Liberty Energy Inc.

Good morning and welcome to the Liberty Oilfield Services third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. 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 the current conditions that are subject to risks and uncertainties that are detailed in the company's earnings released in other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA, and pre-tax return on capital employed are not a substitute for GAAP measures and may not be compared to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of pre-tax return on capital employed, as discussed on this call, are presented in the company's earnings release, which is available on its website. I would now like to turn the conference over to Liberty CEO, Chris Wright. Please go ahead.

Good morning, everyone. In the midst of a global pandemic and an oil and gas industry downturn, our third quarter results demonstrated the resonance of our business. The Liberty family came together to work through an extraordinarily difficult time for the industry by applying our core principles to meet near-term challenges working hand-in-hand with our customers. Our customers have been as challenged by current conditions as we have been. We are in this battle together. Just as with our personal lives, Relationships are strengthened or broken during trying times. Liberty is growing and strengthening our relationships with our customers, and our Q3 results reflect that. Completions activity is modestly ahead of the pace we expected earlier this year at the outset of the downturn, and we continue to grow market share, percent of business with our top-tier customers. The third quarter also marked an entry into our first major gas basin, the Haynesville Shale, with an existing customer. The Haynesville is a world-class gas resource, geographically advantaged, being developed by a crew of strong operators. We are excited to plant our flag in the Haynesville. Our third quarter adjusted EBITDA, excluding non-cash items, was $1 million. a $10 million improvement from the second quarter, as operators restarted frack activity following an abrupt halt in the oily basins during the second quarter. Cash and cash equivalents were $85 million at the end of the third quarter, and total liquidity, including availability under our credit facility, was $154 million as of the September 30 borrowing base. Because of the severity of this downturn, I want to remind investors of how incredibly hard the team has worked to navigate all the challenges while keeping our people safe and our customers served in the top-tier fashion that they are accustomed to. I'm pleased with our team's solid execution that has translated into the significant improvement in our Q3 results, albeit with much room for further improvement in the coming quarters. All these efforts and decisions have been critical for Liberty's future. Not all of them have been easy. Michael will share our full financial results shortly. Despite near-term macro volatility, we never take our eyes off the long-term goal of building a competitively advantaged leader in North American FRAC. Our strategic goals have always been centered on building a business for longevity and returns through cycles, which requires a strong balance sheet and solid liquidity. We are pleased with the positive reception that the OneSTEM deal has received from our partners, customers, suppliers, and investors. We are excited by the conversations and integration preparation work we've done so far with our colleagues at OneSTEM. Let me briefly discuss OneSTEM. Bringing these two businesses together has energized our team, Our integration work is still in its early stages. We are immersed in discussions on people, technology, assets, strategy, and our future technology alliance framework. This is a huge effort with huge opportunities. Things are progressing quite well. We are pleased with how complementary our engineering databases and innovative technology solutions are for completions designs. and we're excited by the future opportunity to deploy an even better service offering. Suffice it to say that there are simply tremendous opportunities for Liberty to supercharge our technology platform. We will roll out more details on specific initiatives in the near future. Let me say again, technology was the major driver behind this transaction. We are also excited by the pump-down perforating wireline business and the sand mines. It's simply too early to comment on any more specifics at this point. We expect to close the transaction towards the end of the fourth quarter. We have already received antitrust clearance. RAC activity rebound has continued at a modest pace, likely supplemented at liberty by gains in market share. we exited the third quarter at a much higher level of activity than the quarter began. We see activity now leveling off until the seasonal decline towards the end of Q4, which we expect to be more modest this year. For the fourth quarter, we are now anticipating average active practice, excluding the acquisition of one STEM, will increase by greater than 20% from the third quarter. I must recognize again and give thanks for the great sacrifices made by all of those in the Liberty family. I'm pleased to share that we no longer have any employees on furlough. While we are on the road to recovery, it will take time. Oil prices are bouncing around $40, an improvement from the spring, but still too low for a healthy industry. Natural gas prices are in a somewhat better place today than oil prices. The U.S. onshore rig count bottomed about three months after the active spread count bottomed and has also been modestly improving with six consecutive weeks of growth. Current industry activity levels, likely around 130 active frac fleets, are well below the level of activity to hold U.S. oil and gas production flat. Hence, we expect to see further increases in activity levels next year. Liberty is responding to the reality that we have today and building our competitive advantages for however the future unfolds. Customer relationships are central to this. Last quarter, we discussed that our engineering prowess and completion designs were catalyzing more conversations with customers. Crisis catalyzes change. Those discussions have accelerated even further. Customers are looking to Liberty for new ideas and greater innovation to lower the cost of producing a barrel of oil. ESG is also a growing part of our customer dialogues. We are working hard to release our first ESG report for the end of the year. We are anxious to bring a fresh, candid perspective to this growing issue in our industry and our times. These are busy and exciting days for the Liberty family. I will now turn the call over to Michael.

Good morning, everyone. It has been a challenging six months for our industry, and in the second quarter, we transitioned the business to align our cost structure with our dedicated customers' projected activity levels, and our financial results reflect these changes. During the third quarter, we were pleased to see month-to-month improvement in the frack activity off trough levels in the middle of the second quarter. Liberty's partnerships with our well-capitalized, dedicated customers allowed us to achieve results slightly ahead of our projected pace during the period. In the fourth quarter, we are now expecting greater than 20% sequential growth in average active sleeves, which is the top end or higher than our prior guidance of 10 to 12 sleeves. For the third quarter 2020, revenue increased 67% to $147 million from $88 million in the second quarter. reflecting a steady return of activity as the commodity prices backdrop stabilized, albeit at low levels. And net loss after tax totaled $49 million in the third quarter, improving from a $66 million loss in the second quarter. Fully diluted net loss per share was $0.41 in the third quarter, ahead of the fully diluted net loss per share of $0.55 reported in the second quarter. Severance and related costs were $1 million during the quarter, And fleet startup costs included in the cost of sales was $6 million for the quarter. Third quarter adjusted EBITDA improved to a loss of $3 million in the third quarter from a cyclical low of $13 million in the second quarter. Third quarter adjusted EBITDA was a positive $1 million after excluding non-cash items of $4 million. Results were driven by a modest return in frack activity in the third quarter following the second quarter production shut-ins and curtailment of completions by operators in the oil basements. General and administrative expense totaled $19 million, including $1.5 million of one-time transaction costs related to the one-stem acquisition in the third quarter. A modest 4% increase from the second quarter as our cost-saving measures taken early in the second quarter continued to aid overall results. This modest increase in general administrative expenses was primarily due to the timing of certain corporate costs in the third quarter, as well as higher activity, driving an increase in personnel costs as employees returned from furlough. We anticipate a modest uptick in general administrative expenses during the fourth quarter, on a full quarter of no furloughed employees. Net interest expense and associated fees totaled $3.6 million, and we recorded an income tax benefit of $10 million for the quarter. We ended the quarter with a strong liquidity position of $154 million, including a cash balance of $85 million and no borrowings drawn on our ABL facility. Capital expenditures were $12 million for the quarter and $58 million for the year, and we continue to expect capital expenditures in 2020 to be in the $70 to $90 million range. Fourth quarter capital expenditures are expected to primarily include maintenance capex on increased working fleets, investment in next generation fleets and other items. The exceptional circumstances of this historic downturn in oil and gas have been bittersweet. We acted swiftly when circumstances were highly volatile, reducing staff, conserving cash, managing our liquidity and maintaining a strong balance sheet. Our core principles allowed us to navigate a very challenging market. Equally importantly, it also allowed us to take advantage of opportunities, that will make us stronger as the cycle improves. The acquisition of OneStim is a prime example of executing for the future. We believe OneStim will serve as a catalyst to advance our goals in generating superior returns as we have in years past. As Chris discussed, we expect to close our acquisition of Snobagee's frack business late in the fourth quarter, and our integration efforts remain on track. We have long been focused on investing in the future with a sustained focus on technology innovation. With this deal, we believe we can deliver even greater value to our shareholders through a strong, investable platform. And with that, I will now turn the call back to Chris before we open for Q&A.

While the timing of full recovery in global oil demand remains uncertain, the last several months have shown a dramatic rebound from the lows in April and May. A resurgence in COVID cases now threatens the future pace of recovery in oil demand. Against this backdrop, there has been a concerted effort across the industry to cut costs and drive efficiency improvements. As part of that effort, we've seen several significant consolidations announced among EMP operators, including Chevron Noble, Conoco Concho, Devon WPX, and pioneer partially in the oily basins, and we expect more to come. These trends will likely persist into 2021 across the oil and gas industry. We expect that best-in-class operators and service companies of larger scale will emerge on the other side of the downturn. A full-fledged recovery or return to normal depends on a rebound in global economic activity. This will take time. World Health Organization officials expect a doubling of the global poverty rate, a tragic and dramatic reversal from the plummeting of world poverty over the previous decades. One of the greatest drivers of demand growth for oil is people's lives getting better around the world, whether that is rising out of poverty, entering the middle class, or moving up to a more affluent middle class life. All of these improvements demand more oil and gas. The simply tremendous economic progress of the last century has been abruptly interrupted. We long to see this trend reverse again, both for what it means to our industry and, more importantly, for what it means for the well-being of the world's people. Thank you for joining us today. We look forward to fielding any questions that you may have.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And our first question today will come from Blake Gendron with Wolf Research. Please go ahead.

Hey, thanks. Good morning, guys. I appreciate the commentary there about the oil and gas impact globally. I know it's still early days. You're still going through your review with the OneStim technology and equipment. It's pretty easy to see what Liberty can do with scale in terms of driving efficiency and throughput, and that definitely follows through to the EBITDA line. In terms of free cash conversion, it would seem you have an opportunity to cannibalize some equipment. So my question is, as you look at the equipment now, and maybe it varies a little bit by basin, does the equipment on the OneStim side match up well with Liberty's equipment? And What do you think the extent of this cannibalization savings on maintenance capex could be both next year and kind of moving forward?

Thanks, Blake. I mean, I'll take a little bit of that. That's Michael. Yeah, the equipment matches up very well, really. You know, they sort of run a very similar sort of drivetrain to what we have. One of the key decision points that I think Ron and the team are looking at is as far as when we're looking at control systems, it's one of the things we have to bring. We have to standardize across the systems. The equipment itself is in great shape, and we'll have, I think, about 500 green tag pumps. We'll have a lot of equipment that's in tip-top running order. We will have a lot of equipment, a significant amount, that will be available for reducing capitalized maintenance and costs going forward. Still in the stages of looking at that, as you can imagine, there is a lot of equipment to look at. But we've announced I think that's probably going to be somewhere in the range of $50 to $100 million reduction in spend over the next three years. I would guess that is probably a little bit of a bell curve, a little bit slower in 2021, and then a smaller amount out in the third year. Probably the highest amount of that savings comes at the back end of 2021 and through sort of 2022.

Understood. And what piqued our interest, obviously, was the Haynesville entry there with an existing customer. One stem, in our view, was pretty impactful in the Haynesville region. We just don't hear a lot about the nature of the work with respect to maybe pad configuration and what the wells are actually like, just because it's fragmented from an E&P standpoint, and also you have some private frack companies that are operating there as opposed to large public ones like yourself. I'm wondering if you could maybe characterize the nature of the work in the Haynesville with respect to maybe the efficiency and throughput upside. Maybe comparing a Haynesville pad to a Permian pad would help us illustratively understand the opportunity there.

Yes, so this is Chris. The Haynesville is deep and highly overpressured, which contributes to the huge size of the resource, but it means it's a high-pressure basin. which means pumping above 10,000 PSI. So it's high pressure. The reservoir is thick. So the pounds per foot or frack intensity is high in the Haynesville. And the EURs and recoveries are highly dependent upon frack intensity. So it's significant size pads in that each well, you know, I would say on average frack intensity higher than in the Permian. And it's high pressure, so it's more like Delaware than Midland Basin. But, yeah, you hear less. There's a number of sizable private operators there as well as the publics. But, boy, the resource base and the outlook for it going forward is tremendous. We've been looking at Haynesville for a while. We like the outlook there. And I would say super proud of our team to arrive in a new basin, you know, without a base there, and to perform very strongly right out of the gate. So, you know, a customer we arrived with there, we will be very busy with next year. And as you said, yeah, One Stem has a significant presence there, and it's been doing some great work, and they have a facility. So, yeah, I see Hainesville as a significant basin for us going on for a long, long time.

Good deal. Appreciate the call. I'll turn it back.

Thanks, Blake.

And our next question will come from Chase Mulville with Bank of America. Please go ahead.

Hey, good morning, everybody. Morning, Chase. So I guess I want to dig in a little bit, you know, on kind of 3Q. You know, the sequential revenue improvement lagged the increase in your average fleet count. Could you maybe talk to how much of that was utilization versus kind of mix?

You know, there's two big factors. Number one are percent of self-sourced profit pumped in Q3 was sort of inordinately high. So that in itself, you know, means for the same amount of frack activity, revenues are lower. The other is, you know, you had work in Q2 at that, you know, at the beginning of Q2, you've got a lot of work going on that was a continuation of work from Q1, so it's a better pricing environment, and all fleets are running on all cylinders, you know, and smoothly operating on day one of the quarter, where here you've got launching, you know, launching of new fleets, you know, working kinks out and getting things back up again. And, of course, you've likely got, you know, you've got a lower average pricing in Q3 than you do in Q2. Think of the Q2 work as mostly at the beginning of Q2 as you're going into shutdown.

Okay, perfect. And if we can kind of carry this question into Q4, you know, given that backdrop, obviously you've got it, you know, 4Q average fleet count up more than 20%. How should we think about the moving pieces between mix and utilization as we kind of go into 4Q relative to 3Q?

You know, when we go into 4Q with a strong activity level, You know, so the, you know, fleets are running at, you know, fleets are running at high throughput going into Q1. So, you know, you'll likely, you'll see a more positive revenue per fleet likely in that setting.

Okay. And last one real quick on frack pricing. Are you still seeing pressure out there today on the pricing side, or has it actually found the bottoms?

Yeah, you know, I would say we're at a bottom, but my first reaction when you say pricing is it's terrible. You know, it's just an industry right now where there's a lot of excess capacity. You know, it's almost a necessary thing. It's what is pushing capacity out of the marketplace. So pricing is very tough right now, but, yeah, it's not going down. It's just, yes, it's at a very low bottom.

Perfect. All righty, I'll turn it back over. Thanks, Chris.

And our next question will come from Mark Biannici with Cowan. Please go ahead.

Hey, thanks. I'm curious on the kind of activity progression here. I mean, I know you guys have guided to the over 20% here for the fourth quarter and kind of made the comments about, you know, what's sort of needed from a market perspective to sort of hold production flat. But My sense is most of those sort of maintenance expectations were kind of based on $35 oil and the commodity prices drifting lower here. So I'm just kind of curious, you know, how do you see that commodity price weakness playing into sort of the broader market activity as we head into 21? And, you know, how does that affect your business and what you've sort of put forth here for fourth quarter?

Yeah, I would say commodity prices drifting lower definitely will impact activity. You know, if we had looked at this three or four months ago, you know, I would say consensus or the broad sense was U.S. production would hold flat at the December exit rate. I think given the tone and obviously the fear of softer oil prices, and we're seeing some of that, it's likely later next year and maybe not even next year that we get to activity levels to flatten U.S. production. But still, from where we are today, I'd say that's – I still expect we will see higher activity levels on average next year than we see today. How much higher I think depends on oil prices. Oil prices are in mid-40s. That's one scenario. If oil prices are in high 30s or around where they are today as we're sitting there, I think you'll see increased activity but a significantly smaller increase than where we stand today.

OK. And then one, just in terms of the kind of the margin leverage here in the third quarter, you know, I know there was some restoration of furloughed workers that that may have weighed on on sort of your margin leverage. If I kind of look at the EBITDA improved. $10 million, which kind of works out to a mid-teens or 10% to 15% incremental. What should we be thinking in terms of your margin leverage or operating leverage in the fourth quarter just in light of this sort of 20-plus percent activity increase?

Yeah, it should be a little bit stronger in the fourth quarter than we came into in the third quarter as we're in relatively flat. Everybody is being brought back from furlough that is going to be brought back from furlough. Obviously, we're also dealing with the OneStim acquisition and probably going to find that we're going to run a little heavy on some of the costs and some of the transaction costs into Q4 as we go.

So, Michael, just to follow up on that, if we think about like you're absent all of these unusual things, what would be a normal incremental for the business? And then maybe we can think about what to deduct from that given the points you just mentioned. Okay.

Yeah, I don't think we'd go into that. It's just too much of a moving target at the moment, Mark. You know, sort of as we're coming out of this, we're still really coming off as sort of a very, very unnatural trough. So to talk about normal incrementals at the moment is really probably, it would probably cause more confusion than anything else.

All right. Thanks for that. I'll turn it back.

And our next question will come from David Anderson with Barclays. Please go ahead.

Hey, thank you. So, Chris, I want to ask you a bit more about the E&P and consolidation. You talked about it in your prepared remarks. It seems to me it's a bit of another reason for investors, I guess, to hate on the OFS space a bit. On the surface, it seems that one plus one equals something less than two when it comes to putting a couple of these programs together. What's the counter to this? Can you just kind of talk about how you think about this Does it kind of ultimately become sort of a frack-off between your competitors? Just sort of maybe talk about how you see those dynamics playing out because there's been so many of them, and I guess the next 12 months we'll find out how that all shakes out.

Yeah, and, of course, they'll all be different. You know, I think there's a negative and a plus. And the negative, I think you hit. You know, you're going to combine two companies. They're going to lower their cost. Their CapEx, one plus one, I agree, in general will be less than two. You know, this is a shrink CapEx, grow efficiency play for sure. And that's overall a negative for the OFS space. And so, you know, that's our world and we've got to live with that. The flip side to that is we're going to have bigger, stronger EMP companies that are of scale. And the partnership fit or mix there is likely going to be with bigger, stronger companies. technology-heavy service companies. So it also, you know, in that kind of a world, I think it competitively advantages a business like Liberty.

And I think just to follow on from that, I think in the long term, well, it does. It makes the U.S. oil and gas sector more competitive at a lower price, and so therefore will drive more development in the lower 48 in Canada. from larger companies who have got an economy of scale, who have got sort of access to capital to survive at sort of what I think is a lower for longer oil price. So therefore should actually advantage us over the long term, even though you're right, we may have some hiccups over the next six months.

Right. Yeah, no, that seems pretty clear. There clearly are opportunities for you as well. So a separate question, also kind of a bigger picture question. I think we can safely say that Liberty manages more of the supply chain, meaning sand, chemicals, water, than any of your competitors. It's something you feel is an advantage of winning work. Taking all that into account, I'm just wondering where do you see the potential for a potential step change in efficiencies here? One operator kind of complained to us that 70% of the cost of property is in trucking alone. I don't know if that's the same thing for all your operations, but just sort of generally speaking, I'm wondering if supply chain efficiency is a problem that you're trying to solve, I'd also be curious if you have a digital overlay over these operations, whether it's internal or a third party, or just kind of where you stand on software as helping those programs out.

Yeah, this is Ron. You know, I think we see that ultimately as a hybrid model. Of course, there are opportunities where a piece of software is going to make a better decision than a person. And And I think you see that opportunity, particularly in the last mile piece of things. So, you know, to your point around trucking being 70% of the cost of sand, that's certainly true in some places. That's not true every place we do business. But if you were talking about a particular basin, maybe the Permian, for example, that could absolutely be the case. And so, yeah, you know, as you think about that last mile piece, The opportunity to lower trucking costs comes in effective utilization of those trucking assets, enabling those folks who own those trucks to make more turns during the time they're allowed to be out driving. And so that requires an efficiency or an optimization exercise. And a computer is very, very good at that. Artificial intelligence will be able to move the needle to some degree there. But I think we feel at liberty. There's a limit to what a piece of software can do in terms of replacing a human. We place a lot of value on the relationship we have with our suppliers and what that means when times get challenging. You know, I think there's no replacement for being able to pick up the call or pick up the phone, have a conversation with somebody you know and have a relationship with to work through a challenging supply issue, you know, whatever that might look like. And so I think we see opportunity there to improve efficiency, but I think it's going to be a mix of both software and the ongoing relationships we pride ourselves on with our customers and suppliers.

So, Roger, related to that, I'm curious if you're in a position now where you can say, hey, we can provide this X percent, you know, this last mile X percent more or cheaper than our competitors. Is that a selling point? Is it like a 10, 20, 30 percent number? I'm just kind of curious how you think about that in terms of a competitive advantage.

Yeah, I don't know that I could quantify exactly what that is, but it's meaningful. There's no question. I think we are confident we can convey to our customers an advantage supply chain that looks differential to everybody else's. And I think that carries a huge amount of weight. And I think that's the reason you've seen us generally be On the lower end, in terms of self-sourced profits, I think our customers have confidence in our ability to deliver to them a competitive supply chain that is a function of the scale we have, that is a function of the relationships we have, that is a function of the ability and focus we have on that and its importance in our world. Thank you.

That's one of the things that we're getting, one of the things we really love about the Wanston deal is we are getting some software, the work they've been doing on some software related around that, that we'll be able to sort of leverage across the new scale of the company in conjunction with sort of, again, as Ron would say, moving sand efficiently and then sort of being able to stage those trucks using artificial intelligence and geofencing to actually manage the time between loads and sort of increase that efficiency. And I think that's a key thing. They've done a lot of investing on that over the last few years. We'll be able to take that investment and then commercialize it and push it out to our customers to really help them. Our larger customers are going to be a larger set of, you know, the scale of demand and help them lower their costs.

In addition to the efficiency, you know, and costs, Another advantage we've had that we are working hard to grow is reliability. There's disruption. The mine goes down, a line goes down, markets are tight, weather is bad. Our competitors have had much more downtime when systems are stressed. What Liberty's prided itself on the robustness of our ability to keep operations running reliably through all conditions. And that is, I would say, recognized and appreciated by our customers and And we expect to continue to enhance that robustness of our supply chain as well.

Thank you very much, Shaman.

And our next question will come from Sean Mecham with J.P. Morgan. Please go ahead.

Thanks, Hank. Good morning.

Good morning.

So to follow on to the decision to enter the Hainesville, you know, Chris, you've avoided dry gas basins to date. But the move's not surprising that you're going to take on Somerset's Gleet and their existing footprint. You always try to invest counter-cyclically. Could we just talk about your timing of entering dry gas markets and what that signals in terms of your outlook for gas-related activity?

You bet. You know, look, the shale revolution began in the gas basins, really the technical innovations in the late 90s. Nobody really heard about it maybe until the mid-2000s. So it began there. And a gas molecule is smaller, more able to move it through very small pores and rocks and micro fractures. So, you know, originally we weren't even sure it would go to oil or how big it would be in the oil basins. Thank God that turned out to be not a limitation. But the flip side of that is it's so good in gas that the U.S. production ramped up massively fast. And then the improvement learnings were very quick there. So we started Liberty. While we love natural gas as a fuel and bullish on its long-term future, we saw that the rig count and the fleet count in the major gas basins would likely decline rapidly, and it has over the last eight years. And then the oil basins, it would grow. And the other big reason for that, besides just the technical difference of producing gas versus oil, is it's pretty easy to load, you know, A, we were a huge net importer of oil, which could be displaced. And it's pretty easy to export oil. It's a little harder and a little bigger investment cycle to export natural gas. But let's look at all those factors today. You know, U.S. went from the start of the shale revolution, biggest importer of natural gas in the world. Now we're the third largest exporter of LNG in the world and actually a fair amount of room to run and growing pipeline capacity to Mexico. So that time to build infrastructure to grow the gas market has happened. And the decline in rig counts, decline in fleet counts has happened in the major gas basins. So after many years of significant declines, our guess is we've hit a bottom. And depending upon how things unfold, it may not rise massively from today, but I suspect we will see increasing activity in those basins, even if they didn't increase You know, in the depth of this downturn, the percent of the activity that was in gas basins was quite large, just different dynamics, different marketplaces. So we've been talking and thinking about gas for multiple years. You know, multiple customers have talked to us about that. So I would say totally independent of the one STEM acquisition, we were going to move to the gas basins. Then on timing, well, when did we enter the Permian? We entered the Permian at the bottom of the last downturn. because we grew our market share in the Rockies from 5% to 25%. And for the first time in our business, we had spare capacity. And so we entered the Permian. Here as well, for the first time since the depth of the last downturn, and that was a brief moment where we sent that fleet to the Permian, during this downturn, obviously we had spare capacity, and we thought timing good to enter the gas basins. So then it was the third ingredient, which is, you know, a specific customer that we believe in that's solid that makes that entry make sense at that point in time. So, yeah, I would say without the one STEM deal, we would be in the Haynesville today. In fact, in a sense, in the same fashion we are. Now we'll just go from entering to scale quite quickly. Sorry for the long answer, but appreciate the question.

No, it's a good answer. I think that context is really helpful. And then just thinking about the Digifrack fleet, Are we still on track for deployment next year? I'd be curious to understand a little bit more what the capital outlay looks like relative to a traditional diesel fleet and just how you think about securing a firm contract before you put this type of fleet out to the market.

Yeah, so that may be a little too much inside baseball at this point in time. But, you know, we're in dialogues about that fleet because of the different technology and different emission profile of it. I'd say there's significant interest. But it's a tough marketplace. It's a tough marketplace. And so we are building tests. We'll be running engines in the field in the next few months. and depending upon the timing of a reasonable commercial arrangement, and, you know, in success of our development efforts, I would say it's quite likely we would certainly sign a deal to deploy a digifract fleet sometime in the next 12 months, but, you know, that could be in the front end of that, that could be in the back end of that, and we're, you know, we're not all, it's not critical to us how fast that happens. What is critical to us is that the technology is robust and truly differential as we believe it can be, and that we enter into the right commercial arrangements with the right parties.

That's helpful. Thanks, Chris.

Thanks, Sean.

And our next question will come from Tom Curran with the Riley FBR. Please go ahead.

Good morning.

Good morning. Most of my questions have been covered, so I'll turn to one of my regular topics, which is your continued involvement with the Vortec system. Would you please update us on your initiative to deploy that technology on a live well with an existing customer before your end? And then how does the acquisition and integration of OneStim affect your Vortec plans, both in terms of the specific timing of this trial well and any others that might follow, and then longer term, how you would intend to roll that technology out across the merged fleet.

Yeah, Tom, you know, so we were well on our way to putting that technology out on live well right before the world turned upside down for us. And, in fact, I'd say maybe weeks away from doing so. So we're back on that path again. We are, you know, we're out looking for the right trial candidate to have that on. Of course, we want to make sure we – we set ourselves up for success when we go out to do that. And so the sales team here at Liberty is working with our E&P partners to find the right candidate for that. And when we find the right opportunity, we will get that technology out in the field and get through the remainder of the testing that we would like to do there. Once we've done that, then we evaluate the commerciality of the technology and make a plan for deployment beyond that. So that's That's where we sit today. We don't have that date nailed down yet, but know that we're working hard to find a spot to get that out in the field again. As far as the OneStim acquisition, it didn't really change our outlook on Vortec. Of course, we were working together with Energy Recovery and had been for a long, long time. That was mostly independent of the OneStim team. Of course, they had their own efforts moving forward there in parallel with us. I think maybe we both had a little different thought around how we were going to deploy that and how we were going to use that technology. You know, we continue on with the plans that we had there. And once we get across the finish line and have a chance to evaluate how it performs in the field, then we make that final decision around deployment, obviously with a little bigger footprint to consider that over now.

Thank you for that, Ron. Just two follow-ups then. Do you still expect to be able to get this first live well frac um underway before your end and then when it comes to your commercial evaluation is is your intention or are you open to if you're satisfied and it looks like the technology is going to meet all your requirements uh to deploying it across the entire fleet um so

In terms of how we think about that, we certainly hope to have it done before the end of the year. We're out actively looking for that well right now, and when the right candidate comes up, we'll certainly go. We are ready to do that on relatively short notice. Having been through all of the work we've been through in the yard and other testing outside of that, we're pretty comfortable with getting the technology rigged in alongside our typical rig up. So it's not a time-consuming effort to do so if we find that candidate quickly. So fingers crossed we'll do that before the end of the year. And then as we think about deployment, there are places where VORTEX probably makes more sense than others. There are places where we see much higher wear and tear on the wet end of the pump, on the fluid ends, valves, and seats than we do elsewhere. That's really a function of job design, of the pressures we're pumping at, of the type of fluid system that we're using there. And so it'll be those factors that ultimately prioritize where we deploy Vortec out of the gate when and if we decide we're ready to do so.

Thanks for the call, Ron. That was helpful.

Our next question will come from Chris Bowie with Wells Fargo. Please go ahead.

Thanks. Good morning.

Good morning, Chris.

Hi. So... I think you said you expect revenue per fleet should be higher in the fourth quarter, and it sounds like pricing is not going down. So is it fair to assume that underlying GP per fleet, which I think was probably around $6 million in the third quarter, if you ignore reactivation costs, is it fair to think that that should be higher in the fourth quarter compared to the third quarter?

It's a lot of moving parts in that one, Chris, obviously. But, you know, I mean, given the small set of assumptions you just mentioned, that would be logical. But that was based on those small set of assumptions. So, yeah. No guidance. We don't give profitability guidance. So, you know, as you know.

Sure. Okay. Well, then I'll skip what's going to be my next question then about four qubits. Maybe switching to pricing, back to that. Is bidding right now in pretty tight bands still? I think in previous quarters there was mostly a pretty tight band with a few outliers. I'm wondering if you could just describe what the landscape is right now for pricing in terms of You know, obviously you want to hold your ground. A lot of other people do as well. Are there still some, you know, undisciplined bidders that are messing up the situation right now?

Well, you know, I think the tight band is a reasonable characterization. You know, often there are some bids that are way off that reservation for sure. But usually it's from players that have other limitations that make them not a great bidder. potential partner. So there's a lot of, I would say, in general, the crazy cheap bids, even though they may be a fair amount cheaper than everyone else, in general, they're not successful with the better companies. You're making a partnership, and there's a reason someone's doing something like that. And, you know, and I think that the experience of the last six months maybe has even hammered that home more to the EMPs that You know, if it looks really cheap up front, you know, maybe there's a reason for that. And the cost of partnering with the weaker players, it certainly has been made apparent in the last six or seven months.

So I'd just say, you know, while pricing is very tough at the moment, you know, some of the more ill-disciplined players now have exited the market or definitely sort of are in that area. The other thing I will say is, whilst pricing is tough at the moment, and there is a lot of equipment available, the majority of the fleets that are staffed are now probably working. So it will be interesting to see what happens with the pricing environment over the next three to five months. We don't have any indicators of where it's going to go, but again, just logic tells you that if service companies are going to be hiring back new and staffing new fleets, they're going to be expecting a return from that. I would expect the majority of the industry to be relatively disciplined.

Okay, that's helpful. Thanks. And if I could just sneak one little one in here. Do you have a view on reactivation costs in the fourth quarter compared to the $6 million in the third quarter?

Yeah, again, we should be relatively flat on fleet count through the fourth quarter, Chris, so I think that'll be a much smaller amount and smaller numbers as we go through into next year. Again, you've got to remember that we were bringing back, you know, we really almost came to a screeching halt in the oil basins. You know, so we had a significant amount of work to really sort of almost like restart. Companies were almost restarting during this Q3 period. So, you know, there are definitely costs involved in that, inefficiencies, et cetera.

Great. Thank you.

Thanks, Chris.

And our next question will come from John Daniel with Daniel Energy Partners. Please go ahead.

Hey, guys. Thanks for getting me in. And I got dropped early on because I'm driving around Texas here. So I don't know if my question has already been addressed. I apologize in advance. But can you speak to what the inquiries are, bidding opportunities are, the volume, if you will, for Q1? and also address sort of what portion of your fleet today is dedicated and what you would expect to be dedicated moving into 2021?

John, I love that you're always on the road, on the ground, seeing what's happening. So drive safely, or maybe you've pulled over because your cell connection sounds good. And so, you know, look, you know, this is for people that do their work on an annual basis. You know, this is, this is sort of that RFP season. And again, You know, as I made the comments earlier, from what you see for people's bidding or plans next year, I would say that, yeah, we expect an increased level of activity next year from where it is today. If oil prices are cooperative, that probably is true pretty early next year. If they're not, you know, schedules probably slide. And then, John, maybe the biggest question you ask is what percent of our work is sort of dedicated versus spot. And I would say the very large majority of it is dedicated. You know, for us to be a win for the customer and a win for us, you want maximum throughput through your assets. So that's a very strong preference. Of course, there are other partners that in certain basins or areas they don't have a full fleet, what we try to do is to get that work lumped together, you know, and then we try, obviously, to blend it with someone else. Our fleet works six weeks, six months for this person and, you know, in this chunk for this other person. But it's a high level, you know, very high percent of dedicated work.

Okay. Just one more for me, and I don't know if you can share this data or not, but when you look at, you know, sort of pumping hours per day that you get on your fleet and Have you been able to get similar data on the Schlumberger fleet? And can you comment on what disparities exist, if any?

You know, so look, there's third-party data on throughput that we look at. We don't have detailed data on the OneSim fleet. And I'm sure with them, just like with everybody else, That depends on basin and customer stuff and all that. So, yeah, it's too specific for us to comment on right now, but it's obviously of great interest to us.

Well, let me put it – how about this? When you look at third-party data and it assesses your performance, how accurate is that third-party data in assessing your performance? How's that?

It depends on the source, you know, and that's funny. So we – Obviously, the third-party data we use is third-party data where their data aligns not just in magnitude but in trends with our own internal data. And you've probably heard us reference people's third-party data in our presentations and stuff, and those are people where we have some confidence that their data is reasonably accurate.

Good. Okay. Appreciate it. Thank you for your time. Thanks, John.

Take care.

And our next question will come from Ian McPherson with Simon Simmons. Please go ahead.

Thanks. Good morning, Chris, Michael. Maybe worth asking about the playbook for a downside case, just given the direction of the oil tape. Obviously, we've seen divergence with gas and oil. We've seen you move into the Hainesville ahead of the OneStem acquisition. But You've increased your share and your fleet count, I think, with good strategic reasons in the back half of this year, even when pricing remains very difficult and margins on a consolidated level remain poor, notwithstanding the incremental contribution margins of those fleet ads. If the activity recovery for the total market slides to the right because of the commodity next year, what would your appetite be to continue to take share and to redeploy incremental fleets ahead of that recovery, given the tradeoff between wanting to be strategic and ahead of the market, but also just putting unprofitable wear and tear on the equipment?

Yeah, certainly as activity pushes or goes out, which certainly may happen, definitely reduces our activity. Yeah, for us, it's definitely not about we want market share for market share itself. That's not how we think about it. Our dominant driver is we want long-term profitability and high returns on the assets that we buy and the people we hire. So very customer-specific. Strategic customer that, you know, seeing a Liberty outperformance, wants to grow their market with Liberty, and we can reach a compromise in a pricing that makes sense for us, we'll do those. You know, customer that wants Liberty because we're better, but they're a weaker player or has an uncertain program, are we going to go do that because they really wanted us, but there's not a strategic reason at bad profitability? No. We have those dialogues. You know, we're pretty open, and we're open with you, and we're open with our suppliers and our customers. So, yeah, you asked a very good question, but, you know, things pull back and all that. Yeah, we will certainly pull back on deployment, and whether things are good or getting softer, it's really driven by where is this relationship? Who is this customer? Where might that relationship go? That's what drives our, and what is going to be the return over a little bit longer time frame. for those assets and those people.

That makes sense. Thanks, Chris. And then, to follow up for me, could you share any insights as to how you see the OneSTEM activity cadence unfolding from Q3 into Q4 relative to Liberties, if you're privy to that and if you'd be willing to share it with us?

You know, we certainly can't share, you know, any details about their projections and plans. Heck, we don't even know a lot of it ourselves. But I would say the rebound out of the downturn, they rebounded at a pretty good clip as well. You know, a month ago when we were looking at Dan, they were running a similar number of fleets to us.

Stands to reason that a similarity would – a parallel arc might continue to the fourth quarter then.

We don't know.

We don't know because, I mean, that sets the future. As we like to say, until we close, yeah, if you want to know something about the Somerset fleets, you really need to ask Stefan.

Fair enough. Thank you both.

Thank you. And our next question will be a follow-up from Mark Biannici with Cowan. Please go ahead.

Hey, thanks. Chris, you're regarded for good reason as a forward thinker in this sector. And, you know, I think it's something that hasn't come up on any of the earnings calls here thus far. And I think it should. You know, the election obviously coming up and there's you know, some concern as to what could happen to the industry from, you know, a further leaning left government. So just kind of curious how you see that playing out, you know, if you do see a Democrat win and a more Democratic Congress and maybe anything you guys are doing in terms of contingency planning around that.

Yeah, you know, it does matter, but Predictions are hard, particularly about the future. So we don't have electional turnout. We don't know what various parts, control of the presidency or the Senate, what that might mean for policy. But I would say you always have very heated rhetoric and sort of wild claims in elections. And you always see a different, somewhat more sober set of activity after elections. And as you well know, 10% of activity roughly has been on federal lands. Now there's permit backlogs built up there. Heck, I wrote an editorial three weeks ago on if you stopped permitting and drilling on federal lands, what would be the impact? And two things we can say for sure, increase greenhouse gas emission, increase pollution. Because banning things like that, it doesn't change demand or consumption of oil and gas at all. It just moves where it's produced, from in clean, tightly regulated production in the U.S. to somewhere else. Look at New Mexico. You know, New Mexico's rolled out the first free college tuition for everyone. You know, what's funding that? Oil and gas royalties and dominantly on federal lands. So we don't know what's going to happen, but, you know, I suspect – the outcome over the next few years, the activity level in our industry, at least in the near term, will not be as impacted as much by the election as most people think and emotions are running around.

Okay. Thanks for the perspective.

Thanks, Mark. Take care.

And at this time, I'm seeing no further questions. I would like to turn the conference back over to Mr. Wright for any closing remarks.

Just want to thank everyone for their time and interest today. And, again, thanks for everyone in these tough times. I thank the people within Liberty. I'm thrilled to be and humbled to be partners with the whole Liberty family. I'd say the same thing about our customers. Look, our customers, our suppliers, our partners across the board have shown character and resilience in the face of these challenges and an attitude that we're all in it together. So thanks to this fabulous industry, and thanks to everyone for their time today.

Take care. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your line.