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Edited Transcript of LBRT.N earnings conference call or presentation 30-Oct-19 2:00pm GMT

Q3 2019 Liberty Oilfield Services Inc Earnings Call

Nov 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Liberty Oilfield Services Inc earnings conference call or presentation Wednesday, October 30, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher A. Wright

Liberty Oilfield Services Inc. - Founder, Chairman & CEO

* Michael Stock

Liberty Oilfield Services Inc. - CFO & Treasurer

* Ron Gusek

Liberty Oilfield Services Inc. - President

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Conference Call Participants

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* Blake Geelhoed Gendron

Wolfe Research, LLC - SVP of Equity Research

* Chase Mulvehill

BofA Merrill Lynch, Research Division - Research Analyst

* Christopher F. Voie

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* George Michael O'Leary

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research

* John David Anderson

Barclays Bank PLC, Research Division - Director and Senior North America Oilfield Services & Equipment Analyst

* John Matthew Daniel

Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service

* Sean Christopher Meakim

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Stephen David Gengaro

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst

* Thomas Patrick Curran

B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst

* Waqar Mustafa Syed

AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research

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Presentation

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Operator [1]

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Good morning and welcome to the Liberty Oilfield Services Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note that 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 current conditions that are subject to certain risks and uncertainties that are detailed in company's earnings release and other public filings.

Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA and pretax return on capital employed, are not a substitute for GAAP measures and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of pretax 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's CEO, Chris Wright. Please go ahead.

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [2]

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Good morning, everyone, and thank you for joining us. We're pleased to discuss with you today our third quarter 2019 results. We're happy to have delivered another solid quarter of operational results in the face of macro headwinds that started to impact Liberty's market mid-way through the quarter.

The year-end slowdown is starting earlier this year. Liberty fully diluted earnings per share in the third quarter, up $0.15, were down compared to the $0.32 in the second quarter of 2019. Revenue in the quarter decreased 5% to $515 million and adjusted EBITDA decreased 24% to $70 million, each as compared to the second quarter of 2019.

Strong free cash flow generation for the quarter drove $107 million increase in cash on hand to $140 million at end of Q3. Available liquidity at quarter-end was $344 million, and we have a positive net cash position as our cash balance was greater than our long-term debt by $34 million.

We were able to deliver this financial performance despite a slowdown in the completion's market and an oversupply of frac fleets, both of which resulted in downward pricing pressure. Continued executional excellence of our operations and supply chain teams, plus close coordination with our customers on scheduling, enables Liberty to navigate the challenging marketplace while maintaining our ability to drive returns on capital. Central to achieving long-term success are through cycle superior returns on invested capital, maintaining a strong balance sheet and prudently investing for the future.

For the 12 months ended September 30, 2019, we achieved pretax return on capital employed of 17%, generated significant free cash flow and returned approximately $75 million to our shareholders. As always, the Liberty team continues to focus on driving technology innovations and high-efficiency operations, which are a win for Liberty and a win for our customers. This cements the strong relationships that we have been built with our customers and helps them bring the most cost-effective barrel of production to market.

One example of this is our new Well Watch service, which allows real-time pressure sensing in offset wells to monitor impending frac kits. Real-time data monitoring, combined with rigged-in pumps on offset wells helps reduce frac kits in the short term and provides the necessary data to develop optimal strategies for well spacing and frac sizing for efficient pad development and managing parent-child well interactions.

Our results for the first 9 months of 2019 reflect a strong demand for Liberty's differential frac services. In the first 9 months of 2019, we pumped the same volume of sand than we did throughout the full year of 2018. Total industry frac stages in North America are projected to be up only marginally year-over-year. However, efficiency gains across the industry have raised the number of frac stages completed by each fleet by 10% to 20%, which implies a 10% or so decrease in the required active frac fleets. The slowing pace of frac activity in the second half of 2019 is leading to a further reduction of demand for frac fleets, resulting in pricing pressure on services.

We expect that the industry slowdown in Q4 completions may be more severe this year than it was last year as operators face capital constraints and manage completions to fix capital expenditure budgets. This will cause gaps in the completion schedule and negatively affect overall fleet utilization. Future activity projections in the industry are dependent on multiple factors, including commodity price, availability of capital and offtake capacity in each basin. Based on visibility into our customers' initial thoughts for the activity pipeline for 2020, we believe demand for Liberty fleets will be strong in the start of the new budget year. However, we currently have no plans to expand our fleet count.

We are seeing reduction in the supply staff frac fleets in the market and even announcements of permanent retirements of older equipment. This is helpful, but there continues to be an oversupply of frac fleets in the market, which is holding down pricing. We would not expect pricing to improve until supply of actively staffed frac equipment better balances with demand.

Liberty is focused on ESG issues from day 1. Governance and compensation practices at Liberty have always been focused on transparency and maximizing alignment. Liberty is also a first mover in driving in an environmental and socially conscious approach to hydraulic fracturing. We have partnered with our customers to advance ESG solutions from the start, as demonstrated by our market-leading low emission quiet fleets. Every Liberty new-built fleet since 2013 has been either able to run on natural gas or is the latest generation tier 4 clean diesel engine with dramatically reduced emissions. We're in constant dialogue with our customers about how to move the ESG profile of frac operations forward and as such we are looking to upgrade some existing fleets as part of normal maintenance cycle in 2020 to tier 4 DGB dual fuel engines. These units will provide the latest and natural gas driven power technology available in the oilfield.

Being a leader in ESG goes beyond emissions, and Liberty is focused on leading the industry in all aspects. These include safe and efficient operations, dust and noise mitigation, traffic management and environmentally safe fluid systems to name just a few. The partnerships that we've developed with the communities that we live and work in are unique and provides a necessary insight into how best to provide solutions to specific challenges that are operator partners face.

Our DNA drives investment in people, technology and systems to grow our competitive advantage. We believe that our premium service quality, coupled with basin and customer diversity, provides the company the opportunity to continue generating strong returns on capital employed.

Liberty continues to focus on driving technology innovations in both fracture design and operational execution, which are a win for liberty and a win for our customers. Our comprehensive analysis efforts on parent-child well relationships with our proprietary database and multivariate analysis techniques have expanded to include the Well Watch fuel data collection and monitoring efforts mentioned earlier.

Liberty's financial results, favorable long-term outlook and strong balance sheet position us well in today's challenging environment. Liberty is committed to compounding shareholder value by reinvesting cash flow at high rates of return and returning cash to shareholders as appropriate. We're excited by the opportunities in front of us as the sheer revolution matures and the benefits that this brings to our industry and the country as a whole.

I will now hand the call over to Michael Stock, our CFO, to discuss our financial results.

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [3]

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Good morning, everyone. We're pleased with the performance of our team in the third quarter during what were challenging times for the industry. The Liberty team continues to execute at an unparalleled level and drives customers to want Liberty as their partner. The third quarter 2019 revenue decreased 5% to $515 million from $542 million in the same quarter of 2019. Net income after tax decreased 54% to $19 million in the third quarter compared to $41 million in the second quarter. Fully diluted earnings per share decreased 47% to $0.15 a share in the third quarter compared to $0.32 in the second quarter of 2019.

Third quarter adjusted EBITDA decreased 24% to $70 million from $92 million in the second quarter, and annualized adjusted EBITDA per fleet was $12.1 million in the third quarter compared to $16.1 million in the second quarter. The major driver in the quarterly decline in EBITDA per fleet was a 3 percentage point drop in gross margin. The reduction in gross margin was driven by slowing utilization in the second half of the quarter and pricing pressure due to an oversupply of the equipment in the market.

General and administrative expense totaled $25 million for the quarter or 5% of revenues and included noncash stock-based compensation of $2.4 million. Interest expense and associated fees totaled $3.7 million for the quarter compared to $3.6 million in the prior quarter.

Third quarter income tax expense totaled $4 million compared to $7.1 million in the second quarter. We ended the quarter with a cash balance of $140 million at a net cash position of $34 million. At quarter end, we had no borrowings drawn on the ABL facility, and total liquidity, including the $204 million available under that credit facility, was $344 million.

Liberty is a returns-focused company, and at the end of the day sustaining cash flows from investment are what drive returns. Sustaining cash flow per fleet is a metric we use to measure through cycle fleet profitability. We find sustaining cash flow per fleet is the expected annualized adjusted EBITDA per fleet less our expected annual maintenance CapEx per fleet.

During the third quarter, our year-to-date annualized adjusted EBITDA per fleet was $14.5 million. As previously announced, our expected annual maintenance capital for this year is approximately $3 million per fleet.

As we have discussed previously, in order to seek the best long-term returns for our shareholders, we will follow a prudent strategy of maintaining a strong balance sheet, investing in compelling growth opportunities and returning capital to shareholders, where appropriate. In the third quarter, we paid a dividend to our shareholders and distributions to unitholders of $0.05 per share for total dividends and distributions of $5.6 million. Our Board of Directors announced on October 22, 2019, a cash dividend of $0.05 per share of Class A common stock to be paid on December 20, 2019, to holders of record as of December 6, 2019. A distribution of $0.05 per unit has also been approved for holders of units at Liberty LLC, which will use the same record on payment date.

As we look forward, we are very positive about how Liberty is positioned to continue its mission to drive best-in-class returns. We're a company that's laser focused on efficiency and delivering cost-effective solutions and services to our customers. This singular focus and our application of technology to all aspects of our operations empowers us to reduce our cost of delivery in multiple areas, such as unique equipment solutions to provide improved pumping efficiency and reduce the cost of repairs and maintenance, significant operational fuel savings due to our ability to burn natural gas, close customer coordination combined with advanced logistics management enables us to more accurately forecast sand requirements and optimize logistics. This allows us to work with our partners to deliver the lowest cost of sand-to-well site for our clients. Liberty's innovation powers our ability to deliver industry-leading returns.

And with that, I'll turn the call back to Chris before we open to Q&A.

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [4]

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While the market is currently oversupplied with frac capacity, positive trends are emerging. Many of our competitors have idled significant capacity and announced permanent disposal of older frac equipment. Both of these trends are necessary for the frac market to balance. The biggest driver of the current oversupply of frac capacity has been increased efficiency of active frac fleets. Liberty has been a leader in efficiency. Less efficient fleets and crews are being driven from the marketplace. The U.S. rig count has declined roughly 20% over the last year. Not surprisingly, the rate of growth in U.S. oil production has also declined significantly. With this trend, we may see U.S. oil production plateau in early 2020, which could help tighten oil markets and provide upward bias on oil prices.

While timing is uncertain, we appear to be making progress towards a healthier U.S. oil and gas industry as supply of frac fleets and oil are both facing significant downward pressure. As I said last quarter, the cure is twofold: more disciplined investing and time.

Liberty was built from day 1 not only to survive the tough times but to take advantage of the inevitable market cycles. During the top 2015, 2016 downturn, Liberty significantly grew our market share, took advantage of market dislocations to grow our capacity and deepened our customer and supplier relationships. These actions play to our advantage during the subsequent recovery. In short, market cycles can present unique opportunities as well as challenges.

I'll now open it up for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question is from John Daniel with Simmons Energy.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [2]

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First on -- just want to dig into the tier 4 DGB comment you made earlier about having more efficient engine conversion, can you quantify for us how many fleets might be outfitted with these engines? And then, secondly, we convert tier 2 to fleets at tier 4 DGB or tier 4 to tier 4 DGB?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [3]

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So John, there's trade-offs in all of those. So the short answer is, it all depends on circumstances. I'd say, we'll convert at least 1 fleet, could be 1 or 2 more than that. It depends on market. It depends on demand. And then the actual which you transition to, which depends on the circumstances. But all very likely what we'll be converting to tier 4 DGB will be older tier 2 fleets.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [4]

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Okay. Got it. And then is it possible to get some color on effective utilization of the fleets in Q3 and Q2. I know the active was 23 but just want to look at the effective utilization?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [5]

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I would say, through Q2 it was quite solid. There's always schedule changes and slips so it's an inevitable certain amount of white space. We're not guys that sort of take theoretical limits and then come lower numbers from there. And I would say, it was quite strong through most of Q3 as well and then starting to struggle later in the quarter with full utilization.

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Operator [6]

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The next question is from Sean Meakim with JPMorgan.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [7]

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To your point on -- in your opening remarks, efficiencies are creating random capacity within the active frac fleets. So looking forward, how much room is there to run? And I suppose, specifically in the Permian where there seems to be the most still opportunity for service efficiency, how much more of that cycle do you see out there?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [8]

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I would say, we're definitely coming into a period of diminishing returns. The low-hanging fruit, frankly, the stuff people should have been doing years ago, most of that is gone. I think growth and efficiency from here going forward is certainly at a significantly slower rate than it's been in the past few years. We've got a huge run-up in that. We pushed down a lot about old or less competent fleets. That in itself, with no operational changes, raises the average efficiency of frac fleets. So now you've got a leaner number of fleets running, they're higher quality, you've got customers that are almost across-the-board now more focused on efficiency and throughput.

I would say, our throughput in the Permian has been outstanding. In fact, it's probably the highest of any basin we have today. So look, we're always going to strive to get better, I think you'll see Liberty get a little better, but I don't think you'll see the huge increases in average frac efficiency the next 2 years than you've seen in the last 2 years.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [9]

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Thank you. That makes a lot of sense. And then just curious, how much confidence do you have in the strong demand comment in the release for 1Q '20? Is that in comparison to 1Q '19 or maintenance -- is this kind of a relative comment compared to what may be a worse exit of 4Q '19? And just how should we think about operating leverage and the influence on EBITDA per fleet the next couple of quarters here?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [10]

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With the come in of strong demand in Q1 2020, that's based on where we are today, we're based on Q4, we have a significant slowdown at the end of this year just as we did last year, we don't think that's the new normal, we think we'll be meaningfully busier in Q1 than we are in the current quarter, but the marketplace is tough. Our goal is to keep our relationships with our customers alive; strengthen, grow market share as we see opportunities for the right customers we want to add and keep all the fleets busy in a softening market.

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [11]

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Yes. Sean, I think what we're seeing here is I think you're going to see utilization pick up of all the same way that it did last year. Kind of it's been definitely softer but at times different budget exhaustion that everybody is finding, but a little bit capital constraints as well on the private side, so that's also causing a problem to Q4.

So -- but you're going to see the same utilization pick up. I think the wild card at the moment is probably what is the price. Price at the moment is something that is sort of under negotiation and that's really dependent on how much supply leads to market where sort of the market dynamics roll out through this kind of pricing negotiations phase during Q4 for all the clients. So hopefully we'll see discipline across the industry. We're not seeing -- we're seeing too much looseness at the moment, but we shall see with the days up. Yes. As far as the activity, I think we're going to see a very similar drop in activity in Q4 to -- from Q4 to -- in Q4 from Q3 like last year, maybe a little bit more. And I think we're going to see the same pickup in activity Q1 next year, by the looks of it, from Q4. The only question there is, what's the relative price difference for that will be coming into that earning side.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [12]

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Thank you for that. One last question, if I could, it's just -- is there a scenario next year in which you see yourself stacking fleets?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [13]

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I think it's unlikely, Sean. We've not done that before, so I think it's unlikely. Our goal in soft markets, in downturn, is to grow market share, build our customer relationships and get better at what we do. We don't control the macro pricing of the marketplace, and we take a full through cycle view of our earnings, our return on capital, and hence we follow a meaningfully different downturn strategy than the marketplace as a whole, and I wouldn't expect that to change here.

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Operator [14]

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Next question is from the Blake Gendron with Wolfe Research.

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Blake Geelhoed Gendron, Wolfe Research, LLC - SVP of Equity Research [15]

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Just want to follow up on your comments about capital allocation and downturn. Were the buybacks now compete in terms of returns, just given the visibility that you have in the free cash flow next year outside of perhaps the seasonality that we're going to expect over the coming years in the back half, do buybacks make sense, just given that we're kind of in a retrenchment wait-and-see mode for E&P spending next?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [16]

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Yes. I think you added it in the right qualifier there at the end. You know what valuation perspective, buybacks look highly attractive right now, but we're in a mode right now where it's not unclear exactly how this cycle unfolds. So in the face of significant uncertainty, we better to err on the cautious side.

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Blake Geelhoed Gendron, Wolfe Research, LLC - SVP of Equity Research [17]

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Okay. That makes sense. And you've been a pretty vocal consolidator in the past and you made comments recently about the availability of horsepower in the market now. I'm just wondering, we've heard from your peers about scrapping and disposing of equipment, I would imagine a lot of horsepower has come to market. When you evaluate that horsepower, can you give us an idea of how much is viable, either from a tier 4 perspective or dual fuel perspective and then also to -- given the intensity that we're seeing across all the major shale basins?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [18]

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We -- I would say, we have a significantly higher than the industry as a whole proportion of dual fuel, like, probably the highest. Our tier 4 percentage is pretty high as well, so pretty much everything we look at is meaningfully lower on those 2 spectrums. And so you've got to look at what's the total value of the equipment going forward, and that's a different profile for different asset sets. But you're right, there's a lot of equipment out there. We engage. We look at most everything that potentially has appeal. But it's -- yes, it takes unique circumstances and maybe we're getting close to those for things that make sense. But yes, it's not a single number, it's the whole package, the whole how it fits in the future and what makes sense or what doesn't.

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Operator [19]

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The next question is from David Anderson with Barclays.

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John David Anderson, Barclays Bank PLC, Research Division - Director and Senior North America Oilfield Services & Equipment Analyst [20]

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You talked about your comments just a few minutes ago by kind of managing through the cycles and kind of your approach to this. The second year in a row now, we're seeing kind of a big kind of change from first half to second half in terms of spending from the E&Ps, looks we're going to see it again next year. How is that sort of -- 2 years is really soon to be making a trend here, how does that change sort of your approach as you think about the market? And how do you kind of smooth this out? Is there any way to sort of smooth out this kind of -- which seems to be crazy spending pattern, which is what we're seeing on the E&Ps?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [21]

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It's a great question. We have -- just to get different incentives a set for E&Ps, right? If you're going to spend that smaller amount of budget, you're going to be rewarded on production growth, it's just logical to front load you're spending a little bit. And you're right, that causes dislocations later in the year that the industry is not historically had or certainly not had to the degree that we have today. I think with time, you'll see some offsetting factors. There's still a large amount of activity that's among the privates, right? If you're a private company, I think if you see this as a pattern, I'm going to do the opposite. I'm going to back load activity because equipment is available then, it's easier to get on schedules. So I think you'll see some offset there.

You've also got the majors that are not a giant part of spending right now, but they're growing rapidly. They're going to become a larger percent of the total development CapEx, and they don't have the same mentality. They have a balance sheet and a size and a scale that has led to flatter, more constant activity levels. I think they also recognize the efficiency and safety benefits for running continuous operations.

I would say, I think everyone recognizes that, but there is a suite of companies in sort of midsize or smaller publics that know that's true, that have historically done that but are struggling with it right now. Some of that probably gets -- probably becomes to a little bit better with time, but I think there is a basic challenge there, but you've got majors and privates that I think, again, after the industry has another year or 2 adapt to this, I think probably mitigates the magnitude of the dislocation we saw last year and that we're seeing this year.

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John David Anderson, Barclays Bank PLC, Research Division - Director and Senior North America Oilfield Services & Equipment Analyst [22]

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Great. Thanks. Interesting answer. You're no stranger to the regulatory environment, that's for sure, being out there in Colorado, a lot of talk, of course, lately about potential change in administration, what could happen, certain woman out there says she wants to ban fracking and kind of looking at federal lands. Can you just talk about your exposure to customers on -- working on federal lands and maybe how do you think this could potentially play out over the next kind of 12 months? Do you think things start moving around? Are operators kind of even thinking about that yet or is it too premature?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [23]

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Well, everybody considers -- certainly our customers consider what could happen, what wild cards are out there. And certainly, that is one of them I would say actively considered. The places with meaningful federal lands, the Powder River Basin, in the New Mexico part of the Delaware. Fortunately, certainly, in the Delaware and in the vast majority of the shale basins, they're dominantly on private lands. So they're federal lands, they're not trivial in scope, but they're not -- there's nowhere there are large part of activity except in the Powder River Basin. Even the Powder, of course, has tons of private and state land. And then there's large, long-term plant, these federal units that get created.

So certainly, it would be a negative. Certainly, it would be a sentiment problem, and certainly planning would have to evolve around that. But if we saw a meaningful change on federal lands, I think that takes some time to come in and people will shift their activity onto nonfederal land. It opens up a big battle, but doesn't cause a collapse in industry activity soon after election. I think that's highly unlikely.

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John David Anderson, Barclays Bank PLC, Research Division - Director and Senior North America Oilfield Services & Equipment Analyst [24]

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It'll certainly cause dislocation, but I guess what you're saying is, you think it'll settle out. I was just curious, are you seeing any of your customers kind of already making changes to their plans yet?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [25]

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I think -- I don't know, probably no one's changing which locations they're going to drill today. But I would say, many are considering if this happens, how do we pivot. You get more federal permits now, you have a buffer, you'd have a plan that if that thing dried up, I've got to have an ability to keep my capital expenditures and my rigs running in my other areas. But I think it would be very little that could not navigate that, it would be a negative. It would put locations on long-term hold and all that. But I don't think it would be massive disruption to most people's -- or to anyone's plans.

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John David Anderson, Barclays Bank PLC, Research Division - Director and Senior North America Oilfield Services & Equipment Analyst [26]

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All right. So they'll come up with a Plan B.

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [27]

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Yes.

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Operator [28]

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Next question is from Chris Voie with Wells Fargo.

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Christopher F. Voie, Wells Fargo Securities, LLC, Research Division - Associate Analyst [29]

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Just curious, so it sounds like 3Q utilization was kind of decent, little bit weaker at the end but not that bad. EBITDA per fleet came out at about $12 million, so GB per fleet probably 16 to 16.5. If you think about the pricing environment that you got right now for work starting in 2020, can you give us a sense of where EBITDA per fleet might shake out? I imagine it's going to be somewhat lower and maybe you get a rebound in utilization that will take it a bit higher, but if utilization was similar to 3Q and pricing kind of landed where discussions are currently, how much lower would EBITDA per fleet likely be?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [30]

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Yes. Chris. I think this is something that we'll probably comment on as we get towards the beginning of each year is we get through these discussions. I think there's still a lot of moving parts as far as pricing goes. I think you're right, we're seeing -- we've been in a relatively negative price environment as we sort of move through this year, so there's a bit of downward pressure on pricing all the way through Q3. What you're seeing in Q4 is, as we have sort of budget exhaustion, you're refilling some of utilization of that and you're refilling some of the utilization with folks that's sort of is not a particularly great pricing. But that's sort of a -- just the fact that it's a fill up and you're still doing some work with them.

So that pricing will rebound a little bit for maybe into Q1, but we'll have to see. There's a lot of moving parts at the moment, there's probably ongoing discussions on far and away on majority of the fleets going on at the moment.

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Christopher F. Voie, Wells Fargo Securities, LLC, Research Division - Associate Analyst [31]

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Okay. And then in terms of the 24 feet, your previous commentary around that was that you wanted to hold it off to market until pricing improved. It seems like the odds of that taking place and especially pricing that would've been higher than the first half of 2019, it's hard to picture that in the foreseeable future. Are you likely to put that fleet to work now in 2020?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [32]

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Jump to that 2020 in total, but yes, I mean if you look at the general market conditions, no. They're more likely than not at the start of last year if you asked us 4 months ago, more likely that it was going to be starting in January. I think where currently the market is, the more likely it means it will start next year running 23. As 23 star fleets and just leaving at that, but we'll see as we go.

I mean it could be -- as we have discussions with us some key clients and some potential new clients, we've got demand from somebody who we've been wanting to work for a long period of time and they need some expansion capacity, we could bring that the market. But that's a long-term pricing discussion we'd have with that client.

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Christopher F. Voie, Wells Fargo Securities, LLC, Research Division - Associate Analyst [33]

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Okay. And if I could just squeeze one more quick one in, it seems like the industry might drop -- I mean based on the companies that reported thus far, up to 15% of fleets maybe 10% to 15% in 4Q, which means there'll probably be a decent rebound in 1Q. Is there a set of your customer base that you'd potentially like to upgrade by poaching work from incumbents that have had fleets go down or are you in general -- think you have the optimal western base currently?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [34]

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No. There's always room for improvement. When the whole pie shrinks, then that means there's market share to be taken. So no, we're always thinking about things like that. We're talking about things like that. That's why -- and it's also a strategic, where do -- what's the best today but where do you want to be? How do you want to position yourself through the whole cycle? At the bottom of the 2016 cycle, we were aggressively putting out fleets into what was then bad economics. But we were looking ahead at what was coming down the road, not what today was. Now today, it's nowhere near like the bottom of 2016, we've got a clear view of where we are. I'm not saying we're there now, but it's always a collection of things. Current pricing is one of those things. But there's other ones -- there's other trade-offs as well.

But right now, I think you will see Liberty be pretty cautious. We're not going to grow our fleet and we're not going to build new fleets, we're not going to expand meaningfully from where we are today in that current crystal ball we have.

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Operator [35]

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The next question is from is from George O'Leary with Tudor, Pickering, Holt & Co.

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George Michael O'Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [36]

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You guys are always kind of on top of leading-edge completion trends and changes in well design. Of late, we started to hear, and these are not necessarily new, but just hearing increasing chat around more folks looking at using them or revisiting, using them once again or heard a little bit more of about kind of mono line frac jobs whereby you reduce the number of connections associated with the iron on the frac jobs and then choose some folks revisiting using simul fracs, and Chris I know you very familiar with that. One, are you seeing either of those items crop up more? And then two, anything else notable on the just well design or completion change that you guys are seeing in these trying to push?

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Ron Gusek, Liberty Oilfield Services Inc. - President [37]

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Morning, George, this is Ron. Yes. I'll take the mono line question and then I'll let Chris maybe throw in some thoughts about simul frac. Certainly, the mono line idea is something we've been focused on for a little while now. We started down that road earlier this year and I think we see that as a good innovation going forward, we love to see more of them on our locations.

I think when you look at the R&M cost to a frac fleet, treating iron is no small part of that. And there's also a significant HSE piece to that as well, reducing number of connections and things like that are all things that we like to look at. And certainly, when you think about efficiency, our ability to continue to find ways to spend more minutes pumping every day, we see this as an opportunity to improve there as well.

So yes, certainly expect to see from Liberty continued focus on deployment of mono line in the field. We're still working through exactly what the solution is going to look like for us, we've tried a number of different scenarios there, but I think we feel that, that together with the system for interfacing with the well heads together with the wire line guys is going to be the right solution going forward.

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [38]

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Yes. And some exciting stuff there also on simul fracs. You're right, we have a long history in that area, and there is stuff going on today, in fact, as we speak on that as well. When you're developing pads and your frac interactions or frac growth patterns are central, that is definitely one of the tools to impact frac interactions.

We've even done a very different kind of simul frac, I don't think we've talked about publicly and probably get confirmation with a customer before. We'll elaborate more on that. But yes, customers in the world today are definitely very innovative, overall bouncing ideas back and forth about what might be a next step forward, technology, how do we more optimize the plumbing underground and develop the resources we've got. So it's fun area, but you're right, George, there's still a lot going on in that area and yes I'm sure you'll hear more about that as time goes on.

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George Michael O'Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [39]

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Okay. Great. Thanks very much for the color, Ron and Chris. And then maybe just one numbers question for me. As you think CapEx in 2020, it seems given all the comments you guys have provided that something closer to maintenance CapEx somewhat in the last 2 years is a reasonable way to think about it but there are still some growth initiatives or fleet upgrade initiatives as you mentioned with the DGB tier 4 engine. So just -- not wanting to get over my skis here, is $100 million in CapEx for the 2020 time frame a decent placeholder to have in our models for now? Or shall we be thinking about that differently?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [40]

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No. George, yes, we're putting on -- we're talking about that. As you said, this year we'll probably average around about $3 million of fleet maintenance CapEx and we're always working on ideas to try and drive that lower with long-term design, but we also do, as you said, investing in -- investing for the future, investing in -- whether it's mono lines or the quick connects or the DGB upgrades. So yes, sort of in that range of somewhere between $3 million of fleet maintenance CapEx and that $100 million, which we spent, which we announced this year, which was maintenance CapEx plus technology investments, is probably a good range of baseline, unless we see the market change.

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Operator [41]

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The next question is from Chase Mulvehill with Bank of America.

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [42]

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Chase, you might be on mute. Still -- we're still not hearing you, I don't know if you dropped off or if you're on the...

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Operator [43]

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The next question is from Waqar Syed of AltaCorp Capital.

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Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [44]

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Could you help us with the stages for quarter that you did in the third quarter, how does that compare with the second quarter?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [45]

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Yes. Waqar, we don't break -- as you know, we don't release stage numbers just because I think we find it -- gets a little confusing out there in the world. Stage sizes and links different, you can go from anything from a 1-hour pump stage to a 4-hour pump stage. So just to say, I would say, general activity was of order, flat to just sort of, like, probably just slightly lower. As we said, Q2 was a very, very efficient quarter. And as we guided through the end of Q2, I think with a slowdown in the back end, we were just slightly lower on activity in Q3 than were in Q4.

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Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [46]

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Fair enough. And then in terms of dumper crew, when we're looking at the first quarter of next year, is it going to look similar to the third quarter of this year? You think it can do better or worse than that?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [47]

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Look, I think probably you'll see activity levels probably similar Q3 to Q1. Again, you've obviously got the winter -- is a little harsher in winter. But I'd say in general, we had the slowdown in the back end of Q3, so actuals sort of hours pumped could be fairly similar Q1 to Q3. At the (inaudible) there's just kind of where on average pricing is.

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Waqar Mustafa Syed, AltaCorp Capital Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research [48]

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Okay. And so how much pricing so far in the fourth quarter or what you know about in the fourth quarter is below the third quarter levels?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [49]

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Yes. So obviously there's pricing pressure, as we said, because of the oversupply of frac fleets. And again, your Q4 is a tough one for people to look at because when you've got budget exhaustion for your long-term clients, you've got, as discussed at the Barclays conference, we had some issues on the couple of clients who just ran into a surprise on takeaway issues, which means we had to kind of like move a couple of fleets out and at least one of them is starting back up in December.

So stuff -- although the work is just filling in therefore it's kind of a different pricing flavor much lower than kind of you like your fully utilized fleets. So it's a -- there's sort of like apples and pears as far as comparing those 2 quarters as far as average pricing goes.

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Operator [50]

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Next question is from Chase Mulvehill with Bank of America.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [51]

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Hey, can you all hear me now?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [52]

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Go ahead, Chase.

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [53]

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Chase, we're giving you a (inaudible) again. You can't take those in (inaudible) or in competition, but you've got to (inaudible)

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [54]

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Yes. Sorry, had to dial back in. I don't know what happened. And so I guess if we think about 4Q, can you maybe just help better frame 4Q. You said that sequentially it'll be worse in the fourth quarter of last year, but do you think it'll be twice as bad when you think about a sequential decline or just kind of help us understand from a top line perspective what it means and then from a profitability, like how bad you think it could get?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [55]

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Chase, it's Michael. Yes. I think I commented in our prepared remarks, really, it was I think the whole industry turned down, it'll be worse. It will be slightly worse Q4 than Q3, but I think you're right, I mean last -- or it could be similar for us. I mean last time we were down from Q3 to Q4 about 15 points on the top line. You've got a little bit of change there as we move to more self-sourced sands, so it could be little higher. And then on the EBITDA it was down 40%, just Q-over-Q and then rebounded in Q1. That's -- if you're that using that as guidepost, it's not a bad guide post.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [56]

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Okay, all right. I guess maybe if I just try to dial in a little bit on the EBITDA per fleet, if we just kind of look 3Q, the release kind of talked about the first half being pretty good and things tapering off in the back half, if you were to look at profitability, your EBITDA per fleet in the back half, if I kind of do some math, it looks like maybe it was about $8 million of annualized EBITDA. Is that the right number? And is that kind of how we should be framing things as we get into the fourth quarter?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [57]

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Yes. It's really not something we don't discuss. I mean everything moves about. I think we've done in prepared remarks before I think if we go back a year. Also, when we look at -- when we try to kind of like talked a little about the $28 million of fleets that we earned at the high point. It can vary quarter-to-quarter, right? I mean it can -- while it can be total demand that goes off or it can just be operational issues, right? You can have a number of times when everything goes right and everything goes wrong. So sort of -- even on a quarterly basis, it's not honestly the way we look at results very much. We really like to look at them on a longer period of time than that. So we don't -- just a long way of saying, we really don't -- we wouldn't discuss into quarter results.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [58]

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Okay. All right. Understood. And then I guess coming back to your questions around DGB fleets, I may have missed it, I dropped off. Did you talk about the cost that it is to convert a tier 2 engine to a tier 4 DGB? And then maybe the visibility that you have to put the 1 to 2 fleets back to work and maybe the paybacks?

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [59]

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Right. So really, I mean, the DGB tier 4 engine compared to a brand -- and a brand-new sort of like non-DGB engine is not a major uptick in price. It's probably -- just a below the 10%, more than a standard engine. So what happens is, as part of the normal maintenance cycle, a number of fleets coming up to their 25,000 hours that they've run on those engines and we bring -- we always bring those fleets in and look at them proactively. Now if that engine is in relatively good shape and it's got a relatively low rebuilt cost on it, that particular pump may go back out as it gets rebuilt and go back out as a tier 2.

If it's got a crack block, if it's got a significant rebuild cost, now you're talking about something that was maybe 350 -- $350,000 rebuilds that now becomes a -- just north of $500,000 rebuild on that engine side of it and then you'll upgrade it to tier 4 DGB. So we actually have it pump-by-pump basis.

I think the difference with Liberty and a lot of companies is, to some degree, the unique effect that all of their equipment is plug-and-play, right? So everything, everything works the same. It's generally got the same lineup. So if we rebuild a specific pump that was tier 2 with tier 4 DGB, it can roll into a tier 4 DGB fleet just as easily as the one that was getting rebuilt as a tier 2 rolls back into a tier 2 fleet or you can mix and match.

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Chase Mulvehill, BofA Merrill Lynch, Research Division - Research Analyst [60]

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Okay. And did you weigh electric fleet versus converting to tier 4 DGB?

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Ron Gusek, Liberty Oilfield Services Inc. - President [61]

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Yes. Chase, this is Ron. We certainly have weighed that and certainly are headed down both roads. I think as we've already said now, we have a development initiative going on, on the e-fleet side of things. But we've also had a significant focus on understanding the pros and cons of both of these scenarios. And so we've been out on the road probably the last 4 weeks now helping E&P companies to understand exactly what the benefits of an e-fleet versus a tier 4 DGB fleet might be and what the trade-offs are there. I think there were some misconceptions out there around the emissions profile for those engines and I think we've been helping folks to understand that we can deliver a very, very compelling solution with tier 4 DGB that has a lower greenhouse gas emissions footprint than an e-fleet would have under standard operating conditions in the places we work that can offer fuel savings that are in line with or in many cases potentially even better than at a significantly lower capital cost upfront.

And so I think what we're going to find is that we're going to have customers who maybe had thought that they only had one option in front of them now have two very viable options in front of them: tier 4 DGB or e-fleet. And so I think you'll ultimately see both of those in Liberty's world. Rate of deployment probably looks different for each of those technologies, tier 4 DGB obviously coming first and fastest, but there is still work going on in our world on e-fleets and there's a reasonable possibility that sometime down the road there will be an opportunity that is the right fit for that technology as well.

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Operator [62]

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Next question is from Stephen Gengaro with Stifel.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [63]

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The -- you've covered a lot. I just wanted to get your views on this. So clearly there's been a couple of announcements of fleets being retired and one of your competitors I think noted that their equipment out there was sort of serviceable but the maintenance cost have become onerous and it was just basically hard to operate them profitably. When you look at the industry fleet and you sort of think about your positioning there, what are your expectations kind of for fleet attrition and how sort of the industry fleet kind of bleeds down over the next maybe 12 months, given what looks like kind of severe under investment right now?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [64]

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Predictions are hard, particularly about the future. So it's -- you can look at the -- if you look at just the straight math and straight logic, it actually looks pretty encouraging that a lot of fleets will leave the market in the next 12 to 24 months. But it depends on market conditions, right? I think you hit the point that if you've got a lousy fleet but the market is super strong, you can put the Band-Aids on and spend the money and keep it running. Or if you're going to lose, you're going to leave a basin, it's the last fleet you've got going and you'll fight to keep the last man standing, people will do stuff that's maybe not economically rational, but they've got other reasons for it. I do think a softer market that we're in and going into, we actually think it could be a real positive for the marketplace because that tends to get people -- it causes some stress and it tends to get more rational economic decisions.

So I would say our guess is, we'll see a relatively large amount of capacity out of the market 12 months from now permanently and a fair amount pushed out. And there's a -- and then there's an upgrade cycle that's new capital and slightly new technology and new systems. So I think we're going to see a meaningful transformation of the frac marketplace and the players in the space I would suspect over the next 12 to 24 months. But that's a prediction. So don't -- it's purposely vague. So I won't be as wrong as I could have been.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [65]

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I mean we're having enough trouble with the fourth quarter, right, just trying to figure out the next 12 months. The just as a quick follow up on that, you mentioned your kind of $3 million per year of maintenance CapEx, should that number be pretty sticky over the next year or 2?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [66]

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Say it again, Chris.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [67]

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Your maintenance CapEx per fleet, are you seeing that trend higher at all or you think it remains around $3 million. I know you referenced 2020 but as we go forward here, I think that number remains right around $3 million per fleet.

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [68]

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Yes. Stephen, I think it probably remains in that zip code, right? I think as we -- maybe it'll tick out 5% or 10% as we move forward with some technology upgrades, you put in the technology upgrade or maintenance cap budget. But yes, if we get them the same, I think that zip code is about right. That's what we think of the long-term cost.

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Operator [69]

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Next question is from Thomas Curran with B. Riley FBR.

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Thomas Patrick Curran, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [70]

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Chris, as part of their just announced fleet rationalization, one of your competitors revealed that they'll no longer have a presence in the Bakken. Have you already started to see an opportunity arise from their withdrawal or would you expect to?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [71]

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Different players have different customer bases. So it's -- on the margins, it's a positive in the marketplace to see a little capacity leaving a basin, but Bakkens are original basin. We've been there a long time. We know the players in the basin. It's been a good basin for us. I say, we have a good -- very good competitive position there. So on the margin maybe a slight positive, but not a -- we're not going to change our strategy or customer targeting or anything like that.

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Thomas Patrick Curran, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [72]

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Right. And it's in part because of your deep legacy routes there, I was curious. And then, Ron, what percentage of your jobs in 3Q involved frackonomics? And how did that compare to 2Q and 3Q of last year?

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Ron Gusek, Liberty Oilfield Services Inc. - President [73]

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I'd say, year-over-year it remains relatively flat. I think from our standpoint, we probably provide some level of engineering service frackonomics, et cetera. So maybe 75%, 80% of our customers and it varies in that world from maybe we're providing a second set of eyes on work that they have done internally and would like us to review to at the other extreme we are providing the complete engineering package and the design from the ground up for them.

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Thomas Patrick Curran, B. Riley FBR, Inc., Research Division - Senior VP & Equity Analyst [74]

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And then just -- in this ruthlessly Darwinian environment of the past several months, which of your technology offerings, if any, has conveyed the greatest competitive advantage? When you're out there in natural hand-to-hand combat, bid by bid, which is consistently emerging as the real differentiator?

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Ron Gusek, Liberty Oilfield Services Inc. - President [75]

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Well, I think we probably take the approach that any technology that ultimately led to an improvement and efficiency for us on location is the one that -- are the ones that have played the biggest role, and that's a bundle of technologies, for sure. But I think those are the ones that continue to assist in Liberty proving our differentiation relative to our peers.

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [76]

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I think Well Watch has got a lot of interest, it's a recently rolled out thing, but this is more of a long-term thing. But if you want to understand how to develop well spacing and frac size and the optimal interaction between fracs, both the Liberty engineering efforts there, which customers are doing themselves as well, but now they have a technology to measure in real-time how fractures approach other wells and what you might do to mitigate that, that's -- there's a lot of interest -- that's got off to a strong start.

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Operator [77]

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The next question is a follow up from John Daniel with Simmons Energy.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [78]

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Just a few quick ones here. Ron, you noted you're looking at the dual path of electric versus tier 4. Can you say if you guys have leased or bought any turbines yet? And if so, how many and what type of turbine you would (inaudible)?

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Ron Gusek, Liberty Oilfield Services Inc. - President [79]

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I can say, we have not leased or bought any turbines yet, John. That's certainly a part of this that we are still working to understand as exactly how that piece of the world would play out for us. Right now we're focused on the technology specific to the pump and then ultimately the backside. We're thinking in parallel about what the power supply is going to look like. There are obviously a lot of questions around that from the work we've done in terms of understanding emissions profile, what the demand requirements are going to look like on a pad on a day-by-day basis and over a year of operations. We've come to understand there are some important variables we want to think about in terms of selecting a power supply. And then of course, ensuring that doesn't ultimately affect our efficiency that we've become known for. So lots of work going on there, but no firm decisions in that space at this point in time.

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [80]

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John, what thing that really changes the relative trade-offs on frac fleet technology is if you can run off line power. I don't think that's going to be widely available in the industry, but I think you're going to see places where we see large power electrification. If you can run off line power, the advantages of electric fracking are very strong.

If they're on as they are today, they're -- as Ron said, in many areas they're weaker and some maybe do a little better, it's not -- it's kind of a preference thing. But if you could -- in areas they get line power, electric frac fleets make a ton of sets. And we're excited about that opportunity and idea. We think in some areas we'll be seeing that.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [81]

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Okay. Big picture question for you, Chris. We're all somewhat hopeful about majors mega cap E&Ps' plans to continue their growth initiatives. And I think we're all hoping that, that growth contributes to an eventual rebalancing of the market. I'm just curious, are you at all concerned that these same companies haven't yet figured out the completion efficiency gains as, say, the independents, thus we might be overstating somewhat their -- the impact of the growth plans, if that makes any sense, as they get up to learning curve?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [82]

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It's different strengths and weaknesses. There's enormous technology base in these companies. They're incredibly safe. They may be more judicious in their movements, but we work with one of the majors right now who's very efficient and way down that curve. And then the others maybe that are more cautious approach to getting there, there's no reason they can't get and won't get there. So -- but yes, it is a different profile. It's a different speed of changing the way things are done, but there are very strong companies with super high-quality people. So I think years down the road, I think they will be a much larger percent of what's going on conventional and I think their performance will be awesome.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [83]

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Okay. Last one. Just a follow up on fleet attrition because no one's really elected to put you on the spot. So I'll try -- I guess I'll be that guy. But when will Liberty see its first fleets get permanently retired?

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [84]

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Good question. Again, it's a gray zone there. You may see older -- our oldest fleets and lower technologies be so upgraded that they may not look a ton like they were originally. So if you want -- you can call that retired or significantly rebuilt.

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Michael Stock, Liberty Oilfield Services Inc. - CFO & Treasurer [85]

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Yes. Majority of that fleet, John, was built post the sort of like from the beginning of time, we would sort of 24 hours a day, 10,000-psi, 2-mile vertical -- sort of horizontal laterals, right? So the majority of that fleet has really been designed for that sort of work. So if you think about (inaudible) this stuff was designed from 2011 onwards. We were on the back end of that first couple of fleets that we're on, so the end of that spectrum where people are trying -- we're trying to lighten up pump equipment to try to make it not a loads -- permanent load, right? So shorter trailers. You have the Allison transmission, et cetera.

So I think you've got maybe a couple of fleets there that will have to get sort of like as they move forward making a pretty significant overhaul. But rest of them, really, we sort of move very early to a Cat, Cat, Cat and really don't see that really changing. You upgrade to a tier 4, you might have -- you can upgrade to radian package. But the rest of the place really stays the same. So we're a little different, we're a little luckier in the time that we entered the market, we entered at the right time for the fact that we haven't gotten get a really major change in the way the work happens.

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Operator [86]

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

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Christopher A. Wright, Liberty Oilfield Services Inc. - Founder, Chairman & CEO [87]

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I want to sincerely thank the passionate, wonderful folks on team Liberty that make it happen every hour of every day. I'm proud to be your partner. Safety is the top of the list for all of us every single day. I also wish to thank our customers, suppliers and investors who make it all possible. We look forward to talking with you in 3 months.

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Operator [88]

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Conference now concluded. Thank you for attending today's presentation. You may now disconnect.