Earnings Release • Oct 26, 2023
Earnings Release
Open in ViewerOpens in native device viewer
EARNINGS RELEASE 3rd QUARTER 2023 RESULT
| POC financials | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| POC revenues | 292,523 | 118,573 | 762,499 | 368,478 |
| - Early sales | 88,105 | 38,526 | 251,661 | 105,299 |
| - Late sales | 71,881 | 64,544 | 179,919 | 237,524 |
| - Proprietary sales | 132,537 | 15,503 | 330,919 | 25,655 |
| POC EBITDA | 169,630 | 80,272 | 420,722 | 266,186 |
| POC Operating profit (EBIT) | 67,938 | $-6,527$ | 132,418 | 54,576 |
| - Operating margin | 23% | $-6%$ | 17% | 15% |
| Organic multi-client investments | 113,147 | 79,430 | 331,813 | 167,745 |
| Inorganic multi-client investments | 16,146 | 16,146 | ||
| Straight-line amortization of multi-client library | 41,449 | 39,028 | 120.634 | 114,820 |
| POC accelerated amortization of multi-client library | 34,642 | 32,914 | 102,774 | 70,228 |
| Impairment of the multi-client library | 4,664 | 8.786 | 6,250 | 10,193 |
| Free cash flow | 44,800 | 6,203 | 116,206 | 87,897 |
| IFRS financials | ||||
| Operating revenues | 225,447 | 135,344 | 604,930 | 497,620 |
| Amortization and impairment of multi-client library | 55,461 | 89,829 | 162,168 | 312,851 |
| Operating profit (EBIT) | 26,157 | 1,144 | 42,337 | 66,110 |
| Net Income | 16,781 | $-1.738$ | 30,714 | 44,611 |
| EPS (fully diluted) (USD) | 0.13 | $-0.02$ | 0.24 | 0.38 |
| Return on average capital employed 2 | 10% | $-4%$ |
• Positive momentum in POC revenues driven by strong growth in both multi-client sales and Acquisition contract revenues
"We are pleased to present a Q3 2023 report that is strong on all parameters. POC revenues are up 34% y/y (pro-forma), driven by robust performance in all business areas. Moreover, excellent operating performance and tight cost control leads to a healthy operating margin of 23%. Finally, cash flow was solid during the quarter with a free cash flow of USD 45 million, further enhancing the balance sheet ahead of the announced acquisition of PGS. With leading exposure across the energy data value chain, TGS is well positioned to continue benefitting from the expected market growth going forward."
1) POC (Percentage-of-Completion) Financials are based on revenues measured by applying the percentage-of-completion method to Early sales and accelerated amortization. Please refer to APM section for more details.
2) 12 months trailing.
Revenues amounted to USD 225.4 million in Q3 2023, an increase of 67% from USD 135.3 million in Q3 2022. Late sales amounted to USD 71.9 million in Q3 2023 versus USD 64.5 million in Q3 2022. Early sales decreased to USD 21.0 million in Q3 2023 from USD 55.3 million in Q3 2022 as a result of fewer multi-client projects being completed in Q3 2023. Proprietary revenues increased from USD 15.5 million in Q3 2022 to USD 132.5 million in Q3 2023, primarily due to OBN data acquisition contracts undertaken by the Acquisition Business Unit, which was formed through the acquisition of Magseis Fairfield ASA ("Magseis") in Q4 2022. The Acquisition Business Unit contributed USD 125.7 million to total revenues after eliminating USD 0.7 million of revenues related to work conducted on behalf of TGS.
Amortization and impairments of the multi-client library amounted to USD 55.5 million in Q3 2023 versus USD 89.8 million in Q3 2022. Of this, straightline amortization was USD 41.4 million (USD 39.0 million in Q3 2022), accelerated amortization was USD 9.3 million (USD 42.0 million in Q3 2022), and impairment was USD 4.7 million (USD 8.8 million in Q3 2022).
Personnel costs were USD 34.4 million compared to USD 17.9 million in Q3 2022. The increase is primarily a result of the acquisition of a majority interest in Magseis in Q4 of 2022 and hiring of certain personnel in connection with the acquisition of the multi-client library and other assets of ION Geophysical in Q3 2022. Other operating expenses amounted to USD 17.0 million compared to USD 12.7 million in Q3 2022. Cost of goods sold were USD 71.5 million in Q3 2023 compared to USD 7.7 million in Q3 2022. The increase is mainly caused by the acquisition of Magseis in Q4 2022.
Operating profit amounted to USD 26.2 million in Q3 2023 compared to an operating profit of USD 1.1 million in the same quarter of last year.
Source: TGS
Free cash flow was USD 44.8 million for Q3 2023 compared to USD 6.2 million in Q3 2022. Net cash flow from operations for the quarter totaled USD 202.5 million, compared to USD 41.4 million in Q3 2022. Net increase in cash for Q3 2023 was USD 55.9 million (decrease of USD 59.4 million in Q3 2022). Cash outflows related to organic investments in the multi-client library were USD 146.7 million, compared to USD 30.9 million in Q3 2022. Financing activities during the quarter, includes paid in equity related to the private placement announced 18 September 2023 and down payment of the revolving credit facility.
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 expected4 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 2023. The dividend will be paid in the form of NOK 1.56 per share on 16 November 2023. The shares will trade ex-dividend on 2 November 2023. In Q3 2023, TGS paid a cash dividend of USD 0.14 per share (NOK 1.41 per share).
Contract inflow was USD 355 million in Q3 2023 compared to USD 360 million (pro-forma including Magseis) in Q3 2022. The contract backlog increased to USD 475 million (USD 752 million under IFRS) at the end of the quarter from USD 417 million (USD 624 million under IFRS) at the end of Q2 2023. The contract backlog at the end of Q3 2022 was USD 398 million (USD 506 million under IFRS) (pro-forma including Magseis).
Contract inflow for multi-client was strong in Q3 2023 at USD 178 million, meaning that the multi-client backlog increased to USD 239 million (USD 516 million under IFRS) at the end of the quarter from USD 180 million (USD 440 million under IFRS) at the end of Q2 2023.
Q3 2023 was another active quarter with respect to the acquisition of new multi-client data. Organic multi-client investments amounted to USD 113 million in the quarter compared to USD 79 million in the same quarter of 2022. The largest multi-client projects ongoing in Q3 2023 were the Sleipner OBN survey in Norway, Engagement Ph 4 OBN in U.S. Gulf of Mexico, Awele 3D in Nigeria and Santos Sul 3D in Brazil.
TGS performed services for several OBN data acquisition projects during Q3 2023. The two ZXPLR crews were active in Guyana and the U.S. Gulf of Mexico during the quarter. The Z700 crew continued its work in the North Sea throughout Q3, while the MASS crew commenced a new contract in U.S. after completing a project in Norway.
The Digital Energy Solutions business continued to show progress. Recent highlights include:
Global energy demand is likely to continue to grow in the foreseeable future. Adoption of alternative energy sources is not happening rapidly enough to meet the more ambitious energy transition scenarios, resulting in oil and gas likely to continue making up above 50% of global primary energy supply over the coming decades. Combining the steep depletion rate of currently producing oil and gas fields, with the fact that a substantial share of undeveloped proven reserves is disadvantaged by high costs, wide environmental footprints and/or high political and regulatory risk, there is a need to continue exploring for oil and gas resources, both in mature and emerging basins over the next decades.
In the short-term, the outlook for oil and gas exploration is supported by high oil and gas prices, which improves project economics and bolsters E&P companies' cash flows. So far in 2023, the increased exploration activity has helped TGS grow pro-forma POC revenues by 27% YTD. With its large and diversified energy data offering, TGS is well positioned to continue benefitting from the favorable developments in the market for oil and gas exploration.
TGS' Digital Energy Solutions is providing data and insights to the energy industry through innovative products, digital platforms, and software solutions. With an increasing number of countries and regions releasing acreage for renewable energy production in combination with financial incentive packages, demand for TGS' product offering for screening, decision support and asset management is set to continue to grow, both in the short and long-term.
As a result of the increasing demand for seismic data and other energy data types, TGS will increase multi-client investments in 2023 beyond previous expectations. As such, the financial guidance for 2023 is updated as follows:
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
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 volatile market conditions, investment opportunities in new and existing markets, demand for licensing of data within the energy industry, operational challenges, and reliance on a cyclical industry and principal customers. 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.
**************************************************************************************************************************************************************************
Sven Børre Larsen, Chief Financial Officer, tel.: +47 90 94 36 73, e-mail: [email protected]
| (All amounts in USD 1,000s unless noted otherwise) | Note | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|---|
| Revenue | 4 | 225,447 | 135,344 | 604,930 | 497,620 |
| Cost of goods sold - proprietary and other | 71,540 | 7,723 | 192,805 | 10,470 | |
| Straight-line amortization of the multi-client library | 5 | 41,449 | 39,028 | 120,634 | 114,820 |
| Accelerated amortization of the multi-client library | 5,6 | 9.348 | 42,015 | 35.284 | 187,837 |
| Impairment of the multi-client library | 5,6 | 4,664 | 8,786 | 6.250 | 10,193 |
| Personnel costs | 34,376 | 17,854 | 99,450 | 56,464 | |
| Other operating expenses | 16,976 | 12.725 | 49.522 | 35,357 | |
| Depreciation, amortization and impairment | 20.938 | 6.070 | 58,646 | 16,368 | |
| Total operating expenses | 4 | 199,290 | 134,200 | 562,592 | 431,510 |
| Operating profit/(loss) | 4 | 26,157 | 1,144 | 42,337 | 66,110 |
| Financial income | 1,567 | 682 | 5,101 | 1,760 | |
| Financial expenses | $-2,020$ | $-811$ | $-11,890$ | $-5,299$ | |
| Net exchange gains/(losses) | 1,018 | $-3,332$ | 296 | $-3,089$ | |
| Gains/(losses) from joint ventures | 1,797 | 465 | ٠ | ||
| Net financial items | 2,362 | $-3,461$ | $-6,028$ | $-6,628$ | |
| Profit/(loss) before taxes | 28,519 | $-2,317$ | 36,309 | 59,482 | |
| Taxes | 11,738 | $-579$ | 5.596 | 14,870 | |
| Net Income | 16,781 | $-1,738$ | 30,714 | 44,611 | |
| Earnings per share (USD) | 0.13 | $-0.02$ | 0.25 | 0.38 | |
| Earnings per share, diluted (USD) | 0.13 | $-0.02$ | 0.24 | 0.38 | |
| Other comprehensive income: | |||||
| Exchange differences on translation of foreign operations | $-557$ | -21 | $-643$ | $-366$ | |
| Total comprehensive income for the period | 16,224 | $-1,759$ | 30,070 | 44,245 | |
| Total comprehensive attributable to TGS shareholders | 16,224 | $-1,759$ | 30,070 | 44,245 |
| (All amounts in USD 1,000s unless noted otherwise) | Note | 30-Sep-23 | 30-Sep-22 | 31-Dec-22 |
|---|---|---|---|---|
| Goodwill | 6 | 384,649 | 315,433 | 384,649 |
| Intangible assets: Multi-client library | 5,6 | 744,991 | 575,899 | 575,337 |
| Other intangible assets | 71,107 | 35,514 | 65,805 | |
| Deferred tax assets | 90,086 | 76,882 | 82,196 | |
| Buildings, machinery and equipment | 138,095 | 23,086 | 145,098 | |
| Right-of-use-asset | 54,738 | 28,690 | 59,619 | |
| Sub-lease asset | 335 | 785 | 672 | |
| Other non-current assets | 17,314 | 9,349 | 11.711 | |
| Total non-current assets | 1,501,315 | 1,065,638 | 1,325,087 | |
| Accounts receivable | 169,921 | 105,865 | 142,781 | |
| Accrued revenues | 86,531 | 65,384 | 97,538 | |
| Inventory | 9,547 | ä, | 6,575 | |
| Other current assets | 96,573 | 40,413 | 78,463 | |
| Cash and cash equivalents | 200,247 | 192,291 | 188,452 | |
| Total current assets | 562,819 | 403,953 | 513,810 | |
| Total assets | 2,064,134 | 1,469,591 | 1,838,897 | |
| Share capital | 4,406 | 4,055 | 4,259 | |
| Other equity | 1,297,416 | 1,101,475 | 1,235,504 | |
| Total equity | 1,301,822 | 1,105,531 | 1,239,763 | |
| Long-term interest bearing debt | 8 | |||
| Other non-current liabilities | 44,717 | 2,192 | 42,408 | |
| Lease liability | 30,939 | 24,128 | 28,609 | |
| Deferred tax liability | 21,701 | 21,404 | 23,130 | |
| Total non-current liabilities | 97,789 | 47,724 | 94,148 | |
| Short term interest bearing debt | 8 | 44,748 | ||
| Accounts payable and debt to partners | 161,963 | 64,735 | 72,862 | |
| Taxes payable, withheld payroll tax, social security and VAT | 71,959 | 41,535 | 77,223 | |
| Lease liability | 30,510 | 11,495 | 38,350 | |
| Deferred revenue | 279,582 | 114,483 | 126,462 | |
| Other current liabilities | 120,508 | 84,089 | 145,341 | |
| Total current liabilities | 664,522 | 316,337 | 504,986 | |
| Total liabilities | 762,311 | 364,061 | 599,134 | |
| Total equity and liabilities | 2,064,134 | 1,469,591 | 1,838,897 |
| (All amounts in USD 1,000s unless noted otherwise) | Share Capital |
Treasury Shares |
Share Other Premium |
Paid-In Capital |
Currency Translation Reserve |
Retained Earnings |
Non- controlling |
interest Total Equity |
|---|---|---|---|---|---|---|---|---|
| Opening balance 1 January 2023 | 4,259 | $-18$ | 537,583 | 45,248 | $-22,539$ | 671,373 | 3,856 | 1,239,763 |
| Net income | ۰ | $\overline{\phantom{0}}$ | ۰ | ۰ | 30.714 | ۰ | 30,714 | |
| Translation effect | ٠ | ۰ | $-643$ | $\blacksquare$ | $\overline{\phantom{a}}$ | $-643$ | ||
| Total Comprehensive income | ٠ | ٠ | ٠ | ٠ | $-643$ | 30,714 | ٠ | 30,070 |
| Distribution of treasury shares | ۰ | ۰ | ۰ | ۰ | 857 | ۰ | 858 | |
| Cancellation of treasury shares held | $\sim$ | - | ۰ | ۰ | $\overline{\phantom{a}}$ | - | $\blacksquare$ | |
| Capital increase | 145 | ۰ | 86.471 | ۰ | $\overline{\phantom{0}}$ | ۰ | 86,616 | |
| Acquisition of Magseis Fairfield ASA | ٠ | ۰ | ٠ | $-2.031$ | $-3,389$ | $-5,419$ | ||
| Cost of equity-settled long term incentives | $\overline{2}$ | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | ۰ | $\sim$ | 2.407 | ۰ | 2,410 |
| Dividends | ٠ | $\overline{\phantom{0}}$ | ٠ | ٠ | $-52.476$ | ٠ | $-52.476$ | |
| Closing balance as of 30 September 2023 | 4,406 | $-16$ | 624,054 | 45,248 | $-23,182$ | 650,845 | 468 | 1,301,822 |
| Currency | Non- | |||||||
|---|---|---|---|---|---|---|---|---|
| Share | Treasurv | Share Other Paid-In | Translation | Retained | controlling | |||
| (All amounts in USD 1,000s unless noted otherwise) | Capital | Shares | Premium | Capital | Reserve | Earnings | interest Total Equity | |
| Opening balance 1 January 2022 | 4,086 | $-38$ | 416.878 | 45,248 | $-22.233$ | 671.387 | 1,115,328 | |
| Net income | - | 44.611 | ٠ | 44.611 | ||||
| Translation Effect | ۰ | ۰ | ۰ | $-366$ | ٠ | ٠ | $-366$ | |
| Total Comprehensive income | ٠ | ٠ | ٠ | $-366$ | 44,611 | ٠ | 44,246 | |
| Purchase of own shares | ۰ | $-13$ | ۰ | $\overline{\phantom{a}}$ | ۰ | $-7.001$ | ۰ | $-7.015$ |
| Distribution of treasury shares | ۰ | 0 | ٠ | ۰ | ٠ | 149 | 150 | |
| Cancellation of treasury shares held | $-33$ | 33 | - | ٠ | $\blacksquare$ | |||
| Cost of equity-settled long term incentives | 3 | $\overline{\phantom{a}}$ | ۰ | ۰ | ۰ | 1.529 | ۰ | 1.532 |
| Dividends | ۰ | ۰ | $\overline{\phantom{a}}$ | ۰ | $-48,710$ | ٠ | $-48,710$ | |
| Closing balance as of 30 September 2022 | 4.055 | $-18$ | 416.878 | 45.248 | $-22.599$ | 661.965 | ٠ | 1,105,531 |
| (All amounts in USD 1,000s unless noted otherwise) | Note | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|---|
| Cash flow from operating activities: | |||||
| Profit before taxes | 28,519 | $-2.317$ | 36,309 | 59,482 | |
| Depreciation / amortization / impairment | 76.398 | 95.899 | 220.815 | 329.219 | |
| Changes in accounts receivable and accrued revenues | $-9.865$ | 19,106 | $-16.133$ | $-18,964$ | |
| Changes in other receivables | $-7,151$ | 104 | $-15,338$ | 37,060 | |
| Changes in balance sheet items | 122,680 | $-66,335$ | 234,445 | $-169,888$ | |
| Paid taxes | $-8,072$ | $-5.041$ | $-22.972$ | $-12,991$ | |
| Net cash flow from operating activities | 202,509 | 41,416 | 437,126 | 223,918 | |
| Cash flow from investing activities: | |||||
| Investments in tangible and intangible assets | $-12,284$ | $-4.990$ | $-37,069$ | $-14,752$ | |
| Investments in multi-client library | $-146,697$ | $-30,906$ | $-288,324$ | $-123,029$ | |
| Investments through mergers and acquisitions | $-41.149$ | $-41,149$ | |||
| Interest received | 1,272 | 683 | 4,473 | 1,760 | |
| Net cash flow from investing activities | $-157,709$ | $-76,362$ | $-320,920$ | $-177,170$ | |
| Cash flow from financing activities: | |||||
| Net change in interest bearing debt | $-45,000$ | $-44.748$ | |||
| Interest paid | $-1.574$ | $-811$ | $-5.428$ | $-2.399$ | |
| Dividend payments | 3 | $-17,430$ | $-16,038$ | $-52,476$ | $-48,710$ |
| Repayment of lease activities | $-11,522$ | $-3,103$ | $-33,645$ | $-8,894$ | |
| Acquisition of shares | $-54.385$ | ||||
| Paid in equity | 86.616 | 86,616 | |||
| Purchase of own shares | 3 | $-4.496$ | $-7,015$ | ||
| Net cash flow from financing activities | 11,090 | $-24,448$ | $-104,066$ | $-67,018$ | |
| Net change in cash and cash equivalents | 55,890 | $-59,394$ | 12,140 | $-20,270$ | |
| Cash and cash equivalents at the beginning of period | 143,920 | 254,697 | 188,452 | 215,329 | |
| Net unrealized currency gains / (losses) | 433 | $-3,012$ | $-347$ | $-2,768$ | |
| Cash and cash equivalents at the end of period | 200.247 | 192.291 | 200,247 | 192,291 |
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 2022, which is available at www.tgs.com.
The same accounting policies and methods of computation are followed in the condensed consolidated financial statements as compared with the annual financial statements for 2022.
| Ordinary shares | Number of shares |
|---|---|
| 1 January 2023 | 124.927.439 |
| Net change in period | 6,353,019 |
| 30 September 2023 | 131,280,458 |
| Treasury shares | Number of shares |
|---|---|
| 1 January 2023 | 458,515 |
| Net change in period | $-39.885$ |
| 30 September 2023 | 418,630 |
The Annual General Meeting on 10 May 2023 renewed the Board of Directors' authorizations to repurchase shares and distribute quarterly dividends on the basis of the 2022 financial statements. The authorizations are valid until Annual General Meeting in 2024, but no later than 30 June 2024.
Net change in the period mainly relates to the announcement of the successfully private placement on 18 September 2023, where it was resolved to issue and allocate 6.25 million new shares at a subscription price of NOK 152.5 per share. The Company intends to use the net proceeds generated from the issuance of the New Shares to strengthen the Company's equity capital and for general corporate purposes, including in view of the announced combination with PGS ASA.
The Board of Directors has resolved to maintain the dividend at USD 0.14 per share in Q4 2023. The dividend will be paid in the form of NOK 1.56 per share on 16 November 2023. The share will trade ex-dividend on 2 November 2023.
In Q3 2023, TGS paid a cash dividend of USD 0.14 per share (NOK 1.41 per share).
| Largest Shareholders as of 30 September 2023 | Country | Account type | No. of shares | Share |
|---|---|---|---|---|
| 1. FOLKETRYGDFONDET | Norway | Ordinary | 14,490,501 | 11.0 % |
| 2. PARETO AKSJE NORGE VERDIPAPIRFOND | Norway | Ordinary | 4,804,495 | 3.7% |
| 3. JPMorgan Chase Bank, N.A., London | United Kingdom | Nominee | 3.707.799 | $2.8\%$ |
| 4. The Bank of New York Mellon | United States | Nominee | 3.557.483 | 2.7% |
| 5. State Street Bank and Trust Comp | United States | Nominee | 3.316.350 | 2.5% |
| 6. The Northern Trust Comp, London Br | United Kingdom | Nominee | 3,078,438 | 2.3% |
| 7. JPMorgan Chase Bank, N.A., London | United Kingdom | Nominee | 2,479,331 | 1.9% |
| 8. State Street Bank and Trust Comp | United States | Nominee | 2.364.311 | $1.8 \%$ |
| 9. AAT INVEST AS | Norway | Ordinary | 2.100.000 | 1.6% |
| 10. The Bank of New York Mellon SA/NV | Belgium | Nominee | 2.089.069 | 1.6% |
| 10 largest | 41,987,777 | 32% | ||
| Total Shares Outstanding * | 130,861,828 | 100% |
| Average number of shares outstanding during the quarter | 125.285.265 |
|---|---|
| Average number of shares fully diluted during the quarter | 126.261.726 |
| Share price information | |
|---|---|
| Share price 30 September 2023 (NOK) | |
| Market conitalization 20 Contember 2022 (NOV million) |
TGS previously prepared its internal management reporting based on the principles applied prior to the implementation of IFRS 15, Revenue from Customer Contracts. This prior 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 1 January 2022, the Group changed the method for reporting revenues 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 2023, management reassessed its reportable segments and reports now six overall business units: Western Hemisphere (WH), Eastern Hemisphere (EH), Digital Energy Solutions (DES), Acquisition (ACQ), Imaging and G&A. WH consist of North America, Latin America and Land. In EH, TGS groups Europe, Africa & Middle East, Asia Pacific and Interpretative Products. The business in EH and WH is multi-client related. DES consists of three parts: Well Data Products (WDP), New Energy Solutions (NES) and Data Analytics (D&A). Unallocated cost is reported as G&A. The Group does not allocate all cost items to its reportable business units during the year.
| Western | Eastern | Digital Energy | ||||||
|---|---|---|---|---|---|---|---|---|
| (All amounts in USD 1,000s) | Hemisphere | Hemisphere | Acquisition | Solutions | Imaging | G&A | Elimination | Total |
| Q3 2023 | ||||||||
| Operating revenues | 57,131 | 27,500 | 126,419 | 15,257 | 11,200 | $-33$ | $-12,027$ | 225,447 |
| Straight-line amortization | $-24,592$ | $-12,971$ | 0 | $-3,886$ | 0 | 0 | 0 | $-41,449$ |
| Accelerated amortization / impairment | $-5,749$ | $-7,969$ | $\mathbf 0$ | $-293$ | $\mathbf 0$ | $\mathbf 0$ | 0 | $-14,012$ |
| Cost of goods sold - proprietary and other | $-238$ | $-545$ | $-70,498$ | $-172$ | $-20$ | $-71$ | 4 | $-71,540$ |
| Other operating cost | $-4,036$ | $-2,266$ | $-30,170$ | $-11,612$ | $-12,537$ | $-22,402$ | 10,734 | $-72,289$ |
| Operating profit | 22,515 | 3,750 | 25,751 | $-706$ | $-1,357$ | $-22,506$ | $-1,289$ | 26,157 |
| Q3 2022 | ||||||||
| Operating revenues | 69,768 | 53,165 | 847 | 10,592 | 10,127 | 3 | $-9,157$ | 135,344 |
| Straight-line amortization | $-25,125$ | $-9,958$ | $\mathbf 0$ | $-3,945$ | $\mathbf 0$ | $\mathbf 0$ | $\Omega$ | $-39,028$ |
| Accelerated amortization / impairment | $-41,203$ | $-9,598$ | $\mathbf 0$ | 0 | $\mathbf 0$ | 0 | 0 | $-50,800$ |
| Cost of goods sold - proprietary and other | $-23$ | $-7,470$ | $-170$ | $-59$ | $\mathbf 0$ | -1 | $\Omega$ | $-7,723$ |
| Other operating cost | $-1,729$ | $-1,639$ | $-1,902$ | $-10,495$ | $-15,326$ | $-13,714$ | 8,156 | $-36,649$ |
| Operating profit | 1.688 | 24.500 | $-1.225$ | $-3,907$ | $-5.199$ | $-13.711$ | $-1.002$ | 1,144 |
| (All amounts in USD millions) | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Opening balance net book value | 687.3 | 570.1 | 575.3 | 704.9 |
| Inorganic multi-client investments | 0.0 | 16.1 | 0.0 | 16.1 |
| Organic multi-client investments | 113.1 | 79.4 | 331.8 | 167.7 |
| Amortization and impairment | $-55.5$ | $-89.8$ | $-162.2$ | $-312.9$ |
| Closing net book value | 745.0 | 575.9 | 745.0 | 575.9 |
| Net MC revenues | 92.9 | 1198 | 274.0 | 472.0 |
| Amort. in % of net MC revs. | 60% | 75% | 59% | 66% |
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. TGS has not identified any new impairment triggers warranting an updated impairment test following the detailed process performed in Q4 2022; refer to note 10 to the condensed consolidated financial statements included in the 2022 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.
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 2023 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, the company has charged impairments of USD 4.7 million, mainly due to a decrease of sales forecasts in certain areas.
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 2023 was USD 11.7 million (USD -0.6 million in Q2 2022), corresponding to a tax rate of 41.2% (25.0% in Q3 2022).
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 February 2021, TGS entered into an amended and restated revolving credit facility ("RCF"), amending and restating the original RCF dated 26 October 2018 (2018 RCF). The RCF provided for borrowings of up to 100 million (on a revolving basis) with an interest rate of LIBOR +2.5% per interest period as determined by TGS and as per the defined terms of the RCF. During the first quarter 2023, TGS utilized the RCF to repay the outstanding amount under the Magseis revolving credit facility that was in place at the time of the acquisition by TGS in Q4 2022.
On 9February 2023, TGS entered into an amended and restated RCF (the 2023 RCF), amending and restating the 2018 RCF (as amended in February 2021), The new RCF provides for borrowings, on a revolving basis, of up to USD 125 million with an interest rate of SOFR +3.0% per annum. The 2023 RCF provides for an accordion feature to allow for an increase in borrowing capacity of an additional USD 25 million.
In September 2023 TGS paid down the outstanding amount of the credit facility and as of 30 September the amount drawn on the bank facility is 0.
The conditions below are only tested if Liquidity (as defined in the RCF) on the relevant testing date is below USD 100 million:
TGS is in compliance with all financial covenants as of 30 September 2023.
On 18 September 2023, TGS announced that it has agreed to the principal terms of the acquisition of PGS ASA by TGS to create a strong full-service energy data company. On 25 October 2023, TGS and PGS executed the merger documentation, including a merger agreement. The transaction is subject to approval by the extraordinary general meeting by each party, as well as other customary closing conditions. Closing is expected during the first half of 2024. The transaction is expected to be completed as a statutory merger pursuant to Norwegian corporate law, with merger consideration to PGS shareholders in the form of 0.06829 ordinary shares of TGS for each PGS share om addition to compensation for dividends paid by TGS.
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. POC Early Sales Revenue are measured by applying the percentage-of-completion method to Early sales only. This is based on the principles applied prior to the implementation of IFRS 15, Revenue from Customer Contracts, on 1 January 2018.
| (All amounts in USD 1,000s) | Total |
|---|---|
| Q3 2023 | |
| Operating revenues | 225,447 |
| PoC Revenue Early Sales | 88,105 |
| Performance obligations met during the quarter | $-21,029$ |
| Internal revenue elimination | |
| PoC Revenue | 292,523 |
| Q3 2022 | |
| Operating revenues | 135,344 |
| PoC Revenue Early Sales | 38,526 |
| Performance obligations met during the quarter | $-55,297$ |
| Internal revenue elimination | 0 |
| PoC Revenue | 118,573 |
POC Early sales rate (%) means POC Early Sales Revenue as a percentage of organic multi-client investments in new projects, an important measure for TGS as it provides indication of the prefunding levels for projects in progress.
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.
| (All amounts in USD 1,000s) | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Net income | 16.781 | $-1.738$ | 30.714 | 44,611 |
| Taxes | 11.738 | $-579$ | 5.596 | 14.870 |
| Net financial items | $-2.362$ | 3.461 | 6.028 | 6.628 |
| Depreciation, amortization and impairment | 20,938 | 6.070 | 58,646 | 16,368 |
| Amortization and impairment of multi-client library | 55.461 | 89.829 | 162.168 | 312.851 |
| EBITDA | 102.555 | 97.043 | 263.152 | 395.328 |
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.
.
Accelerated amortization of multi-client library is calculated on percentage of completion basis.
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-23 | 30-Sep-22 |
|---|---|---|
| Equity | 1,301,822 | 1.105.531 |
| Interest bearing debt | 0 | 0 |
| Cash | 200,247 | 192,291 |
| Net interest bearing debt | $-200.247$ | $-192.291$ |
| Capital employed | 1,101,575 | 913,239 |
| Average capital employed | 1.054.597 | 920,048 |
| Operating profit (12 months trailing) | 106.963 | $-34,679$ |
| ROACE | 10% | $-4%$ |
Free cash flow when calculated by TGS is Cash flow from operational activities minus cash from investing activities excluding impact from investing activities related to Mergers and Acquisitions.
| (All amounts in USD 1.000s) | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Net cash flow from operating activities | 202,509 | 41.416 | 437.126 | 223.918 |
| Net cash flow from investing activities | $-157.709$ | $-76.362$ | $-320.920$ | -177.170 |
| Excluding Investments through mergers and acquisitions | 41.149 | 41.149 | ||
| Free cash flow | 44,800 | 6.203 | 116,206 | 87.897 |
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.
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.