Q1 2016 Earnings Release Reports... · Q1 net revenues of 64 MUSD compared to 172 MUSD in Q1 2015 Net late sales of 38 MUSD, down 47% from 72 MUSD in Q1 2015 Net pre-funding revenues

Kristian Johansen Sven Børre Larsen

Q1 2016 Earnings Release

CEO CFO 21 April 2016

©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved.

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.

Forward-Looking Statements

2


Q1 net revenues of 64 MUSD compared to 172 MUSD in Q1 2015 Net late sales of 38 MUSD, down 47% from 72 MUSD in Q1 2015

Net pre-funding revenues of 23 MUSD were down 76% from Q1 2015, funding 43% of TGS’ operational multi-client investments for the quarter (53 MUSD)

Operating profit for the quarter was -21 MUSD compared to 37 MUSD in Q1 2015 Reflects the new amortization policy for seismic surveys effective from 1 January 2016

Personnel and other operating costs reduced by 28% from Q1 2015 (adjusted for 2.1 MUSD non-recurring severance costs)

Cash flow from operations was 145 MUSD compared to 260 MUSD in Q1 2015 Free cash flow (after operational investments) of 63 MUSD

Cash balance of 210 MUSD at 31 March 2016 in addition to undrawn 75 MUSD Revolving Credit Facility

Quarterly dividend maintained at USD 0.15 per share (subject to renewal of the Board authorization at AGM on 10 May 2016)

Q1 2016 Highlights

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4

Operational Highlights


Q1 2016 Operations

Alberta Crew

5

Harrier Explorer 2D

Osprey Explorer 2D

Fugro Multibeam

Northern Explorer 2D

Aquila Explorer 2D

Hawk Explorer 2D

TDI Brooks Coring


A consortium comprising TGS, PGS and Schlumberger WesternGeco won the tender for the rights to undertake the first multi-client seismic program offshore Sabah, Malaysia

Number of proven hydrocarbon accumulations with exploration and drilling progressing into deeper frontier waters

This large basin will benefit from modern, high resolution broadband seismic acquisition and processing technologies necessary to understand both the existing play concepts and new potential plays

Q1 Activity – Asia Pacific

6

Offshore Malaysia - Award of Permit


Full-azimuth multi-component (3C-3D) data

Eastwards expansion of TGS’ successful Kaybob-Bigstone surveys in the Duvernay fairway, West Central Alberta

Building on track record with clients and extending TGS’ dominance in area of high activity

Acquisition completed in Q1 2016

Q1 Activity – North America Onshore

7

Chickadee – 206 km2 3D multi-client survey


Gigante 2D – 186,000 km multi-client 2D survey Regional 2D survey commenced in Q2 2015 and

expected to complete in late Q3 2016 Survey covers the proposed license rounds in the

Perdido, Campeche and Mexican Ridges regions Line ties will be made to the US Gulf of Mexico

regional grids previously acquired by TGS More than 120,000 km of 2D data acquired at end

Q1 2016 with a significant amount of fast-track data already delivered to clients

Gigante Multibeam, Coring, and Geochemical Surveys 600,000 km2 survey commenced in 2015 and

expected to complete in Q4 2016 Interpretation of data will integrate with the 2D

seismic survey and enhance the value proposition to clients

Q1 Activity – Mexico

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9

Financials


8 9 9

6 5 5 5 3

0

2

4

6

8

10

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Proprietary revenues

137 130

226

72 82 90 90 38

0

50

100

150

200

250

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Late sales revenues

-47% Y/Y 60 51 62

94

53 74

37 23 0

20

40

60

80

100

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Prefunding revenues

205 190

298

172 140 169 132

64 0

50

100

150

200

250

300

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Total revenues

Net Revenues

10

-76% Y/Y

-45% Y/Y -63% Y/Y


NSA 33%

Europe 11%

AMEAP 42%

Other 13%

Q1 2015

NSA 57%

Europe 18%

AMEAP 5%

Other 21%

Q1 2016

Net Revenue Breakdown

2D 16%

3D 74%

GPS 10%

Q1 2015

2D 51%

3D 33%

GPS 16%

Q1 2016

11


32 32 37

25 26 22 28

18

05

10152025303540

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Operating expenses *

-28% Y/Y

* Include personnel costs and other operating expenses. Adjusted for non-recurring items.

85 81 143

105 74 99

230

62

0

50

100

150

200

250

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Amortization and impairment *

-27

84 15

110

-76

49 -20

63

-100

-50

0

50

100

150

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Free cash flow

Operating Expenses, EBIT, Free Cash Flow

12

102% - rate

82 71 111

37 36 46 31 -19

-40%

-20%

0%

20%

40%

60%

-40-20

020406080

100120

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

EBIT before non-recurring items

EBIT EBIT Margin

* Q1 2016 reflects the new amortization policy effective from 1 January 2016


829 837 818 876

919 976

839 830

700

750

800

850

900

950

1,000

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Multi-client library - NBV

114 93

126 163

116 135

88 53

0%10%20%30%40%50%60%70%80%90%100%

0

50

100

150

200

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Pref

undi

ng ra

tio

Ope

ratio

nal i

nves

tmen

ts

Operational investments and prefunding ratio

Operational investments Prefunding ratio

Multi-client library

13

16%

3% 6%

3% 7%

1%

64%

0% 1%

8%

21% 22%

5%

44%

0%

10%

20%

30%

40%

50%

60%

70%

Fullyamortized

2012 2013 2014 2015 2016 YTD WIP

Net revenues Net book value

Net revenues vs net book value – year of completion

270

381

609

427

59

457

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 YTD WIP

Original investments Net Book Value

20 %

37%

59%

24%

2% 16%

69%

Investments – year of completion


Q1 2016 Income Statement

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USD million, except EPS Q1 2016 Q1 2015 Change in %Net revenues 64 172 -63%Cost of goods sold – proprietary and other 0.01 0.5 -97%

Amortization of multi-client library 102% 62 105 -41%

Gross margin 2 67 -97%Personnel costs 13 17 -20%

Other operating expenses 7 9 -18%

Cost of stock options 0.05 0.5 -91%

Depreciation 3 4 -16%

Operating profit -33% -21 37 -157%Net financial items 1 -1 175%Profit before taxes -32% -20 36 -156%Taxes -0.1 7 -102%

Net Income -32% -20 29 -170%EPS, Undiluted -0.20 0.28 -171%

EPS, Fully Diluted -0.20 0.28 -171%


Q1 2016 Cash Flow Statement

15

USD million Q1 2016 Q1 2015 Change in %Received payments from customers 175 337 -48%

Payments for operational expenses (27) (31) 14%

Paid taxes (3) (45) 93%

Operational cash flow 145 260 -44%Investments in tangible and intangible assets (3) (2) -17%

Investments in multi-client library (82) (151) 46%

Payments made to acquire debt instruments - (5) N/A

Interest received 0.3 2 -86%

Interest paid (0.01) (0.02) 56%

Dividend payments (15) - N/A

Purchase of treasury shares - (5) N/A

Proceeds from share issuances 0.1 2 -91%

Change in cash balance 45 101 -55%


Q1 2016 Balance Sheet

The Company holds no interest-bearing debt

USD million Q1 2016 Q4 2015 Change in %AssetsCash and cash equivalents 210 163 29%Other current assets 189 308 -39%Total current assets 399 471 -15%Intangible assets and deferred tax asset 92 90 2%Other non-current assets 16 25 -37%Multi-client library 830 839 -1%Fixed assets 28 30 -7%Total Assets 1,364 1,455 -6%LiabilitiesCurrent liabilities 168 218 -23%Non-current liabilities 5 6 -22%Deferred tax liability 29 33 -12%Total Liabilities 201 257 -22%Equity 1,163 1,198 -3%Total Liabilities and Equity 1,364 1,455 -6%

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Strong Cash Generation Delivers Shareholder Value

Shareholder authorization to distribute quarterly dividend payments from Q1 2016 Aim to keep a stable quarterly dividend through the year Actual quarterly dividend level paid will be subject to continuous evaluation of market outlook,

cash flow expectations and balance sheet development

Q1 2016: USD 0.15 per share dividend paid on 23 February 2016 Q2 2016: USD 0.15 per share dividend subject to a renewal of the Board’s authorization to distribute

quarterly dividends at the AGM on 10 May 2016. The share is expected to trade ex-dividend on 18 May 2016 with payments due on 1 June 2016

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4 NOK

5 NOK 6 NOK

8 NOK 8.5 NOK 8.5 NOK

USD 0.15 per Quarter

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2010 2011 2012 2013 2014 2015 2016*

USD

per

sha

re

Year of Payment *Quarterly Dividends, defined in USD from 2016 Historical NOK dividends converted to USD using FX rate on ex-dividend date

Q1

Q2

3.7% 3.6% 4.0% 3.9%

4.9% 5.2%

4.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2010 2011 2012 2013 2014 2015 2016*

Yiel

d (o

n da

y of

ann

ounc

emen

t)

Year of Payment

Dividend Paid* (2010 – 2016) Dividend Yield (2010 – 2016)

*2016 Dividend Yield annualized based on the weighted yield at the time of announcement of quarterly dividends


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Outlook


E&P spending likely to decline 20-30% this year There are currently few tangible signs that a recovery is imminent and the market for

seismic data is likely to remain weak in 2016 Oil companies are likely to prioritize their seismic spend in areas with more favorable

economics and payback times as well as areas where they have current work programs and license obligations

This could result in greater variability of seismic spend between quarters and across regions in the near term

Challenging Market for Exploration

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Source: SEB Research

7%

16% 23%

4%

-26%

8%

16%

4%

13% 12%

20% 25%

14% 18%

-8%

13% 16% 14%

8% 3%

-25% -27% -30%

-20%

-10%

0%

10%

20%

30%

Chan

ge ye

ar-o

n-ye

ar (%

)

Change in Global E&P Spending

-8%

-12%

-18% -19% -20% -20%

-25% -27% -30%

-25%

-20%

-15%

-10%

-5%

0%

Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16

Grow

th (%

)

Estimated change in Global E&P spending 2016

Source: SEB Research


License Round Activity and TGS Positioning

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Europe / Russia • Norway APA – Sep 2016 (bids due) • Norway 23rd Round – Mid 2016 (awards due) • UK 29th Round – Q4 2016 (expected) • Greenland – Dec 2016, 2017, 2018 (bids due)

Africa, Middle East, Asia Pacific • Ongoing uncertainty on timing of African

licensing rounds • Australia – Jun 2016 (2016 round launch) • New Zealand – Sep 2016 (bids due) • Indonesia – 2016 (bids due)

North & South America • Central GOM – Mar 2016 (5-Year Plan) • Western GOM – Aug 2016 (5-Year Plan) • Newfoundland & Labrador – Nov 2016 (Scheduled Land Tenure) • Nova Scotia – Q4 2016 (3-Year Rolling Plan) • Canada Onshore – at least monthly • Brazil - next round expected 2016/17 • Mexico – Round 1(L04) in Dec 2016, 3 more rounds proposed by 2019


Prolific offshore area with recent exploration success

Highly successful 2015 license round (nine companies participated with CAD 1.2 billion successful commitments)

Two 2016 Calls for Bids issued over approximately 3.3 million hectares in Jeanne d’Arc and Eastern Newfoundland regions

Bids due 9 November 2016 The modern TGS-PGS JV library in

this region exceeds 112,000 km of 2D data and 9,172 km2 of 3D data in addition to 83,700 km of TGS vintage data

Newfoundland Labrador Call for Bids

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Backlog

188 153 143

185 178

281 224

260 293

242

182 145 146

213 193 125

0

50

100

150

200

250

300

350

Q22012

Q32012

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Historical Backlog (MUSD) 2012 - 2016

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2016 Projects Schedule Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Akademik Shatskiy

Aquila Explorer

Hawk Explorer

Osprey Explorer

Northern Explorer

Harrier Explorer

Fugro Multibeam

TDI Brooks Coring

Greenland

Mexico

2D &

Oth

er

EUR AMEAP NSA

23

Mexico

Mexico

Mexico

Mexico

Mexico

Mexico

Canada Crew

Land

Chickadee

Mexico

23


Flexible business model with counter-cyclical qualities

Oil price • Down ~60% since summer

of 2014 Oil company returns(1)

• Only ~1% in 2015 • Down ~16%-points since

peak in 2011 E&P spending • Down 20-30% in 2015 • Expected down another

20-30% in 2016

TGS late sales • 47% down in 2015 • 47% down y/y in Q1 16

TGS prefunding revenue(2)

• Expected down ~60% in 2016

Vessel day rates • Down 50% last three years

Risk mitigation • Vessel owners accepting

turnkey contracts • Risk sharing with vessel

owners

TGS cash opex • Run-rate down ~25% y/y

as a result of cost cuts TGS investments(2)

• Expected down almost 60% in 2016

TGS cash tax • Significantly reduced as a

result of weak P&L results

Cash inflow Cash outflow

1. Source: Nordea. Average of 10 large integrated oil companies 2. Based on TGS guidance: 2016 MC investments of approximately MUSD 220, prefunding of 45-50%

Resilient cash flow profile in weak markets

24


Investment focus in areas of low break even oil price, fast payback and client activity Payback time combined with break-even oil price highlights regions that E&P

companies will likely prioritize when oil price starts to materially recover TGS will maintain a clear portfolio strategy with strict minimum targets for prefunding

and expected returns

Fast and flexible track record, reacting quickly to seize advantage Maintain focus on core business React quickly to size the company to the level of business activity Ongoing initiative to further reduce number of management layers Reward structure drives strong alignment between company and employees

TGS Strategy: Cost efficient, focused and quickly reacting!

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Energy Starts with Us! TGS will be THE leading energy information company with the BEST

people, quality and service!


Summary Q1 net revenues of 64 MUSD Q1 operational investment of 53 MUSD (43% pre-funded) Q1 operating loss of 21 MUSD Cash flow from operations of 145 MUSD driving increase in cash balance to 210 MUSD Quarterly dividend maintained at USD 0.15 per share (subject to renewal of the Board

authorization at AGM on 10 May 2016) Challenging seismic market continues with further reductions in oil company spending

Oil companies are likely to prioritize their seismic spend in areas with more favorable economics and payback times as well as areas where they have current work programs and license obligations

This could result in greater variability of seismic spend between quarters and across regions in the near term

However, long-term future of asset-light, focused multi-client business remains strong Cost control, disciplined counter-cyclical investment and balance sheet strength positions TGS to

enhance its leading position

Guidance for 2016 remains unchanged: TGS expects multi-client investments of approximately 220 MUSD

Multi-client investments are expected to be prefunded 45% to 50%

26

Thank you


www.tgs.com

Documents

Q1 2016 Earnings Release Reports... · Q1 net revenues of 64 MUSD compared to 172 MUSD in Q1 2015 Net late sales of 38 MUSD, down 47% from 72 MUSD in Q1 2015 Net pre-funding revenues