Annual Report • Mar 29, 2023
Annual Report
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2022 ANNUAL REPORT
PGS ASA and its subsidiaries ("PGS" or "the Company")* is a fully integrated marine geophysical company that provides a broad range of seismic and reservoir services, including data acquisition, imaging, interpretation, and field evaluation. Our services are provided to the oil and gas industry, as well as to the broader and emerging new energy industries, including carbon storage and offshore wind. The Company operates on a worldwide basis with headquarters in Oslo, Norway.
This year's annual report design is inspired by the recent update of PGS' Vision & Mission statements. The two interlinked circles represent the inherent connectedness between energy security and the energy transition, and PGS' commitment to support both. The radiating lines symbolize the different areas and strengths within PGS that work together and create an integrated company that is dynamic and resilient.
* When the terms "PGS" and "the Company" are used in this report, these will as a main rule include both PGS ASA and its subsidiaries. However, in certain sections and paragraphs hereof, these references will only include PGS ASA as context indicates.
| 4 | CEO Letter |
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In 2022, we achieved strong revenue growth in a recovering seismic market. Along with the energy companies' structurally growing efforts to optimize producing fields, we experienced a renewed focus on exploration, including in frontier areas, benefiting both our proprietary contract acquisition activity and MultiClient sales. Our New Energy business established a solid position in the carbon storage geoservices market and prepared for the next step, offshore wind site characterization. Overall, we have strengthened our position within our traditional markets, while assessing and developing new business opportunities. We increased our cash flow and in combination with strong shareholder support we reduced net interest-bearing debt significantly. This positions us well for refinancing during 2023. At the end of 2022 the order book was at the highest level since Q3 2014, reflecting higher rates and activity. I expect the positive trend witnessed in 2022 to continue in 2023.
Rune Olav Pedersen President & CEO
We had a slow start to the year with approximately half of our active fleet idle in the first quarter. Vessel utilization improved significantly from early in the second quarter, and we took advantage of the improving seismic acquisition market. Our integrated service offering enabled us to leverage the 2022 recovery both within our proprietary contract business and MultiClient. We saw the strongest recovery in the contract market, where we allocated 70% of our active vessels and achieved more than 35% price increase compared to 2021, most of this reflecting higher margins. Over half of our contract acquisition was 4D seismic for producing fields, playing to the strengths of our high-capacity Ramform acquisition vessels and the proprietary GeoStreamer technology.
Historically, market recoveries have started with improving MultiClient sales before contract activity and rates increase approximately one year later. In this cycle, the contract market started to recover first in 2021. Then in 2022 there was a notable change in energy companies' focus on exploration, benefiting our MultiClient business. The ongoing energy crisis in Europe, has demonstrated the important role oil and natural gas play in energy security both today and in the future, and the need to increase exploration activities to meet future energy demand. Although we allocated a relatively low share of our vessel capacity to MultiClient acquisition, we experienced strong interest in our new MultiClient surveys. For the full year we ended with a pre-funding level of 124%, which is above our target level of 80-120%.
Late sales revenues from our MultiClient data library in 2022 were the second highest on record, driven by increased exploration activity and significant transfer fees. We have an attractive and geographically diverse MultiClient data library.
The recovering seismic market positively impacted our order book, which increased 74% in 2022 to the highest level since Q3 2014. Our fleet is fully booked for most of the first half of 2023,
and we have good visibility for the second half. To optimize our vessel scheduling, we have decided to bring back the Ramform Victory to carry out a large 4D contract job for Petrobras in the second half of 2023 and into 2024. However, we have not yet decided if the vessel will continue in operation after project completion.
In 2022, we continued to improve our position in a rapidly evolving market environment. Our goal is to be the leading provider of high-resolution seismic for near-field exploration, production (4D) and carbon storage. Providing high quality seismic for offshore carbon storage projects is an important part of the development of our New Energy business. During 2022 we acquired four of the five seismic acquisition contracts in the world for development of CCS projects and established a strong position in the carbon storage geoservices market. In addition, we continued to make MultiClient data sales for development of CCS projects, and we secured one significant imaging contract within the same domain. We achieved our target of generating approximately \$30 million in revenues from our New Energy business in 2022. Offshore wind and marine minerals are two other arenas where we can use our expertise and assets to offer value to clients. In early 2023 we were awarded our first ultra-high resolution windfarm site characterization project, sealing our entry into the next strategically important new energy market.
In 2022, we decided to set a path for net-zero CO2 emission in 2050. We are progressing well on our long-term goal for our offices and imaging activity. For our vessels, we will adhere to the current and future strict requirements set by regulatory bodies, and we aim to have reduced CO2 emissions from our fleet by 75% by 2050. I am confident that, with normal asset replacement, we can transition to a fleet that will meet our own challenging target and be compliant with stricter regulations in the future.
Increasing speed and penetration of digitalization is an important part of our business strategy. We have received external recognition for our achievements within digitalization. By year-end
2022 our Cloud enabled imaging platform, PGS Eos, was handling more than 80% of our imaging work, resulting in significantly lower cost than our previous in-house solution. Imaging in the Cloud provides unprecedented flexibility and scalability, while always having access to state-of-the-art hardware. In August 2022 we passed another digital transformation milestone when Shell signed a multi-year agreement for OnDemand access to a significant part of PGS' MultiClient data library. This agreement was made possible by Cloud-based solution architecture developed under the PGS Solis program. Our Cloud-based MultiClient data sales platform provides easier and faster access to MultiClient data for PGS clients. We also continue to develop digital solutions to contextualize data and improve our operational efficiency.
The improving seismic market and our relentless cost focus improved our cash flow generation. Our liquidity position was further strengthened by strong shareholder support in two private placements raising close to \$250 million of new equity. During 2022 we reduced our net interestbearing debt by approximately 35% and we are well positioned to refinance in 2023 to address our 2024 debt maturities.
Global investment in oil and gas exploration increased by more than 20% in 2022. We expect growth to continue in 2023 and subsequent years, based on feedback from clients and projections from research agencies. Combining this market recovery with our favorable position in the contract and MultiClient markets, along with the progress we are making within New Energy and digitalization makes me confident that we have some exciting years ahead of us. We plan to capitalize on these opportunities to strengthen profitability and deliver attractive returns to our shareholders.
Rune Olav Pedersen President & CEO
Significant contract price increase and margin expansion compared to 2021, with a large portion of contract vessel capacity utilized for production seismic (4D) operations
Second highest MultiClient late sales on record due to increased exploration spending and significant transfer fees
Successfully completed four carbon storage acquisition projects and established a strong position in the carbon storage geoservices market
Order book increased by 74% year-over-year and is at the highest level since Q3 2014
Awarded large Petrobras 4D contract and started rigging Ramform Victory to acquire the 4D survey, commencing mid-2023
Improved financial position by generating ~\$210 million of cash flow before financing activities and strong support from shareholders with ~\$250 million of new equity
Strong progress on digital transformation with more than 80% of imaging done in the Cloud, resulting in lower cost and improved flexibility and scalability compared to earlier solution with in-house computer capacity
Made significant progress in developing new MultiClient OnDemand business models and driving operational efficiencies from digital solutions
President & CEO
Rune joined PGS in October 2010 and became President and CEO in 2017. Previously, he combined the roles of PGS General Counsel and Head of Legal, with responsibility for communication, strategic customer relations, marketing, and corporate development. Prior to joining PGS, he served for four years as a partner in the law firm Arntzen de Besche, specializing in oil and gas, and before that worked as an attorney and associate in the same firm. He started his career as a junior research fellow at the University of Oslo and has served as a deputy judge at district court level, in Norway. He serves as a board member of the E&P company, OKEA. Rune has a law degree from the University of Oslo, a post-graduate diploma in European competition law from Kings College London, and an MBA from London Business School.
Executive Vice President & CFO
Gottfred joined PGS in November 2003 and was appointed Executive Vice President and Chief Financial Officer in January 2004. Before joining PGS he was Chief Financial Officer of the information technology company Ementor ASA from 2000 to 2003. Gottfred was Senior Vice President of Finance and Control at the offshore engineering and construction company Aker Maritime ASA from 1997 to 2000. He worked at Arthur Andersen Norway from 1991 to 1997. Gottfred was certified as a Norwegian state authorized public accountant in 1993 and holds a Master of Business Administration degree from the Norwegian School of Economics and Business Administration.
Executive Vice President, Sales & Services
Nathan joined PGS in 1993 and was appointed EVP Sales and Services in September 2020. He has served PGS globally in various locations, managing international teams in London, Houston, Singapore and KL, with regional responsibilities for Europe, West Africa, North and South America, and Asia Pacific, running a range of PGS activities from advanced imaging to MultiClient. Prior to joining PGS he worked at Digicon Geophysical. Nathan holds an MSc Geoscience from the University of Sheffield, and a BSc in Geology from Kingston University.
Executive Vice President, New Energy
Berit joined PGS in 2006 and assumed her current position in April 2021. She has served in various MultiClient sales management roles, including Vice President Geophysics Europe, Africa and Middle East, Vice President MultiClient Europe, Senior Vice President MultiClient, SVP Strategic Projects and SVP Eurasia. She was also an employeeelected member of the PGS Board of Directors in 2015 and 2016. Before joining PGS she held technical management positions with Geoteam AS and Veritas DGC Ltd. Prior to this, she spent 11 years with Norsk Hydro working within field development, exploration and geophysical operations. Berit holds an MSc Geophysics from the Norwegian University of Science and Technology (NTNU).
Executive Vice President, Operations
Rob joined PGS in 1998, becoming EVP Operations in January 2020. He has experience from all PGS business areas, including offshore, and has carried regional responsibility for projects and teams running acquisition and processing activities in Europe, Africa, and Asia Pacific. As SVP New Ventures (2018 – 2020) he was responsible for new MultiClient projects across all continents. Rob has been involved in framing PGS initiatives for reducing turnaround and future visioning. Rob holds a BSc in Geology and Geophysics from the University of Durham.
PGS began its digital transformation in 2019. First steps were to establish a digital transformation team responsible for overseeing and advising on the digital transformation processes, electing Google Cloud as its preferred Cloud provider and engaging with Cognite to initiate a project to reduce vessel operating cost and improve vessel efficiency. The Company identified a set of target areas and initiatives for digital transformation to enable change across the business, improve sustainability, reduce costs and increase efficiency, including:
A Cloud-based sales platform that enables new sales models and allow clients to collaborate on high-quality data and achieve faster decisions and subsurface insights.
Enabling faster processing and imaging of seismic data, using automated workflows and Cloud scalability and flexibility. This is enabled by always having access to the latest software and hardware technology in the Cloud, which can be exactly tailored to the requirements of the Imaging job and only when needed. Google Cloud is almost completely carbon neutral and continuously expanding in size and location.
This suite of digital solution uses available data to build more insights, analyze paterns and trends and utilizes machine learning and artificial intelligence to optimize costs, improve predictability and performance, reduce turnaround time, and reveal commercial opportunities.
MultiClient OnDemand Data management as a service (DMaaS) Flexible subscription models
The way in which energy companies consume data is changing and PGS has addressed this by making MultiClient data more accessible and usable, enabling greater collaboration and increased productivity. PGS MultiClient OnDemand unlocks real efficiency gains in the energy companies' workflows.
PGS Solis is a Cloud-based data delivery and access system that allows clients to view, sample and stream MultiClient data. PGS Solis enables new business models such as management of client data in the Cloud. In December 2021, a milestone was marked when PGS signed its first multiyear Data Management as a Service ("DMaaS") agreement with a major client. Under the agreement the client can store, manage and access subsurface data they have licensed from PGS in a Cloud-based data asset management solution. The DMaaS service seamlessly connects the end user to seismic data, with anytime access to stream and download entitled data into their work environments.
PGS Solis underpins Versal, a cross-industry collaboration that provides a unified ecosystem for accessing MultiClient seismic data from PGS, TGS, CGG and Schlumberger, thereby giving access to the vast majority of the world's MultiClient libraries via a single log-in.
In August 2022, Shell signed a multi-year agreement for OnDemand access to a significant part of PGS' MultiClient data library. This agreement was enabled by Cloud-based solution architecture, developed under the PGS Solis program. This enterprise access solution is the first of its kind in the industry and will improve exploration workflows for energy companies and accelerate their strategic decisions.
In 2023, PGS will continue to develop PGS Solis, capitalizing on experience gained from its own digital sales solutions and client feedback from Versal users. Ultimately, these initiatives will open new commercial models and opportunities, such as applying machine learnings and artificial intelligence at scale for deeper subsurface insights.
Scalable Cloud-native seismic imaging Managing infinite resources Faster when it counts
PGS started transitioning seismic data imaging to the Cloud in 2019 and successfully ran its first commercial processing job in the Cloud in 2020. Cloud compute offers access to almost unlimited virtual-CPU and storage capacity and the latest technology, allowing PGS to leverage flexible and cost-efficient compute capacity to image advanced seismic measurements, with reduced capital expenditures and no capacity bottlenecks. In 2022 PGS modified most of its compute intensive Imaging workflows to run in the Cloud, and by year-end the Company was running more than 80% of its imaging work in the Cloud at a significantly lower cost compared to on-premises compute. The scalability of Cloud Imaging was also demonstrated in 2022 by achieving a hypothetical 72.02 petaFLOPS capability, equivalent to the world's 7th largest computer. and more than 4x the peak from earlier on-premise capacity. The transition to imaging in the Cloud has provided PGS with unprecedented flexibility and scalability while always having access to state-ofthe-art hardware.
Standardize, analyze, automate Enabling change and improving sustainability Improving cost and efficiency
The PGS Digital Factory provides a crucial role in realizing many of the Company's strategic goals. A portfolio board governs the Digital Factory, ensuring its use-case development aligns with PGS strategy and delivers measurable value to the Company.
In its first two years, the Digital Factory has focused on improving vessel operations, by enabling analysis of contextualized data from across the PGS fleet. This has resulted in greater energy efficiency, optimization of vessel speed, preventive streamer and eBird maintenance, and improved HSEQ both in small-boat operations and use of personal protection equipment. The project has delivered measurable results that have been implemented across the fleet.
From the second half of 2021, the Digital Factory expanded its reach companywide, and initiated improvement projects in commercial and other functions. In 2022, the Digital Factory developed a software for improved MultiClient entitlement management and launched a tool for responding quicker and more accurately to contract bids. These initiatives demonstrate the Digital Factory's commitment to driving efficiency and innovation throughout PGS.
PGS established the New Energy business area early 2021 to diversify its product portfolio and build a substantial market presence in the provision of subsurface data for emerging markets related to the ongoing energy transition. In 2022, New Energy has established a solid position within the carbon storage geoservices acquisition market. Now New Energy is in the process of entering the offshore wind geoservices market.
PGS New Energy has identified carbon storage, offshore wind and marine minerals as markets where there is potential to build a profitable business, by leveraging PGS' existing expertise and assets.
There is a broad consensus that carbon storage will be essential to reduce global emissions of carbon dioxide from industrial processes and that there is an abundance of geological storage in the form of depleted oil and gas fields and saline aquifers. Reliable geophysical data is fundamental in the selection of safe and efficient sites for carbon storage, which must demonstrate three key attributes: capacity, containment and injectivity.
There is an increasing number of Carbon Capture and Storage ("CCS") projects under development where geophysical services are needed. In 2022 PGS successfully completed four CCS acquisition projects, Northern Lights CCS 4D baseline, Endurance CCS, Smeaheia CCS and Snøhvit 4D, of which parts relate to CCS. By completing four out of the five CCS acquisition projects done globally in 2022, PGS has established a solid position in the carbon storage geoservices market.
Judging by the carbon storage needs prognosed in many CCS market reports, there is a significant potential for a market for new seismic acquisition and subsequent repeat 4D monitoring within the carbon storage domain to reach the net zero target set by the United Nations. PGS aims to be a leading provider of subsurface data for carbon storage applications. To get there the Company will partner with the industry to help lowering technical risks of carbon storage developments through existing and new business models.
PGS has a comprehensive MultiClient data library, that can provide useful insights into geological properties over many prospective storage sites. The Company's GeoStreamer data combined with quantitative measures of reservoir quality can provide robust estimates of geological constraints and control on containment and injectivity. Reliable characterization of the overburden is required to ensure the distribution of geological faults in each area is well understood and does not present an undue containment risk.
The MultiClient data library will not cover all potential storage sites. Where new acquisition is required, PGS' modern broadband 3D GeoStreamer seismic data is especially well-suited to reliably determine subsurface properties, even in the absence of well-data. Seismic data, combined with PGS expertise in characterizing the subsurface can be used to minimize uncertainty and failure risk when selecting carbon storage sites. Once the storage site is selected PGS can supply integrated services to monitor carbon injection, storage and ensure containment over time.
In 2022, in addition to new acquisition, PGS made several MultiClient data sales for development of carbon storage projects.
One of the challenges for offshore wind is the growing geographical size of windfarm licenses and leases, which could increase the time and cost of wind energy development projects. Many of the new license areas will be close to (or are larger than) 1,000 square kilometers. At this scale, detailed seabed and shallow subsurface modeling will be required over areas comparable to those found in hydrocarbon exploration.
There is a growing need for ultra-high resolution 3D seismic data in pre-installation site surveys for offshore wind farms, where a detailed understanding of the properties of the upper 100 meters or so of the sub-surface is required to safely position and install wind turbines. Traditionally, site surveys for wind farms have been acquired using a grid of Ultra High Resolution ("UHR") 2D seismic lines, limiting severely the reliability of subsurface information to plan and profile the location.
Limitations of UHR2D are driving wind farm operators to consider UHR 3D seismic as an alternative. PGS now offers UHR 3D seismic acquisition, imaging, and interpretation following the purchase of NCS Subsea. PGS' P-Cable achieves UHR imaging of the subsurface by sampling the seismic wavefield at a high spatial and temporal rate.
In January 2023, PGS announced the award of its first ultra-high resolution windfarm site characterization project. The survey will cover two European windfarm sites, both of which are in a development phase. PGS will mobilize Sanco Swift for the project in early April 2023 and expects to complete acquisition towards the end of June. PGS believes its geophysical approach to understand the shallow subsurface layers has a proven market fit and is ready to be scaled to increase the Company's market share in the offshore wind segment.
The need for critical minerals from several industries and the energy sector is likely to grow significantly according to published reports. To get sufficient access to resources it will be important to extract marine minerals. PGS is participating in an industry consortium in Norway, under the research organization SINTEF, which is working to define best practices to characterize, quantify, and understand uncertainty for seabed mineral resource exploration. In 2022, PGS was a part of ATLAB3, the first marine minerals research project in the North Atlantic to include seismic data acquisition using GeoStreamer technology. ATLAB is the Atlantic Laboratory consortium of geophysical research data and originates from NTNU in Norway. Marine minerals constitute a potential new market for PGS; however, it will take time before it is commercially developed.
PGS is in a unique position as the only integrated marine seismic data acquisition and imaging company, offering a full range of towed streamer acquisition and imaging services through both the Contract and MultiClient business models. By controlling the fleet, the imaging process and R&D, PGS can tailor technology and commercial solutions to address client challenges.
MultiClient Contract New Energy Acquisition Fleet Imaging
Energy Security Hydrocarbon production Data acquisition Technology & digitalization
Energy Transition Carbon storage, wind and marine minerals MultiClient data library Geophysical expertise & imaging
19 PGS Annual Report 2022
The energy transition is driving energy companies towards focusing on producing fields and proven hydrocarbon basins. Demand for seismic services is increasingly aimed at nearfield exploration and 4D reservoir optimization to maximize returns on the energy companies' investments. Access to high-capacity vessels and differentiating technology are fundamental in the growing 4D reservoir and nearfield exploration market, a market which favors the contract business model. PGS has enjoyed a significant and growing presence in these markets. The PGS data library is strong in mature areas that are ideal for infrastructure lead exploration ("ILX"), while the Ramform acquisition platform and multisensor GeoStreamer technology are the preferred technology solution for 4D reservoir monitoring.
PGS established its New Energy business area early in 2021 with the ambition of building a substantial and recognized presence within the offshore renewables' segment related to the ongoing energy transition. PGS has identified carbon storage, offshore wind, and marine minerals as domains where the Company's assets, competence, technology, and capabilities align well with current global challenges. During 2022, PGS successfully completed four CCS acquisition projects out of the five contracts tendered in the world market, and thereby established a solid position in the carbon storage geo-services market. In addition, PGS secured one imaging contract for CCS and made several MultiClient data sales related to the development of CCS projects.
The benefits of PGS' integrated services offering go beyond improving the Company's position in the ongoing energy transition, by enabling flexible business models in more traditional markets. PGS has a portfolio of MultiClient acquisition agreements with host nations and can acquire data using either the MultiClient or the contract business model. As a result, PGS is involved in more client dialogues and can tailor solutions on commercial terms that benefits both clients and PGS. If a client requests proprietary data in an area where they have recently been awarded acreage, and PGS has a permit to acquire MultiClient data, acquisition can start early. This allows energy companies to spend more time analyzing the subsurface data, which generally results in better well-placement and improves their probability of success . PGS' access to MultiClient agreements in many countries has made it possible to accelerate our delivery of quality seismic in the time-critical exploration phase.
Commercial flexibility also allows for innovative acquisition arrangements. In mature areas, smaller contract jobs can be incorporated into larger regional MultiClient surveys. Benefits to the client include access to cost efficient data and the opportunity to license seismic beyond their block boundary to get a better regional understanding of the subsurface, while PGS benefits from economies of scale and secures pre-funding for its MultiClient survey.
Integration strengthens PGS' control of all aspects of the seismic acquisition and imaging processes. This positively impacts everything from the identification of new projects to building close client relationships, securing financial commitment and ensuring projects proceed according to plan and quality objectives.
PGS executes projects more efficiently, as there is less need to balance the commercial drivers of third parties and subcontractors. Playing in all acquisition and imaging markets enables PGS to build order book continuity for vessels more effectively through the cycles.
An integrated approach also enables PGS to parallelize the workflow , such as data acquisition and processing, thereby leveraging efficiencies that allow the Company to decrease the time required from planning to data delivery.
PGS is known for its unique technology. By targeting R&D expertise on marine acquisition and seismic imaging challenges, the Company improves the efficiency of in-house design, development, testing and implementation of new solutions and technologies.
Operating a homogenous seismic equipment solution based on GeoStreamer multi-sensor technology, on the industry's leading 3D seismic acquisition platform enables PGS to provide reliable and flexible solutions. Interchangeable capacity enables PGS to effectively manage timing and permit constraints, changes of project timing and almost any survey specification. PGS vessels and streamer technology deliver reliable, timely and consistent quality of services and data, which are highly valued by many clients.
PGS provides seismic data that describes the geology beneath the ocean floor, which energy companies rely on to find oil and gas reserves and CCS storage sites worldwide. PGS' main products and services include:
MULTICLIENT DATA LIBRARY
GEOSCIENCE DATA INTEGRATION AND ANALYSIS
Contract work is seismic data acquisition under exclusive contracts directly with clients, where the client owns the acquired data. PGS delivers fast and efficient acquisition of high-quality seismic data with safe and environmentally sound operations.
Production seismic, or 4D, is a growing segment of the seismic contract market that enables energy companies to optimize resource extraction from producing fields. Operational precision, data resolution and survey repeatability are essential, and are areas where PGS excels. The value of using 4D seismic is increasingly acknowledged outside of the traditional areas of the North Sea, Brazil, and Angola. High-resolution 3D surveys are repeated at regular intervals during a producing field's life cycle, and those first acquired with GeoStreamer multi-sensor technology are generally repeated with multi-sensor. Production seismic and nearfield exploration deliver short cycle return on investment and these markets tend to be more resilient than pure exploration projects. The ongoing energy transition drives seismic demand towards infrastructure lead exploration and production as the energy companies extract more value from producing fields and existing portfolio acreage.
In addition to PGS traditional business, the Company completed several 4D baseline surveys for development of CCS projects in 2022. Carbon storage plays a significant role in all net zero scenarios and identification, characterization and monitoring of carbon storage sites could constitute a significant new seismic acquisition market.
MultiClient data is acquired, imaged, and owned by PGS and host governments. Energy companies purchase a license from PGS to use specific data, and a single survey is typically licensed to multiple energy companies. To build and maintain the MultiClient data library, PGS makes significant investments in developing, acquiring, and imaging new surveys. By continuously investing in the MultiClient data library the Company expands its footprint in proven hydrocarbon basins and selected emerging basin areas.
The ability to identify and initiate new MultiClient programs with solid economics over the life of the data library asset is a key success criterion for the MultiClient business model. PGS de-risks new programs by securing pre-funding commitments from energy companies, with a targeted prefunding level for the combined portfolio in the range of 80-120% of the capitalized MultiClient cash investment. In 2022, the pre-funding level ended at 124% and it is expected to be at the top end of the targeted interval in 2023.
The MultiClient business is about having the right data, in the right place, at the right time. PGS initiates attractive new MultiClient projects by capitalizing on its existing data library, in combination with applying in-house imaging and reservoir expertise, and feedback from clients regarding exploration and production areas of interest. The PGS MultiClient data library provides information about the geology in all the world's major hydrocarbon basins. By analyzing these data, including available public or 'open file' data, PGS imaging and reservoir experts can propose extensions to the existing library and new areas of hydrocarbon resource potential that have a high likelihood of being of interest to energy companies. These findings are assessed against feedback from clients on their assessment of hydrocarbon potential and where they need more seismic data to support their exploration and production activity.
The information is combined with an overall risk analysis of the area, such as geological prospectivity, geophysical imaging challenges, political risks, past performance of surveys in the region, and the likelihood of future license rounds or other sales trigger events to ensure the business model is robust.
In addition to serving clients, PGS also plays a role in supporting governments in exploring and promoting their resource potential. A key part of the MultiClient business involves providing highquality data and tailored advice to help optimize offshore hydrocarbon opportunities in each unique country and basin.
PGS has a modern and diverse global MultiClient data library focused in largely mature areas of high oil and gas prospectivity. By accessing PGS' data library, clients can evaluate hydrocarbon potential faster, compared to acquiring and processing a new seismic survey on a proprietary basis. The rapid access to high-quality seismic data enables energy companies to assess the subsurface risks before applying for acreage in licensing rounds, guides exploration efforts, and evaluations of farm-in opportunities.
License rounds serve as important sales triggers for the PGS MultiClient data library and guide longterm investment decisions for new MultiClient data
acquisition. The geographical diversity and strategic positioning of PGS global MultiClient library enables the Company to benefit from license rounds around the globe. However, other conduits to acreage access have been on the rise over the last years, including shorter time frame mini-licensing rounds, direct acreage promotions, permanent offerings while some countries have open door licensing rounds.
A large MultiClient library with continuous coverage has obvious benefits. Geology is broad scale in nature, and it is difficult to understand and predict the characteristics of a local area if it is not set in context of the larger geological system. By reimaging existing data in the MultiClient library using the latest geophysical techniques, PGS creates regional data sets that make it possible to interpret and analyze entire basins in a consistent manner. Santos Vision in Brazil, Flex Vision in the Gulf of Mexico and GeoStreamer PURE in Norway, are three examples of re-imaged regional-scale subsurface data sets. PGS also employs geological expertise, which is used to plan and market MultiClient projects and advise governments how to maximize the value of their subsurface acreage, from licensing and exploration through to appraisal, development and production, and now also carbon storage.
The PGS MultiClient 3D data library is strongly oriented towards 3D, with a total 3D footprint that consists of more than 1,140,000 square kilometers ("sq. km") of seismic data. This vast library is composed of several hundred individual 3D surveys, that fall into one or more of the following categories: GeoStreamer 3D data acquired using multi-sensor technology (589,000 sq. km), conventional 3D (331,000 sq. km), and surveys that have been combined and reprocessed which include Vision 3D (129,000 sq. km), and MegaSurveyPlus (95,000 sq. km).
In addition to its 3D data, the MultiClient 2D library of PGS is comprised of approximately 562,000 line kilometers, with 70% of it being GeoStreamer data. Furthermore, the Company has more than 900,000 sq. km of MegaSurvey, which is produced by integrating available public data with its own 3D data to create large-scale regionally geologically continuous 3D datasets. These resources allow PGS to provide clients with a comprehensive and highquality data library to support their exploration and production efforts.
PGS GeoStreamer MultiClient data can be used to minimize uncertainty and failure risk when selecting CO2 storage sites. I addition to acquiring new seismic data for development of CCS projects, PGS has made several MultiClient sales for the same purpose.
PGS operates a core fleet of Ramform vessels, comprising four Ramform Titan-class vessels, one Ramform S-class vessel and one Ramform V-class vessel. Responding to burgeoning demand, the Company plans to introduce an additional Ramform V-class vessel in the second half of 2023 to acquire a large 4D production contract in Brazil. However, it is not finally decided if the vessel will remain in production after completion of the project.
Ramform vessels with their distinct delta-shaped hulls and unique wide back decks, offer safe and highly efficient seismic acquisition. The breadth of the Ramform back decks, ranging from 40 meters on the Ramform S-class and the V-class, to 70 meters on the Ramform Titan-class, provides unparalleled streamer handling capabilities and stability. The PGS fleet delivers industry leading performance in deployment, acquisition, and streamer recovery.
PGS leads the industry in HSEQ performance and aims to sustain and improve this, with a culture based on operational excellence and safety. In 2022, PGS won a safety performance improvement award by the leading independent research and advisory firm Verdantix. The award recognizes PGS' HSEQ Categorizer – a digital tool which proactively identifies potential incidents. The digital solution makes PGS more responsive, and the Company can visually demonstrate its safety commitment to clients.
PGS launched GeoStreamer in 2007 and all vessels in the fleet are equipped with this multi-sensor streamer technology. Benefits of the technology include subsurface images of greater resolution,
accuracy, and reliability. The streamer is towed deep, increasing the low-frequency signal content and its multi-sensor recording allows the accurate removal of unwanted noise that interferes with the seismic signal. The Company is evolving the technology to increase durability, while maintaining data quality. The useful life of the streamer has been increased from seven years, for the earlier design, to more than ten years for the latest version.
In 2019, PGS launched GeoStreamer X, which capitalizes on the GeoStreamer technology with an innovative acquisition configuration. Adding new azimuths to existing data offers a highly cost-efficient alternative to improve illumination and subsurface understanding versus ocean bottom node systems.
PGS runs several of its key imaging algorithms fully in the Cloud, which offers scalability, flexibility and access to almost unlimited compute capacity. By the end of 2022 more than 80% of the Company's imaging work was conducted efficiently in the Cloud. All PGS imaging centers globally now use Cloud-compute.
PGS uses state-of-the-art imaging technology and innovative workflows to image data in contract model exclusively for energy companies and for the PGS MultiClient data library. In addition to imaging new surveys, these centers also rejuvenate existing MultiClient data. Imaging services comprise 3D imaging, reservoir characterization, 4D processing solutions, and advanced imaging of ocean bottom node data.
PGS' modern, broadband 3D GeoStreamer seismic data is especially well-suited to reliably determine subsurface properties, even in the absence of well-data. PGS' highly experienced geoscientists use seismic data to help clients maximize the value of their subsurface assets, ranging from licensing and exploration through to appraisal development, production and carbon reinjection.
The PGS MultiClient data library contains advanced images of the subsurface that energy companies use to explore for hydrocarbons. Better data enables more effective exploration and increases the chances of success.
The library focuses on areas of high prospectivity, where clients have good potential for accessing acreage. A range of commercial models for data licensing is available, designed to suit the exploration objectives and ambitions of any oil company.
52% GeoStreamer
PGS MultiClient 3D
Has a total 3D footprint of more than 1 140 000 sq. km. of which the premium GeoStreamer data comprises approximately 52%
70% GeoStreamer
PGS MultiClient 2D
Comprising approximately 562 000 line kilometers, of which 70% is GeoStreamer 2D data.
PGS has a unique advantage in being the only seismic operator to use vessels of the Ramform design. The ability to tow large, dense streamer spreads, as well as rapid streamer deployment and retrieval, are critical factors for high productivity. The capability to complete large surveys in short time spans is a significant PGS advantage.
*Per million man-hours
The PGS share is listed the Oslo Stock Exchange in Norway. As of year-end 2022, close to 50% of the Company was owned by Norwegian investors, while US and UK based investors owned 20% and 17% respectively. The rest was owned by investors mainly located in other Western European countries.
As of December 31, 2022, PGS had 909,549,714 shares outstanding. During 2022, the number of outstanding shares increased by 483,622,019 shares following two equity raises for gross proceeds of NOK 2,477.2 million and conversion of the convertible bond issued in 2021 at a remaining nominal amount of NOK 75.8 million. Each share has a par value of NOK 3. The ticker code for PGS at the Oslo Stock Exchange is "PGS" and the shares are denominated in Norwegian kroner ("NOK"). On average more than 15 million PGS shares were traded daily on the Oslo Stock Exchange in 2022.
PGS earlier had an American Depositary Receipt ("ADR") trading in the US. Due to low trading volumes the Company decided to terminate the ADR program with effect May 5, 2022.
PGS had 13,941 shareholders on record as of December 31, 2022, according to the Norwegian Central Securities Depository ("VPS"). As of December 31, 2022, Coltrane Asset Management was the largest PGS shareholder, owning 147.7 million shares or 16.2% of the Company. In January 2023 Coltrane Asset Management announced they had reduced their ownership to below 15%. As of year-end 2022, PGS held 275,086 of its own shares.
All Company information considered material to the capital markets is published via the Oslo Stock Exchange's news service:
www.newsweb.no and posted on the Company's website. PGS holds public presentations in connection with quarterly earnings releases, and management has a frequent dialog with investors and participates at investor conferences.
As of December 31, 2022, there were 10 sell-side analysts with research coverage of PGS.
An updated list of analyst coverage is published on the Company's website www.pgs.com.
PGS' 2023 Annual General Meeting is scheduled for April 26, 2023. Each PGS share is entitled to one vote. Shareholders who wish to attend the Annual General Meeting are requested to pre-register via the Company's registrar. The registrar's contact information follows:
DNB Bank ASA Registrar Services PO Box 1600 Sentrum NO-0021 Oslo, Norway Phone: +47 23 26 80 20 Email: [email protected]
As of December 31, 2022 Moody's has a 'Caa1' corporate rating on PGS with Positive Outlook, and S&P has a CCC+ corporate rating with a Stable Outlook.
| December 31, 2022 | ||
|---|---|---|
| Total shares | Ownership percent | |
| Coltrane Asset Management, L.P. | 147 725 792 | 16.2 |
| DNB Asset Management AS | 55 229 324 | 6.1 |
| Interactive Brokers, L.L.C. | 40 694 043 | 4.5 |
| M & G Investment Management Ltd. | 36 642 894 | 4.0 |
| UBS AG London | 29 808 558 | 3.3 |
| MH Capital AS | 25 871 562 | 2.8 |
| BofA Global Research (UK) | 16 714 543 | 1.8 |
| Dimensional Fund Advisors, L.P. | 16 454 694 | 1.8 |
| Vicama Capital AS | 12 845 121 | 1.4 |
| Nordnet Livsforsikring AS | 11 011 230 | 1.2 |
| FIRST Fondene NCP | 10 850 000 | 1.2 |
| VICAMA AS | 10 000 000 | 1.1 |
| Morgan Stanley & Co. International Plc | 9 536 064 | 1.0 |
| Dinosaur Merchant Bank, Ltd. | 9 500 000 | 1.0 |
| BA5 Invest AS | 9 360 796 | 1.0 |
| Langebru AS | 8 500 000 | 0.9 |
| Oppenheimer & Co. Inc. | 6 000 000 | 0.7 |
| J.P. Morgan Securities plc | 5 569 439 | 0.6 |
| Acadian Asset Management LLC | 5 531 519 | 0.6 |
| Crèdit Andorrà Asset Management | 5 242 443 | 0.6 |
| Other | 436 461 692 | 48.2 |
| Total | 909 549 714 | 100.0 |
*The data is provided by Nasdaq IR Insight and is obtained through an analysis of beneficial ownership and fund manager information provided in replies to disclosure of ownership notices issued to all custodians in relation to the PGS share register provided by the Norwegian Central Securities Depository (VPS). Every reasonable effort has been made to verify the data, however neither PGS nor Nasdaq IR Insight can guarantee the accuracy of the analysis.
Benefitted from improving seismic market and increased revenues and cash flow. Secured close to \$250 million of new equity and improved the liquidity reserve significantly. Strong progress within New Energy and the Company's digital transformation process.
The Covid-19 pandemic had a severe negative impact on the seismic industry and PGS reduced cost and capital expenditures significantly as a response. Rejected a non-binding bid from TGS to acquire PGS MultiClient data library.
Sold OptoSeis to GeoSpace as a part of the strategy to divest non-core assets.
Ramform Tethys was delivered, improving fleet capabilities further with excellent operational performance.
Ramform Atlas, the second Ramform Titan-class vessel, was delivered. 2013
PGS exercised options to build another two Ramform Titan-class vessels and launched Separated Wavefield Imaging ("SWIM").
Established New Energy to leverage PGS expertise and assets, to assess market needs and develop business opportunities in the evolving energy transition. Celebrated 30 years anniversary.
Sold the Ramform Sterling to JOGMEC in Japan and entered into a related service agreement of up to 10 years with annual renewals. Changed name from Petroleum Geo-Services ASA to PGS ASA.
Took delivery of Ramform Hyperion. Launched initiative to centralize, simplify and streamline the organization.
In an uncertain market environment PGS focused on cash flow and increased its liquidity reserve.
PGS took delivery of the Ramform Titan, the first vessel in a series of 2012 four Ramform Titan-class ships.
Following sale of its Onshore business, PGS emerged as a focused marine geophysical company. PGS was reorganized into global product lines. PGS Apollo joined the fleet.
PGS took delivery of the Ramform Sovereign and the vessel sets new industry record with deployment of 17 streamers.
PGS demerged its floating production by listing and distributing to shareholders the company Petrojarl ASA. PGS announces plan to build two Ramform S-class vessels.
PGS sold Atlantis to Sinochem. An inability to meet debt obligations made PGS file for Chapter 11 under the US Bankruptcy code in July. PGS emerged from Chapter 11 in November the same year. 2002
The Company's data management business was sold to Landmark Graphics Corporation. Ramform Victory tows the world's first 16 streamer spread. 2000
PGS orders two new Ramform Titan-class vessels from Mitsubishi Heavy Industries Shipbuilding Co Ltd. In Japan, with options for additionally two vessels.
PGS took delivery of the Ramform Sterling.
PGS introduced the GeoStreamer, the first ever dual sensor streamer. The Company sells Ramform Victory to the Japanese Ministry of Economy Trade and Industry ("METI"). PGS acquired Arrow Seismic, Multi Transient Electro Magnetics ("MTEM") and Applied Geophysical Services ("AGS"). The first dividend in PGS history was paid.
Pertra was sold to Talisman, and PGS became a dedicated oil services company. In December the same year a full refinancing of the Company was completed.
PGS bought into in the Varg field in the North Sea from Norsk Hydro and Statoil and established the exploration and production company Pertra.
PGS sold its subsidiary Spinnaker Exploration.
A fourth FPSO, the Petrojarl Varg, was bought from Saga Petroleum.
PGS was listed on the New York Stock Exchange. PGS Production is conceived with the acquisition of Golar-Nor and the FPSOs Petrojarl I and Petrojarl Foinaven
Acquisition of ERC – a reservoir consultancy group.
PGS was incorporated as a public limited liability company, Petroleum Geo-Services ASA, and listed on Oslo Stock Exchange.
The production services business Atlantic Power was acquired. PGS added the Ramform Banff to the fleet of FPSO vessels.
Ramform seismic vessel technology was introduced with delivery of the Ramform Explorer. From 1995 to 1999, PGS designed, built, and deployed six proprietary Ramform survey vessels and grew to become a worldwide leader in the development and industrialization of 3D marine seismic acquisition.
Initial public offering on NASDAQ in the United States. With the acquisition of Tensor Inc., specialists in 3D processing and depth imaging, PGS' expanded into the data processing field.
Geoteam and Precision Seismic merge to form Petroleum Geo-Services ("PGS"). Later the Company merged with Nopec. PGS' vision was to provide the most efficient acquisition of 3D marine seismic data.
PGS ASA and its subsidiaries ("PGS" or the "Company") is committed to maintaining high standards of corporate governance. We believe that effective corporate governance is essential to our Company's success and establishes the framework by which we conduct ourselves in creating value for our shareholders and delivering services to our customers.
PGS ASA is registered in Norway as a public limited liability company, and our corporate governance model is based on Norwegian corporate law, the Oslo Stock Exchange's Issuer Rules (available on www.euronext. com/nb/markets/oslo), and the Norwegian Code of Practice for Corporate Governance (available on www.nues.com the "NUES Recommendations"). Our governance model is suited to our Company and the industry in which we operate.
Our corporate governance principles have been adopted by our Board and are summarized below. Our website provides full versions of our basic corporate governance documents and an overview of our governance structure. These items include the Company's Articles of Association, the Board' Rules of Procedure, and the charters for the Company's Audit Committee, Remuneration and Corporate Governance Committee ("Remco"), and Nomination Committee. The documents can be downloaded from www.pgs.com.
We have adopted a Code of Conduct that reflects our commitment to our shareholders, clients, employees, and other stakeholders to carry out our business with the utmost integrity. The Code of Conduct outlines both what stakeholders can expect from PGS, and what PGS expects from our employees and anyone working for PGS. PGS and its employees are also guided by our Core Values and Leadership Principles that drive desired behavior and culture. Our Code of Conduct, Core Values and Leadership Principles are available in full on www.pgs.com. During 2022, we revised slightly our recently adopted Code of Conduct and we have updated our Mission & Vision statements to reflect our commitment to energy security and sustainability.
PGS is committed to the ten principles of the United Nations Global Compact in the areas of human rights, labor, environment, and anti-corruption. The Board and the CEO actively ensure that the Company properly responds to sustainability challenges. To identify and assess actual and potential sustainability risks and opportunities for PGS, the Board and the CEO are actively involved in the Company's assessment of material topics and the development of our strategic objectives and goals to manage them.
To identify and report on risks and opportunities associated with climate change and the energy transition PGS uses the frameworks developed by the Carbon Disclosure Project ("CDP") and the Task Force on Climate Related Disclosures ("TCFD").
Since 2011, PGS has published a separate sustainability report, which communicates the Company's progress in alignment with the recommendations of the Global Reporting Initiative ("GRI"). Further in 2022 we have continued aligning our reporting with the Corporate Sustainability Reporting Directive ("CSRD"). PGS has also submitted annual disclosures to the CDP since 2010. PGS has an ambition to promote the UN Sustainable Development Goals ("SDGs") through concrete actions and goals that are relevant for the Company's activities and global presence. From the materiality assessment PGS has identified six of the 17 SDGs where the Company contributes. These identified goals are number 04 Quality Education, 07 Affordable and clean energy, 09 Industry, Innovation and Infrastructure, 13 Climate Action, 14 Life Below Water and 16 Peace Justice and Strong Institutions.
PGS recognizes the impacts of climate change and the need for a managed transition to sustainable energy sources to avoid the most severe consequences for the environment, society, the economy, and our business. The Company has committed to reaching net-zero emissions
of greenhouse gases in 2050 with a 75 % reduction in emissions from maritime operations and use of 100 % renewable energy in offices and data processing.
A more detailed account of how PGS manages sustainability risks and opportunities can be found in our annual sustainability report and other ESG documents available at www.pgs.com.
PGS is a fully integrated marine geophysical company that provides a broad range of seismic and reservoir services, including data acquisition, imaging, interpretation, and field evaluation. Our services are provided to the oil and gas industry, as well as to the broader and emerging new energy industries, including offshore wind-, carbon capture and storage-, and marine mineral industries. The Company operates on a worldwide basis with headquarters in Oslo, Norway.
Our business purpose, as presented in the Company's Articles of Association, is as follows: "The business of the Company is to provide services to and participate and invest in energy related businesses."
Our business operations and product portfolio are presented in greater detail in the Annual Report.
The shareholders' equity as of December 31, 2022 was \$510.3 million, corresponding to 26% of total assets.
Early 2021, the Company successfully completed a re-negotiation of amortization and maturity profiles for its main credit facilities. The negotiated result was completed by a UK Scheme of Arrangement (the "Scheme") sanctioned by an English court and having the support of almost all the Company's lenders. A convertible loan of NOK 116,162,097 (approximately \$13 million) was issued in relation to the above transaction. The last part of the convertible loan was converted to new shares during 2022.
In May 2022, the Company completed a private placement raising approximately \$85 million in equity and completed in July 2022 a subsequent offering raising an additional \$14 million. Later in November 2022, the Company completed an additional private placement raising approximately \$150 million in equity.
The Company realized a cash flow before financing of \$209.5 million in 2022 (compared to \$154.7 million in 2021). As a result of the improved cash flow and the
above transactions, the Company achieved a reduction of its net interest-bearing debt by \$319.7 million or approximately 35%. Net interest-bearing debt, excluding lease liabilities, was \$616.7 million as of December 31, 2022.
Considering experience from the previous downcycle and with a view that the Company's markets will continue to be cyclical in the future, the Company has adopted a strategic target to over time reduce net interest-bearing debt to a level not exceeding \$500 to \$600 million, assuming the current size and composition of business activities. With the substantial debt reduction in 2022, the net interest-bearing debt has moved closer to the targeted level. As the Company's debt level is still somewhat higher than what the Board sees as beneficial for stakeholders over time, priority will still be given to debt reduction. However, the substantial debt reduction will enable the Company to again start focusing on business growth opportunities and/or future dividend payments.
The proceeds from the capital raised during 2022 has positioned PGS to manage 2023 debt amortization and extend the re-financing window to March 2024. A strengthened balance sheet, together with the ongoing market recovery in the marine geophysics market, have reduced the refinancing risk and the expected cost of refinancing the term loan B debt maturing in 2024.
The Board continually monitors the adequacy of the Company's capital structure in light of its objectives, strategy, risk profile and outlook.
The alternative performance measure "net interestbearing debt" as used above, excludes lease liabilities recognized in accordance with IFRS 16 and is further defined in the Annual Report.
The Board has adopted a dividend policy whereby it is the intention to distribute 25 to 50 percent of annual net income as dividends over time. The Board has no general authorization to distribute dividends. Each year's dividend is decided by the AGM after a proposal from the Board.
The Company has not distributed dividends in recent years due to a weak market, operating losses and a need to maintain an adequate liquidity reserve. Going forward, the Company's capacity to pay dividends will be assessed by the Board in light of, among other things, the market outlook and the Company's equity and funding positions. Since the Company currently has net interest-bearing debt which is above the targeted level, priority is given
to debt reduction before resuming dividend payments. In addition, the Company is restricted in its main credit facility from proposing a dividend for 2022 and these agreements require certain conditions to be fulfilled before the Company may propose a dividend payment.
The Board is authorized to buy back up to 10 percent of the Company's share capital (treasury shares). The current authorization expires on June 30, 2023. However, a new authorization will, in line with past practice, be proposed at the next AGM. Purchase of treasury shares are subject to restrictions in the Company's main credit facility identical to those applicable for distribution of dividends.
It has been an ongoing practice of PGS shareholders to grant authorizations to the Board permitting it to increase the Company's share capital or issue convertible loans for up to 10 percent of the Company's share capital for certain defined purposes. Per December 31, 2022, the authorization given in 2022 remains unused. A new authorization in line with past practice will be proposed at the next AGM.
Separate General Meeting votes are held for (a) authorizations to increase the share capital for certain business purposes, (b) authorization to issue convertible loans and (c) authorization to acquire treasury shares. When a proposed resolution encompasses share capital increases and/or the issuance of convertible loans and/ or acquisition of treasury shares for various purposes, the Company does not find it practical to hold separate votes on each element of the proposals. This is a deviation from the NUES Recommendation No. 3 where it is recommended that when the General Meeting is to consider mandates to the Board for the issue of shares for different purposes and each mandate should be considered separately by the shareholders.
PGS has a single share class, and all shares carry the same rights. At our General Meetings, each share carries one vote. Our Board is committed to equal treatment of shareholders in all respects.
When applicable, transactions involving the Company's own shares are carried out through a stock exchange, or at prevailing stock-exchange prices if carried out in an alternative manner.
Transactions between the Company on the one hand, and shareholders, a shareholder's parent company,
members of the Board, executive officers, or closely related parties of any such party (referred to as "Closely Related Parties") on the other hand shall be conducted at arm's length distance and at market terms. Material transactions between the Company and Closely Related Parties will be subject to independent valuation by third parties.
According to PGS' Code of Conduct, our employees shall not have any personal or financial interest that might conflict with those of PGS nor influence or appear to influence judgments or actions in carrying out their responsibilities on behalf of the Company. According to the Board's Rules of Procedure, a member of our Board may not participate in discussions or decision-making as to issues in which the Director or any of its Closely Related Parties have a material personal or financial interest. The Code of Conduct and Rules of Procedure are available on www.pgs.com.
The Company's shares are freely transferable and there are no restrictions imposed by the Company on ownership of or voting for shares.
The Company de-listed from the New York Stock Exchange in 2007 and subsequently issued and offered for trade share instruments being American Depositary Shares ("ADS"). As there have been low ADS trading volumes during recent years, the Company decided in 2021 to terminate the ADS program with effect from November 5, 2021. ADS holders were required to surrender their ADS for delivery of underlying PGS shares by May 5, 2022.
Through participation in General Meetings, our shareholders exercise ultimate authority over the Company and, with exception of the employee elected Directors, elect the members of its Board and the chairperson of the Board.
Pursuant to the Company's Articles of Association, the notice of an AGM is distributed at least four weeks in advance of the meeting to shareholders. A copy of the calling notice with appendices will be posted on www. pgs.com.
Notices convening Extraordinary General Meetings ("EGM") must be distributed at least three weeks ahead of the meeting. The Board is to call shareholders to an EGM upon a written demand by the Company's
independent auditor or shareholders representing at least five percent of the share capital, or for other purposes.
Shareholders who wish to attend a General Meeting must notify the Company's registrar or PGS by the deadline stated in the meeting notice, which must be at least two working days before the General Meeting.
According to the Company's Articles of Association, documents to be considered at the General Meeting may be published on our website. The same applies to documents that, due to statutory requirements must be attached to, or included in the notice calling the General Meeting. If the documents are published in such a manner, the statutory requirements for distribution shall not apply. Nevertheless, shareholders are entitled to request that documents to be considered by the General Meeting are sent to them via regular mail.
To vote at General Meetings, in person or by proxy, a shareholder must be registered with the Norwegian Central Securities Depository ("VPS").
An owner with shares registered through a custodian has voting rights equivalent to the number of shares covered by the custodial arrangement, provided that the owner of the shares, within two working days ahead of the General Meeting, provides PGS with his or her name and address together with written confirmation from the custodian to the effect that he or she is the beneficial owner of the shares held in custody.
Written and/or electronic voting in accordance with the Norwegian Public Limited Liability Companies Act, cf. sections 5-8 to 5-8b, shall be allowed for meetings where such method of voting is arranged by the Board. The Company will for the 2023 AGM call for a virtual meeting and will arrange for electronic voting.
Generally, all Directors normally attend the AGM together with the chairperson of the Nomination Committee and the auditor. In accordance with the Company's Articles of Association, the chairperson of the Board chairs General Meetings. This is a deviation from the NUES Recommendation No. 6 for making arrangements to ensure an independent chairperson for the General Meetings. The reason for this deviation is that the Company has found this more practical and that PGS wishes to ensure that General Meetings are chaired by a competent person having proper insight into PGS' overall operations.
In line with our Articles of Association, the Company has currently a Nomination Committee comprised of three members to be elected by our shareholders at the AGM. The majority of Nomination Committee members shall qualify as independent parties, pursuant to the NUES Recommendations. The term of service shall be two years unless the General Meeting determines that the period shall be shorter.
The Nomination Committee's main responsibilities, which are set out in the Nomination Committee Mandate and Charter, are to propose nominees for election as members and chairperson of the Board and the Nomination Committee. Further, the Nomination Committee proposes remuneration to be paid to members of the Board and its committees and Nomination Committee. The remuneration is approved by the General Meeting. Annually, the Nomination Committee produces a written report containing its nominations and proposals, which is distributed in advance of each AGM.
Once a year, the Nomination Committee meets with each Director individually and discusses how the Board and its committees' function and whether there is a need for changes to the Board. The Nomination Committee also keeps contact with shareholders and the Company's President & CEO ("CEO") as part of its work.
As of December 31, 2022, the Nomination Committee comprises Terje Valebjørg (chairperson), Alex Herger and Jon Arnt Jacobsen. Mr. Valebjørg was a first time electee on the 2016 AGM as a member, Ms. Herger was a first time electee as member at the 2019 AGM, whereas Mr. Jacobsen was a first time electee on the 2022 AGM. Mr. Valebjørg and Ms. Herger were both re-elected at the 2022 AGM, and all three were elected for a service period ending with the 2023 AGM. The current Nomination Committee members are presented in more detail at www.pgs.com. The Nomination Committee proposed for approval at the 2023 AGM is presented in detail in Appendix II to the 2023 AGM Calling Notice.
Shareholders who wish to propose new Board members or new members of the Nomination Committee may do so by submitting a candidate's name to PGS' investor relations staff via www.pgs.com by following the link, "Nominate a Board Member." The deadline for submissions each year is January 31. Alternatively, candidates can be proposed by letter to PGS attn. General Counsel or via email to [email protected]. PGS does not employ any Nomination Committee members, none is a
member of the Board and all proposed members of the Nomination Committee are considered to be independent from the Board and the management of the Company.
In 2022, the Nomination Committee held six physical and virtual meetings. The Nomination Committee's report on its work and recommendations is set out in Appendix III to the 2023 AGM Calling Notice.
According to the Company's Articles of Association, our Board shall have from three to thirteen Directors. The period of service for shareholder elected Board members shall be one year, whereas the period for the employee elected Board members is two years. The Board has adopted its own Rules of Procedure that establish in more detail its roles and responsibilities, including:
The composition of the Board is a reflection of the Company's commitment to protect the common interests of all shareholders and the Company's need for expertise, capacity and diversity.
As of December 31, 2022, the Board comprised seven shareholder-elected and three employee-elected Directors. The current shareholder-elected Directors are Walter Qvam (chairperson), Anne Grethe Dalane, Richard Herbert, Marianne Kah, Trond Brandsrud, Ebrahim Attarzadeh and Shona Grant, whilst the current employee-elected Directors are Anette Valbø, Gunhild Myhr and Eivind Vesterås. The current Directors are presented in more detail at www.pgs.com and in the Annual Report. Any adjustments to the Board proposed for approval at the 2023 AGM are presented in detail in Appendix II to the 2023 AGM Calling Notice.
As of December 31, 2022, all shareholder-elected Directors are independent of the Company's management, its major business relations, and major shareholders. No shareholder elected Director may be an executive of PGS and is not permitted to perform paid consultancy work for PGS. As of December 31, 2022, all
shareholder-elected Directors, directly or indirectly, own PGS shares.
Shareholders and other interested parties may communicate directly with our shareholder-elected Directors by written correspondence addressed to PGS ASA, Board (shareholder-elected members), Secretary of the Board or to the Company's General Counsel Lars Ragnar van der Bijl Mysen, PO Box 251, NO-0216 Oslo, Norway. Further, the Company has on www.pgs.com posted an invitation to shareholders for discussing corporate governance or corporate responsibility matters by contacting Mr. Mysen by phone or arranging a meeting with him.
In accordance with Norwegian corporate law, our Board has overall responsibility for management of the Company, while the CEO is responsible for day-to-day management.
The Board provides oversight of the CEO's day-to-day management and company activities in general. The Board is also responsible for ensuring that appropriate management, guidelines, and control systems are in place and are followed. In cooperation with the CEO, the Board also develops clear goals, strategies and risk profile for the Company such that it generates value for its shareholders in a sustainable manner taking economic, social and environmental, aspects into consideration.
The CEO, as agreed with the chairperson of the Board, annually submits a schedule of the meetings of the Board of Directors in the upcoming calendar year. The schedule is subject to Board approval. In 2022, the Board held fourteen physical and virtual meetings. During 2022, all the shareholder-elected Directors participated in all prescheduled board meetings, save that three Directors each missed one prescheduled meeting due to unforeseen circumstances.
Key elements of the Rules of Procedure cover the Board's responsibilities to determine the Company's financial targets, set strategy along with the CEO and executive committees, and approve business plans, budgets, and budgetary and risk frameworks. The Board reviews at least annually the objectives, strategy and risk profile for the Company. In its supervision of the Company's business activities, the Board will seek to ensure that satisfactory procedures are in place for monitoring and follow-up of Board-approved corporate principles and guidelines covering areas such as ethical conduct;
adherence to laws, rules, and regulations; health, safety and environment; and corporate responsibility.
The Rules of Procedure also require an annual selfevaluation to determine whether the Board and its committees are functioning effectively. The annual self-evaluation is prepared and facilitated by the Remco. An anonymous survey is carried out and the findings are discussed by the Board. The survey's findings are made available to the Nomination Committee. The Chairperson of the Nomination Committee also shares with the Board relevant information for improvement of Board processes that may come up in their annual interviews with individual Directors.
Each scheduled Board meeting includes a separate session at which issues may be discussed without the presence of the Company's management.
The tasks and duties of the CEO vis-à-vis the Company's Board are also outlined in the Rules of Procedure, along with the tasks and duties of the chairperson of the Board. The CEO participates in all board meetings other than closed sessions. The Board elects a vice chairperson to chair board meetings in the chairperson's absence. The full text of the Board's Rules of Procedure is available at www.pgs.com. Our governance structure is organized as described below.
Our Board is responsible for the supervision of our business activities. The Board has established an Audit Committee and a Remco to assist in organizing and carrying out its responsibilities. The mandate and charter for the Audit Committee and Remco are available at www.pgs.com.
The Board's responsibilities include:
The responsibilities of the CEO include:
As of December 31, 2022, our Audit Committee comprises Directors Anne Grethe Dalane (chairperson), Trond Brandsrud, Marianne Kah, Ebrahim Attarzadeh and Anette Valbø. All shareholder-elected Director's being members of the committee are considered independent of the Company. The committee's functions are to assist the Board in its supervision of the integrity of PGS' financial statements; to monitor the independent auditor's qualifications, independence and performance; to monitor the performance of the internal audit function; to review the integrity of the sustainability reporting; and to promote and review compliance with laws and regulatory requirements.
As of December 31, 2022, the Remuneration and Corporate Governance Committee (Remco) comprises Directors Walter Qvam (chairperson), Richard Herbert, Shona Grant, Gunhild Myhr and Eivind Vesterås. All shareholder-elected Director's being members of this committee are considered independent of the Company's senior management. The function of the committee is to assist in matters relating to compensation, benefits, and perquisites of the CEO and other senior executives. Review and modification of the Company's corporate governance implemented in the Company are also committee responsibilities.
During 2022, all the shareholder-elected Directors participated in all prescheduled regular committee meetings, save that two Directors each missed one prescheduled meeting due to unforeseen circumstances.
In 2022, the Board also mandated one ad-hoc committee comprising Mr. Qvam, Ms. Dalane, Mr. Brandsrud and Mr. Attarzadeh to – together with the PGS management and advisors – oversee the Company's process for managing its debt and assess options for refinancing.
The Board is responsible for ensuring that appropriate guidelines, monitoring, and internal control systems are in place. These are to include embedding risk management, designating risk ownership, and implementing risk responses and controls.
The Board has systems in place to assess that the CEO exercises appropriate and effective management. The Board's Audit Committee assesses the integrity of PGS' accounts. It also enquires about, on behalf of the Board, issues related to financial review and external audit of PGS' accounts. Further, the Board and the Audit Committee supervise and verify that effective internal control systems are in place, including systems for risk management and financial reporting.
The Board and the Audit Committee take steps to ensure that the Company's internal control functions are working as intended and that necessary measures are taken to reduce extraordinary risk exposure. Furthermore, the Board makes certain that the Company is creating value for the shareholders in a sustainable manner whilst taking ethical conduct; compliance with laws, rules and regulations; health, safety and working environment; and other environmental, social and governance ("ESG") issues into account.
The Company's anti-corruption program includes a policy, manual and work instructions as to several ethical issues, periodic training, high risk area assessment and monitoring, compulsory contract wording, etc. The policy and procedures are available at www.pgs.com. The program is evaluated on a regular basis by the Audit Committee.
Management maintains and regularly reviews a risk matrix setting out the main risks for the Company. These risk factors and the Company's risk mitigating activities are subject to discussion in the Board at least once a year.
Management conducts day-to-day follow-up of financial management and reporting. Management has established a structured approach to ensure that the system for Internal Control over Financial Reporting ("ICFR") is effective. ICFR includes identification and assessment of all material financial reporting risks, identifying and documenting relevant controls to address these risks, and monitoring that controls are implemented and performed. For controls that are
not operationally effective at year-end, their potential financial exposure and impact on the consolidated financial statements are evaluated.
PGS has an Internal Audit Department reporting directly to the Audit Committee on its audit planning and audit reports. The purpose of the Internal Audit Department is to perform independent, objective assurance and consulting activities that add value and improve the Company's initiatives in financial, operational and compliance areas.
The scope of work for the Internal Audit Department includes determining whether the Company's risk management, control, and governance, as designed and represented by management, are adequate and wellfunctioning.
The audit reports are issued to the Audit Committee. In addition, the Internal Audit Department regularly monitors and reports status of management's actions to respond to identified risks or weaknesses.
Remuneration of shareholder-elected Directors is not linked to performance but is based on an annual fee and is subject to annual approval by the General Meeting. Shareholder-elected Directors shall not solicit or accept specific assignments for PGS beyond their role as Directors. Shareholder-elected Directors do not hold any PGS share options, restricted stock units or performance based restricted stock units.
For details on compensation to individual Directors, please see Note 30 to the consolidated financial statements of PGS.
Remuneration payable to both employee-elected and shareholder-elected Directors will be proposed by the Nomination Committee according to its Mandate and Charter and is submitted to the AGM for approval.
Executive remuneration is one of the primary tasks of Remco. The committee annually reviews the total compensation level, the mix between fixed and performance related compensation and the mix between short and long-term compensation. Remco has developed an annual schedule in order to ensure and facilitate a structured approach to the annual review of executive compensation.
Remco has with the help of an external advisor identified a specific peer group of comparable companies across relevant markets. The advisor has collected, and combined information related to total compensation level and structure amongst these companies. As of Remco's latest review, the peer group consisted of 17 companies from Norway and Europe. These companies are of comparable size and have international operations in the energy and energy services sectors. The peer group is subject to regular review. The Board and Remco use this information, among other tools, to benchmark and decide on an appropriate total compensation structure for the CEO and other executives.
Compensation for the CEO adheres to the same process as that used for other executives but is also subject to approval by the Board.
The current remuneration package for our CEO and other executives includes fixed elements and variable elements. The fixed elements consist of a base salary and other benefits such as car allowance, phone, internet and similar. The fixed elements also include a defined contribution pension scheme and an individual pension scheme. The variable elements consist of Short Term Incentive Plans which is our annual bonus scheme, and Long Term Incentive Plans which are composed of Performance Restricted Stock Units. Features of these programs include an absolute ceiling on performancerelated remuneration.
For further details on the compensation structure and total compensation to the CEO and executive team members, please see Note 30 to the consolidated financial statement of PGS, and also the Board's Senior Executive Remuneration Policy approved by the 2021 AGM available on www.pgs.com, and the Board's Senior Executive Remuneration Report for 2022 set forth as Appendix VII to the 2023 AGM Calling Notice.
The Board is committed to reporting financial results and other relevant information based on openness and the requirement of equal treatment of all shareholders and securities market participants. The Company complies with relevant disclosure rules and regulations. Announcements are released through a platform provided by Notified and posted on the Oslo Stock Exchange's NewsWeb service. In addition, all announcements are on www.pgs.com. The Company's policy of accessibility for shareholders is also presented on the Company's website.
The Company has an investor relations function to ensure that requests for information from shareholders, analysts and other interested parties are satisfied. The Company has an active investor communication program which includes senior management attending roadshows in connection with reporting of financial results, presentations at relevant investor conferences, and availability for one-on-one meetings, both virtual and as physical meetings.
The Board and the Nomination Committee once a year invites shareholders to join in a dialogue on corporate governance and corporate responsibility matters. The invitation is posted on www.pgs.com and any shareholder may initiate communication with the Company on these matters.
The Board has established guiding principles for how it will act in the event of a takeover bid. The Board will ensure that all shareholders are treated equally and seek to prevent disruptions to, or interference with, Company operations to the extent possible. In the event of a takeover bid, the Board will, in accordance with its overall responsibilities and good corporate governance, act in the best interest of shareholders and ensure that sufficient information regarding the matter is proved to the shareholders. If a takeover bid is made, the Board will issue a statement containing a recommendation as to whether the shareholders should accept or reject the offer, including an independent valuation of the offer. The Company's Articles of Association do not contain any restrictions, limitations, or defense mechanisms against acquisition of its shares.
The Audit Committee shall support the Board in the administration and exercise of its responsibility for supervision of the work of the independent auditor, who shall keep the Board informed of all aspects of its work for PGS. This duty includes submission of an annual plan for the audit of PGS. The auditor attends all Audit Committee meetings and, at least twice a year, meets with the Audit Committee without the presence of management. In-house policies govern the use of the auditor's services. Use of the auditor for services other than the audit of PGS requires pre-approval by the Audit Committee.
The independent auditor meets with the full Board at least once a year in connection with the preparation of the annual financial statements and, at least once a year, presents a review of PGS' financial reporting and internal control procedures for financial reporting. At least once a year, the independent auditor meets with the Board without the presence of any member of the executive management.
Remuneration paid to the auditor for mandatory and other audit services will be reported to the AGM for approval.
The Company has clear commitments regarding Responsible Business Conduct, Equality and Diversity & Inclusion for our work force. These commitments are embedded in the Company policies and goals, which include (a) respecting fundamental human and labor rights, (b) preventing discrimination and harassment, (c) recruiting, promoting and developing individuals based on qualifications, value and potential, and (d) fostering and supporting diversity including age, nationality, gender and qualifications.
At the Board level, the Nomination Committee actively works for ensuring that there is proper diversity on gender, age, background, experience and qualifications. The Company complies with the requirements in the Norwegian Public Limited Liabilities Act section 6-11a on gender balance.
At the management level and below the President & CEO, the SVP Global HR and the Executive Vice Presidents are all actively pursuing similar goals as regards equality, diversity & inclusion among the PGS management and the entire work force.
The Company's Sustainability Report 2022 available on www.pgs.com identifies the more precise goals and how they have been met during the reporting period.
As part of PGS' Code of Conduct available on www.pgs. com, PGS is inter alia committed to comply with relevant laws, rules, and regulations, as well as the Oslo Stock Exchange's Issuer Rules. In addition, PGS complies with the current recommendations set forth in the NUES Recommendations, subject only to deviations identified and justified in this report.
The Board further conducts periodic reviews of PGS' corporate governance policies and procedures, including the Board's Rules of Procedure. This process is conducted regularly and managed by Remco. Any changes to policies or procedures are presented to the Board for approval.
The Board of Directors is responsible for the administration, development, and supervision of PGS business activities.
Chairperson (Elected 2016) | Board Member since 2013 | Remuneration and Corporate Governance Committee Chairperson | Shareholding: 135,000
Mr. Qvam was the president and chief executive officer of Kongsberg Group ASA, and he has held leading positions in various prominent Norwegian and international businesses in a variety of fields, including oil and gas, and shipping, (Det Norske Veritas), IT (Capgemini), transportation (the Norwegian state railway) and consultancy (Gemini Consulting). In addition to his role as chairperson of PGS, Mr. Qvam chairs the boards of the research organization SINTEF, cyber-security company mnemonic, robotics company wheel.me and the digital innovation hub DigitalNorway. He is also a board member in the energy & infrastructure company CapeOmega. Mr. Qvam graduated Master of Science from the Norwegian University of Science and Technology (NTNU).
Vice Chairperson (Elected 2018) | Board Member since 2013 | Audit Committee Chairperson | Shareholding: 73,000
Ms. Dalane is a senior leader at Yara International and previously held a number of senior positions at Norsk Hydro. She is currently VP Finance Data & Development. Her previous experience covers a range of fields including human resources as well as oil and gas. She has been the chief financial officer for Crop Nutrition, region director Latin America, and country manager of Argentina at Yara. She serves as a director of BW LPG and Arendal Fossekompani. Ms. Dalane's background is in economics, and she holds a business degree from the Norwegian School of Economics NHH.
Board Member since 2017 | Remuneration and Corporate Governance Committee Member | Shareholding: 116,000
Mr. Herbert is a petroleum geologist with 40 years of experience in the global upstream industry. His career started with Phillips Petroleum. He spent 19 years at BP, in senior international exploration and development positions in southeast Asia, Latin America, the USA, and Angola, as well as the UK North Sea. From 2003-2008 he worked for TNK-BP in Russia, as the exploration vice president and subsequently as executive vice president of technology. From 2009-13, he was exploration vice president of Talisman Energy in Canada. He returned to BP from 2013 until the end of 2016, as the chief operating officer for exploration. In 2017, he joined the board of Frontera Energy Corporation, then from 2018 until March 2021 served as their chief executive officer, based in Bogota, Colombia. He is a non-executive director of the UK companies Capricorn Energy and Angus Energy. Mr. Herbert holds a BSc in Geology from the University of Bristol in the UK.
Board Member since 2018 | Audit Committee Member | Shareholding: 68,589
Ms. Kah was the Chief Economist of ConocoPhillips for 25 years retiring in November 2017. She was a member of the strategy committee of ConocoPhillips and was responsible for oil and gas market outlooks, scenario planning, and assessing disruptive risks to the company. She was also involved with planning and participating in strategy meetings with ConocoPhillips' Board of Directors. She currently serves on the Advisory Board of the University of Texas Energy Institute, and she is an adjunct senior research scholar and member of the Advisory Board of Columbia University's Center on Global Energy Policy. In 2019, Kah joined the Board of Directors in Allegheny Technologies Inc. She was past President of the U.S. Association for Energy Economics for the calendar year 2019, and currently co-chairs the Energy Roundtable for the National Association for Business Economics.
Board Member since 2019 | Audit Committee Member | Shareholding: 110,000
Mr. Brandsrud is an advisor as well as a board member and nonexecutive director of several listed and private-equity-owned companies. These include Aker BP, where he chairs the audit and risk committee, and Lowell, where he chairs the Audit Committee and serves as a member of the risk and remuneration committees. Brandsrud has 30 years of experience in the oil and gas industry. He has served as group chief financial officer (CFO) at both Aker and Seadrill and has held a wide range of senior financial positions in Shell. Recently, he has also held group CFO and CEO positions in privately owned companies Lindorff and Lowell, in the financial services sector. Mr. Brandsrud is a Norwegian citizen and holds a master's degree from the Norwegian School of Economics (NHH).
Board Member since 2022 | Audit Committee Member | Shareholding: 140,000
Mr. Attarzadeh was, until recently, CEO of Stifel Europe Bank AG (formerly Mainfirst) and is currently in the process of setting up an advisory company. He has held several roles in Deutsche Bank and various leadership roles within Mainfirst, both in Frankfurt, London, Zurich, and New York. In addition to PGS, he has a supervisory board position at MusicBird AG. Mr. Attarzadeh holds a master's in economic science from Ruprecht-Karls-Universität Heidelberg. He is a German citizen residing in Switzerland.
Board member since 2022 | Remuneration and Corporate Governance Committee Member | Shareholding: 75,000
Ms. Grant is the chairperson at qWave AS and a non-executive director at Hydrawell AS. She has previously served as a non-executive director at Gulf Marine Services Plc and for various pioneering technology companies, including Bluware Corporation. Dr. Grant has enjoyed a long career in leadership roles at BP, including as a Performance Unit leader in Norway, following which she served as CEO of 2TD Drilling AS (now part of Nabors Industries). Dr. Grant is a geologist by training with a Ph.D. from the University of Leicester. She is a UK citizen residing in Norway.
Employee Elected Board Member since 2015 | Audit Committee Member | Shareholding: 13,354
Ms. Valbø joined PGS in 2002. Her current position is Bid Manager. She has previously held various business controller positions within Marine Contract and Operations business area. Prior to joining the Company, Ms. Valbø served in various positions within auditing and accounting in Frontline Ltd. and DNB. Ms. Valbø holds a bachelor's degree in accounting and auditing from Molde University College, Norway.
Employee Elected Board Member since 2021 | Remuneration and Corporate Governance Committee Member
Ms. Myhr joined PGS in 1992 and is Business Development Manager Europe/New Energy, tasked with finding opportunities for our fleet of seismic vessels, both in the external contract market and as assets in integrated PGS initiatives. She also works with government liaison and in developing growth and value potential using PGS seismic and operational technology. She has previously served in a variety of senior sales roles. Earlier, she was stationed offshore, processing seismic data on PGS vessels, and has also managed our seismic imaging center in Oslo. Ms. Myhr holds an M.Sc. in Geophysics from the Norwegian University of Science and Technology.
Employee Elected Board Member since 2021 | Remuneration and Corporate Governance Committee Member | Shareholding: 158,500
Mr. Vesterås joined PGS in 2008 as a geophysicist, first offshore and then based in Oslo, analyzing both seismic and electromagnetic data. He is currently a Special Projects Manager in our Operations division. He has worked in research, operations, and sales support roles, with experience that spans from the development of technical solutions through to their introduction to the market. Since 2018, he has been the chief union representative of Tekna in our Oslo office. Mr. Vesterås holds an M.Sc. in applied physics from the Norwegian University of Science and Technology.
Recovery of the seismic market accelerated in 2022 driven by more exploration activities, which benefit both the contract and the MultiClient markets. PGS reported significant improvements within all major business activities. With a strong order book increase, visibility is improving and the Company expects the market to strengthen further in 2023.
PGS net interest-bearing debt was reduced by 34% from increasing cash flow generation and strong shareholder support in two private placements. PGS is well positioned to refinance ahead of its 2024 debt maturities.
PGS is a fully integrated marine geophysical company that provides a broad range of seismic and reservoir services, including data acquisition, imaging, interpretation, and field evaluation. The Company's services are provided to the oil and gas industry, as well as to the broader and emerging new energy industries, including carbon storage and offshore wind. The Company operates on a worldwide basis with headquarters in Oslo, Norway.
PGS is organized in four primary business units: Sales & Services, New Energy, Operations and Technology & Digitalization.
Produced Revenues increased by 39% in 2022, compared to 2021, driven by significant increase of contract revenues and MultiClient late sales.
PGS significantly strengthened its financial position by generating \$209.5 million of cash flow before financing activities and strong support from shareholders in two private placements with close to \$250 million of new equity.
Net interest-bearing debt reduced by \$319.7 million, or 34%, compared to 2021 and the Company is well positioned to refinance in 2023.
Significant contract price increases and margin recovery compared to 2021, with a large portion of contract vessel capacity utilized for production seismic (4D) operations.
Second highest annual MultiClient late sales in the Company's history due to increased exploration spending and significant transfer fees.
Successfully completed four carbon storage seismic acquisition projects and established a strong position in the carbon storage geoservices market.
Awarded large Petrobras 4D contract and started rigging Ramform Victory to acquire the 4D survey commencing mid-2023.
The order book has increased by 74% year-over-year and is at the highest level since Q3 2014.
Strong progress on digital transformation with more than 80% of imaging done in the Cloud, resulting in lower cost and improved flexibility and scalability compared to the earlier solution with in-house computer capacity.
Significant progress in developing new MultiClient OnDemand business models and driving operational efficiencies from digital solutions
PGS is a fully integrated marine seismic acquisition and imaging company, offering a full range of towed streamer acquisition and imaging services through both the proprietary contract ("Contract") and MultiClient business models. Being in control of seismic acquisition vessels, imaging and technology, positions PGS to deliver the best and most flexible solutions to clients under any contract type.
Capital expenditures relating to the Ramform Titan-class new build program, followed by a prolonged industry downturn from 2014 to 2018 and a severe impact from the COVID-19 pandemic, led to a level of interest-bearing debt which was higher than targeted. The Company did over this period raise equity and extended debt maturities on several occasions to manage its debt obligations.
Debt reduction will be given priority until PGS reaches a capital structure that is sustainable considering the Company's size and market cyclicality. The Company targets net interest-bearing debt not to exceed \$500- \$600 million, excluding lease liabilities. In 2022, PGS made significant progress towards this target. With the recovery of the seismic market the Company was able to improve cash flow before financing activities by 35%, compared to 2021, and successfully completed two private placements raising close to \$250 million of equity with very strong shareholder support. Net interest-bearing debt (excluding lease liabilities) was reduced by 34% in 2022 and ended at \$616.7 million. Debt reduction will be given priority until PGS reaches a net interest-bearing debt level in line with its target.
The PGS business strategy comprises the following key priorities:
challenges. During 2022 PGS established a strong position in the carbon storage geoservices market and continued to make MultiClient data sales related to development of CCS projects. PGS is in the process of entering the offshore wind market and early 2023 the Company announced award of it first offshore wind geoservices acquisition contract.
Fleet operations are a dominant part of the Company's cost base. To date, PGS has developed and implemented a new and more flexible crewing model designed to reduce cost, without negatively impacting safety. Looking forwards, PGS intends to utilize recent developments in satellite and communication technology to streamline data flow processes which should lead to reduced fleet cost. More widely, the Company is increasingly taking advantage of its digital toolbox to improve operational efficiency and reduce capital expenditures.
y Reduce environmental footprint from our operations
PGS is one of the largest players in the global marine 3D seismic market.
Several years of under investments in new oil and gas supplies in combination with an increasing focus on energy security are drivers for the strong recovery of global exploration and production activity in 2022. Historically, seismic activity is closely linked to the overall exploration and production spending by energy companies.
From a very low level, the seismic market recovery started in 2021 when energy companies increased activity on nearfield exploration, exploration on existing licensed acreage and 4D reservoir optimization. The seismic contract business model normally serves these market segments. The contract market benefited from the higher activity and continued to improve in 2022. PGS has a solid market share in the 4D segment with its GeoStreamer offering, as well as steerable streamers and sources, enabling high data quality and precise replication of earlier 3D surveys and baseline 4D surveys.
In addition to the structurally growing efforts to optimize producing fields, there was a strong renewed focus on exploration, including frontier areas. More exploration benefits both the contract and MultiClient markets and contributed to higher contract revenues, easier access to pre-funding for new MultiClient projects and improving sales from MultiClient data libraries in 2022.
Vessel supply is at historically low levels and there are now two main vessel owning companies in the seismic industry, PGS and Shearwater. Industry capacity utilization was low in the first part of 2022 but improved significantly throughout the year.
The seismic industry took the first steps into new energy markets in 2022 and during the year there were several seismic acquisition projects conducted for development of CCS projects, in addition to MultiClient data sales for the same purpose. The market for seismic carbon storage acquisition is still in its infancy with limited volumes in the near term, however the industry expects this market to have a substantial potential longer term. Beyond the carbon storage market, subsurface knowledge is needed for installations of offshore wind turbines and for identification of marine mineral accumulations. PGS is in the process of entering the offshore wind market with a cost-effective geophysical offering as an alternative to traditional geotechnical solutions.
PGS is concentrating its research and development efforts on areas of technology differentiation from seismic acquisition to subsurface and reservoir imaging. The Company is capitalizing on digitalization to improve its operational efficiency, reduce capital expenditures and develop new digital service offerings.
GeoStreamer, the first-ever multi-sensor streamer and a proprietary PGS technology, was a game changer in streamer technology and a premier example of PGS' ability to differentiate through technology innovation. GeoStreamer has affected the way marine streamer data has been used across the entire E&P life cycle, helping PGS clients to reduce exploration risk, improve the delineation of reservoir details, enable accurate reservoir characterization and facilitate better production monitoring and management. The unique design of GeoStreamer has helped PGS clients to solve some of their long-standing problems, such as creating high resolution images of the very near surface.
Separated Wavefield Imaging ("SWIM") is a technology that uniquely uses the recordings of the two complementary GeoStreamer sensors to create images with unseen resolution that significantly improve E&P companies understanding of shallow geology and drilling hazards whilst simultaneously enabling improvements in survey efficiency – an undertaking previously viewed as contradictory. With the increased focus on the very shallow overburden for wind farm site evaluations or deep-sea mineral location, techniques such as SWIM will continue to provide a critical competitive advantage to PGS.
PGS Ultima is an imaging tool to provide better images faster and address another of PGS' clients long-standing challenges to have access to subsurface images for quicker decision making. PGS Ultima moves away from the traditional sequential processing to a fast simultaneous inversion process, combining velocity model building and high-end imaging in a single step. The imaging tool has the potential to reduce the time it takes from acquisition to the final image on the clients' workstation by approximately 50%.
By year-end 2022, PGS' Cloud enabled imaging platform, PGS Eos, was handling more than 80% of the Company's imaging work, resulting in significantly lower cost than previous in-house solution. Imaging in the Cloud provides unprecedented flexibility and scalability, while always having access to state-of-the-art hardware.
By establishing New Energy and entering new markets, the research and development resources within PGS are now working to understand the geophysical challenges in these new markets and to find geophysical solutions and limitations with current equipment and technology. To accelerate suitable product offerings beyond core assets, PGS now offers Ultra-high-resolution 3D seismic following the purchase of NCS Subsea, operator of the P-cable system. The system achieves Ultra-High-Resolution ("UHR") imaging of the subsurface by sampling the seismic wavelet at a high spatial and temporal rate. The technology is best suited for detailed imaging on a smaller scale for targets such as complex, highly fractured, thin, or compartmentalized formations.
PGS has one operating segment focused on delivery of seismic data and services, which matches the internal reporting to the Company's executive management. See Note 4 to the Consolidated Financial statements for information about principles applied. In the following Segment information is referred to as "Produced".
In 2022, As Reported revenues according to IFRS amounted to \$825.1 million, compared to \$703.8 million in 2021, an increase of \$121.3 million, or 17%. The increase is driven by a recovering seismic market with significant improvement in contract revenues and stronger late sales, partially offset by lower MultiClient pre-funding revenues due to lower volumes of surveys completed and delivered to clients.
Produced Revenues, forming the basis for Segment reporting, amounted to \$817.2 million, compared to \$590.0 million in 2021, an increase of \$227.2 million, or 39%. Stronger contract revenues and MultiClient late sales are primary drivers for the increase of Produced Revenues in 2022.
Contract revenues ended at \$336.3 million, compared to \$207.8 million in 2021, an increase of \$128.5 million, or 62%, due to a recovering seismic market with higher rates and more vessel capacity allocated to contract acquisition work.
MultiClient late sales in 2022 were \$326.7 million, compared to \$220.4 million in 2021, an increase of \$106.3 million, or 48%. The increase is due to higher exploration activity among energy companies and significant transfer fees. In 2022 late sales revenues were highest in Europe and North America.
As Reported MultiClient pre-funding revenues according to IFRS 15 in 2022 amounted to \$139.4 million, compared to \$247.7 million in 2021, a decrease of \$108.3 million, or 44%. The decrease is a result of lower volume of MultiClient projects finalized and delivered to clients.
Produced MultiClient pre-funding revenues in 2022 amounted to \$131.5 million, compared to \$134.0 million in 2021, a decrease of \$2.5 million, or 2%. In 2022 the Company used less capacity for new MultiClient acquisition and had lower cash investments in MultiClient, but revenues were relatively unchanged from 2021 due to a higher pre-funding level.
Produced MultiClient pre-funding revenues were 124% of capitalized MultiClient cash investments (excluding capitalized interest), compared to 105% in 2021. The increased pre-funding level is mainly due to higher client exploration activity and more demand for new MultiClient surveys.
Total Produced MultiClient revenues (pre-funding and late sales combined) increased by \$103.9 million or 30%, compared to 2021 and ended at \$458.2 million.
Imaging revenues were \$22.7 million in 2022, compared to \$21.7 million in 2021, an increase of \$1.0 million, or 5%.
The fleet allocation ratio, active 3D vessel time for marine contract versus MultiClient data acquisition, was 72:28 in 2022, compared to 59:41 in 2021.
The Company closely monitors its gross cash costs. Gross cash costs are defined as the sum of reported net operating expenses (excluding depreciation, amortization, impairments, deferred steaming, net and other charges, net), the cash operating costs capitalized as investments in the MultiClient library, and capitalized development costs. In 2022 gross cash costs ended at \$487.7 million, an increase of \$85.9 million, or 21%, compared to 2021. The increase is primarily driven by a significantly higher activity level, more project related costs and increased fuel prices. The Company has fuel price adjustment clauses in most of its agreements for contract acquisition work.
Net operating expenses, which include cost of sales, expensed research and development costs, and selling, general and administrative costs, totaled \$370.5 million in 2022, compared to \$269.8 million in 2021, an increase of \$100.7 million, or 37%. The increase is explained by the same factors as for the higher gross cash cost, as well as more 3D vessel capacity allocated to contract work with less cost capitalized to the MultiClient library.
Full year 2022, gross research and development ("R&D") costs increased by \$0.5 million, or 3%, compared to 2021. Capitalized development cost increased by \$0.1 million, or 1%, compared to 2021, resulting in overall net R&D expense in 2022 being 6% higher than in 2021. The Company's R&D costs are mainly incurred to support and develop core business activities of marine seismic acquisition and imaging.
Total amortization of the MultiClient library in 2022 was \$241.6 million, compared to \$365.4 million in 2021, a decrease of \$123.7 million, or 34%. The decrease is mainly driven by less MultiClient projects being finalized and delivered to clients, resulting in less accelerated amortization. Amortization was 41% of MultiClient revenues, compared to 75% in 2021. The lower amortization rate reflects a higher proportion of late sales in the mix.
The Company recorded impairments on the MultiClient library of \$11.5 million in 2022, compared to \$13.6 million in 2021. The impairments in 2022 primarily relate to projects in North America and West Africa. The MultiClient library is assessed for impairment on a survey-by-survey basis.
2022 gross depreciation was \$122.2 million, a decrease of \$20.2 million, or 14%, compared to 2021. This comes as a result of a generally lower investment level in property plant and equipment over recent years and impairment charges in 2021.
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. As of December 31, 2022, the Company has not identified any impairment from the performed tests and therefore no impairment charges are recorded. In 2021 the Company recorded a total impairment charge of \$15.0 million on seismic acquisition vessels. The seismic market is recovering, but the recoverable values of seismic vessels and other Company 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.
EBIT ex. impairment and other charges was \$117.0 million in 2022, compared to a loss of \$32.0 million in 2021.
In 2022, the share of results from associated companies amounted to a loss of \$5.0 million, compared to a gain of \$1.2 million in 2021. The loss in 2022 mainly relate to fair value adjustments.
Gross interest expense amounted to \$109.4 million in 2022, compared to \$98.0 million in 2021, an increase of \$11.4 million, or 12%, primarily because of an increase of Libor interest rates, which impacts the cost of floating rate debt.
Other financial expense, net, of \$2.6 million in 2022 is primarily due to higher interest income on a higher cash balance benefiting from increasing interest rates through 2022, compared to 2021. Other financial expense, net is also impacted by currency gain due to a weaker NOK versus USD, impacting leasing liabilities and the convertible bond denominated in NOK (see Note 11 for details).
Income tax expense, which consists of current and deferred tax expense, was \$26.1 million in 2022, compared to \$15.6 million in 2021. There was no deferred tax expense in 2022 or 2021. Current tax expense relates to foreign withholding tax and corporate tax on profits in certain countries where PGS has executed projects or made significant MultiClient sales, primarily in Africa and Asia.
PGS is subject to taxation in many jurisdictions around the world with increasingly complex tax laws. PGS
has identified issues in several jurisdictions that could eventually make the Company liable to pay taxes relating to prior years in excess of the provision recognized in financial statements. Reference is made to Note 12 and 23 of this annual report for a description of significant tax contingencies.
Loss to equity holders of PGS ASA was \$32.8 million in 2022, compared to a loss of \$179.4 million in 2021.
Net cash provided by operating activities totaled \$371.3 million in 2022, compared to \$326.6 million in 2021. The increase is due to significantly higher Produced Revenues, partially offset by an increase in revenue related working capital. Cash flow before financing activities was \$209.5 million in 2022, compared to \$154.7 million in 2021.
Cash and cash equivalents totaled \$363.8 million as of December 31, 2022, compared to \$170.0 million as of December 31, 2022.
The existing loan agreements have a liquidity sweep requirement where liquidity reserve in excess of \$200 million at quarter-ends shall be used to repay deferred amortizations of the Export Credit Financing ("ECF") loans agreed in the rescheduling agreement entered into in February 2021. As of December 31, 2022, the remaining deferred ECF amount was \$83 million, which will be repaid in Q1 2023. Following the repayment of the deferred ECF amount, and first applicable on March 31, 2023, a mandatory liquidity sweep for liquidity reserve in excess of \$175 million will be applied against the nearest scheduled amortization on the Term loan B.
Net interest-bearing debt amounted to \$616.7 million on December 31, 2022, compared to \$936.4 million as of December 31, 2021. The Company had approximately 45% of its net debt (excluding lease liabilities) at fixed interest rates. The weighted average cash interest rate was approximately 8.98%, including credit margins, as of December 31, 2022, compared to 6.78 % as of December 31, 2021.
The main loan agreements are subject to a Minimum Consolidated Liquidity and a Maximum Total Net Leverage Ratio* ("TNLR") covenant. The liquidity covenant requires that the consolidated unrestricted cash and cash equivalents shall not be less than \$75 million. The TNLR covenant establishes a maximum TNLR of 3.25:1 through
December 31, 2022, and 2.75:1 thereafter. On December 31, 2022, the TNLR, calculated on a Produced EBITDA basis was 1.56:1.
*The Total Net Leverage Ratio ("TNLR") is calculated as the consolidated indebtedness, net of restricted cash held for debt service in respect of the Export Credit financing and unrestricted cash and cash equivalents, divided by adjusted EBITDA less non-pre-funded MultiClient library investments.
During 2022, PGS reduced net interest-bearing debt by \$319.7 million (\$347.4 million including lease liabilities) and the Company is close to reaching its targeted maximum level for net interest-bearing debt (excluding lease liabilities) of \$500 to 600 million.
As of December 31, 2022, PGS had cash and cash equivalents totaling \$363.8 million, compared to \$170.0 million as of December 31, 2021. With the strong liquidity position and improving cash flow generation, the Company expects to be able to manage all scheduled amortization of debt in 2023. However, PGS will have to refinance before the final maturity of its Term Loan B in March 2024.
See description in the section "Liquidity risk" below.
In 2022, total MultiClient cash investment, excluding capitalized interest, amounted to \$106.4 million, compared to \$127.2 million in 2021, a decrease of \$20.8 million, or 16%. The decrease is primarily due to fewer vessel days allocated to MultiClient projects.
Capital expenditures, whether paid or not, totaled \$50.2 million in 2022, compared to \$33.4 million in 2021, an increase of \$16.8 million, or 50%. The increase is primarily a result of higher investments in seismic in-sea equipment.
The Company is exposed to market risks such as interest rate risk, currency exchange risk, credit risk, liquidity risk and commodity price risk, as discussed below. The Company's risk management policies are approved by the Board of Directors. The treasury function reports regularly to Company management and any breach of limits set in the policy is reported to the Board of Directors.
PGS has a mixture of fixed and floating interest rate debt combined with financial instruments, such as interest rate swaps, to manage the impact of interest rate fluctuations.
As of December 31, 2022, the debt of PGS included \$811.8 million of floating interest rate debt, with interest rates based on up to six-month LIBOR rates, plus a margin. \$50.0 million of this floating interest debt is swapped into fixed interest by use of interest rate swaps. Fixed interest rate debt amounted to \$239.6 million. Taking the interest rate swaps into account, \$761.8 million of the Company's debt is exposed to floating interest rates while \$289.6 million has fixed interest rates. The exposure to changes in the interest rate is further reduced with restricted and unrestricted cash earning interest at floating interest rate. For every (hypothetical) one percentage point increase in LIBOR the annual net interest expense of the PGS' net debt, including finance leases, would increase (with some delay) by approximately \$3.6 million. The increase in floating interest rates during 2022 has impacted the net interest cost (after taking into account restricted and unrestricted cash) by approximately \$5 million.
PGS conducts business primarily in US dollars ("\$" or "USD"), but also in several other currencies, including British pounds ("GBP"), Norwegian kroner ("NOK"), Brazilian real ("BRL"), euro ("EUR"), and occasionally currencies like Egyptian Pounds ("EGP") and Nigerian Naira ("NGN"). PGS is subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing, and investment transactions in currencies other than the US dollar.
PGS predominantly sells products and services in US dollars, and to a limited extent in other currencies. In addition to USD, a significant proportion of PGS' operating expenses are incurred in NOK and GBP. Less substantial amounts are incurred in various other currencies. Thus, regarding expenses and revenues in currencies other than US dollars, such expenses will typically exceed revenues.
A stronger US dollar reduces PGS' operating expenses as reported in US dollars. It is estimated that a 10% change of the US dollar against the two most significant non-USD currencies, NOK and GBP, would have an annual impact on gross cash cost of \$10-12 million and \$4-5 million, respectively.
The Company did not have any open foreign currency forward contracts as of December 31 in 2022 or 2021.
All interest-bearing debt is denominated in US dollars.
PGS' accounts receivable is primarily from multinational, integrated energy companies and independent oil and natural gas companies, including companies that are owned in whole or in part by governments. PGS manages the exposure to credit risk through ongoing credit evaluations of clients. Due to the nature of PGS' client base, a low level of losses on accounts receivable has been incurred over the years.
PGS has a structured approach to monitor the credit risk of the Company's banking partners, including derivatives counterparties and the institutions in which cash is held on deposit.
During 2022, PGS raised close to \$250 million of new equity and increased cash flow generation in an improving market. The significant liquidity improvement enabled a reduction of net interest-bearing debt by \$319.7 million (\$347.4 million including lease liabilities). Net interestbearing debt amounted to \$616.7 million on December 31, 2022, compared to \$936.4 million as of December 31, 2021, and the Company is close to reaching its targeted maximum level for net interest-bearing debt (excluding lease liabilities) of \$500 to \$600 million.
As of December 31, 2022, PGS had cash and cash equivalents totaling \$363.8 million, compared to \$170.0 million as of December 31, 2021. With the strong liquidity position and improving cash flow generation, the Company expects to be able to manage all scheduled amortization of debt in 2023. However, PGS will need to refinance before the final maturity of its Term Loan B in March 2024.
With improved financial performance and the strong reduction of net interest-bearing debt, PGS is well positioned to refinance ahead of the 2024 debt maturities. The debt market was challenging and volatile over the last year but has during the early parts of 2023 shown signs of improvement. However, market volatility remains a risk with respect to the cost and interest rate ultimately achievable in a refinancing round. The Company expects to complete the refinancing during the first half of 2023.
While the Board is confident that a refinancing will be achieved, PGS may become financially challenged should it not comply with the financial covenants in the key credit agreements, or fail to generate sufficient cash flow and/or refinance before its debt falls due.
Operation of seismic vessels requires substantial fuel purchases, thus PGS is exposed to fuel price fluctuations. Based on the Company's fuel consumption in 2022, a 10% increase in fuel prices would increase the total annual fuel costs by approximately \$6 million. The Company seeks to pass fuel price risk to clients on a majority of contract work.
PGS is exposed to both transition risk and physical risks associated with climate change. The Company has a structured approach to monitoring the development of the seismic exploration market and opportunities created by the transition to renewable energy sources globally. The Company's strategy is based on market scenario analysis and positioning of the Company for the energy transition by establishing the 'New Energy' business unit, which is a core component of the Company's strategy. The physical risks associated with climate change may directly affect both onshore and offshore operations through increased occurrence of extreme weather conditions. The Company mitigates this risk through reducing the dependency of on-premise computing by shifting data and processing to the Cloud, careful planning of projects, and by leveraging the inherent weather resilience of the Ramform fleet and GeoStreamer technology.
Demand for the Company's products and services depends on the level of spending by energy companies on hydrocarbon-resource exploration, field development, and production. Spending levels are heavily influenced by oil and gas prices and energy companies' focus areas. The ongoing energy transition may cause structural changes in demand. During 2020 and 2021 there was an increasing focus on extracting more resources from producing fields and infrastructure lead exploration. Alongside this trend, more traditional exploration activity in greenfield areas
came into play in 2022, benefitting both the contract and the MultiClient markets.
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, increased competition, the attractiveness of technology, changes in governmental regulations affecting the markets, the speed and impact of the energy transition and its effect on client behavior, technical downtime, licenses and permits, currency and fuel price fluctuations, potential COVID-19 outbreaks on the vessels causing project delays, and operational hazards such as weather conditions.
Contracts for services are occasionally modified by mutual consent and in certain instances may be cancelled by clients on short notice without compensation. Consequently, the order book as of any particular date may not be indicative of actual operating results for any succeeding period.
As of December 31, 2022, PGS had 909,549,714 shares issued and outstanding, all of which are of the same class and carry equal voting and dividend rights. Each share has a par value of NOK 3. PGS' ordinary shares are listed on the Oslo Stock Exchange (ticker: PGS) and denominated in Norwegian kroner.
In Q2 2022, PGS successfully completed an equity private placement providing gross proceeds of approximately \$85 million and a subsequent offering of approximately \$14 million. In Q4 2022, PGS took advantage of another opportunity to raise capital and successfully completed another private placement providing gross proceeds of approximately \$150 million.
As of December 31, 2022, the Company held 275,086 treasury shares.
PGS has adopted a Code of Conduct that reflects the Company's commitment to its shareholders, clients, employees, and other stakeholder to carry out business with the utmost integrity. The Code of Conduct outlines both what stakeholders can expect from PGS, and what PGS expects from employees and anyone working for PGS. Employees of PGS are also guided by the Company's Core Values and Leadership Principles that drive desired behaviour and culture. The Code of Conduct, Core Values and Leadership Principles are available in full on www.pgs. com.
During 2022, PGS has committed to net-zero greenhouse gas ("GHG") emissions by 2050 with an absolute reduction in maritime emissions of 75% and 100% renewable energy usage onshore. The Company has also identified activities under the EU Taxonomy that will be disclosed in accordance with the regulation and taken action to assess and ensure compliance with the Transparency act, which will be made available on www.pgs.com within the deadline.
PGS is committed to the ten principles of the United Nations Global Compact in the areas of human rights, labor, environment, and anti-corruption. The Board of Directors and the CEO actively ensure that the Company properly responds to sustainability challenges. To identify and assess actual and potential sustainability risks and opportunities for PGS, the Board of Directors and the CEO are actively involved in the Company's assessment of material topics and the development of our strategic objectives and goals to manage them.
To identify and report on risks and opportunities associated with climate change and the energy transition PGS uses the frameworks developed by the Carbon Disclosure Project ("CDP") and the Task Force on Climate Related Financial Disclosures ("TCFD").
Since 2011, PGS has published a separate sustainability and ESG report, which communicates the Company's progress in alignment with the recommendations of the Global Reporting Initiative ("GRI"). Further in 2022 PGS has continued aligning its reporting with the Corporate Sustainability Reporting Directive ("CSRD"). PGS has an ambition to promote the UN Sustainable Development Goals ("SDGs") through concrete actions and goals that are relevant for the Company's activities and global presence. From the materiality assessment PGS has identified 6 of the 17 SDGs where the Company contributes, which are number, 4-Quality Education, 7-Affordable and clean energy, 9-Industry, Innovation and Infrastructure, 13-Climate Action, 14-Life Below Water and 16-Peace Justice and Strong Institutions.
A more detailed account of how PGS manages sustainability risks and opportunities can be found in our annual sustainability report.
PGS had 900 regular active employees as of December 31, 2022, compared to 839 as of December 31, 2021. The increase in 2022 is mainly due to higher activity and hire of more offshore crew.
As of December 31, 2022, PGS employees represented 53 nationalities; 27% of the office-based employees are women (2% of offshore employees are women). Among staff working in Norway, 32% are women. The Board of Directors has four male and three female shareholder elected directors and one male and two female employeeelected directors.
At the headquarters in Oslo, 27% of management positions are held by women, and 2% of women working for the Norwegian organization of PGS work part-time. PGS consciously strives to improve the gender diversity of staff through reporting and actively encouraging development and promotion of women to management roles. The primary development processes are the Performance Management, Potential Assessment and Mentoring program.
Being a global company, PGS has long-standing practice of embracing cultural diversity, and cultural sensitivity training is offered to employees.
The average monthly salary of all active regular employees as of December 2022 was \$8,013 (\$7,149 for female employees and \$8,232 for male employees) based on February 1, 2023 exchange rates.
As of December 31, 2022, the Board of Directors has the following members: Walter Qvam (Chairperson), Anne Grethe Dalane, Richard Herbert, Marianne Kah, Trond Brandsrud, Ebrahim Attarzadeh, Shona Grant, Anette Valbø, Gunhild Myhr and Eivind Vesterås. The latter three are employee elected Board members.
The Board has established two sub-committees: an Audit Committee that as of December 31, 2022 is comprised of Anne Grethe Dalane (Chairperson), Trond Brandsrud, Marianne Kah, Ebrahim Attarzadeh, and Anette Valbø, and the Remuneration and Corporate Governance Committee, that as of December 31, 2022 is consisting of Walter Qvam (Chairperson), Richard Herbert, Shona Grant, Eivind Vesterås and Gunhild Myhr. The committees predominantly act as preparatory bodies for the Board
of Directors and assist the Directors in exercising their responsibilities.
PGS also has a Nomination Committee elected by the shareholders. As of December 31, 2022, this committee consists of Terje Valebjørg (Chairperson), Alexandra Herger and Jon Arnt Jacobsen.
PGS' corporate governance principles are adopted by the Board of Directors. The Board periodically reviews these principles. Statements of the corporate governance structure are described in more detail in the corporate governance section of this annual report. The Company's articles of association, in addition to full versions of the rules of procedures for the Board of Directors, the Audit Committee charter, the Remuneration and Corporate Governance Committee charter, the Nomination Committee charter, and PGS' Code of Conduct are available on the Company's website www.pgs.com.
Since 2004, PGS has maintained a compliance hotline operated by an external service provider in order to facilitate reporting of any concerns regarding inappropriate business conduct. The Company encourages use of the hotline by anyone who has concerns relating to compliance with laws and regulations, breaches of the code of conduct, fair treatment, or any other matter. Concerns can also be raised directly with the General Counsel or any Board member.
The Board of Directors and the Executive Management team of PGS Group are covered by PGS ASA's Directors and Officers Liability Insurance ("D&O") placed in the international insurance market on market standard terms and conditions. The insurance comprises the directors' and officers' personal legal liabilities, including defenseand legal costs. The cover also includes employees in managerial positions or employees who become named in a claim or investigation, or is named co-defendant, and is extended to include members of the Company's steering committee, audit committee, compensation committee, litigation committee, advisory committee or other management or board committees.
Most future energy scenarios predict global energy consumption to continue to increase longer term with oil and gas remaining an important part of the energy mix for a long time. Offshore reserves are an important contributor to future energy supply and support the
longer-term demand for marine seismic services. With significant under investments in exploration and production spending over many years, global exploration and production spending increased by more than 20% in 2022. Spending growth is expected to continue with a double-digit number in 2023, and the growth is likely to remain healthy in subsequent years.
Historically there has been a strong correlation between overall exploration and production spending and offshore seismic spending. We believe the correlation will continue and support seismic market activity in 2023.
There is a significant volume of seismic contract leads and tenders in the market. MultiClient investment plans are increasing with higher pre-funding levels and MultiClient late sales are expected at high levels. By year-end 2022, the PGS order book was at the highest level since Q3 2014, and industry visibility should continue to benefit from the high contract tendering activity and increasing MultiClient investments.
The Board expects increasing demand, in combination with a very consolidated seismic market and limited additional vessel supply, to support a continued recovery for the offshore seismic market. The ongoing energy crisis in Europe has highlighted the importance of ensuring supply of oil and gas from diverse and reliable sources.
The Board emphasizes that valuations in the financial statements and forward-looking statements contained in this report are based on various assumptions made by management and the Board, depend on factors beyond our control, and are subject to risks and uncertainties. Accordingly, actual results may differ materially.
Pursuant to section 3-3a of the Norwegian Accounting Act, the Board confirms that the 2022 financial statements have been prepared on the going concern basis which the Directors believe to be appropriate.
The financial statements of the parent company, PGS ASA, are prepared and presented in accordance with generally accepted accounting principles in Norway ("NGAAP"). PGS ASA reported a loss of NOK 34.2 million for 2022, compared to a profit of NOK 81.3 million in 2021. PGS ASA is a holding company with no material operating activities.
The Board proposes that the loss for 2022 of NOK 34.2 million is transferred from other equity. Total shareholders' equity in PGS ASA as of December 31, 2022 was NOK 4,957.9 million corresponding to 98% of total assets.
Weybridge, March 1, 2023 Board of Directors
Walter Qvam Chairperson Anne Grethe Dalane Director Director Marianne Kah Richard Herbert Director
Trond Brandsrud Director
Ebrahim Attarzadeh Director
Director
Shona Grant Director
Anette Valbø
Director Eivind Vesterås
Rune Olav Pedersen Director President & Chief Executive Officer Gunhild Myhr
Today, the Board of Directors and the Chief Executive Officer reviewed and approved the Board of Directors' report and the consolidated and separate annual financial statements for PGS ASA, for the year ending and as of December 31, 2022.
PGS ASA's consolidated financial statements have been prepared and presented in accordance with IFRSs and IFRICs as adopted by the EU and additional disclosure requirements in the Norwegian Accounting Act, and that should be used as of December 31, 2022. The separate financial statements for PGS ASA have been prepared in accordance with the Norwegian Accounting Act and Norwegian accounting standards as of December 31, 2022. The Board of Directors report for the group and the parent company is in accordance with the requirements of the Norwegian Accounting Act and Norwegian accounting standard 16, as of December 31, 2022.
To the best of our knowledge:
Walter Qvam Chairperson Anne Grethe Dalane Director Director Marianne Kah Richard Herbert Director
Trond Brandsrud Director Ebrahim Attarzadeh Director Shona Grant Director
Rune Olav Pedersen Director President & Chief Executive Officer Anette Valbø Director Eivind Vesterås Director Gunhild Myhr
FINANCIAL STATEMENTS 2022
As required by the European Securities and Markets Authority ("ESMA") guidelines, the Company has defined and explained the purpose of its Alternative Performance Measures ("APMs") in the paragraphs below.
Produced Revenues, when used by the Company, means revenues and other income based on recognition of MultiClient prefunding revenues on a Percentage-ofcompletion (POC) basis. Produced Revenues is reconciled in Note 4.
EBITDA, when used by the Company, means EBIT excluding other charges, impairment and loss on sale of non-current assets and depreciation and amortization. EBITDA may not be comparable to other similarly titled measures from other companies. The Company has included 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.
PGS believes that EBIT, excluding impairments and other charges, is a useful measure in that the measures provide 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 EBITDA, when used by the Company, means Reported EBITDA adjusted for the difference between Produced Revenues and Reported Revenues (IFRS). 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 MultiClient pre-funding level is calculated by dividing the produced 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 it 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 noncurrent and current interest-bearing debt, less cash and cash equivalents and restricted cash. PGS believes that Net Interest-Bearing Debt ("NIBD") 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. The Company present NIBD including and excluding lease liabilities.
Liquidity reserve is defined as the sum of cash and cash equivalents and the un-drawn part of the Revolving Credit Facility. Management 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.
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.
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.
Capital expenditures means investments in property and equipment irrespective of whether paid in the period but excluding capitalized interest cost.
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 cash operating costs capitalized as investments in the MultiClient library as well as capitalized development costs. 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. 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.
| Segment Reporting, Total Revenues and Other Income, As reported, and Produced revenues are reconciled as follows: | Year ended December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Contract seismic | 336.3 | 207.8 |
| MultiClient pre-funding | 139.4 | 247.7 |
| MultiClient late sales | 326.7 | 220.4 |
| Imaging | 22.7 | 21.7 |
| Other Income | (0.0) | 6.2 |
| Total Revenues and Other Income, As reported | 825.1 | 703.8 |
| Produced MultiClient revenue for projects not yet delivered | 94.0 | 82.3 |
| Produced MultiClient revenue from previous years, projects delivered | (101.9) | (196.1) |
| Produced revenues | 817.2 | 590.0 |
| EBITDA, net is reconciled as follows: | Year ended December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Operating profit (loss) as reported | 106.0 | (66.2) |
| Other charges, net | (5.7) | 5.6 |
| Amortization and impairment of MultiClient library | 253.1 | 379.0 |
| Depreciation and amortization of non-current assets (excl. MultiClient library) | 95.9 | 100.6 |
| Impairment and loss on sale of non-current assets (excl. MultiClient library) | 5.3 | 15.0 |
| EBITDA | 454.6 | 434.0 |
| EBIT ex. impairment and other charges, net is reconciled as follows: | Year ended December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Operating profit (loss) as reported | (106.0) | (66.2) |
| Other charges, net | 5.7 | 5.6 |
| Impairment of MultiClient library | 11.5 | 13.6 |
| Impairment and loss on sale of non-current assets (excl. MultiClient library) | 5.3 | 15.0 |
| EBIT ex. impairment and other charges, net | 117.1 | (32.0) |
| Produced EBITDA, net is reconciled as follows: | Year ended December 31, |
|---|---|
| (In millions of US dollars) | 2022 2021 |
| Operating profit (loss) as reported | 106.0 (66.2) |
| Produced revenue adjustment to revenue as reported | (7.9) (113.8) |
| Other charges, net | (5.7) 5.6 |
| Amortization and impairment of MultiClient library | 253.1 379.0 |
| Depreciation and amortization of non-current assets (excl. MultiClient library) | 95.9 100.6 |
| Impairment and loss on sale of non-current assets (excl. MultiClient library) | 5.3 15.0 |
| Produced EBITDA | 446.7 320.2 |
| Net interest-bearing debt is reconciled as follows: | December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Cash and cash equivalents | 363.8 | 170.0 |
| Restricted cash (current and non-current) | 70.8 | 73.7 |
| Current debt and current portion of non-current debt | (367.1) | (162.6) |
| Non-current debt | (684.2) | (1,017.5) |
| Net interest-bearing debt, excluding lease liabilities | (616.7) | (936.4) |
| Lease liabilities current | (32.9) | (35.9) |
| Lease liabilities non-current | (54.3) | (79.0) |
| Net interest-bearing debt, including lease liabilities | (703.9) | (1,051.3) |
| Total capital expenditures, whether paid or not is reconciled as follows: | Year ended December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Seismic equipment | 33.3 | 19.2 |
| Vessel upgrades/yard | 11.0 | 12.1 |
| Compute infrastructure/ technology | 5.5 | 1.5 |
| Other | 0.4 | 0.6 |
| Total capital expenditures, whether paid or not | 50.2 | 33.4 |
| Change in working capital and capital leases | (1.6) | 2.0 |
| Investment in property and equipment | 48.6 | 35.4 |
| Cash cost, gross and Net operating expenses are reconciled as follows: | Year ended December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Cost of sales before investment in MultiClient library | (433.8) | (351.2) |
| Research and development costs before capitalized development costs | (15.0) | (14.5) |
| Sellling, general and administrative costs | (38.9) | (36.1) |
| Cash costs, gross | (487.7) | (401.8) |
| Steaming deferral, net | 2.7 | (3.2) |
| Cash investment in MultiClient library | 106.4 | 127.2 |
| Capitalized development costs | 8.1 | 8.0 |
| Net operating expenses | (370.5) | (269.8) |
| PGS Consolidated |
Consolidated Statements of Profit and Loss | |||
|---|---|---|---|---|
| Consolidated Statements of Comprehensive Income | 67 | |||
| Consolidated Statements of Changes in Shareholders' Equity | ||||
| Consolidated Statements of Financial Position | 68 | |||
| Consolidated Statements of Cash Flows | 69 | |||
| Notes to the consolidated Financial |
Note 1 | General Information about the Company and Basis of Presentation |
70 | |
| Statements | Note 2 | Summary of Significant Accounting Policies | 70 | |
| Note 3 | Critical Accounting Judgments, Estimates and Assumptions |
75 | ||
| Note 4 | Segment Reporting | 78 | ||
| Note 5 | Revenue from Contracts with Customers | 79 | ||
| Note 6 | Other Income | 81 | ||
| Note 7 | Cost of Sales | 81 | ||
| Note 8 | Depreciation, Amortization and Impairments of Non-current Assets |
81 | ||
| Note 9 | Other Charges, Net | 82 | ||
| Note 10 | Interest Expense | 82 | ||
| Note 11 | Other Financial Expense, Net | 83 | ||
| Note 12 | Income Taxes | 83 | ||
| Note 13 | Earnings Per Share Information | 85 | ||
| Note 14 | Restricted Cash | 85 | ||
| Note 15 | Accrued Revenues and Other Receivables | 85 | ||
| Note 16 | Other Current Assets | 86 | ||
| Note 17 | Property and Equipment | 86 | ||
| Note 18 | MultiClient Library | 88 | ||
| Note 19 | Other Non-Current Assets | 88 | ||
| Note 20 | Other Intangible Assets | 89 | ||
| Note 21 | Debt and Guarantees | 90 | ||
| Note 22 | Financial Instruments | 93 |
|---|---|---|
| Note 23 | Leases, Contingent Liabilities and Provisions | 97 |
| Note 24 | Accrued Expenses and Other Current Liabilities | 98 |
| Note 25 | Other Non-Current Liabilities | 99 |
| Note 26 | Pension Obligations | 99 |
| Note 27 | Shareholder Information | 101 |
| Note 28 | Related Party Transactions | 103 |
| Note 29 | Share Based Payment Programs | 103 |
| Note 30 | Salaries and Other Personnel Costs, Number of Employees, and Remuneration to the Board of Directors, |
|
| Executive Officers and Auditors | 105 | |
| Note 31 | Subsidiaries | 108 |
| PGS ASA Parent | Statements of Profit and Loss | 110 |
|---|---|---|
| Company | Statements of Financial Position | 111 |
| Statements of Cash Flows | 112 | |
| Note 1 | Summary of Significant Accounting Policies | 113 |
|---|---|---|
| Note 2 | Intercompany Transactions | 113 |
| Note 3 | Interest Expense, Net | 114 |
| Note 4 | Other Financial Items, Net | 114 |
| Note 5 | Income Taxes | 114 |
| Note 6 | Shares in Subsidiaries | 114 |
| Note 7 | Restricted Cash | 115 |
| Note 8 | Shareholders' Equity | 115 |
| Note 9 | Debt and Guarantees | 115 |
| Note 10 | Financial Instruments | 116 |
| Note 11 | Other Long-term Liabilities | 116 |
| Note 12 | Accrued Expenses and Other Short-term Liabilities | 116 |
| Note 13 | Salaries and Other Personnel Costs, Number of Employees, and Remuneration to the Board of Directors, Executive Officers and Auditors |
117 |
CONSOLIDATED FINANCIAL STATEMENTS
| Year ended December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | Note | 2022 | 2021 |
| Revenues | 5 | 825.1 | 697.8 |
| Other income | 6 | - | 6.0 |
| Total revenues and other income | 825.1 | 703.8 | |
| Cost of sales | 7 | (324.7) | (227.2) |
| Research and development costs | (6.9) | (6.5) | |
| Selling, general and administrative costs | (38.9) | (36.1) | |
| Amortization and impairment of MultiClient library | 8 | (253.1) | (379.0) |
| Depreciation and amortization of non-current assets (excl. MultiClient Library) | 8 | (95.9) | (100.6) |
| Impairment and loss on sale of non-current assets (excl. MultiClient library) | 17 | (5.3) | (15.0) |
| Other charges, net | 9 | 5.7 | (5.6) |
| Total operating expenses | (719.1) | (770.0) | |
| Operating profit (loss)/EBIT | 106.0 | (66.2) | |
| Share of results from associated companies | 19 | (5.0) | 1.2 |
| Interest expense | 10 | (110.3) | (99.4) |
| Other financial expense, net | 11 | 2.6 | 0.6 |
| Income (loss) before income tax expense | (6.7) | (163.8) | |
| Income tax | 12 | (26.1) | (15.6) |
| Profit (loss) for the year | (32.8) | (179.4) | |
| Earnings (loss) per share, to ordinary equity holders of PGS ASA: | 13 | ||
| - Basic | (\$0.06) | (\$0.45) | |
| - Diluted | (\$0.06) | (\$0.45) |
| Year ended December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | Note | 2022 | 2021 |
| Profit (loss) for the year | (32.8) | (179.4) | |
| Other comprehensive income | |||
| Actuarial gains (losses) on defined benefit pension plans | 26 | 38.4 | 14.8 |
| Items that will not be reclassified to statements of profit and loss | 38.4 | 14.8 | |
| Cash flow hedges | 2.6 | 4.6 | |
| Other comprehensive income (loss) from associated companies | - | - | |
| Items that may be subsequently reclassified to statements of profit and loss | 2.6 | 4.6 | |
| Other comprehensive income (loss), net of tax | 41.0 | 19.4 | |
| Total comprehensive income (loss) to equity holders of PGS ASA | 8.2 | (160.0) |
| Attributable to equity holders of PGS ASA | ||||||
|---|---|---|---|---|---|---|
| (In millions of US dollars) | Share capital par value |
Treasury shares par value |
Additional paid-in capital |
Accumulated earnings |
Other capital reserves |
Shareholders' equity |
| Balance as of January 1, 2021 | 154.2 | - | 929.1 | (675.6) | (11.3) | 396.4 |
| Profit (loss) for the period | - | - | - | (179.4) | - | (179.4) |
| Other comprehensive income (loss) | - | - | - | 14.8 | 4.6 | 19.4 |
| Shares issued at conversion of convertible bond (a) | 4.7 | - | 1.7 | - | - | 6.4 |
| Share based payments | - | - | 2.3 | - | - | 2.3 |
| Balance as of December 31, 2021 | 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 (a) | 7.7 | - | 7.0 | - | - | 14.8 |
| Share based payments | - | - | 1.2 | - | - | 1.2 |
| Shares issued for cash consideration (b) | 146.6 | - | 94.8 | - | - | 241.4 |
| Acquired treasury shares (c) | - | (0.2) | (0.2) | - | - | (0.4) |
| Share based payments, equity settled (c) | - | 0.1 | (0.1) | - | - | - |
| Balance as of December 31, 2022 | 313.2 | (0.1) | 1,035.8 | (834.6) | (4.1) | 510.3 |
(a) In 2021, the Company received conversion notices from holders of the convertible bond representing USD 4.7 million of this bond issue, which pursuant to the bond terms were converted into 12,376,228 new shares. In 2022, the Company exercised and settled its issuer conversion option under the convertible bond whereby all outstanding bonds with an aggregate nominal amount of USD 7.7 million were converted into 25,237,631 shares. As a part of the bond settlement USD 7.0 million was credited to additional paid-in capital.
(b) In 2022, the Company issued 483,622,019 new shares following private placements and a subsequent offering raising approximately NOK 2,477.2 million (corresponding to USD 241.4 million) as equity. Transaction costs amounting to \$5.1 million were recognized against additional paid-in capital.
(c) In 2022, 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 2019 Long Term Incentive Plan for employees. 500,000 shares were bought back under the program and 230,169 shares were used in settlement to employees.
| December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | Note | 2022 | 2021 |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 22 | 363.8 | 170.0 |
| Restricted cash | 14 | 11.6 | 16.1 |
| Accounts receivables | 5, 22 | 169.4 | 134.6 |
| Accrued revenues and other receivables | 5, 15 | 144.9 | 55.9 |
| Other current assets | 16 | 61.7 | 56.4 |
| Total current assets | 751.4 | 433.0 | |
| Non-current assets | |||
| Property and equipment | 17 | 740.4 | 787.4 |
| MultiClient library | 18 | 300.3 | 415.6 |
| Restricted cash | 14 | 59.2 | 57.6 |
| Other non-current assets | 19 | 28.6 | 14.7 |
| Other intangible assets | 20 | 73.4 | 84.5 |
| Total non-current assets | 1,201.9 | 1,359.8 | |
| Total assets | 1,953.3 | 1,792.8 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities |
|||
| Interest bearing debt | 21, 22 | 367.1 | 162.6 |
| Lease liabilities | 21, 22 | 32.9 | 35.9 |
| Accounts payable | 22 | 45.6 | 45.3 |
| Accrued expenses and other current liabilities | 24 | 104.2 | 80.5 |
| Deferred revenues | 5 | 154.4 | 123.4 |
| Income taxes payable | 12 | 20.4 | 16.7 |
| Total current liabilities | 724.6 | 464.4 | |
| Non-current liabilities | |||
| Interest bearing debt | 21, 22 | 659.7 | 973.5 |
| Lease liabilities | 21, 22 | 54.3 | 79.0 |
| Deferred tax liabilities | 12 | 0.1 | 0.1 |
| Other non-current liabilities | 25 | 4.3 | 30.7 |
| Total non-current liabilities | 718.4 | 1,083.3 | |
| Shareholders' equity | |||
| Share capital; par value NOK 3; issued and outstanding 909,549,714 shares | 27 | 313.2 | 158.9 |
| Treasury shares; par value | 27 | (0.1) | - |
| Additional paid-in capital | 27 | 1,035.8 | 933.1 |
| Total paid-in capital | 1,349.0 | 1,092.0 | |
| Accumulated earnings | (834.6) | (840.2) | |
| Other capital reserves | (4.1) | (6.7) | |
| Total shareholders' equity | 510.3 | 245.1 | |
| Total liabilities and shareholders' equity | 1,953.3 | 1,792.8 |
Weybridge, March 1, 2023 Board of Directors
Walter Qvam Chairperson
Anne Grethe Dalane
Vice Chairperson Board Member
Marianne Kah Richard Herbert Board Member
Trond Brandsrud Board Member
Anette Valbø
Board Member Eivind Vesterås
Board Member Gunhild Myhr
Board Member Shona Grant Board Member Ebrahim Attarzadeh
Rune Olav Pedersen Board Member President & Chief Executive Officer
| Year ended December 31, | ||||
|---|---|---|---|---|
| (In millions of US dollars) | Note | 2022 | 2021 | |
| Income (loss) before income tax expense (a) | (6.7) | (163.8) | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation, amortization, impairment | 8 | 354.2 | 494.5 | |
| Share of results in associated companies | 19 | 4.9 | (1.1) | |
| Interest expense | 10 | 110.3 | 99.4 | |
| Interest income | 11 | (7.0) | (0.3) | |
| Loss (gain) on sale and retirement of assets | (1.0) | (0.3) | ||
| Income taxes paid | 12 | (22.5) | (11.7) | |
| Other items | 6.6 | (0.8) | ||
| (Increase) decrease in accounts receivables, accrued revenues & other receivables | (124.7) | (32.8) | ||
| Increase (decrease) in deferred revenues | 5 | 31.0 | (65.2) | |
| Increase (decrease) in accounts payable | 1.2 | 15.2 | ||
| Change in other current items related to operating activities | 36.1 | (5.2) | ||
| Change in other non-current items related to operating activities | (11.1) | (1.3) | ||
| Net cash provided by operating activities | 371.3 | 326.6 | ||
| Investment in MultiClient library | 18 | (106.4) | (127.3) | |
| Investment in property and equipment | 17 | (48.6) | (35.4) | |
| Investment in other intangible assets | 20 | (9.8) | (10.2) | |
| Investment in other current -and non-current assets | 1.8 | - | ||
| Proceeds from sale and disposal of assets | 17 | 1.2 | 1.0 | |
| Net cash provided by (used in) investing activities | (161.8) | (171.9) | ||
| Proceeds, net of deferred loan costs, from issuance of long-term debt | 21 | 47.1 | (19.5) | |
| Interest paid on interest bearing debt | (90.5) | (80.8) | ||
| Repayment of interest bearing debt | 21 | (170.1) | - | |
| Proceeds from share issue (a) | 241.4 | - | ||
| Share buy-back | (0.4) | - | ||
| Payment of lease liabilities (recognized under IFRS 16) | 21, 23 | (36.1) | (40.3) | |
| Payments of leases classified as interest | 23 | (6.4) | (8.9) | |
| Decrease (increase) in restricted cash related to debt service | (0.7) | 8.1 | ||
| Net cash provided by (used in) financing activities | (15.7) | (141.4) | ||
| Net increase (decrease) in cash and cash equivalents | 193.8 | 13.3 | ||
| Cash and cash equivalents as of January 1 | 170.0 | 156.7 | ||
| Cash and cash equivalents as of December 31 | 363.8 | 170.0 |
a) Net of approximately 2% transaction cost and at the NOK/USD exchange rate at the date of receiving funds.
PGS ASA is a public limited liability company established under the laws of the Kingdom of Norway in 1991. Unless stated otherwise, references herein to the "Company", the "Group" and "PGS" refer to PGS ASA and its subsidiaries.
PGS is a fully integrated marine geophysical company that provides a broad range of seismic and reservoir services, including data acquisition, imaging, interpretation, and field evaluation. Our services are provided to the oil and gas industry, as well as to the broader and emerging new energy industries, including carbon storage and offshore wind. The Company operates on a worldwide basis with headquarters in Oslo, Norway. The address is Lilleakerveien 4C, 0283 Oslo.
The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). IFRS as adopted by the EU differs in certain respects from IFRS as issued by the International Accounting Standards Board ("IASB"). References to IFRS hereafter should be construed as references to IFRS as adopted by the EU. The consolidated financial statements are prepared using the historical cost basis, except for certain financial assets and derivative financial instruments that have been measured at fair value. The consolidated financial statements are presented in millions of US Dollars ("\$" or "dollars"), unless otherwise indicated.
The consolidated financial statements were authorized for issue by the Board of Directors on March 1, 2023.
A subsidiary is an entity (including special purpose entities) that is controlled by the Company. Control is achieved where the Company is exposed, or has rights to, variable returns from its involvement with the entity, and has the ability to affect those returns through its power, directly or indirectly, over the entity.
The consolidated financial statements include the results of the Company and all of its subsidiaries from the date that control commences to the date that control ceases.
An associated company is an entity over which the Company has significant influence, being the power to participate in the financial and operating policy decisions of the entity, but which does not amount to control or joint control.
A joint arrangement is a contractual arrangement whereby the Company undertakes an economic activity that is subject to joint control and requires the parties' unanimous consent for strategic financial and operating policy decisions. A joint arrangement is classified as joint operation if the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement. If the parties in the joint arrangement have rights to the net assets of the arrangement, it is classified as a joint venture.
The consolidated financial statements include the Company's share of the post-tax results, other comprehensive income and net assets (less any impairments), of its joint ventures and associates on an equity-accounted basis from the point at which joint control or significant influence respectively commences, to the date that it ceases. Where the Company's share of losses exceeds its interest in a joint venture or associate, the carrying amount is reduced to zero and recognition of further losses is
discontinued, except to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the investment.
The Company accounts for its investment in a joint operation by recognizing its relative share of the investee's assets, liabilities, revenues and expenses. The Company periodically reviews its net investments to determine whether there is an indication of impairment. If such indication exists, the recoverable amount of the net investment is estimated in order to determine the extent of the impairment (if any).
The Company has cooperation agreements to invest in certain MultiClient data projects with other parties, which are classified as joint operations. The Company recognizes its relative share of the investment in MultiClient data and its share of revenue, amortization and costs. When the Company performs services related to acquisition, processing or marketing to the joint operation the share of expenses attributable to its partners is recognized as part of MultiClient pre-funding revenue.
Cash and cash equivalents include demand deposits and all highly liquid financial instruments purchased with original maturities of three months or less. Cash and cash equivalents that are restricted from the Company's use are presented separately in the consolidated statements of financial position and are classified as current or non-current depending on the nature of the restrictions.
The financial statements of subsidiaries and associates whose functional currency is not the US dollar are translated using the current exchange rate. Assets and liabilities are translated at the foreign exchange rate in effect at the period end; share par value and paid-in capital are translated at historical exchange rates; and revenues and expenses are translated at the average rate of exchange in effect during the period. Translation adjustments are recorded as a separate component in the consolidated statements of other comprehensive income.
Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation of realized and unrealized monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statements of profit and loss as other financial expense, except when recognized in the consolidated statements of other comprehensive income as qualifying cash flow hedges.
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated ment. The cost of internally generated intangible assets, other than those specified below, is expensed as incurred.
Revenue from contracts with customers arise primarily from (i) performance of proprietary/exclusive seismic services in accordance with customer specifications and (ii) granting of licenses to the Company's MultiClient data library. Revenue is recognized at the amount that the Company expects to be entitled to and expects to collect under the contract. If a contract has multiple performance obligations, the transaction price is allocated to each performance obligation identified in the contract on a relative stand-alone selling price basis.
Amounts received from customers in advance of the Company satisfying its performance obligations are recorded as deferred revenue. In the event most of the consideration under the contract is received more than 12 months in advance of satisfying the related performance obligation, a financing factor is accrued and included in the value of the revenue recognized upon satisfying the performance obligation.
The Company applies the practical expedient for short-term advances received from customers. That is, the promised amount of consideration is not adjusted for the effects of a significant financing component if the period between satisfying the performance obligation and the payment is one year or less.
In the rare event the Company has satisfied a performance obligation and is otherwise entitled to compensation under the contract but there is a significant uncertainty as to ultimately collecting the compensation, revenue recognition is delayed until such uncertainty has been sufficiently reduced.
Where the Company have satisfied its performance obligations and has a right to consideration, an accrued revenue is recognized.
The principles applied for each of the main types of contracts with customers are described in more detail below.
The Company grants a license to a customer, which entitles the customer to a "right to use" a specifically defined portion of the MultiClient data library as it exists at that point in time. The Company's performance obligation is considered to be satisfied at the "point in time" when the customer has received the underlying data or has granted the access the licensed portion of the data.
The Company typically obtains funding from a limited number of customers before a seismic survey project is completed. In return for the pre-funding, the customer typically gains the ability to direct or influence the project specifications and to access data as it is being acquired.
The Company recognizes pre-funding revenue as "right to use" licenses and the revenue is to be recognized at the point in time when the Company's performance obligation is considered to be satisfied and "right to use" license is transferred to the customer. This "point in time" depends on the specific contract, but is typically upon completion of processing of the survey and granting of access to the finished data or delivery of the finished data.
The "point in time" of satisfying the performance obligation is generally the same for both MultiClient Late Sale licenses and MultiClient Pre-funding licenses. Accordingly, revenue is generally recognized at this same "point in time" for each of these two types of licenses in accordance with IFRS 15.
The Company performs seismic services under contract in accordance with customer specifications. Such service contracts are considered to contain one performance obligation. This performance obligation is considered to be satisfied over time because the Company performs the service at the customer specification, the resultant data is owned by the customer and the Company has no alternative right to otherwise use or benefit from the resultant data. The Company recognizes proprietary/contract revenue over time as the services are performed and the Company is entitled to the compensation under the contract. Depending on nature of the contract progress is measured either based on square kilometers or time progressed. Progress for imaging services is measured based on a model taking into account both working hours and processing.
MultiClient licenses typically contain clauses that require the customer to pay additional fees upon specific triggering events such as customer award of acreage (uplift) and change of ownership (transfer fee). Common to such contingent revenue, is that PGS is typically not required to provide any further data or service – the data has already been delivered. Hence, there is no further performance obligation required on the part of PGS.
The contingent consideration is recognized when the triggering event has taken place.
Customer contracts for other services are similar in nature and terms to the proprietary contract sales. Revenue is recognized over time as the Company satisfies the performance obligation and is entitled to the compensation under the contract.
The MultiClient library consists of seismic data surveys which are licensed to customers on a non-exclusive basis. Costs directly incurred in acquiring, imaging and otherwise completing seismic surveys are capitalized to the MultiClient library. Costs incurred while relocating or "steaming" a vessel or crew from one location to another and borrowing costs incurred during the acquisition and imaging phases of the survey are also capitalized to the MultiClient library.
A project remains in surveys-in-progress until imaging is complete which may be some months or up to more than a year after data acquisition ends, at which point it is transferred to completed surveys.
The Company records the costs incurred on the MultiClient library in a manner consistent with its capital investment and operating decision analysis, which generally results in each survey in the MultiClient library being recorded and evaluated separately. The cost of projects within the same political regime, with similar geological traits and that are marketed collectively are recorded and evaluated as a group by year of completion.
Straight-line amortization - 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 date it is transferred to completed surveys.
Accelerated amortization - Following the adoption of the straight-line amortization policy for completed surveys, recognition of impairment 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.
Further, when a project is completed and after pre-funding revenue is recognized, recognition of impairment may be necessary in the event the present value of expected Late Sales is lower than the capitalized cost of the project.
This accelerated amortization is included in "Amortization and impairment of MultiClient library" in the consolidated statements of profit and loss and specified in note 8.
Impairment of MultiClient library - The Company updates its sales forecast for each survey at each year-end and when an impairment indicator is deemed to exist. In the event the net book value of survey exceeds its net present value of estimated future cash flows an impairment is recorded in the amount of the excess. This impairment is included in "Amortization and impairment of MultiClient library" in the condensed consolidated statements of profit and loss and specified in note 8.
Government Grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.
Research costs are expensed as incurred. An internally generated intangible asset arising from development (or from the development phase of an internal project) is recognized if all of the following have been demonstrated: technical and commercial feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development to use or sell the intangible asset; and the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred from the date on which the intangible asset first satisfies the recognition criteria above. All other development costs are expensed as incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and accumulated impairment, on the same basis as intangible assets acquired separately. Capitalized development costs are amortized on a straight-line basis over the estimated useful life of the asset.
Patents, licenses and technology are stated at cost less accumulated amortization and accumulated impairment. Amortization is calculated on a straight-line basis over the estimated period of benefit, ranging from one to fifteen years.
Property and equipment are stated at cost, excluding the costs of the day-to-day servicing, less accumulated depreciation and impairment. Depreciation is calculated on a straight-line basis over the useful life of the assets based on cost less estimated residual values. The estimated useful lives for property and equipment are as follows:
| Seismic vessels | 25 - 30 |
|---|---|
| Seismic and operations equipment, incl. computers | 3 - 15 |
| Buildings and related leasehold improvements | 1 - 10 |
| Fixture, furniture, fittings and office computers | 3 - 5 |
| Major overhauls | 3 - 7.5 |
Subsequent expenditures and major inspections/overhauls are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits for the Company and the cost of the item can be measured reliably. The carrying amount of replaced asset components are derecognized. All other repairs and maintenance are charged to the consolidated statements of profit and loss during the period in which they are incurred.
The assets' residual values, useful lives and method of depreciation are reviewed, and adjusted if appropriate, at least at each year-end.
Assets under construction are carried at cost, less accumulated impairment. Cost includes borrowing costs incurred during construction in accordance with the Company's accounting policy as stated below. Depreciation commences when the asset is ready for its intended use.
A component of property and equipment is derecognized upon disposal or when no future economic benefit is expected from its use or disposal. Gains and losses arising on de-recognition of assets (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of profit and loss in the year derecognized.
Significant spare parts are capitalized along with the assets to which they relate. Other spare parts, consumables and bunker inventory are classified as other current assets and stated at cost, less any obsolescence.
Steaming costs relate to relocating or "steaming" a vessel and its crew from one location to another. Steaming costs are deferred to the extent the probable future economic benefits from the projects to which the vessel will steam are sufficient to recover the cost of the steam. In the event the vessel steams at a significantly lower speed than normal, the number of days allocated to steaming are reduced. The recoverable steaming cost associated with MultiClient surveys is capitalized as a part of the MultiClient library (see above). Recoverable steaming cost associated with exclusive contract surveys is deferred and charged to the consolidated statements of profit and loss during the periods of data acquisition.
The carrying amount of intangible assets and property, plant and equipment are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.
Intangible assets not yet available for use are assessed for impairment annually, or whenever there is an indication that the asset may be impaired.
The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. In assessing value in use, estimated
future cash flows are discounted to present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash-generating unit ("CGU") to which the asset belongs.
When assessing the recoverable amount or reassessing useful economic lives, significant future developments are considered including technological, economic and market changes. The potential impact of climate change and the energy transition has been incorporated into future cash-flow projections, including management's best estimate of the effects on margins and product mix.
An impairment charge is recognized whenever the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment charges recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to that CGU, and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.
An impairment charge in respect of goodwill is not subject to reversal. For other assets, an impairment charge is reversed if the circumstances that gave rise to the impairment no longer exist, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have existed had no impairment had been recognized.
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises the liabilities to make lease payments and rightof-use assets representing the right to use the underlying assets.
The lease term is determined on the commencement date of the lease, and corresponds to the term of the lease contract, unless the Company is reasonably certain that it will exercise contractual extensions or termination options.
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease payments due under the contract, less any lease incentives receivable, plus the costs of purchase or termination options if reasonably certain to be exercised. Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Company's incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Subsequently, the carrying amount of the lease liability is increased to reflect the accumulation of interest on the liability balance, and reduced as the lease payments are charged to the liability. In addition, the carrying amount of the lease liability is remeasured to reflect contractual modifications, changes to lease payments or changes in the assessment of the lease term.
Right-of-use assets are measured at cost, comprising the initial measurement of lease liability, lease payments made at the commencement date, initial direct costs and estimated restoration costs, less any lease incentives received.
Subsequently, the right-of-use asset is measured at cost, less accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.
Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. The right-of-use assets are also subject to impairment. Refer to the accounting policies in section Impairment of property, equipment and intangibles.
The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature.
Income tax expense is comprised of current and deferred tax. Income tax is recognized in the consolidated statement of profit and loss, except to the extent that it relates to items recorded directly to the consolidated statements of other comprehensive income.
Current tax is the tax expected to be paid to or recovered from taxation authorities in respect of taxable income for the year, using tax rates enacted or substantially enacted during the period.
Deferred tax assets and liabilities are measured using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and the amounts used for taxation purposes. The amount of deferred tax provided is based on tax rates that are expected to apply in the year of realization or settlement, using tax rates and laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is not recognized on temporary differences arising from the initial recognition of goodwill, or relating to investments in subsidiaries to the extent that the temporary difference can be controlled by the Company and will probably not reverse in the foreseeable future.
Deferred tax assets are recognized only when, on the basis of all available evidence, it can be regarded as probable that there will be sufficient taxable profits in the foreseeable future against which the asset can be utilized.
Deferred tax assets and deferred tax liabilities are offset when a legally enforceable right exists to set off current tax assets against current tax liabilities, and the deferred taxes are related to the same taxable entity and the same taxation authority. Deferred tax assets and liabilities are classified as non-current in the consolidated statement of financial position.
Accounting for uncertain tax positions is described in note 3.
The Company's pension arrangements comprise defined benefit plans and defined contribution plans. The plans are funded through payments to insurance companies or trustee-administered funds.
A defined benefit plan is a pension plan which defines an amount of pension benefit that an employee will receive on retirement, dependent on factors such as age, years of service and compensation. The liability recognized for defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period, reduced by the fair value of plan assets. The calculation of the obligation is performed annually by a qualified actuary, using the projected unit credit method and key actuarial assumptions at the reporting date.
The amount charged to the consolidated statement of profit and loss comprises the cost of benefits accruing to employees over the year,
plus net interest expense or income, calculated by applying the liability discount rate to the net pension liability.
Past service costs are recognized immediately in the consolidated statement of profit and loss, unless they relate to plan changes which are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, past service costs are recognized on a straight-line basis over the vesting period.
Actuarial gains and losses due to current period changes in assumptions applied are recognized immediately in other comprehensive income.
For defined contribution plans, the Company pays contributions to privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Company has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
The Company recognizes a provision for bonus where contractually obliged or where there is a past practice that has created a constructive obligation.
Performance Restricted Stock Unit Plans ("PRSUs") are measured at the grant date using a Monte Carlo simulation with relative total shareholder return. The model simulates the future stock prices based on historical values over the length of the lifetime for the PRSU. The Relative TSR is calculated against a group of peer companies, where every company is ranked based on the simulations. An additional measure used is Return on Capital Employed ("ROCE").
The awards are adjusted for expected future dividends. Social security tax on the PRSU is based on the intrinsic value as of the end of the reporting period.
A provision is made for legally binding obligations (contracts) whereby the unavoidable costs of fulfilling the contracts exceed the economic benefits expected to be received. All costs (including depreciation of assigned assets) directly related to contract fulfillment are included in the calculation.
Interest-bearing loans are recognized initially at fair value less transaction costs. Subsequent to initial recognition, interest bearing loans are measured at amortized cost using the effective interest method. Gains and losses are recognized in the consolidated statements of profit and loss when the liabilities are derecognized as well as through the amortization process.
Financial assets and financial liabilities are recognized when the Company becomes party to the contractual obligations of the relevant instrument.
The Company classifies its financial instruments in the following categories: at fair value through profit and loss, at fair value through other comprehensive income or at amortized cost. The Company determines the classification of financial instruments at initial recognition.
This category comprises financial assets and liabilities held for trading, including all derivative instruments. Financial instruments in this category are initially recorded at fair value, and transaction costs are expensed in the consolidated statement of profit and loss. Realized and unrealized gains and losses arising from changes in the fair value are included in the consolidated statements of profit and loss in the period in which they arise.
On initial recognition, an election can be made to classify investments in equity instruments at fair value through other comprehensive income. Financial instruments in this category are initially recognized at fair value plus transaction costs. Subsequently, they are measured at fair value,
with gains and losses arising from changes in fair value recognized in other comprehensive income.
Financial assets and liabilities in this category are initially recognized at fair value, and subsequently carried at amortized cost, using the effective interest method less any allowance for impairment. This category includes accounts receivable, accounts payable and loans and other borrowings.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit and loss as a gain. In subsequent periods the gain is amortized as added interest expense.
At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses. For accounts receivables and contract assets, the Company uses a simplified approach in calculating expected credit losses. The Company recognizes a loss allowance using factors including aging of accounts, historical experience, customer concentration, customer creditworthiness and current industry and economic trends. An impairment loss, amounting to any difference between the carrying amount of the loss allowance and the expected credit losses at the reporting date, is recognized in the consolidated statement of profit and loss.
The Company uses derivative financial instruments to reduce its exposure related to fluctuations in foreign currency rates and interest rates. Derivative instruments are recognized in the consolidated statements of financial position at their fair values. Realized and unrealized gains and losses attributable to derivative instruments that do not qualify for hedge accounting are recognized as other financial items, net, as they arise.
Fair value hedges are used to hedge currency risk on equipment purchases denominated in currencies other than USD. The change in fair value of the hedging instrument is recognized in the consolidated statements of profit and loss, together with any change in fair value of the hedged item that are attributable to the hedged risk.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated statements of profit and loss.
Cash flow hedging is used to hedge interest rate risk. Gains or losses on the hedging instrument are recognized in the consolidated statement of other comprehensive income, to the extent that the hedge is determined to be effective. All other gains or losses are recognized immediately in the consolidated statement of profit and loss.
For cash flow hedges of recognized assets or liabilities, accumulated gains or losses are transferred from other comprehensive income to the consolidated statement of profit and loss in the same period in which the hedged transaction affects the consolidated statement of profit and loss.
Hedge accounting is discontinued when a hedging instrument is derecognized due to expiry, termination or disposal. If the forecasted transaction continues to be expected to occur, the related gains or losses are retained in other comprehensive income until the transaction takes place. Any subsequent change in value is recorded directly to the consolidated statement of profit and loss.
The company have issued a convertible bond in a currency different from its functional currency. The instrument does not meet the "fixed for fixed" criteria for being accounted for as a convertible bond and is accounted for as two separate instruments. The right to convert shares are measured separately as a financial liability at fair value over profit and loss and the bond is at inception valued as the residual between the nominal value of the bond and the fair value of the option. The difference to nominal value is accounted for as interest costs.
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year, excluding ordinary shares purchased by the Company and held as treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For diluted earnings per share, dilutive potential ordinary shares are determined independently for each period presented. When the number of ordinary shares outstanding changes (e.g., share split) the weighted average number of ordinary shares outstanding during all periods presented is adjusted retrospectively. The dilutive effect of outstanding Restricted Stock Units and Performance Restricted Stock Units is reflected as additional share dilution in the computation of earnings per share.
The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2022. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards. This will affect those entities which developed their accounting policies based on the Conceptual Framework. The revised Conceptual Framework includes some new concepts, updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts.
These amendments had no impact on the consolidated financial statements.
In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making. The amendments apply a "directly related cost approach". The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract.
The amendments with no material impact as the Groups policy is in accordance with the amendment.
The The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss.
The amendment had no impact on the consolidated financial statements as there were no sales of such items produced by property, plant and equipment made available for use.
The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other's behalf. There is no similar amendment proposed for IAS 39 Financial Instruments: Recognition and Measurement.
In accordance with the transitional provisions, the Group applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment (the date of initial application). These amendments had no impact on the consolidated financial statements of the Group as there were no modifications of the Group's financial instruments during the period.
These amendments had no impact on the consolidated financial statements of the Group as it did not have assets in scope of IAS 41 as at the reporting date.
Standards and interpretations that are issued up to the date of issuance of the consolidated financial statements, but not yet effective, are disclosed below. The Company's intention is to adopt the relevant new and amended standards and interpretations when they become effective, subject to EU approval before the consolidated financial statements are issued.
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify:
The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied retrospectively.
The Company is still assessing the potential impact.
IFRS 17 applies to all types of insurance contracts, regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. The core of IFRS 17 is the general model, supplemented by:
IFRS 17 is effective for reporting periods beginning on or after 1 January 2023, with comparative figures required. The amendments will not have material impact on the Group's financial statements.
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of 'accounting estimates'. The amendments clarify the distinction between changes in accounting estimates and changes
in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniquesand inputs to develop accounting estimates.
The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. Earlier application is permitted as long as this fact is disclosed.
The amendments are not expected to have a material impact on the Group's financial statements.
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, in which it provides guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their 'significant' accounting policies with a requirement to disclose their 'material' accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023 with earlier application permitted. Since the amendments to the Practice Statement 2 provide non-mandatory guidance on the application of the definition of material to accounting policy information, an effective date for these amendments is not necessary.
The Group is currently revisiting their accounting policy information disclosures to ensure consistency with the amended requirements.
The preparation of financial statements in accordance with IFRS requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities. In many circumstances, the ultimate outcome related to the estimates, assumptions and judgments may not be known for several years after the preparation of the financial statements. Actual amounts may differ materially from these estimates due to changes in general economic conditions, changes in laws and regulations, changes in future operating plans and the inherent imprecision associated with estimates.
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
The carrying values of seismic vessels and equipment, MultiClient library and other intangible assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or CGU may not be recoverable. The calculations of recoverable amounts are based upon future cash flow estimates which are discounted to present value and rely upon a number of key estimates and judgements.
The Company applied a pre-tax discount rate of 12% for the year ended December 31, 2022 and 2021 respectively in determining discounted cash flows in connection with the impairment evaluations of seismic vessels and equipment, intangible assets and the MultiClient library. The rates reflect the estimated weighted average cost of capital for Company activities.
The recoverable amount of seismic assets has been evaluated using value in use calculations, which is determined by discounting future cash flows
to their present value. The Company has applied a range of key estimates in developing cash flow forecasts, including future contract pricing, vessel maintenance costs and its weighted average cost of capital. Cash flow forecasts have also included estimates relating to the future impact of climate change and the speed of the energy transition on Company operations.
For the purpose of impairment testing, each vessel is considered as a separate CGU and seismic equipment is allocated to the vessels.
Future cash flow estimates are based on management assumptions about demand for our products and services, future market conditions and technological developments, including the future impact of climate change. Significant and unanticipated changes in these assumptions could result in impairments in a future period.
For impairment calculations in 2022, management has assumed that revenue levels for the fleet in 2023 will be higher than the prior year. Management expects the global energy consumption to continue to increase longer term with oil and gas remaining an important part of the energy mix. With significant under investments in exploration and production spending over recent years, global exploration and production spending increased more than 20% in 2022. Spending growth is expected to continue with a double-digit number in 2023, and the growth is likely to remain healthy in subsequent years.
PGS expects the increasing demand in combination with a very consolidated seismic market and limited additional vessel supply, to support a continued recovery for the offshore seismic market. The ongoing energy crisis in Europe has highlighted the importance of oil and gas production in areas with market access, not just sufficient world production.
From 2030, the impact of the two main energy transition scenarios has been incorporated into cash flow forecasts, as described in the section below.
Management has forecasted improved ("EBIT") margins for 2 years above the historical average, then to trend towards historic margins above ~15% in the base case scenario and to trend to approximately half of the historical average in a scenario assuming a faster energy transition scenario.
Climate change is increasingly accepted as a risk that entities globally are already facing. The Company has considered the impact of climate change and the energy transition in preparing the financial statements. In particular, the energy transition is likely to affect future demand and pricing of geophysical services relating to oil and gas exploration and production, which in turn may affect the recoverable amount of seismic vessels and equipment.
PGS has incorporated two main scenarios for the energy transition and its potential impact into its forecasts – the base case scenario and the fast energy transition scenario.
The base case scenario is developed from the best estimates of current trends and indications of policy over the next 5 years, and assuming a steady transition from oil and gas to other sources of energy by 2050. The reduction in demand for traditional oil and gas E&P services coincides with an increase in New Energy activity, such as Carbon Capture, Utilization and Storage (CCUS) projects which are a key technology for reducing and removing CO2 and achieving net zero goals.
The fast energy transition scenario incorporates the effect of more dynamic government policy and advances in technology, over an extended forecasting period to 2042. In this scenario assumptions remain the same as the base case till 2030, then a significant shift in the market is assumed to reduce, from pre-covid levels, new frontier exploration surveys by 80%, stable/slow growth for 4D surveys and a 50% reduction in demand for all other E&P related seismic surveys. The accelerated reduction in E&P projects is only partially offset by an increase in New Energy project activity. The Company assumes fewer active vessels will
be operating in the seismic market based on a review of the expected economic lifetime of the world fleet.
The above scenarios have been given a 50/50 weighting. Overall, these assumptions resulted in no impairment charges for seismic vessels in the current year. As the future effect of climate change and the energy transition depends upon market, technological and legislative developments that are currently highly uncertain, subsequent changes in assumptions may result in impairment charges or reversals in the future.
The Company will continue to monitor the energy transition and will update the assumptions in the scenarios and their probabilities as new information becomes available.
The key assumptions used in evaluating impairment are subject to substantial uncertainty, due to the volatile nature of macro-economic factors such as future oil price, discount rate and any changes to rules and regulations around seismic exploration.
Had assumed long-term EBIT margins been 3 percentage points lower, for the remaining estimated useful life of the assets when estimating future cash flows, then impairment of the fleet would approximate \$30 million as of December 31, 2022. If EBIT margins had been 5 percentage points lower corresponding to an approximately 6 percentage points reduction of pricing, then impairment of the fleet would be approximate \$85 million as of December 31, 2022.
An increase of WACC of 2% would have resulted in an impairment of \$15 million as of December 31, 2022. If the fast energy transition scenario was given 100% weight, there would have been headroom for all vessels, except one Titan class vessel with a minor (\$2 million) negative headroom as of December 31, 2022. Total headroom for the Titan class vessels is \$60 million in the base case scenario with 50%/50% weighting, while when fast energy transition scenario is given 100% weight, the total headroom for Titan class vessels is \$7 million.
Generally, a survey is defined as a separate CGU, but may in some cases be combined geographically adjacent and marketed combined.
At least annually, management forecasts future sales for each MultiClient library survey for purposes of determining the amount of impairment. Sales forecasts are also estimated in calculating the amount of accelerated amortization for surveys which have licensed disproportionately sooner than implied by the 4-year amortization life; and for surveys that are completed at which time prefunding revenue is recognized. In forecasting sales, management considers past experience, market developments as described above, general prospects for hydrocarbons in the area, political risk, likelihood and timing of exploration licensing rounds, existence of competitor data sets and general economic conditions. Due to the inherent difficulty in forecasting sales and future developments, it is possible that the amount of impairment and amortization could vary significantly between periods. In addition, future revenues from a survey may not be sufficient to cover the existing carrying value. To the extent the future actual revenues achieved prove to be less than forecasted, future periods will reflect lower profitability and/ or impairment of MultiClient library surveys.
As MultiClient surveys generally have a shorter economic lifetime, consequently no alternative scenario similar to vessels have been prepared. Any impact on the marketability of areas is built into the assessments of the individual surveys, generally PGS have reduced the expectations for future sales in frontier areas.
Impairment of the MultiClient library for 2022 amounted to \$ 11.5 million. A 10% reduction in the sales forecast for all surveys with a net book value as of December 31, 2022 would have resulted in an additional impairment of approximately \$4 million. A 20% reduction in the sales forecast for all surveys with a net book value as of December 31, 2022 would have resulted in an additional impairment of approximately \$16 million.
Depreciation is based on management estimates of the future economic benefits and expected useful lives of seismic vessels and equipment. These estimates may change due to changes in market conditions including competition, technological development, use of the assets and strategic considerations.
There is a risk of seismic vessels getting stranded due to a reduction in demand for oil & gas related services. Management has in its assessment among other considered the age of the current world fleet and the assumed market development as described under the impairment section. The newest vessel has an assumed economical lifetime till 2042 and management expect the demand for services such as Carbon Capture, near field exploration and surveys over production areas to support the economic lifetime of its current fleet. Refer to impairment section for further information.
In addition, future regulations over fuel types and omissions could potentially impact the economical lifetime of the vessels. The future development, including any transition rules, is uncertain and management currently do not expect any reduction in lifetime.
Deferred tax assets are recognized for unused tax losses to the extent it is probable that future taxable profit will be available against which the losses can be utilized. Significant management judgment is required to estimate the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profit in the nearer term (generally 2 to 3 years forward).
As of December 31, 2022, aggregate unrecorded deferred tax assets of the Company amount to \$381.5 million.
The Company records accruals for contingencies, claims and other uncertain liabilities, including tax contingencies, when it is more likely than not that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or new or additional information becomes available. In estimating the likelihood of an unfavorable outcome, management evaluates the specific facts and circumstances in light of the related laws and regulations; advice from external counsel; and the outcome of similar cases, if any. Because of the inherent uncertainty in estimating the future outcome of such matters, it is possible that some of these matters will ultimately result in the Company incurring a material liability. See note 12 for further descriptions.
In certain circumstances, revenues can be recognized in respect of a performance obligation that has already been fulfilled in the past. This happens when a customer is already in possession of the license for certain data and either (i) the customer is taken-over by or merged with a competitor who does not yet have the license for such data (and is thus required to pay a transfer fee), or (ii) the customer involves another partner, not already having access to the licensed data, for the exploration of a block, or (iii) customer award of acreage (uplift).
In the event of these specific contractual arrangements' judgement is required in determining when the triggering event took place and the amount to be recognized. Taking into account possible price concessions, customers re-delivery rights and collectability of the claim.
Pursuant to section 3-3a of the Norwegian Accounting Act, the Board confirms that the 2022 financial statements have been prepared based on the going concern basis which, the Directors believe to be appropriate. Refer to "Financing status" section in the Board of Directors report and Note 22 for further information.
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 did, for the purpose of its internal reporting, continue 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.
From January 1, 2022, PGS changed its Segment Reporting measurement to simplify external and internal reporting. In Q4 2022, PGS re-introduced revenues recognized under the POC method as its basis for internal reporting as this is more aligned with activity level and was ultimately concluded to be a preferred measurement of performance and basis for decision making.
The table below provides a reconciliation of the Company's segment numbers ("Produced") against the financial statements prepared in accordance with IFRS ("As Reported"):
| Year ended December 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||
| (In millions of US dollars) | Produced | Adjustments | As Reported | ||||
| Total revenues and other income* | 817.2 | 590.9 | 7.9 | 113.8 | 825.1 | 703.8 | |
| Net operating expenses | (370.5) | (269.8) | - | - | (370.5) | (269.8) | |
| EBITDA | 446.7 | 320.2 | 7.9 | 113.8 | 454.6 | 434.0 |
*Includes Other Income of nil and \$6.0 million from US government grants in 2022 and 2021, respectively. See note 6.
| Year ended December 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |
| (In millions of US dollars) | Produced | Adjustments | As Reported | |||
| -Contract seismic | 336.3 | 207.8 | - | - | 336.3 | 207.8 |
| -MultiClient pre-funding | 131.5 | 133.9 | 7.9 | 113.8 | 139.4 | 247.7 |
| -MultiClient late sales | 326.7 | 220.4 | - | - | 326.7 | 220.4 |
| -Imaging | 22.7 | 21.7 | - | - | 22.7 | 21.7 |
| -Other Income* | - | 6.2 | - | - | - | 6.2 |
| Total Revenues and Other Income | 817.2 | 590.0 | 7.9 | 113.8 | 825.1 | 703.8 |
*Includes Other Income of nil and \$6.0 million from US government grants in 2022 and 2021, respectively. See note 6.
For the year ended December 31, 2022 MultiClient pre-funding revenues, As Reported, were higher than Produced pre-funding revenues.
Set out below is the reconciliation of the Company's segment numbers with the amounts disclosed in revenues from contracts with customers (note 5):
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Revenues, Produced* | 817.2 | 584.0 |
| Produced MultiClient revenue for projects not yet delivered | (94.0) | (82.3) |
| Produced MultiClient revenue from previous years relating to projects delivered with revenue recognized under IFRS | 101.9 | 196.1 |
| Revenues, As Reported | 825.1 | 697.8 |
*Excluding government grants presented at Other income (see note 6)
The difference is related to timing of recognition of MultiClient pre-funding revenues. Refer to note 2 for further information.
Because the Company provides services worldwide to the oil and gas industry, a substantial portion of the property and equipment is mobile, and their respective locations at the end of each period are not necessarily indicative of the earnings generated by the related property and equipment during the period. Property and equipment and other non-current assets are classified based upon location of ownership. The geographic classification of statements of profit and loss items is based upon location of performance or, in the case of MultiClient seismic data sales, the geographic area covered by the data being licensed.
| Year ended December 31, | |||||
|---|---|---|---|---|---|
| Geographical markets | 2022 | 2021 | 2022 | 2021 | |
| (In millions of US dollars) | Produced | As Reported | |||
| Norway | 181.1 | 178.7 | 136.5 | 199.0 | |
| Asia/Pacific | 111.7 | 70.8 | 103.5 | 92.3 | |
| Americas* (excluding Brazil and Canada) | 107.0 | 56.0 | 107.0 | 56.7 | |
| Brazil | 79.7 | 24.3 | 108.2 | 13.7 | |
| Africa (excluding Angola, South Africa) | 66.3 | 8.7 | 45.6 | 38.3 | |
| Angola | 64.9 | 49.6 | 94.5 | 70.6 | |
| Canada | 61.5 | 68.2 | 69.0 | 71.7 | |
| United Kingdom | 37.1 | 43.8 | 43.5 | 44.8 | |
| Greece | 33.6 | - | 25.1 | - | |
| Cyprus | 32.4 | - | 32.4 | - | |
| Middle East/Other (excluding Egypt) | 28.9 | 1.5 | 28.9 | 1.4 | |
| Egypt | 11.9 | 57.2 | 29.8 | 84.1 | |
| Ukraine | 1.1 | 30.0 | 1.1 | 30.0 | |
| South Africa | - | 1.2 | - | 1.2 | |
| Total Revenues and Other Income | 817.2 | 590.0 | 825.1 | 703.8 |
* Includes Other Income of \$6.0 million in government grants in 2021. See note 6.
| Total non-current assets (a) | December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Norway | 836.9 | 974.6 |
| Americas (excluding Brazil) | 104.6 | 98.1 |
| Brazil | 54.2 | 92.5 |
| Africa | 51.9 | 60.8 |
| Asia/Pacific | 47.8 | 46.8 |
| Middle East/Other | 14.5 | 13.6 |
| Europe (excluding Norway) | 10.7 | 13.4 |
| Total | 1,120.6 | 1 299.8 |
(a) Consists of Property and equipment, MultiClient library, Investments in associated companies (note 19) and Other intangible assets.
The company earns revenue from the following categories of customer contracts:
| Type of goods or service | Year ended December 31, | ||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Contract seismic | 336.3 | 207.8 | |
| MultiClient pre-funding | 139.4 | 247.7 | |
| MultiClient late sales | 326.7 | 220.4 | |
| Imaging | 22.7 | 21.7 | |
| Other | - | 0.2 | |
| Total revenues from contracts with customers | 825.1 | 697.8 |
Depending on the type of contract with the customers, the Company's performance obligation is considered to be satisfied over time or at a point in time. Performance obligations satisfied over time generally include Contract seismic, Imaging services and Multiclient revenue from Joint Operation partner.
Set out below is the reconciliation of the timing of revenue from contract with customers.
| Timing of revenue recognition* | Year ended December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Licenses transferred at a point in time | 440.2 | 433.1 |
| Services transferred over time | 384.9 | 264.7 |
| Total revenues from contracts with customers | 825.1 | 697.8 |
*Refer to section on performance obligations below
In 2022, aggregate revenues from the two largest customers accounted for 13% and 8% of the Company's consolidated revenues compared to 10% and 7% in 2021, respectively.
The Company has cooperation agreements to invest in certain MultiClient data projects with other parties. These agreements are classified as joint operations where the parties have rights to the assets and liability of the investment. The Company generally holds an interest between 30-50%. PGS recognizes its share of the revenue. For the year ended December 31, 2022 and 2021, \$99.4 million and \$59.0 of the revenue recognized relates to projects with Joint Operations, respectively.
| December 31, | |||
|---|---|---|---|
| 2022 | 2021 | ||
| 169.4 | 134.6 | ||
| 169.4 | 134.6 | ||
Balances related to customer contracts consists of the following;
| December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | 2021 |
| Accounts receivables | 169.4 | 134.6 | 100.6 |
| Accrued revenues (note 15) | 143.1 | 52.8 | 55.7 |
| Total assets from contracts with customers | 312.5 | 187.4 | 156.3 |
| Deferred revenues | 154.4 | 123.4 | 188.6 |
| Total liabilities from contracts with customers | 154.4 | 123.4 | 188.6 |
Trade receivables are non-interest bearing and are generally on terms of 30 to 45 days.
Accrued revenues are initially recognized for revenue earned, but not yet invoiced. This is generally related to Contract, Imaging projects and Multi-year Data Management as a Service (DMaaS), as well as Late Sales generally to be invoiced the following month.
The increase in assets from contracts customers is mainly due to the increase in accrued revenues. Deferred revenues consist of revenue billed, not yet recognized. A substantial share of the balance is related to MultiClient pre-funding licenses where revenue is generally recognized at completion of the survey. The Company currently expects the majority of all deferred revenues to be recognized the following year.
The increase in deferred revenues is a result of lower volume of MultiClient projects finalized and delivered to clients in 2022.
Set out below is the amount of revenue recognized from amounts included in contract liabilities at the beginning of the year:
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Amounts included in contract liabilities at the beginning of the year | 82.8 | 142.3 |
Contract seismic and imaging
The performance obligation is satisfied over-time and payment is generally due monthly or upon defined project milestones.
The performance obligation is satisfied at a point-in-time, usually by delivery of final data, and payment is generally due upon defined project milestones. The customer is usually entitled to other deliverables such as preliminary data, but these are deemed not to be distinct within the context of the contract.
Revenue the company receives from Joint Operation partners for acquisition or processing preformed is classified as MultiClient pre-funding. The ownership of data is, in most cases, joint and the partner assumes ownership, rights and obligations as the data is produced, the revenue is therefore considered as transferred over time. This amounts to \$ 25.9 million and \$35.2 for the years ended December 31, 2022 and 2021, respectively.
The performance obligation is satisfied at a point-in-time upon signing of contract and delivery of data. Payment is generally due 30-45 days after the performance obligation is satisfied. Certain contracts may contain uplift payments dependent on a condition such as the customer subsequently being awarded acreage that is covered by the MultiClient data license granted to the customer. These are considered contingent consideration and consideration is recognized when the triggering event has taken place.
The transaction price, for contracts entered into as of December 31, allocated to the remaining performance obligations (unsatisfied or partly unsatisfied) as follows:
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Licenses transferred at a point in time | 248.9 | 125.0 |
| Services transferred over time | 268.2 | 202.4 |
| Within one year | 517.1 | 327.4 |
| Licenses transferred at a point in time | - | - |
| Services transferred over time | - | - |
| More than one year | - | - |
| Total | 517.1 | 327.4 |
All ongoing MultiClient projects as of December 31, 2022 with pre-funders are expected to be completed during 2023. The timing of performance obligations is uncertain as MultiClient projects are subject to allocation of internal imaging capacity and progress.
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Government grants | - | 6.0 |
| Total Other income | - | 6.0 |
PGS recorded Other Income of \$6.0 million in 2021 from government grants relating to the COVID-19 pandemic. The amount is related to the US Payroll Protection program given as a loan in 2020 and forgiven in 2021.
| Year ended December 31, | |
|---|---|
| 2022 | 2021 |
| (342.4) | (275.5) |
| (78.8) | (62.3) |
| (12.7) | (13.5) |
| (433.9) | (351.3) |
| 2.8 | (3.2) |
| 106.4 | 127.3 |
| (324.7) | (227.2) |
Amortization and impairment of the MultiClient library consist of the following:
| Year ended December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Amortization of MultiClient library (note 18) | (135.7) | (151.2) | |
| Accelerated amortization of MultiClient library (note 18) | (105.9) | (214.2) | |
| Impairment of MultiClient library (note 18) | (11.5) | (13.6) | |
| Amortization and impairment of MultiClient library | (253.1) | (379.0) |
Total amortization of the MultiClient library in 2022 was \$241.6 million, compared to \$365.4 million in 2021. The decrease is mainly driven by less MultiClient projects finalized and delivered to clients, resulting in less accelerated amortization. Amortization was 41% of MultiClient revenues, compared to 75% in 2021. The lower amortization rate reflects a higher proportion of late sales in the mix.
Impairment relates mainly to surveys where the level of previously expected sales has not materialized or are no longer probable. In 2022 approximately 37% relates to projects in Africa and the remainder mainly North America, Europe and Asia Pacific, compared to approximately 30% related to North and South America and the remainder mainly Europe and Asia Pacific in 2021.
Amortization and depreciation of non-current assets (excluding MultiClient library) consist of the following:
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Gross depreciation and amortization * | (122.2) | (142.4) |
| Deferred Steaming depreciation, net | 0.4 | (2.1) |
| Depreciation capitalized to the MultiClient library | 25.9 | 43.9 |
| Depreciation and amortization of non-current assets (excl. MultiClient Library) | (95.9) | (100.6) |
* Includes depreciation of right-of-use assets amounting to \$17.6 million and \$22.7 million for the years ended December 31, 2022 and 2021, respectively.
Impairments of non-current assets (excluding MultiClient library) consist of the following:
| Year ended December 31, | |
|---|---|
| (In millions of US dollars) | 2022 2021 |
| Impairment of property and equipment (note 17) | - (15.0) |
| Impairment of other intangible assets (note 20) | (5.7) - |
| Gain (loss) from sale of non-current assets | 0.4 - |
| Impairment non-current assets (excl. MultiClient Library) | (5.3) (15.0) |
In 2022, there are no impairment charges on seismic acquisition vessels and equipment. In 2021, PGS recorded an impairment charge of \$15.0 million on two Ramform Titan-class vessels. Reference is made to note 3 for further information.
The recoverable values of seismic vessels are sensitive to the assumed margins and cycles of the seismic industry, as well as changes to the operation plan for vessels. As a result, further impairments may arise in future periods. Reference is made to note 3 for information on sensitivities.
Impairment of Other intangible assets of \$5.7 million relate to assessment of the Company's research and development portfolio.
Other charges, net consist of the following:
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Onerous contracts with customers | 11.0 | (1.8) |
| Provision for bad debt | (3.4) | - |
| Gain (loss) investment in subsidiaries | (2.0) | - |
| Other | 0.1 | (3.8) |
| Total | 5.7 | (5.6) |
Per December 31, 2022, the Company has no remaining provision for onerous customer contracts. This is a decrease from the \$11.0 million provision as of December 31, 2021. 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.
| Interest expense consists of the following: | ||
|---|---|---|
| Year ended December 31, | ||
| (In millions of US dollars) | 2022 | 2021 |
| Interest on debt, gross | (109.4) | (98.0) |
| Imputed interest cost on lease agreements (note 23) | (6.4) | (8.7) |
| Interest capitalized to the MultiClient library (note 18) | 5.5 | 7.3 |
| Total | (110.3) | (99.4) |
The average interest rate used to determine the amount of interest cost eligible for capitalization was 8.2% and 6.8% for the years ended December 31, 2022 and 2021, respectively.
Gross interest expense 2022 increased by \$11.4 million compared to the same period in 2021. The increase is primarily due to an increase of Libor interest rates, which impacts the cost of floating rate debt.
Other financial expense, net, consists of the following:
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Interest income | 7.0 | 0.3 |
| Currency exchange gain/(loss) | 4.3 | (1.0) |
| Loss related to modification of debt | - | (7.7) |
| Net gain related to extinguishment of debt | - | 9.4 |
| Net gain/(loss) on separate derivative financial instrument | (7.6) | 0.9 |
| Other | (1.1) | (1.3) |
| Total | 2.6 | 0.6 |
Interest income for 2022 increased by \$6.7 million compared to the same period in 2021. A higher cash balance through 2022 compared to 2021 has benefited from increasing interest rates. Net interest expense for the year increased thereby with \$4.7 million compared to a gross increase of \$11.4 million (see Note 10).
Currency gain for 2022 was \$4.3 million, compared to a \$1.0 million loss in 2021. A weaker NOK versus USD, impacting leasing liabilities and the convertible bond denominated in NOK, was the primary cause for the currency gain.
In 2022, the \$7.6 million loss on separate derivative financial instrument at fair value relates to the conversion right in the convertible bond and the increase of the share price until settlement. The derivative instrument was settled August 25, 2022, through conversion of the remaining amount of the bond to shares. Refer to Note 21 and 22 for more information
| Total income tax expense | (26.1) | (15.6) |
|---|---|---|
| Deferred taxes | - | - |
| Current taxes | (26.1) | (15.6) |
| (In millions of US dollars) | 2022 | 2021 |
| Year ended December 31, | ||
| Income tax consists of the following: |
Current tax expense relates to foreign withholding tax and corporate tax on profits in countries where PGS has executed projects or made significant MultiClient sales, primarily in Africa and Asia.
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Income (loss) before income tax | (6.7) | (163.8) |
| Norwegian statutory rate | 22% | 22% |
| Provision for income taxes at statutory rate | 1.5 | 36.0 |
| Increase (reduction) in income taxes from: | ||
| Effect of tax rates other than statutory tax rate in Norway | 2.1 | 1.8 |
| Tax exempt income within tonnage tax regimes | (2.5) | 0.2 |
| Gain/losses equity investments | (1.1) | 0.3 |
| Foreign taxes not creditable in home country | (18.7) | (5.2) |
| Currency effects (a) | (39.0) | (11.7) |
| Changes in unrecognized deferred tax assets | 48.4 | (15.3) |
| Prior period adjustments | (17.2) | (21.2) |
| Other permanent items | 0.4 | (0.5) |
| Income tax | (26.1) | (15.6) |
(a) Currency effects primarily relate to translating tax positions in local currency to US dollar functional currency.
The tax effects of the Company's temporary differences are as follows:
| December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Deferred tax assets | ||
| Employee benefits | - | (8.1) |
| Tax loss carry-forwards | (288.6) | (336.0) |
| Property and equipment | (45.8) | (56.3) |
| Other | (59.7) | (36.0) |
| Deferred tax assets, gross | (394.1) | (436.4) |
| Deferred tax liabilities | ||
| Property and equipment | 3.4 | 0.3 |
| Intangible assets | 4.5 | 5.6 |
| Employee benefits | 4.1 | - |
| Other | 0.7 | 0.8 |
| Deferred tax liabilities, gross | 12.7 | 6.6 |
| Deferred tax assets, net | (381.4) | (429.8) |
| Deferred tax assets not recognized in the consolidated statements of financial position | 381.5 | 429.9 |
| Net recognized deferred tax assets and liabilities | 0.1 | 0.1 |
| December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Deferred tax assets | - | - | |
| Deferred tax liabilities | 0.1 | 0.1 | |
| Income tax liabilities, gross | 0.1 | 0.1 |
Any temporary differences related to IFRS 16 is considered on a net basis. Deferred tax is recognized on temporary differences that arise when the net asset or liability changes. The amount is not material and is included in other deferred tax assets.
The Company has incurred several years of consecutive tax losses in the Norwegian tax jurisdiction, including for 2022 and the outlook for 2023 remains uncertain. Although the Company believes it will attain a satisfactory level of profitability, sufficient convincing evidence of such as required by International Accounting Standard 12 is not present.
Deferred tax assets specified by jurisdiction, both recognized and unrecognized, and tax losses including expiration periods as of December 31, 2022 are as follows:
| (In millions of US dollars) | Tax losses | Expiry dates | Recognized deferred tax assets |
Unrecognized deferred tax assets |
|---|---|---|---|---|
| Norway | 1,049.6 | None | - | 230.9 |
| UK | 77.1 | None | - | 14.6 |
| Other | 57.2 | Various | - | 43.1 |
| 1,183.9 | - | 288.6 |
It is the Company's current view that unremitted earnings from international operations in subsidiaries are expected to be reinvested indefinitely, and as a result, no withholding taxes have been provided for unremitted earnings.
With its multinational operations, the Company is subject to taxation in many jurisdictions around the world with increasingly complex tax laws. The Company has several matters in several jurisdictions that could eventually make it liable for material amounts of taxes relating to prior years.
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 \$38.1 million in total. The Company holds a legal deposit amounting to \$18.9 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.
Total provision for uncertain tax positions is recognized as follows:
| December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Other non-current liabilities | 2.2 | 0.1 |
| Total provision for uncertain tax positions | 2.2 | 0.1 |
| Specification of average number of shares: | Year ended December 31, | |
|---|---|---|
| 2022 | 2021 | |
| Weighted average basic shares outstanding (a) | 592,416,941 | 394,943,744 |
| Dilutive potential shares | 8,090,417 | 29,779,850 |
| Weighted average diluted shares outstanding | 600,507,358 | 424,723,594 |
(a) Weighted average basic shares outstanding for each year is reduced by the average number of treasury shares owned by the Company during the year (see Note 27).
| Restricted cash consists of the following: | |
|---|---|
| December 31, | |
| (In millions of US dollars) | 2022 2021 |
| Current: | |
| Restricted payroll withholding taxes | 3.4 3.7 |
| Other | 8.2 12.4 |
| Total restricted cash, current | 11.6 16.1 |
| Non-current: | |
| Deposits tax disputes (note 12) | 18.9 17.9 |
| Restricted cash debt service | 40.1 39.4 |
| Other | 0.2 0.3 |
| Total restricted cash, non-current | 59.2 57.6 |
Non-current restricted cash of \$40.1 million is held in debt service reserve and retention accounts related to the export credit financing ("ECF") of Ramform Titan, Ramform Atlas, Ramform Tethys and Ramform Hyperion. Current other restricted cash mainly relates to deposits on various guarantees.
| Accrued revenues and other receivables consist of the following: | December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Accrued revenues | 143.1 | 52.8 |
| Other receivables | 1.8 | 3.1 |
| Total | 144.9 | 55.9 |
| 2022 | 2021 | |
|---|---|---|
| 29.4 | 26.8 | |
| 8.3 | 5.0 | |
| 9.1 | 10.8 | |
| 7.0 | 8.0 | |
| 3.8 | 4.0 | |
| 4.1 | 1.8 | |
| 61.7 | 56.4 | |
| December 31, |
The changes in property and equipment are as follows:
| Seismic vessels | Buildings, fixtures | ||
|---|---|---|---|
| (In millions of US dollars) | and equipment | and furniture | Total |
| Cost as of January 1, 2021 | 2,550.5 | 149.0 | 2,699.5 |
| Additions | 34.0 | 1.8 | 35.8 |
| Additions, lease | - | (3.2) | (3.2) |
| Asset retirements, lease | (0.4) | - | (0.4) |
| Reclassification/Other | (0.4) | - | (0.4) |
| Cost as of December 31, 2021 | 2,583.7 | 147.6 | 2,731.3 |
| Additions | 41.4 | 7.2 | 48.6 |
| Additions, lease | - | 11.8 | 11.8 |
| Asset retirements, lease | - | - | - |
| Reclassification/Other | - | 1.3 | 1.3 |
| Cost as of December 31, 2022 | 2,625.1 | 167.9 | 2,793.0 |
| (In millions of US dollars) | |||
| Accumulated depreciation as of January 1, 2021 | 1,498.8 | 83.4 | 1,582.2 |
| Impairments as of January 1, 2021 | 219.4 | - | 219.4 |
| Depreciation | 109.4 | 18.0 | 127.4 |
| Impairments | 15.0 | - | 15.0 |
| Asset retirements- accumulated depreciation | - | (0.1) | (0.1) |
| Depreciation as of December 31, 2021 | 1,608.2 | 101.3 | 1,709.5 |
| Impairments as of December 31, 2021 | 234.4 | - | 234.4 |
| Depreciation | 105.9 | 0.8 | 106.7 |
| Impairments | - | - | - |
| Asset retirements- accumulated depreciation | 2.1 | (0.1) | 2.0 |
| Depreciation as of December 31, 2022 | 1,716.2 | 102.0 | 1,818.2 |
| Impairments as of December 31, 2022 | 234.4 | - | 234.4 |
| Balance as of December 31, 2021 | 741.1 | 46.3 | 787.4 |
| Balance as of December 31, 2022 | 674.5 | 65.9 | 740.4 |
For the year ended December 31, 2022 and 2021, Seismic vessels and equipment and Buildings, fixtures and furniture included the following right of use assets:
| (In millions of US dollars) | Seismic vessels and equipment |
Buildings, fixtures and furniture |
Total |
|---|---|---|---|
| Cost as of January 1, 2021 | 143.4 | 66.3 | 209.7 |
| Additions | - | 0.2 | 0.2 |
| Remeasurement/Other | - | (3.2) | (3.2) |
| Asset retirements | - | - | - |
| Cost as of December 31, 2021 | 143.4 | 63.3 | 206.7 |
| Additions | - | 11.6 | 11.6 |
| Remeasurement/Other | - | (0.3) | (0.3) |
| Asset retirements | - | (10.3) | (10.3) |
| Cost as of December 31, 2022 | 143.4 | 64.3 | 207.7 |
| Accumulated depreciation as of January 1, 2021 | 41.5 | 26.5 | 68.0 |
| Impairments as of January 1, 2021 | 61.3 | - | 61.3 |
| Depreciation | 9.2 | 13.5 | 22.7 |
| Impairments | - | - | - |
| Asset retirements | - | - | - |
| Depreciation as of December 31, 2021 | 50.7 | 40.0 | 90.7 |
| Impairments as of December 31, 2021 | 61.3 | - | 61.3 |
| Depreciation | 9.1 | 8.5 | 17.6 |
| Impairments | - | - | - |
| Asset retirements | - | (10.3) | (10.3) |
| Depreciation as of December 31, 2022 | 59.8 | 48.5 | 108.3 |
| Impairments as of December 31, 2022 | 61.3 | (10.3) | 51.0 |
| Balance as of December 31, 2021 | 31.4 | 23.3 | 54.7 |
| Balance as of December 31, 2022 | 22.3 | 26.1 | 48.4 |
For more information on leases refer to note 23.
Impairment tests are performed when triggers are identified. Per December 31, 2022, the Company has performed impairment tests for all seismic acquisition vessels and equipment, resulting in no impairment charges for 2022. Refer to note 3 for details and sensitivities from the performed tests.
In 2021, the Company recorded a total impairment charge of \$15.0 million on seismic acquisition vessels. The seismic market is recovering, but the recoverable values of seismic vessels and other Company 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.
| December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Titan vessels | - | 15.0 |
| Total impairment | - | 15.0 |
The changes in the MultiClient library are as follows:
| (In millions of US dollars) | 2022 | 2021 |
|---|---|---|
| Balance as of January 1, | 415.6 | 616.1 |
| Capitalized cash costs | 106.4 | 127.2 |
| Capitalized interest | 5.5 | 7.3 |
| Capitalized depreciation | 25.9 | 43.9 |
| Amortization expense | (135.7) | (151.2) |
| Accelerated amortization | (105.9) | (214.2) |
| Impairments (see note 7) | (11.5) | (13.6) |
| Other | - | 0.1 |
| Balance as of December 31, | 300.3 | 415.6 |
| December 31, 2022 |
|
|---|---|
| 2021 | |
| - | 13.9 |
| 53.6 | |
| 49.3 | |
| 117.7 | |
| - | |
| 234.6 | |
| 181.0 | |
| 415.6 | |
| 20.8 30.8 73.9 81.6 207.1 93.2 300.3 |
| Other non-current assets consist of the following: | December 31, | ||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Investments in associated companies | 6.5 | 12.3 | |
| Pension Fund surplus (note 26) * | 21.8 | - | |
| Other | 0.3 | 2.4 | |
| Total | 28.6 | 14.7 |
* Change is related to the Pension Fund moving from a deficit at the start of the year, to a surplus at the end of the year. Refer to note 26 for further information.
Specification of investments in and loans to equity accounted investments as follows:
| December 31, 2022 | |||||||
|---|---|---|---|---|---|---|---|
| PGS | Associated companys total | ||||||
| (In millions of US dollars) | Jurisdiction | Ownership | Net book value | Share of profit and loss | Impairment | for the year* | Equity* |
| Azimuth II Ltd | Bermuda | - | - | - | (4.5) | - | - |
| Ocean Floor Geophysics Inc | Canada | 46% | 2.3 | (1.0) | (2.5) | (0.7) | 2.8 |
| Ocean Geo-Frontier Co. Ltd | Japan | 34% | 2.7 | 0.9 | - | 2.0 | 6.5 |
| Versal AS | Norway | 33% | 1.4 | (0.0) | - | - | 1.4 |
| Other | - | 0.1 | - | - | - | - | |
| Total | 6.5 | (0.1) | (7.0) |
| December 31, 2022 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Associated companys total | |||||||||
| (In millions of US dollars) | Jurisdiction | Ownership | Net book value | Share of profit and loss | Impairment | Profit (loss) for the year* |
Equity* | ||
| Azimuth II Ltd | Bermuda | 35% | 6.2 | 0.7 | 1.2 | (7.9) | 53.3 | ||
| Ocean Floor Geophysics Inc | Canada | 46% | 3.3 | (0.5) | - | (1.4) | 3.7 | ||
| Ocean Geo-Frontier Co. Ltd | Japan | 34% | 2.3 | 1.3 | - | 2.0 | 6.4 | ||
| Other | - | 0.5 | (0.3) | - | - | - | |||
| Total | 12.3 | 1.2 | 1.2 |
* Reflects preliminary numbers.
In 2022, the Azimuth Group (Azimuth Limited, Azimuth II Limited and Azimuth III Limited) closed down all operations and deleted the legal entities and distributed its assets to shareholders.
Ocean Floor Geophysics Inc. is a company incorporated in Canada that provides geophysics data acquisition, analysis and exploration services. It also designs, develops and sells marine geophysical sensors. The Company holds a 46% share pre-dilution and 43% share on a fully diluted basis.
Ocean Geo-Frontier Co. Ltd is a joint venture established in 2019 to administer services provided by the Company, and its partners, to Japan Oil, Gas and Metals National Corporation ("JOGMEC").
Versal AS is a Norwegian company owning "Versal", an independent, secure, Cloud-based, MultiClient seismic data ecosystem offering a single search point to access all MultiClient data from the participating vendor's PGS, CGG and TGS.
The changes for the year in Investments in Associated Companies are as follows:
| December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Balance at January 1 | 12.3 | 9.6 |
| Investments | 1.4 | 1.8 |
| Impairment, reversal of impairment and share of results from associated companies | (7.0) | 1.2 |
| Dividend received | (0.0) | (0.4) |
| Other comprehensive income (loss) from associated companies | (0.1) | - |
| Balance at December 31 | 6.5 | 12.3 |
The changes in other intangible assets are summarized as follows:
| (In millions of US dollars) | Patents, licenses, technology and other |
Intangible assets in development |
Total |
|---|---|---|---|
| Cost as of January 1, 2021 | 332.5 | 44.9 | 377.5 |
| Additions to costs | - | 10.2 | 10.2 |
| Asset retirements | - | (3.8) | (3.8) |
| Reclassification | - | 2.1 | 2.1 |
| Cost as of December 31, 2021 | 332.5 | 53.4 | 386.0 |
| Additions to costs | 1.7 | 8.1 | 9.8 |
| Asset retirements | (1.6) | - | (1.6) |
| Reclassification | - | 1.9 | 1.9 |
| Cost as of December 31, 2022 | 332.6 | 63.4 | 396.1 |
| Amortization as of January 1, 2021 | 284.4 | - | 284.4 |
| Amortization expense | 15.1 | - | 15.1 |
| Impairments | - | - | - |
| Reclassification | 2.0 | - | 2.0 |
| Amortization as of December 31, 2021 | 301.5 | - | 301.5 |
| Amortization expense | 8.7 | 6.8 | 15.5 |
| Impairments | 0.1 | 5.6 | 5.7 |
| Reclassification | - | - | - |
| Amortization as of December 31, 2022 | 310.3 | 12.4 | 322.7 |
| Balance as of December 31, 2021 | 31.0 | 53.4 | 84.5 |
| Balance as of December 31, 2022 | 22.3 | 51.0 | 73.4 |
| Estimated useful life | 1 to 15 years |
PGS recorded aggregate impairment charges of \$5.7 million and \$0.2 million in 2022 and 2021, respectively. Impairment charges is related to assessment of the Company's research and development portfolio.
| Interest bearing debt consists of the following: | December 31, | |
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Secured: | ||
| Term loan B, Libor + 6-700 basis points (linked to total gross leverage ratio ("TGLR")), due 2024 | 737.9 | 873.0 |
| Super Senior Loan, Libor + 675 basis points, due 2024 | 50.0 | - |
| Export credit financing, due 2025 | 100.3 | 109.4 |
| Export credit financing, due 2027 | 163.1 | 189.1 |
| Unsecured | ||
| Convertible bond 5%, due 2024 | - | 8.6 |
| Total loans and bonds, gross | 1,051.3 | 1 180.1 |
| Less current portion | (367.1) | (162.6) |
| Less deferred loan costs, net of debt premiums | (20.0) | (29.6) |
| Less modification of debt treated as extinguishment | (4.6) | (9.3) |
| Less effect from separate derivative financial instrument convertible bond | - | (5.1) |
| Non-current interest bearing debt | 659.7 | 973.5 |
Modification of debt treated as extinguishment changed by \$4.7 million in 2022 and is linked to the Q1 2021 rescheduling of the \$135 million RCF. It was at the time of rescheduling accounted for at fair value with a gain of \$13.5 million. This gain is reversed over the life of the debt and expensed as part of gross interest on debt. The other parts of the rescheduled debt were accounted for as modification of existing agreements, with a loss of \$7.7 million recorded in Q1 2021.
The effect from a separate derivative financial instrument, the convertible bond, changed by \$5.1 million in 2022 and is linked to the convertible bond debt component measured at fair value as of December 31, 2021. The convertible bond was settled in Q3 2022.
Undrawn facilities consists of:
| December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Unsecured | ||
| Performance bond | 22.0 | 17.3 |
| Total | 22.0 | 17.3 |
| December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Loans and bonds gross | (1,051.3) | (1 180.1) |
| Cash and cash equivalents | 363.8 | 170.0 |
| Restricted cash (current and non-current) | 70.8 | 73.7 |
| Net interest bearing debt, excluding lease liabilities | (616.7) | (936.4) |
| Lease liabilities current | (32.9) | (35.9) |
| Lease liabilities non-current | (54.3) | (79.0) |
| Net interest bearing debt, including lease liabilities | (703.9) | (1 051.3) |
Reconciliation of debt arising from financing activities:
| Cash flows | Non-cash changes | ||||||
|---|---|---|---|---|---|---|---|
| (In millions of US dollars) | January 1, 2022 |
Repayment of interest bearing debt |
Payment of lease liabilities |
Proceeds, net of deferred loan costs, from issuance of non-current debt |
Foreign exchange movement |
Other | December 31, 2022 |
| Secured debt | 1,132.7 | (170.1) | - | 47.1 | - | 17.1 | 1,026.8 |
| Bond debt | 3.5 | - | - | - | - | (3.5) | - |
| Lease liabilities | 114.8 | - | (36.1) | - | (2.4) | 10.9 | 87.2 |
| Total liabilities from financing activities | 1,251.0 | (170.1) | (36.1) | 47.1 | (2.4) | 24.5 | 1,114.0 |
| Cash flows | Non-cash changes | ||||||
|---|---|---|---|---|---|---|---|
| (In millions of US dollars) | January 1, 2021 |
Repayment of interest bearing debt |
Payment of lease liabilities |
Proceeds, net of deferred loan costs, from issuance of non-current debt |
Foreign exchange movement |
Other | December 31, 2021 |
| Secured debt | 1 150.4 | - | - | (25.1) | - | 7.4 | 1 132.7 |
| Bond debt | - | - | - | 5.7 | (0.4) | (1.8) | 3.5 |
| Lease liabilities | 158.6 | - | (40.3) | - | (1.3) | (2.2) | 114.8 |
| Total liabilities from financing activities | 1 309.0 | - | (40.3) | (19.4) | (1.7) | 3.4 | 1 251.0 |
At December 31, 2022, the Senior Secured Credit Facility (the "Credit Facility") as amended and originated in 2007 comprises of a \$737.9 million (\$873.0 million on December 31, 2021) Term Loan B (the "Term Loan" or "TLB"). On February 9, 2021, Petroleum Geo-Services AS replaced PGS ASA as the Norwegian borrower, PGS Finance Inc. continues as US Borrower and PGS Holding II Ltd enters as UK Co-Borrower. Borrowings under the Credit Facility are secured by pledges of substantially all assets of the Company except assets pledged to the Export Credit Loans (see below) for which it has an indirect 2nd lien capturing values exceeding the export credit loans. The TLB facility is guaranteed by all material subsidiaries except PGS Titans AS, holding the four titanclass vessels financed by four export credit loans (see below).
Due to the dramatic negative market change caused by the COVID-19 pandemic, PGS initiated in 2020 a process to renegotiate its main credit agreements extending its near-term debt maturities and amortization profiles to support its liquidity position (the "Transaction").
As less than 100% of the RCF and TLB lenders consented to the amendments, the Company initiated a process to implement the transaction pursuant to an UK Scheme of Arrangement (the "Scheme") under English law upon approval of the English Court, after obtaining the required majority creditor consent (being minimum 75% by value and a majority in number of the total RCF and TLB voting in the Scheme). The Scheme enabled the Transaction in respect of the RCF and TLB to be implemented and bind all RCF and TLB lenders (including those who voted against or did not vote).
On February 2, 2021, the Scheme was sanctioned by an English court allowing the implementation of the financing Transaction announced on October 21, 2020 with main terms as listed below. The Scheme had support of lenders to the RCF/TLB facilities representing 95.3% by value of debt and 99.5% by number of creditors voting. The Transaction closed and took effect February 9, 2021. With the Transaction, PGS extended its near-term maturity and amortization profile under its RCF/TLB and ECF facilities by approximately two years.
The existing loan agreements have a liquidity sweep requirement where liquidity reserve in excess of \$200 million at quarter-end shall be used to repay (i) deferred amortizations of the Export Credit Financing ("ECF") loans and (ii) the \$135 million TLB amortization due in September 2022. The \$135 million TLB amortization was repaid in September 2022. As of December 31, 2022, the remaining deferred ECF amount was \$83 million, which will be repaid in Q1 2023. Following the repayment of the deferred ECF amount, and first applicable at March 31, 2023, a mandatory liquidity sweep for liquidity reserve in excess of \$175 million will be applied against the nearest scheduled amortization on the Term Loan B.
There are two financial maintenance covenants: Maximum Total Net Leverage Ratio and Minimum Liquidity. Total Net Leverage Ratio shall not exceed 3.25x through December 31, 2022, and 2.75x thereafter. The Total Net Leverage Ratio is calculated as the consolidated indebtedness, net of restricted cash held for debt service in respect of the Export Credit financing and unrestricted cash and cash equivalents, divided by adjusted EBITDA less non pre-funded MultiClient library investments. The minimum liquidity covenant says unrestricted cash and cash equivalents shall not be below \$75 million, with an extra reporting obligation if cash and cash equivalents fall below \$115 million. There are customary cure periods and provisions.
The margin on the TLB is based on a pricing grid as follows: if Total Gross Leverage Ratio is above 1.75:1.0 the margin is 7.0%; above 1.25:1.0 and less than or equal to 1.75:1.0, the margin is 6.50%; and less than or equal to 1.25:1.0, the margin is 6.00%. The Total Gross Leverage Ratio is defined as the consolidated indebtedness, net of restricted cash held for debt service in respect of the Export Credit financing, to consolidated adjusted EBITDA less non -pre-funded MultiClient library investments.
If the corporate family rating from Moody's or Standard & Poor's is below B3/B- stable outlook, the credit margin on the TLB will be 7.5%. The Company may only access the minimum margin of 6% if the ratings from Moody's and Standard & Poor's are at least B2 stable and B stable, respectively. Moody's and Standard & Poor's rating as of March 1, 2023, are Caa1 and CCC+, respectively. The Credit Facility contains financial covenants and negative covenants that restrict the Company in various ways. The facility provides that:
i) The Company may not incur senior secured debt other than as replacement of existing secured debt, with certain baskets and exceptions among such being assumed debt acquired through entities merged or acquired as long as the Total Net Leverage Ratio on a proforma basis does not exceed 2.0:1.0 and such transaction is accretive (i.e., does not increase the leverage ratio proforma); and leases defined as operational leases under the definition existing prior to IFRS 16. Subject to certain baskets and exceptions, the Company may not incur further junior secured or senior unsecured debt if the total net leverage ratio exceeds 2.00:1.
ii) Dividend payments or similar are permitted out of cumulative distributable earnings (as defined by the agreement) as long as total net leverage ratio is not greater than 2.0:1.0. On or after March 31, 2023, if net leverage ratio is below 1.0:1.0 there is no restriction on dividend payments or similar. Cumulative distributable earnings, as defined, primarily comprises 50% of Net Income (deducting 100% of Net losses) and accumulates over time starting October 1, 2019.
In addition, the Credit Facility restricts or could restrict our ability, among other things, to sell assets without the sales proceeds being reinvested in the business or used to repay debt; issue preferred shares; prepay interest and principal on other indebtedness; create liens on assets; make investments, loans, guarantees or advances; make acquisitions; engage in mergers or consolidations; enter into sale and leaseback transactions; engage in transactions with affiliates; amend material agreements governing our indebtedness; change our business; enter into agreements that restrict dividends from subsidiaries; and enter into speculative financial derivative agreement.
The Export credit financing arrangement comprises four loans each with Japan Bank for International Cooperation ("JBIC") and Sumitomo Mitsui Banking Corporation ("SMBC"), with an aggregate value at inception of \$544.2 million. The loans were incurred by the subsidiary, PGS Titans AS, for the financing of the four Ramform Titan class vessels. PGS ASA guarantees the obligations under two internal 12-year bareboat charter agreements between PGS Falcon AS and PGS Titans AS for the two vessels, the Ramform Titan and the Ramform Atlas, and guarantees the loans financing for the Ramform Tethys and the Ramform Hyperion. The loans are senior facilities secured by first priority mortgages over the vessels and fittings on board (but excluding "in sea" equipment such as streamers), pledge of the borrower's right under a debt service reserve account and assignment of insurance rights in the vessels. The loans are repaid over 12 years from inception in equal semiannual installments and each loan comprised two tranches held by JBIC and SMBC, respectively. The JBIC tranche bears a fixed interest and is repaid from the 7th to 12th year after draw down, while the SMBC tranche bears a floating interest based on 6 months Libor plus a margin and is repaid from 1st to 6th year after draw down. SMBC has received credit insurance from Nippon Export and Investment Insurance ("NEXI") and the insurance premium is paid by PGS Titans AS.
With the completion of the Transaction effective February 9, 2021, described above, the repayment profile of the loans was altered. All scheduled installments for the period September 2020 to September 2022 amounting to ~\$ 106 million were deferred. The original semi-annual repayment profile resumed from December 2022. The deferred instalments were to be repaid over four quarters starting December 2022 through September 2023. The export credit loans have an excess liquidity sweep for any liquidity reserve in excess of \$200 million at each quarter end, with such amounts to be shared between (i) the deferred amounts under the ECF and (ii) the \$135 million TLB amortization that was due in September 2022. The Company paid an excess liquidity sweep in July 2022, with \$8.8 million allocated to the deferred amounts under the ECF of which \$1.3 million related to the deferred amount due in December 2022. The net deferred amount paid in December 2022 was \$14.6 million. The remaining deferred amounts totaling \$83 million are to be paid in February 2023 as a result of an excess liquidity sweep, which will conclude the deferral period and end the liquidity sweep for the ECF.
With the transaction, the export credit lenders have also received enhanced security by certain shared security with the TLB. PGS ASA became a direct guarantor of the loans financing the Ramform Titan and the Ramform Atlas, and each of PGS Holding I Ltd, PGS Holding II Ltd and Petroleum Geo-Services AS will guarantee for the loans financing for the Ramform Titan, Ramform Atlas, Ramform Tethys and Ramform Hyperion.
Under the deferral period the export credit financing loans had the same financial maintenance and reporting covenants as the Credit Facility.
As part of the Transaction closed February 9, 2021, PGS issued convertible bond of NOK 116.2 million with 3 years tenor and 5% coupon paid semi-annually. The unsecured convertible bond ("CB") had PGS ASA as borrower and could from issuance and during the life of the bond be converted into new PGS shares at NOK 3 per share (corresponding to 38,720,699 shares, equaling 10% of the then currently outstanding PGS shares). As part of the Transaction certain lenders to the RCF and TLB facilities subscribed for the CB against conversion of a corresponding amount of their existing secured loans (~NOK 67.1 million/~\$7.8 million) and for cash (~NOK 49.1 million/~\$5.7 million). PGS was able to require that bondholders converted the CB into shares when the PGS share price exceeded NOK 6 for 30 consecutive trading days.
During 2021 bondholders representing NOK 40.4 million of the bond were converted into 13.5 million shares. In August 2022 the remainder of the bond representing NOK 75.7 million was converted into 25.2 million shares.
The right to convert the bond into shares is treated as a separate derivative financial instrument and accounted for as a liability measured at fair value. The equity conversion option was at inception on February 9, 2021, valued at \$9.9 million and the debt component valued at \$3.5 million. As of December 31, 2021, the remaining nominal amount of the CB was \$8.6 million and the derivative financial instrument (relating to the conversion option) was valued at \$5.1 million. For further information on accounting for a conversion right in a different currency (NOK), see Note 2.
May 24, 2022, the Company secured a commitment for a new \$50 million senior secured debt. The loan was drawn in full October 6, 2022. The new senior secured debt has a maturity together with the Company's Term Loan B, in March 2024 with an option to extend it with 1 year at the Company's choice. The loan rank senior to the TLB and bear interest at SOFR (Secured Overnight Financing Rate) plus a margin of 675 basis point. The loan documentation contains financial covenants and negative covenants that replicates those of the TLB (described above under heading Credit Facility).
The Company has \$30.0 million uncommitted bid and performance bond facilities (\$30 million in 2021) intended for operational use. Drawings under these facilities totaled \$8.0 million and \$12.7 million as of December 31, 2022 and 2021, respectively. During 2021 and 2022, the Company was required to deposit cash collateral to cover new or amended bonds drawn under this facility. As of December 31, 2022 the Company had deposited \$8.3 million (\$12.4 million in 2021) which is included in Restricted Cash (see note 14). Drawings under this facility represent the outstanding letters of credit and similar guarantees not reflected in the accompanying consolidated statements of financial position.
PGS ASA has guaranteed the payment obligation under the lease of PGS Apollo (see Note 23).
The Company classifies financial instruments carried at fair value in the consolidated statement of financial position using the Fair Value Hierarchy.
Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2: assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly.
Level 3: techniques for which all inputs which have a significant effect on the recorded fair value that is not based on observable market data.
| December 31, 2022 | December 31, 2021 | ||||
|---|---|---|---|---|---|
| (In millions of US dollars) | Hierarchy Level |
Nominal value |
Fair values |
Nominal value |
Fair values |
| FINANCIAL ASSETS | |||||
| Derivatives designated as hedging instruments | |||||
| Interest rate swaps | 2 | 0.4 | 0.4 | - | - |
| Total | 0.4 | 0.4 | - | - | |
| FINANCIAL LIABILITIES | |||||
| Financial liabilities at amortized cost | |||||
| Debt with fixed interest rate | 2 | (239.5) | (239.5) | (256.6) | (257.4) |
| Debt with variable interest rate | 2 | (811.8) | (776.0) | (914.9) | (827.0) |
| Convertible Bond | 2 | - | - | (8.6) | (7.7) |
| Lease liabilities | 2 | (87.2) | (87.2) | (114.9) | (114.9) |
| At fair value through profit and loss | |||||
| Interest rate swaps | 2 | - | - | (0.5) | (0.5) |
| Option conversion | 2 | - | - | (4.1) | (4.1) |
| Derivatives designated as hedging instruments | |||||
| Interest rate swaps | 2 | - | - | (2.2) | (2.2) |
| Total | (1,138.5) | (1,102.7) | (1 301.8) | (1 213.8) |
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accrued revenues and other receivables, other current assets, accounts payable and accrued expenses classified at amortized cost approximate their respective fair values because of the short maturities of those instruments.
The fair values of the non-current debt instruments, forward exchange contracts and interest rate swaps are estimated using quotes obtained from dealers in such financial instruments or latest quoted prices or indexes at Reuters or Bloomberg. Where market prices are not observed or quotes from dealers are not obtained, an indirect method is used by use of implied credit spread from debt instrument with similar risk characteristics.
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to repay or be able to refinance debt when it falls due and provide returns for shareholders such as dividends, after reaching a target net debt level (excluding lease obligations) of \$500–\$600 million, and work towards an optimal capital structure to reduce the cost of capital.
The management of the capital structure involves active monitoring and adjustments to changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Company may refinance its debt, buy or issue new shares or debt instruments, sell assets or return capital to shareholders.
The Company monitors debt on the basis of the leverage ratio and other covenants in credit agreements. The Total Net Leverage Ratio, calculated on a Produced Revenue basis as of December 31, 2022 was 1.56x (December 31, 2021 – 3.27x) compared to the maximum covenant level of 3.25x (December 31, 2021 – 4.25x). Minimum liquidity covenant is set at \$75 million, which includes unrestricted cash and cash equivalent. As of December 31, 2022 and 2021 cash and cash equivalent was \$363.8 million and 170,0 million, respectively.
In addition, the Company monitors leverage based on net debt. Net debt is calculated as total debt (including short-term and non-current debt as reported in the consolidated statement of financial position) less cash and cash equivalents, including restricted cash. During 2018, taking into account experience from the down cycle and with a view that the Company's markets will continue to be cyclical in the future, the Company has adopted a strategic target to over time reduce net interest-bearing debt to a level, excluding lease obligations, not exceeding \$500–\$600 million, assuming the current size and composition of business activities. As a result, the Company will give higher priority to profitability, cash flow generation and debt reduction than business growth until it reaches a lower debt level.
The Company is exposed to market risks such as interest rate risk, foreign exchange rate risk, credit risk and liquidity risk. The Company's risk management policies are approved by the Board of Directors. The treasury function reports regularly to the Company management and any breach of limits set in the policy are required to be reported to the Board of Directors.
The Company is subject to interest rate risk on debt, including lease liabilities. The risk is managed by using a combination of fixed -and variable rate debt, together with interest rate swaps, where appropriate, to fix or lower the borrowing costs.
| December 31, 2022 | December 31, 2021 | |||
|---|---|---|---|---|
| Notional amounts |
Weighted average interest rate |
Notional amounts |
Weighted average interest rate |
|
| Debt at fixed interest rate | 239.5 | 3.04% | 265.2 | 3.09% |
| Debt at variable interest rate based on US dollar plus a margin | 761.8 | 10.94% | 689.9 | 7.43% |
| Variable interest rate debt with interest fixed | 50.0 | 1.36% | 225.0 | 1.93% |
After giving effect to the Company's interest rate swaps, for every one-percentage point hypothetical increase in LIBOR, the annual net interest expense on variable rate debt, inclusive non-restricted cash holdings, would have increased by \$3.6 million and \$4.8 million approximately measured from December 31, 2022 and 2021, respectively.
The Company is exposed to currency fluctuation due to the effects of a predominantly USD based revenue stream, while the Company's operating expenses and capital expenditures are mainly denominated in USD, GBP, NOK and EUR. The Company maintains a foreign currency risk management strategy that normally uses foreign currency exchange contracts to reduce volatility in the income statement and protect against fluctuations in cash flow caused by volatility in currency exchange rates. The Company does not currently have any bank lines available to hedge currency exposures, but has used cash where possible to offset material exposures. The Company did not have any open forward contracts as of December 31, 2022 or December 31, 2021. The table shows exposures and foreign exchange contracts in currencies that the Company hedges on a regular basis.
| December 31, 2022 | December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions, local currency) | NOK | GBP | BRL | NOK | GBP | BRL | ||
| Restricted cash | 33.4 | - | 99.7 | 32.6 | - | 99.7 | ||
| Cash held as hedges | 242.2 | 1.9 | - | 104.3 | 21.9 | - | ||
| Current assets | 49.4 | 0.9 | 57.3 | 19.6 | 0.8 | 23.0 | ||
| Current liabilities | (177.3) | (2.1) | (152.4) | (139.0) | (0.4) | (0.8) | ||
| Pension liabilities | (22.5) | 18.1 | - | (26.6) | (18.7) | - | ||
| Finance leases | (135.0) | (5.3) | (2.0) | (260.4) | (0.4) | (1.9) | ||
| Other non-current liabilities | - | (1.2) | - | (67.6) | (1.0) | - | ||
| Net statements of financial position exposure | (9.8) | 12.3 | 2.6 | (337.1) | (2.2) | 120.0 |
The following analysis illustrates the sensitivity of changes in relevant foreign exchange rates, after the impact of hedging. All other variables remain constant. The sensitivity analysis is based on the Company's financial assets and liabilities held as of the year ended December 31, 2022 and 2021. The foreign exchange rate analysis assumes a 10% depreciation in USD.
| December 31, 2022 | December 31, 2021 | |||||
|---|---|---|---|---|---|---|
| (in millions, local currency) | NOK | GBP | BRL | NOK | GBP | BRL |
| Impact on profit before tax: Gain / (loss) | 0.1 | (1.5) | (0.1) | (4.2) | (0.3) | 2.4 |
| Average rate | Year end spot rate | |||
|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |
| USD / NOK | 9.547 | 8.587 | 9.910 | 8.832 |
| GBP / USD | 1.244 | 1.377 | 1.204 | 1.350 |
| USD / BRL | 5.157 | 5.353 | 5.277 | 5.569 |
Credit risk is the risk that counterparties to financial instruments do not perform according to the terms of the contract. The approximate maximum credit exposure related to financial assets is as follows:
| December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Cash and cash equivalents | 363.8 | 170.0 | |
| Restricted cash (note 13) | 70.8 | 73.7 | |
| Accounts receivable | 169.4 | 134.6 | |
| Accrued revenues and other receivables (note 15) | 144.9 | 55.9 | |
| Total | 748.9 | 434.2 |
The Company continually monitors the counterparty credit risk of banking partners, including derivatives counterparties and the institutions in which cash is held on deposit.
Trade receivables are primarily with multinational integrated oil companies and independent oil and natural gas companies, including companies owned in whole or in part by governments. As of December 31, 2022, approximately 62% of the balance relates to 5 customers, compared to 46% as of December 31, 2021.
The aging of trade receivables is as follows:
| December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2022 | |
| Current | 144.5 | 89.9 | |
| Up to one month past due | 12.5 | 21.9 | |
| Between one and two months past due | 6.7 | 19.8 | |
| More than three months past due | 14.1 | 8.2 | |
| Allowance for doubtful accounts | (8.4) | (5.2) | |
| Total | 169.4 | 134.6 |
The Company provides for expected credit losses through a loss allowance, which is based on the lifetime expected credit losses at the reporting date. The Company assesses expected credit losses using factors including aging of accounts, historical experience, customer concentration, customer creditworthiness and current industry and economic trends. The provision for expected credit losses is related to receivables more than three months past due.
For accrued revenues, the Company has assessed the collectability prior to recognizing the revenue and assessed credit risk on the same basis as trade receivables. There is no allowance related to accrued revenues as of December 31, 2022 and 2021.
The Company is also exposed to credit risk from off-balance sheet items such as agreements to provide future services to customers and counterparties on derivatives and where cash is held on deposit. The Company manages its exposure to such risks through continuous monitoring of counterparties.
The Company tries to minimize liquidity risk through ensuring access to a diversified set of funding sources, and management of maturity profile on debt and derivatives. The Company is exposed to liquidity risk related to the following:
| Contractual cash flows* | ||||||||
|---|---|---|---|---|---|---|---|---|
| Nominal value |
Notional value |
|||||||
| (45.6) | - | (45.6) | (45.6) | - | - | - | ||
| (239.5) | - | (254.4) | (112.9) | (51.2) | (44.5) | (27.7) | (18.1) | - |
| (811.8) | - | (916.4) | (350.7) | (565.7) | - | - | - | |
| (1,096.9) | (509.2) | (616.9) | (44.5) | (27.7) | (18.1) | - | ||
| 0.4 | 50.0 | - | - | - | ||||
| - | - | - | - | - | ||||
| - | - | - | - | - | ||||
| 0.4 | 50.0 | - | - | - | - | |||
| - (1,216.4) | 0.4 0.4 - - - - 0.4 0.4 |
- | - - - - |
- - - - - |
Total 0-1 years 1-2 years 2-3 years 3-4 years 4-5 years Thereafter |
*Refer to note 21 for further information on debt classification.
| December 31, 2021 | Contractual cash flows | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| (In millions of US dollars) | Nominal value |
Notional value |
Total 0-1 years 1-2 years 2-3 years 3-4 years 4-5 years Thereafter | ||||||
| Non-derivative financial liabilities | |||||||||
| Trade payables | (45.3) | - | (45.3) | (45.3) | - | - | - | - | - |
| Debt with fixed interest rates | (265.1) | - | (288.9) | (20.0) | (118.6) | (60.0) | (44.6) | (27.7) | (18.1) |
| Debt with variable interest rates | (914.9) | - (1,053.8) | (218.8) | (322.5) | (512.4) | - | - | - | |
| Total | (1,225.3) | - (1,388.0) | (284.1) | (441.2) | (572.4) | (44.6) | (27.7) | (18.1) | |
| Derivative financial assets/liabilities | |||||||||
| Interest rate swaps hedge accounted | (2.2) | 225.0 | (2.2) | (2.1) | (0.1) | - | - | - | - |
| Forward exchange contracts used for hedging | - | - | - | - | - | - | - | - | - |
| Other foreign exchange contracts | - | - | - | - | - | - | - | - | - |
| Total | (2.2) | 225.0 | (2.2) | (2.1) | (0.1) | - | - | - | - |
During 2022, PGS raised close to \$250 million of new equity and increased cash flow generation in an improving market. The significant liquidity improvement enabled a reduction of net interest-bearing debt by \$319.7 million (\$347.4 million including lease liabilities). Net interest-bearing debt amounted to \$616.7 million on December 31, 2022, compared to \$936.4 million as of December 31, 2021, and the Company is close to reaching its targeted maximum level for net interest-bearing debt (excluding lease liabilities) of \$500 to \$600 million.
As of December 31, 2022, PGS had cash and cash equivalents totaling \$363.8 million, compared to \$170.0 million as of December 31, 2021. With the strong liquidity position and improving cash flow generation, the Company expects to be able to manage all scheduled amortization of debt in 2023. However, PGS will have to refinance before the final maturity of its Term Loan B in March 2024.
With improved financial performance and the strong reduction of net interest-bearing debt, PGS is well positioned to refinance ahead of the 2024 debt maturities. The debt market was challenging and volatile over the last year but has during the early parts of 2023 shown signs of improvement. However, market volatility remains a risk with respect to the cost and interest rate ultimately achievable in a refinancing. The Company expects to complete a refinancing during the first half of 2023.
The Company expects to be able to manage the above-mentioned risks. However, if unsuccessful, the Company may become unable to settle maturities or amortization on the agreed payment dates or breach a financial covenant in the main credit agreements. This would represent a default under the relevant agreements. In such a case, the Company may be able to continue without repayment or acceleration if it achieves a standstill agreement (or, in the case of a financial covenant breach, a waiver) from the relevant lenders, agent or lender group. Should a payment default or financial covenant breach continue without a standstill agreement or waiver, this would be an event of default under the relevant agreements. An event of default in one facility may represent an event of default in other facilities and agreements. Upon an event of default, there is a risk that the Term Loan B lenders inter alia having a pledge over the shares in PGS Holding II Ltd (a holding company that indirectly owns and controls all material subsidiaries of the group), by 50% majority can accelerate and enforce this and other pledges over all major assets. The ECF lenders may also enforce their pledges, including those over the four Titan class vessels. Such enforcement would likely imply continued operations for the operating companies in the group, but there is a risk PGS ASA, as a company left without its' material subsidiaries, will then enter insolvency.
The Company entered into interest rate swaps totaling a notional amount of \$225 million during 2019 and 2020. These were all designated as hedging instruments in 2020 and all subsequent change in the value of these swaps were recorded in other comprehensive income as the effective portion of the designated and qualified hedging instrument. Swaps with a notional amount of \$175 million matured during 2022. The interest rate swaps had a positive fair value of \$0.4 million and a negative fair value of \$2.2 million as of December 31, 2022 and 2021, respectively.
The majority of revenues are in USD. The company previously entered into derivatives accounted for under fair value hedge relationships to hedge the currency risk. The Company has no foreign exchange rate hedging as of December 31, 2022 and 2021.
The Company has no foreign exchange rate hedging using currency derivatives as of December 31, 2022 and 2021.
The Company has lease contracts for various items of seismic vessels, equipment and buildings used in its operations. Leases of seismic vessels have lease terms between 2 and 10 years, while buildings and equipment generally have lease terms between 1-15 years and 1-6 years. There are several lease contracts that include extension and termination options which are further described below.
The Company also has certain leases with lease terms of 12 months or less and leases of equipment with low value. The Company applies the 'shortterm lease' and 'lease of low-value assets' recognition exemptions for these leases.
Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period:
| Seismic vessels | Buildings, fixtures | ||
|---|---|---|---|
| (In millions of US dollars) | and equipment | and furniture | Total |
| Balance as of January 1, 2021 | 40.6 | 39.8 | 80.4 |
| Additions (note 17) | - | 0.2 | 0.2 |
| Remeasurement/Other (note 17) | - | (3.2) | (3.2) |
| Impairment expense (note 17) | - | - | - |
| Depreciation expense (note 17) | (9.2) | (13.5) | (22.7) |
| Balance as of December 31, 2021 | 31.4 | 23.3 | 54.7 |
| Additions (note 17) | - | 11.6 | 11.6 |
| Remeasurement/Other (note 17) | - | (0.3) | (0.3) |
| Impairment expense (note 17) | - | - | - |
| Depreciation expense (note 17) | (9.1) | (8.5) | (17.6) |
| Balance as of December 31, 2022 | 22.3 | 26.1 | 48.4 |
Set out below are the carrying amounts of lease liabilities and the movements during the period:
| 2022 | 2021 | |||||
|---|---|---|---|---|---|---|
| (In millions of US dollars) | Seismic vessels and equipment |
Buildings, fixtures and furniture |
Total | Seismic vessels and equipment |
Buildings, fixtures and furniture |
Total |
| Balance as of January 1 | 80.4 | 34.4 | 114.8 | 106.6 | 52.0 | 158.6 |
| Additions | - | 11.3 | 11.3 | - | 0.2 | 0.2 |
| Interest | 4.4 | 2.0 | 6.4 | 6.1 | 2.7 | 8.8 |
| Lease payments | (30.7) | (11.8) | (42.5) | (32.5) | (16.7) | (49.2) |
| Remeasurements | (1.4) | (1.4) | (2.8) | 0.2 | (3.8) | (3.6) |
| Balance as of December 31 | 52.7 | 34.5 | 87.2 | 80.4 | 34.4 | 114.8 |
The maturity of lease liabilities can be analysed as follows:
| (In millions of US dollars) | December 31, 2022 | ||||
|---|---|---|---|---|---|
| Seismic vessels and equipment |
Buildings, fixtures and furniture |
Total | |||
| Less than one year | 24.3 | 8.3 | 32.6 | ||
| One to five years | 28.4 | 21.0 | 49.4 | ||
| More than five years | - | 5.2 | 5.2 | ||
| Total | 52.7 | 34.5 | 87.2 |
| (In millions of US dollars) | December 31, 2021 | |||||
|---|---|---|---|---|---|---|
| Seismic vessels and equipment |
Buildings, fixtures and furniture |
Total | ||||
| Less than one year | 31.4 | 10.9 | 42.3 | |||
| One to five years | 58.1 | 23.1 | 81.2 | |||
| More than five years | - | 5.3 | 5.3 | |||
| Total | 89.4 | 59.8 | 128.7 |
The following are the amounts recognised in profit and loss:
| (In millions of US dollars) | 2022 | 2021 |
|---|---|---|
| Interest on lease liabilities adopted under IFRS 16 | 6.4 | 8.8 |
| Expenses relating to short term and low value leases | 17.4 | 11.7 |
| Depreciation expense of right-of-use assets | 17.6 | 22.7 |
| Impairment expense of right-of-use assets | - | - |
| Total | 41.4 | 43.2 |
The Company had total cash outflows for leases of \$59.9 million in 2022, and \$60.9 million in 2021. The Company also had non-cash additions to rightof-use assets and lease liabilities of \$11.6 million in 2022 and \$0.2 million in 2021.
The Company leases four seismic support vessels under time-charter agreements which expire in 2024-2025. The lessor holds options to purchase each vessel from the 3rd party owner at certain times during each lease and at the end of the lease term. At the end of each lease, the 3rd party owner may also require the lessor to purchase the vessel for a pre-determined amount. Should the lessor not purchase the vessel, the 3rd party owner may require PGS to purchase the vessel for a price of \$5.5 million per vessel which is estimated to be less than fair value.
The Company leases one 3D vessel, Sanco Swift, under a time charter agreement which expires in 2023. The Sanco Swift agreement has two 2-year renewal options.
In 2015, the Company entered into a sale and operating bareboat leaseback for the 3D vessel PGS Apollo. The remaining leaseback period is 3.5 years, expiring in 2025, with an option to extend for a 5-year period. PGS has the option but no obligation, to acquire the vessel after the end of year 8 (2023).
Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension and termination options, irrespective of likelihood they will be exercised, that are not included in the lease term:
| December 31, 2022 | ||||
|---|---|---|---|---|
| (In millions of US dollars) | Within five years | More than five years | Total | |
| Extension options expected not to be exercised | 170.7 | 79.8 | 250.5 | |
| Termination options expected to be exercised | - | - | - | |
| Total | 170.7 | 79.8 | 250.5 |
| December 31, 2021 | ||||
|---|---|---|---|---|
| (In millions of US dollars) | Within five years | More than five years | Total | |
| Extension options expected not to be exercised | 196.6 | 84.5 | 281.1 | |
| Termination options expected to be exercised | - | - | - | |
| Total | 196.6 | 84.5 | 281.1 |
| Accrued expenses consist of the following: | December 31, | ||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Accrued capex | 3.0 | - | |
| Accrued commissions | 0.2 | 0.6 | |
| Accrued employee benefits | 32.5 | 25.5 | |
| Accrued interest expenses | 1.6 | 1.3 | |
| Accrued legal expenses | 7.9 | 10.6 | |
| Accrued revenue share | 19.2 | 2.0 | |
| Accrued sales tax and VAT | 14.2 | 1.0 | |
| Accrued vessel operating expenses | 23.3 | 13.2 | |
| Provision for onerous customer contracts | - | 11.0 | |
| Other | 2.3 | 15.3 | |
| Total | 104.2 | 80.5 |
Other non-current liabilities consist of the following:
| December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Pension liability (note 26) | 2.3 | 28.3 | |
| Other | 2.0 | 2.4 | |
| Total | 4.3 | 30.7 |
The Company operates a defined benefit pension plan in the UK. The defined benefit plan was closed to new entrants in 2006 and to further vesting in 2015. The plan is administered through a pension trust which is legally separate from the Company. It is the Company's general practice to fund defined benefit plans in accordance with applicable statutory requirements.
In addition, as described in note 30, the CEO and one executive officer have an early retirement plan allowing for termination of employment without cause when the CEO or the executive officer reaches the age of 62. Full early retirement benefits are defined as 60% of the last base salary beginning in the year of retirement. The CEO is eligible for 85% of full benefits if he retires at the age of 62 and full benefits if he retires at the age of 65. The executive officer is eligible for full benefits if he retires at the age of 62. The early retirement benefits cease when the CEO and executive officer reach the age of 67.
The actuarial valuations are performed by independent actuaries in Norway and UK.
Actuarial valuations as applied in the consolidated financial statements are based upon financial and demographic assumptions which may be impacted by future events. Such future events include, but are not limited to, longer than expected longevity of participants, lower than expected return on investments and higher than expected inflation. Changes to assumptions may increase the liabilities or reduce the value of assets of the plan.
A summary of changes in the plans' aggregate projected benefit obligations and fair values of assets are summarized as follows:
| (In millions of US dollars) | |
|---|---|
| ----------------------------- | -- |
| (In millions of US dollars) | 2022 | 2021 |
|---|---|---|
| Projected benefit obligations (PBO) as of January 1, (a) | 222.6 | 232.9 |
| Service cost | 0.2 | 0.2 |
| Interest cost | 3.8 | 3.2 |
| Social security tax | 0.0 | - |
| Actuarial loss (gain), arising from changes in financial assumptions | (93.6) | (9.0) |
| Actuarial loss (gain), arising from changes in demographic assumptions | (0.3) | (0.5) |
| Actuarial loss (gain) due to scheme experience | 9.9 | 2.2 |
| Benefits paid | (3.7) | (4.0) |
| Exchange rate effects | (21.4) | (2.4) |
| Projected benefit obligations (PBO) as of December 31, (a) | 117.3 | 222.6 |
(a) \$2.3 million and \$3.0 million arise from unfunded plans as of December 31, 2022 and 2021, respectively.
| (In millions of US dollars) | 2022 | 2021 | |
|---|---|---|---|
| Fair value of plan assets as of January 1, | 194.2 | 186.6 | |
| Expected return on plan assets | 3.4 | 2.6 | |
| Employer contributions | 8.5 | 3.7 | |
| Actuarial gain (loss) arising from return on plan assets | (46.2) | 7.0 | |
| Benefits paid | (3.2) | (3.4) | |
| Exchange rate effects | (19.8) | (2.2) | |
| Fair value of plan assets as of December 31, | 136.9 | 194.2 |
The aggregate funded status of the plans and amounts recognized in the Company's consolidated statements of financial position are summarized as follows:
| December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Projected benefit obligation (PBO) | 117.3 | 222.6 | |
| Fair value of plan assets | 136.9 | 194.2 | |
| Currency effects | 0.1 | (0.1) | |
| Net pension liability (surplus) | (19.5) | 28.3 |
The net amount recognized as accrued pension liability is presented as other non-current liabilities (see Note 25).
The net amount recognized as accrued pension surplus is presented as other non-current assets (see Note 19).
The net periodic pension cost for the Company's defined benefit pension plans are summarized as follows:
| Year ended December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Service cost | 0.2 | 0.2 | |
| Interest cost | 3.8 | 3.2 | |
| Expected return on plan assets/net interest cost | (3.4) | (2.6) | |
| Social security tax | - | - | |
| Net periodic pension cost | 0.6 | 0.8 |
The net periodic actuarial gains and losses arising from the Company's defined benefit plans and recorded in other comprehensive income is as follows:
| Year ended December 31, | ||||
|---|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | ||
| Actuarial gain (loss), arising from changes in financial assumptions | 93.6 | 9.0 | ||
| Actuarial gain (loss), arising from changes in demographic assumptions | 0.3 | 0.5 | ||
| Actuarial gain (loss) due to scheme experience | (9.9) | (2.2) | ||
| Actuarial gain (loss) arising from return on plan assets | (46.3) | 7.0 | ||
| Net actuarial gain (loss) recognized in other comprehensive income | 37.7 | 14.3 |
| Significant acturial assumptions: | 2022 | 2021 | ||
|---|---|---|---|---|
| Norway | UK | Norway | UK | |
| Discount rate | 3.00% | 4.83% | 1.90% | 1.89% |
| Return on plan assets | 4.83% | - | 1.89% | |
| Compensation increase | 3.50% | 2.75% | - |
The discount rate assumptions used for calculating pensions reflect the rates at which the obligations could be effectively settled. Observable longterm rates on corporate bonds are used for the Norwegian and UK plans.
The Company's pension plan asset allocations, by asset category, are presented by major plan group as follows:
| December 31, | |||
|---|---|---|---|
| (In millions of US dollars) | 2022 | 2021 | |
| Fair value plan assets | 136.9 | 194.2 | |
| Plan assets at fair value with quoted prices in active markets for identical assets | |||
| Equity/diversified growth funds | 12% | 30% | |
| Bonds | 84% | 57% | |
| Real estate | 2% | 11% | |
| Other | 2% | 2% | |
| Total | 100% | 100% |
Management of plan assets must comply with applicable laws and regulations in Norway and the UK where the Company provides defined benefits plans. Within constraints imposed by laws and regulations, and given the assumed pension obligations and future contribution rates, assets are managed to obtain a long-term rate of return that at least reflects the chosen investment risk.
The following table show the sensitivity to the principal assumptions of the present value of the defined benefit obligation. The sensitivities shown below are approximate and each sensitivity considers one change in isolation.
| (In millions of US dollars) | Change in assumptions | Change in liabilities |
|---|---|---|
| Discount rate | Decrease of 1.0% p.a. | 19.6% |
| Inflation rate | Increase of 1.0% p.a. | 11.7% |
The Company does not expect to make further contributions to its defined benefit pension plans in 2023 as the scheme is in a surplus position.
Substantially all employees not eligible for coverage under the defined benefit plans in Norway and the UK are eligible to participate in pension plans in accordance with local industrial, tax and social regulations. All these plans are considered defined contribution plans. For some of the plans, subject to statutory limitations, employees may make voluntary contributions in addition to the Company's contributions. Plan contributions made by the company aggregated \$6.7 million and \$6.2 million for 2022 and 2021 respectively. Plan contributions made by employees aggregated \$4.3 million and \$4.1 million for 2022 and 2021 respectively.
At the Annual General Meeting ("AGM") held on April 27, 2022, the following authorizations were given for the Board of Directors:
The Annual General Meeting held on April 27, 2022 is available for download at the PGS website.
As of December 31, 2021, PGS ASA had a share capital of NOK 1,202,003,091 comprising of 400,667,697 shares of par value NOK 3 each, all fully paid.
In Q2 2022, PGS successfully completed a private placement raising gross proceeds of NOK 800 million through the allocation of 216,216,216 new shares in the Company, each at a subscription right of NOK 3.70 per new share. Completion of the private placement and a subsequent offering was approved by an extraordinary general meeting approximately three weeks later.
In Q3 2022, the Company exercised and settled its issuer conversion option under the convertible bond whereby all outstanding bonds with an aggregate nominal amount of NOK 75,7 million were converted into 25,237,631 shares. As a part of the bond settlement NOK 68.9 million was credited to additional paid-in capital.
In Q4 2022, PGS successfully completed another private placement raising gross proceeds of NOK 1,536 million through the allocation of 229,250,000 new shares in the Company, each at a subscription right of NOK 6.70 per new share. Completion of the private placement was approved at an extraordinary general meeting approximately three weeks later.
The Company issued in total 483,622,019 new shares following the two private placements and a subsequent offering, raising approximately NOK 2,477.2 million (corresponding to USD 241.4 million) as equity.
As of December 31, 2022 PGS ASA had a share capital of NOK 2,728,649,142 comprising of 909,549,714 shares of par value NOK 3 each, all fully paid.
All shares have equal voting rights and equal rights to dividends. Any distribution of the Company's equity is dependent on the approval of the shareholders, and the ability to make distributions is limited by certain debt covenants and Norwegian Corporate Law. The ordinary shares are listed on the Oslo Stock Exchange.
The Board of Directors will not propose any dividend to the AGM in 2023 for the year ended December 31, 2022.
The Company's holding of treasury shares reconciles as follows:
| % of total shares | |||
|---|---|---|---|
| Treasury shares | outstanding | ||
| Balance as of January 1, 2021 | 6,404 | 0.00% | |
| Share buy-back for settlement of PRSU's granted under 2018 LTI Plan | 0 | 0.00% | |
| Shares used in settlement of PRSU's granted under 2018 LTI Plan | (1,149) | 0.00% | |
| Balance as of December 31, 2021 | 5,255 | 0.00% | |
| Share buy-back for settlement of PRSU's granted under 2019 LTI Plan | 500,000 | 0.05% | |
| Shares used in settlement of PRSU's granted under 2019 LTI Plan | (230,169) | (0.03%) | |
| Balance as of December 31, 2022 | 275,086 | 0.03% |
| The 20 largest shareholders (a) in PGS ASA were as follows: | December 31, 2022 | ||
|---|---|---|---|
| Total shares | Ownership percent | ||
| Coltrane Asset Management, L.P. | 147,725,792 | 16.2 | |
| DNB Asset Management AS | 55,229,324 | 6.1 | |
| Interactive Brokers, L.L.C. | 40,694,043 | 4.5 | |
| M & G Investment Management Ltd. | 36,642,894 | 4.0 | |
| UBS AG London | 29,808,558 | 3.3 | |
| MH Capital AS | 25,871,562 | 2.8 | |
| BofA Global Research (UK) | 16,714,543 | 1.8 | |
| Dimensional Fund Advisors, L.P. | 16,454,694 | 1.8 | |
| Vicama Capital AS | 12,845,121 | 1.4 | |
| Nordnet Livsforsikring AS | 11,011,230 | 1.2 | |
| FIRST Fondene NCP | 10,850,000 | 1.2 | |
| VICAMA AS | 10,000,000 | 1.1 | |
| Morgan Stanley & Co. International Plc | 9,536,064 | 1.0 | |
| Dinosaur Merchant Bank, Ltd. | 9,500,000 | 1.0 | |
| BA5 Invest AS | 9,360,796 | 1.0 | |
| Langebru AS | 8,500,000 | 0.9 | |
| Oppenheimer & Co. Inc. | 6,000,000 | 0.7 | |
| J.P. Morgan Securities plc | 5,569,439 | 0.6 | |
| Acadian Asset Management LLC | 5,531,519 | 0.6 | |
| Crèdit Andorrà Asset Management | 5,242,443 | 0.6 | |
| Other | 436,461,692 | 48.2 | |
| Total | 909,549,714 | 100.00 |
(a) The data in this table is provided by Nasdaq IR Insight and is obtained through an analysis of beneficial ownership and fund manager information provided in replies to disclosure of ownership notices issued to all custodians in relation to the PGS share register provided by the Norwegian Central Securities Depository (VPS). Every reasonable effort has been made to verify the data, however neither PGS nor Nasdaq IR Insight can guarantee the accuracy of the analysis.
Shares owned or controlled by members of the Board of Directors, Chief Executive Officer and Other Executive Officers were as follows:
| December 31, 2022 | |||
|---|---|---|---|
| Ownership | |||
| Total shares | percent | ||
| Board of Directors | |||
| Walter Qvam, Chairperson | 135,000 | (a) | |
| Anne Grethe Dalane | 73,000 | (a) | |
| Marianne Kah | 68,589 | (a) | |
| Richard Herbert | 116,000 | (a) | |
| Trond Brandsrud | 110,000 | (a) | |
| Shona Grant | 75,000 | (a) | |
| Ebrahim Attarzadeh | 140,000 | (a) | |
| Eivind Vesterås | 158,500 | (a) | |
| Anette Valbø | 13,354 | (a) | |
| Gunhild Myhr | - | - | |
| Chief Executive Officer and Other Executive Officers | |||
| Rune Olav Pedersen, President and Chief Executive Officer | 644,365 | (a) | |
| Gottfred Langseth, Executive Vice President and Chief Financial Officer | 1,268,297 | (a) | |
| Rob Adams, Executive Vice President of Operations | 16,126 | (a) | |
| Berit Osnes, Executive Vice President New Energy | 54,377 | (a) | |
| Nathan Oliver, Executive Vice President of Sales & Services | 15,000 | (a) |
(a) Less than 1% of the Company's shares as of December 31, 2022
The following transactions were carried out with related parties:
| Year ended December 31, | ||
|---|---|---|
| (In millions of US dollars) | 2022 | 2021 |
| Sale of goods and services | ||
| Associates – MultiClient data | - | - |
| Associates – Other services | 33.7 | 36.4 |
Transactions with related parties are mainly proceeds from sale of goods and services to Ocean Geo-Frontier Co. Ltd.
The Company has \$0.2 million and \$1.6 million in outstanding balances with related parties as of December 31, 2022 and 2021, respectively.
All transactions with related parties are priced on an arm's length basis.
Chief Executive Officer ("CEO"), other Executive Officers and Directors of the Company are also on the Board of certain customers and suppliers. As of December 31, 2022 and 2021, the Company did not have any significant outstanding balances with any of these companies.
RSU's and PRSU's granted under the Company's employee share- based programs are as follows:
| Grant Year | Options, RSU's and PRSU's granted |
Additional options granted year |
Additional options granted |
Description |
|---|---|---|---|---|
| 2013 | 771 425 | 2014/2016 | 7 500/2 000 | Restricted Stock Plan (RSU) |
| 2014 | 739 500 | 2015/2017 | 2 000/17 500 | Restricted Stock Plan (RSU) |
| 2015 | 657 100 | - | - | Restricted Stock Plan (RSU) |
| 2015 | 776 100 | - | - | Performance Based Restricted Stock Plan (PRSU) |
| 2016 | 647 150 | 2018 | 26 200 | Restricted Stock Plan (RSU) |
| 2016 | 762 150 | - | - | Performance Based Restricted Stock Plan (PRSU) |
| 2017 | 456 320 | - | - | Restricted Stock Plan (RSU) |
| 2017 | 839 480 | - | - | Performance Based Restricted Stock Plan (PRSU) |
| 2018 | 1 746 450 | - | - | Performance Based Restricted Stock Plan (PRSU) |
| 2019 | 2 249 300 | 2020/2021 | 30 000/50 000 | Performance Based Restricted Stock Plan (PRSU) |
| 2020 | 2 399 050 | - | - | Performance Based Restricted Stock Plan (PRSU) |
| 2021 | 5 993 000 | - | - | Performance Based Restricted Stock Plan (PRSU) |
| 2022 | 6,712,000 | - | - | Performance Based Restricted Stock Plan (PRSU) |
In the period 2020-2022, the company only awarded PRSUs. Settlement of the PRSUs granted and subsequent transfer of shares to the eligible employee will take place three years after the grant subject to the Company achieving a satisfactory Total Shareholder Return ("TSR") compared to the companies in LTI Comparator Group" adjusted for dividends.
For PRSUs granted under the 2020-2022 LTI Plan, 75% of the PRSUs will settle subject to the TSR goal as outlined above and 25% subject to a goal on Return on Capital Employed ("ROCE").
For the years ended December 31, 2022 and 2021, the Company recognized compensation cost with a corresponding increase in shareholders' equity of \$0.8 million and \$2.3 million, respectively. Total net unrecognized compensation cost as of December 31, 2022 was \$3.8 million (PRSU's), which is expected to be recognized over a period of 3 years.
In 2022, the Company had a total of 480,427 shares from the Performance based Restricted Stock Units ("PRSU's") under the 2019 Long Term Incentive Plan ("LTI Plan") settled into shares. The participants had the options of (1) receive all shares, (2) receive all cash or (3) 50/50 split of shares and cash. This resulting in The Company initiated and completed a share buy-back program to cover settlement of PRSU's granted under the Company's 2019 LTI Plan for employees. 500,000 shares were bought back under the program, and 230,169 shares were used in settlement to employees. In addition, 250,258 shares were settled in cash to employees.
In 2021, the PRSU's under the 2018 LTI Plan did not result in any payout.
The tables below detail the Company's outstanding share awards (PRSU's) for the years presented:
| Grant date | PRSUs as of December 31, 2021 |
PRSUs granted 2022 |
PRSUs forfeited |
PRSUs settled relating to 2019 PRSU grant |
PRSUs lapsed relating to 2019 PRSU grant |
PRSUs as of December 31, 2022 |
Weighted average remaining contractual term |
|---|---|---|---|---|---|---|---|
| 2019 | 2,105,900 | - | (30,800) | (488,366) | (1,506,626) | 80,108 | - |
| 2020 | 2,223,550 | - | (61,500) | (4,000) | - | 2,158,050 | 0.65 years |
| 2021 | 5,718,000 | - | (135,000) | (10,000) | - | 5,573,000 | 1.37 years |
| 2022 | - | 6,712,000 | (79,000) | - | - | 6,633,000 | 2.37 years |
| Total | 10,047,450 | - | (306,300) | (502,366) | (1,506,626) | 14,444,158 | 1.72 years |
| Grant date | PRSUs as of December 31, 2020 |
PRSUs granted 2021 |
PRSUs forfeited |
PRSUs settled relating to 2018 PRSU grant |
PRSUs lapsed relating to 2018 PRSU grant |
PRSUs as of December 31, 2021 |
Weighted average remaining contractual term |
|---|---|---|---|---|---|---|---|
| 2018 | 1 577 350 | - | - | - | (1 577 350) | - | - |
| 2019 | 2 158 900 | 50 000 | (103 000) | - | - | 2 105 900 | 0.47 years |
| 2020 | 2 384 550 | - | (161 000) | - | - | 2 223 550 | 1.65 years |
| 2021 | - | 5 993 000 | (275 000) | - | - | 5 718 000 | 2.37 years |
| Total | 6 120 800 | 6 043 000 | (539 000) | - | (1 577 350) | 10 047 450 | 1.82 years |
The table below details the Company's assumptions used to calculate estimated fair value at grant date:
| Grant date | Options, RSU and PRSU outstanding December 31,2021 |
Average exercise price |
Weighted average share price at grant date |
Risk free rate |
Dividend yield |
Volatility factor |
Weighted average life |
Estimated fair value at grant date (average NOK/USD per share option/ RSU/PRSU) |
|---|---|---|---|---|---|---|---|---|
| 2016 (a) | - | NOK 0 | NOK 24.55 | N/A | - | N/A | N/A | NOK 24.54/\$2.99 |
| 2016 (b) | - | NOK 0 | NOK 24.56 | N/A | - | N/A | N/A | NOK 18.99/\$2.32 |
| 2017 (a) | - | NOK 0 | NOK 14.59 | N/A | - | N/A | N/A | NOK 14.59/\$1.71 |
| 2017 (b) | - | NOK 0 | NOK 14.59 | N/A | - | N/A | N/A | NOK 10.17/\$1.19 |
| 2018 (b) | - | NOK 0 | NOK 40.70 | N/A | - | N/A | N/A | NOK 31.29/\$3.88 |
| 2019 (b) | 80,108 | NOK 0 | NOK 13.39 | N/A | - | N/A | N/A | NOK 10.50 / \$1.23 |
| 2020 (b) | 2,158,050 | NOK 0 | NOK 3.40 | N/A | - | N/A | N/A | NOK 2.15 / \$0.24 |
| 2021 (b) | 5,573,000 | NOK 0 | NOK 5.36 | N/A | - | N/A | N/A | NOK 4.03 / \$0.49 |
| 2022 (b) | 6,633,000 | NOK 0 | NOK 5.20 | N/A | - | N/A | N/A | NOK 4.31 / \$0.44 |
| Total | 14,444,158 |
(a) Restricted Stock Units ("RSU")
(b) Performance based Restricted Stock Units ("PRSU")
The estimated fair value of the RSU and PRSU's granted are lower than the weighted average share price at the same date as the fair value calculations include adjustment for expected dividends up to vesting. In addition, the fair value of the PRSU's is reduced due to the performance conditions in the program.
Salary and social expenses that are included in cost of sales, research and development costs and selling, general and administrative costs consist of:
| Year ended December 31, | |
|---|---|
| (In millions of US dollars) | 2022 2021 |
| Salaries and bonuses | 120.0 118.5 |
| Social security | 11.9 10.5 |
| Pension | 8.9 6.1 |
| Other benefits | 12.2 13.0 |
| Total | 153.0 148.1 |
The Company had an average of 944 and 915 employees during the years ended December 31, 2022 and 2021, respectively.
In 2022, the Company paid compensation to its President and CEO and other executive officers as follows:
| Total compensation paid in 2022 (a) | ||||||
|---|---|---|---|---|---|---|
| Name | Fixed salary | Bonus (b) | PRSUs (c) | Other benefits (d) |
Total paid salary and compensation (in dollars) |
Pension benefits (e) |
| Rune Olav Pedersen | ||||||
| President and Chief Executive Officer | 575,803 | 306,452 | 31,550 | 17,083 | 984,860 | 164,899 |
| Gottfred Langseth | ||||||
| Executive Vice President and Chief Financial Officer | 423,734 | 111,449 | 14,085 | 22,374 | 609,347 | 92,315 |
| Nathan Oliver | ||||||
| Executive Vice President of Sales & Services | 365,690 | 130,450 | 14,085 | 41,699 | 586,201 | 35,082 |
| Berit Osnes | ||||||
| Executive Vice President of New Energy (e) | 365,690 | 102,751 | 14,085 | 12,052 | 528,855 | 43,862 |
| Rob Adams | ||||||
| Executive Vice President of Operations | 366,961 | 130,450 | 5,634 | 17,533 | 554,856 | 33,486 |
(a) Amounts in NOK have been translated to US Dollars using average exchange rate for 2022 of NOK/USD 9.6245.
(b) Bonus paid out, based on the prior years bonus agreement.
(c) The PRSU remuneration is related to PRSUs settled from the 2019 PRSU grants.
(d) Includes items such as car allowance, house allowance, telephone, internet and other minor benefits.
(e) Contribution to defined contribution plans (Norway) and earned benefits for members of the defined benefit plan.
PRSU's held by the CEO and executive officers as of December 31, 2022 were as follows:
| Name | PRSUs as of December 31, 2021 |
PRSUs granted 2022 |
PRSUs settled relating to 2019 PRSU grant |
Market value PRSUs settled relating to 2019 PRSU grant (USD) |
PRSUs lapsed relating to 2019 PRSU grant |
PRSUs as of December 31, 2022 |
Weighted average remaining contractual term |
|---|---|---|---|---|---|---|---|
| Rune Olav Pedersen | 756,000 | 469,000 | (40,748) | 31,550 | (127,252) | 1,057,000 | 1.79 |
| Gottfred Langseth | 325,000 | 196,000 | (18,191) | 14,085 | (56,809) | 446,000 | 1.76 |
| Nathan Oliver | 325,000 | 196,000 | (18,191) | 14,085 | (56,809) | 446,000 | 1.76 |
| Berit Osnes | 250,000 | 140,000 | (18,191) | 14,085 | (56,809) | 315,000 | 1.97 |
| Rob Adams | 280,000 | 196,000 | (7,276) | 5,634 | (22,724) | 446,000 | 1.66 |
In 2021, the Company paid compensation to its President and CEO and other executive officers as follows:
| Total compensation paid in 2021 (a) | ||||||
|---|---|---|---|---|---|---|
| Name | Fixed salary | Bonus (b) | PRSUs | Other benefits (c) |
Total paid salary and compensation (in dollars) |
Pension benefits (d) |
| Rune Olav Pedersen | ||||||
| President and Chief Executive Officer | 612,364 | - | - | 18,800 | 631,164 | 174,332 |
| Gottfred Langseth | ||||||
| Executive Vice President and Chief Financial Officer | 458,588 | - | - | 24,847 | 483,435 | 99,050 |
| Nathan Oliver | ||||||
| Executive Vice President of Sales & Services | 397,978 | - | - | 45,989 | 443,967 | 38,281 |
| Berit Osnes | ||||||
| Executive Vice President of New Ventures (f) | 307,467 | - | - | 9,751 | 317,218 | 35,594 |
| Rob Adams | ||||||
| Executive Vice President of Operations | 396,931 | - | - | 32,749 | 429,680 | 36,670 |
(a) Amounts in NOK have been translated to US Dollars using average exchange rate for 2021 of NOK/USD 8.5991.
(b) There was no performance related bonus plan for 2020 and management did not receive any bonus payments in 2021.
(c) Includes items such as car allowance, house allowance, telephone, internet and other minor benefits.
(d) Contribution to defined contribution plans (Norway) and earned benefits for members of the defined benefit plan.
(e) Berit Osnes as Executive Vice President of New Energy from 1 April 2021.
PRSU's held by the CEO and executive officers as of December 31, 2021 were as follows:
| Name | PRSUs as of December 31, 2020 |
PRSUs granted 2021 |
PRSUs settled relating to 2018 PRSU grant |
Market value PRSUs settled relating to 2018 PRSU grant (USD) |
PRSUs lapsed relating to 2018 PRSU grant |
PRSUs as of December 31, 2021 |
Weighted average remaining contractual term |
|---|---|---|---|---|---|---|---|
| Rune Olav Pedersen | 462,000 | 420,000 | - | - | (126,000) | 756,000 | 1.79 |
| Gottfred Langseth | 210,000 | 175,000 | - | - | (60,000) | 325,000 | 1.76 |
| Nathan Oliver | 180,000 | 175,000 | - | - | (30,000) | 325,000 | 1.76 |
| Berit Osnes | 149,000 | 125,000 | (24,000) | 250,000 | 1.97 | ||
| Rob Adams | 135,000 | 175,000 | - | - | (30,000) | 280,000 | 1.66 |
See note 27 for shares held by the Company's CEO and other executive officers and note 29 for further information on the share- based payments programs.
Rune Olav Pedersen, President and CEO of the Company, had an annual fixed salary of NOK 4,966,000 in 2022. The CEO has a mutual 6-months period of notice. The CEO is, both during and after the employment, obliged to refrain from taking employment with companies that are in direct or indirect competition with PGS. This prohibition applies for a period of two years from the termination date unless the Company sets a shorter period of time.
Other executive officers have similar provisions in their employment terms, with periods of notice of twelve months or less.
Further information on compensation of the CEO and other executive officers are provided in the Board of Directors' Policy on Remuneration to the Company's CEO and Senior Executives below.
None of our Directors has any contract with the Company providing benefits upon termination of service.
The table below provides information about our Directors and compensation for 2022:
| Name | Position | Director since | Term expire Compensation (In dollars) (a) | |
|---|---|---|---|---|
| Walter Qvam | Chairperson | 2013 | 2023 | 109,118 |
| Anne Grethe Dalane | Vice Chairperson | 2013 | 2023 | 73,858 |
| Marianne Kah | Director | 2018 | 2023 | 73,928 |
| Richard Herbert | Director | 2017 | 2023 | 75,004 |
| Trond Brandsrud | Director | 2019 | 2023 | 68,932 |
| Shona Grant | Director | 2022 | 2023 | 33,548 |
| Ebrahim Attarzadeh | Director | 2022 | 2023 | 39,754 |
| Eivind Vesterås | Director (Empl.rep) | 2021 | 2023 | 12,569 |
| Anette Valbø | Director (Empl.rep) | 2015 | 2023 | 12,569 |
| Gunhild Myhr | Director (Empl.rep) | 2021 | 2023 | 12,569 |
| Total | 511,849 |
(a) Amounts in NOK have been translated to US Dollars using average exchange rate for 2022 of NOK/USD 9.5472. None of the members or deputy members of the board received compensation from any other Group companies, except for the employee representatives. Their remuneration as employees is not included above.
The table below provides information about our Directors and compensation for 2021:
| Name | Position | Director since | Term expire Compensation (In dollars) (a) | |
|---|---|---|---|---|
| Walter Qvam | Chairperson | 2013 | 2022 | 110,070 |
| Anne Grethe Dalane | Vice Chairperson | 2013 | 2022 | 73,380 |
| Marianne Kah | Director | 2018 | 2022 | 68,422 |
| Richard Herbert | Director | 2017 | 2022 | 67,847 |
| Trond Brandsrud | Director | 2019 | 2022 | 67,510 |
| Eivind Vesterås | Director (Empl.rep) | 2021 | 2023 | 7,752 |
| Anette Valbø | Director (Empl.rep) | 2015 | 2023 | 11,629 |
| Gunhild Myhr | Director (Empl.rep) | 2021 | 2023 | 7,752 |
| Total | 414,362 |
(a) Amounts in NOK have been translated to US Dollars using average exchange rate for 2021 of NOK/USD 8.5991. None of the members or deputy members of the board received compensation from any other Group companies, except for the employees.
See note 27 for shares held by the Company's Board of Directors.
Pursuant to the Norwegian Public Limited Liability Companies Act, section 6-16 a(2), the Board prepares guidelines for executive remuneration. In accordance with this, PGS has prepared a Senior Executive Remuneration Report that is released alongside the Annual Report.
The Senior Executive Remuneration Report describes:
The Remuneration and Corporate Governance Committee of the Board is responsible for reviewing executive remuneration and making recommendations to the Board. The Board ensures that remuneration objectives reflect the convergence of the financial interests of executive personnel and shareholders.
The Senior Executive Remuneration Report is available for download at the PGS website.
Fees for audit and other services provided by the Company's auditor EY, are as follows (exclusive VAT and including out of pocket expenses):
| Year ended December 31, | |
|---|---|
| (In millions of US dollars) | 2022 2021 |
| Audit fees | 1.4 1.3 |
| Tax services | 0.2 0.2 |
| All other fees | - 0.1 |
| Total | 1.6 1.6 |
The ownership percentage in subsidiaries as of December 31, 2022, was as follows:
| Shareholding and voting | ||
|---|---|---|
| Company | Jurisdiction | rights |
| PGS Australia Pty. Ltd. | Australia | 100% |
| Seahouse Insurance Ltd. | Bermuda | 100% |
| PGS Suporte Logistico e Servicos Ltda. | Brazil | 100% |
| PGS Overseas Operation (Cyprus) Limited - under liquidation | Cyprus | 90% |
| PGS Data Processing Middle East SAE | Egypt | 100% |
| PGS Egypt for Petroleum Services | Egypt | 100% |
| PGS Ghana Limited | Ghana | 90% |
| PT Petroprima Geo-Servis Nusantara | Indonesia | 94% |
| PGS Japan K.K. | Japan | 100% |
| Petroleum Geo-Services Asia Pacific Labuan Ltd - under liquidation | Malaysia | 100% |
| Petroleum Geo-Services Exploration (M) Sdn. Bhd. | Malaysia | 100% |
| PGS Data Processing & Technology Sdn. Bhd. | Malaysia | 100% |
| PGS Geophysical Nigeria Ltd. | Nigeria | 100% |
| Petroleum Geo-Services AS | Norway | 100% |
| PGS Shipowner AS | Norway | 100% |
| Multiklient Invest AS | Norway | 100% |
| PGS Falcon AS | Norway | 100% |
| PGS Geophysical AS | Norway | 100% |
| PGS Titans AS | Norway | 100% |
| Natuna Ventures Pte. Ltd. | Singapore | 100% |
| Petroleum Geo-Services Asia Pacific Pte. Ltd. | Singapore | 100% |
| PGS Geophysical (UK) Ltd. | United Kingdom | 100% |
| Panoceanic Energy Limited | United Kingdom | 100% |
| PGS Seismic Services Ltd UK | United Kingdom | 100% |
| Petroleum Geo-Services (UK) Ltd. | United Kingdom | 100% |
| PGS Exploration (UK) Ltd. | United Kingdom | 100% |
| PGS Geophysical (Angola) Ltd. | United Kingdom | 100% |
| PGS Pension Trustee Ltd. | United Kingdom | 100% |
| Petroleum Geo-Services, Inc. | United States | 100% |
| PGS Finance, Inc. | United States | 100% |
| PGS Holding I Ltd | United Kingdom | 100% |
| PGS Holding II Ltd | United Kingdom | 100% |
| PGS Imaging, S.A. de C.V. - under liquidation | Mexico | 100% |
Subsidiaries with minority interests are not considered significant and as such, are not disclosed in the consolidated statements of financial position and the consolidated statement of changes in shareholders' equity.
| Year ended December 31, | ||||
|---|---|---|---|---|
| (In millions of NOK) | Note | 2022 | 2021 | |
| Revenue | 2 | - | 3.1 | |
| Selling, general, administrative and other costs | 2 | (72.9) | (49.1) | |
| Total operating expenses | (72.9) | (49.1) | ||
| Operating loss | (72.9) | (46.0) | ||
| Intercompany interest income (expense) | 2 | 102.8 | (16.9) | |
| Other interest income (expense) | 3 | (18.4) | (26.1) | |
| Dividends/group contributions received from subsidiaries | 2 | - | 145.6 | |
| Other financial items, net | 2, 4 | (45.7) | (9.0) | |
| Income (loss) before income taxes | (34.2) | 81.3 | ||
| Income tax | 5 | - | - | |
| Net income (loss) | (34.2) | 81.3 |
| December 31, | |||
|---|---|---|---|
| (In millions of NOK) | Note | 2022 | 2021 |
| ASSETS | |||
| Non-current assets: | |||
| Shares in subsidiaries | 1, 6 | 2 262.8 | 2 262.8 |
| Intercompany receivables | 1, 2 | 2 762.0 | - |
| Total non-current assets | 5 024.8 | 2 262.8 | |
| Current assets: | |||
| Intercompany receivables | 2 | 2.5 | 260.3 |
| Other current assets | 5.9 | 7.2 | |
| Restricted cash | 7 | 0.3 | 0.5 |
| Cash and cash equivalents | 7 | 43.4 | 35.8 |
| Total current assets | 52.1 | 303.9 | |
| Total assets | 5 076.9 | 2 566.6 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||
| Shareholders' equity: | |||
| Common stock; par value NOK 3; issued and outstanding 909,549,714 shares | 8 | 2 718.6 | 1 202.0 |
| Additional paid-in capital | 8 | (2.0) | - |
| Additional paid-in capital | 8 | 7 040.2 | 5 994.4 |
| Total paid in capital | 9 756.8 | 7 196.4 | |
| Other equity | 8 | (4 799.0) | (4 764.9) |
| Total shareholders' equity | 4 957.8 | 2 431.5 | |
| Non-current liabilities: | |||
| Interest bearing debt | 9, 10 | - | 30.5 |
| Other non-current liabilities | 10, 11 | - | 40.4 |
| Total non-current liabilities | - | 70.9 | |
| Current liabilities: | |||
| Intercompany debt | 2 | 13.5 | - |
| Accrued expenses and other short-term liabilities | 12 | 105.6 | 64.2 |
| Total current liabilities | 119.1 | 64.2 | |
| Total liabilities and shareholders' equity | 5 076.9 | 2 566.6 | |
| Walter Qvam | Anne Grethe Dalane | Marianne Kah | Richard Herbert | Trond Brandsrud | |
|---|---|---|---|---|---|
| Chairperson | Vice Chairperson | Board Member | Board Member | Board Member | |
| Anette Valbø | Eivind Vesterås | Gunhild Myhr | Shona Grant | Ebrahim Attarzadeh | Rune Olav Pedersen |
| Board Member | Board Member | Board Member | Board Member | Board Member | President & Chief Executive Officer |
| Year ended December 31, | |||
|---|---|---|---|
| (In millions of NOK) | Note | 2022 | 2021 |
| Cash flows provided by (used in) operating activities: | |||
| Net income (loss) | (34.2) | 81.3 | |
| Adjustments to reconcile net income to net cash used in operating activities: | |||
| Dividends/group contributions | 2 | - | (145.6) |
| Foreign exchange (gain) loss, unrealized | 4 | (1.0) | (17.2) |
| Changes in current assets and current liabilities | 301.9 | (26.4) | |
| Other items | 67.6 | 36.1 | |
| Net cash provided by (used in) operating activities | 334.3 | (71.8) | |
| Cash flows provided by (used in) investing activities: | |||
| Investment in subsidiaries, net | 2, 6 | - | (1,038.6) |
| Received dividends from subsidaries | 2 | - | 145.6 |
| Reduced (increased) intercompany receivables | 2 | (2 762.0) | 17.6 |
| Increased (reduced) intercompany debt | 2 | 13.2 | 15.7 |
| Change in restricted cash | 7 | 0.2 | 0.7 |
| Net cash provided by (used in) investing activities | (2 748.6) | (859.0) | |
| Cash flows provided by (used in) financing activities: | |||
| Proceeds, net of deferred loan costs, from issuance of long-term debt | 9 | - | 30.5 |
| Share buy-back | (2.0) | - | |
| Proceeds from share issue (a) | 8 | 2 423.9 | - |
| Net cash provided by (used in) financing activities | 2 421.9 | 30.5 | |
| Net increase (decrease) in cash and cash equivalents | 7.6 | (900.3) | |
| Cash and cash equivalents at beginning of year | 35.8 | 936.1 | |
| Cash and cash equivalents at end of year | 43.4 | 35.8 |
a) Net of approximately 2% transaction cost.
PGS ASA (or "the Company") and its subsidiaries prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, while the Company prepares its financial statements in accordance with the Norwegian Accounting Act and accounting principles generally accepted in Norway ("N GAAP"). The Company's headquarters is at Oslo, Norway. The address is Lilleakerveien 4C, 0283 Oslo.
The Company applies the same accounting policies as described in note 2 in the notes to the consolidated financial statements where relevant, except that unrealized foreign exchange gain (loss) on non-current intercompany loans is recognized in the statements of profit and loss. The functional currency is Norwegian kroner ("NOK") for the financial statements prepared in accordance with the Norwegian Accounting Act and accounting principles generally accepted in Norway ("N GAAP").
Shares in subsidiaries (see note 6) are presented at cost less impairment. Impairment is recognized based upon the carrying value of the individual shares and net intercompany receivables in the subsidiaries less the estimated recoverable amount (based on discounted estimated future cash flows). If estimated recoverable amounts increase, impairment charges are reversed accordingly. There is no fixed plan for repayment of long-term intercompany receivables and payables.
The statement of cash flows is set up using the indirect method.
Transactions with subsidiaries are mainly related to guarantees and financing activities. In 2022, there was no charge out of management fee, while NOK 3.1 million in management fee were charged to PGS Geophysical AS in 2021. Guarantee fee income is NOK 2.8 million and NOK 3.4 million in 2022 and 2021, respectively. No dividends or group contributions in 2022, while dividends and group contributions from subsidiaries amounted to NOK 145.6 million in 2021.
Intercompany transactions in the statements of profit and loss consist of:
| Subsidiaries | Year ended December 31, 2022 | |
|---|---|---|
| Net Receivables/ | ||
| (In millions of NOK) | Net interest | (Liabilities) |
| Petroleum Geo-Services AS | 102.8 | 2 761.8 |
| PGS Geophysical AS | - | (13.5) |
| PGS Titans AS | - | 0.8 |
| Petroleum Geo-Services, Inc. | - | 0.6 |
| PGS Exploration (UK) Ltd. | - | 0.7 |
| PGS Suporte Logistico e Servicos Ltda. | - | 0.5 |
| Other | - | 0.1 |
| Sum transactions intercompany | 102.8 | 2 751.0 |
| Accumulated impairment | - | |
| Net transactions intercompany | 2 751.0 |
| Subsidiaries | Year ended December 31, 2021 | |
|---|---|---|
| Net Receivables/ | ||
| (In millions of NOK) | Net interest | (Liabilities) |
| Petroleum Geo-Services AS | 16.9 | 259.1 |
| Petroleum Geo-Services, Inc. | - | 0.2 |
| PGS Exploration (UK) Ltd. | - | 0.6 |
| PGS Suporte Logistico e Servicos Ltda. | - | 0.3 |
| PGS Imaging, Inc. | - | 0.1 |
| Sum transactions intercompany | 16.9 | 260.3 |
| Accumulated impairment | - | |
| Net transactions intercompany | 260.3 |
Interest expense, net, consists of:
| Year ended December 31, | |
|---|---|
| (In millions of NOK) | 2022 2021 |
| Interest income, external | 0.6 0.1 |
| Interest expense, external | (19.0) (26.2) |
| Total | (18.4) (26.1) |
Other financial items, net, consist of:
| Year ended December 31, | ||
|---|---|---|
| (In millions of NOK) | 2022 | 2021 |
| Foreign currency (loss) gain, realized and unrealized | (40.0) | (7.4) |
| Guarantee fee | 2.8 | 3.4 |
| Other | (8.6) | (5.1) |
| Total | (45.7) | (9.0) |
The income tax expense differs from the amounts computed when applying the Norwegian statutory tax rate to income before income taxes as a result of the following:
| Year ended December 31, | ||
|---|---|---|
| (In millions of NOK) | 2022 | 2021 |
| Income before income taxes | (34.2) | 81.3 |
| Norwegian statutory tax rate | 22% | 22% |
| Provision for income taxes at the statutory rate | 7.5 | (17.9) |
| (Increase) reduction in income taxes from: | ||
| Other permanent items | - | 31.6 |
| Correction previous year | - | (12.8) |
| Changes in unrecognized deferred tax assets | - | (0.9) |
| Income tax (expense) benefit | - | - |
| Year ended December 31, | ||
|---|---|---|
| (In millions of NOK) | 2022 | 2021 |
| Temporary differences relate to: | ||
| Property plant and equipment | 0.1 | 0.1 |
| Tax losses carried forward | 4 845.5 | 4 811.3 |
| Deferred tax assets, net | 1 066.0 | 1 058.5 |
| Deferred tax assets not recognized in the statement of financial position | (1 066.0) | (1 058.5) |
| Net recognized Deferred tax assets | - | - |
Shares in subsidiaries are recognized in PGS ASA balance sheet at cost less any impairment.
| As of December 31, 2022 | ||||||
|---|---|---|---|---|---|---|
| (In millions of NOK) | Registered office |
Shareholding (a) |
Book value (b) |
Equity (b) |
Impairments 2022 |
Net income/ (loss) 2022 |
| PGS Holding I Ltd (UK) | Oslo | 100% | 2 262.8 | 2 252.1 | - | - |
| PT Petroprima Geo-Servis Nusantara | Indonesia | 93% | - | (31.2) | - | (85.7) |
| Total | 2 262.8 | - |
(a) Voting rights are equivalent to shareholding for all companies.
(b) The numbers are preliminary and statutory audit has not been completed.
As of 31 December 2022, PGS ASA has accumulated impairments related to shares in subsidiaries totaling NOK 2.7 million. This is entirely related to the company PT Petroprima Geo-Servis Nusantara.
For additional information on impairment of shares in subsidiaries and intercompany receivables, see note 1.
Restricted cash consists of:
| December 31, | |||
|---|---|---|---|
| (In millions of NOK) | 2022 | 2021 | |
| Payroll withholding taxes | 0.3 | 0.5 | |
| Total | 0.3 | 0.5 |
Changes in shareholders' equity for the years ended December 31, 2022 and 2021 are as follows:
| Paid-in capital | ||||||
|---|---|---|---|---|---|---|
| (In millions of NOK) | Share capital | Treasury shares, par value |
Additional paid-in capital |
Other equity | Shareholders' equity |
|
| Balance as of December 31, 2020 | 1 161.6 | (0.0) | 5 958.3 | (4 846.1) | 2 273.8 | |
| Share based payments | - | - | 21.7 | - | 21.7 | |
| Shares issued at conversion of convertible bond (a) | 40.4 | - | 14.4 | - | 54.8 | |
| Net income (loss) | - | - | - | 81.3 | 81.3 | |
| Balance as of December 31, 2021 | 1 202.0 | (0.0) | 5 994.4 | (4 764.8) | 2 431.5 | |
| Share based payments | - | - | 10.1 | - | 10.1 | |
| Shares issued at conversion of convertible bond (a) | 65.8 | - | 59.7 | - | 125.5 | |
| Shares issued for cash consideration (b) | 1 450.8 | - | 973.1 | - | 2 423.9 | |
| Acquired treasury shares (c) | - | (2.0) | (1.6) | - | (3.6) | |
| Interest rate swap (net of tax) | - | - | 4.6 | - | 4.6 | |
| Net income (loss) | - | - | - | (34.2) | (34.2) | |
| Balance as of December 31, 2022 | 2 718.6 | (2.0) | 7 040.3 | (4 799.0) | 4 957.8 |
(a) In 2021, PGS ASA received conversion notices from holders of the convertible bond representing NOK 40.4 million that have been converted into 13 460 701 shares. In 2022 the Company exercised and settled its issuer conversion option under the convertible bond whereby all outstanding bonds with an aggregate nominal amount of NOK 75.7 million were converted into 25 237 631 shares.
(b) In 2022, the Company issued 483 622 019 new shares following private placements and a subsequent offering raising approximately NOK 2 477.2 million as equity. Transaction costs amounting to NOK 53.3 million were recognized against additional paid-in capital.
(c) In 2022, the Company initiated and complated a share buy-back program to cover settlement of Performance based Restricted Stock Units ("PRSU's") granted under the Company's 2019 Long Term Incentive Plan for employees. 500 000 shares were bought back under the programme.
Long term debt consists of the following:
| December 31, | ||
|---|---|---|
| (In millions of NOK) | 2022 | 2021 |
| Unsecured: | ||
| Convertible bond 5%, due 2024 | - | 75.7 |
| Total | - | 75.7 |
| Less effect from separate derivative financial instrument convertible bond | - | (45.3) |
| Total non-current interest bearing debt | - | 30.5 |
In 2022, the Company exercised and settled its issuer conversion option under the convertible bond whereby all outstanding bonds with an aggregate nominal amount of NOK 75.7 million were converted into 25,237,631 shares.
The Company classifies financial instruments carried at fair value in the consolidated statement of financial position using the Fair Value Hierarchy.
Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2: assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly.
Level 3: techniques for which all inputs which have a significant effect on the recorded fair value that is not based on observable market data.
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accrued revenues and other receivables, other current assets, accounts payable and accrued expenses classified at amortized cost approximate their respective fair values because of the short maturities of those instruments.
The fair values of the non-current debt instruments, forward exchange contracts and interest rate swaps are estimated using quotes obtained from dealers in such financial instruments or latest quoted prices or indexes at Reuters or Bloomberg. Where market prices are not observed or quotes from dealers are not obtained, an indirect method is used by use of implied credit spread from debt instrument with similar risk characteristics.
The carrying amounts, estimated fair values of debt and derivatives instruments including how fair value is determined are summarized as follows:
| December 31, 2022 | December 31, 2021 | ||||
|---|---|---|---|---|---|
| (In millions of NOK) | Nominal value |
Fair value |
Nominal value |
Fair value |
|
| Financial liabilities | |||||
| Financial liabilities at amortised cost | |||||
| Debt with fixed interest rate | 2 | - | - | - | - |
| Debt with variable interest rate | 2 | - | - | - | - |
| Convertible bond | 2 | - | - | (75.8) | (67.6) |
| At fair value through profit and loss | |||||
| Foreign exchange contracts | 2 | - | - | - | - |
| Interest rate swaps | 2 | - | - | (4.5) | (4.5) |
| Convertible bond option conversion | 2 | - | - | (35.9) | (35.9) |
| Derivatives designated as hedging instruments | |||||
| Interest rate swaps | 2 | - | - | - | - |
| Foreign exchange contracts | 2 | - | - | - | - |
| Total | - | - | (116.2) | (107.9) |
Other long-term liabilities consist of:
| December 31, | ||||
|---|---|---|---|---|
| (In millions of NOK) | 2022 | 2021 | ||
| Unrealized loss hedge contracts (note 10) | - | 40.4 | ||
| Other non-current liabilities | - | - | ||
| Total | - | 40.4 |
Accrued expenses and other short-term liabilities consist of the following:
| December 31, | |||
|---|---|---|---|
| (In millions of NOK) | 2022 | 2021 | |
| Foreign taxes | 0.0 | 0.2 | |
| Account payables | 104.3 | 61.1 | |
| Accrued employee benefits | 1.2 | 0.5 | |
| Accrued interest expense | - | 1.5 | |
| Other | 0.1 | 0.9 | |
| Total | 105.6 | 64.2 |
Salary and social expenses that are included in cost of sales and selling and general and administrative costs consist of:
| Year ended December 31, | |||
|---|---|---|---|
| (In millions of NOK) | 2022 | 2021 | |
| Salaries, bonus and board members compensation | 5.4 | 8.9 | |
| Social security | 0.8 | 1.3 | |
| Pension | - | 0.2 | |
| Other benefits | 0.1 | 0.1 | |
| Total | 6.4 | 10.6 |
As of December 31, 2022, PGS ASA had 0 employees. Man-years were 0 and 1 for the years 2022 and 2021, respectively.
In 2022 the members of the board were compensated with NOK 5.4 million. For a full listing of Board of Directors, CEO and Other Executive Officers and their compensation, see note 28 in the consolidated financial statements.
PGS ASA has not provided loans or guarantees to the Board of Directors as of December 31, 2022.
Fees for audit and other services provided by PGS ASA's auditor EY who was elected in May 2014, are as follows (exclusive VAT and inclusive out of pocket expenses):
| (In millions of NOK) | Year ended December 31, | ||
|---|---|---|---|
| 2022 | 2021 | ||
| Audit fees | 4.4 | 3.9 | |
| Fees for tax services | 0.0 | 0.3 | |
| All other fees | 0.1 | 0.3 | |
| Total | 4.5 | 4.5 |
Statsautoriserte revisorer Ernst & Young AS
Dronning Eufemias gate 6a, 0191 Oslo Postboks 1156 Sentrum, 0107 Oslo
Foretaksregisteret: NO 976 389 387 MVA Tlf: +47 24 00 24 00
www.ey.no Medlemmer av Den norske Revisorforening
To the Annual Shareholders' Meeting of PGS ASA
We have audited the financial statements of PGS ASA (the Company) which comprise the financial statements of the Company and the consolidated financial statements of the Company and its subsidiaries (the Group). The financial statements of the Company comprise of the statement of financial position as at 31 December 2022 and statement of profit and loss and statement of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies. The consolidated financial statements of the Group comprise of the statement of financial position as at 31 December 2022, statement of profit and loss, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies.
In our opinion
Our opinion is consistent with our additional report to the audit committee.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company and the Group in accordance with the requirements of the relevant laws and regulations in Norway and the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
To the best of our knowledge and belief, no prohibited non-audit services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided.
We have been the auditor of the Company for 9 years from the election by the general meeting of the shareholders on 8 May 2014 for the accounting year 2014.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.
MultiClient library accounts for \$300.3 million or approximately 15 % of total assets of the Group as at 31 December 2022. The Group performed impairment testing to determine value in use and recorded an impairment loss of \$11.5 million in 2022.
Management has identified impairment indicators. The Group uses forecasts of future sales when determining value in use. These forecasts are based on budgets and assumptions, thus requiring considerable insight and judgment by management about future market conditions and spending on exploration and production by oil and gas companies, including licensing activities and farm-ins. Impairment evaluation of MultiClient library is a key audit matter due to the significant management judgment involved and the continued uncertain market conditions.
We evaluated management's assessment of impairment indicators for the MultiClient library. Our audit procedures included inquiries of management, including senior sales personnel and test of controls. Our audit procedures also included analyses and evaluation of historical accuracy of prior year's forecast. We further evaluated the assumptions used in the sales forecasting process based on the current market situation, expectations about oil prices, licensing rounds and exploration activities. Furthermore, we considered the valuation methodology and the discount rate applied in the value in use model. We also tested the mathematical accuracy of the value in use calculations and performed sensitivity analysis of key assumptions. We used a valuation specialist to assist us in evaluating the calculation and components of the applied discount rate. We also assessed the Group's disclosures regarding those assumptions and the recorded impairment losses of MultiClient library.
We refer to notes 3 and 18 of the consolidated financial statements.
Vessels and related seismic equipment accounts for \$674.5 million or approximately 35 % of total assets of the Group as at 31 December 2022. The Group performed impairment tests to determine the recoverable amounts and concluded that no impairment should be recognized in 2022. The evaluation is sensitive to forward looking assumptions. As there are limited remaining headroom, any negative changes to these assumptions would result in impairment. Management has identified impairment indicators. The Group assessed the recoverable amount by determining value in use for each vessel.
Our procedures included assessing the assumptions and methods used by management in the impairment evaluation. We tested the key assumptions and underlying data by comparing them to external market information and historical data, and by analyzing sensitivities. We also assessed the historical accuracy of management's estimates and tested the mathematical accuracy of the impairment model. We involved a valuation specialist to assist us in evaluating the calculation and components of the applied discount rate. We also assessed the disclosures regarding the assumptions applied by
Estimating the value in use requires management judgment when estimating future revenues, operating expenses, growth rates, useful lives and capital expenditures and determining the discount rate. Management's impairment evaluation is a key audit matter due to the multiple variables and the significant management judgement involved in estimating future cash.
management and verified the arithmetical accuracy of the sensitivity analysis. We refer to notes 3 and 17 of the consolidated financial statements.
Other information consists of the information included in the annual report other than the financial statements and our auditor's report thereon. Management (the board of directors and Chief Executive Officer) is responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the board of directors' report, the statement on corporate governance and the statement on corporate social responsibility contain the information required by applicable legal requirements and whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that the other information is materially inconsistent with the financial statements, there is a material misstatement in this other information or that the information required by applicable legal requirements is not included in the board of directors' report, the statement on corporate governance or the statement on corporate social responsibility, we are required to report that fact.
We have nothing to report in this regard, and in our opinion, the board of directors' report, the statement on corporate governance and the statement on corporate social responsibility are consistent with the financial statements and contain the information required by applicable legal requirements.
Management is responsible for the preparation and fair presentation of the financial statements of the Company in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway and of the consolidated financial statements of the Group in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's and the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or the Group, or to cease operations, or has no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the audit committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the board of directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
As part of the audit of the financial statements of PGS ASA we have performed an assurance engagement to obtain reasonable assurance about whether the financial statements included in the annual report, with the file name 213800T66DRTE6O6BV87-2022-12-31-en.zip, have been prepared, in all material respects, in compliance with the requirements of the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) and regulation pursuant to Section 5-5 of the Norwegian Securities Trading Act, which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the consolidated financial statements.
In our opinion, the financial statements, included in the annual report, have been prepared, in all material respects, in compliance with the ESEF Regulation.
Management is responsible for the preparation of the annual report in compliance with the ESEF Regulation. This responsibility comprises an adequate process and such internal control as management determines is necessary.
Our responsibility, based on audit evidence obtained, is to express an opinion on whether, in all material respects, the financial statements included in the annual report have been prepared in accordance with the ESEF Regulation. We conduct our work in accordance with the International Standard for Assurance Engagements (ISAE) 3000 – "Assurance engagements other than audits or reviews of historical financial information". The standard requires us to plan and perform procedures to obtain reasonable assurance about whether the financial statements included in the annual report have been prepared in accordance with the ESEF Regulation.
As part of our work, we perform procedures to obtain an understanding of the company's processes for preparing the financial statements in accordance with the ESEF Regulation. We test whether the financial statements are presented in XHTML-format. We evaluate the completeness and accuracy of the iXBRL tagging of the consolidated financial statements and assess management's use of judgement. Our procedures include reconciliation of the iXBRL tagged data with the audited financial statements in human-readable format. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Oslo, 1 March 2023 ERNST & YOUNG AS
The auditor's report is signed electronically
Finn Ole Edstrøm State Authorised Public Accountant (Norway)
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