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 third quarter of 2009, revenues decreased 44.3 percent to $132.2 million compared to the same period in the prior year. The decline in revenues resulted primarily from dramatically lower pricing for our services coupled with lower utilization of our equipment and personnel. International revenues for the third quarter of 2009 improved due to increases in customer activity levels in New Zealand, Egypt, Oman, and Mexico, partially offset by decreases in customer activity levels in Gabon, Canada, Saudi Arabia, and Venezuela. 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 instituted in 2009 only slightly offset the dramatically lower revenues in the third 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 activity and significantly lower pricing for our services.

Cost of revenues as a percentage of revenues increased approximately 11.5 percentage points in the third quarter of 2009 compared to the same period of 2008. This increase was due primarily to lower pricing for our services.

Despite cost reduction efforts, selling, general and administrative expenses as a percentage of revenues increased by approximately 4.8 percentage points in the third 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 lower selling, general and administrative expenses.

The Company realized a pretax loss of $14.8 million for the three months ended September 30, 2009 compared to pretax income of $42.7 million in the prior year. The pretax loss for the three months ended September 30, 2009 resulted in the Company recording an income tax benefit of $4.4 million for the quarter, compared to income tax provision of $16.9 million, in the prior year. Diluted loss per share was $0.11 for the three months ended September 30, 2009 compared to diluted earnings per share of $0.26 in the same period in the prior year. Cash flows from operating activities were $144.7 million for the nine months ended September 30, 2009 compared to $126.9 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 declined to $101.9 million as of September 30, 2009 compared to $185.6 million as of September 30, 2008 as available cash flow has been directed towards debt reduction.

Capital expenditures were $58.7 million during the first nine 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 in response 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 for the fourth quarter of 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.

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 tremendously. Following a peak of 2,031 in the third quarter of 2008, the U.S. domestic rotary drilling rig count fell 56.9 percent to a low of 876 near the end of the second quarter of 2009. The overall domestic rig count during the nine months ended September 30, 2009 was approximately 42.1 percent lower than in the comparable period in 2008. During the third quarter of 2009, the rotary drilling rig count stabilized and began to increase. The average rig count during the third quarter of 2009 was 970, or 3.9 percent higher than the average rig count in the second quarter of 2009. At the beginning of the fourth quarter of 2009, the rig count is continuing to increase gradually, although there are no indications that it will significantly increase in the near term. The average price of oil decreased by approximately 49.8 percent and the average price of natural gas decreased by approximately 65.2 percent during the nine months ended September 30, 2009 compared to the prior year. Our response to the industry's rapid decline in activity levels and revenues has been to reduce expenses and 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 $72.6 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 operating and net losses will continue to be adversely affected 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 lower customer activity levels compared to one year ago coupled with increased competition. This has resulted in 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           Nine months ended
                                                 September 30,               September 30,
                                              2009          2008          2009          2008

  Consolidated revenues [in thousands]      $ 132,159     $ 237,217     $ 435,448     $ 649,133
  Revenues by business segment [in
  thousands]:
  Technical                                 $ 116,326     $ 203,462     $ 377,393     $ 557,977
  Support                                      15,833        33,755        58,055        91,156

  Consolidated operating (loss) profit
  [in thousands]                            $ (14,907 )   $  44,232     $ (26,008 )   $ 107,473
  Operating (loss) profit by business
  segment [in thousands]:
  Technical                                 $  (9,540 )   $  34,644     $ (18,604 )   $  87,288
  Support                                      (1,770 )      10,333           320        22,955
  Corporate                                    (3,105 )      (2,743 )      (9,266 )      (7,768 )
  (Loss) gain on disposition of assets,
  net                                            (492 )       1,998         1,542         4,998

  Percentage cost of revenues to revenues        68.4 %        56.9 %        66.9 %        57.4 %
  Percentage selling, general &
  administrative expenses to revenues            17.3 %        12.5 %        17.0 %        13.4 %
  Percentage depreciation and
  amortization expense to revenues               25.2 %        12.8 %        22.4 %        13.4 %
  Average U.S. domestic rig count                 970         1,979         1,083         1,871
  Average natural gas price (per thousand
  cubic feet (mcf))                         $    3.13     $    9.00     $    3.78     $    9.65
  Average oil price (per barrel)            $   68.15     $  118.83     $   57.28     $  114.03

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

Revenues. Revenues for the three months ended September 30, 2009 decreased 44.3 percent compared to the three months ended September 30, 2008. Domestic revenues decreased 48.8 percent to $117.9 million compared to the same period in the prior year. The decreases in revenues are due primarily to dramatically lower pricing for our services and lower utilization of equipment and personnel. International revenues doubled to $14.3 million for the three months ended September 30, 2009 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 65.2 percent and the average price of oil decreased 42.7 percent during the third quarter of 2009 as compared to the prior year. The average domestic rig count during the quarter was approximately 51.0 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 42.8 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 53.1 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 losses were realized in both segments primarily due to significantly lower revenues and higher costs and expenses as a percentage of revenues.

Cost of revenues. Cost of revenues decreased 33.0 percent to $90.4 million for the three months ended September 30, 2009 compared to $134.9 million for the three months ended September 30, 2008. This decrease was due to the variable nature of several of these expenses as well as the impact of expense reduction measures instituted during 2009, including employment cost reductions and improved efficiencies in the purchase of materials and supplies. Cost of revenues, as a percentage of revenues, increased in the third quarter of 2009 compared to the third quarter of 2008 due primarily to lower pricing for our services.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended September 30, 2009 decreased 23.0 percent to $22.8 million compared to $29.7 million for the three months ended September 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 September 30, 2009 compared to the same period in the prior year due to significantly lower revenues and the fixed nature of several of these expenses.

Depreciation and amortization. Depreciation and amortization totaled $33.3 million for the three months ended September 30, 2009, a 9.3 percent increase, compared to $30.4 million for the quarter ended September 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.

Loss (gain) on disposition of assets, net. Loss (gain) on disposition of assets, net was $492 thousand for the three months ended September 30, 2009 compared to $(2.0) million for the three months ended September 30, 2008. The loss (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 $602 thousand for the three months ended September 30, 2009 compared to $(356) 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 $533 thousand for the three months ended September 30, 2009 compared to $1.2 million for the quarter ended September 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 $41 thousand for the three months ended September 30, 2009 and $17 thousand for the three months ended September 30, 2008.

Income tax (benefit) provision. Income tax benefit was $4.4 million during the three months ended September 30, 2009, compared to a $16.9 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 of 29.8 percent for the three months ended September 30, 2009 was lower than the 39.6 percent for the three months ended September 30, 2008 due primarily to changes in the relationship of annual estimated pretax income (loss) to permanent tax differences.

NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2008

Revenues. Revenues for the nine months ended September 30, 2009 decreased 32.9 percent compared to the nine months ended September 30, 2008. Domestic revenues decreased 35.6 percent to $402.9 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 $24.2 million to $32.6 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 60.8 percent and the average price of oil decreased 49.8 percent during the nine months ended September 30, 2009 as compared to the prior year. The average domestic rig count during the period was approximately 42.1 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 first nine months of 2009 decreased 32.3 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 nine months of 2009 fell by 36.3 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 significantly lower revenues and higher costs and expenses as a percentage of revenues.

Cost of revenues. Cost of revenues decreased 21.8 percent to $291.5 million for the nine months ended September 30, 2009 compared to $372.7 million for the nine months ended September 30, 2008. This decrease was due to the variable nature of several of these expenses as well as the impact of expense reduction measures instituted during 2009. Cost of revenues, as a percentage of revenues, increased in the first nine months of 2009 compared to the first nine 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 nine months ended September 30, 2009 decreased 15.1 percent to $73.8 million compared to $87.0 million for the nine months ended September 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 nine months ended September 30, 2009 compared to the same period in the prior year due to significantly lower revenues and the fixed nature of several of these expenses.

Depreciation and amortization. Depreciation and amortization totaled $97.7 million for the nine months ended September 30, 2009, a 12.4 percent increase, compared to $87.0 million for the nine months ended September 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 $1.5 million for the nine months ended September 30, 2009 compared to $5.0 million for the nine months ended September 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 (expense), net. Other income (expense), net was $1.35 million for the nine months ended September 30, 2009 and $(258) 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 $1.7 million for the nine months ended September 30, 2009 compared to $4.0 million for the nine months ended September 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 $126 thousand for the nine months ended September 30, 2009 and $63 thousand for the nine months ended September 30, 2008.

Income tax (benefit) provision. Income tax benefit was $8.6 million during the nine months ended September 30, 2009, compared to a $40.3 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 of 33.0 percent for the nine months ended September 30, 2009 was lower than the 39.0 percent for the nine months ended September 30, 2008 due primarily to changes in the relationship of annual estimated pretax income (loss) to permanent tax differences.

                           RPC, INC. AND SUBSIDIARIES

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The Company's cash and cash equivalents at September 30, 2009 were $3.3
million. The following table sets forth the historical cash flows for the nine
months ended September 30, 2009 and 2008:

                                                   Nine months ended September 30,
   (In thousands)                                   2009                   2008

   Net cash provided by operating activities   $       144,708       $         126,891
   Net cash used for investing activities              (53,811 )              (128,798 )
   Net cash used for financing activities              (90,609 )                (1,138 )

Cash provided by operating activities for the nine months ended September 30, 2009 increased by $17.8 million compared to the comparable period in the prior year. Although net earnings decreased $80.5 million for the nine months ended September 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. 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, decreases in accrued payroll from lower headcounts and compensation, and increases in inventory.

Cash used for investing activities for the nine months ended September 30, 2009 decreased by $75.0 million, compared to the nine months ended September 30, 2008, primarily as a result of lower capital expenditures.

Cash used for financing activities for the nine months ended September 30, 2009 increased by $89.5 million, compared to the nine months ended September 30, 2008, with available cash flow being directed toward repayments of notes payable to banks, partially offset by lower open market repurchases of the Company's shares.

Financial Condition and Liquidity

The Company's financial condition as of September 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 $200 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 $101.9 million at September 30, 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 $83.0 million was available under our facility as of September 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 $58.7 million has been spent as of September 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 nine months ended September 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 nine months ended September 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 October 27, 2009, the Board of Directors approved a $0.04 per share cash dividend payable December 10, 2009 to stockholders of record at the close of business November 10, 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. Upward wage pressures abated . . .