Q3 2021 ProPetro Holding Corp Earnings Call
You ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then too. Please note. This event is being recorded I would now like to turn the conference over to Josh Jones Director of Finance. Please go ahead.
Thank you and good morning, we appreciate your participation in today's cool with me today as Chief Executive Officer, Sam Sledge, Chief Financial Officer, David surely them or and President and Chief operating Officer, Adam Munoz.
Yesterday afternoon, we released our earnings announcement for the third quarter of 2021.
Please note that any comments, we make on today's call regarding projections or our expectations for future events are 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.
These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filings with the SEC.
Also during today's call, we will reference certain non-GAAP financial measures wrecked.
Reconciliation 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 Sam.
[noise], Thanks, Josh and good morning, everyone.
We're pleased with our third quarter operating and financial performance, which reflects our capital discipline and operating strategy, coupled with a continued focus on customers and teamwork.
Our activity levels continue to increase throughout the third quarter, resulting in a 15% increase in revenues and an 18% increase in adjusted EBITDA.
Pro Petro continued to differentiate itself from its peers by generating solid margin and positive free cash flow.
While continuing to introduce ESG friendly solutions to our service lines, which we will discuss more later.
Our team remains committed to executing on our disciplined and focused strategy and it shows.
With steady improvement in the global economy, and improving oil prices North American will service activity has continued to improve.
That said, we still believe we are in the early stages of what appears to be a sustained upcycle an oilfield.
We are currently seeing stronger demand for anti supply of efficient pressure pumping fleets as continued plans for modest growth from the EMP community collide with pressure pumping equipment attrition.
We expect pressure pumping utilization to continue to rise as we head into 2022 potentially to full capacity as incremental demand for efficient fleets from private and public emp's trends upward.
Additionally, hire effective utilization in the Frack market, coupled with inflationary forces across our supply chains have led to gross and that pricing increases across all of our fleets.
Our missions friendly equipment, including our recently announced tier for DGB dual fuel conversions are now garnering strong demand and differentiated pricing.
As a reminder, those conversions support existing capacity and do not add effective horsepower to our fleet.
We've also been active in recovering what we will call pandemic price discounts with our objective to recover all discounts and completely transition back to normalize financial performance and improve profitability for our shareholders.
Our pricing discussions with customers have been and will continue to be collaborative to help both parties share the fruits of maximizing efficiency and complement their corporate planning and budgeting processes.
To date, our team has received pricing increases from all customers in our price that continues to migrate up.
Pro Petreaus proven track record for quickly and effectively responding to the needs of our customers, albeit in a mutually beneficial manner continues to differentiate pro Petro in our industry.
During the third quarter hour.
Our execution at the wellhead continued with high pump time and productivity improvements relative to the second quarter.
Congratulations to our team for those accomplishments and continuing to make our equipment reliable and ready for our customers and for performing their work in a safe manner.
As we move forward disciplined deployment of our equipment to profitable profitable projects is essential to achieving success in this current and future operating environment.
This applies not only to pro Petro, but our sector as a whole as.
As we have discussed in the past, we will not activate additional cruise without adequate pricing long term visibility to consistent work schedule and expectations of high efficiency targets, so as to enable an opportunity to earn solid operating margins.
The dedicated fleet model is our preferred method of operating and recurring E&P consolidation in the base and continues to produce more opportunities under that model.
We remain steadfast in the belief that this upstream consolidation will benefit sophisticated and efficient pumping companies that can quickly assist oil and gas operators and the development of large acreage positions and do so in a very consistent.
And predictable manner.
Of note private operators and smaller public companies have and continue to lead the increases in drilling rig counts certainly in the Permian basin.
We expect these activity increases to result in incremental demand for efficient in high performing pressure pumping equipment as we previously noted.
With that I'd like to turn the call over to David to discuss our third quarter financial performance and capital resources David.
Sam and good morning, everyone.
During the third quarter, we generated $250 million of revenue a 15% increase from the $217 million of revenue generated in the second quarter due to higher activity and more effective pricing of our jobs.
Effective utilization was 13.8 fleets, which increased five 3% from $13 one fleets during the second quarter.
We currently have 13 fleets working three of which are Simon Frank.
Our guidance for fourth quarter average effective fleet utilization is 12, and a half to 13 and athletes with visibility to some downtime due to seasonality included in that range.
Cost of services, excluding depreciation and amortization for the third quarter was 189 million versus $163 million in the second quarter.
The increase driven by higher activity levels, and inflationary impacts approximately $2 million in a reactivation costs of stacked equipment and a wage adjustment implemented during the quarter.
Whereas as we mentioned on the prior call the second quarter did not have any reactivation costs.
Third quarter general and administrative expense was $21 million compared to $18 million in the second quarter.
G&A exclusive of $2 million relating to non-recurring non-cash items was 19 million consistent with the second quarter of 2021.
We expect fourthquarter G&A to remain in this range.
Depreciation was $34 million in the third quarter, which is consistent with the prior quarter.
Our net loss for the third quarter was $5 million or a five cent loss per diluted share compared to a second quarter net loss of $9 million and a net loss of $20 million in the first quarter of this year.
So as you can see our performance is improving from the prior quarter's but this underscores the need for improved profitability in our sector for us to achieve sustainable positive net income.
Our profitability is driven by our success in achieving appropriate pricing and understanding our cost structure.
As we commented on our second quarter call, we experienced increased logistics costs and other inflationary pressures at midyear and our team was able to effectively manage through those inflationary pressures.
But for the actions we took throughout.
The third quarter to improve pricing, including proper cost recovery and pumping rate increases the cost of service increases during the quarter would have degraded our EBITDA margin.
Finally, adjusted EBITDA of $42 million for the third quarter increased 18% sequentially compared to $36 million for the second quarter.
The sequential increase was primarily attributable to increased activity, an additional cost recovery on jobs.
Adjusted EBITDA margins improved 37 basis points, and we experienced 19% sequential incremental margins.
Adjusting for reactivation cost mentioned earlier margin improvement would have been 114 basis points sequentially.
Our challenge going forward is to remain ahead of cost increases, while expanding and defending our margin.
Notably, we recently repositioned fleets to more profitable work with customers, who place higher value on efficient operations at this point of the cycle.
We will continue to optimize our portfolio of assets in a way that supports margin expansion.
Nevertheless, we will not put additional fleets to work unless we have visibility too appropriate economics across are currently operated fleets.
For the third quarter, we incurred $53 million of capital expenditures.
Of that amount <unk>.
Proximately 20 million was for conversions to 5 million was related to reactivation capex of stacked equipment and 2.1 million was for other strategic supply chain investments for equipment that won't be delivered until next year.
Actual cash used in investing activities as shown on the statement of cash flows for capital expenditures in the third quarter was 35 million with positive free cash flow of $13 million.
This figure differs from our incurred capex due to differences in timing of receipts and disbursements.
Our outlook for full year, Capex spending is $155 million to 165 million, including recently announced investments of approximately $30 million, an accelerated conversions and is expected to be incurred during the second half of 2021, but for equipment expected.
To be delivered next year.
With regards to the recent accelerated capex spend for an additional 50 tier for DGB conversions that same mentioned earlier. These pumps will be allocated to dedicated fleets with current customers and higher relative pricing to ensure these pumps generate healthy profitability.
Consequently are full year capex will likely be toward the upper end of the range should activity remain at current levels and the outlook for 22 remains favorable.
We continue to expect positive free cash flow for the full year 2021, when adjusting for accelerated 2022 capex.
While we remain that free we increased our cash position and liquidity by $12 million and $13 million, respectively. During the quarter with cash of $85 million and total liquidity of $154 million.
Total availability on our asset base revolving credit facility increased to $69 million.
Cash as of October 29th 2021 was $91 million.
As Sam.
Mentioned in his opening comments the strength of our balance sheet and commitment to capital discipline is critical to our success.
And we are firmly committed to ensuring we maintain a solid financial position and provides maximum financial and operating flexibility and with that I'll turn it back to Sam.
Thanks, David.
As we've already mentioned on today's call. There is momentum building as our sector anticipates modest activity gains over the coming months.
As the industry returns to normalize service levels in the Permian.
We look forward to taking on the many challenges expected next year in fact perpetuals preparing for those future obstacles today.
Specifically labor markets are becoming a greater issue an oilfield our service activity has continued to trend upward throughout 2021.
[noise] these challenges place risk on the reliability of the oilfield service sector next year as oil prices signal producers to modestly expand.
Fortunately, our team and our customers understand these issues very well.
A portion of the recent price increases received from our customers was reinvested back into our Labor Force. This action not only provides a morale boost to the employees that remained loyal to prepare true team during the depths of the pandemic, but also makes our team more competitive in today's labor market.
Our ability to offer competitive pay rates consistent work schedule with blue chip customers opportunities for professional development and a continued commitment to the Permian community places our team in an advantageous position heading into 2022.
I think our teams for meeting the challenges faced over the past year and I look forward to working with them to meet the challenges in the years to come.
In addition to the labor issues, we also anticipate supply chain disruptions to persist next year.
As mentioned on our previous call. We recently made strategic investments to hedge against anticipated supply chain issues and ensure reliability for our customers.
Are strong that free balance sheet, coupled with a focus on capital discipline allows us to be opportunistic at this point in the cycle.
We will continue to look for opportunities to maintain and enhance our earnings power in 2022.
It's our view that supply chain disruptions may be a net positive for the pressure pumping space next year as.
As activity modestly builds long lead times and the inability to secure equipment in a timely fashion may provide a barrier to speculative capacity expansions and over investments that have been made in past cycles.
It is also very important to understand that our sector operates assets with finite lives we.
We believe pressure pumping fleet attrition and effective utilization rates are widely miscalculated as the industry approaches next.
Next year.
Over the past two years acreage positions across the U S have consolidated into the hands of the most efficient operators and those operators largely demand more equipment on location and more pumping hours per day in order to achieve their respective investment goals.
While this shift in operating paradigm creates better opportunities for the most efficient pressure pump as in our space.
The new standards in development have led to accelerated pressure pumping attrition across North America.
For this reason and paired with continue to underinvestment across the sector. It likely won't take significant activity gains for the pressure pumping space to be fully utilize next year.
That said perpetual will continue to commit to a disciplined approach as our industry moves further away.
From from pandemic activity in pricing levels.
Maintaining the reliability of north America's pressure pumping fleets.
And supporting the energy industry's collective ESG goals in a disciplined manner will require improved economics for pro Petro in our entire sector. Therefore further net pricing increases.
We will continue to work with our customers to ensure reliability and sustainability of their respective operations.
Lastly.
Under my leadership perpetual remains committed to our legacy of service excellence and execution that has enabled our success for over 16 years.
This continued excellence and execution will be fundamental to enabling our teams to remain competitive in a dynamic marketplace.
As we have mentioned our business will undoubtedly have to continue to evolve to compete and we believe our team is up to that challenge.
We will continue to show differentiation, both financially and operationally.
Our teammates and customers have grown to expect a strong safety culture at pro Petro and we want <unk> lead in preserving it.
I'm very proud of our team shared ownership and safety and look forward to maintaining a reputation as a best in class service provider for our customers.
Moreover, we also maintain our commitment to improving the Permian basin through our fervent community involvement.
We continually strive to positively positively impact the area, we serve while on and off the job.
With that I'd like to turn the call over to the operator for Q&A K.
We will now begin the question and answer session to ask a question you might pass side and one on your Touchtone.
If you're using a speaker phone please pick up your handset before pressing the keys.
Jaw from the question please press.
The first question is from Ann Mcpherson Piper Sandler. Please go ahead.
Hey, good morning salmon team.
Good morning handwriting.
You deliver good results and what we know was not an easy quarter to do so so congratulations to the team there.
Sam given what you've stated about the Titans of the market and your customers recognize that by now we're seeing more.
Evidence of budget creep for next year based on service cost inflation.
Where where is the customer dialogue outside a pioneer for you with respect to customer appetite to want to lock incapacity and defer them up commitments for longer term arrangements next year and what is pro petreaus appetite too too.
Play the term versus the spot wave at this point of the cycle. When you should be getting more net pricing over the next couple of quarters.
Yeah.
That's a fantastic question I think to try and pick part of your question.
Part of our belief in the market tightness.
And and how things May play out next year is lies in that customer interest.
To position their service offering as effectively as possible for next year and the lock in as much of that efficient capacity as possible and I'll highlight that term efficient capacity.
We've seen through our customer portfolio, a pretty active effort to grab onto the more high performing cruise, we've even experienced recently repositioning of a few of our own fleets to try and service that <unk>.
Efficient demand.
If we compare this to budget cycles, and the ear pierced past I'd have to say that conversations with customers are probably more active and I've made.
Maybe ever seen them in the past five or six years going into a new year and a new budget to ensure that.
That these larger programs have what they need to execute so really just just just just talking directly to customers. This is just one dynamic that we think bodes well for the preferred pro Petro and the pressure pumping industry next year.
But that's been very evident.
Good that's that's helpful. Thanks.
I didn't hear it.
David If you did if you provided it but did you comment on.
EBITDA progression or just general terms the progression of margins from Q3 in the queue for as you have.
Guided a little bit of normal seasonal dip in activity.
But you talked about it.
It sounds like the directions of margins over the medium run is still higher but is that true also in queue for or what the margins in queue for.
Be pulled down by the by the seasonality.
Well, we didn't talk about perspective margin progression I think that.
We're expecting normal seasonality early some seasonality that would be offset by some of the net pricing increases that we discussed.
That we achieved during the quarter and really at the end of the third quarter. So those things will impact there are still some inflationary pressures that I think we and others have discussed.
And are prevalent out there so.
I think that's that's hopefully some guidance that's helpful.
Yeah.
If I understand correctly, it sounds like EBITDA should be closer to flat within a fairly close range as opposed to dramatically higher or lower.
I think that's fair to say and we did see some margin improvement as I mentioned and if you look at our numbers.
Revenue per fleet is up approximately 10% EBITDA for fleet up nearly that amount. So we had some good progression this quarter.
But I think really will start to see more of that in 2022.
Great.
Thank you.
The next question is from John Daniel Daniel Energy Partners. Please go ahead.
Hey, guys just a question on the Capex 86 to your four engines once in hockey Forever.
Where do you think that number is here and 22.
Well, we have not nailed down our 2022 entire capex budget I think what we wanted to do is make certain that we could secure our supply chains for equipment to support twenty-two activity out of the gate.
I think we're still going to be looking at our entire fleet and what needs to be done to to support activity level. So we will have we will have more guidance on 2022 on the next call Yeah, John will let Sam I'll I'll I'll I'll add to that is that we need we need our economics to continue to migrate to be able to continue.
To add equipment like that.
We're very comfortable with the investments we've made today.
But we need we need continued positive movement on the on the profitability front. We also think it's just going to be difficult in general to get components like that next year part of the reason why you saw some make that move right no no I mean, it's kind of a.
The chicken and the egg right you've got the right balance right profitability now lead times are extending <unk>.
Part of it or do you wait for that.
A grocery shop, a customer at any day I'm Gonna return, that's just part of the basis of the questions come to think about.
Yeah, I think I think I think the orders that we place.
Put us in a good physician certainly for our near term monitored.
Okay.
Look at your customer base, obviously, you don't want to name names and I asked this question, but like what percent of them don't really care about the permissions benefits.
Oh very small.
Okay Alright.
Alright fair enough and then the last person that that's not to say that there aren't any but it's a minority.
But is it something where you know.
Making that you forgot to your from now where if you're sort of steady state 13 of sweets.
When do 100% of them.
Become a mission friendly.
And they just conceptually like is it is it it's obviously a multiyear process right. This time in mind.
Yeah.
And that's David.
I think that cat.
Capex is.
And spending is important to the customer still.
And I think we've had some customers talk about their emissions from completions being.
Really a small are are much smaller component of their total emissions program. Some companies have mentioned that they are really focusing on production.
As it relates to emissions more so than completions activity. So they're our customers that are that are asking for this type of equipment, but there is also still some sensitivity to total cost of their completion program. So.
Think I think the migration will continue.
But they're still customers that are are putting efficiency and as Sam mentioned earlier frac efficiency.
It really the top right now a.
A few other customers are making some moves too.
Electric and other specific lower emissions solutions, but that's going to take time.
Charlotte does Adam John I would just add to we've had.
Here recently test customer a couple of customers actually.
<unk>.
Make some long term agreements without even our tier two equipment just to ensure the supply of horsepower to help them with their completions next year.
Just due to sheer marr.
Margaret tightness of supply chain title.
Okay.
I think in one Super quick one for you on them since you just broke out.
Just give a secret take on the corner market out in a permit and that's it for me.
Yes, yes, that's that's a that's.
That's a tough market John I mean, you know like it unlike or pressure pump in our the fry can seem and divisions.
Not every well requires Paul.
Like every well requires the cement and dragged jobs, but.
It's.
It's just a it's a tough market is very competitive we have been able to creep some price them back there it's just highly.
Really more focused in the Delaware, where the higher pressures to to complete and drill out wells are.
So.
It remains highly competitive.
Okay, well nice quarter and thanks to put man.
Thanks, John.
The next question is from Stephen King Kyle at Stifel. Please go ahead.
Thanks, Good morning, gentlemen.
Two things one is a follow up.
Of your of your current active fleets right. So.
Called 13 or 14.
Including the Capex that you just announced for the new Dgb's, how many will be low emission.
Is it five or six.
So it'll be it'll be you know a little bit more than four fleets worth of dual fuel equipment by mid year next year.
Scott.
Of which we already have.
A portion of that in the system today.
Okay.
And.
So the other question just because you've talked a little bit about this.
When you're when you're thinking about.
Pricing and you know kind of would be appropriate returns you need to get.
Yeah, basically to order to order more upgrade equipment or assets.
Or are we talking in in the EBITDA per fleet range of sort of high teens and I am just curious sort of on top of that.
What what types of pricing or you see any of you seen close to low double digits. As you go into next year as some of your competitors are referenced or is that.
You're kind of any range you can provide.
It's this is Sam it's probably more unique to or unique on a customer by customer basis, because are offering can change from customer to customer. If if you are providing materials if you're not.
Any other services that you may or may not be providing.
That said, we are far from you know appropriate economics.
For companies like pro Petro in our nearest peers to even sustain.
Operations of the size that we are today is as I mentioned in my scripted remarks. This equipment does have.
Finite lives most of which is dependent on hours in which you operate that equipment.
So we've we've experienced across our sector some pretty significant under investment.
Post pandemic.
Coupled with very poor economics across our entire sector. So the amount of underinvestment that there has been.
And pressure pumping equipment, I think could could become.
An issue to serve the E&P spaces needs going into next year. That's why we feel so strongly about Ah the market being much closer to full utilization than not.
That said to kind of leave that thought back to pricing.
We've got a long way to go we feel good momentum right now.
And we think that there's going to be more opportunities throughout next year to recover to recover our economics to make a question like that a little bit more tangible.
Tangible.
Where we can give you.
A better answer we're just so focused on recovering economics and profitability near term, but it's hard for us to animals.
That right now.
Great No that's great color. Thank you.
My next question is from Iran. J Romm of J P. Morgan. Please go ahead.
Yeah. Good morning, I want to do maybe start with Simon will Frak, you mentioned three of of the pro Petro fleets are working with customers some presumably.
Diamond back in pioneer on on Simon Frank I know your customers <unk>.
Sam are citing pretty significant.
Completion efficiency gains a diamond back on their call mentioned, how they're they're doing.
3% more.
A completed lateral feet per day.
Versus the standards of per fracking. So I was wondering if you could talk a little bit about.
The the pricing model around.
Simon Frack. So that you can share in some of the benefits you are seeing with their customer base.
Sure Rune Yep Cymose practice is definitely.
Growing importance in the in the pressure pumping space.
And just for context, we deployed our first while our first and second.
Simon Frack fleet, So I think in January and February earlier this year.
So we're we're we're kind of almost.
Almost a year into this this new operating technique of which yes, we've seen some pretty amazing efficiency gains.
That you referenced with with some of those customers.
That said, we've learned a lot in the last eight eight or 10 months of operating and this cymose technique, while adding a third Simon frack. So the so every day, we move forward, we learn more about it one thing that we have learned is that our economics.
Need to improve their as well right we we.
We deploy more equipment.
To these Simon Frack locations.
Therefore, we need.
A return that is right size to that amount of equipment and that's something that we're working hard on right now with those customers because it seems that those operational efficiencies.
That are that our customers want to maintain those operational efficiencies.
So we're hoping that there's some good mutual benefit in this type of operation. We just don't feel like we're there quite yet.
Okay, Great and then just my my follow up would be.
Just on the niche, but apparently growing market for for a fleets uhm.
Can you give us an update on where you're at in terms of Dura stem and is this the right solution to customers or how you are thinking about pro petros and participation in that in that market.
Yeah or illnesses Adam.
We're currently preparing.
Continued to test the reliability of dares Tim.
Probably in the first half of 2022.
Kind of been hindered by a little bit of supply as you might know the uniqueness to the supply chain of that particular product is even tighter than what is normally out there. So we ran into a little.
Both on the road as far as the supply of certain.
<unk> most are consumables for <unk>.
But the news is to redeploy probably first first out of the year and continue to test that and we'll keep you in the in the know as soon as we know more about that is around dressed him.
To add to that.
We're constantly when we're continuing to look at other.
Equally solutions out there to continue to be.
Involved in that game and in that market and to be able to provide possibly a solution are equally solution to customers that are looking to put that type of equipment at work.
And how do you how did you see that market.
Developing overtime in a relative to demand for tier four units.
I think.
The majority of our customers.
Tyr Forest probably Ah.
Kind of a steppingstone to the electric market.
There's still a lot of development going in a lot of things changing on the electric equipment side and the electrification of our customers.
Acreage.
So I think as that continues to evolve the tier <unk> is going to be highly used to provide cleaner more efficient type of horsepower location.
As they continue to evolve their acreage.
For electric electrification I think.
The electric market to start to heat up as well maroon. It's Sam we obviously know you you knowing our customer base fairly well you know that we have a couple.
A couple of customers that are highly interested in this type of technology and.
We're having conversations around electric equipment, almost on a daily basis and will continue to do that.
We do think that.
Economics for that type of equipment and potential contracting terms.
Are are migrating in the right direction. So we want to remain opportunistic there and be able to provide solutions to our customers. If if terms are attractive to both parties.
Great. Thanks, a lot.
The next question is from Sky Grabber at Citigroup. Please go ahead.
Yes, good morning.
Morning, Scott Scott.
So it sounds like you guys have already secured some net pricing that'll benefit for Q.
Good to hear Uhm, but are you expecting a a greater rate of improvement in pricing and early 22, I asked because some of your peers.
As they the reset their msas after the <unk> reset the budget you know they they are expecting our talk talking about greater pricing improvement good improvement in profitability in one two and some of the bleeding into to to just send the timing standpoint, and I'm just wondering whether pro petrol we'll see.
See that same trend now is it.
B, a disproportionate share of the profitability improvement you're expecting in 22 is that can occur early in the year.
No more drawn out over the course of the year.
As Scott. This is Sam Great question, when we allude to things and are scripted remarks like a collaborative approach to pricing with our customers. One of the things that I think is is behind that comment is is us moving our pricing in our economics.
In a positive way while not disrupting.
Budgets in Capex plans of many of our customers Thankfully a lot of these pricing conversations as they are happening today and have happened over the past few months time up well with.
Our our customers ability to plan for next year.
We had an an earlier question on this call.
One of the analysts salute to creeping capex and the EMP space and and I think you'll see that continue to happen as companies like pro Petro in our peers are trying to position or economics.
In a in a healthier place so Ah say all that to say that we're we're doing our best to condition current and potential customers around additional pricing movements that might need to happen going into next year, possibly even as early as January of next year.
We're we're in relatively different places with almost all of our customers. So the effect and timing could be different across our portfolio, but this momentum has to continue as as asset lives for for pressure pumping equipment continue to draw down because of these increased efficiencies. So we'll look to continue.
To push going into next year I think one thing.
That we have going our way, which I've experienced personally myself and and conversations with many of our customers is that we have a lot of smart.
Sophisticated customers that understand.
Economics.
And business very well and we are doing our best to educate them on our goals and and not just for us, but where what we think is healthy for our sector. Most of those conversations have been very fruitful and we'll look we'll look to continue does going into next year.
Scott does Adam I would just add one more thing as well as as you heard in the scripted remarks from both Sam and David the repositioning of a few of our fleets of also helped us.
Going into the fourth quarter and the beginning of the year with a couple of new.
Expand our portfolio with a couple of new customers that are priced.
Price that better mid cycle pricing.
Going forward. So it will also see the impact of those rights moving towards better pricing.
Yeah.
Got it I appreciate the color and then maybe if I could ask about uhm some color around demand trends across the major customer cohorts you know obviously private it's been.
Driving a lot of the demand growth this year.
But then also continue to add incremental rigs, which would suggest incremental crack demand continues to grow next year. We have good color for the the public E&ps [noise], but I'm curious to know what your scene from the majors today in terms of incremental demand and and.
Yeah could you provide some additional color on the private.
In public M. P's, you know all in terms, it's kind of incremental demand from here and the permanent.
Sure.
I think the way that you've described it is fairly accurate.
I think we've seen.
Most of the <unk> in the Permian migrate from.
You know things like duck, backlogs, and and large well on Undrilled uncompleted.
Uncompleted well inventories to more of a just in time.
More of a just in time operation.
That said we've had we've had riggs slowly added throughout the last couple of months. Our view is that you will continue to see drilling rig ads.
In the next year, probably through mid next year that that will support.
Activity ads in the in the ballpark of 20 to 30 Frack fleets across North America next year.
And we don't think it really takes that much or more than that to to really tightened tightened completions market.
So I think you'll see the privates continue to lead the way, maybe the small publics and independence.
But the market as you can see through crude prices is continuing to call for more oil.
And the United States in North America cannot add more oil to the system without more rigs and more frat crews and we're and we're confident that we're going to see that gradually build.
Yes, Scott this David just to add to that some anecdotes.
As the.
As the privates continued to pick up in the rig counts and also consolidate some of the smaller privates some of the smaller public companies.
Those are that's the complexion of.
Two of our new customers that will be picking up companies that are migrating from more of a.
Spot or periodic frack schedule to a more efficient dedicated calendar and so we're participating in that part of the cycle and then that part of the marketplace and I think that in Sam's opening comments talking about efficient frack capacity.
That's where things are going to be migrating in 2022 more so.
And and we're positioned to support that.
Yeah.
Appreciate the caller. Thank you.
Okay and if you have a question. Please press thigh then won the next question is from Taylor is Archer.
And hold please go ahead.
Hey, Sam again, thanks for taking my questions. The first one is just on the some of the Frack market outlet commentary that you've made for 20 twenty-two. So you were talking about the the frack market potentially getting a really tight had full utilization at some point in 2022 and I I Wonder just specific to your own fleet you talk about.
1.4 million horsepower, you've got 13 fleets working today and it sounds like three of those are our Simon frack since of more certainly more horsepower on location for the assignment for athletes, but if we think about your fleet. Today. My My question is just if the pricing and demand was there how many incremental fleets could you reactivate how much equipment is.
Currently sitting idle within your fleet today.
That Taylor Great question I think that's the right question to be asking every pressure pumper in the space.
Honestly.
And to just provide some context at the peak in 2019, we operated 26 and 27.
Fleets I can tell you that we're with the assets in the 1.4 million horsepower. We have today the way we're operating we're not we're never going back.
To that number hard to quote what the exact number is but it is it is definitely.
Less than that and I think what's what's behind that which we have already alluded to multiple times.
Here on the call.
Is the attrition that is the follow on effect of these efficiency gains.
And and we're not the only ones that have become more efficient and the pressure pumping space many of our peers and competitors.
Have have increased efficiencies as well and that's more hours on the equipment, therefore shorter equipment lives.
So it's it's hard to see on paper, but the anecdotes that we're seeing here on the ground in the Permian.
Are starting to make us feel more and more convicted about the potential supply constraints of horsepower.
In in the.
And the and the Permian basin and the pressure pumping space.
Okay understood and follow up on on efficiency that efficiency gains that you guys have realize I've been really strong over the course of 2021, I am clearly cymose racks as a big piece of that and maybe if we just exclude Simon frack for for for a moment I suspect that the operation mm mm.
Outside asama fracking is getting even more efficient and and my question is what's driving that whether it's well completion design or or the equipment itself. It seems like the tier for D. G B and some of these lower emissions equipment technologies that clearly their their benefits from a fuel cost savings perspective.
And an emissions reduction in perspective for operators out there, but I wonder if there's a real noticeable efficiency benefit from having those equipment that sort of equipment on location or if it's really just a an emissions and fuel cost savings I typed operators today.
Yeah, there's there's a few factors at play their Taylor, one thing that I can't.
Go without mentioning is the high performance of our team and our people. We think we think we have the best operating team.
In our sector, we think it shows through our performance quarter on quarter that said.
I think what's leading efficiencies in our sector is equipment.
When you saw activity draw down to almost all time lows after the pandemic.
Many companies like pro Petro all of our peers, our entire space, we deployed more average equipment to each location to try and protect our activity and our margins and our efficiencies our.
Our customers have come to expect that now so our ability to continue to push efficiencies higher is.
Frankly, probably most attributable to more equipment being in the system.
And our our teammates having.
All the tools they need at their disposal to execute on those efficiencies.
It's going to be nearly impossible to take that efficiency away our goal is to.
Have our customers help us pay for that efficiency.
Through things like price increases, while we will continue to look internally at our cost structure or maintenance programs to try and drive our cost structure down but.
I can't say that there's anything more.
More.
[noise]. That's that's that's more of a player in the sufficiency game, then just extra equipment.
And Taylor.
Hello. This is David just another anecdote there early early this year. There was a report issued by Ray stirred that attributed Simon Frac market share in 2022 us of about 27% were we we were not executing any Simon frack activities. The fact is our zipper cruise.
We're performing at such a high level with our conventional equipment that it broke the algorithm and and gave US credit for Simon Frac productivity. So I think when you look at pro Petro and the assets that we have in the team that we have that Sam and Adam reference.
That really is what generates your productivity and certainly we will see some different things from from different equipment as it comes out, but it's really the pro Petro hallmark.
At our customers see and customers that are migrating to efficient frac activity.
<unk> as well.
Very interesting I appreciate the answers things.
My next question is from what car Siad.
ATB capital markets. Please go ahead.
Thank you for taking my question.
Sam.
It's going to go back to Stephens said question earlier, and the call, but I'm going to ask it in a different way.
The margins back in 2019 were around $24, 6% and this portable around $15 six so as you continue to see.
Inflation input cost inflation, but do you get some price increases do you have any visibility to getting to be dumb margins in that 20% plus kind of range in 2022.
Yeah, well car I think we're already seeing.
Green shoots of that in smaller cases.
So with some of our.
Well some of our customers.
Customers, where we have more activity.
That may move a little more slowly but in but in small doses with car I think we're already seeing some of that.
Okay.
Good to know.
And second question is.
Since two kind of a reinvestment psycho that bump.
Being companies are likely to face.
In the past most contracts between bumpers and the <unk>.
Kind of handshake type contract is there to push by you all the industry to change the nature of contracts with the Emp's as you guys invest.
Money into new fleets of new updates things like that so that there is more.
Reliability of.
<unk> in those.
Those investments.
Yeah, I think the answer to that is yes.
We have some small examples of what we think that looks like are obviously our relationship with pioneers very contractual it's been very mutually beneficial.
From our perspective, and I think for pioneers perspective as well.
But it's gonna take some time will car to operate too I guess, what I call a healthier commercial model that might be a little more contractual.
I think through some of this.
Education, we're trying to do with our customers around.
What the effects of these efficiencies are.
How long this equipment lives in these in these current operating conditions is is helpful. In those conversations to push the commercial model to to a more sustainable place, which is probably more contractual.
Some of the more near term opportunities to be more contractual with our customers revolves around some of this next generation equipment that dual fuel equipment the electric equipment.
The <unk> that are trying to push the envelope on reducing emissions are willing and at the table to talk about contracts to pull more of that equipment into the system.
<unk>. This is David I think the way to look at it as.
In the past.
There was some speculative building a frac capacity across the marketplace today, there's really no appetite for that.
In any of the companies that we see and so if a company is looking to go to the next generation.
Whether it be electric or other type of solution.
We're going to require some very tight contractual terms there.
And and.
Outside of that.
It's probably going to be as it has been but.
The entire industry is going to be migrating to more than.
Industrial model, we believe and that's something that I think salmon, Adam had talked about and we as a team talk about and ultimately it would be nice to have more contractual.
Exposure across our portfolio.
That'd be a great development.
Thank you very much thanks for your answer.
Thanks for <unk>.
The next question is from Derek part Heizer of Barclays. Please go ahead.
And good morning can you expand on the reactivation of stacked equipment you talked about this for a sign off track operations or any other type of fleets just want to reconcile this to your fleet count not stepping up in fourth quarter and you expect this to.
To be ongoing as we go through I ended this year and into next year.
Yeah, Derek this David.
The reactivation was related to some of our previously stacked equipment.
We are we've done that in preparation for what we're seeing in 2022, and we want to make sure that that equipment is ready to go so I.
I think that as we stated in our comments, we're not going to deploy additional fleets without having proper economics across our portfolio of.
Of projects, but.
We will let you know as best we can win when we see additional fleets that we're going to be deployed yet for me the sandwiches.
A product of us.
[noise] matching our readiness with our conviction of what's going to happen in the market next year.
Got it and would this be incremental fleets next year or is this more just replacing some of the older equipment up you're currently just trying to think about what your incremental flea count could look like next year exclusive above the converted to your four D to be stopped just more of the legacy or two are these are these new fleets rolling out.
Or are these helping to a place.
And just get your fleets more efficient, which is which is updated equipment.
I mean, I think a little bit of both.
I think we are talking about and seeing enough opportunities in conversations with customers.
To either either take market share because of our performance and and pricing that we're seeing.
Or to or to add at acceptable.
Profitability levels.
Got it Okay. That's helpful. I, just want to switch switch over to Iraq. So.
Wanted to just talk about the turbines us out for your <unk> fleets.
You saw one of your competitors unlock some of their some of the value in their turbines out to a third party and leaseback just wanted to get your thoughts on on that given how much the power market has evolved Lucy and a number of new players enter this market over the past six months and is this something that you would go down this road to unlock some value to help support.
Re recap cycle that you're going through.
Sure Great question we.
We bought 230 megawatt turbines almost two years ago.
In preparation for our.
Our tourist and project, we've we've since watched.
The power market in general as well as the <unk> specific power market evolve pretty significantly we've also use those assets in the development.
And continued testing of our dressed him that said.
We're looking at multiple options, whether it's Lee cell.
Or or to deploy with with electric fleets for those turbines that we currently own.
So we're very open minded to all the different ways, we might be able to unlock.
Or capture the value of those assets, we're not sure exactly how that materializes right now but.
Those are those those assets do have long lives in high value and we want to ensure that they are they are being used in the best interest of trading value for our shareholders and where we're working on that.
Instantly and Derek is I think.
Most of you know.
There's a lot of dynamics going on with respect to power demand throughout the world and so.
These are these I think are very relevant assets to resolve some of those issues.
Okay, Great I appreciate the color.
Okay, and if you have a question please pastime Enron.
Yeah, Yeah no questions at this time. This concludes our question and answer session I would like to turn the conference back over to Sam Fratch that closing remarks.
Thanks for joining us on the call today, everyone. We enjoyed the discussion. We're also proud to play a part in an innovative energy industry, where oil and gas remained critical to everyday life across the globe.
We hope you join us for our next quarterly earnings call have a great day.
The conference I have concluded. Thank you for attending today's presentation. He may now disconnect.