Arabian Drilling Company (2381) Earnings Call Transcript & Summary

Good afternoon, everyone. This is Iyad Ghulam. On behalf of SNB Capital, I would like to welcome you to our Conference Call with Arabian Drilling Management regarding the Full-Year 2024 Earnings Results of the Company. We have on the call today, Mr. Ghassan Mirdad, the CEO; Mr. Hubert Lafeuille, the CFO; and Mr. Bassem ElShawy, Director of Investor Relations and Communications. We will first listen to the management feedback. Following this, we'll open the floor to questions. Now I will hand over to Mr. Hubert, the CFO for his commentary.

And very good afternoon, ladies and gentlemen. Welcome to the earnings call of Arabian Drilling for Q4 and full-year '24. As mentioned, with me around the table is Ghassan, CEO, and we have a newcomer as well. I'm very pleased to introduce Bassem ElShawy, who recently joined the team as Investor Relations and Communications Director. This is Bassem's first earnings call with us, and I know he's very excited to be here. Bassem?

Thank you very much, Hubert. I'm delighted to be part of Arabian Drilling team and excited to be with you today. As you all know, this presentation is bound by forward-looking statement disclaimer, which is stated here. You may refer to this at your own place later on, and this presentation will be uploaded to Arabian Drilling's Investor Relations website shortly after we conclude. For now, I will hand over to Ghassan, who will give you an overview about the 2024 results. Over to you, Ghassan.

Thank you for the introduction, and welcome to the team, Bassem. And welcome to everyone on the call. We have had a solid year demonstrating the business resilience, delivering on revenue guidance and record EBITDA. This period has positively highlighted our adaptability and the flexibility of our business model as we have grown revenue, maintained margin, increased EBITDA, generated much more cash and have healthy backlog, an excellent achievement in what has been a year of change and some uncertainty. Operationally, we successfully deployed 13 new unconventional rigs, which will generate approximately $800 million this year. Furthermore, financially, I want to highlight that 2024 net income was primarily impacted by a non-cash item, depreciation as a consequence of high investment, which will deliver returns in the future and the impact, which we announced in Q4 of the 2 non-cash items, net income would have been approximately 2/3 higher. We have made a first but important step in enhancing our geographical and international reach through signing the alliance with Shelf Drilling. This is a win-win collaboration with Arabian Drilling being able to deploy its high-specification rigs internationally and Shelf Drilling being able to extend in the existing market and to access new ones that require such equipment. Immediately, we are tendering internationally and are currently marketing the 3 suspended rigs. Now let us go over the results in more details and highlight what we are most proud of in 2024. First, we have achieved a record high revenue and EBITDA since Arabian Drilling inception. We also have deployed all our 13 unconventional rigs with the last of the 13 rigs starting during early February 2025. With this last fleet expansion, we have become the largest drilling contractor in Saudi by fleet size with a total fleet of 61 rigs as of today. We managed our debt prudently and kept our leverage ratio well below 2x despite heavy CapEx, thanks to our robust cash management. Our performance has enabled us to continue to pay dividends. For H2 '24, we are paying a dividend of SAR1.35 per share, making a total dividend of SAR240 million for 2024 period. This is equivalent to 75% of our net income. Finally, amongst all drilling contractors and service providers working for Saudi Aramco, we are recognized and won the excellent Award for the Best Saudization. This showcases our commitment to developing local talent. Now let me outline high-level financials, which Hubert will cover in more details. As mentioned, we have demonstrated strong and resilient performance in 2024, successfully delivering on revenue guidance with a 4.1% increase to reach SAR3.6 billion and a record EBITDA of SAR1.5 billion, which marks a 41.7% margin. We are very satisfied that we have been able to maintain our EBITDA margin profile despite the impact of the offshore suspension and the start-up cost of the unconventional bands. Our adjusted net income of SAR426 million excludes a onetime non-cash asset impairment of SAR105 million recognized in Q2. Our operating cash flow of SAR1.7 billion has significantly increased by close to 30% year-on-year. Finally, we remain moderately leveraged with a net debt-to-EBITDA ratio of 1.6, which allows room for future growth. Let's now move into our operational performance. As mentioned, all 13 unconventional rigs were deployed by year-end. 2 rigs actually started drilling in Q1 2025 due to timing of Aramco's acceptance procedures. The final of the 13 unconventional rigs started during early February 2025. Our utilization rate of 83% reflects 49 active rigs out of 59 as of December 2024. Bassem will cover this in more details. All the remaining KPIs such as total recordable injury, rig efficiency index, rig efficiency are solid and consistent with our operational execution capabilities. With that, I will now pass it to Bassem, who will give you an update on our contracts and backlog. Bassem?

Thank you, Ghassan. So our backlog remains robust at SAR10.3 billion, thanks to all the rigs expiring in 2024 being successfully renewed in time. Our -- over the past 5 years, our backlog has shown significant growth, achieving a compound annual growth rate of 33%. The year-end backlog for 2024 aligns with our third quarter levels as we managed to largely counterbalance expirations in the fourth quarter by securing contract extensions. Turning to rig utilization. As of December 31, 2024, we operated a fleet of 59 rigs with 49 active rigs. Entering the first quarter of 2025, our fleet expanded to 61 rigs, counting 2 unconventional rigs that started early this quarter. And to give you more granularity, currently, our fleet includes 10 inactive rigs 6 land rigs with 3 suspended in the last quarter and 3 uncontracted and 4 offshore rigs with 3 suspended and 1 being prepared for sale. Now let's talk about contract renewal. In 2024, all contracts that expired were extended in the fourth quarter, resulting in a total of 17 rig years as previously reported. Looking ahead, we have a total of 24 rig contracts expiring in 2025. I will walk you through the details of these. Land rigs, we have 21 land rigs with expiring contracts in 2025. 15 of these land rigs are engaged in as LSTK, which is lump sum turnkey projects with SLB and Baker, each including options of 1 to 2 years. The remaining rigs, primarily gas rigs working with Aramco are currently under extension negotiations. Given our strong track record in the gas drilling and our history on successful renewals, we're quite confident that these -- all of these rigs will secure renewals. For offshore rigs, there are 3 offshore rigs with contracts expiring in 2025. One is contracted with KGO. Negotiations are actively ongoing, and it is important to know that we are the only drilling contracting working for KGO at the moment. And 2 rigs contracted with Aramco, one rig is currently inactive, but is actively being marketed and the other is operational under a lease contract set to include -- to conclude in Q4 with a 1-year extension option available. So with this, I conclude the rig and contract and backlog, and passing back over to Hubert.

Thank you, Bassem. So let's cover the financial review. So what I would like to do to start this financial review is maybe put a little bit of things into perspective. And let's take a bit of a step back to have a 5-year historical review on our financials. So I'm referring to the graph, which is on the left-hand side of the slide. So you can see in the last 5 years, we have had a considerable growth in the revenue with a 9% CAGR since 2020. And as you can see as well, our EBITDA has been consistently between low to mid-40 percentage points and throughout the cycle. And this was even during the challenging time that we have seen over the period, one of which was the COVID in 2020, 2021 and now with the suspension. Now on the left -- on the right-hand side, you have the split between the offshore and the land. And here, we're plotting the 5-year revenue as well as the gross profit, the adjusted gross profit as a percentage of the revenue. So if you look at the offshore segment revenue first, which is the upper graph, you see that the revenue is stable year-on-year from roughly SAR1.5 billion to SAR1.5 billion with a very, very small increase. And the reason why the revenue is stable is because in the second half of 2023, we have added 3 offshore jack-up. And then in the second half of 2024, we have had the impact of the suspension. So those 2 events kind of offset cancel each other, which explains what the revenue remained flat. On the adjusted gross profit percentage, we have dropped a couple of points, about 3 percentage points year-on-year, which is mostly coming from the additional depreciation of the 3 jack-ups that were added in H2 of 2023, and then we have had the full-year impact of this depreciation in '24. Now looking at the land segment, which is the middle graph, you see that on the revenue side, we have a growth year-on-year of 6.6%, which is about SAR132 million. And this is coming from the additional unconventional rig that started contributing 2024 for about SAR230 million, but that was partially offset by the lower rig activities as well because we -- on the land segment, we have 6 land rigs that are idle at the end of 2024 versus only 2 that were idle at the end of 2023. On the gross profit, we have lost about 4 to 5 percentage points year-on-year, of which 3 points is attributable to the additional depreciation cost of the unconventional rigs and 2 points is attributable to the start-up of the same unconventional rigs, which was in the range of about SAR40 million to SAR45 million. Now this year is about focused execution and resilient growth. As a whole, on the revenue side, as mentioned by Ghassan, we have grown up by 4%, 4.1% -- but in the same time, and to put things into perspective, I mean, the rig count, the Aramco rig count has actually shrunk by something like 15% from a peak of 319 rigs, rig count to 273. So the 4% growth in the revenue has to be put in parallel with the drop of 15% of Aramco rig count. Again, as I said, the UC unconventional rig revenue was about SAR230 million as the rig gradually started from 2024 with a total of 11 rigs contributing in 2024 by year-end 2024. Our EBITDA, we have a slight increase of 2% despite offshore suspension and the start-up cost that I mentioned about the unconventional rig deployment. And we're quite happy that we've been able to maintain the EBITDA profile margin. And this was one of the contribution as well was a number of very innovative and numerous and fruitful cost optimization initiatives that we've been chasing throughout the organization and for which we are seeing the results this year. Now excluding the start-up cost of the unconventional rigs, which is about SAR43 million, normalized EBITDA would be at the same level as of 2023. On the adjusted net income, as mentioned by Ghassan, this includes SAR105 million for onetime impairments of assets that we recognized in Q2. And the rest of the decrease is mainly explained by the higher depreciation on expanded asset bases. I talked about the 3 jack-ups that came in by mid of 2023 and then, of course, the 11 unconventional that we started in 2024 as well as higher finance expenses associated with the fleet expansion. Now on the CapEx, you can see on the bottom graph on the bottom left graph that the CapEx this year was SAR1.9 billion the SAR1.9 billion we had SAR1.35 billion, which is exclusively related to the unconventional rigs. And the total estimate at completion of the program is about SAR2 billion, and we're very close to doing the program. And then we have also sustaining CapEx of SAR341 million, which corresponds to roughly SAR7 million per rig per year as a sustaining CapEx. And then the rest is just discretionary projects, one rig upgrade that we did and a few other things that we have done on the facility and well control equipment. Our net debt has increased by 39% to SAR2.4 billion compared to last year. And this increase mainly reflects the use of the cash to finance the unconventional rigs. The good news is that there was no need to draw additional debt in 2024, thanks to efficient cash management and some of the payments that also shifted from 2024 into 2025. Now lastly, the operating cash flow has seen a significant increase of about SAR400 million between year-end '23 and year-end '24. And this is mainly due to a much improved working capital compared to where we stood last year. The next slide is about the bridging of the net income. And I want to explain this because I think it's important that the main point of this slide is about understanding why we lose SAR300 million year-on-year on the net income. So if you look at the bridge and if you look at the first 5 components of the bridge from left to right, I mean, you see that they kind of pretty much offset each other. So we have the impact of the suspension that was basically offset by the revenue contribution of the unconventional and a lot of savings, reduced OpEx and cost saving initiatives and lower tax and a lot of other things that we've been able to mitigate. So that kind of canceled each other, right? And then if you look at the last 3 items after the dotted line, you can see that these are where the contribution came from and what Ghassan related to. So we have additional depreciation, which is, again, the result of expanded asset bases. We have the impairments, SAR105 million that we discussed, those 2 being non-cash. And then we have additional SAR95 million of interest payment, which is the result of higher gross nominal debt value because we drew SAR500 million in Q4 2023. Then in 2023 as well, we had a portion of the interest that were capitalized and that did not repeat in 2024. And also in 2024, as we were using the cash, we had lower excess cash balance available for investment in short-term deposits. So those 3 items, which collectively amount to SAR353 million are basically the reason why we dropped SAR300 million on the net income year-on-year. The next slide is about the bridging, the cash flow bridging. And I think that here, the main statement that I would like to make is that if you look at the CapEx, so we said CapEx SAR1.9 billion this year. If you look at in the last few years, we have witnessed intensive CapEx cycle with a spending of around SAR1.8 billion, SAR1.9 billion annually. And just to put that into perspective, the CapEx that we spent in the last few years, which is this amount of SAR1.8 million, SAR1.9 million represents roughly 3x the CapEx that we would normally spend on a steady-state business without any CapEx growth, right? So this kind of gives the idea of the significant headroom that we have on improving our cash flow as we normalize our CapEx spending. One thing as well that I would like to mention on the loan and lease, SAR167 million is broken down between SAR100 million of debt repayment and SAR67 million of lease repayment for the 2 lease REITs. And as I mentioned before, we've been able not to draw the debt of -- not to draw any debt in 2024. And actually, as you can see on the graph, we closed the cash positions with a total of SAR582 million cash. Now moving on to the next slide. I think this is highlighting what Ghassan referred before, which is the fact that we've been able to maintain a leverage ratio well below 2 multiples despite the intense CapEx cycle. And this highlights our financial strength and really gives us headroom. And the good thing as well is that we have some sizable and attractive financing facilities that are lined up to execute CapEx growth opportunities. So just a couple of things on this slide. The gross debt, again, remains unchanged. It's about SAR3 billion, which is made up of the SAR2 billion and we have 2 bank loans of SAR500 million each. We ended the cash position with SAR582 million, mainly due to the improved working capital. The leverage ratio, again, we have seen a slight decrease compared to Q3. You can see from 1.67 to 1.62, and that's due to higher cash balance and improved working capital. And as I said before, on the financing, we have today available an undrawn SAR1.25 billion of facilities, which we will be looking to use for further CapEx growth opportunities. With that, it concludes my financing section, and I will hand it over to Ghassan to discuss about the 2025 strategic priorities. Ghassan?

Thank you, Hubert. These are our priorities in 2025. First, focusing on the safety of our employees remains a top priority, and we are leveraging AI, artificial intelligence to accelerate learning and practices. Second is to increase our utilization rate by putting back to work the suspended rigs. Third, Saudi Arabia is focusing on gas drilling. We are having a leading position and a clear competitive advantage. Maintaining this leadership is of our focus. Finally, we believe our alliance with Shelf Drilling will give us easy access to international expansion. Our last slide is about the guidance. As you have seen in our earnings release published yesterday, we are changing from annual to quarterly guidance because of the ongoing uncertainty. Today, we have 10 rigs that are not working. The revenue for this year will be largely influenced by the restart time of most of these rigs. Therefore, it is sensible that for 2025, we will give guidance on a quarterly basis. For Q1 2025 revenue, we expect to maintain the same level compared to Q4 2024 with a 5% upside potential. Our guidance reflects a cautious outlook in an unpredictable by evolving market environment. With this, I conclude the presentation, and I will pass it to Iyad to start the question-and-answer session.

So we'll move to the next question from Ildar Khaziev.

Could you comment on the 3 rigs? How much of the backlog that they have at the time of suspension? And do you expect something like this happen? Any signs of this happening again to the existing?

So the 3 land rigs, these are -- if you look at the suspension, there is 2 different suspension. What we had in the offshore was event that it's not going to come back. However, the land, they are temporarily suspended. And when I say temporary, I mean, it can be from 1 quarter, 3 months to maybe 6 months. But this is not clear when. But I mean, we can see already discussions saying, when can we start one of the 3. So this is where it doesn't make it very clear for us how long it's going to take.

And I think there was a question on the backlog, so I will answer that, if you don't mind. So we take the view that the backlog remained unchanged because basically, what happened is that the terms of the suspension allows for the suspension period to be added back to the estimated end of the contract. So there is no backlog disruptions. Basically, it's just a shifting in the timing of when you recognize your revenue. And we're quite comfortable with this position because if you look at what happened during the COVID, it's exactly the same thing. I mean we got a lot of rigs spend during COVID. And then all those rigs, the suspension period was added to the tail end of the contract. So we take the view that it doesn't change the backlog.

And secondly, could you give us some outlook or guidance for the CapEx this year, if possible?

Yes. So for the CapEx this year, we believe that we're going to be spending some probably 50% of what we spent in 2024. So half of what we spent around SAR900 million, SAR1 billion roughly.

And if I may, my last question. Has there been any start-up costs, one-offs in the land rig business in Q4?

We had a little bit of start-up costs, not that much, though. Most of the start-up costs were incurred in the unconventional. And again, just to make sure everyone understands, so the start-up cost is basically the cost of the crew that was recruited ahead of the rig coming so that the crew is trained and form and coach and then the rig is ready to go, then we have a fully operational and functional crew. So that start-up cost throughout 2024 was about SAR43 million as a whole. I guess in Q4, it must have been -- because most of the rigs were started in Q4, it must have been a couple of millions.

The only 2 rigs that kind of shifted to this year I mean we were application ready. It was just the timing to get the process procedure. So that took a bit of longer than. So you have a crew, but no revenue generation.

The next question is coming from the line of Jarryd Thomas.

I just want to confirm how many rigs are suspended onshore?

So at this point in time, 3.

That's fine. And then just on the alliance with Shelf Drilling. Is that a second half story in terms of redeploying the 3 suspended rigs? Or is it like the next 3 months or what's the timing on those?

So I'll -- when we had the alliance, we've seen tremendous number of tenders. I mean today, on the top of my head, there's like 12 tenders going on as we speak. And I think the 3 rigs are not enough to -- so this gives us really we've been upbeat and saying, look, this is very good for us. If you can comfortably say, if I win a tender today, most probably it's going to take 6 months to start. Now some tenders might start earlier, some might be later on and all depends on the clients being ready to start drilling. But a rule of thumb, you can say 6 months.

And just one more question. The unconventional tenders this year, do you see anything on the cards? Or I've seen reports that there might only be tenders next year, but what's your view on that?

So we see that there was a desire to increase in the unconventional. However, it was not for new rigs coming from out of the country, whereas more move some of the rigs that are from working in oil to go to gas, which actually we have some of our rigs that are actually working in oil, but it's a gas rig. It can drill in gas, which is good for us or moving from conventional to unconventional. This is, I mean, what's the vibes today in the market that more of movement of rigs rather than increasing rigs.

The next question is from Giuseppe Villari from Morgan Stanley.

Some of them have been answered already because we had some technical issues and I hope that now the line is working better. So first question is about onshore. When do you expect -- when will you expect new tenders in Saudi? And what about the Kuwaiti market? And then regarding offshore, if you get a contract in the short term, when will the revenue contribution start?

Okay. So I mean the voice is not that clear, but I think we can get the questions. And if I didn't answer, please let me know. The first question was on tender in Saudi. In Saudi, I don't see -- I mean the current things that's happening, we see, as I said, moving rigs from department-to-department from oil to gas rather than increasing more rigs in Saudi. On the other hand, we see tenders that is happening in Kuwait, and we are planning to participate on as we speak. On the offshore, as I mentioned, rule of thumb to move the rig to Asia or West Africa, it will take time. That's why I say a rule of thumb is 6 months. But there is tenders that can be earlier, and it all depends which tender we're going to win.

We have one question in the Q&A box from Robert [Moussa?]. He's double checking on the rig count. So he's saying that the total rig count is now at 61 and 10 are currently idle. Is that correct?

Yes, that is correct.

And it's 61 as of today

We have -- the next question comes from the line of [Reem?], Reem if you can say your name and your company name?

I'm from Energy Intelligence Group. I had 2 questions. One of them is, I think you partly answered it, but I would like to expand a little bit on that. You mentioned that the outlook for Saudi Aramco rig count this year is not going to be any addition rather than like moving from oil rigs to gas rigs, if I understand properly. So is there going to be a decline overall? And talking about tenders in Kuwait, would that be for offshore since now Kuwait is expanding offshore? And which markets are you expanding -- are you targeting with Shelf -- with your alliance with Shelf?

So the first question was, are we expecting a drop on the rig. And this is the uncertainty today. And this is actually one of the things, how fast we can deploy the rigs and if there's anything. I mean, today, we cannot comment because we really were not sure. As last year, we knew what the suspension and we shared this in our earnings call. But now it's not clear, to be honest, in the Saudi market. In the Kuwait, the tenders today are onshore and mainly actually LSTK. So it's going through service providers. I would like to highlight one thing that 2 years ago, we highlighted that we were qualified for land. Just as of last week, we got the confirmation that we're qualified for offshore as well in Kuwait with KOC. So there will be tenders -- there is no tenders yet on the offshore. However, there was plans to be a tender in midyear, but we think this will be shifted to later in the year or early next year for the offshore. So to answer your question, all of the tenders are in Kuwait is for onshore land.

And there was a further question on the market targeted with the alliance with Shell.

Yes. So today, we have Southeast Asia and as well West Africa.

There's a follow-up question from Ildar Khaziev.

Just a follow-up on the CapEx guidance. How much of it is maintenance for this year? And I think I believe a part of this CapEx is of the investments in conventional, right, from 2024. How much was that as well? So this is my first question. And secondly, just on the suspension of the land rigs in Q4. So how long on average have they operated and generated revenue? When did it happen exactly in the quarter?

So on the suspension for the land rigs, the suspension happened between late October and early November. So it's 3 rigs, and those rigs have been here for a long time. And actually, one of the rig actually got an extension. One of the rigs that got suspended is the same rig that got a 10-year extension and we announced in Q4.

This tells you the suspension is extremely temporary, and they just -- they want the rig. And I think mainly is OpEx management, I think.

And to respond to your CapEx, so you had a question on the CapEx. So again, the CapEx was SAR1.9 billion this year, of which SAR1.35 billion was exclusively the unconventional. And then for the -- what we call the sustaining CapEx, which is just your major maintenance and your recertification and life enhancement of your equipment, it's about SAR340 million.

So if it's like it's about SAR900 million in 2024, SAR300 million, SAR400 million would be for maintenance, what are you going to spend SAR600 million for them?

So we have a couple of upgrade facilities that we're looking at, and we have a couple of discretionary upgrade as well that we're looking at.

We have another follow-up question from Jarryd Thomas.

I just want to confirm, would you guys be in the market to buy offshore rigs from other contractors? Or are you leaving that to some competitors that have been doing that?

I mean I don't see in today's market acquiring offshore rigs. However, if we see that the tender -- the winning rate, if we win on the 3 and we still there is demand, there is an easy way of therefore charting more offshore rigs and winning more work. This is the way I see it for what I've been doing.

And then of course, the 24 rigs that are up for renewal this year, I mean, that's quite important. Is it a guarantee that all get all 24 get contract extensions? Or is there an 80% probability, 90%? Just some color on that.

Okay. So as mentioned by Ghassan as well, so most of the rigs, be it with SLB and STK and Aramco, most of it are gas. And the whole country is focused on gas these days. Even I'm saying -- mentioning moving from oil to gas as well. And the rigs that is not in gas, for example, STK Baker, they have a commitment to deliver to Aramco a certain number of wells which they cannot complete within this year. That's why the contract has an extension in addition to the guaranteed tenant, they have an extra year or 2 years they have.

So yes, some of the contracts have a 1-year extension, other have a 2-year extension. So all those LSTK contracts have extension.

And the non-LSTK, the other ones, which is with Aramco or KGO, we already have started since the start of the year, the negotiation of the extension. So that's why we are a bit confident that things are going to be extended, all of them will be extended.

And these are primarily gas rigs as well. And because of our leading position in the gas drilling business and because of -- if you look at our historical ability to renew the contract, we're quite confident that the contract will renew.

The next question is from the line of [Abdullah Hakami?].

I have one question on the offshore segment. The number of offshore rigs, are they back to the level to the -- looking at the market as a whole, the number of rigs back to the peak growth levels in Saudi Arabia? I guess what I'm trying to kind of understand is the market stable now or Aramco is still revisiting its rig portfolio, and we could see some new announcements going forward?

So they are a bit higher than the pre-COVID time. I don't know. 5 rigs. Rigs higher than 5 rigs.

If I may comment on that. So yes, there might be some more rigs still compared to the previous level. But are these going to be suspended or not? This is not a question that we can answer. And for all we know that as we know right now, these rigs are still operational. They might never be suspended or they might always suspend. We don't know. This is not something that we can answer -- but from what we're seeing right now, things are looking stable and for the moment, but we are taking this cautious approach to the year as we proceed.

No, that's clear. I just wanted to understand where we are versus pre-COVID.

We have a few questions in the Q&A box. The first is from [Abraiz Tabrizi?]. He's just double checking. Other than sustaining CapEx of SAR7 million per rig, how much do you spend usually on rig upgrades and rectification CapEx annually, per rig?

So the SAR7 million include the recertification. The upgrade of the rig really depends on what is the rig. You know, what stages you want to upgrade it. So there is not, it really depends on the level of the upgrade that you want to do. So there is not a fit all answer.

No, I mean the upgrade is not like a common thing that happens. The recertification, that is a periodical things that happen and it's part of the SAR7 million. So there isn't -- in today, we're not seeing that much of upgrade.

And we also do recertification of spare equipment because we have a pool of spare equipment, spare BOP, spare man, et cetera And this is -- we also do the rectification of this pool equipment. So that -- the cost doesn't fall on to the rig because the equipment isn't approved, but that's also part of the CapEx that we have.

The next question is from [Rohan Ahmed?]. He's saying Aramco is starting to look at rare earth metals like lithium in the Kingdom. Is there any drilling scope there for you?

So first of all, I want to thank you very much for this question because this -- it's -- I don't want to be sound dragging, but when Aramco wanted to go to the geothermal, they selected Arabian drilling to go to the geothermal. Now they're going to lithium and they selected an Arabian drilling again, and we actually, as we speak, we're mobilizing. I want it to be a Q1, but you brought the question. So we are thank you very much for asking the question. And it just tells you the confidence of our clients and our rigs and our high specification rigs, the competence of our crew results that we get selected for these new markets that. So diversifying our portfolio from drilling oil and gas going to geothermal, going to lithium, these things all add to our portfolio actually. Thank you for asking that question.

The next question is from [Rabih Musa?] To confirm the CapEx guidance for this year will be similar -- I think he's missing -- he's saying that the CapEx for this year will be similar to last year? I think you already answered this question.

Yes. Just to clarify. So the CapEx for this year is supposed to be half of what we spent in 2024, right?

So that was the last question. We have one more from Brennan Eatough from Riyad Capital. Is there any type of cost that will be needed to pay in order for drilling rigs to switch from oil to gas or from gas to drilling for lithium?

So switching from oil to gas. So in our case, most of our rigs are gas. Some of the rigs that are drilling for oil, they are actually gas. But during the COVID times, we have to make sure they work, so we put them in the oil. So it will be minimal cost to upgrade them to gas.

Another question from Ibrahim Atiyah from Ashmore. Can you please explain to us where the improvement in offshore revenue and gross profit is coming from during Q4 versus Q3?

So the revenue is Q4 to Q3. I mean the revenue is mostly flat, right? I mean we only have a 2% improvement. It mostly relates to NPT...

I think 2 things. NPT and I think once we had the rigs suspended, the crew did not stay. We deployed the crew for the unconventional. So that was a reduction of compensation line as well.

Correct. There was nothing has changed. I mean from a rig activity level between Q3 and Q4, nothing has changed operationally.

Okay. And just to -- there's a question here in the Q&A box, which is asking about the number of suspended rigs and total rigs and the new rigs. So basically now all the new rigs related to the unconventional have been deployed, correct?

Yes. and generating revenue. Yes, correct.

Okay. And now we have 10 suspended rigs, 6 in the onshore and 4 in the offshore.

Yes.

So not all the rigs are suspended. Some of the rigs do not have a contract. So we have 6 suspended rigs, 3 land and 3 offshore. And then we have 4 rigs that do not have a contract. They are uncontracted. So technically, they're not suspended. And this is 3 land and offshore. So the number of suspended rig is only 6, 3 land, offshore.

I think that was the last question. Any final remarks, Ghassan?

Yes. Thank you very much for hosting us today from SNB. Thanks for all the attendance for attending our call today. 2025, as you can see, we're going with the guidance on quarterly because of the uncertainty. However, we are very, very excited. With the number of tenders that we see on the offshore, this gives us a bit of comfort that we need more rigs for offshore. So hopefully, we can deploy. The challenge is when the rig will start. Once we get awarded is when the timing to start the rig. And that's why I say a big 2025 is challenging. With this, I say thank you all very much, and we look forward to connecting with you in the next call.

Thank you so much. SNB Capital, I would like to thank Arabian Drilling Management for taking the time to conduct this call. We would like also to thank all participants for attending. We wish you a pleasant day. Thank you.