EMGS faces uncertainty as low backlog bites
Norwegian geophysical services company EMGS might be facing a going concern issue amid low backlog levels and challenging market situation.
According to EMGS’ financial report on Thursday, at the end of the fourth quarter of 2017, the company’s backlog was $3.2 million compared with a backlog of approximately $1 million at the end of the fourth quarter 2016.
Out of this amount, $3 million is related to prefunding and late sales, while the remaining $0.2 million is related to processing, interpretation and other projects.
EMGS said that, based on this low backlog and the current market situation, there is material uncertainty related to the expected level of revenues going forward. This puts pressure on the company’s cash position and consequently the bond’s cash covenant.
The company is dependent upon securing sufficient backlog. Should sufficient additional backlog not be forthcoming within the next six months, the company will have to consider raising new financing through new capital or debt, sale of assets, a restructuring of existing debt or a combination.
In the event that the company does not secure sufficient backlog and solve the resulting liquidity issues that may arise in the coming six months, the going concern assumption may no longer be valid.
EMGS cuts losses
When it comes to its financial performance, EMGS narrowed its net loss in the fourth quarter of 2017 to $5.9 million from $15.1 million in the prior-year period.
The company’s losses for the full year 2017 were $21.5 million, up from a loss of $52.1 million in 2016.
EMGS recorded revenues of $11.3 million in the fourth quarter of 2017, slightly down from $12 million reported for the corresponding quarter of 2016
The company recorded six vessel months in the fourth quarter of 2017, the same as in the fourth quarter of 2016.
The vessels were allocated 13% to multi-client projects and no time was spent on proprietary work. In the comparable quarter of 2016, the vessel utilization was 89% and the vessels were allocated 35% to proprietary work and 54% to multi-client projects.
Revenues for the full year 2017 amounted to $35.9 million, compared with $44.5 million for the full year of 2016. The decrease in revenues is mainly explained by a reduction in proprietary work in 2017 compared with 2016 and a reduction of work outside of Norway.
Market outlook challenging
EMGS noted that the market outlook for oil services is challenging and characterized by high uncertainty. The company expects market fundamentals to remain weak going into 2018. However, EMGS has noted an increase in commercial activity.
The company expects that the 24th licensing round will trigger some additional multi-client sales in 2018. Otherwise, marketing efforts are ongoing to secure backlog.
Based on the current operational forecast, EMGS expects to operate two vessels in 2018. The company expects to keep one vessel in Asia in 2018, while the other vessel is expected to operate in Europe, Africa and the Americas. EMGS will continue to invest in its multi-client library in selected areas. Capital investment plans are limited to maintenance of existing equipment and to the JIP.
Offshore Energy Today Staff