SEC Info  
    Home      Search      My Interests      Help      Sign In      Please Sign In

National Energy Services Reunited Corp. – ‘6-K’ for 6/30/20

On:  Thursday, 8/6/20, at 6:09am ET   ·   For:  6/30/20   ·   Accession #:  1493152-20-14787   ·   File #:  1-38091

Previous ‘6-K’:  ‘6-K’ on / for 8/4/20   ·   Next:  ‘6-K’ on / for 10/28/20   ·   Latest:  ‘6-K’ on / for 12/29/23

Find Words in Filings emoji
 
  in    Show  and   Hints

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/06/20  Nat’l Energy Svcs Reunited Corp.  6-K         6/30/20   84:9.3M                                   M2 Compliance LLC/FA

Current, Quarterly or Annual Report by a Foreign Issuer   —   Form 6-K   —   SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 6-K         Current, Quarterly or Annual Report by a Foreign    HTML   1.43M 
                Issuer                                                           
 8: R1          Cover                                               HTML     46K 
 9: R2          Condensed Consolidated Balance Sheets (Unaudited)   HTML    135K 
10: R3          Condensed Consolidated Balance Sheets (Unaudited)   HTML     40K 
                (Parenthetical)                                                  
11: R4          Condensed Consolidated Interim Statements of        HTML     97K 
                Operations (Unaudited)                                           
12: R5          Condensed Consolidated Interim Statements of        HTML     47K 
                Comprehensive Income (Unaudited)                                 
13: R6          Condensed Consolidated Interim Statements of        HTML     80K 
                Shareholders' Equity (Unaudited)                                 
14: R7          Condensed Consolidated Interim Statements of Cash   HTML    116K 
                Flows (Unaudited)                                                
15: R8          Description of Business                             HTML     28K 
16: R9          Basis of Presentation                               HTML     31K 
17: R10         Summary of Significant Accounting Policies          HTML     40K 
18: R11         Revenue                                             HTML     45K 
19: R12         Business Combination                                HTML    127K 
20: R13         Accounts Receivable                                 HTML     61K 
21: R14         Service Inventories                                 HTML     43K 
22: R15         Property, Plant, & Equipment                        HTML     54K 
23: R16         Goodwill and Intangible Assets                      HTML     68K 
24: R17         Debt                                                HTML    116K 
25: R18         Fair Value Accounting                               HTML     27K 
26: R19         Employee Benefits                                   HTML     51K 
27: R20         Share-Based Compensation Expense                    HTML    106K 
28: R21         Commitments and Contingencies                       HTML     88K 
29: R22         Equity                                              HTML     33K 
30: R23         Earnings Per Share                                  HTML    255K 
31: R24         Income Taxes                                        HTML     30K 
32: R25         Related Party Transactions                          HTML     47K 
33: R26         Reportable Segments                                 HTML    121K 
34: R27         Summary of Significant Accounting Policies          HTML     40K 
                (Policies)                                                       
35: R28         Revenue (Tables)                                    HTML     41K 
36: R29         Business Combination (Tables)                       HTML    100K 
37: R30         Accounts Receivable (Tables)                        HTML     60K 
38: R31         Service Inventories (Tables)                        HTML     43K 
39: R32         Property, Plant, & Equipment (Tables)               HTML     51K 
40: R33         Goodwill and Intangible Assets (Tables)             HTML     69K 
41: R34         Debt (Tables)                                       HTML     69K 
42: R35         Employee Benefits (Tables)                          HTML     44K 
43: R36         Share-Based Compensation Expense (Tables)           HTML    100K 
44: R37         Commitments and Contingencies (Tables)              HTML     62K 
45: R38         Earnings Per Share (Tables)                         HTML    254K 
46: R39         Reportable Segments (Tables)                        HTML    117K 
47: R40         Summary of Significant Accounting Policies          HTML     45K 
                (Details Narrative)                                              
48: R41         Schedule of Disaggregation of Revenue by Geography  HTML     32K 
                (Details)                                                        
49: R42         Schedule of Consideration to Purchase Issued and    HTML     52K 
                Outstanding Equity Interest (Details)                            
50: R43         Schedule of Purchase Price Allocation (Details)     HTML     81K 
51: R44         Schedule of Preliminary Allocation to Intangible    HTML     33K 
                Assets (Details)                                                 
52: R45         Schedule of Proforma Information of Operations      HTML     27K 
                (Details)                                                        
53: R46         Business Combination (Details Narrative)            HTML     91K 
54: R47         Schedule of Accounts Receivable (Details)           HTML     32K 
55: R48         Schedule of Allowance for Doubtful Accounts         HTML     32K 
                (Details)                                                        
56: R49         Accounts Receivable (Details Narrative)             HTML     24K 
57: R50         Schedule of Service Inventories (Details)           HTML     37K 
58: R51         Schedule of Property, Plant and Equipment           HTML     58K 
                (Details)                                                        
59: R52         Property, Plant, & Equipment (Details Narrative)    HTML     25K 
60: R53         Schedule of Changes in Carrying Amount of Goodwill  HTML     33K 
                (Details)                                                        
61: R54         Schedule of Intangible Assets Subject to            HTML     38K 
                Amortization (Details)                                           
62: R55         Schedule of Long Term Debt Obligations (Details)    HTML     40K 
63: R56         Schedule of Short Term Debt Obligations (Details)   HTML     33K 
64: R57         Schedule Principal Payments of Long Term Debt       HTML     42K 
                (Details)                                                        
65: R58         Debt (Details Narrative)                            HTML    148K 
66: R59         Schedule of Components of Net Periodic Benefit      HTML     34K 
                Cost (Details)                                                   
67: R60         Employee Benefits (Details Narrative)               HTML     28K 
68: R61         Schedule of Unvested Restricted Stock (Details)     HTML     46K 
69: R62         Schedule of Stock-Based Compensation (Details)      HTML     30K 
70: R63         Share-Based Compensation Expense (Details           HTML     38K 
                Narrative)                                                       
71: R64         Schedule of Future Minimum Lease Payments Under     HTML     84K 
                Non-Cancelable Operating Leases (Details)                        
72: R65         Commitments and Contingencies (Details Narrative)   HTML     66K 
73: R66         Equity (Details Narrative)                          HTML     48K 
74: R67         Schedule of A Reconciliation of Basic and Diluted   HTML     60K 
                Common Shares Outstanding (Details)                              
75: R68         Schedule of Basic and Diluted Earnings Per Common   HTML    104K 
                Share (Details)                                                  
76: R69         Income Taxes (Details Narrative)                    HTML     33K 
77: R70         Related Party Transactions (Details Narrative)      HTML     64K 
78: R71         Schedule of Segment Reporting, Information on       HTML     48K 
                Revenues and Long-Lived Assets (Details)                         
79: R72         Schedule of Revenue From External Customers and     HTML     36K 
                Long-Lived Assets, by Geographical Areas (Details)               
80: R73         Reportable Segments (Details Narrative)             HTML     24K 
82: XML         IDEA XML File -- Filing Summary                      XML    155K 
 7: XML         XBRL Instance -- form6-k_htm                         XML   2.69M 
81: EXCEL       IDEA Workbook of Financial Reports                  XLSX    105K 
 3: EX-101.CAL  XBRL Calculations -- nesr-20200630_cal               XML    226K 
 4: EX-101.DEF  XBRL Definitions -- nesr-20200630_def                XML    610K 
 5: EX-101.LAB  XBRL Labels -- nesr-20200630_lab                     XML   1.36M 
 6: EX-101.PRE  XBRL Presentations -- nesr-20200630_pre              XML    934K 
 2: EX-101.SCH  XBRL Schema -- nesr-20200630                         XSD    216K 
83: JSON        XBRL Instance as JSON Data -- MetaLinks              407±   562K 
84: ZIP         XBRL Zipped Folder -- 0001493152-20-014787-xbrl      Zip    225K 


‘6-K’   —   Current, Quarterly or Annual Report by a Foreign Issuer
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Financial Information and Currency of Financial Statements
"Part I -- Financial Information
"Item 1. Financial Statements (Unaudited)
"Unaudited Condensed Consolidated Balance Sheets
"Unaudited Condensed Consolidated Interim Statements of Operations
"Unaudited Condensed Consolidated Interim Statements of Comprehensive Income
"Unaudited Condensed Consolidated Interim Statements Shareholders' Equity
"Unaudited Condensed Consolidated Interim Statements of Cash Flows
"Notes to Unaudited Condensed Consolidated Interim Financial Statements
"1. Description of Business
"2. Basis of Presentation
"3. Summary of Significant Accounting Policies
"4. Revenue
"5. Business Combinations
"6. Accounts Receivable
"7. Service Inventories
"8. Property, Plant, & Equipment
"9. Goodwill and Intangible Assets
"10. Debt
"11. Fair Value Accounting
"12. Employee Benefits
"13. Share-Based Compensation Expense
"14. Commitments and Contingencies
"15. Equity
"16. Earnings Per Share
"17. Income Taxes
"18. Related Party Transactions
"19. Reportable Segments
"Cautionary Note Regarding Forward-Looking Statements
"Item 2. Operating and Financial Review
"Item 3. Quantitative and Qualitative Disclosures About Market Risk
"Item 4. Internal Controls and Procedures
"Part Ii -- Other Information
"Item 1. Legal Proceedings
"Item 1A. Risk Factors

This is an HTML Document rendered as filed.  [ Alternative Formats ]



 iX:   C:   C:   C:   C:   C:   C:   C:   C:   C:   C:   C:   C: 
 i 0001698514  i false  i --12-31  i Q2  i 2020  i   i   i   i   i Unlimited  i Unlimited  i Unlimited  i Unlimited  i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i   i  0001698514 2020-01-01 2020-06-30 0001698514 2020-06-30 0001698514 2019-12-31 0001698514 2019-01-01 2019-12-31 0001698514 2020-04-01 2020-06-30 0001698514 2019-04-01 2019-06-30 0001698514 2019-01-01 2019-06-30 0001698514 us-gaap:CommonStockMember 2020-03-31 0001698514 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0001698514 us-gaap:RetainedEarningsMember 2020-03-31 0001698514 NESR:TotalCompanyStockholdersEquityMember 2020-03-31 0001698514 us-gaap:NoncontrollingInterestMember 2020-03-31 0001698514 2020-03-31 0001698514 us-gaap:CommonStockMember 2020-04-01 2020-06-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2020-04-01 2020-06-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-04-01 2020-06-30 0001698514 us-gaap:RetainedEarningsMember 2020-04-01 2020-06-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2020-04-01 2020-06-30 0001698514 us-gaap:NoncontrollingInterestMember 2020-04-01 2020-06-30 0001698514 us-gaap:CommonStockMember 2020-06-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2020-06-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-06-30 0001698514 us-gaap:RetainedEarningsMember 2020-06-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2020-06-30 0001698514 us-gaap:NoncontrollingInterestMember 2020-06-30 0001698514 us-gaap:CommonStockMember NESR:SuccessorsMember 2019-03-31 0001698514 us-gaap:AdditionalPaidInCapitalMember NESR:SuccessorsMember 2019-03-31 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember NESR:SuccessorsMember 2019-03-31 0001698514 us-gaap:RetainedEarningsMember NESR:SuccessorsMember 2019-03-31 0001698514 NESR:TotalCompanyStockholdersEquityMember NESR:SuccessorsMember 2019-03-31 0001698514 us-gaap:NoncontrollingInterestMember NESR:SuccessorsMember 2019-03-31 0001698514 NESR:SuccessorsMember 2019-03-31 0001698514 us-gaap:CommonStockMember NESR:SuccessorsMember 2019-04-01 2019-06-30 0001698514 us-gaap:AdditionalPaidInCapitalMember NESR:SuccessorsMember 2019-04-01 2019-06-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember NESR:SuccessorsMember 2019-04-01 2019-06-30 0001698514 us-gaap:RetainedEarningsMember NESR:SuccessorsMember 2019-04-01 2019-06-30 0001698514 NESR:TotalCompanyStockholdersEquityMember NESR:SuccessorsMember 2019-04-01 2019-06-30 0001698514 us-gaap:NoncontrollingInterestMember NESR:SuccessorsMember 2019-04-01 2019-06-30 0001698514 NESR:SuccessorsMember 2019-04-01 2019-06-30 0001698514 us-gaap:CommonStockMember NESR:SuccessorsMember 2019-06-30 0001698514 us-gaap:AdditionalPaidInCapitalMember NESR:SuccessorsMember 2019-06-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember NESR:SuccessorsMember 2019-06-30 0001698514 us-gaap:RetainedEarningsMember NESR:SuccessorsMember 2019-06-30 0001698514 NESR:TotalCompanyStockholdersEquityMember NESR:SuccessorsMember 2019-06-30 0001698514 us-gaap:NoncontrollingInterestMember NESR:SuccessorsMember 2019-06-30 0001698514 NESR:SuccessorsMember 2019-06-30 0001698514 us-gaap:CommonStockMember 2019-12-31 0001698514 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001698514 us-gaap:RetainedEarningsMember 2019-12-31 0001698514 NESR:TotalCompanyStockholdersEquityMember 2019-12-31 0001698514 us-gaap:NoncontrollingInterestMember 2019-12-31 0001698514 us-gaap:CommonStockMember 2020-01-01 2020-06-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-06-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-06-30 0001698514 us-gaap:RetainedEarningsMember 2020-01-01 2020-06-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2020-01-01 2020-06-30 0001698514 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-06-30 0001698514 us-gaap:CommonStockMember NESR:SuccessorsMember 2018-12-31 0001698514 us-gaap:AdditionalPaidInCapitalMember NESR:SuccessorsMember 2018-12-31 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember NESR:SuccessorsMember 2018-12-31 0001698514 us-gaap:RetainedEarningsMember NESR:SuccessorsMember 2018-12-31 0001698514 NESR:TotalCompanyStockholdersEquityMember NESR:SuccessorsMember 2018-12-31 0001698514 us-gaap:NoncontrollingInterestMember NESR:SuccessorsMember 2018-12-31 0001698514 NESR:SuccessorsMember 2018-12-31 0001698514 us-gaap:CommonStockMember NESR:SuccessorsMember 2019-01-01 2019-06-30 0001698514 us-gaap:AdditionalPaidInCapitalMember NESR:SuccessorsMember 2019-01-01 2019-06-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember NESR:SuccessorsMember 2019-01-01 2019-06-30 0001698514 us-gaap:RetainedEarningsMember NESR:SuccessorsMember 2019-01-01 2019-06-30 0001698514 NESR:TotalCompanyStockholdersEquityMember NESR:SuccessorsMember 2019-01-01 2019-06-30 0001698514 us-gaap:NoncontrollingInterestMember NESR:SuccessorsMember 2019-01-01 2019-06-30 0001698514 NESR:SuccessorsMember 2019-01-01 2019-06-30 0001698514 2018-12-31 0001698514 2019-06-30 0001698514 us-gaap:AccountsPayableMember 2020-01-01 2020-06-30 0001698514 us-gaap:AccruedLiabilitiesMember 2020-01-01 2020-06-30 0001698514 us-gaap:ShortTermDebtMember 2020-01-01 2020-06-30 0001698514 us-gaap:OtherCurrentLiabilitiesMember 2020-01-01 2020-06-30 0001698514 us-gaap:OtherLiabilitiesMember 2020-01-01 2020-06-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-06-30 0001698514 us-gaap:AccountsPayableMember 2019-01-01 2019-06-30 0001698514 us-gaap:ShortTermDebtMember 2019-01-01 2019-06-30 0001698514 NESR:ProductionServicesMember 2020-04-01 2020-06-30 0001698514 NESR:ProductionServicesMember 2019-04-01 2019-06-30 0001698514 NESR:ProductionServicesMember 2020-01-01 2020-06-30 0001698514 NESR:ProductionServicesMember 2019-01-01 2019-06-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-04-01 2020-06-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2019-04-01 2019-06-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-01-01 2020-06-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2019-01-01 2019-06-30 0001698514 NESR:SaleAndPurchaseAgreementMember NESR:SaharaPetroleumServicesCompanyMember 2020-02-13 0001698514 us-gaap:SubsequentEventMember NESR:SaleAndPurchaseAgreementMember NESR:SaharaPetroleumServicesCompanyMember 2020-08-29 2020-09-01 0001698514 us-gaap:SubsequentEventMember NESR:SaleAndPurchaseAgreementMember NESR:SaharaPetroleumServicesCompanyMember NESR:ThreeEqualInstallmentsMember 2020-08-29 2020-09-01 0001698514 us-gaap:SubsequentEventMember NESR:SaleAndPurchaseAgreementMember NESR:SaharaPetroleumServicesCompanyMember NESR:ThreeEqualInstallmentsMember 2020-09-01 0001698514 us-gaap:SubsequentEventMember NESR:SaleAndPurchaseAgreementMember NESR:CashEarnOutMember 2020-09-01 0001698514 srt:ScenarioForecastMember NESR:SaleAndPurchaseAgreementMember NESR:AdditionalEarnOutSharesMember 2020-12-31 0001698514 srt:ScenarioForecastMember NESR:SaleAndPurchaseAgreementMember srt:MinimumMember 2020-09-30 0001698514 srt:ScenarioForecastMember NESR:SaleAndPurchaseAgreementMember srt:MinimumMember NESR:NESRAdditionalShareMember 2020-09-30 0001698514 srt:ScenarioForecastMember NESR:SaleAndPurchaseAgreementMember srt:MaximumMember 2020-09-30 0001698514 srt:ScenarioForecastMember NESR:SaleAndPurchaseAgreementMember srt:MaximumMember NESR:NESRAdditionalShareMember 2020-09-30 0001698514 srt:ScenarioForecastMember NESR:SaleAndPurchaseAgreementMember 2020-09-30 0001698514 2020-06-01 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-01-01 2020-06-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-06-02 0001698514 NESR:SaharaPetroleumServicesCompanyMember us-gaap:CustomerContractsMember 2020-06-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember us-gaap:CustomerContractsMember 2020-01-01 2020-06-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember us-gaap:TrademarksAndTradeNamesMember 2020-06-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember us-gaap:TrademarksAndTradeNamesMember 2020-01-01 2020-06-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-06-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-04-01 2020-06-30 0001698514 us-gaap:TradeAccountsReceivableMember 2020-06-30 0001698514 us-gaap:TradeAccountsReceivableMember 2019-12-31 0001698514 2019-03-31 0001698514 NESR:SparePartsMember 2020-06-30 0001698514 NESR:SparePartsMember 2019-12-31 0001698514 NESR:ChemicalsMember 2020-06-30 0001698514 NESR:ChemicalsMember 2019-12-31 0001698514 NESR:RawMaterialsMember 2020-06-30 0001698514 NESR:RawMaterialsMember 2019-12-31 0001698514 NESR:ConsumablesMember 2020-06-30 0001698514 NESR:ConsumablesMember 2019-12-31 0001698514 NESR:BuildingsAndLeaseholdImprovementsMember srt:MinimumMember 2020-01-01 2020-06-30 0001698514 NESR:BuildingsAndLeaseholdImprovementsMember srt:MaximumMember 2020-01-01 2020-06-30 0001698514 NESR:BuildingsAndLeaseholdImprovementsMember 2020-06-30 0001698514 NESR:BuildingsAndLeaseholdImprovementsMember 2019-12-31 0001698514 NESR:OilfieldEquipmentMember srt:MinimumMember 2020-01-01 2020-06-30 0001698514 NESR:OilfieldEquipmentMember srt:MaximumMember 2020-01-01 2020-06-30 0001698514 NESR:OilfieldEquipmentMember 2020-06-30 0001698514 NESR:OilfieldEquipmentMember 2019-12-31 0001698514 us-gaap:FurnitureAndFixturesMember 2020-01-01 2020-06-30 0001698514 us-gaap:FurnitureAndFixturesMember 2020-06-30 0001698514 us-gaap:FurnitureAndFixturesMember 2019-12-31 0001698514 NESR:OfficeEquipmentAndToolsMember srt:MinimumMember 2020-01-01 2020-06-30 0001698514 NESR:OfficeEquipmentAndToolsMember srt:MaximumMember 2020-01-01 2020-06-30 0001698514 NESR:OfficeEquipmentAndToolsMember 2020-06-30 0001698514 NESR:OfficeEquipmentAndToolsMember 2019-12-31 0001698514 NESR:VehiclesAndCranesMember srt:MinimumMember 2020-01-01 2020-06-30 0001698514 NESR:VehiclesAndCranesMember srt:MaximumMember 2020-01-01 2020-06-30 0001698514 NESR:VehiclesAndCranesMember 2020-06-30 0001698514 NESR:VehiclesAndCranesMember 2019-12-31 0001698514 NESR:ProductionServicesMember 2019-12-31 0001698514 NESR:DrillingAndEvaluationServicesMember 2019-12-31 0001698514 NESR:ProductionServicesMember 2020-01-01 2020-06-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-01-01 2020-06-30 0001698514 NESR:ProductionServicesMember 2020-06-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-06-30 0001698514 us-gaap:CustomerContractsMember 2020-01-01 2020-06-30 0001698514 us-gaap:TrademarksAndTradeNamesMember 2020-01-01 2020-06-30 0001698514 us-gaap:CustomerContractsMember 2020-06-30 0001698514 us-gaap:CustomerContractsMember 2019-12-31 0001698514 us-gaap:TrademarksAndTradeNamesMember 2020-06-30 0001698514 us-gaap:TrademarksAndTradeNamesMember 2019-12-31 0001698514 NESR:SecuredTermLoanMember 2020-06-30 0001698514 NESR:SecuredTermLoanMember 2019-12-31 0001698514 NESR:SecuredRevolvingCreditFacilityMember 2020-06-30 0001698514 NESR:SecuredRevolvingCreditFacilityMember 2019-12-31 0001698514 NESR:CIBLongTermDebtMember 2020-06-30 0001698514 NESR:CIBLongTermDebtMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember 2019-05-05 0001698514 NESR:IncrementalFacilitiesAgreementMember 2019-05-23 0001698514 NESR:IncrementalFacilitiesAgreementMember 2019-06-20 0001698514 NESR:SecuredFacilitiesAgreementMember 2019-05-23 0001698514 NESR:SecuredFacilitiesAgreementMember 2019-06-20 0001698514 NESR:SecuredFacilitiesAgreementMember 2020-06-20 0001698514 NESR:TermLoanMember 2019-06-19 2019-06-20 0001698514 us-gaap:RevolvingCreditFacilityMember 2019-06-20 0001698514 us-gaap:RevolvingCreditFacilityMember 2019-06-19 2019-06-20 0001698514 us-gaap:LondonInterbankOfferedRateLIBORMember srt:MinimumMember 2019-06-19 2019-06-20 0001698514 us-gaap:LondonInterbankOfferedRateLIBORMember srt:MaximumMember 2019-06-19 2019-06-20 0001698514 us-gaap:RevolvingCreditFacilityMember 2020-06-30 0001698514 us-gaap:RevolvingCreditFacilityMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:LendersMember 2020-01-01 2020-06-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:LendersMember 2020-06-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:LendersMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember 2020-06-30 0001698514 NESR:SecuredFacilitiesAgreementMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:QA 2020-06-20 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:QA 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:AE 2020-06-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:AE 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:KW 2020-06-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:KW 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember 2020-06-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember 2020-01-01 2020-06-30 0001698514 NESR:SecuredFacilitiesAgreementMember 2019-01-01 2019-12-31 0001698514 NESR:CIBLongTermDebtMember 2020-01-01 2020-06-30 0001698514 NESR:CIBShortTermDebtMember 2020-06-30 0001698514 NESR:CommercialInternationalBankMember 2020-06-30 0001698514 NESR:CommercialInternationalBankMember 2019-12-31 0001698514 NESR:AlAhliBankMember 2020-06-30 0001698514 NESR:AlAhliBankMember 2019-12-31 0001698514 NESR:CIBShortTermDebtMember 2020-01-01 2020-06-30 0001698514 NESR:CIBShortTermDebtMember NESR:TimeLoanFaciityMember 2020-06-30 0001698514 NESR:CIBShortTermDebtMember NESR:TimeLoanFaciityMember NESR:EgyptianMember 2020-06-30 0001698514 NESR:CIBShortTermDebtOneMember NESR:TimeLoanFaciityMember NESR:EgyptianMember 2020-06-30 0001698514 NESR:CIBShortTermDebtMember NESR:TimeLoanFaciityMember NESR:LettersOfGuaranteeMember 2020-06-30 0001698514 NESR:CIBShortTermDebtMember NESR:EgyptianMember 2020-06-30 0001698514 NESR:CIBShortTermDebtOneMember NESR:EgyptianMember 2020-06-30 0001698514 NESR:CIBShortTermDebtOneMember NESR:LoanOverdraftFacilityMember NESR:EgyptianMember 2020-06-30 0001698514 NESR:CIBShortTermDebtMember NESR:LettersOfGuaranteeMember 2020-06-30 0001698514 NESR:ABKShortTermDebtMember 2020-06-30 0001698514 NESR:ABKShortTermDebtMember 2020-01-01 2020-06-30 0001698514 NESR:ABKShortTermDebtMember NESR:TimeLoanFacilityMember 2020-06-30 0001698514 NESR:ABKShortTermDebtMember NESR:LettersOfGuaranteeMember 2020-06-30 0001698514 NESR:CIBShortTermDebtAndABKShortTermDebtMember 2020-06-30 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2018-12-31 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember NESR:BoardOfDirectorsMember 2018-01-01 2018-12-31 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember NESR:EmployeesMember 2018-01-01 2018-12-31 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2020-03-31 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-03-31 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2020-04-01 2020-06-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-04-01 2019-06-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2020-06-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-06-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-12-31 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2018-12-31 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-06-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-06-30 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2020-06-30 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2019-12-31 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2020-01-01 2020-06-30 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2019-01-01 2019-12-31 0001698514 NESR:CostofServicesMember 2020-04-01 2020-06-30 0001698514 NESR:CostofServicesMember 2019-04-01 2019-06-30 0001698514 NESR:CostofServicesMember 2020-01-01 2020-06-30 0001698514 NESR:CostofServicesMember 2019-01-01 2019-06-30 0001698514 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-04-01 2020-06-30 0001698514 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-04-01 2019-06-30 0001698514 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-01-01 2020-06-30 0001698514 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-01-01 2019-06-30 0001698514 NESR:SecondCapitalLeaseMember 2020-01-01 2020-06-30 0001698514 NESR:SecondCapitalLeaseMember 2020-06-30 0001698514 NESR:SecondCapitalLeaseMember 2020-04-01 2020-06-30 0001698514 NESR:SecondCapitalLeaseMember 2019-04-01 2019-06-30 0001698514 NESR:SecondCapitalLeaseMember 2019-01-01 2019-06-30 0001698514 NESR:EgyptEquipmentMember 2020-01-01 2020-06-30 0001698514 NESR:EgyptEquipmentMember 2020-06-30 0001698514 NESR:EgyptEquipmentMember 2019-12-31 0001698514 NESR:EgyptEquipmentMember 2020-04-01 2020-06-30 0001698514 NESR:EgyptEquipmentMember 2019-04-01 2019-06-30 0001698514 NESR:EgyptEquipmentMember 2019-01-01 2019-06-30 0001698514 us-gaap:AccountsPayableMember 2020-06-30 0001698514 us-gaap:OtherCurrentLiabilitiesMember 2020-06-30 0001698514 us-gaap:OtherLiabilitiesMember 2020-06-30 0001698514 us-gaap:AccountsPayableMember 2019-12-31 0001698514 us-gaap:OtherCurrentLiabilitiesMember 2019-12-31 0001698514 us-gaap:OtherLiabilitiesMember 2019-12-31 0001698514 NESR:PublicWarrantsMember 2020-06-30 0001698514 NESR:PrivateWarrantsMember 2020-06-30 0001698514 NESR:StockPurchaseAgreementMember NESR:NPSHoldingsLimitedMember 2019-02-01 2019-02-28 0001698514 NESR:AllocationOfParticipatingEarningsMember 2020-04-01 2020-06-30 0001698514 NESR:AllocationOfParticipatingEarningsMember 2020-01-01 2020-06-30 0001698514 NESR:AllocationOfParticipatingEarningsMember 2019-01-01 2019-06-30 0001698514 NESR:AllocationOfParticipatingEarningsMember 2019-04-01 2019-06-30 0001698514 NESR:PrivateWarrantsMember 2020-06-30 0001698514 NESR:PrivateWarrantsMember 2019-06-30 0001698514 NESR:PublicWarrantsMember 2020-06-30 0001698514 NESR:PublicWarrantsMember 2019-06-30 0001698514 us-gaap:WarrantMember 2020-01-01 2020-06-30 0001698514 us-gaap:WarrantMember 2019-01-01 2019-06-30 0001698514 us-gaap:RestrictedStockMember 2020-01-01 2020-06-30 0001698514 srt:MinimumMember 2020-01-01 2020-06-30 0001698514 srt:MaximumMember 2020-01-01 2020-06-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2020-04-01 2020-06-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2019-04-01 2019-06-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2020-01-01 2020-06-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2019-01-01 2019-06-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2020-06-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2019-12-31 0001698514 NESR:HeavyEquipmentManufacturingAndTradingLLCMember NESR:GESMember 2020-04-01 2020-06-30 0001698514 NESR:HeavyEquipmentManufacturingAndTradingLLCMember NESR:GESMember 2019-04-01 2019-06-30 0001698514 NESR:HeavyEquipmentManufacturingAndTradingLLCMember NESR:GESMember 2020-01-01 2020-06-30 0001698514 NESR:HeavyEquipmentManufacturingAndTradingLLCMember NESR:GESMember 2019-01-01 2019-06-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2020-06-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2020-04-01 2020-06-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2019-04-01 2019-06-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2020-01-01 2020-06-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2019-01-01 2019-06-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember 2020-06-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember 2019-12-31 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentMember 2020-04-01 2020-06-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentMember 2019-04-01 2019-06-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentMember 2020-01-01 2020-06-30 0001698514 NESR:NineEnergyServiceIncMember NESR:ProductsAndRentalsMember 2019-01-01 2019-06-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentProductsAndServicesMember 2020-06-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentProductsAndServicesMember 2019-12-31 0001698514 NESR:BasinHoldingsUSLLCMember 2020-04-01 2020-06-30 0001698514 NESR:BasinHoldingsUSLLCMember 2019-04-01 2019-06-30 0001698514 NESR:BasinHoldingsUSLLCMember 2020-01-01 2020-06-30 0001698514 NESR:BasinHoldingsUSLLCMember 2019-01-01 2019-06-30 0001698514 NESR:BasinHoldingsUSLLCMember 2020-06-30 0001698514 NESR:BasinHoldingsUSLLCMember 2019-12-31 0001698514 NESR:ProductionServicesMember 2020-06-30 0001698514 NESR:ProductionServicesMember 2019-12-31 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-06-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2019-12-31 0001698514 NESR:TotalReportableSegmentsMember 2020-06-30 0001698514 NESR:TotalReportableSegmentsMember 2019-12-31 0001698514 NESR:UnallocatedAssetsMember 2020-06-30 0001698514 NESR:UnallocatedAssetsMember 2019-12-31 0001698514 NESR:TotalReportableSegmentsMember 2020-04-01 2020-06-30 0001698514 NESR:TotalReportableSegmentsMember 2019-04-01 2019-06-30 0001698514 NESR:TotalReportableSegmentsMember 2020-01-01 2020-06-30 0001698514 NESR:TotalReportableSegmentsMember 2019-01-01 2019-06-30 0001698514 NESR:UnallocatedExpensesMember 2020-04-01 2020-06-30 0001698514 NESR:UnallocatedExpensesMember 2019-04-01 2019-06-30 0001698514 NESR:UnallocatedExpensesMember 2020-01-01 2020-06-30 0001698514 NESR:UnallocatedExpensesMember 2019-01-01 2019-06-30 0001698514 NESR:MENAMember 2020-04-01 2020-06-30 0001698514 NESR:MENAMember 2019-04-01 2019-06-30 0001698514 NESR:MENAMember 2020-01-01 2020-06-30 0001698514 NESR:MENAMember 2019-01-01 2019-06-30 0001698514 NESR:RestOfWorldMember 2020-04-01 2020-06-30 0001698514 NESR:RestOfWorldMember 2019-04-01 2019-06-30 0001698514 NESR:RestOfWorldMember 2020-01-01 2020-06-30 0001698514 NESR:RestOfWorldMember 2019-01-01 2019-06-30 0001698514 NESR:MENAMember 2020-06-30 0001698514 NESR:MENAMember 2019-12-31 0001698514 NESR:RestOfWorldMember 2020-06-30 0001698514 NESR:RestOfWorldMember 2019-12-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure NESR:Segment

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form  i 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended  i June 30, 2020

 

Commission File Number:  i 001-38091

 

 i NATIONAL ENERGY SERVICES REUNITED CORP.

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of registrant’s name into English)

 

 i 777 Post Oak Blvd.,  i Suite 730

 i Houston,  i Texas  i 77056

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F [X] Form 40-F [  ]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Yes [  ] No [X]

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Yes [  ] No [X]

 

 

 

 C: 
 
 

 

INCORPORATION BY REFERENCE

 

The information contained in this report on Form 6-K shall be deemed incorporated by reference into the registration statements on Form F-3 (Registration Numbers 333-233422, 333-229801, and 333-226194) and Form S-8 (Registration Number 333-226813) of National Energy Services Reunited Corp. (including any prospectuses forming a part of such registration statements) and to be a part thereof from the date on which this report on Form 6-K is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 C: 
 
 

 

TABLE OF CONTENTS

 

FINANCIAL INFORMATION AND CURRENCY OF FINANCIAL STATEMENTS 3
PART I – FINANCIAL INFORMATION 4
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 4
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 4
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS 5
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME 6
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS SHAREHOLDERS’ EQUITY 7
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS 8
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 9
1. DESCRIPTION OF BUSINESS 9
2. BASIS OF PRESENTATION 9
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 10
4. REVENUE 12
5. BUSINESS COMBINATIONS 12
6. ACCOUNTS RECEIVABLE 15
7. SERVICE INVENTORIES 16
8. PROPERTY, PLANT, & EQUIPMENT 16
9. GOODWILL AND INTANGIBLE ASSETS 17
10. DEBT 18
11. FAIR VALUE ACCOUNTING 20
12. EMPLOYEE BENEFITS 20
13. SHARE-BASED COMPENSATION EXPENSE 21
14. COMMITMENTS AND CONTINGENCIES 22
15. EQUITY 23
16. EARNINGS PER SHARE 24
17. INCOME TAXES 26
18. RELATED PARTY TRANSACTIONS 26
19. REPORTABLE SEGMENTS 27
Cautionary Note Regarding Forward-Looking Statements 29
ITEM 2. OPERATING AND FINANCIAL REVIEW 30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 41
ITEM 4. INTERNAL CONTROLS AND PROCEDURES 42
PART II - OTHER INFORMATION 43
Item 1. Legal Proceedings. 43
Item 1A. Risk Factors. 43

 

 C: 
 C: 2
 

 

FINANCIAL INFORMATION AND CURRENCY OF FINANCIAL STATEMENTS

 

The unaudited condensed consolidated interim financial statements included in Part 1, Item 1, “Financial Statements (Unaudited)” of this Periodic Report have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Unless otherwise indicated, all references in this Periodic Report to “dollars,” “$,” or “US$” are to U.S. dollars, which is the reporting currency of the condensed consolidated interim financial statements.

 

 C: 
3
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In US$ thousands, except share data)

 

   June 30, 2020   December 31, 2019 
         
Assets          
Current assets          
Cash and cash equivalents  $ i 79,317   $ i 73,201 
Accounts receivable, net    i 113,454     i 98,799 
Unbilled revenue    i 126,840     i 76,347 
Service inventories, net    i 91,764     i 78,841 
Prepaid assets    i 9,412     i 9,590 
Retention withholdings    i 49,671     i 40,970 
Other receivables    i 14,923     i 14,019 
Other current assets    i 5,158     i 11,442 
Total current assets    i 490,539     i 403,209 
Non-current assets          
Property, plant and equipment, net    i 458,161     i 419,307 
Intangible assets, net    i 119,206     i 122,714 
Goodwill    i 595,706     i 574,764 
Other assets    i 1,278     i 2,370 
Total assets  $ i 1,664,890   $ i 1,522,364 
           
Liabilities and equity          
Liabilities          
Accounts payable  $ i 123,213   $ i 65,704 
Accrued expenses    i 49,393     i 69,137 
Current installments of long-term debt    i 46,372     i 15,000 
Short-term borrowings    i 39,781     i 37,963 
Income taxes payable    i 9,138     i 7,542 
Other taxes payable    i 9,067     i 7,189 
Other current liabilities    i 53,272     i 25,601 
Total current liabilities    i 330,236     i 228,136 
           
Long-term debt    i 335,457     i 330,564 
Deferred tax liabilities    i 24,090     i 26,217 
Employee benefit liabilities    i 18,900     i 16,745 
Other liabilities    i 43,976     i 34,230 
Total liabilities    i 752,659     i 635,892 
           
Commitments and contingencies (Note 14)   -     -  
           
Equity          
Preferred shares,  i  i no /  par value; unlimited shares authorized;  i  i  i  i no /  /  / ne issued and outstanding at June 30, 2020 and December 31, 2019, respectively   -    - 
Common stock,  i  i no /  par value; unlimited shares authorized;  i  i 87,495,221 /  and  i  i 87,187,289 /  shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively    i 801,545     i 801,545 
Additional paid in capital    i 20,999     i 17,237 
Retained earnings    i 89,564     i 67,661 
Accumulated other comprehensive income    i 64     i 29 
Total shareholders’ equity    i 912,172     i 886,472 
Non-controlling interests    i 59    - 
Total equity    i 912,231     i 886,472 
Total liabilities and equity  $ i 1,664,890   $ i 1,522,364 

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

 C: 
4
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS

(In US$ thousands, except share data and per share amounts)

 

                     
   Quarter ended   Year-to-date period ended 
Description  June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Revenues  $ i 203,249   $ i 159,899   $ i 402,548   $ i 311,603 
Cost of services   ( i 164,343)   ( i 116,893)   ( i 322,613)   ( i 231,390)
Gross profit    i 38,906     i 43,006     i 79,935     i 80,213 
Selling, general and administrative expenses   ( i 17,114)   ( i 17,062)   ( i 35,741)   ( i 30,107)
Amortization   ( i 3,934)   ( i 3,949)   ( i 7,821)   ( i 8,003)
Operating income    i 17,858     i 21,995     i 36,373     i 42,103 
Interest expense, net   ( i 4,165)   ( i 5,750)   ( i 8,675)   ( i 9,680)
Other income / (expense), net   ( i 309)   ( i 438)   ( i 420)   ( i 499)
Income before income tax    i 13,384     i 15,807     i 27,278     i 31,924 
Income tax expense   ( i 2,848)   ( i 4,451)   ( i 5,375)   ( i 7,394)
Net income / (loss)    i 10,536     i 11,356     i 21,903     i 24,530 
Net income / (loss) attributable to non-controlling interests   -    -    -    - 
Net income attributable to shareholders  $ i 10,536   $ i 11,356   $ i 21,903   $ i 24,530 
                     
Weighted average shares outstanding:                    
Basic    i 88,232,694     i 86,896,779     i 87,731,986     i 86,895,285 
Diluted    i 88,232,694     i 86,896,779     i 87,731,986     i 86,895,285 
                     
Net earnings per share (Note 16):                    
Basic  $ i 0.12   $ i 0.13   $ i 0.25   $ i 0.28 
Diluted  $ i 0.12   $ i 0.13   $ i 0.25   $ i 0.28 

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

 C: 
5
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

(In US$ thousands)

 

                     
   Quarter ended   Year-to-date period ended 
Description  June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Net income  $ i 10,536   $ i 11,356   $ i 21,903   $ i 24,530 
Other comprehensive income, net of tax                    
Foreign currency translation adjustments    i 6    ( i 19)    i 35    ( i 19)
Total Comprehensive Income, net of tax    i 10,542     i 11,337     i 21,938     i 24,511 
Comprehensive income attributable to non-controlling interest   -    -    -    - 

Comprehensive income attributable to shareholders

  $ i 10,542   $ i 11,337   $ i 21,938   $ i 24,511 

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

 C: 
6
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS’ EQUITY

(In US$ thousands, except share data)

 

   1   2   3   4   5   6   7   8 
               Accumulated      Total         
      

Additional

Paid In

  

Other

Comprehensive

   Retained

  

Company

Stockholders’

   Noncontrolling  

Total

Stockholders’

 
Description  Ordinary Shares   Capital   Income   Earnings   Equity   Interests   Equity 
   Shares   Amount                         
Balance at March 31, 2020    i 87,495,221   $ i 801,545   $ i 18,872   $ i 58   $ i 79,028   $ i 899,503   $-   $ i 899,503 

Share-based compensation expense

   -    -     i 2,125    -    -     i 2,125    -     i 2,125 
Vesting of restricted share units   -    -    -    -    -    -    -    - 
Other   -    -     i 2     i 6    -     i 8     i 59     i 67 
Acquisition of non-controlling interest during the period   -                                    
NPS equity earn-out   -                                    
Net income   -    -    -    -     i 10,536     i 10,536    -     i 10,536 
Balance at June 30, 2020   i 87,495,221   $ i 801,545   $ i 20,999   $ i 64   $ i 89,564   $ i 912,172   $ i 59   $ i 912,231 

 

Successor (NESR)  Shares   Amount  

Additional

Paid in

Capital

   Accumulated Other Comprehensive Income (Loss)  

Retained

Earnings

  

Total

Shareholders’
Equity

   Noncontrolling Interests   Total Equity 
                                 
Balance at March 31, 2019    i 86,896,779   $ i 801,545   $ i 12,322   $ i 48   $ i 41,472   $ i 855,387   $              -   $ i 855,387 

Share-based compensation expense

   -    -     i 1,373    -    -     i 1,373    -     i 1,373 
Other   -    -     i 3    ( i 19)   ( i 1)   ( i 17)   -    ( i 17)
Net income   -    -    -    -     i 11,356     i 11,356    -     i 11,356 
Balance at June 30, 2019    i 86,896,779   $ i 801,545   $ i 13,698   $ i 29   $ i 52,827   $ i 868,099   $-   $ i 868,099 

 

   1    2    3    4    5    6    7    8 
               Accumulated      Total         
      

Additional

Paid In

  

Other

Comprehensive

   Retained

  

Company

Stockholders’

   Noncontrolling  

Total

Stockholders’

 
Description  Ordinary Shares   Capital   Income   Earnings   Equity   Interests   Equity 
   Shares   Amount                         
Balance at December 31, 2019    i 87,187,289   $ i 801,545   $ i 17,237   $ i 29   $ i 67,661   $ i 886,472   $-   $ i 886,472 

Share-based compensation expense

   -    -     i 3,760    -    -    

 i 3,760

    -    

 i 3,760

 
Vesting of restricted share units    i 307,932    -    -    -    -    -    -    - 
Other   -    -    

 i 2

    

 i 35

    -    

 i 37

    

 i 59

    

 i 96

 
Net income   -    -    -    -    

 i 21,903

    

 i 21,903

    -    

 i 21,903

 
Balance at June 30, 2020    i 87,495,221   $ i 801,545   $ i 20,999   $ i 64   $ i 89,564   $ i 912,172   $

 i 59

   $ i 912,231 

 

Successor (NESR)    Shares      Amount    

 Additional

Paid in

Capital

    Accumulated Other Comprehensive Income (Loss)    

Retained

Earnings

   

Total
Shareholders’
Equity

     Noncontrolling Interests     Total Equity  
                                                 
Balance at December 31, 2018      i 85,562,769     $  i 801,545     $  i 1,034     $  i 48     $  i 28,297     $  i 830,924     $  i 67     $  i 830,991  

Share-based compensation expense

    -       -        i 2,113       -       -        i 2,113       -        i 2,113  
Other      i 33,796       -        i 4       ( i 19 )     -       ( i 15 )     -       ( i 15 )
Acquisition of non-controlling interest during the period     -       -        i 67       -       -        i 67       ( i 67 )     -  
NPS equity earn-out      i 1,300,214       -        i 10,480       -       -        i 10,480       -        i 10,480  
Net income     -       -       -       -        i 24,530        i 24,530       -        i 24,530  
Balance at June 30, 2019      i 86,896,779     $  i 801,545     $  i 13,698     $  i 29     $  i 52,827     $  i 868,099     $ -     $  i 868,099  

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

 C: 
7
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(In US$ thousands)

 

   Year-to-date period ended
June 30, 2020
   Year-to-date period ended
June 30, 2019
 
         
Cash flows from operating activities:          
Net income  $ i 21,903   $ i 24,530 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization    i 59,585     i 38,476 

Share-based compensation expense

    i 3,760     i 2,113 
Loss (Gain) on disposal of assets    i 240    ( i 356)
Non-cash interest expense   ( i 125)    i 2,484 
Deferred tax expense (benefit)   

( i 2,126

)   ( i 1,077)
Allowance for (reversal of) doubtful receivables   ( i 26)    i 476 
Provision for obsolete service inventories    i 614     i 1,057 
Other operating activities, net    i 219    ( i 1,848)
Changes in operating assets and liabilities:          
Decrease (increase) in accounts receivable    i 1,887    ( i 41,440)
(Increase) in inventories   ( i 7,883)   ( i 7,964)
Decrease (increase) in prepaid assets    i 857    ( i 2,289)
(Increase) in other current assets   ( i 46,533)   ( i 8,651)
(Increase) decrease in other long-term assets and liabilities   

( i 2,140

)    i 702 
Increase in accounts payable and accrued expenses    i 23,185     i 20,009 
(Decrease) in other current liabilities   ( i 818)    ( i 2,050)
Net cash provided by operating activities    i 52,599     i 24,172 
           
Cash flows from investing activities:          
Capital expenditures   ( i 50,661)   ( i 56,513)
Proceeds from disposal of assets    i 1,277     i 1,273 
Acquisition of business, net of cash acquired (Note 5)    i 3,740    - 
Other investing activities   ( i 570)   ( i 285)
Net cash used in investing activities   ( i 46,214)   ( i 55,525)
           
Cash flows from financing activities:          
Proceeds from long-term debt    i 15,000     i 365,000 
Repayments of long-term debt   -    ( i 278,039)
Proceeds from short-term borrowings    i 3,999    

-

 
Repayments of short-term borrowings   ( i 7,131)   ( i 7,013)
Payments on capital leases   ( i 11,180)   - 
Payments on seller-provided financing for capital expenditures   ( i 992)   - 
Other financing activities, net   -    ( i 3,825)

Net cash (used in) provided by financing activities

   ( i 304)    i 76,123 
           
Effect of exchange rate changes on cash    i 35    ( i 19)
Net increase in cash    i 6,116     i 44,751 
Cash and cash equivalents, beginning of period    i 73,201     i 24,892 
Cash and cash equivalents, end of period  $ i 79,317   $ i 69,643 
           
Supplemental disclosure of cash flow information (also refer Note 3):          
Interest paid    i 7,467     i 8,317 
Income taxes paid    i 6,196     i 13,890 

 

The accompanying notes are an integral part of the unaudited condensed consolidated interim financial statements.

 

 C: 
8
 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

 i 

1. DESCRIPTION OF BUSINESS

 

National Energy Services Reunited Corp. (“NESR,” the “Company,” “we,” “our,” “us” or similar terms), a British Virgin Islands corporation headquartered in Houston, Texas, is one of the largest oilfield services providers in the Middle East North Africa (“MENA”) region.

 

Formed in January 2017, NESR started as a special purpose acquisition company (“SPAC”) designed to invest in the oilfield services space globally. NESR filed a registration statement for its initial public offering in May 2017. In November 2017, NESR announced the acquisition of two oilfield services companies in the MENA region: NPS Holdings Limited (“NPS”) and Gulf Energy S.A.O.C. (“GES” and, together with NPS, the Subsidiaries). The formation of NESR as an operating entity was completed on June 7, 2018, after the transactions were approved by the U.S. Securities and Exchange Commission (“SEC”) and NESR shareholders. On June 1, 2020, NESR further expanded its footprint within the MENA region by acquiring Sahara Petroleum Services Company S.A.E. (“SAPESCO”).

 

NESR’s revenues are primarily derived by providing production services (“Production Services”) such as hydraulic fracturing, cementing, coiled tubing, filtration, completions, stimulation, pumping and nitrogen services. NESR also provides drilling and evaluation services (“Drilling and Evaluation Services”) such as drilling downhole tools, directional drilling, fishing tools, testing services, wireline, slickline, fluids and rig services. NESR has significant operations throughout the MENA region including Saudi Arabia, Oman, Qatar, Iraq, Algeria, United Arab Emirates and Kuwait.

 

 i 

2. BASIS OF PRESENTATION

 

The accompanying condensed consolidated interim financial statements of the Company have been prepared in accordance with U.S. GAAP for interim financial reporting purposes. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.

 

Emerging growth company

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the U.S. Securities Act of 1933 as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make a comparison of the Company’s condensed consolidated interim financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

 C: 
9
 

 

Use of estimates

 

The preparation of condensed consolidated interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include estimates made towards the purchase price allocation for the acquisition of SAPESCO, the allowance for doubtful accounts, evaluation for impairment of property, plant and equipment, evaluation for impairment of goodwill and intangible assets, estimated useful life of property, plant, and equipment and intangible assets, provision for inventories obsolescence, recoverability of unbilled revenue, provision for unrecognized tax benefits, recoverability of deferred taxes and contingencies and actuarial assumptions in employee benefit plans.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed consolidated interim financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from the estimates.

 

 i 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 i 

Supplemental cash flow information

 

Non-cash transactions for the year-to-date period ended June 30, 2020 were as follows:

 

  Purchases of property, plant, and equipment in Accounts payable, Accrued expenses and Short-term borrowings at June 30, 2020 of $ i 15.2 million, $ i 0.9 million, and $ i 28.6 million, respectively, are not included under “Capital expenditures” within the Condensed Consolidated Statement of Cash Flows.
     
  Capital lease obligations of $ i 27.0 million classified as a short-term obligation within Other current liabilities and $ i  i 9.0 /  million classified as a long-term obligation within Other liabilities, are not included under “Payments on capital leases” within the Condensed Consolidated Statement of Cash Flows.
     
 

Purchases of property, plant, and equipment using seller-provided installment financing of $ i 3.5 million included in Other current liabilities and $ i 1.5 million in Other liabilities are not included under “Payments on seller-provided financing for capital expenditures” within the Condensed Consolidated Statement of Cash Flows. Additionally, purchases of property, plant, and equipment using seller-provided installment financing of $ i 1.5 million included in Accounts Payable are not included under “Payments on seller-provided financing for capital expenditures” within the Condensed Consolidated Statement of Cash Flows.

     
  Obligations of $ i 40.6 million classified, related to the future payments of cash and shares for the purchase of SAPESCO (Note 5), are not included under “Acquisition of business, net of cash acquired” within the Condensed Consolidated Statement of Cash Flows.

 

Non-cash transactions for the year-to-date period ended June 30, 2019 were as follows:

 

  Purchases of property, plant, and equipment in accounts payable and short-term debt at June 30, 2019 of $ i 28.8 million and $ i 5.1 million, respectively, are not included under “Capital expenditures” within the Condensed Consolidated Statement of Cash Flows.
 / 

 

 C: 
10
 

 

 i 

Recently issued accounting standards not yet adopted

 

The SEC permits qualifying Emerging Growth Companies (“EGC”) to defer the adoption of accounting standards updates until the time when a private company would adopt such standards. The Company continues to qualify as an EGC as of June 30, 2020.

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases,” a new standard on accounting for leases. This update increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In June 2020, the FASB Issued ASU No. 2020-05, “Accounting Standards Update 2020-05—Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities.” ASU No. 2020-05 deferred the Company’s adoption of ASU 2016-02, as amended, to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company is currently evaluating the provisions of ASU 2016-02 and related interpretive amendments (ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842,” ASU 2018-10, “Codification Improvements to Topic 842, Leases,” ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” ASU 2018-20, “Leases (Topic 842): Narrow-Scope Improvements for Lessors,” and ASU 2019-01, “Leases (Topic 842): Codification Improvements,” inclusive) and assessing the impact, if any, on its condensed consolidated interim financial statements and related disclosures.

 

All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations. 

  

 C: 
11
 

 

 / 
 i 

4. REVENUE

 

Disaggregation of revenue

 

There is significant homogeneity amongst the Company’s revenue-generating activities. In all service lines, the Company provides a “suite of services” to fulfill a customer purchase/service order, encompassing personnel, use of Company equipment, and supplies required to perform the services. Over 98% percent of the Company’s revenue is from the MENA region with the majority sourced from governmental customers, predominantly in Oman and Saudi Arabia. Information regularly reviewed by the chief operating decision maker (“CODM”) for evaluating the financial performance of operating segments is focused on the timing of when the services are performed during a well’s lifecycle. Production Services are services performed during the production stage of a well’s lifecycle. Drilling and Evaluation Services are services performed during the pre-production stages of a well’s lifecycle.

 

 i 

Based on these considerations, the following table provides disaggregated revenue data by the phase in a well’s lifecycle during which revenue has been recorded (in US$ thousands):

 

 SCHEDULE OF DISAGGREGATION OF REVENUE BY GEOGRAPHY

   Quarter ended   Year-to-date period ended 
Revenue by Phase in Well’s Lifecycle:  June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
Production Services  $ i 139,034   $ i 95,358   $ i 272,224   $ i 187,471 
Drilling and Evaluation Services    i 64,215     i 64,541     i 130,324     i 124,132 
Total revenue by phase in well’s life cycle  $ i 203,249   $ i 159,899   $ i 402,548   $ i 311,603 
 / 

 

 / 
 i 

5. BUSINESS COMBINATION

 

In June of 2020, NESR executed the Deed of Amendment (“Deed of Amendment”) to the Agreement dated February 13, 2020 related to the sale and purchase of  i 99.7% of SAPESCO (collectively with the Deed of Amendment, the “Sale & Purchase Agreement”). The executed Deed of Amendment gives NESR control over SAPESCO effective from June 1, 2020. Accordingly, the accounting of the acquisition has been carried out effective June 1, 2020. Formal closing and legal transfer of consideration will be completed in the third quarter of 2020 upon final regulatory approvals and completion of normal closing requirements, which were temporarily delayed as a result of the global COVID-19 pandemic.

 

Description of the SAPESCO Transaction

 

Under the terms of the Sale & Purchase Agreement, NESR acquired  i 99.7% of the issued and outstanding shares of SAPESCO in a cash and stock transaction which comprised of $ i 11.0 million to be paid at closing, an additional $ i 6.0 million to be paid in three equal installments by September 1, 2020, for a total cash consideration of $ i 17.0 million, and the issuance of  i 2,237,000 NESR shares based on a $ i 10.00 per share conversion rate.

 

The Sale & Purchase Agreement contains earn-out mechanisms that enable the sellers to receive additional consideration after the closing of the Business Combination as follows:

 

Cash Earn-Out (“Cash Earn-Out”) of up to $ i 6.9 million in cash based on collection of certain receivables;
   
Additional Earn-Out Shares (“Additional Earn-Out Shares”) based on the collection of certain receivables and only to the extent that NESR’s average share price during the fourth quarter of 2020 is less than $ i 9 per share; and
   
Customer Receivables Earn-Out Shares (“Customer Receivables Earn-Out Shares”) based on the collection of certain long-dated and/or doubtful receivables for two years subsequent to the Closing Date, to be settled at the NESR Additional Share Price (“NESR Additional Share Price”) which is derived from taking the average of the price of the Company’s shares (“NESR Shares”) during each calendar quarter within the 12 months after the Closing Date and applying the average price in each quarter to the long-dated and doubtful receivables collected during the relevant quarter, provided that if such price is: (a) less than $ i 10, the NESR Additional Share Price shall be $ i 10 or (b) greater than $ i 11.70, the NESR Additional Share Price shall be $ i 11.70.

 

Collectively, the Cash Earn-Out and Additional Earn-Out Shares were fair valued at $ i 11.7 million. The long-dated and doubtful receivables and corresponding Customer Receivables Earn-Out Shares contingency were fair valued at $ i 0.

 

 C: 
12
 

 

Financing of Business Combination

 

Consideration for the Business Combination was funded through the following sources and transactions:

 

cash and cash equivalents of $11 million, reflected in Other current liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2020;
   

deferred consideration of $ i 6 million ($ i 5.958 million at present value on June 1, 2020), reflected in Other current liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2020;

   
the issuance of  i 2,237,000 NESR ordinary shares to the SAPESCO selling stockholders in exchange for their SAPESCO shares also reflected in Other liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2020.

 

 i 

The following summarizes the preliminary consideration to purchase 99.7% of the issued and outstanding equity interests of SAPESCO:

 

SCHEDULE OF CONSIDERATION TO PURCHASE ISSUED AND OUTSTANDING EQUITY INTEREST 

 SAPESCO [Member]

   SAPESCO 
   Value (In US$ thousands)   Shares 
         
Cash consideration  $ i 16,958     
Total consideration – cash    i 16,958     
          
NESR ordinary share consideration    i 12,013     i 2,237,000 
Total consideration – equity (1)    i 12,013     i 2,237,000 
           
Estimated earn-out mechanisms    i 11,678    -(2)
           
Preliminary consideration  $ i 40,649     i 2,237,000 

 

(1) The fair value of NESR ordinary shares was determined based upon the $ i 5.37 per share closing price of NESR ordinary shares on June 1, 2020, the acquisition date of the Business Combination. Control was transferred by agreement with the selling shareholders of SAPESCO.
(2) The quantity of Additional Earn-Out Shares will not be known until the fourth quarter of 2020 when this contingency is resolved. A liability totalling $ i 6.4 million has been recorded in Other liabilities pending the outcome of this contingency. As the Company is contractually obligated to settle this contingency in shares, we believe that presentation as a non-current liability best matches the contingency with the long-term nature of equity financing.
 / 

 

Accounting treatment

 

The Business Combination is accounted for under ASC 805, Business Combinations (“ASC 805”). Pursuant to ASC 805, NESR has been determined to be the accounting acquirer. SAPESCO constitutes a business, with inputs, processes, and outputs. Accordingly, the acquisition of SAPESCO constitutes the acquisition of a business for purposes of ASC 805, and due to the change in control of SAPESCO was accounted for using the acquisition method. NESR recorded the fair value of assets acquired and liabilities assumed from SAPESCO.

 

The allocation of the consideration to the tangible and intangible assets acquired and liabilities assumed, is based on various estimates. As of June 30, 2020, management was (1) finalizing fair value of purchase consideration, (2) completing physical verifications and obsolescence assessments for Service inventories, and Property, plant and equipment, (3) evaluating the fair value of Service inventories, Property, plant and equipment, and Intangible assets, (4) completing valuation procedures for certain current assets and liabilities, (5) accounting for income taxes, and (6) concluding valuation procedures for Employee benefit liabilities and equipment capital leases recorded in Other liabilities. As such, to the extent of these estimates, the purchase price allocation is preliminary. Management expects that these values will be finalized by the fourth quarter of 2020. Any adjustments will be recognized in the reporting period in which the adjustment amounts are determined.

 

 C: 
13
 

 

 i 

The following table summarizes the preliminary allocation of the purchase price allocation (in US% thousands):

 

SCHEDULE OF PURCHASE PRICE ALLOCATION  

Allocation of consideration

 

  

      
Cash and cash equivalents  $ i 3,740 
Accounts receivable, net    i 16,516 
Unbilled revenue    i 5,976 
Service inventories    i 5,654 
Prepaid assets    i 679 
Retention withholdings    i 279 
Other current assets    i 551 
Property, plant and equipment    i 34,161 
Intangible assets    i 4,220 
Other assets    i 200 
Total identifiable assets acquired    i 71,976 
      
Accounts payable    i 11,974 
Accrued expenses    i 6,455 
Current installments of long-term debt    i 5,400 
Short-term borrowings    i 5,692 
Income taxes payable    i 313 
Other taxes payable    i 2,514 
Other current liabilities   

 i 1,679

 
Long-term debt    i 15,582 
Employee benefit liabilities    i 868 
Other liabilities    i 1,733 
Noncontrolling interests    i 59 
Net identifiable liabilities acquired    i 52,269 
Total fair value of net assets acquired    i 19,707 
Goodwill    i 20,942 
Preliminary consideration  $ i 40,649 
 / 

 

Intangible assets

 

Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805.

 

 i 

The preliminary allocation to intangible assets is as follows (in US$ thousands):

 

 SCHEDULE OF PRELIMINARY ALLOCATION TO INTANGIBLE ASSETS

   Fair Value    
   Total   Useful Life
   (In US$ thousands)    
Customer contracts  $

 i 3,770

    i 8 years
Trademarks and trade names    i 450    i 2 years
Total intangible assets  $ i 4,220    
 / 

 

Goodwill

 

As of June 30, 2020, $ i 20.9 million has been allocated to goodwill. Goodwill represents the excess of the gross consideration transferred over the fair value of the underlying net tangible and identifiable definite-lived intangible assets acquired. The goodwill is not amortizable for tax purposes. Qualitative factors that contribute to the recognition of goodwill include certain intangible assets that are not recognized as separate identifiable intangible assets apart from goodwill. Intangible assets not recognized apart from goodwill consist primarily of the strong market positions and the assembled workforces.

 

In accordance with FASB ASC Topic 350, Goodwill and Other Intangible Assets, goodwill will not be amortized, but instead will be tested for impairment at least annually or more frequently if certain indicators are present. In the event management determines that the value of goodwill has become impaired, an accounting charge for the amount of impairment during the period in which the determination is made may be recognized.

 

 C: 
14
 

 

Transaction costs

 

The Company incurred $ i 0.9 million in advisory, legal, accounting, and management fees through June 30, 2020, which includes the amounts the Company had spent prior to the acquisition date of the Business Combination. These costs are recorded in selling, general and administrative expenses in the Condensed Consolidated Interim Statements of Operations in connection with the Business Combination. Transaction costs are reported as a cash outflow from operating activities by the Company.

 

Unaudited pro-forma information

 

 i 

The following table summarizes the supplemental consolidated results of the Company on an unaudited pro forma basis, as if the Business Combination had been consummated on January 1, 2019 for the quarter and year-to-date periods ended June 30, 2020 and June 30, 2019, respectively (in US$ thousands):

 

SCHEDULE OF PROFORMA INFORMATION OF OPERATIONS 

   Quarter ended   Year-to-date period ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Revenues  $ i 209,563   $ i 179,557   $ i 421,287   $ i 347,941 
Net income/(loss)    i 7,034     i 17,695     i 19,184     i 35,086 
 / 

 

These pro forma results were based on estimates and assumptions, which the Company believes are reasonable. They are not the results that would have been realized had the Company been a combined company during the periods presented and are not necessarily indicative of consolidated results of operations in future periods. SAPESCO’s results for the periods presented include significant charges for restructuring and related activities that may not have been incurred had the Company been a combined company during the periods presented. The pro-forma results include adjustments primarily related to purchase accounting adjustments. Acquisition costs and other non-recurring charges incurred in connection with the Business Combination are included in the earliest period presented.

 

SAPESCO revenue of $ i  i 3.9 /  million and net income of $ i  i 0.1 /  million are included in the consolidated statement of operations during the quarter and year-to-date periods ended June 30, 2020.

 

 / 
 i 

6. ACCOUNTS RECEIVABLE

 

 i 

The following table summarizes the accounts receivable of the Company as of the period end dates set forth below (in US$ thousands):

  

SCHEDULE OF ACCOUNTS RECEIVABLE 

   June 30, 2020   December 31, 2019 
Trade receivables  $

 i 115,819

   $ i 100,642
Less: allowance for doubtful accounts   ( i 2,365)    ( i 1,843)
Total  $ i 113,454   $ i 98,799
 / 

 

 

 C: 
15
 

 

Trade receivables relate to the sale of services, for which credit is extended based on our evaluation of the customer’s creditworthiness. The gross contractual amounts of trade receivables at June 30, 2020 and December 31, 2019 were $ i 115.8 million and $ i 100.6 million, respectively. Movement in the allowance for doubtful accounts is as follows (in US$ thousands):

 i 

 

SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS 

                 
   Quarter ended   Year-to-date period ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Allowance for doubtful accounts at beginning of period  $( i 2,442)  $( i 760)  $( i 1,843)  $( i 693)
(Increase) decrease to allowance for the year   ( i 25)   ( i 339)    i 26    ( i 476)
(Recovery) write-off of doubtful accounts    i 161     i 649     i 161     i 719 
Non-cash reclass of allowance for doubtful accounts between unbilled revenue and accounts receivable   ( i 59)   -    ( i 708)   - 
Allowance for doubtful accounts at end of period  $( i 2,365)  $( i 450)  $( i 2,365)  $( i 450)

 / 

 

 

 / 
 i 

7. SERVICE INVENTORIES

 

 i 

The following table summarizes the service inventories for the periods as set forth below (in US$ thousands):

 

SCHEDULE OF SERVICE INVENTORIES 

   June 30,   December 31, 
   2020   2019 
         
Spare parts  $ i 54,739   $ i 39,428 
Chemicals    i 24,589     i 22,852 
Raw materials    i 911     i 2,441 
Consumables    i 13,916     i 15,897 
Total    i 94,155     i 80,618 
Less: allowance for obsolete and slow-moving inventories   ( i 2,391)   ( i 1,777)
Total  $ i 91,764   $ i 78,841 

 

 / 

 

 / 
 i 

8. PROPERTY, PLANT, & EQUIPMENT

 

 i 

Property, plant and equipment, net of accumulated depreciation, of the Company consists of the following as of the period end dates set forth below (in US$ thousands):

 

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT 

    Estimated Useful Lives (in years)   June 30, 2020     December 31, 2019  
Buildings and leasehold improvements    i 5 to  i 25   $  i 38,701     $  i 36,853  
Oilfield equipment    i 3 to  i 15      i 505,504        i 411,984  
Furniture and fixtures    i 5      i 1,503        i 3,720  
Office equipment and tools    i 3 to  i 6      i 39,589        i 35,991  
Vehicles and cranes    i 5 to  i 8      i 8,262        i 12,292  
Less: Accumulated depreciation         ( i 151,440 )     ( i 104,689 )
Land          i 5,104        i 5,104  
Capital work in progress          i 10,938        i 18,052  
Total       $  i 458,161     $  i 419,307  
 / 

 

 C: 
16
 

 

The Company recorded depreciation expense of $ i 26.4 million, $ i 16.0 million, $ i 51.8 million and $ i 30.5 million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, in the Condensed Consolidated Interim Statement of Operations.

 

 / 
 i 

9. GOODWILL AND INTANGIBLE ASSETS

 

Goodwill

 

 i 

Changes in the carrying amount of goodwill of the Company between December 31, 2019, and June 30, 2020 are as follows (in US$ thousands):

 

SCHEDULE OF CHANGES IN CARRYING AMOUNT OF GOODWILL

   Production Services   Drilling and Evaluation Services   Goodwill 
Balance as of December 31, 2019  $ i 419,646   $ i 155,118   $ i 574,764 
SAPESCO Business Combination    i 8,263     i 12,679     i 20,942 
Balance as of June 30, 2020  $ i 427,909   $ i 167,797   $ i 595,706 
 / 

 

Intangible assets subject to amortization, net

 

 i 

The following is the weighted average amortization period for intangible assets of the Company subject to amortization (in years):

 

SCHEDULE OF INTANGIBLE ASSETS SUBJECT TO AMORTIZATION  

   Amortization 
Customer contracts    i 9.9 
Trademarks and trade names    i 7.9 
Total intangible assets    i 9.6 

 

The details of our intangible assets subject to amortization are set forth below (in US$ thousands):

 

   June 30, 2020   December 31, 2019 
   Gross carrying amount   Accumulated amortization   Net
carrying amount
   Gross carrying amount   Accumulated amortization   Net
carrying amount
 
                         
Customer contracts  $ i 125,270   $( i 25,355)  $ i 99,916   $ i 121,500   $( i 19,239)  $ i 102,261 
Trademarks and trade names    i 25,950    ( i 6,660)    i 19,290     i 25,500    ( i 5,047)    i 20,453 
Total intangible assets  $ i 151,220   $( i 32,014)  $ i 119,206   $ i 147,000   $( i 24,286)  $ i 122,714 
 / 

 

 C: 
17
 

 

 / 
 i 

10. DEBT

 

Long-term debt

 

 i 

The Company’s long-term debt obligations consist of the following (in US$ thousands):

 

SCHEDULE OF LONG TERM DEBT OBLIGATIONS 

   June 30, 2020   December 31, 2019 
         
Secured Term Loan  $ i 300,000   $ i 300,000 
Secured Revolving Credit Facility    i 65,000     i 50,000 
CIB Long-Term Debt   

 i 20,972

    - 
Less: unamortized debt issuance costs   ( i 4,143)   ( i 4,436)
Total loans and borrowings   

 i 381,829

     i 345,564 
Less: current portion of long-term debt   ( i 46,372    ( i 15,000)
Long-term debt, net of unamortized debt issuance costs and excluding current installments  $

 i 335,457

   $ i 330,564 

 / 

 

Secured Facilities Agreement

 

On May 5, 2019, the Company entered into a $ i 450.0 million term loan, revolving credit, and working capital facilities agreement (the “Secured Facilities Agreement”) with Arab Petroleum Investments Corporation (“APICORP”) – Bahrain Banking Branch, HSBC Bank Middle East Limited (“HSBC”), Mashreqbank PSC and Saudi British Bank acting as initial mandated lead arrangers and bookrunners, Mashreqbank PSC acting as global agent, APICORP and Mashreqbank PSC acting as security agents, NPS Bahrain for Oil & Gas Wells Services WLL (“NPS Bahrain”) and its Kuwait branch, Gulf Energy SAOC and National Petroleum Technology Company as borrowers, and HSBC, Mashreqbank PSC, APICORP and Saudi British Bank, as the “Lenders.” On May 23, 2019 and June 20, 2019, the Company entered into $ i 35.0 million and $ i 40.0 million Incremental Facilities Agreements, respectively, increasing the size of the Secured Facilities Agreement to $ i 485.0 million and $ i 525.0 million, respectively. During the quarter ended June 30, 2020, the Secured Facilities Agreement was reduced to $ i 520.6 million primarily as a result of the non-renewal of a project-specific letter of credit.

 

The $ i 520.6 million Secured Facilities Agreement consists of a $ i 300.0 million term loan due  i 2025 (the “Term Loan” or “Secured Term Loan”), a $ i 65.0 million revolving credit facility due  i 2023 (“RCF” or “Secured Revolving Credit Facility”), and a $ i 155.6 million working capital facility. Borrowings under the Term Loan and RCF incur interest at the rate of three-month LIBOR plus  i 2.4% to  i 2.7% per annum, varying based on the Company’s Net Debt / EBITDA ratio as defined in the Secured Facilities Agreement. As of June 30, 2020, and December 31, 2019, this resulted in an interest rate of  i 2.9% and  i 4.3%, respectively. As of June 30, 2020, and December 31, 2019, the Company had drawn $ i 300.0 million and $ i 300.0 million, respectively, of the Term Loan and $ i 65 million and $ i 50.0 million, respectively, of the RCF.

 

The RCF was obtained for general corporate and working capital purposes including capital expenditure related requirements and acquisitions (including transaction related expenses). The RCF requires the payment of a commitment fee each quarter. The commitment fee is computed at the rate of  i 0.60% per annum based on the average daily amount by which the borrowing base exceeds the outstanding borrowings during each quarter. Under the terms of the RCF, the final settlement is due by  i May 6, 2023. The Company is required to repay the amount of any principal balance outstanding together with any unpaid accumulated interest at three-month LIBOR plus 2.4% to 2.7% per annum, varying based on the Company’s Net Debt / EBITDA ratio as defined in the Secured Facilities Agreement.  i The Company is permitted to make any prepayment under this RCF in multiples of $ i 5.0 million during this 4-year period up to May 6, 2023 / . Any unutilized balances from the RCF can be drawn down again during the 4-year tenure at the same terms. As of June 30, 2020, and December 31, 2019, the Company had $ i 0 million and $ i 15.0 million, respectively, available to be drawn under the RCF.

 

The Secured Facilities Agreement also includes a working capital facility of $155.6 million for issuance of  i letters of guarantee and letters of credit and refinancing letters of credit over a period of one year, which carries an interest rate equal to three-month U.S. Dollar LIBOR for the applicable interest period, plus a margin of 1.00% to 1.25% per annum. As of June 30, 2020, and December 31, 2019, the Company had utilized $ i 127.4 million and $ i 134.2 million, respectively, under this working capital facility and the balance of $ i 28.2 million and $ i 25.8 million, respectively, was available to the Company.

 

The Company has also retained legacy bilateral working capital facilities from HSBC totaling $ i 24.4 million and $ i 30.4 million at June 30, 2020 and December 31, 2019, respectively, in Qatar ($ i 10.4 million at June 30, 2020, $ i 16.4 million at December 31, 2019), in the UAE ($ i  i 13.9 /  million at both June 30, 2020 and December 31, 2019) and in Kuwait ($ i  i 0.1 /  million at both June 30, 2020 and December 31, 2019). As of June 30, 2020, and December 31, 2019, the Company had utilized $ i 19.4 million and $ i 24.1 million, respectively, under this working capital facility and the balance of $ i 5.0 million and $ i 6.3 million, respectively, was available to the Company.

 

 C: 
18
 

 

Utilization of the working capital facilities under both the legacy arrangement and Secured Facilities Agreement comprises letters of credit issued to vendors, guarantees issued to customers, vendors, and others, and short-term borrowings used to settle letters of credit. Once a letter of credit is presented for payment by the vendor, the Company at its election can settle the letter of credit from available cash or leverage short-term borrowings that will be repaid quarterly over a one-year period. Until a letter of credit is presented for payment by the vendor, it is disclosed as an off-balance sheet obligation. For additional discussion of outstanding letters of credit and guarantees, see Note 14, Commitments and Contingencies.

 

 i  i The Secured Facilities Agreement includes covenants that specify maximum leverage (Net Debt / EBITDA) up to 3.50, minimum debt service coverage ratio (Cash Flow / Debt Service) of at least 1.25, and interest coverage (EBITDA / Interest) of at least 4.00. The Company was in compliance with all financial covenants as of both June 30, 2020 and December 31, 2019 / .

 

CIB Long-Term Debt

 

As part of the SAPESCO transaction, the Company assumed a $ i 21 million debt obligation with Commercial International Bank (collectively, “CIB Long-Term Debt”). Under the terms of its arrangement with CIB, the Company will repay $ i 11 million of this balance during the third quarter of 2020 with the remaining $ i 10 million due on  i July 20, 2021. Borrowings under the CIB Long-Term Debt incur interest at  i 2 i % per annum over 6 months LIBOR (to be settled on quarterly basis) plus 50 basis points per annum. As of June 30, 2020, this resulted in an interest rate of  i 4.4%. The CIB Long-Term Debt (collectively with the CIB Short-Term Debt, discussed below) includes covenants that specify maximum leverage (Total Liabilities / Equity) up to 1.3, minimum debt service coverage ratio ((Cash operating profits after tax + depreciation - annual maintenance for equipment)/(Financial payments + profit sharing for the same period)) of at least 1, and minimum current rate (Current Assets / Current Liabilities) of at least 1.00. The Company was in compliance with all financial covenants as of June 30, 2020.

 .

Short-term debt

 

 i 

The Company’s short-term debt obligations consist of the following (in US$ thousands):

 

SCHEDULE OF SHORT TERM DEBT OBLIGATIONS 

   June 30,
2020
   December 31,
2019
 
         
CIB Short-Term Debt  $ i 2,177   $- 
ABK Short-Term Debt    i 2,964    - 
Other short-term borrowings    i 34,640     i 37,963 
Short-term debt, excluding current installments of long-term debt  $ i 39,781   $ i 37,963 
 / 

 

Short-term borrowings primarily consist of financing for capital equipment and inventory purchases.

 

CIB Short-Term Debt

 

As part of the SAPESCO transaction, the Company assumed a $ i 2.6 million debt obligation with Commercial International Bank (collectively, “CIB Short-Term Debt”) for working capital and overdraft purposes. The balances are due no later than  i September 16, 2020. The CIB Short-Term Debt facilities include a $ i 1.5 million U.S. Dollar time loan facility, a E£ i 2 million Egyptian Pound time loan facility, and a E£ i 10 million Egyptian pound time loan overdraft facility, and $ i 13.8 million U.S. dollars in letters of guarantee.

 

 i The U.S. Dollar time loan facility accrues interest at 2.25% per annum over 3 months LIBOR plus 50 basis points per annum of the Highest Monthly Debit Balance (“HMDB”) commission. The Egyptian Pound time loan and overdraft facilities accrue interest at 0.75% per annum over Corridor Offer Rate plus 50 basis points per annum, HMDB commission.

 

As of June 30, 2020, the CIB Short-Term Debt resulted in an interest rate of  i 4.6% and  i 10.6%, respectively, for the U.S. Dollar and Egyptian Pound denominated facilities. As of June 30, 2020, the Company had utilized $ i 1.3 million of the U.S. Dollar time loan facility, E£ i 2.0 million of the Egyptian Pound time loan facility, and E£ i 7.8 million of the Egyptian pound time loan overdraft facility, and $ i 8.5 million in letters of guarantee, with the balances of $ i 0.2 million, E£ i 0 (zero) million, and E£ i 2.2 million, and $ i 5.3 million, respectively, available to the Company.

 

ABK Short-Term Debt

 

As part of the SAPESCO transaction, the Company assumed a $ i 3.1 million debt obligation with Al Ahli Bank of Kuwait (collectively, “ABK Short-Term Debt”) for working capital and overdraft purposes. The balance is due no later than  i September 16, 2020. The ABK Short-Term Debt facilities include a $ i 3.2 million U.S. Dollar time loan facility and $ i 0.2 million U.S. dollars in letters of guarantee.  i The ABK Short-Term Debt accrues interest at 1.65% per annum over Corridor Offer Rate. As of June 30, 2020, this resulted in an interest rate of  i 10.9%. As of June 30, 2020, the Company had utilized $ i 2.9 million of the ABK Short-Term Debt facility and $ i 0.2 million in letters of guarantee with $ i 0 (zero) and $ i 0 million, respectively, available to the Company. There are no financial covenants associated with the ABK Short-Term Debt.

 

Other debt information

 

 i 

Scheduled principal payments of long-term debt for periods subsequent to June 30, 2020 are as follows (in US$ thousands):

 

SCHEDULE PRINCIPAL PAYMENTS OF LONG TERM DEBT 

      
2020  $ i 25,972 
2021    i 47,500 
2022    i 45,000 
2023    i 110,000 
2024    i 45,000 
2025    i 112,500 
Thereafter   - 
Total  $ i 385,972 
 / 

 

As part of the SAPESCO transaction, the Company also assumed other working capital facilities totaling $ i 0.8 million with two banks. The facilities are used for letters of guarantee. As of June 30, 2020, the Company has utilized $ i 0.8 million of these facilities with $ i 0 (zero) available.

 

 C: 
19
 

 

 / 
 i 

11. FAIR VALUE ACCOUNTING

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable, capital leases and loans and borrowings. The fair value of the Company’s financial instruments approximates the carrying amounts represented in the accompanying Condensed Consolidated Balance Sheets, primarily due to their short-term nature. The fair value of the Company’s long-term borrowings also approximates the carrying amounts as these loans are carrying interest at the market rate.

 

 i 

12. EMPLOYEE BENEFITS

 

Defined benefit plan

 

The Company provides defined benefit plan of severance pay to eligible employees. The severance pay plan provides for a lump sum payment to employees on separation (retirement, resignation, death while in employment or on termination of employment) of an amount based upon the employees last drawn salary and length of service, subject to the completion of minimum service period (1-2 years) and taking into account the provisions of local applicable law or as per employee contract. The Company records annual amounts relating to these long-term employee benefits based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, compensation increases and turnover rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in the Condensed Consolidated Interim Statement of Operations. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions. The net periodic costs are recognized as employees render the services necessary to earn these benefits.

 

 i 

The Components of net period benefit cost were as follows (in US$ thousands):

 

SCHEDULE OF COMPONENTS OF NET PERIODIC BENEFIT COST 

   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
   Quarter ended   Year-to-date period ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Service cost  $ i 761   $ i 591   $ i 1,900   $ i 1,440 
Interest cost    i 190     i 43     i 475     i 176 
Other   -     i 66    -     i 55 
Net cost  $ i 951   $ i 700   $ i 2,375   $ i 1,671 
 / 

 

The Company made employer contributions (direct payment of benefits) to its defined benefit plan of $ i 0.9 million, $ i 0.1 million, $ i 1.2 million and $ i 1.1 million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively. The plan of the Company is unfunded.

 

Defined contribution plan

 

The Company also provides a defined contribution retirement plan and occupational hazard insurance for Omani employees. Contributions to a defined contribution retirement plan and occupational hazard insurance for Omani employees in accordance with the Omani Social Insurances Law are recognized as an expense in the Condensed Consolidated Interim Statement of Operations as incurred. Total contributions were of $ i 0.8 million, $ i 0.8 million, $ i 1.6 million and $ i 1.6 million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively. The plan of the Company is unfunded.

 

 C: 
20
 

 

 / 
 i 

13. SHARE-BASED COMPENSATION EXPENSE

 

In 2018, the NESR shareholders approved the 2018 Long Term Incentive Plan (the “LTIP”). A total of  i 5,000,000 ordinary shares are reserved for issuance under the LTIP. Grants to members of the Company’s Board of Directors are time-based and vest ratably over a  i 1-year period. Grants to the Company employees are time-based and vest ratably over a  i 3-year period.

 

The purpose of the LTIP is to enhance NESR’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to NESR by providing these individuals with equity ownership opportunities. The Company intends to use time-based restricted stock unit awards to reward long-term performance of the executive officers. The Company believes that providing a meaningful portion of the total compensation package in the form of share-based awards will align the incentives of its executive officers with the interests of its shareholders and serve to motivate and retain the individual executive officers.

 

 i 

The following tables set forth the LTIP activity for the periods indicated (in US$ thousands, except share and per share amounts):

 

SCHEDULE OF UNVESTED RESTRICTED STOCK 

   Quarter ended 
   June 30, 2020   June 30, 2019 
   Number of Restricted Shares   Weighted Average Value per Share   Number of Restricted Shares   Weighted Average Value per Share 
Unvested at Beginning of Period    i 2,244,662   $ i 7.72     i 725,200   $ i 11.15 
Granted   -   $-     i 970,000   $ i 10.36 
Vested and issued   -   $-    -   $- 
Forfeited   -   $-    ( i 95,000)  $ i 10.86 
Unvested at End of Period    i 2,244,662   $ i 7.72     i 1,600,200   $ i 10.59 

 

   Year-to-date period ended 
   June 30, 2020   June 30, 2019 
   Number of Restricted Shares   Weighted Average
Value
per Share
   Number of Restricted Shares   Weighted Average
Value
per Share
 
Unvested at Beginning of Period    i 1,502,690   $ i 10.25     i 725,200   $ i 11.15 
Granted    i 1,080,905   $ i 4.96     i 970,000   $ i 10.36 
Vested and issued   ( i 307,932)  $ i 10.36    -   $- 
Forfeited   ( i 31,001)  $ i 10.45    ( i 95,000)  $ i 10.86 
Unvested at End of Period    i 2,244,662   $ i 7.72     i 1,600,200   $ i 10.59 
 / 

 

At June 30, 2020 and December 31, 2019, the Company had unrecognized compensation expense of $ i 12.8 million and $ i 11.7 million, respectively, related to unvested LTIP to be recognized on a straight-line basis over a weighted average remaining period of  i 1.9 years and  i 2.0 years, respectively. Share-based compensation expense has been recorded in the Condensed Consolidated Interim Statement of Operations as follows (in US$ thousands):

 

 i 

SCHEDULE OF STOCK-BASED COMPENSATION

   Quarter ended   Year-to-date period ended 
   June 30,
2020
   June 30, 2019   June 30,
2020
   June 30, 2019 
                 
Cost of Services  $ i 938   $ i 654   $ i 1,665   $ i 968 
Selling, general and administrative expenses    i 1,187     i 719     i 2,095     i 1,145 
Net cost  $ i 2,125   $ i 1,373   $ i 3,760   $ i 2,113 
 / 

 

 C: 
21
 

 

 / 
 i 

14. COMMITMENTS AND CONTINGENCIES

 

Capital expenditure commitments

 

The Company was committed to incur capital expenditures of $ i 22.5 and $ i 22.1 million at June 30, 2020, and December 31, 2019, respectively. Commitments outstanding as of June 30, 2020, are expected to be settled during 2020 and 2021.

 

Capital lease commitments

 

The Company leases certain hydraulic fracturing equipment under capital leases that  i expire between 2021 and 2023. The leases have terms ranging from  i 24- i 36 months and imputed interest rates between  i 4.3%- i 6.5% per annum. As of June 30, 2020, and December 31, 2019, the total recorded liability for these capital leases was $ i 32.6 million and $ i 33.7 million, respectively, with $ i 25.3 million and $ i 20.5 million, respectively, classified as a short-term obligation within Other current liabilities account and $ i 7.3 million and $ i 13.1 million, respectively, classified as long-term obligations within Other liabilities account in the Condensed Consolidated Balance Sheets. Total interest expense incurred on these capital leases was $ i 0.6 million, $ i 0.0 (zero) million, $ i 1.0 million and $ i 0.0 (zero) million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, in the Condensed Consolidated Interim Statement of Operations. Depreciation of assets held under these capital leases is included within depreciation expense.

 

The Company also leases certain equipment in Egypt under capital leases that  i expire between 2020 and 2024. As of June 30, 2020, and December 31, 2019, the total recorded liability for these capital leases was $ i 3.3 million and $ i 0 (zero), respectively, with $ i 1.7 million and $ i 0 (zero), respectively, classified as a short-term obligation within Other current liabilities account and $ i 1.6 million and $ i 0 (zero), respectively, classified as a long-term obligations within Other liabilities account in the Condensed Consolidated Balance Sheets. Total interest expense incurred on capital leases of $ i 0.1 million, $ i 0.0 (zero) million, $ i 0.1 million and $ i 0.0 (zero) million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, in the Condensed Consolidated Interim Statement of Operations. Depreciation of assets held under these capital leases is included within depreciation expense.

 

 i 

Future minimum lease payments and future interest payments under non-cancellable equipment capital leases at June 30, 2020 and December 31, 2019, are payable as follows (in US$ thousands):

 

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELABLE OPERATING LEASES 

    As of June 30, 2020   As of December 31, 2019
   

Future

Minimum

Lease

Payments

   

Future

Interest

Payments

  Total Payments      

Future

Minimum

Lease

Payments

 

Future

Interest

Payments

    Total Payments
2020   $  i 15,948   $  i 1,414   $  i 17,362     $  i 22,930   $  i 1,070   $  i 24,000
2021      i 14,835      i 836      i 15,671        i 10,743      i 1,257      i 12,000
2022      i 3,214      i 445      i 3,659       -     -     -
2023      i 1,611      i 344      i 1,955       -     -     -
2024      i 315      i 133      i 448       -     -     -
2025     -     -     -       -     -     -
Thereafter     -     -     -       -     -     -
Total   $  i 35,923   $  i 3,172   $  i 39,095     $  i 33,673   $  i 2,327   $  i 36,000

 

Operating lease commitments

 

Future minimum lease commitments under non-cancellable operating leases with initial or remaining terms of one year or more at June 30, 2020 and December 31, 2019, respectively, are payable as follows (in US$ thousands):

 

  

June 30, 2020

 

December 31, 2019

 
2020  $

 i 19,092

  $ i 23,201 
2021   

 i 18,781

    i 18,560 
2022   

 i 2,820

    i 2,780 
2023   

 i 1,338

    i 2,291 
2024   

 i 1,338

    i 2,292 
2025   

 i 1,342

    i 2,296 
Thereafter   

 i 3,281

    i 1,629 
Total  $

 i 47,992

  $ i 53,049 
 / 

 

The Company recorded rental expense of $ i 34.6 million, $ i 30.9 million, $ i 68.9 million and $ i 56.4 million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, in the Condensed Consolidated Interim Statement of Operations.

 

 C: 
22
 

 

Other commitments

 

The Company purchases certain property, plant, and equipment using seller-provided installment financing with payment terms extending to 24 months. The amounts due to the vendors at June 30, 2020, and December 31, 2019, were $ i 6.4 million and $ i 6.0 million, respectively. As of June 30, 2020, the Company recorded $ i 1.5 million, $ i 3.5 million, and $ i 1.5 million in Accounts payable, Other current liabilities, and Other liabilities, respectively, in the Condensed Consolidated Balance Sheet, for amounts due using seller-provided installment financing. As of December 31, 2019, the Company recorded $ i 0 (zero), $ i 3.0 million, and $ i 3.0 million in Accounts payable, Other current liabilities, and Other liabilities, respectively, in the Condensed Consolidated Balance Sheet, for amounts due using seller-provided installment financing.

 

The Company has outstanding letters of credit amounting to $ i 16.3 million and $ i 21.2 million as of June 30, 2020, and December 31, 2019, respectively.

 

In the normal course of business with customers, vendors and others, the Company has entered into off-balance sheet arrangements, such as surety bonds for performance, and other bank issued guarantees which totaled $ i 105.7 million and $ i 99.1 million as of June 30, 2020, and December 31, 2019, respectively. The Company has also entered into cash margin guarantees totaling $ i 5.2 million and $ i 5.8 million at June 30, 2020, and December 31, 2019, respectively. A liability is accrued when a loss is both probable and can be reasonably estimated. None of the off-balance sheet arrangements either has, or is likely to have, a material effect on the Company’s condensed consolidated interim financial statements.

 

As of June 30, 2020, and June 30, 2019, the Company had liabilities of $ i 6.7 million and $ i 6.7 million, respectively, on the Condensed Consolidated Balance Sheet included in the line item “Other liabilities,” reflecting various liabilities associated with the 2014 acquisition of NPS Bahrain by NPS Holdings Limited.

 

Legal proceedings

 

The Company is involved in certain legal proceedings which arise in the ordinary course of business and the outcomes of which are currently subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss are difficult to ascertain. Consequently, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of these disputes. The Company is contesting these claims/disputes and the Company’s management currently believes that provision against these potential claims is not required as the ultimate outcome of these disputes would not have a material impact on the Company’s business, financial condition or results of operations.

 

 / 
 i 

15. EQUITY

 

The Company is authorized to issue an unlimited number of ordinary shares, no par value, and preferred shares, no par value. The Company’s ordinary shares are entitled to one vote for each share. As of June 30, 2020, there were  i 87,495,221 ordinary shares outstanding,  i 22,921,700 public warrants and  i 12,618,680 private warrants. Each warrant entitles the registered holder to purchase one-half of one ordinary share at a price of $ i  i 5.75 /  per half share at any time. The warrants must be exercised for whole ordinary shares. The warrants expire on  i  i June 6, 2023 / . The private warrants are identical to the public warrants except that such warrants are exercisable for cash (even if a registration statement covering the ordinary shares issuable upon exercise of such warrants is not effective) or on a cashless basis, at the holder’s option, and will not be redeemable so long as they are still held by the initial purchasers or their affiliates. No public warrants are exercisable for cash unless there is an effective and current registration statement covering the ordinary shares issuable upon exercise of the warrants and a current prospectus relating to such ordinary shares.

 

The Company is authorized to issue an unlimited number of preferred shares divided into five classes with designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of June 30, 2020, or December 31, 2019, there were  i  i  i  i no /  /  /  preferred shares issued or outstanding.

 

In February 2019, pursuant to the NPS Stock Purchase Agreement, the Company issued  i 1,300,214 NESR ordinary shares to satisfy its obligation in connection with the NPS Equity Stock Earn-Out, a contingent consideration obligation arising from its acquisition of NPS in 2018.

 

The issuance of  i 2,237,000 NESR ordinary shares to the SAPESCO selling stockholders in exchange for their SAPESCO shares is reflected in Other liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2020. The shares are expected to be issued in the third quarter of 2020 at which time purchase consideration will be transferred from Other liabilities to Additional paid in capital. As the Company is contractually obligated to settle this purchase consideration in shares, we believe that presentation as a non-current liability best matches the contingency with the long-term nature of equity financing.

 

 C: 
23
 

 

 / 
 i 

16. EARNINGS PER SHARE

 

Basic earnings per common share was computed using the two-class method by dividing basic net income attributable to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per common share was computed using the two-class method by dividing diluted net income attributable to common shareholders by the weighted-average number of common shares outstanding plus dilutive common equivalent shares. Dilutive common equivalent shares include all in-the-money outstanding contracts to issue common shares as if they were exercised or converted.

 

 i 

The following tables provide a reconciliation of the data used in the calculation of basic and diluted ordinary shares outstanding for the period (in US$ thousands except shares and per share amounts).

 

 SCHEDULE OF A RECONCILIATION OF BASIC AND DILUTED COMMON SHARES OUTSTANDING

Date  Transaction Detail  Change in Shares   Quarter ended June 30, 2020
Weighted Average
Ordinary Shares
Outstanding
 
March 31, 2020  Beginning Balance         i 87,495,221 
June 1, 2020  Shares to be issued in SAPESCO transaction (Note 5) (1)    i 2,237,000    

 i 737,473

 
June 30, 2020  Ending Balance         i 88,232,694 

 

(1)Contingently issuable shares are included in basic EPS only when there is no circumstance under which those shares would not be issued, as such  i 2,237,000 shares expected to be issued in the third quarter of 2020 pursuant to the Sale & Purchase Agreement for SAPESCO have been included in basic earnings per share.

 

Date   Transaction Detail   Change in Shares     Quarter ended June 30, 2019 Weighted Average Ordinary Shares Outstanding  
March 31, 2019   Beginning Balance                    i 86,896,779  
June 30, 2019   Ending Balance              i 86,896,779  

 

Date  Transaction Detail  Change in Shares   Year-to-date period ended June 30, 2020
Weighted Average
Ordinary Shares
Outstanding
 
December 31, 2019  Beginning Balance         i 87,187,289 
March 18, 2020  Restricted stock vesting    i 307,932     i 175,961 
June 1, 2020  Shares to be issued in SAPESCO transaction (Note 5) (1)    i 2,237,000     i 368,736 
June 30, 2020  Ending Balance         i 87,731,986 

 

(1)Contingently issuable shares are included in basic EPS only when there is no circumstance under which those shares would not be issued, as such  i 2,237,000 shares issued in the third quarter of 2020 pursuant to the Sale & Purchase Agreement for SAPESCO have been included in basic earnings per share.

 

 C: 
24
 

 

Date  Transaction Detail  Change in Shares   Year-to-date period ended June 30, 2019 Weighted Average Ordinary Shares Outstanding 
December 31, 2018  Beginning Balance         i 85,562,769 
January 9, 2019  Other    i 33,796     i 32,302 
February 19, 2019  NPS equity stock earn-out    i 1,300,214     i 1,300,214 
June 30, 2019  Ending Balance         i 86,895,285 

 

   Quarter ended   Year-to-date period ended 
Shares for Use in Allocation of Participating Earnings:  June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Weighted average ordinary shares outstanding    i 88,232,694     i 86,896,779     i 87,731,986     i 86,895,285 
Non-vested, participating restricted shares    i 1,163,757     i 1,600,200     i 1,163,757     i 1,600,200 
Shares for use in allocation of participating earnings    i 89,396,451     i 88,496,979     i 88,895,743     i 88,495,485 
 / 

 

 i 

Basic earnings per share (EPS):

 

SCHEDULE OF BASIC AND DILUTED EARNINGS PER COMMON SHARE 

   Quarter ended   Year-to-date Period Ended 
   June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Net income  $ i 10,536   $ i 11,356   $ i 21,903   $ i 24,530 
Less dividends to:                    
Ordinary Shares   -    -    -    - 
Non-vested participating shares   -    -    -    - 
Total Undistributed Earnings  $ i 10,536   $ i 11,356   $ i 21,903   $ i 24,530 

 

   Quarter ended   Year-to-date period ended 
  

June 30,

2020

  

June 30,

2019

  

June 30,

2020

  

June 30,

2019

 
                 
Allocation of undistributed earnings to Ordinary Shares  $ i 10,399   $ i 11,151   $ i 21,616   $ i 24,086 
Allocation of undistributed earnings to Non-vested Shares    i 137     i 205     i 287     i 444 
Total Undistributed Earnings  $ i 10,536   $ i 11,356   $ i 21,903   $ i 24,530 

 

   Quarter ended   Year-to-date period ended 
Ordinary Shares: 

June 30, 2020

  

June 30, 2019

  

June 30, 2020

  

June 30, 2019

 
                 
Distributed Earnings  $-   $-   $-   $- 
Undistributed Earnings   

 i 0.12

     i 0.13    

 i 0.25

     i 0.28 
Total  $

 i 0.12

   $ i 0.13   $

 i 0.25

   $ i 0.28 

 

 C: 
25
 

 

Diluted earnings per share (EPS):

  

   Quarter ended June 30, 2020   Quarter ended June 30, 2019 
Ordinary shares  Undistributed & distributed earnings to ordinary shareholders   Ordinary shares   EPS   Undistributed & distributed earnings to ordinary shareholders   Ordinary shares   EPS 
                         
As reported — basic  $ i 10,399     i 88,232,694   $ i 0.12   $ i 11,151     i 86,896,779   $ i 0.13 
                               
Add-back:                              
Undistributed earnings allocated to non-vested shareholders    i 137    -          i 205    -      
 i  i 12,618,680 /  Private Warrants @ $ i  i 5.75 /  per half share (anti-dilutive)(1)   -    -         -    -      
 i  i 22,921,700 /  Public Warrants @ $ i  i 5.75 /  per half share (anti-dilutive)(1)   -    -         -    -      
                               
Less:                              
Undistributed earnings reallocated to non-vested shareholders   ( i 137)   -         ( i 205)   -      
                               
Diluted EPS — Ordinary shares  $ i 10,399     i 88,232,694   $ i 0.12   $ i 11,151     i 86,896,779   $ i 0.13 

 

 

   Year-to-date period ended
June 30, 2020
   Year-to-date period ended
June 30, 2019
 
Ordinary shares  Undistributed & distributed earnings to ordinary shareholders   Ordinary shares   EPS   Undistributed & distributed earnings to ordinary shareholders   Ordinary shares   EPS 
                         
As reported — basic  $ i 21,616     i 87,731,986   $ i 0.25   $ i 24,086     i 86,865,285   $ i 0.28 
                               
Add-back:                              
Undistributed earnings allocated to non-vested shareholders    i 287    -          i 444    -      
12,618,680 Private Warrants @ $5.75 per half share (anti-dilutive)(1)   -    -         -    -      
22,921,700 Public Warrants @ $5.75 per half share (anti-dilutive)(1)   -    -         -    -      
                               
Less:                              
Undistributed earnings reallocated to non-vested shareholders   ( i 287)   -         ( i 444)   -      
                               
Diluted EPS — Ordinary shares  $ i 21,616     i 87,731,986   $ i 0.25   $ i 24,086     i 86,895,285   $ i 0.28 

 

  (1)Non-participating warrants that could be converted into as many as  i  i 17,770,190 /  ordinary shares are excluded from diluted EPS at both June 30, 2020, and June 30, 2019. These warrants are anti-dilutive at current market prices. In addition to these warrants, the Company also has  i 1,080,905 restricted stock units that are non-participating.
 / 

 

 / 
 i 

17. INCOME TAXES

 

NESR is a holding company incorporated in the British Virgin Islands, which imposes a zero percent statutory corporate income tax rate on income generated outside of the British Virgin Islands. The subsidiaries operate in multiple tax jurisdictions throughout the MENA and Asia Pacific regions where statutory tax rates generally vary from  i 12% to  i 35%.  i In the British Virgin Islands, the statutory rate is effectively 0% as tax is not applied on extra territorial activity.

 

The Company’s effective tax rate was  i 21%,  i 28%,  i 20% and  i 23% for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, in the Condensed Consolidated Interim Statement of Operations. The difference in rate between periods is primarily attributable to the pre-tax income mix by country between periods, the prevalence of nondeductible costs, legal entity restructuring in certain jurisdictions, and improved structuring of capital expenditures between legal entities to minimize tax expenses where possible.

 

 / 
 i 

18. RELATED PARTY TRANSACTIONS

 

Mubbadrah Investment LLC (“Mubbadrah”)

 

GES leases office space in a building it owns in Muscat, Oman to Mubbadrah along with other Mubbadrah group entities (collectively, the “Mubbadrah group entities”). GES charges rental income to the Mubbadrah group entities for the occupation of the office space, based on usage. Rental income charged by GES to the Mubbadrah group entities amounted to $ i 0.04 million, $ i 0.1 million, $ i 0.1 million and $ i 0.1 million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, in the Condensed Consolidated Interim Statement of Operations. The outstanding balance of receivables from Mubbadrah group entities was $ i 0.6 million and $ i 0.6 million at June 30, 2020 and December 31, 2019, respectively. Mubbadrah is owned by Hilal Al Busaidy and Yasser Al Barami, and, collectively with Mubbadrah, they own  i 17% of the Company.

 

 C: 
26
 

 

Heavy Equipment Manufacturing & Trading LLC (“HEMT”)

 

HEMT is a majority owned by Mubbadrah and Hilal Al Busaidy. HEMT is engaged by various subsidiaries of GES for services such as fabrication, manufacturing and maintenance of tools and equipment. HEMT has charged GES $ i 0.02 million, $ i 0.04 million, $ i 0.04 million and $ i 0.05 million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, in relation to these services.

 

Prime Business Solutions LLC (“PBS”)

 

PBS is  i 100% owned by Mubbadrah Business Solutions LLC and is involved in the development and maintenance of Enterprise Resource Planning (“ERP”) systems.

 

PBS has developed and implemented the GEARS (ERP) system for GES and is currently engaged to maintain it. Charges totaling $ i 0.2 million, $ i 0 (zero), $ i 0.8 million and $ i 0 (zero) for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, within the Condensed Consolidated Interim Statement of Operations, for maintenance fees. As of June 30, 2020, and December 31, 2019, $ i 0.4 million and $ i 0.4 million remains payable to PBS.

 

Nine Energy Service, Inc. (“Nine”)

 

The Company purchased $ i 0.3 million, $ i 0 (zero), $ i 1.4 million and $ i 0 (zero) for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, of products and rentals from Nine. One of the Company’s directors, Andrew Waite, also serves as a director of Nine. As of June 30, 2020, and December 31, 2019, the Company had total liabilities of $ i 5.3 million and $ i 6.8 million, respectively, on its Condensed Consolidated Balance Sheets related to these purchases. 

 

Basin Holdings US LLC (“Basin”)

 

The Company purchased $ i 0.02 million, $ i 0 (zero), $ i 0.45 million and $ i 0 (zero) for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively, of products and rentals from Basin. One of the Company’s directors, Antonio J. Campo Mejia, also serves as a director of Basin. As of June 30, 2020, and December 31, 2019, the Company had total liabilities of $ i 0.1 million and $ i 0 (zero), respectively, on its Condensed Consolidated Balance Sheets related to these purchases.

 

 / 
 i 

19. REPORTABLE SEGMENTS

 

Operating segments are components of an enterprise where separate financial information is available and that are evaluated regularly by the Company’s CODM in deciding how to allocate resources and in assessing performance. The Company reports segment information based on the “management” approach and its CODM is its Chief Executive Officer.

 

The Company’s services are similar to one another in that they consist of oilfield services and related offerings, whose customers are oil and gas companies. The results of operations of the service offerings are regularly reviewed by the CODM for the Company for the purposes of determining resource and asset allocation and assessing performance. The Company has determined that it has  i two reportable segments, Production Services and Drilling and Evaluation Services. The CODM evaluates the operating results of its reportable segments primarily based on revenue and segment operating income. During the year-to-date period ended June 30, 2020, the Company modified its segment reporting disclosure to present segment operating income. The change better aligns the Company’s disclosure with the U.S. GAAP measure of profit used by the CODM in making decisions about allocating resources and assessing performance. Segment operating income does not include general corporate expenses as these expenses are not allocated to the Company’s reportable segments and not reported to the Company’s CODM.

 

Production Services that are offered depend on the well life cycle in which the services may fall. They include, but are not limited to, the following types of service offerings: coil tubing, stimulation and pumping, nitrogen services, completions, pipelines, cementing, laboratory services and filtration services.

 

 C: 
27
 

 

Drilling and Evaluation Services generates its revenue from the following service offerings: drilling and workover rigs, rig services, drilling services and rentals, fishing and remedials, directional drilling, turbines drilling, drilling fluids, wireline logging services, slickline services and well testing services.

 

 i 

The Company’s operations and activities are located within certain geographies, primarily the MENA region and the Asia Pacific region, which includes Malaysia, Indonesia and India.

 

SCHEDULE OF SEGMENT REPORTING, INFORMATION ON REVENUES AND LONG-LIVED ASSETS

 

Revenue from operations

 

         
   Quarter ended   Year-to-date period ended 
  

June 30,

2020

  

June 30,

2019

  

June 30,

2020

  

June 30,

2019

 
Reportable Segment:                    
Production Services  $ i 139,034   $ i 95,358   $ i 272,224   $ i 187,471 
Drilling and Evaluation Services    i 64,215     i 64,541     i 130,324     i 124,132 
Total revenue  $ i 203,249   $ i 159,899   $ i 402,548   $ i 311,603 

 

Long-lived assets

 

  

June 30,

2020

   December 31,
2019
 
Reportable Segment:          
Production Services  $ i 308,746   $ i 290,765 
Drilling and Evaluation Services    i 137,193     i 115,241 
Total Reportable Segments    i 445,939     i 406,006 
Unallocated assets    i 12,222     i 13,301 
Total long-lived assets  $ i 458,161   $ i 419,307 

 

Operating income

 

   Quarter ended   Year-to-date period ended 
  

June 30,

2020

  

June 30,

2019

  

June 30,

2020

  

June 30,

2019

 
Reportable Segment:                    
Production Services  $ i 20,217   $ i 23,192   $ i 41,545   $ i 44,514 
Drilling and Evaluation Services    i 8,334     i 9,413     i 16,202     i 14,892 
Total Reportable Segments    i 28,551     i 32,605     i 57,747     i 59,406 
Unallocated expenses   ( i 10,693)   ( i 10,610)   ( i 21,374)   ( i 17,303)
Total operating income  $ i 17,858   $ i 21,995   $ i 36,373   $ i 42,103 
 / 

 

 i 

Revenue by geographic area

 

SCHEDULE OF REVENUE FROM EXTERNAL CUSTOMERS AND LONG-LIVED ASSETS, BY GEOGRAPHICAL AREAS

   Quarter ended   Year-to-date period ended 
  

June 30,

2020

   June 30, 2019  

June 30,

2020

   June 30, 2019 
Geographic Area:                    
MENA  $ i 200,737   $ i 158,082   $ i 396,798   $ i 307,627 
Rest of World    i 2,512     i 1,817     i 5,750     i 3,976 
Total revenue  $ i 203,249   $ i 159,899   $ i 402,548   $ i 311,603 

 

Long-lived assets by geographic area

 

   June 30, 2020   December 31, 2019 
Geographic area:          
MENA  $ i 449,029   $ i 409,139 
Rest of World    i 9,132     i 10,168 
Total long-lived assets  $ i 458,161   $ i 419,307 
 / 

 

 / 

 

 C: 
28
 

 

Cautionary Note Regarding Forward-Looking Statements

 

This Periodic Report on Form 6-K (this “Periodic Report”) contains forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). Any and all statements contained in this Periodic Report that are not statements of historical fact, the impact of the COVID-19 pandemic or the Company’s response to COVID-19, may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future,” and terms of similar import (including the negative of any of these terms) may identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Periodic Report may include, without limitation, statements regarding the plans and objectives of management for future operations, projections of income or loss, earnings or loss per share, capital expenditures, dividends, capital structure or other financial items, the Company’s future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), expansion plans and opportunities, completion and integration of acquisitions, including the SAPESCO acquisition, and the assumptions underlying or relating to any such statement.

 

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon the Company’s current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which the Company has no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the accuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation: estimates of the Company’s future revenue, expenses, capital requirements and the Company’s need for financing; the risk of legal complaints and proceedings and government investigations; the Company’s financial performance; success in retaining or recruiting, or changes required in, the Company’s officers, key employees or directors; current and future government regulations; developments relating to the Company’s competitors; changes in applicable laws or regulations; the possibility that the Company may be adversely affected by other economic and market conditions, particularly during extended periods of low oil and gas prices, political disturbances, war, terrorist acts, public health crises and threats, including risks from the COVID-19 outbreak, ongoing actions taken by businesses and governments and resulting significant disruption in international economies, the international financial and oil markets; international currency fluctuations, business and/or competitive factors; and other risks and uncertainties set forth in the Company’s most recent Annual Report on Form 20-F filed with the SEC.

 

Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors. The Company disclaims any obligation to update the forward-looking statements contained in this Periodic Report to reflect any new information or future events or circumstances or otherwise, except as required by law. Readers should read this Periodic Report in conjunction with other documents which the Company may file or furnish from time to time with the SEC.

 

 C: 
29
 

 

ITEM 2. OPERATING AND FINANCIAL REVIEW

 

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated interim financial statements and related notes included in this Periodic Report. In addition, such analysis should be read in conjunction with the audited consolidated financial statements, the related notes, and the other information included in the Company’s Annual Report on Form 20-F for year ended December 31, 2019. The following discussion and analysis contain forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Please read “Cautionary Note Regarding Forward-Looking Statements.”

 

Overview

 

We are a regional provider of services to the oil and gas industry in the MENA and Asia Pacific regions. We currently operate in over 15 countries, with a strong presence in Saudi Arabia, Oman, Qatar, Algeria, UAE, and Iraq. Our vision was founded on creating a regional provider for oilfield services that offered a full portfolio of solutions for our customers throughout the region with a strong focus on supporting the economies in which we operate. We believe strongly in employing local staff and searching for opportunities to bring value into the region. With its vast reserves of oil and gas, the MENA region continues to dominate in its role as a vital source of global energy supply and stability. Our services include a broad suite of offerings that are essential in the drilling and completion of new oil and natural gas wells and in the remedial work on existing wells, both onshore and offshore, including completion services and equipment and drilling & evaluation services and equipment.

 

Factors Affecting our Results of Operations

 

Global E&P Trends and Oil Prices

 

We provide oilfield services to exploration and production companies with operations in the onshore and offshore oil and gas sectors in the MENA, particularly the Middle East, and Asia Pacific regions. Demand for our services is mainly driven by our customers’ operations and is therefore linked to global commodity prices and expectations about future prices, rig activity and other factors.

 

In December 2019, the emergence of a new strain of the COVID-19 was reported in China that has subsequently spread across China, MENA, and the rest of the world, including the United States. As a result of the outbreak, travel restrictions, quarantines, shelter-in-place orders and similar measures taken by governments and companies have had a significant impact on global commerce and the price of oil. Since early March 2020, the global oil markets have experienced a precipitous decline in oil prices in response to concerns regarding the potential impacts of the COVID-19 outbreak on worldwide oil demand and disputes over production cuts between Russia and OPEC. On April 20, 2020, oil prices for May deliveries of West Texas Intermediate (WTI) crude oil turned negative as demand for oil collapsed despite OPEC countries and Russia agreeing to cut production. Prices have subsequently rallied on the strength of production cuts from most oil producing countries.

 

To date, the recent outbreak of COVID-19 and decrease in worldwide oil prices and demand have not significantly impacted our business operations and financial position. The extent to which our future financial results are affected by COVID-19 will depend on factors and consequences beyond our control, such as the length and scope of the pandemic, further actions taken by governments and the private sector in response to the pandemic, and the rate and effectiveness of responses to combat COVID-19. The risk factors identified in our Annual Report on Form 20-F for the year ended December 31, 2019 could be further aggravated by the conditions of the global economy originating from COVID-19. In addition, our operational results may also be materially adversely affected in a manner that is either not currently known or that we do not currently consider to be a significant risk.

 

Cyclical Nature of Sector

 

The oilfield services sector is a highly cyclical industry. As a result, our operating results can fluctuate from quarter to quarter and period to period. However, due to the lower average cost per barrel in the Middle East and the need for infrastructure spending to sustain or increase current production levels of these oil rich countries, we believe that we are less affected by oil price volatility as compared to oilfield services companies that operate in other regions, as discussed below.

 

Drilling Environments

 

Based on energy industry data, offshore oil production currently provides an estimated 30% of all global oil supply; however, the bulk of oil production comes from onshore activity. We provide services to exploration and production (“E&P”) companies with both onshore and offshore drilling operations. Offshore drilling generally provides higher margins to service providers due to greater complexity, logistical challenges and the need for innovative solutions.

 

 C: 
30
 

 

Geographic Concentration; Middle Eastern Operations

 

Over 98% of our revenue has historically come from the MENA region, particularly the Middle East. The Middle East has almost half of the world’s proven oil reserves and accounts for almost a third of oil production, according to the BP Statistical Review of World Energy 2020 (69th edition). The countries in the Middle East account for nearly one-third of global oil production and given the low break-even price, it is a key region for oilfield service companies. Most oil and gas fields in the Middle East are legacy fields on land or in shallow waters. These fields are largely engaged in development drilling activity, driven by the need for redevelopment, enhanced oil recovery via stimulation and the drilling of new production wells. Further, a number of gas fields scheduled to be developed in the near future will require oilfield services. As a result, our capital expenditure and related financing needs may increase materially in the future.

 

In addition, regional drilling operations may be impacted by local political and economic trends. Due to the concentration of our operations in the MENA region, and particularly the Middle East, our financial condition and results of operations may be impacted by geopolitical, political or economic instability affecting the countries in which we operate, including reduced production and drilling activities and disruptions from the COVID-19 outbreak, extended periods of low oil prices and decreased oil demand, armed conflict, imposition of economic sanctions, changes in governments and currency devaluations, among others.

 

Many MENA countries rely on the energy sector as the major source of national revenues. Even at lower oil and gas prices, such oil and gas dependent economies have continued to maintain significant production and drilling activities. Further, given that Middle East markets have among the lowest break-even prices, they can continue to produce profitably at significantly lower commodity prices.

 

Key Components of Revenues and Expenses

 

Revenues

 

We earn revenue from our broad suite of oilfield services, including coiled tubing, hydraulic fracturing, cementing, stimulation and pumping, well testing services, drilling services and rental, fishing and remediation, drilling and workover rigs, nitrogen services, wireline logging services, turbines drilling, directional drilling, filtration services and slickline services, among others. Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered or rentals provided. A performance obligation arises under contracts with customers to render services or provide rentals and is the unit of account under Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. The Company accounts for services rendered and rentals provided separately if they are distinct and the service or rental is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered or rentals provided on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A contract’s standalone selling prices are determined based on the prices that the Company charges for its services rendered and rentals provided. Most of the Company’s performance obligations are satisfied over time, which is generally represented by a period of 30 days or less. The Company’s payment terms vary by the type of products or services offered. The term between invoicing and when the payment is due is typically 30-60 days.

 

Cost of services

 

Cost of services primarily includes staff costs for service personnel, purchase of non-capitalized material and equipment (such as tools and rental equipment), depreciation relating to capital assets used in our operations, vehicle and equipment rental and maintenance and repair.

 

Selling, general and administrative (“SG&A”)

 

SG&A expense primarily includes salary and employee benefits for non-production personnel (primarily management and administrative personnel), professional service fees, office facilities and equipment, office supplies and non-capitalized office equipment and depreciation of office furniture and fixtures.

 

Amortization

 

Amortization expense primarily includes amortization of intangible assets associated with acquired customer contracts, trademarks and tradenames.

 

Interest expense, net

 

Interest expense primarily consists of interest on outstanding debt, net of interest income.

 

 C: 
31
 

 

Other income (expense), net

 

Other operating income (expenses) primarily consists of gain/loss on disposal of Property, plant and equipment, net, bank charges and foreign exchange gains and losses.

 

Key Performance Indicators

 

Historically, we have tracked two principal non-financial performance indicators that are important drivers of our results of operations: rig count and oil price. Oil price is important because the level of spending by E&P companies, our principal customers, is significantly influenced by anticipated future prices of oil, which is typically indicative of expected supply and demand. Changes in E&P spending, in turn, typically result in an increased or decreased demand for our services. Rig count, particularly in the regions in which we operate, is an indicator of the level of activity and spending by our E&P customers and has historically been an important indicator of our financial performance and activity levels. More recently, our customers in certain parts of the MENA region have increased their efforts to commercialize natural gas, particularly from unconventional formations. Over time, we anticipate that the market for natural gas will also become a key performance indicator for the Company.

 

The following table shows rig count (Source: Baker Hughes Published Rig Count Data) and oil prices as of the dates indicated:

 

   As of June 30, 
   2020   2019 
         
Rig count:          
MENA   385    476 
Rest of World – outside of North America   396    662 
Total   781    1,138 
           
Brent Crude (per barrel)  $41.64   $64.74 

 

 C: 
32
 

 

 

Basis of Presentation of Financial Information

 

Segments

 

We operate our business and report our results of operations through two operating and reporting segments, Production Services and Drilling and Evaluation Services, which aggregate services performed during distinct stages of a typical life cycle of an oil well.

 

Production Services. Our Production Services segment includes the results of operations from services that are generally offered and performed during the production stage of a well’s lifecycle. These services mainly include coiled tubing, cementing, stimulation and pumping, nitrogen services, filtration services, completions, pipelines, laboratory services and artificial lift services. Our Production Services accounted for 68%, 60%, 68% and 60% for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively.

 

Drilling and Evaluation Services. Our Drilling and Evaluation Services segment includes the results of operations from services that are generally offered and performed during pre-production stages of a well’s lifecycle and related mainly to the operation of oil rigs. The services mainly include well testing services, drilling services and rental, fishing and remediation, drilling and workover rigs, wireline logging services, turbines drilling, directional drilling, slickline services and drilling fluids, among others. Our Drilling and Evaluation Services accounted for 32%, 40%, 32% and 40% for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively.

 

See Item 4B, “Business Overview” in our Annual Report on Form 20-F for the year ended December 31, 2019, which is hereby incorporated by reference into this Periodic Report, for a description of our reportable segments.

 

Results of Operations

 

The discussions below relating to significant line items from our Condensed Consolidated Statements of Operations are based on available information and represent our analysis of significant changes or events that impact the fluctuations in or comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends. In addition, the discussions below for revenues are on an aggregate basis for each fiscal period, as the business drivers for all services are similar.

 

2020 compared to 2019

 

The following table presents our consolidated income statement data for the periods indicated:

 

   Quarter ended   Year-to-date period ended 
Description  June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019 
                 
Revenues  $203,249   $159,899   $402,548   $311,603 
Cost of services   (164,343)   (116,893)   (322,613)   (231,390)
Gross profit   38,906    43,006    79,935    80,213 
Selling, general and administrative expenses   (17,114)   (17,062)   (35,741)   (30,107)
Amortization   (3,934)   (3,949)   (7,821)   (8,003)
Operating income   17,858    21,995    36,373    42,103 
Interest expense, net   (4,165)   (5,750)   (8,675)   (9,680)
Other income / (expense), net   (309)   (438)   (420)   (499)
Income before income tax   13,384    15,807    27,278    31,924 
Income tax expense   (2,848)   (4,451)   (5,375)   (7,394)
Net income / (loss)   10,536    11,356    21,903    24,530 
Net income / (loss) attributable to non-controlling interests   -    -    -    - 
Net income attributable to shareholders  $10,536   $11,356   $21,903   $24,530 

 

Revenue. Revenue was $203.2 million for the quarter ended June 30, 2020, compared to $159.9 million for the quarter ended June 30, 2019, and $402.5 million for the year-to-date period ended June 30, 2020, compared to $311.6 million for the year-to-date period ended June 30, 2019.

 

 C: 
33
 

 

The table below presents our revenue by segment for the periods indicated:

 

   Quarter ended   Year-to-date period ended 
  

June 30,

2020

  

June 30,

2019

  

June 30,

2020

  

June 30,

2019

 
Reportable Segment:                    
Production Services  $139,034   $95,358   $272,224   $187,471 
Drilling and Evaluation Services   64,215    64,541    130,324    124,132 
Total revenue  $203,249   $159,899   $402,548   $311,603 

 

Production Services revenue was $139.0 million for the quarter ended June 30, 2020, compared to $95.4 million for the quarter ended June 30, 2019, and $272.2 million for the year-to-date period ended June 30, 2020, compared to $187.5 million for the year-to-date period ended June 30, 2019. The increase in revenue was primarily due to increased hydraulic fracturing activities in Saudi Arabia.

 

Drilling and Evaluation Services revenue was $64.2 million for the quarter ended June 30, 2020, compared to $64.5 million for the quarter ended June 30, 2019, and $130.3 million for the year-to-date period ended June 30, 2020, compared to $124.1 million for the year-to-date period ended June 30, 2019. The increase in revenue was primarily due to higher logging and slickline activities in Saudi Arabia.

 

Cost of services. Cost of services was $164.3 million for the quarter ended June 30, 2020, compared to $116.9 million for the quarter ended June 30, 2019, and $322.6 million for the year-to-date period ended June 30, 2020, compared to $231.4 million for the year-to-date period ended June 30, 2019. Cost of services as a percentage of total revenue was 81%, 73%, 80% and 74% for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively. The change in cost of services as percentage of total revenue is mainly due to a change in revenue mix between business lines with lower and higher margins. Cost of services included depreciation expense $26.4 million, $16.0 million, $51.8 million and $30.5 million for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively. Depreciation expense has increased due to additional capital expenditures throughout the second half of 2019 and into the first half of 2020. 

 

Gross profit. Gross profit as a percentage of total revenue was 19%, 27%, 20% and 26% for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively. The change in trend is described under “Revenue” and “Cost of services.”

 

Selling, general and administrative expenses. SG&A expense, which represents costs associated with managing and supporting our operations, was $17.1 million for the quarter ended June 30, 2020, compared to $17.1 million for the quarter ended June 30, 2019, and $35.7 million for the year-to-date period ended June 30, 2020, compared to $30.1 million for the year-to-date period ended June 30, 2019. SG&A as a percentage of total revenue was 8%, 11%, 9% and 10% for the quarter ended June 30, 2020, the quarter ended June 30, 2019, the year-to-date period ended June 30, 2020, and the year-to-date period ended June 30, 2019, respectively. The increase in expenses year-to-date-period over year-to-date-period is primarily due to a corresponding increase in the Company’s activity volume. 

 

Amortization expense. Amortization expense $3.9 million for the quarter ended June 30, 2020, compared to $3.9 million for the quarter ended June 30, 2019, and $7.8 million for the year-to-date period ended June 30, 2020, compared to $8.0 million for the year-to-date period ended June 30, 2019. Amortization expense is driven mainly by acquired intangible assets resulting from the acquisitions of GES and NPS in 2018 and to a lesser extent, intangible assets acquired in the acquisition of SAPESCO during the second quarter of 2020.

 

Interest expense, net. Interest expense, net, was $4.2 million for the quarter ended June 30, 2020, compared to $5.8 million for the quarter ended June 30, 2019, and $8.7 million for the year-to-date period ended June 30, 2020, compared to $9.7 million for the year-to-date period ended June 30, 2019. The decrease in interest expense during the periods ended June 30, 2020, as compared to periods ended June 30, 2019, is mainly attributable to lower interest rates obtained in the May 2019 refinancing of our credit facilities.

 

 C: 
34
 

 

Other (expense) income, net. Other (expense) income, net, was ($0.3) million for the quarter ended June 30, 2020, compared to ($0.4) million for the quarter ended June 30, 2019, and ($0.4) million for the year-to-date period ended June 30, 2020, compared to ($0.5) million for the year-to-date period ended June 30, 2019. Differences between periods were mainly attributed to losses and gains on Property, plant and equipment, net.

 

Income tax expense (benefit). Income tax expense (benefit) was $2.8 million for the quarter ended June 30, 2020, compared to $4.5 million for the quarter ended June 30, 2019, and $5.4 million for the year-to-date period ended June 30, 2020, compared to $7.4 million for the year-to-date period ended June 30, 2019. See Note 17, Income taxes, to our condensed consolidated interim financial statements included in Part 1, Item 1, “Financial Statements (Unaudited)” of this Periodic Report.

 

Net income. Net income was $10.5 million for the quarter ended June 30, 2020, compared to $11.4 million for the quarter ended June 30, 2019, and $21.9 million for the year-to-date period ended June 30, 2020, compared to $24.5 million for the year-to-date period ended June 30, 2019.

 

Supplemental Segment Operating Income Discussion

 

   Quarter ended   Year-to-date period ended 
  

June 30,

2020

  

June 30,

2019

  

June 30,

2020

  

June 30,

2019

 
Reportable Segment:                    
Production Services  $20,217   $23,192   $41,545   $44,514 
Drilling and Evaluation Services   8,334    9,413    16,202    14,892 

 

Production Services segment operating income was $20.2 million for the quarter ended June 30, 2020, compared to $23.2 million for the quarter ended June 30, 2019, and $41.5 million for the year-to-date period ended June 30, 2020, compared to $44.5 million for the year-to-date period ended June 30, 2019.

 

Drilling and Evaluation segment operating income was $8.3 million for the quarter ended June 30, 2020, compared to $9.4 million for the quarter ended June 30, 2019, and $16.2 million for the year-to-date period ended June 30, 2020, compared to $14.9 million for the year-to-date period ended June 30, 2019.

 

 C: 
35
 

 

Liquidity and Capital Resources

 

Our objective in financing our business is to maintain sufficient liquidity, adequate financial resources and financial flexibility to fund the requirements of our business. We had cash and cash equivalents of $79.3 million as of June 30, 2020, and $73.2 million as of December 31, 2019. Our outstanding long-term debt was $335.5 million as of June 30, 2020, and $330.6 million as of December 31, 2019. We believe that our cash on hand, cash flows generated from operations, and liquidity available through our credit facilities, including recently drawn facilities, will provide sufficient liquidity to manage our global cash needs. See “Capital Resources” below.

 

To date, the recent outbreak of COVID-19 and decrease in worldwide oil prices and demand have not significantly impacted our business operations and financial position. The extent to which these events impact our business operations and financial position, in particular our liquidity position and capital resources, will depend on future developments, which are highly uncertain and cannot be predicted by our management. Any continued period of extreme economic disruption, low oil prices, and reduced demand for our products and services may have a material adverse impact on our business, results of operations, access to sources of liquidity and financial condition. In view of such uncertainty, we have reevaluated the timing and extent of our planned capital expenditures and updated our cash flow forecasts to be prepared for potential liquidity risks due to customer activity and/or collection slowdowns. We may increase or further decrease our capital budget as circumstances change.

 

Cash Flows

 

Cash flows provided by (used in) each type of activity were as follows for the periods presented:

 

(in US$ thousands)

 

  

Year-to-date

period ended

June 30, 2020

  

Year-to-date period ended

June 30, 2019

 
Cash Provided by (used in):          
Operating Activities  $52,599   $20,056 
Investing Activities   (46,214)   (51,409)
Financing Activities   (304)   76,123 
Effect of exchange rate changes on cash   35    (19)
           
Net change in cash and cash equivalents  $6,116   $(4,957)

 

Operating Activities

 

Cash flows provided by operating activities were $52.6 million for the year-to-date period ended June 30, 2020, compared to cash flows provided by operating activities of $20.1 million for the year-to-date period ended June 30, 2019. Cash flows from operating activities increased by $32.5 million in the year-to-date period ended June 30, 2020, compared to year-to-date period ended June 30, 2019, primarily due to an increase in non-cash depreciation expense, improved accounts receivable collections net of growth in unbilled revenue, and better cash management of accounts payable.

 

Investing Activities

 

Cash flows used in investing activities were $46.2 million for the year-to-date period ended June 30, 2020, compared to cash flows used in investing activities of $51.4 million for the year-to-date period ended June 30, 2019. The difference between periods was primarily due to the change in timing of cash payments for capital expenditures. Our principal recurring investing activity is the funding of capital expenditures to ensure that we have the appropriate levels and types of machinery and equipment in place to generate revenue from operations. Cash flows used in investing activities for the period ended June 30, 2020 also includes a cash inflow related to cash acquired in the SAPESCO acquisition due to a temporary delay in cash payments to the sellers until the third quarter of 2020.

 

Financing Activities

 

Cash flows used in financing activities were $0.3 million for the year-to-date period ended June 30, 2020, compared to cash flows provided by financing activities of $76.1 million for the year-to-date period ended June 30, 2019. The shift between 2019 and 2020 is primarily attributable to the May 2019 refinancing of our credit facilities which did not recur in the 2020 period.

 

 C: 
36
 

 

Credit Facilities

 

As of and after June 30, 2020, we had the following principal credit facilities and instruments outstanding or available:

 

Secured Facilities Agreement

 

On May 5, 2019, the Company entered into a $450.0 million term loan, revolving credit, and working capital facilities agreement (the “Secured Facilities Agreement”) with Arab Petroleum Investments Corporation (“APICORP”) – Bahrain Banking Branch, HSBC Bank Middle East Limited (“HSBC”), Mashreqbank PSC and Saudi British Bank acting as initial mandated lead arrangers and bookrunners, Mashreqbank PSC acting as global agent, APICORP and Mashreqbank PSC acting as security agents, NPS Bahrain for Oil & Gas Wells Services WLL (“NPS Bahrain”) and its Kuwait branch, Gulf Energy SAOC and National Petroleum Technology Company as borrowers, and HSBC, Mashreqbank PSC, APICORP and Saudi British Bank, as the “Lenders.” On May 23, 2019 and June 20, 2019, the Company entered into $35.0 million and $40.0 million Incremental Facilities Agreements, respectively, increasing the size of the Secured Facilities Agreement to $485.0 million and $525.0 million, respectively. During the quarter ended June 30, 2020, the Secured Facilities Agreement was reduced to $520.6 million primarily as a result of the non-renewal of a project-specific letter of credit.

 

The $520.6 million Secured Facilities Agreement consists of a $300.0 million term loan due 2025 (the “Term Loan” or “Secured Term Loan”), a $65.0 million revolving credit facility due 2023 (“RCF” or “Secured Revolving Credit Facility”), and a $155.6 million working capital facility. Borrowings under the Term Loan and RCF incur interest at the rate of three-month LIBOR plus 2.4% to 2.7% per annum, varying based on the Company’s Net Debt / EBITDA ratio as defined in the Secured Facilities Agreement. As of June 30, 2020, and December 31, 2019, this resulted in an interest rate of 2.9% and 4.3%, respectively. As of June 30, 2020, and December 31, 2019, the Company had drawn $300.0 million and $300.0 million, respectively, of the Term Loan and $65 million and $50.0 million, respectively, of the RCF.

 

The RCF was obtained for general corporate and working capital purposes including capital expenditure related requirements and acquisitions (including transaction related expenses). The RCF requires the payment of a commitment fee each quarter. The commitment fee is computed at the rate of 0.60% per annum based on the average daily amount by which the borrowing base exceeds the outstanding borrowings during each quarter. Under the terms of the RCF, the final settlement is due by May 6, 2023. The Company is required to repay the amount of any principal balance outstanding together with any unpaid accumulated interest at three-month LIBOR plus 2.4% to 2.7% per annum, varying based on the Company’s Net Debt / EBITDA ratio as defined in the Secured Facilities Agreement. The Company is permitted to make any prepayment under this RCF in multiples of $5.0 million during this 4-year period up to May 6, 2023. Any unutilized balances from the RCF can be drawn down again during the 4-year tenure at the same terms. As of June 30, 2020, and December 31, 2019, the Company had $0 million and $15.0 million, respectively, available to be drawn under the RCF.

 

The Secured Facilities Agreement also includes a working capital facility of $155.6 million for issuance of letters of guarantee and letters of credit and refinancing letters of credit over a period of one year, which carries an interest rate equal to three-month U.S. Dollar LIBOR for the applicable interest period, plus a margin of 1.00% to 1.25% per annum. As of June 30, 2020, and December 31, 2019, the Company had utilized $127.4 million and $134.2 million, respectively, under this working capital facility and the balance of $28.2 million and $25.8 million, respectively, was available to the Company.

 

The Company has also retained legacy bilateral working capital facilities from HSBC totaling $24.4 million and $30.4 million at June 30, 2020 and December 31, 2019, respectively, in Qatar ($10.4 million at June 30, 2020, $16.4 million at December 31, 2019), in the UAE ($13.9 million at both June 30, 2020 and December 31, 2019) and in Kuwait ($0.1 million at both June 30, 2020 and December 31, 2019). As of June 30, 2020, and December 31, 2019, the Company had utilized $19.4 million and $24.1 million, respectively, under this working capital facility and the balance of $5.0 million and $6.3 million, respectively, was available to the Company.

 

 C: 
37
 

 

Utilization of the working capital facilities under both the legacy arrangement and Secured Facilities Agreement comprises letters of credit issued to vendors, guarantees issued to customers, vendors, and others, and short-term borrowings used to settle letters of credit. Once a letter of credit is presented for payment by the vendor, the Company at its election can settle the letter of credit from available cash or leverage short-term borrowings that will be repaid quarterly over a one-year period. Until a letter of credit is presented for payment by the vendor, it is disclosed as an off-balance sheet obligation. For additional discussion of outstanding letters of credit and guarantees, see Note 14, Commitments and Contingencies.

 

The Secured Facilities Agreement includes covenants that specify maximum leverage (Net Debt / EBITDA) up to 3.50, minimum debt service coverage ratio (Cash Flow / Debt Service) of at least 1.25, and interest coverage (EBITDA / Interest) of at least 4.00. The Company was in compliance with all financial covenants as of both June 30, 2020 and December 31, 2019.

 

CIB Long-Term Debt

 

As part of the SAPESCO transaction, the Company assumed a $21 million debt obligation with Commercial International Bank (collectively, “CIB Long-Term Debt”). Under the terms of its arrangement with CIB, the Company will repay $11 million of this balance during the third quarter of 2020 with the remaining $10 million due on July 20, 2021. Borrowings under the CIB Long-Term Debt incur interest at 2% per annum over 6 months LIBOR (to be settled on quarterly basis) plus 50 basis points per annum. As of June 30, 2020, this resulted in an interest rate of 4.4%. The CIB Long-Term Debt (collectively with the CIB Short-Term Debt, discussed below) includes covenants that specify maximum leverage (Total Liabilities / Equity) up to 1.3, minimum debt service coverage ratio ((Cash operating profits after tax + depreciation - annual maintenance for equipment)/(Financial payments + profit sharing for the same period)) of at least 1, and minimum current rate (Current Assets / Current Liabilities) of at least 1.00. The Company was in compliance with all financial covenants as of June 30, 2020.

 

CIB Short-Term Debt

 

As part of the SAPESCO transaction, the Company assumed a $2.6 million debt obligation with Commercial International Bank (collectively, “CIB Short-Term Debt”) for working capital and overdraft purposes. The balances are due no later than September 16, 2020. The CIB Short-Term Debt facilities include a $1.5 million U.S. Dollar time loan facility, a E£2 million Egyptian Pound time loan facility, and a E£10 million Egyptian pound time loan overdraft facility, and $13.8 million U.S. dollars in letters of guarantee.

 

The U.S. Dollar time loan facility accrues interest at 2.25% per annum over 3 months LIBOR plus 50 basis points per annum of the Highest Monthly Debit Balance (“HMDB”) commission. The Egyptian Pound time loan and overdraft facilities accrue interest at 0.75% per annum over Corridor Offer Rate plus 50 basis points per annum, HMDB commission.

 

As of June 30, 2020, the CIB Short-Term Debt resulted in an interest rate of 4.6% and 10.6%, respectively, for the U.S. Dollar and Egyptian Pound denominated facilities. As of June 30, 2020, the Company had utilized $1.3 million of the U.S. Dollar time loan facility, E£2.0 million of the Egyptian Pound time loan facility, and E£7.8 million of the Egyptian pound time loan overdraft facility, and $8.5 million in letters of guarantee, with the balances of $0.2 million, E£0 (zero) million, and E£2.2 million, and $5.3 million, respectively, available to the Company.

 

ABK Short-Term Debt

 

As part of the SAPESCO transaction, the Company assumed a $3.1 million debt obligation with Al Ahli Bank of Kuwait (collectively, “ABK Short-Term Debt”) for working capital and overdraft purposes. The balance is due no later than September 16, 2020. The ABK Short-Term Debt facilities include a $3.2 million U.S. Dollar time loan facility and $0.2 million U.S. dollars in letters of guarantee. The ABK Short-Term Debt accrues interest at 1.65% per annum over Corridor Offer Rate. As of June 30, 2020, this resulted in an interest rate of 10.9%. As of June 30, 2020, the Company had utilized $2.9 million of the ABK Short-Term Debt facility and $0.2 million in letters of guarantee with $0 (zero) and $0 million, respectively, available to the Company. There are no financial covenants associated with the ABK Short-Term Debt.

 

 C: 
38
 

 

Capital Resources

 

In the next twelve months, we believe cash on hand, cash flows from operating activities and available credit facilities, including those of our subsidiaries, will provide us with sufficient capital resources and liquidity to manage our working capital needs, meet contractual obligations, fund capital expenditures and mergers and acquisitions, and support the development of our short-term operating strategies. Although varying in approach by jurisdiction, the Company can make use of excess cash generated in a particular jurisdiction to fund cash needs of other jurisdictions.

 

We plan to pursue strategic acquisitions as an element of our business strategy. The timing, size or success of any acquisition and the associated potential capital commitments are unpredictable and uncertain. We may seek to fund all or part of any such acquisition with proceeds from debt or equity issuances, or may issue equity directly to the sellers, in any such acquisition, or any combination thereof. Our ability to obtain capital for strategic acquisitions will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to our shareholders.

 

Other Factors Affecting Liquidity

 

Customer receivables. In line with industry practice, we bill our customers for our services in arrears and are, therefore, subject to our customers delaying or failing to pay our invoices. In weak economic environments, we may experience increased delays and failures to pay our invoices due to, among other reasons, a reduction in our customers’ cash flow from operations and their access to the credit markets as well as unsettled political conditions. If our customers delay paying or fail to pay us a significant amount of our outstanding receivables, it could have a material impact on our liquidity, consolidated results of operations and consolidated financial condition.

 

Shelf registration statement. On August 23, 2019, the Company filed a shelf registration statement on Form F-3 with the SEC. On September 13, 2019, the SEC declared the shelf registration statement effective. The shelf registration statement gives the Company the ability to sell up to $300.0 million of the Company’s ordinary shares from time to time in one or more offerings. The specific terms, including the amount, of any ordinary shares to be sold in such an offering, if it does occur, would be described in supplemental filings with the SEC. The shelf registration statement currently provides the Company additional flexibility about potential financings that it may undertake when market conditions permit. The shelf registration statement will expire in 2022.

 

For other matters affecting liquidity, see Item 5E, “Off-Balance Sheet Arrangements” below.

 

Off-Balance Sheet Arrangements

 

Letters of credit. The Company had outstanding letters of credit amounting to $16.3 million and $21.2 million as of June 30, 2020, and December 31, 2019, respectively.

 

 C: 
39
 

 

Guarantee agreements. In the normal course of business with customers, vendors and others, we have entered into off-balance sheet arrangements, such as surety bonds for performance, and other bank issued guarantees which totaled $105.7 million and $99.1 million as of June 30, 2020, and December 31, 2019, respectively. We have also entered into cash margin guarantees totaling $5.2 million and $5.8 million at June 30, 2020, and December 31, 2019, respectively. A liability is accrued when a loss is both probable and can be reasonably estimated. None of the off-balance sheet arrangements either has, or is likely to have, a material effect on our condensed consolidated interim financial statements.

 

Contractual Obligations

 

The information in the Annual Report on Form 20-F for the year ended December 31, 2019 under the section entitled “Tabular Disclosure of Contractual Obligations” in Part I, Item 5F, is hereby incorporated by reference into this Periodic Report. As of June 30, 2020, there were no material changes to this disclosure regarding our contractual obligations except as it relates to our estimated principal payments for long-term debt, principal payments for short-term debt, estimated interest payments, operating leases, capital lease obligations, and employees’ end of service benefits.

 

As a result of the Company entering into a second capital lease for hydraulic fracturing equipment during the quarter ended June 30, 2020, our future contractual obligations related to estimated capital leases increased by $6.9 million. As of June 30, 2020, for estimated future minimum lease commitments, we anticipate paying an additional $2.6 million in less than 1 year, $4.3 million from 1 to 3 years in the future, and $0 (zero) from 3-5 years into the future.

 

As a result of the SAPESCO business combination, our future contractual obligations related to principal payments for long-term debt, principal payments for short-term debt, estimated interest payments, operating leases, capital lease obligations, and employees’ end of service benefits have all increased. For obligations related to principal payments for long-term debt, we anticipate paying an additional $10.9 million in less than 1 year, $10 million from 1 to 3 years in the future, and $0 (zero) from 3-5 years into the future. For obligations related to principal payments for short-term debt, we anticipate paying an additional $5.1 million in less than 1 year, $0 (zero) from 1 to 3 years in the future, and $0 (zero) from 3-5 years into the future. For obligations related to estimated interest payments, we anticipate paying an additional $0.4 million in less than 1 year, $0.1 million from 1 to 3 years in the future, and $0 (zero) from 3-5 years into the future. For obligations related to estimated operating lease payments, we anticipate paying an additional $0.3 million in less than 1 year, $0.1 million from 1 to 3 years in the future, and $0 (zero) from 3-5 years into the future. For estimated future minimum lease commitments on capital leases, we anticipate paying an additional $1.0 million in less than 1 year, $2.3 million from 1 to 3 years in the future, and $0 (zero) from 3-5 years into the future. For estimated employees’ end of service benefits, we anticipate paying an additional $0 (zero) in less than 1 year, $0 (zero) from 1 to 3 years in the future, $0 (zero) from 3-5 years into the future, and $0.9 million more than 5 years into the future.

 

Critical Accounting Policies and Estimates

 

The information in the Annual Report on Form 20-F for the year ended December 31, 2019 under the section entitled “Critical Accounting Policies and Estimates” in Part I, Item 5A, is hereby incorporated by reference into this Periodic Report. As of June 30, 2020, there were no material changes to this disclosure regarding our Critical Accounting Policies and Estimates made in the Annual Report.

 

 C: 
40
 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Foreign Currency Risk

 

We are exposed to foreign currency risks that arise from normal business operations. These risks include transaction gains and losses associated with transactions denominated in currencies other than a location’s functional currency.

 

US dollar balances in the United Arab Emirates, Saudi Arabia, Oman and Qatari entities are not considered to represent significant currency risk as the respective currencies in these countries are pegged to the U.S. dollar. Our foreign currency risk arises from the settlement of transactions in currencies other than our functional currency, specifically in Algerian Dinar, Egyptian Pound, Libyan Dinar, and Iraqi Dinar. However, customer contracts in these countries are largely denominated in U.S. dollars.

 

Credit Risk

 

Credit risk is the risk that one party to a financial instrument may fail to discharge an obligation and cause the other party to incur a financial loss. We are exposed to credit risk on our accounts receivable, unbilled revenue, and other receivables and certain other assets (such as bank balances) as reflected in our Condensed Consolidated Balance Sheet, with the maximum exposure equaling the carrying amount of these assets in the Condensed Consolidated Balance Sheet. We seek to manage our credit risk with respect to banks by only dealing with reputable banks (our cash and cash equivalents are primarily held with banks and financial institution counterparties that are rated A1 to Baa3, based on Moody’s ratings) and with respect to customers by monitoring outstanding receivables and following up on outstanding balances. Management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and the country in which our customers operate. We sell our products to a variety of customers, mainly to national oil companies in the MENA and Asia Pacific regions.

 

Liquidity Risk

 

Liquidity risk is the risk that we may not be able to meet our financial obligations as they fall due. Our approach to managing liquidity risk is to ensure, as far as possible, that we will always have sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions, without incurring unacceptable costs or liabilities. We maintain cash flow forecasts to monitor our liquidity position.

 

Accounts payable are normally settled within the terms of purchase from the supplier. We believe cash on hand, cash flows from operating activities and the available credit facilities will provide us with sufficient capital resources and liquidity to manage our working capital needs, meet contractual obligations, fund capital expenditures, and support the development of our short-term and long-term operating strategies.

 

Market Risk

 

We are exposed to market risks primarily from changes in interest rates on our long-term borrowings as well as fluctuations in foreign currency exchange rates applicable to our foreign subsidiaries and where local exchange rates are not pegged to the U.S. dollar (Algeria, Libya, Egypt and Iraq). However, the foreign exchange risk is largely mitigated by the fact that all customer contracts are denominated in U.S. dollars.

 

We do not use derivatives for trading purposes, to generate income or to engage in speculative activity.

 

 C: 
41
 

 

ITEM 4. INTERNAL CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our reports that we submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended), were not effective as of the end of the period covered by this Periodic Report due to the material weaknesses in our internal control over financial reporting described below.

 

In addition, in light of the COVID-19 outbreak, a fair number of our office-based support personnel are working remotely. In response to the incremental risks associated with employees working remotely using online collaboration tools, we have updated our Cyber Security Policy and required additional training.

 

Material Weaknesses identified as of December 31, 2019

 

In connection with the audit of the Company’s financial statements for the year ended December 31, 2019, management and the Company’s independent registered public accounting firm identified a material weakness in the Company’s internal control over financial reporting. It was concluded that the Company did not maintain an effective control environment over its financial reporting process by providing sufficient resources and technical expertise over accounting for income taxes in accordance with ASC 740. The operators of review controls over accounting for income taxes did not have sufficient information to perform an effective review to ensure compliance with U.S. GAAP. Specific observations contributing to this material weakness include: 1) management’s control of identifying appropriate balance sheet classification of certain income tax balances did not operate effectively; and 2) management did not have appropriate review controls to identify all disclosures required under ASC 740. Notwithstanding the identified material weakness, all required accounting entries have been reflected in our condensed consolidated interim financial statements. If left unremediated, the material weakness could result in future material misstatement of the condensed consolidated interim financial statements that would not be prevented or detected.

 

Management is evaluating changes designed to increase the effectiveness of its review controls over financial reporting processes and to ensure sufficient expertise and resources are allocated to verify compliance with U.S. GAAP. Changes since December 31, 2019 have included a debrief of the year-end 2019 process and findings and a change in personnel preparing tax computations. In the third quarter, management anticipates further redesign of the tax workbook and schedules. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may execute additional measures to modify the remediation actions described above. Management will continue to review and make necessary changes to the overall design of the Company’s internal control.

 

 C: 
42
 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not and have not been involved in any material legal proceedings, other than legal proceedings in the ordinary course of business incidental to our business. Although no assurances can be given about the final outcome of pending legal proceedings, at the present time we are not a party to any legal proceeding or investigation that, in the opinion of management, is likely to have a material impact on our business, financial condition or results of operations.

 

There are no proceedings in which any of our directors, officers or any of their respective affiliates, or any beneficial shareholder of more than five percent of voting securities, is an adverse party or has a material interest adverse to the above-mentioned Company’s interest.

 

Item 1A. Risk Factors.

 

Risks Relating to Our Business and Operations

 

There are several factors that affect our business and operations, many of which are beyond our control. In addition to information set forth in this Periodic Report, careful consideration should be given to the risk factors discussed under the caption “Risk Factors” in Part I, Item 3D of the Annual Report on Form 20-F for the year ended December 31, 2019, which could have a material impact on our business, financial condition or results of operations and are hereby incorporated by reference into this Periodic Report. Such risks are not the only risks we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also have a material impact on our business, financial condition or results of operations.

 

 C: 
43
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NATIONAL ENERGY SERVICES REUNITED CORP.
     
Date: August 6, 2020   /s/ Sherif Foda
  Name: Sherif Foda
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
Date: August 6, 2020   /s/ Christopher L. Boone
  Name: Christopher L. Boone
  Title: Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

 C: 
44

 

 C: 

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘6-K’ Filing    Date    Other Filings
6/6/23
5/6/23
12/15/22
12/15/21
7/20/21
12/31/2020-F
9/16/20
9/1/20
Filed on:8/6/20
For Period end:6/30/20
6/1/20
4/20/20
3/31/206-K
3/18/2020-F
2/13/206-K,  SC 13G/A
12/31/1920-F
9/13/19EFFECT
8/23/19F-3
6/30/196-K
6/20/19
5/23/19
5/5/19
3/31/196-K
2/19/19
1/9/19
1/1/19
12/31/1820-F
6/7/18CORRESP
 List all Filings 
Top
Filing Submission 0001493152-20-014787   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
AboutPrivacyRedactionsHelp — Thu., Mar. 28, 6:38:56.2am ET