RPC, Inc. Q2 2008 Earnings Conference Call Transcript

Jul.23.08 | About: RPC Inc. (RES)

RPC, Inc. (NYSE:RES)

Q2 2008 Earnings Call Transcript

July 23, 2008 9:00 am ET

Executives

Jim Landers – VP, Corporate Finance

Rick Hubbell – President and CEO

Ben Palmer – CFO

Analysts

Mike Drickamer – Morgan Keegan

Jeff Tillery – Tudor Pickering Holt & Co.

Frank Saldana – Bonanza Capital

Bill Dezellem – Tieton Capital Management

Doug Garber – FBR Capital Markets

Robert Mackenzie – FBR Capital Markets

Jim Landers

Good morning, this is Jim Landers, VP of Corporate Finance with RPC. And I would like to thank you for joining us for our second quarter 2008 earnings conference call. Today's call is hosted by Rick Hubbell, our President and CEO, and Ben Palmer who is our Chief Financial Officer.

At this time all of you are in listen-only mode. Following our presentation, we're going to conduct a question-and-answer session. And our operator will provide instructions for you at that time for you to queue up for questions.

I would like to advise everyone that this conference call is being recorded. I would also like to advise you that before we begin our call I need 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 will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I would like to refer you to our press release issued this morning along with our 2007 10-K and our other public filings that outline those risks. All of which can be found on our Web site at www.rpc.net.

I also need to inform you that in today's earnings release and in our conference call this morning we will be referring to EBITDA which is a non-GAAP financial measure of operating performance. We use EBITDA at RPC 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. Also, we are required to use EBITDA to record our compliance with the financial covenants under our revolving credit facility.

In our press release today and our Web site show reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. So I invite you to review that disclosure if you're interested in seeing how it’s calculated. If you’ve not received our press release please call us at 404-321-2140, and we will fax or e-mail one to you immediately.

With those opening remarks, I will now turn it over to Rick Hubbell who is our President and CEO.

Rick Hubbell

Jim, thank you. This morning we issued our earnings press release for the second quarter ended June 30, 2008. In a few minutes, Ben Palmer will discuss our financial results in more detail.

At this time I would like to provide you with a few operational highlights. RPC experienced significant sequential improvements in its results during the second quarter. Not only did revenues increase by almost 9% from the previous quarter, but our managers were able to successfully convert these increased revenues into greater profitability.

Most of our key financial performance measurements saw improvements. While we are optimistic the oil and gas industry will continue to maintain its high activity levels increased competition and capacity persist in our business. The equipment we added during the past several years is allowing RPC to generate record revenues, however, higher cost and discounting continues to negatively affect profitability relative to the results seen in 2006 and early '07. Our daily challenge is to operate efficiently in an environment characterized by high activity levels coupled with persistent competitive and cost pressures.

With that overview I will turn it over to our CFO, Ben Palmer.

Ben Palmer

Thank you, Rick. For the quarter ended June 30, 2008 revenues increased 25.5% compared to the prior year to $214.6 million primarily due to our capacity addition. EBITDA for the second quarter was $67.1 million, an increase of 15.8%. Operating profit for the quarter was $37.8 million compared to $38.7 million in the prior year. Operating profit includes an increase in depreciation of $10.5 million compared to the prior year.

Net income was $22.5 million or $0.23 diluted earnings per share compared to $23.8 million or $0.24 diluted earnings per share last year. Cost of services rendered and goods sold for the quarter as a percentage of revenue was 56% compared to 51.6% in the prior year. This percentage of revenue increase was due primarily to higher materials and supplies and fuel cost. Our customers continue to be reluctant to share in this cost increases.

Our selling, general and administrative expenses during the quarter increased only 7.1%, $27.1 million last year to $29 million this year, primarily due to increased personnel and other costs consistent with our higher activity levels.

We are pleased to report that SG&A as a percentage of revenues decreased from 15.8% last year to 13.5%. Depreciation and amortization increased significantly from $18.7 million last year to $29.1 million this year. This increase was due to the large amount of equipment that we place in service in the last 12 months.

Our support service segment, which is comprised mainly of our rental tool service line experienced a decrease of 4.6% in revenues and 20.4% in operating profit compared to the prior year. This revenue decrease was due to lower pricing and occurred despite increased activity level. Operating profit in this segment also declined as a result of increased depreciation expense.

I would also like to provide a few comments regarding our second quarter '08 sequential financial results. Our consolidated revenues were up 8.9% compared to an overall rig count increase of just over 5%. Revenue increased due to improved utilization and slightly higher capacity in our larger service line.

Second quarter cost of services rendered and goods sold as a percentage of revenues decreased 3.7 percentage points from 59.7% in the first quarter to 56% in the second quarter. This decrease was due to improved productivity from our labor force, more efficient sourcing of key materials such as sand, lower third-party rental expense and lower M&R on our newer fleet.

SG&A cost as a percentage of revenues decreased approximately 90 basis points sequentially to 13.5% as a result of successfully leveraging these costs over higher revenues. Second quarter depreciation expense, which was 13.6% of revenues decreased 30 basis points sequentially based on higher revenues.

Our EBITDA increased 27.1% on this improved performance to $67.1 million in the second quarter compared to $52.8 million in the first quarter. Our Technical Services segment revenues increased 9.5% to $185.3 million, while operating profit increased 54.5%. This revenue increase was primarily driven by growth in pressure pumping, coiled tubing, nitrogen and downhole tools.

Operating profits increased from 12.2% of revenues in the first quarter to 17.2% of revenues in the second quarter. This operating profit improvement was due to higher utilization of our fleet and better operational execution. Improvements were realized in cost for materials and supplies, maintenance and repair and personnel through better utilization.

Despite the year-over-year decline in our Support Services segment, sequential revenues for Support Services increased 5% to $29.4 million and operating profits increased 15.5%. At the end of the second quarter, our pressure pumping capacity had grown to approximately 287,000 hydraulic horsepower. This is the total that we've been forecasting the past several quarters, and we have no plans to make any further capacity additions at this time.

At the end of the second quarter RPC's debt was $183 million under its credit facility. Our ratio of long-term debt to total capitalization is approximately 30%. Second quarter 2008 capital expenditures were approximately $55 million and we expect full year '08 capital expenditures to be approximately $150 million. That will depend on the timing of payments around year-end.

With that, I will turn it back over to Rick for a few closing comments.

Rick Hubbell

Thanks, Ben. In summary, despite record oil prices, the current operating environment remains challenging. While the industry is slowly absorbing the capacity added in 2007, the pricing for our services continues to be very competitive.

We are pleased with our sequential operating results and many of the current developments in our industry. We remain focused on improving our business and growing revenues, profits and cash flows. In this environment of high activity levels, our employees are working harder to meet customer demands. Our successes are a direct result of their dedication, and we appreciate their hard work.

I would like to thank you for joining us on the conference call this morning. And at this time we are happy to entertain any questions you may have.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Mike Drickamer with Morgan Keegan.

Rick Hubbell

Hi, Mike.

Mike Drickamer – Morgan Keegan

The kind of tone you have towards pricing, several of your competitors yesterday were more optimistic on pricing, commenting that the industry hit a milestone in the quarter with pricing stabilizing, can you just help me reconcile perhaps what you're seeing or focused on that perhaps they are not seeing?

Ben Palmer

Mike, very beginning of your comment was cut off. I understand what you're asking is that you don't think we are as positive about the pricing environment maybe some other people have commented.

Mike Drickamer – Morgan Keegan

You just seem a little bit more cautious on the outlook for pricing than some of your competitors. Yes, here, I am just trying to reconcile that.

Ben Palmer

Well, I think we believe that we've seen some stabilization in pricing. I guess we would rather continue to believe and plan that we're going to have a challenging environment if the pricing improvement comes through that’s all to the better, but we are not counting on it. I think that’s the kind of same thing we commented on last quarter. We are not going to sit back and wait for that to happen. We're trying to make things better without that benefit, but I think we get experience as I indicated some stabilization this quarter. I think it had begun last quarter, but this quarter was a little bit better in that regard and we are hopeful.

Mike Drickamer – Morgan Keegan

Okay, so then perhaps it’s just some conservatism on your part, then.

Ben Palmer

Sure.

Mike Drickamer – Morgan Keegan

The other thing to look at here is how the quarterly earnings progressed here. We saw pretty significant ramp up in the rig count throughout the quarter, can you talk about how the earnings progressed through the quarter as far as perhaps was June better than April and May, and maybe qualify or quantify if you can?

Jim Landers

Mike, this is Jim. No, there is no real color during the quarter that’s worth bringing up, I mean, it was a good quarter we think, but no month stood out either positively or negatively. Didn't have any weather issues this quarter as sometimes happens, so it was the quarter was fairly steady.

Mike Drickamer – Morgan Keegan

Okay. Then if you look relative to the first quarter were there any product lines or geographies that stood out for you as being stronger than normal?

Jim Landers

And we only want to speak generally because of competitive reasons, people talk about the mid-continent and some of these shale plays and some of the ones that we are involved in are doing just great, are doing fine.

Mike Drickamer – Morgan Keegan

Okay.

Ben Palmer

That’s true regionally. I would say by service line, clearly, pressure pumping is our biggest service line, and we talked about some of the issues we had last quarter. We talked today about some of the things that we were able to do to help our execution, and I think many of that the big driver of that certainly was pressure pumping, and you can see that in the Technical Services result.

Mike Drickamer – Morgan Keegan

Okay. And talking about those issues are a good (inaudible) into my last question here. You guys look to be back on track in the fourth quarter and then the operational issues in the first quarter popped up, are there any issues or concerns right now that give you a little bit of a pause here?

Ben Palmer

There are – again as we talked about last quarter, and this quarter we have some areas that are certainly doing better than other areas. I think we have some challenges, but accordingly, some opportunities I think to do (inaudible) things better. So, are we cautious about that? Certainly, I think we will continue to be, we will focus on it. But, we see it as much perhaps as an opportunity. But, certainly again there is a risk there as well. With these larger jobs that are taking place we can really be subject to a little bit of timing here, there to furrow up some jobs, several of them are very big jobs. So, just a slight change in timing can certainly impact us as well, but we feel like we have made some solid improvements, and we've got a good foot holder to move forward from here, and if pricing begins to improve, that would be all the better.

Jim Landers

Mike, this is Jim. Employment, personnel is a big issue in oilfield, continues to be for us. We got some direct cost leverage this quarter on labor, which means we were using things more efficiently, and we had higher utilization of our equipment, so that’s a positive. However, labor cost and labor availability is still a big issue in oilfield as you know. And of course, last quarter the big topic of conversation was sand, we've gone over that a lot. We’ve done a little bit better on that this quarter logistically, we have secured some better sources of supply and some more efficient sources of supply which although prices haven't gone down, it certainly helped from that point of view. The floods in the Midwest kind of (inaudible) availability a little bit at the end of the quarter, but we feel like we are getting the sand issue under control. So that was a positive as well. However, key materials and supplies are still a big deal, and labor is still a big deal.

Mike Drickamer – Morgan Keegan

Okay. Great, guys. That’s it from me. Thanks a lot.

Jim Landers

Thanks, Mike.

Ben Palmer

Thanks, Mike.

Operator

Your next question comes from Jeff Tillery with Tudor Pickering Holt & Co.

Jeff Tillery – Tudor Pickering Holt & Co.

Just wanted to ask some questions around utilization in the pressure pumping business, because obviously that’s what drove a lot of Technical Services segment improvement. I know you haven't been were you in the past to talk on specific numbers around utilization, but can you just give us a feel for on a quarter-over-quarter basis how much utilization improved, and as well as some color on how fully utilized you feel your pumping equipment is at this point?

Jim Landers

Jeff, this is Jim. Are you talking about sequentially versus second quarter or '08 compared to '07?

Jeff Tillery – Tudor Pickering Holt & Co.

Sequentially.

Jim Landers

Okay. Well, utilization increased. And thank you for (inaudible) having to say that we don't hand those numbers out too often too much, utilization did increase, we still have weakness in the Rockies. So we are still concerned about that. But as we always say the equipment has wheels and can move to other areas where the potential for utilization is greater. So it did improve. We did not take too much more delivery of hydraulic horsepower during the quarter. So you could attribute some of our sequential increase in pressure pumping to higher utilization in fleet. So we are pleased about that.

Jeff Tillery – Tudor Pickering Holt & Co.

And the driver of the increased utilization, how much of that is having all the ancillary equipment what not in place, that was a little bit slower in coming in, in the past versus just rig count improvement and driving the demand side?

Jim Landers

Good question, it’s kind of hard to answer, I think, I think if we had to say though a majority of it came to better operational execution having the ancillary equipment in place, et cetera, certainly the rig count improved, but we just executed a bit better.

Jeff Tillery – Tudor Pickering Holt & Co.

Okay. And as far as days of the week working when the indicators we have been looking for, for pricing improvement is once the industry is working more fully on Saturdays, are your work weeks basically five days at this point, or is there much in the way of work on Saturdays?

Jim Landers

Depends on the market. In some markets we are working more than five days a week. I am sure you’re aware of the DOT regulation, so we can't work seven days a week, but we are getting busier. And so again, that answer is a regional answer for us as it is for many I'm sure. But we are getting busier.

Jeff Tillery – Tudor Pickering Holt & Co.

Okay. And you mentioned earlier that no month within the quarter stood out, my perception was in the first quarter that March was particularly rough from a profitability standpoint, so the change March versus April, is that just getting the logistics issues worked out? Is that the primary change?

Jim Landers

I think that’s right. Logistics just getting traction on some of the things we’ve been putting in place. Correct.

Jeff Tillery – Tudor Pickering Holt & Co.

Okay. Your CapEx, you guided to $150 million for the full year, you basically spent two-thirds of that to-date, how flexible would you say your CapEx plans are as well as – if there are additions to that $150 million, what product lines are likely to comprise those additions?

Ben Palmer

At this point we wouldn't want to speculate, we don't – we have our plans in place, and certainly at this time we don't expect the number to vary significantly from what we forecasted, but that could change I mean if opportunities come along. So I really don't want to speculate on what that might be.

Rick Hubbell

And we certainly have flexibility in our credit facility. So if the right opportunity did come around we would have the credit to do it.

Jeff Tillery – Tudor Pickering Holt & Co.

I'm just trying to understand kind of the approach to CapEx going forward. What should we on the outside look to for in the case of whether or not RPC is willing to spend additional CapEx dollars on pressure pumping equipment? Is it margins getting to a certain point? Is it a contract from a customer being willing to assure utilization kind of? What should we look at as a roadmap for how you guys are approaching CapEx going forward?

Ben Palmer

Well, as we always we focus on returns on our capital, so we want to get that we still have opportunity to improve that a great deal, pricing is continues to be very, very competitive at this point. So, I think we're going to try to be very disciplined and be very aware and diligent in that determination about whether we're going to add any more equipment or not. I think there are indications with capacity is beginning to be absorbed, and there may be opportunities soon, here we are, this is really switched. Several quarters ago talked about the facts, there was under capacity, now in the last six months way over capacity, and all of a sudden, discussion again about what point do we begin to add again. We have no current plans. We are going to remain diligent, watch our returns very carefully. We have opportunities to expand our returns with the equipment we have and that’s certainly our priority at this point.

Jeff Tillery – Tudor Pickering Holt & Co.

Okay. And my last question is just regarding potential for fuel cost pass-throughs to the customers, and you mentioned in the press release, in your commentary that customers really weren't sharing in those cost increases in the second quarter, how likely do you think it is that you will be successful in passing through some of those cost surcharges in the third quarter?

Ben Palmer

We had some limited success this quarter in certain regions. So maybe there is a little bit of crack there. We’ve also had some opportunities where we have sort of gone in together with our customer on supply of fuel, and that helped us and in some regards kind of ends up being a pass-through without it being actually showing up on our billing to the customer. So, we have some indications that perhaps that’s improving a bit, and maybe there will be more opportunity over the next three to six months.

Jeff Tillery – Tudor Pickering Holt & Co.

Okay. Thank you very much.

Jim Landers

Thank you, Jeff.

Operator

Your next question comes from Frank Saldana with Bonanza Capital.

Frank Saldana – Bonanza Capital

Been answered. Thanks, guys.

Rick Hubbell

Hey, Frank. Thank you.

Operator

Your next question comes from Bill Dezellem with Tieton Capital Management.

Bill Dezellem – Tieton Capital Management

A group of questions. First of all, relative to the three months of the quarter, is it fair to say that April had better revenues than March? May had better revenues than April and June's revenues were higher than May's?

Jim Landers

Bill, this is Jim. The first part of your – it would be fair to say that April was higher than March, but as we said earlier, no month in the quarter stood out either good or bad.

Bill Dezellem – Tieton Capital Management

Okay. We weren't sure if that was implying with operational issues or whether it really was dialed into revenues. The second question is that in the past you have discussed attempts to win larger contracts rather than just individual jobs, what is the update on the contract front, please?

Jim Landers

No change since last time really.

Ben Palmer

Usually it’s tenders, contract renewals, to the extent we will participate in those, many of those were new kind of on first quarter or (inaudible) one of next year, so that process is beginning now. We will know more in the next six months.

Bill Dezellem – Tieton Capital Management

In the past there has also been an issue with – as we understood it anyhow with equipment moving down from Canada given the weakness in the rig count that had been out there and that created additional capacity pressure here in the lower 48. To what degree was Canada showing some signs of life? Have you seen that trend reverse?

Jim Landers

Bill, it hasn't gone worse, and it’s hard to say that there has been a material impact to our financials from equipment moving back north of the border although it may in fact be happening. It’s not the problem that it was before though.

Bill Dezellem – Tieton Capital Management

In that way when did it stop getting worse?

Jim Landers

I don't really know to (inaudible), it’s hard to say. We don't operate in a Canadian market enough to really know when the Canadian market started getting better, so it is hard for us to say.

Bill Dezellem – Tieton Capital Management

All right. Thank you.

Jim Landers

Thank you, Bill.

Operator

(Operator instructions) Your next question comes from Doug Garber with FBR Capital Markets.

Rick Hubbell

Hey, Doug

Doug Garber – FBR Capital Markets

Hey, I was hoping you guys could give us an update on your plans with your free cash flow. Are there other new product lines that you guys had looked into that you think could be complementary to the customers?

Jim Landers

Doug, our goal right now is to pay down the debt. But as Rick mentioned earlier, we have dry powder, should something come up, but it would be opportunistic. There's nothing on the board right now.

Doug Garber – FBR Capital Markets

Okay. And also can you guys give us an update on what you are seeing in the competitive environment in coiled tubing. I know (inaudible) announced some coiled tubing and acquisition this morning.

Jim Landers

Yes. (inaudible).

Ben Palmer

We have not experienced any – say any, but it is going well for us. We have added, we did add a few units in the second quarter as we have planned. There are a few more units to come in over the – not many, two or three more units to come in and these are the higher capacity, larger diameter coiled tubing units. And to-date we’ve achieved some pretty good utilization on a pretty rapid basis. So, we are pleased with it currently.

Doug Garber – FBR Capital Markets

Alright. Thank you. And just one housekeeping issue, I was curious what percent of pressure pumping revenue was of the total?

Jim Landers

Give me a second, it’s around 40%. We’ll see if it’s materially different from that we’ll tell you. Let's see. That’s about right.

Doug Garber – FBR Capital Markets

40%

Jim Landers

Around the 40% mark, yes.

Doug Garber – FBR Capital Markets

All right. And just one other question, how much of your pressure pumping equipment is on spot versus term contract?

Ben Palmer

That gets into a definitional issue. We have only one or two really long-term contracts where lot of the equipment is tied up. And that might be 15% of the equipment. Now some of – we do have some equipment tied up where a customer is saying I need you every Tuesday or I need you every Thursday, that kind of thing. So I don't know if you want to call that being on a contract or not, but probably 40% to 50% of it is still on callout. Please don't hold me to those numbers though because I am not exactly sure. The other thing is that our order book is increasing. So probably a greater preponderance of that is going towards being committed to a customer on every day or one day a week basis. So it’s moving, a little bit of it was in the past, but sorry, we don't have more concrete details in that.

Operator

Your next question comes from Mike Drickamer with Morgan Keegan.

Mike Drickamer – Morgan Keegan

Follow-up guys. We talked about the months earning the second quarter not one of them really stood out, any thoughts on how July shaping up to be yet?

Jim Landers

Pretty good. We are watching Hurricane Dolly, but pretty good, I mean, nothing bad, but nothing remarkably good either.

Mike Drickamer – Morgan Keegan

How about with the holiday, the fourth being on a Friday, is that going to have an impact on the month?

Ben Palmer

Probably.

Jim Landers

Yeah, probably so.

Mike Drickamer – Morgan Keegan

Okay.

Jim Landers

But not huge.

Mike Drickamer – Morgan Keegan

How was the – or can you give me an update perhaps on the snubbing or hydraulic workover market?

Jim Landers

Nothing too remarkable there, Mike. I mean, things are fairly good. Lot of our snubbing work is international, so it’s hard to make sort of a blanket characterization of the domestic market for snubbing. We have not added any units in the second quarter which is a comment relating more to us than anybody else. Utilization is decent, pricing is good, so nothing remarkable.

Rick Hubbell

Yeah, we have some opportunity to increase utilization there, but it’s not growing tremendously, but it is hanging in and still performing – performing pretty well. But no dramatic moves one way or the other.

Mike Drickamer – Morgan Keegan

Okay and then one last piece of a housekeeping here. Can you talk about what your average pressure pumping horsepower was during the quarter? I imagine most of what you took in was front-end loaded this quarter.

Jim Landers

That's probably true, let's see. Average was around 285 or so.

Mike Drickamer – Morgan Keegan

Right. Thanks a lot, guys.

Jim Landers

Thank you, Mike.

Rick Hubbell

Thank you, Mike.

Operator

You have a follow-up question from Bill Dezellem with Tieton Capital Management.

Bill Dezellem – Tieton Capital Management

I’ve hit this with a couple of the other questions, but from a strategic perspective thinking out over the next two to three years what additional services do you believe that your customers would like to see you add?

Jim Landers

Well, Bill, there’s some ancillary services in pressure pumping that we’re not in, and I am not telegraphing to anybody that we’re going to get into these, but this is very theoretical. There’s some other pressure pumping services that might be of interest at some point. And certainly there are some other services relating to the increase in directional and horizontal drilling which might be attractive. So, those are some potential services. But we got plenty of services right now, and installed lot of capacity in this industry, so we don't want to telegraph that we’re looking to add a lot of new things right now.

Ben Palmer

I would say or add to that, that not necessarily new service line, but expanding our engineering and technical capabilities around these unconventional plays is something that we’re focused on and will continue to be focused on. So I think just improving our capabilities to help our customers be more successful on these larger more complex projects. That’s a focus and will continue to be.

Bill Dezellem – Tieton Capital Management

Great. And then the non pressure pumping, non coiled tubing and non snubbing product lines, would you please walk through kind of what the dynamics that you saw in the quarter for each of those and what you foresee for the remainder of the year please?

Jim Landers

Rental tools is strong, but as Ben mentioned, we had some pricing pressure there, don't see that abating, some nice activity in some of our tubular handling services…

Ben Palmer

Downhole Tools is growing pretty nicely, the division that has tools that are used in connection with coiled tubing, and it’s not just with our coiled tubing, we work with other customers as well. That’s performing very nicely. Nitrogen, we've added a lot of capacity there, and it’s performing decently, there is opportunity for improvement there. Lot of that depends on this sort of the mix of jobs and the requirements for that nitrogen equipment. Those are the big ones, Bill.

Bill Dezellem – Tieton Capital Management

And then finally, the international market and your efforts to expand there, I guess there’s two questions to the international market, discuss what took place in the quarter, and then broadly speaking now, please discuss your expansion thoughts there?

Jim Landers

Bill, this is Jim. Nothing of note really took place in the quarter. Sort of our long-term presence is still kind of took place. We do have business development effort in the international arena, and we are certainly looking for opportunities there. There are a lot of opportunities here in the United States. I mean, almost 60% of the worldwide drilling takes place right here where we have infrastructure and people and customers, and so we think the best return right now at least for our shareholders in the near-term is focusing on the strengths that we have here. But again, we are continuing with an international business development, but nothing of note to report at this point.

Bill Dezellem – Tieton Capital Management

Thank you again.

Jim Landers

Thank you, Bill.

Operator

Your next question comes from Robert Mackenzie with FBR Capital Markets.

Robert Mackenzie – FBR Capital Markets

Well, I've got a guess high level question for you. And it comes back to the resource plays in some of the development we’re seeing coupled with the ramp up fairly rapidly in domestic gas production we've seen here. How do you think about the risks, challenges, opportunities for RPC going into 2009 with gas production up meaningfully, acceleration, development some of these resource plays, how worried are you about a meaningful pullback in natural gas prices here?

Rick Hubbell

Well, it certainly could happen. I think we are encouraged to – our market share is relatively small, and is certainly easier to grow that smaller market share as compared to some of our customers. But just the fact that we’ve not designed in or predicted some pricing improvements is we will always approach things conservatively rather than more aggressively. So, I mean we are always mindful that there could be a problem in natural gas in the future, but we don't anticipate it.

Robert Mackenzie – FBR Capital Markets

Okay, so sounds like you guys don't – would it be fair to say then you think the production growth out of some of these plays may be smaller and later than some might be expecting? What’s the basis behind your belief that there’s not going to be a problem with the gas supply here?

Ben Palmer

Well, I mean, Rob, we certainly don't have any control over the supply ourselves. I mean, we’re participant in this business. We are lucky that we think there is a lot of – there are a lot of reasons worldwide why the use of energy is very, very high continuing to be, everything we read and we believe stories, anecdotes, evidence, people that we know have gone to China and India, the growth and desire for energy is just tremendous. So we feel that there is energy shifting, uses that go on between oil to natural gas, lot of things going on with auto industry that can't happen overnight but are moving in that direction. We feel there will be a lot of demand for natural gas. I think my personal opinion is just sort of looking at the numbers that there is any sort of slowdown I don't believe it would be for any extended period of time. And there is just so much demand for energy around the world that it’s going to be here to stay quite a while.

Jim Landers

Rob, this is Jim. If we had predicted – we had a forecast for natural gas prices at the beginning of this year we would have been way wrong, because it’s $4, $5 an Mcf higher than we thought. So, our customers are making plenty of money right now, and we are happy to be there helping them make money. I wish I had a more erudite answer than that, but we don't know where the price of natural gas is going.

Rick Hubbell

And domestically there are some regions that we don't currently operate in that we certainly could move into.

Robert Mackenzie – FBR Capital Markets

Okay. Great. Thanks, guys.

Jim Landers

Thanks, Rob.

Ben Palmer

Thank you, Rob.

Operator

At this time there are no further questions. Are there any closing remarks?

Jim Landers

Yes, everyone, thank you for joining in on our conference call, and thank you for your questions. Hope everybody has a good day. Thanks again.

Operator

This concludes today's conference call. You may now disconnect.

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