Liberty Energy achieved record operational efficiency in the third quarter of 2024, despite a challenging demand environment.

The company pumped more hours in a quarter than ever before, CEO Chris Wright said in the company’s Oct. 17 earnings call. But slowing demand meant Liberty reported a 2% decline in revenue to $1.1 billion for the third quarter.

But the company is choosing to look to the bright side.

Liberty’s new digiPrime natural gas hybrid frac fleet, part of its larger digiTechnologies system, set “the company record for [the] number of hours pumped in a month by any crew in company history [with] low fuel cost from natural gas, low emissions and record operational performance.”

Over the past two years Liberty has focused on transitioning its frac fleet to next-generation digiTechnologies, Wright said. The company is on track to have approximately 90% of its frac fleets powered by natural gas, featuring dual fuel and digiFleets, by the start of 2025.

The recent launch of the Liberty Advanced Equipment Technologies (LAET) division deployed its first digiPrime pumps, which “expands [Liberty’s] ability to design, engineer and package complete proprietary systems,” Wright said.

Liberty is also capitalizing on its frac power generation expertise to capitalize on rising commercial and industrial natural gas demand. The Liberty Power Innovations (LPI) division, which began operations in the D-J Basin, has successfully made its first CNG sale.

“LPI’s expanded compression and delivery operations in Colorado are off to a strong start, helping bring our frac fleet CNG fueling services to critical mass. We are now supporting most of our gas burning fleets in both the Permian and D-J Basin,” Wright said.

Touting the company’s “competitive edge,” Liberty anticipates a boost in free cash flow and capital expenditures in its core business to trend downward next year, Wright said.

Despite softening industry activity, Liberty is planning to develop high-return diversification opportunities within its frac business with the technology, infrastructure and cash flow it possesses, Wright said.

“We’ve delivered superior returns during a time when industry activity levels and market conditions have softened from peak levels,” Michael Stock, CFO for Liberty, said during the call.

But despite what Wright called a “robust” quarter for Liberty, the current environment is characterized by slowing activity levels, placing pressure on pricing and are inconsistent with anticipated future demand.

As smaller frac companies face insolvency and many competitors struggle to keep pace with attrition rates, available frac capacity is shrinking.

But Wright said this will lead to a tightening of the frac market, even without a significant increase in demand, Wright said.

“Our per fleet frac profitability remains above the cyclical high in 2018,” Wright said. “This cycle is markedly different than previous cycles, reflecting a far healthier frac market, with perhaps wider differential in profitabilities across the quality of frac providers.”

In the fourth quarter, Wright foresees a “low double-digit percentage reduction” in fourth quarter activity, reflecting a challenging demand environment that Liberty and several other companies are dealing with in the industry.

But he expects completions activity to increase in early 2025 to support “flattish” E&P oil and gas production targets, he said. The frac industry is also adapting to slowing E&P operators’ development programs, driven by significant efficiency gains in the first half of 2024 and ongoing consolidation in the sector.

Despite short-term challenges, several factors suggest an optimistic outlook for Liberty in 2025, said Wright.

“Industry-wide frac efficiency is at its highest levels, but we expect the rate of improvement will slow going forward. Higher intensity fracs require more horsepower. Softer activity has been a catalyst for equipment attrition, cannibalization and idling of fleets. Together, these imply that the supply and demand balance of frac fleets is tighter than headline frac fleet counts suggest.”

Positioned for global expansion in 2025

Liberty’s investments in digiFleets and power generation are expanding its competitive edge and market opportunities. This expansion aligns with the company’s focus on natural gas-fueled technologies. The recent deployment of a Liberty fleet in Australia marks a significant milestone, and the company looks to begin operations in the Beetaloo Basin in November.

Liberty’s PropX division, a key player in last-mile proppant handling, has also made significant strides, delivering nearly 400 billion lbs of sand since inception, according to Wright. The division is currently testing new systems designed to optimize operations and minimize environmental impact.

In the third quarter, Liberty’s  net income after tax was $74 million, down from $108 million in the previous quarter, while adjusted net income was $76 million. The adjusted EBITDA for the quarter was $248 million, compared to $273 million the previous quarter.

During the quarter, Liberty repurchased $39 million in shares and distributed $11 million in cash dividends, in line with its commitment to returning capital to shareholders while investing in high-return opportunities.

In response to current market conditions, the company plans to temporarily reduce its deployed fleet by approximately 5%. As Liberty positions itself for 2025, it expects to generate healthy free cash flow, shifting investments toward power generation services while continuing its robust return of capital program.

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