Liberty Energy Earnings: Subdued North American Completions Weigh on Second-Quarter Results

Liberty Energy LBRT posted a slightly weaker-than-expected second quarter owing to prolonged softness across the North American market. Revenue fell just shy of $1.2 billion, a 5% decline compared with last quarter, and reflects lower drilling and completions activity in response to lower oil and gas prices. We expect this dynamic will carry into the second half of the year given the recent decline in the number of rigs (down about 85 rigs versus July 2022, according to Baker Hughes), typically a leading indicator of frac spread demand in subsequent quarters. We’ll incorporate the firm’s full operating and financial results shortly, but after this first look, we maintain our $17 fair value estimate and no-moat rating.

Following several quarters of rapid expansion (the U.S. rig count nearly doubled between 2020 and 2022), activity will likely remain comparatively subdued through year-end. Management indicated the possibility of idling up to three frac spreads in the second half. We expect Liberty and peers will maintain some pricing power, however. Service firms can activate and idle frac spreads relatively quickly, which facilitates agile responses to varying frac spread demand. We expect pressure pumpers will idle portions of their fleets to preserve a level of capacity utilization that keeps pricing power in their favor rather than allow overcapacity to depress prices, as seen in prior cycles. So we think it’s unlikely that Liberty’s pricing power will completely nosedive, though a prolonged reduction in completions activity could lead to decreasing prices over the longer term.