0001698514 false Q3 2020 --12-31 Unlimited Unlimited Unlimited Unlimited 0 0 0 0 0 0 0 0 0 0 0 0 0 2021-08-15 0 0 0001698514 2020-01-01 2020-09-30 0001698514 2020-09-30 0001698514 2019-12-31 0001698514 2019-01-01 2019-12-31 0001698514 2020-07-01 2020-09-30 0001698514 2019-07-01 2019-09-30 0001698514 2019-01-01 2019-09-30 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 2020-06-30 0001698514 us-gaap:CommonStockMember 2020-07-01 2020-09-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2020-07-01 2020-09-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-07-01 2020-09-30 0001698514 us-gaap:RetainedEarningsMember 2020-07-01 2020-09-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2020-07-01 2020-09-30 0001698514 us-gaap:NoncontrollingInterestMember 2020-07-01 2020-09-30 0001698514 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0001698514 us-gaap:CommonStockMember 2020-09-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2020-09-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-09-30 0001698514 us-gaap:RetainedEarningsMember 2020-09-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2020-09-30 0001698514 us-gaap:NoncontrollingInterestMember 2020-09-30 0001698514 us-gaap:CommonStockMember 2019-06-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001698514 us-gaap:RetainedEarningsMember 2019-06-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2019-06-30 0001698514 us-gaap:NoncontrollingInterestMember 2019-06-30 0001698514 2019-06-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0001698514 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2019-07-01 2019-09-30 0001698514 us-gaap:NoncontrollingInterestMember 2019-07-01 2019-09-30 0001698514 us-gaap:CommonStockMember 2019-09-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001698514 us-gaap:RetainedEarningsMember 2019-09-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2019-09-30 0001698514 us-gaap:NoncontrollingInterestMember 2019-09-30 0001698514 2019-09-30 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 2020-09-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-09-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-09-30 0001698514 us-gaap:RetainedEarningsMember 2020-01-01 2020-09-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2020-01-01 2020-09-30 0001698514 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-09-30 0001698514 us-gaap:CommonStockMember 2018-12-31 0001698514 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001698514 us-gaap:RetainedEarningsMember 2018-12-31 0001698514 NESR:TotalCompanyStockholdersEquityMember 2018-12-31 0001698514 us-gaap:NoncontrollingInterestMember 2018-12-31 0001698514 2018-12-31 0001698514 us-gaap:CommonStockMember 2019-01-01 2019-09-30 0001698514 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-09-30 0001698514 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0001698514 us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0001698514 NESR:TotalCompanyStockholdersEquityMember 2019-01-01 2019-09-30 0001698514 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-09-30 0001698514 us-gaap:AccountsPayableMember 2020-01-01 2020-09-30 0001698514 us-gaap:AccruedLiabilitiesMember 2020-01-01 2020-09-30 0001698514 us-gaap:ShortTermDebtMember 2020-01-01 2020-09-30 0001698514 us-gaap:OtherCurrentLiabilitiesMember 2020-01-01 2020-09-30 0001698514 us-gaap:OtherLiabilitiesMember 2020-01-01 2020-09-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-09-30 0001698514 us-gaap:AccountsPayableMember 2019-01-01 2019-09-30 0001698514 us-gaap:ShortTermDebtMember 2019-01-01 2019-09-30 0001698514 NESR:ProductionServicesMember 2020-07-01 2020-09-30 0001698514 NESR:ProductionServicesMember 2019-07-01 2019-09-30 0001698514 NESR:ProductionServicesMember 2020-01-01 2020-09-30 0001698514 NESR:ProductionServicesMember 2019-01-01 2019-09-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-07-01 2020-09-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2019-07-01 2019-09-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-01-01 2020-09-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2019-01-01 2019-09-30 0001698514 NESR:SaleAndPurchaseAgreementMember NESR:SaharaPetroleumServicesCompanyMember 2020-02-13 0001698514 srt:ScenarioForecastMember 2020-10-01 2020-12-31 0001698514 NESR:SaleAndPurchaseAgreementMember NESR:SaharaPetroleumServicesCompanyMember 2020-08-25 2020-09-02 0001698514 NESR:SaleAndPurchaseAgreementMember NESR:SaharaPetroleumServicesCompanyMember NESR:ThreeEqualInstallmentsMember 2020-08-25 2020-09-02 0001698514 NESR:SaleAndPurchaseAgreementMember NESR:SaharaPetroleumServicesCompanyMember NESR:ThreeEqualInstallmentsMember 2020-09-01 0001698514 NESR:SaleAndPurchaseAgreementMember NESR:CashEarnOutMember 2020-09-01 0001698514 NESR:SaleAndPurchaseAgreementMember srt:MinimumMember 2020-09-30 0001698514 NESR:SaleAndPurchaseAgreementMember srt:MinimumMember NESR:NESRAdditionalShareMember 2020-09-30 0001698514 NESR:SaleAndPurchaseAgreementMember srt:MaximumMember 2020-09-30 0001698514 NESR:SaleAndPurchaseAgreementMember srt:MaximumMember NESR:NESRAdditionalShareMember 2020-09-30 0001698514 NESR:SaleAndPurchaseAgreementMember 2020-09-30 0001698514 2020-06-01 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-01-01 2020-09-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-06-02 0001698514 NESR:SaharaPetroleumServicesCompanyMember us-gaap:CustomerContractsMember 2020-09-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember us-gaap:CustomerContractsMember 2020-01-01 2020-09-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember us-gaap:TrademarksAndTradeNamesMember 2020-09-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember us-gaap:TrademarksAndTradeNamesMember 2020-01-01 2020-09-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-09-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-07-01 2020-09-30 0001698514 NESR:SaharaPetroleumServicesCompanyMember 2020-08-25 2020-09-30 0001698514 us-gaap:TradeAccountsReceivableMember 2020-09-30 0001698514 us-gaap:TradeAccountsReceivableMember 2019-12-31 0001698514 NESR:SparePartsMember 2020-09-30 0001698514 NESR:SparePartsMember 2019-12-31 0001698514 NESR:ChemicalsMember 2020-09-30 0001698514 NESR:ChemicalsMember 2019-12-31 0001698514 NESR:RawMaterialsMember 2020-09-30 0001698514 NESR:RawMaterialsMember 2019-12-31 0001698514 NESR:ConsumablesMember 2020-09-30 0001698514 NESR:ConsumablesMember 2019-12-31 0001698514 NESR:BuildingsAndLeaseholdImprovementsMember srt:MinimumMember 2020-01-01 2020-09-30 0001698514 NESR:BuildingsAndLeaseholdImprovementsMember srt:MaximumMember 2020-01-01 2020-09-30 0001698514 NESR:BuildingsAndLeaseholdImprovementsMember 2020-09-30 0001698514 NESR:BuildingsAndLeaseholdImprovementsMember 2019-12-31 0001698514 NESR:OilfieldEquipmentMember srt:MinimumMember 2020-01-01 2020-09-30 0001698514 NESR:OilfieldEquipmentMember srt:MaximumMember 2020-01-01 2020-09-30 0001698514 NESR:OilfieldEquipmentMember 2020-09-30 0001698514 NESR:OilfieldEquipmentMember 2019-12-31 0001698514 us-gaap:FurnitureAndFixturesMember 2020-01-01 2020-09-30 0001698514 us-gaap:FurnitureAndFixturesMember 2020-09-30 0001698514 us-gaap:FurnitureAndFixturesMember 2019-12-31 0001698514 NESR:OfficeEquipmentAndToolsMember srt:MinimumMember 2020-01-01 2020-09-30 0001698514 NESR:OfficeEquipmentAndToolsMember srt:MaximumMember 2020-01-01 2020-09-30 0001698514 NESR:OfficeEquipmentAndToolsMember 2020-09-30 0001698514 NESR:OfficeEquipmentAndToolsMember 2019-12-31 0001698514 NESR:VehiclesAndCranesMember srt:MinimumMember 2020-01-01 2020-09-30 0001698514 NESR:VehiclesAndCranesMember srt:MaximumMember 2020-01-01 2020-09-30 0001698514 NESR:VehiclesAndCranesMember 2020-09-30 0001698514 NESR:VehiclesAndCranesMember 2019-12-31 0001698514 NESR:ProductionServicesMember 2019-12-31 0001698514 NESR:DrillingAndEvaluationServicesMember 2019-12-31 0001698514 NESR:ProductionServicesMember 2020-01-01 2020-09-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-01-01 2020-09-30 0001698514 NESR:ProductionServicesMember 2020-09-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-09-30 0001698514 us-gaap:CustomerContractsMember 2020-01-01 2020-09-30 0001698514 us-gaap:TrademarksAndTradeNamesMember 2020-01-01 2020-09-30 0001698514 us-gaap:CustomerContractsMember 2020-09-30 0001698514 us-gaap:CustomerContractsMember 2019-12-31 0001698514 us-gaap:TrademarksAndTradeNamesMember 2020-09-30 0001698514 us-gaap:TrademarksAndTradeNamesMember 2019-12-31 0001698514 NESR:SecuredTermLoanMember 2020-09-30 0001698514 NESR:SecuredTermLoanMember 2019-12-31 0001698514 NESR:SecuredRevolvingCreditFacilityMember 2020-09-30 0001698514 NESR:SecuredRevolvingCreditFacilityMember 2019-12-31 0001698514 NESR:CIBLongTermDebtMember 2020-09-30 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 2020-09-30 0001698514 us-gaap:RevolvingCreditFacilityMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:LendersMember 2020-01-01 2020-09-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:LendersMember 2020-09-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:LendersMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember 2020-09-30 0001698514 NESR:SecuredFacilitiesAgreementMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:QA 2020-09-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:QA 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:AE 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember country:KW 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember 2020-09-30 0001698514 NESR:SecuredFacilitiesAgreementMember NESR:HSBCBankMiddleEastLimitedMember 2019-12-31 0001698514 NESR:SecuredFacilitiesAgreementMember 2019-01-01 2019-12-31 0001698514 NESR:CIBLongTermDebtMember 2020-01-01 2020-09-30 0001698514 NESR:CIBShortTermDebtMember 2020-09-30 0001698514 NESR:CommercialInternationalBankMember 2020-09-30 0001698514 NESR:CommercialInternationalBankMember 2019-12-31 0001698514 NESR:AlAhliBankMember 2020-09-30 0001698514 NESR:AlAhliBankMember 2019-12-31 0001698514 NESR:CIBShortTermDebtMember NESR:TimeLoanFaciityMember 2020-09-30 0001698514 NESR:CIBShortTermDebtMember NESR:TimeLoanFaciityMember NESR:EgyptianMember 2020-09-30 0001698514 NESR:CIBShortTermDebtOneMember NESR:TimeLoanFaciityMember NESR:EgyptianMember 2020-09-30 0001698514 NESR:CIBShortTermDebtMember NESR:TimeLoanFaciityMember NESR:LettersOfGuaranteeMember 2020-09-30 0001698514 NESR:CIBShortTermDebtMember 2020-01-01 2020-09-30 0001698514 NESR:CIBShortTermDebtOneMember NESR:EgyptianMember 2020-09-30 0001698514 NESR:CIBShortTermDebtOneMember NESR:LoanOverdraftFacilityMember NESR:EgyptianMember 2020-09-30 0001698514 NESR:CIBShortTermDebtMember NESR:LettersOfGuaranteeMember 2020-09-30 0001698514 NESR:ABKShortTermDebtMember 2020-09-30 0001698514 NESR:ABKShortTermDebtMember NESR:TimeLoanFacilityMember 2020-09-30 0001698514 NESR:ABKShortTermDebtMember NESR:LettersOfGuaranteeMember 2020-09-30 0001698514 NESR:ABKShortTermDebtMember 2020-01-01 2020-09-30 0001698514 NESR:CIBShortTermDebtAndABKShortTermDebtMember 2020-09-30 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 2020-06-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-06-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2020-07-01 2020-09-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-07-01 2019-09-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2020-09-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-09-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-12-31 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2018-12-31 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-09-30 0001698514 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-09-30 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2020-09-30 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2019-12-31 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2020-01-01 2020-09-30 0001698514 NESR:TwoThousandEighteenLongTermIncentivePlanMember 2019-01-01 2019-12-31 0001698514 NESR:CostofServicesMember 2020-07-01 2020-09-30 0001698514 NESR:CostofServicesMember 2019-07-01 2019-09-30 0001698514 NESR:CostofServicesMember 2020-01-01 2020-09-30 0001698514 NESR:CostofServicesMember 2019-01-01 2019-09-30 0001698514 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-07-01 2020-09-30 0001698514 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-07-01 2019-09-30 0001698514 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2020-01-01 2020-09-30 0001698514 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-01-01 2019-09-30 0001698514 NESR:SecondCapitalLeaseMember 2020-01-01 2020-09-30 0001698514 NESR:SecondCapitalLeaseMember 2020-09-30 0001698514 NESR:SecondCapitalLeaseMember 2020-07-01 2020-09-30 0001698514 NESR:SecondCapitalLeaseMember 2019-07-01 2019-09-30 0001698514 NESR:SecondCapitalLeaseMember 2019-01-01 2019-09-30 0001698514 NESR:EgyptEquipmentMember 2020-01-01 2020-09-30 0001698514 NESR:EgyptEquipmentMember 2020-09-30 0001698514 NESR:EgyptEquipmentMember 2019-12-31 0001698514 NESR:EgyptEquipmentMember 2020-07-01 2020-09-30 0001698514 NESR:EgyptEquipmentMember 2019-07-01 2019-09-30 0001698514 NESR:EgyptEquipmentMember 2019-01-01 2019-09-30 0001698514 us-gaap:AccountsPayableMember 2020-09-30 0001698514 us-gaap:OtherCurrentLiabilitiesMember 2020-09-30 0001698514 us-gaap:OtherLiabilitiesMember 2020-09-30 0001698514 us-gaap:AccountsPayableMember 2019-12-31 0001698514 us-gaap:OtherCurrentLiabilitiesMember 2019-12-31 0001698514 us-gaap:OtherLiabilitiesMember 2019-12-31 0001698514 NESR:PublicWarrantsMember 2020-09-30 0001698514 NESR:PrivateWarrantsMember 2020-09-30 0001698514 NESR:StockPurchaseAgreementMember NESR:NPSHoldingsLimitedMember 2019-02-01 2019-02-28 0001698514 srt:ScenarioForecastMember NESR:SaharaPetroleumServicesCompanyMember 2020-10-01 2020-12-31 0001698514 srt:ScenarioForecastMember 2020-01-01 2020-12-31 0001698514 srt:ScenarioForecastMember NESR:SalePurchaseAgreementMember 2020-01-01 2020-12-31 0001698514 NESR:AllocationOfParticipatingEarningsMember 2020-07-01 2020-09-30 0001698514 NESR:AllocationOfParticipatingEarningsMember 2019-07-01 2019-09-30 0001698514 NESR:AllocationOfParticipatingEarningsMember 2020-01-01 2020-09-30 0001698514 NESR:AllocationOfParticipatingEarningsMember 2019-01-01 2019-09-30 0001698514 NESR:PrivateWarrantsMember 2020-09-30 0001698514 NESR:PrivateWarrantsMember 2019-09-30 0001698514 NESR:PublicWarrantsMember 2020-09-30 0001698514 NESR:PublicWarrantsMember 2019-09-30 0001698514 us-gaap:WarrantMember 2020-01-01 2020-09-30 0001698514 us-gaap:WarrantMember 2019-01-01 2019-09-30 0001698514 us-gaap:RestrictedStockMember 2020-01-01 2020-09-30 0001698514 us-gaap:RestrictedStockMember 2019-01-01 2019-09-30 0001698514 srt:MinimumMember 2020-01-01 2020-09-30 0001698514 srt:MaximumMember 2020-01-01 2020-09-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2020-07-01 2020-09-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2019-07-01 2019-09-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2020-01-01 2020-09-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2019-01-01 2019-09-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2020-09-30 0001698514 NESR:MubbadrahGroupEntitiesMember 2019-12-31 0001698514 NESR:HeavyEquipmentManufacturingAndTradingLLCMember NESR:GESMember 2020-07-01 2020-09-30 0001698514 NESR:HeavyEquipmentManufacturingAndTradingLLCMember NESR:GESMember 2019-07-01 2019-09-30 0001698514 NESR:HeavyEquipmentManufacturingAndTradingLLCMember NESR:GESMember 2020-01-01 2020-09-30 0001698514 NESR:HeavyEquipmentManufacturingAndTradingLLCMember NESR:GESMember 2019-01-01 2019-09-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2020-09-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2020-07-01 2020-09-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2019-07-01 2019-09-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2020-01-01 2020-09-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember NESR:BusinessSolutionsLLCMember 2019-01-01 2019-09-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember 2020-09-30 0001698514 NESR:PrimeBusinessSolutionsLLCMember 2019-12-31 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentMember 2020-07-01 2020-09-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentMember 2019-07-01 2019-09-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentMember 2020-01-01 2020-09-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentMember 2019-01-01 2019-09-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentProductsAndServicesMember 2020-09-30 0001698514 NESR:NineEnergyServiceIncMember NESR:CoiledTubingEquipmentProductsAndServicesMember 2019-12-31 0001698514 NESR:BasinHoldingsUSLLCMember 2019-07-01 2019-09-30 0001698514 NESR:BasinHoldingsUSLLCMember 2019-01-01 2019-09-30 0001698514 NESR:BasinHoldingsUSLLCMember 2019-12-31 0001698514 NESR:SaharaProjectsandInvestmentsCompanyMember 2020-09-30 0001698514 NESR:SaharaProjectsandInvestmentsCompanyMember 2019-12-31 0001698514 NESR:ProductionServicesMember 2020-09-30 0001698514 NESR:ProductionServicesMember 2019-12-31 0001698514 NESR:DrillingAndEvaluationServicesMember 2020-09-30 0001698514 NESR:DrillingAndEvaluationServicesMember 2019-12-31 0001698514 NESR:TotalReportableSegmentsMember 2020-09-30 0001698514 NESR:TotalReportableSegmentsMember 2019-12-31 0001698514 NESR:UnallocatedAssetsMember 2020-09-30 0001698514 NESR:UnallocatedAssetsMember 2019-12-31 0001698514 NESR:TotalReportableSegmentsMember 2020-07-01 2020-09-30 0001698514 NESR:TotalReportableSegmentsMember 2019-07-01 2019-09-30 0001698514 NESR:TotalReportableSegmentsMember 2020-01-01 2020-09-30 0001698514 NESR:TotalReportableSegmentsMember 2019-01-01 2019-09-30 0001698514 NESR:UnallocatedExpensesMember 2020-07-01 2020-09-30 0001698514 NESR:UnallocatedExpensesMember 2019-07-01 2019-09-30 0001698514 NESR:UnallocatedExpensesMember 2020-01-01 2020-09-30 0001698514 NESR:UnallocatedExpensesMember 2019-01-01 2019-09-30 0001698514 NESR:MENAMember 2020-07-01 2020-09-30 0001698514 NESR:MENAMember 2019-07-01 2019-09-30 0001698514 NESR:MENAMember 2020-01-01 2020-09-30 0001698514 NESR:MENAMember 2019-01-01 2019-09-30 0001698514 NESR:RestOfWorldMember 2020-07-01 2020-09-30 0001698514 NESR:RestOfWorldMember 2019-07-01 2019-09-30 0001698514 NESR:RestOfWorldMember 2020-01-01 2020-09-30 0001698514 NESR:RestOfWorldMember 2019-01-01 2019-09-30 0001698514 NESR:MENAMember 2020-09-30 0001698514 NESR:MENAMember 2019-12-31 0001698514 NESR:RestOfWorldMember 2020-09-30 0001698514 NESR:RestOfWorldMember 2019-12-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure NESR:Segments iso4217:GBP

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 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 September 30, 2020

 

Commission File Number: 001-38091

 

NATIONAL ENERGY SERVICES REUNITED CORP.

(Exact name of Registrant as specified in its charter)

 

Not Applicable

(Translation of registrant’s name into English)

 

777 Post Oak Blvd., Suite 730

Houston, Texas 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 ☒ 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 ☒

 

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 ☒

 

 

 

 

 

 

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.

 

 

 

 

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

 

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.

 

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)

 

   September 30, 2020   December 31, 2019 
         
Assets          
Current assets          
Cash and cash equivalents  $50,487   $73,201 
Accounts receivable, net   

128,719

    98,799 
Unbilled revenue   

155,935

    76,347 
Service inventories, net   

94,415

    78,841 
Prepaid assets   

8,267

    9,590 
Retention withholdings   

27,089

    40,970 
Other receivables   

19,381

    14,019 
Other current assets   

5,522

    11,442 
Total current assets   

489,815

    403,209 
Non-current assets         
Property, plant and equipment, net   

458,505

    419,307 
Intangible assets, net   

115,198

    122,714 
Goodwill   

596,857

    574,764 
Other assets   

3,069

    2,370 
Total assets  $

1,663,444

   $1,522,364 
           
Liabilities and equity          
Liabilities          
Accounts payable 

147,268

   65,704 
Accrued expenses   

51,591

    69,137 
Current installments of long-term debt   

43,750

    15,000 
Short-term borrowings   

36,392

    37,963 
Income taxes payable   

9,336

    7,542 
Other taxes payable   

11,466

    7,189 
Other current liabilities   

37,685

    25,601 
Total current liabilities   

337,488

    228,136 
           
Long-term debt   

319,738

    330,564 
Deferred tax liabilities   

22,885

    26,217 
Employee benefit liabilities   

19,438

    16,745 
Other liabilities   

37,924

    34,230 
Total liabilities   

737,473

    635,892 
           
Commitments and contingencies (Note 14)   -    - 
           
Equity          
Preferred shares, no par value; unlimited shares authorized; none issued and outstanding at September 30, 2020 and December 31, 2019, respectively   -    - 
Common stock, no par value; unlimited shares authorized; 87,777,553 and 87,187,289 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively   

801,545

    801,545 
Additional paid in capital   

23,076

    17,237 
Retained earnings   

101,230

    67,661 
Accumulated other comprehensive income   

64

    29 
Total shareholders’ equity   

925,915

    886,472 
Non-controlling interests   

56

    - 
Total equity   

925,971

    886,472 
Total liabilities and equity  $

1,663,444

   $1,522,364 

 

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

 

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)

 

    September 30,
2020
    September 30,
2019
    September 30,
2020
    September 30,
2019
 
    Quarter ended     Year-to-date period ended  
Description   September 30,
2020
    September 30,
2019
    September 30,
2020
    September 30,
2019
 
                         
Revenues   $ 218,423     $ 161,606     $ 620,971     $ 473,209  
Cost of services     (177,953 )     (121,326)     (500,566 )     (352,716)
Gross profit     40,470       40,280       120,405       120,493  
Selling, general and administrative expenses     (17,449 )     (16,485)     (53,190 )     (46,592)
Amortization     (4,034 )     (4,033)     (11,855 )     (12,036)
Operating income     18,987       19,762       55,360       61,865  
Interest expense, net     (3,793 )     (5,011)     (12,468 )     (14,691)
Other income / (expense), net     37     (130)     (383 )     (629)
Income before income tax     15,231       14,621       42,509       46,545  
Income tax expense     (3,565 )     (3,511)     (8,940 )     (10,905)
Net income     11,666       11,110       33,569       35,640  
Net income / (loss) attributable to non-controlling interests     -       -       -       -  
Net income attributable to shareholders   $ 11,666     $ 11,110     $ 33,569     $ 35,640  
                                 
Weighted average shares outstanding:                                
Basic     89,876,456       87,024,655       88,452,027       86,938,883  
Diluted     89,876,456       87,024,655       88,452,027       86,938,883  
                                 
Net earnings per share (Note 16):                                
Basic   $ 0.13     $ 0.13     $ 0.38     $ 0.40  
Diluted   $ 0.13     $ 0.13     $ 0.38     $ 0.40  

 

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

 

5

 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

(In US$ thousands)

 

   September 30,
2020
   September 30,
2019
   September 30,
2020
   September 30,
2019
 
   Quarter ended   Year-to-date period ended 
Description  September 30,
2020
   September 30,
2019
   September 30,
2020
   September 30,
2019
 
                 
Net income  $11,666   $11,110   $33,569   $35,640 
Other comprehensive income, net of tax                    
Foreign currency translation adjustments   -    -    35    (19)
Total Comprehensive Income, net of tax   11,666    11,110    33,604    35,621 
Comprehensive income attributable to non-controlling interest   -    -    -    - 
Comprehensive income attributable to shareholders  $11,666   $11,110   $33,604   $35,621 

 

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

 

6

 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF SHAREHOLDERS’ EQUITY

(In US$ thousands, except share data)

 

   Ordinary Shares   Ordinary Amount   Paid In Capital   Accumulated   Retained Earnings   Total  Company   Non controlling   Total Stockholders  
               Accumulated       Total         
      

Additional

  

Other

     

Company

   Non-  

Total

 
  Ordinary Shares   Paid In   Comprehensive   Retained   Shareholders’   controlling   Shareholders’ 
Description  Shares   Amount   Capital   Income   Earnings   Equity   Interests   Equity 
Balance at June 30, 2020   87,495,221   $801,545   $20,999   $64   $89,564   $912,172   $59   $912,231 
Share-based compensation expense   -    -    2,082                    -    -    

2,082

                  -    

2,082

 
Vesting of restricted share units   282,332    -    -    -    -    -    -    - 
Other   -    -    (5   -    -    (5   (3   (8)
Net income   -    -    -    -    

11,666

    

11,666

    -    

11,666

 
Balance at September 30, 2020   87,777,553   $801,545   $

23,076

   $64   $101,230   $925,915   $56   $925,971 

 

   Ordinary Shares   Ordinary Amount   Paid In Capital   Accumulated   Retained Earnings   Total  Company   Non controlling   Total Stockholders  
               Accumulated      Total         

 

 

           Additional   Other      Company   Non-   Total 
   Ordinary Shares   Paid In   Comprehensive   Retained   Shareholders’   controlling   Shareholders’ 
Description  Shares   Amount   Capital   Income   Earnings   Equity   Interests   Equity 
                                 
Balance at June 30, 2019   86,896,779   $801,545   $13,698   $29   $52,827   $868,099   $-   $868,099 
Stock-based compensation expense   -    -    1,944             -    -    1,944           -    1,944 
Vesting of restricted share units   250,310    -    -    -    -    -    -    - 
Other   -    -    (1)   -    -    (1)   -    (1)
Net income from July 1, 2019 to September 30, 2019   -    -    -    -    11,110    11,110    -    11,110

 

 

Balance at September 30, 2019   87,147,089   $801,545   $15,641   $29   $63,937   $881,152   $-   $881,152 

 

   Ordinary Shares   Ordinary Amount   Paid In Capital   Accumulated   Retained Earnings   Total  Company   Non controlling   Total Stockholders  
                                 
               Accumulated       Total        
      

Additional

  

Other

     

Company

   Non-  

Total

 
  Ordinary Shares   Paid In   Comprehensive   Retained   Shareholders’   controlling   Shareholders’ 
Description  Shares   Amount   Capital   Income   Earnings   Equity   Interests   Equity 
                                 
Balance at December 31, 2019   87,187,289   $801,545   $17,237   $29   $67,661   $886,472   $-   $886,472 
Share-based compensation expense   -    -    

5,842

                   -    -    

5,842

                          -    

5,842

 
Vesting of restricted share units   590,264    -    -    -    -    -    -    - 
Other   -    -    (3   35    -    32    56    88 
Net income   -    -    -    -    

33,569

    

33,569

    -    

33,569

 
Balance at September 30, 2020   87,777,553   $801,545   $23,076   $64   $

101,230

   $925,915   $56   $925,971 

 

   Ordinary Shares   Ordinary Amount   Paid In Capital   Accumulated    Retained Earnings   Total  Company    Non controlling    Total Stockholders  
                                 
               Accumulated      Total          
           Additional   Other      Company   Non-   Total  
   Ordinary Shares   Paid In   Comprehensive   Retained   Shareholders’   controlling   Shareholders’ 
Description  Shares   Amount   Capital   Income   Earnings   Equity   Interests   Equity 
                                 
Balance at December 31, 2018   85,562,769    801,545    1,034    48    28,297    830,924    67    830,991 
Share-based
compensation expense
   -    -    4,057          -    -    4,057    -    4,057 
Vesting of restricted share units   250,310    -    -    -    -    -    -    - 
Other   33,796    -    3    (19)   -    (16)   -    (16)
Acquisition of non-controlling interest during the period   -    -    67    -    -    67    (67)   - 
NPS equity earn-out   1,300,214    -    10,480    -    -    10,480    -    10,480 
Net income from January 1, 2019 to September 30, 2019   -    -    -    -    35,640    35,640    -    35,640 
Balance at September 30, 2019   87,147,089    801,545    15,641    29    63,937    881,152    -    881,152 

 

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

 

7

 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(In US$ thousands)

 

    Year-to-date
period ended
September 30,
2020
    Year-to-date
period ended
September 30,
2019
 
             
Cash flows from operating activities:                
Net income   $ 33,569     $ 35,640  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     91,783       59,728  
Share-based compensation expense     5,842       4,057  
Loss (Gain) on disposal of assets     688       (399 )
Non-cash interest expense     (118 )     1,361  
Deferred tax expense (benefit)     (3,332 )     (1,733 )
Allowance for (reversal of) doubtful receivables     (97 )     920  
Provision for obsolete service inventories     821       932  
Other operating activities, net     (184 )     (100 )
Changes in operating assets and liabilities:                
(Increase) in accounts receivable     (13,223 )     (46,523 )
(Increase) in inventories     (10,755 )     (15,123 )
Decrease (increase) in prepaid assets     2,002       (3,825 )
(Increase) in other current assets     (57,400 )     (5,537 )
(Increase) decrease in other long-term assets and liabilities     (5,746 )     5,403  
Increase in accounts payable and accrued expenses     40,970       23,971  
(Decrease) in other current liabilities     1,234     (13,482 )
Net cash provided by operating activities     86,054       45,290  
                 
Cash flows from investing activities:                
Capital expenditures     (75,448 )     (90,164 )
Proceeds from disposal of assets     1,490       1,125  
Acquisition of business, net of cash acquired (Note 5)     (11,260 )     -  
Other investing activities     (628 )     (932 )
Net cash used in investing activities     (85,846 )     (89,971 )
                 
Cash flows from financing activities:                
Proceeds from long-term debt     15,000       365,000  
Repayments of long-term debt     (18,472 )     (285,048 )
Net change in overdraft facilities     -       (7,050 )
Proceeds from short-term borrowings     14,928       39,941  
Repayments of short-term borrowings     (15,829 )     (44,250 )
Payments on capital leases     (15,679 )     -  
Payments on seller-provided financing for capital expenditures     (2,905 )     -  
Other financing activities, net     -       (5,703 )
Net cash (used in) provided by financing activities     (22,957 )     62,890  
                 
Effect of exchange rate changes on cash     35       (19 )
Net (decrease) increase in cash     (22,714 )     18,190  
Cash and cash equivalents, beginning of period     73,201       24,892  
Cash and cash equivalents, end of period   $ 50,487     $ 43,082  
                 
Supplemental disclosure of cash flow information (also refer Note 3):                
Interest paid     10,152       13,396  
Income taxes paid     12,642       16,583  

 

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

 

8

 

 

NATIONAL ENERGY SERVICES REUNITED CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

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, Egypt and Kuwait.

 

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.

 

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.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Supplemental cash flow information

 

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

 

 

Purchases of property, plant, and equipment in Accounts payable, Accrued expenses and Short-term borrowings at September 30, 2020 of $25.6 million (inclusive of seller-provided installment financing balances described below), $0.3 million, and $23.0 million, respectively, are not included under “Capital expenditures” within the Condensed Consolidated Statement of Cash Flows.

     
  Capital lease obligations of $24.5 million classified as a short-term obligation within Other current liabilities and $3.8 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 $3.0 million included in Other current liabilities and $0.7 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 $11.5 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 $7.3 million and $18.4 million classified in Other current liabilities and Other liabilities, respectively, 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 September 30, 2019 were as follows:

 

  Purchases of property, plant, and equipment in accounts payable and short-term debt at September 30, 2019 of $28.3 million and $22.6 million, respectively, are not included under “Capital expenditures” within the Condensed Consolidated Statement of Cash Flows.

 

10

 

 

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 September 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.

 

 

11

 

 

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% 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.

 

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):

 

 

   Quarter ended   Year-to-date period ended 
Revenue by Phase in Well’s Lifecycle:  September 30,
2020
   September 30,
2019
   September 30,
2020
   September 30,
2019
 
Production Services  $148,292   $97,160   $420,516   $284,631 
Drilling and Evaluation Services   70,131    64,446    200,455    188,578 
Total revenue by phase in well’s life cycle  $218,423   $161,606   $620,971   $473,209 

 

 

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 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 $15 million of cash and deferred cash consideration was 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. The Company paid the remaining deferred cash consideration balance of $2 million in October of 2020, and expects to issue 2,237,000 NESR ordinary shares to the SAPESCO selling shareholders during the fourth quarter of 2020.

 

Description of the SAPESCO Transaction

 

Under the terms of the Sale & Purchase Agreement, NESR acquired 99.7% of the issued and outstanding shares of SAPESCO in a cash and stock transaction (the “Business Combination”) which comprised of $11.0 million to be paid at closing, an additional $6.0 million to be paid in three equal installments by October 5, 2020, for total cash consideration of $17.0 million, and the issuance of 2,237,000 NESR shares based on a $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 $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 $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 $10, the NESR Additional Share Price shall be $10 or (b) greater than $11.70, the NESR Additional Share Price shall be $11.70.

 

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

 

12

 

 

Financing of Business Combination

 

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

 

cash and cash equivalents of $11.0 million;
   
deferred consideration of $6.0 million, $2.0 million of which was unpaid as of September 30, 2020 and reflected in Other current liabilities in the Condensed Consolidated Balance Sheet;
   
the issuance of 2,237,000 NESR ordinary shares to the SAPESCO selling shareholders in exchange for their SAPESCO shares, presented in Other liabilities in the Condensed Consolidated Balance Sheet as of September 30, 2020.

 

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

 

 

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

 

(1) The fair value of NESR ordinary shares was determined based upon the $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 totaling $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 September 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.

 

13

 

 

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

 

Allocation of consideration

      
Cash and cash equivalents  $3,740 
Accounts receivable, net   16,557 
Unbilled revenue   6,125 
Service inventories   5,641 
Prepaid assets   679 
Retention withholdings   279 
Other current assets   552 
Property, plant and equipment   33,787 
Intangible assets   4,220 
Other assets   200 
Total identifiable assets acquired   71,780 
      
Accounts payable   11,985 
Accrued expenses   6,620 
Current installments of long-term debt   5,400 
Short-term borrowings   5,692 
Income taxes payable   313 
Other taxes payable   3,110 
Other current liabilities   782 
Long-term debt   15,572 
Employee benefit liabilities   922 
Other liabilities   2,772 
Noncontrolling interests   56 
Net identifiable liabilities acquired   53,224 
Total fair value of net assets acquired   18,556 
Goodwill   22,093 
Preliminary consideration  $40,649 

 

In the quarter ended September 30, 2020, the Company updated its valuation of certain identifiable assets and liabilities as of June 1, 2020. These measurement period changes resulted in an increase of $1.2 million to goodwill as compared to the amounts recorded as of June 1, 2020. Measurement period adjustments included a reduction in the value of property, plant, and equipment of $0.4 million, an increase in accrued expenses of $0.2 million, and an increase in other taxes payable of $0.6 million. The impact of these adjustments on the quarter and year-to-date periods ended September 30, 2020 was not material to the condensed consolidated interim financial statements.

 

Intangible assets

 

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

 

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

 

 

    Fair Value      
    Total     Useful Life
    (In US$ thousands)      
Customer contracts   $ 3,770     8 years
Trademarks and trade names     450     2 years
Total intangible assets   $ 4,220      

 

Goodwill

 

As of September 30, 2020, $22.1 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.

 

14

 

 

Transaction costs

 

The Company incurred $1.0 million in advisory, legal, accounting, and management fees through September 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

 

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 September 30, 2020 and September 30, 2019, respectively (in US$ thousands):

 

 

    Quarter ended     Year-to-date period ended  
    September 30,
2020
    September 30,
2019
    September 30,
2020
    September 30,
2019
 
                         
Revenues   $ 218,423     $      175,464     $         639,667     $       523,405  
Net income     12,264       12,710       31,448       47,796  

 

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 $11.2 million and $15.1 million, respectively, and net income (loss) of $(0.1) million and $0.0 (zero) million, respectively, are included in the consolidated statement of operations during the quarter and year-to-date periods ended September 30, 2020.

 

6. ACCOUNTS RECEIVABLE

 

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

 

 

    September 30, 2020     December 31, 2019  
Trade receivables   $ 130,714     $ 100,642  
Less: allowance for doubtful accounts     (1,995 )     (1,843 )
Total   $ 128,719     $ 98,799  

 

 

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 September 30, 2020 and December 31, 2019 were $130.7 million and $100.6 million, respectively. Movement in the allowance for doubtful accounts is as follows (in US$ thousands):

 

 

    Quarter ended     Year-to-date period ended  
    September 30,
2020
    September 30,
2019
    September 30,
2020
    September 30,
2019
 
                         
Allowance for doubtful accounts at beginning of period   $ (2,365 )   $ (450 )   $ (1,843 )   $ (693 )
(Increase) decrease to allowance for the year     233     (575 )     259       (1,051 )
(Recovery) write-off of doubtful accounts     182       -       343       719  
Non-cash reclass of allowance for doubtful accounts between unbilled revenue and accounts receivable     (45 )     -       (754 )     -  
Allowance for doubtful accounts at end of period   $ (1,995 )   $ (1,025 )   $ (1,995 )   $ (1,025 )

 

 

7. SERVICE INVENTORIES

 

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

 

 

 

    September 30,     December 31,  
    2020     2019  
             
Spare parts   $ 52,327     $ 39,428  
Chemicals     27,224       22,852  
Raw materials     507       2,441  
Consumables     16,955       15,897  
Total     97,013       80,618  
Less: allowance for obsolete and slow-moving inventories     (2,598 )     (1,777 )
Total   $ 94,415     $ 78,841  

 

8. PROPERTY, PLANT, & EQUIPMENT

 

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):

 

 

    Estimated Useful
Lives (in years)
  September 30,
2020
    December 31,
2019
 
Buildings and leasehold improvements   5 to 25   $ 40,020     $ 36,853  
Oilfield equipment   3 to 15     524,808       411,984  
Furniture and fixtures   5     2,279       3,720  
Office equipment and tools   3 to 6     39,808       35,991  
Vehicles and cranes   5 to 8     7,832       12,292  
Less: Accumulated depreciation         (170,063 )     (104,689 )
Land         5,104       5,104  
Capital work in progress         8,717       18,052  
Total       $ 458,505     $ 419,307  

 

16

 

 

The Company recorded depreciation expense of $28.0 million, $17.2 million, $79.8 million and $47.7 million for the quarter ended September 30, 2020, the quarter ended September 30, 2019, the year-to-date period ended September 30, 2020, and the year-to-date period ended September 30, 2019, respectively, in the Condensed Consolidated Interim Statement of Operations.

 

9. GOODWILL AND INTANGIBLE ASSETS

 

Goodwill

 

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

 

   Production
Services
   Drilling and
Evaluation
Services
   Goodwill 
Balance as of December 31, 2019  $419,646   $155,118   $574,764 
SAPESCO Business Combination   11,046    11,047    22,093 
Balance as of September 30, 2020  $430,692   $166,165   $596,857 

 

Intangible assets subject to amortization, net

 

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

 

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

 

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

 

    September 30, 2020     December 31, 2019  
    Gross
carrying
amount
    Accumulated
amortization
    Net
carrying
amount
    Gross
carrying
amount
    Accumulated
amortization
    Net
carrying
amount
 
                                     
Customer contracts   $ 125,270     $ (28,352 )   $ 96,918     $ 121,500     $ (19,239 )   $ 102,261  
Trademarks and trade names     25,950       (7,670 )     18,280       25,500       (5,047 )     20,453  
Total intangible assets   $ 151,220     $ (36,022 )   $ 115,198     $ 147,000     $ (24,286 )   $ 122,714  

 

 

17

 

 

10. DEBT

 

Long-term debt

 

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

 

    September 30,
2020
    December 31,
2019
 
             
Secured Term Loan   $ 292,500     $ 300,000  
Secured Revolving Credit Facility     65,000       50,000  
CIB Long-Term Debt     10,000       -  
Less: unamortized debt issuance costs     (4,012 )     (4,436 )
Total loans and borrowings     363,488       345,564  
Less: current portion of long-term debt     (43,750 )     (15,000 )
Long-term debt, net of unamortized debt issuance costs and excluding current installments   $ 319,738     $ 330,564  

 

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 year-to-date period ended September 30, 2020, the Secured Facilities Agreement was reduced to $508.8 million primarily as a result of the non-renewal of a project-specific letter of credit and the payment of the first installment of the long-term loan. There were no changes to the size of the Secured Facilities Agreement subsequent to September 30, 2020.

 

The $508.8 million Secured Facilities Agreement consists of a $292.5 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 $151.3 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 September 30, 2020, and December 31, 2019, this resulted in an interest rate of 2.9% and 4.3%, respectively. As of September 30, 2020, and December 31, 2019, the Company had drawn $292.5 million and $300.0 million, respectively, of the Term Loan and $65.0 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 September 30, 2020, and December 31, 2019, the Company had $0.0 (zero) million million and $15.0 million, respectively, available to be drawn under the RCF.

 

The Secured Facilities Agreement also includes a working capital facility of $151.3 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 September 30, 2020, and December 31, 2019, the Company had utilized $112.4 million and $134.2 million, respectively, under this working capital facility and the balance of $38.9 million and $25.8 million, respectively, was available to the Company.

 

The Company has also retained legacy bilateral working capital facilities from HSBC totaling $24.6 million and $30.4 million at September 30, 2020 and December 31, 2019, respectively, in Qatar ($10.6 million at September 30, 2020, $16.4 million at December 31, 2019), in the UAE ($13.9 million at both September 30, 2020 and December 31, 2019) and in Kuwait ($0.1 million at both September 30, 2020 and December 31, 2019). As of September 30, 2020 and December 31, 2019, the Company had utilized $19.0 million and $24.1 million, respectively, under this working capital facility and the balance of $5.6 million and $6.3 million, respectively, was available to the Company.

 

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.

 

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 September 30, 2020 and December 31, 2019.

 

CIB Long-Term Debt

 

As part of the SAPESCO transaction, the Company assumed a $21.0 million debt obligation with Commercial International Bank (collectively, “CIB Long-Term Debt”). Under the terms of its arrangement with CIB, the Company repaid approximately $11.0 million of this balance during the third quarter of 2020 with the remaining $10.0 million due on August 15, 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 September 30, 2020, this resulted in an interest rate of 2.25%. 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 September 30, 2020.

 

Short-term debt

 

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

 

   September 30,
2020
   December 31,
2019
 
         
CIB Short-Term Debt  $

2,614

   $- 
ABK Short-Term Debt   

3,042

    - 
Other short-term borrowings   30,736    37,963 
Short-term debt, excluding current installments of long-term debt  $36,392   $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 $2.6 million debt obligation with Commercial International Bank (collectively, “CIB Short-Term Debt”) for working capital and overdraft purposes. 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. Each CIB Short-Term Debt borrowing matures three months from the date of borrowing with the latest maturity date for amounts outstanding as of September 30, 2020 being January 2, 2021.

 

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 September 30, 2020, the CIB Short-Term Debt resulted in an interest rate of 2.5% and 11.7%, respectively, for the U.S. Dollar and Egyptian Pound denominated facilities. As of September 30, 2020, the Company had utilized $1.4 million of the U.S. Dollar time loan facility, E£2.0 million of the Egyptian Pound time loan facility, and E£9.2 million of the Egyptian pound time loan overdraft facility, and $8.5 million in letters of guarantee, with the balances of $0.1 million, E£0.0 (zero) million, and E£0.8 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. Each ABK Short-Term Debt borrowing matures nine months from the date of borrowing with the latest maturity date for amounts outstanding as of September 30, 2020 being April 28, 2021. 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 September 30, 2020, this resulted in an interest rate of 11.47%. As of September 30, 2020, the Company had utilized E£47.8 million of the ABK Short-Term Debt facility and E£2.2 million in letters of guarantee with E£0.0 (zero) and E£0.0 (zero) million, respectively, available to the Company. There are no financial covenants associated with the ABK Short-Term Debt.

 

Other debt information

 

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

 

   - 
2020  $7,500 
2021   

47,500

 
2022   

45,000

 
2023   

110,000

 
2024   

45,000

 
2025   

112,500

 
Thereafter   - 
Total  $

367,500

 

 

As part of the SAPESCO transaction, the Company also assumed other working capital facilities totaling $0.6 million with one bank. The facilities are used for letters of guarantee. As of September 30, 2020, the Company has utilized $0.6 million of these facilities with $0.0 (zero) million available.

 

19

 

 

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.

 

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.

 

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

 

    1    2    3    4 
   Quarter ended   Year-to-date period ended 
   September 30,
2020
   September 30,
2019
   September 30,
2020
   September 30,
2019
 
                 
Service cost  $855   $815   $

2,755

   $2,255 
Interest cost   

214

    375    

689

    551 
Other   -    22    -    77 
Net cost  $

1,069

   $1,212   $

3,444

   $2,883 

 

The Company made employer contributions (direct payment of benefits) to its defined benefit plan of $0.1 million, $0.5 million, $0.1 million and $1.6 million for the quarter ended September 30, 2020, the quarter ended September 30, 2019, the year-to-date period ended September 30, 2020, and the year-to-date period ended September 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 $0.8 million, $0.8 million, $2.4 million and $2.4 million for the quarter ended September 30, 2020, the quarter ended September 30, 2019, the year-to-date period ended September 30, 2020, and the year-to-date period ended September 30, 2019, respectively. The plan of the Company is unfunded.

 

20

 

 

13. SHARE-BASED COMPENSATION EXPENSE