Liberty Energy Inc. (NYSE: LBRT) Second Quarter 2022 Results Conference Call October 20, 2022 10:00 AMm. ET
Participating companies
Chris Wright-CEO
Ron Gusek – President
Michael Stock – Chief Financial Officer
Anjali Voria – Strategic Finance
Conference Call Participants
Derek Podhaizer – Barclays
Stephen Gengaro – Stifel
Atidrip Modak – Goldman Sachs
Arun Jayaram – JPMorgan Chase
Waqar Syed – ATB Capital Markets
Scott Gruber – Citigroup
Marc Bianchi – Cowen
Roger Read – Wells Fargo
Luke Lemoine – Piper Sandler
Keith Mackey – RBC Capital Markets
Dan Kutz – Morgan Stanley
Jean Daniel – Daniel Energy Partners
Operator
Welcome to the call of the Liberty Energy Earnings Convention. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, questions will be asked. Attention, this occasion is registered. Now I would like to talk to Anjali Voria, Director of Strategic Finance and Investor Relations. Continue.
Anjali Voria
Hello, and welcome to Liberty Energy’s third quarter 2022 earnings conference call. We’re joined on call by Chris Wright, executive director; Ron Gusek, president; and Michael Stock, Chief Financial Officer.
Before we begin, I’d like to remind all participants that some of our comments today may come with forward-looking statements, which reflect the company’s views on long-term prospects, revenues, expenses or earnings. These topics involve dangers and uncertainties that may also cause actual effects to differ materially from our forward-looking statements. These statements reflect the Company’s ideals based on existing situations that are subject to certain dangers and uncertainties detailed in our earnings report and other public documents. Our comments today also include non-GAAP monetary and operating measures. These non-GAAP measures, which aggregate EBITDA, Adjusted EBITDA, pre-tax return on contracted capital and money return on invested capital, do not supersede GAAP measures and would likely be comparable to similar measures. other companies. The reconciliation of the source of net income with the EBITDA and the adjusted EBITDA, as well as the calculation of the return before taxes on the contracted capital, as disclosed in this call, is established in the company’s earnings release, which is is available in the Investors segment of this website. The calculation of the return of money on invested capital is presented in the company’s Investor presentation dated September 6, 2022, also available in the Investor segment of the website.
I’ll pass the one on to Chris.
Chris Wright
Good morning everyone and thank you for joining us in our third quarter of 2022 consistent with national and currency effects. We’re incredibly proud of our team’s strong national execution, which underpinned strong third-quarter money effects. Our strategic plans to deploy six fleets to meet additional demand from our long-term visiting partners were completed ahead of schedule, as we navigated challenging job markets and a volatile supply chain. Our strong partnerships with our visitors, our vertically embedded delivery style, and the strength of our team leadership have gone a long way in bringing new fleets to market quickly, while also providing the highest degrees of functionality across our entire fleet. Array Third quarter earnings were $1. 2 billion, a 26% sequential build and 82% year over year build. Net source earnings for the quarter were $147 million, or $0. 78 consistent with the fully diluted percentage. Adjusted EBITDA for the quarter was $277 million, an increase of 41% from the prior quarter. The strong effects allowed us to release our capital repayment program and repurchase 2. 5% of our consistent notable percentages. We also announced the reinstatement of our pre-COVID quarterly monetary dividend of $0. 05 consistent with the consistent percentage to be paid in December. We will have a flexible technique for returning capital to shareholders, maintaining a strong balance sheet and investing in exciting opportunities. Capital allocation is back in the foreground.
I am proud to say that our operating execution in the quarter was unprecedented, breaking several Liberty records, adding pumped profit, pumping hours, generation deployments, etc. , while implementing the fleets acquired through the OneStim acquisition. The incredible undertaking of bringing six more fleets online in Q3 required an ordinary point of collaboration and coordination between our groups. In 90 days, we hired and onboarded six groups, which is no small feat in a highly competitive task market. Our ability to selectively attract and choose from a high-quality pool of candidates, especially in this cramped painting environment, is a testament to Liberty’s team and culture. It is a dynamic, challenging and engaging painting place, designed to allow our painters to pursue their goals with passion. Training and incorporation of new painters to the paintings along experienced groups will ensure a high quality service for years to come.
In addition, our operational readiness has been facilitated by the recent realignment of our groups across the enterprise, from fracturing equipment to maintenance, supply chain and sourcing. Identify goals, execute transparent priorities, and hold everyone accountable for providing amazing service. We have leveraged our extensive supply chain capability to help deploy more fleets in an environment where sand and other fabrics are scarce. While Liberty has grown over our 11-year history, we have worked hard to maintain and expand the culture that has created our industry-leading quality of service, embodied in the quality and determination of our employees. The recent realignment of our groups has created dynamic sets within our organization. that foster innovation and collaboration. Our other people and the culture that unites them remain our highest value et.
Deploying the rest of the fleets we acquired from OneStim was a long-term strategic resolution in favor of engaged, high-quality consumers, and only at the right time. The economic outlook for our consumers remains strong, even with the recent slump in commodities. In addition, operators remain committed to progression systems that support solid to modest production growth. The fracking market is very close to full utilization, and our ability to deploy fleets to long-term engaged consumers when the time is right is a testament to the technology, scale, vertical integration, and supplier marriages we’ve built. Our consumers have chosen to marry Liberty, not only because of our industry-leading operational performance, but also because they recognize that technological innovation is a critical component of delivering leading services today and in the future.
In the most recent survey through Kimberlite, an independent industry research company that surveys E.
We continue to train our disciplined leadership in the fracking industry, while seeking to generate incredible long-term monetary effects and help our consumers obtain a reliable, affordable, blank source of energy for the world in an era of global insecurity. The generation base and long-term partnership commitments drive the impressive financial effects that have allowed Liberty over the past 10 years to have an average return on invested capital that has tripled the OSX and is more than 40% higher than S.
Despite endless smug rhetoric about a forced transition, long-term global oil demand has grown over the last 30 years. In the 1990s, demand grew at a compound annual expansion rate of 1. 1%. In the 2000s, the compound annual growth rate returned to 1. 1%. In the 2010s, the compound annual growth rate was just over 1. 2%. This trend was briefly interrupted by COVID, but long-term global demand continues to rise, and assuming it continues even at a reduced 1% CAGR over the next decade, this equates to over a million barrels consistent with day consistent with the year of greatest expansion. Oil call for. Surveying the world’s oil generation centers today does not provide much confidence as to where the additional barrels are coming from. North America will most likely be the main supplier of those extra barrels, which is crazy for Liberty’s business for years to come. The outlook for herbal fuel is also slim again, dictated by developing demand around the world. During the first part of 2022, the United States became the largest exporter of LNG in the world, a remarkable achievement since we were the largest importer of herbal fuel just 15 years ago. Today, US LNG exports are particularly consistent with last year, despite the closure of the Freeport LNG facility. The LNG export services under construction will increase export capacity by approximately six billion cubic feet per day, an increase of more than 40% over the next three years, from existing export capacity levels. In today’s tight overseas fuel markets, those molecules are most in demand, as evidenced by the growing crisis of strength in Europe, which has led to the building of an upgrade fest for LNG fuel materials. that have historically targeted Asia. In the United States, the demand for herbal fuel for power generation is always the highest and will likely continue for the foreseeable future. Additionally, demand from the relocation of consistent force-intensive industries, adding commercial and petrochemical industries, is supporting strong demand for herbal fuel in the United States. Taken together, those plants or points are likely to strengthen the call for a secure North American force.
A combination of capital camp among the major public operators and very tight supply chains, namely in the market for fracking facilities, is constraining existing activity levels to a modest expansion in US oil production. The existing fracking market is relatively narrow, with almost full use of available capacity. The limited capital currently deployed in the fracking market is expected to be directed primarily toward expanding next-generation fracking fleet capacity by degrees more or less sufficient to compensate for aging existing equipment. The strict provision of services has made the quality and reliability of service a priority for consumers. Next generation fleets are also in high demand. These two points further strengthen Liberty’s competitive position. Liberty’s exceptional generation, operational prowess and visitor concentration accelerated our cash effects for the year. We are proud of the team at Liberty and our wonderful consumers and vendors. We are well positioned today and have an exciting set of next-generation advancements underway as we enter a strong market in 2023.
With that, I’d like to give the floor to Michael Stock, our CFO, to talk about our monetary results.
Michel Stock
Bonjour. Liberty had an exceptional quarter, with a 26% sequential accumulation in earnings resulting in a 40% accrual in net earnings source and a 41% expansion in adjusted EBITDA. The Liberty team has achieved remarkable effects through strong execution across the speed of our quarterly effects is a testament to the hard work of the entire organization. Third quarter revenue was $1200 million, an increase of $246 million or 26% from $943 million in the current quarter. Our effects were driven through a strong improvement in the business, with almost part of the sequential expansion similar to the deployment of fleets acquired through OneStim. We also benefited from modest value innovations in the quarter.
Net source of after-tax income $147 million, up from $105 million in the current quarter. Fully diluted net earnings consistent with constant percentage were $0. 78, compared to $0. 55 consistent with constant percentage in the current quarter. Results included a fleet start-up charge of $9 million incurred for fleet deployments, a $29 million non-cash rate for the revaluation of tax debt agreements, and a $3 million investment gain.
General and administrative expenses totaled $50 million, adding a non-cash stock-based reimbursement of $6 million. General and administrative expenses increased by $8 million sequentially, primarily due to performance-based reimbursement, inflation and business increases commensurate with our business growth, adding investments in platform IT systems and other procedural innovations to continue the expected growth. Net interest and similar expenses totaled $7 million in the quarter.
Adjusted EBITDA increased to $277 million, an increase of 41% from $196 million in the current quarter. During the quarter, tax receivable agreements similar to our design (RC) at the time of our initial public offering had to be rethought and resulted in a non-cash rate of $29 million in the third quarter. This resulted in an effective rate of 17% on the combined lines of income tax source and TRA rates. As a reminder, in the current quarter of 2021, prior losses due to the COVID recession prompted Liberty to record a valuation allowance on a portion of the deferred tax assets and remeasure the TRA liability as required by GAAP. the United States. Due to our strong currency effects in subsequent quarters, in the fourth quarter of 2022, we will no longer need a valuation provision on deferred tax assets and will rethink TRA. In the fourth quarter of 2022, we expect the valuation provision and a similar reflection of the TRA to be published, in combination with the tax provision for the purposes of the full year 2022, to arrive at a combined effective tax rate rate. . of approximately 24% in the quarter. We expect 2022 money taxes to be approximately $7 million for the year. In 2023, we expect a combined effective accounting tax rate of approximately 23%, of which we expect to pay approximately one-third of that amount in the year in money taxes.
We ended the quarter with a cash balance of $24 million and net debt of $230 million. Net debt accumulation increased $17 million compared to the current quarter due to an accumulation in current equity from operations and $17 million of money used to execute the quarter-repurchase percentage. As of September 30, we had $150 million of loans taken from our ABL line of credit. The total money available under the credit line was $298 million.
Net capital expenditures totaled $95 million on a GAAP basis in the third quarter of 2022, including pricing similar to fleet implementation, digiFrac fleet structure and ongoing capitalized maintenance expenses. In the fourth quarter, we expect the sequential earnings expansion to be more or less flat. This is basically due to a full quarter of contributions from deployed crews in Q3, necessarily offsetting general holiday seasonality and weather conditions. We also expect margins to remain flat as the contribution of the additional fleets will be offset through ongoing operating and inflationary pressures in the source chain, adding raw fabrics, raw fabrics and hard labor prices. Going forward, the balance between energy suppliers and global demand supports a constructive backdrop for North American production during a longer Oil and Fuel Cycle. Liberty continues to invest in the first component of this cycle to expand competitive merit and maximize long-term free cash flow.
While our capital expenditures are largely on track for the full year of 2022, it is conceivable that some of the fourth quarter expenditures may carry over into the first quarter of 2023, due to supply chain delays. supply. As we have reiterated throughout the year, we have great flexibility to adjust our capex targets based on economic conditions, visitor demand and return expectations. Our developing ability to generate free cash flow from our business supports our priorities of allocating disciplined investment capital to generate consistent earnings with a consistent percentage, balance sheet strength, and return of capital to our consistent shareholders. In the third quarter, we announced a $250 million buyback – Inventory Buyback Authorization. And during the quarter, we repurchased 2. 5% or $4. 7 million of our consistent notable percentages for approximately $70 million. We now have $180 million left in the authorization. In addition, we announced the recovery of our quarterly money dividend to pre-COVID levels of 0. 05 cents consistent with a constant percentage, beginning with a dividend payable in December 2022. We are confident in our ability to deliver a return on capital that combines a cash dividend and opportunistic buybacks consistent with the percentage to create a meaningful price for our consistent shareholders.
With that, I will give the floor to Chris before we call the consultation and respond to the order.
Chris Wright
Thank you Michael. Recent Russian missile and drone movements have breached or destroyed more than a third of Ukraine’s power plants and many fuel depots. The goal is obvious, jeopardizing a country’s formula for strength, and you jeopardize everything else, making life much, much harder for Ukrainians. The world is rightly outraged by this ruthless strategy. European Commission President Ursula von der Leyen has called the attacks war crimes, but endangering our own formula of force through political procedure remains a precedent for many politicians and activists. Admittedly, this is only imaginable because most people still do not realize that expanding barriers to hydrocarbon and infrastructure growth is highly destructive, with no compensating benefits. For example, hydrocarbon restrictions and heavy subsidies for intermittent weather-dependent renewables have seriously compromised our power grids from California to Texas to New England. New England warns of power outages this winter due to possible fuel shortages, even though the mother of all shale fuel deposits is next door, but access to that fuel is blocked because New York state prevented expansion of fuel lines, damaging tens of millions. from other persons. American people. New England generated millions of megawatt hours of electrical energy this year by burning oil, because there was not enough herbal fuel available or not affordable. Generous biofuel subsidies and a developing regulatory burden have led to the closure or conversion of several US refineries, contributing to rising diesel costs and US distillate inventories that are now They are at October lows. for 50 years I can pass, but you win the point. Let’s review all our desires to be fashionable or to be fashionable when we talk about strength. Energy is so critical to human well-being that we want to speak up honestly, openly, and on a regular basis to fight the increasingly damaging scourge of force ignorance that has gripped our country and much of the Western world.
With that, I will now pass it on to the operator for questions.
Q&A session
Operator
[Operator Instructions] our first will come from (indistinguishable) with Bank of America. You can now continue.
unidentified analyst
Hi, Hi guys, Chris, Ron and Mike. I’m going to start with a quick consultation so we all know. In terms of fleet numbers, they said they reactivated six fleets in the third quarter. Can you remind us where you are now, and we come with those 4 digiFrac fleets as incremental in the most sensitive part of where you are?
Chris Wright
Yes, so we don’t give exact figures, but before we were in our thirties. I would say that today we have a small number of fleets of 40, and it will not move much from there. I think in terms of freeing up more fleets of the legacy apparatus, it’s done. We have digiFracs under construction. The first two that come out, if the dating of the visitor and the time horizon for this device are convincing. These can be cargo fleets, but only if it’s convincing. And the other big challenges, as you know, of course, are human and personal. Humans are what dominate the asset of a fracturing equipment, a fleet. So, our number of fracturing fleets today is 40, and it probably won’t move much from there over the next year. Michael, do you need to give more details about that or upload something?
Michel Stock
In one.
unidentified analyst
It is ok. Thanks for the clarification. So, it seems like he got ahead of the curve because he also talked about quarantine in the last quarter, so it’s no different. Okay, okay. And then, on the CapEx front, Mike, you were talking about some CapEx that can move from the fourth quarter to the beginning of next year. This all makes sense, but can you temporarily tell us what to expect for next year’s capital spending?Because last quarter, it said it was equivalent to or below 2022 levels.
Michel Stock
There’s no genuine replacement for that right now. Actually, it’s where we wait, it’s the general expectation.
unidentified analyst
It is ok. Perfect.
Michel Stock
And from the back up, as a natural investment and exciting returns, as we’ve shown over the last 11 years of our history, we’re going to invest in the ones that make sense, and I think we’ve done a very smart job of generating returns for our shareholders.
unidentified analyst
Right. Okay, perfect. Okay, guys, I’m going to pass to pass again. Thank you.
Operator
Our next one will be from Derek Podhaizer of Barclays.
Derek Podhaizer
Hi, hello, guys. Usually, we talk about budget exhaustion in the fourth quarter, but the forecasts do not recommend it, rather the typical seasonality. Can you remind me what about another one this year compared to previous years?The E
Chris Wright
So, Derek, I think you said that right. The main considerations of operators in the supply are the security of the source, in particular, the safety of the source of competent and reliable crews. So, yes, there is more evidence to suspend operations during the last weeks of the year than there is regularly. Now, for other people, this is the right thing to do and fits their budget. And for our key long-term customers, if we have other positions where we can temporarily deploy unit groups and fill that gap, in today’s market, that’s not hard to do. We’ll see some of that, but yes, I think it’s not the same amount you usually see in December, but there’s still the holiday season. One of the things we do at Liberty is close our shifts, all for 24 hours and, in some cases, twice for parties and celebrations. We want our other people to keep running hard in the field, lively and excited. These are vital occasions for us. So there’s a bit of a vacation, climate recession, even without budget exhaustion.
Michel Stock
Derek, we’re going back more to 2018, the most standardized long-term plans of the E.
Derek Podhaizer
they gave it to me It’s okay. No, it’s helpful and I appreciate the comments there. For my next question, I just sought to address, which I think is an underrated component of this market, is the pricing effect and then the expansion of profitability that some investors worry that if we see a spike in rigorous fracturing, maybe it just marks the peak and North America is over, However, maybe they will guide us into next year, where it might not be bad for your profitability, as long as you have the effect of price change and perhaps vertical integration to continue expanding profitability. Maybe someone cares that we can see a flatter fleet number you just mentioned, where the force of profits and expansion can come from a price change effect of the end of your fleet number.
Chris Wright
Derek, yes, obviously the market is narrow and grew quite fast in the first component of this year. There’s still a tailwind of emerging value tension today, but that’s it, I think most of the bullish value reset has probably happened, a little bit longer. And yes, of course there is: some fleets re-qualify often, so they stick to the market. Some of them are locked for longer periods, so yes, we will have positive value restarts towards the end of the year. But yes, the economy is doing well today. For us, it’s the quality of service and the power we get in a day. It’s a big driving force of profitability, and much of it comes down to our internal systems. How can we be more efficient, provide a higher quality service at a lower cost?And, of course, decreasing means decreasing from what it would be without technology. There’s this backdrop of inflation of portions and apparatus and things like that that that we face.
Michel Stock
And we continue to focus on expanding our profit potential. As we say, we take a more consistent percentage of the portfolio of – we are a vertically incorporated company in many ways, and we are increasingly effective in offering all those services. , allowing for a lower rate consistent with the side foot for our customers, and with consistent profitability with the side foot or fleet, if you prefer, for us. And I think that’s the key to what we’re doing. This continuous expansion comes from having been the leader of this generation. And in general, as you’ve seen, there’s a general trend toward quality in the component of our customers, toward quality providers who can deliver that consistent smart service that they really want to plan their business. That allows us to have that guarantee call, which means we can invest in generation that increases our profitability every year. We have maintained the same number of fleets to continue building our profitability.
Derek Podhaizer
they gave it to me Thank you Chris Thank you, michel. I’m going to come back.
Operator
Our next one will come from Stephen Gengaro with Stifel. Now you can continue.
Stephane Gengaro
Thank you and good morning everyone. When you think, and I know you don’t give us the precise amount of fleets, but when you think from the current quarter to the third quarter, and I think your EBITDA is consistently increasing with a fleet of around $5 million, give or take, can you communicate about that bridge and the drivers of that?And then, and according to perhaps the most sensitive of that, there is, aside from seasonality, is there an explanation for why the costs you see shouldn’t increase that number?Next year?
Michel Stock
Right. So it’s a blend effect. You obviously have a significant amount of ongoing costs in a $5 billion business, true, as you increase your profits you absorb them faster. This is one of the sections. We had a decent tailwind when prices rose. And we also had an incredible one, as we added six fleets, an increase in the power and activity of our crews. Our operations team is undoubtedly performing at the highest level. And I think that’s a key element. And I think some of the fundamental services, whether it’s water, etcetera, kind of some of the early struggles with sand, water, trucks, etcetera, from the first part of the year, that line up and get a little bit better. . So, yes, we receive information from all of them. And as for next year, no, I mean, I think he’s got fleets now that are kind of — he’s got a number of fleets that are actually on the market right now. We have some that are a little bit. . . that are a little bit below market values that will be reassessed. But obviously one of the key things next year is where the market is going to be in the long term in terms of value. Where will the value of oil be? Now, we would possibly have some small hurdles in the short term, but we think there’s a very long way to go for a strong call for oil and fuel production in the United States, which we think bodes well for us for a number of the next years.
Stephane Gengaro
So when you think, and I know you talked a little bit about CapEx that can happen next year, even with that, I mean, your loose money generation in the 23rd and probably the 24th, it seems very, very strong. What do you do with this? I mean, assuming there are no acquisitions, and obviously, you’ve restored a dividend, but are you returning capital to shareholders more aggressively?
Chris Wright
Well, yes, this is a common topic of discussion between the control of the company and our board of directors, because yes, I think in the next few years one of our most important decisions will be the allocation of capital, what to do with a lot of loose coins, coins flow upwards. And that is, and again, we’re never adopting a formula, X% will happen here, because the percentage of buybacks for us has the value at which we can buy retroactive percentages, and the delta between that value and our estimate, conservative estimate of intrinsic value. Therefore, the buyback rate is very likely to be a giant component of capital allocation in the coming years, notably until this year. They are the dominant detail in the return coins to %ageholders. We have reinstated the dividend we started years later, and we intend to pay a normal quarterly dividend in the future, probably also a modest rate of expansion of that dividend. But our business will be cyclical. So we’re moving on to never having a massive quarterly dividend because our effects are: earnings will likely remain cyclical.
And then the other vital thing is to maintain a very strong balance sheet. You never know what’s coming. The next recession, when it comes, probably won’t give us much warning. So we will have a solid balance sheet. It’s done: it served us well to make the last two recessions, either quite severe, to make transformational acquisitions. And then we are going to invest in generation and things that improve our business, that embellish our competitive merit over our competitors, that allow us to offer higher quality installations at a lower cost, and then a safer environment. So the investments in generation are there and the acquisitions, look, we’ve never been a consolidator in line with yes, but if there are acquisitions that, as Michael says, broaden our shoulders, in line with allow us to build profitability in line with the fleet, and the economics of those acquisitions are compelling, we take a look at that. Obviously, we are not really a buyer, but we take a look when there are attractive opportunities. And today, if you’re looking at buying inventory, money is much more exciting than inventory, given our existing inventory valuations and money generation. But then again, it’s a day-to-day bottom-up decision. There is no undeniable answer to this.
Stephane Gengaro
It’s okay! Super. No, thanks for the color, Chris.
Operator
Our next one will come from Atirip Modak with Goldman Sachs. You can now continue.
Atidrip Modak
Hello, team. Thank you for answering the question. Chris and Mike, we’ve heard some new releases and there are more fleets that are activated now. Help us perceive the shape of the source in terms of the capacity source curve between those additions and the wear and tear where you expect to end your 2023 year?
Chris Wright
Yes, I think it’s hard to look forward to the future again, however the market place is limited and in fact we don’t see anything particularly replacing it in the future. With the savvy ability to turn a profit today, are there other people looking to stick with the newer legacy gear and make the most of it? Sure, but at the end of the day, I think you’re seeing some degradation today among older or lower quality fracking corporations and their ability to provide effective services. It’s a human challenge, perhaps at least a human challenge and a strain in today’s market, but also a legacy piece of equipment, if not well invested, has a limited lifespan. Therefore, the market remains tight. I don’t see any sense unless we have a big drop in commodity costs and a drop in demand for fracking fleets I think the market place is still pretty tight from what we can see actually as far as the ‘until next year’. New fleets will come out. We keep an account on that. Could this number of fleets be slightly higher than the amount of capacity that will age? And it is not that a complete fleet is going to be installed, but one by one, since the bombs prevent it and come out all the time. I don’t think we’re going to have much more active fracking fleets in a year than we do today. And in our bottom-up visitor survey, next year’s fleet call-up is slightly higher than active fleets today, but not by much.
Atidrip Modak
And then tell us about Natron’s investment and what it potentially means for the composition of your fleet over time. Would you like to get this kind of generation, own this kind of generation?Are there other investments of this type that you are considering?What is the duration of the investments or acquisitions you are considering?
Chris Wright
Well, as you can see with the nature of the investment, it’s a modest investment, but it’s a unique situation, with another generation of batteries. Lithium ions dominate, or variants of it dominate today because they have the highest force density. For this hundred-pound box, you can buy maximum strength in this setup, but it has some serious issues. Can’t download very fast. It wears out. These batteries don’t last very long because those ions don’t have a fabulous compatibility in this array of curtains. And as you see all the time, there is threat and danger of fire. So listen, if you need the highest force density, that’s the maximum productivity we have today. But with this prussian blue and sodium ions, you have another battery configuration that discharges very quickly. So we have to shave a beak while it fractures. We can draw power from those batteries very quickly. Sodium ions are only one maximum productive length and have compatibility in this Prussian blue crystal matrix. So you have a lot, you deserve to have much longer batteries. It does not have the threats of thermal instability and chimneys. So we think that it is an attractive generation for us, for what we need. We will run large, high-thermal-efficiency turbines with minimal emissions to provide low-cost, low-emission power sources. And this is facilitated through the relief of the call peaks that occur episodically in our fractures. So yeah, we’re very interested in, yeah, we’re going to see where that takes us. But again, look: it’s a modest investment to be a partner in this fledgling company and, at best, probably an anchor, and potentially an anchor visitor in the future.
Atidrip Modak
They thanked me. I’m going to come back.
Michel Stock
Yes, let’s say about the duration of investments, as we look, we look at all the other lengths, again, generally, in generation and where we can get genuine technological merit in what we can bring to market.
Atidrip Modak
They thanked me.
Operator
Our next one will come from JPMorgan’s Arun Jayaram.
Arun Jayaram
Yes, hello. I wonder if you can give us a concept of vertical integration and what it means for your earning capacity. And perhaps more precisely, today, how much of your EBITDA do you estimate it will generate outdoors from natural fracturing between PropX, cables, sand mines, etc. ?
Chris Wright
Look, it’s basically frac. Frac is the big morsel of this business. Of course, there are additional profits from those vertically incorporated corporations. But we made those deals, not just for that extra gain, which is rarely very trivial, yet it’s more commonly fractured. We also want to make sure fracturing works at maximum speed. Having access to sand is not only a success in sand, but it also reduces the threat of waiting for sand or having quality issues with your sand supply. So, we see those vertical integrations as corporations in their own right, but at least as important, as catalysts for the core frac business.
Michel Stock
As Chris said, we have a segment in our business, and it’s a segment for reporting and everything else, and it’s fractured because it’s very, very similar to that ultimate powerhouse of offering that kind of — that stimulated the last full-back foot.
Arun Jayaram
they gave it to me AND only my follow-up. Chris, you acted quite aggressively during the total purchase. It purchased $70 million worth of inventory in the third quarter. He has $180 million left. One of the shopping aspect questions we received this morning is just about Schlumberger’s involvement. Schlumberger emphasized that his ownership of Liberty is a non-essential stake. I believe they possess an inventory value of about $400 million today. Are you thinking of using buyback to mitigate the effect of this excess?
Chris Wright
Oui. Je, I mean, what they do with the percentage is up to them. I don’t know, and in fact I can’t speak for them. But on the Liberty side, our purpose with buybacks is to increase the cost of each. and every inventory out there. So, it’s actually worth telling, and without stressing the balance sheet. But yes, are we interested in buying more percentages, buying back more Liberty percentages at a hot valuation?We do this will count quite a bit in value.
Arun Jayaram
Super. Thank you very much Cris.
Operator
Our next one will come from Waqar Syed of ATB Capital Markets. You can now continue.
Waqar Syed
Thank you, and first of all, congratulations on a wonderful quarter. Chris, you have a capacity of about 8 million tons of fracturing sand. Could you tell us what the point of use is right now?Does it work one hundred percent? or what is that point?
Chris Wright
Yes, and again, we detail this, but yes, surely 100%. We have made some modest investments to optimize performance, to optimize the mining load. But yes, the sand resources we exploit are being depleted.
Waqar Syed
And speaking, you don’t want an express number, and how much of that goes through Liberty and how much goes through third parties?
Chris Wright
Therefore, the vast majority of this sand passes through the Liberty fleets. Years ago, there was a wonderful movement for all E’s.
Waqar Syed
It is ok. And then, in terms of how you rate your consumers in this arena that runs through your system, is it all based on today’s spot rate?Or do you have contracts that the sand prices, the existing ones, that part of that sand makes do not realize the spot prices.
Chris Wright
Listen, in almost everything we do, we’re not an actor on the ground. We are a long-term spouse with our consumers in charge. And, in general, sand is related to fracking. So, yes, it’s not rolling or betting the spot market. These are marriages committed to the long term with our consumers. The price, of course, adjusts over time.
Michel Stock
And Waqar, I would say the vast majority of all the sand that is pumped into the oil field, is pumped on long-term contracts, right?You hear about exchange values in West Texas and elsewhere, et cetera, but the truth is, the minority of. . . It is a kind of vanguard of the minority of sand that is being pumped. Most of the things that big sand corporations sell, not to us or not to service corporations or self-suppliers, are all sold on long-term contracts that have a very different value, the place worth listening to. So I think that’s something that I think is kind of misunderstood in the industry.
Waqar Syed
Of course. So, just on that topic, could you describe which component or what is the difference between the spot costs today and your learned costs today?
Michel Stock
Well, not for us. I’ll talk regularly about the market, won’t I?I mean, just if you think about West Texas, I mean, other people are probably going to hear average spot values in the mid-40s, consistent with maybe a little bit, give or take. consistent with maybe the mid to ’40s, and I’ll say, if you ask all of West Texas, I think most of the average sand is probably mined in the mid-20s. Are they tons, is a consistent value with ton in the mine, is it rare?So, and in general, that’s quite a bit where the general sand market is. I think if you ask one of the big sand suppliers, and I would say, ask some others, I mean, you think about locating, almost getting the numbers of the units.
Waqar Syed
It is ok. Thank you.
Operator
The next one will come from Citigroup’s Scott Gruber. You can now continue.
Scott Gruber
Yes, hello. I just asked him what he thinks about the kind of multi-year investment in digiFrac. If demand is solid next year and the outlook is solid at 24, but rates remain at those healthy levels, does the speed of investment in digiFrac continue?let’s say, 4 fleets consistent with the year?How do we deserve to think about this type of multi-year investment in digiFrac in a flat environment?
Chris Wright
Yes, again, all those decisions are one at once, from the back up. But yes, 3 or 4 fleets a year are, again, it can be much less than that. It may be more than that, however, it probably is, it is not outside the realm of reason. We make individual decisions with customers, with partners one at a time. But yes, I think the long-term economics of those fleets and the long-term functionality of those fleets are very likely to be quite compelling to customers and therefore compelling to Liberty. But we have to balance that because it’s just an imaginable use of capital.
Scott Gruber
And can you talk about what you see from an inflationary attitude in relation to maintenance?An onshore driller recently learned of a significant increase in maintenance for next year. What do you see and how does it deserve us to think about it?
Michel Stock
Yes, well, we don’t cannibalize. So overall, there’s been significant inflation over the last two years, and we’re actually looking to keep it at historic levels because of generation and design adjustments, etc. , scope. But yes, I mean, obviously, you write from knowing metal-like inflation rates and everything else. So we’re still following the same kind of ancient diversity that we have. And again, I think we really reversed the recession. Yes, we haven’t cannibalized some of our old equipment. So we don’t have an early spike like they were talking about.
Scott Gruber
They thanked me.
Operator
The next one will come from the hand of Marc Bianchi with Cowen. Now you can continue.
Marc Bianchi
Hey thanks. I tried to ask him about the digiFrac installments he has to come. It turns out that he has deviated a bit from the original plan, it turns out to be partly due to the chain of origin, but maybe he can only communicate about the confidence he has. in those that are being delivered recently at the end of this quarter. And then when they’re delivered, if we assume they’re incremental, they deserve to be seen to see a rapid increase in profits from those fleets, or is there some kind of adjustment period?What gives you confidence to get money out of them from day one?
Chris Wright
Yes, no, you are very sure of yourself in delivery. It is a factor in the chain of origin of electronics that delays them a bit. Everyone fighting. No, and then even if they move to incremental equipment, that’s fine, there will be a movement as the apparatus moves to that equipment. So when you think about incremental modeling, I would do anything from that, which is take that old appliance and then pass it on to some other consumer or expand it with this consumer next year, because you have — in the next quarter, because you have to rent people. That’s the way to look for it from a modeling perspective.
Marc Bianchi
It is ok. And just from a business standpoint, is there time to make sure everything works as planned, or what gives you confidence that the first fleet of its kind will be fully operational as planned?
Chris Wright
We have pilot pumping pumps. The functionality was exceptional. It’s a new formula where things come together. Will there be disorders that we will have to solve? Absolutely, but of course, we will gradually integrate them. They are entering a fleet that is already led by the same humans who will lead the new fleet. Therefore, a new pump and digiFrac generator will enter and work with the existing fleet. Therefore, they will be placed in position as a fleet is converted. New generation and a new formula that we have taken years to develop. So, will there be wrinkles and challenges? And I mean, it’s shrinking right now. Absolutely. Our purpose has been to have the most productive fleet at the end of the day. Don’t take shortcuts to be a little faster or meet a deadline. We need: the concept is to build something really different here. Thank you.
Marc Bianchi
It makes sense, Chris. Michael, if you’ll allow me to push one more very temporarily on the tax: taxes on money for next year, I hear you about: one-third of the tax on e-books. How long would your taxes on money last, less than the e-book tax if some kind of 23 went on forever?I’m just looking to perceive the track there.
Michel Stock
Sometimes I would say it’s probably just that, I mean, actually 2024 is quite a bit where they’ll balance out. They will decrease slightly due to TRA savings, etc. , but it will only be a few percentage points. So I would even comb them from the 24th.
Marc Bianchi
Super. Thank you so much. I’m going to come back.
Operator
The next one will come from Roger Read of Wells Fargo. You can now continue.
Roger Read
Hi, Chris, maybe a query for you, a kind of continuation of the last one you talked about integrating some e-frac elements, digiFrac there. I’m just curious, while looking at the value you’re proposing, the net value you’re getting on the new equipment, do you think at this point it’s close to pricing what digiFrac brings to market, or is there a lifting of the traditional approach?
Chris Wright
I mean, listen, the apparent is the massive: the difference between the value of diesel and herbal fuel is that the source of force today is simply massive. Impressive load savings. And remember, once again, that this is maximum thermal efficiency. It will actually burn much less fuel than the small turbines that force fleets. Therefore, there is significant merit in terms of load savings in digiFrac. A keen interest in that. There is a component of reducing emissions. And ultimately, there will also be a significant result in performance. But probably to fully realize the load of all those parts, it will take time. We have to take them out, convert them, show them, see them. I mean, other people are paying a premium for them today, however, is that premium likely to accrue over the next 12 months?I think it’s very likely.
Roger Read
So, there are definitely things to think about in the long term there. Let’s shift gears a bit, Michael, for you, as we think about the large accumulation of current capital this quarter, after a kind of question about the money tax, how do you deserve?Or are we simply in, with increasing business, an era of general influx of money into the balance sheet?
Michel Stock
Yes, in general, the amount of current capital follows our income, right?Therefore, the fourth quarter will be relatively stable. Working capital will be relatively stable. We will have expansion next year. Working capital will accumulate in line with this profit expansion. And it all comes down to our DSOs not changing. Our DPOs don’t change. Those are the two main drivers. So, thinking about it, you can design them online.
Roger Read
That’s it for me. Thank you.
Operator
Our next one will come from Luke Lemoine of Capital One Securities. You can now continue.
Lucas Lemoine
Hey HELLO. Piper Sandler. Chris, only about your investments in the next-generation fleet, more or less long-term. Can we assume that almost all of them are digiFrac, or is there still a portion of consumers requesting DGB point 4 updates?
Chris Wright
It will be a combination of both. We are still upgrading the fleet from point two to point two dual-fuel, from point 4 to point 4 DGB. So, listen, you’ll probably be more commonly biased towards digiFrac, but not necessarily exclusively.
Ron Gusek
Think of this, this way. When an engine absolutely explodes, it will upgrade it with a point 4 engine. You’ll upgrade it with a point 4 dual-fuel engine, right?So it’s more of a progressive movement. It’s bomb by pump.
Lucas Lemoine
Ok, I get it. Thank you so much.
Operator
The next one will come from Keith Mackey of RBC Capital Markets. You can now continue.
Keith Mackey
Hello, hello and thank you. He just wanted to start maybe with the composition of his client. Can you comment on the public rather than personnel in your existing fleet, for example?And how does this relate to the effects of your visitor survey calling for a top fleet call for next year?compared to this year?
Chris Wright
Evidently, we do not publish our – Liberty’s fracturing fleet count region by region. But listen, I think you see ours: where our fleets are deployed rather reflects who operates the drilling rigs. Today, personal corporations account for approximately 55% of drilling rigs. They constitute 55% of the activity. The big ones were a very small portion. They’ve grown a little bit. They have particularly decreased COVID. They will probably return more slowly than others. So, yes, maybe they contribute a little more to long-term expansion than personal corporations. The infantrymen rushed out of the door. So there will definitely be a small combine replaced next year, but not huge, not much.
Keith Mackey
They gave it to me Thank you for that. And in keeping with maybe just to keep going, take a step back a little more. Would you say the last six months have replaced your view of what would be a consistent mid-cycle profitability with an in-kind fleet of $14 million to $18 million, whether it’s the profitability of base pumping or the option to expand vertical integration over time?
Chris Wright
Yes, I mean, there’s, well, there’s, one is kind of a source and demand for the market situations that drive the cycle and where it’s the middle of the cycle. And yes, right now, things are going well and the customers are still pretty smart. So, yes, it can be a more positive macro cycle than the last two. We don’t know, I mean, there’s a smart possibility of that. It seems that until now. And then there’s also this kind of self-help stuff that we can follow internally to have a bigger differential style than our competitors. And it is also an inflator of our profitability. But I probably shouldn’t comment beyond that. Michael, did you want to upload something?
Michel Stock
No, the other thing is obviously our investment in next-generation fleets, which reduces operating prices and fuel prices. I mean, it is: all investments and generation are driven through us and capital investment is through us. Then, obviously, it will come back to us and accumulate that number in the middle of the cycle.
Keith Mackey
Perfect. Thank you so much.
Operator
The next one will come from Morgan Stanley’s Dan Kutz. You can now continue.
Dan Kutz
Hi, merci. Bonjour. Je just need to ask a question, I guess, about the workforce component of the chain of origin. I think he said he was able to staff those six more fleets over a period of 90 days. Should we read that when those kinds of labor problems are diminishing a bit, or have they been able to achieve it even though they don’t see relief on that front?
Chris Wright
Job challenges are diminishing somewhat. I mean, nine months ago, 12 months ago, just crazy. I would say that the current labor market is still very tight. If you get rid of the last few years, I’d say it’s probably the toughest hiring market we have. I’ve been there since we started the company. But that’s the precaution. It was worse. It was worse 12 months ago. It was worse six months ago. So the challenge for the workforce is: it’s getting better. And, therefore, it is true. But also, I think our committed recruiting team and maybe just the character of the team leaders, all the other people leading those new teams, they’ve all been with Liberty for a while. And so, between recruiting and those team leaders, it’s just that we’re thinking about another environment to welcome other people. So hats off to our team, who did a wonderful job in a tough market.
Dan Kutz
Great. I get it. It’s useful. And then, maybe you just think about the other factors in the chain of origin, and you’ve already made some comments on some of the factors, but you’re wondering if you can summarize the trends. You’re seeing in some of the other parts of the chain of origin, if things get better, evolve sideways, get worse. Any general ideas outside of the paintings would be excellent.
Chris Wright
There are still demanding situations. Large equipment, i. e. engines and engine reconditioning, which is an important component of our industry, are still awaiting award. They are happening, but there are still demanding situations there. There are still demanding situations there.
Michel Stock
Yes. Slight improvement in the sand logistics market. On the road, truck rates have gone down, so there are even more truckers returning to oil rigs. So we see some relief there. I would say that the chemical markets are stable, probably a little more than the previous year, and that’s the main problem. I would say probably the biggest challenge is the type of heavy appliance electronic parts we have. percentage with many other economies, other parts of the economy.
Dan Kutz
That’s great. Thank you very much, guys. Thank you for pushing me. I will pass again.
Operator
The next one will come from John Daniel with Daniel Energy Partners. You can now continue.
Jean Daniel
Hi guys, thanks for adding me and going beyond the hour. I just need to go back to the vertical integration issues that were raised earlier. It seems that they would call it a competitive advantage, which I think is reasonable. And I just wonder, if it’s a competitive advantage, let’s say like sand, does it deserve Liberty to strengthen a sand presence outside the Permian to help the other geographic basin it’s in, or does it deserve to expand to other products like chemicals?Just your thoughts.
Chris Wright
Again, this is a bottom-up question, not a top-down philosophical question. So, listen, if we have reliable sand at moderate prices, we don’t want to own any components of the chain of origin, but if it looks like it’s going to increase source security for our business and the economy is compelling, it’s not very unlikely that we’re doing something like that. But we haven’t made the decision to own X% of all the sand we pump. I wish: Philosophically, to make sure that our fleets can continue to operate and that we can offer different functionality compared to what others in our industry will provide to customers. And for us, that’s what we want to get there.
Jean Daniel
It is ok. Well, back to the arena, Chris, can you guys, is there any effort to expand your capacity with existing operations in the Permian?
Chris Wright
That’s what we’re doing. We have done so and we are proceeding to do so.
Jean Daniel
It is ok. That’s fine with me. And then the six fleets that were deployed in the third quarter, I think he said that all his fleets that are operating today are committed or I don’t know if I misunderstood him, and if he can communicate about it. And then the moment: the follow-up is, is one of those fleets reactivated, is it like, for lack of a greater term, a bridge for this next one, for digiFrac, so that those return to court at some point?And that’s for me.
Chris Wright
Yeah look we don’t, I said we don’t play the spot market, which is true. So, with the power of our fleet today, there are good, forged, vital consumers that are less than a full working fleet. We’ll do all your fracking work. We’ll balance it, but maybe if we call it a multi-client fleet, we’ll balance it with other people’s work, or we may have a key client, then their workload is a fleet and a part. And we’re going to do all of that, and then we’re going to balance that other part with one or more clients to fill that. So we don’t need to bid on 22 things to see what we can get at the most productive price. We don’t actually play that game, but we have fleets that move between multiple clients, and then stuff happens. Matrix gaps open. Someone has a logistics challenge or a supply chain challenge or a drilling challenge or an offset rig challenge. So we’re looking to follow other people who would like to have Liberty on site, who we can call on a shorter schedule and move the fleets to other platforms if there are any hiccups. And of course, there are setbacks, and they happen a little more than normal, I would say, those days and because of everything we talked about with the source chain. And about the revivals, yes, there are consumers who really need a digiFrac fleet before launching a frac program now. So of course there are some where we have another fleet running for them now, and as you get the digiFrac and those things come in, those fleets will be phased out. Yeah, I don’t think you’re going to see any expansion in the number of Liberty fleets in the future.
Jean Daniel
That’s fine with me. And in this case, one more for Michael. I don’t know if you would have that knowledge in front of you, however, the addition of the six fleets and all the other people is quite impressive. And I’m curious, Since new employees were hired, how many other people are coming in who are already in the industry?They’re actually new to oil and gas, compared to guys who may be, or girls, moving from one service company to another. Any color you can have on hand?
Michel Stock
So, I would say that, in general, most of our hiring comes from abroad. I don’t have, I don’t know the numbers for the six fleets, whether or not the guy of this was a larger edition of the experiment. We have recruited many other experienced people. I mean, Liberty really considers itself probably the most productive position to work in, I believe in the industry for that, for a number of other reasons, culture, schedule, etc. So, it’s a balance between the two. But we have a lot of veterans. We have a lot of other people coming out of the farms, a lot of other people coming from other industries, coming to sign up for us.
Jean Daniel
That’s fine with me. Well, thank you all very much.
Operator
Our next one will be a follow-up to Stephen Gengaro with Stifel. You can now continue.
Stephane Gengaro
Oh, thank you for taking charge, gentlemen. Just a quick one. Can you give us an idea, where are the point costs lately until the last peak?Doesn’t that make sense?
Chris Wright
We are not the right user to ask because we are not connected to the spot market. But if you buy, let me answer another way. The value of fracking today, think longer-term or a dedicated or larger piece of fracking. That’s still way down from what it was 4 years ago if you’re an E trader.
Stephane Gengaro
Yes, no, that’s why I asked the question, because profitability has reached such a high level. I’m just curious about how it eases the price. Therefore, it is useful. Thank you.
Operator
Thank you. This concludes our question and answer session. I would like to leave the convention to Chris for any final comments.
Chris Wright
I thank everyone for their time and thoughtful questions today, and most importantly, I thank everyone in the circle of Liberty family and our consumers and suppliers and everyone who works 24/7 to make the world a better position to live in. I appreciate you all. We will let you know next quarter.
Operator
The convention is now closed. Thank you for attending today’s presentation. You can now log out.