Q3 2020 ProPetro Holding Corp Earnings Call
Good morning, and welcome to the pro petrol holding Corp. third quarter 2020 conference call.
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I'd now like turn the conference over to Sam Fledge, Chief strategy and administrative officer. Please go ahead.
Thanks, Brandon and good morning, everyone. We appreciate your participation in today's call with me today is Chief Executive Officer, Philip Go Chief Financial Officer, David Schorlemer, and senior Vice President of operations at ammonia.
Yesterday afternoon, we released our earnings announcement for the third quarter 2020. Please note that any comments, we make on today's call regarding projections, where our expectations for future events.
Forward looking statements covered by the private Securities Litigation Reform Act.
Forward looking statements are subject to several risks and uncertainties many of which are beyond our control.
These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and Respecters discussed in our filings with the FCC.
Also during today's call.
We will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.
Finally, after our prepared remarks, we will hold a question and answer session with that I would.
Like to turn the call over to Philip.
Thanks, Sam and good morning, everyone.
I have several months have been difficult for everyone given the impact of the global cope with 19 pandemic on our personal and professional lives.
<unk> first to thank all of our employees for their continued efforts and following CDC guidelines.
Another governmental agencies to promote a healthy and safe work environment, not only for themselves, but for our customers supply chain partners and other stakeholders.
As important I want to once again say how much we appreciate our medical workers and first responders here in the Permian basin, but the selfless sacrifices they make day in and day out to ensure our wellbeing.
Before we begin to discuss our results for the third quarter I'd like to take the opportunity to welcome David Shore to pro Petros team.
David knows the whole field services space very well and most recently served as executive Vice President Chief Financial Officer, Treasurer, and Secretary of basic energy services.
He brings with him more than 25 years of broad based experience in senior level positions in finance technology business process integration strategic and organizational planning M&A and capital market transactions as well as a proven track record of ensuring strong corporate governance.
We look forward to David's immediate and long term contributions to propetro success.
I also want to take the opportunity to thank there and hold us for his dedication and hard work over the past year.
Darren stepped in to provide critical leadership and our efforts to strengthen our finance and accounting operations, which has been critical and our abilities to successfully navigate the impact of the global 19 pandemic today.
As important darrens, many contributions, including its guidance or the process that returned us to our filing status with the FCC.
Hello, like a strong financial foundation for pro Petro as we moved to an eventual market recovery.
Turning attention to the third quarter, we were clearly pleased to see an increase in customer activity levels from the second quarter more than doubling our average active fleet count.
The thoughtful and decisive steps we took during the second quarter allowed us to streamline our operations without sacrificing our ability to respond as market conditions improved which we began to see in June and continued through the third quarter.
In addition to safeguard the long term health of our balance sheet, a key factor in our decision making process.
The profit prioritize protecting the core competencies of our business and providing customers unmatched execution at the well site.
The strategic benefit of these efforts was evident in the third quarter as we were hard rehab.
Rehire hundreds of teammates to support growing activity levels.
Our ability to respond.
To quickly redeployed crews at historically high performance levels with minimal downtime spent onboarding. These retired teammates made a significant difference as activity ramped up in the third quarter.
Our best in class operational and safety performance was on full display in the third quarter.
Want to thank all of our team members for their ongoing resilience.
Customers remain squarely focused on utilizing the highest quality crews available in the industry.
Our teams ability to stay nimble to quickly and effectively respond to the needs of our customers as a premier point of differentiation in this business.
Our customer focused culture has allowed us to maintain market share at similar levels to the beginning of the year, which we expect to continue into 2021.
To be clear profitability is paramount so we remain fully committed to improving margins and creating shareholder value as.
As evidence during the third quarter, we are pleased to once again generate free cash flow from operations.
Complementing our efforts to provide best in class execution at the well site.
We will continue to promote the health of our balance sheet that is as bad as it is vital to our success and will be a requirement in our sector to remain competitive.
Our blue chip customers are interested in working with companies that they can rely on for the long term, both operationally and commercially.
We view, our solid foundation, because our solid financial position as a key differentiator for Propetro.
This is especially true as we navigate the ups and downs of the oil and gas industry as we move our way back to a much improved demand environment in the future.
That I will turn the call over to David to discuss our financial performance.
David.
Thanks Bill.
I want to say I want to first say how excited I am to join the pro Petro team I've seen the team operate in the field and it is an impressive organization.
Oh Petro is well recognized as an industry leader that is respected by all parties in the value chain and I look forward to working closely with our board Philip other members of executive management and the entire pro Petro team as we continue to strive for excellence.
Turning attention to the financial results of the third quarter, we were pleased to post higher revenue sequentially and generate free cash flow for the third quarter.
More specifically effective utilization for the third quarter was 8.5 fleets compared to four fleets in this year's second quarter weaker.
We currently expect fourth quarter effective utilization levels to remain flat with our third quarter exit rate, therefore, yielding effective utilization in the fourth quarter between nine and 10 fleets.
Total revenue was 133.7 million versus $106.1 million for the second quarter with the increase primarily attributable to increased activity levels.
Partially offsetting the overall increase was increased direct sourcing of select consumables by certain customers.
In addition, we saw at 25.7 million decrease in idle fee revenue as we reported 6.9 million in fees in the third quarter compared to 32.6 million in the preceding quarter.
Excluding idle fees, our revenue has increased 73% sequentially on improved fleet utilization.
We expect fourth quarter idle fee revenue will be fairly flat with third quarter based on our current view of fourth quarter effective fleet utilization levels.
Cost of services, excluding depreciation and amortization for the third quarter was 99.6 million versus $68.2 million in the second quarter with the increase driven by higher activity levels in the third quarter.
Third quarter general and administrative expense was $20.8 million compared to $20.3 million for the second quarter.
Excluding nonrecurring and noncash stock based compensation in both periods Gee, they increased only slightly from 16.4 million for the second quarter to $60.8 million in the third quarter.
Our net loss for the third quarter was 29.2 million or 29 cents loss per diluted share versus the second quarter net loss of 25.9 million or 26 cents loss per diluted share.
Finally, adjusted EBITDA was 17.4 million for the third quarter compared to 25.4 million for the second quarter.
The sequential decline in adjusted EBITDA was primarily due to our revenue mix normal not normalizing from a heavier weighting of idle fees in the second quarter.
However, if we exclude the impact of vital fees adjusted EBITDA improved sequentially by nearly $18 million driven by a sharp improvement in incremental EBITDA margins of 32% highlighting our operating leverage coming off the weak second quarter.
During the third quarter, we incurred 7.9 million in capital expenditures all related to maintenance.
Capital expenditures incurred for the nine months ended September 30 was $59.9 million, including 8.4 million spent on growth projects in the first half of 2020.
As noted in our press release, we have lowered our outlook for full year 2020 capital spending to below 85 million versus our previous expectation of below $100 million.
This guidance would equate to capex spend in the fourth quarter of approximately 25 million higher than our capital spending in the second and third quarters.
This increase is primarily attributable to increased the activity our equipment rotation program as well as being prepared for potential 2021 activity increases.
Looking at the balance sheet.
As of September 30, we had total cash of 54 million versus 37 million as of June 30.
At the end of the third quarter, we remained debt free and had liquidity of $86 million, including cash and $32 million of available capacity on our revolving credit facility.
Finally, I would note that our total liquidity as of October 31 was approximately 111 million comprised of $67 million in cash and $44 million of available capacity on the revolver.
As Philip mentioned in his opening comments the strength of our balance sheet is critical to our success and in my new role as CFO I am firmly committed to ensuring we maintain a solid financial position that provides maximum flexibility.
Being debt free and generating free cash flow is a key differentiator for pro Petra, especially in this environment.
We look forward to further leveraging our unique position in the marketplace. As we continue to provide our customers unsurpassed quality in service in the Permian basin. The most prolific producing region in the onshore U.S. market.
Results during the third quarter reflects the unique positioning of the company that remains intact. After the COVID-19 crisis.
Number one strong capital discipline and cash flow performance with a ciro debt balance sheet and strong liquidity.
To a portfolio of some of the strongest customers in our industry some of which have have and are actively participating in the ERP industry consolidation, including a unique partnership with pioneer natural resources, a leading Permian operator.
And three a passionate pursuit at industry, leading operational performance in the field with impressive pumping productivity in Q3 post reactivations, leading to strong sequential margin improvement.
All of these attributes contributed to our impressive recovery from the prior quarter and we believe will position us for continued success in the future with that I'll turn it back to Phil.
Thanks, David well, we've seen a meaningful recovery in activity from the low levels seen in the second quarter of the year, our expectations of volatility and uncertainty are unchanged until there is a material increase in oil demand.
We are encouraged to see continued substantial progress in both COVID-19 treatment programs in vaccine development mode.
Both of which are critical to returning to a more normal environment that will more substantially stimulate oil consumption.
This in turn will hopefully drive crude prices higher and promote increased development.
MPS both here in the U.S. and abroad.
As we navigate our course until that time, we will remain laser focused on what we can control.
This includes retaining a cost structure that is not dependent on price increases from customers to maintain or increase our returns.
Over the years, we've taken pride in running a lean organization and we'll continue to do exactly that.
Based with the onset of the pandemic in the first half of the year, we escalated our efforts to ensure we not only survived but also positioned ourselves to thrive as activity levels improved over time.
Propetro is clearly recognized for its ability to provide commercial customers unmatched execution at the well site.
Key to our success and remain is remaining in close communication with our customers to better understand and anticipate their needs help.
Helping them solve their technical problems at the well site.
This approach has served us well over the past 15 years, and we believe is now more important than ever.
As we have discussed in the past pressure pumping services and equipment used to execute these services must continue to evolve if you want the industry to remain globally competitive.
Because we fully expect to operate in a price environment that will continue to be challenged that will require further improvement in process efficiencies and we will continue to work closely with our customers to develop cost effective solutions in support of our mutual long term success.
Regardless of the price environment, our customers expect further minimum as minimization of environmental impact of Wellsite operations through reduce greenhouse emissions and other considerations.
As evidence of our commitment we have made a significant investment interest in electric fleet technology.
During the third quarter, we continued to test and develop the technology alongside our partner IMF Global and plan to be in the field with a larger deployment in the coming days I.
I would note that our blue chip customer base remains extremely interested and excited about the prospects of derisk them and we are currently targeting to be in the market with a full electric first employed offering in 2021.
Looking at the fourth quarter, we will continue to remain very selective on redeploying assets Incruse and will only proceed with projects that meet our economic targets.
Over the past several weeks there have been several M&A announcements concerning further MP consolidation in the Permian.
Since going public in early 2017.
Continually discuss that Permian is transitioning to a full manufacturing mode and Darren.
Industry consolidation, especially by larger customers operate in the region materially accelerates this process.
Bottom line, we believe this will be a net positive profit for pro Petro given our Permian centric focus and clear reputation for providing unsurpassed execution at the well site.
With that I'd like to turn it over to Brandon for questions.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Sean Meakim with Jpmorgan. Please go ahead.
Thank you Hey, good morning.
Good morning.
So to start off.
Given the idle fees in the fourth quarter it will be comparable to Threeq you active fleets look comparable so it sounds like margins should be fairly comparable as well so is that fair and.
Could you maybe just elaborate on on October is activity levels versus the Fourq you average.
And how you see the monthly cadence in November and December.
Hey, Sean this is Sam I'll take that one were.
Activity exit out of out of Threeq. It was right around 10 fleet.
So we we expect to work those 10 fleets basically.
Totally through the fourth quarter, so the guidance of nine to 10.
Actively utilize fleets is probably.
Calculating in a little bit of what we're seeing is just holiday seasonality around Thanksgiving and Christmas.
Which will to your margin comment probably provide a slight drag to profitability margins were still waiting through.
Some of that with a few of our customers to see exactly what thats going to look like but right now we're we're expecting to be taking.
A few days off around around each holiday that will affect margin and utilization.
Got it. Thank you that makes sense and then looking ahead to 21.
Customers are aiming to stabilize production off of Fourq, you 20 levels.
We don't need to ramp activity up of where they are going to exit the year.
Do you broadly agree with that assessment and just curious what type of visibility you have on activity from your customers.
Early in 21.
Yes, I'll start maybe pass it over to Adam.
I do believe that the customers activity will.
Continue to at least stable, maybe with a slight nod towards increasing obviously a lot depends on pricing right now.
Given our quality of customers that we do with Dell with some really most of them are primarily hedge so if they believe it's a short term.
Downtick in pricing that won't affect the activity at all so bottom line, we see steady to maybe slightly increasing activity.
Going into 21, Adam Yes, I would just add to.
Philip's comments that we have number a number of our key is out with a different operators and.
We feel pretty positive that we will.
Did we had a couple of those so that could lead to a slight increase.
Got it understood. Okay. Thanks very much.
Our next question comes from Georgia, O'leary with Tudor Pickering, Holt and company. Please go ahead.
Good morning, guys.
Hey, George.
That the free cash flow generation during the quarter was an impressive and it seems like October has been a good month for you all as well I wondered if given the higher capex levels do you guys expect.
Free cash flow could be positive in the fourth quarter and maybe you can walk us through some of the moving pieces working capital Capex.
Those items to help us kind of think about where free cash flow can settle out for the fourth.
Yes, I think when you look into the fourth quarter.
We think as Weve spoken about our fleet utilization being essentially flat from the extra rate of the third quarter that working capital should be.
Pretty neutral.
I think we also spoke about the capex, increasing in the fourth quarter and.
That's going to be in anticipation of what Adam referred to some potential increases as we move into the first quarter.
So I think that it's going to be.
Could be below where we had seen the third quarter free cash flow, but I think we're going to try to cut.
Continue to be neutral.
As we make those investments and.
It's going to be dependent on our customers performance and activity levels expected going into the first quarter.
Okay, Great. That's that's helpful and then.
And yes, our guys just following up on John's question.
You mentioned in your response indicated that profitability could be flattish and I appreciate that there will be some holiday downtime.
Potentially carrying costs as you had added slates back during the quarter that you weren't necessarily carrying.
The entirety of Q3, but I just wanted to make sure I understood. The response rate.
Given the higher fleet count and the likely get some.
Fixed cost absorption plus you should have higher revenues. If you have more fleets active in pricing is kind of flatline that at a bottom.
Here is there the potential for annualized EBITDA per fleet, if you will to increase quarter on quarter or when when you were talking about.
Margins are good.
Being flattish is that flattish with those September level that gene just frame that profitability for us a little bit more I think that'd be helpful.
Yes, George this is Sam I think I think quite simply it's going to be a little bit of a challenge to to hold their beat.
Q3, EBITDA levels and there's it's it's not really in particular due to any one thing kind of a mix of a few things.
Today seasonality is obviously a drag on profitability whenever that happens.
And as we are.
Pretty pretty confident that that will have the opportunity to add a fleet or to some time in Q1, depending on the timing of those potential 2021 fleet adds you could have some of that preparation work bleed into the back half of Q4.
Which which could prove to be another drag from a capex standpoint that David talked about in Opex Stan.
Standpoint.
So I think that our our goal would be to meet or exceed the same EBITDA levels on a per fleet basis, but it's going to be we have we have some headwinds I think around that.
Okay Thats very helpful. I, just sneak in one more if I if I could just on the bidding behavior.
Brian it's it seemed like.
We're seeing a lot of bids in and around a similar number from the competition and they have a few bad actors that would come in well below that kind of.
That tight spread of beds.
That's still the case or has some of that add bidding behavior abated at all how would you describe kind of that when you put in a bid what that that scatter plot of bids looks like.
Yes. This is Adam George I would I would say, yes, you probably still have some of that going on some of that bad bidding behavior just is effective.
The the tight market, we're in right now as far as the work available and being bid out for and.
But we we we stay pretty confident on bidding on the work on.
Potential theater operators its still value the.
High performance of the Frac crews that we can offers and the safety efficiency that we have been.
Providing to our current customers.
Our next question comes from Ian Macpherson with Simmons. Please go ahead.
Thank you good morning.
The.
PXP partially deal.
In theory.
Should be accretive for your share could you remind us your white.
Work, you've done with parts in the past.
And I.
I don't think we're talking large ads.
Basin wide for 2021, but what do you think your opportunity is to.
To grow share you know as you are well aligned with with at least one and a more than one operator, who are consolidating the basin.
Yes. Ian this is this is Sam interestingly enough, we probably have a longer operating history with partially than we do pioneer our our our relationship with partially dates back.
Quite a ways we are not currently working for partially today.
But if if we continue to satisfy pioneers needs, we think that might be an opportunity to work for us worked for.
Work on that acreage moving forward, but that that is kind of remains to be seen but we feel confident about that obviously very confident in our ability to operate under the under the kind of the pioneer.
Planning and day to day operations that spend.
A great partnership for us as pioneers provided a lot of value in there and their ability to be very efficient and I think that we've we've been efficient as well. It's been it's it's been a true win win for the last couple of years.
And I assume if if if and when activity does resume on.
Acquired assets that that activity is not defined by your current minimum volume agreements with pioneer on legacy basis that would be incremental.
Right.
Not necessarily the case.
I'm.
I'm not sure I totally understand your question Ian well.
Did your deeds do your minimum utilization does your maybe your minimum framework with with pioneer.
Contemplate.
Activity on additional subsequently acquired assets acreage I don't I don't I don't know if there's a there's a minimum threshold. It's just a number of fleets that we are required to provide to pioneer at any given time. So it will be mostly just dependent on their on their activity as it moves up and down.
Underneath the acreage that they're they're operating okay.
Follow up for me I was going to ask also there's there's.
Well reasoned thesis for pressure pumping that pricing will move when.
Warm stacked capacity is exhausted and we move into more expensive deployments of cold stacked equipment that will.
Require that higher pricing do.
Do you have a view on where we are in.
That regard and how much warmer.
Warm stacked capacity needs to be absorbed before you guys get a pricing catalyst, whether thats middle of next year or plus or minus around that timeframe.
Okay.
As far as.
Active fleet count getting up and people having to redeploy.
No.
Unused equipment I can give you an exact number one.
Each of our competitors still have.
Sitting on the fence warm stacked.
We're just going to continue to attack that just by being.
Just sound on our performance and continue to attract work that gives us a rate of return at the current price when we have and.
[music].
Just see where that leaves us automobiles, yes Ian.
This is Sam I'll, just add to that I think I think what's hard to to kind of pinpoint to.
An accurate answer to that question as we sit here today is because we we watch our competitors and our peers employed various.
Techniques.
Two.
Keep costs down and keep efficiencies high.
You see deferred maintenance you see cannibalization and then on the other end of the spectrum you see players that are that are continually reinvesting and keeping their equipment ready at all times.
And it's and you're you're usually on average bidding against somebody different.
With with every customer so.
A little bit of a mixed bag there.
But no news to you the more the more activity. There is no more utilization there is that more of a potential tailwind that is the pricing just overall.
Yes, and probably the only any.
Total.
Note is there an RF queues that we are participating in right now do not have a shortage of better seeking that work. So I don't believe we're at that point yet but.
Hopefully were getting there soon.
Understood Feldman seminar Thats on a black and White question and I think your answer was.
Very helpful ill pass it over thanks.
Our next question comes from Cameron Lock Rich with Stephens, Inc. Please go ahead.
Hey, good morning, Thanks for taking my questions.
Cameron.
No I was hoping we could circle back and talk about deere's stem and.
SG related kind of movement.
Call for years few related.
At the well site.
Great to hear the plans you guys have in place for jurist Im going forward I think we're all happy to hear about that.
How how should we think about petros equipment.
Stands today ex jurist them and.
You know in order to stay competitive going forward do you think any further investment in whether deeper anchor dual fuel.
We'll be necessary.
Given where the where the market is headed.
Yes, Cameron to spell up.
Obviously, we're seeing more and more RF queues come out asking for.
Therefore, our electric flow.
Fleet you know.
Yes, cheap friendly fleets the answer is.
There will be investment made I think the real question is.
Timing of that investment.
Right now I think we feel relatively confident that most of that equipment is fully utilized.
And so therefore it will.
After the new equipment coming on we're just not.
I think we're in one of the better positions to make an investment and maybe we will.
Uh huh.
But I don't think it's an environment that that's going to be easy for for the pressure Pumpers step.
Step up at least in this pricing environment.
To meet the demand and lets say get.
Some type of contractual commitment to to help pay for some of that cost or some pricing relief but.
Again, I don't want to say that CSG is not here its hair. It's common in investment is just a timing issue and right now the timing doesn't look good in my opinion for anyone to make those investments.
At Cameron this is Sam the only thing I'll add on top of that is just just from a like a competitive.
Perspective.
Having having.
A debt free balance sheet.
And the ability to generate free cash flow, even even in these depressed activity levels.
He's going to be vital to having the opportunity to reinvest in the future. We are firm believers that equipment offerings.
Our changing today.
And they'll continue to change as we move forward for DSG reasons for cost reasons efficiency reasons kind of all the above.
So so we think that that.
It's it's going to be almost.
Your ticket to admission to be able to reinvest and having the ability to generate cash flow with a debt free balance sheet.
Thats I think Thats fair. Thank you.
Okay and then.
My next question I, just wanted to ask maybe.
Maybe going back to that.
Commentary around.
The consolidation there all the deals that have been announced this past quarter.
I think it kind of begs the question.
What happens at the service level, particularly in pressure pumping.
With supply and demand sitting where it's at right now.
Wow.
Whether or not propetro participates against it I mean, that's part of my question, but really just in general how do you guys see that playing out going forward.
A commensurate increase in M&A at the service level or will be more muted just how do you guys see that kind of going forward.
Well.
No I think consolidation or just taking capacity out of the market is key how that happens.
Consolidation isn't the only way that happens, we're seeing a flood of bankruptcies in distress assets.
That's one way to thin out the market.
I think from my perspective, the most difficult thing as pro Petro looks at whether consolidation makes sense for us is.
There just aren't that many healthy pumpers out there and.
You know for us to consolidate just for the sake of consolidation does not make sense somewhere along the way our shareholders have to benefit for that having said that that there are some things that can make sense, we have looked at.
A number of things that will continue to look at them, but at the end of the day.
I don't think it feels the same to me as the MP. This a lot more distressed.
Companies on the oilfield service side.
And Cameron as David just to add to that.
We're definitely seeing consolidation on the NP side.
And a lot of the conversation is about relevance of companies with.
Certain market cap greater than 10 billion has been referenced and and they do have benefits of scale. There is no question about it but they also want to have options and so theres a little bit of a different dynamic that's in play for service companies we are.
Currently a service company that in our position.
We're a very strong operator in the Permian basin with very strong customer relationships and we're generating free cash flow. So we're going to protect that position, we're going to protect our balance sheet, but we're also going to take a look at opportunities if they arise and meet those conditions.
Okay got it that's helpful. Thank you I'll turn it back.
Our next question comes from John Daniel with Daniel Energy Partners. Please go ahead.
Hi, good morning, guys.
Question for Adam.
Right.
We're participating smokies now it's completely incremental work.
Not trying to switch on swap and I will give you some insight.
The quoting that you're providing for those quotes is.
Below are at or above the spot pricing ex your pioneer work.
Mitch it's probably just kind of stay the same stayed flat of all our pricing definitely amongst all the crews that we have just to know that we can generate the return that we need to properly deploy that fleet or the additional fleet and higher on the additional personnel so definitely.
Definitely not chasing anything out there.
That's spot spot type pricing.
We feel that this.
It Doesnt put us in a win win there.
Got it.
Let's assume you guys are blessed and have another call. It two fleet opportunity in Q1.
What type of.
Yes, we make ready expenses whenever we want to call them what would you anticipate.
That being on a per foot basis that's.
Thats all the time.
John This is David.
Spoken in the past about.
Annual maintenance Capex for fleets of between six and $8 million on an annualized basis.
A number that we referenced regarding fourth quarter Capex of about 25 million does have some anticipation of.
The potential of being.
Being awarded some of these RFP, so I think that.
That that anticipates the potential opportunity there.
Okay. Thank you very much.
Our next question comes from Mark been EG with Cowen. Please go ahead.
Thanks.
Following on to John's question about couple of fleet increase in the in the first quarter. If that is in fact, the kind of the the opportunity that you guys have.
How how sensitive are those RFP as to the current commodity price we've seen a lot of swing in in in futures here in the last couple of weeks and.
If I'm getting some questions from investors if some of the guidance that companies have sort of put out there and some of the plans that some of the employees have in terms of getting to this sort of.
Maintaining fourth quarter production levels works with where the commodity. So can you can you talk to how you guys see that.
Just in terms of sensitivity.
Well.
So the way I would look at that more as whats your customer base look like and.
For hours I understand your question whether people.
Our operator will start to get tentative about continuing to activity levels are at given that.
Pricing doesnt seem to be able to stabilize at 40 or above but again I'll say I think if the operators were working poor view it as a.
Short term issue that I wouldn't expect activity to change at all and it might actually ramp.
Mainly because our hedges through that period of time.
But that speaking of our customer base, but if they view it as a long term trend that that price is not going to get back into the fortys or.
The European shut down on the pandemic is going to lead to a further.
Slowing of the U.S. and then I think we'll see some activity start to drop off but.
The way premature to tell either way on that right now, but I don't think we're getting any indications for many of our customers that there is a potential knock down in activity coming.
Mm Hmm, okay. Good to hear I guess, maybe related to that.
The rig count increase that we've seen.
Lately in the Permian has been largely privates.
Is the opportunity set you're looking at.
Is it skewed more towards towards privates or publics in and do you see any difference in the way either of those cohorts would behave.
Yeah. Mark This is Sam I think I think it's probably a little bit of mix of both we've had a healthy mix of both.
For the last few years, probably a little tilt more tilted towards the public's just from a scale standpoint.
But many of the privacy we work for our.
Larger than than a lot of publics in the in the Permian in terms of acreage positions and activity level. So they are they are they are operating very similar to public companies. So I wouldn't I wouldn't say, it's necessarily more more one or the other at this point from from our perspective.
Yes got it thanks, and I'll turn it back.
Our next question comes from Chris Voice with Wells Fargo. Please go ahead.
Thanks, Good morning.
Good morning.
Just to check box here, but obviously, we're very committed to the Permian, especially the Midland, but just just wanted to check.
Do you have any pull from customers or maybe pull related to M&A for expansion outside of the Permian or maybe more so into the Delaware just curious if there's any shift in strategy and focus.
Actually considering that net growth in fleets and 21.
It looks like it's going to be two huge just curious if you would.
Yes, then entertain entry into different basins.
Well, well, Delaware as part of the Permian and we definitely have worked there so.
Delaware's not off.
Our view of where we are in the Permian Basin is.
We have on occasion, Denmark outside the Permian Basin, I think we've been down in South, Texas, but that is highly dependent on what the customers are willing to do in terms of commitment to activity and pricing. So we're not opposed.
Taking work out of the out of the Permian.
If you're talking about trying to go out and establish a presence in a new basin at this point in time I think that's a heavy lift.
To try to go in.
Spend.
Incremental dollars and try to wrestle work away from it.
A person that's been established in the basin.
In this pricing environment, where we said I don't view it as productive for us to do that at this time.
If we had a customer that operated and one of the basins that had a large acreage position.
And had work that we could make sense to establish a base of operations up there we would definitely consider it.
But at this point I don't think we have any plans to get outside of the Permian basin.
Okay. Thanks, that's helpful and then.
My follow up.
Maybe on the Capex I guess, you called out the 60 million.
And then technology Sq type investments, depending on demand and visibility, but just curious if we think about 2021 should we just take the fleet count that we have in mind, maybe 12 months or something like that multiplied by the $16 million or or do you have visibility for an additional chunk of capex related to corporate or other projects.
You already have a plan for some time.
Yeah, Chris This is Sam I'd, probably just plug.
Eight 8 million on maintenance Capex at times your activity assumptions, just like you mentioned.
And until we see the market shift in a way, where where our economics change and it makes sense for us to make.
Some of these different equipment investments, that's that's really all that that we can plan for at this time.
And Chris this David just to add to that just keep in mind the significant investment that we've already made endure stem.
As we mentioned we're testing those units.
Assuming those tests.
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Prove out we're going to have a significant amount of capacity of SSG.
Equipment that we'll be able to utilize with customers and so.
Just want to make sure we remind everybody.
The potential capacity that we would have there to access.
DSG customers.
Got it thank you.
As a reminder, if you would like to ask a question. Please press Star then one.
Our next question comes from Stephen can Garro with Stifel. Please go ahead.
Oh, Thank you good morning, gentlemen.
Hi, Good morning, two quick ones. One you may have touched on a bit but the first one you mentioned the sort of increased outsourcing in the quarter of some of the consumables is that a trend or is that do you think that's worn off fishing fourth quarter.
Steven This is Sam I mean, it it was probably in the third quarter more of just a customer mix.
As activity ramps back up between customers that we have.
Sourced for traditionally and end customers that have been sourcing something like sand for themselves.
As as everyone is well aware.
San market nationwide has been very depressed and you have spot prices that if that have.
That it moved well below contract pricing in most instances not just for us, but for many of our peers as well and we see a lot of a lot of our customers and operators in the Permian taking advantage of.
Of this to spread this depressed spot pricing environment in the in the Permian regional sand market.
There, there's probably some of that they fit that could persist over the medium term, but but as activity comes back up there and spot sand prices just start to grind even ever so slightly higher.
We'll probably have the opportunity to begin to source a little bit more sand so hard to say if it's if it's just a short term blip or a or a or a long term trend I can't tell you.
That that is we communicate collaborate with our customers. Our our goal is to preserve the bottom line.
From on a on a fleet level basis. So our customers are well aware as we stay in front of them win win sourcing changes.
Whether it's.
More sourcing going our way, where our customers way.
We still have a return to make on our on our people and our equipment other consumables that we are sourcing.
So although it is it is something to navigate.
I think I think our operations sales teams done a done a great job edged.
Educating the customer.
In terms of what we require on the bottom line.
Okay. Thanks.
Add on that in terms of customer self sourcing is.
Thank you.
The pressure on for cost for the for the operators quite often they look to their supply chain. They look at that and they look at the price of sand and what they can get it for.
And then they make that decision to self source, but the critical part of that is the logistics of it.
And we have seen customers go down that path and find out that.
The sand itself is not really the critical element of that sale sourcing. This whether you can get it to location on time when it's ready.
And whether or not the company's factor that into their equation when they decide to sell source is kind of a critical issue. So.
Is that a trend, yes, I think it's a trend but is it a long term trend that I don't know.
Okay, Great. That's very helpful color. Thank you gentlemen.
This concludes our question and answer session I would like to turn the conference back over to Philip go for any closing remarks.
All right, Brian and thank you and thanks again, everyone. We appreciate you joining us this morning.
Despite a continued challenging backdrop driven by the impacts of COVID-19.
Petro remain squarely focused on ensuring remain ideally position.
The current environment is all demand materially recovers in the future.
Given this backdrop as in the past, we will leverage the best team in the industry. As we continue to continue to work closely with our customer supply chain partners and other stakeholders to ensure our collective long term success.
And finally in the spirit of election day, we encourage all of you to get out and vote. If you haven't already done. So thanks again for joining us and we look forward to speaking with everybody again at the fourth quarter call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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