National Energy Services Reunited Corp

Greetings. Welcome to Nestor Reports first half 2024 financial results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Blake Jenron, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Sherry. Good day and welcome to NESRA's second quarter 2024 earnings call. With me today are Sharif Foda, Chairman and Chief Executive Officer of NES, and Stephan Angeli, Chief Financial Officer. On today's call, we will comment on our second quarter and first half results and overall performance. After our prepared remarks, we will open 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 reconciliation to the most directly comparable GAAP financial measures can be found in the 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 Sharif.

Thanks, Blake. Ladies and gentlemen, good morning and thank you for participating in this conference call. We are pleased to report continued momentum in the first half of 2024, following a solid 2023 and ahead of further expansion for the foreseeable future. Despite the uncertainty caused by ongoing geopolitical events in the region, As of today, I am pleased to relay that the multi-year outlook remains robust, driven by historically high activity levels and rig counts across the MENA region. Before I hand over the call to Stefan to discuss the financials and progress on our remediation plan, I want to first provide a business overview and an update on our geographic footprint and portfolio positioning. I'm proud of our entire team for successfully managing the business over the past couple of years in close collaboration with our supportive customers to achieve remarkable growth and technology gains as seen in our strong results. Over the past year and a half, we've made progress in the two key areas of our growth strategy, core and frontier. Focusing on our geographical footprint, with the establishment of additional anchor countries outside of our original position of Saudi Arabia and Oman, and also expanding our technological reach in our drilling portfolio and our decarbonization segment, NIDA. Geographically, over the past six quarters, we saw substantial progress and benefits from our recently established anchor countries. We define anchor countries as those in which Nesr has prominent market share in multiple core product and service lines, a foundation from which we can build our share, import technologies, and pull through other segments to broaden our service scope. In addition to Saudi Arabia and Oman, we've grown substantially in Kuwait, UAE, Iraq, Egypt, and Algeria. Having established our vision and core services capability to become a leader in cementing, cold tubing, fracturing and stimulation services, well testing, slick line, cased hole logging, fishing and downhole tools, and tubing running services. In other words, for the majority of those product line, we want to have a top five market share position in anchor countries. This allows us to better leverage our supply chain, infrastructure, improve operating leverage, and grow other segments with plenty of runway in existing service and new technology in each country. In Kuwait, which remains a notable driver of growth in 2024, we continued to integrate and worked diligently to qualify additional segments which laid the groundwork for pivotal, long-term contract awards that make room for additional service and technology introduction over time, such as drilling segments. In UAE, we greatly expanded our footprint organically with key multi-year contract wins in core segments such as cultivating, cementing, and well testing. In Iraq and Algeria, we've achieved strong segment pull-through, capitalizing on working relationships, with both national and multinational IOC in both countries. In Egypt, we've established ourselves as leader in several segments and entered the production chemical industry along with our leadership in cold tubing, case hole logging, testing, slick line, and recent fracturing activity, especially with the success of the first pure play unconventional resource in the country. Our growth strategy begins with our anchor countries and core service lines. And we are all pleased with the progress made on this front and the opportunity to continue with these gains into the future. Speaking of technology and the future, we've also made progress on the second pillar of our growth strategy. In the frontier area of new innovation. In this domain, we've both invested in long-term research and development, and collaborative technology partnership. Since the founding of the company, we've identified the need to invest in the next generation of downhole technologies to compete in the sophisticated, high-end, high-return direction drilling services. We've committed to the investment thesis in the pursuit of a rotary steerable tool and accompanying measurement while drilling and logging while drilling technology. While development of these tools has historically in our sector been a long and painful journey of repeated field testing and reliability improvement, we remain steadfast in our development program and are pleased with the progress that we have achieved thus far. Over the past couple of years, a combination of collaborative engineering, meticulous planning, and continuous improvement have yielded to a total of more than 70,000 feeds. of field testing experience across multiple countries globally. This progress culminated in the official commercial launch of our Roia downhole drilling platform this year in February, and we were thrilled to announce and feature our Roia family of tools at the leading IPTC industry event in Saudi Arabia, followed by the recent Opus in Oman. With the recent award of multiple contracts in the region, we have secured a long-term platform to execute our strategy and commercialization plans. Now let me shift to another key area of new technology development, our recently announced NEDA segment, which encompasses a portfolio of solutions in the area of water, methane, heat, and new energies. NEDA stands for Nesr Environmental and Decarbonization Applications. and translate to Arabic as call to action, reflecting the imperative of the upstream sector to lead in creating more sustainable oil and gas supply with minimal emission and carbon footprint. We originally launched the segment as ESG Impact back in 2021, centered around several early stage investment and partnership in areas such as flare gas, produce water, and heat. Produced water treatment technology and the broader circular water concept are a key focus within NIDA. Given the dual challenge and mean of rising produced wastewater volumes and lack of renewable freshwater resources. In the last 18 months, we successfully completed the second pilot of our zero liquid discharge technology with Aramco. In this application, we can essentially treat high-salinity produced reservoir water for reuse in subsequent stimulation operation, thereby eliminating the consumption of precious fresh water from the aquifer. Our goal is to now scale up this ZLD technology, potentially in combination with other applications for carbon circular economy, ensuring we can deliver with our customers a unique solution to the world. Also in recent quarters, we completed a continuous methane monitor project with a multinational oil and gas provider in the GCC, and we continue to evaluate a full implementation within this customer field and demonstrate those results to other clients in the region. Using CUBE technology's latest monitoring and cloud-based modeling, we know we can detect from 0 to 100 kg per hour greenhouse gases, which is essential to provide the baseline for the COP28 pledge of the top E&P companies of totally eliminating methane by 2030. In order to do that and provide assurance to the world that reported emissions are based on science and re-measurement and not just modeling. As the industry in North America has, by deploying thousands of continuous monitoring sensors, the same approach is applicable to MENA. In Asia, we expanded our CCUS offering with a successful second-phase pilot injection and monitoring project. This is a great example of how NEDA can also adapt existing service capability to new energy opportunities. Overall, our strategy in NEDA is to leverage core competencies and cutting-edge technologies, sometimes outside technology native to non-oil and gas sector, to attack completely new market opportunities. It is worth noting that like with any new solution introduction in our sector, the technology development and sales become very considerable. And we therefore take a long-term view of the growth potential for NEDA. To capitalize on all our technology rollouts, we continue to expand on the high-power understanding of the subsurface. in which we made a substantial investment in our research facility, Nouri. And we continue to invest and bring new partners to the region, similar to our investment approach in Bill Van Gaten, when we brought his unique lab from Houston to Tehran, the heart of Saudi Arabia. This enables full-cycle understanding from subsurface to pipeline, including the decarbonization aspect of every piece of the puzzle. With that, I pass it over to Stefan to discuss the financials in detail.

Okay. Thank you, Sharif. Good morning to our audience in the U.S. and good afternoon to our audience in the Middle East and North Africa. With the completion of the restatement late last year and the remedial milestones achieved this year, it is good to finally be back engaging the market directly in this earnings call. In the future, we look forward to normal quarterly earnings reporting. I am very, very pleased with our half 1.24 financial performance and our overall results. Sequentially, half 1.24 revenue grew 15.5% against half 1.23 revenue, with exceptionally strong activity in the Gulf countries. Adjusted EBITDA grew 27.6% to $142.9 million, with 37% fall through year on year, and adjusted EBITDA margin grew expanding 218 basis points to 23%. Despite macroeconomic volatility and geopolitical conflicts, the MENA landscape remains very favorable to growth across most countries, as you just heard from Sharif. So all this translates into half one earnings, excluding charges and credits, of 44 cents per share. The charges and credits were approximately 14 cents, principally made up of two items, Firstly, the cost associated with the combination of the restatement of 18 to 21 accounts, the SEC investigation of the restatement, and the ongoing remediation of material weaknesses in relation to our internal controls. And secondly, the credit loss provision in relation to a particular North African country. Furthermore, throughout... 2024 so far, activity has continued to expand with revenues for Q2 24 up 9.5% sequentially versus Q1 24 to $325 million. Adjusted EBITDA margin also expanded sequentially, expanding 257 basis points to 24.2% in Q2 24. Interest expense for half one 24 was $20 million, with $10.6 million in Q1-24 and $9.4 million in Q2-24. We expect half-two interest expense to be around $17 million in line with lower debt. Half-one 24 effective tax rate was 26.8%. The H2 rate should be the same or slightly lower on improved income before tax. Now turning to our liquidity. Our cash flow was strong as we generated $112.3 million from operations during half 1-24. We expect our operating cash flow to continue to be strong during the rest of the year. We generated free cash flow totaling $59.6 million, which was principally used to pay down debt. Gross debt as of 30 June 24 was $407 million, which is a reduction of $128 million over the last 18 months. Net debt to trailing adjusted EBITDA was 1.13 as of June 30th, 24, versus 1.47 at December 23, and 2.8 at December 22, which is an encouraging trend. Working capital levels have remained almost flat, despite revenue growth, which in 23 was 26%, and in H1, 24, was 15.5% versus the prior periods. This has been principally driven by a decrease in DSO over the last 18 months of seven days and a reduction in inventory levels by just over 10% as our process improvements have made us more efficient. And now the CAPEX. Capital investment for H124 was $52.7 million. We expect full-year 24 capex to be in the vicinity of $120 million, slightly higher than we initially anticipated due to the award of two large directional drilling projects, which is exceptionally good news and supportive of our strategy that Sharif has just discussed. But this requires appreciable upfront investment. All what I've said so far has concluded in our return on capital employee percentage going into double-digit figures as of June 30th, 24, and it should only improve going forward. Now on to some housekeeping topics. As you may have seen last night with the SEC announcement, after roughly a year we have concluded our inquiry by the Security Exchange Commission into the restatement of our 18 to 20 accounts and the reasons for this restatement. The SEC press release is very clear. In summary, there was no findings of fraud on the restatement. We accepted a fine of $400,000 for the restatement internal control failings, and we have one year to remediate our internal control weaknesses from yesterday. We have spent the last 18 months restructuring our back office with new and updated processes and procedures, combined with the latest software upgrades. and we are confident that we'll be able to demonstrate the remediation of our internal control weaknesses. This conclusion is very positive news for the company after the last 30 months of restatements, investigation inquiries and remediation efforts. Now, in regards to NASDAQ relisting. Now, as the conclusion of the SEC investigation in the filing of our half 124 accounts with the SEC today, We'll engage with NASDAQ immediately to see what our position is and we'll update you on the status once we know. So in summary, half 24 was solid financially with very strong revenue growth, strong adjusted EBITDA and healthy cash flow conversion, which has been used to pay down debt and strengthen our balance sheet. We believe that most of the past disruption from the restatement is now materially over. Therefore, on behalf of management, I'd like to thank our entire workforce. Firstly, for finance and supply chain employees and consultants for their efforts in the restatement and remediation and change in our back office systems, processes and procedures. And secondly, to operations for delivering great execution performance. And thirdly, our loyal customers, our directors, our shareholders and our banking consortium for their continued support. We expect normal quarterly reporting moving forward, and we look forward to exiting 2024 as a far larger and stronger corporation. Now I turn the call back to Sharif.

Thanks, Stefan. Let me conclude by quickly commenting on the strong macro environment and our similarly solid 2024 outlook. As you all know, geopolitical tensions in the region have dominated headlines in recent months. While the future is impossible to predict precisely, I am pleased to relay that the countries in which we operate, particularly our core GCC countries, remain business as usual. From an activity standpoint, RIC counts in Nesra four largest countries are at all-time highs and growing steadily. In Saudi Arabia, we are favorably positioned for the CAPEX plan currently in place. and expect the kingdom to continue to be a growth driver for the company, both on the oil side and particularly in the unconventional gas development. Despite the recent announcement of limiting the NSC to 12 million barrels and the release of the jack-up rigs, the overall activities remain higher than in 2023 as the gas program accelerates, in which our position is stronger. UAE will continue on their increased capacity plans and will be a growth driver over the near and medium term, with plans moving ahead for both oil and gas expansion. Kuwait is expected to have the biggest growth year on year, with solid expansion of oil capacity, offshore discovery, and massive infrastructure projects. As announced lately by their senior management, KOC plans to drill over 6,000 wells until 2030, and they continue with their successful rig tendering exercise and activating multiple rigs in the country. We expect Oman and the rest of the GCC to have stable activity with opportunity for NEST to outgrow the market with mainly Roia deployment and NEDA adoption. Absent geopolitical disruption or unrest, Iraq and the North Africa region would have seen moderate growth as the ambition is there to increase capacity and activity. However, in the short term, regional stability will remain a headwind for the start of several of the big projects. As an example, there remains significant upside in Libya once the financial budget is released and new projects are sanctioned. Therefore, overall, we expect another year of strong market growth in 2024, followed by consistent and measured market growth through 2027, where countries plan to increase their oil and gas capacity. Within this market growth framework, we anticipate Nesr will outperform the broader sector in MENA, driven by drilling technology rollout success, and the pace of adoption of decarbonization solution in the sector. We are extremely excited about the future, as we are uniquely positioned in the best growth area globally for oil and gas. I'd like to thank you, and with that, I pass over the call to the operator for your questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from David Anderson with Barclays. Please proceed.

Hey, good morning, Sharif. How are you? Good morning, sir. How are you? I'm doing great. So I don't want to give up too many of my questions before our conference next week, but let me just ask the one question that's probably on everybody's mind right now. Saudi. You highlighted some of the rigs offshore being dropped. We also saw some onshore rigs dropped. Yesterday there was an announcement that they're pushing down day rates, and even there was some talk about service pricing being pushed down. Can you just give us some insight into what's happening on the margin right now in Saudi? Are they in fact slowing here? And do you think that Saudi grows 25 over 24 from your best case scenario right here or kind of your best view from here right now?

Thanks. Thanks, Dave. I think as Saudi Aramco announced clearly when they cut the 12 million barrel to, I mean, they limited the MST to 12 million barrel is there are additional rigs that were all marked for the increase from 12 to 13 that have been released. And they did this extremely professionally, actually, with looking at all the rig count they had, because they went all the way to 90 or 92 rigs, and they said they're going to go to the 69, 70 rigs, which is exactly what they affected. Now, with their program to increase the gas production, the unconventional, and you saw that they increased the rig count for the unconventional, and the whole idea was to ensure that the kingdom goes to, on power, 50% renewable, 50% gas by 2030. And that would mean that they will have liquid availability of almost a million barrels available for export, additional million barrels. And that's why they basically, some of the short-term oil rigs on land has been as well released, and they are looking as well at some maintenance rigs that they're going to release. Overall, I still believe 24 over 23 is a growth, and 25 over 24 will be stable. I would say you will have more increase on the unconventional and less on the oil and gas. the Saudi have that ability to increase rigs and redeploy them in a very, very fast way because the rigs are in the country. So in case the oil price or there is more disruption in the region like what you saw in the last couple of days in Libya with almost total shutdown of cert and some of the exports, if they need to put more oil, they are capable of doing that. So I would say with that long answer... Saudi, I would say, would be stable to moderate growth in 2025 over 2024. If the oil price is higher, they can put more rigs to oil. If it's less, then obviously they can as well maybe shut down more rigs on oil. But the gas program is accelerating.

Right. Well, that's what I was going to get to. So you're seeing sort of a shift here of CapEx kind of moving more towards So I guess my follow-up question there is, you were talking before about you outperforming kind of the broader market. Do you think you can outperform, or will you be able to outperform, I guess, that Saudi number based upon just having more exposure to gas? I know you've been under fora for quite some time.

Yes, I think we will outperform the market, and we will outperform Saudi on gas. And as I said in our drilling contract, where we got awarded a couple of new contracts. With the success of ROIA, the Downhole Rotary Steerable, MWD, LWD, all this, we will be able to capture more rigs, and we'll be able to have an upside year-on-year versus there, because our position today is almost nonexistent in direction drilling. Thank you, Sherif. Thank you, sir.

Our next question is from Sabra with Bank of America. Please proceed.

Hi, good morning, Sharif. Good to hear from you on the call.

Thank you, sir. It's always nice to be back.

Yeah, no, absolutely. Sharif, maybe I'll start with a follow-up to what Dave had on Saudi and specifically on the gas side of things. We all know Jafura, unconventional gas in general, is growing pretty rapidly in Saudi. Can you give us some color, Sharif, on where activity is right now, where you expect activity to go over the next two to three years? And then just maybe your role specifically in Jafura and unconventional gas, and how do you expect from a product portfolio standpoint, market share standpoint, to outgrow competition? Just a little bit of color on that unconventional gas side of things.

Sure. So obviously, as you have seen and as announced by our dear customer, the Jafura has been a massive success to Saudi Aramco. They have developed this field in a totally different way and with a lot of science from the exploration cycle when they started with, you know, very... good understanding of the subsurface. And then they went through the very good development program. And the development program today is in full-fledged, which means the wells are pads, exactly like you have in the Permian. So you have four-well pads, long-reach laterals, extremely successful multi-stage completion. We test all kinds of the latest technology from dissolvable plugs to eliminating some of the NPT, going to 22, 23 hours a day pumping. So this is basically this first class exactly as the best that you have in the US. And it's obviously unique because that's the only project in the Middle East that goes in that framework. Today, that increase of rigs is very, very significant. So you're talking about a significant increase above 20-30% year-on-year on rig count on the number of stages. And this is going to keep exponential. You're talking about going from the olden days, 5,000 stage a year, to all ambition of 20,000, 25,000 stage a year. So that is going to be very, very significant. And again, this is to complete the objective of 2027. You have the first gas, 2025, 2027, and then until all the way to 2030, where basically you have two BCF of gas, you have NGL, ethene, et cetera, et cetera. And these wells are very solid, right? So the program is very well laid out, and I think the progress we have today is basically on the fracking side. Obviously, on the direction drilling side, there is multiple contracts, and I think Aramco announced that officially as well. They announced the award of the EPC, and they announced officially the award of multi-year direction drilling award for Tier 1 and Tier 2. We are involved. And we as well, obviously on the fracking side, it's us and another big multinational company, and both of us are fracking those wells. So the increase is going to be significant and it's going to continue until, as I said, until the delivery of gas. So we see for us, for Ness, a very, very, very strong year-on-year growth above double digits.

Okay, no, that's fantastic, Sherif. So thanks for that, Kala. And maybe just pivoting to outside Saudi, you talked about several countries in the MENA region and you spent some time in Kuwait. Maybe you can talk to opportunities outside of Saudi, maybe give us a little color on Kuwait, the underlying market opportunity, and then specifically for Nessa, how do you expect to do better than the market in those non-Saudi countries in MENA?

Sure. So, I mean, Kuwait is obviously has been always there was a plan to add a lot of rigs. There was a multiple change in leadership, I would say. And today you have outstanding leadership in Kuwait and the KOC and KPC. So all these plans are being put in place. And today you have the highest rig count ever. Anybody can hear about it. And I know a lot of people don't know that. But today, the rig count is reaching almost 200 in Kuwait. You have massive projects that are being sanctioned. And as it was announced by the deputy CEO, Mr. Khaled Mullah, that they're going to drill more than 6,000 wells until 2030. And that is very, very, very significant. I mean, for people that know Kuwait, this is... more than 20% CAGR year-on-year. So this basically, obviously, to get to their vision, 2040 of oil capacity and gas capacity, and they are going full ahead with that plan. If you look at UAE, UAE has the plan that, again, was announced by their leadership of 5 million barrel capacity, and they are on that plan to reach that 5 million, and people can read as well, Adnok Drilling, which is the drilling arm of Adnog. It's a public company today, and you can see that they have 140 rigs, which is, again, those are numbers that never heard of. And you look at the rest of the countries, I would say stability. You have stable Oman, stable Qatar. Obviously, they have the northern field of the gas. And the only thing I would say that can go against you a bit is the geopolitics. in case of a wider war or something like that, or wider conflict, and that will be affecting mainly, I would say, Iraq and Libya, right? But overall, the rig count in the region, and again, a lot of people do not know that, today, the rig count, this is the first time that Middle East has more rigs than the United States. And it's not now more, it's almost double. So the GCC alone... has more rigs than the U.S. So you have almost 1,000 rigs running now in the Middle East. And that is a very significant number that in the olden days it was not even half of the U.S. And that tells you the commitment on the capacity increase, the commitment on making sure that this is something for the long term, and it is not just based on the oil price day in, day out. The key difference in the Middle East as well is all of these countries, the majority of them, especially Saudi, UAE, et cetera, are going for full-on power using gas and renewable. So they do not want to burn diesel generator in their power. It's all going to gas and renewable. That's why you have sanction of a huge project in both solar, wind, and gas projects. And this will continue for the foreseeable future.

Right. No, that's fantastic color, Sherif. And like you said, it's very opaque out there. We don't have a lot of good data points. And that's why it's good to have you back on a call and get more color from you. So with that note, Sherif, I'll turn it back. Thanks for the color. Thank you, Sherif. Thank you.

Our next question is from Kurt Helland with Benchmark Company. Please proceed.

Hi, Sherry. How are you? Very good, sir. How are you? Doing well. Thank you. So, yeah, I just wanted to maybe just circle back on the initial question here related to the Saudi comment. I think you gave some really interesting color and good perspective on it. The one thing I just wanted to specifically follow up on was, you know, the dynamics around the Saudis seemingly, right, asking for price concessions and not just of the rigs, but of the service company. So I'm assuming predicated on your commentary that, you know, you have not seen anything come from Aramco relating to asking for price concessions.

Okay, obviously I'm not going to comment on the client, but I can tell you, as the region works, what we have in the region that is different than the U.S. is long-term contracts. So the long-term contracts are good contracts in the sense of you have a very good visibility on the number of years you will be able to serve that contract, right? So some of those contracts are five years, seven years, eight, nine, you know? So we have contracts, for example, around until 2032. So we know you have that. And obviously, sometimes people say, oh, but you cannot increase the price when the inflation was dramatic. And the answer is yes, you cannot. I mean, except for some, when the contract gets to a renewal phase, or there is like a huge need for some of those, right? So I think what happened is, to be candid, some of the rig contractor during obviously the inflation and the lack of jack-up rigs, et cetera, obviously increased the price, which is rightly so because of their inflation, the diesel price, et cetera, et cetera. And some of it went to almost double the daily rate. And today, if you have a situation where a lot of jack-ups are being released, you know, and you are coming to an extension and no penalty, If you are a client, you will negotiate this price down or try to see who has the best quality and best price to continue forward. And I think that's kind of the exercise. And now on the services side, I think this exercise of inflation and increased shipping costs, et cetera, et cetera, we've been trying to pass some of it to our clients in the different regions. And majority was not very successful. So now obviously you have the opposite where sometimes you have, so you just have to stand the line. And because your cost is higher, you will not be able to give any pricing away because actually the, you actually have increase of costs and you did not really manage to increase your pricing either. Right. So I'm trying to give you a bit of an overall picture. And again, I cannot obviously comment exactly on each client, but that's the environment in the Middle East. So again, it's healthy. It's a good contract. And I think the service industry just have to be a bit more disciplined. Yep. No, okay.

No, that's great. That's great, Keller. Follow up on your NIDA business and just kind of curious as to, you know, what... You mentioned a couple of different business lines, decarbonization and water and so on. What do you think the size of this business could be over the course of the next five years?

I think personally it can be very significant. It all depends on how the E&P company is going to take this pledge forward. like they did in UAE and the COP seriously. I mean, you take that seriously, you need to spend a lot of money, right? You need to monitor the fields. You need to, you know, stump disposal wells in a significant amount, especially as the fields are aging, as the water cuts are increasing, as the, you know, the flaring today, I think, We should not flare any country except in some exploration remote wells. But the routine flaring of, you know, hundreds of millions of MCF or even BCF a day in some of the countries where especially they have some geopolitical issues, this will have to stop, right, and get to power. So all this, as we have solutions, that's what we did in our NEDA or decarburization segments, We gave a solution with a lot of partners, and some of it have nothing to do with oil and gas, right? So the water stuff is done in Europe for something totally different, and we adopted oil and gas. And obviously, again, our dear client Aramco are second to none. They are always very focused on environment and what can be done, and that's why we did the pilot project. So all this, I would say, in five years, if it is not above $100 million... I'll be very, very disappointed.

Okay. That's great. Appreciate that, Keller. Thank you.

Our next question is from Dan Kutz with Morgan Stanley. Please proceed.

Hey, thanks. Good morning.

Good morning, sir.

I wanted to ask, just kind of piggybacking on the fact that you guys have still much more visibility on what's an opaque region for a lot of folks in other places in the world, including the US. But maybe outside of just the gross number of rigs that are running, are there any other kind of well development trends that you would kind of generally characterize as the region have seen over the last few years or expected over the next few years? what I'm kind of, you know, what I'm kind of asking about is maybe rig efficiencies, not just, you know, the speed of wells drilled or feet drilled, but also the quality, well productivity, you know, service intensity and service content per well, given the kind of, you know, legacy, the legacy characteristic or the more mature characteristics of a lot of the fields in the region. Just wondering if you could... you know, if there's any insight that you could share on some of the other well development trends that can impact, you know, service demand.

Yeah, sure. So as in all the region or maybe I'll talk more similar to the US because that's where most people are familiar with the development of most of the wells and most of the efficiency and most of the technology is exactly the same and sometimes it's actually better. So the majority of the latest technology is actually deployed in the Middle East, especially when you talk about conventional oil and gas, not unconventional, right? So again, here we're talking conventional, you know, jackups, conventional field wells that produce 6, 8, 9, 10,000 barrel a day. It is not frac. It is a lot of other technology. But most of these wells, you have efficiency gains on the number of days that used to drill a well. Obviously, you have a full suite of logging and then completing that well. But you get the latest technology. You get the latest completion, the latest ESP, the latest cementing. All this is exactly happening. So if you look at the efficiency... for example, it's exactly as you have seen here in the U.S. So some of those wells used to be drilled in 40 days, and today some of them are drilled in 14, 12 days. And you saw that, for example, again, I will pick on my friends in Aramco, you see this is what they did in the unconventional. The unconventional, how it started, And how it is today, it's exactly like you are in Anadarko Basin or Delaware or something, where basically they managed to slash the drilling time by a factor of three, right? So you get a lot of wells drilled per rig per year, and sometimes double and triple what it used to be before. In other places, you don't have that because it's a bit of a, standard procedure, so then you get an increase of a very limited increase of efficiency. What I think what you saw in the trend in the Middle East over the past 10 years is LSTK, lump sum turnkey, which is similar to what you had in Mexico, right? Where basically the client saw in some of the development when it is cut and paste type of wells, why don't I go and I get someone to take the risk and take the rig and then do the whole thing, and I slash my cost by 50%. And that's basically a trend that happened in many countries where the client, because the wealth are the same, so if I get the efficiency gain, then I can get as well a better price. At the beginning of this project, those were kind of good and still profitable. Obviously, now you get to the technical limits of some of those wells, then it becomes really a game of pricing. And I think the part that is really managed this way, the majority of it, of these type of wells are in Iraq. So Iraq, all the wells are drilled are on LSDK because it's a fee per barrel and it is not a PSA and it is not an NOC. And that's why you have now today a lot of Chinese E&P and Chinese service companies in the country. And all the wells are on LSDK, lump sum 20. So overall, if I may answer you, you have the same trend of improvement of efficiency. You have number of wells drilled per rig sometimes twice and three times better than it used to be. The development wells are very, very sophisticated. And exploration remains a big part of the pie where it is not in the US, for example. So there is a lot of exploration wells, a lot of still open hole logging, identifying appraisal fields, because you still have a lot of green reservoir or green fields where you can drill new wells and have discoveries. You just saw the offshore discovery of Kuwait, which is everybody was like, Kuwait will have offshore, yes, it does offshore, and it was a great success. And now in the coming years, you will have jackups running in Kuwait like you have in Saudi, and you will have a new offshore development in the country.

That's great. That's all super helpful, and I appreciate that. Maybe just a question on Middle East decarbonization and low-carbon kind of strategies and You talked a lot about your NATO segment. I guess I'm trying to think through, again, just compared to the U.S., the pace of transition is kind of at odds with energy security and the political administration matters a lot in influencing the pace of transition. In the Middle East, I get the sense that the kind of pace of transition investment and build out of decarbonization and low carbon has been pretty consistently advancing. So I guess the question is around what are some of the risks that could kind of accelerate or decelerate, you know, the decarbonization and low carbon plans in the Middle East? And it's more of, you know, kind of a project execution and investment versus like, you know, a political issue, but I would just love your thoughts on, yeah, kind of the upside-downside risk to energy transition decarbonization in the Middle East.

Thanks. So, look, I mean, if you look at the recent COP27 and COP28, one was done in Egypt, one was done in UAE, and both were very clear that for the first time the COP invited the ENP in national oil company. And before they were never invited, they were never on the table like in Scotland. So why is that? Because these guys are committed. And I think as you saw in 28 with Dr. Sultan inviting all the 50 top ENP companies, and they made the pledge of the no methane and no flaring in by 2030. So it is, The energy transition here is not I am going away from oil and gas and I'm going to go to renewable. No, I'm doing both. I need both because the energy I need both. And obviously, the income of those countries in the Middle East is entirely oil and gas. Right. So but how can I produce more oil and gas with less emission? So maximize my oil and gas and minimize my emission. And I think you will always see Saudi, UAE, especially Saudi both are in that kind of very fast leadership event. So they already don't flare. And they are looking into how to minimize all the water usage, the RO plant, keep the precious water, monitor all the methane, all this kind of stuff. So I think this is going to be ongoing because it is a decarbonization of my oil and gas it is not like i'm going away from it but i am not going to flare or for example the best is the as his royal highness said in saudi i don't want to use any liquid for power right so meaning this is less emission it's exactly what the u.s did when they stopped coal and they moved to gas right and that's why they have the lowest greenhouse gases comparatively from before and after. So if I answer your question more directly on the countries where you have a lot of issues, as you said, geopolitical, et cetera, et cetera, definitely the decarbonization will be priority 50, right? Because first you have to look at a lot of other stuff before that. So I think our risk And that's why when we deployed, we said we have to first make sure that these projects or this decarbonization technology are economical. And once it's economical, it's going to be deployed in the countries first where we target. We know that this is a high priority. And then later, we will look into the other when we know it's deployed and developed properly. Then we go to the other countries. So I think it's still... It's going to be a huge issue, and I think the Middle East, especially the GCC, are extremely committed to decarbonize their oil and gas, meaning they have less emission and produce more oil and gas.

That's great. All really helpful. Thanks, Farid. I'll turn it back.

Our next question is from Doug Becker with Capital One. Please proceed.

Thank you. I have a few housekeeping questions, but is it reasonable to expect the typical seasonal pattern plays out the rest of the year, so some modest revenue growth and margin expansion in 3Q and then a year-end bump in 4Q?

So, it's Stefan here. I would say for the rest of the year, the growth which we had in H1 over H1 of the previous will probably approximate the same as that. We're not going to give guidance, but it won't be too far off that. And with continued revenue growth, obviously you become more efficient, and I would presume the margins will grow a little bit.

Totally appreciate that. And then I also understand the timing is uncertain here, but What intermediate milestone should we be looking for in terms of the relisting and fulfilling the remediation? Just in other words, will we see signs of progress or will we just read about it in a press release or in a filing at some point in the future?

It's Stefan again. We'll be going back to NASDAQ immediately, right? It's been a – we got delisted because we weren't on time in the filings back in – 21, 22. Now we've done 23 on time back in April, and we've done H1 today, which were filed. We've concluded the SEC investigation. So we think we've done everything that we need to, but obviously we have to go back and communicate with NASDAQ after we've done all this stuff today, and we'll let you guys know as soon as possible. We're optimistic, but I can't really comment more than that. On the remediation, we went through the restatement process and all these inquiries. We've been doing remediation basically now for the last 18 months. We've done a hell of a lot on the remediation. And we think that we have, from the SEC's point of view, we've got one year from yesterday to make sure our remediation is done. But we're hoping to make sure that everything is done by the end of the year, right? And that our material weaknesses, or most of them, are eliminated by the end of the year in our financial reporting at the end of the year.

Sounds encouraging. It's very good to have you guys back in the public conversation.

Thank you.

Our next question is from John A.J. with Occam Crest. Please proceed.

Thank you. Congratulations on a great quarter and first half and coming out of the restatement period. The first question I have is about margins. You touched on it a little bit. It sounds like, you know, we're looking at continued improvement through the rest of this year. How can we think about the next year or two after that? And to what extent is this outlook kind of baked in with the contract and pricing you already have in hand? And what would be the variables that are unknown that will determine where the actuality compares to whatever we think it might be at this moment?

So our contracts are, we have very good solid, I would say, backlog of contracts. As I had mentioned, some of it nine years, right? So there is no lack of visibility here on contract. So the key now is I see the growth is going to continue at least for 2027. And why is that? Because the majority of the projects where the clients have long-term contracts and adopt it for the capacity is until that date. Some of it is more to 2030, et cetera, but I would say we have a good visibility to 2027. So I would say that is a solid growth towards that time. The difference would be how are you going to increase your activity more or increase your revenue more than the activity, and that will depend entirely on our adoption plans and success of our drilling segment, and that's where you can outpace the market, right? Because you have something today you don't have, and tomorrow you have something that you do have, and you have contracts, so can you adopt it? So the risk would be that it takes much longer or it's not successful, right? They're very simple. If our technology has issues or it takes longer time to be commercial and be able to be at par with... with the big boys, yeah, then we will have delays in that growth. The other part is the decarbonization and can you get the adoption of it. The third risk is obviously the macro, which we have no – absolutely we cannot do anything about, which is in total oil price collapse or total – RIG count, a huge drop because of that oil price drops to below $50. I don't see this happening, but c'est la vie. I mean, this is something good to happen as well. So from the stuff that we can control, I see there is very little risk in our growth strategy unless our technology does not work.

And how do we think about the EBITDA margin as a percentage, you know, from 24 to 25 to 26? Do we think about it as being flat on the core business and maybe driven up with the mix on directional steering and rotary and stuff like that? Or do you see both growth potential to expand margins in the core as well as the mix effect?

I think you answered your question quite well there. Right now, we exited at 23.5%, 23.6% Q2. As I said before, I think the margins will improve slightly, and they'll continue to improve as revenue grows. It will be what you what you said, the core business will be more flattish, and with the new technology-type businesses, we hope to get some margin improvement.

And in terms of the top-line outlook and kind of your visibility for 2025 and 2026, can you kind of talk a little bit about how much growth is a baseline of growth that's kind of in the bag, and then what we might be thinking of as net oxide as

I missed a part of it because there was static there. But right now, it's probably a bit early for us to comment on specific numbers for 25 and 26 because we haven't put any detailed plan together. Sharif commented on that we should get quite good growth next year and the following year based on the contracts we have and the opportunities about. But we've not detailed a finite plan as yet, right? And we'll be doing that towards the end of Q3, early Q4.

Okay, great. In terms of the vertical directional drilling up, can you talk about that? Maybe give a... if everything goes right, you know, what could we be looking at, uh, in terms of an ultimate opportunity for you and a patient of realizing that and, uh, you know, the profitability of that business line, maybe as a percentage margin.

So John, I would say, look, the market is of the, of the direction drilling is above $2 billion. So, uh, Our aim, since we started that journey five years ago, is to be at least 10% of that market. So how the adoption is really based on our success. So the good news is we have contracts in place. So the foundation today, if you go to the Middle East and try to get a contract, is extremely difficult. And obviously, as we are the national champion, We are a strong local company. So we have that foundation. We have contract in place already. So the key for us is really to get the technology to work. And we make sure that we are very close to our customer in the sense we do not go and sell something that does not work or it's inferior to the competition. So we tell the customer openly, we will only deploy this in this field, in this reservoir, because we know we can we can operate, meaning the dogleg is correct, the penetration is accurate, the MWD is good, the quality of the LWD is good. And obviously, the client checks all this data as well. It's not like we said that they believe us, right? So that adoption is going to be obviously slow at the start, and then it keeps ramping up as we keep successful runs. And that's why, in my prepared remark, I explained that we tested the technology in the United States for the last two, three years to make sure, first, the field testing is done here in the U.S., and that's where we drilled almost 70,000 feet. Now we know that we can drill some of the wells. Some of it, still, we will not test it in some other fields. But our aim is that TAM that is $2 billion, and how much can you get out of it?

Great. Well, thanks so much. Congratulations. Thank you, sir.

With no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.