Q3 2019 Earnings Call
Oh I come to the Liberty or services first quarter, two dozen <unk> earnings conference call.
All participants would be in listen only mode.
The systems. Please take note conference that's at least by pressing the Star Q4.
After today's presentation.
But you wanted to ask questions. Please note today's event is being recorded some local mr. Jamie.
Looking statements.
The company's views about future prospects revenues expenses or profit.
These measures symbol.
That could cause actual results to differ materially from also keeps it might be.
These statements reflect the combination of leaves me based on current conditions, the dark subject to surgeries and uncertainties that due to the Companys earnings release, another public filings.
Our comments today also include non-GAAP financial and operational measures.
These non-GAAP measures, including it'd be can be adjusted EIBTDA in pretax return on capital employed another substitute for GAAP measures may not be comparable to see measures about the company.
We continue some that tend to be T.D., eight and I'm just to be T.D. and the calculation on pretax return on capital employed as discussed on this call I presented in the Companys earnings release, which is available on its website.
I would I like to turn the conference over to lead but the C. O quits right. Please go ahead.
Good morning, everyone. Thank you for joining us pleased to discuss with you today, our third quarter 2019 results.
We're happy to have delivered another solid quarter of operational results in the face a macro headwinds that started the impact liberty's market midway through the quarter.
The year end slowdown is starting earlier this year.
Liberty fully diluted earnings per share in the third quarter of 15 cents were down compared to the 32 cents in the second quarter 2019.
Revenue in the to cool in the quarter decreased 5% to 515 million adjusted EBITDA decreased 24% to 70 million age as compared to the second quarter 2019.
Strong free cash flow generation for the quarter drove 107 million dollar increase in cash on hand to 140 million at end of Q3.
Available liquidity at quarter end was 344 million and we had a positive net cash position as our cash balance was greater than our long term debt by $34 million.
We were able to deliver this financial performance despite the slowdown of the completions market.
Oversupply of Frac fleets, both of which resulted in downward pricing pressure.
Renewed Executional excellence bar operations and supply chain teams plus close coordination with our customers on scheduling enables liberty liberty to navigate the challenging marketplace, while maintaining our ability to drive returns on capital.
Central to achieving long term success or through cycle superior returns on invested capital maintaining a strong balance sheet and prudently investing for the future.
For the 12 months ended September 30, 2019, we achieved pretax return on capital employed a 17% generating significant free cash flow.
Returned approximately $75 million to our shareholders.
As always the Liberty team continues to focus on driving technology innovations and high efficiency operations, which are a win for Liberty had a win for our customers.
This is a match the strong relationships that we have built with our customers helping them bring the most cost effective barrel of production to market.
One example of this is our new well watch service, which allows real time pressure sensing in offset wells to monitor impending frac hits.
Real time data monitoring combined with rig didn't pumps on offset wells helps reduce frac hits in the short term and provides the necessary data to develop optimal strategies for well spacing and frac sizing for fishing pad development and managing parent child well interactions.
Our results for the first nine months of 2019 reflect a strong demand for Liberty differential Frac services in the first nine months of 2019, we caught the same volume of saying that we did throughout the full year of 2018.
Total industry Frac stages in North America are projected to be up only marginally year over year, however efficiency gains across the industry have raised the number of frac stages stages completed by each fleet by 10% to 20%, which implies a 10% or so decrease.
And the required active frac fleets.
The slowing pace a frac activity in the second half from 29 team is leading to a further reduction of demand for frac fleets, resulting in pricing pressure on services.
We expect that the industry slowdown in Q4 completions, maybe more severe this year than it was last year as operator space capital constraints and manage completions to fixed capital expenditure budgets.
This what caused the gaps in the completion schedule and negatively affect overall fleet utilization.
Future activity projections in the industry are dependent on multiple factors, including commodity price.
The ability of capital and offtake capacity in each basin.
Based on visibility into our customers initial thoughts, but the activity pipeline for 2020, we believe demand for Liberty fleets will be strong in the start of the new budget year. However, we currently have no plans to expand our fleet count.
We are seeing reduction in the supply of staff frac fleets in the market and even announcements a permanent retirements older equipment. This is helpful.
There continues to be an oversupply of frac fleets in the market, which is holding down pricing, we would not expect pricing to improve until supply of actively stacked frac equipment better balances with demand.
Liberty is focused on E.S.G. issues from day one.
Governance and compensation practices at Liberty have always been focused on transparency and maximizing alignment.
Liberty is also a first mover in driving an environmentally and socially conscious approach to hydraulic fracturing.
We have partnered with our customers to advance U.S.G. solutions from the start as demonstrated by our market, leading low emission quiet fleets.
Every liberty new built fleet since 2013.
Has been either able to run on natural gas or is the latest generation tier four clean diesel engine with dramatically reduced emissions.
We are right constant dialogue with our customers about how to move the E.S.G. profile of Frac operations forward.
As such we're looking to upgrade some existing fleets as part of the enormous normal maintenance cycle in 2022 tier four de GB dual fuel engines.
These units will provide the latest in natural gas driven power technology available in the oilfield.
Being a leader in E.S.G. goes beyond their missions and Liberty is focused on leading the industry in all aspects. These include safe and efficient operations, Dustin noise mitigation traffic management and environmentally safe fluid systems to name just a few.
Partnerships that we have developed with the communities that we live and work in our unique and provide the necessary insight into how into how best to provide solutions just specific challenges that are operator partner space.
Our DNA drives investment in people technology and systems to grow our competitive advantage.
We believe that our premium service quality, coupled with basin in customer diversity provides the company the opportunity to continue generating strong returns on capital employed.
Liberty continues to focus on driving technology innovations in both fracture design and operational execution, which are a win for liberty and a win for our customers.
Our comprehensive analysis efforts on parent child, well relationships with our proprietary database and multivariate analysis techniques has expanded to include the well watch field data collection and monitoring efforts efforts mentioned earlier.
Liberty's financial results favorable long term outlook and strong balance sheet position us well in today's challenging environment.
Liberty is committed to compounding shareholder value by reinvesting cash flow at high rates of return and returning cash to shareholders as appropriate.
We're excited by the opportunities in front of us as the shale Revolution matures.
This brings to our industry and the country as a whole I'll now hand, the call over to Microstar, our CFO to discuss our financial results.
Good morning, everyone.
We're pleased with the performance of our team the suit quota drill more challenging times for the industry.
The Liberty team continues to execute at a unparalleled labeling the drives customers to one liberty is it Palmer.
This call. It 2019 revenue decreased 5% to 515 million from 542 million of the second quarter of 29 thing.
Net income after tax decreased 54 to seem to 19 billion lets say quarter compared to 41 million in the second quarter.
Fully diluted earnings per share decreased 47%, consisting sense, yet the signal that could be the city to since the second quarter of 29 thing.
Third quarter, adjusted EBITDA decreased 24% to 70 million from 92 million in the second quarter, an annualized adjusted EBITDA. This fleet was 12.1 million this quarter compared to 16.1 billion in the second quarter.
The major driver in the quarterly decline and even up to sleep was a three percentage point drop in gross margin.
Gross margin was driven by slow utilization of the second half the quota and pricing pressure due to an oversupply equivalent to the market.
General and administrative straight expense, so 25 million for the quarter of 5% of reviews and included noncash stock based compensation of 2.4 million.
Interest expense associated fees totaled 3.7 million for the quarter compared to 3.6 million in the right water.
Good for the income tax expense totaled 4 million compared to 7.1 late in the sea water.
We ended the quarter, where the cash balance of $140 million at a net cash position city 4 million inquiry and we had no borrowings drawn on the ideal facility and total liquidity, including the 204 million available credit facility was $344 million.
Liberty is there, which is focused company and at the end of the day sustaining cash flows from basement it will drive for to.
Sustaining cash flow to its leaders matrix, we used to make it through cycles sleep profitability. We find sustaining cash flows. This fleet is expected annualized adjusted EBITDA up to sleep makes our expected.
Well maintenance Capex. This late during the third quarter eight year to date annualized adjusted EBITDA up the sleep was $14.5 million as previously announced their expected annual maintenance capital for this year is approximately 3 million to sleep.
[noise] as we have discussed previously in order to seek the based long timber tens fresh Seattle is we will follow a prudent strategy of maintaining a strong balance sheet basic and compelling growth opportunities and returning capital to shareholders where appropriate.
In the third quarter, we paid a dividend to shareholders and distributions to unit holders or five cents per share for total dividends and distributions 5.6 million.
Our board of Directors announced on October 22nd 2019, a cash dividend the five cents per share of class a common stock we paid on December Twentyth 20, $19 a record as of December six Twain 19.
Distribution of five cents per unit has also been approved to holders of units and Liberty LLC, which we use the same Rick.
[noise] as we look forward, we have very positive about how liberty's position to continue its mission to drive best in class for too.
The company that is laser focused on efficiency and delivering cost effective solutions and services to our customers the singular focus and our application of technology to all aspects of their operations in passes to reduce cost and delivery in multiple areas such as unique equipment solutions to provide improved pumping efficiency and reduce the cost.
Repairs and maintenance significant operational fuel savings due to our ability to natural gas close customer coordination combined with advanced logistics management, the neighbors to more accurately forecast San requirements and ultimately logistics. This allows us to work with that honest to deliver the lowest cost of saying, so well site for our clients.
Liberty's innovation, how is our ability to deliver industry leading returns.
And with that I'll turn the call back to Chris before we open secured I [noise].
Well the market is currently oversupplied with Frac capacity positive trends are emerging.
Many of our competitors have idled significant capacity and announced permanent disposal of older Frac equipment.
Both of these trends are necessary for the frac market balance.
The biggest driver of the current oversupply of Frac capacity has been increased efficiency of active frac fleets.
Nobody has been a leader inefficiency lack sufficient fleets and crews are being driven from the marketplace.
The U.S. rig count has declined roughly 20% over the last year not surprisingly the rate of growth in U.S. oil production has also declined significantly.
This trend we may see U.S. oil production plateau in early 2020, which could help tighten oil markets and provide upward bias on oil prices.
Well timing is uncertain, we appear to be making progress towards a healthier U.S. oil and gas industry as supply of Frac fleets and oil are both facing significant downward pressure.
They said last quarter. The cure is two fold more disciplined investing and time.
Liberty was built from day, one not only to survive the tough times, but to take advantage of the inevitable market cycles.
During the top 2015, 2016 downturn Liberty significantly grew our market share took advantage of market dislocations to grow our capacity and deepened our customer and supplier relationships.
These actions play to our advantage during the subsequent recovery.
In short Marketsite cycles can present unique opportunities as well as challenges.
Now open it up for couponing.
We'll now begin the question answer session.
Brad.
That's from fund.
Your question.
Yeah.
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Yes.
John Daniel.
Please go ahead.
You guys a restaurant just wanted to dig into the tier four DGP comment you made earlier about.
And anymore.
Basically when engine conversion neat.
Quantify for us how many fleets might be outfitted with these engines.
And then secondly, we convert tier two fleets, it's your 40 GB or tier four to tier four DGP.
So John Theres tradeoffs in all of those so you get the short answer is it all depends on circumstances, I'd say will convert at least one fleet could could be could be one or two more than that.
It depends on market it depends on demand and then that actual with which you transition which depends on the circumstances, but oh very likely what will be converting two tier four DDB will be older tier two fleets.
Right.
Got it and then isn't possibly give some color on effective utilization of the fleets in Q3 in Q2.
I know the active was 23, but.
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Effective utilization.
You know I would say through Q2, Oh, you know it was it was quite solid theres always schedule changes in slip. So there's a you know there's an inevitable certain amount of white space. You know, we're not guys just want to take theoretical limits and then come lower numbers from there.
And I would say it was quite strong through most of Q3 as well and then starting does starting to struggle later in the quarter with full utilization.
Okay.
Got it I'll keep it the two and jump I guess [laughter].
Thanks.
The next question.
Okay.
Please go ahead.
[noise] [noise] that good morning.
Uh huh.
[laughter].
To your point on tighter in your opening remarks.
[laughter] issuance, either creating phantom capacity within the active frac fleets. So.
So looking forward how much room is there to run I.
I suppose it specifically in the Permian, where there seems to be the most still opportunity for surface deficiency, how much more of that cycle do you see out there.
No I would say, we're definitely coming into a period of diminishing returns you know the low hanging fruit frankly, the stuff people should have been doing years ago.
Most sit back is gone you know I think good growth in efficiency from here going forward is certainly at a significantly slower rate then its ban in the past few years, we've had a huge run up in that we pushed out a lot of the older less confident fleets that in itself with no operational changes.
Raises the average efficiency of Frac fleets.
So now you've got a leaner number of fleets running or higher quality, you've got customers that are almost across the board now more most focused on efficiency in through but I would say our our throughput in the Permian is Ken It's an outstanding in fact, it's probably the highest an E basin we have today.
So you know look we're always going to strive to get better I think you'll see liberty get a little better, but I don't think you'll see the huge increases in average Frac fleet efficiency. The next two years that you've seen the last two years.
Thank you and I think that makes a lot of sense.
And then just curious how much confidence you have in the strong demand comment in the release for for one Q2 0 is that in comparison to tier one Q1 9.
Or maybe this is this kind of on a relative.
Comment compared to what maybe a worse exit a four Q1 9, and just how should we think about operating leverage.
And the influence on EBITDA per fleet.
The next couple of quarters here.
You know where the comment of strong demand in Q1 2020 odd that's based on where we are today based on Q4, you know where you absolutely significant slowdown. The ended this year just as we did last year. We don't think that's a new normal we think will be meaningfully busier in.
In Q1 than we are in the current quarter.
But the marketplace is tough you know our goal is to keep our relationships our customer alive.
Josh strengthen yeah, we'd grow market share as we see opportunities for the right customers, we want to add to keep all the fleets busy in any of the softening market.
Yeah sure I think what we're seeing here is I think you're going to see utilization pick up all of the same way that it did last year.
You know kind of its been definitely a softer the types of different budget exhaustion that everybody's fighting over the capital constraints as well the private side. So that you know that's also causing a problem to Q4, so they need to see the same utilize I should pick up I think the other walcott. The mom is probably at what is the price a price of the mom and it's something that is sort of under negotiation and that's really.
Dependent on how much supplying some mafia, we're sort of like in market dynamics, a rollout through this kind of.
Pricing negotiation phase during Q school for Rubicon, So hopefully, we'll see just for the cost across the industry. We're not seeing it would seem to do is looseness at the moment about we shall see where that ends up but yet as far as activity that we will see a very similar dropping activity in Q4, two from Q4 would you from in Q4.
In Q3 like last year, maybe a little bit more and I think before you see a same pickup in activity Q1 next year, but it looks a bit from Q4 I'm. The only question. There as you know what's there relative to whats the relative pricing models for that would you coming into the any side.
Thank you for I'm wondering if I could it's just that it is there is there a scenario next year and what you see yourself stacking fleets.
Hi, Good I think it's unlikely show on we've not done that before so I'd say, it's unlikely we get our goal in soft markets in downturn is to grow market share builds our customer relationships and get better at what we do we don't control the macro pricing of the marketplace and we take.
Got full through cycle view of our earnings our return on capital X., We fall fall a meaningfully different downturn strategies in the marketplace as a whole and I wouldn't expect that could change here.
Very helpful. Thanks, a lot.
You bet Sean.
Next question it sounds like a gendron.
Please go ahead.
Hey, Thanks, Good morning, I, just want to follow up on your comments about capital allocation the downturn.
Buybacks now compete in terms of returns just given the visibility that you have in a free cash flow next year you outside of.
Perhaps the seasonality that we're going to expect over the coming years I'm in the back half.
Do buybacks makes sense I'm, just given that we're kind of in a retrenchment wait and see mode for ERP spending next year.
Yeah, I think you added in the right qualifier there at the end you don't want a valuation perspective valuation buybacks look a highly attractive right now.
We're in a bode right now where it's not unclear exactly how this cycle unfolds, so in the face of or in the face some significant uncertainty.
Usually better data.
On the cost side.
Okay that makes sense and you've been a pretty vocal consolidator in the past and you made comments recently about the availability of horsepower in the market now I'm just wondering.
We've heard from your peers about scrapping and disposing of equipment I would imagine a lot of horsepower has come to market. When you evaluate that that horsepower can you give us an idea of how much is viable either from a tier four perspective or dual fuel perspective.
And then also to getting the intensity that we're seeing across all the major shale basins.
Well the you know there and we've always said, we have a a significantly higher than the industry as a whole proportion of dual fuel.
Probably the highest.
Our Q4 percentage is pretty high as well so pretty much everything we look at is meaningfully lower on those two spectrums.
And so you've got to look at you know what's the what's the total value of the equipment going forward and that's a different profile for different assets assets, but you're right. There's a lot of equipment out there a we engage we look at most everything that potentially has appeal.
But it's yeah. He takes unique circumstances and big we're getting close to those are things that make sense, but yeah. It's not it's not single number is the whole package the whole how it fits in a future and what makes sense or what does it.
Okay. Thanks for taking my questions.
Thanks, Thanks, Mike.
Your next question.
Barclays. Please go ahead.
Good morning, Chris you're talking about your comments just a just a few minutes ago, but kind of managing through the cycles and kind of your approach to this.
Second year in a row now we're seeing kind of a big kind of change from SEC first have to second half in terms of spending from the MPS looks like we're going to see that again next year.
I was that sort of two years, there's really seen in Sydney, making a trendy or how does that change sort of your approach as you're thinking about the market in and how do you kind of smooth. This out is there any way to sort of smoothed out this kind of which seems to be kind of crazy spending pattern, which is which was you know the piece.
It's a it's a great question you know we have just to get different incentives is set for m. piece right, if you're going to spend a smaller amount of budget you're gonna be were rewarded on production growth. It's just logical to front load your spending a little bit.
And you're right that causes dislocations later in the year that the industry has not historically had or certainly not had to the degree we have today I think with time, you'll see some offsetting factors, there's still a large amount of activity. That's among the privates right. If I, if you're a private company.
I think if you see this is a pattern I do the opposite I'm Gonna Backload My activity 'cause equipments available then it's easier to get on schedules. So I think you'll see some offset there you've also got the majors that are not a giant part of spending right now, but they're growing rapidly they're going to become a larger per se.
The total development Capex.
And they don't have the same mentality they have a balance sheet and the size and scale that has led to flatter more constant activity levels. I think they also recognize the efficiency in safety benefits for wanting continuous operations I thought I would say I think everyone recognizes that but there is there.
As a suite of companies, it's sort of mid size or smaller publics that no. That's true that historically done that are struggling with it right now.
Some of that probably gets.
Yes.
Probably becomes too a little bit better with time, but I think there is a a basic challenges there, but you've got majors and private that I think you know after the industry as another year or two to adapt it if I think probably mitigates the magnitude of the dislocation we saw last year and that we're seeing this year.
Great. Thanks, it's the answer the you're no stranger to to the regulatory environment. That's for sure between out there in Colorado lot of talk of course lately about potential change administration or what could happen certain woman out there. So she wants to ban fracking and kind of looking at federal land can you just talked about.
Your exposure to two two customers on working on federal lands and maybe how do you think just could potentially play out over the next kind of 12 months.
Do you think things start moving around our operators kinda, even thinking about that yet or is it too premature.
Well I you know every every body considered certainly our customers consider what could happen what wild cards are out there and certainly that is one of them I would say actively consider oh, yeah. The places with meaningful Federal lands. You know was the powder River Basin, you don't the new Mexico part of the Delaware.
Fortunately certainly in the Delaware and in the vast majority of the shale basins, there dominantly on private land other federal lands, they're not trivial in scope, but they're not you know there's there's nowhere there a large part of activity except in the powder River basin, even the powder of course has tons of private in state land and then.
There's large long term plans. These federal unit. They can't created so certainly it would be a negative certainly it would be a sentiment problem and certainly planning would have to evolve around that but we saw a meaningful change on federal lands I think that takes some time to come in.
People will shift to their activity on to non federal land. It opens up a big you don't battle, but does it cause a you know collapsing industry activity soon after election, I think that's highly unlikely.
Got it will certainly caused dislocation, but you I guess, what you're saying you think it'll settle out I was just curious are you seeing any your your customers kind of already making.
Changes to their plans yet.
I think I don't know they probably no one is changing which locations are going to drill the day, but I would say many or considering if this happens you know how do we pivot I mean, you you get more federal permits now you have a buffer you'd have a plan that adopting dry.
I've got to have an ability to keep my capital expenditures in my rigs running in my other areas, but I think it would be very little that could that could not navigate that would be a negative. It was putting locations on long term hold and all that but I don't think it would be massive disruption to most people to tell me anyone's plant.
So the come up with the plan B. So all right. Thanks, Chris Pichette, Yeah, you bet.
Next question.
Okay.
Yeah.
Good morning, guys.
Tomorrow.
Just curious so it sounds like Threeq utilization was was kinda decent a little bit weaker at the end, but not that bad.
EBITDA for fleet came out at about 12 million. So GB for fleet, probably 16, 16 and a half it.
If you think about the pricing environment that you got right now for work starting in 2020 can you give a sense of where EBITDA per fleet might shakeout I imagine you know, it's going to be somewhat lower and maybe you got to rebound and utilization that that will taking a bit higher but if utilization was similar to threeq, you and and pricing kind of landed where where discussions are currently.
How much lower what EBITDA for fleet likely be.
Yeah, Chris I think you know it's this is something that will probably colleagues on as we get towards the beginning of next year as we get through these discussions I think this is still a lot of moving parts as far as pricing does I think you're right. We've seen it would've been it within a relatively negative price environment as we sort of move through this yet there's been a bit down.
I'm afraid from rising all the way through Q3, what you're seeing it what you're seeing in Q4 as you know as we have have a comes in a budget exhaustion now youre refilling. Some of you yet and utilization of Big you refilling some of the utilization with the folks that sort of is not particularly great pricing, but that's it I just effect.
As a fellow and use of doing some work with them. So good that pricing will rebound a little bit for you know maybe into Q into Q1, but we'll have to see there's a lot of moving parts of the moment is already ongoing discussions on the fly far away the majority of sleeves going on at the moment.
Okay, and then in terms of the 24th we your previous commentary around that was that you wanted to hold it off the market until pricing improved it seems like the odds of that taking place in especially pricing that would have been higher than the first half of 2019, Yeah. You know, it's hard to picture that in the foreseeable future are you.
Likely to put that fleet to work now in a in 2020.
You know congenital about 2020 in total, but yeah. I mean, if you look at the general market conditions. No you know the more likely than not and started last year. If you asked is four months ago will likely that it was gonna be starting in January I think we're currently the market is more likely advantages. It will start makes you were running 23.
As 23 star fleets and just leave it at that but we'll see as we go I mean, they could be as we have discussions with some key clients and some potential new clients. You know if we've got a mom for somebody who we've been wanting to with will for a long period of time and they need some expansion capacity, we can bring that's a market, but that's a long to improve.
The discussion would have declined.
Okay, and if I could just squeeze one more quick one and it's just it seems like the industry might might drop.
And based on companies that are important thus far up to 15% of leads maybe 10 to 15 in Fourq, you, which means they'll probably be a decent rebound Q1 is there a set of your customer base that you'd potentially like to upgrade by poaching work from incumbents that have at least go down are you in general.
Thank you had the often more customer base currently.
Oh, there's there's always there's always room for improvement you know it with the whole high shrinks, then that means theres market share to be taken so no. We're always thinking about things like that we're talking about things like that that's why.
And it's also a strategic worthy not what's the best today, but where do you want to be how do you want a position yourself through the whole cycle.
Bottom line in 2016 cycle, we're aggressively putting out fleets into what was then bad economics, but we were looking ahead, what was coming down the road got what today was no today, it's it's nowhere near what the bottom in 2016, where we got a clear view of where we are I'm not saying were there now, but it's it's always.
As a collection of things current pricing is one of those things, but there's other ones. There's other tradeoffs as well, but right now I think you will see liberty be a pretty cautious yeah. We don't have people aren't going to grow our fleet and you're not going to build new fleets were not going to expand meaningfully from where we are today.
In fact, correct Crystal ball we have.
Okay. Thank you.
Yeah, Chris Thanks.
Next question.
Sure.
Please go ahead.
Good morning, Chris morning, Michael Bowen Jody.
There are always got on top of leading edge completion trends in changes and well design.
Lay we started to here and these are not necessarily new but just hearing increasing chatter around more folks looking at using them or revisiting using them once again or hurt a little bit more about kind of model line frac jobs, whereby you reduce the number.
Connections associated with the iron on the Frac jobs, and then choose some folks revisiting using Simon Fracs and Chris I know, you're very familiar with with that one or are you guys in either of those items crop up more and then too.
Anything else notable on just well design or completion change that you guys are seeing.
Yes.
Good morning, George This is Ron Yeah, I'll take them online question, and then I'll, let Chris maybe throwing some thoughts about Simon Frac certainly the bottom line I'd is something we've been focused on for a little while now we started down that road earlier this year and and I think we see that as a as a good innovation going forward, we love to.
I see more up on our locations.
I think when you look at the arent m. cost or Frac fleet treating iron is no small part of that and there is also a significant HSC piece to that as well reducing number of connections and things like that are all things that we'd like to look at and certainly when you think about efficiency our ability to Uh huh.
To continue to find ways to spend more minutes pumping everyday.
We see this is an opportunity to improve there as well so yes, certainly expect to see from Liberty continued focus on deployment of model line in the field. We're still we're still working through exactly what that solutions going to look like for US. We've we've tried to a number of different scenarios, there, but I think we feel that that together with a.
With the system for interfacing with the Wellheads together with the wireline guys. This is going to be the right solution going forward.
Yes, and yes.
Yeah, some exciting stuff there also on Simon Refracs, a you're right we might look weve long history in that area and there is stuff going on today in fact, as we speak on that as well you know when you're developing pads and you and you and frac interaction or Frac wrote patterns or central that is definitely one of the tool.
No.
To impact Frac interactions weve, even done a very different kind of Simon frac that don't do we've talked about publicly and probably get confirmation with a customer before will elaborate more on that.
Yeah customers you know in this in the world today are definitely a very innovative over always bounce in ideas back and forth about what are what might be a next step forward technology, how do we more optimized the plumbing underground to develop the resources. We've got so it's funny area, but you're right.
George there's still a lot going on in that area and you I'm sure you'll hear more about that as time goes off.
Okay, great. Thanks, very much for that Golar running Chris and then maybe just one numbers question for me as you think about Capex in 2020. It seems given all the comments you guys have.
Provided that something closer to maintenance capex than we spent the last few years.
A reasonable way to think about it but there are still some growth initiatives or fleet upgrade initiative as you mentioned that the DDB gear for.
Engines that just.
No I wanted to get out over my skis here is $100 million and Capex for the 2020 timeframe a decent place holder to have in our models for now where should we be thinking about that differently.
George I would agree okay. We're talking about that as we said this year, we probably average around about 3 million to fleet maintenance Capex I'm always working on I'd is trying to drive that lower long term design, but we also do as you said you're investing in a listing for the future you know investing and whether its mom lines, all the quicken eggs or the DGP upgrade.
Right. So yes, it in that range of somewhere between 3 million to fleet maintenance Capex, and then 100 million, which we spend which when we announced this year, which is maintenance Capex was technology investments is probably a good ranges.
Baseline I'm, unless we see them out the change.
Great. Thanks for the car Michael and guys.
Thank you thanks.
Our next question.
Thanks.
Good.
James you might be a mute.
[laughter].
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Still we're still not here do you I don't know if you've dropped off or if you're on mute.
In France as he moves for the next question if you like and then chasing pullback in comedy.
The next question.
Yes.
Yeah.
Hey, good and thanks for taking accordingly.
Good to Oh assessment.
The stages quarter that you did in the third quarter, how does that compare with the second quarter.
[laughter].
[laughter] because we don't really you know as you know we not released stage numbers, just because I think we find it gets a little confusing out there in the world you know stage sizes and links difference you can go from an hour you know anything from a one out pump stage, two or four outcomes day. So.
Yeah, just just to say I would say you know <unk> general activity was what a flat to just like in probably just slightly lower as we see Q2 was a very very efficient border and as we guided to the into Q2 I think you know they slow down at the back end, we would just slightly lower on activity in Q3 than we would equal.
And now.
And then in terms of but that's a crew.
When we looking at the first quarter of next year isn't going to look.
The third quarter this year, you'd think do better or worse than that.
No I think I think probably you'll see activity levels, probably similar to Q3 Q1. You also you know the guy you've obviously got the with the slow its little hard from one to that yes, I'd say in general you. We had the slowdown in the back end of Q3, so yeah actually sort of as palms could be fairly similar Q1, Q3, I'd walk out there.
Just you know kind of weird on average pricing is.
Okay, and so how much pricing so far in the fourth quarter on what you know about in the fourth quarter is below the in third quarter levels.
Yes, so it's obviously probably be was pricing pressure as we see it because of the other supply frac fleets.
And a guy your Q4 is a tough once people to look at because we've got a budget exhaustion for the along to imply once you've got you know as we discussed at the Barclays Conference. You know we had some issues on a couple of clients, who just ran into a surprise on takeaway issues.
Which means we had to kind of likely to move a couple of fleets and at least one of them is starting back up in December . So so all the stuff, although the with the just filling in the four is kinda kind of it a different implies pricing flavor much lower than kind of like you you will fully.
Utilize fleets. So it's a is it did sort of like apples and pears as far as comparing those two quarters average pricing goes.
Thanks that's.
Thanks for car.
Next question.
Please go ahead.
Hey can can you hear me now.
Hey, guys change, we're giving you a whole again you can't take the tournaments around competition, but [laughter].
[laughter] [laughter], Oh, yes, why I had to dial back in I don't know what happened.
So I guess you know if we think about Fourq you can you maybe just help better frame Fourq, you said that sequentially it will be worse than the fourth quarter of last year.
But do you think it'll be twice as bad we think about a sequential decline just kind of help us understand from a topline perspective, what it means and then from a profitability like how bad do you think it could get.
Ah chases Michael Yeah, They got commies it ever paid remarks really was I think the whole industry tune down we will this yet to be slightly was Q4 in Q3, I think you're right I mean last Oh.
Oh water it could be similar for assuming your last time, we were down from from Q3 to Q4 that 15 points on the top line, you've got a little bit of a change there as we move to more sell saying, so I could be a little on and then on the EBITDA. It was down 40% just Q over Q and then rebounded in Q1 you know.
So that's.
Using that as die post is not a bank last.
Okay all right.
I guess, maybe if I just try to dial in a little bit on the EBITDA per fleet, we just kind of look at Threeq you.
The release kind of talked about the first half being pretty good things tapering off in the back half.
If you want to look at profitability your EBITDA up her fleet in the back half I Kinda do some math it looks like maybe it was about 8 million of annualized EBITDA is that the right number and is that kind of how we should be freyman things as we get into the fourth quarter.
Yes, it's really not somebody we had discussed I mean everything moves about I think that we've we've done prepared remarks before I think if we go back a year or so when we look at when we tried to kind of like a tool to below that you have 28 million the fleet that we did.
And at all at the high point.
It can vary quarter to quarter right I mean, it can want it can be totaled a mom that goes up or can you just be operational issues right. You can have a number of not room times, but everything goes right and everything goes wrong. So you know sort of injury, even on a quarterly basis is no honestly the way we look at results very much we really like looking on a longer.
Period of time than that.
So you are we done just alone website, we really don't we wouldn't discuss into quarter results.
Okay, all right understood and then I guess coming back to.
Questions around DG be fleets.
Yeah, Matt missed it I dropped off you talk about the cost that it would it is to convert you know a tier two engine to tier four DGP and then maybe the visibility do you have to put the one to two fleets back to work and maybe the paybacks.
Right. So you're really I mean, the of a DDB a tier four engine competes with Brett and I brand you sort of like known GTB engine is up and major uptick in price is probably got a team just a bit over 10% more than a standard engine.
So what happens is probably the normal maintenance cycle, you have a number of sleeves coming up to the 25000 hours that they've run on those engines and we bring we always bring those fleets in and look at them proactively now said engineers in relatively good shape and it's got a relatively low repo cost on it now that that particular pump may go back out as it get rebuild and go.
Back out as a t. it too.
You know if it's going to crack block and it's got a significant rebuild cost now you're talking about you know something there was maybe a 350 350000 rebuild doesn't have becomes a five you know just north of 500000 dollar rebuild on that engine side of it and then you are right into tier two tier four DB, so actually happen or a pump by pump basis I think the.
Difference with Liberty and a lot of companies is it to some degree add that the unique the fact that all their equipment is plug and play rise of everything everything works assigned is generally the same line up. So you know if we rebuild a specific pump that was tier two tier four DGD it could.
Roll into a to you for DG briefly just as easy as one that was getting rebuild is a tier two rolls back into a t. into place a weaker mix and match.
Okay and did you way.
All electric fleet versus converting to tier four DGD.
Oh, Yeah Chase. This is Ron we certainly have we done and certainly are headed down both roads I think as we've already said now we have a development initiative going on on the on the fleet side of things, but we've also had a significant focus on understanding the pros and cons of both of these scenarios and so we've been out on the road probably the last.
Four weeks now.
Helping helping you p. companies to understand exactly what the benefits of.
And he fleet versus a year for GGB fleet might be and what the tradeoffs are there.
I think there were some misconceptions out there around the emissions profile for those engines and I think we've been helping folks to understand that than we can deliver a very very compelling solution with tier four DGP that has a lower greenhouse gas emissions footprint than.
Then if we would have under standard operating conditions in the into places we work or they can offer fuel savings that are in line with or in many cases potentially even better than at a significantly lower capital cost upfront and so I think what we're going to find is that we're gonna have customers who.
Who maybe had.
I had thought that they only had one option in front of them now have to very viable options in front of onto your fourg GB or any fleets.
And so I think you'll you'll ultimately see both of those in Liberty's world rate of deployment, probably looks different for each of those technologies.
Three or four GGB, obviously coming first and fastest but.
But there is still a there is there's still work going on in our world on Inflexion and you know, there's a reasonable possibility that sometime down the road there will be an opportunity that is the right fit for that technology as well.
Okay perfect I appreciate the color sort of like over.
Thanks Jess.
Stephen Gengaro.
Thanks, Good morning, gentlemen.
The pardon.
You have covered a lot I I wanted to get your your views on this so clearly there's been a couple of announcements of a fleet being retired and.
One of your competitors I Didnt noted that their equipment out there was sort of serviceable, but the maintenance costs have become you know onerous and it was just basically hard to operate them profitably.
When you look at the industry fleet and you start thinking about your positioning there.
What are your expectations kind of for sweet attrition in house or the industry fleet Kinda bleed down over the next maybe 12 months, given what looks like kind of severe under investment right now.
Oh predictions are hard out, particularly about the future.
So.
You know it's you can look at them. If you look at just a straight math and straight logic, it actually looks pretty encouraging that a lot of fleets will leave the market in the next 12 to 24 months.
But it depends on market conditions right, Yeah, I'll kick I think you hit the point that if you've got a lousy fleet, but the market Super strong.
You know you did they put the band AIDS on and spend the money and keep our money or if you're yeah, you're you're going to lose the your leave a base thing. It's a lastly, you got going and you fight to keep a last man standing you know people won't do stop this maybe not economically rational but they've got other reasons.
Before I do think a softer market that we're in going into we actually think it could be a real positive for the marketplace because that that tends to get people causes some stress and it tends to get more more rational economic decisions. So you know I would say are.
Our guess is we'll see.
Relatively large amount of capacity out of the market 12 months from now permanently.
And a fair amount pushed out and you know there is that and then there's a there's an upgrade cycle. That's that's new capital and frankly, new technology and new system. So I think we're gonna see.
Well, a meaningful transformation of the frac marketplace and the players in the space I would suspect over the next 12 to 24 months, but that's a prediction so delta I didnt purposely bag. So I won't be is wrong as I could event.
Yeah, we're having enough time with the fourth quarter right just trying to figure out. The next 12 months the Justin just as a quick follow up on that.
You mentioned, you're kind of 3 million per year maintenance capex should that number be pretty sticky over the next year too.
They didn't fit it's hard to your maintenance Capex per fleet are you seeing that trend higher at all where do you think it remains around 3 million I mean, I know you referenced 2020, but as we go forward here. Good number remains right around 3 million for fleet.
Steven I think it probably to remains in that and that's it goes right I think you know as we.
Maybe you'll take out five attendance and.
As we move forward and you know some technology upgrades.
Yeah, bridal maintenance Capex budget, which had we give them. The same I think that's it goes about right. That's what we think is the long term cost.
Very good thank you gentlemen.
Thank you.
That's correct.
<unk>.
Good morning, guys.
I'd also say to good Chris as part of their just announce fleet rationalization one of your competitors reveal that will no longer have a presence in the Bakken.
Have you already started to see an opportunity arise from their withdrawal or or or would you expect to.
You know different players have different customer bases. So you know it's you know ink on the margin. It's a positive in the marketplace to see little capacity, leaving a basin. The lead a bucket is our regional basis. We've been there a long time, we know the players in the basin instead, good base and for US I'd say, we have a good very good.
Competitive position there so.
On the margin maybe asked us.
Slight positive, but not a we're not going to change our strategy or customer targeting or anything like that.
Right.
And it's in part because you are deep legacy recently I was curious.
And then Ron what percentage of your jobs in Threeq, you involved for economics, and how did that compared to Q and threeq of last year.
I see year over year. It remains relatively flat you know I think from our standpoint, we probably provide some level of engineering service for economics et cetera. So maybe 70, 580% of our customers and it varies in that world from maybe we're providing a second set of eyes on Oh.
On work that they have done internally and would like US to review two at the other extreme we are providing the complete engineering package and the design from the ground up for them.
And then just.
And this ruthlessly darwinian environment of the past several months.
Which of your technology offerings. If any has has conveyed the greatest competitive advantage when you're out there and actual hand to hand combat made by bade.
Which is consistently emerging as the real differentiator.
Well I think we probably take the a approach that any technology that ultimately led to an improvement in efficiency for us on location is the one that or are the ones that have played the biggest role and that's a that's a bundle of technologies for sure, but I think those are the ones. They continue to to assist in liberty proving our deferred.
Graduation relative to our peers.
I think we'll watch is that a lot of interested to recently rolled out thing, but this is more of a long term thing, but if you want to understand added develop the you know well spacing in frac size of the optimal interaction between Fracs, both the Liberty engineering efforts, there, which customers are doing themselves as well, but now they have a technology to measure in real time.
Time, how fractures approach other wells in what you might do to mitigate that there's a lot of interest that's that's got off to a strong start.
Helpful. Thanks for taking my questions.
Thank you Thomas.
The next question.
John .
Siemens.
Thank you for me backend.
John .
Just a few quick once you Ron you noted you're looking at the dual path of electric first year for can you say you guys have leased or bought any turbines, yet and if so how many and what type of turbine you would.
Yeah.
I can say, we have not least or bought any turbines yet John that's that's certainly a have a part of this that we are still working to understand is exactly how that piece of the world would play out for US right now we're focused on the technology specific to the pump and then ultimately the backside.
We're thinking in parallel about what the power supply is going to look like there obviously a lot of questions around that I'm you know from the work we've done in terms of understanding emissions profile, what the demand requirements are going to look like on a pad on a day by day basis, and and over a year of operations.
We've come to understand there are some important variables, we want to think about.
In terms of selecting a power supply and then of course, ensuring that doesn't ultimately affect our efficiency that we become known for so.
Lots of work going on there, but no no firm decisions in that space at this point in time, John one thing that really changes the relative trade offs on Frac fleet technology, If you could run off line power.
Thats going to be widely available the industry, but I think you're going to see places where we see seat.
[noise] large power electrification you can run off line power the advantages of electric Frac. These are very strong if they're running as they are today.
You know there.
As Ron said in many areas the weaker and some maybe they're a little better you know, it's not it's kind of a preference thing, but if you can <unk> areas. They get lying power I'll, let your frac fleets make a ton of sets and we're excited about that opportunity and idea. We think it some areas, we'll we'll be seeing that.
A big picture question few Chris we're all somewhat hopeful about majors Mega Kathy MPS plans to continue their growth initiatives and I think we're all hoping that that growth contributes to an eventual rebalancing of the market.
Just curious are you at all concerned that these same companies haven't yet figured out the completion efficiency gains.
Say the independents, thus we might be overstating somewhat there.
The impact of the growth plans, if that makes any sense as they get up the learning curve.
You know if it's it's different strengths and weaknesses you know there's enormous technology base in these companies, they're incredibly safe there may be so you know more judicious in their movements, but.
We were one of the majors right now loose very efficient and.
Way down that curve and then you know the others may be there that are more cautious approach to getting there. There's no reason they can't get won't get there. So.
But yeah. It is a different profile what is it different speed of changing the way things are done, but they're they're very strong companies with super high quality people. So I think.
Oh, you know years down the road I think they'll be they they will be a much larger percent of what's going on I think unconventional add down I think their performance will be awesome.
Okay last one.
Just a follow up on fleet attrition because no one is really.
Elected to put you on the spot so I'll try to I guess I'll be that guy, but when when we'll liberty see its first lets get permanently retire.
Good. Good question again, you know its integrase, though there you know you may see you know older. The our oldest lead to lower technologies B b, so upgrade it that.
Yes, they may not look at time like that they didn't like they were originally so if you want to you know you could call that retired or significantly rebuild.
Yeah. The majority of that leaves John any bill post the yes, it was like.
From the beginning of time with it sort of.
24 hours, a day 10000, PXI two mile Good who you know sort of horizontal laterals.
Majority of that I think it really been designed for that sort of list. So if you think about right you guys. The stuff was designed from 2011 on woods, yes, yeah. The we rolled back into that this couple of fleets that were on the so the into their speech where people are trying we're trying to lighten up pump equipment to try and make it not it not to not I loads. It got pivoted.
Right. So you know their short assured trial is you had the Allison transmissions et cetera. So I think you've got you know maybe a couple of things there that will have to get sort of like you know as they move forward, you're making a pretty significant over all the rest of them really you know, we we sort of move very early to a cat cat cat and he was really don't see that really changing you know.
Yeah, you upgrade to a tier four you know you might have you got right the radiant package.
But the raised the race to the plays really stays the same so we're a little different we're lucky here in the time that we entered the market. We ended at the right on for the fact that we haven't got a really major major changes a wide with hands. Okay fair enough. Thank you for your time.
Thank you don't it's John .
[noise] [noise] I want to sincerely. Thank the passionate wonderful folks on team Liberty. It make it happen every hour of every day I'm proud to be your partner so.
Safety is the top of the list for all of US every single day I also wish to thank our customers suppliers and investors who make it all possible. We look forward to talking with you in three months.
Welcome.
Thank you for attending today's presentation.
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