| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation The
Company consolidates entities in which the Company has a majority voting interest and entities that meet the criteria for variable interest
entities for which the Company is deemed to be the primary beneficiary for accounting purposes. The Company eliminates intercompany transactions
and accounts in consolidation. Functional
and presentation currency These
consolidated financial statements are presented in U.S. Dollars (“USD”), which is the functional and reporting currency of
the Company. The majority of the Company’s sales are denominated in USD. Each subsidiary of NESR determines its own functional
currency and items included in the financial statements of each subsidiary are measured using that functional currency. All financial
information presented in USD is rounded to the nearest thousand, unless otherwise indicated. Transactions
in foreign currencies are translated to the respective functional currency of the Company’s subsidiaries at exchange rates at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency
at the exchange rate as of the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency
are translated to the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are generally
recognized in profit or loss. Non-monetary items that are measured based on historical cost in a foreign currency are not translated. The
assets and liabilities of entities whose functional currency is not the USD are translated into the USD at the exchange rate as of the
reporting date. The income and expenses of such entities are translated into the USD using average exchange rates for the reporting period.
Exchange differences on foreign currency translations are recorded in other comprehensive income (loss). Restatement As disclosed in our Annual Report on Form 20-F for the year ended December 31, 2022, the Company restated certain
balances included in its financial statements as of and for the year-ended December 31, 2020. Revenue
recognition The
Company recognizes revenue from contracts with customers upon transfer of control of promised services to customers at an amount that
reflects the consideration it expects to receive in exchange of services. The Company typically receives “callouts” from
its customers for specific services at specific customer locations, typically initiated by the receipt of a purchase/service order or
similar document from the customer. Customer callouts request that the Company provide a “suite of services” to fulfill the
service order, encompassing personnel, use of Company equipment, and supplies required to perform the work. Rates for these services
are defined in the Company’s contracts with customers. The term between invoicing and when the payment is due is typically 30-60
days. Revenue
is recognized for each performance obligation when the customer obtains control of the service the Company is providing. For most services,
control is obtained over time as (1) the customer simultaneously receives and consumes the benefits provided by the Company’s performance
as Company employees perform and (2) the Company’s performance creates or enhances an asset that the customer controls. Revenue
is recorded based on daily drilling logs, recognized at the standalone selling price of the services provided as reduced proportionately
for management’s estimate of volume or early pay discount where applicable. Upon initial recording, revenue is presented as unbilled
revenue on the Company’s Consolidated Balance Sheet and subsequently reclassified to Accounts receivable when the final invoice
is presented to the customer or accepted in the customer’s electronic invoice processing portal, as applicable. Amounts collected
on behalf of third parties in conjunction with revenue, such as taxes, are generally presented gross as the Company is typically the
principal in each taxing jurisdiction. Costs
of obtaining a customer contract that are incremental and expected to be recovered are recognized as an asset. Costs are subsequently
amortized over the term of the contract or less if circumstances indicate that a shorter deferral period better matches these costs with
the revenue they generate. Costs
that relate directly to a contract or an anticipated contract that the Company can specifically identify, that generate or enhance resources
of the Company that will be used in satisfying performance obligations in the future, and are expected to be recovered, are capitalized
as contract fulfillment costs and amortized into the Statements of Operations of the Company over the period of anticipated benefit. Cash
and cash equivalents The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. Supplemental
cash flow information Non-cash
transactions were as follows during the year ended December 31, 2023:
● Purchases
of property, plant, and equipment in Accounts payable of $ 17.6
● Purchases
of property, plant, and equipment using seller-provided installment financing of $ 5.5 Non-cash
transactions were as follows during the year ended December 31, 2022:
● Purchases
of property, plant, and equipment in Accounts payable of $9.1
● Purchases
of property, plant, and equipment using seller-provided installment financing of $ 11.6
● During
the year-to-date period ended December 31, 2022, the Company issued NESR ordinary share consideration of 1,650,000 Non-cash
transactions were as follows during the year ended December 31, 2021:
● Purchases
of property, plant, and equipment in Accounts payable of $ 2.6
● Purchases
of property, plant, and equipment using seller-provided installment financing of $ 7.3 1.1 6.0
● Obligations
of $ 4.4 6.1
● The
Company issued NESR ordinary share consideration of 2,237,000 145,039 266,611 Concentration
of credit risk The
Company’s assets that are exposed to concentrations of credit risk consist primarily of cash, accounts receivable from customers,
unbilled revenue from customers, and retention withholdings. The Company places its cash with financial institutions and limits the amount
of credit exposure with any one of them. The Company regularly evaluates the creditworthiness of the issuers in which it invests. The
Company minimizes this credit risk by entering into transactions with high-quality counterparties, limiting the exposure to each counterparty
and monitoring the financial condition of its counterparties. Unbilled
revenue, accounts receivable and allowance for credit losses Trade
accounts receivable are recorded at the invoiced amount. Accounts receivable are reclassified from unbilled revenue when presented to
the customer or accepted in the customer’s electronic invoice processing portal, if applicable. No interest is charged on past-due
balances. On
January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit
Losses 2.8 The
Company monitors its customers’ payment history and current credit worthiness to determine that collectability of the related financial
assets is reasonably assured. The Company also considers the overall business climate in which our customers operate. For accounts receivable,
a loss allowance matrix is utilized to measure lifetime expected credit losses. The matrix contemplates historical credit losses by age
of receivables, adjusted for any forward-looking information and management expectations. Prior
to the adoption of ASC 326, the Company maintained an allowance for doubtful accounts for estimated losses inherent in its accounts receivable
portfolio. In establishing the required allowances management considers historical losses adjusted to take into account current market
conditions and the customer’s financial conditions, the amount of receivable in dispute, current receivables ageing and current
payment patterns. Significant accounts receivable balances and balances that have been outstanding greater than 90 days are reviewed
for collectability. Account balances, when determined to be uncollectable, are charged against the allowance. Service
inventories The
Company’s service inventory consists of spare parts and chemicals support ongoing operations which are held for the purpose of
service contracts and are measured at the lower of cost or net realizable value. The cost is based on the weighted average cost principle
and includes expenditures incurred in acquiring the service inventories. Net realizable value is the estimated selling price less estimated
costs of completion and selling expenses incurred in the ordinary course of business. The
Company determines charges for obsolete service inventory based on historical usage of inventory on-hand, assumptions about future demand
and market conditions and estimates about potential alternative uses, which are limited. Property,
plant and equipment Property,
plant and equipment, inclusive of equipment under capital lease, is stated at cost less accumulated depreciation. The cost of ordinary
maintenance and repair is charged to operating expense, while replacement of critical components and major improvements that extend the
life of the related asset are capitalized. Capital work in progress mainly represents costs incurred on drilling rigs and equipment that
are in transit at the reporting date. No depreciation is charged to capital work in progress. Depreciation of property, plant and equipment
is calculated using the straight-line method over the asset’s estimated useful life as follows: SCHEDULE OF ESTIMATED USEFUL LIFE PROPERTY, PLANT AND EQUIPMENT
Buildings
and leasehold improvements 5 25
Drilling
rigs, plant and equipment 1 15
Office
equipment (furniture and fixtures) and tools 3 10
Vehicles
and cranes 5 10 Equipment
held under capital leases are generally amortized on a straight-line basis over the shorter of the estimated useful life of the underlying
asset and the term of the lease. Property,
plant and equipment is reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying
value of an asset or asset group may not be recoverable. Events or circumstances that may indicate include, but are not limited to, matters
such as a significant decline in market value or a significant change in business climate (“triggering events”). An impairment
loss is recognized when the carrying value of an asset exceeds the estimated undiscounted future cash flows from the use of the asset
and its eventual disposition. The
amount of impairment loss recognized is the excess of the asset’s carrying value over its fair value. In determining the fair market
value of the assets, the Company considers market trends and recent transactions involving sales of similar assets, or when not available,
discounted cash flow analysis. The Company has not recorded any impairment charges of property, plant and equipment in the accompanying
Consolidated Statements of Operations for any of the periods presented. Assets
to be disposed of are reported at the lower of the carrying value or the fair value less cost to sell. Upon sale or other disposition
of an asset, the Company recognizes a gain or loss on disposal measured as the difference between the net carrying value of the asset
and the net proceeds received. Production
Management Assets The
Company’s IPM projects are focused on developing and managing production on behalf
of the Company’s customers under long-term agreements. The Company invests its own services and products, and in some cases cash, into the field development activities
and operations. Although in certain arrangements the Company is paid for a portion of the services or products it provides, generally
the Company is not be paid at the time of providing its services or upon delivery of its products. Instead, the Company is compensated
based upon cash flow generated. Revenues from IPM arrangements, which is recognized as
the related production is achieved, represented less than 1 0 0 The
Company capitalizes its cash investments in a project as well as the direct costs associated with providing services or products for
which the Company will be compensated when the related production is achieved. These capitalized investments are amortized to the Consolidated
Statements of Operations as the related production is achieved based on the units of production method, whereby each unit produced is
assigned a pro-rata portion of the unamortized costs based on estimated total production, resulting in a matching of revenue with the
applicable costs. Amortization expense relating to these capitalized investments was $ 13.7 0.0 0.0 The
unamortized portion of the Company’s investments in IPM projects was $ 18.8 17.4 At
December 31, 2023, the Company assessed whether the unamortized costs associated with these investments exceed the present value of future
cash flows from the projects, and has recorded an impairment charge of $ 0.9 Goodwill Goodwill
is the excess cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill
is evaluated for impairment on an annual basis on October 1st, or more frequently if circumstances require. The Company performs a qualitative
assessment to determine whether it is more-likely-than-not that the fair value of the applicable reporting unit is less than its carrying
amount. If the Company determines, as a result of its qualitative assessment, that it is not more-likely-than-not that the fair value
of the applicable reporting unit is less than its carrying amount, no further testing is required. If the Company determines, as a result
of its qualitative assessment, that it is more-likely-than-not that the fair value of the applicable reporting unit is less than its
carrying amount, a goodwill impairment assessment is performed using a two-step, fair-value based test. Under the first step, goodwill
is reviewed for impairment by comparing the carrying value of the reporting unit’s net assets (including allocated goodwill) to
the fair value of the reporting unit. The fair value of the reporting units is determined using a discounted cash flow approach. Determining
the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions
include revenue growth rates, discount rates, operating margins, weighted average costs of capital, market share and future market conditions,
among others. If the reporting unit’s carrying value is greater than its fair value, a second step is performed whereby the implied
fair value of goodwill is estimated by allocating the fair value of the reporting unit in a hypothetical purchase price allocation analysis.
If the amount of goodwill resulting from this hypothetical purchase price allocation is less than the carrying value of the reporting
unit’s goodwill, the recorded carrying value of goodwill is written down to the implied fair value. The Company performed quantitative
assessments for both of its reporting units as of October 1, 2023, October 1, 2022, and October 1, 2021, and has not recorded any impairment
charge for goodwill in the accompanying Consolidated Statements of Operations for any of the periods presented. Intangible
assets Intangible
assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805. The Company’s
intangible assets with finite lives consist of customer contracts, trademarks and trade names. The cost of intangible assets with finite
lives is amortized over the estimated period of economic benefit on a straight-line basis, ranging from eight ten years Intangible
assets with finite lives are tested for impairment whenever events or changes in circumstances indicate the carrying value may not be
recoverable. These conditions may include a change in the extent or manner in which the asset is being used or a change in future operations.
The Company assesses the recoverability of the carrying amount by preparing estimates of future revenue, margins and cash flows. If the
sum of expected future cash flows (undiscounted) is less than the carrying amount, an impairment loss is recognized. The impairment loss
recognized is the amount by which the carrying amount exceeds the fair value. Fair value of these assets may be determined by a variety
of methodologies, including discounted cash flow models. Investments
in Equity Instruments Investments
in equity instruments (of entities in which the Company do not have either a controlling financial interest or significant influence,
most often because the Company hold a voting interest of 0 20 Equity
method investments are equity holdings in entities in which the Company do not have a controlling financial interest, but over which
the Company have significant influence, most often because the Company hold a voting interest of 20 50 Leasing In
February 2016, the FASB issued ASU 2016-02, Leases Upon
transition, the Company applied the package of practical expedients permitted under the ASC 842 transition guidance. As a result, the
Company did not reassess (1) whether expired or existing contracts contain leases under the new definition of a lease, including whether
an existing or expired contract contains an embedded lease, (2) lease classification for expired or existing leases and (3) any initial
direct costs of existing leases. As a result of the adoption of ASC 842 on January 1, 2022, the Company recorded right-of-use assets
of $ 33.7 0.4 0.1 33.2 The
Company determines if an arrangement contains a lease at inception. The Company has operating leases that primarily consist of land and
buildings. The Company also has finance leases for its equipment. Right-of-use (“ROU”) assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments
arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future
minimum lease payments over the lease term at commencement date. The lease term is determined to be the non-cancelable period including
any lessee renewal options which are considered to be reasonably certain of exercise. The Company has elected the practical expedient
to utilize the risk-free rate over a similar period as the remaining lease term as the applicable discount rate. Lease expense for fixed
lease payments on operating leases is recognized over the expected term on a straight-line basis, while interest expense for fixed lease
payments on finance leases is recognized using the effective interest method. The
Company has elected, as an accounting policy, to not apply the recognition requirements in ASC 842 to short-term leases. The Company
did not elect the hindsight practical expedient, which would have allowed the Company to revisit key assumptions, such as lease term,
that were made when the lease was originally entered. The Company has also elected, as a practical expedient, by underlying class of
asset, not to separate lease components from non-lease components and instead, account for them as a single lease component. Prior
to the adoption of ASC 842, the Company evaluated and classified its leases as operating or capital for financial reporting purposes.
Assets held under capital leases were included in Property, plant and equipment, net, on the Consolidated balance sheets. Operating lease
expense is recorded on a straight-line basis over the lease term in the Consolidated Statements of Operations. Employee
benefits The
Company provides defined benefit plan of severance pay to the 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 applicable employee contracts. 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 statement of income. 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. 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 as incurred. Income
taxes The
Company applies an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities
are computed for differences between the financial statement carrying amount and the tax basis of assets and liabilities that will result
in future deductible or taxable amounts and for carryforwards, based on enacted tax laws and rates applicable to the periods in which
the deductible or taxable temporary differences are expected to affect taxable income. Valuation allowances are established to reduce
deferred tax assets to the amount that is more likely than not to be realized. The
Company applies a recognition threshold and measurement attribute for evaluating tax positions taken or expected to be taken in a tax
return. For those benefits to be recognized, a tax position, based solely on the technical merits, must be more-likely-than-not to be
sustained upon examination by taxing authorities. Recognized tax positions are measured as the largest amount of tax benefit that is
greater than 50 percent likely of being realized upon settlement. The Subsidiaries operate in multiple tax jurisdictions in the Middle
East, North Africa and Asia. The Company has provided for income taxes based on enacted tax laws and tax rates in effect in the countries
where the Company operates and earns income. The income taxes in these jurisdictions vary substantially. The Company engages in transactions
in which the income tax consequences may be subject to uncertainty and examination by the varying taxing authorities. Significant judgment
is required by the Company’s management in assessing and estimating the income tax consequences of these transactions. While the
Company prepares tax returns based on interpretations of tax laws and regulations, in the normal course of business, the income tax returns
may be subject to examination by the various taxing authorities. Such examinations may result in future assessments of additional income
tax, interest and penalties. NESR classifies interest and penalties relating to an underpayment of income taxes within income tax (expense)
/ benefit in the Consolidated Statements of Operations. Considerable judgment is involved in determining which tax positions are more
likely than not to be sustained. Commitments
and contingencies The
Company accrues for costs relating to litigation claims and other contingent matters, including liquidated damage liabilities, when such
liabilities become probable and reasonably estimable. In circumstances where the most likely outcome of a contingency can be reasonably
estimated, the Company accrues a liability for that amount. Where the most likely outcome cannot be estimated, a range of potential losses
is established and if no one amount in that range is more likely than others, the low end of the range is accrued. Such estimates may
be based on advice from third parties or on management’s judgment, as appropriate. Revisions to contingent liabilities are reflected
in income in the period in which different facts or information become known or circumstances change that affect the Company’s
previous judgments with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of contingent liabilities
may be materially different from previous estimates and could require adjustments to the estimated reserves to be recognized in the period
such new information becomes known. Stock-based
compensation arrangements The
Company provides stock-based compensation in the form of restricted stock awards to members of its Board of Directors and employees.
Awards are issued pursuant to the terms of the Company’s 2018 Long Term Incentive Plan (“LTIP”) and valued at their
grant date fair value. Such awards qualify as participating securities as they have the right to participate in dividends issued on the
Company’s ordinary shares, if any. Grants to members of the Company’s Board of Directors are time-based and vest ratably
over a 1 3 Net
(loss) / income per ordinary share Basic
income per ordinary share was computed by dividing basic net (loss) / income by the weighted-average
number of ordinary shares outstanding. Diluted income per ordinary share was computed by dividing diluted net (loss) / income by the weighted-average number of ordinary shares outstanding plus dilutive potential ordinary shares, if any.
Dilutive potential ordinary shares include outstanding warrants, restricted stock awards, and/or other contracts to issue ordinary stock
and are determined by applying the treasury stock method or if-converted method, as applicable, if dilutive. Derivative
financial instruments The
Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify
as an embedded derivative. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as other income (expense). Fair
value of financial instruments The
Company’s financial instruments consist of cash and cash equivalents, accounts receivable, unbilled revenue, accounts payable,
leases, contingent consideration assumed in the Action transaction (Note 4), loans and borrowings and private warrants. The fair value
of the Company’s financial instruments under ASC Topic 820, “ Fair Value Measurements and Disclosures Fair
value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and
bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
● Level
1 - Quoted prices in active markets for identical assets or liabilities.
● Level
2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical
or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
● Level
3 - Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants
would use in pricing the asset or liability. Segment
information An
operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenues and
incur expenses and about which separate financial information is regularly evaluated by the Company’s chief operating decision
maker (“CODM”) in deciding how to allocate resources. Similar operating segments can be aggregated into a single operating
segment if the businesses are similar. Management has determined that the Company has two operating segments and two reportable segments
(Note 20), which reflects the manner in which the CODM operates the Company. The Company’s CODM is its Chief Executive Officer. Recently
issued accounting standards not yet adopted All
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. |
