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Edited Transcript of PGS.OL earnings conference call or presentation 18-Jul-19 7:00am GMT

Q2 2019 PGS ASA Earnings Presentation

Oslo Jul 23, 2019 (Thomson StreetEvents) -- Edited Transcript of PGS ASA earnings conference call or presentation Thursday, July 18, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bård Stenberg

PGS ASA - Senior VP of IR & Communication

* Gottfred Langseth

PGS ASA - CFO & Executive VP

* Rune Olav Pedersen

PGS ASA - President & CEO

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Presentation

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [1]

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Welcome to this presentation of PGS Q2 2019 results. My name is Bård Stenberg, Senior Vice President of Investor Relations and Communications. Today's presentation will be webcasted, and the people on the webcast will also be able to ask questions after management's concluding remarks.

Before we start, I would like to give some practical information. As we are webcasting this, the presentation, I kindly ask the audience in Oslo to use the microphones provided when asking questions. Also take notice of the emergency exits located in the back of the room. So if the alarm is sounded, please evacuate immediately.

I'd also like to draw your attention to the cautionary statement showing on the screen and also available in today's earnings release and presentation.

Today's presentation will be given by CEO, Rune Olav Pedersen; and CFO, Gottfred Langseth. So with that, it's my pleasure to give the floor to you, Rune Olav.

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Rune Olav Pedersen, PGS ASA - President & CEO [2]

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Thank you, Bård. Good morning, everyone. Well, we have highlighted our Q2 report with continued market improvement. And when you look closely at the numbers, you will see that all the numbers in the financial report and also the numbers we will present today will support that we are in a continued improving seismic market.

Some of these numbers are better than we have seen for many years, 4 to 5 years, as I will show you. And perhaps the most important number in this respect is the contract revenues of $94.4 million in the quarter. This is the second-highest contract revenues we have reported in any single quarter since the fourth quarter of 2014, which is 4.5 years ago. Now you see the price increase we have talked about of more than 35% price increase in '19 versus '18 coming through in the numbers. And we've had solid vessel production in the quarter giving these contract revenues.

Secondly, the order book increased by 26% in the quarter from the first quarter to this quarter, the second quarter. That, in itself, is special. The first quarter is normally the quarter where we have the strongest backlog. That is when we have booked up the summer season, which is the strongest season and therefore it's normally the highest in any year. So to go up from that is, in itself, special.

Secondly, the level it is sitting at is high and we haven't seen -- or it is actually the second-highest order book we have seen since the second quarter of 2015.

Further, we are currently experiencing good client interest on our MultiClient surveys and the prefunding levels are now back to the levels we normally report at slightly above 100% of cash investments.

Late sales were muted in the quarter and it represented a miss versus consensus and generally the only weak number in this report. However, as I will show you, late sales vary from quarter-to-quarter and the PGS late sales are also subject to fundamental growth over the last years. I will get back to that.

Finally, we initiated a refinancing exercise in the second quarter. We met a deteriorating market and we decided to withdraw the transaction because the terms offered were not attractive to PGS and we expect that we will return to the market to refinance in the second half of 2019.

On to the financials summary. Gottfred will go through the numbers in more detail, but I would like to highlight 2 numbers from this. We had a segment EBITDA of $135 million in the quarter, and this is, in fact, the third-highest EBITDA we have seen in any quarter since the fourth quarter of 2014.

You can see the other 2 quarters that were higher. That was the second quarter '18 and the fourth quarter '18. They are both higher than the second quarter '19. But other than that, there are no single quarter since the fourth quarter of '14 higher than the one we reported this quarter.

Secondly, the segment EBIT of $18 million is the second-highest we have reported since Q3 2014. So the only quarter where we have reported higher EBIT numbers than what we are doing in this second quarter is the fourth quarter of 2018, where we had fantastic late sales.

These just, once again, support the notion that we are in a recovering seismic market and also, that we have positioned PGS to deliver stronger numbers even though the market hasn't fully recovered.

So order book. The order book was $300 million at June 30, 2019 and as I said, this is the second-highest we've seen since the second quarter 2015. And you can see the first -- the highest number in the first quarter of 2017, they're sitting there.

In addition to that, we are in the process of finalizing agreements with a value of approximately $75 million, which are not obviously included in the order book as we have -- they were not signed at quarter end, but they are included in the booking numbers you see there, the vessel booking numbers.

We are fully booked for the third quarter and we are fully booked for the fourth quarter running 7 vessels. We will consider running an eighth, but we are currently fully booked running 7 vessels in the fourth quarter. We have booked 7 vessel months in the first quarter 2020 and 5 vessel months also in the second quarter 2020. So the order book and the vessel bookings gives us good visibility into revenues in the remaining part of this year and also into 2020.

And with that, I give the word to you, Gottfred.

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Gottfred Langseth, PGS ASA - CFO & Executive VP [3]

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Thank you. I will start with the key financial figures. The segment revenues of $215.6 million is an 8% increase compared to last year. Segment EBITDA of $135.2 million is at par with last year and the EBIT of $17.7 million is up $4 million from last year.

With respect to the as-reported numbers, the numbers according to IFRS, and IFRS 15 in particular, where late sales revenues are recorded on an as-completed or as-delivered basis. These revenues are lower than the segment numbers so far this year, $33 million -- $23 million in Q1 and $36 million in year-to-date. This is driven by timing.

As you probably know and as a backdrop, you'll see that for the full year last year, the IFRS as-reported numbers were approximately $40 million higher. So this will even out over time but the as-reported numbers in this report are -- appears to weaken. But as you know, we do not see them as reflecting in a way the value creation and the performance in the period.

Net financial items, a cost of $31.8 million. Our basic interest cost on interest-bearing debt is lower than last year as a result of reduced floating interest rates and reduced debt. The amount of $31.8 million includes an impairment relating to our investment in Azimuth and it also includes, compared to last year now, an imputed interest cost on financial -- on lease liabilities.

Income tax expense for the second quarter was $9.8 million.

On the operational highlights. Total segment MultiClient revenues, $112.4 million. Prefunding was $67 million, which is 102% of the MultiClient cash investments. Late sales in the quarter of $45.6 million.

Contract revenues, $94.4 million. As already mentioned, more than 3x what we had in second quarter last year and more than a doubling from the first quarter, which is driven by, primarily, an increase in pricing.

MultiClient revenues by region. The prefunding revenues in the second quarter came primarily from North America while late sales dominated by Europe.

Vessel utilization. We had 88% active vessel time in the second quarter. No standby. This is basically full utilization. We expect high utilization in the third quarter as well. And in the fourth quarter, we will, as a minimum, operate 7 vessels. We may operate 8, depending on getting the right projects.

Cash cost. Sequentially up compared to the first quarter. Second quarter cash cost impacted by more capacity in operation, moving from 6 to 8 vessels operated. And relatively high project-specific costs on some surveys. In addition, we ended up charging some of the reactivation costs relating to Ramform Vanguard to expense rather than reporting it as CapEx.

Cash flow. Cash from operations $108 million, a slight working capital build in the quarter, which is relating to the increased revenues. We received the second installment from the sale of Ramform Sterling, net cash impact of $24.5 million in the quarter, $69 million year-to-date with the 2 first installments.

We had $8.4 million of CapEx relating to Ramform Vanguard in the second quarter, and the total CapEx for the reactivation ended at $15.5 million, which is quite a bit lower than the approximately $25 million we indicated quite a while back. That's a combination of 2 things: we ended up with a lower total expenditure, so it was less expensive in total; and then, a portion of that expenditures have been charged to operating expense rather than capitalized as CapEx.

Lastly, on this slide, we have reduced our revolver drawings by $90 million year-to-date, $60 million reduction in the second quarter.

Balance sheet. Gross interest-bearing debt, $1.111 billion. That's a reduction of $115 million year-to-date. Net interest-bearing debt is down $74 million year-to-date and ended at $1,035 billion. And the liquidity reserve was increased by $48.7 million and ended at $208 million. The total leverage ratio, as we calculated under the credit agreement, is 2.85:1.

On this next slide, we have illustrated the cash flow generation for the last 12 months and the amount there from available for debt repayment. The numbers for the graph is from the cash flow statement. It is sorted in a way to get -- since there's been some accounting change in between sorted to illustrate this as best we can with the financial -- the lease payments, which are treated as financial items this year or after.

IFRS 16 here included in operating CapEx -- operating cash flow as it has been historically. And also I have grouped the proceeds from selling Sterling and CapEx and expenditure to rig Vanguard as that is related to one and the same event, which, in total, is a net positive of just over $50 million in -- for PGS so far.

And as a result, we have reduced our net interest-bearing debt by $110 million for the last 12 months. Our free cash flow generation will improve as -- in a further recovering market.

Then to the debt and drawing facilities. To the left, not a lot of change in our facilities, other than a fairly significant reduction of drawings on the RCF, as commented on. We planned to change this in the second quarter and initiated a refinancing during the quarter, but decided to withdraw the proposed refinancing as we were hit by a particularly difficult period in the financial markets.

We are generating positive cash flows. It is still 17 months until the senior notes mature, 20 months until the term loan matures. We do, however, expect and plan to refinance in the second half and we are positioned to execute on short notice.

With that, I think I will give the word back to you, Rune Olav.

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Rune Olav Pedersen, PGS ASA - President & CEO [4]

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Thank you, Gottfred. Streamer operations in July 2019. We currently operate 2 large Titan-class vessels, the Ramform Atlas and the Ramform Titan in Canada on MultiClient surveys and also, Sanco Atlantic on a 2-day survey in Canada.

Ramform Tethys is in Guyana where she has been for at least half a year and will stay for quite a while still. We have Ramform Vanguard and Sanco Swift operating in the North Sea and we have Ramform Sovereign in Angola with Ramform Victory coming back to us as a source vessel, operating together with Sovereign there on a 4D program. We have Ramform Hyperion in Australia and we have PGS Apollo finishing off in Indonesia.

Now I'm going to go through 2 slides on the seismic market and we're going to start with the contract segment first. As we have communicated for some time, we have -- or sorry, the prices on the work we have done in 2019 or booked for work in 2019 are more than 35% higher than the average price in 2018. And that is still the case after we have now booked up the third quarter and for 7 vessels in the fourth quarter.

Our booking this year, for the winter season, for Q4/Q1, is significantly ahead of where we were at the same time last year. And the bidding activity with leads and bids for new work is on a positive trend, as you can see on the 2 graphs, and at levels, which we saw back in 2014/'15, where obviously there were a lot more vessels in the seismic market.

We do expect contract activity and vessel utilization, in general, to be higher this winter season compared to last winter season. That is particularly true for PGS. As you understand, we've already booked up the fourth quarter. So we are seeing a contract segment in recovery.

MultiClient segment has been in fundamental growth for some time. We have invested quite heavily in MultiClient over the last 3 years. And the bottom graphs show how many square kilometers of MultiClient data we have acquired in 2016, '17 and '18, and as you can see, these are at high levels and increasing quite dramatically into 2018. These are, of course, investments that we will draw on with respect to late sales in the years to come.

Now when it comes to late sales, there are strong quarterly fluctuations. I say this, I think, every quarter whether we have very strong late sales or more muted late sales like this quarter. There are strong quarterly variations, that will continue.

What we've done here is that we have combined the last 12 months of late sales. That is the graph to the right on the top illustration. Last 12 months, June 30, 2019, combined late sales; and then we have last 12 months, June 30, 2018; and last 12 months, June 30, 2017.

And what you see obviously is that there is growth in late sales in PGS. You see that there is slightly less than 20% growth from the June 30, 2017 numbers to the June 30, 2018 numbers and more than 20% growth from the June 30, '18 numbers to the June 30, '19 numbers. So even with the muted late sales we have had in this quarter, which have received quite a bit of attention, there is sequential growth and underlying fundamental growth in the PGS late sales.

We also have a large opportunity basket for the second half of 2019, when it comes to late sales. This is partly due to the fact that our internal forecasts for late sales have been skewed to the second half of 2019 all along. And secondly, obviously, there are opportunities, which we would have hoped to have closed in the second quarter of 2019, which are still alive but have spilled over into the second half and then obviously increasing the opportunity basket for the second half of 2019.

This is why we are saying that we are confident that late sales for PGS will be stronger in the second half of 2019 than it has been in the first half. There will be strong quarterly fluctuations going forward as well.

So prefunding revenues. It is good to see that our prefunding revenues are back to normal levels with above 100% prefunding of cash investments in this quarter. And we still believe that the prefunding level for the full year of 2019 will be in the upper half of the guided interval of 80% to 120% of cash investments.

We are now experiencing something we experienced when the market was strong, namely, that there is internal competition for the PGS vessels. That means that you both have contract and MultiClient segment, both wanting our vessels. Going forward, we will have to allocate capacity to MultiClient in competition with contract. This has not been the case for years. If you could do a MultiClient project the last 4 years, you would do it. That is no longer the case as the contract segment is also increasing profitability. We will have to balance these things off going forward. All in all, the MultiClient segment is also in fundamental growth.

Supply reduction, you have seen this graph before. There is a significant supply reduction over the last years and average capacity is down close to 50% from 2013 till today. However, we expect that the seasonal fluctuation we have seen over the last years, you can see from almost from '16 or from '16 going forward, you will see that there is a peak in supply in the summer months and a trough of supply in the winter months. We expect that to be less visible going forward as we expect there to be higher demand during the winter seasons going forward.

Guidance. We still guide on a group cash cost of $550 million approximately. We now guide on a MultiClient cash investments of $225 million, that is down from $250 million we guided on in the first quarter. And we expect to use approximately 50% of our 3D vessel time on MultiClient in 2019.

It's important to note that both the group cost -- group gross cash cost guidance and the MultiClient cash investment guidance assumes 7 vessels in operations in the fourth quarter, which we are now fully booked.

As Gottfred mentioned, we may, depending on projects whether we can build projects, elect to operate 8 vessels in the fourth quarter. That may increase the gross cash cost for the company and it also may increase MultiClient cash investment, if obviously this is a MultiClient program that we will embark on.

CapEx, we are now guiding that at approximately $70 million, down from approximately $85 million. And the main driver for that is that the reactivation of Ramform Vanguard became quite a bit cheaper than what we had expected.

So in summary, we are in a real seismic market recovery and we believe we have shown that through this presentation and with the Q2 numbers, that both the contract segment and the MultiClient segment is in recovery mode.

The contract revenues in the quarter were strong. They benefited from strong price increase and good vessel productivity. We have a strong order book increase, which is driven by substantial increase in contract volume and that gives us visibility into the second half of 2019 and further into the first half of 2020. And we are also experiencing solid prefunding for our ongoing MultiClient survey. And all of this, together with the fundamental underlying growth of our late sales, causes us to conclude that we are in a recovering seismic market.

And with that, I think I will give the word back to you, Bård. Thank you.

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Questions and Answers

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [1]

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We can start with the audience in Oslo. If there is any questions from the audience in Oslo? If not, we can go to the web where it's [Philippe Sissener].

He's asking, I'm seeing your leverage ratio at 2.8x at the moment, barely within the RCF covenant of 3x this quarter. As you know, this covenant drops to 2.75 per Q3 2019. How are you going to solve this without an equity issue?

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Gottfred Langseth, PGS ASA - CFO & Executive VP [2]

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I'm not sure I see the relationship between the two things, but let me answer the first one. We are at 2.85, we expect to be below 2.75 by third quarter and have headroom in our forecast.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [3]

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And it's John Delos Santos from UBS. On the debt refinancing, if the market remains weak in second half 2019, what alternatives are you considering?

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Gottfred Langseth, PGS ASA - CFO & Executive VP [4]

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We will not go into the alternatives. We initiated a process in the second quarter. We were hit -- or we ended in a period in the market with a strong negative turn in sentiment. That is particularly difficult. We are quite confident with the market and the sentiment that we see today. We are able to find a structure that will enable us to refinance during the second half.

Clearly, during that process that we had in second quarter where we met a lot of investors, we brought out -- got and brought with us a lot of perspectives on things we could look at with respect to the structure. And we'll take that into account when we plan for the fall.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [5]

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Okay. Next question comes from John Olaisen at ABG. Usually, contract prices are somewhat lower in the winter season than the summer season. Is this likely to be the case for the upcoming winter, too?

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Rune Olav Pedersen, PGS ASA - President & CEO [6]

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I'm going to be careful, obviously, commenting on pricing in that period. But in general, the situation is, as stated in the question, that pricing is stronger and the demand is stronger during the summer season than the winter season. And I think we could probably expect a similar development over this winter season, even if demand is higher this winter season than what we've seen in the earlier seasons.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [7]

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Let me follow up with you said that PGS had expectations of low late sales in Q2. What are your expectations for Q3 versus Q4?

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Rune Olav Pedersen, PGS ASA - President & CEO [8]

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We're not going to comment on the specific quarters, but rather stick to the second half. Having said that, it is clear the fourth quarter is normally quite a bit stronger than all the other quarters in the year. And I see no reason not to expect that also this year, that the fourth quarter will be the strongest quarter in the year. There are nothing in our client dialogue or in our leads basket that would tell us that should change this year.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [9]

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He has another follow-up on the debt. Were any other debt investors put into Q2 [insider] position when you tried to refinance recently?

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Gottfred Langseth, PGS ASA - CFO & Executive VP [10]

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I'm not sure I should comment on that at all.

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Rune Olav Pedersen, PGS ASA - President & CEO [11]

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No, I think you'll...

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Gottfred Langseth, PGS ASA - CFO & Executive VP [12]

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I can't comment on that.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [13]

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Then we have Glenn Lodden at Nordea Markets. In regards to the lower MultiClient investments guidance, are there any specific projects you are setting aside later this year?

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Rune Olav Pedersen, PGS ASA - President & CEO [14]

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I'm not sure I understood the question. Could you repeat the question, please?

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [15]

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He is asking in regards to the lower MultiClient investment guidance, are there any specific projects you are setting aside later this year?

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Rune Olav Pedersen, PGS ASA - President & CEO [16]

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Yes, okay. Now I understand. I wouldn't say that. I think we -- at any time, we obviously have a basket of MultiClient projects working up at and coming to maturity in different timings and this is about allocating our vessels in the most optimal way, which may have, let's say, pushed some MultiClient programs further out into 2020 or other contract jobs, which were well paid, have taken their place.

So it's more of an allocation exercise we are doing as this becomes concrete versus this becoming more of an estimate than what we believe earlier in the year. So it's more things coming in -- becoming concrete and therefore shifting around a little bit in time.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [17]

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Okay. Our next question comes from Lillian Starke in Morgan Stanley. What have been the triggers for clients to move some purchases into second half 2019?

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Rune Olav Pedersen, PGS ASA - President & CEO [18]

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There are many, I would say, many different reasons here. Some are related to clients. Their decision process is not going at the pace we would have liked it to go. Others are related to uplifts from awarded acreage in countries where there are direct awards or where you're missing a signature, therefore you cannot realize the uplift.

And others, again, are related to events taking place later in time and the clients have felt that we don't need to pull the trigger in the second quarter. We can make it later. So there are many different elements of why things have slipped from the second quarter and into the second half. Yes.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [19]

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She is also asking if we could give an update or color on the development of the 4D market. Any news on the 4D market?

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Rune Olav Pedersen, PGS ASA - President & CEO [20]

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Yes, I guess, there is no news. It remains very strong and a lot of the contract opportunities and the contracts we are doing during 2019 are 4D. We are currently engaged in particularly 2 very large 4D jobs over multiple months, which continues to be bigger. So the 4D market remains strong is, I guess, the update on that. Yes.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [21]

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Then we have another question from John Olaisen at ABG. Any chance that you could utilize 8 vessels in Q4? And what about Q1 2020, will it be 6, 7 or 8 vessels?

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Rune Olav Pedersen, PGS ASA - President & CEO [22]

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Yes. It is obviously a chance that we will go to 8 vessels in the fourth quarter. If we do so, it's likely that we would then like to see visibility for that 8 vessels through the first quarter. So that we won't go to -- we will not go to 8 vessels if we win a 1-month job in November, to put it that way. We will build a program for that 8 vessels so that we can see it through the winter before we bring it out.

So currently, with the 7 vessels in the fourth quarter, it's likely that we will run 7 vessels in the first quarter as well. If we do bring in an eighth vessel into the fourth quarter, then we will aim to utilize those 8 vessels through the winter.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [23]

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Next question comes from Sahar Islam in Goldman Sachs. How should we think about cash flow for the second half 2019? What is cash generation from the contract division? And are there any working capital cash flow movements to be aware of?

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Gottfred Langseth, PGS ASA - CFO & Executive VP [24]

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I find it difficult to go into the details around this. We gave -- we've given earlier an indication of how we could see the full year. We've given a gross cash cost, the CapEx and the elements, in a way, everything else than the revenues. And I don't think this is the appropriate time to give an estimate of revenues and then, in a way, thereby, then maybe also a bit of the working capital change.

I think it's fair to say that, in a way, our aim is to keep the working capital at a fairly sort of stable level and collecting as swiftly as possible. But the working capital will depend on quite a lot, in a way, the action level in the last 4 to 6 weeks before year-end on the late sales side.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [25]

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Sahar Islam is also asking what is the competitive landscape like in the contract market and how do you expect this to evolve with the Shearwater market share post its CGG acquisition?

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Rune Olav Pedersen, PGS ASA - President & CEO [26]

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Yes. No, I mean, the competitive landscape currently is fairly transparent. Obviously, we have CGG using some of its capacity in the contract market. We have Shearwater and Polarcus and ourselves. I mean it is still, I would say, strong competition.

But at the same time, you can see that we are able to use -- and have been able to use some of our differentiators to build a strong backlog and strong pricing through this year. So there is possibility to differentiate in this competitive environment.

And then the question related to Shearwater's acquisition of CGG. Well, then we will be facing one less competitor in any contract acquisition, which obviously, generally is positive for the other competitors in the market. At the same time, we don't expect Shearwater to retire any of the CGG vessels. So whether it will impact competition, it will be positive. But whether it will have a material impact or more of a smaller impact, it's still difficult to say. But there is still strong competition in the seismic space.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [27]

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Somewhat related question from Monika Rajoria in Societe Generale. Do you see competition intensifying due to the TGS buying Spectrum and CGG transaction with Shearwater? And how is PGS placed in the new competitive environment?

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Rune Olav Pedersen, PGS ASA - President & CEO [28]

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Yes, I will take the TGS acquisition of Spectrum. I don't think that will impact PGS in any material way at all. I'm sure there are some positives and some negatives related to that for us. But in overall, I think it's very -- rather neutral for us.

We, as I said, are able to utilize some of differentiators we have versus the others in the market, which goes both to the streamer technology in the GeoStreamer and the improved image we can deliver to the market, recognizing there are only 2 to 3 other vessels in the world fleet with similar imaging capabilities as the GeoStreamer.

And then, secondly, our very large vessels, we're seeing some -- the return of some large jobs in harsh environments coming to the market where, obviously, the Titan-class vessels are very cost efficient and a safe bet for clients in -- if they want the job done in an environment like that.

So we are able to differentiate on many different elements in the current market, which is obviously an improvement from the market we saw at least some 2, 3 years back where it was some -- most of the jobs were smaller and people weren't that concerned with quality, which is changing and changing in favor of the PGS differentiators.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [29]

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Then we have a question from Morten Nystrøm in Arctic Securities. Why do you expect late sales to rebound in the second half 2019? Is it only related to the budget flush effects?

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Rune Olav Pedersen, PGS ASA - President & CEO [30]

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It's obviously partly related to that, but I think I've already commented upon it. We have a fairly large opportunity basket for the second half and we've seen all through the first half of 2019 that our largest clients and where we have our library, it was likely to be more purchasers in the second half than in the first half of the year.

So the -- we're not -- we are not surprised that the first half turned out -- or if it does turn out weaker than the second half, that is not a surprise to us in the way we have seen the market develop. And it's clear to say we would have liked to have had more late sales in the second quarter in isolation, that's clear.

But here, we feel we have been, as I understand, we have lost quite a few of the -- the leads we were working on didn't materialize in the second quarter. They're not dead, they're not gone away. There are still leads and there's still dialogue ongoing and we expect a healthy part of those leads to materialize during the second half. And therefore, you could just say that the leads basket increased going into the second half as the sales were muted in the second quarter.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [31]

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Nystrøm also had a question on working capital, which Gottfred has addressed already. Then, we also have -- he's asking is it more likely that the refinancing now includes equity, given the failure in the first attempt?

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Rune Olav Pedersen, PGS ASA - President & CEO [32]

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It is still our clear plan to refinance without using equity.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [33]

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We have a question from Christopher Møllerløkken at Carnegie. The contract seismic market seems to enjoy a strong momentum while the prefunding backlog continues to be significantly down year-over-year. Any reasons why there it seems to be more difficult to secure prefunding for new projects this year?

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Rune Olav Pedersen, PGS ASA - President & CEO [34]

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We have experienced that for a while, I would say. And we have communicated that also at least 2 to 3 quarters now. I think -- I actually think that is improving and I think we will see that the prefunding backlog will increase somewhat going forward is the sense I am having right now. That it is becoming a bit easier.

It has puzzled us why the contract market has been -- has improved quite a bit through the period and it has remained difficult to get prefunding over the last quarters, but I actually think that is about to adjust itself a little bit from our internal forecasts and what we are working on. But we'll see.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [35]

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And we have another question from Christopher Møllerløkken in Carnegie. You are now fully booked for both Q3 and Q4. Normally, Q4 is a quarter where you reposition your fleet. What will be a fair assumption for vessel steaming for Q4?

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Gottfred Langseth, PGS ASA - CFO & Executive VP [36]

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That is a good question, I should probably know this. It might -- for full year average, we have typically 10% to 11% steam across the year. Q4 will be a bit higher than that. But I wouldn't expect -- I obviously have the number but not in my head. So I would expect a bit higher than 11%. But I would -- they'll probably not [all around be long. It would be on] sort of 13%, 14% or something like that. I think that if you -- I think we'll leave it at that. I probably said too much already.

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Rune Olav Pedersen, PGS ASA - President & CEO [37]

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No, it's all right.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [38]

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Then we have another question from Monika Rajoria in Societe Generale. Is your funding rate guidance for this year still in the high side of the target of overall 80% to 120%?

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Gottfred Langseth, PGS ASA - CFO & Executive VP [39]

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Yes.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [40]

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And then, she is also asking, is Brazil going to be a material region for PGS in the second half because of the upcoming awards -- licensing rounds?

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Rune Olav Pedersen, PGS ASA - President & CEO [41]

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We expect to sell from our Brazil library also in the second half, that's clear. Some of that is around related and others just general sales from Brazil.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [42]

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A somewhat related question from Sahar Islam in Goldman Sachs. Are there particular licensing rounds you would highlight in second half 2019 as important drivers for your late sales?

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Rune Olav Pedersen, PGS ASA - President & CEO [43]

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There are, but I'm not sure I want to highlight and there are several. I mean we have a geographically diverse library and there are licensing rounds that are important, Brazil being among them. And there are also licensing rounds coming up later, basically not in the second half but into 2020 where people will buy data in front of those licensing rounds.

So for example, the fact that Angola is reinitiating their -- or initiating a regime of licensing rounds more on a general basis will be positive for our large library in that country as well. And then, obviously, the North Sea is important with the upcoming -- up around where the awards are very early in January normally, in 2020. So yes, there are several. There are several there, we've mentioned a few.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [44]

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Yes. Next question comes from Mick Pickup in Barclays. You talked of competition between contract and MultiClient due to profitability. Is that on the EBITDA level? Or with levels that now contract is back in positive territory? He wants to get more insights into the competitive -- internal competition or capacity.

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Rune Olav Pedersen, PGS ASA - President & CEO [45]

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Yes. I mean the contract segment is profitable. It is EBIT positive and double digits currently. That means that some of these jobs are at EBIT levels that competes with MultiClient projects. And others -- obviously, this is a mix and others will obviously not be at profitability levels that compete with a MultiClient project.

Then it becomes a balancing act with obviously the contract revenues being not risked while MultiClient revenues are risked as you estimate late sales over time. And also elements of bringing cash flow in earlier versus later. So there's a mix here. But yes, there are contract jobs now that competes on profitability with MultiClient projects.

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Bård Stenberg, PGS ASA - Senior VP of IR & Communication [46]

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Okay. Are there any questions from the audience in Oslo? If not, that brings us to the end of the questions from the web.

So thank you all for coming and thank you all for logging into the webcast, and have a nice day.

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Rune Olav Pedersen, PGS ASA - President & CEO [47]

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Thank you.

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Gottfred Langseth, PGS ASA - CFO & Executive VP [48]

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Thank you.