Petroleum Geo-Services' (PGSVY) CEO Jon Erik Reinhardsen on Q2 2016 Results - Earnings Call Transcript

| About: Petroleum Geo-Services (PGSVY)

Petroleum Geo-Services ASA (OTCPK:PGSVY)

Q2 2016 Earnings Conference Call

July 21, 2016 03:00 AM ET

Executives

Bard Stenberg - IR

Jon Erik Reinhardsen - CEO

Gottfred Langseth - CFO

Analysts

Frederik Lunde - Carnegie Investment Bank

Rahul Bhat - JPMorgan

John Olaisen - ABG

Morten Nystrom - Nordea Markets

Presentation

Bard Stenberg

Good morning, and welcome to this presentation of PGS Q2 and the First Half 2016 Results. My name is Bard Stenberg, Vice President of Investor Relations and Corporate Communications.

We are running a conference call in parallel with this presentation. So, the participants on the conference call will also be invited to ask questions after management's concluding remarks. There will also be a conference call later today at 2:00 p.m. CET, 8:00 a.m. Eastern Time.

Before we start, I would like to give some practical information. As we are broadcasting this event, I kindly ask audience here in Oslo to use the microphone provided when asking questions. For the people in audience I would also like you to take notice of the emergency exits at the back of the room. If the alarm is sounded, please evacuate immediately. I would also like to draw your attention to the cautionary statement showing on the screen, also available in the earnings release and presentation made public today.

Today's presentation will be made by CEO, Jon Erik Reinhardsen and CFO, Gottfred Langseth. So with that, it’s my pleasure to give the floor to you, Jon Erik.

Jon Erik Reinhardsen

Thank you, Bard, and good morning. In this market we continue to stay focused on the factors we can influence, which is basically sales and operations, costs and cash flow discipline. And during this first half year we have very good progress on all these parameters which we will refer to in the presentation today. Our substantial cost reductions continue to deliver at or above the ambitions we have set which you have seen or will see in the report today. In this quarter in particular we have healthy multiplying sales, not the least considering the current market. Our financial performance in Q2 delivered us an EBITDA of 68.8 million, primarily driven by a MultiClient set of revenues over 93.2 million. Prefunding robust at 113% and we have a liquidity reserve of $429.7 million.

We see early signs of improved market sentiment which we will refer to later on in the presentation. We're on track to deliver at least the 90 million cash cost reduction that we now are aiming for in 2016. Our vessel performance continues to be very strong with a number of very positive feedbacks from the client base and finally as an introduction known to the market already we have amended our covenant ratio to our revolving credit facility to increase the headroom and this gives us an adequate precision with no maturities before late 2018.

It gives us time and strengthened ability to navigate through the cycle and we can act with this flexibility with how we see the markets develops in addressing these maturities. Moving to slide number four, what I would draw focus on is the two last quarters' when it comes to cash flow from operations versus EBITDA. We have a strong year-to-date cash flow notably above the EBITDA due to working capital improvements. Next order book trending up from a low interest quarter ’16 booking starts to build now for the coming week with 50% for Q4, 15% for Q1 and 10% now for Q2.

And with that I hand over to Gottfred Langseth for more detailed review of the financials.

Gottfred Langseth

Thank you. Good morning. I would start with some comments on the overall P&L statement. Revenues for the quarter were $183 million which represents market and capacity driven decline of 28% compared to Q2 of last year. EBITDA $68.8 million a reduction of 45% compared to Q2 last year. In addition, to the market and reduced capacity the EBITDA is also impacted by the fact that we have used significantly less of our capacity for MultiClient acquisition in Q2 this year compared to Q2 of last year.

The operating loss EBIT negative 44.6 million. We have had restructuring costs in the first half totaling $3.4 million primarily severance costs. In addition, for second quarter we had two other items negatively impacting the recorded EBIT number. We had increased for a debt [ph] to our provision for onerous complex of approximately 3 million in the quarter and we had a moderate impairment charge of 4.2 million related to some adjustments to our stacked vessels.

Moving to the next slide, Q2 operational highlights on MultiClient revenues of the 93.2 million prefunding 47.2 million and with a MultiClient cash investment of 41.8 million that represents a prefunding ratio of 113%. Late sales in the quarter $46 million. On the marine contract revenues we had a sequential increase of 18% revenues ended at 69.9 million continued low pricing in the contracts -- for the contracts work but would some positive impact in the quarter from starting the North European season prices are slightly better.

MultiClient revenues per region MultiClient revenues were highest in Europe and North America in the second quarter. That was the case both for our late sales revenue and our prefunding revenues. If you look at year-to-date it looks, though, from the graph here that we had a different regional mix in the first quarter and so year-to-date our revenues from MultiClient are distributed across our main library regions.

This next slide show the book value, as well as the sales progress for our MultiClient library by vintage, by year of completion. Total book value of the library is down for this quarter as well, book value of $686 million. We have a moderate book value for surveys completed in the period 2011 to 2015. Amortization rate was 67% in the quarter, but it’s relatively high. Primary reason for that is that revenues in absolute numbers were low in the quarter from MultiClient. We still expect full year amortization expense to be approximately $300 million.

Only a couple of comments to the next slide, key operational numbers. Imaging first, external imaging revenues sequentially relatively flat, slightly up around 18 -- posted 18 million in the quarter, lower than in the same period last year due to the general market. And secondly on the depreciation line you will see that that is slightly up sequentially and that relates in part low -- less of the depreciation capitalized to the library due to lower MultiClient vessel allocation. But also answering [ph] Ramform Tethys to operations during the second quarter.

Vessel utilization. Relatively low utilization in the quarter, 79% active time. The 19% steaming in the quarter was driven by moving five of our vessels to the North Sea for this summer season. We’ve used a relatively low portion of our vessels time for MultiClient so far this year, as you can see from the illustration. That applies to about Q1 and Q2, this will increase in the second half especially in the third quarter where we see more, significantly more allocation to MultiClient. For the full year, we expect 40% to 45% of our active time to be allocated to MultiClient.

Then cost, our gross cash cost is continuing to come down. We had the sequential decrease of cost from $175 million in Q1 to $158 million in Q2. So we’re quite satisfied with that. The Q2 reported cost benefited from somewhat reduced costs like steaming vessels. There’s longer [ph] utilization and, therefore, lower cost. And also lower project-related cost. We expect the total from gross cash cost to be higher in the second half than in the first half for this year due to more vessels in operations in the second half and also higher project related costs.

On the next slide the full year picture for gross cash cost, increasing effect to lot of cost reduction activities and we now expect our gross cash cost to get down to approximately 700 million or below. Cost clearly has top priority given the market conditions and there is potential for further cost reductions.

Cash flow and cash provided from operating activities in Q2, 42.4 million impacted -- negatively impacted by some reversal of the significant positive working capital change we saw in the first quarter primarily due to the phasing of revenues during the quarter and that again relating to MultiClient revenues which in part were concluded relatively late in the quarter.

The year-to-date cash flow as already commented from operation 175.8 million, it's quite strong, higher that the EBITDA for the same period and reflects a positive working capital development year-to-date. We had relatively high CapEx in Q2 that relates primarily to Ramform Hyperion including the fact that the vessel was floated or launched now in the second quarter. When evaluating the cash flow, it is important to note that our new build CapEx has been significant in the first half. It would be approximately 115 million less in the second half compared to the first half.

And the next slide illustrates the CapEx for our -- the two last of our new builds the Tethys and Hyperion. Tethys already delivered and the timing of these and with respect to 2016 full year we've already incurred and paid 140 million of the -- of the 165 million expected for the full year. So, we will see a more balanced cash flow in the second half of 2016. The remaining CapEx through the delivery of Ramform Hyperion, the last vessel is substantially covered by the export credit financing that we have available.

Balance sheet, adequate liquidity reserve, 429.7 million. We had a total leverage ratio end Q2 of 2.86 to be very precise and as you all are aware we amended the leverage ratio requirement in our revolving facility earlier this year in May. So, that the requirement is to be below 5.5 and that applies up to, but not including midyear next year and then there is a tapering off of that level beyond such date, which is shown in one of the slides.

The main part of, if you look at increase in net interest and that's the main part of that so for increase year-to-date and relates to the new build CapEx as explained.

Then my last slide, our debt and facilities structure, there is not a lot of changes on this overview compared to last quarter. We've not made any changes to our drawing from revolving facility and there are no material, no significant debt maturities until late 2018.

With that I will give the floor back to Jon Erik. Thank you.

Jon Erik Reinhardsen

Thank you, Gottfred. I am glad to reflect over one slide when it comes to our statements saying we see early signs of an improved market sentiments. Number one, and needless to say oil prices moved from high 20s to high 40s over a quarter and that changes the dialogue with the oil companies from being relatively confusing and not committing in the first quarter to now being very specific forward looking, planning in terms of what these companies will become as they develop further. Most of them are also coming out of their restructuring efforts there are new organizations in place and there are new people to talk to with mandate and with budgets.

Secondly, we see more specifically in the MultiClient business in terms of interest for data library which you have seen in the numbers in the second quarter and are still interesting dialogues for the third quarter. Even though, we have to expect that we are still in a trough cycle environment and we do expect both quarterly and regional near term variability. That is part of the nature of where we are in the cycle. Also in the contract market, it's still characterized by low pricing and since most of the work is booked for the year contract pricing will not have a big effect upwardly for the current year. But we do see much more predictability when it comes to customer's planning of service and contracting processes. In Q1 you could see cancelations for work that was out for bid. You could see projects never coming to fruition and not being approved by upper management, you see less of that now and much more predictable, stable processes around the work being awarded.

There is also in our customer dialog much more expression of what we could call pent-up client demand for these that has been pushed out in time for budget reasons and that eventually will have to come, it goes for the North Sea and Angola in particular, but also for other parts of the world. And we also see more of that some license commitments are necessarily acted upon immediately but pushed out, but of course since they are commitments to the governance they will have to be acted on within a certain timeframe. So we expect that to represent an upside as we move forward.

Also on the supply side now we see high vessel utilization, low industry vessel idle time reported in Q1 we expect this to be in Q2 from what we've seen so far clearly confirmed and we expect that to be the case also in Q3. And significantly above what we had in 2015 with quite a lot of idle time, which you can also see from our slide that Gottfred showed a minute ago on vessel utilization. There are other indicators as well here, if you look at our backlog number and divide it by the booked months, you see it’s a much higher value in the backlog than it has been going backwards.

And there are also indications of increased volume, which I will come back to. All of this combined with the customer dialog we continuously have, lead us to believe that in ’17, we will see a higher seismic activity level and higher spending than we see in ’16 or another words, it’s increasingly likely that ’16 is the trough year in this cycle, the way we interpret the market today. I spoke about the volume and the top graph on this slide, which is number 21 for those of you on the call.

We now expect the industry to acquire 320,000 to 340,000 square kilometers in ’16. That is up from our previous estimate that was about 300,000 square kilometers, about 10% in the mid of this range. And it is a volume that is higher in ’16 compared to pre-2010. So basically, when you look at the seismic industry, we do not have a volume problem on the demand side. There is a lot of work to be done. Not all of it is direct customer driven, some of it is MultiClient driven, but most of it has some pre-funding, some backing from clients. And then it will vary between the players in terms of how much risk is taken on the balance sheet when it comes to that MultiClient segment.

For us, you see we are running over 100% pre-funding and take low risk when it comes the volumes related to MultiClient. The challenge, we’ve had in this industry is the supply side, which I guess goes for most of the oil service segment in a downturn. Supply is significantly down from the peak, but now 45% versus 50% last quarter. And the reason supply is less down is that there are a couple of new vessel that’s come in, in the second quarter versus the first quarter. One of them is ours, the Ramform Tethys.

Now this new capacity has been absorbed by the market given that the volume also has increased. So there is a 10% in both camps here of change in the outlook compared to what we said in Q1, but of course the 5% on the capacity side was already indicated in the curve below, as we presented in the first quarter.

So moving to the bid activity. Needless to say, we are still at very low levels. As usual, I remind everybody that this curve is contract only and over the time period of this curve contract share of the total has move from 80% to probably 50%. So there is an underlying decline in volume for contracts and the other thing is that this curve is in dollars. And of course there is at least the factor of three between peak and trough pricing here in the contract market, so that deflates the curve as well.

But there’s one other interesting observation and currently there's a very-very small delta between the leads and the bids level. And we read that as short conversion time from lead to bid and that's what we see in reality today too. What's out there of leads indicators is very much substantial stuff that will be done and is done and is relatively quickly converted to bid and to action. And there's more of that now than before.

So, despite that it's low there are some signs of action that benefits the vessel markets now and we believe also going into the next couple of quarters. The seismic demand is primarily driven by license rounds, either data needed before or data committed to through a license round and the demand driver for that is really the government's action plans and not so much the E&P spending that you see on the oil companies, but of course E&P spending is what delivers the dollars.

But the oil companies will have make an assessment of whether they want to play in certain basin or not and if they want to play they want a block, they need seismic. And therefore there is some sort of demand driven by the government license rounds behind this. Production seismic is still a share of the market and there is some opportunistic spending. Looking into the next quarters most notably there's a decent volume of leads for Q4 and Q1 while it's rather soft when it comes to Asia Pacific and North and South America.

Activity is very much North Atlantic weighted at the moment as Gottfred mentioned we steamed five 3D vessels to the North Sea area. We have 2D vessels in Canada. We've just finished the job in Colombia with Ramform Atlas. And we have two vessels in Asia Pacific. The guidance cash cost at or below 700 which is down from 715 in the previous quarter. MultiClient cash investments approximately 225, I think it's 5 million down from the last quarter, still guiding 100% prefunding and 40%, 45% of active 3D capacity planned for MultiClient. And then CapEx of 225 million of which a large portion of this is already done in first half as Gottfred illustrated.

A couple of factors summing up around the guidance that are important to concede for second half one is less CapEx the other one is more MultiClient which normally drives more EBITDA relative to when you operate in the contract market. And in particular we expect in the third quarter as Gottfred said quite a significant increase in the share of activity allocated to MultiClient. And then in conclusion and finally we observed early signs of improved market sentiments and customer dialogue much more specific, targeted and with budget to support it.

We have an industry leading fleet and technology position that we play from. Healthy MultiClient performance in light of where the market is today. Substantial cost reductions, improving cash flow expected in 2016 -- second half 2016 due to the front loaded CapEx in the first half. And the financial covenants that we have now amended gives us flexibility with maturities late 2018 with time at our hands strengthened ability and we need opportunity to play with the market in terms of how we address the 2018 maturities.

And with that I hand over to Bard Stenberg to manage the question.

Bard Stenberg

Thank you, Jon Erik. I think we can start with questions from the audience here is Oslo if there are any.

Question-and-Answer Session

Q - Frederik Lunde

Just on the late sales [indiscernible] this quarter of various locations. If we look at the previous three years you had quite strong sales in Q2 in the North Sea and Europe. They're coming down in the third quarter. So can you shed some light on what you expect for the third quarter? Or was, this was the margin [indiscernible]?

Jon Erik Reinhardsen

Yeah, I think I will come back to what the comment I made earlier that we do have interest in dialogue on data sales for the third quarter already and it's early in the quarter. But as always it's hard to say where it ends. But I think the variability between the quarters has always been -- it's not a firm Q2, Q3 pattern and then also regional variability that can alter from year. So, it's hard to say but we think there is an opportunity for a decent MultiClient quarter also in Q3. And then when you have in mind also more capacity allocated and with the prefunding guidance this should be a good basis for a good quarter.

Frederik Lunde

And about the leverage ratio of 3.1 this quarter. And your [indiscernible] yearend you'll be facing tougher payment ratio [indiscernible]. How much does improvement in earnings have you [indiscernible] in that number? How much headroom do you see?

Gottfred Langseth

Yeah, I think you understand that we can’t comment specifically on that agreement that we've entered into the banks obviously, based on our projections of the future and we can't quantify how much headroom it gives because it would be same as giving our projection for quarter end [ph]. I think that is something that each and every investor and analyst will just have make their own stab on because we’re not guiding on our EBITDA number not even for the year or for the next year. Which is those two critical numbers. There's gross debt, which is the least sensitive, in a way, since the adjustment and then there's EBITDA which is highly dependent on how the market develops.

Unidentified Analyst

[indiscernible] from Dutch Bank and they are bringing [indiscernible] pushed into 2017 and you also have this new build scheduled for Q1, 2017 and what type of market you need to see in the next six months following that schedule that you currently have lined up

Jon Erik Reinhardsen

To rewind back to the statement when we engaged with Sanco on these two vessels, the plan was two rigs Sanco Sword showed and de-rig Ramform Vanguard. Since Ramform Vanguard was positioned in the North Sea and Sanco Sword was in Asia and the opportunities emerged in the North Sea, we opted to keep operating Vanguard and not rig Sanco Sword. So the net of those two is still zero. But it is just becoming a timing issue of when is the time to do the conversion, basically. And at the current we see that coming in 2017. So the net increase for us is the addition of Ramform Tethys and we will during the coming winter, during next year continue to assess the capacity we have up against the market.

So if we sense there is too much compared to what we can handle. We will just take out another vessel either for a short-term, period or cold stack it for a longer time. That’s part of playing the capacity we have, basically. But there’s nothing special around the Sanco Sword per se because it’s really one-to-one switch between Vanguard and Sanco Sword. Today we find this the right thing to do.

Unidentified Analyst

And if you look at the [indiscernible] which comes in Q1 ’17, what type of flexibility you have to push that delivery?

Jon Erik Reinhardsen

It’s come quite far in construction. So I think it’s unlikely there will be any sort of significant delays. Could be a couple of months or something like that. But in the plans today, we think Hyperion will come to be active in the North Sea market next year. But that’s what it’s based on whether it’s going to be in March or in May we don’t know.

Bard Stenberg

Any further questions from the audience.

Unidentified Analyst

You mentioned that in January there was confusion and now there is more predictability as a result of the oil price increase from the low January level. I do not expect that you have the answer to the breakeven price average for the North Sea or for the Norwegian Continental Shelf. But do you see a price level over which this confusion disappears and the stability appears?

Jon Erik Reinhardsen

I don’t think, there is one magic number in any region. Because I think the different fields have different figures. So I think as the oil price rises you will see a gradual increase in activity, and the higher the better basically. I don’t think there is one threshold saying now everything is on and if you go below everything is off. And I think that’s what you start to see playing out here in our segment as well. See when the oil price comes from high 20s to high 40s there is increase in take up and interest. And if it goes another 10 there will be further increase in take up. Because each reservoir lives its own life, its field has its own parameters and they will trigger on different data points.

But specifically to the North Sea activity, it’s interesting to see on that graphs where we show MultiClient revenues per region. And if you look that back over a longer period here Slide 9. The one region that has been pretty stable in revenues through this down cycle is actually the North Sea. So if you look at that one, there is not a lot of fluctuations in terms of interest for seismic data need for continuing to study the basin et cetera, et cetera. But of course you can see a lot of variability on other regions here. That’s what I have to that question.

Bard Stenberg

Okay if there is no further questions from the audience in Oslo we can go to the people on the conference call. Operator can you help us with the question from the people on the conference call.

Operator

Thank you. [Operator Instructions] We will now take our first telephone question, please go ahead. Your line is open.

Rahul Bhat

Hi, this is Rahul Bhat from JP Morgan. Good morning gentlemen, just a couple of questions. Firstly, if I could start with the contract market, how has the demand in the North Sea summer season been compared to last year? And on the contract market as a whole, why are you decreasing your allocation to MultiClient projects? If it is getting prefunded and you are making cash out of it, why contract pricing is so low?

Jon Erik Reinhardsen

To the first, I think the North Sea activity and pricing for that matter is not large, we talk about a very few number of contract surveys and we did same last year and most of it is for the production seismic related. I think pricing is probably slightly down from last year, but not to the same degree as pricing in general has been down in the contract markets globally.

When it comes to the prefunding and we don't do more of this prefunding is high, it's not given that if we increase the volume in the declines that we were able to keep the prefunding as high. So, this will always be a tradeoff of the risks we're prepared to undertake in the MultiClient segment versus the cash we can generate in the contract segment.

So, remember there are two factors we have to manage by here, the EBITDA can increase by switching some of the clients significantly. And that counts in the leverage ratio calculation, but live off the cash. And you can generate cash from contracts without the significant EBITDA contribution, but it might be better than MultiClient at low prefunding. So, we have to have to those two in mind all the time when we manage the company. We live off cash, we live off liquidity, but we will also satisfy the covenant ratio.

So, we try to have these two parameters in mind when we manage the fleet and the capacity, but in the end it boils down to where is the demand and I think there are statistics out there indicating that the global share of MultiClient this year will be lower than last year in capacity allocation which is interesting because it did a big leap upwards last year into higher share of MultiClient. We think statistically this year points to somewhat lower MultiClient volume acquisition wise for '16.

Rahul Bhat

Understood. And then if I could please touch on the covenants. This was just recently negotiated -- renegotiated, but I still think on my numbers 2017 looks a bit tight. Could you just probably shed some light on how amenable you think the banks would be to another renegotiation or would you need to probably do some other measures before you go back to the table and renegotiate these covenants?

Jon Erik Reinhardsen

I won't venture into predicting too much around future discussions. I would just reflect on the discussions we have had with the banks on two occasions over the last year or so and there been amendments concluded along with our plan and request and with strong support from the bankers. We have a supportive bank group and we think it is like that is will be the case also going forward.

Operator

We will now take our next question. Please go ahead your line is open.

John Olaisen

Good morning, gentlemen. This is John Olaisen from ABG Couple of questions if I start with the outlook comment or market activity rather, you said that you see some indications of pent up client demand due to oil companies having commitments related to licenses which they have -- where they have postponed seismic activity. And I just wonder, once that pent up demand turns out to be demand, do you think it's likely to be MultiClient or contract?

Jon Erik Reinhardsen

That's difficult to say, one example where we see that's not based on last year's license round is here in North Sea. Despite having decent numbers in the North Sea there are companies that has been awarded license, but it opted not to buy 3D immediately, but will eventually do that on the license rounds. And then in the North Sea it will predominantly be multiplying as we talked about.

But there are other parts of the world where this is more likely to be contract work to be acquired if you like. So there is a mix here that I don't have a good number four the other part of the pent up demand is for these where there is currently a significant number for these probably approaching 10 in Angola alone distributed over three, four operators that is planned to be done now the next two years that should have begun last year or earlier as an example. And there are project pushed out also in the North Sea these are normally small in squares decent in volume because they come with other requirements in terms of operations and good contributors on the dollar value.

John Olaisen

Alright, but historically we've also seen that MultiClient market has recovered [indiscernible] 12 months to 18 months the contract market has. Do you think that will be the same this around or do you think contracts could improve earlier this time in this cycle?

Jon Erik Reinhardsen

I think you have good insight John, as you usually have and we would agree with you in that assessment that most decline is likely to show -- to be the first leading indicator of how the markets improves and if we take now, us and TGS's indications for the second quarter we might be at the start of something here.

John Olaisen

When do you think it's realistic to see the first quarter with improved contract prices? I guess Q3 is already gone, Q4 and Q1 is the winter season where prices usually don’t recover, is Q2 next year realistic to see contract prices up or is it one year too early?

Jon Erik Reinhardsen

Right, that could well happen, that could well happen as we see today.

John Olaisen

You have any indications of demand in Q2. I guess, it's probably too early, but you have any indications for next summer at all?

Jon Erik Reinhardsen

Right, we do but as you see from the backlog it’s very limited. So, but it's too early to call I think in terms of this, but I would not all rule out the opportunity of being able to improve pricing a bit next year.

John Olaisen

And actually that where we have for the first half next year, is any of that contract or MultiClient?

Jon Erik Reinhardsen

It’s contract. Its one contract, basically, that extends to Q2.

John Olaisen

And has that got higher prices in it? Or is this current prices?

Jon Erik Reinhardsen

I think it’s on the margin up, but it’s not North Sea and it’s not significant.

John Olaisen

Can you tell us where that contract is please?

Jon Erik Reinhardsen

I think its Brazil, as far as I remember.

John Olaisen

It’s Brazil. All right, fine. And my final question is a detail on Q2. You say that late sales was strong and North America and Europe. When I comes to North America was that U.S. or Mexico or Canada I guess, where?

Jon Erik Reinhardsen

It was a mix of Canada and U.S. as far as I remember primarily.

John Olaisen

Could you give us an update on Mexico? Is interest picking up in Mexico as well or not?

Jon Erik Reinhardsen

I don’t have the details to be honest. We have this shared survey spectrum Schlumberger and us 2D, which is our investment. So give Rune a heads-up and then he can answer it on the spectrum call. I don’t have it.

Operator

We will now take our next question. Please go ahead. Your line is open.

Unidentified Analyst

This is [indiscernible] Bank. A couple of questions on CapEx and the costs. Gottfred stressed the fact that the CapEx will be lower in second half of 2017. Could you give some indications on what the maintenance CapEx will be in 2017?

Gottfred Langseth

I think that is too early, but I think in other hand, we have said repeatedly over a couple of years now that in a difficult market. Will you should be able to keep our maintenance CapEx down to sort of $50 million maybe [indiscernible] maybe a little bit above. So I don’t have anything more than that to provide.

Unidentified Analyst

Okay. With regards to prefunding, you’re still guiding 100% pre-funding ratio for 2016. But it looks like for both first quarter and second quarter this year pre-funding was well above 100%. So should we expect a very low prefunding ratio for second half this year?

Jon Erik Reinhardsen

Yes. In terms of what do you mean by very low, we aggregate, we have 119% year-to-date, we have lower investments in the first half than what implicitly we guided for the second half. And our guidance is on the full year, so if you in mechanically want to get to 100 and we slightly higher investment in the second quarter, somewhat lower prefunding. Anyway that’s our expectations and then the market will show a little bit whether we end up below or above that. So I’m not sure if substantially lower is correct.

Unidentified Analyst

Okay. And then finally for me on Slide 9 and you show the split for MC revenue and you highlighted that the MC revenue was the highest in Europe and sorry in Europe and North America. Could you indicate that the prefunding ratio for those regions?

Jon Erik Reinhardsen

I don't have that in my head actually.

Gottfred Langseth

But there is prefunding from both of them. Most of our prefunding revenues in the second quarter were from those two regions.

Operator

[Operator Instructions] We will now take our next question. Please go ahead, your line is open.

Morten Nystrom

Good morning this is Morten from Nordea. A lot of my questions have been answered, but I have some short questions. Could you give any update on the expected vessel utilization for Q3? I'm wondering whether or not you will move the vessels from North Sea into other regions.

Secondly, do you have any early indications of the working capital development in Q3? And I think also, last one, Jon Erik you mentioned these big 4D programs in West Africa. Could you say -- could you be somewhat more specific on the status on this? When do you expect the awards to get to any seismic contractor? Or when do you expect the companies to actually send out the tenders?

Gottfred Langseth

On vessel utilization, we said that we're going to use more of the capacity for MultiClient in Q3. I'm a little bit cautious of indicating in a way how much steaming time, because it is down to, in a way exactly when we end the season on the various vessels in the North Sea. Jon Erik, unless you want to?

Jon Erik Reinhardsen

I know the other part of the question is the vessels will likely stay in the North Sea area in towards the end of the quarter and then steam out with one exception which is Ramform Sterling which will move to Canada shortly and do one MultiClient 3D up in Canada. So that's sort of the vessel schedule in related to the North Sea. And the 4Ds as we understand it today the first of the 4D/production seismic works in Africa will might well be executed late Q4 early Q1 and onwards. That's how we read it as per today. They're not concluded yet in terms of awards or anything like that.

Morten Nystrom

The other second question was related to if you could give us any indications on the working capital development in Q3.

Gottfred Langseth

We've a positive working capital development year-to-date. There's a fair chance that will be the case when we get to end of Q3, a bit challenging period to guide forward on working capital. We'll fluctuate a bit by quarter-by-quarter but we've been relatively successful in keeping our DSO, Day Sales Outstanding pretty stable and it is our plan to continue to do so.

So actually the measurement of working capital is a bit depending on how much revenues you're able to generate in the quarter and I obviously hope for a lot of revenues in the September which we've increased our DSO and be negative on working capital, but substantially good. So, difficult to guide on that going forward but for the full year we don't expect a negative working capital change for this year.

Morten Nystrom

Okay. If I can have one follow-up question. If you go back to Q2, 2015 and look at your order book, your order book sequentially dropped in from Q2 to Q3 and another drop again in Q4. Given your comments on the market here, would you say it's fair to assume that your order book of 230 million at end of Q2 should be largely flat or actually increased in Q3 or Q4 is that too early to given the indications on? Thank you.

Jon Erik Reinhardsen

That is too early, but order book is one of the indicators that can give an early warning of market and recovery. So, but I can tell you now what it will be at the end of Q3.

Operator

We will now take our final question in the queue. Please go ahead. Your line is open.

Rahul Bhat

Hi this is Rahul from JP Morgan again. I just had a short follow-up question. On the contract market and since the last two quarters you've not been talking about margins, the last quarter, Gottfred said that it was at EBITDA breakeven level. So I just wanted to confirm if this quarter we had the same level or has it been up or down from that level?

Gottfred Langseth

It's probably about the same in the second and given that we're in the North Sea probably slightly better pricing in Q3 I would get as an indications.

Rahul Bhat

All right. Thank you. Cheers, guys.

Operator

There are no further questions in the phone queue at this time.

Bard Stenberg

Do we have any further questions from the audience here at Oslo?

Unidentified Analyst

Last time at the first quarter presentation you indicated that there was some kind of improvement as a result of the climbing up of the oil prices and we have been through fairly rough quarter, share price wise. What has happened since the end of the June is that we've seen somewhat sloppy oil price. It doesn't really well everybody thought that, okay, $50 [ph] was something we believe in the middle of the June and then we see a little [indiscernible]. Have you seen any, can you comment on the impression you have? You said slight improvement at this point last time what do you see now? Are people afraid that the oil price will drop again? Or it is actually down $4 since the end of June so?

Gottfred Langseth

What we picked up at a customer dialogue is not really about whether we are $4 up and down currently. I mean the projects we discuss now are part of the long term thinking. And I think the general expectation with the oil companies now is that oil price will trend upwards because a lot of divergence it is aware it will stabilize, but clearly expectation is at the higher level than it is today, but clearly high 40s is enough for many of them to start acting on their seismic ambitions and that sort of what we observed in our numbers here.

And I don’t think that will swing in and out over the week whether we are at 47 or 49 or 46 and 50, that's immaterial in the longer picture here. If we continue to trend up that's obviously nice, if there is shift downwards that could put on the breaks again. So but most people expect and plan as if this will continue to stabilize and potentially move upwards going forward that's how we read it, that is.

Unidentified Analyst

Okay. So there are players acting on high 40s on the Norwegian Continental Shelf?

Gottfred Langseth

Yeah it was about seismic definitely. You see that from the volumes here that we report.

Bard Stenberg

Any further questions? If not, that concludes the presentation on the Q2 and first half 2016 results. Thank you all for participating. I would also like to remind you of the conference call scheduled later today at 2.00 PM CET or 8.00 AM Eastern Time. So thank you and have a nice summer.

Operator

Thank you. That will conclude today’s conference call. Thank you for your participation ladies and gentlemen. You may now disconnect.