UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
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LIBERTY OILFIELD SERVICES INC.
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Important Information
On September 8, 2020, Christopher A. Wright, Chief Executive Officer and Chairman of the Board of Directors of Liberty Oilfield Services Inc., a Delaware corporation (the Company), gave a live presentation to institutional investors of Barclays Investment Bank at the Barclays CEO Energy-Power Conference regarding the transactions contemplated by that certain Master Transaction Agreement, dated as of August 31, 2020, by and among Schlumberger Technology Corporation, a Texas corporation, Schlumberger Canada Limited, a corporation organized pursuant to the laws of the Province of Alberta, Liberty Oilfield Services New HoldCo LLC, Delaware limited liability company, LOS Canada Operations Inc., a British Columbia corporation, and the Company (collectively, the Transaction). A copy of the transcript of this presentation is filed herewith pursuant to Rule 14a-12.
Cautionary Statement Regarding Forward-Looking Statements
This communication includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included herein that address activities, events or developments that the company expects, believes or anticipates will or may occur in the future are forward-looking statements. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, including but not limited to: the ability of the parties to consummate the Transaction in a timely manner or at all; satisfaction of the conditions precedent to consummation of the Transaction, including the ability to secure required regulatory approvals in a timely manner or at all, and approval by the Companys stockholders; the possibility of litigation (including related to the Transaction itself); and other risks described in the Companys SEC filings. The Company does not undertake and expressly disclaims any obligation to update the forward-looking statements as a result of new information, future events or otherwise. All forward-looking statements are based on managements estimates, projections and assumptions as of the date hereof.
Additional Information and Where to Find it
In connection with the Transaction, the Company will file a proxy statement and other materials with the Securities and Exchange Commission (the SEC). In addition, the Company may also file other relevant documents with the SEC regarding the Transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE TRANSACTION. Investors and stockholders may obtain a free copy of the proxy statement (when available) and other documents filed by the Company at its website, www.libertyfrac.com, or at the SECs website, www.sec.gov. The proxy statement and other relevant documents may also be obtained for free from the Company by directing such request to the Company, to the attention of the Investor Relations, 950 17th Street, Suite 2400 Denver, Colorado 80202.
Participants in the Solicitation
The Company and its respective directors, executive officers and certain other employees may be deemed to be participants in the solicitation of proxies from the Companys stockholders in connection with the Transaction. Investors and security holders may obtain more detailed information regarding the names, affiliations and interests of the Companys directors and executive officers by reading the Companys definitive proxy statement on Schedule 14A, which was filed with the SEC on March 10, 2020. Additional information regarding potential participants in such proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be included in the proxy statement and other relevant materials filed with the SEC in connection with the proposed transaction when they become available.
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08-Sep-2020
Liberty Oilfield Services, Inc. (LBRT)
Barclays CEO Energy-Power Conference
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Barclays CEO Energy-Power Conference | 08-Sep-2020 |
CORPORATE PARTICIPANTS
Christopher A. Wright
Chairman & Chief Executive Officer, Liberty Oilfield Services, Inc.
MANAGEMENT DISCUSSION SECTION
Unverified Participant
Good afternoon and thank you for joining us today. Today, Im very pleased to introduce Mr. Chris Wright, Chairman and CEO of Liberty Oilfield Services. Since going public in early 2018, Liberty quickly established itself as one of the premier precious public companies in North America. Mr. Wright has served as Chairman and CEO of Liberty Oilfield since its founding in 2011 and he also serves as Executive Chairman of Liberty Resources and Liberty Midstream Solutions.
He started last week, Liberty grabbed the markets attention with his deal to acquire Schlumbergers OneStim business in return for equity interest in the company, vaulting Liberty to the number two position in terms of horsepower. Good timing on our part as we look forward to hearing Chriss presentation today.
Thank you very much for joining us, Chris.
Christopher A. Wright
Chairman & Chief Executive Officer, Liberty Oilfield Services, Inc.
[ph] Dave 00:00:49, thanks to you and the Barclay for having this. Everyone just rolling with whatever the world throws us.
Unverified Participant
Certainly. Certainly true.
Christopher A. Wright
Chairman & Chief Executive Officer, Liberty Oilfield Services, Inc.
Yeah. Ive got a bunch of disclaimers here that Im not going to read but I encourage that people do it as well. I will speak candidly but we need the necessary disclaimers. Let me just jump right out. Im going to tell a little bit of a story about Liberty, all in the guise of this deal. Were simply thrilled about with Schlumberger OneStim.
But we founded this company a little more than nine years ago. It was to do something different, to try to build a special business, a focused business that truly had a competitive advantage. And this ties to a few things. Number one, superior returns. If you dont have good returns on capital, youre not a business and youre not long for this world. So, our history as entrepreneurs is about delivering returns on capital. Ill talk more about that later.
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Technology, look at my background, Im a career tech nerd and technology is a way that you can build advantages and do things better, faster, cheaper. Culture and principle, this is really the secret sauce of Liberty. Its not just having great people. Its the culture that binds those people together, how they work and trust each other, how youre aligned with your customers, your suppliers and your team.
And ESG raising the bar. Look, we spend every dollar like its our own dollar. A lot of those dollars are our own dollars. But a lot of them are your dollars. We treat them all the same. Were heavily involved with the communities we work in, all of the communities we work in. And environmental, Im going to talk significant in this presentation and weve been all-in in that from the start as well.
So, wow. What did we just do? This combination with OneStim, were thrilled about. Number one, were thrilled about the technology and the passionate humans in this package that are joining us. But to look at it in sort of pro forma numbers, what would it have been in 2019? $5.2 billion in combined revenue over $650 million in combined EBITDA. Wed have been the third largest North American service company, not frac company, service company in North America. We would get 500 patents or patents pending or patents under license, 2.5 million of horsepower ready for service, no leverage, no leverage before the deal, no leverage after the deal. Getting into a Wireline business that were thrilled about because its the dance partner with frac and were adding very significant sand capacity in the Permian base.
And as you can see in the map on the right, a number of new basins. Liberty has been watching for a while and looking to get into the gas basins. Were actually fracking in the Haynesville today. But this brings us a base in the Haynesville, a base in SCOOP/STACK, brings Canadian Canada into the Liberty fold and the northeast with a toehold with Wireline. Were thrilled to enter all of those basins.
I think everyone knows about the transaction but to hit it real quick. Its an all-stock deal that made us a line from the start the principals wanted to do something that would create a differential business. At the end, we own we own the same shares in the same company. Pro forma ownership I hit that. Its accretive on all of the major metrics. We prove that with 2019 data. We obviously believe that going forward as well. Significant synergies from day one. More to be added later on. Structure is very similar to where we are today. Were just growing the footprint a little bit and growing the size in each of the basins and growing the technology significantly. But the same management team that Libertys had since we started. The board remains nine members. Just now, two of those nine will be Schlumberger appointees and I think theyll be strong members to our things as well. And obviously, this is subject to customary conditions, anti-trust approved by the government, shareholder vote from Liberty. We expect to close this deal in the fourth quarter, probably late in the fourth quarter.
Just a few metrics here. Liberty pre-pro forma in 2019, revenue growing by more than twofold. EBITDA growing by more than twofold. Market share, looking back in 2019, growing by more than twofold. Horsepower by twofold. More, actually, when you include the other horsepower. And again, getting us into perforating, mining, and new basins.
Quantifying a little bit here the accretion. Look, we have one job as management of Liberty and thats to grow the value of every single individual share of Liberty stock. Weve never wanted to be big for big sake. We want to grow the value of a share of Liberty stock, and weve always thought the way to do that isnt necessarily scale for scale sake; its being better. Things that will make us better on what we do, we think grow value. But looking back, again, at these 2019 numbers, on a per share basis, you see significant accretion, more than 50% on all of these metrics.
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Barclays CEO Energy-Power Conference | 08-Sep-2020 |
We think its a huge win for Schlumberger as well. This is one of those deals that really brings wins to both sides. And thats how you make a great deal. Heres a little Liberty history here. The red line is active Liberty frac fleets versus time. We start from the first quarter we were in business in Q1 2012. And were an interesting business in that the highest rig count environment weve ever operated in is when we drove up on location for the first pad we ever fracked. So, it isnt like we did this to time a cycle. We did this to build something differential whatever happens with the cycle.
So, as you can see in this graph, Libertys active frac fleet counts or sort of our market penetration has grown throughout even holding flat in the last downturn. And then as that rig count plummeted and we got to the bottom of the 2016 downturn, we closed on the acquisition of Sanjel. We were a six frac fleet company, they were a nine frac fleet company. It was a little easier to do because most of those frac fleets were idle at the time. But since we had all of our capacity busy at the bottom of that downturn to keep some of that market share we added, we needed more capacity. The Sanjel deal brought us that and brought us tremendous returns which Ill show going forward.
We did another acquisition we didnt announce till recently two years after the Sanjel deal two years ago. And that was ST9. We look at a lot of little companies and big companies. We dont do a lot of deals. But were trying to find ones that are special that really will add value to Liberty and not cause cultural disasters. ST9 was basically a start-up company, a really awesome mechanical designers that new frac pumps and had a vision of frac pump technology. Thrilled to do that deal just as they were getting started and that the performance of it in the first two years has been tremendous, at or above all of our expectations.
And were thrilled again here and only really our third acquisition and second one of any scale at all with the with the Schlumberger OneStim deal. Were bringing together two franchises with a lot to be proud of and we think well be better and stronger together.
Heres a slide maybe a punch line of what Liberty has been like as a business. This is the cash return on capital invested. Were not cherry-picking for some, you know, neat time period where we look good. This is from the day we began commercial operations to today, on a full year basis here. You could see the average of Libertys cash return on capital invested, 27% since we started the business. And as you saw in that previous graph, thats in a declining business environment almost the whole time. And you can see we did the Sanjel deal on the bottom of that brutal 2016, and then things bounced back pretty quickly out of that downturn. We dont expect that here. But with that quick bounce back, our greatest two year cash return on capital invested was the two years after doing that Sanjel deal. And you could see, our average [ph] ROCE 00:08:44 10% higher than the S&P 500 and well more than twice the OSX.
Heres third party data. I love this from kimberlite, mainly I dont know them very well, but mainly because they call our customers up, all frac customers up across North America. Extensive surveys and questions directly to nearly 200 players in the space. The people who buy frac services and they rank us, you know, all sorts of categories. I show here the punch line plot. The X-axis or left or right for you non-nerds, left to right, on the right is the highest quality providers; towards the left is the lower quality providers. And then the up/down or Y-axis is sort of pricing. You know, if youre higher up that axis, youre getting a little bit of a premium in pricing, and if youre further down youre getting a little bit of a discount in pricing. So, you could see Liberty again for that for was ranked number one. And you could see Schlumberger OneStim on just customer perception and quality, number three of all the frac companies out there. And both of us in that quadrant you want to be in premium service providers getting a little bit of a pricing premium because were worth it, because were worth it.
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Also in the bottom right, I talk about when they surveyed customers where technology is a major part of their purchasing decision, how do they rank the various providers of the technology they bring to bear. Liberty was ranked number one in this category. Schlumberger OneStim ranked number three in this category. And number four and beyond distant behind. So, we love the idea of bringing together two really strong technical companies to make something even stronger.
Heres technology, boy, and Dave, if we had time, Id take 20 minutes on this slide alone. But I want to have time for Q&A. I want to talk about stuff. So, these are the major technology areas Liberty works on either for more efficient frac operations or even largest to help our customers make better wells like bottom left production and economics. Libertys huge database and our multi-variate analysis techniques, big data to figure out what levers are most efficient to pull to bring make your wells better. But here weve broken it up by the major areas.
In red in the little sub-writing our technologies Liberty brings to this to this transaction and then blue are all these awesome technologies Schlumberger OneStim brings. So, you can see it across every platform technologically where we focus. Theres additive technologies in this combination. Were thrilled about that. I think it will be a huge win for our customers.
Next generation field operations and equipment, again a lot of detail here. Let me just start with the left side. Next generation frac equipment. Tier 4 dual fuel. Tier 4 diesel engines are phenomenal. Theyre huge breakthroughs and they dont get a lot of they dont get a lot of credit. Dual fuel is adding to that pollution control technology, the ability to burn gas a high gas substitution rate. These are a huge part of the future.
digiFrac, an effort weve been working two years through our ST9 division on making a truly different electric frac pump an electric frac pump power system. Schlumberger OneStim bring an all-electronic process control backside, already working in the field, running the hydration unit and a blender, a perfect marriage with our electric frac fleet technology.
And in the Quite Fleet technology, Liberty has been known for, for four years. Big deal, big deal. So, I could go through the same kind of synergies and proprietary control systems in equipment monitoring and in pump maintenance. Ill come back to that in a little bit later.
Im going a little bit with my New Jersey beginnings and not my Colorado upbringing in the speed at which Im going to talk. But thats to try to hit the highlights and lead time for our Q&A. The vertical integration. If we look at it frac fleet, weve always said from day one, wed rather make twice as much out of each frac fleet that have twice as many frac fleets. Of course, in this deal, well were going to were doing a little bit of both.
But to try to capture more margin and more profitability out of each frac fleet, we looked at what are the huge cost centers that are outsourced. Pump parts, pump maintenance is a huge cost center and its a source of downtime. So, the ST9 deal brought us into that space to more directly address it. With the Schlumberger OneStim deal, were bringing in the other major source of third party cost, sand. There has been a leader in sand logistics. Now, were going to strive to become a leader in sand mining. Well still buy third-party sand as well. This is just Permian but it will be a meaningful footprint for us.
And then when we look at efficiency that were known for, when we look at the minutes that were waiting in a day that were not actually pumping that subtract from our efficiency, the single greatest source of that is plug and perf wireline. So, we wanted to try to get wireline companies better. Now, were going into that business and we will work to take some of those six minutes of every frac stage of downtime, we get from waiting on wireline.
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Environment. Like I think Liberty has been known in this area but its the last two or three years, this is a big buzz word, people are coming in and renaming products and trying to check boxes. Thats not what Liberty is all about. This has been part of our mission from the day we started the company. We entered the Bakken with a very different frac design that not only grew the productivity the amount of oil and gas recovered from each well by a sizable amount, it meant you could do it with less chemicals, a cleaner fashion, better wells, less land usage. Our second year in commercial operations, we built our first dual fuel frac fleet, very early mover on that to burn a cleaner and ultimately cheaper fuel source, natural gas.
We went to containerized sand very early on in our operations across our whole fleet to reduce dust, noise, and mitigate truck traffic issues. We built custom fluid systems in the last downturn. After a two-year effort, we rolled out our quiet fleet not only a huge win in Colorado here because 500 feet away, you cant hear it. Thats the closest occupied structures from wells. But think of the people working on location. We have them remote in the Permian, in the Bakken now. Think of people working on a location. OSHA says you dont even need youre in prediction. We still use it but its just a massively better work environment. Our partnership with CAT spans engine monitoring, early partner with them on Tier 4 engines and early partner with them Tier 4 DGP testing, over two years ago.
Now theres a lot of talk about frac fleets and next generation [indiscernible] 00:15:25 and all that. Now a lot of it is marketing buzz and not all straight shooting. So were all about numbers. So we spent several months and produced a 30-page white paper thats available on our website. It quantifies the emissions under all different environmental conditions from next-gen from the different kinds of next-generation frac fleets, next generation frac fleets. Tier 4 engines, Tier 4 dual fuel engines, electric frac fleets in our current incarnation Well update that with a coming incarnation of electric frac fleets. But were about numbers, not what sounds good but what is good. And Schlumberger OneStim is a huge step forward for us in technologies to do things smarter, cleaner, more efficient. And I think the last item on my timeline is digiFrac. We expect to have a commercial frac fleet of that running that we think will be quite unique sometime next year.
Culture, I hit that upfront but let me just say it again. This is the ultimate business advantage, the ultimate differential between businesses is culture. Our culture is highly competitive, high expectations. Treat people right, empower them to improve, empower them to love what they do. When you get low turnover, you get safe operations. And as you can see in that third-party data at the bottom of the graph, you get higher throughput. Libertys had data all along and thats because of culture and embracement of technology and embracement of competitive spirit.
Ive hit the assets I think relatively quickly so far. This is just a graphical. We have 1.25 million horsepower right now. Were buying well over 3 million horsepower but a 1 million horsepower of which well retire permanently retire right away. And of the other 2.5 million horsepower, well have half of that ready for service right away as the market and economic conditions dictate. And another half that well use the substitute in as we Libertize the other fleets to use for spare parts, to reduce our capitalized maintenance, and ongoing maintenance.
And I mentioned the other things we get to with the Wireline business, the sand business, and 20 owned facilities, Schlumberger quality facilities. Thrilled about that. That also helps our operations, helps our employees.
Go forward plan and well talk about this more in Q&A. Weve announced the day one synergies Weve announced the day one synergies. Theyre very significant. Theres a lot of other efficiencies well gain going forward, obviously, in supply chain. We dont have much customer overlap at all. So, were looking forward to meeting a lot of different customers that have chosen Schlumberger as the right partner for them. Well obviously have reduced capital expenditures with additional equipment and some additional supply spare parts. We see significant revenue synergies as well.
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Barclays CEO Energy-Power Conference | 08-Sep-2020 |
A little bit of historical data here, just to show the last three years of Libertys average EBITDA per frac fleet. Now, obviously, that swings with where we are in the cycle. And then market share. This is just market share on raw numbers, how much sand is pumped under the ground. I hear market share a lot [indiscernible] 00:18:25 owned horsepower. That to me has never been the right metric. If youve got a bunch of the old crappy horsepower parked on the fence, who cares. How much frac work are you actually doing? Whats the throughput you deliver? So, thats what this data shows is what the two companys pro forma. If we added them together, whats that actual market share? 22% in 2018 and 2019. Little lower than 2017. Obviously, Liberty has been growing our market share.
If you think about the scale and what we believe will become a more investable company with Liberty. So, on the left is the revenues for North American service companies, or international service companys North American revenues. Just all of the top service companies there. You can see the pro form company would have been number three. And on the right, the leverage. Liberty, no leverage, meaning roughly as much cash as we have total debt in the company, that continues after the transaction as well. So, we believe well be a leader in the oilfield service base, not just the frac space, in capital, returns, and in invest ability of our franchise.
You know, and with yeah, just a quick summary we started with. We did this deal for technology and for scale. We did it because it helps grow our vertical integration efforts and therefore grow our profitability of our operations. It brings some diversification. When we started Liberty, we focused in the oil basins. Because eight years ago, we thought the supply and demand looks better for oil than it did for gas. And, I think in retrospect, we were right about that. Theres been huge contraction in the frac activity in the gas basins since Libertys been in business.
Now, theres expanding North American takeaway capacity and maybe that maybe that activity is bottom down. I think its a good time to enter the gas basins. Value creation, we think this will be meaningfully accretive to our shareholders. Its growth in an all-stock transaction, so we dont increase leverage and gives us significant free cash flow potential going forward.
So, with that long-winded intro, [ph] Dave 00:20:27, Ill turn it over to you and well look forward to welcoming any questions you might have.
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QUESTION AND ANSWER SECTION
Q
Oh, Chris, Ive got 1 million questions. Nowhere were going to get through it all. Lets just start with the lets start with something that which I think is a real big very big level of importance for you, is on the culture. You have culture and principles. You made interesting comments to not cause cultural disasters when you talked about Sanjel. You know, Schlumberger has somewhat of a legendary culture in their mix. And I know thats something you really focused on building your company over there. So, how do you kind of make sure they match? Like how do you ever kind of get comfort in that and what do you do going forward to ensure that the culture do match? And you are thinking the same thing and everybody as well [ph] on the book 00:21:14 in the same direction.
A
So, [ph] Dave 00:21:15, great starting question. It is indeed by far our biggest challenge in this integration and in any integration. Culture matters and its central. And yes, theyve had relatively low turnover as well. So, they have their own culture, not no culture. They have their own culture and we have our culture. As a start, [ph] Dave 00:21:33, to show how Liberty rolls, this deal was signed Tuesday morning before markets opened.
We did our first town hall at Libertys DJ Basin later that afternoon. Half the executive team and a couple of our company leaders flew to Midland late Tuesday night and we did 1,200 mile road trip around Texas and Louisiana, visiting Liberty facilities, Schlumbergers [indiscernible] 00:21:57 facilities. We met people out on location to talk just off of locations. We met in the hotel parking lots. We did Zoom meetings and we just went around, no planning together. We were totally separate companies now but we told how Liberty rolls, how we view people and culture and our business, and we took hours of Q&A to talk about that.
So yeah, its important that this deal, although were bringing together great assets from both sides. Its not a merger. This is Liberty culture bringing in great assets, great technologies and some great humans into a different culture, just Schlumberger is a multinational hundred-year old actually awesome company, but theyre just very different from us. Were laser focused, new focused on one thing, frac and what enables frac.
So well have challenges there but were going to try to address as many as we can before closing together. And we will bring people into Liberty that we believe are additive to Liberty culture and well fit with it. And were going to learn things from one stand that they do better than us and were going to adopt those, and were going to deliver to them things that are better that we do. So but yeah, culture always will be a challenge in the oil field service history. Theres a lot of bad stories about deals that didnt work for culture. We worked very hard in the Sanjel deal, a lot of pain and suffering there, too.
I would say relatively speaking, it went well. We were Liberty throughout all of that. We did some things not perfect and were learning from that here. But it is our big challenge and I think we communicated that to the OneStim and to the Liberty folks by road tripping. Ill be road tripping next week as well as others of ours to go to the rest of OneStim facilities and Liberty facilities to them why were doing it, how its going work, and why our commitment to build the best damn frac company, period, is unwavering and its not changed.
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Q
You know, wondered if you guys doing a road trip, so looking forward to hearing about that. You [ph] told us 00:23:52 about technology and, you know, one of the interesting things about technology is, I think, about kind of your background, you know, with Pinnacle and the reservoir and the data analytics has always been very important. Its been integral to kind of your model. Well, Schlumberger knows the reservoir pretty well as well. Obviously, from their history of wireline, is there sort of a combination to something like that thread through in terms of their reservoir knowledge or does that sort of stop with the assets?
A
Christopher A. Wright
Chairman & Chief Executive Officer, Liberty Oilfield Services, Inc.
You know, [ph] Dave 00:24:18, I mean, look, with customers proprietary data will stay customers proprietary data. But that proprietary data, thats for customers of Liberty going forward, obviously, were free, you know, with their approval, were free to use that and do that. Medidata, which is learnings from those broader things, we absolutely have that. And it is one of the things were excited about, [ph] Dave 00:24:39, that has been, I think, Liberty has been a leader in. And I would say, the other real leader in that place has been Schlumberger. So, here, again, were going to take the best of both their learnings and their data analytic approaches and ours, that will take some time to make that combined package even better and stronger. But we have a technology cooperation agreement going forward with Schlumberger. So, there are continued digital platforms, their continued technology development will continue to feed into Liberty, and our continued technology development will feed back into them as theyll still be in the frac business and the international markets, smaller markets but theyll still be a frac player in the international markets, and we expect to help them there with technology.
Q
Thats right. That makes a lot of sense. You know, you said a couple of times, you know, no leverage here. So, you have no leverage on your balance sheet or very minimal. You did this deal on all equity. Now, if you look back in the mid-90s and you kind of, post-1986, and post that crash, the successful oppose that crash. The successful companies that came out of that were the ones that are no leverage. Is that by design? Well, obviously, its by design. But Im just curious what your thought process of why no leverage matters to you. Why does that make sense going forward? And just kind of tell what your philosophy in terms of thinking like thinking through the balance sheet
A
Yeah. Exactly, so people have proposed various things to us through M&A or just changing our financing structure. And oh, geez, if you do...
Q
Yes.
A
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Liberty Oilfield Services, Inc. (LBRT) |
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Barclays CEO Energy-Power Conference | 08-Sep-2020 |
...this financing deal right now, youll be like 0.2 levered or 0.3. Thats trivial leverage.
Q
Yeah.
A
But the issue always is, as you know well, is things change. And you dont thats not like its the housing market its slowly rolling over. In our industry, very quick, geopolitical events, economic events change markets quickly. You know, this you know, we were still doing okay, although the market was tough. And then all of a sudden COVID hit and bam, you know, the floor falls out. So, yeah, for us, its very important in this business to have a balance sheet structure that leads you robust no matter what comes because you dont know whats going to come.
Q
Yeah. You need and you need to keep that flexibility. I want to talk about digiFrac. So, the ST9, yeah, you kept it under wraps, pretty good, didnt know anything about that. Weve obviously been hearing a lot about electric frac. You know, now, weve been looking at kind of different designs thatll have a turbine going to a frac since like the door seam has a redesigned pump.
Talk about why yours is different. Why is this different? Youre going to get out there and say, its truly differentiated. Or just kind of maybe, you know, anything at all the super specifics. But Id love to know kind of the conception what is different. And the big push like Ive been getting about electric frac is whos going to pay for it. Is there going to be a re-capital? Thats the big fear from investors when we start looking in this is, oh my gosh, theres another recapitalization cycle around the quarter. Thats not going to happen, again, I hope. So, maybe just kind of talk about kind of the digiFrac and why is it different.
A
Yeah, fantastic. So, look, Im an electrical engineer by background. Weve been looking at electric frac fleets for seven or eight years, you know? Just if theres a better way to do it, were all ears. But for us, it had to be just as reliable in the field. We cant have slower operations or clumsier operations because it sounds good or we want to do this. Thats just not Liberty. We cant have something thats massively more expensive so the returns are worse. So our customers either have to pay more or we have to get much worse returns. And if were doing it for both the economics of running a cheaper fuel or natural gas but also for lower emissions, its got to actually deliver lower emissions.
And one of the amazing things is electric frac fleets in general to-date have not delivered that. They havent delivered on any of those three categories. So thats why Liberty is banned, looker or follower, or investigating, developing our own technology but we always said wed never bring out an electric frac fleets as it checks all of those boxes. So, yeah, I shouldnt give too much details here but we have meaningfully different electric motor here with higher reliability, lower cost, more experience in the motors, getting rid of the hugely expensive and complex transmission or gearbox. Thats very good gearbox, I should say thats common in electric frac fleets.
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Liberty Oilfield Services, Inc. (LBRT) |
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Barclays CEO Energy-Power Conference | 08-Sep-2020 |
And the other just kind of broader thing weve been coy about this, Im pretty open about it now. The problem with electric frac fleets today is they run gas turbines. Gas turbines are an awesome invention that enabled the modern world in many ways. Theyre awesome for a large scale, more base load electric power production and powering jet engines, but theyre not good when you shrink them down small and theyre not good when the loads intermittent. Youre shutting down, youre ramping up, youre dropping the rate down. Then they become less efficient, higher emitting, just a wrong application of them.
So for us, its been how do we build the motors right, how do we have a simple system we can automate the control system and how can we generate these with better emission profile. And thats going to reciprocating engines, which we know for a few years. Weve been working on that behind the scenes. Youll see utilities doing that now. If youre going to firm power, meaning when the wind stops blowing or the sun goes down...
Q
Right.
A
...and you have to quickly change the power load, you dont want to do that if its fast with turbines. You want to do that with reciprocating engines. So, any case long effort not out commercially. And your other thing, no, were not going to throw away all our frac fleets and spend hundreds of millions of dollars racking up debt building all new frac fleets. But in partnerships with customers that want to you know move forward, either theyve got reliable gas supplies, they want lower emissions and they want these fleets, well do long term partnership deals with that makes sense for them, that are good for them, and that are good for us.
Same thing with Tier 4 DGB. I think those are two digiFrac and Tier DGB. I think will both be meaningful players in next generation frac fleets. Which one will play a larger ,role we dont even know yet. Thatll depend on field performance, itll be spend on specifics. But what you will see over the next five years probably more bifurcation in frac. I think it will be slow and gradual as we saw in rigs. When you went to the high spec walk-in rigs, most rig companies disappeared and yet sort of four rig players that are dominant.
Over the next five years, youll probably see some of that in frac. I think its a gradual transition the economics have to drive it. But youll probably you know next generation frac fleets that are a small piece of the marketplace now. Five years from now, they could be the largest piece of the market and youll probably see a different makeup of the frac marketplace.
Q
Yeah. I mean I was actually thinking about the land drill. I mean, the land drillers is the one that came out of the 1990s right? And that was the overhang that lasted for so so long and end up having they finally all came together. That was sort of my analogy for today is not the rigs that is the overhang its the pressure pumping but thats really interesting...
A
Yeah.
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Liberty Oilfield Services, Inc. (LBRT) |
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Barclays CEO Energy-Power Conference | 08-Sep-2020 |
Q
...that maybe through technology and the different and the bifurcation of the equipment thats how we could shake out. I wanted to ask you about the sand mining. You said you made an interesting comment, you said, youre now, you know, moving away from being a low cost sand provider to go in the sand mining. Talk about the risks in that business. I mean, thats a business weve been following for quite some time. Its been a tough, tough business. It just seems like its a slippery slope on the price, it keeps going down. We keep finding new sands, so why does this make sense for you now? Youre probably the only company I know out there who actually manages their sand supply as well as you do because you often talked about it as a critical component to making sure everything is running 24/7. Totally understand that. Makes perfect sense. So, how is this different? How does your strategy now changed when youre now in the sand mining? And what are the risks that you had to be thinking about?
A
Well, so, look, weve been looking at going to sand mines for two or three years. And then just like the leverage, these are deals, oh my gosh, theyre incredibly low multiples. Well, thats on the rearview mirror, and we never know whats coming through the windshield. So, thats why we held off. We didnt do anything there because we were never confident on whats coming. And now whats coming whats come in frac sand, it arrived earlier in frac sand than in the frac market is the economics are so horrible that the good that what those economics are doing now is shrinking supply, right? The frac market when the economics are this bad, three of the top 10 frac companies have gone bankrupt. So, when the economics are this bad, the supply part of the equation is the driver. Thats the same thing thats happening in the sand business. So, yes, is there margin in selling sand today? No. But will there it never be margin in selling sand? No, therell be margin in selling sand. But maybe not for a while, but the supply is shrinking right now. But its another just huge part of the value chain that, as you know, we run the logistics there. Now, well figure out how to get even better at sand mining. Its in the Permian; its in the Delaware; its a little bit of an option value, too. If the market supply contracts too fast and demand goes up, pricing and sand could move relatively quickly and thats saying thats coming soon, but we may see that in the next several quarters. And well have an option against that. And well be able to do creative deals with different producers and customers and companies, people that are direct sourcers of sand, some of those are going to move back.
I think some of those have realized, geez, companies like Liberty can actually handle logistics better than us. So some sell sourcers are actually pulling back to putting it in a company like Liberty. Some will still buy it but maybe from a Liberty mine it will run the logistics. So we dont know exactly where the sand business will go but given our cost base is to come in it, were thrilled to be in it.
Q
And also, theres no CapEx involved either, right? I mean, you can just turn this on and off at any given time, its de minimis amount of CapEx required?
A
These are fantastic mines built to Schlumbergers standards, super modern, relatively new fabulous mines.
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Liberty Oilfield Services, Inc. (LBRT) |
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Barclays CEO Energy-Power Conference | 08-Sep-2020 |
Unverified Participant
Interesting. Well, Chris, thats all the time we have. I want to really thank you very much for your time today. Congratulations on the deal. Its a fascinating deal. I call that an elegant solution for both parties here. So youre right, I think its a win-win-win. I think the third one is probably for the overall market itself. I think this is kind of what people are really looking to see and want to see somebody like yourself come in here and do a smart deal like this. So congratulations on everything and best of luck on the integration.
Christopher A. Wright
Chairman & Chief Executive Officer, Liberty Oilfield Services, Inc.
[ph] Dave 00:34:48, thanks so much. Thanks for your time in this space and for Barclays for throwing fabulous events and all the services you bring. Take care.
Unverified Participant
All right. Well take it easy, Chris. Thank you,
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