And so they’re finding homes elsewhere. And so we are hoping we’ll continue to support those rigs as they move to other markets. On the positive side of that ledger though, we continue to be very excited about the Kingdom’s goal to lift their gas production 2.5 Bcf per day, mostly coming from their unconventional Jafurah field development, which the FID, I think, back in 2020. The rig count there has continued to grow. They are securing new rigs for both that as well as, I think, additional gas production out of South [indiscernible] and just a couple of weeks ago celebrated 23 new rigs bringing into the Kingdom. And that’s in addition to the rigs that we are building in the Kingdom for [indiscernible] that are going to work. What’s interesting to us about that — there’s a couple of things are.
First of all, the rigs they’re bringing in are all AC powered. They’re all available to be more closely controlled with electronics and software. It’s really a step up in technology. And I think that speaks to Aramco’s desire as well as other NOCs around the Kingdom — around the Gulf, we’re seeing the same desire to bring in better technology rigs and to help sort of bridge the performance gap between the rig fleet that they have versus the rig fleets that what they can do. And so that’s, I think, a good development for us. And then the other way, NOV can and is participating in that is through the supply of all of the production equipment and kit that I mentioned earlier. We manufacture chokes in the Kingdom. We are provider production chokes worldwide, the largest provider of composite piping systems worldwide, and we are seeing big orders and a lot of demand in the Kingdom to support gas production in both of those areas in addition to separators to gas dehydration technologies.
Again, we are the largest provider of that. And so there’s a lot of ancillary kits to get pulled through those gas developments that would benefit NOV as well.
Scott Gruber: And then as the jackups go back to work, is that feeding upgrades to equipment? Are there dollars flowing to NOV as those rigs mobilize elsewhere?
Clay Williams: It may. It depends on what their operator in these new markets once. I would say most upgrades to drilling equipment today are really prompted by the operator of customer requiring that. There’s not a lot of speculative investment by offshore drilling contractors, given what most of them just went through around adding equipment. But the operators are stepping up and helping them out by paying higher moat fees or paying for new equipment through the day rate. And they’re also offering longer terms I think for both jackups and floaters, you’re seeing fixtures extend out to be longer contracts, so that both parties have a shot at getting payback on these new capital investments and new capabilities in there. That’s kind of the dynamic at work there. So it depends on what the operators in these new markets want.
Scott Gruber: Got it. Appreciate the color, Clay. Thank you.
Clay Williams: You bet.
Operator: Thank you. And one moment for our next question. And our last question is going to come from the line of Kurt Hallead with Benchmark. Your line is open. Please go ahead.
Kurt Hallead: Hey, good morning, everybody.
Clay Williams: Hi, Kurt.
Jose Bayardo: Good morning, Kurt.
Kurt Hallead: I always appreciate the color and the insight very informative. Thank you. So I got one big picture question and then one financial question. So let me hit the financial question up first, right? You guys referenced you still have more coming on the cost reduction front. So I appreciate that dynamic. As we get out beyond 2024, I’m just kind of curious as to what do you see the primary driver for margin improvement? Do you think is it going to be more internal? Or is it going to be external, for example, like pricing power or those dynamics? Just a little — how — I’d like to get your sense on how you’re thinking about the margin improvement once you get beyond ’25 — or ’24, excuse me.
Jose Bayardo: Hey, Kurt, thanks for the good question. I’ll start off and Clay will, I’m sure, will want to chime in on this one as well. But I think what we see is there are several opportunities continue to see an improvement in our margin over the next several years. So obviously, you touched on the cost out program. We are still in the relatively early phases of that $75 million cost out program really got started at the very end of last year, and we probably worked about — we have worked our way through about 30% of that at this point in time. We expect that to pick up a bit into Q2, which is why you see an improvement in the incremental margins. But — and we are always going to be — but really expect that to wind out as we work our way through Q3 and Q4.
We are going to continue to look for other opportunities. We are always looking to streamline and optimize the operations within the company. But the work we’ve done — obviously done a tremendous amount of heavy lifting over the last several years, and this is another small step relatively speaking, from a cost out standpoint that we’ll have wrapped up in ’24. As we get into ’25 and beyond, you’re going to see the continued progression of lower margin contracts and projects winding out of the system. We’ve been seeing that over the last several quarters. We’ll see that gradually take place through the remainder of ’24. And then as Clay touched on expectations for one of our businesses, in particular, to really come to an end of some of those contracts quite suddenly really at the end of ’24, and should more or less be a step change in ’25, which should allow more margin improvement.
That’s one out of many businesses, but still makes a difference. Also, we’ll continue to see improved absorption across the entire footprint. I think when we get into ’25, we will see continued strong activity in international and offshore markets and we expect North America to be much healthier. Right now, we have cross currents with international more than offsetting what’s happening in North America, but North America is certainly a drag. And if we can get all 8 cylinders firing that’s another step up from a margin improvement standpoint, just from a throughput point of view. And then lastly, pricing, as the cycle progresses and advances and matures, that’s really when we’ve a better opportunity once capacity is fully absorbed and it becomes more of a conversation of how quickly can I get something versus what’s the price.
That’s sort of the final leg up that we are looking forward to and counting on in the not-too-distant future.
Kurt Hallead: That’s great color. And then, Clay, bigger picture dynamic, right? We’ve had a lot of discussion of late increasing [indiscernible] discussion around the data center build out and what that’s going to mean for grid demand, et cetera, right? So I guess I’m curious on two fronts. Number one, do you see an opportunity for NOV to provide some element of equipment into the data center build out infrastructure and/or what do you think the ultimate pull is going to be with respect to your customer base, right, in terms of drilling activity, track activity and so on.
Clay Williams: Yes. I think we are probably, frankly, more likely to be a customer of those data centers is our digital offering continues to grow. I mean we are employing artificial intelligence in a lot of sophisticated edge compute and cloud offerings, which is growing pretty rapidly here. But kind of the second order implications for our business as we both know, these data centers are going to drive up electricity demand across the U.S., which is going to require more natural gas, require more sources, electricity, including renewables. And Kurt you’re aware, we are pursuing disruptive technology in the land win space that we are pretty excited about through our Keystone efforts and making good progress there. And so I think NOV’s participation in that phenomenon of U.S. electricity demand rising sharply is going to be more around helping our customers actually provide that electricity, both renewables as well as in the traditional natural gas space.
And so really kind of interesting developments in that area.
Kurt Hallead: Okay. That’s great guys. Thank you. Appreciate it.
Clay Williams: Thank you, Kurt.
Jose Bayardo: Thanks, Kurt.
Operator: Thank you. And I would now like to hand the conference back to Clay Williams for further remarks.
Clay Williams: Thank you, Michelle. Appreciate everyone joining us this morning, and we look forward to speaking to you again in July when we report our second quarter earnings. Thank you.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
