Q2 2021 National Energy Services Reunited Corp Earnings Call
The second quarter earnings call at this time, all participants are in a listen on a question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder of this conference is being recorded.
I'd now like to turn the call conference over to your host Blake Gendron, Vice President of Investor Relations. Please proceed.
Thanks, Maria Good day, and welcome to net sort of second quarter 2021 earnings call with me today are Sharif, OTA, Chairman and Chief Executive Officer of Mercer and Chris Boone Chief Financial Officer on today's call. We will comment on our second quarter results and overall performance. After our prepared remarks, we will open up the call to questions before.
We begin I would like to remind our participants of some of the statements we'll be making today are forward looking these matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements I. Therefore refer you to our latest earnings release filed earlier today and other SEC filings. Our 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 Sherif.
Thanks Blake.
Ladies and gentlemen, good morning, and thank you for participating in this conference call.
I'm very pleased with our continued with the growth momentum in the second quarter with revenues growing 16% year over year, and 11% sequentially outpacing the market and all of our peers.
If you compare it from the start of the pandemic, we have grown roughly 20%, while the broader sector has dropped more than 20%.
Over the last 12 months, our free cash flow conversion has been in excess of 40% of EBITDA near the top of among our larger more mature peers, which considering the continued growth capex needed to sustain our trailing 3 year CAGR of 22% is indicative of the strength of an hour.
Strategy and execution.
We continue to be very watchful and vigilant about the evolving COVID-19 situation with the deaths of variant, causing disruptions and most of the countries where we work.
More importantly, we are very focused on the wellbeing of our employees and the family members back in their hometown.
As you have seen some country suffered the higher degree of disruptions and travel restrictions like India.
We will continue to strive for utmost support of personnel throughout the organization during these challenging times.
As most of you would appreciate it has been a fluid situation, which has led to several changes implants by the countries where we operate.
In several cases, some have gone into curfews lockdowns with strict measure to control the spread of these variance during the month of Ramadan and the holidays.
The holidays.
Men debt requirement teaming in 6 countries is now does he go from most of our main operation and severe restrictions have been put in place for citizens, leaving or coming from certain countries from where the large portion of the work force comes from.
While this has affected the service sector globally, we have been advantage due to our large in country workforce and have navigated. These logistical hurdles with the target of 100% operation capacity under the leadership of our crisis management team.
Several of our customers have mandated vaccine requirements the exit the facilities and we are working very closely to enable access to our personnel.
The vaccine availability is the big varied across the different countries and we are working with these limitations and have achieved more than 50 per cent vaccination across our population.
Our goal remains zero turn down of any job and we are meeting thats necessary go.
The other angles. The all of this is the significant cost discontinue the state of new normal on the Covid is causing.
Just to give you of scale to date and since we started keeping records. We are approaching 13000 PCR test.
I personally bought already of the 100 PCR test since the beginning.
When you start to add additional quarantine.
Total cost for 14 days in line to on from Green countries, you start to capture a non negligible cost to the countries and we continued to record it as normal course of the operation.
I know some of the small service companies, especially the ones relying heavily on crew rotation are suffering a great deal from restrictions to their employees sharp increase of the internal cost and in some instances they would not be able to deliver on the rig capacity our services in the short term.
Yeah.
Now moving to the macro and activity outlook.
Global oil demand is now expected to eclipse pandemic level by the end of 2022.
Which is exactly what we predicted a year ago.
We can see all of the Opex countries are preparing for the increase of production and readiness to deliver the supply to the world.
The main analyst EPS have the capacity and kept the ability to ramp up and manage the speed in an efficient manner to respond to this growth.
Nearly all of the low cost swing producers are in the Mena region and are our key customers.
The rest of the region.
Either needs to invest in long cycle project or an exploration where do they have access the reserves.
As you have seen by the commentary from some of the majors. The first have to clear the hurdles. They are facing on the market and the shareholders in terms of what the company can invest in or need significant spend to upgrade the aging infrastructure, which cannot be cranked up even though the resources might be in the ground.
On top of it there now is the need to see a certain level of capital discipline.
The return metrics has evolved such that the box regime of production sharing contract or higher IRR in the case of U S. Independence have all moved to higher thresholds.
All of this leads to 1 thing.
First of all in my opinion will be solid and we are now going to see a longer cycle. All the early 2000, which lots of several years.
The only folks who will be able to deliver are the mlps in the region.
They have concrete plans on are very well organized with long term goals and very importantly have the ability to adjust at the marginal cost are the lowest in the world.
Additionally, the our focus on energy transition and the need to continue to.
All of the massive guest feeds for the Internet Consumptions.
The other topic, which is very relevant for the service industry and consequently to our customers is the overall health of the industry, which I believe need some thought.
We have all seen several commentaries on inflation, but if you look at the numbers and the actions of the industry. It gives you a separate picture on the state of the hips.
Since the beginning of the year. If you look at the main constituent of the BPI composite index like steel chemicals. As an example, these have gone up by almost 100%.
If you look at shipping container cost, we have seen cost increase by in excess of 50% and obviously that is of significant labor cost inflation, which are the consequence of demand across many industries.
If we look back to the start of the last major cycle in 2000 and index of the cost of that you would see key the presented the oilfield services input cost increased by 100% in 2008 since.
Since 2008, the input costs have grown steadily in line with overall inflation. The basically the beginning of 2021, where it has just skyrocketed.
Oil price has had several runs in this period and the service industry has adjusted on largely absorbed any changes to these costs in that period, allowing the operator the continued to produce effectively at much lower oil price environment.
Obviously, the supply organization on managing as best to curb the dose increases however at the certain 0.1 cannot escape the base line structure of increase.
Most of the time the industry find innovative technologies over the years to enable such sharp reduction of prices against inflationary pressure.
In most of the countries, where we work service industry upstream costs are essentially a very small fraction of the oil price, especially when the total lifting cost is in single digits.
Unlike 2008, where the baseline profitability of the service industry was good and enable the solid investment in new innovation and technology now after more than 10 years of absorbing additional costs the industry slowed down the R&D spending compared to earlier cycles.
As a matter of fact, we need more investment in disruptive technology, especially with the need to find sustainable tools and methods to produce oil and gas and the friendly manner.
Also opposite to some of our peers, we continue to invest in Capex and tools to ensure we have the capacity and buffer of resources in order not to affect our service quality and operational delivery.
We need to ensure despite all the odds that we are able to beat the reliable provider to our customers in the coming cycle, where talent and equipment will start to tighten and the differentiation and service delivery will be the key factor of deciding work scope and tender awards.
Our customers in the region are extremely smart and they know and understand who is spending and investing for the long term healthy growth and they see.
How the different companies perform.
We are very proud of scoring the best quality provider to 1 of our major customer for the fifth consecutive quarter.
Now switching gears to another topic, which is very close to my heart is our progress on our ESG and energy transition effort under the auspices of our ESG impact segment.
We are pleased to have published our inaugural ESG report in the second quarter, which we view as the packed with customers shareholders and community alike, and driving impactful change the transcend subjective rating metrics.
This report will perpetually serve as the yard marker for continuous EOG improvement for us.
I encourage everybody to read it and as the National champion of Mena, We are proud to lead the way for other companies from the region.
In our view the environmental category is where oilfield services broadly have the most potential to pave new commercial avenues.
As our large NOC and IOC customers push headlong into the energy transition.
We are excited about a broad opportunity set across water emissions flaring and most notably the announced flagship water management project debt will showcase the combined power of net service delivery and technology partnerships.
As we recently announced we got awarded a significant contract to make brine for 1 of the majors in Iraq.
We have worked with our customer to now change the existing conventional approach on the facility and deploy the technology developed with our partner clean Tech to use produced water to be the feedstock for the operation and allowed the salt generated from this process to be used to generate Brian.
Given we are moving away from the discipline process and deploying new technology, there is higher capex upfront.
But we believe it is our duties and responsibilities do more from risk return mentality to risk return impact.
Our customer is very excited to partner with us. It supports the efforts to take what is historically of carbon intense project and flip at 180 degree into something which benefit the environment due to its circular economy.
In addition to this we are discussing how to now use the flared or excess gas to drive the electricity needs of the plant in stage 2.
Completely turning of very heavy carbon footprint into something which will have the very small increments.
Again, we are working to transform the project to the flagship to the industry to follow I believe this will be the word first for such a facility.
On the other hand, we are moving ahead with the project in Saudi where we're looking at produced water to portable water with another strategic partner solve the tech from Holland.
We are in the middle of shipping the pilot project equipment.
On trial completion will lead to a significantly larger water facility.
Again, our client leads the industry and looking at ways to have the significant impact of the environment.
They have the lowest fuel do intensity per barrel and they are focused on creating value and looking for state of the art project that serves the community and the environment.
It is the pleasure working with them as we are totally aligned on the approach.
As we have worked together on the Frac business that is essentially transformational to the region. Today, we have proven debt working closely together, we can achieve the top quartile of delivery of number of stages per month than any U S. Operating has achieved.
This was basically considered an impossible task just a year ago and together our customer approved it is a reality and the remained by far the best in class in everything they do.
Lastly, we announced last quarter debt early in Q2, we closed on our M&A in Kuwait and are fully in charge of running the contract. Despite the elevated restriction of trouble and entry to the country.
We have planned properly to send equipment from within the company to handle the increased the amount of work, which we are targeting.
We are extremely excited to establish our stronger presence and have Kuwait as 1 of our anchor countries in the region.
They have solid plans for growth and activity expecting to increase in the years to come.
We are investing for the long term partnership with our <unk> customers in Kuwait.
As a reminder, we funded the first tranche of payment, which is the main part for this acquisition through our operating cash flow.
All of the M&A, we have done up to now have been funded internally.
The change going forward, depending on the size of the opportunity, but our excellent cash generation capabilities allow us this freedom to be very nimble when the opportunities present themselves.
On that note I will pass the call back to Chris the bulk of the financial additives.
Thank you Sherif.
Turning to our results, we reported quarterly revenue of $235 million.
This represents an increase of 16% over the prior year quarter and 11% over the first quarter.
The year over year and sequential quarterly increases were driven by higher production activity, primarily coiled tubing stimulation of Frac in Saudi Arabia and Kuwait.
Adjusted EBITDA in the first.
The second quarter was $54 million or 23% of revenue. This represents a decrease from 26% in the prior year quarter and 24% in the prior quarter.
The sequential decline was driven primarily by the impact of inflation and DNA product line mix.
EBITDA adjustments of $5 million for the quarter were mainly for head count restructuring costs and certain markets.
<unk> and integration costs associated with our recent Kuwait acquisition and certain non cash FX charges due to currency weakness in Iraq and across North Africa.
As <unk> highlighted in his commentary we continue to incur significant COVID-19 related costs, such as labor testing travel restrictions and administrative costs.
As an example employees must be tested several times a week before entering the operating sites on some rigs.
As is our practice, we do not reflect any of these COVID-19 related or other items on EBITDA or EPS add backs.
Moving to our segments of production segment revenue for the second quarter was 153 million growing 10% over the same period last year and 12% over the prior quarter.
The sequential growth was driven primarily driven by higher frac in Saudi Arabia and activity in Kuwait.
Adjusted EBITDA margins for the production group were 27% of the second quarter.
Flat sequentially as inflation on Covid costs, offset the benefit of higher utilization of manpower.
Separately, our drilling and evaluation segment revenue of $82 million in the second quarter. It was up 28% compared to the same quarter last year and 9% sequentially.
The sequential increase was driven by higher drilling related activities across multiple markets in the region.
Adjusted EBITDA margins of 21% of the second quarter were down from 25% in the prior quarter prior year quarter, and 24% to last quarter due to the impact of inflation and a less favorable product line mix.
Depreciation and amortization increased to $35.1 million on the second quarter compared to $31.8 million in the first quarter of this year.
The sequential increase was primarily related to the additional DNA from the recent Kuwait acquisition as well as the impact of an additional employee equity grant.
We expect DNA to be in the $36 million range next quarter.
Interest expense of the second quarter was $3.2 million flat from $3.2 million on the prior quarter.
The reported tax rate for the first 6 months of 2021 was 17, 2%.
Excluding the net benefit of adjustments of reserves on prior year taxes of <unk>.
Reported tax rate would have been 22%, which we expect to continue to improve upon going forward.
Adjusted net income and EPS, which includes the impact of the noted EBITDA adjustments were $12.8 million and <unk> 14 per diluted <unk> share.
Switching to free cash flow, we are pleased with another quarter of positive free cash flow generation of $12 million. This brings the year to date cash generation of $47 million compared to $2 million in the first 6 months of last year.
The sequential free cash flow decline was primarily related to higher VAT and income tax payments as well of higher capital expenditures.
We continue improve on our invoicing and collections overall.
Overall DSO improved by another 9 days over the prior quarter level, bringing the year to date DSO down by 25 days of strong accomplishment by the whole sort of organization would.
Additional actions are in process, the lower DSO, even further during the second half of the year.
Capital expenditures in the second quarter were $21 million up from $11 million on the first quarter.
In 2021, we continue to expect capital expenditures to be flat to slightly up from 2020 levels to support planned growth.
Capex spending should increase to 30% to $35 million per quarter during the second half.
We continue to expect free cash flow in 2021 to significantly increase over 2020 levels due to flat planned capex continuous improvement on fleet utilization and improved DSO.
Net debt increased to $335 million at the end of the second quarter compared to 300 of $2 million at the end of the first quarter the <unk>.
Sequential increase was primarily from the use of our existing cash balances to fund the Kuwait transaction.
As of June 30 of 2021 of our net debt to adjusted EBITDA ratio was $1.6 flat from $1.6 last quarter and should reduce to our target level of approximately 1.5% or lower in future quarters also we range of full compliance with our primary credit facility of financial covenants in the second quarter.
We're very pleased with the strong financial health of our balance sheet and our ability to fund acquisitions internally. We are currently working on several other technology investments and we are ready to fund those as they come along.
With this I'd like to pass of the operator for your questions.
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1 moment, please while we poll for questions.
Our first question is from James West with Evercore ISI. Please proceed with your question.
Hey, good morning, Sri of Chris.
On the James.
The strength with the recent OPEC deal to add barrels to the market of I'm assuming.
Curious to hear your thoughts on this but the.
The.
Your main countries of operations our net.
Having the ramp up to 2 of the barrels back on the market I guess is at 1 of that.
Is that happening and 2 was that actually already underway, probably pre pre deal announcement to the.
The patient of the the need for barrels to go back to the market.
Yes.
Yes, absolutely Jim so.
All of the clients in the the main Nmc's as you rightly said prepared.
We're preparing for the growth for the increase of activity.
I would say the main delay on the increase is the corporate situation.
If you if you if you look at the obviously there is a separate preparation for from each country without going to more details on that but you can see that the main constituents of the of the production definitely have very very strong plans to.
<unk> to add rigs to add.
Regulus side production facility.
Some of the project were clearly announced publicly that they are back on track.
I would say you if there were no COVID-19 you would have seen those rigs from this month.
The straight after the holidays.
I would say that mainly you've got like a quarter.
The delay because of the Covid situation. So some of the countries were announced to open up the boarders first of August now, they're saying it's September.
Some of the restriction of the countries of the you know on the.
On the travel.
The airline got pushed another month or so but definitely everybody is in the plan of this is the as I said long term long cycle, they will be adding rigs and facility to produce more but obviously they have as you know the buffer to be able to put that production without adding.
<unk> activity so they win.
Good day, they have that capability to add production and AD activity of like a quarter later.
Okay, right and in true.
You had the outgrew the market very substantially both sequentially and year over year.
Do you think this level of.
Outperformance versus the market is sustainable over the next several quarters, so sales things could go.
Go on as you mentioned per unit.
Of the Covid restrictions ease of where you get through the COVID-19 restrictions of ores.
Or will there be some slowdown and that helped form of zone I expected to outperform but just.
Just been impressed by the continued.
Significant outperformance.
Yes, I would say obviously, our ambition is to continue to do the same our ambition is to.
To have that outperformance.
Definitely on sequential basis on year on year, I would say the only the <unk>.
Only drawback or the only restriction would be is the corporate rate is.
Not only us it's really the some of the capacity I try to explain it.
In my in my earlier remarks is some of the actually like REIT companies of the region. The local companies have they are suffering on the capacity. So even when we have projects that are lined up we won the tender we are waiting to do some of the work the rig is not ready because they don't have a clue.
So the real.
Ally on the crew on total utilization that people. So I would say some of the total market. If it if it gets delayed we would just have some delay but definitely our focus is to outpace the market as we have been doing because if you start to gain more contracts and you should be able to do the same.
Right got you thanks, Rick.
Thank you Sir.
Our next question is from David Anderson with Barclays. Please proceed with your question.
Hey, good morning Sharif.
So you talked about the margins of the margins were impacted this quarter by you mentioned inflation bunch of COVID-19 issues, a little bit of a little bit of mix in there.
I would think that maybe those should start to turn the corner, let's say, presumably over the next quarter. So you didn't mentioned pricing and I was just wondering if maybe you could comment about kind of the industry pricing as you see it.
When things do start to pick up I guess kind of towards the back part of this year, where do you think pricing kind of ends up on we've been hearing talk at the.
The big guys have been very competitive on these big tenders I know you don't participate in those but is that spilling into your pricing mix and maybe just how do you think about that kind of as we go on into next year.
Okay. Thanks, David So yeah.
Yes definitely.
Spoke about our our cost of our self from the industry is definitely the Covid has now started you start to feel at the right you start to feel this.
The person the go to decide I you know I tried to give you an example of.
Some of the rigs now.
You have 1 case the clean operating for example has Covid then every single person on that facility will have the test twice and the quarantine. The other crew for a week. So you have to put do you have the people thought the early opdivo.
So definitely the cost start to really climb up I would say the other part of the inflation, which is you don't see it yet, but we can feel it with the talking to some of the Ceos of the chemical company the transportation et cetera.
Clearly say that they cannot afford to do to.
Keep the pricing as it is for the longer term. So you are trying to delay as much as possible, obviously that the increase until it really start to hit your right.
So that makes I think it's affecting everyone.
But the fact of the industry and you would see it I think back to your point pricing is.
I'd say very honestly, it's the lack of leadership right. So the pricing has not been.
Nothing has passed on.
People are still dropping the pricing of Fortunately.
And all of the tenders actually big and small surprisingly despite the fact that the situation is going to tighten dramatically over the next 6 months.
Can see it on the service quality of some of the some of the service company in the region the.
We have very actually portion of its quality and some of the projects and you can see why because obviously the continued to drop the price of unfortunately.
And.
As I said the health of the industry you can see it because even if you look at I would say the <unk>.
R&D portion of the of the business and if you look at how many people on how much people on investing for example in some disruptive technology or even if you look at the published number of the of the span youll see it dramatically slowed down which is again back to the pricing the problem and I tried to explain it in.
The way that some of the folks around actually they never saw an up cycle.
Been always in the down cycle over the past 15 years or some time right. So outside North America, where you can see of dynamic approach of people trying to move pricing I think the international market people are not used to it.
They are not aware that they are going to have a problem in some months to come.
And in a.
Quite frankly, not pricing is not moving at all so.
This is on the Noma project. If you talk now about LST day, it's a complete disaster I think the LSE gave people continuing to the bid on that on.
On an on the loss, making and obviously the scale of the projects, especially on the drilling it gets bigger I think you would see more of them more on on the margin of the of the company.
Alright, well I have seen an up cycle.
And stood up cycle of we know what's coming and so I'm looking forward to seeing that again, the 1 big thing about up cycles.
The kind of capacity right and so the way I guess the 1 good thing about the Dallas Teekay projects as they are going to soak up a lot of capacity all the things.
Talking about the health of the industry. However, we've seen a big cut in Capex by those bigger competitors of yours. So do you think that you know.
Obviously in order for pricing to pick up you need to have sort of the combination of activity and what capacity levels or does that give you some confidence that that the pricing can get pass through kind of early next year on that that will come naturally in the market.
Yes spot on I think youre of analyze it extremely well David it's absolutely right is there is the capacity in the international market still that capacity is going to tighten is exactly what I was saying and actually I think the talent of the people will actually be even worse right. So people are not investing at all in Capex.
I'm investing actually much more than as a percentage obviously of revenue on the almost 16%.
And as a buffer again on the on the capacity to make sure that we can do the project I think what will happen exactly what you said once the capacity gets absorbed with the increase of activity that's coming.
And people will start to turn down jobs, the declines would see some service quality suffering and then the pricing would start to come naturally on.
Absolutely you are spot on this will come when the debt, which is similar to North America, but always the day lag right but.
On the trying to explain that these contracts in the <unk>.
International market is the longer term the scale and people just have to be aware.
That you should be careful of what your price now if you're going to.
If you have of contract for 5 years right. So it's important that people start to realize the fact that the health of the industry is pretty important.
Thanks, Chris Thank.
Thank you.
Our next question is from George O'leary with Tpa <unk> Company. Please proceed with your question.
Good morning, Chris.
Good morning, George.
Apologies if I missed it I got dropped from the call of about 15 minutes at a net debt to redial in but I wonder if you could just frame the revenue trajectory in the second half of 2021.
Assuming the COVID-19 issues kind of abate or don't get worse from here is the expectation still the Q4 'twenty 1 revenue climb very materially and much more so than in Q3, and then any initial expectations.
For revenue growth in 2022 based on what.
The discussions with any of our announcements from your customers.
Yeah, I think it's a very positive on extremely extremely excited about the.
The the it's due in next year.
Thank you.
Try to make it.
Clearly that this is the very it's a long cycle I think we're going to see of 9.
The upturn with activity increase all of the increase in my opinion will come from the other countries. These are the folks that are capable they are.
Extremely extremely smart extremely organized the have a very very solid plans for the growth the nowhere the rigs will go.
They do the reservoir management as you know as I said best in class in any in anything.
Any comparison to anybody else. So those increases you would see in <unk> and <unk>.
The commentary from most of the people you would see of double digit definitely urge to over each 1 of its due over it's true of last year right. So you would see of double digit growth.
Going forward.
We believe 2022 will even be much much much higher than people expect I think the only as you put it the only caveat here is what happened to the corporate right what happened to the restriction.
Not in the matter of like Europe, now, saying that they might close again et cetera, et cetera, I think the restriction you seen in the middle East and some people on not aware of that its a very very like they dig very strong measure like very very strict right. It's more of the.
Singapore approach or Australia, et cetera, right. So where you have a lot of restriction who can go the people cannot travel some of the countries are totally.
I'm not allowed to enter et cetera, et cetera, and I think this will just have I would say a shift maybe on the on the on the increase of activity.
A quarter or so, but I would say Q4 is going to be absolutely solid.
Absolutely solid because of the rigs will start to arrive people will have the crews et cetera et cetera. So im extremely extremely excited and again this is not a.
I would say 6.7 months I think this is going to be a nice several years upcycle.
Great. Thank you and the.
And Jim in Asia, such an important part of the story of you touched on it a little bit in your prepared remarks, I Wonder if you could flesh that out a little bit.
Just the M&A landscape and what's your mindset with respect to M&A at this point and then how do you balance that with.
Forming partnerships technology and investment focus.
Any areas of interest to you as we move forward.
It's the same I mean, we are very since the beginning of the company. We are we know exactly the work you want to do we actually know who we want to buy it.
No.
We are focusing on ensuring that the geographical M&A, which is our main M&A has to be accretive people have to we have to buy companies cheaper than on cheaper from a run rate I think we trade very low multiple compared to what we are what we are how we are growing however, if we still.
A debt multiple we have to buy somebody that is cheaper the.
The company has to add value.
We look at the governance extremely in a very detailed.
So we need to ensure that how the run their business, how the governor of the company the shareholder base.
It's accretive to us it's added value to the portfolio of the segments that they have in that country. So it's.
It's 1 plus 1 equals free that's how we look at M&A geographically on the partnership will continue with the same on the same path like we did learn we have like almost a dozen of partnership I am very excited with the ESG.
In fact partnership we have the with the 2 water companies, we're looking at the emission.
Now we are almost on the third or fourth company to look at that.
Don't announce it yet because of lot of it is the R&D kind of sensitive. So there is a lot of property Terry or IP that we kind of.
Trying to make sure that it stays like confidential. So once we have this more.
Matured, we will announce those partnership that will add value and people will see in the market that why we're doing that.
Meanwhile, we are looking again at early ventures people with disruptive technology, we are investing in dose we put already this quarter I think and coupled we invested we put money again, we don't announce the name because of confidentiality.
But we already put some cash into the those 2 companies.
And we look into more of these right. There is not much going on as I said on the R&D front from the big guys. They don't really invest in a lot of oilfield services stopped now so the disruptive soft comps from really the nimble small.
The very smart R&D folks and Thats, where we want to put some money partnership with bigger companies is definitely again.
On the same path like we had a very nice with Phoenix.
We have with others, we are discussing with 2.
Other companies.
Do something about the technology and how would the can fit for purpose in the middle East, but when we do that again as we all as we always said before.
We need to ensure that that partnership adds of adding to our customer.
So that open platform that we provide to day 2.
Do the big NLC is the very big differentiator, because it give the client access to all of this different technology, they're not bumped by 1 or 2 technology that may be outdated. They want to see who else has something and so I want to make sure that we are credible when we bring those partners.
Ship those people add value and they are a differentiator and that is the key and especially as well they have the promise and they have the the willing to invest in those countries. The cannot come debt and just do business and run the way they have to go and invest and they have to put the facility. They have to put labs. They have to put the perhaps to put.
The investment today, they have to have skin in the game to be able to come with us into those countries. So then we bring value to our customer and the NOC in the region and the C Y we're bringing those folks to the territory.
So same line very excited about it hopefully we still on the same path to try to close the deal before the end of the year.
Great helpful color as always Sri Thank you.
As a reminder, if you would like to ask a question. Please press star 1 on your telephone keypad are.
Our next question is with Igor Levi with <unk>. Please proceed with your question.
Good morning, guys.
You talked about Q water projects, 1 in Iraq and 1 in Saudi.
Just provide a bit more color on the size of objectives and how they are.
What are the differences of the 2 projects it looks like Saudi is more of a pilot.
And I believe on the previous call I think you mentioned there were 3 pilots on the horizon, social wondering what the updated project pipeline for water management looks like.
Yes. Thanks, the guard so look the Iraq project is obviously with the with it as I said with the Supermajor.
The extremely extremely excited on it.
We have the awards. So we are awarded the contract to make conventional.
Like they have been doing like the competitors are doing.
So we obviously you have to get awarded the normal way, which we did.
And then as the.
Our clients are extremely.
You know notion about the ESG, we went and presented to them. We are awarded this is how you do it for the past 3 years and all of the industry does the thing we like to change that we like to put it we will honor of the same price. Despite the fact that the will cost us more but we would honor of the same price.
But we can do it with our partner.
The company, which is the Cleantech guidance from Australia.
And we can do if we do that this is the amount of C. O do we get the safe we don't our partnership any salt we are going to take the existing salt from the produced and then clean at the move the sulfate put it back any use of it is Brian.
This is the footprint of that is going to be significantly the reduction of <unk> and we are going to have this as a nice EBIT project. The loved it. They said, it's a great idea we need to make sure that you guys still delivered as you said on time, which we said, yes, we will deliver on time, but we will do it this way it will cost us more but we will do.
Right so.
So that project is going to be I think once it's.
<unk>.
Start on working it would be of flagship on our approach here is to show this as the as the project for everybody. So everybody in the world see it because I think it would be the first time ever done like this.
The second as I said the pilot just to give you more color on that is the same what we discussed before that's totally different company of different approach different technology. This is mick to make portable water I mean, it's not used for all true today. That's why it's called pilot because the technology is never been used in all of its.
It's used for totally on the other industry. We believe that this is very innovative we believe that this could be something that is you know.
If we can meet that then its not only we can make water port of La Z LD and all of the stuff, but it can even make water from the community. So now the contribution is to the environment that is totally outside of our it's not even to make Brian to drill with it or to make US you can make water for drinking for villages you can make water Florida.
The community for for so many things, especially when we look in the desert. If we are able to do that we are definitely definitely a game changing here.
That's why we approached the Audi because obviously.
Our customer in Saudi is like you know as I said is like 1 of the kind right. The best in class in everything they do.
And they are so focused on the environment the extremely extremely Saudi on the art. If you. If you look at what Theyre doing in so many places in Chiba and et cetera, just non state of the art. So they loved it obviously and they said, let's let's pilot, let's see how this would work if it works well then what is the scale of such a plan and where can we do it.
And how we do it and Thats why we are doing the the R&D kind of on R&D pilot together once it's proven and once we can make that scale would do it. So the way we do it and giving them maybe too much details now is we are telling those folks in Holland and Germany, we build dose and we are shipping that because it's totally different.
<unk> of what you do what they do on the industry today is the miniscule compared to what we're going to do and then oilfield sector right. So we are making that so we kind of tested then we're going to scale. It if it's successful we going to see.
Totally.
Totally different size and once it's done then we will be able to.
The forward the discussion to other countries, where we have the same idea, but we obviously towards the customer now on testing this in Saudi and soon as I finish I just wanted the successful we obviously take it immediately the same scale with all of this lesson learned to the other countries to do the same.
Great. Thank you.
Shifting to oilfield services as we think about the rest of the year are there any major contracts.
So up for renewal this year or even <unk>.
Mental work that you are anticipating could be awarded in the second half.
Yes.
Yes, absolutely we tend there all the time and go right. So it's the $20 billion market. So I can tell you.
If you just standard of 10% of debt that's $2 billion right. So.
It's the.
It's an ongoing process and I think thats, what I tried to make on my on my earlier.
The blinds.
The expectation that we see that those kind of big tenders in big contracts.
The start to see different approach because of the inflation because of how the whole market is going to develop and thats. What I. Just said Unfortunately, we don't see that until now so we are moving in and hopefully we'll see how.
As soon as we have some significant than the clients and allow us to announce awards and we definitely do that right. So we obviously do that always vary.
Very frankly with our clients on and.
And I see there is so many things going on and we will you will know about it as soon as we if we secure some of these awards will definitely analyst day.
Okay. Thank you I'll turn it back.
Ladies and gentlemen, we have reached the end of our question and answer session and I would like to turn the call back over to management for closing remarks.
Okay. Thank you Maria Thanks, Thanks, everybody for attending our call again very excited about.
Cycle, and we've been missing debt for a while so and we look forward to speaking to you soon and in all of the best Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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