Impairments drag PGS deeper into the red

Affected by impairment charges, Norway’s seismic player Petroleum Geo-Services (PGS) posted a bigger quarterly loss despite an increase in revenues. 

PGS said in its financial report on Thursday that its revenues in the fourth quarter of 2017 increased by 53% to $235.9 million from $154.1 million in the prior-year period.

The increase was driven by more than a doubling of MultiClient pre-funding revenues, 35% higher MultiClient late sales revenues and 38% higher contract revenues, partially offset by a 50% decrease in Imaging revenues.

The company’s net loss for the fourth quarter 2017 amounted to $194.8 million compared to $156.1 million loss in the same period of 2016.

In 4Q 2017, as a result of a continued weak seismic market and as a consequence of the reorganization, the company recognized a $33 million impairment on its EM technology assets, writing down the assets to an estimated recoverable value of $10 million as of December 31, 2017.

The impairment primarily reflects management’s suspension of the company’s EM activities until the activity is able to generate sufficient cash to cover operating costs.

The company also recognized a $20 million impairment on its OptoSeis technology assets. Management is currently exploring possibilities of divesting the OptoSeis technology.

The company has recorded significant impairment charges. According to PGS, the market for seismic data is still uncertain and depending on several factors, including market developments and the company’s projections and plans, further impairment of long-term assets, including property and equipment, intangible assets and MultiClient library may arise in future periods.

Rune Olav Pedersen, PGS President and CEO, commented: “The marine contract market was challenging in 2017 with significant seasonal swings. To address the continued difficult market fundamentals we implemented a centralized, simplified and streamlined organization in Q4, combined with improved flexibility for vessel and imaging capacity.”

Recovery takes time

PGS expects the higher oil price, improved cash flow among clients and unsustainable reserve replacement ratios to benefit the marine 3D seismic market fundamentals going forward. While the company expects the market sentiment to improve during 2018, there is a risk that a market recovery will take some time. For this reason the company is planning its cost and capital expenditures for 2018 targeting a positive cash flow post debt service in a flat market compared to 2017.

Based on the current operational projections and with reference to disclosed risk factors, PGS expects full year 2018 gross cash cost below $575 million. The company’s 2018 MultiClient cash investments are expected to be approximately $250 million.

More than 50% of the 2018 active 3D vessel time is expected to be allocated to MultiClient acquisition. Capital expenditure for 2018 is expected to be approximately $50 million.

The order book totaled $135 million at December 31, 2017 (including $101 million relating to MultiClient), compared to $167 million at September 30, 2017 and $215 million at December 31, 2016.

The company has seen increased order intake in January and expects to be able to book and operate eight 3D vessels from 2Q 2018 in accordance with its base 3D vessel operation plan.

Offshore Energy Today Staff