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 30.

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, Rocky Mountain and Appalachian regions, and in select 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, 2011 is incorporated herein by reference. Since year end 2011, the Company's strategy of utilizing a larger fleet of equipment in unconventional basins has continued and we made approximately $204.2 million in capital expenditures primarily for revenue-producing equipment in support of this strategy. Because of the declining price of natural gas and the reduction in customer activity levels in natural gas basins, we are now focusing on oil and gas liquid directed basins where customer activity levels are higher. As a result, we have moved some equipment and personnel among different operational locations and anticipate that the growth rate of our fleet of revenue-producing equipment will be lower in 2012 than in 2011.

During the second quarter of 2012, revenues increased 12.9 percent to $500.1 million compared to the same period in the prior year. The increase in revenues resulted primarily from an increase in the fleet of revenue-producing equipment and slightly higher activity levels in several service lines. International revenues for the second quarter of 2012 increased 111.2 percent to $15.6 million compared to the same period in the prior year. International revenues reflect primarily increases in customer activity levels in New Zealand and Mexico. 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 during the second quarter of 2012 in comparison to the same period of the prior year due to an increasingly competitive pricing environment and inefficiencies associated with equipment relocation, partially offset by favorable variances in the costs of materials and supplies used in providing our services.

Selling, general and administrative expenses as a percentage of revenues increased slightly to 8.6 percent in the second quarter of 2012 compared to 8.1 percent in the same period in the prior year.

Income before income taxes was $118.3 million for the three months ended June 30, 2012 compared to $118.3 million in the same period of 2011. The effective tax rate for the three months ended June 30, 2012 was 38.9 percent compared to 38.1 percent in the same period of the prior year. Diluted earnings per share were $0.33 for the three months ended June 30, 2012 compared to $0.33 in the same period of 2011. Cash flows from operating activities were $302.1 million for the three months ended June 30, 2012 compared to $170.8 million in the same period of 2011 due primarily to an increase in cash from working capital, higher depreciation expense and higher net income. The notes payable to banks decreased to $162.0 million as of June 30, 2012 compared to $173.1 million as of June 30, 2011.

Capital expenditures were $204.2 million during the first six months of 2012. We expect capital expenditures to be approximately $350 million during full year 2012 although this amount will be modified based on market conditions and other factors. Our capital expenditures for the remainder of 2012 will be directed towards growth opportunities, as well as capitalized improvement costs.

Outlook

Drilling activity in the U.S. domestic oilfield, as measured by the rotary drilling rig count, reached its most recent cyclical peak at 2,031 during the third quarter of 2008. The global recession that began in the fourth quarter of 2007 precipitated the steepest annualized decline in U.S. domestic oilfield history. From the third quarter of 2008 to the second quarter of 2009, the U.S. domestic rig count dropped almost 57 percent, reaching a trough of 876 in June 2009. Since June 2009, the rig count has increased by 123 percent to 1,953 early in the third quarter of 2012. The price of oil fell by 77 percent from $147 per barrel in the third quarter of 2008 to $34 early in 2010. Since that time, the price of oil has increased by approximately 156 percent to approximately $87 per barrel early in the third quarter of 2012. The price of natural gas fell by 85 percent from approximately $13 per Mcf in the second quarter of 2008 to slightly below $2 per Mcf in the third quarter of 2010. Since that time, the price of natural gas increased to more than $4 per Mcf during the second quarter of 2011, although it has declined significantly from the second quarter of 2011 through the second quarter of 2012. Early in the third quarter of 2012, the price of natural gas was slightly less than $3 per Mcf, and the outlook for the price of natural gas remains weak throughout 2012. Early in the third quarter of 2012, the natural gas-directed rig count was at its lowest level since the third quarter of 1999, and it is projected to remain low throughout the third and fourth quarters of 2012.

Unconventional drilling activity, which requires more of RPC's services than conventional drilling activity, accounted for 72 percent of total U.S. domestic drilling at the end of the second quarter of 2012. Oil-related drilling activity has also increased over past quarters, and during the second quarter of 2012 increased to 70 percent of total domestic drilling, compared to 51 percent in the second quarter of 2011. We are encouraged by this shift, because the growth in oil-directed drilling is taking place in unconventional drilling environments, and we also believe that this type of activity is more robust than natural gas-directed drilling because of the relatively high price of oil. Furthermore, this increase in oil-directed drilling offsets weakness in natural gas-directed drilling. During the second quarter we moved several equipment fleets from natural gas-directed basins to unconventional basins in which oil-directed drilling is the predominant hydrocarbon production activity.

We continue to monitor the competitive environment. Increasing activity levels and the service-intensive nature of completion activities in unconventional basins, in which we have a growing presence, have presented opportunities to improve utilization and pricing and to expand our fleet of revenue-producing equipment. However, the market has recently grown more competitive, as natural gas-directed drilling activity has fallen to its lowest level in almost 13 years. We are concerned about the near-term weakness in the price of natural gas and our customers' movement from natural gas basins to oil basins, because we have operational locations and significant amounts of revenue-producing equipment in natural gas basins and this will decrease the overall demand for our equipment and services. Also, the price of oil has declined by approximately 21 percent during 2012 from a high of $110 in the first quarter to $87 early in the third quarter. Further declines in the price of oil may cause our customers to curtail their drilling activities in oil-directed drilling. Our response to the industry's potential uncertainty is to maintain sufficient liquidity and a conservative capital structure and monitor both our discretionary spending and our capital expenditures. The amount drawn on our credit facility declined from $180.8 million at the end of the first quarter of 2012 to $162 million at the end of the second quarter. We intend to closely manage the amount drawn on our credit facility.

                           RPC, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS
                                             Three months ended            Six months ended
                                                   June 30,                    June 30,
                                             2012          2011           2012           2011

 Consolidated revenues [in thousands]      $ 500,106     $ 443,029     $ 1,002,663     $ 824,790
 Revenues by business segment [in
thousands]:
 Technical                                 $ 461,643     $ 406,736     $   923,164     $ 756,138
 Support                                      38,463        36,293          79,499        68,652

 Consolidated operating profit [in
thousands]                                 $ 119,858     $ 119,267     $   250,715     $ 225,593

 Operating profit by business segment
[in thousands]:
 Technical                                 $ 112,371     $ 109,509     $   235,902     $ 209,425
 Support                                      12,543        13,154          26,528        23,089
 Corporate                                    (3,152 )      (3,474 )        (8,407 )      (8,410 )
 (Loss) gain on disposition of assets,
net                                           (1,904 )          78          (3,308 )       1,489

 Percentage cost of revenues to revenues        56.2 %        54.8 %          55.4 %        53.9 %
 Percentage selling, general &
administrative expenses to revenues              8.6 %         8.1 %           8.8 %         8.7 %
 Percentage depreciation and
amortization expense to revenues                10.8 %        10.1 %          10.5 %        10.2 %
 Average U.S. domestic rig count               1,970         1,835           1,980         1,778
 Average natural gas price (per thousand
cubic feet (mcf))                          $    2.29     $    4.35     $      2.35     $    4.25
 Average oil price (per barrel)            $   92.92     $  101.86     $     97.96     $   98.46

THREE MONTHS ENDED JUNE 30, 2012 COMPARED TO THREE MONTHS ENDED JUNE 30, 2011

Revenues. Revenues for the three months ended June 30, 2012 increased 12.9 percent compared to the three months ended June 30, 2011. Domestic revenues increased 11.2 percent to $484.5 million compared to the same period in the prior year. The increases in revenues are due primarily to a larger fleet of revenue-producing equipment and slightly higher activity levels in several service lines. International revenues increased 111.2 percent to $15.6 million for the three months ended June 30, 2012 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 47.4 percent and the average price of oil decreased 8.8 percent during the second quarter of 2012 as compared to the same period in the prior year. The average domestic rig count during the quarter was approximately 7.4 percent higher than the same period in 2011.

The Technical Services segment revenues for the quarter increased 13.5 percent compared to the same period in the prior year. Revenues in this segment increased due primarily to an increase in the fleet of revenue-producing equipment partially offset by lower pricing for our services within this segment. The Support Services segment revenues for the quarter increased by 6.0 percent compared to the same period in the prior year. This increase was due primarily to higher activity levels in several of the service lines within this segment. Operating profit in the Technical Services segment improved due to higher revenues partially offset by lower pricing for our services within this segment. Operating profit in the Support Services segment declined due to lower pricing and utilization in our rental tools service line, the largest service line within this segment.

Cost of revenues. Cost of revenues increased 15.8 percent to $281.3 million for the three months ended June 30, 2012 compared to $243.0 million for the three months ended June 30, 2011. This increase was due to the variable nature of these expenses. Cost of revenues, as a percentage of revenues, increased in the second quarter of 2012 compared to the second quarter of 2011 due to an increasingly competitive pricing environment and inefficiencies associated with equipment relocation. These increases were partially offset by favorable variances in the costs of materials and supplies used in providing our services due to changes in job mix and better logistical management compared to the prior year.

Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2012 increased 19.9 percent to $43.1 million compared to $36.0 million for the three months ended June 30, 2011. This increase was primarily due to increases in total employment costs resulting from higher headcount to support higher activity levels and new operational facilities. Additionally, these costs as a percent of revenues increased slightly to 8.6 percent during the three months ended June 30, 2012 compared to 8.1 percent during the same period in the prior year.

Depreciation and amortization. Depreciation and amortization totaled $54.0 million for the three months ended June 30, 2012, a 20.2 percent increase, compared to $44.9 million for the quarter ended June 30, 2011. The increase was due to assets placed in service over the prior twelve months, however, as a percentage of revenues these costs remained relatively stable.

(Loss) gain on disposition of assets, net. (Loss) on disposition of assets, net was a net loss of $(1.9) million for the three months ended June 30, 2012 compared to a net gain of $78 thousand for the three months ended June 30, 2011. The (loss) gain on disposition of assets, net includes gains or losses related to various property and equipment dispositions including certain equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or damaged rental equipment.

Other (expense) income, net. Other expense, net was $(880) thousand for the three months ended June 30, 2012 compared to other expense, net of $(10) thousand for the same period in the prior year. Other (expense) income, net primarily includes mark to market gains and losses of investments in the non-qualified benefit plan.

Interest expense and interest income. Interest expense was $650 thousand for the three months ended June 30, 2012 compared to $998 thousand for the three months ended June 30, 2011. The decrease in 2012 is due to lower interest rates on our revolving credit facility net of interest capitalized on equipment and facilities under construction partially offset by a higher average debt balance on our revolving credit facility. Interest income was $4 thousand for the three months ended June 30, 2012 and $3 thousand for the three months ended June 30, 2011.

Income tax provision. Income tax provision was $46.1 million during the three months ended June 30, 2012, compared to $45.1 million for the same period in 2011. The effective tax rate of 38.9 percent for the three months ended June 30, 2012 was slightly higher than the 38.1 percent for the three months ended June 30, 2011.

SIX MONTHS ENDED JUNE 30, 2012 COMPARED TO SIX MONTHS ENDED JUNE 30, 2011

Revenues. Revenues for the six months ended June 30, 2012 increased 21.6 percent compared to the six months ended June 30, 2011. Domestic revenues increased 20.1 percent to $969.8 million compared to the same period in the prior year. The increases in revenues are due primarily to a larger fleet of revenue-producing equipment and higher activity levels in several service lines. International revenues increased 88.8 percent to $32.8 million for the six months ended June 30, 2012 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 44.7 percent and the average price of oil decreased 0.5 percent during the six months ended June 30, 2012 as compared to the same period in the prior year. The average domestic rig count during the six months ended June 30, 2012 was approximately 11.5 percent higher than the same period in 2011.

The Technical Services segment revenues during the six months ended June 30, 2012 increased 22.1 percent compared to the same period in the prior year. Revenues in this segment increased due primarily to an increase in the fleet of revenue-producing equipment and higher activity levels partially offset by lower pricing for our services within this segment. The Support Services segment revenues during the six months ended June 30, 2012 increased by 15.8 percent compared to the same period in the prior year. This increase was due primarily to higher activity levels in several of the service lines within this segment. Operating profit in both the Technical Services segment and Support Services segment improved due to higher revenues.

Cost of revenues. Cost of revenues increased 24.9 percent to $555.1 million for the six months ended June 30, 2012 compared to $444.2 million for the six months ended June 30, 2011. This increase was due to the variable nature of these expenses. Cost of revenues, as a percentage of revenues, increased during the six months ended June 30, 2012 compared to the prior year period due primarily to higher total employment costs and higher maintenance and repair expenses partially offset by favorable variances in the cost of materials and supplies in comparison to the prior year period.

Selling, general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2012 increased 22.3 percent to $88.0 million compared to $72.0 million for the six months ended June 30, 2011. This increase was primarily due to increases in total employment costs. These costs as a percent of revenues remained relatively stable during the six months ended June 30, 2012 compared to the same period in the prior year.

Depreciation and amortization. Depreciation and amortization totaled $105.5 million for the six months ended June 30, 2012, a 25.0 percent increase, compared to $84.4 million for the six months ended June 30, 2011. The increase was due to assets placed in service over the prior twelve months, however, as a percentage of revenues these costs remained relatively stable.

(Loss) gain on disposition of assets, net. (Loss) on disposition of assets, net was a net loss of $(3.3) million for the six months ended June 30, 2012 compared to a net gain of $1.5 million for the six months ended June 30, 2011. The (loss) gain on disposition of assets, net includes gains or losses related to various property and equipment dispositions including certain equipment components experiencing increased wear and tear which requires early dispositions, or sales to customers of lost or damaged rental equipment.

Other income (expense), net. Other income, net was $40 thousand for the six months ended June 30, 2012 compared to other income, net of $324 thousand for the same period in the prior year. Other income, net primarily includes mark to market gains and losses of investments in the non-qualified benefit plan.

Interest expense and interest income. Interest expense was $1.2 million for the six months ended June 30, 2012 compared to $2.1 million for the six months ended June 30, 2011. The decrease in 2012 is due to lower interest rates on our revolving credit facility net of interest capitalized on equipment and facilities under construction partially offset by a higher average debt balance on our revolving credit facility. Interest income was $9 thousand for the six months ended June 30, 2012 and $7 thousand for the six months ended June 30, 2011.

Income tax provision. Income tax provision was $96.5 million during the six months ended June 30, 2012, compared to $85.2 million for the same period in 2011. The effective tax rate of 38.7 percent for the six months ended June 30, 2012 was slightly higher than the 38.0 percent for the six months ended June 30, 2011.

                           RPC, INC. AND SUBSIDIARIES

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The Company's cash and cash equivalents at June 30, 2012 were $9.3 million. The
following table sets forth the historical cash flows for the six months ended
June 30, 2012 and 2011:

                                                          Six months ended June 30,
 (In thousands)                                             2012               2011

 Net cash provided by operating activities              $     302,134       $  170,825
 Net cash used for investing activities                      (196,203 )       (188,559 )
 Net cash (used for) provided by financing activities        (104,068 )         15,889

Cash provided by operating activities for the six months ended June 30, 2012 increased by $131.3 million compared to the comparable period in the prior year. This increase is due primarily to decreases in working capital requirements, higher depreciation expense resulting from capital expenditures, and an increase of $14.3 million in net income for the six months ended June 30, 2012 compared to the same period of 2011. The decrease in working capital requirements was primarily due to accounts receivables collections partially offset by increased inventory, accounts payable and accrued payroll balances as a result of increased business activity levels.

Cash used for investing activities for the six months ended June 30, 2012 increased by $7.6 million, compared to the six months ended June 30, 2011, primarily as a result of lower proceeds from the sale of assets and a small increase in capital expenditures.

Cash used for financing activities for the six months ended June 30, 2012 increased by $120.0 million primarily as a result of higher net loan repayments during the six months ended June 30, 2012 compared to the prior year as a result of improvements in working capital. Also contributing to the increase is a 70 percent increase in the per share common stock dividend coupled with higher open market share repurchases during the six months ended June 30, 2012 compared to the prior year.

Financial Condition and Liquidity

The Company's financial condition as of June 30, 2012 remains strong. We believe the liquidity provided by our existing cash and cash equivalents, our overall strong capitalization and cash expected to be generated from operations will provide sufficient capital to meet our requirements for at least the next twelve months. The Company currently has a $350 million revolving credit facility (the "Revolving Credit Agreement") that matures in August 2015. 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 $162.0 million at June 30, 2012 and approximately $18.1 million of the credit facility supports outstanding letters of credit relating to self-insurance programs or contract bids. Accordingly, a total of $169.9 million was available under our facility as of June 30, 2012. Additional information regarding our Revolving Credit Agreement is included in Note 9 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 2012 will be approximately $350 million, of which $204.2 million has been spent as of June 30, 2012. We expect these expenditures for the remainder of 2012 to be primarily directed towards several growth opportunities we have identified, as well as other capitalized improvements. The actual amount of 2012 expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules and can be modified based on market conditions and other factors.

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. During the six months ended June 30, 2012, the Company contributed $3.8 million to the pension plan. The Company expects to make additional cash contributions of approximately $0.6 million to this plan during the remainder of 2012 to meet its funding objective.

The Company's Board of Directors announced a stock buyback program on March 9, 1998 authorizing the repurchase of 26,578,125 shares. The Company repurchased 2,622,250 shares of common stock under the program during the six months ended June 30, 2012 and may repurchase additional outstanding common shares periodically based on market conditions and our capital allocation strategies considering restrictions under our credit facility. The stock buyback program does not have a predetermined expiration date.

On July 24, 2012, the Board of Directors approved a $0.08 per share cash dividend payable September 10, 2012 to stockholders of record at the close of business August 10, 2012. 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.

. . .