ProPetro Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

There are 11 speakers on the call.

Operator

Thank you and good morning. We appreciate your participation in today's call. With me today is Chief Executive Officer, Sam Sledge Chief Financial Officer, David Schorlemer and President and Chief Operating Officer, Adam Munoz. This morning, we released our earnings results for the Q1 of 2023. 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 Formag.

Operator

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.

Operator

Finally, after our prepared remarks, we will hold a question and answer session. With that, I'd like to turn the call over to Sam.

Speaker 1

Thanks, Matt, and good morning, everyone. The Q1 of 2023 was an exciting start to the year for ProPetro. Before David walks you through our financial results, I'd like to begin by covering some recent key accomplishments. To start off the year, we both repriced and repositioned a substantial percentage of our active frac fleets. As we mentioned during our last earnings call just a few months ago, This was already showing through in our January numbers.

Speaker 1

We believe this more diversified blue chip customer portfolio has set a great foundation for success in 2023 and beyond. We continue to see great results from our acquisition of Silvertip in November of 2022, which is now fully integrated and has provided significant tailwinds for our company's earning power. While we were confident about our acquisition of Silvertip, this move is exceeding our initial expectations, delivering more operational synergies between our two companies than we initially anticipated. This was evident in the Q1 as Silvertip delivered record revenues and profitability. At the same time, we continue to make significant progress with the transition of our legacy diesel equipment to dual fuel and electric offerings.

Speaker 1

We took delivery of our 6th Tier 4 DGB dual fuel fleet in the Q1 and expect to have the 7th operating in the coming months. We also expect to take delivery of our first two electric fleets in the Q3 and are working to secure contracts for the 2nd, 3rd and 4th e fleets. Additionally, while we are still in the early stages of our optimization program that we have talked about on prior calls, We have achieved several big wins, including extending the life and of and therefore reducing expenses on key equipment components, while also reducing maintenance turn time. These improvements will give us the foundation to sustain and improve efficiencies into the second half of this year. It has been a truly rewarding quarter for us here at ProPetro as we began to realize the tremendous benefits of our strategy.

Speaker 1

Over the last year, we have taken an intentional approach to building a strategy that will strengthen the resilience of our business for the long term. While we are pleased with the progress we have made, we are not stopping here. We will continue to advance on our goal of building reduces volatility and competes for years to come to the benefit of our customers, our shareholders, our employees and our community. I'd like to now take a step back and discuss the broader energy and completions environment. Despite recent headwinds, including natural gas price weakness and the fear of near term oil and gas demand uncertainty, We still believe that hydrocarbons remain in structural undersupply, especially globally, and will likely remain so for multiple years, creating a longer than normal cycle.

Speaker 1

This belief further underscores why the investments we've made in our assets to date are so important to our future success. By the end of this year, approximately 2 thirds of our frac fleet will use next generation equipment that burns natural gas as a primary fuel source with all of this equipment under 2 years of age. The bifurcation of our offering coupled with the experience and success in the Permian Basin gives us a clear competitive advantage from our peers and competitors of all sizes that don't share these capabilities. This allows us to meet the demand we are experiencing from customers across the basin. That said, the combination of ongoing equipment attrition, supply chain constraints and more pricing and equipment discipline in the OFS space than has existed in recent history.

Speaker 1

This gives us confidence in a strong market that puts a premium on a bifurcated next generation service offering. Accordingly and in conjunction with our fleet transition strategy, We are actively taking steps to protect and improve efficiencies across the business. As you've heard us say before, we're focused on the industrialization of our business and we are confident that leaning into this shift in operating mindset will propel us forward as we adapt to the fundamental needs of the service space. This industrialization will manifest through many different operating methods, several of which are already happening today, therefore providing the next set of opportunities for our industry to push efficiencies even higher. The future result of this industrialization will be lower operating costs for service companies and their customers, making the Permian Basin and and American Energy even more competitive than it already is.

Speaker 1

Of course, none of this would be possible without our talented ProPetro team, who continued to deliver tremendous results for our company time and time again. A major thanks to our team for all the continued hard work and Dedication. With that, I'll turn the call over to David to discuss our Q1 results. David?

Speaker 2

Thanks, Sam, and good morning, everyone. Before I dive in, I would also like to emphasize the appreciation of our team members' hard work and commitment to ProPetro. The work our team is doing in the field and throughout our support services is enabling the pursuit of our strategic priorities. We believe our Q1 financial performance, the best in over 3 years for adjusted EBITDA, margin and net income, is a catalyst to improved cash flow generation through the remainder of this year and into the future and is evidence of our new strategy at work. Now let's move on to our Q1 financial results.

Speaker 2

During the Q1 of 2023, we generated $424,000,000 of revenue, a 21% increase from the $349,000,000 generated in the Q4 of 2022. This increase was largely attributable to increased utilization, improved net pricing across our service lines, the full quarter effect of Silvertip's revenue contribution and the frac fleet repositioning effort we undertook in the Q4 of 2022. Our effective frac Fleet utilization of 15.5 fleets for the Q1 of 'twenty three was at the top end of our prior guidance of 14.5 to 15.5 fleets. We expect steady fleet utilization through the Q2 of 'twenty three. And as Sam mentioned, our frac fleet remains effectively sold out and strategically positioned and committed completions programs with efficient customers who value and appreciate our industry leading field performance.

Speaker 2

Our guidance for 2nd quarter frac fleet utilization is 15 to 16 fleets, with steady activity in our wireline and cementing businesses as well. Additionally, and in accordance with the company's fleet transition and replacement strategy that does not expand net capacity in the market, we plan to retire approximately 140,000 hydraulic horsepower of Tier 2 conventional diesel frac equipment during 2023. These retirements will be scrapped and will not return to service. Before we discuss costs and earnings, I would like to note that effective January 1, 2023, The company began to record utilization of fluid ends as an operating expense rather than capital expenditure. This change to Fluid Ends expensing was made after an analysis of the useful life of these components and was implemented prospectively.

Speaker 2

Numbers that we discuss or present for periods prior to 2023 do not include the impact of Expense in Fluidsence. Moving on, cost of services excluding depreciation and amortization For the Q1 of 2023 was $280,000,000 versus $243,000,000 in the Q4 of 2022, with the increase driven by a higher level of activity across our service lines and the full quarter effect of Silvertip. 1st quarter general and administrative expense was $29,000,000 compared to $27,000,000 in the prior quarter. G and A expense excluding non recurring and non cash items, including stock based compensation of $4,000,000 and other items totaling $1,000,000 including insurance reimbursements, legal settlements, transaction expenses, Retention bonuses and severance expenses was $24,000,000 or 5.6 percent of revenue as compared to 6.4% of revenue in the prior quarter. Depreciation and amortization was $51,000,000 in the Q1 and we expect D and A to be in this range going forward.

Speaker 2

The increase in depreciation is related to changes and the depreciable lives of certain of our assets. Loss on disposal was $22,000,000 for the quarter, of which $8,000,000 was attributable to the fire and resulting equipment damage we reported earlier in the quarter, along with equipment decommissioning and other normal course disposals. Loss on disposal will not include impact from fluid end costs, which will now be expensed in cost of services as mentioned earlier. The company posted net income of $29,000,000 or $0.25 per diluted share, the company's highest in over 3 years, compared to net income of $13,000,000 or $0.12 per diluted share in the prior quarter. Adjusted EBITDA performance was also very strong with margins expanding sequentially by approximately 400 basis points with adjusted EBITDA of $119,000,000 or just over 28 percent of revenue, again the company's highest adjusted EBITDA and margin in over 3 years.

Speaker 2

Adjusted EBITDA increased 42% sequentially compared to $84,000,000 in the 4th quarter and incremental adjusted EBITDA margins were nearly 50%, showing our powerful earnings potential when executing a disciplined Asset Deployment Strategy. To reiterate what Sam talked about earlier, our results this quarter reflects the focus on our strategic pillars, including optimizing our business, our fleet and capital light equipment transition and the returns from our recent Silvertip acquisition. Additionally, this strategic focus coupled with our disciplined repricing efforts led to enhanced margins driving strong profitability. During the quarter, we incurred $97,000,000 of capital expenditures. Actual cash used in investing activities as shown in the statement of cash flows for capital expenditures net of proceeds in the first quarter was $114,000,000 with free cash flow of negative $41,000,000 This figure differs from our incurred CapEx number due to the differences in timing of receipts and disbursements.

Speaker 2

We are reaffirming our previously provided CapEx guidance as we pursue our strategy of developing a more capital light asset profile coupled with the winding down of our substantial reinvestment cycle and our ongoing fleet conversion program. We continue to anticipate our 2023 cash CapEx to be between $250,000,000 $300,000,000 weighted towards the front half of this year. In turn, We expect this to contribute to meaningful free cash flow in the second half of twenty twenty three. Our capital investment plan along with continued excellence in the Field, are driving the bifurcation Sam discussed earlier and laying the groundwork for years of ongoing leading performance at ProPetra. By making these investments in equipment reliability and next generation fleet technology, our customers value our assets and services more to deliver for their completions programs.

Speaker 2

Regarding our capital structure, while we experienced Some working capital expansion during the quarter, our balance sheet and liquidity position remained strong to support execution of our strategy. As of March 31, 2023, total cash was $45,000,000 and our borrowings under the ABL credit facility were 30,000,000 Total liquidity at the end of the Q1 of 'twenty three was $149,000,000 including cash and $104,000,000 of available capacity under the ABL credit facility. As of May 1, 2023, Our cash balance was $82,000,000 and we had $60,000,000 of borrowings under our ABL and $166,000,000 of total liquidity. We expect our liquidity to continue to improve along with our enhanced profitability and lower capital spend as we move into the second half of this year. Looking ahead, the strength of our balance sheet and our commitment to capital discipline has enabled us to develop and install certain commercial architecture that will benefit the company for years to come.

Speaker 2

This includes a capital light long term lease agreement accelerating our fleet transition strategy to electric and natural gas powered equipment coupled with long term customer contracts that share capital costs for these value enhancing assets. Additionally, we continue to pursue a strategy to identify, evaluate, to integrate accretive transactions and strategic partnerships. The acquisition last year and subsequent successful integration of Silvertip are evidence of this capability. Together, these attributes will strengthen our strategic capabilities and accelerate our free cash flow performance. With that, I'll turn the call back to Sam.

Speaker 1

Thank you, David. With a strong Q1 behind us, We remain highly focused on executing our strategy and I can assure you that we are just getting started. We will continue to transition our fleet, although at a slower pace, to electric and natural gas burning equipment. This allows us to continue to play and compete at the top end of the bifurcated frac market. At the same time, we are evaluating accretive M and A opportunities to strengthen our position as a leading completions focused oilfield services company.

Speaker 1

As we said before, we are continuing to effectively manage the headwinds of potential near term uncertainty and volatility, including weaker natural gas prices and industry wide challenges brought on by the broader macroeconomic environment. Importantly, At the same time, we remain optimistic that the more disciplined approach of the entire oilfield services sector will allow us to create a more industrialized and predictable space that can better sustain through economic cycles and volatility. We are confident that ProPetro is well positioned to take advantage of this ongoing industry evolution in the Permian Basin and we continue to take the necessary steps to achieve this industrialization within our own business, especially through moves like our eFleet transition. Supported by our bifurcated and disciplined approach that I mentioned earlier, our strategy is what separates us from our peers and we look forward to executing on the tremendous opportunities we see for ProPetro in the near and the long term. At ProPetro, we also take great pride in our role as a key contributor to the American Energy System.

Speaker 1

Our company and our community in the Permian Basin is dedicated to producing safe and dependable fossil fuels that power the world. As we grow and invest in our communities, We continue to build upon a deep appreciation for the critical role our industry plays in supporting national security and economic growth. We believe it is important for others in the oil and gas value chain to join us in promoting the vital role our industry plays in everyday life. Fossil fuels have been an integral part to human progress and innovation. And thanks to the ongoing advancements in our industry, They will continue to be essential to meeting the world's energy needs for the foreseeable future.

Speaker 1

As we move forward, we are committed to advocating for our industry and and others about its critical contributions to society. By working together to promote the importance of our industry, we can ensure a bright and sustainable future for our local communities, our country and for the world. Lastly, I'd like to once again thank the entire ProPetro team for their continued hard work and commitment to safety and performance, continuing to give our leadership team the confidence to move forward with our strategy. Let's keep pushing. With that, I'd now like to hand it to the operator to open up for questions.

Speaker 3

Thank you. And I'll begin the question and answer session. First question will be from Derek Bonhoeffer, Barclays. Please go ahead.

Speaker 4

Hey, good morning, guys.

Speaker 5

Good morning, Eric.

Speaker 4

Good morning, Eric.

Speaker 6

So I just wanted to get your thoughts on the North America bear case today. So rig counts Declining, which would lead to resulting in well completion activity drying up in the back half of the year. Investors view some of the management teams might be overconfident in their results and back half estimates on the sell side are too high. Just wanted to get your Take on all this and how you view your level of insulation from the rig count decline that we're seeing and maybe just your position in the Track market of why the back you're not overestimating the back half of the year?

Speaker 1

Sure, Derek. It's Sam. Great question. A few things there. One, there's not a lot we can control in terms of the broader rig frac fleet activity across North America.

Speaker 1

As you know and as many people know that follow us closely, over 99% of our business excuse me, is focused right here in the Permian Basin where we're sitting today. That said, on top of that, we're also focused with some of the best blue chip operators that have the most consistent activity outlooks. So Maybe the most clean data point to talk about is what we saw happen in the Q1 with crude and natural gas prices reeling in for a good amount of time. And we really didn't see any changes to our activity nor our customers' activity portfolios that we operate within. So, will there be more volatility or downside to the second half of the year?

Speaker 1

That's not Necessarily our job to predict. We do follow the same information you do pretty closely to help plan and forecast our business. That said, We think we are maybe one of the most well insulated completion services companies in North America in that type of scenario.

Speaker 6

Got it. Now that's helpful color. And then I guess just some of the dynamics that we're hearing about these fleets coming into the Permian more on the spot market basis. I know you guys are pretty much all dedicated, but have you had some of your customers come to you talking about some of the pricing The dislocation that they're seeing and maybe trying to pressure some of your pricing, just maybe some color around the conversations you have with your customers to make it more of a win win situation just given this near term air pocket that we're seeing at least on the supply side.

Speaker 1

Sure. What we saw in the Q1 in that lull that I mentioned earlier was really very minimal. We have customers that are operating large and most of our customers, if not all of our customers, they don't even operate in the spot market. So the data in which they gather, say, from a pricing or fleet availability standpoint is rather limited because they're so laser focused on the consistency and continuity of their own operations. Next to that, there has been quite a hit to the spot market.

Speaker 1

I think you've seen it in some of the results of our peers that are more spot market focused. And that's what happens when a cycle matures like it has here recently that maybe a spot market that ran out in front of the rest of the activity in the Permian and in the U. S. Was relatively overpriced, and much of the pricing changes that maybe you've seen across the second half of the first quarter going into the second quarter from a lot of our peers or profitability kind of coming in a little bit is absolutely a spot market data point of which you haven't seen from us nor have you seen in any of our materials or our scripted remarks that we think that that bleeds into what we're doing here in the near term.

Speaker 2

Derek, this is David. The thing I would just add as well is Some of our fleet repositioning was based on customers that were utilizing some of these other frac providers and they were wanting to upgrade their fleets. So the bifurcation that we talk about, Sam's comments, my comments, As we've talked with investors, this is something that plays into ProPetro's hands because We do provide such great efficiency in the field. And I can tell you another example or anecdote to that, Ask the Silvertip crews what frac fleets they want to operate on and they are going to tell you pro petro because they know they are going to be putting a lot more stages into the ground and that benefits not only them, but us and our customers. So, a lot of value we're delivering.

Speaker 2

Customers see that and that's where that bifurcation plays out for ProPetro.

Speaker 6

Great. Thank you, Sam. Thank you, David. Appreciate the color. I'll turn it back.

Speaker 3

Thank you. Next question will be from Kurt Hallead of Benchmark. Please go ahead.

Speaker 7

Hey, good morning.

Speaker 8

Good morning, Kurt.

Speaker 7

Hey, Sam, you laid out a really interesting case here with respect to the bifurcation, the upgrading and transition of your asset base And in particular, the customers that you have. Maybe kind of following on to that initial question, right? Clearly, for the bulk of this year, the investment community has been anticipating a rapid and Significant decline in frac activity overall. But I guess my understanding and you tell me you see things differently, the economics in the Permian can still be supported at an oil price that's probably roughly half of where it is today, give or take. What are you hearing from your customer base now?

Speaker 7

Are they starting to get skittish? Are they being pretty consistent on on what they expect to happen going forward and I don't know what can you give us some insights on the psychology Steve, your customer base given what's going on with a lot of these macro headwinds?

Speaker 1

Yes, great question. I think it I can answer this kind of on the back of some of David's comments about bifurcation here and I'll try and take a few different parts of your question. Are our customers skittish? No, no, not at all. And that goes back to kind of the blue chip, large, sophisticated type of customer that we like to work with and that really almost all of our activity is with as we sit here today.

Speaker 1

Most of these customers have some of the lowest operating costs, lowest cost to produce, Tier 1 acreage type of portfolio across the Permian Basin. So That fits really well for us in terms of being able to protect our pricing and our activity. I'm not sure you might know better than me What oil price a lot of the Permian can continue to produce that if oil price goes lower. What I can say, due to the acreage positions and just the premier operations of most Our customer portfolio will be a group that probably stays more consistent than most because of some things that I've already mentioned. The other thing on this bifurcation theme that is really, really a big deal, we've mentioned it Time and time again for probably more than a year now, it's scattered throughout all of our materials this morning is this equipment offering and this transition into more frac equipment that burns natural gas.

Speaker 1

That's a whole another lever to pull to keep producing operating costs lower and lower. The more natural gas you burn, The more money you save, and it also puts us in a position to make a higher return. So as evidenced by what we've done and what we've invested in here Sledge. We're headed towards having a majority of our fleet back half of this year going into next year being able to burn natural gas And that makes us more cost and price competitive in these more volatile and uncertain environments.

Speaker 8

Yes, Kurt, this is Adam. I would just add to Sam's comments. A majority of our conversations with our customers have been focused just around that of how can we Continue to work more safely together, create more value together as we move into the future months of the year. So that's really what we've been hearing and focused on with our customers.

Speaker 7

Great. That's great color. So Just kind of curious, right? You referenced you're going to be adding a 7th dual fuel fleet here as well as Start up of a couple of your e fleets and then comments about 3 more potential e fleet contracts coming. So With that commentary, that kind of answers the question too, because if your customers were skittish, you wouldn't be having those discussions.

Speaker 7

But in the context The eFleet, what are you looking at in terms of timing? And you referenced here that your customer contracts are sharing the capital costs for These assets, I wonder if you could give us some insights on that too.

Speaker 1

Sure. A couple of things there. I think the 2 eFleets, you'll look for those to be revenue producing late 3rd quarter, eFleets 3 and 4 are more of a Q1 story from a revenue producing standpoint. When we make comments about our customers and kind of our commercial architecture, sharing some of the upfront capital costs, That's mainly a comment towards the capital light leasing program that we have executed on for the Z fleets. So what we've done is we've moved what traditionally has been a slug of upfront capital when a company like ProPetro buys equipment into this leasing and expensing structure where our cost to own or operate the fleet is running parallel with the revenue and the earnings that we're producing for that fleet.

Speaker 1

It also incentivizes our manufacturing partner to come alongside us, Make sure that the equipment is operating efficiently and that it's well taken care of and just creates more alignment across the value chain that we're honestly really, Really excited about with this commercial model going into the future. We think that it provides a bit more of a steady smoothed out capital spend that should hopefully allow us to do more of this fleet transition in the future beyond 2024.

Speaker 7

That's great. Thanks, Sam. Appreciate it.

Speaker 3

Thank you. Next question will be from Sean Mitchell, Daniel Energy Partners. Please go ahead.

Speaker 4

Good morning, guys. Thanks for taking my question. Sam, if you can, you talked about earlier in the call Silvertip kind of outperforming your expectations. Any color around kind of what is driving that maybe, number 1? And then the second one is the retirement of fleets you're talking or horsepower you're talking about later this year.

Speaker 4

Can you just maybe expand on that? I think you mentioned this stuff's Going to kind of scrap or whatever, but just want to make sure that equipment is not going back in the market to be sold. So it's in someone else's hands potentially going back to work is really what I want to know.

Speaker 1

Yes, easy answer on your second question there on the fleet retirements. That's Virtually 3 fleets and I would just add on to that inside of that is a little over 20,000 horsepower that we lost in the fire that we previously announced this year. Okay. But yes, you're exactly right, Sean. This is basically going to get parted out and cut up And you won't see any of this equipment on the auction block or anywhere else in the market.

Speaker 1

So this is a pure retirement on the of course, Powell, which we think is healthy for the market and we would encourage others to obviously do the same thing. The value that it produces or doesn't produce If it reappears, it's frankly just not worth it. On the Silvertip question, I'd say some of the near term outperformance that we've seen has been what we call operational synergies, pairing a few more Silvertip units with more ProPetro frac fleets. So we get those Silvertip units away from maybe some of our inefficient peers on the frac side and we get them paired with a more efficient ProPetro operation. We've also found that we didn't necessarily forecast for up some synergies on the wireline pump down side, where Silvertip and ProPetro are able to share equipment to provide more high quality pump down services alongside some of our wireline crews.

Speaker 1

So that was also part of the outperformance.

Speaker 4

Got it. Thanks for the color. I'll turn it back.

Speaker 3

Thank you. Next question will be from Mark R. Syed, ATB Capital Markets. Please go ahead.

Speaker 9

Yes. Thank you for taking my question. The guidance for CapEx hasn't changed even though you've changed the Accounting practice. Why is that? Could you comment on that?

Speaker 9

And then the loss on disposal of assets has been running around $20,000,000 a Quarter do you expect it to come down or substantially with the change in accounting?

Speaker 2

Yes. Well, Kara, this is David. The loss on disposal, we do expect to come down going forward. And part of our analysis, we were to clean up our income statement a bit. So that's why we made that comment in our remarks.

Speaker 2

I think that should be somewhere inside of $10,000,000 and it will coincide with the retirements as they play out and any other dispositions we have of assets. Regarding our CapEx, the guidance that we provided is our best estimate at Based on our revised accounting for fluid ends and we would just suggest using that number going forward.

Speaker 9

So are you increasing spending somewhere else that you were not previously planning with the change in accounting? Or When you said this CapEx budget, it was you already knew that you're going to be changing accounting?

Speaker 2

We had been continuing to analyze The process and our accounting determination, so we had not nailed that down at that particular time. But I think what we would suggest is sticking with the guidance we're providing today going forward for your models.

Speaker 9

Sure. And then do you have any crews on spot? Right now everything is on dedicated basis?

Speaker 1

Well, Wicar, this is Sam. I'd say technically there's maybe one crew that you could say is semi spot, but it's basically full with private operators that are going to share a dedicated So I wouldn't even I would hesitate to even call that spot. So I think we could confidently say this is a 100% dedicated portfolio.

Speaker 9

Okay. And do you have a sense of how many crews have kind of come in from other basins in the last like Couple of months and are in the spot market right now. Hard to say.

Speaker 1

I mean, like we said earlier in some of our previous answers, We've not seen any significant pressure that knocks us off of our kind of guidance and outlook, positive guidance and outlook that we've given. That said, we watch our peers and what they're doing. Of our larger peers, it's hard to even count on one hand. Maybe you need just a couple of fingers on the second hand to count how many fleets some of our larger peers combined are moving Basin to basin, not even sure if they're coming to the Permian. And we think that's a really healthy data point, right?

Speaker 1

We have many of our larger peers talking about specific numbers of fleets they're moving from maybe gas basins to oilier basins and it's in the single digits for the entire frac market that's probably over 250 fleets. So it just feels like there's a lot more disciplined behavior around asset allocation and pricing across the country right now.

Speaker 9

Okay. Rob, thank you very much. Thanks for taking my questions.

Speaker 1

Thanks, Vikram.

Speaker 3

Thank you. Next question will be from Don Quix of Johnson Rice. Please go ahead.

Speaker 10

Good morning, gentlemen. Sam, I wanted to ask a question about gas supplies as you kind of move into the DGB space. A couple of your larger peers have secured businesses where they deliver in gas to their fleets because the other supplies are fairly Unreliable. Can you talk about the deliveries of gas to your fleets and if you need to kind of move into You're on kind of delivery system or are you okay there?

Speaker 1

Great question and this definitely plays to The broader industrialization theme that you hear us talk about, just our sector being more effective at sourcing things like fuel to do it more operationally efficiency operationally efficient and at a lower cost. We've pressed pretty hard here in recent months around our abilities to displace more diesel with natural gas and a lot of that has been just operationally How we work our equipment on location, how we maintenance our equipment. A big, big part of that is adequate, timely, Quality fuel supply and the ability to distribute that fuel effectively to each individual piece of equipment. So That's something I'm really, really proud of the work that our team has done there. We think that we are on the leading edge of diesel displacement on individual locations.

Speaker 1

To answer your question more directly, is this something that we've looked at from an integration standpoint? I'd say yes, our eyes are wide open to what we need to do to continue to protect that operational performance and that opportunity I don't know if we figured out yet if that's something that we need to own or just partner more closely with. But we're doing a lot of work in that arena to understand that value chain and its importance to, one, things like DGB. It will also be of vital importance to our electric offering as well. And once you bring an electric fleet online, it consumes a very considerable amount of So it's even more important to have a good natural gas fueling value chain behind those e fleets.

Speaker 1

So stay tuned there. We're doing a lot of work in that arena, but we don't know exactly what it looks like quite yet for us.

Speaker 10

I appreciate that color. And just one for you, David. Obviously, the CapEx in the Q1 Was pretty stout as you did the conversions. Is there any way you can kind of walk us through the progression of CapEx as we move through the Back half of the year, is it going to fall is it going to be still kind of high in the second quarter and then fall a lot in the back half? Any color around that?

Speaker 2

Yes, Don. That's about right. I mean, I think when you look at our numbers, the incurred CapEx actually came in below our forecast pretty significantly at around $97,000,000 We have, as you recall, had significant CapEx last year to the tune of $356,000,000 of incurred CapEx. And so some of that was paying off that During the quarter, I think that as we go forward, 2nd The quarter will begin to diminish over time. The Tier 4 DGV deliveries will begin to diminish as we finish out the second Quarter and so that will definitely taper off is our expectation.

Speaker 10

Okay. I appreciate the color. I'll turn it back. Thanks.

Speaker 3

Thank you. Next question will be from Stephen Gengaro of Stifel. Please go ahead.

Speaker 5

Good morning, everybody. Good morning. Two things I was curious on. 1, and I know you've talked a bit about the pricing discussions, etcetera. Are you Seeing anything in basin as far as just conversations with customers about There being maybe some idle assets or some assets molding from other basins or anything along those lines that Suggest pricing is on shaky ground or are you fairly confident it's pretty stable at these levels?

Speaker 5

And maybe if you don't mind, I don't know if you can add any detail on this, but where do we stand? I know it's hard to sort of to specifically talk this number, but where do we stand on current pressure pumping prices versus prior troughs and prior peaks?

Speaker 1

I'll answer that last one pretty simply. We're still below 2019 pricing on a pumping hour basis. So there's that. On your first question, pricing Customer conversations, is there more equipment in the system? I'd say yes because of some of the spot market Comments we made earlier about the spot market weakening.

Speaker 1

There is a little bit more equipment floating around. It's not a lot. It is enough to hear and hear from a customer about, hey, there's a fleet available over here. It's not yet been nearly enough for any of our customers to take on the risk of that switch and risk the consistency or the safety of their operation and put their own numbers and forecasts at risk. And that goes to part of the insulation that we think that we feel.

Speaker 1

And look, we've got really great relationships with most of our customers where they'll openly talk to us about things like that even if it's just in a very small volume. And and thankfully we're working with a blue chip customer base that puts an extremely high value on things like safety and operational efficiency. And as evidenced by our financial performance, I think we've done a great job of operating safely, efficiently at a good price. And we still feel like notwithstanding any shocks to the grander Macro System, that we feel confident about continuing to operate at this level into the back half of this year.

Speaker 2

Yes. And Stephen, this is David. Just to add to that complement Sam's comments. I mean, there are still customers that we're not able to get to at this time. And so I think that speaks to the bifurcation.

Speaker 2

There are companies that want pro petro crews that can't get them still. And I think our performance in the field is something that creates that backlog of demand and we're going to continue to protect that with what we're doing, not only to optimize our business, but also basically transition our fleet to assets that customers value. And when The customers value your assets more than their competition and you have a service differential That puts you in a really strong position, which is where we are.

Speaker 5

Great. Thank you. And then and one follow-up. I know you guys were have 1 or 2 fleets this way and I think one of your competitors does where You've taken on new electric fleets on basically a lease order as opposed to purchase. I Just curious, do you have a sense either from your perspective or others?

Speaker 1

Steven, you cut out there. What we've

Speaker 5

done to try to prove their technology. I'm just curious what you see on that front?

Speaker 1

Hey, Stephen, you cut out there a little bit in the back half of your question there. Can you ask it again?

Speaker 5

I'm sorry. Yes, I'm sorry, I'm traveling. Just the sale leaseback arrangement you affected or the leasing arrangement you have for the newer Do you have the manufacturers still pushing that model or if they're just a

Speaker 1

Yes. I don't think we'll comment on what our manufacturer is doing commercially with other customers of theirs. I can say that Our ability to do this with them is based on the strength of our company, our balance sheet, our company's reputation and maybe our manufacturers' belief and confidence in their technology and their ability to operate alongside of us or with us in the field. So those are just kind of a couple of things that we think were motivating for both sides to get to this type of arrangement.

Speaker 5

Great. That's fair. Thank you for the color. Thanks, Steven.

Speaker 3

Thank you. This concludes our question and answer session. Now I'd like to turn the conference back over to Mr. Sam Sledge for closing remarks. Please go ahead.

Speaker 1

Sure. Thanks, Nick, and thanks, everyone, for joining us on today's call. As always, we're proud to play a part in an innovative energy industry where oil and gas remain critical to everyday life across the globe. We hope to either speak with you soon or see you on our next quarterly call. Have a great day.

Speaker 3

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

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Earnings Conference Call
ProPetro Q1 2023
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