PGS: Worst behind us, but recovery takes time
Norwegian marine seismic player PGS recorded a decrease in revenue for the third quarter of 2017. Revenue fell by $16.5 million, or 7%, compared to $224.1 million Q3 2016. PGS posted a net loss of $189 million, compared to a loss of 29 million a year ago.
According to PGS, the revenue decrease is mainly driven by a 24% reduction in MultiClient late sales revenues and 20% lower contract revenues, partially offset by a 21% increase in MultiClient pre-funding revenues.
The Ramform Hyperion vessel entered into operation early Q2 2017 and PGS operated more streamer capacity in Q3 2017, compared to Q3 2016.
PGS said lower marine contract revenues in Q3 2017, compared to Q3 2016 is a result of less vessel capacity allocated to contract operations.
Marine Contract delivers exclusive seismic surveys to oil and gas exploration and production companies, while MultiClient initiates and manages seismic surveys which PGS acquires, processes, markets and sells to multiple customers on a non-exclusive basis.
Pricing of marine contract projects in Q3 2017 was generally higher than in Q3 2016, but the improved pricing was for PGS offset by a very challenging project completed in Asia Pacific in the quarter, the company explained.
MultiClient pre-funding revenues increased by $17.5 million in Q3 2017, compared to Q3 2016, primarily due to more vessel capacity allocated to MultiClient activities. Pre-funding revenues were highest in North America and Europe.
MultiClient late sales revenues in Q3 2017 decreased by $15.4 million, compared to Q3 2016. Late sales revenues in the quarter were impacted by Hurricane Harvey, which interrupted business for some companies in the Houston area.
PGS Houston office was closed August 28 and re-opened late October, however most of PGS Houston organization have been operational since early September.
Further the company did not benefit from any particular license rounds in the quarter. Late sales revenues were highest in Europe and West Africa.
Market recovery to take some time
Rune Olav Pedersen, President and Chief Executive Officer said: “Our MultiClient business continues to deliver solid revenues. The pre-funding level of 124% achieved in Q3 is driven by GeoStreamer MultiClient projects offshore Canada and in the North Sea. MultiClient late sales were satisfactory considering the impacts of Hurricane Harvey and that we did not benefit from any particular license rounds this quarter. The improved pricing for marine contract projects in Q3 compared to last year was offset by a challenging project in Asia Pacific, resulting in unsatisfactory financial results for our marine contract activities in the quarter.
“The order book decreased sequentially as a result of high production and low order intake, however the negative trend ceased in October and subsequent to quarter end we have secured several projects for execution in Q4 and Q1 2018.”
The order book totaled $167 million at September 30, 2017 (including $115 million relating to MultiClient), compared to $248 million at June 30, 2017 and $190 million at September 30, 2016. Order intake improved in October and subsequent to 30 September the Company has received awards amounting to approximately $55 million.
Looking forward, PGS said it expected the improved cash flow among clients, combined with growing limitations on streamer availability in the industry, to benefit marine 3D seismic market fundamentals longer-term.
“There is a risk that a market recovery will take some time. Increased seasonal variations will impact activity and pricing in the coming winter season,” the company said.
Capital expenditure for 2017 is expected to approximate $150 million, of which approximately $89 million relates to the delivery of Ramform Hyperion vessel in Q1 2017.
Going forward leaner
As said by the CEO, the company on Thursday also announced a new centralized, simplified and streamlined organization, which builds on the two business areas: Sales & Services and Operations & Technology. The new strategy includes closing smaller offices without strategic importance; Improving fleet flexibility; Centralizing and reducing imaging capacity; Renegotiating with suppliers
“Over the last years fundamentals in the seismic industry have changed significantly. The market is smaller, weaker and more uncertain than before, and the MultiClient share of acquisition has increased considerably. At the same time the world has become more digital and clients have centralized their decision making process. The new PGS organization addresses these changes,” PGS said.
PGS said it would make its vessel capacity more flexible. Going forward PGS intends to operate a fleet of eight vessels, of which two will be used selectively to address demand swings and market seasonality. The cost base for the company will be reduced to a baseline of six vessels, while the flexible capacity will be managed and crewed by a combination of regular and temporary employees.
“This downturn has been longer and lower than anyone anticipated. We think the worst is behind us, but I cannot bet the Company on a market recovery. We need
to change what we can control ourselves. The reorganization, combined with more flexible vessel capacity makes us better positioned to address the current market environment and improve cash flow and profitability,” said Rune Olav Pedersen, President & CEO of PGS.
PGS expects the overall gross cash cost for the company to be reduced by at least $100 million in 2018, which should be sufficient to deliver positive cash flow after debt servicing next year, assuming a similar market in 2018 as in 2017.
The company plans to implement the new structure by year-end 2017. Restructuring cost is estimated to be approximately $40 – 50 million and is expected to be recorded mainly in Q4 2017.
Offshore Energy Today Staff