Kevin McDonald - Executive Vice President, General Counsel & Secretary James Stewart - Chairman of the Board, Chief Executive Officer Greg Powell - President, Chief Financial Officer

Sean Meakim - JPMorgan Michael LaMotte - Guggenheim Brad Handler - Jefferies Connor Lynagh - Morgan Stanley Jud Bailey - Wells Fargo John Daniel - Simmons & Company J.B. Lowe - Bank of America Merrill Lynch William Thompson - Barclays Jim Wicklund - Credit Suisse Blake Hutchinson - Howard Weil Ishan Kapoor - Guggenheim

Good morning and welcome to Keane Group's third quarter 2017 conference call. Joining me today are James Stewart, Chairman and Chief Executive Officer and Greg Powell, President and Chief Financial Officer.

As a reminder, some of our comments today will include forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, reflecting Keane's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements.

The company's actual results could differ materially due to several important factors, including those risks and uncertainties described in the company's Form 10-K for the year ended December 31, 2016, Form 10-Q for the quarter ended June 30, 2017, recent current reports on Form 8-K and other Securities and Exchange Commission filings, many of which are beyond the company's control. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Additionally, we may refer to non-GAAP measures, including adjusted EBITDA and adjusted gross profit, during the call. Please refer to our public filings and disclosures including our earnings press release for definitions of our non-GAAP measures and the reconciliation of these measures to the directly comparable GAAP measures.

With that, I will turn the call over to James.

Thank you Kevin and thanks to everyone for joining us on the call this morning. I am proud of our team's ability to execute and translate continued strength in the U.S.

completions market and to improve financial performance for the company. We reported another solid quarter of financial and operating results, including nearly 50% growth in revenues, roughly doubling our adjusted EBITDA and achieving full utilization of 25 fleets during the quarter.

The RockPile acquisition significantly contributed to our third quarter growth. Because of our team's ability to complete the strategic transaction at the start of the third quarter, we realized a full quarter benefit of the combined businesses.

Since closing the transaction in early July, we fully integrated RockPile into the Keane platform. Given our proven track record of acquiring and integrating businesses, we have successfully executed our playbook for this transaction.

The benefits from the combined companies' greater scale and basin density will continue to contribute to our future success. Market fundamentals and prospects for quality completion services remain constructive with demand exceeding supply.

Against this backdrop, we successfully advanced our portfolio of dedicated agreements towards leading-edge pricing. And while it's too early to provide a clear window into next year, we believe our strategy of partnering with well-capitalized, highly efficient customers will continue to provide stability for our operations and deliver strong financial results.

In addition to aligning with the right customers, Keane has executed on safety, efficiency and supply chain reliability, which is a key differentiator in today's dynamic environment. While we continue to see leading-edge pricing and margins improve, we have not yet achieved newbuild economics and remain committed to our prudent approach to capital deployment.

As part of supply and demand dynamics for frac assets, we have noticed increased discussion in recent months regarding frac equipment, particularly in the context of increased asset intensity. Significant increases in asset intensity continue to be driven by longer laterals, higher proppant loadings, super fracs and 24-hour operations.

Keane has an unwavering commitment to ensuring our assets are well maintained and operationally ready for today's completion demands. Our approach to asset management, which includes in-house maintenance capabilities, strategic partnerships with key vendors and investment in the supply of critical components, reduces lead time and ensures continuity of supply.

This comprehensive equipment assurance strategy results in improved reliability on the well site. This all relates to a concept we have previously discussed, not all horsepower is created equal and further, not all horsepower is maintained equally.

Our diligent approach to maintenance provides us benefits that are evident throughout cycles. We believe fleet commissioning costs provide a scorecard for asset quality and maintenance commitment, highlighted by our ability to efficiently deploy all previously idle fleets at an average of approximately $2 million per fleet.

With that, I would now like to turn the call over to Greg.

Thanks James. Revenue for the third quarter of 2017 totaled $477 million, an increase of 48% compared to $323 million reported in the second quarter of 2017.

Sequential growth was driven by contributions from the RockPile acquisition, an additional fleet deployment in August and price increases from contract reopeners on a portion of our portfolio. These factors were partially offset by a slightly larger portion of our customers directly sourcing profit.

As we have said all along and is evident in our profit trajectory, we remain agnostic to direct sourcing contingent upon two required operating parameters. First, that direct sourcing is economically neutral to Keane and second, that the customer can deliver at a high rate of efficiency.

We averaged 24.7 deployed hydraulic fracturing fleets during the third quarter, up from an average of 18.3 fleets during the second quarter. We exited the third quarter with 25 deployed fleets, up from the 19 at the end of the second quarter.

Of the six fleet increase, five were associated with the RockPile acquisition and the sixth reflected the deployment of the final idled Keane fleet in mid-August. Adjusted EBITDA for the third quarter totaled $71.6 million, doubling the $36 million reported during the second quarter of 2017.

Adjusted gross profit was $89.7 million for the third quarter, almost double the $47.8 million reported in the second quarter and representing sequential incrementals of approximately 27%. We were successful in further advancing profitability on a per-fleet basis.

Annualized adjusted gross profit per fleet was $14.2 million for the third quarter, up from $10.5 million in the second quarter, driven by repricing on a portion of our portfolio. Adjusted EBITDA for the third quarter excluded approximately $13.3 million of one-time items, primarily comprised of acquisition and integration costs associated with the RockPile transaction, fleet commissioning costs and non-cash compensation expense.

We made significant progress in bundling a frac and wireline into our integrated completion service offering, a key component of our efficiency. Approximately 81% of our 24.7 average deployed fleets were bundled with wireline, up from 64% reported in the second quarter.

Selling, general and administrative expenses totaled $28.6 million for the third quarter compared to $22.3 million in the prior quarter. Excluding one-time items, SG&A totaled $17.5 million compared to $11.9 million in the second quarter of 2017.

For the third quarter, one-time SG&A items included acquisition and integration costs from the RockPile transaction and non-cash stock compensation expense. As a percentage of revenues, our SG&A remains at a very efficient level.

Third quarter SG&A, excluding one-time items, was less than 4% of revenues. We believe our leading SG&A profile represents the efficiency ingrained across our business and the breadth of our management team, combined with the benefits of fixed cost absorption as our frac assets achieve full utilization during the quarter.

Of the $5.6 million sequential increase in SG&A, excluding one-time items, approximately $3 million was associated with the inclusion of RockPile. Additionally, we continue to ramp our infrastructure to support continued growth and to meet the requirements of our public platform.

We remain committed to running a conservative balance sheet and liquidity position. At the end of the third quarter, we had cash and cash equivalents of $72 million compared to $76 million at the end of the second quarter.

Our cash position benefited from the significant growth realized in our adjusted EBITDA, which drove positive operating cash flow of approximately $19.8 million for the quarter, offset by capital investment and working capital needs associated with our growth. For the third quarter of 2017, we spent approximately $50 million of total capital expenditures, driven by newbuild fleet previously ordered by RockPile and placed into service in October 2017 as well as maintenance CapEx.

We exited the third quarter with total debt of approximately $276 million net of unamortized deferred charges and excluding capital lease obligations, up from approximately $145 million at the end of the second quarter of 2017. The sequential increase of approximately $130 million resulted from an expansion of our term loan facility in order to finance the cash portion of the RockPile acquisition.

On a run rate basis, third quarter adjusted EBITDA was approximately $287 million, resulting in a very attractive leverage ratio of just under one times. Net debt at the end of the third quarter was $204 million and total liquidity was approximately $218 million.

Total available liquidity as of September 30, 2017, was approximately $218 million, which included availability under our asset-based credit facility. Our conservative balance sheet and liquidity provide us with flexibility and as we have said before, allows us to be both offensive and defensive.

We expect to further improve our balance sheet as our cash flows continue to ramp. Looking ahead to the near-term outlook.

As is typical for the fourth quarter, a combination of weather, holidays and operator budget constraints make forecasting challenging, but this is how we see it right now. We expect revenue to increase between 5% and 15% sequentially, driven by a full quarter of contributions from the 25th fleet deployed in mid-August and a 26th fleet previously ordered by RockPile delivered and put to work in early October in addition to price increases from contract reopeners on a portion of our portfolio.

The slower pace of topline growth as compared to recent quarters is a result of the portion of our customers directly sourcing profit, as previously discussed and our achievement of full utilization. During the third quarter of 2017, annualized adjusted gross profit per fleet increased to $14.2 million, up from $10.5 million in the second quarter of 2017.

Based on current market conditions, we expect annualized adjusted gross profit per fleet to increase to a range of $16 million to $18 million on an exit rate basis by the end of the fourth quarter and we forecast our full portfolio will progress to these exit rate margins ratably throughout the fourth quarter of 2017. Following our assessment of the workover operations acquired as part of our RockPile acquisition and given our ongoing efforts to focus our product offering, we executed the sale of half of our 12 workover rigs at the end of the third quarter, generating approximately $7 million of cash.

For our other services segment and reflecting this sale, we forecast annual revenue run rate of approximately $35 million to $40 million on gross margins of between 15% and 20%. We continue to evaluate strategic alternatives for our remaining workover assets.

The higher gross margin forecast for the other services as compared to our previously communicated guidance of between 10% and 15% reflects progress we made in improving profitability and the continued ramp in our cementing business and evidences our focus on utilizing resources and capital most efficiently across our operations. Going forward, we continue to evaluate ramping our remaining idle cementing assets.

With that, we thank you again for your time and now we would like to open it up for Q&A. Operator?

Thanks. Good morning.

Good morning Sean.

So maybe just to start off, you had continued tempered remarks with respect to newbuild economics. Just curious if you can give us a sense of what the hurdle rate looks like for you, what are the parameters within the environment you are looking for in order to move towards a newbuild strategy?

Do we see something like that taking place next year? Lead times?

Maybe capital cost? Maybe just to give little more of a framework around that?

Yes. Thanks, Sean.

As we have said before, I mean, there's a financial hurdle to it and we want to see the GP per fleet get into the low-20s to achieve the financial hurdle we look at on initial capital investment plus the maintenance CapEx required on these fleets today. And then the second thing is just around getting better visibility to the market.

And I think the first signal of that will be on the 2018 budgets from the customers. So we want a little bit more clarity on the market and then the financials need to meet their hurdle rate.

And when we get to that point or we have line of sight to that point and demand from our customers, that's when we will look at newbuild as an option where, as you know, we have got a good track record of M&A. We believe in consolidation in the space and that's another alternative for us to grow.

Lead times right now are running about nine months. We expect Tier 4 maybe lengthens that a little bit as the OEMs ramp up Tier 4 production on the engines with the January 1 mandate.

So that's the way we see it today.

Okay. Thank you.

That's all very clear. So just thinking about the pricing dynamic, you gave us a good amount of detail in terms of some of the moving parts.

But just, I guess, could you give us a sense today of how much of a lag you see in your average fleet relative to what you see at leading-edge, just factoring in those things like reopeners coming into next year? And I guess also, as you are incorporating the RockPile assets, how all that -- looking at that mix together, basically trying to getting a sense of a delta between your average fleet pricing versus the leading-edge that you are experiencing?

Yes. So it's kind of a rolling model because we have contracts that reopen ratably throughout the year.

So we are constantly kind of reopening contracts and moving towards leading-edge. Our average in the third quarter was $14.2 million, which means at the end of the quarter we were somewhere north of $15 million because it's constantly increasing.

And we are targeting that $16 million to $18 million range ending the year, which is about where we are seeing leading-edge today for the type of work we do under dedicated agreements. So I would just assume we exited 3Q with a $15 million handle and we are marching towards $16 million to $18 million to exit the year.

Got it. Perfect.

Okay. Thanks Greg.

Thanks Sean.

Thanks. Good morning guys.

James or Greg, what a difference a year makes, right. Just looking at your third quarter 2016 numbers versus third quarter 2017.

If I could follow up on Sean's question on the newbuilds, first of all, would you mind sharing what the cost of the RockPile newbuild fleet was? And what you think Tier 4 equipment adds to that newbuild cost?

Yes. The RockPile was a little over 900 horsepower and we think the Tier 4 takes an engine price from somewhere around $250,000 to somewhere around $400,000.

So you are talking another $150,000 per engine times 18 pumps on a fleet.

Great. Thank you.

That's really helpful. Can you all hear me?

We can hear you, Mike.

Yes. I am sorry about that.

The ratio of customer self-sourcing proppant today. How has that changed versus at the beginning of the year?

Yes. We have gone from about 10% at the beginning of the year and then in the end of fourth quarter we feel like we are at right around 25%.

So the bulk of our portfolio, we still supply sand. There's a lot of customers that believe in the value of our offering and our ability to be flexible and handle pinch points with the infrastructure we have invested in, with the railcar fleet and the multiple contracts and the last-mile solution.

So that's still the bulk of our offering, is providing the proppant. The main reason we have grown as a percentage is, there are certain customers that believe in self-sourcing.

And like we said, we are agnostic to that as long as the economics are neutral and the customer can deliver at a high level and not impact efficiency. And a couple of those customers we have grown fleets with on the second half of this year.

So I don't think we are seeing a proliferation among customers in our portfolio, but we have grown with a couple of customers that are believers in that approach.

And do you have any protection against any potential downtime related to customer supply chain issues?

Yes. I would say with the undersupply situation right now, all the typical terms and conditions for standby and wait time charges are in play now.

So we are getting paid for standby. And that would include any disruptions on the customer's side of the ledger, including proppant.

That's great. Thanks.

One last clean-up for me, the share count. The press release had the basic share count.

Is fully diluted the same number?

I think the basic's 111.5 and the fully diluted is 111.75.

75? Okay.

And that's average or exit?

I will have to check that for you, Michael. I will get back to you.

Okay. All right.

Thanks Greg. I will turn it back.

Thanks guys.

Thank you. Good morning guys.

Maybe just to clarify one point on the pricing and then maybe I will try something on other services. But from your perspective, I think you said leading-edge pricing in a dedicated fleet model is in that $16 million to $18 million a year profitability range.

Did I hear that correctly?

Yes. That's correct.

Has there been movement over the last two or three months in leading-edge?

No. It's kind of leveled off as the oil price dropped down in the mid-40s and with the focus of the E&Ps now on return on capital versus production, everybody working on 2018 budgets.

So I think it's leveled off in that range over the last couple of months. And then as we get more clarity on 2018 maybe there's an opportunity to, depending on what the CapEx budgets look like, to increase that some more in the first half of 2018.

Okay. As I suggested, I do want to ask on the other services.

So I know you are evaluating reactivating your legacy cementing units. I guess, can you talk to us a little bit about the thresholds there?

And have you seen pricing dynamics move positively that gets you a little closer to making that decision?

Yes. Thanks for asking that.

On the RockPile business, we picked up some cement units in North Dakota. And the plan we laid out was to try to optimize and increase utilization on that fleet.

And we have been doing that. We started off with three units.

We are going to go up to five in the fourth quarter and then probably seven in the first quarter. So we are getting that optimized.

And you have seen the margin rates that we talked about in the script improve. So we think the margin rates in that business should be in the 25% range from what we have studied and that's attractive to us.

So we are ramping that business. And then the next trigger point will be, at the same time, we are talking to some of our customers in the Permian Basin that have shown interest in us getting in, ramping up cement in the Permian and we do have 14 idle assets from the Trican acquisition that happen to be positioned in the Permian.

So sometime around the end of this year, first quarter, we will make the decision to, if we want to take the next leg in this strategy, which is to ramp up the assets in the Permian.

Okay. That's helpful color.

If I could sneak in just one more. SG&A, can you just ground us for your expectations for the fourth quarter?

Yes. I think the normalized run rate of around $17.5 million is probably a good run rate going forward.

The growth quarter-over-quarter, as we mentioned in the prepared remarks, is a combination of bringing on the RockPile, which was about $3 million of the growth. And then with the growth we have had in the company, just the infrastructure required to support that across-the-board.

So that $17.5 million run rate still puts us at less than 4% of revenue. We think that's a very efficient level and that's where I would expect us to level off here for a bit.

Okay. All right.

Helpful, guys. Thanks.

I will turn it back.

Yes. Thanks.

Good morning. I am wondering if we could talk about, so it sounds like after we exit fourth quarter, pricing in your contract book is probably pretty stable at leading-edge.

So can you talk about any other efficiency or cost saving initiatives that might help you grow your margins through 2018?

Well, the pricing is constantly rolling. So just like we have done this year, Connor, we are constantly chasing it.

So if the leading-edge takes a leg up because of the undersupply situation and the budgets come out and they are in the ZIP code of where we are this year, I think there will be more opportunity and probably early in the first half for another leg up and then we will continue to reopen the contracts. So I don't think the price lever is exhausted with what we are seeing in the macro backdrop.

Yes, there's tons of levers we are working on. We are working on technology on the equipment to try to bring down the total cost of ownership and there's a lot initiatives around that.

Everything from monitoring sensors to give us more proactive data to working on next-generation pumps and things that give us extended life and lower cost of ownership. The local sand is a big piece of the equation where, between us and the operators, we are taking the rail component out of the landed cost equation and how we split that up with the operators will play out in 2018 as the mines ramp up, but we are big believers in that.

We have got a lab in The Woodlands that's constantly working on chemicals, substitutions and better ways to do things on the fluid management side. So some of that we do internally for cost and some of that we do working with the customers for production optimization.

So those are a handful of the things. But there are certainly levers out there beyond price for us to work the margins while we are in a state now of full utilization.

Got it. And could you quantify maybe some of these technology impacts and things like that just in terms of profitability per fleet or however you think about it?

I mean, what's the upside from these types of things?

Yes. I don't think we are ready on some of these to do that.

But I think as soon as we get ready on these, we will layer them into the guidance and give you guys some more color on them.

Fair enough. Maybe one more here.

It seems like if you are not investing in newbuilds, you do have a fair amount of free cash to work with next year. So could you help us think about your priority rankings in terms of further M&A or cash return or something along those lines?

Yes. I mean, the situation out there is pretty dynamic.

So we kind of keep a list of, a menu of options. They include M&A.

We are big believers in consolidation, but we are also very patient on M&A to make sure we find the right deal financially as well as the right cultural fit. Our debt facility is very flexible, so we can pay down partial or full without any penalties.

So debt pay down is always an option. Putting cash on the balance sheet just to strengthen the balance sheet to play offensive in the future or be defensive.

And then the last one is returning some capital to shareholders. And those are all options that we will consider.

I always tell people when I meet with them that all that cash sits in a spreadsheet somewhere, but our first priority is to get it in the bank.

Got it. Thanks.

Hi. Thanks.

Good morning guys.

Hi Jud.

Hi Jud.

A question on kind of, you are fully deployed now. So is there a way to think about maybe efficiency gains from here or maximizing utilization preferably like minimizing nonproductive time or getting more stages per fleet as you move forward?

Do you think you still have some room to grow in terms of efficiency on a per-spread basis? And if so, is there a way to think about that?

Yes. It's a great question.

It's something we spend a lot of time on. We look at NPT every day on how we can get more pump time out of the assets and work with our customers to try to reduce the NPT on both sides of the ledger.

The zipper fraccing was a big step change for the industry. We have about 75% of our work on zipper.

So there's some opportunity there on just making a bigger part of the portfolio zipper and a lot of that is just the customer's mix of wells. But as the customers move towards more production and less exploratory in the sweet spots, we should benefit from that.

And then a lot of the low-hanging fruit's been picked on the NPT. We have told you guys before, we do about 1,400 stages per year per fleet with the disclaimer that not all stages are created equal.

But we have been running at what we think is a pretty high efficiency level. And from here, it's some structural things to try to, it's some heavier lifting and it takes some project investment to auto fueling solutions to try to speed up the time on wellhead changes.

So those are the things we are attacking now. But there's more juice in that area, Jud.

It's just we kind of went from a grapefruit to kind of a lemon. And to get more juice out, it takes a little more investment, but we are absolutely working on those things every day.

Okay. And my second question is, you have highlighted some of the levers you could pull perhaps to try to reduce costs.

If I could ask, where right now are you seeing the biggest challenges? I mean, it sounds like labor is going up.

Obviously logistics is a challenge. As you survey the landscape and look into next year, where are the areas you are probably most concerned from a cost perspective and a cost inflation standpoint?

Yes. I don't know there's an area we are most concerned about.

I mean, the sand has leveled off and we know we have the local sand coming. So I think that's we view that as upside.

And the faster that capacity comes online, the better. The chemicals are pretty stable for us.

The trucking in the Permian has been a pressure point just because of the labor shortage. Labor, in general, we have done a fairly good job managing.

So we are not seeing a ton of inflation there. I think the biggest opportunity for us is with the service intensity going up is focusing on maintenance and just trying to do some things to reduce the cost of consumables, get them to last longer, improve our practices.

So maintenance is a big spend area on cash and OpEx in the P&L. And as the service intensity has gone up, most of the industry is still working with a set of assets that weren't intended for the work we are doing today.

So that's a big area of opportunity for us to try to squeeze some efficiency.

Okay. And if I could slip in one more as well.

You highlighted the number of E&Ps that are self-sourcing going up from 10% to, I think, you said 20%, 25%. If that continues to move higher and who knows where it would ultimately level off, but is there a way to think about how much, if it does, would impact your GP per fleet?

If $16 million to $18 million is where you are kind of leveling off, if that were to go to, I don't know, 75% or a much higher percentage, is there a way to think about what that could do to your profitability? Or would it impact it at all?

I don't think it would impact it at all. Our GP per fleet today is exactly the same for places we are supplying the proppant and places we are not.

At the end of the day, we have invested in a set of assets and people and we have got to get a return on those assets. So we are agnostic to whether they supply it or not.

As long as we are whole economically, the opportunity cost of somewhere where we can pump it in that, the efficiency stays at a high level.

Great. Okay.

Thank you. I will turn it back.

Hi guys. Greg, just a couple of quick ones for me.

And the first one, if you touched on it already and I missed it, I apologize. But if utilization holds at current levels, how do you see the evolution of gross profit per fleet in 2018 from the exit rate?

Yes. So I mean, the exit rate is $16 million to $18 million.

You can do the math on that. And then the future from there just depends on where the capital budgets come out.

If the capital budgets come out flat or slightly down or up from this year, we think the frac market is still undersupplied and there will be another opportunity for pricing whenever the budgets settled down, probably late first quarter. So it's hard for us to predict the magnitude of that price increase, but if the CapEx gets in the ZIP code of 2017 and the run rate we are on now, we would expect more pricing opportunity in 2018, John.

Okay. Two more.

You mentioned the potential ramp up of the cementing assets in the Permian. Does that make more sense to do a tuck-in acquisition to get that going?

Or would you prefer the organic approach just specific to that product?

Yes. It's a good question.

I mean, I think that's where we were sitting six months ago with that decision but with the RockPile acquisition, we have got a platform and some talent and some working asset. So we feel like we have that platform today.

So we are going to ramp the Bakken up and prove it out. And then the next leg would be the Permian.

And then if we have 34 assets running and we like the business, then the question is where do we go from there. And that we could be in that situation mid-2018.

Okay. And then the final one for me would be, you mentioned some of the lead times on new fleets running as much as nine months.

Can you speak to the lead times on the individual component parts? And at this point, are you seeing any delays in your ability to conduct after-market service activities on your fleets?

And would you expect delays to potentially develop here as we head in?

Yes. I mean, it's a great question.

So we were concerned about this in early 2016, so we proactively went and layered in very strategic deals with the component suppliers for the engine transmissions and the pumps. So we have got dedicated agreements in place.

Just like we do on the commercial side, we have done on the supply side. We stock ample inventory to make sure we have buffer both at the suppliers and in Keane.

This year, we have invested in filling the warehouse with safety stocks. So we have been working on this for 10 months even before the ramp was as prevalent as it is today on the horsepower.

And we feel like we have those supply lines firmed up to the point we have contractual commitments to get the maintenance CapEx we need. So something we have been focused on.

But I can tell you the lead times on those components are getting tight. The suppliers we are working with are turning down orders and they are at capacity.

So we do expect that to be a competitive advantage.

And you are doing all of your, when you have to swing engine pumps and so forth, do you do that in-house? Or are you relying on any of the frac assemblers, the packagers to do the rebuilds?

And just whether there are delays, if any, just to get a unit in and out?

Yes. I would say we do.

We swing components on however we can get the unit back the fastest. So most of the times, we will do it in-house.

But sometimes, we use a third-party shop that has a crane that might be near the wellsite to swing it. It's typically not the packagers, but it might be a third-party shop that has the capability we need to quickly swing an asset.

Okay. Thanks guys.

Good morning guys. I think John asked all my questions.

So let me think of another one here. We have heard some stories about customer turnover in some of the basins.

I know you guys were fully utilized during the quarter. But did you guys have any customer turnover?

And if so, were you able to put the fleet right back to work with somebody else?

Yes. Look, there's always some customer turnover in this business.

And in the quarter, we had a customer turnover and it went back to work two days later for a new customer with the same equipment and same crew. So it happens from time to time.

You go into these dedicated deals. And sometimes you do a trial before you do a dedicated deal to get to know each other and most of the time for us, they work out, which you can see in our longevity of our relationships with our customers.

And occasionally, they don't and you shake hands and go your separate ways. But all the equipment went right back to work.

There weren't any gaps in the schedule.

Okay. That's fair.

Was that in the Permian?

Correct.

Okay. I guess my other one is just, to reactivate the rest of the cementing assets you had, what would the capital required for that be?

Less than $1 million.

Okay. All right.

That's all for me. Thanks.

Thanks J.B.

Thanks for taking the question. Just how should we think about spot pricing relative to the dedicated fleet pricing?

Is there much of a delta there now?

There probably is. Will, we don't really play much in the spot market, but we read the same things that are published out there.

So it seems like for a customer that doesn't have a dedicated program and needs a fleet for eight weeks, you can get some kind of premium to that versus a one or two-year deal with a customer. So we don't play in that.

So the only data we have is just kind of the things we read and hear about. But it does seem there's a premium because, in theory, it's harder for a service company to string together a set of customers because the schedules have to work out perfectly.

And then so you are not the first company to indicate that pricing has stagnated with uncertainty in terms of 2018 CapEx budgets. But how do we reconcile the fact that the market is arguably undersupplied?

You guys, based on your kind of getting to low-20s gross profit per fleet indicate a pretty steep ramp to get to newbuild economics and we have nine month delivery time on new equipment. How do we reconcile that in terms of the pricing, the trajectory is still not up given the fact that the market's undersupplied?

Yes. I think it's 100% driven by the backdrop.

I think the service companies are at a level where we are generating, I would say, a decent return, a mid-cycle return and I think we want to be patient with our customers as they go through their budget cycle to make sure we set next year up for success. So I think, speaking for Keane, we have been patient with our customers letting them go through their budget cycle as opposed to going with an aggressive price increase in the middle of the budget cycle.

So our approach is let it settle down and see where the market comes out next year. We are optimistic it's going to be similar CapEx levels and the completion intensity might even be higher than the drill bit and there will be opportunities for more pricing.

So I just think we have been more patient with that approach. I can't speak to our competitors.

And then maybe just one last one. As mentioned that not all horsepower is built equal, can you maybe expand upon that?

Where have you seen bifurcation in terms of fleet quality? Is it just quintuplex versus triplex?

Tri-axle trailers? Can you just maybe help us frame that understanding the bifurcation there?

Yes. I think what we were referring to is not all horsepower is equal and as far as ages of the portfolio.

I mean most of us are working with generally the same kind of components of frac equipment. So it's more around what's the age of your portfolio and then what are your maintenance practices and are you keeping up to get the reliability of the equipment.

I think that's where you will see the differentiation either because of capital constraints on maintenance because the service intensity has gone up and some are in a better position to do that than others. And then the other part of that is just execution.

Like John said, can you get the components, do you have the supply lines lined up to be able to keep up with today's demands on keeping your equipment fresh.

That's helpful. Thank you.

Good morning guys.

Good morning.

Just a couple of quick ones. You would already talked about people and labor.

I was going to ask about that, but you had noted that you are doing pretty good on maintaining inflation on that. Can you talk a little bit about fluid ends?

Where are you guys on complete transition to stainless steel? And can you talk about what the longevity is?

And where you stand on those consumables, at least?

Sure. Yes, Jim, we have been on stainless steel.

We have been on 100% stainless steel for over two years and we are believers in it. It outperforms the carbon.

We are getting the life expected and we continue to work with our suppliers to figure out how to get more life.

I won't ask you who, but is the quality different between different suppliers? I am assuming you probably have one dedicated, one that I don't know.

I am just curious to know if they are all the same. Is it just a matter of price?

Or is the quality different?

I wouldn't say they are all the same, but I would say there are different tiers of vendors. There are certain Tier 1 vendors we choose to work with that get the best forgings and machine them in a way that we don't have defects in the field.

So there's differentiation. But when the market heated up in 2014, there was a lot of new entrants and there was a lot of options available when the supply was tight.

So there's options out there, but from our perspective, we prefer to work with the ones with more R&D capabilities, so we can continue to try to advance the technology and improve their performance.

Okay. And if I could, we talked a little bit about provision of sand by your customers and that was helpful.

How much of your revenues in Q3 were sand? Most people seem to be running 30% to 40% and I just wondered, one was as high as 70%, I think, in Q2.

How much of your revenues this quarter were sand?

We don't even look at that. We don't look at that internally, Jim.

Okay. You know what?

Thank you very much. Great quarter.

Okay. Thanks.

Thanks.

Good Morning

Good Morning

Just a question. You noted that you have gotten to 81% in terms of your wireline bundling.

And just I was wondering if, we have heard some anecdotes at the field level that some of maybe the more minor services in terms of overall well ticket or completion ticket are causing dislocations. And has that over the course of the year turned into strategy that you are trying to force to one where your competency is actually maybe seeing wireline lead demand for your pumping services as well?

No. I don't think we are seeing that.

The whole strategy for us on wireline bundling is the efficiency play on frac. I think you will hear, I think you have heard this quarter some people talk about services on the wellsite that impact their efficiency that are outside of their control.

The biggest one for us is wireline and our ability to control that helps our efficiency on the completion package. So it's an efficiency gain for us and that's the payback.

There is some dollars on the service, but we don't see wireline pulling in frac.

And then maybe, I mean, you have commented on sand and the logistics there. Has it been your experience, maybe through the bundling of wireline, that the anecdotes around minor services causing bottlenecks is really not as big an issue certainly for your fleet or widespread to the industry and really is limited to the anecdotal evidence that's come up?

I think it is creating bottlenecks because before we integrated wireline as part of the impetus for us to get into it is we were filling those bottlenecks. When we looked at our NPT in frac, one of our top three drivers was wireline.

And so putting a wireline in a sophisticated platform with a common leadership team and safety approach and one face to the customer, we have seen the efficiency benefits of that. I think what you are seeing out there is not necessarily capacity issues with these smaller services, but service quality and execution issues.

Okay. And then your other major buckets that would be more obvious on NPT would just be sand sourcing.

And I don't know what else would you see or what else did you identify that you might be able to control.

Well, there are some on our side of the ledger. We have got to get our materials there.

We have got to get the sand there on time. We have got to keep our equipment running.

And then on the customer side, it's water. Water is a big piece of the equation across the country.

Great. That's really helpful.

Thanks a lot.

Hi guys. Thanks for squeezing us in again here.

Just in terms of bottlenecks, I know you guys mentioned trucking a little bit earlier. Has it gotten really tight to the point where it is creating a bottleneck?

And if not, do you think the rollout of the electronic logs next year is going to create an issue across the oilfield in the trucking space?

Yes. The trucking in the Permian is tight.

Regardless of what last-mile solution you have, you need a tractor and a tractor needs a CDL driver. And as the intensity has gone up in the basin, there's multiple facets competing for these same drivers, whether it's FedEx, UPS, the water haulers, the fuel companies, the food deliveries to the restaurants, they are all competing for the same truck drivers.

So we are seeing wage inflation on that. I think the e-logs will put some pressure on that because there's a lot of mom-and-pop.

It's a very fragmented industry. So that compliance will be a hurdle for some of those companies.

So yes, it's an area we pay close attention to. We do staff our own trucking force in the Permian for a portion of our work and that's kind of an insurance policy for us.

But that's one of the bottlenecks. Another one we have seen is until these local mines come on, the transloads in the Permian, they are starting to get under pressure again.

You get one of these pictures somebody sends to you that all of you are probably seeing where the trucks are backed up five miles down the road at the transload waiting to load. So I think that's with the completion intensity and the pickup in activity.

The local mines, I think, will mitigate some of that pressure when they build the loading lanes and we have more pickup points, but those are probably the two main areas of pressure today.

Okay. And in terms of that pressure, does it translate into operator cost inflation in terms of having to run more trucks to incorporate that lead time?

Or does it translate into actual downtime or NPT if the sand is not getting to wellsite?

It's both. We manage to mitigate the NPT because we are not going to accept missing the job.

And what that forces you to do is, invest in creative ways to add more capacity to make sure you can deliver the sand. And then it's a commercial discussion between us and our customers on how we pay for that.

But it shows up in one of those. Either you can't get it or you have got to add more assets and resources to make sure you get it.

We hope that's a temporary bottleneck. And when more pickup locations come online via the mines, it gets mitigated.

But it's a pressure point today.

Okay. Great.

And then just one last one for me in terms of water. I know you mentioned there's some tightness there as well.

As operators start to go from exploration into full development mode, do you think that's going to become increasingly tighter? Are there kind of solutions being put in place right now to grow with that side of the business?

We don't supply the water. Our customers do.

So it's more a part of our due diligence with our customers when we go to work for them to make sure they have infrastructure and plans to get the water we need to frac, so we can both get the efficiency we are planning on. So we are confident with the customer base we have aligned with, that they have ample plans in place.

But it's not something we are involved with day-to-day other than making sure we are comfortable with it.

Okay. That's really helpful.

Thanks guys.

Thanks for letting me back in as well. Just a couple of very quick ones, I think.

If I missed this, I am sorry. What's your outlook for your CapEx in 4Q?

The CapEx is tracking about $4 million of fleet a year. We are kind of maintaining that trajectory.

The CapEx then year-to-date is $105 million and fourth quarter will be on similar to the run rate we are on.

CapEx is tracking that. Okay.

Got it. Okay.

And I guess the follow-on question really relates to 2018. If you think that $4 million of fleet number, is that your best guess for how it holds through next year?

Yes. Look, we have got a pretty sophisticated model that runs our fleet out and tells us how many components we need and when they need be replaced.

And obviously there's variables in there but the $4 million per fleet is a good average number. If you run the fleets harder, you might see some timing disconnects.

So in the fourth quarter this year, we might see a little bit of that timing go up. And if it does, we will get the benefit of that next year.

So I think we are going to be around that $4 million, plus or minus $0.5 million on either side of it.

Got it. Okay.

Thanks. I will turn it back.

Thank you. Yes, I would just like to close out by saying that we are very pleased with our financial performance for the quarter and throughout the whole year and remain optimistic about the market over the near-term.

Our team remains focused on the quality, safety and efficient execution of our services on behalf of our customers and we will carry this focus through the rest of the year and into 2018. Thanks again for joining us today and we look forward to speaking with you all again soon.

Have a great day.