NEX (2020 - Q4)

Good morning, everyone, and welcome to the NexTier Oilfield Solutions' Fourth Quarter and Full Year 2020 Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. For opening remarks and introductions, I would like to turn the conference call over to Kevin McDonald, Chief Administrative Officer and General Counsel for NexTier. Sir, please go ahead. Kevin Mc

Thank you, Operator. Good morning, everyone, and welcome to the NexTier Oilfield Solutions' earnings conference call to discuss our fourth quarter and full year 2020 results. With me today are Robert Drummond, President and Chief Executive Officer; and Kenny Pucheu, Chief Financial Officer.

Thank you, Kevin, and thanks, everyone, for joining us this morning. The fourth quarter capped off was perhaps one of the most challenging years ever facing the oil and gas industry, driven in large part by the demand destruction resulting from COVID-19. Despite this, our team remained focused on delivering for our customers and best positioning NexTier for the future. As we stated during NexTier's second quarter 2020 earnings call, as we were in the depths of the downturn, our objective was to position the company for the long-term. Today, we look forward to discussing how we delivered on this commitment by maintaining a strong balance sheet, establishing a leading market readiness program and advancing initiatives positioning NexTier as a complete integrated solutions provider. We maintain a sharp focus on responsible operations and demonstrating balance between redeploying equipment into service and pricing discipline. I'll start with an overview of highlights for the fourth quarter. We grew our revenue base by more than 30%, driven by an overall rebound in activity from trough levels. We were successful in driving this increase in activity through the profitability, delivering fourth quarter adjusted EBITDA of $8 million, expanding margins by over 500 basis points and resulting in incrementals of approximately 20%.

Thank you, Robert. Total fourth quarter revenue totaled $215 million compared to $164 million in the third quarter. This marks a sequential increase of 31%, which is primarily driven by increased activity growth across all of our product and service lines, as well as continued strong operational performance, which was partially offset by continuing to inefficiencies and calendar utilization. Bottom line, when NexTier is at the well site, we are operating at historic best level of operational performance. Total fourth quarter adjusted EBITDA was $8 million compared to a loss of $2 million in the third quarter. In addition to the higher sequential activity levels, we maintained our relentless focus on continuing to lower our cost of operations, and increasing our scope at the well site, via integrated service offerings, which despite the calendar headwinds in the quarter, results in an incremental sales of approximately 20%. Total adjusted EBITDA for the full year 2020 was approximately $79 million. By fully realizing in our merger synergies ahead of schedule and taking quick action around cost control, we were successful in managing adjusted EBITDA detrimentals, despite the many headwinds present throughout the year. In our completion services segment, fourth quarter revenue totaled $200 million, compared to $154 million in the third quarter. Completion service adjusted gross profit totaled $24 million, compared to $15 million in the third quarter. During the fourth quarter, we deployed an average of 17 completion fleets. And when factoring in activity gaps, we operated equivalent of 14 fully utilized fleets. On a fully utilized basis, annualized adjusted gross profit per fleet, which includes frac and bundled wireline totaled $6.2 million, compared to $5.5 million per fleet in the third quarter. To help frame the impact of calendar inefficiencies, I'd like to provide the following anecdotal. Assuming two additional working days per completions fleet, per month for the quarter across the fleet, which is still below our pre-COVID average and reflects an increase of just 10%, we estimate that we would have generated an additional $7 million to $8 million in adjusted EBITDA during the fourth quarter, effectively doubling our reported performance. In our well construction and intervention services segment, revenue totaled $15 million, up approximately 50% compared to $10 million in the third quarter, and we expect this momentum to continue. Adjusted gross profit totaled $1 million compared to $1 million of adjusted gross loss in the third quarter, posted sequential incrementals of 34%. The improvement in results in both of our cement and coil tubing business lines as a result of market share growth and focus basins that will generate returns now and over the long-term. Adjusted EBITDA for the fourth quarter excludes management net gain adjustments of approximately $3 million, consisting primarily of a gain on a financial investment, again on the make-whole provision on the basic notes received as part of the well support services divestiture in March, net realized gains on merger acquisition and marketing related settlements, partially offset by non-cash stock compensation expense. Of these $3 million in management adjustments during the fourth quarter, effectively all were non-cash. Fourth quarter selling, general and administrative expense totaled $23.7 million compared to $25.5 million in the third quarter. Excluding management adjustments, adjusted SG&A expense totaled $20.6 million, reflecting a decrease of 57% versus Q1 of 2020. As we noted last quarter, we achieved our target run rate SG&A of $80 million ahead of schedule, and are well positioned to maintain this level going forward. Turning to the balance sheet, we exited the fourth quarter with $276 million of cash compared to $305 million of cash at the end of the third quarter, and meaningfully ahead of the $255 million target we set at the beginning of the year. Total debt at the end of the fourth quarter was $336 million, net of debt discounts and deferred finance costs and excluded finance lease obligations, compared to $336 million in the third quarter. Net debt at the end of the fourth quarter was approximately $60 million. We exited the fourth quarter with total available liquidity of approximately $349 million, comprised of cash of $276 million and availability of approximately $73 million on our asset-based credit facility. Cash flow using operations was $14 million during the fourth quarter, driven by the increase in working capital required to fund Q4 growth, while cash flow using investing activities totaled $13 million, driven by maintenance CapEx and additional investments in our Tier 4 dual-fuel carbon reducing technologies. This resulted in free cash flow use of $26 million for the fourth quarter. For the full year, total CapEx which includes investments and software in our NexTier ERP upgrade totaled $124 million, ending within the updated range we announced on our third quarter call. Turning to our outlook. From a CapEx perspective, due to the range of outcomes in the market, we are providing an outlook for the first half of this year. We will continue to invest in the quality and readiness of our assets. For the first half of 2021, we expect our continued efforts on reducing maintenance CapEx to yield a spinoff of approximately $3 million per fleet on an annualized basis for frac, and a total of approximately $3 million for the remaining service lines and software. For the remaining portion of our CapEx which is comprised a strategic investment, we are planning to invest approximately $25 million to $30 million on our ESG strategy, which includes continued investment in gas powered equipment in our power solutions business. Our strategic capital remains highly flexible, and we will adapt our investment cadence base on the shape of the recovery and demand for our gas-powered equipment. From a profitability perspective, we're currently seeing improved completions activity as we navigate through the first quarter. However, as Robert noted, pricing remains suppressed, and we continue to navigate calendar inefficiencies. As a result, we expect first quarter revenue to be modestly higher sequentially, in the range of 5% to 10%, where we expect to realize 15 fully utilized fleets, and 18 fleets deployed in the quarter. Taking into account the expected impact of current inclement weather conditions and areas that make up a majority of our operations, which is shutting down our operations for unexpected three to four days, our adjusted EBITDA is forecasted to be in the range of $5 million to $10 million for the first quarter. In the first quarter, we continue to balance our speed of deploying additional capacity into the market with the pace of price recovery. We believe dynamics are building towards a tighter frac market, while the significant earnings potential associated with calendar improvements reflects the potential for an attractive setup, as we navigate the remainder of this year and into the next. Based on our current line of sight, our expectation is that overall second quarter activity and resulting profitability will be significantly improved due to customers returning with dedicated and robust completions programs, which will ease whitespace. In addition, pricing should continue to improve, particularly on the gas-powered portion of the fleet. With that, I'll hand it back to Robert for closing comments.

Thanks, Kenny. I want to leave you with a few key takeaways. Although 2021 is showing some improvement versus the second half of 2020, we are recovering from a very low base of activity. Based on improving market conditions and our customer mix, we see 2021 steadily improving throughout the year, with supply and demand potentially becoming more balanced. When looking at NexTier's relative position on a through cycle basis, I would like to highlight our points of distinction as the market recovery takes hold. Next year continues to have a large fleet of equipment that is market ready and can be deployed across any basin with our established footprint in the U.S. and in the Middle East and North Africa through our differentiated outlet with NESR. NexTier has a largest deployed wireline plug and perf business in the U.S. Land today, and grow and increasingly healthier well construction and intervention platform in the right basins, with significant market ready capacity. NexTier will deliver incremental returns from our sizeable and growing Tier 4 gas powered fleet, and will be strengthened by the deployment of our power solutions business in the back half of this year. This part of the business is focused on the upper tier of the stratified market with improved pricing fundamentals. NexTier will continue to harness our newly tooled and advanced logistics capabilities, and provide additional pull-through opportunities to fully integrate our completions platform. NexTier has established a track record for supporting and improving the service delivery of all of these initiatives by leveraging the digitally enabled capabilities in NexHub that facilitates responsible operations, by supporting reduced emissions, operating cost and safety risk. Finally, NexTier has the balance sheet to make counter-cyclical investments that will position us as a market leader as the meaningful recovery takes hold. In summary, we are very excited about the future of NexTier and we look forward to the next phase of our evolution. With that, we'd now like to open up the lines for Q&A. Operator?

Ladies and gentlemen with that we'll begin today's question-and-answer session. Our first question today comes from Sean Meakim from JP Morgan. Please go ahead with your question.

Thank you. Hi, good morning.

Hey good morning, Sean.

I'd like to start with focusing on the profitability cadence for the frac fleet. As you noted, whitespace negatively impacted your EBITDA 4Q, you gained a little more volume in the first quarter versus 4Q not a ton more. Now you're going to do lose some days potentially given the extreme weather, maybe three to four days you quantified that. As we think about the task towards some form of normalized EBITDA per fleet, could you maybe just walk through the building blocks from where we are, say, in the first quarter to what gets us to a more normalized level of profitability for fleet? What do you think that number looks like in this current cycle?

Thanks, Sean, for the question. I'll start now and let Kenny put a little color to it. And I'll just say that obviously, profitability per fleet coming up bottom of the downturn is probably the worst part of any cycle that we've experienced before. But we see a pathway, a significant number of profitability leverage to allow us to pull our way back out of it. Fundamentally, I'd say price is in a position that was set into worst part of the downturn, so getting base price recouping a bit will tight place starting basically now working through that process over the next multiple quarters. But also pointing out that as we develop our next gen fleet, our dual-fuel or e-fleet whatever directions our customers go, those are in more demand than the strong demand in that market is better, so the chances for having more profitability around pricing in those areas is prevalent. And then we got, we were building on this last mile logistics tooling that we've come put in place over the last year that's really changing the game, and we're calling back a lot of the profit delivery with a number of customers, because these tools have changed, they normally even graded mile ounce to do it a little bit more cost effective than previously. So, we're seeing that already, and we'll see more of that. And also, I would say we get into second half of the year, power solutions will become being deployed. And with that, we will see additional revenue and profitability strengths coming in around our frac fleets. And since the merger, the integrated platform around Wireline pumped down perforating and frac has been very key to change previous existence of differentiated frac stages per fleet routinely delivered. And since the merger, not every customer fully understood that and the fluctuation of percentage of crews that are running, integrated versus non-integrated have fluctuated a bit, and I'd say somewhere between the range of 50% to 80%. So we need to move that up a little bit more, as we have brought in some new customers during this last, say, two or three quarters that are getting used to that concept of testing it out a bit. So upside there as well. And then lastly, I'd say on reservoir technologies, the more and more customers taking a look at engineering completions and using lateral science to place the completions in the most preferential spot in the reservoir along the horizontal to improve their dollars per barrel. So all those levers give us the ability to move off as low point, and move back to a midrange is significantly higher. And I would say all those things we believe can add as much as $8 million annualized per fleet. Can you give a little more color perhaps on that?

Yes. Good morning, Sean. So Robert talked about all these kind of points of distinction. And we believe that that over time, as we add these capabilities, and our full cycle basis for NexTier, as Robert mentioned, we should be able to deliver between $6 million and $10 million of additional EBITDA per fleet, which will be incremental to base diesel profitability. And that range is going to be based on the integration of the services. So the more integration that we have, we will be more on the upper end of the range.

That's really helpful. Yes, a really good walkthrough there. I appreciate that. And then, it sounds like you're seeing some bifurcation in the market between dual-fuel fleets versus traditional. And this is something I think we were expecting for this cycle. But are you really seeing it just in terms of utilization uplifts? Or can you get pricing leverage in that part of the market relative to what might be seen among traditional fleets?

So, Sean, supply and demand impacts just about everything, obviously. And inside the activity, that's deployed day in frac in the U.S., about 25% of it has the capabilities of using natural gas as a power source, whether it be an equally or dual-fuel fleet, either Tier 2 or Tier 4. That part of market sold out. So there's no question about getting price differential in that arena. And as we mentioned on our last call, we have deployed a pricing structure that we call, ESG Pro, and ESG Platinum that provide different levels of guaranteed diesel displacement for natural gas, with Platinum being higher than Pro. And that's an effort on our part to give our customers different price points to enter the market, where they want to be at versus emissions and versus gas, diesel arbitrage and so forth. So in that this is the reason that we plan to continue to invest and grow that part of the fleet, because the customer interest is on the increase not on the decrease. But we like that a lot. But the bottom line is still, and I didn't really mention that in previously before the question is that the foundation is to building up a little bit has to do with what the low end of the markets doing at this particular phase in cycle. So, if you're out there pricing Tier 2 diesel fleets extremely low, our prices a delta to that as it relates to gas power.

Understood. Thanks very much.

Thanks, Sean. I appreciate the question.

Our next question comes from Ian MacPherson from Simmons. Please go ahead with your question.

Good morning, Robert, Kenny. I appreciate all the detail and prepared remarks. I wanted to follow up on the strategic ESG related CapEx that you've guided for the first half. Do you see that being more front half weighted, and so you would - we could imagine some positive EBITDA pull through from the power solutions and other technology spend in the first half and also lower second CapEx as well? Or do you think that that will continue to project ratably after the first half?

Look, I appreciate that detailed question. I would say that if you look at our, our situation and our balance sheet, in the middle of the downturn, as it did apparent what it was going to look like, we decided to be defensive first, and manage our cash balance and our liquidity. We've been at last year with more cash than we historically been at. But for us to take advantage of our balance sheet, we need to be opportunistic as well, and call it kind of balance and defense with offense. And making some investments in power solutions and in DGB both of which have a lot of market support and good return profiles, is that the reason we got it only for the first half was because, we got some visibility, that's clear for us in the first half around demand. But I would not necessarily say that we would be that first half dominated in our spend, because we are very bullish about 2022. The customer base that we have, you see how the customers have reacted to this response. We've seen a small independence move faster to add capacity, drilling rigs, for example. And I would say each customer moves to their own cadence. We got some visibility about 2022 that that we need to invest to be ready for. So, we're going to reserve answering that a bit about the second half of the year, as we get this a little more clarity with that. But Kenny, would you add little more color to that perhaps?

Yes, good morning. So, from a cash balance perspective, our goal is to maintain a healthy cash balance through H1, 2021. We call it out our EBITDA guidance for Q1. We have line of sight to customers returning in Q2, and we're expecting our EBITDA to be up versus Q1. But look, what I would say on your specific question about strategic spend of $25 million to $30 million, a portion of that in H1 will be power solutions. We will be ratably spending that power solutions capital throughout the year. And then the rest of that $25 million to $30 million will be on additional Tier 4 DGB conversions.

If you miss the window, you're going to be in a bad spot.

Right. So, Robert, just high level should we think about the substitution rates on your dual-fuel fleet just generalized moving progressively from start to finish over the course of year, given these investments and given probably the increased customer uptake as you build out the scale of the platform that I think will really be unique to NexTier?

Well, I think that that ESG-Pro, ESG Platinum pricing structure is unique to us at this point. And you are able to use your fleet in various combinations to achieve those displacement modes. You might mix Tier 2 to Tier 4 DGB. A Tier 4 DGB Tier 4 dual-fuel system with dual-fuel kit from the same manufacturer can get north of 80% displacement. Whereas take a Tier 2 that has somebody else's kit put on it, it could be in the 30s displacement. So, you take a mix of that to get to a point, with real time controls that we have through NexHub, you're able to demonstrate to the customer and deliver in the wellbore, demonstrating what you did, and justifying the price points. So, all I'd say is I think we differentiate there a bit, not only with the size of the fleet, but the way in which we operate by using OEM match kits and control systems that allow us dial. Did that kind of address the question?

It does, yes. And I think really what I want, what I'm curious is, where are those metrics trending. Are you below 50% on average today, and you might be at 60% or 65% on a blended average a year from now, or those types of numbers way off the mark?

So, look, it's an ongoing process of learning how to tune the fleet to specific operating conditions that - you may run one pump a little less than another to begin to balance it out to optimize the flow, and we get better every month in it, I would say. But we have to meet those threshold price points for ESG Pro and ESG Platinum, we meet those. No matter, we had to do that. But, as we get smarter and the controls get better, we will continue to improve in that arena I would say. And it's not as simple as just running it as you ordinarily would, and expect that change, you have to get the data, and then you'd have to dial your tuning of the 20 pumps on location to maximize that effect, if you understand what I mean.

Yes, absolutely. Thanks very much. I'll pass it over. Appreciate it.

Our next question comes from Mike Sabella from Bank of America. Please go ahead with your question.

Hey, good morning, everyone.

Good morning.

I was wondering if you could just kind of talk to us a little bit about further reactivations from here. Do you think - it sounds nothing really planned in 1Q. It kind of sounds like 2Q is maybe better than 1Q. Are there more reactivations needed? And then, as we think about, what you all were willing to do, kind of with respect to profitability needed to reactivate equipment. What do you guys need to see in order to bring more equipment back?

I appreciate the question. And this reflects a little bit about our stated objectives and strategy around our readiness program. You hadn't seen us call out reactivation costs, because we've kind of - at the bottom this downturn, we built in this readiness program that we were investing almost $1 million a month to keep our fleet ready to go. And, we've put since the bottom 11 fleets back to work. And when we look into next quarter, we got a pipeline and it's interesting to us pipeline of opportunities that we can see some upside. But your point is very well taken in that, we're not going to do it at prices that are not accretive to where we're at today, because it's got to get better. So, I would just say is that you can probably see us leaking upward a little bit in our deployment, depending on the opportunities. And one thing, I'd say is the dynamic has occurred over the last quarter to - while we see the deployment of fleets increasing, and the efficiency during the time at which we're actually pumping is excellent. I've heard some of our competitors comment similarly. But as the customers are ramping up, the whole thing then flow as smooth. And perhaps this whitespace is opened up in the calendar in between pads or in between well sometimes or causing some hiccups in the profitability over the frac side. So, hope I gave a little color.

Got it. Thanks. And then kind of it's a year on from the Keane and C&J merger. Maybe just a little update on thinking about how you all think of M&A from here. Is there anything interesting out there? And if so, what a potential deal for next year could look like?

Well, we see there's a lot of need for consolidation in our business sector. There's a lot of companies and a lot we have got a few fleets and creates a very challenging environment time. We, I think have demonstrated the ability to integrate very well and we got I think capabilities that are even better now that we have, some of our business systems in place that we spent a lot of money on in the past to get in place. In our strategy around being able to convert more to using natural gas as a fuel source would be core to our industrial logic behind any kind of M&A. But I would also say that is we have an open mind, because we can see the benefits of how consolidation can work. There is synergies to be captured and the business is good for us and our customers and the counterparties. So priority wise, we're looking for us we'd be thinking a lot around how would we supplement our strategy around ESG and gas, and utilizing digital to perhaps improve operations of counterparty versus just consolidate it for the sake of putting the resources in less hands. But we have an open mind and we want everybody to know that. And so we feel like that we could be a good counterparty.

Got it. Thanks all.

I appreciate the question.

Our next question comes from Connor Lynagh from Morgan Stanley. Please go ahead with your question.

Yes, thanks. I was wondering if you could just help us think through and I think one of the earlier questions was sort of alluding to this as well. So you called out I think it was $7 million or $8 million of calendar inefficiency. As we think through the second quarter, should we think about you guys getting that back? Are there other things on price or efficiency that we should think about? I'm just trying to think through as we sort of get past what sounds like pretty challenging first quarter? How much should we think about your profitability potentially expanding?

So, I appreciate that question. And I don't think we called it out as much as we could have probably. Being as - we are having this earnings call to-date, we unfortunately had the support the ability to see what's going on out in the Permian, for example, where a significant portion of our activity occurs. And three or four days of shutdown, we don't have clear visibility by the backside of that, because there's going to be disruptions in the supply chain around the mines and everything, I think. And we were saying, that's at least a $5 million hit in the quarter of Q1. So you start thinking about the weighing, our earnings release came out, I saw some of the latest this morning. I think that part of it's got to be taken into consideration. If we would have did this call a few days earlier, we wouldn't have known and that was going to be the case. So that's one thing. The second thing about the whitespace, in mid-quarter now we've seen some of that same kind of issues, but we also see visibility past it. And I think that we will be guiding Q2 strong or I would try to do a little bit in our prepared remarks. Kenny, do you have any color?

Yes. I would just say that since the downturn, the depths of the downturn, we've built up a solid foundational base of activity. And as we mentioned in our prepared remarks, we have some longstanding customers returning. So we see adding two to three fleets in Q2, and we see expanding both the margins and the profitability per fleet versus Q1.

All right, perfect. That's helpful color. I appreciate it. I guess just on a longer-term sense. I think you guys had called out, you think the market needs 200 to 225 fleets to balance production. There's a lot of different data sources out there these days on frac fleets. They don't always agree. I guess, could you just sort of normalize how much you think that is, in terms of incremental fleets being added to the market? And I guess, by most accounts we're hearing producers do want to sort of reach that stabilizing point this year. Do you think that's a mid this year event, late this year event? Do you think it happens at all this year, just what's your sort of thinking on a trajectory to reach that?

I think it's a good point you made that a lot of people count fleets differently. Deployed versus fully utilized, versus satellite looking at everything else. I'll just say that we try to take all that data and make our own call, and we kind of think current fleet count is around 165 something like that, with a quarter of it being roughly natural gas consuming. And I think that our view is that that fleet count will continue to leak upwards, and probably peak in Q3. And we would call that if 165 count the way we do it is normalized right now, it'd be like something like 190 toward the end of Q3, probably a little bit of seasonal impact in Q4. And then we see 2022, some of these customers Kenny referred to and we got a lot of them. We feel very strong about 2022. And the way things are lining up, as oil price this stage kind of in the ranges in right now, and some people would say might be higher than that. So, we like it. But we don't see 2021 having an explosive upside. This is a steady leak upward and not heard others say that you can see frontend unloading occurring in CapEx spend by the EMPs, and I would not argue the logic of that. I would just say that it's customer specific and that there's different kind of customers that have, the independence versus the big guys, for example, and they have different timelines and so forth. And we look at it through our end, that's the way we see it.

Got it. That's all helpful. Maybe just one quick follow-up there, just in terms of the incremental adds both this year and what potentially you're hearing about to some extent next year. I appreciate the visibility is not that good that far out. But if you're thinking that this is more sort of large public independence, is it more the majors, is it more privates or is there really not a sort of directional trend you would point to there?

I think it's going to be kind of all the above, but at different rates. I mean, if you got - a company has been going through a consolidation on their own behalf, and they spend the time right now and getting prioritizations done, and the integrations done. You'll see they're spinning, they bought it to produce it. So they're going to get acted. And I think that's kind of the driver. If you got a duck count, you got some backlog inventory to deal with, that's another factor. So there are a number of those but that feel pretty good about 2022 as that some of the big players, whether they be small or large public companies, they got a lot of inventory and a lot of activity capabilities that that they're going to go after. And I think 2021, they got a lot of commitments related to building their balance sheet and returning cash to shareholders, and they're going to keep that - they're going to make that happen almost regardless of oil price in '21, I think.

Got it. All right. Thanks for the color.

I appreciate it.

Our next question comes from Chris Voie from Wells Fargo. Please go ahead with your question.

Good morning. Thanks for taking my question. Maybe on the pricing a little bit more there. I understand that you have kind of different tiers of pricing for different products, but has there been any conversation about pricing actually increasing? So any agreements for higher price in the future yet? Or is it still a matter of hoping that supply - excuse me, demand increases and those discussions will come?

Look, I would say that the pricing discussion is an ongoing thing. It's got this dynamics and mostly the dynamics or down in the diesel burning fleet category that is got a lot of capacity still in the market. But I'd also say is that for us, we kind of said our market share would be somewhere between 8% and 12% of the frac market. And we would vary our price around to try to test the market around how that kind of shakes out a bit. And I would say is that our customers appreciate that thing in general that the pricing that we've conceded during the downturn is not sustainable. And these discussions will take all different kinds of forms, pricing structure to commodity recapture, to salary reinstatements, to market movements. And I think that's already started, and I think it's going to take us a little while to play out. And I've heard some competitor talking about already having deals, but I would say nobody really operate in isolation and is we all pretty much are looking at the same things, the same opportunity. So pricing from here, I hope you quote me as saying it has to go up, because it's really unsustainable, obviously. But our customers are also dealing with the turmoil that they've had to go through because of COVID. And we want to continue to work with them. There is a process and make it work for both flows. But it's a steady and ongoing process and there'll be wins and losses along the way.

Okay. That's helpful. Thank you. And to follow-up, earlier you mentioned, you talked about horsepower per fleet increasing. I think there's a few different reasons for that, whether it's simul-fracs or kind of a flurry of equipment getting put out there, some of which is maybe not perfect condition. Where does your stand right now? And how do you think that's going to evolve for the industry going forward? Are we going to see significantly higher horsepower per fleet going forward compared to what we saw in 2018-2019, for instance?

We certainly see it leaking upward, and the amount of horsepower consumed per fleet and it's got mixed impacts on the business. Some frac is a bigger part of our business all the time and it's a significant part of our business, and we're getting quite good at it. There's something about it that's beneficial. Typically you got lower rate and treating pressures per well and little bit less wear and tear, perhaps only equivalent, but it takes more equipment into well site. And we are having to adapt our pricing models and utilization and efficiency models to that changing market. But I think in general, production is being linked to the amount sand placed in the lateral, and operators seeing the benefits of that, and obviously, we continue to go down on our path. At least for us to adapt our pricing remuneration structure to make it work right. And that's again something that's in the process of evolving now.

Great. Thank you.

Thank you for the questions. Operator, I think that was the last question.

Correct. And I'd like to turn the conference call back over to you Mr. Drummond for any closing remarks.

Hey, thank you very much. Jamie, I appreciate it. I want to thank everyone for participating in today's call and for your interest in NexTier. I appreciate the flexibility. If you heard our teeth chattering, it's because we were in a conference room in a hotel and no heat and freezing. Houston's learning how to adapt with this. So thank you very much for the interest, and we look forward to next quarter.

Ladies and gentlemen, thank you very much for participating in today's call and for your interest in NexTier. The call has concluded. You may now disconnect your lines.