NYSE:LBRT Liberty Energy Q2 2024 Earnings Report $11.68 -0.58 (-4.69%) As of 03:37 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Liberty Energy EPS ResultsActual EPS$0.61Consensus EPS $0.60Beat/MissBeat by +$0.01One Year Ago EPS$0.87Liberty Energy Revenue ResultsActual Revenue$1.16 billionExpected Revenue$1.16 billionBeat/MissBeat by +$1.54 millionYoY Revenue Growth-2.90%Liberty Energy Announcement DetailsQuarterQ2 2024Date7/17/2024TimeAfter Market ClosesConference Call DateThursday, July 18, 2024Conference Call Time10:00AM ETUpcoming EarningsLiberty Energy's Q2 2025 earnings is scheduled for Wednesday, July 16, 2025, with a conference call scheduled on Thursday, July 17, 2025 at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfilePowered by Liberty Energy Q2 2024 Earnings Call TranscriptProvided by QuartrJuly 18, 2024 ShareLink copied to clipboard.There are 15 speakers on the call. Operator00:00:00Welcome to the Liberty Energy Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Anjali Vohria, Director of Investor Relations. Operator00:00:26Please go ahead. Speaker 100:00:28Thank you, Gary. Good morning, and welcome to the Liberty Energy's Q2 2024 Earnings Call. Joining us on the call are Chris Wright, Chief Executive Officer Ron Gusek, President and Michael Stock, Chief Financial Officer. Before we begin, I would like to remind all participants that some of our comments today may include forward looking statements reflecting the company's views 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. Speaker 100:01:03These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in our 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, adjusted net income, adjusted net income per diluted share and adjusted pre tax 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, net income to adjusted net income and adjusted net income per diluted share, and the calculation of adjusted pre tax return on capital employed as discussed on this call are available on our Investor Relations website. I will now turn the call over to Chris. Speaker 200:01:54Thanks, Angelie. Good morning, everyone, and thank you for joining us to discuss our Q2 2024 Operational and Financial Results. Before we begin, I'd like to recognize our Houston based colleagues that were impacted by Hurricane Beryl. Many were left for several days without power, but they rose to the occasion to meet the needs of our business and support each other and the broader community with remarkable resonance. I want to thank them for their exceptional efforts. Speaker 200:02:28In the Q2, Liberty delivered strong operating and financial performance, demonstrating the value of Liberty's competitive advantage. Revenue of $1,200,000,000 and adjusted EBITDA of $273,000,000 grew by 8% and 12% sequentially, respectively, while industry drilling and completions activity modestly softened over the same period. Record average daily pumping efficiencies and record safety performance, coupled with increased utilization of our fleets, underpinned the strong results. Our company culture, long term customer partnerships, innovative technologies, scale and vertical integration allowed us to deliver 28 percent adjusted pretax return on capital employed for the 12 months ended June 30, 2024. We generated strong cash flow and distributed $41,000,000 to shareholders in the second quarter. Speaker 200:03:36Since the reinstatement of our capital return program 2 years ago, we have distributed $458,000,000 of cash to shareholders through the retirement of 13.2 percent of shares outstanding plus quarterly cash dividends. We plan to continue strategically deploying capital to expand our competitive advantage and leadership position while returning capital to shareholders. Our culture of innovation and Liberty developed technology are at the root of our success to date and the key to our future. This is reflected in today's highest ever operational execution and safety performance over our 12 year history. We are driving performance by harnessing data and software solutions throughout our organization. Speaker 200:04:30Three specific examples are 1, our record diesel displacement with data analytics driving enhanced gas substitution 2, our preventative maintenance programs extending asset life, performance and reliability and third, Liberty's custom built AI empowered logistics software platform we call Sentinel. Before I highlight these 3 specific innovations, I want to remind everyone that Liberty alone has designed and deployed our own custom pump technologies and power generation technologies that allow us to optimize fleet arc type for performance and capital efficiency. Most importantly, we have built a culture of accountability and awareness around safety that we ceaselessly strive to improve. We have driven a 25% reduction in recordable incidents, TRIR over the last 1 year alone, down to roughly 50% below industry averages. I'm very proud of this fact. Speaker 200:05:42I believe we are the most competitive, most efficient frac company in the sector. Let me add a few more comments on our recent technology driven enhancements. Our diesel displacement is now at the highest level in company history from both the deployment of our natural gas fuel Digi fleets and record gas substitution with our dual fuel equipment. Over the past year, dual fuel gas substitution levels have increased over 25% for three reasons investment in automated operating systems, increased expertise and visibility with real time data on critical gas parameters, plus the coordination made possible by our addition of Liberty Power Innovations to supply on-site natural gas. Our predictive and preventative maintenance program coupled with data visibility and analytics allowed us to increase uptime and run assets at optimal operating ranges both for frac performance and to achieve maximum gas substitution. Speaker 200:06:53We further enhanced our LPI portfolio with the commissioning of our operations in the DJ Basin, including compression capacity and logistics assets with 1st CNG sales in June, serving Liberty fleets and customer drilling rigs. Vertical integration drives efficiency. It is hard to overstate the impact of our advanced Sentinel logistics platform, harnessing real time data and AI predictive analytics to both precisely forecast on-site proppant demand and inventory and then optimize transportation and logistics. Since inception, we have reduced our already very low downtime due to each, improving collaboration with supply chain partners and ultimately lowering the total delivered costs for our customers, less assets, less time and improved performance. That is why we built the Sentinel system. Speaker 200:08:07We launched Sentinel in the Permian approximately a year ago and have now expanded to all U. S. Basins. We will now focus on deploying Sentinel Logistics solutions across our LPI CNG business. Sentinel is a key tool as we expand our business going forward. Speaker 200:08:26We strive to deploy the right technologies at the right time for the right reasons. AI is yet another tool that we are now utilizing to enhance our operations. AI comes full circle for us. The massive increase in data centers for AI and restoring industry back to the U. S. Speaker 200:08:47Is inflecting upwards demand for electrical power and natural gas. AI is both enhancing our business and growing the demand for our services. We are excited by the potential opportunity to meet that demand through our LPI business. Our LPI business is starting in the oilfield, where we are building assets and expertise to reliably deliver both natural gas and electricity 20 fourseven in remote areas. On frac locations, we rapidly construct a 25 megawatt to 35 megawatt power plant, fuel and operate it, and then tear it down roughly once a month and move that plant somewhere else. Speaker 200:09:33Our technology, assets and expertise are positioning us very well to expand the playing field for LPI. Global oil and gas markets remain constructive on favorable multi year market fundamentals despite near term volatility in commodity prices. In June, a decision from OPEC Plus to gradually unwind voluntary production cuts beginning in October drove oil prices lower. Even then prices were well above those supportive of attractive E and P returns. Oil prices have since recovered on relatively balanced supply and demand dynamics, owing to relatively resilient global economic growth and a rising demand for transportation fuels with summer travel season underway. Speaker 200:10:25Natural gas prices saw a resurgence from early spring lows as gas producers reduced drilling and completions activity and curtailed production. Recent reinstatement of some curtailed production has moved prices downward, but still above recent cycle lows. The commissioning of new LNG export facilities and continued growth in power demand are expected to drive higher natural gas demand and eventually firmer natural gas prices than today's. Fracked industry trends have moderated marginally in recent periods on the heels of slightly softer drilling activity in both oil and gas basins during the first half of twenty twenty four. Industry wide completions activity has declined to levels consistent with only roughly flat oil and gas production. Speaker 200:11:22For the U. S. To deliver rising oil and gas production levels, completion activity would need to rise. Signs of tightness for quality frac crews may emerge in 2025 on a demand pull for energy. The attrition of older equipment from higher intensity fracs with increased horsepower requirements is reducing the available horsepower to meet an eventual increase in frac fleet demand. Speaker 200:11:51As E and P operators continue to consolidate, their efforts are focused on efficiency gains through partnership with service companies that can deliver superior performance and provide technical solutions to drive value creation. Liberty's supply chain has continued to rapidly innovate and drive efficiencies in procurement, manufacture and delivery of essential materials for frac operations. The resulting efficiencies benefit both our customers and our business. Liberty's Digi Technologies, LPI Services, top notch supply chain, scale and integrated services enable us to drive improvements across the board for our customers and grow our industry competitive advantage. As we continue to execute on our returns focused value proposition, we are well positioned to deliver strong financial and operational performance. Speaker 200:12:54Our strategic investments deepen our portfolio of natural gas fueled pumping and power generation technologies, driving higher earnings and cash flow generation potential. Industry conditions moderated through the first half of this year. We now anticipate that total North American completions activity will be modestly softer in the second half of the year due to budget front loading by some operators. However, we expect Liberty Financial performance to be similar in the second half of the year compared to the first half. We expect to continue investing in our competitively advantaged portfolio, deliver healthy free cash flow and return capital to our shareholders. Speaker 200:13:42We are committed to safely and responsibly creating long term value for our partners and shareholders. With that, I'd like to turn the call over to Michael Stock, our CFO, to discuss our financial results and outlook. Speaker 300:14:00Good morning, everyone. I'm pleased to share that we have delivered solid financial results for the first half of the year, despite softening industry conditions and activity levels. Our teams came together to drive outstanding efficiencies during the Q2, safely delivering more pump hours, more stages and pumping more profit than ever before. We have made significant progress on our investment strategy, designing and delivering next generation Digi Technologies that are in high demand, while expanding our LPI infrastructure to really ourselves for growing natural gas demand. We have also continued to deliver on our capital returns program. Speaker 300:14:392 years in, we have now returned $458,000,000 to shareholders, predominantly in the form of accretive buybacks. We expect to continue to execute on these initiatives for the remainder of the year. In the Q2 of 2024, revenue was 1 point $2,000,000,000 compared to $1,100,000,000 in the Q1. Our results increased 8% sequentially as our pumping efficiencies and integrated services offset lower sand and other consumable prices and market headwinds. Our teams produce record pumping hours, record stage counts and record proppant pumps, bucking the trend of industry activity declines. Speaker 300:15:202nd quarter net income after tax of $108,000,000 increased from $82,000,000 in the prior quarter. Adjusted net income was $103,000,000 compared to $82,000,000 in the prior quarter. In recent years, we've made investments in several energy companies such as in Oaklow and Tambourine that had potential to help meet the world's growing demand for energy. OCO and Tambourine both commenced trading on the New York Stock Exchange during the Q2 and resulting in a net unrealized gain of $7,000,000 before taxes. As a result, we're providing adjusted net income to exclude items outside our normal operating results to provide a more useful measure of comparison for net income from period to period. Speaker 300:16:04Fully diluted net income per share was $0.64 compared to $0.48 in the prior quarter. Adjusted net income per diluted share was $0.61 compared to $0.48 in the prior quarter. 2nd quarter adjusted EBITDA was $273,000,000 compared to $245,000,000 in the prior quarter. General and administrative expenses totaled 58,000,000 in the Q2 and included non cash stock based compensation of $5,000,000 G and A increased $5,000,000 sequentially, primarily on higher compensation expense and more salary adjustments and other miscellaneous expenses. Other income items totaled $1,000,000 for the quarter, inclusive of the aforementioned $7,000,000 net unrealized gain on investments. Speaker 300:16:51Excluding these gains, net interest Excluding these gains, net interest expense of $8,000,000 was relatively in line with $7,000,000 from Speaker 400:16:57the prior quarter. Speaker 300:16:592nd quarter tax expense was $33,000,000 approximately 23% of pretax income. We continue to expect tax expense rate in 2024 to be approximately 24% of pretax income. Cash taxes were $8,000,000 in the 2nd quarter, and we now expect the 2024 cash taxes to be a maximum of 70% of our effective book tax rate for the year. We ended the quarter with a cash balance of $30,000,000 and net debt of $117,000,000 Net debt declined by $25,000,000 from the end of the first quarter. 2nd quarter uses of cash included capital expenditures, dollars 30,000,000 in share buybacks and $12,000,000 in quarterly cash dividends. Speaker 300:17:42Total liquidity at the end of the quarter, including availability under the credit facility, was $271,000,000 Net capital expenditures were $134,000,000 in the 2nd quarter, which included investments in Digi Fleets, LPI Infrastructure, dual fuel fleets, upgrades, LATs, Liberty Advanced Equipment Technologies facility construction, capitalized maintenance spending, accelerated maintenance or spending on our fleet in transit to Australia and other projects. We had approximately $2,000,000 of proceeds from asset sales in the quarter. We now expect capital expenditures to be around the high end of the range for 2024. Also in the quarter, we invested $16,000,000 in the Beetaloo Basin operators to support this exciting new source of natural gas for the world. Our ability to generate strong cash flows through cycles enables our commitment to capital returns. Speaker 300:18:35In the second quarter, repurchased $30,000,000 of shares or nearly 1% of the shares outstanding and distributed $12,000,000 in cash dividends. We continue to deliver on a return of capital program while reinvesting in high returns opportunities that increase our long term cash flow generation. While we have seen a slight moderation in industry activity through the first half of the year, Liberty has mitigated these impacts by focusing on meeting the increased complexity of our customers' demands. We have been able to leverage our technology investment, scale, integration and focus to drive superior results, while continuing to build our competitive advantage. In the second half of twenty twenty four, we now anticipate flattish financial results that largely mirror the quarterly cadence of the first half of the year. Speaker 300:19:25We're also expecting Digifleek deployments to continue ratably throughout the year and are on track to end the year with close to 90% of fleets primarily powered by natural gas. I will now turn the back to now turn it back to the operator for Q and A, after which Chris will have some closing comments at the end of the call. Operator00:20:13Our first question today is from Scott Gruber with Citigroup. Please go ahead. Speaker 400:20:19Yes, good morning. Good morning, Scott. Speaker 300:20:24Chris, can you provide some Speaker 400:20:25color on pricing trends across the various frac technologies today? Investors have been asking whether the Tier 2 pricing is just getting so wide kind of versus DGB and e frac that it's starting to exert some negative pressure on those newer technologies. What do you guys seem in the marketplace today? Speaker 200:20:49Look, as we've said Scott, the market is activity level is slowly declining which I would say is making the market slowly softer, modest changes slowly and look this has been going on for almost 2 years now from the peak activity in late 2022. And of course, if you've got your choice of frac technology and you do today, a straight Tier 2 diesel engine, that's the lowest choice. That's the oldest equipment. It doesn't burn the gas. It's more expensive to fuel. Speaker 200:21:23And so for the larger operators with large steady programs, there's very little of that technology still employed, but you've got a lot of smaller companies that don't have a full fleet program, but they're still spending significant CapEx. That's where most of the Tier 2 diesel frac equipment is operating. But yes, that market is softer. And I think you're seeing the fading away of Tier 2 diesel engines. They're not going to all be gone for probably still several years, but yet they're declining. Speaker 200:21:59The desirability of them is lower, but again still many of those fleets running, including from Liberty. Speaker 400:22:10And how would you describe the incremental demand for e frac? How far out are your fleets contracted? Are fleets 9 to 10 spoken for? Are you starting to have the discussions on the early fleets for next year? Just kind of curious about the how those discussions are going and how far out are those discussions today? Speaker 200:22:32Yes, there are ways out. Look, everything we're ordering equipment for looking to construct in the next year, that's spoken for. And we're in discussions with many others more than we can supply for fleets that might deploy or start in first half or middle of next year. So that's a ways out. That next generation equipment, not only is it 2, 2. Speaker 200:23:06But it's quiet, it's precise, it's high-tech. I mean, demand for that is quite significant. Speaker 400:23:16Great. I appreciate the color. I'll turn it back. Thanks, Chris. Speaker 200:23:18Thanks, Scott. Speaker 500:23:20Thank you. Operator00:23:21The next question is from Marc Bianchi with TD Cowen. Please go ahead. Speaker 600:23:26Hey, thanks. I wanted to ask, Chris, on your outlook for sort of the progression into 'twenty five. You sounded kind of constructive on the direction of demand just based on where oil production and gas production are at current frac levels. But like if I look at what E and Ps are doing, just with being in maintenance mode and consolidation and efficiencies that are happening like they're not looking to grow in 2025. So is it that you see them changing that plan or is it something coming from privates? Speaker 600:24:00What are you seeing that kind of gives you the optimism about growth in 2025? Speaker 200:24:05Yes, look, I would say our expectation for growth in 2025 is likely modest. But the current activity today, it would not support even flat natural gas production because it overshot, it overshot. We had very robust gas activity through 2022. I thought that would roll down more in early 2023, but it really didn't roll down till later in 2023. So gas activity is very low right now. Speaker 200:24:36That's and that's not going to reverse next quarter, probably not this year, but as you look ahead eventually you've got to have more activity just to keep U. S. Natural gas production flat, let alone a little bit of growth. We have to be careful of course of too much growth, which has been the mistake in the past among the natural gas operators. And today's oil production is also pretty flat. Speaker 200:25:02We had chunk of growth last year, but crude production, it's been flattish for 6 or 8 months and we've still seen activity decline a little bit since then. So the production trend you're seeing today that's reflective of what frac activity was 3 to 6 months ago. We haven't seen a production trend reflective of today's frac activity. It's probably flat at best oil production. So again, I'm not predicting a big change next year, but this second half of this year is going to be a little softer than the first half. Speaker 200:25:37And the first half of next year will likely be back up, I would say at least to the levels of the first half of this year. We're not expecting a huge rebound, but from where we are today, I think you'll see increased activity in the first half of next year. Speaker 600:25:53Yes. Okay. And those are kind of market comments, not necessarily Liberty comments, but maybe you sort of follow that trend? Speaker 200:26:01100%. Those are market comments. Look, as we said, we've had a meaningful, probably 25% to 30% decline in active frac fleets industry wide from 2 years ago to where we are today and Liberty is basically flat through that period. So yes, we have not followed the industry trend. We haven't added fleets. Speaker 200:26:26We don't want to put anything into a soft market, but the interest or desire among operators to work with Liberty is high. And look, the biggest reason for that is just performance, the operational performance of our teams and the way we do business. 2nd after that is high-tech and next generation equipment. But those things keep demand for Liberty high. But again, yes, as conditions soften, you won't see an increasing fleet count from us. Speaker 200:26:54But we haven't reduced it as we thought we might just because the customer demand and to continue the relationships has been quite strong. Speaker 600:27:02Yes, makes sense. And then just one more on kind of the nearer term progression. So if second half is going to be similar to first half, is the right way to think about it that from an EBITDA perspective, Q3 looks like Q2 and Q4 looks like Q1, so essentially your mirror image, is that what we're talking Speaker 200:27:21about? That's exactly our guess. That's our guess. Of course, we got a pretty good view into Q3, which looks flattish and Q4 you don't know, but that would be our expectation is probably similar to Q1. Speaker 600:27:36Yes. Super. Thanks so much. I'll turn it back. Speaker 200:27:38Thank you. Operator00:27:40The next question is from Arun Jayaram with JPMorgan. Please go ahead. Speaker 700:27:45Hey, Chris. I was wondering if you could kind of elaborate on some of the trends and growth initiatives you have for LPI and what kind of demand trends you're seeing for that offering? Speaker 200:27:59Yes. So again, huge interest there as well. Look, there's just this massive cost savings to burn natural gas instead of burning diesel. And then the question is, how do you do that? That's been going on in the industry for, I mean 2nd fleet we built was dual fuel. Speaker 200:28:16So it's been going on for at least a dozen years. But it's been, hey, we've got gas on location. We can power most of the pumps or all of the pumps, but we're down for a while on gas, but we'll just burn more diesel. And so it's been there. What we've tried to do is just set that bar higher that if we're planning to burn dual fuel there, we're going to make sure we have reliable gas supply to every pump that's operating on location and up and down with the trends in that frac activity and because you have to have reliable gas to maximize the displacement of diesel. Speaker 200:28:54So that trend just continues as we were talking the straight diesel fleets are declining in their percent market share. And so hence there's just more every month there's more gas burnt for hydraulic fracturing operations than there was the month before that. So we are we've launched that business in the Permian. We still have a lot of growth in the Permian. We are just as we announced and I think just kicked off in the DJ. Speaker 200:29:21We're doing some work in the Haynesville as well. We're not in the other basins Liberty operates yet, but we will with time. Most of our gas is to operate our own frac fleets, but we're also supplying customer rigs. That'll broaden into other industry applications And look as you get into next year that sort of virtual pipeline will broaden into just powering electric generating assets even outside of our industry. Speaker 800:29:48I don't Speaker 200:29:48think we see that But Speaker 400:29:52yes Speaker 200:29:56But yes, we're there's just huge, huge running room for that business. Speaker 700:30:03And I had a housekeeping question on the balance sheet maybe for Michael. Michael, can you walk us through the capital lease item on the balance sheet, which looking at it right now, it's $236,000,000 What is running through capital leases versus CapEx? Speaker 300:30:21Yes. So, we do we run a number of things through capital leases. Generally, it's rolling some rolling stock. The interest rates on capital leases are actually sort of lower than slightly lower than our ABL facility at the moment. So it's a very, very effective way of sort of arbitraging a kind of a short term loan to fund some of the kind of moving stock that we roll. Speaker 700:30:48And what would you like characterize as that moving stock? Just a little bit more elaborate on that. Speaker 300:30:53Tractors, CNG trailers, things of that variety. Operator00:31:01The next question is from Jeffrey LeBlanc with TPH. Please go ahead. Speaker 900:31:07Good morning, Chris and team. Thank you for taking my question. For my first question, Speaker 300:31:11I Speaker 900:31:11wanted to see if you can give us an update on how much of your capital expenditure is allocated to LPI this year. Additionally, given that the LPI value chain extends beyond mobile power generation and historically the $60,000,000 sticker price for a Digifleet included power generation, how should we be thinking about the megawatt capacity that will be in operation by year end? Thank you. Speaker 300:31:32So, if we take that one, I mean, we're running about 100 and 25 megawatts of power generation at the moment. We have probably about a bit more than 50% of that under construction of future power generation in the oilfield. Obviously, that doesn't include the virtual megawatts that we use with Digi Prime. LPI, the vast the majority of the CapEx is being spent at the moment is on moving the molecule. So we're really managing the molecule to the frac fleet, which increases uptime, increases efficiency and increases substitution rate. Speaker 300:32:06So that comes in the form of CNG trailers, the compression that we built in the DJ Basin, fuel distribution on-site, fuel gas treatment for a number of our larger clients that have fuel gas in the field. So really kind of an integrated solution to be able to sort of manage the molecule into either power or direct drive that's pushing stuff downhill. So that's where the majority is. We don't break the CapEx out between that because again we're a single segment and it's all related to frac. Any power generation outside the industry, outside oil and gas, we'll probably talk about maybe in the next call as we look at those, but that will be something that we will discuss separately for power generation for non oil and gas operations. Speaker 900:32:56Thank you very much. And I'll turn the call back to the operator. Speaker 500:33:00Thank you very much. Operator00:33:02The next question is from Stephen Gengaro with Stifel. Please go ahead. Speaker 800:33:07Thanks. Good morning, everybody. Speaker 500:33:09Hi, Stephen. Speaker 800:33:10I'm not sure how much you can break this out, but I'll ask. When we think about Wall Street still does its dumb math, right? We divide EBITDA by fleets or revenue by fleets to get a number. When we think about your revenue or profitability per fleet versus say 2 or 3 years ago, is there any guide you can give us kind of on how much of that is pure frac and how much of that is driven by either a mix of newer frac assets and or your LPI and other integrated services? Speaker 300:33:47Let me just take that one, Stephen. The reality is we're a single segment, right? So everything is frac or everything we do is focused around supporting frac. So it is all related. But you are right just for the industry for investors to think about the fact that we've talked a lot about over the last 5 years, our expansion on our vertical integration, right? Speaker 300:34:06You think about it the fact that we own sand mines. We're doing gas delivery. We own manufacturing. We've dropped our maintenance costs. We're building a new manufacturing facility in Oklahoma to where we're going to be actually building some of our DigiPrime and some of our power generation equipment to help support the our partners that have historically put our equipment together, assembled our equipment because there's just not enough capacity. Speaker 300:34:33We own that design from everything from the design to the BOM to the actual manufacturing investments, you think about it, central investments in our sort of logistics software, we move about 1,000,000 approximately around about 1,000,000 truckloads of sand a year, I think somewhere in that route. There's a huge investment that we've made in this vertical integration. Most of sort of the our clients come to us to provide their sands, provide their chemicals. So we are able to basically mine more of the value chain. If you go back all the way to the period before the OPEC war on shale, there were so many layers of profitability, so many people at the trough taking your profit out of the system, right? Speaker 300:35:21So we've got larger clients now wanting larger oilfield service companies to provide more of the services, more complex, more integrated, which means more of the wallet share stays with us. And that's the unique Liberty sort of investment that we've done is that we take everything. If you think about Digifrag, we own the power generation, we own the gas delivery, we own the pumps, we are the only company that has that whole value chain and makes returns off that whole value chain. And that is the difference. Hence the reason it's all supporting frac, it's all about the teams that are operating at the well key, but we make money through that whole value chain, Steve. Speaker 800:35:58Great. That's very helpful color, Michael. And this is a follow-up to that. In a recent you know, Kimberleyte's recent survey came out and we're speaking with them recently. And one of the things that stood out to me was there's 2 companies that have completed or are completing wells in 7 days or less. Speaker 800:36:16It's you and one of your biggest competitors. I was just curious, does that what drives that? Is that the overall integration of the fleet? Or is that just your highest end digital assets that are kind of driving your ability to kind of lead on that front? Speaker 200:36:33Look, I'm going to let Ron answer that question. But the short answer is the humans, the people that run Liberty frac fleets. That's the biggest differential and just that attitude about how to coordinate this symphony to deliver. But I'll let Ron elaborate a little more about the technologies and how this is all done, but really it's culture and humans. Speaker 1000:36:57Yes. Stephen, I think Chris hit on the biggest point there. Of course, we've always been focused on culture since the beginning and creating an environment where people wanted to come and make a career out of it. And I think that's been demonstrated in our performance now for 13 years, I guess. Hard to put value on that, but I think it plays out very, very well in that Kimberlite report and the responses you see from our we deliver we deliver great service in the field, but that's supported by industry leading technology developed in house here at Liberty and supported by a team here at Liberty. Speaker 1000:37:38It's supported by a world class supply chain organization that ensures we have multiple legs on the stool that of course, we have some amount of internal support, whether that's manufacturing or sand or things like that, but also great partners on from the 3rd party side that are also helping to assist in that, ensuring we never are short sand or short chemical or without a part in the field or anything like that. You layer on top of that, the work we've done in artificial intelligence in terms of understanding both the operation and performance of our equipment, the ability to predict when in advance of something going wrong that we need to care of some maintenance there, maximizing uptime we're seeing on location with the assets each and every day. We have a maybe unrivaled level of visibility into our operation in the field now, not only for the equipment itself, but as Chris talked about in his opening comments, the Sentinel Logistics platform and our supply chain for ensuring that sand and chemical arrive there on a timely fashion. And then I think as you think about the scale of our organization now, one of the other things that we've always been focused on is engineering support. Speaker 1000:38:54So we have engineers out on every location. We have a strong engineering team here that is working side by side with our customers to optimize completion design out there as we continue to improve and that remains an important piece of the puzzle as we continue to migrate from acreage of some quality to acreage of maybe a slightly lower quality, but ensuring we have a completion design that is optimal for that. And so you continue to layer all of those things on and we continue to find ways to be more and more efficient out on location every day. Speaker 800:39:28Great. That's great color. Thank you all. Operator00:39:32The next question is from wokar Syed with ATB Capital Markets. Please go ahead. Speaker 1100:39:38Thanks for taking my question. Chris, this is kind of a big picture type question that I'm asking and I'm going to throw out some numbers here. If I look at this quarter compared to the year ago quarter, your revenues are down only 3%, but your EBITDA margins are down 2 40 basis points, EBIT margins are down about 4 70 basis points. DD and A, quarterly DD and A is up about 25% and return on capital employed is down from about 30% to 20%. Now having said that, these are still best in class results, 20% return on capital employed is still very, very attractive. Speaker 1100:40:17But it does feel to me that all the value that you're adding, all the investments that you're making, efficiency gains, a large portion of that benefit is accruing to the customer and you're not getting the fair share that really your effort really entails, is there a new type of contracting structure that you could think of performance based or we've seen some of the drilling contractors kind of pursue that. Is there some other arrangement that pumpers could make where they're making so much investment, so much effort, but probably not fully getting the benefit of that? Speaker 200:40:57So Akar, that's a reasonable overview of the numbers. And I think the short answer there really is the business remains cyclical. That what's nice is that the cycles now or at least this cycle is much more mellow than previous cycles where wow we're killing it and then OPEC fought shale and things collapse for a while and it bounces back. So what all those numbers you recounted or that the business conditions have been softening for nearly 2 years. And that's we're probably near a bottom. Speaker 200:41:35They're not changing much right now. But yes, 2 years ago the business conditions were fantastic. Today they're weaker and if you look across the whole industry you'll see a pretty big a much bigger swing down than you'll see in Liberty in that. But it's still a slower more modest cycle. When we and so that return on capital employed that denominator, yes we have new assets. Speaker 200:41:58Most of these assets are 10 plus year assets that we've just built. So all the cost is there burdening us, But when we make these investments, we're thinking over the cycle. What is the return we're going to get on those assets over the next 10 years? That's what drives our investment decision whether to do them or not because you can't just turn that spigot, all the conditions are a little weaker, let's stop all investment or conditions are great, let's hit the gas and whatever, invest at a super high rate. That's just we always are looking at it longer term, longer game for investment decisions. Speaker 200:42:39We do with our partnerships with customers, we do have performance based stuff built in a number of our contracts. How can we get better together and how can we win together on that. We don't talk about that stuff because it's individual fleet by fleet or customer by customer. But are we looking at ways to tie our fortunes together and to get better returns on our investment? Absolutely. Speaker 200:43:04But the numbers and the whole team look at is what is the investment over the long term in our assets. And in fact, we may read that the numbers you just recounted a little different today and say, wow, we've been rolling down for almost 2 years and our average return on today's assets still pretty strong. And so but yes, what you're seeing is not really a secular change in contracting and how the industry works. It's just the effect of a slow modest cycle. Speaker 1200:43:38Makar. Speaker 1100:43:39Okay. And just if I may ask another slightly different question about completion activity into next year. If you look at the supply demand commodity price forecast from EIA, IEA or OPEC's second period, they're all projecting U. S. Oil production to be or liquids production to be up like 500,000 to 600,000 barrels a Speaker 200:44:02day year over year in 2025. Speaker 1100:44:05Do you think what kind of activity completion activity increase would be required to get to those kind of production growth numbers? Speaker 200:44:15Well, modest, but definitely an increase, definitely an increase from where we are today. But it does again, I don't think it takes a lot of change and increased demand to change the feel of the business cycle a bit. I would say that at probably this year's investment levels, I'd love to look back at this whole year. We're probably going to see a slight shrinkage in the available supply of frac equipment. There's a lot of Tier 2 fleets still running that are not being reinvested in that are shrinking. Speaker 200:44:46There's new gas powered fleets being built, but likely less this year than the attrition or wearing down of fleets. So cyclically the market, the investment levels are relatively modest. But so if you have even just a 5% or 10% increase in fleet, active fleet count 9 months from now than we have today. And that might be my guess, that's not insignificant for what it would do for market conditions. Operator00:45:24Question is from Derek Podhazer with Barclays. Please go ahead. Speaker 1300:45:28Hey, I just want to go back to Scott's question at the top of the call. The diesel CNG spreads are tightening out there. We talked about Tier 2 diesel pricing coming under pressure. Assuming that's going to weigh on your dual fuel assets first, is that a valid assessment? And then maybe is the goal of investing in LPI to drive integration through CNG, is that a way to help protect pure frac pricing along with the rest of your integration strategy? Speaker 1300:45:52Maybe just some comments around there, please. Speaker 300:45:57Right. So if I take that one, I'll take this to the last half first. Yes, I mean, our integration sort of vertical integration investment strategy is definitely about driving higher returns on our invested capital base, right? We're taking the intelligence and innovation of all the people in our company and we're focusing in them on how to make things, how to get the barrel of oil up to the surface at a lower cost, at a higher profitability for Liberty, right? So that's key. Speaker 300:46:24That's key in everything we do. So that is that focus. That really makes a difference, right? Yes. Does the ability to run the CNG business, one of the things we saw was that we were not running maximum substitution because of the ineffectiveness of a CNG and natural gas supply system. Speaker 300:46:42That was a key limiter, right? And as you move to 100% natural gas engines, that became a major limited because gone is the additional cost of running excess diesel from a dual fuel equipment, you've got downtime if you don't have gas, right? So that was key for the initial part of the investment in LPI, right, was really making sure that we drive that efficiency. I mean, I think that's a key thing there on how we are sort of managing to keep up in a softer market when we've got about a 20% decline in activity demand over a 2 year period, Liberty is basically flat and has the strong returns, the continued strong returns we have is because we deliver more value every day to our clients. And I think everything we do is focused around managing that and improving that. Speaker 300:47:33Now as Chris said, as things tighten up as they will, I mean, eventually, these are cyclical market, right? We're in a lowest point at the moment. Things will sign and will tighten up. You will see the sort of forcing function effect of all that investment in vertical integration will also, you should see that improve the bottom line faster as we go forward as the market tightens, right? These are long term investments. Speaker 300:48:00So I think that's key there, Derek. And I may have missed the first part of Scott's question there, but Speaker 400:48:05I got on a roll, so. Speaker 1300:48:08That was just comments around Tier 2 pricing pressuring dual fuel pricing given the spread tightening between diesel and CNG? And then with the RFP season coming up and just threat of reopening and seeing some pricing pressure there? Speaker 300:48:22That's definitely as you're seeing sort of there's more and more equipments becoming dual fuel. And then we've got a large amount of attrition in the older equipment. As we've talked about, there is a bellend of equipment that was built probably in 2013 to 2014, twenty 12 to 2014 area that really is getting to the end of life for the industry, right? So therefore, as Chris said, I think attrition is actually faster than what we're seeing. I think what we're seeing is we're seeing people pump at higher rates and more complexity, which Ron can talk about, and with larger fleets. Speaker 300:49:00And so that is key is that we're using more horsepower to also achieve and offset some degradation. And Rob, Ron, you want to add some comments to that? Speaker 1000:49:10Yes. I'd add a couple of things there. First of all, I think important to remember that just because you put a dual fuel fleet out there, that doesn't mean you get to 75% substitution automatically. We've talked a lot about today the progress we've made in substitution levels. And that's due to an immense amount of focus internally in the organization again around delivering premier performance regardless of what that is, regardless of whether it's number of hours pumped in the field or the supply chain or in this case the amount of fuel that we substitute. Speaker 1000:49:44We've worked hard to arm our team with the level of information they haven't had before with visibility into the operating performance of the assets we put out there. And then of course with LPI to backstop that and whatnot. And so I would argue that even amongst dual fuel fleets, a dual fuel fleet is not a dual fuel fleet, is not a dual fuel fleet. And so, I think we will continue to command a premium as a result of our operational performance, not just from a high level efficiency standpoint, but even in terms of how we operate assets like a Tier 4 DGB pump. And then, yes, layering on top of that, the complexity, of course, we continue to see added complexity in the completions. Speaker 1000:50:24You've seen what started out as zipper frac, then simo frac, then trimo frac. Now we're on our way to quad frac. We continue to work in more and more challenging reservoirs and we're, of course, continually focused on maximizing productivity per lateral foot. And so you layer all of those things on top of there and I think we continue to deliver a package that will remain the premier choice amongst our E and P partners and as a result minimize that impact from the diesel retirement and the pricing pressure there. Speaker 1300:50:57Got it. Thanks. Next question is maybe some more color on what's driving you to reach the high end of the CapEx range. I know last call you guys were holding out maybe some growth opportunity in the back half of the year from privates. Obviously, we're not seeing that. Speaker 1300:51:11So I would assume you'd have some softening of CapEx just with overall activity. Are you reallocating some CapEx dollar into growth projects, specifically LPI or maybe your upgrade program Tier 4 to Tier 4 dual fuel or Tier 2 to Tier 2 dual fuel. Just some more comments what's driving you up to the higher end of that CapEx range now? Speaker 300:51:31Yes, it's really the timing. I mean, we've got a few additional growth projects that we're investing in, things like building the constructing facilities for the growth. But yes, really, I mean, the slightly softer activity this year doesn't really affect our CapEx program, right? We're investing, as Chris said, for the next 5, 10 years. That's what we're building equipment for, it's long life. Speaker 300:51:50It is not necessarily, unless you get a shock like COVID or the OPEC war on shale, is not necessarily affected in the short term. It really takes into account our long term view of our capital return opportunities. And I would say generally the fact that we continue to be at about 50% higher than the S and P 500, I think we are continuing to make great returns for our investors. And obviously, we can't reinvest all of our capital because we have a very, very, very high bar for capital returns. And everything below that, we are returning to shareholders. Operator00:52:30The next question is from Neil Mehta with Goldman Sachs. Please go ahead. Speaker 1200:52:35Yes. Good morning, team, and thanks for this update. I guess, the first question is, it's always hard for us to get visibility on DUC trends because the data is so noisy. So Chris, team would love your perspective on what you're seeing in terms of drilled and uncompleted wells out in the field, any regional color and how does that feed into your view of pressure pumping utilization moving into 2025? Speaker 200:52:59Yes, Neal, I think it is hard to see exactly During COVID, there was a huge build in DUCs during the OPEC fought shale. We had some big DUCs. We've had some majors change priorities in basin. So there's been like episodes where DUCs were meaningful. I think today and most of the time, DUCs is really just inventory of wells in progress. Speaker 200:53:32They're not in the cabinet waiting for a later date. But when you drill large pads and they take a long time and the way they're counted, a lot of DUCs are really most of DUCs are just wells in progress. There's exceptions to that today for sure in gas basins because of pricings there. But we don't so there's a little bit of a duck building gas, but we don't view that as a big driver of future frac activity or optimism. Speaker 1200:54:04Thanks, Chris. And then just a follow-up on capital allocation. You guys have done a terrific job returning capital to shareholders. The stock still trades at a big discount relative to things in energy. So just your perspective, even if we go into a softer environment than maybe some folks would have anticipated in the back half of the year, do you still feel that you're well positioned to return capital in the form of buyback to shareholders? Speaker 1200:54:30And while we're on the topic of capital allocation, do you see yourself as participating in consolidation? Or do you continue to think buying back your stock is the best use of the incremental dollar? Speaker 200:54:43Right now the dominant use of that has been buybacks. That's not likely to change. We look at everything from consolidation. Certainly you think of the gas market struggling right now. If there are opportunities that present themselves with the unique value or unique additive, we'll move on that. Speaker 200:55:05Sometimes they're small and sometimes they're bigger. But we can't count on that. We're always looking. But acquisitions have not been a big part of our past and they're likely not going to be a big part of our future. They won't be nothing. Speaker 200:55:19But it's got to be pretty compelling. We're very much a grow organically, develop internally. So we look at things and if things are unique, we'll do them. But buybacks, if I look out over the next 3 to 5 years, yes, buybacks are likely going to be a huge use of our free cash flow. At the value we have for the stock, treat that as single digit price to earnings ratio with as Michael said 50% higher than the S and P 500. Speaker 200:55:51Long term cash return on capital invested, it's very attractive. So I think you will see a continued meaningful reduction in the outstanding number of shares in Liberty over the coming years and coming quarters. Speaker 500:56:06That's a good message, Chris. Thank you. Speaker 200:56:08Thanks. Great questions, Neal. Operator00:56:11Excuse me. The next question is from Tom Curran with Seaport Research Partners. Please go Speaker 500:56:16ahead. Good morning, guys. On the natural gas side of the market, how developed is your visibility on this trajectory of incremental structural demand export trains and data center capacity growth. Are you at a point where you can look to say mid-twenty 26 or early 2027, translate that gas demand path into a specific number of frac spreads and then try to estimate a rough range of the additional spreads that just this new secular gas poll should require? Speaker 200:56:54We have done some of that, but there is there's so much range and you can look at the LNG exports and maybe be a little more quantitative there because we know the projects with FID, we know the projects under construction. Electricity is the bigger wildcard. There's just such a wide range of what that could be and a lot of it's going to be availability. We've just had 10 plus years, I think a very poor decision making around the United States electricity grid. And as Germany and the UK have demonstrated, if you make electricity expensive and unreliable, people will consume less of it. Speaker 200:57:38So I think the biggest hold back in draw for gas in our electricity grid is going to be prices and reliability of our electricity. I frankly think it's embarrassing how long electricity was down in Houston for a pretty moderate storm. 100 years ago, we had storms massively larger than that. And obviously, we didn't have a sophisticated of a grid, but I think so the short answer is we talk about it internally. We have ranges of it. Speaker 200:58:10It's not trivial. It's not game changing either the amount of fleets that will come. But we don't give the numbers because there's just too many assumptions in which trajectory might unfold. We do say and that the outlook is pretty positive for U. S. Speaker 200:58:26Natural gas demand from both those sources LNG, electricity demand. Think we're going to see some more reassuring of manufacturing in the U. S. And I think we're going to see over the next several years more of that in So the So the macro is positive, but this is probably a discussion over dinner or a beer. We could sketch out the range of this many more fleets to that many more fleets. Speaker 200:58:58But I'm going to refrain from giving any numbers right now. But I like your thinking. Speaker 500:59:05Sounds good. And we'll let Rob pick up the tab for those beers. Turning to LPI, it sounded as if a portion of your CNG sales in June were to your customer base for its land drilling rigs. Were those land rig CNG deliveries a separate third party revenue transaction or part of a bundled contract? My impression has been that Liberty Zone fleet needs, we're likely to command the bulk of LPI's capacity this year. Speaker 500:59:37So I'm just seeking a clarification and maybe an update on what the outlook is for LPI's external third party business trajectory? Speaker 300:59:52Yes. So the vast, vast right? So for key clients in basins in both the Permian and the Permian right? So for key clients in basins in both the Permian and the DJ Basin. So yes, delivering your gas usage for drill rig is much, much lower than it is for a frac fleet much, much, much lower. Speaker 301:00:18But again, it's you're still delivering CNG with the same equipment. Industry. Speaker 201:00:27Yes, it's a partnership thing. You got customers, they're running rigs out of gas and Liberty is the highest quality supplier there. They want to use it. So yes, it's not a huge part of our business, but it is a nice part of our partnership. Speaker 501:00:41Got it. And I'll just squeeze one more in here. Ron, I'm sorry if I missed this, but did you provide an update on how many active Digi spreads you expect to have deployed exiting the year? Speaker 1001:00:56Air? No change in our plans there at all, Tom. We're still on track to have operating by the start of next year 10 next generation fleets. So no change in our outlook at that for that. Speaker 501:01:10Got it. Thanks for taking my questions. Operator01:01:13The next question is from Keith Mackey with RBC Capital Markets. Please go ahead. Speaker 1401:01:19Hi, So certainly vertical integration has been a differentiator for the business and we've talked about it on the call so far. But just curious if you can give us a little bit more color or even potentially quantify how far along do you think you are in this process? And is there a lot more benefit to be realized from adding service lines or growing existing service lines that you've got? I know LPI is certainly a big part of that. But just some general color on how much of the value chain you think you've actually been able to capture to date in frac and how much more you think there is to go? Speaker 201:01:59Look, I'd say we have vertical integration in most of the big items that matter. So yes, I wouldn't say there's a huge amount there. The biggest focus at Liberty is just how do we get better? How do we get better? As we always say, we didn't do the vertical integration so we could like add that business line profitability on. Speaker 201:02:20We do add that business line profitability on, but most of them aren't huge. We're doing them really just to make frac, the core business better, more reliable, safer, more efficient, a better experience and better value add for our customers. That's what's driving it. As Michael said, look, the net result is we're capturing more of profitability, but really we look at it as that whole piece. So we'll continue to develop technologies. Speaker 201:02:48We'll continue to do things to make our frac offering meaningfully better than all of our competitors. That was our goal from day 1 and it'll never stop. But vertical integration, I would say the bigger prospect for us growth in the next 5 or 10 years is going to be taking the tools and technologies that we've developed, for example, remote power generation with natural gas in a virtual pipeline to supply it. That's a way bigger growth in Liberty's business over the next 5 years then a likely expanding of our vertical integration. But it's not likely to be I would say meaningful for the size of our business. Speaker 201:03:39But more important is again ultimately go into electricity business and just the maniacal focus on getting better, getting better, getting better. That's the big story. Speaker 1401:03:51Okay, very good. And you have investments in businesses outside of frac. I know you talked about Oaklow and Tamboran as the impact on earnings per share. You've also got a few others. Can you just talk about maybe the 1 or 2 most important insights or lessons you've learned from having investments in energy businesses outside of frac? Speaker 201:04:15Yes, look as career energy nerds, we get asked to invest or asked to advise other entrepreneurial energy companies a lot. We get pitched on a million things, but I think maybe a little bit of our differential advantage there is what we just look ahead if it's operated well, where could this business be? Most of the new venture energy businesses in our opinion even if everything went right like they don't have a prospect to be a meaningful positive addition to the global energy system, which means there are bet on subsidies. And we're just not we're not takers of those bets. We're not believers in that and we just we don't want to bet on the government. Speaker 201:05:03We want to bet only on these fundamental technologies or things that are doing could be a great player in a future energy system. So we've been disciplined. We've only made a few of them and we've generally only made them where we can bring something to the table. Oklo is a great example. It's just like the right nuclear technology, the right business model. Speaker 201:05:27The technology is fantastic, but bringing energy to a marketplace and putting all those packages together and then getting the right commercial terms, man, we've been doing that for our whole careers. So I think we add some real value to a thing that's just an awesome kernel. And again, Timboren of course is even simpler to look at. It's man, I remember the excitement of the Barnett Shale 25 years ago, like the progress every year, my God we're going to figure this out. Look, we didn't appreciate that how big it would be, but just have an awesome resource in place in a geographically desirable location like that's a solvable challenge that could have a big impact on Australia, not for domestic consumption and for exports. Speaker 201:06:16And I think Liberty could be a very helpful in making that successful. And I think the upside for us is quite large there. We view it as very asymmetrical bet, very little downside and a lot of upside. Speaker 1401:06:35Okay. Thanks for the comments. That's it for me. Speaker 201:06:38Thanks. Operator01:06:39I will now turn it back to Chris for closing remarks. Speaker 201:06:43All right, everyone. Feel free to drop off if you want, but I'm going to talk a little bit more about energy. With the benefit of 2023 energy data, which is now available thanks to the Energy Institute's recent publication of the statistical review of World Energy, I want to take a moment as we close to provide an update on the so called energy transition. The Energy Institute's work to quantify global primary energy is quite valuable to all energy nerds like us at Liberty. However, we make 2 important adjustments to the Energy Institute's number within our Bettering Human Lives report. Speaker 201:07:27First, the EEI does not account for developing country use of traditional biomass in their primary energy numbers. This traditional biomass energy is the source of the world's largest energy problem. Hence we believe it is critical to always include this in all the energy reporting. Traditional biomass serves as a cooking and heating fuel for 2,300,000,000 of our fellow humans. They suffer in grinding poverty. Speaker 201:07:58Our Bettering Human Lives Foundation works to help these 2,300,000,000 people transition to clean cooking fuels to allow longer, healthier, more opportunity rich lives. That is a real energy transition that we need to hasten as quickly as possible. You can't eradicate what you don't attempt to measure. 2nd, the EI employs an input equivalent methodology that grossly inflates the primary energy from electricity produced by wind, solar, hydro and nuclear. They multiply it by 2.4 times in their conversion of terawatt hours to exajoules. Speaker 201:08:41We reverse this adjustment and simply convert reported terawatt hours to energy equivalent exajoules, which is the actual energy delivered to and consumed by consumers. We discussed this more in the Bettering Human Lives report. For us, it's critical to be honest in the reporting on energy, on climate change and human progress. Incidentally, the U. S. Speaker 201:09:09Energy Information Agency recently reversed its longstanding practice of using an input equivalent methodology and is now in step with us in its reporting. Nice to see the U. S. EIA make this change. So with those adjustments, corrections, we find that over the past 50 years, global primary energy consumption has more than doubled. Speaker 201:09:36It's up 126% and we've seen a 1.6 compound annual growth rate in energy consumption over the last 50 years. Energy additions from hydrocarbons over that 50 years are nearly 6 times higher than all other energy sources combined. Hydrocarbon share of primary energy was 85% 50 years ago and it's 85% today. Since the start of this century, global primary energy consumption is up nearly 50% or a slightly higher 1.7% compound annual growth rate. Thanks to the American Shale Revolution, energy additions from fossil fuels are over 7 times greater than all other energy sources combined during the last 24 years. Speaker 201:10:31Hydrocarbon share of primary energy, their share of primary energy increased by 1.4% back up to the 85% of 50 years ago. We look at just the last year, global primary energy consumption increased by 1.6% in line with trends. Energy additions from hydrocarbons were nearly 4 times higher than all other energy source combined. Oil was the largest addition by source and coal was second over just the last year. Natural gas has been the biggest over the last decade or so. Speaker 201:11:09Hydrocarbons remain at 85% of primary energy. Wind and solar combined for a share of 2.6 percent of primary energy last year. I will close with a plea yet again to all my colleagues in the industry, particularly the analysts and bankers to stop using the deceptive and destructive term energy transition. 1st, because it is simply wrong. The share of hydrocarbons in the global energy supply stack has not shrunk in 50 years. Speaker 201:11:47In fact, hydrocarbons have actually grown their market share over the last 24 years. Yet the incessant repeating of the simply false term energy transition contributes to a serious misunderstanding of the global energy system with destructive consequences, including damaging political energy policies, seriously misinforming kids in our schools, and most relevant for today's audience, it is perhaps driven down investor valuation of hydrocarbon companies due to the impression that our industry is soon fading away even though the numbers do not support this view. Energy is far too important to get wrong. 7,000,000,000 people are striving to achieve highly energized lives just like us in the lucky 1,000,000,000. Let's not use deceptively destructive language that impedes them realizing their dreams of affordable, reliable energy access. Speaker 201:12:50We should all strive to speak accurately and honestly. We need to stop using the false term energy transition and instead use energy addition. We would also be better served not to use the deceptive marketing terms renewable and clean energy as they are also not supported by facts. How about new energies or alternative energies, the term that we used before we got off track?Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLiberty Energy Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Liberty Energy Earnings HeadlinesLiberty Energy (NYSE:LBRT) Is Due To Pay A Dividend Of $0.08May 1, 2025 | finance.yahoo.comEarnings Troubles May Signal Larger Issues for Liberty Energy (NYSE:LBRT) ShareholdersApril 30, 2025 | finance.yahoo.comThe Man I Turn to In Times Like ThisA storm is brewing in the markets: new tariffs, recession warnings, and panic in the headlines. That’s when publisher Brett Aitken turns to Whitney Tilson—a man CNBC once dubbed “The Prophet.” Tilson just released a new prediction that runs counter to what mainstream finance is telling you.May 5, 2025 | Stansberry Research (Ad)Seaport Res Ptn Expects Stronger Earnings for Liberty EnergyApril 25, 2025 | americanbankingnews.comLiberty Energy price target lowered to $16 from $17 at BarclaysApril 22, 2025 | markets.businessinsider.comLiberty Energy price target lowered to $22 from $23 at StifelApril 22, 2025 | markets.businessinsider.comSee More Liberty Energy Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Liberty Energy? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Liberty Energy and other key companies, straight to your email. Email Address About Liberty EnergyLiberty Energy (NYSE:LBRT) provides hydraulic services and related technologies to onshore oil and natural gas exploration, and production companies in North America. The company offers hydraulic fracturing services, including complementary services, such as wireline services, proppant delivery solutions, field gas processing and treating, compressed natural gas (CNG) delivery, data analytics, related goods comprising sand mine operations, and technologies; and well site fueling and logistics. As of as of December 31, 2023, the company owned and operated a fleet of approximately 40 active hydraulic fracturing; and two sand mines in the Permian Basin. In addition, the company provides services primarily in the Permian Basin, the Williston Basin, the Eagle Ford Shale, the Haynesville Shale, the Appalachian Basin (Marcellus Shale and Utica Shale), the Western Canadian Sedimentary Basin, the Denver-Julesburg Basin (the DJ Basin), and the Anadarko Basin. Liberty Energy Inc. was formerly known as Liberty Oilfield Services Inc. and changed its name to Liberty Energy Inc. in April 2022. 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There are 15 speakers on the call. Operator00:00:00Welcome to the Liberty Energy Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Anjali Vohria, Director of Investor Relations. Operator00:00:26Please go ahead. Speaker 100:00:28Thank you, Gary. Good morning, and welcome to the Liberty Energy's Q2 2024 Earnings Call. Joining us on the call are Chris Wright, Chief Executive Officer Ron Gusek, President and Michael Stock, Chief Financial Officer. Before we begin, I would like to remind all participants that some of our comments today may include forward looking statements reflecting the company's views 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. Speaker 100:01:03These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in our 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, adjusted net income, adjusted net income per diluted share and adjusted pre tax 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, net income to adjusted net income and adjusted net income per diluted share, and the calculation of adjusted pre tax return on capital employed as discussed on this call are available on our Investor Relations website. I will now turn the call over to Chris. Speaker 200:01:54Thanks, Angelie. Good morning, everyone, and thank you for joining us to discuss our Q2 2024 Operational and Financial Results. Before we begin, I'd like to recognize our Houston based colleagues that were impacted by Hurricane Beryl. Many were left for several days without power, but they rose to the occasion to meet the needs of our business and support each other and the broader community with remarkable resonance. I want to thank them for their exceptional efforts. Speaker 200:02:28In the Q2, Liberty delivered strong operating and financial performance, demonstrating the value of Liberty's competitive advantage. Revenue of $1,200,000,000 and adjusted EBITDA of $273,000,000 grew by 8% and 12% sequentially, respectively, while industry drilling and completions activity modestly softened over the same period. Record average daily pumping efficiencies and record safety performance, coupled with increased utilization of our fleets, underpinned the strong results. Our company culture, long term customer partnerships, innovative technologies, scale and vertical integration allowed us to deliver 28 percent adjusted pretax return on capital employed for the 12 months ended June 30, 2024. We generated strong cash flow and distributed $41,000,000 to shareholders in the second quarter. Speaker 200:03:36Since the reinstatement of our capital return program 2 years ago, we have distributed $458,000,000 of cash to shareholders through the retirement of 13.2 percent of shares outstanding plus quarterly cash dividends. We plan to continue strategically deploying capital to expand our competitive advantage and leadership position while returning capital to shareholders. Our culture of innovation and Liberty developed technology are at the root of our success to date and the key to our future. This is reflected in today's highest ever operational execution and safety performance over our 12 year history. We are driving performance by harnessing data and software solutions throughout our organization. Speaker 200:04:30Three specific examples are 1, our record diesel displacement with data analytics driving enhanced gas substitution 2, our preventative maintenance programs extending asset life, performance and reliability and third, Liberty's custom built AI empowered logistics software platform we call Sentinel. Before I highlight these 3 specific innovations, I want to remind everyone that Liberty alone has designed and deployed our own custom pump technologies and power generation technologies that allow us to optimize fleet arc type for performance and capital efficiency. Most importantly, we have built a culture of accountability and awareness around safety that we ceaselessly strive to improve. We have driven a 25% reduction in recordable incidents, TRIR over the last 1 year alone, down to roughly 50% below industry averages. I'm very proud of this fact. Speaker 200:05:42I believe we are the most competitive, most efficient frac company in the sector. Let me add a few more comments on our recent technology driven enhancements. Our diesel displacement is now at the highest level in company history from both the deployment of our natural gas fuel Digi fleets and record gas substitution with our dual fuel equipment. Over the past year, dual fuel gas substitution levels have increased over 25% for three reasons investment in automated operating systems, increased expertise and visibility with real time data on critical gas parameters, plus the coordination made possible by our addition of Liberty Power Innovations to supply on-site natural gas. Our predictive and preventative maintenance program coupled with data visibility and analytics allowed us to increase uptime and run assets at optimal operating ranges both for frac performance and to achieve maximum gas substitution. Speaker 200:06:53We further enhanced our LPI portfolio with the commissioning of our operations in the DJ Basin, including compression capacity and logistics assets with 1st CNG sales in June, serving Liberty fleets and customer drilling rigs. Vertical integration drives efficiency. It is hard to overstate the impact of our advanced Sentinel logistics platform, harnessing real time data and AI predictive analytics to both precisely forecast on-site proppant demand and inventory and then optimize transportation and logistics. Since inception, we have reduced our already very low downtime due to each, improving collaboration with supply chain partners and ultimately lowering the total delivered costs for our customers, less assets, less time and improved performance. That is why we built the Sentinel system. Speaker 200:08:07We launched Sentinel in the Permian approximately a year ago and have now expanded to all U. S. Basins. We will now focus on deploying Sentinel Logistics solutions across our LPI CNG business. Sentinel is a key tool as we expand our business going forward. Speaker 200:08:26We strive to deploy the right technologies at the right time for the right reasons. AI is yet another tool that we are now utilizing to enhance our operations. AI comes full circle for us. The massive increase in data centers for AI and restoring industry back to the U. S. Speaker 200:08:47Is inflecting upwards demand for electrical power and natural gas. AI is both enhancing our business and growing the demand for our services. We are excited by the potential opportunity to meet that demand through our LPI business. Our LPI business is starting in the oilfield, where we are building assets and expertise to reliably deliver both natural gas and electricity 20 fourseven in remote areas. On frac locations, we rapidly construct a 25 megawatt to 35 megawatt power plant, fuel and operate it, and then tear it down roughly once a month and move that plant somewhere else. Speaker 200:09:33Our technology, assets and expertise are positioning us very well to expand the playing field for LPI. Global oil and gas markets remain constructive on favorable multi year market fundamentals despite near term volatility in commodity prices. In June, a decision from OPEC Plus to gradually unwind voluntary production cuts beginning in October drove oil prices lower. Even then prices were well above those supportive of attractive E and P returns. Oil prices have since recovered on relatively balanced supply and demand dynamics, owing to relatively resilient global economic growth and a rising demand for transportation fuels with summer travel season underway. Speaker 200:10:25Natural gas prices saw a resurgence from early spring lows as gas producers reduced drilling and completions activity and curtailed production. Recent reinstatement of some curtailed production has moved prices downward, but still above recent cycle lows. The commissioning of new LNG export facilities and continued growth in power demand are expected to drive higher natural gas demand and eventually firmer natural gas prices than today's. Fracked industry trends have moderated marginally in recent periods on the heels of slightly softer drilling activity in both oil and gas basins during the first half of twenty twenty four. Industry wide completions activity has declined to levels consistent with only roughly flat oil and gas production. Speaker 200:11:22For the U. S. To deliver rising oil and gas production levels, completion activity would need to rise. Signs of tightness for quality frac crews may emerge in 2025 on a demand pull for energy. The attrition of older equipment from higher intensity fracs with increased horsepower requirements is reducing the available horsepower to meet an eventual increase in frac fleet demand. Speaker 200:11:51As E and P operators continue to consolidate, their efforts are focused on efficiency gains through partnership with service companies that can deliver superior performance and provide technical solutions to drive value creation. Liberty's supply chain has continued to rapidly innovate and drive efficiencies in procurement, manufacture and delivery of essential materials for frac operations. The resulting efficiencies benefit both our customers and our business. Liberty's Digi Technologies, LPI Services, top notch supply chain, scale and integrated services enable us to drive improvements across the board for our customers and grow our industry competitive advantage. As we continue to execute on our returns focused value proposition, we are well positioned to deliver strong financial and operational performance. Speaker 200:12:54Our strategic investments deepen our portfolio of natural gas fueled pumping and power generation technologies, driving higher earnings and cash flow generation potential. Industry conditions moderated through the first half of this year. We now anticipate that total North American completions activity will be modestly softer in the second half of the year due to budget front loading by some operators. However, we expect Liberty Financial performance to be similar in the second half of the year compared to the first half. We expect to continue investing in our competitively advantaged portfolio, deliver healthy free cash flow and return capital to our shareholders. Speaker 200:13:42We are committed to safely and responsibly creating long term value for our partners and shareholders. With that, I'd like to turn the call over to Michael Stock, our CFO, to discuss our financial results and outlook. Speaker 300:14:00Good morning, everyone. I'm pleased to share that we have delivered solid financial results for the first half of the year, despite softening industry conditions and activity levels. Our teams came together to drive outstanding efficiencies during the Q2, safely delivering more pump hours, more stages and pumping more profit than ever before. We have made significant progress on our investment strategy, designing and delivering next generation Digi Technologies that are in high demand, while expanding our LPI infrastructure to really ourselves for growing natural gas demand. We have also continued to deliver on our capital returns program. Speaker 300:14:392 years in, we have now returned $458,000,000 to shareholders, predominantly in the form of accretive buybacks. We expect to continue to execute on these initiatives for the remainder of the year. In the Q2 of 2024, revenue was 1 point $2,000,000,000 compared to $1,100,000,000 in the Q1. Our results increased 8% sequentially as our pumping efficiencies and integrated services offset lower sand and other consumable prices and market headwinds. Our teams produce record pumping hours, record stage counts and record proppant pumps, bucking the trend of industry activity declines. Speaker 300:15:202nd quarter net income after tax of $108,000,000 increased from $82,000,000 in the prior quarter. Adjusted net income was $103,000,000 compared to $82,000,000 in the prior quarter. In recent years, we've made investments in several energy companies such as in Oaklow and Tambourine that had potential to help meet the world's growing demand for energy. OCO and Tambourine both commenced trading on the New York Stock Exchange during the Q2 and resulting in a net unrealized gain of $7,000,000 before taxes. As a result, we're providing adjusted net income to exclude items outside our normal operating results to provide a more useful measure of comparison for net income from period to period. Speaker 300:16:04Fully diluted net income per share was $0.64 compared to $0.48 in the prior quarter. Adjusted net income per diluted share was $0.61 compared to $0.48 in the prior quarter. 2nd quarter adjusted EBITDA was $273,000,000 compared to $245,000,000 in the prior quarter. General and administrative expenses totaled 58,000,000 in the Q2 and included non cash stock based compensation of $5,000,000 G and A increased $5,000,000 sequentially, primarily on higher compensation expense and more salary adjustments and other miscellaneous expenses. Other income items totaled $1,000,000 for the quarter, inclusive of the aforementioned $7,000,000 net unrealized gain on investments. Speaker 300:16:51Excluding these gains, net interest Excluding these gains, net interest expense of $8,000,000 was relatively in line with $7,000,000 from Speaker 400:16:57the prior quarter. Speaker 300:16:592nd quarter tax expense was $33,000,000 approximately 23% of pretax income. We continue to expect tax expense rate in 2024 to be approximately 24% of pretax income. Cash taxes were $8,000,000 in the 2nd quarter, and we now expect the 2024 cash taxes to be a maximum of 70% of our effective book tax rate for the year. We ended the quarter with a cash balance of $30,000,000 and net debt of $117,000,000 Net debt declined by $25,000,000 from the end of the first quarter. 2nd quarter uses of cash included capital expenditures, dollars 30,000,000 in share buybacks and $12,000,000 in quarterly cash dividends. Speaker 300:17:42Total liquidity at the end of the quarter, including availability under the credit facility, was $271,000,000 Net capital expenditures were $134,000,000 in the 2nd quarter, which included investments in Digi Fleets, LPI Infrastructure, dual fuel fleets, upgrades, LATs, Liberty Advanced Equipment Technologies facility construction, capitalized maintenance spending, accelerated maintenance or spending on our fleet in transit to Australia and other projects. We had approximately $2,000,000 of proceeds from asset sales in the quarter. We now expect capital expenditures to be around the high end of the range for 2024. Also in the quarter, we invested $16,000,000 in the Beetaloo Basin operators to support this exciting new source of natural gas for the world. Our ability to generate strong cash flows through cycles enables our commitment to capital returns. Speaker 300:18:35In the second quarter, repurchased $30,000,000 of shares or nearly 1% of the shares outstanding and distributed $12,000,000 in cash dividends. We continue to deliver on a return of capital program while reinvesting in high returns opportunities that increase our long term cash flow generation. While we have seen a slight moderation in industry activity through the first half of the year, Liberty has mitigated these impacts by focusing on meeting the increased complexity of our customers' demands. We have been able to leverage our technology investment, scale, integration and focus to drive superior results, while continuing to build our competitive advantage. In the second half of twenty twenty four, we now anticipate flattish financial results that largely mirror the quarterly cadence of the first half of the year. Speaker 300:19:25We're also expecting Digifleek deployments to continue ratably throughout the year and are on track to end the year with close to 90% of fleets primarily powered by natural gas. I will now turn the back to now turn it back to the operator for Q and A, after which Chris will have some closing comments at the end of the call. Operator00:20:13Our first question today is from Scott Gruber with Citigroup. Please go ahead. Speaker 400:20:19Yes, good morning. Good morning, Scott. Speaker 300:20:24Chris, can you provide some Speaker 400:20:25color on pricing trends across the various frac technologies today? Investors have been asking whether the Tier 2 pricing is just getting so wide kind of versus DGB and e frac that it's starting to exert some negative pressure on those newer technologies. What do you guys seem in the marketplace today? Speaker 200:20:49Look, as we've said Scott, the market is activity level is slowly declining which I would say is making the market slowly softer, modest changes slowly and look this has been going on for almost 2 years now from the peak activity in late 2022. And of course, if you've got your choice of frac technology and you do today, a straight Tier 2 diesel engine, that's the lowest choice. That's the oldest equipment. It doesn't burn the gas. It's more expensive to fuel. Speaker 200:21:23And so for the larger operators with large steady programs, there's very little of that technology still employed, but you've got a lot of smaller companies that don't have a full fleet program, but they're still spending significant CapEx. That's where most of the Tier 2 diesel frac equipment is operating. But yes, that market is softer. And I think you're seeing the fading away of Tier 2 diesel engines. They're not going to all be gone for probably still several years, but yet they're declining. Speaker 200:21:59The desirability of them is lower, but again still many of those fleets running, including from Liberty. Speaker 400:22:10And how would you describe the incremental demand for e frac? How far out are your fleets contracted? Are fleets 9 to 10 spoken for? Are you starting to have the discussions on the early fleets for next year? Just kind of curious about the how those discussions are going and how far out are those discussions today? Speaker 200:22:32Yes, there are ways out. Look, everything we're ordering equipment for looking to construct in the next year, that's spoken for. And we're in discussions with many others more than we can supply for fleets that might deploy or start in first half or middle of next year. So that's a ways out. That next generation equipment, not only is it 2, 2. Speaker 200:23:06But it's quiet, it's precise, it's high-tech. I mean, demand for that is quite significant. Speaker 400:23:16Great. I appreciate the color. I'll turn it back. Thanks, Chris. Speaker 200:23:18Thanks, Scott. Speaker 500:23:20Thank you. Operator00:23:21The next question is from Marc Bianchi with TD Cowen. Please go ahead. Speaker 600:23:26Hey, thanks. I wanted to ask, Chris, on your outlook for sort of the progression into 'twenty five. You sounded kind of constructive on the direction of demand just based on where oil production and gas production are at current frac levels. But like if I look at what E and Ps are doing, just with being in maintenance mode and consolidation and efficiencies that are happening like they're not looking to grow in 2025. So is it that you see them changing that plan or is it something coming from privates? Speaker 600:24:00What are you seeing that kind of gives you the optimism about growth in 2025? Speaker 200:24:05Yes, look, I would say our expectation for growth in 2025 is likely modest. But the current activity today, it would not support even flat natural gas production because it overshot, it overshot. We had very robust gas activity through 2022. I thought that would roll down more in early 2023, but it really didn't roll down till later in 2023. So gas activity is very low right now. Speaker 200:24:36That's and that's not going to reverse next quarter, probably not this year, but as you look ahead eventually you've got to have more activity just to keep U. S. Natural gas production flat, let alone a little bit of growth. We have to be careful of course of too much growth, which has been the mistake in the past among the natural gas operators. And today's oil production is also pretty flat. Speaker 200:25:02We had chunk of growth last year, but crude production, it's been flattish for 6 or 8 months and we've still seen activity decline a little bit since then. So the production trend you're seeing today that's reflective of what frac activity was 3 to 6 months ago. We haven't seen a production trend reflective of today's frac activity. It's probably flat at best oil production. So again, I'm not predicting a big change next year, but this second half of this year is going to be a little softer than the first half. Speaker 200:25:37And the first half of next year will likely be back up, I would say at least to the levels of the first half of this year. We're not expecting a huge rebound, but from where we are today, I think you'll see increased activity in the first half of next year. Speaker 600:25:53Yes. Okay. And those are kind of market comments, not necessarily Liberty comments, but maybe you sort of follow that trend? Speaker 200:26:01100%. Those are market comments. Look, as we said, we've had a meaningful, probably 25% to 30% decline in active frac fleets industry wide from 2 years ago to where we are today and Liberty is basically flat through that period. So yes, we have not followed the industry trend. We haven't added fleets. Speaker 200:26:26We don't want to put anything into a soft market, but the interest or desire among operators to work with Liberty is high. And look, the biggest reason for that is just performance, the operational performance of our teams and the way we do business. 2nd after that is high-tech and next generation equipment. But those things keep demand for Liberty high. But again, yes, as conditions soften, you won't see an increasing fleet count from us. Speaker 200:26:54But we haven't reduced it as we thought we might just because the customer demand and to continue the relationships has been quite strong. Speaker 600:27:02Yes, makes sense. And then just one more on kind of the nearer term progression. So if second half is going to be similar to first half, is the right way to think about it that from an EBITDA perspective, Q3 looks like Q2 and Q4 looks like Q1, so essentially your mirror image, is that what we're talking Speaker 200:27:21about? That's exactly our guess. That's our guess. Of course, we got a pretty good view into Q3, which looks flattish and Q4 you don't know, but that would be our expectation is probably similar to Q1. Speaker 600:27:36Yes. Super. Thanks so much. I'll turn it back. Speaker 200:27:38Thank you. Operator00:27:40The next question is from Arun Jayaram with JPMorgan. Please go ahead. Speaker 700:27:45Hey, Chris. I was wondering if you could kind of elaborate on some of the trends and growth initiatives you have for LPI and what kind of demand trends you're seeing for that offering? Speaker 200:27:59Yes. So again, huge interest there as well. Look, there's just this massive cost savings to burn natural gas instead of burning diesel. And then the question is, how do you do that? That's been going on in the industry for, I mean 2nd fleet we built was dual fuel. Speaker 200:28:16So it's been going on for at least a dozen years. But it's been, hey, we've got gas on location. We can power most of the pumps or all of the pumps, but we're down for a while on gas, but we'll just burn more diesel. And so it's been there. What we've tried to do is just set that bar higher that if we're planning to burn dual fuel there, we're going to make sure we have reliable gas supply to every pump that's operating on location and up and down with the trends in that frac activity and because you have to have reliable gas to maximize the displacement of diesel. Speaker 200:28:54So that trend just continues as we were talking the straight diesel fleets are declining in their percent market share. And so hence there's just more every month there's more gas burnt for hydraulic fracturing operations than there was the month before that. So we are we've launched that business in the Permian. We still have a lot of growth in the Permian. We are just as we announced and I think just kicked off in the DJ. Speaker 200:29:21We're doing some work in the Haynesville as well. We're not in the other basins Liberty operates yet, but we will with time. Most of our gas is to operate our own frac fleets, but we're also supplying customer rigs. That'll broaden into other industry applications And look as you get into next year that sort of virtual pipeline will broaden into just powering electric generating assets even outside of our industry. Speaker 800:29:48I don't Speaker 200:29:48think we see that But Speaker 400:29:52yes Speaker 200:29:56But yes, we're there's just huge, huge running room for that business. Speaker 700:30:03And I had a housekeeping question on the balance sheet maybe for Michael. Michael, can you walk us through the capital lease item on the balance sheet, which looking at it right now, it's $236,000,000 What is running through capital leases versus CapEx? Speaker 300:30:21Yes. So, we do we run a number of things through capital leases. Generally, it's rolling some rolling stock. The interest rates on capital leases are actually sort of lower than slightly lower than our ABL facility at the moment. So it's a very, very effective way of sort of arbitraging a kind of a short term loan to fund some of the kind of moving stock that we roll. Speaker 700:30:48And what would you like characterize as that moving stock? Just a little bit more elaborate on that. Speaker 300:30:53Tractors, CNG trailers, things of that variety. Operator00:31:01The next question is from Jeffrey LeBlanc with TPH. Please go ahead. Speaker 900:31:07Good morning, Chris and team. Thank you for taking my question. For my first question, Speaker 300:31:11I Speaker 900:31:11wanted to see if you can give us an update on how much of your capital expenditure is allocated to LPI this year. Additionally, given that the LPI value chain extends beyond mobile power generation and historically the $60,000,000 sticker price for a Digifleet included power generation, how should we be thinking about the megawatt capacity that will be in operation by year end? Thank you. Speaker 300:31:32So, if we take that one, I mean, we're running about 100 and 25 megawatts of power generation at the moment. We have probably about a bit more than 50% of that under construction of future power generation in the oilfield. Obviously, that doesn't include the virtual megawatts that we use with Digi Prime. LPI, the vast the majority of the CapEx is being spent at the moment is on moving the molecule. So we're really managing the molecule to the frac fleet, which increases uptime, increases efficiency and increases substitution rate. Speaker 300:32:06So that comes in the form of CNG trailers, the compression that we built in the DJ Basin, fuel distribution on-site, fuel gas treatment for a number of our larger clients that have fuel gas in the field. So really kind of an integrated solution to be able to sort of manage the molecule into either power or direct drive that's pushing stuff downhill. So that's where the majority is. We don't break the CapEx out between that because again we're a single segment and it's all related to frac. Any power generation outside the industry, outside oil and gas, we'll probably talk about maybe in the next call as we look at those, but that will be something that we will discuss separately for power generation for non oil and gas operations. Speaker 900:32:56Thank you very much. And I'll turn the call back to the operator. Speaker 500:33:00Thank you very much. Operator00:33:02The next question is from Stephen Gengaro with Stifel. Please go ahead. Speaker 800:33:07Thanks. Good morning, everybody. Speaker 500:33:09Hi, Stephen. Speaker 800:33:10I'm not sure how much you can break this out, but I'll ask. When we think about Wall Street still does its dumb math, right? We divide EBITDA by fleets or revenue by fleets to get a number. When we think about your revenue or profitability per fleet versus say 2 or 3 years ago, is there any guide you can give us kind of on how much of that is pure frac and how much of that is driven by either a mix of newer frac assets and or your LPI and other integrated services? Speaker 300:33:47Let me just take that one, Stephen. The reality is we're a single segment, right? So everything is frac or everything we do is focused around supporting frac. So it is all related. But you are right just for the industry for investors to think about the fact that we've talked a lot about over the last 5 years, our expansion on our vertical integration, right? Speaker 300:34:06You think about it the fact that we own sand mines. We're doing gas delivery. We own manufacturing. We've dropped our maintenance costs. We're building a new manufacturing facility in Oklahoma to where we're going to be actually building some of our DigiPrime and some of our power generation equipment to help support the our partners that have historically put our equipment together, assembled our equipment because there's just not enough capacity. Speaker 300:34:33We own that design from everything from the design to the BOM to the actual manufacturing investments, you think about it, central investments in our sort of logistics software, we move about 1,000,000 approximately around about 1,000,000 truckloads of sand a year, I think somewhere in that route. There's a huge investment that we've made in this vertical integration. Most of sort of the our clients come to us to provide their sands, provide their chemicals. So we are able to basically mine more of the value chain. If you go back all the way to the period before the OPEC war on shale, there were so many layers of profitability, so many people at the trough taking your profit out of the system, right? Speaker 300:35:21So we've got larger clients now wanting larger oilfield service companies to provide more of the services, more complex, more integrated, which means more of the wallet share stays with us. And that's the unique Liberty sort of investment that we've done is that we take everything. If you think about Digifrag, we own the power generation, we own the gas delivery, we own the pumps, we are the only company that has that whole value chain and makes returns off that whole value chain. And that is the difference. Hence the reason it's all supporting frac, it's all about the teams that are operating at the well key, but we make money through that whole value chain, Steve. Speaker 800:35:58Great. That's very helpful color, Michael. And this is a follow-up to that. In a recent you know, Kimberleyte's recent survey came out and we're speaking with them recently. And one of the things that stood out to me was there's 2 companies that have completed or are completing wells in 7 days or less. Speaker 800:36:16It's you and one of your biggest competitors. I was just curious, does that what drives that? Is that the overall integration of the fleet? Or is that just your highest end digital assets that are kind of driving your ability to kind of lead on that front? Speaker 200:36:33Look, I'm going to let Ron answer that question. But the short answer is the humans, the people that run Liberty frac fleets. That's the biggest differential and just that attitude about how to coordinate this symphony to deliver. But I'll let Ron elaborate a little more about the technologies and how this is all done, but really it's culture and humans. Speaker 1000:36:57Yes. Stephen, I think Chris hit on the biggest point there. Of course, we've always been focused on culture since the beginning and creating an environment where people wanted to come and make a career out of it. And I think that's been demonstrated in our performance now for 13 years, I guess. Hard to put value on that, but I think it plays out very, very well in that Kimberlite report and the responses you see from our we deliver we deliver great service in the field, but that's supported by industry leading technology developed in house here at Liberty and supported by a team here at Liberty. Speaker 1000:37:38It's supported by a world class supply chain organization that ensures we have multiple legs on the stool that of course, we have some amount of internal support, whether that's manufacturing or sand or things like that, but also great partners on from the 3rd party side that are also helping to assist in that, ensuring we never are short sand or short chemical or without a part in the field or anything like that. You layer on top of that, the work we've done in artificial intelligence in terms of understanding both the operation and performance of our equipment, the ability to predict when in advance of something going wrong that we need to care of some maintenance there, maximizing uptime we're seeing on location with the assets each and every day. We have a maybe unrivaled level of visibility into our operation in the field now, not only for the equipment itself, but as Chris talked about in his opening comments, the Sentinel Logistics platform and our supply chain for ensuring that sand and chemical arrive there on a timely fashion. And then I think as you think about the scale of our organization now, one of the other things that we've always been focused on is engineering support. Speaker 1000:38:54So we have engineers out on every location. We have a strong engineering team here that is working side by side with our customers to optimize completion design out there as we continue to improve and that remains an important piece of the puzzle as we continue to migrate from acreage of some quality to acreage of maybe a slightly lower quality, but ensuring we have a completion design that is optimal for that. And so you continue to layer all of those things on and we continue to find ways to be more and more efficient out on location every day. Speaker 800:39:28Great. That's great color. Thank you all. Operator00:39:32The next question is from wokar Syed with ATB Capital Markets. Please go ahead. Speaker 1100:39:38Thanks for taking my question. Chris, this is kind of a big picture type question that I'm asking and I'm going to throw out some numbers here. If I look at this quarter compared to the year ago quarter, your revenues are down only 3%, but your EBITDA margins are down 2 40 basis points, EBIT margins are down about 4 70 basis points. DD and A, quarterly DD and A is up about 25% and return on capital employed is down from about 30% to 20%. Now having said that, these are still best in class results, 20% return on capital employed is still very, very attractive. Speaker 1100:40:17But it does feel to me that all the value that you're adding, all the investments that you're making, efficiency gains, a large portion of that benefit is accruing to the customer and you're not getting the fair share that really your effort really entails, is there a new type of contracting structure that you could think of performance based or we've seen some of the drilling contractors kind of pursue that. Is there some other arrangement that pumpers could make where they're making so much investment, so much effort, but probably not fully getting the benefit of that? Speaker 200:40:57So Akar, that's a reasonable overview of the numbers. And I think the short answer there really is the business remains cyclical. That what's nice is that the cycles now or at least this cycle is much more mellow than previous cycles where wow we're killing it and then OPEC fought shale and things collapse for a while and it bounces back. So what all those numbers you recounted or that the business conditions have been softening for nearly 2 years. And that's we're probably near a bottom. Speaker 200:41:35They're not changing much right now. But yes, 2 years ago the business conditions were fantastic. Today they're weaker and if you look across the whole industry you'll see a pretty big a much bigger swing down than you'll see in Liberty in that. But it's still a slower more modest cycle. When we and so that return on capital employed that denominator, yes we have new assets. Speaker 200:41:58Most of these assets are 10 plus year assets that we've just built. So all the cost is there burdening us, But when we make these investments, we're thinking over the cycle. What is the return we're going to get on those assets over the next 10 years? That's what drives our investment decision whether to do them or not because you can't just turn that spigot, all the conditions are a little weaker, let's stop all investment or conditions are great, let's hit the gas and whatever, invest at a super high rate. That's just we always are looking at it longer term, longer game for investment decisions. Speaker 200:42:39We do with our partnerships with customers, we do have performance based stuff built in a number of our contracts. How can we get better together and how can we win together on that. We don't talk about that stuff because it's individual fleet by fleet or customer by customer. But are we looking at ways to tie our fortunes together and to get better returns on our investment? Absolutely. Speaker 200:43:04But the numbers and the whole team look at is what is the investment over the long term in our assets. And in fact, we may read that the numbers you just recounted a little different today and say, wow, we've been rolling down for almost 2 years and our average return on today's assets still pretty strong. And so but yes, what you're seeing is not really a secular change in contracting and how the industry works. It's just the effect of a slow modest cycle. Speaker 1200:43:38Makar. Speaker 1100:43:39Okay. And just if I may ask another slightly different question about completion activity into next year. If you look at the supply demand commodity price forecast from EIA, IEA or OPEC's second period, they're all projecting U. S. Oil production to be or liquids production to be up like 500,000 to 600,000 barrels a Speaker 200:44:02day year over year in 2025. Speaker 1100:44:05Do you think what kind of activity completion activity increase would be required to get to those kind of production growth numbers? Speaker 200:44:15Well, modest, but definitely an increase, definitely an increase from where we are today. But it does again, I don't think it takes a lot of change and increased demand to change the feel of the business cycle a bit. I would say that at probably this year's investment levels, I'd love to look back at this whole year. We're probably going to see a slight shrinkage in the available supply of frac equipment. There's a lot of Tier 2 fleets still running that are not being reinvested in that are shrinking. Speaker 200:44:46There's new gas powered fleets being built, but likely less this year than the attrition or wearing down of fleets. So cyclically the market, the investment levels are relatively modest. But so if you have even just a 5% or 10% increase in fleet, active fleet count 9 months from now than we have today. And that might be my guess, that's not insignificant for what it would do for market conditions. Operator00:45:24Question is from Derek Podhazer with Barclays. Please go ahead. Speaker 1300:45:28Hey, I just want to go back to Scott's question at the top of the call. The diesel CNG spreads are tightening out there. We talked about Tier 2 diesel pricing coming under pressure. Assuming that's going to weigh on your dual fuel assets first, is that a valid assessment? And then maybe is the goal of investing in LPI to drive integration through CNG, is that a way to help protect pure frac pricing along with the rest of your integration strategy? Speaker 1300:45:52Maybe just some comments around there, please. Speaker 300:45:57Right. So if I take that one, I'll take this to the last half first. Yes, I mean, our integration sort of vertical integration investment strategy is definitely about driving higher returns on our invested capital base, right? We're taking the intelligence and innovation of all the people in our company and we're focusing in them on how to make things, how to get the barrel of oil up to the surface at a lower cost, at a higher profitability for Liberty, right? So that's key. Speaker 300:46:24That's key in everything we do. So that is that focus. That really makes a difference, right? Yes. Does the ability to run the CNG business, one of the things we saw was that we were not running maximum substitution because of the ineffectiveness of a CNG and natural gas supply system. Speaker 300:46:42That was a key limiter, right? And as you move to 100% natural gas engines, that became a major limited because gone is the additional cost of running excess diesel from a dual fuel equipment, you've got downtime if you don't have gas, right? So that was key for the initial part of the investment in LPI, right, was really making sure that we drive that efficiency. I mean, I think that's a key thing there on how we are sort of managing to keep up in a softer market when we've got about a 20% decline in activity demand over a 2 year period, Liberty is basically flat and has the strong returns, the continued strong returns we have is because we deliver more value every day to our clients. And I think everything we do is focused around managing that and improving that. Speaker 300:47:33Now as Chris said, as things tighten up as they will, I mean, eventually, these are cyclical market, right? We're in a lowest point at the moment. Things will sign and will tighten up. You will see the sort of forcing function effect of all that investment in vertical integration will also, you should see that improve the bottom line faster as we go forward as the market tightens, right? These are long term investments. Speaker 300:48:00So I think that's key there, Derek. And I may have missed the first part of Scott's question there, but Speaker 400:48:05I got on a roll, so. Speaker 1300:48:08That was just comments around Tier 2 pricing pressuring dual fuel pricing given the spread tightening between diesel and CNG? And then with the RFP season coming up and just threat of reopening and seeing some pricing pressure there? Speaker 300:48:22That's definitely as you're seeing sort of there's more and more equipments becoming dual fuel. And then we've got a large amount of attrition in the older equipment. As we've talked about, there is a bellend of equipment that was built probably in 2013 to 2014, twenty 12 to 2014 area that really is getting to the end of life for the industry, right? So therefore, as Chris said, I think attrition is actually faster than what we're seeing. I think what we're seeing is we're seeing people pump at higher rates and more complexity, which Ron can talk about, and with larger fleets. Speaker 300:49:00And so that is key is that we're using more horsepower to also achieve and offset some degradation. And Rob, Ron, you want to add some comments to that? Speaker 1000:49:10Yes. I'd add a couple of things there. First of all, I think important to remember that just because you put a dual fuel fleet out there, that doesn't mean you get to 75% substitution automatically. We've talked a lot about today the progress we've made in substitution levels. And that's due to an immense amount of focus internally in the organization again around delivering premier performance regardless of what that is, regardless of whether it's number of hours pumped in the field or the supply chain or in this case the amount of fuel that we substitute. Speaker 1000:49:44We've worked hard to arm our team with the level of information they haven't had before with visibility into the operating performance of the assets we put out there. And then of course with LPI to backstop that and whatnot. And so I would argue that even amongst dual fuel fleets, a dual fuel fleet is not a dual fuel fleet, is not a dual fuel fleet. And so, I think we will continue to command a premium as a result of our operational performance, not just from a high level efficiency standpoint, but even in terms of how we operate assets like a Tier 4 DGB pump. And then, yes, layering on top of that, the complexity, of course, we continue to see added complexity in the completions. Speaker 1000:50:24You've seen what started out as zipper frac, then simo frac, then trimo frac. Now we're on our way to quad frac. We continue to work in more and more challenging reservoirs and we're, of course, continually focused on maximizing productivity per lateral foot. And so you layer all of those things on top of there and I think we continue to deliver a package that will remain the premier choice amongst our E and P partners and as a result minimize that impact from the diesel retirement and the pricing pressure there. Speaker 1300:50:57Got it. Thanks. Next question is maybe some more color on what's driving you to reach the high end of the CapEx range. I know last call you guys were holding out maybe some growth opportunity in the back half of the year from privates. Obviously, we're not seeing that. Speaker 1300:51:11So I would assume you'd have some softening of CapEx just with overall activity. Are you reallocating some CapEx dollar into growth projects, specifically LPI or maybe your upgrade program Tier 4 to Tier 4 dual fuel or Tier 2 to Tier 2 dual fuel. Just some more comments what's driving you up to the higher end of that CapEx range now? Speaker 300:51:31Yes, it's really the timing. I mean, we've got a few additional growth projects that we're investing in, things like building the constructing facilities for the growth. But yes, really, I mean, the slightly softer activity this year doesn't really affect our CapEx program, right? We're investing, as Chris said, for the next 5, 10 years. That's what we're building equipment for, it's long life. Speaker 300:51:50It is not necessarily, unless you get a shock like COVID or the OPEC war on shale, is not necessarily affected in the short term. It really takes into account our long term view of our capital return opportunities. And I would say generally the fact that we continue to be at about 50% higher than the S and P 500, I think we are continuing to make great returns for our investors. And obviously, we can't reinvest all of our capital because we have a very, very, very high bar for capital returns. And everything below that, we are returning to shareholders. Operator00:52:30The next question is from Neil Mehta with Goldman Sachs. Please go ahead. Speaker 1200:52:35Yes. Good morning, team, and thanks for this update. I guess, the first question is, it's always hard for us to get visibility on DUC trends because the data is so noisy. So Chris, team would love your perspective on what you're seeing in terms of drilled and uncompleted wells out in the field, any regional color and how does that feed into your view of pressure pumping utilization moving into 2025? Speaker 200:52:59Yes, Neal, I think it is hard to see exactly During COVID, there was a huge build in DUCs during the OPEC fought shale. We had some big DUCs. We've had some majors change priorities in basin. So there's been like episodes where DUCs were meaningful. I think today and most of the time, DUCs is really just inventory of wells in progress. Speaker 200:53:32They're not in the cabinet waiting for a later date. But when you drill large pads and they take a long time and the way they're counted, a lot of DUCs are really most of DUCs are just wells in progress. There's exceptions to that today for sure in gas basins because of pricings there. But we don't so there's a little bit of a duck building gas, but we don't view that as a big driver of future frac activity or optimism. Speaker 1200:54:04Thanks, Chris. And then just a follow-up on capital allocation. You guys have done a terrific job returning capital to shareholders. The stock still trades at a big discount relative to things in energy. So just your perspective, even if we go into a softer environment than maybe some folks would have anticipated in the back half of the year, do you still feel that you're well positioned to return capital in the form of buyback to shareholders? Speaker 1200:54:30And while we're on the topic of capital allocation, do you see yourself as participating in consolidation? Or do you continue to think buying back your stock is the best use of the incremental dollar? Speaker 200:54:43Right now the dominant use of that has been buybacks. That's not likely to change. We look at everything from consolidation. Certainly you think of the gas market struggling right now. If there are opportunities that present themselves with the unique value or unique additive, we'll move on that. Speaker 200:55:05Sometimes they're small and sometimes they're bigger. But we can't count on that. We're always looking. But acquisitions have not been a big part of our past and they're likely not going to be a big part of our future. They won't be nothing. Speaker 200:55:19But it's got to be pretty compelling. We're very much a grow organically, develop internally. So we look at things and if things are unique, we'll do them. But buybacks, if I look out over the next 3 to 5 years, yes, buybacks are likely going to be a huge use of our free cash flow. At the value we have for the stock, treat that as single digit price to earnings ratio with as Michael said 50% higher than the S and P 500. Speaker 200:55:51Long term cash return on capital invested, it's very attractive. So I think you will see a continued meaningful reduction in the outstanding number of shares in Liberty over the coming years and coming quarters. Speaker 500:56:06That's a good message, Chris. Thank you. Speaker 200:56:08Thanks. Great questions, Neal. Operator00:56:11Excuse me. The next question is from Tom Curran with Seaport Research Partners. Please go Speaker 500:56:16ahead. Good morning, guys. On the natural gas side of the market, how developed is your visibility on this trajectory of incremental structural demand export trains and data center capacity growth. Are you at a point where you can look to say mid-twenty 26 or early 2027, translate that gas demand path into a specific number of frac spreads and then try to estimate a rough range of the additional spreads that just this new secular gas poll should require? Speaker 200:56:54We have done some of that, but there is there's so much range and you can look at the LNG exports and maybe be a little more quantitative there because we know the projects with FID, we know the projects under construction. Electricity is the bigger wildcard. There's just such a wide range of what that could be and a lot of it's going to be availability. We've just had 10 plus years, I think a very poor decision making around the United States electricity grid. And as Germany and the UK have demonstrated, if you make electricity expensive and unreliable, people will consume less of it. Speaker 200:57:38So I think the biggest hold back in draw for gas in our electricity grid is going to be prices and reliability of our electricity. I frankly think it's embarrassing how long electricity was down in Houston for a pretty moderate storm. 100 years ago, we had storms massively larger than that. And obviously, we didn't have a sophisticated of a grid, but I think so the short answer is we talk about it internally. We have ranges of it. Speaker 200:58:10It's not trivial. It's not game changing either the amount of fleets that will come. But we don't give the numbers because there's just too many assumptions in which trajectory might unfold. We do say and that the outlook is pretty positive for U. S. Speaker 200:58:26Natural gas demand from both those sources LNG, electricity demand. Think we're going to see some more reassuring of manufacturing in the U. S. And I think we're going to see over the next several years more of that in So the So the macro is positive, but this is probably a discussion over dinner or a beer. We could sketch out the range of this many more fleets to that many more fleets. Speaker 200:58:58But I'm going to refrain from giving any numbers right now. But I like your thinking. Speaker 500:59:05Sounds good. And we'll let Rob pick up the tab for those beers. Turning to LPI, it sounded as if a portion of your CNG sales in June were to your customer base for its land drilling rigs. Were those land rig CNG deliveries a separate third party revenue transaction or part of a bundled contract? My impression has been that Liberty Zone fleet needs, we're likely to command the bulk of LPI's capacity this year. Speaker 500:59:37So I'm just seeking a clarification and maybe an update on what the outlook is for LPI's external third party business trajectory? Speaker 300:59:52Yes. So the vast, vast right? So for key clients in basins in both the Permian and the Permian right? So for key clients in basins in both the Permian and the DJ Basin. So yes, delivering your gas usage for drill rig is much, much lower than it is for a frac fleet much, much, much lower. Speaker 301:00:18But again, it's you're still delivering CNG with the same equipment. Industry. Speaker 201:00:27Yes, it's a partnership thing. You got customers, they're running rigs out of gas and Liberty is the highest quality supplier there. They want to use it. So yes, it's not a huge part of our business, but it is a nice part of our partnership. Speaker 501:00:41Got it. And I'll just squeeze one more in here. Ron, I'm sorry if I missed this, but did you provide an update on how many active Digi spreads you expect to have deployed exiting the year? Speaker 1001:00:56Air? No change in our plans there at all, Tom. We're still on track to have operating by the start of next year 10 next generation fleets. So no change in our outlook at that for that. Speaker 501:01:10Got it. Thanks for taking my questions. Operator01:01:13The next question is from Keith Mackey with RBC Capital Markets. Please go ahead. Speaker 1401:01:19Hi, So certainly vertical integration has been a differentiator for the business and we've talked about it on the call so far. But just curious if you can give us a little bit more color or even potentially quantify how far along do you think you are in this process? And is there a lot more benefit to be realized from adding service lines or growing existing service lines that you've got? I know LPI is certainly a big part of that. But just some general color on how much of the value chain you think you've actually been able to capture to date in frac and how much more you think there is to go? Speaker 201:01:59Look, I'd say we have vertical integration in most of the big items that matter. So yes, I wouldn't say there's a huge amount there. The biggest focus at Liberty is just how do we get better? How do we get better? As we always say, we didn't do the vertical integration so we could like add that business line profitability on. Speaker 201:02:20We do add that business line profitability on, but most of them aren't huge. We're doing them really just to make frac, the core business better, more reliable, safer, more efficient, a better experience and better value add for our customers. That's what's driving it. As Michael said, look, the net result is we're capturing more of profitability, but really we look at it as that whole piece. So we'll continue to develop technologies. Speaker 201:02:48We'll continue to do things to make our frac offering meaningfully better than all of our competitors. That was our goal from day 1 and it'll never stop. But vertical integration, I would say the bigger prospect for us growth in the next 5 or 10 years is going to be taking the tools and technologies that we've developed, for example, remote power generation with natural gas in a virtual pipeline to supply it. That's a way bigger growth in Liberty's business over the next 5 years then a likely expanding of our vertical integration. But it's not likely to be I would say meaningful for the size of our business. Speaker 201:03:39But more important is again ultimately go into electricity business and just the maniacal focus on getting better, getting better, getting better. That's the big story. Speaker 1401:03:51Okay, very good. And you have investments in businesses outside of frac. I know you talked about Oaklow and Tamboran as the impact on earnings per share. You've also got a few others. Can you just talk about maybe the 1 or 2 most important insights or lessons you've learned from having investments in energy businesses outside of frac? Speaker 201:04:15Yes, look as career energy nerds, we get asked to invest or asked to advise other entrepreneurial energy companies a lot. We get pitched on a million things, but I think maybe a little bit of our differential advantage there is what we just look ahead if it's operated well, where could this business be? Most of the new venture energy businesses in our opinion even if everything went right like they don't have a prospect to be a meaningful positive addition to the global energy system, which means there are bet on subsidies. And we're just not we're not takers of those bets. We're not believers in that and we just we don't want to bet on the government. Speaker 201:05:03We want to bet only on these fundamental technologies or things that are doing could be a great player in a future energy system. So we've been disciplined. We've only made a few of them and we've generally only made them where we can bring something to the table. Oklo is a great example. It's just like the right nuclear technology, the right business model. Speaker 201:05:27The technology is fantastic, but bringing energy to a marketplace and putting all those packages together and then getting the right commercial terms, man, we've been doing that for our whole careers. So I think we add some real value to a thing that's just an awesome kernel. And again, Timboren of course is even simpler to look at. It's man, I remember the excitement of the Barnett Shale 25 years ago, like the progress every year, my God we're going to figure this out. Look, we didn't appreciate that how big it would be, but just have an awesome resource in place in a geographically desirable location like that's a solvable challenge that could have a big impact on Australia, not for domestic consumption and for exports. Speaker 201:06:16And I think Liberty could be a very helpful in making that successful. And I think the upside for us is quite large there. We view it as very asymmetrical bet, very little downside and a lot of upside. Speaker 1401:06:35Okay. Thanks for the comments. That's it for me. Speaker 201:06:38Thanks. Operator01:06:39I will now turn it back to Chris for closing remarks. Speaker 201:06:43All right, everyone. Feel free to drop off if you want, but I'm going to talk a little bit more about energy. With the benefit of 2023 energy data, which is now available thanks to the Energy Institute's recent publication of the statistical review of World Energy, I want to take a moment as we close to provide an update on the so called energy transition. The Energy Institute's work to quantify global primary energy is quite valuable to all energy nerds like us at Liberty. However, we make 2 important adjustments to the Energy Institute's number within our Bettering Human Lives report. Speaker 201:07:27First, the EEI does not account for developing country use of traditional biomass in their primary energy numbers. This traditional biomass energy is the source of the world's largest energy problem. Hence we believe it is critical to always include this in all the energy reporting. Traditional biomass serves as a cooking and heating fuel for 2,300,000,000 of our fellow humans. They suffer in grinding poverty. Speaker 201:07:58Our Bettering Human Lives Foundation works to help these 2,300,000,000 people transition to clean cooking fuels to allow longer, healthier, more opportunity rich lives. That is a real energy transition that we need to hasten as quickly as possible. You can't eradicate what you don't attempt to measure. 2nd, the EI employs an input equivalent methodology that grossly inflates the primary energy from electricity produced by wind, solar, hydro and nuclear. They multiply it by 2.4 times in their conversion of terawatt hours to exajoules. Speaker 201:08:41We reverse this adjustment and simply convert reported terawatt hours to energy equivalent exajoules, which is the actual energy delivered to and consumed by consumers. We discussed this more in the Bettering Human Lives report. For us, it's critical to be honest in the reporting on energy, on climate change and human progress. Incidentally, the U. S. Speaker 201:09:09Energy Information Agency recently reversed its longstanding practice of using an input equivalent methodology and is now in step with us in its reporting. Nice to see the U. S. EIA make this change. So with those adjustments, corrections, we find that over the past 50 years, global primary energy consumption has more than doubled. Speaker 201:09:36It's up 126% and we've seen a 1.6 compound annual growth rate in energy consumption over the last 50 years. Energy additions from hydrocarbons over that 50 years are nearly 6 times higher than all other energy sources combined. Hydrocarbon share of primary energy was 85% 50 years ago and it's 85% today. Since the start of this century, global primary energy consumption is up nearly 50% or a slightly higher 1.7% compound annual growth rate. Thanks to the American Shale Revolution, energy additions from fossil fuels are over 7 times greater than all other energy sources combined during the last 24 years. Speaker 201:10:31Hydrocarbon share of primary energy, their share of primary energy increased by 1.4% back up to the 85% of 50 years ago. We look at just the last year, global primary energy consumption increased by 1.6% in line with trends. Energy additions from hydrocarbons were nearly 4 times higher than all other energy source combined. Oil was the largest addition by source and coal was second over just the last year. Natural gas has been the biggest over the last decade or so. Speaker 201:11:09Hydrocarbons remain at 85% of primary energy. Wind and solar combined for a share of 2.6 percent of primary energy last year. I will close with a plea yet again to all my colleagues in the industry, particularly the analysts and bankers to stop using the deceptive and destructive term energy transition. 1st, because it is simply wrong. The share of hydrocarbons in the global energy supply stack has not shrunk in 50 years. Speaker 201:11:47In fact, hydrocarbons have actually grown their market share over the last 24 years. Yet the incessant repeating of the simply false term energy transition contributes to a serious misunderstanding of the global energy system with destructive consequences, including damaging political energy policies, seriously misinforming kids in our schools, and most relevant for today's audience, it is perhaps driven down investor valuation of hydrocarbon companies due to the impression that our industry is soon fading away even though the numbers do not support this view. Energy is far too important to get wrong. 7,000,000,000 people are striving to achieve highly energized lives just like us in the lucky 1,000,000,000. Let's not use deceptively destructive language that impedes them realizing their dreams of affordable, reliable energy access. Speaker 201:12:50We should all strive to speak accurately and honestly. We need to stop using the false term energy transition and instead use energy addition. We would also be better served not to use the deceptive marketing terms renewable and clean energy as they are also not supported by facts. How about new energies or alternative energies, the term that we used before we got off track?Read morePowered by