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ProPetro Holdings: Revving The Engines In 2023

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Oil Rig Worker Pose pinch an Oil Or Gas Drill Fracking Rig Pad successful nan Distance

Joey Ingelhart/E+ via Getty Images

Introduction

Weakness successful lipid prices person derailed nan bullish thesis for OFS companies since early December. We'd person been amended disconnected sitting connected nan broadside lines and snapping peas into a bucket. Small headdress OFS companies have been peculiarly beset by this downdraft, arsenic we person seen nan bigger companies, Halliburton, (HAL) and Schlumberger, (SLB) scope caller highs successful nan aforesaid time. I person discussed nan reasons for this disparity pricing successful anterior articles, truthful I won't remark further successful that vein.

Price floor plan for PUMP

Price floor plan for PUMP (Seeking Alpha)

A lukewarm winter-globally, inventory builds, SPR releases-now renewed to nan tune of 26 mm barrels, and backmost and distant maturation fears for nan system person each conspired to degrade banal prices. Not to mention nan reflation successful nan tech assemblage since nan move of nan year... each that money has to go somewhere, right? Tesla, (TSLA) up 100%, Facebook, (META) up 105%, for example.

My anticipation is that ProPetro Holdings, (NYSE:PUMP), absent immoderate melodramatic inflection point, is going to proceed trading successful its existent scope until nan futures inclination shifts much powerfully toward backwardation and of course, these crazy inventory builds abate. It will come, but it could beryllium a grind-out arsenic opposed to a flash forward.

The expert organization anticipated that PUMP would study $0.31 per stock erstwhile it released net connected Feb, 21st. The existent EPS for nan 4th came to $0.29, suggesting that value increases haven't kept disconnected pinch costs ostentation truthful far. Price targets ranged from $12-19 per stock pinch a median of $14. Estimates for Q-1 are substantially higher astatine $0.46 per share, and rising MoM from $0.40. That's headed successful nan correct direction. Let's look a small deeper and spot what we tin determine.

The backdrop for 2nd tier OFS companies

Largely recapitalized-with an mean instrumentality property of little than 20-years, indebtedness paid down and rate connected nan books, companies for illustration PUMP are much, overmuch amended disconnected than a twelvemonth ago. That said, they still can't get immoderate respect acknowledgment to nan clang successful state prices and nan diminution successful WTI. It has thing to pinch their singular attraction connected North America, arsenic opposed to nan world revenues nan Big Colors report.

It is astir apt worthy noting that while $75 WTI isn't what we'd for illustration to see, it is simply a melodramatic betterment from a mates of years ago. It should besides beryllium noted that $75 WTI is simply a historically precocious price. Companies that drill are doing rather well. Price realizations for nan 4th will beryllium successful nan debased $80's for astir of them, but they are swimming successful cash. Devon Energy, (DVN) for illustration reported $1.9 bn successful OCF and $1.1 bn successful Free Cash for nan quarter, and rained rate connected shareholders. (I'll beryllium sitting by my mailbox connected 3-31, I'll show ya.)

With nan objection of state drilling, which is going to spot immoderate declines owed to debased prices, lipid drilling is going afloat steam up successful 2023. As we person discussed successful caller articles, nan macro situation successful North America favors frackers correct now. With longer laterals and immense treatments per foot-2,500 pumping companies are moving level out, pinch instrumentality rentals and shape charges that are pumping up rate travel to grounds levels. 2023 is going to beryllium a bully twelvemonth for OFS companies successful general, and for PUMP successful particular.

The thesis for ProPetro

In nan Daily Drilling Report we often talk what is happening successful nan shale patch, successful position of production. To summarize quickly, Tier I stone is getting rarer, and caller good accumulation is disconnected respective 100 BOPD complete nan past mates of years. Output has been maintained pinch longer laterals pinch immense stimulation treatments, and DUC withdrawals. There is an extremity constituent coming to nan inferior of drilling further though, and arsenic nan DUCs property retired we will crook nan curve connected full shale production. With nan objection of nan Permian, each shale basins are level aliases somewhat down. PUMP echos this constituent successful nan descent beneath and notes they are a Permian axenic play.

PUMP Chart connected Permian Productivity

PUMP Chart connected Permian Productivity (PUMP)

Sam Sledge, CEO of PUMP commented successful nan Q-4 call:

Being 100% located successful nan Permian pinch customers that person ample drilling programs and afloat calendars does insulate america from immoderate of nan consequence that our peers moving successful gas-focused basins whitethorn face.

PUMP has besides taken steps to soma retired their PSO-product/service offering, pinch nan acquisition of Silvertip Services. With Silvertips wireline and pump down work successful their portfolio they now person complete package for changing nan good complete from drilling to completion. The series looks mostly thing for illustration this, but tin alteration immoderate good to well:

  • TD nan well
  • Run and cement casing. (PUMP tin proviso nan cementing service)
  • Rig up wireline-WL, and RIH to first stage, perforate and POOH pinch WL.
  • Pump first shape soil treatment, group plug, RIH w WL and perforate adjacent stage.
  • Repeat until nan full interval is treated.
  • Rig up WL aliases Coil to release, Pump down-dissolve, aliases drill-out (third statement Coil) plugs.
  • Begin good flowback operations.

PUMP has been recapitalizing its fleet to bid higher pricing. Sam Sledge, CEO comments successful that regard:

We expect that ProPetro will person astatine slightest 7 Tier IV DGB fleets and 4 electrical fleets by nan extremity of 2023, making astir 2 thirds of our frac offering earthy state capable. These caller actions importantly precocious our strategy to industrialize our business, and we are assured that we are well-positioned to execute connected nan galore value-enhancing opportunities up successful 2023 and beyond.

There you person it. A trifecta. In basin attraction connected nan sole shale play expanding production, a fuller suite of services, and pumping exertion that will meet customer ESG goals.

Q-4, 2022 and 2023 guidance

Revenues grew to $349 mm from $333 successful nan anterior 4th pinch nan added gross coming from value increases and publication from Silvertip. Cash of $89 and an disposable equilibrium connected their ABL near liquidity astatine $155 mm. EBITDA for nan 4th of $84 mm was down somewhat from $90 mm successful nan 3rd quarter. Seasonal slowdown was nan mentation for this decrease.

Guidance for nan twelvemonth reflects afloat fleet utilization for nan twelvemonth astatine 14.5 to 15 fleets. (source)

A imaginable catalyst

Efleets person less moving parts than diesel. As nan ratio of efleets increases attraction costs should decline. David Schlorlemer, CFO comments connected nan attraction capex expectations arsenic efleets subordinate nan mix:

Particularly, arsenic nan property of our fleet is good complete 50% of it little than 2 years old. So, arsenic we statesman to weave-in nan electrical fleets, we are going to beryllium -- we are not going to beryllium doing nan type of attraction that you would expect successful an soul combustion motor that we had successful nan past. So, we expect to spot betwixt 30% and 40% betterment successful not only nan superior but besides nan attraction costs associated pinch those assets.

Right disconnected nan bat I spot $40-50 mm per of capex that tin beryllium avoided, which is not an inconsiderable sum for a institution generating ~$375 mm successful EBITDA connected TTM basis.

Risks

The large consequence is nan magnitude of lipid we are swimming successful now. If OPEC+ doesn't return immoderate action to trim supplies, and nan China communicative falters, PUMP could proceed to beryllium dormant money aliases suffer value.

EIA WPSR

EIA WPSR (EIA)

Your takeaway

Looking ahead, PUMP is connected way to make $400-450 mm of EBITDA successful 2023. That's astir 2.5X EV/EBITDA. For reference, axenic play fracker, Liberty Energy, (LBRT) is trading astatine 2.58X EV/EBITDA, truthful PUMP is connected par pinch nan leader successful nan space.

When sentiment shifts for lipid (there's nary anticipation that sentiment shifts for state anytime soon), PUMP could beryllium a double. It's difficult to opportunity erstwhile that will occur, but erstwhile we spot existent request overtake disposable supplies, it could hap fast.

PUMP was having a reliable time erstwhile I wrote this article though things look to beryllium picking up a hair, arsenic it closed up slightly. New sanctions connected Russia look to beryllium boosting WTI a small higher, and state prices person rebounded astir 25% successful nan past week. What goes down will emergence again.

I deliberation PUMP presents a compelling image for maturation and possibly moreover shareholder returns successful nan adjacent future. The taxable came up successful nan telephone and Sam Sledge, CEO addressed it thusly:

I would opportunity that our superior allocation attraction is opening to pivot somewhat distant from nan instrumentality modulation communicative and towards nan shareholder returns and strategical transactions territory.

Risk tolerant investors looking for maturation should see if PUMP fits into their portfolio astatine existent levels.

Editor: Naga



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