Good afternoon, everyone. This is Mazen Al-Sudairi from Al Rajhi Capital. Al Rajhi Capital is pleased to host Arabian Drilling Q1 2024 earnings call. Welcome all to the call, and now I will hand over the microphone to Mr. Ghassan, the CEO of the company. Please.
Good afternoon, everyone, and welcome to Arabian Drilling's earnings call for the first quarter of 2024. Our thanks to Al Rajhi Capital for hosting this call. We announced our financial results yesterday, and the documents are available on our investor relations website. As usual, we must start with a disclaimer, so I invite you to read it at your convenience. Let me now introduce our speakers for today's call. First, we will get a performance overview from our CEO, Mr. Ghassan Mirdad. Then our CFO, Mr. Hubert Lafeuille, will take us through the financial performance. The agenda for today's session will cover various topics, including key milestones, a review of our operational and financial performance, and forward-looking guidance. We will then open the floor for your questions. I would like now to hand over to our CEO, Mr. Ghassan Mirdad.
Thank you for the introduction, Raed. Salaam Alaikum, and a heartfelt welcome to all participants joining us for this earnings call. We will begin with a brief overview of this excellent quarter. Q1 2024 was a strong start of the year, with an excellent operation, operational execution, solid financials, and achievements to celebrate. Starting with operation. We have maintained our utilization rate of 69%, with 47 active rigs over a total available fleet of 49, same as last quarter. Our non-productive time of 0.81% was the lowest achieved over the last four quarters. Our 36-month rig efficiency index was consistently strong at 94%. Over the quarter, we added 56 additional drilling days through our rig move efficiency, which all added directly to the bottom line.
On the health, safety, and sustainability front, we improved our total recordable injury frequency rate, and we were very pleased to receive Aramco award for the best HSE, Health, Safety, and Environment offshore rig of the year, as a testimony to our safety culture. On the sustainability front, we finalized our Scope 1 and 2 baseline emission to progress on our long-term sustainability efforts. This is an important step that will let us measure the effectiveness of our strategy, and we look forward to publishing our sustainability report by the end of this month. Moving to the financials highlights, which Hubert will cover later in more details. Compared to Q1 last year, both our revenue and EBITDA showed strong growth of 24% and 25%, respectively. Our EBITDA level was 42% this quarter, which is in line with our expectations and market consensus when normalized.
On the growth front, we have great news. On the unconventional rigs, we are very pleased to announce that we started drilling operation last week on the first of our unconventional rigs ahead of schedule. This early start would not have been possible without the support of our partners, Aramco, and we look forward to continue working closely with them on this exciting project. For this rig alone, we will account for an additional six weeks of drilling revenue ahead of plan. We expect another few rigs to start before the end of H1, which will give us some more revenue upside. Let's now have a look at the latest contract and rig activity updates. On the land rig activity side, as mentioned, we started our first unconventional rig, and the startup activity for the other nine rigs are in full swing.
I would like to recognize the team who is doing an excellent job in getting those rigs ready to drill quicker than initially planned. Also, this quarter, on the land rig activity, we started an idle land rig with our customer, KJO, Kuwait Joint Operations. This is a new milestone as we never had a land drilling operation with KJO in the past. On the other hand, one land rig finished its Lump Sum Turnkey contract, and we expect to reassign it to another customer shortly. The previously announced suspension of the three offshore rigs will be effective towards the end of Q2. We are having constructive discussions with Aramco to achieve the best possible outcome for all parties.
As mentioned in our earnings announcement, we are finalizing the terms of the suspension. From a market outlook standpoint, we see further growth opportunities in the conventional and unconventional gas drilling space in Saudi Arabia. Let's now discuss our backlog. The backlog of SAR 11.8 billion was mostly stable compared to last quarter. Our quarterly backlog, naturally, consumption rate was mostly affected by the addition of the three unconventional rigs contract award. The backlog reduced by SAR 900 million due to revenue recognition during the quarter, offset by the SAR 800 million coming from the three new unconventional rig contracts. We have seven rigs rolling off contract in 2024, of which three are offshore and four are land. All three offshore rigs are under negotiation, and the four land rigs are expected to be extended or reassigned to a new project. Moving on to the next slide.
We have a strong start of the year operationally. Looking at the top left, we kept the Aramco Rig Efficiency Index at a very high level of 94% in Q1. Then more importantly, as you can see in the green, over 90% of our rigs are scoring in the high and superior performance category, which is the highest score achieved in the last four quarters. On the lower left graph, you can see that our quarterly non-productive time dropped further to 0.84%, which was the lowest achieved over the last four quarters. Overall, we see a very good trend over the last four quarters, with the 12-month rolling average heading in the right direction. On the top right, our rig move, rig move performance was also consistently strong, with an average of 1.3 days saved per rig move.
If you multiply 1.3 days saved per rig move by the number of rig moves completed, we have effectively gained an additional 56 drilling days in Q1. If you recall, in Q1 last year, we did not save any day from the rig move due to bad weather. Even though we experienced worse weather conditions this quarter, the performance of our offshore team enabled us to operate as normal. This is another proof of the benefits of continuous enhancement we are implementing. With that, I will now hand over to Hubert to go through the financial performance. Hubert?
Thank you, Ghassan, and good afternoon to everyone on the call. First, let's have a look at some of the key numbers for the quarter. Financially, we also had a strong start of the year with our quarterly numbers. We closed with revenue of SAR 967 million, showing a 24% year-on-year increase. Our EBITDA was SAR 405 million, representing a 42% margin and in line with our expectation. The CapEx spending for the quarter was north of SAR 300 million, of which approximately two-thirds related to the ongoing CapEx program of the unconventional rigs. Our free cash flow remains negative as we're in full swing with our ongoing CapEx growth. We're showing a return on equity of 10% based on our last twelve months net income over an equity position of SAR 6.1 billion.
We closed the quarter with a net debt of SAR 1.85 billion and a leverage ratio of 1.2x, which is stable compared to what we had in the last quarter. Now, let's go a little bit more in detail and let's have a side-by-side comparison year-on-year and quarter-on-quarter. So first, I'm going to look at the year-on-year Q1 2024 versus Q1 2023, which is on the upper graph, and I'm going to go from the left-hand side to the right-hand side. So we start with the revenue first. So looking at the revenue, we have a strong year-on-year increase of 24% from SAR 779 million to SAR 967 million, mainly coming from the additional three jackup that started mid-year 2023.
Then moving along on the right, following the revenue upside, EBITDA also increased by 25% year-on-year, from SAR 323 million to SAR 405 million, mainly coming from the contribution of the three offshore rigs, as mentioned. The EBITDA increase of SAR 82 million was partially offset in Q1 2024 by the impact of unconventional start-up cost of SAR 26 million. If you exclude the start-up cost and normalize Q1 2024 EBITDA, we would be approximately at SAR 430 million of EBITDA. Net income shows a much reduced growth of 3% from SAR 141 million to SAR 146 million. Q1 2024 net income was impacted by increased interest expenses as well as additional depreciation costs compared to Q1 of last year. And then again, there is also the impact of the SAR 26 million start-up weighing down.
Again, if we were to normalize net income and exclude the start-up cost, net income would be north of SAR 170 million for this quarter. Just a note on the increased interest and depreciation expenses affecting Q1 2024 net income. The increased interest expense year-on-year comes from the combined effect of increasing the debt position, higher market interest rates, as well as a portion of the interest expense that we're capitalized in 2023. For instance, in Q1 2023, we capitalized SAR 18 million of interest expenses related to the offshore fleet expansion program, the one that took place last year. The increased depreciation expense year-on-year is mainly coming from the full impact of the three jackup, as well as some well control equipment purchase and upgrade, which took place last year.
On the CapEx side, on the year-on-year number, the year-on-year number does not really compare, since Q1 2023 did not include any of the unconventional CapEx program. However, in Q1 2023, we incurred some CapEx related to the shipyard activities for the three jackup contract preparation. Now, moving on to the quarter-on-quarter, Q1 2024 versus Q4 2023 comparison, which is shown on the bottom graph, and again, going from left to right. The revenue was slightly lower by SAR 20 million, with a number of factors offsetting each other, including one less operating days in Q1, with the month of February being shorter, and also high rig move activity witnessed in Q4. From an EBITDA standpoint, we have a SAR 30 million decrease from SAR 435 million to SAR 405 million.
So SAR 20 million of that is coming from the revenue decrease, as I just mentioned, and the remaining SAR 10 million is coming from additional unconventional start-up incurred in Q1, as well as some year-end adjustment numbers. Now, if you look at the net income, you will see that there is a decrease of SAR 37 million from SAR 183 million to SAR 146 million. So again, SAR 30 million can be explained as coming from the EBITDA, as I have just described, and there is an additional SAR 7 million, mainly related to an increase in the Zakat taxable base, as well as deferred tax liabilities generated by capitalizing equipment and assets in our books. If you now look at the CapEx, you will see a decrease of 43% between this quarter and the last quarter, from SAR 535 million to SAR 306 million.
This decrease is coming from two things. First, we spent approximately SAR 75 million less in Q1 on the unconventional rig CapEx program, and in Q4, we also had significant CapEx spending coming from the purchase and upgrades of well control equipment. Overall, on the 10 unconventional rig CapEx program, we have spent close to SAR 800 million to date, and we estimate that the total program is around SAR 1.75 billion. If you add the initial 3 rigs that were recently awarded, then the total estimated spend for all 13 rigs awarded is expected to be in the range of SAR 2.2-SAR 2.3 billion. We expect to see a bit of an acceleration of the CapEx spending in the second quarter, as we now take physical delivery of some of the unconventional rigs, which is going to trigger further milestone payments.
On the next slide, which is a segmental reporting, we are breaking down into the two different segments. You have the offshore segment and the land segment. Then within the segment, we are looking at two things, the revenue and the gross profits. As a reminder, the gross profits includes direct operating costs of the rig, as well as the depreciation expense, but does not include G&A, nor interest, nor tax. For the offshore segment, as mentioned by Ghassan, let's reiterate the fact that the full offshore fleet was 100% operational during the quarter. If you look at the top left graph, offshore year-on-year, Q1 2024 versus Q1 2023, does not really compare. In Q1 2024, we have the benefit of the full impact of the three jackups that were added in Q3 of last year.
Also, in Q1 2023, the offshore utilization was slightly lower due to one of our offshore rigs being in shipyards for most of the quarter for a planned mandatory recertification. Compared to the prior quarter, which is the upper right graph, on the same rig activity level, the revenue was flat and the upside on the gross profit was mainly due to lower staff compensation cost. Now, let's have a look at the land segment, which is the bottom graph, and first, at the year-on-year comparison, Q1 2024, this is Q1 2023, on the lower left side. So for the land segments, the revenue increased by 7%, from SAR 480 million to SAR 514 million, with the same level of rig activity.
The increase that we see in Q1 2024 is due to the fact that we experienced last quarter a high activity of planned maintenance, with a few rigs being on zero rates. And also, we had a better rig move performance this quarter compared to last quarter, as Ghassan just mentioned. Still comparing year-on-year, we can see that the gross profit in Q1 2024 is slightly below that of Q1 2023, in spite of the increase of the revenue. And again, this is mainly due to the unconventional rig start-up cost that impacted Q1 2024 profitability with an additional SAR 26 million of expenses.
Now, looking at the quarter-on-quarter comparison, which is the bottom right graph, on the revenue for the land segment, we are losing SAR 25 million from SAR 539 million to SAR 514 million, which is a 5% decrease. As you may recall, Q4 2023 land revenue was the best quarter on record due to a very high rig move activity. On the gross profit, we lose SAR 20 million from SAR 79 million to SAR 59 million, which is a result of the SAR 25 billion revenue difference, as just mentioned. The next slide is a cash flow bridge that provides a snapshot of the cash movement for the quarter. Overall, we started the quarter with a cash position of SAR 1.4 billion, to which we added SAR 405 million of EBITDA contribution, offset by SAR 306 million of CapEx. Again, two-thirds relating to the unconventional.
We also had some financial obligation of SAR 41 million, which include a loan repayment of SAR 25 million, with the rest being lease obligations. In the quarter, we repaid interest expense of SAR 86 million net, which include the semi-annual Sukuk coupon payment of SAR 78 million that took place in February. We did not withdraw any further financing line during the quarter. Finally, we had a swing on the net working capital, mainly due to the increase of inventory as we are starting up the unconventional rig, as well as significant trade payable settlements made during the quarter. Overall, we closed with a cash position of almost SAR 1.26 billion, of which we invested on average SAR 800 million in short-term deposits as a natural offset to the cost of servicing the debts.
Moving on to the detail of our debt profile. Our gross debt position remained roughly the same during the quarter. We have a total borrowing of SAR 3 billion, made up of SAR 2 billion Sukuk and two bank loan of SAR 500 million each. We started repaying one of the bank loan with a payment schedule of SAR 25 million per quarter. The repayment schedule of the second bank loan will start in 2025, with an additional SAR 25 million principal repayment per quarter. Quarter-on-quarter, the company net debt position of SAR 1.85 billion has increased by approximately SAR 100 million or 5%. However, our net debt to EBITDA leverage ratio has remained stable as 1.2x multiple on the account of a growing EBITDA number.
Going forward, we may decide to draw on additional debts to finance the remaining 3 unconventional rigs, and we already have a bank facility secured at a very competitive price. My last slide relates to the 2024 guidance. At this point in time, we reiterate our revenue guidance for full year 2024, with the revenue expected to be in the range of SAR 3.6 billion-SAR 3.9 billion. The guidance factors, the upcoming suspension of the 3 offshore rigs. We also reiterate our CapEx guidance, with the expected spending to be in the range of SAR 2.1 billion-SAR 2.4 billion as we continue to invest in the unconventional CapEx program. This concludes my section, and I will now hand it back over to Ghassan for his closing remarks.
Thank you, Hubert. In closing today's presentation, we have had a strong start of the year, operationally and financially, building on the excellent progress we are making across the organization. We always expected that the offshore market might soften by 2027. Accordingly, our growth strategy included some buffer that materialized with the leasing of two rigs that we believe would have been released at the end of their contract. Our client discussion accelerated the process of adjusting our fleet deployment, and we have taken the time to evaluate our options. These include keeping our rigs and releasing the leased ones, or keeping the leased rigs and deploying our own rigs in a new market, or a combination of both. We are nearing finalization of the suspension, which at this point will not impact our guidance, as mentioned by Hubert.
Our segment mix will evolve as a result on... The growing land contribution will bring long-term stability in the sector that is crucial for Saudi energy transition. We believe that gas will continue to grow both on the unconventional and conventional front. 2024 will mark the peak of our current investment cycle, and we are delighted with the early start of our first unconventional rig. Our team are focused on delivering all 10 rigs ahead of our internal timetable to see the benefit of the new revenue stream flowing through. As mentioned, at year-end, we are set to deliver continuous top-line growth for the full year. I will now hand it over back to Raed, Al Rajhi Capital for the question and answer session.
Thank you, Ghassan. Thank you, Hubert. Now we start the Q&A, and we'll start with Ricardo. Ricardo, please, can you mention your company and, before your question? Thank you.
Ricardo Rezende with Morgan Stanley. Thanks for taking my question. I guess, first question, just following up with something that Ghassan mentioned about the suspension on the rigs and some of the choices that what you might do with your own lease, or your own and the leased rigs. Ghassan, you mentioned potentially deploying your own rigs in other markets. Could you please just remind us what's the latest status on having all the approvals and qualifications to bid in other markets? I'm just trying to get a sense on the timeline on how long could it take to deploy the rigs eventually in another market. And then the second question, it's on the unconventional gas in Saudi.
You've been very successful on deploying your first rig ahead of the schedule and being able to book extra revenues because of that. How sustainable was this deployment ahead of schedule? Meaning could we expect the same to happen in other rigs as well, or was that more of a one-off? Thank you.
Okay. So a very, very good question on the qualification. We are in the final stages of qualifying for KOC for offshore. However, you know, with the offshore rigs, there is different means of penetrating the market. You can work, you can, you know, lease the rig, you can work with a local supplier in another environment, another geography. So there is different ways other than being going direct straight, and this is what's gonna make it easier for us if we want to deploy into different markets in terms of the offshore.
In terms of the unconventional, I mean, I think the investment that we put in place and all the recruiting that we hired ahead of time is paying off, and we've seen the first rig, and I believe we are seeing more rigs coming ahead of time. So in our initial, we expected H1, sorry, H2 to see to start flowing of revenue, and now we see more than one rig that will start flowing revenue before the end of H1.
Ricardo, any further question? Okay, I'll move now to Ibrahim. Ibrahim, now you are unmuted, and please mention your company.
Mathia from Ashmore Investment. Congrats on your earnings during Q1, 2024.
Thank you.
I do have a couple of questions from my side. One is on the guidance. Can you elaborate more on what kept or what's the reason behind keeping the revenue guidance at the same level? So just quick calculation, if I, if we analyzed Q1 revenue, it will come up around SAR 3.9 billion. So were you conservative from the beginning in your guidance for 2024, and what are the other reasons?
I mean, I think we just factored, you know, we factored the real drop on the offshore rigs because the announcement of Aramco. And I think our factors were good. So that's why we're not impacting our guidance right now. Anything you want to add, Hubert?
No, no, that's it. I mean, I think the guidance that we gave, I mean, we already cook. We already cooked into the guidance, the fact that we'll see a suspension, and then the guidance was based on what rigs and what timing, et cetera. But at this point in time, you know, we're not moving the guidance. So, it's already taking into account that three offshore rigs will be suspended.
When you provided the guidance, revenue of SAR 3.6-SAR 3.9, do you believe that earnings or EBITDA will be lower than initially anticipated when you built the guidance at the beginning?
So we don't. We haven't given any particular guidance on the EBITDA. We've communicated on a number of times that, you know, the EBITDA would be in the range of the low-to-mid 40s percentage points. We're not, you know, we believe that there will be a slight erosion because obviously, you know, the suspension will be effective. It's gonna happen within the next 45 days, and 3 rigs is gonna be suspended. So there will be a slight erosion of the EBITDA, and, you know, we're probably gonna move from low-to-mid 40s to low 40s.
Excellent. Thank you, Albert. Second question from my side is, I would really love to hear your view on the market right now, post the suspension of 20 or 22 rigs, of the offshore market, of course.
So, uh.
What would be the impact? How fast will be redeployed, any medium-term impact on day rate, et cetera?
No, so I think it's if you want to penetrate a new geography that you want to be qualified. This will take time. So you need to work with what you have and see how you can deploy faster, and that is either by bareboat charter or working with a local contractor who's actually approved in that geography. And this is where we kind of be a bit creative and think out of the box on how you can deploy. But that is one option, right? You have three options. One option is, you know, we just release the rigs, or we keep the leased rigs and try to deploy our rigs, or it can be a combination.
Excellent. And if I may, one last question from my side. So during the last two years, we've been seeing cost push in the offshore market, specifically because how tight the market is, and this led to retention program for your employees, higher costs, et cetera. Post the release of these rigs right now by Aramco, do you, do you expect some relief on the cost structure?
Yes. You are spot on.
Can you quantify the numbers?
I don't have it on the top of my head.
So look, I mean, we're reviewing, we're assessing the numbers, but there is definitely an expectation that, you know, the cost of the retirement is going to go down. We're still discussing finalizing the terms of how we will effectively implement that. At this point in time, it will be a couple of, you know, it will be. I mean, it will be. I'm not saying it's gonna be material, but there's gonna be some. This is something that we're factoring into our numbers as we go through 2024.
Good. Thank you. Thank you, Bassem. Wish you the best of luck.
Thank you.
Thank you.
Thanks a lot, Ibrahim. Now we're gonna go to Akarsh. Akarsh, please mention your company.
Questions on the results. I have two questions. First one is, you mentioned you have four offshore.
Akarsh, please mention your.
Yeah, it's SICO, SICO Bahrain, Securities and Investment Company, Bahrain. Yes. So I have two questions. First is, you mentioned that four offshore rigs will be rolling off next year. So what is the plan there? Like, how do you see that going? And, just one clarification. You said three rigs are, three offshore rigs are rolling off this year. So these are different from the suspended one, or are these the same as the suspended ones? This is the first question, and second is, what is the planned turnaround for this year? Or any that you have, like, built in.
Yeah. So, the three that's gonna... Offshore, that's gonna go this year, or are they under renewal this year, it's all under negotiation. We have to understand, not all of them were Aramco. So two of them were with KJO, so we are in the finalization of the negotiation, two of them. And we are in of the three rigs that is gonna be suspended. So, it's a combination. Is that the question about, right? The first three rigs.
Yes.
What was the second question?
Correct. Yes.
What's the second que.
Uh, uh.
The second question.
Turnaround. Turnaround, do you have any maintenance turnaround expected this year?
Maintenance turnaround?
Sorry, what do you mean exactly?
So, your plan turnaround for rigs, any shutdowns that you might have for rigs, any maintenance activity that is required?
I think what we've been doing. Yeah, what we've been doing, and correct me if I'm wrong, Hubert.
Yeah.
You know, we're being very efficient to do, instead of having a full shutdown, you know, if you need to do a major, major recertification, you have to kind of stop the rig, which I think most of the rigs that we're gonna have now is mainly doing the maintenance as, you know, we move from one site to the other site, you do the maintenance and try to complete it without having a big impact on stopping the rig.
Yeah.
Right.
And we also wait for the outcome of the suspension to see.
Mm.
Because this has an impact as well on the timing of the maintenance. Yeah.
Okay, thank you for your answers. All the best.
Okay, thank you, Akarsh. Oliver, you are unmuted, and please mention your company.
Sorry. First one, just, I guess, following up on Akarsh's question around the contracts rolling off next year. You have four expiring. Any thoughts on sort of, you know, Aramco's appetite for renewing those? And then secondly, on new markets, you know, whether it's for the suspended ones or if you have any other contracts rolling off in the medium term, if you enter with another company, another contractor, local supplier, is there any sort of changes to realized margins by doing that, instead of being able to go in directly under pre-qualification? Thanks.
So if I understand? You understand? I couldn't hear the question very well.
No, on, on the new markets, can you repeat, can you repeat the questions?
Yeah. The new markets one was, you were just making the point that you could.
Yeah.
Enter with local contractors. I was just trying to understand what, what kind of margins you'd expect by doing that, instead of obviously going in directly if you, if you were qualified.
Yeah. I mean, it will not be the same margins, yes, but you'll have your assets working. And it's very, I mean, very early. It's not, I mean, not in our guidance yet, because this is something that, you know, was not planned for. So it's not in our numbers yet.
Yeah.
It's very, very, very difficult to say now because you just have to finalize the agreement. If you- if we're gonna go with another company, we just have to finalize the agreements and how, how we can move forward.
Let me come back maybe on the first question, which is the contract rolling off. So we have four rigs rolling off contract in 2024, four offshore rigs, all of them as with Aramco. So we have two, two rigs that are owned, and then we have the two lease rigs that are rolling off contract at the end of 2025.
Mm.
So, the question is whether they're gonna be extended or not. It's, you know, I mean, first we have to come out and see what rig are going to be suspended and how this affects the timing of the rig rolling off contract.
Can you mute your lines, please? Yeah, and let me add to Stefan, to Hubert. You know, when—if we go with another geography and there is different ways of leasing. We can dry lease, so you just lease just the rig. And there is another type of lease where you lease the rig with the crew, so it's a different calculation. And there is some leases, you run the whole operation, but it's under another contractor name, another contractor name who works locally. So there is different methods of looking at it.
Hi, Oliver. Another question?
Just wanted to be clear that that is one option of the three options. So there is one option that we return the leased rigs. Second option, we keep the leased rigs and, you know, deploy our rigs. And the third option is a combination of both. So just wanted to make sure that everybody is clear.
Further, Mazen?
No, no, Oliver, are you done?
Yeah, sorry, I was, I was still on mute. Yes, thank you. That's very clear.
Thanks, agreed.
You're welcome.
Okay. I have a question, Ghassan, and about what is the possible scenarios or the most possible scenarios for those three rigs? And because there is a question from Rehan Ahmed, one of the analysts in the chatting box, is asking: What is the payment that Aramco that will pay as a termination payment to Arabian Drilling? So what are the scenarios, and what is the termination payment you might receive?
So, if you look at the most of the rigs that we have in Aramco, if they pass their initial term of contract, the termination clause is not there anymore. So, you know, we... When we try to choose from the rigs, we need to look at what works for Aramco and for our-- We're working together as one team to see how to have a better output for both, both parties. So, let's say, for example, you know, Aramco most probably will choose a rig that is-- doesn't have a we call it an ETF.
It's an early termination.
Early termination fee.
Okay. What is the possible scenarios? The most possible scenarios?
I mean, what do you mean what's most possible scenario?
Yeah, possible. I mean, that might is more to cancellation or delay or suspended for a year or.
No, no. So it's clear, Aramco is suspending. They're not canceling. However, you know, when they suspend, what happens is you keep the contract. So the suspension is for one year. You keep the contract, and then after one year, we see how we can deploy it again with Aramco. However, Aramco is giving us the kind of freedom, if we see that there is a need that we can deploy the rig somewhere else, they're open with us how we can, you know, cancel the contract and deploy it somewhere else. Of course, keeping in mind that, you know, our client, Aramco, doesn't get more impact financially, of course.
Yeah. So, just to be clear, during the suspension of contract means that there is no early termination fee because the contract is not canceled.
Mm.
Clear. Very clear. Thank you. Now, Gerard, you wanna ask? You're unmuted, please.
Thanks for letting me ask a question. So just on the dividend, how can investors think about the dividend for this year and next year? And if the 80% payout ratio has fallen away, will it come back at some point in time?
Well, I mean, we're just what we're trying to do our best is, you know, we're in a very growth cycle right now, and we just have to go with the board and the shareholders at the end on the dividends.
Yeah.
On a quarterly basis, to see how we're doing. Sorry, on a half-year basis, yeah. Annual.
It's just the same thing, right? I mean, every half year, we are assessing, you know, you know, we're trying to balance our returning shareholders' value with the CapEx need, with the management, you know, the need of cash, et cetera.
Mm.
At the end of the day, you know, we look at, you know, every six months, we look at where we are, and then the board makes the, makes the judgment call and makes the, makes the final, final decision.
Yeah.
It's not gonna be any different this time than it was, than it was last year.
Okay, got it. Thank you.
Question from the chat box: Can you provide a broad breakup between the cost of goods sold and the OpEx of the startup cost of the SAR 26 million related to the unconventional rigs?
So, not sure I got the breakdown of the SAR 26 million?
Yes, of the.
Okay. So look, I mean, the SAR 26 million is purely, it's mostly compensation cost, right?
Yes.
Because what happened is that, and this is one thing that Ghassan highlight, which I think is important for everyone to understand. I mean, this investment upfront of securing the crew, training the crew, having them ready so that day one, we can deploy the rig as quickly as possible, is part of this investment. So the SAR 26 million is purely compensation cost.
Yeah.
Which is basically securing the crew ahead of deploying the rig.
So just to kind of put some flavor onto this. You know, our crew, they work one month on, one month off. So if you want the crew to work for three months between getting up to speed, knowing the client, being part of the building the rig and seeing the rig while it's constructed and part of the deployment, let's say it takes three months. But that means you need them six months before, because there is for every month they're on, there is one month off. And that's why you see the high level of investment that you do. But, you know, I am very, very proud of the team. With the investment we've done, you know, we're seeing the rigs are really literally, you know, coming very faster than we expected.
But as mentioned by Hubert, it's, it's a compensation cost.
It's compensation.
Yeah.
Okay, other question from the chat box. Is the company considering to participate in tendering from Kuwait Oil Company?
Good question. So there was a tender that came out. However, we want to play. So in Kuwait, you have different markets. You have the high-end market, which we want to play in. The tender came out early in the year, and by the time we got approved, was literally at the submission date. We tried to extend the submission. Unfortunately, they could not because they already extended it more than once. Now, the tender that is out right now is for the low-tier. So the returns will not be as, you know, as we would like to have. So we're not participating in the tender with the low-tier rigs.
Many thanks. I think, Rahim, are you raising your hand? Okay, any further question?
One more time. Thank you.
Yeah, Rahim. Any further question? Please want to ask. Raise your hand. Thanks.
I think if there's no questions, you want me to close, Mazen?
No, we have one more question.
Ah.
In the chat box.
Okay.
Are you planning to participate in a future unconventional tendering? How many unconventional rigs are you targeting in that segment by 2030?
So, I mean, we will see both conventional and unconventional. It is very known by everyone today, the country is focused. A lot of focus is in the gas. We already been in touch by, you know, different client, that they want us to add more rigs in the gas, from the LSTK point of view. But even Aramco is, you know, focusing more on gas. And we will expect to see some tenders both in conventional and unconventional as well. And, you know, as the tenders come, we will participate, of course. Now, on the unconventional, you know, we expected that they go. They're gonna go up to 60 rigs. This is, to be honest, still the plan.
However, my own opinion, you know, with the success that Aramco has in the unconventional, I mean, I would say hats off to them on the success and the production that they're getting. So I don't know if the tendering cycle will be the same or it will be a bit delayed, because they're having excellent output of what they're doing right now. And adding our third, you know, the tender that they had today, I think they will be in a very, very good position. So I'm not sure if they're gonna continue tendering for the unconventional as they planned initially or not.
There is one more question on the chat box. In case a contract canceled by Aramco, what is the amount of termination fee? From Faisal Zaman.
Yeah. So as mentioned, the contract is not gonna... It's not canceled, is suspended. So, no, there is no impact on Aramco, as we speak right now.
So, don't really want to talk. You want to say about canceling, we should talk more about suspending. Anyway, any further question, please raise your hand. Well, it looks like there is no further question, Mr. Ghassan and Hubert, many thanks for your comprehensive transparency.
Thank you, Mazen. If you allow me just to highlight. So, you know, we know the three offshore rigs are, I know, happening. We're just firming it up and closing it. Revenue guidance is not affected. We are extremely excited with the achievement of starting the first rig and the flow of the other rigs that are gonna come. We're gonna see an acceleration of revenue, coming from the unconventional. I just came this morning from, you know, a meeting with Aramco team, technical team. They're extremely happy and excited. From the day we were awarded till today, they see an excellent performance. So we're very, very excited. Thank you very much, and I look forward to seeing you next quarter with good news as well. Thank you.
Thanks a lot. Thank you all for.
Thank you.