Overview

The following discussion should be read in conjunction with the Consolidated Financial Statements included elsewhere in this document. See also "Forward-Looking Statements" on page 29.

RPC, Inc. ("RPC") provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest and Rocky Mountain regions, and selected international locations. The Company's revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells. We continuously monitor factors that impact the level of current and expected customer activity levels, such as the price of oil and natural gas, changes in pricing for our services and equipment, and utilization of our equipment and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our customers' drilling and production activities.

The discussion of our key business and financial strategies set forth under the Overview section in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2008 is incorporated herein by reference. Since year-end, the Company's operational strategies have not changed.

During the first quarter of 2009, revenues decreased 10.6 percent to $176.3 million compared to the same period in the prior year. The decline in revenues is primarily due to lower equipment utilization and more competitive pricing in most of our service lines. International revenues for the first quarter of 2009 increased due to increases in customer activity levels in Egypt, Mexico and Canada partially offset by decreases in Kuwait and Gabon. We continue to focus on developing international growth opportunities; however, it is difficult to predict when contracts and projects will be initiated and their ultimate duration.

Cost of revenues as a percentage of revenues increased approximately 2.7 percentage points in the first quarter of 2009 compared to the same period of 2008. This increase was due primarily to higher maintenance and repairs expenses and negative leverage from direct personnel costs.

Selling, general and administrative expenses as a percentage of revenues increased by approximately 1.3 percentage points in the first quarter of 2009 compared to the same period in the prior year due to the fixed nature of several of these costs and lower revenues.

Income before income taxes declined to $8.0 million for the three months ended March 31, 2009 compared to $24.0 million in the prior year because of lower revenues and higher depreciation expense. The effective tax rate for the three months ended March 31, 2009 was 44.0 percent compared to 38.5 percent in the prior year. Diluted earnings per share decreased to $0.05 for the three months ended March 31, 2009 compared to $0.15 in the same period in the prior year. Cash flows from operating activities were $66.0 million for the three months ended March 31, 2009 compared to $46.7 million for the same period in the prior year due to decreased working capital requirements, and cash and cash equivalents were $2.3 million at March 31, 2009, a decrease of $0.7 million compared to December 31, 2008. The notes payable to banks were $132.5 million as of March 31, 2009, a reduction of $42.0 million compared to $174.5 million as of December 31, 2008.

Consistent with our strategy to selectively grow our capacity and maintain our existing fleet of high demand equipment, capital expenditures were $19.5 million during the first three months of 2009. Although we currently expect capital expenditures to be approximately $80 million during 2009, the total amount of expenditures for the year will depend primarily on equipment maintenance requirements and the ultimate delivery dates and timing of payments for equipment delivered. We expect these expenditures to be primarily directed toward our larger, core service lines including primarily pressure pumping, but also hydraulic workover, coiled tubing, nitrogen, and rental tools.

Outlook

Drilling activity in the U.S. domestic oilfield, as measured by the rotary drilling rig count, has been increasing for several years, reaching a cyclical peak of 2,031 rigs in the third quarter of 2008. Between the third quarter of 2008 and the end of the first quarter of 2009, the rig count has declined dramatically. The annualized decline rate of 81.9 percent is the steepest in U.S. history. The overall domestic rig count during the three months ended March 31, 2009 was approximately 24.1 percent lower than in the comparable period in 2008. The unconventional rig count declined as well, but by less than the overall rig count. The unconventional rig count during the first quarter of 2009 was 56.6 percent of the total rig count, which is higher than the prior year. RPC's growth strategy has focused on unconventional drilling, so this relatively stronger unconventional rig count is one reason that RPC's revenues declined at a lower rate than the overall domestic rig count. The average price of oil decreased by approximately 55.5 percent and the average price of natural gas decreased by approximately 47.6 percent during the three months ended March 31, 2009 compared to the prior year. The softness in natural gas and oil prices and the steep, rapid decline in the rig count, along with the global recession and financial crisis, have reduced our customers' demands for our services. Indications during the second quarter of 2009 are that customer activity levels will continue to decline during the near term.

Our response to the industry's severe downturn has been to reduce expenses and capital expenditures, thereby maintaining sufficient liquidity to continue our operations and maintain a conservative capital structure. We decreased the borrowings under our syndicated credit facility during the first three months of 2009 due to lower capital expenditures, and lower working capital requirements due to decreased activity levels.

We expect revenues will be lower in 2009 than in 2008. Although we project that the cost of critical materials used in performing our services, selling, general and administrative expenses, and interest expense will be lower in 2009 than in 2008, these cost reductions will be more than offset by the decline in revenues. In all of our service lines and geographic markets, we are experiencing the negative impacts of increased competition and lower oilfield activity. These negative impacts include lower pricing for our services and lower utilization of our equipment. One positive impact of the current depressed environment is that competition for qualified employees has declined tremendously which has caused the upward labor cost pressure we have experienced over the past few years to abate. Subsequent to March 31, 2009, we reduced base salaries and wages as well as incentive compensation for most of our employees, and believe that if these negative conditions persist we will retain these employees in spite of these actions because of the decline in competition for labor. We may evaluate consolidation of certain under-performing facilities in the future if activity continues to decline. In addition, we believe that the costs of certain raw materials used in providing our services, such as the proppant used in our pressure pumping service line, will decline due to lower oilfield activity and increased supplies of this material.

Further discussion of the Company's outlook is set forth under the Outlook section in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2008 and is incorporated herein by reference. There have been no significant changes in the Company's outlook since the filing of the 10-K for 2008 except as discussed above.

RESULTS OF OPERATIONS

                                               Three months ended
                                                    March 31,
                                              2009            2008

Consolidated revenues [in thousands]       $   176,271     $   197,227
Revenues by business segment [in
thousands]:
Technical                                  $   151,079     $   169,231
Support                                         25,192          27,996

Consolidated operating profit [in
thousands]                                 $     8,397     $    25,441
Operating profit (loss) by business
segment [in thousands]:
Technical                                  $     6,149     $    20,687
Support                                          3,706           5,858
Corporate                                       (3,180 )        (2,631 )
Gain on disposition of assets, net         $     1,722     $     1,527

Percentage cost of revenues to revenues             62 %            60 %
Percentage selling, general &
administrative expenses to revenues                 16 %            14 %
Percentage depreciation and amortization
expense to revenues                                 18 %            14 %
Average U.S. domestic rig count                  1,344           1,770
Average natural gas price (per thousand
cubic feet (mcf))                          $      4.52     $      8.63
Average oil price (per barrel)             $     43.65     $     98.03

THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008

Revenues. Revenues for the three months ended March 31, 2009 decreased 10.6 percent compared to the three months ended March 31, 2008. Domestic revenues decreased 12 percent to $166.7 million compared to the same period in the prior year. The decreases in revenues are due primarily to lower equipment utilization and more competitive pricing in most of our service lines. International revenues increased from $8.4 million to $9.7 million compared to the prior year quarter. Our international revenues are impacted by the timing of project initiation and their ultimate duration and can be volatile in nature.

The average price of natural gas decreased approximately 47.6 percent and the average price of oil decreased 55.5 percent during the first quarter of 2009 as compared to the prior year. The average domestic rig count during the quarter was approximately 24.1 percent lower than the same period in 2008. This decrease in drilling activity had a negative impact on our financial results. We believe that our activity levels are affected more by the price of natural gas than by the price of oil, because the majority of U.S. domestic drilling activity relates to natural gas, and many of our services are more appropriate for gas wells than oil wells.

The Technical Services segment revenues for the quarter decreased 10.7 percent compared to the first quarter of last year. Revenues in this segment decreased due primarily to competitive pricing and lower equipment utilization. The Support Services segment revenues for the quarter fell by 10.0 percent compared to the first quarter of prior year. This decline was due primarily to decreased activity in the rental tool service line, the largest within this segment. Operating profit decreased in both segments primarily due to lower revenues and higher costs and expenses as a percentage of revenues.

Cost of revenues. Cost of revenues decreased 6.5 percent to $110.0 million for the three months ended March 31, 2009 compared to $117.7 million for three months ended March 31, 2008. This decrease was due to the variable nature of several of these expenses, including fuel and materials and supplies. Cost of revenues, as a percentage of revenues, increased in the first quarter of 2009 compared to the first quarter of 2008 due primarily to higher maintenance and repairs expenses and negative leverage from direct personnel costs.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended March 31, 2009 decreased 2.5 percent to $27.6 million compared to $28.3 million for the three months ended March 31, 2008. This decrease was primarily due to lower incentive compensation costs and the impact of cost control measures. However, these costs as a percent of revenues increased during the three months ended March 31, 2009 compared to the same period in the prior year due to lower revenues and the fixed nature of several of these expenses.

Depreciation and amortization. Depreciation and amortization totaled $32.0 million for the three months ended March 31, 2009, a 17.2 percent increase, compared to $27.3 million for the quarter ended March 31, 2008. This increase in depreciation and amortization resulted from capital expenditures made during the last year within both Technical Services and Support Services to increase capacity, expand facilities and to maintain our existing fleet of equipment.

Gain on disposition of assets, net. Gain on disposition of assets, net was $1.7 million for the three months ended March 31, 2009 compared to $1.5 million for the three months ended March 31, 2008. The gain on disposition of assets, net includes gains or losses related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment.

Other income (expense), net. Other income (expense), net was $143 thousand for the three months ended March 31, 2009 and $(7) thousand for the same period in the prior year. Other income (expense), net primarily includes gains and losses from investments in the non-qualified benefit plan being marked to market, settlements of various legal and insurance claims, and royalty receipts.

Interest expense and interest income. Interest expense was $594 thousand for the three months ended March 31, 2009 compared to $1.5 million for the quarter ended March 31, 2008. The decrease in 2008 is due to lower interest rates and lower average balance on our revolving line of credit, net of interest capitalized on equipment and facilities under construction. Interest income was $33 thousand for the three months ended March 31, 2009 and $22 thousand for the three months ended March 31, 2008.

Income tax provision. Income tax provision was $3.5 million during the three months ended March 31, 2009, compared to $9.2 million in 2008. This decrease was due to the decrease in income before taxes. The effective tax rate was 44.0 percent for the three months ended March 31, 2009 compared to 38.5 percent for the three months ended March 31, 2008. The higher rate results primarily from pretax income declining at a faster rate than our non deductible permanent tax differences.

                           RPC, INC. AND SUBSIDIARIES

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The Company's cash and cash equivalents at March 31, 2009 were $2.3 million. The
following table sets forth the historical cash flows for the three months ended
March 31, 2009 and 2008:

                                                          Three months ended March 31,
(In thousands)                                              2009                 2008

Net cash provided by operating activities              $       66,021       $       46,727
Net cash used for investing activities                        (16,904 )            (43,869 )
Net cash (used for) provided by financing activities          (49,842 )              2,294

Cash provided by operating activities for the three months ended March 31, 2009 increased by $19.3 million compared to the comparable period in the prior year. Although net income decreased $10.3 million for the three months ended March 31, 2009 compared to the same period of 2008, cash provided by operating activities increased due primarily to decreases in working capital, and an increase in depreciation due to higher capital expenditures in 2008. The significant changes in working capital requirements were decreases in accounts receivable, as revenue declined, partially offset by decreases in accounts payable from lower activity levels, and increases in inventory.

Cash used for investing activities for the three months ended March 31, 2009 decreased by $27.0 million, compared to the three months ended March 31, 2008, as a result of lower capital expenditures.

Cash used for financing activities for the three months ended March 31, 2009 increased by $52.1 million, compared to the three months ended March 31, 2008, due to an increase in net repayments of notes payable to banks and an increase in dividends per share paid to common stockholders, partially offset by lower open market repurchases of the Company's shares.

Financial Condition and Liquidity

The Company's financial condition as of March 31, 2009, remains strong. We believe the liquidity provided by our existing cash and cash equivalents, our overall strong capitalization, cash expected to be generated from operations and our credit facility will provide sufficient capital to meet our requirements for at least the next twelve months. The Company currently has a $296.5 million revolving credit facility (the "Revolving Credit Agreement") that matures in September 2011. The Revolving Credit Agreement contains customary terms and conditions, including certain financial covenants including covenants restricting RPC's ability to incur liens or merge or consolidate with another entity. Our outstanding borrowings were $132.5 million at March 31, 2009 and approximately $15.1 million of the credit facility supports outstanding letters of credit relating to self-insurance programs or contract bids. A total of $148.9 million was available under our facility as of March 31, 2009. Additional information regarding our Revolving Credit Agreement is included in Note 10 to our Consolidated Financial Statements included in this report.

The Company's decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position, including access to borrowings under our credit facility, and the expected amount of cash to be provided by operations. We believe our liquidity will continue to provide the opportunity to grow our asset base and revenues during periods with positive business conditions and strong customer activity levels. In addition, the Company's decisions about the amount of cash to be used for investing and financing activities may also be influenced by the financial covenants in our credit facility.

Cash Requirements

The Company currently expects that capital expenditures during 2009 will be approximately $80 million, of which $19.5 million has been spent as of March 31, 2009. We expect these expenditures to be primarily directed towards revenue-producing equipment in our larger, core service lines including pressure pumping, snubbing, nitrogen, and rental tools. The actual amount of 2009 expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules.

The Company has ongoing sales and use tax audits in various jurisdictions and may be subjected to varying interpretations of statutes that could result in unfavorable outcomes that cannot be currently estimated.

The Company's Retirement Income Plan, a multiple employer trusteed defined benefit pension plan, provides monthly benefits upon retirement at age 65 to eligible employees. The Company did not make any contributions to the pension plan in the three months ended March 31, 2009 and does not currently expect to make any contributions to the pension plan for the remainder of 2008.

The Company's Board of Directors announced a stock buyback program on March 9, 1998 authorizing the repurchase of 11,812,500 shares. The Company repurchased no shares of common stock under the program during the three months ended March 31, 2009 but may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies and restrictions under our credit facility. The stock buyback program does not have a predetermined expiration date.

On April 28, 2009, the Board of Directors approved a $0.07 per share cash dividend payable June 10, 2009 to stockholders of record at the close of business May 8, 2009. The Company expects to continue to pay cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors.

INFLATION

The Company purchases its equipment and materials from suppliers who provide competitive prices, and employs skilled workers from competitive labor markets. If inflation in the general economy increases, the Company's costs for equipment, materials and labor increase as well. Due to the increases in activity in the domestic oilfield, as well as a shortage of a skilled work force due to historically low activity in the oilfield, the Company experienced upward wage pressures in the labor markets from which it hires employees for several years. However, this pressure abated with the sudden, steep decline in domestic oilfield activity which began in the third quarter of 2008. The Company has recently reduced the compensation of salaried and hourly employees and changed the structure of incentive compensation plans, thus lowering these costs. The Company has experienced shortages for critical materials used in some of its largest service lines over the past several years, and these shortages have caused price increases for these materials as well as higher transportation costs, since some alternative suppliers are located farther from the Company's operational locations than the original suppliers. Inventory levels have also grown due to price increases and our purchases of large quantities of these materials in order to receive quantity discounts. We believe that this cost pressure is abating as well, due to lower oilfield activity coupled with supply increases from international sources. If these trends continue, the Company's costs and working capital requirements relating to labor and materials and supplies will be lower in the future. However, such lower costs many not necessarily lead to higher future profitability, as the Company is experiencing tremendous competitive pricing pressures for its services due to lower oilfield activity and a large amount of oilfield service capacity in the markets in which we operate.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any material off balance sheet arrangements.

RELATED PARTY TRANSACTIONS

Marine Products Corporation

Effective February 28, 2001, the Company spun-off the business conducted through Chaparral Boats, Inc, RPC's former powerboat manufacturing segment. In conjunction with the spin-off, RPC and Marine Products entered into various agreements that define the companies' relationship. A detailed discussion of the various agreements in effect is contained in the Company's annual report on Form 10-K for the year ended December 31, 2008. During the three months ended March 31, 2009, RPC charged Marine Products for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling $227,000 compared to $263,000 for the comparable period in 2008.

Other

The Company periodically purchases in the ordinary course of business products or services from suppliers who are owned by officers or significant shareholders of, or affiliated with the directors of RPC. The total amounts paid to these affiliated parties were approximately $176,000 for the three months ended March 31, 2009 and $91,000 for the three months ended March 31, 2008.

RPC receives certain administrative services and rents office space from Rollins, Inc. (a company of which Mr. R. Randall Rollins is also Chairman, and which is controlled by Mr. Rollins and his affiliates). The service agreements between Rollins, Inc. and the Company provide for the provision of services on a cost reimbursement basis and are terminable on six months notice. The services covered by these agreements include office space, selected administration services for certain employee benefit programs, and other administrative services. Charges to the Company (or to corporations which are subsidiaries of the Company) for such services and rent aggregated approximately $24,000 for the three months ended March 31, 2009 and $21,000 for the three months ended March 31, 2008.

CRITICAL ACCOUNTING POLICIES

The discussion of Critical Accounting Policies is incorporated herein by reference from the Company's annual report on Form 10-K for the fiscal year ended December 31, 2008. There have been no significant changes in the critical accounting policies since year-end.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Notes 4 and 13 of the Notes to Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition.

SEASONALITY

Oil and natural gas prices affect demand throughout the oil and natural gas industry, including the demand for the Company's products and services. The Company's business depends in large part on the conditions of the oil and gas industry, and specifically on the capital expenditures of its customers related to the exploration and production of oil and natural gas. There is a positive correlation between these expenditures and customers' demand for the Company's services. As such, when these expenditures fluctuate, customers' demand for the Company's services fluctuates as well. These fluctuations depend on the current and projected prices of oil and natural gas and resulting drilling activity, and are not seasonal to any material degree.

FORWARD-LOOKING STATEMENTS

Certain statements made in this report that are not historical facts are "forward-looking statements" under Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, without limitation, statements regarding the effect of recent accounting pronouncements on the Company's consolidated financial statements, forecasted revenues, costs, expenses and operating profit for 2009, forecasted lower income before taxes and net income in 2009 compared to 2008, our belief that customer activity levels will continue to decline during the near term, our ability to retain our employees, our business strategy, plans and objectives, market risk exposure, adequacy of capital . . .