Q2 2022 USA Compression Partners LP Earnings Call
[music].
Please standby we're about to begin.
Good morning, and welcome to USA compression partners L. P second quarter 2022 earnings conference call.
Today's call all parties will be in a listen only mode and following the call. The conference will be open for questions.
No question, our Q&A instructions will be given at that time.
Is being recorded today August 2nd 2022.
I would now like to turn the call over to Chris Boerner, Vice President General Counsel and Secretary.
Good morning, everyone and thank you for joining US. This morning, we released our financial results for the quarter ended June 32022, you can find our earnings release as well as a recording of this call in the Investor Relations section of our website at USA compression Dot com.
The recording will be available through August 12, 2022.
During this call our management will discuss certain non-GAAP measures you will find definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures in the earnings release as a reminder, our conference call will include forward looking statements. These statements include projections and expectations of our future performance and represent our current beliefs actual results may.
Differ materially. Please review the statements of risks and put them in this mornings release and in our SEC filings.
Please note that information provided on this call speaks only to management's views as of today August 2nd and May no longer be accurate the time of a replay.
I'll now turn the call over to Eric long, President and CEO of USA compression. Thank you Chris Good morning, everyone and thanks for joining our call also with me is Matt Liuzzi, our CFO .
Over the past few years multiple investors have suggested to me that early on in our earnings call.
On two topics that folks want to hear about how this business and as our distributions sake.
First our business is strong as you would expect right now I will spend a large part of this call talking about how we see USA compressions sharing over the upcoming years in light of the spotlight being shown on the critical shortage of energy worldwide and <unk>.
On July 14th and based on our second quarter results. Our board decided to keep this quarter's distribution consistent at 52, and a half cents per unit, which will be paid this Friday August 5th. This resulted in a distributable cash flow coverage ratio of 1.0 wait times are nice improvement of over 10%.
Last quarter.
This will be our 38 quarter of consecutive distribution payments and we will have returned over 1 billion.
Billion dollars to our unit holders since our IPO in January of 2013.
As always our board determines the distribution on a quarterly basis and they can opt to maintain increase reduced or suspended distribution as it deems most appropriate.
Bank Covenant leverage ratio was four nine times, a healthy reduction of over 5% from last quarter.
So no.
So how we see our business stacking up and where does USA compression go from here. The second quarter continued the demand driven improvements in our business that we saw towards the end of the first quarter and reflects the shortage of energy of all types in which the world now finds itself.
<unk> environment, driven by a growing need for natural gas and constrained supply.
To reflect a tight supply demand balance, which led to attractive commodity prices throughout the quarter.
And while our compression services business does not have direct commodity price exposure. The strong backdrop does for industry activity, which has been positive for demand for our services given everything going on in the World. We expect this trend to continue for the foreseeable future before.
Before I discuss our second quarter results on the broader business environment I'd like to highlight our relentless focus on safety and recognize our employees for achieving a high standard of safety day in and day out here at USA compression. Our employees are constantly on the road driving to field sites, even with our extensive use of <unk>.
Monitoring technologies in fact, we drove over 4 million miles during the second quarter.
This much driving has the potential to create significant risk for incidence we focus heavily on safety, while driving and I am proud that also the halfway point of 2022, we've had zero recordable incidents, but driving gives us the only situation where employees face risks on the job sites and warehouses and even in the field offices.
As if our people are not committed to a culture of safety all of these activities can create hazards as of July 1st we had worked over $4 5 million hours since our last lost time injury, which stretches back more than two and a half years safe.
Safety is a way of life here at USA compression the markets and business environment, We will undoubtedly go up and down but the one thing that won't change is our team's commitment to safety.
Now turning to the second quarter of 2022, we picked up where the first quarter left off and then continued to make gains from there throughout the quarter.
We continued the utilization gains achieved during the first quarter as we deployed additional horsepower with our average horsepower utilization increasing three percentage points from the fourth first quarter 2022 to just below 88% the.
The second quarter ended with horsepower utilization of more than 88%.
The market for compression has tightened as our limited new units being fabricated industry wide and so has the utilization of our fleet, which in turn led to increased revenues and cash flow.
Total revenues were up approximately 5% and adjusted EBITA increased 7% both compared to the first quarter of this year. We also saw revenue on a per horsepower per month basis increase as we continue to push through both CPI to normal course price increases. We believe these trends will continue for the balance of the year.
We continue to redeploy some of our modern vintage idle fleet back into service out in the field.
Matt will go through the financials a little later this morning.
Going through 2022, it sure feels like it is full steam ahead for energy in general and compression services in particular.
Commodity prices remained high during the second quarter with natural gas at Henry hub, averaging just shy of $7.50 per M of Btu and.
In West, Texas intermediate crude oil averaging over $108 per barrel, both at the highest level since 2008.
However, I believe the difference between now and 2008 is significant.
Commodity prices today appear to be driven by the realities of physical supply demand imbalance in the market versus financial trading dynamics, which played a big role in 2008.
We live in a world that is hungry for energy of all types together crude oil and natural gas represent the vast majority of energy consumption. Both in the U S and around the world the abundance cost reliability and efficiency of both commodities has been unparalleled and the last 100 plus years.
When you look at some of the key metrics within the energy industry. We believe signs are pointing to increasing tightness of supply to meet increasing demand.
Climate fear is driving the demonization of oil and has resulted in capital starvation across the broader energy space over the past few years and with even more regulation. It is no wonder that unrealistic and misplaced policies have combined to create a general energy shortage across the globe, it's not just crude oil and natural gas, but also.
So coal and electricity, which youre seeing dramatic shortages in Europe and as a result strong prices further exacerbating these trends as the unprecedented rise in demand for key metals and minerals, which is inflated prices reversing a decade long trend of falling cost for wind turbines solar modules in batteries.
According to a recent blog by notice energy and technology, author Mark females transmission policies in place today are creating ever rising minerals demand yet the world's miners and Minerally refiners do not have sufficient capacity in place or plan either for basic minute metals like copper and nickel ore for more exotic elements such as <unk>.
Cobalt in rare Earths from.
Our policy perspective, Mark noticed the government should base transition strategies on what could be reasonably achievable. It cost the non caused broad economic harm.
Is 80% global share of rare Earths suppliers didn't happen because they invented morris effective mining or refining technologies, but instead, how favorable policies in the U S. The regulatory environment for mining is to put it bluntly hostile.
The U S. One for producing nearly all of the world's rare Earth and the late 19 seventies to depending on imports for 95% of its needs today in fact, the U S. Now depends on imports for 100% of 17 minerals and <unk>.
Or more of 28, others, China controls the dominant sources of supply and the bulk of the refining capacity worldwide.
Simple fact is that the U S along with Europe as regulated its way into far greater mineral important dependencies marks bottom line is that the scale of mineral supplies needed for transition policies won't be happening in the timeframe policymakers imagine and what is currently playing out in Europe and the rest of the world regarding access to.
Affordable oil natural gas and coal and electricity does not even factor the lack of T minerals needed in the future for the energy transition.
For now in the foreseeable future and the real physical world most of civilizations energy will still come from oil natural gas and Ngls.
All of this bodes well for the long term outlook for our business natural gas compression services, and we will be a critical part of a longer term energy transition well into the future.
Scary stuff in it points out just how disconnected from reality policymakers worldwide are.
Good news is that people across the world are waking up to the real physical world and are shocked by the cost and shortages that are being caused by poor and misguided policies their governance.
So to restate the obvious the supply demand balance for both oil and natural gas is unbelievably tight right now well here domestically as well as around the world that is keeping commodity prices high and driving demand for our compression services.
As producers work to get as much natural gas out of the ground as possible.
Our fleet of large horsepower modern vintage units was designed to be flexible for our customers and serve conditions like we see today, having a large fleet of reliable efficient equipment that can be mobilized on short notice is a great advantage for USA compression.
And we're doing everything we can to get that equipment out to our customers who in turn are doing everything they can do to get natural gas to end users like you and me.
There is much noise in the press right now about oil and gas prices coming down due in no small part to the prospects of a worldwide recession potentially destroying demand.
In a recent presentation noted Raymond James oil analysts martial atkins points to several key indicators, suggesting that the worst is yet to come regarding oil and natural gas prices.
Worldwide about $1 1 billion barrels had been worked off since may of 2022, partly an indication of excess supply and inventories are now about 375 million barrels below normal.
U S. E&P investment is down 64% from 2018 worldwide oil and gas discoveries are down about 90% from 2006 peak major oils are scaling back big time with final investment decisions down about 80% from a 2009 peak not an indication of increasing supply.
Yes.
OPEC is at a seven year low with virtually no access or flex capacity.
<unk> in the UAE have only a combined half a million barrels of spare capacity, which may be gone in just a few months.
Global inventories balanced in the second quarter of 2022 as China Lockdown.
Due to Covid, removing 2 million barrels of oil a day of demand.
The U S strategic Petroleum reserve has been pulling down storage by a million barrels a day and when it ends in October the FBR will be down to only 375 million barrels of oil.
We will replace the 1 million barrels of oil a day when the STR quit being.
Being withdrawn.
In the second half of 2020 to Marshal forecast oil demand growing by three five to 4 million barrels a day half of it coming from normal seasonal global oil demand.
Half of that coming from the reopening of China. This results in inventories falling further by about 2 million barrels a day in the oil market interim 2023 under supplied by about 2 million barrels a day.
During 2023 to 2025 Marshall projects total supply growth of about $3 7 million barrels a day with about 2 million barrels coming from the U S. OPEC, Iran adds about $1 2 million barrels a day.
All others at only about a half a million barrels a day.
He further projects Russian exports to fall by 1 million barrels a day through 2025 think about what happens that it removes 3 million barrels a day has been suggested.
Bottomline to balanced 2023 to 2025, there can be no demand growth during those three years none.
Since 1970 in the Arab oil embargo, the 50 year average for oil demand growth has been 2% only wants from 1980 to 1982 was there no growth in demand for oil.
Clearly we look at all of these elements and our take is that the need for hydrocarbons is not going away anytime soon and in fact over the next few years the supply demand imbalance, most likely gets worse, which should bode well for continued demand for our compression services.
Closer to home and across our operating regions or customers are active the primary basins in our largest operating areas have all registered a year over year production increases ranging from modest single digits to close to mid teens with increasing rig counts in the second half of 2022, leading to continued levels of expanding natural gas production.
Our business activity levels in these regions have followed that activity. These regions had benefited from both proximity to export markets as well as ample transportation takeaway capacity.
In the northeast natural gas production growth has been more biased as operators in the region continue to work through an adequate pipeline capacity due to regulatory roadblocks.
<unk> also noted for something we've also noticed is that the activity among our customers is not concentrated on one group or another customers, both big and small are calling requesting quotes and contracting for our compression services under contracts with longer duration than we've seen in a while.
USA compression is responding to customer demands by deploying as much idle horsepower back into the field as possible during the second quarter. We deployed over 60000 horsepower net the bulk of that horsepower was already owned equipment to move from idle sitting in a field or warehouse to actively deployed earning revenue and generating cash flow.
Youll recall that in 2020 in 2021, our utilization dropped modestly as units came home, we purposely limited new your new unit orders for 2022.
Because our strategy was and continues to be to primarily redeploy existing idle units requiring less capex capital as the market improves this quarter demonstrated the benefit that redeployment of idle assets has on our financial performance.
An obvious question is how is inflation affected our business.
Our contracts provide for annual CPI escalators, which were designed to keep pace with any sort of cost inflation, we experienced while we've experienced some inflation in our primary expense category of parts labor in lube oil, we're working to maintain and beginning to improve on what our strong gross margins.
Excuse me our adjusted gross margins were 67, 8% 67, 1% and 79% for Q2 of 'twenty to Q1 of 'twenty two in Q2 of 'twenty, one respectively. So while we've been able to mitigate a good portion of our cost increases whether through offsetting.
Rate increases are active management of our various expense items we.
Believe we still have room for additional improvement in upcoming quarters.
Before I update you on some of the innovative technology that USA compression is deploying as part of our longer term ESG initiatives I want to highlight what I consider a must read and well written paper by EQT the largest natural gas producer in the U S and CEO Toby rice entitled Unleash.
U S LNG the largest screen initiative planet it should be required reading by every policymaker an environmentalist.
Steel Toby Sputter. He presents a few key factoids, we're sharing that I don't think most folks are aware of let alone comprehend the implications.
If the U S, where net zero today, the world would still message climate goals without China, and India dramatically, reducing their coal use it doesn't matter what the U S does.
Since 2005, the U S has reduced C O two emissions from coal by 1 billion tons, a year from $2 1 billion tons, a year to $1 1 billion tons a year, while the rest of the world continues to increase C. O two emissions from coal by $4 4 billion tons per year.
Nine 3 billion tons per year to $13 7 billion tons per year.
<unk> represents roughly one half of the C O two emission sources.
Curtailing issues should be mission number one to achieve Paris, a core targets.
Worldwide. There are 176, gigawatts of new coal plants being constructed.
With China, adding one plant per week, which is nearly two times the coal capacity retired by the U S. Since 2005, which was 93 gigawatts.
There was 175 Bcf a day of coal to gas switching demand worldwide today predominantly in China and India.
Quadrupling U S. LNG capacity from 12, four Bcf today to 55 Bcf a day by 2030 to replace about one third of the coal plants would reduce international cotwo emissions by an incremental $1 1 billion tons per year and at no cost to U S taxpayers.
This LNG plant, which requires no U S. Taxpayer funds has the same C. O two reduction if it is one electrifying 100% of the U S passenger vehicle fleet.
To power every home in America, with rooftop solar and battery packs and three adding 54000 windmills doubling U S wind capacity combined <unk>.
Wood cost taxpayers two trillion dollars.
Contrast, this to the EIA net zero scenario based on renewables only that will require a total investment approaching 16 trillion dollars over the next nine years. This cost will have to be heavily borne by undeveloped and underdeveloped countries, who can least afford.
Afford it.
Per capita GDP of China, there's $10000, India $2000 and those two combined have 70% of global coal use versus the U S with $64000.
Did you know the converting and electric plant from coal to natural gas is nearly the same percentage of emissions reductions as replacing a gasoline powered vehicles and electric 160% <unk> reduction versus 59%. So thank you Toby rice and EQT for developing such a pragmatic and comprehensive program.
That lays out an alternative roadmap to actually achieve CR C O two reductions by 2030.
And not breaking the bank so to speak.
Plan were to occur the implications for the amount of gas compression required to move the additional volumes of natural gas to LNG plants, roughly a 40% increase from todays total U S. Natural gas production should be very favorable for USA compression.
So for the reason I touched on earlier relating to lack of T minerals needed to meet renewables demand or the practical LNG alternative proposed by Toby Rice and EQT.
That neither the us nor the world will achieve adoption of renewable sources of energy anywhere near the levels projected anytime soon but.
But as we look out into the future we have been working on a compressor unit design, which will be able to take advantage of the gradual transition to greater electricity usage throughout our country as the electric grid expands it ultimately gets built out.
In last quarters call I had mentioned that we had signed multiyear contracts with an existing customer to deploy our dual drive units out in the field.
These units have been installed at Cowen petroleum sites.
And commenced operations last week, we continue to be excited about the service offering as it allows our customers to further mitigate greenhouse gas emissions and a pragmatic and economical manner.
Remember this initiative is centered around retrofitting existing compression units for dual drive capability.
Economically this makes a lot of financial sense for both USA compression and our customer base, we expect that as these units get up and running and they have operational performance reliability and flexibility further proven out we will feel more inquiries and ultimately demand for this environmental friendly solution to compressing natural gas.
We continue to believe that the expansion of the electric that'd be a multi decade effort as customers realize the dual drive offering gives them reliability and redundancy of a natural gas backup driver with the advantage of electricity is a prime power source, we believe the demand will expand over time.
As I have mentioned the concept of dual drive just to combine a natural gas driven engine and an electric driven motor to quickly and reliably switch from natural gas to electricity, depending on operating constraints in order to compressed natural gas. This allows companies to decrease emissions and permit their sites for electrical compression while still.
Having the flexibility and redundancy to switch with extreme temperatures for summer and winter put a strain on the power grid and utilities charge steep demand fees during resulting power outages as a result customers will realize lower operating expenses increased reliability, 99% run time so.
Abstention lower emissions of C O two and methane the mitigation of Interconnects delays and optimized optimize fuel costs were.
We're also involved with providing compression for new ESG driven projects with some of our larger longtime customers.
We recently provided large horsepower hydrogen compression services for a facility in the Midwestern U S. And are currently designing compression facilities for a current large customer as part of a major carbon capture utilization and storage project.
There is more work to be done, but as the energy industry determines what is feasible and more importantly, what is economical we expect more opportunities for USA compression to play a role in ESG focused applications. Like these my view remains that the realities of the technology will continue to shape the dialogue the shape and the <unk>.
The transition, which will be far more expensive and take longer than policymakers anticipate.
Finally, what is now nearly 10 years as a public company you've heard me talk about the stability of USA compressions business, which is underpinned by the long term nature of natural gas as a fuel source natural gas for me as a clean burning a blended fuel that is easily transported throughout our country as well as the world more now than ever in our history.
The continued to now increasing demand for natural gas around the world is providing stability to our business. The stability has benefited stakeholders across the board.
Whether it is paying out distributions to our unit holders for making timely interest payments to our debt holders. We believe USA compressions business has always been more stable than many other companies in the energy sector.
We have worked hard to maintain that stability during the radical and unprecedented unprecedented volatility over the past few years and now we're seeing the commercial uptick and benefits for our financial results capital allocation is always a balance as I mentioned earlier quarters distribution, we will have made 38 consecutive quarters of distributions.
Returning over $1 $4 billion to unit holders since our IPO.
In addition, we've used excess cash flow to manage our leverage at reasonable levels. This quarter showed a meaningful reduction as we have expected all in all the last several years have highlighted the attractiveness of our large horsepower infrastructure focused compression business model and we foresee better days ahead, not just for the energy complex.
Specifically for USA compression.
I'll now pass it over to Matt to run through the financials.
Thanks, Eric and good morning, everyone today, USA compression reported second quarter results, including quarterly revenue of $171 million adjusted EBITDA of $105 million and DCF to limited partners of $56 million each of where each of which represented an increase over last quarter.
<unk> performance.
Pricing continued to increase during the quarter up to $17 20.
Per horsepower per month the increase.
Reflects a combination of a strengthening of the overall market for our compression services as well as contractual price escalators designed to keep pace with CPI.
Our adjusted gross margin as a percentage of revenue was 67, 8% in the second quarter, which represented an increase from the previous quarter and it's approaching our historical averages.
In the quarter, we achieved adjusted EBITDA of approximately $105 million and an adjusted EBITDA margin of 61, 5%.
These were also improvements from the previous quarter and demonstrate the ability of the business to generate meaningful cash flow as utilization tightened.
Our total fleet horsepower at the end of the quarter was flat from the previous quarter at approximately three 7 million horsepower as Eric mentioned average utilization for the second quarter was up three percentage points from the first quarter to just shy of 88%.
For the quarter, we had total expansion capital spending of $32 million, which was in line with our budget, consisting primarily of reconfiguration and make ready of idle units with the remainder consisting of the delivery of four large horsepower units for deployment in a compressor station in the Delaware Basin.
And some associated additional station components.
Our maintenance capital was approximately $6 million consistent with the previous quarter net.
Net income for the quarter was $9 million and operating income was $42 million net cash provided by operating activities was $94 million in the quarter and lastly, cash interest expense net was $31 million.
As Eric mentioned, the board decided to keep the distribution consistent at 52, and a half cents per unit, which resulted in a distributable cash flow ratio of 1.08 times, which was a nice improvement from the last quarter. Our bank coverage leverage ratio was four nine times also a healthy improvement from last quarter.
While the business outlook is positive we continue to manage through inflationary pressures and take a prudent approach to spending capital you noticed the meaningful improvement in both leverage and coverage. We continue to believe that with an improved outlook. These metrics should improve over the course of the year benefiting both our equity and debt stakeholders on April .
27, 2022, a tranche of warrants with the right to purchase 5 million common units was exercised in full by the holders.
The exercise of the warrants was net settled by the partnership with the issuance of a total of approximately 534000 common units.
Warrants were part of the preferred equity financing undertaken in 2018, the CDM acquisition.
At this point in the year, we are keeping our full year 2022 guidance unchanged, we expect adjusted EBITDA of between $406 million and $426 million in distributable cash flow of between $213 million and $233 million.
Finally, we expect to file our Form 10-Q with the SEC as early as this afternoon and with that we'll open the call to questions.
Thank you and if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
If youre using a speaker phone. Please make sure your mute function is turned off.
To reach our equipment.
Again, it is star one if you'd like to ask a question.
Pause just for a moment to allow everyone an opportunity to signal for questions.
And we'll go ahead and take our first question from someone else.
Hi, Joel with Stifel. Please go ahead.
Thank you good morning.
First question is and I think you've referred to this prior as utilization continues to tick higher you're going to get more and more pricing power and it really sort of kicks in in that low.
The low 90% high Eighty's. So it seems like we're about there and I'm just wondering how much more do you think you can push gross margins up.
Yes, Selman it's Matt.
Good question I think the way I would look at it is historically this business has always generated gross margins kind of in and around that high <unk> to 70% range and that would be true.
If you were to look at the at USA compression Standalone financials back to 2013 at the time of the IPO.
There was a bit of noise. When we did the CDM acquisition because of the accounting. So if you looked at kind of in the 2018 2019, there those margins could go a little lower but you know the.
The USA compression core kind of legacy business is always kind of been able to operate around that 60%, 68% to 70% range and so I mean, I think it's hard to to go and say youre going to get another five percentage points of gross margin impact I mean, I think if we're running kind of in that 69% range.
It's pretty strong and consistent with where we've been historically so the obviously the pricing you know a lot of the pricing increases we.
Have done are both related to kind of the overall tightness to the market, but also.
Working to manage any sort of inflationary pressures so.
We will continue to do that and.
Hopefully keep keep the run ahead of any cost inflation, but you know at some point.
We found it back in <unk>, you know you do tend to hit a.
A a bit of a ceiling on pricing, where you just can't push it any further and obviously the customers ultimately have the decision to either buy or lease or buy or get services from a third party like us.
Understood and so in this in this better environment or are you also seeing any change at all to tender at all are you able to extend the contracts for.
Like in a period of time.
Yes, Sean this is Eric.
We have historically been able to lock in longer term tenured on contracts.
In periods when the market is a little softer there's really no incentive for USA compression to be locking in longer term contracts at lower rates. So in an environment, where we are today, where you are seeing.
Increasing rates.
Our willingness by producers to lock in for a longer term because of lack of available equipment.
We're actually taking advantage of that opportunity. So I would say on a percentage basis, we're seeing a longer term contracts at higher rates than we've seen for.
In recent years, we can continue to expect that to occur on into the future.
Got it.
It's good news.
You've also talked about in the past using existing equipment idle equipment, refurbishing and putting it back out there can you say how much of that you still have to go.
Well with our utilization being in the operators you can mathematically take a look at our total fleet of around 383 9 million horsepower. So if you do the math, 12% of 4 million round number that's still a lot of horsepower that we have to play with not all of that of course.
As bigger horsepower not all of that is readily.
Deployable, but a large percentage of that is.
Got it and then.
I guess.
Lead time for large horsepower how is that trending.
Okay, she is getting longer and longer as we speak.
It's of course depends on which are the elements you know because you've got the engines from caterpillar you've got the compressor in cylinders that would come from aerial you've got coolers that come from a different a couple of different providers, you've got electronic controls etcetera, etcetera, so depending on the <unk>.
<unk> the equipment.
It varies but we are seeing.
Quotes from certain types of caterpillar equipment stuff that we specialize in or a year or in certain cases substantially longer than a year. So you're you know 60 weeks on.
On the type of equipment that we typically add to our fleet so its way out there.
Got it and then I guess last question for me and maybe maybe a two parter, but you opened with saying. The first question you always get is around the dividend and that was really rather surprised on that because you guys have seen worse times and you didn't cut the dividend and now you are certainly in a strengthening environment.
And it seems like things are continuing to be up into the right. So if you haven't got a previously I'm wondering why people would be concerned about it now when I look out to your debt you don't have any maturities until 'twenty six and you mentioned in your leverage ratio at four nine times. So I'm wondering does the board think he's looking that far out and go and we need to get our debt lowered this as these.
He is levered to think about or can you just maybe help me understand I guess, where the concern for the for the distributions coming from.
And again you know.
I talked to a lot of people all the time a lot of people look at us and frankly don't understand our business. They look at it and go Wow your yield is.
Low double digits, depending on the day. It's you know 11 to 13 or 14% distribution yield people go why is it so hard this must be a risky business to which we respond just like you did.
Selman Hey, we've been through worse things are gone from the bottom left of the page to the top right of the page. If we can power through like we did a couple of years ago, and we power through multiple down cycles why would you be concerned today. So.
I'm, just kind of trying to connect some dots for people.
There's two ways to look at it either the yield is too high our stock price is too low or a combination of the two.
We've got to make the disclaimer our board makes the decision on a quarter by quarter basis, we've been through a lot worse times.
In the past that we are today and that we're pretty happy with how we're performing and what the future holds in store for us. So I think we're just trying to connect some dots for some people who really don't understand our business. This isn't a drilling company of mud company, a fracking company a stimulation company tied to the drilling side.
Where are the heart of the human body, the pumps gas into and through the pipelines without US there is no cash flow. So in times like we are today with extremely high oil prices extremely high natural gas prices compression is just a very small component of the cost of the value added chain. So people look at us and go.
What matters today is getting access to compression, having compression, having high utilization run times and making sure that.
We're safe, but more importantly that we're pumping gas into and through the pipelines.
Like these you know the cash registers got a rig and we're the guys that helped bring the cash register so it's a stable business. It's a great time to be in our business and we think that we're not being properly rewarded for the performance of the company and how we're performing versus other components of the energy sector.
Thank you very much.
Thank you Sir.
And we'll go ahead and take our next question from Gabe Moreen with Mizuho. Please go ahead.
Good morning, guys. Just a couple quick follow ups I don't know if I caught it but is there was there any change since last quarter kind of the order backlog overall.
Particularly on large compression units.
Yeah.
In the form of contract activity.
Alright, thank you.
It's different than somebody who's a fabricators that might say I've got a $400 million backlog of.
Somebody gave me an order a year from now we're going to commit to build an order, we don't really monitor and measure our business that way, we look at our utilization rate. So you know as we indicated we deployed 60000 horsepower in net quarter AR or additional horsepower for the quarter, our utilization is ticking up.
<unk> is the best way to look at it.
You know we're not a.
A lot of our contracts typically folks that are into for deliveries yobbo signing contract today for deliveries 90 days from now deliveries of 190 days from now.
Got a couple of projects that will involve some brand new equipment that have greater than a year lead time, but generally we're not looking at backlog like a fabricator like one of our competitors might look too that's an important metric because.
Again, we're not a one time sale guy that when that backlog evaporates all of a sudden you've got no revenues and no cash flow.
Signing these multi year long term contracts that even after the primary term expires a lot of these unit stay out in the field on month to month basis generating cash flow.
Thanks, Erik and I was just really referencing I think.
Matt Matt's comments last quarter about the commitments to 30, new units and placing orders for 20 new units.
23.
Hey, sorry about that we were thinking kind of these the flip side of that coin no no change.
I think what you will see is as Eric mentioned, the lag or lead times on the new equipment continue to kind of move around typically moving out not in and so.
Our capex, you'll see the capex expectations in the queue.
Reflect that reality, so I think we'll still get some more units here.
Previously ordered units shown up towards the end of the year and then there'll be a number of things that get kicked into into 2023.
Got it thanks, Matt and I think Eric you had mentioned about deploying.
Deploying some compression for carbon capture project are being in discussions to do so.
I appreciate that a lot there's a lot of discussion around carbon capture and some of them are more just blueprints that actual real plans at this point, but can you just talk about that project, who your customer may be there because it is there anything different about the unit and do you see more of that in the future.
So I think you hit the nail on the head Gabe is theres a lot of people looking at various.
Types of Cc U S ranging from air capture to stack capture to almost things dealing with some conventional recycling of tertiary recovery type of projects. So it's kind of across the map.
It's very early.
Yeah.
The project development.
We remain somewhat guarded.
As to the feasibility of this too.
Two compressed C O two requires some technical changes.
Typically youre looking at some higher pressures instead of a three stage you know you might need a five stage unit.
Because you're injecting gas at a significantly higher discharge pressure.
You need stainless steel on a lot of the piping you can't have any what we call yellow metal or red metal Youll brass and bronze and things like that because the cotwo embrittle in the equipment will fail.
C O two.
With any kind of water vapor forms carbonic acid, which is highly corrosive. So you have to take all of that in your design considerations. So.
We're starting to see more and more interest but have they actually move forward to.
Final investment decision jury is still out yet it's very early I mean, we're kind of in the beginning of the first inning not even mid innings as to that is is really going to occur. So like everything ESG driven we think a lot of it is going to be regulatory driven.
And.
Obviously here over the last year or so there have been some.
Significant.
Alteration in the current regimes outlook on.
Carbon and C O two in carbon taxes, and incentives or disincentives, So economics aren't quite there yet and I think that's what people are waiting to see is let's test the waters, let's be ready to move if it makes sense and until it makes economic sense, there probably will be some continued can kicking.
To speak.
Yeah.
Great. Thanks, Eric I appreciate it.
Thanks Kipp.
And with that that does conclude our question and answer session I would now like to hand, the call back over to Eric <unk> for any additional or closing remarks.
A mere 15 months ago, many market watchers stopped that sustained oil prices above $60 a barrel was an impossibility.
The recent softness in oil prices much noise is centered around possible demand destruction and economic headwinds and that we are entering a period of lower oil and refined products prices benefiting consumers in that inflation is being trained.
We do not hold the same belief the economy, especially in the U S and in China will improve.
Once it does the imbalance between an adequate supplies of all types of energy and the increasing levels of demand will surface again.
Our sense is that we are in the early innings of an ongoing global energy crisis, and that natural gas and compression will serve an ever increasing role in helping to solve.
The situation in Europe , clearly shows that natural gas is going to be the bridge to renewables and for reasons I pointed out earlier will take far longer can be far more expensive than most people fathom Alternatively.
Alternatively, if an expanded role for U S natural gas in the form of LNG being shipped worldwide occurs demand for U S. Natural gas skyrockets, either way USA compression is well positioned for the rest of the year and far into the future, which should benefit our utilization revenues and cash flow.
We believe that the underlying stability of our large horsepower infrastructure focused contract compression services business model that has served our stakeholders well for the nearly 25 years, we have been in business will continue well into the future.
Thanks for joining us and please be safe and we look forward to speaking with everyone on our next call.
And with that that does conclude today's call. Thank you for your participation you may now disconnect.
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