National Energy Services Reunited Corp. Q1 FY2025 Earnings Call

Greetings, and welcome to the NESR Reports First Quarter 2025 Financial Results Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Blake Gendron, Vice President, Investor Relations. Please go ahead, Blake.

Thanks, Kevin. Hello, and welcome to NESR's First Quarter 2025 Earnings Call. With me today are Sherif Foda, Chairman and Chief Executive Officer of NESR; Stefan Angeli, 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. 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 the results to differ materially from those projected in these statements. I therefore refer you to our latest earnings release filed earlier today and other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is on our website. Finally, feel free to contact us after the call with any additional questions you may have. Our Investor Relations contact information is available on our website. Now I'll hand the call over to Sherif.

Thanks, Blake. Ladies and gentlemen, good morning, and thank you for participating in this conference call. First, I would like to thank the entire NESR team for delivering the services 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 winds have shifted immensely since the start of the year. As we have seen many times in our industry, the cycle is resetting, and we, at NESR, are preparing to seize the many opportunities that could emerge in the coming 12 to 18 months of market transition. As we say, never miss 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 oil cycle reset, we have all been here before. In fact, this is my fourth time navigating such an environment. From what I can see, the combination of pessimism around oil demand and the unwind of spare oil supply is much like the setup for the 2015-2016 cycle reset. On the oil demand side, global geopolitical tension and trade uncertainty continue to weigh on economic growth that was already fragile coming into the year. On the oil supply side, non-OPEC and particularly U.S. production remained resilient in the face of rig and frac activity declines, at least for the short term. Given continued activity reduction in the U.S., we expect to see an impact to non-OPEC production in the coming 12 months, despite pockets of growth in places like Guyana and Brazil. As they have announced, OPEC has decided to gradually bring back previously curtailed barrels. This dynamic remains the wild card in framing the downside case for oil prices, and I suspect the commodity market will remain unhedged for the time being. Now, what does that mean for activity in the MENA region? For the GCC, it is not the same answer everywhere. Saudi Arabia remains the key player with maximum sustainable capacity and therefore can reduce drilling activity with negligible impact to oil production. Those that are new to the industry may not fully appreciate this dynamic; it is unique to the kingdom. In other words, they can cut rigs and still raise production by even several million barrels if they choose to do so. Today, we believe that without the strong growth of unconventional activity, the Saudi market would otherwise be down in '25. On the other hand, Kuwait is pushing ahead on growth despite lower oil prices; characteristic of the long-term strategic vision. They put a 2040 plan in place and are executing it, so we will see added rigs and services in the coming quarters and years. Furthermore, they have launched innovative commercial models for risk-sharing. Growth in this area will be additive to the expected standard service market. UAE and North Africa will grow as well. As of today, we have seen negligible activity impact from lower prices. The rest of the countries have been and are expected to remain stable. While a materially lower oil scenario would likely impact all of these countries, it is important to remember two key themes: one, the MENA region represents the lowest breakeven cost for oil globally; two, upstream remains a highly strategic sector, if not the main, in all of the countries in which we operate. Now, let me discuss our strategic approach over the next 12 to 18 months, which is adapted from our long-term strategy to fit the current circumstances. As seen in previous cycles, we are moving to right-size the fixed cost structure and are using our agility to high-grade and reallocate variable cost resources to where the activity growth is. Despite the softness in the market, we anticipate that NESR will grow in '25 and in '26. Why? First, we are still relatively small and have a larger set of incremental contract opportunities from which to choose. Second, and perhaps more concretely, we have recently won multiple key contracts and are now in the planning phase ahead of anticipated mobilization. Let me elaborate more specifically. In Oman, we have a strong base of contracts and recently announced a number of incremental contracts in areas such as drilling and slick line, spanning five years. While Oman remains a stable market and is already one of our top three countries in terms of size, we expect to grow. Opportunities to deploy our advanced directional drilling platform will drive the next leg of growth, and the latest win in slick line will enhance our drilling and evaluation performance and leadership position. Similarly, in UAE, a stable market with capacity approaching targets, we have won new contracts on top of the anchor contract previously secured. Therefore, we have clear visibility for the coming couple of years. 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 multi-year contracts across several segments. Given our size and momentum, we should outgrow an already robust growth market, and depending on the outcome of these tenders, could see Kuwait launch into the second biggest country within our footprint. Therefore, we are investing strongly in the country, including our recently announced Ahmadi Innovation Valley, which aims to mirror our successful technological launch of NORI in Saudi Arabia. We plan to bring a number of our technology investments and pilot cutting-edge solutions with our visionary customers as they move quickly to tackle key challenges in the next phase of capacity growth. We remain excited about North Africa despite the potential price sensitivity. With the 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. Geopolitical tension and security could delay the pace of award decisions and additional rig deployment, but we remain optimistic. Coming back to the fulcrum of the story and our largest country footprint, Saudi Arabia, despite the softening outlook, I'm confident that we will weather the storm. Because, one, we remain relatively small compared to competition and are favorably exposed to secular gas growth. Two, we have numerous projects and initiatives that elevate our profile as nimble technology providers. 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, directional drilling, machine reduction, and geothermal. With that lead into technology, let me conclude by providing an update on our key growth frontier. Our advanced steel rotary steerable has undergone extensive field and facility testing, and we are moving new tools to Oman to continue the next phase of the commercialization journey. As we communicated before, the entire rollout and particularly the rotary steerable, is designed to be conservative, deliberate, and with utmost focus on reliability and continuous improvement. We are commercializing with the long term in mind, and testing footage drilled is the key metric. Extensive testing, calculated deployment, and well-timed commercialization will help us maximize the success of the platform in collaboration with our key customers. Shifting to our process in recent months, we've mobilized crucial pilot projects in multiple areas of mineral recovery with several exciting opportunities in rare earth mineral extraction. These pilots are important in boosting the overall economics of produced water treatment. Beyond the need for the vision to recycle its own water and eliminate freshwater use, we have active client engagement with our key customers, and the success of the ongoing pilots will be critical to others. More updates to come in the coming quarters. Overall, while we would prefer an expanding market for all, I'm excited about our differentiated story. We cannot control the commodity cycle but can drive relative performance within any market framework. We started NESR principally as a pure-play service provider in the best geography for upstream activity. I am confident that this differentiation will come to the forefront in the coming 12 to 18 months. 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 horizons. We are as excited about the story as ever, both in terms of balance sheet and contract positioning to outperform. With this, I will pass the call to Stefan to discuss the financial details.

Thank you very much, Sherif. 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. I am very pleased to give an update on our financial performance for the first quarter of '25 and our outlook for Q2 '25 and the full year of '25. 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 tariffs, higher inflation, and lower subsidies to developing countries, the ongoing war in Ukraine, and the overall geopolitical uncertainty in the Middle East have all led to lower oil prices and lower rig counts in certain countries. All this has impacted Q1 '25 results of the oilfield services sector, making forecast in the short-term outlook difficult. Despite all of this, as Sherif highlighted in his market summary, most of the markets in the Middle East, apart from Saudi Arabia, were flat to up in Q1 '25 versus Q1 '24, and we continue to see this stability for the rest of '25 as it stands now. First, let's turn to Q1 '25. Our overall first-quarter revenue was $303.1 million, which was up 2.1% year-over-year, outpacing the broader market, but was down 11.7% sequentially. Year-over-year, there was growth in Abu Dhabi, Algeria, Kuwait, Iraq, and Libya, partially offset by a slow start to the year in Saudi Arabia. The sequential decrease in Saudi Arabia was mainly due to slowdowns in our main project because of Ramadan. Now turning to adjusted EBITDA. Adjusted EBITDA for the first quarter of '25 was $62.5 million with margins of 20.6%, down 100 basis points on a year-over-year quarter basis. This is mainly due to the slowdown in specific project activity in Saudi Arabia in March because of Ramadan. Interest expense for Q1 '25 was $8.3 million, and Q1 '25 tax was $3.3 million, which implies an effective tax rate of 24%. Turning to earnings per share, EPS adjusted for charges and credits was $0.14 for the first quarter of '25. The charges and credits of $2.6 million impacting adjusted EBITDA and adjusted EPS was the lowest for many periods. They were made up primarily of two items in Q1 '25 as follows: cost of remediation and material weakness controls, which should moderate dramatically from now, and an impairment of a small investment. Now turning to our cash flow and liquidity, which has been very strong over the past several years. Our cash flow from operations during the first quarter of '25 was $20.5 million. The headwinds to cash flow generation were mainly driven by a sharp increase in our DSO in Q1 '25 as Ramadan closed most of our client offices for the last week in March. The free cash flow for Q1 '25 was negative $9.6 million with CapEx at $30 million as we continue to front-end load our growth in technology deployments. As of March 31, our gross debt was $366 million, and our net debt was $288 million. Our net debt to adjusted EBITDA was 0.93, which remains below the 1x target for a third consecutive quarter. On a trailing 12-month basis, our return on capital employed, or ROCE, was 11.3%, concurrent with our robust growth investment strategy. We expect Q2 '25 revenues to grow sequentially versus Q1 '25 but moderate on a year-over-year basis as key project timing is now expected to be more back half weighted. The Q2 '25 growth will be approximately half the growth rate of Q2 '24 versus Q1 '24. Despite the overall headwinds in rig releases in Saudi Arabia for our full year '25, we expect revenue growth due to our recent contract wins and successful technology deployments that Sherif previously highlighted. Margins for Q2 '25 should slightly improve on Q1 '25 with modestly higher revenues and the impact of our cost reduction program initiated in April. We do not expect to be impacted materially by the U.S.-China tariff stories. Full year '25 interest should be around $30 million, and full year '25 ETR should be in the mid-20s as previously outlined. CapEx for the full year '25 will be in the vicinity of $125 million, as previously outlined, which may go slightly up depending on the results of some large tenders that obviously will impact revenues in the future years. Now on to housekeeping topics. We spent the better part of the last two-plus years reshaping our back office and the company overall with new updated processes, procedures, controls, as well as implementing the latest software upgrades to our ERP system. As you know, in '24, we remediated 3 of our 4 historical material weaknesses, and we're still confident that the last one will be remediated in '25 as most of the work has already been done and tested. Two comments on capital allocation: the company is going through a tender process to convert its outstanding warrants into equity on a 1 share to 10 warrant basis. The company anticipates that this will be completed over the coming months as it goes through its regulatory processes. The warrant conversion is to clear up the capital structure and remove the overhang originating from the SPAC. For the short-term future, due to market volatility, the company will continue to use its excess cash flow to pay down debt. 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 capital allocation alternatives, including returns. We'll provide further updates on this topic as the year progresses as we continue to receive and discuss all investor feedback. The outlook for most of the Middle East and North Africa region remains favorable as we've just outlined. Upstream spending remains durable, and NESR continues to be focused on its stated goals of delivering profitable revenue growth, execution efficiency, technology expansion, debt reduction, and working capital efficiency to drive future financial performance. 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 of NESR continues to look good. Now I'll turn the call back to Sherif.

Thanks, Stefan. Let me conclude by reiterating the key takeaways from the quarter and our outlook. First, while the market came into the year with extremely low expectations for the sector, and while the commodity backdrop remains uncertain, we believe that MENA upstream activity will remain a relative bright spot for growth. The gas development theme is central to this view. Although competitive contracts in our business bring multi-year visibility to the company and overall profitability remains healthy as the sector remains disciplined. We expect '25 to follow the same seasonal pattern as did in '24, with the first quarter being the slowest impacted by fewer operating days and the full month of Ramadan in March, followed by a slower sequential activity build through the year. Overall, our '25 growth outlook for NESR relative to the market remains unchanged. Second, with the solid MENA backdrop, NESR is extremely well positioned to outperform due to: one, favorable project exposure, particularly related to the broad gas development; two, our strategic positioning in areas such as Kuwait, which are expected to lead the growth on a percentage basis. Third, our frontier technology growth leg remains on track with pilot success in Rua now duplicated in other countries and our unique NEA positioning and investment in produced water mirroring the announcements and commitments recently made by our largest customer and cross-industry partner. Whereas ROA is expected to be a more linear driver of growth from here, our produced water business represents massive potential that is being defined in real time but nevertheless remains a long-term strategy with expected catalysts this year. I'd like to close by thanking all our employees and their families for their strong resilience and a solid start to the year, and wish them a happy Eid that is just around the corner. And thank our partners, shareholders, and valued customers for their continued support and belief in NESR. And with that, I'd like to pass over the call to the operator for your questions.

Our first question today is coming from David Anderson from Barclays.

So as you said during your remarks, there's always been a disconnect between upstream spending in Saudi Arabia and volumes OPEC adds or subtracts to the market. But I'm just wondering if this feels a little bit different this time. We've seen Saudi Arabia cutting oil rates for most of last year while keeping supply out of the market. And now this year, we're starting to see barrels coming back. And I'm wondering how you think this sort of interplay with upstream spending now kind of going forward here. It sounds like you're expecting the market to soften up a little bit more here. I'm just wondering, are we getting close to the study rig floor, and would we see Saudi activity in the second half of the year pick up if you add in unconventionals? And should you continue to see growth into '26? Just a little help in terms of what we're seeing on the ground here in Saudi.

Thanks, David. So if you split Saudi Arabia into two categories, which are unconventional on its own and the rest of the country, which is basically oil and gas, offshore and onshore, this will continue to drop. So you're going to experience a softening. I don't think they're going to pick up anything in the second half of this year. I would see, obviously, depending on how much oil they produce and how much production they would need, then you might see rigs being picked up in '26. On the unconventional front, it's progressing as planned; no difference whatsoever. They are increasing rigs. They added more rigs; they're going to add frac crews, and that plan is intact. It's untouched; thus you're going to see an overall drop in oil rigs, more drop of even conventional gas breaks and then potential increases in conventional. So overall, Saudi Arabia is softer than what we expected a quarter ago. Because, obviously, again, they have that ability to put back production without adding anything. They still have a couple of million barrels of spread capacity, right?

Is there enough to counterbalance the declines, especially in your business for the second half of the year? Each company has a different mix, and I'm curious about your specific mix. I know there are several contract awards pending for Jafurah. How does that influence your business in Saudi Arabia? Is that one of the reasons you're anticipating better performance in the market?

Yes. I mean, obviously, we are more exposed to gas and more exposed to Regulus, and that's not being affected so far. The Jafurah field, as you rightly said, is going to be a huge catalyst. So depending on the award, yes, definitely, some companies will really outperform and some will not. So if a company is not in gas at all or it's not 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 that will be seen obviously with the tender results. But we still believe that Saudi Arabia will grow year-on-year.

And those tender results, when should we be expecting to see those? Should those be next quarter?

Next quarter.

If I could add one more point for Stefan. Stefan, I noticed that the margins decreased a bit more in the first quarter. I understand there are seasonal factors involved. You also mentioned adjusting the cost structure and reallocating equipment. I'm curious about how much this is impacting margins today. Can you return to 25% margins by the end of the year? Looking at last year's margin trends compared to this year, will you be able to achieve those same margins, or will it take additional time to rearrange the cost structure?

Yes, it will take more time, right? We will not get back to an exit rate of '25, right? I would say that for the full year, we will probably be maybe 100 to 200 basis points less than what we ended last year with. Regarding the cost reduction, right, the amount that we're looking at probably should add 100 to 150 basis points to our results from Q1.

Do you think you can kind of recover that in '26? Is that what you mean by that?

That's our goal: to recover to get back to 25% in '26.

Next question is coming from Arun Jayaram from JPMorgan Chase.

Sherif, you characterize what you're seeing as a resetting of the cycle with the market in transition. I was wondering if you could comment on how you're seeing pricing trends broadly within the Middle East and maybe how the reduction in conventional activity in Saudi is impacting overall trends in pricing.

Thanks, Arun. So look, as we have seen before, large tenders with a long cycle tend to get, I would say, less disciplined, let's put it this way, right? So if you get a big contract that is going to be defining for some countries, yes, you will see some pricing drop. Definitely, the expectation is that, as we go along the cycle similar to '15 and '16, the tenders that are coming are going to get softer, right? So the pricing people will experience some pricing loss, right? But I keep saying that before, the Middle East never had a significant pricing gain anyway. It was slightly a bit of gain because all these contracts are characterized by being long-term, and you are not a big chunk of the cost of the production per barrel, right? So they don't tend to slash the pricing like they do in the U.S. So I would say this pricing will be overall softer than '24.

Got it. Got it. Okay. And maybe you could elaborate on your growth opportunities within Kuwait. It sounds like you're tendering for a lot of upcoming work, but give us a sense of what specifically you see in that market? I assume that's what's supporting your expectations of year-over-year revenue growth in '25 and '26.

Yes. I mean, obviously, again, size matters. Our size is relatively much smaller than the big three. So, Kuwait is basically tendering everything, sending the entire ecosystem of contracts because they're going to have almost the same rig count in Kuwait as in Saudi. They have to add capacity. They have to have new players. They have to ensure that they have another five years of contracts assigned. So we have already tendered several of those, and we announced a couple and a couple are coming on the way as well. And then we are tendering everything: cementing, coil tubing, fracturing, direction drilling, through tubing, testing, everything. Every single business in Kuwait is being tendered, and all these tenders will be done by the end of the year. So if you look back at our size as NESR, we didn't even exist five years ago. Now we have a very strong position. I keep saying, I think by next year, this will be our second largest country. And obviously, if we win much more, then we can even accelerate that growth. The other countries are tendering as well, right? So we have several tenders going around. And definitely, the biggest one is Saudi Arabia's unconventional projects.

Our next question is coming from Greg Lewis from BTIG.

Sherif, I was hoping you could make some comments around several million dollars of contracts in North Africa. Just kind of curious how we should be thinking about the potential timing of some of those contracts coming to fruition, and then maybe what's kind of like a decent, what would you kind of characterize as success in bidding on those realizing will be somewhat competitive, i.e., do we think we can win?

Most clients tend to take advantage of downturns to submit tenders, which is a smart move since many are eager to secure contracts. North Africa follows this trend as well. However, contracts have specific expiration dates, after which tenders are issued. For instance, in Algeria, timing is particularly strict, with a tender board and other processes already in motion. To address your question, we expect many contracts to be awarded in the second half of the year. By next quarter, we'll have clarity on what we gained, what we lost, and our current involvement in the market. Our relatively small size is significant; if we hold 10% of the market but win 25% of contracts, it indicates definite growth as we aim for a 25% overall market share. We're focusing on establishing a notable presence in certain countries. In Libya, although security poses a challenge, production capacity is limited but is targeted to increase to 1.6 million barrels, with a long-term goal of 2 million barrels in three years. Achieving this requires adding rigs, expanding capacity, and increasing services. The main challenge isn’t the tendering process but rather the ability to deliver equipment and operate within the security constraints, which we are working towards. We already have some new segments active in Libya, which did not exist before. We anticipate a significant increase in our size in Libya due to the country’s heavy investment. Egypt presents a more stable environment; we don't foresee major fluctuations, but our market share remains strong, and we aim to capture our fair share of contracts. Overall, I believe we can double our market share percentage in North Africa by next year.

Next question today is coming from Derek Podhaizer from Piper Sandler.

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 JVs form with the large diversified players as they optimize their portfolios. We've seen Baker and Cactus yesterday, the service pressure control, Slumber today, ADNOC Drilling, the Middle East Atlantis in Oman and Kuwait. Just maybe first 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 NESR pursues as you think about scaling your overall business in the region?

Yes. I mean, obviously, I cannot tell you exactly what we're going to do, but we have plans. But I would say, when you have this downturn, I think, first of all, ourselves, we counter-invest. So we are actually investing heavily into the cycle because we know that our Middle East will be strong, but the sentiment will be negative. We're going to invest heavily without accumulating debt, focusing on adding CapEx and equipment. We know some contracts that we have can gain us significant market share where people have no access to that market. So I would say some of the moves that you see lately, where companies are buying access to the Middle East, and sometimes not in a very pricey way, we don't need to do that. We have the best position in the Middle East in terms of relationship and market footprint. Now for us, it's really to make sure that we know which clients are investing, which clients are growing, which we know very, very well. We have a core base of contracts and the infrastructure to add services. For example, in Kuwait, where we know we are tendering a lot of contracts, we need to have a solid infrastructure. This country is going to grow 5%, 6%, can I grow 25%? Can I get all these contracts and invest and be a serious player in multiple segments? That's our plan because we have the infrastructure and good relationships with every involved party. This is when I say that when everybody else is shrinking and cutting back, we're going to invest and grow, so that we're counter-cyclical to the Middle East. I see this as an opportunity for us in the next 12 to 18 months to be significant players in market share. As we always said, we want to be a clear top three in every segment in the countries where we operate. Today, we have 3-4 segments where we are almost #1 in the Middle East as a market positioning, and that's our aim in this cycle.

Next question is coming from Sara Pan from Bank of America.

Sherif, it's a little contrasting how you talk about a downturn resetting of the cycle, yet NESR is growing. Obviously, a large part of it is market share investment in frontier technology. But just to help us compare and contrast Sherif, 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 more broadly, Southeast specifically, however, you want to address that, right? But maybe just compare and contrast overall market versus NESR, just to help us understand the scale of your outperformance.

Yes, sure. I mean, as I explained in my prepared remarks, the GCC overall will be stable to slightly up, except for Saudi Arabia, which is going to be softer—that's the nutshell of the story. North Africa and Iraq will be stable to up. So overall, the market in the Middle East will be up, but it's not going to be up as we said before or as expected with the oil price drop and the whole tariff and geopolitical situation. Initially, we said it would be 6-8% growth, and we're going to double that. I think the Middle East overall will be flattish because of the size of Saudi being different to all the others. If I talk more specifically, Kuwait is definitely going to be the biggest growth year-over-year because of the added rigs and added capacity—they want to achieve 4 million by '2040. The other countries are close to their capacity and will only add some activity, while others will likely remain stable. The only country drastically reducing rigs in Saudi, because they can, is pivotal. They have the capacity to produce two million barrels without doing anything, right? So except for the unconventional projects that are going to grow, that's the characteristic across all the countries. The wild card will be security-related countries. Libya, again, has an aggressive growth target, depending on security and geopolitics; this plan might get pushed back. However, we are planning to operate as if the security will be fine. We know how to operate in tight situations different than others, which gives us the advantage of knowing the territory inside out. If you have more specific questions I can dwell on it, but I don’t want to repeat the prepared remarks, but I tell you the unconventional sector in Kuwait will be the strongest growth year-over-year, and perhaps the entire Middle East is flat to up about 2%-3%. That's why we are confident that we can easily double that rate and achieve substantial growth, depending on the contract awards we will know in the upcoming quarters between Kuwait and Saudi Arabia and North Africa.

Okay. No Sherif, I think I got it right—flat to up a little bit, and you should be growing at double that rate, right? That's the expectation—that's how you are outperforming. Perfect. And then just a quick follow-up, Sherif, on obviously Saudi seeing pressure, but Kuwait, on the other hand, is probably the best market. UAE is growing. How easy is it for you, or for the industry in general, to move capacity and equipment from, let's say, in this case, Saudi, going down rigs or other service capacity from, let's say, Saudi and use that as an example to Kuwait? Right? So how easy or not is it to move capacity from one country to the other within the Middle East?

Very easy. So within the Middle East, it's very easy. Obviously, again, I keep saying that—for people that know the Middle East, it’s very easy, but for people that do not know the region, it's quite complicated, which I like. For someone in the U.S. who does not know the Middle East, it's an impossible task; for us, it's a matter of a couple of weeks—simple as that. The key for us, as we said, is do you have a base of contracts? Do you have all the legal entities, the infrastructure, the approvals, etc.? So I think a newcomer to the Middle East would find it impossible; it's the current players there, and the people that know the place inside out. That's why I go back to our strategy of being an open platform for innovation. We have many partners. For some work that we are doing in Kuwait with Innovation Valley and pilot projects, we are talking to dozens of clients and partners. In the U.S., we know that they have good stuff for that field, and obviously, as I call it, the marriage is a very simple one—because I have the infrastructure, contracts, the facility here; they have a unique technology, let’s say in Canada or the U.S. or Europe, I bring that over there. They don't need to spend any money because I cover everything, then I secure the contract and we share. This is a very good model for me because I don't need to invest in the technology, and it's also a great model for them because they couldn't even operate there; it would be impossible for them. The more of these partnerships, I think will allow us to enter the market fast and efficiently, and we can mobilize equipment from the U.S. with the downturn happening. I believe the U.S. market is going to get worse, leading to a lot of available equipment. Obviously, if you have a partner, you can mobilize it easily. This is really our whole aim, and once again I reiterate—don't miss the opportunity of a downturn; this is the opportunity. I can mobilize this equipment, deliver without accumulating CapEx or technology, all I need to do is secure the contracts which we are actively working on.

Next question today is coming from Jeff Robertson from Water Tower Research.

Sherif, with respect to your technology platform, can you talk a little bit about progress towards further commercialization? And really, where do you see the greatest opportunity for contract awards for that platform over the next couple of years that would be incremental to the ones you've already announced?

So our technology platform has three distinct technologies, MWD, LWD, and RFS. I think we're going to commercialize first our MWD, which is basically an enabler to do the other services, but as well, then we stop renting or taking some of our partner's stuff. Then you have the LWD, the logging while drilling, which we’ll commercialize after an RSS (Rotary Steerable System) where we call it deliberate extensive testing. Today, we have contracts in three countries: Saudi Arabia, Oman, and Kuwait. Honestly, we are not planning to have more contracts in the short term because what we want is to focus on the deliberate testing of all these to commercialize them and run these three contracts professionally. These contracts provide more than enough services for us before we go and scout for others. To give you perspective, we’re talking about a couple of billion dollars market. Hence, capturing 5% or even 10% of that is quite significant for us. That is our homegrown technology, and it is the only thing we are really investing in alongside R&D. We need to ensure this is properly commercialized. Currently, we are in what I call the extensive testing phase; we are trialing the tools. A large amount of testing is done to break them to guarantee their reliability. We make slight design changes, send them back, repeat the process until we deem them commercially viable without causing any nonproductive time. We hope to reach that reliability by the end of the year while we are deploying these tools on contracts.

And with respect to critical minerals, could you talk about where you are in the pilots that you mentioned, and is demand for those types of services being driven by the push in the region for unconventional development and the need for produced water handling?

I would say—okay, I will answer your second question first. No, it is not. The demand is actually— I'd say it is more about creating a market; it’s not a market that exists; we are creating a market. The need exists dramatically for years, but it's just been uneconomic, right? Today, the world produces a vast amount of water, and most clients dump that pool. In the U.S., you just put it in disposal wells. But today, if I can recycle that water and make it usable, we can do a lot. Additionally, in the Middle East, I keep saying there's a scarcity of water and minerals; why can't we find an economical way to do so? For the last two years, we have been testing. We already have a very successful pilot. We are currently undergoing a pilot for mineral recovery, which is already happening. Next month, we'll set it up on the client’s side and continuously test for six to 12 weeks—then it will go into large-scale production. Once we determine the parameters for how many minerals could be extracted, we could yield rare earth minerals which have substantial market value, offsetting costs—to imagine producing freshwater at no cost. This emphasizes economic potential and responsibility for environments; it’s a great chance to earn business while being environmentally friendly. Definitely, there are recent announcements of joint ventures between Saudi Aramco and top players worldwide to produce rare earth minerals. If we can make this successful, we are aligned with our customers, making overall operations smoother.

Are you seeing interest or at least other customers monitoring this project? And is there a significant difference in water chemistry between the countries that would make potential rare earth recovery more attractive in one country versus another?

Everybody is monitoring, right? Everyone can see the potential; that's why I use the word contagious. If this pilot and the work are successful, everyone's going to jump in; if we scale it right, we won't even have the capacity to service them, but that’s a good problem to have. Now, regarding the water, in terms of mineral extraction, water chemistry will vary. Produced water isn't consistent worldwide—it often has around 200,000 to 300,000 ppm of TDS, but often considerably varies so different minerals will be available in different regional water sources, complicating rates of recovery and thereby affecting overall project economics. For this reason, we actively look to find if we can extract certain minerals, like lithium or rare earth minerals, to secure profits. If the value remains high, the economics become beneficial for large-scale efforts.

We reach the end of our question-and-answer session. I'd like to turn the floor back over to Sherif for any closing remarks.

Thank you very much. Again, we are excited about the cycle. We are excited to be a differentiated story among others. Looking forward to the coming quarters and years. Thank you very much.

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.