Arabian Drilling Company (2381) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Madhu Appissa from Al Rajhi Capital, and I welcome all the participants to Arabian Drilling's Q3 2024 Earnings Conference Call. From the management, we have Mr. Ghassan, the CEO; Mr. Hubert, the CFO. As usual, we'll be having a presentation followed by a Q&A session at the end. Without any further delay, I'll hand over the mic to Arabian Drilling's management to start the proceedings. Mr. Hubert, the floor is yours. Please go ahead.

Salam Aleikum. Good afternoon, everyone, and welcome to Arabian Drilling earnings call for third 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 at your convenience. Today's presentation will be delivered by our CEO, Mr. Ghassan Mirdad; and our CFO, Hubert Lafeuille. The agenda for today will cover various topics, including highlights, a review of our operation 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.

Thank you for the introduction, Jamal, Salam Aleikum, and heartfelt welcome to all participants joining us today. We will begin with a brief overview of this quarter and year-to-date. This quarter was the first quarter with the full impact of the offshore rig suspension, and I'm happy to report that we have maintained our EBITDA margins levels, showing our resilience and ability to adapt through the cycle. We are also showing continuous success with the deployment of our unconventional land rigs. 8 rigs were deployed at the end of the quarter, an additional 2 were deployed in the last few weeks. All 10 rigs from the first award have now successfully and safely started. Again, I would like to congratulate the team that are doing a remarkable job in deploying the unconventional rigs. Let us now go over some of the quarterly highlights, starting with operations. Our overall utilization rate is 86% with 8 rigs inactive, which includes 4 offshore and 4 land rigs out of 57. We have slightly improved on our nonproductive time compared to last quarter with an NPT of 1.51% in Q3. Rig move performance was in line with the prior quarter. On the HSE and sustainability front, despite having reached the best total recordable injury frequency rate for the past 4 quarters, we regretfully suffered a major HSE incident resulting in the passing of one of our colleagues. We are reinforcing safety behaviors and protocols across all operations and safety will continue to be the #1 priority. Our sustainability efforts are accelerating with solar installations and other pilot initiatives are already supporting material savings in emissions with more to come. On the financial highlights, which Hubert will cover later in more details, both our year-to-date revenue and EBITDA shows year-on-year growth. Our EBITDA profit margins and cash flow generation remained strong in spite of the impact of the offshore rig suspension. On the growth and diversification front, we have some good news to share. As mentioned, the unconventional start-up is going very well and I'll share more details in the next slide. Another good news related to our expansion in the offshore support vessel business, as previously announced, we received a 2-year award for our jackups support vessel, and we also have received an intention to award another vessel, which will be an addition to our fleet. This opportunity will support our revenue diversification. Now let's review recent developments, starting with the land activity. As mentioned, the 10 rigs from the first unconventional award are all deployed and delivering financial returns in line with our expectation. The 3 rigs from the second unconventional award, which was [Technical Difficulty] will now be deployed before year-end, resulting in all 13 rigs fully contributing to revenue from January 2025, a quarter ahead of plan. At the end of Q3, we had a total of 4 ideal land rigs, which are being marketed. Let's now have a look at the last contract and rig activity for offshore. As previously communicated, we currently have 4 ideal offshore rigs. Three of those rigs are kept ready to go for their next contract and are currently going through a tendering process internationally. We are still planning to sell the fourth rig and are seeing interest from potential buyers. As announced, we received an intention for additional offshore support service vessel, and we are communicating the details in due course. From market outlook, we expect the market to remain strong for unconventional, but challenging on the conventional side in the short term. For the offshore, we think that the global jackup supply will remain stable in the medium term with very limited new build and high utilization rates supporting prices strength. Let's now discuss our backlog. We closed the quarter with a backlog of SAR 10.3 billion. Other than quarterly revenue depletion of about SAR 750 million, we had 2 changes in this quarter backlog offsetting each other. Looking at the bottom left graph, we have 1 offshore rig and 2 land rigs rolling off contract in 2024. The offshore rig is a jackup service support vessel, which was just awarded another 2 years as announced with the backlog in excess of SAR 100 million. The 2 land rigs are in the final stage of confirming extension. All 3 will add significant backlog in Q4. In 2025, we have 4 offshore rigs and 22 land rigs rolling off contract. Out of the 4 offshore rigs, 2 are currently suspended and 1 contract is ending in Q4 with a 1-year extension option. The fourth one is contracted with KJO until mid-2025. For the 22 land rigs, 11 are assigned to the gas lump-sum turnkey program, which is with SLB, has a 1-year plus 1-year option that we believe will be extended. The remainder of the land rigs rolling off contract are mostly Aramco rigs, which we believe will be extended as well. Moving to the next slide on our operational KPIs. On the left, you can see the utilization rate was 86% at the end of Q4, with 3 more rigs becoming inactive during the quarter. One offshore rig was suspended as previously announced and 2 land rigs came off contract with being prepared for another contract. Looking at the top right graph, our rig move performance was very good this quarter compared to prior ones. Although the average of 1 net day saved per rig move is low, the Q3 performance was impacted by major cyclical maintenance activities, which extended the duration of the move without this, we would have saved over 2 days per move this quarter, beating the past 4 quarters. On the bottom right graph, you can see that our quarterly NPT improved quarter-on-quarter overall for the last 12 months. We have an NPT rolling average of 1.23%, which indicates a very strong operational performance. With that, I will now hand over to Hubert to go through the financial performance. Hubert?

Thank you, Ghassan, and good afternoon, everyone, on the call. First, let's have a look at some of the key numbers for the quarters. We closed Q3 with revenue of SAR 863 million, which is showing a contraction of 8% Q-on-Q as Q3 was the first quarter with the full impact of the suspended offshore rigs, as Ghassan mentioned. That revenue decrease was, however, partially offset by the addition of 4 more unconventional land rigs during the quarter. Our Q3 EBITDA was SAR 358 million, which shows a 7% contraction Q-on-Q, in line with the revenue. However, we have delivered a solid EBITDA profit margin at 41.5% CapEx activity remained high in Q3 with SAR 548 million spent as we complete the unconventional land rig program. As a result, we had a negative free cash flow of SAR 70 million during the quarter. We are showing a return on equity of 9.2% based on our last 12 months adjusted net income over an equity position of SAR 5.9 billion as of 30th of September. We closed the quarter with a net debt position of SAR 2.6 billion and a leverage ratio of 1.7x, which is slightly higher than the 1.5x of the last quarter. As previously communicated, the leverage ratio continues to increase as available cash is being allocated to complete the CapEx program. Now let's go a little bit more in detail and have a side-by-side comparison, first year-on-year and then quarter-on-quarter. So let's look first at the year-on-year comparison, which is the upper graph, which is year-to-date September '24 versus year-to-date September '23 for the 9 months period. Looking at revenue first, year-to-date revenue is SAR 2,769 million, showing an increase of SAR 279 million, which is 11% higher, mainly driven by the contribution of 3 offshore rigs that were added in Q3 of 2023. Looking at EBITDA next, year-to-date EBITDA of SAR 1,150 million is showing an increase year-on-year of SAR 100 million or plus 9%, in line with the revenue growth. The profit margin was 41.5%. However, this profit margin does include start-up costs for the unconventional of approximately SAR 38 million that we have incurred in 2024. If you were to exclude those start-up costs incurred this year, the normalized EBITDA margin on a year-to-date basis would be 43%. The adjusted net income shows a decrease of SAR 66 million or minus 16%, mainly due to higher finance expenses and the added depreciation cost. Net finance expenses increased year-on-year due to the interest charge on the new loans and interest expenses that were capitalized last year in 2023 as part of the CapEx program. As a reminder, let me clarify that adjusted net income excludes a noncash asset impairment charge of SAR 105 million that was recognized in Q2 of 2024. On the CapEx side, we spent SAR 155 million more year-on-year. The total CapEx year-to-date was close to SAR 1.5 billion, of which slightly more than SAR1 billion or 69% relates to the unconventional land rig program. Now let's have a look at the trailing quarter comparison, which is on the lower graph. Now looking at the revenue first, as mentioned, we see a slight quarter-on-quarter decrease of 8% from SAR 939 million to SAR 863 million, mainly due to the offshore rig suspension amounting to SAR 124 million and partially offset by the contribution of the unconventional land rigs of SAR 65 million that came online during the quarter. Following the slight revenue contraction, EBITDA also decreased by 7% Q-on-Q from SAR 386 million to SAR 358 million, mainly due to the full impact of the suspended offshore rigs, as mentioned. Despite the rig suspensions, we have delivered a solid EBITDA profitability margin of 41.5%. Actually, Q3 EBITDA was even higher than the prior quarter with a 40 basis point uptick. This improvement was mainly due to reduced operating costs on the suspended rigs of about SAR 18 million as well as ongoing adjustments and cost-saving initiatives in the compensation and benefits of about SAR 41 million. And actually, we have launched an ambitious cost management program with close to 200 initiatives already implemented, which is helping us maintain margin in the low 40s percentage in H2 '24. For this quarter, net income of SAR 85 million was SAR 40 million lower than the adjusted net income in Q2, mainly due to the shortfall in EBITDA contribution of about SAR 28 million described above, plus the added depreciation costs coming from the unconventional land rigs that were deployed. Depreciation costs are also maintained on the suspended rigs, although no revenue is generated. We are yet to receive the full benefit of the unconventional rigs as the deployment is still ongoing. As mentioned by Ghassan, Q1 '25 will be the first quarter with a full contribution of the 13 rigs. We expect the revenue contribution to be close to SAR 200 million per quarter with the EBITDA margin in the low to mid-30s percentage. On the CapEx side, there is a SAR 65 million or 11% decrease in spending Q-on-Q with the unconventional land rigs spend amounting to SAR 364 million. Other main CapEx spending during the quarter relates to offset rig move equipment of about SAR 22 million, ERP and facility upgrades of SAR 30 million and 1 land rig upgrade of SAR 17 million. The other SAR 115 million relates to sustaining CapEx for the rest of the fleet. To date, the total spend on the unconventional program is approximately SAR 1.6 billion, and we estimate that the total spending at completion will range between SAR 2 billion to SAR 2.1 billion. And we have slightly revised downwards our estimate this quarter in line with the savings initiatives mentioned earlier. Now moving on to the segments, focusing on the quarter-on-quarter and year-on-year revenue and gross profits. So as a reminder, gross profit include direct operating costs of the rigs, which include depreciation expense, but does not include G&A nor interest or tax. So for the offshore segment, the first graph in the top left is a Q-on-Q comparison. We noticed a decrease in both revenue and adjusted gross profit due to Q3 '24 being the first quarter reflecting the full impact of the 4 idle rigs, including 3 rigs that are suspended. Overall, we have a Q-on-Q revenue and adjusted gross profit decrease of SAR 119 million and SAR 93 million, respectively. Now during Q3, the suspended rig carry most of their costs to support mandatory recertification maintenance activities to keep them immediately ready for the next assignments. As soon as those activities were complete towards the end of the quarter, we shifted to a skeleton crew. Other factor explaining the decrease in adjusted gross profit Q-on-Q includes demobilization costs to the stacking location as well as the full depreciation and lease costs that we continue to carry with no associated revenue. On the year-on-year basis, still on the offshore segment, we still see growth on the revenue and adjusted gross profit due to the contribution of the 3 offshore rigs that were added in Q3 '23. The year-on-year increase on the revenue and the adjusted gross profit is plus 15% and plus 7%, respectively. The drop in the profit margin year-on-year from 45% to 42% is mainly explained by staff compensation related to the suspended rigs after they stopped generating revenue. Now moving on to the land segment. The main story for this quarter, again, is the continuous deployment of the unconventional land rigs with the benefits of the added contribution that starts to come through. We expect to see our cost base and profits to normalize as we head into Q1 '25 when the full contribution of the 13 unconventional rigs will come through and no more associated start-up costs. Starting off with the quarter-on-quarter revenue, we have an increase of SAR 43 million, of which SAR 65 million is coming from the contribution of the unconventional rigs that starts in Q3. And this was, however, partially offset by 2 land rigs that went out of contract in Q3, one of which is being prepared for another contract, as already mentioned by Ghassan. On the adjusted gross profit, we see a strong increase quarter-on-quarter of SAR 39 million, of which SAR 21 million is a contribution from the unconventional rigs that were added and the rest reflects the impact of some cost-saving initiatives. For the year-on-year basis, we have a revenue increase of SAR 127 million, mainly coming from the contribution of unconventional rigs of SAR 93 million. On the adjusted gross profit, we have a year-on-year decrease of SAR 54 million, mainly coming from the start-up cost of the unconventional rigs of approximately SAR 38 million as well as added depreciation cost of about SAR 30 million. As we move into the next quarter, the contribution of the unconventional rigs will strengthen our land segment financials. The next slide will bring you through the cash flow bridge and provide a snapshot of the cash movement for the 9 months period. So overall, we started the year with a cash position of SAR 1.4 billion, to which we add net income of SAR 251 million and noncash item of SAR 840 million, including the impairment charge recognized in Q2. Then we have our CapEx spending of approximately SAR1.5 million, as already mentioned, of which close to 70% relates to the unconventional rigs that is more or less SAR 1 billion. The remaining SAR 450 million CapEx spent to date mainly includes offset rig move equipment for SAR 49 million, 1 land rig upgrade for SAR 51 million and facility and ERP upgrades worth SAR 45 million. And then the remaining, which is SAR 300-plus million correspond to the sustaining CapEx for the rest of the fleet. Over the 9 months, we also made SAR 345 million of dividend payments in 2 different installments. Then on the loan and lease side, we made bank loan repayment of SAR 75 million and payments of SAR 50 million on the 2 leased offshore rigs. Then we had net finance cost of SAR 188 million, which was made up of interest cost of SAR 212 million, less SAR 24 million of interest received from short-term deposits. Finally, the last piece of the bridging includes change in the net working capital as well as other items such as tax employee benefit paid, mobilization cost paid, mobilization fee collected as well as proceeds on asset sales for a total cash outflow of SAR 22 million. So at the end, we are closing Q3 with a cash position of SAR 381 million. Now moving on into the detail of our debt profile. So our gross debt position remained roughly the same during the quarter. We have a total borrowing of close to SAR 3 billion, which is made up of SAR 2 billion in the Sukuk. And then we have 2 bank loans of SAR 500 million each, plus the accrued portion of the interest, net of SAR 75 million of debt repayment that was made during the 9 months. The company net debt position of SAR 2.6 billion has increased by approximately SAR 900 million or 50% compared to 31st December 2023 as a result of allocating cash to the ongoing CapEx program. Consequently, our net debt-to-EBITDA leverage ratio has also increased to 1.7x. Going forward, we are likely to draw on additional debt to finance the remaining portion of the unconventional programs, and we already have a secured bank facility of SAR 500 million at a very competitive price. As a result, we expect our leverage ratio will continue to increase, peaking over 2 before normalizing. My last slide relates to 2024 guidance. We expect to close 2024 with revenue around SAR 3.6 billion, which is the low end of the guidance previously communicated due to the recent business developments. CapEx for the full year will be between SAR 2.1 billion and SAR 2.2 billion, which is the low end of the range previously communicated, supported by the various savings initiatives mentioned earlier. And this now concludes my section. I will now hand it back over to Ghassan for his closing remarks.

Thank you, Hubert. In closing today's presentation, our key metrics and KPIs remain positive year-to-date. We continue to do more than HEC front and as well on the sustainability front. The current wave of suspension impacting us is the nature of our sector, and we are adjusting through this cycle. However, the shift in our segment mix has accelerated with a greater contribution from the unconventional coming through fully from next year following our investments. As mentioned before, we believe that gas will bring long-term benefit as it continues to grow for us and support our client and Saudi's energy transition. Cost management is also a focus with material efficiencies being achieved. We are also using this transition time to drive our expansion plans and diversification opportunities to add new revenue streams. Thank you very much. And now I will hand it over to [indiscernible] for the question-and-answer session.

[Operator Instructions] First question is from the line of Mr. Prateek.

I just have one question. The 41 land rigs, which you have, were they operational the entire Q3 '24 or some of them started in between?

So from the 41, we have a portion of them that relates to the unconventional. So the unconventional started during Q3. So not all of them were fully operational during the full quarter.

So they started towards the end of Q3 or towards the beginning of Q3, the unconventional one?

So some started in Q2, and then we started in Q3. Some came at the beginning, some came at the middle, some came at the end. And the last 2 was just the last couple of weeks, the last 2 from the 10.

Next question is from the line of Jarryd.

Give us some color as to how difficult it is to redeploy the suspended rigs or to win contracts for them now given where the market is? And do you think you could redeploy these rigs within the next year? Or could it be pushed out further?

Today, we are tendering, and we are exploring all opportunities on an international basis, local and international as well. Out of the 4, 3 are tendering, and we'll know more by the end of Q4 or early Q1 next year. But the opportunities are there. We hope that we're going to have them all working hopefully next year.

And then the second question, just on unconventional, has there been sort of more tenders in the pipeline? And how do you see that progressing?

So we believe there will be more tenders to come. It's just the timing when it's going to come. But there is a lot of push on accelerating and our clients are extremely happy that we are getting, Phase 2, the 3 rigs ahead of time by 1 quarter.

[Operator Instructions] As we wait for our next question, I'll read out the questions posted in the chat box. The questions are mainly related to the market outlook. What is your view on the current demand and on day rates? If you can share details on day rate? That's the second question.

In the offshore, the demand is there. But you just have to realize -- looking at what's happening today, we just have a big fleet of offshore that was suspended. So you will see a bit of -- I mean, prices will go into I know around SAR 100. But once we see deployment of the rigs that were suspended somewhere else, prices will pick up back again. So there is still a demand on the offshore. The only thing is just there is a big number of offshore rigs that came on to suspension. And what was the other question? So pricing was 100 and the demand.

And there is no new build deliveries on the jackup. So there is no spare supply of rigs that is coming to the market.

So my answer is in the short term, within 1 year, 2 years. But in the long term, because there is no new builds, what's going to happen, you're going to see some of the rigs that are available in the market that are very, very old and they're going to go off market, which will add more contraction that there will be demand and prices should go up on the long term.

Next question we take from the line of Akar.

So I have 2 questions on the rigs which are rolling off contracts. So the first question is, you said that out of the 4 offshore rigs, 2 are already currently in suspension. And one is with KJO, which is midyear next year, it will be rolling off. I couldn't hear what is the last rig about the last rig. Is it with Aramco? Or is it with Baker Hughes? So first question is that. And second question is out of 22 rigs, can you give us a split how much of them are with Aramco and how much of them are with others? And if you have some visibility on the time line throughout the year, when will they be rolling off the contracts?

So you're talking about next year rigs?

Yes.

So if you look at the backlog, you have 4 offshore. So out of the 4 offshore, so 2 are currently suspended. One is working with KJO and the contract goes until mid of 2025. And the last one is one of the lease rigs whose contract ends at the end of Q4 2025. So these are the 4 offshore rigs. So this was your first question.

But let me add to that. So the 2 that are suspended are actually in a tender right now. The one that is on lease basis that ends end of the year has a plus 1-year extension. And one with KJO the contract will end mid next year, and we believe that's going to be extended as well as usual.

And then I think there was a second question, which was out of the 22 land rigs. So how many were Aramco? So we have 9 rigs out of the 22 that are Aramco. And the question, I think, was when do they roll off contract? It basically comes at various times during the year. So it's not like one block coming at one point in time, it's captured over the year.

So as mentioned by Hubert, so 9 are Aramco and 13 are with the service company, SLB 11 and 2 Baker. And usually, those, they get extend -- for the 11 have the option of another year extension as well.

And if I can just ask one last question. So on the unconventional tendering side, I think 60 rigs are already tendered. Is there any more tenders which are coming soon? Or like how do you have the visibility on that?

So the tender was only 23 tenders or 23 rigs that was tendered, out of which we won more than 50%. We won 13 and the remaining was won with different suppliers. We expect there will be more tenders, but we just don't know the timing and the volume. Like, for example, you see the first tender was 13. The second tender was less. So it depends. So we don't know the volume of the tender and how soon it will come. You just have to keep in mind that our clients are doing excellent on the unconventional. So when you have good rates and stuff, so maybe they won't push very hard on the tendering and come with more rigs because they're doing extremely well on the production or what's coming out from the existing wells that is being drilled. And that's why we're not sure how big the tender will come and how soon.

Next question we take from the line of Indika.

I have 2 questions. Basically, the first question is with regard to the suspension of course. You see like OPEC has now decided to maybe release the supply cuts and then probably Saudi Arabia will have almost like 1 million barrels a day might be coming gradually. So I just wanted to understand with that additional supply coming in, will there be any impact on either land or the offshore rigs maybe additional activities. So that's the first part. And the same question, of course, is there any further risk of curtailment or suspension especially coming from Aramco? That's the first question. And the second question, I just wanted to understand quarterly expense from the suspension on a recurring basis? And also, do you expect this cost to come down in the coming quarters?

So if you look at the offshore, if you recall, Aramco added around 45 to 50 rigs offshore just because of the 1 million increment. So what I believe this extension will go back to normal. So they will be releasing the offshore, and we're seeing some suspensions to go back to their normal when they were running at 12 million maximum sealing capacity. However, on the land, what I think will happen, what we expect to happen, if oil prices continue to go up, stays up, then I think we don't see much of an issue if oil prices go down. So you should not link it to production. I know Aramco to increase production, they don't need to drill more wells. They can just increase production. They have the capability to go up to the maximum, which is SAR 12 million. So it's not about drilling. Drilling is on the long term for them. or to replace any production that was done. Now if oil prices goes down, so there might be some cost control, and we'll see some minor very, very short term. When we say short term, we talk about 1 year, 2 years. I'm not talking about 1 year. I'm talking about quarter, 1 quarter, 2 quarters that we might see some land suspension for a small period and it goes back up just to control cost. That's in case the oil prices goes down. That's at least from my view.

I think there was a question on managing the cost for the rigs that are suspended. So let me give a bit of a color here. So if you look at the offshore, for instance, so during the quarter, as I mentioned, because we had some mandatory cyclical maintenance activity to maintain the rig its class, we have kept some of the crews for most of the quarters. But as we speak now, for instance, the rigs that are suspended, I mean, we only have a very skeleton crew on those rigs. I mean you're talking about a headcount of about 40 to 50 people just looking after all the suspended rigs. When to operate a rig, you would normally have about a headcount of about 100 people per rig. So we've gone from 100 people per rig to 40 to 50 people to look after a cluster rig. So that's one thing. And the same thing is that what we did during the COVID, as I recall, we had a number of land rigs that were suspended. I mean we basically managed very well to shave off a number of those costs related to those rigs. So this is something that we know how to manage. So to answer your question, yes, we will see the cost going down. And the costs are going down as we speak on the offshore suspended rig.

Just to add a bit of flavor to what Hubert said. On the offshore, you can park the rig. But if you want it to be ready to be deployed, you really need to run the engines and stuff. So there is a bit of cost element there. But it's very, very low. However, in the land rig, once you park the rig, you can really shave the whole cost that is linked to that rig directly because you just park the rig, there is no need.

If I may just ask a small follow-up. I'm not talking too much time. So you mentioned like 2 rigs, of course, are under the tendering process. So I just wanted to remind us how long it will take usually for the tendering process and the deployment, the time lag assuming you are winning, of course.

This is international, so it all depends. But it's 3 rigs that are with tendering and the different rigs start in different times if we win. Some of it will require -- because when the client wins an offshore rig, it's not only the rig, you have the accessories that the well needs. So it depends when the client acquires these equipment and accessories that is needed to drill the well. These are not our equipment. They are client equipment, depending on the availability and if they have them or not. If the equipments are available, literally, you win the tender, you mobilize. If the client is waiting for the equipment, then the rigs will be deployed. And so it's within the full year if we win.

Next question is from the line of Ahmed.

Basically, I have one question on the status update of your pre-qualifications in other markets, given that you're saying you're tendering for the offshore assets. And if you are not prequalified in a certain market, would you be thinking about doing that through a third-party maybe driller or a company that has a pre-qualification that you would be basically about charter the rig off of?

So in today's tender, we are tendering direct. The client accepted our qualifications, our experience and we're tendering direct to them. However, with other geographies, there is 2 other ways to penetrate. If we can tender straight, we will. The other option is we partner and we are evaluating that as well. And the third option is you acquire a company in that geography. So all 3 are being looked at as we speak. And whatever makes a faster decision to deploy, we will be taking it.

I have just one small follow-up. Basically, can you identify the market that you're tendering directly in where the client gave you basically authorization?

Southeast Asia.

So it's a Southeast Asian market that you're tendering 2 rigs.

3 rigs are tendering for that.

[Operator Instructions] Before we take follow-ups on the line of Jarryd, there is a question in the chat box. This is about 2025. What are your expectations for 2025 and can we assume that most of the challenges are behind us and we could see strong growth in earnings as well as margin expansion in 2025?

So I'll answer and then feel free to add. I mean it's too early to give any guidance on 2025. There is too many moving parts. Our unconventional is starting and as well, as we mentioned, there might be tenders that are going to come as well the offshore, how fast we can deploy. So it's going to be a bit challenging to look into that. Now on the other aspect as well, we have a new election that was just announced. So we don't know how things will go with that next year with the oil price up and down. So it’s quite moving parts to kind of give some guidance. Hubert?

No, no. I mean, you're right. I mean I think it's a bit too early to give any guidance at this point in time.

Now we take the question from the line of Jarryd.

Just on your offshore vessel services business, what type of margins can we expect in that business? Is it similar to offshore? Or where do we stand?

I think the question was on the offshore support vessel which is a bit of a different. So the offshore support vessel, I mean, we have one rig right now, which basically looks like a rig, but it's a smaller size, and it doesn't have a drilling package. So the offshore are a bit below what you would normally have for a drilling rig, but they're still very reasonably good.

So from a revenue perspective, they're lower because it's not a rig with the drilling package. So it doesn't have the drilling package. However, the cost of running it is a lot less because you're not drilling, so most of the crew you don't need. You're just having a ship. And then what happens is different service companies come to do any maintenance on the wells. So from a profitability point of view, they're good.

Just to give you a data point, it would be between the land segment and the offshore segment, so in between.

[Operator Instructions] As we wait for our next question, I would like to ask a couple of questions. One is about the land rigs that were suspended during the quarter. A couple of them were suspended. And if I remember, you had mentioned in the last call that these land rigs can be redeployed as unconventional gas rigs with minimal upgradation. So were these 2 rigs deployed for the unconventional gas contract? And is that the reason that you were able to complete this before the end of the year?

So I think the reason why we managed to have 3 ahead of time and as well in working on the other 10 is because we really put a good investment ahead of time. As Hubert said, there's a lot of start-up costs. Once we were awarded, we really had a full team, at our contractor who's building the rigs or in country, the team who actually worked on the logistics side. Just to give you a magnitude, from the time the rig arrives the port, so the boat arrives the port, from the time you offload the rig till the time the rig is on site and ready to drill, you're talking about 75 to 80 days. We shape that by half. And it just tells you how the synchronization between operation, logistics, the supply chain. So what we did -- I'm just giving you one element of efficiency that we worked on. Now you multiply this as well during the manufacturing, how we did things. There was a huge support from Aramco on the certification approving the rig. Most of the rigs were actually -- they flew to the manufacturing and actually looked at the rigs there when they were set up. So that as well cut a lot of time. And as well, you have the port authority who helped us. The port of Dammam was really stacked yet they helped us a lot to kind of get off the queue and make sure that we get the rigs fast. So mainly, I think it was more efficiencies on getting them.

But were these 2 rigs redeployed as gas rigs?

I think you're referring to the 2 rigs that went out of contract in Q3, correct?

Yes.

So at this point in time, the answer is until now, no.

And in the future, what are the other markets that you would be eyeing? Let's say, we have a scenario where demand has weakened a bit in Saudi Arabia and other GCC markets. So what are the markets that you would be focusing from a long-term point of view? I know that you're venturing into South Asia. What would be the other markets? Or would you be focusing on South Asia a bit more seriously?

So let's split them into 2. So in offshore, you have from Southeast Asia to the GCC to West Africa, and anything in between. On the land, we've been looking for opportunities as well. We know for both offshore and land, there is tendering is going to come in Kuwait for both land and offshore, 2 different tenders. But as well, we're seeing demand on the land. We're looking at different geographies, and we're seeing companies actually asking for land rigs as well. So now the focus to deploy the offshore, which is the main focus, but we're seeing demand for land rig as well.

[Operator Instructions] There is a question in the chat box. This is about the onshore gas demand. So other than Jafurah, can we see demand coming from any other field for onshore gas?

So today, in the unconventional, they have more than one field, but Jafurah is the main focus and it's the one that's being developed, but there is other fields as well. But don't forget as well the conventional, the conventional gas as well is growing. There is a service that's called coil tubing, underbalanced drilling, which is actually taking very high momentum with Aramco as well. So it's both conventional and unconventional, we see the growth. Now the underbalanced drilling is not affecting us. It's affecting more the service providers because you don't use the rig for...

There is another question, but this is about the suspension of total rigs since the start of the year. And the question is about how many rigs were suspended since Saudi Arabia decided to stop MSC expansion at the beginning of the year.

So the MSC is mainly the offshore. I think they suspended around 31 rigs. That is affecting the MSC because the 1 million MSC was mainly all offshore.

And the follow-up is, are you expecting more suspension coming in 2025?

I think Aramco, on the offshore, yes. So when you suspend offshore, for Aramco, I don't think they're going to come back on the -- what do you call it? They will not come back. On the land, if there is any suspension on the land, it will be, as I said, it's 1 quarter, 2 quarters, maximum 3 quarters. It's a very, very short suspense if there is any.

We have a follow-up from the line of Indika.

This is actually just for the educational sort of. Do you have numbers like on your offshore and onshore rigs, like a daily kind of production of oil, are they sharing or you don't have any detail about that?

So this differs from well to well, reservoir to reservoir, the thick of the formation, if you're drilling vertical or horizontal. So you cannot tell, a certain well you drill, how much production will come from it. There is huge. I'll give you an example. Some wells, you would drill, there will not be any production. You need to put a pump to produce because if there is no pressure in the reservoir. And luckily, in Saudi, thanks God, our wells are very strong. So they have good aquifer pressure that they push the oil up. I understand your question. So the parameters are different depending on the reservoir and how you drill the well.

So this unconventional is mostly the horizontal drilling, right?

Yes.

Are there like a different KPI parameters for those wells compared to onshore vertical rigs?

The only parameter that is different that is common in the unconventional is you have to frac. The rock is very, very solid, and you have to shatter the rock so the gas can flow in. That is the one common thing in the unconventional, be it in Saudi or outside of Saudi is the fracking element, which is provided by one of the -- and there are service companies that they provide after you drill horizontal, they come and frac different stages. That's the most common. But now some reservoirs, you frac 12 stages frac, some of them are 30, some of them are 40, some of them are 50. So the longer you go -- horizontal goes longer, the more fracs that you have. So it all depends how many fracs and depending on how quality of the reservoir. The good thing, as I said, the quality of the reservoir of Jafurah is so strong, it's so strong. It's behaving very, very, very good and the production is very strong. That's why it affects, do we tender for more rigs if we're actually getting good production from what we have?

One small follow-up again. You mentioned this one like typically, like one offshore rig on a full operational level like 100-plus employees are there. So right now, maybe even all 3 rigs are managed by maybe 40-odd people. So my question is basically, when you have like such level of additional staff probably, maybe initially, have you used the additional staff in unconventional rigs? Or how do you manage this?

So extra people that were -- rigs that were suspended, we deployed whoever can add actually has the same services in the unconventional. This helped us as well on the unconventional because they know Aramco, they know their activities. But for example, someone, his main job is to maneuver the offshore rig, these kind of competency we don't need, so that's why we -- some type of services or competency that is not needed, we let go. Like the people who work on the drilling on the rig floor, they're the same, be it on offshore or land or for example, the Chief Mechanic, Chief Electrician is the same. So we deploy them in the unconventional.

Just one clarification. When we say 100 people headcount, it doesn't mean 100 people on the rig. It means 50 people on the rig because you have the guys on the rig and then you have the guys that are home on days off because it's an equal time. So headcount is 100 people assigned to the rig, of which 50 people are personal on board. Just to make this clarification.

So I just wanted to check like when you let go people, of course, how easy like just recruitment again in terms of maybe getting on board. I think these jobs are very, very highly sought after sort of jobs. So I just want to understand how well you can again get them back? And then what kind of a salary impact or the manpower cost impact do you have?

So after the COVID, the sector lost and not only Saudi at the global level, lost a lot of experienced people who did not come back. When the activity went up, this is where you saw trying to identify, try to train and salaries went up. In our case, we had this problem when we added the offshore. That was the problem during offshore because everyone was trying to add. We, as I said, added around 45 to 50 rigs. So everyone was calling for talent. Keeping in mind, there's a lot of people who left the sector during COVID. So however, in our case, I think we managed it well. We recruited ahead of time. And this is where I say the investment was very good that we did that. There was a lot of questions on why you have so much on the comp and ben because we recruited people ahead of time. Some of them maybe they are not approved to Aramco, but we had to train them. We had to put them on rigs with Aramco to get up to speed until the rigs come. But as well, most of the offshore rigs were deployed straight to the unconventional. Most of the crew were deployed in the unconventional. So we did not let go of a lot of people. It's just things that are focused on offshore, on how to maneuver the rig, for example, these are the ones that we let go. But most of the technical people, offshore land is almost the same when you drill the well. So we're not having the same problem that was there during the ramp-up of the offshore. That's what I would say. You need to keep in mind, the release of 40 rigs, you have a lot of manpower available.

There is a question in the chat box, but that's about the suspension. Were there any land rigs suspended? I assume there were no land rigs suspended related to Aramco, correct?

No. So I think there will be some suspensions, but not the same as the offshore. As I said, the offshore suspension is not going to come back. The land is between 1 quarter to 3 quarters. So it's a temporary suspension. And this will all depend on how things go with oil prices and the new election and stuff. So that's why it's just...

That would be our last question. Back to you for any closing remarks and after that, we can end the call.

Thank you very much for making the time. Hopefully, we'll come with good news. As mentioned, we're having some extensions that will be announced soon, hopefully. And hopefully, we'll come with good news with winning offshore and placing the offshore very soon inshallah. Thank you very much.

Let me thank the management and the participants for their time. Wish you a nice evening and a nice weekend ahead. Thank you.