Q4 2020 National Energy Services Reunited Corp Earnings Call
Ill hand, the call over to shrink.
Thanks, Chris.
Ladies and gentlemen, thank you for participating on this conference call.
We're very pleased with our continued solid performance this quarter.
We are extremely proud to see how we expanded in 2020, delivering a record growth of 27% year over year in full contrast to the industry.
As a matter of fact this is the highest year on year growth since the inception of the company or any other previous year for the combined businesses.
As a reminder, we did grow in 2019 at 19% versus 2018.
This demonstrates our ability to weather the market the industry, even in the presence of award Wideband Dominik.
As I have mentioned in the past I believe these results and our accelerated growth reemphasize that we are an outlier in the office space when compared to the rest of the industry.
Our focus and execution capabilities determination to the region our flagship at the Mina National champion on our customer Centricity allow for a clear path to continue to grow at this pace for the foreseeable future.
Middle East was and is going to be center of the oil and gas industry going forward.
And all of these developments further reinforces the races and I believe we have the front row seat and capitalizing on our unique positioning on the ground strength and customer relationships.
I would like to really thank our troops in the field, who have managed to achieve all of that despite the pandemic.
We never turned down a single job for any of our clients.
We have maintained close proximity to our customers and worked faithfully with them to manage the work schedule.
Lining of personnel and equipment.
Spending significant amount of resources debt.
<unk> facilities expanded accommodation and special slides.
We absorbed all these cost and did not ask for any compensation due to these unforeseen circumstances.
Yes, we do understand it did cost us a significant strain on our people being away from home for long time, working long hours quarantine in advance to be ready towards the jobs and increase of our cost of operation. However, we truly believe that this is our duties and obligations.
<unk> as the trusted advisor on partner to our clients, we need to be there for them as the first reliable source of services.
I am extremely proud of our field crews and honored to be one of them serving our clients as best in class in the industry.
I spent the majority of the time in the Middle East in September and I can tell you from personal experience how tough it is logistically.
As I had to be PCR tested about 35 times to travel between all the different countries.
I did manage to visit the majority of them and I was very fortunate to be able to see my deal customers and have plenty of face to face time with the senior management.
The feedback was extremely positive and how they are perceiving our services and expansion they.
They do value our readiness during the tough time on.
I reiterated our commitment to maintain and keep improving our performance.
Furthermore, I emphasized our promise to keep investing in human capital and the latest equipment.
In addition to our new facilities and research center, most of which are moving as per our initial plans with minor delays due to the travel restriction or deferred laboratory equipment arises.
It goes without saying our ESG focus is always a big topic in our discussion.
And they welcomed our new segment launch, which I will touch upon in details.
Coming to the macro last quarter, we set forth our view that we see that demand will rebound sharply and that the market underestimates, how demand will come back once we have a line of sight to the solution of this COVID-19 crisis.
Which we seem to have now.
And as expected the demand is coming back stronger as we predicted.
Leading to oil prices nudging up to the <unk> and our view is that it will continue to go higher.
This is mainly due to the various reasons primarily.
This significant under investment in any new project or large potential development and production, which will lead to a supply not being able to keep up with the demand.
The continuation of U S shale discipline, which is still not yet at the level of one to one reserve replacement with the number of Frac fleets presently.
The lack of appetite from the big IOC to venture a new deepwater or a big frontier of discovery, which will make the dependence on the stable Big reservoir plays even higher.
That is Russia and middle East.
Which had a very long term view for debt reduction and they are well coordinated and the OPEC plus.
Therefore, we could see a good run of oil and gas branches and the midterm with some high spikes for any geopolitical turbulence.
I do not see a risk on that except for another you turn on the pandemic with more restrictions and less trouble.
As an analogy you don't need to go further than to see what happened in Texas, where we had one single called front spot.
Spot gas prices are through the roof not enough electricity, despite being surrounded by a lot of resources and despite being in the most powerful country.
Many people stayed without water or power for a week.
Now take that and apply to global oil supply.
If you are a serious buyer you don't want to depend on erratic supply and want to have a reliable long term partner with plenty of resources with plenty of options and.
And hence you look to the middle East.
And that is where you see the growing economies of the word are looking both for gas LNG or oil.
Coming to our operation on its outlook as expected our customer closed the tab in the last weeks of the year to ensure they need debt budget and not overspend, which is opposite to what usually occurs as we call. It year end sales or overspending in prior years.
We believe that continuing into the first couple of months.
Then we would see a pickup in activities across the board.
Actually our activity picking up in the key market much faster than anticipated with oil prices at the current level.
Rigs are returning in several countries, especially the ones that are warm stacked and nevertheless, the countries or even nearby fields.
I see the second half of the year with potential higher increase in rig counts and regular sites, which you are making sure we are well prepared for and maintain being the reliable provider to all our customers on a very short notice.
We recently announced that testing contract award in Kuwait.
This for US is a breakthrough as it now allows us to grow outside our core area and add diversity to our position in Kuwait.
As you May recall, we did not have any existent in Kuwait earlier and with these latest awards, we have solid contracts and production drilling and now evaluation services.
From two years ago, our testing product line has gone from one country operation to now over five countries.
And that is essentially the key to what we want to do with the organic expansion of our services.
That weighted with our core drilling similarly, we want to do that to the rest of the portfolio.
As when the opportunity presents itself. We are working on another two potential awards that will be announced soon which will represent another solid step for our expansion in the region.
Last month net was honored to participate in the future investment initiative or <unk> II in Riyadh, Saudi Arabia.
When we announced the creation of our ESG impact segment.
As most of you know the FAI is on international platform for expert led debate between global leaders investors and innovators with the power to shape the future of global investment.
It is focused on utilizing investment to drive growth opportunities enabled innovation and disruptive technologies and address global challenges.
This year <unk> was focus on re imaging and we in our <unk> the global economy amid the ongoing challenges under the teen nail.
Yes.
And it was the right place and time to announce our new segment for which we have been working for over a year now.
And other people have asked me what that's ESG impact.
And what does that imply for net.
Let me explain.
I am a strong believer that our industry needs to move from the mindset of risk return to risk return impact.
We need to demonstrate that not only we evaluated project based on the return potential but on debt impact through the work.
Impact needs to be measured and evaluated.
It is our obligation not only to the investment community, but to every single human being affected by these projects.
We need to have an impact to their lives to the climate and to our Earth.
Therefore, we formed our new segment, where we will have the tools and technologies to enable all of the above.
We started the engagement with our key customers and as expected they welcomed idea and we're very keen to understand the details.
We will start with three key areas.
Water.
Climate change and environmental which.
Let me expand on the water business in more detail.
The water conservation and management product line will focus on delivering fresh water from produced water that is two day, either wasted or injected for reservoir pressure management or into disposal wells.
This is in field stranded produced water, which does not have an existing infrastructure linking them to an existing water handling facility.
As an industry worldwide, we do produce more than 200 billion barrel of water per year.
Only half of it is used for pressure management. The remainder has to find a home either in disposable or just let evaporated the visits.
You have to realize that in the Mena region work that has been a hot topic for a long time and the majority of solution has been water desalination plants.
We have now on opportunity to make an impact to the community and provide freshwater to villages around us. We can have agriculture activity around the oilfields, we can plant trees to capture this year through on methane and get carbon credits. We can have a low carbon footprint by reusing produced water for the different drilling on <unk>.
<unk> operation.
There are several application and quick wins, depending on the location of the produced water and the usage for it.
However, the key factor here is we have the technology partner that can provide an economic solution that was impossible before.
Our partnership with Salt Tech from Netherlands, who are innovative tech startup addressing this issue and other industries.
And we evaluated the economic visibility to the oilfield and currently in discussion with three of our customer to implement before year end.
Another application will address the sulfate removal from well water or seawater with the help of Cleantech of Australia.
Eliminating the need to use higher quality aquifer water for oilfield applications.
I have talked about this in the last quarter, but essentially we have a specific opportunity to replace good aquifer usage with another aquifer, which is sulfate heavy as we did not have the technology to strip the sulfate.
Yeah.
We are progressing to a detailed study to setup infield capabilities to provide water from a previously unusable water resource, which then saves the moment aquifer.
In both this incident, we choose to partner with technology provider, who we believe have significant differentiation and delivering an economic solution.
This is after the team looked at the whole spectrum of available water Tech.
Most of which in our industry just convert produced water to Brian, but it is not economic to take it to the next step of potable water.
In addition, we have made commitment to invest in another technology, which we believe will enable us to address how to use the excess gas at the well site, which is traditionally flared to power those potential water plants.
The climate change mitigation product line will focus on the objective of establishing greenhouse.
As emission from oilfield operations.
Including wellhead.
Gathering stations and gas processing facilities.
We are now on advanced discussion.
Bringing a couple of key technologies and methane monitoring to the region.
With which we will be able to provide a different level of resolution of pinpointing, where day leaks are from in the fully real time basis.
Furthermore, it will focus on flared gas treatment and it's captured on transportation to the newness power plant or gas gathering station.
Although the region on average less than what you see in Midland, but there's still a substantial amount, which need addressing and finding an economical solution to this complex issue debt can be solved with the current standard processes and technologies.
Yes.
As you can see we have very extensive plan on developing our ESG impact segment.
And we plan to hit the ground running in 2021 with measurable projects.
Lastly, we have done since the forming of our company to focus on the wellbeing of our people and our community where we work.
Developing key nationalities.
On gender diversity on.
And always maintain the slogan the national champion of the region.
We have to expand to make a real impact to the bigger picture and have serious plans to mitigate climate change and provide fresh water in the desert as examples.
Our aim is to be the reliable and responsible partner to our customers and the countries where we operate.
Lastly, I will let Chris that's deeper into the numbers, but one key message I want everybody to take debt, we grew 27% in times of distress.
On the industry and globally, which is a testament to our execution capabilities and debt is the same approach we would take with all of these newer initiatives to grow the company and positively contribute towards our and the industry ESG objectives on.
Debt note our advance the call over to Chris to talk about the financing.
Thank you Sherif as.
As <unk> mentioned, we reported quarterly revenue of $213 million. This represents an increase of 15% over the prior year quarter, and a 2% decrease over the third quarter.
For the full year revenue increased 27% a significant achievement in light of market conditions.
The sequential decline in revenue was primarily driven by lower production activities in several markets late in the year that Sharif as mentioned.
This was partially offset by higher evaluation services.
The year over year quarterly increase was primarily driven from the addition of the unconventional product line and associated services. This was partially offset by decreases in other markets related to lower commodity prices.
Adjusted EBITDA in the fourth quarter was $55 million or 26% of revenue.
This represents an increase of 6% over the prior year quarter, and a decrease of 2% over the prior quarter.
EBITDA adjustments of $1 9 million for the quarter are mainly for integration costs associated with the recent acquisition and other restructuring activities.
Despite the market conditions, we are pleased that our adjusted EBITDA margins have held steady.
We incurred additional costs this quarter, primarily related to noncash charges for actuarial end of service benefit liabilities of nearly $3 million and significant COVID-19 related costs, COVID-19 related labor and supply chain inefficiencies and costs.
With the onset of the second wave in Q4, we experienced extra costs related to additional testing transportation lodging and labor mobility.
Despite the increasing level of vaccinations in many markets Covid restrictions have increased during the fourth quarter. We don't expect these costs to mitigate until later in the year.
Covid in end of service costs were offset by a gain of $9 6 million on earn outs from the recent transaction as the final amount paid was less than originally estimated and provided for.
These are real savings to cash and issued shares and lowers our basis on the transaction. This was achieved primarily from increased business levels and the improvement in our share price.
As is our practice, we do not reflect any of these COVID-19 related or other items in EBITDA or EPS add back.
Moving to our segments our production segment revenue for the fourth quarter was $136 million growing 12% over the same period last year, but declining 9% over the prior quarter.
Full year revenue was up over 37%.
Adjusted EBITDA margins for the production group were 29% in the fourth quarter flat sequentially associated.
Associated pass through revenue was at the same level as the prior quarter.
Separately, our drilling and evaluation segment revenue of $78 million in the fourth quarter was another quarterly record of 21% compared to the same quarter last year and 11% sequentially.
Full year revenue increased 10%.
The increase over the third quarter is primary related to higher evaluation activity in Saudi Arabia.
Adjusted EBIT margins of 25% in the fourth quarter were up from 24% in the prior quarter due to the favorable mix of evaluation services and leverage on higher revenue.
Depreciation and amortization decreased $29 million in the fourth quarter compared to $32 2 million in the third quarter. Most of this decrease was due to a fixed asset valuation adjustment on the final purchase accounting of the recent acquisition, we expect DNA to run in the 31% to $32 million range per quarter in the first half.
A 2021.
Interest expense in the fourth quarter was $3 4 million down slightly from $3 8 million in the prior quarter.
Our effective tax rate continues to track well below the rate seen in 2019, as we continue to optimize our tax structure reported effective tax rate for the full year of 2020 was 17, 6% compared to the full year 2019 rate of 24, 9%.
Excluding the benefit of this quarter's earn out gain which is non taxable the full year 2020 rate would have been 29%.
We expect the 2021 effective tax rate to run on the lower 20% range.
This resulted in reported net income of $16 $5 million or <unk> 18 per diluted share and adjusted net income of $18 5 million or <unk> 20 per diluted share for the fourth quarter.
Switching to operating and free cash flow. We're extremely pleased that we were up significantly sequentially with operating cash flow increasing to $49 3 million from $33 5 million last quarter and free cash flow increasing to $33 3 million from $8 7 million last quarter.
For the full year free cash flow was $44 million a meaningful improvement over the negative free cash flow of $19 million in 2019.
The sequential operating cash flow improvement was accomplished mainly due to higher collections of over $25 million from the hard work of many employees.
However, we did experienced less collections unexpected in the final weeks of December as many customers closed their payment processes earlier than expected.
This was offset through our own supplier payment management day.
Cash collections were caught up in January.
Capital expenditures in the fourth quarter were $16 million down from $25 million on the third quarter, which also helped the improvement in free cash flow.
This reduction was due to the lower new Capex orders placed in 2020 and improved utilization.
A big portion of our cash capital expenditures in 2020, where for Capex ordered in 2019 and not received or paid until 2020.
In 2021, we expect capital expenditures to be flat with this year to support planned growth and pay for existing commitments free.
Free cash flow in 2021 should significantly increase over 2020 due to flat planned capex continuous improvements on fleet utilization and improved DSO.
Also a positive net debt decreased to $323 million at the end of the fourth quarter compared to $349 million at the end of the third quarter.
The sequential decline is primarily from higher cash balances from improved free cash flow.
As of December 31, 2020, our net debt to adjusted EBITDA ratio was one six down from $1 seven last quarter and should reduce to our target level of approximately one 5% or lower in future quarters.
Also we remained in full compliance with our primary credit facility financial covenants in the fourth quarter.
In conclusion, Nessa again strongly outperformed the market and revenue growth and margins in 2020 through our regional focus on strong operational execution, while still generating positive and strong free cash flow. We expect the same momentum and more going forward with this I'd like to pass back to <unk> for his final comments.
Chris and.
In conclusion, I would like to leave you with key takeaways.
We continue to manage the COVID-19 situation better than anyone and we maintain a very close contact with all our customers.
We are very optimistic about 2021 and believe we will have another stellar growth and performance here.
We continued to invest in higher and we see no delays in the coming quarters.
We're very proud to launch our ESG impact segment and focus to contribute to the new mindset change in the industry.
On that note I would like to pass the call back to the operator for your questions. Thank you.
And at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue you.
You may price start to if you want to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your answer before question Mr. Keyes.
One moment, please on while we pull for questions.
Our first question is from Sean Meacham with Jpmorgan. Please proceed with your question.
Thank you Hey, good morning.
Morning, Sean.
So <unk> I think the ESG initiatives are really encouraging.
Could you maybe just talk about how this influences your prior five year plus 20% CAGR goal, we had a few years ago.
This helps sustain that growth rate does it layer incremental growth I'm trying to think about when this could become material to overall financials and then how should we just think about the need for capital deployment, whether it's capex or M&A to help you deliver these services to your customers.
Thanks, Sean so it wouldn't be an incremental the idea there is.
As we clearly put it that we have our core business that should continue to grow.
At that base or higher and ESG impact segments should be incremental to that.
I would say.
Taking the size and the acceptance from the customers taking a project to implement obviously with the old this COVID-19.
Restriction on delivering an et cetera from easily from.
As you saw the one that's in especially the water one in Holland, one in Australia, I would say you would see something towards.
At the end of this year and then you'll start to see the materiality from the following year.
And that would be you'll see start to see and Thats why we started on a reported separately right.
And now for your second part on a second question on the Capex I mean, obviously, we are producing solid free cash flow. We will continue to do this and we will do.
To a much better this year than previous year. So we don't have any issue to fund all our growth organically now if we have a big M&A coming or something definitely there is a lot of other opportunity to be able to.
Issue shares et cetera, or do something.
There is a lot of ways for us to be able to do that if we need to I mean, our you saw our covenant and Chris talked about this in detail throughout on a very well position our interest rate still two 5%, which is I think the lowest in the industry. So we have plenty of room to grow there.
Thank you for that I think that's helpful. And then just to follow up on your comments right there.
Chris noted you're expecting a.
A significant increase in free cash flow in 'twenty, one with flat capex, improving working capital and then cash margin otherwise getting better on a higher growth rate.
It's also worth noting your current your equity currency is a lot stronger than it's been in the past year.
So in that context, whether it's the ESG initiative on more broadly how.
How should we think about.
Uses of cash and potential M&A in 'twenty one.
So yes.
We have.
As I had mentioned earlier, we have very strong.
Good plans for M&A.
The discussion is ongoing let's put it this way.
Definitely again, the Covid situation.
Prevent some of the of the work if you like the like due diligence, sending auditor's, sending lawyers et cetera. So that's kind of delayed things a bit however.
However.
I'm still very optimistic of closing a deal hopefully in this year.
And definitely there will be a lot of use of discussion.
And Sean This is Chris as a reminder, our.
Assuming no other type of refinancing to change the payments, we will have about 45 $50 million on debt payments required. This year. So that will also be a use of free cash flow.
Understood. Thanks.
Okay.
And our next question is from David Anderson with Barclays. Please proceed with your question.
Hey, good morning morning.
Morning share.
So I wanted to get your perspective on the cadence of upstream spending in the middle East over the next say 12 to 18 months and kind of how you're seeing it today.
Customers are still largely in sort of a wait and see mode with respect to kind of global demand. We're not hearing a lot about the tenders other than your Oman Award, which you talked about so.
Should we be thinking this a steady ramp up in light of say the extra supply in Saudi and the like or could we see an early inflection that's more substantial your larger peers talked about second half pick up I'd, just like to know kind of how you kind of see things playing out.
I agree it's the second half pick up so the way it works David as you know very well most of the NOC are very long term very savvy they understand exactly.
There might be spikes in demand they understand as <unk> tried to explain on the macro that nobody else is investing anywhere in any big project Nobody's doing any new discovery people on not replacing debt reserves. There is obviously some sentiment of negativity on.
On some other places outside the middle East so they understand that when spikes happen they need to be ready obviously, Saudi is definitely the order was the.
On the has the biggest capacity and biggest surplus that they can put to the market in a very short notice.
So, but everybody if you look at their activity. They are flat they are not decreasing and they are picking up the rigs as I said, so the rigs are being picked up.
Today, if I look from what happened the exit of Q4 two already now we are on an end of February you already have some increase of rig count and <unk>.
Several countries.
<unk>. This is going to continue my personal opinion.
People are underestimating. Despite I think the <unk> is going to be much stronger than what people think.
And I think the <unk>.
<unk> will put rigs into motion.
I believe that they would be needed to some production.
Around right. So at this this is obviously you have the big NOC now if I look at the market, where it's an oil price dependent.
With significant like very sharp increase of activity.
Specially it went almost zero and Thats like for example, or being north of Iraq.
Some places in Egypt someplace in Libya, all of this will put a significant amount at $60. These guys are very profitable. So that you would see a pickup in rigs. So overall I would say yes.
They are looking into the global market global demand definitely everybody is looking for the vaccine if things tends to be the positive and some are you kind of see line of sight very clear the vaccination in deepwater to restock the travel again and opening borders.
See I would say much higher activity than what people are anticipating and thats why.
As I tried to say in my prepared remarks, we are preparing for that we are preparing for that from an investment in deeper and capex front loading as well as some of the equipment to ensure that if the customer say in two weeks I need another two or three fleets Ted.
Said more crews on X y Z I'm ready.
On that.
Was actually my next question there sure so a year from today youre going to be a lot. This year. So I'm. Just wondering how are you thinking about the number of people you need to add kind of it could be have on hand, I don't know if there's a way we don't usually think about service companies in terms of utilization, but maybe just some sort of sense, where you are there and because one thing you are starting to see some oss companies in North America as you start.
She is on friction costs from labor and equipment as it goes back to work. So if you start ramping up on the next 12 18 months. It could this potentially be a bit of a headwind on your margins.
What do you need to see improved margin improved pricing to offset that.
I'm going to be very honest no I won't see on improved pricing I don't think there will be an progressing.
I would say what will happen is some people are not ready at all.
And they are extremely squeezed they released a lot of people.
And I did not I did not really as anyone.
And we did.
The plan for our activity and we actually even when the customer close to the top for example in December and.
For the budget.
I did not release, the people and I knew that people traveling and they cannot go back because the board that would close in some countries. We kept the cost we kept the hotels, we kept them staying there we paid everything we don't take it out of the results and we keep all of these costs incurred and we kept it in January and Thats, how you I would.
Say maintain debt very close.
With your people.
And I know it cost us money, but that's how we already and the others will not be so I would say I do not see a problem.
Myself in our in our operation.
And I repeat if the customer add significant amount of need for them.
Four crews et cetera, I will be ready on a very short notice and others would not be.
Great. Thank you very much.
Our next question is from George O'leary with Tudor Pickering Holt <unk> Company. Please proceed with your question.
Good morning, Good morning, Chris.
Good morning, Jordan.
Wanted to start off on piggybacking on one of John's questions on Neal's comments on free cash flow I think Chris said.
Not materially in 2021 to kind of a two part question any color on the magnitude on them.
The free cash flow jump year over year end 2021.
Should we expect that to be distributed evenly throughout the year or second half weighted.
Given the earnings growth likely occur in the back half how do you think about magnitude and shape of that free cash flow throughout the year.
So I mean, obviously, we're not giving specifics specific guidance, but I think we have.
With a reasonable growth rates and with the metrics, we've said something in the.
At least the $75 million to $80 million range should be very achievable and wed like to exceed that as well.
But as a starting point and we think Thats a good thats a.
The starting point for that number.
As far as timing I'd say it might be a little more second half.
Yes, we don't really.
Depend on <unk>.
Collection, Yes, there are always a little spiky one quarter to the next but.
I wouldn't say, it's going to be significantly different one quarter over another.
Okay, Great very helpful and then.
You guys talked to increasing in last few quarters about some technology investments you've made and some partnerships on the water side on.
On net calling off on that.
Andrew do you see in net.
Got it.
Just curious if you can update us on.
Technology efforts things like these imaging came on.
On Dania.
Already hit water energy EBIT another investment.
Talk about a quarter or two.
Now on any update there would be helpful.
Yes, I mean, we had we had a very.
I would say unfortunate.
That's.
The biggest unfortunate the COVID-19 actually is the new technology implementation because of the people that are not there.
To set it up and sending all the people and equipment et cetera, et cetera, and declines obviously always put all of these things kind of the backburner because of the.
It's kind of nice to have or it's a trial for something new so they say, okay, let's put the new technology. After everything that we can now its only business essentially right. So I think the delay in some of these initiatives did did.
Happen.
I would say the K boss.
Because of the necessity.
I would say that this would be the number one.
Once it opens up and we would be able to send the crews and they start to have the.
On the field trial with the customer I would say would be the number one and I would say debt. The stuff that is the sort of deep imaging for example would be the last because thats you know.
That's how the clients perceive this seismic on on how I'm going to see that weighted the product et cetera, usually that get the last part of the of the equation.
What we just to give you more more color on some of the other initiatives, we put some investment in <unk> and another two.
We do not still declared better names for confidentiality, but we invested in another two companies with some very unique technology.
We're very excited about it so our efforts to keep investing never stopped and Thats I think thats why we keep saying that we are different than everybody else and on where outlier because we keep investing actually when everybody's like closing the tab and tightening the belt, we are actually investing quite a lot in <unk>.
Some of this very unique technology.
To make sure debt.
But we start to see the fruits of the of this implementation.
I would say from <unk> this year.
Great. Thank you all very much.
And our next question is from Igor Levi with <unk> frequency with your question.
Hi, good morning, guys.
So in the last two quarters these flow.
You win a major a renewal in Oman, and some new work in Oman, and Kuwait could you talk a bit about the timing on any other upcoming.
New loans that you guys have.
So renew on a REIT and are tendering our existing work.
We have a good pipeline.
Some of it is coming next year some of it coming in 'twenty three 'twenty four.
So it's kind of.
When we laid out between the different countries some contracts.
We are coming towards for example, this year debt is very crucial because.
It's kind of binary so you need to win or you have to be there otherwise there is only one.
On one award that supplier the best of it is going to just the.
I don't want to be I'm, not saying, we are very comfortable but most.
Most of it is just going to be renewed now or are you going to be the number one on number three on before that's the difference right because it's a multiple award with multiple companies.
We're more excited actually on <unk>.
I tried to explain that we are tendering a couple of nice major contracts and we are expecting the awards in the next couple of months.
On the indication is very positive so I'm very excited about it and this is going to make me.
Make it to like a new entry or the much larger.
Size on some countries of the current position of the company. So.
It's very important for us to get that because thats. The key for us is to expand outside the two strongest countries right.
On the very positive part obviously was on non and as we explained before is because we have now this till 2031 2052 right. So.
We don't have to worry about it for some time plus we have very solid initiative with the government and the customer to implement some very very EOG initiative that is extremely important for the country and we are very proud to be part of it that will make a difference again.
And not just for our business, but for the country itself right. So.
So I.
I would say Igor just to summarize in a word that yes, we're very comfortable with our construct.
Our position.
Okay. Thank you.
And on the ESG segment could you talk a bit about the economics behind the water processing technology that would really make this initiatives take off I mean, how much lower do you need to bring down cost.
Our processing water to make it either drinkable or in the case of the sulfate water usable in wealth.
So if price, obviously without giving any any confidentiality here.
But just to give you a factor it's a factor of six.
Just imagine debt whatever today, the technology that exist caused six times and Thats why its totally uneconomic and Thats why the whole world is basically not doing anything about it to be honest.
As an industry right today as I said to 100 billion barrel 100 billion of it is just thrown away right, which is a crime I would say so there is a lot of this was why because there is nothing economic that is there is no economic metric that can make that water usable today, if you take the entire <unk>.
<unk> system and you say.
It's purely from economic you're still obviously, the cheapest way to just leave it in the desert to evaporate because it costs you nothing but if you look at it from the hall.
What is this for the community what is this for the environment.
Any of the solid dissipating to the aquifer going to the ground et cetera, then you say today that technology to make it if it costs you lets say six dollar. This technology will cost you a dollar so I am thinking that cost by a factor of six and Thats why.
Day I personally believe that it is economical to day to to get this water. If I look at all the parameters of the country. The city, where you are instead of putting pipeline disposable wells et cetera, et cetera, et cetera, I think it is economic.
Solution not everywhere, obviously, but in the majority are in plenty of places. It is economic if I look at offshore just to give you. An example, if you are for example in a country like Norway, where you are not allowed to drop anything its a zero PGM right. Then it is very economic.
Alright, so it depends where you are and I think it is.
Definitly a breakthrough.
And we should have a good solid two project hopefully by before year end.
Thank you that's very helpful I'll turn it back.
And our next question is from Blake Gendron with Wolfe Research. Please proceed with your question.
Yes. Thanks, Good morning, guys, Chris I wanted to come back to the equity earn out impact to margins it seemed like a $10 million or so good guy.
<unk> was $3 million.
End of end of end of contract payments. It seems now on the one hand.
EBITDA margins across the segments, probably would have been appreciably lower without the equity earn out I'm just not sure how.
One off it is really on the other hand, you enumerated a number of Covid related costs that you do include and results on.
I'm just trying to level set what you think the COVID-19.
If you strip out everything what you think the segment margins or an adjusted EBITDA margin is now and then in terms of those COVID-19 costs rolling off from 2021.
What the timing and magnitude of that would be.
Yes.
For the fourth quarter, Yes, you probably netted all of those together, we probably ended up with a net gain on.
A few million dollars. So there was a little bit of an EBITDA boost because of that versus our reported.
To that.
Without going into all the minutiae of all the calculations so thats.
That's you can run your math it was pretty even across both segments.
Okay. That's helpful. And then obviously and I've tried to help with the EPS try to.
With again, we didn't do callouts, but there was.
A little bit of extra help on lower DNA and a little bit lower tax rate helped EPS by a couple pennies.
Got it got it understood.
And then just coming back to growth here so on.
Obviously, ESG and <unk> are newer discreet items that we're going to keep up with and try to model separately.
To the degree of disclosure that you gave on that I want to come back to Frac, because frac with sort of the first incremental addition to the story.
Plus ago.
As we normalize here I know the focus is still on natural gas development in some of the key basins yet.
Perhaps oil exposure as well with some of the conventional frac spreads where does your frac operation stand today and how do you think you see it's scaling up as we as we normalize here out of depend on it.
Yes.
So Blake I would say the Frac has been doing an outstanding job.
More than outstanding very proud of it.
It's working round the clock.
And my last visit in Saudi for example, when <unk>.
Location visit with the team.
Very motivated.
The crew is is on plan.
Our efficiency is as matching the use efficiency.
Very very proud as well to work with my Dear friend, Robert and next year.
So it is on plan.
And the development of the unconventional gas.
King them never changed.
Inc.
The same commitment.
The ESG philosophy in the transition energy transition to gas.
Gas <unk> power renewable.
Is extremely strong in the kingdom actually have an amazing plans on on renewable hydrogen.
You might have seen some of the commitment that you said that 50% of what they would be exactly like Germany.
By 2030, so they have a huge commitment on all of these initiatives and our plan is to have to be big part of that and remain the reliable supplier for them for the <unk> and the others right. So we have two fleets running in Saudi.
And our plan is to expand that outside the region outside I mean, Saudi and we are in discussion as we discussed last time with the other three countries to have a fleet.
This year so.
We should have.
I am.
I am always an optimistic guy.
I am planning to have a fleet in each one and its leading edge too. So I'm still on plan to have two fleets in 2021 working.
In the region. So to have a total of four so very excited nothing has changed in Saudi.
If I may just give you more color if July obviously some of the newer project and some other countries. That's got delayed right because of obviously, what's happening on the words so again.
People are looking at the demand is this exactly what you need because they are still in the exploration type of fees.
So some of these projects takes much longer time than before but you saw for example, the announcement of the UAE with total of the first.
Delivery of unconventional so everybody is working on it in the region is not changing the course on the energy transition.
That's encouraging thanks, I'll turn it back.
Okay.
And our next question is from Andreas.
Medical with Evercore ISI. Please proceed with your question.
Hey, good morning, guys and thanks for taking my questions. My first one was going to be maybe more on on regional basis I understand some of the key drivers of activity within your main areas of doing business and think about.
Saudi Oman, Kuwait shrinks I get your updated views on let's say some of the more growth areas that necessarily as operating or maybe areas, where there was a fair amount of.
Volatility in 2020, just looking to see if there's any updated outlook on how you think activity might pan out in areas such as Iraq Algeria.
Egypt Africa, just wanted to kind of get some color there.
I would say you would see some of them that will have significant increased like.
Huge increase and that definitely will be led by Libya because of the geopolitical agreement between the east and the west.
I'd say a deal and that could extend region would have.
In.
A sharp increase because of the nature of the PSA.
Sure.
Egypt should have as well on uptake from obviously, the very depressed number but it will take I think more time, but again at this price level.
All of these fees are very economic and so the key becomes how many of the E&P companies that are working for example, like in places like Egypt are encouraged to start to put money and develop and have direct foreign investment role I would say like the like Apache like all of these guys.
How much would they put and to start up the project.
Fast and Egypt towards edge too.
The others I would say the national oil company, obviously, they will have a plan to again from an from debt whatever it is Q4 exit is going to be always an app. So it's going to be a plus.
Year on year, some it's going to be very significant and some is going to be flat to plus 5% 10%.
Our growth obviously, if you want to talk about on.
Our commitment to Africa is still very strong.
And in Africa is one of the regions, where obviously despite the fact that from a number perspective to COVID-19 did not affected as much as others, but still from from travel from restriction from contracts from geopolitics from from fiscal regime.
Very complicated lot of delays ioc's on not investing at all and in Africa, and therefore, I would say I don't see an uptick in Africa until 2022.
Great. Thanks, a lot for that.
My second question relates to a couple of things I would say on the ESG front.
Correct me, if I'm wrong. It seems like if we think about the client youre clients' risk appetite for new technologies. It seems like maybe the attention or focus might be shifting towards ESG and I. Appreciate the call out of the areas of opportunity such as water climate change environmental lease.
And I pair that against your earlier statement.
Such technologies, as deep imaging, and which could be a call per seismic exploration activity doesn't seem might be the client risk appetite for new technologies is there.
So if I think about maybe later here in 2021 with the next let's say climate.
Climate Conference.
For the U N in November this year I think it's in Ireland, and I think about a lot of the let's say bullish outlook that I have and others have for middle East natural gas activity, especially on the unconventional side.
Do you think that there might be a risk for the middle East in terms of natural gas should we think about.
On the horizon focus on emissions and reducing the GHT impact and what role do you think that Nestor could have in helping to meet.
On the region's nature.
Higher environmental standards, assuming that's the way that the.
World's attention shifts later in 2021.
Well if I answered this I would take now we're trying to do.
So I would tell you something in a very.
Very very short answer there is no change whatsoever on the energy transition from the Big National oil company and their focus on.
Moving to big time to GAAP.
And it.
Full blast.
And they are going to have more and more savings too.
Divert most of the liquid to exports and use most of the gas for internal consumption and that is the main.
The drive of the region in the Meanwhile, they are all looking at all of this initiative extremely carefully and and they are still.
<unk> the lowest carbon footprint.
Per barrel of oil in the entire work so they know that very well and they know that they are very very I would say responsible compared to others, but Meanwhile, they are working on all other initiatives to ensure they meet those.
Those metrics.
Great Thanks for that.
Okay.
And as a reminder, if you have any questions you May press star one on your telephone keypad doing so will ensure that you are in the question queue.
And our next question is from Mike <unk>.
<unk> capital. Please proceed with your question.
Oh, sorry.
Congratulations to you on the team on another great quarter and I Hope you all in Houston were well Darren.
Weather issues.
My question relates to ESG and.
I was wondering if given the advances that you have in the ESG do you think that youre developing on structural advantage and it will.
You win new contracts as you're bringing in capabilities to the table that are superior to your competition and a true.
Sure.
Thanks.
Thanks, Mike.
Yes, absolutely absolutely correct the approach that we have and.
When we again when we launched this in January.
And Riyadh.
To ensure that we have the tools and the technology.
Enable the customer meeting dose.
I would say nothing.
Not impossible, but on economical solution earlier and Thats why most of the customer.
Walked away from all of these solutions I mean, if I look at zero flaring.
And I talked about this in many conference before Xena flattening exists since 1999.
Initiatives and today, we are in 2021, and we still flair.
Okay.
The technology does exist, we just have to make sure that we have the capability and ensure the economic viability to our customer and that's the differentiation and that's why we want to package. This is the whole portfolio that people can look at the water climate et cetera, et cetera, and Thats. In addition, obviously that a lot of <unk>.
We are focusing as you know on hydrogen and other stuff, which is totally different what we are saying we should have the current oil and gas production friendlier, we should be able to do that we can do that and that's why we haven't a differentiation we have in <unk>.
Economic.
Our solution today and that would enable the customer to be able to do that and obviously the smart our customers. They understand that very well they are going to they will evaluate our technology with our partners versus the others. They will see very clearly that we do have.
<unk> advantage and definitely we have the infrastructure and this should give us a very big leeway. That's why I'm very excited about it not only because of the business, but I think as well from humanity, we should have that responsibility.
On making an impact around the communities, where we operate.
Thanks Ruth.
Okay.
And we have reached the end of the question and answer session I'll now turn the call over to share each quarter for closing remarks. Thank.
Thank you very much on I appreciate the time and again.
Extremely excited about 2021, and we're looking forward for our next calls and more beating thank you so much.
This concludes today's conference and you may disconnect your lines at this time thank.
Thank you for your participation.
Yeah.
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Yes.
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