AI assistant
PGS ASA Earnings Release 2009
3712_rns_2010-02-22_7228e227-7cf9-4ae9-84cb-4ce073983d84.pdf
Earnings Release
Open in viewerOpens in your device viewer
Fourth Quarter and Preliminary Full Year 2009 Results
PGS
2009 - A Challenging Year Turned Into Positive Differentiation
February 22, 2010: OSLO, NORWAY - Petroleum Geo-Services ASA (“PGS” or the “Company”) strengthened its financial position significantly during 2009 and reported strong cash flow from operations in Q4, in line with the previous quarters of the year. The Company remains very competitively positioned.
- Strong Marine MultiClient sales: Q4 late sales were $87.2 million, on a par with the best quarterly performance ever achieved. Gulf of Mexico and Europe were the strongest contributors to the outstanding late sales performance. MultiClient pre-funding was $31.5 million, in line with Q3 2009.
- Solid Cash flow: Cash flow from operating activities of $158.8 million in Q4 2009. Net debt was reduced further and ended at $774.0 million. Liquidity reserve amounted to $472.0 million at year-end.
- Group performance: Q4 2009 earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”), excluding Onshore, of $141.5 million, compared to $227.5 million in Q4 2008.
- Marine: Q4 2009 revenues of $303.2 million and earnings before interest and tax (“EBIT”) of $53.8 million, excluding special items.
- Sale of Onshore to Geokinetics: In Q4 2009 PGS entered into an agreement to sell Onshore to Geokinetics for total value of $210 million, of which approximately $184 million in cash. The transaction was closed February 12, 2010. For all periods presented, Onshore is reported as discontinued operations, net of tax.
- 2010 North Sea season is firming up: Virtually all of first half 2010 is booked at acceptable margins and PGS will have six vessels operating in the North Sea this year.
- Stable vessel booking: Order book end Q4 was $438 million, compared to $533 million end Q3 2009.
- Guidance maintained: No changes to the 2010 guidance launched at the capital markets day in December 2009.
- GeoStreamer® rollout: Ramform Valiant and Ramform Explorer scheduled for GeoStreamer® upgrade in first half 2010. By year-end 2010 approximately 50% of PGS’ streamer capacity is expected to be GeoStreamer®.
Jon Erik Reinhardsen, Chief Executive Officer and President of PGS, commented:
“Throughout 2009 we achieved a significant strengthening of our financial capacity, thanks to impressive efforts from the entire organization. We are positioned to invest for profitable growth, with a particular focus on GeoStreamer® deployment. Q4 MultiClient late sales and cash flow from operations ensured a strong finish to 2009. We currently see increased interest in pre-funding commitments in the Gulf of Mexico and Europe, and an increase in bid activity.”
| Key Financial Figures
(In millions of dollars, except per share data) | Quarter ended
December 31, | | Years ended
December 31, | |
| --- | --- | --- | --- | --- |
| | 2009
Unaudited | 2008
Unaudited | 2009
Unaudited | 2008
Unaudited^{1} |
| Revenues from continuing operations^{2)} | $ 303.7 | $ 393.6 | $ 1,350.2 | $ 1,647.4 |
| Adjusted EBITDA (as defined) incl. Onshore | 146.2 | 241.4 | 690.8 | 967.8 |
| Adjusted EBITDA (as defined)^{3)} | 141.5 | 227.5 | 672.1 | 893.0 |
| EBIT excluding special items^{2) 3)} | 45.5 | 131.2 | 386.9 | 691.4 |
| EBIT^{3)} | 43.0 | (29.9) | 233.3 | 530.2 |
| Income before income tax expense (benefit)^{3)} | 29.9 | (74.3) | 228.1 | 438.4 |
| Net income to equity holders | 22.9 | 39.0 | 165.8 | 417.4 |
| Basic earnings per share ($ per share) | 0.12 | 0.22 | 0.88 | 2.37 |
| Diluted earnings per share ($ per share) | 0.12 | 0.22 | 0.88 | 2.36 |
| Net cash provided by operating activities | 158.8 | 258.3 | 676.1 | 914.6 |
| Cash investment in MultiClient library^{3)} | 47.1 | 56.9 | 183.1 | 229.0 |
| Capital expenditures^{2)} | 41.3 | 117.9 | 231.2 | 414.5 |
| Total assets (period end) | 2,929.3 | 3,064.8 | 2,929.3 | 3,064.8 |
| Cash and cash equivalents (period end) | 126.0 | 95.2 | 126.0 | 95.2 |
| Net interest bearing debt (period end) | $ 774.0 | $ 1,135.6 | $ 774.0 | $ 1,135.6 |
1) Financial information for the full year 2008 is derived from the audited financial statements as presented in the 2008 Annual Report. Annual information for 2008 and 2007 has been restated to reflect the onshore business as a discontinued operation. Accordingly, 2008 and 2007 information is derived from audited financial statements included in our 2008 annual report.
2) Impairment charges of $2.4 million in Q4 2009 and $153.6 million for full year 2009. Impairment charge of $161.1 million in Q4 2008 and a gain of $71.6 million in YTD Q3 2008 from the sale of Ramform Victory.
3) Excluding Onshore.
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Discontinued Operations
In Q4 2009 PGS entered into a definitive agreement to sell the Onshore business to Geokinetics. Combining Geokinetics and PGS' Onshore activities will create the second-largest onshore seismic acquisition company in the world in terms of crew counts — and the largest such company operating in the Western Hemisphere. The transaction was completed on February 12, 2010. Geokinetics paid $184 million in cash for the Onshore business, and PGS received 2.15 million shares in Geokinetics, corresponding to 12% of outstanding shares. The transaction brings needed consolidation to a highly fragmented onshore industry and creates value for all stakeholders.
Revenues and cost of the Onshore business are excluded from consolidated revenues and cost and reported separately as income from discontinued operations net of tax for all periods presented. In the consolidated statements of financial position as of December 31, 2009 Onshore is reported as assets/liabilities held-for-sale under current assets/liabilities until closing.
Operations PGS Group
In 2009 consolidated revenues were $1,350.2 million, compared to $1,647.4 million in 2008. The decrease is primarily attributable to lower Marine contract and MultiClient pre-funding revenues driven by lower prices and less MultiClient activity. Adjusted EBITDA in 2009 was $672.1 million, compared to $893.0 million in 2008. Including Onshore, Adjusted EBITDA was $690.8 million in 2009. Consolidated EBIT, excluding special items, was $386.9 million, a decrease of $304.5 million, compared to 2008. Income before income tax expense (benefit) was $228.1 million, down $210.3 million from 2008.
In Q4 2009 consolidated revenues were $303.7 million, compared to $393.6 million in Q4 2008. The decrease is mainly due to lower contract and MultiClient pre-funding revenues, partially offset by increased MultiClient late sales revenues.
EBIT, excluding special items, was $45.5 million, compared to $131.2 million in Q4 2008.
Income before income tax expense in Q4 2009 was $29.9 million, compared to a loss of $74.3 million in Q4 2008.
Net income to equity holders was $22.9 million in Q4 2009, compared to $39.0 million in Q4 2008.
Operations Marine
Total revenues were $303.2 million in Q4 2009, compared to $390.8 million in Q4 2008.
Contract revenues decreased from $233.7 million in Q4 2008 to $158.2 million in Q4 2009, reflecting primarily lower prices and slightly less capacity allocated to contract work in Q4 2009. The Company used 60% of its total 3D capacity to acquire marine contract seismic in Q4 2009, compared to 64% in Q4 2008. Vessel steaming and yard time made up 15% and 6% respectively of total 3D capacity in Q4 2009 compared to 16% and 5% respectively in Q4 2008, when the Company also incurred 2% of vessel standby. The EBIT margin on marine contract acquisition work was approximately 12% in Q4 2009, down from 37% in Q3 2009 and 48% in Q4 2008. The decline in Marine contract EBIT margin is due to lower pricing on work executed in Q4 2009, while a significant part of the work done earlier in 2009 was signed late 2008 at higher margins.
Total MultiClient revenues (pre-funding and late sales revenues combined) were $118.7 million in Q4 2009, compared to $130.5 million in Q4 2008. In Q4 2009, 19% of total 3D capacity was used for MultiClient acquisition, compared to 13% in Q4 2008.
MultiClient pre-funding revenues were $31.5 in Q4 2009 compared to $81.4 million in Q4 2008. Pre-funding revenues in Q4 were 67% of MultiClient cash investments, excluding capitalized interest, compared to 91% in Q3 2009 and 149% in Q4 2008, reflecting a reduction in highly pre-funded projects in Brazil and the ongoing East Breaks Wide Azimuth MultiClient project in the Gulf of Mexico, where pre-funding generally is lower than in other regions.
MultiClient late sales were $87.2 million in Q4 2009, compared to $49.2 million in Q4 2008, primarily reflecting higher late sales in the Gulf of Mexico, Europe and Mediterranean, partially offset by a decrease in late sales in Asia Pacific.
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 3
Capitalized cash investment in MultiClient library, excluding capitalized interest, was $47.1 million in Q4 2009, compared to $54.6 million in Q4 2008 primarily reflecting a reduction in leased-in 2D capacity deployed on MultiClient projects and less MultiClient 2D activity.
External data processing ("DP") revenues were $23.5 million in Q4 2009, compared to $19.6 million in Q4 2008. The growth resulted from DP delivering on several large 3D projects in Europe and the North and South American region. Differentiating technologies such as GeoStreamer® and AGS Beam were utilized on a large portion of these projects. DP maintains its focus on cost control while investing in key new technologies and infrastructure.
Marine reported an EBIT, excluding special items, of $53.8 million, compared to $149.0 million in Q4 2008. The decrease is primarily driven by lower contract and MultiClient revenues and less cash cost capitalized to the MultiClient Library, partially offset by cost reductions.
Operating expenses (before depreciation, amortization and impairments) increased by $5.0 million compared to Q4 2008, due to a decrease in cash costs capitalized to the MultiClient library, an increase as a result of Ramform Sterling entering into operations in Q3 2009 and growth in data processing activities, partially offset by a reduction in leased-in vessels.
Seismic supply currently exceeds demand and PGS is contributing to reduce capacity and restore market balance quicker. Nordic Explorer was converted from 3D to 2D/source mid July and Ocean Explorer was converted at the end of Q3. The Company did not renew the charter for the 3D vessel Orient Explorer and the vessel was returned to the owner at year-end 2009.
The order book totaled $438 million for Marine at December 31, 2009, including $115 million of committed pre-funding on scheduled MultiClient projects, compared to $871 million at December 31, 2008 and $533 million at September 30, 2009.
Operations Onshore
In Q4 2009 revenues were $58.5 million, compared to $68.7 million in Q4 2008. The decrease is primarily driven by lower activity levels in North America, North Africa and Brazil, partially offset by higher activity level in Mexico. Contract revenues were $58.2 million, compared to $59.5 million in Q4 2008.
Total MultiClient revenues were $0.2 million in Q4 2009, compared to $9.3 million in Q4 2008. The Onshore MultiClient activity is concentrated in North America where activity was low in 2009. In Q4 capitalized cash investments in MultiClient library, excluding capitalized interest, totaled $0.5 million, compared to $5.5 million in Q4 2008.
Onshore reported an EBIT of $1.1 million in Q4 2009, compared to $3.2 million in Q4 2008. The Company delivered on its expectation of having a positive EBIT for the Onshore business in the three last quarters of 2009.
Other (including Corporate, Global Shared Services and PGS EM)
In Q4 2009 the EBIT loss was $8.8 million, compared to a loss of $117.5 million in Q4 2008, where $99.1 million related to impairment of intangible assets recognized at the purchase of MTEM Ltd. ("MTEM") in 2007.
The numbers include the electro-magnetic ("EM") operations of PGS EM with an EBIT loss of $2.5 million in Q4 2009, compared to a loss of $10.0 million in Q4 2008. During the first half of 2009 the PGS EM organization was restructured to be more in line with market demand.
Technology
In Q4 2009, the Company reported $5.2 million, in research and development costs, compared to $4.8 million in Q4 2008 and capitalized $2.5 million and $3.6 million in development costs, respectively. These expenses mainly relate to the core business activities of marine seismic acquisition and processing. The capitalized amounts primarily relate to PGS' effort to develop a towed EM solution, which was tested over a known gas reservoir in the North Sea in June 2009. The test proved successful and the EM data produced have been modeled and inverted with very encouraging results. Fiberoptics and streamer control system developments were the other main components of the capitalized costs in Q4 2009.
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 4
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 5
Depreciation and Amortization
In Q4 2009 gross depreciation (before any capitalization to MultiClient library) was $42.7 million, compared to $40.3 in Q4 2008, reflecting increased capacity after Ramform Sterling entered the fleet in the second half of July 2009, partially offset by reduced depreciation after the sale of Geo Atlantic.
Amortization of the MultiClient library totaled $62.5 million (52% of MultiClient revenues) in Q4 2009, compared to $60.3 million (46% of MultiClient revenues) in Q4 2008. Amortization in Q4 2009 includes a write down of certain individual surveys by a total of $13.6 million. Pre-funding revenues are amortized with a rate of at least 45% (as long as such amortization does not exceed total cost).
Impairments of Long-lived Assets
In Q4 2009 the Company recorded total impairments of $2.4 million, primarily related to impairment of the vessel Polar Pearl. In Q4 2008 the Company recorded impairments of $161.1 million related to EM, stacking of Polar Sea and deferral of conversion of Southern Explorer.
Impairments for the full year 2009 amounted to $153.6 million primarily relating to cancellation of Arrow new-build 532 and 533 ("NB 532" and "NB 533") and sale of the vessel Geo Atlantic.
Interest Expense
In Q4 2009 gross interest expense was $15.7 million, compared to $22.6 million in Q4 2008. The decrease reflects reduced interest rates and a reduction in interest bearing debt.
Capitalized interest for MultiClient surveys and construction in progress was $2.1 million in Q4 2009, compared to $9.5 million in Q4 2008. The decrease is due to a reduction of vessels under construction and lower MultiClient cash investments.
Other Financial Income
In Q4 2009 other financial income was a gain of $2.2 million compared to a gain of $8.4 million in Q4 2008. The gain in Q4 2009 was primarily attributable to interest income of $2.6 million compared to $1.9 million in Q4 2008. A gain on investment in shares in PGS Ventures of $0.7 million also contributed to the gain in Q4 2009. In Q4 2008 the Company repurchased $16 million of nominal value of its convertible bond at a price of approximately 45% of nominal value resulted in a gain of $6.4 million.
Other Financial Expense
In Q4 2009 other financial expense net was $4.0 million. $6.9 million is related to fees and expenses in conjunction with a consent solicitation to amend the certain terms in the $400 million convertible note completed in November 2009. Other financial expense was $11.1 million in Q4 2008.
Currency Exchange Gain (Loss)
In Q4 2009 currency exchange was a gain of $1.5 million, compared to a currency loss of $19.6 million in Q4 2008. The Company holds foreign currency positions to balance its operational currency exposure. These positions are not accounted for as hedges, but marked to market at each balance sheet date together with receivables and payables in non US currencies, generally causing the short term effect to be positive when the USD depreciates.
Income Tax Expense
The income tax expense in Q4 2009 was $5.2 million compared to a benefit of $109.2 million in Q4 2008. Income tax expense for the full year 2009 was $48.5 million compared to $29.6 million in 2008.
The estimated current tax part of the tax expense in Q4 2009 was an expense of $26.2 million, including a $21 million valuation allowance for prepaid income tax as described below, compared to an expense of $12.9 million in Q4 2008. Current tax expense for the full year was $46.7 million. Current tax expense for 2008 was $80.1 million. Current tax expense relates primarily to foreign taxes or income taxes in countries where the Company has no carry forward losses or where there are limitations to the use of such losses.
The Company received the final tax assessment from the Tax Appeal Board of the Central Tax Office in Norway ("CTO"), dated
October 29, 2009, regarding exit from the previous shipping tax regime, effective January 1, 2002. This final assessment had a lower taxable exit gain than the draft assessment from the CTO dated January 13, 2009, and therefore positively impacted income tax expense in Q4 2009 by $31.8 million. There is an uncertainty whether the Company will be granted a change of tax depreciations/deductions in tax returns for previous years based on the final assessment. PGS has based its accounting on the final assessment with an assumption that historical tax depreciations/deductions can be changed, but is considering taking the case to court as its primary position is that it had a loss at the time of exit.
The Q4 2009 tax expense is negatively impacted by the introduction of valuation allowance relating to prepaid income tax in Brazil, amounting to $21 million, since the Company now believes that the future utilization of these prepaid taxes is less likely.
Tax expense for Q4 2008 was positively impacted by the planned entry of parts of the vessel operation to the Norwegian tonnage tax regime ("NTT") from January 1, 2008, and developments relating to exit from the previous tax regime, effective January 1, 2002, aggregating $107 million.
The Company has substantial deferred tax assets in different jurisdictions, predominantly in Norway. In the consolidated balance sheets deferred tax assets amounted to $207.9 million as of December 31, 2009. As of December 31, 2008 recognized deferred tax assets were $221.8 million.
The Company has an ongoing dispute in Brazil related to municipal services tax ("ISS") on sale of MultiClient data. The issue has been disclosed and explained in annual and quarterly reports since 2005. As of December 31, 2009 the Company estimates the total exposure to be approximately $155 million, including possible penalties and interest, none of which has been accrued because the matter is considered more likely than not to be resolved in PGS' favor.
Capital Investment
In Q4 2009 cash investment in MultiClient library (Marine only) totaled $47.1 million, excluding capitalized interest, compared to $56.9 million in Q4 2008. The decrease is primarily due to less project-based hired-in vessel capacity used to acquire marine MultiClient surveys.
Capital expenditures, excluding capitalized interest and Onshore, totaled $41.3 million in Q4 2009, compared to $117.9 million in Q4 2008.
Main Marine expenditures in Q4 2009 where streamer pool renewal of $15.1 million, other seismic equipment of $8.4 million, maritime equipment of $7.0 million and rigging expenditures of $5.5 million.
Arrow New-Build Program
Upon the acquisition of Arrow Seismic ASA including its subsidiaries ("Arrow") in 2007, the company was constructing four 10-12 streamer seismic 3D vessels at the Factorias Vulcano shipyard group in Spain. The first two vessels (NB 532 and 533) were chartered to WesternGeco ("WG"), whereas the other two new-builds (NB 534 and 535), now named PGS Apollo and PGS Artemis, were intended to be a part of PGS seismic operations when completed.
Arrow cancelled the contracts for NB 532 and NB 533 in March 2009 and August 2009 respectively due to delays. WG was released from its obligations under the charter in connection with these cancellations. The yard disputed Arrow's right of termination, and initiated arbitration proceedings against Arrow in Norway. In the first arbitration case concerning NB 532, the yard was ordered to pay Arrow the full amount claimed of, EUR 39.7 million, with the addition of interest and full legal costs. The part of the award covered by bank refund guarantees, EUR 32 million plus interest of EUR 5 million was received in Q1 2010. The remaining amount is subject to debt collection procedures against the yard. The date for the hearing in the second arbitration concerning NB 533 is scheduled for June 2010. The amount claimed and the part of this covered by bank guarantees is in line with the amount in the first arbitration case.
The work on PGS Apollo is progressing and PGS anticipates that the vessel will be completed around end Q1/beginning Q2 2010.
The work on PGS Artemis has shown limited progress to date. The vessel is under the contract supposed to be completed at Factorias Vulcano's subsidiary in Gijon, Factorias Juliana, which is currently in a bankruptcy process. PGS has decided to defer
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 6
any further purchase commitments on seismic equipment for PGS Artemis and intends to equip the vessel with existing equipment from its 6-streamer fleet if it is delivered. PGS will be entitled to terminate the contract if the vessel is not delivered by January 31, 2010 plus 200 days.
Arrow has paid all scheduled pre-delivery yard installments on both PGS Apollo and PGS Artemis, approximately EUR 40 million on each. Arrow has received bank guarantees for the full amount relating to PGS Artemis. If in the future the shipbuilding contract for PGS Artemis is terminated (either by Arrow due to delay or by the yard as a result of the financial situation) Arrow will be entitled to call on these guarantees and should realize a significant cash recovery. Termination of either PGS Apollo or PGS Artemis, or both would most likely result in a material impairment charge.
Liquidity and Financing
In Q4 2009, net cash provided by operating activities was $158.8 million compared to $258.3 million in Q4 2008. The reduction is due primarily to lower profitability on Marine contract work and a corresponding lower adjusted EBITDA. In Q4 2009 the Company made debt and capital lease repayments amounting to $107.9 million.
At December 31, 2009, cash and cash equivalents amounted to $126.0 million compared to $184.0 million at September 30, 2009 and $95.2 million at December 31, 2008. Restricted cash amounted to $18.0 million at December 31, 2009 compared to $26.1 million at September 30, 2009 and $18.4 million at December 31, 2008.
As of December 31, 2009, $572.0 million was outstanding under the Term Loan B maturing in 2015. In addition, the Company has $344.5 million nominal amount of convertible notes outstanding and a remaining balance on the Oslo Seismic Notes of $33.9 million. All drawings on the $350.0 million revolving credit facility maturing in 2012 were repaid in Q4 2009.
In Q4 2009 the Company achieved bondholder consent to certain amendments of the convertible bond, PGS01, with a nominal amount of $344.5 million outstanding, to increase flexibility and to harmonize terms and conditions with other debt instruments. Total fees and costs for PGS were $6.9 million, which has been expensed in Q4 2009.
The total interest bearing debt, including capital leases, was $918.0 million as of December 31, 2009 compared to $1,023.1 million as of September 30, 2009 and $1,249.2 million as of December 31, 2008.
Net interest bearing debt (interest bearing debt less cash and cash equivalents, restricted cash and interest bearing investments) was $774.0 million as of December 31, 2009 compared to $813.0 million as of September 30, 2009 and $1,135.6 million as of December 31, 2008.
The Company is subject to interest rate risk on debt, including capital leases. The risk is managed through using a combination of fixed and variable rate debt, together with interest rate swaps where appropriate, to fix the borrowing cost. As of December 31, 2009 the Company had approximately 3/4 of its debt on fixed interest rate and the weighted average interest rate on gross debt was approximately 5.0%, inclusive credit margins paid on the debt. The swap agreements used to fix the interest rate on $400 million of the debt matures from mid 2010 through 2014 and is matched against the Term Loan B. The swap agreements are accounted for as interest rate hedges as long as the hedging criteria are met.
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 the Company's debt, including capital leases, would increase by approximately $1.0 million.
The $600 million Term Loan B and the $350 million revolving credit facility contain financial covenants and negative covenants that restrict the company in various ways. The revolving credit facility may not have a total leverage ratio exceeding 3.25:1 in 2009 and 2010, and 3.0:1 thereafter. At December 31, 2009 the total leverage ratio was 1.94:1. The credit agreement generally requires the Company to apply 50% of excess cash flow to repay outstanding borrowings for periods when the senior leverage ratio exceeds 2.0:1 or if total leverage ratio exceeds 2.5:1.
Risk factors
The Company emphasize that the information included herein contains certain forward-looking statements that address activities, events or developments that the Company
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 7
expects, projects, believes or anticipates will or may occur in the future. These statements are based on various assumptions made by the Company, which are beyond its control and are subject to risks and uncertainties. The Company is subject to a large number of risk factors including but not limited to the demand for seismic services, the demand for data from our MultiClient data library, the attractiveness of our technology, changes in governmental regulations affecting our markets, technical downtime, licenses and permitting and weather conditions.
Contracts for services are occasionally modified by mutual consent and in certain instances are cancelable by the customers on short notice without penalty. Consequently, the order book as of any particular date may not be indicative of actual operating results for any succeeding period.
For a further description of other relevant risk factors we refer to the Annual Report for 2008. As a result of these and other risk factors, actual events and actual results may differ materially from those indicated in or implied by such forward-looking statements.
Outlook 2010
Based on the current operational forecast and with reference to the aforementioned risk factors, the Company expects the net amount of Adjusted EBITDA minus CAPEX and
MultiClient cash investment to be a minimum $100 million for the full year 2010.
The primary risks relating to the full year guidance are contract market demand in second half of the year, operational downtime events and MultiClient sales. The guidance could also be impacted if the Company makes significant changes to investment plans.
Events after the end of the reporting period
On January 7, 2010, PGS presented a bank guarantee of $27 million following an ISS foreclosure presented by the tax office in Rio de Janeiro, Brazil in December 2009. The bank guarantee was required as part of a court suit filed by PGS in the same case on February 4, 2010 to challenge the assessment. Reference is made to description in the paragraph "Income Tax Expense" above.
In Q1 2010 PGS subsidiary Arrow Seismic Invest II Ltd. ("Arrow II") received an arbitration award and partial payment hereunder in relation to the dispute with the Spanish yard over NB 532, see further details on page 6.
The sale of PGS' Onshore business was concluded on February 12, 2010.
Lysaker, February 19, 2010
Francis Gugen
Chairperson
Wenche Kjølås
Harald Norvik
Vice Chairperson
Annette Malm Justad
Holly Van Deursen
Carol Bell
Daniel J. Piette
Ingar Skaug
Jon Erik Reinhardsen
Chief Executive Officer
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 8
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 9
Petroleum Geo-Services is a focused geophysical company providing a broad range of seismic and reservoir services, including acquisition, processing, interpretation, and field evaluation. The company also possesses the world's most extensive multi-client data library. PGS operates on a worldwide basis with headquarters at Lysaker, Norway.
For more information on Petroleum Geo-Services visit www.pgs.com.
The information included herein contains certain forward-looking statements that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future. These statements are based on various assumptions made by the Company, which are beyond its control and are subject to certain additional risks and uncertainties. The Company is subject to a large number of risk factors including but not limited to the demand for seismic services, the demand for data from our multi-client data library, the attractiveness of our technology, unpredictable changes in governmental regulations affecting our markets and extreme weather conditions. For a further description of other relevant risk factors we refer to our Annual Report for 2008. As a result of these and other risk factors, actual events and our actual results may differ materially from those indicated in or implied by such forward-looking statements. The reservation is also made that inaccuracies or mistakes may occur in the information given above about current status of the Company or its business. Any reliance on the information above is at the risk of the reader, and PGS disclaims any and all liability in this respect.
Petroleum Geo-Services ASA and Subsidiaries
Consolidated Statements of Operations
| Note | Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|---|
| 2009 Unaudited | 2008 Unaudited | 2009 Unaudited | 2008 Unaudited | ||
| (In thousands of dollars, except share data) | |||||
| Revenues | 4 | $ 303 657 | $ 393 555 | $ 1 350 202 | $ 1 647 401 |
| Cost of sales | 143 729 | 144 822 | 605 980 | 662 286 | |
| Research and development costs | 5 | 5 174 | 4 796 | 22 806 | 19 357 |
| Selling, general and administrative costs | 13 243 | 16 407 | 49 270 | 72 798 | |
| Depreciation and amortization | 4, 6 | 96 060 | 96 290 | 285 269 | 273 164 |
| Impairment of long-lived assets | 4, 7 | 2 403 | 161 140 | 153 615 | 161 140 |
| Other operating income | 4 | - | - | - | (71 561) |
| Total operating expenses | 260 609 | 423 455 | 1 116 940 | 1 117 184 | |
| Operating profit (loss)/EBIT | 4 | 43 048 | (29 900) | 233 262 | 530 217 |
| Income/(loss) from associated companies | 684 | (9 143) | 1 901 | (16 166) | |
| Interest expense | 8 | (13 599) | (13 016) | (45 232) | (58 459) |
| Other financial income | 9 | 2 214 | 8 412 | 24 489 | 27 219 |
| Other financial expense | 10 | (3 999) | (11 122) | (11 117) | (14 594) |
| Currency exchange gain (loss) | 1 512 | (19 575) | 24 806 | (29 843) | |
| Income before income tax expense (benefit) | 29 860 | (74 344) | 228 109 | 438 374 | |
| Income tax expense (benefit) | 5 155 | (109 159) | 48 541 | 29 561 | |
| Income from continuing operations | 24 705 | 34 815 | 179 568 | 408 813 | |
| Income (loss) from discontinued operations, net of tax | 17 | 263 | 4 153 | (11 649) | 9 277 |
| Net income | $ 24 968 | $ 38 968 | $ 167 919 | $ 418 090 | |
| Net income attributable to minority interests | 2 097 | (1) | 2 094 | 706 | |
| Net income to equity holders of PGS ASA | $ 22 871 | $ 38 969 | $ 165 825 | $ 417 384 |
Earnings per share, to ordinary equity holders of PGS ASA:
- Basic 16 $ 0.12 $ 0.22 $ 0.88 $ 2.37
- Diluted 16 $ 0.12 $ 0.22 $ 0.88 $ 2.36
Earnings per share from continuing operations, to ordinary equity holders of PGS ASA:
- Basic 16 $ 0.11 $ 0.20 $ 0.94 $ 2.32
- Diluted 16 $ 0.11 $ 0.20 $ 0.94 $ 2.31
Weighted average basic shares outstanding
Weighted average diluted shares outstanding
Revenues by Quarter 2007, 2008 & 2009
Adjusted EBITDA (1) by Quarter 2007, 2008 & 2009
Notes: (1) Adjusted EBITDA, when used by the Company, means income before income tax expense less, currency exchange gain (loss), other financial expense, other financial income, interest expense, income (loss) from associated companies, other operating income and depreciation and amortization. See Support Tables for a more detailed discussion of and reconciliation of Adjusted EBITDA to income before income tax expense (benefit). Adjusted EBITDA may not be comparable to other similary titled measures from other companies. PGS has included Adjusted EBITDA as a supplemental disclosure because management believes that it provides useful information regarding PGS ability to service debt and to fund capital expenditures and provides investors with a helpful measure for comparing its operating performance with that of other companies. Adjusted EBITDA is considered a non IFRS measure.
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 10
Petroleum Geo-Services ASA and Subsidiaries
Consolidated Statements of Comprehensive Income
| Note | Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|---|
| 2009 Unaudited | 2008 Unaudited | 2009 Unaudited | 2008 Audited | ||
| Net income for the period | $ 24 968 | $ 38 968 | $ 167 919 | $ 418 090 | |
| Other comprehensive income: | |||||
| Cash flow hedges | 13 | 7 694 | (27 516) | 15 582 | (24 588) |
| Deferred tax on cash flow hedges | (2 234) | 8 073 | (4 388) | 12 994 | |
| Revaluation of shares available-for-sale | 13 | (1 721) | (146) | (2) | 725 |
| Translation adjustments and other | (14) | (1 019) | 26 | (676) | |
| Other comprehensive income for the period, net of tax | 3 725 | (20 608) | 11 218 | (11 545) | |
| Total comprehensive income for the period | 28 693 | 18 360 | 179 137 | 406 545 | |
| Total comprehensive income attributable to minority interests | 2 097 | (1) | 2 094 | 706 | |
| Total comprehensive income to equity holders of PGS ASA | $ 26 596 | $ 18 361 | $ 177 043 | $ 405 839 |
Petroleum Geo-Services ASA and Subsidiaries
Consolidated Statements of Financial Position
| Note | December 31, | ||
|---|---|---|---|
| 2009 | 2008 | ||
| Unaudited | Audited | ||
| (In thousands of dollars) | |||
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | 15 | $ 125 961 | $ 95 248 |
| Restricted cash | 15 | 7 977 | 8 360 |
| Shares available-for-sale | 2 039 | 5 977 | |
| Accounts receivable | 197 098 | 228 903 | |
| Accrued revenues and other receivables | 216 846 | 179 331 | |
| Assets held-for-sale | 17 | 227 292 | 5 250 |
| Other current assets | 90 148 | 143 258 | |
| Total current assets | 867 361 | 666 327 | |
| Long-term assets: | |||
| Property and equipment | 1 283 463 | 1 562 421 | |
| Multi-client library | 293 238 | 294 601 | |
| Restricted cash | 15 | 10 014 | 10 014 |
| Deferred tax assets | 207 890 | 221 786 | |
| Investments in associated companies | 7 043 | 14 391 | |
| Shares available-for-sale | 10 004 | 272 | |
| Other long-lived assets | 11 978 | 20 142 | |
| Goodwill | 139 852 | 175 092 | |
| Other intangible assets | 98 490 | 99 759 | |
| Total long-term assets | 2 061 972 | 2 398 478 | |
| Total assets | $ 2 929 333 | $ 3 064 805 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||
| Current liabilities: | |||
| Short-term debt and current portion of long-term debt | 15 | $ 26 109 | $ 20 459 |
| Current portion of capital lease obligations | 15 | 348 | 1 180 |
| Accounts payable | 87 153 | 98 036 | |
| Accrued expenses | 286 079 | 340 308 | |
| Liabilities held-for-sale | 17 | 26 008 | - |
| Income taxes payable | 54 914 | 75 683 | |
| Total current liabilities | 480 611 | 535 666 | |
| Long-term liabilities: | |||
| Long-term debt | 15 | 882 580 | 1 212 065 |
| Long-term capital lease obligations | 15 | - | 2 871 |
| Deferred tax liabilities | 31 228 | 34 398 | |
| Other long-term liabilities | 85 877 | 140 125 | |
| Total long-term liabilities | 999 685 | 1 389 459 | |
| Shareholders' equity: | |||
| Paid-in capital: | |||
| Common stock, par value NOK 3; issued and outstanding 197,999,999 shares at December 31, 2009; issued and outstanding 180,000,000 at December 31, 2008. | 86 583 | 78 208 | |
| Treasury shares, par value | - | (1 868) | |
| Additional paid-in capital | 237 542 | 134 658 | |
| Total paid-in capital | 324 125 | 210 998 | |
| Accumulated earnings | 1 147 551 | 963 334 | |
| Cumulative translation adjustment and other reserves | (23 444) | (34 662) | |
| Minority interests | 805 | 10 | |
| Total shareholders' equity | 14 | 1 449 037 | 1 139 680 |
| Total liabilities and shareholders' equity | $ 2 929 333 | $ 3 064 805 |
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 11
Petroleum Geo-Services ASA and Subsidiaries
Consolidated Statements of Cash Flows
| Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2009 Unaudited | 2008 Unaudited | 2009 Unaudited | 2008 Audited | |
| (In thousands of dollars) | ||||
| Cash flows provided by operating activities: | ||||
| Net income | $ 22 871 | $ 38 969 | $ 165 825 | $ 417 384 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Depreciation and amortization | 96 060 | 96 290 | 285 269 | 273 164 |
| Depreciation and amortization, discontinued operations | 3 619 | 10 592 | 22 701 | 62 352 |
| Impairments of long-lived assets | 2 403 | 161 140 | 153 615 | 161 140 |
| (Gain) loss on sale of assets | (1 001) | (3 813) | 47 | (75 581) |
| Interest expense | 13 593 | 12 821 | 45 035 | 56 648 |
| (Increase) decrease in deferred income taxes | (19 416) | (124 671) | 7 095 | (49 035) |
| Net decrease in restricted cash | 8 110 | 5 900 | 383 | 41 049 |
| Income taxes paid | (21 025) | (12 581) | (65 487) | (49 741) |
| Gain on sale of shares | (59) | - | (8 670) | - |
| Other items | 955 | 12 603 | 1 007 | 22 393 |
| (Increase) decrease in accounts receivable, net | 17 728 | 67 568 | (15 703) | 13 451 |
| (Increase) decrease in unbilled and other receivables | (17 779) | (25 478) | 45 721 | (32 104) |
| (Increase) decrease in other current assets | 24 144 | (15 820) | 39 354 | (13 688) |
| (Increase) decrease in other long-lived assets | 2 738 | 343 | 6 963 | 8 885 |
| Increase (decrease) in accounts payable | 19 159 | 15 943 | (6 686) | 10 089 |
| Increase (decrease) in accrued expenses and income taxes payable | 19 919 | 32 453 | 21 394 | 87 405 |
| Increase (decrease) in other long-term liabilities | (13 234) | (13 933) | (21 781) | (19 196) |
| Net cash provided by operating activities | 158 785 | 258 326 | 676 082 | 914 615 |
| Cash flows (used in) provided by investing activities: | ||||
| Investment in MultiClient library | (47 077) | (56 895) | (183 083) | (228 988) |
| Investment in Multiclient library, discontinued operations | (536) | (5 534) | (3 599) | (61 043) |
| Capital expenditures | (41 340) | (117 901) | (231 227) | (414 516) |
| Capital expenditures on new-builds on charter | - | (713) | (3 839) | (31 979) |
| Capital expenditures, discontinued operations | (718) | (9 283) | (10 538) | (36 103) |
| Investment in other intangible assets | (1 337) | (3 771) | (7 811) | (12 304) |
| Investment in other intangible assets, discontinued operations | (1 656) | (45) | (4 577) | (156) |
| Proceeds from sale of assets and associated companies | 3 317 | 467 | 12 143 | 6 297 |
| Proceeds from assets held-for-sale | - | - | 58 000 | 24 605 |
| Investment in available-for-sale shares | (3 197) | - | (8 128) | - |
| Proceeds from available-for-sale shares | 1 004 | - | 14 681 | - |
| Other items, net | 956 | - | 1 956 | 885 |
| Net cash used in investing activities | (90 584) | (193 675) | (366 022) | (753 302) |
| Cash flows provided by (used in) financing activities: | ||||
| Proceeds from issuance of common stock, net | - | - | 98 523 | - |
| Proceeds from issuance of long-term debt | - | - | 20 000 | 33 702 |
| Repayment of long-term debt | (107 810) | (34 808) | (354 538) | (149 078) |
| Principal payments under capital leases | (111) | (1 864) | (3 703) | (7 686) |
| Net increase (decrease) in bank facility and short-term debt | - | - | - | (10 000) |
| Proceeds from sale of treasury shares | - | - | 20 276 | - |
| Proceeds from exercise of employee share options | - | - | - | 2 671 |
| Dividend paid to minority interest | (1 294) | (5) | (1 299) | (737) |
| Interest paid | (17 033) | (20 485) | (58 606) | (80 232) |
| Net cash used in financing activities | (126 248) | (57 162) | (279 347) | (211 360) |
| Net increase in cash and cash equivalents | (58 047) | 7 489 | 30 713 | (50 047) |
| Cash and cash equivalents at beginning of period | 184 008 | 87 759 | 95 248 | 145 295 |
| Cash and cash equivalents at end of period | $ 125 961 | $ 95 248 | $ 125 961 | $ 95 248 |
PGS Fourth Quarter and Preliminary Full Year 2009 Results
Page 12
Petroleum Geo-Services ASA
Notes to the Interim Consolidated Financial Statements - Fourth Quarter 2009
Note 1 - General
In the 4th quarter the Company entered into an agreement to sell PGS Onshore business ("Onshore") to the US-based Geokinetics. The results for Onshore are included in discontinued operations in the consolidated statements of operations and is classified as asset held-for-sale in the consolidated statement of financial positions (see Note 17 and 18). The Notes are restated for all periods presented.
The Company is a Norwegian limited liability company and has prepared its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. The consolidated interim financial statements have been prepared in accordance with International Accounting Standards ("IAS") No. 34 "Interim Financial Reporting".
(1) Certain reclassifications have been made to prior period amounts to conform to the current presentation and the annual information for 2008 has been restated to reflect Onshore as discontinued operation (as per above). Accordingly, financial inform financial statements as presented in the 2008 Annual Report.
(2) Adjusted EBITDA, when used by the Company, means income before income tax expense (benefit) loss, currency exchange gain (loss), other financial expense, other financial income, interest expense, income (loss) from associated companies, other operating income, impairments of long-lived assets and depreciation and amortization. EBITDA may not be comparable to other similar titled measures from other companies. PGS has included Adjusted EBITDA as a supplemental disclosure because management believes that it provides useful information regarding PGS' ability to service debt and to fund capital expenditures and provides investors with a helpful measure for comparing its operating performance with that of other companies.
Note 2 - Basis of presentation
The consolidated interim financial statements reflects all adjustments, in the opinion of PGSs management, that are necessary for a fair presentation of the results of operations for all periods presented. Operating results for the quarter period is not necessary indicative of the results that may be expected for any subsequent interim period or year. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2008.
The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Company's consolidated financial statements for the year ended December 31, 2008, except for the adoption of amendment to IAS 1 - Presentation of Financial Statements. See Note 2 to the Consolidated Financial Statements in the 2008 Annual Report for information of the Company's significant accounting policies.
Note 3 - New policies and standards adopted in 2009
Amendment to IAS 1 - Presentation of Financial Statements
The amendment to IAS 1 affect the presentation of owner changes in equity and of comprehensive income and does not impact on recognition and measurement as required by any other IFRS standards. The Company has presented a Consolidated Statement of Comprehensive Income separately, which include all non-owner changes in shareholders' equity. All changes in shareholders' equity resulting from transactions with owners in their capacity as owners are presented in shareholders' equity, see reconciliation below.
Note 4 - Segment information
The Company operates its business in two segments; Marine and Onshore (see above regarding the sale of Onshore). "Other" includes Corporate administration costs, unallocated Global Shared Services costs (net) and PGS EM. Financial items and income tax expense are not included in the measure of segment performance.
Revenues by operating segment and service type for the periods presented
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2009 | 2008 | 2009 | 2008 | |
| Revenues by continued operations: | (In thousands of dollars) | |||
| Marine revenues by service type: | ||||
| - Contract seismic | $ 158,155 | $ 233,701 | $ 893,050 | $ 1,065,048 |
| - MultiClient pre-funding | 31,479 | 81,373 | 169,045 | 249,602 |
| - MultiClient late sales | 87,183 | 49,161 | 181,635 | 189,823 |
| - Data Processing | 23,485 | 19,594 | 90,158 | 86,027 |
| - Other | 2,855 | 6,952 | 15,816 | 48,257 |
| Marine revenues | $ 303,157 | $ 390,781 | $ 1,349,702 | $ 1,638,757 |
| Other revenues by service type: | ||||
| - Contract seismic | $ - | $ 2,775 | $ - | $ 4,316 |
| - MultiClient late sales | 500 | $ - | $ 500 | $ - |
| - Other | - | (1) | - | 4,426 |
| Other revenues | $ 500 | $ 2,774 | $ 500 | $ 8,742 |
| Elimination of inter-segment revenues: | ||||
| - Other | - | - | - | (98) |
| Elimination of inter-segment revenues | $ - | $ - | $ - | $ (98) |
| Total revenues by service type: | ||||
| - Contract seismic | $ 158,155 | $ 236,476 | $ 893,050 | $ 1,069,364 |
| - MultiClient pre-funding | 31,479 | 81,373 | 169,045 | 249,602 |
| - MultiClient late sales | 87,683 | 49,161 | 182,135 | 189,823 |
| - Data Processing | 23,485 | 19,594 | 90,158 | 86,027 |
| - Other | 2,855 | 6,951 | 15,816 | 52,585 |
| Total revenues (continuing operation) | $ 303,657 | $ 393,555 | $ 1,350,202 | $ 1,647,401 |
| Revenues by discontinued operations: | ||||
| Onshore revenues by service type: | ||||
| - Contract seismic | $ 58,245 | $ 59,463 | $ 190,404 | $ 204,463 |
| - MultiClient pre-funding | - | 5,699 | 1,595 | 55,958 |
| - MultiClient late sales | 217 | 5,562 | 2,625 | 12,653 |
| Total revenues (discontinued operation) | $ 58,462 | $ 68,724 | $ 194,626 | $ 273,074 |
Page 1
Operating profit (loss)/EBIT by operating segment for the periods presented:
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2009 | 2008 | 2009 | 2008 | |
| Operating profit (loss)/ EBIT from continuing operations: | (In thousands of dollars) | |||
| Marine: | ||||
| Adjusted EBITDA | $ 146,589 | $ 239,444 | $ 702,355 | $ 939,954 |
| Other operating income | - | - | - | 71,561 |
| Impairments of long-lived assets | (2,012) | (62,011) | (153,224) | (62,011) |
| Depreciation and amortization (a) | (31,372) | (31,533) | (122,394) | (110,432) |
| Amortization of MultiClient library (a) | (61,373) | (58,908) | (151,572) | (144,101) |
| Operating profit/EBIT, Marine | 51,830 | 86,992 | 275,165 | 694,971 |
| Other: | ||||
| Adjusted EBITDA | $ (5,082) | $ (12,465) | $ (29,661) | $ (48,471) |
| Impairments of long-lived assets | (391) | (99,129) | (391) | (99,129) |
| Depreciation and amortization (a) | (2,230) | (4,449) | (9,464) | (17,366) |
| Amortization of MultiClient library (a) | (1,088) | (1,442) | (1,860) | (1,442) |
| Operating profit (loss)/EBIT, Other | (8,791) | (117,485) | (41,376) | (166,408) |
| Inter-segment eliminations: | ||||
| Adjusted EBITDA | $ 4 | $ 551 | $ (548) | $ 1,477 |
| Depreciation and amortization (a) | - | 37 | - | 156 |
| Amortization of MultiClient library (a) | 5 | 5 | 21 | 21 |
| Operating profit (loss)/EBIT, Other | 9 | 593 | (527) | 1,654 |
| Total Operating profit: | ||||
| Adjusted EBITDA | $ 141,511 | $ 227,530 | $ 672,146 | $ 892,960 |
| Other operating income | - | - | - | 71,561 |
| Impairments of long-lived assets | (2,403) | (161,140) | (153,615) | (161,140) |
| Depreciation and amortization (a) | (33,602) | (35,945) | (131,858) | (127,642) |
| Amortization of MultiClient library (a) | (62,458) | (60,345) | (153,411) | (145,522) |
| Total Operating profit (loss)/EBIT | $ 43,048 | $ (29,900) | $ 233,262 | $ 530,217 |
(a) Presented separately in the Consolidated Statements of Operations.
Operating profit (loss)/ EBIT from discontinued operations:
| Otochors: | ||||
|---|---|---|---|---|
| Adjusted EBITDA | $ 4,718 | $ 13,830 | $ 18,627 | $ 74,874 |
| Depreciation and amortization (a) | (3,620) | (4,409) | (19,076) | (14,913) |
| Amortization of MultiClient library (a) | - | (6,183) | (3,620) | (47,439) |
| Operating profit (loss)/EBIT, Otochors | 1,098 | 3,210 | (4,075) | 12,522 |
Note 5 - Research and development costs
Research and development costs, net of capitalized portion were as follows for the periods presented:
| Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Research and development costs, gross | $ 7,679 | $ 8,431 | $ 31,555 | $ 30,813 |
| Capitalized development costs | (2,505) | (3,635) | (8,749) | (11,456) |
| Total | $ 5,174 | $ 4,796 | $ 22,806 | $ 19,357 |
Note 6 - Depreciation and amortization
Depreciation and amortization consists of the following for the periods presented:
| Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Gross depreciation | $ 42,699 | $ 40,308 | $ 156,639 | $ 139,878 |
| Depreciation capitalized to MultiClient library | (9,097) | (4,363) | (24,781) | (12,236) |
| Amortization of MultiClient library | 62,458 | 60,345 | 153,411 | 145,522 |
| Total | $ 96,060 | $ 96,290 | $ 285,269 | $ 273,164 |
The Company amortizes its MultiClient library primarily based on the ratio between the cost of surveys and the total forecasted sales for such surveys. In applying this method, surveys are categorized into four amortization categories with amortization rates of 90%, 75%, 60% or 45% of sales amounts. Each category includes surveys where the remaining unamortized cost as a percentage of remaining forecasted sales is less than or equal to the amortization rate applicable to each category.
The Company also applies minimum amortization criteria for the library projects based generally on a five-year life. The Company calculates and records minimum amortization individually for each MultiClient survey or pool of surveys at quarterly basis. At year-end, or when specific impairment indicators exists, the Company carry out an impairment test of individual MultiClient surveys. The Company classifies these impairment charges as amortization expense in its consolidated statement of operations since this additional, non-sales related amortization expense, is expected to occur regularly.
Note 7 - Impairments of long-lived assets
Impairments of long-lived assets consists of the following for the periods presented:
| Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Property and equipment | $ 2,403 | $ 59,935 | $ 153,615 | $ 59,935 |
| Other intangible assets | - | 99,129 | - | 99,129 |
| Oil and gas assets (other long-lived assets) | - | 2,076 | - | 2,076 |
| Total | $ 2,403 | $ 161,140 | $ 153,615 | $ 161,140 |
Note 8 - Interest expense
Interest expense consists of the following for the periods presented:
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Interest expense, gross | $ (15,706) | $ (22,555) | $ (70,472) | $ (98,428) |
| Capitalized interest, multi-client library | 329 | 1,435 | 6,000 | 7,710 |
| Capitalized interest, construction in progress | 1,778 | 8,104 | 19,240 | 32,259 |
| Total | $ (13,599) | $ (13,016) | $ (45,232) | $ (58,459) |
Note 9 - Other financial income
Other financial income consists of the following for the periods presented:
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Interest income | $ 2,631 | $ 1,912 | $ 7,238 | $ 14,368 |
| Gain on repurchase of convertible notes | - | 6,384 | 3,778 | 12,147 |
| Gain from sale of shares | 60 | - | 8,671 | - |
| Gain on investment in shares available for sale | 696 | - | 3,749 | - |
| Other | (1,173) | 116 | 1,053 | 704 |
| Total | $ 2,214 | $ 8,412 | $ 24,489 | $ 27,219 |
Note 10 - Other financial expense
Other financial expense consists of the following for the periods presented:
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Instruction fee convertible note (include costs) | $ (6,895) | $ - | $ (6,895) | $ - |
| Impairment of shares available-for-sale | - | (7,324) | - | (7,324) |
| Other | 2,896 | (3,798) | (4,222) | (7,270) |
| Total | $ (3,999) | $ (11,122) | $ (11,117) | $ (14,594) |
Note 11 - MultiClient library
The net book-value of the MultiClient library by year of completion is as follows:
| December 31, | ||
|---|---|---|
| 2009 | 2008 | |
| (In thousands of dollars) | ||
| Completed during 2004 and prior years | $ - | $ 2,676 |
| Completed during 2005 | 1,044 | 1,918 |
| Completed during 2006 | 1,796 | 1,047 |
| Completed during 2007 | 8,785 | 20,142 |
| Completed during 2008 | 46,925 | 117,337 |
| Completed during 2009 | 160,978 | - |
| Completed surveys | 219,528 | 143,120 |
| Surveys in progress | 73,710 | 151,481 |
| MultiClient library, net | $ 293,238 | $ 294,601 |
As of December 31, 2008 MultiClient library includes Onshore surveys for $60.4 million. As of December 31, 2009 such surveys are presented as held for sale.
Key figures MultiClient library by segment for the periods presented:
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2009 | 2008 | 2009 | 2008 | |
| Key figures Multiclient library continuing operation: | (In thousands of dollars) | |||
| Marine: | ||||
| MultiClient pre-funding (a) | $ 31,479 | $ 81,373 | $ 169,043 | $ 249,602 |
| MultiClient late sales (a) | 87,183 | 49,161 | 181,635 | 189,823 |
| Cash investment in MultiClient library | 47,071 | 54,566 | 183,059 | 223,734 |
| Capitalized interest in MultiClient library | 329 | 1,435 | 6,000 | 7,710 |
| Capitalized depreciation (non-cash) | 9,097 | 4,363 | 24,781 | 12,153 |
| Amortization of MultiClient library | 61,375 | 58,908 | 151,572 | 144,101 |
| Other/Elimination: | ||||
| MultiClient late sales (a) | $ 500 | $ - | $ 500 | $ - |
| Cash investment in MultiClient library | 6 | 2,329 | 24 | 5,254 |
| Capitalized depreciation | - | - | - | 83 |
| Amortization of MultiClient library | 1,083 | 1,437 | 1,839 | 1,421 |
| Total MultiClient library, key figures: | ||||
| MultiClient pre-funding (a) | $ 31,479 | $ 81,373 | $ 169,043 | $ 249,602 |
| MultiClient late sales (a) | 87,683 | 49,161 | 182,135 | 189,823 |
| Cash investment in MultiClient library (b) | 47,077 | 56,895 | 183,083 | 228,988 |
| Capitalized interest in MultiClient library (c) | 329 | 1,435 | 6,000 | 7,710 |
| Capitalized depreciation (non-cash) (d) | 9,097 | 4,363 | 24,781 | 12,236 |
| Amortization of MultiClient library (d) | 62,458 | 60,345 | 153,411 | 145,522 |
Key figures Multiclient library discontinuing operation:
| Onshore: | |||||
|---|---|---|---|---|---|
| MultiClient pre-funding (a) | $ - | $ 5,699 | $ 1,595 | $ 55,958 | |
| MultiClient late sales (a) | 217 | 3,562 | 2,625 | 12,653 | |
| Cash investment in MultiClient library (b) | 536 | 5,534 | 3,599 | 61,043 | |
| Capitalized interest in MultiClient library | 6 | 227 | 200 | 2,092 | |
| Capitalized depreciation (non-cash) | - | 348 | - | 2,013 | |
| Amortization of MultiClient library | - | 6,183 | 3,626 | 47,439 |
(a) See segment information, Note 4.
(b) See Consolidated statements of cash flows.
(c) See Interest expense above.
(d) See Depreciation and amortization above.
Note 12 - Capital expenditures (cash)
Capital expenditures (cash) were as follows for the periods presented:
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Marine | $ 40,996 | $ 110,266 | $ 227,840 | $ 395,312 |
| Other | 344 | 7,635 | 3,387 | 19,204 |
| Total | $ 41,340 | $ 117,901 | $ 231,227 | $ 414,516 |
Note 13 - Components of other comprehensive income
A reconciliation of reclassification adjustments included in the Consolidated Statements of Operations ("CSO") for all periods presented follows:
| Quarter ended | Year ended | |||
|---|---|---|---|---|
| December 31, | December 31, | |||
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Cash flow hedges: | ||||
| Gains (losses) arising during the period | $ 2,706 | $ (29,362) | $ (1,762) | $ (34,195) |
| Less: Reclassification adjustments for losses included in the CSO | 4,088 | 1,846 | 17,544 | 9,607 |
| Cash flow hedges, net | $ 7,694 | $ (27,516) | $ 15,582 | $ (24,588) |
| Revaluation of shares available-for-sale: | ||||
| Gains (losses) arising during the period | $ (1,560) | $ (146) | $ 1,434 | $ 725 |
| Less: Reclassification adjustments for (gains) included in the CSO | (161) | - | (1,436) | - |
| Revaluation of shares available-for-sale, net | $ (1,721) | $ (146) | $ (2) | $ 725 |
Note 14 - Shareholders' equity
| Common stock par value | Treasury shares par value | Additional paid-in capital | Accumulated earnings (deficit) | Cumulative translation adjustm. and other reserves | Minority interests | Shareholders' equity | |
|---|---|---|---|---|---|---|---|
| (In thousands of dollars) | |||||||
| Balance at December 31, 2007 | $ 78,208 | $ (2,034) | $ 124,820 | $ 562,816 | $ (23,117) | $ 41 | $ 740,734 |
| Reconciliation Q1 through Q3 2008: | |||||||
| Deferred tax on convertible notes (a) | - | - | - | (19,035) | - | - | (19,035) |
| Total comprehensive income | - | - | - | 378,415 | 9,063 | 707 | 388,185 |
| Dividends to minority interests | - | - | - | - | - | (732) | (732) |
| Employee share options | - | - | 6,797 | - | - | - | 6,797 |
| Exercise, employee share options | - | 72 | - | 2,599 | - | - | 2,671 |
| Transferred shares, deferred consideration | - | 94 | - | (94) | - | - | - |
| Repurchase convertible notes | - | - | - | (336) | - | - | (336) |
| Balance at September 30, 2008 | $ 78,208 | $ (1,868) | $ 131,617 | $ 924,365 | $ (14,054) | $ 16 | $ 1,118,284 |
| Reconciliation Q4 2008: | |||||||
| Total comprehensive income | - | - | - | 38,969 | (20,608) | (1) | 18,360 |
| Dividends to minority interests | - | - | - | - | - | (5) | (5) |
| Employee share options | - | - | 3,041 | - | - | - | 3,041 |
| Transferred shares, deferred consideration | - | - | - | - | - | - | - |
| Repurchase convertible notes | - | - | - | - | - | - | - |
| Balance at December 31, 2008 | $ 78,208 | $ (1,868) | $ 134,658 | $ 963,334 | $ (34,662) | $ 10 | $ 1,139,680 |
| Reconciliation Q1 2009: | |||||||
| Total comprehensive income | - | - | - | 54,164 | 5,401 | - | 59,565 |
| Employee share options | - | - | 3,488 | - | - | - | 3,488 |
| Balance at March 31, 2009 | $ 78,208 | $ (1,868) | $ 138,146 | $ 1,017,498 | $ (29,261) | $ 10 | $ 1,202,733 |
| Reconciliation Q2 2009: | |||||||
| Total comprehensive income | - | - | - | 41,042 | 10,617 | (2) | 51,657 |
| Share issue (17,999,999 shares) (b) | 8,375 | - | 91,083 | - | - | - | 99,458 |
| Sale of treasury shares (c) | - | 1,779 | - | 18,497 | - | - | 20,276 |
| Dividends to minority interests | - | - | - | - | - | (5) | (5) |
| Employee share options | - | - | 3,599 | - | - | - | 3,599 |
| Repurchase convertible notes | - | - | - | (16) | - | - | (16) |
| Balance at June 30, 2009 | $ 86,583 | $ (89) | $ 232,828 | $ 1,077,021 | $ (18,644) | $ 3 | $ 1,377,702 |
| Reconciliation Q3 2009: | |||||||
| Total comprehensive income | - | - | - | 47,748 | (8,525) | (1) | 39,222 |
| Employee share options | - | - | 2,305 | - | - | - | 2,305 |
| Balance at September 30, 2009 | $ 86,583 | $ (89) | $ 235,135 | $ 1,124,769 | $ (27,169) | $ 2 | $ 1,419,229 |
| Reconciliation Q4 2009: | |||||||
| Total comprehensive income | - | - | - | 22,871 | 3,725 | 2,097 | 28,693 |
| Dividends to minority interests | - | - | - | - | - | (1,294) | (1,294) |
| Transferred shares, deferred consideration | - | 89 | - | (89) | - | - | - |
| Employee share options | - | - | 2,409 | - | - | - | 2,409 |
| Balance at December 31, 2009 | $ 86,583 | $ - | $ 237,542 | $ 1,147,551 | $ (23,444) | $ 805 | $ 1,449,037 |
(a) Effective January 1, 2008, the Company calculated deferred tax on the temporary differences related to the convertible notes directly to shareholders' equity.
(b) Transaction costs amounting to $3.4 million are recognized against "Additional paid-in capital" net of related income tax benefits of $0.9 million.
(c) Transaction costs amounting to $0.7 million are recognized against "Accumulated earnings (deficit)".
Note 15 - Net interest hearing debt
Reconciliation of net interest hearing debt:
| December 31, | ||
|---|---|---|
| 2009 | 2008 | |
| (In thousands of dollars) | ||
| Cash and cash equivalents | 125,961 | $ 95,248 |
| Restricted cash (current and long-term) | 17,991 | 18,374 |
| Short-term debt and current portion of long-term debt | (26,109) | (20,459) |
| Capital lease obligations (current and long-term) | (348) | (4,051) |
| Long-term debt | (662,580) | (1,212,065) |
| Adjust for deferred loan costs (offset in long-term debt) | (8,954) | (12,632) |
| Total | $ (774,039) | $ (1,135,585) |
Note 16 - Earnings per share
Earnings per share, to ordinary equity holders of PGS ASA, were calculated as follows:
| Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Net income from continuing operations | $ 24,705 | $ 34,815 | $ 179,568 | $ 408,813 |
| Net income from discontinued operations | 263 | 4,153 | (11,649) | 9,277 |
| Minority interest | (2,097) | 1 | (2,094) | (706) |
| Net income to equity holders of PGS ASA | $ 22,871 | $ 38,969 | $ 165,825 | $ 417,384 |
| Effect of interest on convertible notes, net of tax | - | - | - | 21,541 |
| Net income for the purpose of diluted earnings per share | $ 22,871 | $ 38,969 | $ 165,825 | $ 438,925 |
| Earnings per share: | ||||
| - Basic | $ 0.12 | $ 0.22 | $ 0.88 | $ 2.37 |
| - Diluted | $ 0.12 | $ 0.22 | $ 0.88 | $ 2.36 |
| Earnings per share from continuing operations, | ||||
| - Basic | $ 0.11 | $ 0.20 | $ 0.94 | $ 2.32 |
| - Diluted | $ 0.11 | $ 0.20 | $ 0.94 | $ 2.31 |
| Weighted average basic shares outstanding | 197,824,160 | 176,193,011 | 189,061,076 | 176,014,248 |
| Dilative potential shares (1) | 511,621 | - | 499 | 10,009,795 |
| Weighted average diluted shares outstanding | 196,235,741 | 176,193,011 | 189,061,575 | 186,024,043 |
(1) For the quarter ended December 31, 2009 and year ended December 31, 2009, 8.8 million shares related to convertible notes were excluded from the calculation of dilative earnings per share as they were anti-dilative. For the quarter ended December 31, 2008 10 million shares where excluded.
Note 17 - Income from discontinued operations, net of tax and assets/ liabilities held-for-sale
The results of operations for the Onshore segment are summarized as follows:
| Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Revenues | $ 58,462 | $ 68,724 | $ 194,624 | $ 273,074 |
| Operating costs (a) | 53,744 | 54,894 | 175,997 | 198,200 |
| Depreciation and amortization | 3,620 | 10,592 | 22,702 | 62,352 |
| Total operating expenses | 57,364 | 65,486 | 198,699 | 260,552 |
| Operating profit | 1,098 | 3,238 | (4,075) | 12,522 |
| Financial items, net | 444 | (1,670) | 2,352 | (1,516) |
| Income from discontinued operations, pretax | $ 1,542 | $ 1,568 | $ (1,723) | $ 11,006 |
(a) Operating costs include cost of sales, research and development costs, and selling, general and administrative costs.
Income from discontinued operations, net of tax consist of the following for the periods presented:
| Quarter ended December 31, | Year ended December 31, | |||
|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | |
| (In thousands of dollars) | ||||
| Income from discontinued operations, pretax | $ 1,542 | $ 1,568 | $ (1,723) | $ 11,006 |
| Additional proceeds sale of Atlantis and APG | 956 | 500 | 1,956 | 1,462 |
| Transaction costs sale of Onshore | (1,950) | - | (2,368) | - |
| Income tax (expense) benefit | (285) | 2,085 | (9,514) | (3,191) |
| Total | $ 263 | $ 4,153 | $ (11,649) | $ 9,277 |
Assets' liabilities held-for-sale
| December 31, | ||
|---|---|---|
| 2009 | 2008 | |
| Assets held-for-sale | (In thousands of dollars) | |
| Polar Pearl | $ 3,000 | $ 5,250 |
| Total current assets Onshore | 74,419 | - |
| Total long-term assets Onshore (a) | 150,268 | - |
| Total asset held-for-sale | $ 227,687 | $ 5,250 |
| Liabilities held-for-sale | ||
| Total current liabilities Onshore | $ 26,008 | $ - |
| Total liabilities held-for-sale | $ 26,008 | $ - |
(a) Includes $60.5 million in MultiClient library as of December 31, 2009 and allocated goodwill of $35.0 million.
Note 18 - Consolidated statements of operations by quarter 2009, Onshore presented as discontinued operation.
Consolidated statements of operations by quarter 2009, Onshore presented as discontinued operation:
| Q1 | Q2 | Q3 | Q4 | 2009 | |
|---|---|---|---|---|---|
| Revenues | $ 390,822 | $ 294,270 | $ 361,453 | $ 303,657 | $ 1,350,202 |
| Cost of sales | 164,908 | 121,461 | 175,882 | 143,729 | 605,980 |
| Research and development costs | 6,040 | 6,949 | 4,643 | 5,174 | 22,806 |
| Selling, general and administrative costs | 13,537 | 11,713 | 10,777 | 13,243 | 49,270 |
| Depreciation and amortization | 51,150 | 72,992 | 65,067 | 96,060 | 285,269 |
| Impairment of long-lived assets | 50,585 | 48,221 | 52,406 | 2,403 | 153,615 |
| Total operating expenses | 286,220 | 261,336 | 308,771 | 260,609 | 1,116,940 |
| Operating profit (loss)/EBIT | 104,602 | 32,934 | 52,678 | 43,048 | 233,262 |
| Income/(loss) from associated companies | (376) | (33) | 1,626 | 684 | 1,901 |
| Interest expense | (11,019) | (9,748) | (10,866) | (13,599) | (45,232) |
| Other financial income | 1,058 | 6,320 | 14,897 | 6,035 | 28,310 |
| Other financial expense | (1,895) | (1,860) | (3,363) | (7,820) | (14,938) |
| Currency exchange gain (loss) | (2,717) | 12,561 | 13,450 | 1,512 | 24,806 |
| Income before income tax expense (benefit) | 89,653 | 40,174 | 68,422 | 29,860 | 228,109 |
| Income tax expense (benefit) | 22,311 | 4,378 | 16,697 | 5,155 | 48,541 |
| Income from continuing operations | 67,342 | 35,796 | 31,725 | 24,705 | 179,568 |
| Income (loss) from discontinued operations, net of tax | (13,178) | 5,244 | (3,978) | 263 | (11,649) |
| Net income | $ 54,164 | $ 41,040 | $ 47,747 | $ 24,968 | $ 167,919 |
| Net income attributable to minority interests | - | (2) | (1) | 2,097 | 2,094 |
| Net income to equity holders of PGS ASA | $ 54,164 | $ 41,042 | $ 47,748 | $ 22,871 | $ 165,825 |
FOR DETAILS CONTACT:
Tore Langballe, SVP Corporate Communications
Mobile: +47 90 77 78 41
Bård Stenberg, Investor Relations Manager
Mobile: +47 99 24 52 35
PGS Main Offices:
OSLO (headquarter)
Petroleum Geo-Services ASA
Strandveien 4
P.O.Box 89
1325 Lysaker, Norway
Phone: +47 67 52 64 00
Fax: +47 67 52 64 64
HOUSTON
Petroleum Geo-Services, Inc
15150 Memorial Drive
Houston Texas 77079 USA
Phone: +1 281 509 8000
Fax: +1 281 509 8500
LONDON
Petroleum Geo-Services (UK) Ltd.
4, The Hights
Brooklands
Weybridge
Surrey KT13 0NY, UK
Phone: +44 1932 3760 00
Fax: +44 1932 3761 00
SINGAPORE
Petroleum Geo-Services Asia
02-00 Thong Teck Bldg.
15 Scott Road 22 82 18
Singapore
Phone: +65 6735 6411
Fax: +65 6735 6413
Board of Directors:
Francis Gugen (Chairperson)
Harald Nordvik (Vice Chairperson)
Holly Van Deursen
Annette Malm Justad
Wenche Kjølås
Daniel J. Piette
Carol Bell
Ingar Skaug
Executive Officers:
Jon Erik Reinhardsen President and CEO
Gottfred Langseth Executive Vice President and CFO
Rune Eng Group President
Marine
Sverre Strandenes Group President Data
Processing and
Technology
Other Corporate Management:
Terje Bjølseth SVP Global Human
Resources
Tore Langballe SVP Corporate
Communications
Espen Sandvik General Counsel
Web-Site:
www.pgs.com
Financial Calendar 2010:
Q4 2009 report February 22, 2010
AGM April 29, 2010
Q1 2010 report April 30, 2010
Q2 2010 report July 29, 2010
Q3 2010 report October 29, 2010
The dates are subject to change.