Today's case and point is oil and gas drilling company Liberty Oilfield Services (LBRT), which priced its up-sized 12.7 million share IPO above expectations at $17 vs. the $14-$16 price range. Had LBRT gone public a few months earlier, it's probable it would not have seen this degree of enthusiasm for its deal. Clearly, though, the sharp rebound in crude oil prices has generated healthy demand for LBRT's IPO. Also helping its cause is a set of tier one underwriters behind the deal, including Morgan Stanley, Goldman Sachs, JP Morgan, Wells Fargo, Citigroup, and Evercore ISI.
LBRT is an independent provider of hydraulic fracturing services to onshore oil and natural gas E&P companies in North America. It has grown from one hydraulic fracturing fleet in December 2011 to 19 active standard fleets in December 2017. Encouragingly, the company says that demand for its services currently exceeds its capacity. Consequently, it expects to deploy three additional standard fleets, in addition to upgrading four existing fleets to high pressure fleets by 2Q18.
Its modern fleets have an average age of approximately 3.5 years. It has purchased or ordered 13 new fleets since 2012. Additionally, in 2016, it took advantage of the industry downturn and more than doubled its capacity through the opportunistic acquisitions of nine fleets built within the last seven years and have invested significant capital to upgrade them to its specifications. Taken together, the company expects to have 22 fleets deployed to customers before the end of the second quarter of 2018.
It primarily serves oil and gas E&P companies operating in the Permian Basin, the Eagle Ford Shale, the Denver-Julesberg Basin, the Williston Basin, and the Powder River Basin. Some of its notable customers include Extraction Oil & Gas, SM Energy Company, Continental Resources, Devon Energy, Newfield Exploration, Anadarko Petroleum, and Noble Energy.
In terms of market conditions, overall demand and pricing for hydraulic fracturing services in North America has declined from their highs in late 2014 as a result of the downturn in hydrocarbon prices and the corresponding decline in E&P activity. While the pricing for hydraulic fracturing services declined substantially, negatively affecting its revenue per average active HHP, and has not returned to its 2014 highs, the industry witnessed an increase in demand for these services beginning in the third quarter of 2016 and continued into 2017 as hydrocarbon prices have recovered somewhat. LBRT says it is currently experiencing price increases and increases in its revenue per average active HHP and that it expects this demand to continue to increase as E&P companies increase drilling and completion activities.
In its IPO prospectus, LBRT provided preliminary results for 4Q17. For the quarter, it forecasts revenue will be between $445-$448 million, representing an impressive year/year growth rate of 187% at the mid-point. This increase is primarily attributable to the combined effect of an increase in average active rigs deployed and improved pricing for its services.
LBRT also estimates that its net income will be $54-$61 million, up dramatically from 44.4 million in the year ago period. In addition, the company estimates that Adjusted EBITDA will be within a range of $90-$95 million for the three months ended December 31, 2017, as compared to $9.9 million for the same period in 2016.