RPC - Q4 2022
January 25, 2023
Transcript
Operator (participant)
Good morning, and thank you for joining us for RPC, Inc.'s fourth quarter and year-end 2022 financial earnings conference call. Today's call will be hosted by Ben Palmer, President and CEO, and Mike Schmit, Chief Financial Officer. Also hosting is Jim Landers, Vice President of Corporate Services. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.
Jim Landers (VP of Corporate Services)
Thank you. Good morning. Before we begin our call today, I wanna remind you that in order to talk about our company, we're going to mention a few things that are not historical facts. Some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, along with our 2021 10-K and other public filings that outline those risks, all of which can be found on RPC's website at www.rpc.net. In today's earnings release and conference call, we'll be referring to EBITDA, which is a non-GAAP measure of operating performance. RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure.
We're also required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release today on our website provide a reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. Please review that disclosure if you're interested in seeing how it's calculated. If you've not received our press release for any reason, please visit our website at rpc.net for a copy. I will now turn the call over to our President and CEO, Ben Palmer.
Ben Palmer (President and CEO)
Thanks, Jim. Thank you for joining our call this morning. 2022 was an exceptional year. We finished the year with very strong results in the fourth quarter. I would like to start by thanking our employees for an outstanding 2022. Their hard work and dedication in overcoming many challenges made our success possible. We look forward to building on our achievements and expect continued success in 2023. RPC's fourth quarter financial results showed very little impact from weather-related or holiday downtime. Furthermore, our customers continued to work throughout the fourth quarter with no evidence of budget exhaustion. Although oil prices have recently moderated from their highs, they remain above levels sufficient to motivate our customers to drill and complete new wells. While pressure pumping is certainly a core business for RPC, we are much more than just a pure-play pressure pumper.
In fact, we are one of the very few companies that can provide nearly all the services required to complete oil or gas wells. This diversification represents a competitive advantage for RPC and adds value as a leading provider of completion services for our customers. Our CFO, Mike Schmit, will discuss this and other financial results in more detail, after which I will provide some closing comments.
Mike Schmit (CFO)
Thanks, Ben. I'll start with the fourth quarter 2022 sequential financial overview. Fourth quarter revenues increased by 4.9% to $482 million from $459.6 million in the prior quarter. Due to improved pricing in most of our service lines and higher equipment utilization, supported by a full quarter of operation for our most recently reactivated pressure pumping fleet. Cost of revenues during the fourth quarter decreased slightly to $308.6 million from $309.8 million in the prior quarter. As a percentage of revenues, cost of revenues improved to 64% from 67.4% in the prior quarter due to improved job mix and continued strong pricing for our services.
Selling general and administrative expenses were $38.2 million in both the fourth and third quarters of 2022. During the fourth quarter of 2022, RPC also recorded a $2.9 million defined benefit pension plan charge related to a lump sum settlement offered to plan participants. During Q1 2023, we expect to record a settlement charge of approximately $22.5 million associated with the final termination of this plan. In connection with the transfer of the plan liability to a third party, RPC expects to make an approximately $10 million cash contribution also in the first quarter of 2023. Operating profit during the fourth quarter increased by 21.9% to $112.3 million from $92.2 million in the prior quarter.
EBITDA increased by 19.8% to $135.5 million from $113 million in the prior quarter. Our Technical Services segment revenues increased by 5.1% to $458.1 million. This segment generated $110.5 million of operating profit compared to $89.5 million in the prior quarter. The improvements in operating results were driven by higher customer activity levels, improved pricing, and a larger active fleet of revenue-producing equipment. Support Services revenues were unchanged during the fourth quarter of 2022 compared to the prior quarter. Operating profit, though, was $6.7 million compared to $5.3 million in the prior quarter. I'll discuss our current quarter results compared to the same quarter in the prior year.
Revenues increased to $482 million from $268.3 million. Operating profit increased to $112.3 million from $20.1 million. EBITDA increased to $135.5 million from $39.4 million. These increases were driven by higher customer activity levels, improved pricing, resulting in our diluted earnings per share improving to $0.40 compared to $0.06 in the same quarter of the prior year. Our Technical Services segment revenues increased 80.1% to $458.1 million, and segment operating profit increased to $110.5 million from $20.5 million in the same quarter the prior year.
Our Support Services segment revenues increased 73.1% to $23.9 million, and segment operating profit increased to $6.7 million from an operating loss of $373,000 in the same quarter the prior year. I'll briefly discuss our capital expenditures and horizontal pressure pumping fleet count. Capital expenditures were $49.3 million in the fourth quarter. We currently estimate full year 2023 capital expenditures to be approximately $250 million-$300 million, including a new Tier 4 dual fuel fleet we plan to place into service during the second quarter, at which time we expect to take down an existing fleet for refurbishment. During the fourth quarter, we operated 10 highly utilized horizontal pressure pumping fleets. We expect to continue operating 10 horizontal fleets throughout 2023.
I will now turn it back over to Ben for some closing remarks.
Ben Palmer (President and CEO)
Thank you, Mike. Our confidence in the current industry outlook, along with our view of how that should translate to our financials, has encouraged us to make investments in our completion-oriented businesses. Previous upcycles have resulted in our industry adding significant capacity, inevitably outpacing demand. In contrast, our current focus is on long-term investments to maintain and selectively improve our current productive capacity. Also, to generate industry-leading returns on invested capital and leverage technology to form our services in an environmentally friendly manner. Through a combination of dividends and open market share repurchases, RPC has returned over $536 million to shareholders over the last decade. As evidence of our confidence in the strength of the current cycle and commitment to our shareholders, we announced this morning an increase in our regular quarterly cash dividend from $0.02- $0.04 per share.
Thank you for joining us this morning, and at this time, we're happy to address any questions you may have.
Operator (participant)
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then 1 on your telephone keypad. We'll pause just a moment to compile a Q&A roster. We'll take our first question from Stephen Gengaro at Stifel.
Stephen Gengaro (Managing Director)
Thank you, and good morning, everybody.
Ben Palmer (President and CEO)
Good day, Stephen.
Stephen Gengaro (Managing Director)
A few things from me, if you don't mind. I guess the first is when you look at the current pressure pumping market and what you see in the industry dynamics, you know, we think, and I think there's a lot of people out there who are sort of sensing a much different approach by operators as far as adding assets, et cetera. In the field, what do you see? Like, is your experience similar to that? Maybe talk a little bit about how you think about new build economics right now.
Ben Palmer (President and CEO)
Stephen, you talk about operators adding assets.
Stephen Gengaro (Managing Director)
Oh
Ben Palmer (President and CEO)
... I think you mean us, not our customers. Sorry.
Stephen Gengaro (Managing Director)
Yeah, I mean, sorry, I mean pressure pumpers in general. Yeah.
Ben Palmer (President and CEO)
Well, Steve, this is Ben. I think that, you know, there is investment that's taking place. I think more than whether there's investment taking place is ultimately what the overall capacity equation is gonna look like. We're working really hard to, or we're committed to a plan to, as I indicated in my comments, we're trying to more or less maintain our existing capacity, but we're upgrading that. We're making investments where we need to make sure that we can continue to provide a quality service, but we wanna utilize our existing equipment, right? And get as much out of it as we can. If it can generate, you know, adequate returns and provide a quality service. We don't want to take it out of service too quickly.
We have the long lead times for new equipment, so getting the timing right between when existing fleet will be ready to retire or lay down, right? That's tricky, and that's not something we're trying to necessarily say those are gonna happen on precisely the same date. We're really looking at, you know, we're committed to, you know, trying to generate free cash flow during this particular cycle. As I indicated, we've returned a lot of cash to shareholders over time. Our history shows that we've done that, and we continue to be committed to that. You know, in return, you asked about our returns and the way we think about that.
You know, the return profile or what one would reasonably expect 12 or 14 months ago versus where we are today, obviously it's completely different, right? We don't all of a sudden wake up and say, "Well, today or last month or last quarter, the return indications are unbelievable, so we should ramp our spend or our investment." You know, we're trying to we expect to remain disciplined.
We wanna go, you know, at an appropriate pace, have a longer-term plan. Try to execute against that plan and allow us to take advantage of the opportunities, be there to provide services to our customers, maintain our existing capacity, more or less, selectively grow, but maintain our capacity and focus on that continuing to return excess cash to shareholders. Hopefully that's responsive, and I'll... If anybody else has any other additional comments on that.
Mike Schmit (CFO)
Yeah. This is Mike. I'll just add one thing to think about too. When you order new equipment and pressure pumping, right now there's could be up to one year lead time. You're making a huge financial commitment, and betting on what the market's gonna be one year from now. That's the other kind of consideration as we're thinking about capital allocation.
Ben Palmer (President and CEO)
Right. Yeah.
Mike Schmit (CFO)
to CapEx.
Jim Landers (VP of Corporate Services)
Stephen, so one last thing. We have been in a period of underinvestment for a very long time, probably since 2015. At this time, the market for the drilling rigs and the completion demand is pretty much soaked up the available frac spreads. Back to Mike's comment, it is gonna take a while to catch up with that. People do seem to be being disciplined at this point. That's always subject to change in our industry. There's a level of discipline that we haven't seen before. You know, nobody's stood up in the canoe yet. We're, we believe that we've got a good runway here.
Stephen Gengaro (Managing Director)
Great. No, that's very helpful. Thank you. The other two quick ones. You mentioned the delivery of the new Tier 4 DGB, and then there were, I think you said you're gonna take an existing fleet out and refurbish it. Is that fair? Will that go back to work, or does it just depend on timing and demand? Has there been any trouble getting the necessary parts to refurb the asset?
Ben Palmer (President and CEO)
The refurb, yeah. I mean, we'll refurb it so that it can come back to work, right? We'll When the new brand-new fleet comes in around the same time, we'll take down one of our older fleets that we'll spend some money and upgrade it. Once it's upgraded, we expect, you know, there'll be other fleets that need to be either refurbed or otherwise dealt with. As we indicated, we're expecting still to have 10 horizontal fleets working, more or less 10 horizontal fleets working throughout 2023. With the gives and the takes of, you know, ones going down for refurb and that sort of thing. Supply chain still, we've been managing through that. You know, we have some good vendor relationships and it's always a challenge.
We think we're in pretty good shape with that. We won't know obviously until it's completed. We are concerned, but we'll stay on top of it and make sure that it gets turned around in the timeframe that we're planning on. We're working through that, and we're confident that our schedule and our plan will allow us, as I said, to continue to operate around 10 horizontal fleets throughout the year.
Stephen Gengaro (Managing Director)
Thank you. Just one other quick one. Jim, do you mind just running through the segment breakdown by the revenue by product line?
Jim Landers (VP of Corporate Services)
Absolutely. Thanks for the question, so I didn't have to do it in closing comment. For the fourth quarter, the percentages I'm about to give are percentages of each of our larger service lines as a percentage of total or consolidated RPC revenue. The largest service line, the largest revenue for the fourth quarter was pressure pumping at 56.9%. The second largest was downhole tools at 20.8%. Number three was coiled tubing at 8.4% of consolidated revenues. Our nitrogen service line was 2.3% of consolidated revenues. I'm sorry, I got out of order there. Rental tools, which is in our Support Services segment, was 3.6% of consolidated revenues. Let's see. I mentioned nitrogen.
snubbing was 1.6% of consolidated revenues for the fourth quarter.
Stephen Gengaro (Managing Director)
Great. Thanks for the details, gentlemen.
Ben Palmer (President and CEO)
Great.
Jim Landers (VP of Corporate Services)
Thank you, Stephen.
Stephen Gengaro (Managing Director)
Thanks.
Mike Schmit (CFO)
We'll go next to Don Crist at Johnson Rice.
Don Crist (Senior Research Analyst)
Morning, gentlemen.
Ben Palmer (President and CEO)
Good morning.
Jim Landers (VP of Corporate Services)
Hey, Don.
Don Crist (Senior Research Analyst)
You know, we've seen a little bit of moderation in the gas rig count. I just wondered if that is impacting pressure pumping at all. To take that a step further, you know, we've heard that there's a little bit of weakness in the gas plays, but the assets are finding home in the oil plays. Can you broadly just talk about your pressure pumping calendar, and kinda is there any shifting between the plays as of late?
Jim Landers (VP of Corporate Services)
Don, this is Jim. Your point is a good one. I would say not yet because there's still so much, you know, demand is still greater than supply. I would say if there's anything, regarding the natural gas market weakness, it's more an opportunity cost.
Don Crist (Senior Research Analyst)
than anything else. I mean, when you have no white space in the calendar, you know, something that might have happened in the future but isn't going to, doesn't impact near-term results.
Ben Palmer (President and CEO)
I'll add, this has been and, you know, a very large percentage of our activity is directed toward oil wells, and it's just been that way. We've not consciously made the shift. We've been talking about it, but, have not made a conscious shift to try to move assets or focus on primarily gas basins as of this.
Mike Schmit (CFO)
Yeah, I think right now we're about 80% oil or a little more.
Ben Palmer (President and CEO)
Yeah.
Don Crist (Senior Research Analyst)
Okay. I appreciate that color. One more from me. You know, you called out pricing in the fourth quarter as one of the reasons why you outperformed kind of consensus expectations. How broad-based was that? You know, was it more skewed to pressure pumping or coil? Can you just kind of run down, you know, how pricing has been, you know, across two or three of your segments?
Ben Palmer (President and CEO)
Relative to the talking about the fourth quarter results, I don't know that there was. I think the increases in pricing has been sort of a steady process over the last quarter or two. There wasn't, we had some nice wins, especially with the new fleet that we put into service in the fourth quarter. It went to work with a, you know, at a nice, it was a good piece of work for us. There was not a tremendous increase in the fourth quarter. I think the fourth quarter was driven as much by efficiency. The fact, as we indicated, there was very little, fourth quarter normal slowdown, number one.
Number two, though, it was just a good job mix that wasn't quite as hard on our equipment and we were able to be really efficient. There was minimal white space as there has been in earlier quarters. I think it was just a combination of a good job mix, good efficiency on those jobs that we were working on. Just overall good execution. The guys have done a tremendous job taking advantage of the opportunities that have been presented.
Don Crist (Senior Research Analyst)
Okay. One final one from me. Do you have any major contract rolls as we kind of move into the first quarter? I don't know if, you know, you had quarterly openers or whatnot on your contracts, but any significant pricing uplift from contract roll expected in the first quarter?
Ben Palmer (President and CEO)
By the nature of kind of our portfolio, no. We are continuing to work on pricing. There's no specific whatever event or contract rolling that would have a individually significant impact. We do see some additional, you know, improvement opportunity as we move forward.
Don Crist (Senior Research Analyst)
I appreciate all the color. I'll turn it back. Thank you.
Ben Palmer (President and CEO)
Thank you.
Mike Schmit (CFO)
Thanks, Don.
Operator (participant)
We'll go next to John Daniel at Daniel Energy Partners.
John Daniel (Founder and Managing Partner)
Hey, good morning, guys. Thank you for including me.
Ben Palmer (President and CEO)
Good morning.
Mike Schmit (CFO)
Yeah, John.
John Daniel (Founder and Managing Partner)
I have a quick question on the CapEx budget. I think you said $250 million-$300 million's the guide for this year. If my monkey math is correct, you're around $140 million-ish for 2022. I'm curious, within that CapEx budget, and aside from the 1 fleet that you have on order, is there any additional new equipment orders that are anticipated in that budget, or is that all maintenance?
Ben Palmer (President and CEO)
There's plenty of refurbishment in there, John.
John Daniel (Founder and Managing Partner)
Yeah.
Ben Palmer (President and CEO)
Yeah. Certainly maintenance CapEx. There's not any other significant new builds. Part of the, you know, part of the makeup for, you know, a lot of things that go into how much you spend in CapEx, not only the commitments you make, but the timing of when the equipment is ready and delivered and all that sort of thing. Some of the number that we're talking about in 2023 are some delays from 2022, right? I think.
John Daniel (Founder and Managing Partner)
Fair enough.
Ben Palmer (President and CEO)
our CapEx came in a little bit lower than we had quote-unquote, indicated earlier.
John Daniel (Founder and Managing Partner)
Okay.
Ben Palmer (President and CEO)
We're comfortable with the level of spend. No, there's not any other.
John Daniel (Founder and Managing Partner)
Yeah
Ben Palmer (President and CEO)
... certainly, capacity increases, that are there. That fleet we're taking here in the current quarter too is not a capacity increase. That's, you know, as we've talked about, we're staying around that 10 operating, fleet.
John Daniel (Founder and Managing Partner)
Fair enough. I know on the new fleet, it's a dual fuel Tier 4.
Ben Palmer (President and CEO)
Yeah.
John Daniel (Founder and Managing Partner)
I'm curious, when you look at the other parts of your business, 'cause you said it in your opening remarks, so you're more than just frack. Is there any efforts to pursue electrification, whether it be on wireline or coil, anything, any other segments?
Ben Palmer (President and CEO)
Not at any significant degree. That technology is something that we're certainly trying to watch and monitor. We do have an opportunity coming up to utilize an electric pump within the hydraulic fracturing service line.
John Daniel (Founder and Managing Partner)
Okay.
Ben Palmer (President and CEO)
it's more of a dip the toe in than put in all the chips at this point.
John Daniel (Founder and Managing Partner)
Fair enough. Last one for me, not to be the nervous Nelly, but we have had a few E&P contacts tell us that they've started to ask for, you know, relief in light of, you know, the, you know, gas price coming back, et cetera. I'm curious, they're not widespread indicators, by the way, but what's your message to your guys when that first request comes into RPC about granting relief? Do you tell your guys to tell the customer to pound sand? Just what's your message gonna be to them once those requests start coming in?
Mike Schmit (CFO)
Pound sand. That's a mixed metaphor.
Ben Palmer (President and CEO)
Well, our guys in the field don't need to be told what to do. They understand. There are other opportunities.
John Daniel (Founder and Managing Partner)
Right.
Ben Palmer (President and CEO)
and I think that too helped other customer opportunities. I think there's confidence at this point in time that we do have some alternative choices. Now, it's not, you know, that can take some time, and that can be disruptive. I think their response at this point in time would be, you know, we're always. You know, our customers are important to us, and there may be other ways to maybe give some relief, but it might be maybe you increase your activity or whatever, right?
John Daniel (Founder and Managing Partner)
Fair enough.
Ben Palmer (President and CEO)
We would look to try to find a way that we would not step backwards. We need to continue to move forward with respect to our, you know, net pricing that we're getting, pricing and utilization.
Mike Schmit (CFO)
I'll add our costs have gone up significantly as well, and continue to, you know, with all the capital investments and maintenance, and it's. We're not really getting any relief on those fronts either.
Ben Palmer (President and CEO)
Yeah.
Mike Schmit (CFO)
There's a lot of demand.
John Daniel (Founder and Managing Partner)
Yeah, no.
Mike Schmit (CFO)
Yeah, and demand is still greater than supply.
John Daniel (Founder and Managing Partner)
Right. Right.
Mike Schmit (CFO)
The market has to sort... It can sort this out.
Ben Palmer (President and CEO)
Yeah. Yeah.
John Daniel (Founder and Managing Partner)
Yeah, no, I agree. I'm just asking the question to see what you.
Ben Palmer (President and CEO)
Yeah, sure. Sure.
John Daniel (Founder and Managing Partner)
have to offer.
Ben Palmer (President and CEO)
You always ask good questions.
Mike Schmit (CFO)
Yeah, John.
John Daniel (Founder and Managing Partner)
All right, guys. Take care. Thanks all for including me.
Mike Schmit (CFO)
Thank you.
Ben Palmer (President and CEO)
Okay. See you soon. Thanks.
John Daniel (Founder and Managing Partner)
Bye.
Operator (participant)
We'll move next to Derek Podhaizer at Barclays.
Derek Podhaizer (VP in Equity Research)
Hey, good morning. I just wanted to get your thoughts on attrition. I mean, I don't think we've really seen attrition in an up cycle if we look over the past couple decades. You're obviously bringing in a new fleet. You're gonna take one off the sidelines and re-refurb. I think that's a form of attrition. Pumps staying on the sideline longer 'cause maintenance wings have extended out due to supply chains. Maybe beefing up your current fleet, going from 50,000 horsepower to maybe 60,000+. Just love your take on what attrition is today, all the different parts of it, because I think that's one thing that's being underestimated by the broader market, and why frack supply is gonna stay tight through 2023.
Ben Palmer (President and CEO)
Well, we obviously don't have direct visibility into our competitors. We can only speak to kind of what we see. Yes, I mean, the activity levels are very high. Or you know, a lot of the work can be, you know, very whatever, damaging, difficult on the equipment. As I indicated, the fourth quarter we had some nice work that wasn't quite as difficult as some previous quarters. That can vary some from quarter to quarter.
Our guys are doing great work trying to forecast out, you know, if this amount of activity with this type of work, you know, when might the appropriate time be to take a fleet either completely out of service or send it off for refurb and things like that. I think there is some belief too, from some of our key operating personnel that the attrition may be being underestimated. That maybe it's gonna be difficult. There is, as I indicated earlier, a lot of spending going on. There is a lot of new equipment orders amongst our peers. There's a lot of discussion about the fact that they too are not gonna, they're not striving for net additions to their fleet.
That's implying that they plan to take some of that equipment out of service. It, it certainly could happen, what you're saying. It could be that it's being underestimated. I think everybody or most everybody recognizes that it is real. I think supply will remain tight. I guess the question being how tight might it be? If the attrition ends up being even higher, yes. I mean, it'll be great for those of us that are still working.
Derek Podhaizer (VP in Equity Research)
Got it. That's helpful color. Just a question on maybe some of your private peers. Are you seeing any new entrants coming in, just given where economics are? Are you seeing some of your privates maybe leaving? I know there's been a few acquisitions. Just to spend on the private market because I also feel like there's this narrative around private pumpers coming into the market and overbuilding like we saw in past cycles, but would love to hear your view on this?
Ben Palmer (President and CEO)
We've heard some examples of some privates coming on, not in, into any large degree. What we tend to hear when we ask the question is that private equity is not coming in in a big way. That's great. That's-
Derek Podhaizer (VP in Equity Research)
Yeah
Ben Palmer (President and CEO)
kinda to my recollection has been the issue in the prior two or three strong cycles we've had is when private equity comes in big and you know, if they more or less stay on the sidelines or don't come in in a big way, hopefully we'll be able to try to keep supply and demand appropriately balanced.
Derek Podhaizer (VP in Equity Research)
Got it. Okay. That's helpful. Just one more for me, if I could. I know you're not going into the e-frac markets yet, but I just wanted to get your updated thoughts on that. Are you waiting for that technology to be de-risked? The other day, you know, the biggest pumper out there has talked about how there's obviously an adoption curve that everyone's trying to get up on. Would just love your take on what e-frac is. How are you looking at it? How have you been looking at the different examples of it? Your view on coming up the learning curve and maybe some of the challenges that some of your peers might face as they look to scale electric frac?
Ben Palmer (President and CEO)
We've heard, you know, examples of companies or situations where it's been a struggle. We watched it. We've studied it some. It's not a tremendous focus for us, but we do have an opportunity to take some a pump that we're gonna be able to, you know, partner with a vendor to be able to use that and do some testing for both them and for us. That'll help us along the learning curve and them as well. We still at this point. Obviously the new fleet that we have coming in early this year is dual fuel. I think the transition, just like other transitions of technology like this, will take a period of time.
There's gonna continue to be, I think, plenty of demand and strong demand for traditional diesel equipment, more so, you know, the DGB, and so we're moving in that direction. I foresee for the foreseeable future that, you know, the majority of our spending will be on the traditional equipment. I don't see a shift in the near term for us to go to e-frac, but we are experimenting with it. We do wanna learn about it. There may be some other applications on ancillary equipment that may benefit us. In terms of a full fleet for us, that's a little bit down the road, I think, at this point.
Jim Landers (VP of Corporate Services)
Yeah. Derek, since we don't have first-hand experience, what I'm about to say may be wrong, but based on everything we've heard, the economics don't yet work. Something else to think about.
Derek Podhaizer (VP in Equity Research)
Got it. One more, if I can just squeeze it in. Could you give us a refresh on how many Tier 4 DGBs you have now or dual fuels? Maybe the breakdown of those 10 fleets in the different categories.
Jim Landers (VP of Corporate Services)
Sure. Let's see. Always a moving target. Let's see. Our active horizontal fleet has five ESG-friendly fleets. That's Tier 4 DGB, Tier 2 DGB, plus five Tier 2 diesels. By the second quarter of 2024 we expect our ESG-friendly composition to be closer to 75%.
Ben Palmer (President and CEO)
We have two Tier 4 diesel. They're not DGB, but they're Tier 4, so it's kind of a combination. About half today.
Jim Landers (VP of Corporate Services)
Yeah. Thank you.
Ben Palmer (President and CEO)
of our horizontal fleets are very much ESG friendly. We expect that that'll move closer to 70% some, sometime in the next 18+ months.
Derek Podhaizer (VP in Equity Research)
Got it. Very helpful. Appreciate all the color. I'll turn it back.
Ben Palmer (President and CEO)
Sure. Thank you.
Jim Landers (VP of Corporate Services)
Thanks, Derek.
Operator (participant)
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. We'll pause just a moment. At this time, we have no further questions. I'll turn the conference back over to Jim for any closing remarks.
Jim Landers (VP of Corporate Services)
Thank you. We appreciate everybody who called in to listen today. We appreciate the questions and enjoyed the conversation. Hope everybody has a good day, and we will talk to you soon.
Operator (participant)
This concludes today's conference call. You may access the replay of today's conference on www.rpc.net within two hours following the completion of the call. Thank you for your participation. You may now disconnect.