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Edited Transcript of TGS.OL earnings conference call or presentation 30-Oct-19 8:00am GMT

Q3 2019 TGS NOPEC Geophysical Company ASA Earnings Presentation

Oslo Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of TGS NOPEC Geophysical Company ASA earnings conference call or presentation Wednesday, October 30, 2019 at 8:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Dean Zuzic

TGS-NOPEC Geophysical Company ASA - CFO

* Kristian Kuvaas Johansen

TGS-NOPEC Geophysical Company ASA - CEO


Conference Call Participants


* Glenn Lodden

Nordea Markets, Research Division - Analyst

* Tommy Johannessen

Sparebank 1 Markets AS, Research Division - Research Analyst




Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [1]


Good morning, everyone, and welcome to TGS Q3 earnings release. My name is Kristian Johansen, I'm the CEO of TGS. And with me today, I have our new CFO, Dean Zuzic.

It's a great pleasure for me to be standing here and presenting the third best quarter in the history of TGS. And as you know, it's a history of many successes and many good quarters. And it's actually the best Q3 we've ever presented to the market. So we're very excited about that. And not only that, this is the first quarter we present the combined company with TGS and Spectrum. That also excites us really a whole lot. And I think so far, the integration process with the 2 companies have gone really well. A new management team is in place. New senior leaders have been announced, and we're now working through an integration process. That is obviously taking a lot of time, but I can assure you that we're going to keep all the eyes on the ball and make sure that we still continue to deliver strong results.

Finally, I would like to mention that the numbers in this quarterly report or presentations are -- could be a bit confusing for some of you, because you already have the IFRS and the segment reporting that we're doing and we've been doing for a long time. And with the IFRS numbers, as you know, we can only recognize revenues when a project has been completed. So that's very different to how the previous accounting rules used to be.

In addition, this quarter, we have Spectrum that are consolidated from the 14th of August. But in the presentation today, we only talk about pro forma numbers as if we owned Spectrum through the whole quarter. And that's in correspondence with what we announced to the market earlier when we said that revenues were $277 million. That's including Spectrum for the whole quarter, so they're pro forma figures. So again, in the report, you will find the actual numbers, which allows us to consolidate Spectrum only from the 14th of August, since that was the closing of that transaction.

I'll refer to the forward-looking statements and ask you to read that, and then we go to the first slide, which is the highlights for Q3. So again, a very positive sales momentum. We had net revenues of $277 million pro forma for the quarter, and that compares to a pro forma figure of $171 million in Q3 of 2018. Our late sales were $213 million, a very strong quarter in terms of late sales, 27% above Q2 of '19 and 57% above the same quarter of last year.

Our prefunding revenues were $61 million, and that's 81% above what we had in the same quarter of last year. So again, a very strong quarter for TGS. It's partly driven by transfer fees due to this consolidation that you see in the E&P industry. It's also driven by very strong quarter in Latin America, where TGS started a couple of projects in late fall of 2018. We've been acquiring that throughout 2019, and these projects were very successful based on the 16th round that was held in Brazil in October this year.

Cash balance of $266 million at the end of the quarter, and that comes in addition to an undrawn $100 million revolving credit facility. That's probably a number that some of you have already noticed that is lower than what you expected. But I can tell you that during the first 10 days of Q4, we collected more than $100 million of cash. So the cash balance this morning was about $360 million, plus an additional $100 million. So don't be too worried about our cash balance or our cash flow. It's just some slight timing differences, but it continues -- TGS continues to generate a lot of cash.

And that means that we can continue to increase our distribution to our shareholders. Quarterly dividend is maintained at $0.27 per share, and that's up 35% from the same quarter of last year. And in addition to that, we have utilized about $29 million of a $50 million authorization we have for share buybacks. Backlog remains strong and even stronger after the announcement of a big project in Argentina this morning. And we also see favorable developments in key markets for TGS. I would still say that volatility is -- continues to be high.

As an example to that, we all see that onshore, for example, is very slow at current, you've all seen rig counts come down. You've all seen the pressure that is on the onshore E&P companies in -- especially in the U.S. But in general terms, there is a favorable development in the market. It's also driven by quite significant exploration success recently. So you've probably seen that BP, Kosmos announced a big discovery in Mauritania last week. This is an area where TGS has a lot of data. In addition to that, Hess announced a big discovery in the Mississippi Canyon in U.S. Gulf of Mexico yesterday. So discoveries are always good for our business, and it triggers increased data sales, triggers farm-ins and farm-outs and the high activity around the existing fields, which is good for TGS. And then again, last but not least, acquisition of Spectrum is completed, and integration is on track.

In terms of the operational highlights, I would like to start with a slide showing all the operations that we had in Q3. And I think this slide is fascinating. Not only is it the busiest slide we've ever seen in terms of operations, but it shows what a fantastic database we have in the Atlantic Margin. And in the Atlantic Margin, that's just the margin I just referred to in terms of 2 major discoveries quite recently. Very prolific area, where oil companies still have deep pockets to continue to explore.

And we had 14 operations in the Atlantic Margin in Q3. That's a record high number for TGS. And if you add on top of that 3 onshore crews that we're operating in Q3, you will understand that it was a busy quarter for all of us.

But very active in Canada. You see 2 3D vessels and 1 2D vessel in Canada. You see we had 2 land crews in the SCOOP and STACK area in Oklahoma, in addition to 1 in the Powder River Basin in Wyoming. We had a joint venture with MagseisFairfield, a big OBN survey acquired in U.S. Gulf of Mexico; then we had a lot of activity in Brazil and Argentina, which are key growth markets for TGS in the future.

On the Eastern Hemisphere, you see 3 active crews in the Norway side of Barents Sea, Norwegian Sea and North Sea. You have 1 crew also operating on the U.K. shelf of the North Sea, and then we have 2 crews operating in the MSGBC Basin, the basin where I just referred to as one of the key discoveries that were announced last week by Kosmos and BP.

If you go to the different countries where we were operating and start with Brazil, because Brazil was certainly a key highlight this quarter. So we had quite a few operations in Brazil, starting with the Southern Basin SeaSeep, that we started earlier this year. It's a 210,000 square kilometer multibeam and coring project, covering basically the entire Campos and Santos basins. And you see the dotted line, how that fits in with the 3Ds that we've been acquiring this quarter as well.

Then we had the Santos Basin 3D. It's a 22,500 square kilometer multiclient 3D. This is in the southern Santos Basin. This is partly outboard Santos and partly inboard Santos. We have Campos, which is a 14,100 square kilometer project in the Campos Basin in Brazil. And both these projects have been expanded during the quarter. So we actually want to shoot more, and this is obviously based on client interest and what client tells us in terms of where they want to see data in the future. And then last but not least, we also had the Potiguar 3D, a 10,350 square kilometer 3D that we shot in the Potiguar Basin, which is further north in Brazil, as you can see on the lower right-hand side of my slide.

In terms of the Brazilian market, it continues to be hot. We have significant transparency in terms of license rounds. We see that the recent license rounds had been a great success for the industry and also for the Brazilian government. So if you go back to the 16th round that was announced in October, you saw record high bidding once again. You saw one block were awarded for $1 billion to Total, and you see a lot of very competitive bidding in Brazil, which obviously means, the more competitive the bidding is, the more they're willing to pay for acreage, the more value you should see in seismic, of course. So Brazil has been a very good area in terms of seismic acquisition and even late sales for the past couple of years.

Also, seismic permitting process is becoming more streamlined, which is good. And again, this is a supermajor focus area. You see companies like Total, Exxon, Shell, Equinor being extremely aggressive in the license round, willing to really put up a lot of money for acreage in Brazil.

Argentina is the next one. In Argentina, we announced a new 3D project this morning. It's more than 7,000 square kilometers of 3D, which we're going to start late this year or in the middle of December. But we also had activity in Argentina in Q3. So we had 2D activity in the Colorado Basin, as you see from the map. The Argentina market is probably more risky than Brazil because of the political issues that the country is facing and is mainly related to foreign exchange and a relatively unstable fiscal regime.

But the companies that we are working with in Argentina are supermajors and companies who have their headquarters, obviously, outside Argentina. And the projects that we are announcing this morning is heavily prefunded. So it's going to be a good prospective area for TGS for the future, and I'm looking forward to see growth in Argentina into 2020 as well as I want to see the same thing in Brazil. So these 2 markets are certainly going to be fueling growth for TGS in 2020.

East Canada. We've been active in East Canada, together with PGS for the eighth consecutive season. You see a lot of activity also in Q3 of 2019. If we look at the map, you see the Jeanne d’Arc 3D, which is the lowest one of the 3Ds on the map. This is in the Southern Newfoundland area. And then you have North Tablelands, which is an extension to the Tablelands that we acquired last year. We have our first-ever 3D project in Labrador Sea, Torngat, as you see in the far north of the map. And then you see a couple of 2D projects in Canada as well this summer. So a very active season, together with our joint venture partner, PGS in Canada. And the operations are now ended for the season, obviously, because of weather.

Canada remains a very strong market for TGS, and the reason is that there is political stability in Canada. We have a scheduled land tenure system. We have an attractive fiscal regime that promotes exploration, which is good; high prospectivity; and the country is big, or the basins are really big, so there's a lot of seismic to continue to be shot in East Canada.

And then last week, Exxon reported that they're just starting a well on EL 1135, and this is an area where TGS has a lot of data. So for 2020, it's going to be really make or break for Canada in terms of exploration success, because there's quite a few wells being drilled in Canada. So we're excited about that.

And then U.S. Gulf of Mexico. So we have the Amendment Phase 1 that we have been talking about for a couple of quarters. This is a project -- OBN project, multiclient ocean-bottom node project in collaboration with WesternGeco. It's close to 3,000 square kilometers, covering about 103 blocks in this prospective area of Mississippi Canyon. And Mississippi Canyon is where Hess announced a big discovery yesterday, and that basin just continues to deliver and deliver. It's been a highly prospective region for many, many years. TGS has basically covered this entire area with wide azimuth. We have about 1,500 blocks of wide azimuth. And now the next generation is that we go back and we cover that wide azimuth with ocean-bottom nodes, and our Amendment Phase 1 is obviously the first phase of many phases. I really hope that we can come back to the market and announce phase 2 or phase 3 in the near term.

In terms of U.S. Gulf of Mexico market, again, this is mainly driven by exploration success. When you have exploration success in the U.S. GOM, you will see right away that more and more of these smaller companies go out and seek funding to start exploring again. So I'm quite excited about the discovery that was made yesterday.

We have license rounds in March and August in the U.S. Gulf of Mexico. There is a lot of acreage turnover and farm-ins. A lot of the transfer fees that had been paid to TGS over the past 2 or 3 years have either been in the U.S. Gulf of Mexico or onshore U.S. That's really where we've seen a significant consolidation activity over the past few years.

So in the U.S. Gulf of Mexico, as an example, back in 2009, there were 82 companies bidding in the license round. Today, that same number is about 25. Part of the reason for that is that you've seen significant consolidation in the U.S. Gulf of Mexico market. But some of these players are coming back, some of these management teams are now out seeking funding for new start-ups, and we're already in far or advanced discussions with some of these companies to feed them with data such that they can explore and develop their exploration strategies for the future.

Then you have North West Africa. So we have a new project in Q3. It's a Senegal Ultra-Deep. This is a 4,500 square kilometer in the MSGBC Basin in Senegal. And this is, as you see from the map, offshore North West Africa. This is very close to where Kosmos and BP announced their big discovery last week.

In terms of Q3, we had 2 activities. We had the MSGBC. It's a SeaSeep project, basically cover the entire margin, 113,500 square. And then we had Jaan, which is a 28,300 square kilometer multiclient 3D project also covering a significant part of that basin. That is done in partnership with PGS and GeoPartners. The new project that we're doing in Senegal is doing -- is in partnership with GeoPartners, where they just have a very minority ownership of the survey.

Again, North West Africa, in terms of the drivers going forward. I'd love to come back to this exploration success, which really drives future exploration, and discoveries are good for our business. And again, I'm very pleased to see the announcement of a new discovery in this space in -- last week. So quite excited about that.

And then we have, last but not least, so the offshore areas. We have Norway and U.K. So we had 4 different projects in Norway and U.K., 3 in Norway, and they're quite well spread out. There is one project in the Barents Sea called Greater Castberg. This is a TopSeis project together with CGG. We have one project in the Norwegian Sea, which is the Atlantic Margin 3D that we continued. And then we have Utsira, which is in the North Sea. And this is a major OBN survey that we started together with a company called Axxis last year, and we're continuing that project as we speak, or it's about to just finish. In addition to that, we also had a 3D on the U.K. shelf. So this is a smaller 3D, about 1,300 square kilometers, and this is in the southern North Sea Basin of U.K.

So again, the drivers for Norway and U.K. annual up around applications in Norway, of course. You have the U.K. 32nd round coming up, and then you have a lot of change of ownership in assets. For those of you who read the newspapers, you see that there is almost every week, there is a new private equity-backed company coming into Norway, and there are supermajors actually leaving Norway. But again, that's good for our business because it means that new companies will need new data, and they're usually more aggressive in their exploration and growth strategies as well, which is -- benefits our business in that region.

And then last but not least, North America Land. So we had 3 projects, as I said, Gloss Mountain and South Hackberry in the Anadarko Basin in Oklahoma; and then we had Railgun, which is a new basin for TGS. This is in Wyoming. It's a smaller project. It's about 680 square kilometers, heavily prefunded and could possibly open up a new basin for TGS.

As you know, in the Anadarko Basin, we've been quite active. We've been shooting data now for the last 12 months in the Anadarko Basin. We just finished our last survey there. And hopefully, Railgun could be the start of a new basin for TGS onshore U.S. That's going to be really exciting.

In terms of the market going forward, as I said, I mean, if you look at the rig count, it's down. If you read the analyst reports or newspapers, it's all quite negative in terms of the outlook for U.S. onshore. I think for seismic, it's slightly different, and it's -- probably the reason for my optimism is that there's still a lot of optimism in terms of seismic intensity, meaning that companies need more seismic in terms of exploration there. So I think we'll still see growth in our onshore business in the U.S. We're probably going to hold back a little bit on investments short term will certainly require significant funding. But this is an area where we're going to continue to be active, and we see that there are great chances to grow our business also in U.S. onshore for the future.

So with that, I'm going to hand it over to Dean, who's going to cover the financial slides. And I will come back and talk a little bit about the market and the outlook. Thank you.


Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [2]


Thanks, Kristian. Let's see if I can run away. There we go. Finance. I won't read this, but it should be -- the IFRS, you have the, I mean, presentation. What we're actually saying here, that we have to present several sets of our main numbers here. The official report will include Spectrum for the 14th of August, and it will also include any alignment adjustments related to, I mean, accounting principles that were done after the group was, I mean, merged, while what we will try to show here in the presentation are comparable figures on a pro forma basis back to the first quarter of 2018.

The IFRS 15 standard is known to everyone, I would guess, introduced the 1st of January, 2018, which has changed the way we report revenues. Not to create confusion, we are still showing revenues both according to the segment reporting principles that was once used prior to the introduction of the IFRS 15 standards. So you have both sets.

If we jump into the numbers here. As I mentioned, we are -- we have pro forma adjusted numbers, which means that these numbers show figures that would -- as if we had done the Spectrum transaction back in January 1, 2018. We have also shown a division between Spectrum and TGS, and we're doing this, this quarter, where we will not be doing that from quarter 4, basically because we are integrating Spectrum into TGS. And all the Spectrum business will follow the business unit division that we have in TGS.

But until now, we can show you a history, both for Spectrum and for TGS. So If I jump into the net revenue slide, Kristian has already mentioned, we have late sales of $213 million, of which, $31 million are all Spectrum projects; $182 million, TGS, a nice increase of 57% year-on-year compared to pro forma adjustable numbers Q3 2018.

Prefunding came in at $61 million, which is also a nice increase of 81% compared to the year earlier. And as you can see here, the Spectrum contribution to prefunding is pretty small compared to the overall size in revenues. The reason for that is basically the Spectrum -- and if you compare the Spectrum numbers or what has been reported for Spectrum earlier, you would see that these numbers are lower. The reason for that is that Spectrum used a different definition of prefunding than what TGS did. Basically, TGS, calls prefunding all revenues incurred until the project starts. While in Spectrum, we define prefunding as all revenues until the project was finished, which means there is a difference of 12 to 18 months here. So prefunding revenues for Spectrum will be lower than prefunding revenues for TGS. But again, for the combined company, $61 million, 81% increase compared to last year.

Proprietary revenues, pretty small compared to the total, $3.5 million this quarter, which were somewhat lower than we had in Q1 and Q2, but again, a nice increase compared to what we had in Q3 2018. And total revenues, $277 million that we had announced earlier, a nice increase of 62% compared to the year earlier.

The net revenue breakdown by region and by technology shows that still, North and South America are the major contributor to revenues. 61% of our revenue in Q3 came from the Americas. We had 18% from Europe; 10% from Africa, Middle East and Asia Pacific; and 11% of revenues were proprietary. By technology, 3D, again, the biggest contributor, 76%; 14%, 2D; and we had 10% from GPS geological services.

Expenses. This deserves a comment. They might look a bit high, $47 million were the operating expenses for Q3, which are significantly higher than what they were in Q3 2018. A very simple explanation. TGS has a very generous bonus scheme, and we accrue for bonus costs quarterly. Bonus comprises $14.2 million running bonus in Q3 figures. And the figure consists of 2 elements: One is the bonus accrual in the -- according to the TGS plan, but also an alignment of Spectrum -- of the Spectrum bonus -- I mean, scheme, which led to a -- towards booking cost of almost $3.8 million. So there is a total of $14.2 million in bonus costs in Q3, which explains most of the increase from, I mean, last -- from year. Most of the transactions -- I get this question often, most of the transaction costs related to the merger were taken and accrued in Q2 for both Spectrum and for TGS. So they're not that -- there is a smaller portion, around USD 1 million, in transaction costs which is in Q3, but the remainder was taken in Q2. So bonus explains the cost increase on the OpEx side. If you look at other operating costs we had, it was around $14 million if we exclude personnel costs, which is exactly in line with what we had in Q2.

The amortization and impairments, we had $131 million, again, a division between Spectrum and between TGS. If you do the percentage calculation, you will see that it was in the 40%, 46% was our amortization rate now in Q3, which was significantly lower than what it was in Q3 of last year, where it was 67%. The reason for that, again being, as Kristian mentioned, we did have transfer fees this quarter, and transfer fees do not lead to any amortization charges.

EBIT, a healthy USD 94 million; EBIT percent, north of 40%, which we are very satisfied with. Free cash flow was negative with EUR 35 million. Kristian mentioned that this is a prioritization and timing issue basically on when collectibles came in. The cash flow is -- if we look at it now, it's almost $100 million higher than what it was at the end of the quarter. So there is nothing bad in the cash flow generation in the company.

In the multiclient library investments of $158 million in Q3, a healthy increase from Q3 2018. Q3 will always say -- again, we're following the normal seasonal pattern. Q3 is always a good investment quarter for us. Prefunding ratio came in a bit south of 40%. Again, the reason for that is that Spectrum prefunding is on average lower than TGS prefunding if we use the same definition of prefunding that TGS uses. If we would have just shown the figures for TGS here, the all-TGS prefunding was in the 40% to 45% bracket, as was guided last time of year. So nothing that has changed there.

In terms of multiclient library, we ended the quarter with $889 million, which is a slight decrease from the end of -- from the end of Q2, but still stable level of library. Net value at the end of the quarter. This quarter, actually, we had amortized less than the investment. Rate is getting closer to 1 again. And if you look historically back where it is a bit much, much higher in and I mean, '18. So we managed to maintain at the level of the library in Q3.

Investments and net book value by year of completion, as you see from these charts, most of the book value of the library are -- or 90% of the value of the library are projects that are to -- from 2017 or I mean, newer. So we're talking about 2-year -- the last 2 years of investments comprising 90% of the library.

In terms of sales, there is a somewhat different picture. We still have 20% plus of sales from libraries that are from 2014 and prior to -- I mean that, which, again, shows that there is still value in a lot of the old vintages. And they have historically added up to around -- between 20%, 25% of sales in TGS.

Income statement, just to repeat. The main figures, we mentioned, the top line, $277 million. The personnel costs, as you see, have increased. I mentioned the bonus scheme that adds some $14.2 million. Other operating costs are up somewhat from Q3 last year, but in line with what we had in Q2. Amortization rates, lower this quarter, 46%. That is due to the composition of revenues. And on the, yes, financial costs or debt finance, not that much to say in TGS since there is no debt. So it basically consists of interest income. And the tax rate was 20% -- below 20% this quarter, which was maybe on the low end of what we usually have. It does vary between 20% and 25% on average from quarter to quarter.

The balance sheet includes Spectrum. This is the PPA-adjusted balance sheet following the acquisition. What you do see here is that there is an increase in goodwill, and goodwill stems from the acquisition of Spectrum. There is a note in the earnings report that shows how the PPA is built up, but Spectrum explains the increase in goodwill. The other items also, any differences between the quarter of last year can be explained by the merger of Spectrum. Not that much to comment here.

Cash flow. Let me just spend a couple of minutes on this. There was a reduction of $87 million. But as I said, there is -- I mean, the expression that is basically timing of invoices and the collections from clients. We are at almost $100 million higher now than what we were at the end of the quarter. But we managed to collect $131 million during the quarter. OpEx payments were $49 million; taxes paid, $11 million. On the investment side, there was a cash outflow, $106 million from investments in the multiclient library, the $14.6 million in positive cash flow through the investments is the cash balance with Spectrum following the merger.

On the financial expenses side, we have -- there are also some items that are worth a comment: interest, low $1.4 million. We did pay dividends of $30.1 million, both to the old TGS shareholders and to the Spectrum shareholders after the merger. We paid down the Spectrum debt. Spectrum had USD 16.2 million in debt at the merger date. That has been paid back in Q3, and we have -- and we also conducted the share repurchase program that we use $13.1 million of cash flow in Q3 on.

Dividends, as stated in the report, the Board has approved a $0.27 dividend for Q4, which will be NOK 2.49 to be paid on the 20th of November. There is a separate stock exchange release regarding this. The share will go ex-dividend on the 6th of November.

We have repurchased shares, $29 million utilized to date of the $50 million share repurchase program. We will restart that following the announcements today, where -- so there is $21 million left for share repurchase until the AGM in May 2020. We bought 545,370 shares in Q3, average price NOK 215.4. Total repurchase since the start of the program, 1.145 million shares, an average price of NOK 222.3. Dividend yield, 3.9%, 3Q '19 and that were the figures. Kristian?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [3]


Thank you, Dean. So as I said initially, the markets continued to improve, but there is still volatility in the market. So let's have a look at that. So if you first look on the left-hand side of this slide, you see the aggregate multiclient revenues for all the players who have preannounced or announced revenues for Q3. And you see that it continues to be a healthy uptick in revenues for multiclients. And these are all the players who consist of our industry.

TGS represents about 35% of the market in Q3, so about a 35% market share. And if you look at this positive trend, I think, it's partly driven by this big transfer fee that quite a few of us, obviously, collected in Q3. But I think it's still a reason to be slightly more optimistic. But then again, we shouldn't expect to see a significant uptick for next year. I think when you see your E&P spending report, so you read industry reports about E&P spending or discussions I have with clients on a weekly basis, we believe there will be growth next year, but it's probably going to be single digit and not double digits. So it will continue to go up pretty much in the same pattern as you've seen now since the trough in -- back in Q1 or Q2 of 2016. That's our estimate on the market.

Then there's a lot of questions about vessel prices, and where do you see vessel prices in the future? Well, I can only answer for what we've seen in the past. And I think year-to-date, we've looked into this. We've looked at every single survey that we're doing and every single vessel that we're using, and we're up about 15% compared to last year. That's the official figures from TGS. Obviously, this varies from vessel to vessel, survey by survey, et cetera, but about 15% is what we see now. For next year, we would probably plan with another 10% or 15% up, because we see that the market is tightening slightly, which is a good thing, because it means that there is also more appetite to pay for seismic, and again, then we can reprice our existing seismic, where we have quite a lot in our existing data libraries. So that's how we see the market going forward.

In terms of our backlog, it's slightly down in Q3, but again, we announced a big project today. And I think if you ask me within a couple of weeks, then I think the backlog will be up between $50 million and $100 million compared to the numbers you see here. So we are very optimistic about both Q4 and 2020 in terms of the pipeline of opportunities. And again, as I said, we had 2 core markets now for both Q4 and 2020, that would be Argentina and Brazil, where TGS has a lot of activity coming up now for the next 12 to 18 months. I'm quite optimistic about that. So again, I expect that backlog to be -- if we measure that today or within a week from today, it will be significantly higher, probably as much as $50 million to $100 million compared to this.

In terms of the project schedule, and this is the one I would like you to have a look at when you look at Q4 investments and when you make your estimates for how much we're going to invest for the next quarter. You see that we have one onshore project taking place in December. This is Midnight 3D project that we announced yesterday in Canada. In addition to that, you see that we have both Railgun and Gloss Mountain going into Q4, so going into October. We finished Gloss Mountain, I think, yesterday, so that's done by now. So that's all the onshore activity that we have for Q4.

And then in terms of the offshore activity, we have Malvinas. So that's the Argentina survey that we announced this morning. That's a big survey that's going to continue way into 2020. We have the Campos 3D that will probably be complete around December 10, and then we have the Santos 3D, where we're going to do some infill on the existing surveys, and we're going to be there for about 2 months or 1.5 months for Q4. Then we have the Senegal Ultra-Deep, which is about 1.5 months. So the survey starts in mid-November, and it goes through December and into 2020. And you also see that we have 2 multibeam and coring projects going into Q4.

So that's what we have secured as of now. There may be more to come. We are in advanced discussions about projects, both in Latin America and Africa, Middle East. And then, as I said, we are also looking very closely at what we can do in the Gulf of Mexico, following up on the Amendment Phase 1. So there will obviously be 2, maybe 3. Whether that's going to happen this year or next year, it still remains to be seen. But I think the initial results we've seen from Amendment 1 are really, really good, and we presented this to the industry at the SEG conference in San Antonio about a month ago. And we are very excited about the results, and so is the industry. So I think there is reason to believe that there will be a phase 2 and a phase 3 coming up pretty soon.

In terms of our guidance for the year, so we had to change our guidance based on the consolidation of Spectrum. What I can say right away is that the TGS original guidance, if we were reporting TGS as a stand-alone company, would stand the same -- would be the same. It would be about 20% growth in multiclient investments. It would be prefunding in excess of 40% and amortization slightly higher than 2018. So that would be the situation with TGS only. But now we have consolidated Spectrum, and that means that the growth in multiclient investments will obviously be much higher, so it's going to be about 40%, which represents about $420 million for the full year. We're going to have prefunding slightly lower than what we guided stand-alone, because Spectrum has a different way of accounting prefunding. And when we calculate that based on the TGS methodology, the prefunding dropped slightly down to a level of 35% to 40%. And then again, amortization will still be slightly above the 2018 level for both companies, if you look at what both companies had in 2018.

So that leads me to the summary. So again, our pro forma net revenues of $277 million. Again, it's the third best quarter in the history of TGS, and it's the best Q3 by far. This compares to $171 million in Q3 of 2018.

So again, I just want to thank all our employees for a fantastic quarter. And Dean made a comment that TGS has very generous bonus systems. I would certainly disagree to that. I think we get what we deserve. And Spectrum will also feel the benefits of that when we become one company on January 1.

Solid cash balance of $265 million. But as we both said today, that cash balance today is about $360 million. So we sleep well at night when we look at the bank account before we go to bed.

Increased distribution to shareholders. Yes, we have increased our dividend by 35%. Our dividend yield is about 3.9%. But in addition to that, we're buying back shares in the market quite aggressively, and we will start pretty much as we speak, I guess, because I saw the share price was down for some reason. Increased distribution to shareholders will continue, continued strong order backlog. Again, I expect it to be significantly up from the numbers we report here, because we have some very interesting discussions with clients, especially in Africa, Middle East and Latin America. Market outlook continues to improve, but volatility is still high. And the acquisition of Spectrum is completed, and the integration is on track.

So that's all we have for this quarter. Please, we'll take your questions now. Thank you very much. Yes?


Questions and Answers


Glenn Lodden, Nordea Markets, Research Division - Analyst [1]


Glenn Lodden with Nordea. Just a quick question on increasing multiclient revenues, because we're seeing sort of a discrepancy between the map and the terrain, I would say, where we're seeing multiclient revenues steadily increasing, and they have been doing so since 2016. At the same time, we're seeing E&P companies continue to express that they want to hold back on investments. They want to hold back on E&P spending. How do you explain the difference there?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [2]


Well, it's partly not a client taking market share from traditional proprietary work. So what we've seen through this down cycle is that, all companies have finally understood the benefits of the multiclient model is that -- it's kind of a sharing economics of seismic. It's a perfect tool for all companies to be able to get more seismic for a fraction of the cost. And I think that's what more and more oil companies have gotten used to that.

You've also seen some multiclient projects that are not the same as they used to be. They're going more towards what we call converted contracts. So like what we're doing in Argentina now is that we shoot over held acreage, but then there are always uplifts and there are always some farm-ins to those projects, and you could still make a reasonable return, and you have very high prefunding.

So I think in general, to answer your question, I think there's been a shift from proprietary to multiclients. And again, this is also really good. I like to stress this when I talk to clients as kind of an ESG. If you put on your ESG hat, it's fantastic, because it means that you actually waste much -- or you have a far less or lower carbon footprint, because you're more efficient what you're doing. So rather than using 10 vessels in one area in Brazil, you can use one vessel and shoot a big area. So this is music to the ears of the oil companies right now.


Tommy Johannessen, Sparebank 1 Markets AS, Research Division - Research Analyst [3]


Tommy Johannessen, Sparebank 1 Markets. On the prefunding ratio guidance for -- on the new guidance, you said 35% to 40% on new projects. Is that the level we should expect in 2020?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [4]


No, I think it's too early to say anything about 2020. It really depends on the project mix. I think we would certainly not go any lower than that, I can tell you that. But I think there is upside to that number, because, again, Argentina has very good prefunding. Onshore, it would typically have very high prefunding. So again, it's early to give you any guidance of that, but I would still think that's a low end of the scale what we would accept.


Tommy Johannessen, Sparebank 1 Markets AS, Research Division - Research Analyst [5]


Okay. And on Amendment Phase 2 and 3, what's the reason for the delays there on the investment decisions?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [6]


There aren't any delays compared to our expectations internally. So I think we hope to have our project ready by early 2020, and I still stick to that. I think we're going to have a project sometime in early 2020. So no delays on that. I think we want to see the initial results of the first phase before we go on and shoot second and third phase. And now we're about to see some results of that, and it looks really promising. We're out showing those results to clients as we speak, and obviously, try to get some funding for the next phases. So it's following pretty much the existing plan.


Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [7]


I have some questions here, I don't know if we can take them. We have from Sahar Islam in Goldman Sachs. She had a couple of questions. First of all, how should we think about the mix between late sales and prefunding for Q4 '19? Any specific drivers into the year-end?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [8]


Yes. I think in terms of -- you can go back to and refer to the slide where we show the vessel schedule and the onshore schedule for Q4. And you will see that investments will obviously come down significantly compared to Q2 and Q3. And these projects will have a prefunding that is probably slightly higher than what we reported in Q3, so slightly higher than the 35% to 40%. And then Q4 is always a good late sales quarter. I don't see any reason why it shouldn't be good this year as well.


Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [9]


Okay. And the guidance is something that we have said that, 35% to 40%, that's probably all the way.


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [10]




Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [11]


And she had a second question as well. Given the consolidation among vessel owners, what are you seeing in day rate increases? And will you look to secure capacity in advance for next year?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [12]


Yes, I think I already answered the first part of the question. So we've seen 15% in our portfolio. That's just an official number looking at every single vessel that we use and comparing it to last year. So that's apples-to-apples.

In terms of next year, I think, yes, vessel rates will continue to be higher, probably 10% to 15%, as I said, for next year too. And we're prepared to pay that because, again, we pass that over to our clients. That means that clients are willing to pay more for seismic. So it's actually a good thing.


Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [13]


Good. And then we had some questions from Morgan Stanley, Lillian Starke. She is asking if we could give some detail on how much of the revenue was attributed to transfer fees? And the second question regarding the North America Land market in terms of client mix? If we are seeing more demand from IOCs versus E&Ps? Or we still seeing demand somewhat homogeneously among different clients?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [14]


Yes. I think the first question on -- which is...


Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [15]


Transfer fees that we have, yes.


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [16]


Related to transfer fees, we cannot really comment on that, but it's very obvious that the transfer fees this quarter were quite extraordinary high. And I mean we wouldn't normally do a profit warning halfway into the quarter in early August. So it was a significant transfer fee. But again, TGS is not the only company who got that transfer fee. There was a fair distribution among all the multiclient seismic companies. It was big, for sure. It was probably the biggest we've ever had.

In terms of the onshore and the client mix onshore. Yes, I think we see a higher proportion of IOCs. I think we've seen a very positive trend in our onshore business. We see companies like Exxon, Chevron, Shell, et cetera, going into -- big into the Permian. I think that's a positive thing, because these guys are very geoscience-driven. They're very, very keen on understanding the subsurface before they do drilling -- or as part of their drilling campaign. So I think we've seen some changes in the client mix, and that will continue to happen going forward.


Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [17]


Good. Then we have a question from John Delos Santos, UBS. How much of your vessel cost inflation can you pass on to clients in 2020?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [18]




Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [19]


Yes. Good. Next, I have a question from (inaudible) Pro forma 2019, MC investment will be around $420 million based on the guidance. You said you were planning a 10% to 15% day rate increase in 2020, which will bring you to the results, $470 million. Should we also add some volume increase in 2020, taking investments above the $470 million level?


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [20]


I would hope so. I think that's a guidance to our project developers is that then we have a very strong balance sheet. We have the industry's most comprehensive database now, so we should have all the tools in place to invest even more. So that would be the ambition. But again, it's way too early to start talking about the project mix and the size for next year.


Dean Zuzic, TGS-NOPEC Geophysical Company ASA - CFO [21]


And that was it on the web.


Kristian Kuvaas Johansen, TGS-NOPEC Geophysical Company ASA - CEO [22]


Any other questions here? All right. I think we covered a lot. So thank you very much, and thanks for your attention. And see you again after our Q4 earnings release. Bye.