Q4 2023 Liberty Energy Inc Earnings Call
Welcome to the Liberty Energy earnings Conference call, all participants will be in listen only mode.
Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions. Please.
Please note this event is being recorded.
I would now like to turn the conference over to Anja LIBOR Your strategic finance and Investor Relations lead. Please go ahead.
Thank you and good morning, and welcome to the Liberty Energy fourth quarter and full year 2023 earnings call joining us on the call are Chris Wright, Chief Executive Officer, Ron <unk>, President and Michael Stock Chief Financial Officer, before we begin I would like to remind all participants that.
Some of our comments today may include forward looking statements, reflecting the company's view about future prospects revenues expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward looking statements.
These statements reflect the company's beliefs.
Based on current conditions that are subject to certain risks and uncertainties that are detailed in our earnings release and other public filings.
Our comments today also include non-GAAP financial and operational measures. These non.
non-GAAP measures, including EBITDA adjusted EBITDA adjusted pretax return on capital employed and cash return on capital that are not a substitute forgotten measures and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA and the calculations of adjusted.
The tax return on capital employed and cash return on capital and thought that I have discussed on this call are included in our press release available on our Investor Relations website.
I'd now like to turn the call over to Kirk.
Good morning, everyone and thank you for joining us to discuss our full year and fourth quarter 2023 operational and financial result Liberty.
Liberty delivered a second consecutive year of record earnings per share our portfolio of advanced technology and vertical integration enhanced our superior service quality and drove a record breaking operational efficiencies, we delivered full year adjusted pre tax return on cash.
Capital employed of 40% and cash return on capital employed or <unk>.
34%, both exceeding the prior year.
Revenue was $4 7 billion in 2023 net income of 556 million increased 39% year over year and our fully diluted earnings per share rose by 49% year over year to $3 15 says.
Our EPS grew faster than net income due to reduced share count showcasing the power of our buyback program.
We concluded the year with adjusted EBITDA of $1 2 billion at the high end of our mid year guidance range, and we significantly increased our cash flow.
We went public six years ago. After a record year in 2017. Since then we've tripled our revenue quadrupled, our EBITDA and more than quadrupled our pretax net income.
These financial records were made possible by the simply outstanding operational performance of team Liberty.
Every quarter in 2023 set a new quarterly pumping efficiency record I couldn't be more proud to be on this team.
Strong free cash flow generation supported our leading return of capital program.
These program reinstatement in July 2022, we have distributed 375 million to shareholders through buybacks and cash dividends. We have already retired 12% of the shares outstanding when we announced the program in July 2022 equivalent to <unk> 33 per <unk>.
<unk> of the shares issued for the acquisition of Schlumberger is one stim business three years ago we.
We also upsized, our share repurchase authorization by 50% to $750 million and increased our quarterly dividend by 40% beginning in Q4 2023.
Liberty brings together, leading pump technology mobile power generation and <unk> fuel supply a unique value proposition to maximize efficiency reduce emissions and lower fuel costs by the end of 2024, we expect 90% of our fleet will be primarily.
Powered by natural gas.
Excess of our technology transition is buttressed by dependable natural gas fuel supply through Liberty power innovations, we plan to double L. P ice capacity in 2024 to meet rising demand.
Liberty is unique in the industry to own the technology and assets for the complete value chain in the move to natural gas and grid powered frac. Our strong belief is that controlling everything from fuel and logistics to power production in pump technology will drive our competitive edge.
Vantage further and deliver industry, leading returns. This is a distinctly different approach compared to some frac companies, whose lease technology and contract power generation and gas supply from other providers.
The reason that Liberty has been the most successful Frac company over the last decade is our ability to innovate faster than the rest of the industry and drive strong returns for both our customers and shareholders.
Gas is by far the fastest growing energy source in the world.
Consistent with this is the rising demand to power approximately with natural gas.
11 years ago, we deployed our first dual fuel fleet.
Recognizing the growing importance of natural gas at a lower emission lower cost reliable fuel source.
We then set out to design and build our 100% natural gas powered DG fleets fit for the rigors of the oilfield. This required a novel approach as some operators desire solutions to match their ambitions of developing a micro grid to augment their oilfield operations, while others aimed.
The lower emissions and fuel costs, our efforts culminated in two complementary pump technologies that comprise our DG fleets and satisfy these multifaceted demands with the most innovative and capital efficient solution.
Mobility requirements, coupled with varying power demand based on job design led to our development of DG power mobile generators that can be scaled up or down and providing the highest thermal efficiency and lowest emissions modular solutions in the industry.
Today, there is a lack of natural gas transportation and logistics infrastructure to meet the just in time needs of the Frac site, we launched and a rapidly growing L. P. I to solve this challenge and provide a virtual pipeline of natural gas to our fleet and other customer needs.
While innovation from pumps to power generation to gas logistics are independently compelling investments together. These comprise a complete infrastructure to deliver a service unmatched in the industry.
The success of our DG technologies L. P. I in 2023 marked a turning point for Liberty.
<unk> coal for our DG fleets continues to gain steam we now have four duty fleets deployed across two basins with two more being rolled out as we speak by the end of the year. The combination of DG fleet and dual fuel fleets will make up 90% of our total fleet composition dramatically.
Shifting our diesel to gas consumption and driving demand for <unk> services.
Entering 2024, the fundamental outlook for the Frac industry is stable.
<unk> prices remained relatively steady as the supply of marketed fleet was right sized in response to lower completion activity.
Any fleet exited the market both from accelerated attrition of older equipment and the deliberate idling of underutilized fleets to match customer demand.
Operators continue to demand technologies that provide significant emissions reductions and fuel savings Liberty's DG technologies, LTI business integrated service offering and scale position us as the provider of choice.
Against this backdrop demand for Liberty services in.
Position to rise, albeit slowly from current levels.
Engineering and innovation have led to improved shale wells via completion design optimization faster completion and longer laterals, all helping to offset the gradual decline in average reservoir quality being drilled.
The trend toward higher intensity fracs raises demand for horsepower serving to keep frac assets utilized and drive service company returns.
Range bound oil prices have not meaningfully changed E&P, operator plans to deliver flat or at most modest production growth.
As North American oil production reaches record levels more frac activity will be required simply to offset production declines.
Near term natural gas markets are under pressure, but domestic power demand growth and increased LNG exports are expected to lead to a more robust 2025.
Long term demand for reliable affordable energy continues to rise with increasing global living standards North American operators have been and are likely to continue to be the largest provider of incremental oil and gas supply globally.
These trends should support a durable multiyear cycle ahead for services.
Looking to the first quarter, we anticipate flattish sequential revenue and adjusted EBITDA, driven by seasonal trends and a cautious start for E&P activity.
This is expected to be followed by a modest increase in our activity in subsequent quarters for the full year, we expect strong free cash flow generation and continued investment in DG technologies, and our LPR business.
We are confident that our technology transition better positions us to deliver superior services to our customers and durable returns over cycles.
Global energy demand continues to rise as the world's 7 billion less of energized aspire to attain the energy rich lifestyles of the Lucky 1 billion.
Liberty is growing technical and service quality progress brings us growing business opportunities to help expand the supply of reliable affordable energy to meet these demands our investment in and partnership with <unk> and enhanced geothermal energy company has been going very.
Well.
Pioneering the shale Revolution, ultimately came down to engineering and creating a complex underground plumbing network, a hydraulic fractures dense enough to harvest natural gas and oil from ultra low permeability rocks.
Several of US at Liberty, we're lucky to be involved at the beginning and solving this technical challenge and unleash the shale Revolution.
The result has been a transformation of the global energy and geopolitical landscape in ways previously unimagined shale technology make natural gas a fastest growing global source of energy over the last 12 years. The shale Revolution also made oil the second fastest.
Growing source of energy over the same time period more on this in my closing remarks.
Our partnership with <unk>, which began informally several years ago involves the same technical and implementation challenges the harvest vast quantities of heat from underground rocks also requires a precisely engineered underground network of fractures heat conduction through.
Rocks is very slow and now it gets to ultra low permeability.
Convective heat transfer from fracture phases can be scaled up to high rates.
The solution is a dense network of underground fractures, which connect cold water injector wells with hot water and steam producer wells.
Another new large scale energy resource is becoming accessible via the innovations from the shale Revolution.
We are excited about our <unk> partnership and how far this next generation of geothermal will travel in the years ahead.
Another application of Liberty shale technology expertise is our partnership with Tambor and to crack the code in Australia as beta lose shale gas basin.
The geology and geography are different of course, but the fundamental challenge is the same.
We are excited about the upside if our partnership can succeed in bringing huge new gas resources to Australia, and the nearby Asian LNG markets.
Liberty history has been all about innovation and partnership our future will be too.
Earlier this month, we launched the veterans Human lives Foundation to address the most urgent challenges of energy access.
The foundation strive to increase access to clean cooking fuels by supporting technology development and entrepreneurs in Africa. We are excited by the prospect of uplifting women children and communities by improving health safety and quality of life with that I'd like to turn the call.
All over to Michael stock, our CFO to discuss our financial results and outlook.
Good morning, everyone Liberty delivered outstanding financial results in 2023, we expanded our adjusted EBITDA by 41% increase that road sheet of 40% and returned $241 million in capital to shareholders, while reinvesting in that business for the long term.
Over the last 12 years of that company history Liberty has operated in a series of cycles, including from 2012 to 2015 period 2017 to 2019 and 22 two Tonight.
Interrupted by two exogenous and unusual downturns the opaque more on shale encoded.
And our first four years, our average annual adjusted EBITDA was approximately $40 million by 2017 to 2019 period, we have grown our average annual average adjusted EBITDA eight fold all leading to a forward thinking investment in dual fuel quiet fleet technology and the opportunistic acquisition of St. Joe assets in 2016.
<unk>.
Since then.
Average adjusted EBITDA in the last two years is now over $1 billion over.
Over three times the prior 2017 to 2019 cycle driven by the transformative <unk> acquisition.
Initial integration software development and the scale bolsters our efficiencies.
As we look forward our strategy is to invest in Liberty design next generation fleet technology, and all of the infrastructure to control critical areas that drive high efficiencies over the next decade, particularly in areas that are not very well developed like natural gas fuel supply.
This utility of LPR business provides the potential to diversify our revenue base outside the industry.
These investments reinforce sustainable long term advantages and expand our ability to drive strong free cash flow as the demand for low emission highly efficient solutions is on the rise and there are very few companies that are truly investing in differential technologies and there was only one that owns the entire value chain and can choppy.
Destiny and that is Lindsay.
For the full year revenue increased 14% to $4 7 billion from $4 1 billion in 2002.
Net income totaled $556 million or $3.15 per fully diluted share.
Adjusted EBITDA was $1 2 billion highest in company history, and 41% above 2022 levels.
Our results demonstrate the earnings power, we've built over the last three years.
In the fourth quarter of 2023 revenue was $1 1 billion, a decrease of 12% over prior year driven by market headwinds more budget exhaustion and a full quarter impact of one fewer fleetwood.
On a positive note, we achieved new consecutive quarterly pumping efficiency record safety pumping more ASP asleep and even before the quarter.
Fourth quarter net income after tax was not of $92 million compared to $153 million in the prior year.
Fully diluted net income per share was <unk> 54 seats compared to 82 seats in the fourth quarter of 'twenty two.
Fourth quarter, adjusted EBITDA was $253 million compared to $295 million in the prior year.
G&A expenses totaled 55 million in the fourth quarter and included noncash stock based compensation of $9 million.
G&A was 5 million above the fourth quarter of 2022, but flat on a sequential basis.
Net interest expense and associated fees totaled $6 million for the quarter.
Fourth quarter tax expense was $27 million approximately 23% of pretax income we expect tax expense in 2024 to be approximately 24% of pre tax income cash taxes with $10 million in the fourth quarter and.
We ended the year with a cash balance of $37 million and our net days and $103 million decreased by $72 million from the prior year and 2023 cash flows we used to fund capital expenditures $203 million of share buybacks and $58 million of cash dividends total liquidity at the end of the year.
Including availability under the credit facility was $314 million.
Net capital expenditures were 134 million in the fourth quarter and $576 million for the full year, which included investments in digital leagues, LPL, I guess delivery with <unk> technology capitalized maintenance spending and other projects at.
2023 results showcase our ability to deliver robust return of capital program, while investing in high return internal projects to expand our competitive advantage.
Since the pandemic, we have meaningfully transformed that business to deliver strong free cash flow generation through cycles.
Reinstated and return of capital program, a year and a half ago since that time, we've now distributed a cumulative $375 million to shareholders through share buybacks and cash dividends. We continue to strengthen our program last quarter, we increased our dividend by 20% to Steven since this year and earlier this week, we increased and extended our share repurchase authorization.
<unk> by 50% to $750 million through July 2026, we had $422 million left on this authorization, we continue to differentiate ourselves with an industry industry, leading return of capital program, while investing in high return opportunities.
As Chris stated, we expect a steady start to the year with flattish first quarter revenue and adjusted EBITDA.
Let me say anything show remarkable resilience in the face of reducing rig count in 2023.
The last few months of commodity pass volatility has led to a more cautious start from E&P operators as we look forward, we expect a modest pick up of the Liberty specific activity in subsequent quarters for the full year, we are targeting flattish adjusted EBITDA year over year.
Our Frac service pricing will be relatively flat from the end of the year into the start of 2024 for like for like technology.
We are targeting cash cash capital expenditures of approximately $500 million to $550 million or approximately 45% of adjusted EBITDA inclusive of DG technologies dual fuel upgrades at LPL I expansion.
Including this number delay have explained owing to timing of late 2023.
Equipment deliveries.
Capital expenditures will take out fleet make up to 90% natural gas fuel technologies by year end the dominant fuel used by athletes will be natural gas supported by OPI.
I will now turn it back to the operator for Q&A after which Chris will have some closing comments at the end of the call.
Thank you.
We will open up the line for questions to ask a question Press Star then one on your phone.
At any time to your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble our roster.
And our first question today comes from Scott Gruber with Citigroup. Please go ahead.
Yes, good morning.
Good morning, Scott.
I'm curious about the flat year on year EBITDA.
It's great to hear you guys reiterate that.
I guess, what I'm wondering about is how to think about your investments translating into incremental EBITDA versus that kind of underlying activity growth. Maybe if you could you mentioned that a bit for us to get to flat EBITDA year on year.
Type of activity growth do you need in the second half versus the first half.
Maybe some dimension on incremental EBITDA from <unk> and other investments.
Yeah. So Scott also take that one Chris can chime in as well.
As we see it flattish EBITDA is what we're targeting for the year Theres a lot of puts and takes and the slow start to the year from the E&P operators as you can see and we think that's going to increase for Liberty specific.
<unk> as we go through the years, we know that from our customers and it relates to some specific basins. If you think of things like the Bakken, which is was a strong basin last year slowed down to the end of the year as you've seen I'm, just going to kind of kick back up again in Q2.
There is sort of some drags on earnings that will come from things like reduction in same product out of their mines.
Made up by increased numbers out of L. P. I. So I think you've got generally softer market.
On average for like for like Technology on average year over year. If you think about the diesel price average diesel prices were down.
For diesel fleet, but we've also been investing in that technology transition, which is offsetting that theres a lot of puts and takes and then Chris might want to give some color on where the macro may go up or down from where we are now Scott.
Scott I think Michael gave a good summary look we kid ourselves a little bit that we know what's going to happen at the end of Q3 year Q4 of this year. That's that's that's yet to be determined but as Michael said at an overall a little bit softer macro this year. Your last year started really strong and then sorted declined throughout the year.
50, less frac fleets were operating at the end of last year that we're 15 months before that.
Industry shrunk, a little bit a little bit of downward pressure on pricing, but I would say the behavior of the industry was outstanding and that people idled capacity. They couldnt get good pricing and the work was there people idle frac spreads.
That.
That kept pricing again down a hair, but pretty flat and I think we would expect pricing to be flat flat this year as well.
You know a macro change in oil prices bumped up 10 Bucks or so yes, you might see a little strong strengthening are affirming.
We don't have a crystal ball. So we just kind of look at what is the.
You can expect liberty to outperform the macro market conditions as Michael said because of that superior technology, and even more important just better service quality.
I appreciate all that color.
And then thinking about the did you Frac rollout you said two more fleets.
You know underway in terms of the.
Entering service is it going to be for total did your frac.
No additions this year within the budget and then maybe if you could also provide some color just on the the demand pool for those units.
Still seems pretty strong, but just wanted to see what youre hearing from customers and how far in advance or are those units getting getting contracts.
Yeah. The interest in DG is just huge.
<unk> is the hands in the air to get in DG fleet. It just massively more than the amount of fleets, we're going to build on the rate at which we're going to build fleet. That's constrained somewhat by our what we think is a prudent rate of capital deployment into that but yeah. So those dialogues go on for a long time they are ultimately long term.
Term agreements when those go into place.
It's about timing of rolling out those fleets, there's two different pump technologies, what's the right mix that's different for different customers, but yes.
There is tremendous yeah.
The specifics are always bottom up more top down so I think you are.
Number for what we're budgeting are probably about we ended the year last year with four and at the end of this year, we'll probably have order a quarter of our fleet will be DG.
But again, we don't that's not a top down thing that's a bottom up thing in dialogues with customers. Ron I don't know if you want to give any color on technology.
That's rolling out and where we're going but but.
The more we see that the more excited we are.
God I wouldn't add to too much to that only to say that.
As Chris alluded to we had four out we were we were hoping to have six by the end of this month. We're working on those next two right now we continue to work closely with our third party packagers to keep that schedule on track.
To meet our customers' expectations around that but we're full speed ahead on putting that technology in the hands of the customers who are who have been long time partners with us in.
First of all developing that and ultimately getting it deployed to the field. So we're excited to see that continue this year.
I appreciate the color I'll turn it back thank you.
Thank you. Our next question comes from Luke Lemoine with Piper Sandler.
Hey, good morning.
Christian Ron I know you are not ready to quantify oxidize sides, yet, but could you walk us through what kind of investments we're making in NPI. This year. This is more on the <unk> distribution side, where you're adding a fair amount of digi.
Is your power mobile generators for non Frac uses as well and then how should we think about this from a return standpoint.
Right.
This year's focus it's really about supporting did.
<unk> and <unk> fuel rollout right. So we are doubling the compression capacity.
OPI.
Focus mainly on two license, they're the two main basins, we're gonna be chewing.
Sure enough a lot of gas from the Permian and the DJ We'll do some few gas.
The amount of fuel gas work over in the Haynesville and we will look at other basins as we go forward from there and then it's going to be the CMG trailers and fuel distribution units that really back that up so nothing is going to be Spain regarding at the moment in the plane on mogul mogul power generation outside of the industry.
Our outside of the industry, that's something that we're looking at with the board and Thats going to be we are going to be working on that sort of expansion plans as we go through the year I think it probably becomes more of a next year thought process as far as the investment side of that goes yes, Richard basically we have a single.
It will all sort of like growth capital or any sort of any investments really here at liberty and kind of other majors to some degree a 12 year.
History of what we've done.
Instead of $23, 25% cash with general cash invasive thats the target for everything we do obviously, you're starting a new business you won't hit that you finished the year, but that's what the long term target for all of US all investments in Liberty Gaza.
Okay, Great and then Ron you talked about.
I'm trying to figure out the right complement of DG.
Frac versus did you prime depending on the customer, but these first four fleets that are out in the next two can you just update us on how many of these did you Brian.
So where.
Did you probably won't be it will be two of those fleets for those fleets being DG frac. The electric technology and then as we proceed through this year youre going to see that percentage of Digi prime climb pretty significantly that'll be given given where we're deploying that additional capacity that will be the primary focus for us.
Given our partners expectations there.
Okay perfect. Thanks, a bunch.
Thank you. Our next question comes from <unk> with Goldman Sachs.
Hey, guys good morning.
Touched on this a little bit but wanted Gloucester as from a use of cash decision matrix perspective, so in a flat environment. How do you balance potentially accelerating did you frac and expand margins and free cash flow conversion fostered over the next few years worse has it gotten enough capital to shareholders.
Well that's it.
The dialogue that makes up our business and really has from the day. We started this company. We came out with our first fleet was by a fair margin the best Frac fleet in the market. So how many more he build how fast you build them, what's the right balance there.
So again I don't know if I didn't get any new or specific color commentary on that but for us. It's critical for the long run of our business is to make sure. We have very strong return on capital investment opportunities. We don't just add business lines or go into other stuff because we can do that we only one.
To do things, where we're going to have a significant competitive advantage versus other providers in that area and therefore very strong returns on capital, but it's our I would say our philosophy is we will continue to grow our competitive advantage in our business with time.
But we will we will.
Develop a growing.
Regular steady dividend and when we have compelling opportunities as we've had for the last 18 months and probably have for the foreseeable future to buyback our shares in an accretive fashion, we will do that as well.
Michael if I Miss anything else, we should touch on no you're right. I mean is that it is a balance between the two and it's a focus he has a focus on long term growth when you look at our history.
History at 12 year history of returns significantly outperforming on total returns than the S&P 500, right. I mean, those are those are great investments for our long term shareholders, but we always balance that with the ability to return cash to shareholders. At the same time. So we had a remarkable I think were remarkable in basement opportunity.
For everybody right you can get growth and returns of capital from the same company you don't get one or the other.
The third leg on that obviously as balance sheet right. We are in a cyclical industry multiples are low and people don't like our industry because it's cyclical we actually like that it's cyclical that has allowed us that has been an advantage for us is to navigate those cycles always with a balance sheet always Abe.
Well to take advantage of dislocations in compelling opportunities that come about more often in our industry because we're cyclical.
And as you see as the production base is so much larger in the U S.
That activity just to keep production flat is so much higher and dominates activity today that we are.
We're going into a less cyclical.
<unk>.
World that we've been in the shale Revolution started my God I mean, we had activity swing down by 70%.
That's debt.
That's probably inconceivable today, given what it would have on U S and therefore, our global oil and natural gas production. So.
Sure, it's probably meaningfully less cyclical than in the past.
But we didn't view that cyclicality of some terrible thing that was an opportunity for us we're still going to have it going forward, but certainly at a more muted fashion.
Yes.
Yes that makes sense and.
I guess the second question. So you spoke a little bit about the Australia opportunity can you touch on the nature of the work there and maybe thoughts on the upside as well to help understand what the longer term potential is there and then are there other regions globally that are of interest to you.
So we get pitched a lot, but we've been pitched a lot internationally for 678 years and one of the things.
I know you know it's defined Liberty is these long term committed partnerships with our customers and so in the past. There's just no way, we're going to find all of our fleets have been busy all of the time.
Except for Covid.
Maybe going forward to the future rate of scale now that we don't have to we don't have to affect our workforce or do anything disruptive today, if demand pulls back and it makes sense to idle fleets, we're very happy to do that but as we grew and built this business all of our fleets were busy all the time, so we weren't going to tell the customer hey, sorry.
We're shipping your trucks overseas now with the DG rollout, we've got a new technology, that's meaningfully upgrading our fleet and we're gonna have fleets that come out. The other end of that that maybe are not fully at retirement age and so we are.
And that's what's going to happen with Australia, one of our legacy fleet that'll come out of service because of DG.
<unk> fleet rolling in.
We're going to send that over to Australia, it's not going to be fully utilized right away look this is exploratory let's figure it out and see where we can go kind of play, but our capital investment is basically moving over idle equipment. We've got good economics of the Frac work, we will do over there we've taken an ownership stake in Tim Horan.
So we own a not insignificant chunk of the company with a large acreage position. So we can make it work I think we get value through that business our partner in that and there is a giant basis is similar gas in place to the Marcellus So if it works.
There'd be a significant amount of frac work in Australia, absolutely, but that'll take time that'll take time, so for us we like it because it's asymmetrical downside for us is very small and the upside could be significant.
Great that makes sense to me. Thank you so much for taking the questions.
Our next question comes from Stephens Enduro stifled.
Thanks, Good morning, everybody.
Alright.
Two for me.
With US you talked about the DG fracs quite a bit.
And the strong demand you're seeing when you are in conversations with customers.
Is there are they differentiating.
Your electric Frac fleets and the peers and maybe and maybe also just as you're answering that is you can when you don't have the availability right now are they using your DG BS or are they going elsewhere for electric.
For the most part look where our fleets are going our existing customers and I would say the top thing. They are committed to is the quality of Liberty service and just the way we do business with our partners for years through good times through bad times.
Look the biggest sticky as glu is liberty our people our way of doing business. The quality of service, we deliver the extra upside or the evolution customers want with time is hey can we go to fleets that have lower fuel costs and lower emissions ultimately even smaller footprint with.
The higher power density.
So the interest in those technologies are there, but people choose partners and then work together with those partners to find a path to upgrade technology, it's very rarely hey, I don't care, who it is I just want an electric Frac fleet I'm sure there is a customer like that.
That's not that's not a liberty customer.
Okay, great. Thank you, Chris and then real quickly Michael you mentioned I might have missed the 'twenty four capex range could you just restate that and maybe give some.
Some breakdown on how it falls out between the different pieces.
Yeah, We said 500 to 515 cash probably around that 200 and capitalized maintenance program.
It's probably the largest portion of the rest of that is going to be in <unk>.
<unk> and <unk> expansions.
And we are doing into a decent number of dual fuel operates right. We've got a number about 100 tier four pumps that are going to get you upgraded which are the aim to use and a number of our tier twos that are younger tier twos are going to get upgraded to dual fuel but that is.
A smaller number because I suppose does upgrade kits and cheaper, but they are not moving from Q2, the tier four but we're upgrading tier twos to dual fuel that's the basic breakdown.
Alright, great. Thank you gentlemen.
Thanks.
Your next question comes from Derek part Hauser with Barclays.
Hey, Good morning, guys. You mentioned every quarter this year or last year was you said quarterly pumping record. So there's clearly supports the production efficiencies that we've seen from the E&ps over the course of the year can you expand on the different parts that are driving those pumping records and as these are structural in nature should we expect to see these continue going forward.
I mean look there.
There is a limit in that there is there is 24 hours in a day.
We had a fleet I think we announced this I am not sure, but yes, we had a fleet that pumped 672 hours in a month or so for that fleet and that performance. There is not a lot a whole lot more hours remaining to rise too.
But yes look these are a combination of sop.
Supply chain, you got to bring sand chemicals everything on location you don't hear about it so much but disruptions in those they may slow down Frac operations. It's one of the reasons Liberty really develop this integrated delivery of staff that arrived there its people its equipment its our partners or <unk>.
<unk>.
The efficiency, we have we couldnt have with different partners.
<unk> partnerships with Liberty, it's a lot about how can we work together to get better let me turn it over to Ron to give a little more color, but boy. It's from software is from humans, it's equipment maintenance, but Ron yes. The only other thing I was going to add on there was was was the development around the software side of things we've done and made.
Pretty significant investment over the last year or two years on artificial intelligence, our ability to understand our equipment to predict failure in advance of it happening and to be far more proactive about the maintenance of the equipment and so I think if you look at that in terms of how it translates to performance of the assets out in the field, we have come a long long ways off.
That youll continue to see some improvement on that on the DG side, I think but as Chris alluded to we just don't have a lot of room left to move there, but but as our equipment continues to get more sophisticated more advanced and we continue to drive out time between.
Major maintenance intervals and even.
Longer uptime for things like pump components, we continue to eke out those incremental minutes on location.
I'll add one other thing so we looked.
We took over our wireline business three years ago, we changed humans. There we've changed procedures that took US time, we got into the wireline business and if you looked at the kimberlite surveys every year kimberlite had done the survey Liberty is ranked as the top frac companies. Since they began the survey we work at the start the top wireline company in fact.
We may have been more skewed the other way, but more recently and today. We are the number one ranked wireline company. So one of the things. We look at is when we Havent Liberty wireline truck with Liberty Frac fleet, you have less downtime so of course that's.
The majority of our fleets now those are paired but not all of them. So there is still room for improvement for us, but obviously the low hanging fruit gets pick first and now it's about continued optimization, but.
That's upside there.
Got it that's all helpful.
My follow up so you talked about the accelerated attrition to the equipment from from the market over the past years can we get a sense like what the current market equipment mix is I mean, I think this is probably underappreciated by the street would you say those 50 to 60 Frack spreads there move are all tier two diesel it appears the market was high graded Rad.
They're quickly over the past year to me. This provides structural support the profitability I mean, just could you just expand on your thoughts around that just how should we think about the overall equipment mix of the market today.
Yeah. So I think as we've talked about a little bit there is sort of a bulge at the moment you hit that 10% attrition every year right sort of sort of an annual 10 year lifecycle of fleets I mean, thats a rough number but it is a volume of equipment that was built in that.
20, <unk> 2014, nothing much was not only was built in 2015 and 2016 some.
Some stuff is built in to 17 18.
Sort of in the beginning parts of 90, nothing was built through Covid.
Look upon that and you think about the distribution right. There was a bit of a bulge of equipment in that sort of.
12 year old age group and that's all tier two diesel right. So I think what we're going to see as you can see some accelerated sort of a number of fleets, leaving the market over time.
Because of that fact, right. So I think that's what's happening I think as you say, we're thinking about high grading fleets as we go through the year.
Got it I mean, just just a quick follow up to that 50 to 60, how much you think could come back or how much they get sidelined permanently.
We're not sure, but I had roughly half maybe.
Got it great. Thank you send it back.
Thanks.
Again, if you have a question press Star then one.
Our next question comes from Marc Bianchi TD Cohen.
Hi, Thank you.
Just first off to clarify Michael.
You mentioned the maintenance Capex number that was included in the 500 to 550, just just wanted to clarify that if that's all right that's correct.
Great. Thank you.
In terms of the flat EBITDA for the year. So you guys mentioned 50 fleets have come off out of the market. It's over 100 rigs that come off.
How much of that needs to come back for you to achieve a flat EBITDA that you're talking about.
We're not.
Baking in meaningful amount of that to come back I suspect a little will we have our own sort of Liberty Frac fleet count across all basins all players.
Look there is going to be there's going to be more active frac fleets in Q2 than there was in Q1. It gets harder when you look out further that Q2 level. Most likely continues on but I think that depends what commodity prices did who is running the fleet what kind of acreage is getting drilled so.
But we're not baking in a big macro rebound at all we don't we don't foresee that we don't bet on that base.
Basically, saying, it's more self improvement, we're making our own business more efficient more desirable to our partners.
And so yes, we're not baking in a macro the macro to go back we can make we can make more money in a weaker environment, yes, each successive year.
Okay, and if we take the.
First quarter implied if you're going to be flat call. It $2 50 of EBITDA.
Need to be averaging like $321 million per quarter and the remaining three quarters, it's probably not not how you guys see that playing out it would grow throughout the year, but it is the right way to think about it at this point that it's just a.
Straight line of growth or is it really fourth quarter weighted or any way you can just describe what the shape of that looks like a little more.
But in general you know sort of like most years youre going to have a full quarter for ISO comparative to the third quarter that its always relative.
The ramp and cargo that didn't happen, but in general in a flattish and a more of a sort of like steady environment like we're in that fourth quarter will generally be lower than food.
It doesn't necessarily mean, we'll be at low on general market activity is this possible affordable compete with theirs.
Is that kind of drop off so that's generally the shape of the Ark.
So to speak and so yes, we see it flattish and it's going to be growing as we go through the year you can probably have a little bit of roll off in Q4, unless macro changes right I mean, there's a lot of changes.
There's other potential macro puts and takes as we go through so there will be a.
That will become clear as we go through the year.
Alright.
Okay Super Thanks, so much I'll turn it back.
Thank you. Our next question comes from laser side with <unk> capital markets.
Thank you for taking my question.
Chris.
One for you and one for <unk>.
Mike.
Could you talk about also investment whats the rationale there and what's the size of the investment in that venture and then.
Moving the crude to Australia.
What's the cost involved in mobilization and when will those costs be incurred are reflected in the numbers.
Yes.
What does liberty passionate about and we have some skills in energy how to develop and take new energies and commercialize them, obviously our focus.
With <unk>.
It's barely a move at all from our core business or close definitely more of an outreach.
Oklahoma is a $10 million investment.
So it was less than 2% of our Capex, so smaller investment in that but we look at what what could be changing in the future of energy what technologies could play a growing role that liberty could be helpful.
And think of LTI, what's the <unk> long term business.
It's been delivered.
Gas and electricity, where it's needed.
And today, that's in the oilfield thats running our frac fleets for the start kind of grow the other oilfield applications.
We're doing things on a policy front.
It's making electricity more expensive and a little bit less stable grid.
We had LTI in Europe, we could make a mix just keeping the lights on.
Having high thermal efficiency mobile addressable power needs. So that will expand LTI will ultimately provide be providing power solution in the oil and gas industry outside the oil and gas industry, one else could play a role in that sort of shorter term operate.
Smaller grids, Oklahoma is small modular reactors.
The interest in the technology is tremendous we held an event in Midland, Texas oil and gas companies Liberty at Oclaro.
Interest absolutely tremendous for everyone Thats looking at these larger companies building their own grids maintained building grids.
What are you going to run those on.
Natural gas, maybe natural gas and nuclear.
So on the tampering the Australia basically it is one fleets with worked for about two months in the later half of this year late Q3 early Q4, and the cost of sort of mobilizing is basically Calvin so yeah, its really not going to change the numbers, particularly we're gonna be running one extra fleet.
One extra fleets with the profitability for about two months, that's kind of maybe the effect on the income statement.
Thanks.
Thanks Waqar.
Our next question comes from Keith Mackey with RBC capital markets.
Hi, Good morning, just wanted to start out with <unk> and Chris I know you just mentioned.
Broader and more longer term ambitions for that business is delivery of natural gas and power generation, but if this year plays out as you expect with few doubling <unk> capacity and you get to 90% of your fleets on Nextgen technology.
What approximately will be the coverage or the how many how many LTI fleets or how many LTI kits or however, you want to call. It will service your.
Liberty fleets, so just trying to get a sense of the.
The opportunity going forward is it going to be like half of your fleets will be.
We will be served by OPI or more or less than that.
Yeah, I'll take that one.
So it will probably be about half of the gas usage, we're going to focus very specifically on AD. The places where you've got a 100% downtime right. So the digi fleets. The digitally as you need when you don't get gas. So you don't have.
You don't have steady gas those fleets are right. So the number one focus is making sure we support the 100% gas fleets and then moving to have more of a high usage tier four fleets. So I'd say about 50% of our gas users will probably become a buy OPI by the end of the year kind of approach.
That's a good number.
That's just within that original application.
Yeah, a lot of room.
Got it got it no that makes sense and and just going to the DG frac versus DG Prime can you, maybe just discuss a little bit more of the factors that are leading you end customers to choose one versus the other is it upfront capital is it efficiency as it where the where the where the equipment ultimately goes in the field, just just a little bit more.
Color on your on your thinking.
Thinking would be helpful on that.
Yeah, Keith so for both of those they offer the advantage of that transition to natural gas. So whether we choose it do we choose to use it for power generation and then an electric pump or did you primes case directly for running a pump. They both offer customers that important transition where you really start to think about where we might apply one.
The other comes down to whether or not the customer believes they would have access to grid power. For example, so did you frac we have the ability to take power from from any source, it's agnostic as to where that electricity comes from primarily that would be generated on location by us, but we have a number of scenarios where customers have asked about the opportunity to you.
Use some amount of grid power or potentially even ultimately all grid power to run a frac fleet and so in that case, that's going to be 100% Digi Frac solution.
In a scenario, where we don't have that environment were the primary drivers just the consumption of natural gas.
You're going to see DG prime as the as the as the first choice that we would put out on one of those locations, we get a little bit better thermal efficiency and just modestly lower emissions footprint as a result of removing that conversion from mechanical to electrical and back to mechanical again, youll see <unk> on top of that or tier four DGB one.
Those two as the we'll call it the <unk> plant on top of that to absorb just.
The ebbs and flows of Frac two to ride the line on pressure or whatever the case might be but DG prime being the workhorse and that sort of environment.
Yeah.
Okay. Thanks very much.
And the next question from Dan <unk> with Morgan Stanley.
Hey, Thanks, good morning.
Hum.
Maybe Michael.
Just thinking about free cash conversion.
This year since you gave us the Capex guide and that kind of represents 45% of that.
Adjusted EBITDA Guide you gave us some figures around cash taxes, which might scratch math kind of says.
It'd be 10% of adjusted EBITDA, and then you can add some cash interest and maybe stock comp offsetting each other so.
Working capital.
Do you think 40%, 50% free cash conversion is that in the right ballpark and then secondarily.
Do you have any thoughts on whether working capital might be neutral positive or negative.
This year thanks.
I'm getting some scratch, Matt Youre running me I don't have those numbers in front of me as a percentage of EBITDA.
But.
But I think it's going to be basically flat.
Talking revenues by working capital kind of moves with revenue. So I think working capital is going to be basically flat with tool king of bat.
Cash taxes, as we said in the talk.
Yeah about a 20% range.
As you say interest in EBITDAR offsetting each other you got depreciation.
Yeah.
<unk>.
Yes.
Get back to you.
And I do the math or not I don't want to throw it out on the call.
Fair enough.
And and then maybe Chris you'd mentioned earlier comment about kind of.
Eating more activity just to offset production declines I was wondering if you.
If you done any work or we can unpack that like do you think that.
We're kind of below where we need to be for both oil and gas activity to offset production declines do you think.
Publics and privates or are kind of below where where they would need to be something that can be protected to hold.
Hold production flat or maybe grow a little bit I'm just wondering if.
If you could unpack the comment.
About activity as it relates to.
The production.
Yeah, I wish I had a more confident comeback because we do do some bottom up analysis of productivity and where we're going but but honestly. We were also probably a bit surprised by the rate of growth last year, given that activity and I think the most likely reason is a larger percent of that act.
Sizeable publics that have the best acreage so.
Quality of locations drilled which is generally trending downward people drill their best up versus in move out, but as you saw a shrinkage of private activity last year and our growth actually among the activity among the publics that have the very best drilling locations.
That that probably was the biggest factor a bit in the surprise for how fast oil and gas production grew but where we've got to go through our data. So I don't have any great confidence proclamations. There my guess is current.
Certainly on a granular level, we're working for players that are out of activity levels. Now that are definitely declining production others that are modest growth and others that are flat.
My bet is where we are today in total activity you won't see that until summer production data, we're probably at best flat.
The sum of oil and gas production so.
Yes.
I don't think activity drops much from where it is here, it's more likely to move up a little bit as the year goes on.
To stay around modest growth, which I think is the target.
No. That's all that's all Super helpful. Appreciate the color and then I'll turn it back thanks.
Thanks.
From sorrow pumped with bank of America.
Hi, good morning team.
I had a question I think Betty Lilly.
Illinois and efficiencies.
I want to take that forward and just the big picture, we always tend to talk about the ratio between rig count.
Betty Lilly: <unk> been Frac fleet.
Any thoughts on how much room, there is to keep improving efficiencies and if that can have a potentially meaningful impact in terms of maybe that ratio goes and the reason I asked that for context as one big E&P.
Had any way in the Midland I think last week and do without going along those lines. So curious to get your thoughts on that.
Yeah, we saw that no oh, there's going to be a whole new ratio now.
So look I think it's important that step back and put those into context, when youre doing simultaneous or triangle frac. That's not one frac fleet is pumping right.
That trial will frac might not be three frac fleets it might be two four frac fleets or something but thats per horsepower for equipment again.
Betty Lilly: You have more equipment on location when you go to those larger operations. So in Frac fleet size that are doing things like that we don't view that as one Frac fleet. If we're doing something like that that's more capital equipment and we look at returns not on fleets, but on capital investment.
So there are efficiencies in.
<unk> got a perfect supply chain large pads and youre willing to put capital out a long time, there is activity like that going on but it's in that rose up I don't think youre going to see a wild change in in the deployment of that going forward. It will continue to grow but it's not going to it's not going to massively move the rig to Frac count raised.
So a part of it just rates of efficiency improvement, both rigs and Frac spreads that had great rates of efficiency improvement. The other factor you don't hear talked about so much.
Is frac intensity is it used to move depending on sand prices and prices are high if I can see a pull back a little bit share prices are low frac intensity youll grow, but there's another factor, which is reservoir and rock quality as we're gradually drilling lower rock quality, what's the offset to that do you want to.
We accept these production declines nobody does so what happens is frac intensity grows to offset so in the next few years, you'll see a growth in frac intensity that is trying to offset the balance of slightly lower drilling locations that are being drilled I'll give one example, we have a good.
Private customer in the Haynesville used to work for one of the big players in the Haynesville drilling the core acreage and here. They are four or five years later today their Ips and there are EUR of the wells they're drilling today are almost the same as the pretty much the same as the core locations. They were drilled in five years.
I had a different operator, but what do they do you know the pounds per foot of sand the pumping rate and the clusters. They basically increase frac intensity in this case by a factor of three but that increase in frac intensity offset the degradation of reservoir quality. This is a faster degradation because it's somebody who owns a core acreage to some.
Acquiring non.
Core acreage, but the biggest offset to acreage degradation is frac intensity. So.
I'm not I'm not worried about all of a sudden we're going to go to five to one frac fleets to rigs.
That's not happening.
Right right no Thats fantastic color really appreciate that and then one quick follow up I think.
You made a comment to somebody's question I think you were talking about the Bakken specifics that can be I think you said you expect the Bakken to pick back up in the second quarter any more color on that because it typically we think golf Bakken Eagle Ford with some of these are relatively older basins as well.
Okay, no growth whatever you want to call it a little bit more color on the Bakken because you have a unique position over there.
It's just a little more specific around the Bakken generally.
There are operators that slow down in Q1, or you don't do it but is it a specific operator.
Sort of doing that in Q1.
Thats going to change.
I think it was.
Very busy basins from Q3 slowdown a bit in Q4, and then kind of.
Betty Lilly: It kind of went off for some winter weather breaks in Q1 and is coming back in Q2.
Good and kind of also just a little bit of the opposite seasonality you did in Canada. So.
Yeah, Okay. Okay. So it's more of a salary seasonality more than anything else.
Bakken is really one of the basis that has a little bit more of a seasonal character to it than Permian, our haynesville or new southern basins would okay.
Right right right got it okay guys. Thank you. Thanks for the thanks for the answer is I'll turn it back.
Thanks.
Thank you and our last question today comes from Tom Curran with Seaport Research partners.
Good morning, guys. Thanks for squeezing me in.
We've already covered.
The stakes, you've taken in <unk> and <unk> and <unk>.
Shared some helpful context around each of those so I guess, we should now cover the $5 million investment you've made in the <unk>.
Yes.
We'd love to hear a similar framing for that.
Chris and Brian and then.
Between the three there clearly is this growing portfolio of.
Minority equity Stakes in early stage.
Clean energy Tech companies that Liberty's building.
You've already touched on how you think of Liberty as it as an energy solutions company not just in oil and gas one but.
Yeah.
That would seem to be a clear broader strategy here not just <unk>.
Opportunistic one offs so could could any of these positions expand into something beyond just financial assets, such as our new technology offering or some sort of JV or alliance for Liberty.
Betty Lilly: Certainly possible certainly possible.
We look at look we get pitched everything but if there are things that really look like they have a reasonable chance of great success and there is some synergy we can either help them on the road to success.
<unk>, it's obvious it's services and engineering were doing theyre different woods.
Natron is look.
Huge amount of investment in lithium ion batteries right because they are the highest energy density, but they have they have some fundamental problems and the worst for us we use batteries think of both DG frac and DG prime employed batteries in the field.
Temporary storage power mechanisms.
Did you prime it is a hybrid things so its moving energy back and forth between.
Batteries.
Storing.
And giving power out sorry, mumbling, but any case whats neat about natron was it's a sodium ion which I think youre going to see a lot more of that going forward. It's just an ion that fits well in the matrix can discharge faster. It can recharge faster can live longer it does not have the fire hazard it at lower power density so.
You're sending some into the Moon, you have a lower power to etsy. So it doesn't we're not everything but wins on the things that matter for us SaaS discharge easy to charge low fire risk like that.
It's a technology that done well, it's going to play a role and probably going to play a role in the Liberty World I don't know if Ron wants to add anything to it but I think thats.
I think Chris covered it well.
Yes, you're certainly not alone and your excitement and optimism about the technical advantages of sodium ion among the.
It'd be alternative battery chemistry options out there so.
I understand where you're coming from there and then just with LTI.
When it comes to the visible demand underpinning your plans to double capacity by year end.
Betty Lilly: Are you already starting to see non oil and gas interest emerge.
From third parties for LTI.
We've had dialogues about that we're a ways away from ready to deploy to do that.
Going to do it just to do it right. It's got to be we've got to find the opportunities that are compelling economically and that fit our skill set and expertise. We're still building that skill set and expertise as we're building those for power plants, but if we if we engaged in dialogues with other parties absolutely.
Is there interest in having more power on grids are for industrial facilities absolutely.
Great. Thanks for taking my questions guys I'll turn it back thanks, Matt Thanks, so much.
Thank you. This concludes our question and answer session I will turn it back to Chris for closing remarks.
On February 5th Liberty will release, our 2024 bettering human lives report it is significantly expanded from previous versions with more case studies and more topics covered all in the same centered around data style.
This report took up a lot of my holiday vacation, but increasing energy literacy literacy or energy sobriety is critical to our future let.
Let me give you a taste of just one section called Energy addition.
This section looks carefully at trends in energy production over the last 12 years are we in the midst of an energy transition that we hear so much about.
The data says that the answer is no.
This is not an opinion or a preference.
I work in other areas of energy and began my career in nuclear and solar this is simply an honest reading of the data.
In 2010, the world consumed a little more than 500 exit jewels of energy 12.
12 years later in 2022, the world consumed a little less than 600 exit joules of energy Great progress was made in growing the energy resources available to expand opportunities and better the lives of the world's 8 billion people.
Energy sources provided this additional energy beyond the 500 exit jewels that we consume in 2010.
The runaway fastest growing energy source in the world over the last 12 years is natural gas, which supplied roughly 40% of the additional energy over that time period.
Fully half of the additional natural gas supply came from the American shale Revolution.
What was the second fastest growing source of energy during these 12 years.
Oil provided 24% of the growth in global energy with the large majority of that coming from the American shale Revolution.
Third fastest growing energy source with coal, which supplied 14% of additional energy to empower our planet.
Wind came in fourth at 9% solar at 7% and hydro at 4% of the growth in global energy supply.
These numbers are not percentages of total energy supply today. They are only percent of the growth in energy supply that new energy over the last 12 years.
Betty Lilly: Oil and gas supplied 63% of the growth in energy.
Which represented increasing market share of global energy over that 12 year period hydrocarbons as a whole had flat market share as coals market share slightly shrunk.
How can we call this a transition.
Global demand for natural gas oil and coal continues to grow without even a dimunition of market share.
Get me wrong.
Celebrating this fact.
Betty Lilly: Just calling out others for pretending it isn't so I am very keen to see the world far better energized.
Thats, a 7 billion people living far left energized lives can enjoy the lifestyles of the lucky $1 billion to achieve that goal. It would be very helpful. If nucleolar, which size zero growth over the last 12 year period, geothermal and any other affordable reliable.
<unk> energy source could contribute much much more to satisfying the world's demand for more energy, we need more energy better energy.
If you want to read more about the global energy system climate change poverty and prosperity look for the release of Liberty Bettering Human lives 2024 report on February 5th Thanks for joining us today.
Thank you the conference has concluded.
Thank you for attending today's presentation.
Okay.
Okay.
[music].
Yes.
[music].