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 32.

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 second quarter of 2009, revenues decreased 40.8 percent to $127.0 million compared to the same period in the prior year. The decline in revenues resulted primarily from lower pricing for our services, coupled with lower utilization of our equipment and personnel. International revenues for the second quarter of 2009 declined slightly due to declines in Oman, Saudi Arabia, the United Arab Emirates, Canada and Bolivia, partially offset by increases in Australia, New Zealand, Mexico, South Africa, Cameroon and Egypt. 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.

Expense reduction measures taken in 2009 only slightly offset the dramatically lower revenues in the second quarter of 2009. Although these measures did contribute to the overall decreases in cost of revenues and selling, general and administrative expenses, they were not sufficient to overcome the effects of lower pricing for our services.

Cost of revenues as a percentage of revenues increased approximately 15.7 percentage points in the second quarter of 2009 compared to the same period of 2008. This increase was due primarily to the effects on revenues of lower pricing due to competition, and higher materials requirements for more service-intensive work, partially offset by the expense reduction measures taken.

Selling, general and administrative expenses as a percentage of revenues increased by approximately 4.9 percentage points in the second quarter of 2009 compared to the same period in the prior year due to negative leverage of these costs resulting from lower revenues. The Company realized an operating loss in the current quarter due to lower revenues and increased depreciation, partially offset by lower costs of revenues and selling, general and administrative expenses.

The Company realized a pretax loss of $19.4 million for the three months ended June 30, 2009 compared to pretax income of $36.7 million in the prior year. The pretax loss for the three months ended June 30, 2009 resulted in the Company recording an income tax benefit for the quarter, compared to income tax provision of $14.2 million, or an effective tax rate of 38.8 percent, in the prior year. Diluted loss per share was $0.12 for the three months ended June 30, 2009 compared to diluted earnings per share of $0.23 in the same period in the prior year. Cash flows from operating activities were $103.5 million for the six months ended June 30, 2009 compared to $89.2 million for the same period in the prior year due to decreased working capital requirements realized consistent with lower revenues and business activity levels. The notes payable to banks were $123.6 million as of June 30, 2009 and $182.6 million as of June 30, 2008.

Capital expenditures were $43.2 million during the first six months of 2009. We currently expect capital expenditures to be approximately $70 million during 2009. This estimated amount is lower than in any of the previous three fiscal years, due to low pricing and utilization on our existing fleet of equipment at the present time, and our strategy to maintain a conservative balance sheet. We expect that our capital expenditures in 2009 will be primarily directed toward routine and emergency maintenance and for equipment related to specific projects in which we have a contract with a customer, rather than growth in our fleet of equipment.

Outlook

Drilling activity in the U.S. domestic oilfield, as measured by the rotary drilling rig count, experienced a cyclical peak in the third quarter of 2008, and since that time has declined at the fastest annualized rate in history. Following a peak of 2,031 in the third quarter of 2008, the U.S. domestic rotary drilling rig count fell 56.5 percent to 876 near the end of the second quarter of 2009. The overall domestic rig count during the six months ended June 30, 2009 was approximately 37.3 percent lower than in the comparable period in 2008. As of the beginning of the third quarter of 2009, the rotary drilling rig count appears to have stabilized, although there are no indications that it will significantly increase in the near term. The average price of oil decreased by approximately 53.6 percent and the average price of natural gas decreased by approximately 58.9 percent during the six months ended June 30, 2009 compared to the prior year. Our response to the industry's rapid decline is to maintain sufficient liquidity and a conservative capital structure. As discussed in the Overview section above, we have reduced our capital expenditures and reduced costs during 2009, one result of which is that the balance on our revolving credit facility has been reduced by $50.9 million since December 31, 2008. We expect revenues will be lower in 2009 than in 2008. Although we have reduced headcount and taken additional steps to reduce employment costs, as well as reduced costs in other areas, we believe that we will generate operating and net losses for the 12 months ended December 31, 2009.

In most of the Company's service lines and all of our geographic markets, we are experiencing the negative impacts of increased competition, including lower pricing for our services and lower utilization of our equipment and personnel.

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             Six months ended
                                                        June 30,                      June 30,
                                                  2009           2008           2009           2008

Consolidated revenues [in thousands]            $ 127,018      $ 214,689      $ 303,289      $ 411,916
Revenues by business segment [in thousands]:
Technical                                       $ 109,987      $ 185,284      $ 261,066      $ 354,515
Support                                            17,031         29,405         42,223         57,401

Consolidated operating (loss) profit [in
thousands]                                      $ (19,498 )    $  37,800      $ (11,101 )    $  63,241
Operating (loss) profit by business segment
[in thousands]:
Technical                                       $ (15,212 )    $  31,958      $  (9,064 )    $  52,644
Support                                            (1,616 )        6,764          2,090         12,622
Corporate                                       $  (2,983 )    $  (2,395 )    $  (6,161 )    $  (5,025 )
Gain on disposition of assets, net              $     312      $   1,473      $   2,034      $   3,000

Percentage cost of revenues to revenues              71.7 %         56.0 %         66.3 %         57.7 %
Percentage selling, general & administrative
expenses to revenues                                 18.4 %         13.5 %         16.8 %         13.9 %
Percentage depreciation and amortization
expense to revenues                                  25.5 %         13.6 %         21.2 %         13.7 %
Average U.S. domestic rig count                       934          1,864          1,139          1,817
Average natural gas price (per thousand
cubic feet (mcf))                               $    3.69      $   11.33      $    4.10      $    9.98
Average oil price (per barrel)                  $   60.06      $  125.24      $   51.85      $  111.64

THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THREE MONTHS ENDED JUNE 30, 2008

Revenues. Revenues for the three months ended June 30, 2009 decreased 40.8 percent compared to the three months ended June 30, 2008. Domestic revenues decreased 42.5 percent to $118.4 million compared to the same period in the prior year. The decreases in revenues are due primarily to dramatically lower pricing for our services coupled with modestly lower utilization of our equipment and personnel. International revenues remained unchanged at $8.7 million for the three months ended June 30, 2009 and June 30, 2008. 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 67.4 percent and the average price of oil decreased 52.0 percent during the second quarter of 2009 as compared to the prior year. The average domestic rig count during the quarter was approximately 49.9 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 40.6 percent compared to the same period in the prior year. Revenues in this segment decreased due primarily to competitive pricing pressures and lower equipment utilization. The Support Services segment revenues for the quarter fell by 42.1 percent compared to the same period in the prior year. This decline was due primarily to lower pricing and 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 24.2 percent to $91.0 million for the three months ended June 30, 2009 compared to $120.2 million for three months ended June 30, 2008. This decrease was due to the variable nature of several of these expenses as well as the impact of expense reduction measures taken during 2009, including employment cost reductions and greater efficiencies in the purchase of materials and supplies. Cost of revenues, as a percentage of revenues, increased in the second quarter of 2009 compared to the second quarter of 2008 due primarily to lower pricing for our services, higher materials requirements for more service-intensive work and negative leverage from direct personnel costs.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2009 decreased 19.4 percent to $23.4 million compared to $29.0 million for the three months ended June 30, 2008. This decrease was primarily due to lower employment costs and other expenses resulting from expense reduction efforts instituted in 2009. However, these costs as a percent of revenues increased during the three months ended June 30, 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 $32.4 million for the three months ended June 30, 2009, an 11.0 percent increase, compared to $29.2 million for the quarter ended June 30, 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 $312 thousand for the three months ended June 30, 2009 compared to $1.5 million for the three months ended June 30, 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, net. Other income, net was $608 thousand for the three months ended June 30, 2009 and $105 thousand for the same period in the prior year. Other income, 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 $527 thousand for the three months ended June 30, 2009 compared to $1.3 million for the quarter ended June 30, 2008. The decrease in 2009 is due to lower interest rates and a lower average balance on our revolving line of credit, net of interest capitalized on equipment and facilities under construction. Interest income was $52 thousand for the three months ended June 30, 2009 and $24 thousand for the three months ended June 30, 2008.

Income tax (benefit) provision. Income tax benefit was $7.7 million during the three months ended June 30, 2009, compared to a $14.2 million income tax provision for the same period in 2008. This change was due to the decrease in income before taxes. The effective tax rate was 40.0 percent for the three months ended June 30, 2009 compared to 38.8 percent for the three months ended June 30, 2008.

SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO SIX MONTHS ENDED JUNE 30, 2008

Revenues. Revenues for the six months ended June 30, 2009 decreased 26.4 percent compared to the six months ended June 30, 2008. Domestic revenues decreased 27.8 percent to $285.0 million compared to the same period in the prior year. The decreases in revenues are due primarily to lower pricing for our services and lower utilization of our equipment and personnel. International revenues increased from $17.1 million to $18.3 million compared to the same period in the prior year. 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 58.9 percent and the average price of oil decreased 53.6 percent during the six months ended June 30, 2009 as compared to the prior year. The average domestic rig count during the period was approximately 37.3 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 first six months of 2009 decreased 26.4 percent compared to the prior year. Revenues in this segment decreased due primarily to competitive pricing and lower equipment utilization. The Support Services segment revenues for the first six months of 2009 fell by 26.4 percent compared to the 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 15.5 percent to $201.1 million for the six months ended June 30, 2009 compared to $237.8 million for six months ended June 30, 2008. This decrease was due to the variable nature of several of these expenses as well as the impact of expense reduction measures taken during 2009. Cost of revenues, as a percentage of revenues, increased in the first six months of 2009 compared to the first six months of 2008 due primarily to lower pricing for our services, higher maintenance and repairs expenses and negative leverage from direct personnel costs.

Selling, general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2009 decreased 11.1 percent to $51.0 million compared to $57.3 million for the six months ended June 30, 2008. This decrease was primarily due to lower employment costs and other expenses resulting from expense reduction efforts instituted in 2009. However, these costs as a percent of revenues increased during the six months ended June 30, 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 $64.4 million for the six months ended June 30, 2009, a 14.0 percent increase, compared to $56.5 million for the six months ended June 30, 2008. This increase in depreciation and amortization resulted from capital expenditures made during the last twelve months 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 $2.0 million for the six months ended June 30, 2009 compared to $3.0 million for the six months ended June 30, 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, net. Other income, net was $751 thousand for the six months ended June 30, 2009 and $98 thousand for the same period in the prior year. Other income, 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 $1.1 million for the six months ended June 30, 2009 compared to $2.7 million for the six months ended June 30, 2008. The decrease in 2009 is due to lower interest rates and a lower average balance on our revolving line of credit, net of interest capitalized on equipment and facilities under construction. Interest income was $85 thousand for the six months ended June 30, 2009 and $46 thousand for the six months ended June 30, 2008.

Income tax (benefit) provision. Income tax benefit was $4.2 million during the six months ended June 30, 2009, compared to a $23.4 million income tax provision for the same period in 2008. This change was due to the decrease in income before taxes. The effective tax rate was 37.1 percent for the six months ended June 30, 2009 compared to 38.7 percent for the six months ended June 30, 2008.

                           RPC, INC. AND SUBSIDIARIES

     LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

     The Company's cash and cash equivalents at June 30, 2009 were $2.8 million.
The following table sets forth the historical cash flows for the six months
ended June 30, 2009 and 2008:

                                                         Six months ended June 30,
(In thousands)                                             2009               2008

Net cash provided by operating activities              $     103,530       $   89,163
Net cash used for investing activities                       (39,044 )        (96,228 )
Net cash (used for) provided by financing activities         (64,711 )          9,755

Cash provided by operating activities for the six months ended June 30, 2009 increased by $14.4 million compared to the comparable period in the prior year. Although net income decreased $44.4 million for the six months ended June 30, 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 six months ended June 30, 2009 decreased by $57.2 million, compared to the six months ended June 30, 2008, primarily as a result of lower capital expenditures.

Cash used for financing activities for the six months ended June 30, 2009 increased by $74.5 million, compared to the six months ended June 30, 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 June 30, 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 $123.6 million at June 30, 2009 and approximately $15.0 million of the credit facility supports outstanding letters of credit relating to self-insurance programs or contract bids. A total of $157.9 million was available under our facility as of June 30, 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 $70 million, of which $43.2 million has been spent as of June 30, 2009. We expect these expenditures for the remainder of 2009 to be primarily directed towards maintenance of our 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 six months ended June 30, 2009 and does not currently expect to make any contributions to the pension plan for the remainder of 2009.

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 six months ended June 30, 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 July 28, 2009, the Board of Directors approved a $0.04 per share cash dividend payable September 10, 2009 to stockholders of record at the close of business August 10, 2009. This reduction in dividend, along with reduced headcount, employment costs and discretionary expenses, enhances and strengthens our capital structure giving us the opportunity to pay down debt and continue to maintain a solid, conservative balance sheet. 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. Upward wage pressures 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 . . .