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Liberty Oilfield Services: Surviving The Short-Term Woes Will Yield Results Later

Badsha Chowdhury profile picture
Badsha Chowdhury


  • The completion activity will slow down further in Q2 2020.
  • LBRT plans to reduce staffed frac fleet for the rest of the year.
  • The company’s revenue is likely to decline sharply in Q2, while the margin fall will be limited due to various cost-cutting measures.
  • The company's low leverage is an advantage over its peers, although negative free cash flow can become a concern.

LBRT Stands On A Fleeting Ground

The sharp fall in the U.S. rig count and loss of demand for fracking activities in the U.S. unconventional shales has forced Liberty Oilfield Services (NYSE:LBRT) to reduce staffed frac fleet considerably in April. Most of the rig count decline is taking place in new and exploratory wells, while the pricing pressure continues in an oversupplied fracking market. So, I think the company’s top-line will decline sharply in the next couple of quarters.

Given the necessity to reduce costs, it has taken additional steps, including a dividend suspension and capex budget cut. I think these measures will mitigate some of the company’s margin-level risks. Over the medium-to-long-term, I believe its dynamic gas blending fleet and other ESG-compliant fleets can see increased demand.

LBRT has very low leverage, which is a significant advantage compared to some of the leveraged oilfield services players. However, its low cash flow is a serious impediment in achieving the cash flow preservation goal. I think returns from the stock may not see improvement unless the completions and drilling activities start inching up once again.

Analyzing The Strategies

LBRT’s strategic focus has gone through a dramatic shift from deploying fracs and improving shareholder returns to preserving cash and ensuring survival. The onshore activity was already grappling with an oversupply of equipment, putting substantial pressure on pricing, when the double swan events hit the industry. The demand loss due to the pandemic and an increase in supply after the OPEC+ deal failed caused havoc to the crude oil price. Although the supply situation has started to improve after many producers shut-in existing production, the crunch for oil storage capacity has set demand for frac services down severely. To know more about the company’s strategies, read my previous article here.

During Q1 2020 (Jan-20

This article was written by

Badsha Chowdhury profile picture
I have more than 14 years of experience in analyzing and writing on stocks. I write on both long and short sides in an unbiased manner. I have been covering the energy sectors for the past 7 years, with the primary focus on the oilfield equipment services sector. I also cover the Industrial Supply industry. I occasionally co-author with Seeking Alpha contributor Thomas Prescott.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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