Salam alaikum. Good afternoon, everyone, and welcome to this presentation of Arabian Drilling financial results for the first quarter 2023. Our thanks to SNB Capital for hosting this call. We have recently announced our Q1 2023 financial results, which are also available on the Saudi Exchange website, Tadawul. You can also review them on our website or request a copy from our IR team. As usual, we have to start with a disclaimer. I invite you to read it at your convenience. After the presentation, we will be pleased to address any questions that you may have about the company. Before we start this presentation, I would like to take a moment to introduce our presenters for today's call. First, our CEO, Mr. Ghassan Mirdad. He will provide an overview of our company's performance.
Second, we will have our CFO, Mr. Hubert Lafeuille, who will take us through the financial performance of the company. In today's agenda, we will cover different topics, including the Q1 2023 highlights, business landscape, our operational and financial performance, and some forward-looking guidance. We will open the floor for your questions. I would like to hand over this call to our CEO, Mr. Ghassan Mirdad.
Welcome to everyone. Thank you, Raed. I would like to welcome everyone on this call for Arabian Drilling's first quarter earnings call. I will start by giving Arabian Drilling Q1 at a glance, which is a high-level view of Q1 2023. We will go into more details into the coming slides. We had good tailwinds in the operation, where our utilization rate continued to be strong at 94%, which means having 44 active rigs out of 47. Our non-productive time was 1.05% and having an improvement trend compared to Q4 2022. We have experienced some challenges with the rig moves, where we almost did not save any days compared to Saudi Aramco target. We will explain more in details in the coming slide. Going over health, safety, and environment.
With the start of the offshore rigs and with the high number of new recruits in joining Arabian Drilling, we have experienced an increase in total recordable injury frequency, reaching 0.84 versus 0.33 in Q4 2022. We have come up with several initiatives to address safety. One of which, we have built a safety practice center where you have a view of all the rigs from headquarters office. This will help us to be proactive in identifying unsafe acts, increase awareness, and help us to prevent incidents at the same time. We share what we learn with all of the fleet to ensure similar unsafe acts do not occur in other rigs. Going over finance. Q1 revenue has increased by 4%. We closed the quarter with a revenue of SAR 779 million, with an EBITDA of 41.5%, which shows an increase of 40 basis points.
Our leverage on the other hand, have dropped 20 basis points, and we closed the quarter at 0.6 multiple, which puts us in a very good position for our future growth. From an execution point of view, we are focused on delivering the three jackups, AD-130, AD-140, and AD-150 safely, on time, and on budget. Positioning ourselves on winning and executing our growth strategy, be it in the unconventional or on the regional expansion. Now we will go over the business landscape. Arabian Drilling continued to be the largest fleet size in Saudi Arabia with 16% overall total market share. We have not signed any contracts this quarter, therefore there was no additional backlog. On the other hand, we have eight rigs running out of contracts in 2023, and all are ongoing negotiation for extension.
We have one land rig that was released to drill and complete a pro bono well for Saudi Arabian Drilling Academy, SADA, which is part of Arabian Drilling corporate social responsibility. We have just completed the well, and with the high number of intake of new employees to Arabian Drilling, we have decided to use this rig as a training facility instead of putting it back into operation. Dedicating this rig for training is one of the main initiatives to enhance our safety record. On rig startup, last year, we added Baker Hughes as a new client with two rigs. Due to our performance, our client requested to add a third rig, for which we have signed a contract last year. This rig have started and commissioned safely during Q1 this year. From market outlook, let me split it between offshore and land.
On the offshore global jackup, availability continued to drop and be dried up, resulting in a historical high utilization and day rate increase since the last cycle peak in 2014. On land, which is more domestic-oriented market, the rig count remains stable, with unconventional being one of the growth venues that we see in Saudi Arabia. Moving to operational highlights. Our backlog is one of the strongest in the history of the company, with a book-to-bill ratio of 2.8 multiple. You can see on the top left our backlog has decreased versus Q4 last year, which reflects what I have just mentioned on the previous slide that we did not sign any new contracts in Q1. Looking at the bottom left, you can see we have eight rigs coming for renewal in 2023, as mentioned, we are in the negotiation phase for renewal.
As we presented before, most of the contracts were signed in 2022 for three years. We see a spike in 2025 for contracts coming for renewal. To see how the backlog is split, you can look at the top right graph showing a split of land and offshore, and at the bottom right the split by client. You can see Saudi Aramco has the lion's share of the market of 70%. Moving to the KPIs. You can see in the top left we continue to have strong and stable Rig Efficiency Index, which is the main KPI by our client, Saudi Aramco, to measure performance. On the top right, we have seen less rig moves and at the same time, a sharp drop on number of rig days saved per rig move from two days to no days saved per rig move compared to Saudi Aramco KPI.
This occurred due to different event that took place all in the same quarter. The first in Saudi Arabia have experienced an adverse weather conditions with a lot of heavy rain. This have slowed our rig moves. In addition, we have carried planned rig maintenance that was supposed to happen in Q2 and Q3. We brought it forward to Q1, which as well slowed our rig move. Last but not least, we had an incident that prolonged one of the rig moves. All of these events occurred in the same quarter, having negatively affected our rig move efficiency this quarter. On the bottom left, we see a good trend going down on the non-productive time quarter and quarter. On the bottom right, our rig utilization remains the same, strong at 94%, which presents 44 active rigs out of 47.
With this, I will hand over to Hubert to go over the financials. Hubert?
Thank you, Ghassan. Good afternoon, good morning, everyone, and welcome on the call again. I'll be happy to drive you through the financial slides, you will see that the comparative is going to be on the quarter to quarter. We will compare the current quarter, Q1 2023, with the last quarter, Q4, as well as compare with the same quarter of prior year. The reason we designed it this way is because it's a match with the requirements from Tadawul. If we start with the revenue, you can see that comparing to Q1 of last year, we have a significant increase of the revenue, +30%, which is mainly explained by the fact that we have more rig active this quarter than we had last quarter.
Effectively, we have added two land rigs, compared to the last quarter. We have added three offshore rigs that were not part of Q1. Q1 2022 does not really compare with Q1 2023. On a more comparable basis, you have Q4 of last year. We have the same utilization rate, 44 rigs. We have a slightly different, slightly higher activity in Q1 because we have the full quarter impact of the two new offshore rigs, which is rig AD-110 and AD 120 that started in the last quarter. You have a slightly more rig activity because of those two rigs. Overall is the same number. The utilization is the same. We are seeing a revenue increase of 4% quarter on quarter. If you look at the EBITDA.
From an EBITDA standpoint, we see an increase of 5%, and we see an improvement in the EBITDA margin as a percentage of the revenue. We have gained 40 basis points from 41.1%-41.5% this quarter. This gain in the EBITDA is due to the addition of the rig 110, 120. As we said, we have a full quarter impact this quarter against a partial impact last quarter. This EBITDA margin was also partially offset because we have a slightly higher cost base comparing to the two quarters, which is coming mainly from two things. One is coming from overall a lot of maintenance activities that took place in Q1, and another one is coming from one of the components of the compensation and benefit package, which is an offshore premium that we have recently introduced for our offshore crew.
Hubert, let me just explain. What we have seen end of last year and this year, our competitors are targeting our employees for two reasons: to man their rigs. Being Arabian Drilling long in Saudi, we have the highest Saudization ratio in the market in the rig business. We are above 73%. For them to man the rigs, the easiest way to tap into competent employees is Arabian Drilling. We have seen that our employees, being Saudis or non-Saudis, being attacked or targeted to be poached. Accordingly, we had to come up with a retention plan for our employees. Keeping in mind, when you build a retention plan, you would have a certain handful of people that you want to retain. In the rig business, it's not a handful of people. Actually, it's a category of positions in the company. For example, crane operator.
If you don't have the crane operator, the whole rig will stop. We build a retention plan for all the crane operators for the 50 rigs that we have. As well, you have the chief mechanic, chief electrician. All of these are key positions that if you don't have them on the rig, the rig will stop. This is why we had to build a retention plan for the whole company to assure that our people are kept and the talent are kept within Arabian Drilling. Hubert.
Thank you, Ghassan. Looking at the adjusted net income, comparing quarter to quarters, we have seen an increase of 5%. We closed the quarter with SAR 141 million of net income, which is a 5% increase over last quarter. Last quarter was adjusted. If you recall, there was a slight impact related to the deferred tax, which has created a one-off adjustment of SAR 3 million. The adjusted net income for Q4 is SAR 134 million, which is the pro forma comparison basis. Plus 5% on the net income line, which is roughly in line with the revenue increase. If we look at the CapEx here on the bottom right, you can see there is a significant decrease in the CapEx between the two quarters, between last quarter and the current quarter.
This is coming from the fact that last quarter included the purchase of offshore drilling rig, AD 150, which is one of the three which is currently in shipyard and due to be delivered soon. This quarter CapEx of SAR 265 mainly relates to the ongoing shipyard activity for the three offshore jackups. As we mentioned, you have 130, 140, 150, two of them being in Dubai, one being in Singapore. This shipyard activity accounts for roughly one third of the CapEx, the remaining two third is just your sustaining CapEx for the rest of the fleet. I would like to mention as well that the SAR 265 also include a portion of capitalized interest for about SAR 18 million. Moving on to the segment reporting. We have split here between the offshore on the left-hand side and the land on the right-hand side.
You can see that the revenue for the offshore has increased quarter-over-quarter of 23%. We close with revenue of SAR 299. Again, this high revenue is due for having the full quarter impact of 110, 120, whereas it was only a partial impact in Q4 because the two rigs started their contract in Q4. One thing that I would like to mention as well is that one of our offshore units, which is AD 20, which is actually a multipurpose service vessel, was out of service for 2 months. The rig had to go through a 5-year recertification program, therefore there was a planned shipyard. This unit did not work and did not generate any revenue for about 2 months during Q1 2023.
If you look at the cost of revenue on the offshore, you can see that the cost has increased in a slightly higher proportion than the revenue, which is due to mainly 2 elements. The first one related to the fact that we have an accelerated depreciation base for the rigs 110 and 120 because those rigs are leased rigs, they have a 3-year lease period. All the shipyard activities that was conducted in Singapore for those 2 rigs is being amortized over a 3-year period, as opposed of being amortized over the usual asset life. This drives up the depreciation cost components. As we mentioned, there is also this introduction of a new offshore premium to help retaining the offshore people. Looking at the land side, you can see that the story is a bit different.
We have a bit of a dip on the revenue land. We have a decrease of 5%. This decrease of 5% is basically due to the number of maintenance activities that we had to conduct during Q1. It was slightly higher than expected. Actually, if you compare the 2 quarters between Q1 and Q4, we have 75 days of maintenance. These are days where we have not generated any revenue. We have 75 more additional days of maintenance that we have incurred in Q1 compared to Q4. This drives about a revenue shortfall of about SAR 10 million. Also, as mentioned by Ghassan, we have had a number of longer than expected rig moves as well, which has also delayed the land rig coming back on payroll.
On the cost side, you can see that we have an increase on the cost, which is mainly driven, again, by those maintenance activities. These are all the repairs that you conduct during the maintenance activities that took place that were carried out during Q1 2023. Some of them are non-recurring because they were planned to happen later in the year. For time inconvenience, we just have moved those activity forwards. On the cash flow sides, we have again plotted here a quarter-to-quarter comparison. Let me first address a couple of comments on the Q1 cash flow. You can see we came up strong with a cash flow from operation of SAR 472 million, which is almost double what we spent on the CapEx. This SAR 247 million CapEx is the same number that you have seen excluding the portion of the capitalized interest.
By comparison, if you look at in Q1 2022, we had a very significant CapEx cash flow from financing, which was coming from the proceed of the Sukuk. If you remember, we complete our Sukuk transaction in February 2022, then we repaid a portion of the loan. This is what this number is coming from. Then looking at Q4 2022, we have a cash flow from investing of SAR 1.8 billion, which correspond to the CapEx that we had, which was about SAR 800 million, as well as a short-term investment of SAR 1 billion that we made in Q4 of last year to place some excess cash that we had on our hands. Looking at the net working capital, you can see we have a significant improvement of the net working capital.
We went down from SAR 413 to SAR 255, which is mainly due to the fact that we have collected in Q1 the mobilization fee invoices of Rig AD 110 and AD 120. This billing was made in Q4 and collected in Q1. We can see that we have expressed as a percentage of revenue, we have a net working capital of about 9%, which is in line with the expectation and also in line with some of the guidance that we gave earlier. If you look at some of the component of the balance sheet, I think that you will see that the story is one that repeat itself. We have a good capacity to leverage our balance sheets to finance any type of expansion. If you look at the end of the quarter Q1, we close with a cash equivalent of shy of SAR 2 billion.
Our debts or total borrowings of SAR 2.5 billion is made of two things. We have the Sukuk of SAR 2 billion, then we have SAR 500 million from a line of credit that we drew in Q4 of 2022. Then the SAR 184 here, the lease liability, correspond to the future obligation that we have for the Rig AD 110 and AD 120, which are on the three-year lease agreements. In comparison with Q1, the borrowings were much higher in Q1 because at this point in time, we still hadn't redeemed all the outstanding bank loans. This is a transaction that took place in Q4 of 2022. Reason why the borrowing at the same quarter of last year was significantly higher. From a leverage standpoint, we are showing here two leverage, net debt to EBITDA.
As mentioned by Ghassan earlier, we've been able to reduce our net debt to EBITDA by about 20 basis points from 0.8 to 0.6 here. Keep in mind that this is well below the upper limits of 1.75, which is the kind of target that we have in mind, the kind of upper limit that we have in mind for a steady state business mode. We are also showing the total liability to equity, which is flat at 0.7. The reason we're showing this is because this is our total liabilities to equity is one of the covenant that we have in our Sukuk, the covenant that we have is to be below 2.5 multiple. I'm going to show you a couple of forward-looking guidance, which are going to look like very much what we have already shown the last quarters.
There is not really much change. In terms of revenue, the guidance remain unchanged, we still expect the revenue to be in the range of SAR 3.3 billion-SAR 3.5 billion. In terms of CapEx, there is no change as well. We expect the CapEx for the full year 2023 to be in the range of SAR 1.2 billion-SAR 1.4 billion. This is related to the current fleet. As far as the cash dividends, the assumption remain unchanged as well. We plan to do a first payment in Q4 2023 base, the amount of the dividend will be based on the half-year results ending 30th of June 2023. We have the usual footnote as well that says that this guidance does not include the impact of potential growth opportunity and/or potential contract awards that may materialize in the rest of the year.
With that, I will hand it back over to Ghassan for his concluding remark.
Thank you, Hubert. To wrap today's call, we delivered a strong quarter with an increased bottom line in spite of a similar rig activity level. We remain focused on a couple of things. One, delivering the three jackups, AD 130, 140, and 150. Remain focused on our safety. At the time, we are starting rigs with new crews. Finally, seizing growth opportunities. With that, I would like to open the floor for questions.
Thank you, management, for the comprehensive feedback. We'll open up the floor to Q&A session. Just as a reminder, if you want to ask a question, you can click on the raise hand icon on your screens. Alternatively, what you can do is type your questions in a chat box, our Q&A chat box as well. We wait for the people to line up for the Q&A. Our first question is coming from the line of Mr. Musa Al-Raslani. Mr. Musa?
Hello?
Yes.
Okay. Thank you for the call. I have two questions. In 2023, eight contracts end. I just want to understand, is it automated renewed contracts? If not, can you tell us how many days it goes idle? My second question is do the rigs operate 24/7, regardless of the number of rig moved?
Okay. On the contract extension, for example, let's say we have a rig that is coming for renewal in August. We start negotiating now for the extension. All of the eight are actually on negotiation for extension as we speak. It doesn't go automatic, but usually us or the client highlights quite ample time before the extension date comes. In terms of the land, if I hope I understood your question well, the rig works 24 hours. However, when we do a rig move, you don't charge the client daily rate. We charge the client a lump sum. What happens is that's why you want to reduce the time of the move. During the move, you don't charge daily rate, you charge once you start drilling. Hope I'm clear?
Yes. One follow-up question. Are they renewed at the same day rate?
That's where you go through negotiation. If you are in good terms like now where the oil price is well, and your REI is high, in the case of Arabian Drilling, you have a stronger negotiating power to increase the price. If you are in a downturn, like what happened during COVID or in the downturn before COVID, you have less negotiating power, so prices will be kind of going down.
Thank you very much. Now we'll be moving on to our second set of questions which is coming from Mr. Faisal Al Zamam. Mr. Faisal, if you can go ahead please.
[Foreign language], Mr. Faisal.
Just maybe two questions on the growth opportunity. Maybe circling back on the GCC expansion, if you can shed some color on where do you currently stand on that guidance. If you can also provide some color on Jafurah and generally how the onshore dynamics are shifting in Saudi. How do you see the growth trends there? If you can provide us with additional details, that would be helpful. Thank you very much.
On the expansion, unfortunately I will be giving the same answer as I gave last time, but just to shed some light on it. Since we went IPO, the amount of opportunities that came to Arabian Drilling, especially with the cash we stand on, was beyond normal. It was not a handful. It was a huge list of opportunities of growth and expansion outside of Saudi. We were ranking them, doing the due diligence, and this really takes a lot of time. At the same time, some opportunities came within Saudi. The opportunity that came within Saudi are having better returns to our shareholders. Today, we are doing all the due diligence and we are trying to rank. Do we expand outside of Saudi? No. Increase our fleet in Saudi? Or maybe do both.
This is where we are at the moment from an expansion and growth that we see. On the unconventional, the tender is out and the unconventional. We have the offshore growth has already. If you are part of the growth, you are. If you did not win anything offshore, you missed the boat. The offshore growth in terms of awarding contract has finished. It is just getting the rigs into the country. The next growth that we see, the real growth that we see in Saudi is unconventional. Being in the unconventional, playing in that market is for us is something strategic to do actually. The tender is out and we are just actually starting the negotiation as we speak.
Thank you very much. I think you also partly answered one of the questions from the Q&A from Mr. Shabi. He was asking about the regional expansion as well. We will be moving on to Mr. Ricardo Rezende. Mr. Ricardo?
Thanks for taking my questions. I guess just a follow-up on Faisal's question on the potential for unconventional. Would it be possible to quantify what is the potential for the additional rigs that you could get on those contracts? One question on the land margins for the first quarter. The explanation was very clear on why the margins were impacted. When we look ahead for the rest of the year, should we then see a meaningful expansion on margins as part of the maintenance that were supposed to take place in the second and third quarter already happened in the first quarter?
Okay. There were two questions, no?
Yeah.
The first question was?
The first was to give some color on the unconventional-
The only thing I can give, the tender was for 13 rigs. We know that this is just the first tender. There will be other tenders coming as we speak. Now we just literally started the call to negotiate and see where we stand. There is not much that we have any information on how many rigs out of the 13. All of them is You have to understand, out of these 13 rigs, there is eight rigs that are skidding rigs, and the others are in an exploration. They are under the unconventional, but they're conventional rigs. That's the only thing that I can provide at this moment. In terms of the rig moves, this is unfortunate. We had these different events happening at the same time, especially the weather condition that really affected us.
The maintenance, it was planned in the year, I would say that our procurement, with all of the challenges we have with our suppliers, our procurement managed to get the spare parts that is needed earlier in the year. We expected that comes in Q2, Q3. It came earlier in the year, that's why we decided, let's do the maintenance right now, especially that we've seen longer rig moves. Let's do the maintenance right now. It just happened. We think these events, we don't see it happening going forward.
Thank you again. I think we'll take one from the Q&A related to unconventional. They wanted to understand the margin profile of unconventional space versus current market conditions. If you can elaborate on that as well.
I would say, I don't think so. Looking at the rigs, as mentioned, you have rigs that are skidding, and you have rigs that are not skidding, which is like normal conventional rigs. These conventional, I think the way I see the market, the normal rigs should be the same as what we have in the conventional. Now, in the unconventional, the skidding rigs, the game is not the price, it's the game's efficiency, and how can you put a high leverage on scale. For example, when you operate 10 rigs in unconventional, they're all operating in the same geography or same region, you don't have to move the camps. Not moving the camps reduce a lot of cost on rig moves. You have one centralized camp. That reduces. There is a lot of synergies that you can reduce your cost.
Even though it might sound that their rate is a bit cheaper, overall, you can actually have a lot of synergies and reduce your cost. From that, it may be not as high, I would say it's low margins.
Okay. On the same lines as well, how do you plan to un-source the unconventional rigs? I think this is just to wrap up the unconventional part of the discussion.
I think the best thing to do is acquire new rigs.
Okay. Thank you. We'll be moving on to Mr. Yazid. Mr. Yazid, go ahead, please.
Okay. The day rate has been increasing significantly on the offshore side. Do you see that the day rate will continue to increase, or is it slowing down in terms of Because we have six new contracts renewal during this year.
We have 8. Out of the 8, there is only 2 offshore, and we expect that the price will increase because these were in the old rates.
If I may just complement. One of the 2 that rolls off contract in 2023 is the MPSV. The MPSV is not similar to the rest of the offshore jackup, right? Because, again, it's a small jackup. It doesn't have a drilling package, et cetera. That particular rig is not at par in terms of day rate with the rest of the fleet. That's one of the 2. Just wanted to complement.
Yes. Thanks for correcting this. We have one offshore jackup that, yes, of course. Just to answer your question, all of the rig contracts were already contracted. What you're going to see, if anything that is coming to renewal, and it's with the old prices, we expect that there will be a price increase.
Thank you again. We will now be moving on to our next set of questions from Mr. Akbar. Mr. Akbar, if you can go ahead, please.
Thank you. Just wanted to go back to the slide we were looking at earlier, which is slide 10. The backlog has decreased for each of the last three quarters.
Yes.
I was just wondering, how should we look at that? From an investor's perspective, if that number keeps falling, is that a source of concern, or is that irrelevant?
Okay. Good question. To explain. The backlog is the expected revenue to come. You can see it almost doubled from Q2 to Q3. We signed a lot of contracts in 2022, and that is why the backlog jumped to SAR 9.5 billion. What happens if you sign all the contracts. What happens every quarter, the remaining backlog will reduce with time. It just goes down, down until you sign a new contract, and then it will add to the backlog, and it will increase. I am being frank and transparent. In Saudi, if you look at all of our rigs for the last 60 years, they just been every time contract comes to an expiry, there is an extension, an extension, and an extension. All of our fleets.
Yeah.
What I am saying is, really, this backlog should not worry anyone because the tendency in Saudi Aramco here, as long as you are safe, as long as your Rig Efficiency Index is at a five and it is not low, then you expect that the contract is renewed. Having the same thing in another country, it is worrying because in other countries, it is not the same. The contracts not always get extended, extended. It is completely different in Saudi Arabia.
Thank you. Presumably, at some point, the rig gets so old that it won't get extended, or if it does, it'll be at a much lower price.
You're right. It has a life, but I like to always refer to our COO. He tells us, the Eiffel Tower has been there for so long.
60 years.
It's iron. If you take care of the iron part and you do the sustainable maintenance.
Capital
The rig can really last longer than it should. This is what you see in our fleets. Some of our old rigs are actually some of the best performing rigs for Saudi Aramco.
Great. Last question or second question is regarding the eight rigs that are up for-
Renewal
renewal this year and the four for next year.
Yes.
Are these the eight? Apologies if you've mentioned this already. Are they in the third quarter? Are they in the fourth quarter? What about the ones for 2024?
Some are coming.
I think it's split. I think it's equally split. Some are coming at the end of the year. Others will be in Q3. There is no specific concentration in one particular quarter. It's evenly split.
The ones in 2024?
The ones in 2024, I think it's the same. From the two offshore, I know that one is midyear, the other one is later on. There is.
I don't remember the land.
The land, I don't remember on top of my head.
Thank you very much.
Welcome.
Thank you, Akbar. Just as a reminder, if you wish to ask a question, you can click on the raise hand icon on the screen, or you can alternately type your questions in the Q&A chat box as well. We will take our next question from Mr. Jonathan Lamp. Mr. Jonathan?
Presentation. The new offshore rigs that you're in the process of investing in at the moment, when are they going to be coming into
We're expecting Q3.
Q3. Okay.
Yeah.
Three of them.
Yeah. We have two of them are being upgraded in Dubai.
Yeah.
Coming in, will be towed in, and there is one in Singapore that will be actually coming very soon from Singapore.
Yeah. Just to clarify, so all three rigs come with a five-year contract, right?
Yeah.
They have a firm five-year contract on.
We own these rigs. We bought these rigs. Not the same as the 2 rigs that we have, AD-110, AD 120, which are leased.
Right. The offshore business seems to be extremely buoyant at the moment. Do you have any worries about the onshore business, given that Saudi Aramco is producing less oil, or will unconventional make up for anything else?
No, not really. You have to understand one thing, which I explained on the roadshow, is in Saudi Aramco, their strategy, for every barrel they produce, they have to explore four. When you're producing more than 10 million barrels a day, you can imagine the amount of exploration that's going on.
Yeah.
Be it land or offshore. This historically, drilling is always continuing here in Saudi.
Okay. Thank you very much.
You're welcome.
Thank you, Jonathan. We will take a couple of questions from the chat box. There are a couple of questions from Mr. Ibrahim. Ibrahim is congratulating you on the good set of results, and he's asking if you can elaborate on the lump sum that you talked about regarding rig move, and if you can give any example of it.
In remove-
The top of the rig move.
The way the contract is, you are paid daily rate as long as you're drilling the well. Once you finish drilling the well, Saudi Aramco will decide which well you go to. Let's say you go from point A to point B. The move from point A to point B, you don't get paid on daily rate, you get paid a lump sum. This gives us more incentive that we reduce the time. If they pay me, for example, just for the sake of argument, let's say they pay me SAR 2 million for the move. I will be paid SAR 2 million if I move in 2 weeks or in one week. If I move within one week and then start drilling, then I go back to payroll.
If I go in 2 weeks, I have extra cost, I have depreciation, I have people, all of this. It's better for me to move faster. This is the way it's set up. There is an Aramco KPI, we are within this KPI. What we want, what we have been usually doing, we always superseding the KPI of Saudi Aramco and saving. We're actually saving above Aramco KPI, around 1.5-2 days per rig move.
Yeah.
If you see in the slide in Q4, it was 2. Before it was 1.4, 1.8. We're maneuvering between 1-2 days saved per rig move. With the events that happened in Q1, you see the number of days that we used to save above the KPI of Saudi Aramco. This quarter, we didn't save any days.
Compared to the KPI.
Yeah. Compared to the KPIs. I hope I was clear.
Thank you on that. Another follow-up question from Mr. Brahim is that, in your guidance reflecting your expectations for 2023, do you include all the rigs to be renewed as per your expectations?
Yes.
Thank you. There is another question from Mr. Anoop Fernandes. He is asking, could you please break down the CapEx guidance for this year of SAR 1.2 billion-SAR 1.4 billion into expansion and maintenance? Also, what is the total rig count and its breakdown expected by the end of 2023?
Let me go back to, if you don't mind, I'll take the CapEx guidance. Look on the CapEx guidance, we say $1.2 billion-$1.4 billion. Roughly we have, in rough numbers, we have about a base of $400 million that relates to the sustaining CapEx. This is your usual certification overhaul that you have to do. These are mandatory regulation requirements. This is about $400 million. You have the ongoing shipyard activities. For the 3 jackups, we're talking about roughly $600 million. You have some discrete project that we have. There is a couple of land rigs for which we have a plan and a budget to upgrade during the year. This is roughly how we break down the $1.2 billion-$1.4 billion.
Thank you very much. I think that was quite elaborative. Also, what is the total rig count and its breakdown expected by the end of 2023? At the end of the year, how much rigs do you expect to have in your fleet?
So-
Plus three.
We have 50.
Yeah. Plus 3.
Yeah. Plus 3 is 50. Not keeping in mind if we win any other contracts and bring other rigs.
As of today, we'll be looking at a total rig count of 50, which is the 47, which is the total available fleets that we have. Plus, we're going to bring the 3 new jack-ups, that's going to bring it to 50. Which doesn't mean that the 50 will be working. Keep in mind that we have 3 land rigs that are stacked right now. If I go back to the slides for everyone to review. We have 3 land rigs that are stacked. Out of the 3 land rigs that are stacked, 2 of them, we have some refurbishment program plan. One is one that, for the time being, we have decided to keep it as a training facility to support the onboarding of new crews.
Yes. This was actually, part of it was to be upgraded as well. We're taking the chance since we need time to upgrade. We're using it for the training facility. As well, the other 2, if we want to put them back, to upgrade, it will take a year to upgrade.
Thank you. I think, again, this is a question from Mr. Khalid in the chat box. I think it's a little more specific. Hi. Can we know about the capacity and approximately day rate of the new offshore rigs AD 130, 140, and 150?
We cannot disclose. It's confidential, actually, for Saudi Aramco themselves. They're in the high side. They're in the north of SAR 100,000 per day.
Yeah.
Thank you. We'll be going back to audio questions. The question is coming from Mr. Reena. Mr. Reena, if you can go ahead, please. Hello?
Hello.
Reena?
Yes. Hi. Can you hear me?
Yeah, we can hear you now.
Thank you for the call. My questions, a few of them were answered. As a follow-up on this Rig that's being used for training.
Any idea how long this is going to go on for? It's indefinite?
No, I don't think it's indefinite, but I think it's this year. Most probably this year.
Probably, yeah. Probably until the end of the year. Yeah.
We're seeing If you recall on the slides, we show that total recordable injury incident that happened, we've seen them mainly from newcomers. We said, "Look, we're having a huge intake of crews." Even if they're experienced. It's not just about having a course where you want to have the team to gel together. We decided to use the rig. One of the plan was to upgrade the rig anyway. We're saying, "Okay, let's put it for training." I think it's going to be this year. Majority of this year.
Okay. In terms of the retention plan, the extra cost that goes for that, is that only for offshore, or it's both offshore and land?
Very good question. It's for all, because you can take a driller from land to put him offshore.
Okay.
There is not much difference. The only difference, maybe the crane operator in the offshore is different from the crane operator on land. What we did is we had a retention plan for the whole organization. That was one. We have seen a clear targeted group, which is the offshore. We added an offshore premium for the people who work in offshore.
Okay, clear. Just if you could explain a bit better the accelerated depreciation on the leased rigs.
Yeah.
Okay. I'll give it a shot, and then
Yeah.
Nabil can give it a shot. What happens is usually when you acquire a rig, there is the CapEx of acquiring a rig, and there is a CapEx of upgrading the rig to Aramco requirements. Usually, it's depreciated on the life of the rig. In these two rigs that we acquired, the 110 and 120, we didn't acquire these rigs. We are bareboat chartering. That means we're renting them, actually. We don't have a depreciation on the CapEx itself. However, because the agreement is for 3 years, what's happening is we have to upgrade the rigs to Aramco requirements. This cost of upgrading, the CapEx that is used for upgrading, we're not depreciating it on the life of the rig. We're depreciating on the life of the contract, which is 3 years.
Okay, clear.
Of course, if these three years we extend the contract, the depreciation will just literally go to zero at that point.
If I can just add. The equipment that is movable, obviously, we paid for the equipment. We will retain the equipment after the rig goes. There are a number of upgrades and modification which are structural to the rig. When we have to return the rig, we will return with the CapEx that we have spent. The accelerated depreciation is for this part of the modification, the upgrade of the structure that will be returned to the rig owner at the end of the three year.
Okay, clear. One last question, if you may. I don't know if you're going to answer this, but I'm going to go ahead.
It's-
How much is the one-time element in the cost that won't stay there, that was taken in the first quarter?
One cost element?
Yeah.
Yeah.
Sorry
the one time, the non-recurring cost that is in the first quarter of 2023.
Yeah.
If you can give us an absolute number, that would be great.
I believe that would be in the range of $10 million-$15 million.
Okay. Thank you so much.
You're welcome.
Thank you. Our next question is coming from Mr. Aakarish. Tomer Aakarish.
Oh, you have answered a lot on AD 29, the training rig that you're using. My question is, correct me if I'm wrong, from the IPO, this was contracted till 2025. Does that contract will be replaced by any other rig, or how will that work?
Which rig is this, sorry?
AD 29. AD 29 as was released. As we said.
What happened is they leased it to drill this SADA is Saudi Arabian Drilling Academy. It's an academy where they take candidates. Usually, a candidate is confirmed a job. For example, I already went and recruited, so I take care of these employees in the training, and then after 2 years, they come to me. You have a guaranteed job if you're in this academy, be it in Arabian Drilling or any other rig company. They wanted to drill another well. We actually wanted to take this opportunity. This is actually very, very good for Saudi and actually for our CSR. What happened is they had to cancel the contract. Then once they canceled the contract, there was a discussion to bring it back. We felt as management, look, I think we have a huge intake.
We said, "We need to upgrade this rig anyway. We work on the upgrade, but for now, let's use it for the training until the equipment comes to be upgraded, and use it for the training for the big number of employees that we're getting on board.
Thank you.
Okay. We will take our last question, and that is coming from the chat box. Q4 2023 dividend, has management indicated a payout ratio range?
I believe we gave a guidance of a payout ratio of 80% of the net income. To be honest, nothing really has changed. We still plan to do a first dividend payment in Q4 related to H1. The amount of the dividend will be based on the first year results, nothing has changed. We also said that we want to remain moderately leveraged. If in case we have, for instance, net debt to EBITDA ratio that shoot through the roof because of an acquisition or a growth, maybe potentially this is something that we might reconsider. Other than that, nothing has changed on the dividend assumption.
Thank you, management. That was very clear. With this, we will bring the question and answer session to the close, I will hand it back to the management for the closing remarks. Management?
Thank you. To wrap up and to conclude, we remain very excited and positive on the outlook of the market and the potential growth or the trajectory that we see in front of us. We are all excited in Arabian Drilling. The whole team is upbeat, I tell you with the opportunities of growth that we see in front of us is very strong. Hopefully, we can give you better news, hopefully, in the next quarter or either Q2 or Q3. That is how we are going to conclude. Thank you very much. I wish you all the best.
Thank you, management. I would like to thank the Arabian Drilling management for taking the time to take this call. We would also like to thank all the participants for joining in today. We wish you a very pleasant day, and you may disconnect now. Thank you. Thank you very much.