ProPetro Holding Corp.

Good morning and welcome to the ProPetro Holding Corp. 3rd Quarter 2020 Conference Call. All participants will be in a 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. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Sam Sledge, Chief Strategy and Administrative Officer. Please go ahead.

Thanks, Brandon, and good morning, everyone. We appreciate your participation in today's call. With me today is Chief Executive Officer Philip Gobe, Chief Financial Officer David Shorlimer, and Senior Vice President of Operations Adam Munoz. Yesterday afternoon, we released our earnings announcement for the third quarter 2020. Please note that any comments we make on today's call regarding projections or our expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to several risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filings with the SEC. Also, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Finally, after our prepared remarks, we will hold a question and answer session. With that, I would like to turn the call over to Philip.

Thanks, Sam, and good morning, everyone. The past several months have been difficult for everyone given the impact of the global COVID-19 pandemic on our personal and professional lives. I want first to thank all of our employees for their continued efforts in following CDC guidelines and other governmental agencies to promote a healthy and safe work environment, not only for themselves, but for our customers, supply chain partners, and other stakeholders. As important, I want to once again say how much we appreciate our medical workers and first responders here in the Permian Basin for the selfless sacrifices they make day in and day out to ensure our well-being. Before we begin to discuss our results for the third quarter, I'd like to take the opportunity to welcome David Shorlimer to ProPetro's team. David knows the oilfield services space very well and most recently served as Executive Vice President Chief Financial Officer, Treasurer, and Secretary of Basic Energy Services. He brings with him more than 25 years of broad-based experience in senior-level positions in finance, technology, business process integration, strategic and organizational planning, M&A and capital market transactions, as well as a proven track record of ensuring strong corporate governance. We look forward to David's immediate and long-term contributions to ProPetro's success. I also want to take the opportunity to thank Darren Holdness for his dedication and hard work over the past year. Darren stepped in to provide critical leadership in our efforts to strengthen our finance and accounting operations, which has been critical in our ability to successfully navigate the impact of the global 19 pandemic to date. As important, Darren's many contributions including his guidance through the process that returned us to our current filing status with the SEC have helped lay a strong financial foundation for ProPetro as we move to an eventual market recovery. Turning attention to the third quarter, we were clearly pleased to see an increase in customer activity levels from the second quarter, more than doubling our average active fleet count. The thoughtful and decisive steps we took During the second quarter, it allowed us to streamline our operations without sacrificing our ability to respond as market conditions improved, which we began to see in June and continued through the third quarter. In addition to safeguarding the long-term health of our balance sheet, a key factor in our decision-making process, we prioritized protecting the core competencies of our business and providing customers unmatched execution at the well site. The strategic benefit of these efforts was evident in the third quarter as we rehired hundreds of teammates to support growing activity levels. Our ability to respond to quickly redeployed crews at historically high performance levels with minimal downtime spent onboarding these rehired teammates made a significant difference as activity ramped up in the third quarter. Our best-in-class operational and safety performance was on full display in the third quarter, and I want to thank all of our team members for their ongoing resilience. Customers remain squarely focused on utilizing the highest quality crews available in the industry. Our team's ability to stay nimble, to quickly and effectively respond to the needs of our customers is a premier point of differentiation in this business. Our customer-focused culture has allowed us to maintain market share at similar levels to the beginning of the year, which we expect to continue into 2021. To be clear, profitability is paramount, and we remain fully committed to improving margins and creating shareholder value. As evidenced, during the third quarter, we are pleased to once again generate free cash flow from operations. Complimenting our efforts to provide best-in-class execution at the well site, we will continue to promote the health of our balance sheet as it is vital to our success and will be a requirement in our sector to remain competitive. Our blue-tip customers are interested in working with companies that they can rely on for the long term, both operationally and commercially, and we view our solid financial position as a key differentiator for ProPetro. This is especially true as we navigate the ups and downs of the oil and gas industry as we move our way back to a much improved demand environment in the future. With that, I will turn the call over to David to discuss our financial performance. David. Thanks, Philip.

I want to first say how excited I am to join the ProPetro team. I've seen the team operate in the field and it is an impressive organization. ProPetro is well recognized as an industry leader that is respected by all parties in the value chain and I look forward to working closely with our board, Phillip, other members of executive management, and the entire ProPetro team as we continue to strive for excellence. Turning attention to the financial results of the third quarter, we were pleased to post higher revenues sequentially and generate free cash flow for the third quarter. More specifically, effective utilization for the third quarter was 8.5 fleets compared to four fleets in this year's second quarter. We currently expect fourth quarter effective utilization levels to remain flat with our third quarter exit rate, therefore yielding effective utilization in the fourth quarter between nine and 10 fleets. Total revenue was $133.7 million versus $106.1 million for the second quarter, with the increase primarily attributable to increased activity levels. Partially offsetting the overall increase was increased direct sourcing of select consumables by certain customers. In addition, we saw a $25.7 million decrease in idle fee revenue as we recorded $6.9 million in fees in the third quarter compared to $32.6 million in the preceding quarter. Excluding EIDL fees, our revenues increased 73% sequentially on improved fleet utilization. We expect fourth quarter EIDL fee revenue will be fairly flat with third quarter based on our current view of fourth quarter effective fleet utilization levels. Cost of services excluding depreciation and amortization for the third quarter was $99.6 million versus $68.2 million in the second quarter with the increase driven by higher activity levels in the third quarter. Third quarter general and administrative expense was $20.8 million compared to $20.3 million for the second quarter. Excluding non-recurring and non-cash stock-based compensation in both periods, G&A increased only slightly from $16.4 million for the second quarter to $16.8 million in the third quarter. Our net loss for the third quarter was $29.2 million or $0.29 loss per diluted share versus a second quarter net loss of $25.9 million or $0.26 loss per diluted share. Finally, adjusted EBITDA was $17.4 million for the third quarter compared to $25.4 million for the second quarter. The sequential decline in adjusted EBITDA was primarily due to our revenue mix normalizing from a heavier weighting of idle fees in the second quarter. However, if we exclude the impact of idle fees, adjusted EBITDA improved sequentially by nearly $18 million, driven by a sharp improvement in incremental EBITDA margins of 32%, highlighting our operating leverage coming off the weak second quarter. During the third quarter, we incurred $7.9 million in capital expenditures, all related to maintenance. Capital expenditures incurred for the nine months ended September 30 was $59.9 million, including $8.4 million spent on growth projects in the first half of 2020. As noted in our press release, we have lowered our outlook for full-year 2020 capital spending to below $85 million versus our previous expectation of below $100 million. This guidance would equate to CapEx spend in the fourth quarter of approximately $25 million, higher than our capital spending in the second and third quarters. This increase is primarily attributable to increase the activity, our equipment rotation program, as well as being prepared for potential 2021 activity increases. Looking at the balance sheet, As of September 30, we had total cash of $54 million versus $37 million as of June 30. At the end of the third quarter, we remained debt-free and had liquidity of $86 million, including cash and $32 million of available capacity on our revolving credit facility. Finally, I would note that our total liquidity as of October 31 was approximately $111 million comprised of $67 million in cash and $44 million of available capacity on the revolver. As Philip mentioned in his opening comments, the strength of our balance sheet is critical to our success, and in my new role as CFO, I am firmly committed to ensuring we maintain a solid financial position that provides maximum flexibility. Being debt-free and generating free cash flow is a key differentiator for ProPetro especially in this environment. We look forward to further leveraging our unique position in the marketplace as we continue to provide our customers unsurpassed quality and service in the Permian Basin, the most prolific producing region in the Entrez US market. Results during the third quarter reflect the unique positioning of the company that remains intact after the COVID-19 crisis. Number one, Strong capital discipline and cash flow performance with a zero debt balance sheet and strong liquidity. Two, a portfolio of some of the strongest customers in our industry, some of which have and are actively participating in the E&P industry consolidation, including a unique partnership with Pioneer Natural Resources, a leading Permian operator. And three, a passionate pursuit of industry-leading operational performance in the field with impressive pumping productivity in Q3 post-reactivations leading to strong sequential margin improvement. All of these attributes contributed to our impressive recovery from the prior quarter and we believe will position us for continued success in the future. With that, I will turn it back to Philip.

Thanks, David. Well, we've seen a meaningful recovery in activity from the low levels seen in the second quarter of the year. Our expectations of volatility and uncertainty were unchanged until there was a material increase in oil demand. We're encouraged to see continued substantial progress in both COVID-19 treatment programs and vaccine development, both of which are critical to returning to a more normal environment that will more substantially stimulate oil consumption. This in turn will hopefully drive crew prices higher and promote increased development by EMPs both here in the U.S. and abroad. As we navigate our course until that time, we will remain laser-focused on what we can control. This includes retaining a cost structure that is not dependent on price increases from customers to maintain or increase our returns. Over the years, we have taken pride in running a lean organization and will continue to do exactly that. Faced with the onset of the pandemic in the first half of the year, we escalated our efforts to ensure we not only survived, but also positioned ourselves to thrive as activity levels improved over time. ProPetro is clearly recognized for its ability to provide customers unmatched execution at the well site. Key to our success is remaining in close communication with our customers to better understand and anticipate their needs by helping them solve their technical problems at the well site. This approach has served us well over the past 15 years, and we believe it is now more important than ever. As we have discussed in the past, pressure pumping services and the equipment used to execute these services must continue to evolve if we want the industry to remain globally competitive. Because we fully expect to operate in a price environment that will continue to be challenged, it will require further improvement in process efficiencies, and we will continue to work closely with our customers to develop cost-effective solutions in support of our mutual long-term success. Regardless of the price environment, our customers expect further minimization of environmental impact of well-side operations through reduced greenhouse emissions and other considerations. As evidence of our commitment, we have made a significant investment in Durastem electric fleet technology. During the third quarter, we continue to test and develop the technology alongside our partner AF Global and plan to be in the field with a larger deployment in the coming days. I would note that our blue chip customer base remains extremely interested and excited about the prospects of Durastem and we are currently targeting to be in the market with a full electric Durst M fleet offering in 2021. Looking at the fourth quarter, we will continue to remain very selective on redeploying assets and crews and will only proceed with projects that meet our economic targets. Over the past several weeks, there have been several M&A announcements concerning further EMP consolidation in the Permian. Since going public in early 2017, we have continually discussed that Permian is transitioning to a full manufacturing mode environment. Industry consolidation, especially by larger customers operating in the region, materially accelerates this process. Bottom line, we believe this will be a net positive for ProPetro, given our Permian-centric focus and clear reputation for providing unsurpassed execution. at the well site. With that, I'd like to turn it over to Brandon for questions.

Thank you. 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 are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Sean Mecham with JP Morgan. Please go ahead.

Thank you. Hey, good morning.

Good morning.

So to start off, given the idle fees in the fourth quarter, they'll be comparable to 3Q. Active fleets look comparable. So it sounds like margins should be fairly comparable as well. So is that fair? And could you maybe just elaborate on that? October's activity levels versus the 4Q average and how you see the monthly cadence in November and December.

Hey, Sean, this is Sam. I'll take that one. Activity exit out of 3Q was right around 10 fleets. So we expect to work those 10 fleets basically totally through the fourth quarter. So the guidance of 9 to 10 effectively utilized fleets is probably calculating in a little bit of what we're seeing is just holiday seasonality around Thanksgiving and Christmas, which will, to your margin comment, probably provide a slight drag to profitability margins. We're still waiting through some of that with a few of our customers to see exactly what that's going to look like, but right now we're We're expecting to be taking a few days off around each holiday that will affect margin and utilization.

Got it. Thank you for that. That makes sense. And then looking ahead to 21, your customers are aiming to stabilize production off of 4Q20 levels. Looks like they'll need to ramp activity off of where they're going to exit the year. Do you broadly agree with that assessment? And just curious what type of visibility you have on activity from your customer's Early and 21.

Yeah, I'll start and maybe pass it over to Adam. I do believe that the customer's activity will continue at least stable, maybe with a slight nod towards increasing. Obviously, a lot depends on pricing right now. Given our quality of customers that we deal with, I believe most of them are primarily hedged, so if they believe it's a short-term Down taking pricings, it won't affect the activity at all. So bottom line, we see steady to maybe slightly increasing activity going into 21. Adam?

Yeah, I would just add to Phillip's comments that, you know, we have a number of RFQs out with different operators and we feel pretty positive that we'll, you know, maybe be able to win a couple of those. So that could lead to a slight increase.

Got it, understood. Okay, thanks very much.

Our next question comes from George O'Leary with Tudor Pickering Holt & Company. Please go ahead.

Morning, guys.

Hey, George.

The free cash flow generation during the quarter was impressive, and it seems like October has been a good month for you all as well. I wondered, given the higher CapEx levels, if you guys expect Free cash flow could be positive in the fourth quarter, and maybe you could walk us just through some of the moving pieces, working capital, CapEx, those items to help us kind of think about where free cash flow could settle out for the fourth.

Yeah, I think when you look into the fourth quarter, we think as we've spoken about our fleet utilization being essentially flat from the exit rate of the third quarter, that working capital should be pretty neutral. I think we also spoke about the CapEx increasing in the fourth quarter and you know that's going to be in anticipation of what Adam referred to some potential increases as we move into the first quarter so I think that it's going to be you know could be below where we had seen the third quarter free cash flow but I think we're going to try to continue to be neutral as we make those investments. And, you know, it's going to be dependent on our customers' performance and activity levels expected going into the first quarter.

Okay, great. That's helpful. And then, Sam, or Guy, just following up on Sean's question, you know, he mentioned in your response indicated that profitability could be flattish, and I appreciate that there will be some holiday downtime. and you're potentially carrying costs as you added fleets back during the quarter that you weren't necessarily carrying the entirety of Q3. But I just want to make sure I understood the response right. Given the higher fleet count and you likely get some fixed cost absorption plus you should have higher revenues if you have more fleets active and pricing is kind of flat lined at a bottom. is there the potential for annualized EBITDA per fleet, if you will, to increase quarter on quarter? Or when you were talking about margins being flattish, was that flattish with those September levels that you inked? Just frame that profitability for us a little bit more. I think that would be helpful.

Yeah, George, this is Sam. I think quite simply it's going to be a little bit of a challenge to hold or beat EBITDA Q3 EBITDA levels. And it's not really in particular due to any one thing, kind of a mix of a few things. Holiday seasonality is obviously a drag on profitability whenever that happens. And as we are pretty confident that we'll have the opportunity to add a fleet or two sometime in Q1, depending on the timing of those potential 2021 fleet ads, you could have some of that preparation work bleed into the back half of Q4, which could prove to be another drag from a CapEx standpoint that David talked about in an OpEx standpoint. So our goal would be to beat or exceed the same EBITDA levels on a per fleet basis, but it's going to be, we have some headwinds, I think, around that.

Okay, that's very helpful. I'll just sneak in one more if I could. Just on that Bidding behavior front, it seemed like you were seeing a lot of bids in and around a similar number from the competition, and then you have a few bad actors that would come in well below that tight spread of bids. Is that still the case, or has some of that bad bidding behavior abated at all? How would you describe when you put in a bid, what that scatterplot of bids looks like?

Yeah, this is Adam, George. I would say, yeah, you probably still have some of that going on, some of that bad bidding behavior just due to the fact of the tight market we're in right now as far as work available and being bid out for. But we stay pretty confident on bidding on the work on potential operators that still value the high performance of the frack crews that we can offer and the safety efficiency that we've been providing to our current customers.

Our next question comes from Ian McPherson with Simmons. Please go ahead.

Thank you. Good morning. The PXC Parsley deal, you know, in theory – should be accretive for your share. Could you remind us what work you've done with Parsa in the past? And I don't think we're talking large ads, you know, basin wide for 2021, but what do you think your opportunity is to grow share, you know, as you're well aligned with at least one and maybe more than one operator who are consolidating the basin?

Yeah, Ian, this is Sam. Interestingly enough, we probably have a longer operating history with Parsley than we do Pioneer. Our relationship with Parsley dates back quite a ways. We are not currently working for Parsley today, but if we continue to satisfy Pioneer's needs, we think that might be an opportunity to work for Work on that acreage moving forward, but that remains to be seen. But we feel confident about that. Obviously, very confident in our ability to operate under the pioneer planning and day-to-day operations. That's been a great partnership for us as pioneers provided a lot of value in their ability to be very efficient. And I think that we've been efficient as well. It's been a true win-win for the last couple of years.

And I assume if and when activity does resume on acquired assets, that that activity is not defined by your current minimum volume agreement with Pioneer on a legacy basis, that would be incremental? Or is that not necessarily the case?

I'm not sure I totally understand your question, Ian.

Well, did your... Do your minimum utilization, does your minimum framework with Pioneer contemplate activity on additional subsequently acquired assets, acreage?

Yeah, I don't know if there's a minimum threshold. It's just a number of fleets that we are required to provide to Pioneer at any given time. So it'll be mostly just dependent on their activity as it moves up and down underneath the acreage that they're operating. Okay.

Follow up for me, I was going to ask also, there's a well-reasoned thesis for pressure pumping that pricing will move when warm stack capacity is exhausted and we move into more expensive deployments of cold stacked equipment that will require that higher pricing. Do you have a view on where we are in that regard and how much warm stack capacity needs to be absorbed before you guys get a pricing catalyst? whether that's middle of next year or plus or minus around that time frame?

As far as active fleet counts getting up and people having to redeploy unused equipment, I couldn't give you an exact number of what each of our competitors still have sitting on the fence warm stacked. We're just going to continue to attack that just by being... just sound on our performance and continue to attract work that gives us a rate of return at the current pricing we have and just see where that leads us.

Yeah, Ian, this is Sam. I'll just add to that. I think what's hard to kind of pinpoint an accurate answer to that question as we sit here today is because we watch our competitors and our peers employ various techniques to keep costs down and keep efficiencies high. You see deferred maintenance, you see cannibalization, and then on the other end of the spectrum you see players that are continually reinvesting and keeping their equipment ready at all times. You're usually on average bidding against somebody different with every customer. A little bit of a mixed bag there, but no news to you. The more activity there is, the more utilization there is, the more of a potential tailwind that is the pricing just overall.

Yeah, Ian, probably the only little note is the RFQs that we are participating in right now do not have a shortage of bidders seeking that work, so I don't believe we're at that point yet, but hopefully we're getting there soon.

Understood, Phillip and Sam. I know that's not a black and white question, and I think your answer was very helpful. So I'll pass it over. Thanks.

Our next question comes from Cameron Lockridge with Stevens, Inc. Please go ahead.

Hey, good morning. Thanks for taking my questions. Good morning, Cameron. So I was hoping we could circle back and talk about Durastem and the ESG-related kind of movement, you know, call for ESG-related solutions. Equipment at the well site. Great to hear the plans you guys have in place for Durastem going forward. I think we're all happy to hear about that. How should we think about ProPetro's equipment as it stands today, ex-Durastem? And in order to stay competitive going forward, do you think any further investment in whether it's E-frac or dual fuel will be necessary, just given where the market's headed?

Yeah, Cameron, this is Phillip. Obviously, we're seeing more and more RFQs come out asking for tier four or electric fleet, you know, ESG-friendly fleets. The answer is there will be investment made. I think the real question is timing of that investment. Right now, I think we feel relatively confident that most of that equipment is fully utilized. and so therefore it'll have to be new equipment coming on. We're just not, I think we're in one of the better positions to make an investment and maybe we will. But I don't think it's an environment that's gonna be easy for the pressure pumpers to step up at least in this pricing environment to meet the demand unless they get some type of contractual commitment to help pay for some of that cost or some pricing relief. Again, I don't want to say that ESG is not here. It's here. It's coming. And investment is just a timing issue. And right now, the timing doesn't look good, in my opinion, for anyone to make those investments.

Cameron, this is Sam. The only thing I'll add on top of that is just from like a competitive perspective, having a debt-free balance sheet and a and the ability to generate free cash flow even in these depressed activity levels is going to be vital to having the opportunity to reinvest in the future. We are firm believers that equipment offerings are changing today and they'll continue to change as we move forward for ESG reasons, for cost reasons, efficiency reasons, kind of all the above. So we think that it's It's going to be almost your ticket to admission to be able to reinvest and having the ability to generate cash flow with a debt-free balance sheet.

Yeah, I think that's fair. Thank you. Okay. And then for my next question, I just wanted to ask, maybe going back to the commentary around E&P consolidation and all the deals that have been announced this past quarter. I think it kind of begs the question, you know, what happens at the service level, particularly in pressure pumping, you know, with supply and demand sitting where it's at right now. You know, whether or not ProPetro participates, I guess, I mean, that's part of my question, but really, just in general, how do you guys see that playing out going forward? Do you see a commensurate increase in M&A at the service level, or will it be more muted? Just, you know, how do you guys see that kind of going forward?

Well, you know, I think consolidation or just taking capacity out of the market is key. How that happens, consolidation isn't the only way that happens. We're seeing a flood of bankruptcies and distressed assets. That's one way to thin out the market. I think from my perspective, the most difficult thing as ProPetro looks at whether consolidation makes sense for us is There just aren't that many healthy pumpers out there, and for us to consolidate just for the sake of consolidation does not make sense. Somewhere along the way, our shareholders have to benefit for that. Having said that, there are some things that can make sense. We have looked at a number of things, and we'll continue to look at them, but at the end of the day, I don't think it feels the same to me as the EMP. It's a lot more distressed. and many other companies on the oilfield service side.

And Cameron, this is David. Just to add to that, you know, we're definitely seeing consolidation on the E&P side and a lot of the conversation is about relevance of companies with, you know, certain market cap greater than $10 billion has been referenced and they do have benefits of scale. There's no question about it. But they also want to have options. and so there's a little bit of a different dynamic that's in play for service companies. We are currently a service company that in our position we're a very strong operator in the Permian Basin with very strong customer relationships and we're generating free cash flow. So we're going to protect that position, we're going to protect our balance sheet, but we're also going to take a look at opportunities if they arise and meet those conditions.

Okay. Got it. That's helpful. Thank you. I'll turn it back.

Our next question comes from John Daniel with Daniel Energy Partners. Please go ahead.

Good morning, guys. Question for Adam. You mentioned that you're participating in some RFQs now, which could lead to incremental work. Not trying to put you on the spot, but I will. Can you say if the quoting that you're providing for those quotes is below or at or above Spot pricing, extra pioneer work?

It's probably just kind of stayed the same, stayed flat of all our pricing, definitely amongst all the crews that we have, just to know that we can generate the return that we need to properly deploy that fleet or the additional fleet and hire on the additional personnel. So definitely not chasing anything out there at spot-type pricing. We feel that just doesn't put us in a win-win there.

Got it. And let's assume you guys are blessed and have another, call it, two fleet opportunity in Q1. What type of, you know, fleet make ready expenses, whatever we want to call them, what would you anticipate that being on a per fleet basis? That's all I've got.

John, this is David. You know, we've spoken in the past about annual maintenance capex for fleets between six and eight million dollars on an annualized basis. The number that we referenced regarding fourth quarter CapEx of about 25 million does have some anticipation of the potential of being awarded some of these RFPs. So I think that anticipates the potential opportunity there. Okay. Thank you very much.

Our next question comes from Mark Benici.

with Catwin.

Please go ahead.

Hey, thanks. Following on to John's question about a couple fleet increase in the first quarter, if that is in fact kind of the opportunity that you guys have, how sensitive are those RFPs to the current commodity price? We've seen a lot of swing in futures here in the last A couple weeks, and I'm getting some questions from investors if some of the guidance that companies have sort of put out there and some of the plans that some of the EMPs have in terms of getting to this sort of maintaining fourth quarter production levels works with where the commodity is. So can you talk to how you guys see that just in terms of sensitivity?

Well, the way I would look at that more is what's your customer base look like and how I understand your question whether people or operators will start to get tentative about continuing the activity levels they're at given that pricing doesn't seem to be able to stabilize at 40 or above. But again, I'll say I think if the operators we're working for view it as a short-term issue, then I wouldn't expect activity to change at all and it might actually ramp. mainly because they're hedged through that period of time but that's speaking of our customer base but if they view it as a long-term trend that price is not going to get back into the 40s or the European shutdown on the pandemic is going to lead to a further slowing of the U.S. and then I think we'll see some activity start to drop off but the way premature to tilt either way on that right now but I don't think we're getting any indication from any of our customers that there's a potential knockdown in activity coming.

Okay, good to hear. I guess maybe related to that, the rig count increase that we've seen lately in the Permian has been largely privates. Is the opportunity set you're looking at Is it skewed more towards privates or publics, and do you see any difference in the way either of those cohorts would behave?

Mark, this is Sam. I think it's probably a little bit of a mix of both. We've had a healthy mix of both for the last few years, probably a little more tilted towards the publics just from a scale standpoint. But many of the privates that we work for are larger than a lot of publics in the Permian in terms of acreage positions and activity levels. So they are operating very similar to public companies. So I wouldn't say it's necessarily more one or the other at this point from our perspective.

Yep. Got it. Thanks, Sam.

I'll turn it back to our next question. comes from Chris Boy with Wells Fargo. Please go ahead.

Thanks. Good morning. Good morning. Just to check the box here, but obviously you're very committed to the Permian, especially the Midland, but just wanted to check, do you have any pull from customers or maybe pull related to M&A for expansion outside of the Permian or maybe more so into the Delaware? Just curious if there's any shift in strategy and focus especially considering that growth in fleets in 2021 doesn't look like it's going to be too huge. Just curious if you would shift and entertain entry into different basins.

Well, Delaware is part of the Permian, and we definitely have worked there, so Delaware is not off our view of where the Permian Basin is. We have on occasion done work outside the Permian Basin. I think we've been down in South Texas. But that's highly dependent on what the customer's willing to do in terms of commitment to activity and pricing. So we're not opposed to taking work out of the Permian. If you're talking about trying to go out and establish a presence in a new basin at this point in time, I think that's a heavy lift to try to go in Thank you for joining us. But at this point, I don't think we have any plans to get outside of the Permian Basin.

Okay, thanks. That's helpful. And then my follow-up, maybe on the CapEx front, I guess you called out the $68 million per fleet, and then technology, ESG-type investments, depending on demand and visibility. But just curious, if we think about 2021, should we just take the fleet count that we have in mind, maybe it's 12 fleets or something like that, and multiply it? by the six to eight million, or do you have visibility for an additional chunk of CapEx related to corporate or other projects that you already have a plan for of some kind?

Chris, this is Sam. I'd probably just plug eight million on maintenance CapEx times your activity assumptions, just like you mentioned. Until we see the market Thank you for joining us.

We're going to have a significant amount of capacity of ESG equipment that we'll be able to utilize with customers. And so, you know, just want to make sure we remind everybody the potential capacity that we would have there to access ESG customers.

Got it. Thank you.

As a reminder, if you would like to ask a question, please press star then 1. Our next question comes from Stephen Gingaro with Stiefel. Please go ahead.

Thanks. Good morning, gentlemen. Two quick ones. One you may have touched on a bit, but the first one, you mentioned the sort of increased outsourcing in the quarter of some of the consumables. Is that a trend, or do you think that's one-offish in the fourth quarter?

Stephen, this is Sam. It was probably in the third quarter more of just a customer mix as activity ramped back up between customers that we have sourced for traditionally and customers that have been sourcing something like sand for themselves. As everyone is well aware, the sand market nationwide has been very depressed and you have spot prices that have moved Well below contract pricing in most instances, not just for us, but for many of our peers as well. We see a lot of our customers and operators in the Permian taking advantage of this depressed spot pricing environment in the Permian regional sand market. There's probably some of that that could persist over the medium term, but as activity comes back up there and spot sand prices just start to grind even ever so slightly higher, we'll probably have the opportunity to begin to source a little bit more sand. So hard to say if it's just a short-term blip or a long-term trend. I can tell you that as we communicate, collaborate with our customers, our goal is to preserve the bottom line. from on a fleet level basis. So our customers are well aware as we stay in front of them when sourcing changes, whether it's more sourcing going our way or our customer's way, we still have a return to make on our people and our equipment, other consumables that we are sourcing. So although it is something to navigate, I think our operations sales team's done a great job educating the customer in terms of what we require on the bottom line.

I guess the only other thing I might add on that in terms of customer self-sourcing is I think with the pressure on for cost for the operators, quite often they look to their supply chain, they look at that and they look at the price of sand and what they can get it for and then They make that decision to self-source, but the critical part of that is the logistics of it. And we have seen customers go down that path and find out that the sand itself is not really the critical element of that self-sourcing. It's whether you can get it to location on time, when it's ready, and whether or not companies factor that into their equation when they decide to self-source is kind of a critical issue. So is it a trend? Yeah, I think it's a trend, but is it a long-term trend? That I don't know.

Okay, great. That's a very helpful call. Thank you, gentlemen.

This concludes our question and answer session. I would like to turn the conference back over to Philip Gobe for any closing remarks.

All right, Brandon, thank you, and thanks again, everyone. We appreciate you joining us this morning. Despite a continued Challenging backdrop driven by the impacts of COVID-19, Petro remains squarely focused on ensuring we remain ideally positioned for the current environment as all demand materially recovers in the future. Given this backdrop, as in the past, we will leverage the best team in the industry as we continue to work closely with our customers, supply chain partners, and other stakeholders to ensure our collective long-term success. And finally, in the spirit of Election Day, we'd encourage all of you to get out and vote if you haven't already done so. Thanks again for joining us, and we look forward to speaking with everybody again at the fourth quarter call. Thank you.

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