Q4 2024 National Energy Services Reunited Corp Earnings Call
Greetings and welcome to the Nustar fourth quarter 2024 financial results call. At this time all participants are in a listen only mode. 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, this conference is being recorded.
Speaker Change: I would now like to turn the conference over to your host Mr. Blake Gendron, Vice President of Investor Relations. Thank you you may begin.
Speaker Change: Thank you Melissa Hello, and welcome to <unk> fourth quarter 2024 earnings call with me today are shrink photos, chairman and Chief Executive Officer, Mr. Stefan Angelilli, Chief Financial Officer on today's call, we will comment on our fourth quarter results and overall performance. After our prepared remarks, we will open up the call to questions.
Speaker Change: Before we begin I'd like to remind our participants that 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.
Speaker Change: 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.
Sherif: Finally, you 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.
Speaker Change: Thanks Blake.
Sherif: Ladies and gentlemen, good morning, and thank you for participating in this conference call.
Sherif: I'm extremely proud of another stellar year the team delivered in 2024.
Sherif: In the fourth quarter, we once again reached new highs for revenue EBITDA and EPS with a robust cash flow generation, we've entered 2025 and the position of notable balance sheet trends.
Sherif: And we've never been better position to size the many opportunities that remain in front of us.
Sherif: First let me reflect briefly on what we were able to achieve over the past year.
Sherif: 'twenty 'twenty four was an exceptional year for the company marked by many key milestone, especially our NASDAQ listing this past October.
Sherif: This was a fantastic event, where we had our management team traveling to New York and celebrate with our Investor day at the impressive NASDAQ Center at times square.
To all of our own investor and analyst that I tend to do that.
Sherif: Operationally 2024 was the continuation of our unique growth story.
Sherif: We secured new contracts enhance our core business and pushed into new technology frontier with our direction drilling platform and mid to decarbonization portfolio.
Sherif: We expanded and deepened our anchor country footprint on many fronts with multiple growth drivers within each country contributing to our near doubling of the overall market growth in 2024.
Sherif: To date, our large core countries expand into Saudi Oman, Kuwait U a E Iraq, Algeria and Egypt.
Sherif: We have achieved record revenue and growth in each this year.
Sherif: We are positive about the prospects and opportunities into all of them 425, and we maintain optimistic about adding more countries to that leak and the near future. But for example, if Libya with its recent development, we continue to address all profitable growth opportunities in all.
Sherif: All of the countries, where we operate and we are nimble and agile to act quickly when needed.
Sherif: I will go into more detail in the outlook, but let me first summarize some highlights of 24 at the country level.
Sherif: In Saudi Arabia, which was our fastest growing country by both percentage and absolute dollar terms.
Sherif: <unk> gained market share outperforming separate product line and stopped at some key investment for the future of our infrastructure.
Sherif: Oh man, what do we have the highest market share as a percentage we maintained our solid execution and gain separate service quality and it just eat leadership awards and began to introduce our role either direction drilling platform and our recently awarded contracts, we see a lot of runway in this country. Despite the stable outlook.
Sherif: We can still outpace the competition by adding new services and gaining share.
Sherif: In Kuwait I'm very proud of our achievement to date you recall, we entered this from nothing six years ago and today, it's our third biggest country with the highest growth potential in percentage with the obvious rig growth tailwind.
Sherif: And UAE, Algeria, and Iraq, we maintained our steady performance and delivery on our contract and close the year near all time high across both oil and gas basin.
Sherif: The rest of our countries remains solid and saw good margin improvement through the year.
Sherif: Across our entire footprint, we exited the year almost uniformly at record best revenue strong margin and cash flow generation. In addition to the natural seasonality of the region. Our fourth quarter result is a testament to both continuous improvement across the organization and also the.
Sherif: <unk> of the new innovation that helps us unlock greater efficiency and revenue quality.
Stefan Angelilli: Stefan will discuss this in great detail.
Stefan Angelilli: Moving to the outlook I want to comment on both the market outlook for the region and also for our company.
Stefan Angelilli: Overall, we see sustained and broad activity growth in most of our core countries combined with secondary got development projects that are moving ahead, regardless of global commodity prices and also frontier opportunities and decarbonization and water.
Stefan Angelilli: While growth in the region is expected to moderate and twenty-five compared to recent years. The fact that the rig count in our four largest countries, which comprise over 75% of net revenue are at or near historical all time highs.
Stefan Angelilli: The total rig count up the Mena region today is far higher than it has been at any time in history.
Higher for the first time than the rig count in North America.
Stefan Angelilli: And this importantly is at the time when the oilfield service industry is at its most disciplined with respect to capex and capacity expansion.
Stefan Angelilli: With this in mind, let me take a moment to illustrate our outlook and some of our key countries, starting with our largest country and one that remains the most heavily debated by the market.
Stefan Angelilli: In Saudi the highly pragmatic decision about a year ago to rationalize all capacity from prior plans was well documented in the industry.
Stefan Angelilli: And activity on the oil side has largely stabilized now.
Stefan Angelilli: And gosh, the ambitious publicly expressed target of reaching 50% gas power generation and 50% renewable by 2030 continues to fuel what was always understood to be a fantastic growth story for domestic gas consumption in the kingdom.
Speaker Change: NASA remains heavily focus on unconventional gas development in close collaboration with our esteemed customer and the fruits of this partnership span many aspects of the value chain, including efficient completion delivery innovation around consumer goods and even circulating water technologies.
Speaker Change: In February <unk> announced the groundbreaking of our new operations facility and King Salman Energy Park known as spot.
Speaker Change: Which deepens necessary commitment to continuous improvement in the kingdom, specifically I don't its operation unconventional gas building. The lead this frac operation reliability and failure prediction center in the middle of the jiff would've feet.
Speaker Change: You. He's also asserting strong leadership on unconventional gas development as announced and they continue with that program to ensure all capacity of 5 million, but there will be potential add to their gas program by the international partner in future and we are currently engaged at multiple levels. In addition to our core business in the country.
Speaker Change: Stepping back for a moment the Mena natural gas team.
Speaker Change: And beyond the leadership of Saudi and UAE.
Speaker Change: We believe that the region is in the early stage of a broader gas expansion journey.
Speaker Change: For which different countries are approaching this team from different angles and at varying degrees of urgency and speed.
Speaker Change: It has become consensus that the global artificial intelligence arms race is materializing for which that increases empowers supply will be needed to keep up with demand.
Speaker Change: And beyond the general energy demand growth that is expected and that gas will feel much of this incremental demand.
Speaker Change: What is perhaps underappreciated is that the Mena region can play a central role in the advent of AI data centers and high performance computing.
Speaker Change: And the pinned by high quality natural gas and the cheapest renewable resource globally.
Speaker Change: We believe that this natural gas theme only adds to the stability and visibility of continued activity growth in Mena for the foreseeable future.
Speaker Change: Kuwait is arguably the brightest spot in the region when it comes to rapid growth.
Speaker Change: And the recent success of the country and adding rigs is a testament to the vision and commitment of its leadership.
Speaker Change: The desire to reach 4 million barrel per day capacity and the latest discovery of offshore departed translate to growth projection for several years to come.
Speaker Change: This month, we signed an Mou with the visionary leadership of QC to form the first muddy innovation Valley E. IV that will feature a very few select it service companies to address specific operator challenges and are jointly research and technology excellence and in future.
Speaker Change: At others to the value chain in one park.
Speaker Change: Elsewhere, all men in Iraq remain largely stable in terms of activity and formats will be areas of focus for new technology deployment, including wrong, Yeah, where we have our newly awarded direction drilling contracts and all that.
Speaker Change: North Africa is another notable bright spot teaming with ambition and especially Libya is exhibiting a remarkable step change in activity on innovation.
Speaker Change: Over the recent weeks and months, we spend a lot of time in the country meeting with customers and industry leaders as the country has resumed activity and he's calling upon the service sector to partner in many exciting projects.
Speaker Change: He has already added more than 40 rigs and plan to advance oil production from one 4 million barrels currently to one 6 million barrels over the medium term with aspiration of 2 million barrels per day in the future.
Speaker Change: I would've feeders of maintaining a calibrated presence in Libya since the start of the company is playing out.
Speaker Change: And that sort of stands ready to drive growth in the country across a diverse portfolio.
Speaker Change: Moving to the technology highlights in the fourth quarter, beginning with a key pilot milestone for our.
Speaker Change: Direction drilling platform.
Speaker Change: As previously announced we successfully executed our flagship single run Wellbore delivery in Kuwait with our ROI, Yes, Dear rotary <unk> and Royal stream measurement, while drilling tool hitting all of our internal performance benchmarks.
Speaker Change: Combined with earlier success with our Royal seek logging while drilling tool we are confident in the commercialization path of real yeah. This year.
Speaker Change: Our plan is to continue the deliberate extensive testing in different formation and billing environment, while executing on our contract and the three countries.
Speaker Change: Turning to net than we are very encouraged by the innovation and prospect before us and believe that 25 will be a pivotal year for NIM expansion and growth in.
Speaker Change: In the fourth quarter, we successfully delivered over 2000 metric tons of steel to for the Ccs reserve water injection pilot in Indonesia. The country remains highly active across traditional oil and gas geothermal and also carbon capture and sequestration and we are excited for the future there.
Speaker Change: We also continued to develop our holistic circular mineral and water process in the GCC.
Speaker Change: For which we uniquely have access to potentially valuable Brian.
Speaker Change: They are among the few companies actually generating positive results in the field not just the lap.
Speaker Change: The water solution that we've adapted from outside of the oil and gas industry represent the portfolio approach that we're taking to produced water and our fourth quarter investment in Salt Tech formalized our strategy around zero liquid discharge jewelry use as much of our industry water as possible.
Speaker Change: However, this produced water evolution doesn't stop just at liquid.
Increasingly the industry is discussing the potential of mineral extraction from produced water and the recently announced transition mineral joint venture between our largest customer and the largest metal and mining company in the Mena region is evidence of this massive potential.
Speaker Change: Given our piloting work in mineral extraction over the past several years and that's strategically position to contribute to cross sector collaborations and we anticipate updating the market throughout the year on our work in this area.
Speaker Change: Just as we take an open technology platform approach to our core service business, we see our net portfolio and access to brine in the field as a platform to plug in addition to mineral recovery solution, including the area of direct lithium extraction.
Speaker Change: I'm thrilled with the potential and opportunities in front of us in 'twenty five and beyond following another remarkable year in 'twenty four.
Speaker Change: Spectation may be low for our industry and sector, but we still see ness is extremely well positioned within this macro framework and believe that the mena market could surprise to the upside.
Speaker Change: More exciting announcements to come but for now I'll conclude and hand over the call to Stephane to discuss our financial in greater detail.
Stephane: Thank you Sherry good morning to our audience in the U S and good afternoon, and good evening to our audience in the Middle East North Africa, Asia and Europe.
Speaker Change: I am very pleased to give you an update on our strong financial performance for the fourth quarter of 24 and for the full year 'twenty four in summary, despite the ongoing macro volatility worldwide and geopolitical uncertainty in the middle east necessarily achieve stellar results for the fourth quarter of 24 and for the full year of 24.
Stephane: First let's cover revenue.
Stephane: Our overall fourth quarter revenue was a record $343 $7 million, which was up three 3% sequentially and up 11, 8% year over year outpacing the broader market revenue for the full year 24 was $1 $3 billion exactly.
Stephane: 36% year over year with exceptionally strong activity in the Gulf countries now.
Stephane: Now turning to adjusted EBITA adjusted EBITA for the fourth quarter of 24 was also a record $87 $2 million with near record margins of 25, 4% up 157 basis points on a sequential quarter basis full year adjusted EBITDA was $310 1 billion.
Stephane: Up 18, 2% year over year with full year margins up 93 basis points to 23, 8%.
Stephane: Interest expense for Q4, 24 was $9 9 million and full year interest was $39 $9 million.
Stephane: Full year 'twenty for effective tax rate was 21%, which included a tax release of $3 8 million normalizing for this adjustment implies a full year 24 ETR of around 24, 1%.
Stephane: Turning to EPS.
Stephane: Earnings per share as adjusted for charges and credits was <unk> 30 for the fourth quarter of 24 and $1 <unk> for the full year 24, which was up 90, 696% year over year.
Speaker Change: The charges and credits impacted adjusted EBITA and adjusted EPS were made up of primarily of two items in Q4 'twenty four as follows cost of remediation of control material weaknesses, which shouldnt matter right.
Dramatically after the conclusion of the 24 orders this month and then the impairment of a small investment.
Speaker Change: Now turning to our cash flow and.
Speaker Change: And liquidity, which I'm very proud to discuss was appointed significant emphasis over the past several years, our cash flow from operations. During the fourth quarter of 24 was very strong as we generated $46 3 million for.
Speaker Change: For the full year 2004 period, we generated $229 $3 million, we had significant customer collections in Q4 dollars 24, which drove that DSO at year end to accompany test.
Speaker Change: Free cash flow for the full year 24 was $124 million a conversion rate on adjusted EBITDA of 41%, which was underpinned by strong working capital execution in 'twenty four on top of strong execution in 23, despite the significant top line growth in both years.
Speaker Change: The free cash flow was used was principally used to pay down bank debt.
Speaker Change: As a result of strong operating results and good cash flow conversion and net debt to adjusted EBITDA remains below our goal of one times for the second consecutive quarter and we ended the year at a ratio of North 0.89 times for comparison purposes. We were at three eight times at the end of 'twenty two and one.
Speaker Change: Five times at the end of 'twenty three.
Speaker Change: Our gross debt at year end, 24 was $383 million, which represents a reduction of $153 million over the last two years and our net debt was $275 million.
Working capital levels remained relatively flat throughout the year. Despite significant top line growth working capital efficiency is greatly improved due to the process and system enhancements, resulting in a DSO decrease of 22 days over the last 24 months and the decline in inventory levels of 12% over the same period.
Speaker Change: Capex for the full year 24 was $105 million, which was slightly below budget due to delivery timing on certain pieces of equipment, which will now come in around 25.
Speaker Change: All of the above contributed to a significant improvement in the financial return profile of the company. During 2004 on a trailing 12 months basis, our return on capital employed or Rocky reached 11, 6% in Q4, 'twenty for a company best and concurrent with our robust growth investment strategy.
Speaker Change: Now onto housekeeping topics, we've spent the better part of the last two plus years reshaping our back office and the company overall with new and updated processes procedures and controls as well as implementing the latest software upgrades ETS system.
Speaker Change: We are very confident that we are demonstrating significant progress on the remediation of our internal control material weaknesses. During 2004 and will give a detailed update in 'twenty four 'twenty 20-F, when it's filed at the end of March.
Speaker Change: In summary, operational execution across our key countries remained strong during the fourth quarter were 24, while our updated processes and procedures and controls have transformed the back office and contribute greatly to our working capital efficiency.
Speaker Change: These drivers combined to generate record results for full year 2004 period with strong revenue growth strong adjusted EBITDA and healthy cash flow conversion, the latter of which has been used to pay down debt and strengthen the balance sheet overall.
Speaker Change: Looking ahead on capital allocation there are several discrete growth opportunities not currently included in our budget that could require an investment decision around midyear. It is also worth noting that our expanding base of activity and pushing the largest tender opportunities. Thus require additional liquidity in the form of bid bonds and performance guarantees.
Speaker Change: Which we view as favorable competitive barrier in the Mena region. However, the strength of our balance sheet gives us flexibility on our growth plans should market conditions change drastically from our current outlook, we certainly could evaluate other capital allocation alternatives, including returns anybody who will update further on this topic SCE pre.
Speaker Change: <unk>.
The outlook for the Middle East and North Africa region remains favorable upstream spending remains durable and this continues to be focused on our stated goals of delivering profitable revenue growth execution efficiency technology expansion debt reduction and working working capital efficiency to drive future financial performance.
Speaker Change: On behalf of management I'd like to thank our entire workforce for their outstanding efforts in delivering these results together with our directors shareholders and banking consortium for their continued support the future Vanessa continues to look good.
Sherif: Now I'll turn the call back to Sherif.
Sherif: Thanks Stephan.
Sherif: Let me conclude by reiterating the key takeaways from the fourth quarter and outlook.
Sherif: First while the market came into the year with extremely low expectation for the sector and while the commodity backdrop remains uncertain. We believe that Nina upstream activity will remain a relative bright spot for growth.
Sherif: The gas development theme is central to this view.
Sherif: Although competitive contracts in our business bring multi year visibility to the company and overall profitability remain healthy as the sector remain disciplined.
Sherif: We expect 25 to follow the same seasonal pattern as it did in 2004 with first quarter slowest impacted by fewer operating days and the full month of Ramadan in March followed by a sequential activity build through the year.
Sherif: Overall, our 2025 growth outlook for NES relative to the market remained unchanged.
Sherif: Second within the solid mean that backdrop <unk> is extremely well positioned to outperform due to one favorable project exposure, particularly related to the broad base gas development theme.
Our strategic positioning in areas, such as Kuwait, and Libya, which are expected to lead the growth on a percentage basis.
Sherif: Third our frontier technology growth leg remains on track with pilot success in row, Yeah, now duplicated in several countries and our unique positioning in investment and produced water metering announcement and commitment recently made by our largest customer and cross industry partners.
Sherif: Whereas all yes. It is expected to be a more linear driver of growth from here net debt and our water business represent massive potential. This is being defined in real time, but nevertheless remains a long term strategy with the expected catalysts this year.
Sherif: I would like to close by thanking all of our employees their families for an extremely strong close of 24 and thank our partners and deal customer for their continued support and belief and mess.
Speaker Change: With that I'll pass over the call to the operator for your question Melissa.
Speaker Change: Thank you if you'd like to ask a question. Please press star one on your telephone keypad.
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Speaker Change: Our first question comes from the line of David Anderson with Barclays. Please proceed with your question.
Speaker Change: Great. Thank you and good morning curious how are you.
Speaker Change: Good morning, Sir.
I wanted to ask you about your outlook and a couple of different ways. Maybe first can we just start with kind of an overview as you see it all the region kind of spending patterns over the region kind of how you see that playing out during the year.
Speaker Change: Peers, maybe with one exception most of the GCC continues to ramp up.
Speaker Change: Almost sort of <unk>.
Speaker Change: From the oil price, Meanwhile, OPEC, bringing back barrels to the market.
So there'll be a further reduction in Saudi as oil prices languish side, how are you sort of thinking about those missing pieces during the year and overall would you expect growth.
Speaker Change: Overall spending growth in the middle East like mid single digits that kind of where you are adding.
Speaker Change: Yeah, I agree and so just to answer your question. So yeah, the middle East I would say moderate growth in 25 compared to 24, So I would say a single digit.
Speaker Change: Growth and obviously it depends if you break it into the countries.
Speaker Change: Saudi will be a drop in the non unconventional and increase in unconventional.
Speaker Change: Kuwait no difference in growth so it will be double digit growth year over year.
Speaker Change: And you'll have online Iraq eh.
Speaker Change: Kind of stable.
Speaker Change: <unk> will grow and again, an unconventional I think the announcement with vertically by AD knock on the.
Speaker Change: The unconventional which is the 144 wells and the spend of $1 $7 billion of this is going ahead and obviously the capacity. So they will continue to grow as well and then you have if you turn to North Africa. Then obviously you have the massive Libya growth, which is again, it's not in double digits.
Speaker Change: It's an exponential right it depends.
Speaker Change: There will be question on the budget and how the budget is released and the funding is transfer from central bank to the operator companies for them to be able to execute however, already as I said the rig count is already added by 40 rigs, which is basically more than tripled the rig count right. So if I look.
Speaker Change: Overall, then you look at the region. Overall, then you were talking about as you said.
Speaker Change: Low single digits, right and Thats, why we always say at least we gonna double that.
Speaker Change: And as we've been doing and we're going to do the same thing in 2005.
Speaker Change: So that was my next part of my question was kind of just focusing on NASA and your positioning, particularly in Saudi I was wondering if you could talk about how the mix is.
Speaker Change: So if you think about kind of whats all the news has come out of last 12 months' earnings out of the Kingdom.
Speaker Change: And a reduction in offshore.
Speaker Change: <unk> seen some reduction in that.
Speaker Change: It kind of conventional spending but for a different story altogether can you talk about how within NASA.
Speaker Change: Sort of changed your mix.
Speaker Change: And kind of what's going on there and how <unk> is progressing and kind of your exposure and how you're thinking about that the next couple of years.
Speaker Change: Yes sure. So if you look at the offshore I think the offshore as I keep saying, it's very well documented going from the $13 million capacity to the 12 billion capacity. They release the Gen rig that they got so Saudi was at all time high on Jackups, almost 90 or 91 and now they are back to the <unk>.
Speaker Change: <unk> 59, Jackups right and Thats basically the stability of that.
Speaker Change: From here and the oil they released as well land rigs based on not needing the additional barrels and now it's stable already right. So between both I think from the oil side is stability now on the gas the normal guidance Theres not decline and then obviously the unconventional program.
Speaker Change: Is increasing because they are going from.
Speaker Change: 10, 8000 stages, all the way to that goal of almost 25000 pages of your right. So that growth is going to continue and the plan is is on the same on the same path now our exposure as we are obviously involved from the beginning of the of the.
Speaker Change: Florida and convention, we continue to be part of that there is.
Speaker Change: Huge potential obviously this is going to be tendered right.
Speaker Change: As the usual Sal.
Speaker Change: Saudi Aramco, so they already did that on the direction drilling and was awarded for all the rigs that they have and now they are going to do the same thing for the completion and they will always be multi awards. So that will be known sometimes in the second half of the year or maybe the end of the first half so.
Speaker Change: Definitely our position will depend on the results of that but so far we are we look quite positive.
Speaker Change: Positive about it now if you look overall.
Speaker Change: Of Saudi and the Opex.
Speaker Change: Again, I mean, I think the uptake the way people are always understand it or misunderstand. It is.
Speaker Change: Announcement is basically saying I am going to be able and I have the agility and ability to add oil if when and when needed right. So there is no constraint the start.
Speaker Change: Problem is that you mentioned in April, but it's not like they are going to go let's go and flood the market.
Speaker Change: An oil price of 50 is not going to happen right. I mean, all of these countries need oil price.
Women and minimum above 60, and and they are not growing in my personal opinion allow the oil price to go below that so which means that they just want to give themselves the opportunity if it geopolitics or in our country is out of production they will be able to make up that.
Speaker Change: Difference, which means that they prevent the oil price basically to go back to 100, $120 and meaning that they have that capacity.
Speaker Change: And everybody knows the country that holds that is Saudi Arabia really right. So they have that 3 million barrel and they will be able to replace any oil that gets out of the market. So and I think that's where the strength of Saudi compared to everybody else. In addition to that and Thats what people again.
Speaker Change: In North America, sometimes they under appreciate this is conventional unconventional right. So today let.
Speaker Change: They need to produce 12 billion bad and consistently they can and they have that agility and ability to add rigs in case oil price goes to let's say to 9100 and they need to sustain that for a long time that they can add dose.
Speaker Change: Rigs at a very fast time, and obviously this would be again very positive to us right. So it's activity, which mean an increase in activity, but we're not obviously betting on that at all what we're just saying that Saudi had that ability to go up and down they have the capacity and the announcement of Opex in.
Speaker Change: My opinion is not to flood the market and lower the oil price on the country is just to say we are ready to replace any oil that gets out of the market.
Speaker Change: Yeah.
Speaker Change: Very helpful. Sri Thank you if I could just squeeze one more in here.
Speaker Change: Wondering if you could talk about your capital allocation program here, a little bit from a bigger picture.
Speaker Change: It sounded like you're right there is potential for some M&A out there are you more likely to spend capital internally on building our technologies or product lines or are you thinking more about your footprint. How are you thinking about lessor over the next few years in terms of strategically where you want to go.
Speaker Change: Yes.
Speaker Change: No.
Speaker Change: As Stefan explains we obviously, we need to spend our capital our Capex obviously for for the growth as we as a company. We continue to grow that we spend our maintenance capex plus our growth capex, which could be quite significant which is good because that means that we're going to grow even faster.
Speaker Change: And we continue to look at our.
Speaker Change: Platform of technology. So we are not looking at the big M&A and geographical because we are now in all the countries. We are very pleased and happy to be solid in our core countries and outside.
Speaker Change: And we surely want to enhance our drilling platform.
Speaker Change: Yeah, and our Nida decarbonization, so from that technology aspects, we maintain that agility and we obviously are looking at some very very unique and innovative.
Speaker Change: Solution, especially Ireland, our advanced piloting of mineral recovery in direct lithium extraction.
Today with one of these projects becomes really economical and successful it's massive right. So we need to have that ability too.
Speaker Change: Acquire some of the technology partner that we are teaming with or just add to some of these project in a bigger way. So I think thats, where we are going to see over the next couple of months. How we are progressing with that on the same time on the direction drilling we obviously spending on extensive tense.
Speaker Change: Staying and we want to add as well some very key features that some of it is very unique to some of what we call like a VC type of investment and some of those very innovative we might add them to our portfolio now if I look at that and how we produce our cash flow we are going to.
Speaker Change: You obviously in the second half of the year, we look at the entire cash flow that we produce the M&A portfolio. The platform and then we determine should we start to do a program like share buyback or dividend or something like that we will definitely look at that towards the second half of this year.
Speaker Change: Thank you very much for taking all my questions.
Speaker Change: Thank you Sir.
Speaker Change: Thank you. Our next question comes from the line of Arun Jairam with J P. Morgan. Please proceed with your questions.
Arun Jairam: Yeah. Good morning, gentlemen, I wanted to see if you could elaborate a little bit on the margin performance in the fourth quarter and thoughts on potential margin progression.
Arun Jairam: In 2025 understanding there's typically some seasonal factors in <unk>, which decided but just wanted to see if you could address kind of your confidence that these types of margins could be sustainable.
Speaker Change: Arun as you think about the 2025.
Arun Jairam: Stephen we had very good margin performance in Q4.
Arun Jairam: Service quality and operational execution is very very good trials.
Arun Jairam: Very good execution and service quality it improves the margins right in 'twenty in 2025, we expect that margins will track 24, right and be very similar to 2004 as <unk> said, we think we will have.
Arun Jairam: High single digit growth rising 25.
Arun Jairam: But there'll be more competition.
Arun Jairam: <unk>.
Arun Jairam: 2025, and so we expect the margins to track 2024 quite consistently.
That's helpful.
Speaker Change: And just maybe my follow up sure. If I was wondering if you could elaborate.
Arun Jairam: On <unk>.
Arun Jairam: Commercially what's going on for necessary and in Kuwait, you highlighted how you had been selected amongst a small number of operators I was just wondering if you could highlight some of the work youre doing for for KFC and perhaps.
Arun Jairam: Highlighted on offshore discovery, which kind of wanted to see if you can elaborate on their plans to develop that.
Arun Jairam: Sure. So Kuwait is as I said this the very bright spot obviously they.
Arun Jairam: You started.
Arun Jairam: Kind of later than the growth that happened in <unk>.
Arun Jairam: And the other countries and now you see Kuwait it's above.
Arun Jairam: <unk> hundred rigs people don't even know that right. So very very very strong activity rigs are drilling there.
Arun Jairam: They have.
Arun Jairam: They formulated that vision, which is 4 million barrel capacity from the current 2526, which means there is a lot of AD right. So that's.
Arun Jairam: And people again that north Kuwait, Burgan, which was the second is the second largest feed in the word.
Arun Jairam: It is obviously maturing but is producing a lot and then now they have a lot of other projects around they have.
Arun Jairam: <unk> achieved an offshore discovery, which is.
Arun Jairam: Very very strong I mean, Kuwait has always been since 1938 of land.
Arun Jairam: The business and nowadays just found too that the first two wells I would say from an exploration list that means it's a huge success. It is 100% success. So they drilled two wells the two wells of discovery and one is.
Estimated to be around 3 billion of deposit and the second one is $1 billion of deposits. One is shallower order closer to the land and the other and now they are on well number three.
Arun Jairam: The plan is six wells. This was always has the program have been six wells and then they're going to go too depending on obviously, the delineation and how do they.
Arun Jairam: See how this development would be and for people again to to appreciate in the middle east or the NOC. They look at this as a very long term view. They don't look at this it's short term. So the plan would be can I produce 100000 barrels to 100000 barrel consistently from that how many jackups I need what's the platform.
Arun Jairam: And obviously, it's going to be.
Arun Jairam: A big tender.
Arun Jairam: At that time, and obviously theyre going to formulate is it I mean today that contract is run as kind of an integrated.
Arun Jairam: Our contract.
Arun Jairam: So now I think it's going to definitely move to a rig contractor alone and service company as they do in most of the offshore but it because it was new <unk> wanted to have that in a concentrated basin for us.
Arun Jairam: As I said, we started this in Kuwait.
Arun Jairam: When we did the we formed the company and infuse them with David had no presence in Kuwait and today as I said, it's our third.
Arun Jairam: Our largest country and we have a lot of contracts now.
Arun Jairam: And we make sure that it is what I call the anchor country, which means that I want to have at least 10 to 12 product line.
Arun Jairam: And we are heavily tendering and then in 2025.
Arun Jairam: Think almost all of the contracts will be tendered.
Arun Jairam: So we need to we secured already couple and we need to add more so our plan is to add more contracts to that and make it.
Arun Jairam: I think we'll have the path to be the second largest country in our portfolio I think it's going to be bigger than Omar so and Thats, where we want to make sure that we have a very good setup and good infrastructure.
Arun Jairam: And part of that as we do on all of the countries. We develop technology with our customer and then we are part of that ecosystem as part of the.
Arun Jairam: The plan of QC of GPC of division of the cohort ization, adding people et cetera. So.
Speaker Change: He chose <unk>.
Speaker Change: Five companies.
Arun Jairam: Yeah.
Arun Jairam: To form this what they call the <unk> IV or <unk> inhibition value very similar to the Huron techno valley in Saudi so they've made that they are going to.
Arun Jairam: Assigned.
Arun Jairam: A big space in <unk>.
Arun Jairam: 250000 meter and then theyre going to put companies. So we were one of the five chosen.
Arun Jairam: From all the company in the industry and we are going to build what we call. An innovation center. We will have technology partners will have some research projects jointly done with them and we will look at the challenges that they have and Thats. How we will selected they showed us the challenge that they have.
Arun Jairam: In the future and we told them what are the answer product and they liked what we had so we are part of that what will this bring you obviously and some people say, okay. What does it mean it means some of it will be direct awarded.
Arun Jairam: Contract some of it would be obviously again joint research with the client, which makes you part of that ecosystem embedded in the country and DNA and I think that's how you grow it.
Arun Jairam: In that in that business right. So we're very excited we have a fantastic relationship with their leadership and we're looking forward to really make that the huge.
Arun Jairam: Country for us.
Arun Jairam: Great. Thanks Gents.
Arun Jairam: Thank you. Our next question comes from the line of Jeff Robertson with water Tower Research. Please proceed with your question.
Speaker Change: Thank you good morning Sherif.
Arun Jairam: <unk>.
Arun Jairam: The emphasis on unconventional resources grows will that have any.
Arun Jairam: <unk> impact on <unk>.
Arun Jairam: Product mix and the margins for next year.
Arun Jairam: Well I mean today, we have the unconventional our mix obviously.
Arun Jairam: And we this is will continue.
Arun Jairam: It's it's basically they like the United States is there a big Frac.
Arun Jairam: Business, so the difference would be.
Arun Jairam: The activity grow and the efficiency improve.
Arun Jairam: You continue to kind of.
Arun Jairam: Try to maintain what they call tried to maintain the margins.
Arun Jairam: While the cost is increasing but the efficiency try to offset that increases so in the future. That's what we are planning to do same same way.
Arun Jairam: More efficiency more technology, today's Saudi Arabia, <unk> is state of the art and a lot of people as well.
Speaker Change: Question would <unk> be able to.
Speaker Change: Have the efficiency of the Permian, yes, they do right so Saudi Arabia is.
Speaker Change: That level pumping at 'twenty, two 'twenty three hours a day multi.
Speaker Change: Multi stage dual frac et cetera. So all the latest is there and obviously the efficiency and keep improving so today in some cases, we do 18 stage a day 19th day today.
Speaker Change: Other technology, we are bringing we are partners with the U S and Thats basically how you maintain that improvement in efficiency and trying to get the reduction in cost to be able to maintain economical for that cost curve right. In addition to that in the same field we are trying.
Speaker Change: Some new stuff on.
Speaker Change: With our customer on the water right, which I think.
Speaker Change: I am still such a big believer that the industry should do a better job in reducing its resources. So that's how you recycled water try to get the minerals out if you get some products out of that is while you sell it so that improve your margin and as well contribute to the climate.
Speaker Change: And I think if we do that we would be able to maintain and even improve the margins in the future because we are adding new business to that platform.
Speaker Change: Secondly on the ROI of platform.
Speaker Change: What's the pathway to continue to test that and ultimately be able to.
Speaker Change: Use.
Speaker Change: We use that technology in new contracts.
Speaker Change: So the ROI is terrible.
Speaker Change: This is a very I would say extensive testing if you do it.
Speaker Change: And a very reliable way so today, our <unk> platform, which is the Rss rotary <unk> is what I call a success technological so the technology works. We proved it we proved it in the U S 70000 feet drilled now what Youre doing is you go through a very.
Speaker Change: Deliberate extensive testing that is very rigid and every time you pass stage you go a new test everything. So for example, our Rss today we are.
Speaker Change: After the wells and after the drilling that we did we bring back those tools and we test we do it like destructive testing check everything make sure that we believe and we know.
Speaker Change:
Speaker Change: How did I get that the tool is ruggedized, how it will be able to drill in different formation, then we send it and do another test or another jobs. All these jobs, obviously once we know its drilling exactly like the competition or like the market we charge for it already right. So as I said, we have this.
Speaker Change: Good outcome that we have contracts already so we are delivering on those contracts. So I would say.
Speaker Change: By edge through by the second half of this year, we'll be able to determine.
Speaker Change: Now we everything is commercial and they are reliable, we'll obviously always have some teething issue, but the tool is reliable enough to be a market standard to call. It a commercial tool.
Speaker Change: Thank you for taking my questions.
Thank you Sir.
Speaker Change: Thank you. Our next question comes from the line of Arvind Sanger Geosphere capital. Please proceed with your question.
Thank you good morning Sherri.
Speaker Change: Question on <unk>.
Speaker Change: The valuation gap between where.
Speaker Change: NASA is valued and similarly position serving the same markets in middle East and maybe a little bit of North Africa that are listed in the middle East are valued.
Speaker Change: <unk> GAAP that he can.
Drive a truck through so any any thoughts on.
Speaker Change: How you might be able to close that gap.
Robert: Well very good question Robert.
Robert: I wish I understand the market our growth story is obviously, a very unique and we continue to do the same.
Robert: I think maybe it is a bit underappreciated.
Robert: If I call on the Middle East obviously, if Thats. Your question on the companies that are listed in the Middle East obviously, they are well positioned.
Robert: At Nov drilling ADC adverse.
Robert: These are the three I would say the companies listed there and definitely it's something we're looking at <unk>.
Robert: Extensively we looked at it in the past.
Robert: There is for people to again I. Appreciate there is no fungibility between the exchange any exchange actually in the middle East and any change in the U S or in Europe. So what you have to do is you have to do Edr's. If you do a dual listing or.
Robert: Certain point of time, if you can say as you said or as you try as you are asking.
Robert: This allocation totally definitely you look at new ideas right.
Robert: You list, there and could you do something different but so far we are on the course to see I think people I think maybe you need to appreciate us more and on the NASDAQ on the U S.
Robert: And it's something that we can monitor while we're keeping the dialogue with our.
Robert: Friends and folks in the middle East listing agencies.
Robert: Understood and one last question the warrants I didn't see anything in the press release are those expiring.
Speaker Change: This summer.
Robert: No we extended the warrants.
Robert: June 26, it's not in the press release, but it will be in the 20-F. So it's public that we are.
We extended them to June of 2006.
Speaker Change: Okay. Thank you.
Robert: Okay.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, its star one to join the question queue.
Speaker Change: Our next question comes from the line of John <unk> with outcome Cross management. Please proceed with your question.
John: Yes, hi.
John: I'd like to see if you can quantify a base case for overall weighted average market growth for 2025.
Speaker Change: The base case for NASA growth, but more importantly, I would like to understand your level of visibility and confidence.
John: In delivering.
John: That level of base case NASA growth.
John: And what are some of the key assumptions.
John: That could swing it one way or the other on oil prices or geopolitical.
John: Developments.
John: And as far as oil prices go my understanding is and I'd like to see if this is correct.
John: Is that 80% of your business is not oil price sensitive.
John: But I would like to understand what would be an adverse oil price scenario.
John: That might cause.
John: Overall market growth or your growth to be a little lower and how much.
John: What is that sensitivity.
And then.
John: I'd like to understand.
John: Hello.
John: You talked about there being some exciting growth opportunities.
John: You want to see how some things play out on deploying capital in those organic opportunities.
John: I understand.
John: Top of this base case housecat significant could some of these.
John: <unk> D in terms of layering significant revenue on top of this base case.
Thanks, Anthony obviously, a lot of assumption here, So let me try to answer.
John: Answer all your question so the Mena region growth 25 over 24 would be.
John: Depending on who you talk to depending on you know.
John: The assumption that you have rigs are coming on time some of the project gets delayed et cetera, we are talking about 3% to 4% and I would say minimum we're going to do is 8% to 10% right. So that's the growth profile, we see ourselves versus the others why because.
John: We have that luxury of being smart. So if you are small and you have contracts that you have the visibility of those contracts you add new contracts to it.
John: And then you make the math youre going to make it right. So if you are 10% of the market.
John: Being.
Growing is not that hard versus if you are 50% of the market is going to be very difficult. Because you will have to follow the market. The best example of that as I keep saying is our position in Oman. So in Oman, we are very big in terms of percentage. We are I would say the third largest service company and we grow with the market, we don't outpaced the mark.
John: When we outpaced the market where this market if we win a new service line that we don't have which is today. We are tendering couple of contracts that we don't have if we win them, we will outgrow the market even in noma right.
John: Now.
John: On your assumption of the oil price I would say that's my personal view that the oil price will maintain in that range.
John: 60.
John: 60% to 70, which means that this is basically all the assumption on all the budget of all our customer and all the countries, where we operate right and you remember the countries.
John: Main source of revenue in the Middle East is oil and gas. So they plan their budget based on that so I don't think that they will let the oil price goes to as people think below 50 or whatever right now, let's say that it does happen right and just I think Thats. Your second question if that.
John: If that happens, yes, definitely they are going to curtail production.
John: Production they are going to shut down some business. Some added project that they are not they don't need now because they can produce and because if it goes below 50 that means that there is a massive surplus in the market and demand is not coming back in China is not recovering which means that oil price towards.
John: They will ask for price reduction and they will curtail some of the business, which means that will effect for sure it will affect our business and the affect everybody right. So but again if you look at Mena overall thats the whole theory of the business. It's never had that kind of downturn that you have in North America, which is like a meltdown.
John: It doesn't have that right, so you're going to get a reduction will be flat in sort of growing our margin drops.
John: Two or 300 basis points right.
John: Now.
John: On the sensitivity on the gas we are obviously the middle East now as our revenue I would say.
John: Almost 50 50, so the gas program is going to continue regardless of the oil price because thats an internal consumption. It is not for LNG is not for export it is for internal consumption and all of them have that kind of objective of having their internal consumption is.
John: <unk> made out of gas and renewables and they want to stop burning liquid and in especially in the summer months, where the air conditioners really heavily used and they use a lot of it and I tried to mention as well that they are growing very very heavy.
John: <unk>.
John: Data centers and AI, if you I would just and Cera week met with the leadership of UAE, and Saudi and the position that presentation at <unk>.
John: <unk> massive growth in.
John: And guys Theyre talking about get 70% more which means that a lot of projects and a lot of gas to be burn obviously to make that leadership that they want to have on AI.
John: I think I answered all your question you had one on the capital.
John: I mean, there is so many opportunities that we are working on.
John: I would say, we would know sometimes by the second half how much of all of these projects turning out and then obviously we finished our.
John: Sure.
John: Our tendering process as well so we know how much capex, how many new contracts we get.
John: I mean, we just standard.
John: Several contracts in several countries.
John: I think we're going to get a positive indication on couple of them, which is new to us.
John: Definitely we are going to deploy which is.
John: Something good.
Arun Jairam: For the growth now as I said, the second half once we evaluate all of these projects and we look at our cash flow definitely Stefan is going to look into details as well with the refinance and everything and we will see should we start to do a capital return program.
As share buyback or dividend or whatever we are definitely going to announce.
Arun Jairam: Obviously board approval.
Arun Jairam: All these things and announced at some times in the second half.
Arun Jairam: Great well, thanks for the update really appreciate it.
Arun Jairam: Thank you Sir.
Speaker Change: Thank you that concludes our question and answer session I will turn the floor back to Mr. Cola for any final comments.
Speaker Change: Thank you very much we really appreciate your time appreciate you believe and again I'd like to thank you all for your support.
Speaker Change: And belief in the journey. Thank you very much very excited for 25. Thank you.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.