Q2 2019 Earnings Release
Transcript of Q2 2019 Earnings Release
Kristian Johansen Sven Børre Larsen
CEO CFO
Oslo, 25 July 2019
Q2 2019 Earnings Release
Forward-Looking Statements
2
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.
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved
Q2 19 Highlights – Positive sales momentum
• Q2 2019 net revenues of 166 MUSD, compared to 158 MUSD in Q2 2018
• Late sales substantially up from Q1 19 and in line with Q2 18 despite lower transfer fees
• Pre-funding increased substantially
• Solid cash balance of 354 MUSD at 30 June 2019 in addition to undrawn 100 MUSD Revolving Credit Facility
• Increased distribution to shareholders
• Quarterly dividend maintained at USD 0.27 per share, up 35% from Q2 2018
• Introduction of USD 50 million share buy-back program
• Continued positive development in order backlog
• Market outlook continues to improve, but volatility still high
• Acquisition of Spectrum approved – on track for closing in mid-August 2019
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 3
Operational highlights
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 5
Q2 2019 Operations
Western Hemisphere Eastern Hemisphere
BGP Prospector JV
HYSY 720 JV
M/V Gyre
Fugro Searcher
Amazon Warrior
Ramform Atlas JV
MagseisFairfield crew JV
Polar Duchess
Axxis crew JV
Ramform Titan JV
Sanco Atlantic
Q2 Activity
• Brazil Southern Basins SeaSeep: >210,000 km2
multibeam and coring project in Campos and Santos
basins
• Santos Basin 3D: 15,000 km2 multi-client 3D in the
southern Santos Basin, in collaboration with Spectrum
• Campos Basin 3D: 11,200 km2 multi-client 3D in the
Campos Basin in Brazil
Brazil Market
• License round transparency – calendar out to 2021
• Seismic permitting process becoming more
streamlined
• Supermajor focus area leading to competitive bidding
Q2 Activity – Brazil
6©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved
New Projects
• Jeanne d’Arc 3D: 5,000 km2 multi-client 3D in
Newfoundland, in collaboration with PGS
• Torngat 3D: 3,287 km2 multi-client 3D in Labrador, in
collaboration with PGS
• North Tablelands 3D: 4,600 km2 multi-client 3D in
Newfoundland, in collaboration with PGS
• Southeast Grand Banks 2019 2D: 10,900 km multi-client
2D in SE Grand Banks, in collaboration with PGS
• NE Newfoundland Slope 2019 2D: 1,800 km multi-client
2D in Newfoundland, in collaboration with PGS
East Canada Market
• Scheduled Land Tenure system
• Stable and attractive fiscal regime promotes exploration
• High prospectivity in frontier geography
• E&P focus area
Q2 Activity – East Canada
7©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved
Q2 Activity
• Amendment Phase 1: 2,758 km2 multi-client
ocean-bottom node project, in collaboration with
WesternGeco
• Acquisition expected to be completed on
schedule in mid-August
• Largest deepwater node survey in the GOM
U.S Gulf of Mexico Market
• License rounds in March and August
• Acreage turnover and farm-ins
• Sparse node surveys to deliver a new generation
of exploration data
Q2 Activity – U.S. Gulf of Mexico
8©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved
Q2 Activity – North West Africa
9©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved
Q2 Activity
• MSGBC SeaSeep: 113,500 km2 multi-client regional
SeaSeep project on the North West African Atlantic
Margin
• Jaan 3D: 28,300 km2 multi-client 3D project in the
southern portion of the MSGBC Basin in partnership
with PGS and GeoPartners
• 11,135 km2 new acquisition, complemented by
reprocessing and full pre-stack merging of
existing multi-client 3D
NW Africa Market
• Increasing licensing round activity
• Growing interest from super-majors
Q2 Activity
• Utsira: 1,600 km2 multi-client node project in the
Norwegian North Sea, in collaboration with Axxis
Geo Solutions
New Project
• Atlantic Margin 2019 3D: 7,000 km2 multi-client
3D project in the Norwegian Sea
Norway
• Annual APA rounds
• Acreage turnover and farm-ins
• Small and mid-size companies becoming
increasingly important
Q2 Activity – Norway
10©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved
Financials
Implementation of IFRS 15
• The accounting standard IFRS 15 regarding revenue recognition implemented from 1 January 2018
• Implications for TGS
• Recognition of revenues related to Multi-client projects postponed until projects are delivered to customers
• No amortization until completion of the project
• No impact on sales from the library of completed surveys
• Internal reporting
• TGS will continue to use the previous Percentage-of-Completion-method for internal segment and management reporting (referred to as Segment Reporting)
• Provides the best picture of the performance and value creation of the business
• External reporting
• Two sets of accounts: Segment Reporting and IFRS Reporting
• Main focus in external communication will be on Segment Reporting
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 12
Net RevenuesSegment Reporting
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 13
79 79
143115
136106
152
91
134
-1% Y/Y
0
20
40
60
80
100
120
140
160
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Late sales
27
62
1118 21
33 34
1428
+36% Y/Y
0
10
20
30
40
50
60
70
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Pre-funding revenues
1.8 1.31.9 2.3
1.52.0
2.6
5.04.3
+190% Y/Y
0
1
2
3
4
5
6
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Proprietary revenues
108142 157
135158
141
188158 166
+5% Y/Y
0
20
40
60
80
100
120
140
160
180
200
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Total revenues
Net Revenues BreakdownSegment Reporting
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 14
72%
12%
8%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
By Business Unit
NSA EUR AMEAP GPS
86%
9%
5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
By Technology
3D 2D GPS
Operating Expenses, EBIT, Free Cash FlowSegment Reporting
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1. Personnel costs and other operating expenses excluding restructuring charges and larger
impairments of operating items
2. Earnings before interest and taxes excludng restructuring charges and larger impairments
of operating items
3. Cash flow from operations minus operational investments in multi-client projects
18 1925 23 25
21
31
2125
0% Y/Y
0
5
10
15
20
25
30
35
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Operating costs1
69
9577 84
7493 86
66
93
+26% Y/Y
0
10
20
30
40
50
60
70
80
90
100
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Amortization and impairments
1726
53
26
56
24
69
17
44
26%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
10
20
30
40
50
60
70
80
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
EBIT2
EBIT - LHS Margin - RHS
12-19
56 71 55
10-18
147
8
-40
-20
0
20
40
60
80
100
120
140
160
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Free Cash Flow3
Amortization
• Amortization increased to USD 93 million in Q2 from USD 66 million in Q1
• Entire increase attributable to higher sales of work-in-progress (WIP) projects
• Higher pre-funding revenues (USD 28 million vs USD 14 million)
• Higher sales from commenced but unfinished projects (USD 59 million vs USD 15 million)
• Straight-line amortization stable at approximately USD 50 million per quarter
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0
10
20
30
40
50
60
70
80
90
100
Q1 Q2
MU
SD
Amortization
Straight line (vintage) Sales-based (WIP)
0
20
40
60
80
100
120
140
160
180
Q1 Q2
MU
SD
Multi-client revenues
Sales from completed projects (vintage) Sales from unfinished projects (WIP)
Multi-client LibrarySegment Reporting
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 17
59
114
28 3156
100
6337
87
32%
0%
10%
20%
30%
40%
50%
60%
70%
0
20
40
60
80
100
120
140
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Operational investments and pre-funding ratio
Operational investments - LHS Prefunding ratio - RHS
812 838 799 750 736 750 726 698 699
0
100
200
300
400
500
600
700
800
900
Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
NBV multi-client library
609
427
254
457
204
378
1% 3%19%
39%
56%
58%
0
100
200
300
400
500
600
700
2014 2015 2016 2017 2018 WIP
MU
SD
Investments and NBV by year of completion
Total investments NBV %
20%
1% 2% 1%
13%
7%
57%
5%1% 2%
8%
29%
19%
36%
0%
10%
20%
30%
40%
50%
60%
Pre-2014 2014 2015 2016 2017 2018 WIP
Net revenues and NBV by year of completion
% of net revenues % of NBV
Income StatementSegment Reporting
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 18
(MUSD) Q2 2019 Q2 2018 Change
Net operating revenues 166.4 157.8 5%
Cost of goods sold -0.1 0.1 -174%
Personnel cost 17.2 18.4 -7%
Other operational costs 8.2 9.2 -10%
Costs related to Spectrum trasaction 1.0 0.0 n/a
EBITDA 84% 140.0 130.2 8%
Amortization of multi-client library 92.9 73.7 26%
Depreciation 4.3 2.2 93%
Operating result 26% 42.9 54.2 -21%
Net financial items -0.2 1.6 -112%
Result before taxes 26% 42.7 55.9 -24%
Tax cost 46% 19.5 9.6 103%
Net income 14% 23.2 46.3 -50%
EPS (USD) 0.23 0.45 -50%
EPS fully diluted (USD) 0.22 0.45 -50%
Balance SheetSegment Reporting
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 19
(MUSD) Q2 2019 Q2 2018 Change Q4 2017
Goodwill 67.9 67.9 0% 31.5
Multi-client library 698.7 735.8 -5% 456.5
Deferred tax asset 0.0 2.2 -98% 15.3
Other non-current assets 64.0 27.8 131% -499.4
Total non-current assets 830.6 833.7 0% 4.0
Cash and cash equivalents 354.3 337.5 5% 0.7
Other current assets 381.5 264.5 44% -0.7
Total current assets 735.8 602.0 22% 0.0
TOTAL ASSETS 1,566.4 1,435.7 9% 4.0
Total equity 1,237.8 1,225.7 1% 1,054.3
Deferred taxes 58.1 18.2 220% 2.8
Non-current liabilities 23.8 4.9 387% -2.8
Total non-current liabilities 81.9 23.1 255% 0.0
Taxes payable, withheld payroll tax, social security 18.2 45.9 -60% 0.0
Other current liabilities 228.5 141.1 62% 68.4
Total current liabilities 246.7 187.0 32% 68.4
TOTAL EQUITY AND LIABILITIES 1,566.4 1,435.7 9% 1,122.6
Cash Flow Statement
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(MUSD) Q2 2019 Q2 2018 Change
Received payments 100.0 163.4 -39%
Payments for operational expenses -32.0 -29.5 9%
Paid taxes -8.4 -6.1 37%
Net cash flow from operating activities 59.7 127.8 -53%
Investment in tangible fixed assets -4.7 -1.0 357%
Investments in multi-client library -51.2 -73.3 -30%
Investments through mergers and acquisitions 0.0 0.0 n/a
Interest income 2.0 1.2 67%
Net Cash Flow from investing activities -53.9 -73.1 -26%
Net change in loans 0.0 0.0 n/a
Interest expense -0.7 -0.3 138%
Payment of dividends -25.3 -22.0 15%
Purchase of own shares -15.8 0.0 n/a
Paid in equity 0.3 3.2 -92%
Net cash flow from financing activities -41.5 -19.0 118%
Net unrealized currency gains/(losses) 0.0 0.2 -87%
Net change in cash and cash equivalents -35.7 35.8 -200%
Dividends
• Quarterly dividend of USD 0.27 per share to be paid in Q2 2019
• Ex-date 1 August 2019
• Payment date 15 August 2019
• Introduction of share re-purchase program
• Up to USD 50 million to be repurchased before AGM in May 2020
• 600,000 shares bought back in Q2 19 at an average price of NOK 228.65 per share – USD 16 million in total
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 21
1. Quarterly dividends defined in USD from 2016. Annual dividends defined in NOK prior to
2016 – converted to USD with the FX rate at the ex-dividend dates
2. Yield based on share price at date of announcing the dividend. From 2016-18 yield is
calulated using the average of the quarterly payments
0.27
0.27
0.27NOK 4.0
NOK 5.0NOK 6.0
NOK 8.0NOK 8.5
NOK 8.5
USD 0.6USD 0.6
USD 0.8
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 2017 2018 2019
US
D p
er
share
Year of payment
Dividend per share1
3.5 % 3.6 %4.0 % 3.9 %
4.9 %5.2 %
3.7 %
2.8 % 2.6 %
3.9 %
0.0 %
1.0 %
2.0 %
3.0 %
4.0 %
5.0 %
6.0 %
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Year of payment
Dividend yield2
Outlook
Market continues to improve – but volatility still high
©TGS-NOPEC Geophysical Company ASA. All rights reserved 23
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Q3
14
Q4
14
Q1
15
Q2
15
Q3
15
Q4
15
Q1
16
Q2
16
Q3
16
Q4
16
Q1
17
Q2
17
Q3
17
Q4
17
Q1
18
Q2
18
Q3
18
Q4
18
Q1
19
Q2
19
Aggregate multi-client revenues1
Last 12 months
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Q3
14
Q4
14
Q1
15
Q2
15
Q3
15
Q4
15
Q1
16
Q2
16
Q3
16
Q4
16
Q1
17
Q2
17
Q3
17
Q4
17
Q1
18
Q2
18
Q3
18
Q4
18
Q1
19
Q2
19
Y/Y change aggregate multi-client revenues
1. Includes TGS, PGS, WG, CGG, SPU, PLCS, ION. Those who have not yet reported Q2 19
revenues are included with the weighted average gowth rate of the others
Source: TGS
Pricing key to a sustained recovery
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0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2010 2011 2012 2013 2014 2015 2016 2017 2018
MU
SD
Seismic spending
-46%
77%
price
23%
volume
Source: Carnegie, TGS
• 2018 seismic spending more than USD 5 billion below 2012 level
• Of this, 77% is caused by lower prices and 23% by lower volumes
• Current prices are not sustainable for keeping a healthy industry
• Signs of improvement
• Structural change in the industry
• More consolidated supply side
• Improving vessel day rates
Backlog
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242
182
145
125
103
71
51
121127
63
8274
86
103
63
112
130
0
50
100
150
200
250
300
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019
MU
SD
Revenue backlog1 as per end of quarter
1. Sales committed by customers but not yet recognized in the Segment Reporting accounts
2019 project schedule
©TGS-NOPEC Geophysical Company ASA. All rights reserved 26
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
* JV projects NSA EUR AMEAP
2D/S
eas
ee
p3D
Lan
d
Brazil Seaseep
MSGBC Seaseep
SE Grand Banks 2D
Jaan 3D*
Santos 3D*
Campos 3D
Amendment OBN*
North Tablelands 3D*
Torngat 3D*
Jeanne d'Arc*
Utisra OBN*
Greater Castberg 3D*
Altaltic Margin 2019
Canton 3D
Gloss Mountain 3D
South Hackberry
Railgun 3D
Status Spectrum acquisition
• Transaction approved by EGM in both companies on 21 June 2019
• All reviews by competition authorities have been completed
• On-track for closing in mid-August
• Integration planning in progress
• Estimate of annual synergy cost savings of approximately USD 20 million maintained
©TGS-NOPEC Geophysical Company ASA. All rights reserved 27
©2017 TGS-NOPEC Geophysical Company ASA. All rights reserved 28
The industry’s most comprehensive modern database
• TGS and Spectrum have
complementary databases
• Comprehensive coverage
in all mature and frontier
basins
TGS 2D
TGS 3D
SPU 2D
SPU 3D
Building an optimal investment portfolio
©TGS-NOPEC Geophysical Company ASA. All rights reserved 29
North America Offshore Onshore Europe / AP South Atlantic
• Canada 3D
• US GoM OBN
• Atlantic 2D
• Lower 48
• Canada
• Latin America
• Norway OBN
• UK OBN / 3D
• AP 2D / 3D
• Brazil 3D
• W-Africa 3D / 2D
• Mexico & L-America
USD 200m
Q2 19 Summary
©2018 TGS-NOPEC Geophysical Company ASA. All rights reserved 30
• Q2 2019 net revenues of 166 MUSD, compared to 158 MUSD in Q2 2018
• Solid cash balance of 354 MUSD at 30 June 2019 in addition to undrawn 100 MUSD Revolving Credit Facility
• Increasing distribution to shareholders
• Continued positive development in order backlog
• Market outlook continues to improve, but volatility still high
• Acquisition of Spectrum approved – on track for closing in mid-August 2019
Appendix
Income statementIFRS
©TGS-NOPEC Geophysical Company ASA. All rights reserved 32
(MUSD) Q2 2019 Q2 2018 Change
Net operating revenues 104.8 107.8 -3%
Cost of goods sold -0.1 0.1 -174%
Personnel cost 17.2 18.4 -7%
Other operational costs 9.2 9.2 1%
EBITDA 75% 78.5 80.1 -2%
Amortization of multi-client library 69.5 47.9 45%
Depreciation 4.3 2.2 93%
Operating result 4% 4.7 30.0 -84%
Interest income 2.0 1.2 67%
Interest expense -0.7 -0.2 176%
Exchange gains/losses -1.6 0.5 -394%
Other financial income 0.0 0.3 -83%
Result before taxes 4% 4.5 31.7 -86%
Tax cost 139% 6.2 7.7 -19%
Net income -2% -1.7 24.1 -107%
EPS (USD) -0.02 0.23 -107%
EPS fully diluted (USD) -0.02 0.23 -107%
Balance sheetIFRS
©TGS-NOPEC Geophysical Company ASA. All rights reserved 33
(MUSD) Q2 2019 Q2 2018 Change Q4 2018
Goodwill 67.9 67.9 0% 67.9
Multi-client library 859.1 859.9 0% 870.5
Deferred tax asset 0.5 2.2 -78% 0.9
Other non-current assets 64.0 27.8 131% 31.4
Total non-current assets 991.5 957.8 4% 970.7
Cash and cash equivalents 354.3 337.5 5% 273.5
Other current assets 381.5 242.5 57% 380.2
Total current assets 735.8 580.0 27% 653.7
TOTAL ASSETS 1,727.2 1,537.8 12% 1,624.4
Total equity 1,181.9 1,131.6 4% 1,251.7
Deferred taxes 46.8 4.7 895% 29.3
Non-current liabilities 23.8 4.9 387% 5.0
Total non-current liabilities 70.6 9.6 636% 34.3
Taxes payable, withheld payroll tax, social security 18.2 42.2 -57% 27.1
Other current liabilities 456.4 354.4 29% 311.4
Total current liabilities 474.7 396.6 20% 338.4
TOTAL EQUITY AND LIABILITIES 1,727.2 1,537.8 12% 1,624.4
ReconciliationSegment reporting/IFRS
©TGS-NOPEC Geophysical Company ASA. All rights reserved 34
Segment IFRS
Q2 2019 Income Statement (MUSD) Reporting Diff. Reporting
Net revenues 166.4 -61.5 104.8
Amortization and impairment of multi-client library 92.9 -23.3 69.5
Total operating expenses 123.5 -23.3 100.2
Tax cost 19.5 -19.5 0.0
Net income 23.2 -18.5 4.7
Segment IFRS
Q2 2019 Balance sheet (MUSD) Reporting Diff. Reporting
Multi-client library 698.7 160.4 859.1
Total non-current assets 830.6 160.8 991.5
Other equity 1,234.3 -55.9 1,178.3
Total equity 1,237.8 -55.9 1,181.9
Non-current liabilities
Deferred taxes 58.1 -11.3 46.8
Total non-current liabilities 87.4 -28.6 58.7
Accounts payable and debt to partners 103.3 -103.3 0.0
Taxes payable, withheld payroll tax, social security 18.2 0.0 18.2
Other current liabilities 125.2 331.2 456.4
Total current liabilities 246.7 228.0 474.7
Thank you