Q2 2023 ProPetro Holding Corp Earnings Call

Good day.

J D.

Good day and welcome to the appropriate second quarter 'twenty to 'twenty three earnings call.

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I would now like to turn the conference over to Matt <unk> Director of corporate development and Investor Relations. Please 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 Sure liver, and President and Chief Operating Officer, Adam Your news. This morning, we released our earnings results for the second quarter of 2023. 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 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 reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Finally, after our prepared remarks, we will hold a question and answer session with that I would like to turn the call over to Sam.

Thanks, Matt and good morning, everyone.

Building on our strong momentum for Petro again delivered solid results in the second quarter.

David will walk you through our financial results in a few minutes, but first I'd like to go over a few highlights from the quarter and take stock of where we are halfway through the year.

As we've discussed many times modernizing our fleet has been an important strategic priority and this quarter, we were pleased to deploy our seven.

Tier four DGB dual fuel hydraulic fracturing fleet.

As expected given our diversified blue chip customer base.

And for our dual fuel portfolio remains very strong.

And more insulated from any near term bubbles in the market.

Additionally, in the third and fourth quarter.

We began our new force electric Frac fleet deployments.

Plan to deploy our first fleet in August and the second fleet early in the fourth quarter.

We are also still on track to deploy two additional four suites in the first half of 2024.

But the ongoing high demand for this equipment, we plan to begin operating these fleets as soon as we receive them.

As you all know we acquired Silvertip completion services in November of 2022, therefore, making our entry into wireline services.

And we are pleased to have seamlessly integrated the company since that time.

The silvertip acquisition continues to be a significant tailwind for <unk> earnings and free cash flow profile.

Perpetual has developed a strong track record for identifying acquiring and successfully integrating high quality assets and we continue to make excellent progress on our strategic initiatives.

We will continue to seek value accretive acquisition opportunities to further enhance our growth.

As always we will be disciplined and opportunistic in deploying capital.

Prioritizing only high return opportunities that will enhance free cash flow and create shareholder value.

Consistent with our overarching focus on delivering strong returns for investors. In addition to reviewing value enhancing acquisition opportunities our board and our management team also prioritizes the return of capital to perpetual shareholders.

During the second quarter, we were pleased to announce a $100 million share repurchase program.

The program gave authorization to repurchase approximately 13% of the company's market capitalization based on the value of the shares at the time of the announcement in mid May.

The share repurchase program is directly aligned with our strategy to drive free cash flow growth and create value for our shareholders.

Through this program, we plan to capitalize on dislocations between the companies public equity valuation and what we believe is its intrinsic value.

During the second quarter, the company repurchased approximately two 3 million shares.

For about $17 $5 million.

At an approximate 27% discount to the current share price.

As of July 31, 2023.

This represents 2% of total outstanding shares.

I would now like to address the market environment and recent headwinds and provide some detail on how we're navigating through the choppiness.

On disciplined pricing concessions at the expense of keeping fleets utilized especially from some of our distant distant peers.

Exposed to the spot market did have an impact on the overall frac market.

Due to some of these circumstances, we have what we elected to sideline one fleet during the quarter.

This was an easy decision for us given the low pricing, we would have had to put forward to keep the fleet operating.

And we are now able to strategically preserve these assets and not run the equipment at sub economic levels.

I want to reiterate that we are committed to only running our fleets of economic levels that earn full cycle cash on cash returns I.

I do want to note that because of our disciplined approach in our bifurcated offering we have been able to effectively offset much of the pricing pressure in various ways, including directly handling or contracting more materials and services on location.

We believe that perpetual is positioned to effectively handle materials and services on location and will continue to pursue more of that market.

Even in the face of the headwinds I just mentioned, we remain confident in our ability to continue to deliver strong financial results.

Looking into the future we remain bullish on perpetual has potential for growth and value creation over the next several years.

We believe we are still in the early stages of a sustained up cycle.

That will be supported by the industrialization of the Frac space, which is more resilient and discipline than previous cycles.

And we believe perpetual is well positioned to succeed in this new chapter for our industry.

We do expect the second half of the year will be only slightly down from operational levels that we saw in the first half. Therefore, we believe current rig count is approaching the bottom and it's possible it might already be on bottom.

Importantly, despite some of these challenges across our industry, we are not slowing down.

For Petro offers differentiation in our service quality equipment customer portfolio and operational density in the Permian.

We believe in this bifurcation internally and also here distracted from our customers.

This differentiation continues to insulate us from some of the market inconsistency outside of the Permian and in the spot market.

We are confident that our continued capital discipline and improved free cash flow profile will allow us to maintain a strong balance sheet as we move forward, while also executing opportunistically on our share repurchase program.

As always we remain focused on executing our strategy, which has proven successful throughout various economic cycles to deliver superior returns for shareholders.

Finally, I'd like to take a moment to thank our incredible perpetual team. It's their continued dedication and hard work that helps us achieve consistently solid results quarter over quarter.

Now I'll turn the call over to David to discuss our second quarter financial results David.

Thanks, Sam and good morning, everyone.

We have some great news to discuss today regarding our financial performance and progress in our strategic initiatives, while executing the share repurchases. We also paid down 15 million in debt and continued to maintain strong liquidity.

Since announcing the share repurchase program her petras share price has increased nearly 50% as of July 31st cut.

Coupled with our strategy execution, we've been working hard to enhance transparency and thanks in part to our strong investor engagement program. We believe our story is beginning to resonate with the financial community.

Increasingly investors and analysts are telling us that they recognized pro petros compelling value and potential.

This is evidenced by our leading relative share price performance over the last three months.

Moving onto our second quarter financial results.

We generated $435 million of revenue a two 8% increase over the first quarter of this year.

Notably we experienced nearly two times the amount of weather days during the quarter relative to last year due to severe lightening in the Permian Basin and we also idled one fleet for over a month due to inadequate pricing.

These impacts resulted in lost revenue of approximately 15 to 20 million with the most significant impact during may and June .

Adjusted EBITDA decreased 5% sequentially to $113 million largely due to unabsorbed costs related to the increased weather days and the idle fleet and our decision to retain the crew for continuity going forward.

In spite of those impacts in the quarter, our effective Frac fleet utilization of 15.9 fleets what was on the high end of our prior guidance of 15 to 16 fleets.

Consistent with our disciplined asset deployment or margin over market share strategy, we will not run our equipment at economic levels.

Therefore, our second half 2023 guidance for Frac fleet utilization is slightly down to 14 to 15 fleets.

As we previously mentioned and in line with our fleet transition and replacement strategy that does not expand net capacity in the market. We retired an additional 30000 hydraulic horsepower of tier two conventional diesel frac equipment in the second quarter.

So far this year, we have retired 100000 horsepower of tier two equipment with more retirements expected in the coming quarters.

Moving on cost of services, excluding depreciation and amortization for the second quarter of 'twenty, three was 298 million versus $280 million in the first quarter with the increase primarily driven by a higher level of activity across our service lines.

Second quarter General and administrative expense of 29 million was flat as compared to the prior quarter.

G&A expense, excluding management adjustments was 25 million or five 7% of revenue.

Management adjustments include $4 million of nonrecurring and noncash items, including stock based compensation and other items.

Depreciation and amortization was $53 million in the second quarter and we continue to expect D&A to be in this range going forward.

The company achieved net income of 39 million or 34 cents per diluted share compared to net income of $29 million or 25 cents per diluted share in the prior quarter.

This is the highest quarterly net income reported by the company since first quarter of 2019, and our fourth consecutive quarter of increasingly positive net income.

During the quarter, we incurred $115 million of capital expenditures.

Actual cash used in investing activities as shown on the statement of cash flows for capital expenditures net of proceeds in the second quarter was $108 million with free cash flow of $6 million.

This figure differs from our incurred capex number due to differences in timing of equipment receipts and cash disbursements.

We are reaffirming our previously provided capex range for 2023, which we expect to be between 250, and 300 million with a bias toward the upper end of the range due to our tier four DGB enforced electric fleet deployments this year.

Additionally, as quarterly Capex decreases in the second half of the year, we expect this to contribute to accelerating free cash flow over the coming quarters to be utilized for further debt reduction and opportunistic share repurchases and other strategic opportunities.

Moving onto our capital structure.

Our balance sheet and liquidity position remains strong to support execution of our strategy.

As of June 32023, total cash was $62 million and our borrowings under the ABL credit facility were $60 million.

Total liquidity at the end of the second quarter of 'twenty, three it was $170 million, including cash and $108 million of available capacity under the a b L.

As mentioned since the close of the second quarter, we paid down our credit facility by $15 million and as of July 31, our cash balance was $63 million and we had 45 million of borrowings under our ABL with $175 million of total liquidity.

As I noted during our first quarter call Pro Petros balance sheet is strong and we remain committed to disciplined capital deployment for the long term.

This strength and capital discipline enabled us to develop and install certain commercial architecture that will benefit the company for years to come, namely our capital light long term lease agreement for our force electric powered Frac fleets.

This lease agreement reduces our capital requirements and improves our operating cost profile, while enabling pro Petro to accelerate the transformation of our fleet to ambitions friendly assets that are in high demand in the market.

Lastly, and this is incredibly important to understand about broke Petra.

Over the last 18 months and through the end of this year.

We will have invested nearly $1 billion in recapitalizing, our fleet and bringing state of the art technologies and completion services to probe Petra.

By the end of this year, we will have transformed our fleet to become the youngest and one of the most valued fleets in the industry.

I tend to view industry or investor conferences, and you'll hear our customers talk about the pro Petro difference.

It's real and we have the accolades to prove it.

This differentiation and strategy has delivered a tremendous value proposition for our customers and an opportunity for our shareholders.

And the indicators of our successful strategy are already clearly visible.

Continued earnings strength of transport fleet of highly desirable assets in services positive free cash flow debt reduction share repurchases share price outperformance and strengthening liquidity.

With this significant investment as a foundation essentially a down payment on our future success, we expect to yield continued strong financial returns for many years to come let.

Let me now turn the call back to Sam for some closing remarks.

Thank you David.

Before we turn it over to Q&A I'd like to touch again on perpetual is differentiated offering.

We are proud to offer industry, leading service quality.

And service equipment with next generation capabilities.

That will be two thirds of our fleet in early 2024.

And a robust customer portfolio that comes with operational density in the Permian basin.

Well, we continue to face market pressures in some areas are best in class commercial architecture and superior execution in the field are distinct competitive advantages for Petro.

As demonstrated our sophisticated pricing model supports our asset deployment decisions and we will remain disciplined by not sacrificing our fleet at the expense of pricing concessions.

Furthermore, we are not going to stress our operating system with fleets operating at sub economic levels instead.

Instead.

We're focused on navigating the near term in a disciplined manner with long term value and focus.

As a result, we believe this will set us up for outsized upside in 2024 and beyond.

Your perpetual we're relentlessly focused on the execution of our strategy as I've stated earlier, we have no plans of letting up.

We recognize the fundamental change needed in the servicing space focus on industrialization. We also expect that the continued optimization of our operations and industrialization of our business will allow continued free cash flow growth.

In addition, we will continue to transition our fleet in a capital light manner and pursue opportunistic strategic transactions that accelerate value for our shareholders well.

While also not expanding capacity in the marketplace.

We are confident that we can achieve all of this while generating enhanced shareholder returns through our capital discipline and strategic approach.

Finally, I'd like to once again, thank the entire pro Petro team for their outstanding and safe performance this quarter.

And enabling our management team to move forward confidently with this strategy.

With that I'd like to now open the line up for questions operator.

Thank you we will now begin the question and answer session.

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Yeah.

The first question, we have is from Luca <unk> of Piper Sandler. Please go ahead.

Good morning.

Sam.

Sandy comment on this.

Stacking of fleet to maintain pricing.

And your overall tukey Rep per fleet was pretty flat do you think with your desk on your Frac calendar operational performance in the second half can be pretty close to the first half.

As far as EBITDA per fleet.

Yeah look I think it can be close there's there's a few moving parts I think we mentioned some of those in our prepared remarks here recently, where we might be slightly adjusting pricing, but picking up margin.

On other parts of the location wireline sand.

Logistics all those other things so I think we're looking here in the next couple of months to see how that settles out.

But look we're pretty confident that the fleet activity should should remain in that 14 to 15.

Range if anything.

It comes out as to the downside, we think we're well positioned to handle that.

I mean this is.

And you know our story well. This is this is very much a story of.

Three.

You know.

Focused dedicated approach.

Theres almost zero spot market exposure here as it pertains to the customers and the programs that.

We're currently working with so yeah. We're we're we're confident that activity holds up well and we think as compared to Q2. We think we think there's a really great opportunity that profitability hangs in there as well on a personal basis.

Okay.

And just on your fleet retirements are another 3000 this quarter I believe 100000 year to date, so basically two fleets.

Disappeared as soon as picks up more as the eclipse or deployed later this year or how should we think about that.

David might want to make an additional comment to this but I think it's just a pretty steady throughout the year a lot of that is in tandem already with.

Dual fuel conversions, we've been doing basically, bringing new equipment into the system and retiring old equipment as that transition happens so.

But I think it's a fairly linear.

<unk> process for us if you look over the span of the 2023.

Yeah I would agree.

Okay.

Okay.

Perfect. Thanks, guys.

Thanks Luke.

Yeah.

The next question is from Arun Jairam of J P. Morgan. Please go ahead.

Yeah. Good morning, Sam I was wondering if you could kind of describe what you're seeing in terms of the bifurcated market for equipment between kind of dual fuel and diesel.

Are you seeing kind of premiums for the dual fuel reflect the gas to diesel arbitrage or are you seeing even more of a premium being placed on those dual fuel fleets.

That's a great question Arun I think this is not only a big part of our story here at <unk> Petro maybe as it pertains to the Permian large Permian frac players that might be.

You know we might be affected the most by these dynamics in a positive way.

But this is a huge story for the whole sector. This this bifurcation in.

Along the lines of some things you mentioned equipment type.

And spot market or dedicated exposure.

We are really seeing things play out almost exactly how we thought they would.

And look you had crude pricing get a little weak in certain points of Q2 there.

There were a few of our customers that.

I wanted to talk to us about different pricing arrangements.

Almost none of that happened across our dual fuel fleet.

Which was just confirmation of those investments and that transition that we made that that equipment is.

Differentially positioned from a competitive standpoint, we think that'll continue to be the case in the future with dual fuel and probably even more so with electric for the players that are so that's that's kind of just.

Look into what's happening on the differentiated equipment offerings.

Also the spot market dedicated market I think showed through.

In the quarter, where we saw some headwinds in cross winds.

Where the dedicated customers.

Conversations with them or just completely different conversations than than you know a customer or two that we were serving them in the in the spot market.

I wouldn't even call the fleet, we parked a spot fleet either we were we were in the process of changing back to a previously dedicated customer that went back out to RFP for their work.

And got some just too good to be true pricing from some of our smaller competitors and we were happy to let them pursue that.

While we while we preserve the assets and our people to go.

You know.

Attack better returns in the future easy easy decision for us like I said in our scripted remarks. So a third thing that's happening in the market from a bifurcation standpoint, it's just execution on location if you've heard US talk about this time and time again on these earnings calls. We think this is one of our greatest competitive modes as to just be better at the wellhead.

Than anybody else's.

There still remains a bifurcated market as it pertains to that as well.

That's helpful.

And Tim how did those views on the dual fuel or are those bifurcation.

Influence your future Capex plans as David mentioned, you know almost $1 billion of Capex in terms of fleet renewal, thus far or I guess at the end of the program.

I think you have seven.

Tier four DGB fleets now do you expect to expand that number over time and do you have any preliminary thoughts on 2020 for Capex.

Yes, the three different offerings that we'll have will be you know kind of from top to bottom.

From a.

Fuel standpoint will be electric will have for electric fleets by Q1 next year.

Seven dual fuel fleets and the difference you know maybe five or six diesel fleets.

Today, we believe that it's that we are most competitive if we have all three of those in the future E&P consolidation continues you know some of these very active.

E&ps and customer of ours begin to plan further and further out we think that the demand for dual fuel and electric only strengthens from here. So as we look at that through the Capex allocation lens.

It tells us.

To push every dollar of capex towards the top end of that offering that we can dual fuel and electric doesn't mean, the diesel completely goes away but.

But it means we're less apt to rebuild or refurbish.

A diesel only piece of equipment than we were say a year or two or three years ago.

So I think you can look for us in the future to be.

More dual fuel and more electric and I think that we're kind of taking.

Taking each quarter or a year as it comes.

To help us better understand what is the best mix.

We think we are.

Well positioned going into next year being more than two thirds dual fuel and electric.

Yeah, we're going to we're going to lean on that hard going into next year and reassess as we start to build a budget for 2024 yeah.

David.

Just to give you a little color you know again, we're not we're not ready to give you 2020 for guidance, but I think as you saw in 2023 Capex stepping down we would expect another step down in 2024 as.

As we begin to deploy and have most of our fleet configured around our newer offerings. So.

Certainly some progression there favorable on the Capex side next year great.

Great that's helpful. Thanks.

Thanks Ryan.

The next question we have is from Scott Gruber of Citigroup. Please go ahead.

Yes, good morning.

Good morning, Scott.

Well wanted to stay on the Oh, yeah. The DGB question.

I'm just.

Just curious.

How is the availability for gas.

In the Permian.

You have to really maximize the diesel displacement on the DGB fleets is it is it pretty good today.

Are there shortages out in the marketplace.

How often you're able to take advantage of the field.

Field gas.

G.

Yeah. Thanks for the question Scott. It makes me think about a couple of different things I think one of which is just the regional.

Gas availability, we have a couple of customers that are trying to use as much.

You know in field or field gas as they can.

Maybe at times, we have to do we have to pair that with a little bit of CMG to keep up with with the Hyatt place displacement rates that we're seeing.

But I think what leads the way sometimes is regionally you know.

As our customer out in the Delaware and a more stranded location or are they in the Midland Basin, where <unk> is very readily available there.

There's kind of some puts and takes there.

Second to that I think is just how much how much gas we're displacing.

Which which we think where we're doing as good or maybe better than any of our peers in that in that realm, and having a gas partner.

Whether that be the infield transportation or trucking or <unk> that can keep up with that displacement and this is going to be vital as we move into the electric space as well. So part of it is regionally are we close to good gas sources in the other part of it to me is do we have all the right services and partners to support.

For the high performing operation that consumes a lot of gas and look I think we're doing pretty good there I think our customers are pleased with our displacement.

But we're not done we want to continue to push and push the envelope on them.

<unk> the value of these assets.

Okay.

Got it that's great color.

And then one on just kind of a near term prospects.

You mentioned you know you've got 14 fleets today, but could potentially see 14 to 15 in the second half of the year whats the prospects today to put another fleet back to work before the end of the year.

Yeah.

You know I think it depends I think we're just in an interesting time right now where we're coming out of.

You know a time period, where many of the e&ps in the Permian, we're kind of pulling back because he saw crude in the <unk> and <unk>.

And they are trying to make economic decisions there.

And now we see crude cut it back in the low eighties.

And I think a pretty good strong macro outlook for crude in the back half of the year, we at least we believe that.

So I think we're kind of waiting to see how that payers with customer decisions.

And just remaining as disciplined as possible around.

Only putting assets in the field it at prices that make sense to us. So I think if you see 80, plus crude persist through the end of the year I think I think the likelihood of putting the 15th vacuum system is.

It's pretty good but.

We'll see we'll see if that's what the market gives us.

Got it.

Could you give me color Sam Thank you.

Thanks Scott.

Our next question is from Craig <unk> of benchmark. Please go ahead.

Hey, good morning, everybody.

Alright.

Sure.

Hey, I was kind of curious you know you look at the import your fleets that are coming into our.

You know coming in here in the second half 'twenty.

<unk> 23 in first half of next year and some recent discussions with.

Some of the other major.

Major players in the business that.

We are deploying equally as well has kind of indicated that they're seeing.

Seeing contract terms are.

As long as three years, so I'm kind of curious as to what kind of discussions you're having what kind of what does the term structure look like on that front.

Yeah. Good good question I'd, just like to remind everybody that we do have our first fleet contracted.

On a long term agreement very similar to a timeframe that you just mentioned.

We're really excited about that it's with a premier operator that has a lot of experience in the <unk>.

Please space. So we're excited to get that fleet on the ground here just really in the next few weeks.

We've got great great demand for number two three and four we have various I would say very developed conversations contract negotiations going on.

With those fleets that said we are from an economic standpoint incentivized to put those fleets to work right when we get them.

The cost of ownership is lower.

The assets are more purpose fit for the jobs, we're doing today.

So we are we are motivated to get that equipment in the field.

But look we're.

We're super confident that all four of these fleets are going to be.

<unk> contracted and Theyre going to be on long term agreements that have some type of minimums or take or pay mechanisms in them.

And just as a leader in this space I'm I'm I'm personally really excited about that transition.

Into more committed work.

With more purpose built assets and I think over the next.

You know five years, or so youre going to see more equipment more agreements like this across the space, where we're proud to B b.

Heavy participant in that.

Okay, That's fair and yes, you got it you guys referenced it in your commentary here that you had a $15 million to $20 million impact in the second quarter.

With a combination of some weather and an idling a frac crew then you talk about that as a modest decline in the second half.

'twenty three relative to the first half in terms of your EBITDA progression. So.

Can you help us take the guesswork out of there so what kind of magnitude of decline in EBITDA, you're looking for in the second half.

Yeah, you know I think as Sam mentioned on one of the prior questions.

We're not looking at significant declines from here.

We feel like a 14 to 15 is about what it looks like going forward. So.

July revenues look to be.

Just a little bit from June and we're not expecting any kind of material changes from from that activity level, I think there's opportunities, but but.

But we feel good with the remainder of the year and keep in mind I mean, we're not running this company for the next quarter, we're running at for the next several years.

And making the investments, having the pricing discipline and the asset deployment strategy.

And also doing things like.

Bringing industrial indoor.

Industrial equipment into our mix like the fleets is really for the long term and I.

I think that's what we'd like to focus on.

Okay.

Just maybe one more for Sam just isn't a contact that you mentioned you know.

Diesel still being part of your fleet moving forward I'm, just kind of curious you know what what's the economic benefit of economic incentive.

No to the to have diesel still be part of your your asset mix.

Yeah.

I think I think if you just look at the pure cost incentive for us and our customer and.

On the on the dual fuel side, the ability to displace diesel use more natural gas I think the benefit is somewhere between maybe $5 million and upwards of $20 million a year, depending on the customer and the and the gas price and that could manifest itself in a.

Maybe a 10% to 20% price decrease and that's what makes us really excited about electric because it's 100% gas and the savings.

When when executed correctly, it can be pretty big.

But back to your question about <unk>.

Diesel.

It's just that this this transition is also coming with a transition on the E&P side.

And their willingness to kind of trust and what those savings are or spool up in operation.

Debt that needs to do things like gas logistics and gas purchasing them. So it's just a bit of a transition that we think will persist into the future and we think that youre going to see dual fuel as being more of the base load from our Permian Frac operation standpoint, we've got some of the best infrastructure in the world.

Permian basin as it pertains to moving these molecules around that.

So I think as more and more e&ps up and down that kind of sophistication chain start to understand what the opportunities there are there.

The more likely you were gonna see more and more dual fuel.

In the system.

I'll also say that the one thing we really like about this dual fuel equipment.

Is it it convert 100% diesel too.

It cost a little bit more so we don't we don't like to do that.

As is often.

But in a tight market it could very likely makes sense to deploy dual fuel assets in the future.

While burning while still burning 100% diesel.

Pricing takes a leg up from from current pricing levels. So it's also very flexible.

And.

We really like that as well, yes incurred this David we're running different scenarios on fleet configuration. So if the market is demanding a higher proportion of electric and other types of assets, we have the ability to pivot, particularly.

Particularly using the commercial architecture that we've talked about in our comments.

To facilitate that but.

Either way, we're gonna be disciplined about how we do that.

That's awesome. Thank you so much.

The next question we have is from David <unk> of Barclays. Please go ahead.

Hey, So you talked about that customer that idle fleet with you guys that they got pricing on the spot spot market that was it was too good to be true I just wanted to ask what do you believe this will weigh on the dedicated pricing market as you move forward into the RFP season, just as we start thinking about 2020 for pricing and profitability or do you consider.

What happened to be more of a one off.

I think it could I think were naive to think Derek that it won't way that it couldnt way on RFP for 2024.

I think it remains to be seen if it will so you know I hold out hope and confidence that it will and if it does it'll be very minimal that said I think it's I think it's important to just remind.

Anybody that's paying attention to Oss or the frac sector more specifically.

There is more there's more pricing discipline in the system than we've seen in maybe a couple of decades definitely in my.

You know 12 year career I've I've never seen this much price discipline.

In a volatile market that we play in that is full of entrepreneurs.

You're you're always going to have some maybe less logical things happen.

And in certain parts of the cycle I don't think that ever goes away totally I think what we've seen over the last couple of years.

Is that the amount of.

That type of what we'll call irrational behavior is less than it's ever been which which makes us confident.

In the in the medium and long term future for for pro Petro and for our sector in general.

Well and Derek you know the other thing we.

We're now sitting at over $80.

A barrel of oil and with a $15 million drawn on inventories.

I think I think people are beginning to see that supply constraint.

Play into the market and also into crude prices. So I think as we move into the second half of the year.

That could create a bit more sensitivity to securing service supply for next year, then that maybe has persisted over the last call. It four to six months.

And we might be looking at something more akin to the first quarter of this year.

In terms of the pricing dynamics and market dynamics and I think that's what you're hearing from.

Our larger peers other oil service companies and.

I think that would be favorable for us as we as we get into the second half of the year and pricing for next year.

Great No I appreciate that color wanted to move over to <unk>, you mentioned sand and logistics being part of the integrated services that you're providing now.

Can you refresh our memories I don't really recall you guys having assets in this arena well what are you doing differently are you are you starting to partner up with some of the companies that we're seeing in this arena just maybe some more color around your stand in logistics offering and how you see that progressing as we move into next year.

Yeah, I'll just I'll just give you kind of an anecdotal example of how that looks I mean I'd hate for you to extrapolate this across our whole fleet, but in these times where.

We might be kind of negotiating a different pricing model with one of our customers.

Say this that this customer was in housing brokering themselves sand and logistics for and maybe chemical and may be wireline.

For for themselves or directly and they wanted to negotiate with us about a tweak on our hourly pricing. While we then can go back to say something like our sand contracts.

And try and find out what that customer, who who really has the better sand contract and the better pricing in the market.

And make sure that we're leveraging the best contract and we found in a couple of instances here recently that we do have better contractual terms of pricing in some of our customers do so deep. We then we'll offer a trade maybe a tweak to the hourly pricing.

To leverage a contract and the volume that we already have commitments to on the sand side. So it's not that we're mining or trucking.

With our own assets that were using partnerships in our in our supply chain to make sure that we're pushing forward the best value to our customer that also generates the best return for us. So I'm, just kind of a little bit of blocking and tackling around the supply chain to ensure that we protect our our margin of our return.

Got it okay, great and then just just one more if I could squeeze it in I know, you're not ready to give us an outlook for 'twenty 'twenty four capex, but maybe if we just think about maintenance capex. So you're expecting any sort of step change I mean, I know you don't capitalize the fluid ends anymore, but now that youre going to be having four E fleets and seven tier four DGB I would suspect they'd make its capex should be coming down.

As your legacy tier two diesel license so any color on that where you guys are seeing that shake out so far.

You know I think that we're not we're not ready to give you 24, but as I mentioned earlier, there there's going to be a continued progression.

We believe because we now have really recapitalize the majority of our fleet.

And gone to an electric focused model so.

So I think certainly some progression is going to be very favorable in 'twenty four and on yeah, Derrick and I'll, just I'll just add onto that.

This is Sam.

I think we do we do expect it to be down.

On a per fleet basis, I don't think we're as David alluded to we're ready to tell you by how much you had a big part of that story is electric.

Part of that story is just internal optimization efforts that we've been pursuing.

In a very focused intentional manner for I'd say the last year.

Year, and I'd be I'd be remiss to get off the call without recognizing the efforts.

Of our team and that then.

In that arena, we've been we've been very very intentional for about a year now.

<unk> cross functional teams inside of our business to make sure that we are maximizing.

You know every asset that we're responsible for.

Especially on the maintenance side of things and we've we've undergone a lot of change.

And.

Reassessed a lot of processes internally and we're really really proud of the work our team has done in that arena and some of the progress we've seen that said.

Some of the results that you see that come from that don't necessarily show up day one.

So I my my hope and my confidence is that in 2024 were talking a little bit more about the fruits of some of that labor.

Derived from taking a company that was built on growth.

And and at.

Growth oriented mindset, which is which is kind of how we built the foundation of pro petrol and transitioning transitioning.

Transitioning.

Our company and our team into a mindset of optimization and industrialization, where we are right in the middle of that transition right now and we think it's going to bear some fruit going into next year.

Great look forward to seeing it thanks, guys I'll turn it back.

Yeah.

The next question we have is from Stephen King of Stifel. Please go ahead.

Thanks, Good morning, everybody.

Hum.

I'm one of the things that we heard from.

Some others, where.

Some optimism of a sort of lull in U S activity recovering.

Perhaps even as soon as the fourth quarter, but.

Just curious on your end in conversations.

We're hearing anecdotes that support that and what your sort of thoughts are around that.

Yeah look I mean, we.

We hope that that is what happens in that that's what plays out maybe going into the fourth quarter that said we are.

We're not sitting here dependent on that.

Whatsoever.

You said various times through our prepared remarks.

And through some of our Q&A here look we think we've got a really strong vehicle to create value into the future.

We live and work in what is a volatile business I think our customers.

Other players in oilfield services are doing a lot of great things to pull out some of that volatility and smooth curves.

But where were I think I think we're confident regardless Steven.

I will say you know theres been a lot of comments and we made some of our own about the potential of the rig count bottom in windows. It pick back up and maybe that's part of your question.

Look if rigs are coming into the system today.

We're in the very very near term, it's hard to say that those rigs create.

Added opportunities for the Frac space in the fourth quarter.

We're a bit past mid year.

And there's a good two three maybe more two two to three months, maybe more lag to those rigs actually generating.

More completions work so could that happen here over the next few weeks could we see more rigs come into the system.

And it created a Q4 tailwind for the Frac space sure I don't I don't think Thats out of the question.

But back to how it kind of began the answer I don't I don't think we're we're sitting here depending on that whatsoever.

Got it thanks, and then the follow up you mentioned.

I think in response to a question about the second half of the year.

Maybe some of the some of the things that offset.

Activity <unk> slightly lower prices, you mentioned sand and I was curious because we've we've I've thought that frac sand prices on a spot basis, we're down a bit so.

I was just kind of thinking through that am I thinking about that wrong, because I would think you'd lose a little from lower frac sand prices in the second half.

Yeah and is there any way to quantify that impact.

Yeah, it's a bit nuanced there Steven I think what it comes down to us.

Who has a better scale and market position to purchase the sand and as I was answering <unk> question earlier about.

How we're kind of using sand as a lever.

To maintain.

A certain margin.

That because of our operational density and scale in this space and we're also a big purchaser of sand as compared to other.

E&ps and service companies in the Permian, So when there's movements in the San market and we can kind of flex our.

Our scale and our purchasing power, we like to do that and we will be opportunistic so for us it's less so about.

You know not not being directly in the sand business ourselves.

And mining sand ours.

Cells I think it's more about.

What purchasing power do we have and what margin can we put on top of a product like that.

And while while at the same time, providing it to our customer I think I think that's what more so what it's about for us.

Got it that makes sense alright, thanks for the color Sam.

Sure.

Our next question is from Don Crist of Johnson Rice. Please go ahead.

Good morning, gentlemen, I just wanted to ask about share repurchases versus debt repayment. Obviously, you came out of the gate once the.

The plan was put in place in and bought back a lot of shares at a lower price, but in essence, the stock's rebounded how do you balance you know paying off debt versus versus buying back shares as we go forward.

Great Great question, Don that's that's top of mind for us from a capital allocation standpoint, moving forward one of our.

Our chief responsibilities as leaders.

So at a pro Petro is to make sure that we're.

We're being as effective as possible.

Capital across all of the opportunities that we have.

Really everything's on the table I think we like we like to run a business that is low to no debt.

So that definitely plays into mix look we've had great success with our share repurchase program and are very pleased.

Two have gotten in the market win win when our equity value was very depressed.

We also have capital to allocate to finish off this fleet transition and to make sure we're building.

The most long term competitive business that we that we possibly can so all of those things are are competing for capital today.

Today that said I think we mentioned.

Our stock repurchase program in an opportunistic since a couple of times here on the call.

And I think that's how we're looking at it so.

Well, we'll we'll continue to be opportunistic there we're happy to have the authorization and the flexibility to come in and out of the market as we please.

And I'd, just say stay tuned.

Yes, Don this is Dave.

Just just to add a little bit to that.

We've seen our stock move up from very depressed levels.

Significant discount from a market valuation perspective, we're still in a discounted situation relative to some peers.

And we don't believe that we're.

And there are intrinsic value either so.

I think if you've seen some others.

Talk about that on their calls we believe the same thing we we don't believe that the market valuation is appropriate for the business that we've built and.

I think that's something that informs our strategy going forward on that as well.

I appreciate the color and everything else has been answered. Thank you.

Thanks, Don.

This concludes our question and answer session.

Like to turn the conference back over to <unk> CEO for any closing remarks.

Yeah. Thanks, Irene before we close it out before I close it out today I'd like to give Adams, our president and Chief operating officer to talk a little bit more.

Here here briefly about our force fleet.

The rollout and what we're excited about there.

Yeah. Thanks, Sam had been provided a little more color there.

Our team has been hard getting are hard at work getting everything ready to deploy for our first two force units as you heard earlier in the call. We expect to deploy the first fleet here in August and.

And the second expected to deploy in early fourth quarter.

Moreover, we expect two additional force electric fleets to be deployed in the first half of 2024.

These fleets are best in class.

Kind of give us a brief description over the forest pumping units or 6000 horsepower trailers driven by two independent fully were done at 3000 horsepower pumps.

Which are powered by two independent and fully redundant 3500 horsepower electric motors and are enabling us to reduce the the pump footprint on location near the wellhead about 50%.

Additionally, we will be deploying these units.

As a hybrid fleet.

Along the slides alongside with our tier four DGB dual units that are already providing a very high diesel displacement as we also mentioned in.

And lastly, the units we will will be powered by natural gas turbine generator, essentially even providing 100% diesel displacement for our customer, which helps with emissions reduction and significant significant cost savings from natural gas or diesel.

Thanks, Adam.

Like I said multiple times in the call we're super excited to get the force fleets out out in the field.

And are excited to share more detail on that in quarters to come.

Before closing out the call I'd like to remind everyone. How proud we are <unk> to be a vital part of the American energy system.

Confident that oil and gas will remain the most important.

Part of the overall energy mix and we're confident that both our company and the Permian Basin community will continue to provide our country in the world with the cleanest most affordable reliable energy.

Thanks, again for joining us today, and we hope to speak with you again soon have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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