Q4 2022 ProPetro Holding Corp Earnings Call
Good day and welcome to the Pro Petro holding Corp, fourth quarter 2022 Conference call. Please note. This event is being recorded I would now like to turn the call over to Matt Augustine director of corporate development and Investor Relations for Pro Petro holding Corp. Please go.
Go ahead.
Thank you and good morning, we appreciate your participation in today's call with me today is Chief Executive Officer, Sam Sledge, Chief Financial Officer, David Schwimmer, and President and Chief Operating Officer, Adam Munoz Yesterday afternoon, We released our earnings results for the fourth quarter and full year of 2022. 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 risks and uncertainties many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from.
Our current expectations, we advise listeners to review our earnings release and risk factors discussed in our filings with the SEC.
Also during today's call.
We'll reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Additionally, during today's call. We will discuss January 2023 years old I have note. These results are preliminary and based upon information available to management as of the date hereof.
These results are subject to change and may differ materially from our reported results for the three months ended March 31, 2023 lastly, after our prepared remarks, we'll hold a question and answer session with that I would like to turn the call over to Sam.
Thanks, Matt and good morning, everyone 2022 was a transformational year for pro petrol and we were pleased to be off in an even stronger start in 2023.
David will speak to our financial results for the fourth quarter and the full year of 2022 in a moment.
But before that I'd like to take a step back and acknowledge some of the key achievements and milestones from our team in 2022.
Okay.
As you know in November we closed on our acquisition of Silvertip completion services, a step that positioned positioned pro Petro not just as a leading pressure pumping company, but now it was a leading completions focused oilfield services company.
Integration of silvertip into pro petrol has been successful and since closing we have begun to capitalize on the strategic vision that drove this transaction.
With silvertip, we've expanded our portfolio to include our best in class Wireline company that enables us to pursue accretive growth opportunities and positions us to further expand our margins and increase free cash flow generation.
As previously announced in December shortly after the closing of silvertip to meet the increasing demand for next generation hydraulic fracturing services we.
Quarter, two additional E fleets under the Master lease agreement used for our first two electric fleet orders and deploy our fifth tier four dynamic gas blending or D. G. B fleet with our sixth to come online in the coming weeks.
We expect that perpetual will have at least seven tier four DGB fleets and for electric fleets by the end of 2023, making approximately two thirds of our frac offering natural gas capable.
These recent actions significantly advanced our strategy to industrialize, our business and we are confident that we are well positioned to execute on the on the many value enhancing opportunities ahead in 2023 and beyond.
Okay.
The fourth quarter was also a significant transition period for perpetual.
As we noted during our third quarter call, we laid the groundwork and prepared a significant portion of our portfolio for repricing and repositioning effort that occurred in early January .
This repositioning of fleets has enabled us to pursue opportunities with other customers under accretive terms and we're very excited to renew some prior relationships and expand others.
Our operating teams excellence at the well site along with a very intentional approach by our business development team has enabled this part of our strategy to be a success.
The head of the repricing of our fleets in January we decided to temporarily curtail one of our active fleets in the second half of the fourth quarter to prioritize our overall fleet health in order to position us best to capitalize on the pricing uplift we were able to capture in January .
In the fourth quarter, we also experienced an increased amount of seasonality and holiday impact along with the impacts from the winter storm that occurred throughout the U S leading up to the holidays.
With the storm ultimately affecting several of our customers focused here in the Permian basin.
At perpetual we pride ourselves on our commitment to best in class corporate governance.
Including the board's focused on director refreshment and building a strong bench of outstanding leaders and employees at perpetual.
To that end recently, we were pleased to welcome Mary Reid Cardello to our board of directors and look forward to benefiting from her expertise.
Additionally, the new year also saw the appointment of Joni Mitchell as perpetual as a new general counsel and corporate Secretary.
Jody is an industry veteran and has quickly become an integral member of our core leadership team.
Another important element of good governance isn't is enhanced sustainability practices.
We're pleased to announce that in 2023, we will be issuing our first ever sustainability report.
Rich will provide an in depth look at the work underway to deliver on our commitment to transition our fleet and support a more efficient operations with reduced emissions. While also leading efforts in the community to promote a cleaner and safer environment.
Across the Permian basin and for our teammates here at perpetual.
Being a Midland based in Permian Basin focused oilfield services company that serves leading upstream oil and gas operators gives us a unique vantage point into the market and then to current trends.
To that end before I turn it over to David I'd like to take a few moments to discuss the broader oil and gas market.
And what we are seeing.
Despite recent pressure on the price of natural gas, we believe both oil and natural gas remain in structural under supply, especially globally and may remain so for the foreseeable future.
As it pertains to the recent decline in natural gas prices being 100% located in the Permian with customers that have large drilling programs and full calendars does insulate us from some of the risks that our peers working in gas focused basins may face.
We believe the demand gap is large enough to absorb the new fleets without disruption, especially when considering the bifurcation in service quality and equipment offerings as small privates. Another subscale competitors do not have the next generation capabilities that perpetual has compiled.
Notably the continued spread between diesel and natural gas price bolsters, our fleet transition strategy.
Diesel displacement in our customers' completions programs will continue to become more and more valuable for the foreseeable future.
As we move forward, we remain acutely focused on taking our business to the next level and executing on our strategic goals to drive meaningful returns.
To achieve this first we're actively optimizing our operations through a more industrialized approach to our business, which we expect will unlock additional free cash flow generation into the future.
Second we are continuing to transition our fleet in a way that minimizes our overall capital cost while delivering next generation services that are in high demand from our customers and.
And third we're continuing to pursue opportunistic strategic acquisitions that increase our competitiveness and are in the best interest of all of our stakeholders.
All of this is being done with the ultimate goal of generating strong returns and value for our shareholders and we are already beginning to realize a portion of the tremendous value that we are confident this strategy will deliver.
Yeah.
I'll now turn it over but before I do I'd be remiss, if I did not take a moment to thank the pro Petro team for their outstanding work in 2022.
Without them.
We would not have been able to achieve all that we did during this incredible year and just as importantly, we would not have been able to lay the groundwork for all of that is to come in 2023 and beyond.
With that I'll turn the call over to David to discuss our fourth quarter and full year financial performance David.
Thank you Sam and good morning, everyone.
Before I dive in I would also like to Echo Sams. Thanks for our team members and their continued hard work and dedication to pro petrol.
Now, let's move on to our financial results.
Our performance in 2022 showed continued improvement over 2021 with our financial discipline and pricing strategy generating excellent results.
Revenue for the full year 2022 was $1 3 billion, a 46% increase year over year.
Adjusted EBITDA increased to 134% year over year to $317 million, which was driven by our disciplined commitment to improved pricing responsive repositioning and cost management.
Equally impressive was our adjusted EBITDA margins increased 930 basis points to 25%.
We were able to achieve this in the midst of significant inflationary pressures are constrained supply chain and a dynamic pricing environment.
The company also posted a net income of $2 million for 2022, which is a significant turnaround compared to a $54 million net loss in 2020 one.
During the fourth quarter, we generated 349 billion of revenue a 5% increase from the third quarter.
The increase is largely attributable to the acquisition of an inclusion of November and December activity of silvertip.
Our effective Frac fleet utilization was $14 five fleets for the fourth quarter, which was in line with our prior guidance of 14 to 15 fleets.
Our guidance for the first quarter is 14, and a half to 15 and a half fleets.
Cost of services, excluding depreciation and amortization for the fourth quarter was $243 million versus $224 million in the third quarter with the increase driven by the silvertip acquisition additional strategic supply chain purchases and cost inflation across all of our service lines.
Fourth quarter General and administrative expense was 27 million compared to 28 million in the third quarter.
Adjusted G&A was 22 million and excludes 5 million relating to nonrecurring and noncash items.
Depreciation was $34 million in the fourth quarter.
The company posted net income of 13 million or 12 cents per diluted share compared to net income of 10 million or 10 cents per diluted share in the prior quarter.
As Sam mentioned, the fourth quarter was a transitional one for perpetual.
Looking back at the full year, we posted strong performance, while undergoing a significant recapitalization of our fleet.
Moving to 'twenty to 'twenty, three we're off to a great start to the year and we'd like to share. Some selected preliminary financial results that we are encouraged by so far.
Due to the repositioning and repricing efforts, we undertook for our businesses in the fourth quarter of 2022.
Our January performance was extraordinarily strong despite experiencing some weather impacts during the month.
And operating only 14 active fleets for the majority of that month.
Revenues came in at 136 million and we incurred cost of services of $88 million with a general and administration administrative costs of $8 million exclusive of stock based compensation and other nonrecurring items of approximately $2 million.
Doing the math you can see it was a good month.
Of note in February our 15th fleet that we had reactivated late last year is now back on our committed calendar and we're expecting a more fulsome contribution of our 15 active fleets going forward.
I'd also like to point out that silvertip posted 20 million of revenue for January which is the highest monthly total in its history.
We are excited about the contribution this business is already making.
As we have discussed we expect that demand for our services will remain robust as we proceed into 2020 three.
Therefore, we believe our performance in January was a strong baseline and expect to build upon that momentum as we progress into the balance of this year.
Turning back to 2022 results our full year 2022 cash capex was $320 million.
Or slightly below the midpoint of our prior guidance and our incurred capex was $365 million, which is slightly above the high end of our prior guidance and included approximately $18 million of strategic purchases of critical inventory items to get ahead of a certain supply chain constraints.
Major components.
As we pursue and realize the benefits of our strategy to develop a more capital light asset profile and realize the benefits from our ongoing optimization program, coupled with the ending of our large reinvestment cycle, we anticipate our 'twenty to 'twenty three cash capex to be between 250 million.
And 300 million with the majority of the spending in the first half of the year.
As of December 31, 2022, total cash was 89 million and our borrowings under our ABL credit facility were $30 million.
Total liquidity at the end of the fourth quarter of 2022 was 155 million, including cash and 66 million of available capacity under the company's ABL credit facility.
We anticipate meaningful positive free cash flow in the second half of 2023 with some working capital investment in a front loaded Capex program in the near term.
To reiterate 2022 was a significant investment year in which we recapitalized our fleet, while transitioning to over 35% natural gas burning equipment completed the accretive transaction with silvertip to accelerate free cash flow and earnings and enhanced adjusted EBITDA.
<unk> by over 930 basis points, all while protecting our liquidity.
This was accomplished by maintaining a disciplined pricing and capital allocation framework.
2022 was a transitional year in executing our strategic plan and we are excited for these opportunities to continue fueling our growth in 2023.
With that I'll turn the call back over to Stan.
Thank you David.
As we take stock of where we are today and look ahead to where we were going.
I'm proud of the work that we've done to effect a significant transformation since 2019.
And the onset of Covid.
We have met significant obstacles and challenges head on over the last few years and have continued to compete at the highest level, while positioning our company for the long run.
We've recently taken significant steps in reducing our maintenance capex and increasing our capital and logistical efficiency.
Cross our portfolio of assets, while ensuring we have less equipment in rotation at the maintenance shop and are therefore more efficient with our asset base.
Now are.
Our future is stronger than ever and we are confident in our ability to execute on strategic growth opportunities into the sustained multi year up cycle.
By the end of 2023 as I mentioned earlier, we will have transitioned two thirds of our fleet to natural gas burning and electric capabilities offering us a unique competitive advantage and one of the youngest next generation fleets in the country.
Moreover, we have a disciplined and intentional approach to capital deployment.
Which will allow us to strategically pursue M&A opportunities to advance our position as a leading completions focused service company.
At the same time.
With a nearly debt free balance sheet, we are prepared for any broader industry or macroeconomic headwinds and volatility that may arise.
While we recognize that the space is consolidated.
And the E&ps are not expected to meaningfully grow production in the near term or.
Our business is now built for the long run and perpetual will continue to be a major contributor to energy production for the world for the next several decades.
Accordingly, we are optimistic that we will begin to see valuation improvement across the O F Fs space.
I once again want to thank our perpetual teammates for their tremendous performance and forgiving the management team the confidence to move forward with executing on our strategy.
We continue to build on our strong track record of safety and performance and I'm proud of all that we have accomplished.
Let's continue to keep up the great work and deliver for our customers.
Lastly, we'd like to take a moment to talk about how honored we are here at pro Petro to be such a critical part of the American energy system.
I was born and raised right here in Midland, Texas, and the energy capital of this side of the world.
Even as a third generation old field services, operator, and leader, it's taken me decades to fully appreciate the value of this area and the oil and gas industry brings to our country into a club.
The Permian Basin community, which includes pro Petro works hard usually in harsh environments without complaint.
Our safe clean production here in the Permian exports, a dependable commodity that can be consumed locally or abroad.
These fossil fuels power, our world in our homes or businesses and in our schools and hospitals.
One would be hard pressed to find any item in our possession that isn't made from or tied directly to oil and gas product.
In the last 15, plus year history of our company, we have not appreciated our far reaching impact enough.
Today, we do.
Life experiences have helped us gain perspective, as we find ourselves growing families leading teams and investing in our communities all of which sit on a foundation of affordable clean and reliable energy.
As I respect continues to grow for the work that happens in our sector and in and the energy. It produces we feel emboldened to help others understand just how vital the Permian basin, and our oil and gas production or to the overall economic health.
And global security of the United States of America, The greatest Republic in the history of the World.
We'd like to encourage others in our community and the oil and gas value chain big and small to join us in the promotion of what our industry makes possible for everyday life around the world.
Also fuels have been a cornerstone in the advance in the advancement of humanity and thanks to our industry's long track record of innovation, they will continue to be indispensable.
That's because of our crucial contributions that we should be proud internally and externally to educate and advocate for our industry.
With that I'd like to open the lineup for questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from Derek part Heiser from Barclays. Please go ahead.
Hey, good morning, guys.
Yeah.
So the biggest unknown facing the industry today is how many fleets could be released from the gas basins. We've seen a few e&ps announced their plans to reduce activity, but could you expand on the under supply of the oil basins, specifically the Permian one of your peers described oil basins being 20 to 25 fleet under supplied I mean, what's your view on this number do you agree.
What indicators do you look at to calculate the Undersupplies tracked the market Permian specific number that you're thinking about just more color around this under supplied argument would be helpful.
Sure Great Great question, Derrick, It's obviously very topical right now with what's happening with natural gas prices.
As we stated here earlier today, we do believe that just generally in the world.
Your supply.
Of the product.
Our sub sector helps produce overall that definitely ripples into things like the frac market of which we think.
Is it still relatively under supplied.
Right here right here in the Permian Basin.
That said, there's there's more than one market at play we believe here today and that has a lot to do with this this equipment transition that you've heard us in some of our peers talk talk so much about.
That's why it's vitally important to have the right tools for the job of today.
Things like gas burn your equipment D. G D G b and electrical equipment.
Given our transition very heavily into those types of equipment.
That remains at the highest demand. That's that's why I think we have not seen any any activity weakness in our own offering nor have we really seen in that offering a systematically in the Permian.
And.
To make a comment on the 20 to 25 fleet number I'm not going to necessarily endorse.
Endorsed that number.
Do think that the system is still structurally under supplied for the right tools.
Their customers are demanding most of the most highly.
Okay, Great I appreciate that second question I want to talk about fleet attrition just thinking about you guys recapitalizing or fleet you have the sixth and seventh tier four DGB coming out you have the floor E fleets coming out I know, we didn't get a specific timing, but you guided the full year fleet utilization to be 15 to 16.
Can you give us an update on or any of these fleets going towards replacing your legacy tier two diesel equipment as they age out.
Just to be helpful. Because I think that's another big topic that investors are trying to.
Russell way, so how much attrition is going to leave the market how many fleets will exit as you bring in these in these new fleets and just trying to reconcile reconcile your guide to the number of fleets that are coming in.
Sure Great. Great question. This is Sam again, I think attrition is a topic that is not.
Understood enough I know, we have talked about it quite a bit in prior quarters as have many of our peers.
Yet we were not sure of that.
With the investment community in the E&P community totally understands.
How hard this this conventional equipment is working today and then how much of shortens.
The operating life of certain assets.
That said if you look at what we've done just in the last 18 months with R. D. G B.
Program.
Basically all of that has been replacement of existing horsepower.
And that will continue to be the case with D. G. B. So none none of that has been that attitude now as ive fleets come on it'll be a bit more nuanced, but you'll look for almost all of that to be replacement as well I think in some of our materials, we guided full.
Full year activity to 15 or 16 fleets here, we are running today.
So we'll add TUI fleets, probably in the third quarter of this year and you'll look for that to be mostly replacement as well obviously, we can't tell you exactly what market opportunities look like.
In the back half of this year today, we have a pretty good feeling under curtain circa under under certain commodity prices what that might look like so we'll remain nimble there, but really this is a this is a replacement refurbishment transition story. This is this is not a growth fleet growth story.
Great I appreciate that Sam I'll turn it back thanks.
Thank you and the next question is from Stephen King Gero from Stifel. Please go ahead.
Hi, Thanks, Good morning, guys.
Just to just to clarify that.
The four E fleets, a shoe in the third quarter and then the other two win.
Probably right at the right at the end of the year beginning of 'twenty four okay. Thank you.
Yeah.
The January commentary, you gave and kind of building on the full year.
Hi, It suggests that the consensus which is about 500 million of EBITDA. This year is.
A pretty reasonable number based on January and what you what you see in the market given if that's.
A reasonable starting point and given your capex.
You mentioned free cash flow in the second half of the year should you be free cash flow for the full year as well it seems that way, but it just.
I wanted to get your thoughts around that.
Yes, Stephen this is David.
We certainly believe that we will definitely make a big turnaround from last year, which was good.
Capitalization, a recapitalization of our fleet year.
To be significantly free cash flow positive in 2023.
Okay, Great. That's what I assume they just wanted to I wanted to check and then.
Just a final thing for me is when.
When you think about the current leading edge pricing dynamic.
Can you just give us an update on kind of what you're seeing in the market conversations with customers and obviously things still are.
Peer very tight, but but where does pricing stand and how are the pricing discussions gone recently.
Sure Great. Great question. This is Sam again.
We we alluded to in our in our materials and in our prepared remarks that we did see a pretty significant pricing uplift in.
In January we've been we've been working hard on the pricing front really for probably five or six quarters now that I've been really pleased with what the work that our team has done to continue to March forward.
You know pricing.
It helps us more more sustainably support our business.
That said going forward we're not.
We're trying to be realistic about what the pricing opportunities are.
Well will there be pricing opportunities sure there may be will they be.
At the speed the magnitude that you've seen.
US and our peers over the last year likely no.
But with.
But that comment I just made as recent as is mainly directed at what we're seeing with recent commodity prices, mainly what is happening in the gas markets. So we remain conservative that said I think I think pricing of our fleet today is isn't a relatively healthy spot that can that can bolster some some really meaning.
Full return of free cash flow for us in the future if we continue to execute in.
In the field and the shop the way we are today.
And and improve on that so I feel really good about where we sit from a pricing perspective, we'll we'll continue to.
It'd be very tactical to push where we can enter.
And to and to collaborate with our customers where we can.
Lastly, there's also a lot of accretion to our numbers and just getting better at what we do.
And almost creating economic uplift by just being more efficient internally and being a lot more intentional about how we spend.
Our money and how we operate our assets. So there's yeah. That's that's that's that's the first pillar of our strategy as we've outlined here in the last few quarters. This optimization efforts.
We've got a lot a lot of good stuff going on there that we're really excited about that should should aid us in and creating some more value without having to look outside things like pricing.
Great. Thanks, and just one quick one for David David with Silvertip is it is the DNA for the first quarter. One in like 35 36 million now is that right.
No. It's it's.
It's we gave the guidance for January at eight or the preliminary results.
Oh, you're talking about a DNA yes.
Yeah, Let me let me.
Pull that up real quick but it's.
Yeah, we'll get back to you on that okay. Thanks.
And as a reminder, if you'd like to ask a question. Please press Star then one.
Next question is from Wei car side from a T V capital markets. Please go ahead.
And thanks for taking my question Sam.
This the the fleet movement that was taking on and you know customer shift is that largely be done and the reason I'm asking is there's been some volatility <unk> and some.
Investor concerns about and he's not coming in in line with expectations and so is that variability not over as we look forward are we still have <unk>.
Maybe some some noise through may.
Yeah, Great question and this is this has been a very important part of our story this year probably different from from from House prototype from perpetual has operated maybe in the.
And the and the prior 10 years, leading up to say early 2022.
We've we've probably repositioned over half of our fleet.
From a from a customer standpoint, and the last one here.
Here, maybe maybe a little bit more than a year.
Inside of one basin I don't know if it can be overstated, how how much of the feet.
That is and to do it without losing.
The operational excellence that we kind of pride ourselves on.
Yes, I would say for.
For the most part other than one fleet here and there I would say that the massive repositioning repositioning effort.
Basically over a big part of the tail end of that repositioning was was the rolling off of part of our contract with pioneer.
And we think we have those fleets that have come off some of those contracts and really really good places with blue chip customers.
They are operating very efficiently.
You added pricing to perpetual.
So it should be much more steady from a customer standpoint.
As it pertains to this year I can't say that without saying how big of a deal that is.
What we've accomplished over the last year.
Okay.
And then in terms of your towards the active hydraulic horsepower with this 15 feet now could you give us a number.
And then as you guided to 15 to 16 fleets.
For the year.
Is the fleet mix changing whether you're going to be doing more Simon frac well, let's set the assignment of Frac you know that 15 to 16 feet guidance from from 14 in in January .
I'll take your last question first.
The same amount of Simon Frac, one to two fleets on the Sino Frac side.
I don't know for where we are where we can make a comment on what.
Total horsepower as we still quote to what is it 1.3.
Or and all of our materials.
But we're we're technically.
Under today's operating circumstances operating basically full utilization today.
Okay.
That's great and then could you comment on the effective tax rate for the year and what the cash taxes would be.
Yes.
As David we're not going to have any cash taxes.
We have an excess of 400 million of net operating losses remaining.
Okay.
Great.
Yeah.
So just to answer the prior question from Steven DNA, we're expecting it'll be in the 33 to 35 range per quarter.
It is David My one other question what is the total shares outstanding at the end of the year.
$115 million.
For the for the quarter was the fully fully diluted was $116 million.
Yeah.
Thank you very much.
Thank you and the next question is from a rune J ROM from J P. Morgan. Please go ahead.
Yeah. Good morning, Sam I was wondering if you could give us.
Perhaps the timeline for when do you expect.
The E fleets to be working you know in the field as well as you know the timing of that Oh.
The next I think it's the sixth.
Tier four D G beef a unit.
Sure.
We're putting that six P GP unit to work today.
Right now we've got the seventh coming in April may.
Time frame.
May June , possibly and then Youre looking at July August for Us.
Uh huh.
Equally each one and two they should come in pretty close succession and.
In July and August .
Okay, and then for three and four.
Into this year beginning of next year I would expect activity for those to really show up in Q1.
Yeah revenue generating.
<unk>.
Okay and just my follow up I know you guys are leasing up the E fleets.
Can you give us a sense of how much of the capital is if some of this going to be accounted for in your capex.
And give us a sense of good.
Yes, there will be about 15% of.
That will be outfitting.
Customer supplied equipment and so.
We'll be doing that this year, that's part of our Capex Guide plan.
And can you give us some goalposts around what the capital lease obligation would be when you finish all four.
Ballpark.
Well youre, representing close to $180 million.
Total lease.
Obligation.
The minimum leases that's over a three year period.
Once those are initiated.
The delivered enacted.
But the minimum lease obligations are materially less than that.
Hopefully that gives you a little bit of guidance.
Fair enough and just to understand as you're saying.
On top of that there's 50% that's allocated in your Capex.
15, 15 15, okay. Thank you for for clarifying I know that didn't feel right to me.
I appreciate it that's super helpful for our model. Thanks.
But.
And the next question is a follow up question from Steven Kent Zero from Stifel. Please go ahead.
Thanks.
Rune actually covered most of this but just just quickly the capex on a per fleet basis.
From a maintenance perspective can you just sort of do you update us on where that stands and how that may evolve as a larger percentage of your fleet is newer than electric.
Sure Steve This is David.
We've been guiding up a little bit on that $9 million to $10 million per fleet on an annualized basis I think that based on our optimization efforts that Sam mentioned earlier in his comments, we're hoping to see that trend down, particularly as the age of our fleet.
Is well over 50% of it less than two years old so as.
As we begin to to weave in the electric fleets.
We're going to be.
We're not going to be doing this type of maintenance that you would expect on an internal combustion engine that we've had in the past. So we expect to see you know between 30% and 40% improvement and not only the capital, but also the maintenance cost associated with the with those assets. So I think.
Over time.
As the fleet.
Fleet profile begins to transition more to electric we'll see those things play out, but it's going to take some time Steve.
Stephen This is Sam I just to pile on top of what David said there.
This electric fleet story is very significant.
For us and I think for others as well that are pursuing.
This type of equipment the cost of ownership over a longer period of time, which is significantly lower.
Lower maintenance Capex and assets that just are going to last.
Inefficiently longer and they're going to need.
Less attention less maintenance and fewer people to operate them as well.
And you will be able to see much more easily after we get those fleets in the field, how how differentiated that is but we're we remain really excited about that and do you believe that that's the that's probably the long term future of our business here at perpetual probably is the frac sector as a whole.
More and more equipment like like electrical equipment.
I guess lastly, when you hear us use the word like.
You used words like industrialize.
To me that that work kind of takes on a twofold, meaning that's that's kind of a nod to what's happening in the Permian basin in general.
This is Barry.
You know potentially operated resource.
But secondly, it's a it's a nod to the tools and the equipment that we use on a day in and day out basis. Unfortunately, it's probably taken our sub sector, a little bit too long to migrate to the right tools for the job of today we've seen.
We're seeing completion intensity out kind of outrun the.
The tools that we use to do our jobs so.
I'm I'm.
As a young leader in this business I'm really confident about where we're going perpetual as a sector from an equipment standpoint.
I think we are starting to bring in technologies and tools that are going to help us industrializing create.
Create more value.
More consistent value.
Great. Thank you gentlemen.
Thank you and the next question is a follow up from Derek part Hiser from Barclays. Please go ahead.
Hey, I wanted to stick on that industrialization approach you mentioned in your opening comments Sam about that type of approach to generate increased cash flow can you give us some examples of what you're talking about exactly.
What new strategies are you looking at to unlock increased cash flow to the business.
Sure.
First thing that comes to mind is just I think how we've operated traditionally is as more of your prototypical growth company.
The past say decade, which I think you would find us as very commonplace for an oilfield services company like like pro Petro over the last couple of cycles is experiencing a significant amount of growth. So through that growth. We've created scale, but we've yet to really operate at scale for a significant period of time.
And I think that's what we are working on doing today, not just operating as a means to grow and create value by.
Adding the additional the marginal set of equipment team, but to create value through how we operate.
So being being more intentional about our standard operating procedures around around.
The more high dollar components.
And capital intensive components.
And spreading kind of that operating culture across our business.
Those operating cultures might've been kind of fragmented in the past. So you know when I say large components it's not.
You guys like you Derrick you know that's that's things like engines.
[noise] transmissions power and fluid ends.
Right. The main the main modular components of.
Our of our asset base today, so so it's creating consistent first.
First in class practices around.
Pieces of equipment, where we can make our maintenance spend lower and more predictable over time, that's what our team is.
Working really hard on right now and look that's.
It's easy for me to sit here and say that and describe those things, it's really hard to do and execute on.
And that's that's why we're so intentionally trying to.
Trying to approach that with a bit of a different mindset than we have in the past that should that should all.
Accrete to the bottom line overtime.
Got it I appreciate the comments there wanted to touch on shareholder returns, you've obviously made significant process and recapitalizing. The fleet you have your capex coming down year over year, you talked about positive free cash flow generation for the full year more back back more back half weighted you.
You don't really have any leverage at all your peers are announcing free cash flow program. Our shareholder returns program as a percentage of free cash so split between buybacks and dividends just wanted to get an update on your thinking of shareholder returns. When we may see a program initiated here what are you looking for just some more color on this it would be helpful.
Yeah, Great Great question.
And just to kind of set the table on that topic. The goal here at pro petrol.
As to build a very competitive firm that can distribute value that is that is the goal.
Look at how we've allocated capital the past over the past 18 months, it's been a major equipment transition story for us.
And that has taken priority over everything and we believe that that was the right thing to do to protect the long term competitiveness.
For for our company and to put our team and situations to succeed.
We're winding down somewhat that that transition story, and we're using things like our leasing program with our with our with our fleet offering.
To try and lighten the capital load.
So that we can do two things we can look at a.
Tools that can help us distribute that value.
You know through things like dividends and buybacks and that we can also create.
A playing field, where we can be.
Opportunistic on the on the M&A front like we did with.
Silvertip, so I would say that that.
Our capital allocation focus is is beginning to pivot somewhat away from the equipment transition story and towards the B.
Shareholder returns.
The strategic transactions.
Territory.
And then one more for me.
Let's just say hypothetically you see potential delays of the easily deployed and maybe some of the first to get pushed in the fourth quarter. The next to get pushed into 2024, what would what would you expect would cause that would that these supply chain components being delayed like we've heard from some of your peers or potentially the power generation side, obviously, a lot of E fleets are coming in.
You have the mix of Grad turbine National gas research, there's not that many third party solutions out there.
Just would like to hear your thoughts around if we were to see some of those delivery slip would it be more on the supply chain component side or would you just be lining up the right power solution go out with that easily.
Yeah, I don't I don't I don't know if I want to speculate on that Eric we feel we feel pretty good about about our value chain partners that are helping us execute on this.
Just make one brief comment.
Equally powers as is tight today and will remain tight.
Those are definitely some long lead items.
Sure I'll say much more than that.
Got it fair enough. Thanks.
Yeah, and just to add to that we did announce our.
Most recent electric contract for the fleet starting in Q3, and we have secured power for that so we're set for our first deployment.
Great. That's helpful. Thanks, guys.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Sam sledge for any closing remarks.
Sure. Thanks, and thanks, everybody for joining us for today's call.
We're really excited here at pro Petro about the prospects of two.
2023, and in the future in general, we like where we sit and we're gonna be excited to come back in and continue to report on the company's success. Thanks again for joining us and we'll talk to you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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