Earnings Call: Q2 2021

Jul 22, 2021

Hello, and welcome to the TDS Q2 Earnings Release Call for 2021. Throughout this call, all participants will be in a listen only mode and afterwards, there will be a question and answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present Christian Johan Sverdrup, CEO. Please begin your meeting. Thank you very much, and good morning and afternoon, everyone, and welcome to TBS Q2 earnings release. My name is Christian Duhanssen. I'm the CEO of PGS. And with me today, I have Fredrik Arnensen, our CFO and Svein Burr Larsen, our Head of Strategy. Q2 was another challenging quarter for PGS. Although oil prices are strong, exploration spending remains limited outside of commitments made prior to the downturn. E and P companies continue to prioritize deleveraging the balance sheet, and we expect this to continue until strategies are revisited and new budgets are set. Here are the financial highlights of the quarter with a focus on segment numbers rather than IFRS that you can find in the earnings release document posted at pbs.com. Net segment revenues amounted to $54,000,000 in Q2 of twenty twenty one, and that compares to $96,000,000 in Q2 of last year. Be aware that it was a quarter where we invested more than twice the amount that we did this quarter. Segment EBITDA was $32,000,000 versus SEK 56,000,000 in the same quarter of twenty twenty, while the segment operating result amounted to negative $25,000,000 compared to negative $85,000,000 in Q2 of last year. Free cash flow amounted to $18,000,000 in Q2 of twenty twenty one, and this is up from negative $10,000,000 in Q2 of last year. After the shareholder distribution of about $20,000,000 and spending $24,000,000 in relation to mergers and acquisitions this quarter, the cash balance totaled $223,000,000 at the June 30. The solid financial position allowed PGS to maintain the quarterly dividend at $0.14 per share and continued share repurchasing program with a remaining value of up to $14,000,000 On a separate note, we executed on our first M and A transaction with an offshore wind with our acquisition of a U. K. Company, 4C Offshore, that was closed during Q2. The plan is that this acquisition will be a building block for both organic and inorganic initiatives, both within wind but also other parts and energy transition related businesses as presented at our Capital Markets Day in early February. Going forward, the market for subsurface data and insights is expected to remain challenging in the near term, and this will influence the company's appetite for risk related to multiclient investments. However, as we believe we put the trust behind us, our investments for the second half of twenty twenty one are expected to increase from the historically low levels of the first half of twenty twenty one. We already have announced projects in Canada, which take full effect alongside ongoing acquisition in Latin America and a project in Malaysia announced this morning, as you may have seen. These projects have healthy prefunding and satisfy our strict requirement for client funding before taking on risk. Despite near term challenges, we remain confident that demand for multiclient data will remain solid for decades. This belief is supported by positive indications of new lease sales in U. S. Gulf Of Mexico, although it is uncertain as to the potential terms of such lease sales and when they will actually take place. In the current market, the pickup in demand and timing of late sales remains uncertain. TGS is therefore pleased to have no interest bearing debt and a net cash position of about SEK $223,000,000 in addition to another $100,000,000 of an undrawn credit facility. This facilitates the flexibility needed in the prevailing market. Our strategy in the current market remains firm and can be summarized as follows: number one, cash is king, targeting industry leading shareholder distribution for the future number two, risk mitigation from both client interaction and also risk sharing with suppliers number three, extensive use of partnerships, as you saw from the announcement this morning of a project together with PGS and Western Vehicle and continuing to pursue consolidation of Incyntune as well And last but not, capitalize on new growth opportunities related to downside for renewables. I will now turn it back to the operator, who will facilitate the Q and A session. Thank you. Thank you. We have a question from the line of John Olaisen from ABG. Please go ahead. John maybe muted. I cannot hear anything. Can hear me you hear me now? Yes. Yes. Sorry about that. I was actually muted. Yeah. And probably the project in Asia that you're doing with Essent Geico and PBS, could you just remind me, please, is this the third year? I just was wondering, I remember correctly, you didn't participate in the two first phases. Just wondering if that's correct. So I just wonder what has made you participate now if you didn't participate in the first phase is good. Yes. I you're right. We announced probably two point five years ago, we announced a collaboration with Western Geco and PGS in the area. And since then, think at least one of the companies have done at least one survey. And you're right, we didn't participate in the first two programs. And the reason for that is that we look at these programs independently, and they need to satisfy a requirement for a decent prefunding and obviously late sales. The first two didn't and this one does. And hence, we're part of this one. So it's solely an independent assessment of the business cases. And may I ask what kind of prefunding that you have now on this project? Yes. We can't disclose that. That's in agreement with our partners, but it's definitely higher than what the average from what you will see from PPS this year. And it's typically in line with what you see when we do our also our programs or seismic over held HH like converter contracts. And also, we ask here going forward, where should we expect big new projects from TGS? Which regions are we likely to see there? Not necessary in Q3 or Q4 for that matter, but for the next twenty four months, which regions are you considering doing bigger surveys taking on new surveys and bigger surveys going forward? Yes. I think that cannot give you a precise answer to that, but what I can say is that we're doing screening of all our markets. And think where you will see activity from PGS in the future is very much in line with our long term strategy. It would be Latin America with probably the main focus of Brazil. You will see that PBS will continue to be active in The U. S. Gulf Of Mexico, mainly in ODM rather than streamer seismic. And then you will see continued store investments, which you will see in Q3 as well And then Northwest Europe. So to answer your question, I think we're probably somewhere along the Latin American margin or U. S. Gulf Of Mexico. So PGS seems to be holding PGS later seems to be holding effective than the other seismic companies. And they argue that it's because they have multi client library located in more mature regions with four d and 4C. So I just wonder, do you see the same thing that the mature regions are holding a picture? And also going forward, I would more likely to see CBS OPEC investing in more regions in more mature regions with the four d and four c ocean bottom size fits that matter? Or are you holding on to frontier exploration as the main focus? Well, I think first of all, when you look at results and you compare different companies, you probably need to look at more than one or two quarters and you know them better than anyone, John. Secondly to that question, I think there is definitely a shift towards more, what we call ILX or infrastructure led exploration right now. And a lot of these programs that are being carried out as we speak have been committed probably two or three years ago, so before the COVID and the downturn. Discretionary spending is probably at a record low level, as you can see from our results. So I think when some of these jobs that were committed back in 2018 and 2019, when some of these jobs are done, you will see some of the budgets shift back to more discretionary spending, is, I think, lot of us would benefit from. So it's not like the two major have kept their overall cycling budget by 80%, ninety %. It's more that the shift in their budgets have been towards infrastructure led exploration that they pretty much have to do before it's part of historical commitments So I think that's really important to understand. So for PBS, I don't see a significant shift. I think there is more mature areas today than it was two or three years ago, for sure. And obviously, with the acquisition of Spectrum, we inherited a lot of Frontier data. I still think we go for Mexico is a rather mature area and you will see quite a lot of activity from from PGS in go for Mexico. Brazil is also part of Brazil is considered quite mature and that's another important market to PGS. Just a final question on your last comment. Do you experience that oil companies are eager to get back to go to Mexico for exploring once the Biden moratorium, so to speak, is lifted? Yes, absolutely. I think there's a lot of oil companies who are just waiting to get more clarity on the administration strategy, and we are ready to start investing whenever that happens because, I mean, obviously, with the current oil price and the attractiveness of The U. Gulf Of Mexico overall, there's hopefully a lot of money to be waiting to be put into play there. Thank you very much. Thank you, John. There are no further questions at this time. So I hand back to the speakers. All right. Thank you for your attention today. And as mentioned, our strategy remains firm and based on dialogue with our largest customers, we remain confident that we will ultimately see a recovery in the market. Meanwhile, our asset light business model, robust balance sheet and strong cash flow enable us to take advantage of strategic opportunities, both in our subsurface data business and in our new Energy Solutions segment. Thanks, and hope to see you again at the Q3 earnings release later this fall. Bye.