Pareto Oil & Offshore Conference Reports/Company...Signs of improvement in oil companies’...

Kristian Johansen

Pareto Oil & Offshore Conference

CEO14th September, 2016

©2016 TGS-NOPEC Geophysical Company ASA. All rights reserved. 2

All statements in this presentation other than statements of historical fact, are forward-looking statements, which are subject to a number of risks, uncertainties, and assumptions that are difficult to predict and are based upon assumptions as to future events that may not prove accurate. These factors include TGS’ reliance on a cyclical industry and principal customers, TGS’ ability to continue to expand markets for licensing of data, and TGS’ ability to acquire and process data products at costs commensurate with profitability. Actual results may differ materially from those expected or projected in the forward-looking statements. TGS undertakes no responsibility or obligation to update or alter forward-looking statements for any reason.

Forward-Looking Statements


Introduction

Market Overview

TGS Strategy

Q2 2016 Financial Highlights

Appendix (financial information)

Agenda


The World’s largest geoscience data company Traded on Oslo Stock Exchange, part of OBX Index (25 most liquid shares) Headquarters in Oslo and Houston (Operational) Regional offices in London, Perth, Calgary, Mexico City and Rio de Janeiro

The Leading multi-client data library covering frontier & mature basins ~3,000,000 km 2D data, ~500,000 sq. km 3D data and ~8,600,000 digital well logs Other data types include CSEM, multibeam, coring, gravity, magnetic, interpretive products Strategy to enter frontier regions, grow library and apply new technologies as basin matures

Asset light and multi-client business model Flexibility through no vessel ownership – few long-term capital commitments Investment decisions driven by financial returns rather than asset utilization Client relationships – leading global sales & marketing team; exploration partner to E&Ps

Solid balance sheet backing TGS strategy No debt and strong cash position allow counter-cyclical investment Average dividend yield of 4.2% over last seven years 10-year average return on capital employed of ~40%

This is TGS


Introduction

Market Overview

TGS Strategy



Agenda


Year on Year decline in spending Second consecutive 20%+ decline in E&P spending

expected this year Impact on exploration budgets expected to be larger

Near-term volatility expected Seismic demand likely to remain weak through 2016 Near-term, greater variability of demand between

quarters and across regions Seismic spend will likely be prioritized in existing

program areas that have premium economics

2017 E&P spending under pressure Most initial E&P Spending surveys indicate further

decline in spending

Challenging Market for Exploration

6

Change in Global E&P Spending

Source: SEB ResearchC

hang

e ye

ar-o

n-ye

ar (%

)

7

16

23

3

-25

8

16

6

21

2723

26

1922

-8

1519

1411

2

-26-27

-10

-30

-20

-10

0

10

20

30

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

E20

17E


Global Oversupply Moderating Global oversupply is anticipated to continue to moderate

through 2017 from a Q4 2015 high Market balance from Q3 2017 but supply response continuing

to create volatility

Need to Replace / Grow Reserves Only 2.7bn barrels of new conventional oil supply was

discovered in 2015, the lowest since 1947 (Wood Mackenzie) Combined with increasing demand, lack of new discoveries

will drive increased exploration spending as oil companies look to replace/grow reserves – the key question is timing

Long-Term Demand Increasing Global energy demand is expected to grow about 25% by

2040 driven by non-OECD countries Oil and natural gas expected to meet ~60% of global energy

demand in 2040

Long-Term Outlook Positive

7

0.50.7

0.5

2.01.7

2.0

1.3

2.3

1.4

0.80.4

0.80.4 0.4

-0.6-0.2

Global Production / Consumption (mn b/d)

Source: EIA


Seismic sector has underperformed financially ROCE below cost of capital Capital intensive and low entry barriers Critical product for end-user

Gradual shift from proprietary to multi-client Seismic contractors taking more risk E&Ps tendering seismic acquisition as multi-client Higher prefunding but potentially lower returns

Fragmented market offering consolidation opportunities Number of players constant since peak despite seismic

spending falling by 2/3 Consolidation would provide the industry significant benefits

over the course of cycles

Key Trends in the Seismic Industry

0.01.02.03.04.05.06.07.08.09.0

10.0

2010 2011 2012 2013 2014 2015 2016-E 2017-E

Seismic Spending (BUSD)

Other DP/Imaging Multi-Client Contract

38%38%

40% 38%

45%

63%59%

Source: S&P Capital IQ; TGS*Global marine seismic industry excluding TGS

Source: Fearnley Securities; TGS

-5%

0%

5%

10%

15%

2009 2010 2011 2012 2013 2014 2015

Seismic* Return on Average Capital Employed


Introduction

Market Overview

TGS Strategy



Agenda


Areas with Faster Payback will Likely Recover First

Bre

ak-e

ven

oil p

rice

Payback

Chart highlights areas that are likely to see incremental seismic activity first as market conditions improve

First movers will be areas with the best economics, or a combination of break-even oil prices and payback period

Although initial focus will be on first mover areas, TGS will maintain a portfolio approach to investments to capture higher-return opportunities in more frontier regions


Reacting quickly to right size the company Operating costs down 30% year-on-year Operating costs down 51% since 2014 Variable pay drives alignment with staff

Strong correlation between cash inflow and cash outflow Investment down 54% to MUSD 230 Large reduction in vessel rates since peak Prefunding of investments stable at 40-45%

Fast & Flexible Business Model

11

-40

-30

-20

-10

0Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16

MU

SD

Personnel and Other Operating Costs*

* Adjusted for restructuring costs and larger impairments of operating items

0

200

400

600

800

1,000

MU

SD

Free Cash Flow Cash inflow Cash outflow

Cash Outflow correlates to Cash Inflow


Balance sheet remains healthy throughdown-cycle Cash balance per Q2 2016 of 162 MUSD Undrawn Revolving Credit Facility of 75 MUSD

Strong share price relative to sector TGS market capitalization of 1.8 BUSD Represents ~57% of industry (ex-SLB) Strong currency to explore inorganic investment opportunities

Solid Balance Sheet Backing TGS strategy

12

823

1167

255

3716217168

66

Assets Equity and Liability

Multi-client Library

Receivables

Cash

OtherGoodwill

Equity

Non-current liabilities

Current liabilities

Assets Equity & Liability

1,786

570

510

160 72

26 17 8 3

TGS CGG PGS SPU ION PLCS EMGS MCG SBX

Market Capitalization (in USD millions)


Dolphin library acquisition Agreement in principle to buy

the majority of the Dolphin MC library together with PGS

Enhancing TGS’ already strong position in areas such as the Barents Sea, the North Sea, NW Africa and Australia

Limited initial cash outlay Definitive agreement

expected in the near future

TGS is actively seeking consolidation opportunities through strategic library acquisitions Polarcus library 2015 Dolphin library 2016 Other opportunities monitored

closely

Strategic library acquisitions

13


Long-term value creation track-record Annual total return of 11% since IPO in 1997 Well above both the oil service segment and the general

stock market

Counter-cyclical investment Strong cash generation is enabling the company to both

invest counter-cyclically as well as paying dividends to shareholders

Policy of paying dividends in line with long-term underlying cash flow Aim to keep a stable quarterly dividend through the year

(measured in USD) Actual quarterly dividend level paid will be subject to

continuous evaluation of market outlook, cash flow expectations and balance sheet development

Solid Value Creation Over Time

14

Share price development*

* Values in NOK, adjusted for dividends** Current OSX components that have traded since TGS IPO (equal weighted)

0100200300400500600700800900

1,0001,100

Avg. annual return since TGS IPO in 1997

TGS 11.4%S&P 500 7.7%Oil Services** 5.8%

4 NOK

5 NOK6 NOK

8 NOK 8.5 NOK

8.5 NOK

USD 0.15per Quarter

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2010 2011 2012 2013 2014 2015 2016*

USD

per

sha

re

Year of Payment* Quarterly Dividends, defined in USD from 2016

Historical NOK dividends converted to USD using FX rate on ex-dividend date

Q3Q2Q1

Dividend paid* (2010 – 2016)


Q3 Investment Focus


Free cash flow generation

Consistency in delivering product quality

Significant cost efficiencies

Intense client focus

2016 Key Objectives


Introduction

Market Overview

TGS Strategy



Agenda



190

298

172 140 169 13264

114

050

100150200250300

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Total Revenues

3% Y/Y

71111

37 38 46 31-19

24

-40%

-20%

0%

20%

40%

60%

-50

0

50

100

150

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

EBIT *

EBIT EBIT Margin* Earnings before interest and taxes and excluding larger

impairments and restructuring costs

8415

110

-76

49-20

63

-35

-100

-50

0

50

100

150

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Free Cash Flow *

* Defined as cash flow from operational activities minus operational cash investments in multi-client projects

NSA52%

Europe27%

AMEAP9%

Other12%

Q2 2016 Revenue Distribution


Summary Signs of improvement in oil companies’ willingness to invest in seismic data during Q2 2016,

however, the market is expected to remain challenging and volatile in the near term

Long term fundamentals continues to be positive Global oversupply moderating Need to replace / grow reserves Long-term demand increasing

Asset-light, focused multi-client strategy continues to outperform Cost control, disciplined counter-cyclical investment and balance sheet strength positions TGS to

enhance its leading position

Updated 2016 guidance: New operational multi-client investments of approximately 230 MUSD

Additional multi-client investments expected from sales of existing surveys with risk sharing arrangements

Multi-client investments are expected to be prefunded 40% to 45%


Introduction

Market Overview

TGS Strategy



Agenda


9 9

6 5 5 53 3

0

2

4

6

8

10

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Proprietary revenues

130

226

72 82 90 9038

84

0

50

100

150

200

250

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Late sales revenues

3% Y/Y

51 62

94

5374

3723 26

0

20

40

60

80

100

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Prefunding revenues

190

298

172 140 169 13264

114

0

50

100

150

200

250

300

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Total revenues

Net Revenues

-50% Y/Y

-33% Y/Y -18% Y/Y


NSA51%

Europe19%

AMEAP16%

Other14%

Q2 2015

NSA52%

Europe27%

AMEAP9%

Other12%

Q2 2016

Net Revenue Breakdown

2D15%

3D75%

GPS10%

Q2 2015

2D48%

3D42%

GPS10%

Q2 2016

23


3237

25 24 2228

18 17

05

10152025303540

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Operating expenses *

-30% Y/Y

* Include personnel costs and other operating expenses. Adjusted for restructuring costs and larger impairments of operating items

81143

10574 99

230

62 69

0

50

100

150

200

250

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Amortization and impairment *

8415

110

-76

49-20

63

-35

-100

-50

0

50

100

150

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Free cash flow *

Operating Expenses, EBIT, Free Cash Flow

62% - rate

71111

37 38 46 31

-1924

-40%

-20%

0%

20%

40%

60%

-40-20

020406080

100120

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

EBIT *

EBIT EBIT Margin

* Q1 and Q2 2016 reflects the new amortization policy effective from 1 January 2016

* Earnings before interest and taxes and excluding larger impairments and restructuring costs

* Defined as cash flow from operational activities minus operational cash investments in multi-client projects


837 818876

919976

839 830 823

700

750

800

850

900

950

1,000

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Multi-client library - NBV

93126

163116 135

8853 62

0%10%20%30%40%50%60%70%80%90%100%

0

50

100

150

200

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Pref

undi

ng ra

tio

Ope

ratio

nal i

nves

tmen

ts

Operational investments and prefunding ratio

Operational investments Prefunding ratio

Multi-Client Library

17%

1%4%

8%

17%

1%

52%

0% 0%7%

19% 21%

9%

44%

0%

10%

20%

30%

40%

50%

60%

Fullyamortized

2012 2013 2014 2015 2016 YTD WIP

Net revenues Net book value

Net revenues vs net book value – year of completion

270

381

609

427

122

451

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 YTD WIP

Original investments Net Book Value

20 %

34%

52%

22%

1%14%

70%

Investments – year of completion


Q2 2016 Income StatementUSD million, except EPS Q2 2016 Q2 2015 Change in %Net revenues 114 140 -18%Cost of goods sold – proprietary and other 0.8 0.1 1435%

Amortization of multi-client library 62% 69 74 -6%

Gross margin 44 66 -33%Personnel costs 11 17 -37%

Other operating expenses 9 9 -3%

Cost of stock options 0.3 0.9 -61%

Depreciation 3 3 -7%

Operating profit 19% 22 36 -39%Net financial items -0.3 2 -116%Profit before taxes 19% 21 37 -43%Taxes 5 13 -65%

Net Income 15% 17 24 -31%EPS, Undiluted 0.17 0.24 -29%

EPS, Fully Diluted 0.17 0.24 -29%

Sheet1

USD million, except EPSQ2 2016Q2 2015Change in %

Net revenues114140-18%

Cost of goods sold – proprietary and other0.80.11435%

Amortization of multi-client library62%6974-6%

Gross margin4466-33%

Personnel costs1117-37%

Other operating expenses99-3%

Cost of stock options0.30.9-61%

Depreciation33-7%

Operating profit19%2236-39%

Net financial items-0.32-116%

Profit before taxes19%2137-43%

Taxes513-65%

Net Income15%1724-31%

EPS, Undiluted0.170.24-29%

EPS, Fully Diluted0.170.24-29%

Sheet2

Sheet3


Q2 2016 Cash Flow StatementUSD million Q2 2016 Q2 2015 Change in %Received payments from customers 28 141 -80%

Payments for operational expenses (19) (25) 25%

Paid taxes - (29) 100%

Operational cash flow 9 86 -89%Investments in tangible and intangible assets (1) (3) 57%

Investments in multi-client library (44) (162) 73%

Interest received 0.3 2 -82%

Interest paid (0.3) (0.003) -10467%

Dividend payments (14) (99) 86%

Proceeds from share issuances 2 0.03 5271%

Change in cash balance -48 -175 73%

Sheet1

USD millionQ2 2016Q2 2015Change in %

Received payments from customers28141-80%

Payments for operational expenses(19)(25)25%

Paid taxes-(29)100%

Operational cash flow986-89%

Investments in tangible and intangible assets(1)(3)57%

Investments in multi-client library(44)(162)73%

Interest received0.32-82%

Interest paid(0.3)(0.003)-10467%

Dividend payments(14)(99)86%

Proceeds from share issuances20.035271%

Change in cash balance-48-17573%

Sheet2

Sheet3


Balance SheetUSD million Q2 2016 Q1 2016 Change in % Q4 2015AssetsCash and cash equivalents 162 210 -23% 163Other current assets 255 189 35% 308Total current assets 417 399 5% 471Intangible assets and deferred tax asset 92 92 0% 90Other non-current assets 16 16 3% 25Multi-client library 823 830 -1% 839Fixed assets 26 28 -7% 30Total Assets 1,375 1,364 1% 1,455LiabilitiesCurrent liabilities 171 168 2% 218Non-current liabilities 4 5 -9% 6Deferred tax liability 33 29 14% 33Total Liabilities 208 201 3% 257Equity 1,167 1,163 0% 1,198Total Liabilities and Equity 1,375 1,364 1% 1,455

Sheet1

USD millionQ2 2016Q1 2016Change in %Q4 2014Q4 2015

Assets

Cash and cash equivalents162210-23%256163

Other current assets25518935%521308

Total current assets4173995%778471

Intangible assets and deferred tax asset92920%8590

Other non-current assets16163%4425

Multi-client library823830-1%818839

Fixed assets2628-7%4330

Total Assets1,3751,3641%1,7681,455

Liabilities

Current liabilities1711682%393218

Non-current liabilities45-9%76

Deferred tax liability332914%2933

Total Liabilities2082013%428257

Equity1,1671,1630%1,3391,198

Total Liabilities and Equity1,3751,3641%1,7681,455

Sheet2

Sheet3

Pareto Oil & Offshore ConferenceForward-Looking StatementsAgendaThis is TGSAgendaChallenging Market for ExplorationLong-Term Outlook PositiveKey Trends in the Seismic IndustryAgendaAreas with Faster Payback will Likely Recover FirstFast & Flexible Business ModelSolid Balance Sheet Backing TGS strategyStrategic library acquisitionsSolid Value Creation Over TimeQ3 Investment Focus2016 Key ObjectivesAgendaQ2 2016 Financial HighlightsSummarySlide Number 20AgendaNet RevenuesNet Revenue BreakdownOperating Expenses, EBIT, Free Cash FlowMulti-Client Library Q2 2016 Income StatementQ2 2016 Cash Flow StatementBalance Sheet

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