TGS-NOPEC Geophysical Company ASA (TGSNF) CEO Kristian Johansen Hosts Acquisition of Spectrum ASA Conference (Transcript)

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About: TGS-NOPEC Geophysical Company ASA (TGSNF)
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TGS-NOPEC Geophysical Company ASA (NYSE:LBRT) Acquisition of Spectrum ASA Conference Call May 3, 2019 8:00 AM ET

Company Participants

Kristian Johansen - Chief Executive Officer

Rune Eng - Chief Executive Officer, Spectrum

Conference Call Participants

Chris Møllerløkken - Carnegie

John Delos Santos - UBS

Lillian Starke - Morgan Stanley

Tobias Eckbo - Clarksons Platou Securities

Glenn Lodden - Nordea

Christopher Møllerløkken - Carnegie

Mick Pickup - Barclays

Kristian Johansen

Thank you. Good afternoon and welcome to this joint press conference with TGS and Spectrum. My name is Kristian Johansen. I am the CEO of TGS. And with me today I have Rune Eng, the CEO of Spectrum.

Last night, it was announced that TGS has entered into an agreement to acquire Spectrum to create the leading provider of 2D and 3D seismic data. I guess most of you have read the press release including a detailed description of terms and structure already, so the main focus on this call will be on the strategic drivers and opportunities we see as a combined company. So we are going to split the call into two main sections. We will start with a presentation and then we open up for Q&A session afterwards.

First, let me just give you some initial comments on the deal. We are very excited about announcing this transaction, and this is a big day for TGS. We are impressed by the strong position Spectrum has built, and there is no doubt that an acquisition of Spectrum fits extremely well with our strategic priorities at TGS. We have been flirting with each other for many years, and we have tested our relationship through partnership projects, mainly Norway and Brazil. And now both parties are ready to commit to stronger and more binding relationships.

So with that, I will hand the floor over to Rune Eng, who will comment on the deal seen from Spectrum’s standpoint. Please go ahead, Rune.

Rune Eng

Thank you, Kristian, and good afternoon to everyone that is listening. We at Spectrum look forward to joining forces with TGS and believe that the strategic combination of TGS and Spectrum will form a stronger and better company with the world’s largest data library, people and opportunities. Over the past years, we have successfully executed our strategy on growing our position in non-mature basins and custom map data. Now that we are entering into the next phase of our growth plan, TGS with its committed multi-client strategy and a strong balance sheet is an excellent match. We are certain that together with TGS, we can continue our growth story and that the combination of the two companies will create a company with a unique position to deliver strong shareholder returns also in the future.

With that, I will leave the floor back to you, Kristian.

Kristian Johansen

Thank you for that, Rune. And as I mentioned initially, we have prepared a presentation that summarizes the transaction and explains the strategic drivers in more detail. So I trust that you all have the presentation in front of you. We’re going to go through a couple slides. We also distributed it together with the press release last night, and it can also be found at the TGS website, tgs.com.

So I will start on Page 4. So please flip through the first couple of slides and go to Slide 4, which summarizes the main strategic drivers. There is of course multiple drivers to this transaction and there was already a high level of excitement in our organization around the many benefits of combining the two companies. So specifically, I would highlight, number one, the combination of our companies fulfills our ambition to create the leading global multi-client geophysical data provider, with a significant footprint in all major mature and frontier basins. Secondly, having the largest 2D library, along with the financial robustness of TGS, would facilitate acceleration of 3D investment plans, which is the key for our future growth strategy.

Third, this transaction increases our multi-client footprint in South America with Brazil and Argentina being key areas for growth for both companies. Fourth, we believe the scale and key to accelerate TGS data and analytics strategy, for example, having more data to train our machine learning algorithms. As you know, the accuracy of any machine learning algorithm improves exponentially with the amount of data input, and I think we are in a unique position in terms of the massive amount of data that the new company has. And last but not least, this transaction will be accretive to earnings even before synergies are taken into consideration.

So moving to Slide 5, this describes the transaction. And I won’t cover this in any detail during the call as you will see in the detailed description the terms of the structure already. I would, however, just like to highlight that the merger plan will be conducted in the latter part of May. Shareholder approval from EGMS are expected in June with a 2/3 majority required to vote in favor of the transaction. Closing will then take place in Q3 of this year subject to all the regulatory approvals. And also keep in mind that the main principle of this merger plan have already been agreed on between the parties.

On Slide 6, I would like to return you back to the TGS Capital Markets Day that took place on February 7 this year. At this event, I presented the TGS strategic plan, which is focused on profitable growth and technology. With respect to profitable growth, I am very pleased with the progress made for organic investments in mature basins and the U.S. onshore. In the more frontiers South Atlantic region, we have five active projects ongoing, 2 in Africa and 3 in Brazil, one of which is in partnership with Spectrum. This transaction with Spectrum significantly accelerates our strategic growth objective in the South Atlantic region. And the transaction is also a great benefit to our data analytics initiative, which we will come back to shortly. So overall, I am pleased to demonstrate that TGS is delivering on the plan that we presented to shareholders back in February, possibly ahead of schedule.

I think Slide 7 is particularly interesting, and I would like to talk a little bit more about the growth plan. So historically, TGS business has been heavily focused on Northwest Europe and North America marine markets. These regions remain very important for TGS, and we’ll benefit from the application of new technology such as ocean bottom nodes. More recently, we made a very successful entry into the North America onshore or land business, and we plan to continue our growth strategy in this market. As you all remember, we started this business back in 2012 with the acquisition of a Canadian company called Arcis. The additional Spectrum data library and Spectrum employees with a proven track record in the South Atlantic region will bring this important growth region in line with our other core markets. This will mean that going forward you can expect a roughly even distribution of investment between these core revenue-generating hubs. We see significant growth opportunities in the South Atlantic, and I just point you towards recent projects for both TGS and Spectrum in these areas. Brazil, Argentina, MSGBC Basin in Northwest Africa and Gabon are great examples of successful projects that we highlighted on Slide 7 that really fits into our portfolio strategy.

And I think it’s important to talk about this portfolio strategy because this is very important in multi-client seismic. When we look at quarterly distribution of revenues, et cetera, they are very much dependent on where are the license are, whether you have time to receive, et cetera, et cetera. In terms of really stabilizing earnings over a longer period of time, we need to have a strong portfolio with a good database in these 4 different hubs that I pointed out. And I think with this transaction, we clearly demonstrate that we are probably the only company in the world with very strong presence in all the key areas of the world. So again, very, very excited about what we showed on Slide 7, and this really summarizes very well why we did this transaction.

Moving to Slide 8, I would like to highlight the importance of this transaction from data and analytics strategy. Yesterday, TGS hosted an artificial intelligence summit in Houston. We had great attendance from E&P companies who like us are eager to realize the potential value locked up in the huge volumes of data collected across the energy industry, the progression within machine learning and artificial intelligence have made the data the world’s most valuable resource. So in that regard, I would like to refer you to the quotes on this slide. I would just read the first one from Darryl Willis from Google. He said, one of the things we see at Google Cloud is that it’s not the company with the best algorithm that is going to win. It’s the company with the most data. This is obviously music to our ears. TGS is working across the value chain of data and analytics, and we see great potential to develop this further.

So I will just share two examples in that regard. First, we recently announced an agreement with a major international oil company to perform cloud-based data management services, leveraging TGS first-in-class data platform. Secondly, the team has developed a breakthrough machine learning algorithm for salt model building called [indiscernible]. The application of [indiscernible] will significantly reduce the imaging cycle time for complex salt basin. And we are using this on our ongoing output tempo 3D project. TGS is dedicated to build a modern, lightweight, web-based machine learning service to solve subsurface challenges using our vast data library, which is now getting even bigger. The combination of TGS and Spectrum library will help accelerate this initiative.

With regards to Slide 8 and I was referring to the artificial intelligence summit in Houston that again, this is something that both we and our clients are very excited about. And one of our big clients here in Houston told me yesterday that we are way ahead of the competition in terms of establishing data lakes and establishing and developing new products based on machine learning information. So we are very proud of what we have done, and obviously there will be more to come in this area.

If you move to Slide 9, it addresses the substantial synergies and scale benefits from this transaction. So our preliminary estimate of annual cash cost synergies is approximately $20 million and that’s OpEx and CapEx, a combination of the 2. We can expect to see consolidation in processing software and hardware as well as consolidation of offices and facilities in our key hubs. As in any such transactions, you can expect there to be some overlapping functions, in this case mainly in imaging and admin and support staff. The greatest synergy may actually be in-sourcing of Spectrum’s volumes of third-party processing. As you may know, a lot of Spectrum’s 3D processing is currently done by external parties, and that’s one of the low-hanging fruits we see in this regard is that we can in source that with pretty much an easier impact.

With respect to scale advantages, we expect to see the strengthening of our rapidly growing South Atlantic hubs, I talked about that today. We will be well positioned as the two exploration partners for Global E&P companies with a comprehensive database in all key markets. We will have the world’s largest 2D library, which brings consolidated project development and re-pricing opportunity. And we will have broader exposure to a more diversified client base in all regions and, as I previously mentioned, the scale to capitalize on the data and analytics trends.

If you turn to Slide 10, it clearly demonstrates that our robust balance sheet provides a platform for further growth and is an enabler for the next steps in developing Spectrum’s frontier portfolio. Obviously, this is very much a portfolio game as a I said, where risk and upside needs to be spread across a large number of projects across different regions. Our strong cash flow and robust balance sheet positions TGS to continuing investment growth, taking advantage of projects opportunities arising from both the TGS and Spectrum Project opportunity pipeline and project developers and systems developers. At the same time, we will continue to target increased shareholder distribution in the longer run.

If we go to Slide 11, I think that the growth outlook is further supported here which demonstrates that we are combining two companies with superior financial performance, in this case, we are showing high return on capital employed for both TGS and Spectrum compared to companies in the Philadelphia Oil Service Index. You can clearly see our two companies sitting at the top three of this index. We can expect that the combination of these two profitable entities combined with significant synergies will enable continued industry-leading shareholder returns. We remain committed to maintaining a fixed dividend. And as far as I mentioned, we are targeting increased shareholder distribution in the long run. For Spectrum shareholders, that means an increase in dividends of 74% through their ownership of TGS shares and further, they will obviously receive this on a quarterly basis as all other shareholders.

Continuing to Slide 12, we believe that the timing of this transaction is ideal as we move to grow forward in the recovering markets. Very positive year-to-date momentum in the oil price, which is currently significant involving the E&P company’s filing price. We expect the exploration spend to increase as deepwater activity picks up and as the E&P companies look to address their declining resource caused by continued low reserve replacement ratios. And last but not least, if you look at the cash flow and the cash flow improvements of some of the Supermajors, you see that it’s clearly higher than what it was in the previous cycle and it’s even higher than it really was in the previous peak cycle. So, all these indicators are positive in terms of expecting a better market going forward.

Slide 13 shows upcoming license rounds in our industry, which are typically key triggers for site re-sales. You can see that between TGS and Spectrum, we now have coverage in all important license rounds across the globe in 2019, which again, brings me back to the point mentioned on Slide 7. Multi-client seismic is a portfolio game. With this transaction, we strongly believe that we have the optimal portfolio in terms of huge exploration activities.

So, finally as a summary on Slide 14, the combination of TGS and Spectrum creates a leading provider of 2D and 3D seismic data. It gives us a significant footprint in all major mature top tier areas globally. This is a demonstration of TGS delivering on a strategy that we discussed at our Capital Markets Day, strengthening our proficiency in the South Atlantic and accelerating our own growing data and analytics initiative, transaction benefit from substantial synergies and scale, which we have returned. TGS, as you know, we have a very robust balance sheet; provides a platform for further growth for the combined companies; combination supports continued financial outperformance, as you see. And again, I’m now more excited than ever about the future of business opportunities. Looking at our exposure to our key basin, prior to licensing rounds, all supported by the best data library and the best people in the industry.

So, with that, I will hand the call back to the operator so that we can take your questions

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Sahar Islam from Goldman Sachs. Please go ahead your line is open.

Sahar Islam

Thank you for taking my questions. Two if I may start with, please. Firstly, on the cost savings, can you talk a bit about the cost to achieve this and then also just more generally the integration cost and time line of those? And then secondly, how do we think about how this deal changes your investment hand over the next couple of years? Does this bring forward some investment that you would have done organically? So, what is the multiclient investment we should expect over the next couple of years for the combined group versus the stand-alone entities, please?

Kristian Johansen

I’ll address those questions in the order of asking them. So, in terms of the cost savings, well, we talked about the synergies that we expect from the transaction. I said in the presentation that there are also low-hanging fruits there, and one of them would be to insource existing processing that Spectrum is doing with third parties. I mean, that’s obviously something we can do rather quickly. And then there are obviously synergies that will take longer to achieve. In terms of the cost of that, we haven’t really provided a figure of what it’s going to cost and we haven’t really been clear on what the timing is. And this is simply because with 2 public companies, with competitors, there is only a certain amount of information that we can share between us, a lot of the due diligence that’s obviously been done outside-in and based on public information, et cetera. What I see very confident about is the size of synergies, what I feel we’ll need to come back to the market with this, what does it cost what are you going to cost to realize the synergies. I think that the benchmark when you do a transaction like this in terms of the cost would typically be, it’s about half of the cost of 1 year’s synergy would be the cost of taking up a synergy, so realizing. We haven’t really again, we need more information before we can give you a precise estimate on that, probably slightly more open about this in our earnings call on the 9th of May. But again, this process that we will start immediately after the approval from EGMS and then we will shortly come back to the market with a more precise estimate.

In terms of the investment plans and what we expect for the future, well, I think what I’m really, really excited about is we get access to, obviously, a much bigger data library. We get access to the largest 2D library in the world, which Spectrum holds today. And as you know, having access to existing data is a great starting point for developing new projects. But not only that, we will also get access to a lot of good people, good people with a strong track record in certain regions of the world. And that really excites me because the more deal flow you have in terms of ideas and we’re going to evaluate it, the better it is. So, I won’t give you a number in terms of how this is going to look, whether 1 plus 1 is going to be 2 or whether it’s going to be 2.5. That’s too early to say. But what I am really excited about is that we’re going to got a bigger deal flow, and we’ve got to add competence to our teams in terms of business development and project development where Spectrum again has a very strong track record in certain areas of the world. And also, we have a very strong balance sheet in the combined company, which means that we certainly can do more than the companies can do independently. And that’s obviously excites both Rune and myself. I don’t know, Rune, if you want to make any comments or if you want to add anything to that?

Rune Eng

No, I think that was covering most of it.

Sahar Islam

Thank you.

Operator

Thank you, and our next question comes from Chris Møllerløkken of Carnegie. Please go ahead your line is open.

Chris Møllerløkken

Yes, good morning and good afternoon gentlemen and congratulations with the announced transaction. Can you talk a little bit talk about what led up this deal? You earlier said that the two companies had flirted for several years. And of course, this transaction was announced yesterday evening. But has there been a long process in terms of this agreement, etcetera?

Kristian Johansen

Yes. As I said initially, we’ve been attracted by each other for many years and have over time collaborated more extensively in certain areas. And Spectrum has quite a data library too, go a few years back. We ended up in a partnership in mainly corporate areas in the Bering Sea and Norway. And then more recently, we have established successful partnerships in Brazil as well. And through these partnerships, we have gotten to know each other better, respect the people and cultures. And now we’re seeing this is the right time to take our relationship to the next level. The discussions have been ongoing for about 15 years, I guess. The two companies have been attracted to each other, and we recognize the fact that we have a very similar business model and we have great respect for each other. So, in that sense, we talk to each other for very long time. As I said, I used the word flirting, but it’s actually true. We have discussed this on multiple occasions. And then I think in late, last fall last year, we started to discuss it further. And then throughout Q1, we have intensified the discussions and now is the best time to do it. And when you talk about timing, some people would say, why didn’t you do it a year ago? Why didn’t you wait another 3 months? I mean, there will always be, in hindsight, you can think back and look at the exchange rates and see look for more favorable exchange rates for both companies. But at the end of the day, it takes a willing buyer and a willing seller to do a deal. And we know that the point we ended up to and that we announced yesterday is exactly the point where both sellers and buyers feel comfortable about the deal. So, we feel very good about this. We feel that we reached a point where both parties are willing to sell, and that’s probably more important than the ultimate timing for both companies because if you wait for that optimal timing, you will never make a deal.

Chris Møllerløkken

And would you provide a split on the synergies between OpEx and CapEx? You said it’s both, but is it 50-50? Or is it mainly one part?

Kristian Johansen

We can’t do that now because we still don’t have enough information about what is capitalized and what is not capitalized with Spectrum. And we’re basing a lot of this on public information, so right now we can’t give you that split. But we will come back to the market as soon as we have more information on that. What we feel confident about is the $20 million number. And again, the split, it’s too early to start commenting on that.

Chris Møllerløkken

Final question, I know you can’t force people, but will there be any retention programs or anything similar to make sure that you don’t lose key employees in Spectrum after this transaction?

Kristian Johansen

You can never guarantee that people won’t leave TGS. But personally, I’ve been with a great company for almost 10 years and I can’t think of a better company to work for. So obviously, our challenge now is to make sure that the people from Spectrum feel welcome and they feel respected. And I don’t think I have anything to share because we have great respect for the company. The company has a lot of very, very strong competence, very strong people. So, we’re looking forward to this and we’re looking forward to welcome Spectrum people to TGS, and we think that it’s going to be a great home for the people.

Chris Møllerløkken

Thank you.

Operator

Thank you. And our next question comes from the line of John Delos Santos of UBS. Please go ahead your line is open.

John Delos Santos

Hi guys thanks. Two questions. First is on your growing data library and your data analytics strategy. Clearly as you mentioned, the scale is helpful and you gave a number of interesting examples. I was wondering, are there other milestones aside from just scale or any other milestones or catalyst that you’re working towards within the strategy to better monetize it? And what should we be looking for in the near to medium term? Second is I guess on the deal structure, I’m sure there are a lot of moving parts to this, but how did you think about acquiring the entire company versus just going for specific assets? I understand you guys have a great relationship leading up to this deal, but what was the corporate versus asset sort of consideration? And beyond that what were the considerations in terms of paying in cash versus stock?

Kristian Johansen

Okay. Let me start with the third question, cash versus stock. So, it wouldn’t be possible for us to do a cash deal here. I mean the owners of Spectrum, they insisted that they wanted shares and they wanted to continue to be exposed to the multiclient seismic markets. And so, a cash deal was pretty much out of the question. We ended up with a share deal very, very early in the negotiations. So, they want to be exposed to TGS, they want to be exposed to this industry. And they felt that this is not the time to exit for cash. So that was a relatively short and easy discussion. On the deal structure, whether we look at that specific assets or the company in itself, I mean, as I said, I mean this is not a data library transaction. This is a transaction where we see a great potential of combining two very, very strong organizations. We see a lot of competence in the Spectrum organization that we may not have today, which is good. And we also see that TGS has a lot of strength, particularly in certain geographic areas where Spectrum is not very strong. So, we felt that the combination of the companies rather than just specific assets will be more favorable for shareholders. Again, that was also a relatively we never even considered specific assets as part of that. In terms of your our strategy in terms of base analytics and growing our data library, there’s quite a few initiatives going on, and we talked about this at the Capital Markets Day. This is something that is obviously really, really exciting because when you look outside our industry and see what’s happened to all the data in the industry, they’ve completely changed over the past few years with the introduction of machine learning algorithms and really realizing what machines can do to big amounts of data.

So, we’ve been handling big data for many, many years. We haven’t really gone that far in terms of applying machine learning interpretation, machine learning algorithms and that kind of stuff. That is obviously rapidly changing right now. You see that from companies like Google and Amazon are going into oil and gas. And we think that we have a great advantage by having a big data library, bigger than anyone else. It’s a great advantage because at the end of the day, that accuracy of the machines, are really going to be dependent on how much data can you train your machines with. And having the largest database, we’ve actually got into huge assets. So, we will probably come back with more information about our data analytics strategy when we feel that we’re ready to announce something. But again, as I’ve said, we just announced a contract about a week ago where we announced where we signed a contract with a Supermajor to provide our cloud-based data lake to seismic data that the oil company has. There’s a lot of exciting stuff going on.

John Delos Santos

Alright thanks a lot.

Operator

Thank you. And our next question comes from the line of Lillian Starke of Morgan Stanley. Please go ahead. Your line is open.

Lillian Starke

Hi good afternoon gentlemen. My question is more on I mean with a more robust balance sheet as you’ve shown in your site. I was wondering how does that change TGS capital allocation? How do you think going forward in terms of using that balance sheet to continue further growing? Or is, there other avenues or the alternative of increasing the returns to shareholders?

Kristian Johansen

Yes, I think as I said previously, it really excites us that we get access to a large 2D data library and having a large 2D data library is a great starting point for developing new ideas and 3D projects. So, that’s obviously very positive. And with our robust balance sheet, we can really benefit from some of these opportunities and we can carry them out very successfully.

Secondly, we get access to more people. We get access to people with a proven track record in areas where we perhaps haven’t been particularly strong in the past, so that’s good. So, based on those 2 or the combination of the 2, we feel like there should be a great opportunity to allocate even more cash to new investments, new multi-client investments and organic growth. In addition to that, I mean, we will certainly – we are committed to maximizing shareholder returns. Our dividend policy is expected to remain unchanged. Share buybacks will potentially be considered as an additional way to distribute cash to shareholders. So, as you saw from the presentation, the cash balance is very strong more than $400 million. We have a lot of flexibility in terms of generating shareholder value through distribution to shareholders. So –

Lillian Starke

Okay. And then if I could have a follow-up question. In terms of where you’re seeing the most synergies on the revenue side in terms of the overlap of A grades that gives you certain bargaining power or a footprint that’s somehow unique, if you can just give a bit of detail on which ways are you – you’re saying you’ll be uniquely positioned given a much bigger acreage versus peers that could allow you to have a bit more pricing power than in the past?

Kristian Johansen

Yes, I mean, we believe that a larger multi-client library and a stronger workforce will provide us with a more complete offering to our customers. And I was actually presenting the deal to a group of clients at this AI Summit that we had in Houston last night and they were really, really excited, really, I’ve got a lot of positive comments from our clients in that regard. So, I think it will make TGS an even more attractive supplier to the E&P companies and Spectrum is the same thing. We don’t want to quantify any specific revenue synergies at this point other than just concluding that for our data analytics strategies, obviously, it’s key, having access to more data and scale is very, very important.

Lillian Starke

Okay, perfect. Thank you very much.

Kristian Johansen

Thank you.

Operator

Thank you. And our next question comes from the line of Tobias Eckbo. Please go ahead. Your line is open.

Tobias Eckbo

So, hey guys, first, congratulations on becoming an official couple. I just have one quick follow-up question on the synergies. So, question, you said you feel very confident in the size of the synergies. Does that mean you see additional upside to the $20 million estimate?

Kristian Johansen

No, I feel confident about the number that we published.

Tobias Eckbo

Okay, got it. Thanks.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Glenn Lodden of Nordea. Please go ahead. Your line is open.

Glenn Lodden

Thank you very much. Quick question on the exchange rate or exchange ratio rather of 0.28x. You mentioned on the back of Christopher’s question that this is basically where buyer and seller met. Is that the only basis for that exchange ratio or is there other, let’s say, technical considerations baked into that one as well?

Kristian Johansen

Now, I mean, the 0.28x, it was the level that both parties found attractive for their stakeholders. And I – obviously, we didn’t start discussing this based on the share price close yesterday, this was a discussion we started many months ago. And we knew at an early stage where we have to be and I think the other party knew how far TGS could stretch. And we felt like we stretched and they probably felt a bit of pain as well and that’s how it is with any deal. You’ve got to find that point where it hurts a little bit for both parties, but at the end of the day, we can shake hands and we’re both happy and we think we’re going to build a great world-class company. And that’s really the real important thing right now and that’s the beauty of a share deal. In fact, if shareholders and investors get exposure to the combined company that is going to be stronger than the 2 companies individually.

Glenn Lodden

Okay, thank you. And a quick follow-up, do you expect that you will unlock a lot of access to, let’s say, new clients that were not as present on the TGS radar screen before?

Kristian Johansen

I think it goes both ways. I think Spectrum has a strong position with certain clients, where we don’t have good presence and obviously the other way around. I mean, TGS due to its size probably have a slightly stronger position with a few Supermajors, Spectrum has a very strong position with some players who operate in countries where Spectrum is very strong. So, I mean this is one of the beauties with the deal is that together we’re stronger than each part individually.

Glenn Lodden

Okay, got it. Thank you very much and congratulations on the announcement.

Kristian Johansen

Thank you very much.

Operator

Thank you. And our next question is a follow-up from Christopher Møllerløkken of Carnegie. Please go ahead. Your line is open.

Chris Møllerløkken

Thank you. This is a question for both actually. And please correct me if I’m wrong, but in the past, it doesn’t seem like you have competed a lot on specific new multi-client projects. Would that be a fair assumption that you basically operated in 2 separate geographies or how would you view that and also of course in terms of any issues expected with competition authorities arising from this transaction?

Kristian Johansen

So, Rune, do you want to give it a shot, please?

Rune Eng

Yes, I can. So historically, Spectrum started back in 2011 by acquiring the CGG library. We have also had organic growth that’s been quite aggressive, where we have invested all operational growth or all operational cash into growth. And then in 2015, we bought the Fugro library. So, it’s been a quite aggressive building of library. I mean, it’s just – when we looked at it, our strategy was that TGS traditionally very strong in the U.S. government and also strong in the North Sea. So actually, when we were looking for growth, it was quite clear that for us to start to compete in the U.S. government would be madness.

So, we simply moved South and found Brazil as a core area where we could expand and that actually hit quite well over time that more than $300 million of our investments gone into Brazil and with historically minimal overlap with TGS. And it’s just recently over the last, I guess, 6 to 8 months, where TGS has also entered the arena in cooperation with Spectrum, so that fits quite well. And then in terms of Spectrum being strong in the Atlantic Margin, so it’s almost like if you look at it, the northern globe is covered by TGS and the southern part of the globe is covered by Spectrum. So, I do not anticipate that this will be a problem in terms of the competition clauses.

Kristian Johansen

Yes. And I would just like to add to that and I completely agree. I mean, the beauty of this deal is that we are very complementary and we don’t overlap much in terms of geographic investment. So, we share your view, Rune, we don’t think there’s going to be any issues with the competition authorities.

Chris Møllerløkken

Thank you.

Operator

Thank you. And our next question comes from the line of Grace Osborne from Barclays. Please go ahead. Your line is open.

Mick Pickup

Hi, it’s not Grace, it’s Mick here. Quick question if I may and excuse me for being cynical. But we’ve gone through a year, where WesternGeco decided has to go asset-light, CGG has decided to go asset-light and then you after a number of years decided to consummate your partnership. I’m just wondering, how much did the changing landscape affect the timing of this?

Kristian Johansen

Not really. I think this transaction was not shaken by the changing strategy on some of our competitors. I think more relevant is that you see a higher degree of consolidation in our client base and you see some degree of consolidation on the supplier base as well. So, that’s probably more important than what our peers are doing. We don’t really pay too much attention to that and I think the fact that more and more players are going asset-light, I think there are probably more positive things related to that than negative thing. So, we’re not concerned about that at all.

Mick Pickup

Okay, thank you, Kristian.

Kristian Johansen

Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions at this time, I’ll hand back to our speakers for the closing comments.

Kristian Johansen

Okay. With that I thank you very much for your attention today. As you understand, we are super excited about this transaction and it fits perfectly with our strategies. We are reporting our Q1 earnings release on Thursday next week on May 9th and Spectrum reports on the 10th. And then TGS will have a roadshow in Oslo, London, Toronto, Boston and New York following that. So, we’re looking forward to see you then and share our excitement about the deal. So again, thank you very much for your attention today. Thanks.