Q3 2020 RPC Inc Earnings Call
Yes.
Good morning, and thank you for joining us for RPC Inc.'s third quarter 2020 financial earnings Conference call.
Today's call will be hosted by Rick Hubbell, President and CEO, and Ben Palmer Chief Financial Officer.
Oh for present is Jim Landers, Vice President of corporate services.
At this time all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session.
Instructions will be provided at that time for you to queue up for questions.
I would like to advise everyone that this conference call is being recorded.
Jim will get us started by reading the forward looking disclaimer.
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're going to mention a few things that are not historical facts. Some of the statements that we 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 2019 10-K and other public filings that outline those risks all of which can be found on rpcs website at www dot or P.C. dot net.
In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance. These non-GAAP measures or adjusted net loss adjusted loss per share adjusted operating loss EBITDA and adjusted EBITDA were using these non-GAAP measures today, because they allow us to compare performance consists.
Definitely over various periods without regard to nonrecurring items or changes in capital structure. In addition, RPC is required to use EBITDA to report compliance with financial covenants under our revolving credit facility.
Our press release issued today and our website contains reconciliations of these non-GAAP financial measures to operating loss net loss and loss per share which are the nearest GAAP financial measures. Please review these disclosures if you're interested in seeing how they are calculated.
If you've not received our press release for any reason please visit our website at <unk>.
RPC Dot net <unk> for a copy I will now turn the call over to our President and CEO Rick.
Thank you Jim.
This morning, we issued our earnings press release for Rpcs third quarter of 2020.
Before we begin discussing rpcs results I would like to take a moment to recognize whore Randall Robbins our chairman.
Who passed away during the third quarter.
For nearly half a century Randall guidance or company with a steady hand.
He instill the culture of capital discipline that has allowed RPC to successfully navigate the severe volatility experienced in our industry. He will be missed.
Rpcs third poor progress much is as we had expected.
U.S. oilfield activity improved from the historic lows recorded in the second quarter.
And RPC capitalized on this with equipment and crews that were in place and prepared work.
Our results improved due to higher revenue increased utilization and continued expense management.
Our CFO Ben Palmer will discuss this and other financial results in more detail after which I'll provide some closing comments. Thank you Rick.
The third quarter 2020 revenues decreased to 116 point sixmillion compared to 293.2 million in the third quarter of the prior year rather.
Revenues decreased due to lower activity levels and pricing compared to the third quarter of the prior year.
Operating loss for the third quarter was 31.8 million compared to an adjusted operating loss of 21 million in the third quarter of the prior year.
EBITDA for the third quarter was negative $12.3 million compared to adjusted EBITDA of 22.8 million in the same period at the prior year.
For the third quarter of 2020 arc see reported a nine cents adjusted loss per share compared to an eight cents adjusted loss per share in the third quarter of the prior year.
Cost of revenues during the third quarter was $100.9 million or 86.5% of revenues compared to $225.2 billion or 76.8% of revenues during the third quarter of 2019.
Cost of revenues declined primarily due to decreases in expenses consistent with lower activity levels and rpcs cost reduction initiatives.
Cost of revenues as a percentage of revenues increased due primarily to lower pricing for our services.
Selling general and administrative expenses decreased to 32.4 million in the third quarter of 2020 compared to 42.6 million in the third quarter of the prior year.
These expenses decreased due to lower employment costs, primarily the result of cost reduction initiatives during previous quarters.
Partially offset by $3.3 million of accelerated amortization of restricted stock related to the passing of our chairman.
Depreciation and amortization decreased to 18.7 million in the third quarter of 2020 compared to 44.7 million in the third quarter of the prior year.
Depreciation and amortization decreased significantly primarily due to asset impairment charges recorded in previous quarters, which reduced the net book value of Rpcs property plant equipment.
As well as lower capital expenditures.
Our technical services segment revenues for the quarter decreased 60.2% compared to the same quarter in the prior year.
Segment operating loss in the third quarter of 2020 was 24.9 billion compared to $18.2 million in the third quarter of the prior year.
This increase loss was due to significantly lower activity and pricing, partially offset by lower depreciation and amortization expenses.
Support services segment revenues for the quarter decreased 61% compared to the same quarter in the prior year segment operating loss in the third quarter of 2020 was $3.8 million compared to an operating profit of $1.6 million in the third quarter of the prior year.
On a sequential basis Rpcs third quarter revenues increased 30.6%.
$116.6 million from $89.3 million in the prior quarter.
This was due to activity increases in several of our larger completion related service lines.
Cost of revenues during the third quarter 2020 increased by 20.8 million or 26% due to expenses, which increased with higher activity levels, such as materials and supplies and maintenance expenses.
As a percentage of revenues cost of revenues decreased from 89.6% in the second quarter, 2020% to 86.5% in the third quarter due.
Due to more efficient labor utilization and the leverage at higher revenues over direct costs, which are relatively fixed or in the short term.
Selling general and administrative expenses during the third quarter of 2020 increased 12.5% to 32.4 million from $28.8 million in the prior quarter quarter.
Merely due to the 3.3 million accelerated vesting of restricted stock.
Our speaker incurred an operating loss of $31.8 million during the third quarter of 2020 compared to an adjusted operating loss of $35.9 million in the prior quarter.
Rpcs EBITDA was negative $12.3 million in the third quarter of 2020 compared to adjusted EBITDA of negative $17.8 million in the prior quarter.
Our technical services segment revenues increased by $28.7 million or 35.7% to $109.3 million in the third quarter due to increased activity levels and several service lines.
Rpcs technical services segment incurred a 24.9 million operating loss in the current quarter compared to an operating loss of $34.1 million in the prior quarter.
Our support services segment revenues decreased by $1.5 million or 16.6% to $7.3 million in the third quarter.
Operating loss was $3.8 million compared to an operating loss of $1.8 million in the prior quarter.
During the third quarter RPC operated as many as five horizontal pressure pumping fleets at the end of the third quarter of 2020, Rpcs pressure pumping capacity remained at approximately 728000 hydraulic horsepower.
Third quarter 2020 capital expenditures were $13.7 million and we currently estimate full year capital expenditures to be approximately $60 million to $70 million.
And comprised primarily of capitalized maintenance of our existing equipment.
Well as upgrades of selected pressure pumping equipment for dual fuel capability and with that I'll turn it back over to Rick for some closing remarks. Thank you Ben.
As we indicated on last quarter's conference call, we believe domestic oil field activity.
Bottomed out during the second quarter.
Downturn in our industry experienced was perhaps the steepest and most severe ever encountered.
The fact RPC is weathering it as well as we or is a testament to the dedication and hard work of our employees.
Despite the uptick in activity the modest industry improvements experienced during the third quarter or in significant.
Insufficient to generate sustainable financial returns much of the recent increase in our industry wide activity has been driven by operators completing previously drilled wells.
For our service industry to remain healthy we need to see sustained growth in the rig count followed by higher pricing higher service pricing.
The recent consolidations among the exploration and production companies likely represent a headwind in that regard.
Therefore until we see the signs that demand for our services is likely to grow substantially we will continue to focus on expense management and limit our capital investments.
At the end of the third quarter Rpcs cash balance was $145.6 million and we remain debt free.
This financial strength allows us to continue operating in this difficult environment make selective investments and respond appropriately as the industry in the bowls.
Our goal is to be cash.
Free cash flow positive in 2021.
Thank you for joining us for Rpcs Conference call. This morning at this time, we will open up the lines for your questions.
Thank you.
To ask a question you all need to press star one on your telephone to.
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Your first question. This morning comes from Ian Macpherson from Simmons. Please go ahead.
Good morning, gentlemen.
Hey, my condolences on the passing of Mr. Rollins first of all and thanks for the.
Outlook here.
Well.
Things are not getting a lot easier in the near term and we are seeing accelerating consolidation on your customer fraud.
And I know that RPC has always been.
A very secure needing conservatively run company, but it seems like the.
The entire imperative for consolidation.
In upstream is coming towards us more quickly and I wonder if your calculus around.
Around industry structure, and M&A has changed given the recent events with a.
A tougher slog with that with the commodity outlook as well as.
Faster consolidations free amongst.
The MP side.
And am I right.
You are evaluating your capital allocation in light of those those changes.
Lee This is Ben.
Yes things are rapidly evolving and as we indicated we think all things equal that does present, perhaps another headwind for the industry and us.
But.
But what actually will happen is not clear of.
In terms of the extent to which there will be that consolidation into.
In terms of our view with.
Consolidation, we think there will be more consolidation within the industry.
We havent seen.
Significantly changed our strategic priorities here internally due to those activities, but it's something that we constantly look at and review at.
At this point in time, where we are certainly operationally operationally focused internally.
We have a goal to where we're fortunate enough to have strong balance sheet with a strong cash position.
It allows us to.
Have some patients with respect to getting ourselves back to.
Free cash flow positive standpoint, but we're not going to rest on that our goals. We indicated in 21 is to to get to free cash flow positive and certainly with some of these headwinds.
It it may present, an additional challenge, but we have other.
Other levers to be able to get there right. If if we don't see sufficient improvement and in.
In the business, we had a nice progression from the from the second to the third quarter.
The fourth quarter is.
Started out we have some decent visibility so that's good and Thats positive course coming off a very low base.
But there is some.
Some positive progression there.
But but we're focused on making sure again as we said in 2021 that will be free cash flow positive and we have internal levers, we can pull to get there if the industry doesn't allow it.
And we will continue to evaluate our our near term and long term.
Strategic objective, but we've been.
Independent for a long long time, but but we will continue to evaluate.
Its options.
Here as the industry does evolve.
Thanks, Ben and just maybe following up there on the on the fourth quarter outlook I just.
We know that activity has obviously improved nicely off the bottom maybe some some continued upward.
Momentum into Q4 at least the front half the quarter, but.
As pricing for your services bottomed and stabilized can you say that with confidence is that still.
An area of concern and uncertainty or do you have good visibility to that that part of the equation at least.
Slide to better from here and also as we think about not just free cash flow, but EBITDA recovery from Q3 forward will we see more of this digital benefits from your earlier cost outs that maybe weren't for fully reflected in and in the third quarter PNM.
Oh that was a mouthful with.
With respect to us.
With respect to pricing.
We.
We believe for us that has bottomed, we're not going into lower.
That's that's where we're going to.
Maintain our discipline that.
And we are hopeful that the industry with some of the activity that we're talking about on the service side and everything else. So hopefully there will be some industry wide discipline, where we're seeing examples where there obviously is a lot of competition a lot of people bidding on on work opportunities and indications that that pricing continues to be low.
But we have.
Internal metrics that were adhering to very closely to make sure that we don't chase.
You know contributions or pricing that are that are insufficient for our for our internal measurement purposes. At this point in the cycle right again like we said, we're we're doing better but certainly the the pricing and the available returns are insufficient at this point in time and.
We hope the overall industry can again get some discipline and hopefully we'll see it at least some stabilization and may be some beginning of <unk>.
Improvement there as utilization increases from a cost standpoint quite honestly at this very point.
Third quarter was relatively.
Wayne.
There is not without additional actions on our part we think our run rate, we talked about that one item with the accelerated vesting of restricted stock. We we kind of have a current run rate which is fairly.
Yeah.
Whatever known at this point in time, but there are additional levers if we do not see continued progression in revenues and.
And improvement in EBITDA, there are other levers again that we will pull but at this point in time, the third quarter was pretty relatively.
Good that's very clear appreciate it then ill pass it over.
Thanks, Jim.
Our next question comes from Chris <unk> from Wells Fargo. Please go ahead.
Thanks, Good morning.
Hey, Chris.
First question just on your strategy with cash preservation mode. Obviously, there's a lot of new technologies coming out.
Some enable efficiency some on the SG front, which is popular customers. How do you think about balancing the need to invest in your fleets to make them more attractive customer base compared to the need to conserve cash and maybe in terms of timing. If you see an inflation of activity did and other people winning in.
In advance of you is that a trigger to invest speculatively or.
Just just wonder if customers will.
They probably won't give you time to upgrade of fleet when they're bidding right. So to think that your strategy balancing those and.
Initiatives.
Okay.
Chris This is Jim I'll take a stab at some of that as we mentioned in our prepared comment prepared remarks, we are upgrading.
Some of our equipment to our pressure pumping equipment to dual fuel capability.
So we we are doing that and the equipment is working so it's getting some good customer reception. We also have some some tier four equipment, which has been working fairly steadily. So in terms of just equipment standards those changes or things, we're implementing and we think they're beneficial.
On the technology front, we're doing some sort of.
Home grown initiatives to reduce nonproductive time.
To track Nonproductive time, I should say to reduce idle time.
Increased fuel efficiency and thereby decrease emissions. So we have talked to our customers about that and made some made some statements about what we're doing there so.
So that is.
That's part of it we are not in a position right now to invest speculatively.
The pricing and financial returns in today's oil field services market do not.
Allow you to make speculative investments, hoping that customers will use you and pay you something extra for the investment that you've made so that's the unfortunate position. We're in we do have the cash to do it as we've discussed we have we're not focused on some things and some of our peers revenue focus on we can take a little time and look at things.
We aren't governed by this financial return metric that has to balance that out.
Okay. Thanks, that's helpful and for my second question.
I think you said you had as many as five fleets operating third quarter I'm curious if you can give the average number of fleets in the third quarter and then how many you have now and what you expect in the fourth quarter if possible.
The average was probably 4.5, but there is no such thing is half of fleets, that's a difficult number.
And in in the fourth quarter.
You know, it's hard to say, let's let's call. It five at this point from an effective point of view.
Effective utilization point of view.
Great. Thank you.
Thanks, Chris.
Our next question comes from Stephen Gengaro from Stifel. Please go ahead.
Thanks, and good morning, gentlemen.
I guess two things to start with Jim can you give us the breakdown of the product lines.
Sure Stephen absolutely so the numbers I'm about to quote our percentages of consolidated revenues that our largest service lines at RPC.
Generated for the third quarter third quarter, only so the largest was pressure pumping.
37.0%.
Second largest was thru tubing solutions at 30.1%.
Number three is coiled tubing and that was 10.6% of consolidated revenues.
Then comes nitrogen, which was 7.1% of consolidated revenues than our rental tool business, which is in our support segment that was 3.2% of revenues.
Great. Thank you and then.
As a follow up to an earlier question when we think about.
The incremental margin performance in the third quarter Im not picking on the technical services side. It was a little bit about 30% coming off of a of a fairly low base.
EBITDA guidance on how to think about that number going forward here given.
The cost.
Put in place in the current market conditions.
Now this has been.
Good question and I said earlier that the.
I just want to confirm mess. This DNA number was pretty clean there were a few items that we're operational in nature that we would not say were onetime but there were a few charges that we had that did.
No impacts negatively impact the reported EBITDA so I.
I guess overall I think our were.
EBITDA incremental EBITDA margin was I think in the low to mid 20% range. You know traditionally we've experienced numbers that are.
Closer to 40 plus percent and I think with some of the adjustments were referring to it was closer to that 40%. So I would say in this environment coming off a low base that that all things being equal that it should be something closer to.
40, plus percent incremental margins being.
Being generated.
Great. That's helpful. Thank you and then just one final one.
When you think about you look back maybe a history as a guidance, but when you think about your your disciplined your unwillingness to chase business that are at returns that are below your threshold.
As activity gets better.
I never had any kind of impact on your on your customer relationships I don't think it has but I guess I'm just curious sort of how how those discussions go as activity rises and it may be reluctant to do business at these levels, where others others might do it.
Got any impact.
Competitively historically.
Steven This is Jim trying to understand the question and respond to it appropriately I think what you're referring to perhaps is historically when activity rises to a certain level.
Where supply and demand come somewhat and balance the conversations then with the customers.
The first step is that.
We can't work on their schedule, we sort of have to work on when were available and then at some point that as a catalyst for pricing pricing improvements.
But we're nowhere near that right now so.
But but that's that's how conversations go when activity.
Improves basically it goes from there is scheduled to our schedule and at some point.
The market.
Hum selects select some pricing for you I'll I'll add could add to that I think I think I interpreted your question similar to Jim I think this time is different.
In the past when there's been.
Increases in activity off the bottom you think well here. We go again, we have an upswing in activity. So we need to garner as much work as we can and.
At whatever current pricing is which which typically maybe not may not be.
Totally sufficient but it's not as low as it is today. So so I think.
That dynamic this time will be a little bit more that will have to be selective and there may be opportunities or the necessity to be selective among customers that we may have to have that conversation and just say, we have a better opportunity to.
Opportunity, we have with you today is that the pricing is insufficient relative to what we can get otherwise and even though we may have additional equipment capacity.
We're just not willing to commit that additional capacity with the need to add more personnel to pursue.
Four to maintain a relationship that may be sub.
That may not be acceptable right. So I think theres going to be and we have had discussions about having to have those difficult discussions with customers to that we we may have to say.
I'll be more forthright and be more aggressive at saying, Hey, we need some additional pricing or we need some additional activity in order to continue with you.
Because we have minimum thresholds that we're trying to attain as we expand the amount of equipment, we have in the market and so we're got we we we may very likely have to have those difficult discussions where in the past that has been rare.
Okay, Great. That's helpful color and clearly your balance sheet allows you to be careful so thats positive. So thank you for that color, yes. Thanks.
Thanks, Thanks, David.
Our next question comes from Jacob Lundberg from Credit Suisse. Please go ahead.
Hey, good morning, guys. Thanks for taking the question.
Hey, Jim.
First just wanted to circle back on the discussion on dual fuel.
I was curious if you could just kind of characterize broadly what you're seeing in terms of.
And bid bidding activity, what you're hearing from customers with respect to requiring are mandating dual fuel or electric electric fleets and in particular, if theres anything you're hearing around discussions of multi year contracts backing construction of a new fleet as anything like that come across your radar.
We we are not having those discussions with with customers.
Our customers not interested in having those discussions at this point in time.
They certainly by and large there is a stated preference to have SG friendly equipment available to allocate to work.
More times than not that's the case.
So as Jim talked about and we talked about in our opening comments dual fuel conversion.
Something that we are dealing with a portion of our fleet and there are our ways to sort of.
Stretch the benefit of even though we may not we may not be converting.
We're not converting our entire fleet to dual fuel, we're able to sort of leverage and spread out some of this tier four and dual fuel capability.
Amongst customers and oftentimes that seems to sufficiently meet their requirements. So we can.
With with less than a full fleet.
Of our full our full capacity with let with which we can allocate out that that attractive equipment.
So our fleets and that that seems to meet some of the minimum threshold that the customers are.
Our seeking.
Okay. Thanks, and then I guess related Lisi brought at the midpoint of your Capex guide by about 10 million Bucks and you've been talking about some dual fuel upgrades.
Presumably that incremental dual fuel upgrades because you were talking about on last quarter as well is what kind of drove that that increase.
Correct me if I'm wrong.
If thats the case could you just kind of talk about some of the motivating factors be behind that decision.
I'd I'd be interested in if you're if you're getting any sort of.
If you're getting any sort of assurances of duration of work or anything like that or if these are upgrades simply to think that the equipment more competitive in the market.
Yeah. Jake this is Jim a two part answer yes, some of the incremental capital expenditure.
It does relate to.
Conversion to dual fuel, it's not all that much but it is part of it and I'll stay on that topic for a moment.
It it's it seems to be coming up in every request for proposal.
And it is it is important but it's not it's not because of because of supply and demand in the market right now it's not in any way garnering.
Guarantees of work were multiyear contracts that sort of thing.
We also had an opportunity to.
By some some equipment opportunistically.
And are putting it to work in.
In a basin that we think has some promise and it's not in pressure pumping it's actually in our snubbing service line.
All right very helpful. Thanks, guys appreciate it.
Thanks Jay.
Our next question comes from Connor Lynagh from Morgan Stanley. Please go ahead.
Yeah. Thanks, good morning.
Welcome.
I appreciate that Theres, a lot of uncertainty out there right now so maybe you could just discuss sort of the puts and takes to this question but.
Just looking for an early look at how you're thinking about 2021.
Seems like from some of the larger companies out there there's some hope throughout the second half recovery.
Bye bye.
It's.
Depends who you ask I guess I would put it that way so so what sort of customer sentiment right. Now do you do you feel there is some some follow through from the activity recovery that we're seeing right now.
Connor this spin.
It's a good question as you said you had a lot of uncertainty I think maybe.
Maybe it's hopeful that there will be some progression and improvement of activity and 21.
The fourth quarter seems to be it we it seems that we're not going to suffer certainly this to the same extent of the fourth quarter slowdown we've had in the prior three years, which is certainly welcome.
I'm hopeful or just thinking that maybe that also will allow 21 to get off to a little.
Not quite of a slow start as occurred in previous years, two after a severe fourth quarter turn.
Turned down so I think hopefully there will be a nice progression into the early next year and then in terms of.
Whether there is a clear increase in activity or upturn.
We right now are not counting on that.
[music].
We are not planning on that we are not investing for that we are not hiring for that.
We are very much in a.
Much more of a wait and see in a show me mode, rather than a than anticipating an improvement.
But I would just say in terms of normal progression I'm hopeful that we are we are at such a low industry activity level that there will be some.
Some additional in.
Improvement next year, but but we are not account not counting on.
A.
A strong bounce back.
Yes understood that's helpful.
I guess sort of pivoting here, we talk a lot about consolidation in pressure pumping probably rightly so since its so fragmented but.
Are there are there opportunities to consolidate in some of the non pressure pumping product lines are there may be some assets available out there on the cheap.
Higher.
A large number of people to acquire or there are there any things that we should be monitoring that side of things.
Good question, we don't have anything there is number of things that we have in mind, but nothing that's top of mind or anything that we.
Mention publicly in terms of being opportunistic Jim alluded to the.
Capital expenditure that we we made being able to pick up something on the on the cheap.
We we certainly expect will be incrementally positive to us.
In the coming months, but.
But beyond that no.
The visibility is difficult I think with a lot of the mergers that are taking place and a lot of those are cost plays as much as.
As I tried to improve the portfolio of offerings, but.
But we've certainly.
Ben offer.
Offered the opportunity to look at a number of opportunities and we've talked about those and we will continue to.
We look at and pursue does in terms of consolidation in pressure pumping, yes, it's certainly strategically.
[music].
Upon first boss, yes, it does make sense there there could be benefits of having more consolidation there whether whether we.
Whether we are part of that or not.
We don't know, but certainly it would be great. If there if there was more consolidation if I could.
I can think of a lot of.
Benefits for or having fewer.
Competitors and having a.
A coming together of resources to address some of the challenges that the pressure pumping has I agree with that sentiment.
All right. Thanks, very much I'll turn it back.
Okay. Thanks.
Our next question comes from Andrew is that occurred from Tudor Pickering Holt. Please go ahead.
Hey, good morning, Thank you.
Thank you.
As we look at Q4, I mean, clearly there is some uncertainty as it relates to how the back half of Q4 plays out with with.
Our year end seasonality at the same time, Jim It sounds like.
You are expecting that the fleet count at least on an effective basis to improve somewhere around 10% and support services. The drilling rig count it is tracking and up north of 10% sequentially, what should be supportive of revenue growth in that segment as you as you wrap it all together do you think that that 10% revenue growth.
Number for Q4 as a as an attainable target for you guys with the visibility you have today.
Taylor, yes.
Things improved during the third quarter, and we see fourth quarter's revenue stronger than stronger than third quarter. So we definitely do.
We actually see based on what our input from our field operations that.
The holiday impact this year will be less pronounced than in previous years, but let's be honest, we've been disappointed each of the last three years. So that that enthusiasm is a little bit tempered, but even even with that caveat in mind fourth quarter will be stronger third.
Understood and then.
You kind of outlay to outline to a target for at least the state positive free cash flow for 2021, and we can come up with their own EBITDA estimate for 2021, but when it comes to things like working capital I assume and a higher activity environment, you're going to have to invest some cash from working capital. So when you talk about that target for pause.
Free cash flow in 2021, how do you think about working capital and.
Other piece would be Capex can you give us some goalpost to think about for Capex in 2021 as well.
A reasonable question.
Uh huh.
I guess absent and let let me kind of put a little parameters around it I would say absent a.
A.
Another downturn.
Or.
Severe slowdown.
We'll be free cash flow positive in the event we have a.
A stronger than expected upturn.
That statement may be more difficult to obtain attained.
As you're pointing out with working capital, but that would be a great problem that right.
So.
So the comment is more that kind of in a sustain.
Slow to decent upturn in the business, we're going to manage it to be free cash flow positive. If there is a strong improvement in activity.
We are going to remain highly selective with our capital expenditures, but for the same reason right. If things were to pick up much more than than than anyone right now its expecting theirs and the potential there or there would be working capital cash needs.
And also an increased.
Opportunity around Capex, so it may be a more difficult.
In in a single 2021 time period to say, we'll be free cash flow positive, but we will certainly be positioning ourselves to be free cash flow positive over the intermediate.
The intermediate term. So we are clearly focused on that goal, we will pull the appropriate levers to.
Sure that that that does occur I don't know.
Does that help.
Yes, yes that how about just the just a typo on it any thoughts on Capex for 2021 are there any lumpy quite well 2020, but that won't flow through.
Not anything significant there so its going to be again, it's going to be selective opportunistic maintaining our capitalized equipment. So absent a a bounce back it's going to be.
Similar or maybe even slightly lower than 2020.
Understood. Thanks for the answer.
Sure.
Our next question comes from Blake Gendron from Wolfe Research. Please go ahead.
Hey, Thanks. Good morning, just one question for me on thru tubing, it's traditionally been a really nice business really specialized and differentiated.
The degree to which it's underperformed here over the last quarter June even through the the pandemic, probably driven by the fact that the rig count as well.
Weaker than the other the completion count.
And it's also a business thats specifically for you guys been been leveraged to the mid Con region, which has been particularly weak. So my question here is the rig counts ticking up you expect thru tubing to to respond in kind and if not would you attribute the weakness to to specific basin weakness in the mid con or is there something structural going on where.
In the in the shale basins that are active wells are just so cookie cutter that things like thru tubing and fishing or just.
Not as prevalent thanks.
Yeah Blake. This is Jim your your answer was actually embedded in the question. So thanks for that thru.
Thru tubing solutions has an outsized exposure to Oklahoma and that rig count and that activity in that state in those those areas has been has been lower there is nothing that structurally changed.
Ill thru tubing solutions business or customer reception.
They actually.
Had had some strength in one of their specialty product lines.
In third quarter that was.
In another market area outside of Oklahoma, So thats, where they are going right now but.
We are looking for the rig count in completions in the Oklahoma area to improve perhaps because of natural gas.
Strength, but there are no huge shale plays with that sort of thing going on so its exposure to Oklahoma and there are no.
Fundamental changes in through Tubings business out and I'll add this has been that.
With our balance sheet, we're able to continue to invest in new technology in that particular area and there are some bright spots there that we think could be incremental.
Incremental contributor.
In the next few quarters as well so that's positive and we're lucky again, we continue to make those those R&D investments in that area.
Understood and then just in terms of Reconfiguring. The business then if Oklahoma remains weak would it take a whole lot of investment for you to move technical services or thrutubing, rather in some of the auxiliary technical service lines to other basins are you are you serving the Haynesville are you serving the Eagle Ford would it be a matter of maybe displacing competitors.
As in those basins, how do you think about the competitive landscape beyond Oklahoma for everything not frac.
Yes.
Okay.
Blake, it's Jim again actually through.
Thru tubing operates in in those other basins as well, including the Permian and up in the northeast and unlike some other businesses, it's very easy to to provide through Tubings service in other areas because it's not.
Fleet of heavy equipment.
So.
So that part of it logistically at least is not difficult.
Thru tubing does thru tubing solutions has is is probably market share leader is definitely market share leader, but there are some small specialized competitors. So it's a competitive business and it would always be competitive to go into a new market, but we just want to emphasize that thru tubing solutions operates in all the major.
US basins, but but once again just has an outside exposure to Oklahoma, That's where is that business was founded 20 years ago.
Understood. Thanks for the time guys.
All right Blake thanks.
Our next question comes from John Daniel from Daniel Energy Partners. Please go ahead.
Hey, guys. Thanks for squeezing me in.
Sure Carl talked about and.
Now more customers are asking about dual fuel and sex right.
When do you expect are going to be willing to pay more for those solutions.
John This is Ben I, when the market tightens up sufficiently with with the availability or or demand that.
Not sure when that is going to be we we will continue to.
Say internally and I expect it will.
Has been and will continue to get our customers to say that we have to over time the returns today.
To be much.
Much better.
We're getting today need to be much better to get up to have sustainable returns so right.
We we've said a lot over time that this can't go on forever and it can't go on forever, but.
So we hope there will be a shakeout.
Up some of our competitors, we hope that maybe the consolidation will help us get there.
The industry to get there sooner than we would otherwise, but but as an appropriate question. We're going to continue the drumbeat internally and again with our customers to say that.
We understand where the mark where we understand we cannot overcome the market we are not the market leaders.
But as an industry, we're we're not going to chase the activity, we have to achieve minimum contribution margins.
We can't we can't just chase the activity and we're hopeful that other people will follow that lead and maybe we'll get there sooner than we might otherwise okay. Just to follow up on that I mean.
A lot of us are right on the sector talk about.
What we'll call the bifurcation of the U.S. Frac fleet is more companies upgrade for whether it be pumped designs go electric whatever it might be.
And I'm just wondering I mean, I've got is playing out in the sense that the customers are asking for it.
I, just don't want to pay for it.
Is this a situation where the industry is just going to proceed with those like yourselves with better balance sheets and booze workloads.
For the sake of known cleaning markets, where in survival right as opposed to actually but I don't mean to be read about guidance, but just it's as opposed to getting a real return on that investment right. We're basically making a bet that you survive if you make an investment while others can't.
That made any sense.
Yes.
John This is Jim It does I mean, a very basic way of looking at things like dual fuel is it does not increase pricing, but it allows you to get the job that you wouldn't otherwise get so theres a binary outcome. So you figure out your financial returns and then reduce those a little bit by the additional capital investment to convert to dual fuel.
And it's.
It's probably as simple as that until.
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Until the industry returns from still historic lows. So and then just a final one from the holdup.
Okay.
Did you make the comment that as.
As you go out with a fleet now you've got some dual fuel units, let's say.
Typically not an entire fleet that's onto if you will but just a handful of those units.
Within a fleet is that a fair does that what you said.
We are exploring that as as a possibility and there are customers who are open to that.
Right.
I'm just wondering if they are open to that because they get a fleet units and then they will if you will they check the box right. So they can grow EBITDA investor base and so yes, we're using dual fuel even darker.
Some regards cheating sunset, it's only a couple of units within the fleet just your thoughts.
You need to ask them, we don't because our customers, achieving and maybe and maybe more than a couple of bumps but okay.
All right all right guys. Good luck. Thank you for your time and I mean, everybody on the call knows this but.
Anytime you can use field gas price.
Produced natural gas to power.
Natural gas fleet, you get a double benefit on.
You're reducing greenhouse gas emissions and flaring from B b actual wells side as well as lower emissions on the equipment. So there's there's a double benefit you don't want to discount that.
But.
Other dynamics are simply too.
Fair enough thanks, guys.
Thanks, John Thanks, John.
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Our next question comes from Chris <unk> from Wells Fargo. Please go ahead.
Hi, Thanks for letting back in the queue, just little more color on pricing, maybe I think you mentioned that it had bottomed or you think its bottom is threeq you pricing on average lower than the second quarter.
And then kind of related to that are.
Are there customers out there trying to get term now that prices are so low is there much that dynamic just curious thank you.
So this is Jim again, if you really squint at the numbers in third quarter.
It looks like price.
Pricing.
Yes.
Kind of improved by 100 basis points or so but some of that is just maybe customer mix or it may be.
Job mix that has different kinds of proppant in it. So we do believe that it's that it's bottomed. It did not decline in particular, we don't see it improving anytime there been been several questions in this conversation about about term contracts.
If they are if they are being discussed in the oilfield we are not privy to those discussions we do not believe there any term contracts.
Being discussed store or offered are accepted right now.
We really don't Okay. That's helpful. Thanks.
Thanks, and then just curious on the cost to reactivate fleets I guess, maybe we haven't seen a response as we have been reactivated this time compared to last cycle I guess the last cycle, you had 2015 and the first half of 16 grinding on equipment. So when we had to go back to market there and were shape and you have to reinvest more curious if you can talk about.
Cost to reactivate fleets going.
Going forward and compared to last cycle. Thank you.
Well for us in particular, we feel the cost will be fairly minimal.
You know it.
Can't speak for the rest of the industry although.
You know, we we focus on and like to believe that we maintain our equipment on an ongoing basis as well as as anybody so the cost to us will be fairly minimal we can't say that is zero.
Because there is always some.
But but.
But again and speaking for others, I really can't speak for others, but but I'm hopeful I'm hopeful it's very expensive for them to start up their their fleets.
Go ahead, Jim payment yet yeah, I was also going to say.
This time around hiring hiring skilled personnel.
Is a part of the startup costs or the reactivation costs that is a lot lower because you are hiring people who have experience.
Unlike 2015 2016, those people have not gone to other parts of the country, yet or other industries, yet and they were not laid off all that long ago. So.
The personnel component.
Reactivating fleet is lower now than it would have been in the last cycle.
Okay. That's helpful. Thanks, guys.
Thank you.
As a reminder, its star one on your telephone keypad.
Ask your question.
And we have no further questions in queue at this time I'd like to turn it back to Jim Landers for final comments.
Thank you Carol and thanks to everybody, who listened in and everybody who called to.
To ask questions.
Okay, everybody has a good day and we'll talk to everyone. Soon thanks.
Ladies and gentlemen, this does conclude today's conference call.
Andrew The conference call will be replayed on www dot RPC that within two hours.
Thank you again for participating and you may now disconnect.
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