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USA Compression Partners LP (USAC) Q1 2020 Earnings Call Transcript

By Motley Fool Transcribers - May 5, 2020 at 6:01PM

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USAC earnings call for the period ending March 31, 2020.

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USA Compression Partners LP (USAC -0.59%)
Q1 2020 Earnings Call
May 5, 2020, 11:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day, everyone, and thank you for standing by. Welcome to the USA Compression Partners LP's First Quarter 2020 Earnings Conference Call. [Operator Instructions]. This conference is being recorded today, May 5, 2020.

I would now like to turn the call over to Chris Porter, Vice President, General Counsel and Secretary.

Christopher W. Porter -- Vice President, General Counsel and Secretary

Good morning, everyone, and thank you for joining us. This morning, we released our financial results for the quarter ended March 31, 2020. You can find our earnings release as well as a recording of this call in the Investor Relations section of our website at The recording will be available through May 15, 2020.

During this call, our management will discuss certain non-GAAP measures. You will find definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures in the earnings release. As a reminder, our conference call will include forward-looking statements. These statements include projections and expectations of our performance and represent our current beliefs. Actual results may differ materially. Please review the statements of risk included in this morning's release and in our SEC filings. Please note that information provided on this call speaks only to management's views as of today, May 5, and may no longer be accurate at the time of a replay.

I'll now turn the call over to Eric Long, President and CEO of USA Compression.

Eric D. Long -- President and Chief Executive Officer

Thank you, Chris. Good morning, everyone, and thanks for joining our call today. Also with me is Matt Liuzzi, our CFO; and Bill Manias, our COO. This morning, we released our financial and operational results for the first quarter of 2020, achieving a solid quarter of operational and financial results. I plan to briefly highlight the quarterly results and then spend more time discussing our business model, what we are seeing out in the field, how we are managing the business in this uncertainty, and ultimately, how we expect the rest of the year to play out.

The first quarter went very much as we had expected. Revenues were $179 million, up approximately 5% over the first quarter of 2019 and likewise, adjusted EBITDA of $106 million was up about 5% over the year ago period. We achieved a gross operating margin of 66.9% and an adjusted EBITDA margin of 59.3%, both metrics consistent with year ago periods. Average utilization throughout the quarter was 92.5%, down slightly from the year ago period, and reflecting a modest amount of returns, in particular, as we move toward the end of the quarter.

We ended the quarter with approximately 3.3 million active horsepower, consistent with the year ago period at about 3.7 million total horsepower in the fleet. Average pricing across the fleet increased modestly during the first quarter, reflecting some new unit deliveries as well as the impact of selective service rate increases previously negotiated. We saw average monthly revenue increase to $16.89 per horsepower, up from $16.82 in the fourth quarter. This reflects our previously discussed expectation that pricing gains would moderate as we move into and through 2020. Our capital spending during the quarter consisted of $46.5 million of expansion capex, which included the delivery of 27,500 new horsepower, primarily consisting of large horsepower units. You will note that in our earnings release, I mentioned reducing our expected growth capex spend for 2020 by about 25%. That will take place over the back half of the year. Q1 and some amount of Q2 growth capex spending had already been locked in by the time we had the events of early March and everything that has followed.

We anticipate cutting any discretionary spending that we have not already committed to. We will, however, continue our normal maintenance activities in order to keep our assets running in a safe and efficient manner. At this point in time, we expect expansion capital spending to total between $80 million and $90 million compared to previous guidance of $110 million to $120 million. While our new unit total -- our total new unit delivery estimate for the year is 62,500 horsepower, we will be pushing the timing of some deliveries back toward the second half of the year. The capital savings we anticipate are due to cutting out planned reconfigurations and make-ready work.

As I mentioned at the outset, the first quarter went largely according to plan. Based on the results, the Board decided to keep the distribution consistent at $0.525 per unit, which resulted in a distributable cash flow coverage ratio of 1.08x. Our bank covenant leverage ratio was 4.56x for the quarter. Just as a reminder, the quarterly distribution is a decision that our Board of Directors makes on a quarterly basis. As has always been the case since our IPO, the Board can opt to maintain, reduce or suspend the distribution as it deems most appropriate on a quarterly basis.

We are proud of the efforts of the dedicated men and women of USA Compression. They delivered a solid first quarter. And even as the pandemic began to play out in March, continued to work safely every day for the benefit of our customers and the success of the partnership. As everyone listening to this call is aware, our equipment allows natural gas to move into and through natural gas pipelines. While the coronavirus and the oil market disarray has occupied a lot of headlines, our equipment is still critical to moving existing and future gas production, and our employees are still required to keep it in good running shape. So again, a big thank you to all of our hard working employees.

So a little bit on the macro market on natural gas and crude oil. Matt and I have taken many calls over the last few months, and one recurring theme has been the very different market dynamics currently affecting crude oil and natural gas markets. Sometimes it gets lost in the fog, but wants the entire energy sector together, and folks forget that USA Compression remains a business primarily driven by domestic natural gas demand.

That has not changed, even in the face of $10 crude oil. We continue to take a long-term view for the overall need for and production of natural gas. Certainly, some aspects of the gas market are impacted by the crude oil market. However, that has happened for years, and the gas market has always adjusted, and we will discuss that shortly.

While we are actively managing through the current weakness in the energy market, our long-term view has not changed. We continue to believe that natural gas will play a more and more important role as a clean fuel of choice, perhaps even more so as the fragility and geopolitical implications of the oil markets are again made apparent.

So talking about the energy markets, to put it succinctly, oil has been absolutely decimated. At first, there was concern over global demand impacts due to the growing corona pandemic with demand softening due to the uncertainty of the global economy, the Saudis and Russians failed to come to a production agreement in early March. Combined with the realization around the economic impact of the pandemic, oil demand is down significantly and expected to remain so until recovery actions get fully under way globally.

Some estimates -- or some estimate global oil demand destruction to be as much as 10, 15, even 30 million barrels a day, and it's on a global market of approximately 100 million barrels per day. So a fairly significant impact. The exact duration and depth is obviously unknown at the present point in time, but many of observers anticipate a tough go of things for a while.

In response, you've seen decisive actions by those most affected by collapsing oil prices, significant capex reductions by E&P companies resulting in vastly reduced rig counts, the beginnings of oil well shut-ins in various basins, crude oil storage reaching maximum levels. Refinery runs are also down significantly. The capex reductions around new drilling will slow the rate of overall production growth or even result in decline in a given basin or for a specific customer.

Though shale type curves, while steep at first, after a few years tend to flatten out significantly when a given well moves into more of a steady state existence. In short, if the capex cuts hold, producers will simply not be drilling enough new wells to offset the decline of their existing flush production wells.

And then over time, you have a large amount of wells that -- in the flat steady state part of the curve where decline has also meaningfully slowed. Recall that this played out in the Fayetteville and Eagle Ford shales about five years ago after rapid production growth. We have seen this occur in Appalachia over the past several years as well.

A significant component of USA's larger horsepower fleet is deployed in infrastructure applications, exhibiting the flat steady-state shallow decline profile. So even without new drilling activity, compression is continually needed to continue to move these stable volumes of natural gas. This is an important concept that often gets overlooked.

Another extremely important concept that I have discussed in literally every investor presentation since our IPO relates to compression horsepower and declining reservoir pressure. Diving into the physics of gas compression for just a minute or two, as pressures decline, moving the same volume of gas requires an exponential increase in compression horsepower. Hugely important and a technical concept rarely appreciated and understood by those outside the industry. I'll say it another way, assuming constant pressure to increase gas volumes requires more horsepower.

Conversely, to maintain flat gas volumes in a declining pressure environment also requires more horsepower. But what happens when gas volumes decline and pressures also decline? It depends. Compression horsepower may decline a little, may remain stable or might actually increase. The characteristics of individual wells, specifics of the reservoir rock and fluids composition, all factor into this multivariable quadratic equation. Simply stated, for both associated gas and dry gas applications, even though gas volumes may be on the decline, required compression may actually increase as pressures also decline.

To complicate things further for depletion derived oil production, over time as reservoir pressures decline, gas-oil ratios typically increase, leading to more associated gas production per barrel of oil produced. These important concepts are fundamental to the reason that during periods of reduced drilling activity and even declines in produced volumes, we have not historically and do not expect to experience dramatic declines in the need for our large horsepower compression services or required horsepower. The dynamics I've mentioned above, along with a relatively resilient demand, have historically made large horsepower compression a less volatile business.

Of course, there is still a great deal of uncertainty on how everything settles out in the commodity markets, but we do feel good about gas market and its long-term prospects. The natural gas markets have actually been more positive and for good reason. The demand for gas, while having some seasonality, remains resilient. There will be some near-term impact to domestic gas demand as schools and businesses have temporarily closed their doors due to the coronavirus. For most areas of the country, this has occurred during seasonally mild weather and the impact on demand has not been as great.

You also need to remember where most of that gas demand ends up, power generation, both commercial and residential,;as well as industrial purposes like chemical plants and other industrial manufacturing. Estimates vary, but generally speaking, we have seen observers talking about demand destruction on the gas side in the single-digit Bcf per day range. On a market of 95 Bcf to 100 Bcf per day, that is more akin to a minor speed bump, which speaks to the relative stability in the natural gas market, underlined by a resilient baseload demand.

There's also an interesting dynamic, we believe, will play out in the gas market over the next 12 to 24 months. Right now, we are seeing some moderate demand disruption in the face of continued supply. Even with announced E&P growth capex cuts on the oil side and the expected decrease in associated gas supply from recently drilled oil wells in the steep decline flush production move, it will take a few months for that to show up in the data. Over the next few months, we expect to see a supply overhang on gas, which will add to storage levels, keeping a cap on the near-term price.

At some point, in the early fall, underground gas storage could reach fairly full levels, but that is expected to happen just as declines in production really start to kick in. That gas and storage will be available to serve that relatively stable baseload demand during winter heating months. While the ultimate impact of associated gas production currently is uncertain, we believe the natural gas futures market give us an early indication. Recently, January 2021 gas futures were over $3 per Mcf, and no month during the entire year was below $2.50 per Mcf. As always, when indications of supply and demand get out of balance, prices react and serve to balance the market.

Ultimately, assuming we do see significant reductions in associated gas production, that required supply will need to come from somewhere. You're hearing more of these days about new activity in the Marcellus, Utica and Haynesville shale plays. We see continued activity in the all-important Northeast. The price of gas will ultimately make sure there is enough gas to supply the demands of the marketplace. Obviously, the drivers behind the crude oil and natural gas markets are not the same, nor do we think will the recovery time line and near-term outlook may be same across both commodities. While it is hard to predict exactly when and to what extent things get back to something like normal, the relatively positive outlook for both natural gas pricing and resumption of stable demand should bode well for our business.

So let's turn to our specific USA business model. The USA Compression's business model has remained very consistent over the past 22 years, whether as a private entity or the last seven years as a public partnership. We have always focused on large horsepower compression used in large regional infrastructure-oriented facilities. These facilities move very large amounts of natural gas. These are not facilities that are easily shut down, and the cost of demobilization, which are borne by our customers to send home a USA Compression assets, may be extremely expensive. These barriers to exit, as we call them, provide further support in times like these, to mitigate the return of iron, that our customers most likely will need after a few quarters of excess oil overhang works itself off.

We have always pointed to the stability of this business model and continue to be optimistic about the future of the large horsepower business. Over the past couple of years since closing the CDM acquisition, we've made an effort to term up securing, additional contract tender after primary term has passed and the contract moved [Phonetic] to a month-to-month duration for more of our contracts. Historically, we had anywhere between 40% and 50% of our assets on a month-to-month basis. Coming into this downturn, we are positioned better than we have ever been, with our recontracting activities, reducing our month-to-month exposure to approximately 35%. We also review the loading profile of the month-to-month assets, those that are loaded are needed, which further reduces the likelihood that a unit gets sent home.

Even with about 25% of our horsepower deployed in the Permian and Delaware basins, primarily serving associated gas production, we have the vast majority of our assets serving either dry gas activities and natural gas handling activities, such as those connected to gas processing plants, our large-volume centralized gas lift applications beyond the flush production stage and in the stable, shallow decline to steady-state mode.

So what are our customers up to? We last saw a commodity downturn back in 2014-2016 time frame. Crude oil down as low as $27 per barrel. We have fleet utilization decline to the mid-80% area, which the larger midstream horsepower exhibiting greater stability, as expected. The smaller horsepower well mid-oriented gas fleet was where our softness surfaced. We took aggressive cost control measures and maintained relatively flat EBITDA and cash flow margins, all while cutting growth capex by almost 90% over two years. While this latest series of market events is somewhat different to the 2014 cycle, we have seen a similar response from customers. The initial shock of the crude oil price decline prompted the return of underutilized assets at the customer's expense.

This was applicable only for that portion of the fleet on their month-to-month contracts. These are predominantly smaller gas lift units that have low demobilization costs, which are sitting on oil wells which have now turned uneconomical. We have seen some redundant larger horsepower units get returned as well. In some cases, the customer may have recently bought some units and soon decided to replace our equipment with their own equipment. Overall, our customers are working to figure out what the future holds for their particular operations, as well as on overall industry, and that creates different motivations for different customers and different basins.

In a few cases, customers have requested temporary and short-term rate concessions or the ability to move units to a standby rate, while the dust settles a bit. Depending on the customer, the contract and proposed economics, we are considering it. We have seen the first wave of returns occur, and we will wait and see how much additional horsepower comes home. At this junction, the 2020 collapse has behaved much like the 2014 to 2016 decline, with a quick wave of initial returns, followed by a much slower and somewhat nominal decline. We will continue to monitor returns closely over the next few quarters, where the risk of utilization declines from associated gas activities remains greatest. We have lots of levers we can pull, and we will pull them depending on the depth and duration of this downturn. There still seems to be a sense by some observers that USA Compression is an oilfield service business with significant exposure to well plan activity and commodity price risk. This has been a common misperception over the years. Our focus has purposely been away from activities that introduce commodity price risk and oriented toward larger installations serving demand-driven natural gas infrastructure applications.

We have deployed significant amounts of horsepower in large multi-unit, centralized compressor stations over the recent years. These installations have, in many cases, moved beyond the initial flush production phase and have settled into the steady state phase with shallow decline rates and thereby, relatively more stable volumes and pressures. As these wells age and the reservoir pressures naturally continue to climb, more horsepower may be required to accomplish the customers' operational needs.

I'll now turn the call over to Matt to walk through some of the financial highlights of the quarter. Matt?

Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer

Thanks, Eric, and good morning, everyone. Today, USA Compression reported a solid first quarter to start off the year, including quarterly revenue of $179 million, adjusted EBITDA of $106 million and DCF to limited partners of $55 million. In April, we announced a cash distribution to our unitholders of $0.525 per LP common unit consistent with the previous quarter, which resulted in coverage of 1.08 times. Our total fleet horsepower as of the end of Q1 was largely consistent with where we ended 2019, right about 3.7 million horsepower. Our revenue-generating horsepower at period end increased slightly to a little bit over 3.3 million horsepower. Our average horsepower utilization for the first quarter was 92.5%.

Pricing, as measured by average revenue per revenue-generating horsepower per month, was $16.89 for Q1, which again was a slight increase from the previous quarter's level. Of the total revenue for the first quarter of $179 million, approximately $176 million reflected our core contract operations revenues. Parts and service revenue was $3 million. Gross operating margin as a percentage of revenue was 67% in Q1. Net loss for the quarter was $602 million, inclusive of a $619 million non-cash goodwill impairment charge, which I'll cover in a minute. Operating loss was $570 million in the quarter, also inclusive of the $619 million non-cash goodwill impairment charge. Net cash provided by operating activities was $50 million in the quarter. Maintenance capital totaled $8.8 million in the quarter and cash interest expense net was $31 million.

To add a little more color on the goodwill impairment charge, based on our unit price at the end of the period, we performed an evaluation of the fair value of the business and the carrying value. The impairment charge reduces the amount of goodwill on our balance sheet to zero. I'd note that the goodwill was created more than two years ago, about $250 million was already on CDM's books at the time of the transaction. And the balance, about $366 million, was created as a result of the reverse merger accounting method used to account for the CDM transaction, whereby we were required to revalue the USAC balance sheet as CDM was considered the acquirer for accounting purposes. Given the recent events affecting the energy markets in general and the ongoing uncertainty, we are providing revised full year guidance for 2020. We currently expect 2020 adjusted EBITDA of between $395 million and $415 million, and DCF of between $195 million and $215 million. At the midpoints of these ranges, these estimates reflect decreases of approximately 5% and 7%, respectively, from our previously communicated guidance ranges. There are obviously a lot of unknowns in the marketplace right now, and as things progress, we will continue to assess guidance throughout the year. Last, we expect to file our Form 10-Q with the SEC as early as this afternoon.

With that, we'll open the call to questions.

Questions and Answers:


[Operator Instructions]. And we'll go first to TJ Schultz with RBC Capital Markets.

TJ Schultz -- RBC Capital Markets -- Analyst

Hey guys, good morning.

Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer

Hi TJ.

TJ Schultz -- RBC Capital Markets -- Analyst

I think, first -- so the comparison to the downturn in 2014 through 2016, I think was characterized into the mid-80s% on utilization. So has this initial rush from some customers to return assets kind of taking you to that level right now? And just trying to think about a few of the differences between now and then and your fleet, meaning, on one hand, do you have maybe a higher mix of larger horsepower units now? And if you're 25% Permian now, what was your mix to associated gas in 2014?

Eric D. Long -- President and Chief Executive Officer

Yes. TJ, it's Eric. So maybe a couple of things. When you look 2014, characterize it as putting a lobster in a pot and you bring the heat up slowly and then the lobster wakes up a year later and he's bright red and then boiled to death. This suffer happened very, very quickly. In 45 days, we had the initial round. The first wave of stuff we saw was predominantly the gas lift equipment. So a lot in the Mid-Continent and, to a far lesser degree, some things coming out of the Permian.

I think in our commentary, we made a comment about we have some owner operators which have returned some equipment to us. One customer, in particular, had purchased a bunch of equipment, anticipating using that as baseload equipment and then using USA Compression to be the variabilized compression fellows as -- to kind of meet their ongoing growth demand. Also Mid-Continent based, they've seen their end users drop out, their customers drop out. So since they have taken delivery of north of 10 or 15 machines, our units were on short-term contracts. When they went off the contract term, they approached us and sent those 10 or 15 machines home.

So I think the way we're categorizing on this first wave is it feels a lot like what we saw in the early phases of 2014 and 2015. What remains to be seen is what happens kind of after, call it, the third quarter of this year. We're now in the June, July, August range, where the major production cuts are occurring. We've seen a lot of research reports that are suggesting that you're going to see continuing shut-ins, but in curtailments between now and the end of the year.

But I think what we're hearing from our customers are: your equipment on these big facilities is going to be needed, we're not turning things off completely, we may be curtailing some. We may be throttling back. So if you keep in mind, we've got six, eight, 10 machines on a big central facility, so that stuff is not all getting turned off. They might ratchet things back to 80% of load or 70% of load or 60% of load, and you might take a machine or two or three and put them on standby for a period of time.

But we're not being approached by our large central facilities customers saying, come take your stuff home. We're going to incur $1 million or $2 million of demobilization cost on the customer's end to send it home because I think what we're hearing from them is while everybody is assessing what's going on, I think there's a common sense that after a couple of quarters, things are going to kind of reequilibrate work through the system and our assets are going to be needed beyond that period, in point in time.

So behaving pretty similar to what we saw on the last downturn. And I think our commentary of we're going to watch the associated gas over the next couple of quarters and see what happens. To the extent that it is -- continues to be great, that equipment can be relocated to other geographic basins like we've done in the past. And we're starting to see the apparent tick-up in planning for dry gas activities up in the Marcellus, up in the dry gas part of the Utica, on over into the Haynesville. So too early to tell, but it's playing out to us right now, kind of what it looked like back in '14, '15, '16.

Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer

And TJ, it's Matt. The only other thing I'd add is it's interesting when you look at the gas prices, Eric talked about kind of the futures a little bit, You go back to '14, in the middle of '14, gas was over $4, and over that '14 to '16 period, it decreased to under $2 by that time sort of that downturn was over. So I think the interesting dynamic we have going here that we touched on in the comments is kind of sort of the opposite outlook right now, at least on the gas price. So back then, people were dealing with sort of gas tumbling down in half, now you're looking forward seeing it increase over the next 12 to 18 months, which is, I think, a positive.

TJ Schultz -- RBC Capital Markets -- Analyst

OK. All makes sense. And then on pricing, it sounds like you are kind of waiting on some decisions for whether or not to make rate concessions to certain customers and you may be balancing that about taking back some assets and moving to different basins. But maybe you can just expand on kind of what you're looking for and making the decision on some of those rate concessions? And then if you would give standby rates, what are those typically relative to working or contracted rates?

Eric D. Long -- President and Chief Executive Officer

TJ, maybe a fair way to say it is to the extent we do anything, it will be temporary in nature. Very, very short term. We have not had a wholesale request across the board from all of our customers or even a large number of customers. I would say it tends to be a little more basin-specific and asset-specific. And again, when you look at the large horsepower, large gas-handling central facilities that we have, we've not had people approaching us saying, shut it in, curtail it back.

We touched before on just how small of a component the compression fee is as a percentage of gas sales price or the movement of hydrocarbons, LOE expenses, etc. It's a relatively small percentage. So the people that get hurt in a downturn like this tend to be the E&P focused, the commodity price guys, the drillers, the frackers, the pressure pumping guys, the small wellhead compression guys. And we tend to be a little more pricing elastic with the types and duration of the contracts that we see.

When we do talk about pricing concession, if you think about -- we've got fixed component and amortization component. We've got some variable cost components. Typically, what we try to do is to offset if the units do go on a standby for a short period of time, a month or two months or three months, that we try to just basically offset the loss of the variable costs that we would cease to incur by change in the lube oil and change in spark plugs and having people have to go out and fix and repair and operate the equipment. So it's not hugely material and, again, would tend to be relatively short cycle.

TJ Schultz -- RBC Capital Markets -- Analyst

OK. Thank you guys.

Eric D. Long -- President and Chief Executive Officer

Thanks TJ.


We'll go next to Praveen Narra with Raymond James.

Praveen Narra -- Raymond James -- Analyst

Thanks. Good morning guys and I apologize if I missed this. But I guess, first, thank you very much for providing guidance. But can you guys give us a sense for embedded in that guidance what kind of utilization you're looking for and how that compares to today?

Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer

Yes. Praveen, we don't -- I mean, I would say we don't give out utilization guidance per se. How we went about that guidance and sort of that revision was looking at -- basically what we had learned over the last two months in terms of stop notices and some of the standby actions, etc. So that was kind of our -- more so from an assumed utilization, that was kind of an actual -- almost unit-by-unit evaluation, if you will. So I would think, overall, I think, adding on TJ's question last time, we kind of were kind of top to bottom, probably 7% to 8-ish percent of utilization degradation. So we haven't gotten there yet, but that's why we took the approach we did kind of on an actual basis -- actual unit basis with the thought of, as things progress through the year, as we get a little bit of this more uncertainty behind us, we'll be able to obviously revise that, if needed.

Praveen Narra -- Raymond James -- Analyst

Right. OK. And then if I could understand the standby process a little bit more. It doesn't sound like your contracts -- it doesn't sound to me like your contracts have defined standby terms in them, and that is more of a negotiation. Is that the correct way to interpret it, or are these largely happening on the month-to-month contracts or month-to-month units that are out there?

Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer

Yes, Praveen, it's Matt. I would say, typically, our contracts have a standard -- our standard standby is around 75% of the base rate. And so in that -- at that level, to Eric's point earlier, at that level, you're sort of earning -- without all the expense that goes along with it, you're sort of earning your gross margin or even better in a lot of cases at that level. So that's kind of how we've structured it, I would say, typically.

Praveen Narra -- Raymond James -- Analyst

No, that's super helpful. And if I could just squeeze one more in. You mentioned the number of units that are contracted on a month-to-month basis. Can you give us a sense of how much of your units come up within the next year and how we should think about that?

Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer

Over the next year, in terms of rolling off? I think -- I don't know that we give out that exact number, Praveen. The way that we have historically thought about it, though, is if you go back the last seven years plus, 10 years or more, we've always been kind of in that 40% to 50% month-to-month range. We've termed up -- really since the CDM acquisition, made a big effort to term up as much as we could. That kind of got us up to or down to a -- we were below 30% month-to-month. Now we're kind of 35%. I think you're going to kind of stay -- I wouldn't be surprised if that drifted up a little bit, just given the current market, which again, people aren't knocking down our doors to term up contracts. But again, in six months, we may be in a different marketplace, where all of a sudden, things swing again. So it's hard to see it going to 50% month-to-month over the next couple of quarters.

Eric D. Long -- President and Chief Executive Officer

Praveen, this is Eric and the reason I went off of my physics discussion in the middle of the discussion was to really further illustrate the stability of this big horsepower business, because these machines are designed to be -- have six to 10 machines on a location. We may be moving 100 million to 200 million cubic feet a day and when you start to look at where these facilities are installed, these are kind of regional hubs where there's lots of production that's feeding into these areas. It's not just a well or a pad site, it's major gas handling facilities. And even in the Permian and the Delaware Basin, these facilities have been installed four, five, six years ago. So we're beyond the flush production stage. These are guys now that are kind of on cycle projects. They're relatively stable volumes. So to the extent that there's no new drilling activity or declining drilling activity or reduced drilling activity, what you're going to see are the volumes continue to kind of slowly, methodically decline, but you're also going to see reservoir pressure slowly, methodically decline, and that's going to require more and more horsepower.

So I think we tend to get caught up with, oh my gosh, you got short-term contracts, commodity price is down, volumes are declining, no new drilling activity. Yes, that's great. But that really drives our growth model, not our stability model. In the world we're living in today, where new activity has slowed back down, volumes might start to decline, pressures decline, holy mackerel, to keep the same volumes moving or even declining volumes as pressures decline, the horsepower stays the same or maybe even ticks up a little bit.

So that's why we're much more optimistic about our model versus the small wellhead guys, or even guys with big horsepower. A couple of our peers have migrated into big horsepower recently, but they've got eight units here or two units here. They don't have these mega facilities with the extra super big horsepower like we've got which really are major gas-handling projects, major cycling projects, major infrastructure projects that are installed for the long-term duration. People that have commodity hedges in place. People that have firm transportation agreements in place. Major oil companies that, yeah, they're backing off on new growth capex, but they're still spending some growth capex, and they're continuing to promulgate and continue to move base hydrocarbons.

Praveen Narra -- Raymond James -- Analyst

Great. That's extremely helpful. Thank you very much guys.

Christopher W. Porter -- Vice President, General Counsel and Secretary

Thanks Praveen.


And there are no further questions in queue. I'd like to turn the conference back over to Mr. Eric Long for any additional or closing remarks.

Eric D. Long -- President and Chief Executive Officer

Well, thanks operator. With a solid first quarter behind us, we are navigating through some uncharted waters right now. There are many things we do not yet know regarding how exactly things will shape up, but the industry and our customers have always been able to adapt to changing environments. Our business is built on natural gas demand, and we believe that positions us well for an eventual recovery.

We believe that both the underlying stability of our large horsepower infrastructure-focused contract compression services business model and the science behind the need for compression and the interplay between pressures and volumes will be a key point of positive differentiation, as we work through this downturn.

We will continue to keep our focus on the things within our control, including prudent capital spending and cost controls throughout the organization. And while we are hopeful for a recovery sooner rather than later, we have taken the necessary actions to weather the storm and come out on the other side. From past downturns, we have learned that we have lots of levers that we can throw, if and when we need to, depending on how this downturn plays out.

Thanks for joining us, and please be safe. We look forward to speaking with everyone on our next call.


[Operator Closing Remarks].

Duration: 42 minutes

Call participants:

Christopher W. Porter -- Vice President, General Counsel and Secretary

Eric D. Long -- President and Chief Executive Officer

Matthew C. Liuzzi -- Vice President, Chief Financial Officer and Treasurer

TJ Schultz -- RBC Capital Markets -- Analyst

Praveen Narra -- Raymond James -- Analyst

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