Pareto Securities Morning Meeting - TGS Reports/Company...©2016 TGS-NOPEC Geophysical Company ASA....

December 2016

Company Presentation

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

2

Agenda

About TGS Review of Q3 16

Market outlook

The TGS approach

Appendix


3

Main offices: Oslo and Houston

Regional offices: London, Perth, Calgary, Singapore, Mexico and Rio

Fundamental values: Unmatched Quality and Service, Growth for Stakeholders

Approximately 630 employees

Traded on Oslo Stock Exchange, part of OBX Index (25 most liquid shares at the OSE)

Market Cap: ~$2 billion

This is TGS

Leading global provider of multi-client seismic and geoscience data

3

Calgary

Singapore

Perth

Houston

London Oslo

Rio

Mexico


4

Well positioned in the seismic value chain

2D Seismic

3D Seismic

Wide Azimuth (WAZ) Seismic

M-WAZ Seismic

Full Azimuth Nodal Seismic

Electromagnetics (CSEM)

Aeromagnetics

Gravity

Multi-beam

Seismic processing

Complex depth imaging

Proprietary technology

Ongoing R&D investment

Contract business model

Geophysical Data Digital well data

Directional Surveys

Production data

Seabed / Seep studies

Regional geologic interpretation

Facies Map Browser

Interpretive services

Geological Data Imaging Services

S E R V I C E S M U L T I - C L I E N T

4


5

Agenda

About TGS

Review of Q3 16 Market outlook

The TGS approach

Appendix


6

9

6 5 5 5 3 3

7

0

2

4

6

8

10

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Proprietary revenues

226

72 82 90 90 38

84 67 0

50

100

150

200

250

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Late sales revenues

-26% Y/Y 62

94

53 74

37 23 26

39

0

20

40

60

80

100

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Prefunding revenues

298

172 140 169 132

64 114 113

0

50

100

150

200

250

300

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Total revenues

Net Revenues

6

-47% Y/Y

37% Y/Y

-33% Y/Y


7

818 876

919 976

839 830 823 816

700

750

800

850

900

950

1,000

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Multi-client library - NBV

126 163

116 135 88

53 62 68

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

0

50

100

150

200

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Pref

undi

ng ra

tio

Ope

ratio

nal i

nves

tmen

ts

Operational investments and prefunding ratio

Operational investments Prefunding ratio

Multi-Client Library

7

13%

3% 2% 4% 10% 7%

62%

0% 0% 6%

17% 19% 18%

39%

0%

10%

20%

30%

40%

50%

60%

70%

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

236

398

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 YTD WIP

Original investments Net Book Value

20 %

32% 56% 20%

0% 12%

70%

Investments – year of completion


8

North West African Atlantic Margin NWAAM2017 Over 11,500 km of multi-client 2D seismic in

partnership with PGS Designed to infill, extend and complement the

TGS NWAAM2012 2D survey which helped with recent commercial discoveries in the basin

A 12 km deep-tow streamer will enable the recording of high quality broadband 2D seismic data

Confirms TGS commitment to the leading frontier basin in Africa, where TGS already has over 28,000 km of 2D data and over 18,000 km2 of 3D data

New Project Announced – North West Africa

8


9

Agenda

About TGS

Review of Q3 16

Market outlook The TGS approach

Appendix


10

Second consecutive 20%+ decline in E&P spending expected this year

Some improvement in fundamentals from the beginning of the year – but still weak market

Most initial E&P Spending surveys indicate a further decline in offshore spending in 2017 But activity level may be approximately flat when adjusting for impact of pricing

Seismic demand likely to remain weak into 2017 with high volatility from quarter to quarter

Continued challenging near-term outlook

10

Source: SEB Research Source: ABG Sundal Collier

7

16

23

3

-25

8

16

6

21 27

23 26

19 22

-8

15 19

14 11

2

-26 -27

-10

-40

-30

-20

-10

0

10

20

30

40

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

E20

17E

Change in Global E&P Spending

Cha

nge

year

-on-

year

(%)

0

100

200

300

400

500

600

MU

SD

Industry late sales


11

Two factors point to increased exploration activity in the longer-term

1. Current exploration efforts are unsustainable

2. Cost levels should eventually come down to levels that justify higher spending at current oil prices

Exploration spending likely to recover long-term


12

Substatial reduction in oil companies’ exploration spending Seismic spending down more than 60% since peak in 2013 This has resulted in historically low exploration success

Only 2.7bn barrels of new conventional oil supply was discovered in 2015, the lowest since 1947 (Wood Mackenzie)

Global reserve replacement ratio well below 1 in 2015-16 Current situation is not sustainable

1. Current exploration efforts are unsustainable

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Organic reserve replacement ratio

Source: SEB Research

6

7

8

9

10

11

12

13

14

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Year

s

Integrated oil companies avg. oil reserve life

Source: Nordea


13

Substantial cost reductions in E&P and service industries – break-even prices have fallen almost 50% from peak

Historically the largest oil companies have been able to produce decent return on capital at real oil prices of around USD 50 per barrel

2. Costs are coming down

Source: Nordea, EIA, TGS

0

20

40

60

80

100

120

0%

5%

10%

15%

20%

25%

Bre

nt U

SD

/bl

RO

CE

ROCE Brent (RHS)

Avg. ROCE 1990-2015: 12% Avg. real Brent: USD 53 per bbl

ROCE 10 largest integrated oil companies vs. Real Brent oil price

0

20

40

60

80

100

120

140

160

USD/bbl Integrated oil companies’ break-even oil price

Brent oil priceBreak-even after CAPEX (USD/bbl)Break-even after CAPEX and div. (USD/bbl)


14

Agenda

About TGS

Review of Q3 16

Market outlook

The TGS approach Appendix


15

The TGS’ strategic approach Asset light

• Low capital intensity – no interst-bearing debt • No vessel ownership – few long-term capital commitments • Investment decisions purely commercial – no «group considerations»

Flexible and quickly reacting

• Flexible cost base - low degree of fixed costs • Quick decision processes • Technology netrual • Counter-cyclical investment philosophy

Quality people • Best-in-class geo-science knowledge • Commercial mindset – understanding the customers’ needs • Strong performance culture built up over more than two decades

+ +

=

Strong return on capital employed* High correlation cash inflow and cash outflow

0

200

400

600

800

1,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E

MU

SD

Free Cash Flow Cash inflow Cash outflow

* Adjusted for larger impairments

0%

10%

20%

30%

40%

50%

60%

2007 2008 2009 2010 2011 2012 2013 2014 2015


16

Balance sheet remains healthy through down-cycle Cash balance per Q3 2016 of 173 MUSD Undrawn Revolving Credit Facility of 75 MUSD

Strong share price relative to sector TGS market capitalization of ~2 BUSD Represents ~52% of industry (ex-SLB) Strong currency to explore inorganic investment opportunities

Solid Balance Sheet Backing TGS strategy

16

816

1155

275

44 173 198 68

65

Assets Equity and Liability

Multi-client Library

Receivables

Cash

Other Goodwill

Equity

Non-current liabilities

Current liabilities

Assets Equity & Liability

1,994

319

696

163 87

18 17 10 2

TGS CGG PGS SPU ION PLCS EMGS MCG SBX

Market Capitalization (in USD millions)


17

Diversified multi-client portfolio

17

IRR: High IRR: High/medium IRR: Medium

- Awarded acerage - Mainly open acerage - Open acerage

- Onshore areas - Regular license rounds - Early stage

- Fewer clients - Established multi-client areas - Geo knowledge - Farm-ins / relinquishments - Many clients - Many potential clients - Low downside risk - Medium risk - Medium/high risk

Return targets

Prefunding requirements

Illustrative IRR/ cash profile

Project characteristrics

Invest-ment Sales

2.0-2.5x

Invest-ment Sales

2.5x +

Invest-ment Sales

1.7-2.0x

Invest-ment

70-120%

Pre-funding

Invest-ment

40-60%Pre-

fundingInvest-ment

20-40%

Pre-funding

0 1 2 3 4

Cash flow Sales

0 1 2 3 4

Cash flow Sales

0 1 2 3 4

Cash flow Sales


18

Continued challenging markets near-term Still downward pressure on E&P spending High volatility from quarter to quarter

Positive long-term outlook

Oil companies have to increase exploration efforts to avoid falling production profiles

TGS is in a favourable position Quality library Strong balance sheet Flexible business model

Summary


19

Agenda

About TGS

Review of Q3 16

Market outlook

The TGS approach

Appendix


License Round Activity and TGS Positioning

20

Europe / Russia • Norway APA – Q1 2017 (block awards) • Norway 24th Round – Nov 2016 (nominations due) • UK 29th Round – 26 Oct 2016 (bids due) • Greenland – Dec 2016, 2017, 2018 (bids due)

Africa, Middle East, Asia Pacific • Ongoing uncertainty on timing of African

licensing rounds • Australia – Dec 2016, Feb & Mar 2017 (bids due) • New Zealand – Dec 2016 (awards expected) • Indonesia – Direct proposal (bids closed Aug

2016); Regular tender (bids due Nov 2016)

North & South America • Central GOM – Mar 2017 (5-Year Plan) • Central & Western GOM – Aug 2017 (2017-22 Plan) • Newfoundland & Labrador – Nov 2016 (Scheduled Land Tenure) • Nova Scotia – 27 Oct 2016 (3-Year Rolling Plan) • Canada Onshore – at least monthly • Brazil - 2H 2017 • Mexico – Round 1(L04) in Dec 2016, Round 2 announced for 2017,

2 more rounds proposed by 2019


21

Backlog

143 146 185

281

213 224

293

193 242

145 125 103

178

260

182

71

0

50

100

150

200

250

300

350

Q42012

Q12013

Q22013

Q32013

Q42013

Q12014

Q22014

Q32014

Q42014

Q12015

Q22015

Q32015

Q42015

Q12016

Q22016

Q32016

Historical Backlog (MUSD) 2012 - 2016

21


22

2016 Projects Schedule Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Akademik Lazarev

Aquila Explorer

Hawk Explorer

Osprey Explorer

Northern Explorer

Harrier Explorer

Fugro Multibeam

TDI Brooks Coring

Sanco Spirit

Atlantic Explorer

BGP Explorer

BGP Dong Fang Kan Tan 1

Artemis Atlantic P-Cable

Greenland

Mexico

2D &

Oth

er

EUR AMEAP

22

Mexico

Mexico

Mexico

Mexico

Mexico

Mexico

Ramform Sterling

WesternGeco Coil Crew

Canada JV

Mexico

22

Canada JV

Canada JV

Canada Crew Chickadee

Australia

Norway (Proprietary)

GOM

3D

Land

NSA

NWAAM


23

Q3 2016 Income Statement

23

USD million, except EPS Q3 2016 Q3 2015 Change in %Net revenues 113 169 -33%Cost of goods sold – proprietary and other 5 0.1 8222%

Amortization of multi-client library 70% 74 99 -25%

Gross margin 34 71 -52%Personnel costs 12 14 -19%

Other operating expenses 8 8 5%

Cost of stock options 0.2 0.1 94%

Depreciation 3 3 9%

Operating profit 10% 11 46 -76%Net financial items 2 -2 214%Profit before taxes 11% 13 44 -70%Taxes 11 4 220%

Net Income 2% 2 40 -96%EPS, Undiluted 0.02 0.40 -95%

EPS, Fully Diluted 0.02 0.39 -95%


24

Q3 2016 Cash Flow Statement

24

USD million Q3 2016 Q3 2015 Change in %Received payments from customers 110 145 -24%

Payments for operational expenses (25) (23) -7%

Paid taxes 6 (1) 552%

Operational cash flow 91 121 -24%Investments in tangible and intangible assets (2) (1) -63%

Investments in multi-client library (62) (72) 14%

Investments through mergers and acquisitions - (19) 100%

Interest received 0.7 1 -43%

Interest paid (0.03) (0.06) 53%

Dividend payments (17) (14) -19%

Proceeds from share issuances - 2 -100%

Change in cash balance 11 17 -36%


25

Balance Sheet

The Company holds no interest-bearing debt

USD million Q3 2016 Q2 2016 Change in % Q4 2015AssetsCash and cash equivalents 173 162 7% 163Other current assets 275 255 8% 308Total current assets 449 417 8% 471Intangible assets and deferred tax asset 88 92 -4% 90Other non-current assets 21 16 27% 25Multi-client library 816 823 -1% 839Fixed assets 23 26 -11% 30Total Assets 1,397 1,375 2% 1,455LiabilitiesCurrent liabilities 198 171 16% 218Non-current liabilities 7 4 59% 6Deferred tax liability 37 33 12% 33Total Liabilities 242 208 16% 257Equity 1,155 1,167 -1% 1,198Total Liabilities and Equity 1,397 1,375 2% 1,455

25


26

Dividend stable at USD 0.15 per share

Shareholder authorization to distribute quarterly dividend payments from Q1 2016 Aim to keep a stable quarterly dividend through the year Actual quarterly dividend level paid will be subject to continuous evaluation of market outlook,

cash flow expectations and balance sheet development

Q1 2016: USD 0.15 per share dividend paid on 23 February 2016 Q2 2016: USD 0.15 per share dividend paid on 1 June 2016 Q3 2016: USD 0.15 per share dividend paid on 25 August 2016 Q4 2016: USD 0.15 per share dividend to be paid on 18 November 2016 (shares will trade ex-dividend

on 4 November 2016)

26

4 NOK

5 NOK 6 NOK

8 NOK 8.5 NOK

8.5 NOK

USD 0.15 per 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

Q1

Q2 Q3

Q4

3.7% 3.6% 4.0% 3.9%

4.9% 5.2%

3.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2010 2011 2012 2013 2014 2015 2016*

Yiel

d (o

n da

y of

ann

ounc

emen

t)

Year of Payment

Dividend Paid* (2010 – 2016) Dividend Yield (2010 – 2016)

*2016 Dividend Yield annualized based on the weighted yield at the time of announcement of quarterly dividends

Thank you


Sven Børre Larsen Will Ashby Chief Financial Officer VP HR & Communication [email protected] [email protected]

mailto:[email protected]

mailto:[email protected]

Pareto Securities Morning Meeting - TGS Reports/Company...©2016 TGS-NOPEC Geophysical Company ASA....

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