Q3 2020 Liberty Oilfield Services Inc Earnings Call
Good morning, and welcome to the Liberty Oilfield services third quarter 2020 earnings Conference call.
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After todays presentation, there will be an opportunity to ask questions. Please.
Please note this event is being recorded.
Some of our comments.
Today may include forward looking statements, reflecting the company's view about future prospects revenues expenses or profit.
These matters involves risks and uncertainties that could cause actual results to differ materially from our forward looking statements. These.
These statements reflect the company's beliefs based on the current conditions that are subject to risks and uncertainties that are detailed in the company's earnings release and other public filings.
Comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA adjusted EBITDA and pre tax return on capital employed are not a substitute for GAAP measures. It may not be compared to similar measures of other companies.
A reconciliation of net income to EBITDA and adjusted EBITDA in the calculation of pre tax return on capital employed as discussed on this call are presented in the company's earnings release, which is available on its website I would now like to turn the conference every to Liberty CEO, Chris Wright. Please go ahead.
Good morning, everyone.
In the midst of a global pandemic in an oil and gas industry downturn, our third quarter results demonstrated the residents of our business.
The Liberty family came together to work through an extraordinarily difficult time for the industry by applying our core principles to meet near term challenges working hand in hand with our customers.
Our customers have been is challenged by current conditions as we have been.
We are in this battle together.
It is with our personal lives relationships are strengthened or broken during trying times there.
Liberty is growing and strengthening our relationships with our customers and our Q3 results reflect that.
Completions activity. It's modestly ahead of the pace, we expected earlier this year at the outset of the downturn and we continue to grow market share percentage business with our top tier customers.
A third quarter also marked an entry into our first major gafisa, the haynesville shale with an existing customer.
The Haynesville is a world class gas resource geographically advantage being developed by Crewe strong operators. We are excited to plant our flag in the Haynesville.
Our third quarter adjusted EBITDA, excluding non cash items was $1 million.
10 million dollar improvement from the second quarter as operators restarted frac activity following an abrupt halt in the oily basins during the second quarter.
Cash and cash equivalents were 85 million at the end of the third quarter and total liquidity, including availability under our credit facility was 154 million.
As of the September 30 borrowing base.
Because of the severity of this downturn I want to remind investors of how incredibly hard the team has worked to navigate all the challenges while keeping our people safe and our customers served in the top tier fashion that they are accustomed to.
I'm pleased with our team's solid execution that is translated into the significant improvement in our Q3 results, albeit with much room for further improvement in the coming quarters all.
All these efforts in decisions have been critical for Liberty's future not.
Not all of them have been easy.
Michael will share our full financial results shortly.
Despite near term macro volatility, we never take our eyes off the long term goal of building a competitively advantaged leader in North American Frac.
Our strategic goals have always been centered on building a business for longevity and returns through cycles, which requires a strong balance sheet and solid liquidity.
We are pleased with the positive reception that the one steam once deemed deal has received from our partners customers suppliers and investors.
We are excited by the conversations and integration preparation work, we've done so far with our colleagues at once Jim let.
Let me briefly discuss one stem.
Bringing these two businesses together has energized our team.
Our integration work is still in its early stages, we are immersed in discussions on people technology assets strategy and our future Technology Alliance framework. This is a huge effort, which huge opportunities things are progressing quite well.
We're pleased with how complimentary our engineering databases and innovative technology solutions are for completions designs and we're excited by the future opportunity to deploying even better service offering.
Suffice it to say that there are simply tremendous opportunities for liberty to supercharge, our technology platform.
We will roll out more details on specific initiatives in the near future.
Let me say again.
Technology was the major driver behind this transaction.
We're also excited by the pump down perforating wireline business and the sand mines.
Simply too early to complement to comment on any more specifics at this point.
We expect to close the transaction towards the end of the fourth quarter.
We have already received anti trust clearance.
Rock activity rebound has continued at a modest pace.
Likely supplemented that liberty by gains in market share.
We exited the third quarter at a much higher level of activity than the quarter began.
We see activity now leveling off until the seasonal decline towards the end of Q4, which we expect to be more modest this year.
For the fourth quarter, we are now anticipating average active frac fleets, excluding the ones we have.
Acquisition of once damn well increased by greater than 20% from the third quarter.
I must recognize again give thanks for the great sacrifices made by all of those and Liberty family.
I'm pleased to share that we no longer have any employees on furlough.
While we are while we are on the road to recovery it will take time.
Oil prices are bouncing around $40, an improvement from the spring, but still too low for a healthy industry.
Natural gas prices are a somewhat better place today than oil prices.
The us onshore rig count bottomed about three months after the active spread count bottomed and has also been modestly improving with six consecutive weeks of growth.
Current industry activity levels likely around a 130 active frac fleets are well below the level of activity to hold us oil and gas production flat.
Hence we expect to see further increases in activity levels next year.
Liberty is responding to the reality that we have today and building our competitive advantages for however, the future unfolds.
Customer relationships are central to this.
Last quarter, we discussed at our engineering prowess in completion designs, we're capitalizing more conversations with customers.
Crisis catalyzes change those.
Those discussions have accelerated even further custom.
Customers are looking to liberty for new ideas in greater innovation to lower the cost of producing a barrel of oil.
Yes. She is also a growing part of our customer dialogues. We are working hard to release, our first SG report for the end of the year.
We are anxious to bring a fresh candid perspective to this growing issue in our industry and our times.
These are busy and exciting days for the Liberty family.
I will now turn the call over to Michael.
Good morning, everyone.
It has been a challenging six months for our industry and then the second quarter, we transition the business to align our cost structure with a dedicated customers projected activity levels and our financial results reflect these changes.
During the third quarter, we were pleased to see month to month improvement in the frac activity of trough levels in the middle of the second quarter.
These partnerships for that well capitalized dedicated customers allowed us to achieve results slightly ahead of that project and pace during the period.
In the fourth quarter, we are now expecting greater than 20% sequential growth in average active sleeves, which is the top the enbrel higher than our prior guidance of 10 to 12 fleets.
For the third quarter, 2020 revenue increased 67% to $147 million from $88 million in the second quarter.
Reflecting a steady return of activity as the commodity prices backdrop stabilized, albeit at low levels and net loss after tax totaled $49 million in the quarter, improving from a $66 million or loss in the second quarter fully diluted net loss per share was 41 cents in the third quarter ahead of the fully diluted net loss per share of 55.
Reported in the second quarter.
Severance and related costs were $1 million during the quarter and fleet startup costs included in the cost of sales was $6 million for the quarter.
Third quarter, adjusted EBITDA improved to a loss of $3 million in the third quarter from a cyclical lows the team zig.
Third quarter adjusted EBITDA was a positive $1 million after excluding non cash items of $4 million.
Results were driven by modest receded in Frac activity. This quarter following the second quarter production shut ins and could tell would've completions by operators and the oil basins.
General and administrative expense totaled $19 million, including $1.5 million of onetime transaction costs related to the ones to make acquisition. This quarter, a modest 4% increase in the second quarter is that cost saving measures taken early in the second quarter continued to aid over.
Our results.
This modest increase in general and administrative expenses was primary due primarily due to the timing sit in corporate cost in the third quarter as well as higher activity driving an increase in personnel cost as employees or 10 from sales.
We anticipate a modest uptick in general administrative expenses during the fourth quarter of a full quarter of knows Siloed employees.
Interest expense and associated fees totaled $3.6 million and we recorded an income tax benefit of $2 million for the quarter.
We ended the quarter with strong liquidity position of $154 million.
Including a cash balance of $85 million and no borrowings drawn on our ABL facility.
Capital expenditures were $12 million for the quarter and $58 million for the year and we continue to expect capital expenditures in 2020 to begin that $70 million to $90 million range.
Fourth quarter capital expenditures are expected primarily include maintenance Capex. Some increased working fleets investment in next generation fleet and other items.
The exceptional circumstances of this historic downturn in oil and gas have been bittersweet.
We acted swiftly when circumstances were highly volatile reducing staff conserving cash managing liquidity and maintaining a strong balance sheet.
Core principles allowed us to navigate a very challenging market.
Equally importantly, it also allowed us to take advantage of opportunities they will make us stronger as the cycle improves the acquisition of ones. Tim is a prime example of executing for the future we.
We believe one Sim will serve as a catalyst would bounce at goals and generating superior returns as we have in years past.
As Chris discussed, we expect to close our acquisition of somebody's as freight business late in the fourth quarter and our integration efforts remain on track with.
Long been focused on investing in the future for the sustained focus on technology innovation, but this deal. We believe we can deliver even greater value to our shareholders through a strong investable platform.
And with that I will now turn the call back to Chris before we open the queue and I.
While the timing of full recovery in global oil demand remains uncertain. The last several months have shown a dramatic rebound from the lows in April and May.
However, a resurgence in koby cases, now threatens the future pace of recovery in oil demand.
Against this backdrop, there has been a concerted effort across the industry to cut costs and drive efficiency improvements as part of that effort. We've seen several significant consolidations announced among MP operators, including Chevron noble Conoco Concho.
Devon, WPS and pioneer partially in the oily basins and we expect more to come.
These trends will likely persist into 2021 across the oil and gas industry.
We expect that best in class operators and service companies of larger scale will emerge on the other side of the downturn.
A full fledged recovery or return to normal depends on a rebound in global economic activity.
This will take time.
The World Health organization officials expected doubling of the global poverty rate.
Tragic and dramatic reversal from the plummeting of world poverty over the previous decades.
One of the greatest drivers of demand growth for oil is people's lives getting better around the world whether that is rising at a poverty.
Entering the middle class or moving up to a more affluent middle class white.
All of these improvements demand more oil and gas.
Simply tremendous economic progress of the last century has been abruptly interrupted.
We long to see this trend reverse again, both for what it means to our industry and more importantly for what it means for the well being of the world people.
Thank you for joining us today we.
We look forward to fielding any questions that you may have.
And we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if.
If you are using a speakerphone please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then too.
And our first question today will come from Blake Undrawn with Wolfe Research. Please go ahead.
Hey, Thanks, Good morning, guys I appreciate the commentary there about the oil and gas impact globally.
I know, it's still early days, you're still going through your review with the one some technology and equipment.
It's pretty easy to see what Liberty can do with scale in terms of driving efficiency and throughput and that definitely follows through to the EBITDA line in terms of free cash conversion. It would seem you have an opportunity to cannibalize. Some equipment. So my question is as you look at the equipment now and maybe it varies a little bit by basin.
Does the does the equipment on the one side match up well with Liberty is equipment and what do you think the extent of this cannibalization savings on maintenance Capex could be both next year and kind of moving forward.
Thanks, Blake and I will take a little bit of that it's Michael yes.
Yes, you could have matches up very well really they said is running very similar sort of drive trying to what we have.
One of the key decision points that I think Ron and the team. We're looking at is as far as when we looking at control systems. He is one of the things we have to bring we've sustained cries across the systems and the equipment itself is in great shape.
And we will have I think about 500 Green tag pumps will have a lot of equipment that is in the.
It's up running water, we will have a lot of equipment significant amount that will be available for reducing.
Capitalized maintenance and cost going forward still in the stages of looking at that as you can imagine there is a lot of equipment to look at but we announced I think thats, probably going to be somewhere in the range of $50 million to $100 million reduction in spend over the next three years I would guess that is probably a little bit of a bell curve.
A little bit slower in 2021.
Sort of and then a smaller amount.
And the CG, probably the highest amount of savings comes to the back into 2021 and through sort of 2022.
Understood and what peaked our interest obviously was the haynesville entry there with an existing customer one Stan.
Our view is pretty.
Yes pretty impactful in the Haynesville region, we just don't hear a lot about the nature of the work with respect to maybe packed configuration and what the wells are actually like just because its fragmented from an ERP standpoint, and also you have some private frac companies that are operating there as opposed to large public ones like yourself I'm wondering if you can maybe characterize the nature of the work in the Hain.
So.
With respect to maybe the efficiency and throughput upside maybe comparing a haynesville pad to a Permian pad would would help us illustrated we understand the opportunity there.
Yes. So this is Chris so the haynesville deep and highly over pressured which contributes to that you have a huge size of the resource, but it means it's a high pressure basin. So we speak pumping above 10000, PXI. So its high pressure the reservoir is big so.
Pounds per foot or Frac intensity is high in the Haynesville.
And then are you ours in recoveries are highly dependent upon frac intensity. So it's significant size pads in that each well I would say on average frac intensity higher than in the Permian.
And it's high pressure, so it's more like Delaware and Midland Basin.
But yeah. There is a number you hear last there is a number of sizable private operators, there as well as the publics.
But boy the resource base and the outlook for it going forward is is tremendous we've been looking at Haynesville for a while.
We like we like the outlook, there and I would say super proud of our team do arrive in a in a new basin without a base there and to perform very strongly right out of the gate. So again the customer we arrived with there we will we will be very busy with next year and as you said, yes once Dan.
It has a significant presence there and it's been doing some great work and they have a facility.
So yeah, I see I see Haynesville has as a significant basin force going on for a long long time.
Good deal appreciated the color I will turn it back.
Thanks Blake.
And our next question will come from Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning, everybody.
Warranted.
So I guess I want to dig in a little bit on kind of Threeq you.
In the sequential revenue improvement lagged youre.
The increase in your average fleet count So could you maybe talk to how much of that was utilization versus kind of the mix.
You know there is theres two big factors number one our percent of self sourced proppant pumped in Q3 was sort of inordinately high so that in itself.
For the same amount of Frac activity revenues are lower.
The other reason you'd have work in Q2 at that at the beginning of Q2, you've got a lot of work going on that was a continuation of work from Q1. So we to it's a better pricing environment and all fleets are running on all cylinders.
Currently operating on day, one of the quarter, where here you've got launching launching of new fleets working kinks out getting things back up again and of course, you've got you've likely got.
You've got a lower average pricing in Q3 than you do in Q2, because in Q2 were at mostly at the beginning of Q2 as you're going into shutdown.
Okay, perfect and then if we can kind of carrying this question in the queue for.
Given that backdrop, obviously, you've guided for Fourq, you average fleet count up more than 20% how should we think about the moving pieces between mix and utilization.
As we kind of go into Fourq relative to Threeq.
You know when we go into for Q with with that with the strong activity level. So that fleets are running that feature one is high throughput going into Q1, So yes you.
You'll you'll you'll likely you will see a you'll see a more positive revenue per fleet likely in that day.
Okay and last one Rick real quick.
And Frac pricing are.
Are you still seeing pressure out there today on on the pricing side or is that actually is on the bottom.
Yes, I would say we're at a bottom, but my first reaction you see frac pricing is terrible.
Just an industry right now where there is a lot of excess capacity there. It's almost a necessary thing. It's what is what is pushing capacity out of the marketplace. So pricing is very tough right now, but yes, it's not going down. It's just yes, it's at a very low bottom.
Perfect Alright ill turn it back over thanks, Chris.
And our next question will come from Marc Bianchi with Cowen. Please go ahead.
Hey, thanks.
Hi, I'm curious on the on the kind of activity progressions here I mean, I know you guys have guided to the over 20% here for the fourth quarter.
And kind of made the comments about what sort of needed from a market perspective to sort of hold hold production flat but.
My sense is most of those sort of maintenance expectations were kind of based on $35 oil and commodity prices drifting lower here. So I'm just kind of curious how do you see that commodity price weakness playing into.
Sort of the broader market activity as we head into 21 and.
How does that affect your business and what you sort of put forth here for fourth quarter.
Yes, I would say commodity prices drifting lower definitely will impact activity you know if we looked at this three or four months ago.
I would say consensus there is a broad sense was you EQT production would hold flat at the December exit rate I think given the tone and obviously the fear of soft oil prices that we're seeing some of that.
It's likely later next year and maybe not even next year that we get to activity levels to flatten us production.
But but still from where we are today I'd say thats I still expect we will see higher activity levels on average next year than we see today, how much higher I think dependent on oil prices well prices are in mid Fortys. That's one scenario if oil prices are in high thirtys or around where they are today, we're sitting there.
I think you'll see increased activity, but at significantly significantly smaller increase than we where we stand today.
Okay, and then one just in terms of the.
The kind of the margin leverage here in the third quarter, you know I know there was some restoration of furloughed workers.
That that may have weighed on on sort of your margin leverage if I kind of look at the EBITDA improved 10 million Bucks.
Which kind of works out to a mid teens and hair, 10% to 15% incremental.
What should we be thinking in terms of your margin leverage your operations operating leverage in the fourth quarter just in light of the sort of 20 plus percent activity increase.
Yeah, it should be a little stronger than in the fourth quarter them that we came into the quarter as were relatively flat.
Yes, I agree is being brought back from some of that is going to be pulled back from sales. Obviously, we're also dealing with the ones.
Acquisition, and probably got to find that we're going to run a little heavy on some of the costs of the transaction costs in the queue in into Q4 as we got.
So Michael just to follow up on that if we think about like your apps and all of these unusual things what would be a normal incremental for the business and then maybe we can think about what to deduct from that given the points you just mentioned.
Yeah, I think we go into the edges, it's just too much of a moving target at the moment.
It doesn't have as we were coming out of this we still really coming off. This this is a very very unnatural dror. So to talk about normal incrementals in the modeling is really probably.
It was pretty close more confusion than anything else.
Alright, thanks for that I'll turn it back.
And our next question will come from David Anderson with Barclays. Please go ahead.
Hey, Thank you so Chris I want to ask you a bit more about the campaign consolidation are you talking about on your in your in your prepared remarks. It seems to me it's a bit of another reason for investors I guess the hit on the office space on the surface. It seems that one plus one equal something less than two when it comes to put into a couple of these programs together what's.
To counter this what's the art can you just kind of talk about how you think about this.
Does it kind of ultimately become sort of a frac off between your competitors just sort of maybe talk about how you see those dynamics playing out because there's been so many of them and I guess the next 12 months, we'll find out how that all shakes out.
Yes of course, they'll they'll all be different I think there is there is there is a negative and a plus and the negative I think I think you hit you're going to get to your going to combine two companies.
Lower their cost their capex, one plus one I agree in general will be locked into you know this is a shrink capex grow efficiency play for sure and Thats overall.
A negative for the left that space and so we you know that's our world that we've got to live with that the flip side to that is we're going to have bigger stronger MP companies that are of scale and and the partnership.
Or mix, there is likely going to be with bigger stronger technology heavy service companies. So it also.
That kind of a world I think it competitively advantage is a business like liberty.
And I think just to follow on from that I think in the long Tim well. It does it makes the EU ace.
Oil and gas sector more competitive at a lower price and so the whole drive more developments in the lower 48 and Canada.
From larger companies, who came they've got an economy of scale and got sort of access to capital to survive and sort of you know this and what I think is a long of a lower for longer oil price. So therefore should actually advantages over the logs and even though you're right. We may have some hiccups over the next six months.
Right, Yes, I know that seems pretty clear the does their career opportunities.
For you as well.
Separate question also kind of a bigger picture question.
I think we can safely say that liberty manages more of the supply chain to mean sand chemicals water than any of your competitors. It's something you feel is an advantage in winning work.
Taking all that into account I'm, just wondering where do you see the potential for a potential step change in efficiencies here one on an upward to kind of complain to us at 70% of the cost of profit as the trucking alone I don't know if that's the same thing for all of your operations, but it just sort of a generally speaking I am wondering if supply chain efficiency is a problem that you're trying to solve.
Also be curious if you have a digital overlay over these operations, whether its internal or third party or just kind of where you stand on I was kind of software as helping that helping those programs out.
Yes. This is Ron I.
I think we see that ultimately is a hybrid model of course, there are opportunities where a piece of software is going to make a better decision than a than a person and I think you will you see that opportunity, particularly in the last mile piece of things so to your point around trucking being 70% of the cost of sand. That's that's certainly true in some places that that's not true.
Every place, we do business, but what if any of you were talking about a particular basin, maybe the Permian for example that could absolutely be the case and so.
Yes, you know as you think about that last mile piece, the opportunity to lower trucking cost comes in effective utilization of those trucking assets, enabling those those folks who own those those trucks to make more turns during the time. They are allowed to be driving and so that requires an efficiency or an optimization exercise.
And and a computer is very very good that artificial intelligence will will be able to move the needle to some degree there, but but I think we feel at Liberty. There's there's a limit to what a piece of software can do in terms of replacing a human we we place a lot of value on the relationship we have with our suppliers and what that means when when times get challenging.
I think theres no replacement for being able to pick up the call or pick up the phone have a conversation with somebody you know and have a relationship with to work through a challenging supply issue.
Whatever that might look like and so I think we see opportunity there to improve efficiency, but I think it's going to be a mix of both software and and the ongoing relationships, we pride ourselves on with our customers and suppliers at lunch is really related to that I'm curious if you're in a position now where you can say hey, we.
He can provide this X percent this last mile X percent more cheap or cheaper than our competitors is that a selling point is that like a 10 20, 30% number I'm just kind of curious how you think about that in terms of a competitive advantage.
Yes, I don't know that I could quantify exactly what that is but it meaningful there's there's no question I think.
We are confident we can convey to our customers a an advantaged supply chain that looks differential to everybody else's and and I think that carries a that carries a huge amount of weight and I think thats. The reason you've seen us generally be on the lower end in terms of self source profit profit I think our customers have confidence in our ability to deliver to them up.
Competitive supply chain that.
That that is a function of the scale. We have that is a function of the relationships we have that.
That is a is a function of the you know the ability and focus we have on on on that and its importance in our world.
That's one of the things that we're getting.
One of the things, we really love that wants to.
Deal is we are getting some software the lives have been doing on software related around that that will be able to sit on leverage across the new scale of the company in conjunction with sort of guidance as Ron would say moving saying efficiently and these are being at a stage those trucks using artificial in artificial intelligence and GFS.
One thing to actually manage the time between loads of increase that efficiency and I think as a key thing that a lot of these thing other than on that over the last few years, we had a tight that investment and then commercializing and pushing that so that customers really help them. Our logic customers. We are going to be a largest seat of the scale of.
Demand and help them lower their cost.
In addition to the efficiency.
Yeah.
And cost another advantage we've had that we are working hard to grow is reliability. There's disruption. The mine goes down a line goes down markets are tight.
A weather is bad Weve, our competitors have had much more downtime when systems, our stress what liberties prided itself on the robustness of our ability to keep operations running reliably through all conditions and that is I would say recognized and appreciated by our customers and we expect to continue.
You to enhance that robustness of our supply chain as well.
Thank you very much gentlemen.
And our next question will come from Sean Meakim with Jpmorgan. Please go ahead.
Thanks, Good morning.
Alright.
So the follow on to the decision to enter the Haynesville, Chris you've avoided dry gas basins to date.
But the moves not surprise me you're going to take on some cases lead in their existing footprint you.
You always try to invest countercyclically.
Could we just talk about your timing of entering dry gas markets and what that signals in terms of your outlook for gas related activity.
You bet you don't look that the shale Revolution began in the gas base and really the technical innovations in the late Ninetys nobody really heard about it maybe till the mid two thousands.
So it began there and gas molecules smaller more able to move it through very small pores at Roxanne Microfracture. So originally we weren't even sure it would go to oil or how big it would be in the oil basins. Thank god that turned out to be not a limitation, but the flip side of that is so good.
Yes that the U.S. production ramped up massively fast and then the improvement learnings were very quick there. So we started liberty.
Maybe low natural gas as a fuel and bullish on its long term future. We saw that the rig count and the fleet count in the major gas basins with likely decline rapidly and it has over the last eight years and then the oil basins. It would grow and the other big reason for that besides just the technical differences are producing gas versus oil.
It's pretty easy to load a we were a huge net importer of oil which could be displaced and there is pretty easy to export oil, it's a little harder and little bigger investment cycle to export natural gas, but let's look at all those factors today you asked when from it started the shale Revolution biggest importer natural gas in the world.
[music].
Now, we're the third largest exporter of LNG in the world and actually fair amount of room to run and growing pipeline capacity to Mexico, So that time to build infrastructure to grow the gas market has happened.
And the decline in rig counts decline in fleet count has happened in the major gas basins. So after many years of significant declines are our guess is we've hit a bottom and depending upon how things unfold. It may not rise massively from today, but I suspect.
We'll see increasing activity in those basins.
Even if they didn't increase in the depth of the downturn the percent of the activity that was in gas basins was quite large just different dynamics different marketplaces. So we've been talking and thinking about gas for multiple years multiple customers have talked to us about that so I would say totally independent of the one stim acquisition.
And we were going to move to the gas basis, then on timing when we enter the Permian we entered the Permian at the bottom of the last downturn, because we grew our market share in the Rockies from 5% to 25% and so and for the first time in our business we had spare capacity.
And so we entered the Permian here as well for the first time since the depth of the last downturn and that was a brief moment, where we sent that fleet to the Permian. During this downturn, obviously, we had spare capacity and we thought timing good to enter the gas basins. So then it was the third ingredient which is specific.
Customer that we believe in that solid that makes that entry makes sense at that point in time. So yes, I would say without the ones didn't deal we would be in the haynesville today in fact in the in the sense in the same fashion. We are now we'll just and we'll go from entering to scale quite quickly so long answer but I appreciate.
The question.
No. It's a good answer I think that context is really helpful.
And then just thinking about the did your Frac fleet are.
Are we still on track for deployment next year.
I'd be curious to understand more what the capital outlay looks like relative to a traditional diesel fleet and just how you think about securing a firm contract before you put this type of free out to the market.
Yeah. So so that may be a little lot too much inside baseball at this point in time, but we're in dialogues about that fleet because of the different technologies different emission profile of it I'd say there is there is significant interest, but it's a tough marketplace, it's a tough marketplace and.
So we are building tasks will be running.
Engines in the field in the next few months.
And depending upon the timing of a reasonable commercial arrangement.
As you know and success of our development efforts.
I would say it's.
Quite likely we would certainly sign a deal to deploy a DG frac fleet sometime in the next 12 months, but you know that that could be in the front end of that that could be in the back end of that and we're you know we're not all.
It's not critical to us how fast that happens, which is critical to us is that the technology is robust and truly differential as we believe it can be and that we enter into the right commercial arrangements with the right parties.
Got it Thats helpful. Thanks, Chris.
Thanks, John.
And our next question will come from Tom Curran with B. Riley FBR. Please go ahead.
Good morning.
No.
Most of my questions have been covered so I'll turn to one of my regular topics, which is your continued involvement with the Vorteq system.
Would you please update us on your initiative to deploy that technology on a live well with an existing customer before year end and then how does the acquisition and integration of one stem affect your Vorteq plans. Both in terms of the specific timing of this trial, well and and any others that might follow and then longer term.
From how you would intend to.
Wow rolled that technology out across the merged fleet.
Yes, Tom.
So we were well on our way to putting that that technology owed on live well right before the the world turned upside down for us and in fact, I'd I'd say maybe weeks away from doing so so we're back on that path again, we are we're out looking for the right trial candidate to have that on of course, we want to make sure we.
We set ourselves up for us up for success when we when we go out to do that and so the sales team here at Liberty is working with our MP partners due to find the right candidate for that and when we find the right opportunity, we will get that technology out in the field and get through the remainder of the testing that we would like to do there. Once we've done that then then we have.
Oh, you wait the commerciality of the technology, and and and make a plan for deployment.
Beyond that so that's that's where we sit today. We we don't have that we don't have that date nailed down yet, but but know that we are working hard to find a spot to get that out in the field again as far as the ones Tim acquisition. It didn't really change our outlook on onboard Tech of course, we were we were working together with energy recovery and had been for a long long time.
That was mostly independent of the ones Tim team of course, they had their own.
Efforts moving forward there in parallel with US I think maybe we both had a little different thought around how we were going to deploy that and how we were going to use that technology.
We continue on with the plans that we that we had there and.
And once we get across the finish line and have a chance to evaluate how it performs in the field and then we make that final decision around deployment, obviously with a little bigger footprint to consider that over now.
Thank you for that Ron.
Just two follow ups and.
Do you still expect to be able to get this first slide well frac.
Underway before year end and then.
When it comes to your commercial valuation.
Each is your intention or are you open to if you're satisfied and it looks like the technologies I'm going to meet all your requirements.
To deploying it across.
The entire fleet.
So in terms of how we think about that is we certainly hope to have it done before the end of the year, though we are out actively looking for that well right now and when the right candidate comes up we'll we'll certainly go we are ready to do that on relatively short notice.
Having been through all of the work we've been through in the in the yard and and other.
Other other testing outside of that we're pretty comfortable with getting the technology rig in alongside our our typical rig up so it's not a it's not a time consuming effort to do so if we find that Kennedy quickly those fingers crossed we'll do that before the end of the year and then as we think about deployment there are places where vorteq probably makes more sense than.
Than than others, there are places, where we see a much higher wear and tear on the on the wet end of the bump on the fluid ends valves and seats than than we do elsewhere. That's really a function of job design of the pressures we're pumping at of the type of fluid system that we're using there and so that will it will be those factors that ultimately prioritize where we deploy vorteq out of the gate.
When and if we decide we are ready to do so.
Thanks for the color on that was helpful.
And our next question will come from Chris very with Wells Fargo. Please go ahead.
Thanks, Good morning.
Well good morning, Chris.
Hi, So I.
I think you said you expect revenue per fleet should be higher in the fourth quarter and it sounds like pricing is not going down. So is it fair to assume that underlying GP per fleet, which I think was probably around 6 million third quarter. If you ignore reactivation costs is it fair to think that that should be higher in the fourth quarter compared to the third quarter.
It's a lot of moving parts in that line, Chris obviously.
Yes, I mean, you've given given the small set of assumptions you just mentioned that would be logical but that was a FIFO doubles and assumption. So yet no guidance. So we don't get profitability guidance.
Yup.
Sure. Okay, well, then I'll skip was going to be my next question, then about Fourq EBITDA, maybe switching to the pricing back to that.
His bidding right now in pretty tight band still I think in previous quarters, mostly a pretty tight band with a few outliers Im wondering if you could just described.
What the landscape is right now for pricing in terms of.
Obviously, you want to hold your ground water other people do as well, but are there still some.
On disciplined bidders that are messing up the situation right now.
Well you know I think that tight band is it reasonable characterization you know often there are some there are some bids that are that are way off that reservation for sure, but usually it's from players that that have other limitations that make them not a great potential partner for.
There's a lot of I would say in general that the crazy cheap basis, even though they may be a fair amount cheaper than everyone else in general they are not successful with the better companies you are making a partnership and there is a reason someone is doing something like that and.
And I think that the experience of the last six months, maybe even hammered that whole more to that MPS that.
So that if it looks really cheap upfront maybe there is a reason for that and the costs of partnering with that with the weaker players.
Certainly had been made apparent in the last six or seven months. So.
So I'd just say while pricing is very tough at the moment.
Some of the more ill disciplined players now and exited the market or getting Lisa there and that are in those are in that area. The other thing I will say is whilst pricing is tough at the moment.
Joining me is the fleet and there is a lot of equipment available. The majority of the fleets that us stops on now probably with it. So it will be interesting to see what happens with the pricing environment over the next three to five months, we don't have any any indicated where it's going to go but again you know just logic tells you that.
If service companies are going to be hiring beds.
Are you stopping new fleets that going to be speaking originated from that I would expect that.
The industry to be relatively disciplined.
Okay. That's helpful. Thanks, and if I could just sneak one little one in here do you have a view on reactivation costs in the fourth quarter compared to the $6 million in third quarter.
Yes, but again, we should be relatively flat on fleet count through the fourth quarter, Chris. So I think that will be a much smaller amount and small numbers as we go through into next year I guess, you've got to remember that we were bringing back we really almost came to a screeching halt in the oil basins. So we had a significant amount of work to really sort of almost like re.
Stops somebody's rumors restarting in this during this Q3 period. So yeah. There are definitely costs involved in that inefficiencies Indra.
Great. Thank you.
Thanks, Chris.
And our next question will come from John Daniel with annual Energy Partners. Please go ahead.
Hey, guys. Thanks for getting me in and.
Got dropped early August driving around Texas here. So I don't know my question's already been addressed I apologize in advance, but can you speak to what the inquiries are bidding opportunities are.
The volume if you will for for Q1.
And also address sort of what portion of your fleet today is dedicated and what do you you would expect to be dedicated moving into 2021.
John I love that you're always on the road on.
On the ground in what's happening.
Drive safely or maybe you pulled over 'cause your cell connection sounds good.
Good.
And so look I think this.
This is for people to do their work on an annual basis. You know. This is this is sort of that RFP season, and Internet has it made the comments earlier from what you see for People's bidding or plans next year I would say.
That yes, we expect the increased level of activity next year from where it is today if oil prices are cooperative.
That probably is true pretty early next year, and if they're not schedules probably sly.
And then John BBB, maybe the biggest question you asked is what percent of our work is sorted dedicated versus spot and and I would say the very large majority of it is dedicated.
For us to be a win for the customer to win for US you want maximum throughput through your assets. So that's that's the very strong preference of course, there are other partners that in certain basins are in areas. They don't have a full fleet. What we tried to do is get that work lumped together and that we try obviously to blend it with someone else.
Sleep worked six week six months for this person in this chunk for this other person, but it's up it's a high level very high percent of dedicated okay.
Okay.
Just one more for me and I don't know if you can share the state or not but when you look at.
Sort of pumping hours per day that you get on your plate have you been able to make get similar data on the Schlumberger fleet and can you comment on what disparities exist et cetera.
So look there's third party data on throughput that we look at there's we don't have detailed data on on the one simply can I'm sure with them just like with everybody that depends on basin in customer stuff and all that so yes. Good too specific for you know for us to comment on right now but.
Obviously of great interest to us and down there.
Well, let me put it how about this when you look at third party data.
That assesses year performance.
How accurate is that third party data and assessing your performance.
It depends on the source you know and that's funny. So we obviously the debt third party data. We use is third party data where their data aligns not just in magnitude, but in trends with our own internal data, so that probably and you've probably heard us reference peoples third party data.
Sure our presentations and stuff and those those are those are people, where we have some confidence that their data is reasonably accurate.
Good okay.
Appreciate it thank you for your time.
Thanks, John take care.
And our next question will come from Ian Macpherson with Simmons.
Simmons. Please go ahead.
Thanks, Good morning, Chris Michael maybe.
Maybe worse.
Worth asking about.
The playbook for.
Downside case.
Just given the direction of the old tape, obviously, we've seen divergence with gas and oil we've seen you move into the Haynesville.
Ahead of the one stem acquisition.
Acquisition, but.
You've increased your share and your fleet count I.
I think with good strategic reasons and the back half of this year, even when pricing remains very difficult in margins.
Saudi level remained poor.
Notwithstanding the incremental contribution margins of those those lead ads, but yeah.
Yes, the the activity recovery for the total market slide.
Slide to the right because of the commodity next year, what would your appetite be to continue to take share and to redeploy incremental fleets.
And.
Head of that recovery given.
The trade off between wanting to be strategic and ahead of the market, but also just putting on profitable wear and tear on the equipment.
Yes, certainly as activity pushes or it goes out which may we certainly may happen definitely reduces our activity yeah for us it's definitely not about we want market share for market share itself that that's that's not how we think about it. We are dominant driver is we want long term profitability and.
Hi returns on the assets that we buy and the people we hire so very customer specific strategic customer that you know what you're now seeing a liberty outperformance wants to grow their market with Liberty and we can reach a compromise in that kind of pricing that makes sense for us we'll do those.
You know customer that wants Liberty because were better but there are weaker player has an uncertain program are we going to go do that because they really wanted us, but theres not a strategic reason that bad profitability no. We have those dialogues, we're pretty open and we're open with with you and were opened with our supplier.
As in our customers. So you asked very good question, but no things pull back and all that yeah. We will certainly pull back on deployment and whether things are good or getting softer, it's really driven by where this relationship.
With this customer where might that relationship. So that's what drives our and what he is going to be to return over a little bit longer timeframe for those assets and those people.
That makes sense. Thanks, Chris and then a follow up from me could you share any insights as to how you. How you see the one stem activity cadence unfolding from Q3 into Q4 relative to Liberty's, if your previous to that and if you'd be willing to share with us.
You know, we certainly can't share.
Many details about their projections implant heck, we don't even know a lot of it ourselves, but I, but I would say the rebound out of.
The downturn they rebounded at a pretty good clip as well you know they want to go where we are looking at and they're running a similar number of fleets to us so.
Stands to reason that.
Similarity would assume a parallel arc might continue through the fourth quarter then.
We don't know, we don't know because I mean that was it.
That's the future as we like to say yet until.
Until we close you want to know something that somebody else leads really need less difficult.
Fair enough. Thank you Beth.
Thanks, Jamie.
And our next question will be a follow up from Mark the Oneq.
Please go ahead.
Hey, thanks.
Yeah, Chris your regarded for good reason as a as a forward thinker in this sector and I think it's something that hasn't come up on on any of the earnings calls here, thus far and I think it it should.
Yeah that the election, obviously coming up and there's.
You know some concern as to what could happen to the industry from.
Further leaning left government. So just kind of curious how you see that playing out.
You do see.
A Democrat win and a more Democratic Congress.
And maybe anything you guys are doing in terms of contingency planning around that.
Yes, indeed, it does matter, but predictions are hard, particularly about the future you know so we don't.
Hey, we don't have election will turn out we don't go what various part you know control a very dense presidency or the Senate what that might mean for policy, but I would say you always have very heated rhetoric in sort of wild claims in elections.
And you always see a different somewhat more sober set of activity after elections, and if you look at it as you as you well know 10% of activity roughly has been on federal lands now there's permit backlog built up there I wrote an editorial three weeks ago on it.
Stop permitting and drilling on federal lands, what would be the impact and two things. We can say for sure increased greenhouse gas emission increased pollution, because you could get banning things like that it doesn't change demand or consumption of oil and gas at all it just moves where it's produced from in Queen tightening.
Regulated production in the U.S. to somewhere else I look at new Mexico, New Mexico's rolled out the first a free college tuition for everyone that what's funding that oil and gas royalties and dominantly on federal lands. So we don't know whats going to happen, but you know I.
I suspect the outcome over the next few years and the activity level our industry at least in the near term will not be not be as impacted as much by the election as and most people think and emotions are running around.
Okay. Thanks for the perspective.
Thanks Mark.
Take care.
And at this time Im seeing no further questions I would like.
Turning the conference back over to Mr. Ray for any closing remarks.
Just want to thank everyone for their time and interest today and again.
Thanks for everyone. In these tough times I think the people within Liberty I'm thrilled to be and humbled to be partners with the whole Liberty family I'd say the same thing about our customers look our customers our suppliers our partners across the board have shown character and residents in the face of these challenges in an attitude that we're all in it together so.
Thanks, It is fabulous industry and thanks, everyone for their time today.
Take care conferences.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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