Executive Summary / Key Takeaways

• Regional Champion with Strategic Focus: National Energy Services Reunited Corp. (NESR) is a pure-play oilfield services provider deeply embedded in the Middle East and North Africa (MENA) region, leveraging localized expertise and an open technology platform to drive growth and outperformance in a critical global energy hub.
• Robust Financial Performance and Strengthened Balance Sheet: NESR delivered strong financial results in Q2 2025, with revenues of $327.4 million and adjusted EBITDA of $70.6 million, alongside a significant rebound in free cash flow to $68.7 million. The company has substantially reduced its net debt, achieving a net debt to adjusted EBITDA ratio of 0.74x by June 30, 2025.
• Technological Edge in Drilling and Decarbonization: NESR is differentiating itself through its proprietary ROYA directional drilling platform, which has achieved commercial viability and is under multi-year contracts, and its NEDA segment, focused on circular water economy and mineral recovery, including rare earth metals, with pilot projects showing "massive potential."
• Compelling Growth Outlook: Despite global macro uncertainty and a softening upstream environment, NESR anticipates continued growth in 2025 and 2026, driven by robust activity in Kuwait and North Africa, and secular gas development projects in Saudi Arabia, particularly the Jafurah unconventional play.
• Disciplined Capital Allocation and Risk Mitigation: The company's countercyclical investment strategy, coupled with disciplined working capital management and the successful remediation of past internal control weaknesses, positions it for sustainable growth, with excess cash flow currently directed towards debt reduction and potential future shareholder returns.

NESR: A Differentiated Play in the Heart of Global Energy

National Energy Services Reunited Corp. (NESR), incorporated in 2017 and headquartered in Houston, Texas, has rapidly established itself as a pivotal oilfield services provider across the Middle East and North Africa (MENA) region. With operations spanning 16 countries and a strong presence in key markets like Saudi Arabia, Oman, Kuwait, UAE, Iraq, Algeria, Egypt, and Libya, NESR's foundational vision centers on being a regional champion, offering a comprehensive portfolio of solutions while deeply integrating with local economies. This localized approach, emphasizing high local content and talent, not only optimizes the company's cost structure but also enhances its ability to generate free cash flow across various commodity price environments.

The MENA region, accounting for nearly a third of global oil production and boasting some of the lowest break-even prices, remains a vital source of global energy supply and stability. NESR's strategy is intrinsically linked to the long-term strategic visions of national oil companies (NOCs) in the region, which prioritize energy security and domestic demand over short-term commodity price fluctuations. This strategic alignment provides NESR with multi-year contract visibility and a resilient demand profile, distinguishing it from more volatile markets.

Competitive Landscape and Strategic Positioning

NESR operates in a highly competitive oilfield services market, contending with global giants such as Schlumberger (SLB), Halliburton (HAL), and Baker Hughes (BKR), as well as other regional players. While these larger competitors offer extensive global scale and diversified portfolios, NESR carves out its niche through regional expertise, operational agility, and a tailored, cost-effective approach. The company's strength lies in its ability to leverage leading market share in anchor countries to expand smaller segments into other regions, such as spreading drilling and manufacturing expertise from Oman or industrial services from Egypt.

Compared to its global peers, NESR's regional focus provides a qualitative edge in agility and customer relationships, potentially leading to lower operating costs in specific operational contexts. For instance, NESR's specialized services like coiled tubing and stimulation are tailored to local conditions, offering accessibility in emerging markets where larger players might face more complex logistical or regulatory hurdles. However, NESR generally trails its larger competitors in overall technological integration, R&D investment, and global scale, which can impact innovation speed and market share capture in broader, more technologically advanced segments. NESR's EBITDA margin of 18.29% (TTM) is competitive but may reflect the ongoing investments and regional focus compared to the broader portfolios of global leaders.

Technological Differentiation and Innovation

NESR's strategic narrative is significantly bolstered by its commitment to technological differentiation, particularly through its proprietary ROYA Advanced Directional Drilling Technology Platform and the emerging NEDA (NESR Environmental and Decarbonization Application) segment. These initiatives are not merely R&D projects but are designed to create sustainable competitive advantages and unlock new revenue streams.

The ROYA Advanced Directional Drilling Technology Platform is a cornerstone of NESR's growth strategy within its Drilling and Evaluation Services segment. This platform comprises proprietary Rotary Steerable (RoyaSteer), Measure-While-Drilling (RoyaSteer MWD), and Logging-While-Drilling (RoyaSeek LWD) tools. The tier-one directional drilling market, valued at over $2 billion annually, offers high-quality revenue due to the sophistication and consolidation of its technologies. NESR has made significant strides, including the successful execution of a flagship single-run wellbore delivery in Kuwait with its RoyaSteer and MWD tools, completing the targeted interval efficiently. This milestone, achieved after nearly six years of joint investment, research, development, and field testing with over 70,000 feet drilled, signals the commercial viability of the technology. NESR already holds multi-year contracts to deploy the ROYA platform in Kuwait, Saudi Arabia, and Oman, offering significant upside potential. The company's goal is to achieve repeatable success and enhance reliability, aiming for the tools to be considered commercial and reliable enough to meet market standards by the second half of 2025. For investors, ROYA represents a linear driver of growth, enhancing NESR's competitive moat by offering advanced drilling capabilities that can compete with larger players, potentially leading to higher average selling prices (ASPs) and improved margins in a high-value segment.

The NEDA (NESR Environmental and Decarbonization Application) segment is another critical differentiator, focusing on establishing multiple circular economies within the MENA energy value chain. This segment addresses pressing environmental challenges like water scarcity and carbon emissions while exploring economic opportunities through mineral extraction. NESR is actively involved in produced water treatment and mineral recovery, including innovation around frac design, fluid chemistry, and dissolvable plugs. The company has mobilized crucial pilot projects in mineral recovery, with exciting opportunities in rare earth mineral extraction, which are vital for boosting the overall economics of produced water treatment. In Q4 2024, NESR successfully delivered over 2,000 metric tons of CO2 for a CCS reservoir injection pilot in Indonesia. A strategic investment in Salttech BV formalized NESR's strategy around zero liquid discharge (ZLD) for reusing industrial water, following successful pilot projects with its largest customer. Management anticipates having clearer insights into the economics of these pilots within 3 to 6 months, and if viable, the demand could be enormous. The "so what" for investors is the potential for NEDA to create entirely new, high-margin revenue streams, aligning NESR with global decarbonization trends and regional sustainability goals. This could significantly enhance NESR's long-term growth strategy and market positioning, especially as the industry increasingly discusses mineral extraction from produced water, including direct lithium extraction.

Financial Performance and Liquidity

NESR has demonstrated a strong financial trajectory, marked by consistent revenue growth and robust cash flow generation. For the second quarter ended June 30, 2025, the company reported revenues of $327.4 million, an 8.0% sequential increase and a 0.7% year-over-year increase, outpacing the broader sector. Net income for the quarter was $15.2 million, improving 46.3% sequentially. Adjusted EBITDA reached $70.6 million, with margins of 21.6%, up 95 basis points sequentially.

The first half of 2025 saw revenues of $630.5 million, up from $621.8 million in the first half of 2024. While Production Services revenue decreased due to reduced hydraulic fracturing stages in Saudi Arabia, this was partially offset by growth in Drilling and Evaluation Services, driven by increased well testing activity in Saudi Arabia and the contribution from the ROYA platform. The cost of services as a percentage of total revenue increased in Q2 2025, attributed to an elevated cost structure in anticipation of higher activity levels in the second half of the year. Selling, general, and administrative (SGA) expenses decreased due to lower spending on material weakness remediation, and net interest expense declined due to lower debt levels.

NESR's liquidity position has significantly strengthened. Cash flow from operating activities rebounded sharply in Q2 2025 to $98.5 million, driven by improved working capital efficiency, including better management of accounts receivable, accounts payable, and inventory. For the six months ended June 30, 2025, cash provided by operating activities totaled $119.0 million, an improvement of 6.0% year-over-year. Free cash flow for the first half of 2025 was $59.1 million.

The company's gross debt stood at $354 million and net debt at $223 million as of June 30, 2025, with the net debt to adjusted EBITDA ratio falling to an impressive 0.74x, maintaining below its 1x target for the fourth consecutive quarter.

This strong financial health, including a full year 2024 free cash flow of $124 million and a return on capital employed (ROCE) of 11.6% in Q4 2024, provides NESR with considerable flexibility for strategic investments and future growth.

Outlook and Guidance

NESR's management maintains a confident outlook, anticipating continued growth despite a cautious global macro environment. The company expects Q3 2025 revenues and EBITDA to be consistent with Q2 2025 results, with a slight improvement in margins for Q4 2025. For the full year 2025, NESR projects revenues to exceed those of 2024, driven by recent contract wins and successful technology deployments. Management anticipates exiting 2025 at a record run rate for revenue, with growth expected to continue through 2026. The full year 2025 interest expense is projected to be around $31 million, with an effective tax rate in the mid-20s. Capital expenditures for 2025 are estimated at approximately $125 million, with a potential increase of up to $20 million depending on the outcome of large tenders.

This optimistic outlook is underpinned by several key assumptions:

• MENA Resilience: The MENA region is expected to remain a "bright spot" with stable to slightly increasing activity, particularly driven by secular gas development projects that are moving ahead irrespective of global commodity prices.
• Kuwait's Growth: Kuwait's rig count is at an all-time high, making it the second-largest country in the Middle East by rig count, and it is projected to lead MENA growth on a percentage basis for the next few years. NESR has secured multiple downhole drilling awards totaling $100 million in Kuwait and new slickline contracts worth $200 million across Kuwait and Oman.
• Saudi Gas Development: While conventional oil activity in Saudi Arabia has softened, the ambitious Jafurah unconventional gas project is a significant growth engine for NESR, with plans for a dramatic increase in frac stages. Saudi Arabia aims to grow gas production by 60% from its 2021 baseline by 2030.
• North Africa Expansion: NESR secured multiple Production Services contracts in Algeria and Libya exceeding $100 million, with North Africa's proximity to European energy markets positioning it for significant gas development. Libya, in particular, aims to increase oil production from 1.2 million to 1.6 million barrels per day, requiring substantial rig activity.

NESR's countercyclical investment strategy, which involves investing heavily during market downturns, is expected to enable the company to outperform the broader MENA market, with management targeting growth at double the market rate.

Risks and Challenges

Despite the positive outlook, NESR faces several inherent risks. The oilfield services sector is highly cyclical, and demand for services is closely tied to global commodity prices and rig activity, making it susceptible to market volatility. While the MENA region is generally less affected by oil price fluctuations due to lower production costs and strategic national interests, geopolitical instability, armed conflict, or economic sanctions in the region could still impact operations and financial results. The projected global inventory build through late 2025 into early 2026, primarily driven by OPEC supply, could keep oil prices challenged.

Operational risks include the need for significant capital expenditures for asset maintenance and upgrades, which may not always be available, and intense competition, including technological advancements from rivals. Customer receivables also pose a liquidity risk, as delays or failures in payments could materially impact cash flow. However, NESR has successfully remediated its previously reported material weakness in internal control over financial reporting related to "tone at the top" by June 30, 2025, and settled a civil administrative proceeding with the SEC, addressing significant past challenges.

Conclusion

National Energy Services Reunited Corp. presents a compelling investment thesis rooted in its strategic positioning within the resilient MENA energy market, disciplined financial management, and a forward-looking approach to technological innovation. The company's countercyclical investment strategy, coupled with its localized expertise and strong customer relationships, enables it to outperform the broader market even amidst global uncertainties. With a fortified balance sheet, robust cash flow generation, and a clear roadmap for growth driven by its ROYA directional drilling platform and NEDA decarbonization initiatives, NESR is well-positioned to capitalize on the region's sustained energy demand and strategic shift towards gas development.

While the global energy landscape remains dynamic, NESR's focus on high-growth areas like Kuwait and Saudi Arabia's unconventional gas plays, combined with its commitment to developing cutting-edge technologies for efficiency and sustainability, underscores its potential for long-term value creation. The company's ability to leverage its unique competitive advantages and adapt to evolving market demands suggests a promising trajectory for investors seeking exposure to a differentiated player in a critical global energy region.