q2 2016 earnings release - globenewswiremedia.marketwire.com/attachments/201608/98236_2016q2tgs...q3...

Kristian Johansen Sven Børre Larsen

Q2 2016 Earnings Release

CEO CFO 4 August 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


Q2 net revenues of 114 MUSD compared to 140 MUSD in Q2 2015 Net late sales of 84 MUSD, up 4% from 82 MUSD in Q2 2015

Net pre-funding revenues of 26 MUSD were down 50% from Q2 2015, funding 42% of TGS’ operational multi-client investments for the quarter (62 MUSD)

Improved performance in Q2 2016 compared to preceding quarters as oil companies willingness to invest in seismic data has improved slightly

Operating profit for the quarter was 22 MUSD compared to 36 MUSD in Q2 2015 Personnel and other operating costs reduced by 25% (30% excluding restructuring costs

and impairments) from Q2 2015

Cash flow from operations was 9 MUSD compared to 86 MUSD in Q2 2015 Cash balance of 162 MUSD at 30 June 2016 in addition to undrawn 75 MUSD Revolving

Credit Facility

Quarterly dividend maintained at USD 0.15 per share

Q2 2016 Highlights

3


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 will utilize 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

New Project Announced – U.S. Gulf of Mexico

*Mark of Schlumberger

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5

Operational Highlights


Q2 2016 Operations

6

Harrier Explorer 2D

Sanco Swift 2D JV

Fugro Multibeam x2

Northern Explorer 2D

Aquila Explorer 2D

Hawk Explorer 2D

TDI Brooks Coring

Atlantic Explorer 2D JV

BGP Explorer 2D

Artemis Atlantic P-Cable


Gigante 2D – 186,000 km multi-client 2D survey Regional 2D survey commenced in Q2 2015 and

expected to complete in early Q4 2016 Survey covers the proposed license rounds in the

Perdido, Campeche and Mexican Ridges regions Line ties will be made to the US Gulf of Mexico

regional grids previously acquired by TGS 160,000 km of 2D data acquired at end Q2 2016

with a significant amount of fast-track data already delivered to clients

Gigante Multibeam, Coring, and Geochemical Surveys 600,000 km2 survey commenced in 2015 and

expected to complete in Q4 2016 More than 50% of data acquired at end Q2 2016 Interpretation of data will integrate with the 2D

seismic survey and enhance the value proposition to clients

Q2 Activity – Mexico

7


Newfoundland Labrador 2016 Season 36,000 km multi-client 2D survey in partnership

with PGS – commenced in Q2 2016 2,000 km2 multi-client 3D survey in partnership

with PGS – will commence in Q3 2016 TGS-PGS JV library in this region will exceed

148,000 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)

Q2 Activity – East Canada

8


Q2 Activity – Australia and Europe

9

Northwest Shelf Renaissance - 8,000km multi-client 2D survey Long offset, broadband 2D seismic data as well

as magnetic and gravity data Designed to provide enhanced imaging through

to the deeper stratigraphic section of the Dampier, Beagle and Bedout Sub Basins and Exmouth Plateau

Ties recent and deep wells with TGS' existing 3D coverage in the Carnarvon Basin

Traverses the proposed 2016 Australian Offshore Petroleum Exploration Acreage Release areas

Fast track data will be available November 2016 with the final data available Q2 2017

Europe – proprietary P-Cable survey Proprietary P-Cable survey in Barents Sea Builds on TGS’ experience with multi-client P-

Cable acquisition in the Barents Sea Acquisition is expected to complete during Q3

2016.


R360 Modern eCommerce tool to enable simpler

integration of geologic data with customer systems

Allows clients to perform data reconnaissance, identification and selection through a map-based interface with purchase and data delivery online

Digital Petrodata GEONEWS Provides E&P, financial and investment

community professionals with a quick and easy way to access pertinent and timely oil & gas industry data

Deep tagging of articles allows creation of very focused queries and email alerts

Data is spatially located with detailed attributes and analysis functionality

TGS Launches New Digital Information Products

10

Please visit www.tgs.com for a free trial of GEONEWS!

http://www.tgs.com/


11

Financials


9 9

6 5 5 5 3 3

0

2

4

6

8

10

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Proprietary revenues

130

226

72 82 90 90 38

84

0

50

100

150

200

250

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Late sales revenues

3% Y/Y

51 62

94

53 74

37 23 26

0

20

40

60

80

100

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Prefunding revenues

190

298

172 140 169 132

64 114

0

50

100

150

200

250

300

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Total revenues

Net Revenues

12

-50% Y/Y

-33% Y/Y -18% Y/Y


NSA 51%

Europe 19%

AMEAP 16%

Other 14%

Q2 2015

NSA 52%

Europe 27%

AMEAP 9%

Other 12%

Q2 2016

Net Revenue Breakdown

2D 15%

3D 75%

GPS 10%

Q2 2015

2D 48%

3D 42%

GPS 10%

Q2 2016

13


32 37

25 24 22 28

18 17

05

10152025303540

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Operating expenses *

-30% Y/Y

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

81 143

105 74 99

230

62 69

0

50

100

150

200

250

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Amortization and impairment *

84 15

110

-76

49 -20

63

-35

-100

-50

0

50

100

150

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Free cash flow *

Operating Expenses, EBIT, Free Cash Flow

14

62% - rate

71 111

37 38 46 31

-19 24

-40%

-20%

0%

20%

40%

60%

-40-20

020406080

100120

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

EBIT *

EBIT EBIT Margin

* Q1 and Q2 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


837 818 876

919 976

839 830 823

700

750

800

850

900

950

1,000

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Multi-client library - NBV

93 126

163 116 135

88 53 62

0%10%20%30%40%50%60%70%80%90%100%

0

50

100

150

200

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Pref

undi

ng ra

tio

Ope

ratio

nal i

nves

tmen

ts

Operational investments and prefunding ratio

Operational investments Prefunding ratio

Multi-client library

15

17%

1% 4%

8%

17%

1%

52%

0% 0% 7%

19% 21%

9%

44%

0%

10%

20%

30%

40%

50%

60%

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

122

451

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 YTD WIP

Original investments Net Book Value

20 %

34%

52% 22%

1% 14%

70%

Investments – year of completion


Q2 2016 Income Statement

16

USD million, except EPS Q2 2016 Q2 2015 Change in %Net revenues 114 140 -18%Cost of goods sold – proprietary and other 0.8 0.1 1435%

Amortization of multi-client library 62% 69 74 -6%

Gross margin 44 66 -33%Personnel costs 11 17 -37%

Other operating expenses 9 9 -3%

Cost of stock options 0.3 0.9 -61%

Depreciation 3 3 -7%

Operating profit 19% 22 36 -39%Net financial items -0.3 2 -116%Profit before taxes 19% 21 37 -43%Taxes 5 13 -65%

Net Income 15% 17 24 -31%EPS, Undiluted 0.17 0.24 -29%

EPS, Fully Diluted 0.17 0.24 -29%


Q2 2016 Cash Flow Statement

17

USD million Q2 2016 Q2 2015 Change in %Received payments from customers 28 141 -80%

Payments for operational expenses (19) (25) 25%

Paid taxes - (29) 100%

Operational cash flow 9 86 -89%Investments in tangible and intangible assets (1) (3) 57%

Investments in multi-client library (44) (162) 73%

Interest received 0.3 2 -82%

Interest paid (0.3) (0.003) -10467%

Dividend payments (14) (99) 86%

Proceeds from share issuances 2 0.03 5271%

Change in cash balance -48 -175 73%


Balance Sheet

The Company holds no interest-bearing debt

USD million Q2 2016 Q1 2016 Change in % Q4 2015AssetsCash and cash equivalents 162 210 -23% 163Other current assets 255 189 35% 308Total current assets 417 399 5% 471Intangible assets and deferred tax asset 92 92 0% 90Other non-current assets 16 16 3% 25Multi-client library 823 830 -1% 839Fixed assets 26 28 -7% 30Total Assets 1,375 1,364 1% 1,455LiabilitiesCurrent liabilities 171 168 2% 218Non-current liabilities 4 5 -9% 6Deferred tax liability 33 29 14% 33Total Liabilities 208 201 3% 257Equity 1,167 1,163 0% 1,198Total Liabilities and Equity 1,375 1,364 1% 1,455

18


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 to be paid on 25 August 2016 (shares will trade ex-dividend on

11 August 2016)

19

4 NOK

5 NOK 6 NOK

8 NOK 8.5 NOK

8.5 NOK

USD 0.15 per 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*

USD

per

sha

re

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

3.7% 3.6% 4.0% 3.9%

4.9% 5.2%

3.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2010 2011 2012 2013 2014 2015 2016*

Yiel

d (o

n da

y of

ann

ounc

emen

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


20

Outlook


E&P spending likely to decline 20-30% this year While seeing some signs of improvement in oil companies’ willingness to invest in seismic

data during Q2 2016, the market is expected to remain challenging in the near term Seismic data is largely a type of discretionary spending that oil companies can quickly turn

on and off depending on prevailing strategies and market conditions High variability of seismic spending between quarters and across regions is expected to

continue going forward

Challenging Market for Exploration

21

Source: SEB Research Source: SEB Research

-8%

-12%

-18% -19% -20% -20%

-25% -27% -27% -27% -27%

-29% -35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

Aug15

Sep15

Oct15

Nov15

Dec15

Jan16

Feb16

Mar16

Apr16

May16

Jun16

Jul16

Grow

th (%

)

Development in 2016 E&P Spending Estimate

7%

16% 23%

4%

-26%

8% 16%

4%

13% 12% 20%

25%

14% 18%

-8%

13% 16% 14% 8%

3%

-25% -29%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Chan

ge ye

ar-o

n-ye

ar (%

)

Change in Global E&P Spending


License Round Activity and TGS Positioning

22

Europe / Russia • Norway APA – Sep 2016 (bids due) • Norway 23rd Round – May 2016 (blocks awarded) • UK 29th Round – 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 – Q3 2016 (2016 round launch) • New Zealand – Sep 2016 (bids due) • Indonesia – Aug & Oct 2016 (bids due)

North & South America • Central GOM – Mar 2017 (5-Year Plan) • Western GOM – Aug 2016 (5-Year Plan) • Newfoundland & Labrador – Nov 2016 (Scheduled Land Tenure) • Nova Scotia – Q4 2016 (3-Year Rolling Plan) • Canada Onshore – at least monthly • Brazil - Mid-2017 • Mexico – Round 1(L04) in Dec 2016, Round 2 announced for 2017,

2 more rounds proposed by 2019


Backlog

153 143 146 178

281

213 260

293

193 182 145 125

185 224 242

103

0

50

100

150

200

250

300

350

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Historical Backlog (MUSD) 2012 - 2016

23


2016 Projects Schedule Jan 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

Artemis Atlantic P-Cable

Greenland

Mexico

2D &

Oth

er

EUR AMEAP NSA

24

Mexico

Mexico

Mexico

Mexico

Mexico

Mexico

Ramform Sterling

WesternGeco Coil Crew

3D Canada JV

Mexico

24

Canada JV

Canada JV

Canada Crew

Land

Chickadee

Australia

Norway (Proprietary)

GOM


Investment focus in areas of low break-even oil price, fast payback and client activity Payback time combined with break-

even oil price highlights regions that E&P companies will likely prioritize when oil price starts to materially recover

TGS will maintain a clear portfolio strategy with strict minimum targets for prefunding and expected returns

TGS Strategy: Cost efficient, focused and quickly reacting!

25

-40

-35

-30

-25

-20

-15

-10

-5

0Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

MU

SD

Personnel and other operating costs*

Fast and flexible track record; reacting quickly to seize advantage Maintain focus on core business React quickly to size the company to the level of business activity Ongoing initiative to further reduce number of management layers Reward structure drives strong alignment between company and employees

* Adjusted for restructuring costs and larger impairments of operating items


Summary Q2 net revenues of 114 MUSD Q2 operational investment of 62 MUSD (42% pre-funded) Q2 operating profit of 22 MUSD Cash balance of 162 MUSD in addition to undrawn 75 MUSD Revolving Credit Facility Quarterly dividend maintained at USD 0.15 per share

Despite seeing some signs of improvement in oil companies’ willingness to invest in seismic data during Q2 2016, the market is expected to remain challenging and volatile in the near term

However, 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 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

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