Good morning and thank you for joining us for the RPC Incorporated, first quarter 2012 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. (Operator Instructions)

Jim will get us started by reading the forward-looking disclaimer.

Jim Landers

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 are going to mention a few things that are not historical facts. Some of the statements that will be 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 2011 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 will 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 of financial covenants under our revolving credit facilities.

Our press release today and our website provide a reconciliation of EBITDA to net income, to the nearest GAAP financial measure. Please review that disclosure if you are interested in seeing how it’s calculated. If you’ve not received our press release for any reason, please visit our website that I just mentioned to see a copy.

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

Rick Hubbell

Thank you Jim. This morning we issued our earnings press release for RPC’s first quarter of 2012. Following my comments, Ben Palmer will discuss our financial results in more detail.

During the quarter we continued to improve our management of logistical issues and procurement of raw materials. This together with the delivery of additional revenue producing equipment ordered in 2011, combined to allow us to generate sequential and year-over-year improvements in revenue net income and EBITDA.

I am pleased with our quarterly results, the decline in natural gas prices to a 10 year low and the resulting decline in natural gas drilling activity continues to impact RPC’s activity levels and pricing. This environment together with several operational issues is materiality affecting our industry.

During the first quarter of 2012 RPC paid its largest dividend, repurchased the most stock and invested the highest capital expenditure amount in our history. Despite these uses of cash, the balance on our credit facility declined from the end of 2011 in our ratio of debt to total capitalization as a conservative 18%. We will discuss that in more detail in a few moments after our CFO Ben Palmer reviews our financial results for the first quarter of 2012.

Ben Palmer

Thank you, Rick. For the quarter ended March 31, 2012 revenues increased to $502.6 million, a 31.6% increase compared to the prior year. These higher revenues resulted from a larger fleet of equipment, higher activity levels and a favorable job mix in several service lines.

EBITDA for the first quarter was $183.3 million compared to $146.2 million for the same period last year and operating profit for the quarter was $130.9 million compared to $106.3 million in 2011. Our net income during the current quarter was $80.8 million or $0.37 per diluted earnings per share.

Cost of revenues increased from $201.3 million in the prior year to $273.8 million in the current year, resulting from higher business activity levels and associated costs, including total employment in materials and supplies. Cost of revenues for the first quarter as a percentage of revenues increased from 52.7% in the prior year to 54.5%, due primarily to lower pricing in many of our service lines, as well as the lower margins generated on more service intensive jobs.

Selling, general and administrative expenses during the quarter were $44.9 million, an increase of 24.6% compared to $36.1 million in the prior year, due to increased headcount consistent with higher activity levels. However, because of our ability to leverage these fixed costs over higher revenues, SG&A costs as a percentage of revenues decreased from 9.4% last year to 8.9% this year.

Depreciation and amortization were $51.6 million for the first quarter, an increase of 30.4% compared to $39.5 million in the prior year. This increase is a result of additional equipment placed and serviced over the past 12 months.

Our Technical Services segment revenues increased 32.1% due to an increase in the fleet of revenue producing equipment and higher activity levels. Operating profit increased to $123.5 million compared to $99.9 million in the prior year. This improvement was due to higher revenues from a lager fleet of revenues producing equipment.

Revenues in our support services segment, which is comprised mainly of our rental tool service line increased by 26.8%. This segment generated an operating profit of $14 million compared to $10 million last year, primarily due to higher activity levels.

On a sequential basis, RPC’s consolidated revenues increased from $482.8 million in the fourth quarter of ’11 to $502.6 million or 4.1% increase. Revenues increased due to a larger fleet of revenue producing equipment and improved operational execution, particularly in our pressure pumping and coiled tubing service lines.

Cost of revenues increased from $268.5 million in the fourth quarter of ’11 to $273.8 million. However, the cost of revenues as a percentage of revenues declined from 55.6% in the fourth quarter of ’11 to 54.5% in the first quarter. This improvement was principally due to improved efficiencies as we continue to address our logistical issues in the procurement of certain key raw materials used in our pressure pumping service line.

SG&A expenses as a percentage of revenues increased slightly from 8.7% to 8.9%. RPC’s sequential EBITDA increased 6.7% from $171.8 million in the fourth quarter to $183.3 million in the first quarter and our EBITDA margin increased slightly from 35.6% to 36.5%.

Our Technical Services segment revenues increased 4% to $461.5 million and generated an operating profit of $123.5 million compared to $114 million in the prior quarter. All of our service lines within this segment experienced higher activity levels compared to the fourth quarter of ’11, due to a larger fleet of revenue producing equipment, our increased availability of raw materials and the lack of holiday downtime.

Our operating margin in this segment improved to 25.7% of revenues in the fourth quarter of ’11 to 26.8% due to improved logistical management of our raw materials and lower maintenance expenses.

Revenue in our Support Services segment increased 5.7% due to an improved job mix in our rental tools business. Support Services operating profit declined slightly to $14 million in the first quarter of ’12 compared to $14.5 million in the fourth quarter of ’11. Our operating margin in this segment declined from 37.3% of revenues in the fourth quarter of ’11 to 34.1% due to lower utilization on our rental tool fleet, resulting from customer rig movements to oily basins and increased maintenance expenses related to equipment re-certification and declines (ph).

RPC’s total pressure pumping fleet increased from 600,000 to 683,000 hydraulic horsepower at the end of the first quarter. It should be noted that this additional horsepower was received throughout the quarter and generated minimal additional revenues. We currently have no additional pressure pumping horsepower on order, and as previously discussed, approximately 50,000 of our total horsepower is being used as backup equipment to facilitate our refurbishment program, which started in the first quarter.

As we announced earlier this month, RBC repurchased approximately 2.6 million shares of its common stock during the first quarter. As of the end of the quarter, approximately 1.3 million shares remain available to be repurchased under our board authorization.

First quarter 2012 capital expenditures were $121 million. We forecast capital expenditures to be approximately $350 million for the full year of 2012; however, we have the ability to adjust this amount if marketing conditions warrant.

RPC’s outstanding debt under it’s credit facilities at the end of the first quarter was $180.8 million and our ratio of long term debt to total capitalization was 18.4%. The balance on our revolving credit facility decreased by $22.5 million compared to year-end 2011. This decrease occurred despite an historically high dividend, stock repurchase amount and capital expenditures during the quarter.

With that I’ll turn it back over to Rick for closing remarks.

Rick Hubbell

Thanks Jim. While we are pleased with our third quarter results, the decline in natural gas prices and related drilling continue to impact RPC’s overall activity levels and pricing for many of our services. We remain cautious about the near term domestic drilling activity levels and will continue to allocate our resources to domestic basins which show the highest promise in the current environment of high oil prices. We also continue to monitor discretionary spending and scrutinize capital expenditures during this period of low natural gas prices.

I’d like to thank you for joining us on RPC’s conference call this morning and at this time we’ll open up the lines for any questions you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And we’ll take our first question from John Daniel of Simmons & Company.

John Daniel - Simmons & Company

Hey guys, good quarter.

Rick Hubbell

Thank you.

Ben Palmer

Thanks John.

John Daniel - Simmons & Company

When we look at the top line revenue heading into Q2, your going to benefit from the incremental horsepower, call it less than 83,000 that you received in Q1, but offsetting that I presume there are some pricing pressures. At this point is your bias for higher revenue growth as you look out to Q2, Q3 or you think we start to taper off.

Ben Palmer

John, this is Ben. I would think we are expecting planning on working towards being able to generate some revenue growth, but there is as we talked about and a lot of other people have talked about, there is a lot of equipment being moved around and when that’s going to land, how quickly it will land, exactly what the pricing is going to be is certainly uncertain at this time.

We are generally positive and we have a lot of opportunities working, but it is again as we’ve all heard and seen and talking about, it is quite fluid right now. So we are pretty confident. We think we’ve got some things in place that will maybe give us a little bit of advantage compared to some other folks, but it’s difficult to predict.

John Daniel - Simmons & Company

Okay. Well, on the note about being fluid, a couple of your competitors are talking about idling frac fleets. Is that something that you guys consider doing or have done already?

Rick Hubbell

We do not have any plans at this point to idle particular fleets for any extended period of time.

John Daniel - Simmons & Company

Okay. And then just one final one for me and I’ll turn it back over, but on the margin front, can you walk us through how much of the equipment relocation has happened, how much is to occur over the next couple of quarters, just in terms of what type of cost impacts we might see from that if you will, dislocations by equipment relocations.

Jim Landers

John, this is Jim. There is more equipment to be relocated than has been relocated. The cost in and of itself is not that high, because we have operational locations in all the places where we believe the equipment is going, so that’s the good part. But in terms of financial statement impact, there is clearly opportunity cost, lost revenue while the equipment is moving and perhaps inefficiencies once the equipment gets there as we crew it up and work on logistical issues regarding raw materials, that’s one thing. We have not internally quantified it, so it’s kind of hard to talk about in a quantitative sense.

Ben Palmer

This is Dan. I would say that our first quarter results as we both said in our opening comments, were not driven by equipment having moved successfully or this new equipment coming onboard, generating new revenue, so therein lies our opportunity, I guess.

John Daniel - Simmons & Company

Fair enough. Okay, thanks. Good quarter.

Operator

And our next question comes from Doug Garber of Dahlman Rose.

Doug Garber - Dahlman Rose

Good morning guys.

Rick Hubbell

Good morning.

Ben Palmer

Hey Dough.

Doug Garber - Dahlman Rose

I wanted to first ask, you guys mentioned that there was lower pricing in several service lines. Other than fracturing, can you talk about the environment for some of the other service lines and perhaps quantify some of the price environment there.

Jim Landers

Dough, this is Jim. We’ve seen lower pricing in our rental tool service lines, which is not the biggest, but certainly significant and pressure pump and those are kind of the main two to call out.

Rick Hubbell

Overall, I mean we do have a couple of service lines that’s continuing to see strength, strength for being able to easily hold onto pricing, but in general a lot of our other service lines are operating in these gassy basins and they are going to be subjective to some of the same pressures of people trying to move. So there is, albeit not as significant, not as ‘negative,’ there is pressure pumping. I don’t want to make that too strong, but it’s not as soft as pressure pumping. Some of the other service lines are having to work on trying to keep pricing where it is now and not have to decline too much.

Doug Garber - Dahlman Rose

Okay, and can you give us an update on the fleets you have in the Haynesville? I understood they stayed where they were in the first quarter, but do you plan to move it out in the second quarter.

Rick Hubbell

Dough, we are certainly looking at that. We believe there are some perhaps better places to work than some more oily basins than in the Haynesville, so we are still committed to that region. We’ve got a big infrastructure there and it’s not a negative, it’s a positive. We got a good infrastructure there and there are opportunities in East Texas and North Louisiana. Lets not assume that’s all the Haynesville, there are other opportunities there where we can work, but we are looking at having some of that equipment go to other areas.

Doug Garber - Dahlman Rose

Okay and just lastly on the coiled tubing, I understand you took new delivery of a lot of equipment kind of at the end of the year. Is all that up and running kind of in Q1 at this point.

Rick Hubbell

Some of the new unit additions are, we feel pretty good about those. We have early this year did add a couple of new units and our projected – we expect to take delivery of three more before the end of the year.

Doug Garber - Dahlman Rose

Okay, thank you. I’ll turn it back.

Rick Hubbell

All right, thank you Dough.

Operator

And our next question comes from Neal Dingmann at Suntrust.

Neal Dingmann – Suntrust

Hi, good morning gentlemen.

Rick Hubbell

Good morning.

Ben Palmer

Hey Neal.

Neal Dingmann – Suntrust

Hey, just two quick ones. First, just kind of general, I think you commented on this one a little bit. Just on the raw materials now it sounds like a couple of things as far as reallocations in these new areas. How do you see that? Are you pretty confident now at where you have that realigned and then as well as just the different types of sands that I know besides just moving to the new areas, there were some issues about different types of sand that’s needed for some of these new areas; how does that stack up?

Jim Landers

Neal, this is Jim. If you read the question I guess there’s a long answer to it. First of all, just so you and everybody else know, we did talk about profit shortages in the fourth quarter that materially impacted our results. That particular profit shortage and that particular customer and that particular location has been solved and so as Rick and Ben alluded to in their comments, we had sequential improvements due to fixing that problem.

We continue to improve how we handled the proppant, both just the procurement of it and the logistics of it. I think as time goes on and we realize that there are a number of different kinds of proppants and a number of different kinds of customer preferences and so we just continue to work through that.

Because of the variety of proppant grades and customers changing preferences, particularly in the times of low commodity prices, it’s just hard to say that we’ve got everything nailed down or that we don’t, we are definitely improving it and we think we are covering. As you know everywhere that our equipment might go is a place we already have an operational location. We are closely focused on it, I can tell you that.

Neal Dingmann – Suntrust

Jim, do you have to sign up for longer term contracts for some of these suppliers or is it still, there is enough capacity out there I guess that you see going forward for the rest of this year that that’s not necessarily signed. You’ve made these longer-term raw material deals than you have in the past.

Ben Palmer

Neal, this is Ben. I would say it’s a combination of things. We have signed some contracts that shore (ph) up product over a more extended period of time, so it really varies, but it’s not that we look across the board and say we got this all because of these particular contracts.

And as Jim alluded to and we talked about before, there will continue to be issues, because the question is how well can we manage them day-to-day, month-to-month and we think we are getting better and better at it and we have some unique relationships that have been established, so we feel pretty good about it, but again it’s something we have to continue and as Jim said, focus on all the time.

Neal Dingmann – Suntrust

Okay and then you mentioned that the 50,000 horsepower is used as a backup. As you reallocate some of this equipment, would you set aside more for backup and then as you see kind of reallocating this, are you able to walk in on new term deals or is there just too much capacity out there. So most of this new equipment that’s been reallocated is that going more on a spot market basis.

Rick Hubbell

Reasonable question. The backup equipment, right now we think the 50 is sufficient, so that’s all about I guess how quickly we plan to work through the refurbing of the equipment and we are still comfortable with that number in the rate at which we want to work through the fleet.

With respect to reallocating equipment, as I alluded to earlier with the first question, at this point it’s difficult. I clearly at this point compared to a year ago, contracts and being in a position to negotiate very hard on terms of contracts is certainly currently a thing of the past. But I think we are very much focused on and I think we have a good handle on what it means to try to differentiate ourselves about working with our customers to try to create efficiencies and in creating efficiencies that can help our margins and help our customers margins and that’s things like 24 hour work.

We are not doing a significant amount of that, but we understand it, we have done it and I think we know what some of the steps that you can take with the customer to minimize downtime, which again results in improved margins, because you have a lot more efficiency. So that’s something we continue to strive towards and I think is bringing accord with some of our customers and hopefully will lead us to higher utilization than we would otherwise have with our equipment.

Neal Dingmann – Suntrust

Okay and then the last one if I could. It just looked like the accounts receivable on this sequentially wasn’t that much higher, but maybe on a year-over-year basis was a bit higher than normal. Any concerns there as far as just on the receivable side?

Rick Hubbell

No, not at all, the receivable is in great shape.

Neal Dingmann – Suntrust

Okay, that’s all then. Thanks guys. Great quarter.

Rick Hubbell

Thank you.

Operator

Our next question comes from Andrea Sharkey of Gabelli & Company.

Andrea Sharkey - Gabelli & Company

Hi, good morning.

Rick Hubbell

Hey Andrea.

Andrea Sharkey - Gabelli & Company

Just wanted to ask about your contract coverage on the fleets. I think in the past you said it’s about 60% contracted on the pressure pumping fleets. Is that still sort of in the same level? Are any of those contracts getting renegotiated in the next six months or so, six to nine months and are you getting any push back from clients that have those contracts to try to renegotiate, whether it be minimum utilizations on pricing or things like that?

Jim Landers

Yes Andrea, this is Jim. Our mix of contract to spot work and your statistic is correct relating to pressure pumping. That statistic is going to go more towards spot and less towards contract, simply because with the incremental new equipment that we’ve gotten on, that’s probably going to go to the spot market better than the contract market. So I honestly don’t know about it, but at the end of this year we will less than 60% of our partial pumping equipment on contract.

Nothing is coming up for renewal immediately in terms of our contracts. What we are doing with some customers who won the contract is that in the environment of extremely low natural gas prices, we are working on different job designs to try to help them reduce their completion costs while remaining in the spirit of the contract. So we’ve got some ideas, they’ve got some ideas on how the contract still works and their cost for completing relatively lower than the other ones might have and that has to do with substituting different kinds of proppant that was previously used, things of that nature.

Andrea Sharkey - Gabelli & Company

Okay, thanks, that’s helpful. And then I guess, just thinking about during this maybe small pause in activity, is there anything strategically that makes sense for you guys to be focusing on, whether it be internally or by acquisition, to sort of take advantage of maybe other things out there that are weaker and while you guys have a pretty strong balance sheet and are in a good position.

Jim Landers

Well, we are always looking and there are a lot of opportunities that are coming to market. I think valuation is difficult because of our valuation and we won’t comment on it, but a lot of private sellers are looking for higher multiples than our public company multiple and that traditional earnings arbitrage just wouldn’t work. But we are continuing to look. We have a great view on the long-term prospects for domestic oil field and as you mentioned and thank you for that; we have a strong balance sheet as well.

Andrea Sharkey - Gabelli & Company

Great, thanks and then just one last question and I’ll turn it back. I think in the last conference call we talked a little bit about how when you moved to the more liquids oily basin that maybe the revenue isn’t as significant or isn’t as large, but the margin can be higher, because it’s less service intense and I was just curious if we’ve started to see any of that in that sequential margin improvement from Q4 to Q1 or is that something maybe yet to come, obviously will be offset by it, lower pricing, but maybe that could be something that would be a little bit of an offset coming forward.

Rick Hubbell

Yes, good question. There is nothing in Q1, nothing in our financial results in Q1 that reflected that phenomenon, but we obviously or we believe in it because of the lower search intensity in some oil plays, it’s less hard on the equipment, etcetera, etcetera, so everything’s equal, one would hope for that, but no. Everything’s equal means pricing doesn’t decline any and so everything may not be equal.

Andrea Sharkey - Gabelli & Company

Sure, that’s fair and thanks a lot. I appreciate your answers.

Rick Hubbell

Okay, thanks Andrea.

Operator

And our next question comes from Jeff Tillery of Tudor Pickering Holt.

Jeff Tillery - Tudor Pickering Holt

Hi, good morning.

Rick Hubbell

Good morning.

Ben Palmer

Hey Jeff.

Jeff Tillery - Tudor Pickering Holt

I just have a question on contracts. Can you just give us color on how those are working? Has work essentially come down to the minimum work levels already under those and any customers you think will exercise outs on existing contracts.

Ben Palmer

Jeff, this is Ben. Yes, I was going to comment earlier on contracts. I guess with the definition of a contract, six months ago to nine months ago when we were talking about contracts, it was certainly different than they were six to 12 months before that. I would say again going forward, where all that shakes out, they are going to take varying forms. I think they are going to respond to what current conditions are. So who knows what the form of those will be and how firm they will be. Certainly they are not going to be in this environment as firm as they were 12 months ago.

I think in terms of people exercising outs, we don’t expect that in particular, but as Jim talked about, we are trying to be flexible in working with our customers to try to seek ways to lower their cost and at the same time not impact our pricing too considerably, using lower cost materials and changing techniques and things like that. So I would say that the contracts I think will stay at –we’ve always had contracts, we’ve always had working agreements.

They’ve just been more formalized I guess than they have been in the past and I think if some of these techniques and the language and the way people talk about the number of stages and how the price contracts and things like that, maybe the contracts can revert back to where they are a little less formal than we were headed towards, again 12 months ago, with a lot of stringent provisions and things like that to where it becomes more of a – gets back to where it was before, which is it’s more of a relationship with the customer and your setting for general terms, but not necessarily strict enforcement agreements and things like that in the provision, so.

Jeff Tillery - Tudor Pickering Holt

Can we think about that as rolling to those terms as contracts renew or rolling to sort of those terms in contracts that were signed six or 12 months ago?

Ben Palmer

I think more of the nuance of – yes, more in the future I think when they get renewed.

Jeff Tillery - Tudor Pickering Holt

Right and then just things like you guys are pointing towards more mobilization or can – (inaudible) kind of disruption in your business and you move equipment around in the coming quarters than we saw in the first quarter. You got new equipments that or additional equipments that may lead towards revenue. It’s holding up or may be even increasing. Should I think about the margin percentage coming down in the second quarter, a couple of 100 basis points to account for moving equipment around and just the disruption associated with that?

Jim Landers

Jeff, this is Jim. Listening to our larger peers who have gone before us with the first quarter earnings, that’s the big question in it. Everybody is saying are your sequential operation markings going to decline by 200 basis points. I can think of two or three times where people said that in the past few weeks or past few days. We’ll kind of be with a lot of our peers in saying, we don’t know. It’s a cyclical business. Overall the rig count is almost 2,000, but there is a lot of churn underneath that. We are all trying to maximize our returns, so it’s just hard to say.

Rick Hubbell

I would comment and say that our first quarter results were not driven by additional pressure pumping equipment and it was not driven – if there were very specific situations.

For some of the equipment that is moving, that began moving in the first quarter or that may be in the process of moving right now, it didn’t do a lot to contribute towards the first quarter either. So as you alluded to, there is opportunity that if we can get it working at reasonable prices and reasonably quickly, there won’t be that significant an impact. But we do have from an operation margin standpoint there is, that additional equipment does generate additional depreciation, so that is one item there.

But it’s hard to know where it will shake out. We do think that in hope and working towards getting the equipment to work, working reasonably well, it may take – the second quarter may be certainly not over and we’re into it and there’s a lot of good developments, but we will know a lot more in six to eight weeks from now than we know today and certainly third quarter will be much more representative of our success, but right now its hard to say.

Jeff Tillery - Tudor Pickering Holt

And for the first quarter do you have – the percentage of the technical services revenue that was stimulation or just the raw dollar amount, either one of those that you could share.

Rick Hubbell

Jeff, pressure pumping revenue was 52% of consolidated RPC revenue in the first quarter.

Jeff Tillery - Tudor Pickering Holt

And then my last question. The Bakken, is it an area where you guys have not yet been represented in the pressure pumping business? Is that an area that we should think about you guys having equipment six months from now or are there some logistical or other reasons why we shouldn’t think about you guys as moving into that market.

Ben Palmer

We anticipate that we’ll be doing pressure pumping in the Bakken by the end of the second quarter.

Jeff Tillery - Tudor Pickering Holt

All right. Thank you guys very much.

Rick Hubbell

Thanks Jeff.

Operator

And our next question comes from Robert Mackenzie of FBR Capital Markets.

Megan Repine - FBR Capital Markets

Hi, this Megan Repine calling in for Rob Mackenzie. Most of my questions have been asked, but I did want to follow-up. On the $350 million CapEx number, how much of that is maintenance CapEx or is that not included in that number.

Ben Palmer

Maintenance CapEx is in that number and of the $350 million, we would say a pretty large percentage probably, $150 million or $200 million of that could be termed maintenance.

Megan Repine - FBR Capital Markets

Okay and then can you talk about what percentage of your pressure pumping equipment is under 24 hour operation. How has that changed over the last six months and do you expect this to change much going forward.

Ben Palmer

It has not changed a lot, the percentage has come down because we’ve added more equipment. The number of crews under 24 hours has not changed as much as we perhaps would have expected up to this point and I think that will continue to be an area that our customers and therefore we will be focused on trying to extract efficiencies in all plays where we operate. So I do believe we will have more 24 hour work, six months from now that we didn’t have.

Megan Repine - FBR Capital Markets

Okay and just a housekeeping question. I think I just missed it, but can you share the percentage of revenue from pressure pumping and coiled tubing for the first quarter.

Ben Palmer

Yes, pressure pumping was 52%, coiled tubing was around 13%.

Megan Repine - FBR Capital Markets

All right, thanks for taking my question.

Ben Palmer

Sorry, no that’s right. About 14% actually quarterly.

Megan Repine - FBR Capital Markets

Okay, great. Thanks guys.

Rick Hubbell

Thank you.

Operator

Our next question comes from Michael Marino of Stevens Incorporated.

Michael Marino - Stevens Inc.

Good morning. In the past you guys have highlighted where your horsepower is by basin. I was curious if you could update that kind of current locations and then maybe, you mentioned moving someone to the Bakken, may be where else kind of the big shifts are.

Jim Landers

Well, lets see Michael, this is Jim. Right now that break down that we’ve shared in the past is – right this moment that breakdown is probably about the same as what we disclosed in the past. A little more, and just because of some recent new deliveries, a little more in west Texas in the Permian Basin obviously.

I think if we were to watch that chart more during the next quarter, the percentage of the pie that would be in the Marcellus would be getting smaller, the percentage of the pie that’s in the Haynesville be getting smaller, the percentage that’s in the Eagle Ford would be getting bigger and there’d be a new slice that shows the Bakken.

Michael Marino - Stevens Inc.

Okay specifically how much horsepower due you plan to relocate, kind of call it starting I guess well little bit in Q1 and then through the next 100 days or so.

Rick Hubbell

We don’t have that available.

Jim Landers

Yes, but really overall I mean we’ve been sort of – most recently we’ve encountered 60/40 gas to oil. Right now we would guess that would probably going to end up flipping to 46 over the next quarter or two.

Michael Marino - Stevens Inc.

Okay, great. And just as follow up you all touched on pricing in some of your other service lines. I was curious if you could talk a little bit about coil pricing and kind of your expectations there and kind of what you saw in Q1 too.

Rick Hubbell

Coil pricing is pretty good. The demand for these large dimer coiled tubing units, of which we have a good number is very strong. So our pricing for our coiled tubing services is good.

Michael Marino - Stevens Inc.

Is it outpacing cost credit or are you able to kind of expand margins in coil.

Rick Hubbell

The opportunities to re-price are not huge. We had a number of units and I think some of those units are into contract, so its not like we are getting constant feedback on these big bore unites, but the margins are holding in if that answers your question. But I think efficiency and utilization at this point are a bigger driver, where our margin are going to end up and (inaudible).

Michael Marino - Stevens Inc.

Great, thanks. That’s helpful.

Rick Hubbell

Sure, thanks Michael.

Operator

And our next question comes from Tom Escott of Pritchard Capital.

Tom Escott - Pritchard Capital

Good morning fells. A name out of the past.

Rick Hubbell

I know.

Tom Escott - Pritchard Capital

But this late in the queue everybody’s already covered nearly everything there is to cover. But you know one questioner did mentioned coiled tubing and I was going to ask you, is coiled tubing one of those service sectors where pricing is holding up just fine or are you seeing pressure there as well.

Ben Palmer

Tom, this is Ben. Yes, not experiencing any significant pressure there up unto this point. There is still high demand for those big board units and we’ve got some good customer relationships and equipment is staying nice and busy.

Tom Escott - Pritchard Capital

So you’ve added new equipment there and I guess you said you got a couple more units coming in here this quarter. So it sounds like you can – every unit you had, you put it to work right away, don’t you.

Ben Palmer

Thus far we have. We have added two units in the first quarter and we’ll add three more during the remainder of the year, not necessarily into Q2.

Tom Escott - Pritchard Capital

So as that equipment comes in it goes to work, which is in contrast to pressure pumping where its really not – well, new capacity comes on, but it doesn’t add to revenue or at least it didn’t in the first quarter.

Ben Palmer

That’s right, it didn’t in the first quarter. We certainly hope and expect over the next couple of quarters it will. But clearly coiled tubing is a much easier service right now to talk to a customer about, talk about the terms and talk about when we can begin working. That’s clearly you know in better shape, its competitive environment is a lot better for us in oil digging (ph) in the pressure pump.

Tom Escott - Pritchard Capital

Right. Okay, thanks a lot. I appreciate it.

Rick Hubbell

Thanks Tom

Ben Palmer

Thanks Tom.

Operator

And our next question comes from Patrick Schindler of IBERIA Capital Partners.

Patrick Schindler - IBERIA Capital Partners

Good morning guys.

Rick Hubbell

Hey Patrick.

Patrick Schindler - IBERIA Capital Partners

How are you all?

Rick Hubbell

Good

Patrick Schindler - IBERIA Capital Partners

I think most of the questions have been asking and answered. I did want to just check with you on nitrogen & snubbing and kind of get an outlook from you all, what that market looks like going forward and how pricing came in this quarter.

Rick Hubbell

Nitrogen, nitrogen’s sort of been interesting over the last few quarters. It was nice this quarter. There was a nice little bump. I think some of these wells will have to be reworked, that tends to generate some additional nitrogen work for us. It tends to be a little volatile. There hadn’t been a nice steady increase and some quarters are sort of nicely higher than others. That did have a little bit of an impact here on the first quarter.

Snubbing not a whole lot of change, I would say. We are not really seeing anything mutually negative or positive. Snubbing for us has become a much smaller service line for us in recent years and so it’s really not moving the needed to a significant degree right now. Snubbing is an alternative and in some cases for coiled tubing, coiled tubing is clearly stronger than snubbing is at this point. But we are seeking and finding opportunities for snubbing. It’s just not quite as strong or not growing quite as much as coiled tubing.

Patrick Schindler - IBERIA Capital Partners

Got you. Thanks for answering guys.

Rick Hubbell

Thank you.

Operator

Our next question comes from the Jeff Spittel of Global Hunter Securities.

Jeff Spittel - Global Hunter Securities

Thanks. Good morning guys.

Rick Hubbell

Good morning Jeff.

Jeff Spittel - Global Hunter Securities

Most of then have been asked and answered, just a couple of quick ones. As you probe some of these oily basins, I would imagine that you started to see a little bit of an impact on the stock market in terms of pricing for pressure pumping. Would it be fair to say things are holding up best in West Texas and then maybe you’re seeing a little bit more pressure in places like the Eagle Ford and I imagine the Bakken is still holding up pretty well.

Rick Hubbell

That’s probably accurate. Just to remind you, we aren’t yet doing pressure pumping work in the Bakken. The Eagle Ford, I think the way to characterize the Eagle Ford is that that’s a place where pricing for hydraulic fracturing might be under more pressure, simply because its closer to the Haynesville and much where some equipment is leaving from. We have more contract work in the Eagle Ford, so we probably are on a great read on this spot market pricing trends in the Eagle Ford Shale.

Jeff Spittel - Global Hunter Securities

Okay, that’s good news. And then as you look at deploying stuff to the Bakken, what’s your discussion with people up there? Did you set up infrastructure? Ideally I would assume you’d like to have more term commitments for the equipment. In a market like this, there’s an element of comprise there where you’ll be wiling to mobilize some equipment up there that will go to work a little bit more on the stock market.

Rick Hubbell

I think that’s probably right. I mean to work our way in there we’ll probably have to -- hopefully as shorter duration than longer, but yes, we’ll probably have to initially do some spot work and kind of get it to hold and we’ll go from there. There have been discussions with customers about contracts and terms and things like that. But I think we’ll probably start on the spot market.

Jeff Spittel - Global Hunter Securities

Great, thanks guys. Great quarter.

Rick Hubbell

Thank you.

Operator

And our next question comes from John Wengraf of Courage Capital Management.

John Wengraf - Courage Capital Management

Hi, it was a great quarter. I had just a follow-up question on the contract coverage. You had mentioned earlier the 60% number and that that was declining somewhat through the year, 60% contract converge. Just to make sure I’m understanding that correctly, does that mean that 60% of your assets were essentially working under contracts that were negotiated at some point last year when pricing was much stronger.

Ben Palmer

60% of the number, I think we said 60% at the end of Q4 and with the added capacity sort of the percentage in and of itself would decline, but yes, what we had under contract would have been negotiated in 2011 and that’s responsively quick.

John Wengraf - Courage Capital Management

And then thinking about 2013, how does that look. Do some of those contracts extend beyond into 2013?

Ben Palmer

Yes sure. I mean we’ve signed some contracts during 2011 that would extend into 2013 for sure.

John Wengraf - Courage Capital Management

And those were kind of fixed price contracts or were those more just contracts like just frame agreement kind of contracts.

Rick Hubbell

They may have been fairly solid before, but they are probably more of the latter as you descried in there. I mean it’s clearly a different environment. I mean if the customer comes in, and the customers are clearly right now putting pressure on everyone to be flexible and to work with them to changes jobs around and look at pricing and everything else. So we are certainly amenable on the inward.

I would doubt seriously that people are able to – found the table and point provisions in particular contracts and say you must pay me this that and the other. Just in this environment I find that difficult to believe. You have to work with your customers and I guess again that the firmness – if these contracts are not as firm as some other contracts in the industry, we hope that would be excepted and may be that they would be as turned out.

But it still is a customer relationship business and it’s very fluid and we are always willing to talk to the customer about ways to make them more efficient and us more efficient. So there is clearly lots of discussion going on about this contract terms and provision, the job design and all that.

John Wengraf - Courage Capital Management

Okay, one more quick one. What is current kind of payback on new equipment? I mean for example the equipment that you took delivery on in Q1, can you give a sense of what time the payback period is on that equipment in the current market.

Rick Hubbell

Well, that’s certainly a reasonable question. Very difficult to you know determine at this point. We’ll know a lot more a few years from now. It is just that you can make any sort of assumption on what you think the utilization is going to be in the pricing over the next two to three years, but that’s difficult to predict at this time and that clearly is what would drive the pay back.

But to say this, we are still very comfortable where we are, where the industry is, what the opportunities are. We are clearly not running away from pressure pumping or horizontal completions or anything like that. We still love the business. We think its now a very good opportunity and the returns are quite high.

Clearly the payback is lower if you were to do an estimate today of what we took the delivery of in the first quarter of this year, compared to what we took delivery of in the first quarter of ’11. Its clearly the payback will be less, but we think its going to be good returns for us over time.

John Wengraf - Courage Capital Management

Great. Thank you.

Operator

And we will take a follow up question from John Daniel of Simmons & Company.

John Daniel - Simmons & Company

Hey guys, thanks for bring me back in. A couple of house keeping ones first. I think you mentioned that $1.6 million shares remain available under the buyback plans, is that correct?

Ben Palmer

John, its 1.3

Rick Hubbell

Yes, 1.3.

John Daniel - Simmons & Company

1.3, and we assume that you guys would look to entries at some point this year.

Rick Hubbell

At this point there has been no specify discussion about that, but its as you know its easily accomplished with…

John Daniel - Simmons & Company

Sure, I just (inaudible). One question on the pricing pressures. When you go back and look at the Q1 results, I mean you had nice revenue growth and on the surface appeared to not have been an issue, or at least impacted the numbers. Can you see this be more of a Q2 issue than Q1? Is that safe for me to assume that it wasn’t much of an issue in Q1?

Jim Landers

John, this is Jim. I know your question obviously alludes to a sequential analysis discussions that has to be the answer.

Q1 was better than Q4 for a number of reasons that Ben kind of alluded to. One of them frankly was that we just did a better job with logistics and raw materials. So that would, I hate to mask, probably say that would mask any inward pricing pressure. I mean we out performed the rig count sequentially, so that on the surface of it would make you think that there was not a pricing pressure problem, but that would not really be accurate.

If you held other factors constant, there was a pricing pressure in the first quarter that impacted us. Exactly how much it is, I honestly don’t know, but we see that as an issue, may be not when the weather gets cold again, but certainly for the second quarter and obviously we have a hard time quantifying it ourselves at this point.

John Daniel - Simmons & Company

Yes, I was just curious. On the quality, I mean I know you’ve been asked 30 times today about pricing and its good right now, but at this point are customers still paying the standby rates that they were paying in 2011 to keep the coiled tubing units or have you seen that start to moderate?

Rick Hubbell

I think they are still paying the standby rates in which we are alluding to I assume is a horizontal completion that lasts five day and you need a coiled tubing unit there on day one and day five. Come back later so I can explain that, but that’s what we are talking about. Yes, I believe that are still paying a standby rates for those interim days.

John Daniel - Simmons & Company

Okay. Two last ones from me; do you have any guidance on deprecation for Q2?

Rick Hubbell

Yes, I mean it’s going to increase probably a little bit, call it $2 million or something.

John Daniel - Simmons & Company

Okay and then the last one again, it’s going to come back to pricing, so I hate to beat the dead horse, but when you guys in the industry relocated from and to basins that you haven’t been in before, is it safe to assume that to go in there and gain traction with the customers you’ve got the discount price to do so or is that an incorrect assumption on my part?

Rick Hubbell

All things being equal probably yes, but it wouldn’t be for a term of six months. It might be deceptive. I would characterize it as – I hear our guys talk about it as we need to get – customers, I would love to talk to you about it, but why don’t you come to us after you’ve done a couple of jobs. We got to go find some jobs and may be have to discount that to work sooner or later, but within that we are able to show them pictures and bring them on sides and then you’ll see what we can do what we said we can do and we can proceed from there.

Jim Landers

We can document that we have profit in raw materials and that’s helpful too.

Ben Palmer

And really that’s only the Bakken, the other ones we are moving in there is we already have.

Rick Hubbell

Quite a reputation, that’s right.

John Daniel - Simmons & Company

All right, fair enough guys. Thanks again and thank you.

Rick Hubbell

Thank you John.

Operator

(Operator Instructions) And we have no further question in the queue at this time. Actually we just have one. We will take our next question from Ben Swomley of Morgan Stanley

Ben Swomley - Morgan Stanley

Hey, thanks for taking my question. I just wanted to follow-up. You’ve been talking a little bit about how the costs have revolving on the proppants side and I am wondering, where are you getting the biggest benefit? Is that from sort of improving the transport and logistics supply chain or is that more on the pricing side itself for proppants?

Rick Hubbell

Some of it is creating the availability, but some of it is how it is transported.

Ben Swomley - Morgan Stanley

Okay, and what specifically, you mentioned that your becoming more familiar with the different grades of proppants that are in demand by different customers. I am wondering specifically, I mean is there a grade that’s in a higher demand than another or which type of proppants do you have the most difficultly procuring?

Jim Landers

Ben, that’s a hard one. I mean, we have some distance from it, but I think we can safely say that there are a lot of different grades of proppants and it’s almost like the checks party mix. Sometimes you try to figure out different kinds to use and customer’s different preferences and there are several outside influences that influence what kind of proppant we use.

Rick Hubbell

I think yes, resin coated versus…

Jim Landers

Just real plain.

Rick Hubbell

Bring the right plan, that’s right. It is part of it. But clearly the larger diameter of proppant is more scarce, it always has been, but sometimes again the customer can be flexible and may be not demand the proppant that’s quite that large. May be they would go to something that’s a little more available. So again, that’s just the flexibility and what customers are.

You may find a customer opportunity, but they want a proppant that you don’t currently have access to. So you just have to work through those issues and seek out opportunities where you can match up what you have availability to and what the customer needs and wants.

Ben Palmer

Yes, we have seen the customer reengineer some of their jobs, allow for that process.

Rick Hubbell

That’s right.

Ben Swomley - Morgan Stanley

So when you say that they’ve reengineered some of their jobs, how do you mean, to tease a different type of a proppant or a proppant that’s more available.

Rick Hubbell

Yes.

Ben Swomley - Morgan Stanley

All right. Thank you very much.

Rick Hubbell

Thank you Ben.

Ben Palmer

Thanks.

Operator

And there are no further questions in the queue this time. I’ll now turn the call back over to Mr. Jim Landers for any additional or closing remarks.

Jim Landers

Okay, thank you Jeremy. We appreciate everybody calling in this morning and I appreciate all the questions and enjoyed the dialogue. Everybody have a good day. Thank you.

Operator

That concludes today’s conference. As a reminder, there will be a replay on the website within two hours. Thank you for your participation.

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