Conference Transcript - NESR 2025-09-30

Joe Diaz, Analyst — Managing Partner, Lithium Partners

Hello, everyone, and thank you for joining us during the Lithium Partners Fall 2025 Investor Conference. My name is Joe Diaz. I'm a managing partner at Lithium Partners. Today, Blake Gendron, VP of Investor Relations of National Energy Services Reunited, will be taking us through the company's slide presentation. National Energy Services reunited trades on the NASDAQ under the ticker symbol N-E-S-R. So, let's get started. Blake, welcome. I will turn the floor over to you for your presentation.

Blake Gendron, Head of Investor Relations

Yeah, thanks, Joe, and thanks to the LIFM team for having us. This is Nesser. My name is Blake. I handle investor relations and business development for the company. You'll notice it's been an interesting time for the stock. We've had a good run here over the past, I would say, month and a half. So the purpose of my presentation is to just give you an overview of the company, where we play in the energy services space, what we do, and then also talk about some specific stock catalysts, because I do think this is a very timely and topical time to be with the Lithium Conference. And obviously, I'll meet some of you one-on-one. but anybody who's watching this presentation feel free to reach out to me directly to talk about any of the the material that's in this presentation or any questions you may have about the company just before i get started here some safe harbor and disclosures i may be making some forward-looking statements obviously those are our projections as of now and should not be relied upon any information that you need financial wise or otherwise can be found on our website or in all of our SEC filings. So let me just start here, Joe, today with a company snapshot and just explain a little bit about the history of the company, you know, where we play and I would say the unique position that we're in as a company. So Nessar is the first and only pure play Middle East in the energy services space. So for those that follow the energy services space, it's typically the energy specialists that follow companies like ours. Generalists are slowly trickling back into the space, especially with some of the geopolitical considerations around oil and the region. But energy services are basically the picks and shovels of the energy industry. So think of us as the services that go around the drilling rig, drilling and evaluation, production services. We make our revenue from the CapEx budgets primarily of our customers, and our customers are themselves the oil and gas producers, in this case, the national oil companies. And we are currently the only company listed on NASDAQ that give the pure play Middle East exposure to countries like Saudi Arabia, UAE, Oman, Kuwait. The GCC is about 75% of our revenue. So those top four countries. And then we have an exposure in North Africa as well. The company was formed as a special acquisition purpose company back in 2017. Sharif Foda, who is the CEO and founder of the company, longtime Schlumberger, basically 25 years in the industry. And what he recognized was that the Middle East, through the oil and gas cycles, was the only region globally that had, you know, positive margins and relative cash flow stability. So one of the key elements of our story is that we're the only pure play exposure to the best upstream oil and gas region for activity. But you can see here it's 16 countries, again, primarily focused in the GCC, over 6,500 employees, 30-plus customers, which happen to be the largest oil and gas producers, the national oil companies. Saudi Aramco, for instance, is over half of our business. And we are fully diversified in the services that we provide, so 20-plus product and service lines. So think of us as a smaller version of, say, a Schlumberger or a Halliburton. So the tickers of our peers are SLB, HAL, Weatherford, WFRD, Baker Hughes, BKR, and our ticker is NESR. So in terms of what we do, like I said, we're fully diversified in the energy services space. We basically do everything that our large peers do, and it covers the full life cycle of well construction and well completion. So production services are the bread and butter of the company. Roughly 70% of our revenue are production services. So things like cementing, coil tubing, simulation, hydraulic fracturing, these are the biggest segments in the company. And these are across all of our 15 plus countries. And then 30% of our portfolio is the drilling and evaluation services. So this is services like directional drilling, pressure control, through tubing, slick line, wireline logging. The way the company was formed as a SPAC was back in 2017, Sharif identified two of the major regional private oil field services companies and brought them together. One was a company called Gulf Energy, which was primarily Oman and primarily drilling and evaluation. The other was NPS, National Petroleum Services, primarily production services, and also a bit more diversified in Saudi Arabia and the rest of the GCC and a little bit of North Africa. So very complementary from a geographic perspective and very complementary from a portfolio perspective. And that's basically how the reporting structure is today. We have a production services segment. We have a drilling and evaluation segment. We basically do everything that oil field services has to offer. Now, in my opinion, what makes the Nessar story most compelling is simply how much we've grown since the founding of the company. And it speaks to two things. Number one, the vision of creating a company that's truly a national champion in a very competitive oil field services environment where the national oil companies want to cultivate local capabilities and local companies that can compete with the big guys. So essentially giving more of the share to very capable regional services providers, that's dynamic number one. Dynamic number two is what I alluded to earlier. The Middle East just happens to be the best region for oil and gas activity. And I'll talk a little bit more about this when I get into the investment thesis for the company a little bit later on in the presentation. But since the SPAC and the de-SPAC was in 2018, the SPAC was initiated in 2017. We brought together two companies with a pro forma revenue of about $450 million. And the company has grown 20% every year, up to about $1.3 billion in revenue today. We actually have line of sight based on recent contract awards into a run rate of $2 billion in revenue within the next 18 months. So again, I'll get into some of the company-specific catalysts later on in the presentation. But we've grown the company substantially. Of course, the region has grown at a 5% CAGR, but I would say that our growth outperformance is really unique in an oilfield services sector that's really devoid of any sort of growth stories that are out there. This is another slide that shows our portfolio and our portfolio positioning. So when we call ourselves the national champion, what we're really trying to get at is we are the most local. We have the most local content, most manufacturing and investment. We have partnerships with academia. we do the most local hiring. When we hire in our company in Saudi, we're completely Saudi. In Oman, we're completely Omani. Kuwait, we're completely Kuwaiti. And this reflects in our market share of our key service segments. So we aim to be the top three in every service we provide. And we're well on that path. And I would say for the top 10 or so segments, we will be top three within the next three years. And that is the ambition. But you can see from the SPAC again in 2018 and then our most recent year, 2024, we've really established ourselves particularly on the production services. The core segments like cementing, coil, hydraulic fracturing were the largest in the region in those segments. And then the next set of segments, we are quickly becoming a top one or two provider. One of the other important aspects of the story is that we take a little bit of a different position as it relates to technology versus the rest of the sector. So oil field services, it's a very complex operation, but I would say one of the detriments of the sector is that over the past 30 or 40 years, you've had an erosion in the technological differentiation. So think of a company like our largest peer, for instance, used to have massive technological differentiation in some of the high-end services. And over time, that technology margin was eroded. And that's reflected not only in the returns of the energy services space over time, but also in the R&D spend. Now, those companies are large, globally diversified peers that I talked about before, they still spend very heavily on R&D. We take a little bit of a different tact, and we think that it's, you know, better tailor-made for the national oil companies that we work with. We call this strategy the open technology platform. So we inaugurated our research facility, Nouri, in Saudi Arabia. It's right next to the Aramco campus in Saudi's Dharam Techno Valley. It's right next to KFUPM and some of the leading academic work in the kingdom. And we have what's known as a open technology platform. Now, what that means is that we do have our own organic R&D budget, but it pales in comparison to our large peers. What we like to do is we like to leverage the footprint that we have, leverage the contracts that we have, identify unique technologies, both in the oil field services space and outside the oil field services space, and then work with those companies, partner with those companies, and bring those technologies into the region now it does two things for us number one it gives us technology content without you know years and years and many many millions of dollars in organic development that's kind of the tack that our peers take with respect to r&d and number two it helps us streamline really unique technologies very quickly and it actually helps us give access to the national oil companies that otherwise would have to rely on those large peers of ours which are the gatekeepers of technology in our industry um so if there's a technology for instance that aramco really likes out of the us it's very easy for us to partner with that small company themselves wouldn't be able to come to saudi by them you know and establish an operation but they rely on our already established manufacturing supply chain and operational footprint and we can very quickly get those technologies into the region we're doing that with many partners in US. We're doing that with many partners in Europe and around the world. And it gives us a lot of flexibility. And it also means that we can go out and find the best technology. We're not beholden to any one, say, homegrown technology that we develop ourselves. So this is a brief timeline of the company and some of the partnerships that I just alluded to on the previous slide. And also in the bottom of the slide, some of the key contract awards. So one of the reasons why we like the Middle East, North Africa region is not only is it a very stable region activity-wise relative to, say, the U.S., which is a hypercyclical sector for oil field services. In the Middle East, we have multi-year visibility into our contracts. So when a contract is awarded, it's awarded for three years, five years, sometimes up to nine years in the case of our operation in Oman. and you can see over the company's history that we've won some really large what i call anchor contracts in some of the anchor countries and what this means is that once we establish a contract or an operation in that country we can build around it and we can pull through some of the other segments that were really strong in say in other countries into some of the frontier areas that we're growing into and eventually we can fill out and flesh out a complete operation of the country where all 15 or 16 of our countries are strong across every single one of our 20 plus product and service lines. You'll see at the very bottom right of the slide that there are a large number of tenders to be awarded. I'm going to get into the catalysts with respect to our company here in the next section of the presentation, but there are some very large contract awards yet to be decided, and this is a massive opportunity for the company and part of the reason why it's, you know, worth a look, worth a look today. So that was the overview of the company. Again, we're the largest diversified services provider in the Middle East. The pure play Middle East is the selling point. There's no other way to get pure play exposure in the public capital markets. You know, Schlumberger, Halliburton, those were the only companies previously that had any sort of exposure to the Middle East. But obviously, they're global, number one and number two you know the middle middle east region is treated often like a black box we're the most local company in all the countries that we're in and we're growing very substantially even relative to the market now let me get into the investment thesis because some of this draws upon I would say the overview of the company itself and then other elements of this are very timely in nature and so I'll go through each one of those elements so there are three, I would say, pillars of the investment thesis as I think about it today. The first, and I've already talked about it before, is that the Middle East is the healthiest oil field services market. That's both today and also through the cycle. So when you think of energy, when you think of oil field services, the reason why the stocks trade at such low valuations is because of the cyclicality. EBITDA margins and cash flow can go from peaks when oil is really high to basically zero or negative when oil is really low. This is particularly evident in the U.S. shale industry where the public companies, mainly drillers and service companies, see massive fluctuations in earnings power. In the Middle East, it's not like that. Not only are these multi-year contracts where we have visibility into our activity for years to come, but you're talking about a region that's the lowest breakeven for oil. So out of all the regions globally, the most economic rent to be generated from developing a barrel of oil is onshore Middle East. And this is good for the oil field services companies because it's essentially a split in that economic rent between the national oil company, which is our customer, and then the service companies that they hire within their CapEx budget. So you can see that our major countries Saudi Arabia, UAE, Oman, which is PDO, Kuwait, KOC, these four companies or these four countries comprise 75 to 80% of our total revenue. And they are remarkably stable, if not, you know, secular growth stories. And it's because of the break-even price of oil is so low. And you can see in the chart to the bottom right that over the past several years, it's been a very healthy growth dynamic for the region. If you compare that to, say, the US or other regions, there's much more volatility. So investment thesis number one is we were the only pure play for the Middle East, and the Middle East is the most healthy market. This is a slide that just goes into the country's specific drivers. The only thing I'll mention here is we talk a lot about oil and oil prices, and obviously our stock will be tethered ultimately to commodity prices and oil specifically. But there's another element to the Middle East that people maybe underappreciate, and that element is the development of natural gas. Natural gas is becoming important for the Middle East not because the Middle East aims to be an imminent exporter of gas, although at some point I would say the region probably will be. Qatar is already a foremost exporter of LNG, as we know. The importance of natural gas for the GCC countries and Saudi Arabia specifically is for domestic consumption. So Saudi Arabia already has its Vision 2030. The Vision 2030 is to increase domestic gas production by, say, mid-teens, you know, from mid-teens BCF per day to 25 to 30 BCF by 2030 and beyond, a massive increase in the domestic gas reserves. And one of the key projects within Saudi Arabia to achieve this is in Jafora. And Jafora is what we call an unconventional natural gas reservoir, which means you need to frack the reservoir. It's a very service-intensive project. We are one of the key companies that have unlocked the potential of Jafora. Jafora is one of the large tender awards that's yet to be awarded officially and something that I've alluded to as far as Nessar-specific catalysts. But the key takeaway from this slide is oil, obviously, is the bread and butter of the region. Oil is here to stay as far as the region is concerned. But natural gas is another, I would say, secular growth story. And again, not for internal consumption. So what that means is, irrespective of what global gas benchmarks are, these countries will continue to invest in the domestic gas capacity, which is good news for service companies and good news for for nessor so thesis number two is our financial performance um both historically and as we look out over the near to medium term uh horizon so i already mentioned before being a relatively small company and being a national company um we're given i would say um preferential share from our national oil company customers uh and we've shown this in in terms of the growth outperformance since the founding of the company so you know on a trailing 12-month basis we've grown seven percent versus a middle east market that's grown around three percent and you can see some of the the core comp groups uh that we have so the international peer group would include the large global diversified slumber j halberd and baker hughes weatherford the international regroup uh would be companies like adnock drilling at sadc i would include neighbors and their international practice there as well. And then the U.S. land peer group would be the drillers and the pumpers and the service companies specific to U.S. shale. The reason why the U.S. comp group is so important is because our stock is trading at evaluation, much like the U.S. companies, but our fundamentals are so much better. The region is so much healthier. And I have a slide toward the end of the presentation that kind of elucidates this. So growth outperformance is something that we've done recently. It's also something we've done pretty remarkably since the founding of the company. You can see the 15% CAGR over the last five years versus the peer groups. So growth is number one. Number two are the margins and returns. I talked before about how the break-even price of oil in the Middle East is the lowest out of all the regions globally. And what that supports is healthier through cycle margins and cash flow generation for the service companies. So on a trailing 12-month ROCE, we are the leader amongst the peer groups. And then in terms of margins, free cash conversion, and free cash margin from revenue, even with the growth that we've achieved and the reinvestment of growth capex in the business, we're still able to generate a leading free cash margin of around 10%. And this is only going to grow over time. So when you look at the free cash flow yield, which we define as the trailing 12-month free cash flow, the consensus NTM cash flow over enterprise value, we're already at double digits, and that's with a cash flow that is compounding with our growth. And then finally, the balance sheet. We've done a remarkable job over the past two to three years in deleveraging the balance sheet. The first three, four years of the company was really an organic growth story, and there were some acquisitions. We kind of rolled up a few regional service providers even after the initial SPAC. So the last few years has been a cash harvest and deleveraging story. And now we're in a position where we still have massive growth ambitions. And even with those growth ambitions factored into our CapEx budget, we still should be able to generate very, very healthy cash flow moving forward. the third pillar of the thesis is related to the frontier technology opportunities so i talked before about how nessor is an open technology platform and we can find the best technologies from around the world and bring them in and that's the case in our core business and it's also the case in what we call the nada decarbonization business now i handle investor relations i also handle handle business development um i'm in charge specifically for the decarbonization business the nata business and this is a business where we have technology partnerships and investments in areas like water emissions detection so methane detection heat capture and geothermal and then ccos and new energies the total addressable market that we see by 2030 it's a completely new market so it's one that we're creating in real time but we see a 5 billion plus total addressable market by 2030. This is completely incremental to the 20 or so billion total addressable market of the core business. So that's for Nadal. The Roya is something that's more peripheral to our core business. So we are fully diversified. We do basically everything in production services and drilling and evaluation. The one place where we don't currently compete, we're starting to get bigger, but we're just at the outset of this journey. is in the tier one directional drilling. So for those that follow the energy services space closely, this would include services like rotary steerables, logging while drilling LWD, and measurement while drilling MWD. This is a two and a half billion dollar TAM out of a 20 billion dollar oil field services TAM in the Middle East, North Africa region. So it's a significant part of our core business, even though we don't currently play in this tier one directional drilling niche. For those that are generalists, the way I would think about this is there's really only one hole in the portfolio, in our oil field services portfolio. It's in tier one directional drilling. It just happens to be a highly technically sophisticated niche, which means that it's a very high margin and return part of the market that we don't currently play in. So as we grow into this market, not only is it going to add to our overall growth outperformance, it's also going to add high quality revenue dollars and very accretive growth for us. I think this is the second to last slide. I just want to touch really briefly on the stock itself and why, you know, it's very topical for people to maybe tune into our story now. So I talked before about how we're outperforming in terms of growth. I talked before how we're outperforming in terms of margins and returns and free cash conversion. the stock does not reflect that. And on the last slide, I'll touch on one element of the story that I think factors into this discussion. But essentially, the Nessar stock trades at a valuation that's akin to the small cap or SMIT cap, mainly US-centric oil field services companies. Now, the reason why the US oil field services companies trade at such a low multiple is because of the hypercyclicality of the US market that I talked about before, their contracts, they can be month to month, they can even be well to well in some cases. Whereas for Nessar, we have the multi-year visibility, we have key relationships with the national oil companies, and the national oil companies want to see us succeed as the national champion. So that's just one reason why we should not trade at a US land oil field services multiple. If you look at the more comparable peer groups uh the capital equipment providers especially the international diversified providers um you know the offshore and subsidy is maybe not comparable just because they play in a completely different part of the market but especially the international diversifieds i mean that's more of a multiple that we that we aspire to and we think that our business model and and our market positioning and specifically our our middle east exposure uh warrant so the key takeaway from this slide is we are outperforming in terms of growth, but we're not given any sort of credit for it. I think part of the reason is because we're small. Part of the reason is because, you know, there may be some perceived geopolitical risk, although we think the Middle East exposure redounds for our benefit, fundamentally speaking. We have a very, very stable practice. And like I said, our top four countries, Saudi, UAE, Oman, Kuwait, They're 75% to 80% of our business. And oil and gas is everything to those countries. So you're not going to see a huge amount of variability even when oil prices retreat. In fact, the oil budgets are going to be fairly stable and growing. And then you have the natural gas, secular growth investment that I talked about earlier. Just to wrap up here, I just want to go through some of the recent milestones for the company and also touch on one last topic that I didn't mention before. Of course, the stock chart of late has been very positive for us. I think we're getting a lot of special situations interest just given the valuation disconnect. We're getting a lot of generalist interest just because they want pure play energy exposure, and there's really no other way to do that, even in some of the other energy subsectors. I think part of the reason why we traded a discount as well is because we did go through a financial restatement. So essentially in early 2022, we discovered the need to restate the years 2018, 2019, 2020. This was due to an under accrual of costs. So we basically had an overestimation of our margins over those three years. We got right to work in 2022. It took an extremely long time and quite a lot of investment. I would say tens of millions in investment to fully remediate not only the restatement, but also the material weaknesses that came out as a result. All of that to be said, we were delisted in early 2023 from NASDAQ and recently relisted back in October of 2024. So it's been less than a year at the time of recording that we've been relisted on NASDAQ. That's the other reason why I think our stock trades where it does and why some of the special situations investors are or have taken a look at the company. On the flip side, all of the investment and all of the work that we've done to restate and remediate the company's financial controls should be a strength of the company moving forward. There is no company in the sector today that has invested more and done more to improve its back office, hire the right people, hire third-party oversight, obviously conduct a thorough investigation of all of the processes and controls that we had at the time of the restatement. There's no company that I think is as well-equipped as we are to handle the growth aspirations that we have moving forward. Part of the reason for the restatement, in my opinion, is because we grew so substantially. When you take two private oil field services companies and put them together and then grow at a 20% CAGR over five years, it's very difficult for the back office to keep up. But let me just go through some of the recent developments that I think are positive catalysts. So number one, we completed the restatement in December 2023. We filed our 20F in April of 24. we successfully completed an SEC inquiry that relisted on NASDAQ in October of last year. And then just this past August, we remediated all four of our material weaknesses, and that helped us satisfy the SEC inquiry. So I think part of the reason why our stock has gotten some momentum of late is because we fully remediated. This issue is fully behind us. We still traded a significant discount. So there is still plenty of opportunity for investors that take the time to look. Looking ahead, it's everything that I covered in the presentation. The Middle East is extremely stable. Our growth outlook is extremely good. We have line of sight visibility into $2 billion in annualized revenue over the next 18 months. Our balance sheet is in fantastic shape already. And our cash flow is already healthy to the point where we can very well balance growth and returns moving forward. So that's a short overview of Nessar and our story and some of the catalysts. Joe, thanks for the opportunity, and I'll turn it back over to you.

Joe Diaz, Analyst — Managing Partner, Lithium Partners

Well, Blake, thanks for that presentation. A lot of great things ahead here for the company, and sounds like you have a great team that can actually execute on all this. So that's incredibly positive. If you have anybody out there in the audience, if you have any questions or you would like to schedule a meeting with Blake, send an email to us at 1x1 at lithampartners.com. That's 1x1 at lithampartners.com. If you would like to learn more about Litham Partners, you can visit our website at lithampartners.com or follow us on LinkedIn to stay connected about future events. We hope you all enjoy the rest of the conference and have a great day. Blake, thank you again for your time. Appreciate it. Thank you.