NESR - NASDAQ

Greetings, and welcome to the NESR Reports First Quarter 2025 Financial Results Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Blake Gendron, Vice President, Investor Relations. Please go ahead, Blake.

Thanks, Kevin. Hello, and welcome to NESR's First Quarter 2025 Earnings Call. With me today are Sherif Foda, Chairman and Chief Executive Officer of NESR; 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 the 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. First, I would like to thank the entire NESR 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, to geopolitical and global economic wins 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 NESR, are preparing to size the many opportunities that could emerge in the coming 12 to 18 months of market transition. As we say, never missed 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 spare oil supply is much like the setup for 2015, 2016 cycle reset. 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 U.S. production remained resilient in the face of rig and frac activity declines, at least for the short term. Given continued activity reduction in the U.S., we expect to see an impact to non- OPEC production in the coming 12 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 and framing the downside case for oil prices. And I suspect the commodity market will remain unhedged for the time being. Now what does that mean for activity in the MENA reach? 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 may not fully appreciate this dynamic. It is unique to the kingdom. In other words, they can cut rigs and still raise production by even several million barrels if they choose 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 the 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. 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 2 key themes: one, the MENA reach represent the lowest breakeven cost for oil globally. 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 12 to 18 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 NESR will grow in '25 and in '26. Why? 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 5 years. While Oman remains a stable market and is already 1 of our top 3 countries in terms of size, we expect to grow. Opportunities to deploy our [indiscernible] direction drilling platform will drive the next leg of growth and the latest win of sleek line 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 contracts 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. 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 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 the next phase of capacity growth. We remain excited about North Africa despite the potential price sensitivity to [indiscernible]. With the 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 award decision and additional rig deployment, 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 projects and initiatives that elevate our profile as the nimble technology provides. 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, machine deduction and geothermal. With that lead into technology, let me conclude by providing an update on our key growth frontier, [ ROA ] and [indiscernible] . Our [indiscernible] 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 [indiscernible] rollout and particularly the rotary steerable, is designed to be conservative, deliberate and with 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. 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 pilots will be contiguous 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 NESR principally as a pure-play service provider in the best geography for upstream activity. I am confident that this differentiation will come to the forefront in the coming 12 to 18 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 details.

Thank you very much, Sherif. Good morning to our audience in the U.S. and good afternoon, good evening to our audience in the Middle East, North Africa, Asia and Europe. I am very pleased to give an update on our financial performance for the first quarter of '25 and [ color ] for Q2 '25 and the full year of '25. A lot has happened in the last 3 months since we last talked. Ongoing macro volatility worldwide, the new administration in the U.S., 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. All this has impacted the Q1 '25 results of the oilfield services sector that makes forecast in 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 Q1 '25 versus Q1 '24, and we continue to see this stability for the rest of '25 as it stands now. First, let's turn to Q1 '25. Our overall first quarter revenue was $303.1 million, which was up 2.1% year-over-year, outpacing the broader market but was down 11.7% sequentially. Year-over-year, there was growth in Abu Dhabi, Algeria, Kuwait, Iraq and Libya, partially offset by a slow start to the 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 '25 was $62.5 million with margins of 20.6%, down 100 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. Interest expense for Q1 '25 was $8.3 million, and Q1 '25 tax was $3.3 million, which implies an effective tax rate of 24%. Turning to earnings per share. EPS adjusted for charges and credits was $0.14 for the first quarter of '25. The charges and credits of $2.6 million impacting adjusted EBITDA and adjusted EPS was the lowest for many periods. They were made up primarily of 2 items in Q1 '25 as follows: 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 '25 was $20.5 million. The headwinds to cash flow generation was mainly driven by a sharp increase in our DSO in Q1 '25 as Ramadan closed most of our client offices for the last week in March. The free cash flow for Q1 '25 was negative $9.6 million with CapEx at $30 million as we continue to front-end load our growth in technology deployments. As of March 31, our gross debt was $366 million, and our net debt was $288 million. Our net debt to adjusted EBITDA was 0.93, which remains below the 1x target for a third consecutive quarter. On a trailing 12-month basis, our return on capital employed or ROCE was 11.3%, concurrent with our robust growth investment strategy. We expect Q2 '25 revenues to grow sequentially versus Q1 '25, but moderate on a year-over-year basis as key project timing is now expected to be more back half year weighted. The Q2 '25 growth will be approximately half the growth rate of Q2 '24 versus Q1 '24. 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 Q2 '25 should slightly improve on Q1 '25 with the modestly higher revenues and the impact of our cost reduction program initiated in April. We do not expect to be impacted materially by the U.S. China tariff stories. Full year '25 interest should be around $30 million, and full year '25 ETR should be in the mid-20s as previously outlined. CapEx for the full year '25 will be in the vicinity of $125 million, as previously outlined, may go slightly up depending on the results of some large tenders, which obviously will impact revenues in the future years. Now on to housekeeping topics. We spent the better part of the last 2-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 3 of our 4 historical material weaknesses, and we're still confident that the last 1 will be remediated in '25 as most of the work has already been done and tested 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 1 share to 10 warrant basis. 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, 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. The outlook for most of the Middle East and North Africa region remains favorable as we've just outlined. Upstream spending remains durable, and NESR 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 entire workforce for their outstanding efforts in delivering these results, together with our directors, shareholders and banking consortium for their continued support. The future of NESR continues to look good. Now I'll turn the call back to Sherif.

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. 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 NESR relative to the market remains unchanged. Second, with the solid MENA backdrop, NESR is extremely well positioned to outperform due to: one, favorable project exposure, particularly related to the broad bad 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 Rua now duplicated in other country and our unique NEA positioning and investment in produced water mirroring the announcement and commitment recently made by our largest customer and cross-industry partner. Whereas ROA is expected to be a more linear driver of growth from here, [indiscernible] and our water business represent massive potential that is being defined in real time, but nevertheless, remains a long-term strategy with expected catalysts 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 happier Eid that is just around the corner. And thank our partner, shareholder and valued customer for their continued support and belief in NE. And with that, I'd like to pass over the call to the operator for your questions. Kevin?

Our first question today is coming from David Anderson from 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 rates 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 kind of going forward here. It sounds like you're expecting the market to soften up a little bit more here. I'm just wondering, are we getting to close to the study rig floor and would we see Saudi activity in the second half of the year pick up 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 Saudi.

Thanks, David. So if you split Saudi into 2 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 going to have a soften. I don't think they're going to pick up anything in the second half of this year. I would see, obviously, depending on how much oil they put and how much production they would need, then you might see rigs being picked up in '26. On the unconventional front, it's going as planned, no difference whatsoever. They are increasing rigs. They added more rigs, they're going to add frac crews and that plan is intact. It's not touched, so you're going to have a drop -- more drop of oil rigs, more drop of even conventional gas breaks and then pick up in convention. So overall, Saudia is softer than what we expected a quarter ago. Because obviously, again, they have that ability to put back production without adding anything. They still have a couple of million barrels of spread capacity, right?

[indiscernible] Is enough to offset the declines, at least in your business for the second half of the year. Everybody's got a different mix. I'm just kind of curious about your own mix and how -- I know there's a bunch of contract awards were waiting on Jafurah, how does that sort of factor into kind of the mix of your business in Saudi. So would you -- is that part of the reason why you're expecting to outperform in the market?

Yes. I mean, obviously, we are more exposed to gas and more exposed to Regulus, and that's not being affected so far. The [indiscernible], as you rightly said, is going to be a huge catalyst. So depending on the award, yes, definitely people -- some people will really outperform and some were not. So if a 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 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.

And those tender results, when should we be expecting to see those? Should those be quarter?

Next quarter.

If I could add 1 more in here for Stefan. Stepan, I noticed the margins came down a bit more in the first quarter. I recognize it's a seasonal component here. 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 mark progression versus this year, can you get back to those same margins or is that going to take a little bit more time location some of the cost structure out.

Yes, it will take more time, right? We will not get back to an exit rate of '25, right? I would say that for the full year, we will probably be maybe 100 to 200 basis points less, right, than what we ended last year with. Going to the cost reduction, right, the amount that we're looking at probably should add 100 to 150 basis points to our results from Q1.

Do you think you can kind of recover that in '26? Is that what you mean by that?

That's our goal is to recover to get back to 25% in '26.

Next question is coming from Arun Jayaram from JPMorgan Chase.

Sherif, you characterize what you're seeing is a resetting of the cycle with the market in transition. I was wondering if you could comment how you're seeing pricing trends broadly within the Middle East and maybe how the reduction on the conventional activity and Saudi is impacting just overall trends in pricing.

Thanks, Arun. 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? And so if you get a big contract that is going to be defining for some countries, yes, you will see some pricing drop. Definitely, the expectation, as we go along the cycle, similar to '15 and '16, the tenders that are coming are going to get softer, right? So the pricing people will. Because you'll have some capacity, people will start to get nervous -- so then you're going to get some pricing loss, right? But I keep saying that before, the Middle East never had a pricing gain anyway. It was slightly a bit gain because all these contracts are characterized by long term and the -- and you are not a big chunk of the cost of the production per barrel, right? So they don't tend to slash the pricing like they do in the U.S. So I would say this pricing will get overall softer than '24.

Got it. Got it. Okay. And maybe you could elaborate on your growth opportunities within 28. It 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.

Yes. I mean, obviously, again, the size matters. So our size is, again, relatively much smaller than the big 3. So some -- Kuwait is basically tendering everything, sending the entire ecosystem of contracts because definitely, they're going to be almost -- their rig count in Kuwait will be the same like Saudi, right? So they have to add capacity. They have to have new players. They have to make sure that they have another 5 years of contract assigned. So we already tendered several of those, and we announced a couple and a couple are coming on the way as well. And then we are tendering everything. So that's meaning cementing, coil tubing, fracturing, direction drilling, through tubing, testing, everything. 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 as NESR, we didn't even exist 5 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. And obviously, if we win much more, then we can even accelerate that growth. And 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.

Our next question is coming from Greg Lewis from BTIG.

Sherif, I was hoping you kind of made some comments around several million dollars of contracts in North Africa. Just kind of curious how we should be thinking about the potential timing of some of those contracts coming to fruition and then maybe what's kind of like a decent, what would you kind of characterize as a success in bidding on those realizing will be somewhat competitive, i.e., do we think we can win? I don't 1/3 of those are -- just trying to understand a little bit better what's happening in the North Africa and the timing?

So most clients actually use always the downturn opportunity to tender, right? Because obviously, smart, right? They know that everybody is hungry, 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 like a tender board, [indiscernible] , et cetera. And all these things are happening as we speak. So to answer your question, the second half, all these contracts will be awarded. So you're talking about in the next quarter, we will know exactly our position. You 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. If you are 10% of the market and you win 25% contract, that means you're going to grow definitely because you're going to 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 move to Libya, which is a country where security is always obviously is the biggest hurdle, but the capacity of the service is very small or very limited, right? And the country always since the beginning of the year, especially they aim to increase their production capacity to go to 1.6 million barrels. So they went from 800 million to 1.2 to 1.4. Now they're [indiscernible] 1.6, and the target is 2 million barrels in 3 years. To be able to do that, they need to add rigs, they need to add capacity. They need to add frac crews, they need to add cold tubing, they need to add cementing services, downhole tools. So all this needs a lot of services. So it's actually not -- the tender is not the biggest hurdle is actually the capability of people to get equipment into Libya and be able to operate there within the security framework, which is obviously we are aiming to do that. And we already have a couple of new segments in the country today working that never existed before. So Libya for us, it's not going to be an incremental, it's going to be doubling, right? So we should double and triple the size of the company because we're very, very small there, right? And -- but the country is going to invest heavily. Egypt is more of a stable, very, very stable. I don't think we're going to have a very big up or down, but we are stable. 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.

Next question today is coming from Derek Podhaizer from Piper Sandler.

I just wanted to maybe expand on your comment around never miss an opportunity for a downturn and what that could mean 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 service pressure control, Slumber today, ADNOC Drilling, the Middle East Atlantis in Oman and Kuwait. Just maybe first wanted to get your take on these types of deals that we're seeing, what it means from the Middle East region. And also, could this be a potential structure NESR pursues as you think about scaling your overall business in the region?

Yes. I mean, obviously, I cannot tell you exactly what we're going to do, but we have plans. But I would say, when you have this downturn, I think, first of all, ourselves, 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 sentiment will be negative, but we're going to invest heavily and then adding CapEx, adding equipment. We know some contracts that we have, we can gain significant market share where people have no access to that market. So I would say some of the move that you see lately people buying access to the Middle East and sometimes not 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 market footprint. So now for us, it's really to make sure that we know which clients are investing, which clients are growing, which we know very, very, very well. 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 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 going to grow 5%, 6%. Can I grow 25%, right? Can I get all these contracts and invest and be 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 finding people, we are going to invest and grow. So then we're going to be a countercycle to the Middle East. So I see that this is an opportunity for us in the next 12 to 18 months to be significant market share player. And as we always said, we want to be a clear top 3 in every segment in the countries where we operate, which is similar today, we have 3, 4 segments where we are almost #1 in the Middle East as a market positioning. And that's our aim in this cycle.

Next question is coming from Sara Pan from Bank of America.

Sherif, it's a little contrasting how you talk about a downturn resetting of the cycle yet NESR 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. what's going on? Maybe you want to talk Middle East more broadly, Southeast specifically, however, you want to address that, right? But maybe just compare and contrast overall market versus NESR, just to help us understand the scale of your outperformance.

Yes, sure. I mean, as I explained in my prepared remarks, the GCC overall will be stable to slightly up, except Saudi that is going to be [indiscernible] , that's in a nutshell the story. North Africa and Iraq will be stable to up. So overall market in the Middle East will be up, but it's not going to be up as we said before or as expected before, before the oil price drop and the whole tariff and geopolitical we said is going to be 6-8% and we're going to double that. I think the Middle East overall will be like flattish because of, obviously, the size of Saudi that is different to all the others. And I think if I talk more specifically and please, then Kuwait is definitely going to be the biggest growth year-over-year because of the added rigs and added capacity because they want to go to the 4 million 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 1 that is really dropping rigs in Saudi because they can, right? They have the capacity, they can produce another 2 million barrels without doing anything, right? So except the unconventional project that is going to grow. And that's really the characteristic over all the countries. I think the one that is kind of a sum of a wild card 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 going to -- the security would be fine. We know how to operate, obviously, in a tight situation different than others, which is give us the the advantage of knowing the place inside out. That's -- if you have more specific [indiscernible] I can dwell on it, but I think I don't want just to repeat the prepared remarks. But I tell you the unconventional Kuwait will be the strongest growth year-over-year. And if the market in the Middle East overall, you can say it's 2%, 3%, maybe flat to 2%, 3% up. And that's why we are confident we can still easily obviously double that rate and make much more depending, obviously, on the contract awards that we will know in the coming quarters between Kuwait and Saudi and North Africa.

Okay. No Sherif, I think I got it, right? So flat to up a little bit and you should be growing at double that rate, right? That's the expectation that's how you are outperforming. Perfect. And then just a quick follow-up, Sherif, on, obviously, Saudi seeing pressure, but Kuwait, on the other hand, it's probably the best market. UAE is growing. How easy is it, Sherif, for you or for the industry in general to move capacity equipment from, let's say, in this case, Saudi going down rigs or other service capacity from, let's say, Saudi and use that as an example, to Kuwait. Right? So how easy or not is it to move capacity from 1 country to the other within the Middle East?

Very easy. So within the Middle East it's very easy. Obviously, again, I keep saying that -- for the people that know the Middle East, it's very easy for the people that do not know Middle East, it's very complete, which I like it, right? So we want -- for someone in the U.S. 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 a couple of weeks as simple as that. So now the key for us, as we said, is, do you know -- you have to have a base of contracts. You have to have all the legal entity, the infrastructure, the approval, et cetera. So I think new comer to the Middle East is impossible now put it this way. It's the current players in there and the people that know the place inside out. 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 dozens of clients and partners. In the U.S., 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, I have the contract. I have the facility. They have a unique technology, let's say, in Canada or the U.S. 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. 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 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 enter this market with a fast pace and we can mobilize equipment from U.S. with the downturn happening. And I think the U.S. is going to get much worse. So there will be a lot of equipment available to mobilize. And obviously, if you have a partner, you can mobilize it easily. So that's really our whole aim. And then again, I say don't miss the opportunity of a downturn because that's the opportunity. I get all this 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.

Next question today is coming from Jeff Robertson from Water Tower Research.

Sherif, with respect to [indiscernible] , can you talk a little bit about progress towards 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.

So our [indiscernible] Platform is -- let's put it this way. We have 3 distinguish technology, MWD, LWD and RFS. So I think we're going to commercialize first our MWD, which is it's basically enabler to be able to do the other services, but as well then we stop renting or taking some of our partner stuff. And then you have the LWD, the log-in while drilling, which commercialize after an RSS where what we call the deliberate extensive testing. So today, we have contracts in 3 countries, Saudi, Oman and Kuwait. Honestly, I do not -- we are not planning to have more contracts 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 3 contracts professionally. These are plenty of services for us before we go and scout for others. So today, we get some invitation from other. Obviously, we can a tender, but we want to deploy first into those 3 countries to make sure that the tools are commercial, are reliable, are credible and then we have a track record. Just to give you numbers, again, for people to understand, this is a couple of billion dollars of a market. So for us, to take 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 are investing in and that's why as a technology or R&D beside the [indiscernible] story, and we need to make sure that this is properly commercialized. Today, we are in what I call the extensive testing space, which is basically we run the tools. We run a lot of it. So like we did in Saudi, we did in Oman, we get back the tools. 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 [indiscernible] or make something stronger, send back the tool, do the same thing, come back and then that's what we call it's -- I don't call it commercial some other people call it commercial, we do not like to call this commercial. We like to call it commercial when I call it, it's a trouble- free or it is no -- does not cause any nonproductive time, and it just becomes a matter of an industry normal efficiency, 99%, 98%. So we hope to reach that by the end of the year, while we are deploying and running all these tools on these contracts.

And with respect to [indiscernible] , could you talk about where you are in the pilots that you mentioned 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?

I would say -- okay, I will answer your second question first. No, it is not. It is actually -- I have to say the net is kind of like the creation of a market. It's not a market that exists, we are creating a market. The need exists dramatically since years, but it's just uneconomic, right? So today, the world produces so much water and most of the clients dump that pool, right? In the U.S., that's exactly what you do, right? In the U.S., you just put it in disposable well, right? But today, if I can save the planet and make that water freshwater or usable water, then we can do a lot of that. And 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 2 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. 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 side and test continuously for 6 to 12 weeks, then it becomes scale. Then we obviously determine the parameters of how much minerals you get out 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. And that's why I'm super excited about that because it's going to 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 dose, you offset your entire cost, then the water becomes like a free. So imagine you get a free water, free produced water that you can use it for everything for obviously, unconventional, as you mentioned, for other products, even for agriculture, for a lot of other reasons, then it becomes a real, real story that is pure carbon and [indiscernible] economy responsibility and economics works because you make money. And definitely, the driver, as you have seen, a joint venture between Saudi Aramco and Main, 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.

And 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 potential rare earth recovery more attractive in 1 country versus another?

Everybody is watching, right? So obviously, everybody is watching, and that's why I use the word contagious. So if this -- the success of that pilot and the work is clear or everybody is going to jump on it. We will not even have capacity to service this but -- which is a good problem to have. Now the key is to make it economically. Now for the water, your other question, no, it's very different. It's very different from the minerals the world that is like produced water is like bad everywhere. I mean it has like 200,000, 300,000 [indiscernible] million, but some is purely solved. So then the sodium is like very low price, to 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, can you have 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, dropped a bit, but it's still economic to make it.

We reach end of our question-and-answer session. I'd like to turn the floor back over to Sherif for any closing remarks.

Thank you very much. We are -- again, we are excited about 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.