Weak Market Conditions Impact PGS’ Performance in Q2
Petroleum Geo-Services’ (PGS) marine contract revenues and margin were negatively impacted by the weak market conditions and slightly more idle time than expected in the quarter.
The company reported revenues of $255.8 million, compared to $337.0 million in Q2 2014. In Q2 2015, revenues for PGS decreased $81.2 million, or 24%, compared to Q2 2014. The lower revenues are mainly due to a 51% reduction in contract revenues and a 44% reduction in MultiClient late sales, partially offset by a 50% increase in MultiClient pre-funding revenues.
“In a very challenging market, Q2 MultiClient pre-funding revenues ended at a solid $112.0 million. The corresponding pre-funding level was 152% driven by strong funding for ongoing surveys, efficient operations and good sales from projects in the processing stage,” said Jon Erik Reinhardsen, President and Chief Executive Officer of PGS.
In Q2 2015 PGS completed a sale and operating leaseback of the PGS Apollo, the only non-Ramform design 3D vessel in the PGS fleet. Gross proceeds from the transaction amounted to $80.0 million. PGS Apollo entered the PGS fleet in 2010 following the acquisition of Arrow Seismic ASA in 2007. The price paid reflected a strong seismic market and, as a result, the recorded cost of the vessel exceeded construction cost. PGS Apollo is the only 3D vessel which has entered the 3D fleet through an acquisition. As a result of this transaction PGS recorded a loss on sale in the quarter of $56.9 million.
PGS’ order book totaled $259 million at June 30, 2015 (including $140 million of committed pre-funding on MultiClient projects), compared to $394 million at March 31, 2015 and $558 million at June 30, 2014. A reasonable amount of work is in the process of being firmed up in July and, due to the stacking of Ramform Challenger and Ramform Explorer, the Company has less capacity to sell for Q4 2015 and Q1 2016.
Following the stacking of Ramform Explorer and Ramform Challenger, PGS expects to upgrade Ramform Sterling to GeoStreamer using the available streamers. Remaining available streamers and in-sea equipment will allow the Company to reduce maintenance capital expenditures going forward for the remaining fleet.
PGS also has two Ramform Titan-class new builds under construction at Mitsubishi Heavy Industries Ltd (MHI) in Japan with delivery originally scheduled for 2015. PGS and MHI have agreed a revised construction schedule for Ramform Tethys and Ramform Hyperion and delivery is now scheduled for Q1 and Q3 2016.
The cost of each of the two vessels is approximately $285.0 million, including commissioning and a comprehensive seismic equipment package, but excluding capitalized interest and post-delivery cost. The agreement with the shipyard provides for payment based on five defined milestones per vessel, with 50% payable at delivery. Seismic equipment is procured by PGS separately from the shipbuilding contract.
“We have a strong financial position with a liquidity reserve of $545.7 million and are well positioned to navigate the current market environment. Our cost reduction program is progressing ahead of plan and the full year 2015 target is now increased to approximately $250 million,” added Reinhardsen.
PGS expects market uncertainty and low earnings visibility to continue well into 2016.