Q2 2020 National Energy Services Reunited Corp Earnings Call
At this time all participants are only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance well the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I like to turn the conference over to Mr., Chris <unk> Chief Financial Officer. Please go ahead Mr. Bruce.
Good day and welcome to any yes, our second quarter 2020 earnings call.
With me today, it shrinks soda, chairman and Chief Executive Officer of anyway, sorry.
They've called we will comment on our second quarter results and overall performance.
After our prepared remarks, we will open up the colder questions.
Before we begin I'd like to remind our participants that some of the statements will be making today are forward looking.
These matters involve risks and uncertainties that could cause our results to differ materially from those projected any statements.
Therefore refer you to our latest earnings released filed earlier today and other SEC filings.
Comments today May also include non-GAAP financial measures additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is on our website.
Finally feel free to contact us after the call with any additional questions. You may have our investor relations contact information is available on our website now I'll hand, the call over to Sharif.
Thanks, Chris.
Ladies and gentlemen.
Thank you for participating in this conference call.
We're pretty excited to report on our continuous outstanding performance the sports.
This is the first time, we have surpassed the 200 million Mark in revenue, we grew 27% year over year and 2% sequentially. Despite all the <unk> around the globe, especially in the energy sector that is the most affected.
This achievement speaks about the strength of our feet person that on the ground.
Resilience dedication commitment and adult operational management team.
At the time of crisis, you can determine to read a differentiator when that results. Despite the no.
We have basically swimming against the current and still outperforming the entire or industry.
I would best in class talented employees know how to scored the top position and everything they do.
We have been essentially six month interdependent make yet we maintained 100% capacity.
We have seen but do we shouldn't change and imports continuously.
We are always ready.
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That does reduce time on the spot to the condition of each country.
The middle East has seen strict and stringent action to controlled to spread the 90.
This has included curfews.
He is dropping restrictions on both London at.
Warranty teams testing and tracking protocols.
This greatness vary from country to country and consequently, we developed it didnt country specific strategy.
And this like.
In addition, we have did but oh protocols, which are required to be followed by all employees.
All these had essentially increased the complexity as well as the cost of hours and hours customer operation.
They greatly valued the company that supports them and keep the operations intact.
It does the credit to our operating teams that then it in an environment of increased cost we have managed to maintain our operating margins.
We're not realising anybody.
Or thinking any charges and have produced doing numbers on it very clean quarter.
Since the start of depend that make back in February when we set up I would see empty crisis management team, we did not drawing down single job.
The CMT led by my direct reports continue to meet daily and reviewed the entire operational each country.
Including spares chemicals, but sonata readiness customer needs and the feedback all type of did you can imagine.
This is the key dollar success and ensuring we are never surprise by any regulation lack of spare parts any sudden change of customer program that we are not well prepared for.
On a human that's what we're doing everything to ensure that I would personally I've taken care off and every possible protection protocol is diligently fault.
Working sockets for people to not have changed.
Some mandated by the customer and some essentially due to that that I've heard restriction.
I'm very thankful and black.
That's such a talented pool up individuals would take bright and not only what they are doing for net but also in serving the communities and that countries in which that working.
One of the advantage of having a large national workforce is that you get all these factors, helping you in managing the situation.
It does a great source of national Pride for each of them. So he added that they national are delivering and coping with this one thing the lifetime event and a much better might not then almost everyone at.
Meanwhile, we ensure to continue to follow with the rotation that expect community who are stuck in the country operation the comedy back home is well taken care off.
This is part of our DNA and commitment not only to the employee, but all that extended families in such a difficult time.
Now, let me say, if you're worried about the macro and how do we see things with the global pandemic effects.
On the short term it goes without saying that mean would remain clearly the most resilient for oil and gas activities.
The core GC C market overall have had very wet and have seen a drop in the 10% to 15% on average was the non GCC Mena markets have a steeper drop due to mainly security.
Pandemic, if that and more importantly, the different client mix as an example, north Iraq, which has a large count of small independent have seen similar level of dropping activity the north American and it's primarily related to the economics of the production agreement that is very steady.
The wood prices.
[laughter] National oil companies remain focused on the long term.
Being the most reliable provide their up and that you weren't they do not change that long term blocks.
And remain vigilant for the health and safety all better economy that deep but ended went being.
This is not to stay there was no effect on activities in the different countries. They didn't released drilling rigs, mainly the poor performing and they did delay some of the earlier plan. So called nice to have <unk> exploratory in nature or form Tee up project.
Going forward, they will keep adjusting to short term because time in between oil and gas depending on the worldwide demand.
However, we do not see the main activities dropping any further.
In addition, the Rigless work will adjust accordingly.
And then that's consumption for the guys an energy transmission remain solid.
Yes, she commitment is very high on the agenda of all our plans.
We continue in that pursuit to ensure the lowest carbon footprint for the energy demand and it will indeed develop their massive God resources.
For net.
Do not get tired of doing a good job.
We believe movement into course, and ensure we are serving all our different customer professionally ensuring our current activities will not get affected.
Last quarter I talked about how we initiated then started executing our unconventional fleet operation and the just put a basin in Saudi Arabia, which has been successful project for net as well, that's where our customers.
In addition, we spoke about something its second fleet and working before you then.
I'm glad to announce we did send our second fleet from our partner next year.
We did manage to ship and believe custom during independently.
Most importantly that lead hit the floor running.
Not only we were assigned work, but we managed to start the sleep without X spots.
This was done in close coordination with our trusted customer.
We have actually perform at par or better than other existing established fleets in the region.
In addition to this our American team, who have been in the country for more than three month had to go back home to see that families towards the end of me.
Everyone thought we would have to stop or delayed the work on the cost three we managed to put the Saudi team who have been trends in both the Permian and the region to complete that they control and manage the operation professionally since that.
This is the best just ammonia that talent and ingenuity of the Saudi nationally.
They took control manage the fleet or put it that the entire set up without any issues. Despite the elevate the temperature during the summer month and with all the pandemic restriction.
It does the culture them to prove when you provide the proper training property exposures proper towards people wouldn't accent and everything they do.
We're really proud of being national I know professional crews will compete that the same level and standard what's the best not only in the region, but the entire industry.
Again this could have never been achieved without the true support of our customer they believe in us and that invaluable guidance from the stopped.
Moving away from the Frac, We also had a major breakthrough in wireline in Saudi.
Where do we have been qualified to work in that gas field gay Swett operation.
Our ability and experienced perforating in both the frac fleets it didn't that endeavor.
I would love operation started very small when we put this company together and we are progressing in the last few quarter and with the addition of surpassed school. We have good wireline operation in four countries, which would be an important avenue of high quality revenue growth in the future.
We also did I would first testing operation for a major client than Iraq.
As to what's done with a full national <unk>.
In Kuwait, we gained market share within your record of cementing number of jumped a month so.
Subsequently I would decline assigned higher number of breaks to us as we continue to replace the competition.
Similarly, we had an increase in the assigned D.R.S. rigs.
Today, we have solid three contracts in Kuwait, and we are looking forward to enhance our president and it's very important market.
And our man, we won several key drilling and production contract further solidifying our position.
We ran at doing gifting section men successfully met and 30 meet that with controlled auto people it outright.
The technology save three and half days, a week time versus convention is tool that will do the job and seven to eight days.
The technology, then you would want application that they're doing globally and the first to make this 30 meta and one Brian.
We continue to engage at all levels and our core country, where do we have the highest level of all monetization among the service industry.
In Abu Dhabi, we extended our cementing contract for a further period of two years [noise].
We have maintained on our operation for coiled tubing with minimum interruption to the field despite the restrictions.
And Libya, we continued to perform operation in the east up the country. We have maintained our hundred percent Libyan nosh than what kipper that served a limited number of rigs I've been able to the client.
We maintained our presence and ready for future expense and expansion should the NRC decides to add rigs.
In summary, and as you see an hour results our momentum and direction has not changed and then we have shown resiliency across the board on our results and activities.
Net study as an appreciable drilling portfolio I know what endeavor recently has been waste to high grade the portfolio by I think technology, offering and who have been working towards correcting these technology for our customers.
In Q2, we have finalized two of these investments.
Which I've long cycle investment and we should be introducing them to our customer shortly in the region.
This is the continuation of our new technology strategy, where do we deem up with the best and invest with the innovative minds in North America.
Lastly, as you know we announced that affected the first of June well in charge of running sup ESCO and we are accordingly, the board thing it as such.
So that school has a lot of talent and brings nest agreed to contract and business lines.
Beyond the ongoing integration activities, we're already working on opportunities to expand that business lines, where do we do not have an operating in the countries, where they don't offer the state.
That's you got service is the focus area and we're working on several opportunities and did you see area.
We already won it DCP contract product lines in Egypt, and wed expanding our footprint in Libya with that logging and slick line business.
This month, we already moved that operation in Saudi and live yet I would be that.
This show you the commitment and the level of Egan that have both organization to work together.
Despite the drop of activities in Egypt, we remain very focused on the long term business and potential and area.
I know that note I will pass the call over to Chris to talk about the financial and did it. Thank you.
Thank you Sharif.
As Rick mentioned, we've reported our highest quarterly revenue ever second quarter revenues of 203 million.
This represents an increase of 27% over the prior year quarter and 2% over the first quarter.
The sequential and year over year growth was driven primarily by the new unconventional product line in Saudi Arabia, and our new contracts in Kuwait, Abu Dhabi that offset market declines in Iraq in North Africa.
The second quarter also received the benefit of one month of surpassed go revenue.
We also achieved another record in the second quarter as adjusted EBITDA was also the highest quarterly amount we've ever reported.
Adjusted EBITDA was 52 million or 26% of revenue increasing 13% over the prior year quarter end up 1 million over the prior quarter.
EBITDA adjustments of 1.8 million for the quarter are primarily for transaction and integration costs associated with the acquisition of some Tesco in Egypt.
Despite the market conditions, we're pleased that our adjusted EBITDA margins remained flat over the first quarter.
We have experienced increased recurring costs related to cover 19, such as employee testing rotation cause feel lodging catering and standardization.
We consider these costs as normal operations and have made no adjustments to EBITDA for them.
To mitigate the impact of these incremental costs and reduced activity in some markets. We've been successful in finding opportunities to reduce other costs. For example, we've been aggressively negotiating and receiving discounts and our supply chain.
Especially a product costs equipment rentals transportation and field facilities.
Moving to our segments. Our production segment revenue for the second quarter was $139 million another quarterly record growing 46% over the same period last year and 4% over Q1 2020.
The sequential and year over year growth is primarily to unconventional completion activity in Saudi Arabia.
And new contracts in Kuwait Abu Dhabi. This was partially offset by lower activity in Iraq in North Africa.
Adjusted EBITDA margins for the production group of 29% were down sequentially from 31%.
Margins were impacted by the startup costs for the new conventional Frac fleet, but as a note. These costs were not adjusted out of our results also lower margin pass through revenue associated with unconventional activity grew as a percentage of total production revenue.
Separately, our drilling in evaluation segment revenue for the second quarter is $64 million.
Compared to the same quarter last year and down 3% sequentially.
The sequential decline is primarily due to reduced well testing due to lower drilling activity.
However, adjusted EBITDA margins improved to 25% in the second quarter, the highest in several quarters from 22% in the prior quarter.
This was from a more favorable mix of revenue from logging in thru tubing services.
Depreciation and amortization increased to 30.4 million in the second quarter compared to $29.2 million in the prior quarter.
Most of this increase was due to one month of incremental DNA from this the Petsko transaction.
We expect DNA to increase by approximately 2 million in the third quarter compared to the second quarter run rate from new Capex and a full quarter of the Pascoe.
Interest expense in the second quarter was 4.2 million down slightly from 4.5 million in the prior quarter.
The benefit of lower interest rates on life or were partially offset by one month of incremental interest from so petsko.
Our effective tax rate tax rate continues to track well below the rate seen in 29 team as we continue to optimize our tax structure.
The effective tax rate for the first half of 2020 was 19.7 per cent compared to 23.2% in the first half of last year and the full year 2019 rate of 24.9%.
Based on current full year projections, we expect the effective tax rate to stay at or below 20%.
This resulted in reported net income of $10.5 million or 12 cents per diluted share and adjusted net income of 12.3 million or 14 cents per diluted share.
We're also very pleased with the sequential improvement in operating and free cash flow cash flow from operations for the second quarter was 42.7 million, our second highest quarterly rate ever up from 9.9 million in the first quarter.
Gross collections increased approximately 13% sequentially on a revenue increase of just 2%.
Well invoice processing delays significantly improved from the onset of coven, we are still experience a longer collection cycle than normal.
We continue to align our supplier payment timing with our customer collections to mitigate this impact.
Capital expenditures in the second quarter were 27.1 million.
Most of this cash spend was for payments of Capex received or approved in 2019.
In the first half of 2020, we've only authorized approximately 25 million a new commitments, which is about 25% of the original plan for 2020.
This improvement in operating cash flow generated positive free cash flow of $16 million in the second quarter compared to negative $14 million in the first quarter.
We expect even higher average quarterly free cash flow in the second half of 2020 over the second quarter rate.
This will be achieved through improved collections and lower capex.
We expect dsos by year end to return to or improve over the level seen at year end 2019.
The expected retention payment of approximately $20 million was collected in July and we could possibly receive an additional smaller retention release in the second half.
We also expect additional DSL improvement in several markets, that's been experiencing processing delays due to cobot.
Capital spending levels in the second half should be lower than the first half run rate as we significantly reduced our originally planned 2020 kept capex commitments at the outset of the cobot crisis.
Cash capex for the second half is expected to be the range of 30 to 35 million down from 51 million in the first half.
Net debt increased to 342 million at June Thirtyth 2020, compared to 336 million at the end of the first quarter.
Net debt increased sequentially as our debt cash generation was offset by the addition of net debt of $22 million from some Tesco.
We drew an additional 15 million from the revolver to fund a portion of the upcoming regulatory closing of the Pascoe.
As of June Thirtyth 2020, our net debt to adjusted EBITDA ratio was 1.7 flat from last quarter and should produce to our target level of approximately 1.5 in future quarters.
Also we remained in full compliance with our credit facility financial covenants in Q2 2020.
Finally in response to changing market conditions, we were able to Sussex successfully renegotiated.
The timing of certain closing cash and debt payments for the Petsko transaction.
The initial agreement called for cash and debt repayments of approximately $50 million at closing.
Now only 22 million of cash and debt payments need to be funded when the final post closing regulatory actions are completed in Q3.
Additional cash payments of 6 million will be paid monthly over the third quarter.
We also negotiated additional earn outs for cash payments of up to 7 million only if certain milestones are met in the fourth quarter.
Finally surpassed those primary lender agreed to extend the remaining long term debt repayment of 10 million until the third quarter of 2021.
Moving to SG during the second quarter NSR issued its second full proxy statement that details our compensation philosophy.
Our executive compensation is highly targeted to achieving performance targets are based allergies are generally below market with the majority of our compensation linked to achieving short term and long term goals that focused on growth cash generation and stock price performance.
Many may not realize that Sharif has waived as equity grants for the last three years. So the more operational employees can participate in the equity program.
The purpose is not only to align a broader group of employees with our shareholders, but also ensure that these employee share this potential compensation and not just the senior executives.
At any MSR SG is not just about achieving a certain rating, but also how we manage the company every day for the sake of all of our stakeholders.
In conclusion, NSR continues to outperform the market and revenue growth in margins through our regional focus and strong operational execution.
We also strive to outperform the market on free cash flow generation and our performance in the second quarter demonstrates our ability to do so.
With this I'd like to pass back to Sri for his final comments.
Thanks, Chris.
In conclusion, I would like to leave you with four key takeaways.
Number one we have managed to covert 19 situation and our readiness is better than anyone in the industry maintaining hundred percent capacity at all times.
Number two we continued to plan for the worst and hope for the best.
Targeting more market share and remain the trusted advisor and reliable partner to all our customer.
We prepared or ready for potential phase two of the pandemic and the eventuality offered the restrictions.
Three we aim to continue our growth in the coming quarters, and enhance our offerings and the different segments.
And before we continue to look at Fort opportunistic M&A, especially in the current environment.
And on that note I'd like to thank you and pass back the call to Jerry for your question.
Thank you at this time will be conducting a question and answer session.
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One moment, please probably pull for questions.
The first question is some Sean Meakim JP Morgan. Please go ahead Sir.
Thank you Hey, good morning.
Good morning, John.
Sure as you look in the back half of the year.
Helping us talk more about revenue expectations, you've got some markets look more resilient.
Is it more challenged with Covidien and production cuts.
Yeah. The suppress go impact in the third quarter, you get a full quarter there.
Typically some seasonality in the third quarter.
When you add all that up could you just give us a sense of how your topline is trending for the back after the year.
Thanks, Sean.
The way we look at it it's very similar to Q2 is that we would manage a better than everyone else.
The corporate 19, the restriction et cetera, if you look at the different customer I don't see it drop.
And any of their activity in the core DCG and I think the North Africa, and Iraq would remain depressed might get a bit worse.
In those two markets, but overall I would say more or less of a same off Q2. So you put this together and you as you rightly mentioned a this appears quite addition for the 40, it's too we should see a better that run rate than Q2.
Okay. Thank you that's helpful and I guess similar question on the margin profile. So you noticed you noted you're experiencing some cold and related costs. That's not a surprise you got some more pass through mix coming it seems well the full quarter impact us the pascoe so in terms of Mark.
Patients for the back half the year can maybe just help us assess where where you think things go from there.
Yes, so as you have seen as Sean we decided that the covered 19 situation is not like a one or two quarters. It is something that we'll have to live with it right. So we decided that this is not a part that we take a we took off from our results it's part of doing.
Our business. So we decided that this is part of the business. We believe that it should be part of our cost. So we haven't increased caused you to the fact of you know we you have to charter flight or in some and some countries. When you want to send the crew you have to as we said before do you have to separate the people in the accommodation you have to.
Add a lot of a you know sanitizing. The days is the the protocols, but it's part of our business. So all this increase of cost we deal with remains an hour and our results.
You have seen we maintain the results we went into March and thanks to the resilience of our team.
And we believe that we will continue to do that.
Keep saying don't get dial up the good job. So I do not believe that we will have any effect in the coming quarters due to that because it's already part of our costs. It's already part of our results and we did not take any exception on it.
And the path.
Through you're absolutely right and that's what we said in a couple of quarters ago that the production segment or plus 30%.
When when you when you see this type of growth of almost 50% year over year. It definitely there is a lot of a pass through revenue right. So when you start to do these projects today, we have to.
On the fleets running those fleets have caps.
The trucking to have holding up water have all kind of pass through all this obviously our revenue coming it's a great if still because its comes with the plus 10%, but it's not the same on your run it that's plus 30% right. So.
Saying all that.
If we if I would take a guess I would say that we will maintain our margin profile of Q2.
Going forward.
Very good thanks rich.
The next questions from George O'leary, TPH and company. Please go ahead Sir.
Good morning, Shriek morning, Chris.
Morning.
You guys have done an impressive job on the margin front given all the factors you just listed related to come in and the associated logistics problems that that present that the.
The other side and I think one of the items that folks are worried about is just pricing on incremental contracts can you give us a sense.
As we think out to the 2021 time frame where that pricing said discussions are going any color. There would be helpful for us to think about margins on a longer term basis.
Yes, you're so if you look if you look overall.
It because I I I've tried to give you a bit more of colored off of the pricing. So the our best them are very very smart and Barry.
The of the situation understanding extremely well what's happening in the word.
What's happening with things. These costs. So when you are very close to the customer and you are engaged ahead of time with them. The discussion becomes very I would say mutual between both of US. So we explain our cost. We explained that we are not going to increase any of our you know supply.
Or to support costs or pass through et cetera that week continued to negotiate with our suppliers. So we make we make sure that that we do not increase that cost up operation.
We absorb all our internal cost without passing them anything and that kind of conversation. He is very healthy and I would say our the <unk> our big custom at the National oil company, especially in the big countries are very very understanding and when we perform better than.
Everybody else, including the big guys. They really appreciate that and I would say they kind of shift you from a steep price negotiation definitely if something that that we come forward with how to use the overall cost.
And that is what is the key for our.
Interaction with our customers. So if you are doing this for the sick of argument if you're doing a remote to let's say coiled tubing testing operation.
We we commit upfront to the customer we tell them. We good drink up differently now we do not need this amount of equipment. We did not meet this amount. The people. We can do the things differently. This will overall reduce the cost and it's much better number then reducing some line items from.
My contract.
And the appreciate that and again as you are a trusted partner as they do they trust, what you're doing and they believe its genuine they do listen and we kind of.
Appreciate that this is the fact, then we'll use the cost because obviously the revenue dropped by 50% with the oil price. So I would say this conversation will remain a we are extremely so far are fortunate and successful and those kind of discussion. So I do not see a shot.
Our drop in our pricing I think we will be able to.
Maintain the current level of pricing.
In the second happen next year definitely that would be some a large tenders that will come at that you would see a price drop because obviously have increased capacity.
Some of some of the customer when Theyre going to 10, Theres, something and I would say in the Q3.
And it did they would see a drop of price so but overall the industry as they do not have that room anymore. This is not like 2014 upturn and then a downturn. There is nothing left right. So now you're going to the bone. So it's not like you have so much room.
To give away that you've gotten because and people do not usually work like North America Bye Bye bye, losing money right. So usually.
People are more discipline in the and the Mena region than here.
I hope this answer that question.
Yes, very very helpful color Sharif.
And then.
You mentioned, the Saudi Gaskill wireline land.
In the second quarter I notice that.
Okay, so logging and TTS health could be any margins during the quarter.
Longer term.
Though the opportunity to continue to enhance margins in that and that DSD segment and is there any way you frame kind of a longer term target for that DSD segment for you guys.
I wish you actually I have to tell you I have to be honest no I cannot I definitely to de any segment is what we keep doing is we've tried to always keep high grading due to higher tier surfaces, but I cannot.
You have to do the other part do you have to do all the running 10.
All this type of of segment that has a very low margin because that's a low margin business and still this is our where the majority of our work so.
That every quarter you will.
Fortunately or unfortunately see that kind of a fluctuation. It's it's a part of the business and if we have large campaign and a very strong logging very stronger as we did this quarter that thrutubing very successful. We are you know I mean, a lot of even done.
No, but I mean, we are a real leader and that business and the thru tubing business, we only miss on it and none.
And when we look at this in the different parts of the words and it's very successful because we have no very good and solid large footprint of coiled tubing. So if you have to quit giving any have yours thrutubing very successful and you start to add new technology, you keep enhancing those margins right. So I wish I could.
Tell you that the Q2 would remain an improved from that but then I would not be saying the true. It's basically it will really depend on on the mix of the any it's again, a very large pool of segments in that bucket that had a huge difference.
Of margin profile and if you look at you know if you look at the Big Big guys. For example, Oh. This is huge difference between them as well right. So if you look at open hole logging exploratory type of nature, which obviously, we do not play in that.
This is very high margin and compare this to.
Drilling to rented.
It's a it's completely irrelevant right, so I would say.
We obviously would love to keep adding those segment and that's what we are working on and if you have notice in our prepared remarks, we already put the investment in two of those a unique I would say drilling.
Hi, great or high level of technology with some innovative folks here in North America and this is the other type of a business. We do so we put the investment we pay we put seed money and hopefully those technology come to fruition and done this will upgrade keep upgrading.
You'd be any portfolio to have higher margin type of work.
Very helpful. Sharif that just sneak in one more if I could you should think about.
Discussions with customers.
Over the next couple three years here at call. It 2021 through 2023, whereas the dialogue most active who's kind of mulling over adding the most longer term projects said, another way, which countries do you expect might drive the next lag of organic revenue.
And earnings growth.
So definitely the NRC under GCC will always be the most resilient as we say ended the long term. These are those guys are are there for the long term of the country. This is again. The then the majority of the GDP. The majority of the foreign exchange everything comes from just received from.
The National oil company. So we our growth definitely will always be would then a we are very very linked to all the you know the Saudi Kuwait UAE non and definitely this is these guys do not plan for one or two years. This flat these guys.
Then for 20 years 30 years, so they look at what they need to do and they don't look at cost and that's what people in have to understand it so completely irrelevant in North America. They do they look at what what do they need for example for internal consumption by 2026 2028 right. So.
I need to develop this type of gas fields, it's unconventional it cost anymore, but I would develop it because it's better for the environment, it's better for the country. So I would do it even if it cost me more even today at this oil price I can burn oil and it's cheaper than the developing unconventional gas, but I won't do it because I'm responsible for the environment.
I want to up the Lewis the carbon footprint. So I will develop those feeds and they have a plan.
All the way for 10 to 20 years. So if you look at seven a country lets say, let's say for example, Kuwait they have 2040 plan.
That plan called for which fields, how they're going to develop it when they're going to start the drilling and when they're going to stop the production. So definitely our growth will be in the core GCC and all our plans is is.
It's done accordingly.
Thanks, guys.
Next question is some Blake just Wolfe research. Please go ahead Sir.
Yeah, Hey, thanks, good morning.
Wanted to follow up on the on the Frac operations, we have a pretty good idea as to how revenue and EBITDA generative that firstly wasn't the unconventional gas field, it's our understanding that the second fleet well ahead of time line is perhaps.
By nature of the configuration of the work a little bit less revenue generative.
So can you just help us quantify I guess or qualitatively I understand the difference between the two and then as we revisit the pumping opportunity in the in the region broadly it doesn't seem like scalability as an issue for you since you're training.
Local crews with with some of the ex Pat.
In the U.S., partially so can you talk about the overall opportunity how you see evolving over the next quarter.
Several quarters or years and then.
Your plan of attack so to speak in maximizing your capture about opportunity in light of the scalability successes that you've had.
Okay.
Thanks Blake so.
The just full ramp is in order to unconventional.
Fleet is.
You have to think about dot like North America. So this is very similar to the Permian to Eagleford et cetera. So it's a bad.
Horizontal wells multi stage you can be extremely efficient.
Because you are not moving between wells you are on the on the side and you can you know sometimes they have three well pads two well pads for what bought which means it enables you to do a lot <unk> number of high number up stages.
Eventually higher revenue right. If you anything added in the region, it's completely different it's a middle east type of fleets admitted it is type of fleets are single well the wells had six to seven to eight stages. You go there you do that.
Well, then you'll have to rig down and move mobilized to another site make up and started so if you can.
Normally do due to three wells a month you order you ought to your good right. So this is the complete different at scale and scope of all the fleets in the region versus dot unconventional I would say high grade ore high intensity.
The type of work that is that is very similar to what people used to because that's what the kind of no off and North American.
Middle East the Blake if you if you go back 20 years ago used to do one stage a month.
Put fleet right. So it's it's a totally different because there was one frac, which is one zone you frac. It the leave and go to the next one now you have more of them more of the higher intensity. So if I look at it from the and get back to you or maybe second part of the question what is the future the futures.
Huge because you would see more of single well, but multi stage. So if you go from four to stage 220 stage are well that's already four or five times and then they once you find something similar to an unconventional type of approach they may.
Right the client will look into putting as well pads. If it makes sense if it makes economic sense and they will make that the difference as well that you always have to remember that the national oil company have again long term view and they do this with the exploration campaign first and then that break.
The second and then development so they dig that time and they do it would science not just pure statistics. So they look at the exploration they spend the money and they look at this field how should they develop it and once they do that then they put the development plan there.
Or you have to the convention fleets and in addition to that all the the fracking in the middle East. So far is for gas there's something that's what people have to realize it does not for what it's now it's entirely forgot they don't need to Frac port right. They are swimming on or so they just go to the.
He is where they needed for internal consumption. So most of those fields are tight not all of it is unconventional lot of it is tight sand and basically you frac two to produce the gas.
So in a nutshell, what we are looking for is to expand.
Gradually ER, our our footprint, we need to ensure we only send fleets. When we know we gonna get work, we do not want to do this overcapacity of North America, and having a lot of horsepower and then people do not know what to do with it what we need to do is we target the fleet.
We worked very closely with our friends and next year and put the fleet into work and go to the next opportunity. So I would say our target definitely is to have four or five fleets working professionally by next year.
That's a that's helpful color. Thanks for that run down and then the flip side on the unconventional gas side I guess gas development broadly in the region is of course and infrastructure you picked up in industrial pipe cleaning business was supposed to go that you I think I mentioned is 10 ex the addressable market in the entire region versus VESCO is doing locally.
In Egypt.
In offshore can you talk about maybe the timeline for that opportunity I understand its longer term tendering, obviously, you're working with PNC companies as opposed to your to go upstream contacts, but I would imagine the pull through this specific segment through the broader region, where you have an upstream platform is potentially pretty impactful.
Can you just talk about that that opportunity and sort of the timeline around it.
It's.
Definitely obviously with what's happening now and the word.
This is type of some type of work.
That sometimes people with delays as well right.
Because that is the law of project E N C that got delayed due to the corporate 19. So people you know what majority of those new project comes from Southeast Asia.
And and the they thought they were planning to start some of these big project and in Q1 Q2, Twentytwenty got delayed the end of the year or the following year. However, we had as we said we are tendering that cycle would take six to nine month and then drink once you get award.
But then you start the work I would say that's hopefully we would see one or two awards or towards the next year 2021, and if we get two of these project next year, we would be very we're being very happy right. So I would say that mark.
It is more or less and the 300 million dollar.
So capturing I would say 10% of it would be would be would be very good start.
Again some of this work is getting delayed.
Just purely to the fact of no trouble different up to understand that the minute is still lucked out.
The airports are not open until now [laughter]. So all this stuff and we do here and you know and Texas, except that we cannot even go there until now so it's a very restricted so there is no drop as there is no equipment and that's again back to my comment. That's why we were very pleased and blessed with our.
Guys that managed to maintain hundred percent capacity. Despite all this restrictions.
Got it thanks, a lot I'll turn it back.
The next question is from Andre Medical Evercore ISI. Please go ahead Sir.
Hey, good morning, Sri from Chris.
Good morning.
So my first question is is actually around R&D.
Can we get an update on on the research and Technology Center, nor I'm, just curious to hear theres been any key updates since we last connecting into Q and what's the pipeline might look like in terms of new intraday technology introductions through this year.
So obviously.
With that with the restriction, we we are working on the.
The building [laughter].
So it it would be delayed I would say, maybe one or two quarters due to the fact that people are not going [laughter]. So as I mentioned you cannot travel so all the labs and all the work that we put together is still intact.
The the construction and making the lab and sending the team.
With our partner companies are delayed until Saudi opens the border and I'm able to send the folks down debt to put the fleet to put study to put to the equipment and a set up a together.
I would say, it's going to get delayed maybe six months.
Okay Fair enough. Thank you for that update and then my next question is more on just the competitive landscape. So obviously, we've seen your company respond commendably to friend of ours, and just downturn and just a lot of issues that have come up you guys is about sleep proving that out just curious to hear how this.
Service quality from your competitors has either worsened or improved and if you think that.
That is sustainable and what what that could do to potential M&A opportunities down the road.
So I would say that to be.
But I cannot speak about them I would just tell you that we do they scored the number one on number two and everything we do so all the segments, we definitely off the top position, which was always our our goal and very very happy to see dot.
Actually for the second quarter, we scored almost number one in showroom and in most of the service that we got in Boston, right, which means that the obviously overtake the big guys and some of those segments.
And and then others the I would say the smaller local companies we are way far from them right. So we are as we put the company together. When we said this is from 2018, we are not we ought not to you to look into our Recompete.
I think at that at the what we called that the second tier 11, we are here to be the top of the industry, meaning that our service quality is impactful. So when we go on location, we haven't MPT and we haven't inefficiency of 99.7, 99.8%.
That's how we measure ourselves we measure ourselves in its just the in service quality and everything compared to the best in the industry not compared to this country or this locally God's right. So and that's the whole philosophy off of the of the set up is how can a national company because the best in class and everything they do.
Definitely the service quality over wall in the industry has deteriorated a with a lot of or the competitors or the landscape due to the fact of core with Nike right to people that depend a lot on some of the expertise on the rotation and scale they cannot get those guys.
So they have issues and some of the people are trying to 456 month.
There's a limit to people what how much they can take right. So overall, that's how we managed to keep replacing some of the of the competitors and in some of the countries and that's how our revenue growing and our plan is to keep growing and the following quarters is because we plan.
Let me know exactly where.
And how we're going to manage it and we plan as well, which are which is not a small task all the spare parts and inventory and everything that means that we maintain a buffer to ensure that we can call when somebody else cannot.
Right Okay.
Okay. Thank you for that thanks, I'll turn it back to Q.
Thanks.
The question from.
Levy.
See I G. Please go ahead Sir.
Good morning so.
The number of daily coded cases in Saudi and you a year now while and about 75% from a peak levels are we seeing any type of opening up and if there's some path to improve being around logistical constraints in the region and could that possibly have.
Positive margin surprise once that happens.
I would say Oh, sorry, you know knowing the countries. They are doing an amazing job all of them did you see outstanding so.
Definitely they they have calculated how they're going to do that.
I would say a you eat.
Is already Dubai is already softening and have a very clear rules, how can you get it they even for even for tourist they can come in but with a very clear they have to best before leaving and they have to test as soon as the land if they that's negative up to 48 hours than they can lead to a tad et cetera et cetera.
I would say that things will ease up I wouldn't say open up they will ease up you remember they still have curfews driving and in some countries. So saying positive margin I wouldn't say so no I don't think so I think as it's that we absorbed all this.
Cost as part of our business I know others ticket outside the result.
But I would say you are not even if when the ease up I'm not going out all of a southern within now for people in a an airport cabin or change the protocol of the Senate Ization or change the way we make older patients. So we are keeping the protocols were keeping the cost and we said it is going to be part of our business part of our results.
So I do not see any difference in margins.
Thank you and.
At least person model suppress go.
Wesco performed in 2020, similar to 2018 level like the rest of the company or have they seem more of a decline how should we modeled after the second no definitely they see a decline because.
They are they had they are north African right. So the same level. So they performed like our part of the business in this part of the worked.
Which is north Africa, and Iraq is the worst.
In ended in the Mena region, right, So and Egypt. This part of that right. So definitely the they have the same drop.
Exactly like ours in that part afterwards, so north Iraq is the worst [laughter], let's put it this way.
Because it's like North America. So these guys dropped 80% 90%.
But then in North Africa is the same drop that we always minded we always say we manage better.
And so it fits within the same because you've got to smaller company. So we don't go to this minus 50 minus 60%, but definitely we have the minus 30% yeah. Okay.
Thank you I'll turn it back.
Ladies and gentlemen, Weve reached the end of the question and answer session I like to turn the call back over answers for closing remarks. Please go ahead Sir.
Thank you very much I'd like to thank you all 40 or a patients on the order a your type and we're looking forward for another solid quarter going forward. Thank you very much.
This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
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