Jeff Robertson

Jeff Robertson (Water Tower Research) requested an update on NESR's NEDA projects, particularly the water initiatives in Saudi Arabia.

Answer

CEO Sherif Foda stated that several NEDA pilots, including water, mineral recovery, and lithium initiatives, are currently in the testing phase in Saudi Arabia. He expressed excitement about the potential for sustainable energy production and mineral recovery, promising more detailed results and color on the next earnings call.

Jeff Robertson sought updates on NESR's NEDA projects, particularly the water initiatives in Saudi Arabia, and their progress.

Answer

CEO Sherif Foda stated that NEDA projects, including water, mineral recovery, and lithium initiatives, are currently in the pilot phase in Saudi Arabia. He expressed excitement about the potential for sustainable production and new materials, aiming to provide more detailed results and color on these pilots in the next earnings call.

Jeff Robertson asked about Nessar's scale in Algeria following recent contract wins and whether there is broader regional interest in the NEDA segment's pilot projects.

Answer

CEO Sherif Fota stated that recent awards in Algeria provide a runway for significant growth, positioning the country to become a sizable market for Nessar in the >$100 million range annually. Regarding NEDA, Mr. Fota confirmed 100% interest from other countries, emphasizing that the key to widespread adoption is proving the economics of solutions like water treatment and mineral recovery. If the pilots are successful, he expects rapid rollout across the region.

Jeff Robertson from Water Tower Research asked how long it would take for production in Côte d'Ivoire's Baobab field to return to its full rate once the FPSO is back and reconnected. He also questioned the impact of the July Gabon maintenance work on preparing the facilities for the upcoming drilling campaign.

Answer

CEO George Maxwell estimated 6 to 8 weeks for the Côte d'Ivoire FPSO hookup and commissioning, with details on the startup sequence for wells to be provided in the next call. CFO Ron Bain explained that the Gabon maintenance included significant upgrades to the TAMI platform's power and water handling capabilities, ensuring the facilities are ready for the drilling campaign.

Jeff Robertson sought clarification on whether the $20 million CapEx reduction was permanent due to efficiencies or lower costs. He also asked if the efficiency gains in Egypt were sustainable for 2026 and about the rationale behind increasing the RBL commitment to $240 million in January.

Answer

CFO Ron Bain confirmed the $20 million CapEx reduction was permanent, stemming from Canadian drilling CapEx removal and other discretionary cuts. He affirmed that Egypt's efficiency gains, particularly in reducing spud-to-online cycle times, are sticky and expected to continue into 2026. Regarding the RBL, he stated the increase reflects the current market and the strategy to secure liquidity from a position of strength.

Jeff Robertson of Water Tower Research LLC inquired about the scale of the global defense market opportunity, the nature of its revenue streams, the importance of remote operating systems, and the characteristics of the "growth markets," including adoption patterns and margin profiles.

Answer

President & CEO Neal Lux described the defense opportunity as significant, citing the recent submarine rescue vehicle order and demand from global navies for underwater vehicles. He confirmed the revenue stream includes both initial vehicle sales and long-term service and spare parts. Lux highlighted the Unity remote operating system as a key selling point for both defense and offshore customers seeking cost efficiencies. He characterized growth market adoption as a gradual ramp-up of consumable sales rather than chunky, with margins expected to be comparable to or better than leadership markets.

Jeff Robertson from Water Tower Research LLC inquired about the global defense market opportunity, whether revenue includes long-term servicing, and if the remote operating system is a key selling point. He also asked if growth in new markets is 'chunky' or gradual and about the margin profile of growth markets versus leadership markets.

Answer

President and CEO Neal Lux described the defense opportunity, citing the recent submarine rescue vehicle order and growing demand from global navies for underwater vehicles. He confirmed that revenue streams include both the initial sale and long-term spare parts and service. Lux also affirmed that the Unity remote operating system is a significant selling point for customers looking to reduce offshore personnel costs. He clarified that growth market margins are comparable to or better than leadership markets and that revenue growth would be a gradual ramp-up of consumable sales rather than 'chunky' from single approvals.

Asked about the impact of the FAST-41 critical minerals project designation on offtake and financing, the capital spend runway for the Southwest Arkansas (SWA) and East Texas projects, potential objections to the proposed royalty rate, and whether this rate could become a benchmark for future phases.

Answer

The FAST-41 designation provides comfort on regulatory timelines and boosts confidence for potential customers and financial institutions. The Equinor funding carry for East Texas will likely run out by Q2/Q3 2025. The SWA project's CapEx will be funded by project debt, a DOE grant, and partner contributions, with current liquidity being sufficient for near-term needs. The company has engaged with stakeholders on the proposed 2.5% royalty rate, believes it is fair, and expects it to set a strong precedent for future projects, despite anticipating some minor objections at the hearing.

Jeff Robertson asked about the in-service timing for the midstream project, how its financial benefits would be reported, whether Q4 production is dependent on its progress, and if the new infrastructure creates an M&A advantage.

Answer

COO John Suter estimated the midstream in-service date could be as early as late 2025 but is more likely in the first half of 2026, contingent on regulatory and right-of-way approvals. CFO Philip Riley stated the financials will likely show midstream revenue and OpEx with an intercompany elimination. He and CEO Bobby Riley confirmed that the timing of new well production in New Mexico is dependent on the project and that the infrastructure provides a distinct strategic advantage for potential acquisitions in the area.

Asked about the number of permitted locations at Beta, the requirements for booking PUD reserves, the nature of the acreage involved in the East Texas monetization, and visibility on future non-operated capital expenditures (AFEs).

Answer

The company has sufficient permits for near-term plans at Beta and is permitting more; permits in hand are not required to book PUDs. The East Texas monetization involves non-producing Haynesville rights on HBP acreage, with a plan to generate cash while retaining some non-op participation. Visibility on non-op AFEs for the rest of 2025 is limited, but more activity is possible.

Asked for details on the future direction of Lease Operating Expenses (LOE) at Beta following electrification and increased volumes, and inquired about the potential outcome of the upcoming RBL redetermination and its impact on liquidity.

Answer

The Beta electrification project will significantly reduce LOE by eliminating diesel usage and the need to purchase NOx emission credits, and per-BOE costs will decline as production ramps up. Regarding the RBL, it's too early to speculate, but the company is generating free cash flow and doesn't have a pressing need to increase the facility. A potential Bairoil sale would not meaningfully impact the credit facility.

Asked about the factors contributing to improved drilling efficiencies and lower well costs, the potential for using different lateral lengths to enhance capital efficiency, and the role of the downhole assembly in staying within the target zone.

Answer

The company attributed drilling efficiencies to using improved downhole assemblies like rotary steerables, operational experience, and achieving single-trip drilling, which saves time and money. They are considering 2-mile laterals in specific areas but noted challenges with staying in the zone due to steep dips. The downhole assembly was confirmed as critical for providing real-time data to stay in the target interval.