TGS optimistic about long-term prospects. Boosts 4Q profit

Norwegian seismic data specialist TGS Nopec saw its net income rise to $55 million in the fourth quarter of 2017, an increase from $29 million in the fourth quarter of 2016. Full year profit rose to $75,6 million from $27 million in 2016.

TGS’ backlog amounted to $81.9 million at the end of Q4 2017, an increase of 29% from Q3 2017 and 60% higher than at the end of Q4 2016.

The increase during the quarter was driven by the order backlog related to recently announced projects, TGS said.

Talking about the outlook, TGS feels its clients – the oil companies – are still cautious with their exploration budgets, despite the rise in the oil price.

“In parallel with the substantial increase in the oil price over the past 8-9 months, oil companies are to an increasing extent seeing the impact of the cost reductions and efficiency measures implemented over the past years, resulting in sharply increasing cash flows. Nevertheless, most of the oil companies that have made public outlook comments for 2018 so far have signaled a continued cautious approach towards exploration spending,” TGS said.

As such, TGS expects the demand for seismic data in 2018 is expected to remain weak in a historical perspective, although there could be upside to this assumption if the oil price remains stable at the current level or higher through the year.

Oil companies will have to start spending

The Norwegian seismic specialist is of the opinion that due to the steep reduction in exploration spending over the past few years the global reserve replacement ratio has dropped to historically low levels.

“At some stage oil companies need to increase exploration efforts in order to meet the continued growth in demand as well as compensating the declining production at existing fields,” TGS feels.

Combined with the efficiency gains realized  across the oil & gas industry during the downturn, this should lead to substantial increases in the oil companies’ exploration budgets in the longterm.

“TGS is well positioned to benefit from improved market conditions. In 2017 the company once again demonstrated its industry leading ability to generate cash flow and returns, and the Company enters 2018 with a solid balance sheet that allows for both increased dividends and continued counter-cyclical investments in the multi-client library,” TGS said.

Providing its guidance for 2018, TGS expects New multi-client investments of approximately $260 million. Pre-funding of new multi-client investments expected to be approximately 45-50%.

Kristian Johansen, CEO of TGS said: “With its strong balance sheet, industry-leading cash flow and world class geoscience and project development expertise, TGS will continue to thrive in the current market conditions.  Our library continues to grow and although the current base expectation is for relatively flat demand for seismic data in 2018, the risk is on the upside given the recent positive oil price trend.”