q3 2016 earnings release releases/2016... · 2016 q2 2016 q3 2016 free cash flow * operating...

Kristian Johansen Sven Børre Larsen

Q3 2016 Earnings Release

CEO CFO28 October 2016

©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved.

All statements in this presentation other than statements of historical fact,

are forward-looking statements, which are subject to a number of risks,

uncertainties, and assumptions that are difficult to predict and are based

upon assumptions as to future events that may not prove accurate. These

factors include TGS’ reliance on a cyclical industry and principal

customers, TGS’ ability to continue to expand markets for licensing of

data, and TGS’ ability to acquire and process data products at costs

commensurate with profitability. Actual results may differ materially from

those expected or projected in the forward-looking statements. TGS

undertakes no responsibility or obligation to update or alter forward-

looking statements for any reason.

Forward-Looking Statements

2


Q3 net revenues of 113 MUSD compared to 169 MUSD in Q3 2015

Net late sales of 67 MUSD, down 26% from 90 MUSD in Q3 2015

Net pre-funding revenues of 39 MUSD were down 47% from Q3 2015, funding 58% of

TGS’ operational multi-client investments for the quarter (68 MUSD)

Following a strong sequential improvement in market conditions from Q1 to Q2,

fundamentals remained stable during Q3

Operating profit for the quarter was 11 MUSD compared to 46 MUSD in Q3 2015

Cash flow from operations was 91 MUSD compared to 121 MUSD in Q3 2015

Cash balance of 173 MUSD at 30 September 2016 in addition to undrawn 75 MUSD

Revolving Credit Facility

Quarterly dividend maintained at USD 0.15 per share

Q3 2016 Highlights

3


North West African Atlantic Margin

NWAAM2017

Over 11,500 km of multi-client 2D seismic in

partnership with PGS

Designed to infill, extend and complement the

TGS NWAAM2012 2D survey which helped

with recent commercial discoveries in the

basin

A 12 km deep-tow streamer will enable the

recording of high quality broadband 2D seismic

data

Confirms TGS commitment to the leading

frontier basin in Africa, where TGS already has

over 28,000 km of 2D data and over 18,000

km2 of 3D data

New Project Announced – North West Africa

4

©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 5

Operational Highlights


Q3 2016 Operations

6

Sanco Spirit 2D JV

Fugro Multibeam

Northern Explorer 2D

Aquila Explorer 2D

Hawk Explorer 2D

TDI Brooks Coring

Atlantic Explorer 2D JV

BGP Explorer 2D

Artemis Atlantic P-Cable

Ramform Sterling 3D JV

Akademik Lazarev 2D

WesternGeco Coil Crew


Revolution XII and XIII

~7,150 km2 (306 blocks) multi-client 3D survey

in collaboration with WesternGeco

Located in Green Canyon, Atwater Valley and

Ewing Bank protraction areas of the Central

Gulf of Mexico

Survey utilizes WesternGeco’s proprietary Q-

Marine* point-receiver marine seismic system

combined with the proprietary multi-vessel,

Dual Coil Shooting acquisition technique, which

will provide broadband, long-offset, full-azimuth

data

Track record of success in Central GOM

Expansion of TGS-WesternGeco WAZ surveys

in U.S Central GOM; first survey Freedom was

acquired in 2008

WAZ data has proven critical to improve

illumination and imaging of the sub-salt and

other complex geologic features

This part of the Gulf of Mexico continues to see

the highest activity level and benefits from

significant near-term lease turnover

Q3 Activity – U.S. Gulf of Mexico

*Mark of Schlumberger

7


Gigante 2D: ~186,000 km multi-client 2D survey

Regional 2D survey commenced in Q2 2015 with

acquisition completed in early Q4 2016

Survey covers the proposed license rounds in the

Perdido, Campeche and Mexican Ridges regions

Line ties made to the US Gulf of Mexico regional

grids previously acquired by TGS

Significant amount of fast-track data delivered to

clients

Gigante Multibeam, Coring, and Geochemical

Surveys

~600,000 km2 survey commenced in 2015 with

coring to be completed in Q1 2017

More than 90% of data acquired at end Q3 2016

Interpretation of the data will integrate with the 2D

seismic survey and enhance the value

proposition to clients

Q3 Activity – Mexico

8


Newfoundland Labrador 2016 Season

38,000 km multi-client 2D survey in partnership

with PGS – data acquisition to complete in Q4

2016

~2,000 km2 multi-client 3D survey in

partnership with PGS – data acquisition

completed in Q3 2016

TGS-PGS JV library in this region will exceed

150,000 km of 2D data and 11,000 km2 of 3D

data in addition to 83,700 km of TGS vintage

data, an expansive well log library and

advanced multi-client interpretation products

A bright spot in an otherwise challenging

exploration market

Recent exploration success

Highly successful 2015 license round (nine

companies participated with CAD 1.2 billion

successful commitments)

Two 2016 Calls for Bids issued over

approximately 3.3 million hectares in Jeanne

d’Arc and Eastern Newfoundland regions (bids

due 9 November 2016)

Q3 Activity – East Canada

9


Q3 Activity – Australia and Greenland

10

NW Shelf Renaissance: ~8,000 km multi-client 2D survey

Long offset, broadband 2D seismic data as well as

magnetic and gravity data

Ties recent and deep wells with TGS' existing 3D

coverage in the Carnarvon Basin

25% of the survey within blocks available in the 2016

Australian Offshore Petroleum Exploration Acreage

Release areas

Acquisition completed in Q3 2016 with fast-track data

expected to be available December 2016 and final data

available Q3 2017

Northeast Greenland: ~15,000 km multi-client 2D survey

Completed final year of a multi-year, multi-client 2D

project

Final data expected to be available in Q1 2017

On completion, TGS 2D library in the basin will be more

than 40,000 km


Strategic Library Acquisitions

11

Dolphin library acquisition

Agreement in principle to buy the

majority of the Dolphin MC library

together with PGS

Enhancing TGS’ already strong

position in areas such as the Barents

Sea, the North Sea, NW Africa and

Australia

Limited initial cash outlay

Definitive agreement expected in the

near future

TGS is actively seeking consolidation

opportunities through strategic

library acquisitions

Polarcus library 2015

Dolphin library 2016

Other opportunities monitored closely


Financials


9

65 5 5

3 3

7

0

2

4

6

8

10

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Proprietary revenues

226

72 82 90 90

3884 67

0

50

100

150

200

250

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Late sales revenues

-26% Y/Y62

94

53

74

3723 26

39

0

20

40

60

80

100

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Prefunding revenues

298

172140

169132

64114 113

0

50

100

150

200

250

300

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Total revenues

Net Revenues

13

-47% Y/Y

37% Y/Y

-33% Y/Y


NSA52%

Europe30%

AMEAP7%

Other11%

Q3 2015

NSA56%

Europe29%

AMEAP4%

Other11%

Q3 2016

Net Revenue Breakdown

2D35%

3D57%

GPS8%

Q3 2015

2D48%

3D43%

GPS9%

Q3 2016

14


37

25 24 2228

18 17 20

0

5

10

15

20

25

30

35

40

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Operating expenses *

-10% Y/Y

* Include personnel costs and other operating expenses. Adjusted for restructuring costs and larger impairments of operating items

143105

7499

230

62 6974

0

50

100

150

200

250

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Amortization and impairment *

15

110

-76

49

-20

63

-35

29

-100

-50

0

50

100

150

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Free cash flow *

Operating Expenses, EBIT, Free Cash Flow

15

70% - rate

111

37 38 4631

-19

2411

-40%

-20%

0%

20%

40%

60%

-40

-20

0

20

40

60

80

100

120

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

EBIT *

EBIT EBIT Margin

* Q1-Q3 2016 reflects the new amortization policy effective

from 1 January 2016

* Earnings before interest and taxes and excluding larger

impairments and restructuring costs

* Defined as cash flow from operational activities minus

operational cash investments in multi-client projects


818876

919976

839 830 823 816

700

750

800

850

900

950

1,000

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Multi-client library - NBV

126163

116135

8853 62 68

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50

100

150

200

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Pre

fun

din

g r

ati

o

Op

era

tio

nal

inv

estm

en

ts

Operational investments and prefunding ratio

Operational investments Prefunding ratio

Multi-Client Library

16

13%

3% 2% 4%

10%7%

62%

0% 0%

6%

17% 19% 18%

39%

0%

10%

20%

30%

40%

50%

60%

70%

Fullyamortized

2012 2013 2014 2015 2016 YTD WIP

Net revenues Net book value

Net revenues vs net book value – year of completion

270

381

609

427

236

398

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 YTD WIP

Original investments Net Book Value

20 %

32% 56%20%

0%12%

70%

Investments – year of completion


Q3 2016 Income Statement

17

USD million, except EPS Q3 2016 Q3 2015 Change in %

Net revenues 113 169 -33%

Cost of goods sold – proprietary and other 5 0.1 8222%

Amortization of multi-client library 70% 74 99 -25%

Gross margin 34 71 -52%

Personnel costs 12 14 -19%

Other operating expenses 8 8 5%

Cost of stock options 0.2 0.1 94%

Depreciation 3 3 9%

Operating profit 10% 11 46 -76%

Net financial items 2 -2 214%

Profit before taxes 11% 13 44 -70%

Taxes 11 4 220%

Net Income 2% 2 40 -96%

EPS, Undiluted 0.02 0.40 -95%

EPS, Fully Diluted 0.02 0.39 -95%


Q3 2016 Cash Flow Statement

18

USD million Q3 2016 Q3 2015 Change in %

Received payments from customers 110 145 -24%

Payments for operational expenses (25) (23) -7%

Paid taxes 6 (1) 552%

Operational cash flow 91 121 -24%

Investments in tangible and intangible assets (2) (1) -63%

Investments in multi-client library (62) (72) 14%

Investments through mergers and acquisitions - (19) 100%

Interest received 0.7 1 -43%

Interest paid (0.03) (0.06) 53%

Dividend payments (17) (14) -19%

Proceeds from share issuances - 2 -100%

Change in cash balance 11 17 -36%


Balance Sheet

The Company holds no interest-bearing debt

USD million Q3 2016 Q2 2016 Change in % Q4 2015

Assets

Cash and cash equivalents 173 162 7% 163

Other current assets 275 255 8% 308

Total current assets 449 417 8% 471

Intangible assets and deferred tax asset 88 92 -4% 90

Other non-current assets 21 16 27% 25

Multi-client library 816 823 -1% 839

Fixed assets 23 26 -11% 30

Total Assets 1,397 1,375 2% 1,455

Liabilities

Current liabilities 198 171 16% 218

Non-current liabilities 7 4 59% 6

Deferred tax liability 37 33 12% 33

Total Liabilities 242 208 16% 257

Equity 1,155 1,167 -1% 1,198

Total Liabilities and Equity 1,397 1,375 2% 1,455

19


Dividend stable at USD 0.15 per share

Shareholder authorization to distribute quarterly dividend payments from Q1 2016

Aim to keep a stable quarterly dividend through the year

Actual quarterly dividend level paid will be subject to continuous evaluation of market outlook,

cash flow expectations and balance sheet development

Q1 2016: USD 0.15 per share dividend paid on 23 February 2016

Q2 2016: USD 0.15 per share dividend paid on 1 June 2016

Q3 2016: USD 0.15 per share dividend paid on 25 August 2016

Q4 2016: USD 0.15 per share dividend to be paid on 18 November 2016 (shares will trade ex-dividend

on 4 November 2016)

20

4 NOK

5 NOK6 NOK

8 NOK 8.5 NOK

8.5 NOK

USD 0.15per Quarter

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2010 2011 2012 2013 2014 2015 2016*

US

D p

er

sh

are

Year of Payment

*Quarterly Dividends, defined in USD from 2016

Historical NOK dividends converted to USD using FX rate on ex-dividend date

Q1

Q2

Q3

Q4

3.7% 3.6%4.0% 3.9%

4.9%5.2%

3.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2010 2011 2012 2013 2014 2015 2016*

Yie

ld (

on

da

y o

f an

no

un

cem

en

t)

Year of Payment

Dividend Paid* (2010 – 2016) Dividend Yield (2010 – 2016)

*2016 Dividend Yield annualized based on the weighted yield at the time of

announcement of quarterly dividends


Outlook


Second consecutive 20%+ decline in E&P spending expected this year

Most initial E&P Spending surveys indicate a further decline in offshore spending in 2017

Early sign of improvement – industry seismic late sales have recovered somewhat from the

low in Q1 16

Seismic demand likely to remain weak into 2017 with high volatility from quarter to quarter

Challenging Market for Exploration

22

Source: SEB Research Source: ABG Sundal Collier

7

16

23

3

-25

8

16

6

21

2723

26

1922

-8

1519

1411

2

-26-27

-10

-40

-30

-20

-10

0

10

20

30

40

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6E

201

7E

Change in Global E&P Spending

Cha

ng

e y

ea

r-o

n-y

ea

r (%

)

0

100

200

300

400

500

600

MU

SD

Industry late sales


License Round Activity and TGS Positioning

23

Europe / Russia

• Norway APA – Q1 2017 (block awards)

• Norway 24th Round – Nov 2016 (nominations due)

• UK 29th Round – 26 Oct 2016 (bids due)

• Greenland – Dec 2016, 2017, 2018 (bids due)

Africa, Middle East, Asia Pacific

• Ongoing uncertainty on timing of African

licensing rounds

• Australia – Dec 2016, Feb & Mar 2017 (bids due)

• New Zealand – Dec 2016 (awards expected)

• Indonesia – Direct proposal (bids closed Aug

2016); Regular tender (bids due Nov 2016)

North & South America

• Central GOM – Mar 2017 (5-Year Plan)

• Central & Western GOM – Aug 2017 (2017-22 Plan)

• Newfoundland & Labrador – Nov 2016 (Scheduled Land Tenure)

• Nova Scotia – 27 Oct 2016 (3-Year Rolling Plan)

• Canada Onshore – at least monthly

• Brazil - 2H 2017

• Mexico – Round 1(L04) in Dec 2016, Round 2 announced for 2017,

2 more rounds proposed by 2019


Backlog

143 146185

281

213 224

293

193

242

145125

103

178

260

182

71

0

50

100

150

200

250

300

350

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Historical Backlog (MUSD) 2012 - 2016

24


2016 Projects ScheduleJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Akademik Lazarev

Aquila Explorer

Hawk Explorer

Osprey Explorer

Northern Explorer

Harrier Explorer

Fugro Multibeam

TDI Brooks Coring

Sanco Spirit

Atlantic Explorer

BGP Explorer

BGP Dong Fang Kan Tan 1

Artemis Atlantic P-Cable

Greenland

Mexico

2D

& O

the

r

EUR AMEAP

25

Mexico

Mexico

Mexico

Mexico

Mexico

Mexico

Ramform Sterling

WesternGeco Coil Crew

Canada JV

Mexico

25

Canada JV

Canada JV

Canada Crew Chickadee

Australia

Norway (Proprietary)

GOM

3D

La

nd

NSA

NWAAM


Summary

Q3 net revenues of 113 MUSD

Positive cash flow further strengthens balance sheet

Cash balance of 173 MUSD in addition to undrawn 75 MUSD Revolving Credit Facility

Quarterly dividend maintained at USD 0.15 per share

Continued challenging market conditions, but early signs of improvements

Long-term future of asset-light, focused multi-client business remains strong

Cost control, disciplined counter-cyclical investment and balance sheet strength positions TGS to

enhance its leading position

Updated 2016 guidance:

New operational multi-client investments of approximately 220 MUSD (down from 230 MUSD)

Additional multi-client investments expected from sales of existing surveys with risk sharing

arrangements

Multi-client investments are expected to be prefunded 40% to 45%

26

Thank you


www.tgs.com

q3 2016 earnings release releases/2016... · 2016 q2 2016 q3 2016 free cash flow * operating...

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