Liberty Oilfield Services Inc. (LBRT) Q4 2021 Earnings Call Transcript

Liberty Oilfield Services Inc. (LBRT 1.27%)
Q4 2021 Earnings Call
Feb 09, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Liberty Oilfield Services fourth quarter and full year 2021 earnings conference call. [Operator instructions] Please note that 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 risks 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 risks and uncertainties that are detailed in the company's earning lease and other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA and pre-tax return on capital employed and 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, the calculation of pre-tax return on capital employed as discussed on this call are presented in the company's earnings release, which is available on its website.

I'd now like to turn the conference over to Liberty's CEO Chris Wright. Please go ahead.

Chris Wright -- Chief Executive Officer

Good morning, everyone, and thank you for joining us today to discuss our fourth quarter and full year 2021 operational and financial results. In 2021, we focused on the integration of OneStim and its customers into Liberty. In the recent downturn, we acquired OneStim to strengthen our platform and technology portfolio, which positions us well for today's rising tide and all future cycles. In our 11-year history, we have seen two deep downturns, 2015 through 2016 and the recent COVID collapse, and we have executed transformative transactions during both of them.

In 2016, at the bottom of the downturn, we invested aggressively, both in acquiring Sanjel's assets and in upgrading them to Liberty's quality. We also launched our breakthrough Quiet Fleet technology in 2016. These investments set the stage for the outsized returns that we reached in the years ahead. Investment decisions at Liberty are always made with a long-term time horizon.

Business integrations are always challenging, and this time was exacerbated by COVID impacted supply chain and difficult labor challenges. However, the OneStim prize was large and our team worked at overdrive to bring nearly 2,000 new members into Liberty while continuing to deliver superior service performance to all of our customers, both legacy and new. Our top priorities in 2021 were our customers, our team members, and the safety of everyone that touches Liberty. 2021 was a record year for Liberty -- work performed, whether measured by revenues, frac stages, pounds of sand pumps, etc.

We also set many operational records during 2021. Record sand pump in a day by a single fleet was raised several times, including again in January of 2022, zero OSHA recordable incidents in our Wireline Business, and 75 hours of continuous pumping on a plug and perf pad. All of this was achieved in challenging times and executed with our best safety performance ever. We are only going to do this integration once, and we are going to do it right to the best of our ability.

We were simply not willing to sacrifice customer service, employee satisfaction, and safety, each of which is critical to long-term financial success for the sake of short-term financial results. Integration-related costs are still with us today, impacting our bottom-line results. However, January was a very significant turning point in moving these cost pressures behind us. We very much like where we sit today.

2021 revenue grew to $2.5 billion and EBITDA was $121 million, both are more than doubling of our 2020 results, but still representative of early cycle conditions. Fourth quarter revenue was $684 million, a 5% sequential increase over third quarter, on robust activity, offsetting weather, and holiday seasonality. Fourth quarter adjusted EBITDA was $21 million, pushed down by over $20 million of contingent integration costs that will soon be behind us. Michael will provide more color on the magnitude and nature of these integration costs.

The transformative work our team accomplished in 2021, positions us well as our industry begins an upcycle, driven by rapidly tightening markets for oil and gas. Seven years of subdued global investment in upstream oil and gas production is now colliding with record global demand for natural gas and natural gas liquids and likely record global demand for oil sometime later this year. Oil and gas are central to the global economy, which is well along the way of recovering from the global pandemic. A severe energy crisis that has racked Europe over the last several months demonstrates the danger of underinvestment in our industry.

E&P customers are responding to the oil and gas prices. The publics are maintaining tight discipline and will show only very modest production growth this year. The privates on the other hand, are reacting more robustly to strong commodity prices. Within the frac market, two years of supply attrition and cannibalization, plus limitations from labor shortages and a secular shift toward next-generation frac fleet technologies has led the tightest in the frac space.

Liberty has focused on finding the right long-term partnerships for the coming years, and we have been very disciplined in holding our frac fleet count steady until returns are strong. We are, however, investing to build truly differential competitive advantages in frac fleet technology, digital systems and logistics optimization, all to enable Liberty to continue our historical track record of well above S&P 500 average returns on capital invested. Competitive advantage is the name of that game. We expect that our investments today will lead to strong returns in the coming years.

Let me elaborate a little more about the areas where we are investing today. Frac fleet technology, we talked about quite regularly, so I will be brief on that one. Liberty's focus is to bring the two best technologies available, Tier 4 DGB with automated controls to maximize gas substitution for diesel and Liberty digiFrac that will set a new industry bar combining the lowest emissions in the marketplace, together with superior pump performance, reliability, and cost-efficiency. The modularity of our high thermal efficiency natural gas reset power production systems allow a phased deployment of digiFrac fleets as they are 100% compatible with our existing fleets.

DigiFrac pumps and gas resets will start deploying into our frac fleets early in Q2. We plan to have at least two complete digiFrac fleet operational this year. We displayed digiFrac at the SPE frac conference in Houston last week, and industry interest remains exceptionally high. Repairs and maintenance for frac fleets are both a very large cost driver and absolutely critical to delivering safe, high-efficiency frac services.

Liberty has been a leader in this area. However, integrating new team members from OneStim who were using different maintenance systems and procedures led to significant inefficiencies during integration. The downside of this are readily apparent in our compressed margins in the second half of 2021. But this is also an area for huge improvement going forward, bringing together legacy Liberty Technologies with OneStim plus the combined team's ongoing development efforts will dramatically improve our performance.

The early stages of that are already visible in January's results. Success in R&M is controlled by teamwork across operators, supervisors, and mechanics and also by processes, technology, and parts. We have enhanced our continuous equipment monitoring program with additional sensors to help reduce premature failures and guide optimal preventative maintenance. We are just introducing a virtual equipment digital twin model for each frac pump that helps drive the minimum cost of ownership for each and every pump.

Increased data and reporting across all Liberty Crews is empowering everyone to take ownership of their work. We've already seen meaningful improvements. Although we are not back to our historical rates yet, of course, our goal is to perform across the whole company at levels well above our historical level. We are also launching an in-house logistics management center that is built around large-scale upgrades to our current profit planning execution model.

The recent sand bottleneck challenges in the Permian Basin, both of sand availability and last mile transportation, highlight the importance of this initiative. We've already begun the integration of our PropX PropConnect software into our Oracle transportation management system to further modernize last-mile delivery, enable our driver QuickPay initiative and bring significant improvement to route optimization. Like repairs and maintenance, sand and logistics represent both a large spend and a critical link in the chain of operational efficiency and safety. Liberty's expanded team and technologies with the addition of PropX should drive large improvements in efficiency, safety, and costs.

Our forecasting progress and quick pay initiatives should help attract the best trucking partners and long-term loyalty. Liberty's legacy is developing and deploying technologies that help maximize returns for our customers and hence mutually beneficial long-term partnerships. Wet sand handling is at the forefront of disruptive technology in the processing and delivery of sand, and we're excited about the work we are doing in PropX. This ESC brightly solution removes the need to drive sand at the mine, thereby removing the highest emitting step in the processing of sand.

It further enables smaller scale, localized wet sand mines to carry a smaller footprint by moving mining operations closer to the wellhead. PropX already has multiple active contracts in 2022 to support mini mines that lower the total delivered cost of sand and meaningfully reduce environmental impact by eliminating the drying process and perhaps the biggest of all reducing trucking needs. We estimate that a 10-mile distance from a local mine to the pad could reduce trucking requirements by over 70% when compared to an 80-mile haul. This is game-changing in key basins.

Let me touch on our outlook. We expect high single-digit revenue growth sequentially in the first quarter and significant growth in our margins as integration costs start to pay away. We are benefiting from increased pricing in 2022, driven by a pass-through of inflationary costs and higher net service pricing. We expect continued rises in frac pricing in subsequent quarters.

We also expect margin growth as our new strategic efforts began to pay dividends in lowering our cost of operations and increasing efficiency. We are excited about the opportunity ahead. We have a macro tailwind together with high-quality customers eager to improve their operations and ESG profiles. Every day, we ask ourselves, how can we deliver a value proposition that is compelling for our shareholders and customers through commodity cycles.

With that, I'll turn the call over to Michael to discuss our financial results in more detail.

Michael Stock -- Chief Financial Officer

Good morning. As we discuss our results in detail and look to the future, I find that it's always good to view them through the lens of how we manage Liberty to focus on shareholder returns through the cycle. At the bottom of the cycle, we look for the opportunity to invest to create maximum benefit from a longer runway to capture returns. Liberty at its core is an organic growth company, but we are always looking at into opportunistic acquisitions, especially with the technology benefit that increases our competitive advantage.

In the COVID downturn, we found two unique opportunities with the acquisitions of OneStim and PropX. OneStim, allowed us to become the second-largest completion service provider with a scale and technology. That positions us to navigate through the next decade. In our first year with OneStim, revenue increased 156% to $2.5 billion from $966 million in 2020.

We added new basins and complementary sand and Wireline businesses. We expanded on Liberty's already strong customer relationships and added historical OneStim customers to the family, introducing them to Liberty difference. This expansion and integration was executed during a pandemic and unprecedented supply chain disruptions. There is a cost to build platforms that we use to expand long-term shareholder returns that have a negative effect for 2021 financial results.

Net loss for the year totaled $187 million or $1.03 per fully diluted share. Full year adjusted EBITDA was $121 million, compared to an adjusted EBITDA of $58 million in 2020. The cost of integration once the businesses that we acquired at the start of the year was amplified by supply chain and labor constraints and the impact of legacy OneStim fixed-price customer contracts. There were decremental margins in an inflationary environment.

We estimate higher equipment makes the costs from third-party management of sand mines and carrying cost of idle equipment negatively impacted full year results by 150 to 200 basis points. We also moved forward our legacy OneStim cruise to two and two schedule, an initiative that truly supports the Liberty culture and our employee engagement and advances our premium service offering over the long term, but was completed at a time when we were managing through a weak price environment, unfavorable legacy contracts and integration and efficiencies. In the fourth quarter of 2021, revenue was $684 million, a 5% increase from $654 million in the third quarter. What stands out here is that we grew our top line despite seasonal weather and other impacts.

Almost every basin saw an uptick in business as our crews achieved a high level of efficiency offsetting seasonal headwinds. I'm impressed with our team's ability to grow the business in this environment, their crews for keeping our operations efficient, while handling the integration. Net loss after tax was $57 million in the fourth quarter, compared to a $39 million loss in the third quarter. Fully diluted net loss per share was $0.31 for the fourth quarter, compared to $0.22 loss in the third quarter.

Results included $7.6 million of nonrecurring expenses, including transaction severance and other costs of $3 million, complete start-up laydown costs of $2.8 million and a loss on disposal assets of $1.9 million. General and administrative expenses totaled $35 million, including non-cash stock-based compensation of $3.6 million. Net interest and other associated fees totaled $4.1 million. Fourth quarter adjusted EBITDA was $20.6 million, compared to $32 million in the third quarter, reflecting the full base integration, supply chain cost inflation and moving our operations to a two and two schedule.

In the fourth quarter, we estimate integration costs, including elevated parts replacements primarily on legacy OneStim equipment reduced margins by over 200 basis points. The good news is that we instituted the measures in October that Chris described earlier that already showed improvement in December and continued further in January. We also moved our final crews to turn to schedule, with similarly impacted EBITDA by adding an additional shift to legacy OneStim frac and Wireline crews. These two dynamics work hand-in-hand by fostering a bit work-life balance, this drives the increased level engagement and translate into greater efficiency, better here for our customers and our equipment.

The return to our historical superior efficiency utilization levels in 2022 will support the returns on the investment in moving the crew to schedule. Over the past few months, we have also put our contracts under the lens to assist opportunities for improvements, both us and our customers. We inherited some contracts with largely fixed -- fixed pricing, which in a rising inflationary environment represents a drag on margins. And in some cases, we generated losses on our bottom line as it integrated.

For instance, one customer accounted for a $5 million EBITDA drag in the fourth quarter due to a legacy OneStim contract did not reset the underlying inflation or the additional cost of higher pressure designs on our equipment maintenance. However, it's been a great opportunity for both us and our customers they have a collaborative engaged dialogue and have all the things better. We put our sales, engineering, operations, supply chain, and financing together to work alongside our customers, finding ways to recalibrate operations that will ultimately lead to a win-win for both parties. We ended the year with a cash balance of $20 million and net debt of $102million.

At year-end, we had $18 million of borrowings on the ABL credit facility. Total liquidity and the availability of the credit facility was $269 million. Net capital expenditures totaled $174 million on a GAAP basis in 2021. As we partially offset our capital investment in the east generation equipment for the upcoming cycle with the planned sale of assets.

We were able to capture $25 million in synergies from asset sales, primarily related to monetizing of legacy OneStim assets that were not core to our operations. Gross capital expenditures were $199 million, consisting of $140 million of maintenance capex, approximately $20 million for citation, and approximately $40 million of Tier 4 DGB upgrade, digiFrac and other investments in technology. With the majority of the heavy lifting of integration behind us, we are excited by the opportunity ahead. For the first quarter of 2022, we're expecting strong sequential improvement on higher service prices, at activity and lower integration-related costs.

Frac service prices have been increasing meaningfully and with much of the change in her EBITDA in January. Our customers are understanding that the fast pace inflationary environment, coupled with the roll-off of pandemic discounts we received from our vendors, require higher service prices to meet those costs and more importantly, to restore reasonable returns to the service center. Pricing is still below pre-pandemic levels, but moving in the right direction. We also anticipate the utilization in Q1 following the fourth quarter seasonality impacts.

Lastly, the combination of maintenance and logistics actions we've taken will provide tailwinds in the month here. We see 2022 as an ideal opportunity to reinvest the easy part of the cycle to maximize free cash flow over the site. In 2022, capital expenditures are targeted to be in the range of $300 million to $350 million with the optionality to adjust as the year holds. At the midpoint of this range, it includes maintenance capital of approximately $130 million for frac while on sand.

Next-generation technology investment included digiFrac, with third generation systems, customer demand-driven Tier 4 DGB upgrades with sand handling technology and other margin-generating investments is projected to be approximately $225 million. This is offset by approximately $30 million in facilities, rationalizing our equipment and footprint with legacy OneStim assets. We have significant flexibility in adjusting our capital spending targets depending on customer demand. Our returns expectations and we plan to be free cash flow positive for 2022, while investing in our long-term competitive advantage.

Looking forward, we're excited for the coming years as we move forward to a robust site. We entered 2022 with a sustained focus on technology innovation and investing to build a truly differentiated business with a competitively advantaged portfolio. This is foundational to our commitment to a value proposition, designed to reward shareholders and stakeholders alike through the sites. I will hand the call back to Chris for closing remarks before we take questions.

Chris Wright -- Chief Executive Officer

The underinvestment in oil and gas over the last seven years is starting to bite. Most probably, we see this via the energy crisis in Europe that is also making for significant challenges in Asia. Global LNG prices are so high right now that many fertilizer plants sit idle. This is not good.

Fertilizer prices are elevated, and this spring, we will see many fields with reduced fertilization, which inevitably leads to reduced crop yields and further pressure on basic foodstuff later this year. Society cannot drive without a robust energy supply. Yes, the last decade has seen a disproportionate amount of the shale revolution gains going to energy consumers. We can and should be proud of the benefits global consumers have reached.

Our industry in the last 10 years have brought more pain than gain, but that pendulum is swinging hard now. The industry is poised for years of strong returns, especially for the leaders and those that remain focused on winning in the long term. Operator, we are now ready to take questions.

Questions & Answers:

Operator

[Operator instructions] First question comes from Arun Jayaram from J.P. Morgan Chase. Please go ahead.

Arun Jayaram -- J.P. Morgan -- Analyst

Yeah, good morning. My first question is I wanted to see if we could walk through how you think the margin progression will be in 2022. If we add back some of the integration expenses that you outlined in the press release, your 4Q EBITDA margins would have been in the 6% range. And that's a -- and some of your peers who provided color on 4Q are probably in the low double-digit range.

I know you're still dealing with some integration things. But I was just wondering if you could help us think about how you think your EBITDA margins could trend this year? And maybe give us a little bit of color of the turn you saw in January.

Chris Wright -- Chief Executive Officer

Hey, good morning, Arun. I mean, as we move forward, we will see a roll-off of the integration costs through Q1. They'll be sort of relatively low while we expect by the early part of Q2. So we'll see margins improve as we see them improve through Q1, Q2, and as more price increases as we go into the second half.

So yeah, I expect the margins to get back to sort of what we would consider a [Inaudible] increase as we go through the year.

Arun Jayaram -- J.P. Morgan -- Analyst

And any more color, Michael, on just thoughts on percentages. Do you expect to be in the double digits as an EBITDA margin this year? 

Chris Wright -- Chief Executive Officer

Yes.

Arun Jayaram -- J.P. Morgan -- Analyst

OK. OK. Fair enough. And then just my follow-up.

On capital, you guys released an updated view of $300 million to $350 million for capital. I think I heard you at $225 million of growth and $130 million so maintenance. Can you provide us a little bit more details on the growth capex. I assume that some of that is the digiFrac fleets.

But just give us a little bit of color on your growth capex plans this year.

Chris Wright -- Chief Executive Officer

Correct. The largest -- by far the large side of the day is the digiFrac plates that are under contract to customers. We have some completions in the first half of this year, which is going to be Tier 4 DGB upgrades. The numbers of those customers that are upgraded to Tier 4 with us incremental margins and returns that they will provide.

The capex itself on the growth side is going to be front-end weighted. If you're looking to model that, I would say, it's probably significantly frontal the year and we'll adjust as we go through the returns and look at clients and returns for any commitments, any additional commitments to digiFrac they want to make.

Michael Stock -- Chief Financial Officer

When we say growth, this is an incremental frac fleet. This is not really growth in the margin. These are incremental upgraded products, things that drive better efficiency, things that command a premium from customers. So growth doesn't mean new frac fleets.

It means new technology to build our competitive advantage.

Arun Jayaram -- J.P. Morgan -- Analyst

Great. Thanks for clarifying. Appreciate it.

Operator

Thank you. Our next question comes from Ian MacPherson of Piper Sandler. Please go ahead.

Ian MacPherson -- Piper Sandler -- Analyst

Thanks. Good morning, Chris and Michael. If we're solving for full year EBITDA from your free cash flow and capex guidance and other pieces on the edges, do you get to that level of EBITDA growth on what kind of activity expansion, we did see that you had some fleet start-up costs itemized in Q4, which I know you had a pretty flat fleet cadence throughout most of last year. Is that -- is the plan to ramp up into the mid or exit the year in the high 30s of active fleets? Or could you talk to that as a component of the outlook?

Michael Stock -- Chief Financial Officer

The Q4 start-up cost was actually reactivating one fleet in the [Inaudible]. So there was that one addition. At the moment, the plan is still staying relatively modest on fleet additions with the upgrades and driving the idea being to drive significant extra margin [Inaudible] at this present point in time.

Ian MacPherson -- Piper Sandler -- Analyst

OK. So the framework you've guided does not really assume a great degree of net fleet growth activity year over year. Is that -- did I hear that correctly?

Michael Stock -- Chief Financial Officer

That is correct. That is not the base framework for the year. But obviously, in the changing market, we adjusted the market and customers are looking [Inaudible].

Ian MacPherson -- Piper Sandler -- Analyst

OK. That's helpful. Thanks. My other question, we're hearing from everywhere that the pricing surge in frac has become broader, and it's encompassing the full spectrum of assets, even conventional Tier 2 pricing is moving along with everything else.

Given that, I assume there's also probably a surge in customer appetite to engage in longer-term contract agreements. Can you speak to your appetite on that side of the commercial framework? And if you're at -- getting to the point now on leading-edge pricing, where you're willing to lock in longer-term agreements apart from what you're doing on digiFrac?

Chris Wright -- Chief Executive Officer

That is correct, and that is true. The customer demand today is strong. And with the attrition of supply over the last two years, even at the start of this year, we have a pretty tight frac market. So for us, it's -- the contract matters, but it's far more than just contracts, right? Counterparty matters hugely.

Who is your partner, who are you committing long-term to a partnership with. But your point is absolutely correct. There are people that are keen to make sure their needs are met, keen to have the right partner, and we are entering into some longer-term contracts. And some of those, as you implied as well, are not for next-generation equipment.

Ian MacPherson -- Piper Sandler -- Analyst

Interesting. Thank you, Chris. I'll pass it over.

Chris Wright -- Chief Executive Officer

You bet. Thank you.

Michael Stock -- Chief Financial Officer

Thanks, Ian.

Operator

Thank you. And our next question comes from Neil Mehta of Goldman Sachs. Please go ahead.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning, team, and thanks for the comments. The first question is really on the expense side. And can you help us understand what happened in the quarter and what the $20 million was specifically used for -- as you talk about integration costs. I'm guessing a lot of that was about securing and compensating labor.

And how much of that carries forward versus is one-time in nature? Because it's been a couple of quarters now where we've seen costs surprise us to the upside?

Michael Stock -- Chief Financial Officer

Yeah. Thank you. No problems. Of that $20 million that you're discussing in Q4, actually probably about three-quarters was related around equipment.

If we step back a little bit through the beginning of the integration, we moved the OneStim team in under the full of the umbrella in Q2, and then that's where we've got some integration issues, which is changing the make of the systems, changing the systems [Inaudible] works together and the integration side is the problem. The cost of that generally turns up about six months later than you cost them running equipment, right? So if you're not changing valves or seats quick enough and some of that's here and the historical way that you've done business. So the slide of those costs really started turning up at the time in September, October, and November time frame. And as we got through the summer and integration got smoother, we're starting to see those numbers roll off in December and January, right? So I think that's a slight of equipment costs was a good chunk of that.

There is also a significant amount of the cost for the two and two schedules over and above that was running through Q4 and that is definitely not going to continue on into next year. But the difference of that is now that those teams are almost two and two and contracts are resetting and the efficiency of the way these teams are working together, they're getting back to what was traditional limit efficiency. And as customer contracts are resetting, we're going to get a return on that extra personnel investment. The actual first investment was a big drag on the second half year cost structure and will be -- we will provide returns as we go through into this year.

So yes, I think we'll see the full effect of all those personnel costs and most of it was in Q4 and now that comes part of our current run rate, but contracts have reset the efficiency rate [Inaudible] to support that -- so I think that's where that is. We'll see there -- we're starting to see the R&M, the slide of cost that relates to some of the longer lives, some older equipment that was delivered to us and the way those was run, which is a drag on cost structure in especially the latter part of the fall and the early part of winter.

Neil Mehta -- Goldman Sachs -- Analyst

Just as we calibrate our models, if we saw $20 million in the fourth quarter, is it fair to assume there's going to be minimal impact here in the first quarter as it relates to integration?

Michael Stock -- Chief Financial Officer

Yeah, in regards to integration, we're still going to have some costs as we see some of the FX. There is some costs of some leased equipment that passed on from Schlumberger there's no use that that will still stay on the lease cost. That will be in the sort of $1 million to $3 million in a quarter range. And we'll still see some wastages of that equipment cost run in Q1 as well.

So that's where I sort of think you're going to see an incremental improvement in margins in Q1 and then another steep change in Q2.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks, Michael. The follow-up is -- and this is one that might be tough to just opine on, but obviously, Schlumberger owns a substantial amount of the shares, and we've seen them start to make movements around monetization. You guys have a really strong balance sheet, recognizing there's some calls on free cash flow in the near term. Is there anything you can do to offset potential technical pressure to the extent that they do elect to monetize their position?

Chris Wright -- Chief Executive Officer

Yeah, Neil. Capital allocation is certainly at issue and a central issue here, but we're always evaluating all the trade-offs and decisions made there, and certainly, yeah, certainly won't provide any guidance or comment on it, but I certainly know what you're hinting at. And I should comment as well. Look, -- we feel very comfortable about the decisions we've made in progressing through this integration, and we're quite pleased with where we sit today.

Do we wish we had had a better crystal ball and then further ahead in seeing the cost impact of some of those decisions? Yeah. We have gained confidence in us over the last few months? Yes. Would we do anything different in the long-term decisions? No.

Neil Mehta -- Goldman Sachs -- Analyst

Thanks a lot, Chris. Appreciate it.

Chris Wright -- Chief Executive Officer

Thanks, Neil.

Operator

Thank you. Next question, Chase Mulvehill, Bank of America. Please go ahead.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, everybody. So I guess the first question, obviously, you've got sand in the portfolio today. We've heard of sand tightness in the fourth quarter and continue into this year. Sand prices are $40 a ton or so.

It's kind of what we're hearing in the Permian Basin. So I guess maybe can you talk to how much sand either you're selling externally or using internally and the tightness of sand and how that's impacting your business?

Ron Gusek -- President

Chase, this is Ron. Yeah, I'll certainly delve into that a little bit. I think from our standpoint, we went into the sand business, obviously, recognizing there was some real benefit for Liberty and having those couple of mines available to us. And so yeah, some amount of that capacity is dedicated specifically for Liberty fleets and the support of our customers that we are working with.

But some amount of that sand on those mines still remains sold directly to customers that may not have a Liberty fleet working for them. So we have relationships on both sides -- and expect that to continue going forward. That said, having that capacity available to us has provided us maybe some additional support we might not have had in the past relying solely on third parties. So I think it provides us a little more flexibility in terms of how we've been able to manage our supply chain through these challenges.

We still have a number of great third-party providers, partners that have been partners of ours for a long, long time on the sand supply side, and I don't expect that to change. We -- those strong relationships are critical to us. Multiple legs on a stool makes for the best stability. So that's the way we continue to look at it.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

OK. Perfect. And a follow-up here. I'm not sure that I'm going to get very far with this, but I'm going to trough, but if we look at the fleet level profitability and look at -- and then split the fleets between OneStim and legacy Liberty fleets, I guess, first, is there a difference in profitability if you squint and look at the averages between the two? And if there is and OneStim profitability is lower, can you tell us kind of what are the action items that you need to take to improve the OneStim profitability?

Michael Stock -- Chief Financial Officer

Yeah, Chase, I mean I'll take this one. Yeah. But I think if you look back to last year, yes, there was a difference. And really, a lot of that was legacy contracts.

You've got to remember, we closed this deal on December 31, right? So mid-season for this year, Liberty and Schlumberger were bidding against each other, the deal has been announced. And so the Schlumberger I think we sort of really had to fill up work with one hand tied behind their back, obviously, because sales couldn't talk. We couldn't depend on those, right? And they, obviously, in the customers view that they were being subsumed by [Inaudible]. So I think those contracts were the biggest trade, not necessarily the fleets themselves, right? The cost of operations due to the fact there's a deferred maintenance and that when we look back in the rearview mirror, was higher on those legacy blue fleets fairly significantly.

And I think part of that was the green take states they came with. They came with high hours and higher usage numbers, right? So I think the -- between the capitalized maintenance and the cost of operations on maintenance was higher on blue versus red last year. I really -- that's not something that we would expect going forward as we get through the middle part of this year and going forward, that slug of costs that relate to sort of the fact that there was a year and a half at sales and deferred maintenance and it had to be green tag, but there's a little of where Liberty had done their historical maintenance and where we're having our fleet ready to go versus we transfer our fleet into a new owner. So that is a cost training as well for last year.

So as we go forward, though, no, we don't expect to really see that difference. -- differences will be driven by technology.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Got it. Got it. It all makes sense. Thanks, Michael.

Thanks, Ron. I'll turn it back over.

Operator

Thank you. And the next question, Scott Gruber of Citi. Please go ahead.

Scott Gruber -- Citi -- Analyst

Yes, good morning. So a question on the pricing traction. We are in similar anecdotes of a broadening of pricing improvement. The rate of change on the legacy Tier 2 equipment, is that now moving at a similar pace to what we've seen to date on the ESG [Inaudible]? Or is that still lagging in terms of kind of rate of change?

Chris Wright -- Chief Executive Officer

Right now, I think the rate change is moving at a similar pace. There's still that significant delta across the portfolio. But yes, all types of fleets have moved up meaningfully.

Scott Gruber -- Citi -- Analyst

Gotcha. And then at the current pricing, what type of payback would you expect on the DGB fleets?

Chris Wright -- Chief Executive Officer

It's relative -- it's quick. I don't know if we want to give any more color than that, but we have been about for our whole history of win-win deals. We can bring something better to our customers and achieve objectives for them. They save money just from displacing diesel with natural gas, as well as getting lower emissions.

And we deploy capital and we get strong returns on that deployed capital. And we also bring technology to that to get higher substitution rates and safer substitution of processing inverting gas on location.

Michael Stock -- Chief Financial Officer

Yeah. I'll add a little bit to that one and say, we look at millions of all of our investments. If you look at our historical results, right, we've averaged -- inter returns than the average of the S&P 500. And for a cyclical industry, you need to provide those returns to provide the value to shareholders.

And every new technology investment, we look through that lens and aim at that same target or better of what we've historically done. So I think that's the key thing here. whether it's a Tier 4 DGB upgrade, a digiFrac or an investment in a new version of iron control systems, etc., they all have -- they all go through the same lens of financial return metrics. That is what they need to provide.

Scott Gruber -- Citi -- Analyst

Got it. And then just a quick one, again, if you think about kind of the EBITDA, the free cash conversion, anything to note on the working capital line, Michael?

Michael Stock -- Chief Financial Officer

No. I think working capital, as we go through, we're going to see growth. We see growth in the top line and expansion of margins. But obviously, with growth in the top line, that will be a slight win that will be a use of working capital.

We'll build in receivables. -- really, the working capital generally moves in conjunction with our revenue top line growth.

Scott Gruber -- Citi -- Analyst

Should we expect kind of static days or improvement in days?

Michael Stock -- Chief Financial Officer

Yeah, about -- Scott, I think generally, our days have been relatively similar to the last five years. But on a quarterly basis, they can move around depending on our customers are, but they are generally static days. The only other big mover there is probably the accrued capex number anything capex-wise that we received like at the end of the quarter can move your payables number per GAAP, that gets reclassed from capex to [Inaudible] free cash. So that's when you read the balance sheet, that will be there.

So we received a large number of sort of cash generation equipment on the last week of March, that wasn't paid yet, and there will be a sort of a bump up of the BPO day. So that can move around $30 million to $40 million every quarter easily. So other than that, no real change for the actual business.

Scott Gruber -- Citi -- Analyst

Got it. Appreciate the color. Thank you.

Operator

Thank you. And the next question comes from Waqar Syed, ATB Capital Markets. Please go ahead.

Waqar Syed -- ATB Capital Markets -- Analyst

Thank you for taking my question. Mike, in terms of the normalized margins, could you provide some guidance on the timing of that? When do you expect to achieve that? And given all the price increases that you're seeing and the strength in the market, you see that time line to achieve normalized margins move forward? Or is it still kind of at the same level as previous guidance?

Michael Stock -- Chief Financial Officer

It's sort of previous guidance. I think you're going to see the additional costs roll off in the first half of this year and getting back to more normalized margins as we get through the second half of the year. As I say, again, is -- if you think about the integration is sort of an 18-month process, right, I think they will be running out of the system by 2H.

Waqar Syed -- ATB Capital Markets -- Analyst

OK. And then just a broader macro question. Would you guys care to comment on the supply/demand dynamics? How many fleets are currently working in the U.S. and Canada? And where do you see the demand is? And what do you expect the trend to be in the coming quarters in terms of demand?

Chris Wright -- Chief Executive Officer

Sure. Waqar, I'll do that. So we completely have an internal bottom-up frac fleet count. We haven't shared the detailed numbers of it yet, but he's been a great new thing for us to know what's going on across all the basins.

And it is a trailing account up to today and also includes the projection for what customer dialogues are and what plans are. So in real numbers, I'll say, frac fleets active right now. It is in the low 200s, but meaningfully over 200. At that frac fleet level of activity, that leads to production growth.

Production growth in natural gas, production growth in oil, production growth in NGLs, not monstrous but meaningful. And from the plans we know of today, there's probably another 10% growth in active frac fleets from where we are today to where we'll -- late this year. So it's not a huge upward pressure in frac -- new fleets going to work, but it's meaningful. And when you go into an already relatively tight market, the pricing impact of that will be not insignificant.

Waqar Syed -- ATB Capital Markets -- Analyst

But the industry itself is adding some new capacity as well, including yourself. Do you think that delta incremental demand is being met by the incremental supply that's being added?

Chris Wright -- Chief Executive Officer

So those are probably of similar magnitude, but the offsetting thing is that no new fleet does not mean the frac fleet count is stacked. Even putting an optimistic Liberty running of an asset, maybe you've got a 10-year asset. So 10% of that capacity is going to disappear every year. So the proxy additions we have this year, they're probably of order offsetting the shrinkage of the frac fleet, making not even offsetting probably not even offsetting the shrinkage of the frac fleet.

So you still have a late year where demand is higher than it is today and capacity is probably flat at test, maybe down a little bit.

Waqar Syed -- ATB Capital Markets -- Analyst

Interesting. And just one final thing. Any commentary on the Canadian market?

Chris Wright -- Chief Executive Officer

We love Canada and Canadians like Ron, but [Inaudible].

Ron Gusek -- President

Waqar I don't think anything dissimilar to what Chris' comments were from a broad scale standpoint. I think we remain optimistic in the Canadian market as well. I think we're going to see growth in frac fleet demand up there and supportive market conditions. And I think you probably heard that from our peers up there as well.

So yeah, we remain excited about the outlook north of the 49 as well. 

Waqar Syed -- ATB Capital Markets -- Analyst

Thank you very much. Thanks, guys.

Chris Wright -- Chief Executive Officer

Thanks, Waqar.

Ron Gusek -- President

Thanks.

Operator

Thank you. Next question, Taylor Zurcher, Tudor, Pickering, Holt. Please go ahead.

Taylor Zurcher -- Tudor, Pickering, Holt and Company -- Analyst

Hey, Chris and team, thanks for taking my question. My first one, I just wanted to circle back on the capex budget, specifically the growth capital piece. I think you said $225 million. So as of today, you've got two full fleets of digiFrac, I guess, long-term contracts secured already.

So clearly, that's in the budget on the growth side for 2022. And just hoping you could give us maybe some building blocks as it relates to building up to that $225 million. It feels to me like, obviously, you'll have some Tier 4 DGB, but maybe you have some more digiFrac budgeted in there. So just curious how you're thinking about the building blocks behind that $225 million number.

Chris Wright -- Chief Executive Officer

Yeah. The large portion of it that lives portion is digiFrac, Obviously, the next portion is the Tier 4 upgrades, upgrading of two fleets of Tier 2 to Tier 4, and some other work that's being done, moving those suppliers. With [Inaudible] technology, there's a significant chunk of that is we are supporting the growth of the properties business with our customers there, which is going to be great returns on that business. That's another chunk of what we're doing.

It's a little bit there more of probably $20 million to $30 million of what we can say, of short-term margin enhancing projects, which are key things, everything from [Inaudible] lines to flexibles, to a number of other items that we're doing that have a very quick payback and sort of short-term effects on margins. Those are the big items.

Taylor Zurcher -- Tudor, Pickering, Holt and Company -- Analyst

OK. Got it. And I just wanted to follow up on the anecdote you gave about a legacy OneStim contract from what I glean didn't have inflationary escalator clauses and resulted in a $5 million negative impact in Q4. So just to clarify, as we progress forward, has that contract been sort of reset here in Q1 such that you are able to pass through some of these input cost items on to the customer.

And as you look at your broad portfolio of contracts, whether legacy Liberty or legacy OneStim, do you have any more outstanding contract cases similar to that one that you called out where inflationary items might be an issue for you moving forward?

Michael Stock -- Chief Financial Officer

No, was there that's really going to be a little bit -- the one will still be a little bit of a drag in Q1, we fixed after that. And that really is the last one that was left. I think some of those -- again, I think from the historical contracts, the way they contracted, we're probably OK in a down market and when things are going down. They're really turned around at became quite negative an inflationary environment.

So yeah, agentive contracts historically have been a little more flexible on the others, and we sort of work with customers on basically up and down cycles. Schlumberger historically had a couple more -- little more fixed in nature, and that was just something that had to be worked through over time.

Taylor Zurcher -- Tudor, Pickering, Holt and Company -- Analyst

Understood. Thanks, Michael.

Operator

Thank you. Next question will come from Tom Curran of Seaport Research Partners. Please go ahead.

Tom Curran -- Seaport Research Partners -- Analyst

Good morning. On Project 1440, would you please update us on the active fleet average pumping time utilization. So relative to that project starting point of 60%, where did average pumping time come in for 4Q? And what's your target level for 4Q of this year? Where would you like to exit the year at?

Ron Gusek -- President

Look, I probably won't get into specifics there, but you did hear in our -- in Chris' comments, I think the latest of the record, so 75 hours of continuous pumping, we continue to make tremendous headway from an efficiency standpoint out in the field and look forward to some additional progress there. We have a few other initiatives underway this year that will further contribute to that, if we're successful getting them across the finish line. But we certainly did make progress to last year. We [Inaudible] more opportunities this year and know that it remains a focus of ours.

Tom Curran -- Seaport Research Partners -- Analyst

And then given the expected enduring tightness here in the shale labor market and its associated upward pressure on wages, are you seeing -- or do you expect any acceleration of spread automation initiatives, be it internally at Liberty or perhaps elsewhere within the industry or at a smart robotics start-up that you're watching?

Chris Wright -- Chief Executive Officer

Yeah. We won't give any specifics there, but absolutely automation for efficiency of labor use, for safety, for speed of operations is the focus at Liberty.

Michael Stock -- Chief Financial Officer

The only thing I would add to that may be is certainly one of the things we're most excited about as we move toward digiFrac. Those opportunities are not insignificant in the diesel and dual fuel world, but the opportunities that come with moving to an electrical fleet are another step forward yet. So quite excited about the opportunity to get digiFrac out in the field and move forward with the level of automation that we could attain in that environment.

Tom Curran -- Seaport Research Partners -- Analyst

Got it. So more of a frac transition technology development. OK. And then I'll just close --

Chris Wright -- Chief Executive Officer

But greatest upside in the e-frac thing, but it's across the portfolio.

Tom Curran -- Seaport Research Partners -- Analyst

Got it. And then just two questions on the Permian. First, are you seeing any rivals starting to pull out or shrink the size of their footprint there? -- perhaps by closing a district yard or two. And then we understand that a pioneer may soon be in the market looking to replace some of its spreads on contract.

Do you expect to have a shot at those?

Chris Wright -- Chief Executive Officer

I mean those are detailed commercial things. So yeah, I'm not going to comment on those but --

Tom Curran -- Seaport Research Partners -- Analyst

I had to try. Thanks for taking my questions.

Operator

Thank you. Our next question will come from John Daniel of Daniel Energy Partners. Please go ahead.

John Daniel -- Daniel Energy Partners -- Analyst

Gentlemen, thanks for squeezing me in. Chris, earlier in your commentary, you talked about many mines being game-changing. Can you just elaborate on how many you see and how you see that market developing?

Chris Wright -- Chief Executive Officer

So there's a few operating right now that are customers of ours, and there's certainly more opportunities for that. So it's not an explosion. It's a combination of meeting mine technology and the transport and Webvan technology. So it's an evolution that we think has a good runway to bring differential cost and ESG advantages to customers.

We are willing to make that commitment and geographically positioned.

John Daniel -- Daniel Energy Partners -- Analyst

Do you see yourself developing your own many mines or just let the others do that?

Chris Wright -- Chief Executive Officer

We have the technology to move wet sand and partnerships will be -- we may -- we're going to enable the growth of mini mines is maybe the best way to say that.

John Daniel -- Daniel Energy Partners -- Analyst

OK. And then in response to Ian's questions on you cited the longer-term contracts. Was that just on digiFrac -- or is that on traditional equipment?

Chris Wright -- Chief Executive Officer

It's on both.

John Daniel -- Daniel Energy Partners -- Analyst

And are any of the terms greater than one year on the traditional can you say?

Chris Wright -- Chief Executive Officer

Yes.

John Daniel -- Daniel Energy Partners -- Analyst

OK. And then the last one is you called out in congratulations on the record safety performance, which has occurred given in line of a sharp ramp in activity and also given that you did a major integration. So it's pretty impressive. I'm just curious if you would attribute that to anyone specific initiative, what allowed you to do that in light of the two things I just referenced.

Ron Gusek -- President

I don't know this is one specific initiative we would call out, John. I think that's a credit to two very strong teams of operational personnel that came together with a commitment to, number one, provide great services to the -- to our customers out there in the field and then number two, to do that as simply as possible. We probably did benefit from the ability to return to some initiatives we did have in place pre-COVID. We used -- we had an initiative to put a safety trailer out there in the field to get out face-to-face with our teams on a regular basis and highlight opportunities for focus.

We had, of course, had to put that on hiatus going through 2020. But initiatives like that, some of those things were able to come back last year. And so I think those things always help, but I wouldn't call out any one thing that got us to that spot.

John Daniel -- Daniel Energy Partners -- Analyst

OK. Fair enough. Thank you for letting me ask a few questions.

Chris Wright -- Chief Executive Officer

Thanks, John.

Operator

Thank you. Next question will be from Keith MacKey, RBC Capital Markets. Please go ahead.

Keith MacKey -- RBC Capital Markets -- Analyst

Hi. Good morning, and thanks for taking my questions. So you certainly have gone through a pretty big year of transformative M&A and bolted on the PropX deal as well. And I've talked about some of your internal initiatives with the logistics control center and that kind of stuff.

Just curious if there's any other areas along the supply chain where you feel that you need to focus on as well, whether it be organic or inorganic.

Ron Gusek -- President

Yeah. I think probably our biggest focus this year will be -- will still be in the pump vertical. So specifically to our ST9 world, that is has been a challenging part of the supply chain certainly over the last year. And so it will be an area of focus going forward.

It's obviously a huge part of our R&M spends, specifically the pump payment side of things, valve seats, fluid and power ends. And so that will be a big area of focus for us this year.

Keith MacKey -- RBC Capital Markets -- Analyst

Got it. Thanks, Ron. And thank you for the capex guidance. And apologies if I missed it, but for the growth capex, how many digiFrac fleet does that include? And so -- and then how many will you have running at the end of the year, assuming you put those into the field.

Ron Gusek -- President

Yeah. We've got two other contracts. So you have the two that are currently committed and then we're in discussions with customers about [Inaudible].

Keith MacKey -- RBC Capital Markets -- Analyst

OK. Thanks so much.

Chris Wright -- Chief Executive Officer

Thanks, Keith.

Operator

Thank you. Next question will be Dan Kutz of Morgan Stanley. Please go ahead.

Dan Kutz -- Morgan Stanley -- Analyst

Hey, thanks. Good morning. So just a follow-up on pricing. And I wanted to ask if you guys are kind of seeing a range of customer receptivity to pricing increases or if customers have kind of largely been amenable to pushing to you guys pushing net pricing? I guess, have you guys had to kind of repositioned your customer base, your fleets among customers at all to kind of drive the net pricing improvements that you're talking about?

Chris Wright -- Chief Executive Officer

Look, amenable, I don't know if that's the right word. Most everything we do with customers is quite synergistic. It's about getting operations more efficient, operations safe, operations planned, frac design, strategic decisions about how to execute programs the best. Those are -- most of our dialogues are partnership dialogues.

But price is which, one direction is good for one time, one direction is good for the other side. But I think people do get if you want a long-term partnership. In the Covindownturn, we did what it took to try and keep our customers going for work plans. We worked with them in that respect.

So -- but now things have shifted the other way. But yes, customers want the right partners. Of course, everyone wants the right partner at the most economical price possible. So for us, it's -- there's efficiency drivers that we can do that help both of us, but price is a necessary part of returning our industry to health, and I think everyone gets that.

So yes, it's an ongoing dialogue about the magnitude of the price and whether it's all in big on love some or whether it's a more gradual step up and we got to get a bold.

Dan Kutz -- Morgan Stanley -- Analyst

Got it. That makes sense, thanks. And then a question on, I guess, kind of following up on the next-generation fleet transition scenarios that you guys have laid out at your investor day last year. I'm wondering if you can kind of help us think about now that we're through 2021 and you've kind of thought through your 2022 capital framework, how would you characterize where you're at in kind of the two -- the higher case, faster next-gen transition scenario versus the slower transition scenarios that you laid out? Is it somewhere in between? Or is it kind of more tracking closer to one of those two scenarios? Thanks.

Chris Wright -- Chief Executive Officer

Today, I would say somewhere in between. It's a very active dialogue with a number of parties. I think it's not if we're going to do something with them, it's how we win. But yeah, it's got to make sense for both parties.

For us, not just for returns, balance sheet, appropriate funding of it for customers, it's got to make sense too. And we're not in a rush. We're rolling out a new technology that, frankly, we think is going to be a pretty big deal. So it's a ballot of a lot of factors, but I would say things are going as planned.

Dan Kutz -- Morgan Stanley -- Analyst

Great. Thanks for the color. I'll turn it back.

Chris Wright -- Chief Executive Officer

Thanks.

Operator

Thank you. [Operator instructions] Next question comes from Marc Bianchi of Cowen. Please go ahead.

Marc Bianchi -- Cowen and Company -- Analyst

Hey, thanks. Good morning, guys. I wanted to ask about other cash items just building off of the capex for this year. So if we're $300 million to $350 million, you mentioned the working cap earlier.

I don't know if I assume $15 million -- or $50 million there, maybe $15 million of interest. Based on the range here, it would appear you need to have kind of like high 300s to over $400 million of EBITDA just to kind of get to the free cash positive. Is there anything I'm missing in that bridge? -- any extra cash coming in or other items that we should be considering?

Michael Stock -- Chief Financial Officer

I think you've really covered the majority of that. And I think the -- we think of working capital build -- will become a -- we have a build or a -- either a use or a provider of cash. So when you think about the free cash flow number, really thinking about operational returns rate, sort of EBITDA, the capex in covering interest. So when I spoke about that I don't really think about don't really characterize the working capital build there, so that's close.

Marc Bianchi -- Cowen and Company -- Analyst

OK. And from what it sounds like, just based on the trajectory into the first quarter and first half year with the integration and stuff, you'd be below consensus as it stands right now in the first and the second quarter and probably above consensus just to get to those types of numbers we were talking about in the second half for the year. It's a pretty big ramp. I don't know if you disagree with that kind of trajectory.

But what -- investors may be skeptical of that type of ramp. I'm curious what you can tell them to get them more confident in the ability to get there? And will we see any evidence of that? Or are we just going to have to wait until second half when you deliver on the results.

Michael Stock -- Chief Financial Officer

I am really not going to comment on consensus, right? I don't have a copy of year models and sort of -- sort of how you guys are running where those are. So yes, I mean, I think we've sort of laid out what were the expectations for the year are. And I think in general, we've had a long-term history of delivering. And I think that's -- as you say, I think we're going to see a ramp up as we roll off of the integration costs, we'll see -- second half than we will in the first half, and that's really the guidance that we're getting there.

Marc Bianchi -- Cowen and Company -- Analyst

OK. Super. Just one last one, if I could. The -- it looks like the implied EBITDA per fleet is kind of improving from a mid-single-digit number annualized to mid-double digits, mid-teens or something by the second half, so call it $10 million of improvement throughout the year.

I think you mentioned earlier there's a combination of pricing and throughput in there. Care to just decompose that a little bit more? Is it kind of half pricing, half throughput? How much of that pricing is sort of already set in contracts versus how much you kind of need to get from further improvement in the market?

Michael Stock -- Chief Financial Officer

Marc, I really can't comment on your math, but I'm not sure I agree with it on your EBITDA for fleet numbers. I'm not in those. So I'm not sure how you're doing that. So we won't comment on that.

But as I say, as we go through the year, it's going to be an increase in activity that's going to come and probably the biggest fall-through is going to be the change in price when you look year over year changing.

Marc Bianchi -- Cowen and Company -- Analyst

Great. Thanks so much, Michael. I'll turn it back.

Michael Stock -- Chief Financial Officer

Thanks.

Operator

This concludes our question-and-answer session. Now I'll turn the call back over to Mr. Christopher Wright for closing remarks. Please go ahead.

Chris Wright -- Chief Executive Officer

Thanks, everyone, for joining today, and appreciate your interest, understand the critical comments. We feel good about where we are. We appreciate your partnership. Everyone, have a great day.

Operator

[Operator signoff]

Duration: 69 minutes

Call participants:

Chris Wright -- Chief Executive Officer

Michael Stock -- Chief Financial Officer

Arun Jayaram -- J.P. Morgan -- Analyst

Ian MacPherson -- Piper Sandler -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Ron Gusek -- President

Scott Gruber -- Citi -- Analyst

Waqar Syed -- ATB Capital Markets -- Analyst

Taylor Zurcher -- Tudor, Pickering, Holt and Company -- Analyst

Tom Curran -- Seaport Research Partners -- Analyst

John Daniel -- Daniel Energy Partners -- Analyst

Keith MacKey -- RBC Capital Markets -- Analyst

Dan Kutz -- Morgan Stanley -- Analyst

Marc Bianchi -- Cowen and Company -- Analyst

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