Liberty Energy Inc. (LBRT) Q2 2023 Earnings Call Transcript

Liberty Energy Inc. (NYSE:LBRT) Q2 2023 Earnings Conference Call July 20, 2023 10:00 AM ET

Company Participants

Anjali Voria – Strategic Finance and Investor Relations Lead

Chris Wright – Chief Executive Officer

Ron Gusek – President

Michael Stock – Chief Financial Officer

Ryan Gosney – Chief Accounting Officer

Conference Call Participants

Derek Podhaizer – Barclays

Keith Mackey – RBC Capital Markets

Luke Lemoine – Piper Sandler

Waqar Syed – ATB Capital Markets

Stephen Gengaro – Stifel

Marc Bianchi – TD Cowen

Scott Gruber – Citigroup

Neil Mehta – Goldman Sachs

Dan Kutz – Morgan Stanley

Arun Jayaram – JPMorgan

Tom Curran – Seaport Research Partners

John Daniel – Daniel Energy Partners

Operator

Welcome to the Liberty Energy Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Anjali Voria, Strategic Finance and Investor Relations Lead. Please go ahead.

Anjali Voria

Thank you, Allison. Good morning and welcome to Liberty Energy’s second quarter 2023 earnings conference call. Joining us on the call are Chris Wright, Chief Executive Officer; Ron Gusek, President; Michael Stock, Chief Financial Officer; and Ryan Gosney, Chief Accounting Officer.

Before we begin, I would like to remind all participants that some of our comments today may include forward-looking statements reflecting the company’s views about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the company’s beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed in our earnings release and other public filings.

Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA and adjusted pre-tax return on capital employed are not a substitute for GAAP measures and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of adjusted pre-tax return on capital employed as discussed on this call are presented in our earnings release, which is available on the Investors section of our website.

I will now turn the call over to Chris.

Chris Wright

Good morning, everyone and thank you for joining us for our second quarter 2023 operational and financial results. We executed on another quarter with strong financial results, and I’m especially proud of our operations team for safely delivering the highest quarterly average daily pumping efficiency in our history, a high bar raised higher.

Liberty achieved adjusted EBITDA of $311 million and fully adjusted – fully diluted earnings per share of $0.87. Our success in growing our long-term competitive advantage is illustrated by our trailing 12-month adjusted pre-tax return on capital employed of 44%. Strong cash generation enables long-term investment, together with a strong return of capital program.

In the second quarter, we returned $69 million to shareholders through the repurchase of 2.7% of shares outstanding plus our quarterly dividend. Since the reinstatement of our return of capital program in July of 2022, including the initial $250 million buyback authorization and a subsequent upsize to $500 million in January, we have now returned $287 million to shareholders through cash dividends and the retirement of 9.7% of outstanding shares.

We completed the initial repurchase authorization and now have $240 million of our buyback authorization remaining. The compounding effect of our last 12 months of share buybacks is evidenced by the 57% year-over-year increase in fully diluted earnings per share on a 45% increase in net income. We’ve created a unique competitive position where we can take advantage of accretive cyclical and secular investment opportunities, generating high returns while returning cash to shareholders and maintaining a strong balance sheet.

We have a very simple philosophy of investing early in the cycle, in strategic areas where we can leverage our expertise, bring differential technologies and services to our customers, improve efficiencies, and create future competitive advantages. A latest example is the launch of our new division, Liberty Power Innovations. LPI provides CNG fuel and field gas processing services to deliver a reliable source of natural gas fuel in support of the rollout of our suite of digiTechnologies.

Just as Liberty was founded as a solution to service quality challenges 11 years ago, LPI was an organic idea stemming from the need to find a solution to unreliable gas supply. LPI has made tremendous strides in the last few months. We’ve successfully integrated the April acquisition of Siren into the LPI platform and have already seen a growing customer base for both drilling and completion needs. We’re also on track to meaningfully increase our gas compression capacity in the Permian Basin in the third quarter and enter the DJ Basin later this year, readying ourselves with enough capacity to execute on a profitable multi-year growth plan.

Our delivery and logistics capabilities are also growing with transportation equipment on order, increasing our fleet of CNG trailers and logistics services to deliver reliable fuel supply. We also have field gas processing and treating, which began in the Haynesville in support of our frac services. We have since added 2 additional field gas processing customers in the Permian.

We are excited by the long-term business potential of the LPI platform. Not only will it allow us to secure the supply chain of fuel that drives our digiFleet technology transition but it also positions us to take advantage of expanded opportunities beyond completions and eventually grow beyond the oilfield. We’re investing today for the future growth of the business by bringing together the right people and right technology to build a differential offering.

Liberty was an early driver in the industry shift from diesel to natural gas technologies a decade ago. And today, the importance of natural gas-fueled equipment is more widely appreciated as a means to lower fuel costs and emissions. We continue to transition our fleet towards our natural gas fueled digiTechnologies. These technologies expand our earnings potential without meaningfully changing the customers’ total well costs with the savings from the diesel to natural gas arbitrage. As a reminder, we deployed our first digiFleet comprising digiFrac electric pumps in the first quarter, and we’re in the process of deploying our second digiFleet, which is slightly delayed as a result of supply chain challenges. Our third and fourth fleet will follow during the second half of this year.

We’re also building digiPrime hybrid pumps, anchored by the most efficient 100% natural gas engine available. These capital-efficient pumps can be used as the primary source of horsepower on location, alongside a few digiFrac electric pumps that will manage transient load and precision rate control. This fleet configuration will have the most efficient gas consumption, emissions and fleet capital in the market. digiTechnologies are Liberty’s platform for the future.

Frac markets in North America are at a steady, healthy activity levels after moderating a bit from late 2022 as commodity prices retreated from the 2022 peak. Crude oil prices are now at pre-Russia-Ukraine war levels, which has spurred private operators in oilier basins to reduce activity. Lower natural gas prices have also led to a curtailment of activity in gas basins.

During the second quarter, we saw reduced frac activity that resulted in increased white space in our calendar, resulting from customers changing development schedules, idiosyncratic drilling delays and the redeployment of fleet from gassy to oilier basins. Even with these disruptions, the Liberty operations team achieved a new quarterly record in average daily pumping efficiencies. When our fleets were on location, our performance was the best it’s been in our history with more fleets safely pumping more minutes of the day than ever before.

Looking ahead, activity in the second half is expected to be slightly lower than the first half. If our customers’ scheduled work reductions become larger, we may reduce active fleet count by 1 to 3 fleets in the second half of the year to balance demand. We will consolidate work to maximize the utilization of our crews. Our goal is to maintain the safest, most efficient operations and we will do so by balancing the right numbers of crews to meet E&P customer demand.

As we look forward, the rig count shows signs of stabilization as E&P operators are already benefiting from lower well costs from consumable inputs and some are evaluating plans to pull forward completions activity. Lower operator well costs are not service price driven but rather input costs, such as drill pipe, steel casing, cement, sand and fuel. Liberty is working with our customers to help lower their costs while maintaining our margins.

Our wet sand handling and delivery technologies are enabling proximity mining, reducing total cost and environmental impact by shrinking the distance and truckloads required to move sand to the well site while eliminating the use of natural gas from the sand drying process. Our wet sand handling technology is agnostic to wet and dry sand, allowing us to provide our customers with the most cost-efficient source of sand for their wells. We also have other logistic initiatives underway to generate sustainable cost reductions for E&Ps and increased returns for our shareholders. More broadly, global oil markets are signaling a constructive outlook on a tightening supply-demand balance.

OPEC+ supply cuts in recent months are beginning to take hold and markets are anticipating a subsequent draw on global oil inventories. In the U.S., slowing production growth, a drawdown of oil inventories and a likely shift to refilling U.S. strategic petroleum reserves, all aid the outlook. Despite recessionary risks, demand for oil remains resilient given several factors, including global travel trending towards pre-COVID levels, robust demand from India and strength in emerging markets. China has also reached its highest level for oil demand in history, despite having grown at a slower pace than predicted a year ago. Under investment in global production capacity supports a resilient multi-year cycle for oil and gas.

Relative to prior cycles, frac demand has a natural floor as the large majority of completions activity is simply offsetting normal production declines. Operators are largely adhering to flat or very modest production growth targets. This combination underpins higher base levels of frac fleet utilization and more insulation from commodity price volatility than in prior cycles.

The current, more consolidated industry is also better prepared to navigate near-term softness in completions activity by reducing active fleet counts to balance the market and protect margins. In the second half of 2023, demand for frac fleets is expected to parallel recent rig count trends at approximately a one quarter lag. Natural gas markets likely don’t meaningfully increase activity until 2024 in advance of rising LNG and Mexico exports.

We anticipate North American completions activity will moderate in the second half of the year versus the first half. Service companies are reducing fleets in response, supporting a balanced frac market and largely stable pricing environment. Our internal bottoms-up industry analysis already shows a decline of the industry frac demand for nearly 30 active fleets and the industry has successfully navigated this softer activity.

Liberty is well positioned to navigate these trends. While Liberty may reduce fleets to adjust to lower activity levels should they persist, we do not expect meaningful change in service prices. Frac utilization has moderated but still remains high and we see a strengthening macro in 2024. We expect continued healthy free cash flow and capital returns to our shareholders through opportunistic share repurchases and dividends.

With that, I’d like to turn the call over to Michael Stock, our CFO, to discuss our financial results and outlook.

Michael Stock

Good morning, everybody. I am pleased to share that we achieved an improved trailing 12-month pre-tax ROCE of 44%, despite utilization challenges in the second quarter. We also rounded out our first full year of our capital return program reinstated in July 2022 with a combined $287 million returned to shareholders, dominantly in the form of accretive buybacks. We continued our investment strategy in our differential suite of digiTechnologies and accelerated the launch of LPI, Siren acquisition in April.

We’ve had a busy quarter executing on these initiatives, and we expect this to continue for the remainder of the year. In the second quarter of 2023, revenue was $1.2 billion, a 27% year-over-year increase, but a 5% decline from the first quarter. Relative to the first quarter, unplanned customer completion schedule changes, drilling delays pushed activity on larger pads and fleets shifting from gas to oilier basins led to softer market conditions and utilization challenges, partially mitigated by the record efficiencies we achieved across the full fleet.

Second quarter net income after tax of $153 million, a 45% increase from prior year, but a decrease from the $163 million in the first quarter. Fully diluted net income per share was $0.87, a 57% increase from prior year and compares to $0.90 in the first quarter. General and administrative expenses totaled $58 million in the second quarter and included non-cash stock-based compensation of $7 million. G&A increased $5 million sequentially due to the higher non-cash stock-based compensation expense, annual salary adjustments and other miscellaneous expenses.

Net interest expense and associated fees totaled $6 million for the quarter. Tax expense for the quarter was $47 million, approximately 24% of pre-tax income. We expect the tax expense rate for the full year to be approximately 23% to 24% of pre-tax income. Cash taxes were $52.5 million in the second quarter, and we expect 2023 cash taxes to be approximately 50% of our effective book tax rate for the year. In 2024, we expect a 23% – 24% book tax rate and a similar cash tax rate.

Second quarter adjusted EBITDA increased 59% year-over-year but declined 6% sequentially to $311 million. Adjusted EBITDA fell sequentially as a result of the aforementioned challenges during the quarter. We ended the quarter with a cash balance of $32 million and net debt of $256 million. Net debt increased by $67 million from the end of the first quarter as we acquired Siren Energy for $76 million net of cash. We used cash flow to fund capital expenditures, $60 million in share buybacks and $9 million in quarterly cash dividends.

Total liquidity at the end of the quarter, including availability under the credit facility, was $226 million. Net capital expenditures were $152 million in the second quarter, which included costs related to the digiFrac construction, capitalized maintenance spending and other projects. We had approximately $7 million of proceeds from asset sales in the quarter.

Net cash from operations was $240 million for the quarter and returns to shareholders was $69 million for the quarter. Our capital expenditures remain on target for 2023, now weighing towards the second half of the year. In 2022 July, we installed a $250 million share repurchase program to take advantage of dislocated share prices. During the first quarter of 2023 we upsized that authorization to $500 million, reflecting our conviction in our ability to generate strong free cash flows.

We also reinstated our quarterly cash dividend of $0.05 per share in the fourth quarter of last year. In the second quarter, we returned $69 million to shareholders, including the share repurchase of 4.7 million shares, which represent 2.7% of the shares outstanding at the beginning of the quarter for $60 million and the balance in dividends. We have now returned to shareholders a cumulative $287 million in the last 12 months. We continue to differentiate ourselves in an industry with an industry-leading return of capital program while reinvesting in high-returns opportunities and growing our free cash flow. Looking ahead, we expect North American completions activity will moderate in the second half of the year versus the first, but remain at very healthy levels.

Frac activity is expected to stabilize but with somewhat quarterly lag to the rig activity ahead of a more constructive outlook for oil and gas markets in 2024. As we look at the second half, we may reduce active fleet count by between 1 to 3 fleets if activity slows further, consolidating our planned activity with our highly efficient fleets and thereby improving fleet utilization.

As a result of these changes, we’re adjusting our full year 2023 adjusted EBITDA outlook to approximately 30% to 40% year-over-year growth. Our profitability should trade higher in 2024 and free cash flow is predicted to exceed 2023 levels driven by incremental profitability from our current year investments, continued margin expansion initiatives and lower capital expenditures. We will continue to deliver on our strategic priorities, including our industry-leading return of capital program, a strong balance sheet and continued investment, differential technologies that position us well in the coming years.

Chris will give some big picture closing comments after Q&A. And I will now turn it back to the operator to open the line for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question today will come from Derek Podhaizer of Barclays. Please go ahead.

Derek Podhaizer

Hey, good morning guys. So, your top line was down 5%, but you held in decrementals around 30% to hold margins flat quarter-over-quarter. Can you just maybe talk about the cross currents between you mentioned your record pumping – sorry, white space, decreased consumable prices and frac pricing? And should we expect similar decrementals for the back half of the year in the second half?

Chris Wright

Look, as we said, when people change schedules and we don’t have enough time to fill slots and all that, we end up with little extra white space as we did. So look, I would say, pretty similar in Q2 versus Q1, a little more white space that drove the revenues down, pricing, about the same. But when you have white space and you don’t get revenue out of that, you still got the same fixed cost, it compresses margin a little bit. I don’t know if Michael wants to say anything else. But yes, and you could see – our revenue, I think was about the same as Q4, but margins were higher.

Michael Stock

And Derek, I think the team did a very good job. Pricing was basically flat, but we say activity was off, but we did a great job on the efficiency side. Decrementals were 30%, which was very good. We actually managed to sort of mitigate some of the decrementals that you would normally see in a drop of revenue with some of our other business lines. So – but, second half of the year, I think you would see – you can potentially see a little higher decrementals. That would be the natural sort of like flow, but we will still work to mitigate it. So, I’d say 30% is probably the low end of the decrementals, a little bit higher than that could be expected as well.

Derek Podhaizer

Got it. Okay, great. That’s helpful. And then, just want to – any more color on your fleet count. I know you previously guided us to a low 40 numbers. But now we have some e-fleets coming in. You mentioned, first did you flagged fleet out, next one is coming in 3 and 4 back half of the year. You talked about removing 1 to 3 fleets in response of the market. But what about your aging Tier 2 pumps, are you taking those out of the fleet as well? I am just trying to think about where 2024 is going to start as far as the fleet count for you guys? And maybe even further, what type of a mix should we think about between e-frac, Tier 4 DGB and then just your legacy stuff? Some color there would be helpful.

Chris Wright

Generally, I’ll take that one, Derek. I mean, when we look at it, we probably retire 3 pumps every week, when we think about an aging fleet. The average sort of about 10% of the whole industry fleet goes down every year. So, it’s a very slow sort of incremental process – we are bringing on digiFrac pumps as we go. As we said, we’ll have 4 fleets of that. Generally, if we’re looking at a flat fleet count, that would be replacing Tier 2 diesel. So, we are moving up our natural gas percentage. As we said, depending on where Q4 shakes out, which may well, they are still sort of – they are still working on some of the plans, I think on the operators or where the second half of that is, maybe somewhere between 1 and 3 fleets we may drop compared to the beginning part of this year. So, that’s where we would start next year. One would expect those fleets would come back relatively quickly as the strengthening market going into Q1 with a better oil market and then strengthening again. I think you’ll see a strengthening market as we go through – the gas basins come back. So, really pretty good outlook for next year on that sort of an increase in their gas usage and sort of widening our technology advantage.

Derek Podhaizer

Great. Perfect. Appreciate the color, guys. I will turn it back.

Chris Wright

Thanks, Derek.

Operator

Our next question today will come from Keith Mackey of RBC Capital Markets. Please go ahead.

Keith Mackey

Good morning. Just curious, so the guidance you’ve put out or the commentary you’ve put out on the fleet count mirroring or paralleling the rig count drops with a one quarter lag. So if we look at the rig count from Q1 to Q2 dropped about 80 at 2.5 rigs per crew, that kind of gets me to 32 fleets, which maps up, I guess, fairly closely with your bottoms-up frac count analysis. But can you just talk a little bit more about where you think the industry is in relation to dropping those 32 fleets? And kind of where are we sitting now in total fleet count from what you can see?

Chris Wright

Yes. No, I’d say when we talk about that quarterly lag, I mean that’s just a natural when you think drilling moving towards farc. The vast majority – probably a large amount of that was the exit rate for Q2 or the early part of July, right? So we’re sort of – I’d say, rig count is probably at best sort of stabilized factor now and probably has gone up in the last couple of weeks, somewhere around there. I would say frac fleets, I think people are slowly de-staffing frac fleets. So it’s kind of hard to tell exactly where we can active demand, where everybody is in sort of like stacking those fleets and sort of letting the staff a trip off is a little sort of more amorphous, but I’d say a large portion of the [indiscernible].

Ron Gusek

I think that’s right.

Keith Mackey

Got it, okay. Thank for that color. And just a follow-up on your 30% to 40% revised EBITDA guidance. Does that incorporate dropping the 1 to 3 fleets potentially or would that be incremental to the 30% to 40% year-over-year EBITDA growth guidance figure?

Chris Wright

That includes it. Yes. So that’s – as we say, as you see, we were probably at the – at the top end of that range. We’re at the bottom end of our range from where we were when we were seeing in the beginning part of this year. So that includes those potential fleet drops, but we still see activity continue to roll down.

Keith Mackey

Got it. Okay, thanks very much, that’s it for me.

Chris Wright

Thanks, Keith.

Operator

Our next question today will come from Luke Lemoine of Piper Sandler. Please go ahead.

Luke Lemoine

Hey, good morning. Maybe for Ron, could you update us on digiPrime and where you are with testing? And then, is the plan still for these pumps to be in the digiFleets that are rolled out, number three and number four?

Ron Gusek

Yes. Luke, we’re well into our testing with digiPrime now. It’s on the test stand and running through the program we have laid out for it there. All indications look quite positive at this point in time. So, we remain pretty optimistic about deployment of that here in the not-too-distant future. And yes, I certainly expect that to play a role in our rollout of digi. Exactly what that mix looks like will be a customer-by-customer situation, just depending on the needs there. But yes, you can expect digiPrime to be an important part of the baseload horsepower, both in the digi platform and in some cases, probably combined with Tier 4 DGB.

Luke Lemoine

Okay, got it. Thanks, Ron.

Operator

Our next question today will come from Waqar Syed of ATB Capital Markets. Please go ahead.

Waqar Syed

Thank you. So, I just want to understand what would change between – what macro things have to change between one and three crew drop. So, if rig count stays at around 650 or so, do you get to one crew drop or three crew crop or how do we go from one to three?

Chris Wright

Yes, Waqar, it isn’t really a macro thing. For us, it’s always bottom-up micro. It’s just the existing customers where fleets are working, if a customer is reducing activity, so that fleet is no longer fully utilized. If we can easily fill those gaps or spots with roughly equivalent work, we will keep the fleets active. But if we have a customer who’s cutting activity in half and we’ve got two fleets running for them, that’s quite likely that one fleet is going to go idle. Now we have – to-date, we haven’t put any fleet down. So I would say we benefited a little bit from the differential demand for Liberty. There is people that wanted Liberty capacity that didn’t have it, that have seen a little bit of softening in the marketplace and have used that to absorb capacity we’ve had come free from these incremental reductions from existing customers. So it’s really very much a bottoms up, what is the best use of that fleet. So, I’ve been saying, it’s a macro thing. It’s sort of very specific to the calendars of our customers. But yes, that’s our guess of that range. And we are agnostic on what number that is. We will keep all the people that work for us today, we will reassign them into other crews. Some of it will work on test development and stuff. Natural attrition shrinks employee base anyway so that employment count can adjust easily to sort of very modest changes in deployed capacity.

Waqar Syed

Fair enough. And Chris, in terms of pricing, are you seeing some inflation on some of the fleets, maybe more like Tier 2 diesel fleets? And if so, how much would that be? If you could put some numbers around it?

Chris Wright

Things are very granular individual customer to individual customer. But as these fleets have gone down, some of the people – before they put fleets down, they lobby in cheap prices. They may grab spot work at much big discounts. And does that create more customer dialogue? Sure, of course it does. But it’s – we have long-term partners and generally dedicated work, and the way we’re performing right now and our customers, we’re in sort of a happy situation that works for our customers and it works for us. And we just – yes, we don’t have any intention or any need to meaningfully change what we’re doing.

Waqar Syed

Okay. And just one last question. You have a small presence in Canada. How do you see the outlook in the Canadian market and right now the supply/demand fundamentals there?

Chris Wright

I would say that the Canadian market, which, over the last couple of years has probably been an incrementally looser than the U.S. Today, they are probably pretty similar. They are both pretty healthy markets. We’re busy in activity. We will likely have a record year in Canada this year.

Waqar Syed

Great. Thank you very much.

Chris Wright

Thanks, Waqar.

Operator

Our next question today will come from Stephen Gengaro of Stifel. Please go ahead.

Stephen Gengaro

Thanks. Good morning, everybody. Two for me. Just to start, what’s the current sort of price discussion with customers feel like? I mean is it – is there a lot of pushback? Is it just – I mean, clearly, there is a preference for your higher-end assets. But just any color on how those pricing discussions have unfolded?

Chris Wright

Stephen, as fleets have gone down, and as we said, probably 25 to 30 fleets across the industry have become idle over the last 6 months. That absolutely leads to dialogues. As I said to Waqar, that before laying off those people and parking that fleet, they’ll probably make a few phone calls, hey, can we get your work, you know this and that. So, we have dialogues with our customers. But we’re always motivated with our customers to figure out how to enhance their economics and enhance our economics. Are there a few more dialogues today? Alright, well I understand you’re a quality fleet, you’re not going to lower your service pricing, but hey, are there chemicals we can swap out? Is there more efficient logistics we can do? What about this wet sand stuff we’ve been hearing you guys talk about?

So there is probably more dialogues that always exists, but maybe more of them today about, Alright, what can we do together to drive down our well costs and that’s how Liberty rolls. We have a much larger engineering staff, a much higher tech team than our competitors. And so I would say that team is aggressively working with all of our partners about how to get some more efficiencies out of the system, make better decisions on material to use and grow our economics together.

Stephen Gengaro

Thanks, Chris. And then as a follow-up to that, I mean, you’ve talked about – I think we’ve talked about it as well and others as far as you’ve had industry consolidation. You’ve had you and HAL probably acting better or certainly HAL has from a CapEx perspective versus history. Is it too early to definitively say you’ve seen the impact of that better industry behavior on pricing dynamics or you’re still waiting to see that? I’m just trying to get a sense because we think it’s happening, but it’s – but from your seat, do you think there is evidence to that end?

Chris Wright

Absolutely. I mean, look at where we are, look at what perceptions were 3 or 4 months ago, my god, activity is going to shrink, pricing will collapse as it always does, no little park fleets. We’ve seen 25 or 30 fleets go down and no meaningful even measurable change in average pricing. So yes, I would say tremendously different behavior than we saw in the last two downturns. A lot of capacity has been idled. I think people operating that capacity trying to keep it busy at credible, high-return pricing, and they couldn’t do it and they parked the fleet. So that’s absolutely encouraging. I think we see a change in that. People are just taking a little bit longer-term view of their business now as the shale revolution has gotten more mature. And obviously, consolidation helps that, too. But no, it is, this is – now we will see what the future brings. But I mean, my guess is, most of the activity decline that we will see this year has already happened, and I would say the industry has handled that fabulously.

Stephen Gengaro

Excellent. Thank you for the color.

Operator

Our next question today will come from Marc Bianchi of TD Cowen. Please go ahead.

Marc Bianchi

Hi, thank you. The updated guidance for this year for the back half now seems to imply about a $260 million per quarter run rate. I’m suspecting it’s going to decline throughout the back half of the year where the fourth quarter is lower than the third. But any steer you can give us on sort of that progression? Is it a linear progression? Is it more of a drop-off in fourth quarter? Any color would be helpful.

Chris Wright

Yes, we gave you a bound there. As you see, probably around $280 million on average if you get to the top end of the range, right? So you’re probably using the middle end of the – middle part of the range there. So yes, I think some clarity around Q4. There’ll be normal seasonality in Q4, which is 5% to 7% because of holidays. But I think operators are sort of where they are and sort of kind of their plans are really just coming into focus as we come into summer, right? And so that will depend on sort of what part of the range it generally comes in.

Marc Bianchi

Okay. So at least at the midpoints, the drop is more weighted towards the fourth quarter at this point with maybe a slight decline in the third quarter.

Chris Wright

That’s where the slight – I’d say the fuzziness is. And so therefore, yes, you would say that was [indiscernible].

Marc Bianchi

Yes. Okay, that makes sense. And just to clarify, the one to three fleet potential drop, that’s overall fleet count. That’s not just legacy excluding digiFrac?

Chris Wright

That is overall fleet – average overall fleet count, yes.

Marc Bianchi

Okay. And then I had another quick one on pricing. One of the things that investors say a lot is, we’re not going to really know the effect of the pricing until the beginning of next year because of negotiations that occur in the fall and then all the pricing resets in the beginning of next year, do you see it playing out that way where the market won’t really know what’s going to happen with pricing until we get into next year or do you think kind of, Chris, based on what you were saying to Stephen’s question that we kind of already know?

Chris Wright

Yes, I mean, pricing is a continual thing. I think the sort of – there is a few big companies with big purchasing departments that are very annually focused, but they are more the exception than the rule. And ultimately, it’s just supply demand and desire for who your partner is as those negotiations happen. So, there is a lot of pricing dialogue going on right now. We see how that’s playing out. Obviously the supply-demand dynamics will be different 3 or 6 months from now than they are now. They might be similar, they might be tighter, we don’t know. But I don’t think it’s, no, we don’t know anything about pricing till next year pricing. That’s not how it works.

Ron Gusek

You’re not going to see a seismic shift as you start into the new year, on those new budgets, right? As Chris said, this is a continuum. Some things reprice on an annual basis. But generally, everything sort of moves sort of like in a slower sort of more organic fashion.

Marc Bianchi

Great. Thank you very much, I will turn it back.

Chris Wright

Yes, thanks. Good questions.

Operator

Our next question will come from Scott Gruber of Citigroup. Please go ahead.

Scott Gruber

Yes. Good morning.

Chris Wright

Good morning, Scott.

Scott Gruber

Chris and Michael, you guys have been very thoughtful in building Liberty through a series of acquisitions. But we did have Patterson and NexTier come together here recently and scale was a big focus for the company, not just operationally, but also in terms of trying to capture increased investor interest. So I’m just curious about your kind of latest thoughts on industry consolidation and achieving greater scale and the importance of those factors moving forward for Liberty?

Chris Wright

I mean, look, yes, consolidation, no doubt that’s a positive for the industry. It’s just – you just get larger, more rational actors in evaluating trade-offs. We’ve been different, I would say, a little bit that we haven’t mainly been an acquisition company. We really started with a different philosophy, a different way we’re going to do business. We were maybe a disruptor with a plan to be organic growth. It’s just we had a brutal downturn in ‘15 and ‘16 that just led to a compelling opportunity where there wasn’t another buyer. And so, we did the Sanjel deal and then COVID and some circumstances there led to, for us a highly attractive opportunity with Schlumberger.

But we’re not, by nature, an acquisitive company. We’ve had two awesome deals. And boy, if we get a third opportunity gets tremendous like that. Of course, we would do it. But our fundamental business model isn’t acquire and integrate. But for some of our competitors it is, and that’s great. There is all different ways to participate in this game. But in general, fewer players, larger, stronger players with more long-term thinking management, that’s absolutely positive for our industry on the frac side. I would say it’s also a positive for our customers. In sort of the crazy days of 2013 and 2014, and there was 70 frac companies. I mean, think of what was the speed of innovation? What was the investment looking forward more than 3 months? Not a lot. So yes, it helps pricing. So, you think all that’s good for the frac industry but not good for the E&Ps. Larger, more thoughtful players are better able to make rational investments in long-term partnerships. I think it’s making the whole industry healthier, for both our customers and our space, the frac space.

Ron Gusek

Yes. And I would just add a little color. We obviously see the fact that steadier earnings and a potential large market cap are appreciated by investors. We’re building into that organically, as you’ve seen, right? We’ve built a very large company. We’ve got the frac business, which is becoming a much steadier market, less cyclical. It’s still going to be cyclical, but less than it has been historically. And now building our LPI platform will allow us to diversify that earnings base and take some more noise out of the cycle and grow into sort of – continue to grow the footprint of our company even while we’re working in a space that may have single-digit, high single-digit growth in the oil patch for the next 10 years. We’ve got a much bigger opportunity in front of us with the LPI platform. So, that’s how we’re growing to that size to satisfy our investors.

Scott Gruber

That’s all-great color. I appreciate that. And then just turning to the CapEx comment on ‘24, that being down. The previous discussions have centered around replacing around 10% of the fleet. So the question is, is that sort of the game plan for next year? And then if so, does the decline come from some of the ancillary services Or do you slow the investment in digiFrac? So I’m just curious kind of what drives the year-on-year decline in CapEx?

Michael Stock

Yes. When we set out on our Investor Day sort of like last year and this year were very heavy investment cycles, as we saw it being part of the early part of the cycle, and it was going to slow down next year. We will still replace our fleet. Obviously, you got 10% attrition, that will be an upgrade from diesel to digiFrac, and we could see more than that. But as we said, next year, rather than being 50% predicted EBITDA, 50-odd-percent predicted EBITDA which is in this year for CapEx, it’s more likely to be in 30s and I think that’s exactly the same. Obviously, that would get painted on opportunities, great opportunities with high returns like we’ve been able to drive over the last 11 years are always going to be of interest to us. But that’s where we see our baseline business moving to, which is a – and then as we laid out in our Investor Day, it’s probably between a 5 and a 7-year transition of our whole fleet, since digiFrac.

Chris Wright

Yes. I mean if you look at last year and this year, we’ve had some transformative changes that won’t happen every year. We’ve completely different control system software we develop, entirely different logistics networks and some new logistics technologies we’ve talked about, both the development and the construction, the birthing of digi, digiFrac and digiPrime. We’re going to continue to build those technologies. But upfront, there is the development of them. So we’ve had – we’ve done a lot during the last downturn and the start of this upturn to prepare ourselves for the next decade. We will continue to have meaningful investments every year, but we’ve had a pretty concentrated run, I’d say, the last 24 months and the next 6 or 9 months. So yes, I think Michael’s comment to expect a reasonable reset downwards of CapEx is not inconsistent with the long-term plan to phase and it is definitely not an indication of slowing the deployment of Digi. I mean the demand there is just tremendous. For us, it’s just balancing of what pace do we want to replace those fleets and what’s the best homes for them as they come out.

Scott Gruber

Got it. And the 30% reinvestment as a percent of EBITDA, should we consider that more like a long-term than a normalized level?

Michael Stock

It’s – again, that’s our view into next year, Scott. When we think about baseline business, sort of our base completion business, 30%, 35%.

Scott Gruber

Okay, that’s great. I appreciate it. I will turn it back.

Chris Wright

Thanks, Scott.

Operator

Our next question today will come from Neil Mehta of Goldman Sachs. Please go ahead.

Neil Mehta

Yes. Good morning, team. Chris and Michael, I want to start off on capital returns, and you’ve talked – you’ve been doing a good job driving down the share count back half of last year, been aggressive in the first half of this year, and I think your mentality has been to buy back stock at dislocated share prices. Just love your perspective as we try to think about your capital return profile in the back half of the year, do you still see the opportunity to be aggressive or does the white space in the calendar impact the magnitude of free cash flow available to return to shareholders?

Chris Wright

Well, I think as you heard from the sort of broad guidance Michael gave, that’s still – it may be a little down in the second half from the first half. That’s still a pretty tremendous financial performance. We’ve got mid-20s cash return on cash invested since the day we started the company and a 44% ROCE right now. So yes, look, we have a strong business. Average through the cycle has been strong since the day we started it. And for whatever reasons, you probably know better than us, we have a stock price today that’s just – I mean, when I talk to people outside of our industry, I just get a very puzzled look, I mean you trade at 4x earnings, you got to – way better than the S&P 500 return on capital and a growing competitive advantage. It’s a – we’re in an unusual place. And it’s not our job to complain or talk and you don’t hear us talk a whole bunch about the stock price. That’s a market. But what we can do is respond to that marketplace. And if the marketplace stays anywhere around where it is now, I mean, it just gives us a great opportunity and we’ve shrunk our share count 10% in less than the last 12 months. If we continue to have opportunities to do that, fantastic, we will do it all day long. Look, our goal, what motivates us is still the great business that’s going to help empower the world and grow the value per share. So that’s making our business more profitable, larger and stronger. But if we could also shrink the denominator and have each share have a larger percent of the business, fantastic.

Neil Mehta

Thanks, Chris. And the follow-up and I think I know the answer to this question is, you’re effectively an unlevered business at this point. To the extent you feel strongly that the business is dislocated, would you ever put debt on the balance sheet to really get aggressive in lowering the share count?

Chris Wright

Well, look, we’re always going to keep a strong balance sheet. As you said, we’ve had what, two incredible downturn just in the last 8 years. So you like to think, no, it can’t be another one of those. But you never know. We always have to have a balance sheet that’s ready for whatever happens, not just to survive those downturns. But in those two downturns, in both of those downturns, we bought businesses bigger than we were at very attractive prices. So we’re always going to be ready and able to do things like that. But, obviously, we started our buybacks probably in front of our cash flow. We’re not formulaic. We’re going to take X amount of money and we – for us, buybacks aren’t about how much money we spent to buy our stock, it’s how many shares did we reduce and what was the trade-off involved in that buyback of reducing those shares. So yes, it’s not – our buybacks are not going to float formulaically with quarterly free cash flow. They are going to be based on share price, based on our comfort, but we will never go way over the skis and compromise our balance sheet to buyback half of the shares in some big agreement. We have to have a rock-solid balance sheet, but I am probably repeating myself. I think you get our philosophy.

Neil Mehta

No, I will just kind of…

Chris Wright

Good question.

Operator

Our next question today will come from Dan Kutz of Morgan Stanley. Please go ahead.

Dan Kutz

Hey. Thanks. Good morning. So, I just wanted to ask on the gas activity side, you guys have made some comments in the prepared remarks that you think that you will probably see gas activity start to pick up in 2024 ahead of all of the LNG liquefaction capacity that’s coming online later that year and into 2025. Given that you guys normally do have a pretty close pulse and view on the kind of industry macro. Have you guys – do you have any views or any thoughts you can share on where you think gas had to be, needs to get to, assuming that we are kind of fully ramped on all the LNG liquefaction capacity that is in the pipeline? If we were to frame it versus kind of where gas activity started this year, I think it was 15% higher, maybe 20 rigs or 25 rigs, presumably that’s a dozen or so frac fleets. Do you have any views on whether or not we need to get back to that level, above that level, below that level or any thoughts you could share on how you think gas activity might trend next year? Thank you.

Chris Wright

Yes. I mean look, my guess is, at some point next year, and it might be later next year, it might be maybe middle of next year is a good guess. We probably get back to the gas activity level we were at six months or nine months ago. We may have to go higher than that. There is a pretty significant growth in both LNG exports coming on and pipeline exports to Mexico and part of that pipeline export to Mexico ultimately is going to feed another LNG export terminal out of Mexico. So, there is some pretty positive demand outlook things coming there. But it’s not like we are going to see doubling of gas activity from where we were a year ago, from where we are now. There is a lot of just awesome gas drilling locations in the U.S. and now activity is going to dial back to gas production flat. We may even see some decline in gas production. But at some point next year, that will have to transition. And of course, it will be gradual. If gas starts to get above $3.50, $4, you are going to see activity creep back into the marketplace. So, it won’t be a light switch that will turn on. But when we see gas above $3.50 and the outward curve angling up from there, you will probably start to see some gas activity coming on. That could be late this year, that could be early next year, but I hope we can get back to previous gas activity levels by sometime next year, but probably more in the second half of next year.

Dan Kutz

Thanks a lot. That’s really helpful. And then maybe just following up on kind of the M&A and consolidation line of questioning from earlier. So, maybe on the – putting the core frac market aside, is it fair to assume that Liberty will kind of remain active in the – and looking for opportunities to invest, whether it’s organically or inorganically in kind of businesses that would fit into LPI or the lower carbon type businesses. Could you kind of talk through how you would characterize your investment strategy for the lower carbon, I guess part of your portfolio?

Chris Wright

Absolutely. And look, we have been outspoken about this. I think lower carbon is government money. So, we are not going to chase government money because that can change with the policy. But we are looking at the macro, where is the energy world going, where are going to be the growth areas, where are going to be the opportunities where there is growth, but people don’t think there is going to be growth. So, yes LPI, look, is a great example of a platform that’s of interest to us. That can lead to very broader things. As I have mentioned, I think three months or six months ago, look, we are not making healthy moves on the electricity grid. We are going to drive the price of electricity up and destabilize our electricity grids. We have been doing it for the last few years, and we are going to accelerate, we meaning the policy of this – of the Federal government and the state governments are going to accelerate that. That’s unfortunate, but that’s going to lead to business opportunities. We are not going to be in it just to be in it, but if we can have strong returns on capital with technologies we have already developed and purposed for something else, like power and digiFrac, for example, and delivering gas or processing gas, do we expect to see broader business opportunities there, I think we do. I think we do. And there is other – you probably saw an announcement recently about a breakthrough at Fervo in geothermal, with Liberty as a partner there. And we have had some new technologies, some new approaches there that have had some early and exciting results. And you may hear other areas that are also using Liberty technology and expertise to change the energy game a little bit. So, yes, we are – I mean our company is called energy for a reason. We are all in on finding the best business, competitively advantaged opportunities for us to play a role in a changing energy landscape.

Dan Kutz

Great. Really appreciate the color. Thanks Chris and team. I will turn it back.

Chris Wright

Yes. Thank you. Appreciate it.

Operator

Our next question today will come from Arun Jayaram of JPMorgan. Please go ahead.

Arun Jayaram

Hey. Good morning. I was wondering if you could give us a little bit more color on the efficiency gains that you are seeing in terms of pumping hours. Chris, I think you mentioned there was a record amount of pumping hours you saw as a fleet, but could you put some numbers behind it? Is it 350 hours per fleet? But love to get some more thoughts on that and the sustainability of that as well as if you could give us some sense of how the digiFrac fleet in the field are doing from a pumping hours perspective?

Chris Wright

So, we don’t publish the pumping hours thing. They are internal metrics we track, but we made a decision 10 years ago, we are going to track all that data. We work with all of our customers individually about how to grow those numbers. But we don’t share them publicly. But the metric we reported here was when a fleet is rigged up on location, how many minutes in that day is it pumping. It’s been a thing I think Liberty has likely led the industry our entire history in that metric. Yes, and look, as we have grown our fleet count, we are rolling out new technology. We have got all of the things that might put a little bit of downward pressure on that, but nonetheless, record ever in last quarter. So, that really speaks to the crews, the people on location first and foremost, but also we have had breakthroughs and continued software and process innovation on R&M, how do you keep a pump running as long as possible, how do you manage the repair a bit quickly, I mean iron ore location being done differently. So, there is a whole bunch of things that continued little innovations that drive that up higher. Ultimately, we think a few years down the road, one of the factors that will help that go even higher is our new digiFleets. These are gas recip engines. They have got much longer lifetimes and longer time between rebuilds and diesel engines. We have got more technology around them that I think is going to help drive that up as well. But these are all sort of slow, gradual things that matter, but we don’t usually highlight or pound the table during an earnings call. The digiFleets right now, software, a lot of like new technology deployment issues are being sorted out right now. I would say, their performance so far, I think is quite nice, but it’s not at the killer yet, but we will be there before long. We will be there before long. I think it’s going well.

Arun Jayaram

Great. And just a follow-up, you talked about this a little bit earlier. I would love to see if you could talk about what you are seeing in terms of demand for your digiFrac kind of technologies. One of your peers mentioned how they signed as many contracts in the history in terms of their e-fleet. So, I would love to get your perspective on what you are seeing from that.

Chris Wright

Yes. Look, the demand is huge. If that was a metric we wanted to think, we can sign a lot of agreements this quarter. But that’s not how we are viewing it. We are going to have a certain rate of capital deployment, which sort of comes up with how many fleets we are willing to build, and then who are the right partners for those fleets, where should they be, the configurations. But I mean, yes, just make the obvious point, yes, the demand – the interest in this new technology is tremendous. It’s tremendous. But our focus right now is with the original customers we are deploying them on, let’s get these things hired out. Let’s get that higher level of performance that the technology is designed to deliver. A lot of that follow-on digis are going to go to the people who get the first ones, because the people who have seen the ones, well they want more. So right, and there are going to be priorities for getting that technology because of that first movers and first partners in that. But yes, the interest is quite high. Finding a home for them, that’s not a problem.

Arun Jayaram

Great. Thanks a lot Chris.

Chris Wright

You bet. Appreciate it.

Operator

Next question is from Tom Curran of Seaport Research Partners. Please go ahead.

Tom Curran

Good morning guys. Thanks for squeezing me in. I have only got two left here. So, it seems as if we may be seeing a firm bifurcation of the frac market, similar to the dynamics that evolved for the land drilling contractors. Have you observed a starker difference in metrics, especially bidding behavior and pricing trends between your top six pumpers and the rest of the players or between modern equipment defined as e-frac DGB and upgradable Tier 4 and then legacy diesel horsepower? Between those two categorizations, where has the demarcation in metrics been sharper?

Chris Wright

So, it’s both. I think your premise is correct. Probably among the companies, it’s even bigger, right, because even if you are a smaller player or you don’t have the – you want the best fleet you can get. You would love to have natural gas running equipment, of course. But most important is to have a fleet that’s going to deliver safely, efficiently, on schedule operations. So, the demand for higher-quality humans and crews and may be characterized by the best players versus the newer, smaller, lower quality players, that differential in today’s marketplace is huge. It’s huge because you have got a capital budget, you have got to get something done, and well boy, I just took the fleet I got – seeing people’s face in stress and look, we are in a problem, can you help us out, here we are. So, I would say the quality of the company and humans is the biggest differential. But the differential among that next-generation frac, of course, that’s big too. But I think most people realize it’s a matter of when I am going to get that fleet. I may not be the big guy or the efficient partner that’s going to get it this year, I may get it next year or 2 years from now. The interest is there. But the bigger divide, as you just said, is more among the companies, human, culture, service quality.

Tom Curran

Got it. Makes sense, Chris. And then for Liberty Power innovations, how would you characterize the remaining M&A landscape of just specifically alternative fuel and power solution prospects out there possible targets? And would you say that LPI does actively remain on the acquisition hunt?

Chris Wright

Look, when we launched LPI, it as well was not intended to acquire. It was like all Liberty ideas, it was an organic idea with an organic team, with an organic approach. And then we saw a newer, smaller player that seemed – that fit nicely in what we were doing and we were able to get a price and a cultural, human fit that was compelling for us. So, yes, we are – look, we are pitched all the time. We will look at everything. Acquisitions are certainly possible, but again, it’s not a central part of the strategy.

Tom Curran

Okay. Thanks for including me guys. I will let you wrap.

Chris Wright

Thanks. Appreciate it.

Operator

Our next question is from John Daniel of Daniel Energy Partners. Please go ahead.

John Daniel

Thank you for including me. I just got a few quick ones for you. I got to Michael first, you mentioned retiring – I think when one stem closed, you had like 2.5 million horsepower. I think you said you were retiring three pumps a week or something ballpark. Is that – should we then extrapolate and assume you get 2 million to 2.2 million horsepower today, ballpark?

Michael Stock

It’s close. But I was really putting the example that it’s not a fleet that goes down. Like this week, we are going to like mothball that whole fleet. Every week, pumps go in, they get reviewed or their engine blew up, it’s not worth rebuilding. So, I am trying to kind of like when we talk to investors, it’s really – it’s an organic. When we talk about attrition, it’s not something that happens in blocks. It’s something that happens organically. That’s what we are talking about here, John, so yes.

Chris Wright

You don’t take indicator of our horsepower.

John Daniel

Fair enough. I am a nerd on this stuff, so I apologize to trying to be close. You guys – I mean you work for best-of-breed E&P companies. And so if you have one to three fleets go idle whatever it is, I don’t really care. I mean that seems more like budget massaging on their part as opposed to so therefore coming back next year as opposed like shutting down, is that fair enough?

Chris Wright

Well, there is a little bit of that. There is a little bit of that, but probably the bigger piece is still just what the privates are doing. Privates are still big players in the marketplace and I think mostly because of the economics, they are not stopping activity, but they just pulled back activity. Some of them have sold, right. You have seen some of this, it’s just M&A reducing activity, company A buys company B and together they are running seven fleets and together they are going to run five fleets. So, some strategic consolidation. It isn’t that the very biggest people are just steadier. The very biggest players and they are slowly sort of steadily growing their activity, unlike the small sort of companies, but…

John Daniel

As you alluded, I think you said you stated not any fleets have gone down for you, but call it, 25% to 30% across the industry. If we assume one to three fleets, it’s about, call it, 5% of your fleet, should we extrapolate that to the broader U.S. frac market, or just more nuance and what I mean simplistically, should we expect another 10 fleets to 15 fleets across the U.S. go down?

Chris Wright

It’s more nuance, John. As I sort of made that point, look a lot of fleets have already gone down and we haven’t had any. It’s not a macro thing. For us it’s just a micro bottom-up. Where is your fleet now and what is it doing, if you had a small number of customers and they all didn’t change their plans, but your fleet count wouldn’t change. But – so it’s very granular bottom-up is kind of what’s going on in our world.

Ron Gusek

Yes. And we had white space on our calendar sort of the back end of Q2 that as we are working with our customers and seeing what their long-term plans for the second half of the year are, allows us to then sort of put that work on to a fewer number of fleets, right. So, it’s just being very judicious about how and when we manage our fleets and – but we think with you.

John Daniel

Got it. And final one for me. I know you can’t – you are not going to get into the granularity of the pumping hours per day. But when you do have the data, you are tracking the improvements. As you have seen the improvements recently, I mean how much is something that you guys have done versus maybe a new product or service from a third-party or just better planning and scheduling by your customer? If there is any – if you can just add some color, that would be helpful.

Chris Wright

Yes. I mean the recent changes. I wouldn’t say it’s sort of revolutionary new third-party thing. The potential well swap things, that came out a while ago. That’s excellent, but that’s been around for a while. It’s really just better, more experienced people getting better at what they do and just tighter relationships with customers, saying, “Hey, look, we do think this way, if we do it together that way, we get more minutes out of the day.” So, it’s incremental process, human partnership improvements, I would say, John, that dominate it.

John Daniel

Okay. Thank you for the litany of questions. Thank you.

Chris Wright

Yes. Appreciate all your time and the deal job.

John Daniel

Thank you.

Operator

At this time, we will conclude the question-and-answer session. I would like to turn the conference back over to Chris Wright for any closing remarks.

Chris Wright

Three days ago, the Wall Street Journal ran a sobering article by Tom Fairless, titled Europeans Are Becoming Poorer. The punch-line of the story is the dramatic divergence in prosperity between the U.S. and the European Union over the last 15 years. In 2008, each represented roughly 25% of global consumption. Today, the U.S. has risen to 28%, and the European Union has shrunk to only 18%. In dollar terms, the European economy has grown by a paltry 6% over the last 15 years versus 82% for the U.S. What might explain this startling contrast in fortunes between two close allies and trading partners, in a word, energy.

Over the last 15 years, the American shale revolution has transformed the U.S. from the world’s largest importer of energy to a net energy exporter who leads the world in both oil production and natural gas production. The result has been enormous energy cost savings for American consumers and businesses, a re-shoring of energy-intensive industries with high-paying blue and white collar jobs. This trend could surely accelerate if we stop building impediments. The energy story in the European Union is quite the opposite. EU oil and gas production has dropped by over a third. Coupled with high taxes and regulations, this has delivered ever-increasing energy prices to consumers and businesses alike. The net result has been an exodus of energy-intensive manufacturing from the EU, mainly to Asia, but also to America.

These departing manufacturing jobs take high-paying blue-collar jobs and starved many supporting industries. Expensive energy empowers European citizens, squelches optimism and further suppresses fertility rates. Of course, many other factors played a role in the EU-American divergence over the last 15 years, but I believe the core issue is energy. Economists often mistakenly view energy as just a sector of the economy. Instead, energy is the sector of the economy that enables every other economic sector. Energy is also essential to keeping citizens warm in the winter, cool in the summer and it enables affordable secure food supplies. Get energy wrong and suffering is sure to follow.

Thank you for your interest today and we look forward to talking to everyone next quarter.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.