John Turner : No, I think that — I agree with you. I think that larger scale operations means larger scale services that need to go along with that. And we’ve seen it in other basins. You saw it in the Eagle Ford for like 15 — 10 to 15 years ago. I mean, when the larger operators move in, it’s a larger service companies that can service their needs across the entire — and across their entire operations is what they’re really looking for. They need that reliability because they’re putting a lot of money in on this and they want to make sure they execute on that.
Bud Brigham : I’ll mention one other thing because your question may also stem from a concern. Does it mean less drilling activity? And again, it can in that some of the smaller private operators maybe are actively growing their production to make them more attractive as an acquisition target. However, as you’ve seen from us on a quarter-to-quarter basis our results are very stable, because we’re contracted to a large degree with these large operators that have very steady and longer-term planned activity. So, again, we just match up really well with these companies that are combining and creating more scale. So I don’t think — and the other thing is — and we’ve included the Rystad chart in the appendix of our presentation.
It really is remarkable what a great job that operators and pressure pumpers are doing increasing the efficiency in the field. And so the profit pump per day per frac crew just continues up into the ride. So I think all these drives for more efficiency that to some degree are associated with scale to drive up the efficiencies and drop down the cost per unit. Again, they all play to our strengths.
Geoff Jay: Excellent. Thanks. That’s really helpful.
Bud Brigham: Thank you.
Operator: Sorry. Go ahead sir.
Geoff Jay: Oh I’m sorry. That answered my question. Thank you.
Bud Brigham: Thank you.
John Turner: Thanks, Geoff.
Operator: Our next question comes from Michael Scialla with Stephens. Please proceed with your question.
Michael Scialla: It sounds like you’re pretty confident you can be fully contracted on about 16 million tons per year next year. Is it fair to think you can go beyond that if the demand is there at a price you’re okay with and you don’t need to spend any additional capital to do that with the efficiencies you’re seeing at Kermit? And is the CapEx number that the consensus has yet right now for next year about $325 million. Does that seem like a good number to you?
Bud Brigham: Yeah. As Jeff touched on, we are in discussions for volumes. And John touched on as well that are in excess of that 16 million tons. That said when we built our original plants we thought — the expectation was they would produce three million to four million tons and they produced 5.5 million tons. And so our expansion — we’ll see. We might be able to produce more at Kermit with the expansion than what we’re anticipating. So time will tell on that. And we do have opportunities to further grow our product in those. John, I don’t know if you want to add that.
John Turner: Yeah. And I mean, like we said earlier, I mean it’s 16 million. I mean our goal is 80% of 16 million — I mean of 15 million really. If you — when you look at that we want to keep some on spot. It’ll at least be a decision that we need to make at the time on whether or not — it depends on what our customers want. Like we said there’s new opportunities that are out there that we’re evaluating to see what those additional volumes were looking like. And so on the CapEx numbers, I think we’re going to have to — I mean we’ll need to come back on those. Because I know that there’s a lot of — we do our best to forecast how CapEx is going to be spent. And we’re never ever successful in forecasting that — the ebbs and flows of that the timing of it.
But right now I mean the Dune Express we plan to spend $400 million total on that. And then obviously, the Kermit plant expansion is on time and on budget. I think we mentioned those numbers in our call, but we can circle back on that.
Bud Brigham: Did that help you?
Michael Scialla: It does yeah. Yeah. Thank you. I guess on the logistics side do you expect — you’ve obviously had some tremendous growth there. Surprised now for a couple quarters in a row. Do you expect any further step up there before Dune Express is completed? Is it just a matter of further adoption of these double and triple trailers? I know you mentioned the next drop depot that you’re planning for the fourth quarter. I guess just any visibility on further growth before Dune Express goes into operation.
Bud Brigham: Yeah. We’ll make Chris answer that for you.
Chris Scholla: Yeah. Look we’ve always projected that growth into the Dune Express. And you look at where we’ve come from this year to where we’re at now — as you said, right? Dedicated fit-for-purpose assets multi-trailering offering that is differentiated in the market no one else can offer, and all of that while meanwhile opening and expanding our drop depot footprint. That growth that you will see over the next year, the plan is not to show up with Dune Express day one, hit a button and expect everything to be delivered at that point. Well in advance of the Dune Express, we want to be delivering 100% of those volumes sand and logistics to the well site. So that when the Dune Express comes on from a customer perspective it’s a seamless transition and they don’t even see a difference. Hopefully that answers your question.
Bud Brigham: We’ve added another heat zone drop depot. You might touch on that. It’s a step towards that.
Chris Scholla: Yeah, exactly. From a transitionary period, we’ve got over 1000 miles of accessible — 1000 square miles of accessible multi-trailer operations out there and plan to add another one in Q4. While we plan it — while we show flattish in Q4 based on just the activity volumes as we talked about earlier, we do expect to grow in that last mile with the Q1 pop as well.
Bud Brigham: Did that help you?
Michael Scialla: It does. Thank you very much guys.
Bud Brigham: You’re welcome.
Operator: Our next question comes from Doug Becker with Capital One. Please proceed with your question.
Doug Becker: Thank you. I wanted to follow-up on logistics but on the margin side. It looks like you were down just a little bit in the third quarter at least in part because of the shorter haul distances. What’s the expected trajectory on margins as we move toward Dune Express at the end of next year?
John Turner: Yeah. I think through next year we run in a — historically in that 10% to 13% margin. I think as we get into next year, we’re going to see more of a 15% to 20% margin business approaching the Dune Express.
Bud Brigham: Is that longer term?
John Turner: I mean, longer term once the Dune Express is up and running upward 50% margins.
Doug Becker: And so just to refine that 15%, 20% through the first three quarters of next year and then a step up as Dune Express comes on?
John Turner: That’s right.
Chris Scholla: As we ramp into it. I wouldn’t expect it to happen immediately, but I think as we ramp into it.
Bud Brigham: Not day one. But it’ll be a ramp up with the Dune Express volumes.
