Liberty Oilfield Services – Second Quarter Of 2018 Results.

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Liberty’s operations in the Permian continued to grow and thrive. Local sand volumes in the pipeline for several quarters now began to materialize in meaningful quantities during the second quarter and we see that trend continuing in the third quarter, driving down well costs for our customers. With significant new industry pumping capacity added to the Permian Basin during 2017 and 2018. While takeaway limitations have created temporary production challenges, we are pleased that the developing imbalances for frac services in the Permian have not yet impacted Liberty fleets.

LibertyFRAC averaged 21.3 active frac fleets. We deployed our 22nd fleet late in the second quarter under a dedicated arrangement with an existing customer. We have experienced some delays in receipt of critical components for our new fleets under construction and therefore we anticipate deployments of our 23rd and 24th fleets in the fourth quarter and very early in the first quarter of 2019 respectively.

As an example of one of our recent efficiency focused technical efforts, over the past 24 months Liberty is focused on developing a next-generation blender design with the goal of improving uptime on this key piece of equipment. Approximately 50% of Liberty blenders have now been upgraded to our latest technology and the rest of the upgrades should be completed by early 2019.

Stock priceLBRT (NYSE) $20.31 +0.89 (+4.58%)
Aug 10, 4:02 PM EDT – Disclaimer
Headquarters: Denver, CO
CEO: Christopher A Wright (Dec 2016–)
Subsidiaries: Titan Frac Services LLC, LOS Acquisition CO I LLC

Global hydraulic fracturing market was estimated at USD 26.88 billion in 2017 and is witnessing a positive growth of more than 11.5% during short-term period of 2019-2021. This growth will likely show a deceleration post-2022 owing to an expected supply surge which is shaping up in the global market.

Jud Bailey

Okay, great. Thanks. And then if I can add – squeeze in one more. The new build over the next couple of fleets, some of your competitors are scrapping plans to reactivate or pushing things out and you guys seem to have pretty high level of confidence that the two fleets will start in the fourth quarter and the first quarter, could you give us some insight stuff you are close to securing contracts, how do you think about that?

Chris Wright

We do. We are quite competent in that, the next fleet what we fleet 23. Yes, we will go out in Q4, probably the first half of Q4. But yes we have customer and work and agreements lined up for that. And for the last fleet that was going to go into the Permian, we are in dialogues, I think given the market softness and all that we will probably almost certainly now I would say place that fleet in the Rockies, lots of demand for that. We are kind of sorting out who gets that fleet and then that will tie together what plans we had – we may have for fleet expansion in 2019 as well. But no, we are not worried about deploying both of those fleets into dedicated arrangements at good profitability for us and great throughput and economics for our customers.

Jon Hunter

Great. Thanks. And then an unrelated follow-up, we have been hearing a bit more about electric frac fleets and just wondering what your thoughts are in terms of viability, comparing them to the fleet that you have in terms of payback and returns just if you could speak probably to that, that would be great?

Chris Wright

You bet. Look, Ron and I and most of our team are career tech nerds, I am an electrical engineer by training. So we have looked electric frac fleet really since we started the company. And we watch that technology and it’s intriguing. To-date that for us the trade-offs haven’t arrived yet. The downside is that they cost a lot more between 50% and 100% more to put together a fully electric frac fleet. They have some benefits. One is that significant noise reduction, but the noise level of our acquired fleets is pretty much right in line with an electric frac fleet, so we found another route to that advantage. The other one and I think that customers like a lot is that you run on natural gas in the gas turbine instead of diesel, right it’s cheaper and in the field sometimes you have got it available. So we have addressed that with these dual fuel fleets. We have a number of dual fuel fleets today. And for a Tier 2 engine when you would run it dual fuel mode, you can get up to 70% of the fuel you consume is natural gas and you supplement it with 30% diesel. The new Tier 4 engines with dual fuel versions of them burned 89% natural gas and 11% diesel. So we can get 90% of the fuel 89% of the fuel switching savings, the same noise profile and a dramatically lower cost for us and our customers today that’s been a better trade-off. The other issue is gas supply, it’s not just the gas flowing out of the nearby well on the path, right you need several million MCF a day, several to run a frac fleet on that. So with the dual fuel fleet, if you have problems with gas supply, just increased the diesel content, you still got this robustness. We have an electric frac fleet. If you lose your natural gas supply, you are not fracking and in the vast majority of well pads, there is no pipeline supplied reliable several million a day natural gas. Now if you have got large infrastructure, you are in the middle, you have got a gathering system and reliable supplies in natural gas, absolutely, you can do it, but it’s still a significant minority of the available well to frac and the fuel consumption and economic benefits aren’t there yet, but the technologies evolve and we are watching them. And as they evolve better, might Liberty have electric frac fleets down the road, very possible, very possible. We are constantly watching that. We love new technology as you probably can guess.

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