TGS ASA — Earnings Release 2020

May 13, 2020

Q1 2020 Earnings Release

CEO CFO Oslo, 13 May 2020

Forward-looking statements

All statements in this presentation 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 for any reason.

Q1 2020 Highlights

Market

• COVID-19 leading to unprecedented drop in global oil demand 70-75 mbpd expected for April
• OPEC+ countries failing to agree on production quotas
• Historical weak oil price with extreme volatility

TGS Q1 2020

• Revenues of USD 152 million for Q1 mainly driven by high prefunding
• EBITDA in line with Q1 19 pro-forma figures
• Cash flow impacted by front-end loaded investments and M&A
• Record-high capital allocation to shareholders

Looking forward

• Backlog remains strong
• Dividend cut to USD 0.125 per share to preserve cash for strategic opportunities
• Cost cutting program initiated with expected saving of 35% Y/Y
• Business model with high degree of flexibility

Q1 2020 Operational highlights

FINANCIALS

IFRS 15

• The accounting standard IFRS 15 regarding revenue recognition implemented from 1 January 2018
• Implications for TGS
  • Recognition of revenues related to multi-client projects postponed until projects are delivered to customers
  • No amortization until completion of the project
  • No impact on sales from the library of completed surveys
• Internal reporting
  • TGS will continue to use the previous percentage-of-completion-method for internal segment and management reporting (referred to as Segment Reporting)
  • Provides the best picture of the performance and value creation of the business
• External reporting
  • Two sets of accounts: Segment Reporting and IFRS Reporting
  • Main focus in external communication will be on Segment Reporting

Net Revenues TGS/SPU Consolidated (Q1 2018 – Q4 2019)

Late sales Prefunding revenues

Total revenues

Proprietary revenues

Operating Expenses, EBIT and Multi-Client Library

TGS/SPU Consolidated (Q1 2018 – Q4 2019)

Amortization and impairments

EBIT

Operational investments and prefunding ratio

Income Statement -Segment reporting

TGS/SPU Consolidated (Q1 2018 – Q4 2019)

(MUSD)		Q1 2020	Q1 2019	Change
Net operating revenues		152.1	156.4	-3%
Cost of goods sold		2.3	1.1	110%
Personnel cost		13.5	20.2	-33%
Other operational costs		10.7	9.2	16%
Cost of stock options		0.0	1.3	-100%
EBITDA	83%	125.5	124.6	1%
Amortization of multi-client library		142.2	89.6	59%
Depreciation		2.7	6.0	-54%
Operating result	-13%	-19.4	29.0	-167%
Financial income		0.5	6.3	-93%
Financial expenses		-0.7	-1.0	-24%
Exchange gains/losses		-13.1	-0.5	2586%
Result before taxes	-22%	-32.8	33.9	-197%
Tax cost	18%	-5.9	8.8	-168%
Net income	-18%	-26.9	25.1	-207%
EPS (USD)		-0.23	0.17	-233%
EPS fully diluted (USD)		-0.23	0.17	-233%

Balance Sheet - Segment reporting

TGS/SPU Consolidated (Q1 2018 – Q4 2019)

Balance sheet	Q1 2020	Q1 2019	Change
Goodwill	284.8	79.5	258%
Multi-client library	841.9	859.5	-2%
Deferred tax asset	15.9	14.8	7%
Other non-current assets	96.9	88.9	9%
Total non-current assets	1,239.4	1,042.6	19%
Cash and cash equivalents	248.4	429.0	-42%
Other current assets	531.8	307.1	73%
Total current assets	780.1	736.1	6%
TOTAL ASSETS	2,019.5	1,778.7	14%
Total equity	1,549.5	1,438.8	8%
Deferred taxes	55.3	33.8	63%
Non-current liabilities	31.3	44.9	-30%
Total non-current liabilities	86.6	78.7	10%
Taxes payable, withheld payroll tax, social security	29.6	31.6	-6%
Other current liabilities	353.9	229.6	54%
Total current liabilities	383.5	261.3	47%
TOTAL EQUITY AND LIABILITIES	2,019.5	1,778.7	14%

Cash Flow Statement TGS/SPU Consolidated (Q1 2018 – Q4 2019)

Cash flow statement	2020	2019	Change
Received payments	219.1	251.5	-13%
Payments for operational expenses	-52.1	-38.8	34%
Paid taxes	-20.6	-4.1	400%
Net cash flow from operating activities	146.4	208.6	-30%
Investment in tangible fixed assets	-7.2	-6.9	5%
Investments in multi-client library	-145.3	-61.3	137%
Investments through mergers and acquisitions	-15.0	0.0	n/a
Interest income	0.5	2.6	-83%
Net Cash Flow from investing activities	-167.1	-65.5	155%
Net change in loans	0.0	0.0	n/a
Interest expense	-0.7	-0.6	22%
Payment of dividends	-40.9	-27.5	49%
Purchase of own shares	-6.6	0.0	n/a
Paid in equity	0.0	0.0	n/a
Net cash flow from financing activities	-48.2	-28.1	72%
Net unrealized currency gains/(losses)	-6.2	1.4	-5.4
Net change in cash and cash equivalents	-75.0	116.4	-164%

Liquidity Reserve & Cash Flow USD 100 million undrawn Revolving Credit Facility

* Operational Cash Flow excluding Taxes and Bonus Cost, including Exchange gain/losses

Dividends

Dividend payments¹

• Board has resolved to pay a dividend of USD 0.125 per share in Q2 2020
• Ex date 20 May 2020 payment date 3 June 2020

1. Quarterly dividends defined in USD from 2016. Annual dividends defined in NOK prior to 2016 converted to USD with the FX rate at the ex-dividend dates

MANAGEMENT PERSPECTIVES

Key messages

Very challenging short-term market conditions, but long-term fundamentals remain strong

Conserving cash while preserving value – cost base reduced by 35% Y/Y

Financial priorities remain firm

Selective investments in proven areas – technology and risk share remain key

Track-record of capturing value throughout the cycle

Handling of COVID-19

Safeguarding our employees

• Strict remote work policy, social distancing, travel restrictions, ongoing internal communication

Operational health and safety

• Working closely with contractors and service providers, continuously assessing operational risk and response plans, focusing on well being of the crews

Employee engagement and productivity

• Ensuring effective IT and remote working tools, stress management, ergonomic setups, team dynamic
• Organizing virtual social events lunch & learns, cook along classes, virtual tours

Responsible to our customers and shareholders

• Continued emphasis on data quality, customer service and project timelines, offering and embracing web based client resources and events – Seminars, License Rounds, Data Shows, On Demand video
• Focused on minimizing business disruption

Challenging market conditions

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 Change mbbl/day

World liquid fules stock build/(draw)

Source: EIA Short-Term Energy Outlook, 12 May 2020

Improving supply/demand balance in H2 2020

• Signs that the peak demand impact may be behind us
  • Many European countries and US states have started to ease lock-down restrictions
  • Traffic data suggest increasing activity levels in many larger cities
  • Chinese demand data points to normalization
• Supply cuts starting to work
  • OPEC -10m bbl/day
  • Other announced cuts 2.2m bbl/day
  • Significant unannounced shut-ins

From Goldman Sachs Research note May 2020

Track-record of capturing value throughout the cycle

MUSD

TGS' response to market turmoil

Cost reduction

• Right-sizing of organization, salary freeze, bonus cuts etc.
• Cash cost below USD 100 million in 2020 35% below pro-forma 2019 level

Investment reduction

• Postponing and reducing scope of planned projects
• Increasing pre-funding hurdle
• 2020 multi-client investments approximately USD 325 million 28% below previous guidance

Dividend reduction

• Quarterly dividend reduced to USD 0.125 per share from USD 0.375 per share

1. Pro-forma figures. 2020E based on guidance from 8 April 2020.

TGS' financial priorities remain firm

Maximize Return on Capital Employed

ROACE¹

FCF conversion rate²

Maximize Cash Flow

Dividend yield³

Returning Excess Capital to Shareholders

• 1. Adjusted for larger impairments and restructuring charges
• 1. Free Cash Flow (FCF) / Net revenues
• 1. Based on share price at date of announcing the dividend. From 2016-20 yield is calculated using the average of the quarterly payments

Multi-client investments reduced to protect cash flow New guidance approximately USD 325 million compared to USD 450 million previously

2020 Project schedule

Backlog

Sales committed by customers but not yet recognized in the Segment Reporting accounts

Q1 2020 results helped by strong pre-funding revenues

Challenging market conditions near-term

Several initiatives to protect cash flow implemented

TGS has a strong track record in creating values during challenging market conditions

APPENDIX

IFRS Profit & Loss account

(MUSD)		Q1 2020	Q1 2019	Change
Net operating revenues		52.2	99.8	-48%
Cost of goods sold		2.3	1.1	110%
Personnel cost		13.5	15.1	-11%
Other operational costs		10.7	5.7	87%
EBITDA	49%	25.6	77.9	-67%
Amortization of multi-client library		80.8	73.2	10%
Depreciation		2.7	5.1	-47%
Operating result	-111%	-57.9	-0.5	n/a
Financial income		0.5	6.5	-93%
Financial expenses		-0.7	-0.6	22%
Exchange gains/losses		-13.1	0.2	n/a
Result before taxes	-137%	-71.3	5.5	n/a
Tax cost	21%	-14.8	1.3	n/a
Net income	-108%	-56.5	4.2	n/a
EPS (USD)		-0.48	0.04	n/a
EPS fully diluted (USD)		-0.48	0.04	n/a

IFRS Balance Sheet

Balance sheet	Q1 2020	Q1 2019	Change
Goodwill	284.8	67.9	319%
Multi-client library	1,163.8	835.1	39%
Deferred tax asset	20.5	1.2	1637%
Other non-current assets	96.9	66.3	46%
Total non-current assets	1,565.9	970.5	61%
Cash and cash equivalents	248.4	390.0	-36%
Other current assets	378.9	235.8	61%
Total current assets	627.2	625.8	0%
TOTAL ASSETS	2,193.1	1,596.2	37%
Total equity	1,440.0	1,228.4	17%
Deferred taxes	17.3	29.8	-42%
Non-current liabilities	31.3	24.2	29%
Total non-current liabilities	48.6	54.0	-10%
Taxes payable, withheld payroll tax, social security	29.6	21.3	39%
Other current liabilities	674.9	292.5	131%
Total current liabilities	704.5	313.8	125%
TOTAL EQUITY AND LIABILITIES	2,193.1	1,596.2	37%

Thank you