Arabian Drilling Company (2381) Q4 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and I'd like to welcome you to Arabian Drilling Fourth Quarter 2025 Results Conference Call. I will now pass the line to the Investor Relations and Communications Director, Mr. Bassem ElShawy. Please go ahead, sir.

Thank you, Luis. [Foreign Language], and good afternoon, everyone. Welcome to Arabian Drilling's FY 2025 Earnings Call. Thank you for joining us today, especially amid the current regional events. We appreciate your time and continued interest in Arabian Drilling. Please be aware that this presentation contains forward-looking statements. We encourage you to review the accompanying disclaimer in this document for further information. Before we begin, I'm pleased to introduce our presenters for this session. As you may know, we currently welcome Engineer, Fahad Al-Bani, who joined Arabian Drilling as Chief Executive Officer on February 10. Fahad brings a wealth of leadership experience in drilling, operational excellence and transformation, and we are delighted to have him at the helm as we enter this phase of recovery and growth. Also with us is Farid Mustafayev, our Chief Financial Officer. And now Fahad will walk you through the financial and operational highlights. After that, Farid will provide a detailed review of our full year and quarterly financial results. With that, I'm pleased to hand over to Fahad.

Thank you, Bassem, [Foreign Language], good afternoon, and thank you for your participation in today's call. I am honored to be joining Arabian Drilling as a Chief Executive Officer at this important time. I am grateful to the Board of Directors for their confidence and for their support throughout this transitionary phase. Arabian Drilling is not new to me. I had the pleasure of working closely with the company in the awarding of its 13 unconventional rigs and even before. Arabian Drilling is the Saudi drilling champion and a key enabler of the National Energy Vision. I would like to assure everyone that this was a carefully planned transition by the Board of Directors. A smooth transition is underway and business continuity is granted. Now let me begin today's presentation with a brief overview of our performance for the full year of 2025. Despite a challenging environment, Arabian Drilling delivered resilient results revenue closed at SAR 3.4 billion, reflecting a modest 5.1% year-on-year decline. This was mainly driven by reduced offshore and land activity, partially offset by a strong increase in our unconventional operation. The change in activity mix impacted profitability, EBITDA decline to SAR 1.2 billion and adjusted net income reached SAR 39 million. Operating cash flow softened in line with EBITDA, yet we preserved a healthy 2x net debt-to-EBITDA ratio, reflecting our strong balance sheet discipline. While 2025 was a difficult year from a financial perspective, we think that we have reached the bottom of the cycle. We enter 2026 with an improved visibility and positive outlook, supported by expectations of recovery and more stable operating landscape. Looking at our quarterly performance, revenue declined only 1.3%, fully in line with our guidance. EBITDA margin came in at 32%, reflecting one-off impact related to the return of a chartered rig and associated demobilization costs. The combination of low rig utilization and these exceptional items resulted in an adjusted net loss of SAR 34 million for the quarter. Cash flow from operations and net debt level remained stable and broadly unchanged. Our backlog reached an all-time high of SAR 12.4 billion, representing 20% increase compared to the same period last year. This reflects the strength of our customer relationship and the long-term visibility of our portfolio. Utilization increased slightly to 75%, driven by the return of a chartered rig. We closed the quarter with 45 active rigs, consistent with the previous quarter, 37 land rigs, 6 offshore rigs and 2 surface vessels. Looking ahead, utilization is set to improve meaningfully. Offshore utilization is expected to reach 100% early in the second quarter, and total utilization is projected to rise slightly above 80% by the end of quarter 1. This brings me to the final point on this slide and one of the key highlights of today's call. Our first international contract in the GCC commenced earlier this week, marking a significant milestone for Arabian Drilling. In addition, 2 of the 4 recall rigs have already started operations during the first 2 months of quarter 1. The third rig is starting operations today and the fourth is scheduled to begin early April. We are very pleased and proud to see our backlog reached an all-time record of SAR 12.4 billion, representing 20% year-on-year growth. This reflects the strength of our client relationship and the high level of our trust our customers place on us. With this backlog, our contract duration has increased to 2.6 years, and our book-to-bill ratio now stands at 3.64. Utilization rates have improved slightly to 75% with no new suspension in quarter 4, and we do not anticipate any suspensions in quarter 1 2026. Utilization is expected to begin recovering in quarter 1 2026, reaching 81.7% and further increasing to 83% in early quarter 2 2026, supported by the commencement of our first international contract and confirmed rig reactivation. As a result of these rig assumptions, the total number of inactive rigs is expected to reduce to 10 by early quarter 2, all of which will be land rigs. Now I will move on to the contract renewal completed in 2025 and provide you with an outlook on the 2026 contract renewals. 2025 was an exceptional year for strengthening our commercial foundation. I am pleased to report that we successfully renewed all the 24 rigs contracts scheduled to expire during 2025. This 100% renewal rate demonstrates the continued demand for our service, thanks to our ability to deliver world-class performance and service quality. Notably, 11 LSTK gas rigs were extended for 1 year. As announced in August 2025. These rigs are part of the 21 contracts scheduled for renewal and tendering in 2026. We are proud for securing a total of SAR 3.4 billion in rig extension for 6 land and 1 offshore rigs announced in quarter 4 2025. And earlier this year, these extensions, which added 55 active rig years to our backlog are implemented on contract expiration subject to agreement with the client. We expect the 2026 renewal discussions to follow the same constructive momentum we saw this year. Beyond 2026, the number of contracts expiring steadily declined, giving us more room to focus on optimizing our existing fleet and pursuing selective growth opportunities. I'll now hand over to Farid, who will walk you through the financial results in more detail.

Thank you, Fahad. [Foreign Language], and good afternoon to everyone. Starting with our year-on-year financial performance. For the year, revenue came in at SAR 3.4 billion, representing a 5.1% decline year-on-year. This performance reflects the impact of rig suspensions, which primarily affected the offshore and conventional land segments, partially offset by a full year strong activity in our unconventional operations. EBITDA closed at SAR 1.2 billion, down 17.8% versus last year. This decline was primarily driven by a shift in our activity mix, particularly lower offshore contributions further ended by the discounted day rates on certain contracts. To give more context on the magnitude of the mix change, offshore revenue declined by approximately SAR 480 million and the land rig suspensions added another SAR 250 million to the reduction. And this reduction were largely offset by unconventional revenue going up by SAR 540 million. Despite this significant shift in mix throughout the year, we maintained a solid EBITDA margin above 36%. Adjusted net income fell to SAR 39 million, a 90.8% decrease year-on-year. This reflects a combined effect on lower EBITDA and higher depreciation associated with the deployment of unconventional rigs. On other important financial metrics, CapEx were down 61%, reflecting the absence of significant investments in unconventional rigs done in 2024. Net debt remained unchanged at SAR 2.4 billion, effectively stable and within our comfort range. I'll provide more detail on this later in the presentation. Operating cash flow, slightly below SAR 1.2 billion, declined 17.1%, consistent with the drop in EBITDA. Let's now turn to our quarter-on-quarter performance. Q4 revenue declined marginally by 1.3% with the full quarter impact from the rigs suspended in Q3, partially offset by stronger rig move activity. Number of active rigs remained unchanged during the quarter at 45. EBITDA of SAR 263 million or 32% was down 10% quarter-on-quarter, primarily due to one-off demobilization costs related to return charter offshore rig and reactivation costs for rigs commencing operations in Q1 2026. Adjusted net loss was SAR 34 million this quarter compared to SAR 9 million in the prior quarter. This increase is entirely driven by the one-off nonrecurring items I just outlined. Importantly, we don't expect any demobilization expenses in Q1. We will, however, incur some reactivation costs as rigs return to service. But in Q1, this will be supported by the additional revenue generated by the reported rig. CapEx increase in Q4 was driven by the reactivation activities for the rigs resuming operation in Q1. Net debt was down on stronger cash, thanks to high customer collections in Q4. Leverage ratio remained stable at 2 and operating cash flow in line with EBITDA performance. Let's now turn to our segment performance across land and offshore operations. Starting with the chart on the left. For the full year 2025, our revenue mix shifted significantly compared to 2024. The land segment increased from 59% to 71%, while offshore declined from 41% to 29%. This change in mix, together with a 5% reduction in total revenue was the primary driver of the EBITDA margin contraction from 42% to 36%. Quarter-on-quarter, the mix remained broadly stable. Moving to the chart on the right and our adjusted gross profit performance. Year-on-year, land revenues grew 13.8%, driven by full year unconventional activity and higher rig moves. Adjusted gross profit declined by 100 basis points to 10.7%. This was largely due to 4 additional conventional rig suspensions happened in Q2 and Q3. Quarter-on-quarter movements were relatively limited, though Q3 and Q4 profitability still carries the weight of the idle rigs from both 2024 and 2025. The reactivation of 2 land rigs in Q1 2026, alongside other measures underway is going to help restore land margin momentum. Offshore revenue decreased 32.5% year-over-year, primarily due to lower utilization and to a lesser extent, discounted day rates. Adjusted gross profit declined from 41.5% to 22.7%, reflecting the significant drop in activity. Quarter-on-quarter, revenue was broadly unchanged, but profitability was affected by one-off demobilization charges in Q4. With offshore utilization expected to reach 100% by early Q2, we see a constructive outlook for margin recovery in 2026. Now let's bridge the movement in net income from Q3 to Q4. The largest 2 components impacted was lower revenue, SAR 11 million and the demobilization expenses around SAR 20 million related to return of chartered offshore rig. There was minor positive impact from lower taxes due to net loss position and minor increase in depreciation quarter-on-quarter. Let's now take a closer look at the key movements impacting our cash position this quarter. We closed Q4 and 2025 with cash on hand at robust SAR 595 million. It was SAR 14 million above the cash balance year-end 2024 despite all the challenges throughout the year. This was achieved, thanks to our strong focus on the working capital management. We are very pleased with the quarterly improvements in working capital. This focus drove meaningful reduction in accounts receivables with solid Q4 collections. Additionally, the inventory levels were brought down to the lowest point in 2025. Turning to CapEx. We spent SAR 162 million in Q4 with roughly half directed towards reactivation activities for the report. All other movements this quarter were routine quarterly items with nothing specific to highlight. Let me now wrap up the financial section with a look at our debt profile. Net debt remained stable at SAR 2.4 billion with quarter-on-quarter improvements reflecting the higher cash on hand at the end of Q4. Our net debt-to-EBITDA ratio is maintained at 2x, comfortably within our target range. We expect it to remain around 2x in the coming quarters. Importantly, given the current and expected level of activity, we have no plans to assume additional debt. At the same time, our existing leverage position provides strategic flexibility to pursue selective high-margin growth opportunities. That concludes the financial update. I will now hand over back to Fahad.

Thank you, Farid. Let me now turn to our outlook for the first quarter of 2026. On revenue, we expect a slight improvement compared to quarter 4 2025. This is driven by the rigs that have been brought back into operation. However, because these rigs are contributing for a full to normalize [Technical Difficulty].

Your line is cutting off a little bit.

On CapEx, our full year projection of around SAR 750 million, which is broadly in line with 2025. This stability is intentional. Our focus in 2026 is on optimizing and sustaining our existing fleet and making more efficient use of the assets already in operation. At the same time, CapEx plan supports our proactive reactivation efforts, allocating the necessary CapEx to return rigs to operation as they are recalled during the year. Finally, as we conclude today's presentation, I would like to share with a few closing thoughts. 2026 will be a year of recovery for us, supported by the rigs coming back into operation. The full benefit of these assumptions will really start to show from the second quarter onwards. We are entering the year confident in our ability to renew the contracts due to expire in 2026. Securing this renewal will be also an additional driver for improving utilization, especially in the second half of the year. Operational excellence and safety will remain at the center of everything we do. Maintaining our customer trust is critical, and we will continue delivering the performance they expect from us. With all the above and financial strength of our balance sheet, I am confident we will be positioned well to materialize our long-time expansion plans locally and internationally. With this, we end our presentation, and I will now pass it over to Luis to open the floor for questions and answers.

We'll now move to the Q&A part of the call. [Operator Instructions] Our first question is from Anna from UBS.

Hopefully, you can hear me. A couple of questions from my side, probably starting with the current situation and whether you experienced any disruption already for any of the rigs, if you can comment on that. Second question will be around your disclosure. Yesterday, you mentioned that 1 of the land rigs, which were initially recalled was withdrawn. Can you comment more on that and whether you expect more recalls over the course of the year? And finally, you mentioned reactivation costs in the first quarter. Can you give us a bit of color on how much should we account for?

Bassem we cannot hear you. It looks like you're muted. Okay. Go ahead, sorry.

Did you hear my first part. So thank you Anna for the question. Can you hear me now?

Yes, we can hear you now.

So let me start with the second question on the recall rigs. Indeed, we had originally 5 rigs recalled, 3 land and 2 offshore but eventually, 1 of the land rigs was canceled. So now the other 4 rigs are planned to restart, 3 of them started as communicated already and 1 offshore rig will start early in Q2. But the land rig, which was called back eventually. So at the moment, we have plans for that rig that we have a number of tenders. So we're planning to reactivate that rig and it will -- in our plans, it will start sometime in H2. So that is -- on the third question, you asked about reactivation CapEx, we spent around SAR 70 million in Q4. for activation, and we already spent about SAR 50 million in Q1.

Okay. For your first question regarding the risk. The risk in our rigs like any other land or offshore are the same as any other area. But until now, and everything is running fine. We don't have any interruption for our operation.

And just a quick follow-up regarding this land rig which was withdrawn. What was the reason for that? Was it just the demand from the client or there was any issues?

No, this is a demand from our clients, and this is something normal. It's happened from time to time.

Thank you very much. Our next question is from Ricardo Nasser de Rezende Filho from Morgan Stanley.

First question, if I may. You've pointed that for 2026 should be a better year than 2025 with more visibility. How should we think about the margin inflection that you mentioned on the initial speech? Is that a relevant inflection that you see throughout this year ? And then one for you, Fahad, welcome and good luck. Just curious what's your main priority if you assume your new position as the CEO?

Ricardo, for asking and I will start with the second part. My main priority really is to increase the income and revenue for our company, while delivering the best performance for our client and safety, okay? All these things really, we are concentrating on it, and we want [Foreign Language] to, first of all, 2026, we are forecasting a good year and the year of recovery. And we started receiving recalls for the rig, as we mentioned in our presentation, 2 offshore and 2 onshore now already started and another rig is going to start in the first month of the second quarter to all these positive indication in [Foreign Language] for 2026. So this is what we are focusing in 3 things as we speak. First of all, to increase the utilization of our rigs. Second, to expand in our international markets, we are looking to expand the international market. Third one actually is to concentrate on focusing lower our spending. So these 3 factors, our main focus for the 2026.

I think with this, I already answered the first question on how we expect our margins to recover in 2026. Basically, Ricardo, it will come from those points. First of all, obviously, from utilization. Our offshore utilization will reach 100% early April, and that will drive substantially the margin improvement, particularly in offshore segment. And all the actions we took already in structure costs, SG&A in 2025, we had about SAR 30 million savings in 2025. But the full year savings we will realize in 2026. We estimate that at the level of SAR 60 million. And obviously, the other areas where we are focusing and prioritizing now is process improvements and efficiency in managing our operating costs. This covers many aspects is like efficiency in rig moves and looking at the cost of ownership versus outsourcing and many other aspects. So these areas where we'll see improvement in margins in 2026.

And if I may, a follow-up. When you talk about the international operations, is that something that you're looking only organically? Or is M&A as a potential option?

We are looking at all options. Any option or opportunity we look at it in Arabian Drilling opportunity and what is the income and the benefit for Arabian Drilling. So regardless, is it local or international, we don't have any restriction to go and work internationally anywhere.

Our next question is from Abhishek Kumar from Bank of America.

I have a couple of questions. One is in terms of the outlook for 2026. You obviously have provided the revenue guidance for the first quarter. But again, I mean, looking for full year 2026, if I look at the consensus currently, it is at SAR 3.7 billion of revenue and SAR 1.47 billion of EBITDA. And given we have good amount of visibility in terms of contracts that have already been awarded, et cetera, how comfortable do you -- are you with these numbers currently? And second question is on the onshore side, we have 10 rigs, which is not working at the moment, and there are various opportunities you mentioned, both domestically as well as internationally. So end of 2026, how should we think about that, assuming all the rigs which are coming up for renewal this year would get renewed, then end of year, how many rigs would effectively be working?

Abhishek, thanks for the question. So for the first question on 2026 outlook, as you outlined, yes, so we gave only Q1 guidance, and that is done intentionally. And with -- since the last -- since early 2025, we moved to quarterly guidance. It's all due to these uncertainties in the long-term outlook, right? So that's why we prefer to comment only on our quarterly outlook. And Q1, you can see that it will be in the same range activity as Q4 2025. But going forward, with addition of offshore and land rigs, probably you can estimate or model the increase for the full year. So we'll -- at this point of time, we will not give you like a number, a particular number. But maybe after a couple of quarters when we see more visibility, more transparency, then we can switch to annual guidance.

For the second part for the [indiscernible] land rigs, still, we submit many tenders now, and we are working on them, and we are very optimistic because the market started calling mini rigs and land and offshore. So we are very optimistic. majority of those rigs, it will be back to operation in 2026.

And just maybe, I mean, one follow-up on the answer to the first question. So in terms of margins, if we look at it, on the offshore side, what is the aim in terms of getting the margins given where the day rates have kind of come off from the highs and most of it is already in the backlog. So what's the target for margins recovery on the offshore side of things, given we have a lot of visibility there. I understand on onshore, there are moving parts. You still have rigs working, et cetera, and you don't know exactly when you're going to deploy some of the other rigs, which is under bid, et cetera. But on the offshore, what should be the margin we should aim at by end of this year if we can provide some color here.

Yes. So what I can tell on offshore margins, it will recover, especially from Q2. It will be 100% utilized. So last time we had 100% utilization in offshore, it was H1 2024. So basically, you can take that as a benchmark for modeling for H2 2026. The only one point to keep in mind that we provided some discounts and margins will not go back to the level in offshore as it was pre-suspension. So based on these 2 aspects, you can model some margins for 2026.

And in terms of the average day rate for the offshore fleet, where we stand now.

Average day rate for offshore is in the high 80s.

Our next question is from Alex Kurtz (sic) [ Comer ] from JPMorgan.

A couple of quick questions. Could you just tell us how the tendering environment is at the minute? I think SBL commented on the V-shaped recovery in the Saudi rig market. So I just wondered what tenders are currently and what tenders are you seeing and how much demand is there and that's obviously notwithstanding the current situation on just in terms of where we were before the recent attacks. That's the first question. And then how should we think about dividends going forward?

Here, we have many tenders. Some of them local and some of them international. So we are contributing to both, not just only tenders in Saudi Arabia. We are submitting tenders even outside Saudi Arabia in the GCC. But the tenders in general, we are receiving many tenders, which is something positive for 2026.

So your question on dividends, basically, yes, so as it was announced yesterday, so based on the recommendation of the Board of Directors to general assembly, so for 2025, there will be no dividends paid. And the Board will relook at this at the upcoming quarters if the overall market conditions will improve. And the main reason for that is preserving cash for our local and international expansion plans.

Our next question is from Grishma [indiscernible] from Equity. It looks yes, we disconnected. We have a question from Ildar Khaziev from HSBC.

So looking at the outlook for revenue, I mean, I understand the point that it's difficult to forecast. But taking into account the current contractual status of the assets. Assuming nothing surprising happens over the year. How should we think about the rig move and mobilization revenue? What's the outlook there? I mean can I just -- can you ask us remind to us actually whether the rig move revenue. Is it only -- does it only cover your own assets. So it also provides services to other rigs as well? And whether there is any granularity you could share with us in terms of outlook for revenue for those 2 lines? That's my first question. And secondly, on capital guidance, could you give us some details of what that CapEx will include this year?

On rig moves and mobilization, I think we need to distinguish these 2 things. So 1 is mobilization is applied only when we mobilize a new rig into the country. So this is a kind of exceptional events whenever that happens based on the projects -- contracts. Rig moves happening on a monthly basis, yes. So and they apply only to land rigs. And basically, during that rig moves, there is a lump sum paid to us by customers. And that is our revenue. So basically, how quick, how more efficient we move it from 1 brand to another brand. that shows -- that helps us with the profitability on particular movement. So there are -- in many cases, remote are ordinary things during the months, we get about 20 rig moves, let's say, on average for our 37 active land rigs. And some of them are short distance, and some of them medium distance, let's say, and really, like once or twice a year, we have a long business move, which happened in Q4. And t is positively impacted our revenue, offsetting the decline in revenue from suspension basically. So that on the rig moves, I'm not sure if this answers your question.

Just to understand better, given that there have been quite a lot of reactivations. think like 10, 15 onshore rigs have been retired. Do you expect more activity in 2026 on that front?

Yes. In 2026, we are expecting more. As I mentioned before, we are contributing to many things are now but we are expecting more rigs to be recorded and more rigs in the future in the near future in the near future in 26.

And can I ask you also to remind us that there was a very strong revenue booked in 1Q 2025 for rig moves revenue. What was that exactly why it was so strong?

So that's exactly what I mentioned earlier. So really like once or twice a year, we have a long distance rig move that was particularly probably the longest in the last couple of years. It happened in Q1 2025. And then we had another long rig move in Q4 2025, which was not that to the same extent, but it was also qualified as a long rig move.

And on CapEx, please.

CapEx question for 2025.

Yes, what brings that number basically. So what kind of investment.

2026 or for 2025?

2026 please.

So as communicated outlook is SAR 750 million, about SAR 150 million of that relates to rig reactivation. And the remaining is just a normal annual sustaining CapEx.

Our next question is from Paras [indiscernible] Investments.

Is my voice clear?

Yes, we can hear you.

[indiscernible] from [ Sabine ] Investment Company. Congratulations on the new renewals. May I ask that [ Foreign Language ] management expects offshore utilization to reach 100% by Q2. Shall we except in terms of expansion any additional rigs to be added to the fleet in the short or medium term.

Yes, as what we mentioned before, our offshore fleet will be 100% utilized. But our focus now actually is to utilize our 10 rigs, land rigs, that land rigs, we need to retain them to increase the operational efficiency and also the utilization of the rig. This is what is our focus. And -- but if there is any opportunity, we are open for any opportunity and participation in tenders. And the good news really, tender participation is growing in the first quarter of 2026. However, we have a good actually financial income, and we have -- [indiscernible] mentioned before, we have more than SAR 0.5 billion actually cash, we can spend it in expansion, and this is part of our strategy to expand actually locally and internationally. And that's why also we will not distribute dividends because part of our strategy is to expand and grow actually. And since 2021, until now, we are growing in our asset. If you look at it, we are growing a very good percentage. Actually, we spend it in growing an asset, which is part of our strategy to grow.

Before we move on to our next question, we will open a very brief survey on your screens. Your feedback will be greatly appreciated, and we will keep it open for the remaining of the call. So our next question is from Anna Kishmariya from UBS.

I have a quick follow-up around the idle rigs. I think you impaired 3. What is the plan for those? If you can comment.

As what we mentioned before, Anna, the plan for the 10 rigs, rates, we are submitting many tenders now actually local and outside. Actually, we have 10 rigs, 5 suspended. This might be recalled from any -- within the current fleet locally. And we have 5 rigs without contract. Those actually 5 rigs without contract, we are looking and we are working hard to have a contract for them. And for the suspended rigs, still we are thinking what might be required and go back to business in the near future.

Both -- 3 rigs which were impaired, yes, exactly the same plan, as mentioned by Fahad. So we still plan to deploy them in different markets.

We have a follow-up from Ildar Khaziev from HSBC.

So can I just ask you to clarify, I think I've seen last year that at least 2 of your offshore rigs, which were suspended, they received long-term extensions like seemingly by 10 years each. Is my understanding correct that the rig which is going to be deployed in the UAE is still formally contracted by suspended rig in Saudi Arabia and whether that rig has received that 10-year extension?

So yes, the rig which is going to work in GCC, it is considered as suspended rigs in and we have permission from our client to participate in GCC tender.

Our next question is from Chaitanya Bhokare from SG Analytics.

What was the reason for impairment of the 3 land rigs? Will these rigs be removed from the fleet? How are the demobilization and reactivation cost split between cost of revenue and operating expenses?

I think these are 2 different questions, right? So first question is what was the reason of impairment of this land rigs? So yes, indeed, we recorded an impairment on the 3 idle land rigs because our quarterly impairment testing indicated that the recoverable value has fallen below the carrying value. So maybe just to give you a bit of color of our quarterly procedures, we conduct impairment tests every quarter. And certain triggers, they require reassessment. In this particular case, all these 3 rigs were idle out of contract for some time, and this was a trigger. When such trigger occur, we must apply updated assumptions regarding day rates, utilization, reactivation CapEx, long-term deployment prospects to determine whether the book value is still recoverable. So we updated our models, including 2 approaches. One is value in use and the second is resale value. And both models show that the recoverable amount was below the rig's net book value. So that resulted in impairment requirement of SAR 140 million. What was the second question, sorry?

How was the demobilization and reactivation cost split between cost of revenue and operating expenses?

So demobilization cost goes directly to P&L, right? So it's expenses. And reactivation, a majority of reactivation cost, it's CapEx, but there are certain costs that is going to P&L right away. Let's say, when we hire employees, the first couple of months, they go through training, doing certification. They're not part of the project expenses. So that's why those costs, they impact P&L directly.

We have a follow-up from Ildar Khaziev from HSBC.

Just coming back to the land rig question and in relation to the impairment. I recall that the -- some of the offshore rigs, the day rate for them have been [indiscernible]. Has the same happened to the land rigs, by the way, and whether the lower day rate outlook for land rigs has also contributed to the results of the impairment test?

So we do impairment test for all our rigs, right? So -- and particularly those which are suspended and terminated like no contracts. So only these 3 idle land rigs resulted in that the carrying value is higher than recoverable. So all other rigs showed that there is no required -- no impairment required.

Understood. But is it also correct to think that the land rigs, some of them are generating lower revenue on a day rate basis versus like 3 years ago?

But that's not the only factor, yes. So when there are many, many different factors which you take into impairment consideration. So -- and revenue day rate is just one of them, right? So -- but I cannot see the connection to them, right? So the day rates, like on land rigs, we didn't have major discounts, by the way. So the discount that happened during 2025 that applied to a selected on the contracts in offshore. And there are some day rate discount related to land rigs starting from 2026, but they are not substantial to have any material impact on our assumptions.

We'll now move on to our final question from Dmitry Gribovich from Waha Capital. Could you please share a cash cost per day you incur for each idle onshore rigs?

So idle offshore rigs cash cost, unlike land rigs, offshore rigs require some warm stack, yes. So -- but it is some number of employees, they need to stay on offshore rig. And we incur some costs. It's not something material or significant. Fuel is another one. So other than these 2 offshore rigs. They have -- when they're stacked, they don't have any cash cost, except obviously noncash, which is the major one is depreciation. On land rigs, otherwise, just to clarify further, you can cold stack them. And in that case, it's really just the stack yard will be the main cost in those cases.

Thank you very much. We would like to thank everyone for the participation today. I will now hand it back to the Arabian Drilling team for the concluding remarks.

Yes. Thank you very much, Luis, and thank you, everyone, for joining us today. Stay safe, and have a great day.

Thank you. Thank you, Luis.

I will now be closing all the lines. Thank you, and have a nice day.