NESR - NASDAQ

Greetings, and welcome to the National Energy Services United Earnings Second Quarter Earnings Call . As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Blake Gendron, Vice President of Investor Relations. Please proceed.

Thanks, Maria. Good day, and welcome to NESR's Second Quarter 2021 Earnings Call. With me today are Sherif Foda, Chairman and Chief Executive Officer of NESR; and Chris Boone, Chief Financial Officer. On today's call, we will comment on our second 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. I'm very pleased with our continued growth momentum in the second quarter, with revenues growing 16% year-over-year and 11% sequentially, outpacing the market and all our peers. If you compare it from the start of the pandemic, we have grown roughly 20% while the broader sector has dropped more than 20%. Over the last 12 months, our free cash flow conversion has been in excess of 40% of EBITDA, near to top among our larger, more mature peers which considering the continued growth CapEx needed to sustain our trailing three year CAGR of 22% is indicative of the strength in our strategy and execution. We continue to be very watchful and vigilant about the evolving COVID situation with the Delta variant causing disruptions in most of the countries where we work. More importantly, we are very focused on the wellbeing of our employees and their family members back in their hometown, as you have seen some countries suffered higher degree of disruptions and travel restrictions like India. We will continue to strive for utmost support of personnel throughout the organization during these challenging times. As most of you would appreciate, it has been a fluid situation, which has led to several changes in plans by the countries where we operate. In several cases, some have gone into curfews, locked down with strict measure to control the spread of these variants during the month of Ramadan and the Eid holidays. Mandatory quarantining in safe countries is now the rigor for most of our main operation and severe restrictions have been put in place for citizens leaving or coming from certain countries from where a large portion of the workforce comes from. While this has affected the service sector globally, we have been advantaged due to our large in-country workforce and have navigated these logistical hurdles with the target of 100% operation capacity under the leadership of our Crisis Management Team. Several of our customers have mandated vaccine requirements to access their facilities and we are working very closely to enable access to our personnel. Vaccine availability is a bit varied across the different countries, and we are working with these limitations and have achieved more than 50% vaccination across our population. Our goal remains a zero-turndown of any job, and we are meeting that necessary goal. The other angle to all of this is the significant cost, discontinued state of new normal under COVID is causing. Just to give you a scale, to date, and since we started keeping records, we are approaching 13,000 PCR tests. I personally passed already the 100 PCR test since the beginning. When you start to add additional quarantine, hotel costs were 14 days, airline to and from green countries, you start to capture a non-negligible cost to the countries and we continue to record it as normal cost to operation. I know some of the small service companies, especially the ones relying heavily on crew rotation are suffering a great deal from restrictions to their employees, sharp increase of their internal cost, and in some instances, they would not be able to deliver on their rig capacity or services in the short term. Now moving to the macro and activity outlook. Global oil demand is now expected to eclipse pandemic levels by the end of 2022, which is exactly what we predicted a year ago. We can see all the OPEC countries are preparing for the increase of production and readiness to deliver the supply to the world. The main NOCs have the capacity and capability to ramp up and manage the speed in an efficient manner to respond this growth. Near all of the low-cost swing producers are in the MENA region and are our key customers. The rest of the region either needs to invest in long-cycle projects or in exploration where they have access to reserves. As you have seen by the commentary from some of the majors, they first have to clear the hurdles they are facing in the market and their shareholders in terms of what the company can invest in or need significant spend to upgrade the aging infrastructure, which cannot be cranked up even though the resources might be in the ground. On top of it, there now is a need to see a certain level of capital discipline. The retained metrics has evolved such that the past regime of production sharing contracts or higher IRR in the case of US independents have all moved to higher thresholds. All of this leads to one thing. Price of oil, in my opinion, will be solid, and we are now going to see a longer cycle of early 2000, which lasts several years. The only folks who will be able to deliver are the NOCs in the region as they have concrete plans and are very well organized with long-term goals and very importantly, have the ability to adjust as their marginal costs are the lowest in the world. Additionally, they are focused on energy transition, and they need to continue to develop their massive gas fields for their internal consumptions. The other topic which is very relevant for the service industry and consequently to our customers is the overall health of the industry, which I believe needs some thought. We have all seen several commentaries on inflation. But if you look at the numbers and the actions of the industry, it gives you a separate picture on the state of affairs. Since the beginning of the year, if you look at the main constituent of the PPI composite index, like steel, chemicals, as an example, these have gone up by almost 100%. If you look at shipping container cost, we have seen costs increase by in excess of 50%. And obviously, there is a significant labor cost inflation, which are a consequence of demand across many industries. If we look back to the start of the last major cycle in 2000 and index the cost to that, you will see key representative oilfield service input costs increased by 100% til 2008. Since 2008, the input costs have grown steadily in line with overall inflation til basically the beginning of 2021, where it has just skyrocketed. Oil price has had several runs in this period, and the service industry has adjusted and largely absorbed any changes to these costs in that period, allowing the operator to continue to produce effectively at much lower oil price environment. Obviously, the supply organization are managing at best to curb those increases. However, at a certain point, one cannot escape the baseline structural increase. Most of the time, the industry finds innovative technologies over the years to enable such sharp reduction of prices against inflationary pressure. In most of the countries where we work, service industry upstream costs are essentially a very small fraction of the oil price, especially when the total lifting cost is in single digit. Unlike 2008 where the baseline profitability of the service industry was good and enabled a solid investment in new innovation and technology, now after more than 10 years of absorbing additional costs, the industry slowed down their R&D spending compared to earlier cycles. As a matter of fact, we need more investment in disruptive technology, especially with the need to find sustainable tools and methods to produce oil and gas in a friendly manner. Also, opposite to some of our peers, we continue to invest in CapEx and tools to ensure we have the capacity and buffer of resources in order not to affect our service quality and operational delivery. We need to ensure despite all odds, that we are able to be the reliable provider to our customers in the coming cycle where talent and equipment will start to tighten and the differentiation and service delivery will be the key factor of deciding work scope and tender awards. Our customers in the region are extremely smart, and they know and understand who is spending and investing for the long-term healthy growth, and they see how the different companies perform. We are very proud of scoring the best quality provider to one of our major customers for the fifth consecutive quarter. Now switching gears to another topic, which is very close to my heart, is our progress on our ESG and energy transition effort under the auspices of our ESG Impact segment. We are pleased to have published our inaugural ESG report in the second quarter, which we view as a pact with customers, shareholders and community alike, in driving impactful change that transcends subjective rating metrics. This report will perpetually serve as a yard marker for continued ESG improvement for us. I encourage everybody to read it. And as the national champion of MENA, we are proud to lead the way for other companies from the region. In our view, the environmental category is where oilfield service broadly have the most potential to pave new commercial avenues as our large NOC and IOC customers push head along into the energy transition. We are excited about a broad opportunity set across water, emission, flaring and most notably, the announced flagship water management project that will showcase the combined power of net service delivery and technology partnerships. As we recently announced, we got awarded a significant contract to make brine for one of the majors in Iraq. We have worked with our customer to now change the existing conventional approach on the facility and deploy technology developed with our partner, Clean TeQ, to use produced water to be the feedstock for the operation and allow the salt generated from this process to be used to generate brine. Given we are moving away from this additional process and deploying new technology, there is higher CapEx upfront, but we believe it is our duties and responsibilities to move from risk return mentality to risk return impact. Our customer is very excited to partner with us. It supports their efforts to take what is historically a carbon-intense project and flip it 180-degree into something which benefit the environment due to its circular economy. In addition to this, we are discussing how to now use their flares or excess gas to drive the electricity needs of the plant in Stage 2, completely turning a very heavy carbon footprint into something which will have a very small incremental. Again, we are working to transform that project to a flagship to the industry to follow. I believe this will be the world's first for such a facility. On the other hand, we are moving ahead with the project in Saudi where we are looking at produced water to portable water with another strategic partner, Salttech from Holland. We are in the middle of shipping the pilot project equipment. Upon trial completion we'll lead to a significantly larger water facility. Again, our client leads the industry and looking at ways to have a significant impact to the environment. They have the lowest CO2 intensity per barrel and they are focused on creating value and looking for a state-of-the-art project that serves the community and the environment. It is a pleasure working with them as we are totally aligned in the approach. As we have worked together on the frac business that is essentially transformational to the region, Today, we have proven that working closely together, we can achieve the top quartile delivery of number of stages per month than any U.S. operator has achieved. This was basically considered an impossible task just a year ago. And together, our customers proved it is a reality, and they remain by far the best-in-class in everything they do. Lastly, we announced last quarter that early in Q2, we closed on our M&A in Kuwait and are fully in charge of running the contract despite the elevated restriction of travel and entry to the country. We have planned properly to send equipment from within the company to handle the increased amount of work, which we are targeting. We are extremely excited to establish our stronger presence and have Kuwait as one of our anchor countries in the region. They have solid plans for growth and activity expecting to increase in the years to come. We are investing for the long-term partnership with our esteemed customers in Kuwait. As a reminder, we funded the first tranche of payment, which is the main part for this acquisition through our operating cash flow. All the M&A we have done up to now have been funded internally. This might change going forward depending on the size of the opportunity, but our excellent cash generation capabilities allow us this freedom to be very nimble when the opportunities present themselves. On that note, I will pass the call back to Chris to talk the financial details.

Thank you, Sherif. Turning to our results. We reported quarterly revenue of $235 million. This represents an increase of 16% over the prior year quarter and 11% over the first quarter. The year-over-year and sequential quarterly increases were driven by higher production activity, primarily coiled tubing stimulation and frac in Saudi Arabia and Kuwait. Adjusted EBITDA in the first -- the second quarter was $54 million or 23% of revenue. This represents a decrease from 26% in the prior year quarter and 24% in the prior quarter. The sequential decline was driven primarily by the impact of inflation and D&E product line mix. EBITDA adjustments of $5 million for the quarter were mainly for headcount restructuring costs in certain markets, transaction and integration costs associated with our recent Kuwait acquisition, and certain noncash FX charges due to currency weakness in Iraq and across North Africa. As Sherif highlighted in his commentary, we continue to incur significant COVID-related costs such as labor, testing, travel restrictions and administrative costs. As an example, employees must be tested several times a week before entering the operating sites on some rigs. As is our practice, we do not reflect any of these COVID related or other items in EBITDA or EPS add-backs. Moving to our segments. Our Production segment revenue for the second quarter was $153 million, growing 10% over the same period last year and 12% over the prior quarter. Sequential growth was primarily driven by higher frac in Saudi Arabia and activity in Kuwait. Adjusted EBITDA margins for the production group were 27% in the second quarter, flat sequentially as inflation and COVID costs offset the benefit of higher utilization of manpower. Separately, our Drilling and Evaluation segment revenue of $82 million in the second quarter was up 28% compared to the same quarter last year and 9% sequentially. The sequential increase was driven by higher drilling-related activities across multiple markets in the region. Adjusted EBITDA margins of 21% in the second quarter were down from 25% in the prior quarter -- prior year quarter and 24% to last quarter due to the impact of inflation and the less favorable product line mix. Depreciation and amortization increased to $35.1 million in the second quarter compared to $31.8 million in the first quarter of this year. The sequential increase was primarily related to the additional D&A from the recent Kuwait acquisition as well as the impact of an additional employee equity grant. We expect D&A to be in the $36 million range next quarter. Interest expense in the second quarter was $3.2 million, flat from $3.2 million in the prior quarter. The reported tax rate for the first 6 months of 2021 was 17.2%. Excluding the net benefit of adjustments of reserves on prior year taxes, our reported tax rate would have been 20.2% which we expect to continue to improve upon going forward. Adjusted net income and EPS, which includes the impact of the noted EBITDA adjustments were $12.8 million and $0.14 per diluted share. Switching to free cash flow. We are pleased with another quarter of positive free cash flow generation of $12 million. This brings the year-to-date cash generation to $47 million compared to $2 million in the first 6 months of last year. The sequential free cash flow decline was primarily related to higher VAT and income tax payments as well as higher capital expenditures. We continue to improve in our invoicing and collections. Overall, DSO improved by another nine days over the prior quarter level, bringing the year-to-date DSO down by 25 days, a strong accomplishment by the whole NESR organization. Additional actions are in process to lower DSO even further during the second half of the year. Capital expenditures in the second quarter were $21 million, up from $11 million in the first quarter. In 2021, we continue to expect capital expenditures to be flat to slightly up from 2020 levels to support planned growth. CapEx spending should increase to $30 million to $35 million per quarter during the second half. We continue to expect free cash flow in 2021 to significantly increase over 2020 levels due to flat planned CapEx, continuous improvement on fleet utilization and improved DSO. Net debt increased to $335 million at the end of the second quarter compared to $302 million at the end of the first quarter. The sequential increase is primarily from the use of our existing cash balances to fund the Kuwait transaction. As of June 30, 2021, our net debt to adjusted EBITDA ratio was 1.6, flat from 1.6 last quarter and should reduce to our target level of approximately 1.5 or lower in future quarters. Also, we remained in full compliance with our primary credit facility of financial covenants in the second quarter. We are very pleased with the strong financial health of our balance sheet and our ability to fund acquisitions internally. We are currently working on several other technology investments, and we are ready to fund those as they come along. With this, I'd like to pass to the operator for your questions.

Our first question is from James West with Evercore ISI.

Sherif, with the recent OPEC deal to add barrels to the market, I'm assuming -- I'm curious to hear your thoughts on this, but your main countries of operations are nano, you're having to ramp up to put those barrels back on the market. I guess is that, one, is that happening? And two, was that actually already underway, probably pre-deal announcement in anticipation of the need for barrels to come back to the market?

So all the clients and the main NOCs, as you rightly said, we're preparing for the growth, for the increase of activity. I would say the main delay on the increase is the COVID situation. So if you look at the -- obviously, there is a separate preparation from each country without going into more details in that. But you can see that the main constituent of the production, definitely have very, very strong plans to add rigs, to add rigless site production facility. Some of the projects were clearly announced publicly that they are back on track. I would say you -- if there were no coverage, you would have seen those rigs from this month straight after the Eid holidays. I would say that mainly you've got like a quarter delay because of the COVID situation. So some of the countries were announced to open up the borders 1st of August. Now they're saying it's September, some of the restriction of the countries on the travel and the airline got pushed another month or so. But definitely, everybody is in the plan of this is, as I said, long cycle. They will be adding rigs in facility to produce more. But obviously, they have, as you know, the buffer to be able to put that production without adding activity. So they have that capability to add production and add activity like a quarter later.

And then, Sherif, you outgrew the market very substantially, but sequentially and year-over-year. Do you think this level of outperformance versus the market is sustainable over the next several quarters, especially as things get going, as you mentioned, as the COVID restrictions ease, where you get through the COVID restrictions, or will there be some slowdown in that outperformance? I don't know I expect it to outperform, but I'm just been impressed by the continued significant outperformance.

I would say, obviously, our ambition is to continue to do the same. Our ambition is to have that outperformance definitely on a sequential basis and year-on-year. I would say the only drawback or the only restriction would be is the COVID. It's not only us. It's really the some of the capacity. I tried to explain it in my earlier remarks, is some of the actually like weak companies of the region, the local companies, they are suffering on their rig capacity. So even when we have projects that are lined up, we want the tender, we are waiting to do some of the work, the rig is not ready because they don't have a crew. And they rely on the crew on totally rotational people. So I would say the total market if it gets delayed, we would just have some delay. But definitely, our focus is to outpace the market as we've been doing because if you start to gain more contracts and you should be able to do the same.

Our next question is from David Anderson with Barclays.

Sherif, so you talked about the margins. So the margins were impacted this quarter by, you mentioned inflation, a bunch of COVID issues, a little bit of mix in there. I would think that maybe those should start to turn the corner, let's say, presumably over the next quarter. So you didn't mention pricing. And I was just wondering if maybe you could comment about kind of industry pricing as you see it? When things do start to pick up, I guess, kind of towards the back part of this year, where do you think pricing ends up? We've been hearing talk that the big guys have been very competitive on these big tenders. I know you don't participate in those. But is that spilling into your pricing mix? And maybe just how do you think about that as we go into next year?

So yes, definitely, I spoke about our cost, ourselves and the industry is definitely the COVID has now start to ease. You start to feel it, right? You start to feel this test per person to go to the site. I'll try to give you an example. Some of the rigs now if you have 1 case, the crane operator, for example, has COVID, then every single person on that facility will have to test twice and they quarantine the other crew for a week. So you have to pay for the hotel, you have to do all. So definitely, the costs start to really climb up. I would say the other part is the inflation, you don't see it yet, but we can feel it with talking to some of the CEOs of the chemical company, the transportation, et cetera. And they clearly say that they cannot afford to keep the pricing as is for the longer term. So you're trying to delay as much as possible, obviously, that increase until it really starts to hit you. So that mix, I think, is affecting everybody, affecting the industry, and you would see it. I think back to your point, pricing is, I would say, very honestly, it's a lack of leadership. So the pricing has not been -- nothing is passed on. People are still dropping the pricing, unfortunately, in all the tenders actually big and small, surprisingly, despite the fact that the situation is going to tighten dramatically over the next 6 months, we can see it in the service quality of some of the some of the service company in the region. They have very actually poor service quality in some of the projects. And you can see why because obviously, they continue to drop the price, unfortunately. And as I said, the health of the industry, you can see it because even if you look at, I would say, the R&D portion of the business. And if you look at how much people are investing, for example, in some disruptive technology or even if you look at the published number of the spend, you see it dramatically slowed down. which is, again, back to the pricing problem. And I tried to explain it in a way that some of the folks around, actually, they never saw an up cycle. They've been always in a down cycle over the past 15 years or some time, right? So outside North America, where you can see a dynamic approach of people trying to move pricing. I think the international market people are not used to it. They are not aware that they are going to have a problem in some months to come. And quite frankly, no, pricing is not moving at all. So this is on the normal project. If you talk now about LSTK, it's a complete disaster, I think. I mean the LSTK people continuing to bid on that on the loss making. And obviously, as those scale of the projects, especially on the drilling, it gets bigger, I think you would see it more and more on the margin of the company.

Well, I've seen an up cycle, Sure thing. We know it's coming. And so I'm looking forward to seeing that again. But one big thing about up cycle is kind of capacity, right? And so I guess the one good thing about these LSTK projects is they're going to soak up a lot of capacity out of things. So talking about the health of the industry, haven't we seen a big cut in CapEx by those competitors of yours? So do you think that obviously, in order for pricing to pick up, you need to have sort of that combination of activity and where capacity levels are. Does that give you some confidence that the pricing can get passed through kind of early next year and that, that will come naturally in the market?

Yes, spot on. I think you've analyzed it extremely well, David. It's absolutely right. There is capacity in the international market still. That capacity is going to tighten, is exactly what I was saying. And actually, I think it's -- the talent of the people will actually be even worse, right? So people are not investing at all in CapEx, and I'm investing actually much more than as a percentage, obviously, of revenue on almost 15%. And as a buffer, again, on the capacity to make sure that we can do the projects, I think what will happen exactly what you said, once the capacity gets absorbed with the increase of activity that is coming and people will start to turn down jobs, the clients would see some service quality suffering, and then the pricing will start to come naturally. And absolutely you're spot on. This will come when the time -- which is similar to North America, but always there is a lag. But I'm going to try to explain that these contracts in the international market is a longer term scale and people just have to be aware that you should be careful of what you're priced now if you're going to -- if you have a contract for 4, 5 years, right? So it's important that people start to realize the fact that the health of the industry is very important.

Our next question is from George O'Leary with TPH & Company.

Apologies if I missed it, I got dropped from the call about 15 minutes in and had to redial in. But I wondered if you could just frame the revenue trajectory in the second half of 2021. Assuming the COVID issues kind of abate or don't get worse from here, is the expectation so that Q4 '21 revenue will climb very materially and much more so than in Q3? And then any initial expectations for revenue growth in 2022 based on what discussions with and/or announcements from your customers?

I think it's very positive. I'm extremely, extremely excited about the H2 and next year. I think I tried to make it clearly that it's a long cycle. I think we're going to see a nice upturn with activity increase. All the increase, in my opinion, will come from the OPEC countries. These are the folks that are capable. They are extremely, extremely smart, extremely organized. They have a very, very solid plan for the growth. They know where the rigs will go. They do their reservoir management, as I said, best-in-class in anything, any comparison to anybody else. So those increases you will see in H2, and as I think the commentary from most of the people, you will see a double-digit definitely H2 over H1 or H2 over H2 of last year, right? So you will see a double-digit growth going forward. We believe 2022 will even be much, much, much higher than people expect. I think as you put it, the only caveat here is what happened to the COVID? What happened to the restriction? And not in the matter of like Europe now saying that they might close again, et cetera, et cetera, I think the restriction you're seeing in the Middle East and some people are not aware of that, it's like they take very strong measure, like very, very strict. It's more of a Singapore approach or Australia, et cetera. So where you have a lot of restriction, who can go. The people cannot travel. Some of the countries are not allowed to enter, et cetera, et cetera. And I think this will just have, I would say, a shift maybe on the increase of activity by a quarter or so. But I say Q4 is going to be absolutely solid, absolutely solid. Because rigs will start to arrive. People will have the crews, et cetera, et cetera. So I'm extremely, extremely excited. And again, this is not I would say, six, seven months, I think this is going to be a nice several years up cycle.

And then M&A is especially an important part of the story. You touched on it a little bit in your prepared remarks. I wonder if you could flesh that out a little bit? Just how is the M&A landscape? What's your mindset with respect to M&A at this point? And then how do you balance that with forming partnerships, technology and investment focused? Any areas of interest to you as we move forward?

It's the same. I mean, we are very, since the beginning of the company, we know exactly what we want to do. We actually know who we want to buy. So we are focusing on ensuring that the geographical M&A, which is our main M&A has to be accretive, people have to be -- we have to buy companies cheaper than us, cheaper than how we trade. I think we trade very low multiple compared to what we are, how we are growing. However, if we still at that multiple, we have to buy somebody that is cheaper. The company has to add value. We look at the governance extremely in a very detailed eye. So we need to ensure that how they run their business, how they govern the company, the shareholder base, it's accretive to us. It's added value to the portfolio of the segments that they have in that country. So it's one plus one equal three. That's how we look at M&A geographically. On the partnership, we continue on the same path, like we did now, we have like almost a dozen of partnership. I'm very excited with the ESG Impact partnership. We have the 2 water companies. We are looking at emission. And now we are almost on the third or fourth company to look at that. We don't announce it yet because a lot of it is R&D kind of sensitive. So there is a lot of proprietary or IP that we kind of -- trying to make sure that it stays like confidential. So once we have this more matured, we will announce those partnerships that will add value and people will see in the market that why we're doing that. Meanwhile, we are looking again at early ventures, people with disruptive technology. We are investing in those. We put already this quarter, I think, in a couple we invested. We put money. Again, we don't announce the name because of confidentiality, but we already put some cash into those 2 companies. And we look into more of these. There is not much going on, as I said, on the R&D front from the big guys, they don't really invest in a lot of oilfield services stuff now. So the disruptive stuff comes from really the nimble, small, very smart R&D focus, and that's where we want to put some money. Partnership with bigger companies is definitely, again, on the same path like we had very nice with Phoenix. We have with others. We are discussing with two other companies to do something about -- with their technology and how that can fit for purpose in the Middle East. But when we do that, again, as we always said before, we need to ensure that, that partnership adds value to our customer. So that open platform that we provide today to the big NOC is a very big differentiator because it gives the client access to all this different technology, they are not bound by one or two technology that may be outdated. They want to see who else has something. And so I want to make sure that we are credible when we bring those partnerships, those people add value and they are differentiated. And that is the key. And especially as well, they have the promise and they have the will to invest in those countries. They cannot come there and just do business and run away. They have to go and invest, they have to put a facility, they have to put labs, They have to put the investment. They have to have skin in the game to be able to come with us into those countries. So then we bring value to our dear customer in the NOC in the region and they see why we are bringing those folks to their territory. So same line, very excited about it. Hopefully, we're still on the same path to try to close a deal before end of the year.

Our next question is with Igor Levi with BTIG.

You talked about two water projects, one in Iraq and one in Saudi. If you could just provide a bit more color on the size and objectives and what are the differences in the two projects? It looks like Saudi is more of a pilot. And I believe on the previous call, I think you mentioned there were three pilots on the horizon. So also wondering what the updated project pipeline for water management looks like?

So look, the Iraq project is obviously with, as I said, with a super major extremely, extremely excited on it. We have the award. So we are awarded a contract to make conventional brine like they've been doing, like the competitors are doing. So we obviously -- you have to get awarded the normal way, which we did. And then our clients are extremely notion about the ESG, we went and presented to them. We are awarded. This is how you do it for the past two years and all the industry does the same. We like to change that. We like to put it -- we will honor the same price despite the fact that it will cost us more, but we will honor the same price, but we can do it with our partner company, which is the Clean TeQ guys from Australia. And if we do that, this is the amount of CO2 we're going to save. We do not have to ship any salt. We are going to take the existing salt from the produce and then clean it, remove the sulfate, put it back and use it as brine. So the footprint of that is going to be significantly the reduction of CO2. And we are going to have this as a nice ERT project. They loved it. They said it's a great idea. We need to make sure that you guys still deliver, as you said, on time, which we said yes, we will deliver on time, but we will do it this way. It will cost us more, but we will do it, right? So that project is going to be, I think, once it's started and working, it will be a flagship. And our approach here is to show this as a project for everybody. So everybody in the world see it because I think it will be the first time ever done like this. The second, as I said, the pilot, just to give you more color on that is the same what we discussed before. That's totally different companies, different approach, different technology. This is made to make portable water, and it's not used for oilfield today. That's why it's called pilot because the technology has never been used in or it's used for totally on the other industry. We believe that this is very innovative. We believe that this could be something that is if we can make that, then it's not only we can make water for like DLD and all the stuff, but it can even make water from the community. So now the contribution is to the environment that is totally outside our -- it's not even to make brine to drill with it or to make -- you can make water for drinking, for villages. You can make water for the community, for so many things, especially when we work in the desert, if we are able to do that, we are definitely, definitely a game changing here. And that's why we approach Saudi because obviously, our customer in Saudi is like, as I said, it's like one of a kind, right? They're best-in-class in everything they do. And they are so focused on the environment. They're extremely, extremely savvy on that. If you look at what they are doing in so many places in Chad and et cetera, just now state-of-the-art. So they loved it, obviously. And they said, let's pilot. Let's see how this would work. If it works well, then what is the scale of such a plan? And where can we do it and how we do it. And that's why we are doing the R&D -- kind of an R&D pilot together. Once it's proven and once we can make that scale, we'll do it. So the way we do it and giving maybe too much details now, is we are telling those folks in Holland and Germany, we build those, and we are shipping that because it's a totally different scale than what you do. what they do in the industry today is a miniscule compared to what we're going to do in an oilfield sector. So we are making that, so we're going to test it, then we're going to scale it if it's successful. We're going to scale it to a totally different size. And once it's done, then we will be able to forward the discussion to other countries where we have the same idea but we obviously told the customer, now I'm testing this in Saudi. And soon as I finish, as soon as it's successful, we obviously take it immediately the same scale with all this lesson learned to the other countries to do the same.

And shifting to Oilfield Services. As we think about the rest of the year, are there any major contracts set for renewal this year or even incremental work that you're anticipating could be awarded in the second half?

We tender all the time, Igor. So it's a $20 billion market. So I can tell you, if you just tender 10% of that, that's $2 billion. So it's an ongoing process. And I think that's what I tried to make on my earlier replies that the expectation that we see that those kind of big tenders and big contracts start to see different approach because of the inflation, because of how the whole market is going to develop. And that's what I just said. Unfortunately, we don't see that until now. So we are moving, and hopefully, as soon as we have some significant and client can allow us to announce awards, and we definitely do that. So we obviously do that always very frankly with our clients. And I see there is so many things going on, and we will -- you will know about it as soon as we -- if we secure some of these awards, we'll definitely announce that.

Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back over to management for closing remarks.

Thank you, Maria. Thanks, everybody, for attending our call. Again, very excited about an up cycle. We've been missing that for a while. And we look forward to speaking to you soon and all the best. Thank you.