Abraj Energy Services SAOG (ABRJ) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to Abraj's earnings call for the second quarter 2026. Thanks to Muscat Stock Exchange for hosting today's call. Yesterday, we published our Q2 earnings statement as well as our reviewed financial statement for the second quarter of this year. These are available on MSX portal as well as on our Abraj Investor Relations portal. The presentation used during the call will also be uploaded to the MSX portal and our Investor Relations after the session is over. As usual, I would like to draw your attention to the disclaimer statement, which I invite you to read at your convenience. Joining me today for today's call are Abraj CEO, Engineer Saif Al Hamhami; Mr. Hubert Lafeuille, our CFO; and also present in the room, our COO, Mr. Zahran Al Kindi. The agenda for this session will cover financial and operational highlights for the second quarter, backlog and market share updates, utilization rates, financial performance. Our closing remarks will include an update on the strategy execution and guidance. We will then open the floor for your questions. With that, I will hand over the floor to our CEO, Mr. Saif Al Hamhami.

Thank you, Sadiq [Foreign Language]. It's a pleasure to reconnect with you again in this earnings call. Overall, the company has maintained its performance through second quarter. Let me first start by highlighting the financial performance for the second quarter of 2026. I will leave the details to be discussed later on by Hubert, our CFO, but I will just give maybe the main highlights. Overall, we had an excellent second quarter with an increase on revenue, net income utilization rate and backlog compared to the first quarter. For the second quarter, we recorded a revenue of OMR 39.3 million, representing a 9% increase quarter-on-quarter. This increase mainly reflects the higher rig utilization, notably with the start of our third rig in Kuwait. Our profit after tax has also increased by 10% quarter-on-quarter, in line with our revenue upside. For the full year, our revenue was OMR 75.3 million, and our profit after tax reached OMR 9.3 million, which means earnings per share for the first half of 2026 of OMR 0.0121 in line with the first half of 2025. Our operating cash flow for Q2 amounted OMR 12.8 million, representing a 6% increase over Q1 and highlighting our ability to monetize our own activity increase and business performance. During the quarter, we have seen an acceleration of our CapEx spending related to the ongoing delivery of 8 new build rigs as part of our growth strategy. With a year-to-date basis, our CapEx spending was more than OMR 29 million, of which more than 70% relates to the 6 new build rigs for PDO Wave 3. Next, I will talk -- I will walk you through the -- some of the key operational highlights from the first and the second quarter. We closed the second quarter with a rig utilization of 91%, representing an improvement of 2% compared to the first quarter. In Q2, we have started 2 new rigs, including our new build rig in Kuwait, and the one ended in its contract. At the end of the quarter, we have 2 rigs inactive out of a total available fleet of 27 rigs. Out of the 2 rigs, one started a contract mid-July, so at the beginning of Q3, and the other one is expected to start before the end of Q3. So we are targeting to achieve full utilization before the end of Q3, [Foreign Language]. In terms of client satisfaction, we -- it remains a strength for Abraj. Our latest customer satisfaction survey delivered an excellent result of 91%, reflecting the strong confidence from our clients in our operations. Furthermore, Abraj was recognized for its sustainability efforts, and we won a prestigious Platinum ESG award at the Oman Sustainability Week during this quarter. On the operational excellence, our nonproductive time for the quarter was less than 1%, showing continuous operation efficiency. Our NPT statistics remain well below the industry average. The rig moves continue to be a critical enabler of our business. During the quarter, we successfully executed 74 rig moves. Through operational excellence, we saved a total of approximately 900 hours versus the target, equivalent to roughly 12.1 hours per rig move, and this equates to around OMR 400,000 in additional revenue. On the HSE, we are very proud to announce that 10 out of our units achieved a 10 years LTI-free, lost time injury free, which is a major achievement. We also received the best HSE initiative award from one of our key clients, OQEP. We continue to engage HSE awareness campaigns, covering multiple topics across all our units, and we continue on our HSE digital transformation projects to enhance and simplify HSE management system. With that, I will move to the Backlog, Market Share and Utilization. One of the key highlights was the backlog trend that we've been sustaining in the previous quarters recently and even more notably in the last quarter, we have further strengthened our backlog position in Q2. Following the record backlog that we reported in the first quarter of OMR 898 million, we managed to achieve a new all-time high record of OMR 953 million by the end of Q2. Over the last 4 quarters, backlog has increased by more than 20%. This quarter backlog increase was mainly coming from the addition of approximately OMR 120 million for the PDO contract award that we announced early in May. After offsetting the OMR 120 million backlog addition with the quarter revenue consumption of OMR 39 million and adjusting the portion of the option periods that were included in Q1 backlog, the net increase for the quarter was OMR 55 million, as you can see. Our Q2 firm backlog commitment represents 140 rig years and the average remaining contract tenure is around 5.7 years per rig. Also, the Q2 backlog over 12 months trailing revenue book-to-bill ratio was 6.4x as of 30th of June 2026, providing high visibility on our future top line delivery. On the utilization, as you can see on the plot -- on the far -- on the bottom right, that we are consistently and constantly improving on our rig utilization, and we have seen that positive impact in our financials, and we do expect by the end of Q3 to reach 100% [Foreign Language]. With this, I will hand over to my colleague, Hubert, to take you through the financials in more details.

Thank you, Saif, and a very good afternoon to everyone on the call. I will now walk you through the key financial performance metrics for the quarter, and I also invite you to refer to our Q2 earnings statement release that covers most of the points that I will be addressing in my presentation. So the first slide is showing the financial performance with some key metrics. You have the revenue, EBITDA, profit after tax and CapEx. And for each one of those metrics, we will look at year-on-year comparison and quarter-on-quarter comparison. So starting with the revenue, which is the top left graph, we have a year-on-year revenue of OMR 75.3 million, as mentioned by Saif, representing an increase of 3% year-on-year. This increase was mainly due to higher activity for OMR 0.8 million as well as higher client recharge of OMR 1.2 million. On the quarter, the Q2 revenue was OMR 39.3 million with a 9% increase compared to Q1, and I will cover the Q-on-Q revenue variance later in a detailed bridging. Moving on to EBITDA, which is the top right graph. Year-to-date EBITDA in 2026 was OMR 24.3 million, which was 1% lower than last year, mainly due to a decrease in the drilling of 1 million that was partially offset by increased activity in the Well services. Now going back to the decrease in the OMR 1 million in drilling, what we had is we had additional maintenance and recertification activities that were complete in H1 of 2026 with an impact of minus OMR 1.4 million, and that was offset by also additional activities -- additional rig activity that we had in H1 2026 of plus OMR 0.4 million. So minus OMR 1.4 million, plus OMR 0.4, that's the negative OMR 1 million decrease on the EBITDA. The Q2 EBITDA of OMR 12.3 million was 3% higher than Q1, and the increase is mainly due to the incremental EBITDA on additional rig activity for about OMR 0.5 million, which was partially offset by additional G&A cost of OMR 0.2 million. Moving on to the profit after tax. So I'm looking at the bottom left graph. So the year-to-date profit after tax of OMR 9.3 million is flat compared to last year. We had an EBITDA decrease of OMR 0.3 million, as we have just seen. That was offset also by lower depreciation cost of the same amount. So the EBITDA was overall flat. The finance cost of -- there was finance cost of OMR 2.8 million that are approximately OMR 0.2 million lower than that of last year in spite of a higher debt level. And this reduction was due to savings realized on repricing some of our bank loan, which result in an average rate decrease of approximately 70 basis points compared to the same period of last year. Our YTD '26 effective tax rate of OMR 15.3 million was in line with that of last year. Now if you look at the quarterly PAT, so the PAT for Q2 was OMR 4.9 million, which is a 10% upside Q-on-Q, mainly coming from the combined effect of the increased Q-on-Q EBITDA of OMR 0.3 million, as mentioned above, as well as the lower finance cost of OMR 0.1 million, which I just mentioned, and this will also be covered in my bridging section. On the CapEx side, as Saif mentioned, we have spent year-to-date more than OMR 29 million, of which 70% relates to the PDO Wave 3. Our fleet expansion program includes a total of 8 new build rigs for an estimated cost in the range of OMR 90 million to OMR 95 million. And to date, we have spent approximately OMR 37 million, and we will continue to see an acceleration of our CapEx in the second half of 2026. Now turning on to the performance by segment. We have 2 segments: Drilling and Workover, and Well Services. And inside Drilling and Workover, we have 2 geographies where we have Oman and Kuwait. So in the Drilling and Workover segments, the financial performance is highly sensitive to the number and the distance of the rig moves. And in the Well Services, the business operate largely on an own core basis, making the financial performance highly dependent on the job execution volume. So if you look at the revenue for the first 4 quarters, so this is the top graph. So first, let's talk about Drilling revenue in Oman. As we have seen, it has improved Q-on-Q due to the timing of the maintenance expansion and recertification activities. We had 2 rigs off of what we call the Cat IV inspection in Q1. This is only one in Q2 as well as rig increase that we have seen in Q2. For the Drilling revenue in Kuwait, the increase Q-on-Q is mainly due to the start of operation of a third rig that started mid-June. This rig is a 3,000-horsepower machine that comes with a high day rates and is highly accretive to the bottom line. For Well Services, we have an increased revenue Q-on-Q due to the successful introduction of multi-stage fracturing technology, enhancing equipment utilization and operational efficiency and therefore, generating incremental revenue. Besides, in Q2, we also expanded our scope under the newly awarded OQ cementing contract, and we achieved significant progress in deep gas cementing operation, which is an important milestone for the company. Now looking at the profit after tax, which is the below graph. So Drilling in Oman [indiscernible] stable. The PAT increase in values since Q4 is due to high activity and the profitability profile is essentially a function of the timing of the rig moves and maintenance activities across the quarters. For Drilling in Kuwait, the PAT was mostly flat until now, and we expect it will pick up significantly with the startup of the third rig, and we already can see some of that incremental in Q2. For Well Services, we expect to see improved financials with the expansion of high-end cementing services for PDO. And also, we expect that the growth will be driven by the fracking business due to the new PDO fracking contract that we have. And this will increase our operational capacities from our integrated fracking system fleet, supporting higher utilization and revenue growth. Let me now walk you through some bridging analysis. So first, we'll review Q-on-Q bridge for the revenue and PAT, and then we'll review the bridging on the cash position for the 6 months period. So starting with the revenue, which is the upper graph. So again, we moved from OMR 36 million to OMR 39.3 million, which is a 9% increase. As mentioned, this increase was mainly due to higher rig activity. So we have OMR 1.2 million over the quarter as we have added 2 more rigs into the quarter. We also had the higher contribution of the Well Services of OMR 0.5 million. We had some timing difference on the completion of the maintenance and inspection recertification of OMR 0.5 million. As I mentioned, we have 2 rigs in Cat IV during the first quarter. This is only 1 in Q2 as well as we have seen higher client recharge of about OMR 1.1 million, which put us to OMR 39.3 million at the end of the quarter. With respect to the profit after tax, which is the bottom graph, we have an increase of OMR 0.4 million from OMR 4.5 million in Q1 to OMR 4.9 million in Q2, representing a solid plus 10% upside. The PAT increase was coming from the additional EBITDA of OMR 0.3 million as well as lower financing cost of OMR 0.1 million, which was due to the successful repricing of our bank loans, as already mentioned. The next bridging movement is our cash position for the 6 months period ended 30th of June. So our opening cash position at the beginning of the year was OMR 7.1 million, and we closed Q2 with OMR 3.5 million, representing a 50% decrease over the 6 months period. So to start with, we have the opening balance, then we add the profit before tax as well as the noncash items for a cumulative amount of about OMR 23 million. This was partially offset by an unfavorable swing of about OMR 3 million on the working capital. On the investing side, as mentioned, we spent more than OMR 29 million in CapEx, mainly related to the ongoing fleet expansion program. And this investment was financed through drawing additional OMR 32 million of secured facilities across 3 commercial banks. At the same time, we repaid OMR 10.2 million of debt coming from OMR 9.7 million of bank loan plus OMR 0.5 million in lease liabilities. Then we paid a total of OMR 2.9 million in interest and bank charges. On that note, our weighted average cost of debt is about 5.5%. And also, our current debt maturity schedule reflects that the loan principal repayments in the next 4 to 5 years will be in the range of about OMR 18 million to OMR 20 million per year. Now going back on the cash flow bridge. So we -- after the interest, we also showed the dividend payment of OMR 13 million that was done in March. And finally, the remaining movements relates to income tax payments as well as other net item. And the other net item is mainly timing difference between accounting recognition and cash settlements. The next section is about net debt and leverage. As of 30th of June, the company net debt position was OMR 121 million, reflecting a 10% quarter-on-quarter increase, which is consistent with the ongoing CapEx cycle. Our net debt basically include gross debt of about OMR 125 million, less cash of about OMR 3 million, OMR 4 million. So that's a net of OMR 121 million. Similarly, if you look at the company leverage ratio on the top graph, which is basically the net debt to the 12 months trailing EBITDA, we have increased from 2.3 in Q1 to 2.5 as expected and as previously indicated in our last earnings calls. And again, let me reiterate again, both the net debt and the leverage ratio will continue to increase until completion of the fleet expansion program and until the point in time where the new builds are effectively deployed and start contributing to the company financials. So the net debt increase, I said 10% Q-on-Q, as mentioned, is coming from the combined effect of the cash reductions of OMR 3 million, plus drawing additional bank loan of OMR 13 million during the quarter, net of loan reimbursement of about OMR 5 million, and this is the bridging that you can see on the bottom graph. With that, I conclude my financial update, and I will hand it back over to Saif for an update on our strategy execution and guidance. Saif?

Thank you, Hubert. So this is our finance slide. So let me conclude with a brief update on the strategy execution and a bit of an outlook. On the Drilling and Workover for the new build rigs, we successfully deployed our third rig in Kuwait and Abraj's first 3,000 horsepower rig in Q2. And we are in the process of clearing importation for 2 -- for the first 2 rigs of the Wave 3 for PDO. For our existing rigs, we continue our plan to redeploy our stacked rigs, and we are confident on full utilization by the end of Q3 [Foreign Language]. On the Well Services, we started our new OQ cementing contract that we announced last quarter. And currently, we are in the process of mobilizing to the PDO frac contract, the one that we announced in May. Furthermore, we continue to position the company on the high end, and we have successfully completed our first deep gas intermediate cementing well or cementing job with our client PDO. From a business development standpoint, over the last 6 months, we have remarkably succeeded in securing more than OMR 250 million worth of new contracts, and we have a number of ongoing tenders in the pipeline with an estimated contract value of OMR 170 million. So the business dynamics remain very good. We are also actively opening dialogue and opportunities in key markets in the region to support the company growth in the regional expansion domain. From a guidance standpoint, we are now upgrading, as you have seen in the release, our full year revenue guidance to OMR 150 million to OMR 160 million range, which was previously between OMR 145 million to OMR 155 million. And we also expect our Q3 revenue to land with a 5% to 10% upside compared to Q2. Overall, from a strategy point of view, we will continue our efforts to grow the company in the short and the long term through both market expansions and new product developments. With this, we conclude our presentation. Thank you for your attention. We will now be happy to take your questions. I will hand over back to Sadiq to begin the Q&A session.

So we'll start the Q&A session. Please raise your hand for the questions.

And just have a few questions. You mentioned that in the first half due to the maintenance activity, there was an impact of OMR 1.4 million. So I just want to understand if this will recur in the second half as well or just the maintenance activities are done?

Yes. So what I mentioned is OMR 1.4 million related to the activities, the recertification activities. As you know, every now and then we have to stop the rig to recertify all of our equipment, the well control, et cetera. So there is a very extensive work that is going on in terms of maintenance equipment and recertification. So the OMR 1.4 million was the impact in H1 2026 versus H1 2025, and this is why we see a bit of a flat operating profit. I believe that we don't have any -- I'm going to let Zahran confirm that, but I don't think we have any of those maintenance activities planned for the second half of 2026.

No, we don't have. That was 3 rigs into Cat IV.

Right. So we did 3 rigs in Cat IV in H1 '26, 2 in Q1 and 1 in Q2. And we don't expect to have 1 for the rest of the year.

Okay. Just one more question on the third Kuwait rig, which started operations in this quarter, how is the day rate and the utilization levels compared to Oman? And also, has there been any operational impact in Kuwait due to the current regional unrest?

Yes. So the utilization rate currently, they are all operational, the rigs in Kuwait. In terms of the daily rate, the third rig naturally is much higher daily rate because it's a much bigger rig. It's a 3,000-horsepower rig versus the other 2 rigs, we have 1,000 and 1,500. So the daily rate is higher. And also it comes with better margins. In terms of operational disturbance, we did face operational disturbance in Kuwait in the first half, where we had to suspend operation among other operations in Kuwait in general due to the regional conflict. However, that did not put us on high financial impact as the rigs were stacked with reduced rate. So at least it covered its overheads. But now all the rigs are back to operation.

And also on your previous disclosure mentioned being prequalified for Drilling, Workover Service in Saudi and Algeria. So can you provide an update regarding the Aramco prequalification? Is there -- what is the expected time line for the operations?

So this is specific to the Workover, basically the hoists, and we had a visit from Aramco. We had multiple engagements. And so basically, we were successful to get through and prequalified with them. And the work will depend on the tenders that will come. So we don't have a specific time line, to be honest. It could be anything from next year. It depends on the clients, on Aramco's cycles and priorities and the tenders. And it's been honestly dynamic overall, not only in Saudi, but also all the GCC when it comes to the time line of these tenders. And I think there has been a bit of an impact to do with the regional conflict. However, the good news is that we are on that list. And whenever the opportunities open up, we will be able to participate in these tenders.

[indiscernible] can you start, we can hear you.

Am I audible?

Yes, we can hear you.

Okay. Perfect. I have a couple of questions. What utilization levels should we expect in Q3 and Q4 for 2026 and for 2027? And on the 8 rigs that are under construction, can you provide an expected schedule in terms of commissioning by quarter? And for the CapEx, can you give us a breakdown on the fleet expansion versus maintenance CapEx? And what should we expect in 2027 and your maintenance CapEx? Yes, I'll start with these 3, and then I'll ask another.

Sure.

Three questions. The first one, what's the expected utilization. As we said, by Q3, we expect to reach 100%. But then also next year, we cannot guarantee that. As next year, we have some rigs that will be coming out of contract in Q1. And -- but we are actively discussing with various clients to secure contracts for these rigs. So we do expect high utilization rate to continue. But then we will see if we can maintain that 100%. But then hopefully, today, it's 91%, and then we expect by end of Q3 to get to 100%. In terms of the new rigs, already 2 rigs have arrived Oman. They are in the clearance process. So we expect anything between 3 months to get them on operation. So again, at the end of Q3 or in Q4, we'll be able to add those 2 new rigs. In terms of CapEx, maybe you want to comment.

Yes. So the CapEx, we have the CapEx for the new build, and I think you referred to the maintenance CapEx. So the maintenance CapEx is roughly in the range of OMR 10 million to OMR 12 million a year for the fleet. Most of the CapEx that we had this year was already in H1 because, as we said, we had 3 rigs that went through the Cat IV for inspection. So most of the CapEx that we expect for the rest of the year is purely dedicated to -- mainly dedicated to the fleet expansion. We have given a guidance of about OMR 60 million to OMR 70 million of CapEx through the year. We have already spent OMR 29 million in H1. So we expect that we'll be spending about OMR 30 million to OMR 40 million in H2. And we expect there will be a little bit of acceleration in H2 because of the delivery schedule of the Wave 3.

That was helpful. On the rigs, the -- how many rigs are going off contract in Q1 2027?

3 rigs.

3 rigs.

3 rigs, but we have very advanced discussions that we will disclose in due time with various clients. So we have good confidence, we'll be able to redeploy the majority, if not all of them.

Can you hear me?

We can hear you, Renee.

I just want to repeat a tiny bit on the CapEx. So you said it's about OMR 90 million for growth CapEx and you've spent, if I got it correctly, OMR 35 million until now. Is that correct? And also, if you could give us an idea of how quickly you can have these rigs into operation over 2027. You said the 2, you've already received and they should be in operation within 3 months. But if you could give us further visibility on the rest of the fleet.

So 2 will be operating by end of this year. The other 3 will be in by Q3 to Q4 next year and then 1 at Q1 2028.

On the CapEx side, Renee, what I did mention is that for the total 8 rigs, new builds, the envelope was in the range of OMR 90 million to OMR 95 million. And to date, we have spent about OMR 37 million. So OMR 37 million includes outstanding that we did in 2025, right? So I mean, since the inception of the program, I mean, OMR 37 million, right, out of a total of OMR 90 million to OMR 95 million.

Okay. Okay. Got it. Got it. And out of these 8 rigs that are in the new build, how many net additions will it be?

4 rigs. That is as of today. But then whatever has come up, they are marketable. And we have, as I mentioned, advanced discussions. So there is potential for...

Am I audible?

Yes.

Appreciate the earnings statement. Great initiative. I just had a follow-up question regarding the total count of rigs. So currently, Abraj has 27 rigs. And by end Q3, you expect the utilization to go up to 100%. Now with the 8 new rigs being added, if my understanding is correct, 6 of them will be replacing the old rigs that will be going away. So by the end of 2026, the total rig count with the company would be 30 rigs. Is that correct? [Technical Difficulty]