TGS Nopec Geophysical's (TGSNF) CEO Kristian Johansen On Q1 2016 Results - Earnings Call Transcript

| About: TGS Nopec (TGSNF)

TGS Nopec Geophysical Company (OTC:TGSNF) Q1 2016 Earnings Conference Call April 21, 2016 9:00 AM ET

Executives

Kristian Johansen – Chief Executive Officer

Sven Borre Larsen – Chief Financial Officer

Analysts

Daniel Ravik – Handelsbanken

Operator

Good day, ladies and gentlemen, and welcome to the TGS Q1 2016 Earnings Results Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Kristian Johansen. Please go ahead, sir.

Kristian Johansen

Hello everybody, and welcome to TGS First Quarter 2016 Conference Call. My name is Kristian Johansen, the CEO of TGS, and joining me today is our CFO, Sven Borre Larsen. Earlier today, we posted our first quarter earnings release and hosted a webcast from Oslo. We hope that you had the opportunity to view this mornings release and we will now just give you a brief summary of the main points before opening the call to your questions.

For the first quarter of 2016, TGS had total net revenues of $64 million compared to $172 million in Q1 of last year. Multi-client late sales of $38 million were down 47% from $72 million in the same quarter last year.

Pre-funding revenues were $23 million, funding 43% of our investments in multi-client products. Our multi-client investment totaled $53 million for the quarter which was down 68% from one year ago.

Operating profits for the quarter was a negative $21 million reflecting the new amortization policy for seismic surveys, which is based on straight-line amortizations rather than linked directly to revenues. This means that our amortization for the future could be considered as fixed costs, which implies that our EBIT will fluctuate more than historically. With low revenue this quarter, that obviously had a negative impact on our profitability.

On a positive note, our cash flow from operations remained strong at $145 million. At the multi-client investments, our free cash flow was $63 million driving the increase in TGS cash holdings to $210 million at the end of Q1. This is an addition to the undrawn $75 million revenue, our revolving credit facility that we entered into last year.

As I’ve stated in the earnings release this morning, this last quarter has arguably been the most severe of the current down cycle, and there are few tangible signs that a recovery is imminent. The latest analysis of E&P spending trends indicates a decline of 20% to 30% this year, and we expect the market for seismic data to remain weak throughout 2016.

Despite the challenging market, TGS was able to report positive free cash flow in the first quarter with highlights of strengths of our asset-light, focused multi-client business model. We will continue to maintain its tight control on costs combined with disciplined countercyclical investment strategy. Our balance sheet remains very strong with a high cash balance and no debt.

I am pleased to confirm that the quarterly dividend will be maintained at $0.15 per share in Q2 2016 subject to renewal of the board authorization at AGM on May 10. Finally, I would like to reiterate the 2016 guidance as follows. TGS expects multi-client investments of approximately $220 million for the full year and our multi-client investments are expected to be pre-funded between 45% and 50%.

At this time, we will open the call for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will take our first question today from Daniel Ravik from Handelsbanken. Please go ahead.

Daniel Ravik

Good afternoon, guys.

Kristian Johansen

Good afternoon.

Daniel Ravik

I was just wondering could you give some color as of how much of the multi-client investments in 2015 was related to onshore?

Kristian Johansen

Yes, we should all split up the investments in terms of onshore and marine, that I think you can tell from the schedule of investments from last year, you can see the onshore activity and you can calculate the number yourself, but usually we invest around 10% in our onshore compared to offshore, and I think that number wouldn’t be that very much from that.

Daniel Ravik

Okay. Thanks a lot. And my second question related to the pre-funding level for this year, whereas you have guided for 45% to 50%, for the full year, you are up 43% in Q1. Could you just elaborate a little bit on the drivers behind the increase in the rest of the year?

Kristian Johansen

Yes, as you can see it from vessel schedule we have the third season or the three season project in Greenland starting this summer which is we have not hidden the fact that this is a highly pre-funded survey. And also you can assume that we are being fairly strict in terms of pre-funding requirements and that any new projects that we would look at or sanction would have higher pre-funding than we normally would expect for similar kinds of projects.

Daniel Ravik

So for those investments that are not sort of committed yet you are expecting higher pre-funding levels?

Sven Borre Larsen

Yes, for like higher pre-funding level than we normally would have for similar projects in a more normalized market.

Daniel Ravik

Okay. Thank you.

Sven Borre Larsen

That’s it.

Operator

Thank you. There are no questions in the queue at the moment. [Operator Instructions] Okay there are no questions in the queue at this time.

Kristian Johansen

Okay, thank you for calling in today. We will continue to implement our strategy of disciplined multi-client investments with priority given to areas of low breakeven oil price, fast payback, and high client security.

We will focus on cost management and our organization will continue to be fast and flexible, reacting quickly to seize advantage. I’m convinced that TGF is uniquely positioned to manage through this tough market and ultimately enhance our position as a leading provider of high quality multi-client geoscience data.

So with that I would thank you very much and we will see you again at our Q2 earnings release. Thank you very much.

Operator

Thank you that will conclude today’s conference call. Thank you for your participation you may now disconnect.

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