Q1 2025 National Energy Services Reunited Corp Earnings Call
Greetings and welcome to the ESR reports first quarter 2025 financial results conference call and webcast.
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Speaker Change: It's now my pleasure to turn the call over to your host Blake Gendron, Vice President Investor Relations. Please go ahead Blake.
Blake Gendron: Thanks, Kevin Hello, and welcome to <unk> first quarter 2025 earnings call.
Speaker Change: With me today are Sri Soda, Chairman and Chief Executive Officer, Vanessa Stefan Angelilli, Chief Financial Officer.
On today's call, we will comment on our first quarter results and overall performance. After our prepared remarks, we will open up the call to questions.
Blake Gendron: Before I 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.
Blake Gendron: 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.
Speaker Change: 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 <unk>.
Speaker Change: Thanks Blake.
Speaker Change: Ladies and gentlemen, good morning, and thank you for participating in this conference call.
Speaker Change: First I'd like to thank the entire Nestor team for delivering the surfaces to our derisked customers and executing flawlessly. Despite all the macro environment and the full month impact of Ramadan during the first quarter.
Nevertheless, the geopolitical and global economic wins have shifted immensely since the start of the year.
Speaker Change: As we have seen many times in our industry. The cycle is resetting and we at Neste.
Speaker Change: Our preparing to size the many opportunities that could emerge in the coming 12 to 18 months of market transition.
Speaker Change: As we say never missed the opportunity of a downturn.
With that in mind, let me start with the macro and the big picture for our sector.
When it comes to this always cycled reset we have all been here before in fact this is my fourth time to navigate such an environment.
Speaker Change: From what I can see the combination of pessimism around oil demand and unwind of spirit or supply is much like the setup for 2015 2016 cycled reset.
Speaker Change: On the oil demand side global geopolitical tension and trade uncertainty continued to weigh on economic growth that was already fragile coming into the year.
Speaker Change: On the oil supply side, non opex, and particularly U S production remained resilient in the face of rig and Frac activity declines at least for the short term.
Speaker Change: Given continuous activity reduction in the U S. We expect to see an impact to non peak production in the coming 12 months.
Speaker Change: Despite pockets of growth in places like Louisiana and Brazil.
Speaker Change: And they have announced Opex has decided to gradually bring back previously curtailed patterns.
Blake Gendron: This dynamic remains the wildcard and framing the downside case for oil prices and I suspect the commodity market will remain an edge for the time being.
Blake Gendron: Now what does that mean for activity in the Mena region.
Blake Gendron: For the GCC. It is not the same answer everywhere.
Blake Gendron: Saudi remains the key player with maximum sustainable capacity, and therefore getting reduced drilling activity with negligible impact to oil production.
Blake Gendron: Those that are new to the industry might not fully appreciate this dynamic it is unique to the kingdom.
Blake Gendron: In other words, they can cut drinks and still raise production by even 7 million barrels if they choose to do so.
Blake Gendron: Today, we believe that without the strong growth of unconventional activity, the Saudi market would otherwise be down in 'twenty five.
Blake Gendron: On the other hand, Kuwait is pushing ahead on growth despite lower oil price.
Blake Gendron: Characteristic of their long term strategic vision.
Blake Gendron: They put the 2040 plan in place and executing it. So we would see added rigs and services in the coming quarters and years.
Blake Gendron: Furthermore, they have launched innovative commercial models for risk sharing and growth in this area will be additive to the expected standard service market.
Blake Gendron: UAE and North Africa will grow as well and as of today, we have seen the legible activity impact from lower prices. The rest of the countries have been and are expected to remain stable.
Blake Gendron: While it materially lower oil scenario would likely impact all of these countries.
Blake Gendron: It is important to remember two key themes.
Blake Gendron: One the Mena region represent the lowest breakeven cost for oil globally.
Blake Gendron: Two upstream remains a highly strategic sector, if not the main and all of the countries in which we operate.
Blake Gendron: Now, let me discuss our strategic approach over the next 12 to 18 months, which is adopted from our long term strategy to fit the current circumstances.
Blake Gendron: As seen in previous cycles, we are moving to right size the fixed cost structure.
Blake Gendron: Using our agility to high grade and we allocate the variable cost resources to where the activity growth is.
Blake Gendron: Despite the softness in the markets, we anticipate that <unk> will grow in 'twenty five and in 'twenty six.
Blake Gendron: Why first we are still relatively small and have a larger set of incremental contract opportunities from which to choose from.
Blake Gendron: Second and perhaps more concretely, we have recently won multiple key contract on.
Blake Gendron: Now in the planning phase ahead of anticipated mobilization.
Blake Gendron: Let me elaborate more specifically.
Blake Gendron: In Oman, we have a strong base of contract and recently announced a number of incremental contract in areas such as drilling and slick line span five years, while demand remains a stable market and is already one of our top three countries in terms of size, we expect to grow.
Blake Gendron: Opportunities to deploy our royal direction drilling platform will drive the next leg of growth and the latest win of slick line will drive more our drilling and evaluation performance and leadership position.
Blake Gendron: Similarly in U a E a stable market with capacity approaching target. We have won new contracts on top of the anchor contract previously secured therefore, we have clear visibility for the coming couple of years.
Blake Gendron: Moving to Kuwait, a resilient bright spot of growth globally. We have recently won multiple awards and are in the process of tendering for several billion dollars in multiyear contract across several segments.
Blake Gendron: Given our size and momentum, we should outgrow and an already robust growth market and depending on the outcome of these tenders could seek weight launch into the second biggest country within our footprint.
Blake Gendron: Therefore, we are investing strongly in the country, including our recently announced 90 innovation Valley, which aims to mirror, our successful technological launch of Norway, and Saudi Arabia.
Blake Gendron: We plan to bring a number of our technology investment and pilot cutting edge solution with our visionary customer as they move quickly to tackle these challenges in the next phase of capacity growth.
Blake Gendron: We remain excited about North Africa, despite the potential price sensitivity doi.
Blake Gendron: With a base of anchor contracts in hand, and well calibrated investment we are tendering on several hundred million dollars of contracts and thus have the potential to outgrow the market there.
Blake Gendron: Geopolitical tension and security could delayed the pace of award decision and additional rig deployment.
Blake Gendron: But we remain optimistic.
Blake Gendron: Coming back to the full term of the story and our largest country footprint, Saudi Arabia. Despite the softening outlook I am confident that we will weather the storm.
Blake Gendron: Because one we remain relatively small compared to competition on our favorably exposed to secular gas growth too.
Blake Gendron: Two we have numerous project and initiative that elevate our profile as a nimble technology provider.
Blake Gendron: Our open technology platform has proven incredibly fruitful in the kingdom and with the collaborative support of our customers. We are driving in country innovation led by a new generation of Saudi professionals in key areas, such as water minerals direction drilling methane detection.
Blake Gendron: And geothermal.
Blake Gendron: With that lead into technology, let me conclude by providing an update on our key growth frontier and Linda.
Blake Gendron: Our ROI is still rotary steering, but has undergone extensive field and facility testing and we are moving new tools to our men to endeavor. The next phase of the commercialization journey.
Blake Gendron: As we communicated before the entire rollout and particularly the rotary steer but is designed to be conservative.
Blake Gendron: Deliberate and with the utmost focus on reliability and continuous improvement.
Blake Gendron: We are commercializing with the long term in mind and testing footage drilled is the key metric.
Blake Gendron: Extensive testing calculated deployment and well timed commercialization will help us maximize the success of the platform in collaboration with our key customers.
Blake Gendron: Shifting to Narita in recent months, we've mobilized crucial pilot project in multiple areas of mineral recovery.
Blake Gendron: With several exciting opportunities in rare earth minerals extraction.
Blake Gendron: These pilots are important and boosting the overall economics of produced water treatment beyond the need for division to recycle its own water and eliminate freshwater use we have active client engagement with our key customer and the success of the ongoing pilots will be contagious to others.
Blake Gendron: More updates to come in the coming quarters.
Blake Gendron: Overall, while we would prefer an expanding market for wrong I'm excited about our differentiated story, we cannot control the commodity cycle, but can drive relative performance within any market framework.
Blake Gendron: We started net principally as the pure play service provider and the best geography for upstream activity.
Blake Gendron: I am confident that this differentiation will come to the forefront in the coming 12 to 18 months.
Blake Gendron: Additionally, our counter cyclical investing as we successfully executed back during the Covid pandemic will set the company up for continued growth and success over all time horizon.
Blake Gendron: We are excited about this story as ever.
Blake Gendron: In terms of balance sheet and contract positioning to outperform.
Blake Gendron: With this I will pass the call to Stephane to discuss the financial and visits.
Stephane: Thank you very much.
Speaker Change: Good morning to our audience in the U S and good afternoon, good evening to our audience in the Middle East North Africa, Asia and Europe.
Stephane: I'm very pleased to give an update on our financial performance for the first quarter of 'twenty five some color for Q2, 'twenty five and the full year of 25.
Stephane: A lot has happened in the last three months since we last talked ongoing macro volatility worldwide. The new administration in the U S uncertainty in the tariffs higher inflation lower subsidies to developing country Jan going more in the Ukraine and the overall geopolitical uncertainty in the middle East.
Led to lower oil prices and lower rig counts in certain countries. All this has impacted the Q1 'twenty five results of the oilfield services sector that makes forecast in the short term outlook difficult. Despite all this as Sharif highlighted in these market summary, most of the markets in the middle East apart from Saudi.
Speaker Change: With flat to up in Q1, 'twenty versus Q1, 24, and we continue to see this stability for the rest of 'twenty five as it stands now.
Speaker Change: First let's turn to Q1 dollars 25.
Speaker Change: Our overall first quarter revenue was $303 1 million, which was up two 1% year over year outpacing the broader market that was down to 11, 7% sequentially.
Speaker Change: Year over year, there was growth in Abu Dhabi, Algeria, Kuwait, Iraq, and Libya, partially offset by a slow start for the year in Saudi.
Speaker Change: The sequential decrease in Saudi was mainly on slowdowns in our main project due to Ramadan.
Speaker Change: Now turning to adjusted EBITDA.
Speaker Change: Adjusted EBITDA for the first quarter of 'twenty, five was $62 $5 million with margins of 26% down 100 basis points on a year over year quarter basis.
Speaker Change: This is mainly due to the slowdown in specific project activity in Saudi match student revenue.
Speaker Change: Interest expense for Q1 dollars 25 was $8 3 million in Q1, 'twenty five tax was $3 $3 million, which implies an effective tax rate of 24%.
Speaker Change: Turning to earnings per share EPS adjusted for charges and credits was <unk> 14 for the first quarter of 'twenty five the charges and credits of $2 6 million impacting adjusted EBITDA and adjusted EPS was the lowest for many periods. They would made up primarily of two items in Q1 'twenty five as follows.
Speaker Change: Cost of the remediation of material weakness controls, which should moderate dramatically from now and an impairment of the small investment.
Speaker Change: Now turning to our cash flow and liquidity, which has been very strong over the past several years.
Speaker Change: Cash flow from operations during the first quarter of 'twenty five was $25 million the headwinds to cash flow generation was mainly driven by a sharp increase in our DSO in Q1, 'twenty five as Ramadan closed most of our clients offices for the last week in March.
Speaker Change: The free cash flow for Q1 dollars 25 was negative $9 6 million with Capex at $30 million as we continue to front end load our growth in technology deployments.
Speaker Change: As of March 31, our gross debt was $366 million.
Speaker Change: Net debt was $298 million.
Speaker Change: Net debt to adjusted EBITDA was nine three which remains below one times target for a third consecutive quarter.
Speaker Change: On a trailing 12 month basis, our return on capital employed or Rocky was 11, 3% concurrent with our robust growth investment strategy.
Speaker Change: We expect Q2 to 25 revenues to grow sequentially versus Q1, 'twenty five but moderate on a year over year basis is key project timing is now expected to be more back half weighted the Q2 'twenty five growth will be approximately half the growth rate of Q2 24 versus Q1 24.
Speaker Change: Despite the overall headwinds in rig releases in Saudi Arabia for a full year 25, we expect revenue growth due to our recent contract wins and successful technology deployments that <unk> previously highlighted.
Speaker Change: Margins for Q2, 'twenty five should slightly improve on Q1 dollars 25.
Speaker Change: With the modestly higher revenues and the impact of our cost reduction program initiated in April we do not expect to be materially impacted materially by the U S. China tariff stories.
Speaker Change: Full year 25 interest should be around $30 million in full year 'twenty five ETR should be in the mid twenty's as previously outlined.
Speaker Change: Capex for the full year 25 will be in the vicinity of $125 million as previously outlined it might go slightly up dependent on the results of some large tenders, which obviously will impact revenues in the future years.
Speaker Change: Now onto housekeeping topics, we spent the better part of the last two plus years reshaping our back office and the company overall, we view updated processes procedures and controls as well as implementing the latest software upgrades ERP system as you know in 'twenty four we remediated three of our four historical mature.
Speaker Change: Real weaknesses, and we're still confident that the last one will be remediated in 'twenty five as most of the work has already been done and tested is all that is required.
Speaker Change: So your comments on capital allocation, the Companys goring through a tender process to convert its outstanding warrants into equity on a one share to 10 work basis. The company anticipates that this will be completed over the coming months as it goes through its regulatory processes.
Speaker Change: Our conversion is to clear up the capital structure and remove the overhang originating from the spec.
Speaker Change: Well the short term future due to market volatility volatility the company will continue to use excess cash flow to continue to pay down debt. However, however.
Speaker Change: However, the strength of our balance sheet gives us flexibility on our growth plans and should market conditions change drastically from our current outlook, we certainly could evaluate other captive capital allocation alternatives, including returns.
Speaker Change: Update you further on this topic as the year progresses, as we continue to receive and discuss all investor feedback.
Speaker Change: The outlook for most of the Middle East North Africa region remains favorable as we've just outlined upstream spending remains durable unless it continues to be focused on our stated goals of delivering profitable revenue growth execution efficiency technology expansion debt reduction and working capital efficiency to drive future financials.
Speaker Change: Bones on behalf of management I'd like to thank.
Speaker Change: Our entire workforce for their outstanding efforts in delivering these results together with our directors shareholders banking consortium for their continued support the future. Vanessa continues to look good now I'll turn the call back to Sherif <unk>.
Speaker Change: Thanks Stephan.
Speaker Change: Let me conclude by reiterating the key takeaways from the quarter and our outlook.
Speaker Change: First while the market came into the year with extremely low expectation for the sector.
Speaker Change: While the commodity backdrop remains uncertain, we believe that Nina upstream activity will remain a relative bright spot for growth.
Speaker Change: The gas development theme is central to this view.
Speaker Change: Although competitive contracts in our business bring multi year visibility to the company and overall profitability remains healthy as the sector remains disciplined.
Speaker Change: We expect 25 to follow the same seasonal pattern as it did in 2004.
Speaker Change: With first quarter slowest impacted by fewer operating days and the full month of Ramadan in March followed by a slower sequential activity build through the year.
Speaker Change: Overall, our 25 growth outlook for NES relative to the market remains unchanged.
Speaker Change: Second with the solid minute backdrop necessary is extremely well positioned to outperform.
Speaker Change: Due to one favorable project exposure, particularly related to the broadband gas development.
Speaker Change: Our strategic positioning in areas, such as Kuwait, which are expected to lead the growth on a percentage basis.
Speaker Change: Third our frontier technology growth leg remains on track with pilot success in right.
Speaker Change: Now duplicated in other country, and our unique net debt positioning and investment and produced water mirroring the announcement and commitment recently made by our largest customer and cross industry partner.
Speaker Change: Whereas royalty is expected to be a more linear driver of growth from here net debt and our water business represent massive potential that is being defined in real time, but nevertheless remains a long term strategy with expected catalyst this year.
Speaker Change: I'd like to close by thanking all our employees their families for a strong resilience and start of the year and wished them happier AIDS that is just around the corner and.
Speaker Change: And thank our partners shareholders and valued customer for their continued support and belief in ness.
Speaker Change: And with that I'd like to pass over the call to the operator for your question Kevin. Thank.
Speaker Change: Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: Press Star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one.
David Anderson: Our first question today is coming from David Anderson from Barclays. Your line is now live.
David Anderson: Thank you good morning curious how are you.
Speaker Change: Good morning, Sir.
Speaker Change: So as you said during your remarks, there's always been a disconnect between upstream spending in Saudi and volumes OPEC as a subtraction to the market, but I'm just wondering if this feels a little bit different. This time, we've seen Saudi cutting oil rates for most of last year, while keeping supply out of the market and now this year, we're sourcing barrels coming.
Speaker Change: Back and I'm wondering how you think this sort of the interplay with upstream spending now kind of going forward here. It sounds like youre expecting the market has softened up a little bit more here I'm. Just wondering are we getting to a close and the Saudi rig floor and could we see Saudi activity in second half of the year pick up if you add in unconventional and schedule.
Speaker Change: Continue to see growth in the 26, just a little help in terms of what we're seeing on the ground here in Saudi Thank you.
Speaker Change: Thanks, David So if you if you split Saudi into two category, which is unconventional on its own and the rest of the country, which is basically oil and gas offshore and onshore this will continue to drop.
Speaker Change: So youre going to have a softened I don't think they are going to pick up anything in the second half of this year.
Speaker Change: I would see obviously, depending on how much oil they put and how much production the word needs than you might see.
Speaker Change: Rigs being picked up in 2006 on the unconventional front, it's going as plan no no difference whatsoever, they arent increasing rigs they added more rigs they are gonna add frac crews and that plan is intact. It's not touched so you're going to have a drop.
Speaker Change: <unk> drop of oil rigs more drop off even conventional gas breaks and then pick up in unconventional. So overall, Saudi yes will be softer than what we expected a quarter ago, because obviously again.
Speaker Change: Have that ability to put back production without adding anything they still have a couple of million barrel of spare capacity right.
Speaker Change: Okay.
Speaker Change: <unk> enough to offset the declines at least in your business for the second half of the year and everybody's got a different mix I'm just kind of curious about your own mix and how I know, there's a bunch of contract awards awaiting launch for US how does that sort of factor in June the.
Speaker Change: The mix of your business and savvy. So would you is that part of the reason why you're expecting to outperform in the market.
Speaker Change: Yeah, I mean, obviously, we are more exposed to gas and more exposed to regulus and thats not being affected so far at the unconventional as you rightly said is going to be a huge catalyst.
Speaker Change: So depending on the award.
Speaker Change: Yes definitely people some people will really outperform and some were not so if a company is not in the gas at all or is that an unconventional they will definitely see almost a 20% drop year on year right. So we believe that we will be in a solid position overall and then it will be seen obviously with.
Speaker Change: The tender results, but we still believe that Saudi will grow year on year.
Speaker Change: And those tend to those tender results when should we be expecting to see those should those peak next quarter.
Speaker Change: Next quarter, yes, yes, sorry, if I could if I could add one more in here here for Stefan.
Speaker Change: Stefan I noticed the margins came down a bit more in first quarter I recognize the seasonal component here.
Speaker Change: But you also talked about right sizing the cost structure of reallocating equipment.
Speaker Change: Just curious how much is that weighing on kind of margins today and can you get back to 25% margins by year end and I'm just kind of curious looking at last year's market share progression versus this year can you get back to those same margins or is that going to take away a bit more time location, where the cost structure out. Thank you.
Speaker Change: Hi, David Yes, it will take more time right. We will not we will not get back to Nick's at right at 25% right I would say that for the full year, we will probably be maybe 100 to 200 basis points less right.
Speaker Change: What we what we ended.
Speaker Change: <unk> with <unk>.
Speaker Change: Going to the.
Speaker Change: The cost reduction right.
Speaker Change: But we're looking at probably should add 100 to 150 basis points to our results from them.
Speaker Change: Q1.
Speaker Change: Okay. So you think you can kind of recover that in 2006 is that what you mean by that.
Speaker Change: I'd say our goal is to recover to get back to 25% and 26.
Speaker Change: Thank you. Thank you very much guys. Thanks.
Speaker Change: Thanks.
Speaker Change: Thank you. Your next question is coming from Arun Jairam from Jpmorgan Chase. Your line is now live.
Speaker Change: Yeah.
Arun Jairam: Yes, good morning team.
Speaker Change: Sharon if you characterize what youre seeing is a resetting of the cycle with a market in transition.
Speaker Change: I was wondering if you could comment on.
Arun Jairam: How are.
Arun Jairam: Youre seeing pricing trends.
Speaker Change: Broadly within the middle East and maybe.
Speaker Change: In how the.
Speaker Change: The reduction on the conventional activity in Saudi is impacting just overall trends in pricing.
Speaker Change: Thanks, everyone. So look.
Speaker Change: As we have seen before large tenders.
Speaker Change: With the long cycle or longer duration.
Speaker Change: Thanks to get.
Speaker Change: Yeah, I would say less disciplined let's put it this way right and so.
Speaker Change: So if you get the big contract that is going to be defining for some.
Speaker Change: Our countries, Yes, you will see some pricing drop definitely the expectation as we go along the cycle similar to 15 and 16 are the.
Speaker Change: The tenders that are coming out are going to get softer right. So the pricing people win because youll have some capacity people will start to get nervous. So then youre going to get some pricing loss right.
Speaker Change: I keep saying that before the middle East never had a pricing gain anyway. It was a slightly a bit gain because all of these contracts are characterized by long time.
Speaker Change: And the cost and you are not big chunk of the cost of the production per barrel right. So they don't tend to do slash the pricing like they do in the U S. So I would say this pricing will get overall softer than asics.
Speaker Change: <unk> 24.
Speaker Change: Got it got it okay.
Speaker Change: And maybe you could elaborate on your growth opportunities within two eight it sounds like you're tendering for a lot of.
Speaker Change: Upcoming work, but give us a sense of.
Speaker Change: What specifically you're seeing that market I assume that's what's supporting your expectations of year over year revenue growth in 2736.
Speaker Change: Yeah, I mean, obviously again the size the size matters. So our sites is again relatively much smaller than the big three so.
Speaker Change: Some of the greatest basically tendering everything extending the entire ecosystem of our contracts because definitely.
Speaker Change: They they're going to be almost the rig count in Kuwait will be the same like Saudi right. So they have to add capacity. They have to have new players. They have to make sure that they have another five years of contract assigned so we already tendered several of those and.
Speaker Change: We announced couple in a couple of coming on the way as well.
Speaker Change: And then we are tending everything so that's meaning cementing coiled tubing fracturing direction drilling thru tubing testing everything.
Speaker Change: Single business in Kuwait has been tendered and all these tenders will be done by the end of the year.
Speaker Change: So if you look back at our size as NES, we didn't even exist five years ago. So now we have a very strong position and I think that's why I keep saying I think by next year. This will be our second largest country and obviously, if we win much more than we can even accelerate that growth.
Speaker Change: And the other countries are tendering as well right. So we have several tenders going around.
Speaker Change: And definitely the biggest one is the Saudi Arabia unconventional.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Thank you. Our next question today is coming from Greg Lewis from <unk>. Your line is now live.
Speaker Change: Thank you and good morning, everybody and thanks for taking my question I was hoping you kind of made some comments around.
Speaker Change: Yeah.
Speaker Change: Several million dollars of contracts in North Africa.
Speaker Change: Just kind of curious how we should be thinking about the potential timing of some of those contracts coming coming to fruition and then maybe whats kind of like a like a decent what would you kind of characterize as a success in bidding on those realizing Dolby somewhat competitive I E. Do we think we can win on that.
Speaker Change: A third of those are just trying to understand a little bit better what's happening in North Africa and the timing.
Speaker Change: So sure.
Speaker Change: Most clients actually use always the downturn.
Speaker Change: Opportunity to tender right, because obviously smart right. They know that everybody's hungry everybody wants to get a piece of the contract. So North Africa is no different the only thing. Obviously is there is a time when the contracts expire and then they tenders. So if you look at a bit more.
Speaker Change: Specifically like for example, Algeria is very very fixed with timing they have like a tender board bausch them et cetera, and all these things are happening as we speak so to answer the question. The second half all these contracts would be awarded so youre talking about in the next.
Speaker Change: Quarter, we will know exactly our position.
Speaker Change: How much you've got more how much you've got less and then the stuff that you are not part of it now which is again, that's why I keep trying to explain your small size matters, if you're at 10% of the market and you win 25% contract that means you're going to grow definitely because you're going to drive through.
Speaker Change: The 25% market share overall, right and that's our aim as some of these countries that you get to the sizable position.
Speaker Change: So I would say second half you would see a lot of these awards happen, Inc, and if I, if I move to Libya, which is a country where security is always obviously is the biggest hurdle, but the capacity of the services very small or very limited.
Speaker Change: And the country always since the beginning of the year, especially they aim to increase their production capacity to go to $1 6 million barrel. So they went from 800 to one two to one four now that image at one six and the target is 2 million barrel in three years to be able to do that they need to add rigs they need to add capacity.
Speaker Change: They need to add frac crews they need to add coiled tubing.
Speaker Change: Cementing services downhole tools. So all this needs a lot of services. So it's actually not the tender is not the biggest hurdle is actually the capability of people to get equipment into Libya and be able to operate there within the security framework, which is obviously we are.
Speaker Change: We are aiming to do that and we already have a couple of new segments in the country.
Speaker Change: They working that's Denver that existed before so Olivia for Raj, it's not going to be an incremental it's going to be doubling right. So we should double and triple the size of the company because it was very very small there right and but the country is going to invest heavily Egypt is more of a stable very very stable.
Speaker Change: I don't think we're going to have a very big Ah.
Speaker Change: Or down, but we are to stable our market share position is quite strong now and we aim again to win an.
Speaker Change: Our fair share of contract. So if I look at North Africa overall definitely I would say, we can double our market share as a percentage by next year.
Speaker Change: Super helpful. Thank you very much.
Speaker Change: Okay.
Speaker Change: Thank you next question today is coming from Derek <unk> from Piper Sandler Your line is now live.
Speaker Change: Hey, good morning, I, just wanted to maybe expand on your comment around never Miss an opportunity for a downturn and what that could mean for your future portfolio. So recently, we've seen jv's form with a large diversified players as they optimize their portfolio <unk> Baker and cactus yesterday, the surface pressure control Schlumberger are not drilling.
Speaker Change: The middle East land rigs in Oman and Kuwait.
Speaker Change: Maybe first I wanted to get your take on these types of deals that we're seeing what it means for the middle East region and also could this be a potential structure necessary pursues as you think about scaling your overall business in the region.
Speaker Change: Yeah, I mean, obviously I cannot tell you exactly what you're going to do but we have plan but.
Speaker Change: I would say when you have this a downturn I think first of all our self we counter invest so we actually we are investing heavily into the cycle, because we know that our middle east will be strong, but the sentiment will be negative, but we're going to invest heavily and then adding capex I think equip.
Speaker Change: Meant minnow some contracts that we have we can gain significant market share where people have no access to that market. So I would say some of the the move that you see lately is people buying access to the middle East and sometimes not in a very in a very price you wait I don't we don't need to do that we have the best position.
Speaker Change: In the middle East in terms of relationship and market footprint. So now for US is really to make sure that we knew which clients are investing which clients are growing which we know very very very well and we have the core base of contracts and the <unk>.
Speaker Change: Infrastructure to add service. So for example, if we have like we say one of the countries like for example in in in Kuwait, where basically we know that we are tendering a lot of contract we need to have like a very solid infrastructure. In this country is going to grow 5%, 6% can I.
Speaker Change: Grew 25% right can I get all these contracts and invest and be a very serious player in multiple segments and thats. Our plan because we have the infrastructure now we have a very good.
Speaker Change: Our relationship with declines and Thats basically when I say when everybody else is shrinking and everybody else's cutting everybody else's finding people, we are going to invest and grow. So then we are going to be a counter cycle to the middle East. So I see that this is an opportunity for us in the next 12 to 18 months to be.
Speaker Change: <unk> market share player and we always said we want to be clear.
Speaker Change: Top three in every segment in the countries, where we operate which is similar today, we have three or four segments, where we are almost number one in the middle east as the market positioning and that's our aim in this cycle.
Speaker Change: Great I appreciate all the color that's it for me I'll turn it back.
Speaker Change: Thank you. Your next question is coming from Sarah <unk> from Bank of America. Your line is now live.
Speaker Change: Hey, good morning, guys see defense defense.
Speaker Change: Good morning, Marty.
Speaker Change: Good city for it.
Speaker Change: Contrasting how you talk about a downturn resetting of the cycle, yet necessarily growing and obviously a large part of it is market share investment in frontier technology, but just to help us compare and contrast, a purely for the scale of your outperformance maybe talk a little bit to the underlying market, what's going on maybe you want to talk middle East.
Speaker Change: Broadly, Saudi specifically, however, you want to address that but maybe just compare and contrast, the overall market versus necessarily just to help us understand the scale of your outperformance.
Speaker Change: Yes, sure I mean.
Speaker Change: As I explained in my in my prepared remarks, the GCC overall will be stable to slightly up.
Speaker Change: Except Saudi that is going to be done that's in a nutshell.
Speaker Change: The story in North Africa, and Iraq will be stable to up so overall market in the middle East will be up but it's not going to be up as we said before or as expected before before the oil price drop and the whole tariff and geopolitical we said, there's going to be 6% to 8% and we can double that I think that the middle east overall will be like flu.
Speaker Change: <unk> dish.
Speaker Change: Because of obviously the size of Saudi that is different to all the others and I think if.
Speaker Change: If I talk more specific and please.
Speaker Change: Then Kuwait is definitely going to be the biggest growth year over year because of the added rigs and added capacity because they want to go to the $4 million by 2040. The other guys are almost at the reach of the capacity. So then they are just going to add some activity and some others will be totally flat stable without the.
Speaker Change: Only one that is really dropping rigs in Saudi because they can right. They have the capacity. They can produce another 2 million barrel without doing anything right. So.
Speaker Change: Except the unconventional project that is going to grow and that's the really the characteristic over all the countries.
Speaker Change: I think the one that is a kind of some of the wildcard will be the security related countries. So Libya is a very again very aggressive.
Speaker Change: Aggressive growth target.
Speaker Change: Depending on security depending on the geopolitics this plan might get pushed back but what we are planning that to go full on as if nothing is going to disagree.
Speaker Change: Security will be fine, we know how to operate obviously in a tight situation different than others, which is give us.
Speaker Change: The advantage of knowing the place inside out.
Speaker Change: That's if you have more specific obviously I can dwell on it but I think I don't want to just to repeat the prepared remark, but I would tell you that the unconventional Kuwait will be the strongest growth year over year and if the market in the middle East overall, you can say, it's 2% to 3% maybe.
Speaker Change: Flat to 3% up.
Speaker Change: And Thats why we are confident we can still easily obviously double that treat and make much more depending obviously on the contract award that we would know in the coming quarter between Kuwait and Saudi in North Africa.
Speaker Change: Okay perfect no serious I think I've got it rates are flat to up a little bit and you should be should be growing at double that rate right. That's the that's the expectation. So that's how you were outperforming it perfect and then just a quick follow up Sharif on obviously, Saudi is seeing some pressure, but kuwait on the other hand, it's probably the best market UAE is growing how easy is it shrink.
Speaker Change: For you or for the industry in general to move capacity equipment from let's say in this case, Saudi going down rigs or what.
Speaker Change: Other service capacity from let's say, Saudi I'm using that as an example to quit rates or how easy or not is there to move capacity from one country to the other within the middle East.
Speaker Change: Yes.
Speaker Change: Very easy.
Speaker Change: So with estimated eight it's very easy, obviously again, I keep saying that for the people that northern Middle East is very easy for the people that do not know the middle East is very complex.
Speaker Change: I like it.
Speaker Change: We want someone in the U S that does not not the middle East, it's an impossible task right. It's almost like a very very hard for us. It's a matter of couple of weeks.
Speaker Change: Is that so now the.
Speaker Change: Key for us.
Speaker Change: As we said is you know you have to have a base of contracts you have to have.
Speaker Change: All the legal entity, the infrastructure or the approval et cetera. So I think newcomer to the middle East is impossible now.
Speaker Change: I put it this way it is.
Speaker Change: The current players.
Speaker Change: In there and the people that know the place inside out and Thats why I go back to our strategy of being open platform for innovation.
Speaker Change: A lot of partners so.
Speaker Change: Today for the some of the work that for example, we are doing in Kuwait with inhibition Valley and some of the pilot project, we are talking to dozens of clients and partners.
Speaker Change: The U S. We know that they have very good stuff that would work in that field and obviously here as they call. It. The marriage is a very simple one because I have the infrastructure I have the contract I have the facility. They have a unique technology, let's say than in Canada or the U S.
Speaker Change: Our Europe I bring that over there they don't need to spend any money on because they have everything and then a secured the contract and then we share. So this is a very good model for me because I don't need to invest in the technology and a very good model for them because they do if they cannot even operate there it's almost impossible. So more of these and Thats why we are.
Speaker Change: Quite I.
Speaker Change: I would say confident and happy to enter this market.
Speaker Change: With a fast pace and we can mobilize equipment from U S with the downturn happening.
Speaker Change: And I think the U S is going to get much worse. So there will be a lot of equipment available to.
Speaker Change: To mobilize and obviously if you have a partner you can mobilize it easily so that's that's really our our whole aim and then again I say back Mis don't Miss the opportunity of a downturn because that's the opportunity I get all this equipment I can mobilize it and delivered without spending capex or technology, and then I just need to secure the contracts.
Speaker Change: Which we are working on.
Speaker Change: Right right no that's fantastic color Sherif has done it back thank you.
Speaker Change: Thanks, a lot. Thank you next question today is coming from Jeff Robertson from water Tower Research. Your line is now live.
Jeff Robertson: Thank you good morning, Sharif with respect to ROI or can you talk a little bit about.
Speaker Change: Progress toward further commercialization and really where do you see the greatest opportunity for contract awards or that platform over the next couple of years that would be incremental to the ones you've already announced.
Speaker Change: So our our route.
Speaker Change: Our platform is let's put it this way we have three.
Speaker Change: Distinguished.
Speaker Change: Technology and WT SWT in Rss. So I think we're going to commercialize first our <unk>, which as you know, it's basically enabler to be able to do the other services, but as well.
Speaker Change: Then we stop renting or taking some of our partner stuff and then you have the LW did the logging while drilling which commercialized after an artist as well what we call. The deliberate extensive testing. So today, we have contracts in three countries.
Speaker Change: Saudi Oman and Kuwait.
Speaker Change: Honestly I do not we are not planning to have more contracts in the in the short term because what we want is we want to do the deliberate testing of all these extensive commercialize them and run. These three content professionally. These are plenty of services for us before we go.
Speaker Change: And you know in scout for others. So today, we get some invitation from other obviously, we can a tender, but we want to deploy <unk> into those three countries to make sure that the two large commercial a reliable are credible and then we have a track record just to give you numbers again for people to understand this is a couple of billion.
Speaker Change: Our market so for us to take 5% or 10% of that is quite significant for us right and that's why it's a homegrown.
Speaker Change: <unk> technology, which is the only thing really.
Speaker Change: Our investing in and Thats, why as a technology or R&D. Besides the <unk> story, and we need to make sure that this is properly commercialized today, we are in what I call. The extensive testing phase, which is basically we run the tools. We ran a lot of it so we like we do.
Speaker Change: In Saudi we did in Oman, we get back the tools, we do something called disruptive that we break them basically to know what is the footage was the reliability and then we put them back maybe we do some little design changes like change of thread or make something stronger sandbagged it to do this.
Speaker Change: Thing come back and then that's why we call it as a committee.
Speaker Change: I don't call it commercial some people other some other people call commercial we do not like to call. This commercial we'd like to call. It commercial when it when I call. It it's a trouble free or it is no does not cause any nonproductive time and it just that become matter of an industry normal efficiency 90, 998%. So.
Speaker Change: We hope to reach that by the end of the year, while we are deploying and running all these tools on these contracts.
Speaker Change: Thank you and with respect to neither can you talk about where you are in the pilots that you mentioned.
Speaker Change: Minerals pilots and is demand for those types of services being driven by the push in the region for unconventional.
Speaker Change: Development and the need for produced water handling.
Speaker Change: I would say okay.
Speaker Change: I will answer your second question first no. It is not it is actually I have to say the nanda is kind of.
Speaker Change: Like the creation of a market it's not a market that exists is we are creating a market the need exist dramatically since years, but it just uneconomic right. So today. The word produces so much water and most have declined dumped at port right. The U S.
Speaker Change: That's exactly what you do in the U S. You just put it in disposable what's right, but today, if I can save the planet and make that water freshwater or usable water. Then we can do a lot of that in the middle East when we I keep saying it says scarcity of water and scarcity of Minera why can't we find.
Speaker Change: And economical way to do so which is to date for the last what now two years. We are testing we have a very successful.
Speaker Change: Pilot now we are going through the pilot of mineral recovery, which is happening as we speak.
Speaker Change: So that pilot is already in the country.
Speaker Change: And we are going to go in next month and put it on our site our client sites.
Speaker Change: And test continuously for six to 12 weeks.
Speaker Change: Then it becomes scale then we obviously determine the parameters of the menu how much minerals you get out of the of that produced water.
Speaker Change: What could you do with it can you get rare Earth can you sell some.
Speaker Change: Some of those unique minerals and if you do that then the economics becomes massive and that's why.
Speaker Change: I'm Super excited about that because it's going to change the whole ecosystem, you'll not only making water, but you are making minerals youre selling those minerals youre, making rare earth you sell doors, you offset your entire cost than the water becomes like an.
Speaker Change: Free.
Speaker Change: So imagine you get the free water threep.
Speaker Change: <unk> produced water that you can use it for everything for obviously for unconventional as you mentioned for four other products even for agriculture for a lot of other reason then it becomes a real real story that is pure carpet and circle economy.
Speaker Change: Responsibility and economics works, because you make money.
Speaker Change: And definitely the driver as you have seen a joint venture between Saudi Aramco and neither in which is the largest.
Speaker Change: Companies in the world to make a joint venture to produce rare Earth minerals. So if we can make that then obviously we are on the same.
Speaker Change: Wavelength and in sync with our customer, which obviously makes everything much easier.
Speaker Change: Just a follow up are you seeing interest or at least other of your customers watching this project and is there a significant difference in <unk>.
Speaker Change: Water chemistry.
Speaker Change: Between the countries that would make.
Speaker Change: For railroads recovery more attractive in one country versus another.
Speaker Change: Everybody is watching right. So obviously everybody is watching and that's why I used the word contingent so if this.
Speaker Change: The success of that pilot and the work is.
Speaker Change: It is clear Hello, everybody is going to jump on it we will not even have capacity to service this but which is a good problem to have now the key is to make it economically.
Speaker Change: Now for the water.
Speaker Change: Your other question no. It's very different it's very different from the minerals. The waters like produced water is like bat everywhere. I mean, it is like 200000 300000 portico per million, but some is purely solved. So then the sodium is like very low.
Speaker Change: Our price so the economics becomes harder than others. That's what you really look for if you do the same thing you do in the Permian and that's exactly what people look forward again, you have some lithium can you have some Brian.
Speaker Change: Earth minerals that can sell and make money to offset the cost and then it becomes economical or you make a lot of money obviously when the lithium was $10000 everybody was happy that dropped a bit but it's still economic to two.
Speaker Change: Make it.
Speaker Change: Thank you.
Speaker Change: Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Shirley for any further or closing comments.
Speaker Change: Thank you very much we are again, we are excited about the cycle. We are excited to be a differentiated story among others and looking forward for the coming quarter and years. Thank you very much.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Speaker Change: Yeah.