Prepared remarks
Greetings. Welcome to NESR Reports First Quarter 2026 Financial Results Conference Call. The operator provided instructions to participants. Please note that this conference is being recorded. At this time, I'd like to turn the conference over to Blake Gendron, Vice President of Investor Relations. Thank you. You may now begin.
Thanks, Rob. Hello, and welcome to NESR's First Quarter 2026 Earnings Call. With me today are Sherif Foda, Chairman and Chief Executive Officer of NESR and Stefan Angeli, Chief Financial Officer. On today's call, we will comment on our first quarter results and overall performance. After our prepared remarks, we will open up the call to questions. Before we begin, I'd like to remind our participants that some of the statements we'll be making today are forward-looking. These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. I therefore refer you to our latest earnings release filed earlier today and other SEC filings. Our comments today may also include non-GAAP financial measures. Additional details on reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is on our website. Finally, feel free to contact us after the call with any additional questions you may have. Our Investor Relations contact information is available on our website. Now I'll hand the call over to Sherif.
Ladies and gentlemen, good morning, and thank you for participating in this conference call. The world and particularly the Middle East has experienced a seismic geopolitical shift over the past several months. I want to start the call by sincerely thanking all our employees and their families, not only for delivering fantastic results in the face of unprecedented challenges but also for their focus on safety, supporting our customers and outstanding operational readiness. Beyond the strong results, I'm most proud to report that all our team members and their families remain safe, our operations remain unimpacted, and our commitment to our customers remains undeterred during these tough times. We see this as our obligation to stand alongside our customers, ensure their operations are not impacted, delayed or interrupted. I have two key messages for today's call. First, I want to report on what I personally saw on the ground in the Middle East from the very outset of the conflict to today. While some of the global media report the Middle East is paralyzed by conflict and constrained, what I have seen myself is a region that has rallied around a singular focus of resilience and unstoppable operations. Second, I want to zoom out to discuss the differentiated positioning of NESR and the substantial post-conflict opportunity set that I see on the horizon. Energy security, localized capacity and infrastructure diversity are now resounding themes in the energy sector. To reiterate the key message, we remain uniquely aligned and stand shoulder to shoulder with our customers. We've had zero evacuation. Our local workforce has committed to safely ensuring no turndown of any jobs and 100% reliability. We've implemented a 30-60-90 supply chain program to maintain uninterrupted flow of materials and spares. Our crisis management team ramped up its oversight seamlessly, and we stand ready with extra capacity to effectively meet the evolving needs across the region. Just as in the COVID pandemic, our countercyclical investment strategy is not just a slogan, but it's NESR's commitment to step up in times of crisis. In that spirit, let me relay some key observations from the region since landing in Saudi on March 1. My goal was to ensure close contact with our customers and employees. And what I came away with was a deeper admiration for the resilience of regional leadership and field crews throughout the value chain. From our largest customer in the Gulf, the message was clear: safety, contingency planning and operational flexibility. This is not the first time the region has grappled with security and shipping challenges. And that fact was on display in the way our biggest clients have courageously maintained core operations and adapted supply routes and storage. As can be expected, Saudi Arabia is leading these efforts extremely proficiently and pragmatically with an unwavering eye on the future. As stated publicly, they are bringing on three of the largest and lowest cost upstream projects globally and are pushing ahead with two more mega projects over the next several years to enhance a diversified crude mix. Exploration continues apace with six new fields and two new Arabian oil reservoirs that add multi-decade visibility to upstream development. The same goes for the natural gas program in the kingdom. If anything, the recent impact on global LNG market has only reinforced the importance of Saudi gas development. Likewise, Kuwait has exhibited an exceptional level of resilience, which clearly shows that the growth plans announced at the February conference are among the most durable in the region. Our recent contract announcement and my discussions over the past several weeks confirmed that the tender pipeline remains robust and that activity today remains closely aligned with capacity expansion decoupled from near-term oil flows. My visit to the UAE and Oman were similarly constructive as land-based activity has been essentially unimpacted, and expansion continues across both oil and gas. This discussion truly punctuated the view that massive infrastructure investment will be needed and that more local service capacity with a proven track record of quality and a robust supply chain will be needed to support this investment program. As just announced, ADNOC pledged to spend $55 billion on new projects over the next two years, again confirming the commitment to massive investment. I had a couple of stops in North Africa, starting with Egypt and Libya and ending with Algeria. The takeaway was unambiguous. North Africa has untapped existing capacity for undisrupted export to Europe. The authorities and the clients recognize that now is the time to enhance their resources and increase the spending to substantially increase production and use the untapped excess pipeline capacity that already exists to meet urgent global demand. Algeria and Libya are at the forefront of this, and both countries represent colossal frontiers for both conventional and unconventional resources. This is why NESR has invested in and deepened our footprint across North Africa. The reshuffling of global supply chains plus the entry of key international oil companies has the potential to supercharge the growth outlook in this part of the world. Energy security, localized capacity and infrastructure diversity all dominated my discussions with industry leaders since the outbreak of the conflict. Let me sum up in brief why each will contribute to an even stronger multiyear upcycle than previously conceived. Number one: energy security will only accelerate oil capacity expansion with enhanced flexibility across areas of production. Domestic gas is more crucial than ever for growing power needs. Number two: localized capacity. NESR already plays a central role and we will surely be called upon to expand further, leveraging our fully localized workforce, equipment and resilient supply chain. Number three: infrastructure diversification will ultimately drive and orient the upstream capacity build-out, particularly in the Gulf countries. Now let me turn to NESR's differentiated positioning in this macro landscape. Best described as the saying: it is better to be lucky than smart. Honestly, our project exposure and activity mix are uniquely favorable given the impact of the conflict in the region. As an example, we have limited exposure to places that have experienced the greatest disruption and force majeure, and to the key LNG export hubs in Qatar. Additionally, our offshore exposure to exploration or to some of the suspended rigs is much less than others and is not significant in comparison to our entire operation. The bulk of our business is land-based and concentrated in the solid GCC countries that have shown remarkable resilience and keep the upstream sector active. Jafurah is also particularly and uniquely positive for NESR. And I'm pleased to report both an acceleration in the overall project and also flawless execution with many more to come in the future. We are extremely proud and honored to be the trusted partner of our customers. On the supply chain front, we quickly established and executed a 30-60-90 day blueprint strategy which essentially buckets inventory levels across all our projects to ensure that we are identifying supply routes smartly and with an overall eye on operational continuity. This worked for NESR during the COVID pandemic, and this proactive approach is giving our customers confidence in NESR readiness. As I always tell our team, never miss an opportunity to convert crisis into continuous improvement for the future, like we have on supply chain, securing inventory, stepping into the void, safely and closely delivering when our clients need us most. Predictably, we've had to absorb extra freight and logistics to ensure our readiness at all times. However, it pays off. The trust we continue to build with our customers is an invaluable asset that will endure well past the current conflict and short-term expenses. With that, let me pass on to Stefan to discuss our solid results and update on our capital allocation plan. Stefan?
Thank you, Sherif. Good morning to those joining us from the United States, and good afternoon or good evening to participants across the Middle East and North Africa, Asia and Europe. We appreciate you taking the time to be with us today. I'm pleased to provide an update on our financial results for the first quarter of 2026 and to share our perspectives on the outlook for the year. Let's start with our first quarter performance. Revenue for the quarter was $404.6 million, an all-time high, increasing 1.6% sequentially and 33.5% year-over-year. Sequential growth was driven primarily by Saudi Arabia, reflecting the continued ramp-up of the Jafurah contract, partially offset by lower activity in Egypt, Oman and Iraq, the latter of which was due to regional disruptions during March. On a year-over-year basis, growth was supported by a full quarter contribution from Jafurah and increased activity across Kuwait, Algeria, Libya and Egypt. Shifting to profitability. Adjusted EBITDA for the quarter was $76.7 million, representing a margin of approximately 19%. This reflects typical Q1 seasonality combined with key contract ramp-ups and incremental freight and logistics costs associated with the regional geopolitical disruption which are estimated to be around $4 million, which covered special airfreight charters and other measures to ensure zero interruptions to our client operations. Despite this, the margins remain resilient due to strong cost discipline, improved operational execution and our lean overhead structure. Adjusted EBITDA included $2.9 million of charges and credits primarily related to foreign exchange losses of $3.6 million in North Africa, partially offset by favorable items. Consistent with prior commentary, we continue to expect charges and credits from restructuring and contract mobilization related costs to be minimal going forward. Net income for the quarter was $23.8 million, more than doubling sequentially and increasing 129% year-over-year. Adjusted diluted EPS was $0.26. This performance reflects strong operational flow-through as activity scales, particularly in our unconventional completions and testing service lines. Turning to cash flow and liquidity, which remain key sources of resilience in our model. Operating cash flow for the quarter was $30.7 million. Working capital was a headwind in Q1, primarily due to seasonal DSO increase driven by Ramadan and Eid, which were anticipated; and two, the unforeseen impact of geopolitical events in March across the region. Free cash flow was negative $5.3 million, an improvement versus Q1 '25. CapEx for the quarter was $36 million, aligned with our stated countercyclical investment strategy as we continue to deploy capital into recently awarded contracts and position the business for the next phase of growth. Moving to the balance sheet as of March 31. Gross debt was $287.4 million. Net debt was $194.4 million. Our net debt to adjusted EBITDA ratio remains at 0.66x, well below our 1x target. Return on capital employed improved to approximately 10.9%, reflecting continued disciplined capital allocation and improved asset utilization. Looking ahead for Q2 2026, we expect continued robust year-over-year growth driven by the Jafurah ramp-up and recent contract awards; sequential margin improvement consistent with normal seasonality; interest expense to be around $6.5 million; and tax to be at a 22.5% effective tax rate. From a cost perspective, the primary impact from current geopolitical conditions remains freight and logistics, which we have planned for. We also expect Q2 operating cash flow and free cash flow to rebound similar to Q2 '25 in the normal seasonal pattern. As we highlighted in the last two quarters, we continue to see a clear path to our $2 billion revenue target and maintain our margins despite the increase in costs due to the present conflicts in the region. We will continue with our countercyclical investment and CapEx will be around $180 million for the full year of 2026 reflecting increased activity and a strong pipeline of contract awards. We continue to expect strong operating cash flow with free cash flow conversion of approximately 35% to 40% of adjusted EBITDA on a full year basis. As the company enters a new phase of growth, we are formalizing our capital allocation framework to ensure we continue to deploy capital in a disciplined and value-accretive manner. Our approach is grounded in a clear set of priorities. First, we'll continue to invest in high-return growth opportunities, including recent contract awards and technology-led expansion across our core markets. These investments remain the primary driver of long-term value creation. Second, we remain committed to maintaining a strong balance sheet with a target net leverage ratio at or below 1x providing flexibility through cycles and supporting our growth strategy. Third, and as a new feature, I'm very pleased to announce that we're now in a position to begin returning capital to shareholders in a consistent and sustainable manner. Accordingly, we plan to initiate a quarterly dividend beginning in Q4 2026 at $0.10 per share or $0.40 annually. This reflects our confidence in the durability of our cash flow generation and our intention to establish a sustainable and growing base dividend over time. In addition, we are launching a $50 million share repurchase program over the next 12 months. This program provides us with flexibility to opportunistically return capital when we believe our shares are trading below intrinsic value, while continuing to prioritize investment in the business. Taken together, this framework balances growth, financial strength and shareholder returns and positions the company to deliver consistent long-term value creation. To conclude, despite ongoing geopolitical uncertainty, the outlook across the Middle East and North Africa remains very positive with the region expected to lead the next phase of global activity growth, as Sherif highlighted in his remarks. NESR remains focused on delivering profitable growth, demonstrating strength in operational execution, expanding technology capabilities and maintaining disciplined capital and working capital management. On behalf of management, I'd like to thank our employees for their continued dedication and performance and our shareholders and banking partners for their ongoing support. NESR in 2026 has strong momentum and a clear durable path to continued growth. I will now turn the call back to Sherif.
Thanks, Stefan. Let me conclude. I hope first quarter results show our customers first and foremost that we do not shrink in the face of conflict. We continue to invest both in the opportunities today and for the long-term vision that our clients continue to stand behind. Our people and field teams are among the most dependable in the industry. For investors, I hope the message resonates that growth plans across the MENA region remain durable and that the NESR growth model is not only solid, but is stronger than ever, considering the favorable project pipeline and robust investment outlook beyond the conflict. The time I spent with clients over the past several months were some of the most meaningful interactions that I've had. I applaud our customers for their strength, commitment and trust in NESR, which I'm humbled to say are reflected in our results and outlook. Our industry is not just steel, engines and consumables. Our industry encompasses not just our people in the field, but the families, communities and countries that have stood together during these uncertain times. We created NESR to reflect the ingenuity of the MENA region, and to build a national champion that could weather the greatest storm and emerge even stronger. While we pray for a speedy and safe resolution to the current conflict, we stand ready to meet the emerging needs of our customers and our communities. With that, I'd like to open the floor for your questions. Please go ahead.
Questions and answers
The first question today comes from the line of Arun Jayaram with JPMorgan.
Sherif, last quarter, you highlighted a very robust tender pipeline for NESR; you highlighted, I believe, $3 billion of tender activity. Just wondering if you could update us on the status of some of that tender activity as we think about the balance of the year?
Thanks, Arun. We had, as we announced, the award in Kuwait and North Africa with the cementing, which was the first thing that was announced by our customer. We were awarded much more than our fair share, if you like, which we are very happy with. So we will have, I would say, a leadership position in both markets for that segment. The rest of the tenders are going on as planned. As a matter of fact, there is like no delay or suspension. So we are actively in that bidding strategy now. The feedback from our customers: some of them like to have clarifications, some of them have rounds of negotiations. So all this is going on. And I believe, I still believe that the majority would be awarded in the next two to three months, and then they will be announced as obviously we get the news from the customer. So the pipeline is still $3 billion and I would say, actually, there will be more activity and some things that we were not planning for due to the conflict that are going to restart and you're going to see it with the customers trying to see how they can enhance their capacity. In my personal opinion, some of the customers will bring some of those projects earlier than expected.
Great. And just a follow-up. You guys printed, call it, $77 million of EBITDA in 1Q. Obviously, a quarter that had some Middle East disruption in Ramadan, and then you highlighted $4 million of quarter-specific costs. Stefan, do you have any additional color on 2Q or how you're feeling about the full year? I know there's some uncertainties, but just give us a little bit of framing. You did beat the Street number this quarter. Helping us frame near-term expectations would be helpful.
So on a full year basis, as I said previously, we'll maintain the same margin as we did last year, which is around 21% to 21.5%. Q1 is always the seasonally low number for the year. As I said in the prepared remarks, we had $4 million of freight costs. Q4 will be the highest for the year and the trajectory will improve each quarter to the highest quarter at the end of the year to end up with an average, which is roughly the same as the previous year. Even with the additional freight costs, we think we'll be close to or maintain the same margin as the previous year.
Our next questions are from the line of Josh Silverstein with UBS.
You had mentioned before that there were a few areas that you didn't really have exposure to, which is good for right now, in Qatar offshore, Saudi or a few other places. I'm curious if this potential conflict may have opened up some doors in those areas or maybe you're thinking about now expanding into those regions that you previously didn't have much exposure to?
What I have to say is that we are lucky that we were not exposed to some of the areas where they had force majeure. Obviously, when those areas return, we will, for sure, be involved and we tender actively. But I would say this is not going to be the focus for us in the very near future. Diversification will be with a lot of customers in some of the new areas, and definitely, we are active in bidding in all projects, whether it's offshore or land, everywhere in the MENA region. Now we have very solid infrastructure across all the 15 countries. We are authorized and allowed to bid on all the big projects and small projects because now we have the track record. So we're very actively engaged. We're going to, obviously, put the correct pricing and the proper bidding strategy and whether the client awards us in the different areas, that's up to them to choose.
And then Stefan, can you just walk through some of the thoughts around the return of capital strategy? Is the dividend level to start putting off of why a little bit more focus on that versus the buyback? Any help there would be great.
Right now, we've got free cash flow coming from all the big projects we've won, and free cash flow will continue to improve over the years to come. We've been looking at how we're going to return amounts to shareholders, and we thought it was best to go with the dividend first. The dividend has been set at $0.40 per year, which at a $25 price is a 1.6% yield. That's to reward our long-term shareholders, our Middle Eastern shareholders, and if there are funds that are interested in buying dividend stocks in the U.S. We also took the opportunity to announce the buyback just in case the share price dips to opportunistically buy back at a cheaper price. But we continue to hope that the share price keeps going up.
Our next question is from the line of Saurabh Pant with Bank of America.
Sherif, maybe I want to touch on Jafurah a little bit. In your prepared remarks, Sherif, you were talking about acceleration in the overall project and obviously flawless execution. Maybe can you talk to where we are in the Jafurah ramp-up process? Any update on timing of the deployment of the fourth fleet? And just a little more color on what you meant by acceleration in the overall project. Is that part of the ramp-up? Or what exactly are we talking about? And then secondly, Sherif, related to that on the efficiencies, where are we on the efficiency front? Do you think we have reached optimum efficiency as the project is ramping up? Or do you think there's more upside as you continue to ramp up?
Thanks. Jafurah has been obviously a fantastic project for us and for Aramco. I'm sure you saw Aramco's announcement already publicly. So the readiness and the efficiency that Aramco is managing to add wells because of the fantastic performance on the rigs means that more pads are ready which means that if we continue with our performance, which is obviously our plan and we improve on it, we will be able to have more pads than planned for the year. If we continue to do that and Aramco allows us, we will be able to ramp up the number of stages that we do per quarter faster. So let's say, if we planned a certain number of stages in Q3, we may be able to do it in Q2. Therefore, what was planned for Q4, we may be able to do in Q3. And that's what I call the acceleration of the project because Aramco's performance has been really outstanding. Our business added fleets and, as I always say, we're countercyclical. So we added more fleets than Aramco was planning. So we are always ready and that worked extremely well for us especially with what happened now with the current conflict and the logistics problem, but we have our equipment already in Saudi or on the way to Saudi. We have our fourth fleet already in country and it is going to be deployed very, very soon. Now for the efficiency, there is always room for improvement. What we did internally is we looked at all our fleets, everything new and everything that comes from the U.S. with continuous pumping, is it dual fleet? Is it extended? A lot of this we are implementing now in the Kingdom, in very close consultation with our clients. We see that we still have a very nice room of improvement, and we see as well we can beat actually the number of stages that are being done in the Permian. I believe that the Jafurah project will be best-in-class worldwide in number of stages, pumping efficiency, etc., which is obviously going to be a nice upside for us in terms of the number of stages and definitely in terms of profitability.
That's a fantastic update, Sherif. Clearly very strong execution over there. And then just a little update maybe on the ground situation in the Middle East. First quarter, March, obviously was impacted by the conflict. But since the ceasefire was announced in early April, Sherif, what has changed on the ground? I'm assuming operations are smoother, air transportation has improved, right? But how have things changed since then? And Stefan, you said $4 million impact. Can you give some thoughts on what's baked into your thinking for Q2 at this point? Are you thinking $4 million times three for $12 million impact? Or is it less than that, given the ceasefire might have improved the situation on the ground?
If I speak to the political side, people often have misconceptions. The clients in the Middle East think long term, they think about their capacity and how they're going to perform. You have to decouple production from activity. So unless there is a direct hit to something significant where they announced it, clients remain very transparent. You saw an operator in Qatar declared a force majeure and an LNG hit; that will take years to repair, and some rigs in dangerous zones were asked to suspend operations or reduce activity. Those actions were taken where it was unsafe. But in all the other places, even when exports were impacted, they did not release the rigs and they did not stop activity because the ecosystem is very important. Some clients drilled up to the reservoir casing and kept wells ready to ensure that activity remains intact and to keep capacity of people and gear. So when they ramp up, they ramp up at pace. You saw Kuwait, for example, where despite challenges we still have our operations almost uninterrupted. Even with the ceasefire, things are better and some logistics have improved, but at the end of the day, some shipping routes remain constrained. If you did not diversify your supply chain, you are in trouble. That is why I keep repeating it is critical to balance your supply chain and your routes. We send our Saudi material directly, for example. We have a hub in Saudi and we manage everything in Saudi directly. That's very important because that is what makes us strong. We also balance with authorities between different ports. Regarding cost, which is part of our DNA, we make sure we have excess capacity and spares. If we anticipate issues, we take a proactive approach and air freight some of the materials even if they normally would ship, because we don't take chances. We air-freighted a lot of the items we wanted in country so we never disrupted client operations. We believe these costs will go down next quarter because, hopefully, shipping will normalize and you will not need as much air freight, and those costs will decline.
On the $4 million, the main impact during Q1 was special airfreight charters and other discrete logistics measures to ensure zero interruptions. We expect those costs to decline as logistics normalize. We are not simply multiplying $4 million by three; the impact will depend on how the geopolitical situation evolves and how quickly shipping and routes return to more normal patterns. Our guidance assumes freight and logistics costs will moderate and that sequential operating cash flow and free cash flow will rebound in Q2 following normal seasonal patterns.
Our next question is from the line of Derek Podhaizer with Piper Sandler.
I was curious to get your thoughts on having a tighter U.S. supply chain, given where oil prices have gone and that U.S. independents and E&Ps are talking about returning frac crews to work and capital equipment cycles potentially kicking off. Is there any potential pressure as you continue to scale Jafurah? Or have you already effectively locked in your equipment needs for the committed and uncommitted work over the next several years?
No, Derek. I'm actually quite happy that the U.S. is very tight and it's going to get tighter, which is great. We already locked our fleet, the fourth and the fifth. We have all our equipment. As I said, the equipment is either in country or en route to the country. So if the U.S. gets tighter, it's even better because that means less competition and we will be able to keep performing as we are. We locked our products, our chemicals, our spares, our engines; we planned all this ahead of time. During the conflict, we did a very detailed study on what we need over the full year and planned some buffering to ensure we can meet or even exceed client demand with equipment and spares. So we are in good shape. I hope the U.S. keeps ramping up.
That's great to hear. Your comments on ADNOC were interesting as far as the $55 billion. Obviously, there's a clear opportunity set here. Could you expand on how you see your opportunity set growing with ADNOC, particularly as they've brought a lot of services in-house over the last several years? How will you be a partner to them as they look to scale now?
ADNOC, we have been working with them since the start and we keep ramping up. We won a couple of contracts lately and are now bidding on a lot of mega projects with them. Definitely, the acceleration of their spend and their Made in the Emirates initiative that was announced is public. The AED 200 billion over two years means a lot of projects. We will be bidding on many of these projects. The lion's share of activity in Abu Dhabi goes to ADNOC and ADNOC Drilling and affiliated companies, which is the known structure. But when the pie is bigger, we will get bigger even with ADNOC Drilling taking a large share. We see it very positively. With the acceleration of spend and the diversification I keep repeating, people may be underestimating this; there will be a lot of diversity and many projects originally planned for '28, '29 or '30 will be brought forward. Many countries are preparing budgets and readying projects to be executed sooner. This is very positive for us.
The next question is from the line of Greg Lewis with BTIG.
I was hoping you could talk a little bit more about the opportunity in North Africa. Clearly, there's a growing theme that the Middle East will remain the center but you could see incremental capital flow to other markets. When could we start to see that show up in numbers in terms of incremental revenue? And as we see more capital deployed in North Africa, how should we think about supply chain? Are there any capacity constraints in that market that could limit upside?
North Africa actually has a huge opportunity. To appreciate that, you have countries with pipeline capacity that is not full. Imagine the opportunity: the world has a problem not mainly because of limited capacity but because supply routes have been disrupted. Europe needs gas and there are pipelines in the Mediterranean not at full capacity. So you just need to pump more gas into them. The authorities and clients recognize now is the time to add investment. This will be two-pronged. You have international oil companies signing new agreements—Total, ConocoPhillips, Chevron, Exxon have been active—and when they come you will see high intensity of new projects because the money comes from the IOCs. You also have national oil companies like Sonatrach and local E&P companies that will add capacity. You saw visits from international leaders showing the urgency. Rig counts in Libya and Algeria are rising; concessions are being added. The positivity in North Africa should show up soon in significant year-on-year growth. The absolute size for us today is smaller than the GCC, however if you grow 20%–30% year-on-year it's very positive. In addition, there are unconventional opportunities—Algeria has unconventional resources that could be transformative once developed, similar to Vaca Muerta in Argentina. Once unleashed, activity, production and business for everyone would increase significantly.
The next question is from the line of Jeff Robertson with Water Tower Research.
Sherif, when you think about the tender pipeline and some of the diversification opportunities you're seeing in the markets, can you share any color on what that might do to margins over the next few years?
It all depends on the client, the country and the segment, so I don't want to give vague answers. In some countries we have service lines that run above 30% margins and others run less. It depends on the bidding, how competitive it is, and some of the cost or contract requirements. I would say, at our current size and given the tenders we're targeting, many of the large projects we expect to be accretive and better than our current margins. We will be selective and prioritize CapEx. In some segments it doesn't make sense to bid at prices below our current running margins, and in those cases there will be a pricing impact. Additionally, we have to consider logistics costs like freight which are currently higher, and the industry needs to reflect that in pricing. For example, diesel is up significantly which increases operating costs. Our clients understand that, and as long as we operate professionally and transparently, the market will adjust.
And secondly, is there any update you can share on some of the water projects you're working on within the NESR segment?
Yes. We don't talk much about it because of current priorities and what's happening in the region, but our water projects are progressing. Most are in late-stage testing and economics evaluation, including the recovery of minerals and lithium. Our lithium project with a customer is going very well after successful pilots. These projects are positive and we are working on them, and because our customers have a long-term view, these efforts continue despite current disruptions. Some pilots were postponed where logistics made trials difficult, but overall we aim to ensure these projects are economically viable without subsidies. If they are economically viable on their own, they will be long-term businesses. You should hopefully hear before year-end about scaling some of these projects beyond pilot stage.
The next question is from the line of Tom Bishop of BI Research.
Good evening. I just want to know how big is the North African part of your revenue?
We don't disclose country or regional revenue splits. But I would say the GCC is much larger than North Africa.
At this time, I'll turn the floor back to management for closing remarks.
Thank you very much. I appreciate all the time. As Stefan mentioned with the capital return, I think that sends the right message that we are extremely positive about the future. Thank you very much.
Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.