Electromagnetic Geoservices ASA

Earnings Release • Aug 18, 2016

SECOND QUARTER 2016 RESULTS.

Oslo, 18 August 2016 CEO Christiaan Vermeijden, CFO Hege A. Veiseth

Disclaimer

This quarterly presentation includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. Such forward-looking information and statements are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for Electromagnetic Geoservices ASA (EMGS) and its subsidiaries. These expectations, estimates and projections are generally identifiable by statements containing words such as "expects", "believes", "estimates" or similar expressions. Important factors that could cause actual results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets for the EMGS' businesses, oil prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange rates and such other factors as may be discussed from time to time. Although Electromagnetic Geoservices ASA believes that its expectations and the information in this Report were based upon reasonable assumptions at the time when they were made, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in this Report. Electromagnetic Geoservices ASA nor any other company within the EMGS Group is making any representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the information in the Report, and neither Electromagnetic Geoservices ASA, any other company within the EMGS Group nor any of their directors, officers or employees will have any liability to you or any other persons resulting from your use of the information in the Report. Electromagnetic Geoservices ASA undertakes no obligation to publicly update or revise any forward-looking information or statements in the Report.

Highlights

Second quarter 2016

• E&P spending continues to be slow
• Completion of various multi-client projects in Norway & India
• Changes in the organisation to reduce cost and increase efficiency
• Settlement of patent disputes with PGS
• Revenues, incl. late sales / uplifts recorded: USD 15.1 million
• Termination of the EM Leader charter brought forward

Subsequent events

• Completion of the JIP test field phase

Financial review

Second quarter key financials

• Revenues of USD 15.1 million, mainly multi-client revenues
• EBITDA of USD 2.8 million
• Multi-client impairments of USD 9.2 million
• Vessel utilisation of 76%
• All on multi-client projects, currently without industry funding

EBITDA

Operational cost base development

Charter hire, fuel and crew expenses Employee expenses

Other operational expenses Capitalisation of multi-client costs

Comments

• Operational costs base of USD 14.7 million
• Capitalised multi-client expenses of USD 4.0 million
• Write down of obsolete inventory of USD 1.5 million
• Cost reduction program progressing as planned
  • Target a 2016 cost base below USD 75 million

*Cost base is defined as total operational costs, i.e. charter hire, fuel and crew expenses, employee expenses and other operating expenses. The cost base includes multi-client investments, i.e. direct costs which are capitalized in the quarter. The cost base excludes capex, interest, and write down of inventory.

Free cash development

• Net increase in free cash of USD 1.2 million
• Cash and cash equivalents at end of Q2 of USD 25.4 million, incl restricted cash
• Restricted cash of USD 4.2 million at end of Q2

Multi-client investments

• Overview of book value of multi-client library (USD million) Uplift/late sales revenues of USD 14.7 million in Q2
• Investments of USD 4.0 million in Q2
• Amortisation of USD 2.8 million
  • Straight-line amortisation
• Impairment of USD 9.2 million
  • US GOM and Indonesia
• Book value of USD 33.1 million at end of Q2

Second quarter operations

Second quarter vessel operations

The Barents Sea story continued…

Unlocking the value of EM in the Flemish pass…

Economic interest

• 2015 saw record breaking land sales and the attraction of major oil companies to the region
• Basins of economic interest include Flemish Pass, Jeanne d'Arc, Orphan, Carson, etc
• Following the late sale of the data acquired in 2014, and the ability to image prospects such Bay du Nord, Mizzen and Harpoon, confidence levels have increased to expand regional coverage

Planned activity going forward

• Expand regional coverage, following the Barents Sea model, by acquiring up to 35,000 sqkm of data over multiple years
• Develop a regional 3D EM dataset be used for prospect portfolio optimization, play evaluations, drilling decisions, farm-in/out evaluations, acreage relinquishment decisions etc

Market and outlook

Market update

• Crude oil prices movements between USD 40-50 per barrel, suggesting the lower for longer scenario
• The expected 26% decline in E&P spending in 2016 is the second largest drop since 1986
• 2017 capex guidance largely unavailable at this moment in time. Eventual recovery may be slow and the timing is uncertain
• Healthy interest in EM technology with ongoing discussions regarding future data aqcuisition projects in Mexico, Canada, Norway and Malaysia

Order backlog - limited earnings visibility

*Source: Includes, http://www.ogj.com/articles/2016/03/barclays-global-e-p-spending-drop-revised-to-27-for-2016.html

Selection of current opportunities

Summary and outlook

• The H1 crude oil price rally halted at the start of Q3. Slow market for oil services so far in 2016
• The market is challenging and characterised by high uncertainty
• Cost reductions well underway
• Completion of various multi-client projects in India and Norway
• JIP field test phase underway in Q2 and to be completed in Q3
• Healthy interest in EM technology with ongoing discussions regarding future data aqcuisition projects in Mexico, Canada, Norway and Malaysia
• EMGS is the market leader in an attractive niche market, offering services highly complementary to traditional geophysical methods

Questions?

Appendix

Consolidated Income Statement

Amounts in USD 1 000	Q2 2016 Unaudited	Q2 2015 Unaudited	First half year 2016 Unaudited	First half year 2015 Unaudited	2015 Audited
Operating revenues
Contract sales	388	4,789	13,426	26,898	45,008
Multi-client pre-funding	-	1,213	-	1,092	3,546
Multi-client late sales	14,678	6,068	14,678	16,348	32,586
Total revenues	15,066	12,070	28,104	44,338	81,140
Operating expenses
Charter hire, fuel and crew expenses	3,732	3,713	9,295	11,266	32,402
Employee expenses	5,936	9,252	13,419	22,390	44,826
Depreciation and ordinary amortisation	1,932	3,347	4,043	6,515	12,679
Multi-client amortisation	2,824	1,467	5,648	1,904	8,631
Impairment of long-term assets	9,228	14,422	9,228	17,302	31,344
Other operating expenses	2,573	5,074	5,972	9,426	20,607
Total operating expenses	26,225	37,275	47,605	68,803	150,489
Operating profit/ (loss)	(11,159)	(25,205)	(19,501)	(24,465)	(69,349)
Interest income	45	144	96	217	352
Interest expense	(752)	(1,056)	(1,790)	(2,020)	(4,055)
Net gains/(losses) of financial assets	(377)	-	(5,291)	-	(4,106)
Net foreign currency income/(loss)	1,089	182	(118)	(813)	4,155
Net financial items	5	(730)	(7,103)	(2,616)	(3,654)
Income/ (loss) before income taxes	(11,154)	(25,935)	(26,604)	(27,081)	(73,003)
Income tax expense	55	76	55	146	3,712
Income/ (loss) for the period	(11,209)	(26,011)	(26,659)	(27,227)	(76,715)

Consolidated Statement of Financial Position

Amounts in USD 1 000	Half year ended 30 June 2016 Unaudited	Half year ended 30 June 2015 Unaudited	Year ended 31 December 2015 Audited
ASSETS
Non-current assets
Deferred tax asset	-	3,008	-
Multi-client library	33,131	51,178	42,267
Other intangible assets	3,161	4,566	3,703
Property, plant and equipment	14,335	14,343	16,773
Assets under construction	27,796	33,990	26,566
Financial assets	-	1,982	1,387
Total non-current assets	78,423	109,067	90,696
Current assets
Spare parts, fuel, anchors and batteries	8,555	13,742	11,754
Trade receivables	19,545	16,289	18,580
Other receivables	7,259	20,485	5,665
Cash and cash equivalents	21,220	38,537	31,749
Restricted cash	4,199	928	6,680
Total current assets	60,778	89,981	74,428
Total assets	139,201	199,048	165,124

	Half year ended	Half year ended	Year ended 31 December
	30 June 2016	30 June 2015	2015
Amounts in USD 1 000	Unaudited	Unaudited	Audited
EQUITY
Capital and reserves attributable to equity holders
Share capital, share premium and other paid-in equity	319,174	287,494	319,038
Other reserves	901	(6,018)	(6,416)
Retained earnings	(261,313)	(185,166)	(234,652)
Total equity	58,762	96,310	77,970
LIABILITIES
Non-current liabilities
Provisions	15,598	16,085	17,371
Financial liabilities	3,662	-	-
Borrowings	32,180	707	30,848
Total non-current liabilities	51,440	16,792	48,219
Current liabilities
Trade payables	6,743	16,481	10,439
Current tax liabilies	5,814	4,642	5,257
Other short term liabilities	16,247	17,612	16,243
Financial liabilities	-	1,786	6,326
Borrowings	195	45,425	670
Total current liabilities	28,999	85,946	38,935
Total liabilities	80,439	102,738	87,154
Total equity and liabilities	139,201	199,048	165,124

20

Largest shareholders as of 17 August

#	Shareholder	Shares	Holding
1	SIEM INVESTMENTS INC.	7,844,249	23.92
2	PERESTROIKA AS	6,993,857	21.33
3	MORGAN STANLEY & CO. LLC	4,507,948	13.75
4	STATOIL PENSJON	735,458	2.24
5	SPORTSMAGASINET AS	575,001	1.75
6	BÆKKELAGET HOLDING AS	546,250	1.67
7	NHO - P665AK	404,485	1.23
8	KRISTIAN FALNES AS	400,000	1.22
9	ODIN ENERGI	346,100	1.06
10	NORDNET LIVSFORSIKRING	343,832	1.05
11	DNB NAVIGATOR (II)	319,543	0.97
12	DNB NOR MARKETS, AKSJEHAND/ANALYSE	302,738	0.92
13	J&J INVESTMENT AS	300,000	0.91
14	ODIN NORGE	275,880	0.84
15	VILLA UTVIKLING AS	200,000	0.61
16	STATOIL FORSIKRING A.S	190,017	0.58
17	FALNES OLAV KRISTIAN	150,000	0.46
18	RYGG JAN WIGGO	140,493	0.43
19	FLATHOLMEN AS	137,000	0.42
20	TIGERSTADEN AS	125,000	0.38

Vessel charters

	BOA Thalassa Atlantic Guardian		EM Leader
Firm Charter	1 April 2017	18 December 2017	1 June 2016
Q2 status	In operation, Asia	In operation, Norway	Terminated
Vessel owner	BOA Offshore	North Sea Shipping	Seatrans
Rates	Flexible rates for when (i) in operation, (ii) idle and (iii) laid up	Fixed	Flexible rates for when (i) in operation, (ii) idle and (iii) laid up