Quarterly Report • Oct 26, 2023
Quarterly Report
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"In Q3, most of our active 3D vessel capacity was allocated to attractive MultiClient programs in Europe, Brazil, Egypt and Malaysia. Prefunding revenues of \$101 million reflect strong interest for ongoing acquisition projects and significant sales from surveys in the processing phase, resulting in a pre-funding level of 144%.
MultiClient late sales fluctuate between quarters and ended below our expectations in Q3. The seismic market is improving, and we believe the increasing exploration focus will positively impact sales from our MultiClient library going forward.
Our New Energy business has successfully entered the offshore wind site characterization market this year. We completed our first offshore wind site characterization survey in Q3 and announced award of a large project in the US, where we have now commenced acquisition. Our Q3 contract revenues include approximately \$6 million related to offshore wind. Seismic contract activity was modest in the quarter with only one 3D vessel on contract work. Approximately one month was used for acquisition of a carbon storage survey and the remaining two months for a 4D project under a framework agreement signed in 2021, with lower rates than in today's market.
Our order book increased 28% sequentially. A major part of the increase is contract work with pricing for the winter season at similar levels as we experienced during the summer. We have now booked approximately 60% of our 3D vessel capacity for the first half next year.
In September we announced our intention to merge with TGS to establish the premier energy data company. We also, in concert with TGS, raised equity to position the capital structure. The merger plan is now agreed and each of PGS and TGS will shortly call for extraordinary shareholders' meetings to vote on the merger. We expect that the merger will complete during the first half of 2024. The new combined company will be a complete, fully integrated service provider where clients will benefit from scale, a unique technology portfolio and premier service offering."
As the global energy transition evolves, PGS expects global energy consumption to continue to increase over the longer term with oil and gas remaining an important part of the energy mix. Offshore reserves will be vital for future energy supply and support demand for marine seismic services. The seismic market is improving on the back of increased focus on energy security, several years of low investment in new oil and gas supplies, and high oil and gas prices.
Offshore investments in oil and gas exploration and production are increasing in 2023. The seismic acquisition market is benefitting from the higher exploration and production spending, and a limited supply of seismic vessels.
PGS expects full year 2023 gross cash costs to be below \$550 million.
2023 MultiClient cash investments are expected to be approximately \$190 million.
Approximately 45% of 2023 active 3D vessel time is expected to be allocated to contract work.
Capital expenditures for 2023 is expected to be below \$100 million.
The order book amounted to \$437 million on September 30, 2023. On June 30, 2023, and September 30, 2022, the order book was \$341 million and \$253 million, respectively.
Net interest-bearing debt, including lease liabilities following IFRS 16 654.8 861.6 654.8 861.6 703.9
| Quarter ended September 30, |
Year to date | Year ended | ||||
|---|---|---|---|---|---|---|
| September 30, | December 31, | |||||
| (In millions of US dollars) | Note | 2023 | 2022 | 2023 | 2022 | 2022 |
| Revenues and Other Income | 2 | 157.3 | 198.5 | 456.4 | 608.4 | 825.1 |
| Cost of sales | 3 | (48.7) | (89.0) | (198.7) | (231.0) | (324.7) |
| Research and development costs | 3 | (1.2) | (1.8) | (4.4) | (5.0) | (6.9) |
| Selling, general and administrative costs | 3 | (9.2) | (9.6) | (29.9) | (29.0) | (38.9) |
| Amortization and impairment of MultiClient library | 4 | (77.9) | (42.1) | (158.5) | (200.5) | (253.1) |
| Depreciation and amortization of non-current assets (excl. MultiClient library) | 4 | (8.6) | (22.2) | (44.2) | (71.7) | (95.9) |
| Impairment and gain/(loss) on sale of non-current assets (excl. MultiClient library) | 4 | - | - | (6.3) | 0.4 | (5.3) |
| Other charges, net | 4 | - | 1.8 | 0.1 | 1.3 | 5.7 |
| Total operating expenses | (145.6) | (162.9) | (441.9) | (535.5) | (719.1) | |
| Operating profit (loss)/EBIT | 11.7 | 35.6 | 14.5 | 72.9 | 106.0 | |
| Share of results from associated companies | 5 | 0.1 | 0.8 | 0.6 | 1.5 | (5.0) |
| Interest expense | 6 | (26.4) | (29.3) | (83.2) | (81.4) | (110.3) |
| Other financial expense, net | 7 | 9.0 | 0.4 | 4.6 | (1.6) | 2.6 |
| Income (loss) before income tax expense | (5.6) | 7.5 | (63.5) | (8.6) | (6.7) | |
| Income tax | 8 | (1.2) | (4.9) | (11.4) | (19.2) | (26.1) |
| Net income (loss) to equity holders of PGS ASA | (6.8) | 2.6 | (74.9) | (27.8) | (32.8) | |
| Other comprehensive income | ||||||
| Items that will not be reclassified to profit and loss | 1 3 | (7.6) | 7.5 | (6.3) | 39.7 | 38.4 |
| Items that may be subsequently reclassified to profit and loss | 1 3 | - | 0.1 | (0.4) | 2.9 | 2.6 |
| Other comprehensive income (loss) for the period, net of tax | (7.6) | 7.6 | (6.7) | 42.6 | 41.0 | |
| Total comprehensive income (loss) to equity holders of PGS ASA | (14.4) | 10.2 | (81.6) | 14.8 | 8.2 | |
| Earnings per share attributable to equity holders of the parent during the period | ||||||
| -Basic and diluted earnings per share | 1 2 | (0.01) | 0.00 | (0.08) | (0.05) | (0.06) |
Key Financial Figures
| Condensed Consolidated Statements of Financial Position |
|---|
| --------------------------------------------------------- |
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| September 30, September 30, | December 31, | |||
| (In millions of US dollars) | Note | 2023 | 2022 | 2022 |
| ASSETS | ||||
| Cash and cash equivalents | 1 1 | 156.0 | 179.1 | 363.8 |
| Restricted cash | 1 1 | 9.7 | 15.7 | 11.6 |
| Accounts receivables | 137.7 | 134.6 | 169.4 | |
| Accrued revenues and other receivables | 171.5 | 79.6 | 144.9 | |
| Other current assets | 66.7 | 58.8 | 61.7 | |
| Total current assets | 541.6 | 467.8 | 751.4 | |
| Property and equipment | 9 | 746.2 | 748.8 | 740.4 |
| MultiClient library | 1 0 | 329.6 | 322.4 | 300.3 |
| Restricted cash | 1 1 | 52.6 | 59.8 | 59.2 |
| Other non-current assets | 22.1 | 39.1 | 28.6 | |
| Other intangible assets | 74.2 | 81.6 | 73.4 | |
| Total non-current assets | 1,224.7 | 1,251.7 | 1,201.9 | |
| Total assets | 1,766.3 | 1,719.5 | 1,953.3 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
| Interest-bearing debt | 1 1 | 126.4 | 372.5 | 367.1 |
| Lease liabilities | 1 1 | 36.4 | 34.3 | 32.9 |
| Accounts payable | 52.1 | 38.8 | 45.6 | |
| Accrued expenses and other current liabilities | 111.5 | 88.9 | 104.2 | |
| Deferred revenues | 267.8 | 108.8 | 154.4 | |
| Income taxes payable | 16.5 | 17.6 | 20.4 | |
| Total current liabilities | 610.7 | 660.9 | 724.6 | |
| Interest-bearing debt | 1 1 | 636.5 | 628.9 | 659.7 |
| Lease liabilities | 1 1 | 47.0 | 54.3 | 54.3 |
| Deferred tax liabilities | 0.1 | 0.1 | 0.1 | |
| Other non-current liabilities | 4.1 | 3.8 | 4.3 | |
| Total non-current liabilities | 687.7 | 687.1 | 718.4 | |
| Common stock; par value NOK 3; | ||||
| issued and outstanding 955.310.440 shares | 325.9 | 246.7 | 313.2 | |
| Treasury shares, par value | (0.4) | (0.1) | (0.1) | |
| Additional paid-in capital | 1,062.7 | 957.0 | 1,035.8 | |
| Total paid-in capital | 1,388.2 | 1,203.6 | 1,349.0 | |
| Accumulated earnings | (915.8) | (828.3) | (834.6) | |
| Other capital reserves | (4.5) | (3.8) | (4.1) | |
| Total shareholders' equity | 467.9 | 371.5 | 510.3 | |
| Total liabilities and shareholders' equity | 1,766.3 | 1,719.5 | 1,953.3 |
| Attributable to equity holders of PGS ASA | ||||||
|---|---|---|---|---|---|---|
| Share | Treasury | Additional | Other | |||
| capital | shares | paid-in | Accumulated earnings |
capital | Shareholders' | |
| (In millions of US dollars) | par value | par value | capital | reserves | equity | |
| Balance as of January 1, 2022 | 158.9 | - | 933.1 | (840.2) | (6.7) | 245.1 |
| Profit (loss) for the period | - | - | - | (32.8) | - | (32.8) |
| Other comprehensive income (loss) | - | - | - | 38.4 | 2.6 | 41.0 |
| Shares issued at conversion of convertible bond | 7.7 | - | 7.0 | - | - | 14.8 |
| Share based payments | - | - | 1.2 | - | - | 1.2 |
| Shares issued for cash consideration Acquired treasury shares |
146.6 | 94.8 - - (0.2) (0.2) - - 0.1 (0.1) - - |
- | 241.4 | ||
| - - |
(0.4) | |||||
| Share based payments, equity settled | - | |||||
| Balance as of December 31, 2022 | 313.2 | (0.1) | 1,035.8 | (834.6) | (4.1) | 510.3 |
| Profit (loss) for the period | - | - | - | (74.9) | - | (74.9) |
| Other comprehensive income (loss) | - | - | - | (6.3) | (0.4) | (6.7) |
| Share capital increase (a) | 12.7 | - | 27.1 | - | - | 39.8 |
| Share based payments | - | - | 1.1 | - | - | 1.1 |
| Acquired treasury shares (b) | - | (0.5) | (0.8) | - | - | (1.3) |
| Share based payments, equity settled (b) | - | 0.2 | (0.2) | - | - | - |
| Other equity changes | - | - | (0.3) | - | - | (0.3) |
| Balance as of September 30, 2023 | 325.9 | (0.4) | 1,062.7 | (915.8) | (4.5) | 467.9 |
(a) In Q3 2023, the Company issued 45,760,726 new shares following a private placement raising gross proceeds of NOK 439,302,970 (approximately USD 40.6 million) as equity. Transaction costs amounting to \$0.8 million are recognized against "Additional paid-in capital".
(b) In Q3 2023, the Company initiated and completed a share buy-back program to cover settlement of Performance based Restricted Stock Units ("PRSU's") granted under the Company's 2020 Long Term Incentive Plan for employees. 1,575,000 shares were bought back under the program and 530,388 shares were used in settlement to employees.
| Attributable to equity holders of PGS ASA | ||||||
|---|---|---|---|---|---|---|
| Share | Treasury | Additional | Other | |||
| capital | shares | paid-in | Accumulated | capital | Shareholders' | |
| (In millions of US dollars) | par value | par value | capital | earnings | reserves | equity |
| Balance as of January 1, 2022 | 158.9 | - | 933.1 | (840.2) | (6.7) | 245.1 |
| Profit (loss) for the period | - | - | - | (27.8) | - | (27.8) |
| Other comprehensive income (loss) | - | - | - | 39.7 | 2.9 | 42.6 |
| Share issue | 7.7 | - | 7.0 | - | - | 14.7 |
| Share based payments | - | - | 0.8 | - | - | 0.8 |
| Share capital increase | 80.1 | - | 16.4 | - | - | 96.5 |
| Acquired treasury shares | - | (0.2) | (0.2) | - | - | (0.4) |
| Shared based payments, equity settled | - | 0.1 | (0.1) | - | - | - |
| Balance as of September 30, 2022 | 246.7 | (0.1) | 957.0 | (828.3) | (3.8) | 371.5 |
| Quarter ended | Year to date | Year ended | |||
|---|---|---|---|---|---|
| September 30, | September 30, | December 31, | |||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 |
| Income (loss) before income tax expense | (5.6) | 7.5 | (63.5) | (8.6) | (6.7) |
| Depreciation, amortization, impairment | 86.5 | 64.3 | 209.0 | 271.8 | 354.2 |
| Share of results in associated companies | (0.1) | (0.8) | (0.6) | (1.6) | 4.9 |
| Interest expense | 26.4 | 29.3 | 83.2 | 81.4 | 110.3 |
| Loss (gain) on sale and retirement of assets | - | (0.5) | - | (1.0) | (1.0) |
| Income taxes paid | (2.6) | (4.5) | (15.4) | (18.3) | (22.5) |
| Other items | (0.1) | 0.3 | 11.7 | 3.0 | 6.6 |
| (Increase) decrease in accounts receivables, accrued revenues & other receivables | (2.8) | 47.4 | 69.4 | (23.6) | (124.7) |
| Increase (decrease) in deferred revenues | 3.1 | 31.0 | 113.4 | (14.6) | 31.0 |
| Increase (decrease) in accounts payable | (1.2) | (11.7) | 5.9 | (5.9) | 1.2 |
| Change in other current items related to operating activities | 13.9 | 14.5 | (59.4) | 12.2 | 29.1 |
| Change in other long-term items related to operating activities | 0.1 | 1.1 | (2.3) | (9.9) | (11.1) |
| Net cash provided by operating activities | 117.6 | 177.9 | 351.4 | 284.9 | 371.3 |
| Investment in MultiClient library | (70.4) | (33.7) | (148.1) | (81.4) | (106.4) |
| Investment in property and equipment | (11.5) | (13.2) | (64.7) | (40.0) | (48.6) |
| Investment in other intangible assets | (2.1) | (2.8) | (7.3) | (7.7) | (9.8) |
| Investment in other current -and non-current assets | - | - | - | - | 1.8 |
| Proceeds from sale and disposal of assets | - | 0.9 | - | 1.3 | 1.2 |
| Net cash used in investing activities | (84.0) | (48.8) | (220.1) | (127.8) | (161.8) |
| Interest paid on interest-bearing debt | (37.4) | (24.7) | (70.5) | (66.5) | (90.5) |
| Proceeds, net of deferred loan costs, from issuance of long-term debt (a) | 69.2 | - | 501.7 | - | 47.1 |
| Repayment of interest-bearing debt | (80.0) | (143.8) | (786.6) | (143.8) | (170.1) |
| Proceeds from share issue (b) | 39.8 | 13.6 | 39.8 | 96.7 | 241.4 |
| Share buy-back | (1.3) | - | (1.3) | (0.4) | (0.4) |
| Payment of lease liabilities (recognized under IFRS 16) | (8.0) | (8.8) | (24.2) | (27.2) | (36.1) |
| Payments of leases classified as interest | (1.9) | (1.5) | (5.3) | (5.0) | (6.4) |
| Decrease (increase) in restricted cash related to debt service | 4.8 | (4.6) | 7.3 | (1.8) | (0.7) |
| Net cash (used in) provided by financing activities | (14.8) | (169.8) | (339.1) | (148.0) | (15.7) |
| Net increase (decrease) in cash and cash equivalents | 18.9 | (40.7) | (207.8) | 9.1 | 193.8 |
| Cash and cash equivalents at beginning of period | 137.1 | 219.8 | 363.8 | 170.0 | 170.0 |
| Cash and cash equivalents at end of period | 156.0 | 179.1 | 156.0 | 179.1 | 363.8 |
a) Proceeds from issuance of \$75 million term loan, net of issuance cost amounting to \$5.1 million.
b) Proceeds from share issue, net of transaction cost amounting to \$0.8 million.
PGS has one operating segment focused on delivery of seismic data and services, which matches the internal reporting to the Company's executive management.
Following the implementation of the new accounting standard for revenues, IFRS 15, in 2018, MultiClient pre-funding revenues are no longer recognized under the previously applied percentage-of-completion ("POC") method. Instead, all such revenues are generally recognized at the "point in time" when the customer receives access to, or delivery of, the finished data which often will take place a year or more after the acquisition of data due to the time required to complete data processing.
PGS management has, for the purpose of its internal reporting, continued to report according to the principle applied in 2017 and earlier years, where MultiClient pre-funding revenue is recognized on a POC basis, and the related amortization of MultiClient library based upon the ratio of aggregate capitalized survey costs to forecasted sales. This differs from IFRS reporting which recognizes revenue from MultiClient pre-funding agreements and related amortization at the "point in time" when the customer receives access to, or delivery of, the finished data. See Note 14 for further description of the principles applied.
The table below provides a reconciliation of the Group's segment numbers ("Produced") against the financial statements prepared in accordance with IFRS ("As Reported"):
| Quarter ended September 30, |
||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
| (In millions of US dollars) | Produced | Adjustments | As Reported | |||
| Revenues and Other Income | 184.8 | 216.5 | (27.5) | (18.0) | 157.3 | 198.5 |
| Cost of sales | (48.7) | (89.0) | - | - | (48.7) | (89.0) |
| Research and development costs | (1.2) | (1.8) | - | - | (1.2) | (1.8) |
| Selling, general and administrative costs | (9.2) | (9.6) | - | - | (9.2) | (9.6) |
| Amortization of MultiClient library | (96.6) | (61.3) | 18.7 | 19.2 | (77.9) | (42.1) |
| Depreciation and amortization (excl. MultiClient library) | (8.6) | (22.2) | - | - | (8.6) | (22.2) |
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | 20.5 | 32.6 | (8.8) | 1.2 | 11.7 | 33.8 |
| Year to date September 30, |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||
| (In millions of US dollars) | Produced | Adjustments | As Reported | |||||||
| Revenues and Other Income | 543.4 | 566.6 | (87.0) | 41.8 | 456.4 | 608.4 | ||||
| Cost of sales | (198.7) | (231.0) | - | - | (198.7) | (231.0) | ||||
| Research and development costs | (4.4) | (5.0) | - | - | (4.4) | (5.0) | ||||
| Selling, general and administrative costs | (29.9) | (29.0) | - | - | (29.9) | (29.0) | ||||
| Amortization of MultiClient library | (242.1) | (178.6) | 83.6 | (21.9) | (158.5) | (200.5) | ||||
| Depreciation and amortization (excl. MultiClient library) | (44.2) | (71.7) | - | - | (44.2) | (71.7) | ||||
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | 24.1 | 51.3 | (3.4) | 19.9 | 20.7 | 71.2 |
| Year ended December 31, 2022 |
|||||||
|---|---|---|---|---|---|---|---|
| (In millions of US dollars) | Produced | Adjustments | As Reported | ||||
| Revenues and Other Income | 817.2 | 7.9 | 825.1 | ||||
| Cost of sales | (324.7) | - | (324.7) | ||||
| Research and development costs | (6.9) | - | (6.9) | ||||
| Selling, general and administrative costs | (38.9) | - | (38.9) | ||||
| Amortization of MultiClient library | (242.0) | 0.4 | (241.6) | ||||
| Depreciation and amortization (excl. MultiClient library) | (95.9) | - | (95.9) | ||||
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | 108.8 | 8.3 | 117.1 |
Revenues and Other Income by service type:
| Quarter ended | ||||
|---|---|---|---|---|
| September 30, | ||||
| 2023 | 2022 | 2023 | 2022 | |
| Produced | As Reported | |||
| -Contract seismic | 36.1 | 100.7 | 36.1 | 100.7 |
| -MultiClient pre-funding | 101.1 | 37.4 | 73.6 | 19.4 |
| -MultiClient late sales | 41.1 | 71.8 | 41.1 | 71.8 |
| -Imaging | 6.2 | 6.6 | 6.2 | 6.6 |
| -Other Income | 0.3 | - | 0.3 | - |
| Total Revenues and Other Income | 184.8 | 216.5 | 157.3 | 198.5 |
| Year to date September 30, |
Year ended | |||||
|---|---|---|---|---|---|---|
| December 31, | ||||||
| 2023 | 2022 | 2023 | 2022 | 2022 | 2022 | |
| Produced | As Reported | Produced | As Reported | |||
| -Contract seismic | 200.8 | 225.1 | 200.8 | 225.1 | 336.3 | 336.3 |
| -MultiClient pre-funding | 200.9 | 89.0 | 113.9 | 130.8 | 131.4 | 139.3 |
| -MultiClient late sales | 121.2 | 234.7 | 121.2 | 234.7 | 326.7 | 326.7 |
| -Imaging | 19.9 | 17.8 | 19.9 | 17.8 | 22.7 | 22.7 |
| -Other Income | 0.6 | - | 0.6 | - | 0.1 | 0.1 |
| Total Revenues and Other Income | 543.4 | 566.6 | 456.4 | 608.4 | 817.2 | 825.1 |
| Quarter ended | Year to date | Year ended | ||||
|---|---|---|---|---|---|---|
| September 30, | September 30, | December 31, | ||||
| 2023 | 2022 | 2023 | 2022 | 2022 | ||
| Contract | 15% | 60% | 32% | 40% | 51% | |
| MultiClient | 72% | 28% | 47% | 28% | 20% | |
| Steaming | 6 % | 9 % | 9 % | 18% | 11% | |
| Yard | 3 % | 3 % | 5 % | 3 % | 5 % | |
| Stacked/standby | 4 % | 0 % | 7 % | 11% | 13% |
(1) The Q3 2023 vessel statistics includes 7 vessels (Ramform Victory started operation in Q3 2023). The comparative periods Q3 2022 and full year 2022 are based on 6 vessels. The statistics excludes cold-stacked vessels. Sanco Swift, rigged for offshore wind site characterization since early Q2 2023, is excluded from the statistics.
As Reported revenues according to IFRS in Q3 2023 amounted to \$157.3 million, compared to \$198.5 million in Q3 2022, a decrease of \$41.2 million, or 21%. The decrease is driven by lower contract and MultiClient late sales revenues, partially offset by significantly higher MultiClient pre-funding revenues.
Produced Revenues in Q3 2023 amounted to \$184.8 million, compared to \$216.5 million in Q3 2022, a decrease of \$31.7 million, or 15%. The decrease is driven by the same factors as explained for the As Reported revenues.
Contract revenues in Q3 2023 decreased by \$64.6 million, or 64%, compared to Q3 2022. The decrease is primarily due to less 3D vessel capacity allocated to contract work. Q3 2023 rate level is below the rate level in Q3 2022 due to Ramform Vanguard working on a frame agreement signed in 2021. Contract revenues for Q3 2023 include \$5.8 million related to an offshore wind site characterization survey.
MultiClient late sales revenues in Q3 2023 decreased by \$30.7 million, or 43%, compared to Q3 2022 when the Company benefitted from significant transfer fees and recognition of revenues related to a 2-year MultiClient access agreement with Shell. Late sales were highest in West Africa. In Q3 2023 the Company recognized \$16.8 million of late sales revenues following the arbitration award on a transfer fee dispute as explained in note 11. The seismic market is improving, and PGS believes the increasing exploration focus will positively impact sales from the MultiClient library going forward.
As Reported MultiClient pre-funding revenues according to IFRS in Q3 2023 increased by \$54.2 million, compared to Q3 2022. The increase is a result of higher volume of MultiClient projects finalized and delivered to clients. The volume of completed MultiClient projects in Q3 2023 was approximately \$8 million higher than what PGS earlier expected, as disclosed in the Q2 2023 earnings release.
Produced MultiClient pre-funding revenues in Q3 2023 increased by \$63.7 million, or 170%, compared to Q3 2022. The increase is due to more 3D vessel capacity allocated to MultiClient acquisition projects with strong pre-funding and significant sales from surveys in the processing phase.
| Quarter ended | Year to date | Year ended | |||
|---|---|---|---|---|---|
| September 30, | September 30, | December 31, | |||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 |
| Cost of sales including investment in MultiClient library | (117.1) | (121.2) | (352.4) | (317.0) | (433.9) |
| Research and development costs before capitalized development costs | (3.2) | (3.9) | (11.0) | (11.3) | (15.0) |
| Selling, general and administrative costs | (9.2) | (9.6) | (29.9) | (29.0) | (38.9) |
| Cash Cost, gross | (129.5) | (134.7) | (393.3) | (357.3) | (487.8) |
| Steaming deferral, net | (2.0) | (1.5) | 5.6 | 4.6 | 2.8 |
| Cash investment in MultiClient library | 70.4 | 33.7 | 148.1 | 81.4 | 106.4 |
| Capitalized development costs | 2.1 | 2.1 | 6.5 | 6.3 | 8.1 |
| Net operating expenses | (59.1) | (100.4) | (233.0) | (265.0) | (370.5) |
Gross cash cost in Q3 2023 decreased by \$5.2 million, or 4%, compared to Q3 2022. The decrease is primarily due to lower project related and fuel costs, partially offset by more operated capacity with Ramform Victory in 3D seismic operation and Sanco Swift used as an offshore wind site characterization vessel.
Cash costs capitalized to the MultiClient library in Q3 2023 increased by \$36.7 million compared to Q3 2022. The increase is mainly due to more 3D vessel capacity allocated to MultiClient acquisition.
| Amortization and impairment of MultiClient library consist of the following: | ||||||
|---|---|---|---|---|---|---|
| Quarter ended | Year to date September 30, |
Year ended December 31, |
||||
| September 30, | ||||||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 | |
| As Reported | ||||||
| Amortization of MultiClient library | (44.5) | (35.1) | (122.8) | (110.1) | (135.7) | |
| Accelerated amortization of MultiClient library | (33.4) | (7.0) | (35.7) | (90.4) | (105.9) | |
| Impairment of MultiClient library | - | - | - | - | (11.5) | |
| Total | (77.9) | (42.1) | (158.5) | (200.5) | (253.1) | |
| Segment reporting | ||||||
| Amortization of MultiClient library | (96.6) | (61.3) | (242.1) | (178.6) | (242.0) | |
| Total | (96.6) | (61.3) | (242.1) | (178.6) | (242.0) |
Total IFRS amortization of the MultiClient library in Q3 2023 increased by \$35.8 million, or 85%, compared to Q3 2022. The increase is driven by higher MultiClient pre-funding revenues. Amortization was 68% of MultiClient revenues in Q3 2023, compared to 46% in Q3 2022. The higher amortization rate reflects a lower proportion of late sales in the mix.
Depreciation and amortization of non-current assets (excl. MultiClient library) consist of the following:
| Quarter ended September 30, |
Year to date September 30, |
Year ended | ||||
|---|---|---|---|---|---|---|
| December 31, | ||||||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 | |
| Gross depreciation* | (26.7) | (29.3) | (81.9) | (93.7) | (122.2) | |
| Deferred Steaming depreciation, net | (0.7) | (0.8) | - | 0.3 | 0.4 | |
| Depreciation capitalized to the MultiClient library | 18.8 | 7.9 | 37.7 | 21.7 | 25.9 | |
| Total | (8.6) | (22.2) | (44.2) | (71.7) | (95.9) |
For the full year 2022, depreciation of right-of-use assets amounts to \$17.6 million. *includes depreciation of right-of-use assets amounting to \$4.7 million and \$4.3 million for the quarter ended September 30, 2023 and 2022 respectively.
Gross depreciation in Q3 2023 decreased by \$2.6 million, or 9%, compared to Q3 2022. The decrease comes from a generally low investment level in property and equipment over recent years.
Depreciation capitalized to the MultiClient library in Q3 2023 increased by \$10.9 million, or 138%, compared to Q3 2022. The increase is mainly due to more vessel days allocated to MultiClient, partially offset by lower gross depreciation.
Impairment and gain/(loss) on sale of non-current assets (excluding MultiClient library) consist of the following:
| Quarter ended | Year to date | Year ended | |||
|---|---|---|---|---|---|
| September 30, | September 30, | December 31, | |||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 |
| Property and equipment | - | - | (6.3) | 0.4 | 0.4 |
| Other Intangible assets | - | - | - | - | (5.7) |
| Total | - | - | (6.3) | 0.4 | (5.3) |
There were no impairments recorded in Q3 2023. Impairment tests on vessels and equipment are performed at year-end and whenever there are events, changes in assumptions or indication of potential loss of value. The seismic market is recovering, but the recoverable values of seismic vessels and other assets are sensitive to the assumed margins and cycles of the seismic industry as well as changes to operational plans. As a result, impairments may arise in future periods.
| Quarter ended September 30. |
Year to date September 30. |
Year ended December 31. |
||||
|---|---|---|---|---|---|---|
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 | |
| Onerous contracts with customers | $\overline{\phantom{a}}$ | 7.6 | $\overline{\phantom{a}}$ | 11.0 | 11.0 | |
| Provision for bad debt | $\overline{\phantom{a}}$ | 0.6 | (3.4) | (3.4) | ||
| Gain (loss) sale subsidiaries | (2.0) | |||||
| Other | (6.4) | 0.1 | (6.3) | 0.1 | ||
| Total | 1.8 | 0.1 | 1.3 | 5.7 |
As of September 30, 2023, the Company has no provision for onerous customer contracts. Provision for onerous customer contracts represents the estimated loss in future periods relating to binding customer contracts where revenues are lower than the full costs, including depreciation, of completing the contract.
The share of results from associated companies in Q3 2023 was a gain of \$0.1 million, compared to a gain of \$0.8 million in Q3 2022.
| Interest expense consists of the following: | |||||
|---|---|---|---|---|---|
| Quarter ended September 30, |
Year to date September 30, |
Year ended | |||
| December 31, | |||||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 |
| Interest on debt, gross | (25.3) | (29.1) | (79.8) | (80.5) | (109.4) |
| Imputed interest cost on lease agreements | (1.9) | (1.5) | (5.4) | (5.0) | (6.4) |
| Capitalized interest, MultiClient library | 0.8 | 1.3 | 2.0 | 4.1 | 5.5 |
| Total | (26.4) | (29.3) | (83.2) | (81.4) | (110.3) |
Gross interest expense decreased by \$3.8 million, or 13%, compared to Q3 2022. The decrease is due to a considerable reduction of gross interest-bearing debt and reduced imputed interest costs, partially offset by an increase of LIBOR/SOFR interest rates, which increases the cost of floating rate debt, as well as a high interest rate on the new \$450 million bonds.
| Quarter ended September 30, |
Year to date September 30, |
Year ended | ||||
|---|---|---|---|---|---|---|
| December 31, | ||||||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 | |
| Interest income | 9.8 | 3.4 | 15.5 | 4.2 | 7.0 | |
| Currency exchange gain (loss) | (0.2) | (2.0) | 2.4 | 2.5 | 4.3 | |
| Write off deferred and other loan cost | - | - | (11.2) | - | - | |
| Net gain/(loss) on separate derivative financial instrument | - | (0.5) | - | (7.6) | (7.6) | |
| Other | (0.6) | (0.5) | (2.1) | (0.7) | (1.1) | |
| Total | 9.0 | 0.4 | 4.6 | (1.6) | 2.6 |
Interest income in Q3 2023 increased by \$6.4 million compared to Q3 2022. The increase is primarily due to \$7.6 million interest income recognized following the arbitration award on a transfer fee dispute as explained in note 11.
Income tax consists of the following:
| Quarter ended | Year to date | ||||
|---|---|---|---|---|---|
| September 30, | September 30, | December 31, | |||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 |
| Current tax | (1.2) | (4.9) | (11.4) | (19.2) | (26.1) |
| Change in deferred tax | - | - | - | - | - |
| Total | (1.2) | (4.9) | (11.4) | (19.2) | (26.1) |
The current tax expense in Q3 2023 decreased by \$3.7 million compared to Q3 2022. Current tax expense relates to foreign withholding tax and corporate tax on profits in certain countries where PGS has executed projects or made MultiClient sales.
The Company has ongoing tax disputes related to charter of vessels into Brazil. The assessments, which inter alia seek to levy 15% withholding tax and 10% CIDE (service) tax, amount to \$42.0 million in total. The Company holds a legal deposit amounting to \$19.8 million, initially made in Q4 2020 to challenge one of the disputes in court. The deposit is held in an interest-bearing bank account with a commercial bank. Since the Company considers it more likely than not that these contingencies will be resolved in its favor, no provision has been made for any portion of the exposure.
Capital expenditures, whether paid or not, consist of the following:
| Quarter ended | Year to date | Year ended | ||||
|---|---|---|---|---|---|---|
| September 30, | September 30, | December 31, | ||||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 | |
| Seismic equipment | 7.2 | 5.3 | 32.6 | 27.0 | 33.3 | |
| Vessel upgrades/Yard | 4.7 | 2.4 | 28.1 | 7.5 | 11.0 | |
| Compute infrastructure/ technology | 0.3 | 1.5 | 2.6 | 4.6 | 5.5 | |
| Other | 0.4 | 0.3 | 2.0 | 5.5 | 0.4 | |
| Total addition to property and equipment, whether paid or not | 12.6 | 9.5 | 65.3 | 44.6 | 50.2 | |
| Change in working capital | (1.1) | 3.7 | (0.6) | (4.6) | (1.6) | |
| Investment in property and equipment | 11.5 | 13.2 | 64.7 | 40.0 | 48.6 |
In addition, PGS recognized additions to property and equipment relating to new or changed lease arrangements of \$9.5 million and \$0.4 million for the quarter ended September 30, 2023, and 2022, respectively. In Q3 2023 PGS agreed a new two-year charter period for Sanco Swift, which is currently rigged as an offshore wind site characterization vessel.
The carrying value of the MultiClient library by year of completion is as follows:
| September 30, | ||||
|---|---|---|---|---|
| (In millions of US dollars) | 2023 | 2022 | 2022 | |
| Completed during 2018 | 1.5 | |||
| Completed during 2019 | 1.4 | 29.9 | 20.8 | |
| Completed during 2020 | 16.7 | 35.3 | 30.8 | |
| Completed during 2021 | 50.8 | 88.4 | 73.9 | |
| Completed during 2022 | 65.1 | 38.8 | 81.6 | |
| Completed during 2023 | 12.2 | - | - | |
| Completed surveys | 146.2 | 193.9 | 207.1 | |
| Surveys in progress | 183.4 | 128.5 | 93.2 | |
| MultiClient library | 329.6 | 322.4 | 300.3 |
Key figures MultiClient library:
| Quarter ended | Year ended | |||||
|---|---|---|---|---|---|---|
| (In millions of US dollars) | September 30, | September 30, | December 31, | |||
| 2023 | 2022 | 2023 | 2022 | 2022 | ||
| MultiClient pre-funding revenue * | 73.6 | 19.4 | 113.9 | 130.8 | 139.3 | |
| MultiClient late sales | 41.1 | 71.8 | 121.2 | 234.7 | 326.7 | |
| Cash investment in MultiClient library | 70.4 | 33.7 | 148.1 | 81.4 | 106.4 | |
| Capitalized interest in MultiClient library | 0.8 | 1.3 | 2.0 | 4.1 | 5.5 | |
| Capitalized depreciation (non-cash) | 18.8 | 7.9 | 37.7 | 21.7 | 25.9 | |
| Amortization of MultiClient library | (44.5) | (35.1) | (122.8) | (110.1) | (135.7) | |
| Accelerated amortization of MultiClient library | (33.4) | (7.0) | (35.7) | (90.4) | (105.9) | |
| Impairment of MultiClient library | - | - | - | - | (11.5) | |
| Segment reporting | ||||||
| MultiClient pre-funding revenue, produced | 101.1 | 37.4 | 200.9 | 89.0 | 131.4 | |
| Prefunding as a percentage of MultiClient cash investment | 144% | 111% | 136% | 109% | 123% |
* Includes revenue from sale to joint operations in the amount of \$30.6 and \$8.2 million for the quarter ended September 30, 2023 and 2022 respectively.
Year to date 2023 and 2022, revenue from sale to joint operations amounts to \$66.0 million and \$25.9 million, respectively.
Produced MultiClient pre-funding revenues in Q3 2023 corresponded to 144% of capitalized MultiClient cash investment (excluding capitalized interest), compared to 111% in Q3 2022. The increased pre-funding level is mainly due to higher client exploration activity, strong pre-funding of ongoing surveys and significant sales from surveys in the processing phase.
MultiClient cash investment in Q3 2023 increased by \$36.7 million, or 109%, compared to Q3 2022, due to more 3D vessel capacity allocated to MultiClient projects.
Net cash provided by operating activities was \$117.6 million in Q3 2023, compared to \$177.9 million in Q3 2022. The decrease is primarily due to lower late sales in Q2 2023, compared to high late sales in Q2 2022, which were collected in Q3 2022.
In 2022, PGS recognized approximately \$30 million of transfer fee revenues relating to a change of control event. The transfer fees are disputed by the client, and as of September 30, 2023, the amounts were not paid. Given the inability to timely conclude the matter, PGS earlier initiated two separate arbitration proceedings under the dispute resolution provisions of the agreements. In October 2023, the tribunal in the first arbitration issued a decision in PGS' favor, including late payment interest and reasonable legal costs. The amount due to PGS, net of any revenue share to third parties, is estimated to be approximately \$43 million and is expected to be received late Q4 2023 or early Q1 2024. The decision relates to agreements where PGS already recognized \$18.2 million as revenues in 2022. As a result of the decision, PGS has recognized additional \$16.8 million of late sales revenues and \$7.6 million of interest income in Q3 2023. The second arbitration proceeding is expected to be concluded during the second half of 2024, unless settled earlier. PGS has only recognized revenues that, based on PGS's best estimate and external legal advice, are expected to be due to PGS. The delay in settling this matter impacts the Company's working capital as of September 30, 2023.
In Q3 2023, PGS successfully completed an equity private placement of approximately \$40.6 million. The proceeds are used to increase liquidity and enable a financially robust combined entity following the proposed merger with TGS.
The liquidity reserve, including cash and cash equivalents, was \$156.0 million as of September 30, 2023, compared to \$179.1 million as of September 30, 2022, and \$137.1 million as of June 30, 2023.
On March 31, 2023, PGS issued bonds of \$450 million at 98% of par (the "Bonds"). The Bonds have a 4-year tenor, maturing March 31, 2027, with a coupon of 13.5% paid semiannually. The Bonds are non-callable for 2 years and can thereafter be called at 106.75 per cent of par between March 31, 2025, and September 29, 2025, 105.06 per cent of par between September 30, 2025, and March 30, 2026, 103.38 per cent of par between March 31, 2026, and September 29, 2026, and thereafter 100.50 per cent of par.
The Bond terms have restrictions on incurrence of further indebtedness, but with certain baskets and exceptions. The most important exception is that the Company can either issue an additional \$50 million of bonds (a so called "tap issue") or issue other secured debt, on a pari passu basis with the Bonds, to refinance up to \$75 million of the outstanding Term Loan B ("TLB"). Further, the at any time outstanding gross amount under the export credit financing ("ECF") loans can be refinanced as pari
passu debt with the Bonds. The Bond terms further permit a super senior (priority in right of payments to the Bonds) facility of up to \$75 million of which no more than \$60 million can be in the form of cash drawings.
PGS is permitted to pay dividends of up to 50 per cent of net profit (after tax) when the TLB is repaid in full, and the leverage ratio is below 1.0:1.0.
The proceeds from the Bonds, together with cash on balance sheet, were used to repay \$600 million of the TLB in Q1 2023.
On July 19, 2023, PGS received commitments for a loan facility of \$75 million. The new loan (the "Loan") was drawn September 18, 2023, with the net proceeds used to reduce the existing TLB. The Loan has an interest rate of SOFR + 7.00% and matures December 15, 2026. Beginning on June 30, 2024, the Loan will have a quarterly amortization at a rate of 6.25% of the original principal amount. The Loan can be prepaid without a premium starting from June 30, 2024. The Loan is subject to the same financial covenants as the \$450 million Bonds.
The remaining balance of the TLB due on March 19, 2024, is \$69.8 million. The Company's Super Senior Loan of \$50 million has a scheduled maturity on March 18, 2024, which at the Company's option can be extended by one year.
The TLB agreement has a liquidity sweep requirement where liquidity reserve in excess of \$175 million at quarter-end shall be used to repay the TLB.
Interest-bearing debt consists of the following:
| 2023 2022 2022 (In millions of US dollars) Secured Term loan B, Libor + 6-750 basis points (linked to total leverage ratio ("TLR")), due 2024 69.8 737.9 737.9 |
|---|
| Super Senior Loan, Libor + 675 Basis points, due 2024 50.0 50.0 - |
| Term loan, SOFR + 700 basis points, due 2026 75.0 - - |
| Export credit financing, due 2025 41.7 105.5 100.3 |
| Export credit financing, due 2027 103.2 184.2 163.1 |
| Senior notes, Coupon 13.5%, due 2027 450.0 - - |
| Total loans and bonds, gross (1) 789.7 1,027.6 1,051.3 |
| (126.4) (372.5) (367.1) Less current portion |
| Less deferred loan costs, net of debt premiums (26.5) (20.6) (20.0) |
| Less modification of debt treated as extinguishment (0.3) (5.7) (4.6) |
| Non-current interest-bearing debt 636.5 628.9 659.7 |
(1) The estimated fair value of total loans and bonds, gross was \$830.8 million as of September 30, 2023, compared to \$983.0 million as of September 30, 2022.
The line "Modification of debt treated as extinguishment" in the table relates to the Q1 2021 rescheduling of the \$135 million revolving credit facility. The remaining balance was reduced by \$3.9 million in Q1 2023 due to the \$600 million repayment of the TLB and further reduced by \$0.4 million by the end of Q3 2023 due to time elapsed.
| Undrawn facilities consists of the following: | |||
|---|---|---|---|
| September 30, | December 31, | ||
| (In millions of US dollars) | 2023 | 2022 | 2022 |
| Secured | |||
| Performance bond | 23.2 | 17.8 | 22.0 |
| Total | 23.2 | 17.8 | 22.0 |
| Summary of net interest-bearing debt: | |||
| September 30, | December 31, | ||
| (In millions of US dollars) | 2023 | 2022 | 2022 |
| Loans and bonds gross | (789.7) | (1,027.6) | (1,051.3) |
| Cash and cash equivalents | 156.0 | 179.1 | 363.8 |
| Restricted cash (current and non-current) | 62.3 | 75.5 | 70.8 |
| Net interest-bearing debt, excluding lease liabilities | (571.4) | (773.0) | (616.7) |
| Lease liabilities current | (36.4) | (34.3) | (32.9) |
| Lease liabilities non-current | (47.0) | (54.3) | (54.3) |
| Net interest-bearing debt, including lease liabilities | (654.8) | (861.6) | (703.9) |
Restricted cash of \$62.3 million includes \$32.6 million held in debt service reserve and retention accounts related to the ECF loans for Ramform Titan, Ramform Atlas, Ramform Tethys and Ramform Hyperion.
On September 30, 2023, the Company had approximately 75% of its debt (excluding lease liabilities) at fixed interest rates. The weighted average cash interest rate was approximately 11.32%, including credit margins, as of September 30, 2023, compared to 8.85% and 8.98% as of September 30, 2022, and December 31, 2022, respectively.
The main credit agreements contain minimum liquidity and maximum leverage ratio covenants. The TLB and Super Senior Loan require a minimum liquidity of \$75 million a maximum Total Net Leverage Ratio* ("TNLR") of 2.75:1. The Bonds and Loan terms have a minimum liquidity covenant of \$50 million and a maximum leverage ratio (Net Interest Bearing Debt to last twelve months IFRS EBITDA) of 3.00:1 from Q1 2023 to Q4 2024 and 2.50:1 thereafter. On September 30, 2023, the TNLR was 1.47:1 and leverage ratio calculated according to the bond terms was 2.15:1. The Company expects to comply with the financial covenants in its credit agreements going forward.
Most of the financing agreements have change of control provisions relevant to the proposed merger with TGS. Reference is made to Note 16.
*The Total Net Leverage Ratio ("TNLR") is calculated as the consolidated indebtedness, net of restricted cash held for debt service in respect of the ECF and unrestricted cash and cash equivalents, divided by adjusted Produced EBITDA less non-pre-funded MultiClient library investments.
Earnings per share, to ordinary equity holders of PGS ASA:
| Quarter ended | Year to date | Year ended | |||
|---|---|---|---|---|---|
| September 30, | September 30, | December 31, | |||
| 2023 | 2022 | 2023 | 2022 | 2022 | |
| - Basic | (0.01) | 0.00 | (0.08) | (0.05) | (0.06) |
| - Diluted | (0.01) | 0.00 | (0.08) | (0.05) | (0.06) |
| Weighted average basic shares outstanding | 913,883,641 | 659,670,890 | 910,830,941 | 512,507,284 | 592,416,941 |
| Weighted average diluted shares outstanding | 923,833,481 | 669,342,419 | 920,437,831 | 519,538,813 | 600,507,358 |
| Other Comprehensive Income |
|---|
| ---------------------------- |
| Year ended | |||||
|---|---|---|---|---|---|
| September 30, | December 31, | ||||
| 2023 | 2022 | 2023 | 2022 | 2022 | |
| 38.4 | |||||
| - | - | - | - | - | |
| (7.6) | 7.5 | (6.3) | 39.7 | 38.4 | |
| - | 0.1 | (0.4) | 2.9 | 2.6 | |
| - | - | - | - | - | |
| - | 0.1 | (0.4) | 2.9 | 2.6 | |
| (7.6) | Quarter ended September 30, 7.5 |
(6.3) | Year to date 39.7 |
The Company is a Norwegian public limited liability company which prepares its annual consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. These consolidated condensed interim financial statements have been prepared in accordance with international Accounting Standards ("IAS") No. 34 "Interim Financial Reporting". The consolidated condensed interim financial statements are presented in millions of US Dollars ("\$" or "dollars"), unless otherwise indicated. The interim financial information has not been subject to audit or review.
Profit and loss for the interim period are not necessarily indicative of the results that may be expected for any subsequent interim period or year. The condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022.
The accounting policies adopted in the preparation of the condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company's consolidated financial statements for the year ended December 31, 2022.
Upon completion of a survey, straight-line amortization commences over its estimated useful life which is generally over a period of 4 years from the data is transferred to completed surveys. If a project is jointly owned, the Company amortizes the portion of capitalized costs representing partners share of ownership.
In addition, with the straight-line amortization policy there is an accelerated amortization at the point of time when a MultiClient survey is completed and delivered to pre-funding customers. In addition, with the straight-line amortization policy for completed surveys, recognition of additional or accelerated amortization of library may be necessary in the event that sales on a completed survey are realized disproportionately sooner within that survey's 4-year useful life.
IFRS 9 requires an entity to derecognize a financial liability when, and only when, it is 'extinguished', that is, when the obligation specified in the contract is discharged, cancelled, or expires. IFRS 9 requires an exchange between an existing borrower and lender of debt instruments with 'substantially different' terms to be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, a substantial modification of the terms of an existing financial liability, or a part of it, should be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
Although IFRS provides a fair presentation of the profit and loss of the Company, for purposes of Segment and internal reporting management applies the revenue recognition principle used prior to 2018 and IFRS 15. MultiClient pre-funding revenue is recognized using the percentage of completion method. Management believes this method makes revenues coincide better with activities and resources used by the Company and provides useful information as to the progress made on MultiClient surveys in process and resultant value generation during the period.
In determining the percentage of completion, progress is measured in a manner generally consistent with the physical progress of the project, and revenue is recognized based on the ratio of the project's progress to date, provided that all other revenue recognition criteria are satisfied. Accordingly, MultiClient pre-funding revenues and related MultiClient amortization are generally recognized earlier for purposes of segment reporting as compared to IFRS reporting.
While a survey is in progress, the Company amortizes each MultiClient survey based on the ratio of aggregate capitalized survey costs to forecasted sales for segment purposes. At completion the remaining balance is amortized on a straight-line basis over four years.
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company's annual consolidated financial statements for the year ended December 31, 2022, except for the adoption of new standards effective as of January 1, 2023. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. Several amendments and interpretations apply for the first time in 2023, but do not have an impact on the Company's interim condensed consolidated financial statements.
The Company emphasizes that the information included herein contains certain forward-looking statements that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future. These statements are based on various assumptions made by the Company, many of which are beyond its control and all of which are subject to risks and uncertainties. The Company is subject to many risk factors including but not limited to the demand for seismic services, the demand for data from the Company's MultiClient library, the attractiveness of PGS' technology, changes in governmental regulations affecting markets, the speed and impact of the energy transition and its effect on customer behavior, technical downtime, licenses and permitting, currency and fuel price fluctuations, and extreme weather conditions.
Contracts for services are occasionally modified by mutual consent and in certain instances may be cancelled by customers at short notice without compensation. Consequently, the order book as of any date may not be indicative of actual operating results for any succeeding period.
For a further description of other relevant risk factors, we refer to the Annual Report for 2022. As a result of these and other risk factors, actual events and actual results may differ materially from those indicated in or implied by such forward-looking statements.
PGS announced on September 18, 2023, an intention to merge with TGS ASA or one of its subsidiaries ("TGS"). PGS and TGS announced on October 25, 2023, that their respective Board of Directors have approved and decided upon a definitive merger agreement and formal merger plan, in line with the terms previously announced and that the companies expect to call for extraordinary general meetings where shareholders will vote over the proposed merger. If the shareholders approve the proposed merger, the parties expect that the merger will be completed during first half of 2024.
The agreements for the \$450 million Bond and the \$75 million Loan both contain change-of-control provisions triggering put options for the bondholders/lenders at 101% and 102% of par, respectively, at the time of completing the merger. The TLB and the Super Senior Loan have change-of-control provisions requiring the loans to be repaid upon consummation of the merger unless maturing earlier or otherwise agreed with the lenders. The merger plan contains customary mutual restrictions for both parties until the merger is completed, as well as certain unilateral restrictions for PGS in relation to investments, equity transactions and financing.
As described in Note 11, PGS has previously recognized approximately \$30 million of revenues from transfer fees relating to a change of control event where the amount was not agreed with the client. After quarter end, PGS received a favorable decision from the arbitrator in the first arbitration. As a result, additional revenue and interest income have been recognized in Q3 2023.
EBIT ex. impairment and other charges, net
| Quarter ended | Year to date | |||||
|---|---|---|---|---|---|---|
| (In millions of US dollars) | September 30, | September 30, | December 31, | |||
| 2023 | 2022 | 2023 | 2022 | 2022 | ||
| Operating profit (loss) as reported | 11.7 | 35.6 | 14.5 | 72.9 | 106.0 | |
| Other charges, net | - | (1.7) | (0.1) | (1.2) | (5.7) | |
| Impairment of MultiClient library | - | - | - | - | 11.5 | |
| Impairment and loss on sale of long-term assets (excl. MultiClient library) | - | - | 6.3 | (0.4) | 5.3 | |
| EBIT ex. impairment and other charges, net | 11.7 | 33.8 | 20.7 | 71.2 | 117.1 |
Produced EBITDA
| Quarter ended September 30, |
Year to date September 30, |
Year ended | |||
|---|---|---|---|---|---|
| December 31, | |||||
| (In millions of US dollars) | 2023 | 2022 | 2023 | 2022 | 2022 |
| Operating profit (loss) as reported | 11.7 | 35.6 | 14.5 | 72.9 | 106.0 |
| Produced revenue adjustment to revenue as reported | 27.5 | 18.0 | 87.0 | (41.8) | (7.9) |
| Other charges, net | - | (1.7) | (0.1) | (1.2) | (5.7) |
| Amortization and impairment of MultiClient library | 77.9 | 42.1 | 158.5 | 200.5 | 253.1 |
| Depreciation and amortization of long term assets (excl. MultiClient library) | 8.6 | 22.2 | 44.2 | 71.7 | 95.9 |
| Impairment and loss on sale of long-term assets (excl. MultiClient library) | - | - | 6.3 | (0.4) | 5.3 |
| Produced EBITDA | 125.7 | 116.1 | 310.4 | 301.6 | 446.7 |
| Quarter ended September 30, |
Year to date September 30, |
Year ended December 31, |
|||
|---|---|---|---|---|---|
| (In millions of US dollars) | |||||
| 2023 | 2022 | 2023 | 2022 | 2022 | |
| Operating profit (loss) as reported | 11.7 | 35.6 | 14.5 | 72.9 | 106.0 |
| Produced revenue adjustment to revenue as reported | 27.5 | 18.0 | 87.0 | (41.8) | (7.9) |
| Other charges, net | - | (1.7) | (0.1) | (1.2) | (5.7) |
| Segment adjustment to Amortization As Reported | (18.7) | (19.2) | (83.6) | 21.9 | (0.4) |
| Impairment of MultiClient library | - | - | - | - | 11.5 |
| Impairment and loss on sale of long-term assets (excl. MultiClient library) | - | - | 6.3 | (0.4) | 5.3 |
| Produced EBIT ex. impairment and other charges, net | 20.5 | 32.6 | 24.1 | 51.3 | 108.8 |
The European Securities and Markets Authority ("ESMA") issued guidelines on Alternative Performance Measures ("APMs") that came into force on July 3, 2016. The Company has defined and explained the purpose of the APMs in the paragraphs below.
PGS has introduced alternative performance measures ("APMs") on a POC basis. Such APMs include Produced Revenues, Produced EBITDA, Produced EBIT, excluding impairments and other charges and Order book. PGS measures its revenues on a POC basis for its internal management reporting and consequently this will also be the basis for Segment Reporting in financial statements. PGS believes that the introduction of these APMs will improve transparency and provide better information to financial statement users.
PGS believes that EBIT, excluding impairments and other charges, is a useful measure in that it provides an indication of the profitability of the Company's operating activities for the period without regard to significant events and/or decisions in the period that are expected to occur less frequently. EBIT, excluding impairments and other charges is reconciled above.
Produced Revenues, when used by the Company, means revenues and other income based on recognition of MultiClient prefunding revenues on a Percentage-of-completion (POC) basis. Produced Revenues is reconciled in Note 1.
Produced EBITDA, when used by the Company, means as reported operating profit (loss), adjusted for produced revenues to revenues as reported and produced amortization to amortization as reported, and excluding impairments and other charges. Produced EBITDA may not be comparable to other similarly titled measures from other companies. The Company has included Produced EBITDA as a supplemental disclosure because PGS believes that the measure provides useful information regarding the Company's ability to service debt and to fund capital expenditures and provides a helpful measure for comparing its operating performance with that of other companies. Produced EBITDA is reconciled above.
PGS believes that Produced EBIT, excluding impairments and other charges, is a useful measure in that it provides an indication of the profitability of the Company's operating activities for the period without regard to significant events and/or decisions in the period that are expected to occur less frequently. Produced EBIT, excluding impairments and other charges is reconciled above.
The MultiClient pre-funding level is calculated by dividing the MultiClient pre-funding revenues, as per segment reporting, by the cash investment in MultiClient library, as reported, in the Statements of Cash Flows. PGS believes that the MultiClient pre-funding percentage is a useful measure in that provides some indication of the extent to which the Company's financial risk is reduced on new MultiClient investments.
Net interest-bearing debt is defined as the sum of non-current and current interest-bearing debt, less cash and cash equivalents and restricted cash. Net interest- bearing debt is reconciled in Note 11 above. PGS believes that net interest-bearing debt is a useful measure because it provides an indication of the hypothetical minimum necessary debt financing to which the Company is subject at balance sheet date.
Order book is defined as the aggregated estimated value of future revenues, measured on a basis consistent with our Segment reporting principles. This includes signed customer contracts, letters of award or where all major contract terms are agreed. For long-term contracted service agreements, the order book includes estimated revenues for the nearest 12-month period. PGS believes that the Order book figure is a useful measure in that it provides an indication of the amount of customer backlog and committed activity in the coming periods.
Order book information disclosed in earlier financial reports are as follows:
| Order book including production aleready performed |
Order book related to production already performed |
||
|---|---|---|---|
| (In millions of US dollars) | on MultiClient surveys | on MultiClient surveys | Order book |
| December 31, 2022 | 517.1 | 100.8 | 416.3 |
| September 30, 2022 | 319.9 | 66.8 | 253.1 |
| June 30, 2022 | 359.3 | 48.7 | 310.6 |
| March 31, 2022 | 315.0 | 112.6 | 202.4 |
Cash flow before financing activities is defined as the sum of net cash provided by operating activities and net cash used in investing activities in the consolidated financial statements of cash flows.
Liquidity reserve is defined in Note 11. PGS believes that liquidity reserve is a useful measure because it provides an indication of the amount of funds readily available to the Company in the very short term at balance sheet date.
Gross cash costs are defined as the sum of reported net operating expenses (excluding depreciation, amortization, impairments, deferred steaming, net and other charges, net) and the operating cash costs capitalized as investments in the MultiClient library as well as capitalized development costs. Gross cash costs are reconciled in Note 3. PGS believes that the gross cash costs figure is a useful measure because it provides an indication of the level of cash costs incurred by the Company irrespective of the extent to which the fleet is working on MultiClient projects or the extent to which its R&D expenditures qualify for capitalization.
Net operating expenses are defined as gross cash costs (as per above) less capitalized investments in the MultiClient library and capitalized development costs and is reconciled in Note 3. PGS believes this figure is a useful measure because it provides an indication of the level of net cash costs incurred by the Company in running current period commercial activities that are not devoted to investment.
Capital expenditures means investments in property and equipment irrespective of whether paid in the period but excluding capitalized interest costs.
The following is the Company's best estimate for recognition of secured MultiClient pre-funding revenues according to IFRS. Please note that this estimate is subject to uncertainty when it comes to the exact time of delivery to customers. In addition, any additional pre-funding commitments relating to ongoing projects before delivery, if any, is not included.
Estimated delivery and revenue recognition of IFRS pre-funding:
| 2023 | 2024 | |||
|---|---|---|---|---|
| (In millions of US dollars) | Q4 | Q1 | Later | Total |
| IFRS Pre-funding | 3 8 | 8 2 | 147 | 267 |
The below table shows the balance sheet classification of deferred balances following from deferral of revenue recognition on MultiClient projects performed together with joint venture partners.
Customer pre-funding for ongoing MultiClient projects are recorded as deferred revenues (liability in the balance sheet) on a 100% basis until delivery of final data. On projects where PGS has invoiced the customer and paid or become liable to pay amounts to joint venture partners, these are treated as prepayments to such partners and classified within "Accrued Revenues and Other receivables" in the statement of financial position. In accordance with IFRS 15, once these projects are completed, deferred revenues will be recognized as revenues net of the partners' share of the pre-funding income.
| Revenue related balances | |||
|---|---|---|---|
| September 30, | |||
| (In millions of US dollars) | 2023 | 2022 | 2022 |
| Accrued revenues and other receivables: | |||
| Accrued revenues | 106.2 | 78.5 | 143.1 |
| Prefunding revenue share paid or payable to JV partners on projects were PGS has not yet recognized revenue under IFRS 15 | 64.2 | - | - |
| Other receivables | 1.1 | 1.1 | 1.8 |
| Accrued revenues and other receivables | 171.5 | 79.6 | 144.9 |
| Deferred revenues | 267.8 | 108.8 | 154.4 |
For the comparable periods September 30, 2022, and December 31, 2022, pre-funding revenue share, not eligible for netting according to IFRS, was immaterial.
Oslo, October 25, 2023
Chairperson Director
Anne Grethe Dalane Trond Brandsrud Director Director
Director Director
Emeliana Dallan Rice-Oxley Anette Valbø Director Director
Carine Roalkvam Eivind Vesterås Director Director
Rune Olav Pedersen President & Chief Executive Officer
***
PGS ASA and its subsidiaries ("PGS" or "the Company") is an integrated marine geophysics company, which operates on a worldwide basis. PGS business supports the energy industry, including oil and gas, offshore renewables, carbon capture and storage. The Company's headquarter is in Oslo, Norway and the PGS share is listed on the Oslo stock exchange (OSE: PGS). For more information on PGS visit www.pgs.com.
***
The information included herein contains certain forward-looking statements that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future. These statements are based on various assumptions made by the Company, which are beyond its control and are subject to certain additional risks and uncertainties. The Company is subject to a large number of risk factors including but not limited to the demand for seismic services, the demand for data from our multi-client data library, the attractiveness of our technology, unpredictable changes in governmental regulations affecting our markets and extreme weather conditions. For a further description of other relevant risk factors, we refer to our Annual Report for 2022. As a result of these and other risk factors, actual events and our actual results may differ materially from those indicated in or implied by such forward-looking statements. The reservation is also made that inaccuracies or mistakes may occur in the information given above about current status of the Company or its business. Any reliance on the information above is at the risk of the reader, and PGS disclaims any and all liability in this respect.
Walter Qvam Richard Herbert
Shona Grant Ebrahim Attarzadeh
OSLO (headquarter) HOUSTON Lilleakerveien 4C West Memorial Place I
Petroleum Geo-Services (UK) Ltd. 4 The Heights Brooklands ' Weybridge Surrey KT13 0N Y, UK Phone: +44 1932 3760 00
Walter Qvam (Chairperson) Trond Brandsrud Anne Grethe Dalane Ebrahim Attarzadeh Richard Herbert Shona Grant
| Q3 2023 report | October 26, 2023 |
|---|---|
| Q4 2023 report | February 15, 2024 |
The dates are subject to change.
PGS ASA Petroleum Geo-Services, Inc. P.O.Box 251 Lilleaker 15375 Memorial Drive, Suite 100 0216 Oslo, Norway Houston Texas 77079, USA Phone: +47 67 52 64 00 Phone: +1 281 509 8000
Emiliana Dallan Rice-Oxley Carine Roalkvam (employee elected) Anette Valbø (employee elected) Eivind Vesterås (employee elected)
| SVP Technology & Digitalization | ||
|---|---|---|
| General Counsel | ||
| EVP Sales & Services | ||
| EVP Operations | Kai Reith | SVP Corporate Development |
| EVP New Energy | Sandy Spørck | SVP Sustainability & Quality |
| Bård Stenberg VP IR & Communication | ||
| President & CEO EVP & CFO |
Erik Ewig Lars Mysen Kristin Omreng SVP HR |
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