National Energy Services Reunited Corp

Good day and welcome to NESR's first quarter 2020 earnings call. With me today is Sherif Foda, Chairman and Chief Executive Officer of NESR. 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 our results to differ materially from those projected in these statements. I therefore refer you to our latest earnings release filed earlier today and other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is on our website. Finally, feel free to contact us after the call with any additional questions you may have. Our investor relations contact information is available on our website. Now I'll hand the call over to Sherif.

Thanks, Chris. Ladies and gentlemen, thank you for participating in this conference call. We are very excited to report on our outstanding results this quarter. It is the largest quarter ever in the history of the company. We grew 31% year over year and 8% sequentially. This is in contrast to a usual seasonal decline from Q4 to Q1. And it was achieved under the shadow of both a worldwide pandemic crisis and a once in a generation oil price collapse. I will touch in details both the challenges and our action related to COVID-19, as well as the reality of the new oil price environment. But before that, I want to acknowledge the exceptional effort all our employees have put in to support our customers and differentiate ourselves in these challenging times. Their resilience, hard work and extended stays in the different countries and at the work sites is the reason we are considered the trusted partners by our customers. It's an outstanding team effort and I'm very thankful to be blessed with such an enterprising group of individuals in our company across all the levels. I have spent a fair bit of my career in the field and in normal days things are challenging enough but to do that under the limitations of this pandemic as a layer of complexity which only the best can handle. Our teams on the ground have come out with flying colors and the results are there to speak for themselves. So how did we enable our organization to go and gain market share, deliver growth, and exceed our customer expectation in such circumstances? And how we are going to go ahead with this, I will take a few minutes to explain our approach. We prepared early and appointed a Crisis Management Team, or CNT, which comprised of all my direct reports and key operation personnel. And below it, each country had its Emergency Response Team, or ERT, activated. This CMT has been meeting daily and reviews the status of our readiness across all aspects of our operation as well as addresses any upcoming or potential issues we could face in due course. So we are not only focused on what is happening today but also simultaneously planning for things two weeks, one month, two months down the road and also for any eventuality including if the border between the countries are completely shut down. This covers everything from logistics, supplier sustainability and how they are handling their own operations, customer engagement, minimum inventory for spares and chemicals, liaising with our customer and local authority for their elevated and continuously evolving processes, navigating through each country regulation on handling quarantine procedures while ensuring the health, safety, and well-being of our employees and everything else which could and would get affected. Lastly, we always need to ensure that we go the extra mile to confirm our people on the ground are well taken care of. And the CMT set out a series of initiatives to not only take care of our employees at their work sites, but also for their families. One of these initiatives was to offer financial help in the form of prepayment of salaries to the families of employees who are either out of their home countries or at the well site for extended period of time and send money to their country of origin. At those difficult times, we strongly believe it is our duties to support all our employees and their families They are making the difference to our customers and maintain our business continuity intact. Our customers recognize these efforts and have in turn depend on us more and more to cover for any disruptions of their activity on account of some of our competitors' inability to manage through the challenges. In summary, not only we are coping with our existing normal work scope, but are actually taking on more work in this period because we have been able to plan better than others and have managed our equipment, supplies and inventories as well as our field staff. It is a testament to the culture of performance and customer first that we have built in this and all of this reflects the 8% growth sequentially when the overall customer activity has been flattish. and I will expand on example later in my comments. Now let me say into what is happening on the macro front. I won't belabor on the dynamics of OPEC, Russia and US land as everybody knows it or has an opinion on it. But the key point of relevance to oil field services which I want to make is that international low cost per barrel markets are always more resilient in the downturns. And this especially applies to MEA and Russia. From day one and the reason we formed NESS was to focus on MEA and our clients. And that is the exact reason we opted not to change our mantra. Now we are going to see why we held the line on our core foundational principle. That is inherent stability in the region and our main clients are national companies who have larger objectives tend to respond to short-term oil price gyrations. They are focused about their country well-being, maximizing the result of the country as a whole, employment and social effects of the industry. Yes, as priorities change, they will move between oil and gas as per the long-term direction. And yes, they also have to work within the parameters of the oil price environment reality. But this also provides us an opportunity to innovate on our delivery and the solution we provide both commercially and technically. GGC as a whole remains active and had no slowdown in Q1. Things will change obviously with the office cut in May, but I see it both as a challenge, but also as an opportunity to strengthen the business. In my opinion, going forward, most of the delays will come from new projects. Seismic, Exploration Cancellation, Offshore New Frontier, and Additional Downstream Mega Development. We pride ourselves on being close to our customers. We understand them and have the pulse of the region and the way we will execute our strategy is by being agile to react and adapt. Our relatively small size also helps us readjusting to any changes. Outside of the GCC, North Africa and Iraq both are affected by these oil prices, as it is driven by several international and local independent operators. And this is further compounded by the effect of the coronavirus in an already security and structurally challenged environment. Drilling new wells will be the most affected, especially the large LSDK projects. but the production activities won't get affected by the same scale. On a marginal basis, they still have a very low cost of production per barrel so these fields are going to continue to produce and they will maintain production and work over activities rather than drilling new wells. Outside of the larger MENA region, Africa has seen a significant drop in project cancellations. West Africa will be heavily affected. and I don't see any new deepwater or offshore project being sanctioned in the near future. Our limited exposure is to Chad only, where most clients declared force majeure but in the overall scheme of things is insignificant to list. As in any downturn, pricing is going to be a topic of issue. If not already with our customers, and we have to ensure that we adjust to the market realities in the most optimum way. Similarly, we are working to get the appropriate savings from our supply chain and align our partners and suppliers to the new reality. All this is happening in parallel, but overall, our endeavor is to reduce the total cost of operation and share those savings with our customers. Last quarter, I talked about how we initiated and started executing our unconventional fleet operation in the Jafura Basin in Saudi Arabia. We broke all records and did all this in a very short period of time. All with a very innovative CapExLight business model with our main partner next year. I'm very pleased to report that we have further consolidated our position and we have been assigned the primary work scope for the unconventional fracturing in Jaffur. We have consistently outperformed our competition and brought significant innovation making it similar to US land efficiency to this very complex NEA operation. To actually compare on a life-for-life condition, our customer conducted two separate frac-offs. where we went head to head with our competition. I can tell you that each time we arrived later at the pad and finished before and left the pad while the competition was still fracking. It is a clear testament to our execution capabilities and ability to project manage one of the largest oil field service projects. Our customers are very wise and truly believe in leveraging the best of the world and the open source methodology to create differential outcome for themselves. And if a local company does it even though it may not have the same pedigree or history as its larger counterpart, even better and more commendable as that ties into their improving in-country capability objective. I would like to remind everybody that we did all this with truly innovative business model and not just by fleet. and hence this project has been accreted from day one. We did this by capitalizing on merging our knowledge, experience, and expertise with our partners, mainly next year, for which this structure is also accretive. If you look at this structure in light of today's environment, it makes even more sense than it already did. So I'm very pleased with how this has panned out for us and our partners.

and most importantly, our customers.