pareto oil & offshore conference reports/company...signs of improvement in oil companies’...
TRANSCRIPT
-
Kristian Johansen
Pareto Oil & Offshore Conference
CEO14th September, 2016
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 2
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
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 3
Introduction
Market Overview
TGS Strategy
Q2 2016 Financial Highlights
Appendix (financial information)
Agenda
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 4
The World’s largest geoscience data company Traded on Oslo Stock Exchange, part of OBX Index (25 most liquid shares) Headquarters in Oslo and Houston (Operational) Regional offices in London, Perth, Calgary, Mexico City and Rio de Janeiro
The Leading multi-client data library covering frontier & mature basins ~3,000,000 km 2D data, ~500,000 sq. km 3D data and ~8,600,000 digital well logs Other data types include CSEM, multibeam, coring, gravity, magnetic, interpretive products Strategy to enter frontier regions, grow library and apply new technologies as basin matures
Asset light and multi-client business model Flexibility through no vessel ownership – few long-term capital commitments Investment decisions driven by financial returns rather than asset utilization Client relationships – leading global sales & marketing team; exploration partner to E&Ps
Solid balance sheet backing TGS strategy No debt and strong cash position allow counter-cyclical investment Average dividend yield of 4.2% over last seven years 10-year average return on capital employed of ~40%
This is TGS
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 5
Introduction
Market Overview
TGS Strategy
Q2 2016 Financial Highlights
Appendix (financial information)
Agenda
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 6
Year on Year decline in spending Second consecutive 20%+ decline in E&P spending
expected this year Impact on exploration budgets expected to be larger
Near-term volatility expected Seismic demand likely to remain weak through 2016 Near-term, greater variability of demand between
quarters and across regions Seismic spend will likely be prioritized in existing
program areas that have premium economics
2017 E&P spending under pressure Most initial E&P Spending surveys indicate further
decline in spending
Challenging Market for Exploration
6
Change in Global E&P Spending
Source: SEB ResearchC
hang
e ye
ar-o
n-ye
ar (%
)
7
16
23
3
-25
8
16
6
21
2723
26
1922
-8
1519
1411
2
-26-27
-10
-30
-20
-10
0
10
20
30
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
E20
17E
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 7
Global Oversupply Moderating Global oversupply is anticipated to continue to moderate
through 2017 from a Q4 2015 high Market balance from Q3 2017 but supply response continuing
to create volatility
Need to Replace / Grow Reserves Only 2.7bn barrels of new conventional oil supply was
discovered in 2015, the lowest since 1947 (Wood Mackenzie) Combined with increasing demand, lack of new discoveries
will drive increased exploration spending as oil companies look to replace/grow reserves – the key question is timing
Long-Term Demand Increasing Global energy demand is expected to grow about 25% by
2040 driven by non-OECD countries Oil and natural gas expected to meet ~60% of global energy
demand in 2040
Long-Term Outlook Positive
7
0.50.7
0.5
2.01.7
2.0
1.3
2.3
1.4
0.80.4
0.80.4 0.4
-0.6-0.2
Global Production / Consumption (mn b/d)
Source: EIA
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 8
Seismic sector has underperformed financially ROCE below cost of capital Capital intensive and low entry barriers Critical product for end-user
Gradual shift from proprietary to multi-client Seismic contractors taking more risk E&Ps tendering seismic acquisition as multi-client Higher prefunding but potentially lower returns
Fragmented market offering consolidation opportunities Number of players constant since peak despite seismic
spending falling by 2/3 Consolidation would provide the industry significant benefits
over the course of cycles
Key Trends in the Seismic Industry
0.01.02.03.04.05.06.07.08.09.0
10.0
2010 2011 2012 2013 2014 2015 2016-E 2017-E
Seismic Spending (BUSD)
Other DP/Imaging Multi-Client Contract
38%38%
40% 38%
45%
63%59%
Source: S&P Capital IQ; TGS*Global marine seismic industry excluding TGS
Source: Fearnley Securities; TGS
-5%
0%
5%
10%
15%
2009 2010 2011 2012 2013 2014 2015
Seismic* Return on Average Capital Employed
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 9
Introduction
Market Overview
TGS Strategy
Q2 2016 Financial Highlights
Appendix (financial information)
Agenda
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 10
Areas with Faster Payback will Likely Recover First
Bre
ak-e
ven
oil p
rice
Payback
Chart highlights areas that are likely to see incremental seismic activity first as market conditions improve
First movers will be areas with the best economics, or a combination of break-even oil prices and payback period
Although initial focus will be on first mover areas, TGS will maintain a portfolio approach to investments to capture higher-return opportunities in more frontier regions
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 11
Reacting quickly to right size the company Operating costs down 30% year-on-year Operating costs down 51% since 2014 Variable pay drives alignment with staff
Strong correlation between cash inflow and cash outflow Investment down 54% to MUSD 230 Large reduction in vessel rates since peak Prefunding of investments stable at 40-45%
Fast & Flexible Business Model
11
-40
-30
-20
-10
0Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16
MU
SD
Personnel and Other Operating Costs*
* Adjusted for restructuring costs and larger impairments of operating items
0
200
400
600
800
1,000
MU
SD
Free Cash Flow Cash inflow Cash outflow
Cash Outflow correlates to Cash Inflow
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 12
Balance sheet remains healthy throughdown-cycle Cash balance per Q2 2016 of 162 MUSD Undrawn Revolving Credit Facility of 75 MUSD
Strong share price relative to sector TGS market capitalization of 1.8 BUSD Represents ~57% of industry (ex-SLB) Strong currency to explore inorganic investment opportunities
Solid Balance Sheet Backing TGS strategy
12
823
1167
255
3716217168
66
Assets Equity and Liability
Multi-client Library
Receivables
Cash
OtherGoodwill
Equity
Non-current liabilities
Current liabilities
Assets Equity & Liability
1,786
570
510
160 72
26 17 8 3
TGS CGG PGS SPU ION PLCS EMGS MCG SBX
Market Capitalization (in USD millions)
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 13
Dolphin library acquisition Agreement in principle to buy
the majority of the Dolphin MC library together with PGS
Enhancing TGS’ already strong position in areas such as the Barents Sea, the North Sea, NW Africa and Australia
Limited initial cash outlay Definitive agreement
expected in the near future
TGS is actively seeking consolidation opportunities through strategic library acquisitions Polarcus library 2015 Dolphin library 2016 Other opportunities monitored
closely
Strategic library acquisitions
13
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 14
Long-term value creation track-record Annual total return of 11% since IPO in 1997 Well above both the oil service segment and the general
stock market
Counter-cyclical investment Strong cash generation is enabling the company to both
invest counter-cyclically as well as paying dividends to shareholders
Policy of paying dividends in line with long-term underlying cash flow Aim to keep a stable quarterly dividend through the year
(measured in USD) Actual quarterly dividend level paid will be subject to
continuous evaluation of market outlook, cash flow expectations and balance sheet development
Solid Value Creation Over Time
14
Share price development*
* Values in NOK, adjusted for dividends** Current OSX components that have traded since TGS IPO (equal weighted)
0100200300400500600700800900
1,0001,100
Avg. annual return since TGS IPO in 1997
TGS 11.4%S&P 500 7.7%Oil Services** 5.8%
4 NOK
5 NOK6 NOK
8 NOK 8.5 NOK
8.5 NOK
USD 0.15per 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
Q3Q2Q1
Dividend paid* (2010 – 2016)
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 15
Q3 Investment Focus
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 16
Free cash flow generation
Consistency in delivering product quality
Significant cost efficiencies
Intense client focus
2016 Key Objectives
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 17
Introduction
Market Overview
TGS Strategy
Q2 2016 Financial Highlights
Appendix (financial information)
Agenda
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 18
Q2 2016 Financial Highlights
190
298
172 140 169 13264
114
050
100150200250300
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Total Revenues
3% Y/Y
71111
37 38 46 31-19
24
-40%
-20%
0%
20%
40%
60%
-50
0
50
100
150
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
EBIT *
EBIT EBIT Margin* Earnings before interest and taxes and excluding larger
impairments and restructuring costs
8415
110
-76
49-20
63
-35
-100
-50
0
50
100
150
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Free Cash Flow *
* Defined as cash flow from operational activities minus operational cash investments in multi-client projects
NSA52%
Europe27%
AMEAP9%
Other12%
Q2 2016 Revenue Distribution
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 19
Summary Signs of improvement in oil companies’ willingness to invest in seismic data during Q2 2016,
however, the market is expected to remain challenging and volatile in the near term
Long term fundamentals continues to be positive Global oversupply moderating Need to replace / grow reserves Long-term demand increasing
Asset-light, focused multi-client strategy continues to outperform Cost control, disciplined counter-cyclical investment and balance sheet strength positions TGS to
enhance its leading position
Updated 2016 guidance: New operational multi-client investments of approximately 230 MUSD
Additional multi-client investments expected from sales of existing surveys with risk sharing arrangements
Multi-client investments are expected to be prefunded 40% to 45%
-
Thank you
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved.
Kristian JohansenCEO
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 21
Introduction
Market Overview
TGS Strategy
Q2 2016 Financial Highlights
Appendix (financial information)
Agenda
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 22
9 9
6 5 5 53 3
0
2
4
6
8
10
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Proprietary revenues
130
226
72 82 90 9038
84
0
50
100
150
200
250
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Late sales revenues
3% Y/Y
51 62
94
5374
3723 26
0
20
40
60
80
100
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Prefunding revenues
190
298
172 140 169 13264
114
0
50
100
150
200
250
300
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Total revenues
Net Revenues
-50% Y/Y
-33% Y/Y -18% Y/Y
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 23
NSA51%
Europe19%
AMEAP16%
Other14%
Q2 2015
NSA52%
Europe27%
AMEAP9%
Other12%
Q2 2016
Net Revenue Breakdown
2D15%
3D75%
GPS10%
Q2 2015
2D48%
3D42%
GPS10%
Q2 2016
23
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 24
3237
25 24 2228
18 17
05
10152025303540
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Operating expenses *
-30% Y/Y
* Include personnel costs and other operating expenses. Adjusted for restructuring costs and larger impairments of operating items
81143
10574 99
230
62 69
0
50
100
150
200
250
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Amortization and impairment *
8415
110
-76
49-20
63
-35
-100
-50
0
50
100
150
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Free cash flow *
Operating Expenses, EBIT, Free Cash Flow
62% - rate
71111
37 38 46 31
-1924
-40%
-20%
0%
20%
40%
60%
-40-20
020406080
100120
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
EBIT *
EBIT EBIT Margin
* Q1 and Q2 2016 reflects the new amortization policy effective from 1 January 2016
* Earnings before interest and taxes and excluding larger impairments and restructuring costs
* Defined as cash flow from operational activities minus operational cash investments in multi-client projects
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 25
837 818876
919976
839 830 823
700
750
800
850
900
950
1,000
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Multi-client library - NBV
93126
163116 135
8853 62
0%10%20%30%40%50%60%70%80%90%100%
0
50
100
150
200
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Pref
undi
ng ra
tio
Ope
ratio
nal i
nves
tmen
ts
Operational investments and prefunding ratio
Operational investments Prefunding ratio
Multi-Client Library
17%
1%4%
8%
17%
1%
52%
0% 0%7%
19% 21%
9%
44%
0%
10%
20%
30%
40%
50%
60%
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
122
451
0
100
200
300
400
500
600
700
2012 2013 2014 2015 2016 YTD WIP
Original investments Net Book Value
20 %
34%
52%
22%
1%14%
70%
Investments – year of completion
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 26
Q2 2016 Income StatementUSD million, except EPS Q2 2016 Q2 2015 Change in %Net revenues 114 140 -18%Cost of goods sold – proprietary and other 0.8 0.1 1435%
Amortization of multi-client library 62% 69 74 -6%
Gross margin 44 66 -33%Personnel costs 11 17 -37%
Other operating expenses 9 9 -3%
Cost of stock options 0.3 0.9 -61%
Depreciation 3 3 -7%
Operating profit 19% 22 36 -39%Net financial items -0.3 2 -116%Profit before taxes 19% 21 37 -43%Taxes 5 13 -65%
Net Income 15% 17 24 -31%EPS, Undiluted 0.17 0.24 -29%
EPS, Fully Diluted 0.17 0.24 -29%
Sheet1
USD million, except EPSQ2 2016Q2 2015Change in %
Net revenues114140-18%
Cost of goods sold – proprietary and other0.80.11435%
Amortization of multi-client library62%6974-6%
Gross margin4466-33%
Personnel costs1117-37%
Other operating expenses99-3%
Cost of stock options0.30.9-61%
Depreciation33-7%
Operating profit19%2236-39%
Net financial items-0.32-116%
Profit before taxes19%2137-43%
Taxes513-65%
Net Income15%1724-31%
EPS, Undiluted0.170.24-29%
EPS, Fully Diluted0.170.24-29%
Sheet2
Sheet3
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 27
Q2 2016 Cash Flow StatementUSD million Q2 2016 Q2 2015 Change in %Received payments from customers 28 141 -80%
Payments for operational expenses (19) (25) 25%
Paid taxes - (29) 100%
Operational cash flow 9 86 -89%Investments in tangible and intangible assets (1) (3) 57%
Investments in multi-client library (44) (162) 73%
Interest received 0.3 2 -82%
Interest paid (0.3) (0.003) -10467%
Dividend payments (14) (99) 86%
Proceeds from share issuances 2 0.03 5271%
Change in cash balance -48 -175 73%
Sheet1
USD millionQ2 2016Q2 2015Change in %
Received payments from customers28141-80%
Payments for operational expenses(19)(25)25%
Paid taxes-(29)100%
Operational cash flow986-89%
Investments in tangible and intangible assets(1)(3)57%
Investments in multi-client library(44)(162)73%
Interest received0.32-82%
Interest paid(0.3)(0.003)-10467%
Dividend payments(14)(99)86%
Proceeds from share issuances20.035271%
Change in cash balance-48-17573%
Sheet2
Sheet3
-
©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 28
Balance SheetUSD million Q2 2016 Q1 2016 Change in % Q4 2015AssetsCash and cash equivalents 162 210 -23% 163Other current assets 255 189 35% 308Total current assets 417 399 5% 471Intangible assets and deferred tax asset 92 92 0% 90Other non-current assets 16 16 3% 25Multi-client library 823 830 -1% 839Fixed assets 26 28 -7% 30Total Assets 1,375 1,364 1% 1,455LiabilitiesCurrent liabilities 171 168 2% 218Non-current liabilities 4 5 -9% 6Deferred tax liability 33 29 14% 33Total Liabilities 208 201 3% 257Equity 1,167 1,163 0% 1,198Total Liabilities and Equity 1,375 1,364 1% 1,455
Sheet1
USD millionQ2 2016Q1 2016Change in %Q4 2014Q4 2015
Assets
Cash and cash equivalents162210-23%256163
Other current assets25518935%521308
Total current assets4173995%778471
Intangible assets and deferred tax asset92920%8590
Other non-current assets16163%4425
Multi-client library823830-1%818839
Fixed assets2628-7%4330
Total Assets1,3751,3641%1,7681,455
Liabilities
Current liabilities1711682%393218
Non-current liabilities45-9%76
Deferred tax liability332914%2933
Total Liabilities2082013%428257
Equity1,1671,1630%1,3391,198
Total Liabilities and Equity1,3751,3641%1,7681,455
Sheet2
Sheet3
Pareto Oil & Offshore ConferenceForward-Looking StatementsAgendaThis is TGSAgendaChallenging Market for ExplorationLong-Term Outlook PositiveKey Trends in the Seismic IndustryAgendaAreas with Faster Payback will Likely Recover FirstFast & Flexible Business ModelSolid Balance Sheet Backing TGS strategyStrategic library acquisitionsSolid Value Creation Over TimeQ3 Investment Focus2016 Key ObjectivesAgendaQ2 2016 Financial HighlightsSummarySlide Number 20AgendaNet RevenuesNet Revenue BreakdownOperating Expenses, EBIT, Free Cash FlowMulti-Client Library Q2 2016 Income StatementQ2 2016 Cash Flow StatementBalance Sheet