NESR

Greetings. Welcome to NESR Reports, their first quarter 2026 financial results conference call. At this time, I'd like to turn the conference over to Blake Gendron, Vice President of Investor Relations. Thank you. You may now begin.

Thanks, Rob. Hello, and welcome to NESR's first quarter 2026 earnings call. With me today are Sherif Foda, Chairman and Chief Executive Officer of NESR, and Stefan Angeli, Chief Financial Officer. On today's call, we will comment on our first quarter results and overall performance. After our prepared remarks, we will open up the call to questions. Before we begin, I'd like to remind our participants that some of the statements we'll be making today are forward-looking.

These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest earnings release filed earlier today and other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is on our website. Finally, feel free to contact us after the call with any additional questions you may have. Our investor relations contact information is available on our website. Now, I'll hand the call over to Sherif.

Thanks, Blake. Ladies and gentlemen, good morning, and thank you for participating in this conference call. The world, and particularly the Middle East, has experienced a seismic geopolitical shift over the past several months. I want to start the call by sincerely thanking all our employees and their families, not only for delivering fantastic results in the face of unprecedented challenges, but also for their focus on safety, supporting our customers, and outstanding operational readiness. Beyond the strong results, I'm most proud to report that all our team members and their families remain safe, our operations remain unimpacted, and our commitment to our customer remains undeterred during these tough times. We see this as our obligation to stand alongside our customers, ensure their operations are not impacted, delayed, or interrupted. I have two key messages for today's call.

First, I want to report on what I personally saw on the ground in the Middle East from the very outset of the conflict to today. While some of the global media is reporting a Middle East paralyzed by conflict and constraint, what I have seen myself is a region that has rallied around a singular focus of resilience and unstoppable operation. Second, I want to zoom out to discuss the differentiated positioning of NESR and the substantial post-conflict opportunity set that I see on the horizon. Energy security, localized capacity, and infrastructure diversity are now resounding themes in the energy sector. To reiterate the key message, we remain uniquely aligned and stand shoulder to shoulder with our customers. We've had 0 evacuation. Our local workforce has committed to safely ensuring no turn down of any jobs and 100% reliability.

We've implemented a 30/60/90 supply chain program to maintain uninterrupted flow of materials and spares. Our crisis management team ramped up its oversight seamlessly, and we stand ready with extra capacity to effectively meet the evolving needs across the region. Just as in the COVID pandemic, our counter-cyclical investment strategy is not just a slogan, but it's NESR's commitment to step up in times of crisis. In that spirit, let me relay some key observation from the region since landing in Saudi on March 1. My goal was to ensure close contact with our customers and employees. What I came away with was a deeper admiration for the resilience of regional leadership and field crews throughout the value chain. From our largest customer in the Gulf, the message was clear: safety, contingency planning, and operational flexibility.

This is not the first time the region has grappled with security and shipping challenges. That fact was on display in the way our biggest client have courageously maintained core operation and adapted supply routes and storage. As can be expected, Saudi Arabia is leading this effort extremely professionally and pragmatically with an unwavering eye on the future. As stated publicly, they are bringing on 3 of the largest and lowest cost upstream project globally and are pushing ahead with 2 more mega projects over the next several years to enhance a diversified crude mix. Exploration continues apace with 6 new fields and 2 new Arabian oil reservoir that add multi-decade visibility to upstream development. The same goes for the natural gas program in the kingdom. If anything, the recent impact on global LNG market has only emboldened Saudi gas development.

Likewise, Kuwait has exhibited an exceptional level of resilience, which clearly shows that the growth plans messaged in February conference, COGS, are among the most durable in the region. Our recent contract announcement, and my discussion over the past several weeks, undersaw that the tender pipeline remains robust and that activity today remains closely aligned with capacity expansion decoupled from near-term oil flows. My visit to UAE and Oman were similarly constructive as land-based activity has been essentially unimpacted, and expansion continues across both oil and gas. This discussion truly punctuated the view that massive infrastructure investment will be needed, and that more local service capacity with proven track record of quality and robust supply chain will be needed to support this investment program. As just announced, ADNOC pledged to spend $55 billion on new projects over the next two years. Again, confirming the commitment to massive investment.

I had couple of stops in North Africa, starting with Egypt and Libya, and ending with Algeria. The takeaway was unambiguous. North Africa has untapped existing capacity for undisrupted export to Europe. The authorities and the clients recognize that now is the time to enhance their resources and increase the spending to substantially increase the production and use the untapped excess pipeline capacity that already exists to meet urgent global demand. Algeria and Libya are at the forefront of this, and both countries represent colossal frontier for both conventional and unconventional resources. This is why NESR has invested in and deepened our footprint across North Africa. The reshuffling of global supply chain, plus the entry of key IOCs, has the potential to supercharge the growth outlook in this part of the world. Energy security, localized capacity, infrastructure diversity.

All three dominated my discussion with customer and industry leader since the outbreak of the conflict. Let me sum up in brief why each will contribute to an even stronger multi-year MENA upcycle than previously conceived. Number 1, energy security will only accelerate oil capacity expansion with enhanced flexibility across areas of production. Domestic gas is more crucial than ever for growing power needs. Number 2, localized capacity. NESR already plays a central role, and we will surely be called upon to expand further, leveraging our fully localized workforce, equipment, and resilient supply chain. Number 3, infrastructure diversification will ultimately drive and orient the upstream capacity build-out, particularly in the Gulf countries. Now let me turn to NESR differentiated positioning in this macro landscape. Best described as the saying, it is better to be lucky than smart.

Honestly, our project exposure and activity mix are uniquely favorable given the impact of the conflict in the region. As an example, we have limited exposure to places that have experienced the greatest disruption and force majeure, as in the key LNG export hubs in Qatar. Additionally, our offshore exposure to exploration or to some of the suspended rigs are much less than others, and is not significant in comparison to our entire operation. The bulk of our business is land-based and concentrated in the solid GCC countries that have shown remarkable resilience in keeping the upstream sector active. Jafurah is also particularly and uniquely positive for NESR, and I am pleased to report both an acceleration in the overall project and also flawless execution with many more to come in the future. We are extremely proud and honored to be really the trusted partner of our beloved customers.

On the supply chain front, we quickly established and executed a 30, 60, 90 days blueprint strategy, which essentially buckets inventory level across all our projects to ensure that we are diversifying supply routes smartly and with an overall eye on operational continuity. This worked for NESR during the COVID pandemic, and this proactive approach is giving our customer confidence in NESR readiness. As I always tell our team, never miss an opportunity to convert crisis into continuous improvement for the future.

Like we have on supply chain, secure inventory, step into the void, safely and flawlessly deliver when our clients need us most. Predictably, we've had to absorb extra freight and logistics to ensure our readiness at all time. However, it pays off. The trust we continue to build with our customer is an invaluable asset that will endure well past the current conflict and short-term expenses. With that, let me pass on to Stefan to discuss our solid result and update on our capital allocation plan. Stefan?

Thank you, Sherif. Good morning to those joining us from the U.S., and good afternoon or good evening to participants across the Middle East, North Africa, Asia, and Europe. We appreciate you taking the time to be with us today. I'm pleased to provide an update on our financial results for the first quarter of 2026, and to share our perspectives on the outlook for the year. Let's start with our first quarter performance. Revenue for the quarter was $404.6 million, an all-time high, increasing 1.6% sequentially and 33.5% year-over-year. Sequential growth was driven primarily by Saudi Arabia, reflecting the continued ramp-up of the Jafurah contract, partially offset by lower activity in Egypt, Oman and Iraq, the latter of which was due to regional disruptions during March.

On a year-over-year basis, growth was supported by a full quarter contribution from Jafurah and increased activity across Kuwait, Algeria, Libya and Egypt. Shifting to profitability. Adjusted EBITDA for the quarter was $76.7 million, representing a margin of approximately 19%. This reflects typical Q1 seasonality combined with key contract ramp-ups and 2 incremental freight and logistic costs associated with the regional geopolitical disruption, which is estimated to be around $4 million, which covered special air freight charters and other like measures to ensure zero interruptions to our client operations. Despite this, the margins remained resilient due to strong cost discipline, improved operational execution, and our lean overhead structure. Adjusted EBITDA included $2.9 million of charges and credits, primarily related to Forex losses of $3.6 million in North Africa, partially offset by favorable items.

Consistent with prior commentary, we continue to expect charges and credits from restructuring and contract mobilization related costs to be minimal going forward. Net income for the quarter was $23.8 million, more than doubling sequentially and increasing 129% year-over-year. Adjusted diluted EPS was $0.26. This performance reflects strong operational flow through as activity scales, particularly in our unconventional completions and testing service lines. Turning to cash flow and liquidity, which remain key sources of resilience in our model. Operating cash flow for the quarter was $30.7 million. Working capital was a headwind in Q1, primarily due to seasonal DSO increase driven by Ramadan and Eid, which were anticipated, and 2, the unforeseen impact of geopolitical events in March across the region. Free cash flow was negative $5.3 million, an improvement versus Q1 2025.

CapEx for the quarter was $36 million, aligned with our stated counter-cyclical investment strategy as we continue to deploy capital into recently awarded contracts and position the business for the next phase of growth. Moving to the balance sheet as of March 31. Gross debt was $287.4 million. Net debt was $194.4 million. Our net debt to adjusted EBITDA ratio remains at 0.66 times, well below our 1 times target. Return on capital employed improved to approximately 10.9%, reflecting continued disciplined capital allocation and improved asset utilization. Looking ahead for Q2 2026, we expect a continued robust year-over-year growth driven by the Jafurah ramp up and recent contract awards. 2, sequential margin improvement consistent with normal seasonality. 3, interest expense to be around $6.5 million.

4, tax to be at the 22.5% ETR. From a cost perspective, the primary impact from current geopolitical conditions remains freight and logistics, which we have planned for. We also expect Q2 operating cash flow and free cash flow to rebound, similar to Q2 2025 in the normal seasonal pattern. As we highlighted in the last 2 quarters, we continue to see a clear path to our $2 billion target and maintain our margins despite the increase in costs due to the recent present conflicts in the region. We will continue with our counter-cyclical investment and CapEx will be around $180 million for the full year of 2026, reflecting increased activity and a strong pipeline of contract awards.

We continue to expect strong operating cash flow with free cash flow conversion of approximately 35%-40% of adjusted EBITDA on a full year basis. As the company enters a new phase of growth, we are formalizing our capital allocation framework to ensure we continue to deploy capital in a disciplined and value-accretive manner. Our approach is grounded in a clear set of priorities. First, we'll continue to invest in high return growth opportunities, including recent contract awards and technology-led expansion across our core markets. These investments remain the primary driver of long-term value creation. Second, we remain committed to maintaining a strong balance sheet with a target net leverage ratio at or below 1 times, providing flexibility through cycles and supporting our growth strategy.

Third, and as a new feature, I'm very pleased to announce that we're now in a position to begin returning capital to shareholders in a consistent and sustainable manner. Accordingly, we plan to initiate a quarterly dividend beginning in Q4 2026 at $0.10 per share or $0.40 annually. This reflects our confidence in the durability of our cash flow generation and our intention to establish a sustainable and growing base dividend over time. In addition, we are launching a $50 million share repurchase program over the next 12 months. This program provides us with flexibility to opportunistically return capital when we believe our shares are trading below intrinsic value while continuing to prioritize investment in the business. Taken together, this framework balances growth, financial strength, and shareholder returns and positions the company to deliver consistent long-term value creation.

To conclude, despite ongoing political uncertainty, the outlook across the Middle East and North Africa remains very positive, with the region expected to lead the next phase of global activity growth, as Sherif highlighted in his remarks. NESR remains focused on delivering profitable growth, strengthening operational execution, expanding technology capabilities, and maintaining disciplined capital and working capital management. On behalf of management, I'd like to thank our employees for their continued dedication and performance, and our shareholders and banking partners for their ongoing support. NESR in 2026 has strong momentum and a clear, durable path to continued growth. I will now turn the call back to Sherif.

Thanks, Stephan. Let me conclude. I hope the first quarter results show our customer first and foremost that we do not shrink in the face of conflict. We continue to invest both in the opportunities today and for the long-term vision that our clients continue to stand behind. Our people and field teams are among the most dependable in the industry. For investors, I hope the message resonates that growth plans across the MENA region remain durable and that the Ness growth model is not only solid but is stronger than ever, considering the favorable project pipeline and robust investment outlook beyond the conflict. The time I spent with clients over the past several months were some of the most meaningful interactions that I've had. I applaud our customers for their strength, commitment, and trust in Ness, which I'm humbled to say are reflected in our results and outlook.

Our industry is not just steel, engines, and consumables. Our industry encompass not just our people in the field, but the families, communities, and countries that have stood together during these uncertain times. We created NESR to reflect the ingenuity of the MENA region and to build a national champion that could weather the greatest storm and emerge even stronger. While we pray for a speedy and safe resolution to the current conflict, we stand ready to meet the emergent needs of our customers and our communities. With that, I'd like to open the floor for your questions. Please go ahead.

Thank you. Our first question today comes from the line of Arun Jayaram with J.P. Morgan. Please proceed with your question.

Good morning, Sherif and team. Thanks for the detailed update on your perception of what's going on in the Middle East. Very, very helpful. Sherif, last quarter, you highlighted a very robust tender pipeline for NESR. You highlighted, I believe, $3 billion of tender activity. I'm wondering if you could just kinda update us on kind of the status of some of that tender activity as we think about the balance of the year.

Thanks, Arun. We had, as we announced the award in Kuwait and North Africa, with the cementing, which is the first thing that was basically announced by our customer. We got awarded, much bigger than our fair share, if you like, which we are very happy with. We will have a, I would say, a leadership position in both markets for that segment. The rest of the tenders are going on as planned. As a matter of fact, there is, like, no delay or suspension. We are actively in that bidding strategy now, or the bidding, not strategy, I would say the feedback with our customer. Some of them, they like to have, like, a clarification. Some of them, they have round of negotiation.

All this is going on, and I believe, I still believe that the majority would be awarded in the next 2 to 3 months, and then they will be announced as obviously as we get the news from the customer. The pipeline is still $3 billion. I would say actually, there will be more activity and stuff that we were not planning for due to the conflict that is gonna restart. You're gonna see it with the people or the customer trying to see how they can enhance their capacity. Some of the fields, I think, in my opinion, personal opinion, that some of the customer will bring some of those project earlier than expected.

Great. And just to follow up, you guys printed, call it $77 million of EBITDA in 1Q. Obviously a quarter that had some Middle East disruption, and Ramadan, and then you highlighted $4 million of quarter specific costs. Stefan, do you have any additional color on 2Q or how you're feeling about the full year? Just, I know there's some uncertainties, but just give us a little bit of thoughts on framing. You did beat the street number this quarter. Just helping us frame near term expectations would be helpful.

For a full year basis, as said previously, we'll maintain the same margin as we did last year, which is around the 21.5%. Q1 is always the seasonally low number for the year. As I said in the prepared remarks, we had $4 million of freight costs. Q4 will be the highest for the year, and it will improve each quarter to the highest quarter at the end of the year to end up with an average which is roughly the same as the previous year. Even with the additional freight cost, we think we'll be close to or maintain the same margin as the previous year.

Okay. Thanks a lot.

Our next questions are from the line of Josh Silverstein with UBS. Please proceed with your questions.

Yes, thanks. Good morning, guys. You had mentioned before that there were a few areas that you didn't really have exposure to, which is good for right now, you know, Qatar offshore, Saudi, Iraq, you know, a few other places. I'm curious if this, you know, potential conflict has maybe opened up some doors in those areas, or if maybe you're thinking about now expanding into those regions that you previously didn't have that much exposure to.

I have to say if we are lucky that we were not, for example, exposed into the, some of the Asia, some of the areas where we had force majeure, et cetera, I would say obviously when they return we will for sure be involved and we tender actively. I would say this is not gonna be the focus for us in the very near future, right. I think there will be, as I said, diversification and with a lot of customers for some of the new areas, I would say. Definitely we are active in bidding in all projects, whether it's offshore, on land, everywhere in the MENA region now we have the very solid infrastructure across all the 15 countries.

We are authorized and allowed basically to bid on all the big project and small project because now we have the track record. We're very actively engaged. We're gonna obviously put the correct pricing and the proper bidding strategy. Whether the client award us in the different areas, it's up to them obviously to choose.

Yes. Got it. Then, Stefan, can you just walk through, I guess, some of the thoughts around the return of capital strategy? You know, is the dividend, you know, a level to start building off of? You know, why a little bit more focused on that versus the buyback? Any help there would be great. Thanks.

Right now we've got free cash flow coming from all the big projects we've won, right? That free cash flow will continue to improve over the years to come, right? We've been looking at how we're gonna return amounts to shareholders, and we thought it was best to go with a dividend first, right? The dividend's been set at $0.40 per year, which at a $25 price is 1.6% return. That's to reward our share, you know, our long-term shareholders, right? Our Middle Eastern shareholders and if there's funds that are interested in buying dividend stocks in the U.S., right? We also took the advantage to announce this buyback just in case the, you know, the share price was to dip to opportunistically buy back at a cheaper price, right. We continue to hope that the share price keeps going up.

Our next question's from the line of Saurabh Pant with Bank of America. Please proceed with your questions.

Hi. Good morning, Sherif and Stefan.

Morning.

Morning, Saurabh.

Sherif, maybe I want to touch on Jafurah a little bit. In your prepared remarks, Sherif, you were talking about acceleration in the overall project and obviously flawless execution. Maybe, can you talk to where we are in the Jafurah ramp-up process? Maybe any update on timing of the deployment of the fourth fleet and just a little more color on what you meant by acceleration in the overall project. Is that part of the ramp-up, or what exactly are we talking about? Secondly, Sherif, related to that on the efficiency, where are we on the efficiency front? Do you think we have reached optimum efficiency as the project is ramping up, or do you think there's more upside as we continue to ramp up?

Thanks. Jafurah has been obviously a fantastic project for us and for Aramco. I'm sure you saw Aramco announcement on it already publicly. The readiness and the efficiency that Aramco is managing to add wells because of their fantastic performance on the rigs, that means that more pads are ready, which means that if we continue with our performance, which is obviously our plan, and improve on it, that means that we will be able to have more stages than planned for the year. If we continue to do that and Aramco allow us, that means that we will be able to ramp up that number of stages that we do per quarter faster.

Let's say if we planned whatever X number of stage in Q3, we will be able to do it in Q2, right? Therefore, whatever we were planning in Q4, we can do it maybe in Q3. That's what I call it the, the acceleration of the project because Aramco's performance has been really outstanding. Our business, we added fleets, as I always say, we counter cyclical, basically we added more fleets than Aramco basically planning, we are always ready, that worked extremely well for us, especially with the, what happened now with the current conflict of the logistics problem. We have our equipment already in Saudi or on the way to Saudi, right?

We have our fourth fleet already in country, which means that we are going to be deploying it very, very soon. For the efficiency, there is always room for efficiency improvement. What we did ourselves internally is we looked and at all our now fleets and everything new and everything that comes in the U.S. with, you know, continuous pumping, is it dual fleet? Is it extended?

A lot of this we are implementing as we speak now in the kingdom, obviously in very close consultation with our clients. We see that we still have a very nice room of improvement, we see as well we can beat actually the number of stage that is being done in the Permian. I am a believer that the Jafurah project will be the best in class worldwide in number of stages, pumping hours, efficiency, et cetera, which is obviously, it's gonna be a very nice upside for us in terms of the number of stage and definitely in terms of profitability.

Oh, that's fantastic update, Sherif. Then just a little update maybe on the ground situation in the Middle East. First quarter of March obviously was impacted by the conflict. Since the ceasefire was announced in early April, Sherif, what has changed on the ground? I'm assuming operations are smoother, air transportation has improved, right? How have things changed since then? Stefan, you said $4 million impact. Can you give some thoughts on what's baked into your thinking for 2Q at this point? Are you thinking $4 million times 3 for $12 million impact, or is it less than that, just given the ceasefire might have improved the situation on the ground?

If I, if I tell you first the political stuff, right? I think that's what people have a bit of a misconception, and I try to explain it in details, right? The clients in the Middle East think, again, long-term, think about their capacity, think about how they're gonna perform. You have to, again, decouple the production from activity. Unless there is a direct hit to something that is significant, where they announce it, which is they are, again, all very transparent. You saw His Highness in Qatar declared there is a force majeure, there is an LNG hit, it will take three to five years, it will take this $X billion, therefore, we are suspending.

Some of the rigs that were in, I would call a dangerous zone, they told them to suspend operation. Some of the rigs, they asked them not to operate at night. All this were action in the places where it was basically safely dangerously. All the other places, even when they did not export, they did not release the rigs. They did not stop activity because the ecosystem is very important. Some of the clients, the way they managed it, is they actually drilled until the reservoir.

They drilled, basically the first 2 casing, they don't drill the reservoir, they keep the wells ready to ensure that the activity is intact, to ensure as well the capacity and the, of the people, everything is there, when they ramp up, they ramp up again the same. You saw Kuwait, for example, where they have an issue with the, with the, obviously, with the strait, they, we still have our operation almost uninterrupted, right? I think that's very important. Even with the ceasefire, definitely it makes things better. It makes some of the logistics stuff a bit easier. At the end of the day, the strait is still closed.

If you did not diversify your supply chain, you are in trouble. That's where I keep repeating this, very important that you balance your supply chain, you balance your routes. We send all our Saudi stuff directly, for example. We have our Saudi business, we have a hub in Saudi. We manage everything in Saudi directly. We don't go through another route. That's very important because that's what make us strong. We obviously balance with the authorities between the different ports, right? If you look at the cost, what we did is, which is something in our DNA, we make sure that we have excess capacity, excess spares.

If we anticipate there are issues, we actually took the proactive approach to air freight some of the stuff, despite the fact that it might have come normally. We don't take chances. We air freighted a lot of the stuff that we wanted to be in country. We never disrupt the client operation. We believe that this cost will go down as we go in the next quarter. Why? Because again, hopefully, that whole story of shipping and you have to air freight, et cetera, is much less. This cost will drop. You can be very positive as well and say the strait will open, everything will be hunky dory. Even the freight of the shipping will go to what it was before.

Great. Great. No, that's fantastic, Sherif Foda. Thank you. Thank you. I'll turn it back.

Our next question is from the line of Derek Podhaizer with Piper Sandler. Please just use your question.

Hey, good morning, guys. Sherif, curious to get your thoughts on having a bit of a tighter U.S. supply chain, just given where oil prices have gone, the U.S. independents and E&P are talking about returning rigs and frac rigs. Frac crews to work, excuse me. Capital equipment cycle potentially kicking off. I'm just curious if there's any potential pressures as you continue to scale Jafurah, or have you effectively locked in your equipment needs for the committed, uncommitted work over the next, you know, several years or so?

Thanks. No, Derek, I mean, I'm actually quite happy that the U.S. is very tight, and it's gonna get tighter, which is great. We already locked our fleet, the fourth and the fifth. We have all our equipment. As I said, the equipment is either in country or en route to the country. If the U.S. gets tighter, it's even better because that means less competition and we will be able to keep performing as we are.

We locked our products, our chemicals, our spares, our engines. We planned all this ahead of time. At the time, as I said, before the conflict, we did the very, very detailed study on what we need over the full year. As well, we planned some buffering to ensure that we can meet or even exceed the client demand with equipment and spares. We are in good shape, and I hope the U.S. keeps ramping up.

That's great to hear. Your comments on ADNOC were really interesting as far as the $55 billion. Obviously they're leaving OPEC, so clear opportunity set here. Just curious if you could expand on how you see your opportunity set growing with ADNOC, particularly as they've brought a lot of services in-house over the last several years. Just curious how you'll be a partner to them as they look to scale now leaving OPEC.

Look, I mean, ADNOC, we are working with them since the start. We keep ramping up. We won a couple of contracts lately, and now we are bidding on a lot of mega projects with them. Definitely the acceleration of their spend and their what they call Made in the Emirates initiative that was announced by His Excellency Dr. Sultan. You see it on the news, all over the news, right? It's very public, and they made that announcement for the 55. It's AED 200 billion and over 2 years. We will be bidding on all these projects, a lot of it.

The lion's share of a lot of the activity in Abu Dhabi goes to ADNOC and ADNOC Drilling and affiliated company, which is known, right? It's fine. The rest is huge, right? We always bid for all these projects and we bid against ADNOC Drilling as well. That's how the whole structure of ADNOC E&P itself, that they put the floor for everybody, the international, ourselves, others. When the pie is bigger, we will get bigger, even with the ADNOC Drilling taking the lion's share. We see it very positive. We see even more positive with the acceleration of spend. As I keep repeating, this diversification, and I think people are underestimating it, there will be a lot of diversity of even some of the fields.

People will look into the fields that will have a supply route that is different, and they will accelerate some of those projects that were, for example, planned for 2028, 2029, 2030. They will bring them ahead of time, and that's why a lot of the countries are putting budget ready for some of those projects to be executed. Very positive for us.

That's great. Great color. Thanks, Sherif. I'll turn it back.

The next questions are from the line of Greg Lewis with BTIG. Please proceed with your questions.

Thank you. Good afternoon, good morning. Thanks for taking my question. I was Sherif, I was hoping you could talk a little bit more about the opportunity in North Africa. You know, clearly there's a growing theme that, hey, the Middle East is gonna remain the Middle East, but you could see incremental capital flow to some other markets. Just kind of curious, you know, when we could start to see that maybe show up in numbers in terms of incremental revenue. As you know, as we see more capital deployed in North Africa, how should we think about the supply chain? Are there any capacity constraints we could see in that market that could limit upside?

Look, the North Africa actually has a huge opportunity, and I think for people to appreciate that, you have countries with capacity of pipeline that is not full. Imagine the amazing opportunity. Now the world has a problem because of not because of capacity, it's mainly because of supply route that is blocked. Now you have Europe that is in need of gas and they have a pipe that is underwater in the Mediterranean, not in full capacity. What you need to do is you just pump more gas into it, right? I think the opportunity is very clear. The obviously, the authorities, the clients, they all recognize that. Now is the time to really add investment. This will be two prongs, right?

You have a strategy to sign a new exploration and production agreement with international, and you saw that did take effect already. TotalEnergies, ConocoPhillips, MOU with Chevron, ExxonMobil. I think these guys when they come, you will see very high intensity of new projects because the money comes straight from the IOCs to these projects. You have the national oil company like Sonatrach, like the NOC, et cetera, or the local E&P companies, where they are going to add their capacity as well, or their budget to ensure that they can add production. You saw even visits from like the Prime Minister of Italy, et cetera. It's very clear the opportunity is there. I see it very positive. Do we see it on the ground? Yes, we see it.

Do you see the addition of rigs? Yes, we see it. We see Libya, for example, is at that all-time high in a rig count. Algeria is adding rigs, is adding the concession. I think the positivity in North Africa will come very soon in the sense of significant percentage year-on-year growth. Obviously, the size-wise for us, it's much smaller than GCC. Obviously, if you, if you grow 20%, 30% year-on-year, it's very positive. In addition to that, there is the new unconventional scheme that is opening up, and some people as well do not know, but Algeria has the same fantastic unconventional resource like you have, for example, in Argentina, in Vaca Muerta. Which means once it's unleashed, you can see significant increase of activity, production, and business for everybody.

Super helpful. Thank you very much.

Thank you. As a reminder, to ask a question at this time, you may press star 1. The next question is in the line of Jeff Robertson with Water Tower Research. Please proceed with your question.

Thank you. Good morning. Sherif, when you think about the tender pipeline and some of the diversification that opportunities you're seeing in the markets, can you share any color on what impact that might have on margins in the next few years?

It all depends on the client, the country, and the segment. I don't wanna just tell you vague answers. In some just for you to appreciate, in some countries, we have segments or product line that runs above 30%. In some, they run less. It depends on the bidding, it depends how competitive, it depends as well some of the cost or requirement. I would say now we are at that size, and we are kind of prioritizing the CapEx that we spend versus some of the project that we get awarded as we are get awarded on a much larger project. I think the margin in the majority of the time will be accreted. Will be better than what we have.

That's, again, now you can I don't want to say you want to be choosy, but some of the segment and some of the business, if doesn't make sense for us to bid at a less price of what we have been running or what we have in the pipeline and others, then definitely we will have a pricing impact. In addition to that, we have to take into account all like the logistic cost, the increase of freight, et cetera, which means that we need to, as an industry, need a bit to move up on because the cost is higher, right? I give you the best example, diesel. If you look at today, the diesel price, it is up by 100% based on obviously the oil price, right?

You get like punished from that, right? Because your cost structure. That is why we need to elevate a bit some of our pricing because obviously the cost is higher. Our clients understand that very well, and we always make sure that as long as you are doing this properly and professionally, then you should be fine.

Thank you. Secondly, just on a different note, is there any update you can share on some of the water projects you're working on within the Nitas segment?

I mean, obviously we don't talk much about it, not because it's kind of slowed or anything, but I guess because of priority and what's happening in the region. All our projects are actually, I would say, going well from like the 3rd phase of testing. Now our water project is in the last stage of the economics viability with the return of the minerals. Our lithium and project that we do with our customer is going as well, very well after the successful pilot. All this is very positive and we are working on it. Again, because the client has such a good long-term view on this, despite what's happening, we're still working on it.

I still believe that we will have a nice upside on some of these projects with the economic obviously being viable, right? Some of the other countries where they are like in the middle of the conflict, if you like, yeah, this got postponed. Some of the trial, some of the pilots obviously were pushed until after the fact because, you know, you cannot ship stuff now and just do a trial of a water project, right?

Even despite the ESG is not like in the best favor of the world, but it's still all these projects are running because what we're trying to do is again, make sure that these projects are economic without subsidy. Are they economic viable without the slogan? We know that then it's a good business and it will stay alive. Yeah, you will hear hopefully before year end on some of these projects on cutting to a scale outside the pilot and to a scale project.

Thank you.

The next question is in the line of Tom Bishop of BI Research. Please proceed with your questions.

Hi. Well, actually good evening, I guess for you. I just wanted to know how big is the North African part of your revenue?

We don't declare, per country or per region, our split. I would just say, the GCC is much larger than North Africa.

Okay. Yeah. Right. Okay. Thank you.

Thanks.

Thank you. At this time, I'll turn the floor back to Sherif Foda for closing remarks.

Thank you very much. Appreciate all the time. Again, we're very positive about our future and the strength. I guess, as Stefan mentioned with the capital return, I think that that's the right message to everyone, that we are extremely positive for the future. Thank you very much.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.