Q4 2020 Liberty Oilfield Services Inc Earnings Call
Good morning, and welcome to the Liberty Oilfield services fourth quarter and year end 2020 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by a zero.
After today's presentation, there will be an opportunity to ask questions. Please note that 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.
These matters involve risks and uncertainties that could cause actual results to differ materially from our forward looking statements. These statements reflect the company's beliefs based on current conditions that are subject to a certain risks and uncertainties that are detailed on the company's earnings release and other public filings.
Our 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 and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA and the.
On a pre tax return on capital employed as discussed on this call a presented in the company's earnings release, which is available on its website I would now like to turn the conference over to Liberty CEO, Chris Wright. Please go ahead.
Thanks, Tom.
Good morning, everyone and thank you for joining us today to discuss our fourth quarter and full year 2020 operational and financial results.
Wow.
What a year for the world and our industry.
I'm so proud of our team here at Liberty weathering. This storm, a COVID-19 impact with tenacity and strength and ending the year with determination and resolve and building a better company.
We successfully navigated these challenges with the unprecedented sacrifice and commitment of the Liberty family.
We enter 2021 with excitement as Liberty will celebrate our 10th birthday as a company.
While we are very proud of what we have achieved in our first 10 years, we're even more excited about what the amazing group of people that make up liberty are going to achieve in the next 10 years.
2020 marked a transformative year in our short history.
We started the year in a frac market that was already struggling with pricing due to an oversupply of equipment and reduced completion spending. We then rolled into the storm of worldwide Covid infections that lead to a brief 25% drop in oil consumption by April.
2020, and oil dropping into the $20 a barrel range.
Liberty reacted quickly and changed our cost structure to meet the new market reality.
We worked with our E&P partners to plan a wait through the crisis to make sure that we reach the other side with the strength to take advantage of an inevitable rebound indeed by our signing a deal with Schlumberger to acquire a there one stem North America Frac.
Completions, wireline and Texas sand business is in the summer of 2020, we are in a stronger position to capitalize on the nascent industry recovery.
We have brought back frac fleets to work as our core customer partners restarted completions, and we ramped back up to $15 eight average active frac fleets in the fourth quarter. Most importantly, these fleets performed with a sterling safety record and we set a company.
Wide operational efficiency records in Q4.
This ramp up represents a 68% increase from the third quarter.
And up from a low a 4.6 average active frac fleets in the second quarter.
Revenue for the full year 2020 with $966 million down.
Down from pre Covid affected numbers in 2019, a roughly $2 billion.
Adjusted EBITDA for the full year was 58 million driven by a relatively strong first quarter.
Our fourth quarter revenue was 258 million a <unk>.
75% increase over the third quarter, driven by increased fleet count and a high efficiencies mentioned.
Our fourth quarter adjusted EBITDA was 7 million a <unk>.
$6 million improvement from the third quarter as Frac activity continued to increase.
Following an abrupt halt in completions activity in the oily basins during the second quarter.
As we discussed in our April earnings call. Our plan was to manage the balance sheet to cash neutrality during the historic Covid downturn.
At the end at year end, our cash and cash equivalents were $68 million over $10 million higher than at the end of the first quarter a 2020.
We were excited to end the year closing on the acquisition of Schlumberger as North American pressure pumping business on December 31, we.
We have laid the foundation for a new era of Liberty's leadership, and technology and sustainability in the oil and gas industry.
Our greatly expanded technology portfolio breadth of operations dedicated team and historic Liberty focus position us to achieve even greater innovation and efficiency.
We've had five weeks of engagement with our new team members as part of the Liberty family and the enthusiasm is contagious contagious.
Both our legacy Liberty team members and new colleagues are already working together with a renewed level of excitement and dedication to delivering superior service quality and results in the field for our customers we.
We are excited to now have significant natural gas exposure as a.
That activity is driven by a separate market with different cycles.
Natural gas demand dropped only about 2% in 2020 far less than oil demand the.
The global LNG market is strong right now with prospects for 5% plus growth in the coming years.
It is notable that even during a time a major transition our new team members were able to drive strong fourth quarter sequential revenue growth of about 25% at legacy one stem a strong result.
As we look ahead to 2021, we are excited by the opportunities ahead of US we are still on the early innings of a recovery but.
But the clouds of Covid have begun to part in the global economy is on the mend.
The rollout of Covid vaccines fiscal and monetary stimulus policies around the world and pent up demand for goods and services.
<unk> a global economy that is on an upward trajectory.
This provides the backdrop for continued improvement in energy demand.
<unk> controlled OPEC plus production, coupled with disciplined among U S shale companies is supporting oil and gas prices.
This is reflected in a rising rig count throughout the fourth quarter.
A number of total marketable frac fleets has declined significantly as the pandemic accelerated the pace of rationalization and cannibalization a frac equipment.
As a customer demand is shifting towards next generation technologies that support their emissions and efficiency goals attrition of older equipment is expected to continue.
Liberty is focused on reducing environmental impact since our inception.
With continued investment in technology through cycles has allowed us to remain front and center with our customers and supporting this move by the industry and Moreover, deepening our partnerships during these challenging times.
Operators are currently navigating through a time of industry consolidation, a changing political climate and a commitment to keeping oil and gas production flat.
Continued shrinkage of marketable frac fleets across the industry, it's a necessary part of moving the market towards balance.
The current pricing dynamic remains challenging.
But liberty is having many productive discussions with our customers to phase it in modest price improvements throughout the year.
Liberty was proactive in working with our customers as oil prices collapsed and that partnership works both ways.
We believe the Frac market will experience a flat to slightly rising demand for Frac services in 2021 based on current visibility into customer plans.
Public operator demand is expected to be relatively level loaded.
It's a private operator demand is more likely to be a bit back loaded.
Against this backdrop, we entered 2021 with 30 fully staffed frac fleets working across all major basins, except the northeast.
Liberty expects to maintain approximately 30 active frac fleets in the first quarter, a 2021 with the potential of adding more fleets later in the year only if the economics improve.
Increased efficiencies that lower our cost of delivery.
Coupled with a gradual modest rise in Frac pricing are the factors that can drive improved fleet profitability.
We liked our new mix of customers.
Including larger public and private operators with great assets balance sheets, and most importantly, great people.
It will take the Wright partnership and the Wright economics to add new fleets to the mix.
Overall, we're off to a strong start to the new year.
We are working hard to seamlessly transition our business into one thanks to the considerable efforts of our integration team.
We are now a few weeks in and the complementary customer partnerships technologies and business acumen across our teams has been an incredible value add.
In the first few weeks a year, we've had folks across all disciplines, notably operations sales and engineering teams come together in our Denver offices for.
A new relationships and finding new ways to collaborate and improve its been incredible.
We now have new highly complementary business lines to leverage greater control of the value chain.
Pasadena to move technology forward faster pace, our new DG Frac fleet on the horizon and much more <unk>.
Industry transitions take time, but we believe we're at the beginning of a new era in the industry well positioned with the right tools in hand.
As we shared last quarter. It is the perseverance and enthusiasm of the team that sets the stage for liberty to execute in 2021.
I will now pass the call over to Michael to discuss our detailed financial performance and then Ron will give a short update on the integration progress for operations and technology.
Good morning.
We placed a finished the year on a positive note.
On the immediate challenges the team faced in 2020 and disciplined approach to managing the business is very effective.
Breaking disease through mainly as a.
And we were a woefully faster.
The next day.
Legacy once a business also saw a significant improvement despite the disruption caused by the transition zone.
Brad persistence and dedication exhibited by a D C. A new T leases during the quarter and we're excited.
Size of it you're right.
Chapter of that story as one United team.
And we look forward, we believe we now get the Wright operations footprint in place for 2021 currently.
Currently plan on running a proximity.
Loosely as a business.
Moving and maintain those fleets during the year with some normal seasonal variation of the U S. A Canadian.
Impacting utilization in various quarters.
So for.
2021.
From a full easily Sweeney.
Line, 71% to $966 million from 2 billion in 2019.
Net loss totaled 161, and $1 16 and fully diluted share.
Full year, adjusted EBITDA was $58 million compared to an adjusted EBITDA for $291 million in 2019.
Just a annualized EBITDA per fleet for.
Good day.
For the $12 eight day right now.
Our adjusted EBITDA reconciliation that excludes stock based compensation closely correlated.
Reported.
Our focus is 22, a managing capital expenditures for <unk>.
Happy to do that socket, a positive cash flow on frankly operations during the last nine months of EPS.
That was severely impacted by the pandemic.
We're pleased to be able to reduce net.
On the speeches, while continuing to these tier four DGB equipment at the strength each day.
And prototypes and you feel a lot.
We will seek apology this is higher than a <unk>.
In line with.
That philosophy on managing the business by focusing on superior long term resilience.
<unk> balance sheet strength.
For the fourth quarter 2020 revenue increased 70 financing the $258 million from a 147 million.
The increase in revenue was primarily driven by 68% increase in active fleet and improved utilization.
As customers for stool completions activity Foster a distinctive.
Net loss after tax decreased to $48 million in the fourth quarter.
Non.
Fully diluted net loss per share was 41 sales.
On the equivalent.
'twenty 'twenty results for the quarter was because of me.
I think that by $11, one non recurring expenses, including transaction and other non recurring costs.
Yes.
On one statement.
Fourth quarter, adjusted EBITDA, which excludes noncash stock compensation expense increased $2 1 million from one point for May and June.
Net improvements in adjusted EBITDA was increased was driven by increased activity and utilization driving higher absorption of fixed costs.
<unk> expenses totaled $20 1 million per quarter, including non cash stock based compensation expense, a $3 5 million.
Net interest expense associated with a $3 6 million equivalent.
Your line.
We ended the year on the cash balance of $69 million in it.
Susan.
At year end, we had no borrowings drawn on the ABL credit facility.
A liquidity, including a $114 million a day.
The ability on that credit facility was $193 million.
As we laid out net this quarter a school.
It is managing the business for cash flow neutrality.
And we're pleased to be able a peak rejection.
Given the considerable changes in the oilfield services market over the last year I'd like to provide a preliminary view of 2021 a M.
I remind everyone. On this is based on current macroeconomic conditions and there is a significant uncertainty.
Yeah.
Chris pointed out yes.
Post Covid recovery.
Recovery.
As a U as we speak a continuation of the current frac activity levels through the first half.
Followed by a team from gradual improvements in industry activity in the second half of a year lead by driving on brands if the macroeconomic conditions.
In Canada rig is paying normal seasonality for the strongest as Hulu followed by a seasonal decline in Q2.
Movement in Q3, and a seasonal slowdown in Q4.
We are planning to run approximately C average frac fleets during the first quarter and we will evaluate changes to fleet deployments based on market conditions, we will add crews in the future.
With a meaningful improvement you hit on it.
It.
As Chris described increasingly positive dialogue with customers a G Frank market, because he's a modest price inflation for gray.
We believe there is a recognition amongst all of France.
Hey, low.
Pricing during the 2020 energy crisis to ensure continuity of operations for <unk>.
And this was on a sustainable outside of a period of crisis management we've.
We've had productive conversations with a number of clients and have plans in place phases on those.
Price inflation.
Yeah.
With a once the acquisition we have grown significantly at a frankly, a lot of on business and sand mines a mix.
We expect a general and administrative expenses in 2021, well on increased by high single digits for 2019 levels with free.
<unk> brings net guidance.
Significant fixed cost leverage.
At this quarter will include approximately 10 million a nonrecurring SG&A costs related to the transition services provided by Schlumberger.
That should close in services from Schlumberger not continue.
Yeah.
Capex vintages, a target is a 145 $275 million range for the year depreciation and amortization for the estimated at approximately $240 million for the fourth.
Yes.
Capital expenditures on the mid point a range includes maintenance capital of approximately $305 million per fleet.
Partially offset by the early stages of Capex synergies on two equivalent slated for maintenance.
Annualized savings of approximately $1 million for this later a slippage.
Into the second half a year after average free periods, a valuation support equipment.
We are also including approximately $60 million technology. This essentially did shrink fuel upgrades for a right lastly, approximately $10 million relates to the liberalization and organization absolutely.
Importantly, we have significant flexibility adjusting net capital spending targets depending on.
And we plan to be free cash flow in 2021, while continuing to based on the future.
As we bring wants them into the fold Liberty is laser focused on building a business from a future where we got a partner of choice for people on site.
A sustainable and productive operations and diseases and drive deeper customer partnerships and a superior which is we are not a pool.
A handful of you're wrong for a short update on the integration progress from operations a technology.
We are excited to bring together two premier a frac service companies well positioned to lead a technology driven structural change in the industry a change that is necessary from a viewpoint of our customers suppliers and investors.
Our plan of execution is focused on three areas.
Culture, and leadership technology development and operational excellence right.
Right now we're at the early stages understanding what we're calling for Liberty Red and Liberty for the teams are doing and why and how we can leverage the best from each of the organizations.
First we strengthened our leadership team to execute our vision with a combination of the red and Blue Heritage folks.
These are the folks that will reinforce our culture of agility.
A generation and empowerment and drive collaboration across all our business lines to carry this business forward.
Decade, Liberty use history as prudent in the impactful utilization a real data and rigorous analysis.
With our larger scale, we are now bolstering our knowledge base, representing a step change for innovation in the industry.
We're creating a new technology leadership.
All our innovation engine.
This will accelerate the rate a development of our a leading data driven engineering stimulation tools, leading edge equipment design and technology development innovation is ESG and more.
It is this collaborative model from start to finish that is key in driving value creation and a differential returns we've seen through our company's history.
We were early movers and deploy a dual fuel capability doing so interest our second year a business in 2013.
We were an early field test partner for tier four DGB and a strong advocate for this technology as a viable option for next generation fleets to meet reduced emissions initiatives.
We continue to see strong demand for this solution as we add this upgrade to a much of our existing tier for capacity.
To further emissions and operational cost reductions we are finalizing the testing of our proprietary engine idle reduction system.
We expect to begin deployment of this system across our fleet a little later this year.
The next step in our journey down this road a reduced emissions and improved operating performance will be our electric fleet.
With electricity generated using natural gas reciprocating engines. The <unk> platform will provide solutions to the challenges identified in many of the current iterations of electric fleets.
In 2021, <unk> for fabrication field testing and commercialization plans remain on track.
Working on integrating a fully electric process trailer, a combination lender and hydration.
Completing a power supply design and assembling a power generation system.
In parallel with this effort, we will be completing the development and deployment of a next generation control system with fully automated pump operation for a dip.
100 across all Liberty fleets.
As part of this initiative, we will also integrates a pump down control into the wireline system and ultimately into Frac operations, allowing seamless oversight of these two digital operations on location.
Third from an operational perspective, we now have a much expanded software and technology platform.
This will drive value by augmenting planning execution and equipment diagnostics with digital integration and automation.
Our new larger organization takes a greater coordination of all elements for managing our assets with the greatest efficiency to where we invest dollars for the right equipment and technology.
How to best leverage our vertically integrated asset base and supplier partnerships.
On a relentless desire to improve means that all processes are under the microscope.
Along those lines, we have had great success in providing customers with both frac and wireline services.
An area, we know our latest <unk> liberty customers would greatly benefit from <unk>.
By streamlining our Frac and wireline respond site to shape extra minutes off the day every minute equals efficiency and translates to a lower cost of producing a barrel of oil for our customer and improved profitability for liberty.
We strive for.
It has been an incredible start.
Pending time, with our Red and Blue teams across all of our basins, the eagerness and excitement from our teams is humbling.
As we move forward, we will come back to the street with the progress we've made.
With that I will hand, the call back to Chris for closing remarks before we take your questions.
Thanks, Ron.
The future for Frac services is leveraging scale for innovation with more data and technology and empowering talented individuals to interpret and apply the analysis of this information to ultimately drive down the cost of producing hydrocarbons in the safest and most rich.
Sponsel way.
As we enter our 10th year on operation. We are excited to lead a technology driven structural change in the industry.
We are uniquely focused on extracting significant value from our acquisition by bringing together.
Two of the leading technology centric service business is in our industry.
Supplemented by an ongoing technology partnership between Liberty and Slumber J.
The early response to Liberty's acquisition of one stem has been positive as customers are finding value in our technology leadership.
Invention and creativity takes center stage in our industry.
Liberty remains committed to the next decade, a innovation as we were in our first decade as a company.
We look forward to your questions.
We've learned a fact of the operator for questions now.
We will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two at.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Chris Voie with Wells Fargo. Please go ahead.
Thanks, Good morning.
Good morning.
I guess first to start off with.
A high level question I mean, we've heard the refrain no fleets at a pricing I think since kind of like the middle of last year.
In practice, we have seen a lot of fleets coming on market at very low pricing. Thus far so are there any factors that will be different going forward from this point in time compared to what we saw on the third and fourth quarter for the industry.
Well Chris.
Don't think you've heard that refrain from us our goal when the pandemic hit was to work with our partners to keep our relationships strong.
To get through the downturn the oil price disruption together with our partners. So we made adjustments on the down on the downturn to keep the economics to work for both sides and then we've continued and then we did agreement to ramp things back up in a schedule, it's actually been not much different than what we.
What we discussed alert with our customers in April.
To us think things have gotten a plan theres been no change the key at the start is preserved the relationships.
Restart safe and efficient operations.
As we mentioned we had a efficiency records in Q4 likely also for safety and now now we've seen an oil price recovery and now we will see price recovery in our Frac services as well.
So for us.
Things have gone as planned on track.
Okay. That's helpful. Thank you and then maybe at a follow up on the pricing discussion just curious if you can help us quantify how meaningful that might be.
And may be translated into how we should model a gross profit per fleet or EBITDA per fleet going forward do you see any of these as kind of in the bag, thus far or is it going to be more of a slog as you got through the first half of the year.
We have we have a good number of agreed price raises already not starting tomorrow, but we have start dates are pad dates where these things will come in.
And again, it's just always been a partnership dialogue with us.
We moved down we held for a while and now we're bringing pricing back up but we have a good number of agreements already in place and we expect a over the next few months to have a good number of additional ones.
I'm going to a I'm going to refrain from commenting on magnitudes and movements on a gross profit I don't know if Michael wants to add anything to there, but we got a let this play out as a as it goes but we feel pretty good about where we sit right now.
Great. Thank you very much resolved on.
The pricing side, I think you probably start to see that slowly roll in from Q2 onwards.
After that but this is a guy he isn't a black you have these discussions we had.
The crossings is it Q2 of last year and as we said we moved those pricings out with those funds in a plant.
As we roll through the ESL, Inc. For maintenance, we go through the year.
Okay, great. Thank you.
Thanks, Chris.
The next question comes from Scott Gruber with Citigroup. Please go ahead.
Yes, good morning.
Good morning, Scott.
I wanted to stay on the pricing question.
But ask a question related to incremental crews.
Chris.
You talked about the anticipated pricing on active crews.
Is the magnitude of that price increase.
Session two at incremental crews into the market or would you want to see something bigger or more of a step change in profitability before adding incremental crews.
Yeah, Scott I would say, yes, it's something additional to the agreements we have in place now we have in place now that kind a partnership things we need to keep our customers.
<unk> strong returns and the returns on Liberty has invested capital to come back as well. So that does have been very constructive dialogues and as I said a number of agreements are completed.
But yeah, I think for us to stand up and hire new people and deploy another crew. That's a that's a bar higher than what we're talking about so far.
That's good to hear.
And then maybe just a little bit of color on a.
<unk> EBIT.
Now you'll have the 110 fleets in the fold.
Now that you've closed the deal.
How do you think about the timing.
Liberty is those crews and close the margin gap between the two sides of the business.
All right I'll, let Michael a rod comment on that.
Yes, so Scott.
I think once you get a C. As you can see a slow ramp up a week.
We'll be fully cooling a little iglucruise a very efficient.
From a nice surprise.
We've got a good fixed cost leverage to the sushi once we get past Q1.
A lot a transition to the noise and costs as far as you know until we transition on to our ERP systems and everything else when we get to a true efficiency on the <unk> side.
There's a lot of work going on in the Q1 side for that.
Stock and really see that drop through to the bottom line from Q2 onwards.
And then we will start to see sort of a more integration and sort of my benefit to GAAP any efficiency gains closing on the key thing there is maybe not so much pumping on the day when they're on slides, which is a very.
Bruce.
Really wanted to round coordination scheduling and reduce a white space, which is one of the places that liberty sales operations team on the sales.
As a goal to close the gap in.
By the end of the year as a possible.
Correct, yes, they will be.
I think that I mean every customary briefly the reason.
Every country, a rebase and has a little bit of a different flavor, but yes, we would expect by the end of the year.
You shouldn't see a great deal generation easy any difference on improve we're rolling out it's going to be Liberty and Liberty overtime.
Good day here I appreciate the color. Thank you.
The next question comes from Stephen <unk> with Stifel. Please go ahead.
Thanks, Good morning, everybody.
Two things if you don't mind, one just to kind of continue on that on that topic. I was just I was trying to understand when you're looking at the fourth quarter, you mentioned record sand volumes pumped so I would assume that means pretty high efficiency.
Are we are we looking at a pricing dynamic early in a year, that's very similar to the fourth quarter.
And is there any kind of efficiency gains that we could see early in a year, which would lift that EBITDA per fleet.
Well, we did indeed have record a sand throughput on our fleets record efficiency across the Liberty fleet in Q4.
And again look we'd love to see more margin than but we know that's coming for us. The key thing is the partnership with customers deliver safe operations and keep driving efficiency.
Bob.
There's always room to get better, but yes. It was a pretty high bar in Q4, I'll, let Michael talk about there's probably incremental improvements in efficiency going into Q1, that's ambitious, but we'll probably achieve that but I think just a fixed costs leveraged over a larger platform is also helpful. Michael.
You want to add.
Yes, it does.
Steven I think what Youll see as we move.
Here's a dray fleets.
We're efficiently in Q4, we didn't see that as much as a Q4 a drop off as we will because we just started a ramp up.
Yes, it's a range of completions. So we didn't see that efficiency, probably flattened on say into Q1.
We see a little change over the calendar is the Wi Fi. So I would say probably was a deal on the efficiency gains out of the combined operations in Q1, a youll start to see things change as we go through the year.
One of the things that you had a usually when a leverage fixed costs I think what we're going to be on the dosing.
Go through the year on into next year.
On a significant leverage down on on our <unk> costs and some of those cost per fleet that.
But we're looking at all of the technology innovations that Rollins teams sort of running through the model. Combining this was a day parts of what the historic ones <unk> been doing but based on what we've been doing I think we're going to see some pretty significant.
Helps VA and from a bottom line.
On both on that side of it is also the automation of wrongdoing and I'll talk about later on because you see more of than we had a day then may even really reducing the number of feeds on side being a <unk>.
One by the Tom for the reduction in fuel costs with a normal idle there's a lot of efficiencies that are coming.
I think youll see a great deals on a Q1 as we go through we just got a you could imagine everybody is running a non SaaS model in that in a moment.
Youll start to see those flow through as we go through the year.
Great. That's helpful. Thank you and then the other the other one was on the on a does your Fracs and.
I have.
Can you share with us on your thoughts on how the model ultimately works.
Thinking about it.
Who owns the turbines it isn't you long term and do you think customers will pay for.
Returns on that capital or do you think theres another ownership structure of turbines down the road.
Right.
Net.
Yes.
First and foremost I guess most important dimension that we are not going to use turbines, we view a turbine as.
Not only challenge from delivering the lowest possible emission footprint, but also incredibly challenging from a.
Capital standpoint, you've certainly heard the numbers around what one of those cost too to purchase and ultimately on.
We're headed down a completely different path, we will be powering our electric correctly Digi frac with natural gas recent vintages. So.
Are you still under a natural gas engine. There there are commonly used in power generation right now if you were to.
And also an Apple a data center for example, and look behind that what you would find as a user.
A two cylinder natural gas Gen set there.
We're going to do the same thing.
We believe we have an opportunity with that to deliver a meaningfully better emissions footprint than than current iterations of electric frac fleets and to do so at a significantly better capital efficiencies than we've seen in the past.
And a great comment.
I can comment on that kind of on the ownership model based on the uneven.
You're putting it in a store before.
It's tough to think of that that obviously a model being separated at Wright. The reality is like a slightly greater.
On a piece of equipment that you love, but you've got.
Golf for utilization to payback that equipment now.
Obviously, you feel like it was the same way we are insane.
A lot of Frac company.
The country, we are going to have the ability to on a map had a generation and keep on running a 100 percentage at the times being a net.
How about on what customers moving because it hasnt had downtime and she's got a wrong with pads net changes.
Youll see acquisitions.
Thanks for the life short term slowdowns in Ctrip now, we can move that equipment around the salt we use that frankly can move.
I think generally we've seen on that can move based on this.
Right.
Now, let's take a deeper product pages on here on the secondary on as you kind of retool. The only way you can do day decision about a significant I'll leave uses for that power in a geologic briefly I think a breakout.
Obviously, it's a drip of some of the day.
<unk> has generated a small net generation.
ACC across a lot of different business line and maybe a on a different industries on <unk>, you're still but we can guarantee that a continuation wood, which means we could ultimately end up with the lowest cost of ownership for that cash generation.
Don't think it really makes it seems doing it any other way.
Okay, great Great I appreciate the color gentlemen, thank you.
Thanks, David.
The next question comes from Sean Meacham with Jpmorgan. Please go ahead.
Thank you good morning.
Alright, John.
So Chris there's been a lot of talk about old equipment getting cut up.
That's for your benefit as having a young fleet.
And your contribution now is coming through this once in a transaction.
But across the industry most of what's been cut out.
It Hasnt worked in a while.
It seems like there is for.
Sales in emerging bifurcation in the active market.
<unk> is a pretty sold out as far as E frac and dual fuel utilization across the industry.
And so a note that part of the market, we're seeing some capacity creep back in in various ways, maybe some piloting some new easily.
Upgrading some tier four fleets a dual fuel.
So I'm trying to get a better sense of your perspective around potential bifurcation in the active market.
Between legacy fleets.
And Nextgen fleets and then on balance how should we think about you know a lot of a nameplate capacity has gone away but.
In the aftermarket we are still kind of letting some more horsepower creep in a love to hear your thoughts on those two a emerging trends.
Yes, Sean a I would agree that the market is becoming bifurcated.
Going through a gradual process that's been going on for a while.
You know Liberty was very early on second year, a business building dual fuel fleets. So we probably had several years.
Maybe even slightly frustrated we had a lot a dual fuel capacity, but it was an effort to get customers to engage and use it.
That mentality among customers customers has changed dramatically, but now I think everyone realizes wow lower a lower emissions.
A lower emissions and lower cost that that makes sense.
So there's a little bit of extra logistics that need to be done and we won't get into that today, but yes. So dual fuel is becoming a more common thing that people want.
Tier for you know for certainly people at the highest bar want tier four equipment that's it.
You can't upgrade an old tier two engine to tier for you get upgraded old tier two engine to a tier two a dual fuel which is a great step on the right direction, but for tier four equipment. It's got a b, it's gotta be tier for horsepower that was built that way.
So it's going that way you know on I would say look it's the bigger stronger players that are there.
Net fleets are migrating towards more upgraded fleets.
And then there's a lot a legacy horsepower and legacy players out there that are just less active in that space and not doing so much. So I think as we as with the transformation to a high spec rigs it will take some time, but it's definitely going on.
And no one is building the old legacy equipment and people are you know again not maintaining all of it.
Combined they had 10 fleets and they put them into seven fleets and there we're moving parts and if they stop investing maybe there'll be at six fleets you know a little bit later, so we see capacity shrinkage around the marketplace.
There's still like huge amount of traditional tier two diesel fuel fleets running so they're not gone there just there's just that equipment base a shrinking in the percent of the market. They are is shrinking as well, but I think right sizing the market takes some time, but the last 12 months.
Particularly productive, particularly productive and I suspect, we'll see a quite productive this year as well we'll end this year with meaningfully less deployable capacity for Frac fleets, just because there won't be the investment levels to maintain the existing capacity at the end of.
This year, we will have less available fleets to frac and more fleets fracking. So I think that that progression is happening.
Yes, I think Thats fair I appreciate that context.
Can you touch on capital efficiency for a second you only about a month of looking under the hood, but on that.
And you guys have a busy.
So you cited in the prepared comments, a $1 million per fleet of maintenance capital savings from rationalizing the excess horsepower for once a Tim so.
So if we're running 30 fleets $30 million a year.
Do you have a sense on how many years that can run or what.
Date on the aggregate savings versus the initial shot in the dark do you provide us.
Late 'twenty.
That's a niche Jones I think the shelf on the docks to that basically estimate at the moment.
We're really just is it a lot a equivalent to half a year.
But yes, I look forward to develop in a variety is putting a take most of the first half of this year is that a come up with a plane, yes on the efficiency plan on how we're going to do this the majority of the savings will come next year on the capital side and then some of it will slide into 2023 that I think a there's a balance there.
Roughly let them together on a plane.
It's going to come next year, maybe a quarter on the second half of this year on a quarter of it in 2023, maybe a drag out a little bit too there was a 2023 and we're still in a general interest.
The Doctor we hit.
On.
So again, plus or minus $75 million, we think it will be will help us on that.
That's a good a framework Michael Yeah. Thanks, guys I appreciate it.
Thanks, Sean.
The next question comes from Ian Macpherson with Siemens. Please go ahead.
Thanks, Good morning team.
Michael does your Capex envelope for this year include maybe at the high end or otherwise and include.
On the completion of the first digit Frac fleet in its totality or if you were standing up that.
Net fleet in the second half.
Would that be incremental sort of newbuild capex that could be above and beyond that.
Yes. It does include a yeah that'd visibility this is.
Frankly.
Okay.
I know I understand the reticence with with more sort of visit.
Specific guidance than what you've already given but you said a an ambition would be to.
To stay free cash flow positive for this year.
And we can certainly work backwards from from your.
Capex guidance and we know what interest looks like do you have any could you point us.
Towards anything with respect to cash taxes or working capital.
Harvest or build for this year that might help us to refine our EBITDA.
Estimates for this year.
I'd say, its pretty little very little cash taxes.
<unk>.
He is a great probably won't move the needle on a cash side of it and with a capital will be a slight build but not huge trial. This once in a business came with a weighted.
Cash flow.
It was filed a deal negotiated a deal so there'll be a slight build and then will depend really on have a second hospitals right.
We stay in this kind of flat environment macroeconomics doesn't improve.
<unk> done a improve youll be a relatively flat working capital.
I think we've got a we'll make some wins on.
On the inventory that will offset some of the Abbott will increase.
If we see some we see really pricing improve a decently and we see a little a little more speedier adoption.
Even at a working capital build but then you will see in earnings built on the same time alright, alright.
Understood Great. My other questions were answered so I appreciate it I'll pass it over.
Thanks, Ian Thank you.
The next question comes from James West with Evercore ISI. Please go ahead.
Hey, good morning, gentlemen.
Marty James Ed.
Chris with.
With Brent.
60, and WTO and a high fifties, so a bit higher than I think.
Budgets were set for your customers is there any talk at a lull of them.
Investing more this year I mean, it looks to us like they're not investing enough to fulfill even hold production for.
But at this rate, but are they starting to what they've announced kind of a reinvestment rates of 70% or 80%.
So is that a signal that perhaps we could see a little bit better capex on perhaps we thought of a month or two ago.
I don't think so James.
Regular dialogues with our customers among the publics.
I don't think we will see any change in plans.
I think the message has been received I think people realized Wow. We've had this awesome shale revolution, and none of the value accrued to the operators.
And so no I think that.
Certainly for this year and I don't think it I don't think it fades.
Much in the coming years, either but no I don't think we will see any change in the development plans that the publics have laid out.
Whatever oil prices do unless they went really low you would see a reining back in but we're not going to see new additional capex from the publics.
Certainly on the private side, it's a little bit different.
Their oil prices and current economics impact decision, making so theres a little more.
Mitch and plans for the privates, but even their capital availability is not great nobody wants to stress our balance sheet. So as cash flow flows up I think youll see a little more capex from the private something we're already seeing a bit of that.
But not a huge I still think sort of the I agree with you current activity levels for the public sort of imply a little bit of a decline in production for the year, but boy efficiency.
Upgrades I don't know if I was a betting man I still suspect that exit rate production. This December will be pretty similar to what December production was lack closing 2020 out could be that if oil prices.
Yeah, it'll be flattish this year I think that's a REIT I.
I don't think we'll be far off that.
Okay, Okay fair enough and then with respect to the slumber J technology portfolio that you acquired.
Are there certain technologies.
It stood out to you I mean, you've had a month.
Owning the assets and the IP.
<unk> took a look under the Hood is you'll do a diligence.
Certain technologies in that portfolio that are incremental to what you.
You guys already had and could ramp your own efficiencies even further.
Yeah, Jamie I think there is and even just a business processes, yes. The more we look under the Hood, it's like Wow, that's pretty cool.
But we've been cautious in saying too much about them because we've got a digest understand it we're planning to do I think a human.
Faster day in May or something where we'll have a longer presentation, well give a little more color into the technologies across you know from operations to a business processes to ESG will give a little more color a field then yet.
Yes, but yes, we have this surprises a bit on the positive side as far as.
<unk> technologies and the humans.
What are the appeals Ted us of Schlumberger was that low turnover, a long tenured higher caliber professionals in the company.
And we havent been disappointed.
Physiatrics about it.
Okay, great. Thanks, guys. Thanks, James take care.
The next question comes from George O'leary with Tudor Pickering Holt. Please go ahead.
Good morning, guys.
Well George Thanks for the goals.
Thank you.
Assuming.
Pricing were flat for me on like lets just assume on any mentioned theres.
It sounds like Theres some increases on the come from some of your customers or partners in the field, but assuming pricing were flat from year end given the 30 fleets do you guys anticipate running in the first quarter, just directionally not asking you to quantify magnitude, but would fleet profitability again, excluding pricing increases excluding.
Any noise associated with the ones Jim transaction.
With fleet profitability be better quarter over quarter in the first quarter from either a gross profit or an annualized EBITDA level just given the increased scale. How would you how would you frame that we've touched on it a little bit, but just looking for any incremental color you can provide.
Hey, George we get significant fixed cost labor drive a G&A really isn't going to go up a reasonably at all really not that much I mean, when I think about the G&A that we added.
Deal, we really and science right.
Got.
For the low fixed hopefully a which we didn't get a lot of.
We sold a G&A front, we need to get some of the district a fixed out.
The average because obviously with doubling the size of that any business right and really not adding.
It's a certain amount of out of it.
When it comes to that which I think is also a very very good we've got a obviously over on supply chain team can be by twice amount on twice the amount of stuff thats going to help with working with suppliers.
That's a key thing.
A J as we get more and more into these areas.
Sure.
We will do a survey we also gives us a little a bit a utilization with the calendar Brian the other day.
And so to be a lodging in different areas. It means you're always going to eventually going to have fleets moving around and as we went through the year.
With the integration of these two these two fleets, which can be larger youre going to be on a shuffle. The fleets. So you have less white space. So yeah, there's a lot of incremental benefits that come with a day.
I think low the processes and procedures as we sort of be able to get more efficient as we go I think adding a wireline business is a great complementary business I think he's on our guidance.
Unique Frank on a on the down for us.
A significant probably the largest portion of assays on gas on relative to talk more to that but we can shape U shape minutes off day, that's more revenue that you're going to bring you gives you a bridging the title of a theatre understanding we have we've bumped them. We got a we still were already the largest probably the largest has taken a largest buyers chains in the country by far.
The other day, we have two takes us mines to help us balance some of that as well. So all these things I think are going to come together at a health even without any pricing.
Or any increase in place. So we would see we see improvements as we go through the year.
Great. That's very helpful. Michael and then just from a.
Tendering perspective, you mentioned in the back half it seems like some privates mad at least best we can tell activity was up in December activities up month over month in January.
On a on the completion side, we clearly see a drilling rig count continues to grind higher.
Clearly some pricing discipline on your part and not activating incremental spreads, but just from a geographic perspective, and a tendering perspective, where are you seeing the lion's share of the shots on goal as a Permian activity increases or is it.
Yeah, you're seeing some activity increases potentially in the Haynesville, where we're a people looking to add as we progressed through the year.
You know the Permian certainly the biggest porn so yeah, there's probably.
Sure.
That's certainly the biggest place youll see extra activity levels.
<unk>.
The haynesville the upside of the Haynesville was it never it didn't drop nearly as much.
So the Haynesville stayed reasonably strong throughout the year.
It's definitely geographically advantaged for LNG exports and as we see those we'll set a new record this year, beating last year's record Theyre up, but you know not a huge increase in activity there.
Awesome thing about shale gas as we can produce a lot of it.
So no I don't think we're going to see wild swings there I would say that.
The flexibility and activity is going to be more than that.
Is more of the oil basins more on the oil basis.
Thanks for the Pollo the covenants, if you had one <unk> as adjusted.
Interestingly enough <unk>.
And so on that right. So we've had basins with customers a approaches on the east and said Hey, we really likely to bring you a view of efficiency and engineering technology.
<unk> focus to a basis to a country ctrip.
What we've adjusted this one since the horizon spanned a geographic base for IBM, we started in the Haynesville Navigant a large frequency we're doing within the mid con.
Yes.
But in tennis operations in the northeast we have operations in Canada for people who've been approaching us for years to come on to help do some work within the Montney and Duvernay in Canada now we've got a base there that we can we can do that.
Once COVID-19 can you talk a little bit if we could actually execute people across the border, but you've been a season things there I think you're going to see some sort of like potential once pricing comes back.
Additional market for us to be at a time just by taking a liberty.
Based on like normally speak a tools that people have wanted and having access to a different basin.
Thanks, Michael Thanks, Chris.
Okay. Thank you George.
The next question comes from Connor Lynagh with Morgan Stanley. Please go ahead.
Yes. Thanks I appreciate you guys squeezing me in I'll keep it brief since we're at the top of the hour here.
Just just at a high level framework, obviously, you've added you've added pressure pumping, but theres the affiliated business as Michael you're referencing wireline theres, a sand mines as well.
I would imagine the incremental earnings contribution at today's pricing is pretty minimal, but but could you give a sort of a framework to think about relative to say 2019 on a per fleet basis, or however, you want a frame it how much can you add to your to your EBITDA per fleet or your earnings power.
Both from me.
Having incremental assets working but then also the efficiency gains that you were talking about I. Appreciate it you might not be able to get super specific on the efficiency side, but would just love any thoughts on how we should think about that.
Yes.
For enhanced calling at this point, but just a little bit too early I think probably by a probably all I can say that for the next earnings call I'd tell you a gig.
I think ideally we will get some.
But I think this is.
Being out it gives us a specifics would be better off down on sort of once you've got a quarter under our belt and we can really see it youre going to remember this is all accounted for on the Schlumberger and a lot of the historical with a cost structure its interest net.
Still a sort of coming becoming please.
I'd say.
Please put that all through that.
Too much edition of the Earth model.
But it will be positive.
Alright Fair just just one last quick question on on a related vein than the <unk>.
<unk> gains that Youre talking about on on wireline that being a big portion of downtime can you maybe help us think through how much of a an uplift how how big of an outage is that on your quote average pad and then if you guys were able to get a where you think is a reasonable how significant would that be.
Okay.
So.
There are over our past few three of course, we track this were for since the beginning a large time is about average is today about six minutes per frac stage that we work on across our entire fleet. So.
Have you started to rollout a obviously that varies a little bit by basin in terms of a number of stages that we bump, but but if you think about it from that standpoint at a high level a level that will give you some sense of what.
What kind of a time, we might be able to add over the course of a year.
Alright got it I'll leave it there thank you.
Thanks, Good luck on.
The next question comes from John Daniel with Daniel Energy Partners. Please go ahead.
Hey, guys good morning.
That's a really one question for a follow on to Sean's question, but.
Looking for a wild Ass guess on your part gross but as you look at your customers or just call. It the E&P industry.
What percent of them.
Actually care about lower emissions and what percent of them are actually willing to pay for low emissions.
That's a great question.
Jay.
And one thing I think a John I know you know this but one thing I would say that's misunderstood about our industry.
Industry is dominantly people from rural areas that have lived on the land I mean, I think I would say the concern for the environment has always been there in our industry Youre right, but where are the incentives were a.
Whereas the drive for that behavior.
And it's definitely here.
Bird right now in that the marketplace is so tough E&P companies are are heated by investors and that gets that definitely does swing a needle on cost.
All else.
So the bigger players and a few of the I would say embraced players.
Hi.
We are willing to pay for it but but there it's still a small percent everyone else wants it but in today's world there, they're more reluctant to make any meaningful trade off for the cost of it and so that's.
And we're sort of on the same boat too right. We want to do that we want a upgrade I'd love to have all the leading edge fleets, but that's a lot of money.
So that's why I say this you know things are trending the right direction, but but it's it's not an overnight thing. So John I don't have an estimate any better than yours, but you make a very good point everyone talks the talk.
And it's still a small minority today that'll that'll pay for it.
How would you characterize just.
The transition Chris I mean, we're eventually going to get their Wright prevention of the NAV.
Hmm.
But is there a step change later this summer next year I mean, just I know we have no idea, but just your thoughts.
John I think it's a it's so driven by oil prices and returns and I think that.
A lot of people say to me boy.
Customers with this discipline on investment that must be really tough for you guys are spending less my view on that is exactly the opposite.
The fact that oil prices have risen 25% since people set their budgets and nobody in the public world and even on the private world isn't dramatic that people don't want to change their budgets. We think that's a great thing right because if people invest less and truly hold back.
That's the thing that moves the needle on oil prices and you move oil price as to where they are today and you take a efficient operations, we're going to see strong returns on capital by our customers, we're going to see some respect and belief in our industry coming back from those returns and that enables everything else everything.
It's like the dialogues, we're having right now of course, no one wants higher prices, but we need a sustainable industry, we need partnerships that can keep getting better and more price to us is necessary for that a.
Just to get return on our existing assets, we need a little more price on top of that to invest a new assets, but I actually think again, you've heard me say look we've had a rough decade I think the next several years for our industry are actually going to be pretty good.
It's supported by commodity prices at base, but I think that's going to lead to better returns across the value chain and once you have better returns.
The investment the payment for a lower emissions and better operations that follows with it. So yeah. I think we will see a very different attitude for paying for a lower emissions 12 months from now than than we've seen in the last 12 months I could be wrong, that's my belief John.
Well my editorial comment on is the technology seems to be here of making meaningful changes.
So hopefully we see a rapid adoption on by the way Greg.
On the gross cost.
For the stock.
Understood.
Thanks, John I appreciate that.
Okay.
Take care.
The next question comes from Tom Curran with B Riley Securities. Please go ahead.
Oh, good morning, Thats dedication guys. Thanks for taking my question essentially pointing a call.
I just had one technology question left.
Curious, Chris Chris a Ron whether you currently provide your customers.
With any ability to track and monitor in real time and image.
All of the fluids involved in the Frac slurry.
Downhole so in other words as the Frac job is being executed.
Do you provide that ability to.
Two two imaging monitor different fluids subs.
Subsurface and if so.
Is it an ability you currently had in house or do you use a third party for that.
So that is an interesting question and as you probably know Michael Ron and I and a number of others on Liberty team spent the largest piece of our career developing fracture diagnostics ways to measure how fractures grow and what they're doing we we have some.
Of those technologies in house, well watch is one we've talked about a lot that gave us indirect measurements about how far away from well bores fluids are going.
We've been looking a fracture diagnostic technologies.
But it is not a standard we run Frac models. So we obviously in real time are transmitting to our customers from satellite dishes are model predictions of where we think fractures are growing and.
And where the sand is where the fluid is so we do it on a predictive basis, we have some big picture far field pressure measurements to infer that.
But certainly there is there is more that could be done there and with the right technologies on the right value proposition, Yes, I think you may see more of that from Liberty in the future.
And just to be clear, Chris you would expect to provide that in house and then just as a follow up.
What percentage of your jobs currently would.
Would you estimate.
Involve some use of it.
Well the modeling.
All of them.
Well watch that the adoption of that is pretty rapid so that is that's ramping up at a good clip. It's still not it's still not have jobs, but that's ramping up pretty quickly.
And then.
For micro seismic that we developed 20 years ago until we do have some of those on jobs That's third party.
But.
That's a small percent.
Great.
Thank you I'll, let you go before you lose your voice. Thanks, Tom Yeah, I don't want to ruin everyone's a friday mornings, but a we appreciate everyone's interest.
Yeah.
This concludes our question and answer session I would now like to turn the conference back over to Chris Wright for any closing remarks.
Thanks, everyone for your time today, I apologize us running over the one hour we had expanded a opening remarks due to the nature of the transaction, we completed with Schlumberger, but thank you all for your time and interest in Liberty and frankly for your interest in this industry a match.
If COVID-19 had struck a world not energized by oil and gas we wouldn't have vaccines now we wouldn't have if your ability to ramp up PP&E and communicate and send resources all around the world. So the world's got hit a big blow, but thank God, we had an oil and gas energize world to respond quickly.
And we look forward to a tremendous progress continuing on that this year and we look forward to talking to you. After the first quarter have a great day everyone.
The conference has now concluded.
You for attending today's presentation you may now disconnect.
Okay.
Great.
Okay.
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Thanks.
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Okay.
A number.
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