Why do we look at EBITDA per Frac Fleet?

If you are trying to compare the profitability of frac service providers , you will quickly come across the term EBITDA per Frac Fleet (or just EBITDA per Fleet). While many people accept this measurement as a way to compare frac providers, a little research shows that not all numbers are the same.

EBITDA stands for Earnings Before Income, Taxes, Depreciation and Amortization and it is used to measure a companies profitability. Using EBITDA will allow you to compare the profitability of peers in an industry or area because it looks at the profitability from the company's core operations before the impact of debt, interest, and depreciation are taken into account. It allows for a more apples to apples comparison of companies.

EBITDA is does not fall under the Generally Accepted Accounting Principles (GAAP) as a measure of financial performance and the EBITDA calculation can vary from one company to the next. When calculating EBITDA per fleet, nearly all oilfield service companies reference Adjusted EBITDA which usually removes the impact of one time items such as disposal of assets, impairments, inventory write downs, etc. When presenting EBITDA or Adjusted EBITDA in a corporate report, the company will have a section in their earnings report or slide deck that explains how they made their calculation. 

The goal of using EBITDA per fleet is to be able to make an apples to apples to comparison between companies. Most service companies will mention their EBITDA per Fleet number during their quarterly calls. If they do not mention their EBITDA per fleet number, it is possible to calculate it from the Financial Statement. The following table is a list of the EBITDA per fleet for several of the active frac service providers in the US.

Table 1: Annualized EBITDA per Frac Fleet 
(Source: Corporate Earnings Reports, VDK Consulting Analysis)

The first question when looking at this list is "Why aren't Halliburton and Schlumberger on this list?" The main problem with calculating EBITDA per fleet is trying to determine the EBITDA that is associated with only the frac fleets. The Halliburton and Schlumberger financial statements show their groups or segments, that usually have data for several different product lines. They very rarely discuss the number of working frac fleets, making it very difficult for the public to determine their EBITDA per fleet.

RPC (also know as Cudd) changed their reports in Q4 2019 and made it very difficult to determine the EBITDA for just their frac services. I stopped trying to calculate the number Cudd when they made these changes.

The NexTier Oilfield Solutions EBITDA per fleet is skewed based on how they present their data. The EBITDA per Fleet number above is from the Completion Services segment which includes Frac and wireline revenues. NexTier has released Gross Profit (GP) per fleet in the last two quarters for their integrated frac and wireline crews. 

Gross Profit is Total Revenue generated minus the Cost of Revenues (the expense it takes to generate revenue). The following Table is a list of Gross Profit per Fleet for several active service providers.

Table 2: Annualized Gross Profit per Fleet 
(Source: Corporate Earnings Reports)

While both calculations are different, there is a good correlation between the two measurements. For this post, I will focus on EBITDA per fleet.

Now that we can compare service providers, what are considered good values for EBITDA per fleet? While there is no hard and fast rule on EBITDA per fleet profitability, the following list is the range I use to judge the profitability of EBITDA per fleet

• EBITDA per Fleet > $12 million per year is good
• EBITDA per Fleet between $6 million and $12 million per year - okay
• EBITDA per Fleet below $6 million per year - not good.

When looking at EBITDA per fleet on a quarterly basis it is very important to make sure that it is an annualized number (ie, figure out EBITDA per fleet for the quarter and multiply by 4 for 4 quarters of the year). All of the data shown is annualized.

One of the main reasons that $6 million is the cut off is due to the amount of money that is required to keep a frac fleet running. This is known as Maintenance CapEx and it typically costs between $4 million and $6 million annually to keep a frac fleet up and running. If your EBITDA per fleet is less than your maintenance costs, your frac fleet is losing money every time it leaves the yard.

Looking at Table 1, ProPetro, NexTier, Mammoth and Liberty had very good quarters. Patterson-UTI, and Quintana had very rough quarters and will be making changes to their structure in order to improve their profitability. Mammoth was the surprise of the quarter, with a huge increase in EBITDA per Fleet with, on average, 2.7 fleets active in Q1.

We should expect Q2 2020 EBITDA per fleet results to be down due to the impact of COVID-19. Frac revenues will be down significantly in Q2 as many oil companies suspended their completion programs at the start of the quarter. At the time of writing this post, Primary Vision stated that there were 45 frac fleets running in the US. At the start of March, there were nearly 300 active fleets in the US. I would expect Q2 and Q3 EBITDA fleet numbers to be down and then we should see some recovery in Q4.