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. Also 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 now like to advise everyone that this 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've 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 RPC's website at www.rpc.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 are adjusted net loss, adjusted loss per share, adjusted operating loss, EBITDA, and adjusted EBITDA. We're using these non-GAAP measures today because they allow us to compare performance consistently over various periods without regard to non-recurring 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 contain 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 rpc.net for a copy. I will now turn the call over to our President and CEO, Rick Hubbell.

Thank you, Jim. This morning, we issued our earnings press release for RPC's third quarter of 2020. Before we begin discussing RPC's results, I would like to take a moment to recognize R. Randall Rollins, our Chairman, who passed away during the third quarter. For nearly half a century, Randall guided our company with a steady hand. He instilled a culture of capital discipline that has allowed RPC to successfully navigate the severe volatility experienced in our industry. He will be missed. RPC's third quarter progressed much 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 to 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 will provide some closing comments.

Thank you, Rick. The third quarter of 2020 revenues decreased to $116.6 million compared to $293.2 million in the third quarter of the prior year. 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 of the prior year. For the third quarter of 2020, RPC reported a $0.09 adjusted loss per share compared to an $0.08 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 million 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 RPC's 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 RPC's property,…

Thank you, Ben. As we indicated on the last quarter's conference call, we believe domestic oilfield activity bottomed out during the second quarter. The downturn in our industry experience was perhaps the steepest and most severe ever encountered. The fact RPC is weathering it as well as we are, 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 are insignificant – 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 third quarter, RPC's 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 evolves. Our goal is to be cash -- free cash flow positive in 2021. Thank you for joining us for RPC's conference call this morning. At this time, we will open up the lines for you questions.

Thank you. [Operator Instructions] Your first question this morning comes from Ian MacPherson from Simmons. Please, go ahead.

Good morning, gentlemen. I'd like to offer...

Hey, Ian.

…my condolences on the passing of Mr. Rollins, first of all, and thanks for the outlook here. Well, if things are not getting a lot easier in the near-term and we're seeing accelerating consolidation on your customer front, and I know that RPC has always been a very stick to your knitting, conservatively run company, but it seems like the entire imperative for consolidation and upstream is just coming toward us more quickly and I wonder if your calculus around industry structure and M&A has changed given the recent events with a tougher slog with the commodity outlook, as well as a faster consolidation spree among the E&P side? And how you're evaluating your capital allocation in light of those changes?

Well, Ian, this is Ben. Yeah, 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 what actually will happen is not clear in terms of the extent to which there will be that consolidation. In terms of our view with consolidation, we think there will be more consolidation within the industry, we haven't significantly changed our strategic priorities here internally due to those activities, but it's something that we constantly look at and review at this point in time where we are certainly operationally focused internally. We have a goal to -- we're fortunate enough to have a strong balance sheet with a strong cash position that allows us to have some patience with respect to getting ourselves back to a free cash flow positive standpoint, but we're not going to rest on that. Our goal, as we indicated, in '21 is to get to free cash flow positive and certainly with some of these headwinds, it may present an additional challenge, but we have other levers to be able to get there. Right. If we don't see sufficient improvement and -- in the business, we had a nice progression from the third -- from the second to the third quarter, the fourth quarter is -- has started out, we have some decent visibility. So that's good and that's positive, of course, we're coming off a very low base, but there is some positive progression there, but we're focused on making sure, again, as we said, in 2021 that we'll 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 near-term and long-term strategic objective, but we've been independent for a long, long time but we will continue to evaluate those options here as the industry does evolve.

Thanks, Ben. And just maybe following up there on the fourth quarter outlook, I just -- we know that activity has obviously improved nicely off the bottom maybe some continued upward momentum into Q4 at least the front half of the quarter, but has 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 that that part of the equation at least is slight to better from herein? And also, as we think about not just free cash flow, but EBITDA recovery from Q3 forward, will we see anymore residual benefits from your earlier cost-outs that maybe weren't fully reflected in the third quarter P&L?

That was a mouthful. With respect to...

I do mean well.

With respect to pricing, we believe for us it is bottomed, we're not going any lower. That's where we're going to maintain our discipline that -- and we're 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. We're seeing examples where there obviously is a lot of competition, a lot of people bidding on work opportunities and indications that pricing continues to be low. But we have internal metrics that we are adhering to very closely to make sure that we don't chase contributions or pricing that are insufficient for our internal measurement purposes at this point in the cycle. Right. Again, like we said, we're doing better, but certainly 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 at least some stabilization and maybe some beginning of improvement there as utilization increases. From a cost standpoint, quite honestly, at this very point, the third quarter was relatively clean. 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 kind of have a current run rate, which is fairly – whatever known at this point in time, but there are additional levers if we do not see continued progression in revenues 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, Ben. I'll pass it over.

Thanks, Ian.

Our next question comes from Chris Voie from Wells Fargo. Please go ahead.

Thanks, good morning.

Hey, Chris.

First question just on your strategy with cash preservation move. Obviously there's a lot of new technologies coming out, some enable efficiency, some on the ESG front, which is popular with customers. How do you think about balancing the need to invest in your fleets to make them more attractive with your customer base compared to the need to conserve cash? And maybe in terms of timing, if you see an inflation of activity and other people winning in advance of you, is that a trigger to invest speculatively or just wonder if customers will – they probably won't give you the time to upgrade a fleet when they're bidding, right? So just thinking about your strategy of balancing those initiatives.

Chris, this is Jim. I'll take a stab at some of that. As we mentioned in our prepared remarks, we are upgrading some of our equipment to – our pressure pumping equipment to dual fuel capability. So we are doing that and the equipment is working, so it's getting some good customer reception. We also have some Tier 4 equipment, which has been working fairly steadily. So in terms of just equipment standards, those changes are things we're implementing and we think they're beneficial. On the technology front, we are doing some sort of homegrown initiatives to reduce non-productive time – to track non-productive time I should say, to reduce idle time, increase fuel efficiency and thereby decrease emissions. So we have talked to our customers about that and made some statements about what we're doing there. So that's part of it. We are not in a position right now to invest speculatively. The pricing and financial returns in today's oilfield 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 that some of our peers are having to focus on, we can take a little time and look at things. But we are 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 in 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 so that's a difficult number. And in the fourth quarter, it's hard to say, 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.

Good morning.

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 are percentages of consolidated revenues that our largest service lines of RPC generated for the third quarter – third quarter only. So the largest was pressure pumping at 37.0%, the 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, then 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 another question, when we think about the incremental margin performance in the third quarter and I'm thinking on the Technical Services side, you got a little bit above 30% coming off of a fairly low base. Any guidance on how to think about that number going forward here given the cost cut has been put in place in the current market conditions?

This is Ben. It's a good question and I said earlier that I do want to confirm, the SG&A number was pretty clean. There were a few items that were operational in nature that we would not say were one-time, but there were a few charges that we had that did impact – negatively impact the reported EBITDA. So I guess overall, I think our EBITDA – incremental EBITDA margin was I think in the low to mid 20% range. Traditionally, we've experienced numbers that are closer to 40-plus percent and I think with some of the adjustments we're 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 generated.

Great, that's helpful. Thank you. And then just one final one. When you think about and you look back maybe officially as a guide for this, but when you think about your disciplined, your unwillingness to chase business that are at returns that are below your threshold as activity gets better, has that ever had any impact on your customer relationships? I don't think it has, but I just -- I'm just curious how those discussions go as activity rises, and maybe you're reluctant to do business at these levels where others might do it, has that had any impact competitively, historically?

Stephen, 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 in balance, the conversations then with the customers, the first step is that we can't work on their schedule, we have to work on when we are available and then at some point that is a catalyst for pricing improvements. But we are nowhere near that right now, so -- but that's how conversations go when activity improves. Basically, it goes from their schedule to our schedule and at some point, the market selects some pricing for you.

I'll add to that. I think, I interpreted your question similar to Jim. I think this time is different. In the past, when there has been increases in activity off the bottom, if 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 typically maybe not -- may not be totally sufficient, but it's not as low as it is today. So I think the dynamic this time will be a little bit more, that we'll 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, hey, we have a better opportunity. The 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 or to maintain a relationship that maybe sub -- that may not be acceptable, right? So I think there is going to be, and we've had discussions about having to have those difficult discussions with customers that we may have to say, 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 going to -- we may very likely have to have those difficult discussions, where in the past that has been rare.

Great. That's helpful color. And clearly your balance sheet allows you to be careful, so that's positive. So thank you for the color.

Yes, thanks.

Thanks, Stephen.

Our next question comes from Jacob Lundberg from Credit Suisse. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions.

Hey, Jacob.

Hey, Jim. First, just wanted to circle back on the discussion on dual fuel. I was curious if you could just characterize broadly what you're seeing in terms of -- in bid -- bidding activity, what you're hearing from customers with respect to requiring or mandating dual fuel or electric fleets? And in particular, if there is anything you're hearing around discussions of multi-year contracts backing construction of a new fleet, has anything like that come across your radar?

Yeah, we are not having those discussions with customers, or customers are not interested in having those discussions at this point in time. They certainly, by and large, there is a stated preference to have ESG 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 is something that we are doing with a portion of our fleet and there are ways to stretch the benefit of -- even though we may not be converting -- we're not converting our entire fleet to dual fuel, we were able to leverage and spread out some of this Tier 4 and dual fuel capability among customers and oftentimes that seems to sufficiently meet their requirements. So we can, with less than a full fleet of -- our full capacity with -- we can allocate out that attractive equipment among our fleets and that seems to meet some of the minimum thresholds that the customers are seeking.

Okay. Thanks. And then I guess relatedly, so you brought up the midpoint of your CapEx guide by about $10 million and you've been talking about some dual fuel upgrades, presumably that incremental dual fuel upgrades, because you were talking about them last quarter as well, is what kind of drove that increase. Correct me if I'm wrong, but if that's the case, could you just kind of talk about some of the motivating factors behind that decision? I'd be interested if you're getting any sort of assurances of duration of work or anything like that or if these are upgrades simply to make the equipment more competitive in the market?

Yeah. Jake, this is Jim. Two-part answer, yes, some of the incremental capital expenditure 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 seems to be coming up in every request for proposal and it is important, but it's not -- because of supply and demand in the market right now, it's not in any way garnering guarantees of work or multi-year contracts, that sort of, thing. We also had an opportunity to buy some equipment opportunistically and are putting it to work 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.

Thank you.

Thanks, Jake.

Our next question comes from Connor Lynagh from Morgan Stanley. Please go ahead.

Yeah, thanks. Morning.

Morning, Connor.

I appreciate that there's 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, it seems like from some of the larger companies out there, there's some hopes around a second-half recovery but it sort of depends who you ask, I guess, I would put it that way. So what, sort of, customer sentiment right now do you feel there is some follow through from the activity recovery that we're seeing right now?

Connor, this is Ben. It's a good question. As you said, yeah, a lot of uncertainty, I think, maybe it's hopeful that there will be some progression and improvement of activity in 2021. The fourth quarter seems to be -- it seems that we're not going to suffer. It certainly does 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 2021 to get off to a little not as quite of a slow start as occurred in previous years too after a severe fourth quarter turn 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. 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 and a show-me mode, rather than anticipating an improvement. But I would just say, in terms of normal progression, I'm hopeful that we are at such a low industry activity level that there will be some additional improvement next year but we are not account -- not counting on a strong bounce back.

Yeah, understood. That's helpful. I guess, sort of, pivoting here, we talk a lot about consolidation in pressure pumping and probably rightly so since it's so fragmented, but are there opportunities to consolidate in some of the non-pressure pumping product lines? Are there maybe some assets available out there on the cheap that you don't need to hire a large number of people to acquire, are there any things that we should be monitoring on that side of things?

Good question. We don't have any -- there's a number of things that we have in mind, but nothing that's top of mind or anything that we would mention publicly in terms of being opportunistic. Jim alluded to the capital expenditure that we made, being able to pick-up something on the cheap that we certainly expect will be incrementally positive to us in the coming months. But beyond that, no, I mean the visibility is difficult, I think with a lot of the mergers that are taking place, a lot of those are cosplays as much as trying to improve the portfolio of offerings, but we've certainly been offered the opportunity to look at a number of opportunities and we've talked about those and we'll continue to look at and pursue those. In terms of consolidation in pressure pumping, yeah, it's certainly strategically upon first blush, yeah, it does make sense, there could be benefits of having more consolidation there whether we are part of that or not, we don't know, but certainly it would be great if there was more consolidation of -- I could think of a lot of benefits, we're having fewer competitors and having 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 Taylor Zurcher from Tudor, Pickering, Holt. Please go ahead.

Hey, good morning, and thank you.

Hey, Taylor.

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 a year-end seasonality. At the same time, Jim, it sounds like you're expecting the fleet count at least on an effective basis to improve somewhere around 10% in Support Services, the drilling rig count is tracking up north of 10% sequentially, which should be a support of the revenue growth in that segment. So as you wrap it all together, do you think that that 10% revenue growth number for Q4 is a -- is 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 third quarter's. 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 enthusiasm is a little bit tempered but even with that caveat in mind fourth quarter will be stronger to third.

Understood. And then, you kind of outlaid a -- outlined a target for -- or at least to stay positive free cash flow for 2021 and we can come up with our own EBITDA estimate for 2021, but when it comes to things like working capital, I assume, in a higher activity environment you're going to have to invest in cash and working capital. So when you talk about that target for positive free cash flow in 2021, how do you think about working capital and the other piece would be CapEx, can you give us some goalpost to think about for CapEx in 2021 as well?

Reasonable question, I guess, absent and let me kind of put little parameters around it. I would say, absent a -- another downturn or a severe slowdown, we'll be free cash flow positive. In the event, we have a stronger than expected upturn that statement may be more difficult to obtain or attain as you're pointing out with working capital, but that would be a great problem there, right. So the comment is more that kind of in a sustained, 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 anyone right now is expecting, there's -- 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 a single 2021 time period to say, it will be free cash flow positive, but we will certainly be positioning ourself to be free cash flow positive over the intermediate term. So, we are clearly focused on that goal. We will pull the appropriate levers to assure that that does occur. I don't know whether -- does that help?

Yeah, that helps. Just to tie a bow on it, any thoughts on CapEx for 2021, are there any lumpy…

Quite well.

…in the 2020 budget that won't flow through?

Not anything significant there. So, it's going to be -- again, it's going to be selective, opportunistic, maintaining our capitalized equipment. So absent 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 to and even through the pandemic probably driven by the fact that the rig count has been weaker than the completion count. And it's also a business that specifically for you guys been leveraged to the Mid-Con region, which has been particularly weak. So my question here is, the rig count's ticking up, do you expect Thru Tubing to respond in kind? And if not, would you attribute the weakness to specific basin weakness in the Mid-Conference, or is there something structural going on where in the shale basins that are active, wells are just so cookie cutter that things like Thru Tubing and fishing are just not as prevalent? Thanks.

Yeah. Blake, this is Jim. Your answer was actually embedded in the question, so thanks for that. Thru Tubing Solutions has an outsized exposure to Oklahoma and that rig count and that activity in that state and those areas has been lower. There is nothing that structurally changed Thru Tubing Solutions business or customer reception. They actually had some strength in one of their specialty product lines in third quarter that was in another market area, outside of Oklahoma. So that's where they're going right now. But we are looking for the rig count and 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 it's the exposure to Oklahoma and there are no fundamental changes in Thru Tubing's business.

And I'll add, this is Ben, 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 contributor in the next few quarters as well. So that's positive and we're lucky, again, that we can continue to make those R&D investments in that area.

Understood. And then, just in terms of reconfiguring the business spend, if Oklahoma remains weak, would it take a whole lot of investment for you to move Technical Services or Thru Tubing rather and some of the auxiliary Technical Service lines to other basins? Are you serving the Haynesville, are you serving the Eagle Ford? Would it be a matter of maybe displacing competitors in those basins? How do you think about the competitive landscape beyond Oklahoma for everything not frac?

Blake, it's Jim again. Actually, Thru Tubing operates in those other basins as well, including the Permian and up in the Northeast. And unlike some other businesses, it's very easy to provide Thru Tubing's service in other areas, because it's not a fleet of heavy equipment. So that part of it, logistically at least, is not difficult. Thru Tubing does -- Thru Tubing Solutions has -- is probably a market share leader, it's definitely a 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 U.S. basins, but once again, just has an outside exposure to Oklahoma and that's where 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.

You guys talked about in the Q&A how more customers are asking about dual fuel and etcetera. When do you expect they're going to be willing to pay more for those solutions?

John, this is Ben. When the market tightens up sufficiently with the availability or demand and I'm not sure when that's going to be. 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 need to be much better -- that we're getting today, need to be much better to get up to have sustainable returns. So, we've said a lot over time that this can't go on forever, and it can't go on forever, but we hope there will be a shake out of 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 it's an appropriate question and we're going to continue to drum beat internally and again with our customers to say that we understand where the -- we understand we cannot overcome the market, we are not the market leaders, but as an industry, well, we're not going to chase the activity, we have to achieve minimum contribution margins.

Right.

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 a follow-up on that. I mean, a lot of us who write on the sector talk about what we'll call the bifurcation of the U.S. frac fleet as companies upgrade, whether it'd be pump designs, go electric, whatever it might be and I'm just wondering, I mean seeing that that is playing up in the sense that the customers are asking for it, they 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 do those upgrades for the sake of maintaining market share and survival, right, as opposed to actually getting -- I don't mean to be rude about this, but I just -- as opposed to getting a real return on that investment, right. You're basically making a bet that you survive if you make an investment, while others can't. That made any sense.

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 there is 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 probably as simple as that, until the industry returns from still historic lows.

Sure. And then, just a final one from me. I think I heard this, did you make a comment that, as you go out with a fleet, I know you've got some dual fuel units, specifically not an entire fleet that's on dual fuel, but just a handful of those units within a fleet, is that a fair -- is that what you said?

We are exploring that as a possibility and there are customers who are open to that --

I'm just wondering, if they are open to that because they get a few units and then they, if you will, they check the box. Right. So they can go to their own investor base and say, yeah, we're using dual fuel even though, in some regards, cheating and since that it's only a couple of units within a fleet. Just your thoughts.

You need to ask them. We don't think accuse our customers of cheating.

And maybe more than a couple, but yeah.

Okay. All right, guys. Good luck. Thank you for your time.

And I mean everybody on the call knows of this, but any time you can use field gas, produce natural gas to power a natural gas fleet, you get a double benefit. You're reducing greenhouse gas emissions and flaring from the actual well site, as well as lower emissions on the equipment, so there is a double benefit, you don't want to discount that, but other dynamics are in play too.

Fair enough. Thanks, guys.

Thanks, John.

Thanks, John.

Our next question comes from Chris Voie from Wells Fargo. Please go ahead.

Hi, thanks for letting me back in the queue. Just a little bit more color on pricing maybe. I think you mentioned that it had bottomed or you think it's bottomed, but is 3Q pricing on average lower than the second quarter? And then kind of related to that, are there customers out there trying to get term now that prices are so low, is there much of that dynamic? Just curious. Thank you.

So, this is Jim again. If you really squint at the numbers in third quarter, it looks like pricing kind of improved by a 100 basis points or so, but some of that is just maybe customer mix or it maybe job mix that has different kinds of propping in it. So we do believe that it's bottomed, it did not decline in third quarter. We don't see it improving anytime. And there have been several questions in this conversation about term contracts, if they are being discussed in the oilfield, we are not privy to those discussions, we do not believe any term contracts being discussed or offered or accepted right now, we really don't.

Okay, that's helpful. Thanks. And then, just curious on the cost to reactivate fleets, I guess, maybe we haven't seen a response as fleets have been reactivated this time compared to the last cycle. I guess the last cycle you had kind of 2015 and then the first half of '16 grinding down equipment. So when fleets had to go back to market, they were in worse shape and you had to reinvest more. Curious if you can talk about the cost to reactivate fleets going forward and compared to last cycle? Thank you.

Well, for us in particular, we feel the cost will be fairly minimal. It -- can't speak for the rest of the industry, although we focus on and like to believe that we maintain our equipment on an ongoing basis as well as anybody does. So the cost to us will be fairly minimal, we can't say that it's zero because there is always some, but again as speaking for others, I really can't speak for others but I'm hopeful. I'm hopeful it's very expensive for them to start up their fleets. Jim…

Thank you.

Yeah. And I was also going to say, this time around hiring skilled personnel is a part of the start up costs or the reactivation costs that is a lot lower because you're 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.

[Operator Instructions] And we have no further questions in queue at this time. I would 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 ask. Hope everybody has a good day and we will talk to everyone soon. Thanks.

Well, ladies and gentlemen, this does conclude today's conference call. As a reminder the conference call will be replayed on www.rpc.net within two hours. Thank you again for participating. And you may now disconnect.