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U.S. Well Services, Inc. (NASDAQ:USWS)
Q2 2019 Earnings Call
Aug. 7, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the U.S. Well Services Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press "*0" on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Josh Shapiro, Vice President of Finance. Thank you, Mr. Shapiro. You may begin.

Josh Shapiro -- Vice President of Finance and Investor Relations

Thank you, operator, and good morning, everyone. We appreciate you joining us for the U.S. Well Services Conference Call and Webcast to review 2019 First Quarter Results. With me today are Joel Broussard, Chief Executive Officer; and Kyle O'Neill, Chief Financial Officer. The following are prepared remarks. The call will be open for Q & A.

Yesterday evening U.S. Well Services released its Second Quarter 2019 earnings. The earnings release can be found on the company's website at www.USWellServices.com. The company also intends to file its second quarter 2019 Form 10-Q with the SEC later this week.

Please note that the information recorded on this call speaks only as of today, August 7th, 2019, and therefore time sensitive information may no longer be accurate as of the time of any replay in listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States Federal Securities Laws. These forward-looking statements reflect the current views of U.S. Law Services Management; however, various risks, uncertainties, and contingencies could cause our actual results, performant, or achievements to differ materially from those expressed and the statements made by management. The listeners encouraged to review yesterday's earnings release and the company's filings with the SEC to understand those risks, uncertainties, and contingencies.

Also, during today's call we'll reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.

And now I would like to turn the call over to U.S. Well Services CEO, Mr. Joel Broussard.

Joel Broussard -- Chief Executive Officer

Thanks, Josh, and good morning, everyone. We appreciate you joining us this morning. U.S. Well Services delivered strong results for the second quarter. I would like to begin with this morning's call by reviewing the key financial and operating highlights from the quarter.

Revenue grew 8% sequentially to $151.4 million and Adjusted EBITDA grew 52% sequentially to $42.6 million, with Adjusted EBITDA margins improving to 28%, from 20%, in the first quarter of 2019.

U.S. Well Services exited the second quarter with 13 available fleets, consisting of 9 conventional diesel fleets and 4 electric fleets. At the end of the quarter, 11 fleets were active and we averaged 10.4 fully utilized fleets during the quarter. On a fully utilized basis, U.S.W.S. generated approximately $16.4 million of annualized adjusted EBITDA per fleet, as compared to $11.4 million for the first quarter of 2019, which equates to a 43% increase.

We deploy two new electric fleets during the quarter with one beginning working the Permian Basin in April and the second going to work in the Northeast in June. Our growing electric frac fleet has not only helped buoy off financial performance, but also has solidified our position as a market leader in electric fracturing services.

U.S.W. continued to differentiate the company from its competitors and demonstrated its commitment to technology during the quarter. During the second quarter, we granted an additional four patents, bringing our total granted patent portfolio to 22. And we also have 82 patents pending.

In June, we announced that we had begun work using our patent pending PowerPath technology. PowerPath enables U.S.W.S to position power generation equipment in a fixed location and transmit electricity via powerlines over a long distance to power hydraulic fracturing equipment. In doing so, we were able to achieve significant reduction in costs and time associated with mobilization.

U.S.W.S. has been a leader in collecting and analyzing equipment vibration data since 2014 using our FRAC MD technology. The data we collect allows our operators to enhance decision-making in real time by catching irregularities and reacting before costly equipment failures occur. This technology also allows our engineering and development team to design and configure equipment in an optional manner that we believe reduces repair, maintenance, and maintenance capital costs.

During the quarter, our operators submitted 136 FRAC MD catches and I'm pleased to announce that we recently recorded our 600th catch using this technology.

For the second quarter of 2019, all but two of our fleets were using 7-inch large bore iron packages. We believe we have more 7-inch iron deployed than any other frac company operating currently. These large bore packages enable us to significantly shorten rig-up times, reduce costs associated with failures and leaks, and extend the useful life of a frac iron by as much as 4X.

It should come as no surprise to market observers that the hydraulic fracturing industry currently faces numerous headwinds. EMP operators are under considerable pressure to spend within cashflows and have reduced capital budgets for drilling and completions accordingly. The result of this dynamic has been sustained pressure and pricing for conventional frac services. Meanwhile, the demand for service companies to continue to grow with customers demanding increasing pump hours per day. For our industry, this means short equipment useful lives and higher repair and maintenance costs. Added to these challenges is the macroeconomic uncertainty that continues to weigh on crude prices.

U.S. Well Services has taken proactive measures to position the company to continue delivering best in class execution for our customers and creating value for our shareholders. First, U.S.W.S continues to shift our equipment portfolio toward electric frac fleets. For our customers, this creates the opportunity to benefit from significant fuel cost savings, enhanced equipment reliability, and reduce noise and carbon emissions. We believe electric fleets are better-suited to withstand harsh operating conditions and rising service intensity.

This should result in a lower cost of ownership as well as a longer equipment useful life. As a result of the fuel savings these fleets deliver, we believe electric fleets also offer the ability to go under premium pricing, relative to prevailing market pricing for conventional frac services.

Second, U.S. Well Services employs a partnership model with its customer, whereby we work closely with them to ensure the highest level of service quality. Exiting the second quarter, 9 of our 11 active fleets were working under contract and two were working on a dedicated agreement. Approximately one third of our contracts will be up for renewal during the second half of 2019 and we are actively evaluating renewal alternatives as well as the possibility of placing the fleets in the spot market. We believe the partnerships we have with our customers helps us maintain the utilization level of our fleet and mitigate adverse impacts of cycles.

Finally, U.S.W.S. remains focused on reducing costs. Our team worked diligently during the second quarter to reduce the cost of lodging, heavy equipment transportation, and SG&A, which helped us expand our Adjusted EBITDA margins quarter over quarter. U.S. Well Services has and will continue to react swiftly to changing market conditions. We outed one fleet during the second quarter and constantly evaluating opportunities for our fleets working the spot market.

Looking forward, we believe the company is well-positioned to respond rapidly to changes in the operating environment. In summary, U.S. Well Services has a solid second quarter. I am proud of the work our team has done to consistently deliver high-quality service for our customers and look forward to building on our success in subsequent quarters.

With that, I'll turn the call over to Kyle O'Neill, our Chief Financial Officer.

Kyle O'Neill -- Chief Financial Officer

Thanks, Joel, and good morning. Revenue in the second quarter rose 8% sequentially to $151 million. Service and equipment revenues rose 11% quarter over quarter and revenues from consumables, including sand, chemicals, and transportation increased 1% sequentially.

The quarter over quarter increase in revenue was primarily attributable to a higher number of fleets working an improved utilization of active fleets. As Joel mentioned, we averaged 11.3 active fleets during the quarter, with a utilization rate of 92%, resulting in fully utilized equivalent of 10.4 fleets. This compares to 11 active fleets during the first quarter of 2019, with the utilization rate of 89%, resulting in 9.8 fully utilized fleet equivalents.

Cost of service in the second quarter declined by approximately 2% sequentially to $107.5 million. As compared to the first quarter of 2019, our labor costs rose approximately 11%, driven by an increase in the number of fleets working. Our team achieved great success reducing costs during the quarter, as was evidenced by sequential decrease of 25% and 17% for repair and maintenance costs and other operating costs, which include lodging and heavy equipment, respectively.

SG&A declined to $7.6 million in the second quarter, from $8.6 million in the first quarter. After adjusting for stock-based compensation and one-time transaction fees, SG&A was $5.9 million, as compared to $6.5 million in the first quarter. Reduction in SG&A is primarily attributable to lower professional fees incurred during the period.

Adjusted EBITDA rose 52% sequentially to $42.6 million or an annualized rate of $16.4 million for a fully utilized fleet, as compared to $28 million and an annualized rate of $11.4 million for a fully utilized fleet in the first quarter.

Adjusting for maintenance capex associated with our fluid ends, our annualized Adjusted EBITDA for a fully utilized fleet was $14.9 million, as compared to $7.7 million for the first quarter of 2019.

Turning now to capital expenditures. During the quarter, U.S. Well Services spent approximately $87.6 million on capital expenditures. Of this, approximately $71.8 million was attributable to growth capex related to the electric fleets we deployed during the last quarter, as well as the new electric fleet currently on order. Last quarter, we indicated that we would spend between $80 to $100 million of growth capital to complete our fleets on order. We anticipate that U.S. Well Services will incur an additional $25 to $30 million throughout the second half of the year.

In the second quarter, U.S. Wells spent approximately $9.1 million on maintenance capital expenditures, of which $3.8 million or 42% was related to fluid ends. We also spent approximately $6.7 million on fleet enhancement, which includes 7-inch iron packages for a certain number of fleets.

As of the end of the second quarter, U.S. Well Services had total cash on hand of $51.7 million as well as $35 million available under our asset-backed revolving credit facility, bringing our total liquidity to $86.7 million.

With that, I'd like to turn it back to Joel for some closing comments.

Joel Broussard -- Chief Executive Officer

Thanks, Kyle. Before we get into Q and A, I'd like to offer some thoughts on the current state of the industry. Many market observers focus on the name play capacity of the U.S. pressure pumping fleet and point to the oversupply as a chief cause of deteriorating market conditions. While we recognize the challenge, we believe that oversupply is understated due to the exponential rise in service intensity.

Just a few years ago, our customers were pleased when their service provider was able to pump 10 hours in a day. Now customers routinely demand 16 to 18 hours of pumping time per day. As an industry, we have become adept to meeting our customers' needs, performing nearly all the maintenance in the field, and adopting new technologies that have enabled us to achieve great efficiencies.

While the increasing efficiency is admirable, it comes with significant cost and has considerably shortened the useful lives of conventional frac equipment. This is why we believe that the industry has no choice but to adopt electric frac technology that is better suited to withstand harsh operating conditions. Electric frac fleets powered by natural gas turbine generators maximize frac equipment useful life and offer a lower cost of ownership, relative to conventional fleets. We believe that our proprietary technology and first move advantage in going electric will position U.S.W.S. to succeed as a market leader in this rapidly changing industry.

Thank you. I will now turn it over to the operator and open the call up for Q and A.

...

Questions and Answers:

Operator

Thank you. We will now be conducting your question and answer session. If you'd like to ask a question, you may press "*1" on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press "*2" if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the "*" keys. Please ask one question and one follow-up question and then requeue for additional questions.

Our first question comes from the line of Chase Molehill (phonetic) with Bank of America. Please proceed with your question.

Chase Molehill -- Bank of America -- Analyst

The first question, if we can kind of come back to electric fleets. You deployed two new builds, electric fleets in Q2. You got another one in the first quarter of 2020. To the extent that you would, could you provide some color around the contract terms and maybe the cash-on-cash paybacks that you're getting on some of these new built electric fleets?

Joel Broussard -- Chief Executive Officer

Yeah, Chase, thank you. You know with respect to cash on cash payback, we targeted 3.5-year payback. We evaluate this based on EBITDA and less maintenance capex. The contract terms are generally one to two years and containing a fixed monthly fee with a variable service charge. The fleet we would deploy for Shell would be early in 2020. It is a two-year contract. You know based on our current dialogue; we believe demand for these fleets far exceed our available supply. And with no shortage of customers who are willing to sign long-term contracts.

Chase Molehill -- Bank of America -- Analyst

Okay. All right, that's helpful. And then are there ongoing conversations regarding more electric fleets? I know you've got the one that's coming in 1Q 2020, but what are the conversations look like today about adding potentially more fleets in 2020 or is one coming with Shell in 2020 is kind of what we should be thinking about for 2020?

Joel Broussard -- Chief Executive Officer

You know absolutely. You know we're talking and negotiating with nearly every EMP operator of scale. You know currently the demand for electric fleets exceeds the supply quite substantially. You know we don't believe any future deployments has cannibalized in conventional. Demand for our conventional fleets remains strong as a result of our high service quality. You know over time new electric fleets will replace our conventional hydraulic horsepower, but in the near-term we have customers who don't have sufficient work to justify signing a long-term contract for an electric fleet. And they are more happy to take our conventional crews.

Chase Molehill -- Bank of America -- Analyst

Okay, all right. A quick follow-up. Can you talk about your PowerPath technology? I know you had a press release out on it a few -- I guess a few weeks or maybe a month or so ago. Maybe talk a little bit about the advantages and maybe any issues that you've dealt with as you rolled this out in 2Q. And also maybe touch on the potential cost savings and how much of those cost savings you're able to capture with the new PowerPath technology.

Joel Broussard -- Chief Executive Officer

PowerPath is patent pending. It's our system of transmitting power over long distances to our frac equipment. This key is they generate high voltage power, which allows us to transmit our electricity over long distance through powerlines. So we'll keep the power generation in one location, run three or four miles of powerlines, and frac five or six pads. You know over 2.5 miles is very little power loss, so we -- it helps mobilization and also cost savings for the client.

Chase Molehill -- Bank of America -- Analyst

Okay, all right, I'll turn it back over. Thanks, Joel.

Joel Broussard -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Daniel Burke with Johnson Rice. Please proceed with your question.

Daniel Burke -- Johnson Rice -- Analyst

Yeah, hey, good morning, guys.

Joel Broussard -- Chief Executive Officer

Hey, good morning, Daniel.

Daniel Burke -- Johnson Rice -- Analyst

Appreciate the detail on those stages and hours and the ability to put those metrics together. As you look at Q3 and there's a little uncertainty around the edges, I guess, but do you think that the efficiency metrics you posted in Q2 will be sustainable in Q3?

Kyle O'Neill -- Chief Financial Officer

Yeah, I mean I think the reason we put a lot of those metrics out there was so that we have total transparency for analysts and investors and they can see the trends that we're all seeing with equipment utilization and really a service intensity. And so I think right now we've got visibility into Q3 and we feel like our fleets and our crews will continue to operate at pretty healthy levels.

Daniel Burke -- Johnson Rice -- Analyst

Okay, great, appreciate that. And then maybe, Kyle, just to stay with you, in terms of capex, I think you mentioned $25 to $30 million of remaining spend. And just to complete the four currently committed electric fleets. And just to get a little clarification, that's $25 to $30 million that's not yet reflective of that. Can you talk about what's embedded in a crude, maybe a crude capex in your payables right now? Is that incremental to the $25 to $30 million?

Kyle O'Neill -- Chief Financial Officer

Yeah, the $25 to $30 million is what we have left to spend on that fourth fleet that is coming online at the beginning of the first quarter. What's in our current payables right now is about a little over $30, call it $32 million of growth capex that's in our payables number that will get paid out here or has been paid out after the end of the quarter.

Daniel Burke -- Johnson Rice -- Analyst

Okay, great. All right, guys, I'll -- well, I'll append one more. Can you talk either qualitatively or maybe quantitatively on when we look at the sequential improvement in your results from Q1 to Q2, I mean would you differentiate in any way what the relative improvement and performance from your conventional fleets versus the clean fleet?

Kyle O'Neill -- Chief Financial Officer

We're not providing specific fleet profitability performance, but we did realize some cost reductions, which helped profitability. But a large part of that improved performance quarter over quarter was the result of having more electric fleets deployed and fully utilized for the period. So I think you can use that as directionally proof of [audio cuts out] profitability for those electric fleets.

Daniel Burke -- Johnson Rice -- Analyst

Yeah. No, that does help. Okay, guys. All right, I'll leave it there. Thank you for the time.

Joel Broussard -- Chief Executive Officer

Thank you.

Kyle O'Neill -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Mike Urban with Seaport Global. Please proceed with your question.

Michael Urban -- Seaport Global Securities LLC -- Analyst

Thanks. Good morning, guys.

Kyle O'Neill -- Chief Financial Officer

Hey, good morning.

Joel Broussard -- Chief Executive Officer

Good morning.

Michael Urban -- Seaport Global Securities LLC -- Analyst

So you've made a number of announcements around exclusivity with vendors and a number of technology initiatives that you've spoken to. What all exactly have you locked up? What part of either IP, process, or equipment do you think is most difficult to replicate as you look at the competitive landscape for electrics?

Joel Broussard -- Chief Executive Officer

We announced that we formed an alliance with Amerimex and they will be producing our electric motors. We've been with them since the beginning of 2014. We think they're the best in class and best fit for fracking. They specifically build for the oilfield. We also have signed exclusivity with PW Power Systems through 2020. We feel that the 30-megawatt generator they have is -- off the shelf, is probably the best one out there right now. And one more exclusive agreement we executed with Gaumer Processing. Gaumer is the premier provider of mobile gas conditioning systems.

Over the years, gas conditioning treatment has become a core competency of U.S.W.S. and always allows us to use field gas on nearly every pad we work. You know our move to foreign partnerships and strategic alliances with key suppliers directly translates into a first move advantage. We believe that it will also take our future competitors a long period of time to identify the right partners and build fit for purpose equipment.

Michael Urban -- Seaport Global Securities LLC -- Analyst

Okay, gotcha. That's helpful. And then a couple of, I guess, more housekeeping type of questions that echo the comments of others in terms of just we appreciate the additional disclosure. The metric in terms of looking at fully utilized fleet equivalents for profitability, it's something we've seen others in the industry move toward. Can you just talk about how specifically you calculate that? Why do you think that's the best way to look at your profitability and is that the most comparable way, relative to your peers?

Kyle O'Neill -- Chief Financial Officer

Sure. Yeah, no problem. Thanks for asking. We've spent a lot of time thinking through how best to give kind of total transparency into our business. And you know we look at active fleets being fleets that were operational during the period. We then calculate utilization by taking a look at each day during the period. Whether that fleet was mobilizing to or from a pad location or actually pumping. And that's considered an active day. And we divide that by the number of days in the period to get you your utilization.

And the idea is to really be able to -- you know when looking at it on a fully utilized basis, to really show what the true earnings ability of those fleets are on a normalized basis. We put out all three metrics so that the reader can see and use all that information to build their models. I think ultimately you get to the same point, depending on how you want to structure your models, but we want to make sure all those metrics are out there so that everyone can compare us to our peers on an apples-to-apples basis.

Michael Urban -- Seaport Global Securities LLC -- Analyst

Gotcha, appreciate that. Then one last one for me. Apologize if I missed it. Is kind of $5 to $5.5 million per fleet still a good maintenance capex number?

Kyle O'Neill -- Chief Financial Officer

I mean that was -- when we originally put that guidance out, that was really based on what we had experienced historically with our conventional fleets. So for our nine conventional fleets, I still think that's an accurate assumption. But with the increase in electric fleets as a percentage of our total companywide fleet, I think we're seeing dramatically lower numbers on maintenance capex, so it'd be reasonable to use $2, $2.5 million. We're seeing about [audio cuts out].

Michael Urban -- Seaport Global Securities LLC -- Analyst

Is that fleet, the $2, $2.5 million on the electrics and $5, $5.5 million for the conventional the right way to think about it?

Kyle O'Neill -- Chief Financial Officer

Correct. Yeah, $5, $5.5 million on conventional, call it $2.5 million on electrics.

Joel Broussard -- Chief Executive Officer

And that includes fluid ends.

Kyle O'Neill -- Chief Financial Officer

Correct.

Michael Urban -- Seaport Global Securities LLC -- Analyst

Yeah, OK. All right, that's all for me. Thank you.

Joel Broussard -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of John Daniel with Simmons & Company. Please proceed with your question.

John Daniel -- Simmons & Company -- Analyst

Hey guys, nice quarter. Want to try to pin you down a little bit on guidance, if I can. You got some moving parts here with the fleets. Half the fleet is up for renewal in the second half. I'm just curious as you look out, what's the threshold in terms of when you might idle it, basically, if you go to spot pricing and it's too low? And then also, just given the full quarter impact of the two electric fleets in Q3, does that -- is that additive to your overall EBITDA for fleet metrics in Q3? Or given the fleet renewals, is it likely going down? Just trying to bracket that for us would be helpful.

Kyle O'Neill -- Chief Financial Officer

Sure. We're still not gonna issue full guidance, but we continue to monitor the market obviously very closely and we're committed to reacting quickly, depending on market forces right now. I think that in terms of our threshold to keep a fleet working, you know we just talked about what our maintenance capex is and we need to earn in excess of our maintenance capex to keep a fleet active, which is critical. We're not gonna be out there wearing out our equipment and not be able to generate profits with it.

John Daniel -- Simmons & Company -- Analyst

Fair enough. But, OK, I mean it would seem to me, and I'm not trying to be pushy, just a little pushy, is --

Joel Broussard -- Chief Executive Officer

Yeah, you are.

John Daniel -- Simmons & Company -- Analyst

-- you know the market is choppy. But you guys -- I mean you alluded to it. You called it out. I mean it's choppy out there. We all know that now. You had a good quarter and it's just with a lot of fleets up for renewal, it would seem that we could see, I don't know, I would think potentially a healthy downside in the near term on the EBITDA for fleet metrics, notwithstanding the improvements you're getting from the electric. I just -- I don't want to -- if I'm missing something, please let me know.

Kyle O'Neill -- Chief Financial Officer

You're absolutely right. The market is very choppy right now. You know our pricing is holding up on our electric fleets and we're committed to keeping our conventional fleets working at rates that kind of earn our targeted rates of return.

John Daniel -- Simmons & Company -- Analyst

Okay.

Kyle O'Neill -- Chief Financial Officer

You know so I think you nailed it. We do have some fleets that are rolling over in the second half of the year and obviously that adds [audio cuts out], but we haven't lost sight on keeping our fleets active.

John Daniel -- Simmons & Company -- Analyst

Cool. And I guess the last one for me, just given the growing demand for electric, Joel, I mean if you were a gambling man, do you expect to sign any contracts in the back half of the year for another fleet or do you think people are gonna wait until next year before they start signing contracts again?

Joel Broussard -- Chief Executive Officer

Like we've always said, we're negotiating with a lot of potential clients and we are in active dialogue on signing contracts with new clients.

John Daniel -- Simmons & Company -- Analyst

So you're feeling pretty good? Fair or not fair?

Joel Broussard -- Chief Executive Officer

Yes.

John Daniel -- Simmons & Company -- Analyst

All right, being pushy. Okay, thanks, guys.

Joel Broussard -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Stephen Kingaro with Stifel. Please proceed with your question.

Stephen Kingaro -- Stifel -- Analyst

Thanks. Good morning, gentlemen. Two things. Just first, sort of following up on that last question. When you think about the conventional fleets, do you have a threshold where you'll idle equipment? How do you think about that, if the market is soft and the cashflow from fleet is softening? Is there a level at which you just park it for a while?

Joel Broussard -- Chief Executive Officer

Well, we'll look at our maintenance capex and the positive cashflow and we'll also add in the fact of wear and tear on our equipment, whether it's worth doing the work or not.

Stephen Kingaro -- Stifel -- Analyst

Okay, OK. When you think about on the E fleet side, you know one of the things we hear a lot about is, and I know you addressed this a little bit earlier, but sort of the mobilization and how that sort of impacts utilization, et cetera. How do we think about the mobilization, what you've done to sort of lower MOB times and help increase utilization levels? And how do you think that evolves as we go forward here?

Joel Broussard -- Chief Executive Officer

Well, from the first fleet we built in 2014, we reduced the cabling from 159 cables to 39 cables. Reduced it from 4 generators with 20 crane lifts to 1 generator with 5 crane lifts. We can mobilize that generator within 24 hours. And mobilization is fine. You know some previous -- our last two fleets that we deployed, the customers they were working for actually reported in this quarter earnings that we're saving them over $250,000 per well, so I think it's working out pretty well.

Kyle O'Neill -- Chief Financial Officer

In addition, we've got the ability to use our PowerPath technology that we talked about in our release. Also like to point out that when we calculate utilization we do -- you know we include the mobilization days because that's effectively an active fleet. Mobilization is part of your activity levels.

Stephen Kingaro -- Stifel -- Analyst

Okay, that's very helpful. Thank you.

Joel Broussard -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of George O'Leary with Tudor, Pickering, Holt & Co. Please proceed with your question.

George O'Leary -- Tudor, Pickering, Holt & Co. -- Analyst

Good morning, guys.

Joel Broussard -- Chief Executive Officer

Good morning, George.

George O'Leary -- Tudor, Pickering, Holt & Co. -- Analyst

Just wanted to tack on a question related to one of the prior questions around repair and maintenance. It's a notable gap on R&M capex for the E fleets versus the conventional fleets. Wondered if you could just frame the biggest drivers of the delta there. And you know is that largely on the fluid inside, is it the fact that you removed the engine and transmission? Does it have to do with vibrations on the trailer? Maybe just kind of walk through those buckets and what's most impactful to that gap and R&M expense per year.

Kyle O'Neill -- Chief Financial Officer

Yeah, sure. I mean the biggest driver of that is absolutely the removal of the engine, transmission, radiator. We don't have to do oil changes. And so that's the biggest driver for sure. And we're gonna have to rebuild those every three, four years.

We do see lower vibrations on these electric pumps. That does help with the life of our fluid ends and power ends. We -- so, yeah, so that -- everything helps. You know it kind of all -- kind of plays together, but by far the biggest cost saver there is the removal of the conventional diesel engine and transmission.

Joel Broussard -- Chief Executive Officer

You know as the service intensity increased, we used to do an oil change, I don't know, once a month, once every month and a half? Now we're doing them sometimes twice a month.

Kyle O'Neill -- Chief Financial Officer

Yeah.

Joel Broussard -- Chief Executive Officer

An oil change can be $150,000 a fleet. To do two of those in a month, $300,000 for a fleet. And you don't do an oil change in a turbine.

George O'Leary -- Tudor, Pickering, Holt & Co. -- Analyst

That's very helpful. And then you guys have moved from the two pumps per trailer and you're -- going forward, the E fleets you build will have just one pump per trailer. Wondering if there's anything you guys are mulling over on the pump technology side, such that you might be able to move to a larger pump onboard those trailers to reduce the amount of trucks onsite? Just curious if there's anything on the power and fluid inside that you guys are mulling over to help produce the truck count?

Joel Broussard -- Chief Executive Officer

We're constantly evaluating all technologies. We feel that the larger pumps aren't there yet, but as soon as they are, we think it was something we would definitely entertain doing. But for right now, we think the system we have now is best out there.

Kyle O'Neill -- Chief Financial Officer

Yeah, we really benefit from our use of the FRAC MD technologies. We're able to really evaluate these different technologies and understand exactly how it's gonna play. Cavitation is something that we spent a lot of time focusing on, just like vibrations and making sure that we get the right equipment out there to be able to operate at the service intensity levels that are needed.

Joel Broussard -- Chief Executive Officer

You know the vibrations on our new pumps, we have well-exceeded our expectations. And the damage accumulation numbers are coming in super low.

Kyle O'Neill -- Chief Financial Officer

Which should translate into longer useful life, especially on components like fluid ends and power ends.

George O'Leary -- Tudor, Pickering, Holt & Co. -- Analyst

I'll sneak in one more, if I could. Just on the centralized or distributed power that you guys are trialing right now. I just wondered if you could kind of update us on how that's progressing and then the potential for that to become more pervasive within your fleet mix. Realize there's some distance limitations, but that may be offset by you can run that turbine more efficiently and maybe turn it off and on or idle it less frequently if it's also powering things like compression heater treaters, ESPs, et cetera. Just curious to hear how that's going and then the market opportunity for that moving forward.

Kyle O'Neill -- Chief Financial Officer

Sure. I think that that's something that we're having a lot of discussions about and I think there are a lot of people really interested into kind of the electrification of the overall oil patch. For the most part right now, we are setting up our power generation assets in one central location, typically closer to a source gas. So it helps reduce some infrastructure that may need to be run. And then we're just hooking in and distributing our power over powerlines. Definitely helps with mobilization time. As of right now, we're not powering any other ancillary equipment, but it's something that we're constantly talking to folks about as they're trying to figure out what's next up in the evolution of all of this.

Joel Broussard -- Chief Executive Officer

You mentioned turning on and off the turbine. Could you elaborate on that a little bit?

George O'Leary -- Tudor, Pickering, Holt & Co. -- Analyst

Yeah. So my understanding is you either just have to idle that turbine on occasion between stages or occasionally, even if it's just when you're moving between pads or wells, turn off that turbine. And my understanding from having covered the power industry previously is turbines would rather not shut off and on, which is I think why you end up idling them rather than shutting them off. So, just to -- if you could move that centralized power out and power your compression or heater treaters or even folks' ESPs out in the field, it might mitigate the time that turbine is spent idling and kind of burning gas when you're not pumping or having to turn that turbine off on occasion. You may just be able to have a smoother load running through that turbine at all times. That's at least my understanding.

Joel Broussard -- Chief Executive Officer

Yes, I agree with that. However, I think some of the customers that have -- EMP came out yesterday saying it costs them $0.45 to get rid of their gas. They probably want to keep the turbine running as much as possible.

Kyle O'Neill -- Chief Financial Officer

Yeah. And to power a lot of those other ancillary services. I mean the frac equipment takes a lot of power, so you're gonna still have peaks and valleys. But I think it'll take time for that all to get built out, to where you can keep a constant load on these units.

George O'Leary -- Tudor, Pickering, Holt & Co. -- Analyst

Very helpful. Thank you, guys.

Operator

As a reminder, ladies and gentlemen, it is "*1" to ask a question. Our next question comes from the line of Derrick Hothazer with Barclays. Please proceed with your question.

Derrick Hothazer -- Barclays -- Analyst

Hey, good morning, guys.

Kyle O'Neill -- Chief Financial Officer

Good morning.

Joel Broussard -- Chief Executive Officer

Good morning.

Derrick Hothazer -- Barclays -- Analyst

There's been a lot of recent comparisons between the dual fuel offering, such as a new [audio cuts out] engine versus an all-electric offering like yourself. Wanted to get your take on how customers, specifically the majors, view ESG and if dual fuel actually checks all the boxes there or to ESG's strategy, would need to use an all-electric offering.

Joel Broussard -- Chief Executive Officer

Well, on the customer side, we feel that dual fuel is not as environmental friendly as Tier 4 because of methane slip. On our side, you still run into the same issue with running these pumps. It's a diesel -- it's really a diesel engine running them 18 hours a day. And we feel that the diesel equipment cannot hold up to the service intensity requirements that our clients are demanding in this current market.

Derrick Hothazer -- Barclays -- Analyst

Okay, great. Wanted to go back to some of the questions around power. Obviously we're still in the early days here but wanted to get your thoughts on how the ownership of the power could evolve. It's such a big piece of the capital investment. Do you foresee sharing these costs down the road with your customers or if the customer would want to take 100% of that? Just thinking about pairing those ancillary equipment that we discussed previously.

Kyle O'Neill -- Chief Financial Officer

It's really too early to speculate on how that relationship will evolve over time. I can't give you any good guidance.

Derrick Hothazer -- Barclays -- Analyst

Okay. And then just last one for me. Just can you help talk us through how activity utilization trended through the quarter? Maybe you can compare June to the start of the quarter in April and then now with July in the books, how that looked versus second quarter?

Kyle O'Neill -- Chief Financial Officer

I mean for the most part, we had a pretty consistent quarter. You know I think our activity levels, we -- you know individual fleets kind of -- you know you saw a little bit of variation there, but as a whole across all of our fleets, it's pretty consistent quarter month to month. It definitely helped with bringing on our latest electric fleet in June.

Derrick Hothazer -- Barclays -- Analyst

And then with July in the books now, can you give us the comparison versus 2Q?

Kyle O'Neill -- Chief Financial Officer

We're not providing guidance right now.

Derrick Hothazer -- Barclays -- Analyst

Okay. That's it for me. Thanks, guys.

Joel Broussard -- Chief Executive Officer

Thank you.

Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing comments.

Joel Broussard -- Chief Executive Officer

Thank you all for joining the call. We look forward to talking to y'all next quarter. Thank you.

Kyle O'Neill -- Chief Financial Officer

Thanks.

...

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Duration: 40 minutes

Call participants:

Operator

Josh Shapiro -- Vice President of Finance and Investor Relations

Joel Broussard -- Chief Executive Officer

Kyle O'Neill -- Chief Financial Officer

Chase Molehill -- Bank of America -- Analyst

Daniel Burke -- Johnson Rice -- Analyst

Michael Urban -- Seaport Global Securities LLC -- Analyst

John Daniel -- Simmons & Company -- Analyst

Stephen Kingaro -- Stifel -- Analyst

George O'Leary -- Tudor, Pickering, Holt & Co. -- Analyst

Derrick Hothazer -- Barclays -- Analyst

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