Revenue Breakdown
Net Late Sales of NOK 86,9 million increased 117% from Q2 1999 and accounted for 63% of Net Consolidated Revenues. Early Participant and other project related Revenues totaled NOK 48,7 million, funding 66% of the Company’s investment into the Multi-client Library during the second quarter. Proprietary Contract Revenues amounted to NOK 3,4 million.
Operational Costs
The high Late Sales resulted in an amortization charge associated with Net Multi-Client revenues as low as 24% of Net Revenues compared to the average rate of 31% for the full year of 1999. The corresponding amortization rate for Q2 1999 was 40%. This rate will fluctuate from quarter to quarter, depending on the sales mix of projects. Out of this quarter’s Late Sales a major portion came from surveys with low or fully amortized Book Value, thus triggering low or no amortization cost. Management expects the amortization rate to increase to stay between 30% and 40% of Net Revenues for 2000. The year-to-date amortization rate is 28% of Net Revenues compared to 30% for the first six months of 1999. Total operational costs payable for the quarter, including materials, were NOK 33,4 million compared to NOK 39,4 million in Q2 1999 primarily as a result of the stacking of the Odin Explorer in Q1 1999.
Profit
Operating Profit for the quarter was NOK 65,5 million, 47% of Net Revenues, a 178% increase over Q2 1999 (NOK 23,6). The Pre-tax Profit of NOK 63,5 million was 207% higher than the NOK 20,7 million reported in Q2 1999.
EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) for the three months ended June 30th , was NOK 103,0 million, 74% of Net Revenues compared to NOK 74,8 (66%) in Q2 1999.
Financial Items
The rate of exchange between the USD and the NOK changed from 8,47 on March 31st, 2000 to 8,56 on June 30th. In accordance with NGAAP, a non-cash exchange loss of NOK 1,9 million was recorded in the accounts regarding the USD 21,0 million loan per June 30th . In accordance with the payment schedule contracted with the bank, the Company paid the first installment on the loan on August 11th of USD 2,1 million.
Tax
During 1999, the Company earned profits largely in the USA with a 36% tax rate, while the Company’s Norwegian operations suffered a tax loss (tax rate 28%) due to write-downs of vessels. The Company estimates a tax rate for year 2000 of no more than 35%, as the Norwegian legal entity per June 30th was operating profitably again.
Net Income and Earnings per Share (EPS)
Net Income for Q2 2000 was NOK 41,3 million, NOK 1,70 per share undiluted, and NOK 1,62 per share fully diluted, 203% higher than reported in Q2 1999; NOK 13,6 mill and EPS NOK 0,57 per share.
Business Segments and Investments
TGS-NOPEC’s main business is developing, managing, conducting, and selling non-exclusive seismic surveys. This activity accounted for virtually all of the Company’s business during the first 6 months of 2000. Investments in the data library totaled NOK 74,0 million for the second quarter, 18% lower than in Q2 1999. Total investments in the Multi-Client Library during the first six months of 2000 were NOK 157,5, an increase of 17% compared to NOK 134,2 million for the same period in 1999. The Company expects to ramp up its Multi-Client investments during Q3 2000, commencing its own 3D survey in UK waters in addition to increasing its 3D financial exposure in the Gulf of Mexico. The Company recognized NOK 48,7 million in Early Participant revenues during the quarter. Total pre-funding recognized represents 66% of total investments in Q2 2000.
Balance Sheet
As of June 30, 2000, the Company’s total cash holdings amounted to NOK 230,5 million, up from NOK 118,2 million on December 31st, 1999. Total interest bearing debt increased from NOK 202,8 million per December 31st, 1999 to NOK 246,3 per March 31st, 2000 as a result of the opening of a new long-term loan facility in February and drawn overdrafts per June 30th, 2000.
The sale of the M/V Odin Explorer was consummated on August 2nd, 2000 at the sales price contracted in December 1999. The vessel is carried in the Balance Sheet per June 30th, 2000 at sales price.
Total Equity per June 30th, 2000 was NOK 656,8 million, 60% of Total Assets.
Operational Highlights
The Company added 37,000 kms of 2D and 1,600 square kms of 3D to its library of marketed surveys during the second quarter. The majority of this activity was concentrated in Brazil, Newfoundland, the Gulf of Mexico, Faroes/Shetland and Portugal. A total of eight different seismic vessels contributed to this effort.
Outlook
During the first six months of 2000, the Company has placed major emphasis on securing long-term volume purchase commitments from clients. These commitments will materialize into Late Sales or Pre-funding over the coming 18 to 24 months. Due to the variability of the Company’s equity share in the portfolio of Multi-Client projects that may be purchased with these volume commitments, it is not possible to fully predict their impact on the Profit and Loss Account of TGS-NOPEC. Per June 30th, Gross Sales Commitments totaled in excess of NOK 250,0 million. Based on the historical records, Management conservatively estimates that between 33% and 50% of this amount will remain with TGS-NOPEC as Net Revenue.
The Company plans to increase activity on new surveys and new added value products from the existing library during the third quarter. The Company continues to actively develop a number of 3D projects in several geographic areas. Acquisition of the Company’s first 100% owned 3D Multi-Client survey will commence in August, with data delivery to clients scheduled for December 2000.
While the seismic sector continues to strengthen, significant improvements in the market continue to lag the increased activity levels in other oilfield sectors. A number of major and large independent oil companies have publicly announced increased exploration and development spending plans for the remainder of 2000 as well as 2001. We expect a steadily growing share of this spending to flow into seismic purchases throughout the remainder of 2000 as our customers begin to rebuild their inventories of drillable prospects.
For full report including tables, follow the enclosed link.
