Waqar Syed: Thank you.
Operator: The next question is from Arun Jayaram with JPMorgan. Please go ahead.
Arun Jayaram: Hi, Chris. I wanted to start with maybe a bigger picture kind of question. We’ve seen some recent consolidation in the Permian Basin with Exxon and Pioneer. And Exxon’s key thesis is to significantly raise resource factors. And they cited called two-thirds of the expected synergies to come from higher recovery factors. So and a lot of that is driven by frac. So I wanted to get your thoughts on the ability of the industry to raise recovery factors. We have heard of some producers more recently touting a new kind of completion design and want to get your thoughts on that. And ability that maybe if you can increase recovery factors, the ability to improve economics in Tier 2 and Tier 3 wells, which I think would have a positive implications for your business?
Chris Wright: Yes. So look, that is certainly been the story of the shale revolution is that continual innovation, we say design of the plumbing underground to increase recovery. Liberty was certainly an early mover, maybe first publisher of this extreme limited entry we got to get more fracs within each fracs stage more contact area. So, there we’ve seen a continual march-up in innovation, really ultimately recovery factors in shale oil productivity. That what’s the mast over the last five years is probably a slightly declining average quality of location being drilled. And then this improvement, incremental improvements of recovery have offset that to at the beginning, have slowly increasing recoveries per foot. Now those increases generally are not happening anymore overall because the average decrease in rock quality is slightly out running this incremental improvements in technology.
Now look, Exxon is a tremendous technological powerhouse. So if Exxon have their efforts, maybe more than incremental views of how to change recovery, I wouldn’t bet against Exxon. We work with a lot of partners on some are incremental, some are more testing or investigating game-changing ideas for recovery. So yes, a lot of that going on. Yes, you’re going to see continued technological improvement in recovery from wells. And some will be incremental and some will be bigger changes. But obviously, your bigger picture question is, is really a question for Exxon. But yes, our industry is moving forward. We’ll continue to and there could be some exciting things in the next few years.
Arun Jayaram: Great, thanks for that. And shifting gears a little bit. Chris, we are in RFP season, talking to my E&P coverage around, having discussions with frac operators around 2024 needs. I was wondering if you could maybe characterize the tone of those discussions, obviously. And maybe give us a sense of how you think pricing will play out this year versus last year when the supply demand balances was quite a bit tighter?
Chris Wright: Yes, so again, as I said, look all dialogues are generally one-on-one with our customers. We don’t submit a whole bunch of bids, and then wake up in December and find out who we’re going to be working for next year. That’s never been the way our business works. Almost all of our business is continuing to work with existing customers. Do the bigger ones of those RFP? Yes absolutely. Did they get market checks? Absolutely. Might they ship their fleet composition? Absolutely. Generally less with Liberty fleets, we tend to continue to work with our existing partners and we have dialogues about what’s going on in the marketplace. And what are reasonable responses to that. Yes, where market conditions much stronger 12 months ago than today?
Absolutely. But are market conditions bad today? Absolutely not. As you’ve seen with our results, and where we’re pumping, people want the right partners. We also – most of our dialogue with customers isn’t so much about line item Liberty, pricing, it’s what can we do together to drive down well costs? How can we move faster? How can we change the design? How can we swap out a chemical that we thought we needed with a cheaper example? How can we deliver sand more efficiently? Here price of sand is going down? Does that change our frac design that’s driving well cost down, the price of steel and tubers are going down. The price of plugs is going down. There’s some technology innovations. So look, always this dialogue around this kind of stuff but it’s not as black and white, you know, like they win we lose, there’s a price.
There is a little bit of that. But the broader dialogue is how do we get more efficient and improve both of our economics? And so, in the spot market, is it soft right now? Is there idle equipment? Yes. You know, but for quality dedicated fleets is there a huge surplus of that? No. So no, I think pricing will probably continue to be relatively boring. It hasn’t moved a lot over the last 12 months and probably not going to move a lot over the next 12 months. That’s my guess.
Arun Jayaram: Great. Thanks a lot, Chris.
Chris Wright: Thanks. Good questions.
Operator: The next question is from Neil Mehta with Goldman Sachs. Please go ahead.
Neil Mehta: Yes. Thanks so much. And Chris, want to stay on the topic of the macro. I think you’ve said that you expect demand for frac fleets to parallel recent rig counts at approximately a one quarter lag. Is that still your thinking? And if so, how are you thinking about the rig count, which is showing some signs of stabilization, but your views around that, as that’ll feed into the demand view as well?
Chris Wright: Yes, but what we hear from our customers and it’s obviously no secret. I think rig count is probably bottoming now. I think you’re going to see rig count grow over the next 6 to 12 months. But in our new boring shale industry it’s probably going to grow much slower, much more modestly. People are disciplined in investments, publics are low – change their plans too much. Privates are the more reactive ones, drilling economics are quite good today for oil. So, are we going to see an increase in private activity? Absolutely. Natural gas, we’re going to see – growth in activity there but people, I think are wisely more waiting for the right market signals, gas prices affirmed a little bit, let’s see what the winner does, huge new demand starting late next year through the couple of years after that from LNG export capacity.
So definitely going to see rising gas activity. But in frac, maybe that starts in Q2. Could be some a little bit sooner than that. The winter is warm and if the frac can stay low, it could be Q3. But yes, a little bit of upward momentum and gas, a little bit of upward momentum in oil for private and publics are pretty slow and steady.
Neil Mehta: That’s helpful. And staying on the macro, we’ve talked about consolidation through the lens of your customer, we’ve also seen consolidation in the U.S. frac industry, what has that meant for discipline and your ability to sort of hold pricing in a softening market?
Chris Wright: So it’s absolutely helpful. The big companies just by nature have a longer term time horizon. So they retire a small frac fleet company, they acquire that may be struggling and my gosh, parking the fleet, they make nothing, they already bought those equipment, if they get them out there and they generate just some gross margin, it’s a positive for them. But those assets get acquired by a bigger company. They’ve got – they just spent money to buy those assets, they’re playing the long game. So they’re just going to be managed, more intelligently, more disciplined then with a longer term time horizon. So absolutely, technology consolidation has led to more disciplined investment, more disciplined commercial arrangement and it’s allowed those few bigger companies to invest in the future and try to drive the improvements. I think the whole industry wants to see.
Neil Mehta: Thanks team.
