James Rollyson: Right. But gradually over time, the equipment that costs you less that you delivered two years ago or three years ago, eventually reprice is up there assuming that the macro wall continues to work like it’s — we think we all think it does.
Mickey McKee: Yes, I think that’s right. And I think that you heard on the call, we’re pretty bullish on the macro environment around LNG and natural gas right now, even despite low gas prices today.
James Rollyson: Yes, notice that. Great. Well, thanks, guys. I’ll turn it over, to everyone ask questions.
Operator: Thank you. Our next question is come from the line of John Mackay with Goldman Sachs. Please proceed with your questions.
John Mackay: Hey, guys, good morning, and thanks for the time. Maybe let’s say on the compression market overall and pricing. Could you just give us a sense, you know, you talked about the lead times, the Caterpillar coming in from, you know, a year-ish to 40 to 45 weeks? Has that had any impact on your conversations with customers around your — I guess you’re working on second quarter ’25 right now. And maybe we could tie in their Caterpillars talked about adding some capacity on some of their engine lines, and maybe just an update on what you’re hearing there? Thanks.
Mickey McKee: Yes. John, good to talk to you this morning. Appreciate the question. So let’s just address the Caterpillar issue of right up front. They’ve pulled in their delivery times on large horsepower of gas compression engines to 40 and 45 weeks. Most notably, the reason for that is kind of from hearing from Caterpillar is alleviating some of their supply chain constraints they were experiencing, it’s not necessarily an increase in capacity on that engine line. When you heard on their last earnings call about some investments they’re making in increased engine capacity, from our understanding, that’s mostly in their power engine, line of engines, which are going to support kind of data centers and AI, which is a tremendous amount of demand for power. Today, all fueled obviously, by natural gas. So that’s an interesting point there.
John Mackay: That’s good. Yes, fair. Go ahead.
Mickey McKee: What was the second part of your question there? You’re talking about pricing? Is that right?
John Mackay: No that was really, so if you’ve come into, you know, 40 to 45 weeks, I guess it sounds more on their supply chains, alleviating versus new capacity coming to the market. But does that, 10 week or so better lead time has that had any impact on pricing when you’re talking to your customers?
Mickey McKee: No, not at all. I mean, quite frankly, to our customers at this point that we’ve been taking care of our existing customer base for the last year, two years out and not going out and soliciting new business per se. So all the customers that we’re talking about first and second quarter type business of 2025, they understand that capital is precious, and they need to get in line to get their allocation of that capital going forward. So I think the long type of backlog that we’re seeing here has probably is more related to the precious allocation of capital rather than directly involved with Caterpillar lead times.
John Mackay: That’s very clear. Thanks for clearing that up. Maybe just as a follow up. If we’re not seeing a ton of new capacity from Caterpillar others coming into this, when do we have to start worrying about the amount of engines we can bring into this market, and how we get the market overall lined up for how much gas is going to be flowing in 2025?
Mickey McKee: Good question, John. And I don’t have a great answer for it, I think that we’re just going to be a pretty significant shortage of compression capacity, whether these customers and the GNPs [ph] decide to buy it on their own or decide to outsource it to people like us, I think everybody is capital discipline right now. I think there’s a there’s more gas to be compressed than I think anybody realizes as a function of the compression intensity of that gas that’s coming out of the Permian Basin requiring four or five times more compression than a standard kind of conventional type of a well for dry gas, natural gas production. Compression required for gas lift in the Permian, which is required for basically all of the oil production coming out of the Permian Basin.
And then couple on top of that, relatively no additional idle capacity amongst Kodiak or peers. I think that you know, for the last several years, it’s been a great market in compression. And if that idle capacity hasn’t gone back to work now it’s probably relatively difficult to reapply in this situation right now. So, with no idle capacity and spare capacity in the market, it’s going to be very, very tight and I don’t see additional sources of equipment coming through to be able to take that capacity on. And I think that, you know, we’re the beneficiary of that, because we’re sitting here in the in the seat of being able to drive pricing and drive utilization and that kind of thing. And so I don’t foresee anything changing in this market for at least the foreseeable future.