Earnings Release • Oct 27, 2022
Earnings Release
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EARNINGS RELEASE 3 rd QUARTER 2022 RESULT
| Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | |
|---|---|---|---|---|
| (All amounts in USD 1,000s unless noted otherwise) | Restated 1 | Restated 1 | ||
| Operating revenues 2 | 135,344 | 199,778 | 497,620 | 414,028 |
| - Early sales | 55,297 | 163,506 | 234,441 | 313,565 |
| - Late sales | 64.544 | 31,059 | 237,524 | 87,630 |
| - Proprietary sales | 15,503 | 5.213 | 25,655 | 12,833 |
| EBITDA | 97,043 | 167,314 | 395,328 | 336,585 |
| Operating profit (EBIT) | 1,144 | 18,493 | 66,110 | 28,457 |
| Operating profit margin | 1% | 9% | 13% | 7% |
| Net Income | $-1,738$ | 3,838 | 44.611 | 1,009 |
| EPS (fully diluted) (USD) | $-0.02$ | 0.03 | 0.38 | 0.01 |
| Organic multi-client investments in new projects | 79,430 | 56,475 | 167,745 | 128,490 |
| Inorganic multi-client investments in new projects | 16,146 | 0 | 16,146 | 5,000 |
| Straight-line Amortization of multi-client library | 39,028 | 43.314 | 114,820 | 131,314 |
| Accelerated Amortization of multi-client library | 42,015 | 100,780 | 187,837 | 162,311 |
| Impairment of multi-client library | 8,786 | 0 | 10,193 | 0 |
| Multi-client library net book value | 575,899 | 805,427 | 575,899 | 805,427 |
| Free cash flow (after organic MC investments) | 10,510 | 7.677 | 100,889 | 115,408 |
| Cash balance | 192,291 | 198,120 | 192.291 | 198,120 |
| Return on average capital employed 3 | $-4%$ | 4% | ||
| PoC Revenues | 118,573 | 60.937 | 368,478 | 189,375 |
| Contract backlog | 224,667 | 276,219 | 224,667 | 276,219 |
| Contract inflow | 140,368 | 30,290 | 387,894 | 147,331 |
• Late sales of USD 64.5 million in Q3 2022 compared to USD 31.1 million in Q3 2021.
"With year-over-year growth of 108% in lates sales, the strong development we saw in the first half of the year continued in the third quarter. I'm also pleased that cash flow remains robust. The net cash position was USD 192 million on 30 September 2022, despite substantial inorganic investments during the quarter. We are excited about welcoming the three recent acquisitions to TGS. Magseis, ION and Prediktor all fit perfectly with our strategy of being the leading provider of data and insights to the energy industry and will more than double our existing backlog."
1) Q3 2021 and YTD 2021 figures have been restated. Refer to note 2 and note 9 of the condensed consolidated financial statements for more details.
2) Operating revenues shows a reallocation from Well Data subscriptions from Early Sales to Late Sales in Q3 2021 and YTD 2021.
3) 12 months trailing.
Revenues amounted to USD 135.3 million in Q3 2022, a reduction of 32% from USD 199.8 million in Q3 2021. Late sales amounted to USD 64.5 million in Q3 2022 versus USD 31.1 million in Q3 2021, an increase of 108%. Early sales decreased to USD 55.3 million in Q3 2022 from USD 163.5 million in Q3 2021, as Q3 2021 saw the completion of several large projects that were delivered to customers during the quarter.
Amortization and impairments of the multi-client library amounted to USD 89.8 million in Q3 2022 versus USD 144.1 million in Q3 2021. Of this, straightline amortization was USD 39.0 million (USD 43.3 million in Q3 2021), accelerated amortization was USD 42.0 million (USD 100.8 million in Q3 2021), and impairment was USD 8.8 million (USD 0.0 million in Q3 2021).
Personnel costs were USD 17.9 million compared to USD 14.8 million in Q3 2021. The increase is attributable to results-based bonus accruals as well as an increase in headcount as a result of recent M&A activity. Other operating expenses amounted to USD 12.7 million, with USD 3.2 million of such attributable to M&A fees in the quarter. This compares to USD 16.8 million in Q3 2021. The year-on-year decrease is primarily related to a Q3 2021 one-off settlement payment in relation to the Skeie case.
Operating profit amounted to USD 1.1 million in Q3 2022 compared to a profit of USD 18.5 million in the same quarter of last year.
Net financial items for Q3 2022 totaled USD -3.5 million compared to USD 1.1 million in Q3 2021. The difference is attributed to currency effects. Q3 2022 had a net currency loss of USD 3.3 million versus gain of USD 0.8 million Q3 2021.
Profit before tax was USD -2.3 million in Q3 2022 compared to a profit of USD 19.6 million in Q3 2021.
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. 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 computation makes it difficult to predict tax charges on a quarterly or annual basis.
TGS' corporate income tax rate is a weighted average rate primarily based on the tax rates of Norway (22%), Brazil (34%) and the US (21%).
The tax expense for Q3 2022 was USD -0.6 million (USD 15.7 million in Q3 2021), corresponding to a tax rate of 24% (80% in Q3 2021).
Net income amounted to USD -1.7 million in Q3 2022, compared to USD 3.8 million in Q3 2021. This corresponds to a fully diluted EPS of USD -0.02 in Q3 2022 versus USD 0.03 in Q3 2021.
As of 30 September 2022, TGS had a cash balance of USD 192.3 million, a decrease of USD 23.0 million from 31 December 2021 (USD 215.3 million).
The net book value of the multi-client library was USD 575.9 million as of 30 September 2022, compared to USD 704.9 million as of 31 December 2021. The decline reflects that straight-line amortization, accelerated amortization and impairments booked during 2022 are higher than the investments.
Organic multi-client investments amounted to USD 79.4 million in Q3 2022, 40% higher than the USD 56.5 million invested in Q3 2021.
Total equity as of 30 September 2022 was USD 1,105.5 million, corresponding to 75% of total assets. On 31 December 2021, total equity amounted to USD 1,115.3 million (68% of total assets).
Free cash flow (cash flow from operations after organic investments in the multi-client library) was USD 10.5 million for Q3 2022 compared to USD 7.7 million in Q3 2021. Net cash flow from operations for the quarter totaled USD 41.4 million, compared to USD 50.3 million in Q3 2021. Net decrease in cash for Q3 2022 was USD 62.4 million (decrease of USD 25.3 million in Q3 2021). Cash outflows related to organic investments in the multi-client library were USD 30.9 million, compared to USD 42.7 million in Q3 2021. Inorganic investments related to the acquisition of assets from ION Geophysical Corporation and the acquisition of Prediktor AS amounted to USD 41.1 million.
Source: TGS
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. In addition to paying a cash dividend, TGS may also buy back own shares as part of its plan to distribute capital to shareholders.
Since 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 through the year, though the actual level paid will be subject to continuous evaluation of the underlying development of TGS and the market.
The Board of Directors has resolved to maintain the dividend at USD 0.14 per share in Q4 2022. The dividend will be paid in the form of NOK 1.48 per share on 17 November 2022. The share will trade ex-dividend on 3 November 2022. In Q3 2022, TGS paid a cash dividend of USD 0.14 per share (NOK 1.39 per share).
On 19 August 2022, the Board authorized a share repurchase program of up to USD 20 million, representing a continuation of TGS' prior share repurchase programs, expiring at the 2023 Annual General Meeting. In Q3 2022 TGS acquired 283,515 shares for a total amount of USD 4.5 million under this program.
Contract inflow increased to USD 140.4 million in Q3 2022 compared to 30.3 million in Q3 2021. Despite high revenue recognition, the order inflow increased the contract backlog to USD 224.7 million at the end of the quarter from USD 219.6 at the end of the preceding quarter. The contract backlog at the end of Q3 last year was USD 276.2 million.
Organic multi-client investments amounted to USD 79.4 million in Q3 2022. The largest project in terms of investments in the quarter was the NOAKA ocean bottom node survey in Norway. This survey expands on the NOAKA21 survey acquired last year. Acquisition was completed in the quarter with final processing deliverables anticipated in Q4 2023.
The consortium consisting of TGS, CGG and BGP continued to acquire data for the Suriname 3D survey throughout the quarter. The acquisition phase of the project was completed in the quarter, with final data deliveries expected to take place in 2023.
TGS and PGS continued acquisition of the Cameron Canyon 3D survey off the east coast of Canada throughout the quarter. The acquisition phase of the project was completed in the quarter, with final data deliveries expected to take place in 2023.
In Egypt, the Red Sea 3D project, conducted in a joint venture with Schlumberger continued through the quarter. The data acquisition activities for the second phase of the project were completed in late July. Final data for the first phase is expected to be delivered in Q1 2023, while the second phase is expected to be completed mid-2023.
Apart from the four mentioned projects, investments included projects in the processing phase and well data products.
The New Energy Solutions business continued to show progress on various organic initiatives during the quarter. Most notably TGS continued the world's first multi-client offshore wind measurement campaign in the New York Bight area off the US east coast. The campaign, which will go on for two years, will enhance and further validate TGS' expansive high-resolution coverage of numerical weather prediction (NWP) model data. The data is made available on a near real-time basis in TGS' Wind AXIOM platform.
On 1 July 2022, TGS announced that it had been named the successful bidder in the auction process for the offshore multi-client assets and the data processing business of ION Geophysical Corporations ("ION"), conducted in connection to the Chapter 11 bankruptcy pending in the United States Bankruptcy Court for the Southern District of Texas.
The transaction closed on 31 August 2022. The acquisition of these aspects of ION's business adds to TGS' multi-client offering in frontier areas, particularly in Latin America and Africa, and further enhances the company's position as a leading data processing house. The transaction also included ION's GeminiTM Extended Frequency Source assets and technology.
Also, on 1 July 2022, TGS announced the acquisition of Prediktor AS ("Prediktor"), a leading provider of asset management and real-time data management solutions to energy asset owners, with a particular focus on renewable energy. Prediktor is another important building block for realizing TGS' vision of creating an energy industry gateway providing integrated solutions for data and actionable insights to facilitate decision making, project development and asset performance management across energy project life cycles and markets.
On 29 June 2022, TGS announced its intent to launch a recommended voluntary exchange offer for all outstanding shares of Magseis Fairfield ASA ("Magseis"), which was formally launched on 24 August 2022. Upon expiration of the offer period on 28 September 2022, approximately 75% of the Magseis shareholders had accepted the offer, with settlement completed on 11 October 2022. TGS is in the process of preparing a mandatory cash offer for the remaining shares of Magseis.
Magseis is the global leading provider of ocean bottom seismic (OBS) technology and data acquisition projects. The company has a flexible business model with full scale node operations, as well as lease and sale models. The Marine Autonomous Seismic System "MASS" nodes and the range of Znodes, combined with handling systems and source technology enables market leading deployment speed and highly cost-efficient acquisition of data with high quality.
Despite ongoing uncertainty related to global energy demand, exacerbated by concerns about the growth outlook for the global economy, energy prices remain at a high level, as supply continues to be restricted by the current geopolitical situation, reduction of OPEC production quotas and persistently low investments in new reserves.
As a result of high energy prices and concerns about energy security, investments in exploration and production (E&P) of oil and gas have increased significantly in 2022. This has resulted in a sharp increase in demand for seismic data, as evidenced by the strong development in multi-client late sales. With the continued high energy prices the growth in E&P spending is likely to continue into 2023 and TGS is experiencing increasing interest among oil and gas companies to discuss 2023 opportunities.
With the acquisition of Magseis Fairfield, TGS has significantly strengthened its exposure towards infrastructure-led exploration (ILX) and 4D seismic, areas that are expected to continue to grow in importance in the long-term. Moreover, the acquisition of ION, completed in Q3 2022, adds to TGS' already strong presence in frontier areas, increasing its exposure towards the reviving interest in areas such as Latin America and West Africa.
As the energy transition progresses, the global energy markets are growing increasingly fragmented, volatile, and complex. This results in a growing need for data, insights, and software to support decisions and manage assets. Building on its strong position in the oil and gas segment, TGS has the ambition of becoming the leading provider of data-driven decision support tools across the energy value chain. Through the acquisition of Prediktor, TGS has taken an important step in realizing its ambitions by establishing and offering of digital asset management and performance monitoring solutions for the renewable energy industries.
Financial guidance for 2022 is reiterated as follows:
Oslo, 26 October 2022 The Board of Directors of TGS ASA
TGS provides scientific data and intelligence to companies active in the energy sector. In addition to a global, extensive and diverse energy data library, TGS offers specialized services such as advanced processing and analytics alongside cloud-based data applications and solutions.
TGS 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
Sven Børre Larsen, Chief Financial Officer tel. +47 90 94 36 73
************************************************************************************************************************************************************************** All statements in this earnings release other than statements of historical facts 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.
| Note | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | |
|---|---|---|---|---|---|
| (All amounts in USD 1,000s unless noted otherwise) | Restated 1 | Restated 1 | |||
| Revenue | 4 | 135,344 | 199,778 | 497,620 | 414,028 |
| Cost of goods sold - proprietary and other | 7.723 | 850 | 10,470 | 3,128 | |
| Straight-line amortization of the multi-client library | 4,5 | 39,028 | 43,314 | 114,820 | 131,314 |
| Accelerated amortization of the multi-client library | 4,5,6 | 42,015 | 100,780 | 187,837 | 162,311 |
| Impairment of the multi-client library | 4,5,6 | 8,786 | 10,193 | ||
| Personnel costs | 17,854 | 14,826 | 56,464 | 40,629 | |
| Other operating expenses | 4 | 12,725 | 16,788 | 35,357 | 33,686 |
| Depreciation, amortization and impairment | 6,070 | 4,728 | 16,368 | 14,503 | |
| Total operating expenses | 134,200 | 181,286 | 431,510 | 385,571 | |
| Operating profit/(loss) | 4 | 1,144 | 18,493 | 66,110 | 28,457 |
| Financial income | 682 | 99 | 1,760 | 583 | |
| Financial expenses | $-811$ | 209 | $-5,299$ | $-4,052$ | |
| Net exchange gains/(losses) | $-3,332$ | 775 | $-3,089$ | $-5,164$ | |
| Net financial items | $-3,461$ | 1,082 | $-6,628$ | $-8,633$ | |
| Profit/(loss) before taxes | $-2,317$ | 19,575 | 59,482 | 19,824 | |
| Taxes | $-579$ | 15,737 | 14,870 | 18,814 | |
| Net Income | $-1,738$ | 3,838 | 44,611 | 1,009 | |
| Earnings per share (USD) | $-0.02$ | 0.03 | 0.38 | 0.01 | |
| Earnings per share, diluted (USD) | $-0.02$ | 0.03 | 0.38 | 0.01 | |
| Other comprehensive income: | |||||
| Exchange differences on translation of foreign operations | $-21$ | $-366$ | |||
| Total comprehensive income for the period | $-1,759$ | 3,838 | 44,245 | 1,009 |
1) Q3 2021 and YTD 2021 figures are restated. Refer to note 2 and note 9 of the condensed consolidated financial statements for more details.
| Note | 30-Sep-22 | $30-Sep-21$ | 31-Dec-21 | |
|---|---|---|---|---|
| (All amounts in USD 1,000s unless noted otherwise) | Restated 1 | Restated 1 | ||
| Goodwill | 6 | 315,433 | 303,964 | 303,964 |
| Intangible assets: Multi-client library | 5,6 | 575,899 | 805,427 | 704,868 |
| Other intangible assets | 35,514 | 24,662 | 25,477 | |
| Deferred tax assets | 76,882 | 90,863 | 95,888 | |
| Buildings, machinery and equipment | 23,086 | 20,469 | 19,519 | |
| Right-of-use-asset | 6 | 28,690 | 39,153 | 35,770 |
| Sub-lease asset | 785 | 1,395 | 1,258 | |
| Other non-current assets | 9,349 | 16,796 | 7,791 | |
| Total non-current assets | 1,065,638 | 1,302,730 | 1,194,533 | |
| Accounts receivable | 6 | 105,865 | 98,613 | 113,513 |
| Accrued revenues | 65,384 | 59,723 | 32,551 | |
| Other current assets | 40,413 | 95,726 | 73,901 | |
| Cash and cash equivalents | 192,291 | 198,120 | 215,329 | |
| Total current assets | 403,953 | 452,182 | 435,294 | |
| Total assets | 1,469,591 | 1,754,912 | 1,629,827 | |
| Share capital | 4,055 | 4,080 | 4,086 | |
| Other equity | 1,101,475 | 1,206,461 | 1,111,242 | |
| Total equity | 1,105,531 | 1,210,541 | 1,115,328 | |
| Other non-current liabilities | 2,192 | 3,432 | 2,706 | |
| Lease liability | 24,128 | 36,260 | 33,022 | |
| Deferred tax liability | 21,404 | 63,081 | 32,059 | |
| Total non-current liabilities | 47,724 | 102,772 | 67,787 | |
| Accounts payable and debt to partners | 64,735 | 99,818 | 71,669 | |
| Taxes payable, withheld payroll tax, social security and VAT | 41,535 | 59,786 | 77,941 | |
| Lease liability | 11,495 | 10,980 | 10,782 | |
| Deferred revenue | 114,483 | 205,684 | 238,169 | |
| Other current liabilities | 84,089 | 65,331 | 48,151 | |
| Total current liabilities | 316,337 | 441,599 | 446,712 | |
| Total liabilities | 364,061 | 544,370 | 514,499 | |
| Total equity and liabilities | 1,469,591 | 1,754,912 | 1,629,827 |
1) 30 September 2021 and 31 December 2021 balances are restated. Refer to note 2 and note 9 of the condensed consolidated financial statements for more details.
| (All amounts in USD 1,000s unless noted otherwise) | Share Capital Treasury Shares | Share Premium | Other Paid-In Capital |
Currency Translation Reserve |
Retained Earnings |
Total Equity | |
|---|---|---|---|---|---|---|---|
| Opening balance 1 January 2022 | 4.086 | $-38$ | 416,878 | 45,248 | $-22,233$ | 671,387 | 1,115,328 |
| Net income | ٠ | $\overline{\phantom{0}}$ | ۰ | $\overline{\phantom{0}}$ | 44,611 | 44,611 | |
| Translation effect | ٠ | ٠ | ۰ | ۰ | $-366$ | ۰ | $-366$ |
| Total Comprehensive income | ٠ | $\overline{\phantom{a}}$ | ۰ | $\overline{\phantom{a}}$ | $-366$ | 44,611 | 44,246 |
| Purchase of own shares | ۰ | $-13$ | ۰ | ٠ | ۰ | $-7,001$ | $-7.015$ |
| Cancellation of treasury shares held | $-33$ | 33 | ۰ | $\sim$ | ۰ | ۰ | $\sim$ |
| Distribution of treasury shares | ۰ | 0 | ٠ | $\overline{\phantom{a}}$ | ۰ | 149 | 150 |
| Cost of equity-settled long term incentives | 3 | ۰ | - | ۰ | 1,529 | 1,532 | |
| Dividends | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | - | $-48,710$ | $-48,710$ |
| Closing balance as of 30 September 2022 | 4,055 | $-18$ | 416,878 | 45,248 | $-22,599$ | 661,965 | 1,105,531 |
| (All amounts in USD 1,000s unless noted otherwise) | Share Capital Treasury Shares | Share Premium | Other Paid-In Capital |
Currency Translation Reserve |
Retained Earnings Restated 1 |
Total Equity | |
|---|---|---|---|---|---|---|---|
| Opening balance 1 January 2021 | 4,082 | -2 | 416,878 | 45,248 | $-22,233$ | 824,683 | 1,268,656 |
| Net income | ۰ | ۰ | $\overline{\phantom{a}}$ | ۰ | ۰ | 1,009 | 1,009 |
| Other comprehensive income | ۰ | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | ۰ | ٠ | $\overline{\phantom{a}}$ | $\overline{\phantom{0}}$ |
| Total Comprehensive income | ۰ | ۰ | ۰ | ۰ | ٠ | 1,009 | 1,009 |
| Purchase of own shares | ۰ | $-31$ | ٠ | ۰ | $-12.675$ | $-12.706$ | |
| Cancellation of treasury shares held | $-1$ | ۰ | $\overline{\phantom{a}}$ | ۰ | $\overline{\phantom{0}}$ | ||
| Distribution of treasury shares | ۰ | 0 | $\sim$ | ۰ | 238 | 238 | |
| Cost of equity-settled long term incentives | - | $\overline{\phantom{a}}$ | ۰ | ۰ | 2,573 | 2,573 | |
| Dividends | ۰ | - | ۰ | ۰ | $-49.229$ | $-49,229$ | |
| Closing balance as of 30 September 2022 | 4.080 | $-31$ | 416,878 | 45,248 | $-22.233$ | 766,599 | 1,210,541 |
1) The opening balance 1 January 2021 and net income for YTD 2021 have been restated. Refer to note 2 and note 9 of the condensed consolidated financial statements for more details.
| Note | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 |
|---|---|---|---|---|
| (All amounts in USD 1,000s unless noted otherwise) | Restated 1 | Restated 1 | ||
| Cash flow from operating activities: | ||||
| Profit before taxes | $-2,317$ | 19.575 | 59,482 | 19,824 |
| Depreciation / amortization / impairment | 95,899 | 148,822 | 329.219 | 308,128 |
| Changes in accounts receivable and accrued revenues | 19,106 | 23,919 | $-18,964$ | 119,455 |
| Changes in other receivables | 104 | $-32.233$ | 37,060 | $-26,045$ |
| Changes in balance sheet items | $-66,335$ | $-104.641$ | $-169,888$ | $-198,775$ |
| Paid taxes | $-5.041$ | $-5.095$ | $-12.991$ | $-14,532$ |
| Net cash flow from operating activities | 41,416 | 50,347 | 223,918 | 208,055 |
| Cash flow from investing activities: | ||||
| Investments in tangible and intangible assets | $-4,990$ | $-8.169$ | $-14,752$ | $-8.541$ |
| Investments in multi-client library | $-30,906$ | $-42.670$ | $-123.029$ | $-92,647$ |
| Investments through mergers and acquisitions | $-41,149$ | 1.071 | $-41,149$ | $-23,304$ |
| Interest received | 683 | 99 | 1,760 | 583 |
| Net cash flow from investing activities | $-76,362$ | -49,669 | $-177,170$ | $-123,909$ |
| Cash flow from financing activities: | ||||
| Net change in short term loans | $-2,500$ | |||
| Interest paid | $-811$ | 224 | $-2,399$ | $-4,006$ |
| 3 Dividend payments |
$-16,038$ | $-16.350$ | $-48,710$ | $-49,229$ |
| Repayment of lease activities | $-3,103$ | $-1,998$ | $-8,894$ | $-7,477$ |
| Purchase of own shares 3 |
$-4,496$ | $-6,574$ | $-7,015$ | $-12,706$ |
| Net cash flow from financing activities | $-24,448$ | $-24,698$ | $-67,018$ | $-75,918$ |
| Net change in cash and cash equivalents | $-59,394$ | $-24,020$ | $-20,270$ | 8,228 |
| Cash and cash equivalents at the beginning of period | 254,697 | 223,400 | 215,329 | 195,716 |
| Net unrealized currency gains / (losses) | $-3,012$ | $-1,260$ | $-2,768$ | $-5,824$ |
| Cash and cash equivalents at the end of period | 192.291 | 198.120 | 192.291 | 198.120 |
1) Q3 2021 and YTD 2021 figures are restated. Refer to note 2 and note 9 of the condensed consolidated financial statements for more details.
TGS ASA is a public limited company listed on the Oslo Stock Exchange. The address of its registered office is Askekroken 11, 0277 Oslo, Norway. References to TGS or the Group include TGS ASA and its subsidiaries, unless the context requires otherwise.
The condensed consolidated financial statements of TGS have been prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 Financial Reporting as approved by EU and additional requirements in the Norwegian Securities Trading Act. The 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 2021, which is available at www.tgs.com.
The condensed consolidated cash flow statement of operational cash flow was previously presented both as direct and indirect method. As of Q1 2022, the cash flow statement has been compiled using only the indirect method.
The same accounting policies and methods of computation are followed in the condensed consolidated financial statements as compared with the annual financial statements for 2021.
In this condensed consolidated financial statement, Q3 2021 and YTD 2021 figures have been restated. The changes are included in Note 28 in TGS' Annual Report for 2021, which is available at www.tgs.com. The restatements that affected Q3 2021 and YTD 2021 are visible in note 9 in this condensed consolidated financial statement.
| Ordinary shares | Number of shares |
|---|---|
| 1 January 2022 | 117,441,118 |
| Net change in period | $-1,240,328$ |
| 30 September 2022 | 116,200,790 |
| Treasury shares | Number of shares |
| 1 January 2022 | 1,334,261 |
| Net change in period | $-875,746$ |
| 30 September 2022 | 458,515 |
The Annual General Meeting on 11 May 2022 renewed the Board of Directors' authorizations to repurchase shares and distribute quarterly dividends on the basis of the 2021 financial statements. The authorizations are valid until Annual General Meeting in 2023, but no later than 30 June 2023.
In Q3 2022, the Board authorized a share repurchase program of up to USD 20 million, representing a continuation of TGS' prior share repurchase programs, expiring at the 2023 Annual General Meeting. The total purchase price of shares bought back in Q3 is USD 4.5 million.
The net change in treasury shares during 2022 comprises repurchase of 502,107 own shares, transfer of 9,900 shares to Board of Directors and cancellation of 1,367,953 treasury shares.
The Board of Directors has resolved to maintain the dividend at USD 0.14 per share in Q4 2022. The dividend will be paid in the form of NOK 1.48 per share on 17 November 2022. The share will trade ex-dividend on 3 November 2022.
In Q3 2022, TGS paid a cash dividend of USD 0.14 per share (NOK 1.39 per share).
| Largest Shareholders as of 30 September 2022 | Country | Account type | No. of shares | Share |
|---|---|---|---|---|
| 1. FOLKETRYGDFONDET | Norway | Ordinary | 11,032,768 | 9.5% |
| 2. State Street Bank and Trust Comp | United States | Nominee | 6,515,653 | 5.6% |
| 3. The Northern Trust Comp, London Br | United Kingdom | Nominee | 4,931,895 | 4.2 % |
| 4. JPMorgan Chase Bank, N.A., London | United Kingdom | Nominee | 3,659,413 | 3.2% |
| 5. The Bank of New York Mellon SA/NV | Belgium | Nominee | 3,374,482 | 2.9% |
| 6. The Bank of New York Mellon | United States | Nominee | 2,935,452 | 2.5% |
| 7. PARETO AKSJE NORGE VERDIPAPIRFOND. | Norway | Ordinary | 2.737.695 | 2.4% |
| 8. JPMorgan Chase Bank, N.A., London | United Kingdom | Nominee | 2.263.911 | 2.0% |
| 9. VEVLEN GÅRD AS | Norway | Ordinary | 2.100.095 | 1.8% |
| 10. AAT INVEST AS | Norway | Ordinary | 1,850,000 | 1.6% |
| 10 largest | 41.401.364 | 36% | ||
| Total Shares Outstanding * | 115,742,275 | 100% |
| Average number of shares outstanding for current quarter * | |
|---|---|
| Average number of shares outstanding during the quarter | 115.831.059 |
| Average number of shares fully diluted during the quarter | 117.269.648 |
| Market capitalization 30 September 2022 (NOK million) | 15.571 |
|---|---|
| USD/NOK exchange rate end of period | 10.86 |
| Share price 30 September 2022 (NOK) | 134.00 |
| Share price information |
TGS has previously prepared its internal management reporting based on the principles applied prior to the implementation of IFRS 15, Revenue from Customer Contracts. This method recognized Early sales revenue on a percentage of completion basis, and related amortization of multi-client library based upon the ratio of aggregated capitalized survey costs to forecasted sales. From January 1, 2022, the Group has modified its internal practices, and now applies IFRS 15 as the measurement basis for its monthly management reporting.
TGS reports monthly management information to the executive management based on defined operating business units. Where appropriate, these operating business units are aggregated into reportable segments that form the basis of the monthly management reporting. In 2022, management reassessed its reportable segments and now reports four overall business units: Western Hemisphere (WH), Eastern Hemisphere (EH), Digital Energy Solutions (DES) and Other Business Units. WH consist of North America, Latin America and Land. In EH, TGS groups Europe, Africa & Middle East, Asia Pacific and Interpretative Products. DES consists of three parts: Well Data Products (WDP), New Energy Solutions (NES) and Data Analytics (D&A). The segments that are aggregated and form "Other Business Units" include Imaging, Global Services and G&A. The Group does not allocate all cost items to its reportable business units during the year. Unallocated cost items are reported as G&A. There are no intersegment revenues between the reportable operating segments.
| Western | Eastern | Digital Energy | Other | ||
|---|---|---|---|---|---|
| (All amounts in USD 1,000s) | Hemisphere | Hemisphere | Solutions | Business units | Total |
| Q3 2022 | |||||
| Operating revenues | 69,738 | 53,129 | 7,888 | 4,589 | 135,344 |
| Straight-line amortization | $-25.125$ | $-9,958$ | $-3,945$ | ٠ | $-39,028$ |
| Accelerated amortization | $-32,745$ | $-9,271$ | ٠ | ٠ | $-42,015$ |
| Impairment | $-8,458$ | $-328$ | ۰ | ۰ | $-8,786$ |
| Other operating cost | $-1,722$ | $-9.073$ | -7,727 | $-25,848$ | $-44,370$ |
| Operating profit | 1,688 | 24,500 | $-3,784$ | $-21,260$ | 1,144 |
| Q3 2021 1 | |||||
| Operating revenues | 181,810 | 10,415 | 6,820 | 732 | 199,778 |
| Straight-line amortization | $-24,577$ | $-14,397$ | $-4,340$ | ٠ | $-43,314$ |
| Accelerated amortization | $-111,309$ | 10,529 | ۰ | ÷ | $-100,780$ |
| Other operating cost | $-2,083$ | $-2,609$ | -7,277 | $-25,223$ | $-37,192$ |
| Operating profit | 43.841 | 3.939 | -4.796 | $-24.491$ | 18,493 |
| Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | |
|---|---|---|---|---|
| (All amounts in USD millions) | Restated 1 | Restated 1 | ||
| Opening balance net book value 1 | 570.1 | 893.0 | 704.9 | 965.6 |
| Non-operational investments | 16.1 | 0.0 | 16.1 | 5.0 |
| Operational investments | 79.4 | 56.5 | 167.7 | 128.5 |
| Amortization and impairment | $-89.8$ | $-144.1$ | $-312.9$ | $-293.6$ |
| Closing net book value | 575.9 | 805.4 | 575.9 | 805.4 |
| Net MC revenues | 119.8 | 194.6 | 472.0 | 401.2 |
| Change in MC revenue | $-38%$ | 249% | 18% | 142% |
| Change in Operational MC investment | 41% | $-12%$ | 31% | $-57%$ |
| Amort, in % of net MC revs. | 75% | 74% | 66% | 73% |
| Change in net book value | $-28%$ | $-25%$ | $-28%$ | -25% |
TGS reviews the carrying value of its multi-client libraries and goodwill when there are events and changes in circumstances that indicate that the carrying value of these assets may not be recoverable. Even though there remains an uncertainty concerning the current market situation, TGS has not identified any new impairment triggers warranting an updated impairment test following the detailed process performed in Q4 2021; refer to note 9 to the condensed consolidated financial statements included in the 2021 Annual Report for further details regarding testing performed and principles applied. Goodwill is tested annually for impairment, as per IAS 36.
Key inputs and assumptions in the impairment model have been revisited as part of the process of evaluating whether any impairment triggers have been identified.
The underlying estimates that form the basis for the sales forecast depend on a number of variables, such as the number of oil and gas exploration and production (E&P) companies operating in the area with potential interest in the data, overall E&P spending, expectations regarding hydrocarbons in the area, oil price, whether licenses will be awarded in the future, expected farm-ins to licenses, relinquishments, etc. The above-mentioned variables are subject to underlying uncertainties.
1) Q3 2021 and YTD 2021 figures are restated. Refer to note 2 and note 9 of the condensed consolidated financial statements for more details.
Management has evaluated the carrying amount of the net assets of the Group in respect of the market capitalization, changes in interest rates and assumptions applied in the WACC, as well as the developments and expected developments in the Brent Oil Price. The developments through Q3 2022 did not reveal any new factors considered to trigger an impairment analysis. Following internal reporting from TGS business units, evidence available does not indicate that the economic performance of multi-client libraries or the related sales forecasts are worse, or significantly changed, from the assumptions utilized in the impairment tests during the preceding quarter. Notwithstanding the above, TGS has charged impairments of USD 8.8 million to select few projects, mainly in the Western Hemisphere where customer communication has led to a reduction of future sales forecast.
No material transactions with related parties took place during the quarter.
TGS operates in a range of tax jurisdictions with complex considerations and legislation concerning both indirect and direct taxation, including Brazil and Argentina. Thus, uncertainties exist related to reported tax liabilities and exposures. Recognized taxes (both direct and indirect) are based on all known and available information and represents our best estimate as of the date of reporting.
The jurisdictions in which TGS operates are also subject to changing tax regulations which may impact assessments, for instance concerning the recoverability of credits. Furthermore, tax authorities may challenge the calculation of both taxes and credits from prior periods. Such processes and proceedings may result in changes to previously reported and calculated tax positions, which in turn may lead to TGS having to recognize operating or financial expenses in the period of change.
In this condensed consolidated financial statement, Q3 2021 and YTD 2021 figures have been restated. The changes are included in Note 28 in TGS' Annual Report for 2021, which is available at www.tgs.com. The restatements that affected Q3 2021 and YTD 2021 are set forth in the table below.
| Q3 2021 | Q3 2021 | ||
|---|---|---|---|
| (All amounts in USD 1,000s) | Before restatements | Restatements | After restatements |
| Straight-line amortization of the multi-client library | 43,314 | 0 | 43.314 |
| Accelerated amortization of the multi-client library | 83,718 | 17,062 | 100,780 |
| Financial expenses | 224 | $-15$ | 209 |
| Net exchange gains/(losses) | $-1.260$ | 2.035 | 775 |
| Taxes | 15,490 | 247 | 15,737 |
| Net Income | 19,126 | $-15,289$ | 3,838 |
| EPS USD | 0.16 | $-0.13$ | 0.03 |
| EPS USD, fully diluted | 0.16 | $-0.13$ | 0.03 |
| YTD Q3 2021 | YTD Q3 2021 | ||
|---|---|---|---|
| (All amounts in USD 1,000s) | Before restatements | Restatements | After restatements |
| Revenue | 457,380 | $-43,352$ | 414,028 |
| Straight-line amortization of the multi-client library | 137,777 | $-6,463$ | 131,314 |
| Accelerated amortization of the multi-client library | 138,318 | 23,993 | 162,311 |
| Financial expenses | $-4,006$ | $-46$ | $-4,052$ |
| Net exchange gains/(losses) | $-5,824$ | 660 | $-5,164$ |
| Taxes | 30.365 | $-11,551$ | 18,814 |
| Net Income | 49,726 | $-48,717$ | 1,009 |
| EPS USD | 0.43 | $-0.42$ | 0.01 |
| EPS USD, fully diluted | 0.42 | $-0.41$ | 0.01 |
| $30-Sep-21$ | $30-Sep-21$ | ||
|---|---|---|---|
| (All amounts in USD 1.000s) | Before restatements | Restatements | After restatements |
| Intangible assets: Multi-client library | 800,535 | 4,892 | 805,427 |
| Total non-current assets | 1,297,838 | 4,892 | 1,302,730 |
| Other receivables | 109,518 | $-13,792$ | 95,726 |
| Total current assets | 465,975 | $-13,793$ | 452,182 |
| Other equity | 1,252,363 | $-45,902$ | 1,206,461 |
| Equity | 1,256,443 | $-45,902$ | 1,210,541 |
| Accounts payable and debt to partners | 138,163 | $-38,345$ | 99,818 |
| Taxes payable, withheld payroll tax, social security and VAT | 30,840 | 28,946 | 59,786 |
| Other current liabilities | 18,932 | 46,399 | 65,331 |
| Total current liabilities | 404,599 | 37,000 | 441,599 |
On 1 July 2022, TGS announced that it had been named the successful bidder in the auction process for the offshore multi-client assets and the data processing business of ION Geophysical Corporations ("ION"), conducted in connection to the Chapter 11 bankruptcy pending in the United States Bankruptcy Court for the Southern District of Texas.
The transaction closed on 31 August 2022. The acquisition of the ION assets adds to TGS' multi-client offering in frontier areas, particularly in Latin America and Africa, and further enhances the company's position as a leading data processing house. The acquisition also included ION's assets associated with the Gemini low-frequency source.
As the transaction was effective from 31 August 2022, the sales, and costs from the acquired offshore multi-client assets and the data processing business for the period 31 August 2022 to 30 September 2022 are reflected in the TGS Q3 2022 financial statements. The purchase price is mainly allocated to the multi-client library (USD 16.1 million) and receivables (USD 9.4 million). Most of the value of the multi-client library was reduced with accelerated amortization, triggered by late sales, recorded in September 2022.
Also, on 1 July 2022, TGS announced the acquisition of Prediktor AS ("Prediktor"), a leading provider of asset management and real-time data management solutions to energy asset owners, with a particular focus on renewable energy. Prediktor is another important building block for realizing TGS' vision of creating an energy industry gateway providing integrated solutions for data and actionable insights to facilitate decision making, project development and asset performance management across energy project life cycles and markets.
As the transaction was effective from 1 July 2022, the sales and costs from Prediktor's operations for the period 1 July 2022 to 30 September 2022 are reflected in the TGS Q3 2022 financial statements. The fair value of the goodwill, USD 11.5 million, represents the excess purchase price after all the identifiable assets, liabilities and obligations are recognized. Goodwill can be explained by the value associated with the skills and know-how of Prediktor's employees, new customers, and potential extensions of existing relationships. The other major fair value adjustments relate to the value of the technology and customer relations.
The accounting for both transactions will be revised to the extent new information is obtained within one year of the date of acquisitions relating to facts or circumstances that existed at the date of acquisition and that require adjustments to the above amounts or relating to additional provisions that existed at the date of acquisition.
On 11 October 2022, TGS settled the tendered shares in the recommended voluntary offer for all outstanding shares of Magseis Fairfield ASA ("Magseis"), which TGS announced on 29 June 2022 and formally launched on 19 August 2022. Upon expiration of offer period on 28 September 2022, approximately 75% of the Magseis shareholders had accepted the offer, with settlement being completed on 11 October 2022.
TGS is in the process of preparing a mandatory cash offer for the remaining shares of Magseis. The preliminary PPA related to the acquisition of Magseis is ongoing and will be reported as part of the Q4 2022 earnings release.
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.
Early sales are defined as multi-client revenues committed prior to completion and delivery of a survey. Revenue is recognized at the point in time when the licenses are transferred to the customers, which would typically be upon completion of processing of the surveys and granting of access to the finished surveys or delivery of the finished data, independent of services delivered to clients during the project phase.
Late sales are defined as multi-client revenues from sales of completed data. Revenue is recognized at a point in time, generally upon delivery of the final processed data to the customers.
Proprietary sales are defined as revenues related to services that TGS performs on behalf of customers. Revenues are recognized over time, normally on a percentage of completion basis.
PoC Revenues are measured by applying the percentage-of-completion method to Early sales, added to Late sales and Proprietary sales. This is based on the principles applied prior to the implementation of IFRS 15, Revenue from Customer Contracts, on 1 January 2018.
| Western | Eastern | Digital Energy | Other Business | ||
|---|---|---|---|---|---|
| (All amounts in USD 1,000s) | Hemisphere | Hemisphere | Solutions | Units | Total |
| Q3 2022 | |||||
| Operating revenues | 69.738 | 53.129 | 7.888 | 4,589 | 135.344 |
| PoC Revenue Early Sales | 17,317 | 21,014 | 199 | $-3$ | 38,526 |
| Performance obligations met during the quarter | $-30,643$ | $-24,455$ | $-199$ | ٠ | $-55.297$ |
| PoC Revenue | 56,412 | 49.688 | 7.888 | 4.585 | 118,573 |
| Q3 2021 1 | |||||
| Operating revenues | 181,810 | 10,415 | 6,820 | 732 | 199,778 |
| PoC Revenue Early Sales | 20.554 | 3.634 | 6,713 | $-606$ | 30.296 |
| Performance obligations met during the quarter | $-161,529$ | $-1,501$ | $-6,107$ | 0 | $-169.137$ |
| PoC Revenue | 40,836 | 12,548 | 7,427 | 126 | 60,937 |
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 revenues.
EBITDA means earnings before interest, taxes, depreciation, and amortization. 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 Group's performance to other companies.
1) Q3 2021 and YTD 2021 figures have been restated. Refer to note 2 and note 9 of the condensed consolidated financial statements for more details.
| (All amounts in USD 1,000s) | Q3 2022 | Q3 20211 | YTD 2022 | YTD 20211 |
|---|---|---|---|---|
| Net income | $-1.738$ | 3.838 | 44.611 | 1.009 |
| Taxes | $-579$ | 15,737 | 14,870 | 18,814 |
| Net financial items | 3.461 | $-1.082$ | 6.628 | 8.633 |
| Depreciation, amortization and impairment | 6.070 | 4.728 | 16.368 | 14.503 |
| Amortization and impairment of multi-client library | 89,829 | 144.094 | 312.851 | 293,625 |
| EBITDA | 97,043 | 167.314 | 395,328 | 336,585 |
Straight-line amortization is defined as amortization of the value of completed data on a straight-line basis over the remaining useful life.
Following the adoption of the straight-line amortization policy for completed surveys, recognition of accelerated amortization of a library may be necessary in the event that sales on a survey are realized disproportionately sooner within that survey's useful life.
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 (12 months trailing) 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.
| (All amounts in USD 1,000s) | 30-Sep-22 | $30-Sep-211$ |
|---|---|---|
| Equity | 1,105,531 | 1.210.541 |
| Cash | 192.291 | 198.120 |
| Net interest bearing debt | $-192.291$ | $-198,120$ |
| Capital employed | 913.239 | 1.012.421 |
| Average capital employed | 962.830 | 1,047,178 |
| Operating profit (12 months trailing) | $-34.679$ | 42.546 |
| ROACE | $-4%$ | 4% |
Free cash flow (after MC investments) when used by TGS means cash flow from operational activities minus cash investments in multi-client projects. TGS uses this measure as it represents the cash that the Group is able to generate after investing the cash required to maintain or expand the multiclient library.
| (All amounts in USD 1,000s) | Q3 2022 | Q3 2021 * | YTD 2022 | YTD 2021 |
|---|---|---|---|---|
| Cash flow from operational activities | 41.416 | 50.347 | 223,918 | 208.055 |
| Organic investments in multi-client library | $-30.906$ | $-42.670$ | $-123.029$ | $-92.647$ |
| Free cash flow (after organic MC investments) | 10,510 | 7.677 | 100,889 | 115,408 |
Contract inflow is defined as the aggregate value of new customer contracts entered into in a given period.
Contract backlog is defined as the aggregate unrecognized value of all customer contracts as of a given date.
1) Q3 2021 and YTD 2021 figures have been restated. Refer to note 2 and note 9 of the condensed consolidated financial statements for more details.
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