Liberty Energy Inc (LBRT) 2020 Q4 法說會逐字稿

Good morning, and welcome to the Liberty Oilfield Services' Fourth Quarter and Year-end 2020 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 the 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.

Thanks, Tom. Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year 2020 operational and financial results. Wow, what a year for the world and our industry. I'm so proud of our team here at Liberty, weathering the storm of COVID impact with tenacity and strength and ending the year with determination and resolve in building a better company. We successfully navigated these challenges with the unprecedented sacrifice and commitment of the Liberty family.

We enter 2021 with excitement as Liberty will celebrate our 10th birthday as a company. While we are very proud of what we have achieved in our first 10 years, we're even more excited about what the amazing group of people that make up Liberty are going to achieve in the next 10 years.

2020 marked a transformative year in our short history. We started the year in a frac market that was already struggling with pricing due to an oversupply of equipment and reduced completion spending. We then rolled into the storm of worldwide COVID infections that led to a brief 25% drop in oil consumption by April of 2020 and oil dropping into the $20-a-barrel range. Liberty reacted quickly and changed our cost structure to meet the new market reality. We worked with our E&P partners to plan away through the crisis to make sure that we reached the other side with the strength to take advantage of an inevitable rebound.

Indeed, by our signing a deal with Schlumberger to acquire their OneStim North America frac, completions wireline and Texas sand businesses in the summer of 2020, we are in a stronger position to capitalize on the nascent industry recovery. We have brought back frac fleets to work as our core customer partners restarted completions, and we ramp back up to 15.8 average active frac fleets in the fourth quarter. Most importantly, these fleets performed with a sterling safety record, and we set a company-wide operational efficiency records in Q4. This ramp-up represents a 68% increase from the third quarter and up from a low of 4.6 average active frac fleets in the second quarter.

Revenue for the full year 2020 was $966 million, down from pre-COVID affected numbers in 2019 of roughly $2 billion. Adjusted EBITDA for the full year was $58 million, driven by a relatively strong first quarter.

Our fourth quarter revenue was $258 million, a 75% increase over the third quarter, driven by increased fleet count and the high efficiencies mentioned. Our fourth quarter adjusted EBITDA was $7 million, a $6 million improvement from the third quarter as frac activity continued to increase following an abrupt halt in completions activity in the oily basins during the second quarter. As we discussed in our April earnings call, our plan was to manage the balance sheet to cash neutrality during the historic COVID downturn. At the end -- at year-end, our cash and cash equivalents were $68 million, over $10 million higher than at the end of the first quarter of 2020.

We were excited to end the year closing on the acquisition of Schlumberger's North American pressure-pumping business on December 31. We have laid the foundation for a new era of Liberty's leadership in technology and sustainability in the oil and gas industry. Our greatly expanded technology portfolio, breadth of operations, dedicated team and historic Liberty focus positioned us to achieve even greater innovation and efficiency.

We've had 5 weeks of engagement with our new team members as part of the Liberty family, and the enthusiasm is contagious. Both our legacy Liberty team members and new colleagues are already working together with a renewed level of excitement and dedication to delivering superior service quality and results in the field for our customers. We are excited to now have significant natural gas exposure as that activity is driven by a separate market with different cycles.

U.S. natural gas demand dropped only about 2% in 2020, far less than oil demand. The global LNG market is strong right now with prospects for 5% plus growth in the coming years. It is notable that even during a time of major transition, our new team members were able to drive strong fourth quarter sequential revenue growth of about 25% at legacy OneStim, a strong result.

As we look ahead to 2021, we are excited by the opportunities ahead of us. We are still in the early innings of a recovery, but the clouds of COVID have begun to part, and the global economy is on the mend. The rollout of COVID vaccines, fiscal and monetary stimulus policies around the world and pent-up demand for goods and services reinforce a global economy that is on an upward trajectory. This provides the backdrop for continued improvement in energy demand, while controlled OPEC+ production coupled with discipline among U.S. shale companies is supporting oil and gas prices. This is reflected in a rising rig count throughout the fourth quarter.

The number of total marketable frac fleets has declined significantly as the pandemic accelerated the pace of rationalization and cannibalization of frac equipment. As customer demand is shifting towards next-generation technologies, that support their emissions and efficiency goals, attrition of older equipment is expected to continue. Liberty's focus on reducing environmental impact since our inception with continued investment in technology through cycles has allowed us to remain front and center with our customers in supporting this move by the industry and moreover, deepening our partnerships during these challenging times.

Operators are currently navigating through a time of industry consolidation, a changing political climate and a commitment to keeping oil and gas production flat. Continued shrinkage of marketable frac fleets across the industry is a necessary part of moving the market towards balance. The current pricing dynamic remains challenging, but Liberty is having many productive discussions with our customers to phase in modest price improvements throughout the year. Liberty was proactive in working with our customers as oil prices collapsed and that partnership works both ways.

We believe the frac market will experience flat to slightly rising demand for frac services in 2021 based on current visibility into customer plans. Public operator demand is expected to be relatively level loaded, whereas private operator demand is more likely to be a bit back-loaded. Against this backdrop, we enter 2021 with 30 fully staffed frac fleets working across all major basins, except the Northeast. Liberty expects to maintain approximately 30 active frac fleets in the first quarter of 2021, with the potential of adding more fleets later in the year only if the economics improve. Increased efficiencies that lower our cost of delivery, coupled with a gradual modest rise in frac pricing are the factors that can drive improved fleet profitability.

We like our new mix of customers including larger public and private operators with great assets, balance sheets and most importantly, great people. It will take the right partnership and the right economics to add new fleets to the mix. Overall, we're off to a strong start to the new year. We are working hard to seamlessly transition our business into one. Thanks to the considerable efforts of our integration team. We are now a few weeks in and the complementary customer partnerships, technologies and business acumen across our teams has been an incredible value add.

In the first few weeks of the year, we've had folks across all disciplines, notably operations, sales and engineering teams come together in our Denver offices, forming new relationships and finding new ways to collaborate and improve. It's been incredible. We now have new, highly complementary business lines to leverage greater control of the value chain, the capacity to move technology forward at a faster pace, our new DG frac e-fleet on the horizon and much more. Industry transitions take time, but we believe we're at the beginning of a new era in the industry, well positioned with the right tools in hand. As we shared last quarter, it is the perseverance and enthusiasm of the team that sets the stage for liberty to execute in 2021.

I will now pass the call over to Michael to discuss our detailed financial performance, and then Ron will give a short update on the integration progress for operations and technology.

Good morning. We're pleased to finish the year on a positive note. Despite the immense challenges the team faced in 2020, our disciplined approach to managing the business was very effective. Frac activity improved meaningfully in the fourth quarter, and we were able to put more fleet to work faster than expected. The Legacy OneStim business also saw significant improvement despite the inevitable disruption caused by the transition. We are so proud of persistence and dedication exhibited by our legacy and new team members during the quarter, and we're excited to write the next chapter of our story as one united team.

As we look forward, we believe we now have the right operations footprint in place for 2021. We currently plan on running approximately 30 deployed fleets in the first quarter and maintain those fleets during the year, with some normal seasonal variation in the U.S. and Canadian markets impacting utilization in various quarters. I will talk further about our 2021 outlook shortly.

For the full year 2020, revenue declined 51% to $966 million from $2 billion in 2019. Net loss totaled $161 million or $1.36 per fully diluted share. Full year adjusted EBITDA was $58 million compared to an adjusted EBITDA of $291 million in 2019. Adjusted annualized EBITDA per fleet was $4.4 million compared to $12.8 million for the prior year. Our adjusted EBITDA reconciliation now excludes stock-based compensation to more closely correlate to other industry reporting.

Our focus in 2020 on managing capital expenditures was successful. We were happy to get our target of positive cash flow on frac fleet operations during the last 9 months of the year that was severely impacted by the pandemic. We're pleased to be able to reduce our full year capital expenditures while continuing to invest in Tier 4 DGB equipment, at digiFrac easily engineered and prototypes and dual-fuel upgrades. All technology that is in high demand and investments in line with our philosophy of managing the businesses by focusing on superior long-term returns while maintaining balance sheet strength.

For the fourth quarter 2020, revenue increased 75% to $258 million from $147 million in the third quarter. The increase in revenue was primarily driven by 68% increase in active fleets and improved utilization as customers restore completions activity faster than expected.

Net loss after tax decreased to $48 million in the fourth quarter compared to $49 million in the third quarter. Fully diluted net loss per share was $0.41 in the fourth quarter, equivalent to the third quarter of 2020. Results in the quarter were negatively affected by $11.1 million of nonrecurring expenses, including transaction and other nonrecurring costs of $9.4 million and fleet start-up costs of $1.7 million.

Fourth quarter adjusted EBITDA, which excludes noncash stock compensation expense increased $7.1 million from $1.4 million during the third quarter. Improvement in adjusted EBITDA was increased -- was driven by increased activity in utilization, driving higher absorption fixed costs. General and administrative expenses totaled $20.1 million for the quarter including noncash stock-based compensation expense of $3.5 million. Net interest expense and associated fees totaled $3.6 million, equivalent to the prior year.

We ended the year with a cash balance of $69 million and a net debt position of $37 million. At year-end, we had no borrowings drawn on the ABL credit facility. Total liquidity, including $114 million of availability under that credit facility was $183 million. As we laid out in our first quarter earnings call, we targeted managing the business to cash flow neutrality through the end of the year, and we were pleased to be able to peak this production. Given the considerable change in Liberty and the Oilfield Services market over the last year, I'd like to provide a preliminary view of our 2021 outlook. I remind everyone, this is based on current macroeconomic conditions. And there is significant uncertainty in the global economic outlook.

As Chris pointed out, we are still in the early innings of post-COVID recovery. In the U.S., we expect a continuation of current frac activity levels through the first half, followed by a potential gradual improvement in industry activity in the second half of the year, led by private operators. If the macroeconomic conditions are supportive. In Canada, we're anticipating normal seasonality with a stronger first quarter, followed by a seasonal decline in Q2, improvement in Q3 and a seasonal slowdown in Q4. We are planning to run approximately 30 average frac fleets during the first quarter, and we will evaluate changes to fleet deployments based on market conditions. We will add crews in the future only with a meaningful improvement in fleet economics.

As Chris described, increasingly positive dialogue with customers suggest the frac market can see some modest price inflation as the year progresses. We believe there is a recognition amongst operators. We work hand-in-hand to lower pricing during the 2020 energy crisis to ensure continuity of operations. But pricing at this level was unsustainable outside of the period of crisis management. We have had productive conversations with a number of clients and have plans in place to face a modest price inflation during the year.

With the one-step acquisition, we have grown significantly, adding more frac fleets for wireline business. And sand mines on the mix. But we expect that general and administrative expenses in 2021 will only increase by high single digits from 2019 levels. We have increased our operating platform and will gain significant fixed cost leverage.

Our first quarter will include approximately $10 million of nonrecurring SG&A costs related to the transition services provided by Schlumberger. Transition costs and services from Schlumberger will not continue after the first quarter. Capital expenditures are targeted in the $145 million to $175 million range for the year, and depreciation and amortization is estimated at approximately $240 million for the full year.

Capital expenditures at the midpoint of range include maintenance capital of approximately $3.5 million per fleet, partially offset by the early stages of CapEx synergies tied to equipment slated for maintenance support. Annualized savings of approximately $1 million per fleet are expected to begin to appear in the second half of the year after our initial period evaluation of the support equipment. We're also including approximately $60 million in technology investments, essentially digiFrac, Dual Fuel upgrades, and Tier 4 upgrades.

Lastly, approximately $10 million related to the libertization and modernization of all fleets. Importantly, we have significant flexibility adjusting our capital spending targets, depending on the market environment, and we plan to be free cash flow positive in 2021, while continuing to invest in the future.

As we bring OneStim into the fold, Liberty is laser-focused on building a business for the future, where we are a partner of choice for people who run safe, sustainable and productive operations. It is these efforts that will drive deeper customer partnerships and the superior returns we are known for.

I'll hand the call over to Ron for a short update on the integration progress for operations and technology.

We are excited to bring together 2 premier frac service companies, well positioned to lead a technology-driven structural change in the industry. A change that is necessary from the viewpoint of our customers, suppliers, and investors. Our plan of execution is focused on 3 areas: culture and leadership, technology development and operational excellence. Right now, we're at the early stages, understanding what we're calling our Liberty Red and Liberty Blue teams are doing and why and how we can leverage the best from each of the organizations.

First, we've strengthened our leadership team to execute our vision with the combination of the red and blue heritage folks. These are the folks that will reinforce our culture of agility, idea generation and empowerment and drive collaboration across all our business lines to carry this business forward.

Second, Liberty's history is rooted in the impactful utilization of real data and rigorous analysis. With our larger scale, we are now bolstering our knowledge base, representing a step-change for innovation in the industry. We are creating a new technology leadership group to house all our innovation and engineering. This will accelerate the rate of development of our leading data-driven engineering stimulation tools, leading-edge equipment design and technology development, innovation in ESG and more. It is this collaborative model from start to finish that is key in driving value creation and the differential returns we've seen through our company's history.

We were early movers in deploying Dual Fuel capability, doing so in just our second year of business in 2013. We were an early field test partner for Tier 4 DGB and a strong additive for this technology as a viable option for next-generation fleets to meet reduced emissions initiatives. We continue to see strong demand for this solution as we add this upgrade to much of our existing Tier 4 capacity.

To further emissions and operational cost reductions, we are finalizing the testing of our proprietary engine idle reduction system. We expect to begin deployment of this system across our fleet a little later this year. The next step in our journey down this road of reduced emissions and improved operating performance will be our electric fleet.

With electricity generated using natural gas reciprocating engines, the digiFrac platform will provide solutions to the challenges identified in many of the current iterations of electric fleets. In 2021, our digiFrac fabrication, field testing and commercialization plans remain on track. We're working on integrating the fully electric process trailer, a combination blender and hydration unit completing our power supply design and assembling a power generation system.

In parallel with this effort, we will be completing the development and deployment of a next-generation control system with fully automated pump operation for deployment across all Liberty fleets. As part of this initiative, we will also integrate the pump down control into the wireline system and ultimately, into frac operations allowing seamless oversight of these 2 integral operations on location.

Third, from an operational perspective, we now have a much expanded software and technology platform. This will drive value by augmenting planning, execution and equipment diagnostics with digital integration and automation. Our new larger organization takes greater coordination of all elements for managing our assets with the greatest efficiency to where we invest dollars for the right equipment and technology to how to best leverage our vertically-integrated asset base and supplier partnerships. Our relentless desire to improve means that all processes are under the microscope. Along those lines, we have had great success in providing customers with both frac and wireline services in area we know our legacy liberty customers would greatly benefit from by streamlining our frac and wireline produced on-site to shape extra minutes off the day. Every minute equals efficiency and translates to a lower cost of producing a barrel of oil for our customer and improve profitability for Liberty, the win-win we strive for.

It has been an incredible start. Spending time with our red and blue teams across all of our basins. The eagerness and excitement from our teams is humbling. As we move forward, we'll come back to the street with the progress we've made.

With that, I will hand the call back to Chris for closing remarks before we take your questions.

Thanks, Ron. The future for frac services is leveraging scale for innovation with more data and technology and empowering talented individuals to interpret and apply the analysis of this information to ultimately drive down the cost of producing hydrocarbons in the safest and most responsible way.

As we enter our 10th year in operation, we are excited to lead a technology-driven structural change in the industry. We are uniquely focused on extracting significant value from our acquisition by bringing together 2 of the leading technology-centric service businesses in our industry, supplemented by an ongoing technology partnership between Liberty and Schlumberger. Early response to Liberty's acquisition of OneStim has been positive, as customers are finding value in our technology leadership. Invention and creativity takes center stage in our industry. Liberty remains committed to the next decade of innovation as we were in our first decade as a company.

We look forward to your questions. I'll turn back to the operator for questions now.

(Operator Instructions) The first question comes from Chris Voie with Wells Fargo.

I guess, first, I'll start off with a kind of high-level question. And we've heard the refrain, no fleets about pricing. I think since kind of like the middle of last year, in practice, we've seen a lot of fleets coming to market at very low pricing thus far. So are there any factors that will be different going forward from this point in time compared to what we saw in the third and fourth quarter for the industry?

Well, Chris, I don't think you've heard that refrain from us. Our goal in the pandemic kit was to work with our partners to keep our relationships strong and to get through the downturn to oil price disruption, together with our partners. So we made adjustments on the downturn to keep the economics to work for both sides, and then we've continued -- and then with an agreement to ramp things back up in a schedule, it's actually been not much different than what we discussed and learned with our customers in April. To us, things have gone on plan. There's been no change. The key at the start is preserve the relationships, restart safe and efficient operations and as we mentioned, we had efficiency records in Q4, likely also for safety. And now we've seen an oil price recovery, and now we will see price recovery in our frac services as well. So for us, things have gone as planned, on track.

Okay. That's helpful. And then maybe to follow up on the pricing discussion. Just curious if you can help us quantify how meaningful that might be. And maybe translate it into how we should model gross profit per fleet or EBITDA per fleet going forward? Did you see any of these as kind of in the bag thus far? Or is it going to be more of a slog as you get through the first half of the year?

We have a good number of agreed price raises already. Not starting tomorrow, but we have start dates or pad dates where these things will come in. And again, it's just always been a partnership dialogue with us. We moved down. We held for a while, and now we're bringing pricing back up. But there are -- we have a good number of agreements already in place. And we expect over the next few months to have a good number of additional ones. I'm going to refrain from commenting on magnitudes and movements on gross profit. I don't know if Michael wants to add anything to there. But we got to let this play out as it goes. But we feel pretty good about where we sit right now.

Yes. I think on the pricing side, I think you probably start to see them slowly roll in from Q2 onwards after that. But this is -- again, these are sort of like these were discussions we had as the crisis had at sort of Q2 of last year. And as we said, we moved those pricings up with those clients in a planned fashion as we roll through the year. So (inaudible) for me is as we go through the year.

The next question comes from Scott Gruber with Citigroup.

I want to stand on the pricing question, but ask a question related to incremental crews. Chris, you talked about the anticipated pricing on active crews. Is the magnitude of that price increase sufficient to add incremental crews into the market? Or would you want to see something bigger and more of a step-change in profitability before adding incremental crews?

Yes. Scott, I would say, yes, it's something additional to the agreements we have in place now. We have in place now the kind of partnership things we need to keep our customers generating strong returns, and the returns on Liberty's invested capital to come back as well. So look, those have been very constructive dialings. And as I said, a number of agreements are completed, but yes, I think for us to stand up and hire new people and deploy another crew, that's a bar higher than what we're talking about so far.

That's good to hear. And then maybe just a little bit of color on 1Q EBITDA. Now that you'll have the one-spin fleets in the fold. And now that you've closed the deal how do you think about the timing to libertize those crews and you can close the margin gap between the 2 sides of the business?

I'll let Michael or Ron comment on that.

Yes. So Scott, I mean, I think what you're going to see is you're going to see a slower ramp-up. I mean, what we're calling a lively blue crew is very efficient. It's been a nice surprise. We're getting into fixed cost leverage, so especially once we get past Q1, I mean, there's a lot of transition sort of noise and costs as far as until we transition on to where ERP systems and everything else, we get to actual efficiency on the overhead side. So there's a lot of work going on the Q1 side for that. So I think you'll start to really see that drop-through to the bottom line from Q2 onwards. And then we will start to see, sort of, a more integration and sort of like that efficiency gap -- any efficiency gap closing. The key things there is maybe not so much pumping on the day when they're on-site, which is they're very impressive crews. Really, a lot of it's around coordination, scheduling and reducing white space, which is one of the places that Liberty, our sales and operations team have excelled.

Is the goal to close the gap in -- by the end of the year? Is that possible?

Correct, yes. That will be. I think, yes. That will -- I mean, every customer, every fleet, every sort of -- every country, every basin has a little bit of a different flavor. But yes, we would expect by the end of the year to have -- you shouldn't see a great deal. You shouldn't see any difference in whatever crew we're rolling at. It's going to be Liberty and Liberty all the time.

The next question comes from Stephen Gengaro with Stifel.

Everybody. Two things, if you don't mind. One, just to kind of continue on that topic. I was just -- I was trying to understand, when you look at the fourth quarter, you mentioned record sand volumes pumped. So I would assume that means pretty high efficiency. Are we looking at a pricing dynamic early in the year that's very similar to the fourth quarter? And is there any kind of efficiency gains that we could see earlier in the year, which would lift that EBITDA per fleet?

Well, we did indeed have record sand throughput on our fleets, record efficiency across the Liberty fleet in Q4 and again, look, we'd love to see more margin than, but we know that's coming. For us, the key thing is the partnership with customers, deliver safe operations and keep driving it. There's always room to get better. But yes, it was a pretty high bar in Q4. I'll let Michael talk about, there's probably incremental improvements in efficiency going into Q1. That's ambitious, but we'll probably achieve that. But I think just the fixed cost leveraged over a larger platform is also helpful. Michael, anything you want to add?

Yes, I think so. Stephen, I think what you'll see is the heritage refleet pumped very efficiently in Q4, and we didn't see that as much of that Q4 drop off as we were because then were just started to ramp-up -- sort of ramp-up completions. So we should see that efficiency probably flatten, I would say, into Q1, as we see a little change over in the calendars of the white space. So I would say, you probably won't see a lot of efficiency gains out of the combined operations in Q1, right? Then you'll start to see things change as we go through there. One of the things that you see we have to leverage fixed costs. I think what we're going to be able to do is going to be -- as we go through the year into next year, it to a fairly significant leverage down on R&M costs and some of those cost per fleet. But we're looking at there, a lot of the technology innovations, the wrongs teams sort of running through the model that we're combining sort of the best parts of what historic [once] team have been doing and what -- the base part of what we've been doing. I think we're going to see some pretty significant help there to the bottom line on both -- on that side of it. Also, the automation that Ron is doing that I'll talk about later on because you'll see more of that when we shared about that in May, but really reducing the number of hits on-site, being at the automated pump, the reduction in fuel costs with the automatic idle. There's a lot of efficiencies that are coming. I really think you'll see a great deal in Q1 as we go through. We've just got -- and you're going to make everybody's running at 9,000 miles an hour at the moment. And you'll start to see those fall through as we go through the year.

Great. No, that's helpful. And then the other one was on the digiFrac's and can you share with us sort of your thoughts on how the model ultimately works? And what I'm thinking about is, like who owns the turbines? Is it you long term? And do you think customers will pay for sufficient returns on that capital? Or do you think there's another ownership structure of turbines down the road?

First and foremost, I guess, most important to mention that we are not going to use turbines. We view a turbine as not only challenged from delivering the lowest possible emissions footprint, but also incredibly challenging from a capital standpoint. You've certainly heard the numbers around one of those costs to purchase and ultimately own. We're headed on a completely different path. We will be powering our electric flat fleet, digiFrac with natural gas receipt engine. So I think 20-cylinder natural gas engine, they are commonly used in power generation right now if you were to head on to an Apple data center, for example, and look behind that, what you would find is a 20-cylinder natural gas gen-set there. We're going to do the same thing. We believe we have an opportunity with that to deliver a meaningfully better emissions footprint than current iterations of electric frac fleets and to do so at significantly better capital efficiency than we've seen in the past.

A great comment on the kind of the ownership model question there, Stephen. I think you've probably heard us talk before, it is tough to think about that ownership model being separated out, right? The reality is it's like the grid or we have a seasonal equipment that you own, right? You've got to get utilization to pay back that equipment. Now we obviously sort of like the same way we are the same, we set large frac company. In the country, we have gone to have the ability to own our power generation and keep it running 100% of the time to being on -- no matter what customer is working. These customers have downtime, right? They have issues go wrong with pads, pad changes. You'll see acquisitions where people have sort of like short-term slowdowns, et cetera. Now we can move that equipment around. It's got wheels that factually converge. So I can generate a return on that capital investment has continued, right? So if you're trying to think of people who try to classier, I'm a secondary ownership kind of rental. Now the only way you can do that is if you've got significant other uses for that power, that you have a larger front fleet, think of great cover, their fleet, et cetera, of some of the power generation, the smart-power generation, that you're accessing across a lot of different business lines and maybe a lot of different industries. But that's the only way. But you're still -- but we can guarantee that continuation of work, which means we're going to ultimately end up with the lowest cost of ownership for their power generation. So I just don't think it really makes any sense doing in any other way.

The next question comes from Sean Meakim with JPMorgan.

Chris, there's been a lot of talk about old equipment getting cut up. That's to your benefit as having a young fleet and your contribution now is coming through this OneStim transaction. But across the industry, most of what's been cut up hasn't worked in a while. It seems like there's potentially an emerging bifurcation in the active market. Things are pretty sold out as far as e-frac and Dual Fuel utilization across the industry. And so in that part of the market, we're seeing some capacity creep back in, in various ways. This maybe some piloting some new e-fleets, upgrading some Tier 4 fleets to Dual Fuel. So I'm trying to get a better sense of your perspective around potential bifurcation in the active market between Legacy fleets and next-gen fleets. And then on balance, how should we think about a lot of nameplate capacity has gone away? But in the active market, we are still kind of letting some more horsepower creep in. I would love to hear your thoughts on those 2 emerging trends.

Yes, Sean, I would agree that the market is becoming bifurcated through a gradual process, that's been going on for a while. As you know, Liberty was very early on second year of business building Dual Fuel Fleets. So we probably had several years maybe even slightly frustrated. We had a lot of Dual Fuel capacity, but it was an effort to get customers to engage and use it. That mentality among customers has changed dramatically. But now I think everyone realizes, wow, lower emissioncy -- lower emissions and lower cost. That makes sense. So there's a little bit of extra logistics that need to be done, and we won't get into that today. But yes, so Dual Fuel is becoming a more common thing that people want Tier 4, for certainly, people at the highest bar and want Tier 4 equipment. That's -- you can't upgrade an old Tier 2 engine to Tier 4. You can upgrade an old Tier 2 engine to Tier 2 with Dual Fuel, which is a great step in the right direction. But for Tier 4 equipment, it's got to be Tier 4 horsepower that was built that way. So it's going that way. And I would say, look, it's the bigger, stronger players that are -- that fleets are migrating towards more upgraded fleets. And then there's a lot of Legacy horsepower and Legacy players out there that are just less active in that space and not doing so much. So I think as with the transformation to high spec rigs, it will take some time, but it's definitely going on. And no one's building old Legacy equipment and people are -- and again, not maintaining all of it. They've combined, they had 10 fleets and they put them into 7 fleets and they're removing parts. And if they stop investing, maybe they'll be at 6 fleets a little bit later. So we see capacity shrinkage around the marketplace. There's still a huge amount of traditional Tier 2 diesel fuel fleets running. So they're not gone. There's just that equipment base is shrinking and the percent of the market they are is shrinking as well. But I think rightsizing the market takes some time, but the last 12 months have been particularly productive, particularly productive. And I suspect we'll see quite productive this year as well. We'll end this year with meaningfully less deployable capacity for frac fleets just because there won't be the investment levels to maintain the existing capacity. At the end of this year, we'll have less available fleets to frac and more fleets fracking. So I think the progression is happening.

Yes, I think that's fair. I appreciate that context. To touch on capital efficiency for a second, you're only about a month look number the hood, but I imagine your guys a bit busy. So you cited in the prepared comments, $1 million per fleet of maintenance capital savings from rationalizing the excess horsepower from 1 stem. So we're running 30 fleets, $30 million a year. Do you have a sense of how many years that can run? Or what kind of an update on the aggregate savings versus the initial shot in the dark that you provided us late in 2020?

I say that's -- I think the shot in the dark still have best estimate at the moment. We're only just -- there's a lot of equipment out there. But yes, other part of is belt, right? It's probably going to take most of the first half of this year, to sort of come up with the plan, the efficiency plan and how we're going to do this. The majority of the savings will come next year on the capital side and then some of it will slide into 2023. So think of as a bell curve there. I roughly would like together in a plan. I sort of go, half it's going to come next year, maybe a quarter to the second half of this year and 1/4 of in 2023. It may drag out a little bit further as 2023. But yes, we're still in that general -- that's first shop in the dark that we had. So plus or minus $75 million, we think it will help us on that.

The next question comes from Ian MacPherson with Simmons.

Michael, does your CapEx envelope for this year include maybe at the high end or otherwise include the completion of the first digiFrac fleet in its totality? Or if you were standing up that fleet in the second half, would that be incremental sort of new build CapEx that could be above and beyond that?

Yes. The topic does include it, Ian. Yes, that would be the building of the first digiFrac fleet.

Good. I know I understand the reticence with more sort of specific guidance than what you've already given, but you said an ambition would be to stay free cash flow positive for this year. And we can certainly work backwards from your CapEx guidance, and we know what interest looks like. Do you have any -- could you point us towards anything with respect to cash taxes or working capital harvest or billed for this year that might help us to refine our EBITDA estimates for this year?

I'd say it's pretty -- very little cash taxes be and say, probably want to move the deal on the cash side of it. Our working capital will be of slight build, but not huge, right? This OneStim business came with some working capital that we -- as part of the deal, the negotiated deal so there will be a slight build. And that it will depend really on how the second half looks, right? We stay in this kind of flat environment, macroeconomics doesn't improve, clear economics don't improve, you'll be at relatively flat working capital area. I think we're going to -- we'll make some wins on inventory that will offset some of the AR that will increase -- if we see some -- we see really pricing improve decently, and we see a little more speedier adoption, you might see a bit of a working capital build, but then you will see an innings built at the same time.

The next question comes from James West with Evercore ISI.

Chris, with Brent at 60 and WTI in the high 50s, certainly higher than I think most budgets were set for your customers. Is there any talk at all of them kind of investing more this year? I mean, it looks to us like they're not investing enough to really even hold production flat at this rate. But are they starting to -- what they've announced kind of reinvestment rates of 70% to 80%. So is that a signal that perhaps we could see a little bit better CapEx than perhaps we thought of a month or 2 ago?

I don't think so, James. I have regular dialogues with our customers among the publics. I don't think we will see any change in plans. I think the message has been received. I think people realize, wow, we've had this awesome shale revolution and none of the value accrued to the operators. And so, no, I think that -- certainly, for this year, I don't think it fades much in the coming years either. But no, I don't think we'll see any change in the development plans that the publics have laid out whatever oil prices do. Unless they went really low, you would see a raining back in. But we're not going to see new additional CapEx from the publics. Certainly, on the private side, it's a little bit different. Their oil prices and current economics impact decision-making. So there's a little more movement in plans for the privates. But even there, capital availability is not great. Nobody wants to stress a balance sheet. So as cash flow flows up, I think you'll see a little more CapEx from the privates. I mean, we're already seeing a bit of that, but not huge. I still think sort of the -- I agree with you, current activity levels for the public sort of imply a little bit of a decline in production through the year. But boy, efficiency and some upgrades, I don't know. If I was a bet-man, I still suspect that exit rate production this December will be pretty similar to what December production was lack closing 2020 out. Could be -- if oil prices, yes, it will be flattish this year. I think that's -- I don't think we'll be far off that.

Okay. Okay. Fair enough. And then with respect to the Schlumberger technology portfolio that you now have acquired, are there certain technologies that stood out to you? I mean, you've had a month owning the assets and the IP, which obviously took a look under the hood as you were doing diligence. Are there certain technologies in that portfolio that are incremental to what you guys already had and could ramp your own efficiencies even further?

James, I think there is. And even just on business processes, yes, the more we look under the hood, it's like, wow, that's pretty cool. But we've been cautious in saying too much about them because we've got to digest, understand it. We're planning to do, I think, Investor Day in May or something, where we'll have a longer presentation. We'll give a little more color into the technologies across -- from operations, the business processes to ESG. And we'll give a little more color or field then yet -- yes. But yes, we -- the surprises have been on the positive side as far as the technologies and the humans. I mean, one of the appeals to us of Schlumberger was that low turnover, long-tenured, higher-caliber professionals in the company and we haven't been disappointed. We are quite enthusiastic about it.

The next question comes from George O'Leary with Tudor, Pickering, Holt.

Assuming pricing were flat from here, let's just assume -- I know you mentioned there's -- it sounds like there's some increases on the come from some of your customers or partners in the field. But assuming pricing were flat from here and given the 30 fleets that you guys anticipate running in the first quarter, just directionally, not asking you to quantify magnitude. But would fleet profitability, again, excluding pricing increases, excluding any noise associated with the OneStim transaction, would fleet profitability be better quarter-over-quarter in the first quarter from either a gross profit or an annualized EBITDA level just given the increased scale? Or how would you frame that? We touched on it a little bit, but just looking for any incremental color you could provide.

Yes, George, we get significant fixed cost leverage, right? Our G&A really isn't going to go up erroneously at all, really not that much. Meaning, when I think about the G&A heads that we added, with this deal, we really end sales, right? We've got -- seen a lot of fixed cost leverage. We're going to get a lot of -- which is the G&A front, we're going to get some of the district fixed overhead there is because obviously, we're doubling the size of our Permian business, right, and really not adding -- you don't add the same amount of overhead. When it comes to that, which I think is also very, very good, we've got to be, obviously, our own supply chain team are going to be buying twice the amount of staff. And that's going to help with working with suppliers. I think that's a key thing. But yes, as we get more and more into these -- we sort of do further and further into it, we do actually see that. We'll also get to a little bit of utilization with the calendar right over the G&A, and so you have to be largely get in different areas. It means you're always going to have gates going to have fleets moving around. And as we work through the year, with the integration of these 2 fleets, which are going to be larger, you're going to be able to shuffle the fleets so you have less white space. So there's a lot of incremental benefits that come with that. And then I think a lot of the processes and procedures as we sort of be able to get more efficient as we go. I think adding the wireline business is a great complementary business. I think, again, that's a unique frac part on the dance floor. And it's a significant -- probably the largest portion of our third-party downtime. Ron could talk more to that, but we can shave -- initiate minutes off a day. That's more revenue that you're going to bring -- you're going to be able to bring to the table to better understand we have -- we pump down. We were still -- we're already the largest, probably the largest or second-largest buyer of said in the country by far. Now we have 2 Texas mines to help us balance some of that as well. So all these things that are going to come together that help even without any pricing or any increase in fleet. So we will see improvements as we go through the year.

Great. That's very helpful, Michael. And then just from a tendering perspective, you mentioned in the back half, it seems like some privates may add. At least best we can tell, activity was up in December. Activities up month-over-month in January on the completion side, and you can clearly see drilling rig count continues to grind higher. There's clearly some pricing discipline on shale's part and not activating incremental spreads. But just from a geographic perspective and a tendering perspective, where are you seeing the lion's share of the shots on goal? Is it Permian activity increases? Or is it -- are you seeing some activity increases potentially in the Haynesville, where people are looking to add as we progress through the year?

The Permian is certainly the biggest pond. So yes, there's probably that's certainly the biggest place you'll see extra activity levels. The Haynesville, the upside of the Haynesville was it never -- it didn't drop nearly as much. So the Haynesville stayed reasonably strong throughout the year. It's definitely geographically advantaged for LNG exports. And as we see those, we'll set a new record this year, beating last year's record there. But not a huge increase in activity there. It's -- the awesome thing about shale gas is we can produce a lot of it. So no, I don't think we're going to see wild swings there. I would say that the flexibility in activity is going to be more in the -- is more in the oil basis, more in the oil basins.

If you have one second just, I think interestingly enough, Liberty has always been sold out, right? We've had basins where customers have approached us over the years and said, "Hey, we'd really like you to bring your efficiency and engineering technology, your technology focus to our basin, to our country, et cetera. What we've done with this one instant deal is expand that geographic base rig. We've started in the Haynesville. Now we've got a larger regency here. We're doing work in the Midcon. We have planned on firth operations in the Northeast. We have operations in the Canada. So people who have been approaching us for years to come and help do some work with them in the Montney and Duvernay in Canada. So now we've got a base there that we can sort of like to do with that. Especially once COVID gets over a little bit, we can actually get people across the border. But you're going to see some things there, I think, George, where you're going to see some sort of like potential once pricing comes back, the additional market for us we have to take just by taking the liberty of what they sort of like literally special source, the people have wanted and having access to it in different basins.

The next question comes from Connor Lynagh with Morgan Stanley.

I appreciate you guys squeezing me and I'll keep it brief since we're at the top of the hour here. Just at a high-level framework, obviously, you've added pressure pumping, but there's the affiliated business, Michael, you're referencing wireline. There's the sand mines as well. I would imagine the incremental earnings contribution at today's pricing is pretty minimal. But could you give us sort of a framework to think about relative to, say, 2019 on a per fleet basis or however you want to frame it. How much can you add to your EBITDA per fleet or your earnings power, both from the -- just having incremental assets working, but then also the efficiency gains that you were talking about? I appreciate you might not be able to get super specific on the efficiency side, but we'd just love any thoughts on how we should think about that?

Yes, Connor, it's really hard to comment at this point, right, just a little bit too early. I think probably by -- I'd pretty like to say that for the next earnings call. I think ideally, we will get some but I think sort of being able to give those specifics would be better off done sort of once we've got a quarter under our belt and we can really see it. You've got to remember, this is all accounted for under Schlumberger and a lot of the historic or their cost structure, et cetera. So they're still sort of coming -- becoming clear. So let's put that offer a little bit for too much additional here at the moment, but it will be positive.

All right. Fair. Just one last quick question on a related win then. The efficiency gains that you're talking about on wireline, that being a big portion of downtime. Can you maybe help us think through how much of an uplift? How big of an outage is that on your "average pad"? And then if you guys were able to get it where you think is reasonable, how significant would that be?

So over our past history, of course, we've tracked this for -- since the beginning of our time. It's about -- the averages today about 6 minutes per frac stage that we work on across our entire fleet. So if you start to roll that up, obviously, that varies a little bit by basin in terms of number of stages that we pump. But if you think about it from that standpoint at a high level, that will give you some sense of what kind of time we might be able to have over the course of the year.

The next question comes from John Daniel with Daniel Energy Partners.

I just have really one question. I'll follow on to Sean's question, but looking for a wild ask guess on your part, Chris. But as you look at your customers, or just call it, the E&P industry, what percent of them actually care about lower emissions? And what percent of them are actually willing to pay for lower emissions?

That's a great question. Look, I would say -- and one thing I think -- and John, I know you know this. But one thing I would say that's misunderstood about our industry that the industry is dominantly people from rural areas that have lived on the land. I mean I would say the concern for the environment has always been there in our industry, you're right. But where are the incentives? Where is the drive for that behavior? And it's definitely hampered right now in that the marketplace is so tough. E&P companies are hated by investors. And that gets -- that definitely does swing a needle on cost above all else. So the bigger players and a few of the, I would say, embraced players are willing to pay for it. But there, it's still a small percent. Everyone else wants it. But in today's world, they're more reluctant to make any meaningful trade-off for the cost of it. And so that's -- and we're sort of in the same boat, too, right? We want to do -- we want to upgrade. I'd love to have all the leading edge fleets, but that's a lot of money. And so that's why I say things are trending the right direction, but it's not an overnight thing. So John, I don't have an estimate any better than yours, but you make a very good point. Everyone talks the talk, and it's still a small minority today that will pay for it.

How would you characterize just the transition, Chris? I mean, I mean, we're eventually going to get there, right? The eventually they have to pay for it, and it's the right thing to do. But is there a step-change later this year, next year? I mean, just -- I know we have no idea of additional thoughts.

John, I think it's so driven by oil prices and returns. And I think that a lot of people say to me, boy, with -- customers with this discipline on investment, that must be really tough for you guys. They're spending less. My view on that is exactly the opposite. The fact that oil prices have risen 25% since people set their budgets and nobody in the public world and even in the private world, it isn't dramatic, that people don't want to change their budgets. We think that's a great thing, right? Because if people invest less and truly hold back, that's the thing that moves the needle on oil prices. And you move oil prices to where they are today and you take efficient operations.

We're going to see strong returns on capital by our customers. We're going to see some respect and belief in our industry coming back from those returns, and that enables everything else, everything else. Like the dialogues we're having right now, of course, no one wants higher prices, but we need a sustainable industry. We need partnerships that can keep getting better and more price to us is necessary for that. A, just to get return on our existing assets, we need a little more price on top of that to invest in new assets. But I actually think -- and you've heard me say it. Look, we've had a rough decade. I think the next several years for our industry are actually going to be pretty good. I think it's supported by commodity prices at base, but I think that's going to lead to better returns across the value chain. And once you have better returns, the investment, the payment for lower emissions and better operations, that follows with it. So yes, I think we'll see a very different attitude for paying for lower emissions 12 months from now than we've seen in the last 12 months. I could be wrong. That's my belief, John.

Yes. Well, my editorial comment is the technology seems to be here of making meaningful changes. So hopefully we'll see a rapid adoption. And by the way, great video on northwest coast.

The next question comes from Tom Curran with B. Riley Securities.

That's dedication, guys. Thanks for taking my question at such a late point in the call. I just had one technology question left. Curious, Chris -- Chris or Ron, whether you currently provide your customers with any ability to track and monitor in real-time and image all of the fluids involved in the frac slurry downhole. So in other words, as the frac job is being executed, do you provide that ability to image and monitor the different fluids subsurface? And if so, is it an ability you currently have in-house? Or do you use a third party for that?

So, Tom, that is an interesting question. And as you probably know, Michael, Ron and I and a number of others in the Liberty team spent the largest piece of our career developing fracture diagnostics, ways to measure how fractures grow and what they're doing. We have some of those technologies in-house. Well watch is one we've talked about a lot that give us indirect measurements about how far away from wellbores, fluids are going. We've been looking at fracture diagnostic technologies, but it is not a standard. We run frac models. So we -- obviously, in real time, are transmitting to our customers from satellite dishes our model predictions of where we think fractures are growing and where the sand is, where the fluid is. So we do it on a predictive basis. We have some big picture, far-field pressure measurements to infer that. But certainly, there's more that could be done there. And with the right technologies and the right value proposition, yes, I think you may see more of that from Liberty in the future.

And just to be clear, Chris, you would expect to provide that in house? And then just as a follow-up, what percentage of your jobs currently would you estimate involve some use of it?

Well, the modeling -- essentially all of them, well watched, the adoption of that is pretty rapid. So that is -- that's ramping up at a good clip. It's still not half jobs, but that's ramping up pretty quickly. And then microseismic that we developed 20 years ago until we do have some of those on jobs. That's third party. But it's -- that's a small percent.

Great. I'll let you go before you lose your voice.

Thanks, Tom. Yes. I don't want to take -- ruin everyone's Friday mornings. But, we appreciate everyone's interest.

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

Thanks, everyone, for your time today. I apologize us running over the 1 hour. We had expanded opening remarks due to the nature of the transaction we completed with Schlumberger. But thank you all for your time and interest in Liberty, and frankly, for your interest in this industry. Imagine if COVID had struck a world not energized by oil and gas, we wouldn't have vaccines now. We wouldn't have the ability to ramp-up PP&E and to communicate and send resources all around the world. So the world got hit a big blow, but thank God, we had an oil and gas energized world to respond quickly. And we look forward to tremendous progress continuing on that this year. And we look forward to talking to you after the first quarter. Have a great day, everyone.

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