We have table management systems and power systems and battery backup systems. And so putting all those teams together puts us in a unique position to take a fresh look at what we think e-frac needs to look like. As I say, it’s still early days, but I am excited from what I’ve been hearing from the workshops that the teams have been running. I don’t think you’ll see anything new from us this year because it does take time to engineer and manufacture, but we’ll keep you posted as we work through it.
Saurabh Pant: Okay. No, that’s helpful, Andy. Thank you. And I know one, Andy Smith, maybe for you. I know you reiterated the at least 40% EBITDA to free cash flow conversion outlook, can you give us a little help on the moving pieces within that, Andy, I know you’ve added to the CapEx number. I’m assuming that’s unchanged. Maybe a little bit color on working capital, cash taxes, anything else that we should be mindful of as we think about conversion?
Andy Smith: Yes. So working capital again will fluctuate throughout the year. Recall if you if you if you recall, in the fourth quarter of last year, we received a relatively large prepayment from one of our customers that has worked itself off in the first quarter. Now what will happen and that’s against a large customer move. We’ll rebuild some some receivable from that customer over the course of the second quarter. So I would expect that the second quarter is a little lighter than the first quarter, but then we’ll kind of get back to the same sort of working capital performance that we had in the first quarter in the third and then in the fourth quarter, depending on what they decide to do with historically, they decided to sort of advance pay in the fourth quarter.
We’ll see if that comes through this year, not. So that’s not really been counted on in terms of our free cash flow conversion. So that would be upside. But I would expect that you’ll see it kind of working capital will be a little bit less of a source in the second quarter and then more of a source of cash in the third quarter.
Saurabh Pant: Okay. Perfect. And anything on cash taxes, we should be mindful of, Andy, for this year —
Andy Smith: Cash taxes were pretty negligible in our plan for somewhere in the neighborhood of $20 million to $30 million this year of cash.
Operator: Your next question is from the line of Waqar Syed with ATB Capital Markets.
Waqar Syed: Thank you for taking my question. And the in terms of active pressure pumping fleets have hardly changed over the last couple of quarters.
Andy Hendricks: Well, good morning, Waqar. It’s actually hard to quantify because we’ve had to take some fleets and put them together to do simul fracs and Triangle fracs. And so the fleet count actually changes on a month-to-month basis entirely as we look at the numbers. And so we really tried to stay focused more on hydraulic horsepower hours in terms of how we look at the business. And so internally, it becomes less of an interesting number to trying to assess how many fleets we have out there and more about how much active horsepower that we have out there. And we’re looking to do your calculations on the business. Like I said, we’re using hydraulic horsepower hours because that takes into account flow rates, pressures, volumes and how much time we’re out on location doing things.
Waqar Syed: So maybe if I ask a different way what how has demand horsepower changed? And in the last couple of quarters as it remained relatively similar and all the changes in revenues that would affect a factor of that horsepower having less utilization? Or is it more that, you know, some of the horsepower you have set aside as well because of weaker demand?
Andy Hendricks: Yes. So if you look at it, if you look at it across all the horsepower that we’re running, there’s still strong demand for the electrics total horsepower active that we’re using has come down a little bit just because of the softening in the market and also a little bit of softening in pricing that you’ve seen and not new to anybody in the industry. But I expect to that really kind of bottoms in the second quarter, and we see a little bit of an inflection in the third quarter.
Waqar Syed: Okay. And do you. Could you provide us a color with like what’s the mix of your fleet unit, Tier four DGB and then Tier two dual fuel and due to diesel?
Andy Hendricks: Yeah, we have 140,000 horsepower that will have of E. this year. And overall, it’s about 80% of our fleet to burn natural gas. So that leaves you with about 20% that are just Tier two that don’t have the ability to run dual fuel. And as we progress through this year and next year, you’ll see that just kind of fade away and drop out, you’ll see us over time, I believe slowly reduce the amount of horsepower overall just because we just don’t need that Tier two anymore. And we’re going to be disciplined about how we add new technology as we go.
Operator: Your next question is from the line of Keith MacKey with RBC Capital Markets.
Keith MacKey: Good morning. Just wanted to ask about term rig pricing specifically, Andy, how are conversations unfolding on the rig side? Certainly things have been a little bit more stable than they might have been in prior cycles. But the rig count has come down and there is a quite a bit of impending consolidation, especially in the Permian maybe some some are looking to use that to get to discounts on rigs. So just curious how those conversations are unfolding and what is your message or your your mechanism to maintain an appropriate price or what you view as an appropriate price in this market that’s maybe driving some of that stability?
Andy Hendricks: Yes. I think what you see in the market today is when we talk about Tier one super-spec rig, that pricing is stable. And so even though some of them may not be working right now, just because the changes in the market with consolidation that you’re seeing, those rigs will go back to work at some point as as the consolidation process happens, you’ll see lower tier rigs drop out of that consolidation process and get replaced back to Tier one super-spec. So what we’ve seen is it the Tier one super-spec, the market has remained relatively stable.
Operator: Your next question is from the line of John Daniel with Daniel Energy Partners.
John Daniel: Good morning. Andy, you noted that the market structure is likely to improve and I think we all belief and hope that activity starts to rebound late this year, a little bit, probably a bit more next year. And I’m just wondering when you have that the combo of those two things, it would seem that things could tighten relatively quickly quickly. So what would your approach be to pricing?
Andy Hendricks: Well, typically, you know it in a very disciplined environment as activity moves up, pricing moves up. And when you see when you look at the Tier one super-spec rig market historically, that’s how it’s played out as that demand for those rigs have increase. You’ve seen increases in pricing along with activity. And it’s interesting how the on the completion side, the market has structurally improved over the last few years. And I think there is a bifurcation in the market and so has leading technology players buying themselves in higher demand than I think you’re going to see those same companies have the ability to move pricing up at the same time as well.
John Daniel: Okay. I mean, I think it’s as much as you know, with the current sort of pressures by some within the E&P industry to serve. You’ve got concessions and take advantage by getting our oil if they’re the kind of a leading question, but maybe a bit more momentum to push pricing a little bit harder?
Andy Hendricks: Yes, I think on the call, I think all of us in the industry have discussed over our last couple of calls is the natural gas markets have softened that there’s been a softening in pricing there as well. And I think you’re hearing from the E & P’s that they’ve got some concessions by really think at this point, especially given our view of where we are and when we think our various service lines are going to bottom out that you’re hearing that concessions have happened. I don’t think you’re getting hear a lot about concessions going forward. I think the pricing is really stabilized at this point and with any activity increase in your Tier ones in Britain for either ban or higher in technology and completions that you’re going to have you’re going to see pricing move up on us.
John Daniel: Okay. And I know you mentioned in response to one question that you’ll likely expand heap-leach next year, not looking for you to necessarily quantify that, but given the lead times on various components have used, have you gone ahead and started placing those orders and what are they telling you in terms of when you get it?
Andy Hendricks: So we’ve been working with suppliers and so we understand their ability to deliver their ability to meet our needs as we get into next year. And so no, no real challenges there for us delivering more next year. I would say that our teams are working well with the suppliers and no issue. And it’s as we mentioned it before, now that we’re a larger company in terms of completions and with the size and scale that we have with the demand on the new technology. We certainly want to be part of that. And so we will continue to add electric and other new technologies a little bit of time over in a measured way over the next few years as part of our CapEx budget.
John Daniel: Okay. And then the final one for me. Just going back to the comment you made about market structure likely to improve. I’m assuming you were talking about the completions market by any chance. We also applying that to the drilling space as well.
Andy Hendricks: So I appreciate the clarification because those really moving more towards completions and completions related services, not just hydraulic fracturing, but you’ve got cased-hole wireline, you’ve got others. And I think over time, you’ll see some of the smaller companies or smaller public market cap companies start to come together and that will just structurally improve the market over the next year to get.
Operator: Thanks, at this time, there are no further audio questions. I’ll now hand the call back over to the presenters for any closing remarks.
Andy Hendricks: First of all, I’d like to go to really resolve into the call today. We’re really excited about where we are in the market and our ability to generate strong free cash flow and return that to shareholders even at a relatively steady market. So thanks a lot.
Operator: This concludes today’s call and thank you for joining. You may now disconnect your lines.
