National Energy Services Reunited Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
June 3, 2025

Key Takeaways

  • Resilient growth outlook: Despite a broader oil cycle reset and lower Saudi rig counts, NESR expects 2025 and 2026 revenue growth, leveraging gas-focused exposure and new multi-year contracts in Kuwait, Oman, and UAE.
  • Q1 results showed revenue of $303.1 M, up 2.1% YoY but down 11.7% sequentially, with adjusted EBITDA margin of 20.6% and 14¢ adjusted EPS; free cash flow was negative $9.6 M due to $30 M CapEx spend.
  • Technology investments include the Roya rotary steerable drilling platform—now in conservative commercialization phases in Saudi, Oman, and Kuwait—with extensive testing aiming to secure a share of the multi-billion dollar directional drilling market.
  • NEDA produced water treatment and rare-earth mineral recovery pilots are underway, potentially transforming produced water from a disposal cost into a revenue source, aligning with customer sustainability goals if pilot successes are replicated.
  • Market conditions in the MENA region remain mixed: Saudi conventional activity is down but shale plans persist, while Kuwait, UAE, and North Africa show stability to growth, prompting NESR to reallocate variable costs and right-size fixed expenses.
AI Generated. May Contain Errors.
Earnings Conference Call
National Energy Services Reunited Q1 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Greetings, and welcome to the NESR Reports First Quarter twenty twenty five Financial Results Conference Call and Webcast. At this time, participants are in a listen only mode. You may be placed into question queue at any time by pressing star one on your telephone keypad. It's now my pleasure to turn the call over to your host, Blake Gendron, Vice President, Investor Relations. Please go ahead, Blake.

Blake Gendron
Blake Gendron
Vice President of Investor Relations & Business Development at National Energy Services Reunited

Thanks, Kevin. Hello, and welcome to Nesser's first quarter twenty twenty five earnings call. With me today are Sherif Fota, Chairman and Chief Executive Officer of Nesser 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.

Blake Gendron
Blake Gendron
Vice President of Investor Relations & Business Development at National Energy Services Reunited

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.

Blake Gendron
Blake Gendron
Vice President of Investor Relations & Business Development at National Energy Services Reunited

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.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Thanks, Blake. Ladies and gentlemen, good morning, and thank you for participating in this conference call. First, I would like to thank the entire Nestle 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 Nets are preparing to cite the many opportunities that could emerge in the coming twelve to eighteen months of market transition.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

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 to navigate such an environment. From what I can see, the combination of pessimism around oil demand and unwind of spur oil supply is much like the setup for 2015, '20 '16 cycle reset.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

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 US production remain resilient in the face of rig and frac activity declines, at least for the short term. Given continued activity reduction in The US, we expect to see an impact to non OPEC production in the coming twelve 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 would remain on edge for the time being.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Now what does that mean for activity in the MENA region? For the GCC, it is not the same answer everywhere. Saudi 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 might not fully appreciate this dynamic. It is unique to the kingdom.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

In other words, they can cut rigs and still raise production by even 7,000,000 barrels if they chose 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 price, characteristic of their long term strategic vision. They put a 2040 plan in place and 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, and growth in this area will be additive to the expected standard service market.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

UAE and North Africa will grow as well. And 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 reach represent the lowest breakeven cost for oil globally.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

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 twelve to eighteen months, which is adapted from our long term strategy to fit the current circumstances. As seen in previous cycle, 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 Nest will grow in '25 and in '26. Why?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

First, we are still relatively small and have a larger set of incremental contract opportunities from which to choose from. 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 contract and recently announced a number of incremental contract in areas such as drilling and slick line, span 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.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Opportunities to deploy our Roya Direction Drilling platform will drive the next leg of growth, and the latest win of Slickline will drive more our drilling and evaluation performance and leadership position. Similarly in UAE, a stable market with capacity approaching target, we have won new contract 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 multiyear contract across several segments.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Given our size and momentum, we should outgrow in 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 in 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 investment and pilot cutting edge solution with our visionary customer as they move quickly to tackle key challenges in their next phase of capacity growth. We remain excited about North Africa despite the potential price sensitivity to oil.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

With a base of anchor contracts in hand and well calibrated investment, we are tendering on several hundred million dollars of contracts and thus have the potential to outgrow the market there. Geopolitical tension and security could delay the pace of our decision and additional redeployment, 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 project and initiatives that elevate our profile as a nimble technology provider.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Our open technology platform has proven incredibly fruitful in the kingdom. And with the collaborative support of our customer, we are driving in country innovation led by a new generation of Saudi professionals in key areas such as water, minerals, direction drilling, methane detection, and geothermal. With that lead into technology, let me conclude by providing an update on our key growth frontier, Our Roya steel rotary steerable has undergone extensive field and facility testing, and we are moving new tools to Oman to endeavor the next phase of the commercialization journey. As we communicated before, the entire roll yeah.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Rollout and particularly the rotary steerable is designed to be conservative, deliberate, and with the 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 NEDA. In recent months, we've mobilized crucial pilot project in multiple areas of mineral recovery with several exciting opportunities in rare earth mineral extraction.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

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 customer, and the success of the ongoing pilot will be contagious 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 NEST principally as a pure play service provider in the best geography for upstream activity.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

I am confident that this differentiation will come to the forefront in the coming twelve to eighteen months. Additionally, our countercyclical investing as we successfully executed back during the COVID pandemic will set the company up for continued growth and success over all time horizon. 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 in details.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

Thank you very much, Sharif. Good morning to our audience in The US, and good afternoon, good evening to our audience in The Middle East, North Africa, Asia, and Europe. I'm very pleased to give an update on our financial performance for the first quarter of twenty five and color for q two twenty five 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 US, uncertainty in the tariffs, higher inflation, lower subsidies to developing countries, the ongoing war in The Ukraine, and the overall geopolitical uncertainty in The Middle East have all led to lower oil prices and lower rig counts in certain countries.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

All this has impacted the q one twenty five results of the oilfield services sector. It makes forecasting the short term outlook difficult. Despite all this, as Sharif highlighted in his market summary, most of the markets in The Middle East apart from Saudi were flat to up in q one twenty five versus q one twenty four, and we continue to see this stability for the rest of '25 as it stands now. First, let's turn to q one twenty five. Our overall first quarter revenue was 303,100,000.0, which was up 2.1% year over year, outpacing the broader market, but was down 11.7% sequentially.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

Year over year, there was growth in Abu Dhabi, Algeria, Kuwait, Iraq, and Libya, partially offset by a slow start for year in Saudi. The sequential decrease in Saudi was mainly on slowdowns in our main project due to Ramadan. Now turning to adjusted EBITDA. Adjusted EBITDA for the first quarter of twenty five was $62,500,000 with margins of 20.6%, down a hundred basis points on a year over year quarter basis. This is mainly due to the slowdown in specific project activity in Saudi in March due to Ramadan.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

Interest expense for q one twenty five was $8,300,000, and q one twenty five tax was $3,300,000, which implies an effective tax rate of 24%. Turning to earnings per share. EPS adjusted for charges and credits was 14¢ for the first quarter of twenty five. The charges and credits of 2,600,000.0 impacting adjusted EBITDA and adjusted EPS was the lowest for many periods. They were made up primarily of two items in q one twenty five as follows.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

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 twenty five was $20,500,000. The headwinds to cash flow generation was mainly driven by a sharp increase in our DSO in q one twenty five as Ramadan closed most of our client offices for the last week in March. The free cash flow for q one twenty five was negative $9,600,000 with CapEx at $30,000,000 as we continue to front end load our growth in technology deployments.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

As of March 31, our gross debt was 366,000,000, and our debt net debt was 288,000,000. Our net debt to adjusted EBITDA was naught point nine three, which remains below the one times target for a third consecutive quarter. On a trailing twelve month basis, our return on capital employed or ROCE was 11.3%, concurrent with our robust growth investment strategy. We expect q two twenty five revenues to grow sequentially versus q one twenty five, but moderate on a year over year basis as key project timing is now expected to be more back half year weighted. The q two twenty five growth will be approximately half the growth rate of q two twenty four versus q one twenty four.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

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 Sharif previously highlighted. Margins for q two twenty five should slightly improve on q one twenty five with with the modestly higher revenues and the impact of our cost reduction program initiated in April. We do not expect to be material impacted materially by The US China tariff stories. Full year '25 interest should be around $30,000,000, and full year '25 ETR should be in the mid twenties as previously outlined. CapEx for the full year '25 will be in the vicinity of $125,000,000 as previously outlined, may go slightly up dependent on the results of some large tenders, which obviously will impact revenues in the future years.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

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, and controls, as well as implementing the latest software upgrades to our ERP system. As you know, in '24, we remediated three of our four 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 testing is all that is required. Two comments on capital allocation. The company is going through a tender process to convert its outstanding warrants into equity on a one share to 10 warrant basis.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

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 continue to pay down debt. However 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 update you further on this topic as the year progresses as we continue to receive and discuss all investor feedback.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

The outlook for most of the Middle East and North Africa region remains favorable as we've just outlined. Upstream spending remains durable, and NESA 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 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 for Nesser continues to look good. Now I turn the call back to Sharif.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

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 expectation 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 multiyear visibility to the company, and overall profitability remains healthy as the sector remains disciplined.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

We expect '25 to follow the same seasonal pattern as did in '24, with first quarter slowest impacted by fewer operating days and the full month of Ramadan in March, followed by a slower sequential activity build through the year. Overall, our '25 growth outlook for NES relative to the market remains unchanged. Second, with the solid MENA backdrop, NESRO is extremely well positioned to outperform due to, one, favorable project exposure particularly related to the broad based 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 Roya now duplicated in other country and our unique NEDA positioning and investment in produced water mirroring the announcement and commitment recently made by our largest customer and cross industry partner.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Whereas Roya is expected to be a more linear driver of growth from here, NEDA and our water business represent massive potential that is being defined in real time, but nevertheless remains a long term strategy with expected catalyst this year. I'd like to close by thanking all our employees, their families for a strong resilience and start of the year and wish them happy Eid that is just around the corner. And thank our partner, shareholder, and valued customer for their continued support and belief in this. And with that, I'd like to pass over the call to the operator for your question. Kevin?

Operator

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue.

Operator

For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. Our first question today is coming from David Anderson from Barclays. Your line is now live.

J. David Anderson
J. David Anderson
Managing Director at Barclays

Thank you. Good morning, Sharif. How are you?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Good morning, sir.

J. David Anderson
J. David Anderson
Managing Director at Barclays

So as you said during your remarks, there's always been a disconnect between upstream spending in Saudi 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 cutting oil rigs 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 the interplay with upstream spending now are kinda going forward here.

J. David Anderson
J. David Anderson
Managing Director at Barclays

Sounds like you're expecting the market to soften up a little bit more here. I'm just wondering, are we getting to a close to the Saudi rig floor? And could we see Saudi activity in the second half of the year pick up, you know, 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 in Saudi. Thank you.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Thanks, David. So if if you if you split Saudi into two category, which is unconventional on its own and the rest of the country, which is basically oil and gas offshore and onshore. This will continue to drop. So you're gonna have a soften. I don't think they're gonna pick up anything in the second half of this year.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

I would see, obviously, depending on how much oil they put and how much production the world needs, then you might see rigs being picked up in '26. On the unconventional front, it's going as planned. No no difference whatsoever. They are increasing rigs. They added more rigs.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

They're gonna add frac crews, and that plan is intact. It's not touched. So you're gonna have a drop more drop of oil rigs, more drop of even conventional gas rigs, and then pick up in unconvention. So overall, Saudi S will is softer than what we expected a quarter ago. Because, obviously, again, they have that ability to put back production without adding anything.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

They still have couple of million barrel of spare capacity. Right?

J. David Anderson
J. David Anderson
Managing Director at Barclays

Enough to offset the declines at least in your business for the second half of the year? I know everybody's got a different mix. I'm just kinda curious about your own mix. And how you know, I know there's a bunch of contract awards you're waiting on in Jafura. How does that sort of factor in to kind of the mix of your business in Saudi?

J. David Anderson
J. David Anderson
Managing Director at Barclays

So would you is that part of the reason why you're expecting to outperform in in the market?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Yeah. I mean, obviously, we are more exposed to gas and more exposed to regolith, and that's not being, affected so far. Mhmm. The unconventional, as you rightly said, is gonna be a huge catalyst. So, depending, on the award, yes, definitely, people some people will really outperform and some will not.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So if if the company is not in the gas at all or it's not an unconvention, they will definitely see almost a 20% drop year on year. Right? So we believe that we will be in a in a in a solid position overall, and then it will be seen, obviously, with the tender result. But we still believe that Saudi will grow year on year

J. David Anderson
J. David Anderson
Managing Director at Barclays

for us. And those tender those tender results, when when should we be expecting to see those? Should those be fairly soon? Next quarter?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Next quarter. Yeah.

J. David Anderson
J. David Anderson
Managing Director at Barclays

Yeah. So if I could if I could add one more in here here for Stefan. Yes, please. Stefan, I noticed the margins came down a bit more in first quarter. I recognize it's a seasonal component here.

J. David Anderson
J. David Anderson
Managing Director at Barclays

But you also talked about rightsizing the cost structure and reallocating equipment. I'm just curious how much is that weighing on kind of margins today? And can you get back to 25% margins by year end? I'm just kind of curious looking at last year's margin progression versus this year, can you get back to those same margins, or is that gonna take a little bit more time? We'll get some of the cost structure out. Thank you.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

Hey, David. Yes. It will take more time. Right? We will we will not we will not get back to exit rate of 25.

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

Right? I would say that for the full year, we'll probably be maybe a hundred to 200 basis points less, right, than what we what we ended last year with. Going to the, the cost reduction, right, the amount that we're looking at probably should add a hundred to 50 basis points to our results from, q one.

J. David Anderson
J. David Anderson
Managing Director at Barclays

Okay. So you think you can kinda recover that in '26? Is that is that what you mean by that?

Stefan Angeli
Stefan Angeli
CFO at National Energy Services Reunited

That's that's our goal is to recover. It's to get back to twenty five percent in '26.

J. David Anderson
J. David Anderson
Managing Director at Barclays

Great. Thank you. Thank you very much, guys. Thanks.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Thanks.

Operator

Thank you. Next question is coming from Arun Jayaram from JPMorgan Chase. Your line is now live.

Arun Jayaram
Vice President at JP Morgan Chase & Co

Yeah. Good morning, team. Sharif, you characterize what you're seeing as as a resetting of the cycle with with the market in transition. I was wondering if you could comment on how you're seeing pricing trends, you know, broadly within The Middle East and and maybe, you know, how the the reduction on the conventional activity in in Saudi's impacting just overall trends and pricing.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Thanks, Armen. So, look, as we have seen before, large tenders with a long cycle or long duration tends to get, I would say, less disciplined. Let's put it this way. Right? In a in a so if you get a big contract that is, you know, gonna be defining for some countries, yes, you will see some pricing drop.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Definitely, the expectation as we go along the cycle similar to '15 and 16, the tenders that are coming are gonna get softer. Right? So the pricing people will because you'll have some capacity, people will start to get nervous, So then you're gonna get some pricing loss. Right? But I keep saying that before.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

The Middle East never had a pricing gain anyway. It was slightly a big gain because all these contracts are characterized by long term, and and the and the cost and you are not big chunk of the cost of the production per barrel. Right? So they don't tend to to slash the pricing like they do in The US. So I would say this pricing will get overall softer than as ex than 24.

Arun Jayaram
Vice President at JP Morgan Chase & Co

Got it. Got it. Okay.

Arun Jayaram
Vice President at JP Morgan Chase & Co

And maybe you could elaborate on your growth opportunities within q eight. 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.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Yeah. I mean, obviously, again, the size size matters. So our size is, again, relatively much smaller than the big three. So some of GWT is basically tendering everything, tendering the entire ecosystem of a contract because, definitely, they they're gonna be almost their rig count in Kuwait will be the same like Saudi. Right?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So they have to add capacity. They have to have new players. They have to make sure that they have another five years of contract assigned. So we already tendered several of those, and we announced couple, and a couple are coming on on the way as well. And then we are tending everything.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So that's meaning cementing, coiled tubing, fracturing, direction drilling, through tubing, testing, everything. You know? 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, at Nets, we didn't even exist, five years ago. So now we have a very strong position, and I think that's why I keep saying, I think by next year, this will be our second largest country.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

And, obviously, if we win much more, then we can even accelerate that growth. And the the other countries are tendering as well. Right? So we have several tenders going around. And, definitely, the biggest one is the Saudi Arabia, unconventional.

Arun Jayaram
Vice President at JP Morgan Chase & Co

Great. Thanks a lot.

Operator

Thank you. Next question today is coming from Greg Lewis from BTIG. Your line is now live.

Gregory Lewis
Managing Director at BTIG

Hey. Thank you, and good morning, everybody, and thanks for taking my question. Sharif, I was hoping you kinda made some comments around, you know, several million dollars of contracts in North Africa. You know, just kinda curious how we should be thinking about, you know, potential timing of of some of those contracts coming coming to fruition and then maybe, you know, what what's kind of like a like a decent what would you kinda characterize as a success in in bidding on those realizing they'll be somewhat competitive? I you know, do we think we can win, I don't know, a third of those?

Gregory Lewis
Managing Director at BTIG

Or, you know, just trying to understand a little bit better what's happening in North Africa and the timing.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So so most clients actually use always the downturn opportunity to tender. Right? Because, obviously, it's smart. Right? They know that everybody's hungry.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Everybody wants to get a piece of the contract. So North Africa is no different. The only thing, obviously, is there is a time when the contracts expire and then they tender. So if you look at, more specifically, like, for example, Algeria is very, very, fixed with timing. They have a, like, a tender board, a bow sum, etcetera.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

And all these things are are happening as we speak. So to answer your question, the second half, all these contracts would be awarded. So you're talking about in the next quarter, we will know exactly our position. We will know how much you got more, how much you got less. And then the stuff that you are not part of it now, which is, again, that's why I keep trying to explain your small size matters.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

If you are 10% of the market and you win 25% contract, that means you're gonna grow definitely because you're gonna drive to the 25% market share overall. Right? And that's our aim is some of these countries that you get to the sizable position. So I would say second half, you would see a lot of these awards happening. And, if I if I move to Libya, which is a a country where security, as always, obviously, is the biggest hurdle, but the capacity of the service is very small or very limited.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Right? And the country always, since the beginning of the year, especially, they aim to increase their production capacity to go to 1,600,000 barrel. So they went from 800 to 1.2 to 1.4. Now they are emig at 1.6, and the target is 2,000,000 barrel in three years. To be able to do that, they need to add rigs.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

They need to add capacity. They need to add frac crews. They need to add coiled tubing. They need to add cementing, services, downhole tools. So all this needs a lot of services.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So it's actually not the tender is not the biggest hurdle. It's actually the capability of people to get equipment into Libya and be able to operate there within the security framework, which is obviously we we are we are aiming to do that, and we already have couple of new segments in the country today working that never existed before. So Libya for us is not gonna be an incremental. It's gonna be doubling. Right?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So we should double and triple the size of the company because we're very, very small there. Right? And but the country is gonna invest heavily. Egypt is more of a stable, very, very stable. I don't think we're gonna have a a very big up or down, but we are stable.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Our market share position is quite strong now, and we aim again to win our fair share of contracts. So if I look at North Africa overall, definitely, I would say we can double our market share as a percentage by next year.

Gregory Lewis
Managing Director at BTIG

Super helpful. Thank you very much.

Operator

Thank you. Next question today is coming from Derek Pottaheiser from Piper Sandler. Your line is now live.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Hey. Good morning. I just wanted to maybe expand on your comment around never miss an opportunity for a downturn and and what that could mean for 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 Surface Pressure Control, Somerset, ADNOC Drilling, the Middle East land rigs 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 Nesser pursues as you think about scaling your overall business in the region?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Yeah. I mean, obviously, I cannot tell you exactly what we're gonna do, but we have plans. But, I would say when you have this downturn, I think, first of all, our ourself, we counter invest. So we actually we are investing heavily, into the cycle because we know that our Middle East will be strong, but the the the sentiment will be negative. But we're gonna invest heavily and then adding CapEx, adding equipment.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

We know some contracts that we we have, we can gain significant market share where people have no access to that market. So I would say some of the the move that you see lately is people buying access to The Middle East, and sometimes not in a very in a very pricey way. I don't we don't need to do that. We have the best position in The Middle East in terms of relationship and and market, footprint. So now for us, it's really to make sure that we know which clients are investing, which client are growing, which we know very, very, very well.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

And we have the core base of contracts and the infrastructure to add service. So for example, if we have, like, we say one of the countries, like, for example, in in in Kuwait, where basically we know that we are tendering a lot of contracts, we need to have, like, this very solid infrastructure. This country is gonna grow 6%. Can I grow 25%? Right?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Can I get all these contracts and invest and be a a very serious player in multiple segments? And that's our plan because we have the infrastructure now. We have a very good relationship with the client. And that's basically when I say when everybody else is shrinking and everybody else is cutting, everybody else is firing people, we are gonna invest and grow. So then we're gonna be a counter cycle to to the to The Middle East.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So I see that this is an opportunity for us in the next twelve to eighteen months to be significant market share player. And our as I we always said, we want to be a clear top three in every segment in in the countries where we operate, which is similar today. We have three, four segments where we are almost number one in The Middle East as a market positioning, and that's our aim in this cycle.

Derek Podhaizer
Derek Podhaizer
Senior Research Analyst at Piper Sandler Companies

Great. Appreciate all the color. That's it for me. I'll turn it back.

Operator

Thank you. Next question is coming from Saurabh Pant from Bank of America. Your line is now live.

Saurabh Pant
Saurabh Pant
Director & Equity Research Analyst at Bank of America

Hey. Good morning, Sherif and Stefan.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Good morning, sir. How are you?

Saurabh Pant
Saurabh Pant
Director & Equity Research Analyst at Bank of America

Good. Sherif, it's it's a little contrasting how you talk about a downturn, resetting of the cycle yet. Nesser is growing. And, 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.

Saurabh Pant
Saurabh Pant
Director & Equity Research Analyst at Bank of America

What's going on? Maybe you want to talk Middle East more broadly, Saudi specifically, however you want to address that. Right? But maybe just compare and contrast overall market versus NESR, right, just to help us understand the scale of your outperformance.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Yeah. Sure. I mean, I I as I as I explained in my in my prepared remarks, the GCC overall will be stable to slightly up, except Saudi that is gonna be down. That's in a nutshell, the story. North Africa and Iraq will be stable to up.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So overall market in The Middle East will be up, but it's not gonna be up as we said before or as expected before before the oil price drop and the whole tariff and geopolitical, we said it's gonna be six to 8%, and we're gonna double that. I think the The Middle East overall will be, like, flattish because of, obviously, the size of Saudi that is different to to to all the others. And I think if I talk more specific, and please then Kuwait is definitely gonna be the biggest growth year over year because of the added rigs and added capacity because they want to go to the 4,000,000 by 2040. The other guys are almost at the reach of the capacity, so then they are just going to add some activity, and some others will be totally flat, stable without. The only one that is really dropping rigs is Saudi because they can.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Right? They have the capacity. They can produce another 2,000,000 barrel without doing anything. Right? So except the uncompensated project, that is gonna grow.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

And that's the really the characteristic over all the countries. I think the one that is a kind of a sum of wildcard will be the security related country. So Libya is a very, again, very aggressive growth target depending on security, depending on the geopolitics. This plan might get pushed back. But what we are planning that to go full on as if nothing is gonna the security would be fine.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

We know how to operate, obviously, in a in a tight situation different than others, which is give us the the advantage of knowing the place inside out. That's that's if you have more specific, obviously, I can dwell on it, but I I think I don't want to just to repeat the prepared remarks. But I tell you the the the unconventional Kuwait will be the the the strongest growth year over year. And if the market in The Middle East overall, you can say it's 3% maybe, flat to 3% up, and that's why we are confident we can still easily, obviously, double that rate and and and make much more depending, obviously, on the contract award that we will know in in the coming quarter between Kuwait and Saudi and North Africa.

Saurabh Pant
Saurabh Pant
Director & Equity Research Analyst at Bank of America

Okay. Perfect. No, Sherif. I think I got it. Right?

Saurabh Pant
Saurabh Pant
Director & Equity Research Analyst at Bank of America

So flat to up a little bit, and you should be should be growing at double that rate. Right? That's the that's the expectation. So that's how you're outperforming. Perfect.

Saurabh Pant
Saurabh Pant
Director & Equity Research Analyst at Bank of America

And then just a quick follow-up, Sherif, on obviously, Saudi is seeing seeing pressure, but Kuwait, on the other hand, is probably the best market. UAE is growing. How easy is it, Sherif, you or for the industry in general to move capacity equipment from, let's say, in this case, Saudi going down rigs or or other service capacity from, let's say, Saudi, I'm using that as an example, to Kuwait. Right? So how easy or not is it to to move capacity from one country to the other within The Middle East?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Very easy. So within The Middle East, it's very easy. Obviously, again, I I keep saying that for the people that know The Middle East, it's very easy. For the people that do not know the Middle East, it's very complicated, which I like it. Right?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So we want for for someone in The US that does not know the Middle East, it's an impossible task. Right? It's almost, like, very, very hard. For us, it's a matter of couple of weeks. As simple as that.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So now the the key for us, as I as we said, is, do you know you have to have a base of contracts. You have to have, you know, all the legal entity, the infrastructure, the approval, etcetera. So I think newcomer to The Middle East is impossible now. Put it this way. It's the current players in in there and the people that know the place inside out.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

And that's why I go back to our strategy of being open platform for innovation. We have a lot of partners. So today, for the some of the the work that, for example, we are doing in Kuwait with Innovation Valley and some of the pilot project, we are talking to dozen of clients and and and partners in The US. We know that they have very good stuff that would work in that field. And, obviously, here, as I call it, the marriage is a very simple one because I have the infrastructure.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

I have the contract. I have the facility. They have a unique technology, let's say, in in Canada or The US or Europe. I bring that over there. They don't need to spend any money because I have everything, and then I secure the contract, and then we share.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So this is a very good model for me because I don't need to invest in the technology and a very good model for them because they do they cannot even operate there. It's almost impossible. So more of these and that's why we are quite, I would say, confident and happy to to enter this market with with a fast pace. And we can mobilize equipment from US with the downturn happening, and I think The US is gonna get much worse. So there will be a lot of equipment available to to mobilize.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

And, obviously, if you have a partner, you can mobilize it easily. So that's that's really our our whole aim. And then, again, I say back, miss don't miss the opportunity of a downturn because that's the opportunity. I get all these equipment. I can mobilize it and deliver without spending CapEx or technology, and then I just need to secure the contracts which we are working on.

Saurabh Pant
Saurabh Pant
Director & Equity Research Analyst at Bank of America

Right. Right. No. That's fantastic color, Sherif. I'll turn it back. Thank you.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Thanks a lot.

Operator

Thank you. Next question today is coming from Jeff Robertson from Water Tower Research. Your line is now live.

Jeffrey Robertson
Managing Director at Water Tower Research LLC

Thank you. Good morning. Sherif, with respect to Roya, can you talk a little bit about progress toward 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?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So our our Roya, platform is, let's put it this way. We have three distinguished technology, MWD, LWD, and RSS. So I think we're gonna commercialize first our MWD, which is, you know, it's basically enabler to be able to do the other services. But as well, then we stop, you know, renting or taking some of our partner stuff. And then you have the LWD, the logging while drilling, which commercialized after, and RSS where what we call the deliberate extensive testing.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So today, I we have contracts in three countries, Saudi, Oman, and Kuwait. Honestly, I I do not we are not planning to have more contracts in the in the short term because what we want is we want to do the deliberate testing of all these extensive, commercialize them, and run these three countries professionally. These are plenty of services for us before we go and and and, you know, and scout for others. So today, we get some invitation from other. Obviously, we can attend there, but we want to deploy first into those three countries to make sure that the tool are commercial, are reliable, are credible, and then we have a track record.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Just to give you numbers again for people to understand, this is couple of billion dollars of a market. So for us to take, you know, 5% or 10% of that is quite significant for us. Right? And that's why it's a homegrown technology, which is the only thing really we we are investing in. And that's why as a technology or r and d, besides the Neda story, and we need to make sure that this is properly commercialized.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Today, we are in what I call the extensive testing phase, which is basically we run the tools. We run a lot of it. So we like we did in Saudi. We did in Oman. We get back the tools.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

We do something called destructive test. We break them, basically, to know what is the footage, what's the reliability, and then we put them back. Maybe we do some little design changes, like change a thread or make something stronger, send back the tool, do the same thing, come back, and then that's where we call it's a it's a it's a I don't call it commercial. Some people other some other people call it commercial. We do not like to call this commercial.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

We like to call it commercial. When it when I call it, it's a trouble free, or it is no does not cause any nonproductive time. And it just that become matter of an industry normal efficiency, 99, 90 eight percent. So we we hope to reach that by the end of the year while we are deploying and running all these tools on these contracts.

Jeffrey Robertson
Managing Director at Water Tower Research LLC

Thank you. And with respect to Anita, could you talk about where you are in the pilots that you mentioned the critical minerals pilots? 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?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

I would say okay. We're I will I will answer your second question first. No. It is not. It is actually I have to say the NEDA is kind of, like, creation of a market.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

It's not a market that exists. It's we are creating a market. The need exists dramatically since years, but it's just uneconomical. Right? So today, the world produces so much water, and most of the clients dump that water.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Right? The US, that's exactly what you do. Right? In The US, you just put it in disposable. Right?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

But today, if I can save the planet and make that water fresh water or usable water, then we can do a lot of that. In The Middle East, when we I keep saying it's a scarcity of water and scarcity of mineral, why can't we find an economical way to do so, which is today for the last, what, now two years? We are testing. We have a very successful pilot. Now we are going through the pilot of mineral recovery, which is happening as we speak.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

So that pilot is already in the country, and we are going to go in next month and put it on a site of a client site and test continuously for six to twelve weeks. Then it becomes scale. Then we obviously determine the parameters of the mineral how much minerals you get out of the of that produced water, how what could you do with it, Can you get rare earth? Can you sell some of those unique minerals? And if you do that, then the economics becomes massive.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

And that's why I'm super excited about that because it's gonna change the whole ecosystem. You're not only making water, but you are making minerals. You're selling those minerals. You are making rare earth. You sell those.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

You offset your entire cost, then the water becomes like an free. You know? So imagine you get a free water, a free produced water that you can use it for everything, for, obviously, for unconventional, as you mentioned, for for other products, even for agriculture, for a lot of other reason, then it becomes a real, real story that is pure carbon and circular economy responsibility and economics works because you make money. And, definitely, the driver, as you have seen, a joint venture between Saudi Aramco and Ma'aden, which is the largest companies in the world, to make a joint venture to produce rare earth minerals. So if we can make that, then, obviously, we are on the same wavelength and in sync with our customer, which obviously makes everything much easier.

Jeffrey Robertson
Managing Director at Water Tower Research LLC

And then just to follow-up, are you seeing interest or at least other of your customers watching this project? And is there a significant difference in water chemistry between the countries that would make rare potential rare earth recovery more attractive in one country versus another?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Everybody's watching. Right? So, obviously, everybody's watching, and that's why I I use the word contagious. So if this the success of that pilot and the work is clear, oh, everybody's gonna jump in it. We will not even have capacity to to service this, but which is good problem to have.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Now the key is to make it economically. Now for the water, as your other question, no. It's very different. It's very different from the minerals. The water is like produced water is, like, bad everywhere.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

I mean, it has, like, 200,000, three hundred thousand particle per million, but some, it's purely salt, so then the sodium is, like, very low price. So the economics becomes harder than others. That's what you really look for. If you do the same thing you do in the Permian, that's exactly what people look for. Can you have some lithium?

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Can you have some, you know, some earth minerals that can sell and make money to offset the cost, and then it becomes economical or you make a lot of money. Obviously, when the lithium was $10,000, everybody was happy. It it dropped a bit, but it's still economic to to to to to make it.

Operator

Thank you. Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to Sherif for any further or closing comments.

Sherif Foda
Sherif Foda
Chairman and Chief Executive Officer at National Energy Services Reunited

Thank you very much. We are again, we are excited about the the cycle. We are excited to be a differentiated story among others, and looking forward for the coming quarter and years. Thank you very much.

Operator

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.

Executives
    • Blake Gendron
      Blake Gendron
      Vice President of Investor Relations & Business Development
    • Sherif Foda
      Sherif Foda
      Chairman and Chief Executive Officer
    • Stefan Angeli
      Stefan Angeli
      CFO
Analysts
Powered by Quartr