Good morning, and welcome to the Liberty Oilfield Services Second Quarter 2019 Earnings Conference call. [Operator Instructions]. Please note this event is being recorded.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 risk and uncertainties that could cause actual results to differ materially from our forward-looking statements.

These statements reflect the company's beliefs based on current conditions that are subject to certain and uncertainties that are detailed in the company's earnings release and other public filings.Our comments today also include non-GAAP financial and operational measures.

These non-GAAP measures, including EBITDA, adjusted EBITDA and pretax return on capital employed, are not a substitute for GAAP measures and may not be comparable to similar measures of other companies.

A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of pretax return on capital employed, as discussed on this call, are presented in the company's earnings release, which is available on its website.I would now like to turn the conference over to Liberty's CEO, Chris Wright. Mr. Wright, please go ahead..

Good morning, everyone, and thank you for joining us. We're pleased to discuss with you today our second quarter 2019 results. We're proud to have delivered $0.32 fully diluted earnings per share in the second quarter, a 23% increase compared to $0.26 in the first quarter of 2019.

Revenue in the quarter increased 1% to $542 million and adjusted EBITDA increased 9% to $19 million, each as compared to the first quarter of 2019.

We were able to deliver this financial performance due to the continued executional excellence of our operations and supply chain teams plus close coordination with our customers on scheduling.Liberty's operational teams in the field continued to excel in delivering the safest and most efficient service to our clients.

This cements the strong relationships that we have with our customers and helps them bring the most cost-effective barrel of production to the market.

These strong financial results enable us to continue to improve service quality, grow organically and return capital to stockholders.For the 12-months ended June 30, 2019, we achieved pretax return on capital employed of 23%, generated significant free cash flow and returned over $130 million to stockholders.

Our first half of 2019 results reflect the strong demand for Liberty's differential frac services. Based on visibility into our customers' activity pipeline for the year, we believe demand for Liberty fleets will remain high through the third quarter.

And we are working closely with our customers to mitigate the effect of operator budget exhaustion towards the end of the year. As in the start of 2019, we expect demand for Liberty's services to be strong at the start of 2020 when operator budgets are renewed.Operators are managing activity to not exceed their announced budgets.

And therefore, the frac market will most likely experience utilization challenges in the fourth quarter of 2019. There continues to be an oversupply of frac fleets in the market, which is holding down pricing.

We would not expect pricing to improve until supply of actively staffed frac equipment balances with demand.We took delivery of our latest Tier 4 Quiet frac Fleet at the end of the quarter but maintain our position that we will not deploy it until the correct combination of strategic rationale, returns and long-term customer demand are in place.

It is quite possible that this fleet may not be commissioned into service until 2020, where we are seeing significant customer demand.

We believe that our premium service quality, coupled with basin and customer diversity, provides the company the opportunity to continue generating strong returns on capital employed.Liberty continues to focus on driving technology innovations in both fracture design and operational execution, which are a win for Liberty and a win for our customers.

We are beginning a larger effort to study parent-child well relationships with our proprietary database and multivariate analysis techniques. We are driven to improve safety and efficiency by developing equipment and services that are true value drivers.

This is a long-term commitment that has been a key part of Liberty's DNA from day 1.Liberty has been a leader since our inception in the development of frac services that enable our customers to be strong community partners and leaders in an ESG-conscious approach.

Every new -- every Liberty newbuild fleet since 2013 has a low emission profile with either natural gas capability or Tier 4 clean diesel technology.

We have partnered with our customers to bring solutions to the market that address their specific ESG challenges, extending well beyond our commitment to low emission fleets.Just a few examples are pioneering the development of Quiet Fleets that cannot be heard 500 feet from where they operate; containerized sand movement to reduce dust and noise; and advanced truck management solutions to reduce community impact.

We partner with clients in the most challenging urban interfaces, where environmental, social and governance concerns are paramount in enabling the development of their assets.

Liberty is committed to the deep engagement with our customers and our communities because their success is what drives us.Liberty's financial results, favorable long-term outlook and strong balance sheet support our strategy of disciplined growth and returning capital to our stockholders.

Liberty is committed to compounding shareholder value by reinvesting cash flow at high rates of return and returning cash to shareholders as appropriate.

We are excited by the growth opportunities in front of us and the positive long-term outlook for the shale revolution and the benefits that this brings our industry and the country as a whole.I will now hand the call over to Michael Stock, our CFO, to discuss our financial results..

Good morning, everyone. We are pleased with the performance of our team in the second quarter during what were challenging times for the industry. The Liberty team continues to execute at unparalleled levels that drives customers to want Liberty as their partner.

This is evidenced by the fact that we pumped the highest quarterly volume of proppant in our history and that frac crews continue to drive efficiency to new heights.In the second quarter 2019, revenue increased 1% to $542 million from $535 million in the first quarter.

Net income after tax increased 21% to $41 million in the second quarter compared to $34 million in the first quarter. Fully diluted earnings per share increased 23% to $0.32 in the second quarter compared to $0.26 in the first quarter of 2019.

Second quarter adjusted EBITDA increased 9% to $92 million from $85 million in the first quarter and annualized adjusted EBITDA per fleet increased to $16.1 million in the second quarter compared to $15.4 million in the first quarter.General & administrative expense totaled $24 million in the quarter or 4% of revenues.

And that included noncash stock-based compensation expense of $2.4 million. Interest expense and other associated fees totaled $3.6 million in the quarter compared to $4.2 million in the prior quarter. Second quarter income tax expense totaled $7.1 million compared to $16.1 million in the first quarter.

We ended the quarter with a cash balance of $33 million and net debt of $74 million. Current cash balance at July 30 is approximately $75 million. And at quarter end, we had no borrowings drawn on the ABL facility.

And total liquidity available under the credit facility was -- including under the credit facility was $266 million.As we have said, we are a returns-focused company. And at the end of the day, sustaining cash flows from an investment are what drives returns.

Sustaining cash flow per fleet is a metric we use to measure the through-cycle fleet profitability. We define sustaining cash flow per fleet as expected annualized adjusted EBITDA capital per fleet less our expected annual maintenance capital per fleet.

Through the second quarter, our year-to-date annualized adjusted EBITDA per fleet was $15.8 million.

And as previously announced, our expected annual capital maintenance for this year is approximately $3 million per fleet.As we discussed previously, in order to seek the best long-term returns for our shareholders, we will follow a prudent strategy of maintaining a strong balance sheet, investing in compelling growth opportunities and returning capital to shareholders when appropriate.

In the second quarter, we paid a dividend to our shareholders and distributions to unitholders of $0.05 per share for total dividends and distributions of $5.6 million.

And our Board of Directors announced on July 23, 2019, a cash dividend of $0.05 per share of Class A common stock to be paid on September 20, 2019, to holders of record as of September 6, 2019.

A distribution of $0.05 per unit has also been approved for holders of units of Liberty LLC, which will use the same record and payment date.As we look forward, we are very positive about how Liberty is positioned to continue its mission to drive best-in-class returns.

Our geographically diversity footprint, long-term customer partnerships and highly efficient operations position us well to produce solid returns even in a challenging market.At this point, I will turn it back to Chris before we open up for Q&A..

more disciplined investing and time. Both of these are manifest today. As operators reduce capital budgets to align with cash flow, we will see a slowing of the growth rate of U.S. oil and natural gas production. The recent rapid rise in U.S. shale production also brings with it a higher base decline rate every year.

This means that even with flat CapEx, the rate of U.S. production growth of oil and natural gas will markedly slow in the future.

The growing base decline rate will help tighten oil and gas markets in the coming years.In the frac market, we have a meaningful number of frac spreads that without significant upgrade expenditures are nearing the end of their useful lives.

Plus as we have heard from many of our competitors, there is a large number of frac spreads that are not earning a reasonable financial return. Increased investment discipline, coupled with time, will eventually shrink the available frac capacity to align with market demand.

While the current oversupply is painful for all in and around the industry, these times will pass.However, we should never forget the enormous benefits the shale revolution has brought to the world's citizens, particularly those in less fortunate circumstances.

1/3 of humanity still cooks like our ancestors did, burning wood, dung or coal indoors in open stoves. This deadly practice kills 4 million people every year and saddles countless others with poor pulmonary health. By far, the most common replacement cooking fuel is LPG, liquid petroleum gas, followed by natural gas.

Tens of millions of folks are switching to these clean, modern cooking fuels every year, saving countless lives. It is safe to say that the shale revolution has saved millions of lives.We'll now open the line for Q&A..

[Operator Instructions]. Our first question today comes from Chris Voie with Wells Fargo..

You mentioned strong demand in 3Q. And I'm wondering if you can just give a little more color about that. First of all, is it fair to assume that you expect to retain 23 active fleets in the third quarter? And then secondly, efficiency was strong. And I think EBITDA per fleet came out higher than most of us were expecting because of efficiency.

Is it fair to assume that efficiency might be lower in 3Q just based on kind of visibility to slowing activity that a lot of us see?.

Yes. I mean, look, Q2 was record-high efficiency for us, didn't get calendar fully booked in Q3. But yes, you can count on delivering on that record-high efficiency again..

And there was definitely about 23 fleets running right through the end of the year..

Okay. That's helpful. And one more, as we think about -- I mean you mentioned how frac efficiency has improved and impacted the supply/demand equating to the Lower 48. As we think about where that might go going forward, you guys are directly at the very high end of the spectrum in terms of frac efficiency.

Do you think the leading edge has room to improve from where you guys are going forward from different technologies that might be coming to market? Or do you think for the most part, it will be the rest of the market trying to catch up to where you guys are?.

Yes. There is still room for improvement for sure. There's a number of technology efforts at Liberty aimed at that very subject, some of which we talk about public and some of which we don't. But there's always room for improvement..

Okay. And if I could just squeeze one more, you mentioned the fleet that you have delivered and have not deployed -- you might not deploy until 2020.

Can you give a little more color in terms of the hurdle rates or pricing or what it would take for you guys to deploy that fleet?.

It's not as simple as that. This market is always changing. It's always getting better or getting worse. It's a cyclical business. So we never use like a pricing today to make a decade-long decision. It involves humans as well as equipment and all that. So it's a combination of strategic rationale, the right customer, the right opportunity.

It's a combination of strategic rationale, pricing, more importantly perceived future pricing and confidence in the robust demand that by adding another fleet, we'll still keep the whole thing busy, whatever comes with the market. So yes, there's no simple threshold question..

Congratulations on the new role, Chris..

The next question comes from Sean Meakim with JPMorgan..

So Chris, I was hoping to maybe just get a little bit of your view on what's happening on the ground in the Permian. The [indiscernible] said this earnings season that they're expecting more rigs to drop in the third quarter. We've seen some changes in the aggregate data in terms of rig productivity.

And the Permian has lagged [indiscernible] more mature basins in terms of, call it, surface efficiency. And so I thought you'd be a good person to get some feedback on it in terms of how do we see the progression of what's happening in terms of efficiency in the Permian, where we stand today.

And how does that influence what you think about the availability or the demand side for frac crews into 2020 if we are getting towards perhaps another step change in efficiency as operators really focus in on development-style programs?.

Yes. I wish I had that crystal ball, Sean. But look, in some of the other basins, think the Bakken, for example, there's two targets. There's a Bakken, the Three Forks, it's a simpler system. So the question was how to design processes to do the same thing faster and faster.

And as you're alluding to, you saw an incredibly fast, as in the DJ and other basins, an incredibly fast decline in the days it took to drill a well. But the last few years, you haven't seen the same progression in the Permian. I think there's a number of reasons for that.

One is you had big ramp-up in the rig count, right, so a lot of new operators, a lot of new growth in activity. So that marginal crew that was hired in activity, quality or experience of personnel suffered a little bit. Then you've got geologic complexity. The Permian is just a more complicated reservoir.

So drilling in central Midland County is nothing like drilling on the eastern plunging side of the Delaware Basin. So there's differences across the reservoirs, the fault.Then you've also got a very thick column with all sorts of targets.

And a number of operators, as you've seen, are not only experimenting with different benches in the Wolfcamp or the Bone Spring and other zones, they're also trying to experiment in this thick reservoir, what's the right landing zone? And if we're really careful on staying in this thin member, is it worth a little bit extra days and the increase in productivity? So it's simply a more complicated situation going on.

And I think those additional things to be done have indeed sort of slowed that improvement in drilling efficiency and throughput. But is that coming faster drill times to the Permian? Absolutely. Is that happening in some places right now? Absolutely.

So it's just -- you can't say, oh, Jesus, but almost flat for the last -- I'm not saying you're doing that. But it's more complicated. But yes, I think we will see increased drilling efficiency in the Permian, didn't see it coming in the last 2 or 3 years. I think you'll see a fair amount of it in the next 2 or 3 years..

That's very helpful feedback. I appreciate that, Chris. I was hoping to also maybe get a little bit of an update on capital allocation. We were together last month in our conference. You indicated that, given where the market is in terms of frac assets, that perhaps you'd be more inclined to take a look at what's available out there in the market.

Can you maybe just give us a sense of where you're prioritizing your own stock relative to assets that could become available and/or even some of these other ESG-related opportunities that maybe outside of what you currently have down the pipe in terms of Dual Fuel and Quiet Fleets?.

Yes. Well, you laid it out. And that's -- it's always been the story. We were private, public, whatever, it never changes.

It's always an opportunity cost question of what do you want to do with cash flow? Whether it's further bolstering the balance sheet, whether it's buying back your stock, whether it's -- and you're right, and I did say that a month ago, that in this softer, a little bit more stressed market, this is certainly the environment where we're more likely to find something that makes sense on the acquisition and divestiture market.

So we're looking at all of those and are constantly evaluating the tradeoffs between all of those three things. But you obviously know no decisions have been made there. And you may not see any change or you may, but....

I just want to point out that....

Yes. Because you also -- sorry, you mentioned Dual Fuel and e-frac, certainly ESG is a big target of our efforts, right? We've been in that for 6 years now. And we continue to do that and there's some new technologies. The Tier 4 Dual Fuel technology, I think we highlighted that at an event recently. That's a meaningful step forward.

There's lots of different ways to slice that cat. We followed electric frac fleets for 6 years, more intense efforts there, I'd say, in the last year or 2 on that.There are efforts at Liberty underway in looking at what is the right answer there and even a prototype design of a pump. But there's never going to be one answer for everything.

It depends on infrastructure, availability of assets, problems to solved, cost of capital, throughputs, total cost of ownership, all of these things. So that's an ongoing effort within Liberty and has been for years. We have talked publicly about it maybe less than the marketplace would like.

But I'll leave it at that, unless my colleagues want to add anything more. Thanks for your question, Sean..

And Chris, one last, if I could, just to clarify -- on the M&A piece, is there any real preference in terms of assets versus corporate transactions? And just how do you think about -- you have a roughly young fleet.

And how does that influence the types of opportunities that you would look at out there?.

Look, we've generally been an asset buyer. But we haven't been bought a lot that's not been organic, so -- but every situation is different. Every situation is different.

Our goal, what we come to work for every day is to deliver the highest possible return on capital employed and a disciplined investment with that cash flow with the ultimate goal to grow value of every Liberty share over the long term. That's the framework we make decisions at and everything is looked at through that lens..

Yes, Sean. And I'll just reiterate on Chris' point there. We really do look through to the next year or the next 5 to 10 years.

So you're right to point out, we've got a very, very young and very, very sort of high-spec fleet that has a remarkable amount of Dual Fuel capability and Tier 4 compared to the rest of the industry because we've looked forward -- every time we make a build decision or we renew a fleet, we look forward to what do we think we're going to run for the next 10 years.

And that sort of focus will actually factor into any way that we look at any asset purchase or any other deal in the market or in the pipeline..

Yes. Building our first Dual Fuel Fleets our second year in business was a combination of reduced emissions, the arbitrage between the diesel and the gas price. But the ability to take advantage of those depend on infrastructure and what customers can provide and what you can most effectively get from little cash..

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

I'll stick with the prior question that Sean just asked on the e-frac versus the Dual Fuel offerings. And Caterpillar has their new DGB Tier 4 offering out. You guys have used the DGB Tier 2 and their Tier 4 engines historically in some of your fleets.

I'm just curious, what's the thought process around how much better this new DGB Tier 4 offering is? And when you -- in your research, when you weighed that against e-frac, how you view those two systems competing against each other? Which one do you think might be better or if there are applications for both?.

Yes. A good question, George. I think the Tier 4 DGB, definitely a big step forward from Tier 2 just in terms of specifically the gas substitution scenario. We probably averaged over our history maybe 50% substitution with a Tier 2 fleet that we run.

We've had that Tier 4 DGB engine in the field now for almost 2 years, I think coming up on a couple of thousand hours of run time on it. And we're averaging substitution rates closer to 80%. So that's a pretty meaningful step forward from that standpoint.

Obviously, from emission standpoint, a dramatic drop in particulate emissions around combustion of diesel. So we like that technology.I don't think that we see Tier 4 DGB and electric necessarily as competitors to one another. I think we see opportunities for both of those in the future.

There are going to be scenarios where an electric frac fleet is going to makes sense. And to Chris' point earlier, we have prototype work going on in that area because I think we have an expectation at that some time in the future, there's going to be an opportunity where that makes sense.

But we also believe there are going to be more than ample opportunities where a Tier 4 DGB solution is going to be the right answer out in the field. And so we anticipate that playing a significant role in our fleet going forward..

That's very helpful. And I'll just piggyback on to that question.

And as you talk to customers, as you talk to E&P operators, is there any desire on their part, given the increased importance of ESG and the increased focus on ESG, to offer contracts for these types of technologies, kind of true multiyear contracts with pricing agreements? Or are we not quite there yet?.

Look, lots of dialogue with different parties going on. And I'll leave it at that, not appropriate to say anything more specific..

Okay.

And then just thinking about we now have July in the books, how would you frame just underlying activity in July versus June? Or how is July looking to the extent maybe you haven't actually closed the books on the quarter -- or on the month, but we're at month's end?.

Continued strong. Look, from January through the winter to today and for the foreseeable future, activity level for Liberty and efficiency has been strong. And we haven't seen any change in that..

[Operator Instructions]. The next question comes from Stephen Gengaro of Stifel..

My question is around the -- so the performance and the profitability that you guys have been able to generate with your fleet.

I mean one of the big questions we constantly hear from investors is sort of the sustainability of the differentiation we're seeing in Liberty's profitability and 1 or 2 of the other competitors relative to the rest of the market.

So can you just sort of speak to sort of how you think about that in sort of from a big picture over the next couple of years? And how do you sustain that, that pretty vast profitability gap versus some of the others?.

You bet, Stephen. Look, in a business, perhaps the central thing is competitive advantage. What drives competitive advantage particularly in the service business? It's really two things.

It's the people in the company and the culture of the company, the way people act, the way people think, the way people make decisions, the time frames people look at, the incentive structure in place for people. And then you get these positive feedback effects.

If you make a better place to work and it's more fun and it's more exciting, people want to work there. And you reinforce that. And then you have this interaction with your customers.And they see that you guys think a little bit differently and you're figuring out ways to make our lives better and solve our problems. You get a higher trust factor.

Customers become your partners, not just a commercial transaction, it's a partnership. And you get choices about who to partner with and how to do that. So yes, look, the three of us at this table have been business partners for over 2 decades. So yes, do we think competitive advantages and differentials are sustainable? I mean, of course.

That's -- I would say that's been our record, and we certainly don't expect it to change going forward. There's a lot of competition in the space and the industry is going to get better and that's all good. We welcome that as well. But yes, I....

I might add just a little bit more to that.

I think when you look at the partners that we have on the supply side of things, in particular when we're thinking about equipment or whatnot, those organizations by default seek out companies that are seen as innovative, companies that want to be on the leading edge when they're looking deploy new technology.

And so I think when you have somebody like a Caterpillar, who wants to test a Tier 4 DGB engine and they're thinking about who they want to put that in the field with, I think we believe that the name Liberty comes to mind as a first choice that you would want to do that with.

And so that puts us in a unique position to be out there with leading-edge technology, together with many of our partners out there that I think helps us sustain that delta..

And Stephen, I'll add on to that one. As you can tell, this is [indiscernible] passionate subject for the whole company. But I think what Ron has hit on here is what we do inside the company, right? And I think sort of our rate of innovation is far quicker than every other company out there.

And one of that thing is we are defined by giving our people the freedom to innovate, the freedom to think and challenging them every day to say, "How do you do things better?" I think that's a key thing. It's a key driver of the company. And that's one of the things that continues to sustain that differential..

The next question comes from Blake Gendron with Wolfe Research..

You talked about partnerships. You talked about the efficiencies. I think a really important part of the profitability equation is being able to job plan and cost manage on that front.

So I was hoping you could help us rationalize the discrepancy between what some E&Ps are saying about pulling forward activity, maybe higher-than-expected activity in 2Q and 3Q and a worse falloff in 4Q versus what you and some of other service companies are saying as far as pushing out of activity, maybe job planning a little bit better in the back of the year so that even if the prevailing price headwinds with a falloff in activity into the back half, you can still manage cost on the job planning front and buoy profitability of your spreads..

So let me take that one, Blake. It's interesting, as we see it, last year was probably a relatively large surprise to a lot of the operational people in the E&P as the budget cost control came in. So this year, we've talked about we've been working with our clients much more closely since January about how they're going to manage their budgets.

And you're right, a lot more was being pulled forward, right? They're trying to hit production targets and they're trying to drill within a set CapEx amount. And that would tell you that you're going to drill a little bit earlier than you would later, so -- but we've known about this since the beginning of the year.

So that's what we're trying -- we're managing to with our customers. And what we are seeing then is they're planning on -- they now know that they're managing to a hard target, so they are planning a number of fleets.

They're dropping fleets a little earlier than they would have -- last year rather than sort of locking everything down in the fourth quarter.They also realized that for them to get the best possible price for their completions, they need to partner with this service company to have as flat as possible demand, right? So with planning gets -- as opposed to them being sort of last minute at the end of the year, which there's going to be some those.

But with their plans, so we have larger gaps where we can then have the chance to try and fill them. So again, I think with that planning going on -- but there will be, as we see across the board in the fourth quarter, in the general frac market, there's going to be a decent amount of falloff in back end of Q4.

And then we're going to go ramp back up in Q1. But I think all of our sort of -- most or all customers realize that, that's not the most efficient way to run the business. But this is a work in progress and it's going to be better this year than it was last year. And we're better next year than this year..

And yes, one point to Michael's nice description is increasing the efficiency in themselves are budget- and schedule-disruptive. Even if you took the throughput, how many stages a day you're going to get done from last year -- you increase it this year. Now you plan, "Hey, that's 12 months of work." At this level, it's going to be 12 months.

But you're moving faster, you're going to finish sooner. There's a little bit of cost savings with finishing sooner. So maybe you do get an extra well or something.But that cost savings doesn't fully offset continuing to run a continuous fleet that you had planned on because stuff gets done faster.

And obviously, that issue for us is dramatically amplified when we have a new customer. They may now be going 50% faster than they were before. They thought they had a full fleet of frac work. But no, we're going to turn it into meaningfully less than that. So those are all positives. It saves money for our customers, we get more done.

But it just means rescheduling. You want to move faster, you want to get done earlier and you've got to figure out what you're going to do after that..

That's really helpful.

And then just following on your comments about the maintenance CapEx, $3 million, I think, because you have a relatively young fleet, how do you expect that to trend as the fleet ages? Do you expect it to creep higher or perhaps be offset by improvements with fluid ends and what you guys are doing on the back end with some of the auxillary equipment?.

Right. So Blake, fluid ends are an expense item, for us and for 90% of the companies out there. So this is something that you wear out in less than 6 months. But no, that maintenance CapEx, no, we don't expect to sort of majorly change as the fleet ages.

This is a number that we put together when we went out on our roadshow and looked to sort of over a 10-year period on a fleet. And I think it comes down to we've got a relatively conservative capitalization policy. It's engine rebuilds, transmission -- new transmissions and power ends.So we sort of reconsider about what we capitalize.

The rest of it runs through the P&L as an expense. So yes, we don't expect that to markedly change over the next -- over the next 5 years, maybe 10. So I think that's relatively sustainable. But you're right, I think, to actually point out that we are significantly -- we're trying to -- working every day to significantly reduce the cost of operation.

Whether it comes to fluid end, looking at metallurgy, whether it comes to the iron, whether it comes to [indiscernible], all places that we were wearing out consumables, there's a significant focus to try and get more efficient and reduce cost..

Yes. Same goes for capital expenditures, when you think about engine rebuild times. If you backed up to when we started the company, what we anticipated the rebuild cycle for an engine to be versus where we see that number today, we have made dramatic strides in that regard.

And it starts with little things like how we manage our oil program and the clean oil that we use now. There's all kinds of initiatives like that, that have been pushing out those rebuild cycles that ultimately help us to lower that maintenance capital number in the long run as we continue to make improvements there..

Okay. Great. And thanks for the clarification on the fluid ends. Last one on the growth side M&A, wondering if you could maybe frame for us what you think adequate scale is in the Bakken and the DJ.

Have you established adequate scale where you don't need to grow all the much more in the near term? And then when you evaluate assets that are potentially available for sale, beside the return metrics that you laid out, are you looking for specific types of equipment or maybe OEMs, where maintenance will not -- the maintenance burden won't be stretched all that much because you have standardized equipment? Is it controls for personnel and being able to train people on those specific pieces of equipment? What are some of the nuances, I guess, when you go to evaluate some of the horsepower that's out there?.

Yes. Well, all of the points you ask or make are good. Those are the issues. For equipment, we will look at everything. We look [indiscernible] for a deal. And some that you hear about and, of course, most you never hear about. And like with Sanjel, the one meaningful used equipment acquisition we made, was very important.

What is the equipment? And can it be Liberty-zed? Some equipment at the basic bones, if we throw away everything but the trailer, then why buy that?But if there's meaningful bones there that we can add to and enhance and make it a Liberty-quality fleet and the economics are strong in doing that and we're highly confident our quality of operations, what we deliver, is not going to be impacted, those are -- those boxes have to be checked on the equipment side.

The human side is even harder, right? It's about not just people but culture, ways of thinking, ways people interact the way they do, so -- yet cultural issues are very serious. So it's why -- I mean, look, the number of things we look at, the number of things we act on is a low ratio, a very low ratio. And that likely doesn't change..

Another part that I just want to mention there, one of the key advantages that we do have is that every single piece of equipment is plug-and-play with every other piece of equipment, right? So we can take a blender from the Bakken and drive it down to South Texas and plug it in.

I can take an operator from the Permian and fly him to the DJ Basin and you can run every piece of equipment that you could run in South Texas, right? And that's hugely valuable, right? It allows us to capital-efficient.It allows us to run with less sort of like sort of spare equipment around because of the fact that everything works together, right? So you can have standard spares in a basin, et cetera.

And then to your point of scale, I think it's interesting, I mean, the scale, it's an ever-decreasing value add as you get above maybe 4 fleets in a basin. You save -- definitely it sort of helps you have -- you have more scale. There's a little bit of savings.

But reality is once you get past 4-plus fleets in a basin, the scale is sort of -- you're increasing cost savings after that are reasonably -- are not massive. It's relatively efficient having bringing one fleet in a basin. There's a little less more so in two. By the time you get to four, that sort of curve flattens out.

Chris, would you want to add anything to that?.

No, I think that's right. There's still continued benefits, as Michael said. But yes, the slope of that improvement -- because schedule matters with scale. Good things happen with schedules. And when you have a larger scale, your [indiscernible] won't do anything. Obviously, purchasing and delivering and infrastructure and all that.

But I like how you asked that question, Blake. It's not scale of the company, it's scale on a basin level. That's the most important part of scale..

Yes. The only thing I might add to that, Blake, of course, when we think about scale is just what the right size is in a basin relative to the customer base that's there. You can get to a point where it's just too big. And so we think about that each and every time when we're thinking about a basin-by-basin evaluation of scale..

The next question comes from Thomas Curran with B. Riley FBR..

On the technology and innovation front, would you please provide us with an update on the VorTeq system? And when, based on its present stage of development, is the earliest you would expect to commercially deploy a unit under your carve-out agreement?.

Thomas, this is Ron. We're always a little careful about what we say there out in front of the Energy Recovery guys. I don't think they've had their quarterly earnings release yet. And so we'll probably decline to make any specific comment on timing in advance of them having said anything publicly about that..

Okay.

But you would still expect, Ron, to be fully involved there and there's been no changing your longer-term plan?.

No, absolutely not. That project is still full-steam ahead. Obviously, they've been working to make some changes to improve the rate of testing there. We were providing support as a key test partner there through 2018 in that they didn't specifically own frac horsepower or a facility for that testing.

And so they were reliant on both us and the other partner to provide that capability.

That impacted timing maybe somewhat negatively in terms of the amount of testing that could get done, given it was happening in and amongst our work schedule.They have taken the steps to procure and put together a facility in Katy and also purchase some frac equipment pumps in a blender that allows them to test at a schedule that they have specific control over.

And so that's really ramped up the amount of run time that VorTeq is seeing now. And so I think we were down there and made a visit to the facility, have a look at it and things are progressing well there. So we remain excited about the possibility of getting VorTeq back out in the field again for further work in an actual job site..

All right. That's encouraging.

Turning to frac-economics, what percentage of your active frac spreads are currently involved in programs that have used the frac-economic service? And how has that trended since you launched it? What is your ultimate target for it?.

Yes. We'll provide quantification. But I would certainly say the large majority of our frac spreads are working with customers that we are engaged and have been engaged with data analysis and understanding how things are going on. And I think that grows and deepens with time. The Permian -- back to my comments on drilling earlier.

A lot of what's going on the Permian is delineating zones, delineating areas across geographic variability, depth variability, complexities of landing zones.

So those things make it a little bit harder to have a large-scale like-for-like comparisons of completion designs and all that.But that variability in delineation is shrinking as a percent of what's going on, more development work, more data because you need both wells and production time data.

So yes, we have -- certainly not as impactful in Permian frac strategy as we have been in all of the Rockies basins. I'd say we've made pretty meaningful impact in what -- not just our customers, but what happens in the basin in those areas. That's a longer, more complicated path than the Permian, but I'm proud of our progress.

And I think you'll see very meaningful stuff there in the coming years..

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

Thank you for joining us today. I want to sincerely thank the passionate, wonderful folks on team Liberty that make it happen every hour of every day. I'm proud to be your partner. I also want to welcome Gale Norton to our Board of Directors. Gale has been, throughout her career, a bold, smart, passionate leader in the field of energy.

But in our industry, we probably do it more on the ESG side. But it's an impressive force that's adding to our Board. And I welcome Gale to our Board. And finally, I want to thank our customers, our suppliers and our investors that all make up the Liberty ecosystem and who make everything we do possible. Have a great day..

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