UBS European Mid-cap Oil Conference
Jon Erik Reinhardsen, President & CEO London, March 20, 2014
- This presentation contains forward looking information
- Forward looking information is based on management assumptions and analyses
- Actual experience may differ, and those differences may be material
- Forward looking information is subject to significant uncertainties and risks as they relate to events and/or circumstances in the future
- This presentation must be read in conjunction with other financial statements and the disclosures therein
Marine Contract
Marine market leadership 45% of 2013 Revenues
Marine Contract acquires seismic data exclusively for oil and gas exploration and production companies
MultiClient
Diverse MultiClient library 45% of 2013 Revenues
MultiClient initiates and manages seismic surveys which PGS acquires, processes, markets and sells to multiple customers on a non-exclusive basis
Operations
Productivity leadership
Operations supports Marine Contract and MultiClient with vessel resources and manages fleet renewal strategies
Imaging & Engineering
Technology differentiation
8% of 2013 Revenues
Imaging and Engineering processes seismic data acquired by PGS for its MultiClient library and for external clients on contract and manages research and development activities
Client focus | Global presence | Innovation leadership
2008 – 2015 First Phase of the Industrial Approach: Performance Through the Cycle - Getting it Right
- 3D fleet renewal and growth
- Average vessel age reduced from 16.2 to 9.2 years
- Average streamer per vessel increased from 8.5 to 12.9
- Total number of streamers increased from 94 to 155
- Streamer based market share increased from 22% to 24%
- Rollout of GeoStreamer Technology (last vessel to be upgraded in 2016)
- MultiClient focus and growth (in size and profitability)
- Emergence of new GeoStreamer based Imaging technologies
- Technology pipeline with further profit potential
- Taking the industry lead in HSE and Quality
- Substantial increase of financial robustness and initiation of dividend payments
Increased productivity and technological differentiation
2016 and Beyond: Becoming Fully Industrialized
- Financial focus on profit, free cash flow and ROCE - not vessel market share growth
- Leveraging GeoStreamer equipped fleet and increased productivity differentiation
- Continued MultiClient revenue growth and focus on return on invested capital
- GeoStreamer Imaging as new differentiator
- Continued roll-out of new technologies
- HSE, Cost and Quality leadership
Increasing return on capital and dividend capacity
Investing in a Growth Case
- EPS growth in focus going forward
- Good potential for further growth in profitability from current levels
- Dividend growth will be a priority
- PGS well positioned to improve return on capital and dividend capacity by having:
- A strong balance sheet
- Increased earnings capacity from new builds
- Technology differentiation
Ramform Titan-class Delivers Attractive Returns
- PGS has historically strong returns on capital employed over the cycle
- Targeting average returns of 5% in excess of weighted average cost of capital (WACC) over the cycle
- WACC estimated at approximately 9-10% (after tax)
- The Ramform Titan meeting expectations:
- Performance and efficiency
- Ability to fully exploit GeoStreamer technology
- Safety
- Crew comfort
- With current contract performance through the vessel's life:
- Payback time of less than 5* years
- IRR better than initial plan and above 20%*
High quality assets generating high returns
Contributes to Increased ROCE: PGS Fleet Provides Downside Protection in a Weaker Market
PGS fleet is positioned to generate the industry's best margins
Source: The cash cost curve is based on PGS' internal estimates and typical number of streamer towed, and excludes GeoStreamer productivity effect. The graph shows all seismic vessels operating in the market and announced new-builds. The Ramform Titan-class vessels are incorporated with 15 streamers, S-class with 14 streamers and the V-class with 12 streamers. -8-
Contributes to Increased ROCE: The GeoStreamer Technology Platform – Increases Margin Differentiation
GeoStreamer – The New Business and Technology Platform:
- Gives higher resolution, better depth imaging and improved operational efficiency
- Improves the seismic value chain from acquisition to processing
Significant Free Cash Flow Potential
Sources 2014 Uses 2014
NB CAPEX
Dividend
Interest & financing/debt service
Maintenance CAPEX
MC investments
- Cash flow from operations covers MultiClient investments, maintenance CAPEX, interest & financing/debt service, dividends and a significant portion of new build CAPEX
- Excluding new build CAPEX the Company generates healthy free cash flow in the current market environment
- Completion of new build program and increased streamer capacity of approximately 50% by end 2015 makes the foundation for significant increase in free cash flow going forward
New Cost and Quality Initiatives Implemented
- Significant cost reductions achieved for 2012 and 2013
- Further cost reductions initiated with target USD 30 million run rate by end 2014
- Quality improvements targeting USD 50 million EBIT improvement as run rate in 2016
Strong Order Book
75% of capacity booked for 2014
*As of March 14, 2014
Bidding Activity
Source: PGS internal estimate as of end February 2014. Value of active tenders and sales leads are the sum of active tenders and sales leads with a probability weight and represents Marine 3D contract seismic only.
Global Supply and Demand Trends
- Growth in sq.km. flattened out from 2012 to 2013
- From 2006 to end 2013 demand for seismic grew by approximately 120% measured in sq.km.
- Annual average growth rate of 11%
- Overall streamer capacity by end 2015 expected to be 10% lower now than anticipated by end Q3 2013
• Expected streamer growth:
| Year |
Y-o-Y
Growth |
Average
Growth |
| 2013 |
-3% |
3% |
| 2014 |
5% |
-1% |
| 2015 |
3% |
4% |
| 2016 |
0% |
3% |
Source to both graphs: PGS internal estimates. Capacity increases are calculated based on average number of streamers in one year compared to average number of streamers the previous year.
PGS' Strategic Ambition
• To Care
- For our employees
- For the environment and society at large
- For our customers' success
• To Deliver Productivity Leadership
- Ramform platform + GeoStreamer
- Reducing project turnaround time
• To Develop Superior Data Quality
- GeoStreamer business platform
- Imaging Innovations
- Subsurface knowledge
• To Innovate
- First dual sensor streamer solution
- First with 20+ towed streamer capability
- Unique reservoir focused solutions
• To Perform Over the Cycle
- Profitable with robust balance sheet
- Absolute focus on being best in our market segment
A Clearer Image
Market Outlook
- Sustainable high oil price
- Deep water attractive for E&Ps
- Playing to PGS' strengths
- Customer focus on preserving dividend capacity
- Pricing for booked 2014 work is unchanged from average 2013 level, with the exception of recent Q1 bookings
- Healthy market conditions for Q2 and Q3 driven by North Atlantic summer season
In Conclusion: A Well Positioned Focused Marine Seismic Company
- Improving productivity & scale
- GeoStreamer delivers improved data quality, strong performance and better pricing
- Leading edge Imaging capabilities
- Technology differentiation with the GeoStreamer platform, Towed EM and OptoSeis
- Strong balance sheet
Competitively Positioned – Performance Through the Cycle
Thank you – Questions?
Appendix: Continuously Ahead of Competition
- PGS builds vessels to optimize cost and efficiency over the vessels' useful life
- Growing capacity over the cycle rather than trying to time the market
- Larger vessels enable safer and more efficient high quality seismic
8 - 12 streamers 12 - 18 streamers
• Fleet optimization by decommission of two older vessels – one in 2014 and one in 2015
12 – 22 streamers
14 - 24 streamers
The PGS Fleet: Delivers Productivity Leadership
- Ramform fleet is improving further with 4 new Titanclass vessels
- GeoStreamer contributes to productivity leadership
- Industrialized approach to fleet renewal
Ramform productivity is a key differentiator
Main Yard Stays Next 6 Months
| Vessel |
When |
Expected
Duration |
Type of
Yard Stay |
Ramform
Sovereign |
March 2014 –
Completed |
Approximately
10 days |
Upgrade to
GeoStreamers |
Ramform
Vanguard |
April 2014 |
Approximately
20 days |
Renewal class |
Ramform
Challenger |
April 2014 |
Approximately
8 days |
Intermediate class |
Ramform
Sterling |
June 2014 |
Approximately
25 days |
Renewal class |
Attractive Debt Structure
Long term Credit Lines and Interest
Bearing Debt |
Nominal
Amount at
March, 2014 |
Total
Credit Line |
Financial Covenants |
USD 400.0 million Term Loan ("TLB"), Libor
(minimum 0.75%) + 250 basis points, due 2021 |
USD 400.0
million |
|
None, but incurrence test:
total leverage ratio
< 3.00:1 |
Revolving credit facility ("RCF"), due 2018
70 bps commitment fee on undrawn amount
Libor + margin of 200-235 bps on drawn amount |
Undrawn |
USD 500.0
million |
Maintenance covenant:
total leverage ratio
< 2.75:1 |
Japanese ECF, 12 year with semi-annual
installments. 50% fixed/ 50% floating interest
rate |
USD 239.5
million |
USD 544.1
million |
None, but incurrence test
for loan 3&4:
Total leverage ratio < 3.00:1
and
Interest coverage ratio >
2.0:1 |
2018 Senior Notes, coupon of 7.375% and
callable from 2015 |
USD 450.0
million |
|
None, but incurrence test:
Interest coverage ratio
> 2.0:1 |