Earnings Release • Jul 18, 2019
Earnings Release
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"Our order book increased by 26% in the second quarter. Pricing for recent contract awardsis consistent with our earlier indication of more than 35% increase of 2019 prices compared to 2018 average.
Contract revenues of close to \$100 million in the quarter benefitted from a strong price increase and good vessel productivity. I am pleased that we are back to making a solid profit and generating significant cash flow from our contract activities. Our MultiClient late sales did not benefit from any specific license rounds or transfer fees in the quarter, and were lower than normal. We expect late sales to pick up again in the second half of the year.
The seismic market continues to improve. The order book increase in the quarter is mainly driven by a higher volume of contract work. At the same time we are progressing on firming up MultiClient programs for the second half. We are now fully booked for the third quarter, and also fully booked for seven vessels in the fourth quarter, which is one additional vessel compared to the six vessels we operated last winter season.
In May we initiated a refinancing which was subsequently withdrawn due to a negative change in capital market conditions. We expect to generate positive cash flow and reduce net debt in 2019. Our existing capital markets debts still have 17 and 20 months to maturity and are at attractive terms. We expect to refinance these facilities in 2019."
Rune Olav Pedersen, President and Chief Executive Officer
PGS expects significant cash flow generation among clients and an increase in exploration and production spending, including offshore spending, to contribute to further recovery of the marine seismic market fundamentals going forward. Contract seismic is the activity currently benefitting the most from the improvement, driven by more 4D acquisition and generally higher demand for new proprietary seismic data.
Based on current operational projections and with reference to disclosed risk factors, PGS expects full year 2019 gross cash costs of approximately \$550 million. This number takes into account an approximately \$50 million reduction from the implementation of IFRS 16 in 2019. See Note 16 for a description of the effects from implementation of IFRS 16.
2019 MultiClient cash investments are expected to be approximately \$225 million.
Approximately 50% of 2019 active 3D vessel time is currently expected to be allocated to MultiClient acquisition.
Capital expenditure for 2019 is expected to be approximately \$70 million.
The order book totaled \$300 million at June 30, 2019 (including \$65 million relating to MultiClient)*. The order book was \$238 million at March 31, 2019 and \$187 million at June 30, 2018.
*The order book as of June 30, 2019, includes \$27 million related to a service and support agreement in Japan up to the next annual renewal.
| Key Financial Figures | |||||
|---|---|---|---|---|---|
| Quarter ended | Year to date | Year ended | |||
| June 30, | June 30, | December 31, | |||
| (In millions of US dollars, except per share data) | 2019 | 2018 | 2019 | 2018 | 2018 |
| Profit and loss numbers Segment Reporting | |||||
| Segment Revenues | 215.6 | 199.4 | 357.5 | 397.2 | 834.5 |
| Segment EBITDA | 135.2 | 136.0 | 201.8 | 228.4 | 515.9 |
| Segment EBIT ex. impairment and other charges, net | 17.7 | 13.6 | (11.7) | (9.1) | 36.3 |
| Profit and loss numbers As Reported | |||||
| Revenues | 192.4 | 239.7 | 321.7 | 441.0 | 874.3 |
| EBIT | (7.3) | 30.5 | (49.9) | 23.2 | 39.4 |
| Net financial items | (31.8) | (15.7) | (53.8) | (38.0) | (87.3) |
| Income (loss) before income tax expense | (39.1) | 14.8 | (103.7) | (14.7) | (47.9) |
| Income tax expense | (9.8) | (4.4) | (10.4) | (14.5) | (40.0) |
| Net income (loss) to equity holders | (48.9) | 10.4 | (114.1) | (29.2) | (87.9) |
| Basic earnings per share (\$ per share) | (0.14) | 0.03 | (0.34) | (0.09) | (0.26) |
| Other key numbers As Reported by IFRS | |||||
| Net cash provided by operating activities | 108.1 | 121.7 | 227.6 | 195.1 | 445.9 |
| Cash investment in MultiClient library | 65.7 | 81.3 | 127.8 | 135.0 | 277.1 |
| Capital expenditures (whether paid or not) | 19.2 | 8.3 | 30.7 | 12.3 | 42.5 |
| Total assets | 2,371.7 | 2,386.3 | 2,371.7 | 2,386.3 | 2,384.8 |
| Cash and cash equivalents | 33.2 | 24.4 | 33.2 | 24.4 | 74.5 |
| Net interest bearing debt* | 1,035.7 | 1,145.3 | 1,035.7 | 1,145.3 | 1,109.6 |
| Net interest bearing debt, including lease liabilities following IFRS 16* | 1,256.2 | 1,256.2 |
*Following implementation of IFRS 16, prior periods are not comparable to June 2019
| Quarter ended June 30, |
Year to date June 30, |
Year ended December 31, |
|||||
|---|---|---|---|---|---|---|---|
| (In millions of US dollars) | Note | 2019 | 2018 | 2019 | 2018 | 2018 | |
| Revenues | 2 | 192.4 | 239.7 | 321.7 | 441.0 | 874.3 | |
| Cost of sales | 3 | (67.8) | (51.6) | (129.1) | (137.2) | (256.0) | |
| Research and development costs | 3 | (1.9) | (3.1) | (4.3) | (6.0) | (10.8) | |
| Selling, general and administrative costs | 3 | (10.7) | (8.7) | (22.3) | (25.6) | (51.8) | |
| Amortization and impairment of MultiClient library | 4 | (90.8) | (123.6) | (156.0) | (191.9) | (385.3) | |
| Depreciation and amortization of long term assets (excl. MultiClient library) | 4 | (27.2) | (17.8) | (61.4) | (56.5) | (117.5) | |
| Other charges, net | 4 | (1.3) | (4.4) | 1.5 | (0.5) | (13.5) | |
| Total operating expenses | (199.7) | (209.1) | (371.6) | (417.8) | (834.9) | ||
| Operating profit (loss)/EBIT | (7.3) | 30.5 | (49.9) | 23.2 | 39.4 | ||
| Share of results from associated companies | 5 | (10.1) | 0.3 | (13.9) | (3.2) | (18.9) | |
| Interest expense | 6 | (16.8) | (15.3) | (35.1) | (31.1) | (62.0) | |
| Other financial expense, net | 7 | (4.9) | (0.7) | (4.8) | (3.7) | (6.4) | |
| Income (loss) before income tax expense | (39.1) | 14.8 | (103.7) | (14.7) | (47.9) | ||
| Income tax | 8 | (9.8) | (4.4) | (10.4) | (14.5) | (40.0) | |
| Net income (loss) to equity holders of PGS ASA | (48.9) | 10.4 | (114.1) | (29.2) | (87.9) | ||
| Other comprehensive income | |||||||
| Items that will not be reclassified to profit and loss | 1 3 |
3.0 | 13.1 | (4.1) | 13.3 | 11.6 | |
| Items that may be subsequently reclassified to profit and loss | 1 3 |
(0.6) | (2.2) | 2.0 | - | (4.8) | |
| Other comprehensive income (loss) for the period, net of tax | 2.4 | 10.9 | (2.1) | 13.3 | 6.8 | ||
| Total comprehensive income (loss) to equity holders of PGS ASA | (46.5) | 21.3 | (116.2) | (15.9) | (81.1) | ||
| Earnings per share attributable to equity holders of the parent during the period | |||||||
| Basic and diluted earnings per share | 1 2 |
(0.14) | 0.03 | (0.34) | (0.09) | (0.26) | |
| June 30, | June 30, | December 31, | ||
|---|---|---|---|---|
| (In millions of US dollars) | Note | 2019 | 2018 | 2018 |
| ASSETS | ||||
| Cash and cash equivalents | 1 1 |
33.2 | 24.4 | 74.5 |
| Restricted cash | 1 1 |
4.0 | 20.7 | 4.3 |
| Accounts receivable | 146.9 | 114.9 | 160.3 | |
| Accrued revenues and other receivables | 59.1 | 43.7 | 61.1 | |
| Other current assets | 58.9 | 93.1 | 64.8 | |
| Total current assets | 302.1 | 296.9 | 365.0 | |
| Property and equipment | 9 | 1,197.4 | 1,212.5 | 1,062.2 |
| MultiClient library | 1 0 |
676.4 | 661.0 | 654.6 |
| Restricted cash | 1 1 |
38.8 | 23.3 | 38.9 |
| Other non-current assets | 53.9 | 72.4 | 66.6 | |
| Other intangible assets | 103.1 | 120.2 | 106.7 | |
| Total non-current assets | 2,069.6 | 2,089.4 | 1,929.0 | |
| Asset held for sale | 9 | - | - | 90.8 |
| Total assets | 2,371.7 | 2,386.3 | 2,384.8 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
| Interest bearing debt | 1 1 |
51.2 | 77.2 | 51.2 |
| Lease liabilities | 1 1 |
45.1 | - | 3.2 |
| Accounts payable | 48.9 | 73.4 | 67.0 | |
| Accrued expenses and other current liabilities | 142.5 | 112.0 | 110.6 | |
| Deferred revenues | 196.6 | 113.2 | 160.6 | |
| Income taxes payable | 17.8 | 23.1 | 32.5 | |
| Total current liabilities | 502.1 | 398.8 | 425.1 | |
| Interest bearing debt | 1 1 |
1,051.5 | 1,122.8 | 1,164.7 |
| Lease liabilities | 1 1 |
175.4 | - | - |
| Deferred tax liabilities | 0.8 | 0.8 | 0.8 | |
| Other non-current liabilities | 45.1 | 78.2 | 72.4 | |
| Total non-current liabilities | 1,272.8 | 1,201.8 | 1,237.9 | |
| Common stock; par value NOK 3; | ||||
| issued and outstanding 338,579,996 shares | 138.5 | 138.5 | 138.5 | |
| Additional paid-in capital | 850.8 | 848.8 | 850.1 | |
| Total paid-in capital | 989.3 | 987.3 | 988.6 | |
| Accumulated earnings | (384.9) | (196.8) | (257.2) | |
| Other capital reserves | (7.6) | (4.8) | (9.6) | |
| Total shareholders' equity | 596.8 | 785.7 | 721.8 | |
| Total liabilities and shareholders' equity | 2,371.7 | 2,386.3 | 2,384.8 | |
| Attributable to equity holders of PGS ASA | |||||
|---|---|---|---|---|---|
| Share | Additional | Other | |||
| capital | paid-in | Accumulated | capital | Shareholders' | |
| (In millions of US dollars) | par value | capital | earnings | reserves | equity |
| Balance as of January 1, 2018 | 138.5 | 851.4 | (105.6) | (4.8) | 879.5 |
| Profit (loss) for the period | - | - | (87.9) | - | (87.9) |
| Other comprehensive income (loss) | - | - | 11.6 | (4.8) | 6.8 |
| Share based payments | - | 3.0 | - | - | 3.0 |
| Share based payments, cash settled | - | (4.3) | - | - | (4.3) |
| Adjustment to opening balance IFRS 15 | - | - | (75.3) | - | (75.3) |
| Balance as of December 31, 2018 | 138.5 | 850.1 | (257.2) | (9.6) | 721.8 |
| Effect from implementation of IFRS 16 | - | - | (9.5) | - | (9.5) |
| Balance as of January 1, 2019 | 138.5 | 850.1 | (266.7) | (9.6) | 712.3 |
| Profit (loss) for the period | - | - | (114.1) | - | (114.1) |
| Other comprehensive income (loss) | - | - | (4.1) | 2.0 | (2.1) |
| Share based payments | - | 1.7 | - | - | 1.7 |
| Share based payments, cash settled | - | (1.0) | - | - | (1.0) |
| Balance as of June 30, 2019 | 138.5 | 850.8 | (384.9) | (7.6) | 596.8 |
| Attributable to equity holders of PGS ASA | |||||
|---|---|---|---|---|---|
| Share Additional |
Other | ||||
| capital | paid-in | Accumulated | capital | Shareholders' | |
| (In millions of US dollars) | par value | capital | earnings | reserves | equity |
| Balance as of January 1, 2018 | 138.5 | 851.4 | (105.6) | (4.8) | 879.5 |
| Profit (loss) for the period | - | - | (29.2) | - | (29.2) |
| Other comprehensive income (loss) | - | - | 13.3 | - | 13.3 |
| Share based payments | - | 0.9 | - | - | 0.9 |
| Share based payments, cash settled | - | (3.5) | - | - | (3.5) |
| Adjustment to opening balance IFRS 15 | - | - | (75.3) | - | (75.3) |
| Balance as of June 30, 2018 | 138.5 | 848.8 | (196.8) | (4.8) | 785.7 |
| Quarter ended | Year to date | Year ended | |||
|---|---|---|---|---|---|
| June 30, | June 30, | December 31, | |||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| Net income (loss) to equity holders of PGS ASA | (48.9) | 10.4 | (114.1) | (29.2) | (87.9) |
| Depreciation, amortization, impairment | 118.0 | 141.3 | 217.4 | 247.2 | 504.8 |
| Share of results in associated companies | 10.1 | (0.3) | 13.9 | 3.2 | 18.9 |
| Interest expense | 16.8 | 15.3 | 35.1 | 31.1 | 62.0 |
| Loss (gain) on sale and retirement of assets | (1.3) | - | (1.3) | 2.1 | 2.4 |
| Income taxes paid | (7.6) | (5.8) | (23.6) | (14.1) | (30.0) |
| Other items | 2.0 | (2.9) | 3.7 | (2.3) | (1.2) |
| (Increase) decrease in accounts receivable, accrued revenues & other receivables | (45.8) | 68.8 | 39.9 | 66.6 | 3.8 |
| Increase (decrease) in deferred revenues | (19.5) | (84.0) | (36.0) | (60.7) | (12.5) |
| Increase (decrease) in accounts payable | (3.4) | 11.0 | (14.8) | (6.0) | (8.4) |
| Change in other current items related to operating activities | 88.8 | (31.3) | 106.3 | (45.8) | (3.1) |
| Change in other long-term items related to operating activities | (1.1) | (0.8) | 1.1 | 3.0 | (2.9) |
| Net cash provided by operating activities | 108.1 | 121.7 | 227.6 | 195.1 | 445.9 |
| Investment in MultiClient library | (65.7) | (81.3) | (127.8) | (135.0) | (277.1) |
| Investment in property and equipment | (18.5) | (6.9) | (28.2) | (21.0) | (48.0) |
| Investment in other intangible assets | (1.5) | (4.8) | (6.8) | (11.9) | (19.9) |
| Investment in other current -and long-term assets | - | (2.6) | (0.5) | (2.6) | (6.6) |
| Proceeds from sale and disposal of assets | 24.5 | - | 69.1 | - | 1.5 |
| Net cash used in investing activities | (61.2) | (95.6) | (94.2) | (170.4) | (350.1) |
| Interest paid on interest bearing debt | (16.5) | (22.5) | (28.9) | (31.9) | (63.4) |
| Repayment of interest bearing debt | (12.7) | (12.7) | (25.6) | (25.8) | (80.2) |
| Net change of drawing on the Revolving Credit Facility | (60.0) | (5.0) | (90.0) | 10.0 | 75.0 |
| Payment of lease liabilities (recognized under IFRS 16) | (11.4) | - | (22.9) | - | |
| Payments of leases classified as interest | (3.5) | - | (7.3) | - | - |
| Net cash (used in) provided by financing activities | (104.1) | (40.1) | (174.7) | (47.5) | (68.6) |
| Net increase (decrease) in cash and cash equivalents | (57.2) | (14.0) | (41.3) | (22.8) | 27.2 |
| Cash and cash equivalents at beginning of period | 90.4 | 38.4 | 74.5 | 47.3 | 47.3 |
| Cash and cash equivalents at end of period | 33.2 | 24.4 | 33.2 | 24.4 | 74.5 |
Following the Company's organizational change effective January 1, 2018, PGS has only one operating segment focused on delivery of seismic data.
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 method. Instead, all such revenues are recognized at delivery of the final processed data, which is typically significantly later than the acquisition of the seismic data.
PGS management has, for the purpose of its internal reporting, continued to report according to the principle applied in 2017 and earlier years, where MultiClient prefunding revenue is recognized on a percentage of completion basis, and the related amortization of MultiClient library based upon the ratio of aggregate capitalized survey costs to forecasted sales. This differs from IFRS reporting which recognizes revenue from MultiClient pre-funding agreements and related amortization at the "point in time" when the customer receives access to, or delivery of, the finished data. See Note 15 for further description of the principles applied.
The table below provides a reconciliation of the Group's segment numbers ("Segment") against the financial statements prepared in accordance with IFRS ("As Reported"):
| Quarter ended | ||||||
|---|---|---|---|---|---|---|
| June 30, | ||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |
| (In millions of US dollars) | Segment Reporting | Adjustments | As Reported | |||
| Total revenues | 215.6 | 199.4 | (23.2) | 40.3 | 192.4 | 239.7 |
| Cost of sales | (67.8) | (51.6) | - | - | (67.8) | (51.6) |
| Research and development costs | (1.9) | (3.1) | - | - | (1.9) | (3.1) |
| Selling, general and administrative costs | (10.7) | (8.7) | - | - | (10.7) | (8.7) |
| Amortization of MultiClient library | (90.3) | (104.6) | 2.7 | (11.1) | (87.6) | (115.7) |
| Depreciation and amortization (excl. MultiClient library) | (27.2) | (17.8) | - | - | (27.2) | (17.8) |
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | 17.7 | 13.6 | (20.5) | 29.2 | (2.8) | 42.8 |
| Year to date June 30, |
|||||||
|---|---|---|---|---|---|---|---|
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||
| (In millions of US dollars) | Segment Reporting | Adjustments | As Reported | ||||
| Total revenues | 357.5 | 397.2 | (35.8) | 43.8 | 321.7 | 441.0 | |
| Cost of sales | (129.1) | (137.2) | - | - | (129.1) | (137.2) | |
| Research and development costs | (4.3) | (6.0) | - | - | (4.3) | (6.0) | |
| Selling, general and administrative costs | (22.3) | (25.6) | - | - | (22.3) | (25.6) | |
| Amortization of MultiClient library | (152.1) | (180.9) | (0.7) | (3.1) | (152.8) | (184.0) | |
| Depreciation and amortization (excl. MultiClient library) | (61.4) | (56.5) | - | - | (61.4) | (56.5) | |
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | (11.7) | (9.1) | (36.5) | 40.7 | (48.2) | 31.6 |
| Year ended December 31, 2018 |
|||||
|---|---|---|---|---|---|
| (In millions of US dollars) | Segment Reporting | Adjustments | As Reported | ||
| Total revenues | 834.5 | 39.8 | 874.3 | ||
| Cost of sales | (256.0) | - | (256.0) | ||
| Research and development costs | (10.8) | - | (10.8) | ||
| Selling, general and administrative costs | (51.8) | - | (51.8) | ||
| Amortization of MultiClient library | (362.1) | (0.6) | (362.7) | ||
| Depreciation and amortization (excl. MultiClient library) | (117.5) | - | (117.5) | ||
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | 36.3 | 39.2 | 75.5 |
For the first half and Q2 2019, MultiClient pre-funding revenues, As Reported, were lower than Segment pre-funding revenues. This difference is solely related to the timing of revenue recognition.
Revenues by service type:
| Quarter ended | |||||
|---|---|---|---|---|---|
| June 30, | |||||
| 2019 | 2018 | 2019 | 2018 | ||
| Segment Reporting | As Reported | ||||
| -Contract seismic | 94.4 | 29.7 | 94.4 | 29.7 | |
| -MultiClient pre-funding | 66.8 | 94.0 | 43.6 | 134.3 | |
| -MultiClient late sales | 45.6 | 68.7 | 45.6 | 68.7 | |
| -Imaging | 7.5 | 6.7 | 7.5 | 6.7 | |
| -Other | 1.3 | 0.3 | 1.3 | 0.3 | |
| Total Revenues | 215.6 | 199.4 | 192.4 | 239.7 |
| Year to Date | Year ended December 31, |
|||||
|---|---|---|---|---|---|---|
| June 30, | ||||||
| 2019 | 2018 | 2019 | 2018 | 2018 | 2018 | |
| Segment | As | |||||
| Segment Reporting | As Reported | Reporting | Reported | |||
| -Contract seismic | 138.7 | 74.2 | 138.7 | 74.2 | 149.5 | 149.5 |
| -MultiClient pre-funding | 96.9 | 152.5 | 61.1 | 196.4 | 282.4 | 322.2 |
| -MultiClient late sales | 106.5 | 152.2 | 106.5 | 152.2 | 371.9 | 371.9 |
| -Imaging | 13.8 | 13.4 | 13.8 | 13.4 | 25.8 | 25.8 |
| -Other | 1.6 | 4.9 | 1.6 | 4.9 | 4.9 | 4.9 |
| Total Revenues | 357.5 | 397.2 | 321.7 | 441.0 | 834.5 | 874.3 |
| Quarter ended June 30, |
Year to date | Year ended | ||||
|---|---|---|---|---|---|---|
| June 30, | December 31, | |||||
| 2019 | 2018 | 2019 | 2018 | 2018 | ||
| Contract | 45% | 12% | 37% | 24% | 22% | |
| MultiClient | 43% | 62% | 41% | 46% | 44% | |
| Steaming | 9 % |
18% | 7 % |
11% | 10% | |
| Yard | 3 % |
3 % |
2 % |
2 % |
2 % |
|
| Stacked/standby | 0 % |
5 % |
13% | 17% | 22% | |
| (1) The statistics exclude cold-stacked vessels. |
The comments to revenues in this Note relate to both As Reported revenues and Segment revenues unless otherwise stated.
As Reported revenues in the first half 2019, amounted to \$321.7 million, compared to \$441.0 million in the first half 2018. In Q2 2019 As Reported revenues were \$192.4 million, compared to 239.7 million in Q2 2018.
In the first half 2019, Segment revenues ended at \$357.5 million, compared to \$397.2 million in the first half of 2018, a reduction of \$39.7 million, or 10%. The decline is mainly driven by a reduction in MultiClient late sales and pre-funding revenues, partially offset by an increase in contract revenues.
In Q2 2019, Segment revenues ended at \$215.6 million, compared to \$199.4 million in Q2 2018, an increase of \$16.2 million, or 8%. The revenue increase is primarily driven by a 218% increase in contract revenues, partially offset by a 34% and 29% decrease in MultiClient late sales and pre-funding revenues, respectively.
In the first half 2019, contract revenues increased by \$64.5 million, or 87%, compared to first half 2018. The increase comes as a result of more capacity allocated to contract work and significantly higher prices.
In Q2 2019, contract revenues increased by \$64.7 million, or 218%, compared to Q2 2018. The increase is explained by the same factors as for the first half.
In the first half 2019, MultiClient pre-funding revenues, As Reported, were \$61.1 million, predominately driven by completion of surveys in Asia and Africa. This was a reduction of \$135.3 million, or 69%, compared to first half 2018, owing to less projects completed in the period. In Q2 2019, MultiClient pre-funding revenues, As Reported, were \$43.6 million, predominately driven by completion of surveys in Asia and Africa. Compared to Q2 2018, the pre-funding revenues in Q2 2019 decreased by \$90.7 million, or 68% as a result of fewer surveys completed and delivered to customers in the period.
Segment MultiClient pre-funding revenues in the first half 2019 decreased by \$55.6 million, or 36%, compared to first half 2018. The lower pre-funding revenues comes as a result of less capacity allocated to MultiClient as well as an overweight of low prefunded MultiClient surveys acquired offshore West Africa and Malaysia, primarily in the first quarter.
In Q2 2019, Segment MultiClient pre-funding revenues decreased by \$27.2 million, or 29%, compared to Q2 2018 as a result of less capacity allocated to MultiClient acquisition. MultiClient pre-funding revenues in Q2 2019 were highest in North America and Asia.
PGS is targeting a pre-funding level in the range of 80-120% of capitalized MultiClient cash investments. In the Company's MultiClient portfolio, there are significant variations of pre-funding levels on individual surveys. The actual prefunding ratio for the first half year and Q2 2019 was 76% and 102%, respectively.
In the first half and Q2 2019, MultiClient late sales revenues decreased by \$45.7 million (30%) and \$23.1 million (34%), respectively, compared to the corresponding period in 2018. The decrease comes as a result of a comparatively strong first half 2018 and fewer license round triggers benefitting late sales to date in 2019. In Q2 2019, fewer pending sales came to closure than expected, as some sales processes extended in time. Most of these sales are expected to be concluded in 2H 2019. MultiClient late sales in Q2 2019 were highest in Europe.
| Quarter ended | Year to date | |||||
|---|---|---|---|---|---|---|
| June 30, | June 30, | Year ended December 31, |
||||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 | |
| Cost of sales before investment in MultiClient library | (133.6) | (140.9) | (253.7) | (275.4) | (530.1) | |
| Research and development costs before capitalized development costs | (3.3) | (6.0) | (8.0) | (10.5) | (19.7) | |
| Selling, general and administrative costs | (10.7) | (8.7) | (22.3) | (25.6) | (51.8) | |
| Cash Cost, gross | (147.6) | (155.6) | (284.0) | (311.5) | (601.6) | |
| Steaming deferral, net | 0.1 | 8.0 | (3.2) | 3.1 | (3.0) | |
| Cash investment in MultiClient library | 65.7 | 81.3 | 127.8 | 135.0 | 277.1 | |
| Capitalized development costs | 1.4 | 2.9 | 3.7 | 4.5 | 8.9 | |
| Net operating expenses | (80.4) | (63.4) | (155.7) | (168.9) | (318.6) |
In the first half 2019, gross cash cost decreased by \$27.5 million, or 9%, compared to first half 2018, primarily as a result of the implementation of IFRS 16, which reduced gross cash costs by approximately \$24.0 million for the period.
Cash costs capitalized to the MultiClient library in the first half 2019 decreased by \$7.2 million, or 5%, compared to the first half 2018 as a result of less capacity allocated to MultiClient and reduced cash costs.
In Q2 2019 gross cash costs decreased by \$8.0 million, or 5%, compared to Q2 2018, as a result of the implementation of IFRS 16, which reduced gross cash costs by approximately \$12.0 million in the quarter, compared to Q2 2018, partially offset by higher project specific costs for some surveys.
Cash costs capitalized to the MultiClient library in Q2 2019 decreased by \$15.6 million, or 19%, compared to Q2 2018, explained by the same factors as for the first half.
Amortization and impairment of MultiClient library consist of the following:
| Quarter ended | Year to date | ||||
|---|---|---|---|---|---|
| June 30, | June 30, | Year ended December 31, |
|||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| As Reported | |||||
| Amortization of MultiClient library | (55.2) | (53.9) | (99.9) | (94.2) | (212.3) |
| Accelerated amortization of MultiClient library | (32.4) | (61.8) | (52.9) | (89.8) | (150.4) |
| Impairment of MultiClient library | (3.2) | (7.9) | (3.2) | (7.9) | (22.6) |
| Total | (90.8) | (123.6) | (156.0) | (191.9) | (385.3) |
| Segment reporting | |||||
| Amortization of MultiClient library | (90.3) | (104.6) | (152.1) | (180.9) | (362.1) |
| Total | (90.3) | (104.6) | (152.1) | (180.9) | (362.1) |
In the first half 2019, Segment amortization of the MultiClient library as a percentage of MultiClient revenues was 75%, compared to 59% in the first half 2018. The higher Segment amortization rate is primarily due to lower MultiClient revenues, especially late sales revenues, since completed surveys are amortized on a straight-line basis.
In Q2 2019, Segment amortization of the MultiClient library as a percentage of MultiClient revenues was 80%, compared to 64% in Q2 2018. The higher amortization rate in Q2 2019 is explained by the same factors as for the first half.
In the first half 2019 total amortization and impairment of the MultiClient library decreased by \$35.9 million, or 19%, compared to the first half 2018. The decrease is mainly driven by less accelerated amortization from projects completed and lower impairments of the MultiClient library.
In Q2 2019, total amortization of the MultiClient library decreased by \$32.8 million, or 27%, compared to Q2 2018. The decrease is driven by the same factors as for the first half.
Impairment of the MultiClient library of \$3.2 million primarily relates to surveys in Europe performing weaker than anticipated.
As a consequence of adopting IFRS 15, amortization As Reported also includes accelerated amortization. With effect from January 1, 2018, revenue As Reported from MultiClient pre-funders is recognized when the customer is granted access to the finished survey or upon delivery of the finished data. Concurrent with recognizing this revenue, the Company records an accelerated amortization to reduce the net book value of the survey to the estimated net present value of the forecasted remaining sales. For more information see Note 15.
Depreciation and amortization of non-current assets (excl. MultiClient library) consist of the following:
| Quarter ended | Year to date | Year ended | |||
|---|---|---|---|---|---|
| June 30, | June 30, | December 31, | |||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| Gross depreciation* | (50.9) | (51.3) | (105.1) | (104.4) | (203.4) |
| Depreciation capitalized and deferred, net | 23.7 | 33.5 | 43.7 | 47.9 | 85.9 |
| Total | (27.2) | (17.8) | (61.4) | (56.5) | (117.5) |
*includes depreciation of right-of-use assets amounting to \$ 10.3 million and \$ 20.6 for the quarter ended June 30, 2019 and the first half of 2019 respectively.
In the first half 2019, gross depreciation increased by \$0.7 million, or 1%, compared to the first half 2018. As a result of implementing IFRS 16, gross depreciation in the first half 2019 increased by approximately \$20 million, which was almost fully offset by reduced depreciation driven by a generally lower investment level in recent years.
Capitalized depreciation in the first half 2019 was reduced by \$4.2 million, or 9%, compared to the first half 2018. The reduction is a result of less capacity allocated to MultiClient.
In Q2 2019, gross depreciation decreased by \$0.4 million, or 1%, compared to Q2 2018. As a result of implementing IFRS 16, gross depreciation in Q2 2019 increased by approximately \$10 million, compared to Q2 2018. The increase was more than offset by the impact of lower investment levels in recent years.
Capitalized depreciation was \$9.8 million lower in Q2 2019, compared to Q2 2018, explained by the same factor as for the first half.
| Other charges, net consist of the following: | ||||||
|---|---|---|---|---|---|---|
| Quarter ended | Year to date | Year ended | ||||
| June 30, | June 30, | December 31, | ||||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 | |
| Severance cost | (0.4) | 0.4 | (0.5) | (0.9) | (2.4) | |
| Onerous lease contracts | - | - | - | - | (1.7) | |
| Onerous contracts with customers | - | 1.1 | 2.9 | 7.1 | 6.9 | |
| Write-down supply/spare parts | - | - | - | - | (8.2) | |
| Other | (0.9) | (5.8) | (0.9) | (6.7) | (8.1) | |
| Total | (1.3) | (4.4) | 1.5 | (0.5) | (13.5) |
As of June 30, 2019, the Company has no remaining provision for onerous customer contracts, a decrease of \$2.9 million from year-end 2018. The provision for onerous customer contracts represents the estimated loss in future periods relating to certain binding customer contracts where revenues are lower than the full costs, including depreciation, of completing the contract.
The share of results from associated companies was a loss of \$10.1 million , in Q2 2019, which includes a \$10 million impairment relating to the approximate 35% interest in the Azimuth Group.
Interest expense consists of the following:
| Quarter ended June 30, |
Year to date June 30, |
Year ended | ||||
|---|---|---|---|---|---|---|
| December 31, | ||||||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 | |
| Interest on debt , gross | (15.8) | (17.0) | (32.5) | (34.1) | (69.1) | |
| Imputed interest cost on lease agreements | (3.5) | - | (7.3) | - | - | |
| Capitalized interest, MultiClient library | 2.5 | 1.7 | 4.7 | 3.0 | 7.1 | |
| Total | (16.8) | (15.3) | (35.1) | (31.1) | (62.0) |
Gross interest on debt for the first half and Q2 2019 decreased by \$1.2 and \$1.6 million respectively, compared to the corresponding periods in 2018. The reduction is due to a combination of lower interest bearing debt and lower interest rates on floating rate debt.
Following implementation of IFRS 16, effective January 1, 2019, an imputed interest cost is calculated on lease liabilities and reported as interest expense. See Note 16 for further information.
Other financial expense, net consists of the following:
| Quarter ended | Year to date | Year ended | ||||
|---|---|---|---|---|---|---|
| June 30, | June 30, | December 31, | ||||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 | |
| Interest income | 0.7 | 0.4 | 1.2 | 0.8 | 2.2 | |
| Currency exchange gain (loss) | (1.7) | 0.3 | (1.0) | (1.4) | (2.9) | |
| Other | (3.9) | (1.4) | (5.0) | (3.1) | (5.7) | |
| Total | (4.9) | (0.7) | (4.8) | (3.7) | (6.4) |
Income tax consists of the following:
| Quarter ended | Year to date | Year ended | |||
|---|---|---|---|---|---|
| June 30, | June 30, | December 31, | |||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| Current tax | (9.8) | (4.4) | (10.4) | (14.5) | (40.0) |
| Change in deferred tax | - | - | - | - | - |
| Total | (9.8) | (4.4) | (10.4) | (14.5) | (40.0) |
In the first half 2019, current tax expense decreased by \$4.1 million, or 28%, compared to the first half 2018 mainly as a result of lower taxable profit from South America.
In Q2 2019, current tax expense increased by \$5.4 million, or 123%, compared to Q2 2018, due to increased activity in countries where withholding taxes are applicable, or where PGS has no tax loss carry forward.
The Company has ongoing tax disputes related to charter of vessels into Brazil. The assessments, which seek to levy 15% withholding tax and 10% CIDE (service) tax, amount to \$42.5 million in total. Since the Company considers it more likely than not that the contingency will be resolved in its favor, no provision has been made for any portion of the exposure.
Capital expenditures, whether paid or not, consists of the following:
| Quarter ended June 30, |
Year to date | ||||
|---|---|---|---|---|---|
| June 30, | December 31, | ||||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| Seismic equipment | 4 | 6.6 | 6.3 | 10.5 | 24.4 |
| Vessel upgrades/Yard | 12.7 | - | 19.8 | - | 4.7 |
| Processing equipment | 1.7 | 0.3 | 3.0 | 0.3 | 10.4 |
| Other | 0.8 | 1.4 | 1.6 | 1.5 | 3.0 |
| Total capital expenditures, whether paid or not | 19.2 | 8.3 | 30.7 | 12.3 | 42.5 |
| Change in working capital and capital leases | (0.7) | (1.4) | (2.5) | 8.7 | 5.5 |
| Investment in property and equipment | 18.5 | 6.9 | 28.2 | 21.0 | 48.0 |
Investment in property and equipment consists mainly of equipment for the Company's seismic acquisition and imaging activities.
In April PGS completed the sale of Ramform Sterling by delivering the vessel to JOGMEC and recognized a gain of \$1.8 million. The agreed sales price was approximately \$103 million.
After sale of the Ramform Sterling, the Company maintained its fleet size by reintroducing the Ramform Vanguard, which started to operate late April. The cost to rig the vessel came in below the estimated \$25 million and a portion of the costs, primarily streamer repair, was charged to expense. As a result, the capital expenditure relating to the reintroduction ended at \$15.5 million.
Following implementation of IFRS 16, as of June 30, 2019, right-of-use-assets amounting to \$186.3 million are included as Property and equipment in the condensed consolidated statements of financial positions.
The carrying value of the MultiClient library by year of completion is as follows:
| June 30, | December 31, | |||
|---|---|---|---|---|
| (In millions of US dollars) | 2019 | 2018 | 2018 | |
| Completed during 2013 | - | 3.8 | - | |
| Completed during 2014 | - | 23.7 | 10.7 | |
| Completed during 2015 | 13.2 | 52.0 | 29.7 | |
| Completed during 2016 | 73.6 | 150.1 | 110.1 | |
| Completed during 2017 | 54.0 | 78.5 | 66.3 | |
| Completed during 2018 | 93.0 | 51.1 | 116.4 | |
| Completed during 2019 | 26.2 | - | - | |
| Completed surveys | 260.1 | 359.2 | 333.3 | |
| Surveys in progress | 416.3 | 301.8 | 321.3 | |
| MultiClient library | 676.4 | 661.0 | 654.6 |
The comments to this note relates to both As Reported and Segment Reporting unless otherwise stated.
| Key figures MultiClient library: | Quarter ended | Year to date | Year ended | ||
|---|---|---|---|---|---|
| June 30, | June 30, | December 31, | |||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| MultiClient pre-funding revenue, as reported * | 43.6 | 134.3 | 61.1 | 196.4 | 322.2 |
| MultiClient late sales | 45.6 | 68.7 | 106.5 | 152.2 | 371.9 |
| Cash investment in MultiClient library | 65.7 | 81.3 | 127.8 | 135.0 | 277.1 |
| Capitalized interest in MultiClient library | 2.5 | 1.7 | 4.7 | 3.0 | 7.1 |
| Capitalized depreciation (non-cash) | 23.9 | 33.5 | 45.3 | 47.9 | 87.7 |
| Amortization of MultiClient library , as reported | (55.2) | (53.9) | (99.9) | (94.2) | (212.3) |
| Accelerated amortization of MultiClient library, as reported | (32.4) | (61.8) | (52.9) | (89.8) | (150.4) |
| Impairment of MultiClient library | (3.2) | (7.9) | (3.2) | (7.9) | (22.6) |
| Segment Reporting | |||||
| MultiClient pre-funding revenue, Segment * | 66.8 | 94.0 | 96.9 | 152.5 | 282.4 |
| Prefunding as a percentage of MultiClient cash investment | 102% | 116% | 76% | 113% | 102% |
| *includes revenue from sale to joint operations in the amount of \$9.3 million, \$17.2 million and \$49.7 million for Q2 2019, Q2 2018 and the year ended December 31, 2018 respectively. | |||||
| In the first half 2019, Segment MultiClient pre-funding revenues corresponded to 76% of capitalized MultiClient cash investment (excluding capitalized interest), compared to 113% in the first half 2018. The lower pre-funding revenues in the first half 2019 are mainly due to the composition of surveys in the first quarter. A majority of the MultiClient projects PGS acquired were surveys with low pre-funding offshore West Africa and Malaysia that position the Company's data library for upcoming license rounds as well as continuing to build coverage in regions where sales have been strong. |
|||||
| In the first half 2019, MultiClient cash investment decreased by \$7.2 million, or 5%, compared to the first half 2018, as a result of less capacity allocated to MultiClient and a reduction of amounts reported as capitalized cash investment following the implementation of IFRS 16. |
|||||
| In Q2 2019, Segment MultiClient pre-funding revenues corresponded to 102% of capitalized MultiClient cash investment (excluding capitalized interest), compared to 116% in Q2 2018. |
|||||
| In Q2 2019, the MultiClient cash investment decreased by \$15.6 million, or 19%, compared to Q2 2018, primarily due to less vessel capacity allocated to MultiClient. |
|||||
| MultiClient library amortization and impairment As Reported according to IFRS In the first half 2019 total MultiClient amortization As Reported was 93% of MultiClient revenues. The Company recognized accelerated amortization of \$52.9 million on projects completed in the first half 2019. |
|||||
| In Q2 2019 total MultiClient amortization As Reported was 102% of MultiClient revenues. The Company recognized accelerated amortization of \$32.4 million on projects completed in Q2 2019. |
|||||
| Note 11 – Liquidity and Financing | |||||
| In the first half 2019, net cash provided by operating activities was \$227.6, compared to \$195.1 million in the first half 2018. The positive impact of changes in working capital, as well as the effect of classifying payments on leasing obligations as financing activity in the cash flow statement (ref. IFRS 16), more than offset the negative impact from lower revenues. |
|||||
| In Q2 2019 net cash provided by operating activities was \$108.1 million, compared to \$121.7 million in Q2 2018. The decrease is primarily due to an increase of working capital in 2019. |
|||||
| During the first half 2019, PGS sold the Ramform Sterling to JOGMEC and entered into a service agreement of up to 10 years with annual renewals. The first 50% installment of the approximately \$103 million sales price was received in March and the second installment (26% of the sales price) in April 2019, which after costs to relocate and make the vessel ready for delivery gave a net cash flow to PGS of \$44.6 million and \$24.5 million reported in cash flow from investing activities in Q1 and Q2 2019, respectively. The remaining amount is to be paid in April 2020. |
|||||
| The liquidity reserve, including cash and cash equivalents and the undrawn part of the Revolving Credit Facility ("RCF"), was \$208.2 million as of June 30, 2019, compared to \$205.4 million as of March 31, 2019 and \$224.0 million as of June 30, 2018. For comparing |
the numbers, note that on September 18, 2018 the RCF commitment was reduced from \$400 million to \$350 million in accordance with the extension and amendment of the facility agreed in November 2016.
Interest bearing debt consists of the following:
| June 30, | December 31, | |||
|---|---|---|---|---|
| (In millions of US dollars) | 2019 | 2018 | 2018 | |
| Secured | ||||
| Term loan B, Libor (min. 75 bp) + 250 Basis points, due 2021 | 379.0 | 383.0 | 381.0 | |
| Export credit financing, due 2025 | 130.2 | 151.0 | 140.6 | |
| Export credit financing, due 2027 | 215.5 | 241.9 | 228.7 | |
| Revolving credit facility, due 2020 | 175.0 | 200.0 | 265.0 | |
| Unsecured | ||||
| Senior notes, Coupon 7.375%, due 2018 | - | 26.0 | - | |
| Senior notes, Coupon 7.375%, due 2020 | 212.0 | 212.0 | 212.0 | |
| Total loans and bonds, gross (1) | 1,111.7 | 1,213.9 | 1,227.3 | |
| Less current portion | (51.2) | (77.2) | (51.2) | |
| Less deferred loan costs, net of debt premiums | (9.0) | (13.9) | (11.4) | |
| Non-current interest bearing debt | 1,051.5 | 1,122.8 | 1,164.7 | |
(1) Fair value of the non-current debt, gross was \$1,098.5 million as of June 30 2019, compared to \$1,201.8 million as of June 30, 2018.
Undrawn facilities consists of the following:
| June 30, | December 31, | |||
|---|---|---|---|---|
| (In millions of US dollars) | 2019 | 2018 | 2018 | |
| Secured | ||||
| Revolving credit facility, due 2020 | 175.0 | 200.0 | 85.0 | |
| Unsecured | ||||
| Bank facility (NOK 50 mill) | 5.9 | 6.1 | 5.8 | |
| Performance bond | 16.4 | 9.4 | 12.3 | |
| Total | 197.3 | 215.5 | 103.1 |
Summary of net interest bearing debt:
| June 30, | December 31, | ||
|---|---|---|---|
| (In millions of US dollars) | 2019 | 2018 | 2018 |
| Loans and bonds gross | (1,111.7) | (1,213.8) | (1,227.3) |
| Cash and cash equivalents | 33.2 | 24.4 | 74.5 |
| Restricted cash (current and non-current) | 42.8 | 44.1 | 43.2 |
| Net interest bearing debt, excluding lease liabilities * | (1,035.7) | (1,145.3) | (1,109.6) |
| Lease liabilities current | (45.1) | - | (3.2) |
| Lease liabilities non-current | (175.4) | - | - |
| Net interest bearing debt, including lease liabilities * | (1,256.2) | (1,145.3) | (1,112.8) |
*Following implementation of IFRS 16, prior periods are not comparable. Refer to note 16 for further information.
Restricted cash of \$42.8 million includes \$38.2 million 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.
At June 30, 2019, the Company had approximately 55% of its debt (excluding lease liabilities) at fixed interest rates. The Q2 2019 weighted average cash interest costs of gross debt reflects an interest rate of approximately 4.92%, including credit margins paid on the debt. PGS has a debt structure with no material scheduled maturities until 2020, except on the ECF, which is repaid in separate semi-annual instalments, and IFRS 16 lease payments. Total annual ECF instalments for 2019 will be approximately \$47.2 million and each subsequent year until they taper off following maturity of one after one of the four facilities in the period 2025 to 2027.
The undrawn portion of the RCF constitutes a significant portion of the Company's liquidity reserve. There is a Total Leverage Ratio ("TLR") covenant on the RCF, with which the Company must comply in order to draw on the facility. At June 30, 2019 the TLR was 2.85:1, below the maximum level of 3.00:1. The maximum TLR will be reduced to 2.75:1 by end of Q3 2019 and will thereafter stay at 2.75:1 for the remaining life of the facility. The Company expects to be in compliance with the TLR covenant going forward.
If the Company were to breach the TLR covenant, this would represent a default under the loan agreement. In such case the Company may be able to continue to access the RCF if it agrees amendments of the TLR requirement or receives a waiver of a breach. For a more complete description, reference is made to the Company's 2018 Annual Report.
In May 2019 PGS initiated a process ("the transaction") to refinance the Company's existing \$212 million senior notes maturing in December 2020 and \$380 million term loan maturing in March 2021, and to reduce drawings under its revolving credit facility. As a result of increased volatility in the capital markets and weaker investor sentiment towards oil field service segment, PGS was not able to reach the targeted terms and decided to withdraw the transaction. The Company's existing capital markets
debts still have 17 and 20 months to maturity, respectively, and are at attractive terms. PGS expects to refinance these facilities in 2019.
| Quarter ended | Year to date | Year ended | |||
|---|---|---|---|---|---|
| June 30, | June 30, | December 31, | |||
| 2019 | 2018 | 2019 | 2018 | 2018 | |
| - Basic | (0.11) | 0.03 | (0.31) | (0.09) | (0.26) |
| - Diluted | (0.11) | 0.03 | (0.31) | (0.09) | (0.26) |
| Weighted average basic shares outstanding | 338,578,257 | 338,574,108 | 338,578,257 | 338,573,567 | 338,575,238 |
| Weighted average diluted shares outstanding | 339,970,555 | 341,121,744 | 339,979,340 | 341,213,742 | 341,007,278 |
| Earnings per share, to ordinary equity holders of PGS ASA: | Quarter ended | Year to date | Year ended | ||
|---|---|---|---|---|---|
| June 30, | June 30, | December 31, | |||
| 2019 | 2018 | 2019 | 2018 | 2018 | |
| - Basic | (0.11) | 0.03 | (0.31) | (0.09) | (0.26) |
| - Diluted | (0.11) | 0.03 | (0.31) | (0.09) | (0.26) |
| Weighted average basic shares outstanding | 338,578,257 | 338,574,108 | 338,578,257 | 338,573,567 | 338,575,238 |
| Weighted average diluted shares outstanding | 339,970,555 | 341,121,744 | 339,979,340 | 341,213,742 | 341,007,278 |
| Note 13 – Other Comprehensive Income | |||||
| Other Comprehensive Income | |||||
| Quarter ended | Year to date | Year ended | |||
| June 30, | June 30, | December 31, | |||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| Actuarial gains (losses) on defined benefit pensions plan | 3.0 | 13.1 | (4.1) | 13.3 | 11.6 |
| Income tax effect on actuarial gains and losses | - | - | - | - | - |
| Items that will not be reclassified to profit and loss | 3.0 | 13.1 | (4.1) | 13.3 | 11.6 |
| Gains (losses) on hedges | - | (2.0) | 1.8 | - | (4.4) |
| Other comprehensive income (loss) of associated companies Items that may be subsequently reclassified to profit and loss |
(0.6) (0.6) |
(0.2) (2.2) |
0.2 2.0 |
- - |
(0.4) (4.8) |
| Note 14 – Reconciliation of alternative performance measures | |||||
| Segment EBITDA ex. Other Charges, net | |||||
| Quarter ended | Year to date | Year ended | |||
| June 30, | June 30, | December 31, | |||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| Operating profit (loss) | (7.3) | 30.5 | (49.9) | 23.2 | 39.4 |
| Segment adjustment to Revenues as reported | 23.2 | (40.3) | 35.8 | (43.8) | (39.8) |
| Other charges net | 1.3 | 4.4 | (1.5) | 0.5 | 13.5 |
| Amortization and impairment of MultiClient library | 90.8 | 123.6 | 156.0 | 191.9 | 385.3 |
| Depreciation and amortization of long term assets (excl. MultiClient library) | 27.2 | 17.8 | 61.4 | 56.5 | 117.5 |
| Segment EBITDA ex. Other Charges, net | 135.2 | 136.0 | 201.8 | 228.4 | 515.9 |
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | |||||
| Quarter ended | Year to date | Year ended | |||
| June 30, | June 30, | December 31, | |||
| (In millions of US dollars) Operating profit (loss) |
2019 (7.3) |
2018 30.5 |
2019 (49.9) |
2018 23.2 |
2018 39.4 |
| Segment adjustment to Revenues As Reported | 23.2 | (40.3) | 35.8 | (43.8) | (39.8) |
| Other charges, net | 1.3 | 4.4 | (1.5) | 0.5 | 13.5 |
| Segment adjustment to Amortization As Reported | (2.7) | 11.1 | 0.7 | 3.1 | 0.6 |
| Impairment of MultiClient library | 3.2 | 7.9 | 3.2 | 7.9 | 22.6 |
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | 17.7 | 13.6 | (11.7) | (9.1) | 36.3 |
| The European Securities and Markets Authority ("ESMA") issued guidelines on Alternative Performance Measures ("APMs") that | |||||
| came into force on July 3, 2016. The Company has defined and explained the purpose of the APMs in the paragraphs below. | |||||
| Financial statement captions used in defining the APMs relate to both As Reported figures and Segment figures unless otherwise | |||||
| stated. | |||||
| Segment EBITDA | |||||
| Segment EBITDA, when used by the Company, means Segment EBIT excluding other charges, impairment and loss on sale of non | |||||
| current assets and depreciation and amortization. A reconciliation between Segment EBIT excluding other charges, impairment | |||||
| and loss on non-current asset and depreciation and amortization and Segment EBITDA is shown above. Segment 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 |
| Quarter ended | Year to date | Year ended | ||||
|---|---|---|---|---|---|---|
| June 30, | June 30, | |||||
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 | |
| Operating profit (loss) | (7.3) | 30.5 | (49.9) | 23.2 | 39.4 | |
| Segment adjustment to Revenues as reported | 23.2 | (40.3) | 35.8 | (43.8) | (39.8) | |
| Other charges net | 1.3 | 4.4 | (1.5) | 0.5 | 13.5 | |
| Amortization and impairment of MultiClient library | 90.8 | 123.6 | 156.0 | 191.9 | 385.3 | |
| Depreciation and amortization of long term assets (excl. MultiClient library) | 27.2 | 17.8 | 61.4 | 56.5 | 117.5 | |
| Segment EBITDA ex. Other Charges, net | 135.2 | 136.0 | 201.8 | 228.4 | 515.9 |
| Quarter ended June 30, |
Year to date June 30, |
Year ended December 31, |
|||
|---|---|---|---|---|---|
| (In millions of US dollars) | 2019 | 2018 | 2019 | 2018 | 2018 |
| Operating profit (loss) | (7.3) | 30.5 | (49.9) | 23.2 | 39.4 |
| Segment adjustment to Revenues As Reported | 23.2 | (40.3) | 35.8 | (43.8) | (39.8) |
| Other charges, net | 1.3 | 4.4 | (1.5) | 0.5 | 13.5 |
| Segment adjustment to Amortization As Reported | (2.7) | 11.1 | 0.7 | 3.1 | 0.6 |
| Impairment of MultiClient library | 3.2 | 7.9 | 3.2 | 7.9 | 22.6 |
| Operating profit (loss)/ EBIT, ex impairment and other charges, net | 17.7 | 13.6 | (11.7) | (9.1) | 36.3 |
to fund capital expenditures and provides a helpful measure for comparing its operating performance with that of other companies.
PGS believes that Segment 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. Segment EBIT, excluding impairments and other charges is reconciled above.
The MultiClient prefunding level is calculated by dividing the MultiClient prefunding 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 prefunding percentage is a useful measure in that provides some indication of the extent to which the Company's financial risk is reduced on new MultiClient investments.
Net interest bearing debt is defined as the sum of non-current and current interest bearing debt, less cash and cash equivalents and restricted cash. Net interest bearing debt is reconciled in Note 11 above. PGS believes that Net Interest Bearing Debt ("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.
Liquidity reserve is defined in Note 11. PGS believes that liquidity reserve is a useful measure because it provides an indication of the amount of funds readily available to the Company in the very short term at balance sheet date.
Gross cash costs are defined as the sum of reported net operating expenses (excluding depreciation, amortization, impairments, deferred steaming, net and other charges, net) and the cash operating costs capitalized as investments in the MultiClient library as well as capitalized development costs. Gross cash costs are reconciled in Note 3. PGS believes that the gross cash costs figure is a useful measure because it provides an indication of the level of cash costs incurred by the Company irrespective of the extent to which the fleet is working on MultiClient projects or the extent to which its R&D expenditures qualify for capitalization.
Net operating expenses are defined as gross cash costs (as per above) less capitalized investments in the MultiClient library and capitalized development costs and is reconciled in Note 3. PGS believes this figure is a useful measure because it provides an indication of the level of net cash costs incurred by the Company in running current period commercial activities that are not devoted to investment.
Order book is defined as the aggregate estimated value of future Segment Revenues on signed customer contracts or letters of award. 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 costs.
The Company is a Norwegian public 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 condensed interim financial statements have been prepared in accordance with international Accounting Standards ("IAS") No. 34 "Interim Financial Reporting". The consolidated condensed interim financial statements are presented in millions of US Dollars ("\$" or "dollars"), unless otherwise indicated. The interim financial information has not been subject to audit or review.
Profit and loss for the interim period are not necessarily indicative of the results that may be expected for any subsequent interim period or year. The condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018.
The accounting policies adopted in the preparation of the condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company's consolidated financial statements for the year ended December 31, 2018. Reference is made to Note 16 for changes following IFRS 16.
Although IFRS provides a fair presentation of the profit and loss of the Company, for purposes of Segment and internal reporting management applies the revenue recognition principle used prior to 2018 and IFRS 15. MultiClient pre-funding revenue is recognized using the percentage of completion method, and related MultiClient amortization is based upon the ratio of aggregate capitalized survey costs to forecasted sales. Management believes this method makes revenues coincide better with activities and resources used by the Company and provides useful information as to the progress made on MultiClient surveys in process and resultant value generation during the period.
In determining the percentage of completion, progress is measured in a manner generally consistent with the physical progress of the project, and revenue is recognized based on the ratio of the project's progress to date, provided that all other revenue recognition criteria are satisfied. Accordingly, MultiClient prefunding revenues and related MultiClient amortization are generally recognized earlier for purposes of segment reporting as compared to IFRS reporting.
While a survey is in progress, the Company amortizes each MultiClient survey based on the ratio of aggregate capitalized survey costs to forecasted sales for segment purposes. At completion the remaining balance is amortized on a straight line basis over four years. For impairment purposes a portfolio assessment is applied and no impairment is reflected unless the MC library as a whole has a book value above estimated recoverable value. The segment reporting principle will generally result in book value of a project at completion being lower compared to the book value for IFRS reporting.
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company's annual consolidated financial statements for the year ended December 31, 2018, except for the adoption of new standards effective as of January 1, 2019. The Company has not early adopted any standard, interpretation or amendment with effective date after January 1, 2019. With the exception of IFRS 16, no new standards or amendments impact the Company.
The Company adopted IFRS 16 with effect January 1, 2019. The new standard was applied using the modified retrospective approach, and therefore comparatives for the year ended December 31, 2018 have not been restated and the reclassifications and adjustments on implementation are recognized in the opening balance sheet at January 1, 2019.
On initial application of IFRS 16, the Company elected to use the following practical expedients:
At January 1, 2019, the Company recognized lease liabilities for all vessels, properties and other assets that were previously classified as operating leases. These liabilities were measured at the present value of remaining lease payments, discounted using the incremental borrowing rate at January 1, 2019. The weighted average incremental borrowing rate applied to the lease liabilities at January 1, 2019 was 6.4% for contracts denominated in USD, and 5.5% for property leases valued in GBP or NOK.
A corresponding right-of-use-asset was recognized, measured at the amount equal to the lease liability and adjusted by the amount of lease incentives embedded in the value of the asset, asset impairment, accrued costs of restoration and any liabilities relating to onerous leases.
At January 1, 2019, the Company recognized lease liabilities of \$238 million and right-of-use assets of \$202 million, together with a reduction in accrued expenses of \$27 million and a decrease to equity of \$9 million.
The following is a reconciliation of total operating lease commitments at December 31, 2018 to the lease liabilities recognized at January 1, 2019:
| (In millions of US dollars) | |
|---|---|
| Future minimum payments at December 31, 2018 | 293.6 |
| Commitments exempt due to expiry within 12 months | (11.9) |
| Commitments exempt due to low value | (0.1) |
| Effect of increase in lease term due to extension options | 0.6 |
| Effect of discounting | (43.7) |
| Lease liability at 1 January 2019 | 238.5 |
| of which: | |
| Current | 42.6 |
| Non-current | 195.9 |
Operating lease expenses previously recognized within cost of sales have been replaced by depreciation of the right-of-use-asset and interest costs arising from the effect of discounting.
A substantial amount of lease costs are directly incurred in acquiring seismic surveys, and as such are eligible for capitalization to the MultiClient library. For the year ending December 31, 2019, the adoption of IFRS 16 will result in a reduction in gross cash costs of approximately \$50 million, partially offset by a reduction in MultiClient library capitalization of approximately \$20 million, depending on vessel utilization. Lease costs previously recognized within gross cash costs will be replaced by depreciation of approximately \$40 million and interest expense of approximately \$15 million.
The Company leases various vessels, buildings and equipment. Lease terms correspond to the term of the lease contract, unless the Company is reasonably certain that it will exercise contractual extensions or termination options.
From January 1, 2019 leases are recognized as a right-of-use asset and corresponding lease liability at the date at which the leased asset is available for use. Lease payments are allocated between liability repayment and finance cost, is the latter charged to the consolidated statement of profit or loss over the lease period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight line basis.
Lease liabilities are measured at the net 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.
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.
Lease payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss.
The Company emphasizes that the information included herein contains certain forward-looking statements that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future. These statements are based on various assumptions made by the Company, many of which are beyond its control and all of which are subject to risks and uncertainties. The Company is subject to a large number of risk factors including but not limited to the demand for seismic services, the demand for data from the Company's MultiClient data library, the attractiveness of PGS'
technology, changes in governmental regulations affecting markets, technical downtime, licenses and permitting, currency and fuel price fluctuations, and extreme weather conditions.
Contracts for services are occasionally modified by mutual consent and in certain instances may be cancelled by customers at short notice without compensation. Consequently, the order book as of any 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 2018. 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.
We confirm that, to the best of our knowledge, the condensed set of financial statements for the first half year 2019, which has been prepared in accordance with IAS 34 Interim Financial reporting gives a true and fair view of the Company's consolidated assets, liabilities, financial position and result of operations, and that the first half 2019 report includes a fair review of the information required under the Norwegian Securities Trading Act section 5-6 fourth paragraph.
Oslo, July 17, 2019
Walter Qvam Richard Herbert Chairperson Director
Anne Grethe Dalane Trond Brandsrud Director Director
Marianne Kah Anette Valbø Director Director
Director Director
Rune Olav Pedersen Chief Executive Officer
Hege Renshus Grunde Rønholt
***
PGS ASA and its subsidiaries ("PGS" or "the Company") is a focused marine geophysical company that provides a broad range of seismic and reservoir services, including acquisition, imaging, interpretation, and field evaluation. The Company's MultiClient data library is among the largest in the seismic industry, with modern 3D coverage in all significant offshore hydrocarbon provinces of the world. The Company operates on a worldwide basis with headquarters in Oslo, Norway and the PGS share is listed on the Oslo stock exchange (OSE: PGS).
For more information on PGS visit www.pgs.com.
***
The information included herein contains certain forward-looking statements that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future. These statements are based on various assumptions made by the Company, which are beyond its control and are subject to certain additional risks and uncertainties. The Company is subject to a large number of risk factors including but not limited to the demand for seismic services, the demand for data from our multi-client data library, the attractiveness of our technology, unpredictable changes in governmental regulations affecting our markets and extreme weather conditions. For a further description of other relevant risk factors we refer to our Annual Report for 2018. 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.
OSLO (headquarter) HOUSTON Lilleakerveien 4C West Memorial Place I 0216 Oslo, Norway Houston Texas 77079, USA Phone: +47 67 52 64 00 Phone: +1 281 509 8000
Petroleum Geo-Services (UK) Ltd. 4 The Heights Brooklands ' Weybridge Surrey KT13 0NY, UK Phone: +44 1932 3760 00
Walter Qvam (Chairperson) Trond Brandsrud
Rune Olav Pedersen President & CEO Terje Bjølseth SVP HR Gottfred Langseth EVP & CFO Magnus Christiansen VP HSEQ Berit Osnes EVP New Ventures Lars Mysen General Counsel Nathan Oliver EVP Sales & Imaging Kai Reith SVP Corporate Development Per Arild Reksnes EVP Operations & Technology Bård Stenberg SVP IR & Communication
Web-Site: www.pgs.com
| Financial Calendar: | |||
|---|---|---|---|
| Q2 2019 report | July 18, 2019 | ||
| Q3 2019 report | October 17, 2019 | ||
| Q4 2019 report | January 30, 2020 | ||
| The dates are subject to change. |
Petroleum Geo-Services ASA Petroleum Geo-Services, Inc. P.O.Box 251 Lilleaker 15375 Memorial Drive, Suite 100
Anne Grethe Dalane Anette Valbø (employee elected) Marianne Kah Hege Renshus (employee elected) Richard Herbert Grunde Rønholt (employee elected)
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