Q3 2024 Summary
Published Feb 18, 2025, 5:23 PM UTC- Strong Cash Position and Strategic M&A Focus: The company maintains a strong cash balance and a solid balance sheet, providing flexibility for acquisitions. They are aggressively pursuing M&A opportunities, primarily focusing on growing their non-pressure pumping service lines to rebalance their portfolio and deliver more attractive and consistent financial results.
- Commitment to Technological Upgrades: The company is committed to upgrading their fleet with efficient technologies, such as the Tier 4 DGB fleets, without requiring long-term contracts. They are exploring various technologies to improve their service offerings and remain prudent in their investments, positioning themselves well for future demand.
- Innovative Downhole Technology Opening New Market Opportunities: The company's new downhole tool technology, including steerable tools and pods that can displace bridge plugs, is gaining traction and is considered revolutionary in the field. This technology presents significant market opportunities, such as specialized plug and abandonment work in California, which could drive future growth.
- Pressure pumping market challenges leading to lower fleet utilization and pricing pressure: The company is facing a highly competitive frac market with a downward pricing bias and is not counting on pricing to be better in 2025. This suggests continued pressure on margins and potential underutilization of assets.
- Reduction in optimal fleet size indicating potential decline in revenues: Given the current market conditions, the company anticipates that the optimal fleet size will be lower than the previous 10 or 11 fleets, which could lead to decreased operational scale and reduced revenues from the pressure pumping segment.
- Acquisition opportunities may not significantly enhance value due to commoditization: The company acknowledges that acquiring commoditized businesses may not create substantial value and notes a lack of clear theme in acquisition opportunities, which could pose challenges in achieving desired growth and integration benefits.
-
M&A Bid/Ask Spread
Q: Is the bid/ask spread narrowing for acquisitions?
A: Ben Palmer noted that bid/ask spreads in M&A have compressed somewhat, as private sellers recognize they can't demand higher multiples than public valuations. However, they haven't looked at a large enough sample to definitively say how much narrowing has occurred. -
Acquisition Financing Flexibility
Q: Will you use cash or stock for acquisitions?
A: The company has flexibility due to a strong cash balance and balance sheet. While cash is often preferred by private sellers, they are open to using stock when it fits. They value their stock highly and aim to be prudent, avoiding issuing too much at too low a price. -
Acquisition Opportunities
Q: What types of acquisition targets are you seeing?
A: Ben Palmer mentioned they are seeing a combination of opportunities, including those from private equity firms looking to exit and distressed assets. There's no clear theme, but they believe they are uniquely positioned to be a good purchaser. -
Frac Fleet Optimization
Q: What's your optimal frac fleet size going forward?
A: With market stability, the optimal fleet size is lower than the previous 10 or 11 fleets. The company remains committed to the frac market but aims to be prudent and rebalance their portfolio, potentially ending up in a better place with a smaller, more efficient fleet. -
2025 Frac Pricing Outlook
Q: How do you view frac pricing in 2025?
A: The company isn't counting on pricing improving significantly in 2025. They hope for market discipline and have idled assets and reduced headcount. Any improvement in the natural gas market might help, but they're not relying on it. -
Fleet Upgrade Plans
Q: What are your plans for upgrading another fleet?
A: Upgrading to another Tier 4 DGB fleet would take about 9 months. They're exploring alternative technologies and options. At this time, they wouldn't require a long-term contract to proceed with an upgrade. -
Downhole Technology Advances
Q: Can you expand on downhole technology advances?
A: The company improved how they deliver pods downhole, making it more effective. This could create opportunities in California, especially in coiled tubing and plug and abandonment work affected by seismic shifts. They are encouraged by the large market potential and are conducting tests with customers at their Newcastle, Oklahoma facility. -
Consolidation Strategy
Q: Can value be created by consolidating commoditized businesses?
A: Rolling up commoditized businesses isn't their first choice. They aim to find very good businesses, whether commoditized or not, focusing on investment scale that can generate operational scale and cost leverage. They are pursuing consolidation to change their position, recognizing that such transactions have been limited but may increase.