Good afternoon, everyone. Welcome to Arabian Drilling's Q3 2023 earnings conference call. I am Madhu from Al Rajhi Capital and your host for today's call. From the management, we have Mr. Ghassan, the CEO, Mr. Hubert, the CFO, and Mr. Raed, Treasury and IR Manager. I hand over the mic to Mr. Raed to start the proceedings. Mr. Raed, the floor is yours. Please go ahead.
Thank you, Madhu. Good afternoon, everyone, welcome to Arabian Drilling's earnings call for the third quarter of 2023. Our thanks to Al Rajhi Capital for hosting this call. We have recently announced our Q3 2023 financial results, and the documents are available on our investor relations website. As usual, we must start with a disclaimer, I invite you to read it at your convenience. I would like to take a moment to introduce our speakers for today's call. We will hear from our CEO, Mr. Ghassan Mirdad, who will provide an overview of our performance. We will have our CFO, Mr. Hubert Lafeuille, who will take us through the company's financial performance for the third quarter and nine-month period. The agenda for today's session will cover various topics, including our key milestones, a review of our operational and financial performance, including forward-looking guidance.
We will open the floor for your questions. I would like now to hand over to our CEO, Mr. Ghassan Mirdad.
Thank you very much for the introduction, Raed. As-salamu alaykum and heartfelt welcome to all participants joining us for this earnings call today. We will begin with a brief overview of what happened during the quarter. We achieved a number of important milestones in the third quarter across financial and operational aspects of our business. Starting with operations. Rig activity this quarter increased slightly compared to last quarter as our fleet expanded, with 47 operating rigs over a total fleet of 50, which resulted in a utilization rate of 94%. Our non-productive time increased slightly as a result of starting up three new jackup with new equipment and crews. Our Rig Efficiency Index remains strong with an overall score of 93.5%.
We saw an increase in rig move activity over the quarter, with 49 rig moves, bringing the total for the year to date to 128 rig moves. On average, we are always ahead of Aramco KPIs, and for those of you who have been on site, you will appreciate the efforts required to achieve such results on the rig moves. On the safety front, our total recordable injury frequency rate performance experienced a slight increase. However, it's still 3.5 times lower than the industry standard based on the latest International Association of Drilling Contractors report. I am also pleased to announce that one of our rigs was selected by our client for a new type of drilling campaign in the north of the country. The rig completed an extra long move of over 2,000 kilometers to drill a geothermal well.
This will contribute to our plans to support our client's various initiatives that will derive sustainable energy to the Kingdom. Moving to the financials highlights, which Hubert will cover in more details. Our Q3 revenue grew 16% quarter-on-quarter to SAR 920 million, mainly due to the startup of the three additional offshore rigs in July. Our EBITDA improved by 17% this quarter and remained at a similar profitability level of around 42 to 43 of the revenue. Our Q3 net income was stable compared to the previous quarter. In spite of the high EBITDA, the bottom line remained in line with the previous quarter due to higher finance cost. We closed this quarter with almost SAR 1.3 billion of available cash, which is lower than Q2, as the cash continues to be deployed to cover the construction of the 10 new unconventional rigs.
On the growth front, we made great progress. Our backlog hit all-time record. This quarter increased by more than 65% to SAR 12.7 billion. We are also quite happy with the continuous delivery of our growth strategy. During the IPO roadshow, we told investors to expect a fleet increase of around 20 rigs by 2026. Since then, we have added 15 rigs, which has resulted in almost fulfilling our target in terms of rig additions way ahead of 2026 deadline. We continue to see good opportunities and further rig demand in the conventional and unconventional space. On the business landscape, we remain bullish on the outlook. In recent months, we have successfully secured SAR 6 billion in new contracts. As previously announced, these contracts comprise of two key components.
We added SAR 3 billion in firm revenue by winning contracts for 10 new land rigs for the unconventional gas fields. We added another SAR 3 billion linked to Aramco's contract extension, including notable 10-year extension for one of our offshore rigs. These extensions show our ability to cultivate long-term partnership and provide stable, reliable service to our clients. Our three offshore rigs operating under five-year contract have been fully operational since July, and we are delivering on our commitments. To support the unconventional award, we have already commenced the construction of the 10 new rigs, representing a significant investment in our operational capacity. We remain bullish on the market outlook. Aramco is progressing on its admission expansion plans for their production targets, the development of the unconventional gas. Arabian Drilling is a partner of choice for both of these important plans.
All in all, these accomplishments reflect our dedication to growth and operational excellence. We look forward to further strengthen our position in the market and contribute to the growth of the industry. Going over operational highlights. I mentioned earlier that our backlog reached all-time high, rising from SAR 4.6 billion to SAR 12 billion in Q3, as you can see on the top left chart. The SAR 5.1 billion added in Q3 represents the SAR 6 billion of firm revenue intake, less SAR 900 million of contract revenue recognized in this quarter. With the new awards and extensions, we have continued to strengthen our position with Aramco and entered a brand-new market for us with the unconventional. Looking at the bottom left graph, we had 8 rigs rolling off contract in 2023. We managed to renew 7 so far, and one contract is expected to sign an extension very soon.
The focus on maintaining a high Rig Efficiency Index is the drive to continue renewing contracts successfully in the years to come. Looking at our efficiency, as mentioned earlier, our Rig Efficiency Index remains strong as you can see in the top left chart. I'm actually proud to announce that Aramco top rigs and Rig Efficiency Index score up to July 2023 were Arabian Drilling rigs. To be clear, this means that one of our land rig and one of our offshore rig were the best for the past 3 years on the rolling average basis. This is an outstanding performance achieved by our team. Moving on the rig moves. In the current quarter, we completed 11 more moves than the previous quarter. Compared to Aramco KPIs, we have saved a total of 34 days of an average of 0.7 days saved per rig move.
Out of the 49 moves, only one rig move lowered the entire average due to unplanned maintenance. The slight increase in our quarterly non-productive time, as you can see on the bottom left chart, is not unusual. There is always a warm-up period when we start up rigs with new equipment and new crews compared to a steady state rigs. Our utilization rate rose slightly as we expanded our rig activity with the addition of the three more offshore rigs to our fleet in Q3. With that, I will now hand over to Hubert to give us an update on the financial highlights.
Thank you, Ghassan. Good afternoon, everyone. Let us start first with the consolidated view. On the top left chart, we have closed the quarter with a revenue of SAR 920 million, representing a 16% increase against last quarter, mainly due to the start-up of the three new offshore rigs with a contribution of more than SAR 100 million. Our year-on-year comparison tells a similar story with a healthy 27% increase as we enjoyed in 2023 the combined effect of higher rig activity as well as improved day rates, particularly in the offshore segments. Looking at the top right chart, our Q3 EBITDA of SAR 392 million came with a quarter-on-quarter increase of almost SAR 60 million or 17%. This EBITDA boost is also attributed to the successful offshore rig start-up.
However, it's worth noting that the contribution of the offshore rigs has been partially offset by higher costs in staff compensation, rig start-up cost, and certain one-time G&A cost incurred during the periods. Our year-on-year EBITDA progression of 26% is in line with our revenue progression. Moving to the left chart below. Our net income has remained stable in spite of higher operating profits due to the increased interest cost. The main reason for the increase is the accounting treatment related to the interest cost. In Q2, we capitalized circa SAR 20 million of interest cost in connection with the CapEx program of the three new offshore rigs. The same did not happen in the current period simply because the rig started their contract in Q3.
Finally, on the CapEx side, we have seen an acceleration of the spending in Q3 of SAR 568 million, primarily attributed to the ongoing constructions of the 10 new unconventional rigs. In the current period, we have spent roughly SAR 375 million on this program, and to date we have spent approximately 25%-30% of the total CapEx program for the new 10 unconventional rigs. This significant investment will continue over the next few quarters and is a substantial step forward in our operational expansions. Our 2022 year-to-date CapEx of SAR 926 million included approx SAR 570 million of acquisition cost associated with two of the new offshore rigs. Looking at our segmental reporting, let's focus on the offshore first on the left side of the slides.
For offshore, we reported a sequential revenue increase close to SAR 120 million or 39% in our revenue from SAR 302 million to SAR 490 million, almost all of which is attributable to the three startup, as already mentioned. We now enjoy 100% utilization rate from our offshore fleets with 12 units fully operational. On the cost side for the offshore segment, we also witnessed an increase in excess of SAR 60 million during the period, of which 80% is purely attributable to the three startups, and the remaining 20% of the cost is mostly coming from employee-related costs as well as share cost allocation. Looking on the land segment, our revenue improved slightly by SAR 11 million, mainly due to higher rig move activities. There is no change in rig activities quarter-on-quarter.
On the cost side for the land segment, the sequential increase is circa SAR 30 million and the increase is split roughly one-third for costs related to non-operating rigs, including the start-up of the 10 new unconventional rigs, and the remaining two-third arising from employee-related costs as well as share cost allocations. The start-up costs for the 10 new unconventional rigs will continue to burden the land segment profitability over the next few quarters as we progress with hiring and training the crew for those rigs ahead of any revenue contribution. Moving on with our cash flow and net working capital. Our net cash flow generated from operating activities was SAR 98 million in Q3 against SAR 348 million in Q2. This decline was primarily due to the temporary changes in our net working capital that was partially offset by mobilization fees collected in the quarter.
Excluding this timing difference on the net working capital and the one-off mobilization fee collection, which amounted to SAR 260 million, our adjusted cash flow or normalized cash flow from operation would have been around SAR 360 million, which is actually a 36% quarter-over-quarter increase on a comparable basis. We closed Q3 with a cash position of roughly SAR 1.3 billion, about 30% lower than last quarter, which included SAR 1.5 billion of cash plus SAR 300 million classified as short-term deposit on the balance sheets. The cash utilization during the period mainly includes SAR 568 million in CapEx, offset by SAR 300 million redemption of short-term deposits.
At the end of Q3, the cash position of SAR 1.3 billion also included SAR 875 million of short-term deposits with maturity of less than three months, therefore they are classified as cash and cash equivalents on the balance sheets. Our net cash flow from financing activity in the quarter was negative SAR 105 million and includes the semi-annual coupon payment from our Sukuk of approximately SAR 75 million. It's not really comparable with the previous quarter in Q2. The other component of the financing costs paid during the period relates to the interest portion of the lease liabilities and your regular bank fees and other charges. On net working capital, now I'm focusing on the slide on the chart, which is on the right side of the slide.
You can see we have a sharp increase of a net working capital by more than SAR 500 million during the quarter. This is mainly due to delayed customer collection which spill over into Q4 2023, plus the impact of the three new rigs. These delay collection are just a timing difference in our receivable position and does not reflect any exposure arising from collectability or creditworthiness. Actually, much of the receivable were actually collected and cleared shortly after the quarter end. Finally, looking at our net debt and leverage ratio. We have increased our net debt position by 58%, which is in most part due to the utilization of our cash to fuel our growth CapEx as previously indicated.
Quarter-over-quarter, there is no change in our total borrowing position and our gross debt remain at roughly SAR 2.5 billion, which is made of SAR 2 billion from our Sukuk and SAR 500 million from a bank loan that was drawn in Q4 of 2022. Going forward, we anticipate our net debt position to further increase over the next quarters as we continue funding our CapEx program. We also expect to draw on an additional bank facility possibly before year-end. Following our cash utilization, our leverage ratio net debt to EBITDA, which is on the right side of the slides, rose from 0.7 in Q2 to one in Q3, and we expect this trend will continue over the next few quarters for the reason I have already mentioned. With respect to the guidance, we have no particular change in our guidance.
For full year 2023, we see our revenue in the range of SAR 3.3 billion-SAR 3.5 billion. Our CapEx guidance remain unchanged as well and remains around SAR 2.2 billion-SAR 2.4 billion. One update on the dividends, the ordinary general assembly that took place on the 1st of November approved a total payout of SAR 225 million, which is equivalent to SAR 2.53 per share, and the dividend is expected to be paid by mid-November. This concludes my section, and I will now hand it back over to Ghassan.
Thank you, Hubert. As we wrap up this quarter, I would like to reaffirm the four key pillars of our investment proposition. We are the national drilling champion and taking full advantage of the opportunities in this attractive market. We are growing our fleet and our reach to be at the forefront of unconventional and eco-friendly initiatives that supports Vision 2030. Our operational excellence differentiates us with our clients, and we are investing to maintain the highest industry standards. I am proud to be supported by an exceptional leadership team and an industry shareholders that are aligned with our long-term operational success. We are delivering on our growth commitment ahead of schedule and are putting together a structure to deliver both financially and operationally. Our Saudi-focused backlog provides clear midterm visibility with more upside potential. Finally, we are committed to deliver total shareholder return.
Dividends payout will continue to be considered subject to prudent leverage limits as we invest in our future. Healthy cash flows and financial discipline will ensure the sustainability of these returns and provide shareholders with confidence. Now is an exciting time to be investing in our sector. We have already achieved 75% of our 2026 growth target in one year and are excited about the opportunities ahead. We are just starting, and I look forward to continue sharing updates on our progress with you regularly. I will now hand over to Mohannad Abbas from Riyad Capital for the Q&A session. Thank you.
Thank you, Mr. Ghassan and Mr. Hubert, for the insights. Before we begin the Q&A, quick reminder, you can ask by clicking on the hand raise button or post your question in the chat box. First question is from the line of Ricardo. Ricardo, could you unmute yourself and go ahead? Ricardo, we can't hear you. I have sent you the request to unmute yourself. Could you unmute yourself and go ahead?
Can you hear me now?
Yes, we can hear you now.
Apologies. Good afternoon, Ghassan, Hubert, and Mohannad. Thanks so much for taking my questions. A couple of questions on my side. Actually, three of them. The first one is related to the CapEx. I know it might still be a little bit early to look at CapEx for next year, but just in terms of the direction, when you think about the CapEx due to be deployed on your growth plan, and assuming that you don't have any CapEx related to the offshore just like you had for 2023, how should we think about CapEx in 2024 compared to 2023? The second question, also related to the 10 rigs, and Hubert, please correct me if I'm wrong, but I understand that you have already deployed about 25%-30% of that CapEx. Just in terms of the orders, what's the latest status on that?
How many of the rigs have you already ordered, or all of them have already been placed? Just on the third question. Actually, if you can go ahead with those two, please, and then I come back for the third question. Thank you.
Okay. You want to start or you want me to?
Go ahead.
Okay, fine. On the CapEx plan for 2024. Look, at the end, we are finalizing our budget and, at this point in time, we have to present the plan of 2024 to the board. We're not in a position where we can give any guidance. Though what I would say is that there is going to be a big chunk of the 10 new unconventional rigs that's going to spill over 2024. That's already CapEx that is committed, right? Definitely, we expect to see another heavy year in CapEx in 2024 just because we need to finalize the commitment that we have placed today.
We placed orders for the 10 rigs. They're all in motion. I personally visited China. We have some team there in China to make sure that we are on time. We deliver on our commitments as we usually do with Saudi Aramco. Things are just the motion is going. As mentioned by Hubert, part of the CapEx will be this year, and a big chunk will be next year.
Yes.
Okay. Thank you. Just the final question. Related to the potential regional expansion or M&As across the region, have you any updates on that front?
What we see going forward, unconventional still, there is room to grow in the unconventional. There is room to grow in the conventional, and as well, there is room to grow out of Saudi. All these three are in the air as we speak. We just have to look which opportunity comes first and which one has better returns to the shareholders that we'll go with. All three are up for grab.
Okay. That's very clear. Thank you.
Thank you. Next question is from the line of Faisal. Faisal, could you unmute yourself? Mention your company name and go ahead.
Thank you for the opportunity to ask questions. This is Faisal Asghar from Goldman. Two questions on my end. When thinking about obviously the unconventional opportunity in the kingdom. During the IPO process, obviously, you've mentioned that Jafurah by itself could require between 80 to 100 rigs. I guess maybe the question that I have, maybe from a medium-term perspective, where do you see the potential number of rigs that you'll be able to capture from those 80 to 90, and how should we think about the phasing here within the next maybe five years? Do you envision yourself adding another 10 within the next five-year period, or do you actually see that the potential is higher at this stage?
If you can just maybe give us some color in terms of how we should think about those 80 to 100 rigs relating to Jafurah over the medium term, and how do you envision the progress taking place there? That's my first question. My second question is, as to add to Ricardo's comments. When thinking about next year in terms of free cash flow generation, as you ramp up operations, your CapEx comes down. Do you see room for the dividend being higher than the payout policy, or do you think you're going to stick to the payout policy at this stage, regardless of where your free cash flows come out? Thank you.
I'll take the first one, and then you can take the second one. [Foreign language], Faisal. Unconventional is the second wave of growth in Saudi, and we have to play an important role there, and that's what happened in the first tender that we took 10 out of 13. The thing is, we're not playing the market share game because then we're going to have to drop prices, and that's what we have to do. We will participate. It's important for us. The more volume you have, you can have economy of scale in the unconventional. It's key, it's important for us, and it's the growth that we're going to see in Saudi. We'll participate, but we cannot put a number on it because we just don't know how fast the tenders will come.
How is the having more market or more rigs or 10 or more than 10 rigs, how much is it affect your pricing. It all depends on each tender when it comes through. We will participate on the coming tenders.
Yeah. On the dividend, Faisal, I would say that I think we see it as important that we return values to the shareholders. Saying so, we always need to balance that depending on where we are in the growth cycle and where we are in the CapEx investment. We will consider dividend payments, and we will balance that with where we stand on the leverage ratio. We want to remain moderately leveraged. These are all decisions that we'll put in front of the board, and at the end of the day, the board will make the call.
I hope that is clear, Mr. Faisal. If you have a follow-up, you can come back in the queue. Next question is from the line of Abdulrahman. Abdulrahman, could you unmute yourself and go ahead? Abdulrahman, could you go ahead? We still can't hear you. Could you unmute yourself? I have sent a request to unmute.
Hi, can you hear me?
Yeah. Now, yes.
Yes. Sorry about that. This is Abdulrahman Al-Obaikan from Jadwa Investment. I just have a few questions from my end. Regarding the increased costs quarter-over-quarter, could you give us an idea on what portion of these costs are essentially sticky in nature, and what portion can we expect them to go down for instance, with the addition of the new rigs, and the full start-up of them during this quarter?
Okay.
I'll cover it, and then you can add that. One cost we mentioned in our last quarter earning call. With the 10 rigs addition to the fleet that's going to come next year, you're talking about more than 10% of headcount addition. You're adding them now. We're adding almost shy of 1,000 employees. We're adding them now to make sure they're up to speed, trained, certified to be deployed when the rigs come. This is a cost that was not planned that because we won the tender, the cost is hitting us now with no revenue. You'll see this in the next couple of quarters till we have the rigs starting up and operational. That's one cost. The other cost that we see is As mentioned in my presentation, 75% of the 2026 plan is actually achieved between this year and next year.
The operating models, we're going through a transformation to assure that we can handle this growth that is fast. There is a bit of cost on the transformation to look at all of our support functions, our operation, to handle this growth that was supposed to be up by 2026, and it's happening at a very, very fast pace. These are the two costs. I don't know if I missed anything.
No, I think you said it right. The thing is that between now and when we start contributing, when the revenue contribution starts for the 10 new unconventional rigs, which is going to be in Q3 of next year, there's going to be a lot of costs that are going to hit us that are going to come and are in preparation of the growth. It's not easy to say that there are some costs that will switch off from one quarter on a quarter. I think that it's going to be probably difficult to see a normalized cost structure until we have delivered on all the startup of the 10 new unconventional rigs.
Saying so, it is true that we have incurred a little bit of one-off cost during this quarter related to this transformation journey that Ghassan just mentioned about how we become more efficient, how we care about the growth, all the compliance costs as well that we've seen since we're a publicly listed company. These are all things that we have seen this year, and we didn't have next year. I think that we will have to wait until the second half of 2024 to see a normalized cost structure, having put behind us all the growth milestones that we're seeing right now.
That's very clear. Just another question on the rig moves. We've noticed in the financials that the mobilization revenues have increased quite significantly year-over-year. It came out at around SAR 26.5 million compared to SAR 1 million the same quarter last year. Is that directly related to the amount of rig moves during the quarter?
Sorry, you're referring to the rig move year-on-year, correct?
Yeah.
The rig move revenue contribution. Yeah. Okay. The rig move, I could maybe start, then you can come. The rig move, we don't really control the rig move because it remains at the discretion of the clients to decide when and where the rig are going to move, what distance they're going to be covering, et cetera. We might have one extra long rig move that makes a difference. I'm thinking also last year, what happened is that we have a couple of rigs that were suspended, a couple of land rigs that were suspended that went back to work. When you put those rigs back to work, then you have a rig move of a few hundred kilometers. That would be also one explanation.
Just to explain what Hubert is trying to say. Today, when you drill a well, the well can take one month, can take three months. The assumption of the rig move that's going to happen this month or next quarter, it all depends on the type of well that the client wants to drill, which we don't have access to ahead of time. This is one. Number 2 is when you move, you can move five kilometers, you can move 300 kilometers, or the one big move that we had recently, which is 200 kilometers. All of this impacts the revenue of the rig move. It's not about efficiency or anything. It's just how the client, how many he moves the rigs, depending on how long the well stays drilling, and as well, where is the next well?
Which these things we can't plan ahead before.
The one thing which is important, and we keep our eye on, is the fact that we always are ahead of Aramco KPI in terms of rig move. Aramco KPI will give you, okay, for that particular rig move, it should take no more than X number of days, and we always come ahead of that KPI. This is the one thing that we keep our eye on, more than the variation in the rig move, which is something purely at client's discretion.
Is it clear?
That's very clear. I appreciate it. Just one final question from my end. Are there any new tenders under discussion, either on the onshore or offshore segment?
The offshore, the wave of growth of offshore is done. Saudi Aramco have already contracted all the rigs that they wanted. No more on the offshore. However, the onshore is the one that we're seeing more, especially unconventional. There is a tender as we speak going on with the unconventional.
Right. Will it be, in terms of size, as significant as the previous unconventional tender, or will it be more broken up into smaller tenders?
The one that's coming is for 10 rigs, more and more will come.
I see.
It's coming in chunks, not coming full big tenders.
Yeah. I think we have already indicated we expect the unconventional tenders to come in waves, right?
Yeah.
This is exactly what is happening.
I see. That's very clear. Much appreciated.
Thank you. Next question is from the line of Zohaib. Zohaib, could you unmute yourself, mention your company name, and go ahead? Zohaib, we can't hear you. Could you unmute yourself? Hello, Zohaib?
Hello?
Yes, we can hear you. Zohaib, please go ahead. We can't hear you. Could you check your audio, please?
Is it okay now?
Yeah, that's okay.
Yes. Thank you for the presentation, gentlemen. I've got two quick questions. Firstly, the G&A has increased from last year. This increase, is this what you're relating to with the new hirings for the 10 new rigs? This is where these new hirings are being accounted for? Second is on the other segment, there was a SAR six and a half million loss there. Could you tell us what was the rationale? Thank you.
The G&A, no, does not include the headcount increase. That goes under the compensation. It's more on the full transformation that we have to go through to make sure that we're ready for the growth that came faster than anticipated earlier. There is a full revamp of all of our support functions and operation, HSE, supply chain, all of the departments, to assure that we are ready for this growth. Hopefully when we grow as well more, we need to make sure that the systems are ready to handle that. Anything else you want to add?
No. I just want to say that, you have to realize that the company, the way it was a year ago, is nothing like the company it is now. It has gone through a transformation change. What we mentioned about this transformation journey, the revamping, the upgrading of the operating system, how we handle the growth, how we handle becoming a public listed company. It came with a number of costs. Some of them are just one-off costs on some specific projects. I'm thinking about looking at all the how to upgrade the support functions and the HSE.
Even the cost of related to governance as well played a role as well.
Exactly. Just the cost of governance.
We were not listed, and now we're listed.
Exactly. We have had a number of costs, including the upgrading the ERP, et cetera. There are a number of things that we have included this year, which were not on the agenda last year simply because we were not a publicly listed company, and we didn't have all this growth coming with us. It's really a different company now. The thing that I would like to remind is that at the end of the day, our G&A is still less than 6% of the revenue. We look at the G&A, but just to put into perspective, our G&A is currently less than 6% of the revenue. We are growing, the revenue has been growing, the G&A has been growing. There has been a couple of one-off costs, but this is just for us to accommodate the growth.
There was another question, no?
Yeah, there was another question. Sorry. On the cost. It was on the cost of something on the offshore. Sorry, can you repeat the question?
Others. SAR 6.5 million loss in others.
Yeah. I think this relates to the fact that we did a retirement of one particular asset that came with an NBV of SAR 5+ million. This is one asset retirement that hit us in the quarter.
Ghassan. Just a follow-up on the G&A. What do you think is a fair % of revenue for the G&A? You said it's about 6% for the quarter. What do you think would be a fair area for this item?
I think now with the transformation, I don't think we can give a number now, but I think once we have the transformation to give us exactly where do we stand and what is needed for the growth. We're just literally adding 15. We just added five and now going for another 10.
Yeah.
There is more tender to come. Let aside if we want to move out. There is a lot of things in the air that we're trying to kind of-
Yeah
nail to make sure that we're efficient, and that's why this cost is coming to us.
Yeah. I would have the same answer that I had before in terms of the cost structure. What is permanent cost, what is one-off cost, et cetera. I think that as Ghassan said, there are so many moving pieces in the G&A and the organization and how we want to operate, et cetera, that I think we're better waiting until the second half of
Yeah
2024, until we have normalized all the ongoing projects. Some of them are really key projects. Some of them are going to deeply transform the way we operate and the company. I think it's better we wait until we have a normalized cost structure in the second half of 2024 so that we can put an actual target number on where we want to.
Yes. It's very early to say right now. We're slicing and dicing in how the structure is set up and how we're going to operate and the operating model. It's going to be very premature to give a number now, but I think by the start of H2, maybe at least we have some kind of visibility.
Okay. Sounds good. Thank you.
Thank you. Just a reminder to the participants, if they have a question, they can click on the hand raise button or post it in the Q&A or chat box. At the moment, we do not have a question through hand raise button. Okay, there is one from Jake. Jake, could you unmute yourself and go ahead please?
Jake. Jake here from Granular Capital. Can you hear me?
Yeah.
Hi guys. Thanks a lot for the presentation. Just wanted to check on growth and where it's coming from. You mentioned really growth from here is in unconventional. You touched on it before. You thought the kingdom is satisfied in terms of offshore rigs. Can I just ask for a clarification there? Is that satisfied in the sense that all the tenders outstanding have been filled and you don't expect any more? Or, do they have all the rigs they need for MSC '13 by 2027 as far as you know?
No. You're right on the first point. They have awarded all of the contract that was out already. Every company or whoever is awarded knows the contract and either they deploy. I think we are one of the first pre-contractor who actually delivered on their commitment. Others, just whoever needs to, just getting their rigs onto operation. The awards are done, but they're not all in country yet.
Understood. Do you think that's all the tenders required for MSC '13 by 2027, or you expect more tenders on top of the ones that have already been completed?
Knowing Aramco's efficiency and the way they run things, I believe that they tendered what they need to achieve the objectives.
Okay, helpful. Thank you.
If anyone has a follow-up or want to ask a question for the first time, can click on the hand raise button. Zohaib, I can still see your hand being raised. If you have a follow-up, could you lower your hand and click on it again? Zohaib, if you have a follow-up, please go ahead.
No, thank you. I don't. I just lowered mine.
Okay. Thank you. At the moment, we do not have any questions. If anyone wants to ask a question, please click on the hand raise button or post their question in the Q&A or chat box. Let's give participants a minute or so. We have a follow-up from Abdulrahman.
Abdulrahman.
Abdulrahman, please go ahead. Abdulrahman, we cannot hear you. Yes, we can hear you now.
Okay. I just have two quick questions. Regarding for the unconventional segment, in comparison to conventional, where should we see the margins? Are the margins lower in the unconventional compared to conventional? The second question regarding the 10 unconventional rigs. We know that will come next year, but in which I know it will be a gradual process.
How should we look into it? Is it the majority will come in the second, third quarter or the fourth quarter where we could see it fully operational?
It will come end of Q2, early Q3. From a revenue perspective, I would say Q3. You can assume Q3, that's the time they will generate revenue.
Yes. I think there was a question on the margin.
On the margin. For now.
Yeah
to correct me, what we're assuming is the same as a conventional rig. Now we're just entering. As much as we say it's Saudi Aramco, the unconventional is like going to another company. It's like diversifying your portfolio. We're just entering into this unconventional skidding rigs, and what the assumptions we had was a normal margin. Now with, you can have economy of scale to improve. Today, yet to be proven once we start.
Yeah. No, exactly. We believe that there are some synergies coming from operating 10 unconventional rigs. It's just that we have never tested the system, so we wait to see what those synergies, how we can generate synergies, et cetera. We have remained prudent and basically assume that the level of profitability will be in line with what we have in all our segments.
I hope that is clear, Abdulrahman. If you have a follow-up, please go ahead.
No, that's answered. Thank you so much.
Thank you.
You're welcome.
We do not have a question at the moment.
I'm happy to see that everybody's clear. A lot of questions on the G&A. If there's no more questions, I can do a closing remark and
Yeah. I believe, Mr. Ghassan, there are no more questions, back to you. Any closing remarks?
I would just want to thank everyone for joining us today to the earnings call. I think we have really exciting times. As I mentioned, we're growing faster than planned in the road show, so we're very excited. The whole organization is very excited with the embarking of this transformation. We're seeing a lot of benefits that we're going to see going forward. As mentioned, the next couple of quarters, we'll see a bit of this cost because the rigs are not arriving yet. There is no revenue against the hiring that we're having today, and that we see. I tell you, it's very exciting. The growth is upfront, and even though we did 75%, doesn't mean we're going to stop. Still there is huge opportunities of growth that we're trying to look at. Thank you very much for your time.
I appreciate the questions, and we hope we answered your question. If you need any other questions further going forward, feel free to reach out to our investor relations portal, and we'll get back to you. Thank you very much, and have a good night.
Thank you everyone for joining the call. With this, we end the call. Have a good day.
Thank you