TGS ASA — Earnings Release 2018

Nov 1, 2018

TGS EARNINGS RELEASE 3rd QUARTER 2018 RESULTS

3rd QUARTER 2018 FINANCIAL HIGHLIGHTS – SEGMENT REPORTING1

(All amounts in USD 1,000 unless noted otherwise)	Q3 2018	Q3 2017	YTD 2018	YTD 2017
Net operating revenues	140,731	141,684	433,332	335,510
-Net prefunding revenue	32,771	61,809	70,948	104,371
-Net late sales revenue	105,959	78,535	356,611	226,050
-Net proprietary revenue	2,001	1,340	5,773	5,089
Operating profit	24,425	25,787	103,539	45,799
-Operating profit margin	17%	18%	24%	14%
Pre-tax profit	28,428	26,950	108,983	46,654
Net income	16,842	9,442	76,299	20,609
EPS (fully diluted) (USD)	0.16	0.09	0.74	0.20
Operational investments in new projects	100,121	114,371	193,573	232,156
-Prefunding % on operational investments	33%	54%	37%	45%
Risk-sharing investments	139	1,485	7,343	8,363
Non-operational investments	6,502	4,635	6,502	10,581
Amortization	92,857	94,715	250,222	225,550
MC library net book value	749,594	837,939	749,594	837,949
Return on average capital employed1	17%	9%	17%	9%
Cash flow from operating activities	96,089	86,365	326,582	323,987
Free cash flow (after MC investments)	10,293	-18,716	135,633	67,184
Cash balance	322,150	204,988	322,150	204,988

• Continued improvement in late sales year-on-year growth of 35%
• Asset transfers and M&A continuing to be important drivers
• Earnings per share (EPS) of USD 0.16 year-on-year growth of 78%
• Continued strong cash flow
• Quarterly dividend of USD 0.20 per share year-on-year growth of 33%
• 2018 guidance:
• o New multi-client investments of approximately USD 260 million
• o Additional multi-client investments expected from sales of existing surveys with risk sharing arrangements
• o Pre-funding of new multi-client investments expected to be approximately 40% compared to previous expectation of 45-50%

¹ Trailing 12 months

CHANGE OF ACCOUNTING PRINCIPLES

TGS-NOPEC Geophysical Company ASA (TGS) and its subsidiaries have implemented the new revenue recognition standard, IFRS 15, effective January 1, 2018 as the external financial reporting method. This change impacts the timing of revenue recognition and amortization related to projects that are not yet completed. TGS will, for internal management reporting purposes, continue to use the revenue recognition principles applied historically. The numbers used for management reporting are referred to as "Segment reporting" in this report. See Note 2 for description of basis for preparation. See Note 7 for a description of the change in revenue recognition resulting from the implementation of IFRS 15. TGS will not restate prior periods.

FINANCIALS – SEGMENT REPORTING

For internal reporting purposes TGS is using segment reporting with net revenues for projects in progress recognized based on Percentage of Completion. The discussion and analysis in this section are based on segment reporting.

Net operating revenues

Net operating revenues for Q3 2018 amounted to USD 140.7 million, a decrease of 1% compared to the USD 141.7 million recognized in Q3 2017. Net pre-funding revenues totaled USD 32.7 million in the quarter versus USD 61.8 million in Q3 of last year. In Q3 2018 the net pre-funding revenues funded 33% of the USD 100.1 million of operational investments in the multi-client library. In the corresponding quarter of last year 54% of the operational multi-client investments of USD 114.4 million were pre-funded.

Net late sales for the quarter amounted to USD 106.0 million, a growth of 35% compared to the USD 78.5 million booked in Q3 2017. Proprietary contract revenues increased by 49% to USD 2.0 million from USD 1.3 million in Q3 2017.

Revenue distribution

Operational costs

The amortization of the multi-client library for Q3 2018 amounted to USD 92.9 million, which is down from USD 94.7 million in Q3 2017. This includes impairments of USD 10.0 million related to multi-client surveys in Brazil, Canada and US Gulf of Mexico.

Cost of goods sold (COGS) was USD 0.1 million for the quarter, compared to USD 0.2 million in Q3 2017. Personnel costs in the quarter were USD 14.8 million compared to USD 12.8 million in Q3 2017. The increase is primarily due to higher costs related to performancelinked employee incentive plans. Other operating expenses were USD 6.3 million in Q3 2018 compared to USD 6.2 million in Q3 2017.

EBITDA and EBIT

EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) for Q3 2018 was USD 119.5 million, corresponding to a margin of 84.9%. In Q3 2017 EBITDA was USD 122.5 million, corresponding to a margin of 86%. Operating profit (EBIT) for the quarter amounted to USD 24.4 million, which is down from USD 25.8 million in Q3 2017.

Financial items

Net financial items totaled USD 4.0 million compared to USD 1.2 million in Q3 2017. The Company recorded a net currency exchange gain of USD 0.3 million in Q3 2018, mainly because of the slight strengthening of the USD versus NOK. TGS holds NOK bank accounts primarily to pay taxes and dividends in NOK.

Tax

TGS reports tax charges in accordance with the Accounting Standard IAS 12. Taxes are computed based on the USD value of the appropriate tax provisions according to local tax regulations and currencies in each jurisdiction. The tax charges are influenced not only by local profits, but also by fluctuations in exchange rates between the respective local currencies and USD. This method makes it difficult to predict tax charges on a quarterly or annual basis. Currency effects within the current year are classified as tax expenses.

Based on the reduced corporate income tax rate in Norway (23% in 2018) and in the US (21% in 2018), TGS has assessed the normalized operating consolidated tax rate to be at approximately 23% for 2018.

The tax rate reported for the quarter is at 40% compared to 65% last year. The higher than normal tax rate is a result of movements in currency rates, particularly NOK/USD, during the quarter.

Net income and earnings per share (EPS)

Net income for Q3 2018 was USD 16.8 million (12 % of net revenues), up from USD 9.4 million in Q3 2017. Quarterly earnings per share (EPS) were USD 0.16 fully diluted (USD 0.16 undiluted), which is up from USD 0.09 fully diluted (USD 0.09 undiluted) in Q3 2017.

Cash flow

Net cash flow from operations for the quarter, after taxes and before investments, totaled USD 96.1 million compared to USD 86.4 million in Q3 2017. Free cash flow amounted to USD 10.3 million versus USD -18.7 million in Q3 2017.

The Company's total cash holdings decreased by USD 15.4 million during the quarter and totaled USD 322.2 million as of 30 September 2018, compared to USD 205.0 million at 30 September 2017.

Multi-client library

The net book value of the multi-client library was USD 749.6 million as of 30 September 2018 compared to USD 837.9 million at 30 September 2017. Combined operational multi-client investments and risk-share investments amounted to USD 100.1 million in Q3 2018 (USD 115.9 million in Q3 2017), while amortization was USD 92.9 million (USD 94.7 million in Q3 2017) (see note 5 to the interim financial statements).

During Q3 TGS acquired the Capreolus 3D Survey in Australia from Polarcus' multi-client library. This high fold, full broadband seismic survey is 22,130 km2 in size and covers two hydrocarbon provinces with proven, but underexplored oil and gas plays in the Beagle and Bedout sub-basin offshore north-west Australia.

Backlog

TGS' backlog amounted to USD 103.2 million at the end of Q3 2018, an increase of 20% from Q2 2018 and 63% higher than at the end of Q3 2017.

FINANCIALS - IFRS REPORTING

Following the implementation of the IFRS 15 accounting standard from 1 January 2018, the IFRS accounts are no longer the same as the accounts used for internal reporting. The discussion and analysis in this section are based on IFRS reporting.

Key figures - IFRS reporting2

(All amounts in USD 1,000 unless noted otherwise)	Q3 2018	Q3 20172	YTD 2018	YTD 2017
Net operating revenues	122,454	141,684	350,715	335,510
Operating profit	24,887	25,787	71,292	45,799
-Operating profit Margin	20%	18%	20%	14%
Pre-tax profit	28,889	26,950	76,736	46,654
Net income	17,304	9,442	44,052	20,609
EPS (fully diluted) (USD)	0.17	0.09	0.43	0.20
Amortization	74,118	94,715	199,852	225,550
MC library ending net book value	878,796	837,949	878,796	837,949
Equity ratio	72%	82%	72%	82%

Income statement

Net revenues amounted to USD 122.5 million in Q3 2018, compared to USD 141.7 million in Q3 2017. Amortization of the multi-client library was USD 74.1 million versus USD 94.7 million in Q3 2017.

Operating profit totaled USD 24.9 million in Q3 2018 compared to USD 25.8 million in Q3 2017.

Net income amounted to USD 17.3 million in the quarter, while the same quarter of 2017 showed USD 9.4 million. This resulted in a fully diluted EPS of USD 0.17 compared to USD 0.09 in Q3 2017.

² 2017 numbers are not restated

Balance sheet

The net book value of the multi-client library was USD 878.8 million as of 30 September 2018 compared to USD 837.9 million at 30 September 2017.

Total equity as of 30 September 2018 was USD 1,134.6 million, 72% of total assets. On 30 September 2017 total equity amounted to USD 1,157.1 million (82% of total assets). A total of 98,800 new shares were issued during Q3 2018 in relation to vesting of Restricted Share Units in August 2018. As of September 2018, TGS held 104,630 treasury shares.

DIVIDEND

It is the ambition of TGS to pay a cash dividend that is in line with its long-term underlying cash flow. When deciding the dividend amount, the TGS Board of Directors will consider expected cash flow, investment plans, financing requirements and a level of financial flexibility that is appropriate for the TGS business model.

As from 2016, TGS has paid quarterly dividends in accordance with the resolution made by the Annual General Meeting. The aim will be to keep a stable quarterly dividend in US dollars through the year, but the actual level paid will be subject to continuous evaluation of the underlying development of the company and the market.

The Board of Directors has resolved to pay a dividend of USD 0.20 per share to be paid in Q4 2018. The dividend will be paid in the form of NOK 1.68 per share on 22 November 2018. The share will trade ex-dividend on 8 November 2018.

OPERATIONAL HIGHLIGHTS

TGS had six 3D seismic vessels (three operated under joint venture agreements) and one coring vessel in operation in Q3 2018. In addition, TGS had one onshore crew operating in the Permian and two in the SCOOP/STACK.

In September, TGS completed acquisition of the 45,500 km2 Atlantic Margin 3D survey in the central-southern Norwegian Sea using vessels from Polarcus and Shearwater. The survey is the single largest 3D survey carried out by any company in Northern Europe and covers largely open blocks in a relatively under-explored area with limited drilling to date. Fast track data from the 2017 season is already on offer with the final dataset being available 2019.

TGS used the same Polarcus vessels to acquire data in the UK West of Shetlands during Q2. The Erlend Wild West 18 is a 3D multiclient project covering 1,900 km2 that ties into TGS' existing EW12 survey. It is designed to deliver high fidelity imaging of the subsurface in newly awarded acreage from the 30th Offshore UK licensing round, an area that includes several high potential prospects.

Acquisition of Nansen 3D, a joint venture survey with PGS, covering 4,200 km2 in an active APA area of the Hammerfest Basin in the Barents Sea was completed in September. The project is designed to improve the imaging of the known fields and discoveries, allowing identification and development of new targets in both mature and new plays.

Throughout Q3 2018, TGS continued its acquisition season in East Canada, in collaboration with PGS. The joint venture completed the 8,000 km2 Tablelands 3D survey before moving on to 3,400 km2 Lewis Hills 3D survey. Data was also acquired over an area of approximately 2,700 km2 to complete the 2017 Harbour Deep and Cape Broyle 3D surveys.

TGS was active in Latin America during Q3 2018 with its Brazil Southern Basins SeaSeep project. Having completed the initial phase of multibeam bathymetry in Q2, TGS commenced coring activities in Q3, using the bathymetry data to target optimal coring locations. Multibeam and coring activities will continue in Q4 2018, with data ultimately covering 200,000 km2 in the Campos and Santos basins of Brazil.

During Q3 TGS worked in collaboration with Fairfield Geotechnologies to acquire the 330 km2 Quail Ridge East 3D survey in the Delaware Basin, onshore U.S. This survey is part of a broader collaboration with Fairfield Geotechnologies covering an area of more than 5,000 km2.

TGS was also active on the SCOOP / STACK play in the U.S onshore, continuing the 1,400 km2 Canton 3D survey and commencing the 1,500 km2 Gloss Mountain 3D survey. These surveys build on TGS' already significant presence in the SCOOP/STACK play with the Hackberry Complex to the east and the Loyal, Geary and Blanchard surveys to the south.

The Geologic Products and Services Division (GPS) continued to add to its inventory of multi-client products in the quarter. The well data library grew with the addition of approximately 10,000 new digital well logs, 3,300 new enhanced digital well logs and 109,000 new Validated Well Headers.

OTHER MATTERS

On October 5, 2018, the Oslo District Court issued a split decision finding TGS guilty of charges made by Økokrim that TGS aided and abetted violations of the Tax Assessment Act in connection with the contract with Skeie Energy AS (later known as E&P Holding AS) for the purchase of licenses to seismic data and services in 2009. The court sentenced TGS to pay a corporate fine of NOK 90 million (approximately USD 11 million). TGS categorically disagrees with the court's decision and has appealed the verdict. The appellate trial is expected to occur late in 2019. Refer to Note 9 in TGS' Interim Consolidated Financial Statements attached to this release for additional information regarding this matter.

OUTLOOK

TGS has grown net revenues by 29% in the first nine months of 2018. However, while E&P companies have benefited from lower costs and higher oil price, they have for the most part maintained a cautious approach to exploration spending. Although some of the improvement in TGS revenues can be attributed to increased exploration spend associated with licensing rounds and exploration drilling, a larger part of the increased revenues is related to acreage turnover, either through M&A between E&P companies or asset swaps and purchases.

Because of lower costs and higher oil prices E&P companies' cash flow has improved substantially over the past couple of years. With the market fundamentals continuing to improve, they are likely to come under increasing pressure to replenish reserves and secure growing production in the longer-term. Furthermore, many smaller E&P companies which paused spending during the downcycle, will ultimately return to exploration as they move back to a growth agenda. As a result, exploration budgets are likely to increase from the current unsustainably low levels.

TGS is well positioned to benefit from improved market conditions going into 2019, supporting further investment growth. TGS' countercyclical investment during the downturn, with high volumes of data acquired at record-low cost, bodes well for continued industryleading return on capital going forward.

As E&P companies are still spending out of their 2018 budgets, which on aggregate were flat compared to the year before, it continues to be challenging to get pre-funding commitments for new multi-client surveys. With attractive vessel pricing and an improving outlook TGS has, however, chosen to take more risk and initiate projects with less pre-funding commitments than originally planned. Consequently, the pre-funding rate for 2018 is expected to be approximately 40% compared to previous guidance of 45-50%.

2018 guidance can thus be summarized as follows:

• New multi-client investments3 of approximately USD 260 million
• Additional multi-client investments expected from sales of existing surveys with risk sharing arrangements
• Pre-funding of new multi-client investments3 expected to be approximately 40%

Asker, 31 October 2018

The Board of Directors of TGS-NOPEC Geophysical Company ASA

ABOUT TGS

TGS provides multi-client geoscience data to oil and gas Exploration and Production companies worldwide. In addition to extensive global geophysical and geological data libraries that include multi-client seismic data, magnetic and gravity data, digital well logs, production data and directional surveys, TGS also offers advanced processing and imaging services, interpretation products and data integration solutions.

TGS-NOPEC Geophysical Company ASA is listed on the Oslo Stock Exchange (OSLO:TGS). TGS sponsored American Depositary Shares trade on the U.S. over-the-counter market under the symbol "TGSGY". Website: www.tgs.com

CONTACT FOR ADDITIONAL INFORMATION

Sven Børre Larsen, Chief Financial Officer tel +47 90 94 36 73 Will Ashby, Senior Vice President, Investor Relations, HR & Communication tel +1-713-860-2184

************************************************************************************************************************* All statements in this earnings release other than statements of historical fact are forward-looking statements, which are subject to a number of risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. These factors include TGS' reliance on a cyclical industry and principal customers, TGS' ability to continue to expand markets for licensing of data, and TGS' ability to acquire and process data products at costs commensurate with profitability. Actual results may differ materially from those expected or projected in the forward-looking statements. TGS undertakes no responsibility or obligation to update or alter forward-looking statements.

³ New multi-client investments excluding investments related to surveys with risk sharing arrangements

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Note	2018	2017	2018	2017
(All amounts in USD 1,000s unless noted otherwise)		Q3	Q3	YTD	YTD
		Unaudited	Unaudited	Unaudited	Unaudited
Net revenues	4	122,454	141,684	350,715	335,510
Operating expenses
Cost of goods sold - proprietary and other		88	154	306	484
Amortization and impairment of multi-client library	5	74,118	94,715	199,852	225,550
Personnel costs		14,822	12,794	48,725	36,938
Cost of stock options		0	56	0	243
Other operating expenses		6,305	6,166	23,840	19,106
Depreciation, amortization and impairment		2,234	2,013	6,700	7,390
Total operating expenses		97,567	115,897	279,423	289,711
Operating profit	4	24,887	25,787	71,292	45,799
Financial income and expenses
Financial income		3,890	634	5,947	1,422
Financial expenses Net exchange gains/(losses)		-236 349	-204 733	-608 104	-1,422 855
Net financial items		4,003	1,163	5,443	855
Profit before taxes		28,889	26,950	76,736	46,654
Taxes		11,585	17,508	32,683	26,044
Net income		17,304	9,442	44,052	20,609
EPS USD		0.17	0.09	0.43	0.20
EPS USD, fully diluted		0.17	0.09	0.43	0.20
Other comprehensive income:
Exchange differences on translation of foreign operations		-2,088	947	-1,984	1,391
Other comprehensive income/(loss) for the period, net of tax		-2,088	947	-1,984	1,391
Total comprehensive income for the period		15,216	10,389	42,068	22,001

INTERIM CONSOLIDATED BALANCE SHEET

	Note	2018	2017	2017
(All amounts in USD 1,000s)		30-Sep	30-Sep	31-Dec
		Unaudited	Unaudited	Audited
ASSETS
Non-current assets
Goodwill		67,925	67,925	67,925
Multi-client library	5	878,796	837,949	799,015
Other intangible non-current assets		8,707	8,988	9,045
Deferred tax asset		681	5,479	4,390
Buildings		3,971	5,635	5,213
Machinery and equipment		15,322	14,893	14,452
Other non-current assets		220	466	496
Total non-current assets		975,621	941,335	900,536
Current assets
Accounts receivable		101,468	92,045	157,423
Accrued revenues		139,485	147,024	97,285
Other receivables		34,730	32,658	18,939
Cash and cash equivalents		322,150	204,988	249,917
Total current assets		597,833	476,715	523,564
TOTAL ASSETS		1,573,454	1,418,050	1,424,100
EQUITY AND LIABILITIES
Equity
Share capital		3,668	3,654	3,659
Other equity Total equity	3	1,130,968 1,134,636	1,153,487 1,157,141	1,196,443 1,200,102
Non-current liabilities
Long-term debt		2,500	2,500	2,500
Other non-current liabilities		2,281	2,336	2,850
Deferred taxes		7,234	32,643	23,721
Total non-current liabilities		12,016	37,479	29,071
Current liabilities
Accounts payable and debt to partners		39,774	120,084	101,385
Taxes payable, withheld payroll tax, social security		47,139	23,274	25,197
Other current liabilities		339,888	80,072	68,345
Total current liabilities		426,801	223,430	194,927

INTERIM CONSOLIDATED STATEMENT OF CASH FLOW

	Note	2018	2017	2018	2017
(All amounts in USD 1,000s)		Q3	Q3	YTD	YTD
		Unaudited	Unaudited	Unaudited	Unaudited
Cash flow from operating activ ities:
Received payments from customers		128,799	114,522	430,374	407,165
Payments for salaries, pensions, social security tax		-20,870	-16,779	-55,909	-43,594
Payments of other operational costs		-11,451	-8,946	-41,106	-28,537
Paid taxes		-389	-2,432	-6,776	-11,047
Net cash flow from operating activities 1		96,089	86,365	326,582	323,987
Cash flow from investing activ ities:
Investments in tangible and intangible assets		-2,202	-1,437	-5,966	-8,378
Investments in multi-client library		-85,796	-105,081	-190,949	-256,803
Investments through mergers and acquisitions		-6,501	0	-6,501	-7,776
Interest received		3,820	784	5,633	1,399
Net cash flow from investing activities		-90,679	-105,734	-197,783	-271,558
Cash flow from financing activ ites:
Interest paid		-289	-41	-608	-152
Dividend payments	3	-20,489	-15,319	-60,932	-47,472
Proceeds from share issuances	3	3	0	4,977	9,193
Net cash flow from financing activites		-20,775	-15,360	-56,563	-38,431
Net change in cash and cash equivalents		-15,365	-34,729	72,236	13,998
Cash and cash equivalents at the beginning of period		337,515	239,315	249,917	190,739
Net unrealized currency gains/(losses)		0	401	0	251
Cash and cash equivalents at the end of period		322,150	204,987	322,154	204,987
1) Reconciliation
Profit before taxes		28,889	26,950	76,736	46,654
Depreciation/amortization/impairment		76,352	96,728	206,552	232,940
Changes in accounts receivables and accrued revenues		-14,836	-7,159	13,756	81,273
Unrealized currency gains/(losses)		-1,932	1,645	-1,984	1,140
Changes in other receivables		6,027	3,564	4,801	18,669
Changes in other balance sheet items		1,978	-32,932	33,492	-45,642
Paid taxes		-389	-2,432	-6,776	-11,047
Net cash flow from operating activities		96,090	86,365	326,577	323,987

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended September 30, 2018

				Other	Currency
(All amounts in USD 1,000s)	Share	Treasury	Share	Paid-In	Translation	Retained	Total
	Capital	Shares	Premium	Capital	Reserve	Earnings	Equity
Closing balance as of 31 December 2017	3,663	-6	62,771	39,722	-21,574	1,115,531	1,200,102
Adjustements IFRS 15						-54,895	-54,895
Opening balance 1 January 2018	3,663	-6	62,771	39,722	-21,574	1,060,637	1,145,207
Net income	-	-	-	-	-	44,052	44,052
Other comprehensive income	-	-	-	-	-1,980	-	-1,980
Total comprehensive income	-	-	-	-	-1,980	44,052	42,072
Paid-in-equity through exercise of stock options	9	-	4,584		-	-	4,594
Distribution of treasury shares	-	-	-		-	377	377
Deferred tax asset related to stock options	-	-	-		-	-17	-17
Cost of equity-settled long term incentive plans	-	-	-	3,799	-	-	3,799
Dividends	-	-	-	-	-	-61,398	-61,398
Closing balance as of 30 September 2018	3,673	-6	67,355	43,521	-23,555	1,043,651	1,134,636

For the six months ended September 30, 2017

				Other	Currency
(All amounts in USD 1,000s)	Share	Treasury	Share	Paid-In	Translation	Retained	Total
	Capital	Shares	Premium	Capital	Reserve	Earnings	Equity
Opening balance 1 January 2017	3,657	-21	58,107	36,964	-21,933	1,092,352	1,169,124
Net income	-	-	-	-	-	20,609	20,609
Other comprehensive income	-	-	-		1,391	-	1,391
Total comprehensive income	-	-	-	-	1,391	20,609	22,000
Paid-in-equity through exercise of stock options	1		721		-		722
Distribution of treasury shares	-	15	-		-	8,706	8,720
Cost of equity-settled long term incentive plans	-	-	-	2,412	-	-	2,412
Dividends	-	-	-	-	-	-45,838	-45,838
Closing balance per 30 September 2017	3,658	-6	58,828	39,376	-20,542	1,075,829	1,157,140

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Note 1 General information

TGS-NOPEC Geophysical Company ASA (TGS or the Company) is a public limited company listed on the Oslo Stock Exchange. The address of its registered office is Lensmannslia 4, 1386 Asker, Norway.

Note 2 Basis for Preparation

The condensed consolidated interim financial statements of TGS have been prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 Interim Financial Reporting as approved by EU and additional requirements in the Norwegian Securities Trading Act. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with TGS' annual report for 2017 which is available at www.tgs.com.

The same accounting policies and methods of computation are followed in the interim financial statements as compared with the annual financial statements for 2017 except for the implementation of IFRS 15 Revenue with effect from 1 January 2018. Following the implementation of IFRS 15, consolidated shareholders' equity has been reduced by USD 54.9 million as of 1 January 2018. Revenue recognition principles related to some contracts are still being assessed, however the impact of any possible changes is not expected to be material to the quarter. None of the other new accounting standards or amendments that came into effect from 1 January 2018 have had a significant impact on the presentation of the financial statements during the quarter. See note 7 for further information.

Note 3 Share capital and equity

Ordinary shares	Number of shares
1 January 2018	102,345,890
Issued 27 February 2018 for cash on exercise of stock options	73,600
Issued 1 June 2018 for cash on exercise of stock options	129,500
Issued 23 August for cash on vesting of Restriced share units	98,800
30 September 2018	102,647,790

Treasury shares	Number of shares
1 January 2018	116,180
Net change in period	-11,550
30 September 2018	104,630

The Annual General Meeting held 8 May 2018 renewed the Board of Directors' authorization to distribute quarterly dividends on the basis of the 2017 financial statements. The authorization shall be valid until the Company's Annual General Meeting in 2019, but no later than 30 June 2019.

On 8 May 2018, the Board of Directors resolved to pay a quarterly dividend of the NOK equivalent of USD 0.20 per share (NOK 1.62) to the shareholders. The dividends were paid to the shareholders on 30 May 2018.

On 1 August, the Board of Directors resolved to pay a quarterly dividend of the NOK equivalent of USD 0.20 per share (NOK 1.62) to the shareholders. The dividends were paid to the shareholders on 23 August 2018.

On 31 October 2018, the Board of Directors resolved to pay a quarterly dividend of the NOK equivalent of USD 0.20 per share (NOK 1.68) to the shareholders. The dividends will be paid to the shareholders on 22 November 2018.

		Account
Largest Shareholders as of 3 October 2018	Country	type	No. of shares	Share
1. FOLKETRYGDFONDET	Norway		10,664,898	10.4%
2. THE BANK OF NEW YORK MELLON SA/NV	Belgium	NOM	8,853,925	8.6%
3. STATE STREET BANK AND TRUST COMP	USA	NOM	4,127,195	4.0%
4. STATE STREET BANK AND TRUST COMP	USA	NOM	2,920,262	2.8%
5. STATE STREET BANK AND TRUST COMP	USA	NOM	2,320,920	2.3%
6. RBC INVESTOR SERVICES TRUST	UK	NOM	1,917,768	1.9%
7. INVESCO FUNDS	Belgium		1,836,975	1.8%
8. STATE STREET BANK AND TRUST COMP	USA	NOM	1,750,944	1.7%
9. VERDIPAPIRFONDET DNB NORGE (IV)	Norway		1,636,526	1.6%
10. C LEARSTREAM BANKING SA	LUXEMBURG	NOM	1,520,727	1.5%
10 largest			37,550,140	36%
Total Shares Outstanding *			102,543,160	100%

* Total shares outstanding are net of shares held in treasury per 1 October 2018

Average number of shares outstanding for Current Quarter *
Average number of shares outstanding during the quarter	102,473,619
Average number of shares fully diluted during the quarter	103,273,399

* Shares outstanding net of shares held in treasury per 30 september 2018 (104,630 TGS shares), composed of average outstanding TGS shares during the quarter

Share price information
Share price 30 September 2018 (NOK)	331.70
USD/NOK exchange rate end of period	8.18
Market capitalization 30 September 2018 (NOK million)	34,048

Note 4 Segment information

TGS reports Segment information based on the information reported to the management. Segment revenues related to multi-client pre-funded contracts are measured by applying the percentage of completion method to estimated total contract revenues. As such the timing and assessment of amortization will follow the timing of revenue recognition. Management believes the segment reporting provides useful information as to the value generated by the company relative to the related activities and resources employed.

Q3 2018	North & South America	Europe & Russia	Africa, Middle East & Asia/Pacific	Other segments/ Corporate costs	Segment reporting consolidated	Adjustment	As reported IFRS
Net external revenues	91,412	22,071	4,613	22,635	140,731	-18,277	122,454
Operating profit	20,894	5,769	-112	-1,600	24,425	461	24,886

Q3 2017	North & South America	Europe & Russia	Africa, Middle East & Asia/Pacific	Other segments/ Corporate costs	Segment reporting consolidated	Adjustment	As reported IFRS
Net external revenues Operating profit	55,392 603	56,511 26,971	18,490 9,703	11,291 -11,490	141,686 25,787 0	0 0	141,686 25,787 0

2018 YTD	North & South America	Europe & Russia	Africa, Middle East & Asia/Pacific	Other segments/ Corporate costs	Segment reporting consolidated	Adjustment	As reported IFRS
Net external revenues	257,478	99,025	24,346	52,487	433,332	-82,617	350,715
Operating profit	89,844	45,872	-1,141	-31,036	103,539	-32,247	71,292

2017 YTD	North & South America	Europe & Russia	Africa, Middle East & Asia/Pacific	Other segments/ Corporate costs	Segment reporting consolidated	Adjustment	As reported IFRS
Net external revenues	136,987	135,428	25,352	37,744	335,510	0	335,510
Operating profit	7,104	68,212	2,315	-31,833	45,800	0	45,800

There are no intersegment revenues between the reportable operating segments.

The Company does not allocate all cost items to its reportable operating segments during the year. Unallocated cost items are reported as "Other segments/Corporate costs".

Note 5 Multi-client library

(Numbers in USD millions)	Segment Q3 2018	IFRS Q3 2018	Q3 2017	Segment YTD 2018	IFRS YTD 2018	YTD 2017
Opening balance net book value	735.8	846.3	812.2	799.0	799.0	812.4
Adjustment opening balance	-		-		78.9	-
Non-operational investments	6.5	6.5	4.6	6.5	6.5	10.6
Operational investments	100.1	100.1	115.9	194.3	194.3	240.5
Amortization and impairment	(92.9)	(74.1)	(94.7)	(250.2)	(199.9)	(225.5)
Closing net book value	749.6	878.8	837.9	749.6	878.8	837.9

(Numbers in USD millions)	Segment Q3 2018	IFRS Q3 2018	Q3 2017	Segment YTD 2018	IFRS YTD 2018	YTD 2017
Net MC revenues	138.7	120.4	140.3	427.6	334.9	330.4
Change in MC revenue	-1%		33%	29%		19%
Change in MC investment	12%	12%	78%	-20%	-20%	37%
Amort. in % of net MC revs.	67%	62%	67%	59%	60%	68%
Change in net book value	2%	1%	3%	-6%	1%	3%

Note 6 Related parties

On 23 August 2018, the 2015 LTI program vested and a total of 98 800 new shares were issued. No other material transactions with related parties took place during the quarter.

Note 7 Changes in accounting standards

IFRS 15 Revenue from Contracts with Customers

The IASB has issued a new revenue recognition standard, IFRS 15, which has been implemented with effect from 1 January 2018. The standard replaces existing IFRS revenue requirements. The core principle of IFRS 15 is that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all revenue contracts and provides a model for the recognition and measurement of sales of some non-financial assets (e.g., disposals of property, plant and equipment). The Standard is effective for annual periods beginning on or after 1 January 2018.

For late sales and proprietary sales, there are no material effects following the implementation of IFRS 15. Multi-client pre-funded contracts are considered to be "right to use licenses" under IFRS 15, meaning that all revenues related to these contracts will be recognized at the point in time when the license is transferred to the customer, which would typically be upon completion of processing of the survey and granting of access to the finished survey or delivery of the finished data, independent of services delivered to clients during the project phase. As such the implementation of IFRS 15 impacts the timing of revenue recognition and amortization on multiclient pre-funded contracts compared to previous accounting principles whereby revenue for these contracts was recognized over time as the acquisition and processing services were delivered. Revenue recognition on pre-funded contracts will typically be recognized later under IFRS 15 compared to the previous accounting principles.

The Company has elected to apply the modified retrospective approach for the transition under IFRS 15. Under this approach, the comparative periods will not be restated, and the cumulative effect of initially applying IFRS 15 is recognized at the date of initial application on 1 January 2018. As a consequence, some multi-client pre-funding revenues and associated amortization which was recognized in prior periods has been reversed as at 1 January 2018 and will be recognized in the income statement for 2018 and future periods, without prior periods being restated. In the financial statements for 2018 and subsequent periods, the effect of applying IFRS 15 in each period as compared to previous accounting principles will be disclosed.

Under this approach, the implementation effect reported in the opening consolidated shareholders' equity is a reduction of USD 56 million as of 1 January 2018.

TGS continues to evaluate whether elements in multi-client pre-funding and late sales contracts could be viewed as services delivered over time however this assessment has not been concluded as at the date of this report.

Impact of changes in accounting policies on Consolidated Balance Sheet

	30-Sep-18	Adjustments	30-Sep-18
(All amounts in USD 1,000s)	without adoption	IFRS 15	as reported
Non-current assets
Intangible non-current assets
Multi-client library	749,594	129,202	878,796
Total non-current assets	749,594	129,202	878,796
Equity	1,221,778	-87,142	1,134,636
Non-current liabilities
Deferred taxes	18,786	-11,552	7,234
Total non-current liabilities	18,786	-11,552	7,234
Current liabilities
Accounts payable and debt to partners	85,569	-45,796	39,774
Taxes payable, withheld payroll tax, social security	50,871	-3,732	47,139
Other current liabilities	62,467	277,423	339,889
Total current liabilities	198,906	227,896	426,801

Impact of changes in accounting policies on Consolidated Income Statement

	Q3 2018	Adjustments	Q3 2018
(All amounts in USD 1,000s)	without adoption	IFRS 15	as reported
Net revenues	140,731	-18,277	122,454
Amortization and impairment of multi-client library	92,857	-18,739	74,118
Total operating expenses	116,306	-18,739	97,567
Net income	16,842	462	17,304

Note 8 Financial instruments

IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement and previous versions of IFRS 9. The implementation of IFRS 9 has not had a significant impact on the Company's consolidated financial statements.

Note 9 Økokrim charges and related civil matters; draft tax ruling in Australia

Reference is made to Note 21 to the 2017 Annual Report, which includes a detailed description of charges issued by Økokrim in 2014 and certain subsequent civil claims, including a claim by the Norwegian Government for losses arising from alleged unwarranted tax refunds arising from the transactions with Skeie and the claims of joint responsibility by Skeie and certain affiliated persons, as well as DNB. This note provides an update as to any matters that have occurred since 31 December 2017.

In March 2017, TGS rejected the corporate fine of NOK 85 million issued by Økokrim on 2 March 2017, which is based on alleged violations of the Norwegian Tax Assessment Act. As a result, the matter was brought to trial, which commenced on 22 January 2018 and concluded 20 April 2018. On 5 October 2018, he Oslo District Court released its decision, holding TGS guilty and assessing a corporate fine of NOK 90 million (which was as expected, due to the rejection of the fine in March 2017). The decision was split, with the majority holding TGS guilty, and the minority finding no guilt. TGS has appealed the decision, and the appellate trial is expected to occur in late 2019. As a result of the appeal, the payment of any fine has been deferred.

Despite the court's decision, TGS maintains that it acted diligently in connection with the transactions with Skeie and did not commit the alleged violations of law. TGS believes that the court's reasoning in the case is both legally and factually inaccurate and is not reflective of the evidence presented at trial. Accordingly, the Company does not consider it probable that an outflow of resources embodying economic benefits will be required to settle the obligation and no provisions have been made.

The civil matters that have arisen in relation to the transactions that form the basis for the Økokrim charges, and the outcome of these matters, will depend in large part on the outcome of the Økokrim matter. Given the early stage of these proceedings, it is impracticable to render an accurate assessment of the outcome. However, based upon the Company's belief that the court's decision in the Økokrim case was erroneous and the appeal will confirm that TGS did nothing wrong, the Company also believes these claims of liability are not well-founded, and it intends to challenge the claims vigorously. As a result, the Company does not consider it probable that an outflow of resources embodying economic benefits will be required to settle the obligation and no provisions have been made.

Reference is made to the information disclosed regarding the draft tax ruling in Australia in Note 24 to the 2017 Annual Report. As discussed in Note 24, on December 20, 2017, the Australian Tax Office (ATO) issued a draft taxation ruling regarding the deductibility of costs incurred to collect multi-client seismic data. A final ruling has not yet been issued by the ATO, and TGS remains of the opinion the factual differences between the operations of TGS and the specific fact pattern in the draft ruling may result in a different technical position. Therefore, it is not probable that there will be an outflow of resources embodying economic benefits necessary to settle an obligation, and no provisions have been made.

DEFINITIONS – ALTERNATIVE PERFORMANCE MEASURES

TGS' financial information is prepared in accordance with IFRS. In addition, TGS provides alternative performance measures to enhance the understanding of TGS' performance. The alternative performance measures presented by TGS may be determined or calculated differently by other companies.

EBIT (Operating Profit)

Earnings before interest and tax is an important measure for TGS as it provides an indication of the profitability of the operating activities.

The EBIT margin presented is defined as EBIT (Operating Profit) divided by net revenues.

Prefunding percentage

The prefunding percentage is calculated by dividing the multi-client prefunding revenues by the operational investments in the multiclient library, excluding investments related to projects where payments to the vendors are contingent on sales (risk-sharing investments). The prefunding percentage is considered as an important measure as it indicates how the Company's financial risk is reduced on multi-client investments.

EBITDA

EBITDA means Earnings before interest, taxes, amortization, depreciation and impairments. TGS uses EBITDA because it is useful when evaluating operating profitability as it excludes amortization, depreciation and impairments related to investments that occurred in the past. Also, the measure is useful when comparing the Company's performance to other companies.

	Q3 2018	Q3 2018
(All amounts in USD 1,000s)	Segment reporting	IFRS reporting	Q3 2017
Net income	16,842	17,304	9,442
Taxes	11,585	11,585	17,508
Net financial items	-4,003	-4,003	-1,163
Depreciation, amortization and impairment	2,234	2,234	2,013
Amortization and impairment of multi-client library	92,857	74,118	94,715
EBITDA	119,516	101,239	122,515

	YTD 2018	YTD 2018
(All amounts in USD 1,000s)	Segment reporting	IFRS reporting	YTD 2017
Net income	76,299	44,052	20,609
Taxes	32,683	32,683	26,044
Net financial items	-5,443	-5,443	-855
Depreciation, amortization and impairment	6,700	6,700	7,390
Amortization and impairment of multi-client library	250,222	199,852	225,550
EBITDA	360,461	277,844	278,738

Return on average capital employed

Return on average capital employed (ROACE) shows the profitability compared to the capital that is employed by TGS, and it is calculated as operating profit divided by the average of the opening and closing capital employed for a period of time.

Capital employed is calculated as equity plus net interest-bearing debt. Net interest-bearing debt is defined as interest bearing debt minus cash and cash equivalents. TGS uses the ROACE measure as it provides useful information about the performance under evaluation.

	30-Sep-18	30-Sep-18
(All amounts in USD 1,000s)	Segment reporting	IFRS reporting	30 September 2017
Equity	1,221,778	1,134,636	1,157,141
Interest bearing debt	2,500	2,500	2,500
Cash	322,150	322,150	204,988
Net interest bearing debt	-319,650	-319,650	-202,488
Capital employed	902,128	814,986	954,653
Average capital employed	928,390	884,819	968,205
Operating profit (12 months trailing)	155,169	122,672	87,769
ROACE	17%	14%	9%

Free cash flow (after MC investments)

Free cash flow (after MC investments) when used by TGS means cash flow from operational activities minus cash investments in multiclient projects. TGS uses this measure as it represents the cash that the Company is able to generate after investing the cash required to maintain or expand the multi-client library.

(All amounts in USD 1,000s)	Q3 2018	Q3 2017	2018 YTD	2017 YTD
C ash flow from operational activities	94,128	86,365	324,621	323,987
Investments in multi-client library	-84,829	-105,081	-189,982	-256,803
Free cash flow (after MC investments)	9,299	-18,716	134,639	67,184

Backlog

Backlog is defined as the total value of future revenue based on segment reporting from signed customer contracts.