Atlas Energy Solutions Inc.

Q1 2023 Earnings Conference Call

5/9/2023

spk05: to a run rate of just over 11 million tons per year. We were highly contracted in the first quarter and remain highly contracted for the remainder of 2023. We expect to renew and to add incremental contract going for 2024 and beyond as we move through the year and expect that as we grow our logistics fleet and get closer to the Dent Express end service day, that our contract position will continue to grow on the logistics front as well. For the first quarter, we generated record sales of $153 million, representing a 2% sequential increase. On product sales, our volumes grew by approximately 91,000 tons, representing a 3% sequential increase. Mindgate pricing in the first quarter of 2023 was $0.76 per ton higher than it was in the fourth quarter of 2022. For our service sales, which is revenue generated by our logistics business, we saw a sequential decrease of $2.7 million, which was associated with lower than expected freight pricing experience during the quarter. As a reminder, prior to the start of 2023, our service sales were limited to our asset-light, low-margin, well-site coordination services business. Profit logistics is an area of significant focus, growth, and margin potential for us as we build out our fleet and ultimately transition to a logistics model in the Delaware Basin that includes shortened halls off the Dune Express. Cost of sales, excluding DD&A, decreased by $4.7 million quarter over quarter to $63 million. This decrease in COGS was primarily associated with a meaningful reduction in our contract labor and last mile logistics costs. As we continue to transition our dredge mining operations fully in-house, we expect our mining costs to continue to moderate in subsequent quarters as our electric judges exhibit improving utilization rates over the course of 2023. As electric dredging increases, our mining costs and associated emissions will decrease considerably on a per-ton basis, and this is a significant component of our overall cost of goods sold. So, by extension, we see COGS moderating it as we move through the year. SG&A expense for the quarter was $8.5 million, representing a sequential increase of 7.6%. This increase was largely associated with an increase in stock and unit-based compensation. Interest expense net came in at $3.4 million for the quarter. Most of this was associated with our term loan, which bears interest at 8.47% and has a 2027 maturity. DD&A expense for the quarter increased to $8.5 million, representing a sequential increase of 9.3%. This increase was due to higher depletion expense associated with higher sales volumes and additional depreciable assets placed in the service as compared to the prior period. We generated net income of $63 million for the first quarter, representing an impressive net income margin of 41%. Given that our IPO occurred in the middle of the quarter, our diluted earnings per share for the first quarter only included income allocated to the Class A shareholders for the last three weeks of the period. So you'll see diluted earnings per share of $0.03 presented on our income statement. Of course, we generate $63 million net income for the period as a company, and we have 100 million shares outstanding across our Class A and B share classes, which works out to be $0.63 per share. Net cash provided by operating activities for the quarter was $54 million despite a $22 million increase in accounts receivable. This increase was due to timing and we have seen our accounts receivable balance normalized since the end of the quarter. Adjusted EBITDA for the period was $84 million, representing a sequential increase of 12% and adjusted EBITDA margin of 55%. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance capex, was $77 million, representing a sequential increase of 15% and adjusted free cash flow margin of 50%. During the first quarter, we converted 92% of our adjusted EBITDA to adjusted free cash flow, given our low levels of required maintenance capital expenditures. And we are primarily investing that cash flow back into the business today. Results were strong across the board and are highlighted by our strong margin profile. Capital expenditures for the quarter were $68 million. This includes $61 million spent on growth projects, which is primarily the Kermit expansion, and $7 million spent on maintenance capital projects. We expect our capital spending on growth projects to increase through the year now that the Dune Express project has commenced. We expect capital expenditures for maintenance to grow modestly over the course of the year. Note that, as previously mentioned, we are funding the 2023 CapEx associated with the build-out of our logistics fleet with capital leases, so you won't see those expenditures hitting the investing section of our cash flow statement. And instead, you will see us making payments in the financing section of the statement of cash flows over the course of the four to seven-year lease terms. As Bud mentioned earlier, we've been distributing 15 million per quarter and are doing so again this quarter. That's a 15 cent per share dividend for our Class A shareholders and a corresponding 15 cent per unit distribution for our B unit holders. For now, I'll reiterate this is a variable dividend and we'll continue to evaluate our plans as we work with the board to develop and communicate a formal return of capital framework. Turning to the balance sheet, we ended the quarter with a cash balance of $353 million. After the IPO, we took steps to de-risk our liquidity position by investing our cash into insured bank accounts and T-bills. As of March 31, 2023, our total liquidity was $427 million. This was comprised of $353 million in cash and equivalent and $74 million of availability underneath our ABL facility, under which we had no borrowings outstanding. The principal balance of our term loan sits at $141 million, and our current capital lease balance is $27 million. So the total amount of debt outstanding is currently $168 million, leaving us in a net cash position of $185 million at the end of the year, which translates to a total debt to latest 12-month EBITDA multiple of 0.5 times. Our outstanding share count at the end of the quarter, inclusive of both our Class A and B shares, was 100 million shares. That concludes our prepared remarks for the first quarter of 2023. I will now turn the call back over to the operator to open the line for questions.
spk11: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Chase Malthill with Bank of America. Please participate with your question.
spk09: Hey, good morning, everybody. I hope everybody's doing well. I guess I just wanted to kick it off with a question, you know, about, you know, Permian-Fraxan fundamentals. Obviously, you provided some nice color in the presentation, you know, on the supply and the demand side and kind of your outlook there. But can you talk about what you're seeing out in the market today? You know, is pricing momentum continuing to, you know, out in the market in the Permian? You know, are fundamentals, you know, continuing to tighten? And just kind of your thoughts around the ability to, for the market to absorb kind of any incremental capacity that's coming into the market.
spk00: Yeah. Yeah. Thank you, this is Bud. And I'll start with some general comments. And these guys may want to add to it, John or Jeff. As we stated on the call, we are sold out of sand. We've been over 90% contracted, which in our view is an uncomfortable level of contracting, contracted volumes. But, of course, we want to keep our customers happy. We'd like to have more flexibility to participate in the spot market. It seems pretty steady right now. You know, Jeff was talking about the fact that Halliburton stated in their call that since 2019, police have seen a 60% improvement in efficiency. So, you know, we see demand continues to be up and to the right, and we're continuing to add contracts and add term on our contracts. John or Jeff, I don't know if you want to add anything to that.
spk10: Yeah, this is Jeff Ellis, Executive Vice President of Sales and Marketing. I'll just add to the fact that With the product offerings that we've had historically had, with a good product, large inventory, and many, many years of running room with us, coupled with our new offerings on the logistics side, on the trucking, as well as the Dune Express, there's a definite bifurcation here that we're exhibiting within the sand and logistics market. And the customers are recognizing that. As a result, we were on a quest last year to strategically target customers that were aligned with our long-term goals, and we were very successful with that, as Bud said, over 90% contracted. And as we move forward and the tangibility of our Dune Express and our logistics line come on, we're seeing a very large attraction into added contracts with these current customers as well as new contracts. And last year we brought on contracts three to five years in duration. So we still see a strong market and a strong demand for our products and services.
spk00: I might just add one thing on that is, We were talking about the fact that our current expectations are that as we exit the summer for 2024 to be about 50% contracted and we exit the year, we expect to be about 80% contracted in 2024. So hopefully that helps with the visibility.
spk09: Absolutely. Absolutely. Good call. I appreciate that. And just kind of related follow-up, you know, obviously it sounds like, you know, things are staying tight on the frac sand side. You've got continued growth on the logistics side. So, like, directionally, how should we think about 2Q EBITDA? You know, should we think about, you know, growing flat? How should we think about, you know, 2Q directionally versus 1Q?
spk05: Yeah, this is John Turner, Chase. You know, as far as the second quarter EBITDA, look, I mean, we're going to have similar sales that we did in the first quarter. I think we're going to have some additional, obviously, logistics sales coming on. But, you know, our real opportunity there is, and we talked about it and we'll talk about it again a little bit later. I'm sure someone's going to ask a question about our OPEX. You know, our operating margins are going to improve as we continue to improve our operating costs. So, you know, obviously we think that, you know, something that's a little north of what we're doing today, you know, as far as, you know, EBITDA goes. But, you know, looking like it's going to be a pretty similar quarter.
spk00: Yeah, I mean, as you know, Chase, the dredging is a unique advantage that we have, and we're in a transition to in-house, to our own dredging operations, which is going to drive down our costs. And so that will show up in subsequent quarters and really improve our cost of mine and enhance our margins. And obviously it's also very environmentally beneficial as well.
spk09: Yep, all makes sense. I appreciate the color. It was great seeing everybody at the Watt the other week.
spk05: Yep. Thanks, Josh. Thank you. Thank you.
spk11: Our next question is from Derek Podheiser with Barclays. Please proceed with your question.
spk04: Hey, good morning, guys. I know you already talked on your prepared remarks about your insulation from the natural gas activity weakness that we're seeing across a lot of these basins, primarily Hainesville Eagle for MidCon, a little bit in the northeast. But maybe can you talk about any threats that we should be thinking about I don't know if there's any scenario where outside mines, whether they're regional or other local basin mines and other basins, could come in and disrupt the Permian supply and demand dynamics that we're seeing. Maybe just expand a little bit more on your level of insulation from that natural gas weakness that we're seeing.
spk00: Yeah, maybe this bud, I'll start, and these guys may want to add to it. Obviously, the disruption occurred back in 2000 and 2000, excuse me, 2017 and 18, because the cost of transport sand from whether it was Illinois and Wisconsin or from Central Texas was just so high relative to local sand. And so, you know, it is kind of interesting that we tend to get grouped with the other oilfield service providers in the Permian given, you know, there has been cost inflation and the concern that operators have about about that cost inflation and pushing back. And as frack crews and other equipment that's on wheels moves into the Permian, there's more supply of services relative to the demand, which could provide the potential to reduce the cost of those services. And the irony is that it goes the other way for us. The more frack crews that come into the Permian, the more sand demand there is, which is a tailwind for us. And it means more demand for our sand because You know, sand from outside the basin, you know, when you're talking $100 delivered sand from Illinois and Wisconsin with Northern White, it's just not competitive with what Atlas provides here in the basin. So it actually plays to our benefit, the softness in natural gas and equipment moving into the Permian. And one thing, as you know as well, is that You know, the Permian is the highest rate of return drilling in the country. And, you know, so it's therefore a bit insulated even when oil prices do get a little bit soft. Operators tend to migrate their activity to the Permian, particularly to the Delaware Basin where the Dune Express is located because that's the one area where they can generate a return on capital. And today the half cycle returns are extremely attractive. So, John, I don't know if you want to add anything to that.
spk05: No, I mean, I think that's just, you know, like Bud said, and then also, you know, we entered, we exited 22, I guess entered 23 with 60 million tons of production capacity last year. You know, we're estimating that we're going to see around 10 million tons come on this year. And that includes the 5 million tons that we're bringing on. So, I mean, that's,
spk04: when you look at that that brings you to around 70 million tons of production capacity that's still below the the the estimates out there for um for 2023 stand of like i think rystad has 77 million tons out there per year great i appreciate all that color um just as a follow-up i mean we're hearing a lot of um talk from the emps just on the the public stage and their earnings call talking about profit as an area of service price relief in the back half of the year I mean, hearing from you and hearing from your largest peer, it doesn't really seem to be the case. So I'm hoping that you could just help us reconcile those comments from what we're hearing from the EMPs as far as prop and prices coming down, but from what we're hearing from you and your peers as far as contracted volumes, pricing remaining elevated, sold-out markets. Just help us reconcile that for us would be great.
spk00: Well, I mean, it's a matter of supply and demand, and as John pointed out, you know, the supply of sand locally is south of current demand, and that's why roughly 10% of the demand is being met by northern white, which tell you there's not enough supply to meet the demand because that is just not cost competitive with the local sand. Now, that said, you know, the land rush for sand, of course, happened in 2017 and 18, and And we tied up, the best reserves were tied up then. It's a little bit like oil and gas and what happened with shale. And now you do have some tier three, tier four, some lower tier deposits that are being mined locally, which is beneficial for those local operators because the transportation cost is lower. But it's lower quality reserves and it's like a small oil field that it goes on decline faster. It's just not sustainable over the long term. So So those volumes that are out there do help on the margins, but as these guys talked about, that's 10 million tons that's added in the course of this year, 5 million largely from those smaller deposits, which helps on the margin. But in terms of the total supply stack, it's just not that material.
spk04: Great. Appreciate the call, guys. I'll turn it back.
spk11: Thank you. Our next question is from Jim Rolison with Raymond James. Please proceed with your question.
spk03: Good morning, Bud and John. Good morning, Jim. Bud, you talked a little bit about doing express, just obviously kicked off construction, ordered a bunch of your long lead time items. Maybe spend a minute just on kind of how you know, pricing, availability, delivery times, things like that for the Dune Express. I mean, at the end of the day, I think you summed it up that you still feel like you're on time for a 4Q24 operating date, but just kind of curious some of the sausage making on how, you know, available the equipment is and pricing meeting your expectations, delivery times, et cetera.
spk00: Well, yeah, thank you for the question, and maybe I'll start, and John can really get into more of the detail on it, but You know, we have a history of building our own projects. We built both plants. We're doing our expansion and, of course, the Dune Express. And we're very good at it. Our team is really good at it, having control of all the processes. It helps us control the budget and also the timing. And so we've been able to deliver as we are with the current expansion on time and on budget. And we're off to a really good start on the Dune Express, which, frankly, is not as complex a project. is building our plants and the current expansion. So I'm very optimistic about our delivering. We've worked hard to under-promise and over-deliver. John, do you want to talk more about the specifics on that?
spk05: Yeah. So, you know, as we said on the call, we'd ordered more than 50% of our equipment and materials. And, you know, we expect this number to be, continue to go up, probably be close to 70% by the end of, 70 plus or minus percent by the end of June. Um, you know, when we put this project together, like Bud said, we built all of our projects. Um, you know, we saw where we saw when we were planning, where we saw supply chain pressures come in and, you know, we built that into our timetable. We feel real good about obviously the equipment that we've ordered and about the cost and the plans coming online at the end of 24. You know, everything as we see it right now is still on time and on budget. You know, we got a pretty good start out of the gate here. You know, we've broken ground on the Texas side. You know, we've cleared right away. You know, we plan to start on the New Mexico side probably in the next couple of months. You know, as far as supply chain goes, you know, we haven't seen anything that we did not anticipate. And, you know, we did factor the long lead time items into the original forecast. So, overall, we feel really good about where we stand on the project right now.
spk00: And this, Bud, I might remind everybody that doesn't know, we built five miles worth of conveyor in our two plants, which have worked very, very well. We've had no problems with them over the five years plus of their operation. So, So anyway, that's helpful to folks to know that we built conveyors, and they're very efficient and reliable.
spk03: Great. That's good color and helpful. And just one other question, Bud, for you. Being a couple of the larger operators in the Permian, like Pioneer and just yesterday Devin, now working, you know, the guys that are acreage blessed that can do this, but working on three-mile laterals, And I'm just curious kind of how you view that as an opportunity for you guys, because that's obviously when you start going out that far, that's a lot of sand that has to be delivered in a fairly short period of time for that type of completion. So I'm curious if those moves are helping you on the demand side of things as you think about delivering capacity on the Dune Express down the road.
spk00: No, thank you. No, it's a real good point. And just one of a number of trends that are going to play out that that are going to increase the demand for profit. Obviously, the longer laterals, it's just another example of efficiencies that our industry continues to drive, whether it's drilling wells and completing wells, that all drive up demand for profit. I mean, the longer laterals mean every rig out there working and every frack crew out there working is going to be pumping and needing more sand. The other thing is operators get into more of the Tier 2 and Tier 3 rocks. We think that's going to require, for the tight rocks, higher profit loading. In fact, in our non-op business, we're still seeing when operators experiment with higher loading as they step into new areas, in most cases, not all, but in most cases, they're seeing better economics. So, and I think particularly as you move down the road and you get into, further into the simafrax and we're going to see, you know, more of this development drilling and more simafrax, that's going to, all of these things are going to compound together and increase the sand demand as we go forward. So, thank you for the question.
spk03: Yeah, appreciate your answer. Thanks.
spk11: Thank you. Our next question is from David Smith with Pickering Energy Partners.
spk06: Please proceed with your question. Hey, good morning, and congratulations on a strong first quarter.
spk00: Thank you. Thank you, Dave.
spk06: I was hoping to circle back to the comments about production costs. If I'm triangulating correctly, I'm guessing your average production cost per ton came down around 50 cents or so sequentially. Wanted to check if that's in the ballpark, you know, if that's fully due to progress on bringing your your mining operations uh the dredge mining operations fully in-house and and how you see production costs pretend trending this year uh relative to q1 yeah if there's any range of cost return improvement that you might be comfortable providing yeah this is john turner uh you know in the first quarter uh you know our plan opex was
spk05: was around $10.77 a ton before royalties, I believe is what the number was. And you look at that was down from a high of just around $13 a ton in Q4-22. And the biggest decline down from that was due to contract mining and third-party labor costs, which are really associated with bringing the dredge mining in-house. You know, in 2021, our plant off-ex was around $6.50 a ton. When you compare that with our cost today, the biggest difference is cost associated with bringing that dredge mining operation in-house. So, yes, as we continue to bring that process fully in-house, you know, we expect our cost to continue to go down and continue to decrease and, you know, down to those lower levels that we've achieved in the past. So, yes. That's a good observation, and our OpEx is trending in the right direction. We've already seen it happen here early in the second quarter as well.
spk06: That's great, Paul. I appreciate it. If I could ask one more. Also, congratulations on the approximately 200 payloads in Q1 delivered with over 70 tons per truckload. Am I correct that those deliveries started sometime in March, and more importantly, in How should we think about those volumes progressing through the year?
spk01: Yeah, this is Chris Sciolo, Chief Supply Chain Officer. Just to give you some color of our delivery timeline and our intense evolution of our logistics operations. January 3rd, we started our logistics operation with our first single trailer deliveries utilizing Atlas drivers and assets. On March 20th, we deliver our first double trailer to the well site with a 70 plus ton payload. And then April 5th, we deliver our first triple trailer to the well site with almost 100 ton payload. And to put that in perspective, as we talked about earlier, that's about four times the standard payload that you see delivered to location today. I think a big part of your future look question is, look, seeing is believing, right? We've had major operators and service companies out to see our logistics operation running in the field in person. Seeing the fit-for-purpose double and triple trailers being delivered to the well sites, it really brings reality to the transformational logistics solutions that we'll be delivering in the Permian. We've seen a high level of interest and expect additional customers to transition to Atlas logistics solutions throughout Q2 and the rest of the year. From that perspective, look, there just aren't a lot of customers that don't want to be a part of a 70% reduction of associated traffic on public roads. That's what we see as our progression on logistics.
spk06: You just answered my follow-up question, so thank you. And that's all I got.
spk11: All right. Thank you. Thank you. Our next question is from Doug Decker with Capital One. Please proceed with your questions.
spk08: Thank you. I'm curious how conversations are going around signing up additional customers for the Dune Express. How important do you view signing up contracts in advance, and is it reasonable to expect some more news on this front over the next, say, six months?
spk00: Yeah. You know, I think now that, you know, I think for some in the market, it was – the Dune Express sounded like an ambitious concept, and now it's very real. So I think the level of discussion, and Jeff can speak more specifically to it, has increased. You know, it's really unusual for companies to contract out as far ahead as those two majors did for deliveries on the Dune Express. I mean, as you know, we have a history as operators and Typically, you only contract out your next budget year unusually at times, and it would be unusual. You might go out a couple of years. And so for those two majors to step out like they did was really unusual. Now I do think now that the Dune Express's year is real in their minds and it's happening, Jeff can speak to the fact that the discussions have increased, but A lot of them are just kind of trying to bridge their way forward to be there and be in the front of the line to be on the Dune Express deliveries once it's up and running. Jeff, do you want to add to that?
spk10: Yeah, thanks, Bud. And this kind of follows on to the question that was asked earlier about, you know, we're seeing more simul-frac activity, three-mile laterals, meaning more profit. and more efficient logistics solutions. And this plays right in to Atlas Energy's solution strength as we move forward. And what we're seeing is what we have coupled with that right now is we have tangible, you know, assurity to these customers that this project is in fact going forward. We've got construction beginning. We've had several tours on our locations demonstrating this. The trucks are running. The heavy payloads are running. And this assurity, coupled with the tangibility of what our solutions offer, and as Chris Shola mentioned earlier, with regard to the sustainable benefits from the environmental social safety perspective, is acting as a very large attractant to these things in terms of long-term commitments. So, Bud mentioned earlier on in the conversation, we expect these on a quarter-by-quarter basis to grow, our contract volume commitments to grow, coupled with some of their roll-offs that are expected as well. So, look for a real favorable contracting session moving forward in that six months.
spk08: That certainly sounds encouraging. And just everything you've been talking about today, the outlook for Permian fraxan supply, demand looks very favorable. What are your thoughts on just formally moving forward with phase two of the Kermit expansion?
spk00: Yeah. I mean, a couple of comments on that. We are going to have material growth in our production as we exit the year with this first expansion coming online. Let me just say that I think that we – We're very optimistic about our ability to grow production very efficiently. When you look back at original plant design, the production expectations from those plants was three million tons of plant, three to four, and we're producing five and a half million tons from each plant. So, you know, I think a potential phase two expansion would come you know, next year, but I think I'm very optimistic that we're going to be able to have some, maybe exceed expectations in terms of CapEx relative to production growth in the foreseeable future. John, you can probably be more specific.
spk05: Yeah, I mean, and I think, but, you know, really what we're looking at is, like Bud said, you know, originally our plants were designed to produce 6 million tons total You know, we're on a run rate right now of 11 million tons. You know, we're going to evaluate the situation as we move into the end of this year and early next. You know, the Dune Express itself is 13 million tons, and we're going to see, you know, we're going to look at all the different options and see, you know, what kind of efficiencies we get out of the current operations. We've been very efficient. In the past, and it's not taking the plant expansion off the table, it's just looking at what's the best way to achieve those additional volumes for the Dune Express.
spk00: Yeah, what's the most productive capital to put to work to grow our production? And we think we have some, we're very encouraged by our opportunities in front of us to grow production very efficiently, just to put it in summary form. That makes sense. Thank you. You bet.
spk11: Thank you. Our next question is from Michael Sayah with Stevens. Please proceed with your question.
spk02: Good morning, everybody. I guess I was a little surprised on your decision to pay a variable dividend while you're in the growth mode here. I just want to see if you could give us any indication of the things the board will be considering as it looks to implement a longer-term shareholder return program.
spk00: Yeah, maybe I'll start and then John will add. You know, this company has really remarkable margins. In fact, it's very hard to find companies that have margins and generate cash the way that this company does. And I also think, you know, there are some fundamental reasons that our industry is is transition to distributing capital back to investors. Personally, I think it's really important because it just demonstrates the transparency of your business and your ability to generate cash and return that capital to investors and transparency with regard to your value creation. And in the case of this company, while we do have significant CapEx in front of us, we raised $300 million in the offering, and we're generating very substantial cash flows. We are 90% contracted this year, over 90%. We think we're going to exit the year over 80% contracted next year. We just feel like we've got great visibility on the cash generation from this enterprise to to accomplish both, to fund these high growth CapEx projects, high rate of return CapEx projects, and to continue to distribute capital back to investors. And I do think as those CapEx investments wind down during the course of next year, it will become an even more powerful distributing enterprise. So I think to me it's an important message to send our investors that you are very important to us. John, do you want to add anything?
spk05: You know, I think that as we move through the year with the board, I mean, I think it's going to be, hey, look, guys, you know, what is the what's the highest return on investment for our investors? And obviously, I think there's multiple ways to get return back to investors, either through returning cash, investing in – I mean, in growing the stock price through additional growth projects is what – we have that. And potentially buying shares. And potentially buying shares at some point. So, I mean, they will be considering all those different factors. But we want to get closer to the launch of the Dune Express, the finishing, the completion of the Dune Express, so we can build in a fixed dividend. The plan would be to build in a fixed dividend and then grow that fixed dividend over time.
spk02: I appreciate all the color. That's great. I guess with the Kermit plan expansion on time and on budget, You said you're at a run rate of 11 million tons per year. Can you give us any sense on what you'd expect in the fourth quarter, given where you're contracted, maybe both in terms of production and how the capex cadence will look over the course of the year?
spk05: There were two questions there. One was as far as before we'd be in the fourth quarter production and on capex cadence.
spk02: You're right. Sorry, blended two questions together there. Sorry about that.
spk05: Well, you know, obviously I think that as far as capital expenditures go, you know, we'll be into the – you know, we'll be completing the Dune Express, but, you know, we will be – And the point of this, you'll be completing the expansion. No, we'll be completing the expansion, sorry, and we'll be, you know, right in the middle of the Dune Express forecast. You know, I don't think we've provided guidance on the exact – what the timing of that CapEx will be.
spk00: But, you know... Generally, we're comfortable with the analyst numbers that we've seen out there.
spk05: Yeah, that's right.
spk00: So, and then on the... But I do, I probably should restate that color that, you know, this company has had a history of delivering more production relative to CapEx in the past. So... you know, we're always innovating and we're always updating our modeling and analysis. And so we are optimistic that, you know, that we can – expectations as we go forward as we have in the past. But we will also, in addition to working on a dividend policy with the board, you know, over time we'll also be working on a policy regarding forward guidance. But At this point in time, we're comfortable with what the analysts have out there in general.
spk02: Gotcha. Appreciate it, guys.
spk11: Yeah, thank you. Thank you. Our next question is from Keith Mackey with RBC Capital Markets. Please proceed with your question.
spk07: Hey, good morning, and thanks for taking my questions. Just wanted to start off with... your sand contracting really approach? So you're highly contracted currently, but we do consistently hear E&P commentary in the market about getting costs down. So just how do you think about looking forward whether to contract the next ton of sand or letting it float in the market? Is there a specific price where you'll be agnostic to taking on the risk of where the forward market may go, or is there other factors that really drive it?
spk00: Well, this is about I'll start, but then Jeff will probably, he's definitely on the front lines on the market. But I'll just say that, you know, again, there's a real bifurcation, you know, when you look at pressure pumpers and mirrors. The supply-demand dynamic there is very different from sand. You know, we still have 10% of the supply in the basin being provided by Northern Lights. So, you know, we're not, you know, it's just a completely different environment for us and market for us relative to some of the other oilfield service providers. We have a non-op company, so we do have real-time data on the cost inflation that has occurred. And I'll just say that the rate of return on drilling projects at the current oil prices is very attractive. The Tier 1 rockets around 100% plus or minus, and even in the Tier 2 rockets, 40% to 60% IRR. So I think the rate of return on projects for operators is very attractive at these levels. Jeff, do you want to answer more specifically on how the market's shaping up?
spk10: Yeah, I'll answer. It's really, really, you know, we manage our contracts and our clients on a portfolio basis, which means that we approach each one case by case. And, you know, what goes into consideration is obviously strategic value pricing and how they align with our strategic goals as well. And we're finding that here in most cases, the high quality customers in the basin do in fact align with that. So again, case by case basis.
spk07: Got it. That's helpful. And just on the Dune Express, good to hear that you've got a bunch of the materials ordered and As you've made those orders relative to any agreements you would have had before or anything you would have done before during the spring perhaps or in the winter, what inflation or deflation, if any, have you seen on the actual materials you've ordered relative to the pre-order phase?
spk05: You know, I'd say it's come in right where we thought it was. We, you know, we've been in the market prior coming up to this project with our Kermit expansion. So things like steel costs, belts, drives, you know, we had a pretty good handle on where the costs were going or where we thought they would be. We haven't seen any surprises on that front yet. You know, and we did have a number of POs prepared. that were written that we were working on prior to the, you know, prior to the, you know, until before we decided to launch. But we haven't, I mean, like we said earlier is, you know, we've done these projects before. You know, we forecast in long lead time items and also in part of that used our current market information to forecast. We factored that into the forecast when we were putting this together. So we hadn't really seen any surprises on that side.
spk07: Thanks very much.
spk11: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Bud Brigham for any closing comments.
spk00: Thank you, operator. Thank you all for joining our call. We really appreciate your participation and look forward to reporting on our second quarter results.
spk11: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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